In Re: Mary Jo Hixon, Debtor. Fred Charles Moon, Chapter 7 Trustee v. Mark R. Anderson, Mary Jo Hixon

Citations: 387 F.3d 695; 2004 U.S. App. LEXIS 22682; 2004 WL 2434904Docket: 03-3059

Court: Court of Appeals for the Eighth Circuit; November 2, 2004; Federal Appellate Court

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Mark R. Anderson appeals a ruling from the Bankruptcy Appellate Panel affirming the bankruptcy court's decision that the Chapter 7 trustee could avoid a purchase of annuities by Mary Jo Hixon, made in Anderson's name prior to her bankruptcy filing, as a fraudulent transfer. Anderson, the legal nephew of Hixon, faced multiple liens against his assets after being incarcerated for federal drug charges. He engaged Attorney Larry Bratvold to create the Mark R. Anderson Trust, allowing Hixon to manage his business affairs during his imprisonment. This trust included two properties in Springfield, Missouri, and permitted both Anderson and Hixon to act independently as co-trustees.

In 1997, Hixon and Bratvold established the Mary Jo Hixon Revocable Trust, designed to separate certain properties from the Anderson Trust and provide Hixon with lifetime benefits, including the right to amend the trust. Although the Hixon Trust was described as benefiting Anderson and his descendants, it effectively made Hixon the sole decision-maker and beneficiary during her lifetime. The creation of the Hixon Trust was motivated by concerns about potential judgment liens that could affect the Boonville Property, which Anderson's former spouse had previously sought to levy against in relation to child support arrears.

Hixon, as co-trustee of the Anderson Trust, transferred the Boonville Property to the Hixon Trust on April 21, 1997, followed by Anderson's transfer of the Lombard Property into the Hixon Trust on May 27, 1997. Anderson acknowledged at trial his awareness and approval of the Boonville Property transfer, expressing indifference regarding the property's ownership as long as he and his descendants received its proceeds. Hixon later claimed ownership of the real estate in the Hixon Trust on a credit application and used the Trust's funds for personal expenses, while checks for Anderson's expenses continued to be issued from the Anderson Trust.

The Boonville Property was sold to Dan and Theresa Hicks on December 14, 1998, with Hixon acting as the sole grantor. Hixon subsequently claimed the promissory note from this sale as a personal asset. After the Hicks refinanced their debt in 2001, paying off the note, Hixon purchased four $10,000 annuities, naming Anderson as owner and herself as annuitant, despite being insolvent at the time and receiving no consideration for the purchase.

Hixon filed for Chapter 7 Bankruptcy on November 29, 2001, leading to the appointment of Fred C. Moon as trustee. The Trustee initiated an adversary proceeding to avoid the annuities purchase as a fraudulent conveyance under 11 U.S.C. 548. The bankruptcy court ruled that the Boonville Property, the promissory note, and its proceeds constituted Hixon's property. It determined that the annuities purchase was a fraudulent conveyance due to Hixon's insolvency and lack of equivalent value exchanged, resulting in a judgment against Anderson for $40,000. Anderson’s motion for a new trial was denied, and the bankruptcy appellate panel affirmed the judgment. The Trustee maintains that the bankruptcy court rightfully found the promissory note and its proceeds were Hixon's property, allowing the avoidance of the annuities purchase, while Anderson disputes Hixon's ownership of the property.

The bankruptcy court correctly determined that the Boonville Property was transferred to Hixon's property upon its placement into the Hixon Trust, with no clear error in its interpretation of the evidence. Despite potential differing interpretations, a chosen interpretation is upheld if it is not clearly erroneous, especially when assessing witness credibility without contradictory evidence. The evidence supports the finding that Hixon, while insolvent, transferred property interest shortly before her bankruptcy without receiving equivalent value, allowing the Trustee to treat the transfer as a fraudulent conveyance under 11 U.S.C. § 548(a).

Anderson claims Hixon breached her fiduciary duty by transferring the Boonville Property to the Hixon Trust and seeks equitable relief through a constructive or resulting trust on the sale proceeds. Since these matters relate to the nature of Anderson's interest, they are governed by Missouri state law. Anderson's claims were not included in his initial answer but were introduced in a post-hearing motion, likely rendering them waived as affirmative defenses under the applicable rules.

Even if not waived, Anderson's claims lack merit. He contends that Hixon's transfer breached her fiduciary duty, but as co-trustee of the Anderson Trust, Hixon acted within her authorized powers when transferring the Boonville Property. Any assessment of her actions must be based on the Anderson Trust's terms and Missouri trust law, rather than Missouri's durable power of attorney rules. Hixon's actions were permissible under her trustee role, and while Missouri law requires prudent investment, trustee decisions are evaluated in context.

Anderson was aware of and condoned Hixon's transfer of the Boonville Property, subsequently transferring more of his own property into the Hixon Trust to protect the Boonville Property, which satisfied the prudent investor standard. The Hixon Trust's provision for Anderson and his descendants as residuary beneficiaries indicates that the conveyance was in the best interests of the Anderson Trust's beneficiaries. Anderson sought equitable relief via a resulting or constructive trust on the sale proceeds of the Boonville Property. However, Missouri courts have ruled that a resulting trust is inapplicable when an express trust exists. Constructive trusts are imposed in scenarios of wrongful deprivation due to fraud or breach of confidence. In this case, no constructive fraud was established as Hixon did not breach any fiduciary duty to Anderson or the original beneficiaries. To prove actual fraud and impose a constructive trust, Missouri law requires clear, cogent, and convincing evidence. The evidence indicated that Anderson willingly transferred control of his trust assets to Hixon, allowing her to transfer the Boonville Property to her trust to protect it from potential creditors. Consequently, the judgment was affirmed, with the court also upholding the bankruptcy court's denial of Anderson's post-hearing motion for a new trial or to alter the judgment, as it did not constitute a reversible error under the applicable standard.