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Caudill Seed & Warehouse Co., Inc. v. Rose

United States District Court, S.D. Indiana, New Albany Division

November 4, 2016

CAUDILL SEED & WAREHOUSE CO., INC., Plaintiff,
v.
MARK D. ROSE, Defendant. MMR FARMS LLC, Interested Party.

          ENTRY ON DEFENDANT'S AND INTERESTED PARTY'S OBJECTIONS TO MAGISTRATE JUDGE'S ORDER ON MOTION TO AVOID FRAUDULENT CONVEYANCES

          TANYA WALTON PRATT, JUDGE

         This matter is before the Court on Defendant Mark D. Rose's (“Rose”), and Interested Party MMR Farms LLC's (“MMR Farms”)[1], Objections to Magistrate Judge's Recommended Disposition on Motion to Avoid Fraudulent Conveyances (the “Order”). (Filing No. 66.) Plaintiff Caudill Seed & Warehouse Co. (“Caudill Seed”), initiated proceedings supplemental, seeking to pursue property that Rose fraudulently conveyed to MMR Farms, in order to satisfy a post-bankruptcy judgment against Rose. (Filing No. 54.) On April 18, 2016, the Magistrate Judge entered an Order granting Caudill Seed's Motion to Avoid Fraudulent Conveyances. (Filing No. 60.) Rose and MMR Farms filed objections to the Order fourteen days later, on May 2, 2016, asserting that the Magistrate Judge erred. (Filing No. 65.) For the following reasons, the Court OVERRULES Rose's and MMR Farms' Objections and ADOPTS the Magistrate Judge's Report and Recommendation.

         I. BACKGROUND

         In 1996, Rose created Rose Seeding and Sodding, Inc. to conduct his farming business. (Filing No. 54 at 5.) Mark Matthew Rose (“Matt”), Rose's teenage son, began working for Rose during this time. Id. In late 2008, Rose purchased grass seed on credit for his farming operations from Caudill Seed. Id. at 4. Thereafter, Rose's business began to decline dramatically. Id. at 5. Rose defaulted on his payment terms with Caudill Seed, and in July 2009, Caudill Seed commenced litigation against Rose for breach of contract. Id.

         During the litigation proceedings, on October 19, 2009, Matt formed MMR Farms. Id. at 6. Rose and Matt collectively opened a bank account for MMR Farms with First Harrison Bank on November 25, 2009. Id. Both Rose and Matt are authorized signers on the account. Id. In 2010, as litigation with Caudill Seed continued, Rose transferred approximately 440 acres of real property to MMR Farms without consideration. Id. at 7. Caudill Seed obtained summary judgment on December 23, 2010, requiring Rose to pay Caudill Seed $152, 646.76, plus ongoing interest. (Filing No. 1 at 2.)

         On May 20, 2011, Rose filed Chapter 7 bankruptcy. (Filing No. 56 at 2.) Thereafter, on September 8, 2011, Caudill Seed initiated adversary proceedings in Rose's bankruptcy case, asserting that Rose should be denied a discharge under § 727(a)(2) because Rose transferred property to insiders within a year of filing bankruptcy in order to hinder, delay, or defraud creditors. (Filing No. 56-1 at 4.) On December 28, 2012, the Trustee filed a Motion to Compromise and Settle certain claims the bankruptcy estate had against Rose, Matt, and MMR Farms, among others. (Filing No. 56-5.) The Trustee agreed to dismiss claims asserted by the Trustee against Rose, Matt and MMR Farms if they paid $100, 000.00 to the Trustee. Id. at 2-3. On January 16, 2013, Caudill Seed objected to the Trustee's motion, asserting that the Trustee's proposed compromise and settlement was not in the best interest of the unsecured creditors and Rose should not obtain a discharge. (Filing No. 56-6.) On February 4, 2013, the Bankruptcy Court granted the Trustee's proposed settlement. (Filing No. 56-8.)

         Thereafter, on April 18 and April 19, 2013, the Bankruptcy Court conducted a trial on Caudill Seed's adversary proceedings against Rose. (Filing No. 1 at 2; Filing No. 56-10.) On February 27, 2014, the Bankruptcy Court entered judgment denying discharge pursuant to § 727(a)(2) because Rose failed to rebut the presumption of fraudulent intent in his transferring of property to MMR Farms and other entities for no consideration, prior to the bankruptcy filing. Id. On May 27, 2014, the Bankruptcy Court then conducted a settlement conference resulting in Rose and Caudill Seed entering into a Reaffirmation Agreement. (Filing No. 1 at 2-3.) The Reaffirmation Agreement specified that Rose agreed to pay Caudill Seed a total of $100, 000.00 but, if Rose defaulted on the scheduled payments, Caudill Seed was entitled to judgment against Rose in the sum of $300, 000.00 minus any previously tendered payments. (Filing No. 1-1 at 7.) The Reaffirmation Agreement was filed with the Bankruptcy Court on June 5, 2014. (Filing No. 1-1.) On June 20, 2014, the Bankruptcy Court vacated its prior judgment denying discharge and entered an order granting Rose's discharge. (Filing No. 56-11.) On June 30, 2014, Rose delivered the initial installment of $15, 000.00 to Caudill Seed, as required by the Reaffirmation Agreement, but has since refused to pay any additional sums. (Filing No. 1 at 3.)

         On January 9, 2015, Caudill Seed filed the underlying action against Rose, asserting default on the Reaffirmation Agreement. (Filing No. 1.) On June 26, 2015, this Court entered default judgment against Rose, holding that Rose owed Caudill Seed $285, 000.00 plus 3.5% annual interest beginning November 30, 2014. (Filing No. 19.) Rose failed to tender any payment to Caudill Seed, and on January 4, 2016, Caudill Seed filed a Complaint seeking to avoid the fraudulent conveyances Rose made to MMR Farms and other entities. (Filing No. 54.) On February 5, 2016, Rose and MMR Farms filed a joint response, asserting only issue preclusion and that Caudill Seed lacks standing. (Filing No. 56.)

         On April 18, 2016, the Magistrate Judge entered an Order granting Caudill Seed's Motion to Avoid Fraudulent Conveyances, holding that the doctrine of issue preclusion does not apply and Caudill Seed may properly enforce a post-bankruptcy judgment. (Filing No. 60.) Rose now appeals the Magistrate Judge's decision. (Filing No. 66.)

         II. LEGAL STANDARD

         “A district court may assign dispositive motions to a magistrate judge, in which case the magistrate judge may submit to the district judge only a report and recommended disposition, including any proposed findings of fact.” Schur v. L.A. Weight Loss Ctrs., Inc., 577 F.3d 752, 760 (7th Cir. 2009) (citing 28 U.S.C. § 636(b)(1)(B); Fed.R.Civ.P. 72(b)). “The magistrate judge's recommendation on a dispositive matter is not a final order, and the district judge makes the ultimate decision to adopt, reject, or modify it.” Schur, 577 F.3d at 760 (citing 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 72(b)(3)). After a magistrate judge makes a report and recommendation, either party may object within fourteen days. 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 72(b)(2). “A judge of the court shall make a de novo determination of those portions of the report or specified proposed findings or recommendations to which objection is made” with respect to dispositive motions. 28 U.S.C. § 636(b)(1). Further, a judge “may accept, reject, or modify, in whole or in part, the findings or recommendations made by the magistrate judge.” Id.

         III. DISCUSSION

         Rose and MMR Farms object to the Order on several grounds. They rely on Matter of Leonard, 125 F.3d 543, 544 (7th Cir. 1997), when asserting that Caudill Seed lacks standing and objecting to the Magistrate Judge's finding that Caudill Seed has standing to bring a fraudulent conveyance claim without permission from the Bankruptcy Court. Rose and MMR Farms further contend that the Magistrate Judge erred in concluding that the doctrine of issue preclusion does not apply. They also assert, and Caudill Seed does not dispute, that the Order is dispositive and should be characterized as a report and recommendation subject to a de novo review. The Court agrees with the final assertion and reviews the Order de novo. See Fed. R. Civ. P. 72(b).

         A. ...


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