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In re Hloros

United States District Court, E.D. Michigan, Southern Division

November 30, 2017

IN RE DEMETRIOS HLOROS and ELIZABETH HLOROS, Debtors,
v.
NICHOLSON MINARDI, Appellee. KENNETH NATHAN, TRUSTEE, Appellant,

          ORDER DENYING AND DISMISSING APPEAL

          HON. DENISE PAGE HOOD, Judge

         I. INTRODUCTION

         On June 12, 2017, the Bankruptcy Court entered a final order in an adversary proceeding, specifically an Order granting Defendant Nicholson Minardi's (“Minardi”) Motion for Summary Judgment and denying Appellant Kenneth Nathan, Trustee's Motion for Summary Judgment. Appellant filed a timely appeal, and the matter has been fully briefed. A hearing on Appellant's appeal was held on November 15, 2017. For the reasons that follow, the Court should deny and dismiss Appellant's appeal.

         II. BACKGROUND

         On or about July 11, 2014, Debtor Elizabeth Hloros entered into a lease with Minardi (the “Lease”), pursuant to which she leased from him for twelve months the residential property at 9298 Meisner, Casco Township, MI 48064 (“Property”). Paragraph 3 of the Lease stated, in part, “All buildings, additions and improvements of every kind that shall be placed or made on said premises, shall become a part of the premises and remain thereon at the termination of this lease.” After taking possession and prior to the Petition Date, Debtor Demetrios Hloros (Elizabeth Hloros' husband) spent $76, 850.00 to construct a 40x60-foot pole barn (the “Barn”) on the Property. Minardi did not pay for the Barn or give any other consideration for the Barn's construction on the Property. Pursuant to the terms of the Lease, it is undisputed that: (1) the Lease terminated on or about July 31, 2015; and (2) Minardi - not the Hloros - owned the Barn after the Lease terminated. Notwithstanding the termination of the Lease, the Hloros continued to reside at the Property up to and through October 28, 2015, the date they filed a voluntary petition under Chapter 7 of the United States Bankruptcy Code (the “Petition Date”).

         Appellant filed an adversary proceeding seeking to avoid the transfer of the Barn to Minardi as a constructively fraudulent transfer pursuant to 11 U.S.C. § 548(a)(1)(B). Section 548(a)(1)(B) requires that Appellant must satisfy the following elements to avoid a transfer:

(i) the Hloros transferred an interest in property to Minardi;
(ii) within two years before the date of the Hloros' bankruptcy petition;
(iii) the Hloros received less than reasonably equivalent value in exchange for the transfer; and
(iv) the Hloros were insolvent when the transfer was made, or were rendered insolvent as a result of the transfer.

         Following discovery, Appellant and Minardi filed cross-motions for summary judgment. The timing of the Barn becoming property of Minardi and the solvency of the Hloros (elements ii and iv above) were not challenged by Minardi.

         The Bankruptcy Court held a hearing on the cross-motions and requested additional briefing. On June 1, 2017, the Bankruptcy Court issued a bench opinion granting Minardi's motion and denying Appellant's motion. In that bench opinion, the Bankruptcy Court determined that:

(1) based on the language in the Lease and Michigan case law regarding such language, the Barn became property of Minardi upon termination of the Lease, as opposed to upon installation;
(2) because the transfer of the Barn and the Lease termination occurred at the same time, they “merged” into ...

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