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In re Expert South Tulsa, LLC

United States Court of Appeals, Tenth Circuit

December 6, 2016

In re: EXPERT SOUTH TULSA, LLC, Debtor.
v.
CORNERSTONE CREEK PARTNERS, LLC, Defendant-Appellee. STEVEN R. REBEIN, Chapter 7 Trustee for Expert South Tulsa, LLC, Plaintiff - Appellant, and RE3 DEVELOPMENT, LLC, Intervenor Plaintiff - Appellant,

         Appeal from the Bankruptcy Appellate Panel (BAP No. KS-14-027)

         Submitted on the briefs:[*]

          Carl R. Clark, Lentz Clark Deines PA, Overland Park, Kansas, for Intervenor Plaintiff -Appellant.

          Jonathan A. Margolies, McDowell, Rice, Smith & Buchanan, PC, Kansas City, Missouri, for Plaintiff-Appellant.

          John Henry Rule, Sidney K. Swinson, Brandon C. Bickle, GableGotwals, Tulsa, Oklahoma, and John W. McClelland, Armstrong Teasdale, LLP, Kansas City, Missouri for Defendant-Appellee.

          Before HARTZ, BACHARACH, and McHUGH, Circuit Judges.

          HARTZ, Circuit Judge.

         Expert South Tulsa (Debtor), a debtor in bankruptcy, seeks to set aside as a fraudulent transfer its own sale of real estate that was encumbered by a mortgage far exceeding the sale price. It contends that it did not receive reasonably equivalent value in exchange for the property. Perhaps it now thinks it can sell the property at a much higher price. Or it may be trying to assist a related party that acquired the mortgage note after the sale. Regardless of its motive, we reject its claim. Because Debtor received reasonably equivalent value from the sale of the property, it cannot prevail under Oklahoma law or the fraudulent-transfer provision of the Bankruptcy Code. In particular, we reject its contention that it remained liable on the mortgage note after the sale and that the bankruptcy court therefore miscalculated the value it received.

         I. BACKGROUND

         Debtor is a limited liability company formed to purchase and develop property in Tulsa, Oklahoma. Part of its original funding was a $500, 000 loan from the E.H. Hawes Revocable Trust (the Hawes Trust), the original intervenor in this case.[1] The trust is for the benefit of Edwin "Trey" Hawes III (Hawes), the manager of Debtor, and his family.

         In 2007 Debtor purchased a property called Memorial Commons through a loan secured by a mortgage on the property. By February 2009 the loan was in default and a foreclosure action commenced that August. Debtor did not defend the foreclosure action, opting instead to find a buyer for the property. One deal fell through in late December. But in early January 2010, Cornerstone Creek Partners, LLC (Cornerstone), made an offer of $3 million. Debtor and Cornerstone agreed to a sale of the property, contingent on delivery of free and clear title.

         At the time of closing, Memorial Commons was encumbered by a $7, 754, 151.00 mortgage debt and other liens totaling $499, 740.29. To effect the closing, the mortgagee released the mortgage and dismissed the foreclosure action with prejudice, and several lienholders dismissed their claims against the property and Debtor. No judgment was entered. Less various fees and taxes, the purchase price was distributed as follows:

1. $1, 742, 170.16 to the ...

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