Kaler v. Slominski (In re Keeley & Grabanski Land Partnership), 531 B.R. 771

Background

Debtor Keeley and Grabanski Land Partnership executed a written farm lease dated December 1, 2010 (allegedly backdated) leasing Texas farmland to Louis Slominski; Trustee alleged the lease was postpetition/backdated and charged below fair market rent.
Bankruptcy Court found the written lease was prepetition but the rent was below fair market value, avoided the lease as a fraudulent transfer under § 548, and terminated it.
The Court awarded the Trustee fair-market rent for the period Slominski occupied the land (2011 and prorated 2012), credited amounts Slominski had paid, and then considered Slominski’s claimed offsets under § 550(e) for improvements (wheat crops and taxes).
Bankruptcy Court found Slominski was a good-faith transferee, valued improvements (planting costs and taxes) at $578,577.95, offset that against the rent owed, and entered a judgment in Slominski’s favor.
Trustee sought a new trial based on newly-discovered evidence suggesting the lease was created in April 2011 (postpetition). The Bankruptcy Court denied relief; parties appealed the money judgment and the denial of a new trial.

Issues

Issue	Trustee's Argument	Slominski's Argument	Held
Remedy under 11 U.S.C. § 550(a): what recovery is appropriate for an avoided lease?	Trustee argued estate is entitled to fair-market rent/value for time Slominski occupied the land to restore estate position.	Slominski argued awarding rent plus the returned lease/sale produced a double recovery because estate already regained value when it repossessed and sold the land.	Court affirmed: trustee entitled to fair-market rent for period of possession; no double recovery because leasehold value for the occupied period was unrecoverable and awarding rent restored estate.
Offset under 11 U.S.C. § 550(e): whether Slominski may deduct costs of improvements (wheat planting, taxes) from the trustee’s recovery	Trustee argued § 550(e) permits setoff only to extent improvements increased property value; if no proven increase, setoff should be zero.	Slominski contended he proved improvement costs and/or owned the crops under Texas law and thus entitled to their value or to an offset.	Court reversed in part: Bankruptcy Court erred awarding costs when Slominski failed to prove increased value under § 550(e)(1)(B); but Slominski entitled to wheat proceeds ($442,218.09) and tax payment offset ($14,879.95), yielding a setoff of $457,098.04.
Ownership of crops and characterization as improvements	Trustee argued crops were estate property if lease avoidable and thus proceeds should go to estate.	Slominski argued growing annual crops are personalty under Texas law (emblements), so he owned the wheat he planted while lawfully in possession.	Court held wheat proceeds belong to Slominski (either as personalty/emblements or equitable protection to avoid estate windfall) and allowed proceeds as offset.
Motion for new trial / relief based on newly-discovered evidence about lease date	Trustee argued new computer and doc evidence shows lease was created in April 2011 (postpetition), making it void/subject to § 549 and undermining good-faith finding, so a new trial would change result.	Slominski maintained he signed December 1, 2010; Court credibility findings should control.	Court affirmed denial of new trial: newly-discovered evidence would not likely produce a different result; credibility findings that Slominski acted in good faith were not clearly erroneous.

Key Cases Cited

Decker v. Tramiel (In re JTS Corp.), 617 F.3d 1102 (9th Cir.) (purpose of §§ 548 and 550 is to restore estate to position it would have been in absent the transfer)
Butner v. United States, 440 U.S. 48 (U.S. 1979) (property interests are defined by state law)
U.S. v. Metropolitan St. Louis Sewer Dist., 440 F.3d 930 (8th Cir.) (standards for relief based on newly-discovered evidence)
Greyhound Lines, Inc. v. Wade, 485 F.3d 1032 (8th Cir.) (standards for Rule 59/60 review and abuse of discretion)