Case Summaries — the March 2016 Bankruptcy Court Opinions

The following are summaries of the March 2016 opinions posted on the Massachusetts Bankruptcy Court’s website.

 

In re Willie D. Brown, Ch. 13 Case No. 14-12357-JNF and In re James W. Tosi, Ch. 13 Case No. 13-14017-FJB 

Four bankruptcy judges in the District of Massachusetts have split (2-2) over whether a Chapter 13 plan can vest the Debtor’s real property in a mortgagee over that mortgagee’s objection. At issue is the relationship between § 1322(b)(9), which provides that a plan may vest property of the estate in another entity and § 1325(a)(5), which requires that a plan either be accepted by the secured creditor, “cram down” the secured creditor, or surrender the property to the secured creditor.  In Brown, Judge Feeney joined Judge Hoffman (In re Sagendorph, 2015 WL 3867955) in finding that a plan vesting property in a mortgagee can be confirmed over that mortgagee’s objection.  In Tosi, Judge Bailey joined Judge Boroff (In re Weller, 2016 WL 164645) in finding that vesting property in the mortgagee does not constitute a surrender of that property under 1325(a)(5) and therefore a vesting plan cannot be confirmed over that secured creditor’s objection.  These issues are currently on appeal, and one argument worth watching may be whether vesting property in a mortgagee under 1322(b)(9) can satisfy the “cram-down” provision of 1325(a)(5).

 

In re Greco, Case No 15-12232-JNF (March 3, 2016)

The court sustained the Chapter 7 trustee’s objection to the debtor’s claimed exemption in a stream of payments stemming from a marital property settlement. The debtor was entitled to $300 per month under a judgment entered by the probate and family court that stated that the amount to be paid was on account of and in lieu of any rights the debtor would have had in the former spouse’s Massachusetts municipal retirement plan.  The debtor attempted to exempt the payments as a “right or interest…in an annuity, pension, profit sharing or other retirement plan” under Mass. Gen. Laws ch. 235, § 34A.  The court held that the payments were not exempt because the family court- ordered note and mortgage given by the former spouse, though payable from a portion of his municipal retirement benefits, “does not fall within the ambit of the plain language of [ch. 235, § 34A].”

 

Hutton v. Vasa (In re Vasa), A.P. No. 14-1173-JNF (March 8, 2016)

The Debtor’s former law partner sought a determination that certain obligations allegedly owed to him by the Debtor were nondischargeable under 11 U.S.C. § 523(a)(2)(A), (a)(4), and (a)(6). The Bankruptcy Court found a portion of the obligations in question to be non-dischargeable under 11 U.S.C. § 523(a)(4) on the basis that the Debtor’s actions constituted defalcation while acting in a fiduciary capacity.  Specifically, the Bankruptcy Court found that, while acting in a fiduciary capacity, the Debtor had transferred funds from the law firm’s IOLTA account in a grossly reckless fashion and had taken funds from the firm at the expense of the firm’s clients and creditors.  However, the Bankruptcy Court found that the fiduciary relationship between the parties had ended after 2012, and that the plaintiff had failed to establish the elements of § 523(a)(4) with respect to any debt arising after that time.  Additionally, the Bankruptcy Court found that the plaintiff had failed to carry his burden of establishing non-dischargeability under either § 523(a)(2)(A) or (a)(6).

 

Acevedo v. Bayron, AP No. 16-01011-JNF (March 15, 2016)

Approximately six weeks after the confirmation of his Chapter 13 plan, Debtor and two co-plaintiffs filed a verified complaint against thirty three named defendants. Averring that the Bankruptcy Court has jurisdiction pursuant to 28 U.S.C. § 1334 to hear matters related to the interested parties pursuant to Fed.R.Bankr.P. 7019, plaintiffs made allegations stemming from events that occurred in Puerto Rico between August 1946 and Debtor’s Chapter 13 petition date.  The claims include, amongst others, turnover of a gas station located in Puerto Rico, declaration that dividends and profits of said gas station are property of the bankruptcy estate, and several others, all related.  Defendants filed a motion seeking a transfer of venue.  Citing prevalent case law and the language of § 1334(c)(1), the Bankruptcy Court identified three criteria to determine whether sua sponte abstention is appropriate: the interests of justice, comity, and respect for state law.  In a lengthy discussion applying the complicated facts of this case to the relevant criteria, the Bankruptcy Court entered an order abstaining from ruling on this adversary proceeding.

 

Grossman v. Bonefant (In re Bonefant), A.P. No. 14-1143-JNF (March 29, 2016)

The Chapter 7 Trustee for Robert Patrick Bonefant, Jr. (“Debtor”) and Margaret Louise McClory-Bonefant filed an adversary proceeding against the Debtor’s father, Robert Patrick Bonefant, Sr. (“Defendant”) to avoid fraudulent transfers in the form of nearly $775,000 in payments made by the Debtor to his father’s bank accounts in the two years before filing for bankruptcy. At trial, the Trustee did not press his quantum meruit/unjust enrichment or resulting trust claims and the Defendant did not contest liability for fraudulent transfers pursuant to 11 U.S.C. § 548.  The issues analyzed by the Court in this Memorandum were whether the Trustee sustained his burden of proof on his claims pursuant to 11 U.S.C. §§ 548 and 550(a)(1) and calculation of damages.  Although the Trustee asked to recover all amounts voided under 11 U.S.C. § 548 as fraudulently transferred (nearly $775,000), the Court held that recovery pursuant to 11 U.S.C. § 550(a)(1) is limited to the amount that restores the estate to the same position it would have been in notwithstanding the fraudulent transfers.  The Court found that the Debtor withdrew $761,623 from his father’s accounts for his personal use, and so the estate was only entitled to recover the remaining $12,322 plus credit card charged incurred by the Defendant but paid for by the Debtor.

 

DeGiacomo v. First Call Mortg. Co. (In re Reznikov), AP No. 15-1003, 2016 WL 1238916 (Bankr. D. Mass. Mar. 29, 2016)

On cross-motions for summary judgment, the Bankruptcy Court for the District of Massachusetts recently held that there was no genuine dispute as to any material fact in finding that a certificate of acknowledgment that indicated only that the debtor “duly acknowledged” execution of a mortgage was insufficient under Massachusetts law to legally record the mortgage. Such language reflects that the debtor executed the mortgage, but does not indicate, as required under Massachusetts law, that she did so as her free act and deed.  Evidence of the parties’ intent or actual acts would not alter this conclusion, as the court is not interpreting a contract or the validity of the language, but only considering whether the language, on its face, gives notice that the requirements for a legally recorded mortgage have been met.  The phrase “duly acknowledged” does not provide such notice.  Accordingly, the chapter 7 trustee, as a hypothetical bona fide purchaser, is entitled to summary judgment and can avoid the mortgage under § 544(a)(3).  Further, as a matter of law, the mortgage is automatically preserved for the benefit of the estate under § 551, maintaining priority over the debtor’s homestead  exemption.

 

Contributions by:

Benjamin Higgins, Law Clerk to the Hon. Frank J. Bailey (Contributions are on personal behalf and should not be construed as statements by the U.S. Bankruptcy Court)

Devon MacWilliam, Partridge Snow & Hahn

Alex McGee, Ropes & Gray

Michael K. O’Neil, Murphy & King

Nathan Soucy, Soucy Law Office

Aaron Todrin, Sassoon & Cymrot, LLP