Case: In re Robert J. Spenlinhaur, Debtor no. 13-17191-JNF (Bankr. D. Mass.).

Opinion by: Judge Joan N. Feeney

November 2, 2018

Facts:

At an evidentiary hearing, Debtor Robert Spenlinhaur and Respondents Eric Josephson and Jackson Hole Classic Cars, LLC were found to be in contempt of a previous court order to deliver non-exempt assets of the chapter 7 estate. The assets included vehicles, boats, keys, and registration documents. The Bankruptcy Court found no cause or justification for disobeying the order and ordered the Trustee to immediately collect the non-exempt assets.

Debtor subsequently filed a Motion for Partial Relief from Judgment and Request for Emergency Consideration. He represented that the non-exempt assets, which consisted of a camper and a pickup truck, should be carved out from the Court’s order because without the camper he would be homeless and without the truck he would have no transportation. He also sought relief on behalf of respondent Josephson, representing that another pickup truck and a trailer, both already in possession of the Trustee, should also be carved out from the order for the same reasons.

To support these requests, he argued these needs constituted “any other reason that justifies relief” from a final judgment, order, or proceeding under Fed. R. Civ. P. 60(b)(6). The Court denied the motion stating that if the Trustee were not to collect the non-exempt assets it would be expressly contrary to his duties. The Court found that the debtor did not meet the threshold for Fed. R. Civ. P. 60(b)(6) and was ordered to show cause as to why he should not be sanctioned under Fed. R. Bankr. P. 9011(b) for the filing of the motion. Debtor argued that the motion was filed in the appeals period, was not submitted for improper purpose or unnecessary delay, not intended to needlessly increase litigation costs, and not hinder the Trustee’s duties. Debtor argued the motion was not frivolous because an open tax court case may be resolved in his favor and the zealous advocacy did not cross the line into an area where sanctions could be permitted.

Holding:

After noting that a movant pursuing a Rule 60(b)(6) claim “faces formidable hurdles,” and that “Rule 60(b)(6) motions should be granted only where exceptional circumstances justifying extraordinary relief exist…” Ross v. Garcia (In re Garcia), 532 B.R. 173 (B.A.P. 1st Cir. 2015), citing Simon v. Navon, 116 F.3d 1, 5 (1st Cir. 1997), the Bankruptcy Court observed that the Rule 60(b)(6) request of the Debtor and his counsel was a merely a reiteration of prior arguments made at the evidentiary hearing, was not supported by any legal authority, and therefore did not meet the required threshold for relief. The Court further held that motion was frivolous and therefore violated Fed. R. Bankr. P. 9011(b)(2). In reaching this conclusion, the Court noted that neither the Debtor nor the Respondents made any offer to pay the Trustee for the use of or insurance for the property, nor did they cite any case law or legal authority to support the proposed use.

The Court explained that since the Trustee is a fiduciary to creditors and is required to uphold his duties of collecting and reducing to money property of the estate (citing In re Feinstein Family Partnership, 247 B.R. 502 (Bankr. M.D. Fla. 2000)), granting the requested relief would effectively authorize a breach of the Trustee’s fiduciary duties under 11 U.S.C. § 704(a). Accordingly, the Court issued a monetary sanction against the Debtor and his counsel in the amount of $1,500 for filing a frivolous pleading.

Summary Prepared By:

Erica James

New Lawyers Section Liaison to Bankruptcy Law Section

Read The Full Case Here: http://www.mab.uscourts.gov/mab/opinions

Case: John O. Desmond, Chapter 7 Trustee v. Marsha S. Green (In re Warren I. Green), no. 13-10204-MSH (Bankr. D. Mass.).

Opinion By:

Chief Judge Melvin S. Hoffman

October 11, 2018

Facts:

The Chapter 7 Trustee filed an action pursuant to 11 U.S.C. § 363(h) for authority to sell a condominium held by the debtor and his non-debtor spouse as tenants by the entirety. The defendant non-debtor spouse, Ms. Green, moved for summary judgment objecting to the sale on the ground that the Trustee could not meet the balancing test of § 363(h)(3). That section requires the court to determine if the proposed sale will confer upon the estate a benefit that outweighs any detriment to the non-debtor. Relying on Butner v. United States, 440 U.S. 48 (1979), Ms. Green argued that such a determination could not be made because: (i) under Massachusetts tenancy by the entirety law, each owner enjoys equal rights to the entire ownership and proceeds and, as a result any distribution to the estate would result in Ms. Green not receiving her full interest as required by § 363(j); and (ii) Massachusetts law precluded the Trustee from distributing any funds until termination of the tenancy, meaning that neither she nor the bankruptcy estate would receive a benefit from the sale so long as the tenancy remained intact.

Holding:

The Bankruptcy Court held that strict compliance with Massachusetts tenancy by the entirety law would run counter to the policies of the Bankruptcy Code and was therefore preempted to the extent it was inconsistent with Bankruptcy Code § 363(h) and (j). The Court noted that although the Butner decision holds that, “property interests are created and defined by state law,” Ms. Green – like many other litigants – had glossed over the qualifier in the next sentence of that decision, which is that courts must also look to whether “some federal interest requires a different result.”

In Green, the Bankruptcy Court determined that federal bankruptcy law did indeed require a different result, a conclusion reinforced by the Bankruptcy Code’s legislative history, which explicitly states that a trustee should be permitted to sell entireties property.  Further, the Court observed that requiring a trustee to hoard the proceeds of such a sale would be incompatible with the dictates of § 704, which requires the trustee to administer the bankruptcy case expeditiously and consistent with the best interest of the parties. Finally, the Court rejected the notion that § 363(j) should be incorporated into the balancing test of § 363(h). Rather, § 363(j) simply governs what happens after a sale vis-à-vis the non-debtor spouse and does not create a condition precedent to a sale by the Trustee under § 363(h). Interestingly, one question the Court did not decide was the appropriate formula for dividing the sale proceeds, in light of Massachusetts law entitling each party to ownership rights in the entirety of those proceeds. The Court did note, however, that a 50-50 distribution would appear to be a reasonable approach.

Find The Full Case Here:

http://www.mab.uscourts.gov/mab/opinions

Summary Prepared By:

Erica James

New Lawyers Section Liaison to Bankruptcy Law Section