The following are summaries of the July and August 2015 opinions posted on the Massachusetts Bankruptcy Court’s website.
Riley v. InstaMortgage.com, et al. (In re Smith), Case No. 07‐14013-FJB, Adv. P. No. 13‐1357 (July 15, 2015)
The court held that there was no valid mortgage on the debtor’s half interest in property because the mortgage’s granting clause referenced a “Borrower,” which was a defined term in the mortgage that included the non-debtor tenant in common, but not the debtor. Notably, all parties in the adversary proceeding agreed that the debtor had signed the mortgage on a line above the word “Borrower” on the last page of the mortgage and on a mortgage rider. However, the court held that this fact was insufficient to read the debtor into the term “Borrower” for purposes of the mortgage’s granting clause. In construing this state law issue the court acknowledged there is no S.J.C. authority directly on point but noted that its holding was consistent with Judge Feeney’s decision in Agin v. South Point, Inc. (In re Kurak), 409 B.R. 259 (Bankr. D. Mass. 2009), aff’d 433 B.R. 52 (D. Mass. 2010) and with other jurisdictions.
Theresa Matthews v. Christian Nealon (In re Nealon), Adv. P. Case No. 14-4069 (July 15, 2015)
In this adversary proceeding, Plaintiff brought a motion for summary judgment asking the Bankruptcy Court to give preclusive effect to a prepetition arbitrator’s finding that the parties intended an initial deposit given to the Debtor by the Plaintiff for construction work was to be placed in an escrow account. Debtor, in turn, filed a motion for judgment on the pleadings alleging Plaintiff lacked a factual basis for her claims under §§523(a)(2)(A) and (a)(4). According to the Court, because the arbitrator’s conclusion regarding the existence of an escrow account was not essential to the award, the issue could not be given preclusive effect in the present proceeding. Absent a preclusive finding that an escrow account was created and misused by the Debtor, the Court denied Plaintiff’s motion because an undisputed issue of fact existed regarding the parties’ intentions with respect to the initial deposit. However, the Court found that Plaintiff had pled facts sufficient to support her claims under §§523(a)(2)(A) and (a)(4), and therefore, Debtor’s motion was denied.
Butler v. Wojtukun et. al. (In re Wojtkun), Case No. 13-12719-WCH, Adv. P. Case No. 15-1016 (July 20, 2015) Chapter 7 Trustee brought claims against the Debtor, his wife, and various trusts and corporate entities associated with one or both of them, seeking, among other things, (i) declarations that resulting trusts and constructive trusts exist for the Debtor’s interest in a condominium held by an affiliate corporation and proceeds of real estate (the Debtor’s home) owned by an affiliated trust, (ii) avoidance of transfers of income from the Debtor, a dentist and owner of a dental corporation, to his wife, an office manager for the dental corporation, and (iii) a shareholder derivative action on behalf of the dental corporation. The Defendants moved to dismiss all counts. The court denied the Defendants’ motion to dismiss the resulting trust claim regarding the proceeds of real estate because the Debtor had claimed to own 50% of that property in various financial documents, but the court dismissed the resulting trust claim regarding the Debtor’s interest in the condominium because “merely residing in a home does not rise to the level of exercise of the indicia of ownership” (citations omitted). The court denied the motion to dismiss all counts related to transfers of income between the Debtor and his wife because, among other things, the Trustee had alleged that the Debtor’s and his wife’s salaries from the dental corporation had increased at the same time as the Debtor’s financial liabilities increased and while litigation was imminent. Finally, the court denied the motion to dismiss the shareholder derivative action after determining that the in pari delicto defense was not available to the wife as an insider of the owner of the dental corporation (i.e. the Debtor).
Taatjes v. Maggio (In re Maggio), Case No. 13-16257-JNF, Adv. P. No. 14-1025 (July 27, 2015)
The Debtor was a joint holder of savings bonds with a deceased relative (“Decedent”). The Debtor had assisted Decedent with the management of her affairs through a power of attorney during Decedent’s lifetime. Plaintiffs, who were relatives of Debtor and Decedent and also joint holders of savings bonds with Decedent, filed a motion for summary judgment seeking a declaration that a state court judgment of breach of fiduciary duty in favor of Plaintiffs constituted a non-dischargeable debt pursuant to 11 U.S.C. § 523(a)(4). The Bankruptcy Court held that § 523(a)(4), which excepts from discharge any debt “for fraud or defalcation while acting in a fiduciary capacity . . .,” requires: 1) a debt resulting from a fiduciary’s fraud or defalcation under an express or technical trust; 2) a debtor acting in fiduciary capacity for that trust; 3) a debt caused by fraud or defalcation within the meaning of bankruptcy law. The state court judgment included no determination that Debtor owed Plaintiffs any fiduciary duty, nor did it find that an express or technical trust existed between Debtor and Plaintiffs. The power of attorney established a fiduciary duty from Debtor to Decedent, not from Debtor to Plaintiffs. Plaintiffs failed to submit copies of the bonds or any other evidence that could establish a fiduciary duty or the existence of an express or technical trust. Accordingly, summary judgment was granted in favor of Debtor.
In re Lewis D. Siegal and Joanna Siegal, Case No. 14-13678-JNF (July 29, 2015)
The Debtor’s father, as a creditor in his individual capacity and as the trustee of a creditor trust, filed a motion to reopen the Debtor’s chapter 7 case and to vacate a discharge order. The Debtor’s father alleged that prior to the entry of the Debtor’s discharge, the parties had entered into a settlement agreement by which the Debtor agreed that the debt he owed to his father and to the trust was non-dischargeable. The Debtor objected to the motion arguing that the settlement agreement was not signed until after the expiration of the deadline to object to the entry of his discharge and that no motion to approve the settlement agreement had been filed with the Bankruptcy Court prior to entry of his discharge. Although the Bankruptcy Court concluded that the Debtor’s father could not establish the elements required to vacate the Debtor’s discharge under 11 U.S.C. § 727(d), it allowed the motion to reopen on the basis that the Debtor’s father may be able to establish that the settlement agreement constitutes an enforceable reaffirmation agreement.
Sega Auto Sales v. Flores (In re Flores), Case No. 13-16079-WCH, Adv. P. No. 13-01441 (August 13, 2015)
[Case summary to follow in later post]
Lassman v. Robinson (In re Toli), Case No. 12-19194-WCH, Adv. P. No. 12-1373 (August 14, 2015)
Prior to the Debtors’ bankruptcy filing, the Debtors purchased a commercial property from the Defendants. The purchase and sale agreement reflected a $400,000 sale price, but the Debtors also signed a $100,000 promissory note “outside of the closing” in favor of the Defendants, which none of the parties disclosed to the institutional lenders. The Trustee sought recovery of payments made to the Defendants as fraudulent transfers, as well as damages for fraud, misrepresentation, and Chapter 93(A) violations. Following a two day trial, the court: (i) entered judgment in favor of the Defendants regarding the fraudulent transfer count because the parties had stipulated that the total purchase price for the property was $500,000 and therefore the Trustee did not meet his burden of showing that the Debtors did not receive “reasonably equivalent value”; (ii) entered judgment in favor of the Trustee with respect to various fraud and misrepresentation counts due to one of the Defendants’ false representations to the institutional lenders and the other Defendant’s failure to read the sale documents that she signed; and (iii) entered judgment in favor of the Defendants with respect to the Chapter 93(A) count because the Trustee had not sent the requisite demand letter.
Agin v. Green Tree Servicing, LLC et al., Case No. 14-14739-JNF, Adv. P. No. 14-1220 (August 19, 2015)
The Chapter 7 trustee sought to avoid a mortgage pursuant to 11 U.S.C. § 544 based on the absence of a proper certificate of acknowledgment in accordance with the requirements of Massachusetts law (Mass. Gen. Laws. Ch. 183, § 29). Specifically, the trustee alleged that the form of certificate was materially defective because it failed to include language indicating that the execution of the mortgage was the voluntary act of the mortgagor. The lender defendants asserted that the mortgage contains “proof of its due execution” in compliance Mass. Gen. Laws. Ch. 183, § 29, which permitted the mortgage’s recordation notwithstanding the absence of a certificate of acknowledgment. On Cross-Motions for Summary Judgment filed by the trustee and the lender defendants, the Bankruptcy Court authorized the trustee’s avoidance of the mortgage based on the absence of a valid certificate of acknowledgment. The Court noted that while Mass. Gen. Laws. Ch. 183, § 29 permits two alternatives for the recordation of a deed, the second alternative (a certificate of proof of due execution) requires evidence, the involvement of a court of record, and subscribing witnesses as set forth in Mass. Gen. Laws Ch. 183, §§ 34-41.
Estate of Philip L. Lavallee by Christine Makara, Personal Representative v. Lavallee (In re Lavallee), Case No. 14-41386-MSH, Adv. P. No. 14-04088 (Aug. 20, 2015)
The defendant moved to dismiss the adversary proceeding (the “A.P.”) for lack of subject matter jurisdiction on the ground that his sister—who had filed the A.P. when she was the personal representative of their father’s estate—had been replaced. The new estate representative declined to substitute himself for the sister in the A.P., and the defendant alleged the sister no longer had standing to sue. In opposition, the sister moved to substitute herself in her personal capacity as a beneficiary of the estate. The Court applied the facts in evidence to the rules for intervention set out in Fed. R. Civ. P. 24(a)(2), made applicable by Fed. R. Bankr. P. 7024, and allowed the motion to intervene. The Court also found that Mass. Gen. Laws ch. 230, § 5 provided additional support for the conclusion that the sister had standing to sue to enforce the claims for the estate’s benefit because the new representative refused to pursue the action.
Greater Love Tabernacle Church of Boston, Massachusetts v. VFC Partners 18 LLC, Case No. 13-17099, Adv. P. No. 15-1031 (August 21, 2015)
A Chapter 11 debtor-in-possession sought to avoid a mortgage pursuant to 11 U.S.C. § 544 based on an alleged defective certificate of acknowledgment annexed to the mortgage. Specifically, the debtor alleged that the certificate of acknowledgment failed to specify the representative capacity of the corporate officer who executed the mortgage on behalf of the corporation or that the officer’s execution of the mortgage was the voluntary act of the corporation. The issue presented was whether the certificate of acknowledgment attached to the mortgage complies with the requirements of Massachusetts law (Mass. Gen. Laws ch. 183, § 29) and, thus, provides constructive notice of the mortgage. On Cross-Motions for Summary Judgment filed by the parties, the Bankruptcy Court determined that the certificate of acknowledgment, read together with the signature block of the mortgage, is unambiguous and satisfies the requirements of Massachusetts law.
In re Carlo J. Genatossio, Jr., Case No. 14-40502-MSH (Aug. 31, 2015)
Debtor’s counsel filed an application seeking the allowance of fees and expenses for representing the Debtor in the chapter 13 case and in the chapter 7 case before it was converted to chapter 13. Since debtor’s counsel was not employed under Section 327, compensation could not be awarded under Section 330(a)(1). See Lamie v. United States Trustee, 540 U.S. 526 (2004). Counsel could therefore only be awarded compensation under Section 330(a)(4)(B), which provides that in a Chapter 13 case the court may allow reasonable compensation to a debtor’s attorney for representing the interests of the debtor in connection with the bankruptcy case based on a consideration of the benefit and necessity of the services provided. Some courts, however, have held that, under Lamie, compensation for services performed before a chapter 7 case is converted to chapter 13 cannot be compensated in a chapter 13 case under either section. Judge Hoffman disagreed with these courts, holding that Section 330(a)(4)(B) “permits counsel for a chapter 13 debtor to seek an award of fees and expenses ‘for representing the interests of the debtor in connection with the bankruptcy case’ even when a portion of the fees and expenses were incurred when the case was previously pending in chapter 7.”
Kate Foley, Mirick, O’Connell, DeMallie & Lougee
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)
John Joy, Boston College Law School
Devon MacWilliam, Partridge Snow & Hahn
Gina O’Neil, Mirick, O’Connell, DeMallie & Lougee
Michael K. O’Neil, Murphy & King
Kathleen M. Ryan, Morgan, Lewis & Bockius
Nathan Soucy, Soucy Law Office