Opinion
Case No. 02-13423-RS, Adversary Proceeding, No. 03-1093.
September 27, 2007
MEMORANDUM OF DECISION AND ORDER ON PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT
By his amended complaint in this adversary proceeding, Joseph Braunstein, as he is chapter 7 trustee (the "Plaintiff"), seeks in relevant part a declaration that the real property located at 324 Broadway, Malden, Massachusetts, title to which was held by the debtor, Jack Milhem (the "Debtor"), in his capacity as sole trustee of the 324 Broadway Realty Trust (the "Trust"), was property of the Debtor's bankruptcy estate by virtue of the extensive powers of amendment and termination he retained as settlor and trustee of the trust. The adversary proceeding is before the Court on the Plaintiff's motion for summary judgment. The Debtor, in his individual capacity and acting pro se, opposes the motion. No response has been filed by the Debtor in his capacity as trustee of the Trust. The Court now finds that there are no genuine issues of material fact and that the plaintiff is entitled to judgment as a matter of law.
The adversary proceeding concerns title to the property at the time of the debtor's bankruptcy filing. After the filing, the Debtor, as trustee, sold the property. The purpose of this proceeding is to determine rights to proceeds received by the Debtor from the sale.
Nor may the trust appear through the debtor acting pro se. Insofar as a trust is not a natural person, it may appear only through licensed counsel.
I note that the Debtor was represented by counsel — in fact, two attorneys in succession — when he filed his answer to the amended complaint and throughout most of this adversary proceeding. His attorneys have both withdrawn, in both instances because of difficulties communicating with the Debtor, who failed to respond to communications from counsel, and in the earlier case also because of breakdown of the attorney-client relationship.
SUMMARY JUDGMENT STANDARD
A party is entitled to summary judgment only upon a showing that there is no genuine issue of material fact and that, on the uncontroverted facts, the movant is entitled to judgment as a matter of law. FED. R. CIV. P. 56(c). Where, as here, the burden of proof at trial would fall on the party seeking summary judgment, that party must support its motion with evidence — in the form of affidavits, admissions, depositions, answers to interrogatories, and the like — as to each essential element of its cause of action. The evidence must be such as would permit the movant at trial to withstand a motion for directed verdict under FED. R. CIV. P. 50(a). Anderson v Liberty Lobby, Inc., 477 U.S. 242, 250 (1986). If the motion is properly supported, the burden shifts to the adverse party to submit evidence demonstrating the existence of a genuine issue as to at least one material fact. If the adverse party does not so respond, "summary judgment, if appropriate, shall be entered against the adverse party." FED. R. CIV. P. 56(e); Jaroma v. Massey, 873 F.2d 17, 20 (1st Cir. 1989). For purposes of a motion for summary judgment, the court must and does construe the evidence, and draw all inferences therefrom, in the manner most favorable to the non-moving party.
FACTS
The relevant facts are established by admissions in the Debtor's answer to the Plaintiff's amended complaint, and by admissions arising from the Debtor's failure to answer requests for admissions that were propounded by the Plaintiff. FEDERAL RULE OF CIVIL PROCEDURE 36(a) (absent a timely answer or objection, a matter for which an admission is requested is deemed admitted). The Debtor submitted no evidence in opposition to the motion for summary judgment. There are no genuine issues as to the material facts, which are as follows.
The answer was filed by the Debtor through counsel. It does not specify whether he filed the answer solely in his individual capacity or also in his capacity as trustee of the Trust. Finding no limitation in the answer, and because the Debtor claims no interest in the trust other than as trustee, I construe it as the answer of the Debtor in both capacities.
In a separate but related adversary proceeding in which trustee Braunstein objects to the Debtor's discharge (Adversary Proceeding No. 03-1094), I have ruled that the deemed admissions should not be binding on the Debtor for purposes of establishing the specific intent components of the various objections to discharge. My concern there was that a discharge should not be denied except for actual dishonesty on the part of the debtor. Here, however, the discharge is not implicated. Moreover, the admissions concern only the contents of documents and facts that do not appear to be in dispute.
The uncontroverted evidence shows that, by a declaration of trust dated September 20, 2000, Jack Milhem established the 324 Broadway Realty Trust and, in the ninth article thereof, made himself its sole trustee. The ninth article also provided that "this instrument [the declaration of trust] may be amended at any time by a written instrument signed by the Trustees and acknowledged by one or more of them." The tenth article provided that "[t]he Trust may be terminated at any time . . . by the Trustees by notice in writing to the beneficiaries." It further required that upon termination of the trust, the trustee shall, when the winding up of the affairs of the trust is completed, transfer the entire trust estate then remaining to the beneficiaries in proportion to their respective interests. By a schedule a beneficiaries signed by Jack Milhem as trustee and by Riad Milhem, Jack's father, on September 15, 2000, Jack designated Riad the sole beneficiary of the trust, and he further designated himself and his three sons, Joe, Ronald, and Michael Milhem, all four jointly with right of survivorship, as successor beneficiaries ("upon the death of [Riad]"). By a quitclaim deed dated September 27, 2000, Sunoco, Inc. (R M) transferred to the Trust the real property at property located at 324 Broadway, Malden, Massachusetts.
On May 8, 2002, Jack Milhem filed a petition for relief under chapter 7 of the bankruptcy code, thereby commencing this bankruptcy case. At the time, he remained the sole trustee of the trust, the property remained an asset of the trust, and Riad remained the beneficiary of the trust.
DISCUSSION
The commencement of a bankruptcy case creates an estate comprised of "all legal or equitable interests of the debtor in property as of the commencement of the case." 11 U.S.C. § 541(a)(1). Braunstein does not deny that the property belonged to the Debtor in his capacity as trustee of the Trust. Nor does he contend that the bare legal title that a trustee normally holds — that is, legal title without a beneficial interest — is sufficient to bring the property into the Debtor's bankruptcy estate. See 11 U.S.C. § 541(d). Rather, he contends that, because of the language of the declaration of trust, the Debtor's interest in the property was not limited to the bare legal title of a trustee. He argues that by virtue of the reservation to the trustee of the right to amend the trust and to terminate it, the declaration of trust gave the trustee powers that, under Massachusetts law, would warrant treating the trust assets as the trustee's own property, free of trust, such that they would be reachable by creditors of the trustee. The Debtor maintains that the trust was a true trust, not a sham, but he does not address this specific argument and has submitted no evidence to controvert the material facts set forth above.
This Court has recently had occasion to address the very arguments advanced here concerning Massachusetts law. See Braunstein v. Grassa (In re Grassa), 363 B.R. 650, 655-659 (Bankr. D. Mass. 2007). I rely on the analysis of Massachusetts law that is set forth there and incorporate it by reference. That analysis is dispositive here because, under the declaration of trust, the settler and trustee retained an unlimited right to amend the trust. By virtue of this right, the Debtor, as trustee, had power to control the trust assets to the exclusion of the trust beneficiaries. He could, for example, simply revoke the trust, or name himself as a beneficiary and remove other beneficiaries, or remove assets from the trust, or transfer assets from the trust to himself. Under Massachusetts law, the possession of this power to amend the trust, which is tantamount to a general power of appointment, brings the trust assets within the reach of the trustee's own creditors. As I stated in Grassa,
The dispositive right here is the trustee's unlimited right to amend. The trustee's power to terminate the trust is of no avail to the Plaintiff because the trust specifies that upon termination, the trustee is obligated to transfer the trust assets to the beneficiaries. The power of termination is therefore not one that eliminates or overrides the interests of the beneficiaries.
The cases emphasize that "the touchstone of the analysis is whether the trust instrument as a whole gives [the debtor] the power to eliminate the interests of all others in the trust." Markham v. Fay, 74 F.3d at 1357. "[W]hat is dispositive for these purposes is whether the trust instrument contained ascertainable limits on [the trustee's] power to pay income or invade principal for her benefit alone that the other beneficiaries could rely on to enforce any rights of their own." Id. at 1358.
Grassa, 363 B.R. at 658. Here, as in Grassa, the trust places no limit on the power of the trustee to modify or amend the trust, to revoke the trust, and to dispose of the assets upon revocation.
Accordingly, I conclude that the real property, including not merely legal title but also all beneficial interest therein, became an asset of the bankruptcy estate upon the Debtor's bankruptcy filing. A separate declaratory judgment will enter to that effect at the close of the adversary proceeding, provided no contrary result is required concerning the remaining defendants.
The remaining defendants are beneficiaries and alternate beneficiaries of the Trust. Riad Milhem, the beneficiary, was named as a defendant, but no return of service has been filed as to him. The minor, "alternate" beneficiaries were named as defendants through their custodian, Doris Milhem, and a return of service was filed as to them; and Doris Milhem has not answered the complaint. The Plaintiff has not yet applied for entry of default or moved for default judgment as against the minor alternate beneficiaries.
ORDER
For the reasons set forth above, the Plaintiff's Motion Summary Judgment is hereby granted as against Jack Milhem individually and as Trustee of the 324 Broadway Realty Trust. Judgment will enter at the close of the adversary proceeding.