Opinion
Case No. 98-13459-JNF.
October 2, 2007
MEMORANDUM
I. INTRODUCTION
The matter before the Court is the "Debtor's Motion to Modify the Order for the Distribution of Sales Proceeds." Pursuant to his Motion, which he filed on June 13, 2007, the Debtor, James P. Long (the "Debtor"), seeks modification of an order entered by this Court on February 27, 2007.
On January 31, 2007, the 96-88 St. Paul Street Condominium Trust (the "Condominium Trust"), filed a Motion for Relief from the Automatic Stay seeking to foreclose on property known as Unit 6, 96 St. Paul Street, Brookline, Massachusetts (the "Property"). The Chapter 7 Trustee filed a Response to the Condominium Trust's Motion, and the Court, on February 27, 2007, pursuant to the parties' agreement, authorized the Chapter 7 Trustee to serve as escrow agent with respect to any excess proceeds from a foreclosure sale of the Property, which was owned by Claude Chartier, as Trustee of the Chartier Realty Trust. The Debtor, who held a 50% beneficial interest in the Chartier Realty Trust at the commencement of his case, did not object to the Motion for Relief from Stay. He now seeks modification of the February 27, 2007 order on the ground that it is interfering with the subject matter jurisdiction of the Norfolk Superior Court, Department of the Trial Court, of a collection action commenced by the Condominium Trust against Claude Chartier, Trustee of the Chartier Realty Trust, with respect to the amount of condominium fees due and owing.
According to the Debtor,
The Superior Court action deprives the Bankruptcy Court of any jurisdiction over those funds. It is worth noting that the Norfolk Superior Court action could not be removed to the US Bankruptcy Court in this declaratory judgment action as James P. Long is not a party to the Superior Court litigation. Therefore the Chapter 7 Trustee cannot act as the escrow agent for these funds as the Norfolk Superior court must act in that role as a matter of law.
The Trustee filed an Opposition to the Debtor's Motion to Modify, and the Condominium Trust also filed an Objection. In his Opposition, the Trustee represented that the Condominium Trust conducted a foreclosure sale of the Property on April 24, 2007 and that he is holding in escrow the sum of $357,459.67, representing the surplus proceeds from the Condominium Trust's foreclosure sale of the Property. The Trustee stated that this Court has subject matter jurisdiction over claims to the escrowed sum because the Debtor was a beneficial owner of the Chartier Realty Trust res, because the Debtor, as alleged in his Complaint for Declaratory Judgment, discussed below, is the owner of the Property by virtue of the promissory note and mortgage granted to Alliance Equity Fund, LP ("Alliance"), and because the Debtor lacks standing to seek the relief he requests.
In its Objection, the Condominium Trust represented that it commenced collection actions against Claude Chartier, as Trustee of the Chartier Realty Trust, solely for nonpayment of condominium fees and to establish its lien on the Property pursuant to Mass. Gen. Laws ch. 183A, § 6(c). Although it named Alliance as a defendant, the Condominium Trust added that it never acknowledged the legitimacy of the mortgage held by Alliance.
The Court heard the Debtor's Motion and the objections on August 30, 2007 and took the matter under advisement. At the hearing, none of the parties requested an evidentiary hearing. Accordingly, the Court finds that the material facts necessary to decide the Motion are not in dispute. The following constitutes the Court's findings of fact and rulings of law in accordance with Fed.R.Bankr.P. 7052.
II. PROCEDURAL BACKGROUND
On April 9, 1998, the Debtor, a practicing attorney, filed a voluntary Chapter 13 petition. On December 7, 1998, the Debtor moved to convert his Chapter 13 case to a case under Chapter 7, and Joseph Braunstein was appointed Chapter 7 Trustee. On July 31, 2000, the Debtor received a discharge. On August 3, 2000, the Debtor's Chapter 7 case was closed.
Approximately five years later, on September 27, 2005, the Chapter 7 Trustee moved to reopen the Debtor's Chapter 7 case on the ground that the Debtor had failed to disclose a one-seventh beneficial interest in the "Long Family Trust," as well as his status an agent for and general partner of Alliance Equity Fund, Limited Partnership, the holder of a note and mortgage on the Property located on St. Paul Street in Brookline, Massachusetts, a property whose record title owner is Claude Chartier ("Chartier"), Trustee of the Chartier Realty Trust. The Debtor and Chartier were married at the time Chartier, as Trustee of the Chartier Realty Trust, acquired the Property in 1995, and each held a 50% beneficial interest in the Chartier Realty Trust. The Debtor filed a complaint for divorce from Chartier in January of 2004, and a divorce decree entered on October 16, 2005. The Debtor represented that in its final judgment the Norfolk Probate and Family Court (the "Probate Court") determined that the obligation memorialized in the note and mortgage held by Alliance was a debt which had to be repaid. According to the Debtor, the Probate Court allocated responsibility for repayment to him.
See Defendants [sci] Motion for Summary Judgment as to all Counts filed by the Debtor in Adv. P. No. 06-1263 at ¶ 17.
Id. at ¶ 18 and ¶ 19.
On May 17, 2006, the Chapter 7 Trustee filed a "Complaint for Declaratory Judgment against the Debtor and Chartier, as Trustee of the Chartier Realty Trust. The Trustee alleged that in July of 1995 the Debtor borrowed $138,000 from a family trust known as the Long Family Trust ("LFT") to finance the purchase of the Property for use as a family residence; that the Debtor drafted the LFT Declaration of Trust; that the Debtor is the sole Trustee of the LFT; that the Debtor's mother, Irma Long, is the primary beneficiary of the LFT; and that the Debtor and his siblings are the residual beneficiaries of the LFT. The Trustee further alleged that in September of 1995 the Debtor instructed LFT to wire transfer the sum of $138,000 to Alliance's bank account at Bank of Boston; that Alliance is a Massachusetts limited partnership formed by the Debtor; that the Debtor drafted, signed, and filed its Certificate of Limited Partnership with the Massachusetts Secretary of State's Office, listing himself as its resident agent for service of process at the address of his law office. The Trustee further alleged in his Declaratory Judgment Complaint that the Debtor is the sole authorized signatory on Alliance's bank account; that Alliance's general partner is Alliance Equity Trust ("AET"); that the Debtor formed AET to act as the general partner of Alliance; that the Debtor drafted its declaration of trust; that the Debtor is the declarant/settlor of AET; and that the Debtor is the sole Trustee of AET whose business address, like that of Alliance, is his law office. In addition, the Trustee averred that the Debtor formed AET to avoid being listed as the general partner of Alliance in his individual capacity and that the Chartier Realty Trust executed and delivered to Alliance a note drafted by the Debtor in favor of Alliance in the principal sum of $150,000 secured by a mortgage which he also drafted. Upon information and belief, the Trustee further alleged that Alliance did not have the financial ability to fund the note other that through monies obtained by the Debtor through his familial relationship with Irma Long, the primary beneficiary of the LFT. Based upon these allegations and others, the Trustee sought a declaration that Alliance is a sham entity created by the Debtor solely to hold the note and mortgage and that the Debtor is the real holder of the note and mortgage, which are assets of his bankruptcy estate. The Trustee sought a declaratory judgment that the Debtor is "the owner/holder of the Note and the Mortgage and that said ownership interests as declared and adjudged is an asset of the Debtor's estate under § 541(a) of the Bankruptcy Code."
On January 31, 2007, the Condominium Trust filed its motion for relief from stay for the purpose of allowing it "to exercise any and all of its rights and remedies as a condominium association under state law, including but not limited to, the foreclosure of it [sic] lien on the Brookline Property." The Condominium Trust served its motion on the Debtor, the Chapter 7 Trustee and Alliance "c/o James P. Long, Esquire, 101 Tremont Street, Suite 700, Boston, Massachusetts 02108." The Chapter 7 Trustee filed a Response to the motion in which he represented that he did not object, provided that the Condominium Trust schedule a foreclosure sale expeditiously and conduct the sale in a commercially reasonable manner. He requested that after satisfaction of its lien and sale costs the Condominium Association remit all funds from the foreclosure sale to this Court for determination of appropriate disbursements. The Trustee served his Response on the Condominium Trust, the Debtor, and Alliance in care of James P. Long, Esq. at 101 Tremont Street, Suite 700, Boston.
The Court conducted a hearing on February 27, 2007, at which time the Condominium Trust and the Trustee reported a stipulation pursuant to which they agreed that "any excess proceeds from the sale will be held in escrow by the Chapter 7 Trustee pending further order of the court." The Condominium Trust notified the Debtor and Alliance of the date and time of the February 27, 2007 hearing but neither appeared.
Over three months after the entry of the agreed order, the Debtor, on June 13, 2007, filed the "Motion to Modify the Order for the Distribution of Sales Proceeds" now before the Court.
At the August 30, 2007 hearing on his Motion to Modify, the Debtor represented that as a result of the divorce decree he became the sole beneficiary of the Chartier Realty Trust, subject to existing liens, and that as a result of the foreclosure sale conducted by the Condominium Trust, the equity interest in the Property were "wiped out." According to the Debtor, after satisfaction of the statutory liens held by the Town of Brookline and the Condominium Trust, there is no equity in the Property for the bankruptcy estate because of the mortgage held by Alliance.
The Trustee, however, referring to his Declaratory Judgment Complaint, maintained that the note and mortgage dated September 13, 1995 in favor of Alliance are property of the Debtor's estate because the Debtor has treated them as if he owned them outright. See 11 U.S.C. § 541(a).
III. DISCUSSION
A. Subject Matter Jurisdiction
The Debtor's Motion to Modify is essentially an untimely motion for reconsideration. Without discussing standards for reconsideration under either Fed. R Bankr. P. 9023 or 9024, the Debtor asserts that the Court has no subject matter jurisdiction. The Debtor is wrong. The bankruptcy estate which is comprised of all legal and equitable interests of the debtor in property as of the commencement of the case, see 11 U.S.C. § 541(a), is entitled to the at least 50% of the surplus proceeds from the foreclosure sale subject to all valid liens and encumbrances. The Trustee has commenced an action against the Debtor and his former spouse in which he has asserted that the note and mortgage held by Alliance are in fact property of the Debtor. Thus, to the extent that the note and mortgage potentially secure the 50% interest in the Property the Debtor acquired through the divorce proceeding, the Trustee has asserted a claim to all the surplus proceeds because of the Debtor's ostensible ownership of the Alliance note and mortgage. See 11 U.S.C. § 541(a).
The bankruptcy court's jurisdiction is ground in the provisions of 28 U.S.C. §§ 1334(a) and (b), and 157(b). The order entered on January 27, 2007 was within this Court's jurisdiction in view of the Trustee's claim that the note and mortgage ostensibly held by Alliance are property of the Debtor's estate. See 11 U.S.C. § 157(b)(2)(A) and (O). In short, because the Chapter 7 Trustee has asserted a claim to the surplus funds, the ramifications of the allowance of the motion for relief from stay and the adversary proceeding "could conceivably have an effect on the estate being administered in bankruptcy." See In re G.S.F. Corp., 938 F.2d 1467 (1st Cir. 1991). See also Pacor, Inc. v. Higgins (In re Pacor, Inc.), 743 F.2d 984 (3d Cir. 1984), overruled on other grounds by Things Remembered, Inc. v. Petrarca, 5176 U.S. 124 (1995). The Debtor's argument that the Court lacked jurisdiction to permit the Chapter 7 Trustee to serve as escrow agent pending further order of the Court is without merit.
B. Analysis
To the extent the Debtor seeks modification of the Court's order of January 27, 2007 under Fed.R.Bankr.P. 9023, which makes Fed.R.Civ.P. 59(a) applicable to bankruptcy cases, the Debtor's motion is untimely. See Fed.R.Bankr.P. 59(e) ("Any motion to alter or amend a judgment must be filed no later than 10 days after entry of the judgment.").
To the extent the Debtor seeks reconsideration under Fed.R.Bankr.P. 9024, which makes Fed.R.Civ.P. 60 applicable to cases under the Bankruptcy Code, the Debtor has failed to establish, inter alai, a manifest error of law or the existence of newly discovered evidence.
Rule 60(b) provides in relevant part the following: Rule 60(b) provides in relevant part the following:
(b) Mistakes; Inadvertence; Excusable Neglect; Newly Discovered Evidence; Fraud, Etc. On motion and upon such terms as are just, the court may relieve a party or a party's legal representative from a final judgment, order, or proceeding for the following reasons: (1) mistake, inadvertence, surprise, or excusable neglect; (2) newly discovered evidence which by due diligence could not have been discovered in time to move for a new trial under Rule 59(b); (3) fraud (whether heretofore denominated intrinsic or extrinsic), misrepresentation, or other misconduct of an adverse party; (4) the judgment is void; (5) the judgment has been satisfied, released, or discharged, or a prior judgment upon which it is based has been reversed or otherwise vacated, or it is no longer equitable that the judgment should have prospective application; or (6) any other reason justifying relief from the operation of the judgment. The motion shall be made within a reasonable time, and for reasons (1), (2), and (3) not more than one year after the judgment, order, or proceeding was entered or taken. . . .
Fed.R.Civ.P. 60(b).
(b) Mistakes; Inadvertence; Excusable Neglect; Newly Discovered Evidence; Fraud, Etc. On motion and upon such terms as are just, the court may relieve a party or a party's legal representative from a final judgment, order, or proceeding for the following reasons: (1) mistake, inadvertence, surprise, or excusable neglect; (2) newly discovered evidence which by due diligence could not have been discovered in time to move for a new trial under Rule 59(b); (3) fraud (whether heretofore denominated intrinsic or extrinsic), misrepresentation, or other misconduct of an adverse party; (4) the judgment is void; (5) the judgment has been satisfied, released, or discharged, or a prior judgment upon which it is based has been reversed or otherwise vacated, or it is no longer equitable that the judgment should have prospective application; or (6) any other reason justifying relief from the operation of the judgment. The motion shall be made within a reasonable time, and for reasons (1), (2), and (3) not more than one year after the judgment, order, or proceeding was entered or taken. . . .
Fed.R.Civ.P. 60(b).
According to the court in Hovis v. Grant/Jacoby, Inc. (In re Air South Airlines, Inc.), 249 B.R. 112 (Bankr. D.S.C. 2000),
The decision of whether to grant a motion for relief from judgment under the standard set forth in Rule 60(b) lies within the discretion of the Court. See, e.g. Augusta Fiberglass Coatings, Inc. v. Fodor Contracting Corp., 843 F.2d 808, 810 (4th Cir. 1988); Park Corp. v. Lexington Ins. Co., 812 F.2d 894, 896 (4th Cir. 1987). In determining whether a judgment should be set aside under the standard of Rule 60(b), the Court must engage in a two-pronged process. First, the moving party must satisfy three requirements: (1) the motion must be timely filed; (2) the moving party must have a meritorious defense to the action; and (3) the setting aside of the judgment must not unfairly prejudice the nonmoving party. See Nat'l Credit Union v. Gray, 1 F.3d 262, 264 (4th Cir. 1993); Park Corp., 812 F.2d at 896. Once the requirements of the first prong have been met, the moving party must next satisfy one of the six grounds for relief set forth in Rule 60(b). See Park Corp., 812 F.2d at 896.
249 B.R. at 115-15. In the First Circuit, "[r]elief under Rule 60(b) is available . . . when exceptional circumstances exist to justify extraordinary relief." Rodriguez Camacho v. Doral Fin. Corp. (In re Rodriguez Camacho), 361 B.R. 294, 301 (1st Cir. 2007) (citing Simon v. Navon, 116 F.3d 1, 5 (1st Cir. 1997)). Additionally, "'a party who seeks recourse under Rule 60(b) must persuade the trial court, at a bare minimum, that his motion is timely; that exceptional circumstances exist, favoring extraordinary relief; that if the judgment is set aside, he has the right stuff to mount a potentially meritorious claim or defense; and that no unfair prejudice will accrue to the opposing parties should the motion be granted.'" 361 B.R. at 301 (citing Karak v. Bursaw Oil Corp., 288 F.3d 15, 19 (1st Cir. 2002)).
The Debtor has not identified any grounds for reconsideration of the January 27, 2007 order other than a perceived jurisdictional impediment which does not exist. Because this Court has found that it had jurisdiction to permit the Chapter 7 Trustee to hold the surplus proceeds in escrow, there is no basis for modifying the order.
Additionally, if, as the Debtor contends, Alliance is the holder of a valid note and mortgage, he, personally, lacks standing to seek modification of the order. Accordingly, the Court shall enter and order denying the Debtor's Motion to Modify.
IV. CONCLUSION
For the reasons set forth above, the Court shall enter an order denying the Debtor's Motion to Modify the Order for the Distribution of Sales Proceeds.