Agin v. Grasso (In re Luciani)

• Decision Date: 02 May 2018
• Docket Number: Case No. 16–14745–JNF,Adv. P. No. 18–01021–JNF
• Citation: 584 B.R. 449
• Parties: IN RE Kristine K. LUCIANI, Debtor Warren E. Agin, Chapter 7 Trustee, Plaintiff v. John Albert Grasso and Joanne Silvia Grasso, as Trustees of Grasso Family Revocable Living Trust, Defendants
• Court: U.S. Bankruptcy Court — District of Massachusetts

584 B.R. 449

IN RE Kristine K. LUCIANI, DebtorWarren E. Agin, Chapter 7 Trustee, Plaintiff

v.John Albert Grasso and Joanne Silvia Grasso, as Trustees of Grasso Family Revocable Living Trust, Defendants

Case No. 16–14745–JNF

Adv. P. No. 18–01021–JNF

United States Bankruptcy Court, D. Massachusetts.

Signed May 2, 2018

Alex F. Mattera, Demeo, LLP, Boston, MA, for Plaintiff.

David B. Madoff, Steffani Pelton Nicholson, Madoff & Khoury LLP, Foxborough, MA, for Defendants.

MEMORANDUM

Joan N. Feeney, United States Bankruptcy Judge

I. INTRODUCTION

The matter before the Court is the Motion to Dismiss filed by John Albert Grasso and Joanne Silvia Grasso (the "Grassos"), as Trustees of the Grasso Family Revocable Living Trust (the "Trust"). Pursuant to their Motion, the Grassos, as Trustees of the Trust (the "Defendants") seek dismissal of the six-count Complaint filed against them in their capacity as Trustees by Warren E. Agin (the "Plaintiff") pursuant to Fed. R. Civ. P. 12(b)(6), made applicable to this proceeding by Fed. R. Bankr. P. 7012(b). Through his Complaint, the Plaintiff seeks to avoid, pursuant to Mass. Gen. Laws. ch. 109A §§ 5 and 6, and 11 U.S.C. §§ 547 and 548, a transfer from the Kristine K. Luciani, Chapter 7 Debtor (the "Debtor"), to the Defendants, and to recover the allegedly fraudulently transferred property pursuant to 11 U.S.C. §§ 544, 550 and 551, as well as disallowance of any claim pursuant to 11 U.S.C. § 502(d).

The issue presented is whether, accepting as true the allegations in the Complaint, the Plaintiff has stated plausible claims for relief. For the reasons set forth below, the Court concludes that he has stated some plausible claims but other claims must be dismissed.

II. BACKGROUND¹

The Debtor filed a Chapter 7 petition on December 15, 2016. The Plaintiff was appointed as Chapter 7 trustee the next day. On Schedule A/B: Property, the Debtor listed an ownership interest in 1195 Forest Street, Marshfield, Massachusetts (the "Property") with a value of $419,000, as well as personal property valued at $369,019.48, largely attributable to an exempt pension with a value of $339,202.31. On Schedule C: The Property You Claim as Exempt, the Debtor claimed the Massachusetts exemptions. In particular, she claimed the Massachusetts homestead exemption with respect to the Property, see Mass. Gen. Laws ch. 188, § 3, as well as applicable exemptions with respect to her pension, see Mass. Gen. Laws ch. 235, § 34A and Mass. Gen. Laws ch. 246, § 28. On Schedule D: Creditors Who Have Claims Secured by Property, the Debtor listed the Defendants as the holders of a claim in the amount of $388,714.98 secured by the Property. The Debtor, on Schedules I and J pertaining to her income and expenses, disclosed that she is a registered nurse, receives monthly alimony in the sum of $5,560.84, has total monthly income of $7,534.50, has three dependents, has monthly ownership expenses for the Property in the sum of $2,425 and has total monthly expenses in the sum of $7,554.48.

The Chapter 7 trustee filed a notice of assets and the Court issued a bar date for filing claims. Five creditors filed claims in the case, including the Defendants in the sum of $383,745.77, Navient Solutions, the holder of a student loan debt, in the sum of $21,078.21, and three other creditors with claims totaling approximately $46,000.

On February 13, 2018, the Plaintiff filed his six-count Complaint against the Defendants, who are the Debtor's parents and California residents, setting forth the following counts: Count I (To Avoid and Recover Fraudulent Transfer Pursuant to M.G.L. c. 109A, § 5 and 11 U.S.C. §§ 544, 550, and 551 ); Count II (To Avoid and Recover Fraudulent Transfer Pursuant to M.G.L. c. 109A, § 6 and 11 U.S.C. §§ 544, 550, and 551 ); Count III (To Avoid and Recover Fraudulent Transfer Pursuant to 11 U.S.C. §§ 548, 550, and 551 ); Count IV (Declaration Pursuant to 11 U.S.C. § 551 ); Count V (To Avoid and Recover Preferential Transfer Pursuant to 11 U.S.C. §§ 547 and 550 ); and Count VI (To Deny Claim Pursuant to 11 U.S.C. § 502(d) ).

III. THE PLAINTIFF'S COMPLAINT

The Court paraphrases the Plaintiff's Complaint as follows.

In early 2015, the Debtor was attempting to purchase a home and identified the Property, which was listed for a sale price in excess of $400,000, as the home she wished to buy. At the time, however, the Debtor only could qualify for conventional mortgage financing in the amount of approximately $300,000. Because the Debtor was limited in her ability to obtain sufficient financing to purchase the Property through a conventional lender, the Debtor turned to her parents, the Grassos, to assist her in purchasing the Property. The parties agreed that the Trust, created by the Grassos and for which they served as Trustees, would make the purchase and take title to the Property with the intent of eventually transferring the Property to the Debtor.

On May 7, 2015, the Trust acquired title to the Property for $419,000. The Debtor paid the initial deposit with the offer to purchase and subsequently paid the entire $19,000 deposit at the time of the purchase and sale agreement.² On the same date, the Debtor executed a promissory note (the "Note") in the principal amount of $400,000 (i.e., the purchase price less the $19,000 deposit paid by the Debtor) in favor of the Trust. As alleged by the Plaintiff, "[t]here was no consideration, stated or otherwise, for the Note." The interest payments under the Note were $1,909.66 per month. The Note, however, contained no maturity date for the payment of the outstanding principal, although it accrued interest at the rate of four percent per annum.

At the same time that the Debtor executed the Note, the Debtor entered into a lease with the Trust (the "Lease"), which required monthly payments of $1,909.66. The Debtor and the Trust also entered into "an agreement whereby the Debtor would purchase the Property from the Trust for the purchase price of $419,000, with the Debtor's original payment of the $19,000 deposit credited toward the purchase price," such that the actual purchase price would be $400,000, the same amount as the Note.

On or about June 7, 2015, the Debtor began making monthly payments to the Trust in the amount of $1,909.66. Nineteen months later, on December 15, 2016, the Trust transferred the Property to the Debtor for stated consideration of $419,000 pursuant to a deed (Land Court Doc. No. 754064), and, again on the same day, the Debtor also provided a mortgage (the "Mortgage") to the Trust to secure the prior Note in the amount of $400,000 which was recorded at 11:57 a.m. The Debtor commenced her Chapter 7 case at 1:50 p.m. that same day.

The Trustee alleged the following in his Complaint.

The Trust's purchase of the Property was a straw transaction for the sole purpose of contravening the Debtor's inability to obtain financing in her own name.... The Trust was never the intended equitable owner of the Property.... The Debtor and the Grassos always intended for the Debtor to be the owner of the Property and to make all payments on the Property, which is precisely what occurred.

IV. POSITIONS OF THE PARTIES

A. The Defendants

The Defendants correctly observe that through Counts I, II and III of the Complaint, the Plaintiff seeks to avoid the Note and Mortgage on the principal grounds that they constitute constructive fraudulent transfers pursuant to Mass. Gen. Laws Ch. 109A, §§ 5 and 6, and 11 U.S.C. § 548(a)(1)(B).³ They argue that the facts of the Complaint, when taken as true, demonstrate that the Debtor received reasonably equivalent value in exchange for both the Note and Mortgage because in exchange for the Note the Debtor received "(1) the Defendants' promise that the Trust would convey the Property to the Debtor at a later date for a set price; and (2) a lease-to own agreement which gave the Debtor immediate use of the Property in exchange for monthly payments of $1,909.66—the exact amount of the monthly interest payments called for under the Note." They add that, in exchange for the Mortgage, the Debtor received title to the Property, stating the following: "The Debtor, as buyer, received a $400,000 house, and the Grassos, as sellers, took back a $400,000 mortgage. The Debtor, on the Trustee's own facts, received reasonably equivalent value in exchange for the Note and Mortgage."

With respect to the Plaintiff's reference to the Note and Mortgage being transferred with the intent to hinder, delay or defraud one or more creditors as referenced by the Plaintiff in Count III, the Defendants observe that the motivation for the transfer was not fraudulent and was, in fact, set forth in the Complaint as follows: "Because the Debtor could not qualify for sufficient financing, the Debtor and the Grassos agreed to have the Trust act as a straw purchaser to make the purchase and to take title to the Property." They assert that "there is nothing fraudulent about such conduct, and the Complaint does not identify any reason why or how such a transaction could be fraudulent."

The Defendants also seek dismissal of the Plaintiff's preference count. Although the Defendants agree that Debtor granted the Mortgage to the Defendants while she was insolvent, on account of an antecedent debt, and within 90–days of the petition date, they contend that the Plaintiff cannot satisfy the requirement set forth in section 547(b)(5), and, in addition, they raise affirmative defenses. The Defendants state:

Section 547(b)(5), an essential element of a preference, requires that the transfer enable the creditor to receive more than the creditor would receive if: (a) the case were a case under Chapter 7, (b) the transfer had not been made, and (c) the creditor received payment of such debt to the extent provided by the provisions of the Code.

... Here, had the transfer of the mortgage not occurred, the transfer of the Property would not have occurred, and the Grassos would still own the property and would not

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