Brekelmans v. Salas (In re Salas)
Docket Number | 318-02662,ADV. 320-90027 |
Decision Date | 23 May 2023 |
Parties | IN RE: LEN SALAS, Debtor. v. MAX SALAS, Defendant. NICOLAAS BREKELMANS AND GAIL GREGORY BREKELMANS, CO-PERSONAL REPRESENTATIVES OF THE ESTATE OF NINA BREKELMANS, and MICHAEL MCLOUGHLIN AND MARTHA JOHNSON, CO-PERSONAL REPRESENTATIVES OF THE ESTATE OF PATRICK MCLOUGHLIN, Plaintiffs, |
Court | U.S. Bankruptcy Court — Middle District of Tennessee |
On March 21, 2023, this matter was before the Court on cross-motions for summary judgment. Previously, the Court heard argument on a motion for summary judgment filed by Nicolaas Brekelmans and Gail Gregory Brekelmans Co-Personal Representatives of the Estate of Nina Brekelmans and Michael McLoughlin and Martha Johnson, Co-Personal Representatives of the Estate of Patrick McLoughlin (collectively "plaintiffs").[1]The Court ruled from the bench that summary judgment was not appropriate in this case. After further consideration, the Court raised two specific issues and requested that the parties address them with respect to summary judgment:
1. In relationship to the strong-arm avoidance claims under 11 U.S.C. § 544(a)(3) ( ) and 11 U.S.C § 544(a)(1) ( ), whether it is appropriate to consider inquiry notice and if so, whether inquiry notice existed as a matter of law based on the undisputed facts.[2]
2. In relationship to the fraudulent conveyance claims under 11 U.S.C. §§ 544(b)(1) and 548(a)(1)(B), whether the District of Columbia Bankruptcy Court ("D.C. Court") already determined the issue of ownership and bare legal title in its homestead exemption opinion.[3] If so, is the D.C. Court's Homestead Opinion entitled to preclusive or collateral effect in this proceeding.
Pursuant to Federal Rule of Civil Procedure 56(a), as incorporated by Federal Rule of Bankruptcy Procedure 7056, an entry of summary judgment is mandated "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." When considering a motion for summary judgment, the Court "must view the evidence and draw all reasonable inferences in favor of the nonmoving party." Browning v. Levy, 283 F.3d 761, 769 (6th Cir. 2002) (citation omitted). The Court does not "'weigh the evidence and determine the truth of the matter but . . . determine[s] whether there is a genuine issue for trial.'" Id. (citation omitted).
In Counts I and II of the amended complaint, the plaintiffs seek to avoid Max Salas' interest in property located at 1610 Riggs Place, NW, Washington, D.C. ("Property") pursuant to 11 U.S.C. § 544(a)(3) ( ) and 11 U.S.C. § 544(a)(1) ( ). To determine whether bona fide purchaser or hypothetical judgment lienholder status exists, this Court must look to state law. In re El-Erian, 512 B.R. 391, 396 (citations omitted). See also Treinish v. Norwest Bank Minnesota, N.A. (In re Periandri), 266 B.R. 651, 655 (B.A.P. 6th Cir. 2001) (citation omitted).
Under District of Columbia ("D.C.") law, if a deed conveying an interest in real property is recorded, it is effective against a subsequent bona fide purchaser whether or not they had notice. In contrast, when a deed is unrecorded, the Court must determine whether the subsequent bona fide purchaser had notice of said deed. In re El-Erian, 512 B.R. at 396 (citations omitted). In the present case, the deed was not recorded. Therefore, whether a subsequent bona fide purchaser would have had notice is the issue here. Under D.C. law, notice may be actual, constructive, or inquiry. Clay Props., Inc. v. Washington Post Co., 604 A.2d 890, 895 (D.C. 1992). See also Webster v. Hope (In re Hope), 231 B.R. 403, 424 (Bankr. D.D.C. 1999).[4]
First, actual knowledge would be inapplicable because the trustee assumes the role of a bona fide purchaser without actual knowledge. In re Aumiller, 168 B.R. at 818. As stated earlier, the plaintiffs were granted derivative standing and stepped into the shoes of the Trustee. As such, actual knowledge is irrelevant. Constructive notice is also inapplicable because constructive notice has come to mean record notice. Clay Props., 604 A.2d at 895 n.15. This leaves open the possibility of inquiry notice as a trustee may be held to such notice. In re El-Erian, 512 B.R. at 396 (citation omitted).
In its prior order, this Court raised the issue of whether Max Salas' physical possession of the property created inquiry notice based on case law from other jurisdictions.[5] Under D.C. law, inquiry notice is found when a purchaser is Clay Props., 604 A.2d at 895.
Max Salas asserts that the following undisputed facts would put a bona fide purchaser or a hypothetical judgment lienholder on inquiry notice:
Based on this last undisputed fact, Max Salas asserts that the recording of the judgment would have per se provided inquiry notice to any reasonable third party. In re Hope, 231 B.R. 403, 423-26 ( ). Max Salas argues that with any amount of due diligence, a third party would have discovered there existed a dispute about who owned the property as Len Salas had filed multiple pleadings in the underlying lawsuits asserting he was not the owner of the property. The fact that the judgments were not actually final and appealable when recorded might also be a factor in determining whether inquiry notice existed.
The plaintiffs, on the other hand, point to other undisputed facts in support of their assertion that inquiry notice did not exist:
As stated earlier, in considering motions for summary judgment, the Court does not "'weigh the evidence and determine the truth of the matter but . . . determine[s] whether there is a genuine issue for trial.'" Browning v. Levy, 283 F.3d 761, 769 (citation omitted). See also Thompson v. Fresh Prods., LLC, 985 F.3d 509, 523 (6th Cir. 2021) ( ). In the present case, a determination of whether inquiry notice existed would require the weighing of evidence, and therefore, is not an appropriate matter for summary judgment. As such, the Court finds the cross-motions seeking summary judgment on the strong-arm avoidance claims under both 11 U.S.C. §§ 544(a)(1) and (3) must be denied.
In Counts IV and V of the amended complaint, the plaintiffs seek to invoke the Trustee's powers to avoid fraudulent transfers under 11 U.S.C. §§ 544(b)(1) and 548(a)(1)(B). In denying the plaintiffs' original motion for summary judgment, this Court ruled that if the proof showed that Len Salas had only bare legal title, there would be no recoverable interest in the Property under the fraudulent conveyance provisions. This ruling was premised on the Supreme Court's decision in United States v. Whiting Pools, Inc., 462 U.S. 198, 204 n.8 (1983), and the many cases which have cited it for the proposition that where a debtor only holds bare legal title, and not equitable title to property, only the legal title becomes part of the debtor's bankruptcy estate. See, e.g., Kapila v. Moodie (In re Moodie), 362 B.R. 554, 561 (Bankr. S.D. Fla. 2007) (); Geremia v. Dwyer (In re Dwyer), 250 B.R. 472, 474 (Bankr. D.R.I. 2000) ( ); Swanson v. Stoffregen (In re Stoffregen), 206 B.R. 939, 942 (Bankr. E.D. Wis. 1997) ( ).
Pointing to the in-depth discussion of ownership found in the D.C Court's Homestead Opinion, this Court offered the parties an opportunity to present arguments as to whether the D.C. Court already decided the issue of ownership and bare legal title. And if so,...
To continue reading
Request your trial