Clemente v. Nickless

• Citation: 434 B.R. 202
• Decision Date: 11 August 2010
• Docket Number: No. 09-40182-NMG.,09-40182-NMG.
• Parties: Martha W. CLEMENTE, Appellant,v.David M. NICKLESS, Trustee, Appellee.
• Court: U.S. District Court — District of Massachusetts

434 B.R. 202

Martha W. CLEMENTE, Appellant,v.David M. NICKLESS, Trustee, Appellee.

No. 09-40182-NMG.

United States District Court,

D. Massachusetts.

Aug. 11, 2010.

MEMORANDUM & ORDERGORTON, District Judge.

This case, which concerns a debtor's equitable interest in a parcel of real property, comes before the Court on appeal from the United States Bankruptcy Court for the District of Massachusetts.

I. Factual Background

The following facts are as stated in the Memorandum of Decision of the Bankruptcy Judge.

Vivian Clemente (“the Debtor”) was the owner of residential property located at 9 Camden Avenue, Worcester, Massachusetts (“the Camden Property”) which she acquired upon the death of her husband in 1999. The Debtor resided at the Camden Property with her son, Joseph Clemente (“Joseph”), and her daughter-in-law, Martha Clemente (“Martha”). By a deed dated February 7, 2002, the Debtor conveyed the Camden Property to Martha for a stated consideration of $100.¹ The Debtor believed that, at the time of transfer, the property was worth between $150,000 and $200,000 and it was encumbered by a $57,000 mortgage. The Debtor did not file a gift tax return with respect to the transfer.

After the conveyance, Martha refinanced the house on three separate occasions, obtaining a $115,000 mortgage in February, 2002, a $135,000 mortgage in December, 2002, and a $143,000 mortgage in November, 2004. None of the proceeds from those mortgages was shared with the Debtor.

The Debtor continued to reside at the Camden Property after the transfer. One of the conditions of the transfer was that Debtor could remain in the property in an “in-law apartment” that was to be constructed for her. Martha and Joseph paid for the construction of the apartment, which cost approximately $43,000, with the proceeds of the February, 2002 refinancing of the property. During the time the Debtor lived in the apartment, she paid monthly rent of $375-$400 and the monthly cable bill of $90. She also contributed to the heating bill because she shared utilities with Martha and Joseph. Martha paid the mortgage, taxes, water and electric bills, all of which were in her name.

II. Procedural History

The Debtor filed for Chapter 7 bankruptcy on July 12, 2007. Several months later, the Chapter 7 trustee, David Nickless (“the Trustee”), filed an adversary proceeding against Martha seeking a determination that the Debtor retained an equitable interest in the Camden Property and that he, as trustee, was entitled to reach that interest on behalf of the Debtor's estate.² The case was tried before Bankruptcy Judge Joel Rosenthal in Central Division, on June 19, 2009.

In a Memorandum of Decision dated August 12, 2009, Judge Rosenthal concluded that the Debtor retained an equitable interest in the Camden Property in the form of a resulting trust held by Martha. Martha filed a motion to amend that judgment pursuant to Fed.R.Civ.P. 59(e) which the Bankruptcy Judge denied on September 8, 2009. The instant appeal followed.

III. AnalysisA. Standard of Review

A federal statute vests in United States District Courts jurisdiction to hear appeals from interlocutory orders and decrees of bankruptcy judges. See 28 U.S.C. § 158. In reviewing an appeal from an order of a bankruptcy court, a district court reviews de novo “[c]onclusions of law and legal significance accorded to facts”. In re Chestnut Hill Mortgage Corp., 158 B.R. 547, 549 (D.Mass.1993). The court must, however, accept the bankruptcy judge's findings of fact unless a review of the record demonstrates that they are “clearly erroneous.” Id.

B. Application

Under Massachusetts law, a debtor may hold an equitable interest in real property under an express trust, a constructive trust or a resulting trust. See In re Charles River Press Lithography, Inc., 338 B.R. 148, 160-61 (Bankr.D.Mass.2006). An express trust is created by a written or oral statement indicating a party's unequivocal intention to create a trust. Id.; Ventura v. Ventura, 407 Mass. 724, 555 N.E.2d 872, 874 (1990). Unlike an express trust, which is created by a settlor, constructive and resulting trusts are equitable remedies, imposed by courts to avoid unjust enrichment (constructive trust) or to correct a defect in the execution of a transferor's intent (resulting trust). See In re Charles River Press, 338 B.R. at 160-61.

Here, the Bankruptcy Judge found the doctrines of express and constructive trust inapplicable but concluded that Martha held the Camden Property in a resulting trust for the benefit of the Debtor and entered judgment declaring the Debtor part equitable owner of the property. The instant appeal is limited to the issue of whether the Bankruptcy Judge erred in imposing a resulting trust by which the Debtor is ruled to have retained a beneficial interest in the Camden Property.

A resulting trust arises where a party conveys property under circumstances that raise an inference that she does not intend for the transferee to receive the entire beneficial interest in the property. See In re Lan Tamers, 281 B.R. 782, 792 (Bankr.D.Mass.2002) (citing Restatement (Third) of Trusts, § 7 ). Resulting trusts are primarily used to give legal effect to a party's intent at the time of the transfer. In re Valente, 360 F.3d 256, 263 n. 3-4 (1st Cir.2004) (applying Rhode Island law but relying on the Restatement of Trusts). A resulting trust is generally imposed in either of two circumstances: 1) where an express trust fails or 2) where there is a “purchase money conveyance” whereby a transfer of property is made to one person and the purchase price is paid by another, such that a trust results in favor of the person who furnished the consideration. See Restatement (Third) of Trusts, § § 8-9; see also DiCarlo v. Lattuca, 60 Mass.App.Ct. 344, 802 N.E.2d 121, 125 (2004) (discussing the theory of purchase money conveyance).

The conveyance of the Camden Property does not fit neatly into either of the two general categories because, as both parties agree, it was neither a purchase money conveyance nor a failed express trust. Thus, a proper determination of whether a resulting trust was established depends upon whether the circumstances as a whole demonstrate that the Debtor intended to retain a beneficial interest in the property. See In re Tougas, 338 B.R. 164, 174 (Bankr.D.Mass.2006) (looking to the “indicia of ownership” of the property, rather than “the form in which [it] is held”); In re Jewett, 2007 WL 1288740, at * 5 (Bankr.D.N.H. May 2, 2007) (examining acts and conduct of parties with relation to possession of realty to determine if trust was intended).

In concluding that Martha held the Camden Property for the Debtor as a resulting trust, the Bankruptcy Judge relied on the following factual findings:

1) the transfer was conditional on Joseph and Martha's agreement to construct an in-law apartment for the Debtor on the second floor of the property;

2) the Debtor remained in continuous occupancy of the property before and after the transfer;

3) Martha used the proceeds from the $115,000 mortgage on the property to construct the in-law apartment for the Debtor's benefit;

4) the Debtor continued to reside at the property and retained sufficient control over it;

5) the Debtor contributed to household bills such as cable and heat, thereby “reserving a right to treat the property as her own”;

6) the Debtor's financial situation did not change after the transfer because the rent and utility payments were the equivalent of her prior mortgage payments;

7) the Debtor transferred the property for no consideration (despite the agreed-to fact that it was conveyed for $100);

8) the Debtor did not file a tax return declaring the transfer a gift; and

9) debtor's testimony at trial that Martha and Joseph were free to sell the property if they wished and that she would move into a “high-rise” apartment building was self-serving and not credible.

The appellant argues that the evidence is insufficient to establish a resulting trust in the Debtor's favor. Rather, she maintains that the conveyance is properly categorized as a gift.

In cases of transfers of property among family members, there is a presumption that a gift is intended. See Krasner v. Krasner, 362 Mass. 186, 285 N.E.2d 398, 399 (1972) (transfer from husband to wife triggers presumption that gift is intended); In re Jewett, 2007 WL 1288740, at *5. That presumption is, however, less compelling when the relationship involves in-laws and can be rebutted by evidence that the transferor did not intend that the transferee acquire a beneficial interest in the property. In re Jewett, 2007 WL 1288740, at *5; Krasner, 285 N.E.2d at 399; see Dwyer v. Dwyer, 452 Mass. 1030, 898 N.E.2d 504, 506-07 (2008) (reforming trust to reflect settlor's true intent to retain beneficial interest in property).

Here, the Bankruptcy Judge was mistaken in finding that the Debtor intended that her daughter-in-law, Martha, should hold title to the Camden Property for the benefit of the Debtor. Specifically, the Judge's conclusion that the Debtor “retained sufficient control” over the property lacks factual support. Although the Debtor continued to live in the property, she paid...