Comjean v. Cruickshank
| Decision Date | 30 November 1995 |
| Docket Number | Civ. A. No. 93-12697-JLT. |
| Parties | Bruce P. COMJEAN, Appellant, v. Gary W. CRUICKSHANK, Trustee, Appellee. |
| Court | U.S. District Court — District of Massachusetts |
John E. Sutherland, Brickley, Sears & Sorett, Boston, MA, for Bruce P. Comjean, Appellant.
Henry J. Boroff, Trustee, Boroff & Associates, Boston, MA, pro se.
Jeffrey J. Cymrot, Jay F. Theise & Associates, Boston, MA, for Gary W. Cruickshank, Trustee.
Bruce P. Comjean ("Comjean") appeals from the bankruptcy court's judgment for the Trustee of his bankruptcy estate (the "Trustee"), which avoided the transfer of his interests in certain property to his wife.
In 1971, Comjean and his wife, Marlies I. Comjean ("Marlies"), purchased their residence in Lincoln, Massachusetts (the "Lincoln residence") as tenants by the entirety. In 1986, Marlies borrowed approximately $99,000 from her aunt to pay off two mortgages that encumbered the Lincoln residence.
During the same period that Marlies paid off the mortgages on the home, financial difficulties beset Comjean. In June 1987, the Internal Revenue Service (the "I.R.S.") levied on Comjean's interest in the Lincoln residence for approximately $278,000. In August 1988, the I.R.S. seized the Lincoln residence and sold Comjean's interest at auction to Judith Hiller for $15,100.
Under 26 U.S.C.A. § 6337 (West 1989), any person having an interest in the property purchased through a tax sale may exercise within 180 days of such sale their right to redeem the property by paying to the purchaser the amount paid plus interest. The parties stipulated that Comjean's ownership of the Lincoln residence as a tenant by the entirety remained unaffected by the tax sale until the period of redemption passed.
On March 9, 1989, Marlies borrowed approximately $16,500 from her aunt and redeemed the property from Hiller. There is no evidence to indicate that Hiller was an insider acting on behalf of Comjean and Marlies. As a consequence of the redemption, title to the land lay where it would have been had no tax sale taken place, except that Marlies now held an equitable lien for $16,500 against Comjean's interest in the Lincoln residence.1 Thus, on March 9, 1989, Comjean held a tenancy by the entirety in the Lincoln residence subject to Marlies' equitable lien and the balance of the I.R.S.'s tax lien. On the same day that Marlies exercised the redemption, Comjean signed a quitclaim deed to Marlies, giving to her all right to his interest in the Lincoln residence in exchange for "$1 and other valuable consideration."
Comjean filed a voluntary Chapter 7 petition for bankruptcy on May 14, 1992. The bankruptcy court appointed Henry J. Boroff, who was later succeeded by Gary W. Cruickshank, as the trustee in the matter.
In October 1992, the Trustee filed an adversary proceeding against Comjean and Marlies, seeking avoidance of the quit-claim transfer under 26 U.S.C.A. § 544(b) (West 1993). Section 544(b) permits the Trustee to avoid transfers of the debtor's interests that are voidable under state law. The Trustee alleged that the transfer was voidable under M.G.L. c. 109A §§ 4, 5, 6, and 7.2
The bankruptcy court entered judgment for Comjean and Marlies on the counts relating to M.G.L. c. 109A §§ 4, 5, and 6. In entering judgment on these counts, the bankruptcy court found that the Trustee failed to submit sufficient evidence of the value of Comjean's interest for it to assess whether Marlies paid fair consideration.
With respect to the count concerning section 7, the bankruptcy court found (1) that "a plan of redemption was engineered by Comjean to convey his interest to his wife so that his numerous creditors could not assert claims against his interest in the property," and (2) that numerous badges of fraud supported the conclusion that Comjean had the actual intent of hindering, delaying, or defrauding his creditors in devising the transfer. Accordingly, the bankruptcy court entered judgment for the Trustee. Comjean appeals.3
Before addressing the merits, the Trustee presents a threshold issue concerning the propriety of this appeal. The Trustee maintains that Comjean lacks standing.
The standing of nonparties to appeal from orders of the bankruptcy court is governed by the "aggrieved persons" rule. In re Thompson, 965 F.2d 1136, 1142 n. 9 (1st Cir.1992). Only persons whose rights or interests are "directly and adversely affected pecuniarily" by a bankruptcy court order may appeal. In re El San Juan Hotel, 809 F.2d 151, 154 (1st Cir.1987). Because debtors are generally unaffected by determinations regarding the disposition of the bankruptcy estate, they are not generally aggrieved persons. Id. at 155. Neither of the two exceptions to this rule — (1) where a favorable ruling would result in a surplus to the bankruptcy estate that would inure to the debtor and (2) where the ruling affects the dischargeability of a debt, Id. at 155 n. 6. — apply in this case. Hence, if Comjean had not been named as a party-defendant in the adversary proceeding, it is clear that he could not bring this appeal. See In re Eisen, 31 F.3d 1447, 1451 n. 2 (9th Cir.1994) ().
Nonetheless, unlike the cases upon which the Trustee relies, Comjean does not stand solely in the shoes of a debtor to a bankruptcy proceeding, for the Trustee named him as a party-defendant in the adversary proceeding. Applying the aggrieved person rule as a bar to Comjean's appeal would have the effect of depriving a named party, who fully participated in defending the case below, an opportunity to appeal from an adverse judgment.
Though there are no cases directly addressing this issue, federal circuit courts have recognized the appeals of debtor-defendants from adversary proceedings brought by a trustee of the bankruptcy estate against the debtor. For example, the First Circuit addressed the merits of an appeal brought by a debtor-defendant from a bankruptcy court judgment in an action by the trustee to set aside a fraudulent conveyance. Whitlock v. Hause, 694 F.2d 861 (1st Cir.1982). Similarly, the Seventh, Eleventh and Fifth Circuits have addressed the merits of claims brought by a debtor-defendant on appeal. In re Delagrange, 820 F.2d 229 (7th Cir.1987); In re Graham, 747 F.2d 1383 (11th Cir.1984); Milstid v. Pennington, 268 F.2d 384 (5th Cir.1959). Because the transferee of the conveyance joined the debtor in the appeal, these courts could have reached the merits regardless of the debtor's standing. Nonetheless, though these cases do not foreclose the Trustee's position, it is significant that the courts were untroubled by the debtor-defendant's presence as an appellant.
The aggrieved person rule stems from the distinction between a typical civil case and a bankruptcy proceeding. As commentators have explained:
In a typical civil case, there is a plaintiff and a defendant, one of which loses at the trial level. It is therefore unnecessary to set strict standards regarding standing on appeal, since the person appealing is the party to the action lost below. On the other hand, bankruptcy litigation many times involves and affects the interest of parties who are not formally parties to the litigation.
1 Collier on Bankruptcy ¶ 3.035, 3-180 (15th ed. 1995). Because bankruptcy litigation affects the interests of myriad persons who are not formally parties to the litigation, some limit must be imposed on the ability of those nominally interested persons to prolong resolution of the litigation. In re El San Juan Hotel, 809 F.2d at 154. The aggrieved person rule insures "that bankruptcy proceedings are not unreasonably delayed by protracted litigation" of those nominal parties. Id.
In contrast to the normal posture of a debtor as a nominal party in the bankruptcy proceeding, Comjean stands as a defendant in the adversary proceeding. Even though the adversary proceeding is conducted within the framework of the bankruptcy, it bears the marks of a typical civil trial. Cf. Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 48-50, 109 S.Ct. 2782, 2793-95, 106 L.Ed.2d 26 (1989) (). Imposing the pecuniary loss requirement in this context would paradoxically imply that a party against whom a judgment is entered is not aggrieved by that judgment. Moreover, permitting Comjean to appeal does not undermine the policies giving rise to the aggrieved person rule. Because the number of named parties in an adversary proceeding is limited, allowing those named parties to bring appeals from adverse judgments does not open the floodgates to bankruptcy appeals.
A final consideration also augurs in favor of permitting Comjean's appeal. Because the Trustee could have proceeded solely against Marlies, he need not have named Comjean as a defendant in the adversary proceeding. Cf. Desmond v. Moffie, 375 F.2d 742 (1st Cir.1967) (). See also In re Janz, 140 B.R. 256 (Bankr.D.N.D.1991) (), aff'd, 980 F.2d 734 (8th Cir.1992); In re Lyons, 130 B.R. 272 (Bankr.N.D.Ill.1991) (same); In re Sanders, 128 B.R. 963 (Bankr.W.D.La.1991) (same). The Trustee should not garner whatever benefits stem from Comjean's presence as a party-defendant in the adversary proceeding while, at the same time, seek to deny Comjean the opportunity to appeal.
In light of all these considerations, the court concludes that Comjean has standing to bring this appeal.
A district court reviews de novo the bankruptcy court's conclusions of law, whereas findings of facts are reviewed for clear error. In re First Software Corp., 107 B.R. 417, 420 (D.Mass.1989). Comjean contends that the bankruptcy court erred in three respects.
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