Ford v. Duggan (In re Duggan)

• Decision Date: 12 May 2017
• Docket Number: Adv. No. 15–1094–BAH,Bk. No. 15–11389–BAH
• Citation: 571 B.R. 1
• Parties: IN RE: Kathleen M. DUGGAN, Debtor Edmond J. Ford, Chapter 7 Trustee, Plaintiff v. James B. Duggan and William J. Duggan, Defendants
• Court: U.S. Bankruptcy Court — District of New Hampshire

571 B.R. 1

IN RE: Kathleen M. DUGGAN, DebtorEdmond J. Ford, Chapter 7 Trustee, Plaintiff

v.James B. Duggan and William J. Duggan, Defendants

Bk. No. 15–11389–BAH

Adv. No. 15–1094–BAH

United States Bankruptcy Court, D. New Hampshire.

Signed May 12, 2017

Edmond J. Ford, Esq., Richard K. McPartlin, Esq., Ford & McPartlin, P.A., Portsmouth, NH, Attorneys for the Plaintiff.

Walter C. Oney, Jr., Esq., Oney Law Office Fitchburg, MA, Attorney for the Defendants.

MEMORANDUM OPINION

Bruce A. Harwood, Bankruptcy Judge

I. INTRODUCTION

The matter before the Court is the Complaint filed by Edmond J. Ford (the "Trustee"), Chapter 7 trustee of the estate of Kathleen M. Duggan (the "Debtor"), to sell certain real estate in Malden, Massachusetts free and clear of the interests of the co-owners pursuant to 11 U.S.C. § 363(h). The co-owners, James B. Duggan and William J. Duggan (collectively, the "Defendants"), oppose the sale, arguing that the detriment that they would suffer far exceeds any benefit the sale of the property will yield to the bankruptcy estate. The Court conducted a trial on February 14, 2017, at which the Trustee and James Duggan testified, and twelve exhibits were admitted into evidence by agreement. For the reasons set forth below, the Court will enter judgment in favor of the Trustee.

II. JURISDICTION

This Court has authority to exercise jurisdiction over the subject matter and the parties pursuant to 28 U.S.C. §§ 157(a), 1334, and U.S. District Court for the District of New Hampshire Local Rule 77.4(a). This is a core proceeding under 28 U.S.C. § 157(b)(2)(N).

III. FACTS

A. Procedural History

The Debtor filed a voluntary Chapter 7 petition on August 31, 2015. On Schedule A—Real Property, the Debtor listed a one third equitable interest in a single family home located at 53 Lowell Street in Malden, Massachusetts (the "Property"). She valued that interest at $100,000.00. She also listed her equitable interest in the Property on Schedule B—Personal Property, under "[e]quitable or future interests ... other than those listed in Schedule A." On Schedule C—Property Claimed as Exempt, the Debtor claimed an exemption in the Property in the amount of $5,764.96 pursuant to N.H. RSA § 511:2(XVIII).¹

The Trustee was appointed on September 1, 2015. The meeting of creditors held pursuant to 11 U.S.C. § 341(a) convened and concluded on September 29, 2015. The following day, the Trustee notified the Court of the existence of assets available for distribution to creditors, and the Court set a claims bar date of December 29, 2015. On October 13, 2015, the Trustee filed the Trustee's Notice of Abandonment of the Debtor's interest in all scheduled assets other than the Property. The Debtor received a discharge on December 4, 2015.

The Trustee commenced the present adversary proceeding on December 31, 2015. After several extensions, the Defendants filed an answer on June 13, 2016. The parties filed a Joint Pre-trial Statement on February 7, 2017. On February 10, 2017, the Trustee filed a motion in limine (the "Motion in Limine") seeking to bar testimony regarding the alleged existence of an oral trust with respect to the Property. The Defendants filed a response to the Motion in Limine on February 12, 2017.

On February 14, 2017, the Court heard the Motion in Limine and conducted a trial on the merits of the Trustee's complaint. As will be discussed further below, the Court granted the Motion in Limine. At the close of evidence, the Court heard oral arguments from both parties and took the matter under advisement. At the Defendants' request, the Court afforded the parties the opportunity for additional briefing. The Defendants filed a supplemental brief on March 1, 2017. The Trustee filed a reply on March 9, 2017.

B. Stipulated Facts

The following facts are undisputed.² James and William Duggan are the Debtor's brothers. Their father, Channing Duggan, obtained title to the Property through a deed dated March 18, 1971. The Property consists of a single family home located in a residential neighborhood. It is over one hundred years old and is approximately 1,650 square feet in size. The Property is not used "in the production, transmission, or distribution, for sale, of electric energy or of natural or synthetic gas for heat, light, or power." See 11 U.S.C. § 363(h)(4). Channing Duggan subsequently conveyed the Property to himself and his wife, Rosemary Duggan, as tenants by the entirety on February 24, 1972. In December, 1999, Channing Duggan died, leaving Rosemary Duggan the sole owner of the Property.

On November 15, 2009, Rosemary Duggan passed away. Prior to her death, Rosemary Duggan neither executed a will or trust document, nor otherwise disposed of the Property. Thus, upon her death, the Property passed by operation of law to her heirs—the Debtor, James Duggan, and William Duggan—in equal shares as tenants in common. See Mass. Gen. Law ch. 190B, § 2–103.

Only James Duggan resides at the Property. The Debtor resides in New Hampshire, while William Duggan resides in Puerto Rico. No one has paid the real estate taxes since 2011. On July 28, 2011, the City of Malden took title to the Property on account of the unpaid taxes by executing and recording in the appropriate registry of deeds a taking pursuant to Mass. Gen. Laws ch. 60, §§ 53 and 54. As of January 6, 2017, the City of Malden is owed $37,047.18, which includes the real estate taxes for fiscal year 2017 in the amount of $1,659.02, and water and sewer charges in the amount of $429.61. A proceeding to foreclose the co-owners' equity of redemption has been filed by the City of Malden and is pending before the Massachusetts Land Court.

James Duggan has no present ability to pay the outstanding real estate taxes. The same is true of the Debtor, as her interest in the Property is the only asset of the bankruptcy estate. The Court has no information regarding William Duggan's ability to pay the outstanding real estate taxes.

The Property has an appraised value of $330,100.00 by the City of Malden.³ The parties stipulated that they "expect that if marketed by a realtor, the market value sale price would be at least $325,000."⁴ Other than the City of Malden's taking, the Property is not encumbered by any liens.

On the petition date, the Property was not insured. Accordingly, Ford & McPartlin, P.A., the Trustee's counsel, expended $4,112.63 through February 3, 2017, to maintain insurance coverage on the Property.

C. Motion in Limine

In the Joint Pre–Trial Statement, the Defendants revealed their intention to elicit testimony from James Duggan that Rosemary Duggan, despite having died intestate, intended that James Duggan would be able to stay in the Property during his lifetime and, upon his death, the remainder interest would pass to a certain minor relative. Through the Motion in Limine, the Trustee sought to bar such testimony on the basis that it is inadmissible hearsay under Fed. R. Evid. 802, irrelevant under Fed. R. Evid. 401, and that the Defendants were judicially estopped from attacking the bankruptcy estate's interest in the Property as contrary to the representations made to the Probate Court that administered Rosemary Duggan's estate. In their response, the Defendants asserted that the Property was subject to an oral trust under Massachusetts law such that the equitable interests in the Property never became part of the bankruptcy estate because the Debtor, James Duggan, and William Duggan hold bare legal title to the Property as oral trustees for the benefit of James Duggan and the certain minor relative. To this end, the Defendants argued that the oral trust was either partially performed or, alternatively, fully performed as to James Duggan's interest, because he continued to reside at the Property after Rosemary Duggan's death in a manner consistent with the life estate she allegedly intended for him.

Generally speaking, Massachusetts law recognizes the existence of oral trusts with respect to land. Nevertheless, that recognition is limited. Oral trusts in land are "not void, [but] merely unenforceable." In re Gustie , 32 B.R. 466, 471 (Bankr. D. Mass. 1983), aff'd , 36 B.R. 473 (D. Mass. 1984) (citing Ward v. Grant , 9 Mass.App. 364, 401 N.E.2d 160 (1980) ). The law is clear that an "oral trust is unenforceable by the transferor against the transferee because the statute of frauds requires that trusts concerning land ... must be evidenced by a written memorandum." In re Gustie , 32 B.R. at 471 (emphasis added). Indeed, oral trusts are only as valid and enforceable as if the trust had been in writing in the first place upon completion—i.e., upon the conveyance of the property from the transferee (the oral trustee) back to the original transferor (the beneficiary) in accordance with the oral trust. Bailey v. Wood , 211 Mass. 37, 97 N.E. 902 (1912). The rationale is that a deed from an oral trustee to the beneficiary eliminates any statute of fraud concerns, and testimonial evidence can establish the purpose behind the transfer and prove the existence of the completed oral trust. In re Gustie , 32 B.R. at 471.⁵ In the interim, although an oral trustee is "not forbidden [from] perform[ing] ... his equitable obligation" because the oral trust is not void, he cannot be compelled to do so. Id. at 471 ; see Twomey v. Crowley , 137 Mass. 184, 185 (1884) ; Hoffman v. Charlestown Five Cents Sav. Bank , 231 Mass. 324, 329, 121 N.E. 15 (1918).

Based on these principles, the Court concluded that even assuming that the Defendants could establish the existence of an oral trust, such evidence is not relevant to the adversary proceeding because the Trustee, as one of the three oral trustees of the trust, could not be compelled to fulfill any moral obligation under the trust and, in fact, has a fiduciary duty to the bankruptcy estate's creditors not to honor the moral obligation. In other words, the alleged oral trust will never be completed because the Trustee will not convey his title interest in...