In re Allen

Decision Date22 May 2009
Docket NumberNo. 08-33459.,No. 08-3339.,08-3339.,08-33459.
Citation415 B.R. 310
PartiesIn Re Robert L. and Shirley L. ALLEN, Debtor(s). Louis Yoppolo, Trustee, Plaintiff(s) v. Robert W. Allen, Trustee of the Robert L. Allen Living Trust, et al., Defendant(s).
CourtU.S. Bankruptcy Court — Northern District of Ohio

Louis J. Yoppolo, Toledo, OH, pro se.

Thomas S. Molitierno, Fayette, OH, for Defendants.

DECISION AND ORDER

RICHARD L. SPEER, Bankruptcy Judge.

This cause comes before the Court on the Motion of the Plaintiff/Trustee for Partial Summary Judgment as to the issue of the Conveyance of a Life Estate. (Doc. No. 18). It is the position of the Plaintiff/Trustee that a conveyance made by the Debtor, Robert Allen, did not create a life estate. The Defendants filed a response to the Motion, opposing the relief sought by the Plaintiff/Trustee. (Doc. No. 19). Thereafter, the Defendants also filed their own Motion for Partial Summary Judgment on the identical matters raised in the Trustee's Partial Motion for Summary Judgment. (Doc. No. 21). The Court has now had the opportunity to review the evidence and arguments submitted by the Parties, as well as the entire record in this case. Based upon this review, the Court finds, for the reasons set forth in this Decision, that the Motion of the Plaintiff/Trustee for Partial Summary Judgment should be Granted, and that the Defendants' Partial Motion for Summary Judgment should be Denied.

FACTS

On July 2, 2008, the Debtors, Robert L. and Shirley L. Allen, filed a petition in this Court for relief under Chapter 7 of the United States Bankruptcy Code. Prior to filing for bankruptcy relief, the Debtors held sole title to real property located in Delta, Ohio. On November 29, 2006, the Debtors conveyed this real property, by way of a quit-claim deed, to a preexisting trust. This trust, entitled the "Robert L. Allen Living Trust," was created on June 27, 1994, with the Debtor, Robert Allen, being both the sole settlor and lifetime beneficiary of the trust, retaining the absolute power to amend and revoke the trust. A nondebtor, third party was named as trustee.

For the conveyance of their Delta, Ohio property, only the "Robert L. Allen Living Trust" was named as a grantee in the quit-claim deed executed by the Debtors. Notwithstanding, the deed executed by Debtors also purported to create a life estate in favor of their son, Edward Evans Allen. As set forth in the reservation clause of the deed, it was provided:

Subject to: easements and restrictions of record, and an estate for life to Edward Evan Allen the life tenant to pay all taxes and assessments due and payable during the life of the tenant of said parcel of real estate. Life tenant shall make all necessary repairs but shall not be liable for ordinary wear and tear.

(Doc. No. 1, Ex. A) (emphasis added).

After the commencement of their bankruptcy case, the Plaintiff in this action, Louis Yoppolo, was appointed acting trustee of the Debtors' bankruptcy estate. As the representative of the Debtors' bankruptcy estate, the Trustee brought this action against the "Robert L. Allen Living Trust" and Edward Evans Allen. In his complaint, the Trustee sought what can be grouped into three forms of relief: (1) a declaration that the quit-claim deed executed by the Debtors on November 29, 2006, did not create a life estate in favor of the Defendant, Edward Evans Allen; (2) an order that he can sell the property transferred by the Debtors' quit-claim deed free and clear of any interests of the grantee, the `Robert Allen Living Trust'; and (3) a ruling that the Debtors' transfer of their property to the Robert Allen Living Trust was fraudulent for purposes of 11 U.S.C. § 548.

DISCUSSION

Before this Court are the Parties' Cross Motions for Partial Summary Judgment. The standard, when addressing such motions, is set forth in Federal Rule of Civil Procedure 56(c), which is made applicable to this proceeding by Bankruptcy Rule 7056. It provides for in part: A party will prevail on a motion for summary judgment when "[t]he pleadings, depositions, answers to interrogatories, and admission on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). With respect to this standard, the movant must demonstrate all the elements of his cause of action. R.E. Cruise Inc. v. Bruggeman, 508 F.2d 415, 416 (6th Cir.1975). In making this determination, the Court is directed to view all the facts in a light most favorable to the party opposing the motion. Matsushita v. Zenith Radio Corp., 475 U.S. 574, 586-588, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986). In addition, in cases such as this where the Parties have filed Cross Motions for Summary Judgment, the Court must consider each motion separately, since each party, as a movant for summary judgment, bears the burden of establishing both the nonexistence of genuine issues of material fact, and that party's entitlement to judgment as a matter of law. French v. Bank One, Lima N.A. (In re Rehab Project, Inc.), 238 B.R. 363, 369 (Bankr. N.D.Ohio 1999).

In his Motion for Summary Judgment, the Trustee seeks a ruling on the first two matters brought in his complaint: (1) that the Defendant, Edward Evans Allen, does not hold a life estate in the property transferred by the Debtors on November 29, 2006; and (2) concerning this property transfer, whether he is entitled to an order allowing him to sell the property free and clear of any interests of the grantee, the "Robert Allen Living Trust." As a resolution of both these matters directly concerns the scope and sale of estate property, as well as the administration of the estate, these matters are core proceedings pursuant to 28 U.S.C. § 157(b)(2)(A)/(E)/(M). Accordingly, this Court has the jurisdictional authority to enter final orders and judgments in this matter. 28 U.S.C. § 157(b)(1).

A bankruptcy trustee is only authorized to sell property held in a debtor's bankruptcy estate. 11 U.S.C. § 363(b)(1). By operation of law, the bankruptcy estate comes into existence at the commencement of the case, and operates generally to divest a debtor of their interest in all property encompassed within the estate. Spenlinhauer v. O'Donnell (In re Spenlinhauer), 261 F.3d 113, 118 (1st Cir.2001). Estate property is defined broadly by the Bankruptcy Code to include all "legal or equitable interests of the debtor in property as of the commencement of the case." 11 U.S.C. § 541(a)(1). Yet, while this scope of estate property is broad, it will not reach to include property interests held by nondebtors. See, e.g., In re Engman, 395 B.R. 610, 617 (Bankr.W.D.Mich. 2008) ("`property of the estate' is limited to only whatever the debtor himself had owned in that property.").

In this matter, a nondebtor, the "Robert Allen Living Trust," is the named grantee, and thus the presumptive title holder of the property transferred by the Debtors on November 29, 2006. The life estate, purported to be created in favor of Edward Evans Allen, arises out of this conveyance, and thus takes subject to this transaction. Thus, on the two matters raised by the Trustee, the appropriate starting point for this discussion is the second issue: whether the Trustee can sell the property transferred by the Debtors free and clear of the interests of the "Robert Allen Living Trust"? If he cannot sell the property free and clear of this interest, the issue of whether the Defendant, Edward Evans Allen, holds a valid life estate in the property becomes moot insofar as it concerns the estate's interest in the property.

May the Trustee Sell the Property Transferred to the Robert Allen Living Trust

The "Robert Allen Living Trust" was created in accordance with Ohio law, and is thus subject to Ohio law. Butner v. United States, 440 U.S. 48, 55, 99 S.Ct. 914, 918, 59 L.Ed.2d 136 (1979). Under Ohio law, property held in a trust is composed of two interests in property: one legal, the other equitable. Both interests exist in the property at the same time. The Ohio Supreme Court has explained, "It has been said many times that the radical idea of a trust is the coexistence of the legal title and the equitable interest, and that perfect ownership is decomposed into its constituent elements of legal title and beneficial interest, which are vested in different persons at the same time." First Natl. Bank of Cincinnati v. Tenney, 165 Ohio St. 513, 517, 138 N.E.2d 15, 19 (1956).

All trusts have a res — the property held by the trust. 91 OHIO JUR. 3d Trusts § 88. In addition, three necessary entities are involved in a trust: (1) the settlor, also known as a trustor or donor; (2) the trustee; and (3) the beneficiary. The settlor is the one who creates the trust. Legal title in the trust is held by the trustee. The beneficiary, the one in whose favor the trust is created, holds equitable title to the trust res. 91 OHIO JUR. 3d Trusts § 3. No trust will exist where both the legal title and the beneficial interest are in the same person. In re: Estate of Bicknell, 108 Ohio App. 51, 54-55, 160 N.E.2d 550, 553 (1958).

In this matter, the Debtor, Robert Allen, was both the settlor and the sole lifetime beneficiary of the "Robert Allen Living Trust." The res of this trust consisted of the real property located in Delta, Ohio as transferred by the Debtors in November of 2006. Therefore, insofar as it concerns this property, the Debtor, Robert Allen, as the sole trust beneficiary, held equitable title to the property.

This equitable interest was in existence at the time the Debtors filed their petition for bankruptcy relief. Hence, when Mr. Allen sought relief in this Court, he voluntarily divested himself of his equitable interest in the Delta, Ohio property, effectuating a transfer of that property interest to the bankruptcy...

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    ...513, 517, 138 N.E.2d 15, 19 (1956). A person's beneficial interest in a trust is "largely pecuniary in character," In re Allen , 415 B.R. 310, 316 (Bankr. N. D. Ohio 2009), and absent a specific provision in a trust to the contrary, like what would be included in a spendthrift trust, a pers......
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    ...14, 16, 881 N.E.2d 237 (2008) (citing Restatement of the Law 2d, Trusts (1959), § 2, comment f.); see also Yoppolo v. Allen (In re Allen), 415 B.R. 310, 314 (Bankr.N.D.Ohio 2009). The Bank does not deny that the real estate is property of the bankruptcy estate, but argues it did not come in......
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