In re Corbett

• Decision Date: 12 February 2018
• Docket Number: Case No. 11-13667-JNF
• Parties: In re DANIEL P. CORBETT, Debtor
• Court: U.S. Bankruptcy Court — District of Massachusetts

In re DANIEL P. CORBETT, Debtor

Case No. 11-13667-JNF

UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF MASSACHUSETTS

February 12, 2018

Chapter 7

MEMORANDUM

I. INTRODUCTION

The matter before the Court is "April Realty Trust's Motion to Re-Open Bidding for Debtor's Interest in 218 Andover Street Peabody Realty Trust, Assented to by Chapter 7 Trustee" (the "Motion to Re-Open Bidding"), which motion was filed by Cathleen E. Kavanagh, Trustee of April Realty Trust ("Kavanagh" or "April Realty").¹ The filing of the Motion to Re-Open Bidding was precipitated by a decision issued by the Massachusetts Land Court, Department of the Massachusetts Trial Court, see Goodwill Enters., Inc. v. Garland, Misc. Case No. 15 MISC 000317 (RBF), 2017 WL 4801104 (Land Ct. Oct. 20, 2017), concerning the enforcement by Goodwill Enterprises, Inc. d/b/a/ Auto Mall Collections of its right of first refusal ("ROFR") to purchase property located at 218 Andover Street in Peabody, Massachusetts (the "Property"), whose record owner is the218 Andover Street Peabody Realty Trust (the "Realty Trust").² The Chapter 7 Trustee of the estate of Daniel P. Corbett, Stewart F. Grossman (the "Chapter 7 Trustee"), filed an Assent to the Relief Requested in the Motion to Re-Open Bidding, along with a "Motion to Withdraw Chapter 7 Trustee's Final Account and Distribution Report Certification That the Estate Has Been Fully Administered and Application to be Discharged (TDR)."³ Goodwill Enterprises, Inc. d/b/a/ Auto Mall Collections ("Goodwill") filed an Opposition to the Motion to Re-Open Bidding and a "Cross-Motion for an Order Allowing Goodwill to Exercise Specific Performance of Its Right of First Refusal against April Realty Trust." Kavanagh then filed an Opposition to Goodwill's Cross-Motion.

Pursuant to her Motion to Re-Open Bidding, Kavanagh requests this Court to

[1] conduct a new auction for the Corbett Interest between April Realty and Goodwill, at which both of the parties have the opportunity to bid on the Corbett Interest until one party is unwilling to bid higher or match. This is consistent with this Court's prior statement that Goodwill would have been permitted to "make a higher offer" if it had notice (see October 26, 2015 Memorandum on Goodwill's Motion to Modify Sale Order at p. 5) and with cases such as In re Farmland Indus, supra [284 B.R. 111 (Bank. W.D. Mo. 2002)], where the holder of a right of first refusal was not merely entitled to match the original high bid . . . [and] . . . [2] grant its Motion and order that a new "open cry" auction be conducted between April Realty and Goodwill for the Corbett Interest on terms and conditions to be proposed by the Trustee.

(footnote omitted). Kavanagh, emphasizing Goodwill's notice of the bankruptcy case and three month advance notice of a potential sale of the Debtor's interests, maintains that it would be "patently unjust for the Court to simply vacate the sale and order April Realty to assign its interests to Goodwill as Goodwill requests without conducting a new auction or sale proceeding."

In his Assent to the relief requested by Kavanagh, the Chapter 7 Trustee noted that the decision of the Massachusetts Land Court, discussed in detail below, is not binding on him or the bankruptcy estate because he was not a party to the state court litigation among William F. Garland ("Garland"), Kavanagh, and Goodwill. Nevertheless, he proposed the following procedure to address the Land Court's decision:

[A] re-opened bidding process that provides for alternate bids between Goodwill and Kavanaugh [sic] until one refuses to bid further. Specifically, since the winning bid by Kavanaugh [sic] that closed the bidding initially was in the amount of $250,250, the first bid in the re-opened process would belong to Goodwill - as the holder of a right of first refusal, does Goodwill wish to match Kavanaugh's [sic] bid of $250,250? If Goodwill does wish to match, the next bid would be Kavanaugh's [sic] - does it wish to increase its bid to a higher amount? If Kavanaugh [sic] does wish to increase its bid,the next bid would be Goodwill's - does it wish to match this higher bid? In this way Goodwill and Kavanaugh [sic] would alternate until either Goodwill does not wish to match or Kavanaugh [sic] does not wish to increase its bid.

Goodwill vigorously opposed the Motion to Re-Open Bidding and the proposed bidding procedure outlined by Kavanagh and the Trustee, advancing a number of cogent arguments. Goodwill seeks an order requiring Kavanagh to convey the Debtor's 50% interest in the Property "in exchange for a payment by Goodwill to April Realty in the amount of $102,750.00, which represents April Realty's 2012 purchase price of $250,250.00, minus a credit in the amount of $147,500.00, which is the income that April Realty has received from the Realty Trust from 2012 to the present." In particular, Goodwill, while noting Kavanagh's potential to outbid Goodwill in a new "open cry" auction and deprivation of its right of specific performance if the bidding procedures proposed by Kavanagh and the Chapter 7 Trustee were to be adopted, stated:

April Realty is not a creditor of the estate, nor is it entitled to any special protection from the application of Massachusetts state law simply because it purchased the Property in a sale held by this Court. April Realty purchased the Property with actual knowledge of the Lease and the fact that the Lease contained a ROFR. Under Massachusetts law, Goodwill is entitled to enforce its ROFR directly against April Realty. Furthermore, any new auction by the Bankruptcy Trustee where Goodwill is required to submit bids would actually result in a new breach of Lease, given that the Land Court has held as a matter of law that Goodwill's ROFR has already been triggered by the sale to April Realty. The Land Court's Order and Judgment awarded specific performance based upon the 2012 sale. Authorizing a new sale would invalidate the Order and render it a simple advisory opinion. Clearly, the Land Court did not intend to render an advisory opinion, and April Realty's Motion must be denied to avoid invalidating the Land Court's binding Order and Judgment.

Goodwill, in conclusion, requested that this Court grant its Cross-Motion for Order requiring April Realty to convey the Property to Goodwill in exchange for a payment by Goodwill to April Realty in the amount of $102,750.00.

As noted above, Kavanagh filed an Opposition to Goodwill's Cross-Motion, asserting that Goodwill's interpretation of the Land Court's decision and Order was incorrect, maintaining that it "runs counter" to the Land Court's decision to defer determination of how its right to specific performance should be enforced to this Court. Kavanagh maintains that April Realty was "merely a counterofferor who participated in a sales process over which it had no control and was never informed that a third party would be able to match its bid as part of that process," adding that "[w]hile the Land Court ultimately determined that the sale triggered Goodwill's ROFR, the issue was one of first impression and ran counter to the Trustee's position that he was selling an interest in personal property that did not implicate the ROFR." In her Opposition, Kavanagh also rejected the notion that Goodwill is entitled to a credit against the purchase price, pointing to expenses that April Realty has incurred, including legal fees associated with the capital accounts of the LLC, and taxes that it paid in connection with income received, estimating that the tax liability to April Trust's beneficiary alone would be approximately 50% of the rental income received.

Notably, in their submissions, both Kavanagh and Goodwill raise the specter of unclean hands. Kavanagh maintains that Goodwill was aware of the bankruptcy proceeding and a potential sale, despite representations to this Court that it had no constructive or actual notice of the sale and despite the affidavit filed by Nader Afoussi(a/k/a John Jamali), the General Manager of Auto Mall Collections, who stated in an affidavit filed in this Court on October 9, 2015 2015, that "Goodwill never received any notice of Mr. Corbett's bankruptcy filing or the sale of Mr. Corbett's beneficial interest in the Rea1ty Trust back in 2012. The first time Goodwill even learned that Mr. Corbett's interest in the Property had been sold was in April 2015."⁴ Similarly, Goodwill points to the Land Court's finding that a party related to April Realty received a copy of Goodwill's lease with the Realty Trust containing the ROFR two years prior to the auction when that party was seeking to purchase the Property (not a beneficial interest in the Realty Trust) from the Realty Trust.⁵

In response to the parties' pleadings, this Court issued an order on December 4, 2017 requiring the submission of briefs on a variety of issues, including this Court's jurisdiction and authority to entertain the Motion to Re-Open Bidding.

II. BACKGROUND

Determination of the parties' most recent submission requires consideration of the the Land Court's Memorandum and Order dated October 20, 2017 with respect toGoodwill's Motion for Partial Summary Judgment and Kavanagh's Cross-Motion for Summary Judgment. That decision warrants consideration of prior orders issued by this Court.

By way of background, the Trustee, on July 20, 2012, filed a Motion for Order Authorizing and Approving Private Sale of Interest in 218 Andover Street Peabody LLC and Interest in 218 Andover Street Peabody Realty Trust (the "Sale Motion"). In the Sale Motion, the Trustee stated that he had "received an offer for the Real Estate that, if accepted and if the Debtor is not liable to W. Garland based upon their capital accounts, would result in a somewhat greater recovery for the estate than the instant sale," adding "W. Garland has stated that he does not wish for the Real Estate to be sold, and the Trustee believes that the nature of the Debtor's beneficial interest...