In re Peirce

• Decision Date: 01 October 2012
• Docket Number: No. 11–15718–WCH.,11–15718–WCH.
• Citation: 483 B.R. 368
• Parties: In re Kenneth S. PEIRCE and Margaret M. Peirce, Debtors.
• Court: U.S. Bankruptcy Court — District of Massachusetts

483 B.R. 368

In re Kenneth S. PEIRCE and Margaret M. Peirce, Debtors.

No. 11–15718–WCH.

United States Bankruptcy Court,

D. Massachusetts,

Eastern Division.

Oct. 1, 2012.

James M. Liston, Michael P. Vernon, Bartlett Hackett Feinberg P.C., Boston, MA, for the Trustee.

John F. Sommerstein, Law Offices of John F. Sommerstein, Boston, MA, for the Debtors.

MEMORANDUM OF DECISION

WILLIAM C. HILLMAN, Bankruptcy Judge.

I. INTRODUCTION

The matters before the Court are the “Trustee's Notice of Intention to Amend Terms and Conditions of Kenneth S. and Margaret M. Peirce Revocable Trust” ¹ (the “Notice to Amend”) and the “Application of Chapter 7 Trustee to Employ Real Estate Broker” ² (the “Application to Employ”) filed by Donald R. Lassman (the “Trustee”), the Chapter 7 trustee, the “Debtor's Emergency Motion, (1) To Compel Chapter 7 Trustee to Comply with this Court's Memorandum of Decision, (2) To Strike Trustee's Notice of Intention to Amend Terms and Conditions of Kenneth S. and Margaret M. Peirce Revocable Trust, (3) To Strike Application of Chapter 7 Trustee to Employ Real Estate Broker, and (4) To Pay Reasonable Attorney's Fees and Costs to Counsel to the Debtor” ³ (the “Motion to Compel”) filed by Kenneth S. Peirce and Margaret M. Peirce (collectively, the “Debtors”), the “Chapter 7 Trustee's Opposition to [the Motion to Compel]” ⁴ (the “Trustee's Opposition”), the “Debtors' Opposition to the Chapter 7 Trustee's Application to Employ Broker” ⁵ (the “Opposition to Application”), and the “Debtors' Opposition to Chapter 7 Trustee's Notice of Intention to Amend Terms and Conditions of Trust” ⁶ (the “Opposition to Notice”). In sum, the Debtors seek to prevent the Trustee from amending a trust document to permit him to sell certain real estate upon which they have a valid homestead exemption in a life estate. For the reasons set forth below, I will deny the Motion to Compel and approve the Application to Employ.

II. BACKGROUND

On December 28, 2004, the Debtors conveyed certain real property located at 330 Huttleston Avenue, Fairhaven, Massachusetts (the “Property”) by deed (the “Deed”) to themselves as trustees of the Kenneth S. Peirce, Jr. and Margaret M. Peirce Revocable Trust (the “Trust”), naming their children as beneficiaries, but reserving, as will be explained below, an interest in the Property for themselves.⁷ The Trust instrument further granted the Debtors, as settlors of the Trust, a life estate in the Trust res and expressly provides that they “may revoke or from time to time amend this instrument in whole or in part....” ⁸ On April 1, 2011, the Debtorsexecuted and recorded a declaration of homestead (the “Homestead”) with respect to the Property pursuant to Mass. Gen. Laws ch. 188, § 1A.⁹ The Debtors estimate the current value of the Property to be approximately $240,000.¹⁰

On June 15, 2011, the Debtors filed a voluntary Chapter 7 petition.¹¹ Initially, the Debtors did not include the Property on Schedule A—Real Property (“Schedule A”), but appropriately listed their interest in the Trust on Schedule B—Personal Property (“Schedule B”) under the category “Equitable or future interests, life estates, and rights or powers exercisable for the benefit of the debtor other than those listed in Schedule A—Real Property.” ¹² Similarly, the Debtors claimed the Homestead in the amount of $500,000 in what they described as “an equitable interest and or future interest in the Trust” on Schedule C—Property Claimed as Exempt (“Schedule C”).¹³ While the Debtors specified Mass. Gen. Laws ch. 188, § 1A as the basis for their exemption on Schedule C, a substantial revision of the statute became effective on March 16, 2011, making the proper basis of their exemption Mass. Gen. Laws ch. 188, § 2.¹⁴

On December 12, 2011, the Trustee filed an Objection of Chapter 7 Trustee to Homestead Exemption of Debtors (the “Objection to Homestead”), seeking, inter alia, a determination that the Homestead was limited to the Debtors' life estate interests in the Property and, because the Homestead did not identify the Debtors as trustees, limited to the amount of $125,000.00. ¹⁵ In response, the Debtors sought to amend Schedules A and C to reclassify their interest in the Property as one in fee simple, explaining that upon a closer inspection of the Deed, they transferred only a future interest in the Property, thus rendering the Objection to Homestead unfounded. ¹⁶ The Trustee objected to the amendments, and after a hearing, I took the matter under advisement.¹⁷

On March 14, 2012, I issued a Memorandum of Decision (the “Decision”), finding that the Debtors effectively transferred their interest in the Property to the Trust while reserving only a life estate for themselves.¹⁸ I further concluded that the Homestead protected “their life estate interest beyond the automatic $125,000 homestead exemption provided for in Mass. Gen. Laws ch. 188, §§ [sic] 4,” despite their failure to indicate that they were executing it as trustees.¹⁹ Accordingly, I overruled the Objection to Homestead and denied the Debtors' motions to amend schedules.²⁰ Neither party appealed.

This, however, did not end matters. On May 15, 2012, the Trustee filed the Notice to Amend and Application to Employ. In summary, the Trustee through the Notice to Amend seeks utilize the Debtors' reserved power to amend the Trust to appoint himself as “Special Trustee” of the Trust with the power to sell the Property and direct that the net proceeds of any such sale, less the value of the Debtors' life estate as determined by the appropriate tables promulgated by the Internal Revenue Service, be distributed to the Trustee. ²¹ To that end, the Trustee also requests that I approve the employment of Anthony P. Camarra Jr. and Camber Real Estate, Inc. as his real estate broker with respect to the Property. The Trustee proposes to pay Camarra, who is disinterested within the meaning of 11 U.S.C. § 101(14), a 6% commission on the gross proceeds of from the closing of a sale on the Property.

On May 21, 2012, the Debtors filed the Motion to Compel, arguing that the Trustee was attempting to circumvent the Homestead in disregard of the Decision and dispossess the Debtors of their life estate without authority under 11 U.S.C. § 363. Three days later, the Trustee filed the Trustee's Opposition, asserting that his actions were completely consistent with my finding that the Debtors were entitled to exempt no more than a life estate interest. I conducted a hearing on the Motion to Compel on May 25, 2012, at the conclusion of oral arguments, took the matter under advisement. I afforded both parties an opportunity to file briefs, which they both did on July 16, 2012. With my leave, the Trustee also filed a Reply on August 1, 2012.

On May 29, 2012, the Debtors filed the Opposition to Notice and Opposition to Employment. In substance, these oppositions simply reiterate the Debtors' belief that the Trustee has no right to force the sale of the Property. At the request of the Debtors, I entered an order on June 4, 2012, continuing the Notice to Amend and Application to Employ generally pending the resolution of the Motion to Compel. Nevertheless, as the Opposition to Notice and the Opposition to Employment simply rely on the arguments contained in the Motion to Compel, I find further hearings on those matters unnecessary and will consolidate them with the matters now under advisement.

III. POSITIONS OF THE PARTIESThe Debtors

For a plethora of reasons, the Debtors urge me to strike the Notice to Amend and Application to Employ, order the Trustee to file a No Asset Report, and pay the Debtors' counsel's fees incurred in opposing the Notice to Amend and Application to Employ. First, they argue that the Trustee's actions are nothing more than a shameless attempt to circumvent the Decision and relitigate an issue that has already been decided. The Debtors explain that I “explicitly rul[ed] that the Debtors are entitled to homestead protection under MGL 188, Section 4,” ²² and that I “also held that the Debtors reserved a life state interest in the property and could reside on the property for the remainder of both of their lives.” ²³ In contrast, they assert that the Trustee “blatantly defies the [C]ourt's March 14, 2012 order holding that Debtors enjoy a life estate interest in the property, with homestead exemption protection,” ²⁴ by seeking to dispossess them, which would have the practical effect of “deny[ing] the Debtors the very legal interests which this Court previously ordered....” ²⁵ Therefore, because “[i]t is clear to the Debtors' [sic] that this Court meant to keep the home from the reach of the Trustee's powers,” they contend his actions must be barred under the doctrines of res judicata, collateral estoppel, and law of the case.²⁶

Next, the Debtors argue that the Trustee's proposed sale of the Property is prohibited by 11 U.S.C. §§ 363(e), (f) and (h). With respect to 11 U.S.C. § 363(e), the Debtors posit that they are “entit[ies] that ha[ve] an interest in property” within the meaning of that provision, entitling them to adequate protection from the Trustee.²⁷ They assert that the Trustee's plan actually proposes the opposite, as the extinguishment of their life estate can hardly be said to be adequate protection of the interest. Moreover, they assert that 11 U.S.C. § 363(f) would prohibit the sale of the Property because Massachusetts law would not allow the sale in light of the valid homestead. Furthermore, the Debtors cite In re Hajjar²⁸ for the proposition that life estates are expressly excluded from the Trustee's liquidation powers under 11 U.S.C. § 363(h).

Alternatively, if I find that the Trustee is authorized to sell the Property, the Debtors contend that he cannot satisfy 11 U.S.C. § 363(h)'s requirement that the benefit to the estate outweigh the detriment to the co-owners. First, they argue that “the value of the Debtors' life estate interest cannot be conclusively...