In re Roman Catholic Archbishop of Portland in or., Bankruptcy No. 04-37154.
| Decision Date | 30 December 2005 |
| Docket Number | Bankruptcy No. 04-37154.,Adversary No. 04-3292. |
| Citation | 335 B.R. 868 |
| Parties | In re ROMAN CATHOLIC ARCHBISHOP OF PORTLAND IN OREGON, and Successors, a Corporation Sole, dba the Archdiocese of Portland in Oregon, Debtor. Tort Claimants Committee, Plaintiff, v. Roman Catholic Archbishop of Portland in Oregon, and Successors, a Corporation Sole, dba the Archdiocese of Portland in Oregon, et al., Defendants. |
| Court | U.S. Bankruptcy Court — District of Oregon |
Thomas V. Dulcich, Susan Stevens Ford, Margaret Hoffman, Teresa H. Pearson, Thomas C. Sand, Thomas W. Stilley, Portland, OR, L. Martin Nussbaum, Colorado Springs, CO, James L. Phillips, Seattle, WA, for Debtor.
In this chapter 111 case of the Roman Catholic Archbishop of Portland in Oregon, and Successors, a Corporation Sole, dba the Archdiocese of Portland in Oregon ("debtor" or "the Archdiocese"), the Archdiocese has taken the position that, although it holds legal title to an extensive amount of real estate, most of that real estate is held in trust and, thus, is not available to be used to pay the claims of creditors. The Tort Claimants Committee ("TCC") filed this adversary proceeding in part to avoid any unrecorded interests in real property titled in debtor's name and to determine whether real property listed by debtor in its Statement of Financial Affairs as being held for others is property of debtor's bankruptcy estate. The TCC seeks through this motion to (1) avoid any unrecorded interests in certain test properties,2 which debtor claims that it holds in trust, by using the bankruptcy trustee's rights and powers as a hypothetical bona fide purchaser of the real property on the date debtor filed bankruptcy; and (2) obtain a declaration that debtor holds both legal and equitable title to the properties so that they are part of debtor's bankruptcy estate. For the reasons discussed below, the unrecorded equitable interests in the test properties may be avoided and the estate owns both the legal and equitable title to the test properties.
The court shall grant a party summary judgment on all or part of a claim or counterclaim "if the pleadings, depositions, answers to interrogatories, and admissions 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." Fed.R.Civ.P. 56(c); Fed. R. Bankr.P. 7056.
The Archdiocese is a corporation sole. Within the Archdiocese are 124 parishes and three Archdiocesan high schools. One parish is separately incorporated. The Archdiocese holds legal title to real properties associated with the unincorporated parishes and the Archdiocesan high schools. The real properties are used for parish churches, Catholic schools, and Catholic cemeteries. Parishioners and others contribute financially to the parishes and to the Archdiocesan schools. They also donate time and services to further the work of both the churches and the schools.
The filing of a bankruptcy petition creates an estate, which is comprised of "all legal or equitable interests of the debtor in property as of the commencement of the case," as well as any interests in property that the bankruptcy trustee may recover under § 550. § 541(a)(1), (3). Section 550 allows a trustee to recover for the benefit of the bankruptcy estate any interests in property that have been avoided under § 544. § 550(a).
In this case, debtor argues that most of the real property titled in its name is held for the benefit of Catholic parishes and schools, and therefore the property is not part of the bankruptcy estate that is available to pay the claims of its creditors. The TCC argues that the property is not held in trust but that, even if it is, under § 544(a)(3), the TCC is entitled to avoid any beneficial interests in that property that are not recorded in the real property records. The TCC has clarified that this motion addresses only whether any equitable interests that exist can be avoided under § 544(a)(3). This motion does not address whether any such equitable interests, in fact, exist.
Bankruptcy Code § 544(a)(3) allows a bankruptcy trustee to avoid an interest in property that would be voidable by a bona fide purchaser of real property who has perfected the transfer as of the filing of the case.4 This statute gives a trustee the rights of a hypothetical bona fide purchaser. "The powers of a bona fide purchaser of real property are defined by state law." In re Seaway Express Corp., 912 F.2d 1125, 1128 (9th Cir.1990) (emphasis in original). Although the statute gives the trustee powers to avoid transfers, it also applies when there has been no transfer; it allows the trustee to avoid any unrecorded interests in real property. Id. at 1129.
By order dated July 22, 2005, this court granted the TCC standing to assert the § 544(a)(3) claim made in this adversary proceeding. See In re Parmetex, Inc., 199 F.3d 1029, 1031 (9th Cir.1999) ().
Defendants5 argue that the Bankruptcy Code provides that property in which the debtor has only legal but not equitable title does not become property of the estate, § 541(d),6 and that the TCC cannot avoid unrecorded equitable interests in property titled in debtor's name, because the property has never become property of the estate.
The Ninth Circuit has held that a trustee can avoid an unrecorded interest of a person claiming a constructive trust in property held in the name of a debtor. See Seaway Express Corp., 912 F.2d at 1128-29. The court followed the majority rule "that § 541(d) does not limit the trustee's powers over real property under § 544(a)(3)." Id. at 1128. Accord In re Thomas, 147 B.R. 526 (9th Cir. BAP 1992), aff'd, 32 F.3d 572 (9th Cir.1994) (table) (); In re Chenich, 100 B.R. 512 (9th Cir. BAP 1987) ().
Defendants argue that an express or charitable trust is different from a constructive trust, because a constructive trust is a remedy imposed by a court for wrongdoing, while an express or charitable trust is a true trust created intentionally by the parties. They argue that, because the beneficiaries' equitable interests in property held in such trust do not become part of the bankruptcy estate pursuant to § 541(d), those interests could not be avoided by a bona fide purchaser of real property under § 544(a)(3).
Although constructive trusts are a different species of trust from trusts such as charitable or express trusts, that difference does not affect the trustee's authority under § 544(a)(3) to avoid unrecorded equitable interests. In In re Tleel, 876 F.2d 769, 771-72 (9th Cir.1989), the Ninth Circuit held that the trustee could avoid a claimed interest in a constructive trust that had not been imposed under state law before bankruptcy, because the trustee did not have constructive notice of the existence of that trust. If the constructive trust had been imposed by a state court prepetition, the equitable interests arising out of that constructive trust would not have been avoidable, because the state court judgment imposing the trust would have given a bona fide purchaser notice of the interest in the property. Thus, it was not the character of the trust that determined whether the interest was avoidable, but whether there was constructive notice of that interest at the time of bankruptcy.
Applying that reasoning to this case, the question is whether, under state law, a bona fide purchaser of the real property on the date of the petition would have had notice that someone other than debtor might have interests in the property.
All of the test properties are located in Oregon. Under Oregon law, a good faith purchaser of real property for valuable consideration takes the property free of unrecorded interests in the property. ORS 93.640(1).7
The notice that will deprive the [subsequent purchaser] of priority can be either actual or constructive. Actual notice is direct knowledge of the outstanding interest. Constructive notice encompasses both notice chargeable under the recording statute . . . and "inquiry notice."
High v. Davis, 283 Or. 315, 333, 584 P.2d 725 (1978). Bankruptcy law makes actual notice irrelevant to a trustee's avoidance of an unrecorded interest in real property. See 5 Lawrence P. King, Collier on Bankruptcy ¶ 544.02 (15th ed. Rev.2005).8 Therefore, the question is whether there was constructive notice of the asserted interests of the defendants in this case.
Oregon's recording statute provides that, in order "[t]o give constructive notice of an interest in real property," a person must have recorded that interest in the real property records of the county in which the property is located. ORS 93.643(1). Inquiry notice, on the other hand, "arises when the existence of a claimed interest in real property may be determined through investigation based on facts available to the claimant that would cause a reasonable person to make such inquiry." Gorzeman v. Thompson, 162 Or.App. 84, 93, 986 P.2d 29 (1999).
The TCC argues that, because title to all of the test properties is in the name of debtor, there is no record notice of any claimed interests of the defendants in the real property records for any of the test properties. The TCC provides title reports for all properties at issue; all show debtor as the record owner....
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