In re Salas

• Decision Date: 13 October 2020
• Docket Number: Case No. 18-00260
• Parties: In re MAX E. SALAS, Debtor.
• Court: United States Bankruptcy Courts – District of Columbia Circuit

In re MAX E. SALAS, Debtor.

Case No. 18-00260

UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF COLUMBIA

October 13, 2020

(Chapter 11)

MEMORANDUM DECISION AND ORDER RE MOTION FOR RECONSIDERATION

This addresses the Motion for Reconsideration¹ filed on March 6, 2020, by Nicolaas J. Brekelmans and Gail Gregory Brekelmans, Trustees of the Estate of Nina Brekelmans, and Michael McLoughlin and Martha Johnson, Trustees of the Estate of Michael Patrick McLoughlin (collectively "the judgmentcreditors"). The Motion for Reconsideration seeks to have the court reconsider its Memorandum Decision and Order re Objection to Homestead Exemption entered seventeen months previously on September 25, 2018 (Dkt. No. 108) ("Homestead Decision").² The judgment creditors assert that there is new evidence demonstrating that the debtor in this case, Max Salas ("Max"), paid no consideration for the Quitclaim Deed from his youngest son, Len Salas ("Len").³ The Homestead Decision found that the Quitclaim Deed vested Max with title to his homestead (the "Property") located at 1610 Riggs Place, NW, Washington, D.C., and overruled the judgment creditors' objection to Max's exemption of the Property, an objection asserting that Len, not Max, owns the Property.

I will deny the Motion for Reconsideration. Relief under Fed. R. Civ. P. 60(a) is unavailable because the Motion for Reconsideration challenges the substance of the Homestead Decision instead of some clerical error. Relief under Fed. R. Civ. P. 60(b) was sought untimely: relief under Rule 60(b)(1) and (2) was not sought within one year after entry of the Homestead Decision and thus is time-barred under Fed. R. Civ. P. 60(c)(1), and relief under Rule 60(b)(6) was not sought for seventeenmonths, which was not within a reasonable time as required by Rule 60(c)(1). The pendency of an appeal of the Homestead Decision and the filing in the appeal of a motion to remand to the Bankruptcy Court had no effect on the timeliness requirements of Rule 60(c)(1) regarding Rule 60(b) motions. In any event, even disregarding the untimeliness in seeking Rule 60(b) relief, the Motion for Reconsideration presents inadequate grounds for relief from the Homestead Decision (including, for example, the fact that Rule 60(b)(6) relief is barred because it seeks relief on grounds already covered by Rules 60(b)(1) and 60(b)(2)). Finally, because relief could have been sought under Rule 60(b), the Motion for Reconsideration does not present grounds as an independent action under Fed. R. Civ. P. 60(d)(1) that warrant relief.

IPROCEDURAL HISTORY

A. Events Leading to the Homestead Decision

On June 3, 2015, Michael Patrick McLoughlin and Nina Brekelmans, two roomers at the Property, were killed in a fire at the Property. The judgment creditors are the parents of McLoughlin and Brekelmans. As personal representatives of their children's estates they brought actions in the Superior Court of the District of Columbia (respectively the McLoughlin plaintiffs in Case No. 2015 CA 008054 B and the Brekelmans plaintiffs inCase No. 2015 CA 008061 B), pursuing wrongful death and survivorship claims against both Max and his youngest son, Len. On April 4, 2018, the McLoughlin plaintiffs and the Brekelmans plaintiffs obtained jury verdicts in the Superior Court of $7.7 million and $7.5 million, respectively, against Max and Len, jointly and severally. On April 18, 2018, Max filed a petition commencing this case under Chapter 11 of the Bankruptcy Code (11 U.S.C.) and Len filed a petition in the United States Bankruptcy Court for the Middle District of Tennessee (Case No. 3:18-bk-02662) commencing his own case under chapter 11 of the Bankruptcy Code.

Max claimed an exemption on the Property pursuant to the District of Columbia's homestead exemption found in D.C. Code § 15-501(a)(14). The judgment creditors timely objected to that exemption, asserting that Len, not Max, owned the Property. The Bankruptcy Court held a trial on the objection to the homestead exemption for three days (on August 23, 24, and 25, 2018). The Homestead Decision, entered on September 25, 2018, confirmed that Max possessed the full legal and equitable interest to the Property and overruled the objection to the homestead exemption. The Motion for Reconsideration was filed more than seventeen months later on March 6, 2020.

B. Pertinent Aspects of the Homestead Decision and in Particular the Issue of Consideration for the July 6, 2010 Transfer of Title to Max

The Homestead Decision included the following findings of fact. Max and his wife, Vickie, as joint owners of the Property, entered to a divorce agreement whereby Vickie would be paid for her interest via a loan secured by the Property but with Len being the borrower (because Max had a bad credit history). The intent of the divorce agreement was accomplished on April 16, 2007, by Vickie transferring her interest to Max, and then Max transferring the Property to Len (for a recited consideration of $10), who then obtained a loan, secured by deed of trust on the Property, to fund the payment to Vickie under the divorce agreement. Even though Len was the owner of record in the land records, Len and Max agreed that the Property would, in actuality, remain Max's home. Len treated Max as the real owner of the Property. Max and Len agreed that Max would make the mortgage payments even though only Len was an obligor on the note secured by the deed of trust. Over the years, Max alone made monthly mortgage payments, occasionally missing payments. Len made none of the payments, even though he received communications from SunTrust whenever a payment was missed. Similarly, using bank accounts over which he had control, Max has paid for all other expenses associated with the Property, including amounts incurred for utilities, real property taxes, insurance,maintenance, and general upkeep. Accounts for expenses associated with the Property have been established in Max's name, including all electric and water utility accounts, cable and internet accounts, and a Deluxe-Home insurance policy for the Property with Encompass Insurance Company of America.

On July 6, 2010, Len and Max executed an Irrevocable Trust Agreement and a Quitclaim Deed attempting to transfer ownership of the Property to a trust of which Max would be both the trustee and the beneficiary. The trust was invalid (for reasons explored in the Homestead Decision). However, in the District of Columbia, "the conveyance of property through an invalid trust results in a resulting trust, unless there is consideration, in which case, the legal and beneficial rights are conveyed to the intended beneficiary of the conveyance." Homestead Decision at 54 (citations omitted).

The Homestead Decision then addressed the issue of whether there had been consideration. The Quitclaim Deed recited that the transfer was made by Len "for good consideration and for the sum of $100.00 paid by [Max], the receipt whereof is hereby acknowledged." The Homestead Decision stated:

The court finds that $100 was valuable consideration, even though $100 is a nominal amount when considered against the value of the Property, because Len paid consideration of $10 when Max deeded the Property to Len in 2007. In effect, Len purchased the Property for $10 in 2007 and sold the Property for $100 three years later in 2010.

Additionally, while the mortgage was in Len's name, Max made all payments on the mortgage, and there was an agreement between Len and Max that Max would take Len's name off the mortgage when Max was able to refinance the Property on his own credit. Moreover, Max paid all bills, taxes, and other expenses related to the Property, and maintained and kept up the Property. Len put no investment into the Property, and got more out of the Property than he put into it. Accordingly, the court finds that there was valuable consideration.

Homestead Decision at 54-55 (emphasis added).

C. The Appeal and the Disposition of the Judgment Creditors' District Court Motion Seeking to Supplement the Record With Three Transcripts or to Remand to the Bankruptcy Court for Consideration of the Three Transcripts

On October 8, 2018, the judgment creditors timely filed a notice of appeal regarding the Homestead Decision, and the appeal was docketed in the District Court as Civil Action No. 18-cv-2318 (the "Appeal"). Full briefing of the issues presented in the Appeal was completed in February 2019. (See Appeal Dkt. Nos. 6, 8, and 11).

Meanwhile, after entry of the Homestead Decision, the judgment creditors were of the view that they had not been given fair notice before or during the homestead exemption trial that an issue regarding the ownership of the Property would be whether Max had provided consideration for the transfer under the Quitclaim Deed. In order to pursue the issue of consideration in more depth, the judgment creditors could have filed a motion seeking a new trial under Fed. R. Civ. P. 59(a), or a motion for relief from the Homestead Decision under Fed. R. Civ. P. 60(b)(1)based on excusable neglect, or a motion to depose Max and Len on the consideration issue pending the appeal. They did not need to obtain evidence from Max or Len before filing such a motion. Upon filing such a motion, they could have asked the District Court to put the appeal on hold pending disposition of the motion.

Instead of acting promptly, and availing themselves of their existing remedies in this bankruptcy case, Max's bankruptcy case, they decided they would attempt to obtain further testimony from Max and Len in Len's bankruptcy case to buttress their positions regarding the homestead exemption. They examined Max and Len in Len's own bankruptcy case, obtaining three transcripts of testimony months after the Homestead Decision was entered.

To elaborate, on December 12 and 13, 2018, a hearing was held in Len's bankruptcy case regarding a motion to convert Len's case from Chapter 11 to Chapter 7 of the Bankruptcy Code or,...