Irons v. Maginnis (In re Irons)

Decision Date06 July 2017
Docket NumberAdv. Pro. No. 16–3120,Case No.: 12–32449
Parties IN RE: Logan R. IRONS, Debtor. Logan R. Irons, Plaintiff, v. Leon Maginnis, Successor Trustee of the D. Ross Irons Amended and Restated Declaration of Trust, et al., Defendants.
CourtUnited States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Northern District of Ohio

Thomas W. Heintschel, Frederickson, Heintschel & King Co., LPA, Toledo, OH, for Plaintiff.

H. Buswell Roberts, Blacksburg, VA, Timothy A. Riedel, Bailey Cavalieri LLC, Columbus, OH, for Defendants.

MEMORANDUM OF DECISION AND ORDER GRANTING DEFENDANTS' MOTIONS TO DISMISS AND DENYING DEFENDANT MAGINNIS' AND PLAINTIFF'S MOTIONS FOR SUMMARY JUDGMENT

John P. Gustafson, United States Bankruptcy Judge

This adversary proceeding is before the court on Defendant Leon Maginnis' (or "Maginnis") "Motion to Dismiss or in the Alternative for Summary Judgment" ("Maginnis' Motion") [Doc. # 4], Defendant Bellevue Farm, LLC's ("Bellevue") Motion to Dismiss ("Bellevue Motion") [Doc. # 5], Plaintiff Logan R. Irons' ("Plaintiff") Motion for Summary Judgment ("Plaintiff's Motion") [Doc. # 24], Plaintiff's Memorandum in Opposition to Defendants' Motions and in Support of Plaintiff's Motion ("Plaintiff's Memo") [Doc. # 25], Maginnis' Reply to Plaintiff's Motion and Memo ("Maginnis' Reply") [Doc. # 28], Bellevue's Memorandum in Opposition to Plaintiff's Motion and Reply to Plaintiff's Memo ("Bellevue's Memo") [Doc. # 29], and Plaintiff's Reply to Bellevue's Memo ("Plaintiff's Reply") [Doc. # 30]. Plaintiff is the debtor in the underlying Chapter 7 bankruptcy case. Defendant Maginnis is the trustee of the Amended and Restated Declaration of Trust for D. Ross Irons (the "Irons' Trust" or "Trust"), and Defendant Bellevue is the purchaser of the trust interests that were sold by the Chapter 7 Trustee.

In his complaint, Plaintiff seeks declaratory and injunctive relief relative to an alleged right he has to reside in the residence ("Residence") owned by the trust of Plaintiff's late father, D. Ross Irons. Plaintiff argues that his right to occupy the Residence, which was set forth in the Irons' Trust, was not and could not have been transferred to Bellevue, the purchaser of the trust interests sold by the Chapter 7 Bankruptcy Trustee. [Doc. # 24–1, p. 1]. Defendants Maginnis and Bellevue both argue that dismissal of the Complaint is proper pursuant to Fed. R. Civ. P. 12(b)(6), as they allege that the court-approved sale of the Irons' Trust assets included all rights and interests of Plaintiff, including the right of occupancy in the Residence. Further, due to res judicata principles, Defendants believe that the court-approved sale of the Irons' Trust rights cannot now be questioned.

For the reasons that follow, the court will grant Defendants' Motions to Dismiss and deny Defendant Maginnis' and Plaintiff's Motions for Summary Judgment.

BACKGROUND

Unless otherwise noted, the following facts are undisputed. On June 14, 2000, Plaintiff's late father caused to be made a trust agreement, which was amended and restated on June 26, 2006. [Doc. # 1–2, Pl. Ex. B, Irons' Trust]. The Irons' Trust granted Plaintiff's mother a life estate in the Trust's residential real property located at 5625 State Route 113, Bellevue, Ohio. Article IX(2), titled "Right of Residency", set forth that if the Trustor (D. Ross Irons )'s spouse were to survive the Trustor, the Trustee was to "permit the Trustor's spouse to reside in the residential real property. ..." [Id., p. 8]. Article IX(2)(a) provides that:

During the period following the death of the Trustor in which the Trustor's spouse resides in the Trustor's principal residence ... the successor trustee shall pay any and all real property taxes or assessments, including interest and penalties thereon, as well as any and all homeowner's insurance premiums such as maintained by the Trustor as of his date of death, or as may be typical in the geographic area for residences of similar value.

[Id. ].

Article IX(2)(c) establishes that the right of residency and the financial obligations of the Trust incident thereto terminate upon the occurrence of any of three events: 1) the death of the Trustor's spouse; 2) the voluntary or involuntary establishment of a new permanent residence by the Trustor's spouse; and 3) the remarriage or co-habitation with another of the Trustor's spouse. [Id. , p. 8–9].

Article IX(4)(a)(ii), titled "Management of Residential Real Property", states the following:

The Successor Trustee shall retain in the Trust Estate the Trustor's residential real property ... Said right of residency as it pertains to [Plaintiff], shall occur in the event of the death of the Trustor's spouse, or the termination of her right of residency as such is defined in Article IX(2) of this Trust Agreement. Should [Plaintiff] wish to reside in such residential real property, he shall be permitted to do so under the same terms and conditions as provided the Trustor's spouse under Article IX(2) of this Trust Agreement ....

[Id., p. 10].

The Irons' Trust also provided that upon the termination of the right to reside in the real property, the property shall be managed and distributed and conveyed as provided in Article IX(4) of the Irons' Trust. [Id. , p. 9]. The Trustor, D. Ross Irons, died on or about July 6, 2006, and until September 30, 2016, his wife Linda Irons resided at the Residence. [Doc. # 5, p. 18].

Plaintiff filed for relief under Chapter 7 of the Bankruptcy Code on May 25, 2012. [Case No. 12–32449, Doc. # 1].1 At the time the petition was filed, John N. Graham (the "Chapter 7 Trustee") was appointed as the interim Chapter 7 Trustee, and he has continued in that capacity as the duly appointed trustee. In Debtor's originally filed Schedule C [Case No 12–32449, Doc. # 10, p. 13] and Amended Schedule C [Id., Doc. # 27, p. 27], Debtor did not claim that any or all of his interest as a beneficiary of the Irons' Trust were exempt.

On April 30, 2014, the Chapter 7 Trustee filed an adversary proceeding in this court. [Case No. 14–3055, Doc. # 1]. The Chapter 7 Trustee's complaint sought a declaratory judgment that Plaintiff's interests in the "Property Rights of the ... Trust are assets of the Bankruptcy Estate." [Id., Doc. # 1, ¶ 25]. Count One of the Complaint was dismissed without prejudice in an agreed order [Id., Doc. # 39], and summary judgment was granted in favor of the Chapter 7 Trustee on the remaining two counts. Specifically, the order granting summary judgment [Id. , Doc. # 34] held that:

[T]he interests of [Plaintiff] as a limited partner in the D. Ross Irons Partnership ... and as a beneficiary of the D. Ross Irons Trust Agreement dated June 14, 2000 and as amended and restated on June 26, 2006 are held to be assets of the Bankruptcy Estate in Case No. 12–32449 ....

[Id., at p. 3].

Plaintiff did not object to or appeal the order granting summary judgment, and he did not assert in Case No. 14–3055 that any interest of his was excluded from his Chapter 7 Bankruptcy Estate.

On September 16, 2015, the Chapter 7 Trustee filed a "Motion to Sell Assets of the Estate Pursuant to 11 U.S.C. 363, to Designate and Approve a Stalking Horse Purchaser, to Establish Bid Procedure for the Stalking Horse Sale Hearing and Consideration of Bid Protections in Connection Therewith" ("Sale Motion"). [Case. No. 12–32449, Doc. # 293]. The Sale Motion referenced the court's order granting summary judgment in the 2014 adversary case, stating that

... the Court entered an Order declaring that the interests of [Plaintiff] as a limited partner in the partnership and as a beneficiary of the Trust are assets of the bankruptcy estate and that all future distributions that would otherwise have been made to [Plaintiff] are to be made to the Trustee ...

[Id., ¶ 5].

The Sale Motion defined the "Assets" involved in the sale as follows: 1) the interests of Plaintiff as a beneficiary of the Trust; 2) the future distributions set forth in Paragraph 5 of the Sale Motion; and 3) the Patronage Dividends as defined in Paragraph 6 of the Sale Motion. [Id., ¶¶ 5–7]. Debtor–Plaintiff was properly served with the Sale Motion and did not file an objection. The Sale Motion was set for hearing [Id., Doc. # 298], notice of which was properly served on Debtor–Plaintiff. [Id., Doc. # 299]. At the hearing on the Sale Motion, Counsel for Debtor appeared telephonically. He did not object to the Sale Motion (either on the record at the hearing, or by filing an objection during the 10 day objection period), nor did he assert that any of Debtor's interests pursuant to the Trust be excluded from the sale. [Case No. 12–32449, Doc. # 302].

Because no objection was raised to the Sale Motion, and finding the motion otherwise proper, the court signed the Nunc Pro Tunc Agreed Order ("Sale Order") on November 20, 2015. [Id. , Doc. # 308]. The Sale Order stated the following:

The Trustee is authorized to sell any and all of [Plaintiff's] interests in D. Ross Irons First Family Limited Partnership created on or about May 19, 1994, ("the Partnership") and any and all interests as a result of the Debtor being designated a beneficiary of the D. Ross Irons Trust Agreement created on or about June 14, 2000 and subsequently amended and restated on June 26, 2006 ...

[Id. , ¶ 2].

The Sale Order also authorized the Chapter 7 Trustee to take the following action:

The Trustee is authorized to sell any and all of the [Plaintiff]'s rights under either the Partnership or the Trust to all distributions from the Partnership and Trust until such entities are liquidated and Debtor's interests referred to in Paragraph Two (2) above are distributed.

[Id., ¶ 3].

Paragraphs 2 and 3 of the Sale Order, in addition the Chapter 7 Trustee's authorization "to sell any and all rights of the Plaintiff to any future patronage dividends that may be declared by Ag Credit, ACA related to the years 2010 and 2013" were the defined "Assets" to be sold pursuant to the Sale Order. [Id., ¶¶ 4–5]. Plaintiff received proper notice of the...

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