Madoff v. Amaral (In re Amaral)

• Citation: 550 B.R. 1
• Decision Date: 20 April 2016
• Docket Number: Adv. P. No. 15–1130,Case No. 14–15382–JNF
• Parties: In re Roger W. Amaral and Wendy S. Amaral, Debtors David Madoff, Chapter 7 Trustee, Plaintiff, v. Roger W. Amaral and Bernadette Furtado, Defendants
• Court: United States Bankruptcy Courts. First Circuit. U.S. Bankruptcy Court — District of Massachusetts

550 B.R. 1

In re Roger W. Amaral and Wendy S. Amaral, Debtors

David Madoff, Chapter 7 Trustee, Plaintiff

v.Roger W. Amaral and Bernadette Furtado, Defendants

Case No. 14–15382–JNF

Adv. P. No. 15–1130

United States Bankruptcy Court, D. Massachusetts.

Signed April 20, 2016

James C. Gross, Madoff & Khoury, LLP, Foxboro, MA, for Plaintiff.

Roger Stanford, Stanford & Schall, New Bedford, MA, for Defendants.

MEMORANDUM

Joan N. Feeney

, United States Bankruptcy Judge

I. INTRODUCTION

The matters before the Court are Cross–Motions for Summary Judgment filed by the Plaintiff, the Chapter 7 Trustee (the “Trustee”) of the estate of Roger W. Amaral and Wendy S. Amaral (collectively, the “Debtors”) and the Defendant/Debtor, Roger W. Amaral (“Amaral” or the “Debtor”) with respect to the Trustee's Complaint against the Debtor and his sister, Bernadette Furtado (“Furtado”).

Through his two-count Complaint, the Trustee seeks 1) a determination that the interest of the Debtor in real property located at 126 Holly Street, New Bedford, Massachusetts (the “property”) is property of the Debtors' bankruptcy estate (Count I); and 2) an order authorizing the Trustee to sell both the interest of the Debtor and co-Defendant Furtado, pursuant to 11 U.S.C. § 363(h)

(Count II).

Prior to the filing of the cross-motions for summary judgment, the Trustee and Furtado filed a Joint Motion for Entry of Agreed Order and Judgment pursuant to which they agreed that the Trustee, jointly with Furtado, could sell both the interests of the estate and Furtado in the property without affecting the merits of the Complaint against Amaral.¹ This Court entered the Agreed Order on December 18, 2015.

The Court held a hearing on the cross-motions for summary judgment on March 4, 2016. Counsel submitted briefs and supplement briefs on the legal issue presented, and, thereafter, the Court took the motions under advisement. The issue presented is whether the Debtor had a beneficial interest in the property at the commencement of the case, and, if so, the value of his interest. The parties agree that the material facts necessary to determine the issue are not in dispute and the matter is ripe for summary judgment. See Fed.R.Civ.P. 56

, made applicable to this proceeding by Fed. R. Bankr. P. 7056.

II. AGREED FACTS

On December 29, 2015, the Trustee and Amaral filed a Joint Pretrial Memorandum in which they stipulated to the material facts. On November 18, 2014, the Debtors filed a voluntary petition under Chapter 7 of the Bankruptcy Code. They disclosed their street address as 102 Topham Street, New Bedford, Massachusetts.² The U.S. trustee appointed the Trustee on November 19, 2014. The Debtors did not disclose on their schedules of assets any interest held by Amaral in the property. On December 17, 2104, the Trustee issued a Report of No Distribution. On March 3, 2015 the Court granted the Debtors a discharge, and, on March 6, 2015, the Debtors' Chapter 7 case was closed.

On or about June 12, 2015, the Trustee represented that he learned from Debtors' counsel, that, unbeknownst to the Debtors, as of the petition date, Amaral held a “contingent remainder interest” in the property, and that the other one-half remainder interest was owned by Furtado. On June 19, 2015, the Trustee filed a Motion to Reopen the Debtors' Chapter 7 case for the purpose of administering Amaral's previously undisclosed interest in the property. On June 29, 2015, the Court entered an order granting the motion to reopen the Debtors' Chapter 7 case.

On July 6, 2015, the Trustee withdrew his Report of No Distribution and requested a bar date for filing claims. The Court granted the request the request for a bar date and established October 5, 2015 as the deadline for filing proofs of claim. Seven creditors, whose unsecured claims total $3,020.66, filed proofs of claim, although the Debtors listed unsecured claims on Schedule F–Creditors Holding Unsecured Nonpriority Claims of approximately $43,000.

Approximately seven years before the Debtors filed their joint Chapter 7 case, on or about January 10, 2007, the Debtor's parents, Rogerio L.O. Amaral and Maria A. Amaral, owners of the property, executed a Life Estate Deed (the “Life Estate Deed” or the “deed”). The Life Estate Deed provided in pertinent part the following:

WE, ROGERIO L.O. AMARAL and MARIA A. AMARAL of 126 Holly Street, New Bedford, Bristol County, Massachusetts for consideration paid and in full consideration of Love and Affection grant to ourselves, ROGERIO L.O. AMARAL and MARIA A. AMARAL of 126 Holly Street, New Bedford, Bristol County, Massachusetts a Life Estate with full power to sell, mortgage, convey or otherwise dispose of in fee simple, including the right to convey to ourselves, or to our survivor for no consideration with the remainder to, ROGER WAGNER AMARAL of 102 Topham Street, New Bedford, Bristol County, Massachusetts and BERNADETTE FURTADO of 443 Coggeshall Street, New Bedford, Bristol County, Massachusetts as tenants in common and not as joint tenants with right of survivorship with Quitclaim covenants....”

The deed further provided: “No notice to, or asset by, the grantees in this instrument or their assigns shall be necessary in connection with any exercise of the rights retained by the grantors in this instrument.” Amaral was unaware that his father and mother executed the Life Estate Deed, and his parents did not deliver a copy of the deed to him prior to the commencement of the bankruptcy case.

Rogerio Amaral died on January 11, 2013 less than one year before the Debtors' petition date of November 18, 2014. His spouse, Maria Amaral, died on February 9, 2015, after the filing of the Debtors' petition, but before the Trustee was discharged and the case was closed. Following the death of Maria Amaral, the remainder interests held by Amaral and Furtado in the property became interests in the estate of fee by operation of law. The property is currently owned by Amaral and Furtado as tenants in common. The assessed value of the property is $166,900.00. The property is not encumbered by any mortgages or other liens. In the parties' Joint Pretrial Memorandum, Amaral disclosed his current address as 126 Holly Street, New Bedford, Massachusetts.

III. POSITIONS OF THE PARTIES

A. The Trustee

The Trustee argues that there are no material facts in dispute with respect to the Trustee's claim that Amaral held “a contingent remainder interest” in the property at the commencement of the case. Relying upon 11 U.S.C. § 541(a)(1)

of the Bankruptcy Code, which provides that the bankruptcy estate (with exceptions not pertinent here) is comprised of “all legal or equitable interests of the debtor in property as of the commencement of the case,” the Trustee contends that the Debtor's “continent remainder interest” in the Property is property of the estate. Citing, inter alia, Chartschlaa v. Nationwide Mut. Ins. Co., 538 F.3d 116 (2nd Cir.2008)

, cert. denied, 555 U.S. 1213, 129 S.Ct. 1534, 173 L.Ed.2d 658 (2009), and Tringali v. Hathaway Mach. Co., Inc., 796 F.2d 553, 560 (1st Cir.1986), he emphasizes that property of the estate is broadly construed.

The parties agreed in the Joint Pretrial Memorandum that Amaral held “a contingent remainder interest” in the property. The Trustee contends that “the Deed does not expressly state that Roger must be living after the death of both Rogerio and Maria for his remainder interest to ripen into a fee interest,” and that “there is an implicit requirement of survivorship in order for Roger to obtain that interest.” Thus, the Trustee, referencing Gordon v. Feldman, 359 Mass. 25, 27, 267 N.E.2d 895 (1971)

(“An express requirement of survivorship in a remainder gift renders the remainder contingent.”), asserts that “Roger's remainder interest is contingent on that ground as well.” Citing Jones v. Mullen (In re Jones), No. AZ–12–1644, 2014 WL 465631 (9th Cir. BAP Feb. 5, 2014), and In re Crandall, 173 B.R. 836 (Bankr.D.Conn.1994), he adds that case law is replete with instances where contingent beneficial interests have been held to be property of the estate.

The Trustee further argues that case law supports the position that any post-petition increase in value of property of the estate becomes property of the bankruptcy estate, including the ripening of the contingent remainder interest into a one-half interest in fee, citing In re Croteau, No. 00–10504–JMD, 2001 WL 1757049, *1 (Bankr.D.N.H. July 19, 2001)

, and In re Oglesby, No. 05–42277, 2006 WL 3590103 (Bankr.W.D.Ky. Dec. 6, 2006). He adds that the contingent remainder interest should be valued when it vested, not on the petition dated, citing Potter v. Drewes (In re Potter), 228 B.R. 422 (9th Cir. BAP 1999). The Trustee, relying on, among other cases, Whiteside v. The Merchant's Nat'l Bank of Boston, 284 Mass. 165, 187 N.E. 706 (1933), and Robertson v. Robertson, 313 Mass. 520, 48 N.E.2d 29 (1943), and distinguishing Williamson v. Hall, 441 B.R. 680 (10th Cir. BAP 2009), also contends that state law determines whether a debtor has a legal or an equitable interest in property and that under Massachusetts law, “the question of whether a contingent remainder interest is property of the bankruptcy estate depends upon whether creditors may reach that interest.”

The Trustee also relies upon Mass. Gen. Laws ch. 184, § 2

which provides the following:

If a contingent remainder, executory devise or other estate in expectancy is so granted or limited to a person that in case of his death before the happening of the contingency the estate would descend to his heirs in fee simple, he may, before the happening of the contingency, sell, assign or devise the land subject to the contingency.

Id .³ In the Trustee's view, this statute lends support for his position that the “contingent remainder” interest ostensibly held by the Debtor is property of the estate which can be sold. He also relies upon Nash v. Nash , 94 Mass. 345 (1866)

, a case in which the Supreme Judicial Court addressed...