Madoff v. Amaral (In re Amaral)
| Decision Date | 08 May 2017 |
| Docket Number | Adv. P. No. 15–1130,Case No. 14–15382–JNF |
| Citation | 567 B.R. 417 |
| Parties | IN RE Roger W. AMARAL and Wendy S. Amaral, Debtors David B. Madoff, Chapter 7 Trustee, Plaintiff, v. Roger W. Amaral and Bernadette Furtado, Defendants |
| Court | U.S. Bankruptcy Court — District of Massachusetts |
James C. Gross, David B. Madoff, Madoff & Khoury, LLP, Foxborough, MA, for Plaintiff.
Roger Stanford, Lang, Xifaras & Bullard, Ann Ponichtera DeNardis, Ponichtera & DeNardis PC, New Bedford, MA, for Defendant.
The matter before the Court is the Motion for Attorney's Fees and Costs (the "Motion") filed by Bernadette Furtado ("Furtado"). Furtado seeks an order from this Court requiring Codefendant, Roger W. Amaral (the "Defendant" or the "Debtor"), to pay her attorney's fees and costs associated with her defense of this adversary proceeding in accordance with Fed. R. Bankr. P. 7054(b). In her Motion, Furtado asserted that "she is a completely innocent third party in this matter, and has been forced into this Adversary proceeding due to the actions and inaction of her brother, the Defendant Roger Amaral with whom she shared title to a parcel of real estate." She added that due to the Debtor's conduct "she was obligated to incur substantial attorney's fees and costs in order to obtain the sale of her real property."
The Plaintiff in this adversary proceeding, David B. Madoff, the Chapter 7 Trustee of the bankruptcy estate of Roger W. Amaral and Wendy S. Amaral (collectively, the "Debtors"), filed a Statement of No Position with respect to Furtado's Motion. He observed: "By her motion, Furtado seeks attorney's fees only against co-Defendant Roger W. Amaral, and only from the surplus funds that he may receive in the underlying Chapter 7 proceeding. " (emphasis in original). The Trustee added that "the bankruptcy estate has no stake in the outcome of this motion. ..."
The Debtor filed an Opposition to Furtado's Motion. He stated that Fed. R. Civ. P. 54, which is made applicable to this proceeding by Fed. R. Bankr. P. 7054, does not create "a substantive right to attorney's fees" or change the American rule pertaining to payment of attorney's fees. The Debtor added that a motion under Fed. R. Civ. P. 54 must be filed within 14 days after entry of judgment and that, by any measure, Furtado's motion is untimely.
Furtado filed a Response to the Debtor's Objection. In her Response, she argued that no final judgment has entered in this adversary proceeding and that the Court's order of April 20, 2016 is not a final order. She maintained that all federal courts have inherent authority to sanction attorneys, and bankruptcy courts also have authority to sanction attorneys under 11 U.S.C. § 105(a).
The Court heard the Motion on March 22, 2017 at which time Furtado's counsel argued that the Debtor's conduct was "frivolous and vexatious" and "was intended to delay th[e] ultimate sale" of the property located at 146 Holly Street, New Bedford, Massachusetts (the "property'), which was the subject of the adversary proceeding. Following the hearing, the Court took the matter under advisement. The material facts needed to resolve the issue are not in dispute and neither of the parties requested an evidentiary hearing.
On November 18, 2014, the Debtors filed a voluntary petition under Chapter 7 of the Bankruptcy Code.1 The U.S. trustee appointed the Trustee on November 19, 2014. On their petition, the Debtors disclosed their street address as 102 Topham Street, New Bedford, Massachusetts. They did not disclose on their schedules of assets any interest held by the Defendant 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 learned from counsel to the Debtors that, unbeknownst to them, as of the petition date, the Defendant 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 the Defendant'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.2
The Trustee filed a Complaint against the Debtor and Furtado. Through his two-count Complaint, the Trustee sought 1) a determination that the interest of the Debtor in the property was property of the Debtors' bankruptcy estate (Count I); and 2) an order authorizing him to sell both the interest of the Debtor and the interest of Codefendant Furtado, pursuant to 11 U.S.C. § 363(h) (Count II). Following the filing of a Joint Pretrial Memorandum, the Trustee filed a Motion for Summary Judgment. Subsequently, the Defendant also filed a Motion for Summary Judgment.
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 the Defendant. This Court entered the Agreed Order on December 18, 2015. The Trustee and Furtado specifically agreed to retain a real estate broker recommended by Furtado, whose commission would not exceed 5% of the gross sales proceeds and whose employment would comply with the requirements of 11 U.S.C. § 327. They further agreed that the proceeds would be distributed first to the payment of valid and perfected liens and second to the payment of the broker's fee and reasonable and customary expenses associated with the costs of sale. From net proceeds, Furtado and the Trustee agreed that each would each receive 50%. Finally, they agreed that if this Court were to determine that the Debtor had no interest in the Property, their agreement would "become null and void and without any force or effect whatsoever."
The Court heard the cross-motions for summary judgment on March 4, 2016. The issue presented by the cross-motions was whether the Debtor had a beneficial interest in the property at the commencement of the case, and, if so, the value of that interest. On April 20, 2016, this Court granted the Trustee's Motion for Summary Judgment and denied the Debtor's Motion for Summary Judgment, thereby finding that the Debtor had a vested remainder interest in the property and authorizing the Trustee to sell the vested remainder interest that the Debtor possessed at the commencement of the bankruptcy case that had ripened into a tenancy in common with Furtado. See Madoff v. Amaral (In re Amaral) , 550 B.R. 1 (Bankr. D. Mass. 2016). In the order accompanying its memorandum, the Court stated:
In view of the proofs of claim on file in this Chapter 7 case, which total only $3,020.66, compared to the value of the interest of the Debtor/Defendant in the property, which far exceeds that sum, the Trustee is not authorized to sell the property at this time, pending further order of the Court. The Court shall afford the parties a reasonable opportunity to resolve their dispute or pursue other appropriate resolutions of this dispute, including a structured dismissal or conversion of the Chapter 7 case to a case under Chapter 13.
The Court conducted a status conference on May 20, 2016 at which the Debtor and the Trustee reported a settlement. On June 8, 2016, in the main case, the Trustee filed a Motion to Compromise Adversary Proceeding No. 15–1130, together with a Settlement Stipulation. Pursuant to the settlement, the Defendant agreed, inter alia, that "[i]n full settlement of the claims of the Trustee, Amaral shall make a payment in the amount of $21,000.00 to the Trustee ... [which] ... Settlement Payment shall be due and payable at the time that the New Bedford Property is sold." The Defendant agreed to act cooperatively with Furtado and to take all reasonable steps to actively market the property without any cost or expense, including any broker's commission, to the bankruptcy estate. The Defendant also granted the Trustee a mortgage, to be held in escrow, to secure the Trustee's receipt of his share of the sale proceeds. In addition, the parties agreed that if the Defendant and Furtado could not sell the property within six months, the Trustee could sell the property consistent with his settlement with Furtado.
Furtado objected to the Motion to Compromise, asserting that the Settlement Stipulation did not "provide adequate protection of her interest in the real property" and complaining that the Defendant had not paid any portion of the rent from the property to her and had not provided her with an accounting. She also complained that the compromise did not require the Defendant to keep the property insured and to pay real estate taxes. In addition to objecting to the compromise, Furtado filed a "Motion to Vacate Stay" in order to proceed with a Petition to Partition, which motion elicited objections from the Trustee and the Defendant.
On July 19, 2016,3 the Court denied the Trustee's Motion to Compromise and granted Furtado's Motion to Vacate the Stay. Although the Debtors moved the Court to reconsider that order, they withdrew their motion on September 12, 2016, approximately two weeks before the Trustee filed an Expedited Motion for Authority to Sell Assets Free and Clear by Private Sale pursuant to which he proposed to sell the property. In his motion, the Trustee stated:
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...a substantive right to attorney's fees and does not change the "American Rule" regarding payment of attorney's fees. In re Amaral, 567 B.R. 417 (Bankr. D. Mass. 2017). Although the "American Rule" generally prohibits fee shifting, there are three accepted exceptions: the "common fund" excep......