Riley v. Countrywide Home Loans, Inc. (In re Duplication Mgmt., Inc.)

• Decision Date: 04 November 2013
• Docket Number: Bankruptcy No. 10–17015–JNF.,Adversary No. 12–1149.
• Citation: 501 B.R. 462
• Parties: In re DUPLICATION MANAGEMENT, INC., Debtor. Lynne F. Riley, As Chapter 7 Trustee, Plaintiff v. Countrywide Home Loans, Inc. and Bank of America, N.A., Defendants.
• Court: U.S. Bankruptcy Court — District of Massachusetts

501 B.R. 462

In re DUPLICATION MANAGEMENT, INC., Debtor.

Lynne F. Riley, As Chapter 7 Trustee, Plaintiff

v.Countrywide Home Loans, Inc. and Bank of America, N.A., Defendants.

Bankruptcy No. 10–17015–JNF.

Adversary No. 12–1149.

United States Bankruptcy Court,

D. Massachusetts.

Nov. 4, 2013.

John F. Davis, John F. Davis, Beverly, MA, for Debtor.

MEMORANDUM

JOAN N. FEENEY, Bankruptcy Judge.

I. INTRODUCTION

The matter before the Court is the Chapter 7 Trustee's “Motion for Summary Judgment as to All Counts of Her Second Amended Complaint,” which contains six counts as follows:

Count I against Countrywide Home Loans, Inc., for unjust enrichment in the amount of $397,361.11, plus prejudgment interest at the rate of 12% per annum from and after the date of the filing of the Complaint commencing this action, i.e., June 13, 2012, to the date of entry of judgment, pursuant to Mass. Gen. Laws ch. 231, § 6C;

Count II against Countrywide Home Loans, Inc., for money had and received in the amount of $397,361.11, plus prejudgment interest at the rate of 12 % per annum from and after June 13, 2012, to the date of entry of judgment, pursuant to Mass. Gen. Laws ch. 231, § 6C; Count III against Countrywide Home Loans, Inc., for fraudulent conveyances under 11 U.S.C. § 548, in the amount of $85,205.73, plus prejudgment interest under 28 U.S.C. § 1961(a) from and after June 13, 2012 to the date of entry of judgment;

Count IV against Countrywide Home Loans, Inc., for fraudulent conveyances under 11 U.S.C. § 544(a)(1) and Mass. Gen. Laws ch. 109A, § 6, in the amount of $287,040.50, plus prejudgment interest at the rate of 12% per annum from June 12, 2012 to the date of entry of judgment pursuant to Mass. Gen. Laws ch. 231, § 6C;

Count V, for fraudulent conveyances under 11 U.S.C. § 548(a)(1), against Bank of America, N.A., in the amount of $105,221.18, plus prejudgment interest from June 13, 2012 under 28 U.S.C. § 1961(a) from June 13, 2102 to the date of entry of judgment; and

Count VI, for fraudulent conveyance under 11 U.S.C. § 544(a)(1) and Mass. Gen. Laws ch. 109A, § 6, against Bank of America, N.A., in the amount of $105,221.18, plus prejudgment interest at the rate of 12% per annum from June 12, 2012 to the date of entry of judgment pursuant to Mass. Gen. Laws ch. 231, § 6C;

In conjunction with her Motion for Summary Judgment, the Trustee filed two affidavits. Her counsel, Thomas O. Bean, Esq., attached 25 exhibits to his affidavit, including the transcripts of depositions of Michael E. Jenoski (“Mr. Jenoski”), the Debtor's president and sole shareholder, as well as the president and sole shareholder of the Debtor's affiliate, DMI, Inc. (“DMI”); Robert O'Connor (“Mr. O'Connor”), an accountant to the Debtor, DMI, and Mr. Jenoski and his spouse, Anna M. Jenoski; Karen Slyapich (“Ms. Slyapich”), a deposition witness designated by the Defendants; and Lois Queen, the office manager for DMI.

The Defendants, Countrywide Home Loans, Inc. (“Countrywide”) and Bank of America, N.A. (“BANA”) (collectively, the “Defendants”) ¹ filed an Opposition to the Trustee's Motion together with two exhibits and portions of the deposition transcripts of Mr. O'Connor and Ms. Slyapich.²

The Court heard the Trustee's Motion and the Opposition on September 4, 2013 and took the matter under advisement. The Defendants maintain that genuine issues of material fact exist as to whether the Debtor was solvent during the four years prior to the filing, and as to whether mortgage payments made by the Debtor to the Defendants were in lieu of compensation for services of Mr. Jenoski in the absence of evidence quantifying the value of those services.

This Court has jurisdiction pursuant to 28 U.S.C. § 1334 and the order of reference of the United States District Court. See LR, D. Mass. 201. This Court has authority to hear and enter a final order in this adversary proceeding as the Trustee is seeking to avoid and recover fraudulent transfers which are core proceedings. See28 U.S.C. § 157(b)(2)(H). The United States Court of Appeals for the Ninth Circuit in Executive Benefits Ins. Agency v. Arkison (In re Bellingham Ins. Agency, Inc.), 702 F.3d 553, 565–67 (9th Cir.2012), cert. granted,––– U.S. ––––, 133 S.Ct. 2880, 186 L.Ed.2d 908 (2013), ruled that bankruptcy courts do not have authority to finally determine fraudulent transfer actions despite Congress's designation of fraudulent transfer actions as core proceedings. The Ninth Circuit further held, however, that a bankruptcy court may hear and determine and enter final judgments in fraudulent transfer actions with the parties' consent, which may be implied. Id. at 567.But also Waldman v. Stone, 698 F.3d 910 (6th Cir.2012); Wellness Internat'l Network, Ltd. v. Sharif, 727 F.3d 751 (7th Cir.2013).

The Defendants have impliedly consented to the authority of this Court to determine the fraudulent transfer counts, although they have not filed proofs of claim, by failing to raise an issue of the Court's authority during this proceeding. In particular, the Defendants impliedly consented by filing an Opposition to the Trustee's Motion for Summary Judgment, and by failing to object to the authority of this Court in that Opposition or at the hearing when the issue was raised by the Court and addressed by the Trustee. The waiver issue is before the Supreme Court but resolution of the instant matter should not await that decision in view of Massachusetts District Court Local Rule 206. If the district court were to disagree as to this Court's authority in the event of an appeal, finding that the Defendants did not consent to the entry of a final order, that court may treat these findings and rulings as proposed. See LR, D. Mass. 206 (“The district court may treat any order or judgment of the bankruptcy court as proposed findings of fact and conclusions of law in the event the district court concludes that the bankruptcy judge could not have entered a final order or judgment consistent with Article III of the United States Constitution.”). To the extent the other counts in the Second Amended Complaint are not claims for avoidance of fraudulent transfers, they are related to the bankruptcy case, and the findings and rulings set forth may be considered proposed findings of fact and conclusions of law. See28 U.S.C. § 157(c)(1).

The Court now makes its findings of fact and rulings of law pursuant to Fed. R. Bankr.P. 7052. For the reasons set forth below, the Court shall enter an order granting the Trustee's Motion.

II. BACKGROUND

An involuntary Chapter 7 petition was filed against Duplication Management Incorporated (the “Debtor”) on June 28, 2010. On September 3, 2010, the Court entered an order for relief under Chapter 7, and, thereafter, the U.S. trustee appointed Lynne F. Riley the Chapter 7 Trustee. On October 20, 2010, the Debtor filed, among other documents, schedules of liabilities and a statement of financial affairs. It disclosed no assets, except a valueless employee owned 401(k) profit sharing plan. It disclosed unsecured debt totaling $382,576. In its statement of financial affairs, the Debtor further disclosed that it ceased operations on February 26, 2010, although it had earned income of $737,500 in 2010 prior to the cessation of business and income well in excess of $5 million in 2008 and 2009. The Debtor also disclosed that Mr. Jenoski was its president, treasurer and sole stockholder.

On June 13, 2012, the Trustee filed a Complaint against Countrywide, thereby commencing this adversary proceeding. The Trustee subsequently filed a separate but related adversary complaint against BAC Home Loan Servicing, L.P. (“BAC”), namely, Adv. Pro. No. 12–01223. In December 2012, the Trustee, Countrywide, and BANA, as successor by merger to BAC, filed a Joint Motion to Allow the Trustee to File a Second Amended Complaint and for Related Relief. In that joint motion, the parties requested, in part because Countrywide and BANA (together, the “Defendants”) are related entities represented by the same counsel, that the Trustee be permitted to file a Second Amended Complaint against the Defendants in this proceeding and that the Second Amended Complaint relate back in time to the date the Trustee filed her initial Complaint against Countrywide. Contemporaneous with filing the joint motion, the Trustee filed her Second Amended Complaint and the parties filed a Statement of Agreed Facts applicable to this proceeding. After the Court allowed the joint motion, the Trustee dismissed the related adversary proceeding against BAC without prejudice.

III. UNDISPUTED FACTS³

Prior to 2004 through the date it ceased operations on February 26, 2010, the Debtor was a printing manufacturer in Woburn, Massachusetts. In January 2001, Mr. Jenoski purchased his then co-owner's interest in the Debtor and its affiliate, DMI. At all times thereafter, Mr. Jenoski was the president and sole shareholder of both the Debtor and DMI. As part of the purchase price for his then co-owner's interest in the Debtor and DMI, Mr. Jenoski agreed to pay the co-owner one million dollars. To obtain that sum, Mr. Jenoski and his wife borrowed money from Enterprise Bank (“Enterprise”). To secure repayment of the loan from Enterprise, the Jenoskis granted Enterprise a mortgage on their lake front home in Meredith, New Hampshire (the “Meredith Property”).

A few years later, in October 2004, the Jenoskis refinanced the mortgage they had granted to Enterprise. They executed a promissory note in the amount of $1,223,000.00 (the “Note”), in favor of Omega Mortgage Corp., which was secured by a mortgage (the “Mortgage”) on the Meredith Property (the “Loan”). The Jenoskis were co-makers on the Note secured by the Mortgage with respect to the Loan; the Debtor, however, was neither a co-maker nor guarantor of the Note with respect to the Loan, and had no obligation to repay all or any portion of the Loan. Notably, if the minimum payments were made under the adjustable...