571 B.R. 1
Bankr. D.N.H.2017Background
- Debtor (Kathleen Duggan) filed Chapter 7; estate's sole asset: a one‑third undivided interest in 53 Lowell St., Malden, MA (scheduled value $100,000; estate claimed a small NH wildcard exemption).
- Property passed to Debtor and her two brothers (James and William Duggan) as tenants in common after their mother died intestate in 2009.
- City of Malden executed a tax taking in 2011 for unpaid real estate taxes; as of record date the City was owed ~$37,047 and pending foreclosure of the co‑owners’ equity of redemption exists in MA Land Court.
- Trustee sought to sell the entire property free and clear under 11 U.S.C. § 363(h); parties stipulated a market sale price of at least $325,000 and that partition is impracticable (single‑family house).
- Defendants (co‑owners) opposed, arguing (1) sale costs and taxes cannot be charged against co‑owners’ shares and (2) sale would cause substantial emotional and economic detriment (especially to James, who lives on the property and is financially vulnerable).
- Court held pretrial that evidence of an alleged oral trust (testimony about decedent’s undocumented intent) was irrelevant because the Trustee, as an oral trustee, cannot be compelled to perform; trial proceeded on valuation, costs, and the § 363(h) balancing test.
Issues
| Issue | Plaintiff's Argument (Ford) | Defendant's Argument (Duggans) | Held |
|---|---|---|---|
| Whether sale costs (broker commission, transfer tax, recording fees) may be deducted from gross proceeds before distribution under § 363(j) | § 363(j) allows deduction of "costs and expenses ... of such sale" from gross proceeds; these typical sale costs should be charged before division | "Costs and expenses" is ambiguous; trustee's broader administrative costs (including attorney fees) should not be charged against dispossessed co‑owners; In re Flynn supports limiting deductions | Court held such sale costs are deductible from gross proceeds under § 363(j); Flynn limited to trustee attorney fees not "of such sale" |
| Whether real estate taxes must be paid from sale proceeds before distribution or must first be advanced by trustee and then recovered by contribution action under Mass. law | Real estate taxes are in rem liens (Mass. Gen. Laws ch. 60 § 37) and must be satisfied from sale proceeds prior to distribution | Relying on Mass. Gen. Laws ch. 59 § 12D, co‑owners argue the payor must pay first and then seek contribution; also raised Stern concerns for a follow‑on contribution action | Court held tax lien has priority; taxes must be paid from sale proceeds prior to distribution; contribution among co‑owners is in personam and secondary |
| Whether sale of entire property benefits estate enough to justify sale free and clear under § 363(h) | Sale will realize sufficient net proceeds (based on $325,000 stipulation) to pay administrative expenses and unsecured creditors in full and leave a surplus to debtor | Sale imposes severe detriment on James (loss of home, mental/medical harm, inability to pay rent); defendants argued trustee underestimated costs and overestimated net benefit | Court found Trustee met initial burden; even accounting for detriment to James, benefit to estate (full payment of claims, surplus to debtor, ~$88,900 to each co‑owner) outweighs detriment given City's tax taking and likely loss otherwise |
| Admissibility/effect of alleged oral trust (decedent's undocumented intent) | Trustee moved to exclude such testimony as irrelevant and hearsay; Trustee—as oral trustee—cannot be compelled to perform | Defendants sought to prove oral trust or partial performance to keep property out of estate | Court granted motion in limine: excluded testimony about decedent's undocumented intent; oral trust, even if alleged, cannot be enforced against Trustee and is irrelevant to § 363(h) sale |
Key Cases Cited
- Bailey v. Wood, 211 Mass. 37 (1912) (discusses completion of oral trust by reconveyance eliminating statute of frauds problem)
- Ward v. Grant, 9 Mass. App. Ct. 364 (1980) (recognizes limited enforceability of oral trusts in land)
- Twomey v. Crowley, 137 Mass. 184 (1884) (equitable obligations of oral trustees not enforceable by compulsion)
- Hoffman v. Charlestown Five Cents Sav. Bank, 231 Mass. 324 (1918) (oral trusts and equitable relief principles)
- United States v. LaBonte, 520 U.S. 751 (1997) (statutory interpretation: give words their ordinary meaning)
- Moskal v. United States, 498 U.S. 103 (1990) (statutory‑interpretation principles on textual meaning)
- United States v. Ven‑Fuel, Inc., 758 F.2d 741 (1st Cir. 1985) (statutory construction: all words given effect)
- Stine v. Diamond (In re Flynn), 418 F.3d 1005 (9th Cir. 2005) (trustee attorney fees for preserving/disposing property are not "costs and expenses ... of such sale")
- Stern v. Marshall, 564 U.S. 462 (2011) (limits on bankruptcy court's power to enter final judgments on certain state law counterclaims)