In Re Pina
MEMORANDUM
I. INTRODUCTION
The matter before the Court is the “Motion of KAC Associates, LLC and Brian Conefrey to Compel Compliance with State Court Order or, in the Alternative, to Dismiss the Case or Grant Relief from Stay” (the “Motion to Compel”). Pursuant to the Motion to Compel, KAC Associates, LLC (“KAC”) and Brain Conefrey (“Cone-frey”)(collectively, “KAC”) primarily seek an order compelling this Court to give effect to a final, non-appealable judgment of the Massachusetts Superior Court, Department of the Trial Court, dated October II, 2005. That order required the Debtor, Patricia Renee Pina (the “Debtor”), to convey her 51 % interest in a 36.51 acre property located at 59 Parsonage Road, Plympton, Massachusetts, known as Aces Wild Farm & Ranch (the “Property”), to KAC under the terms of a Co-Tenancy Agreement. Both the Chapter 7 Trustee of the Debtor’s bankruptcy estate, Donald Lassman, Esq., and the Debtor filed Oppositions to KAC’s Motion to Compel.
The Court heard the Motion to Compel on December 13, 2006 and directed the parties to file briefs by December 20, 2006. The Debtor did not file a brief in support of her position as it mirrors that of the Trustee. KAC and the Trustee timely filed briefs, as well as supplemental briefs.
The principal issue for determination is whether the Trustee’s status as a bona fide purchaser for value under 11 U.S.C. § 544(a)(3) is superior to KAC’s rights under the October 11, 2005 judgment. For the reasons set forth below, the Court concludes that the Trustee’s statutory status prevails over the pre-petition rights of KAC to enforce its state court judgment.
The facts necessary to decide the issue are not in dispute, although the legal import given to those facts is contentious. Because the material facts are not in dispute, and because neither KAC nor the Trustee requested an evidentiary hearing, the Court shall treat the Motion to Compel and the alternative requests for relief set forth in the motion as a motion for summary judgment. See Fed. R. Bankr.P. 7076. The Court now makes its findings of fact and rulings of law in accordance with Fed. R. Bankr.P. 7052.
II. FACTS
The Debtor filed a voluntary Chapter 7 petition on July 10, 2006. She failed to list three prior bankruptcy cases on her petition, specifically a Chapter 13 case (Case No. 01-17221-CJK), which was filed on September 17, 2001, and two Chapter 12 cases: Case No. 02-11307-CJK, which was filed on February 25, 2002, and Case No. 02-13593-CJK, which was filed on May 12, 2002. In the Chapter 12 case immediately preceding this Chapter 7 case, Case No. 02-13593-CJK, the Debtor procured financing from KAC and Conefrey, proposed a Chapter 12 Plan through which she paid her unsecured creditors in full, and obtained a discharge on March 15, 2004.
In obtaining confirmation of her Chapter 12 plan, the Debtor disclosed that she was a licensed equine professional and that she purchased the Property in 1998 for the purpose of operating a horse breeding farm for American Quarter Horses. She stated that it had been her intention to breed, train, and sell Quarter Horses for profit, but that her business plans went awry because of “dropped foal syndrome,” the result of the ingestion by mares of
The Debtor’s Chapter 12 Plan required a loan from investors which was contingent upon a sale of 49% of her interest in the Property to Conefrey for $140,000.00, subject to all preexisting liens and encumbrances, as well as Conefrey’s agreement, as joint owner, to co-sign a loan from, and first mortgage to, the investors. The Debtor further disclosed her intention to execute the Co-Tenancy Agreement within thirty days of confirmation.
Judge Kenner confirmed the Debtor’s Chapter 12 Plan on September 17, 2002. In accordance with the representations in her Chapter 12 Plan, the Debtor and KAC executed a Co-Tenancy Agreement on October 17, 2002. Its purpose was
to establish the rights of each Co-Tenant as they relate to the Property and to establish a framework in which the Co-Tenants will (a) own, operate, maintain, develop in any way deal with the Property and (a) [sic] own, operate, maintain, develop a horse farm business that will include, but not be limited to breeding, boarding and lessons.
The Agreement provided that “the Property shall be real property for all purposes” and that “for income tax purposes only the Co-Tenancy shall be treated as a partnership.” Additionally, the Co-Tenancy Agreement contained provisions relating to a “deadlock” between the Debtor and KAC, which would be “deemed to exist whenever the Co-Tenants cannot unanimously agree on any of the decisions requiring their unanimous approval in accordance with the terms of this Agreement, within fifteen (15) business days after a Co-Tenant requests the consent or approval of the other Co-Tenants to any such decision.”
On April 19, 2004, approximately a year and a half after the Debtor and KAC executed the Co-Tenancy Agreement and approximately one month after the Debt- or’s Chapter 12 bankruptcy case was closed, KAC offered to purchase the Debt- or’s 51 % interest in the Property for $75,000.00, or, in the alternative, for the Debtor to purchase KAC’s interest in the Property for $75,000.00. Because the Debtor failed to respond to its offer, on June 24, 2004, KAC filed a Complaint in the Superior Court seeking an order requiring the Debtor to convey her interest in the Property to it for a purchase price of $75,000.00.
On November 3, 2004, while the Superi- or Court action was pending, the Massachusetts Society for the Prevention of Cruelty to Animals (the “MSPCA”) seized 28 horses and 33 sheep located on the Property. Although the Debtor listed a claim against the MSPCA as an asset on Schedule B-Personal Property, the MSPCA, in its proof of claim and other pleadings filed with this Court, has alleged that the animals on the Property in Plympton were in “inexcusably poor condition from prolonged mistreatment and neglect.”
KAC filed a motion for summary judgment in the Superior Court action, but the court denied it, finding that under the “deadlock” provisions of the Co-Tenancy Agreement KAC’s offer to purchase the Property lacked specificity with respect to the parties’ future liability for the mortgages encumbering the Property.
See KAC Assocs., LLC v. Pina,
No.2004-799, Slip Op. at 1 n. 1 (October 11, 2005). After KAC’s first motion for summary judgment was denied, it sent another letter to the Debtor dated February 17, 2005 containing a new proposal which gave the Debtor “the option to either sell her interest in the Property to KAC for $75,000.00 minus costs associated with interest on the loans and taxes on the Property, or to buy KAC’s interest in the Property for the
On October 11, 2005, the Superior Court granted that KAC’s second motion for summary judgment, finding that the Debt- or had failed to make mortgage payments in April, May and June of 2004 and that KAC, prior to sending the April 19, 2004 offer, had proposed subdividing up to one-half of the Property into building lots to generate capital for the horse farm business, to reduce debt, and to build an indoor riding arena. According to the Superior Court, the Debtor, whose consent was required under the Agreement, failed to respond to KAC’s proposal, thereby creating a deadlock under the Agreement. The Superior Court determined that under section 10.9(a)(iv)(B)(l) of the Agreement, KAC, as the “Proposing Party,” had the option to designate a purchase price for the Property by giving notice of the purchase price to the “Refusing Party.” Id. at 3.
After a thorough examination of the deadlock provisions, the Superior Court determined that
[wjhen Pina rejected KAC’s proposal on March 16, 2005, she became obligated to sell her interest in the Property to KAC under the terms contained in the February 17, 2005 proposal. Accordingly, there is no genuine issue of material fact with respect to the enforceability of the deadlock provision of the Agreement; therefore, KAC is entitled to summary judgment as a matter of law.
Id. at 6-7. The Superior Court entered an order directing the Debtor to convey her interest in the Property to KAC under the terms and provisions of the February 17, 2005 proposal in accordance with Article 10.9 of the Agreement. Id. at 7.
The Debtor failed to comply with the Superior Court’s October 11, 2005 order. She filed a Notice of Appeal, as well as an Emergency Ex Parte Motion for Stay or Injunction Pending Appeal on December 7, 2005, but the Superior Court denied her Ex-Parte Motion. The Appeals Court eventually dismissed her appeal for lack of prosecution.
Because the Debtor refused to cooperate with KAC in scheduling a closing, KAC, on January 25, 2006, filed a Complaint for Contempt in which it sought to enforce the Superior Court’s order. Immediately preceding the trial, which was scheduled for June 19, 2006, KAC and the Debtor reached a settlement agreement. Pursuant to the agreement, which was reported to the Superior Court, the Debtor agreed to convey her 51 % interest in the Property on July 11, 2006. The Superior Court’s order, which incorporated the terms of the settlement agreement, provided:
The closing shall occur on July 11, 2006 at 10 am at the Plymouth County Registry of Deeds. The settlement sheet shall be delivered to the defendant Patricia Pina by Friday, July 7, 2006. The plaintiff, KAC Associates shall pay off the principal and interest on all mortgages and taxes existing at the closing date. At the closing the plaintiff will deliver to the defendant a check in the sum of $23,031.00, said figure taken from the December Spread Sheet (Exhibit H). The defendant Pina shall deliver the deed and execute all documents required at the closing. Attorney Kim-mell shall send a copy of the proposed deed to defendant Pina by June 23, 2006. KAC shall execute a letter allowing the defendant Pina to remain on theproperty until August 31, 2006. Attorneys’ fees are waived if the defendant Pina complies with this Order.
As noted above, the Debtor filed a voluntary Chapter 7 petition on July 10, 2006. Neither KAC nor Conefrey sought, obtained, or recorded an attachment or Notice of Lis Pendens with respect to the Property before July 10, 2005. Similarly, neither KAC nor Conefrey recorded the October 11, 2005 judgment for specific performance.
On her Schedules of Assets and Liabilities, the Debtor listed the Property with a value of $2.5 million, as well as various creditors holding secured claims against the Property, including Conefrey with a junior mortgage in the sum of $10,000.00; Henry and Larry Lewandowski and Morris Wollinan, the investors from whom she obtained financing in her Chapter 12 case, with a mortgage in the sum of $90,833.00; and the United States Department of Agriculture, Farm Service Agency, with four mortgages totaling $491,813.00. On Schedule F-Creditors Holding Unsecured Nonpriority Claims, the Debtor listed 21 creditors holding claims in excess of $148,660.00. 1 On Schedule H-Codebtors, the Debtor listed Conefrey as a co-debtor with respect to the investors’ loan and the Farm Service Agency loans. The Debtor subsequently amended Schedule A to reduce the value ascribed to the Property. The Trustee and KAC agree that the most recent and thus most reliable evidence of the Property’s value is an appraisal prepared in November of 2005 by Sullivan Appraisal Services showing a market value of $900,000.00, subject to liens and priority claims totaling $615,565.00, according to KAC’s Settlement Statement prepared in anticipation of the July 11, 2006 closing.
III. POSITIONS OF THE PARTIES
A. KAC Associates, LLC and Brian Conefrey
KAC argues that it held “equitable title” to all of the Property from at least March 16, 2005, the date Pina rejected its buyout proposal, thereby making it “ ‘irrevocably obligated’ to purchase Pina’s co-tenancy interest” and triggering a fixed and mandatory closing date 180 days after the February 17, 2005 proposal. Relying upon Mass. Gen. Laws ch. 183, § 43, it also asserts that it holds legal title. 2 Specifically, KAC argues that the Superior Court “necessarily embraced” the timing provisions set forth in the Co-Tenancy Agreement so that the closing was to occur on or about August 17, 2005 — 180 days after the date of the February 17, 2005 proposal.
KAC suggests that the Debtor’s bankruptcy estate is comprised of the Debtor’s right to receive performance of its obligations under the court ordered transaction, namely the discharge of all mortgages on the Property, the discharge of all tax liens, and the payment of cash to the estate. Citing 11 U.S.C. § 541(d), as well as
Alternatively, KAC urges the Court to exercise its equitable powers under 11 U.S.C. § 105(a) to order the Trustee to comply with the order of the Superior Court. Citing,
inter alia, In re Shar,
In its Supplemental Brief, KAC addresses the Trustee’s status and powers under 11 U.S.C. § 544(a). Citing
Haber Oil, Co., Inc. v. Swinehart (Matter of Haber Oil, Co., Inc.),
B. The Trustee
The Trustee’s argument is predicated upon the observation that the state court orders were directed to the Debtor, not to him, and that he has no obligation under state or federal law to perform under the orders. Moreover, he observes that enforcement of the state court orders would arbitrarily and unfairly penalize the creditors of the Debtor’s bankruptcy estate because an arms length sale would generate more money for the estate. He adds that “[s]ection 10.9 of the Co-Tenancy Agreement effectively penalizes the Debtor’s estate for her inability to raise sufficient funds to buy out KAC’s interest where KAC as the Proposing Party offered to sell its interest to the Debtor.” He asserts
Although recognizing that the state court orders are entitled to deference under the Rooker-Feldman doctrine,
see Rooker v. Fidelity Trust Co.,
In his Supplemental Memorandum the Trustee asserts that the Co-Tenancy Agreement is an executory contract which may be rejected. Moreover, he reiterates his contention that KAC cannot rely upon Mass. Gen. Laws ch. 183 § 43 because the statute does not apply by its terms to either order and because neither order was recorded with the applicable registry of-deeds.
IV. DISCUSSION
A. Summary Judgment Standard
The standard for allowance of summary judgment is well known and needs little explanation. This Court may enter summary judgment “if the pleadings, depositions, answers to interrogatories and admissions on file, together with any affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.”
See
Fed. R.Civ.P. 56(c), made applicable to this proceeding by Fed. R. Bankr.P. 7056(c). In considering a motion for summary judgment, this Court must draw all reasonable inferences from the facts in the manner most favorable to the nonmovant.
See Beatrice v. Braunstein (In re Beatrice),
Both parties submitted exhibits. In particular, KAC attached 16 exhibits to its pleadings; the Trustee submitted two exhibits and extensively relied upon those
B. Analysis
1. The Motion to Compel Compliance with State Court Order
The issues presented by KAC’s Motion to Compel are numerous and difficult. They include: 1) Whether the Superior Court orders dated October 11, 2005 and June 19, 2006 directing specific performance under the Co-Tenancy Agreement resulted in a constructive trust, whereby the Debtor holds her equitable interest in the Property in trust for KAC; 2) Whether the Trustee’s powers under 11 U.S.C. § 544(a) have priority over any rights KAC may have obtained as a result of the Superior Court orders; 3) Whether the Co-Tenancy Agreement is an executory contract; and 4) Whether KAC has a claim in the Debtor’s bankruptcy case. Although resolution of the issues requires consideration of several areas of the law which are unsettled, what is clear is that their resolution will affect the size of the Debtor’s bankruptcy estate and the amount of distributions to creditors. If the Court were to grant KAC’s Motion to Compel, the estate would receive approximately $23,000.00, in cash, plus satisfaction of liens encumbering the Property. If the Court were to deny the Motion and if the Trustee were to successfully obtain a judgment authorizing the sale of the Property for its approximate fair market value of $900,000.00, see 11 U.S.C. § 363(h), the estate would be entitled to 51 % of the equity remaining after satisfaction of the liens in the approximate sum of $615,000.00 and costs of sale, a sum significantly greater than $23,000.00.
The first issue for the Court’s determination is whether the Debtor held the equitable interest in the Property in a constructive trust for KAC at the commencement of the case. In other words, at the time the Debtor filed her bankruptcy petition, had the Property been impressed with a constructive trust in favor of KAC?
The issue arises in the context of 11 U.S.C. § 541(a) and (d) of the Bankruptcy Code. Section 541(a) defines property of the estate, with certain exceptions, as “all legal or equitable interests of the debtor in property as of the commencement of the case.” 11 U.S.C. § 541(a). “The statutory language evinces congressional intent to include a broad range of property.”
City of Springfield v. Ostrander (In re LAN Tamers, Inc.),
Property and interests in property are determined with reference to state law, in the absence of any controlling federal law.
See Barnhill v. Johnson,
If this Court were to find that the Superior Court orders impressed a constructive trust on the Property, the Debt- or’s bankruptcy estate would be comprised of only the Debtor’s legal interest in the Property pursuant to 11 U.S.C. § 541(d). “Under bankruptcy law, this results in the beneficiary of the constructive trust being able to collect on its debt ahead of the other unsecured creditors who must participate in the pro rata distribution scheme set up by the Bankruptcy Code.”
In re Indian River Estates, Inc.,
The Supreme Judicial Court has ruled that “[ujnder Massachusetts law, a court will declare a party a constructive
The imposition of constructive trusts in bankruptcy cases has not produced uniform results and the law remains unsettled.
See Carlson Orchards, Inc. v. Linsey (In re Linsey),
In
CRS Steam, Inc. v. Eng’g Resources, Inc. (In re CRS Steam, Inc.),
Because a constructive trust is imposed as a remedy to prevent unjust enrichment, the trust terminology is a “fiction of equity.” “The court must give expression to the idea that the defendant has been under a duty to give the complainant the benefit of the property ever since the defendant began to hold unjustly, by holding that the defendant has since the inception been in the same position as if he had been an express trustee of the property.” This facilitates giving the complainant priority over creditors of the defendant who acquire judicial liens prior to issuance of the court decree declaring a constructive trust. But there is really no “trust” at all, in the proper sense of the term. Rather than seeking to establish an equitable interest, the party requesting ownership of the property wants to enforce an equitable right to a legal interest. He may elect between obtaining the property itself or a money judgment for its value.
There is disagreement on the nature of the claimant’s rights in the property pri- or to its transfer to him. Although conceding that a constructive trust is merely a remedy and thus quite different from a true trust, the Restatement nevertheless observes that the constructive trust claimant has “some kind of an equitable interest in the property.” Scott agrees. He believes the trust exists from the time the “trustee” acquires the property. He likens the equitable property rights of the claimant to those of a purchaser under a contract which is specifically enforceable. Recognizing that the question is “difficult, ” Scott believes the existence of such an interest is supported by the priority which the beneficiary enjoys over intervening judicial creditors and transferees who are not bona fide purchasers for value. Bogert has a different view as to when the trust arises. Stressing the fictional nature of the trust and the beneficiary’s right to elect to receive either the property or its value, he thinks no trust arises until entry of a decree ordering the transfer. He expresses no opinion on whether the beneficiary has a property interest thereafter.... Many other courts apply the fiction to its full extent and rule that the trust exists from the time of the property’s acquisition by the “trustee.”
Turning to the treatment of constructive trusts in bankruptcy cases, Judge Queenan noted the following:
Under general state law, the beneficiary of a constructive trust has priority over creditors of the constructive trustee holding judicial liens. If the estate representative asserts only judicial lien rights, as he must under section 544(a) if personal property is involved, the estate fares no better than do judicial lien creditors outside of bankruptcy. But state law is kinder to a bona fide purchaser for value. That party enjoys priority over the beneficiary of a constructive trust. Unlike a judicial lien creditor, who extends unsecured credit prior to obtaining his lien, a bona fide purchaser relies upon the constructive trustee’s ownership in parting with his money. If the property is real property, the estate representative usually wins because he can assert the rights of a bona fide purchaser pursuant to section 544(a)(3).
Id. at 838 (citations omitted).
With respect to the facts of this case, the Court finds that KAC has failed to establish that it obtained a constructive trust under Massachusetts law that arose before the commencement of the Debtor’s case, and, even if it did, under Mass. Gen. Laws ch. 183, § 43, its rights must yield to those of the Trustee who has asserted his status as a bona fide purchaser of real property, “without regard to any knowledge of the trustee or of any creditor.” 11 U.S.C. § 544(a)(3).
The Superior Court orders compelled the Debtor to convey the Property to KAC as a result of her refusal to honor the provisions of the Co-Tenancy Agreement in the event of a deadlock. The Superior Court, in its October 11, 2005 order, did not mention fraud, mistake, breach of duty or unjust enrichment on the part of the Debtor. Similarly, the Superior Court, in its June 19, 2006 order in KAC’s contempt action, did not find the Debtor in contempt, incorporating, instead, the agreement of the parties to conduct a closing on July 11, 2006. This Court finds that the orders of specific performance, in and of themselves, did not create a constructive trust which would divest the Debtor’s
In
In re Morris,
a 2001 case with “a tangled history of multiple, concurrent legal proceedings arising from two transactions over fifteen year ago,”
In
In re Indian River Estates, Inc.,
the court considered a motion similar to the one filed by KAC, captioned, Motion for an Order Requiring the Debtor-in-Possession to Execute Sales Contract for Real Property held in Constructive Trust. Prior to the filing of its Chapter 11 bankruptcy case, the federal district court had issued an order requiring the debtor to execute a purchase agreement and convey property to the movant. The movant sought a finding that the federal district court’s final order requiring specific performance created in its favor a constructive trust, as well as relief from stay to allow it to continue to enforce the order of specific performance.
First, under the Bankruptcy Code, the specific performance order issued by Judge Katz is neither a “debt” subject to discharge, nor a “claim” capable of being included in a plan of reorganization. Second, at the time Judge Katz issued his order for specific performance, aconstructive trust was created in favor of Preferred Properties. As a result, the DIP’S bankruptcy estate gained no equitable interest in the property under § 541(d). Based therefore upon these findings, it is the conclusion of this Court that relieving the stay of § 362(a) will neither appreciably hamper any proposed plan of reorganization put forth by the DIP, nor will lifting the stay be detrimental to other creditors in this case.
Notably, in
Indian River,
the court utilized a “balancing test” with respect to its determination that the movant should be granted relief from the automatic stay to continue enforcement of a prior judgment. Thus, the court weighed the interests of the estate against the hardship incurred by the movant, noting that “if lifting the stay would be unfairly detrimental to a debtor’s other creditors, relief will generally not be granted.”
The decision in Indian River is distinguishable from the instant case for two reasons. Unlike the situation in Indian River, there will be a substantial detriment to the Debtor’s unsecured creditors if the Court were to find that the Property was impressed with a constructive trust. Moreover, the court in Indian River was not presented with, and thus was not required to decide, an opposition to the motion based upon the assertion of the trustee’s rights and powers as a bona fide purchaser under 11 U.S.C. § 544(a)(3).
In
In re Pribonic,
The Pribonic decision is not compelling for several reasons. In the first place, Massachusetts does not recognize the doctrine of equitable conversion. According to the Massachusetts Supreme Judicial Court,
Massachusetts does not follow the view recognized in many States that, on the execution of a purchase and sale agreement, the purchaser is regarded as the equitable owner of real estate, entitled to receive the rents and profits from the property. See Laurin v. DeCarolis Constr. Co.,372 Mass. 688 , 690-691, 363N.E.2d 675 (1977), and authorities cited; Beal v. Attleboro Sav. Bank, 248 Mass. 342 , 344,142 N.E. 789 (1924). In Massachusetts the seller continues to hold legal title to the property subject to an equitable obligation to convey on payment of the purchase price. See Laurin v. DeCarolis Constr. Co., supra at 691,372 Mass. 688 ,363 N.E.2d 675 ; Barrell v. Britton,244 Mass. 273 , 278-279,138 N.E. 579 (1923). Unlike other States, our law provides that, when the parties specify a time for the completion of the sale, the conversion of interest takes place at that specified time-not the date that the parties execute the purchase and sale agreement. Baker v. Commissioner of Corps. & Taxation,253 Mass. 130 , 133-134,148 N.E. 593 (1925).
Kelley v. Neilson,
Finally, the Court finds that the facts in
In re Green Lantern, Inc.,
KAC relies on the provisions of Mass. Gen. Laws ch. 183 § 43 to support its position. Its reliance is misplaced. Although the statute provides that a final decree in equity “shall operate to vest title to the real estate or interest in the party entitled thereto by the decree as fully and completely as if such deed ... had been fully executed,” section 43 must be read in conjunction with Mass. Gen. Laws ch. 183, § 44, which provides, in pertinent part, that “[t]he recording or registration of a duly certified copy of
such decree
... in the registry of deeds of the district where said real estate is situated, shall have the same force and effect as if a duly executed
Further, Rule 70 of the Massachusetts Rules implements sections 43 and 44. It provides the following:
If a judgment directs a party to execute a conveyance of land or to deliver deeds or other documents or to perform any other specific act and the party fails to comply within the time specified, the court may direct the act to be done at the cost of the disobedient party by some other person appointed by the court and the act when so done has the like effect as if done by the party. On application of the party entitled to performance, the clerk shall issue a writ of attachment against the property of the disobedient party to compel obedience to the judgment. The court may also in proper cases adjudge the party in contempt. If real or personal property is within the Commonwealth, the court in lieu of directing a conveyance thereof may enter a judgment divesting the title of any party and vesting it in others and such judgment has the effect of a conveyance executed in due form of law.
Mass. R. Civ. P. 70. In summary, the Rule contains five remedies to enforce performance by a party who has failed to comply with a judgment directing him to perform a specific act: 1) performance by some other person appointed by the court; 2) attachment of the property of the disobedient party; 3) contempt; 4) a judgment divesting title to property; and 5) issuance of a writ of execution. See James W. Smith, Hiller B. Zobel and Charlotte S. Murphy, Available Remedies, 8A Mass. Prac. Rules Practice § 70.2 (2006 & Supp.). Prior the commencement of the Debtor’s bankruptcy petition, KAC appears to have elected the third remedy; but it did not succeed in obtaining an order divesting the Debtor of her title to the Property, and it did not attach the Property. 11
The Court concludes that, as between KAC and the Debtor, the decree may have operated to vest title in KAC, but that the Chapter 7 bankruptcy petition interposed another countervailing dynamic in the form of the Trustee’s strong arm powers. Based upon the provisions of Mass. Gen. Laws ch. 183, §§ 4, 43, and 44; Mass. Gen. Laws ch. 184, § 17; and Mass. R. Civ. P. 70, as well as KAC’s conduct, the Court finds that under Massachusetts law the unrecorded decree cannot bind the Chapter 7 Trustee in his capacity as a bona fide purchaser for value without notice under 11 U.S.C. § 544(a)(3). Although the language of Mass. Gen. Laws ch. 183, § 43 appears plain, it cannot be
A judgment or decree, at law or in equity, rendered after June eighth, eighteen hundred and ninety-two, affecting the title to real property, shall not have any effect except against the parties thereto, their heirs and devisees and persons having actual notice thereof, unless a certified copy of the record thereof has been recorded in the registry of deeds for the county or district where the land lies, with a memorandum of the town where the land lies and a description thereof sufficiently accurate for identification if the record of the judgment or decree does not give those particulars. If a notice of the pendency of the action has been duly recorded in the registry of deeds, the record of the judgment or decree may be made within sixty days after its rendition, and the entry of an ordinary attachment of real property in the registry of deeds shall be considered notice of the pendency of the action.
Mass. Gen. Laws ch. 184, § 17.
In
Gray v. Burke (In re Coletta Bros. of N. Quincy, Inc.),
In view of the unambiguous provisions of Massachusetts law, the Court finds that, even if the October 11, 2005 or June 19, 2006 orders were effective between KAC and the Debtor, the Trustee’s status as a bona fide purchaser trumps any interest KAC may have acquired. Had KAC availed itself of the expedient of recording the October 11, 2005 judgment in accordance with Mass. Gen. Laws ch. 183, §§ 4 or 44 or Mass. Gen. Laws ch. 184, § 17, or had it recorded a lis pendens, the Trustee would have had notice and, therefore, would be unable to prevail as a hypothetical bona fide purchaser without notice. Thus, the Court finds that the Trustee’s status as a bona fide purchaser gives him the power to avoid KAC’s unrecorded equitable interest in the Debtor’s property arising out of the orders of the Superior Court.
In
Mullins v. Burtch (In re Paul J. Paradise &
Assocs.,
Inc.),
Under current law, § 541(d)’s limitations apply only to property brought into the estate under subsection (a)(1) or (2) of that section and, by inference, not to subsections (a)(3) or (4). Subsections 541(a)(3) and (a)(4) allow the trustee to bring into the bankruptcy estate property that the debtor did not own at thecommencement of the bankruptcy case but that the trustee may recover for the benefit of creditors under various strong arm powers, including § 544’s strong arm powers. Thus, §§ 541(d) and 544(a) should be construed to operate independently of one another. It follows § 541(d) should not be construed to limit the Trustee’s ability to bring property into the estate through the “strong-arm” powers of § 544, and, in particular, through the Trustee’s rights as a bona fide purchaser of real property.
Id.
at 367-68 (footnotes omitted). Although the court in
Paradise
determined that property held in a constructive trust is subject to being brought within the estate, it determined that the Trustee’s strong arm powers must be evaluated under appropriate state law.
Id.
at 371 (citing
Midlantic Nat’l Bank v. Bridge (In re Bridge),
As noted above, Massachusetts law provides the means by which an order of specific performance can be perfected against a bona fide purchaser. Section 17 of chapter 184 specifically references equitable decrees, which in the absence of re-cordation are only effective between the parties. In short, the provisions of Massachusetts law evince a clear legislative intention that recordation is required for a party in the position of KAC to defeat a bona fide purchasers without notice.
See also In re Loewen Group Intern’l, Inc.,
2. KAC’s Alternative Requests for Relief
a. The Motion to Dismiss
The Court finds that the grounds stated by KAC are insufficient to warrant dismissal of the Debtor’s Chapter 7 bankruptcy case. The Debtor’s alleged bad faith and alleged misuse of the bankruptcy system do not constitute cause for dismissal under 11 U.S.C. § 707(a)(l)-(3).
See generally In re Linehan,
“[w]hat distinguishes Chapter 11 and Chapter 13 from Chapter 7 is the language of the Bankruptcy Code itself and the post-filing relationship between the debtor and his creditors. Chapter 11and 13 specifically delineate a good faith requirement for proposed payment plan. Chapter 7 makes no mention of a good faith requirement. Further, the relationship between the debtor and creditor in Chapter 11 and Chapter 13 is significantly different than their relationship in Chapter 7. Chapter 11 and 13 debtors are allowed to continue possession of their assets and alter their contractual relationships with their creditors. Chapter 7, on the other hand, ends the creditor-debtor relationship when the debtor metaphorically ‘throws in the towel.’ So long as the debtor is willing to surrender all of its assets, regardless of whether debtor’s motive was grounded in good faith, the debtor is entitled to Chapter 7 protection.”
KAC urges this Court to adopt a totality of the circumstances approach to a determination of good faith, citing,
inter alia, In re Shar,
KAC’s reliance on 11 U.S.C. § 727(a)(9) also is misplaced because the Debtor’s Chapter 12 case, in which she received a discharge within eight years of the filing of the instant case, resulted in the payment of 100 percent of allowed unsecured claims. KAC maintains, erroneously, that because the Debtor is not entitled to a discharge in this case, she had “noneconomic” reasons for filing a bankruptcy petition warranting dismissal for extreme misconduct. The Court rejects this contention as it is unsupported by the provisions of 11 U.S.C. § 727(a)(9).
b. The Motion for Relief from Stay
KAC relies in part on
Milne v. Johnson (In re Milne),
The only express definition of cause in section 362(d)(1) is the single illustrative example that it includes lack of adequate protection of a creditor’s interest. See Robert E. Ginsberg & Robert D. Martin, 1 Bankruptcy: Text, Statutes, Rules § 3.05[b], at 3-56 (3d ed. Supp.1994) (hereinafter “Ginsberg”) (“[T]he use of the word including in the statute is exemplary rather than exhaustive.”). What constitutes cause under section 362(d)(1) other than lack of adequate protection has been developed on a case-by-case basis. See Ginsberg, § 3.05[f], at 3-69; Manhattan King David Restaurant, Inc. v. Levine,163 B.R. 36 , 40 (S.D.N.Y.1993). Factors generally looked to in determining whether to modify the stay for cause include interference with the bankruptcy, good orbad faith of the debtor, injury to the debtor and other creditors if the stay is modified, injury to the movant if the stay is not modified, and the proportionality of the harms from modifying or continuing the stay. See Ginsberg, § 3.05[f], at 3-69 & 3-70; Manhattan King David Restaurant, 163 B.R. at 40 .
KAC maintains that application of the factors set forth in Milne entitle it to relief from the automatic stay “for cause.” It avers that consummation of the court-ordered transaction would facilitate the bankruptcy process because “it provides a fair and expedient means of satisfying the claims of all of the secured and unsecured priority creditors and would still generate additional funds for application toward the claims of unsecured nonpriority creditors.” Additionally, it relies on the Debtor’s bad faith, the harm it has suffered as a result of the Debtor’s conduct, and the absence of injury to the estate and the Debtor’s other creditors, stating that “the Superior Court Order is ultimately not subject to avoidance, rejection or discharge and both law and equity require that the debtor comply with the Superior Court Order.”
Although KAC did not cite the decision in
Roxse Homes, Inc.,
In
Roxse Homes, Inc. v. Roxse Homes Ltd. P’ship,
The Partnership moved for relief from the automatic stay to enforce its state court judgment, and, if necessary, to obtain the appointment of a special master to execute and deliver a deed if the debtor failed to do so. The Partnership argued that it had both equitable ownership and the right to legal title to the property, while the debtor argued that the Partnership breached the purchase and sale agreement and was entitled to only a money claim against its estate.
Id.
at 813. According to the bankruptcy court, the debtor urged it to “either (1) look behind the Superior Court judgment to the origl-
The bankruptcy court determined that the purchase and sale agreement was not executory, citing,
inter alia In re Pribonic, 70
B.R. 596 (Bankr.W.D.Pa.1987). Indeed, the bankruptcy court stated that the obligations remaining were imposed by judicial decree and could not be collaterally attacked. It stated: “[t]his court is bound to give effect to the state court judgment which was rendered prior to the bankruptcy petition.”
Roxse Homes, Inc.,
In affirming the bankruptcy court, the district court, citing the definition of a claim, 11 U.S.C. § 101(4),
13
as well as Mass. Gen. Laws ch. 214, § 1A,
14
stated that money damages are usually an inadequate remedy in the case of the sale of land. It observed: “ ‘in the absence of significant equitable reasons for refusing such relief, specific performance of real estate agreements is appropriate.’ ”
While the decisions issued by the bankruptcy court and the district court in
Rox-se Homes
are superficially compelling, this Court finds that they do not dictate the outcome in this case. Although this Court finds that the Co-Tenancy Agreement is no longer executory, the decisions in
Roxse Homes,
which have been followed by the court in
Winter v. Glaze (In re Glaze),
Thus, in ruling on KAC’s Motion for Relief from Stay, the Court finds that employment of the balancing test set forth in
In re Indian River Estates, Inc.,
Additionally, Massachusetts law is more liberal with respect to the availability of specific performance than many jurisdictions.
Aerovox, Inc. v. Parallax Power Components LLC (In re Aerovox, Inc.),
Among the factors to be considered in granting a decree for specific performance, the most important seem to be the following: difficulty and uncertainty in determining the amount of damages to be awarded for the defendant’s breach; ... [and] the insufficiency of money damages to obtain the duplicate or the substantial equivalent of the promised performance, either because the subject matter is unique in character and cannot be duplicated or because the obtaining of a substantial equivalent involves difficulty, delay and inconvenience.
Id.
(citing
Triple-A Baseball Club Assoc. v. Northeastern Baseball, Inc.,
The October 11, 2005 order of the Superior Court directed the Debtor to comply with the deadlock provisions of the Co-Tenancy Agreement. It contained no discussion of the factors cited in Triple-A Baseball Club Assoc., and, as noted, the potential claims to the equity in the Property of the Debtor’s unsecured creditors. Under these circumstances, the Court finds that KAC and Conefrey’s pre-petition damages can be addressed through the proof of claim they have filed. The Rooker-Feldman doctrine does not demand a different result. The Superior Court orders simply could not, and did not, address the ramifications of the Debtor’s decision to file a bankruptcy petition and the concomitant legal and equitable rights of the Chapter 7 Trustee.
In view of the foregoing, the Court hereby denies the Motion to Compel and the related relief contained in the Motion. An appropriate order shall issue.
Notes
. The Debtor listed a number of creditors holding unliquidated claims. Accordingly, she was unable to list the exact amount of the unsecured claims.
. Section 43 provides the following:
Whenever a final decree in equity shall be made by the supreme judicial, superior, probate or land court directing that a deed, conveyance or release of any real estate or interest therein shall be made, and the party directed to make such deed, conveyance or release does not duly execute it within the time specified in the decree, the decree itself shall operate to vest title to the real estate or interest in the party entitled thereto by the decree as fully and completely as if such deed, conveyance or release had duly been executed by the party directed to make it.
Mass. Gen. Laws ch. 183, § 43 (emphasis supplied).
. In Dooley, the Supreme Judicial Court stated:
It is well settled that when by the terms of a binding contract a conveyance of land ought to be made, equity will regard that done which ought to be done, and, if the holder of the legal title refuses to make conveyance, will treat him as trustee for the purchaser ready and able to perform his part of the contract. This equitable obligation will be enforced not only against the holder of the legal title, but against others taking an interest in the legal title with notice, and adequate remedy will be afforded to carry out this principle.
216 Mass, at 500,
.
See also D.C. Court of Appeals v. Feldman,
. Section 44 provides:
The recording or registration of a duly certified copy of such decree, attested by the clerk, assistant clerk, register or assistant register, recorder or deputy recorder, as the case may be, of the court where made, in the registry of deeds of the district where said real estate is situated, shall have the same force and effect as if a duly executed deed, conveyance or release had so been recorded or registered.
Mass. Gen. Laws ch. 183, § 44.
. The First Circuit emphasized the special equities favoring Davis and “Cox' s contemptuous misuse of marital assets prior to bankruptcy ... in defiance of the [state] court's injunction,”
we need not worry about whether the trustee’s strong arm powers under 11 U.S.C. § 544 cut off Davis’s beneficial interest in the Advest IRA. In this case, the trustee did not attempt to avoid Davis’s interest in the Advest IRA and, in fact, wholly supported the award. Thus, this case can be distinguished from those cases in which the courts have concluded that the filing of a bankruptcy petition cut off the unrecorded equitable rights of a non-debtor spouse.
Id. at 92 (footnotes omitted). The First Circuit cited the following cases in which courts determined that the filing of the bankruptcy petition cut off unrecorded equitable rights:
Perlow v. Perlow,128 B.R. 412 , 415 (E.D.N.C.1991) (finding § 544 cut-off spouse’s right because under North Carolina law a judgment creditor's rights are superior to a spouses because the filing of divorce does not create a lien on specific marital property in favor of the spouse); Lawrence v. Lawrence,237 B.R. 61 , 78-79 (Bankr.D.N.J.1999) (finding § 544 cut-off spouse’s right because under New Jersey law a judgment creditor’s rights are superi- or to a spouse's if the lien was obtained prior to divorce judgment); Anderson v. Briglevich (In re Briglevich),147 B.R. 1015 , 1022 (Bankr.N.D.Ga.1992) (concluding that non-debtor's unrecorded equitable interest in marital property cut-off by trustee’s strong arm powers); In re Vann,113 B.R. 704 , 706 (Bankr.D.Colo.1990) (stating that until a spouse takes affirmative action to perfect her interest in marital property the trustee's rights are superior under § 544).
Id. at n. 13.
. As noted, a constructive trust is not a true trust but an equitable remedy. In
In re NTA LLC,
. Similarly, in
Davis v. Cox,
the property subject to the constructive trust in favor of the debtor's former spouse was exempt property not subject to distribution.
. The court also determined that the Sales Agreement was not an executory contract for purposes of 11 U.S.C. § 365 and that the vendees did not have a claim under 11 U.S.C. § 101(4), now denominated § 101(5), as a result of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (Pub.L. 109-8) The Court shall discuss this case later in this decision.
. Judge Queenan observed in CRS Steam, Inc. that
Scott analogizes the constructive trust beneficiary's equitable rights to those of a buyer under a specifically enforceable contract, who is considered an equitable owner pursuant to the doctrine of equitable conversion by contract. That doctrine, however, is a relic of the past whose sun has largely set. It does not prevent the rejection of such a contract from resulting in a claim. The doctrine is an application of the equitable maximum which regards as done that which should be done. The writers are highly critical of the doctrine. One calls it a “grand non sequitur” which disregards the reality that the contract has not been performed. Although the doctrine was in full sway during the nineteenth century, today most courts and legislatures reject it....
. Because KAC filed a Complaint for Contempt against the Debtor, the Court can infer that it was uncertain of its rights under the Superior Court’s October 11, 2005 order. Because the decree itself did not contain a specific time for performance without reference to the Co-Tenancy Agreement, the Court concludes that KAC did not believe that the decree operated to divest title to the real estate from the Debtor in the absence of further relief. If it did, or if it had recorded the October 11, 2005 order in accordance with Mass. Gen. Laws ch. 183 § 44, it may not have found it necessary to file the Complaint for Contempt.
.
Rix v. Dooley
involved an appeal from a judgment for specific performance. The court determined that the plaintiffs were not entitled, in the alternative, to damages. It stated: "The plaintiffs elected to come into equity and have made out a case for equitable relief. No disability on the part of the defendants to perform their contract appears.”
. "Claim” means: "right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured or unsecured.” 11 U.S.C. § 101(5)(B). The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 renumbered the definition.
.Section 1A provides:
The fact that the plaintiff has a remedy in damages shall not bar an action for specific performance of a contract, other than one for purely personal services, if the court finds that no other existing remedy, or the damages recoverable thereby is in fact the equivalent of the performance promised by the contract relied on by the plaintiff, and the court may order specific performance if it finds such remedy to be practicable....
Mass. Gen. Laws ch. 214, § 1A.