Patricia Renee Pina

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UNITED STATES BANKRUPTCY COURT
FOR THE
DISTRICT OF MASSACHUSETTS
~~~~~~~~~~~~~~~~~~~~~~~~~
In re
PATRICIA RENEE PINA, 	Chapter 7
Debtor 	Case No. 06-12205-JNF
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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 (“Conefrey”)(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 11, 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
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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.
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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 debris and pests associated with wild cherry trees.
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,
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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 Debtor’s
Chapter 12 bankruptcy case was closed, KAC offered to purchase the Debtor’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 Superior 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
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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 same purchase
price.” Id. at 3-4. KAC also proposed to pay off six outstanding mortgages on the Property
which as of February 25, 2005 had a collective balance exceeding $500,000.00. Id. at 4. The
Debtor refused KAC’s offer and, on April 29, 2005, KAC renewed its motion for summary
judgment on its claim for specific performance. Id. at 4-5.
On October 11, 2005, the Superior Court granted that KAC’s second motion for
summary judgment, finding that the Debtor 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
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Superior Court determined that under section 10.9(a)(iv)(B)(1) 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
[w]hen 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
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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 Kimmell 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 the property 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
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1 The Debtor listed a number of creditors holding unliquidated claims.
Accordingly, she was unable to list the exact amount of the unsecured claims.
2 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
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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
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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).
3 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.
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“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 NTA, LLC v. Concourse Holding
Co. (In re NTA, LLC), 380 F.3d 523 (1st Cir. 2004), and Poss v. Morris (In re Morris), 260
F.3d 654 (6th Cir. 2001), KAC argues that this Court must look to Massachusetts law to
determine the respective rights of the parties. Relying upon Mass. Gen. Laws ch. 183, § 43
and common law as set forth in Allen v. Rakes, 359 Mass. 1 (1971), and Dooley v. Merrill,
216 Mass. 500 (1914),3 it maintains that this Court must presume that monetary damages
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216 Mass. at 500 (citations omitted, emphasis supplied).
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are an inadequate remedy and order specific performance.
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, 253 B.R. 621, 632 (Bankr. D.N.J. 1999), it argues that a federal court must
give the state court judgment preclusive effect. It further asserts that the court-ordered
transaction is fundamentally in the interest of the estate and creditors because it would
result in the satisfaction of all secured and unsecured priority claims and generate cash for
a dividend to unsecured creditors.
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.), 12
F.3d 426, 436 (5th Cir. 1994), Universal Bonding Ins. Co. v. Gittens and Sprinkle Enters.,
Inc., 960 F.2d 366, 372 (3d Cir. 1992), and Sanyo Elec., Inc. v. Howard’s Appliance Corp. (In
re Howard’s Appliance Corp.), 874 F.2d 88, 93-95 (2d Cir. 1989), it argues that “[t]hree
circuit courts have squarely held that when a constructive trust is placed on property prior
to the filing of the bankruptcy petition, the trustee has no equitable interest in the property,
despite section 544.” It urges this Court to apply these precedents to this case, as well as
Judge Queenan’s decision in In re Mill Concepts Corp., 123 B.R. 938 (Bankr. D. Mass. 1991).
In summary, KAC maintains that it had equitable title in the Property because of the two
pre-petition orders requiring the Debtor to convey the Property to it. It adds that because
the provisions of 11 U.S.C. § 541(d) cannot be negated by those of 11 U.S.C. § 544(a)(3), the
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4 See also D.C. Court of Appeals v. Feldman, 460 U.S. 462 (1983). In Exxon Mobil
Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280 (2005), the Supreme Court held that the
Rooker-Feldman doctrine should be “confined to cases of the kind from which the
doctrine acquired its name: cases brought by state-court losers complaining of injuries
caused by state-court judgments rendered before the district court proceedings
commenced and inviting district court review and rejection of those judgments” and
that it “does not otherwise override or supplant preclusion doctrine or augment the
circumscribed doctrines that allow federal courts to stay or dismiss proceedings in
deference to state-court actions.” Id. at 284.
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Trustee has the same obligation as the Debtor to convey the Property to it.
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 that the
value of the Debtor’s interest calculated under the Co-Tenancy Agreement does not
correspond to the actual fair market value of the Property.
Although recognizing that the state court orders are entitled to deference under the
Rooker-Feldman doctrine, see Rooker v. Fidelity Trust Co., 263 U.S. 413 (1923), 4 the Trustee
maintains that the rights of the Debtor’s creditors were not considered by the state court
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5 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.
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and that, upon the filing of the bankruptcy petition, his rights as trustee under the
Bankruptcy Code, particularly his status as a bona fide purchaser of real estate without
notice under 11 U.S.C. § 544(a)(3), warrant a determination that the Superior Court orders
are unenforceable in this case. Specifically, the Trustee maintains that Mass. Gen. Laws ch.
183, § 44 requires recordation of state court decrees for them to be effective against an
attaching creditor or bona fide purchaser,5 a status he holds as trustee in bankruptcy.
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
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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), 296 B.R. 576, 579 (B.A.P. 1st
Cir. 2003)(citing Desmond v. Varrasso (In re Varrasso), 37 F.3d 760, 763 (1st Cir. 1994), and
Piccicuto v. Dwyer, 39 F.3d 37, 40 (1st Cir. 1994)).
Both parties submitted exhibits. 	In particular, KAC attached 16 exhibits to its
pleadings; the Trustee submitted two exhibits and extensively relied upon those submitted
by KAC. Neither party challenged the factual contentions of the other. As noted at the
outset, the Motion to Compel requires resolution of complex legal questions, not factual
ones.
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
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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.), 329 F.3d 204,
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209 (1st Cir. 2003),cert. denied, 540 U.S. 1047 (2002)(citing United States v. Whiting Pools,
Inc., 462 U.S. 198, 204-05 (1983)). Section 541(d), in contrast, excludes property in which
“the debtor holds, as of the commencement of the case, only legal title and not an equitable
interest, such as a mortgage secured by real property, or an interest in such a mortgage,
sold by the debtor but as to which the debtor retains legal title to service or supervise the
servicing of such mortgage or interest.” 	11 U.S.C. § 541(d). 	That section “excludes
property from the estate where the bankruptcy entity is only a delivery vehicle and lacks
any equitable interest in the property it delivers.” Lan Tamers, Inc., 329 F.3d at 210.
Property and interests in property are determined with reference to state law, in the
absence of any controlling federal law. See Barnhill v. Johnson, 503 U.S. 393, 398 (1992);
Butner v. United States, 440 U.S. 48, 54-55 (1979). 	Section 541(d) “does not authorize
bankruptcy courts to recognize a constructive trust based on a creditor’s claim of
entitlement to one; rather, section 541(d) only operates to the extent that state law has
impressed property with a constructive trust prior to its entry into bankruptcy.” Poss v.
Morris (In re Morris), 260 F.3d 654, (6th Cir. 2001) (citing XL/Datacomp, Inc. v. Wilson (In
re Omegas Group, Inc.), 16 F.3d 1443, 1451 (6th Cir. 1994)). In Davis v. Cox, 356 F.3d 76, 84
(1st Cir. 2004), the United States Court of Appeals for the First Circuit, proceeding narrowly
on the remedial theory of constructive trust, recognized the effect of a pre-petition
constructive trust under § 541(d). It ruled that under Maine law, a Chapter 13 debtor, Cox,
held an exempt IRA account in a constructive trust in favor of his ex-spouse, Davis, by
virtue of his misconduct in violating a divorce court’s injunction entered prior to
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6 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,” 356 F.3d at 90. It also highlighted that “inclusion of the Advest IRA
in the bankruptcy estate would not mean the IRA will go to Cox’s creditors . . .
[because] . . . the Advest IRA is exempt from Cox’s creditors, being needed for his
support and that of his dependents.” Id. at 83 n.5. Finally, it added:
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 superior 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.
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bankruptcy, such that Davis’s 	interest trumped the debtor’s interest under § 541(d).6
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7 As noted, a constructive trust is not a true trust but an equitable remedy. In In
re NTA LLC, 380 F.3d at 530, the First Circuit determined that a Standstill and Escrow
Agreement between the litigants was in the nature of a true trust under Illinois law,
thereby depriving the Debtor’s Chapter 11 estate of an interest in the “Membership
Interests” held in escrow at the commencement of the case.
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If this Court were to find that the Superior Court orders impressed a constructive
trust on the Property, the Debtor’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., 293 B.R. 429, 435
(Bankr. N.D. Ohio 2003).7
The Supreme Judicial Court has ruled that “[u]nder Massachusetts law, a court will
declare a party a constructive trustee of property for the benefit of another if he acquired
the property through fraud, mistake, breach of duty, or other circumstances indicating that
he would be unjustly enriched.” Fortin v. Roman Catholic Bishop of Worcester, 416 Mass.
781, 789 (1994),cert. denied, 511 U.S. 1142 (1994)(citing Nessralla v. Peck, 403 Mass. 757, 762-
63 (1989)). See also Lassman v. McQuillan (In re Charles River Press Lithography, Inc.), 338
B.R. 148, 161 (Bankr. D. Mass. 2006); In re Lan Tamers, Inc., 281 B.R. at 793 (Bankr. D. Mass.
2002), aff’d, 329 F.3d 204 (1st Cir. 2002), cert. denied, 540 U.S. 1047 (2003). A constructive
trust “‘is imposed not because of the legally inferred intention of the parties but because
the court concludes that the person holding the title to the property, if permitted to keep
it, would profit by a wrong . . . .’”Charles River Press Lithography, 338 B.R. at 160-61 (citing
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Restatement (Third) of Trusts, § 7 cmt. d). See also Conn. Gen. Life Ins. Co. v. Univ. Ins. Co.,
838 F.2d 612, 618 (1st Cir. 1988).
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),
296 B.R. 582, 585-86 (Bankr. D. Mass. 2003)(citing Robert J. Keach, The Continued Unsettled
State of Constructive Trusts in Bankruptcy, 103 Com. L.J. 411 (1988)). It generally is a case-
specific inquiry, driven by the desire of courts to avoid injustice. See Davis v. Cox, 356 F.3d
at 90. 	Courts’ acceptance of the construct frequently occurs at the intersection of
bankruptcy and divorce law. Id. at 84. See also In re Perry, 131 B.R. 763 (Bankr. D. Mass.
1991).
In CRS Steam, Inc. v. Eng’g Resources, Inc. (In re CRS Steam, Inc.), 225 B.R. 833
(Bankr. D. Mass. 1998), a decision involving two Chapter 11 cases in which CRS Steam, Inc
and its principal, Thomas F. LeBlanc, sought to set aside as a preferential transfer a court-
ordered assignment of patents to Engineering Resources, Inc., Judge Queenan thoroughly
examined the nature of the remedial device of the constructive trust under state law with
particular reference to principles set forth in the Restatement of Restitution and numerous
scholarly articles. 	He observed that courts occasionally employ constructive trusts to
remedy a breach of contract “when the benefit derived by the party in default exceeds the
other’s loss.” 	225 B.R. at 836 (citation omitted). 	Judge Queenan further observed the
following:
Because a constructive trust is imposed as a remedy to prevent unjust
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19
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
prior 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.”
225 B.R. at 837-38 (emphasis added, footnotes omitted)(citing, inter alia, Restatement of
Restitution § 160 cmt. a (1937); 5 Austin Wakemen Scott & William Franklin Fratcher, The
Law of Trusts and Trustees § 462 (4th ed. 1989); and George Glenn Bogert & George Taylor
Bogert, The Law of Trusts and Trustees § 472 (Rev. 2d ed. 1978)).
Turning to the treatment of constructive trusts in bankruptcy cases, Judge Queenan
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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
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21
themselves, did not create a constructive trust which would divest the Debtor’s bankruptcy
estate of her equitable interest in the Property; at most they gave KAC the status of a holder
of an unrecorded deed. 	Nevertheless, case law exists which lends support to KAC’s
position. See Poss v. Morris (In re Morris), 260 F.3d 654 (6th Cir. 2001); In re Indian River
Estates, Inc., 293 B.R. 429 (Bankr. N. D. Ohio 2003); Rusiski v. Pribonic (In re Pribonic), 70
B.R. 596 (Bankr. W.D. Pa. 1987); and Blodgett v. Green Lantern, Inc. (In re Green Lantern,
Inc.), 64 B.R. 356 (Bankr. W.D. Pa. 1986). The Court shall discuss each of these decisions
because they seemingly support KAC’s entitlement to a constructive trust, as well as, in
certain instances, an order granting it relief from the automatic stay imposed by 11 U.S.C.
§ 362(a). As will be demonstrated, however, each of the cases is distinguishable from the
facts of the instant case. Moreover, none are binding precedent.
In In re Morris, a 2001 case with “a tangled history of multiple, concurrent legal
proceedings arising from two transactions over fifteen year ago,” 260 F.3d at 657, the Sixth
Circuit determined that a pre-petition settlement agreement, which was adopted and
incorporated by reference in the judgment of the state court, required the debtor to convey
property, and was addressed in a subsequent order of the state court authorizing the
aggrieved party to undertake any remedy available at law or in equity, resulted in a
constructive trust by operation of Ohio law. The Sixth Circuit specifically noted, however,
that “a constructive trust in this case would not interfere with the policy of ratable
distribution.” 260 F.3d at 667. Moreover, the Chapter 13 trustee in Morris did not assert
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8 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. 356 F.3d
at 86. Additionally, the First Circuit stated that it did not need to “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.” Id. at 92.
22
rights under 11 U.S.C. § 544(a)(3).8 Nevertheless, the Sixth Circuit’s decision in Morris
limited its prior decision in In re Omegas Group, Inc., 16 F.3d at 1451 (“[b]ecause a
constructive trust, unlike an express trust, is a remedy, it does not exist until a plaintiff
obtains a judicial decision finding him to be entitled to a judgment ‘impressing’ defendant’s
property or assets with a constructive trust”), by recognizing that no prior judicial
determination is required when state law recognizes, as a matter of law, the existence of
a pre-petition constructive trust.
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. 	293 B.R. at 432. 	Following the decision in
Morris, the court in Indian River Estates summarized its holding as follows:
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
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23
issued his order for specific performance, a constructive 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.
293 B.R. at 437 (emphasis supplied).
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.” 293 B.R. at
433 (citations omitted).
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, 70 B.R. 596 (Bankr. W.D. Pa. 1987), prospective vendees under a
sales agreement moved for relief from the automatic stay. In holding that the vendees were
the equitable owners of the real property because of a state court final decree for specific
performance, the court granted the vendees’ motion, finding that the vendees possessed
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9 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.
24
an equitable interest in the property under the doctrine of equitable conversion, 70 B.R. at
598, and also that the debtor lacked equity in the property because the first and second
mortgages encumbering the property exceeded its fair market value. Id. at 606. The court
determined that “when the parties executed the Sales Agreement, the Rusiskis became
equitable owners of the Property pursuant to the doctrine of equitable conversion.” 9 Under
Pennsylvania law, “the relationship between a land contract vendor and vendee is
analogous to that of a mortgagee and mortgagor. Upon execution of the land sale contract,
the doctrine of equitable conversion vests the land contract vendee with equitable title to
the real estate . . . [and the vendor] . . . retains legal title to the real estate as security for
payment of the purchase price.” Id. at 602.
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, 363 N.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, 363 N.E.2d 675; Barrell v. Britton, 244 Mass. 273, 278-279,
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10 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. . . . .
225 B.R. at 843 (footnotes omitted)(citing, inter alia, 5 Austin Wakeman Scott & William
Franklin Fratcher, the Law of Trusts and Trustees § 462 (4th ed. 1989); 3 James F.
Queenan, et. al., Chapter 11 Theory and Practice § 17.33 (1994); Roger A. Cunningham,
et. al., The Law of Property § 1.2 (1984)). In view of the decision in Kelly v. Neilson, the
court’s earlier decision in Dooley v. Merrill, 216 Mass. 500 (1914), is unpersuasive.
25
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).
Kelly v. Neilson, 433 Mass. 706, 714 n.16 (2001). 10 In the second place, this Court can infer
from the lack of equity in the property, which was the subject of the purchase and sale
agreement, that relief from stay would not be prejudicial to the creditors of the debtor’s
bankruptcy estate.
Finally, the Court finds that the facts in In re Green Lantern, Inc., 64 B.R. 356 (Bankr.
W.D. Pa. 1986), are also distinguishable from the present case. In that case, a judgment
entered against the debtor directing it to transfer personal property in the form of a liquor
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26
license to the plaintiff. 	Although the Chapter 7 trustee raised his status as a bona fide
purchaser of real property, the court , relying upon 11 U.S.C. § 541(d), determined that the
state court had divested the debtor of equitable ownership of the liquor license. Without
citation to any authority, the court stated: “Even if the Trustee is a hypothetical bona fide
purchaser of the Debtor, all that he has is a legal title which must be transferred according
to the State Court Order. 	Id. at 357-58. 	Because real property was not involved in the
Green Lantern case, this Court finds that it is distinguishable from the instant case.
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 deed . . . had been so recorded.” Id. (emphasis supplied). The
reference to “such decree,” relates to the prior section and requires that the two sections
be construed together. According to one commentator, “if the prevailing party holds the
judgment or decree and does not record it, he cannot defeat an attachment which was
recorded after the judgment was entered but before the judgment was recorded in the
Registry of Deeds.” Sean M. Dunphy, Probate Titles to Property, 21 Mass. Prac. § 17.1 (2d
ed.)(citing True v. Wisniowski, 13 Mass. App. Ct. 501 (1982)).
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11 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
27
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
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with Mass. Gen. Laws ch. 183 § 44, it may not have found it necessary to file the
Complaint for Contempt.
28
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 interpreted and implemented
without reference to Mass. Gen. Laws ch. 183, § 44, as well as Mass. Gen. Laws ch. 183, §
4 (“A conveyance of estate in fee simple, fee tail or for life . . . shall not be valid as against
any person, except the grantor . . . his heirs and devisees and persons having actual notice
of it . . . unless it . . . is recorded in the registry of deeds for the country or district in which
the land to which it relates lies.”), and Mass. Gen. Laws ch. 184, § 17. That section provides:
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
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29
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.), 172 B.R. 159 (Bankr. D.
Mass. 1994), the court interpreted Mass. Gen. Laws ch. 184, § 17, finding that it was both
applicable and dispositive. The Court stated: “the Trustee holds the assets of the estate not
as the Debtor held them but with the rights and powers of a hypothetical bona fide purchaser
who acquired those assets from the Debtor. Moreover, the Trustee enjoys these rights and
powers ‘without regard to any knowledge of the trustee or of any creditor.’” Id. at 162.
(emphasis supplied). See also Tomsic v. Beaulac (In re Beaulac), 298 B.R. 31, 36 (Bankr. D.
Mass. 2003).
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.), 249 B.R. 360 (D. Del.
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2000), the district court explored the tension between 11 U.S.C. §§ 541(a) and (d). It noted
the split of authority on the issue, but adopted the majority view, which holds that
“property not part of the debtor’s estate under § 541(d) may still be brought into the estate
under § 544(a).” Id. at 367 (footnote omitted). The court reasoned:
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
the commencement 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), 18 F.3d 195, 200 (3d Cir. 1994)). See also
Mayer v. United States (In re Reasonver), 236 B.R. 219, 227-28 (Bankr. N.D. Va.
1999)(“Congress clearly signaled its intention that the trustee’s avoidance powers would
trump claims based solely on the debtors lack of equitable title . . . [and] . . . the trustee
occupies the position of a bona fide purchaser and takes real property free and clear of any
unperfected liens or interests.”).
As noted above, Massachusetts law provides the means by which an order of
specific performance can be perfected against a bona fide purchaser. Section 17of chapter
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31
184 specifically references equitable decrees, which in the absence of recordation 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., 292 B.R.
522, 527 (Bankr. D. Del. 2003)(relying upon a Florida statute comparable to Mass. Gen.
Laws ch. 184, § 17). Because it is well settled in Massachusetts that “‘a deed duly recorded
takes precedence over a prior unrecorded deed,’” see Clark v. Kahn (In re Dlott), 43 B.R.
789, 793 (Bankr. D. Mass. 1983)(quoting General Builders Supply Co. v. Arlington Co-op
Bank, 359 Mass. 691, 696-97 (1971)), the Court finds that KAC’s October 11, 2005 judgment
and the June 19, 2006 Superior Court order do not bind the Chapter 7 Trustee. Even if KAC
had been successful under Mass. R. Civ. P. 70 in having a master appointed by the Superior
Court to execute a deed, absent recordation, such an unrecorded deed would be ineffective
under Massachusetts law to defeat the Chapter 7 Trustee. Accordingly, KAC is not entitled
to an order requiring the Trustee to comply with the Superior Court orders.
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)(1)-(3). See generally In re Linehan, 326 B.R. 474 (Bankr. D. Mass. 2005). The court in
In re Farkas, 343 B.R. 336 (Bankr. S.D. Fla. 2006), highlighted the aspects of Chapter 7 which
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32
distinguish the relief afforded under that chapter of the Bankruptcy Code from Chapters
11 and 13 which explicitly require findings of good faith. It stated:
“[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 11 and 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.”
343 B.R. at 339-40 (quoting In re RIS Investment Group, Inc., 298 B.R. 848, 852(Bankr. S.D.
Fla. 2003)(citations omitted)).
KAC urges this Court to adopt a totality of the circumstances approach to a
determination of good faith, citing, inter alia, In re Shar, 253 B.R. 621, 631 n. 5 and n. 6
(Bankr. D. N.J. 1999), a case in which the court relied upon Y.J. Sons & Co., Inc. v.
Anemone, Inc. (In re Y.J. Sons & Co., Inc.), 212 B.R. 793, 802 (D. N.J. 1997). 	The Court
rejects KAC’s reliance on the totality of the circumstances approach in this Chapter 7 case.
Both Shar and Y.J. Sons & Co., Inc. were Chapter 11 cases, and the standards applicable to
a motion to dismiss in Chapter 11 are different from those applicable to Chapter 7 cases.
Moreover, both KAC and Conefrey had the opportunity to object to the Debtor’s discharge
if they believed that the inaccuracies in her schedules warranted relief under 11 U.S.C. §
727(a)(4)(A), but they chose not to do so.
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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), 185 B.R. 280 (N.D. Ill. 1995), in
seeking relief from the automatic stay. 	In that case, the district court affirmed the
bankruptcy court’s order granting relief from the automatic stay, “for cause” under 11
U.S.C. § 362(d)(1), to a bidder at a tax sale who received a Certificate of Purchase, which
enabled him, following the expiration of the debtor’s redemption period, to obtain a tax
deed to the debtor’s property. 	In Milne, the court observed:
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 or bad 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
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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., 74 B.R. 810(Bankr. D.
Mass. 1987), aff’d, 83 B.R. 185 (D. Mass. 1988), the Chapter 7 Trustee did. In recognition of
the decisions issued by the bankruptcy court and the district court, he argues that the Co-
Tenancy Agreement is an executory contract which he can reject, thus creating a claim for
bankruptcy purposes. See In re Onecast Media, Inc., 439 F.3d 558, 563 (9th Cir.
2006)(observing that rejection of an executory contract serves two purposes: relieving the
estate of burdensome future obligations and permitting the other party to the contract to
file a claim for breach of contract). Moreover, he argues that the equities favor the Debtor’s
estate as only the Debtor’s funds were used to operate the co-tenancy business.
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In In re Roxse Homes, Inc. v. Roxse Home Ltd. P’ship, 83 B.R. 185 (D. Mass. 1988),
aff’g, 74 B.R. 810 (Bankr. D. Mass. 1987), the district court affirmed a decision of the
bankruptcy court which granted relief from stay for the enforcement of a state court
judgment for specific performance. In Roxse Homes, the Chapter 11 debtor’s sole asset was
a 364-unit subsidized apartment complex in Boston. Prior to the debtor’s bankruptcy, the
debtor and a Massachusetts limited partnership (the “Partnership”) executed a purchase
and sale agreement pursuant to which the debtor agreed to sell its property for $13.7
million. 	Despite preliminary approvals from the Department of Housing and Urban
Development, the debtor refused to close the transaction, and the Partnership eventually
commenced suit in the Superior Court seeking specific performance of the purchase and
sale agreement. The Partnership obtained a “judgment which provided that, if the Debtor
failed to execute and deliver a deed within ten (10) days, the Superior Court would appoint
a Special Master to do so.” 74 B.R. at 812. While various appeals were pending, the debtor
filed a Chapter 11 petition.
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 original dispute and
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12 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.” 322 Mass. at 234 (citations omitted).
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find that the Purchase and Sale Agreement is an executory contract the Debtor may reject
under 11 U.S.C. § 365; or (2) determine that the Superior Court judgment, recorded by the
Partnership on the date of its issuance . . . is a claim.
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., 74 B.R. at 818. Alternatively, it determined that the Partnership’s judgment was not
a claim against the debtor’s bankruptcy estate, citing Rix v. Dooley, 322 Mass. 303, 307
(1948), for the proposition that “under Massachusetts law, there is no case or statute which
provides that an unenforced judgment for specific performance may be satisfied by a
payment of money in the event performance is refused.” 74 B.R. at 819. 12 The bankruptcy
court concluded that the debtor had failed to show that the Superior Court had not
considered equitable reasons for refusing specific performance. 	Id. (citing Raynor v.
Russell, 353 Mass. 366, 367 (1967)).
In affirming the bankruptcy court, the district court, citing the definition of a claim,
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13 “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.
14 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.
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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.’” 83 B.R. at 189 (citing Raynor v. Russell, 353 Mass. 366,
367-68 (1967)).
While the decisions issued by the bankruptcy court and the district court in Roxse
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), 169 B.R. 956 (Bankr. D. Ariz. 1994), are distinguishable. In the first
place, the Partnership in Roxse Homes recorded its judgment in compliance with Mass.
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Gen. Laws ch. 183, § 44, and neither the bankruptcy court nor the district court had
occasion to consider the trustee’s rights as a hypothetical bona fide purchaser in ruling on
the motion for relief from the automatic stay. Additionally, unlike the situation in Roxse
Homes, which involved a purchase and sale agreement, the Co-Tenancy Agreement in this
case is more akin to a partnership agreement, and, at the time of its ruling, the Superior
Court was not called upon to consider the claims of the Debtor’s unsecured creditors which
would be adversely affected by strict adherence to implementation of the deadlock
provisions in the Co-Tenancy Agreement. Finally, KAC has filed a proof of claim in the
Debtor’s bankruptcy case, which can be interpreted as an acknowledgment that they can
be compensated with money damages.
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., 293 B.R. at 433,
is appropriate. 	Weighing the interests of the estate against the hardships that will be
incurred by KAC, this Court finds that granting KAC relief from stay to enforce its state
court judgment is unwarranted and highly prejudicial to the unsecured creditors of the
Debtor’s bankruptcy estate. 	In this case, it is the estate representative, not the Debtor,
objecting to KAC’s alternative request for relief from stay, and it is the unsecured creditors,
not the Debtor, who will benefit by denial of the motion for relief from stay. The Debtor
has “thrown in the towel,” and it is exceedingly unlikely that there will be surplus funds
in the estate that will inure to her benefit.
Additionally, Massachusetts law is more liberal with respect to the availability of
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specific 	performance 	than 	many 	jurisdictions. 	Aerovox, 	Inc. 	v. 	Parallax 	Power
Components LLC (In re Aerovox, Inc.), 281 B.R. 419, 434 (Bankr. D. Mass. 2002). It permits
contracting parties whose damage claims may be calculable to obtain specific performance
in the form of a decree ordering a party to affirmatively carry out his contractual duties or
enjoining it from violating the contract. Id. (citing, inter alia, Mass. Gen. Laws. ch 214, §
1A). This Court in Aerovox, Inc. recognized that granting specific performance is within
the discretion of the judge. It stated:
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., 832 F.2d 214, 224
(1st Cir.1987) (quoting 5A Corbin on Contracts § 1142 at 117 (1964 & Supp.1982)).
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
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of the Debtor’s decision to file a bankruptcy petition and the concomitant legal and
equitable rights of the Chapter 7 Trustee.
V. CONCLUSION
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.
By the Court,
______________________________
Joan N. Feeney
United States Bankruptcy Court
Dated: March 6, 2007
cc: Donald R. Lassman, Esq., James M. Liston, Esq., Jonathan S. Klavens, Esq., U.S. Trustee
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