Theresa A. Pagnini

UNITED STATES BANKRUPTCY COURT
DISTRICT OF MASSACHUSETTS
EASTERN DIVISION
____________________________________
IN RE:
THERESA A. PAGNINI, 	Chapter 7
DEBTOR 	Case No. 09-17144-WCH
____________________________________
MEMORANDUM OF DECISION
I. INTRODUCTION
The matter before the Court is the “Motion of the Debtor, Theresa A. Pagnini, To Avoid
Judicial Lien of Premier Capital, Inc.” ( the “Motion to Avoid Judicial Lien”) filed by Theresa A.
Pagnini (the “Debtor”) and the opposition thereto (the “Opposition”) filed by Premier Capital, Inc.
(“Premier”). Through the Motion to Avoid Judicial Lien, the Debtor seeks to avoid an execution on
her residence held by Premier pursuant to 11 U.S.C. § 522(f) as impairing her homestead exemption
under the Massachusetts Homestead Statute (the “Homestead Statute”). Premier admits that its lien1
is fully avoidable under 11 U.S.C. § 522(f) if the Debtor is entitled to a homestead, but challenges
that entitlement pursuant to Fed. R. Bankr. P. 4003(d). 	Therefore, the sole issue before me is
whether an alleged fraudulent transfer rendered homesteads recorded both before and after the
transfer invalid. For the reasons set forth below, I will grant the Motion to Avoid Judicial Lien.
II. BACKGROUND
The facts of this case are not in dispute. On August 12, 1999, the Debtor first acquired title
to certain real property at 110 Carleton Street, in Whitman, Massachusetts (the “Property”) as a joint
Mass. Gen. Laws ch. 188, § 1.1
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tenant with Gregory Bednarz (“Bednarz”), her then boyfriend. On February 5, 2003, Bednarz and
the Debtor deeded the Property to the Debtor, individually. At that time, the Debtor recorded a
declaration of homestead (the “2003 Homestead”). Nearly a year later, on February 4, 2004, the
Debtor conveyed the Property to herself and her daughter, Nicole Sullivan (“Sullivan”), as joint
tenants for consideration of one dollar (the “Transfer”). Premier alleges, and the Debtor has not
disputed, that Sullivan does not reside at the Property.
On May 16, 2005, the Brockton Division of the District Court Department of the Trial Court
of the Commonwealth (the “District Court”) issued a judgment in favor of Premier against the
Debtor in the sum of $57,300.01 (the “Judgment”). On April 19, 2006, the District Court issued an
execution in the sum of $63,667.38 (the “Execution”). 	The Deputy Sheriff for the County of
Plymouth then levied the Execution against the Debtor’s interest in the Property on April 27, 2006.
On January 18, 2008, Premier filed a complaint in the Middlesex Superior Court (the
“Superior Court”) seeking to recover the Judgment and requesting that the Transfer be set aside as
a fraudulent transfer. 	The substance of that litigation is not relevant to my determination. 	As
Premier does not state the outcome of this litigation, I presume that it was stayed by the Debtor’s
bankruptcy filing prior to a final disposition.
On July 29, 2009, the Debtor filed a voluntary petition under Chapter 7. Approximately one
week prior to filing her petition, she recorded a new declaration of homestead on the Property on
July 21, 2009 (the “2009 Homestead”). On Schedule A - Real Property, the Debtor listed an interest
as a joint tenant in the Property. Additionally, she stated that the fair market value of the Property
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was $275,000. 	The Debtor further disclosed in Schedule D - Creditors Holding Secured Claims,2
that the Property was subject to the following encumbrances: a first mortgage in the amount of
$206,000 held by Taylor, Bean & Whitaker Mortgage; a second mortgage in the amount $20,000
held by Rockland Federal Credit Union; and the Execution in the amount of $63,667.38. 	On
Schedule C - Property Claimed as Exempt, the Debtor claimed a homestead in the Property in the
amount of $500,000 pursuant to the Homestead Statute.
On November 18, 2009, the Debtor moved to avoid Premier’s execution pursuant to 11
U.S.C. § 522(f) as impairing her homestead exemption, and the Opposition followed on December
14, 2009. The Chapter 7 trustee (the “Trustee”) did not file a response to either the Motion to Avoid
Judicial Lien or the Opposition, but I note that he previously filed a Report of No Distribution
indicating that no non-exempt assets were available for distribution. 	On December 16, 2009, I
conducted a hearing on the Motion to Avoid Judicial Lien, and at the conclusion of oral arguments,
took the matter under advisement.
III. POSITIONS OF THE PARTIES
The Debtor
From the outset, the Debtor denies that an alleged fraudulent transfer, by itself, is grounds
for successfully objecting to the Debtor’s homestead exemption and notes that Premier cites no
authority in support of this theory. She further argues that even if the Transfer was fraudulent and
voidable, the Debtor would still hold title to the Property and the 2003 Homestead would remain
valid.
In support of this value, the Debtor attached an appraisal dated June 12, 2009 to the2
Motion to Avoid Judicial Lien. See Docket No. 23, Ex. C.
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Premier
Relying on Hanson v. First Nat’l Bank in Brookings, a case decided by the United States3
Court of Appeals for the Eighth Circuit regarding fraudulent intent in converting non-exempt assets
to exempt assets on the eve of bankruptcy, Premier asserts that a determination that the Transfer was
fraudulent should require a finding that the 2009 Homestead is invalid. 	The remainder of the
Opposition discusses the “badges of fraud” and how they might apply to the Transfer. 	At oral
argument, however, Premier advanced several additional theories in support of its objection. First,
it contends that the Transfer terminated the 2003 Homestead. Next, though unclear, Premier appears
to argue that by virtue of the Transfer, the Property, or at least Sullivan’s interest in it, cannot be
recovered for the benefit of the estate. In support, it relies on In re Cassese and In re Vasques for4 	5
the proposition that Sullivan, as a member of the Debtor’s family not residing at the Property, cannot
rely on the Debtor’s declaration of homestead to protect her interest in the Property.
IV. DISCUSSION
I begin by noting that Premier did not obtain a final judgment in the fraudulent transfer
litigation pending in the Superior Court prior to the Debtor’s bankruptcy filing. This is critical
because Premier’s standing to assert a fraudulent transfer claim against the Debtor now, although
not raised by the parties, is a threshold issue.
Generally, “the trustee has the exclusive right to bring an action for fraudulent conveyance
Hanson v. First Nat'l Bank in Brookings, 848 F.2d, 866, 868 (8th Cir. 1988).3
In re Cassese, 286 B.R. 472 (Bankr. D. Mass. 2002).4
In re Vasques, 337 B.R. 255 (Bankr. D. Mass. 2006).5
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during the pendency of the bankruptcy proceedings.” 	“It is well-established that creditors may not6
‘vie with the bankruptcy trustee for the right to pursue fraudulent conveyance actions. . . .’” 	In7
Morely v. Ontos, Inc., the United States Court of Appeals for the First Circuit explained:8
The Bankruptcy Code broadly defines the property of the estate to be comprised of
all “legal or equitable interests of the debtor in property as of the commencement of
the case.” It is well established that a claim for fraudulent conveyance is included
within this type of property. . . . Indeed, creditors only have standing to pursue such
claims during bankruptcy proceedings when a trustee or debtor in possession
unjustifiably fails to pursue the claim.9
Despite this general rule, in Campana v. Pilavis, 	a case cited by the First Circuit in Morely10
v. Ontos, Inc., I adopted the reasoning of Glinka v. Abraham and Rose Co., Ltd., 	and concluded that11
where a trustee or debtor in possession unjustifiably refuses to act, the bankruptcy court may allow
a creditor to bring suit on behalf of the estate. 	In determining whether a creditor could bring suit12
on behalf of the estate, I followed the directives set forth by the United States Court of Appeals for
Hatchett v. United States, 330 F.3d 875, 886 (6th Cir. 2003). See Morely v. Ontos, Inc.6
(In re Ontos, Inc.), 478 F.3d 427, 431 (1st Cir. 2007); Nat'l Tax Credit Partners v. Havlik, 20
F.3d 705, 708-09 (7th Cir. 1994) (“[T]he right to recoup a fraudulent conveyance, which outside
of bankruptcy may be invoked by a creditor, is the property of the estate that only a trustee or
debtor in possession may pursue once a bankruptcy is under way.”); Campana v. Pilavis ( In re
Pilavis ), 233 B.R. 1, 3 (Bankr. D. Mass.1999).
Sears Petroleum & Transport Corp. v. Burgess Construction Serv., Inc., 417 F.Supp.2d7
212, 221 (D. Mass. 2006) (quoting Klingman v. Levinson, 158 B.R. 109, 113 (N.D. Ill. 1993)).
In re Ontos, Inc., 478 F.3d at 431-432.8
Id. (citations omitted).9
In re Pilavis, 223 B.R. 1.10
Glinka v. Abraham and Rose Co., Ltd., 199 B.R. 484 (D. Vt. 1996).11
In re Pilavis, 223 B.R. at 4.12
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the Second Circuit in Unsecured Creditors Committee v. Noyes 	and considered “whether the suit13
presented ‘a colorable claim or claims for relief that on appropriate proof would support a recovery
. . . [and] whether the action is likely to benefit the estate.”14
Applying these principles to the present case, I find that Premier lacks standing to recover
a fraudulent transfer on behalf of the estate. Assuming, arguendo, that Premier’s fraudulent transfer
claim is colorable, the Trustee’s failure to act was nonetheless justified. Putting aside the Trustee’s
apparent inability to fund such litigation, avoidance of the purported fraudulent transfer offers no
benefit to the estate. As stated above, the value of the Property is $275,000 and it is subject to
encumbrances totaling $289,667.38. 	Therefore, even in the absence of a valid homestead, there15
is no equity for the estate to recover. 	Accordingly, the Trustee was not unjustified in failing to16
pursue the purported fraudulent transfer, precluding action on the part of Premier.
Because fraudulent transfers are voidable and not void, 	in the absence of a judgment17
voiding the Transfer, it remains valid. 	If the Transfer remains valid, then so too does the 2009
Homestead. 	As such, Premier has not stated grounds warranting the denial of the Motion to Avoid18
Unsecured Creditors Committee v. Noyes (In re STN Enter.), 779 F.2d 901, 904 (2d13
Cir.1985).
In re Pilavis, 233 B.R. at 4 (quoting Glinka v. Abraham and Rose Co., Ltd., 199 B.R. at14
493 and In re STN Enter., 779 F.2d at 905).
$206,000 (First Mortgage) + $20,000 (Second Mortgage) + $63,667.38 (the Execution)15
= $289,667.38.
I note, however, that there would be equity in the Property if the Execution is avoided.16
Mass. Gen. Laws ch. 109A, § 9.17
Premier’s reliance on both In re Cassese and In re Vasques is misplaced as those cases18
dealt with situations where the debtor was not the declarant of the homestead and attempted to
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Judicial Lien.
V. CONCLUSION
In light of the foregoing, I will enter an order granting the Motion to Avoid Judicial Lien.
______________________________
William C. Hillman
United States Bankruptcy Judge
Dated: January 26, 2010
invoke the protection of the other resident’s homestead. Oddly, even if these cases were
somehow relevant, In re Vasques would seem to undercut Premier’s position as the debtor in that
case, the non-residing adult child of the declarant, was permitted to claim the exemption of her
declaring parent. 337 B.R. at 258-259.
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