Greene v. Mullarkey et al

1
United States Bankruptcy Court
District of Massachusetts
Western Division
_________________________________
)
In re: 	)
)
MATTHEW J. MULLARKEY and 	) 	Chapter 7
NICOLE M. MULLARKEY, 	) 	Case No. 07-30561-HJB
)
Debtors. 	)
_________________________________ )
)
CHRISTINE GREENE, 	)
)
Plaintiff, 	)
)
v. 	) 	Adversary Proceeding
) 	No. 08-03009
)
MATTHEW J. MULLARKEY and 	)
NICOLE M. MULLARKEY, 	)
)
Defendants. 	)
_________________________________ )
MEMORANDUM OF DECISION
Before the Court for determination is a Complaint filed by Christine Greene
(“Christine” or the “Plaintiff”) in which she seeks a determination that her claim against
debtors Matthew J. Mullarkey and Nicole M. Mullarkey (individually “Matthew” or “Nicole”;
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1 Unless otherwise indicated, all references to the “Bankruptcy Code” or to specific sections therein
are to Title 11 of the United States Code, 11 U.S.C. §§ 101, et seq., as amended by the Bankruptcy Abuse
Prevention and Consumer Protection Act of 2005, Pub. L. No. 109-8 (“BAPCPA”).
2
or together, the “Mullarkeys” or the “Defendants”) is nondischargeable pursuant to 11
U.S.C. §§ 523(a)(2)(A), (a)(4) and (a)(6). 1
I. 	FACTS AND TRAVEL OF THE CASE
With a renewed respect and admiration for the work done by the Massachusetts
Probate and Family Court, this Court makes its findings of fact and conclusions of law
pursuant to Fed. R. Bankr. P. 7052, based upon the witnesses’ testimony and the exhibits
admitted into the record.
What we have here is an intra-family feud. Five witnesses testified at trial - Lenore
Mullarkey, Susan LeBlanc (“Susan”), Christine, and the Mullarkeys. Lenore Mullarkey is
mother to three children, Matthew, Christine and Susan, in addition to five others. Matthew
is married to Nicole. Christine is married to Todd Greene (“Todd”). The immediate object
of the friction between Lenore Mullarkey, Matthew, Nicole, Christine, Todd and Susan is
a two-family residential property located at 11 Fowler Avenue in Westfield, Massachusetts
(the “Fowler Property” or “11 Fowler”). 	And, in addition to their differences relating to
ownership of that property, that friction has played out on or in the property’s porch, attic,
basement, garage, yard and in-ground pool.
Lenore Mullarkey acquired the Fowler Property in approximately 1973, incident to
her marital dissolution. On August 13, 1992, she executed a quitclaim deed, granting title
to the property to herself and children Edward J. Mullarkey, Jr., George J. Mullarkey,
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Matthew and Christine as joint tenants. 	In 1997, title to the property was transferred to
Matthew, Christine and Susan, as joint tenants, subject to the outstanding mortgage on
which Lenore Mullarkey remained solely obligated.
As of 1997, Susan inhabited the second floor of the Fowler Property. The first floor
was employed as a rental unit for college students. Susan was responsible for collecting
the rent and paying the mortgage, oversaw property repairs, and addressed tenant
concerns. In September 1999, Susan moved out of the Fowler Property and Christine and
her three children relocated to the first floor. 	This time, the second floor was rented to
others. Christine assumed the responsibilites previously undertaken by Susan and, when
tenant payments were untimely, Christine would make or advance the mortgage payments
from her own funds.
Soon after moving to 11 Fowler, Christine identified the roof as in need of repair.
Although initially declining to help, Matthew, then in California, agreed in 2003 to come to
Massachusetts to make the necessary repairs himself, so long as Christine’s boyfriend and
then future husband, Todd, agreed to advance payment for the Mullarkeys’ family travel
expenses to Massachusetts and the cost of all roofing materials associated with the repairs.
Christine estimates that Todd personally contributed approximately $8,000 to $10,000,
inclusive of the Mullarkeys’ travel expenses, toward the 11 Fowler roof repair. In July 2003,
in order to secure repayment of the funds he had advanced, Todd had an attorney draft a
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2 At trial, Susan testified that she declined to sign the mortgage because she felt betrayed; she had
contributed significant funds for repairs of 11 Fowler but had not received assistance from Christine or
Matthew. Apparently in a letter written to Christine’s employer at the time, Susan expressed her frustration
and belief that Christine was living at 11 Fowler rent free and had financially benefitted to the extent of
approximately $18,000. Susan emphasized at trial, however, that her calculation was mere speculation. She
also maintained that 11 Fowler should be solely in her name as she possessed an unrecorded deed to the
property. This unrecorded deed, however, was apparently only signed by Susan.
4
mortgage on the Fowler Property in the amount of $10,000. However, the mortgage was
never executed by the sibling property owners. 2
Late in 2003, Matthew lost his job in California, sold his residence, and permanently
moved his family to Massachusetts. For approximately six months throughout the winter
and spring of 2004, the Mullarkeys rented an apartment from another of Matthew’s siblings
in Huntington, Massachusetts.
The “Agreement”: In the spring of 2004, Christine and Matthew discussed
acquiring Susan’s interest in 11 Fowler. Christine testified that she, Matthew and Susan
had several conversations regarding this proposal. Initially, Susan was not interested in
giving up her interest in the property; but, pressured by her mother, she finally agreed to
convey her interest to her co-owner siblings for the sum of $15,000, less than the amount
to which she thought she was entitled. According to Susan, her mother intended 11 Fowler
to be thereafter held in the names of both Christine and Matthew. In her own testimony,
Lenore Mullarkey confirmed that intention.
Christine testified that she and Matthew then entered into an oral agreement for the
purpose, she was told, to more easily finance the property. 	According to Christine,
Matthew represented to her that financing terms would be more favorable if she transferred
her interest in 11 Fowler to him; and then, after completion of the financing and after her
marriage to Todd, she would be added back as an owner. Christine testified that she did
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3 At the time of these discussions, Christine was a nursing student and taking courses at a local
community college. She believed the Mullarkeys were financially knowledgeable as they had been involved
in two residential property transactions while in California and previously owned other valuable personal
property. 	Matthew testified, however, that during both California real estate transactions, Nicole “did
everything” and just “told [him] where to sign.”
5
not have any credit history or any experience with mortgage applications and, believing that
the Mullarkeys were more financially sophisticated then she, relied on Matthew’s
representations. 3 Christine testified that, at all relevant times, she believed that she was
a one-half owner of 11 Fowler and responsible for half of the financing arrangement.
This oral agreement, according to both Christine and Susan, required that Susan be
paid $10,000 from the refinancing and then Christine and Matthew would each pay Susan
an additional $2,500 - for a total of $15,000. 	Matthew, however, maintains that the
agreement was always for him to have sole ownership of 11 Fowler. He testified that there
was no arrangement to share ownership with Christine; that when he moved to
Massachusetts with his family, he had significant proceeds from the sale of the California
residence and, in April or May of 2004, told Christine and Susan that “the only way [he]
would put that money into Fowler Ave. was if [he] was the sole owner, and so it was – had
to be agreed by everyone that they would sign over their part of the house in order for [him]
to do that.” More specifically, he testified that “[i]n order for me to move in and refurbish
the house . . . they would both need to sign off of the deed.” Matthew testified that Susan
initially wanted $20,000 for her interest in the property but eventually agreed to accept
$12,500 from him. And Christine agreed to take the sum of $7,250 in full payment of the
moneys that Todd advanced on roofing materials and travel expenses associated with the
2003 roof repair. 	According to Matthew, Christine agreed to convey her interest in the
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4 Nicole testified that she was aware of the agreement between Christine, Susan and her husband
and was within earshot of some of the conversations, but never participated.
5 Matthew, Susan and Christine were all present at the real estate attorney’s office at the closing.
Christine testified that she did not receive the $1 referenced on the deed.
6
Fowler Property for (1) $7,250, (2) fixed rent until she finished nursing school, and (3) the
right to choose the floor in which her family would live.
Nicole’s testimony echoed that of her husband. She testified that Matthew had told
her, “before he would sink any of our money into the house he was going to buy out his
sisters, and then we would go ahead and he was going to remodel it, and make sure that
it was okay, that he put the money that we invested.” She stated there were two or three
discussions “to work everything out,” but only Matthew, Christine and Susan were involved
in the discussions. 4 Her recollection of the events was that Susan had advanced sums for
repairs at 11 Fowler totaling about $12,000 or $12,500 and Christine and Todd had
advanced similar sums totaling $7,200.
Ultimately, Nicole contacted Countrywide Home Loans, Inc. (“Countrywide”) for the
purpose of securing financing in Matthew’s name. 	Matthew testified that his wife was
responsible for their family finances and that although she and Matthew usually made
decisions together, Nicole usually “did the footwork.”
The Transfer: On June 25, 2004, Matthew, Christine and Susan conveyed 11
Fowler to Matthew for the sum of $1.5 And on the same date, Matthew, in turn, granted a
mortgage in the amount of $115,000 to Countrywide, whose agents had appraised the
property for $180,000. 	Of the mortgage proceeds, $80,026.21 was used to pay off the
existing mortgage to United Cooperative Bank held in Lenore Mullarkey’s name; $5,695.77
paid the closing costs and other settlement charges; and $29,578.02 was available to the
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6 Christine testified that the proceeds paid to her were used to make renovations to the second floor
and for the purchase of some furnishings. 	Specifically, Christine testified that her family renovated the
bathroom, added a new rug to the living room, gutted the dining room, installed new ceiling fans and hardwood
floors and repainted rooms. Matthew assisted Christine with some of those renovations.
7 Although Matthew wrote the majority of checks from the joint account, between August 13, 2005
and the date the account was closed on December 18, 2006, Christine signed the following checks: check
number 535 dated November 5, 2005 payable to Countrywide in the amount of $1,407.33, check number 536
dated December 2, 2005 payable to Nicole in the amount of $230, check number 564 dated January 27, 2006
payable to the City of Westfield in the amount of $316.17, check number 569 dated May 19, 2006 payable to
Jelly Belly Pools in the amount of $205.57, and check number 542 dated September 8, 2006 payable to
Ocean State Job Lot in the amount of $156.36.
7
sellers. Of that surplus, Matthew received slightly less than $13,000, Christine received
$7,2506 and Susan received $10,000.
Also at the time of the June 25, 2004 closing, Christine provided Susan with a signed
promissory note, dated June 24, 2004, which read:
I Christine N Scanlon agree to pay Susan LeBlanc an amount of $2500 on
or before June 24, 2007. An amount agreed upon by both parties involved.
Matthew also provided Susan with a signed promissory note dated June 24, 2004. His note
read:
I Matthew J Mullarkey agree to pay Susan LeBlanc the total amount of
$12,500. $10,000 of that shall be paid at the time of closing/refinancing 11
Fowler Avenue in Westfield, MA. The remainder of the funds a total of $2500
shall be paid to her as of/or before June 24, 2007. In turn Susan has agreed
to relinquish her right of ownership to 11 Fowler Avenue in Westfield MA
01085.
Both promissory notes were prepared by Nicole. She testified that Matthew and Christine
separately requested that she prepare notes on their respective behalf but denies that she
understood at that time the details of the underlying transaction.
Soon after the closing, Matthew and Christine opened a joint checking account for
the purpose of paying the mortgage, water bills, and other property expenses at 11 Fowler.
Nicole testified that the joint account was opened at Matthew’s suggestion. 7 Christine
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testified that at that time, she was contributing $640 monthly to the account, representing
her half of the mortgage payment and a contribution to the cost of water. She subsequently
increased that monthly payment by $50 to address higher than anticipated water charges.
Christine testified that she asked Matthew “every few months” as to when her joint
interest in the Fowler Property would be returned to her, but was put off. Susan added that
she had several conversations with Matthew and Nicole during this time period, and
Matthew and Nicole never questioned whether Chistine’s name would be added to the
deed. In fact, she recalled one specific conversation in the Spring of 2005 between Susan,
the Mullarkeys, Christine and Todd (together, the “Greenes”) in which Matthew indicated
that after Christine was married, the deed to 11 Fowler would be changed to reflect joint
ownership by the Mullarkeys and the Greenes. Nicole, however, testified that she did not
recall those conversations.
In each subsequent year commencing with the 2004 transfer, the Mullarkeys added
Schedule E to their joint 1040 tax return to report, with respect to the Fowler Property, rents
received; insurance, mortgage interest, utilities and taxes paid; and depreciation or
depletion expense - in each case receiving a tax benefit from the losses reported.
The Subsequent Mortgages: On October 12, 2004, allegedly in need of funds to
pay certain hospital bills and living expenses, Matthew borrowed an additional sum of
$28,700 from Countrywide (the “October 2004 Loan”) and granted Countrywide a second
mortgage on the Fowler Property to secure repayment. 	Matthew testified that he and
Nicole had gotten “over [their] heads” with the cost of the renovations made to the property
and attributed his hospitalization to the effect of working too many hours on those
renovations and as a subcontractor on other projects.
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8 In connection with this loan, the property was reappraised in the amount of $282,000.
9
On July 20, 2005, Matthew entered into a new financing arrangement with
Countrywide, this time refinancing into a new loan in the amount of $181,500 (the “July
2005 Mortgage”). 	This new mortgage paid off the two prior Countrywide mortgages in
amounts of $114,248.85 and $28,836.87, respectively, and also satisfied the Mullarkeys’
outstanding credit card obligations totaling $31,153. Matthew also received an additional
$3,993.54 of loan proceeds but was unable to identify at trial where these funds were
spent. 	Again, Matthew testified that he and his wife had gotten “over our heads”
specifically in respect to the home renovations.
And, on November 16, 2006, Matthew borrowed an additional $20,000 from TD
Banknorth, N.A., again securing the repayment with a mortgage on the Fowler Property
(the “November 2006 Mortgage” or the “TD Bank Mortgage”). 8 Of these loan proceeds
$14,455.47 was again used to satisfy outstanding credit card obligations and $5,544.53
was disbursed directly to Matthew.
Christine testified, and this Court finds, that she did not receive any of the proceeds
from the additional mortgage loans nor was she aware of their existence until after they
were completed. According to Christine, in the fall of 2005, Nicole admitted that she and
Matthew had taken some money out of 11 Fowler and because of the new mortgage,
Christine would need to wait an additional six months to be put back on the deed. Christine
testified that Nicole reassured her that Christine would not be responsible for the additional
mortgage obligations and her payments to the house account would remain the same.
Nicole denied ever having such a conversation with Christine.
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9 Susan testified that Matthew had told her during this period, referring to Christine and the
maintenance of 11 Fowler, “Well, I’d put her back on the deed if she would freaking do something
around here.”
10
Living at 11 Fowler: During the late spring and summer of 2004, Matthew gutted
the first floor of 11 Fowler down to the exterior walls and repaired, updated or replaced all
of the electrical, plumbing, insulation, drywall, and baseboard heaters. Matthew testified
that he would not have moved his family into 11 Fowler without the extensive renovation.
Both Christine and Susan testified, largely supported by Lenore Mullarkey, that, in their
opinion, repairs to the first floor had been unnecessary. 	Yet Matthew submitted into
evidence receipts totaling approximately $45,000, dated between May 1, 2004 and
February 15, 2008. 	He also estimated that the value of his labor was approximately
$40,000.
The Mullarkeys and their children moved into the first floor of 11 Fowler in
September 2004. However, by the summer of 2006, significant animosity had developed
between the Greenes and the Mullarkeys, arising from perceived resentments about the
maintenance of the property, e.g., lawn maintenance and trash pickup.9
In or around October 2006, Matthew approached Christine, explaining that he was
having financial difficulty paying for a new health insurance expense. Christine claims that
Matthew asked her to increase her monthly payment. She testified that she told him she
was willing to increase her payment to benefit 11 Fowler but not if the funds were to cover
Matthew’s personal financial obligations. Soon thereafter, Matthew provided Christine with
a letter, dated October 29, 2006, which provided with respect to her residence at the Fowler
Property:
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10 Matthew testified that the house required new siding, new windows, and a driveway repair; and
that the funds realized from October 2006 Mortgage were acquired for the specific purpose of fixing things on
the property in advance of sale advertising.
11 Christine testified that at the time of closing the account, there were enough funds to make the next
mortgage and water payments. According to the bank statements submitted into evidence, $365.79 was
withdrawn at closeout on December 18, 2009 but in the prior month Matthew signed the following checks:
check number 547 payable to Nicole Mullarkey in the amount of $400, check number 548 payable to the City
of Westfield in the amount of $336.14, check number 549 payable to Nicole Mullarkey in the amount of $1,000,
and check number 592 payable to Matthew Mullarkey in the amount of $230.
11
This is a month to month lease that will go into affect as of November 1,
2006. The increase of rent from $690 to $1000 goes into effect by December
1, 2006. Please return this to me by Tuesday October 31, 2006. If you have
any questions just ask.
The Greenes subsequently received a “Notice to Vacate for Possession - Without
a Lease,” dated December 14, 2006. In the Notice, the Greenes were “requested to leave
the premises you now rent as my tenant” with Matthew signing as “landlord.” 	Christine
testified that these occasions were the first in which her monthly payments were classified
as rent.
During this same period, Matthew listed 11 Fowler for sale, arranging for a “For Sale”
sign to be posted in front of the property. Matthew testified that he put the property up for
sale because it was in much need of repair and he did not want to go through the process
of evicting the Greenes. 10 On December 18, 2006, Matthew closed the joint checking
account and withdrew the remaining funds. 11
After seeing the “For Sale” sign in front of 11 Fowler, Christine decided to move her
dispute with Matthew to a courtroom and filed a complaint and request for lis pendens in
the Hampden County Superior Court. 	The request for lis pendens was granted on
December 21, 2006. And after the closure of the joint account, Christine began sending
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her monthly mortgage payments directly to Countrywide and contributed to the water bill
by periodically paying a portion of the outstanding balance.
In the years following the commencement of the state court litigation, the relationship
between the parties did not improve. Slights, real and perceived, included the following:
1) Christine accused the Mullarkeys of having taken the Greenes’ children’s
baseballs and a chaise lounge. 	She testified that the items were returned only after a
motion for preliminary injunction was granted on or about June 20, 2007, requiring the
Mullarkeys not to interfere with the personal property of the Greene family or with their use
and enjoyment of 11 Fowler. 	Susan testified that in the summer of 2006, prior to the
preliminary injunction, Matthew installed a fence around the in-ground pool and that, after
the injunction was granted, Matthew erected a larger fence with a lock in order to restrict
her family’s access. 	Matthew, citing a perceived ambiguity in the state court injunction,
testified that he, as the sole owner, had concern about unfettered use of pool for liability
reasons and was authorized to restrict access.
2) Christine claimed that Matthew removed an outdoor water faucet to prevent her
family from having access to water while in the yard. 	Because her family was denied
access to the pool, Christine testified that she purchased an inflatable pool and had to fill
it with a hose from their residence on the second floor.
3) Christine complained that her family was denied access to the basement which
contains the circuit breaker box and water controls for all of 11 Fowler. The Mullarkeys
countered that a freezer owned by Christine, her sports equipment and leftover drywall
from the Greenes’ own bathroom renovation was positioned in front of the Greenes’
basement access. Matthew admitted, however, that no one, other than his family, currently
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has unlocked access to the basement. 	He contended that the basement stairwell
accessible by the Greenes was latched shut from the Greenes’ side to prevent heat loss
but that, once the litigation began, the Mullarkeys secured access from their side in order
to protect tools and expensive game equipment located in the basement. Nicole testified
that she considers the basement part of their home. The Mullarkeys also testified that their
children played and would, on occasion, sleep in the basement. They claimed that Todd,
at one point, kicked in a bulkhead basement access in order to reach the electrical switches
and/or water controls when Matthew was not home.
4) Christine claimed that the Mullarkeys removed an old outdoor gas grill from the
property without her or Todd’s permission. Matthew explained that his father-in-law brought
the grill to the dump by mistake when he was at 11 Fowler to retrieve other debris.
According to Matthew, the grill was located in an area where people do not normally grill
and he did not ask anyone to remove the grill nor was he aware of its disposal until after
it was removed.
5) Susan testified that Matthew removed a basketball hoop from the garage which
was often used by Christine’s children. 	Matthew claims that the hoop was removed
because he intended to re-side the garage and it was precariously located above where
vehicles were often parked. Matthew further testified that it was he who originally installed
the hoop when he was approximately ten years of age.
6) Susan testified that on Christmas Day 2006, Matthew cut down a tree holding a
tire swing often used by Christine’s children. 	Christine also accused the Mullarkeys of
removing Christmas decorations belonging to Christine’s family. Nicole, however, testified
that the decorations were removed because she is a Jehovah’s Witness and does not
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celebrate Christmas and that they were placed on the Greenes’ side of the garage after the
Mullarkeys consulted with their attorney.
7) Christine claimed that Nicole videotaped her actions when coming and going from
the house, called her “lazy” in front of her daughter, and left a voicemail on her phone
accusing Todd of allowing the garage to flood. In that same voicemail, Nicole stated that
Todd’s laziness “is why we called the attorneys and why we will never own with you.”
Nicole admitted to leaving the voicemail out of anger because she believed that the
Greenes had shoveled snow into a sump pump hole, flooding the garage during a heavy
freezing rain.
8) Christine complained that during a July 2007 graduation party for her daughter
at which approximately fifteen persons were in attendance, she inadvertently tripped an
electric circuit which caused a power outage to a portion of the living space in her
residence. Christine testified that Nicole used pretextual excuses and delayed resumption
of power from the circuit box (to which the Mullarkeys alone had access) for hours.
9) Both Christine and Susan testified that during this same graduation party, Susan’s
son parked his vehicle in front of 11 Fowler and Matthew intentionally repositioned a
sprinkler to spray water into the vehicle.
10) Christine also claimed that when Todd, a licensed pipefitter, attempted to make
a repair to a washing machine valve which was leaking water into the Mullarkeys’
residence, Matthew initially refused to turn off the water. And then after agreeing to do so,
Matthew would periodically turn the water on for the specific purpose of spraying Todd.
According to Susan’s testimony, Matthew then refused to turn the water back on after the
repair and only did so after police involvement. Nicole tells a different story. She tesified
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that, on that day, she called her husband at work to inform him about water leaking through
their recessed lighting. Matthew testified that he then contacted Christine about the leak
and Christine later left a message on the Mullarkeys’ answering machine requesting that
water be shut off in order to make the necessary repairs. The Mullarkeys, however, claim
that Todd attempted to fix the leak without waiting to have the water turned off and water
leaked from second floor all the way into the basement. Matthew testified that water has
leaked from the Greenes’ apartment on prior occasions and he attributed this to the
Greenes’ unfinished bathroom renovation.
The Bankruptcy: The Mullarkeys ultimately filed for relief under Chapter 7 of the
Bankruptcy Code on December 19, 2007. 	On Schedule A, the Mullarkeys disclosed
Matthew’s ownership of 11 Fowler, subject to a lis pendens, and valued the property at
$200,000 with secured claims totaling $295,515. Christine was listed on Schedule F as
holding an unliquidated and disputed unsecured claim in the amount of $100,000.
In their Statement of Intent, the Mullarkeys represented their intention to reaffirm the
mortgage debts owed to both Countrywide and TD Bank. On March 14, 2008, Matthew
filed a reaffirmation agreement with respect to the TD Bank Mortgage but no such
reaffirmation agreement was filed regarding the Countrywide obligation. Three days later,
on March 17, 2008, Christine filed the instant adversary proceeding alleging her claims of
nondischargeablity. On May 2, 2008, the Mullarkeys received their chapter 7 discharge for
all debts except the one allegedly owed to Christine.
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II. 	POSITIONS OF THE PARTIES
Christine sets forth three grounds to justify the nondischargeability of her claim
against the Mullarkeys. 	First, she maintains that the Mullarkeys committed defalcation
while acting in a fiduciary capacity and engaged in an act of embezzlement, both grounds
for nondischargeability under § 523(a)(4). She contends that Matthew failed to abide by
his agreement to reconvey to Christine her interest in 11 Fowler after he had secured new
financing and she was married to Todd. 	In addition, she maintains that Matthew, in
violation of his fiduciary obligations to her, fully mortgaged 11 Fowler’s remaining equity to
satisfy his personal outstanding credit obligations and ultimately attempted to sell the
property. 	Second, as justification for her § 523(a)(2)(A) grounds, Christine alleges that
Matthew never intended to abide by his aforesaid agreement and deceived Christine into
relinquishing her interest in the property. Christine contends that she justifiably relied upon
Matthew’s statements and incurred significant damages - loss of possession, substantial
equity, available tax deductions, and the value of her improvements. 	Finally, Christine
collects the various examples of occasions in which she believes the Mullarkeys engaged
in willful and malicious harassment and retaliation seeking to induce her family to vacate
the premises and punish her for refusing to increase her monthly payments; argues that
such acts have violated Massachusetts General Laws (“Mass. Gen. Laws”) ch. 184, § 18
and ch. 186, §§ 14 and 18; and seeks to establish a non-dischargeable claim under
§ 523(a)(6) in the amount of statutory state law damages - three months market rent plus
reasonable attorney’s fees.
Of course, the Mullarkeys view the foregoing events quite differently. They maintain
that Matthew never agreed to hold 11 Fowler in trust for Christine; rather Christine and
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Susan simply agreed to transfer the property into Matthew’s name in exchange for
monetary compensation - which was paid. The Mullarkeys further contend that even were
the Court inclined to find that Matthew agreed to hold the property in trust for Christine, her
claims are barred by the doctrine of unclean hands. 	They assert that Christine’s own
version of the facts - that Matthew convinced her and Susan to transfer their interest solely
to him in order to receive the better financing, and then, subsequent to refinancing, would
reconvey her property interest - describes a conspiracy to defraud Countrywide.
Defending against the Plaintiff’s allegations of actual fraud under § 523(a)(2)(A), the
Mullarkeys reiterate that there was no such agreement and maintain that even if the Court
found that such an agreement did exist, Christine failed to demonstrate by a preponderance
of the evidence that Matthew intended at the time of the agreement not to reconvey
Christine’s interest in 11 Fowler to her. And, although acknowledging some of the factual
circumstances surrounding the Plaintiff’s § 523(a)(6) claim, the Mullarkeys maintain that
all of their actions were justified as they were acting under color of title and none of the
actions 	complained 	of 	would 	rise 	to 	the 	“willful” 	and 	“malicious” 	standard 	for
nondischargeability as set forth in § 523(a)(6). Finally, the Mullarkeys contend that even
if the Court finds in favor of Christine on any of her theories, Nicole should spared from that
determination as there is no evidence to support a finding of culpability on her part.
III. 	DISCUSSION
The First Circuit has clearly articulated the competing equitable interests to
analyzing exceptions to discharge under the Bankruptcy Code. 	On the one hand, in
furtherance of the Bankruptcy Code’s ‘fresh start’ policy, “[e]xceptions to discharge are
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18
narrowly construed . . . and the claimant must show that its claim comes squarely within
an exception enumerated in [§ 523(a)].” McCrory v. Spigel (In re Spigel), 260 F.3d 27, 32
(1st Cir. 2001) (quoting Century 21 Balfour Real Estate v. Menna (In re Menna), 16 F.3d
7, 9 (1st Cir. 1994)); Palmacci v. Umpierrez, 121 F.3d 781, 786 (1st Cir. 1997) (quoting
same). By specifying the types of debts that the Bankruptcy Code considers exempt from
discharge, it does not condition discharge upon a generalized determination of the moral
character of the debtor. 	In re Spigel, 260 F.3d at 32. 	On the other hand, “[b]y seeking
discharge . . . [the debtor] places the rectitude of his prior dealings squarely in issue, for .
. . th[e] opportunity [for discharge is limited] to the ‘honest but unfortunate debtor.’ “ 	Id.
(quoting Brown v. Felsen, 442 U.S. 127, 128 (1979) (citation omitted)).
A. 	11 U.S.C. § 523(a)(4)
Pursuant to § 523(a)(4), an individual debtor can not discharge a debt “for fraud or
defalcation while acting in a fiduciary capacity, embezzlement, or larceny.” 11 U.S.C. §
523(a)(4). 	In order to establish an exception to discharge under § 523(a)(4), a creditor
bears the burden of proving each and every element by a preponderance of the evidence.
Rutanen v. Baylis (In re Baylis), 313 F.3d 9, 17 (1st Cir. 2002) (citing Grogan v. Garner,
498 U.S. 279, 291 (1991)); Palmacci, 121 F.3d at 787.
“The definition of ‘fiduciary’ for purposes of § 523(a)(4) has been narrowly construed.
The term applies only to relationships arising out of express or technical trusts, and not to
trusts that are implied in law as a remedy.” Moore v. Murphy (In re Murphy), 297 B.R. 332,
348 (Bankr. D. Mass. 2003) (citation omitted). Federal law controls who is considered a
fiduciary for § 523(a)(4) purposes, although state law is relevant to determining whether a
trust relationship exists. 	Kwiat v. Doucette, 81 B.R. 184, 188 (D. Mass. 1987).
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Furthermore, the trust relationship must exist prior to the act creating the debt. Davis v.
Aetna Acceptance Co., 293 U.S. 328, 333-34 (1934).
An express trust “requires a declaration of trust and intent to create a trust
relationship with respect to a clearly defined res.” Staniunas v. Delisle (In re Delisle), 281
B.R. 457, 466 (Bankr. D. Mass. 2002) (quoting Stowe v. Bologna (In re Bologna), 206 B.R.
628, 632 (Bankr. D. Mass. 1997)). Under Massachusetts state law, an express trust exists
if there is: 1) intent to create a trust, 2) a specific trust res, and 3) identifiable beneficiaries.
Bane v. LeRoux (In re Curran), 157 B.R. 500, 509 (Bankr. D. Mass. 1993) (citing Ventura
v. Ventura, 407 Mass. 724, 727-28 (1990)).
An express trust, often created by an oral statement, depends primarily on
the manifestation of intent to create a trust. A party seeking to establish a
trust need not use specific terminology; instead, the party must unequivocally
intend that the estate vest in one person to be held in some manner or for
some purpose on behalf of another. See Ventura v. Ventura, 555 N.E.2d 872
(Mass. 1990).
Nickless v. Clemente (In re Clemente), Ch. 7 Case No. 07-42648-JBR, Adv. No. 07-4160,
slip op. at 13 (Bankr. D. Mass. August 12, 2009).
The Massachusetts statute of frauds is here implicated as well, as the statute
applies to trusts concerning real property. As a general rule, “[n]o trust concerning land,
except as may arise by implication of law, shall be created or declared unless by a written
instrument signed by the party creating or declaring the trust or by his attorney.” Mass.
Gen. Laws ch. 203, § 1. “If one orally agrees to hold land in trust for another an express
trust is created; . . . this oral trust is unenforceable . . . because the statute of frauds
requires that trusts concerning land, except those which arise or result by implication of law,
mut be evidenced by a written memorandum.” First Nat’l Bank of Boston v. Richmond (In
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20
re Gustie), 32 B.R. 466, 471 (Bankr. D. Mass. 1983), aff’d 36 B.R. 473 (D. Mass. 1984).
The statute of frauds is not without situational exceptions, however. 	“[A]n oral
agreement to convey land may be specifically enforced in equity, notwithstanding the
statute of frauds, where the agreement has been partly performed by the parting seeking
to enforce it, by taking possession and making improvements upon the estate, . . . so that
he cannot be restored to his original situation.” Hazleton v. Lewis, 267 Mass. 533, 538-39
(1929) (quoting Derby v. Derby, 248 Mass. 310, 314 (1924)). A plaintiff’s part performance
of, or detrimental reliance on, an oral agreement to convey property may estop a defendant
from pleading the statute of frauds. 	Nessralla v. Peck, 403 Mass. 757, 761 (1989)
(citations omitted). “This rule applies with particular force where the plaintiff has already
provided consideration consisting, at least in part, of an interest in land.” Barber v. Fox, 36
Mass.App.Ct. 525, 530 (1994).
This Court found credible the testimony of Christine, Susan and Lenore Mullarkey
and the testimony of Matthew and Nicole considerably less so. 	Accordingly, this Court
finds that Matthew and Nicole assumed an express trust to have Matthew hold title to the
Fowler Property on behalf of Christine and to return her interest of record after the June 25,
2004 refinancing of the property and Christine’s marriage. Beyond the Court’s observation
of the testimony of the witnesses, the Court found there to be no cogent reason for
Christine’s execution of a $2,500 promissory note to Susan (prepared by Nicole) other than
for a benefit to be received by Christine (i.e., a share of Susan’s interest in the Fowler
Property). Nor did the Court find credible the Mullarkeys’ testimony that Christine was paid
$7,250 from the refinancing to reimburse her and Todd for the monies paid for the 2003
roof repair. Christine’s uncontradicted testimony was that more than that sum was spent
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12 Christine also testified that Nicole was intimately aware of her individual finances as they had many
personal conversations during Christine’s divorce with her first husband, and, incident thereto, Nicole
accompanied Christine to an attorney’s office, and actually aided Christine in filling out financial forms.
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towards the repair and related travel expenses. Nor did the Court believe that the Greenes,
if truly tenants of Matthew, would spend thousands of dollars to renovate the second floor
of 11 Fowler if Christine would thereafter have no ownership interest in the property.
The oral agreement to reconvey a one-half interest in 11 Fowler constituted an
express trust pursuant to Massachusetts law: Christine was the intended beneficiary, the
one-half interest in Fowler Property was the trust res, and Matthew and Nicole were the
trustees.
The evidence clearly established that Nicole remained in the background, but was
“pulling the strings.” Matthew testified that Nicole arranged both the financing and actually
drafted the promissory notes for himself and Christine to Susan. As Matthew testified in
metaphor, she just “told him where to sign.” Nicole did the footwork, yet pretended not to
understand the transactions in which she was actively participating. Christine had no credit
and had no prior experience with mortgages - facts known by the Mullarkeys. 	The
Mullarkeys had greater financial sophistication than did Christine and Christine relied upon
them and specifically upon Nicole with whom she had grown close. 12 Nicole herself
testified at trial that Christine and Matthew had not been close since childhood and rarely
spoke to one another. By virtue of her participation in and, to a large extent, control over
the transactions between Matthew, Christine and Susan, Nicole sought the benefits of
Matthew’s promises to Christine, participated in their breach and should not now be
shielded from the consequences.
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22
This Court has no difficulty whatsoever finding and ruling that, having established
the existence of a fiduciary relationship between Matthew and Nicole as fiduciaries and
Christine as beneficiary, the Mullarkeys’ actions constituted “defalcation” within the
meaning of § 523(a)(4).
The First Circuit extensively examined the standard for defalcation under § 523(a)
in the case of Rutanen v. Baylis (In re Baylis), stating:
[W]e find that a defalcation requires some degree of fault, closer to fraud,
without the necessity of meeting a strict specific intent requirement. . . . We
believe that defalcation lessens the threshold requirement from one of
criminal or civil fraud to something less. To show defalcation, a creditor need
not prove that a debtor acted knowingly or willfully, in the sense of specific
intent. However, a creditor must be able to show that a debtor’s actions were
so egregious that they come close to the level that would be required to
prove fraud, embezzlement, or larceny. A debtor fiduciary may not escape
the exclusion from discharge of his debt arising out of defalcation by saying
he had no specific intent. 	As in other areas of the law, circumstances will
provide the level of wrongdoing needed to constitute a defalcation.
313 F.3d 9, 18-21 (1st Cir. 2002). Explaining further:
In evaluating whether there is a defalcation of a fiduciary duty, there must be
reference to the duty involved. Of the various duties, the duty of loyalty is
“[t]he most fundamental duty owed...the duty of a trustee to administer the
trust solely in the interest of the beneficiaries.” 	2A A. Scott, The Law of
Trusts § 170 (W.F. Fratcher ed., 4th ed. 2001). 	Defalcation may be
presumed from breach of the duty of loyalty, the duty not to act in the
fiduciary’s own interest when the interest comes or may come into conflict
with the beneficiaries’ interest:
A trustee occupies a position in which the courts have fixed
a very high and very strict standard for his conduct whenever
his personal interest comes or may come into conflict with his
duty to his beneficiaries. As long as he is not acting in his own
interest the standard fixed for his behavior is only that of a
reasonable degree of care, skill, and caution. 	But when the
trustee 	acts 	in 	his 	own 	interest 	in 	connection 	with 	the
performance of his duties as trustee, the standard of behavior
becomes more rigorous. In such a case his interest must yield
to that of the beneficiaries.
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2A id. § 170.25. 	As with the other fault-based exceptions, fault may be
presumed from the circumstances, here a violation of the duty of loyalty.”
Id. at 20-21. Defalcation is not the result of every breach of fiduciary duty and it is to be
measured objectively. 	Id. at 17-18. 	Here, Matthew had a duty to reconvey title in 11
Fowler back into both his and Christine’s names. 	On more than one occasion, both
Christine and Susan inquired about when Matthew would preform that duty, but were
informed that Christine needed to wait until some point in the future. 	It was not until
Christine refused to increase her mortgage payment in the fall of 2006 that she was
informed of her “tenant” status. Regardless of whether their intent was to rob Christine of
her interest in the Fowler Property from the outset, the Mullarkeys violated the fiduciary
duty to Christine (which they voluntarily assumed) by conspiring to retain the property soley
in Matthew’s name and in extracting its equity through new mortgages to subsidize their
lifestyle. These actions easily satisfy the First Circuit standards for “defalcation” under §
523(a)(4).
The Massachusetts statute of frauds does not shield the Mullarkeys. Reliance and
part performance negate the effect of the statute. 	Christine acted in reliance on the
promise that her interest in the Fowler Property would be returned to her by transferring her
interest in the property to Matthew. 	She invested thousands of dollars of funds in the
Fowler Property for substantial renovations to her living area. She entered into a joint bank
account with her brother for the purpose of paying the mortgage and other property
expenses, even writing the mortgage check from the account on one occasion. 	See
McDonnell v. McDonnell, No. 013421, 2005 WL 1156203, at *3 (Mass. Super. Apr. 29,
2005) (an exception to the statute of frauds is appropriate where the plaintiff deeded his
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24
interest to the defendants and the transfer “irretrievably changed” the plaintiff’s position to
his detriment in reliance upon the defendants’ promise); Hazleton, 267 Mass. at 538-40
(improvements made to the premises must have been induced by the agreement and in
reliance upon its performance and that the improvements must have been substantial).
The Mullarkeys similarly cannot shield themselves with the equitable doctrine of
unclean hands. The unclean hands doctrine is a “self-imposed ordinance that closes the
doors of a court of equity to one tainted with inequitableness or bad faith relative to the
matter in which he seeks relief, however improper have been the behavior of the
defendant.” Precision Instrument Mfg. Co. et al. v. Auto. Maint. Mach.Co., 324 U.S. 806,
814 (1945). 	The saying “‘he who comes into equity must come with clean hands’ of
necessity gives wide range to a court’s use of ‘discretion to withhold punishment of
behavior which it considers not to warrant so severe a sanction.’” K-Mart Corp. v. Oriental
Plaza, Inc., 875 F.2d 907, 912 (1st Cir. 1989) (citations omitted). The doctrine “only applies
when the claimant’s misconduct is directly related to the merits of the controversy between
the parties, that is, when the tawdry acts ‘in some measure affect the equitable relations
between the parties in respect of something brought before the court”.” 	Texaco Puerto
Rico, Inc. et al. v. Dep’t of Consumer Affairs et al., 60 F.3d 867, 880 (1st Cir. 1995) (quoting
Keystone Driller Co. v. General Excavator Co., 290 U.S. 240, 245 (1933)). Based upon this
Court’s review of the circumstances surrounding the agreement between the parties and
the refinancing, Christine’s participation does not fall under the doctrine. It is undisputed
that the agreement to have Matthew as the sole title holder to secure a better interest rate
was at the Mullarkeys’ suggestion and that Christine had no prior mortgage experience.
But of greater moment, there was no evidence that Countrywide was actually defrauded
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13 In further support of applying the unclean hands doctrine and an equitable affirmative defense, the
Defendants cite directly and indirectly to Mass. Gen. Laws ch. 109A, the Uniform Fraudulent Transfer Act.
However, this statutory scheme aims to protect creditors from a debtor’s fraud and invalidate fraudulent
transfers and obligations. See Mass. Gen. Laws ch. 109A,§ 5(a) (1996); 37 C.J.S. Fraudulent Conveyances
§ 43 (2009). The creditor allegedly defrauded through the agreement, according to the Mullarkeys, is the
bank. But the bank is not a party to these proceedings nor has it has not alleged any fraud. Further, the initial
mortgage which was taken as the result of this alleged fraudulent agreement in June 2004 no longer exists
as the Mullarkeys entered into the July 2005 Mortgage which paid off the two prior mortgages.
14 Section 523(a)(2)(A) excepts from discharge a debt of an individual debtor “for money, property,
services, or an extension, renewal, or refinancing of credit, to the extent obtained by - false pretenses, a false
representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial
condition.” 11 U.S.C. § 523(a)(2)(A).
15 “Embezzlement has been defined ‘as the fraudulent appropriation of property of another by a
person to whom such property has been entrusted or into whose hands it has lawfully come.’” Farley v.
Romano (In re Romano), 353 B.R. 738, 765 (Bankr. D. Mass. 2006) (quoting Moore v. United States, 160 U.S.
268, 269 (1895)). To establish a claim of embezzlement, one must prove 1) the debtor’s appropriation of
property was for the debtor’s benefit and 2) the appropriation occurred with fraudulent intent or by deceit. Id.
(quoting KMK Factoring, L.L.C. v. McKnew (In re McKnew), 270 B.R. 593, 631-32 (Bankr. E.D.Va. 2001)).
25
or if it played any active role in suggesting the nature and form of the transaction. Without
more, there is no foundation for application of the doctrine of unclean hands in this case. 13
B. 11 U.S.C. §§ 523(a)(4)(Embezzlement), 523(a)(2)(A) and 523(a)(6).
Having 	determined 	that 	Christine’s 	claims 	against 	the 	Mullarkeys 	are 	not
dischargeable under § 523(a)(4) on account of the Mullarkeys’ defalcation of their fiduciary
duty to Christine, this Court need not “gild the lily” by ruling on the applicability of §§
523(a)(2)(A) 14 and (a)(6) to the same events or whether the elements of “embezzlement”
are also present. 15
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16 Section 523(a)(6) provides that debts will not be discharged if arising from “willful and malicious
injury by the debtor to another entity or to the property of another entity.” 11 U.S.C. § 523(a)(6). The Plaintiff
must show that the Mullarkeys injured her or her property and that the injury was both “willful” and “malicious.”
As explained by the court in Burke v. Neronha (In re Neronha):
“Willfulness” requires a showing of intent to injure or at least of intent to do an act which the
debtor is substantially certain will lead to the injury in question. Kawaauhua v. Geiger, 523
U.S. 57, 118 S.Ct. 974, 140 L.Ed.2d 90 (1998). “Malicious” requires the injury to have been
“wrongful,” “without just cause or excuse,” and “committed in conscious disregard of one’s
duties.” Printy v. Dean Witter Reynolds, Inc., 110 F.3d 853, 859 (1st Cir. 1997).
344 B.R. 229, 231 (Bankr. D. Mass. 2006).
17 Mass. Gen. Laws ch. 186, § 14 states in relevant part:
Any lessor or landlord of any building or part thereof occupied for dwelling purposes, other
than a room or rooms in a hotel, but including a manufactured home or land therefor, who is
required by law or by the express or implied terms of any contract or lease or tenancy at will
to furnish water, hot water, heat, light, power, gas, elevator service, telephone service, janitor
service or refrigeration service to any occupant of such building or part thereof, who willfully
or intentionally fails to furnish such water, hot water, heat, light, power, gas, elevator service,
telephone service, janitor service or refrigeration service at any time when the same is
necessary to the proper or customary use of such building or part thereof, or any lessor or
landlord who directly or indirectly interferes with the furnishing by another of such utilities or
services, or who transfers the responsibility for payment for any utility services to the
occupant without his knowledge or consent, or any lessor or landlord who 	directly or
indirectly interferes with the quiet enjoyment of any residential premises by the occupant, or
who attempts to regain possession of such premises by force without benefit of judicial
process, shall be punished by a fine of not less than twenty-five dollars nor more than three
hundred dollars ... Any person who commits any act in violation of this section shall also be
liable for actual and consequential damages or three month’s rent, whichever is greater, and
the costs of the action, including a reasonable attorney’s fee.
Mass. Gen. Laws ch. 186, § 18 states in relevant part:
Any person or agent thereof who threatens to or takes reprisals against any tenant of
residential premises for the tenant’s act of, commencing, proceeding with, or obtaining relief
in any judicial or administrative action the purpose of which action is to obtain damages
under, or otherwise enforce, any federal, state or local law, regulation, by-law or ordinance,
which has as its objective the regulation of residential premises; or exercising the tenant’s
rights pursuant to section one hundred and twenty-four D of chapter one hundred and sixty-
four; or reporting to the board of health or, in the city of Boston to commissioner of housing
inspection or to any other board having as its objective the regulation of residential premises
a violation or a suspected violation of any health or building code or of any other municipal
by-law or ordinance, or state or federal law or regulation which has as its objective the
26
Two matters do deserve separate treatment, however, with respect to § 523(a)(6). 16
First, Christine argues that she is entitled to statutory damages under Mass. Gen. Laws ch.
186, §§ 14 and 18. 17 Chapter 186, §§ 14 and 18 relate to inappropriate actions by
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regulation of residential premises; or reporting or complaining of such violation or suspected
violation in writing to the landlord or to the agent of the landlord; or for organizing or joining
a tenants’ union or similar organization, or for making or expressing an intention to make, a
payment of rent to an organization of unit owners pursuant to paragraph (c) of section six of
chapter one hundred and eighty-three A shall be liable for damages which shall not be less
than one month’s rent or more than three month’s rent, or the actual damages sustained by
the tenant, whichever is greater, and the costs of the suit, including a reasonable attorney’s
fee.
18 Mass. Gen. Laws ch. 184, § 18 states in part:
No person shall make an entry into land or tenements except in cases where his entry is
allowed by law, and in such cases he shall not enter by force, but in a peaceful manner.
No personal shall attempt to recover possession of land or tenements in any manner other
than through an action brought pursuant to chapter two hundred and thirty-nine or such
proceedings authorized by law.
27
landlords. Christine can not have it both ways. She is either owner or tenant. This Court
having established that she has the rights of the former, she can not seek remedies
available to the latter.
Second, Christine’s § 523(a)(6) claims turn in part on her assertion that the
Mullarkeys engaged in retaliatory behavior toward her and members of her family. She
also maintains that those actions violated Mass. Gen. Laws ch. 184, § 18. 18 But this Court
finds that Christine failed to demonstrate, by a preponderance of the evidence, that the
Mullarkeys’ actions in the day-to-day affairs of operating the Fowler Property were either
intended to harm Christine or members of her family or were not otherwise justified. 	In
several cases, these actions appear to have been misinterpreted by Christine. 	In any
event, the Mullarkeys’ actions in this respect, individually and collectively, did not satisfy
the “malicious” element of § 523(a)(6) or the proscription of state law. Accordingly, in this
regard, Christine has not satisfied her burden of proof.
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19 This determination does not constitute a money judgment enforceable by execution from this Court.
In the event that the Plaintiff would request such a money judgment from this Court, that request would be
denied. See Cambio v. Mattera (In re Cambio), 353 B.R. 30, 30-36 (1st Cir. B.A.P. 2004).
28
IV. 	CONCLUSION
The Court finds and rules that Christine has established, by a preponderance of the
evidence, that she has a nondischargeable claim against Matthew and Nicole, pursuant to
§ 523(a)(4). In addition, Christine seeks in the Complaint a declaration that she is joint
owner of the Fowler Property. In her proposed findings of fact and law, Christine offers
various permutations of remedies suggested to make her whole. None does the trick of
returning Christine to the position of a joint owner of 11 Fowler subject to the indebtedness
of 2004 refinance alone. That debt has been paid, other mortgages have been incurred
and the Fowler Property has fluctuated in value. Accordingly, the remedy must do so as
well.
In view of the foregoing, this Court will (1) declare that Christine owns a fifty (50%)
undivided interest in the Fowler Property; (2) order Matthew to convey that interest to
Christine as of record as a tenant in common and pay for the applicable recording costs
and fees; and (3) adjudge that Christine shall thereafter hold a nondischargeable claim 19
against Matthew and Nicole in an amount equal to fifty (50%) percent of the difference
between a) the value of the Fowler Property and b) the total of i) closing costs, ii) an
amount equal to the $115,000 June 25, 2004 mortgage had that mortgage alone been
amortized according to its orginal terms and iii) the amount which Christine shall receive
as net proceeds on account of her interest in the property - all calculated as of the date, if
ever, when the Fowler Property is liquidated or otherwise sold in an arms-length or non-
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20 The Court acknowledges, but disregards, the $ 7,250 received by Christine incident to the June
2004 financing. The Court finds that sum was paid to reimburse Christine and Todd for Todd’s advances with
respect to the work on the roof and not as consideration for conveyance of Christine’s interest in the Fowler
Property.
29
collusive foreclosure sale. 20 Christine shall also have a nondischargeable claim against
Matthew and Nicole in the amount of her attorney’s fees and costs incident to this
adversary proceeding.
A judgment in conformity with this opinion shall enter herewith.
By the Court,
Dated: August 13, 2009 	Henry J. Boroff
United States Bankruptcy Judge
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