Nickless, Trustee v. Prime Title Services, Inc. et al

UNITED STATES BANKRUPTCY COURT
DISTRICT OF MASSACHUSETTS
In re: 	)
)
PRIME MORTGAGE FINANCIAL, INC. 	) 	Chapter 7
Debtor 	) 	Case No. 08-40238-MSH
____________________________________)
)
DAVID M. NICKLESS, TRUSTEE, 	) 	Adversary Proceeding
Plaintiff 	) 	No. 09-04045
)
v. 	)
)
INTERNATIONAL GOLF CLUB, LLC, 	)
PRIME TITLE SERVICES, INC., and 	)
PRIME FINANCIAL, INC., 	)
Defendants 	)
____________________________________)
MEMORANDUM OF DECISION
This adversary proceeding involves a dispute between plaintiff, who is the Chapter 7
trustee of the estate of the debtor in the main case, Prime Mortgage Financial, Inc. (the
“Debtor”), and defendant, Prime Financial, Inc. (“PFI”), an affiliate of the Debtor. The dispute is
over the rights to a refund of $62,500 from co-defendant, International Golf Club LLC (“The
International”) arising from the cancellation of a country club membership.
This matter was tried before me on June 23, 2010. Prior to trial The International was
dismissed as a party upon its agreeing to pay over the disputed refund to whichever of the
remaining parties emerged victorious at trial. As to the third defendant, Prime Title Services,
Inc., an agreement for judgment in favor of plaintiff and against it had entered on August 25,
2009. At trial the evidence consisted of live testimony, agreed upon documents and an agreed
statement of facts.
1
Case 09-04045 Doc 66 Filed 07/14/10 Entered 07/14/10 11:44:44 Desc Main
Document Page 1 of 6

Findings of Fact
On July 1, 2003, the Debtor paid to The International $125,000 as a membership deposit
and contemporaneously William J. Poutre, at the time a director and substantial shareholder of
both the Debtor and PFI, submitted to The International a Membership Agreement and
Application (the “Membership Agreement”). While the Membership Agreement sought a
corporate membership at The International, the section entitled “Applicant Information” listed
Mr. Poutre as the applicant. In a section of the Membership Agreement entitled “Mailing
Information” Mr. Poutre listed PFI as the business to which communications from The
International should be directed. The International approved the Membership Application and
established a corporate country club membership in the name of PFI.
The Membership Agreement provides that at the option of the applicant 50% of the
membership deposit ($62,500) was refundable upon resignation of the member. However, the
Agreement does not specifically address to whom the refund is paid.
On August 19, 2004, Aris Pappas in his capacity as president and CEO of the Debtor sent
a letter to counsel for The International notifying The International that its membership records
listing PFI as member were incorrect and that the correct member name should be that of the
Debtor. The International notified Mr. Poutre of the Debtor’s request. Poutre, who, having had a
falling-out with Mr. Pappas, no longer participated in the active management of the Debtor but
retained control of PFI, objected to any change in the membership records and no change in the
records was ever effected. Therefore, at all times relevant to this action, according to the records
of The International PFI was its corporate member. However, as testified to by Brian Lynch,
who served as executive vice president and general manager of The International for 25 years,
2
Case 09-04045 Doc 66 Filed 07/14/10 Entered 07/14/10 11:44:44 Desc Main
Document Page 2 of 6

there was no requirement that the member and the payor/owner of the membership deposit be
one and the same individual or entity.
In addition to the membership deposit, members of The International were required to pay
annual dues. At all times relevant to this action, the Debtor paid the annual dues to The
International. For example, according to a financial worksheet of the Debtor introduced into
evidence, in 2004 the Debtor prepaid the annual dues to The International in the amount of
$21,225.
Under a corporate membership, certain individuals designated by the corporate member
could be approved for membership privileges at The International. Mark Belinsky, an employee
of both the Debtor and PFI or a subsidiary, testified that he received such an individual
membership when he was hired in 2003. The terms of his employment required him to
reimburse the Debtor for $21,125 (roughly one-third) of the non-refundable portion of the
membership deposit (namely 50% of the $125,000 membership deposit paid by the Debtor to
The International). Mr. Belinsky testified these payments were made through deductions by the
Debtor from commissions due him. Mr. Belinsky testified that the other two-thirds of the non-
refundable portion of the membership deposit were required to be repaid to the Debtor by other
employees who received individual memberships.
When the Debtor filed its Chapter 7 petition in this court on January 29, 2008, it listed in
schedule B (personal property assets) under item 3 (security deposits) $62,500 in “dues” held by
The International, which obviously refers to the refundable portion of the membership deposit.
Discussion and Conclusion
The Debtor and PFI have devoted much of their energies both at the pre-trial stage and at
3
Case 09-04045 Doc 66 Filed 07/14/10 Entered 07/14/10 11:44:44 Desc Main
Document Page 3 of 6

trial tangling over which of them was the member of The International based on the misplaced
belief that ownership of the right to the membership deposit refund necessarily followed the
holder of the membership. The testimony of Mr. Lynch of The International, however, was that
there was no requirement that the owner of the refund right and the member of the country club
be one and same. Resort to a written document for clarification of this key issue has proven
futile. The only contract in evidence in this action is the Membership Agreement which is, to
say the least, not a model of clarity. It begins with the ambiguity discussed earlier as to the
identity of the corporate member and deteriorates from there. Much of the Agreement is written,
from the perspective of the applicant, in the first person. For example, the last paragraph states:
I hereby acknowledge that I have received, have read and understand the Bylaws
and The International Rules and Regulations (“Rules and Regulations”) applicable
to this membership, which are incorporated herein by reference. If elected to
membership, I hereby agree that my use of the Club and privileges under the
membership are subject to the terms, conditions and restrictions set forth therein.
It is then signed by William Poutre individually. The section of the Membership Agreement
governing refunds of the membership deposit states: “I elect to receive fifty percent (50%) of the
Membership Deposit I paid for my membership upon sixty (60) days’ notice to the Club.”
Despite these provisions, no one has asserted that Mr. Poutre individually is the member under
the Membership Agreement or is entitled to the membership deposit refund. While a credible
argument has been made that PFI is the member for purposes of the Membership Agreement, the
Agreement’s terms simply do not support the conclusion that PFI is also the “I” referred to in the
refund provision.
The Membership Agreement thus being as pellucid as a sandtrap and there being no other
writing between the Debtor and PFI addressing the ownership of the membership deposit refund,
4
Case 09-04045 Doc 66 Filed 07/14/10 Entered 07/14/10 11:44:44 Desc Main
Document Page 4 of 6

I must resort to extrinsic evidence to ascertain the intent of the parties.1
The evidence presented establishes that while, according to the records of The
International, PFI was its corporate member, the Debtor assumed all financial obligations
associated with that membership, including paying the membership deposit and annual dues. No
evidence was presented to suggest that the parties treated the Debtor’s paying these financial
obligations as a loan or gift to PFI, which would have conferred on PFI indicia of ownership with
respect to these payments. On the contrary, the evidence established that from 2003 through the
date the Debtor initiated its Chapter 7 case, the Debtor considered itself exclusively obligated to
pay the monetary obligations associated with membership in The International and considered
itself the owner of the refund rights with respect to the membership deposit which it had paid.
The Debtor listed the right to the refund as an asset in the schedules accompanying its
bankruptcy petition. In a financial worksheet of the Debtor entitled “Prepaid Expenses” dated
April 20, 2004, the Debtor carried the annual dues to The International of $21,225 as a prepaid
expense. Finally, the Debtor required repayment of the non-refundable portion of the
membership deposit from Mr. Belinsky and other individual members who were employees of
the Debtor.
PFI attempted to prove an inconsistency in the Debtor’s position with respect to the
deposit refund by introducing into evidence a June 2, 2008 letter from Mr. Pappas to Mr. Poutre
in which Mr. Pappas acknowledged that “at all times” the membership rights to The International
“Extrinsic evidence bearing upon the background and purpose of the parties, as well as1
their understanding of particular language used in a contract, may be considered in resolving
uncertainties in applying a contract’s terms.” AsymmetRx, Inc. v. Biocare Medical LLC, 578
F.Supp.2d 333, 340 (D. Mass. 2008), vacated and remanded on other grounds, 582 F.3d 1314
(Fed. Cir. 2009).
5
Case 09-04045 Doc 66 Filed 07/14/10 Entered 07/14/10 11:44:44 Desc Main
Document Page 5 of 6

were in the name of PFI. This letter carries very little weight, however. It is written by Mr.
Pappas in his individual capacity and not as a representative of the Debtor (who was by then
already a Chapter 7 debtor). It was written in the context of a confidential settlement of litigation
involving Messrs. Poutre and Pappas. And finally, the letter addresses only the membership
issue, not the ownership of the deposit refund right.
All the evidence taken together proves conclusively that the right to the refundable
portion of the membership deposit was on the date of commencement of the Debtor’s Chapter 7
case and all times prior thereto, property of the Debtor. I will, accordingly, enter judgment in this
action in favor of the plaintiff on Count II of the Amended Complaint. No relief is necessary on
Count I which seeks a turnover order against The International since The International has agreed
to pay the refund to the prevailing party (the plaintiff) in this action. A separate order will issue.
Dated at Worcester in said District this 14th day of July, 2010.
By the Court,
______________________________
Melvin S. Hoffman
United States Bankruptcy Judge
6
Case 09-04045 Doc 66 Filed 07/14/10 Entered 07/14/10 11:44:44 Desc Main
Document Page 6 of 6