Nickless,Trustee v. Clemente et al

1That motion has now been filed with the Court.
UNITED STATES BANKRUPTCY COURT
DISTRICT OF MASSACHUSETTS
In re 	: 	Chapter 7
VIVIAN J. CLEMENTE 	: 	CASE NO. 07-42648-JBR
DEBTOR 	:
DAVID M. NICKLESS, CHAPTER 7 TRUSTEE, 	:
Plaintiff 	:
v. 	: 	Adv. Pro. No 07-4160
GERALD A. CLEMENTE, a/k/a GERALD A. 	:
CLEMENTE, JR. and MARTHA W. CLEMENTE :
Defendants. 	:
MEMORANDUM OF DECISION ON CROSS MOTIONS FOR SUMMARY
JUDGMENT
This matter came before the Court for hearing on the Chapter 7 Trustee’s Cross Motion
for Summary Judgment [#50] along with the supporting Memorandum of Law [# 51] and the
Trustee’s Affidavit [#52], and the Defendant’s Opposition to the Cross Motion for Summary
Judgment [#62]. Following the hearing the parties submitted supplemental memoranda [#66
(Trustee’s Supplemental Brief); ##67 and 68 (Defendant’s Amended Supplemental Brief and
exhibits thereto)]. Subsequently the Defendant moved the Court to delay entering its decision
pending receipt of the Trustee’s response to a motion for Fed. R. Bankr. P. 9011 sanctions served
on the Trustee.1
For the reasons set forth herein, the Trustee’s Cross Motion for Summary Judgment will
be denied.
FACTS
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On May 11, 1989, the Debtor, the Defendant, and the Defendant’s brother acquired title
to property located at 10 Cutler Street, Worcester, Massachusetts (the “Property”) as joint
tenants with rights of survivorship. The Property included a three family house located on the
approximately 9,000 square foot parcel. In or about January 2003 the owners of the funeral
home located next to the Property sought to acquire some of the land behind the dwelling to use
as a parking lot but no sale occurred at that time. By deed dated March 4, 2003, the Debtor, the
Defendant, and his brother transferred a portion of the Property, described as “Lot 1 on a plan
entitled ‘Plan of Land in Worcester, MA, Prepared for: John J. Kazluaskas” dated January 7,
2003, made by B&R Survey, Inc., recorded in the Worcester District registry of Deeds in Plan
Book 	, Plan 	, bounded and described as follows: ...” (“Lot 1”) to the Defendant and his
wife, as tenants by the entirety, for the stated consideration of $1.00. The deed was never
recorded. On May 23, 2003 the Defendant alone signed a mortgage on the property in favor of
CIT Group/Consumer Finance in the amount of $140,000 but approximately six months later, on
November 6, 2003, both the Debtor and the Defendant’s wife executed the same document.
On January 7, 2004, the Defendant’s wife died. On January 23, 2004, the Debtor, the
Defendant, and the Defendant’s brother executed a quitclaim deed transferring all of the
Property, including Lot 1, to the Defendant for stated consideration of less than $100.00. On the
same date the Defendant executed a mortgage on the property in favor of Sherwood Mortgage
Group, Inc. to secure repayment of a $151,000 note. The January 23, 2004 deed and the
mortgage were recorded in Registry of Deeds on January 28, 2004.
According to the document styled “Plan of Land in Worcester, MA, Prepared for: John J.
Kazluaskas dated January 7, 2003, made by B&R Survey, Inc.” (the “Plot Plan”), the Property
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was divided into two lots: Lot 1, the front portion of the Property, which was approximately
7,350 square feet and included the three-family house, and Lot 1A, an approximately 1,650
square foot parcel located at the rear of the Property. The Plot Plan was recorded at the Registry
of Deeds on December 30, 2004.
On or about January 5, 2005, the Defendant sold Lot 1A to the owners of the funeral
home for consideration which ,according to the deed, was $15,000. The Trustee asserts that the
consideration was $20,000, $5,000 of which was offset by the amount owed for funeral services
rendered in connection with the Defendant’s wife’s death. An additional $1,360.40 was
deducted from the purchase price by Attorney Edward Simsarian for his services in connection
with the sale of Lot 1, leaving the Defendant with $13,639.60. On January 20, 2006, the
Defendant sold the Property, minus Lot 1, for $325,000. After payment of the mortgage and
expenses of the closing, the Defendant received $97,000, which he used to purchase a new
residence. Neither the Debtor nor the Defendant’s brother received any portion of the sale
proceeds.
The Defendant submitted an affidavit in which he testified he used some unspecified
portion of the $13,639.60 to improve the three family house, including painting and repairing the
apartments on the first and second floor of the building. He also testified he spent $18,000 to re-
side the building in May 2005. In addition the Defendant averred that he made other general
improvements, including building a handicapped ramp for his son. He did not provide a specific
amount he spent for all the improvements. Moreover the Defendant testified that he did not
collect rent for all months in which he allegedly owned the property, either with his wife or
individually. He did not provide the Court with the amount of rent he actually collected during
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2Initially the Defendant sought dismissal of this fraudulent conveyance action on the
grounds that there was no intent to defraud. The Trustee argued that intent to deceive was not
needed if the transfer was for less than reasonably equivalent value and (1) under M.G.L. c.
109A, § 6, the Debtor was or became insolvent as a result of the transfer or (2) under § 5 of
M.G.L. c. 109A, the Debtor incurred or believed or reasonably should have believed she would
incur debts she would be unable to pay. The Trustee relied on the facts that the Debtor was
retired at the time of the transfer, that she was transferring balances between credit cards at least
as early as June 2004, that her May 2005 credit report lists debts of over $25,000, and that her
bankruptcy schedules indicate unsecured debt of approximately $65,000 and assets, consisting
primarily of exempt assets, of approximately $10,000. At the hearing on the Motion to Dismiss,
the Defendant argued that the action was barred by the statute of limitations.
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the relevant period of time.
The Debtor filed a voluntary petition pursuant to Chapter 7 of the United States
Bankruptcy Code on July 12, 2007. Documents she supplied to the Trustee and attached to the
Trustee’s Affidavit indicate that the Debtor received social security income of $13,339.20 in
2004; $13,694.40 in 2005, and $14,262.00 in 2006.
TRAVEL OF THE CASE
The Trustee commenced the instant adversary proceeding on October 18, 2007.
Subsequently the Defendant filed a pro se motion to dismiss in both the adversary proceeding
and in the bankruptcy case. 2 A hearing was held on the motion to dismiss in the main case and
the adversary proceeding; the motion was denied by orders dated October 2, 2008 entered in
both the main case and the adversary proceeding.
The Trustee’s Opposition to the Motion to Dismiss contained a cross motion for
summary judgment to which the Defendant did not respond. In light of his pro se status,
however, the Court gave the Defendant time within which to retain counsel and file a response to
the Trustee’s cross motion. The Defendant retained counsel who appeared at the continued
hearing on the cross motion for summary judgment and who has filed the supplemental
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3In the motion for sanctions, the Defendant argues that the Trustee initially raised the
argument that the M.G.L. c. 109A, § 7 applied to the March 2003 deed. This issue is not
relevant to the issue presently before the Court.
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pleadings.
POSITION OF THE PARTIES
The Defendant argued in his response to the Trustee’s cross motion that the transfer
occurred more than four years prior to the commencement of the bankruptcy when the March
2003 deed was executed while the Trustee countered that transfer occurred within the four year
limitation period as the January 2004 deed is the controlling deed.3 At the hearing, the
Defendant’s counsel elaborated that M.G.L. c. 109A, § 7(3) applied, thereby setting the
effective date of the transfer at March 4, 2003, the date of the unrecorded deed.
In his amended supplemental pleading, the Defendant seems to have conceded the
inapplicability of M.G.L. c.109A, § 7(3) although he continues to advance this position by
arguing that Massachusetts is a race/notice jurisdiction. The Defendant also argues that the
Trustee has not identified any creditor whose claim arose before the effective date of the transfer,
that there is a genuine issue of material fact as to the facts needed to establish liability under
M.G.L. c. 109A, § 6, and that the Debtor had no interest in Lot 1 on the date of the transfer at
issue. The Trustee counters that, although he believes he has established the Defendant’s
liability under M.G.L. c. 109A, § 6, he is also proceeding under M.G.L. c. 109A, § 5, which does
not rely upon the existence of a creditor in existence at the time of the transfer.
DISCUSSION
Fed.R.Civ.P. 56(c), made applicable by Fed. R. Bankr.P. 7056, provides that summary
judgment is appropriate when “there is no genuine issue as to any material fact and the moving
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party is entitled to judgment as a matter of law.” As this Court has previously stated in In re
Malden Mills Industries, Inc., 277 B.R. 449, 457 (Bankr. D. Mass. 2002) ,
Summary judgment is appropriate when “the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits, if any, show
that there is no genuine issue as to any material facts.” Fed.R.Civ.P. 56(c), Fed. R.
Bankr.P. 7056. “To defeat a motion for summary judgment, the nonmoving party
must demonstrate the existence of a trialworthy issue as to some material fact.”
Coyne v. Taber Partners I, 53 F.3d 454, 457 (1st Cir.1995). “A fact is ‘material’
if it potentially could affect the suit's outcome.” Garside v. Osco Drug, Inc., 895
F.2d 46, 48 (1st Cir.1990). “An issue concerning such a fact is ‘genuine’ if a
reasonable factfinder, examining the evidence and drawing all reasonable
inferences helpful to the party resisting summary judgment, could resolve the
dispute in that party's favor.” National Amusements, Inc. v. Town of Dedham, 43
F.3d 731, 735 (1st Cir.), cert. denied, 515 U.S. 1103, 115 S.Ct. 2247, 132 L.Ed.2d
255 (1995). The evidence must be examined in a light most favorable to the
nonmoving party and “indulge all reasonable inferences” to the nonmovant.
Garside, 895 F.2d at 48. “On issues where the nonmovants bear the burden of
proof, however, they must reliably demonstrate that specific facts sufficient to
create an authentic dispute exist.” Id. (citations omitted). The evidence needed to
withstand a motion for summary judgment must be sufficiently probative of a
material fact. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 91
L.Ed.2d 202 (1986).
The Trustee asserts that he is entitled to judgment under § 5 and/or § 6 of the
Massachusetts Uniform Fraudulent Transfer Act, codified at M.G.L.c. 109A (“UFTA”). Section
5 sets forth the elements by which any creditor, without regard to when the claim was acquired,
may set aside a transfer. Section 6 sets forth the elements which entitle a creditor who held a
claim at the time of the transfer to avoid the transfer.
M.G.L.c. 109A, § 5
M.G.L.c. 109A, § 5 provides in relevant part:
(a) A transfer made or obligation incurred by a debtor is fraudulent as to a
creditor, whether the creditor’s claim arose before or after the transfer was made
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or the obligation was incurred, if the debtor made the transfer or incurred the
obligation: ...
(2) without receiving a reasonably equivalent value in exchange for the transfer or
obligation, and the debtor:...
(ii) intended to incur, or believed or reasonably should have believed that he
would incur, debts beyond his ability to pay as they became due....
The Trustee relies upon the following facts to establish that the Debtor believed or
reasonably should have believed that she would incur debts beyond her ability to pay as they
became due: the Debtor was retired at the time of the transfer, she was transferring balances
between credit cards as least as early as June 2004, her May 2007 credit report lists debts of over
$25,000, and her bankruptcy schedules indicate unsecured debt of approximately $65,000 and
assets, consisting primarily of exempt assets, of approximately $10,000. Because the transfer
occurred in January 2004, the Debtor’s schedules filed more than three years after the transfer
are not indicative of what the Debtor should have reasonably anticipated she could pay when the
transfer occurred. Similarly the credit report is dated May 2007 and although it contains account
balances for various open accounts dating back to May 2005, this date is similarly too far
removed from the transfer to find the Debtor should have believed she could not pay her debts as
they came due. There was no evidence as to what the account balances, if any, were at or shortly
following the time of the transfer nor is there evidence that the Debtor was not satisfying the
minimum monthly amounts due. “In determining whether a debtor had the ability to pay a credit
card obligation, ‘payment’ should be defined as paying the minimum amount required under the
credit card agreement.” 	In re Rossiter, 2002 WL 31987288, *6 (Bankr. E.D.Pa.)(internal
quotations and citations omitted). Similarly the July 4, 2004 American Express statement, which
reflects that the Debtor transfered a balance of $4,000 from a Capital One credit card, does not
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support a finding that the Debtor transferred the balance because she could not afford to pay the
minimum monthly amount to Capital One. The Debtor may have transferred the balance to take
advantage of a reduced rate on transferred balances. This Court will not guess as to why the
balance was transferred.
M.G.L. c. 109A,§ 6.
Section 6 of the UFTA provides in relevant part:
(a) A transfer made or obligation incurred by a debtor is fraudulent as to a
creditor whose claim arose before the transfer was made or the obligation was
incurred if the debtor made the transfer or incurred the obligation without
receiving a reasonably equivalent value in exchange for the transfer or obligation
and the debtor was insolvent at that time or the debtor became insolvent as a
result of the transfer or obligation.
Liability under this section depends not only on the transfer having been made for less
than reasonably equivalent value but also a showing that either the Debtor was insolvent at the
time of the transfer or became insolvent as a result of the transfer. For the purposes of the
UFTA, a presumption of insolvency arises if either (a) the sum of the Debtor’s debts is greater
than all of the debtor’s assets, at a fair valuation or (b) the Debtor is generally not paying debts
as they become due. M.G.L. c. 109A §3. Assuming the existence of a pre-transfer creditor and
that the transfer was for less than reasonably equivalent value, the Trustee’s motion must be
denied as he has failed to demonstrate that the Debtor was insolvent at the time of the transfer.
As noted above, there is no evidence that she was not paying the minimum monthly balances on
whatever open accounts she had at the time of the transfer nor is there evidence that, at the
relevant time, her liabilities exceeded her assets. The earliest evidence of her liabilities is based
on the May 2007 credit report, which only provides information from May 2005 forward.
Moreover as the Defendant argues, the Trustee is assuming that the Debtor’s sole source of
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income at the time of the transfer was her social security income. The Court cannot make such
an assumption at this stage of the proceeding.
Finally, to the extent that the Defendant is seeking to rely on the complaint being time
barred, the Defendant’s argument fails. Although the Defendant is correct that the earlier deed is
effective against the parties to the deed, it is not binding against any creditor who lacked actual
knowledge of the transfer. Based on the record currently before the Court, there is nothing to
suggest that the earlier deed is effective against the creditors in existence at the time the earlier
deed was executed.
Dated: February 2, 2009 	__________________________
Joel B. Rosenthal
United States Bankruptcy Judge
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