Nickless, Trustee v. Lipp

1 Unless otherwise stated, all statutory references are to Title 11 of the United States Code
(the “Bankruptcy Code” or the “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.
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UNITED STATES BANKRUPTCY COURT
DISTRICT OF MASSACHUSETTS
CENTRAL DIVISION
_________________________________
)
In re: 	) 	Chapter 7
) 	Case No. 07-43490-HJB
WILLIAM A. LIPP, 	)
)
Debtor. 	)
_________________________________ )
)
DAVID M. NICKLESS, 	) 	Adversary Proceeding
CHAPTER 7 TRUSTEE, 	) 	No. 08-4056
)
Plaintiff, 	)
)
v. 	)
)
)
WILLIAM A. LIPP, INDIVIDUALLY )
AND AS TRUSTEE OF THE 	)
IDLEWILD REALTY TRUST, 	)
)
Defendant. 	)
_________________________________ )
MEMORANDUM OF DECISION
Before this Court is a complaint (the “Complaint”) filed by David M. Nickless (the
“Trustee”) as Chapter 7 trustee of William A. Lipp (the “Debtor”). In Counts I through V, the
Trustee seeks a denial of the Debtor’s discharge pursuant to 11 U.S.C. §§ 727(a)(3),
(a)(4)(D), (a)(6)(A), (d)(2) and (d)(3), respectively.1 In Count VI of the complaint, entitled
“Quiet Title,” the Trustee asks that the Court enter an order “vesting title to 54 Valley Road,
Tewksbury, Massachusetts” in the Trustee. Count VI further requests the Court to grant
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2 The Second Pre-trial Order, which, inter alia, set the trial for December 10, 2008, provided
in relevant part as follows:
Attorneys for the parties shall confer in person (and not solely by telephone
or in writing) and prepare a written Joint Pre-Trial Statement ("PTS") to be filed with
the Court not less than two (2) court days prior to the date of the trial. The PTS shall
include the following statements in the following order:
A. 	“The following facts are admitted and require no proof:” (set forth a
concise statement of each);
B. 	“The following issues of fact, and no others, remain to be litigated:”
(set forth a concise statement of each);
C. 	“The following issues of law, and no others, remain to be litigated:”
(set forth a concise statement of each);
. . . .
G. 	“The foregoing admissions have been made by the parties, and the
parties have specified the foregoing issues of fact and law remaining
to be litigated. 	Therefore, this Joint Pre-Trial Statement shall
supersede the pleadings and govern the course of the trial of this
cause.”
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the Trustee “full possession, occupancy and title of the [property] free of any continued
claim of Idlewild Realty Trust and its beneficiaries . . . .”
I. 	FACTS AND TRAVEL OF THE CASE
The Trustee filed the Complaint on April 9, 2008 and the Debtor filed a timely answer
on May 8, 2008. The case then traversed the normal procedural course – the preliminary
pre-trial order was issued; the pre-trial conference was held; the second pre- trial order was
issued; 2 the trial date was set; and the parties’ pre-trial stipulation (the “PTS”) was timely
filed.
The PTS provided a substantial response to the required statement: “The following
facts are admitted and require no proof.” 	However, the Court was surprised to find the
response “None” to the statement: “The following issues of fact, and no others, remain to
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3 In the PTS, the parties identified several documents that “may be admitted into evidence.”
At the January 14, 2009 hearing, those exhibits were given to the Court in anticipation of a
rescheduled trial, and the parties reiterated their agreement that the documents should be admitted.
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be litigated.” 	Disinclined either to have the issues decided on technical grounds if the
parties intended otherwise or to continue with a trial if no factual issues were in dispute, the
Court entered the following order:
THE CONTENT OF THE PARTIES' JOINT PRE-TRIAL STATEMENT,
WHICH STIPULATED THE ABSENCE OF ANY UNDISPUTED ISSUES OF
FACT, 	RAISES 	SUBSTANTIAL 	UNCERTAINTY 	ABOUT 	WHAT 	THE
PARTIES 	INTEND. 	ACCORDINGLY, 	THE 	TRIAL 	DATE 	SET 	FOR
DECEMBER 10, 2008 IS CANCELLED, AND THE MATTER IS CONTINUED
TO A NON-EVIDENTIARY HEARING ON JANUARY 14, 2009 AT 11:00AM
IN WORCESTER.
At the non-evidentiary hearing, the Court pressed counsel for the parties as to their
intention. The Trustee stood firm. He was content to rely on the facts admitted in the PTS.
Counsel to the Debtor appeared less certain. He indicated that he would prefer to amend
the PTS, presumably to identify disputed issues of fact. Accordingly, the Court entered the
following order on January 14, 2009:
THE PRE-TRIAL STATEMENT SHALL BE AMENDED ON OR BEFORE
JANUARY 23, 2009, AND A TRIAL DATE THEN REASSIGNED.
However, on January 26, 2009, the Debtor moved for reconsideration of the January
14 order, stating that, upon further reflection, the Debtor had decided not to amend the
PTS. The Court granted the motion and took the matter under advisement.
The parties have therefore submitted this case for resolution on factual findings and
exhibits3 to which they have both agreed (the “Agreed Facts”). 	In keeping with the
procedural posture taken by the parties incident to the litigation, the Court makes no factual
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findings, but determines only whether the Agreed Facts are sufficient to satisfy the
Trustee’s burden of proof on his various claims.
A. 	The Admitted Facts and Exhibits in the Pre-trial Statement
The facts to which the Trustee and the Debtor admitted are set forth in the PTS as
follows:
1. On January 31, 1985, William A. Lipp (“Lipp” or “the Defendant”)
executed a Declaration of Trust granting to and creating the Idlewild Realty
Trust (“the Trust”) naming Lipp as Trustee and naming Lipp, William J. Lipp,
and Dawn M. Lipp in the Schedule of Beneficiaries with a beneficial interest
as joint tenants.
2. Lipp is the Settlor of the Trust.
3. Real estate located at 54 Valley Road, Tewksbury, MA (the
Property) is the res of the Idlewild Realty Trust and is an asset of the
bankruptcy estate.
4. The Declaration of Trust had not been terminated petition by Lipp
[sic] at the time of the filing of the bankruptcy on September 19, 2007.
5. Lipp did not list the Property owned by the Trust in his bankruptcy
petition.
6. Lipp did not list his interest in the Trust in his bankruptcy petition.
7. Lipp did not list his position as Trustee of the Trust in his bankruptcy
petition.
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8. At the meeting of creditors, the Defendant disclosed the Trust to the
Trustee.
9. Lipp executed a Declaration of Homestead on September 13, 2007
for the real estate located at 54 Valley Road, Tewksbury, MA.
10. On or about November 6, 2007 David M. Nickless (“the Trustee”)
filed with this Court a Notice of Intention to Alter, Amend, and Revoke Terms
and Conditions of Idlewild Realty Trust, revoking a spendthrift clause, naming
the Trustee as sole beneficiary, and terminating the Trust (hereinafter
“Trustee’s Notice”).
11. On or about November 21, 2007, Lipp filed an objection to the
Trustee’s Notice.
12. On or about December 12, 2007, this Court overruled the
Defendant’s objection to the Trustee’s Notice.
13. On or about January 22, 2008, the Trustee filed a motion with this
Court for leave to conduct a 2004 Examination and Order Directing the
Production of Documents in order to investigate the activities of the Trust
over the course of its existence and learn of any assets still owned by the
Trust.
14. On or about January 28, 2008, a letter was sent to counsel for the
Defendant, 	Thomas 	F. 	Fleming 	(hereinafter 	“Fleming”) 	of 	Lowell,
Massachusetts, regarding the requested documents listed as Exhibit A to the
Motion For Leave to Conduct Rule 2004 Examination of Lipp attached hereto
as Exhibit D is a true copy of said letter.
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15. On or about February 6, 2008, this Court granted the motion,
setting a deadline for the Defendant to produce the requested documents by
February 20, 2008.
16. On February 20, 2008, the Trustee received no communications
or documents from the Defendant.
17. On February 21, 2008, a letter was sent to Lipp, through Fleming,
via facsimile and first class mail, requesting a conference pursuant to MLBR
7037-1(b).
18. On February 26, 2008, a letter was sent to Lipp, through Fleming,
via facsimile as a follow up to previous messages as a further request to
confer pursuant Rule 7037 to resolve discovery disputes.
19. Also on February 26, 2008, a letter was sent to Lipp, through
Fleming, via facsimile requesting a copy of the Certificate of Title No. 26368
regarding 	the 	registered 	Property 	at 	54 	Valley 	Road 	in 	Tewksbury,
Massachusetts.
20. From February 21, 2008 through March 3, 2008, the Trustee tried
to contact the Defendant, through counsel Fleming, through numerous
attempts telephonically, via facsimile and through the U.S. Postal Service
regarding the status of the requested documents and the [sic] Lipp’s
appearance at the requested Rule 2004 Examination.
21. The Defendant failed to respond and failed or refused to provide
the Trustee the requested information concerning the Trust as required by
Order of this Court.
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22. On March 6, 2008, the Trustee filed a motion to compel production
of the requested documents and to appear at a Rule 2004 Examination.
23. On April 18, 2008, in response to Trustee’s motion to compel and
for sanctions, the Defendant was ordered by the Court to produce the
documents previously due by February 20, 2008.
Pursuant to the PTS, the following documents, by agreement of the parties, “may
be admitted into evidence”:
1. The Defendant’s bankruptcy petition, schedules, and statement of
financial affairs
2. The Trustee’s First Request For Admissions
3. The Declaration of the Idlewild Realty Trust executed by the
Defendant William A. Lipp
4. The Declaration of Homestead executed by the Defendant William
A. Lipp for 54 Valley Road, Tewksbury, MA
5. The Trustee’s Notice of Intention to Alter, Amend, and Revoke
Terms and Conditions of Idlewild Realty Trust, revoking a spendthrift clause,
naming the Trustee as sole beneficiary, and terminating the Trust
6. Transfer Certificate of Title with schedule of encumbrances
(Deposition Exhibit #4)
7. Board of Appeals documents (Deposition Exhibit # 5)
8. 2006 Form 1040EZ (Deposition Exhibit 11) for the Defendant.
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9. Order of Court overruling Lipp’s objection to the Trustee’s Notice of
Intention to Alter, Amend, and Revoke Terms and Conditions of Idlewild
Realty Trust (Main Case Docket paper #31)
II. 	DISCUSSION
If all the elements of any of the various § 727 counts are established by the Agreed
Facts, the Debtor’s discharge must be denied; conversely, the Court must grant a Chapter
7 discharge to the Debtor if the Agreed Facts fail to establish all elements of at least one
§ 727 claim raised by the Trustee. The Court is similarly limited in its consideration of the
Trustee’s request that the Court order that title to the real property located at 54 Valley
Road, Tewsbury, Massachusetts (the “Real Property”) is exclusively vested in him with full
authority to liquidate that asset.
A. 	11 U.S.C. § 727(a)(3)
Section 727(a)(3) provides:
(a) The court shall grant the debtor a discharge, unless –
. . . .
(3) the debtor has concealed, destroyed, mutilated, falsified, or failed
to keep or preserve any recorded information, including books,
documents, records and papers, from which the debtor’s financial
condition or business transactions might be ascertained, unless such
act or failure to act was justified under all of the circumstances of the
case . . . .
11 U.S.C. § 727(a)(3).
The Agreed Facts reflect that the Trustee repeatedly requested the Debtor to
produce certain records and that the Debtor failed to do so. Presumably, the Trustee would
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4 Furthermore, there is no basis in the Agreed Facts for a finding that relevant documents
were destroyed or mutilated, nor is there any identification of documents which should have been
kept or preserved but were not.
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have the Court infer that: (1) the requested documents, the subject of his investigation,
must have been in the custody or control of the Debtor and (2) the documents were
therefore concealed because they have not been produced. But these inferences, as well
as the concept of concealment itself, require first that the documents actually exist. See,
e.g., Black’s Law Dictionary 261 (5th ed. 1979) (defining “concealment” as “[t]o hide,
secrete, or withhold from the knowledge of others. 	To withdraw from observation; to
withhold from utterance or declaration; to cover or keep from sight, or prevent discovery
of.”). But there is no agreement in the PTS as to which of the documents, if any, sought
by the Trustee actually existed and therefore could be, and were, concealed. 4
It is the Trustee’s burden to prove the necessary § 727(a)(3) elements by a
preponderance of the evidence. In re Ridley, 115 B.R. 731, 733 (Bankr. D. Mass. 1990).
He has failed to meet that burden here.
B. 	11 U.S.C. § 727 (a)(4)(D)
Section 727(a)(4)(D) provides:
(a) The court shall grant the debtor a discharge, unless –
. . . .
(4) the debtor knowingly and fraudulently, in or in connection with the
case –
. . . .
(D) withheld from an officer of the estate entitled to possession
under this title, any recorded information, including books,
documents, records, and papers, relating to the debtor’s
property or financial affairs . . . .
11 U.S.C. § 727(a)(4)(D) (emphasis supplied).
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Here, denial of the Debtor’s discharge under § 727(a)(4)(D) turns on a single factor
– intent. Intent is the foundation of an action which is “knowing and fraudulent.” See In re
Boutiette, 168 B.R. 474, 482-83 (Bankr. D. Mass. 1992) (citing In re Ridley, 115 B.R. at
737); In re Diodati, 9 B.R. 804, 808 (Bankr. D. Mass. 1981). Nowhere in the Agreed Facts
does the Debtor concede his intention relative to those actions the Trustee complains of.
Accordingly, nothing in the Agreed Facts justifies a finding that the debtor acted “knowingly
and fraudulently.” 	The Trustee has not carried his burden under § 727(a)(4)(D) by a
preponderance of the evidence.
C. 	11 U.S.C. § 727(a)(6)(A)
Section 727(a)(6)(A) provides:
(a) The court shall grant the debtor a discharge, unless –
. . . .
(6) the debtor has refused, in the case –
(A) to obey any lawful order of the court, other than an order to
respond to a material question or to testify . . . .
11 U.S.C. § 727(a)(6)(A).
Courts are not in agreement as to whether denial of discharge can be established
under § 727(a)(6)(A) without a specific finding that the debtor intended to refuse to obey
the subject order. Compare, e.g., In re Magack, 247 B.R. 406 (Bankr. N.D. Ohio 1999),
with In re Tougas, 354 B.R. 572 (Bankr. D. Mass. 2006). In a recent case from this district,
In re Tougas, Judge Feeney held that the use of the word “refuse” in § 727(a)(6)(A)
necessitates a finding that the debtor acted willfully and intentionally, reasoning:
The Bankruptcy Code does not define “refused” or “refusal.” 	As the court
noted in Gillman v. Green (In re Green), 335 B.R. 181 (Bankr. D. Utah 2005),
“[w]here a term is not give a special definition in a statute, courts must
interpret statutes according to their clear and ordinary meaning.” Id. at 183
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5 Contra, In re Magack, 247 B.R. at 410 (“ . . . had Congress wanted to require a willful or
intentional standard under § 727(a)(6)(A) it could have easily drafted the statute to have so
provided”).
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(citing Hartford Underwriters Ins. Co. v. Union Planters Bank, N.A., 530 U.S.
1, 120 S.Ct. 1942, 147 L.Ed.2d 1 (2000)). “Refuse” is defined in Black's Law
Dictionary as follows:
To deny, decline, reject. “Fail” is distinguishable from “refuse”
in that “refuse” involves an act of the will, while “fail” may be an
act of inevitable necessity.
Black's Law Dictionary 1153 (5th ed.1979) (citing Maestas v. Amer. Metal Co.
of New Mexico, 37 N.M. 203, 20 P.2d 924, 928 (1933)).
The import of this definition is that § 727(a)(6)(A) requires a plaintiff to show
more than a mere failure to obey a lawful court order. 	The plaintiff must
show some degree of volition or wilfulness on the part of the debtor in failing
to comply with the order. 335 B.R. at 184.
In re Tougas, 354 B.R. at 578.5
This Court agrees with Judge Feeney and holds that a demonstration of the debtor’s
intent is a necessary element of § 727(a)(6)(A). Here, the Agreed Facts do not speak to
the Debtor’s intent, with the exception of Paragraph 21, where the Trustee claims that the
Debtor “failed or refused” to comply with this Court’s order that documents be produced.
But “failure” is not enough to establish the necessary § 727(a)(6)(A) requirement. And the
only facts this Court may consider establish that the Debtor’s non-production of documents
was as likely the result of his “failure” as it was his ““refusal.” Therefore, the Trustee has
failed establish the requisite elements of § 727(a)(6)(A) by a preponderance of the
evidence.
D. 	11 U.S.C. § 727(d)(2) and (3)
Sections 727(d)(2) and (3) provide:
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6 Attached to the Notice was the “Alteration, Amendment and Revocation of Trust Terms and
Conditions,” executed by the Trustee in order to exercise his intention. Exhibit 5.
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(d) On request of the trustee, a creditor, or the United States trustee, and
after notice and a hearing, the court shall revoke a discharge granted under
subsection (a) of this section if –
. . . .
(2) the debtor acquired property that is property of the estate, or
became entitled to acquire property that would be property of the
estate, and knowingly and fraudulently failed to report the acquisition
of or entitlement to such property, or to deliver or surrender such
property to the trustee; [or]
(3) the debtor committed an act specified in subsection (a)(6) of this
section . . . .
11 U.S.C. §§ 727(d)(2), (3) (emphasis supplied).
Sections 727(d)(2) and (3) are by their terms inapplicable here. Both subsections
relate only to the revocation of a discharge. 	Since the Debtor has not yet received a
discharge, §§ 727(d)(2) and (3) do not apply.
E. 	The Trustee’s Request to Quiet Title
Finally, the Trustee asks for a determination that title to the Real Property has
vested in him. The Agreed Facts reflect that the settlor (viz., the Debtor), is also the sole
trustee and one of three beneficiaries under the Idlewild Realty Trust, which owned the
Real Property at the time the bankruptcy case was filed. The Declaration of Trust provides
that the trustee (viz., the Debtor) has the the power to alter, revoke, and amend the Trust.
Exhibit 3. 	The Trustee has previously filed a “Notice of Intention to Alter, Amend, and
Revoke Terms and conditions of Idlewild Realty Trust” (the “Notice”). 	Exhibit 5. 6 The
Debtor objected to the Notice, the Court overruled the objection, and that order has
become final.
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7 Federal Rule of Bankruptcy Procedure 7001 provides in relevant part:
An adversary proceeding is governed by the rules of this Part VII. The following are
adversary proceedings:
. . . .
(2) a proceeding to determine the validity, priority, or extent of a lien or other
interest in property . . . .
Fed. R. Bankr. P. 7001(2) (emphasis supplied).
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Presumably, the Trustee has concluded that it would be beneficial to have a more
formal adjudication of the Trustee’s rights in the context of an adversary proceeding.7
Without deciding that such a step is necessary, the Court is willing to accommodate. It is
clear, as a matter of law, that by virtue of the revocation provisions in the Declaration of
Trust, the Trustee may revoke its terms, bring the Real Property into the estate, and
liquidate the property on behalf of creditors. See Marrama v. DeGiacomo (In re Marrama),
316 B.R. 418 (1st Cir. B.A.P. 2004); Beatrice v. Braunstein (In re Beatrice), 296 B.R. 576
(1st Cir. B.A.P. 2003); Riley v. Tougas (In re Tougas), 338 B.R. 164 (Bankr. D. Mass.
2006).
III. 	CONCLUSION
Under the self-limiting presentation of the evidence, the Trustee has failed to
establish, by a preponderance of the evidence, that the Debtor should be denied his
discharge. Accordingly, judgment in favor of the Debtor will enter on Counts I through V,
and the Court will enter the Debtor’s discharge under Chapter 7 of the Bankruptcy Code.
As for Count VI, the Court will, as part of its Judgment, declare that by virtue of the
revocation provisions in the Declaration of Trust, the Trustee has, or will have upon
recording of the Notice in the registry of deeds, revoked its terms and brought the Real
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Property into the bankruptcy estate, free of the claims of the Idlewild Realty Trust or any
of its beneficiaries.
DATED: July 6, 2009
Henry J. Boroff
United States Bankruptcy Judge
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