Hermosilla v. Hermosilla

OCR transcription for search; preserved printed pages are authoritative

Case 05-01444 Doc6é60 Filed 04/19/07 Entered 04/19/07 16:04:33 Desc Main
Document Pagei1of8

UNITED STATES BANKRUPTCY COURT
DISTRICT OF MASSACHUSETTS

EASTERN DIVISION
IN RE:
Alex Hermosilla, Chapter 7
Debtor Case No. 05-11048-WCH
Fresia Hermosilla,
Plaintiff
V. Adversary Proceeding

Case No. 05-1444
Alex Hermosiulla,
Defendant

Memorandum of Decision Regarding Motion for Summary Judgment

I. Introduction

The matter before the Court is the motion for summary judgment of Fresia Hermosilla
(the ‘‘Plaintiff’) on the count which she brought under 11 U.S.C. § 523(a)(6) based upon the
fraudulent transfer of property from her ex-husband to her stepson, Alex Hermosilla (the
“Debtor’). Because there 1s no pre-petition debt which the Debtor owes the Plaintiff, I will grant
summary judgment for the Debtor. The following constitutes my findings of fact and
conclusions of law.
Il. Background

The following facts are undisputed and are taken from the pleadings and affidavits. They

reflect that in September, 2002, the Plaintiff filed a complaint for divorce against the Debtor’s

AUTHENTICATED
U.S. GOVERNMENT
INFORMATION

GPO

Case 05-01444 Doc6é60 Filed 04/19/07 Entered 04/19/07 16:04:33 Desc Main
Document Page 2of8

father. The day after the filing, the Debtor’s father transferred title to the marital home located at
108-110 Nahant Street in Lynn, Massachusetts (the “Property”) to the Debtor for $1.00. In
October, 2002, the Plaintiff filed a complaint against the Debtor and his father to undo the
conveyance on the grounds that it violated the Uniform Fraudulent Transfer Act (the “Fraudulent
Transfer Action’).! Asa result of that lawsuit, a /is pendens was recorded and the court entered
an order prohibiting the sale of the Property. By the Fraudulent Transfer Action, the Plaintiff
was seeking to impose a constructive trust on the Property.’

The Debtor filed for bankruptcy relief under Chapter 7 on Feb:uary 16, 2005. In
Schedule A, he listed ownership of three pieces of real estate including his primary residence, the
Property. He listed the current market value as $539,900 and the amount of the secured claim as
$300,882. He claimed an exemption in the equity of the Property in Schedule C. He did not list
the Plaintiff as a creditor and did not list any of the pending lawsuits in his Statement of
Financial Affairs.

The Plaintiff sought to dismiss the bankruptcy case on the grounds that the Debtor had
failed to list both her as a creditor and the two lawsuits she had filed against him and to disclose
that he did not hold clear title to the Property. The Plaintiff also souglt relief from the automatic
stay so that she could continue to litigate the Fraudulent Transfer Action. In May, 2005, I entered
an order granting her relief from stay. She subsequently withdrew her motion to dismiss the

Case.

'The Plaintiff filed the action in the Commonwealth of Massachusetts Trial Court,
Probate and Family Court Department, Essex Division. The case is docket no. 02E-0100-GC1.

*The Plaintiff also filed a state court action against the Debtor tor defamation.

2

Case 05-01444 Doc6é60 Filed 04/19/07 Entered 04/19/07 16:04:33 Desc Main
Document Page 3of8

In June, 2005, the Debtor filed a motion to amend Schedule F to add the Plaintiff as a
creditor holding a claim of an undetermined amount, which motion I granted. Thereafter, the
Chapter 7 trustee filed a Notice of Intent to Abandon Real Property Located at 108-110 Nahant
Street Lynn, Massachusetts. No objections were filed.

The Plaintiff filed this adversary proceeding on July 21, 2005. Her two lawsuits against
the Debtor had not yet gone to trial. The Plaintiff sought an order declaring the debts that would
arise from these lawsuits would be nondischargeable under 11 U.S.C. 3§ 523(a)(2) or (a)(6).

On March 8, 2006, the state court issued its memorandum of decision in the Fraudulent
Transfer Action (the “Decision’’). The findings of fact in the Decision reflect that the Debtor and
his father purchased the Property in 1999. The Plaintiff and the father occupied the first floor.
The Property had additional rental units. In late 2001, they transferred the Property to the father
for $1.00. At the same time as the transfer, the father granted a mortgage on the Property to
secure a loan for $304,500. The court found that the father “held a 5C% interest in [the
Property] during the period from 1999 until [the Plaintiffs] filing of a complaint for divorce, at
which time Gustavo transferred record title of that 50% interest to the other co-owner, Alex, for
no consideration.” Decision at 10.’

The court went on to find that the Debtor and his father “were equal owners of the
equitable interest in [the Property] despite the vicissitudes of title.” /d. at 12. With respect to the

Debtor’s participation, the court wrote that the Debtor “knowingly participated in this transfer,

*It appears that there was an outstanding mortgage of approximately $25,000.

“The parties did not provide the Court with a copy of a judgment related to the Decision.
They have referred to it as only imposing the constructive trust. Accordingly, it does not appear
that in that judgment the state court awarded to the Plaintiff any further relief.

3

Case 05-01444 Doc6é60 Filed 04/19/07 Entered 04/19/07 16:04:33 Desc Main
Document Page 4of8

and was aware of Gustavo’s intent to deprive Fresia of that marital interest. This purported
interest transfer from Gustavo to Alex was thus a fraudulent conveyanve as to Fresia’s likely
interest in at least a portion of that property. ..” Jd.

In October, 2006, the state court issued an order with respect tc motions for attorney’s
fees and costs. The court ordered the Debtor and his father each to pay $25,000 to the Plaintiff's
attorney from the sale of the Property and, if the sale proceeds were insufficient, to pay the
difference by March, 2007. These fees were awarded “as a result of the substantial increase in
the amount of time and corresponding legal fees to litigate this matter secause of the failure of
the defendants to make reasonable discovery as documented by the master and for fraudulently
conveying an interest in [the Property] .. . “ Order on Attorney Cohen’s Motion to Withdraw and
Cross Motions for Attorney’s Fees and Costs, at 1-2.

Also in October, 2006, the Property was sold and the proceeds were turned over to the
state court appointed master to be held in escrow. One month later, th Plaintiff moved in state
court to have released to her a portion of the money in that account attributable to the Debtor.
Fresia Hermosilla’s Motion for Clarification, Docket No. 194, Case No. 05-11048-WCH. The
Debtor filed an objection to her request on the grounds that the order granting relief from the
automatic stay did not permit the Plaintiff to collect any monies from the Debtor especially when
the monies are the proceeds of his homestead exemption and the debt was subject to this
adversary proceeding. /d.

In January, 2007, the Plaintiff moved for clarification of the the order granting relief from
stay. /d. | overruled the objection and granted the motion. /d. at Docket No. 211. In the order, I

ruled that I have no jurisdiction over the division of the proceeds of the sale of the Property and

Case 05-01444 Doc6é60 Filed 04/19/07 Entered 04/19/07 16:04:33 Desc Main
Document Page5of8

that the state court is authorized to decide that division.

The Plaintiff has filed a motion for summary judgment in this action.” As grounds, the
Plaintiff contends that the Debtor is estopped from interposing any defense given the findings in
the Decision. The Plaintiff argues that the findings and conclusions are sufficient to establish
that the Debtor’s actions were willful and malicious and that the $25,000 debt for attorney’s fees
is nondischargeable.

In support, the Plaintiff contends that under Massachusetts law a finding of liability for a
fraudulent conveyance indicates that the court has found that the purchaser participated in the
fraud. Further, she argues that bankruptcy courts have held that fraudulent conveyances are
nondischargeable debts citing Gentry v. Kovler (In re Kovler), 249 B.R.. 238 (S.D.N.Y. 2000),
supplemented, 253 B.R 593, corrected, 329 B.R. 17. At the hearing on the summary judgment
motion, the Plaintiff’s counsel explained that she was only pursuing the nondischargeability
claim with respect to the Fraudulent Transfer Action and not with respect to the defamation
lawsuit.°

The Debtor responds that the Plaintiff cannot establish that any action of his caused her
injury which has resulted in a nondischargeable debt. Any injury to the Plaintiff as a result of the

fraudulent transfer, he argues, has been rectified by the judgment in the Fraudulent Transfer

‘The Plaintiff has moved for summary judgment without supporting affidavits. She
attached to the motion the Decision and the Order on Attorney Cohen’s Motion to Withdraw and
Cross Motions for Attorney’s Fees and Costs.

‘The Plaintiff agreed to the dismiss that portion of the complaint that sought relief based
upon the alleged defamation. Also at the hearing on the summary judgment motion, the parties
agreed that the Debtor’s two outstanding motions to dismiss were moot as was the Plaintiff's
motion for default.

Case 05-01444 Doc6é60 Filed 04/19/07 Entered 04/19/07 16:04:33 Desc Main
Document Page 6of8

Action. The Plaintiff explains that she is continuing to pursue this action so that she can obtain
some or all of the Debtor’s proceeds from the sale of the Property. I took the matter under
advisement.

In his post-hearing brief, the Debtor explains that he is cross-moving for summary
judgment.’ With respect to the Fraudulent Transfer Action, the Debtor argues that the outcome
of the case was to impose a constructive trust on half of the Property and left no debt owing from
the Debtor to the Plaintiff. Notwithstanding this argument, the Debtor goes on to argue that the
judgment in the Fraudulent Transfer Action must be dischargeable because the findings regarding
the Debtor did not to rise to the level of willful and malicious. The Debtor acknowledges that the
discovery sanction was not related to the transfer but also argues that if the “underlying debt” is
dischargeable, so is the sanction. He does not explain what constitutes the underlying debt.

Ill. Analysis

A. Standard Regarding Motion for Summary Judgment

Summary judgment should only be granted 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 fact and that the moving party is entitled to a judgment as a
matter of law.” Fed. R. Bankr. P. 7056 (incorporating Fed. R. Civ. P. 56(c)). The burden of
proof is upon the moving party in the first instance. In re Wang Laboratories, Inc., 155 B.R.

289, 290 (Bankr. D. Mass. 1993). To defeat the motion, the opposing party must produce

substantial evidence of a genuine dispute as to a material fact. Darr v. Muratore, 8 F.3d 854,

7A portion of his brief was devoted to the defamation count which count the Plaintiff
dismissed at the hearing on her motion for summary judgment. The Debtor did not attach
supporting affidavits.

Case 05-01444 Doc6é60 Filed 04/19/07 Entered 04/19/07 16:04:33 Desc Main
Document Page /7of8

859 (Ist Cir. 1993); Hahn y. Sargent, 523 F.2d 461, 464 (1st Cir. 1975), cert. denied, 425 US.
904 (1976). A material fact is one which has the "notential to affect the outcome of the suit
under applicable law." Nereida-Gonzalez v. Tirado-Delgado, 990 F.2d 701, 703 (Ist Cir. 1993).
A party defending a claim may move for summary judgment at any time. Fed. R. Bankr. P. 7056,
incorporating Fed. R. Civ. P. 56(b).

B. 11 U.S.C. § 523(a)(6)

The Plaintiff's surviving count against the Debtor is based upor. 11 U.S.C.§ 523(a)(6).
That statute provides that debts based upon the “willful and malicious injury by the debtor to
another entity or to the property of another entity” are not dischargeable.

As a result of the judgment in the Fraudulent Transfer Action, 50% of the proceeds of the
sale of the Property is being held in escrow pending a determination of the former spouses’
interests in that portion of the proceeds. No one disputes that the proceeds of the sale of the
Property are not property of the estate. The Plaintiff and the Debtor have not identified any
residual claim that the Plaintiff holds against the Debtor as a result of the Decision and
corresponding judgment. Therefore, the Debtor is correct that there is no debt from that
judgment for which I can make a dischargeability determination.

Subsequent to issuing the Decision in the Fraudulent Transfer Action, the state court
issued an order requiring the Debtor to pay to the Plaintiff $25,000 “because of the failure of the
defendants to make reasonable discovery as documented by the master and for fraudulently
conveying an interest in [the Property] .. . ““ Order on Attorney Cohen's Motion to Withdraw and
Cross Motions for Attorney’s Fees and Costs, p. 1-2. The Plaintiff contends that this order is

sufficient for me to apply collateral estoppel or res judicata to the dischargeability of this debt.

Case 05-01444 Doc6é60 Filed 04/19/07 Entered 04/19/07 16:04:33 Desc Main
Document Page 8of8

The Debtor inexplicably contends that if the underlying action is dischargeable then this debt
likewise must be dischargeable.

Under 11. U.S.C. § 727(b), “a discharge under subsection (a) of this section discharges the
debtor from all debts that arose before the date of the order for relief... “ The Debtor’s present
debt to the Plaintiff for $25,000 arose after the Debtor filed his petition and was issued based
upon events that occurred after the petition date. Indeed, the Debtor agrees that this sanction is
not related to the transfer. As such, it is a post-petition debt unaffected by the discharge rather
than a pre-petition debt which would be subject to the discharge. In re Cleveland, 349 B.R. 522,
528-9 (Bankr. E.D. Tenn. 2006) (reviewing the tests applied to determine whether a claim
existed pre-petition); Jn re Marshall, 302 B.R. 711, 715-6 (Bankr. D. Kan. 2003) (same).
Because there are no outstanding pre-petition debts which the Debtor owes to the Plaintiff, the
Plaintiff cannot prevail on her complaint.

IV. Conclusion

For the reasons set forth herein, I will grant summary judgment for the Debtor.*

William C. Hillman
U.S. Bankruptcy Judge

Dated: April 19, 2007

‘The Debtor cross-moved for summary judgment in his post-hearing brief to which the
Plaintiff did not respond. Ruling ona cross-motion filed at such a late stage is appropriate in this
case as the parties had ample opportunity to brief these issues, neither side has been inclined to
provide affidavits, there are no issues of fact in dispute, the Plaintiff is not prejudiced by the
ruling and under the facts and circumstances of this case, a sua sponte grant of summary
judgment would have been appropriate. See, e.g. U.S. vy. Hoyts Cinemas Corp., 380 F.3d 558,
569 (1" Cir. 2004).