Mackall v. Alshantir

IN THE UNITED STATES BANKRUPTCY COURT
DISTRICT OF MARYLAND
at GREENBELT
In Re: 	*
* 	Case No. 	03-11086-TJC	Joan C. Mackall,
* 	Chapter 	11
Debtor. 	*
************************************* 	*
*
*
Joan C. Mackall,
*
Plaintiff and Counter-Defendant, 	* 	Adv. No. 	06-01155-TJC
vs. 	*
*
*
Samer Alshantir,
*
Defendant and Counter-Claimant. 	*
MEMORANDUM IN SUPPORT OF ORDER DISMISSING COMPLAINT
FOR LACK OF STANDING
Before the Court are cross-motions for summary judgment filed by Plaintiff Joan
C. Mackall (the “Plaintiff”) and Defendant Samer Alshantir (the “Defendant”). Each
party has filed an opposition thereto. After an initial hearing on the motions held on
February 6, 2007, the parties filed supplemental briefs on the issue of what constitutes
Date signed March 22, 2007
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present equivalent fair value under 11 U.S.C. § 549. The Court took the matter under
advisement. Without addressing the merits of the motions, the Court sua sponte
addresses herein the question of whether the Plaintiff has standing to pursue the claims in
the complaint. 	For the reasons set forth herein, the Court will dismiss the complaint
without prejudice because the Plaintiff lacks standing to bring the claims.
I. 	MATERIAL FACTS THAT ARE NOT IN DISPUTE
Plaintiff filed a petition under Chapter 13 of the Bankruptcy Code on January 20,
2003. Plaintiff's initial plan was confirmed by order dated October 17, 2003. As
described below, Plaintiff’s plan has subsequently been modified on several occasions.
On February 9, 2006, Plaintiff initiated this adversary proceeding by filing the
complaint. The pertinent factual allegations in the complaint concern transactions
entered into between the Plaintiff and the Defendant in and after September 2004. At that
time, Plaintiff was in default under two deeds of trust encumbering her property known
as 1780 Grays Rd., Prince Frederick, Maryland, (the “Property"). In the Plaintiff's main
bankruptcy case, the lenders who held deeds of trust against the Property were granted
relief from the automatic stay in order to pursue foreclosure sales of the Property.
The Property was advertised for sale at public auction. Prior to the auction, the
Plaintiff and Defendant entered into various agreements and transactional documents that
resulted in the foreclosure sale being stopped. The parties dispute the character of the
transactions, but do not dispute the factual predicates underlying the transactions.
The Plaintiff deeded the Property to the Defendant. The Plaintiff and Defendant
executed a lease and option agreement, pursuant to which the Plaintiff leased the Property
from the Defendant at a rate of $1800 per month. In addition the Plaintiff received an
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option to purchase the Property within 12 months for $210,000, or $230,000 if an
additional lot on the Property was not transferred.
The parties stipulate that at the time of the transaction, the Property had a fair
market value of at least $210,000. The parties also stipulate that, for purposes of
summary judgment, the Court should consider that the purchase price paid by the
Defendant was at least $153,230.90, consisting of (1) $121,467.54, which was the
amount of the liens against the Property at the time of closing; plus (2) $31,763.36, which
was the amount the Defendant paid to cure the arrearages on the deed of trust notes to
prevent the foreclosure from going forward.1 The Defendant contends that he should also
be credited for paying closing costs of approximately $4,800. The Plaintiff contests that
the closing costs paid by the Defendant should be calculated as part of the purchase price.
The Defendant also contends that he gave additional value to the Plaintiff in the
form of the twelve-month option to repurchase the property for $210,000, although
Defendant does not quantify that value. If the Plaintiff had exercised the option, at
closing the Plaintiff would have paid the Defendant $88,532.46 ($210,000 less the liens
of $121,467.54) against his original investment of $31,763.36. Other than some
hypothetical value that may be attributable to the right to buy the Property at fair market
value, one would be hard pressed to determine the value to the Plaintiff of the right to pay
the Defendant all of the equity in the Property, as well as returning the $31,763.36 he
originally paid to cure the arrearages, for the privilege of buying back her home.2 In any
event, for purposes of this memorandum, these disputes are not relevant.
1 The amount of the purchase price for the Property shown on the settlement statement was $153,230.90.
2 The Court notes that the receipt of $88,532.46 on an initial investment of $31,763.36 is a return to the
Defendant of 178% in twelve months on a fully secured investment.
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In the complaint, the Plaintiff seeks relief under four counts. Under count one, as
it has evolved,3 Plaintiff contends that the transaction was not authorized by the Court as
required by the Bankruptcy Code. Plaintiff contends that, pursuant to 11 U.S.C. § 549, 4
the Defendant did not pay “present fair equivalent value" and, therefore, at most the
Defendant should only receive a lien on the Property to the extent of the present value he
gave 5 . In count two, the Plaintiff alleges that she was defrauded and that the deed to the
Defendant should be declared to be a mortgage pursuant to Md. Code Ann., Real Prop.
§ 7-101. Counts three and four, in which the Plaintiff brought claims of fraud and
recession, have been withdrawn by the Plaintiff.
In Defendant’s counterclaim, he asserts a claim of fraud against Plaintiff because
she made written representations at the time of the transaction to the effect that she was
3 Count one originally asserted a claim that the post-petition sale of the Property violated the automatic stay
of Section 362. Plaintiff refined this argument and narrowed it to a claim under Section 549 at the hearing
on summary judgment.
4 Section 549 provides in relevant part:
(a)Except as provided in subsection (b) or (c) of this section, the trustee may avoid a transfer of
property of the estate--
(1) that occurs after the commencement of the case; and
(2) (A) that is authorized only under section 303(f) or 542(c) of this title; or
(B) that is not authorized under this title or by the court.
***
(c)The trustee may not avoid under subsection (a) of this section a transfer of an interest in real
property to a good faith purchaser without knowledge of the commencement of the case and for
present fair equivalent value unless a copy or notice of the petition was filed, where a transfer of
an interest in such real property may be recorded to perfect such transfer, before such transfer is so
perfected that a bona fide purchaser of such real property, against whom applicable law permits
such transfer to be perfected, could not acquire an interest that is superior to such interest of such
good faith purchaser. A good faith purchaser without knowledge of the commencement of the case
and for less than present fair equivalent value has a lien on the property transferred to the extent of
any present value given, unless a copy or notice of the petition was so filed before such transfer
was so perfected.
5 The Plaintiff does not seriously dispute that the Defendant is a “good faith purchaser without knowledge
of the commencement of the case.” 11 U.S.C. § 549(c)
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not the subject of a bankruptcy case. The Defendant contends that if the Plaintiff had not
signed the documents containing this representation, he never would have proceeded with
the transaction.
In the Plaintiff’s main bankruptcy case, Case No. 03-11086, the Plaintiff filed her
Amended Fourth Modified Chapter 13 Plan (the “Fourth Plan”) on February 21, 2006.
The Fourth Plan was approved by order entered on March 9, 2006. The Fourth Plan
requires the Plaintiff to continue to make monthly payments to the Chapter 13 trustee,
although it modified the amount of those payments. While the Fourth Plan was filed after
the Plaintiff filed this adversary proceeding, no mention is made in the Fourth Plan of this
adversary proceeding or any potential recovery from this proceeding.
Also in the main bankruptcy case, on August 31, 2006, the Court entered an order
dismissing the Chapter 13 case based on the Plaintiff’s material default in plan payments.
The Plaintiff filed a motion to vacate the dismissal and a motion to modify the plan for
the fifth time. The motion to vacate the dismissal was granted, but the motion to modify
the plan was denied. Throughout these filings, no mention is made of this adversary
proceeding or the potential recovery to the estate from this proceeding.
II. 	CONCLUSIONS OF LAW
The Complaint contains no allegations establishing the standing of the Plaintiff to
bring an action seeking recovery of property of the estate. Further, as stated above, the
Plaintiff has made no mention of this adversary proceeding in the Fourth Plan or the
filings in connection with the potential fifth modified plan, all of which occurred after
this adversary proceeding was filed.
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Although neither party has addressed the Plaintiff’s standing to bring the claims in
the complaint, lower federal courts are routinely instructed that federal courts are of
limited jurisdiction, and it is incumbent on them to ensure they have subject matter
jurisdiction in every case. “The federal courts are under an independent obligation to
examine their own jurisdiction, and standing ‘is perhaps the most important of [the
jurisdictional] doctrines.’ ” United States v. Hays, 515 U.S. 737, 742 (1995) (citing
FW/PBS, Inc. v. Dallas, 493 U.S. 215, 230-231 (1990) (citations omitted)).
Further, a federal court “will ‘raise a lack of subject-matter jurisdiction on its own
motion.’” Constantine v. Rectors and Visitors of George Mason Univ., 411 F.3d 474,
480 (4th Cir. 2005) (citing Ins. Corp. of Ir. v. Compagnie Des Bauxites De Guinee, 456
U.S. 694, 702 (1982)). See also, Allstate Inc. v. Adkins, 932 F.2d 963 (4th Cir. 1991) (“It
is axiomatic in our legal system, however, that standing concerns must be brought out by
a court at any time during a proceeding, for without proper standing there would exist no
case or controversy for a court to decide.”).
In this case, there is no doubt that the Property was property of the estate at the
time of the transactions between the Plaintiff and the Defendant, and that the claims in
the complaint, if successful, will generate property of the estate. Section 1327(b) provides
that confirmation of the Chapter 13 plan vests all property of the estate in the debtor
“[e]xcept as otherwise provided in the plan or the order confirming the plan.” 11 U.S.C. §
1327(b). In this District, the standard confirmation order provides that property of the
estate shall not vest in the debtor until the debtor is granted a discharge (upon completion
of the plan) or the case is dismissed. See, e.g., Docket No. 49 in Case No. 03-11086
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(Initial confirmation order in Plaintiff’s main bankruptcy case).6 Accordingly, at the time
of the transactions between the Plaintiff and Defendant, the Property was property of the
estate.
Further, there is no doubt that if the sale transaction were to be reversed, the
Property would come back into the estate as property of the estate, even if the Plaintiff
were allowed to bring the claims on her own behalf. Section 1306 (a)(1) provides that
(a) 	Property of the estate includes, in addition to the property specified in
section 541 of this title-
(1) all property of the kind specified in such section that the debtor acquires after
the commencement of the case but before the case is closed, dismissed, or
converted to a case under chapter 7, 11, or 12 of this title, whichever occurs first .
. . .
11 U.S.C. 1306(a)(1). See also, 11 U.S.C. 541(a)(3)(property of the estate includes any
interest the trustee recovers under, among other sections, Section 550). Because the
Property was property of the estate at the time of the transaction and would be property of
the estate if the transaction is avoided, the estate undoubtedly has an interest in bringing
the complaint. However, nowhere in the complaint are allegations asserted that establish
that any recovery would be for the benefit of the estate or its creditors, and not the
Plaintiff personally.
Indeed, although the Defendant has not specifically challenged the standing of the
Plaintiff to bring the complaint, the inequity of this situation is certainly not lost on him.
He contends that, especially because he relied on Plaintiff’s written representation that
she was not the subject of a bankruptcy case, allowing her to revoke the transaction for
6 Defendant argued at the summary judgment hearing that the Property was no longer property of the estate
at the time of the transaction because the secured lenders had obtained relief from stay and a foreclosure
sale was two days away. Neither of these events was sufficient to terminate the estate’s interest in the
Property.
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her own benefit is inequitable and unfair. He also contends that the sole beneficiary of
the claims raised in the complaint is the Plaintiff herself:
Moreover, there are no other creditors of the Plaintiff who will
benefit from the sale of the Property at a higher price. To the
contrary, the only person who will benefit from setting the deed
aside and establishing a lien on behalf of the Defendant is the
Plaintiff who knowingly and voluntarily participated in the sale to
the Defendant. In substance, the Plaintiff will be the sole
beneficiary of her own malfeasance.
Defendant and Counter-Plaintiff’s Supplemental Memorandum Regarding Fair
Equivalent Value at p.4-5. 	The Plaintiff has neither admitted nor denied that no other
creditors will benefit from any recovery. However, as stated above, neither the complaint
nor any other filing by the Plaintiff states otherwise or provides any basis upon which
even a colorable claim of standing could be asserted.
The issue of whether a Chapter 13 debtor has standing to pursue a Section 549
avoidance action in a Chapter 13 case or other avoidance actions is the subject of
considerable controversy. 	Opinions can readily be found on both sides of the issue. For
a thoughtful opinion denying standing to a debtor to bring an avoidance action on behalf
of the estate, see Hansen v. Hansen (In re Hansen), 332 B.R. 8 (B.A.P. 10th Cir. 2005).
For an equally thoughtful opinion granting standing to a debtor to bring an avoidance
action on behalf of the estate, see Houston v. Eiler (In re Cohen), 305 B.R. 886 (B.A.P.
9th Cir. 2004).
In addition, most cases that permit Chapter 13 debtors to bring avoidance actions,
rely on the fact that the action must be brought on behalf of the estate for the benefit of
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the estate and its creditors.7 No case of which the Court is aware would allow a debtor to
bring a Section 549 action or other avoidance action for her own benefit and not for the
benefit of the creditors, especially where the debtor has acted with potential unclean
hands.
Accordingly, the Complaint will be dismissed without prejudice for lack of
standing. Further, while it seems to the Court to be the far better approach to have a
trustee join in a Section 549 complaint, the Court expresses no opinion whether a debtor
could bring a Section 549 action on behalf of the estate in the absence of such joinder
when allegations concerning benefit to the estate are made in the complaint and any
recovery would be turned over to the trustee for administration.
III. 	CONCLUSION
For the forgoing reasons, the complaint will be dismissed without prejudice.
CC: Plaintiff
Plaintiff’s Counsel
Defendant
Defendant’s Counsel
Chapter 13 Trustee
END OF MEMORANDUM
7 An express statutory exception to this exists in Section 522(h). That section allows a debtor to bring an
avoidance action under Section 549, among other provisions, but only to the extent that the debtor could
have exempted the property under Section 522(g)(1) and if the trustee does not attempt to avoid the
transfer. The incorporation of Section 522(g)(1) limits Section 522(h) to involuntary transfers. Obviously,
at least for that reason, Section 522(h) does not apply to this case.
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