Wednesday, May 23, 2012

Recent Bankruptcy Related Decisions in the 1st Circuit, Part 3 of 4 (April 2012 cases)

Creditors’ failure to domesticate foreign judgment and then record in appropriate registry of deeds pre-petitions allows for its avoidance; attachment/lien may be avoided by way of motion if part of an 11 U.S.C. §522(f) lien avoidance motion:

In re Egan, 2012 Bankr. LEXIS 1850 (Bankr. D.N.H. April 27, 2012)(J. Michael Deasy, Bankruptcy Judge).
MEMORANDUM OPINION:  Debtor filed a motion to avoid liens under 11 U.S.C. Section 522(f), to which creditors objected and a hearing was scheduled.  Two of the liens are for $60,000.00 each and are both pre-judgment attachments (the "Pre-Judgment Attachments"). The other two liens are for $116,557.53 each and are both post-judgment attachments (the "Post-Judgment Attachments").  A determination to avoid a lien under §522(f)is a formulaic exercise.  The Court must know the amount of the validly perfected lien that the Debtor is seeking to avoid, the amount of any validly perfected senior liens, the amount of the exemption being impaired and the value of the encumbered property. Since the validity and extent of the liens being tested for avoidance are being challenged by the Debtor in the Motion, the Court ordered the parties to file stipulated facts and memoranda of law explaining each party's legal arguments.

On April 11, 2012, the Debtor filed the Motion with a memorandum of law attached. On the same day, the Creditors filed a response to the Motion, outlining their legal arguments. The parties filed their own statement of facts. In the absence of an evidentiary record, the Court shall treat all mutually asserted undisputed facts as the factual record for purposes of this decision. The Creditors acknowledge that on the date of petition, they had not recorded the Post-Judgment Attachments in the registry of deeds and, therefore, those liens were not properly perfected on the petition date.  The Creditors also state that the two Pre-Judgment Attachments are duplicates. Hence, the Creditors contend that the Property is subject to only one lien for $60,000.

The Court concludes the Pre-Judgment Attachments are not validly perfected under New Hampshire law.  An attachment on real estate in New Hampshire is not effective against bona fide purchasers of value until it has been recorded in the registry of deeds for the county in which the real estate lies.  Thus, a creditor seeking to enforce an out of state attachment on real property in New Hampshire must first domesticate the order under the UEFJA4 and then record it in the registry of deeds.
A bankruptcy court can determine the validity, priority, or extent of a lien or other interest in property through an adversary proceeding or a proceeding under Rule 4003(d). Rule 7001(4). Proceedings to avoid a lien under §522(f) are governed by Rule 4003(d). Since the Motion was presented to the Court in a proceeding under Rule 4003(d), the Court has authority to determine the validity of the liens at issue outside of an adversary proceeding. The Creditors conceded that the Post-Judgment Attachments were not recorded when the Debtor filed his bankruptcy petition. Moreover, the Pre-Judgment Attachments were not domesticated in New Hampshire and consequently are not enforceable against New Hampshire real property. Accordingly, the Creditors do not hold any liens on the Property.

Bankruptcy court sua sponte considered Rooker-Feldman doctrine, and dismissed adversary proceeding based on it, as the Bankruptcy Court could not reopen foreclosure judgment from state court that was not appealed by debtor and thus a final judgment:

2012 Bankr. LEXIS 1679 (Bankr. D.P.R. April 13, 2012)( Enrique S. Lamoutte, Bankruptcy Judge).
PROCEDURAL POSTURE: Plaintiff bankruptcy debtor brought an adversary proceeding against defendant mortgage creditor seeking a determination that a foreclosure proceeding against the debtor's property in state court and subsequent sale of the property were invalid. The bankruptcy court sua sponte considered its jurisdiction under the Rooker-Feldman doctrine.
OVERVIEW: The debtor contended that the property was illegally sold based on state-court foreclosure proceedings which failed to comply with due process notice requirements, and which was based on an improper assignment of the mortgage note to the creditor without prior notification to the debtor. The bankruptcy court held that it lacked jurisdiction over the debtor's claims based on the Rooker-Feldman doctrine. The foreclosure judgment was not appealed by the debtor and thus was a final judgment of the state court before the debtor filed her bankruptcy petition, and the bankruptcy court lacked the authority to review or set aside the final state-court foreclosure judgment or to determine that the state court wrongly decided the issues.
OUTCOME: The adversary proceeding was dismissed for lack of jurisdiction.

Student loan was not discharged; debtor did not prove hardship exception:

(In re PATRICIA M. ARROYO) ARROYO v. UNITED STATES DEPARTMENT OF EDUCATION, 2012 Bankr. LEXIS 1818 (Bankr. D. Mass. April 24, 2012)(Frank J. Bailey, Bankruptcy Judge).
By her complaint in this adversary proceeding, the chapter 7 debtor, Patricia Arroyo (the "Debtor"), seeks a declaration that her obligation on a student loan held by the United States Department of Education (the "DOE") is dischargeable under 11 U.S.C. §523(a)(8) on the basis that excepting this obligation from discharge would impose on her an undue hardship. Having now tried that matter, and for the reasons set forth below, the Court finds that the Debtor has failed to carry her burden.
The Debtor, fifty-two years old at trial, is a single woman who resides in a rented apartment in Salem, Massachusetts. She has no dependents. She has a bachelor's degree from the University of California at Santa Cruz, a master's degree in psychology from Biola University, and a Ph.D. in clinical psychology from the California School of Professional Psychology (now called "Alliant University"). She is a licensed psychologist. Since 1997, she has operated her own private psychology practice in Boston, Massachusetts. She has no medical conditions that prevent her from working.

The Debtor incurred the educational loan debt at issue while pursuing graduate studies in psychology. While completing her degree, she was "essentially unemployable."  After earning her Ph.D., the Debtor worked at a six-month unpaid internship at a children's hospital and as a personnel director at a community health center in San Francisco.  In August of 1991, she was hired by Dartmouth College and moved to New Hampshire. From 1991 to 1997, she worked as a staff psychologist in Dartmouth College's student counseling center, earning between $30,000 and $33,000 annually. She became licensed to practice psychology in New Hampshire in 1992. When she began her job at Dartmouth, the Debtor's student loan payments were "about $1,100 a month." Her take-home pay from Dartmouth was about $2,000 a month. To supplement her income, she saw private clients in the evenings. She was able to completely pay off some of her smaller loans.

When the Debtor began her Boston practice, she paid her Student Loan sporadically, if at all. During this time she made only three payments, two of $200 and then a bulk payment of $1,330.98 in July, 1998. Most months she paid nothing. Despite the interest cap set in place under the ICRP, the payment defaults apparently caused the outstanding debt to negatively amortize: that is, interest that had not accrued while payments were current was recognized and added to principal. By June 1999, the balance had grown in this way to $153,597.20.

Starting in 2000, the Debtor began writing letters to her Student Loan servicer. She testified that she was "trying to see if we couldn't just negotiate something because . . . the money wasn't there to pay off this loan in the manner at which it needed to be paid off and [the Loan] was just growing." The Debtor's chief concern was that the payments she made under the ICRP did nothing to reduce the principal balance. The size of the Student Loan prevented her from buying a home and starting a family, and these were among her concerns. The Debtor enlisted the help of an accountant friend to negotiate with the Student Loan servicer. According to the Debtor, the servicer told her that reducing the size of the principal was non-negotiable. Instead, the servicer suggested that the Debtor go into deferment or forbearance. The record does not indicate whether the Debtor ever pursued deferment or forbearance. On May 15, 2000, she made one further payment—the last of which there is evidence—of $1,000. On June 26, 2001, further unpaid interest was capitalized, increasing the principal balance to $175,964.39.
Given the disparity between the Debtor's bankruptcy schedules, tax returns, and testimony, I can determine neither what her expenses are nor whether amounts she has stated as expenses are reasonably necessary to maintain her business. Trading in her vehicle for public transportation has netted some additional income. Abandoning her jewelry business could provide more, too. Accordingly, because she has not provided an accurate and reliable picture of her expenses, I find she has failed to carry her burden of showing that she cannot at present make some significant payment on her Student Loan while maintaining a minimal standard of living.
CONCLUSION  In sum, under the totality of the circumstances, I find and conclude that the Debtor has failed to demonstrate by a preponderance of the evidence that excepting the Student Loan from discharge would impose an undue hardship upon her. Judgment shall enter in favor of the United States, declaring that the debt is excepted from discharge.

Bankruptcy Court reconsiders motion and allows creditor to reopen closed Chapter 7 case, based on discovery of post-discharge information that debtor allegedly did not testify truthfully/failed to disclose certain assets:

In re LOEW, 2012 Bankr. LEXIS 1651 (Bankr. D. Mass. April 11, 2012) (Joan N. Feeney, Bankruptcy Judge).
PROCEDURAL POSTURE:  Movant/creditor filed a motion asking the court to alter or amend its prior judgment denying her motion to reopen and to thereafter allow her to file a complaint to revoke the discharge granted to debtor in connection with his Chapter 7 case. Though debtor did not object to the motion to reopen, the court had denied it. At issue was whether relief was proper under Fed. R. Bankr. P. 5010, Fed. R. Bankr. P. 7001(4), and 11 U.S.C.S. §350.
OVERVIEW: The creditor had challenged debtor’s filings on claims that they contained misstatements, omissions and inconsistencies including that debtor had denied owning real property when in fact he did and that he had failed to provide documents relating to a trust in which he had an interest. The creditor also claimed that debtor had commingled personal and corporate assets. Despite the creditor’s ongoing opposition to discharge, the court granted the same and ultimately closed the case. After the court rejected her motion for an order revoking discharge, the creditor sought reconsideration, which the court granted. It held that the creditor had established by evidence discovered post-discharge that debtor’s filings were incomplete and inaccurate including that debtor had but did not disclose his interest in a real estate company and may have testified untruthfully when questioned about it in open court. That new evidence met the requirement in Fed. R. Civ. P. 60. Also, the creditor had met the criterion in Rule 5010 and § 350 that cause be shown before the court would reopen a closed case because she had shown cause for the filing of a complaint per 11 U.S.C.S. §727 to revoke discharge.
OUTCOME: The court granted the motion to reconsider its denial of the motion to reopen, vacated its order denying the motion to reopen, and granted the motion, thereby permitting the creditor to file a complaint to revoke discharge per §727.

Ibanez thereafter: Ibanez has no further claims and falls to a Rule 12(c) motion to the lender:

CANYON CORP. also known as OPTION ONE MORTGAGE CORP,  2012 U.S. Dist. LEXIS 51973 (D. Mass. April 13, 2012)(Richard G. Stearns, District Judge)
This action stems from a seminal January of 2011 decision of the Massachusetts Supreme Judicial Court (SJC). U.S. Bank Nat’l Assoc. v. Ibanez, 458 Mass. 637(2011). The principal parties involved in that case are the parties here, although their roles are now reversed. In Ibanez, the SJC held that US Bank Nat’l Association as Trustee for the structured asset securities corporation pass-through certificate series 2006-z (U.S. Bank as Trustee) had not satisfactorily proven (in attempting to obtain a judicial declaration of clear title) that it held the Ibanez mortgage at the time it conducted the foreclosure sale, and had thus violated Mass. statutory law, thereby rendering the foreclosure void (and not merely voidable). Ibanez now claims that as a result of defendants' acts and misrepresentations, he has been deprived of the use, possession, and value of the mortgaged property; has lost the funds that he invested in the purchase of the property; and has lost the funds, time, and labor that he invested in rehabilitating the property.   In July of 2011, in the wake of the SJC's decision, Ibanez filed a Complaint against U.S. Bank as Trustee, Sand Canyon Corp., and AHMSI in the Superior Court. In October of 2011, AHMSI removed the case on diversity grounds to this court with the assent of U.S. Bank as Trustee and Sand Canyon. Ibanez then moved to remand the action, but this court denied the motion on November 29, 2011. Defendants now move for judgment on the pleadings pursuant to Rule 12(c), which permits a party to move for judgment on the pleadings at any time "[a]fter the pleadings are closed," as long as the motion does not delay the trial. A Rule 12(c)motion differs from a Rule 12(b)(6) motion, in that it implicates the pleadings as a whole. "In the archetypical case, the fate of such a motion will depend upon whether the pleadings, taken as a whole, reveal any potential dispute about one or more of the material facts."  The gist of the matter is this:  Ibanez is seeking to capitalize in this court on the holding in the SJC's opinion bearing his name by invoking the wrongful foreclosure of the same property that he surrendered in the Bankruptcy Court in exchange for the discharge of his debts. This, equity will not permit.  Even assuming that the execution of the foreclosure deed is the relevant event for purposes of determining when the alleged injury arose (and not the date of the foreclosure sale), Ibanez's surrender of his claim to Crosby Street in the Bankruptcy Court is still fatal to his claims in this court. "[T]he most sensible connotation of 'surrender' in the [Chapter 7] context is that the debtor agreed to make the collateral available to the secured creditor — viz., to cede his possessory rights in the collateral — within 30 days of the filing of the notice of intention to surrender possession of the collateral." Thus, even were there a claim, it does not belong to Ibanez.
ORDER:  For the foregoing reasons, defendants' motions for judgment on the pleadings are ALLOWED. The Clerk will enter an Order of Dismissal and close the case.

Trustee may not hold 341 open sine die and debtor’s motion to deem it closed is granted:

IN RE: ESPINOSA, IN RE: LAFUENTE, 2012 Bankr. LEXIS 1757 (Bankr. D.P.R. April 17, 2012)( Enrique S. Lamoutte, Bankruptcy Judge).
OPINION AND ORDER:  This case is before the court upon debtors' opposition to the "trustee's sine die continuance and request to deem  §341 meeting closed" and the reply thereto by the Chapter 7 trustee. The debtors allege that the decisions by the United States Bankruptcy Appellate Panel for the First Circuit support their request. The Chapter 7 trustee replied alleging that the 341 meeting was continued held open and continued sine die because there are assets to recover and that the debtors are not harmed by holding the 341 meeting open. For the reasons stated below the debtors' motion is hereby granted.  A chapter 7 trustee may not hold the meeting open indefinitely or sine die as such a continuance will unduly prolong the time to object to the debtor's claimed exemptions.  The 30-day period for the trustee to object to a debtor's claim of exemptions must be strictly interpreted.
Trustees should continue or adjourn a meeting of creditors following Rule 2003(e).  The date and time of the adjourned meeting must be specified in the meeting minutes. Otherwise, the meeting will be deemed closed. In chapter 13 cases, as was the case in In re Cushing, this ruling may operate against the debtor and cause the dismissal of the petition. In chapter 7 cases, as was the case in In re Newman, the debtor may benefit by enforcing the 30-day period to object to exemptions set forth in Rule 4003(b)(1).

Chapter 13 case dismissed where debtor became unemployed post-petition:

IN RE: FIGUEROA, 2012 Bankr. LEXIS 1306 (Bankr. D.P.R. March 16, 2012)(Enrique S. Lamoutte, Bankruptcy Judge).
PROCEDURAL POSTURE:  A Chapter 13 trustee filed a motion to dismiss pursuant to 11 U.S.C.S. § 1307(c), alleging that a debtor was in material default with respect to the terms of his confirmed plan.
OVERVIEW: The debtor did not dispute that he was in default, His explanation for his failure to make monthly payments, that he became unemployed, was devoid of any supporting evidence. Because there was no dispute that the debtor was deficient with respect to his monthly payments, no evidentiary hearing was warranted. Pursuant to 11 U.S.C.S. §§ 101(30) and 109(e), only individuals with sufficiently stable regular income were eligible to be debtors under Chapter 13. These statutory limitations were preserved by 11 U.S.C.S. § 1307(c)(6) by providing a mechanism for involuntary dismissal when a debtor could not satisfy the obligations of a confirmed plan. The debtor had been afforded several opportunities to cure his defaults. While the court was sympathetic to his alleged difficulty in securing employment, that hardship did not alter the undisputed fact that he had been and was still in material default. His proposal to cure the defaults with family help did not satisfy the income requirement in 11 U.S.C.S. § 109(e). As there were no assets available for distribution, it was in the best interests of creditors to dismiss the case rather than convert it.
OUTCOME: The trustee's motion to dismiss was granted.

Creditors civil contempt judgment was discharged; court discussed distinction between judicial and equitable liens; discharge complaint dismissed as untimely:

(In re: MARTIN) MASLAR v. MARTIN, 2012 Bankr. LEXIS 1597 (Bankr. D. Mass. April 12, 2012)(Henry J. Boroff, Bankruptcy Judge).
PROCEDURAL POSTURE: Plaintiff creditor commenced an adversary proceeding to determine the validity, priority and extent of her lien against property owned by debtors; and the dischargeability of a civil contempt assessment entered against debtors by a state court. Debtors moved for summary judgment, asserting that creditor's claims were judicial liens subject to avoidance under 11 U.S.C.S. § 522(f).
OVERVIEW: Debtors had acquired by conveyance a parcel of real property that was partly owned by a judgment debtor of the creditor. A state court eventually found the debtors in contempt and ordered them to transfer the conveyed property. No review of that order was sought and it became final. Accordingly, the doctrine of claim preclusion applied, so the property was no longer the debtors at the time they filed their chapter 7 petition. The debt related to a contempt order imposed on debtors could not be held nondischargeable under 11 U.S.C.S. § 523(a)(6), because creditor's motion was not timely, and she was on record as not objecting to dischargeability. An award of costs in the amount of $770.42 was best characterized as an equitable lien, not a judicial lien, and was not subject to § 522(f). That lien remained against the conveyed property.
OUTCOME: Debtors' motion for summary judgment was denied as to the conveyed property, and summary judgment was granted to creditor as to her objection to the debtor's claimed exemption in the conveyed property, which was moot. Debtors' motion was granted as to the creditor's remaining claims, which were discharged, except for the award of costs in the state court action, which were subject to a judicial lien.
DISCUSSION: Plaintiff commenced this adversary proceeding to determine (i) the validity, priority and extent of her lien against property owned Debtors; and (ii) the dischargeability of a civil contempt assessment entered against the Debtors by a state court.

By Order dated April 23, 2010, the Superior Court found the Debtors in contempt of the Superior Court Judgment, again ordered the Debtors to transfer the Conveyed Property to Karen (this time within 10 days) and awarded Maslar the costs and attorneys' fees she had incurred in bringing the contempt action, together with the additional sum of $100.00 per day for each additional day of delay from the newly imposed deadline for compliance (the "Contempt Order"). No review of that Order was sought. Nor was it liquidated.  On June 28, 2010, the Debtors filed a voluntary Chapter 7 petition with this Court. On their Schedule A—Real Property, the Debtors listed a fee simple interest in the City View Property. On their Schedule C—Exemptions, the Debtors claimed the City View Property as exempt, pursuant to Mass. Gen. Laws c. 188, § 1—the Massachusetts Homestead Statute. 3 And on their Schedule F— Creditors Holding Unsecured Nonpriority Claims, the Debtors listed Maslar's claims against them.
By way of this adversary proceeding, Maslar makes a limited objection to the Debtors' claimed exemption in the Conveyed Property. For the reasons explained below, that objection is moot. The first scheduled meeting of creditors under 11 U.S.C. § 341 was set for July 27, 2010. Objections to discharge and dischargeability were due by September 27, 2010. No timely objection having been filed, this Court granted the Debtors a bankruptcy discharge under § 524 on September 28, 2010.

On October 4, 2010, Maslar filed the instant adversary proceeding asking the Court to enter orders: (1) confirming the Superior Court Judgment; (2) declaring that Maslar has a valid claim and lien against the Conveyed Property; (3) declaring that the Debtors' homestead exemption does not apply to the Conveyed Property; (4) confirming the Contempt Order and declaring it non-dischargeable; or in the alternative (5) allowing Maslar to partition and sell the Conveyed Property. On August 2, 2011, the Debtors filed a "Motion to Avoid Judicial Lien with Mary Maslar" in the main bankruptcy case. Maslar promptly objected. A hearing on the Motion to Avoid and Maslar's objection thereto has been continued generally pending the outcome of this adversary proceeding.

The Debtors argue that the judgments and orders issued by the Superior Court are judicial liens subject to avoidance under § 522(f).  The judgments and orders issued by the Superior Court, they explain, "arose and grew from" a money judgment entered against Karen; such judgments are by definition, judicial liens. In response to Maslar's argument that the liens are equitable rather than judicial liens, the Debtors point to the language of the Superior Court Judgment, which "declare[s] a lien" on the City View Property and nowhere mentions or uses the words "equitable lien." Further, the Debtors argue that Maslar failed to satisfy the requirements of a reach and apply action, as the Debtors were not named defendants in the Westfield District Court Action and Maslar sought no injunction against them. As for the dischargeability of the Contempt Order, the Debtors cite to the Complaint where Maslar concedes she does not seek denial of the Debtors' discharge or the nondischargeability of any of the Debtors' debts.  Maslar counters that the lien status of the Superior Court judgments raise genuine issues of material fact to be determined by the Court. Maslar contends that the Superior Court judgments are equitable liens not subject to avoidance under § 522(f). In support of this contention, Maslar offers the following: (1) the Superior Court Judgment is entitled "Order and Judgment For Assessment of Damages And Equitable Relief"; and (2) her success in reaching and applying the City View Property by way of the Superior Court Action. Finally, Maslar argues that the Contempt Order is non-dischargeable, pursuant to § 523(a)(6).

At the commencement of their bankruptcy case, the Debtors' bankruptcy estate included legal title to 1/2 of the Lone Acre. Pursuant to the Superior Court's Judgment, the remainder (the Conveyed Property) belongs to Karen. Section 522(f) relates only to property in which the debtor has an interest. Inasmuch as the Conveyed Property has been finally determined to be owned by Karen, § 522(f) is inapplicable. And for the same reason, the Debtors have no interest in which to claim an exemption under bankruptcy or nonbankruptcy law. Therefore, Maslar's request to determine the validity, priority and extent of Maslar's lien on the Conveyed Property is moot as is the appropriateness of her request that the Debtors' claimed exemption be denied.

Despite the fact that the Conveyed Property belongs to Karen and, therefore, § 522(f) does not apply, that is not the only property to which the lien of the Superior Court attached. Again, the language of the Superior Court Judgment was "[t]hat . . . the aforementioned orders and award of costs is declared a lien on 5 City View Boulevard, Westfield, MA". Accordingly, the lien created by the Superior Court still attaches to that portion of the Lone Acre (1/2) to which the Debtors are entitled to retain, the Conveyed Property having been deemed returned to Karen. All that remains of the lien is, therefore, the award of costs in the Superior Court Judgment. That award was in the amount of $770.42. 9 The Debtors say that the lien is a judicial lien; Maslar says that the lien is an equitable lien, and, therefore, § 522(f) does not apply. The Debtors have the better of the argument.

The Superior Court did not impose a similar lien with respect to the sanctions set forth in the Contempt Order.

The Code defines "judicial lien" to mean, "a lien obtained by judgment, levy, sequestration, or other legal or equitable proceeding." 11 U.S.C. § 101(36). The term "equitable lien," however, is nowhere defined in the Code. Judge Rosenthal defined "equitable lien" to mean, 'a  charge upon specific property, entitling the holder of the lien to have the property applied in equity to the payment of his debt as against all other claimants of the property except purchasers for value without notice'
Morais, 2009 Bankr. LEXIS 3014, [WL] at *3 (quoting Ballentine v. Eaton, 297 Mass. 389, 8 N.E.2d 808, 809 (1937)), but noted a divergence of case law relative to whether an equitable lien is, by definition, a judicial lien.  In Massachusetts, equitable liens are established through actions to "reach and apply." Reach and apply actions exist in two forms. Under Massachusetts law, creditors' actions to reach and apply a debtor's property may take either statutory or non-statutory form. However, the plaintiff in a non-statutory action to reach and apply must be a judgment creditor.  A statutory action to reach and apply permits the plaintiff to obtain in a single action both an adjudication of the debtor's liability on the underlying claim, as well as equitable orders securing the debtor's property during the action and applying that property to pay the resulting judgment.  Non-statutory reach and apply actions, "can be used only after the plaintiff has reduced the claim to a judgment and has been unsuccessful in enforcing execution on that judgment." Statutory actions to reach and apply fraudulently conveyed property in Massachusetts are governed by M.G.L. c. 214, § 3(6)

Establishing an equitable lien under the Massachusetts statute requires two steps, rather than two actions as required at common law. First, "the plaintiff must file a complaint against both the principal defendant and any third party who possesses property of, or owes a debt to, the principal defendant." Id. With this first step the plaintiff must also establish the debt owed by the principal defendant to the plaintiff. Second, "the plaintiff must seek an injunction restraining the debtor or a third party from disposing of property which the plaintiff intends to reach and apply in satisfaction of its claim." Once the plaintiff has completed these two steps, the plaintiff secures her equitable lien. And Maslar did just that. In accordance with the first step, Maslar named Karen as principal defendant and the Debtors as third party defendants in the Superior Court action. In addition, the complaint itself established the debt owing to Maslar from Karen. Maslar successfully took the second step when she contemporaneously sought and received a temporary restraining order against Karen and the Debtors as to the City View Property.

The lien obtained by Maslar was not described by the Superior Court as an equitable lien, nor did it arise by dint of the Superior Court making right the fraudulent conveyance. The award of costs was instead the outcome of Maslar's having been successful as the plaintiff in the Superior Court Action, a common award to the winning party. It was by every definition a judicial lien - "a lien obtained by judgment, levy, sequestration, or other legal or equitable proceeding." 11 § 101(36).  For these reasons, the Court need not reach the question of whether an equitable lien is itself a form of judicial lien and, if so, whether that is always the case.

Dischargeablity of the Contempt Sanctions:  Finally, Maslar requests that the sanctions ordered by the Superior Court in its Contempt Order be deemed nondischargeable under § 523(a)(6). The Court declines to do for two separate reasons. First, Maslar is too late.  And second, in her Complaint, Maslar expressly stated that she was not asserting in the adversary proceeding any objection to the Debtors' discharge or the dischargeability of her claim. See Complaint ¶ 6. Under the circumstances, the Court must deem it waived.

For the foregoing reasons, this Court finds and rules that the Debtors' Motion for Summary Judgment must be:
1. DENIED and summary judgment must be GRANTED to Maslar, insofar as the Court determines that the Debtors have no interest in the Conveyed Property and rules Maslar's objection to the Debtor's exemption in the Conveyed Property accordingly moot; 14 15 and
2. GRANTED insofar as the Court deems Maslar's remaining claims to have been discharged, save only the award of costs in the Superior Court Judgment, which the Court rules is the subject of a judicial lien on the Debtors' 1/2 interest in the Lone Acre.
An order consistent with this Memorandum shall issue accordingly.

No comments:

Post a Comment