UNITED STATES DISTRICT COURT DISTRICT OF NEW HAMPSHIRE

June White

v. Civil No. 15-cv-523-JL Opinion No.

Olga Gordon

ORDER ON APPEAL

This appeal from an order of the Bankruptcy Court in a

Chapter 7 proceeding delves into the question of when and

whether property held by a trust becomes part of a debtor’s

bankruptcy estate. June White, the appellant, argues that the

Bankruptcy Court erred in concluding that a certain parcel of

property, which the debtor, Thomas L. Morgenstern, had conveyed

to a trust, and upon which White held a mortgage lien, should be

treated as property of Morgenstern’s bankruptcy estate. White

argues that the Bankruptcy Court further erred in concluding

that White’s attempts to foreclose on the mortgaged property

after Morgenstern petitioned for bankruptcy violated the

automatic stay imposed by

and awarding

attorneys’ fees to Olga Gordon, the trustee of the Morgenstern’s

bankruptcy estate, under

(a).

This court has jurisdiction to hear appeals from “final

judgments, orders, and decrees” of the Bankruptcy Court under

(a)(1). See also L.R. 77.4. Finding no error in the Bankruptcy Court’s treatment of the property in question or

its determination that White violated the statutory stay, the

court affirms the Bankruptcy Court’s decision.1

Standard of review

When hearing an appeal from the Bankruptcy Court, this

court applies the same standards of review governing appeals of

civil cases to the appellate courts. Cf. Groman v. Watman (In

re Watman),

(1st Cir. 2002). As such, this court

reviews the Bankruptcy Court’s “findings of fact for clear error

and conclusions of law de novo.” Old Republic Nat’l Title Ins.

Co. v. Levasseur (In re Levasseur),

(1st Cir.

2013). The Bankruptcy Court’s decision to award damages, costs,

and fees is reviewed for abuse of discretion. See Prebor v.

Collins (In re I Don't Trust),

(1st Cir. 1998).

Background

Morgenstern acquired title to real property located at

8 Maple Avenue in Rye, New Hampshire, in September 1992. In

2009, he transferred the property to the Carlear Realty

Revocable Trust (the “Carlear Trust”), and recorded the trust

the same day. Morgenstern was a 25% beneficiary of the Carlear

1 Though the court finds no error in the Bankruptcy Court’s award of sanctions, in light of supplemental filings by White and for the reasons discussed infra Part III.C, the court also orders further review of that award.

2 Trust and Alexander Sekulic was appointed the trustee. At the

time the bankruptcy petition was filed, the Carlear Trust

contained only the Maple Avenue property.

In November 2009, the Carlear Trust mortgaged the property

to the appellant, June White, to secure a $40,000 loan. The

trust then defaulted on the loan. White sued the Carlear Trust,

Sekulic, and Morgenstern in Rockingham County Superior Court and

obtained authority from that court to conduct a foreclosure sale

of the Maple Avenue property.

Before White could foreclose, Morgenstern filed for

bankruptcy protection on July 8, 2013.2 White then began

attempting to secure title to the Maple Avenue property.

Appearing pro se, she moved the Bankruptcy Court to dismiss

Morgenstern’s bankruptcy petition in December 2013. She also

engaged in efforts to foreclose on the Maple Avenue property by

recording a series of affidavits in the Rockingham County

Registry of Deeds on February 10, 2014, attempting to show her

possession of the property.3 Then, on March 29, 2014, White

2 Morgenstern converted his petition for bankruptcy under Chapter 13 of the Bankruptcy Code to one under Chapter 7 shortly thereafter. 3 New Hampshire law provides that a mortgagee may foreclose on mortgaged property by, among other means not implicated here, “entry into the mortgaged premises under process of law and continued actual possession thereof for one year.”

, I.

3 obtained Sekulic’s signature, as trustee of the Carlear Trust,

on a deed conveying that property to White in exchange for

$50,000. White also recorded this deed. White then began

attempting to auction the property. Sekulic, contesting the

authenticity and validity of that deed and asserting that

Morgenstern’s bankruptcy estate had a continuing interest in the

property, moved the Rockingham County Superior Court to enjoin

the sale, which it did.

Gordon, the trustee of Morgenstern’s bankruptcy estate,

then sought the Bankruptcy Court’s permission to revoke the

Carlear Trust pursuant to New Hampshire law, see

-B:6-602, which the court granted on July 28, 2014.

Several months afterward, Gordon filed an adversary proceeding

against White in the Bankruptcy Court, seeking a declaratory

judgment that the deed transferring the Maple Avenue property to

White was void and requesting compensatory and punitive damages,

see

(k), as well as damages pursuant to

(a). After a trial, the Bankruptcy Court found that the

Maple Avenue property constituted “property of the estate,” and

thus that White violated the automatic stay through her several

actions taken in an effort to gain control of that property.

See

(a). The Bankruptcy Court awarded Gordon her

attorneys’ fees and costs in the amount of $29,627.29, see

§ 105(a), but rejected her request for damages pursuant to

4 § 362(k). White, proceeding pro se, has timely appealed the

Bankruptcy Court’s decision of December 24, 2015, and the

subsequent entry of judgment against her.

Analysis

A bankruptcy petition triggers “a stay, applicable to all

entities, of,” among other actions:

the enforcement, against the debtor or against property of the estate, of a judgment obtained before the commencement of the [bankruptcy proceeding]; any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate; [and] any act to create, perfect, or enforce any lien against property of the estate . . . .

(a)(2)-(4). There is no dispute here that

Morgenstern’s bankruptcy petition, filed under chapter 13 of the

Bankruptcy Code, see

et seq., triggered the

stay contemplated by § 362(a). White challenges, instead, three

determinations by the Bankruptcy Court: (1) that the Maple

Avenue property was property of the estate and, therefore,

subject to the stay’s provisions; (2) that White violated the

stay through non-ministerial attempts to enforce the Superior

Court judgment against and take possession of the Maple Avenue

property; and (3) that those actions warranted sanctions, in the

form of attorneys’ fees, under

(a).4

4 The court need not address in detail the other issues White raises on appeal. As to her arguments that the Bankruptcy Court erred in its July 28, 2014 order allowing Gordon to revoke the

5 These issues call into question “[t]he bankruptcy court's

interpretation of the relevant statutes,” which “presents a

question of law,” as well as “its application of those statutes

to the facts of this case,” which “presents a mixed question of

law and fact that [this court] review[s] for clear error unless

its analysis was ‘infected by legal error.’” Prudential Ins.

Co. of Am. v. SW Boston Hotel Venture, LLC (In re SW Boston

Hotel Venture, LLC),

(1st Cir. 2014) (quoting

Winthrop Old Farm Nurseries, Inc. v. New Bedford Inst. for Sav.

(In re Winthrop Old Farm Nurseries, Inc.),

(1st

Cir. 1995)). The court addresses each of White’s allegations of

error in turn.

A. Property of the bankruptcy estate

“The commencement of a bankruptcy case creates a debtor's

estate, which is comprised of ‘all legal or equitable interests

of the debtor in property as of the commencement of the case.’”5

Carlear Trust to bring the property into the bankruptcy estate, White has waived them in light of her failure to timely appeal that order. See Fed. R. Bankr. 8002(a)(1); In re Abdallah,

(1st Cir. 1985) (“Untimely notice of appeal deprives the district court of jurisdiction to review the bankruptcy court’s order.”). Even were White’s appeal timely, it appears to the court that any error in allowing Gordon to revoke the Carlear Trust would be harmless because, for the reasons discussed infra Part III.A.1, the trust need not have actually been revoked for the Maple Avenue property to be considered property of the bankruptcy estate. 5 White takes aim at the Bankruptcy Court’s reliance on Black’s Law Dictionary to define the term “equitable interest” as used

6 NTA, LLC v. Concourse Holding Co., LLC (In re NTA, LLC),

, 527–28 (1st Cir. 2004) (quoting

(a)(1)). State law defines the contours of a debtor’s

interest in a given property. See Butner v. United States,

(1979) (“Property interests are created and defined

by state law.”). “A bankruptcy estate cannot succeed to a

greater interest in property than the debtor held prior to

bankruptcy.” In re NTA,

.

White’s argument that the Maple Avenue property was not

properly part of Morgenstern’s bankruptcy estate has two facets.

First, she argues that the Maple Avenue property belonged to the

Carlear Trust, not Morgenstern. Second, White argues that she

possessed the Maple Avenue property because she had power to

foreclose on the property and received a deed to the property

from Sekulic. Neither argument prevails.

1. The Carlear Trust

White’s first argument -- that ownership by the Carlear

Trust removed the Maple Avenue property from Morgenstern’s

in the Bankruptcy Code. See Appellant Brief at 15-16; Gordon v. White (In re Morgenstern),

. White conflates equity in property, which -- as she correctly observes -- amounts to “the value of the estate minus any secured claims and exemptions,” In re Traverse,

(1st Cir. 2014), with an equitable interest, which is a variety of ownership right that a person may have in property, cf. Hopkinson v. Dumas,

(1861) (interest in trust creates equitable interest in land).

7 bankruptcy estate -- fails primarily because of the power that

Morgenstern, as settlor, could exercise over the Carlear Trust.

Under the New Hampshire Trust Code, “[u]nless the terms of a

trust expressly provide that the trust is irrevocable, the

settlor may revoke or amend the trust.”

-B:6-602. Morgenstern settled the Maple Avenue property on

the Carlear Trust.6 There is no dispute that the Carlear Trust

was revocable and that its provisions were “silent as to the

extent of the settlor’s powers” to revoke the trust. In re

Morgenstern,

(emphasis added). Accordingly,

Morgenstern retained the power to revoke or amend the Carlear

Trust.

White suggests that Morgenstern lacked this power because

the Carlear Trust’s provisions allowed the beneficiaries to

revoke it “at any time by delivering to the Trustee(s) a written

document signed by all the Beneficiaries.” See Appellant’s

Brief at 17-18, 22. In doing so, she ignores the following

provision of the New Hampshire Trust Code:

The settlor may revoke or amend a revocable trust[] by substantial compliance with a method provided in the terms of the trust[] or by any other method manifesting clear and convincing evidence of the

6 Though Sekulic was also a settlor of the Carlear Trust, the Bankruptcy Court observed no evidence that he contributed to the Trust and treated Mortgenstern as the sole settlor as a result. See In re Morgenstern,

n. 7. White does not challenge this conclusion.

8 settlor’s intent if the terms of the trust do not provide a method or do not expressly prohibit methods other than methods provided in the terms of the trust.

-B:6-602(c). Here, the trust does

“not expressly prohibit methods other than” the method available

to the beneficiaries and identified by White. Nor does it

satisfy the condition precedent for disempowering the settlor to

revoke the trust under

-B:6-602 --

that is, expressly providing that the trust is irrevocable. The

provision permitting the beneficiaries to revoke the trust does

not, therefore, abrogate the default rule allowing the settlor

to revoke the trust.

As the Bankruptcy Court observed, when, as here, the debtor

retains broad powers to revoke or amend the trust, bankruptcy

courts in this circuit have held that the trust property becomes

property of the bankruptcy estate. See, e.g., Marrama v.

Degiacomo (In re Marrama),

(B.A.P. 1st Cir.

2004); Beatrice v. Braunstein (In re Beatrice),

(B.A.P. 1st Cir. 2003); Riley v. Tougas (In re Tougas),

(Bankr. D. Mass. 2006); see also 5 Collier on

Bankruptcy § 541.27 (A. Resnick & H. Sommer eds., 16th ed. 2015)

(“If the trust does not have a spendthrift clause . . . every

right of the debtor under the trust becomes property of the

estate. The same result is reached if, despite the inclusion of

a valid spendthrift clause, the debtor has the power to amend or

9 terminate the trust.”); cf. Marrama v. Citizens Bank of Mass.

(In re Marrama),

(1st Cir. 2005), aff'd sub

nom. Marrama v. Citizens Bank of Mass.,

(2007)

(argument that property never became part of bankruptcy estate

where Maine law granted settlor power to revoke trust at any

time was “highly questionable”); Markham v. Fay,

(1st Cir. 1996) (concluding, by analogy to bankruptcy

law, that federal tax lien against settlor reached trust

property where settlor had power to “alter, amend, or revoke”

the trust, and was also a trustee and beneficiary). But see

George v. Kitchens by Rice Bros.,

(1st Cir. 1981)

(property of revocable trust not subject to settlor’s bankruptcy

estate where Massachusetts law did not recognize power of

revocation as property).

New Hampshire law does not compel a contrary conclusion.

As the Bankruptcy Court further observed, the fact that the

Carlear Trust held the Maple Avenue property would not have

prevented Morgenstern’s creditors from reaching it absent a

bankruptcy filing. Under the New Hampshire Trust Code,

“[w]hether or not the terms of a trust contain a spendthrift

provision, . . . during the lifetime of the settlor, the

property of a revocable trust is subject to claims of the

settlor’s creditor.”

-B:5-505(a)(1).

Morgenstern, as settlor of the trust, thus had the power to

10 revoke the trust. After he petitioned for bankruptcy, the

bankruptcy estate assumed that power. See

(a)(1)

(bankruptcy estate obtains “all legal or equitable interests of

the debtor in property as of the commencement of the case.”); In

re Marrama,

.

In light of this, and the suggestion that courts “construe

§ 541 broadly to bring any and all of the debtor’s property

rights within the bankruptcy court’s jurisdiction,” In re

Marrama,

(citing United States v. Whiting Pools,

Inc.,

, 205 n. 9 (1983)), this court cannot conclude

that the Bankruptcy Court erred in finding that the Maple Avenue

property, although held by the Carlear Trust, was properly

within the bounds of Morgenstern’s bankruptcy estate.

2. White’s property

In the alternative, White argues that the Bankruptcy Court

erred in considering the Maple Avenue property as part of the

bankruptcy estate because it belonged to White, not Morgenstern

or the Carlear Trust. See Appellant’s Brief at 21-22. She

offers two theories to support her ownership of the property at

the relevant time. The Bankruptcy Court did not err in finding

neither theory persuasive.

White first contends that she, rather than the Carlear

Trust or Morgenstern, held legal title to the Maple Avenue

11 property during the bankruptcy proceedings because she had

foreclosed on the property. Under the relevant statutory

provisions, White as mortgagor could take title to the property

“[b]y entry into the mortgaged premises under process of law and

continued actual possession thereof for one year.”

, I. White obtained a judgment authorizing

her to foreclose on the mortgaged property on March 1, 2013. As

the Bankruptcy Court points out, and as White does not dispute,

White could not have taken possession of the property before

that date. And that judgment alone, without engagement in the

repossession process, did not give White title to the property.

See Walker v. Chessman,

(1908) (“The mortgage

subsisted after the judgment as before, and could only be

foreclosed by the [mortgagor’s] possession continued for a

year.”). Moreover, even if White had taken possession on

March 1, 2013, she simply could not have had “continued actual

possession” of the property “for one year” before Morgenstern

petitioned for bankruptcy four months later, on July 8, 2013.

Accordingly, White did not hold title to the Maple Avenue

property through foreclosure at the time Morgenstern petitioned

for bankruptcy.

White next argues that she held title to the Maple Avenue

property because Sekulic, the trustee of the Carlear Trust,

conveyed to her a deed to the property. Notably, White obtained

12 that deed in March 2014, several months after Morgenstern

petitioned for bankruptcy and the automatic stay as to his

estate’s property took effect. For the reasons discussed more

fully below, the Bankruptcy Court did not err in finding that

White obtained the deed in violation of the stay. As such, the

deed was void. Soares v. Brockton Credit Union (In re Soares),

(1st Cir. 1997) (holding that actions taken in

violation of automatic stay are void, not merely voidable).

Thus, White did not hold legal title to the Maple Avenue

property through conveyance from Sekulic.

The Bankruptcy court therefore did not err in considering

the Maple Avenue property as part of Morgenstern’s bankruptcy

estate.

B. Stay violations

Having concluded that the Bankruptcy Court did not err in

its determinations that the Maple Avenue property constituted

bankruptcy estate property, the court now turns to White’s

contention that her actions with respect to that property did

not violate the automatic stay invoked by

(a).

As discussed supra, that stay prohibits “all entities” from:

the enforcement, against the debtor or against property of the estate, of a judgment obtained before the commencement of the [bankruptcy proceeding]; any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate; [and] any act to create,

13 perfect, or enforce any lien against property of the estate . . . .

(a)(2)-(4). Among other actions, the Bankruptcy

Court found that White (1) obtained a deed to the Maple Avenue

property from Sekulic, (2) recorded that deed, and (3) recorded

affidavits “that were presumably aimed at furthering her attempt

to foreclose” on the Maple Avenue property. In re Morgenstern,

. The Bankruptcy Court concluded that White

violated the automatic stay through each of these activities.

White offers four arguments, none more persuasive than the

rest, as to why her actions during the stay did not violate that

stay. The court addresses each in turn, reviewing the

Bankruptcy Court’s application of the Bankruptcy Code to the

facts for “clear error.” In re SW Boston Hotel Venture, LLC,

.

First, White leans on her argument, discussed supra Part

III.A.1, that the Maple Avenue property belonged to the Carlear

Trust, and thus White’s actions did not violate the stay as to

actions affecting the debtor’s property. For the reasons

discussed above, however, the structure of the trust and

Morgenstern’s control thereof led the Bankruptcy Court to

conclude, correctly, that the Maple Avenue property was part of

the bankruptcy estate. While, as White observes, the automatic

14 stay generally does not protect the property of non-debtors, cf.

Monarch Life Ins. Co. v. Ropes & Gray,

(1st

Cir. 1995), this is not such a case because Morgenstern, the

debtor, retained an interest in the property of the trust --

both as settlor and beneficiary.

Second, White argues that because Sekulic conveyed the deed

to her, White did not violate the stay by receiving it. On its

face, however, the statute prohibits “any act to obtain

possession of property of the estate or of property from the

estate or to exercise control over property of the estate.”

(a)(3). The court cannot conclude that the

Bankruptcy Court clearly erred in determining that obtaining a

deed to property that is part of the bankruptcy estate

constituted such an act.

White then argues that her actions following receipt of the

deed -- that is, recording the deed and her affidavits with the

Registrar of Deeds -- were ministerial in nature, and thus not

prohibited by the stay. “Ministerial acts . . . do not fall

within the proscription of the automatic stay.” In re Soares,

107 F.3d at 973–74. “A ministerial act is one that is

essentially clerical in nature.”

. An act is

ministerial when, for example, “an official’s duty is delineated

by, say, a law or a judicial decree with such crystalline

clarity that nothing is left to the exercise of the official’s

15 discretion or judgment, the resultant act is ministerial.”

White obtained a deed to the Maple Avenue property from Sekulic.

She recorded that deed. She signed and recorded affidavits

detailing her control of the Maple Avenue Property and collected

affidavits on the same subject from three other individuals

concerning the same. Even if the act of recording of the deed

and affidavits was merely ministerial, and the court is not

convinced that it was, White made a decision to take those

actions. “[T]he decision which animated” them “occurred after

the stay was in force,” and accordingly violated the stay’s

provisions.

. The court cannot conclude that the

Bankruptcy Court clearly erred in deciding as much.

Finally, White appeals to statutory provisions shielding

those who interact with the trustee of a trust in good faith

from liability, see

-A:7. The

question at issue here is not whether White has exposed herself

to liability in her dealings with Sekulic, but whether she

violated the statutory stay thereby. This argument is,

therefore, inapposite and unavailing.

C. Damages under § 105(a)

White also charges the Bankruptcy Court with error in

awarding damages to the Trustee under

(a) and the

order permitting the Trustee to set that award off against

16 White’s secured claim. The court reviews this decision for

abuse of discretion. See In re I Don't Trust,

.

“A bankruptcy court abuses its discretion if it ignores a

material factor deserving of significant weight, relies upon an

improper factor or makes a serious mistake in weighing proper

factors.” Howard v. Lexington Invs., Inc.,

(1st Cir. 2002) (internal quotations omitted). The court finds

no such abuse here.

Section 105(a) of the Bankruptcy Code allows the Bankruptcy

Court to “issue any order, process, or judgment that is

necessary or appropriate to carry out the provisions of” the

Bankruptcy Code.

(a). The Bankruptcy Court has

broad discretion under this provision to award fees for civil

contempt of the Bankruptcy Code’s automatic stay. See

Ameriquest Mortg. Co. v. Nosek (In re Nosek),

(1st Cir. 2008) (Section 105(a) “provides the bankruptcy court

broad authority to exercise its equitable powers -- where

necessary or appropriate -- to facilitate the implementation of

other Bankruptcy Code provisions”); Spookyworld, Inc. v. Town of

Berlin (In re Spookyworld),

(1st Cir. 2003)

(“Prior to the enactment of section 362(h) in 1984, contempt

orders issued under section 105(a), including awards of damages,

were routinely used to punish violations of the automatic

stay.”).

17 This court cannot conclude that the Bankruptcy Court’s

invocation of its broad discretion under § 105(a) to sanction

White amounts to abuse of that discretion. The Bankruptcy Court

found, as it must, that White had notice of the automatic stay

and intended the actions which constituted the violation

thereof. Lumb v. Cimenian (In re Lumb),

(B.A.P.

1st Cir. 2009) (citing Pratt v. Gen. Motors Acceptance Corp. (In

re Pratt),

(1st Cir. 2006)). It ordered White

to pay Gordon’s attorneys’ fees, in the amount of $29,627.29,

and allowed that award to be set off against the value of

White’s secured claim. White’s undeveloped and unsupported

assertion that the Trustee litigated this action in “bad faith”

by failing to settle it sooner, and thus is undeserving of such

fees, see Appellant Brief at 28, in no way undermines the

Bankruptcy Court’s decision. To the contrary, the Bankruptcy

Court judiciously analyzed amount of fees requested by the

Trustee and discounted the award by two-thirds upon finding the

requested award not entirely justified.7

In the time since White filed this appeal, however, she has

notified this court that Gordon has abandoned the Maple Avenue

7 White also argues that the Bankruptcy Court erred in granting the Trustee’s request to set this award off against White’s claims against the estate, on the grounds that she owes no money to the estate. The court’s affirmance of the Bankruptcy Court’s sanctions decision likewise resolves that issue.

18 property as part of the bankruptcy estate, leaving White to

recover the value of her mortgage interest in the property

through foreclosure proceedings. See Notice of Abandonment of

Property (document no. 41). Gordon responded. See Appellee’s

Response (document no. 42). If true, White’s allegations may

raise questions as to Gordon’s handling of the bankruptcy estate

and the litigation below in light of White’s argument that

Gordon ought have abandoned the property at the outset. See

Appellant’s Brief at 22-23. It also raises questions about the

propriety of offsetting the sanctions award against White’s

claims against the estate in a situation wherein White may no

longer have such claims.

This court concludes that these issues would benefit from

an evaluation by the Bankruptcy Court, with its greater

familiarity with the parties and their course of dealing, and

accordingly orders further review of whether an offset award of

sanctions remains appropriate. The Bankruptcy Court is free to

take more evidence if deemed necessary to carry out this

mandate.

Conclusion

For the reasons set forth above, this court AFFIRMS the

order of the Bankruptcy Court and orders further proceedings

19 consistent with this opinion. The clerk shall enter judgment

accordingly and close the case.

SO ORDERED.

Joseph N. Laplante United States District Judge

Dated: September 27, 2016

cc: June White, pro se James F. Radke, Esq Olga L. Gordon, Esq. Geraldine L. Karonis, US Trustee

20