Feldman v. Carbone (In re Carbone)

626 B.R. 262

IN RE: Bruno Marco CARBONE, Debtor.

Lynn Feldman, Trustee, Plaintiff

v.Bruno Marco Carbone Melissa Carbone, Defendants

Bky. No. 18-13852 ELF

Adv. No. 18-239

United States Bankruptcy Court, E.D. Pennsylvania.

Signed March 12, 2021

MEMORANDUM

ERIC L. FRANK, U.S. BANKRUPTCY JUDGE

I.

Debtor Bruno Marco Carbone ("the Debtor") filed a voluntary petition on under chapter 7 of the Bankruptcy Code on June 8, 2018.

The Debtor owns the residential real property located at 90 Cirak Avenue, East Norriton, PA ("the Property") jointly with his wife Melissa Carbone ("Mrs. Carbone").¹ In Schedule C, he claimed the federal exemptions with respect to the Property in the amount of $23,675.00. See 11 U.S.C. § 522(b)(2), (d)(1). The Debtor and Mrs. Carbone (collectively, "the Defendants") reside in the Property.

On October 22, 2018, Lynn Feldman, the chapter 7 trustee ("the Trustee") commenced the above-captioned adversary proceeding against the Defendants.

In the Complaint, the Trustee alleged that the Debtor solely owned the Property prior to November 30, 2015 and, on that date, transferred his interest in the Property to himself and Mrs. Carbone jointly ("the Transfer"). The Trustee seeks to avoid the Transfer as a fraudulent transfer pursuant to 11 U.S.C. § 544 and 12 Pa. C.S. § 5104(a) and (b).

Trial of the adversary proceeding was scheduled to be held on September 17, 2020.² On September 15, 2020, two (2) days before trial, the parties reported that they had settled the matter.

Thereafter, the parties were unable to memorialize the settlement in a written agreement.

On October 13, 2020, the Trustee filed a Motion to Enforce Settlement Agreement ("the Motion") (Doc # 94). The Defendants filed a response to the Motion on October 28, 2020. (Doc # 97).

A hearing on the Motion was held and concluded on November 18, 2020. Neither party presented any witnesses. Instead, the record consists of a series of e-mails that the parties exchanged prior to informing the court of the "settlement."³ At the conclusion of the hearing, I took the matter under advisement.

For the reasons stated below, the Motion will be denied.

II.

The salient communications regarding settlement of this adversary proceeding were between Joseph Quinn ("Quinn"), the Defendants' counsel and Robert J. Birch ("Birch"), the Trustee's counsel. On September 12, 2020, (five (5) days before trial), Quinn sent Birch a letter (via e-mail attachment), containing a settlement proposal. The September 12, 2020 letter stated, in pertinent part:

Bruno Carbone and Melissa Carbone would agree to transfer the deed to Bruno Carbone. If the real property were to be marketed and sold by the Estate of Bruno Carbone, Melissa Carbone would be entitled to $25,000 of the proceeds. The Carbones would continue to live in the property during the sale period and would agree to retain insurance on the property and allow a lock box on the property for realtor use.

(Motion, Ex. A).

On September 15, 2020, Birch and Quinn exchanged several e-mails, none of which include any discussion of substantive settlement terms. One of the e-mails indicated that Birch and Quinn were to discuss the possible settlement in a telephone conversation.

In subsequent e-mails, Birch and Quinn acknowledge that the parties had reached an agreement. As a result, Birch sent an e-mail to the Courtroom Deputy advising her of the settlement. (Motion, Exs. B, C).

Although there is no paper trail on the subject, the parties acknowledge that they agreed to reduce the Defendants' initial proposal of a $25,000.00 payment to Melissa Carbon upon a sale of the Property to $17,500.00. Presumably, this reduction was a product of the September 15, 2020 telephone conversation between Birch and Quinn.

On September 29, 2020, Birch sent Quinn a draft settlement agreement. (Motion, Ex. D). The draft provides for:

• the sale of the Property;

• the Defendants' cooperation in the marketing and sale process;

• the Defendants' payment of expenses (taxes, utilities, homeowner's insurance, and mortgage payments) pending the sale;

• the Defendants to vacate the Property upon reasonable notice of sale and closing of the sale (to be provided by the Trustee), and

• payment of $17,500.00 to Mrs. Carbone "after the Trustee's commission, administrative expenses including legal fees, and the mortgages are paid in full."

(Motion, Ex. C).

On or around October 13, 2020, Quinn advised Birch that there were two (2) problems with the draft. According to Quinn: (1) the draft omitted reference to payment of the Debtor's $23,675.00 exemption in the Property and (2) Mrs. Carbone had not agreed that her $17,500.00 was subordinate to the Trustee's commission and administrative expenses in the event that the sales price was inadequate to pay both in full.

The Trustee responded by filing the Motion.

In the Motion, the Trustee reported that the second issue was resolved. The Trustee conceded that the provision subordinating Mrs. Carbone's $17,500.00 payment to the bankruptcy estate's administrative expenses was not part of the settlement agreement and agreed to remove that provision.

Thus, the sole issue separating the parties is whether the purported settlement provides for payment of the Debtor's exemption claim of $23,675.00 from the sale proceeds of the Property.

III.

In determining whether a settlement agreement was reached in a matter pending in federal court, federal courts apply state law. United States v. Struble, 489 F. App'x 599, 602 (3d Cir. 2012) ; see also Blunt v. Lower Merion School Dist., 767 F.3d 247, 282 n. 50 (3d Cir.2014). In re Cendant Corp. Prides Litig., 233 F.3d 188, 193 (3d Cir.2000).

Under Pennsylvania law, the enforceability of settlement agreements is governed by principles of contract law. Mazzella v. Koken, 559 Pa. 216, 739 A.2d 531, 536 (1999).

As a general rule, a signed writing is not required unless such signing is expressly required by law or by the intent of the parties. Shovel Transfer Storage, Inc. v. Pennsylvania Liquor Control Bd., 559 Pa. 56, 739 A.2d 133, 136 (1999) ; Commerce Bank/Pa. v. First Union Nat. Bank, 911 A.2d 133, 145 (Pa. Super. 2006). Thus, "[a]n oral settlement agreement may be enforceable and legally binding without a writing. ... [T]he fact that they intend to reduce the agreement to writing does not prevent enforcement of the oral agreement."

Pulcinello v. CONRAIL, 784 A.2d 122, 124 (Pa. Super. Ct. 2001) (citations and quotations omitted).

The most basic requirements for the existence of a contract are the manifestation of mutual assent and consideration. Restatement (Second) of Contracts § 17 (1981) ("Restatement");⁴ see also Makoroff v. Dep't of Transp., 938 A.2d 470, 472 (Pa. Commw. Ct. 2007). In the absence of manifested mutual assent, no contract is formed. See Spatz v. Nascone, 283 Pa.Super. 517, 424 A.2d 929, 936 (1981).

The Restatement further instructs:

(1) There is no manifestation of mutual assent to an exchange if the parties attach materially different meanings to their manifestations and

(a) neither party knows or has reason to know the meaning attached by the other; or

(b) each party knows or each party has reason to know the meaning attached by the other.

Restatement § 20; accord Framlau Corp. v. Upper Dublin School Authority Bd., 219 Pa.Super. 369, 281 A.2d 464, 465-66 (1971) (holding that a first party may be bound to a second party's interpretation of their contract where the first party knew that the second party might attach a different meaning to an ambiguous term, yet entered the agreement without clarifying the ambiguity).

As explained below, § 20 of the Restatement applies and controls the outcome here.

IV.

To provide some further context to the parties' dispute, it is helpful to set out some additional background.

In his Amended Schedule A/B, the Debtor listed the Property as having a value of $392,700.00. (Bky. No. 18-13852, Doc. # 14). In Schedule D, the Debtor listed secured claims against the Property totaling $274,807.79. (Id. ). As stated earlier, in Schedule C, the Debtor claimed an exemption of $23,675.00 in the Property.

Thus, in round numbers, if the Trustee accepts the accuracy of the Debtor's valuation, the Property has approximately $118,000 in equity. Of course, before any sale proceeds would be available for payment to owners, professionals and creditors, certain transaction expenses (typically, a brokers' commission and transfer taxes) "come off the top." If we assume sale transaction costs of approximately 10% i.e., about $39,000.00, the potential available proceeds would be approximately $79,000.00.

I am cognizant that the schedules were filed in June 2018, making the Debtor's valuation almost three (3) years old. It is certainly possible, perhaps even likely, that the Property has appreciated considerably since June 2018. And, if the Defendants have been paying the mortgage since then, the liens on the Property likely have been reduced. Thus, the amount available for distribution following sale may well exceed the $118,000 in equity estimated by the Debtor in June 2018.

Absent any transfer avoidance, if the Trustee administered the Property and sold it pursuant to 11 U.S.C. § 363(b), Mrs. Carbone would be entitled to one-half of the proceeds of the sale. See 11 U.S.C. § 363(j).⁵ In addition, the Debtor's exemption of $23,675.00 would be paid ahead of the bankruptcy estate.⁶

The situation changes dramatically if the Transfer is avoided and the Property were then sold.

In the successful avoidance scenario, Mrs. Carbone, no longer a co-owner of the

Property, would not be entitled to any of the sale proceeds. Further, the Trustee contends that the Debtor's exemption would then be vulnerable based on the potential application of 11 U.S.C. § 522(g).⁷ Thus, if the Trustee prevailed in this adversary proceeding and § 522(g) precludes the Debtor from claiming an exemption in the Property, the bankruptcy estate would receive all of the net sale proceeds.

The Debtor disputes the applicability of § 522(g)....