In re Norton

In re KENNETH NORTON, Debtor

Case No. 17-12913-JNF

UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF MASSACHUSETTS

August 17, 2018

Chapter 7

MEMORANDUM

I. INTRODUCTION

The matter before the Court is the Motion for Relief from the Automatic Stay filed 4 Millbrook Road, LLC ("Millbrook"). The issue presented by the Motion is whether Millbrook is entitled to file a civil action to seek, pursuant to Mass. Gen. Laws ch. 239, § 4(c), reimbursement of costs it incurred in engaging a licensed and bonded mover to remove and store personal property of Kenneth Norton (the "Debtor") following his eviction from real property located at 4 Millbrook Road, Nantucket Massachusetts (the "property") that Millbrook purchased at a valid foreclosure sale prior to the commencement of the Debtor's bankruptcy case. In addition to requesting authority to seek reimbursement, Millbrook seeks authority to obtain a personal property attachment and to subsequently levy on any execution it obtains against the personal property which is now held in storage a facility owned by Triple M Movers and Storage, Inc. ("Triple M") located at 1109 Montello Street, Brockton, Massachusetts. Resolution of the issue hinges on whether Millbrook's claim for reimbursement arose prior to the conversion of the Debtor's Chapter 11 case to a case under Chapter 7 in conjunction with its commencement of a summary process action, in which case the claim would be dischargeable, or whether its claim arose post-conversion, in which case the claim would not be subject to discharge and Millbrook would be entitled to relief from the automatic stay. See 11 U.S.C. § 348(d).¹

The Court heard the Motion and the Debtor's Objection on July 10, 2018 and directed the parties to file memoranda addressing the issue of when the claim for reimbursement arose. The material facts necessary to determine the issue are not in dispute and none of the parties in interest requested an evidentiary hearing. The Chapter 7 Trustee does not oppose the Motion.

II. BACKGROUND

The Debtor filed a voluntary Chapter 11 petition on August 5, 2017.² Prior to that date, Millbrook had purchased the property at a foreclosure sale. On August 18, 2017, it filed a Motion for Relief from the Automatic Stay seeking, among other things, authority to obtain legal possession of the property by filing and prosecuting a summary processcomplaint against the Debtor in the Nantucket District Court. On August 23, 2017, this Court overruled the Debtor's objection to the motion and granted Millbrook relief from the automatic stay to commence eviction proceedings against the Debtor as he was a tenant at sufferance. Less than three weeks later, on October 10, 2017, the Debtor filed a motion to convert his Chapter 11 case to a case under Chapter 7 which motion the Court granted on the same day.

Millbrook filed its summary process complaint on September 18, 2017. It obtained a judgment for possession on October 11, 2017, one day after the Debtor's case was converted to Chapter 7.³ Approximately six months later, on April 19, 2018, the state court issued an execution with respect to the judgment for possession. An invoice from Triple M in the sum of $9,255.00 reflects that the contents of the Debtor's former home which he shared with his spouse were removed from the property on April 22, 24, and 25, 2018.

III. POSITIONS OF THE PARTIES

A. Millbrook

Millbrook contends that, prior to the decision made by the Debtor and his spouse not to remove their personal belongings from the property, it had incurred no reimbursement costs and had no claim for such costs. Specifically, it contends that no claim, i.e., no "right to payment whether or not such right is reduced to judgment,liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, secured or unsecured," existed until it incurred costs associated with Triple M's removal of the Debtor's personal property from his former home. See 11 U.S.C. § 101(5)(A).⁴ It adds that no right to payment existed under Mass. Gen. Laws ch. 239, § 4(c) until it incurred moving costs. It rejects any suggestion that the moving costs it incurred were contingent when the summary process complaint was filed pointing to a decision from the Ninth Circuit in which the court stated "a contingent debt is 'one which the debtor will be called upon to pay only upon the occurrence or happening of an extrinsic event which will trigger the liability of the debtor to the alleged creditor.'" Fostvedt v. Dow (In re Fostvedt), 823 F.2d 305, 306 (9th Cir. 1987). It maintains that its "right to reimbursement was not 'triggered' by an 'extrinsic event.' It was created by Norton'sconduct occurring on April 24, 2018—leaving his personal belongings in Millbrook's property."

Citing In re Parks, 281 B.R. 899 (Bankr. E.D. Mich. 2002), Millbrook acknowledges that three approaches have been formulated to determine when a claim arises: the "right to payment" test, the "debtor's conduct" test and a third approach pursuant to which courts examine "whether there was a prepetition relationship between the debtor and the creditor such that a possible claim is within the fair contemplation of the creditor at the time the petition is filed." Id. at 902 (citations omitted). Millbrook argues that the claim for reimbursement did not arise until after conversion under any of these tests.

B. The Debtor

The Debtor argues that the moving and storage costs are directly related to the summary process action and thus constitute a pre-conversion claim. He states: "To put it another way, but for the summary process action, this 'claim' would not have arisen," adding that "[a]nything that results from the summary process action relates back to the filing of the summary process complaint, which indisputably was prior to conversion to chapter 7." The Debtor supports his argument with reference to Mass. Gen. Laws Ch. 239, § 4(c) ("The plaintiff in the summary process action shall pay the costs of removing the property to the place of storage. The plaintiff shall be entitled to reimbursement by the defendant for any costs and fees so advanced."). He adds that "Millbrook is asking this court to permit it to collect 'costs' of the summary process action from Norton,notwithstanding that the summary process action and judgment all transpired before conversion to chapter 7."⁵

IV. APPLICABLE LAW

The determination of when claims arise and whether certain creditors hold claims under 11 U.S.C. § 101(5) has generated considerable controversy in bankruptcy case law. Resolution of when a claim arises and determining whether it is affected by the discharge can be even more difficult when a case is converted from one chapter to another. According to the United States District Court for the District of Massachusetts,

The general rule is that only debts that arose prior to the filing of the bankruptcy petition are eligible for discharge. See 11 U.S.C. § 727(b). Section 727 of the Code authorizes a discharge in a Chapter 7 bankruptcy case. Id. § 727(a). Subsection (b) of that section provides in relevant part that "a discharge under subsection (a) of this section discharges the debtor from all debts that arose before the date of the order for relief under this chapter." Id. § 727(b). For purposes of this general rule, the filing date of the bankruptcy petition and the "date of the order for relief" are synonymous. Id. § 301 (providing that the "commencement of a voluntary case under a chapter of this title constitutes an order for relief under such chapter"); In re Schlichtmann, 375 B.R. 41, 96 (Bankr. D. Mass. 2007). However, "the date of the entry of the order for relief changes when a case is converted from Chapter 13 to Chapter 7." In re Aboraia (Aboraia v. USDA Food & Nutrition Serv.), No. 04-04941-BGC-7, 2012 WL 385635, at *15 (Bankr. N.D. Ala. Feb. 6, 2012). . . . Section 348(b) provides: "Unless the court for cause orders otherwise, in section[ ] . . . 727(b) . . . of this title, 'the order for relief under this chapter' in a chapter to which a case has been converted under section . . . 1307 of this title means the conversion of such case to such chapter." Id. § 348(b). Accordingly, reading §§ 727(b) and 348(b) together, when a case is converted from a Chapter 13 [or a Chapter 11] case to a Chapter 7 case, "the date of the order for relief under this chapter" refers to the date of the conversion of the case to a Chapter 7 case for purposes of determining which debts arose before the date of the order for relief, and thus which debts are prepetition debts entitled to be discharged. Therefore, all debtsthat arose before the conversion (except those listed in § 523) are treated as prepetition debts and thus are dischargeable. SeeIn re Fickling (Fickling v. Flower), 361 F.3d 172, 174 (2d Cir. 2004) (holding in Chapter 11 to Chapter 7 conversion case that because claims for attorneys' fees and expenses were incurred after the filing of the Chapter 11 petition, but pre-conversion, and no exemption applies, such claims were dischargeable under § 727); In re Villanueva, No. 08-20646, 2009 WL 2928496, at * 3 (Bankr. D. Md. June 5, 2009) (explaining that pursuant to §§ 348(b) and 727(b), a Chapter 7 discharge "had the effect of discharging all of the Debtor's debts that arose before . . . the date of conversion of that case from Chapter 13 to Chapter 7").

Vil v. Poteau, No. 11-CV-11622-DJC, 2013 WL 3878741, at *7 (D. Mass. July 26, 2013). In view of the provisions of section 348 as explicated by the United States District Court, this Court must determine whether Millbrook's claim for reimbursement arose before October 10, 2017, the date the Debtor's Chapter 11 case was converted to a case under Chapter 7.

As Millbrook correctly observes, courts have fashioned three tests to determine whether parties hold prepetition claims: "the accrued state law claim test, the conduct test, and the prepetition relationship test." See Epstein v. Official Committee of...