In re Norton

In re KENNETH NORTON, Debtor

Case No. 17-12913-JNF

UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF MASSACHUSETTS

October 16, 2018

Chapter 7

MEMORANDUM

I. INTRODUCTION

The matter before the Court is the Motion for Reconsideration of Order Sustaining Trustee's Objection to Homestead Exemption filed by Kenneth Norton (the "Debtor"). The Court, at a hearing conducted on September 7, 2018, sustained the Trustee's Objection to Homestead Exemption, stating the following on the record:

Exemptions are determined as of the petition date. The debtor is judicially estopped from claiming that this Vermont property was exempt as his homestead as of the petition date. Because in numerous and various pleadings filed in this case, including schedules, statements, omissions in schedules and statements, during the litigation over relief from stay to evict him from Nantucket he expressly and unequivocally stated that Nantucket was his home as of the petition date and thereafter.

. . . Massachusetts law is clear that the exemption must be a home and the vacant land in Vermont is not his home. [The Debtor] said Nantucket was his home. He is judicially estopped.

So for all of the reasons the trustee stated, the debtor is not entitled to a Massachusetts homestead in vacant land in Vermont, which he did not occupy as his principal residence as of the date of the filing of the petition.

He did not intend to occupy that property as his principal residence. He said otherwise numerous and various times. He cannot have more than one principal residence.

Through his Motion, the Debtor specifically seeks reconsideration of the order sustaining the Chapter 7 Trustee's objection to his claim of a homestead exemption in 37.6 acres of undeveloped land located on Marsh Hill Road, Andover, Vermont (the "Vermont Land"). The order was a predicate of the Trustee's motion to sell that property, which motion the Court also granted on September 7, 2018. The Debtor, citing Ruiz Rivera v. Pfizer Pharmaceuticals, LLC, 521 F.3d 76, 81- 82 (1st Cir. 2008) ("A court appropriately may grant a motion for reconsideration 'where the movant shows a manifest error of law or newly discovered evidence'"), and In re Wedgestone Financial, 152 B.R. 786 (Bankr. D. Mass. 1993) (same), argues that "the order resulted from an error of law." Because the Debtor does not argue that this Court erred in its factual findings or that he possesses newly discovered evidence and because the Debtor did not request an evidentiary hearing, the Court shall accept the Trustee's factual representations set forth in his Objection to Homestead Exemption for the purpose of determining the Motion for Reconsideration.¹

II. UNCONTESTED FACTS

In 2002, Kenneth Norton (the "Debtor") and his wife, Jeanne B. Norton, purchased the Vermont Land. The Vermont Land is assessed by the Town of Andover as "non residential" land with a value of $93,600.00.

On August 5, 2017, the Debtor commenced a Chapter 11 bankruptcy case. At that time, the Debtor and his wife resided at 4 Millbrook Road, Nantucket, Massachusetts (the "Nantucket Home"), using it as their primary residence. Prior to August 5, 2017, the Nantucket Home had been sold to 4 Millbrook Road, LLC ("Millbrook") following a foreclosure sale, but the Debtor refused to vacate the property, challenging the validity of the sale.

On September 4, 2017, the Debtor filed his schedules of assets and liabilities. On Schedule A/B: Property, he listed his ownership interest in the Nantucket Home as "tenant at suffereance [sic] subject to wrongful foreclosure recovery [sic]." He did not disclose any interest in the Vermont Land as an asset of his bankruptcy estate.

On October 10, 2017, the Court granted the Debtor's motion to convert his Chapter 11 case to a case under Chapter 7. Warren E. Agin was duly appointed as the Chapter 7 trustee of the Debtor's estate, and continues to serve as trustee.

On November 4, 2017, the Debtor filed amended Schedules A/B and C, erroneously listing the address of the Vermont Land on Schedule A/B as 4 Millbrook Road, Nantucket, Massachusetts. On Schedule C, he claimed an exemption in "Primary residence (mortgage foreclosed pre-petition; buyer is collecting rent from tenan)) [sic]" pursuant to 11 U.S.C. § 522(d)(1) and in the Vermont Land pursuant to 11 U.S.C. §522(d)(5). During the bankruptcy case, the Debtor and his wife continued to reside in the Nantucket Home until they were forced to vacate through court processes in April 2018. From August 5, 2017, through the present date, the Debtor has aggressively acted to recover ownership of the Nantucket Home on the ground that the real estate is his home.²

On July 6, 2018, the Debtor filed a Motion for Leave to Amend Schedule of Exemptions together with an amended Schedule C, stating "given the change in circumstances since the commencement of the case, including relief from stay being granted with respect to his home on Nantucket Island and conversion of the case to chapter 7, he believes that this amendment more appropriately protects his property interests." The Debtor, citing Law v. Siegel, 571 U.S. 415, 427-28 (2014) ("whatever other sanctions a bankruptcy court may impose on a dishonest debtor, it may not contravene express provisions of the Bankruptcy Code by ordering that the debtor's exempt property be used to pay debts and expenses for which that property is not liable under the Code."), and In re Hoover, 574 BR 413, 421 (Bankr. D. Mass. 2017) (holding that court lacked authority to deny a debtor's motion to amend his asset and exemption schedules based on debtor's alleged bad faith in fraudulently undervaluing cause of action at the commencement of his case), added: "Amendment of exemptions cannot be denied for any reason not stated in the bankruptcy code or other applicable law." On amended Schedule C, the Debtor has claimed up to $125,000 in value in the Vermont Land as exempt pursuant to Mass. Gen. Laws ch. 235, § 34(14) and ch. 188, § 4. The Court allowed the motion to amend on July 16, 2018. The Trustee timely objected to the claimed exemption in the Vermont Land. See Fed. R. Bankr. P. 4003(b)(1). In his Objection, the Trustee set forth the following reasons to disallow the claimed exemption in the Vermont Land:

a. A Massachusetts homestead exemption can only be claimed in a "home," as defined by the statute. Raw land, by itself, assessed as non-residentialproperty, does not qualify as a "home" under the statute. It also cannot qualify as a "primary residence" for the statute's purposes.

b. To claim a Massachusetts homestead in real estate the Debtor must, on the petition date, occupy or intend to occupy the property as a primary residence. The Debtor had no such intent.

c. A Massachusetts resident cannot claim a homestead under Massachusetts law on raw land located in Vermont.

d. The Debtor's failure to claim a homestead in a timely manner has caused the Trustee to incur additional costs in administering this case.³

The Debtor filed a Response to the Trustee's Objection, admitting that he continued to reside on Nantucket Island and lacked a permanent address. The Debtor also stated in his Response the following:

The debtor has stated to counsel that some improvements have been made to the . . . [Vermont Land] . . ., although not sufficient for residing there, but given the events in Nantucket, he believes that he has no choice but to move there and build a home. Thus he would state that he intends to live there within a reasonable time since he apparently can no longer live in Nantucket.

The Debtor added:

Having been evicted, however, it might reasonably be said that he is tilting at a windmill. Consequently, he has reluctantly made the decision that he will have to find a new home, probably sooner rather than later, and since he owns land in Vermont, that is probably his best alternative. He has the right to amend his exemption claim at any time for any reason, seeLaw v. Siegel, 134 S.Ct. 1188 (2014). He should not be punished for his belated recognition of "reality".

III. THE MOTION FOR RECONSIDERATION

The Debtor, in seeking reconsideration of the Court's ruling sustaining the Trustee's Objection, maintains the Court erred by applying principles of judicial estoppel and that he could find no Massachusetts cases where a property owner was denied a homestead exemption on judicial estoppel grounds. He maintains that "[h]e asserted his original homestead exemption in good faith, hoping that he would be able to recover title to his property through the chapter 11 process, and that has not been seriously challenged." He added that "[h]e has a good faith reason for changing his position - specifically, the court's allowance of the new owner's motion for relief from the automatic stay and the subsequent eviction from the property, leaving him and his family essentially homeless for a time."

IV. DISCUSSION

A. Applicable Law

Rule 4003(c) of the Federal Rules of Bankruptcy Procedure provides that "[i]n any hearing under this rule, the objecting party has the burden of proving that the exemptions are not properly claimed." According to the court in In re Roberts, "'If the objecting party can produce evidence to rebut the exemption, the burden of production then shifts to the debtor to come forward with unequivocal evidence to demonstrate that the exemption is proper . . . the burden of persuasion, however, always remains with the objecting party.'" In re Roberts, 280 B.R. 540, 544-45 (Bankr. D. Mass. 2001) (citing Carter v. Anderson (In re Carter), 182 F.3d 1027, 1029 (9th Cir. 1999)); see also In re Vaghini, 549 B.R. 546, 548-49 (Bankr. D. Mass. 2016). The Court in its September 7, 2018 ruling determined that theTrustee had sustained his Objection and that the Debtor's reliance upon the automatic homestead exemption set forth at Mass. Gen. Laws ch. 188, § 4 was unavailing,⁴ a determination supported, but not dictated, by application of judicial estoppel.

With respect to the equitable...