United States District Court, D. Massachusetts
PATRICK J. HANNON, Plaintiff,
CITY OF NEWTON, Defendant. UNITED STATES OF AMERICA and JOSEPH BALDIGA, CHAPTER 7 TRUSTEE OF THE BANKRUPTCY ESTATE OF PATRICK J. HANNON AND ELIZABETH B. HANNON, Intervenors.
MEMORANDUM AND ORDER
DOUGLAS P. WOODLOCK UNITED STATES DISTRICT JUDGE.
of 2010, Patrick Hannon won a state court judgment against
the City of Newton for underpayment in an eminent domain
case. Various of his creditors, however, asserted claims -
arising from liens they held on the underlying property -
over the proceeds of the judgment.
the lien claims were under consideration in this Court,
Hannon petitioned for bankruptcy. Meanwhile, unaware of the
pending bankruptcy, I awarded judgment to a creditor, Rita S.
Manning, who had obtained a judgment against Hannon. On
appeal, the United States Court of Appeals for the First
Circuit reversed and determined that the United States was
entitled to the entirety of the proceeds due to its tax lien.
Hannon v. City of Newton, 744 F.3d 759 (1st Cir.
the case returned to me on remand, the bankruptcy Trustee
pressed the question whether the judgment proceeds should be
distributed directly to the United States as the senior
creditor or to the bankruptcy Trustee to then distribute as
part of his administration of the bankruptcy estate. The
bankruptcy judge in a decision affirmed by the First Circuit
on appeal, In re Hannon, 839 F.3d 63 (1st Cir.
2016), has declined to permit a bankruptcy discharge. The
funds marshalled by the Trustee will be distributed pursuant
to a liquidation under Chapter 7.
early 2007, the City of Newton, Massachusetts sought to take
a parcel of Hannon's land through eminent domain.
Multiple creditors (including the United States and Rita S.
Manning), held liens against this property prior to the
eminent domain proceedings. The United States had a tax lien
for over $7 million dollars, by far the largest of the liens
on the property.
City of Newton authorized $2.3 million for the taking of the
property. However, before it could do so, it needed the
federal government to relinquish its claim on the property
resulting from the tax lien. The United States agreed to
relinquish its claim and filed a Certificate of Discharge,
discharging its lien over the property. The United States
ultimately received $57, 214.55, the amount remaining from
the eminent domain money after payment to the mortgagee of
the property, a creditor with a more senior claim to the
November 10, 2008, Hannon commenced proceedings against the
City of Newton in Massachusetts state court claiming that the
amount paid by the City was not just compensation for the
value of the land. The Commonwealth of Massachusetts, a tax
creditor, and Rita S. Manning, a junior creditor, intervened
in the suit asserting priority to receive any judgment. The
IRS did not intervene at that time, but issued a Notice of
Levy to the City of Newton attaching Hannon's property.
On July 6, 2010, a jury found that Hannon had been
undercompensated, and awarded him an additional $420, 000.
Instead of paying Hannon directly, the City of Newton
deposited the funds in a Massachusetts Superior Court
account, pending determination of what party or parties had a
claim to the funds. The Superior Court then undertook to
determine which parties should receive a distribution.
December 2010, the Superior Court ordered that Hannon's
attorneys receive $151, 761.74 of the judgment, leaving $299,
483.99 of the proceeds to be distributed to Hannon's
various creditors. In January 2011, the United States removed
the action to this Court, and Massachusetts disclaimed any
interest in the judgment proceeds. The United States and
Manning both moved for summary judgment on the question of
their relative lien priorities. The parties agreed that the
government's lien was senior to Manning's. However,
there remained the question whether the government's
previously-executed Certificate of Discharge prevented it
from recovering any further proceeds related to the property.
October 24, 2011, I entered judgment in favor of Manning and
ordered that the funds from the trial be distributed to
Manning, with any remainder going to the United States as an
unsecured creditor. Hannon v. City of Newton, 820
F.Supp.2d 254 (D. Mass. 2011), rev'd, 744 F.3d
759 (1st Cir. 2014). After my original ruling, the United
States timely filed a motion for reconsideration.
Hannon filed a petition for Chapter 11 bankruptcy on May 3,
2012. In his filing, he listed the judgment proceeds as a
“possible interest” on his Schedule B of personal
property assets. Not having been advised of the pending
bankruptcy proceeding and the automatic stay which attended
it, I denied the government's motion for reconsideration
on September 24, 2012. Hannon v. City of Newton, No.
11-10021-DPW, 2012 WL 4390527 (D. Mass. Sept. 24, 2012).
my denial of this motion, the United States successfully
sought relief from the automatic stay in the Bankruptcy Court
in order to permit it to appeal my judgment in the
interpleader action and to collect the appropriate portion of
the interpleader fund. On October 30, 2012, the Bankruptcy
Court granted the motion by bare endorsement without adopting
the form of order submitted by the United States.
United States appealed my ruling on the interpleader action
to the First Circuit in November 2012. Thereafter, in
December, Joseph Baldiga was appointed Chapter 11 Trustee in
Hannon's bankruptcy. He moved to convert the bankruptcy
from a Chapter 11 reorganization bankruptcy to a Chapter 7
liquidation bankruptcy. The Bankruptcy Court approved the
conversion in January 2013. In May 2013, while the
interpleader appeal was pending before the First Circuit, the
Trustee moved to intervene before me in this case, but I took
no action on the motion during the pendency of the appeal. In
February 2014, the First Circuit reversed my determination
regarding creditor priorities and remanded the matter to this
Court with instructions to enter summary judgment in favor of
the United States. Hannon v. City of Newton, 744
F.3d 759 (1st Cir. 2014).
United States thereupon moved for entry of final judgment and
distribution of funds, which the Trustee opposed as a
potential intervenor. I granted both the Trustee's motion
to intervene on remand and the United States' motion for
entry of final judgment and distribution of funds. The
allowance of these motions was designed to frame the issue
for appellate review by permitting the United States to move
for reconsideration of the Trustee's intervention, and
permitting the Trustee to file a motion to stay entry of the
Trustee and the United States did exactly that. The Trustee
filed a motion to stay entry of final judgment in favor of
the United States in this court and to direct distribution of
the proceeds to the Trustee for distribution through the
Bankruptcy Court. The United States filed a motion for
reconsideration of my decision to allow the Trustee to
intervene. I denied the United States' motion for
reconsideration orally, and took the Trustee's motion for
distribution under advisement. I have since received further
submissions from the parties. This Memorandum and Order will
address the final disposition of the funds in this
United States advances several arguments as to why the final
distribution should be distributed directly to it without
passing through the bankruptcy estate.
first is that my October 24, 2011 grant of summary judgment
to Ms. Manning was a final order for purposes of bankruptcy
transfer avoidance. The thrust of this argument is that the
finality of the order should foreclose any other potential
claim to the funds, including any claim by the Hannon
second argument is that, by not participating in the dispute
over the interpleader funds between Manning and the United
States, Hannon (and, now, his bankruptcy estate) implicitly
abandoned any claim he may have had to the interpleader fund.
third argument concerns an issue that was not originally
briefed, but for which I requested additional briefing that
is now before me. This is whether in light of the Notice of
Levy sent by the IRS to the City of Newton on May 19, 2010,
the bankruptcy Trustee in the instant case is barred by the
nine month statute of limitations from bringing a third-party
wrongful levy challenge against the IRS.
the United States argues that the conversion of Hannon's
bankruptcy from a Chapter 11 ...