Christakis v. Jeanne D'Arc Credit Union , 471 Mass. 365 ( 2015 )

NOTICE: All slip opinions and orders are subject to formal
revision and are superseded by the advance sheets and bound
volumes of the Official Reports. If you find a typographical
error or other formal error, please notify the Reporter of
Decisions, Supreme Judicial Court, John Adams Courthouse, 1
Pemberton Square, Suite 2500, Boston, MA 02108-1750; (617) 557-
1030; SJCReporter@sjc.state.ma.us
SJC-11758
PAGONA CHRISTAKIS vs. JEANNE D'ARC CREDIT UNION & others.1
Suffolk. January 6, 2015. - May 6, 2015.
Present: Gants, C.J., Spina, Cordy, Botsford, Duffly, Lenk,
& Hines, JJ.
Lien. Bankruptcy, Discharge. Judgment, Default. Practice,
Civil, Execution, Default.
Civil action commenced in the Land Court Department on
October 17, 2013.
The case was heard by Keith C. Long, J., on motions for
summary judgment, and a motion for entry of judgment by default
was also heard by him.
The Supreme Judicial Court on its own initiative
transferred the case from the Appeals Court.
David G. Baker for the plaintiff.
Sandra M. Boulay for Jeanne D'Arc Credit Union.
John Pagliaro & Martin J. Newhouse, for New England Legal
Foundation, amicus curiae, submitted a brief.
1
Harvest Credit Management VII, LLC, and Citibank (South
Dakota), N.A.
2
GANTS, C.J. The issue on appeal is whether judicial liens
on real property remain valid after the owner of the property
receives a discharge under Chapter 7 of the Bankruptcy Code. We
conclude that the judicial liens survive the discharge where, as
here, the Bankruptcy Court judge did not avoid them.2
Background. The plaintiff, Pagona Christakis, filed a
complaint in the Land Court to remove judicial liens that had
attached to real property she owned in Billerica after three
creditors obtained final judgments against her. Only one
creditor defendant, Jeanne D'Arc Credit Union (credit union),
filed an answer. The other two creditor defendants, Harvest
Credit Management VII, LLC (Harvest), and Citibank (South
Dakota), N.A. (Citibank), failed to respond. The plaintiff
moved for entry of judgment by default against Harvest and
Citibank and for summary judgment against the credit union; the
latter cross-moved for summary judgment. In denying the
plaintiff's motions and allowing the credit union's motion, the
judge concluded that "[t]he defendants' liens remain, subject to
potential review by the [B]ankruptcy [C]ourt to determine if
they impair exempt property." The judge then entered judgment
in favor of all the defendants, including the defaulting
2
We acknowledge the amicus brief submitted by the New
England Legal Foundation.
3
defendants. The plaintiff appealed, and we transferred the case
to this court on our own motion.
We summarize the relevant facts in the summary judgment
record, viewed in the light most favorable to the plaintiff.
The defendants are creditors of the plaintiff, apparently for
unpaid credit card bills.3 Each defendant sued the plaintiff to
collect the unpaid debt and obtained a final judgment, based on
which a writ of execution was issued, and a levy of execution
was made on the plaintiff's real property.4 On July 26, 2010,
3
Although not disputed, the exact nature of the underlying
debt is unclear from the record. The motion judge described it
as "apparently for unpaid credit card bills," and the plaintiff
referred to it as "what appear[s] to be credit card debts."
4
"An execution is a process issued from a court in which a
judgment has been rendered, in a civil action, for the purpose
of carrying the judgment into effect." Miller v. London, 294
Mass. 300, 304 (1936). See Mass. R. Civ. P. 69, 365 Mass. 836
(1974) ("Process to enforce a judgment for the payment of money
shall be a writ of execution, unless the court directs
otherwise").
"The execution creates a lien which is then perfected by a
levy of execution." Lyons v. Bauman, 31 Mass. App. Ct. 214, 216
(1991). See LaChance v. Peerless Ins. Co., 36 Mass. App. Ct.
451, 453 (1994) ("A levy is the taking or seizure of property by
an officer pursuant to a writ of execution"). To levy an
execution on real property, an officer need not physically enter
the land. See McGrath v. Worcester County Nat'l Bank, 3 Mass.
App. Ct. 599, 603 (1975) ("an overt act by the officer falling
short of an entry upon the land has been held sufficient to mark
the commencement of a levy").
Both the execution and the memorandum noting the levy
should be recorded. See G. L. c. 236, § 4 ("the officer shall
forthwith deposit in the registry of deeds . . . a copy of the
execution with a memorandum thereon that the execution is in his
4
the plaintiff's bankruptcy petition was filed pursuant to
Chapter 13 of the Bankruptcy Code and was subsequently converted
into a Chapter 7 case on April 28, 2011.5 The plaintiff received
a discharge in bankruptcy on August 19, 2011. See 11 U.S.C.
§ 727(b) (2012) ("a discharge . . . discharges the debtor from
all debts that arose before the date of the order for relief
under [Chapter 7] . . ."). The plaintiff did not seek or obtain
a ruling from the Bankruptcy Court avoiding any of the
defendants' liens. See 11 U.S.C. § 522(f)(1) (2012) (debtor may
avoid judicial lien on debtor's interest in property to extent
that lien "impairs an exemption").
Discussion. Under Federal law, a discharge in bankruptcy
"voids any judgment at any time obtained, to the extent that
such judgment is a determination of the personal liability of
the debtor with respect to any debt discharged under [11 U.S.C.
§ 727]" (emphasis added). 11 U.S.C. § 524(a)(1) (2012). See
hands for the purpose of taking the land of the defendant").
Here, each of the defendants recorded both the execution and the
memorandum in the registry of deeds and then suspended the levy;
no sheriff's sale of the property was attempted.
5
Each of the liens was perfected more than ninety days
before the filing of the bankruptcy petition. See 11 U.S.C.
§ 547(b) (2012) (trustee may avoid any transfer of interest of
debtor made "on or within [ninety] days before the date of the
filing of the petition"). Jeanne D'Arc Credit Union (credit
union) recorded a writ of attachment on August 28, 2008, and
subsequently obtained an execution and recorded it on June 9,
2009. Citibank (South Dakota), N.A., recorded an execution on
June 2, 2009. Harvest Credit Management VII, LLC, registered an
execution on December 21, 2009.
5
id. at § 524(a)(2) (discharge "operates as an injunction"
against any act to collect debt "as a personal liability of the
debtor"). The debt itself is not extinguished by the discharge;
it remains in existence but cannot be enforced personally
against the debtor. See One to One Interactive, LLC v.
Landrith, 76 Mass. App. Ct. 142, 149 (2010). Essentially, "a
bankruptcy discharge extinguishes only one mode of enforcing a
claim -- namely, an action against the debtor in personam --
while leaving intact another -- namely, an action against the
debtor in rem." Johnson v. Home State Bank, 501 U.S. 78, 84
(1991).6 As a matter of Federal law, an unavoided, otherwise
valid lien perfected prior to the bankruptcy filing "survives or
passes through the bankruptcy." Id. at 83. See In re Garran,
338 F.3d 1, 5 (1st Cir. 2003) ("a judicial lien attached to
property is a liability in rem, [and] it is not routinely
discharged at the conclusion of the bankruptcy case"). This
distinction between in personam and in rem actions "comports
with the purposes of the bankruptcy process by striking a
balance between the need for debtors to obtain a reprieve from
6
We use the term "in rem" not in the strict sense that "it
is directed against the property itself" but in the broader
sense that encompasses "suits to determine the validity of
mortgages or other encumbrances upon land, or to enforce liens,
or to quiet the title to land," which "involve the rights of all
persons in so far as they assert any interests in the property
which is the subject matter of the litigation." Gulda v. Second
Nat'l Bank, 323 Mass. 100, 104 (1948).
6
their debts, while simultaneously protecting creditors' secured
property rights." United Presidential Life Ins. Co. v. Barker,
31 B.R. 145, 147 (N.D. Tex. 1983). Thus, the lien may still be
enforced, but because of the discharge of personal liability,
the enforcement of the lien "is an action in rem with no
recourse available against the debtor for any deficiency."
W. L. Norton, Bankruptcy Law and Practice § 58:4, at 58-17 (3d.
ed. 2014).
Federal law does not overlook the burden that judicial
liens can place on a bankrupt debtor. See Farrey v. Sanderfoot,
500 U.S. 291, 297 (1991) ("Congress enacted [11 U.S.C. § 522(f)]
with the broad purpose of protecting the debtor's exempt
property"); In re Garran, 338 F.3d at 5 ("because judicial liens
may interfere with the 'fresh start' the Bankruptcy Code seeks
to give debtors, such liens may be avoidable under a separate
provision of the Bankruptcy Code, § 522[f]"). Under 11 U.S.C.
§ 522(f)(1), a Bankruptcy Court judge may "avoid the fixing of a
lien," including a judicial lien, "on an interest of the debtor
in property to the extent that such lien impairs an exemption to
which the debtor would have been entitled." See id. at
§ 522(f)(2) (lien deemed to impair exemption to extent that sum
of lien, all other liens on property, and exemption amount
"exceeds the value that the debtor's interest in the property
would have in the absence of any liens"). For instance, a
7
debtor may be able to avoid a judicial lien on a debtor's
primary residence to the extent that it impairs the homestead
exemption. See, e.g., In re Mariano, 311 B.R. 335, 340-341
(Bankr. D. Mass. 2004).
The plaintiff concedes that the defendants' liens remain
valid under Federal law despite the discharge, but contends that
they are invalid under Massachusetts law. We agree with the
plaintiff that "[t]he existence and nature of the lien that
survives is determined by State law." First Colonial Bank for
Sav. v. Bergeron, 38 Mass. App. Ct. 136, 137 (1995). See Cohen
v. Wasserman, 238 F.2d 683, 686 (1st Cir. 1956) (validity of
lien after attached property is taken by eminent domain "depends
wholly upon the local law"). But we do not agree that
Massachusetts law should differ from Federal law in this regard.
Massachusetts case law has long provided that liens
perfected well before the filing of a bankruptcy petition remain
valid after a discharge. In Casavant v. Boreka, 298 Mass. 528,
529 (1937), we stated that "a valid lien securing [a] debt may
be enforced," notwithstanding a discharge, provided the lien had
attached more than the period prescribed by statute before the
filing of the bankruptcy petition.7
7
Under § 67(f) of the Bankruptcy Act of 1898, which was at
issue in Casavant v. Boreka, 298 Mass. 528, 529 (1937), a lien
of an attachment was dissolved if the discharged defendant filed
8
Our early cases also addressed whether a creditor holding
an attachment on the debtor's property may obtain a special
judgment to levy an execution after a discharge. In Davenport
v. Tilton, 10 Met. 320, 320, 326 (1845), the debtor obtained a
discharge, but creditors already held attachments on mesne
process, which constituted liens on the debtor's property.
Because the Bankruptcy Act of 1841 specifically provided for the
survival of a lien after discharge, id. at 321, the main issue
was whether the discharge operated "as to bar every form of
judgment, and [to] deprive the attaching creditor of the power
of obtaining any execution." Id. at 328. We held that, despite
the discharge, the creditors were entitled to a special judgment
to enable them to levy upon the attached property. Id. at 331.
See Bosworth v. Pomeroy, 112 Mass. 293, 294-295 (1873) (after
debtor received discharge, where creditor had valid attachment
of property, creditor entitled to special judgment, "to be
enforced against the property attached, and not against the
person or other property of the defendant"). "The object of
this [special judgment] [was] to enable the plaintiff to avail
himself of an existing lien saved to him by the bankrupt law,
and which cannot be enforced in any other way." Id. at 295.
Our treatment of special judgments demonstrates that, under
the bankruptcy petition "within four months after the
attachment."
9
State law, we distinguish between in personam and in rem actions
after a discharge, and permit the latter but not the former.8
Other jurisdictions have also concluded that a valid lien
remains enforceable after discharge.9 Some States, by statute,
8
By statute, Massachusetts also enables a plaintiff to seek
a special judgment enforceable only against the discharged
debtor's property for the amount of the debt. G. L. c. 235,
§ 24, states:
"If a plaintiff would be entitled to a judgment or a
decree, except for the bankruptcy or insolvency of the
debtor or his discharge therein, and if, more than four
months prior to the commencement of proceedings in
bankruptcy, . . . any property . . . of a debtor has been
attached, . . . the court may at any time upon motion enter
a special judgment or decree for the plaintiff, for the
amount of his debt . . . to be enforced in the first
instance only against the property, estate, interest or
money, so attached or brought within the control of a court
of equity."
Once the bankruptcy petition is filed, any action to obtain a
special judgment is stayed automatically under § 362 of the
Bankruptcy Code. See 11 U.S.C. § 362(a) (2012); Irving Levitt
Co. v. Sudbury Mgt. Assocs., Inc., 19 Mass. App. Ct. 12, 15-17
(1984).
9
See, e.g., Guttchen v. Gabriel, 49 P.3d 223, 225-226
(Alaska 2002) (discharge did not extinguish lien); Stewart v.
Underwood, 146 Ariz. 145, 148-149 (Ct. App. 1985) (discharge did
not extinguish debt; lien valid under State law); Rino Gnesi Co.
v. Sbriglio, 98 Conn. App. 1, 12 (2006) (plaintiff could pursue
"its claim to perfect the attachment lien" after defendants'
discharge); Everidge v. American Sec. Corp., 464 N.E.2d 374, 376
(Ind. App. 1984) (unavoided judgment lien on real estate
survives discharge); Socony Mobil Oil Co. v. Burdette, 309 So.
2d 655, 656 (La. 1975) ("It is well settled that a judicial
mortgage . . . retains its viability in rem upon the incumbered
property left to the bankrupt or his assignee"); Carman v.
European Am. Bank & Trust Co., 78 N.Y.2d 1066, 1067 (1991)
("liens and other similar secured interests ordinarily survive
bankruptcy" and under New York statutory law, debtor may have
10
enable a discharged debtor to seek a State court docket entry
recognizing a discharge of personal liability, but those
statutes have been interpreted to preserve the validity of liens
obtained prior to the bankruptcy filing. See Albritton v.
General Portland Cement Co., 344 So. 2d 574, 576 (Fla. 1977)
(Florida statute allows debtor to clarify on record that
discharged judgment no longer constitutes personal liability on
debtor but "does not affect a lien which arose from the judgment
prior to bankruptcy"); Ducker v. Standard Supply Co., 280 S.C.
157, 15 (1984) (discharged debtor entitled to docket entry
discharging judgment as to personal liability but not as to lien
upon real property).
In comparison, Wisconsin law provides that upon a debtor's
application to the court, "the only thing required for
satisfaction of a judgment debt and cessation of an associated
judgment lien is that the underlying judgment has been
discharged in bankruptcy." Megal Dev. Corp. v. Shadof, 286 Wis.
2d 105, 133 (2005). See In re Spore, 105 B.R. 476, 485 (Bankr.
W.D. Wis. 1989) (Wisconsin law "provide[s] the legal basis and
the legal means for debtors discharged in bankruptcy to void
liens surviving bankruptcy"). But this mechanism was created by
statute, not through interpretation of Wisconsin common law.
"qualified discharge" marked on docket to show that
"notwithstanding the debtor-owner's discharge in bankruptcy, the
property may, nonetheless, still be burdened by liens").
11
See Wis. Stat. Ann. § 806.19(4) (Thompson Reuters 2013) ("Any
person who has secured a discharge of a judgment debt in
bankruptcy . . . may submit an application for an order of
satisfaction of the judgment" and "[u]pon satisfaction, a
judgment shall cease to be a lien on any real property that the
person discharged in bankruptcy owns or later acquires"). There
is no similar statutory provision in Massachusetts.
We are not persuaded that we should alter the long-standing
balance of interests between debtors and creditors, reflected in
Federal law and our common law, by extinguishing both actions in
personam and actions in rem against the discharged debtor. The
plaintiff contends that "a court must vacate a void judgment"
pursuant to Mass. R. Civ. P. 60, 365 Mass. 828 (1974), and where
a judgment is vacated, the liens resting on that judgment must
be vacated as well. See Field v. Massachusetts Gen. Hosp., 393
Mass. 117, 118 (1984). But a discharge merely voids a judgment
"to the extent that such judgment is a determination of the
personal liability of the debtor." 11 U.S.C. § 524(a)(1).
Under rule 60, "[a] judgment is void if the court from which it
issues lacked jurisdiction over the parties, lacked jurisdiction
over the subject matter, or failed to provide due process of
law." Harris v. Sannella, 400 Mass. 392, 395 (1987). See
Lubben v. Selective Serv. Sys. Local Bd. No. 27, 453 F.2d 645,
649 (1st Cir. 1972) ("A void judgment is one which, from its
12
inception, was a complete nullity and without legal effect"). A
discharge does not indicate that a judgment was a nullity from
the start, nor does a discharge arise from a lack of
jurisdiction or a failure to provide due process. The debt
itself is not extinguished and would not be void as to personal
liability but for the bankruptcy filing. Therefore, where a
discharge only voids a judgment as to actions in personam, the
liens resting on that judgment need not be invalidated, because
the judgment is not void as to actions in rem. Consequently,
the judge did not err in granting summary judgment to the credit
union.10
10
We also note the credit union's argument that even if a
mortgage or a consensual lien survives a discharge under State
law, see Pearson v. Mulloney, 289 Mass. 508, 515 (1935), a
judicial lien should not receive the same treatment. Federal
law distinguishes between consensual and nonconsensual liens by
enabling the debtor to avoid certain judicial liens in
bankruptcy. See In re Smith, 401 B.R. 674, 687 (Bankr. E.D. Pa.
2009) (Congress has demonstrated belief that consensual
lienholders "are sufficiently worthy of protection that they
should be provided with a shortcut, a head start . . . to
collect their claims"); Cross, The Application of Section 522(f)
of the Bankruptcy Code in Cases Involving Multiple Liens, 6
Bankr. Dev. J. 309, 338-339 (1989) (judicial liens avoidable
because they provide "back door" means for creditors to reach
exempt assets and they impair debtor's "fresh start"). Yet,
there is no similar distinction between unavoided judicial liens
and consensual liens when determining whether a lien survives a
Chapter 7 discharge. See Farrey v. Sanderfoot, 500 U.S. 291,
297 (1991) ("Ordinarily, liens and other secured interests
survive bankruptcy"). See also In re Swiatek, 231 B.R. 26, 29
(Bankr. D. Del. 1999) ("The in rem aspect of a judgment is
equally viable in the context of a nonconsensual lien as in that
of a consensual one"). In the absence of any State law to the
contrary, we see no reason to draw such a distinction.
13
The judge also entered judgment for Citibank and Harvest,
even though they were in default. We consider now whether the
defaulting defendants were also entitled to judgment. The entry
of default means that the "well-pleaded facts" of the complaint
are accepted as true. Nancy P. v. D'Amato, 401 Mass. 516, 519
(1988). It does not mean that the party in default is deemed to
have admitted the plaintiff's conclusions of law. See Jones v.
Boykan, 464 Mass. 285, 295 (2013), citing Productora e
Importadora de Papel, S.A. de C.V. v. Fleming, 376 Mass. 826,
834-835 (1978) (Productora). In order for a judge to enter a
judgment by default, the factual allegations in the complaint
must be sufficient to state a claim for relief. See Productora,
supra (after default, plaintiff's factual allegations must still
"constitute a legitimate cause of action" in order for judgment
to enter). If the factual allegations, accepted as true, would
not permit a finding of liability, then a defaulting defendant
is entitled to dismissal of the complaint despite its default.
See Nancy P., supra at 519-520 (where defendant defaulted, judge
appropriately dismissed plaintiff's claim of negligent
infliction of emotional distress, because facts as alleged did
not state "claim for relief"). Here, even if we accept as true
the facts alleged in the complaint, the defaulting defendants'
liens survive the discharge as a matter of law. We therefore
14
conclude that Citibank and Harvest Credit were as entitled to
judgment as the credit union.
Conclusion. The defendants' liens survived the bankruptcy
discharge as a matter of Federal and State law. Therefore, we
affirm the grant of summary judgment in favor of the credit
union and affirm the denial of the plaintiff's motions for
summary judgment and for entry of judgment by default. We
affirm as well the entry of judgment on behalf of all the
defendants.
So ordered.