Wells Fargo Home Mortgage, Inc. v. Charles

Not for Publication in West's Federal Reporter
Citation Limited Pursuant to 1st Cir. Loc. R. 32.3
United States Court of Appeals
For the First Circuit
No. 03-1862 IN RE PHILLIPPE CHARLES,
Debtor.
WELLS FARGO HOME MORTGAGE, INC.,
Plaintiff, Appellant,
v.
PHILLIPPE CHARLES; DOREEN B. SOLOMON,
Defendants, Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Edward F. Harrington, Senior U.S. District Judge]
Before
Torruella and Lipez, Circuit Judges,
and Lisi*, District Judge.
Lawson Williams with whom Shapiro & Kreisman was on brief for
appellant.
Richard S. Hackel for appellee.
Doreen Solomon, Chapter 13 Trustee.
March 15, 2004
*Of the District of Rhode Island, sitting by designation.
LISI, District Judge. Wells Fargo Home Mortgage, Inc.
(“Wells Fargo”), appeals from a district court order denying an
appeal from a determination of the United States Bankruptcy Court
for the District of Massachusetts. The bankruptcy court denied two
motions filed by appellant: (1) a motion to approve a stipulation
between Wells Fargo and the debtor, Phillippe Charles (“Charles”);
and, (2) an “assented to” motion to enjoin the debtor from
encumbering certain real property located at 33 Wellington Hill
Street, Mattapan, Massachusetts, and to vacate a previously entered
discharge order as it pertained to Wells Fargo’s interest in the
Mattapan realty. We affirm.
I.
In April 1996, Charles filed a voluntary Chapter 13
petition.1 An order confirming the debtor’s Chapter 13 plan was
entered by the bankruptcy court on July 31, 1997. Under the
confirmed plan, Charles was to make monthly payments to the Chapter
13 trustee. A portion of each payment was to be applied toward the
secured claim held by Lehman Capital Corporation (“Lehman”), Wells
Fargo’s predecessor in interest. Lehman’s claim was secured by a
mortgage on the Mattapan realty. Also, the debtor was to make a
final “balloon” payment to Lehman. The order provided in pertinent
part:
1
See 11 U.S.C. §§ 1301-1330.
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d) Debtor shall make payments totaling
$97,350 to the Trustee, which shall constitute
payments toward the secured claim of Lehman
Capital Corporation. Debtor shall make a
final “balloon payment” in the exact amount of
$64,565.40 (or such other amount as may be
hereafter stipulated to between the parties
and approved by this Court). This payment may
be made directly by debtor to creditor and is
not required to be paid through the Chapter 13
Trustee. Trustee must receive evidence of
this “balloon” payment from Debtor and
confirmation of payment from Creditor before
Debtor will be deemed to have fully [complied]
with this provision of this Order. No Order
for Discharge shall otherwise enter.
e) Upon the entry of an Order of
Discharge under 11 USC Section 1328, the
discharge so entered shall constitute a
discharge of the above referenced secured
mortgage claim.
Order of Confirmation, C.A. No. 96-12305-JNF (Bankr. D. Mass. July
31, 1997).
In June 2001, after Charles failed to make the final
balloon payment in accordance with the confirmation order, Wells
Fargo filed a motion for relief from the automatic stay and for
leave to foreclose the mortgage on the Mattapan realty. The motion
was granted on July 3, 2001. Charles then filed a motion for
reconsideration of the July 3 order and a motion to refinance the
Mattapan property.
In October 2001, during the pendency of the debtor’s
motions, Charles and Wells Fargo entered into a stipulation
pertaining to Charles’ outstanding obligation. Under the
stipulation, Charles was to refinance the Mattapan realty on or
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before November 17, 2001. From the proceeds of the refinancing,
$71,000.00 was to be remitted to Wells Fargo in full satisfaction
of Charles’ obligation to the company.
The refinancing transaction was closed on October 29,
2001. The debtor’s attorney, Michael G. McDonald (“McDonald”),
served as settlement agent for the new mortgage lender, Long Beach
Mortgage Company. Although McDonald retained $71,000.00 of the
loan proceeds for the purpose of disbursing those funds to Wells
Fargo, he failed to do so.
On or about April 15, 2002, more than five months after
the closing, McDonald tendered a check, drawn on either his client
trust or business account,2 in the amount of $71,000.00 to Wells
Fargo. The check subsequently was dishonored by the drawee
financial institution for the reason that there were insufficient
funds in the account.
On May 1, 2002, Charles, through McDonald, filed a motion
to vacate the bankruptcy court’s July 3, 2001 order granting Wells
Fargo relief from the automatic stay. The motion was assented to
on Wells Fargo’s behalf by its attorney, who, apparently, lacked
2
It is unclear from the record whether following settlement of
the refinancing transaction McDonald deposited and maintained the
$71,000.00 in his client trust account. That issue is not before
us for determination. However, we note that Rule 1.15 of the
Massachusetts Rules of Professional Conduct requires that a lawyer
maintain funds belonging to clients or third parties in a trust
account, separate from the attorney’s own funds.
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knowledge of the check’s dishonor.3 The motion provided in
pertinent part:
1. The Debtor[’]s counsel has provided
Shapiro and Kreisman [Wells Fargo’s counsel]
with a check in the amount of $71,000.00 for
the balloon payment of the bankruptcy.
2. The Debtor has therefore completed it’s
[sic] debt to the creditor Wells Fargo in full
according to the Confirmed Chapter 13 Plan for
bankruptcy.
C.A. No. 96-12305-JNF (Bankr. D. Mass. May 1, 2002). On May 3,
2002, the bankruptcy court granted the motion and vacated its July
3, 2001 order.
On June 21, 2002, the Chapter 13 trustee submitted a
report and accounting and requested the debtor’s discharge. An
order discharging Charles was entered on that same date. The
trustee’s final report and account was filed on August 12, 2002.
The trustee was discharged on September 16, 2002. As of that date,
Wells Fargo had not provided the bankruptcy court with notice that
the debtor’s obligation had not been satisfied.
Thereafter, on September 19, 2002, Wells Fargo requested
a hearing “relative to Debtor’s failure to satisfy plan
obligations” and “for determination of manner in which outstanding
3
Wells Fargo received notification of the check’s dishonor on
or before May 7, 2002. However, according to the company’s
attorney, that information was not communicated by Well Fargo’s
cashiering department to its bankruptcy department, or to its
counsel, until late-June 2002, following entry of the bankruptcy
court’s June 21, 2002 debtor discharge order.
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obligations will be satisfied.” By that date, McDonald had
tendered a second check which had also been dishonored.
A hearing was conducted by the bankruptcy court on
November 14, 2002. McDonald appeared as counsel for Charles.
McDonald represented to the court that funds, including the
$71,000.00 in refinancing proceeds that were designated for payment
to Wells Fargo, had been misappropriated from his client trust and
business accounts during his extended absence from his law office.4
At the hearing, McDonald told the court that he
personally planned to satisfy the Wells Fargo obligation by
refinancing some commercial property and that he anticipated
completing the process within 45 to 60 days. Counsel for Wells
Fargo agreed to provide McDonald with 60 days within which to
satisfy the outstanding obligation. The court directed counsel to
submit a proposed order reflecting that agreement.
On November 14, apparently following the hearing, Wells
Fargo filed its “assented to” motion to enjoin the debtor from
encumbering the Mattapan property and to vacate the discharge order
as it pertained to Wells Fargo’s interest in the realty. Wells
Fargo sought the requested relief pending satisfaction of the
outstanding obligation. McDonald assented to the motion on
Charles’ behalf. The bankruptcy court scheduled a hearing on the
4
McDonald cited his spouse’s death and his own serious illness
as the reason for his absence.
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motion for November 20, 2002.
On the day of hearing on the motion to enjoin/vacate, Wells
Fargo filed the second motion at issue in the instant appeal, the
motion to approve a stipulation between Wells Fargo and Charles.
The stipulation was signed by McDonald on Charles’ behalf and
provided, in pertinent part:
1. Debtor’s counsel, Michael McDonald, shall
complete payment to Wells Fargo Home Mortgage,
Inc[.] (“Wells”) of $71,000 within 60 days of
the date hereof.
. . .
3. Debtor agrees that from the date hereof
until the date of satisfaction of the
obligation to Wells through payment of funds
referred to above, debtor and anyone acting on
his behalf or at his direction shall not
undertake to transfer, encumber or otherwise
diminish the interest held by debtor in the
property that is the subject of the payment
obligation referred to above, 33 Wellington
Hill Street, Mattapan, Massachusetts.
C.A. No. 96-12305-JNF (Bankr. D. Mass. Nov. 20, 2002).
During the November 20, 2002 hearing, Charles stated
that, up until that hearing, he had been unaware that McDonald had
not satisfied the Wells Fargo obligation. Further, Charles denied
that he had authorized McDonald to execute the stipulation on his
behalf.
Under oath, McDonald admitted that he had not consulted
with Charles before assenting to either the motion to enjoin/vacate
or to the stipulation. Moreover, contrary to the representation
that he had made to the court during the November 14 hearing,
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McDonald acknowledged that he had never informed Charles that the
$71,000.00 obligation had not been satisfied.
The bankruptcy judge determined that Charles’ assertion
that he had no knowledge of the non-satisfaction of the Wells Fargo
obligation was credible. The court denied both the motion to
enjoin/vacate and the motion to approve the stipulation. The court
stated: “Clearly . . . Mr. McDonald had no authority from Mr.
Charles to sign those. They were inconsistent–they were not just
inconsistent. They were patently opposed to Mr. Charles’s
interests.”
Wells Fargo appealed the bankruptcy court’s denial of the
motions to the district court. On June 2, 2003, the district
court, concluding that the bankruptcy court had not abused its
discretion in denying either motion, denied the appeal. This
appeal followed.
II.
On appeal, we directly review the bankruptcy court’s
decision. In re Watman, 301 F.3d 3, 7 (1st Cir. 2002).
The issue presented for our determination is a narrow
one: Whether the bankruptcy court abused its discretion in denying
the motion to enjoin/vacate and the motion to approve the
stipulation. See In re Weinstein, 164 F.3d 677, 686 (1st Cir.
1999).
The bankruptcy court premised its denial of both motions
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on its determination that Charles had not assented to either motion
and that the relief sought in the unauthorized motions was contrary
to the debtor’s best interests. We examine the bankruptcy court’s
factual findings for clear error and review its conclusions of law
de novo. In re Watman, 301 F.3d at 7.
The bankruptcy court’s finding that the debtor had not
authorized McDonald to execute the motions on his behalf is amply
supported by the record. Charles denied knowing that the Wells
Fargo obligation had not been satisfied and asserted that he had
neither seen nor assented to the pleadings in issue. The debtor’s
representations to the court were corroborated by McDonald’s
testimony that he had neither informed his client that the
obligation had not been satisfied nor obtained Charles’ authority
to assent to Wells Fargo’s motion to enjoin/vacate or to agree on
Charles’ behalf to Wells Fargo’s proposed stipulation.
Further, the bankruptcy court’s determination that the
relief sought by Wells Fargo through the motions was contrary to
Charles’ interests is clearly supported by the record. The debtor
previously had obtained a discharge of his obligation to Wells
Fargo. In furtherance of that objective, Charles had refinanced
the Mattapan property, thereby incurring additional indebtedness
and an additional encumbrance on the realty. McDonald acquired a
portion of the loan proceeds, $71,000.00, in trust, for payment to
Wells Fargo but, in contravention of his obligations under Rule
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1.15(b) of the Massachusetts Rules of Professional Conduct, failed
to promptly deliver those funds to the company. The motions, if
granted, would have prohibited Charles from encumbering or
transferring the Mattapan realty until such time as McDonald
satisfied his obligations to Wells Fargo. Further, the result
sought by Wells Fargo and purportedly agreed to by Charles would
have deprived the debtor of the benefits of the discharge order
previously entered by the bankruptcy court.
Because the bankruptcy court’s findings that the motions
were not authorized by the debtor and that they were contrary to
his best interests were not clearly erroneous, the bankruptcy court
did not abuse its discretion in denying the motion to enjoin/vacate
and the motion to approve the stipulation on that basis.5
III.
For the above reasons, we uphold both the bankruptcy
court’s denial of the motions and the district court’s affirmance
of that decision.
Affirmed.
5
Wells Fargo’s assertion to the contrary notwithstanding,
whether the debtor had complied with the confirmation plan was not
an issue before the bankruptcy court for determination on November
20, 2002 and, accordingly, is not before this court for
consideration on appeal.
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