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UNITED STATES BANKRUPTCY COURT
DISTRICT OF MASSACHUSETTS
Eastern Division)
In re
Chapter 11
V&M MANAGEMENT, INC., Case No. 96-10123-CK
Debtor.
ALPHONSE MOURAD'S MEMORANDUM ON ISSUE ON REMAND
Alphonse Mourad, by and through his counsel, and pursuant to this Honorable Court's Order of June 3, 2004, submits this brief Memorandum identifying the issues to be tried relative to the remand of this matter from the United States Bankruptcy Appellate Panel for the First Circuit (hereinafter, the "Bankruptcy Appellate Panel" or "B.A.P.") pursuant to its Judgment and Remand dated April 12, 2000. Mr. Mourad also submits this Memorandum in further support of his Opposition of the Trustee's Motion for Judgment on the Pleadings.
Introduction
This Court requested a brief Memorandum identifying the issues to be tried relative to the remand of this matter from the Bankruptcy Appellate Panel for the First Circuit. Those issues are identified by the Bankruptcy Appellate Panel in both its decision of April 12, 2000 and its order of the same date relative to the motion to strike. The issues, which are set forth below relate to the following three areas of inquiry:
(1) the timeliness of Mr. Mourad's claim; (2) breach of the trustee's duties relative to tax issues, including, but not limited to, (a) the impact of the late filing of the Debtor's information return and/or the late issue of Form K-1 to Alphonse Mourad; (b) the Trustee's failure to file a "C" corporation tax return; and/or (c) alternatively, the failure to qualify and apply for the low income housing tax credit; and (3) the Trustee's alleged receipt of excessive fees.
Further, as discussed, the Debtor's tax returns for tax years 1998 and 1999 raise both the late filing claim as well as a claim regarding the appropriateness of filing an "S" corporation tax return. These returns were filed subsequent to the Bankruptcy Appellate Panel's decision. An amendment to Mr. Mourad's claims is appropriate and justice so requires.
Argument
The Bankruptcy Appellate Panel held that "the bankruptcy court's order dismissing the motion did not resolve Mourad's claim that Gray was negligent in the performance of his duties as trustee." B.A.P. decision at 5. The Bankruptcy Appellate Panel indicated that the alleged negligence embraced both tax issues and the Trustee's alleged receipt of excessive fees. See B.A.P. Order (de Jesus, J.) at 1-2 (regarding 5-7) Exhibit 2. The Bankruptcy Appellate Panel expressly indicated that the remand related, in part, to the trustee's failure to request a Low Income Housing Tax Credit for 1997. B.A.P. decision at 5. n.4. To be clear, the Bankruptcy Appellate Panel stated as follows:
Before the Panel, Mourad amplified or developed this argument
stating his tax liability was increased by interest paid on the
unnecessary accumulation of estate income and by Gray's failure
to request a low income housing tax credit.
Mr. Mourad's claim and papers before the B.A.P. are consistent with the Panel's decision. On September 17, 1988, Alphonse Mourad filed, pro se, a two page, thirteen paragraph motion to allow [his] Administrative Claim Late. Motion, Docket No. 839. Mr. Mourad alleged, among other things, that the "tax returns were not prepared." Id at 1, 6. While inartfully drafted, this allegation underscores Mr. Mourad's claim that the Trustee did not prepare the appropriate "C" corporation return for the debtor. As the trustee is well aware, Mr. Mourad maintains the position that the Debtor's "S" corporation status terminated by operation of law pursuant to IRC §§ 1362(d)(2), 1361(b)(1)(D) and 1361(b)(2). The Bankruptcy Appellate Panel implicitly recognized this by noting that there was no evidence of voluntary termination of "S" status but refrain from commenting on automatic termination as mandated by the statute. B.A.P. decision at 2 [emphasis added].
Mr. Mourad expanded on this position before the Bankruptcy Appellate Panel. For instance, he expressly alleged that the Trustee was the sole shareholder of the Debtor. See Exhibit 1, B.A.P. Motion at 10. Under such circumstances, the "S" status of the Debtor automatically terminated. Also see B.A.P. Order at Exhibit 2.
Alternatively, Mr. Mourad also alleged that the trustee negligently prepared the debtors information return, Form 1120, and the related K-1. Motion at 7, 10 and 12. For instance, there is no dispute that, Mr. Mourad claimed that the late information return and K-1 gave rise to, at a minimum, interest for the period subsequent to April 15, 1998, until receipt of the Form K-1. This position was also expressed before the B.A.P. See Exhibit 1, B.A.P. Motion at 4. This allegation states a clear and timely claim for damages.
Mr. Mourad, in alleging negligent preparation of the information return, also alleges that he was damaged by the failure of the trustee to qualify and apply for the Low Income Housing Tax Credit. The Bankruptcy Appellate Panel agreed that Mr. Mourad sufficiently argued this claim. B.A. P. decision at 5.
Finally, Mr. Mourad clearly articulated a claim that Stephen Gray was "negligent in his performance of his duties as trustee" by failing to distribute to shareholders sufficient funds to pay the related tax liability. Id; see Motion at 9 on 13. Mr. Mourad argues that as a matter of state law and the custom and practice of the debtor, that sufficient funds should have been distributed to liquidate the related tax liability. The decision of this Court to deny Mr. Mourad standing given a failure of equity likewise, denied him state law claims to sale proceeds from the Debtor's property by divesting him of his equity and related rights as an equity shareholder. As such, an administrative claim arises where a non-shareholder was forced to bear items attributable to the Debtor. Alternatively, of course, Mr. Mourad requests retroactive restoration of his shareholder rights and standing.
On the issue of the Trustee's alleged receipt of excessive fees, the Bankruptcy Appellate Panel read Mr. Mourad's motion to state such a claim. In the Order on the Motion to Strike Mr. Mourad's brief (before the B.A.P.), the Panel stated that this claim, as set forth in paragraph 5 of the brief, constituted allegations of "Trustee negligence, raised and not resolved by the bankruptcy court." B.A.P. Order of April 12, 2000 (de Jesus, J.). Paragraph 5 of Mr. Mourad's brief states, in part, as follows:
Gray continued to receive hefty payments from the operation
of the property, increasing his management fee by 300 percent.
(See Exhibit 5, Motion of Unsecured Creditors to Deny Payment
of Fees to the Trustee, et. al.). Had he operated at the same level
as a normal management agent, garnering management fees of
from seven to ten percent of the gross rents, plus expenses, the
taxes could have been paid. See Exhibit 2(5 is attached to Order).
Mr. Mourad agrees that the B.A.P. indicated that timeliness issue should be determined in the bankruptcy court. However, the allegations relative to timeliness indicate that Mr. Mourad filed his claim within a month of his receipt of the Form K-1 for tax year 1997. Motion at 2. As such, the timeliness issue does not appear to bar adjudication.
Respectfully Submitted, Attorney for Alphonse Mourad,
______________________________
Lester E. Riordan III
81 Washington Street
Suite Number Eight
Salem, MA 01970
(978) 825-1300
BBO# 633725