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UNITED STATES BANKRUPTCY APPELLATE PANEL
FOR THE FIRST CIRCUIT
BAP NO. MB 98-095
BANKRUPTCY NO. 96-10123-CJK
V & M MANAGEMENT, INC.,
Debtor
ALPHONSE MOURAD,
Appellant,
V.
STEPHEN S. GRAY, TRUSTEE
Appellees.
ET AL.
_______________________________________________
Alphonse Mourad 125 West Street Hyde Park, MA, 02136
UNITED STATES BANKRUPTCY APPELLATE PANEL
FOR THE FIRST CIRCUIT
BAPNO.
MB 98-095
In re:
V & M MANAGEMENT, INC., Debtor
ALPHONSE MOURAD,
Appellant,
V.
STEPHEN S. GRAY, TRUSTEE
Appellees. ETAL.
Bankruptcy No. 96-10123-CJK
APPELLANT'S MOTION TO REMAND BANRUPTCY CASE NO. 96-10123-CJK & BAP NO. MB 98-095 TO BANKRUPTCY COURT FOR SUMMARY JUDGEMENT IN FAVOR OF APPELLANT. APPELLANT MOURAD RESPECTFULLY REQUESTS THAT THIS BAP RULE ON THIS BRIEF AND THE PAPERS ON FILE, AND/OR FURTHER EXTEND THE TIME BY SIXTY DAYS - PENDING THE IRS INVESTIGATION FINDINGS.
Now comes Alphonse Mourad before the United States Bankruptcy Appellate Panel for the First Circuit, and moves that the BAP remand Bankruptcy Case No. 96-10123-CJK to the United States Bankruptcy Court District of Massachusetts for summary judgement in favor of the Appellant, Alphonse Mourad, and against the Appellees, Stephen S. Gray, et al. This motion consolidates two earlier motions filed before the BAP on appeal. Motion to Allow Administrative Claim of Alphonse Mourad Late; and the Motion to Compel Trustee Stephen Gray to Pay V&M Management's Federal Taxes. In support of his motion Appellant states the following:

A.Summary Judgement should be granted because the Bankruptcy Court erred in its interpretation of the IRS code with regard to the payment of income taxes of a Sub-Chapter S corporation in bankruptcy.

B. Summary Judgement should be granted because the Bankruptcy Court erred in its interpretation of the regulations of United States Internal
Revenue Service, with regard to the award of Low Income Housing Tax Credits.

C. Summary Judgement should be granted because the Bankruptcy Court erred in its interpretation of the regulations of the Commonwealth of Massachusetts with regard to the award of Low Income Housing Tax Credits.

D. Summary Judgement should be granted because the presiding Bankruptcy Court Judge, Carol J. Kenner, ignored specific and documented conflicts of interest with regard to her appointed Trustee Stephen S. Gray, and counsel for the Bankruptcy Petitioner, V&M Management, Inc., Harold Murphy of the firm ofHanify & King.

E. Summary Judgement should be granted because Judge Kenner made numerous errors in rulings and displayed an open bias towards the Petitioner/Appellant that so prejudiced the case against the Petitioner/Appellant as to make justice an impossible task. As evidence of these claims the Appellant presents the following, supported by attached exhibits, or exhibits already in the possession of the BAP. The BAP is familiar with the circumstances under which Mourad, as president of V&M, filed for protection under Chapter 11, therefore a recitation of that history is unnecessary in its entirety, however, reference is made herein to specific aspects of the original petition.

A. The BAP should issue an order for Summary Judgement and remand this case to the United States Bankruptcy Court District of Massachusetts Eastern Division for enforcement of the judgement for the following reasons:

1. Judge Kenner erred in naming Trustee Stephen S. Gray as owner of the Mandela Apartments for the sole purpose of achieving site control in an application to the Massachusetts Department of Housing and Community Development (DHCD). (This issue is discussed in its entirety below). Gray gave nothing of value for the Mandela Apartments, and no documents exist specifically conveying the property to Gray from V&M Management or Alphonse Mourad. No deed was on file at the Suffolk County, Massachusetts Registrar of Deeds conveying the property to Gray. Since no document trail existed at the time Gray was named as owner on September 26, 1997, (See Exhibit 1, Transcript of Confirmation Hearing on Joint Plan of Reorganization of Stephen S. Gray, Chapter 11 Trustee, page 77), Judge Kenner supplanted the property transfer laws of the Commonwealth of Massachusetts with a criminal act of judicial fiat.

2. If there was no documented conveyance the only way that Gray could have become the owner of Mandela was to replace Alphonse Mourad as the sole stockholder of V&M Management, Inc. Since the Mandela Property was the primary asset of V&M, assumption of control over V&M would give Grey control of Mandela, which de facto Gray had as Trustee. Gray failed to inform the IRS that the Court had named him owner (See Exhibit 2, K-l Form of Alphonse Mourad for 1997) specifically to dodge responsibility for the payment of trust fund taxes thereby defrauding the United States Treasury, the Social Security Administration and the employees of legitimate tax and retirement revenues.

3. Judge Kenner compounded her error by disallowing Mourad's motion to Allow An Administrative Claim Late, with specific regard to the allowance of taxes to be paid from the estate (See Exhibit 3, Judge Kenner's Order and Memorandum of Decision on Mourad's Motion to File An Administrative Claim Late) thus forming one of the tenets of this appeal. Judge Kenner's ruling, in effect, supports the criminality of Stephen S. Gray, while connoting a punitive quality to the bankruptcy proceedings, and vividly displaying her basis towards Mourad. Judge Kenner's construction of the tax code as it applies to the claims of Mourad is a fictional vignette. Judge Kenner states on page two, paragraph one, that:
... as a matter of law, the bankruptcy estate of a Subchapter S corporation bears no responsibility for federal and Massachusetts taxes on the estate's income. She neglects several important elements here: a) The estate had no real income, since nearly all of the so called profit was generated by the Trustee's neglect to pay federal and state trust fund taxes, as well as to escrow mortgage expenses and funds that should have legitimately gone to creditors. Thus it is disingenuous for Judge Kenner to invoke 26 U.S.C. Sections 1363,1366 and 1369, statutes designed to protect S corporations from taxation, and Mourad's failure to cite these statutes in a pro se motion, as evidence of the insufficiency of his argument, while ignoring the fact that for a pass through tax liability to exist the estate has to be a Debtor in Possession, b) The fact that a Trustee was appointed, who, rightly or wrongly, assumed all of the assets, but none of the liabilities of the estate, while Mourad was physically barred from the property and not allowed to materially participate in his business, violates title 11 of the United States Code, since by her appointment of a Trustee to oversee the estate ofanS corporation Judge Kenner created a separate taxable entity, the estate which paid taxes to the IRS and Commonwealth as part of the settlement, when no separate entity should have existed under the law. c) Mourad did not seek to create, nor argue in favor of a separate entity, the Court having fulfilled that mission on its on volition, therefore Judge Kenner has willfully misconstrued Mourad's argument, which was a simple plea for justice since the seizing of his property by the Court has created the human tragedy of bankrupting Mourad and his family, leaving him personally without the ability to pay the imposed tax.

4. It is illogical on its face to saddle Mourad with hundreds of thousands of dollars in taxes. (See Exhibit 4, Letter From the IRS to Mourad...). Decisions like this, no matter how tortured, should not happen in America. If allowed to stand no small business person who exercises their legal right to seek protection from creditors under chapter 11 of the Bankruptcy Code will ever be safe. With Judge Kenner making up the law as she goes along, the dangerous precedents she will set, if not reversed by this Panel, will make a mockery of bankruptcy proceedings throughout the nation. Indeed V&M Management, Inc. is a Subchapter S corporation, which is a specific construction of the tax code to give entrepreneurs relief from corporate taxation rates until such time as their business interest surpass $5 million annually. In no year of its operation did V&M breach the $5 million barrier.

5. After Judge Kenner named Gray as the owner by judicial fiat. 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.

6. During Gray's Trusteeship of V&M Management a profit of$1.3 million was realized for the years 1996 and 1997, principally from Gray's failure to pay Federal taxes for the corresponding period.

7. Judge Kenner and the U.S. Trustee, Eric Bradford, failed to properly supervise Gray with regard to the timely payment of taxes. This was especially odious since these were trust funds deducted from employee pay checks but never paid with the filing ofIRS forms 940 and 941.

8. On or about August 20,1998, Mourad received a copy of a 1997 K-l tax form from Verdolino & Lowey, P.C., a certified public accounting firm hired by the Trustee (See Exhibit 6, Letter dated August 20,1998). Mourad's motion for a late filing of an administrative claim stems from this action, and therefore should be allowed and heard. The filing of a K-l in this instance has two specific implications. First, it means that although the Court named Stephen Gray as the owner, of Mandela and V&M, Gray's own accounting firm does not believe him to be the owner since Gray, as Trustee/owner, received no K-l form delineating his distributive share of earnings, that dubious honor when to Mourad. The accountants did not end Mourad's ownership tenure at September 26,1997, the date on which Judge Kenner declared Stephen Gray the owner, but carried his ownership through December 31,1997. Second, the filing of a K-l, in theory, is to demonstrate the distribution of proceeds or profits from an S-Corporation. Mourad received no such distribution, in fact the August 20,1998 letter specifically states that the amounts shown on the K-1, ".. .may not correspond to the actual distributions you have received during the year." Finally, the filing of a K-l transfers a tax liability to Mourad, when in fact there was no distribution on which he should be taxed.

9. WHEREFORE, the BAP should reverse the order of Judge Kenner disallowing Mourad's Motion for Filing an Administrative Claim Late; and should enter summary judgment in favor of Mourad, allowing the motion, and remand the
motion to the Bankruptcy Court for specific actions that include: 1) Awarding Mourad $1.3 million, since it is clear that Judge Kenner erred in naming Stephen Gray the owner of Mandela and V&M Management, Inc. on September 26,1997, therefore Mourad was the owner of record in 1996 and 1997 since no documented transfer of title occurred conveying the property or the business to Stephen Gray, and even had such conveyance occurred it would have been illegal since the Trustee's fiduciary responsibility is vitiated at any time that the Trustee takes an active role in the ownership of an entity whose assets he was appointed to administer for the betterment of the estate and the creditors. The BAP should rule in favor of Mourad simply because Stephen S. Gray cannot be allowed to be the Trustee, the owner and the principal beneficiary, in short. Gray cannot have his cake and eat it too.
B. The BAP should issue an order for Summary Judgment and remand this case to the United States Bankruptcy Court District of Massachusetts Eastern Division for enforcement of the judgement since the Bankruptcy Court erred in its interpretation of the regulations of the United States Internal Revenue Service with regard to the award of Low Income Housing Tax Credits for the following reasons:

1. In her rush to pronounce the Trustee as owner. Judge Kenner, failed to correctly interpret the United States tax code with regard to Low Income Housing Tax Credits. Judge Kenner knew, or as the chief justice of the Bankruptcy Court District of Massachusetts Eastern Division, should have known that the state only "designates" tax credits, but the IRS awards credits if the applicant can be shown to be in compliance with IRS regulations.

2. Section 42(d)(2)(B)(ii)(I) of the Internal Revenue Code, governing Low Income Housing Tax Credits, states that a minimum often years must transpired between the date a taxpayer acquires an existing building and the date the building was last placed in service. Under Judge Kenner's construction, with Stephen Gray becoming the owner on September 26, 1997, and subsequently withdrawing as owner, the tax credit designation, which was crucial to confirmation of the Joint Plan, and crucial to the financing of the Joint Plan, The Mandela Development is not eligible for a tax credit, since it expressly fails the ten year rule.

3. With Gray as the owner, the building is effectively placed in use on September 26, 1997. Since Gray transferred title and interest to the limited partnership within two years, the limited partnership less than two full years transpired prior to the property being placed in service again; meaning that there is not compliance under he ten year rule under Section 42(d)(2)(B)(ii)(I), and thus the limited partnership fails to qualify for a Low Income Housing Tax Credit.

4. Further the limited partnership cannot become eligible for a Low Income Housing Tax Credit on its own merits since it was not part of the original application to be awarded a tax credit. Neither can a transfer occur between Gray and the limited partnership since it is not "allowed" under Section 42(d)(7)(B)(i) because the property was not in compliance with Section 42(d)(2)(B)(ii)(I).

5. So far a field of Section 42 of the Internal Revenue Code is the award of the Tax Credit process until an IRS investigation is being contemplated to reverse the credit.

6. The only party eligible for a Low Income Housing Tax Credit in this process is Alphonse Mourad.

7. WHEREFORE, the BAP should grant summary judgment in favor of the
Appellant, Alphonse Mourad, and against the appellee Stephen Gray, and remand this case to the Bankruptcy Court District of Massachusetts Eastern Division, where the Bankruptcy Court is to be instructed to revoke the Joint Plan and return the property to Alphonse Mourad.
C. The BAP should issue an order for Summary Judgement and remand this case to the United States Bankruptcy Court District of Massachusetts Eastern Division for enforcement of the judgement since the Bankruptcy Court erred in its interpretation of the regulations of the Commonwealth of Massachusetts Department of Housing and Community Development with regard to the award of Low income Housing Tax Credits for the following reasons:

1. Alphonse Mourad owned and operated the Mandela Apartments in the Lower Roxbury section of the City of Boston for 18 years as the president and sole stock holder ofV&M Management, Inc., a sub-chapter S corporation. (Exhibit 7, Sub-Chapter S designation).

2. The Bankruptcy Court erred in its designation of Trustee Stephen S. Gray as
owner of Mandela for the purpose of achieving site control to secure Low Income Housing Tax Credits from the Commonwealth of Massachusetts.

3. The regulations of the Commonwealth governing the award of tax credits
specifically state that no award can be made if the applicant does not have site control. (Exhibit 8, Commonwealth of Massachusetts, Department of Housing and Community Development, Allocation Plan for Low Income Housing Tax Credits for 1997). Those regulations read in part that: The project sponsor must be able to demonstrate full control of all land and buildings included in the project through a fully-executed agreement such as an option agreement, a purchase or sale agreement, or another such designated authority. The instrument demonstrating site control must include a sales price and an expiration date.

4. In Section VII oft he regulations, cited in paragraph 3 above, the tax credit determination is even more specific:
Unless an application meets all the threshold criteria set forth in this section, the Department (DHCD) will not review the application in the competitive scouring categories.

5. DHCD erred in two very crucial and specific areas. First, in terms of their
determination of site control. DHCD's interpretation confused the Bankruptcy Court allowing "distribution" of a plan reorganization of the Mandela Apartments with a Court approved "confirmation" of that same plan. This was a novel interpretation of the Tax Credit regulations, even if no error or confusion had taken place. Nothing like this existed in the annals ofDHCD tax credit regulations, policies or awards prior to this specific instance. No tax credit award approximating this process, where both logical reasoning and common sense application of the regulations governing tax credit awards are stood on their heads, has occurred since. This remains the only tax credit award where the Director ofDHCD, or any of its employees, has had to appear in Court, under oath, to defend a tax credit award.

6. It is well settled that control over a property in bankruptcy does not come until such time as a plan is "confirmed" by the Court. The mere "Distribution" of a plan to the creditors carries no such authority. Second, when DHCD issued its ruling it was unaware of a competing plan. Mourad, Owens & Associates had filed and distributed a plan for the reorganization of Mandela, which was superior in its award of funds to the creditors. Jane Wallace Gumbel, the Director of DHCD stated that she was unaware of a competing plan at the time she agreed to award the tax credit to the Joint Plan. The entire argument is summarized in an August 25, 1997 memorandum to Attorney Robert Quinn from Othello Mahone, a consultant to Mourad Owens & Associates. (See Exhibit 9, Memorandum of Othello Mahone).

7. None of the required documents were in existence when the Joint Plan filed for tax credits with DHCD. On this basis alone Judge Kenner should have denied the Joint Plan. She did not, however, deny the plan but compounded her errors by stating in open court that Stephen S. Gray was the owner of The Mandela Development, again a novel ruling. (See 10, Transcript of Confirmation Hearing, Page 77). A Trustee in a bankruptcy proceeding is not the owner of the property. If the Trustee is the owner then the Court has taken an ownership position since the Trustee is appointed by, and serves at the behest of the Court, and is in fact an officer of the Court, in his capacity as Trustee, while holding fiduciary powers over the estate in dispute. The Trustee at no time becomes the estate, which is what Judge Kenner has summarily declared, without the burden of reference to precedent or statute.

8. Further, the Trustee, since he is a paid agent of the Court, charged with
administering the estate in compliance with all applicable laws, both federal and state, must by necessity take an arms length approach to any aspect of the Debtor's business in which he may personally profit, or reduces the value of the estate, erodes the claims of creditors and assumes an adversarial posture with the Debtor. Stephen Gray, as Trustee, did all of the above, yet was not rebuked by Judge Kenner. When Judge Kenner declared the Trustee the owner of Mandela she did so without regards to the due process of the original petitioner, Alphonse Mourad, as president ofV&M Management.

9. WHEREFORE, the BAP should grant summary judgment to the Appellant, Alphonse Mourad, and remand this case to the Bankruptcy Court District of Massachusetts Eastern Division, with specific instruction to reinstate Alphonse Mourad as owner of Mandela, and to award Mourad $1.3 million as his distributive share of the profits the Trustee, Stephen S. Gray, claimed to have earned from the operation of Mandela, a property he held in trust for Mourad.
C. Summary Judgement should be granted because the presiding Bankruptcy Court Judge, Carol J. Kenner, ignored specific and documented conflicts of interest with regard to her appointed Trustee Stephen S. Gray, and counsel for the Bankruptcy Petitioner, V&M Management, Inc., Harold Murphy of the firm ofHanify & King. Summary Judgement should be granted because Judge Kenner made numerous errors in rulings and displayed an open bias towards the Petitioner/Appellant that so prejudiced the case against the Petitioner/Appellant as to make justice an impossible task.

Appellant Mourad respectfully requests that this BAP rule on this brief and the papers on file, and/or further extend the time until the IRS investigation findings are completed within 60 days of this filing.

Alphonse Mourad
125 West Street Hyde Park, MA 02136
April 30, 1999

Frederick Aufiero Internal Revenue Service Criminal Investigation Department JFK Federal Building PO Box 9092 Boston, MA 02203

United States Bankruptcy Appellant Panel For The First Circuit
Chapter 11
NO: 96-10123-CJK BAP No. MB 98-095
INRE: V&M Management, Inc., Debtor

Alphonse Mourad Appellant
V
Stephen Grot, Trustee et at Appellees
Certificate of Service
I, Alphonse Mourad, hereby certify that I have served a copy of Brief entitled- APPELLANT'S MOTION TO REMAND BANKRUPTCY CASE NO. 96-10123-CJK TO BANKRUPTCY COURT FOR SUMMARY JUDGEMENT IN FAVOR OF APPELLANT - on this day April 30, 1999 by mailing copies of same, postage prepaid to the following counsel of record.

Christopher Marshall
Eric Bradford, Esq.
Office of the United States Trustee
Thomas P. O'Neill, Jr. Federal Building
10 Causeway Street, Room 1184
Boston.MA02222.1074

Counsel to the Trustee, Stephen S. Gray
Paul D. Moore, Esq.
John F. Ventola, Esq.
Choate, Hall & Stewart
53 State Street
Boston, MA 02109-2891

Paul J. Ricotta, Esq.
Kevin Walsh, Esq.
Mintz, Levin, Cohn, Fen-is, Glovsky & Popeo,
One Financial Center
Boston, MA 02 111

Barry W. Mawn
Special Agent in Charge
FBI
1 Center Place - Suite 600
Boston, MA 02108

Donald Stem
United States Attorney
US Courthouse
1 Courthouse Way, Suite 9200
Boston, MA 02110

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