Court Opinion

ID: 9940956
Source: CourtListenerOpinion
Date Created: 2024-02-15 18:02:35.032682+00
Date Added: 2024-06-11T13:46:04.584430
License: Public Domain

UNITED STATES BANKRUPTCY APPELLATE PANEL
           FOR THE FIRST CIRCUIT
                        _______________________________

                               BAP No. MB 99-030
                        _______________________________

                  IN RE: TOWN & COUNTRY CORPORATION,
                                   Debtor.
                       _______________________________

                      TOWN & COUNTRY CORPORATION,
                             Plaintiff-Appellant,

                                         v.

HARE & CO., CEDE & CO., JUSTINE CLARKE, PAUL GREGORY BURNINGHAM
AND LORI BURNINGHAM STATE STREET BANK & TRUST CO., AND BOSTON
                             EQUISERVE,
                          Defendants-Appellees.

                        _______________________________

                  Appeal from the United States Bankruptcy Court
                          for the District of Massachusetts
                 (Hon. William C. Hillman, U.S. Bankruptcy Judge)

                        _______________________________

                                      Before
                Votolato, Lamoutte, Vaughn, U.S. Bankruptcy Judges
                        _______________________________

    Daniel C. Cohn, David B. Madoff and Cohn & Kelakos LLP, for the Appellant.

Domenic P. Aiello, Alicia M. Duff and Lyne, Woodworth & Evarts LLP, for the Appellee
                                      Hare & Co.

                        _______________________________

                                  July 10, 2000
                        _______________________________
Vaughn, J.

      Town & Country Corporation (“Town & Country” or “Appellant”),

the debtor in this Chapter 11 Bankruptcy Proceeding, appeals from

an order by the bankruptcy court granting summary judgment in favor

of   defendants   Hare    &    Co.   et       al.   on   its    complaint      seeking

subordination of claims and for other relief pursuant to 11 U.S.C.

§ 510(c). For the reasons set for below, the bankruptcy court’s

order is affirmed.

                          APPELLATE JURISDICTION

      This Court has jurisdiction of the subject matter and the

parties   pursuant   to   28    U.S.C.        §§    158(a)     and    (c),   and   Rule

8001-1(d)(1) of the Local Rules for the Bankruptcy Appellate Panel

for the First Circuit.        28 U.S.C. §§ 158(a) and (c) (1988 & Supp.

1998); 1S T CIR . B.A.P. R. 8001-1(d)(1) (1998). The parties, pursuant

to Rule 8001-1, have not elected to have their appeal heard by the

District Court for the District of Massachusetts.                    1S T CIR . B.A.P. R.

8001-1(d)(1).     Further, this proceeding constitutes a separate

proceeding within the context of the Debtor’s bankruptcy case, and

thus is appropriate for review.                Smith v. Seaside Lanes (In re

Moody), 825 F.2d 81, 85 (5th Cir. 1987).

                                          2
                                    BACKGROUND

     Town & Country is a holding company involved, through its

subsidiaries, in the manufacturing and marketing of jewelry.                           At

the time it voluntarily filed for bankruptcy protection, Town &

Country   was    publicly      traded     on    the    American     Stock       Exchange.

Defendants Hare & Co., Cede & Co., Justine Clarke, Paul Gregory

Burningham      and   Lori     Burningham       are     holders     of    Exchangeable

Preferred Stock of Town & Country.                Defendant State Street Bank is

the successor trustee under a trust agreement created to hold

certain   shares      of   stock    for     the      benefit   of   holders       of   the

Exchangeable Preferred Stock.             Defendant Boston Equiserve is the

transfer agent for the stock held by the trustee State Street Bank.

     In 1993, Hare & Co. was the holder of notes issued by Town &

Country that were in default after Town & Country failed to make

interest payments. As part of a financial restructuring Town &

Country established and issued shares of Exchangeable Preferred

Stock, which were exchanged for the notes.                   Hare & Co., as well as

Defendants Cede & Co, Clarke and the Burninghams, are the holders

of all shares of the Exchangeable Preferred Stock.

     In order to insure the performance of Town & Country under the

arrangement,      Town     &   Country      created      a     trust     (the     “Little

Switzerland      Trust”)       in   which       it    placed    shares      of     Little

Switzerland, Inc. common stock equal in number to the outstanding

                                            3
shares of Exchangeable Preferred Stock.                  Under the terms of the

arrangement, the trust was created “solely for the benefit of the

Holders of the Exchangeable Preferred Stock and the Corporation in

order    to   give   the   Holder   a    free      and   unfettered   opportunity

(including, in the event the Corporation is in bankruptcy) to

exchange such shares of Exchangeable Preferred Stock for Little

Switzerland Common Stock . . . and to secure the performance of the

Corporation’s obligations under the terms of this Certificate of

Designation.”        App. at 63-64.          The Certificate of Designation

orders the trustee to hold the shares solely for the benefit of the

holders of the Exchangeable Preferred Stock and Town & Country.

The trust is irrevokable.

        Pursuant to the Certificate of Designation, holders of the

Exchangeable Preferred Stock were entitled to receive a dividend

beginning on the second anniversary of the stock’s issuance. In

addition, a mandatory redemption was established requiring Town &

Country to redeem all outstanding shares of the Exchangeable

Preferred Stock on December 31, 2000 for $14.59 per share (the

“Liquidation Value”).       The redemption price could be paid in cash

or in shares of Little Switzerland stock.                   In addition, Town &

Country could elect for an optional redemption which allows the

corporation, after the second anniversary of their issuance, to

redeem the shares for a cash price set as a percentage of the

Liquidation     Value;     if   during       the   period   before    the   second

                                         4
anniversary the sale price of the Little Switzerland stock rose to

$18.75 per share, Town & Country could redeem the Exchangeable

Preferred Stock, in whole, for the Liquidation Value.

     After March 1, 1994, holders of the Exchangeable Preferred

Stock were given the right to exchange each share for one share of

the Little Switzerland Stock, subject to certain adjustments.1

     1
     The applicable characteristics of the Exchangeable
Preferred Stock, as stated by the Bankruptcy Court, were as
follows:

     Each share of Exchangeable Preferred Stock will have a
     liquidation preference of $14.59, plus accrued and
     unpaid dividends (the “Liquidation Value”). . . . The
     Exchangeable Preferred Stock will be senior to all
     Junior Stock (as defined) . . . and will be subordinate
     in right of payment to all indebtedness of the
     Company....

     No dividends will be paid on the Exchangeable Preferred
     Stock until after the second anniversary (the “Second
     Anniversary Date”) of the date on which shares of
     Exchangeable Preferred Stock are issued (the “Issuance
     Date”). Thereafter, holders of the shares of
     Exchangeable Preferred Stock will be entitled to
     receive, when and as declared by the Board of Directors
     of the Company, cumulative cash dividends at the rate
     of 6% per annum of the Liquidation Value thereof. . . .
     The amount of accrued and unpaid dividends shall be
     added to the Liquidation Value thereof. . . . The
     amount of accrued and unpaid dividends shall be added
     to the Liquidation Value. If and whenever two semi-
     annual dividend payments on the Exchangeable Preferred
     Stock are in arrears, then during the period commencing
     with such time and ending when all arrearages in
     dividends on the Exchangeable Preferred Stock shall
     have been paid (hereinafter called the “Class Voting
     Period”), the holders of the Exchangeable Preferred
     Stock . . . will be entitled to elect one or more
     additional directors equal to 30% of the entire Board
     of Directors of the Company. . . .

                                5
     On November 17, 1997, Town & Country filed for relief under

Chapter 11 of the Bankruptcy Code.   As part of its confirmed plan

of reorganization, all proceeds realized from preferential and

     Except as set forth below, the Company may not redeem
     the Exchangeable Preferred Stock until the Second
     Anniversary Date. Thereafter, the Company may redeem
     the Exchangeable Preferred Stock, in whole at any time
     or in part from time to time, at a price equal to 100%
     of Liquidation Value, if redeemed during the twelve
     month period beginning on the Second Anniversary Date,
     and thereafter at prices declining annually to 100% of
     principal amount on or after the fifth anniversary of
     the Issuance Date. The Company is required to redeem
     the Exchangeable Preferred Stock on December 31,2000 at
     a price per share equal to the Liquidation Value
     thereof (“the Mandatory Redemption”). Notwithstanding
     the foregoing, in the event that during the period from
     the date of issuance until the Second Anniversary Date,
     the Closing Sale Price (as defined)for a share of
     common stock of Little Switzerland, Inc. (“Little
     Switzerland”) equals or exceeds $18.75 per share for 30
     consecutive trading days, the Company may redeem the
     Exchangeable Preferred Stock in whole at a price per
     share equal to 100% of the Liquidation Value (a
     “Company Optional Redemption”). In the case of a
     Mandatory Redemption, the Company may pay any
     redemption price by delivering cash, shares of common
     stock of Little Switzerland (the “Little Switzerland
     Common Stock”), other Exchange Property (as defined),
     or other combination thereof. In all other cases, the
     Company shall pay the redemption price by delivering
     cash. . . .

     Upon (i) a Change of Control of the Company (as
     defined), (ii) a Change of Control of Little
     Switzerland (as defined), (iii) the voluntary or
     involuntary bankruptcy of the Company, (iv) upon
     receipt of a notice of a Company Optional Redemption,
     or (v) in any event after March 1, 1994, each holder of
     a share of Exchangeable Preferred Stock may exchange
     such share for one share of common stock of Little
     Switzerland (the “Exchange Rate”).

App. at 210-11.

                                6
fraudulent transfer actions are to be distributed to the general

unsecured creditors.           After Hare & Co. sought to exercise its

rights of exchange under the Certificate of Designation following

Town & Country’s bankruptcy petition, Town & Country brought the

underlying action to subordinate the claims of the holders of the

Exchangeable Preferred Stock and to turn over the security interest

securing the claims.          Hare & Co. agreed to a temporary injunction

enjoining the exchange pending a determination by the bankruptcy

court.

       Count I of the complaint characterizes Town & Country’s

arrangement with the holders of the Exchangeable Preferred Stock as

a stock redemption agreement.         Therefore, contends Town & Country,

the rights of the holders may be subordinated to the claims of

general unsecured creditors pursuant to 11 U.S.C. 510(c). Count II

seeks an injunction and declaratory judgment that the exchange of

Exchangeable Preferred Stock for the Little Switzerland Stock is a

distribution      by   Town    &   Country   to   a   stockholder   while   the

corporation is insolvent, and thus unlawful under Massachusetts

law.       Count III asks the court to declare the trust an unlawful

self-settled trust.

       The court below granted summary judgment in favor of the

Defendants.2     The court’s decision turned on whether the holders of

       2
       Motions for summary judgment were brought by Town &
Country and Hare & Co. only. However, following a status
conference, is was agreed that the judgment should be granted in

                                        7
the Exchangeable Preferred Stock are holders of a claim against the

bankruptcy estate or an equity interest.                The court found that the

Exchangeable       Preferred     Stock    is    in    the    nature    of   an    equity

interest. The court then found that the plain language of 11 U.S.C.

§ 510(c) makes the provision inapplicable to this case as it allows

the court to subordinate claims to other claims and interests to

other interests, but does not allow the court to subordinate an

interest to a claim.          As to Counts II and III, the court found that

Massachusetts law does not forbid the transactions.

                                STANDARD OF REVIEW

     The Bankruptcy Appellate Panel reviews a bankruptcy court’s

grant of summary judgment de novo. Cumberland Farms, Inc., v.

Florida Department of Environmental Protection, 116 F.3d 16, 18 (1st

Cir. 1997); Adams Co-Operative Bank v. Greenberg (In re Greenberg),

229 B.R. 544, 545 (B.A.P. 1st. Cir. 1999).                  Rule 56 of the Federal

Rules of Civil Procedure, as made applicable by Rule 7056 of the

Federal    Rules    of   Bankruptcy      Procedure,         provides   that      summary

judgment    “shall       be    rendered        forthwith      if   the      pleadings,

depositions, answers to interrogatories, and admissions on file,

together with the affidavits, if any, show that there is no genuine

issue as to any material fact and that the moving party is entitled

to a judgment as a matter of law.”                   Fed. R. Civ. P. 56(c). Both

favor of all defendants.

                                          8
parties moved for summary judgment, and agree that no material

facts are in dispute.

                                DISCUSSION

I.   Application of Section 510(c).

     Town & Country’s principal argument is that the Certificate of

Designation and the agreement between Town & Country and the

holders of the Exchangeable Preferred Stock is a stock redemption

agreement, by which the holders are given the right to require Town

& Country to redeem their shares of Exchangeable Preferred Stock

for shares of the Little Switzerland Stock held in the Little

Switzerland Trust. Town & Country argues that because the right of

redemption is a claim against the bankruptcy estate, it should be

subordinated pursuant to § 510(c) of the Bankruptcy Code.              On the

other hand, the holders argue that they do not hold redemption

rights, but simply a right to exchange their Exchangeable Preferred

Stock for shares of Little Switzerland Stock.             They claim that

because the Little Switzerland Stock is held in an irrevokable

trust and is not part of the Town & Country estate, they do not

hold a claim against the estate, and therefore, § 510(c) is

inapplicable.

      The   Panel   agrees   with   the   court   below   that   the   Little

Switzerland Stock is not property of the estate. It further agrees

that the holders of the Exchangeable Preferred Stock hold an equity

                                     9
interest rather than a claim against the Town & Country bankruptcy

estate.

     Section 510(c) of the bankruptcy code provides:

          Notwithstanding subsections (a) and (b) of       the
     section, after notice and hearing, the court may –

          (1) under principles of equitable subordination,
     subordinate for purposes of distribution all or part of
     an allowed claim to all or part of another allowed claim
     or all or part of an allowed interest to all or part of
     another allowed interest; or

          (2)order that any lien securing such subordinated
     claim be transferred to the estate.

11 U.S.C. § 510(c).

     The starting point for a bankruptcy court in determining the

application of § 510(c) is determining whether a party holds a

claim against the estate or an equity interest in the nature of a

capital contribution.   See Diasonics Inc., v. Ingalls, 121 B.R.

626, 630 (Bankr.N.D.Fla.1990).        Where a party holds an equity

interest, then the interest, by its nature, is subordinated and the

court need not reach the issue of whether to equitably subordinate,

since “the essential nature of a capital interest is a fund

contributed to meet the obligations of a business and which is to

be repaid only after all other obligations have been satisfied.”

Id. (quoting Herzog and Zweibel, The Equitable Subordination of

Claims in Bankruptcy, 15 Vand.L.R. 83 (1961)).     See also Central

Cooperatives, Inc. v. Irwin (In re Colonial Poultry Farms), 177

B.R. 291, 299 (Bankr.W.D.Mo. 1995)(quoting same).

                                 10
     The Panel agrees with the bankruptcy court that the holders of

the Exchangeable Preferred Stock hold an interest rather than a

claim against the estate.   Town & Country’s argument is based on

the contention that the holders were exercising their rights of

redemption when they attempted to exchange their Exchangeable

Preferred Stock for the Little Switzerland Stock, and that the

right of redemption created a claim against the estate.   However,

in order to find that the transaction was a redemption, the Panel

must first find that the shares of Little Switzerland Stock held in

the Little Switzerland Trust are part of the bankruptcy estate.

Like the court below, we find that the shares of Little Switzerland

Stock held by the Little Switzerland Trust are not property of the

estate.

     Property of the estate includes “all legal or equitable

interests of the debtor in property as of the commencement of the

case.” 11 U.S.C. § 541(a)(1). The scope of property that comes

within this definition is necessarily broad as it serves the basic

framework of the bankruptcy system: to create a bankruptcy estate

that is subject to the jurisdiction of the bankruptcy court which

can in turn effectuate a fresh start for the debtor and create a

systematic distribution for creditors according to their relative

priority as defined by the Bankruptcy Code.   However, despite the

broad definition of “property of the estate” the Bankruptcy Code

does not vest the bankruptcy estate with any more rights in

                                11
property than the debtor held prior to the filing of the petition.

See, L. King, 5 Collier on Bankruptcy, ¶ 541.11 (15th Ed. Rev.

2000).

     What is and what is not property of the estate is a question

of federal law, however courts look to the applicable state law to

determine the debtor’s equitable and legal interests in property.

Marrs-Winn Company v. Giberson Electric, Inc. (In re Marrs-Winn

Company), 103 F.3d 584, 591 (7th Cir. 1996). An express trust

“creates    a   fiduciary   relationship   with   respect   to   property,

subjecting the person by whom the title to the property is held to

equitable duties to deal with the property for the benefit of

another person, which arises as a result of a manifestation of an

intention to create it.”        Restatement (Second) of Trusts § 2

(1959).    There is no question that an express trust was created in

this case, placing title in the hands of a third party trustee for

the benefit of the stockholders and Town & Country.              However,

because the bankruptcy estate can establish no greater rights to

the corpus of the trust than was held by Town & Country at the

commencement of the case,     the question becomes what interest does

Town & Country have in the trust?

     In determining whether Town & Country is the true owner of the

trust property, and thus the Little Switzerland Stock is property

of the estate, we find guidance in the approach taken by the

district court in In re Medalion Realty Trust, 120 B.R. 245

                                   12
(D.Mass.1990).      In that case the court endeavored to determine

whether an entity ostensibly a business trust was in reality a

partnership. The court looked to the discretion and control of the

beneficiary    of   the   trust,    holding        that   the   more   power     the

beneficiary of the trust holds and exercises over the affairs of

the entity the more likely it is that the business trust is a

partnership. Id. at 248.            The approach taken by the court in

Medallion has been applied by bankruptcy courts in determining

whether trust property is property of the estate under section 541

of   the   Bankruptcy     Code.     See     In    re   Simon,   179    B.R.    1,   5

(Bankr.D.Mass.1995); In re Eastmere Development Corp., 150 B.R.

495, 500 (Bankr.D.Mass.1993).

       Applying this approach to the Little Switzerland Trust, we

find   that   the   legal   title    to     the   subject    shares    of     Little

Switzerland Stock is held by the trustee, and the trustee is

forbidden from transferring any of the shares except as expressly

set out in the agreement.           Id. at 95, 96.         The trust agreement

further provides that the only manner in which Town & Country can

regain title to the shares is if it redeems or otherwise acquires

all of the outstanding shares of the Exchangeable Preferred Stock.

Id. at 99. Finally, the trust is irrevokable. Id. at 95.

       The terms of the trust agreement and the Certificate of

Designation make clear that Town & Country exercises little if any

control over the Little Switzerland Stock.                As described earlier,

                                       13
Town       &   Country’s      only   discretionary     power   over   the   Little

Switzerland Stock is an option to order the trustee to use the

stock to pay the holders the Exchangeable Preferred Stock under

either the optional or mandatory redemption provisions set out

under the Certificate of Designation.

       Moreover, the trust fails to meet the definition of a nominee

trust, under which courts have held that the beneficiaries are the

true owners of the trust property. See In re Rosencranz, 193 B.R.

629,635 (Bankr.D.Mass.1996); In re Eastmare Development, 150 B.R.

at 503. Under a nominee trust, the               trustee exercises little or no

control over the trust assets, but acts at the direction of the

beneficiaries.3             Instead, as we have noted, the Trustee of the

Little Switzerland Trust holds the stock for the primary benefit of

the holders of the Exchangeable Preferred Stock, and is permitted

by   the       terms   of    the   trust   agreement   and   the   Certificate   of

       3
        The features of a nominee trust are as follows:
       (1) the names of the beneficiaries are filed with the
       trustees rather than being publicly disclosed; (2) a
       trustee may serve simultaneously as a beneficiary; (3)
       the trustees lack power to deal with their trust
       property except as directed by the beneficiaries; (4) a
       third party may rely on the disposition of trust
       property pursuant to any instrument signed by the
       trustee, without having to inquire as to whether the
       terms of the trust have been complied with; and (5) the
       beneficiaries may terminate the trust at any time,
       thereby receiving legal title to the trust property as
       tenants in common in proportion to their beneficial
       interest.

In re Grand Jury Subpoena, 973 F.2d 45,48 (1st Cir. 1992).

                                            14
Designation to dispose of the stock only upon the holders’ election

to exchange their shares of Exchangeable Preferred Stock or upon

one of the redemption events specified.           Thus, we find that Town &

Country’s lack of discretion or control over the Little Switzerland

Stock supports the bankruptcy court’s finding that it is not

property of the bankruptcy estate.

     Because we find that the Little Switzerland Stock is not

property of the bankruptcy estate, we hold that the holders of the

Exchangeable Preferred Stock do not hold a claim in the form of

redemption rights against Town & Country, but rather an equity

interest.      We agree with Town & Country that an equity interest is

subordinate to claims.       However, it is important to note that the

interest represented by the Exchangeable Preferred Stock is not

extinguished.     Rather, upon exchange it will be in the hands of the

trustee, where it will remain subordinate to claims.             Because the

property    for   which   the   Exchangeable      Preferred   Stock    will   be

exchanged is not property of the estate, there will be no effect on

the bankruptcy distribution scheme.

     Furthermore, we find nothing in the language of § 510(c), or

any other provision of the Bankruptcy Code, which would prevent the

holders of the Exchangeable Preferred Stock from exercising their

rights of exchange for property that is not property of the estate.

Rather,    §   510(c)   is   designed    simply   to   deal   with    equitable

subordination of claims to other claims or interests to other

                                        15
interests. It’s language does not extend to treatment of interests

vis a vis claims because, as discussed supra, equity interests are

already subordinate to claims.          However, the fact that equity

interests are subordinate to claims does not alter the result here

as the equity interest will still remain, just in the hands of the

trustee.

      The Panel will not import some other interpretation to §510(c)

when its language is clear and unambiguous on its face.          It is “a

fundamental canon that statutory interpretation begins with the

language of the statute itself.” Pennsylvania Department of Public

Welfare v. Davenport, 495 U.S. 552, 557-58 (1990).          The Appellant

has presented no authority to suggest that the statute should or

can be interpreted in any manner other than how it plainly reads.

In   fact,   the   legislative   history   suggests   the   Congress   was

cognizant of the separate treatment of claims and interests: “After

notice and a hearing, the court may, under principles of equitable

subordination, subordinate for the purposes of distribution all or

part of an allowed claim to all or part of another allowed claim or

all or part of an allowed interest to all or part of another

allowed interest.     As a matter of equity, it is reasonable that a

court subordinate claims to claims and interests to interests.”

124 Cong. Rec. H 11,095 (Sept. 28, 1978; S 17,412 (Oct. 6,

1978)(emphasis added).

      The creation of the trust and the exchange rights may well

                                   16
have been the fruits of careful bankruptcy planning. However, this

does not alter our conclusion that the property held by the Little

Switzerland Trust is not property of the estate, and thus the

holders of the Exchangeable Preferred Stock do not hold claims, in

the form of redemption rights, which may be subordinated to the

claims of unsecured creditors.

II.     Voidness of the Little Switzerland Trust.

        Town & Country also argues that the Little Switzerland Trust

is void under Massachusetts law as a self-settled trust.                    Town &

Country relies       on   Merchants   National      Bank   of    New    Bedford    v.

Morrissey, 109 N.E.2d 821 (Mass. 1953), which stated that a self-

settled trust is void against creditors of the settlor. Id. at 823.

Town & Country asks this panel to extend Merchants National Bank,

which     involved   an    individual        who   transferred     assets    to     a

spendthrift trust for his own benefit, to a corporation which

places assets in trust for the benefit of its shareholders.                     Like

the court below, we reject this argument.

        We agree with Town & Country that the rule in Massachusetts is

that a settlor who establishes a trust for the settlor’s own

benefit and reserves the ability to amend, revoke or invade the

corpus of the trust cannot protect the trust from the reach of

creditors. See Aylward v. Landry (In re Landry), 226 B.R. 507,

510(Bankr.D.Mass.1998);       In   re    Rosencranz,       193   B.R.    629,     633

                                        17
(Bankr.D.Mass.1996);         In     re        Kellogg,     179      B.R.      379,

389(Bankr.D.Mass.1995). However, the Little Switzerland Trust,

which was created by Town & Country, was not created for the sole

benefit of the corporation, but rather was created for the benefit

of the holders of the Exchangeable Preferred Stock. The bankruptcy

court held that to find that the Little Switzerland Trust was a

self-settled trust would require the court to pierce the corporate

veil, that is, find that there was no distinction between the

stockholders and the corporation.              We agree with the bankruptcy

court.

      Town & Country offers no authority for the proposition that we

should refuse to recognize a distinction between the corporation

and   the    stockholders.        To     treat   the     corporation    and    the

shareholders as one, as Town & Country proposes, would be to ignore

one of the central tenets of corporate law: the corporate entity is

separate    and   distinct   from      its    shareholders.   See    Spaneas    v.

Travelers Indemnity Company, 668 N.E.2d 325, 326 (Mass.1996); Zora

v. State Ethics Commission, 615 N.E.2d 180, 186 (Mass.1993); In re

Plantation Realty Trust, 232 B.R. 279, 282 (Bankr.D.Mass.1999).

Without     piercing   the   corporate        veil   and   finding     that    the

distinction between the stockholders and the corporation should be

disregarded, we can find no justification for finding the Little

Switzerland Trust is a self-settled trust.

                                         18
III.    Violation of Massachusetts Corporate Law.

       The final argument of Town & Country is that the exchange

constitutes an unlawful stock redemption in violation of the

Massachusetts     statute     forbidding     corporations     from   making

distributions while the corporation is insolvent.           Mass. Gen. Laws

ch. 156B, §45.    However, to find that the exchange was an improper

distribution would require us to find that the exchange was a stock

redemption.   We have already determined that the exchange does not

constitute a stock redemption.      Therefore, this argument fails as

well.

                                CONCLUSION

       The Panel finds that because the Little Switzerland Stock is

not    property   of   the   bankruptcy    estate   the   holders    of   the

Exchangeable Preferred Stock do not hold a claim against the

estate, but an equity interest.       Section 510(c) of the Bankruptcy

Code cannot be utilized to prevent the holders of this Exchangeable

Preferred Stock from exchanging this interest for property that is

not property of the estate.       Furthermore, the Little Switzerland

Trust is not void as a self-settled trust, and the exchange rights

of the holder of the Exchangeable Preferred Stock do not violate

Massachusetts law.      Accordingly, the judgment of the bankruptcy

court is affirmed.

                                    19