-
USCA1 Opinion
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
No. 96-1840
IN RE
DAVID B. EDMONSTON,
Debtor
__________
DAVID B. EDMONSTON,
Appellant,
v.
HAROLD B. MURPHY,
Appellee.
____________________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Reginald C. Lindsay, U.S. District Judge] ___________________
____________________
Before
Cyr and Lynch, Circuit Judges, ______________
and McAuliffe,* U.S. District Judge, ___________________
____________________
George R. Desmond for appellant. _________________
Andrew G. Lizotte, with whom Hanify & King was on brief for __________________ ______________
appellee.
____________________
February 26, 1997
____________________
____________________
*Of the District of New Hampshire, sitting by designation.
CYR, Circuit Judge. Chapter 7 debtor David Edmonston CYR, Circuit Judge ______________
challenges a bankruptcy court ruling disallowing his exemption
claim to entireties property the primary residence owned by
him and his nondebtor spouse since 1980. Edmonston duly claimed
the residence exempt, see Bankruptcy Code 522(b)(2)(B); Mass. ___
Gen. Laws ch. 209, 1, estimated its value at $200,000, and
indicated that he and his nondebtor spouse were jointly obligated
under the $59,000 real estate mortgage and for unsecured _________
indebtedness totaling at least $10,000. In due course the
chapter 7 trustee objected to the exemption claim and Edmonston
responded by contesting both the merits of the objection and the
trustee's "standing" to assert it. Ultimately, the bankruptcy
court disallowed the exemption claim, the district court
affirmed, and Edmonston appealed.
I. I.
As the facts are not in dispute, we conduct de novo __ ____
review of the conclusions of law challenged on appeal. See In re ___ _____
Caron, 82 F.3d 7, 9 (1st Cir. 1996). First, however, we chart _____
the legal terrain underlying the contested conclusions of law.
An interest in property held in tenancy by the entirety
is exempt in bankruptcy "to the extent . . . exempt from process
under applicable nonbankruptcy law," 11 U.S.C. 522(b)(2)(B), in
this instance Massachusetts law. See Napotnik v. Equibank & ___ ________ ___________
Parkvale Sav. Assoc., 679 F.2d 316, 318 (3d Cir. 1982) ("Since _____________________
property law in general and the law of co-tenancies in particular
are creatures of state law, the 'applicable nonbankruptcy law' is
2
the applicable [state] law of tenancy by the entirety.").
Commonwealth law provides that "[t]he interest of a debtor spouse
in property held as tenants by the entirety shall not be subject
to seizure by a creditor of such debtor spouse so long as such
property is the principal residence of the nondebtor spouse." _________
Mass. Gen. Laws ch. 209, 1 (1987) (emphasis added).1 Thus, a
creditor with a claim against both tenants by the entirety ____
("joint creditor") may reach and apply the entireties property.
See Coraccio v. Lowell Five Cents Sav. Bank, 612 N.E.2d 650, 654 ___ ________ ___________________________
(Mass. 1993) ("Nor, by virtue of G.L. c. 209, 1, may a creditor
of either seize the principal residence absent the joint
signature of the spouses."); In re McConchie, 94 B.R. 245, 247 ________________
(Bankr. D. Mass. 1988) ("[T]he property is free from levy and
execution from [sic] the creditor of one spouse if the debts are
not joint or for necessaries."). Accordingly, the present
exemption claim is unsupported by Commonwealth law to the extent
Edmonston and his nondebtor spouse were jointly indebted. See, ___
e.g., Sumy v. Schlossberg, 777 F.2d 921, 928 (4th Cir. 1985) ("A ____ ____ ___________
debtor does not lose all benefit of 522(b)(2)(B) when joint
creditors are present, but he does not benefit from it to the
____________________
1Originally, chapter 209, 1, did not apply to tenancies by 1
the entirety created prior to its effective date, viz., February ____
11, 1980. Turner v. Greenway, 459 N.E.2d 821, 823 (Mass. 1984). ______ ________
See also In re Robbins, 187 B.R. 400, 402 (Bankr. D. Mass. 1995) ___ ____ _____________
("Tenancies by the entirety created prior to February 11, 1980
are governed by the common law."). Subsequently, however, the
Massachusetts legislature enabled married couples whose tenancies
by the entirety were created prior to February 11, 1980, to elect
to come within chapter 209, 1. See Mass. Gen. Laws ch. 209, ___
1 (1987); Mass. Gen. Laws ch. 209, 1A (West Supp. 1996).
3
extent of joint claims.").
Nevertheless, an exemption claim becomes effective by
operation of law absent a cognizable objection. See 11 U.S.C. ___
522(l) ("Unless a party in interest objects, the property claimed
as exempt on such list is exempt."); Fed. R. Bankr. P. 4003(b);
see also Taylor v. Freeland & Kronz, 503 U.S. 638, 643 (1992) ___ ____ ______ _________________
(property listed as exempt by debtor is exempt unless party in
interest objects within 30 days); Mercer v. Monzack, 53 F.3d 1, 3 ______ _______
(1st Cir. 1995) (property listed as exempt becomes exempt by
operation of law absent timely objection), cert. denied, 116 S. _____ ______
Ct. 1317 (1996). Since no joint creditor objected to Edmonston's
exemption claim within the allotted time, the present appeal
cannot succeed unless the chapter 7 trustee qualifies as a "party
in interest" within the meaning of Bankruptcy Code 522(l).
We think it clear that Bankruptcy Rule 4003(b)
itself "derived from 522(l) of the Code," Fed. R. Bankr. P.
4003, Advisory Committee Note authoritatively defines the
section 522(l) term "party in interest," by explicitly stating
that the "trustee or any creditor may file objections to the list __
of property claimed as exempt." Fed. R. Bankr. P. 4003(b)
(emphasis added).2 Moreover, the position we make explicit today
____________________
2The Bankruptcy Rules "govern" procedure in all bankruptcy 2
proceedings unless inconsistent with either title 11 or title 28,
United States Code.
Section 247 of Public Law 95-598, 92 Stat.
2549 amended 28 U.S.C. 2075. . . . to
require that procedural rules promulgated
pursuant to 28 U.S.C. 2075 be consistent __________
with the bankruptcy statute, both titles 11 ____
4
simply gives voice to the longstanding, implicit acknowledgement
that a chapter 7 trustee is a "party in interest" within the
meaning of section 522(l). See, e.g., Taylor, 503 S. Ct. at 642- ___ ____ ______
43 (as trustee waived right to oppose exemption claim by not
objecting within 30-day period prescribed by Rule 4003(b),
property became exempt by operation of 522(l)); Petit v. _____
Fessenden, 80 F.3d 29, 32-33 (1st Cir. 1996) (failure to file _________
timely schedules relieved trustee of duty to object, as there was
no "list of property claimed as exempt" to be opposed under
522(l) and Rule 4003(b)).
As "the representative of the estate," 11 U.S.C. ___
323(a) (emphasis added), the chapter 7 trustee is under a duty to
"collect and reduce to money the property of the estate." Id. ___
704(1).3 See First Nat'l Bank of Mobile v. Norris, 701 F.2d 902, ___ __________________________ ______
____________________
and 28 U.S.C. Thus, . . . any procedural
matters contained in title 11 or 28 U.S.C.
with respect to cases filed under 11 U.S.C.
would control. See 1 Collier, Bankruptcy ___
3.04[2][c] (15th ed. 1980).
Advisory Committee Note (1983) (emphasis added).
Edmonston neither contends nor intimates that Rule 4003(b)
is in any respect inconsistent with either title 11 (Bankruptcy
Code) or title 28 (Judiciary and Judicial Procedure). Nor do we
discern any pertinent inconsistency. On the contrary, given the
mandate in Bankruptcy Code 704 ("The trustee shall (1)
collect and reduce to money the property of the estate . . . ."),
any suggestion that a chapter 7 trustee is not required, let
alone permitted, to oppose an unallowable exemption claim would
be totally at odds with the chapter 7 trustee's principal
statutory responsibility, as "the representative of the [chapter ___
7] estate," id. 323(a) (emphasis added). ___
3Edmonston does not dispute that the entireties property
became "property of the estate" by operation of law, see 11 ___
U.S.C. 541(a)(2)(B) (including in estate all property of debtor
5
904 (11th Cir. 1983); In re Brooks, 12 B.R. 22, 24 (Bankr. S.D. ____________
Ohio 1981). Thus, the statutory duty to administer nonexempt
property of the chapter 7 estate implicitly empowers the trustee
to screen and oppose exemption claims which may not be allowable.
See Fed. R. Bankr. P. 4003(b); see also In re Atlas, 183 B.R. ___ ___ ____ ____________
978, 980 (Bankr. S.D. Fla. 1995) (citing 11 U.S.C. 704; Fed. R.
Bankr. P. 4003(b)).
We accordingly hold that the trustee, as the designated
representative of the chapter 7 estate, 11 U.S.C. 323(a), whose
duties include the collection and liquidation of the nonexempt
property of the estate, see id. 704(1), is a "party in ___ ___
interest" entitled to oppose exemption claims under Bankruptcy
Code 522(1). See also In re Van Rye, 179 B.R. 375, 378 (Bankr. ___ ____ _____________
D. Mass. 1995) (holding that "the Trustee, in his capacity as
representative of the estate, has standing to object" to
exemption claims), aff'd, 96 F.3d 1430 (1st Cir. 1996) (Table). _____
II. II.
Edmonston further contends that since a chapter 7
discharge can only relieve indebtedness of the chapter 7 debtor,
joint creditors may still proceed directly against the entireties
property itself because their claims against the nondebtor spouse
____________________
and spouse which is "liable for an allowable claim against the
debtor, or for an allowable claim against the debtor and an
allowable claim against the debtor's spouse, to the extent that
such interest is so liable"), and thus became subject to
administration under chapter 7 unless exempt.
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would be unaffected by Edmonston's chapter 7 proceeding.4 This
claim impermissibly assumes that the chapter 7 debtor is entitled
to have the entireties property set apart as exempt, on the
theory that joint creditors would retain their respective rights
to proceed against the entireties property under Commonwealth law
in any event. As all relevant reported cases make clear,5
assuming a proper objection by a party in interest an entireties
exemption claim is invalid ab initio to the extent there are __ ______
joint creditors. Thereupon, as nonexempt property of the chapter
7 estate the entireties property becomes subject to
administration.
III. III.
For the foregoing reasons, the district court order is
____________________
4In assailing the Fourth Circuit's holding in Sumy, 777 F.2d ____
at 929-32 that the entireties property was not exempt under
Bankruptcy Code 522(b)(2)(B) Edmonston misapprehends the
court's rationale. The holding was not based on a "legal fraud"
rationale, as Edmonston suggests, but on Bankruptcy Code
522(b)(2)(B) and applicable state law. Sumy, 777 F.2d at 929 ____
(rejecting entireties exemption claim "by interpreting
522(b)(2)(B) in light of state law").
5Other courts of appeals which have weighed in on the matter
are in accord, see Sumy, 777 F.2d at 932; In re Grosslight, 757 ___ ____ ________________
F.2d 773, 776-77 (6th Cir. 1985); Napotnik v. Equibank & ________ ___________
Parkvale Sav. Assoc., 679 F.2d 316, 321 (3d Cir. 1982); compare ____________________ _______
Paeplow v. Foley, 972 F.2d 730, 737 (7th Cir. 1992) (by virtue of _______ _____
Indiana Code 34-2-28-1(a)(5), entireties property is exempt in
bankruptcy, regardless of presence of joint creditors, as long as
only one spouse files bankruptcy petition); so too are the
bankruptcy courts (except in Indiana) which have done so, see, ___
e.g., In re Duncan, 201 B.R. 889, 898 (Bankr. W.D. Pa. 1996); In ____ ____________ __
re Harry, 151 B.R. 735, 737 (Bankr. W.D. Vir. 1992); In re _________ _____
Wickham, 130 B.R. 35, 38 (Bankr. E.D. Vir. 1991); In re Cerreta, _______ _____________
116 B.R. 402, 405-06 (Bankr. D.Vt. 1990); In re Geoghegan, 101 ________________
B.R. 329, 330-31 (Bankr. M.D. Fla. 1989); In re Sefren, 41 B.R. ____________
747, 748 (Bankr. D.Md. 1984); see also Sumy, 777 F.2d at 929 n.16 ___ ____ ____
(collecting cases).
7
affirmed, with costs to appellee, and the case is remanded to the
bankruptcy court for further proceedings consistent with this
opinion.
SO ORDERED. SO ORDERED __ _______
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Document Info
Docket Number： 96-1840
Filed Date： 2/27/1997
Precedential Status： Precedential
Modified Date： 9/21/2015