In Re: Arlene O'Lexa ( 2007 )

Opinions of the United
2007 Decisions States Court of Appeals
for the Third Circuit
2-7-2007
In Re: Arlene O'Lexa
Precedential or Non-Precedential: Precedential
Docket No. 06-2254
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"In Re: Arlene O'Lexa " (2007). 2007 Decisions. Paper 1548.
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PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
NO. 06-2254
________________
IN RE: ARLENE P. O’LEXA,
Debtor
CHARLES O. ZEBLEY, JR., Trustee,
Appellant
____________________________________
On Appeal From the United States District Court
For the Western District of Pennsylvania
(W.D. Pa. Civ. No. 05-cv-00040)
District Judge: Honorable Terrence F. McVerry
______________________________________
Submitted Under Third Circuit LAR 34.1(a)
December 15, 2006
Before: FISHER, ALDISERT and WEIS, Circuit Judges.
(Filed: February 7, 2007)
_____________________
OPINION
_____________________
PER CURIAM.
In this appeal, the trustee in the Chapter 7 bankruptcy of
Arlene P. O’Lexa challenges the order of the District Court
exempting property held by her as a tenant by the entireties. We
will affirm.
The relevant facts are few and undisputed. O’Lexa filed
individually for bankruptcy after amassing unsecured credit card
debt in her own name for the purchase of household goods and
the payment of bills. O’Lexa’s individual assets are insufficient
to satisfy her individual debt. She and her husband, however,
jointly own a home in Pennsylvania as tenants by the entireties,
and the market value of that home would be sufficient to satisfy
the debt. O’Lexa sought to exempt the home from her
bankruptcy estate under 11 U.S.C. § 522(b)(3)(B).1 The
Bankruptcy Court allowed the exemption over the trustee’s
objection and the District Court affirmed.
We have appellate jurisdiction pursuant to 28 U.S.C. §§
158(d) and 1291. Our review of the District Court’s ruling in its
capacity as an appellate court is plenary, and we review the
bankruptcy judge’s legal determinations de novo. See In re
Trans World Airlines, Inc., 145 F.3d 124, 130-31 (3d Cir. 1998).
Section 522 allows debtors to exempt certain assets from
the property of the estate. Debtors may select either (1) the
1
Under the Bankruptcy Abuse Prevention and Consumer
Protection Act of 2005, § 522(b)(2)(B) was renumbered as §
522(b)(3)(B), but was otherwise unchanged. See In re Weber,
346 B.R. 346, 347 n.2 (Bankr. D. Del. 2006). We will refer to
that section as it is currently.
2
federal exemptions listed in § 522(d), or (2) those permitted,
inter alia, under state law and general (nonbankruptcy) federal
law (“general exemptions”), see § 522(b)(3). The debtors in the
present case selected the general exemptions, which allow an
exemption for “any interest in property in which the debtor had,
immediately before the commencement of the case, an interest
as a tenant by the entirety . . . to the extent that such interest . . .
is exempt from process under applicable nonbankruptcy law
. . . .” § 522(b)(3)(B).2
In this case, such law is the property law of Pennsylvania,
which has long held that “creditors of either spouse cannot
acquire by judgment an enforceable lien on entirety property, or
title therein by sale or execution.” Napotnik v. Equibank and
Parkvale Sav. Ass’n, 679 F.2d 316, 319 (3d Cir. 1982). If,
however, the spouses both file for bankruptcy and there are
creditors who have claims against them jointly, entireties
property may not be exempted under the general exemptions.3
When only one spouse pursues the bankruptcy route,
individual claims against him do not vitiate the immunity of the
entireties estate. See Brannon and Lewis, Nos. 05-5060,
05-4600 (filed concurrently with this opinion); see also, Bunker
v. Peyton, 312 F.3d 145 (4th Cir. 2002) (applying Maryland
entireties law, which is substantively similar to Pennsylvania’s,
to hold that entireties property can be exempted from the estate);
2
Contrast this section with 11 U.S.C. § 522(d)(1), which
provides for a specific residence exemption up to $18,450.
3
Joint debtor spouses may, however, still exempt property
held by the entireties under the specific exemptions of § 522(d).
3
Schlossberg v. Barney, 380 F.3d 174 (4th Cir. 2004). Thus,
O’Lexa argues that her home should be exempted from her
bankruptcy estate.
The trustee, however, argues that the home is not exempt
from process under Pennsylvania law because the nature of
O’Lexa’s debt renders it available to her creditors. The trustee
bases this argument on the “doctrine of necessaries,” which has
been codified in Pennsylvania as follows:
“In all cases where debts are contracted for
necessaries by either spouse for the support and
maintenance of the family, it shall be lawful for
the creditor in this case to institute suit against the
husband and wife for the price of such necessaries
and, after obtaining a judgment, have an
execution against the spouse contracting the debt
alone; and, if no property of that spouse is found,
execution may be levied upon and satisfied out of
the separate property of the other spouse.”
23 Pa. C.S. § 4102 (emphasis added). As the trustee
acknowledges, there does not appear to be Pennsylvania case
law discussing whether this statute allows creditors of a debtor
spouse to reach entireties property. The trustee, however, urges
us to predict that the Pennsylvania Supreme Court would hold
that it does. We predict instead that the court would hold that it
does not.
Our beginning point is the plain language of the statute
itself. It does not provide that a creditor can execute on
entireties property, but states expressly that a creditor of a debtor
spouse may execute on the “separate property” of the nondebtor
4
spouse under the circumstances described. The statute does not
define “separate property,” but the Pennsylvania legislature
clearly knows how to distinguish between “separate property”
and “entirety property” and how to make entireties property
available to creditors in other contexts. See 71 P.S. § 1783
(providing that entireties property jointly owned by an
institutionalized person is available to reimburse the
Commonwealth for the costs of institutionalization when the
“separate property” of the institutionalized joint owner is
insufficient). It chose not to provide for execution on entireties
property here.
Nevertheless, the trustee argues in his brief that the
legislature intended to provide access to entirety property
because the “statute makes both spouses equally liable for the
support of the family.” (Appellant Br. at 17.) The trustee’s
premise is erroneous. The statute does not impose joint and
several liability on each spouse, but instead makes “the spouse
who incurred the debt primarily liable and the nondebtor spouse
only secondarily liable.” Porter v. Karivalis, 718 A.2d 823, 826
(Pa. Super. 1998).
The statute thus does not impose the type of joint liability
that might allow a creditor of both spouses to reach entireties
property. See A. Hupfel’s Sons v. Getty, 299 F. 939, 941 (3d
Cir. 1924) (holding that a husband’s and wife’s individual
obligations to the same creditor did not constitute a “joint debt”
allowing the creditor to reach entirety property under
Pennsylvania law where the husband’s obligation was primary
and absolute and the wife’s only secondary and conditioned on
her husband’s non-performance).
5
The trustee also argues that the plain language of the
statute produces absurd results because it creates uncertainties
regarding the existence and validity of liens on entireties
property that Pennsylvania “has no procedure” to resolve. (Br.
at 19.) We are not persuaded, however, that application of the
statute as written will give rise to such absurd or unreasonable
results that it might justify a departure from its plain language.
Accordingly, we hold therefore that the bankruptcy
judge’s allowance of an exemption for property that O’Lexa
held as a tenant by the entireties was proper, and we will affirm
the District Court’s affirmance of that ruling.
6