In re: John Gregory Skorich v. Donna Skorich

United States Court of Appeals
For the First Circuit
No. 06-2395
IN RE: JOHN GREGORY SKORICH,
Debtor.
__________
EDMOND J. FORD, TRUSTEE,
Plaintiff, Appellant,
v.
DONNA SKORICH,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW HAMPSHIRE
[Hon. Paul J. Barbadoro, U.S. District Judge]
Before
Boudin, Chief Judge,
Campbell, Senior Circuit Judge,
and Howard, Circuit Judge.
Edmond J. Ford with whom Ford, Weaver & McDonald, P.A. was on
brief for appellant.
Eleanor Wm. Dahar with whom Victor W. Dahar, P.A. was on brief
for appellee.
March 30, 2007

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The bankruptcy trustee says that Bursey holds only that a 1
spouse has standing to protect legal title to marital property.
But the New Hampshire Supreme Court described a spouse as having an
"equitable interest" and a "legally protectable property interest"
in marital property. Bursey, 719 A.2d at 579. She has standing to
protect legal title because she has an equitable interest in the
property.
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BOUDIN, Chief Judge. On this appeal, state family law
intersects with the federal bankruptcy statute. On May 14, 2003,
Donna Skorich ("Skorich") filed a petition for divorce from J.
Gregory Skorich ("the debtor") with the Portsmouth, New Hampshire,
Family Court. Pursuant to N.H. Rev. Stat. Ann. § 458:16-b (2000),
the Family Court issued an order restraining each party from
disposing of any property belonging to either of them (subject to
narrow exceptions). Under state law, this granted Skorich an
equitable interest in the marital property subject to its later
division by the court. Bursey v. Town of Hudson, 719 A.2d 577, 579
(N.H. 1998); N.H. Rev. Stat. Ann. § 458:16-a (2000).1
Among the property subject to allocation was jointly
owned real estate in Rangeley, Maine. On June 24, 2004, the Family
Court became aware of a pending sale of the Rangeley property, and
it directed that the proceeds (approximately $300,000) be placed in
an escrow account under the joint control of Skorich's and the
debtor's respective divorce counsel. Apparently the court aimed to
protect Skorich's potential interest in the property, given that
(in the Family Court's words) the debtor had "violated almost every
order that this Court has made" and had "concealed assets and

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diverted assets, and taken title to assets in the names of third
parties."
Shortly thereafter, on July 9, 2004, the debtor filed a
Chapter 7 bankruptcy petition. On September 8, 2004, the
bankruptcy court granted Skorich relief from the automatic stay to
allow her "to obtain a final divorce decree from the Family Court,
which may include allocation of the couple's marital assets" but
not their distribution unless approved by the bankruptcy court. On
March 29, 2005, the Family Court issued its final decree which
awarded Skorich the entire amount in the escrow account, and
Skorich filed a motion with the bankruptcy court to obtain the
escrowed funds awarded to her in the divorce.
The bankruptcy trustee ("the trustee") objected,
contending that the debtor's share of the escrow funds was property
of the debtor's estate subject to administration by the trustee.
On October 19, 2005, the bankruptcy court issued a decision holding
that under state law the debtor was divested of all legal title to
the funds when they were placed in escrow, prior to his filing for
bankruptcy, retaining only a contingent equitable interest in them
subject to the Family Court's ultimate division of marital
property. In re Skorich, 332 B.R. 77, 87 (Bankr. D.N.H. 2005)
("Skorich I").
Based on this decision, Skorich filed a motion for
summary judgment with the bankruptcy court seeking a hand-over of

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the escrowed funds. The trustee filed a cross-motion for summary
judgment, on the ground that the transfer of the debtor's legal
title to the escrow agents was a preferential transfer avoidable
under section 547 of the Code, 11 U.S.C. § 547 (2000). Avoidance
of the transfer would bring legal title to the sale proceeds back
into the debtor's estate, and--according to Skorich I--the
trustee's status as a hypothetical judicial lien creditor, 11
U.S.C. § 544(a), would enable him (based on state law) to cut off
Skorich's contingent equitable interest in the debtor's share of
the proceeds. Skorich I, 332 B.R. at 84.
The bankruptcy court ruled that the transfer to the
escrow agent had not been for Skorich's benefit as "a creditor" nor
was it on account of "an antecedent debt," two preconditions of
section 547(b). Thus, the trustee could not avoid the transfer of
legal title to the funds out of the debtor's estate; and, as the
Family Court decree gave full title to the escrow account to
Skorich, the funds belonged to her. Ford v. Skorich, 337 B.R. 441,
447 (Bankr. D.N.H. 2006) ("Skorich II"). The district court
affirmed, 2006 WL 2482694 (D.N.H. 2006).
The trustee now appeals to contest the ruling under
section 547--an issue of law that we review de novo. Ganett v.
Carp (In re Carp), 340 F.3d 15, 21 (1st Cir. 2003). The Bankruptcy
Code's treatment of equitable interests relating to property is a
subject of great difficulty, and by coincidence another such case

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is also before us, Abboud v. The Ground Round, Inc. (In re Ground
Round), No. 06-9002 (1st Cir.), and is decided today. The process
of unraveling the Bankruptcy Code's obscurities in regard to such
interests is far from over.
The Bankruptcy Code transfers to the estate any interest
in property--whether legal or equitable--held by the filer at the
time of bankruptcy (subject to narrow exceptions not pertinent
here). 11 U.S.C. § 541(a)(1). Once the divorce petition was
filed, the debtor and Skorich each held shared legal title and
(because of the divorce petition) an individual contingent
equitable interest in all of the proceeds from the house sale. The
escrowing divested both parties of legal title to the funds, but
not their equitable interests.
The trustee inherited the debtor's contingent equitable
interest but that contingency never matured; instead, the
contingency vanished when (after the lifting of the automatic stay)
the Family Court awarded all of the escrowed funds to Skorich. If
this were the end of the matter, Skorich would arguably have clean
title to the fund--full equitable ownership and a right to title
from the escrow agents--and third parties holding claims against
the debtor would have to look to other assets.
However, section 547 allows the trustee to "avoid"
preferential transfers. If this provision applied to the transfer
of legal title from the debtor and Skorich to the escrow agents,

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Courts disagree as to whether section 541(d) protects a third 2
party against having her equitable interest in property cut off by
the trustee's strong-arm power when the debtor holds only bare
legal title to the property. Compare In re Quality Holstein
Leasing, 752 F.2d 1009, 1013 (5th Cir. 1985), with Belisle v.
Plunkett, 877 F.2d 512, 515 (7th Cir.), cert. denied sub nom, 493
U.S. 893 (1989); see also 11 U.S.C. § 541(d). We assume arguendo
that section 544(a) does, where state law so provides, clothe the
trustee with the power to extinguish the equitable interest.
Whether New Hampshire law would allow a hypothetical judgment
lien creditor to take ahead of Skorich could be debated, but the
Bankruptcy Court held that a judgment lien creditor would indeed
take ahead of Skorich. Skorich I,332 B.R. at 84. Such a a result
is at least colorable, cf. Charter Fin. Inc. v. Aurora Graphics,
Inc. (In re Jasper-O'Neil), 816 A.2d 989, 991 (N.H. 2003); Rodman
v. Young, 679 A.2d 1150, 1152 (N.H. 1996), and Skorich has not
contested it.
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Skorich's claim to the proceeds--more precisely, to the debtor's
presumptive half share--might begin to unravel. True, Skorich (and
the debtor) would each retain a contingent equitable interest in
the whole and only Skorich's interest would have matured. But
under section 544, the strong-arm power of the trustee could
arguably be used to cut off Skorich's equitable interest in the
debtor's presumptive share of the proceeds.2
This brings us to section 547, which allows the trustee
to avoid a transfer of a debtor's interest in property made within
90 days before the filing of the bankruptcy petition if, among
other things, the transfer was "to or for the benefit of a
creditor" and "for or on account of an antecedent debt owed by the
debtor before such transfer was made." 11 U.S.C. § 547(b)
(emphasis added). In the ordinary sense, Skorich was not a
creditor of her husband as to the property: they owned it together,

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subject to the Family Court's power to allocate it in a divorce
proceeding.
Nevertheless, the Bankruptcy Code has its own technical
definitions. A "creditor" is any "entity that has a claim against
the debtor" that arose before the bankruptcy petition was filed, 11
U.S.C. § 101(10); a "debt means liability on a claim," id. §
101(12); and a "claim" is a:
(A) right to payment, whether or not such
right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal,
equitable, secured, or unsecured; or
(B) right to an equitable remedy for breach of
performance if such breach gives rise to a
right to payment, whether or not such right to
an equitable remedy is reduced to judgment,
fixed, contingent, matured, unmatured,
disputed, undisputed, secured, or unsecured.
Id. § 101(5).
Skorich says that she had no "claim" as to the debtor's
presumptive share of the proceeds for two reasons. The first is
that at the time of the bankruptcy filing--normally the critical
date for identifying claims by creditors in bankruptcy, 11 U.S.C.
§ 101(10)--no division of property had yet occurred; the second is
that her equitable interest in the debtor's share was not in any
event a "claim" under either part of section 101(5)'s definition.
If the equitable interest otherwise constituted a claim
within the meaning of the definition, the fact that it was
contingent and unmatured at the time of the bankruptcy petition

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Compare Woburn Assocs. v. Kahn (In re Hemingway Transp., 3
Inc.), 954 F.2d 1, 8 (1st Cir. 1992), with Avellino & Bienes v. M.
Frenville Co. (In re M. Frenville Co.), 744 F.2d 332, 337 (3d Cir.
1984), cert. denied, 469 U.S. 1160 (1985).
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would not be a bar to treating it as a claim. Both halves of
section 101(5)'s definition explicitly say that it does not matter
if a claim is contingent and unmatured. Although a few cases lean
in Skorich's direction, our own precedent is in the trustee's favor
on this issue.3
Skorich's better argument--and the basis for the
decisions by the bankruptcy and district courts below--is that her
equitable interest in marital property is not a "claim" at all
under section 101(5), because it is neither a "right to payment"
(subsection (A)) nor a "right to an equitable remedy for breach of
performance" (subsection (B)). See In re Compagnone, 239 B.R. 841,
845 (Bankr. D. Mass. 1999); In re Perry, 131 B.R. 763, 766-67
(Bankr. D. Mass. 1991).
We start with subsection (A). Just prior to the escrow
transfer, Skorich had shared legal title to the proceeds and a
contingent equitable interest in the whole fund, but this was not
a contingent right to payment from the debtor, whether out of his
property share or otherwise; rather, it was an interest in property
obtained upon the filing of the divorce petition by virtue of her
status as spouse. Bursey, 719 A.2d at 579.

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Compare, e.g., In re White, 212 B.R. 979, 982-83 (10th Cir. 4
BAP 1997) (equitable interest vests when divorce petition is
filed); In re Roberge, 188 B.R. 366, 369 (E.D. Va. 1995) (same),
with, e.g., Ara v. Anjum (In re Anjum), 288 B.R. 72, 76 (Bankr.
S.D.N.Y. 2003) (no interest until divorce award); In re Polliard,
152 B.R. 51, 53-54 (W.D. Pa. 1993); Perlow v. Perlow, 128 B.R. 412,
415 (E.D.N.C. 1991); In re Palmer, 78 B.R. 402, 406 (Bankr.
E.D.N.Y. 1987).
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The trustee cites numerous cases purporting to establish
that a spouse's interest relating to marital property is inevitably
a "claim" under section 101(5); but in reality, courts take
different views on this issue, seemingly affected in part by how
different state laws treat marital interests. Nor does the fact 4
that the Rangeley property was liquidated change the analysis. Cf.
In re Brown, 168 B.R. 331, 334-35 (Bankr. N.D. Ill. 1994).
The trustee also says that the divorce court could have
awarded Skorich a monetary sum payable by the debtor in place of
any interest in the real property or sale proceeds; that would
arguably be a right to payment under subsection (A). See In re
Emelity, 251 B.R. 151, 154 (Bankr. S.D. Cal. 2000). But here, the
divorce court did not award Skorich a right to payment in lieu of
an equitable division of property; instead, the divorce court
matured Skorich's equitable interest in the marital property.
Subsection (B) is even more clearly inapplicable. How
that subsection should be read is the subject of much controversy,
but by its terms it applies only to equitable remedies "for breach
of performance" where money is a substitute remedy. Even if

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division of marital property were regarded as an equitable remedy,
no breach of performance--for example, for failure to perform a
contract--is involved in the present case and only equitable
remedies for breach of performance are potentially claims under
section 101(5). See In re Perry, 131 B.R. at 767.
The trustee also invokes section 102(2) which provides–as
a rule of construction--that "'claim against the debtor' [the
subject of section 101(5)] includes claim against property of the
debtor." 11 U.S.C. § 102(2). The trustee reads this provision as
if it made all claims to third party property in the hands of the
debtor "claims" against the estate. But this would virtually wipe
out section 101(5)(B)'s limitations and is contrary to the limited
role that Congress intended for its "rule of construction."
As its legislative history makes plain, section 102(2)
does nothing more than clarify that claims to money payable out of
the debtor's property are to be treated no differently than claims
to money enforceable against the debtor personally. Thus, under
this provision a non-recourse loan, being a claim for money, is a
claim against the estate even though "the creditor's only rights
are against property of the debtor." S. Rep. No. 95-989, at 28
(1978); see Johnson v. Home State Bank, 501 U.S. 78, 84 (1991).
Skorich has no such money claim against the debtor; her only
interest is an equitable interest to the fund.

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The trustee also says that our decision in Davis v. Cox,
356 F.3d 76 (1st Cir. 2004), assumed that an equitable interest in
marital property constituted a "claim" under section 101(5). Davis
held that Maine law would recognize a constructive trust on the
wife's part in an IRA nominally owned by her debtor husband, id. at
89, and that certain funds held in escrow were not property of the
estate under section 541 and were permissibly awarded to the wife,
id. at 93-94.
Thus, if anything, Davis is generally helpful to Skorich
on several points and the issue that principally worried the court
in Davis--just what equitable interest Maine courts would recognize
in marital property--is resolved by New Hampshire case law in
Skorich's favor. See Bursey, 719 A.2d at 579. Although the
bankruptcy court in Davis proceeded on the assumption that the
trustee attributes to us, our decision adopted no such holding, see
id. at 83 n.5, and did not even mention section 101(5).
Lastly, the trustee says that allowing Skorich to claim
the escrow fund undercuts the section 547 policies of equal
treatment of creditors and of defeating preferences. By
recognizing a property interest of non-debtor spouses not
dischargeable in bankruptcy, the trustee says we will encourage a
debtor spouse to favor a non-debtor spouse over bankruptcy
creditors, in order to satisfy a nondischargeable obligation that
might otherwise remain unsatisfied.

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This litigation is far from section 547's heartland: it
is certainly not a case of the debtor smuggling out property to
prefer one creditor to another. Further, equal treatment is hardly
the only interest reflected in the Code's many compromises as to
secured interests, priorities, and preference avoidance provisions.
Nothing in the outcome in this case is an assault on the main
thrust of section 547.
No single case can sort out--let alone answer--the array
of adjacent questions posed where divorce and bankruptcy overlap or
smooth out the many wrinkles in the precedents. Modesty counsels
a focus upon specific provisions and individual facts. Having
sought to trace the respective interests, we conclude that Skorich
does not have a "claim" against the debtor as a "creditor"; nor was
the transfer of legal title to the escrow agents "on account of
antecedent debt." Section 547 therefore does not treat the
transfer as an avoidable preference.
Affirmed.

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