Zubrod v. Bean

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF WYOMING
In re
CHARLES WELDON BEAN,
Debtor.
TRACY ZUBROD, Chapter 7 Trustee
of the Bankruptcy Estate of
Charles Weldon Bean,
Plaintiff,
v.
KERRY LEE BEAN,
Defendant.
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) 	Case No. 	12-20359
) 	Chapter 7
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) 	Adv. No. 	12-2018
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OPINION
On July 11, 2013, this matter carne before the court for hearing on the Motion for
Summary Judgment and Judgment on the Pleadings filed by Kerry Bean ("Defendant")
and the limited objection filed by Tracy Zubrod ("Plaintitr). At the conclusion of the
hearing, the court took the matter under advisement. Having reviewed the pleadings,
including all the supplemental pleadings regarding this matter, the parties' arguments and
applicable law, the court is prepared to rule.
Jurisdiction
The court has jurisdiction over this adversary proceeding under 28 U.S.C. §§ 157
and 1334. This is a core proceeding within the definition of28 U.S.C. § 157(b)(l). The
motion is brought under Fed. R. Civ. P. 56, made applicable in adversary proceedings by
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Fed. R. Bankr. P. 7056 and 7012(c).1
Undisputed facts
Charles Bean ("Debtor") and Defendant were married. During the marriage,
Debtor and Defendant acquired the real property located at 1560 Snowy Ridge Road,
Laramie, Wyoming ("Bullseye Property"). The couple owned the property as husband
and wife, tenants by the entireties. On June 28, 2007, Debtor's and Defendant's Decree
of Divorce ("Decree") was entered by the Second Judicial District Court, State of
Wyoming. 	On that same date, the Separation, Property Settlement and Child Custody
Agreement ("Property Settlement") was approved by the court and incorporated into the
Decree. As part of the Property Settlement, Debtor was awarded, "as his sole and separate
property ... (2) All interest, including that of Wife, in the real property located at 1560
Snowy Range Road, also known as the Bullseye Laramie building ... " 	The Property
Settlement also states:
"Wife shall retain her legal interest in the title to said real property
until such time as the second and third mortgages on the property at 4850
Mesquite Lane [Residence] have been paid and she has been released from
any liability in connection with Husband's business. At such time, Wife
shall execute a QuitClaim Deed in said property to Husband."
Debtor was liable for all the real and personal taxes regarding this property and his
business, "along with all mortgage indebtedness ... holding Wife [Defendant] harmless."
Debtor was expected to refinance the mortgage on the property and line-of-credit loan to
1 Unless otherwise indicated all future statutory references are to the United States Bankruptcy Code, 11
U.S.C. 101 et seq.
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release the Wife for any indebtedness on the Bullseye Property.
Debtor failed to pay the balance of the third mortgage on the residence, nor did he
refinance the mortgage and line-of-credit loan on the Bullseye Property. 	Therefore,
Defendant did not execute a quitclaim deed transferring the Bullseye Property to the
Debtor.
Debtor filed for chapter 7 bankruptcy protection on April 16, 2012. Debtor listed
the Bullseye Property as an asset on his Schedule A, stating "held jointly with ex-wife,"
valuing the property at $228,022.00 and claiming that the property was encumbered by a
secured claim in the amount of$143,825.26.
Plaintiff initiated this adversary proceeding by tiling a complaint requesting
authority to sell the Bullseye Property pursuant to § 363(h). Defendant filed her answer
on June 12, 2012, contending that the property was subject to the payment of certain
debts specified in the Property Settlement, therefore she was not required to execute a
quitclaim deed to tum her portion of the property over the Debtor's bankruptcy estate;
that the Decree granted her an "ongoing and secured interest in the property until debtor
performs certain obligations ... :" and agreed that the "property should be listed with a real
estate agent and the property sold." On January 16, 2013, the Plaintiff and Defendant
tiled a Stipulated Motion for Approval of Agreement Regarding Sale of Property and
Pending Adversary Case, providing the Trustee authority to retain a real estate agent and
sell the Bullseye Property and place any net proceeds from the sale in the bankruptcy
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estate's account "pending the outcome of this adversary proceeding." The Bullseye
Property sold, resulting in net proceeds in the amount of$27,186.67.
Discussion
The Trustee filed this adversary complaint to obtain this court's authority to sell
the Bullseye Property under§ 363(h) which states:
Notwithstanding subsection (f) of this section, the trustee may sell
both the estate's interest, under subsection (b) or (c) of this section, and the
interest of any co-owner in property in which the debtor had, at the time of
the commencement of the case, an undivided interest as a tenant in
common, joint tenant, or tenant by the entirety, only if-
(1) 	partition in kind of such property among the estate and such
co-owners is impracticable~
(2) 	sale of the estate's undivided interest in such property would
realize significantly less for the estate than the sale of such
property free of the interests of such co-owners;
(3) 	the benefit to the estate of a sale of such property free of the
interests of co-owners outweighs the detriment, if any, to
such co-owners; and
(4) 	such property is not used in the production, transmission, or
distribution, for sale, of electric energy or of natural or
synthetic gas tor heat, light or power.
Defendant's response and subsequent stipulation asserted that the Defendant did
not object to the Trustee retaining a broker and selling the Bullseye Property. Defendant
asserts numerous issues regarding the distribution of the net proceeds, requesting this
court enter summary judgment or alternatively, judgment on the pleadings.
(1) 	Judgment on the pleadings
The Federal Rules of Bankruptcy Procedure provides, "After the pleadings are
closed - but early enough not to delay trial - a party may move for judgment on the
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pleadings." 2 The same standard is applied for Rule 7012(c) motions as for motions made
pursuant to Rule 7012(b). 3 While technical fact pleading is not required, the complaint
must provide enough factual allegations for a court to infer potential victory.
Mootness issue:
Defendant asserts that as the Bullseye Property has been sold, pursuant to the
Trustee's complaint, this matter is now moot requiring another adversary proceeding to
determine the distribution of the sale's net proceeds. This court disagrees. The
Bankruptcy Code provides:
"After a sale of property to which subsection (g) or (h) of this
section applies, the trustee shall distribute to the debtor's spouse or the co-
owners of such property, as the case may be, and to the estate, the proceeds
of such sale, less the costs and expenses, not including any compensation
of the trustee, of such sale, according to the interests of such spouse or co-
owners, and of the estate. " 4
The court finds that the distribution of the net proceeds from the§ 363(h) sale are
statutorily required and part of this adversary proceeding. Defendant's request for a
judgment on the pleadings is denied.
(2) 	Summarv Judgment
A party claiming relief may move, with or without supporting affidavits, for
2 Fed. R. Bankr. P. 7012(c).
3 Jvey v. McDaniel (In re EBW Laser, Inc.), Case No. 05-1 0220C-7G, Adversary No. 07-2004, 2008 Bankr.
LEXIS 1276 (Bankr. M.D. N.C. Apr. 21, 2008).
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summary judgment on all or part of the claim. The judgment sought should be rendered if
the pleadings, the discovery and disclosed materials on tile and any affidavits show that
there is not a genuine issue as to any material fact and that the movant is entitled to
judgment as a matter oflaw. 5 An issue of fact is material if under the substantive law it is
essential to the proper disposition of the claim. 6 In considering a motion for summary
judgment, the court draws all reasonable inferences in favor of the nonmoving party. 7
Summary judgment may be granted to a non-moving party if the facts are fully developed
at the summary judgment hearing so that the court of appeals can detennine that the
nonmoving party clearly was entitled to a judgment as a matter of law and there is no
procedural prejudice to the moving party. 8 The non-moving party cannot rest on the mere
allegations in its pleadings and must come forward with evidence to raise a genuine
issue. 9
Defendant filed a supplement to her motion for summary judgment stating that the
only remaining issue is the distribution of the net proceeds from the sale of the Bullseye
Property.
Page 6
5 Fed. R. Civ. P. 56, made applicable by Fed. R. Bankr. P. 7056.
6 Thomas v. Metropolitan Life Insurance Co., 631 F.3d 1153 (1 O'h Cir. 2011 ).
7 Adamson v. Multi Community Diversified Services, Inc., 514 F.3d 1136 (1 O'h Cir. 2008).
8 Faust in v. City and County of Denver, 423 F.3d 1129 (lO'h Cir. 2005).
9 Td.
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Defendant asserts that based upon the "clear language of the Divorce Decree and
this Court's Summary Judgment in Adversary Proceeding 12-2025, the Court should
grant Defendant Summary Judgment herein and order the Plaintiff to turnover to
Defendant the sum of$27,186.67, plus all interest accrued thereon."
(a) 	Parties' interests in the net proceeds
Prior to the divorce, Debtor and Defendant owned the Bullseye Property as
tenants by the entirety. Defendant asserts that as Debtor did not comply with the terms of
the Property Settlement, she still has an interest in the property which the Trustee has
attempted to extinguish. Plaintiff alleges that she is not attempting to extinguish
Defendant's interest in the property, or in this case, the proceeds from the sale of the
property but is attempting to distribute to the Defendant her one-half interest of the
proceeds. Defendant requests, by summary judgment, that this court rule that the entire
net proceeds be distributed to her on the following basis: (1) her interests are secured and
encompass the entire net proceeds; (2) that this court's order regarding Debtor's
dischargeabilty detennined that Defendant's interest in the property was the amount of
Debtor's default so the estate's interest in the Bullseye Property would only be any equity
above the amounts of the mortgages and other encumbrances against the property and
amount Debtor was to pay Defendant pursuant to the Divorce Decree; or (3) that the
Rooker-Feldman doctrine is applicable to this proceeding.
Plaintiff argues that the Defendant owns a one-half interest in the net proceeds
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from the sale of the Bullseye Property and that Defendant's damage claims are unsecured
claims against the bankruptcy estate.
This court agrees that Defendant has an interest in the Bullseye Property and
subsequently to the net proceeds from its sale. The fundamental issue before the court is
to determine each parties' interest in those proceeds.
Debtor and Defendant owned the Bullseye Property as tenants by the entireties.
The Decree and Property Settlement granted the Debtor all the interest in the Bullseye
Property, contingent upon the Debtor meeting certain conditions, i.e. payment of
mortgages and other debts. Debtor failed to meet those conditions. On the date that the
Debtor filed for chapter 7 bankruptcy protection, Debtor and Defendant each maintained
their interest in the Bullseye Property as tenants by the entireties. 10 A bankruptcy
debtor's property passes to the estate automatically upon filing a petition. 11 A debtor's
interest in property as tenants by the entireties is property of the estate under §
54l(a)(1)Y Debtor's interest in the Bullseye Property became property ofhis bankruptcy
estate at the time he filed his petition. Under Wanandy, the non-exempt entireties
property can be used to satisfy joint creditor claims. The court, having reviewed the
10 Although the majority view holds that tenancy by entirety is changed into a tenancy in common with a
divorce, this court does not fmd Wyoming statutory authority or case law that Wyoming has joined the majority
view. The Wyoming Supreme Court has not ruled on this specific point. Jerry W. Housel, Tenancy by Entirety in
Wyoming, 3 Wyo. L.J. 66 1948 and a search of subsequent case law.
ll In re Wenande, 107 B.R. 770 (Bankr. D. Wyo. 1989).
12 ld at 775.
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evidence, schedules and pleadings, is unable to determine the extent in which the
Debtor's unsecured creditors, may be joint creditors. This is a genuine issue of material
fact that is essential to the determination of the distribution of the net proceeds.
Summary judgment may not be entered on this issue.
(1) Are Defendant's interests secured, encompassing the entire net proceeds?
The court reviewed the Decree, Property Settlement and cited law. The court did
not find any language in either the Decree or Property Settlement that created a lien on
the Bullseye Property. In Watkins, the divorce judgment contained language giving a
lien to the creditor. 13 However, this court's review of the Decree and Property Settlement
does not reflect that the Defendant was granted a lien by the language of either
document. Defendant did not provide evidence that she is a secured creditor. Having
reviewed the evidence in the light most favorable to the Plaintiff, the court finds the
claim is not secured and under Rule 7056(g)(l) grants summary judgment to Plaintiff.
(2) 	Did the court's order regarding the dischargeability of Defendant's claim
determine Defendant's interest in the Bullseye Property?
Defendant asserts that the court's findings in the Decision on Motion for
Summary Judgment ("Decision") entered on April29, 2013 regarding the
dischargeability of Defendant's claim, is a finding that on the date that the Debtor filed
his bankruptcy petition, Defendant's interest in the Bullseye Property was the amount
13 Watkins v. Watkins. 922 F.2d 1513 (lO'h Cir. 1991).
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that the court found as non-dischargeable. This court disagrees with Defendant's
interpretation of the Decision. Defendant is lumping together two separate and distinct
issues, i.e., that of ( 1) a determination of dischargeability of claims; and, (2)
Debtor's/Defendant's interest in the Bullseye Property. Reviewing the evidence in the
light most favorable to the non-moving party, the court does not find that the
Defendant's interest was established by the court's Decision and denies the motion for
summary judgment on this issue and under Rule 7056(f)(l) grants summary judgment to
Plaintiff on this issue.
(c) 	Rooker-Feldman doctrine
The Rooker-Feldman doctrine provides that lower-level federal courts lack
subject-matter jurisdiction to review certain state court rulings. The doctrine is
application to federal bankruptcy courts. The Rooker-Feldman doctrine occupies narrow
ground and is limited to a confined class of cases. It applies to cases brought by state-
court losers complaining of injuries caused by state-court judgments rendered before the
bankruptcy proceedings commenced and ask the bankruptcy court to review and
rejection those judgments. 14 Upon review, this court finds Defendant's argument is not
applicable. The Plaintiti is not attempting to have this court review and reject the state
court's Decree and Property Settlement, but to interpret and apply the state court
14 Iannini v Deutsche Bank. Nat'! Trust Co. (In re Iannini), 2010 U.S. Dist. Lexis, Civil Action No. 1055.
2010 U.S. Dist. LEXIS 50768 (D.C. W.D. Penn, May 24, 2010)
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judgment. Therefore, the court finds that this argument does not apply to the facts and
circumstances of this case.
Conclusion
Based upon the above analysis, the court finds (I) that Defendant's request for a
judgment on the pleadings is denied; (2) the parties' interest in the net proceeds must be
determined by the submission of testimony and other evidence; (3) Defendant's interests
in the net proceeds are not a secured interest based upon the Decree and Property
Settlement; (4) this Court's Decision determining the dischargeability of Defendant's
claim did not establish Defendant's interest in the net proceeds; and (5) the Rooker-
Feldman doctrine is inapplicable to the facts and circumstances before the court.
This opinion constitutes the Court's findings of fact and conclusions oflaw. A
separate order shall be entered pursuant to Fed. R. 	Bankr. P. 9021.
DATED this 2 	day of August, 2013.
Service to:
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Paul Hunter
Stephen Winship
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