Agnew, Matter of

• Decision Date: 20 April 1987
• Docket Number: No. 86-1716,86-1716
• Citation: 818 F.2d 1284
• Parties: Bankr. L. Rep. P 71,833 In the Matter of Steven W. AGNEW, Debtor-Appellee. LEE SUPPLY CORPORATION, Plaintiff-Appellant, v. Steven W. AGNEW, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1284

818 F.2d 1284

Bankr. L. Rep. P 71,833

In the Matter of Steven W. AGNEW, Debtor-Appellee.

LEE SUPPLY CORPORATION, Plaintiff-Appellant, v. Steven W. AGNEW, Defendant-Appellee.

No. 86-1716.

United States Court of Appeals, Seventh Circuit.

Argued Nov. 6, 1986.

Decided April 20, 1987.

Sidney Mishkin, Mishkin, Cromer, Eaglesfield & Maher, Indianapolis, Ind., for plaintiff-appellant.

William E. Limeberry, Wilson, Limeberry & Tandy, Greenwood, Ind., for defendant-appellee.

Before COFFEY and FLAUM, Circuit Judges, and PARSONS, Senior District Judge. ^*

PARSONS, Senior District Judge.

Lee Supply Corporation appeals from Steven W. Agnew's discharge in bankruptcy. We find no error and affirm.

Most of the facts are undisputed. In 1979, Steven Agnew and Michael Zachary formed Consolidated Plumbing, Inc., and began to do business as plumbing contractors. To fund this business, Steven and his wife Shirley borrowed $10,000, securing it by a second mortgage on their residence in Noblesville, Indiana. Consolidated Plumbing obtained credit on an open account with Lee Supply, and by February of 1981 it owed Lee Supply over $12,000. At this time, Lee Supply sought and obtained from Consolidated a note payable to it in the amount of $12,116.84. It also obtained separate personal guarantees from both Agnew and his partner Michael Zachary to assure the payment of Consolidated's debt to Lee Supply.

In March of 1982 Lee Supply sued Agnew, Zachary and Consolidated Plumbing, and on June 15, 1982 it was awarded judgments against all three defendants. Consolidated's debt to Lee Supply had mounted, and the judgment against Agnew was in the amount of $23,985.17. Meanwhile, the plumbing business went from bad to worse, and in 1982 Consolidated Plumbing filed for bankruptcy and was liquidated. This left only Agnew and Zachary as judgment debtors. In November of 1982 Steven Agnew began making $100.00 a month payments on his debt to Lee Supply. It was Shirley Agnew who furnished the money to make most of these payments. She did this out of income she was earning as a dental hygienist.

In April of 1983 the Agnews sold their house in Noblesville for $61,500.00. The net proceeds of the sale, after paying off the first and second mortgages and deducting the expenses of the sale, were $28,295.77. Though this property had been held by Steven and Shirley as an entirety, the check for the net proceeds was issued to Shirley alone. She in turn used the proceeds to pay for the construction of another house on a piece of land she individually owned, also in Noblesville. Shirley holds title to this real estate solely in her name.

The $100.00 monthly payments to Lee Supply continued until July of 1983. By then, Steven Agnew had become employed again, and Lee Supply, seeking a quicker satisfaction of its judgment against Steven, had his wages garnished for over $200.00 per month. Then, on March 8, 1984, almost eleven months after the Agnew's sale of their home, Steven filed a voluntary petition for bankruptcy under Chapter 7 of the Bankruptcy Code and sought discharge from his debts, including his debt to Lee Supply.

On June 22, 1984, Lee Supply filed a creditor's complaint in the bankruptcy proceeding objecting to Steven's discharge. Paragraph 4 of that complaint stated:

Plaintiff has reason to believe that after the date of its judgment but within one year before the filing of the bankruptcy petition defendant with the intent to hinder, delay or defraud a creditor of the estate transferred property of the debtor to another.

This was Lee Supply's sole allegation in the complaint of conduct barring discharge. Agnew answered the complaint on July 26, 1984, but it was not until June 6, 1985 that a hearing was held on the objection to discharge. On that same day Agnew filed a motion to dismiss the complaint for its failure to state a claim or to comply with Bankruptcy Rule 7009.

On September 13, 1985, the bankruptcy judge found in favor of Steven Agnew. The Agnews testified at the hearing (and the bankruptcy judge so found) that Shirley had received the net sale proceeds from the sale of their house because she had contributed most of the money paid for the house and because the payoff of the second mortgage placed on it essentially satisfied a business debt Steven owed. The bankruptcy judge further found that Steven and Shirley had decided that the proceeds of the sale should pay out in Shirley's name alone because at that time they were separated and were contemplating divorce. They agreed that this arrangement would settle their respective property rights. (They never were divorced, and continue to reside together in the house Shirley purchased with the proceeds from the sale of their first house.) The bankruptcy judge held that Lee Supply had failed to show that Steven had made a fraudulent transfer, or had concealed information, or had knowingly and fraudulently made a false oath or account. Lee Supply appealed to the district court. On April 1, 1986, the order of the bankruptcy judge was affirmed.

On appeal, Lee Supply argues that Steven's discharge was improper under 11 U.S.C. sec. 727(a)(2) because, within one year before the discharge, Steven Agnew had transferred or released to his wife, Shirley Agnew, an interest in a property they had held together in a tenancy by the entirety. It further claims that the discharge was improper under 11 U.S.C. sections 727(a)(3) and 727(a)(4)(A) because Steven concealed in the bankruptcy proceedings information concerning this transfer and also made a false oath or account.

In considering this appeal, we must accept the findings of fact made below unless they are clearly erroneous. This rule, of course, does not apply to conclusions of law made either by the bankruptcy judge or the district court. In re Ebbler Furniture and Appliances, Inc., 804 F.2d 87, 89 (7th Cir.1986); In re Pearson Bros. Co., 787 F.2d 1157, 1161-62 (7th Cir.1986); In re Kimzey, 761 F.2d 421, 423 (7th Cir.1985).

Lee Supply does not challenge the facts found below, but instead challenges the failures of the bankruptcy judge and the district court to draw certain inferences from them. Concerning the transfer of Steven's interest in their home to Shirley, Lee Supply argues that the presence of multiple badges of fraud compels a finding of fraudulent intent, and that the bankruptcy judge and the district court failed properly to apply the Indiana law of tenancy by the entireties to the facts about the sale of the Agnew's first house.

The statute upon which Lee Supply mounts its first challenge to Agnew's discharge, 11 U.S.C. sec. 727(a)(2)(A), provides in part:

The court shall grant the debtor a discharge, unless--

(2) the debtor, with intent to hinder, delay, or defraud a creditor or an officer of the estate charged with custody of property under this title, has transferred, removed, destroyed, mutilated, or concealed, or has permitted to be transferred, removed, destroyed, mutilated, or concealed--

(A) property of the debtor, within one year before the date of the filing of the petition....

To succeed in its objection section 727(a)(2), a creditor must prove:

(1) that the act complained of was done at a time subsequent to one year before the date of the filing of the petition;

(2) with actual intent to hinder, delay, or defraud a creditor or an officer of the estate charged with custody of property under the Bankruptcy Code;

(3) that the act was that of the debtor or his duly authorized agent;

(4) that the act consisted of transferring, removing, destroying or concealing any of the debtor's property, or permitting any of these acts to be done.

4 Collier on Bankruptcy, para. 727.02[b] (15th ed. 1986) (citing In re Kessler, 51 B.R. 895, 898 (Bankr.D.Kan.1985)). The intent to defraud must have been actual rather than constructive. Id., para. 727.02.

We find no reason to disturb the determination that Steven did not transfer assets with an intent to defraud his creditors, because we conclude as a matter of law that the circumstances of this case could not warrant a finding that Steven had defrauded his creditors. Those circumstances involve the application of Indiana's law of tenancy by the entirety to the undisputed facts concerning Steven's relinquishment of his interest in the net proceeds of the sale to Shirley.

Tenancy by the Entirety

At common law prior to the adoption of the Married Women's Property Acts in the nineteenth century, a tenancy by the entirety was the only concurrent estate that could be created between husband and wife, because they were deemed to constitute a single person or entity. R. Cunningham, W. Stoebuck & D. Whitman, The Law of Property sec. 5.5, at 210-11 (West 1984) [hereinafter The Law of Property ]. This estate was abolished in England in 1925, and in the United States it is now allowed in only twenty jurisdictions, Indiana among them. Id., at 211; Craig, An Analysis of Estates by the Entirety in Bankruptcy, 48 Am.Bankr.L.J. 255, 257 (1974). The incidents of this estate vary among jurisdictions:

In a few states it has been held that each spouse has an undivided one-half interest which he or she can convey or encumber at will, and which may be subjected to sale to satisfy his or her individual debts, although any conveyance, encumbrance, or involuntary sale of the interest of one spouse cannot deprive the other spouse of his or her right to possession or right of survivorship. In a larger number of states, however, it has been held that neither spouse has any interest that can be separately conveyed or encumbered, or seized by the creditors of one spouse alone to satisfy their claims against that spouse; thus one spouse alone cannot convey, encumber, or subject to the satisfaction of creditors' claims either that spouse's possessory estate for the joint lives of the co-tenants or that spouse's contingent right of survivorship.

The Law of Property, supra sec. 5.5, at 213-14.

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