Cohen v. Chernushin (In re Chernushin)

• Decision Date: 21 December 2018
• Docket Number: No. 18-1068,18-1068
• Parties: IN RE: Gregory CHERNUSHIN, Debtor. Robertson B. Cohen, as Chapter 7 Trustee, Plaintiff-Appellant, v. Andrea Chernushin; Judy T. Cox Revocable Trust; Allen E. Cox Revocable Trust, Defendants-Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

911 F.3d 1265

IN RE: Gregory CHERNUSHIN, Debtor.

Robertson B. Cohen, as Chapter 7 Trustee, Plaintiff-Appellant,

v.Andrea Chernushin; Judy T. Cox Revocable Trust; Allen E. Cox Revocable Trust, Defendants-Appellees.

No. 18-1068

United States Court of Appeals, Tenth Circuit.

FILED December 21, 2018

Mark A. Larson, Larson Law Firm, LLC, Louisville, Colorado (James S. Helfrich, Allen Vellone Wolf Helfrich & Factor P.C., Denver, Colorado, with him on the brief), for Plaintiff-Appellant.

Michael J. Gates, Foster Graham Milstein & Calisher, LLP, Denver, Colorado, for Defendant-Appellee Andrea Chernushin.

Before BRISCOE, MURPHY, and McHUGH, Circuit Judges.

McHUGH, Circuit Judge.

Gregory and Andrea Chernushin owned a second home in Colorado in joint tenancy with right of survivorship. Eventually, Mr. Chernushin (but not Ms. Chernushin) filed for bankruptcy. During the bankruptcy proceedings, Mr. Chernushin died. The bankruptcy trustee, Robertson B. Cohen, then filed an adversary complaint against Ms. Chernushin, seeking to sell the home. Ms. Chernushin argued the bankruptcy estate no longer included any interest in the home because Mr. Chernushin’s joint tenancy interest ended at his death. The bankruptcy court agreed with Ms. Chernushin, as did the district court on appeal. Mr. Cohen now appeals to this court.

Because the bankruptcy estate had no more interest in the home than Mr. Chernushin and Mr. Chernushin’s interest extinguished when he died, we affirm.

I. INTRODUCTION

On August 17, 2015, Mr. Chernushin filed a voluntary Chapter 13 bankruptcy petition. Ms. Chernushin did not join his bankruptcy petition, nor did she file her own. Mr. Chernushin listed two real properties in his petition—a primary residence not at issue and a second home that is the subject of this appeal. Both homes were owned in joint tenancy with right of survivorship.

Mr. Chernushin claimed a bankruptcy exemption for the primary residence but not for the second home. A little over a month later, on September 30, 2015, Mr. Chernushin moved to convert his Chapter 13 reorganization proceeding to a Chapter 7 liquidation proceeding. The bankruptcy court converted the case and appointed Mr. Cohen as trustee.

On or about June 9, 2016, Mr. Chernushin committed suicide. One week later, Mr. Cohen initiated an adversary proceeding and filed a complaint against Ms. Chernushin in bankruptcy court seeking authorization to sell the second home. In response, Ms. Chernushin argued the second home was "no longer an asset of the Debtor’s Estate since the Debtor’s death in June 2016." App. at 159. The bankruptcy court agreed with Ms. Chernushin and granted summary judgment in her favor. Mr. Cohen appealed to the district court, and the court affirmed the bankruptcy court. Cohen v. Chernushin (In re Chernushin ), 584 B.R. 567 (D. Colo. 2018). Mr. Cohen then filed a timely appeal from the district court’s decision.

II. DISCUSSION

A. Standard of Review

"Our review of the bankruptcy court’s decision is governed by the same standards of review that govern the district court’s review of the bankruptcy court." Conoco, Inc. v. Styler (In re Peterson Distrib., Inc. ), 82 F.3d 956, 959 (10th Cir.1996). "[W]e review the bankruptcy court’s legal determinations de novo and its factual findings under the clearly erroneous standard." Id. Here, there are no disputed factual issues—we are reviewing only the bankruptcy court’s legal determination. "Although we may look to the district court’s intermediate appellate analysis to inform our review, we owe no deference to that court’s decision." Search Mkt. Direct, Inc. v. Jubber (In re Paige ), 685 F.3d 1160, 1178 (10th Cir.2012). Before proceeding to our de novo review of the bankruptcy court’s decision, we pause to provide an overview of the relevant legal principles.

B. Bankruptcy Estates

The commencement of a bankruptcy case "creates an estate." 11 U.S.C. § 541(a). " Section 541(a)(1) provides that the property of the estate includes ‘all legal or equitable interests of the debtor in property as of the commencement of the bankruptcy case.’ " Parks v. FIA Card Servs., N.A. (In re Marshall ), 550 F.3d 1251, 1255 (10th Cir.2008). In bankruptcy proceedings, "[p]roperty interests are created and defined by state law." Butner v. United States , 440 U.S. 48, 55, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979) ; In re Marshall , 550 F.3d at 1255 (quotation marks omitted). "Unless some federal interest requires a different result, there is no reason why such interests should be analyzed differently simply because an interested party is involved in a bankruptcy proceeding." Butner , 440 U.S. at 55, 99 S.Ct. 914. "Uniform treatment of property interests by both state and federal courts within a State serves to reduce uncertainty, to discourage forum shopping, and to prevent a party from receiving ‘a windfall merely by reason of the happenstance of bankruptcy.’ " Id. (quoting Lewis v. Mfrs. Nat’l Bank of Detroit , 364 U.S. 603, 609, 81 S.Ct. 347, 5 L.Ed.2d 323 (1961) ). But "[o]nce that state law determination is made, ... we must still look to federal bankruptcy law to resolve the extent to which that interest is property of the estate." In re Marshall , 550 F.3d at 1255 (internal quotation marks omitted).

We have "emphasize[d] § 541(a)(1) limits estate property to the debtor’s interests ‘as of the commencement of the case.’ " Sender v. Buchanan (In re Hedged-Invs. Assocs., Inc. ), 84 F.3d 1281, 1285 (10th Cir.1996). And "[t]his phrase places both temporal and qualitative limitations on the reach of the bankruptcy estate." Id. Temporally, "it establishes a clear-cut date after which property acquired by the debtor will normally not become property of the bankruptcy estate." Id. And qualitatively, "the phrase establishes the estate’s rights as no stronger than they were when actually held by the debtor." Id. "Congress intended the trustee to stand in the shoes of the debtor and ‘take no greater rights than the debtor himself had.’ " Id. (quoting H.R. Rep. No. 595, 95th Cong., 1st Sess. 368, reprinted in 1978 U.S.C.C.A.N. 5963, 6323); see id. at 1284 (the trustee "stands in the shoes of the debtor ... and takes no greater rights than the [debtor] had as of the bankruptcy filing").

It is uncontested that Mr. Chernushin and Ms. Chernushin owned the second home in joint tenancy with right of survivorship and the joint tenancy was not severed by Mr. Chernushin’s bankruptcy petition nor at any time prior to his death.¹ And "since there is no federal law of property, it is necessary to look to state law to determine the nature, extent, and effect of the debtor’s interest in a [joint tenancy with right of survivorship]." Zubrod v. Duncan (In re Duncan ), 329 F.3d 1195, 1198 (10th Cir.2003) (quotation marks omitted).

Under Colorado law, "[u]pon the death of a joint tenant, the deceased joint tenant’s interest is terminated. In the case of one surviving joint tenant, his or her interest in the property shall continue free of the deceased joint tenant’s interest." Colo. Rev. Stat. § 38-31-101(6)(c). Each joint tenant possesses an undivided interest in the whole property. Mangus v. Miller , 35 Colo.App. 115, 532 P.2d 368, 369 (1974), and any "[s]everance must occur prior to the death of one of the joint tenants, since the right of survivorship instantly vests title to the whole property in the surviving tenant at the moment of death of the other joint tenant," Place v. Carmack , 33 Colo.App. 411, 522 P.2d 592, 593 (1974), rev’d on other grounds , 188 Colo. 303, 535 P.2d 197 (1975).

This would seemingly resolve the appeal. Under Colorado law, Mr. Chernushin’s interest in the joint tenancy "terminated," Colo. Rev. Stat. § 38-31-101(6)(c), and "the right of survivorship instantly vest[ed] title to the whole property in [Ms. Chernushin,] the surviving tenant[,] at the moment of death," Place , 522 P.2d at 593. And because the trustee "take[s] no greater rights than the debtor himself had," In re Hedged-Invs. Assocs., Inc. , 84 F.3d at 1285 (quoting H.R. Rep. No. 595, 95th Cong., 1st Sess. 368), the trustee’s, and the estate’s, rights in the property terminated at Mr. Chernushin’s death. As a result, Ms. Chernushin owns the entire property and it is no longer part of the bankruptcy estate.

Mr. Cohen has not cited any case where a court has determined that a joint tenancy survived the bankruptcy petition and yet failed to vest full title to the surviving tenant upon the death of a debtor joint tenant.² Instead, he presents several arguments, based on the Supremacy Clause, why federal law requires a different result: (1) Federal Rule of Bankruptcy Procedure 1016 provides that the death of the debtor does not impact the bankruptcy estate; (2) the Chapter 7 trustee has plenary authority over the bankruptcy estate subject to bankruptcy court approval; and (3) the Chapter 7 trustee has greater rights than the debtor under the strong arm clause, § 544(a). We address each argument in turn.

C. Federal Rule of Bankruptcy Procedure 1016

Federal Rule of Bankruptcy Procedure 1016³ provides: "Death or incompetency of the debtor shall not abate a liquidation case under chapter 7 of the Code. In such event the estate shall be administered and the case concluded in the same manner, so far as possible, as though the death or incompetency had not occurred."

Nothing in the plain text of the rule states that the bankruptcy estate can never change upon the death of the debtor. Instead, the rule directs that the bankruptcy proceedings shall continue and the estate "shall be administered and the case concluded in the same manner, so far as possible ," as though death had not transpired. This is a procedural rule . It says nothing about the substance of the bankruptcy estate. Consistent with this rule, the bankruptcy proceedings here should continue as though Mr. Chernushin had not died.

Mr. Cohen argues otherwise and urges a reading of this rule that would prevent the bankruptcy estate from changing...