Deel Rent-A-Car, Inc. v. Levine, RENT-A-CA
| Decision Date | 19 December 1983 |
| Docket Number | RENT-A-CA,No. 82-5249,INC,82-5249 |
| Citation | 9 C.B.C.2d 1261,721 F.2d 750 |
| Parties | 9 Collier Bankr.Cas.2d 1261, 11 Bankr.Ct.Dec. 1264, Bankr. L. Rep. P 69,542 DEEL, Plaintiff-Appellant, v. Howard A. LEVINE and Herbert Freehling, Defendants-Appellees. |
| Court | U.S. Court of Appeals — Eleventh Circuit |
A. Rodger Traynor, Jr., Fowler, White, Burnett, Hurley, Banick & Strickroot, P.A., Miami, Fla., for plaintiff-appellant.
Herbert Stettin, Lapidus & Stettin, Miami, Fla., for defendants-appellees.
Appeal from the United States District Court for the Southern District of Florida.
Before GODBOLD, Chief Judge, ANDERSON, Circuit Judge, and GOLDBERG *, Senior Circuit Judge.
In this case, a creditor executed a judicial lien on the debtor's property less than ninety days before the debtor's petition for bankruptcy. Between the date of execution and the date of the petition, the debtor was married, thereby exempting the property under state law from the claims of every creditor except the lienor. We are asked to decide whether the execution of the lien constitutes a preference voidable by the debtor pursuant to sections 522(h) and 547 of the Federal Bankruptcy Code. We hold that it does, and affirm the judgment below.
Howard Levine and others guaranteed a debt of National Vehicle Leasing, Inc. to Deel Rent-A-Car, Inc. ("Deel"). Deel subsequently obtained a judgment against Levine in Florida state court. On January 9, 1980, Deel perfected the judgment and executed a lien against all real property owned by Levine in Broward County, Florida. At the time, Levine owned a condominium in Broward County, but was not married. On March 13, 1980, Levine was married and brought his wife into his residence in the Broward condominium.
On March 31, 1980, within 90 days of Deel's execution of the lien, Levine filed a voluntary petition for bankruptcy under Chapter 7 of the Bankruptcy Code ("Code"). The case was heard on June 10, 1980, in the United States Bankruptcy Court for the Southern District of Florida. Deel filed an amended adversary complaint, seeking, inter alia, to prevent Levine's discharge. Levine counterclaimed, seeking to avoid the judgment lien as a preference, pursuant to sections 522(h) and 547(b) of the Code. 1 In an amended counterclaim, Levine also sought to avoid the lien as an impairment of his homestead exemption pursuant to section 522(f) of the Code. 2
The bankruptcy court ruled against Levine on the section 522(f) claim, holding that under Florida law 3 the property acquired homestead status when Levine was married, but that the homestead exemption was not effective against a judgment lien that had attached before that date. 4
Levine did prevail, however, on his section 547(b) claim. 5 The court avoided the lien, holding that all of the elements of a preference were present and that Levine had standing to bring an action under section 522(h) of the Code. 6
On appeal, the United States District Court for the Southern District of Florida affirmed the judgment of the bankruptcy court. 7 This appeal follows.
Levine has not challenged the bankruptcy court's interpretation of section 522(f). Therefore we need only consider whether the lien was a voidable preference under sections 522(h) and 547(b). 8
Section 522(h) provides:
The debtor may avoid a transfer of property of the debtor or recover a setoff to the extent that the debtor could have exempted such property under subsection (g)(1) of this section if the trustee had avoided such transfer, if--
(1) such transfer is avoidable by the trustee under section ... 547 ... of this title; and
(2) the trustee does not attempt to avoid such transfer.
Section 547(b) provides in pertinent part:
... the trustee may void any transfer of property of the debtor--
(1) to or for the benefit of a creditor;
(2) for or on account of an antecedent debt owed by the debtor before such transfer was made;
(3) made while the debtor was insolvent;
(4) made on or within 90 days before the date of the filing of the petition ...;
(5) that enables such creditor to receive more than such creditor would receive if--
(A) the case were a case under chapter 7 of this title;
(B) the transfer had not been made; and
(C) such creditor received payment of such debt to the extent provided by the provisions of this title....
Deel raises one issue concerning each provision. First, it argues that Levine has no standing to avoid the preference under section 522(h). Standing depends upon the debtor's ability to exempt the property from all creditors' claims; and under Florida law Levine's homestead exemption does not apply to Deel's lien 9--Levine cannot exempt the property from Deel's claim.
Second, Deel argues that one element of a preference under section 547(b) does not exist in this case. Deel relies on a number of cases which applied a "diminution of estate" requirement to section 60 of the old Bankruptcy Act ("Act"), 10 the predecessor to section 547(b) of the current Code. 11 According to that gloss, a preferential transfer could be avoided only if it had diminished the estate available to other creditor claims--i.e. if the property could be used to pay off the claims of other creditors in the bankruptcy proceeding. In this case, Deel argues, avoiding the lien would benefit no other creditors, since the property would be exempt from their claims. Therefore, there has been no diminution of the estate, and the requirements for a preference are not met.
We reject both of Deel's contentions. First, a clear reading of section 522(h) requires only that Levine be able to exempt his property "if the trustee [has] avoided" Deel's lien. Under that test, Levine's property would be exempt. Second, we hold that the "diminution of estate" doctrine is not applicable in the case of a debtor bringing an action under section 522(h) to avoid a preference.
Deel argues that Levine has no standing. Levine's condominium would not be exempt under Florida law from Deel's pre-marriage lien. Therefore, Deel claims that Levine could not "have exempted such property under subsection (g)(1)," and he does not have standing under subsection (h). Appellant's Reply Brief at 2, quoting section 522(h).
We accept Deel's characterization of Florida law, but we disagree with his conclusions about the Bankruptcy Code. Subsection 522(h), by its terms, gives Levine standing. The subsection provides:
The debtor may avoid a transfer of property of the debtor ... to the extent that the debtor could have exempted such property under subsection (g)(1) of this section if the trustee had avoided such transfer....
11 U.S.C. Sec. 522(h) (1982) (emphasis added).
Reading that literally, Levine would have been able to exempt the property. If the trustee had avoided the transfer, Deel would have had no judgment lien and, therefore, no ground for claiming that the homestead exemption was not effective against its claim.
Moreover, subsection (h) directs us to examine the debtor's power to exempt the property under subsection (g), assuming that the trustee had avoided the lien. Subsection (g) provides:
... the debtor may exempt under subsection (b) of this section property that the trustee recovers ..., to the extent that the debtor could have exempted such property under subsection (b) of this section if such property had not been transferred, if--
(1)(A) Such transfer was not a voluntary transfer of property by the debtor; and
(B) the debtor did not conceal such property....
11 U.S.C. Sec. 522(g) (1982) (emphasis added).
Again, if the property had not been transferred (i.e. if no lien had been executed), then the condominium would be exempt under subsection (b), which merely provides for the application of various exemptions (including state law exemptions). 12 Deel does not claim that the transfer was voluntary on the part of Levine or that Levine concealed the property.
Therefore, we hold that a straightforward reading of section 522 supports the lower court's conclusion that Levine has standing to avoid Deel's lien. Levine could have exempted his condo "if the trustee had avoided the lien" and "if such property had not been transferred." Since he could have exercised that exemption, he can stand in the trustee's shoes to avoid the lien himself.
We note that the debtor's power to avoid transfers may, in cases like this one, have the effect of giving the debtor a broader exemption than state law would provide. However, we feel that our holding is mandated by the clear language of the statute.
Moreover, in the context of avoiding a preferential transfer, our holding serves a central policy of the preference statute: preventing a race to the courthouse by creditors during the last three months before the debtor files a bankruptcy petition. 13 The House Report to the Bankruptcy Code states:
[B]y permitting the trustee to avoid prebankruptcy transfers that occur within a short period before bankruptcy, creditors are discouraged from racing to the courthouse to dismember the debtor during his slide into bankruptcy. The protection thus afforded the debtor often enables him to work his way out of a difficult financial situation through cooperation with all of his creditors. 14
As the Report indicates, section 547 of the Code would normally prevent a race to the courthouse by giving the trustee the power to avoid any judicial lien (however valid under state law) during the preference period. In the circumstances of this case, however, the transfer would stand up if we held for Deel and prevented the debtor from recovering the property. Thus, there would again be an incentive for a creditor to receive a preference period transfer. With any luck, he would be able to keep the asset, to the exclusion of the debtor and other creditors. Moreo...
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