Hall v. Weber, No. A05-1228 (MN 4/25/2006)
| Decision Date | 25 April 2006 |
| Docket Number | No. A05-1228.,A05-1228. |
| Parties | Raymond W. Hall, Respondent, v. Aida Weber, f/k/a Aida Grouchevski, Appellant. |
| Court | Minnesota Supreme Court |
Appeal from the District Court, Dakota County, File No. C1-04-9523.
Daniel W. Stauner, Hanlon & Stauner, P.L.L.P, (for respondent)
Lawrence H. Crosby, Crosby & Associates, (for appellant)
Considered and decided by Wright, Presiding Judge; Dietzen, Judge; and Worke, Judge.
UNPUBLISHED OPINION
In this appeal from a judgment on the pleadings, appellant challenges respondent's right to enforce a lien on her homestead property after she had filed for bankruptcy. Appellant argues that (1) her ex-husband's sale of the lien to a third party resulted in the loss of the lien's protection against discharge in bankruptcy; (2) respondent's power to foreclose the lien did not survive his failure to object to appellant's claim of a homestead exemption during her bankruptcy proceedings; and (3) her ex-husband failed to satisfy a condition precedent to enforcement of the lien, thus preventing foreclosure by respondent. We affirm.
On July 29, 2002, the Dakota County District Court entered a judgment dissolving the marriage of appellant Aida Weber and Nikolai Grouchevski. In doing so, the district court awarded Weber "all right, title and interest in the homestead, subject to a lien interest in [Grouchevski]." The value of Grouchevski's lien against the homestead was $29,475, which represented half the equity in the homestead reduced by real-estate taxes, half the proceeds from the sale of restaurant equipment and unpaid child support and spousal maintenance. The lien was due and payable when their son graduated from high school or when Weber sold the property, whichever occurred first. Pursuant to the dissolution decree, Grouchevski executed and delivered a quitclaim deed to Weber.
On October 9, 2002, Grouchevski assigned his lien on the Weber homestead to respondent Raymond Hall. Hall recorded the lien transfer on April 11, 2003. In August 2004, Hall sued to foreclose on the lien against the homestead because Weber's son had completed high school. Weber filed a counterclaim, alleging that Hall could not enforce the lien because her debts had been discharged on November 13, 2003, by a bankruptcy proceeding. Hall moved the district court for judgment on the pleadings, arguing that (1) the lien survived Weber's bankruptcy proceeding; (2) Weber's claim of the property under the bankruptcy homestead exemption did not prevent enforcement of the lien; and (3) no conditions precedent to enforcement of the lien remained unfulfilled.
The district court found that the lien remained intact after Weber's bankruptcy proceeding and that the lien had fully matured and was enforceable against the property. Accordingly, the district court concluded that Hall could proceed to foreclose on the lien. This appeal followed.
Weber contends that the district court erred when it granted Hall judgment on the pleadings. We review de novo a dismissal for failure to state a claim on which relief can be granted to determine whether the complaint sets forth a legally sufficient claim for relief. Barton v. Moore, 558 N.W.2d 746, 749 (Minn. 1997). We accept the facts alleged in the complaint as true and construe all reasonable inferences in favor of the nonmoving party. Bodah v. Lakeville Motor Express, Inc., 663 N.W.2d 550, 553 (Minn. 2003). Because the parties in this case do not dispute the material facts, we consider whether Weber has alleged a legally sufficient claim for relief.
Relying on section 522(f)(1) of the federal bankruptcy code, Weber first argues that the lien did not survive her bankruptcy proceeding. Section 522(f)(1) of the bankruptcy code states:
Notwithstanding any waiver of exemptions . . . the debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debtor would have been entitled under subsection (b) of this section, if such lien is—
(A) a judicial lien, other than a judicial lien that secures a debt—
(i) to a spouse, former spouse, or child of the debtor, for alimony to, maintenance for, or support of such spouse or child, in connection with a separation agreement, divorce decree or other order of a court of record, determination made in accordance with State or territorial law by a governmental unit, or property settlement agreement; and
(ii) to the extent that such debt—
(I) is not assigned to another entity, voluntarily, by operation of law, or otherwise; and
(II) includes a liability designated as alimony, maintenance, or support, unless such liability is actually in the nature of alimony, maintenance or support.
11 U.S.C. § 522(f)(1) (2000).
We begin our analysis by establishing the character of the lien in this case so as to determine whether section 522(f)(1)(A) applies. The bankruptcy code defines a "judicial lien" as a "lien obtained by judgment, levy, sequestration, or other legal or equitable process or proceeding." 11 U.S.C. § 101(36) (2000). The district court created the lien as part of the property settlement in the Grouchevski-Weber marriage-dissolution proceeding. Given its origin, we conclude that the lien is a judicial lien to which section 522(f)(1)(A) may apply. But this conclusion does not end our analysis.
We next consider whether section 522(f)(1)(A) permits Weber to avoid the fixing of the lien on the homestead in light of the bankruptcy proceeding. The United States Supreme Court analyzed section 522(f)(1) and its effect on judicial liens in Farrey v. Sanderfoot, 500 U.S. 291, 111 S. Ct. 1825 (1991). As here, Farrey involved the division of a marital estate. Id. at 293, 111 S. Ct. at 1827. The family home was awarded to the husband (Sanderfoot), and the wife's (Farrey's) portion of the marital assets was secured with a lien on the "real estate property." Id. Shortly after the divorce decree, Sanderfoot declared bankruptcy, listing the homestead as exempt property on his bankruptcy schedule under Wisconsin's homestead exemption. Id. at 293-94, 111 S. Ct. at 1827. Sanderfoot filed a motion in the bankruptcy court to avoid Farrey's lien because it impaired his homestead exemption. Id. at 294, 111 S. Ct. at 1827-28.
In its analysis, the Supreme Court focused on "whether § 522(f)(1) permits Sanderfoot to avoid the fixing of Farrey's lien on the property interest that he obtained in the divorce decree." Id. at 295-96, 111 S. Ct. at 1828. The Farrey Court determined that the history and purpose of section 522(f)(1) establish that the provision is not concerned with liens that attach to property before the debtor acquired an interest in the property. Id. at 298, 111 S. Ct. at 1830. Rather, the primary purpose of section 522(f)(1) is to "thwart creditors who, sensing an impending bankruptcy, rush to court to obtain a judgment to defeat the debtor's exemptions." Id. at 300, 111 S. Ct. at 1831. The Farrey Court reasoned that, in order to "avoid" the "fixing" of the lien as described in section 522(f)(1), the debtor must have the property interest "before the lien attached to that interest." Id. at 296, 111 S. Ct. at 1829. The Court held that section 522(f)(1) cannot be used to avoid a lien on an interest acquired simultaneously with or after the lien attached. Id. at 299-300, 111 S. Ct. at 1830-31.
In applying section 522(f)(1) to the lien, the Farrey Court reasoned that the same divorce decree that granted Sanderfoot the fee simple interest in the homestead simultaneously granted the lien to Farrey. Id. at 299, 111 S. Ct. at 1830. "Sanderfoot took the interest and the lien together, as if he had purchased an already encumbered estate from a third party." Id. at 300, 111 S. Ct. at 1830. The Farrey Court recognized that "[t]he divorce court awarded the lien to secure an obligation the court imposed on the husband in exchange for the court's simultaneous award of the wife's homestead interest to the husband." Id. at 301, 111 S. Ct. at 1831.
The facts and analysis of Farrey are on all fours with the circumstances of this case. As in Farrey, the same divorce decree that established the lien interest also granted Weber "all right, title and interest in the homestead, subject to a lien interest" in Grouchevski. The divorce decree in Farrey granting the property to the husband stated that he acquired the property "free and clear" of any encumbrance except the wife's lien. Id. at 299, 111 S. Ct. at 1830. Similarly, the lien awarded to Grouchevski arose from the dissolution decree simultaneously with Weber's interest in the homestead, and the lien served to secure an obligation imposed on Weber by the district court in the dissolution proceeding. Because Farrey governs the fixing of marital liens that arise from a marital-dissolution decree simultaneously with the creation of a property interest, we conclude that Weber's contention that section 522(f)(1) defeats Hall's lien interest in this case is unavailing.
Weber argues that, because Farrey applied Wisconsin property law, it is inapplicable to a case applying Minnesota law. Weber is correct that we must look to Minnesota law to determine if Hall "possessed an interest to which the lien fixed, before it fixed." Id. at 299, 111 S. Ct. at 1830. But cases applying Minnesota law have consistently resulted in dispositions identical to that in Farrey. For example, in Boyd v. Robinson, the Eighth Circuit applied Minnesota law and concluded that a similar lien was not avoidable under section 522(f)(1). 741 F.2d 1112, 1114-15 (8th Cir. 1984). The Boyd court concluded that the ...
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