Havoco of America v. Hill, 97-2277

• Decision Date: 10 December 1999
• Docket Number: No. 97-2277,97-2277
• Citation: 197 F.3d 1135
• Parties: (11th Cir. 1999) HAVOCO OF AMERICA, LTD., Plaintiff-Appellant, v. Elmer C. HILL, Defendant-Appellee.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1135

197 F.3d 1135 (11th Cir. 1999)

HAVOCO OF AMERICA, LTD., Plaintiff-Appellant, v. Elmer C. HILL, Defendant-Appellee.

No. 97-2277.

United States Court of Appeals Eleventh Circuit.

Dec. 10, 1999.

Appeal from the United States District Court for the Northern District of Florida.(No. 95-30585/RV), Roger Vinson, Judge.

Before BIRCH and DUBINA, Circuit Judges, and SMITH^*, District Judge.

BIRCH, Circuit Judge:

Havoco of America, Ltd. ("Havoco") appeals the denial of its objection to Elmer C. Hill's ("Hill") claims in his Chapter 7 bankruptcy petition that the real property located at 209 and 211 Calhoun Avenue, Destin Florida, (the "Destin Property") was exempt under Article X, Section 4 of the Florida Constitution ( the "homestead exemption") and that the household furnishings in the Destin Property were exempt because he owns them in tenancy-by-the-entireties with his wife (the "tenancy-by-the-entireties exemption"). Havoco claims that Hill converted non-exempt assets into these exempt assets with the intent to hinder, delay, or defraud his creditors. The bankruptcy court found that under Florida law Hill was not prohibited "from converting non-exempt assets into a homestead, even if done with the intent to place those assets beyond the reach of his creditors." EXH. vol. 1-243 at 9.¹ The bankruptcy court further found that, although Hill's "creattion of a tenancy by the entireties with the intent to defraud creditors may be attacked under Florida law[,] ... [s]uch attack must be made in the context of an adversary proceeding." Id. Accordingly, the bankruptcy court denied both of Havoco's objections, and the district court affirmed. Although we agree with the district court that Havoco may only challenge the tenancy-by-the-entireties exemption in an adversary proceeding, we believe that the applicability of the homestead exemption to this case raises an important issue of state law that would best be decided by the Supreme Court of Florida. Therefore, we AFFIRM IN PART and CERTIFY a question of state law to the Supreme Court of Florida.

I. BACKGROUND

In 1981, Havoco filed suit against Hill claiming damages for fraud, conspiracy, tortuous interference with contractual relations, and breach of fiduciary duty. Havoco alleged that Hill conspired to eliminate Havoco as a principal under its ten year contract to supply coal to the Tennessee Valley Authority. After several appeals to the Seventh Circuit, Havoco's case finally came to trial nine years later. The jury found for Havoco on all its claims against Hill and awarded Havoco $15,000,000 in damages. The district court entered judgment in accordance with the jury verdict on December 19, 1990, and the judgment became enforceable on January 2, 1991.²

Hill purchased the Destin property on December 30, 1990. Although he was a long-time resident of Tennessee, Hill claims that he intended to make the Destin property his retirement home. He paid approximately $650,000 in cash for the Destin property. Additionally, approximately $75,000 of household furnishings were purchased for the Destin property utilizing funds drawn from a Florida bank account Hill held jointly with his wife and from Hill's individual accounts in Florida and Tennessee.

On July 22, 1992, Hill filed for Chapter 7 bankruptcy in the Northern District of Florida. In his petition, he claimed that the Destin property was exempt under the Florida constitution as his homestead. He also claimed that the furnishings were exempt as property held in tenancy-by-the-entireties with his wife. Havoco objected to both exemptions. Havoco claimed that Hill engaged in improper pre-bankruptcy planning in order to convert non-exempt assets into exempt assets for the purpose of placing the assets beyond the reach of creditors, such as Havoco.

The bankruptcy court held an evidentiary hearing on Havoco's objections. During the evidentiary hearing, Havoco attempted to present evidence of the transfer of other non-exempt assets by Hill in order to demonstrate that the purchase of the Destin property and home furnishings were part of a larger scheme to defraud Hill's creditors via bankruptcy. The bankruptcy court found that this evidence was irrelevant and did not allow Havoco to present fully its evidence regarding Hill's alleged bankruptcy scheme. After the hearing, the bankruptcy court issued its Findings of Fact and Conclusions of Law overruling Havoco's objections. See EXH. vol. 1-138, In re Hill, 163 B.R. 598 (Bankr.N.D.Fla.1994). Relying on similar cases, the bankruptcy court concluded that, although "a debtor loses his entitlement to claim as exempt any asset converted with the specific intent to defraud creditors," EXH. vol. 10148 at 8,³ Havoco had not proven by a preponderance of the evidence that Hill had acted with the specific intent to defraud his creditors when he purchased the Destin property and home furnishings. Additionally, the bankruptcy court found that the home furnishings were held by Hill and his wife as tenancy-by-the-entireties and, thus, were exempt from claims by Hill's individual creditors.

Havoco appealed the bankruptcy court's factual findings and legal conclusions. On February 3, 1994, the district court issued an order reversing the bankruptcy court's conclusion that there was an exception to the homestead exemption when a debtor acted with the specific intent to defraud his creditors and its finding that Havoco had failed to prove Hill acted with the intent to defraud his creditors when he purchased the Destin property and household furnishings. The district court found that Florida state law governed questions regarding the homestead exemption and, therefore, that the bankruptcy court had erroneously relied upon the interpretations of federal bankruptcy courts sitting in Florida.⁴ The district court instructed the bankruptcy court on remand "to determine whether and under what circumstances Florida law prevented debtors in 1990 and 1991 from converting non-exempt property to exempt property." EXH. vol. 1-220 at 17. The district court further instructed the bankruptcy court that, if it should determine that Hill's claim to the homestead and entireties exemption was limited under Florida law, the bankruptcy court should conduct a new evidentiary hearing to determine whether Hill purchased the Destin property and home furnishings with the intent to defraud his creditors. The district court additionally found that, if a new evidentiary hearing was necessary, the bankruptcy court should consider Havoco's evidence of Hill's other transfers of non-exempt assets as a relevant part of Havoco's claim that Hill had purchased the Destin property and furnishings with the intent to defraud his creditors. Finally, the district court affirmed the bankruptcy court's finding that the household furnishings for the Destin property were owned by Hill and his wife as tenants-by-the-entireties.

On remand, the bankruptcy court, relying upon Bank Leumi Trust Co. of New York v. Lang, 898 F.Supp. 883 (S.D.Fla.1995) and Butterworth v. Caggiano, 605 So.2d 56 (Fla.1992), concluded that "simply purchasing a home with 'clean' funds, even done with the intent to hinder creditors, cannot overcome the Florida homestead exemption." EXH. vol. 1-243 at 4. Further, the bankruptcy court concluded that Florida's fraudulent conveyance statute did not "affect the debtor's right to the homestead exemption." Id. at 5. However, the bankruptcy court did find that "Florida fraudulent conveyance law has been properly applied to situations involving tenancies by the entireties." Id. at 7 (citing Valdivia v. Valdivia, 593 So.2d 1190, 1192 (Fla.Dist.Ct.App.1992)). Thus, Havoco did have a valid basis to challenge Hill's conversion of non-exempt assets into assets exempt as jointly held property. However, the bankruptcy court further concluded that it would be improper "to 'collapse' the issue of the alleged fraudulent conveyance of assets into an objection to the exemption of assets," id. at 8, and that Havoco should attack the creation of a tenancy-by-the-entireties in an adversary proceeding to avoid the transfer. Id. at 9.

The district court, in an order dated February 7, 1997, affirmed the bankruptcy court's decision. The court emphasized that Havoco may not utilize an objection to challenge the conversion of non-exempt assets into assets exempt as tenancy-by-the-entirety property, but must seek to avoid the transfer as a fraudulent conveyance in an adversary proceeding. R1-13 at 2. Havoco appeals this order.

II. DISCUSSION

We review the bankruptcy court's factual findings, as accepted by the district court for clear error, and the district court's determinations of law de novo. In re Englander, 95 F.3d 1028, 1030 (11th Cir.1996). The primary focus of Havoco's appeal is the legal conclusions reached by the district court. On appeal, Havoco argues that its objection to Hill's claim of a tenancy-by-the-entireties exception should be dealt with in the same manner as any other objection to exemption and that Hill can adequately represent the interests of his wife in the objection proceeding or his wife could intervene in the objection proceedings. With regard to the homestead exemption, Havoco argues that the principles and spirit of the Florida constitution require that the homestead exemption not be used as an instrument of fraud.

A.THE TENANCY-BY-THE-ENTIRETIES EXEMPTION

Havoco does not contest the bankruptcy court's finding that the household furnishings in question are owned by Hill and his wife as tenants by the entireties. A tenant by the entireties holds "an indivisible right to own and occupy the entire property." United States v. 15621 S.W. 209th Ave., Miami, Fla., 894 F.2d 1511, 1515 (11th Cir.1990) (holding that property used by its owner to facilitate a controlled substance transaction is exempt from forfeiture when held by the entireties with an innocent spouse). Under Florida law, "[n]either spouse can...