In re Chreky

• Decision Date: 02 May 2011
• Docket Number: Civil Action No. 10–1964 (RCL)., Bankruptcy No. 10–268
• Citation: 450 B.R. 247
• Parties: In re Andre CHREKY, Debtor.Ronnie Barrett, Appellant,v.Andre Chreky, Appellee.
• Court: U.S. District Court — District of Columbia

450 B.R. 247

In re Andre CHREKY, Debtor.Ronnie Barrett, Appellant,

v.Andre Chreky, Appellee.

Bankruptcy No. 10–268

Civil Action No. 10–1964 (RCL).

United States District Court, District of Columbia.

May 2, 2011.

Linda M. Correia, Webster, Fredrickson, Correia & Puth, PLLC, Washington, DC, for Appellant.Nelson C. Cohen, Zuckerman Spaeder LLP, Washington, DC, for Appellee.

MEMORANDUM OPINION

ROYCE C. LAMBERTH, Chief Judge.

Before the Court is an appeal from the bankruptcy court. After conducting a hearing and making findings of fact, Bankruptcy Judge Teel ruled on two issues. First, he held that Andre Chreky and his wife, Serena Chreky, own money market accounts and certificates of deposit as tenants by the entireties. Second, he held that Mr. and Ms. Chreky may jointly be a member in a limited liability company, SPAC, LLC. Creditor Ronnie Barrett objected below to several of Mr. Chreky's claimed exemptions, and she now appeals the Bankruptcy Judge's rulings on these issues. Ms. Barrett has filed two other bankruptcy appeals on unrelated issues—in Civil Actions No. 10–1963 and 10–1965—which the Court will address in a separate opinion issued this same date.

In this case, the Court finds that the Bankruptcy Judge erred as a matter of law on both of the issues presented. Accordingly, the Court will reverse and remand this case for further proceedings consistent with this opinion.

I. BACKGROUND

The Court has set forth in full the relevant facts about this entire bankruptcy case in its memorandum opinion issued this same date in Civil Actions No. 10–1963 and 10–1965. The Court will only include here the facts relevant to the issues presented in this appeal.

Andre and Serena Chreky have been married since 1987. (J.A. Tr. 8/6/10 208:1–5.) Since August 1996, Mr. Chreky has solely owned a salon in Washington, D.C., called Andre Chreky, Inc. (J.A. Tr. 9/27/10 (“Tr.”) 107:8–10, 22–24.) He jointly operates the salon with Ms. Chreky. (Tr. 107:8–10.) Since September 1996, Mr. and Ms. Chreky have owned a limited liability company called SPAC, LLC, which they “formed for the purpose of acquiring and owning nonresidential rental properties, specifically a property located at 1604 K Street Northwest, where Andre Chreky, Inc. operates its business.” (Tr. 107:23–108:3.) Under the terms of SPAC, LLC, Ms. Chreky solely is a member with a 1% interest, and Mr. and Ms. Chreky jointly are a member with a 99% interest. (R. 85.)

Mr. and Ms. Chreky are both employees of Andre Chreky, Inc. As his salary, Mr. Chreky receives $520,000 per year plus tips. (R. 98.) Ms. Chreky receives $260,000 per year. (J.A. Tr. 8/6/10 135:8–10.) Their salaries have not changed in the past ten years. (J.A. Tr. 8/6/10 135:4–7.) Ms. Chreky deposits her bi-weekly paychecks into her personal, solely owned bank account at SunTrust Bank, and she pays the family bills from that account. (J.A. Tr. 8/6/10 214:15–19.) Mr. Chreky deposits his bi-weekly paychecks into a joint money market account at Adams National Bank. (R. 100–01.) The money market account is in the names of both Mr. and Ms. Chreky. (R. 201–03.) Mr. Chreky uses funds from this money market account to periodically purchase certificates of deposit (“CDs”) in the names of Mr. and Ms. Chreky. (R. 68–83.) Those CDs mostly provide that they are multiple party accounts with rights of survivorship. ( Id.) Mr. Chreky has transferred money from the CDs into a Certificate of Deposit Account Registry Service (“CDARS”) account, which is held in the names of both Mr. and Ms. Chreky. (J.A. Tr. 8/6/10 119:8–10; R. 57–59.)

Ms. Chreky has only made two deposits into the money market account. In April 2006, Andre Chreky, Inc. paid a bonus of $363,500 to Ms. Chreky, which netted $217,000 after taxes. (J.A. Tr. 9/24/10 35:17–21.) The check was made payable to Ms. Chreky, but Mr. Chreky endorsed it. (Tr. 115:1–2.) The check was deposited into the money market account. In April 2007, Andre Chreky, Inc. paid a bonus of $700,000 to Ms. Chreky, which netted $404,000 after taxes. (J.A. Tr. 9/24/10 36:4–12.) Ms. Chreky deposited that check into the money market account.

In September 2006, Andre Chreky, Inc. employee Jennifer Thong sued Mr. Chreky and Andre Chreky, Inc., claiming sexual assault, harassment, and retaliation. Also in September 2006, Andre Chreky, Inc. employee Ronnie Barrett notified Mr. Chreky that she planned to file a lawsuit against him. In February 2007, Ms. Barrett filed that lawsuit against Mr. Chreky and Andre Chreky, Inc., claiming sexual harassment and retaliation.

Following a jury trial, Ms. Barrett has a judgment against Mr. Chreky and Andre Chreky, Inc. for $2.3 million. Following a court-approved settlement, Ms. Thong has a judgment against Mr. Chreky and Andre Chreky, Inc. for $7 million. Ms. Barrett and Ms. Thong are the two primary creditors in Mr. Chreky's bankruptcy.

II. STANDARD OF REVIEW

The Court reviews questions of law de novo. Advantage Healthplan, Inc. v. Potter, 391 B.R. 521, 537 (D.D.C.2008); In re Johnson, 236 B.R. 510, 518 (D.D.C.1999).

The Court reviews a bankruptcy court's findings of fact under the clearly erroneous standard. Fed. R. Bankr.P. 8013 (“Findings of fact, whether based on oral or documentary evidence, shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the bankruptcy court to judge the credibility of the witnesses.”). “The burden of proof is on the party that seeks to reverse the bankruptcy court's holding, and that party must show that the court's holding was clearly erroneous as to the assessment of the facts and not simply that another conclusion could have been reached.” Advantage Healthplan, 391 B.R. at 537 (citations and quotations omitted). Under the clearly erroneous standard, a reviewing court may not “reverse the finding of the trier of fact simply because it is convinced that it would have decided the case differently. The reviewing court oversteps the bounds of its duty ... if it undertakes to duplicate the role of the lower court.” Anderson v. Bessemer City, 470 U.S. 564, 573, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985); Advantage Healthplan, 391 B.R. at 537. “Where there are two permissible views of the evidence, the factfinder's choice between them cannot be clearly erroneous.” Anderson, 470 U.S. at 574, 105 S.Ct. 1504. “A finding is ‘clearly erroneous' when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed.” United States v. U.S. Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 92 L.Ed. 746 (1948); Advantage Healthplan, 391 B.R. at 537. “To be clearly erroneous, a decision must strike us as wrong with the force of a five-week-old, unrefrigerated dead fish.” In re Johnson, 236 B.R. at 518 (quoting Parts & Elec. Motors, Inc. v. Sterling Elec., Inc., 866 F.2d 228, 233 (7th Cir.1988)).

The Court reviews a bankruptcy court's evidentiary rulings under the abuse of discretion standard. See Gen. Elec. Co. v. Joiner, 522 U.S. 136, 141, 118 S.Ct. 512, 139 L.Ed.2d 508 (1997) (“[A]buse of discretion is the proper standard of review of a district court's evidentiary rulings.”); Haarhuis v. Kunnan Enter., Ltd., 177 F.3d 1007, 1015 (D.C.Cir.1999) (reviewing a bankruptcy court's evidentiary ruling under the abuse of discretion standard). “[A]n abuse of discretion occurs when the [bankruptcy] court relies on clearly erroneous findings of fact, fails to consider a relevant factor, or applies the wrong legal standard.” Pigford v. Johanns, 416 F.3d 12, 23 (D.C.Cir.2005).

III. DISCUSSION

A. The Bankruptcy Judge Erred in His Analysis of Whether the Money Market Account and Certificates of Deposit Were Held by Mr. and Ms. Chreky as Tenants by the Entireties.

The Bankruptcy Judge ruled that Andre Chreky and Serena Chreky hold the funds contained in their money market account and certificates of deposit as tenants by the entireties. (Tr. 106–19.) Ms. Barrett argues that Mr. and Ms. Chreky do not hold the funds as tenants by the entireties, and that only Mr. Chreky holds the funds. Mr. and Ms. Chreky argue that they hold all of the funds at issue as tenants by the entireties. The Court finds that the Bankruptcy Judge did not apply the proper legal standard to this issue, and thus will reverse and remand for further proceedings consistent with this opinion.

The District of Columbia recognizes that a married couple can hold property as tenants by the entireties. Morrison v. Potter, 764 A.2d 234, 236 (D.C.2000). “The characteristics of a tenancy by the entireties are: a right of survivorship, an inability of one spouse to alienate his interest, and a broad immunity from claims by separate creditors.” Id. “Although property subject to a tenancy by the entireties is liable for the spouses' joint debts and for the individual debts of the surviving co-tenant, it is unreachable by creditors of one but not of both of the tenants.” Id. at 236–37. Thus, if Mr. and Ms. Chreky hold property as tenants by the entireties, then creditors of only Mr. Chreky will not be able to reach that property to satisfy their claims.

1. The Bankruptcy Judge Erred in Part in His Analysis of the Proper Legal Standard and Burdens of Proof.

Ms. Barrett argues that the Bankruptcy Judge did not apply the proper legal standard in making his findings and conclusions. The parties disagree over the effect of several presumptions in District of Columbia law that govern whether an asset is a tenancy by the entireties, as well as the proper burdens of proof in establishing these presumptions. Because this is a question of law, the Court will review it de novo.

There are two applicable presumptions in the District: the Imirie presumption and the Settle presumption. See Imirie v. Imirie, 246 F.2d 652 (D.C.Cir.1957); Settle v. Settle, 8 F.2d 911 (D.C.Cir.1925). Later D.C. Court of Appeals cases have clarified these presumptions. The Imirie presumption...