In re Eberhardt

• Decision Date: 21 September 2021
• Docket Number: 20-31855-KRH
• Court: U.S. Bankruptcy Court — Eastern District of Virginia
• Parties: In re: SUSAN L. EBERHARDT, Debtor.

In re: SUSAN L. EBERHARDT, Debtor.

No. 20-31855-KRH

United States Bankruptcy Court, E.D. Virginia, Richmond Division

September 21, 2021

Chapter 7

MEMORANDUM OPINION

KEVIN R. HUENNEKENS, UNITED STATES BANKRUPTCY JUDGE

This matter comes before the Court on the Trustee's Objection to Debtor's Exemptions [ECF No. 83] (the "Objection") filed by William A. Broscious, Chapter 7 trustee for the bankruptcy estate of Susan L. Eberhart (the "Trustee"), to certain asserted exemptions of Susan L. Eberhardt (the "Debtor"). On July 21 and 22 2021, the Court conducted an evidentiary hearing (the "Hearing") on the Objection. This Memorandum Opinion sets forth the Court's findings of fact and conclusions of law in accordance with Rule 7052 of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules") in connection with its Order Sustaining Trustee's Objection to Debtor's Exemption [ECF No. 124] entered on August 6, 2021 (the "Order").

This Court has subject-matter jurisdiction over the Debtor's bankruptcy case pursuant to 28 U.S.C. §§ 157 and 1334 and the General Order of Reference from the United States District Court for the Eastern District of Virginia dated August 15, 1984. This is a core proceeding under 28 U.S.C. § 157(b)(2)(A), (B). Venue is appropriate pursuant to 28 U.S.C. § 1409.

Based on the evidence presented at the Hearing, the Court finds that the Debtor and Joseph P. Sullivan ("Mr Sullivan") were married on January 23, 2014. Shortly after their marriage, Mr. Sullivan decided to purchase certain commercial real property known as 6102 Nine Mile Road, Richmond, Virginia, and contiguous property located at 13 Knight Drive, Richmond, Virginia (collectively, the "Real Property"). Mr. Sullivan liquidated his farm equipment and transferred the proceeds into an account in the name of the Debtor. The Debtor then used the funds deposited into her account to purchase the Real Property in her name only. The Debtor testified that she became nervous about this transaction. A month after her initial acquisition, the Debtor transferred the Real Property by deed of gift to herself and Mr. Sullivan as tenants by the entirety. Mr Sullivan and the Debtor created a property management company, Pelican Properties, LLC ("Pelican"), to manage the Real Property. Pelican collected rents generated from tenants that operated on the Real Property. The Debtor was established as the sole owner of Pelican, although Mr Sullivan effectively ran the management company, in an ostensible attempt to shield the rents from Mr. Sullivan's creditors.

The Debtor and Mr. Sullivan began to experience difficulties in their marriage. The Debtor made attempts to extricate herself from the marriage. In early 2019, the Debtor submitted articles of cancellation on behalf of Pelican in order to remove herself from the management company. With the Debtor's knowledge and consent, Mr. Sullivan later reinstated Pelican as its sole member and manager.

In April 2019, the Debtor, through her counsel, commenced negotiations with Mr. Sullivan in anticipation of a divorce. The Debtor proposed to waive any right she might have to the Real Property. On February 3, 2020, the Debtor initiated a divorce proceeding (the "Divorce Proceeding") against Mr. Sullivan by filing a Complaint for Divorce (the "Divorce Complaint") in the Circuit Court for Charles City County (the "Circuit Court"). In the Divorce Complaint, the Debtor confirmed that she waived her right to equitable distribution of marital assets and debts pursuant to section 20-107.3 of the Virginia Code. Mr. Sullivan filed a Motion to Request Leave of Court to File a Late Response to Complaint for Divorce on April 1, 2020. Mr. Sullivan attached a draft answer to his Motion. The draft answer included a counterclaim in which Mr. Sullivan demanded equitable distribution, spousal support, and attorneys' fees.^[1]

After Mr. Sullivan filed his draft answer claiming a right to equitable distribution, the Debtor filed on April 7, 2020, (the "Petition Date") a voluntary petition under Chapter 7 of Title 11 of the United States Code (the "Bankruptcy Code").^[2] The schedules and statements annexed to the Debtor's petition disclosed the Debtor's ownership interest in, inter alia, (i) the Real Property,^[3] titled as tenants by the entirety with Mr. Sullivan; and also (ii) a 2008 GMC Sierra Dooley Diesel Truck^[4] (the "Vehicle"), titled solely in the Debtor's name.^[5] The Debtor did not claim an exemption for either the Real Property or the Vehicle on her Schedule C filed with her petition.

The Trustee was appointed as the interim Chapter 7 trustee by the Office of the United States Trustee.^[6] On May 11, 2020, the Trustee convened an initial meeting of creditors, which was subsequently adjourned to June 1, 2020.^[7] In response to questions posed by the Trustee at the initial meeting of creditors, the Debtor testified under oath that she did not assert any rights in the Real Property or the Vehicle.^[8] The Debtor stipulated to the following exchange wherein the Debtor and her counsel, Robert Roussos, confirmed her position during questioning of the Debtor again under oath at the adjourned meeting of creditors:

Q If -- is that Nine Mile Road property, which I understand was in your name, and then you transferred it to your name and his name, is that property subject to any property settlement agreement or discussions or negotiations in connection with the dissolution of your marriage?

A I don't -- I don't assert any interest in that.· I don't know --I don't have any interest in it. Not enough pleadings -- I think that Joe wants it to be deemed his property only.

Q Uh-huh.

A That's about all I know.

Q And you're not resisting that?

MR. ROUSSOS: Can I add something to that?

MR. BROSCIOUS: Yes, please.

MR. ROUSSOS: The divorce papers that I saw that, I guess that Alicia Finley filed, the complaint, indicated that Ms. Eberhardt was waiving any claim of equitable distribution.

MS. EBERHARDT: That's correct.

MR. BROSCIOUS: Okay.

MR. ROUSSOS: So how that may fit in, I'm not sure, and I don't -- I don't know how that all works out, although I know she can't waive any claim that the trustee may have --

MR. BROSCIOUS: Yeah.

MR. ROUSSOS: But she has no interest in acquiring any of those -- of that particular asset.

MR. BROSCIOUS: Okay.

MR. ROUSSOS: Doesn't feel it's hers, doesn't want to be involved in it, and she's waiving any interest that she may have.

BY MR. BROSCIOUS:

Q Is there any property that's in your name or in your name and Mr. Sullivan's name, in which you continue to assert an interest?

A No.

Q Has Mr. Sullivan agreed to make any sort of payments to you?

A No.

Q Why is it that you're so open to waiving any claims against property that you and he, or that he alone has in connection with the dissolution of your marriage?

A Well, I didn't have any money in those things.

Q Okay.

A A lot of those things popped up, and I'm not at all comfortable with it, and quite frankly, I just want to be divorced from him.

Stipulation of Facts Ex. F 11:1-13:1, ECF No. 108-6 at 12-14.

Nor was the Debtor's testimony simply inadvertent. The Debtor repeatedly advised the Trustee that she waived any interest that she may have had in the Real Property and in the Vehicle in response to subsequent correspondence from the Trustee. Stipulation of Facts ¶ 14, ECF No. 108 at 3. The Debtor's responses to the Trustee's Request for Admissions reiterated the Debtor's stance and affirmed that her testimony at her meeting of creditors was not misconstrued by the Trustee.^[9] The Debtor also represented to the Trustee that she anticipated that the final divorce decree would be entered the later in 2020.^[10] 341 Tr. 3:17-23; ECF No. 108-6.

In reliance upon the numerous, unequivocal representations made by the Debtor and her counsel, the Trustee, as the fiduciary responsible for property of the estate,^[11] was required to take several actions on behalf of the bankruptcy estate. First, based on the Debtor's representations, the Trustee hired counsel primarily for "services concerning the recovery of personal property and the potential sale of [the Real Property]." Trustee's Application for Employment of Attorneys (Kutak Rock LLP) ¶ 3, ECF No. 44 at 2. After engaging counsel, the Trustee then turned his focus to preserving, recovering, and liquidating the Vehicle and the Real Property. The Trustee sought and obtained court approval to sell the Vehicle at auction. See Appl. to Employ Auctioneer & Mot. to Approve Sale of Property of the Estate, ECF No. 62; Order Approving Appl. to Employ Auctioneer & Mot. to Approve Sale of Property of the Estate, ECF No. 71. The Debtor did not object to the sale of the Vehicle. Pursuant to the Trustee's Report of Sale [ECF No. 79], the Vehicle was sold at auction on December 4, 2020, resulting in $12,600 in sale proceeds for the benefit of the Debtor's bankruptcy estate.^[12]

The Divorce Proceeding pending in the Circuit Court was stayed upon the filing of the Bankruptcy Case. See 11 U.S.C. § 362. On May 6, 2020, Mr. Sullivan filed a motion for relief from stay [ECF No. 16] with this Court, requesting the stay be modified to allow him to continue to defend the Divorce Proceeding. That motion was resolved through the submission of a consent order permitting Mr. Sullivan to continue with the Divorce Proceeding. The Court subsequently modified the consent order to clarify that "any determination as to equitable distribution shall be subject to final approval of the Bankruptcy Court." See Order Granting Relief from Automatic Stay, ECF No. 27, as modified by Consent Order Modifying Relief from Stay, ECF No. 70. The Debtor did not object to the Court's entry of the modified order.^[13]

Throughout the summer and fall of 2020, ...