In re McNeilly
| Decision Date | 21 June 2000 |
| Docket Number | No. RI 99-106.,RI 99-106. |
| Citation | 249 BR 576 |
| Parties | In re Warren McNEILLY, Jr., Debtor. Warren McNeilly, Jr., Appellant, v. Louis A. Geremia, Chapter 7 Trustee and Revolution Portfolio LLC, Appellees. |
| Court | U.S. Bankruptcy Appellate Panel, First Circuit |
Peter G. Berman and Raskin & Berman, for the Appellant.
Lisa A. Geremia and Geremia & DeMarco, for appellee Louis A. Geremia and Donn A. Randall, Gretchen A. Althoff and Sally & Fitch, for Appellee Revolution Portfolio LLC.
Before GOODMAN, HAINES and FEENEY, U.S. Bankruptcy Judges.
Chapter 7 debtor Warren McNeilly, Jr., appeals the bankruptcy court's order sustaining Trustee Louis Geremia's objection to his claim of exemption in tenancy by the entirety property, namely a Vermont bank account holding $29,991.55. For the reasons set forth below, we reverse.
McNeilly filed a voluntary Chapter 7 petition on August 17, 1999. In his amended schedules he claimed exemptions under Bankruptcy Code § 522(b)(2).1 Among the items he claimed as exempt was his undivided interest in a Vermont bank account ostensibly held as a tenant by the entirety with his wife. The trustee objected to this exemption, asserting that "the debtor's claimed exemption in a bank account with a value of $29,991.55 pursuant to 11 U.S.C. §522(2)(B) . . . is not properly exempt under Rhode Island state law exemptions."2
The issue proceeded to hearing. No evidence whatsoever was adduced. The parties simply argued their positions. The following facts were not disputed:
1. On July 20, 1998, McNeilly and his wife sold Rhode Island business/investment property held as tenants by the entirety, receiving net proceeds of approximately $62,000.00.
2. After applying a substantial portion of the net proceeds to pay down their residential mortgage, the McNeillys placed "approximately $30,000.00" in a "household account" at the Bank of Newport, where they were commingled (to an undetermined extent) with other funds.
3. In 1999, on advice of counsel, the McNeillys withdrew $29,991.55 from the Bank of Newport account and deposited this sum in a Vermont bank.3 The Vermont account was formally denominated a tenancy by the entirety account.4
At the hearing, the trustee shifted gears. Rather than arguing that the Code precludes a Rhode Island debtor who has elected state exemptions pursuant to § 522(b) from claiming an exemption in Vermont entirety property, he contended that such a claim was unsupportable because the funds had been commingled and the debtor could not trace them to entirety property sales proceeds. His counsel argued:
It is the trustee's position that the proceeds were in the debtor's control from July 1998 until April of 1999. Originally those proceeds were deposited in a Bank of Newport account, which was the debtor's household account, that those proceeds have been commingled with household funds for over nine months until such time as they were deposited in that Vermont state account.
I think it would be very difficult, or I think it is the debtor's burden to prove that those proceeds are the same proceeds that were netted from the sale of that tenants-by-the-entirety property in July of '98. I don't think that there is any way to trace the funds, and I think it would be the debtor's burden to prove that that $30,000 was the same $30,000 that he received from the net proceeds from the sale of that land; therefore, the trustee objects to the debtor's exemption.5
In response, the debtor asserted he had no duty to trace the funds. He suggested that he could have placed more than the remaining sales proceeds in an entirety account and claim all of it exempt under § 522(b)(2)(B) since,
the tenants-by-the-entirety account is exempt because of its status as a tenants-by-the-entirety account. If this were not a case where we were being — if this were a case where we were extremely conservative in pre-bankruptcy planning, I think arguably we could have moved all of the liquid funds into a tenants-by-the-entirety account pre-bankruptcy and defended that, but we did not do that. We simply took out the $30,000 which had been put in there from the sale of the tenants-by-the-entirety real estate. We didn't even take out any of the interest. I mean it had been in there for a year. We were so conservative we simply took out the $30,000 we put in when we sold the real estate and segregated it in another account so that our legal argument would be clear with respect to those funds.6
Ruling from the bench, gleaning the facts from such undisputed representations of counsel as there were, the bankruptcy judge sustained the trustee's objection, adopting the trustee's articulated rationale. McNeilly moved for a stay pending appeal, which was granted without opposition, and appealed.7
The bankruptcy court's order sustaining the trustee's objection to the debtor's exemption is a final order. See Howe v. Richardson (In re Howe), 232 B.R. 534, 535 (1st Cir. BAP 1999)("Although other issues may remain for resolution in a case after the determination of the Debtor's claimed exemptions, orders granting or denying exemptions are appealable as final orders."); accord Preblich v. Battley, 181 F.3d 1048, 1055-56 (9th Cir.1999) (). We have jurisdiction pursuant to 28 U.S.C. §§ 158(a)(1) and (b)(1). See In re Howe, 232 B.R. at 535.
Our scope of review is de novo. The bankruptcy court determined the dispute regarding the exempt status of the Vermont account based on the undisputed facts. McNeilly challenges only the court's legal conclusions. See Edmonston v. Murphy (In re Edmonston), 107 F.3d 74, 75 (1st Cir.1997); In re Howe, 232 B.R. at 535; Bruin Portfolio, LLC v. Leicht (In re Leicht), 222 B.R. 670, 671 (1st Cir. BAP 1998).8
With regard to proof and persuasion, an exemption claim is prima facie valid absent a timely objection. See § 522(l) (); Taylor v. Freeland & Kronz, 503 U.S. 638, 642, 112 S.Ct. 1644, 118 L.Ed.2d 280 (1992)(though the claimed exemption in a lawsuit's proceeds was in excess of what was permitted under state or federal law, its validity could not be challenged once the objection period had elapsed); In re Edmonston, 107 F.3d at 76 ().
As the objecting party, it was the trustee's burden to prove McNeilly was not entitled to exempt the account at issue. The Federal Rules of Bankruptcy Procedure are crystal clear:
Burden of Proof. In any hearing under this rule, the objecting party has the burden of proving that the exemptions are not properly claimed. After hearing on notice, the court shall determine the issues presented by the objections.
Fed. R. Bank. P. 4003(c). See also Enterprise Fin. Corp. v. Winn (In re Wincorp, Inc.), 185 B.R. 914, 916 (Bankr.S.D.Fla.1995)( arguments that the debtor must affirmatively demonstrate the existence of a tenancy by the entirety account and that the objecting party has no affirmative duty to negate the existence of such an interest, citing Rule 4003(c), and requiring the objecting party to introduce evidence that the necessary prerequisites for the entirety interest under state law were absent). Contra In re Bundy, 235 B.R. 110, 112 (Bankr.M.D.Fla. 1999) ()9
The trustee had fair opportunity to frame the issue and persuade the court. The evidentiary foundation for this contest is feeble. The trustee rested entirely on his legal argument that commingling the proceeds of Rhode Island entirety property with non-entirety monies in a non-entirety Rhode Island account defeated McNeilly's claim to an entirety interest in the Vermont account.
This is not a review of a summary judgment order, for which unresolved, material issues of fact would warrant remand. See Fed. R. Bankr.P. 7056; Barbour v. Dynamics Research Corp., 63 F.3d 32, 36-37 (1st Cir.1995). The trustee had his opportunity to develop sufficient factual support for his legal argument. The question for us is whether the scant facts he developed can sustain his position under the accurate, applicable legal principles.
Under § 522(b) a Rhode Island debtor may exempt property from the bankruptcy estate under one of two alternative exemptions schemes. See § 522(b).10 McNeilly claimed his exemption under subparagraph (2) which affords for exemptions in:
(A) any property that is exempt under Federal law, other than the alternative federal exemptions delineated in the Code, or State or local law that is applicable on the date of the filing of the petition at the place in which the debtor's domicile has been located for the 180 days immediately preceding the date of the filing of the petition, or for a longer portion of such 180-day period than in any other place; and
(B) any interest in property in which the debtor had, immediately before the commencement of the case, an interest as a tenant by the entirety or joint tenant to the extent that such interest as a tenant by the entirety or joint tenant is exempt from process under applicable nonbankruptcy law.
§ 522(b)(2)(emphasis added). He is entitled to any claimable exemptions under subsection (B), as well as those under subsection (A). See In re Cochrane, 178 B.R. 1011, 1019-20 (Bankr.D.Minn.1995)(use of the conjunction "and" indicates that Congress intended the subsection (2) exemption categories to be cumulative).
Thus, the precise question is whether the trustee proved that immediately before the commencement of his bankruptcy case McNeilly did not have an interest in the Vermont account as a tenant by the...
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