In Re: Pletz, Debtor

• Decision Date: 10 August 2000
• Docket Number: No. 99-35248,99-35248
• Citation: 221 F.3d 1114
• Parties: (9th Cir. 2000) In Re: RUDIE WILLIAM PLETZ, Debtor. RUDIE WILLIAM PLETZ, Appellant, v. UNITED STATES OF AMERICA, Appellee
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1114

221 F.3d 1114 (9th Cir. 2000)

In Re: RUDIE WILLIAM PLETZ, Debtor.

RUDIE WILLIAM PLETZ, Appellant, v. UNITED STATES OF AMERICA, Appellee.

No. 99-35248

U.S. Court of Appeals for the Ninth Circuit

Argued and Submitted July 14, 2000

Filed August 10, 2000

James Ray Streinz, McEwen, Gisvold, Rankin, Carter & Streinz, Portland, Oregon, for the appellant.

Michelle C. France and Charles F. Marshall, Department of Justice, Washington, D.C., for the appellee.

Appeal from the United States District Court for the District of Oregon

Before: Goodwin, Graber and Fletcher, Circuit Judges.

GOODWIN, Circuit Judge:

Rudie William Pletz (the "Debtor") appeals the district court's order sustaining the bankruptcy court's and Internal Revenue Service's (IRS) objections to the Debtor's Chapter 13 reorganization plan. The Debtor contends that the bankruptcy court and the district court incorrectly determined the value of his interest in the property he owned with his wife (the "Property") as tenants by the entirety.

STANDARD OF REVIEW

The bankruptcy court's valuation of a debtor's property is a finding of fact that we review for clear error. See Ebben v. Commissioner, 783 F.2d 906, 908-09 (9th Cir. 1986). However, the interpretation of Oregon law, including whether IRS tax liens may attach to a debtor's possessory interest in property held as a tenant by the entirety, is a question of law that we review de novo. See Duckor Spradling & Metzger v. Baum Trust (In re P.R.T.C., Inc.), 177 F.2d 774, 782 (9th Cir. 1999).

FACTUAL AND PROCEDURAL BACKGROUND

The Debtor and his wife Emma Pletz live at 13236 N.W. McNamee Road in Portland, Oregon. Their property includes a two-acre parcel on which their home is located and an additional 26 acres of undeveloped land, which cannot be developed or sold separately from the residential parcel (the combined 28 acres are referred to as the "Property"). The Debtor and his wife hold the Property as tenants by the entirety. The parties stipulated that the value of the two-acre parcel was $266,800, and the bankruptcy court found that the value of the 26-acre portion was $138,870, for a total Property value of $405,670. The Debtor does not challenge these valuations on appeal, but rather disputes the percentage ownership interest that the bankruptcy court attributed to him as opposed to his wife.

The Debtor failed to file tax returns from 1982 through 1987. The IRS prepared substitute returns and determined tax deficiencies against the Debtor in the amount of $182,000. The Debtor filed a Chapter 13 petition in bankruptcy and proposed a plan that would value the IRS' secured claim in his share of the Property at $12,000. The IRS objected, claiming the Debtor's plan undervalued its collateral and the Debtor's interest in the Property. In a memorandum opinion, the bankruptcy court held that the IRS' lien attached to the Debtor's interest in the Property held as a tenancy by the entirety, and that the IRS was authorized to sell the Property so long as it compensated the Debtor's wife for her interest in the Property.

In determining the Debtor's percentage interest in the Property, the bankruptcy court initially valued his wife's interest, in accordance with United States v. Rodgers, 461 U.S. 677 (1983), as if she held a single life estate plus remainder interest. However, the IRS objected, arguing that while Rodgers was illustrative of the necessary calculation, it was not determinative, given that it involved the interest of only the surviving nondebtor spouse after the death of the debtor. Hence, the IRS urged in the instant case that the actuarial tables the bankruptcy court used to the calculate the Debtor's interest should reflect the joint interests of both spouses, rather than value his wife's interest as though she possessed a single life estate (and the Debtor had only a survivorship interest).

After considering the IRS' objection, the bankruptcy court modified its calculation to use joint-life actuarial tables instead of single-life data. It accounted for the wife's greater life expectancy compared to that of her husband by adjusting the 5-year and 10-year life expectancy tables it was given to reach the proper number for the actual 7-year life expectancy difference between men and women. Under the joint-life method, and correcting for the difference in anticipated lifespan, the court found that the wife had a 53.207% interest in the Property and that the Debtor had a 46.793% interest. Thus, the bankruptcy court determined that the value of the Debtor's interest in the Property was 46.793% of $405,670, or $189,825. Accordingly, the court entered an order denying confirmation of the Debtor's proposed Chapter 13 bankruptcy plan as unfeasible because it undervalued his interest in the Property.

The Debtor appealed to the district court to no avail. The district court affirmed the bankruptcy court's calculations, holding that the IRS' lien attached to the Debtor's tenancy by the entirety interest in the Property. Further, the district court held that the bankruptcy court "properly interpreted Oregon law," fairly valued the Debtor's interest, and appropriately divided it with his wife. The Debtor appealed the district court's decision.

DISCUSSION

The crux of the Debtor's argument on appeal is that the IRS' lien should not attach to his possessory interest in property held as a tenancy by the entirety. Rather, he states that the IRS' secured interest should be limited to only the value of his survivorship interest in the Property even though he still remains in possession of the Property with his wife.

Under Oregon law, a tenancy by the entirety is treated as a tenancy in common with an indestructible right of survivorship. See Brownley v. Lincoln County, 343 P.2d 529, 531 (Or. 1959). Most important to this case, Oregon law permits the creditor of one spouse to execute on that spouse's interest in property held as a tenancy by the entirety with a nondebtor spouse. See Hoyt v. American Traders, Inc., 725 P.2d 336, 338 n.1 (Or. 1986) (holding that the interest of the debtor, as tenant by the entirety with nondebtor spouse, may be sold on execution). This court has confirmed that an IRS lien may attach to a debtor's interest as a tenant by the entirety. See United States v. Gibson, 817 F.2d 1406, 1407 (9th Cir. 1987). Further, in order to enforce a lien and collect on justly owed debts, the district court is empowered to order the sale of property to satisfy the tax debt of one tenant, so long as it compensates the nondebtor spouse for his or her interest. See id.; see also Rodgers, 461 U.S. at 680; 26 U.S.C. S 7403(a).

The Debtor relies on Rodgers, however, to support the bankruptcy court's initial (but reconsidered) preference for using single-life, rather than joint-life, actuarial tables to calculate his interest in the Property. Under a single-life analysis, the Debtor's wife would be considered to have all the possessory interest in the Property while they were both alive, and the Debtor's interest would consist of only his right of survivorship. Debtor argues that the Supreme Court in Rodgers required the nondebtor spouse to receive "complete compensation" for her interest, stating:

If the home is sold, the nondelinquent spouse is entitled, as part of the distribution of proceeds required under S 7403, to so much of the proceeds as represents the complete compensation for the loss of such spouse's separate homestead interest. Id. Of course this is true. However, Rodgers involved the valuation of only a single life estate interest in property after the debtor had predeceased his nondebtor spouse. See 461 U.S. at 685. Here the Debtor is still alive and has both an undivided right to the Property for his life and a right of survivorship. In fact, he still occupies the Property, and the issue simply is how much the IRS, as...