In re Ryan, 01-474-L.

• Decision Date: 06 September 2002
• Docket Number: No. 01-474-L.,01-474-L.
• Citation: 282 B.R. 742
• Parties: In re Robert RYAN, Debtor.
• Court: U.S. District Court — District of Rhode Island

282 B.R. 742

In re Robert RYAN, Debtor.

No. 01-474-L.

United States District Court, D. Rhode Island.

September 6, 2002.

COPYRIGHT MATERIAL OMITTED

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Peter G. Berman, Raskin & Berman, Providence, RI, for Plaintiff.

Louis A. Geremia, Geremia & DeMarco, Providence, RI, for Defendant.

Sheryl Serreze, Office of U.S. Trustee, Providence, RI, Trustee.

DECISION AND ORDER

LAGUEUX, Senior District Judge.

This matter is before the Court on Debtor Robert Ryan's appeal from a Decision and Order entered by the United States Bankruptcy Court for the District of Rhode Island on July 25, 2001. Ryan appeals the Bankruptcy Court's decision to approve the Trustee's Notice of Sale of Ryan's survivorship interest in real estate and the determination that the Trustee did not engage in champerty. For the reasons stated below, the Decision and Order of the Bankruptcy Court is affirmed.

BACKGROUND

The facts as found by the Bankruptcy Court are as follows:

On October 5, 2000, Robert Ryan ["Ryan"] filed for Chapter 7 relief under the United States Bankruptcy Code. At the time of the filing, Ryan included on his Schedule A a one-half interest in real estate located at 10 Henry Drive in Barrington, Rhode Island. Ryan listed the fair market value of the property, owned as tenants by the entirety with his non-debtor spouse, at $250,000, with an existing $95,000 mortgage to Valuation Concepts, Inc. 11 U.S.C. § 522(b) required Ryan to choose between state and federal exemption schemes, and he elected state exemptions under § 522(b)(2). At the time of filing, Rhode Island recognized as exempt up to $100,000¹ in a homestead estate. R.I. Gen. Laws § 9-26-4.1.

On March 28, 2001, Chapter 7 Trustee Louis A. Geremia ["the Trustee"] filed a Notice of Sale, ["the Notice"] requesting authority to sell Ryan's survivorship interest in the property to Jack F. Sullivan ["Sullivan"]. As the largest unsecured creditor in the amount of $186,000, Mr. Sullivan offered to purchase the survivorship interest for $5,000. On April 6, 2001, Ryan responded by filing an Objection to the Notice, arguing that his interest in the property was wholly protected by the Rhode Island Homestead Act.

In his objection, Ryan raised three points of contention. First, Ryan argued that as a tenant by the entirety his future expectancy interest in the entireties estate is exempt from both sale and attachment. Second, Ryan reasoned that even if an expectancy interest may be sold, his own share of the interest is exempt under the Homestead Act. Specifically, Ryan asserted that his present interest in the entireties property is one-half of the total equity, and thus falls within the exemption granted by the Rhode Island Homestead Act. Ryan reasoned that because the fair market value of the property, minus encumbrances, is $155,000, his own share is worth $77,500, and well within the $100,000 exemption. Lastly, Ryan argued that the contract between the Trustee and Mr. Sullivan to sell Ryan's future interest in the entireties property is void for champerty.

In an opinion dated July 25, 2001, Bankruptcy Judge Vololato determined Ryan's interest to be 100% of the total equity. The Bankruptcy Court reasoned that because the property has an equity of $155,000, the $100,000 Homestead exemption does not cover all interests, and therefore, the Trustee could sell Ryan's remaining interest. Referring to settled Rhode Island law, Judge Vololato held that Ryan's contingent future expectancy interest is a marketable and non-exempt asset. Accordingly, the Bankruptcy Court, relying upon the Trustee's business judgement that the sale was in the best interest of the estate, approved the Notice of Sale. The Bankruptcy Court briefly concluded by noting that implicit in its decision was the finding that the Trustee had not engaged in champerty.

On October 3, 2001, Ryan appealed the Bankruptcy Court's decision. In response the Trustee filed a Motion to Dismiss Ryan's appeal on the grounds of lack of jurisdiction. In his Motion to Dismiss, the Trustee argued that because a survivorship interest constitutes an asset of the estate, Ryan is no longer a person aggrieved and thus has no standing to appeal from the Bankruptcy Court order. This Court denied the Motion to Dismiss on December 17, 2001; and, on May 10, 2002, this Court heard oral argument on Ryan's appeal and took this matter under advisement. The matter is, now, in order for decision.

DISCUSSION

I. Jurisdiction and Standard of Review

This Court has jurisdiction to hear appeals from judgements, orders, and decrees of the Bankruptcy Court. See 28 U.S.C. § 158(a). On appeal from a decision of the Bankruptcy Court, this Court sits as an intermediate appellate court. Such appeals are "taken in the same manner as appeals in civil proceedings generally are taken to the courts of appeal from the district courts." Id. § 158(c)(2); see also In re Mayhew, 223 B.R. 849, 854 (D.R.I.1998). Accordingly, the standard of review is a bifurcated one. While the Bankruptcy Court's findings of fact are reviewed for clear error, see Fed. R. Bankr.P. 8013, its conclusions of law are afforded plenary review, see In re Edmonston, 107 F.3d 74, 75 (1st Cir.1997); In re Williams, 190 B.R. 728, 732 (D.R.I.1996). Furthermore, this Court is not bound to remain within the confines of the Bankruptcy Court's reasoning for its decision, but is free to affirm the decision below on any ground supported by the record. See In re Erin Food Servs., Inc., 980 F.2d 792, 801 (1st Cir.1992); In re Hemingway Transport, Inc., 954 F.2d 1, 9 (1st Cir.1992).

II. Analysis

Ryan has raised three principal issues in this appeal:

(1) Whether the Bankruptcy Court erred in approving the Trustee's Notice of intended sale of the right of survivorship in the Debtor's real estate;

(2) Whether the Bankruptcy Court erred in determining that the Debtor's right of survivorship was not exempt; and

(3) Whether the Bankruptcy Court erred in determining that the Trustee's Notice of intent to sell the right of survivorship was not void for champerty.

This Court will address each of these issues in turn.

A. Sale of Survivorship Interest

In his appeal of the Bankruptcy Court's decision, Ryan argues that the Bankruptcy Court erred in approving the sale of his contingent future interest in the entireties property because the decision is a judicial restriction on the protection afforded to tenants by the entirety. Ryan reasons that an expectancy interest is exempt from attachment and sale, and that under a tenancy by the entirety married couples are entitled to be shielded from even the farthest reach of creditors. For the following reasons, this Court affirms the Bankruptcy Court's decision and concludes that the protection afforded a tenancy by the entirety is not jeopardized by the sale or attachment of an expectancy interest.

Rhode Island common law recognizes and allows the creation of a tenancy by the entirety.² As the colonists emigrated from England to Rhode Island, so did the estate of tenancy by the entirety, which retains its English common law roots. See Bloomfield v. Brown, 67 R.I. 452, 25 A.2d 354, 356 (1942). A tenancy by the entirety requires not only the requisite four unities of time, title, interest, and possession, but also can exist solely between two married individuals. Cull v. Vadnais, 122 R.I. 249, 406 A.2d 1241, 1244 (1979).

Intended as a method of protecting the property rights of the married woman, the tenancy by the entirety creates a right of survivorship in each spouse. See Van Ausdall v. Van Ausdall, 48 R.I. 106, 135 A. 850, 851 (1927). Though not recognized in all states, the tenancy by the entirety, where preserved, serves to protect wives and children in the use of the family home. Harris v. Crowder, 174 W.Va. 83, 322 S.E.2d 854, 858 (1984). A tenancy by the entirety also protects the interests of both spouses by ensuring that for the duration of the marriage, or for as long as the tenancy exists, the estate cannot be "severed, terminated, or partitioned by either spouse without the assent of the other." In re Snyder, 249 B.R. 40, 44 (1st Cir. BAP 2000) (citation omitted).

In bankruptcy, the protection afforded to the estate during the tenancy prevents the debtor's interests from being alienated from the estate without the non-debtor spouse's consent. Consequently, the estate is not subject to levy and sale on a judgement entered against the debtor spouse alone. Bloomfield, 25 A.2d at 359. Because the present interests of both the debtor and non-debtor spouses are conjoined under the tenancy by the entirety, Rhode Island law forbids the levy and sale of a tenancy by the entirety, but allows for prejudgment attachment of the debtor spouse's interest in the entireties property. See generally Cull, 406 A.2d at 1245. "[I]f the husband and wife [do] not convey their property before one spouse dies, and if the debtor spouse survives the death of the other spouse, the creditor may enforce the prior attachment...." Id. at 258, 406 A.2d 1241; see also In re Gibbons, 17 B.R. 373, 374 (Bankr.D.R.I.1982).

Thus, it is well established under Rhode Island law that an entireties property is shielded from the reach of creditors until the tenancy is dissolved or the debtor spouse survives the non-debtor spouse. Importantly, creditors not only may attach property that is owned as tenants by the entirety, but also may "sell the contingent future expectancy interest which the attachment entails (if anyone can be persuaded to purchase it)...." In re Furkes, 65 B.R. 232, 236 (D.R.I.1986); see also In re Bois, 191 B.R. 279, 280 (Bankr.D.R.I.1996). Thus the Furkes and Bois decisions reflect the judiciary's willingness to protect the interest of the non-debtor spouse while at the same time allowing creditors to reach the debtor once his interests are no longer conjoined with those of his spouse.

Applying these principles to the instant case, it is clear that ...