In re Tompkins
| Decision Date | 06 May 2010 |
| Docket Number | Bankruptcy Court Case No. 06-05983,No. 1:09-CV-734,Adversary Proceeding No. 07-80373,1:09-CV-734 |
| Citation | 428 B.R. 713 |
| Parties | In re Michael J. TOMPKINS, Debtor. James W. Boyd, Trustee, Plaintiff, v. James A. Petrie, Trustee of the James A. Petrie Trust, Defendant. |
| Court | U.S. District Court — Western District of Michigan |
Timothy D. Arner, PC, Boyne City, MI, for Debtor.
James W. Boyd, Quandt & Phelps, PLC, Zimmerman Kuhn Darling Boyd, Traverse City, MI, Trustee.
To help facilitate his daughter's divorce from Michael J. Tompkins ("Debtor"), James A. Petrie ("Defendant"), as trustee of the James A. Petrie Trust, agreed to accept Debtor and Cheryl A. Petrie-Tompkins' marital residence by quitclaim deed in exchange for the release of a $123,000 loan Debtor and his ex-wife owed the Petrie Trust. Five months after entry of the divorce judgment, Debtor filed a bankruptcy petition. Plaintiff, James W. Boyd (the "Trustee"), appeals the bankruptcy court's decision dismissing the Trustee's avoidance action on the transfer of the marital residence. For the reasons stated below, the Court will vacate the bankruptcy court's order and remand the case for further proceedings consistent with this Opinion.
On August 8, 2005, Shirley Petrie, the wife of Defendant, James Petrie, loaned $123,000 to Debtor and his wife, Cheryl Petrie-Tompkins, who is Defendant's daughter. In exchange for the $123,000 loan, Defendant received a document entitled "Mortgage Note." The "Mortgage Note" contained a legal description of the property and a repayment period of fifteen years at three percent interest, which equated to monthly payments of $849.42. (Def.'s Resp. Br. at 7.) The "Mortgage Note" was not recorded because it was notnotarized. ( Id.) From September until December 2005, Debtor and Ms. Petrie-Tompkins made four timely payments on the note. In December 2005, Ms. Petrie-Tompkins filed for a divorce.
As in the present bankruptcy appeal, the marital residence (the "Lord Road Property") was the primary issue in the divorce proceedings. On March 23, 2006, Shirley Petrie co-signed a $5,000 loan with Debtor to pay-off an outstanding home equity line of credit on the marital residence. Seventeen days later, the bank released the mortgage on the home equity line of credit. In June 2006, as part of the divorce agreement, Debtor and Ms. Petrie-Tompkins transferred their interest in the Lord Road Property to the Petrie Trust by quitclaim deed in exchange for Defendant's cancellation of the $123,000 loan (the "Transfer"). On June 28, 2006, the state court entered a judgment of divorce. Five months later, on November 21, 2006, Debtor filed his Chapter Seven bankruptcy petition and claimed federal exemptions under 11 U.S.C. § 522(d).
The bankruptcy court held a bench trial on March 24, 2009. On the morning of trial, the parties stipulated to the dismissal with prejudice of the Trustee's fraudulent conveyance counts under 11 U.S.C. § 544 and the Uniform Fraudulent Transfer Act. The only issue tried, and the only issue for appeal, is whether the Transfer of the Lord Road Property to the Petrie Trust was avoidable as a preference under 11 U.S.C. § 547(b) and recoverable under 11 U.S.C. § 550. The Trustee did not testify at the trial.
At the conclusion of the trial, the bankruptcy court issued an oral opinion finding that the Trustee failed to establish that Debtor held a separate, individual interest in the property on the date of the Transfer. The bankruptcy court noted that Debtor and Cheryl Petrie-Tompkins owned the Lord Road Property as tenants by the entireties prior to their divorce and that the Lord Road Property was transferred to the Petrie Trust prior to the entry of their judgment of divorce. (Bankr.Tr. at 122.)
In a supplemental opinion entered on March 26, 2009, the bankruptcy court clarified its oral opinion. The bankruptcy court stated that the oral opinion fell short of expressing the court's "conclusion that the Trustee failed to establish diminution of the estate, a somewhat distinct, extra-statutory element of any preference claim." (Bankr.Ct.'s Supplemental Op. at 2.) The bankruptcy court reasoned that the Transfer did not result in a diminution of the estate because of the entireties nature of the Lord Road Property on the Transfer date. Additionally, the bankruptcy court found that Defendant's cancellation of the $123,000 loan and Debtor and Ms. Petrie-Tompkins' transfer of the Lord Road Property to the Petrie Trust were designed to facilitate the divorce. Finally, the bankruptcy court held that the Trustee offered no competent evidence that "Defendant fared better as a result of the Transfer than he would have in Chapter 7 had the Transfer not occurred." ( Id. at 5.)
The Trustee moved to amend the bankruptcy court's findings of fact and conclusions of law under Rule 52, arguing that (1) a transfer of entireties property can be avoided under 11 U.S.C. § 547, and (2) the bankruptcy court should take judicial notice of the claims register and Debtor's schedules. On June 7, 2009, the bankruptcy court entered an order denying the motion to amend. The bankruptcy court specifically rejected the reliability and persuasiveness of Debtor's schedules. (Bankr.Ct.'s Rule 52 Op. at 4.) The court noted that "Schedules are sometimes incomplete and inaccurate, and the Trustee's counsel elicited no testimony from eitherDebtor (who appeared at trial) or the Trustee (who did not) regarding the statements contained therein." ( Id.) The bankruptcy court further stated that the "court was not persuaded that the hearsay statements contained in the schedules, without more, were competent evidence of the universe of assets, asset values, allowable claims, or for that matter, existence of joint debt." ( Id. at 4-5.) After citing a Chase credit card disparity as an example of insufficient evidence, the bankruptcy court held that "the schedules, even considering the claims register, do not establish that any joint claims (other than the Defendant's claim) would share in the entireties property." ( Id. at 7.) Therefore, the bankruptcy court held that "Without testimony from the Trustee or other knowledgeable witness regarding the claims ... the court had insufficient evidence to find the Defendant, a joint creditor, fared better as a result of the transfer than he would have in a hypothetical Chapter 7 proceeding." ( Id. at 5-6.) The Trustee subsequently appealed the bankruptcy court's rulings to this Court.
In reviewing the bankruptcy court's decision that the Trustee failed to show diminution of the estate under § 547, this Court applies a clearly erroneous standard to the bankruptcy court's findings of fact and a de novo standard of review to its conclusions of law. Parker v. Goodman (In re Parker), 499 F.3d 616, 620 (6th Cir.2007).
Under the Bankruptcy Code, all legal and equitable interests of the debtor, including property held as a tenant by the entirety, become part of the bankruptcy estate. See 11 U.S.C. § 541. When a debtor claims the federal exemptions under § 522(d), property held as a tenant by the entireties is not protected. See Shapiro v. First Franklin Fin. Corp. (In re Rechis), 339 B.R. 643, 647 (Bankr.E.D.Mich.2006) (). Instead, § 522(d) permits a debtor to claim an exemption of $20,200 for real and personal property that the debtor uses as a residence. See 11 U.S.C. § 522(d)(1). Thus, when a debtor has an interest in entireties property and selects the federal exemptions, the entireties property is analyzed as if it was a tenancy in common with the debtor's interest in that tenancy in common subject to the claims of the debtor's individual and joint creditors. See In re Raynard, 327 B.R. 623, 637 (Bankr.W.D.Mich.2005); see also In re Rechis, 339 B.R. at 647 ().
The issue in this case is whether Debtor and his ex-wife's Transfer of entireties property to Defendant to facilitate their divorce is avoidable as a preference under § 547(b).1 The Court must analyze whatactually happened pre-petition to escape the web of hypotheticals the parties wove in their briefs. See Lasich v. Wickstrom (In re Wickstrom), 113 B.R. 339, 346 (Bankr.W.D.Mich.1990) ). Here, a divorce judgment for Debtor and his ex-wife was entered on June 28, 2006. Consequently, if the Trustee satisfies the elements of § 547(b) and avoids the Transfer, then Debtor and his ex-wife will have equal interests in the Lord Road Property as tenants in common because the divorce decree destroyed the tenancy by the entireties. See M.C.L. § 552.102. Therefore, if the Trustee satisfies the elements of § 547(b) by a preponderance of the evidence, the Transfer will be avoided as a preference and Debtor's interest in the Lord Road Property, held as a tenant in common, can be subjected to the claims of all Debtor's creditors. See Olson v. Parker (In re Parker), 395 B.R. 12, 17(Bankr.W.D.Mich.2008) ().
The bankruptcy court held that there was no credible evidence to show diminution of the estate under § 547(b)(5). The Trustee argues that the bankruptcy estate was diminished by the Transfer. First, the Trustee states that Defen...
To continue reading
Request your trial