In re Wheeler
| Decision Date | 27 March 2000 |
| Docket Number | No. 1:99-cv-308. Bankruptcy No. HG-94-80671. Adversary No. 96-8187.,1:99-cv-308. Bankruptcy No. HG-94-80671. Adversary No. 96-8187. |
| Citation | 252 BR 420 |
| Parties | In re Kathleen M. WHEELER, Debtor. United States of America, Defendant/Appellant, v. Elizabeth Chalmers, Trustee, Plaintiff/Appellee. |
| Court | U.S. District Court — Western District of Michigan |
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Kathleen M. Wheeler, Debtor, Lake Leelanau, MI, Pro se.
W. Francesca Ferguson, U.S. Attorney's Office, Grand Rapids, MI, Michael W. Davis, U.S. Department of Justice, Tax Division (1), Washington, DC, for Defendant/Appellant.
Jeffrey Alan Moyer, Donovan, Love & Twinney, PLC, Office of the U.S. Trustee, Grand Rapids, MI, for Plaintiff/Appellee.
This matter is before the court on the appeal of the United States of America from a judgment of the United States Bankruptcy Court (the Honorable Laurence Howard) requiring the United States to turnover to the trustee $6,000 representing the debtor's dower interest in certain real estate. For the reasons set forth below, the court REVERSES the decision of the bankruptcy court.
This case arises from the voluntary Chapter 7 bankruptcy petition filed by Kathleen Wheeler (the "debtor" or "Kathleen") on February 17, 1994. In June, 1996, Elizabeth Chalmers, the duly appointed Chapter 7 trustee, initiated this adversary proceeding by filing a "Complaint to Require Turn Over of Property." The complaint arises from a post-petition payoff of the balance of a land contract executed by the debtor's husband, Forrest N. Wheeler (or "Forrest").1
The essential facts are not in dispute. The real property in question is located at 5900 Hall Street, S.E. in Grand Rapids, Michigan. At one time, Forrest held the property in his own name. However, on July 21, 1986, Forrest executed a quitclaim deed transferring the property to joint ownership by himself and Kathleen, as husband and wife. The deed, which recites a lack of consideration for the transfer, was recorded on July 29, 1986. On August 10, 1988, Kathleen and Forrest executed a quitclaim deed which conveyed the property back to Forrest in his individual capacity. This deed also recites that the transaction was made for "no consideration."
On December 31, 1989, Forrest sold the property on land contract to two unrelated third parties. On January 27, 1995, Forrest executed a warranty deed conveying title to the property to the purchasers. Although the warranty deed recites Forrest's status as a "married man," Kathleen, who by this time had filed her Chapter 7 petition, did not sign the deed, nor did the trustee. At the closing of the land contract sale, the title company handling the transaction placed the proceeds from the sale — $40,139.84 — in escrow, in Forrest's name.
On September 11, 1995, the Internal Revenue Service ("IRS") issued a notice of levy to the title company in the amount of $28,740.20, representing the unpaid, post-petition joint 1994 federal income tax liability of Kathleen and Forrest Wheeler. Based on the notice of levy, the title company issued a check to the IRS for the full amount it claimed. The title company also released to Forrest the sum of $11,399.64, which was what remained in the escrow account after payment to the IRS.
The trustee's complaint alleges that upon closing of the land contract pay-off, one-half of the proceeds — or $ 20,069,92 — represented property of the bankruptcy estate. The complaint also alleges that the levy resulted in the IRS obtaining possession of funds representing property of the bankruptcy estate. Based on these allegations, the trustee sought to have the IRS turn over to her, pursuant to 11 U.S.C. § 542, the sum of $20,069.92, or half of the $28,740.20 which the IRS had received from the escrow account.
The trustee subsequently moved for summary judgment, arguing that the August 10, 1988 conveyance by quitclaim deed effectively transformed ownership of the property from a tenancy of the entireties to a tenancy in common. Based on this argument, the trustee reasoned that she became a tenant in common with Forrest as of the date Kathleen filed her petition. In a bench ruling on October 1, 1996, the bankruptcy court correctly rejected this argument, concluding that the transfer by Kathleen was effective to terminate the tenancy by the entirety and to vest full title to the property in Forrest.2 The bankruptcy court also concluded, however, that Kathleen "may have certain inchoate dower rights" which were not barred by the conveyance; therefore, the court concluded, it was solely this "dower right" which would have become property of Kathleen's Chapter 7 estate.3
After additional briefing was filed by the parties addressing certain issues raised by the amended pleadings, on May 8, 1998 the bankruptcy court issued an opinion in which posed the following query: "Are the Funds Sought Property of the Estate?" Concluding, among other things, that this issue was "inextricably intertwined with the issue of the debtor's dower rights" and that such rights constituted real property rights defined by state law, the bankruptcy court nonetheless expressly saved resolution of this question, and the question of the "extent and valuation" of the dower rights, for a later day.
In a subsequent bench ruling on cross-motions for summary judgment held on July 28, 1998, the bankruptcy court once again addressed the issue of whether the proceeds of the sale of the property which were levied upon by the IRS were the property of the bankruptcy estate. Noting that it's October, 1996 ruling had held that the debtor had a dower interest in the real property at the time of her Chapter 7 filing, the bankruptcy court reaffirmed this ruling, but concluded that the extent and value of the debtor's dower interest were questions of fact on which summary judgment was inappropriate. The court further indicated that it would schedule a hearing on the issue of the valuation of the dower interest.
Subsequently, the parties entered into a stipulation in which they agreed that if the debtor possessed a dower interest in the real property, the value of that interest on the Chapter 7 filing date was $6,000. Accordingly, on March 3, 1999, the bankruptcy court entered a final judgment in favor of the trustee in the stipulated amount. The United States filed its notice of appeal on March 15, 1999.
In her brief on appeal,4 the trustee argues that the court must at the outset address the threshold issue of whether it has appellate jurisdiction to review the issues raised by the United States' appeal.5 More specifically, the trustee argues that because the bankruptcy court's July 28, 1998 ruling was a final decision on the merits of these issues, the United States' appeal is untimely and the court lacks jurisdiction over it.
The trustee's argument has no merit. Title 28 U.S.C. § 158(a)(1) provides, in relevant part, that the district courts "shall have jurisdiction to hear appeals . . . from final judgments, orders, and decrees." Section 158(a)(1) further provides that district court review of interlocutory orders and decrees of bankruptcy judges shall only be had "with leave of the court." The bankruptcy court's July, 1998 ruling was not final, but interlocutory, for it clearly failed to dispose of the issue of the value of the debtor's dower rights. See In re Charter Co., 778 F.2d 617, 621 (11th Cir. 1985) (). A judgment requiring turnover could not have been entered in the absence of a determination of the amount which the United States was required to turn over. Once the bankruptcy court did enter such a judgment, the United States filed a timely appeal under Bankr.Rule 8002. This court therefore has jurisdiction over the issues raised therein.
For purposes of this appeal, the United States does not contest the holding of the bankruptcy court that the debtor, Kathleen Wheeler, had a dower interest in the subject property on the date that she filed her Chapter 7 petition. Brief for the Appellant, at 2. What the United States does argue, however, is that the bankruptcy court erred when it held that the proceeds from the sale of the property by Forrest Wheeler (1) represented that interest, and (2) were traceable in the hands of the IRS and therefore subject to turnover. The parties agree that to the extent that this appeal presents strictly a legal issue, this court must review the bankruptcy court's conclusions of law de novo. See In re Baker & Getty Financial Serv., Inc., 106 F.3d 1255, 1259 (6th Cir.1997) (). In its review, this court may consider any issue presented by the record even if the issue was not presented to the bankruptcy court. Matter of Pizza of Hawaii, Inc., 761 F.2d 1374, 1379 (9th Cir.1985).
"It is well established that the burden of proof is on the party seeking turnover of property of the estate." Matter of Alofs Mfg. Co., 209 B.R. 83, 89-90 (Bkrtcy.W.D.Mich.1997). Therefore, the trustee must prove each element of her turnover action under section 542 by a preponderance of the evidence in the record. Id. at 91. One of these elements requires the trustee to prove that the property in question is in the "possession custody, or control of an entity," id., here, the United States. In addition, fundamental to the concept of turnover under § 542(a) is that the asset to be turned over must be property of the debtor's bankruptcy estate as defined by the Bankruptcy Code. In re Greer, 242 B.R. 389, 393 (Bkrtcy.N.D.Ohio 1999).
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