Krueger v. Tippett

• Decision Date: 18 March 2010
• Docket Number: No. 27791-7-III.,27791-7-III.
• Citation: 229 P.3d 866
• Court: Washington Court of Appeals
• Parties: Nancy E. KRUEGER, Appellant, v. Jack W. TIPPETT and Blanche M. Tippett, husband and wife, Respondents.

229 P.3d 866

Nancy E. KRUEGER, Appellant, v. Jack W. TIPPETT and Blanche M. Tippett, husband and wife, Respondents.

No. 27791-7-III.

Court of Appeals of Washington, Division 3.

March 18, 2010.

David Allan Gittins, Attorney at Law, Clarkston, WA, for Appellant.

Thomas L. Ledgerwood, Attorney at Law, Clarkston, WA, for Respondents.

KORSMO, J.

¶ 1 This is a dispute over the proceeds of a life insurance policy between the assignee and the named beneficiary. We agree with the trial court, although on different grounds, that the assignee is entitled to the proceeds. We affirm the judgment.

FACTS

¶ 2 Hal and Bonnie Krueger borrowed money from Jack and Blanche Tippett several times beginning in 1976. The loans were secured by real estate owned by the Kruegers. Hal Krueger also assigned "all rights, title and interest" in the proceeds of a $50,000 insurance policy on his life as "collateral security." Clerk's Papers (CP) 24; Exhibit A. The assignment required Mr. Krueger to continue paying the premiums on the policy until the principal and interest owed the Tippetts was paid, but permitted him to change the beneficiary.¹ Exhibit A. The assignment was "expressly limited to such of the proceeds under the Policy as may be necessary to liquidate said indebtedness, the remainder of the proceeds being unaffected hereby." Id.

¶ 3 The Kruegers filed for bankruptcy in 1981. In 1985, the bankruptcy trustee entered into an agreement with the Tippetts. The agreement abandoned the bankruptcy estate's interest in the life insurance policy and some other Krueger assets. The Tippetts were allowed to proceed against the policy and those assets in state court.

¶ 4 The Tippetts obtained a judgment against the Kruegers in the amount of $43,186.54. They foreclosed on the Kruegers' home. Hal Krueger signed a document on April 15, 1986, that reaffirmed his 1976 assignment of the life insurance policy to the Tippetts. The reassignment stated that it was in consideration of the Tippetts releasing their judgment lien against the property. In conjunction with the reassignment to the Tippetts, Mr. Krueger also assigned the insurance policy to G.W. Krueger in order to secure a promissory note.² This assignment noted that it was subordinate to the assignment to Tippetts.

¶ 5 On May 13, 1986, the Tippetts filed a partial satisfaction of their judgment. The partial satisfaction released the judgment lien and acknowledged payment of nearly $30,000. Due to interest and attorney fees, the Kruegers still owed $21,257.15. The judgment provided that interest on that sum would accrue at 12 percent. The partial satisfaction made no mention of the insurance policy.

¶ 6 The Tippetts maintained correspondence with the insurance company thereafter to assure that they were still listed as beneficiaries of the policy. The insurance company also verified that policy premiums were being paid by a disability benefit.

¶ 7 Bonnie Krueger died in 1994. Hal Krueger later remarried, and in 2005 named his new wife, Nancy Krueger, as beneficiary of the life insurance policy. He died October 9, 2007. Six days later, the Tippetts wrote the insurance company asking for the proceeds, claiming they were owed a total of $75,992.28 after 21 years of interest. Nancy Krueger claimed the proceeds as the named beneficiary. The insurer was allowed to deposit the proceeds of the policy, which totaled $52,413.70, into the registry of the court.

¶ 8 Nancy Krueger filed a declaratory judgment action seeking to claim the proceeds, have Hal Krueger's debt declared unenforceable, and the assignment extinguished. Both parties moved for summary judgment, with the Tippetts asserting several theories of recovery.

¶ 9 The trial court determined that there were no facts in dispute and that it was appropriate to grant summary judgment. The court ruled that the effect of the bankruptcy trustee's decision to abandon the policy was to completely assign it to the Tippetts; Ms. Krueger was estopped from arguing otherwise. The court ordered the entire proceeds paid to the Tippetts.

¶ 10 Ms. Krueger timely appealed to this court.

ANALYSIS

¶ 11 Ms. Krueger argues persuasively that the trial court erred in concluding that the bankruptcy trustee's actions extinguished her late husband's interest in the policy. Nonetheless, we agree that the 1976 assignment, and the reaffirmation in 1986, entitled the Tippetts to the proceeds of the policy to the extent that the judgment remained unsatisfied.

¶ 12 Bankruptcy Trustee's Actions. A bankruptcy trustee is required to marshal assets of the bankruptcy debtor and use them to pay creditors. All property which the debtor owns or may have an interest in becomes part of the bankruptcy estate, including property in the possession of others. 11 U.S.C. § 541(a); 11 U.S.C. § 542(a). The trustee can "abandon" assets that are "burdensome" or of "inconsequential value" to the estate. 11 U.S.C. § 554(a).

¶ 13 The parties here argue over the meaning of abandonment. Ms. Krueger contends that abandonment simply means that the property is no longer part of the bankruptcy estate; the debtor is not relieved of any interest he may have in the property. The Tippetts assert that the abandonment was a transfer from the trustee to them.

¶ 14 The decision in In re Renaissance Stone Works, L.L.C., 373 B.R. 817 (Bankr.E.D.Mich.2007) is instructive. There a bankruptcy trustee attempted to abandon estate property to a creditor. The bankruptcy judge disagreed and determined that a trustee could only abandon property back to the debtor from whom the estate had received the property. There was no authority permitting the trustee to abandon property to a creditor. Id. at 820-821.³ The Ninth Circuit similarly has noted that the effect of a trustee's abandonment of property is that "title reverts to the bankrupt, nunc pro tunc." Mason v. C.I.R., 646 F.2d 1309, 1310 (9th Cir.1980). The United States Supreme Court has long agreed with that approach. Brown v. O'Keefe, 300 U.S. 598, 602-603, 57 S.Ct. 543, 81 L.Ed. 827 (1937).

¶ 15 We conclude that the trustee's agreement with the Tippetts in this case to abandon the property was not a transfer of that property to them. The agreement itself recognized that the Tippetts would have to invoke state court remedies in order to collect on the property, something that would not be necessary if the Tippetts truly owned the assets. Such action would be ultra vires under the reasoning of Renaissance Stone Works.

¶ 16 The trustee determined that the Tippetts had a security interest in the policy that prevented it from being a useful asset to the estate. Hence, the trustee abandoned it pursuant to 11 U.S.C. § 554(a). To the extent that the trial court found that the Tippetts had an interest in the policy by operation of the bankruptcy trustee's actions, we disagree.

¶ 17 1986 Assignment. The 1986 assignment, like the 1976 assignment before it, gave "all rights, title, and interest" in the policy to the Tippetts, subject to four reservations. Ms. Krueger argues that the assignment is not self-executing and lapsed when the period for enforcing the judgment expired. We disagree.

¶ 18 Nothing in the assignment suggests that it was subject to future legal procedures before the Tippetts could receive the proceeds. Instead, the usual course of a life insurance policy was expected to play out. Once Mr. Krueger died, the Tippetts would receive the proceeds from the policy to the extent that the outstanding judgment remained unpaid. There was nothing more the Tippetts needed to do before collecting on the policy except await the death of Mr. Krueger.

¶ 19 The timing of the assignment also defeats Ms. Krueger's argument. The 1986 assignment was made after the new 1986 judgment entered. At that point, Mr. Krueger "paid" the Tippetts by again assigning the policy to them. He also made a cash payment that led the Tippetts to remove the judgment lien and stop foreclosure proceedings. While the date on which the policy proceeds would be paid to the Tippetts was unknown, as was the final amount that would have to be paid, the method of payment was clear. The policy proceeds were assigned to the Tippetts. They needed to do nothing more in order to collect under the assignment.

¶ 20 This case is not a situation where the Tippetts failed to act before the period for enforcing the judgment expired. They received the assignment well within the ten year enforcement period. No further actions were required; the policy proceeds were theirs.

¶ 21 Extent of Remedy. The expiration of the judgment enforcement period in 1996 does present issues about the amount of recovery the Tippetts may receive. Their recovery under the assignment is "expressly limited to such of the proceeds under the Policy as may be necessary to liquidate said indebtedness, the remainder of the proceeds being unaffected hereby." Exhibit A. This presents questions about whether the judgment is still valid, despite being unenforceable, and, if so, whether interest continued to accrue after the enforcement period.

¶ 22 RCW 4.56.190 creates a lien of judgment that exists for ten years after entry of the judgment. The judgment can be extended for one additional ten year period. RCW 6.17.020(3).⁴ After the expiration of the original or extended ten year period, the lien "shall cease to be a lien or charge against the estate or person of the judgment debtor." RCW 4.56.210. That lien may be extended no further.⁵ Id.

¶ 23 While the statutory lien exists, the lien holder "may have an execution, garnishment, or other legal process issued for the collection or enforcement of the judgment at any time." RCW 6.17.020(1). The effect of this statute is that judgment liens cease and statutory enforcement mechanisms may not be utilized once the ten (or twenty) year period for enforcing the judgment has expired.

¶ 24 The Washington Supreme Court has consistently described this enforcement statute as a "nonc...