Matter of Spain
| Decision Date | 14 April 1988 |
| Docket Number | Adv. No. 83-1122.,Bankruptcy No. 79-3543 |
| Citation | 85 BR 874 |
| Parties | Matter of William Harold SPAIN, Debtor. John P. WHITTINGTON, Trustee of the Estate of William H. Spain, Plaintiff, v. GILBRALTER SAVINGS & LOAN ASSOCIATION, North Shelby County Fire District, Tax Collector of Shelby County, and Mary P. Spain, Defendants. |
| Court | U.S. Bankruptcy Court — Northern District of Alabama |
Milton Garrett, Birmingham, Ala., for debtor.
J.N. Holt, Birmingham, Ala., for trustee.
Andre Toffel, Daniel Wainscott, Birmingham, Ala., for Mrs. Spain.
John P. Whittington, Birmingham, Ala., trustee.
FINDINGS OF FACT AND OPINION
This is the third Opinion1 written by this Court in this Adversary Proceeding, which has been pending since October 11, 1983, and the case is now being heard on the mandate of the Court of Appeals in the case of John P. Whittington, Trustee v. Mary P. Spain, et al, BK A.P. No. 83-1122, ruling that the debtor's wife had a destructible right of survivorship in a joint tenancy with her husband in their homestead.
This Court now rules that it has no jurisdiction to entertain or hear this Adversary Proceeding because Section 363(h) is unconstitutional by the decision in Northern Pipeline Construction Co. v. Marathon Pipe Line Company, 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982) by the Supreme Court of the United States.2
That Congress sought to create a bankruptcy court independent of the district courts and to invest it with the power to hear cases similar to the case proscribed by the Northern Pipeline case by the plurality of Judges of the United States Supreme Court is apparent.
The scheme of the drafters of the Bankruptcy Reform Act of 1978 was to place in a federal bankruptcy court the power to hear suits reserved to state courts, and this is not only recounted in detail by the Supreme Court in Northern Pipeline, but outlined by Professor Lawrence King in his treatise on Section 541 found in 4 Collier on Bankruptcy, at 541-5 through 541-112 (15th ed. 1987), and his treatise on Section 363, as set out in 2 Collier on Bankruptcy, at 363-5 through 363-42 (15th ed. 1987). Since these references are extensive, this Court does not attempt to set out in detail what is said in Collier or Northern Pipeline, but invites the perusal and study of these sources in depth. The Court adopts the context of them as part of the basis for its ruling in this matter.
It may be briefly said that to facilitate the sales process in the bankruptcy court and thereby attempt to vest in that court powers to sell other people's property in a rough-shod manner and to violate all constitutional limitations of due process and to invest in the court powers unheard of before in a federal bankruptcy court, the Congress enacted Section 363(f)(g) and (h) of the Bankruptcy Reform Act. To paraphrase the Court in Northern Pipeline, Congress just went too far. See 2 Collier on Bankruptcy, beginning at 588.2 (14th ed. 1976).
All of this is part of history, and needless to say, cured by Congress by the Bankruptcy Amendments and Judgeship Act of 1984.3
The framers of the Bankruptcy Reform Act had as its avowed purpose to invest the trustee with power to "use, sell or lease . . . property of the estate," as defined in Section 363(b) independent of any need for court actions or approval. It is readily apparent that if the trustee undertook to sell "free and clear of liens" or to sell the third party interest of an entity, that it could do so only by judicial sale by Order of the court. See Id.; see also ABI Newsletter, Vol 2, No. 2, Spring/Summer 1984, The Code was never clear how a transfer of title could be made from the debtor to the purchaser and satisfy state legislative requirements without a proper deed of conveyance. Since the trustee had no title, his deed was insufficient to pass title from the debtor to the purchaser without a court decree.
It was obvious to some thoughtful lawyers that problems would arise with title companies who did not wish to ensure the title to lands lacking constitutional requirements. Many articles were written on this subject and it was even suggested that the newly created bankruptcy court would punish title companies who hesitated to assume such risk.
This decision in the Spain case is likely to cause controversy and to affect titles to land purchased at bankruptcy sales in that period, whether confirmed by the court or not. Certainly, no real estate titles would be affected in cases commenced under the 1984 Amendments if the bankruptcy judge was careful to differentiate between core proceedings and related proceedings as defined in 28 U.S.C., Section 157. The latter can only be the product or result of an Article III Judge's action.
That the wife occupying the homestead with her husband can be a bona fide adverse claimant, and has been so recognized, is dealt with fully in 2 Collier on Bankruptcy, beginning at 507 (14th ed. 1976).
That the possession by the wife, even though shared with the husband, does not in any way make her vulnerable to actions by a trustee in seeking to oust her from her home or render her possession, occupation and enjoyment of the home any more vulnerable than existed under state law or common law is well settled. See 2 Collier on Bankruptcy, para. 23.06 at 507 (14th ed. 1976). She has every right to defend her possession and insist on due process of law by requiring the trustee to test his title against her right of possession in a possessory action, such as ejectment, actions in the nature of ejectment or suits to try title.
Although there were no definitions of "core" proceedings in the original 1978 Reform Act, the concept of "summary" and "plenary" proceedings were well understood and Section 23(a) and (b) of the former Bankruptcy Act was well defined in many decisions. Confessedly, the United States District Court was the bankruptcy court and thereby an Article III Court under the 1898 Act, and referee jurisdiction was limited within constitutional bounds by Section 23. Shumacher v. Beeler, 293 U.S. 367, 55 S.Ct. 230, 79 L.Ed. 433 (1935); Katchen v. Landy, 382 U.S. 323, 86 S.Ct. 467, 15 L.Ed.2d 391 (1966); Northern Pipeline Construction Co. v. Marathon Pipe Line Company, 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982); Williams v. Austrian, 331 U.S. 642, 67 S.Ct. 1443, 91 L.Ed. 1718 (1947); Wright v. Union Central Life Insurance Co., 311 U.S. 273, 61 S.Ct. 196, 85 L.Ed. 184 (1938).
The definition and recognition of the requirements of a plenary proceeding was inherent in Federal Rules of Bankruptcy Procedure 701, now 7001. Please note that 363(f)(g) and (h) parallel, but are independent of suits by the Trustee under Sections 544, 545, 546, 547, et seq, which usually must be brought in a state court or the United States District Court.
Section 363(f) is replete with restrictions and limitations as is, also, section 363(h). That such restrictions affect district courts as well as bankruptcy judges is manifested in 2 Collier on Bankruptcy as noted in the following cases, to-wit: Shumacher v. Beeler, supra, Katchen v. Landy, supra, Northern Pipeline Construction Co. v. Marathon Pipe Line Company, supra, Williams v. Austrian, supra, and Wright v. Union Central Life Insurance Co., supra. Also see United States v. Security Industrial Bank, 459 U.S. 70, 103 S.Ct. 407, 74 L.Ed.2d 235 (1982) and cf. In re L.T. Ruth Coal Co., Inc., 66 B.R. 753 (Bkrtcy E.D.Ky.1986).
In the event higher courts may find that a sale for division of a homestead in the possession of the wife with her debtor husband is not one of the types of state court or common law actions forbidden to bankruptcy judges by Northern Pipeline, and finds that jurisdiction is in this Court, then the Court denies the Complaint of the Trustee to sell the wife's interest in the following findings and conclusions:
FINDING NUMBER 1
The homestead was properly claimed as exempt and was therefore exempt, and title thereto never passed to the Trustee; Brock Candy Co. v. Elson, 211 Ala. 244, 100 So. 94 (1924); See 11 U.S.C. Section 522(l):
The following rules of Alabama law are well settled:
The trustee succeeded only to the bankrupt debtor's interest, which the Court of Appeals has held to be an undivided one-half interest in a joint tenancy with a destructible right of survivorship. It is manifest that the trustee had a disputed title and acquired at best a disputed right of possession which he was compelled to litigate with the wife.
Fundamentally, the allowance of homestead exemption is in direct proportion to the value of the land...
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