Scarpino, In re, 1257

• Decision Date: 13 May 1997
• Docket Number: D,No. 1257,1257
• Citation: 113 F.3d 338
• Parties: , Bankr. L. Rep. P 77,433 In re Mark SCARPINO, Debtor. MARINE MIDLAND BANK, Appellant, v. Mark SCARPINO, Debtor-Appellee. ocket 96-5115.
• Court: U.S. Court of Appeals — Second Circuit

Page 338

113 F.3d 338

65 USLW 2798, Bankr. L. Rep. P 77,433

In re Mark SCARPINO, Debtor MARINE MIDLAND BANK, Appellant, v. Mark SCARPINO, Debtor-Appellee.

No. 1257, Docket 96-5115.

United States Court of Appeals Second Circuit.

Argued March 31, 1997.

Decided May 13, 1997.

A. Paul Britton, Rochester, NY (Mary M. Connors, Harter, Secrest & Emery, Rochester, NY, on the brief), for Appellant.

Relin, Goldstein & Crane, Rochester, NY (Mark K. Broyles, Rochester, NY, of counsel), filed a brief for Debtor-Appellee.

Before: OAKES, KEARSE, and McLAUGHLIN, Circuit Judges.

KEARSE, Circuit Judge:

This appeal turns on whether New York law, under which an unsatisfied money judgment automatically becomes a lien on real

property thereafter acquired by the judgment debtor in the county in which the judgment has been docketed, see, e.g., Hulbert v. Hulbert, 216 N.Y. 430, 111 N.E. 70 (1916) ("Hulbert "); N.Y.C.P.L.R. 5203 Practice Commentaries, leaves a temporal interval between the acquisition of the property and the attachment of the lien. Marine Midland Bank ("Marine Midland" or the "Bank") appeals from a judgment of the United States District Court for the Western District of New York, Michael A. Telesca, Judge, affirming an order of the Bankruptcy Court for the Western District of New York that granted the motion of debtor Mark Scarpino pursuant to 11 U.S.C. § 522(f) (1994) to avoid the Bank's judgment lien on certain real property he acquired after the Bank had docketed its judgment. Both courts ruled that, under New York law, after Scarpino acquired the property there was an interval before the Bank's judgment lien attached, thereby permitting Scarpino to avoid attachment of the lien. On appeal, Marine Midland challenges that ruling, contending that, with respect to an interest in real property acquired by a judgment debtor after the judgment has been docketed, the judgment lien created by New York law attaches to that interest simultaneously with the debtor's acquisition of the interest. We agree, and we therefore reverse.

I. BACKGROUND

In 1990, Marine Midland obtained a judgment against Scarpino in New York State Supreme Court in the amount of $16,378.56. The judgment was docketed in the office of the Monroe County Clerk on December 11, 1990, and was never satisfied. In 1994, after obtaining a mortgage in the amount of $86,540, Scarpino purchased a parcel of real property in Monroe County. In October 1995, he petitioned for bankruptcy under Chapter 7, see 11 U.S.C. §§ 701-766 (1994), of the Bankruptcy Code, 11 U.S.C. §§ 101-1330 (1994) (the "Code").

To the extent pertinent to this appeal, New York law provides a judgment debtor with a homestead exemption to the extent of $10,000, see N.Y.C.P.L.R. 5206(a) (McKinney 1978), and the Code allows a debtor to "avoid the fixing of" a judgment lien to the extent that the lien would impair an exemption to which the debtor would otherwise be entitled, 11 U.S.C. § 522(f). In papers filed with his bankruptcy petition, Scarpino listed his Monroe County real property as an asset valued at $86,500; pursuant to 11 U.S.C. § 522(b)(2)(A), he claimed the $10,000 homestead exemption. Shortly thereafter, he moved in the bankruptcy court pursuant to § 522(f) to avoid Marine Midland's judgment lien on the property.

Marine Midland opposed Scarpino's motion. Though it acknowledged that the sum of its lien ($16,378.56), the mortgage balance ($86,061.60), and the amount of the exemption ($10,000) exceeded the value of the property ($86,500), it argued that § 522(f), as interpreted by the Supreme Court in Farrey v. Sanderfoot, 500 U.S. 291, 111 S.Ct. 1825, 114 L.Ed.2d 337 (1991), does not allow a debtor to avoid a lien unless the lien attached sometime after the debtor acquired the property. Relying on the New York Court of Appeals decision in Hulbert, in which the court stated that a judgment lien attaches "to the interest of [the judgment debtor] upon his acquiring title to that interest," 216 N.Y. at 433, 111 N.E. 70, the Bank argued that its lien attached simultaneously with Scarpino's acquisition of the property, not afterwards, and hence could not be avoided pursuant to § 522(f).

The bankruptcy court, in a Decision and Order dated May 23, 1996 ("Bankruptcy Court Opinion"), granted Scarpino's motion to avoid the Bank's lien. While accepting the Bank's premise that Farrey v. Sanderfoot means that a debtor cannot under § 522(f) avoid a judgment lien that attached to exempt property simultaneously with the property's acquisition, the court rejected Marine Midland's interpretation of state law. It distinguished Hulbert on the ground that that case did not directly involve the question of the time at which a judgment lien attaches but only the question of which of several judgment creditors' liens had priority. See Bankruptcy Court Opinion at 5-7. The bankruptcy court viewed the question of the time at which a judgment lien attaches to the debtor's later-acquired property as "a matter The district court affirmed, agreeing with the bankruptcy court that Hulbert was distinguishable on the ground that it "addressed the issue of lien priority, not the question of precisely when the liens attached to the after-acquired property interest," Decision and Order dated August 13, 1996, at 3. Stating that "[c]onceptually, there could be no attachment of the pre-existing lien until the property was first transferred to the debtor," id., the district court ruled that the Bank's lien did not attach until sometime after Scarpino owned the property and that he was therefore entitled to avoid the lien pursuant to § 522(f).

                of first impression," id. at 4, and it resolved the question in favor of Scarpino, stating that "logic and common sense would dictate that an interest would first have to be acquired before any other right, title or interest could be acquired in it or attach to it, including the attachment of a lien of a prior judgment."  Id. at 7.   The bankruptcy court inferred support for its conclusion from the language of another New York decision, In re Hazard's Estate, 25 N.Y.S. 928 (Sup.Ct.1893), aff'd, 141 N.Y. 586, 36 N.E. 739 (1894), that "until title is acquired it seems to be clear that no lien can attach," id. at 931.   See Bankruptcy Court Opinion at 6-7
                

This appeal followed.

II. DISCUSSION

A bankruptcy estate generally comprises all property in which a debtor has an interest at the time the petition is filed. See 11 U.S.C. § 541. Section 522(b) of the Code, however, allows the debtor in a liquidation case to exempt from the estate certain property that would otherwise be liquidated and distributed to creditors. The effect of exemption is to immunize the exempt property from seizure or attachment for satisfaction of debts incurred prior to the bankruptcy proceeding. See id. § 522(c) (exempt property generally "is not liable during or after the case for any debt of the debtor that arose ... before the commencement of the [bankruptcy] case"). The purpose of allowing such exemptions is to help ensure that "a debtor that [sic ] goes through bankruptcy comes out with adequate possessions to begin his fresh start." H.R.Rep. No. 95-595, at 126 (1977), reprinted in, 1978 U.S.C.C.A.N. 5963, 6087.

Section 522(c), however, provides no such immunization with respect to any of the debtor's liabilities that were secured by liens on the exempt property, unless those liens are avoided during the bankruptcy case under certain sections of the Code, including § 522(f). See 11 U.S.C. § 522(c)(2); Johnson v. Home State Bank, 501 U.S. 78, 82-84, 111 S.Ct. 2150, 2153-54, 115 L.Ed.2d 66 (1991) (unavoided liens survive bankruptcy, and lienholders may, pursuant to applicable state-law procedure, enforce them against the debtor's property after the bankruptcy case is closed); Farrey v. Sanderfoot, 500 U.S. at 297, 111 S.Ct. at 1829; S.Rep. No. 95-989, at 76 (1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5862. Section 522(f) provides, to the extent pertinent here, that

the debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debtor would have been entitled under subsection (b) of this section, if such lien is--

(A) a judicial lien ...

11 U.S.C. § 522(f)(1)(A), and it defines "impair[ment]" as the amount by which the sum of (a) the lien whose avoidance is sought, (b) all other liens, and (c) the amount of the exemption "exceeds the value that the debtor's interest in the property would have in the absence of any liens," id. § (f)(2)(A). The purpose of allowing avoidance of such liens is to "protect[ ] the debtor's exemptions, his discharge, and thus his fresh start." S.Rep. No. 95-989, at 76, reprinted in 1978 U.S.C.C.A.N. at 5862.

In Farrey v. Sanderfoot, the Supreme Court reasoned that, by referring to the "fixing" of the lien, § 522(f) contemplates a property interest that existed before the lien attached, and the Court concluded that if the creation of the interest and the creation of the lien are simultaneous, there can be no avoidance of the lien under that section:

The statute does not say that the debtor may undo a lien on an interest in property. Rather, the statute expressly states that 500 U.S. at 296, 111 S.Ct. at 1829 (first emphasis added; second emphasis in original). The Court stated that "the critical inquiry remains whether the debtor ever possessed the interest to which the lien fixed, before it fixed." Id. at 299, 111 S.Ct. at 1830 In the case before it, the Farrey Court held that the debtor was not entitled under § 522(f) to avoid a judicial lien on homestead property awarded to him under a divorce decree because that lien, which was created by the same decree, attached to the property simultaneously with the debtor's acquisition of the property. See id. at 299-300, 111 S.Ct. at 1830-31.

                the debtor may avoid "the fixing" of a lien on the debtor's interest in property.  The gerund "fixing"

...