1995 WL 17145307 (11th Cir.)
For opinion see 95
F.3d 1028
Briefs and Other Related Documents
United States Court of Appeals,Eleventh Circuit.
In the Matter of Edward W. ENGLANDER and Phyllis S. Englander
Debtors,
In re: Edward W. Englander and Phyllis S. Englander, Appellants, v.
George E. Mills, Jr., Trustee, Appellee.
No. 94-2823.
March 16, 1995.
Bankruptcy Appeal Middle District of Florida
Brief of Appellee
Samuel J. Zusmann, Jr., Florida Bar No.: 0858692, Maguire, Voorhis
& Wells, P.A., Two South Orange Avenue, Post Office Box 633, Orlando,
Florida 32802-0633, (407) 244-1100, (407) 426-7313 (facsimile), Co-Counsel For
Appellee.
*iv B. STATEMENT REGARDING ORAL ARGUMENT
Appellee requests oral argument. Appellee believes oral argument
should be held in this case because the issues affect administration of
bankruptcy estates in the State of Florida.
*v C. TABLE OF CONTENTS AND CITATIONS
1. TABLE OF CONTENTS ... v
A. CERTIFICATE OF INTERESTED PERSONS AND CORPORATE DISCLOSURE
STATEMENT ... i
B. STATEMENT REGARDING ORAL ARGUMENT ... iv
C. TABLE OF CONTENTS AND CITATIONS ... v
D. STATEMENT REGARDING ADOPTION OF BRIEFS OF OTHER PARTIES ... 1
E. STATEMENT OF SUBJECT MATTER AND APPELLATE JURISDICTION ... 2
1. Basis for subject matter jurisdiction in district court and
citation(s) to applicable statutory provisions ... 2
2. Basis for jurisdiction in the Court of Appeals with citation(s)
to applicable statutory provisions and relevant filing dates ... 2
a. Final Order ... 2
b. Other Jurisdictional Basis ... 3
F. STATEMENT OF THE ISSUES ... 4
G. STATEMENT OF THE CASE ... 5
1. Course of the Proceedings and Dispositions Below ... 5
2. Statement of the Facts ... 5
3. Standard of Review ... 7
H. SUMMARY OF ARGUMENT ... 8
I. ARGUMENT ... 11
1. THE FLORIDA CONSTITUTION DOES NOT PROHIBIT SALE OF THE PROPERTY
... 11
2. THE BANKRUPTCY COURT MAY ADMINISTER TENANCY BY ENTIRETIES
PROPERTY ... 18
3. UNDER THE DECISIONS OF THE BANKRUPTCY COURT HOMESTEAD PROPERTY
IS NOT BEING SOLD ... 21
*vi 4. THE ENGLANDERS MAY RETAIN THE PROPERTY BY PAYING TO THE
ESTATE AN AMOUNT NOMINALLY GREATER THAN THE ESTATE WOULD RECEIVE FROM A SALE TO
A THIRD PARTY ... 22
5. THE ENGLANDERS SHOULD BE LIABLE TO THE ESTATE FOR INTEREST AT A
FIXED RATE ON THE ESTATE'S SHARE OF PROCEEDS FROM A SALE OF THE PROPERTY ... 23
J. CONCLUSION ... 25
K. CERTIFICATE OF SERVICE ... 27
*vii 2. TABLE OF CITATIONS
a. CASES
Bank of Marin v. England, 385 U.S. 99 (1966) ... 11
Davis, Gillenwater & Lynch v. Turner, 510 U.S. 1114, 114 S.
Ct. 1061, 127 L.Ed.2d 381 (1994) ... 24
Frase v. Branch, 362 So. 2d 317 (Fla. 2d DCA 1978) ... 12
Frase v. Branch, 362 So.2d 317 (Fla. 2d DCA 1978) ... 13
Gepfrich v. Gepfrich, 582 So. 2d 743, 744 (Fla. 4th DCA 1991) ...
12
Gepfrich v. Gepfrich, 582 So. 2d at 743 ... 13
Heritage Insurance Co. v. Foster Electric Co., 393 So. 2d 28 (Fla.
3d DCA 1981) ... 12
Hillsborough Inv. Co. v. Wilcox, 13 So. 2d 448, 450 (1943) ... 11
Hillsborough Inv. Co. v. Wilcox, 152 Fla. 889, 13 So. 2d 448
(1943) ... 11
In re Browne, 462 F.2d 129, 132 (9th Cir. 1972) ... 19
In re Ciccarello, 76 B.R. 848, 850 (Bankr. M.D. Fla. 1987) ... 20
In re Evans, 51 B.R. 47 (Bankr. D. Vt. 1985) ... 17
In re General Coffee Corporation, 758 F.2d 1406 (11th Cir. 1985)
... 2
In re Hill, 163 B.R. 598 (Bankr. N.D. Fla. 1994) ... 18
In re Rodriguez, 55 B.R. 519 (Bankr. S.D. Fla. 1985) ... 15
In re Shillinglaw, 81 B.R. 138 (Bankr. S.D. Fla. 1987) ... 15
In re West, 54 B.R. 855, 856 (Bankr. M.D. Fla. 1985) ... 12
*viii In re Wickstrom, 113 B.R. 339 (Bankr. W.D. Mich 1990), fn 14
... 19
In re Wierschem, 152 B.R. 345 (Bankr. M.D. Fla. 1993) ... 18
In the Matter of Aliotta, 68 B.R. 281, 282 (Bankr. S.D. Fla. 1986)
... 15
Jetton Lumber Co. vs. Hall, 67 Fla. 61, 64 So. 440 (1914) ... 11
Jones v. Carpenter, 90 Fla. 407, 106 So. 127, 129 (1925) ... 13
Kohn v. Coats, 103 Fla. 264, 138 So. 760 (1931) ... 17
Matter of Grosslight, 757 F.2d 773, 775 (6th Cir. 1985) ... 20
Matter of Williamson, 844 F.2d 1166 (5th Cir. 1988) ... 17
Milton v. Milton, 63 Fla. 533, 58 So. 718 (1912) ... 11
O'Brien v. Heggen, 705 F.2d 1001 (8th Cir. 1983) ... 16
Orange Brevard Plumbing & Heating Co. v. La Croix, 137 So. 2d
201 (Fla. 1962) ... 17
Parmelee v. Bank of Greensburg (In re L & T Steel Fabricators,
Inc.), 102 B.R. 511 (Bankr. M.D. La. 1989) ... 24
Shone v. Bellmore, 75 Fla. 515, 78 So. 605, 608 (1918) ... 13
Sonneman v. Tuszynski, 139 Fla. 824, 191 So. 18 (Fla. 1939) ... 13
Taylor v. Freeland and Kronz, 503 U.S. 638 (1992) ... 19
Tullis v. Tullis, 360 So. 2d 375 (Fla. 1978) ... 14
Tullis, 360 So. 2d at 378 ... 14
Turner v. Davis, et al. (In re Investment Bankers), 161 B.R. 507
(D. Colo. 1992) ... 23
*ix Turner v. Davis, et al. (In re Investment Bankers), 4 F.3d
1556 (10th Cir. 1993) ... 24
Turner v. Davis, Gillenwater & Lynch (In re Investment
Bankers, Inc.), 135 B.R. 659, 665 (Bankr. D. Colo. 1991) ... 23
Vandiver v. Vincent, 139 So. 2d 704 (Fla. 2d DCA 1962) ... 12
Wescott v. Wescott, 487 So. 2d 1099 (Fla. 5th DCA 1978) ... 14
b. STATUTES
11 U.S.C. ¤ 363(f) ... 15
11 U.S.C. ¤ 522(b) ... 19
11 U.S.C. ¤ 522(b)(2)(B) ... 20
11 U.S.C. ¤ 541(a ... 19, 20
11 U.S.C. ¤ 363(h) ... 14
28 U.S.C. ¤ 1961 ... 25
28 U.S.C. ¤ 158(d) ... 2
28 U.S.C. ¤ 1334 ... 2
28 U.S.C. ¤ 1961 ... 24
Fla. Stat. 222.02-222.03 ... 13
Fla. Stat. 222.08-222.10 ... 11
c. OTHER
Fed. R. Bankr. P. 4003(b) ... 19
Fed. R. Bankr. P. 4003(a) ... 19
Fed. R. Bankr. P. 7001 ... 14
*1 D. STATEMENT REGARDING ADOPTION OF BRIEFS OF OTHER PARTIES
Appellee adopts the following portions of the Appellant's Brief:
1. Statement of Subject Matter and Appellate Jurisdiction.
(Englanders' Brief at 2.)
2. Standard of Review (Englander's Brief at 9.)
*2 E. STATEMENT OF SUBJECT MATTER AND APPELLATE JURISDICTION
1. Basis for subject matter jurisdiction in district court and
citation(s) to applicable statutory provisions.
The district court exercised its jurisdiction pursuant to 28
U.S.C. ¤ 1334. Final action by the district court occurred on June 9, 1994 by
virtue of its order, "Appeal from the United States Bankruptcy Court for
the Middle District of Florida, Orlando Division," Case No.
93-59-CIV-ORL-19 per United States District Court Judge Patricia C. Fawsett.
See In re General Coffee Corporation, 758 F.2d 1406 (11th Cir. 1985).
2. Basis for jurisdiction in the Court of Appeals with citation(s)
to applicable statutory provisions and relevant filing dates.
Jurisdiction vests in the Court of Appeals for the Eleventh
Circuit pursuant to 28 U.S.C. ¤ 158(d), as the case is a direct appeal from a
final order of the United States District Court, Middle District of Florida,
Orlando Division, in its appellate review of the Bankruptcy Court, Middle
District of Florida [which order (RE 184; R6-214) was timely appealed (R6-217)]
to the district court.
a. Final Order.
The final order being "Appeal from the United States
Bankruptcy Court for the Middle District of Florida, Orlando *3 Division"
was rendered on June 9, 1994. (RE 142; R8-261).
b. Other Jurisdictional Basis.
The Notice of Appeal was filed on June 27, 1994 (RE 22B; R1-16),
and was timely under Rule 4(a), Federal Rules of Appellate Procedure.
*4 F. STATEMENT OF THE ISSUES [FN1]
In circumstances where property claimed as a homestead exemption
was in excess of the permitted acreage, and this fact was concealed, and when
the true acreage was disclosed the debtors designated as non-homestead acreage
a portion of the property in a manner which rendered the non-homestead acreage
inaccessible and valueless, thereby defeating the right of creditors to receive
reasonable value for the non-homestead acreage, and where the property is not
legally divisible, whether the property may be sold as a whole, with the
proceeds being allocated between the homestead acreage and the non-homestead
acreage.
FN1.
Appellee does not dispute the issue on appeal is that which was stated by the
district court. However, in their Statement of the Issues (Appellants' Brief at
3) Appellants failed to include the words "would be" in their
recitation of the district court statement. The district court actually stated:
The
issue on appeal is whether, under the law, the Bankruptcy Court can order a
sale of "would be" homestead property with an accompanying
apportionment of the proceeds when the property exceeds the area limitation
permitted under the homestead exemption provision and cannot be practically or
legally divided. (R.E. 142; R.8-261-2). (Emphasis added).
*5 G. STATEMENT OF THE CASE
1. Course of the Proceedings and Dispositions Below
Mills accepts as substantially correct the Englanders' statement
of the Course of the Proceedings and Dispositions Below (Englanders' Brief at
4-5). However, the following clarification should be made: the formula for
allocation of sale proceeds was not based on a formula determined by the
bankruptcy court. The formula was determined by the parties and stipulated to
in a Joint Pre-Trial Stipulation (RE 133; R5-192-2).
2. Statement of the Facts
This appeal involves the right of the Englanders, joint debtors in
a chapter 7 bankruptcy case, to claim a homestead exemption in property known
as 440 Henkel Circle in the City of Winter Park, Florida (the
"Property"). George E. Mills, Jr., the bankruptcy trustee, and two
creditors each holding claims against both of the Englanders objected to the
claimed exemption. The initial homestead claim contained no information as to
the acreage of the Property. Subsequently, the Englanders asserted the Property
contained "0.50 acres, more or less..." Thereafter, they asserted the
Property contained .57 acres; and finally, the Englanders admitted the Property
contained.1.05 acres.
*6 After acknowledging that the Property was not legally
divisible, the Englanders "designated" as their homestead .5 acres
which completely surrounded the non-homestead .55 acres effectively rendering
the non-homestead portion useless and devoid of any value.
The first three paragraphs of the Englanders' Statement of the
Facts are combinations of quotes and paraphrasing of the district court
Statement of Facts (R. 143-145; R8-261-3-5).
Importantly, the Englanders failed to include the following
statements by the district court:
Appellants admitted that they initially misstated the actual size
of the Property for which they claim a homestead exemption on their schedule of
exempt property.
(RE 144; R8-214-4).
In the Bankruptcy Court's Summary Judgment Order, the Court
described the manner. in which Appellants configured the exempt and non-exempt
portions of the Property as 'homestead exemption "gerrymandering"...
clearly made in bad faith.'
(RE 144-145; R8-214-4).
Additional pertinent facts are that the Englanders' Bankruptcy
Schedules show the Property is not subject to any mortgages or encumbrances (R.
036-037; R1-8) and that they valued it at $700,000. Bankruptcy Judge Dickinson
noted that only twenty-eight months earlier the Englanders valued the *7
Property at $900,000 (R. 162; R6-214-2).
3. Standard of Review
Mills adopts that section of the Englanders' Brief identified as
"Standard of Review" (Englanders' Brief at 9).
*8 H. SUMMARY OF ARGUMENT
The bankruptcy court and the district court both. correctly
concluded, after considering the particular facts of this case, that the
decisional authority interpreting Florida's homestead exemption law compelled
the conclusion that the Englanders' property could be sold, with an allocation
made of the proceeds. This result upholds the sanctity of the homestead
exemption by providing a substantial monetary sum to the Englanders on account
of the homestead portion of the property, while avoiding the inequitable
windfall that would result if the Englanders were permitted to effectively
exempt the entire 1.05 acres of the property.
The Florida Constitution expressly limits the homestead exemption
to .5 acres of contiguous land. Accordingly, the result fashioned by the lower
courts preserves the debtors' exemption, while denying the Englanders the
ability to exceed the limitation solely because the property is not legally
divisible. Therefore, the lower courts' result conforms with the plain meaning
of the Florida Constitution.
Florida courts have long held that the homestead exemption must
not be utilized as an instrument of fraud and shall not work an imposition on
creditors. In recognition of these equitable principles, Florida courts have
repeatedly applied equitable principles to the homestead exemption. In this
regard, Florida courts have permitted equitable liens to *9 attach to
homesteads, and have approved the sale of homesteads in order to protect other
parties who hold an interest in the homestead property. Each of the above
situations falls outside the literal language of the Florida Constitution.
Nonetheless, Florida courts have consistently limited abusive practices with
respect to the homestead.
In the instant case, the debtors attempted three times to identify
their homestead. First, they did not identify that the homestead exceeded the
.5 acres allowable exemption. Next, they claimed that the homestead property
totalled .57 acres. Finally, they acknowledged that the actual size of the
property claimed as homestead equalled 1.05 acres. Once they acknowledged the
true area of the homestead, they attempted to defeat any claim by the trustee
to the portion of the property which exceeded the allowable .5 acreage by
designating the homestead portion in a way which left the excess, non-homestead
portion in a position akin to the hole in the middle of a doughnut; the
designated non-exempt portion of the property was completely surrounded by the
exempt portion and therefore inaccessible to all roads, completely unusable,
and valueless.
The order of the district court should be affirmed in its
entirety. The property should be sold with the proceeds allocated in accordance
with the previous allocation order, which will permit the Englanders to retain
several hundred *10 thousand dollars on account of their homestead exemption,
while at the same time permitting substantial funds to be paid to creditors of
the bankruptcy estate on account of the portion of the property in excess of
the lawful homestead exemption.
*11 I. ARGUMENT
1. THE FLORIDA CONSTITUTION DOES NOT PROHIBIT SALE OF THE PROPERTY
The determination as to whether property is exempt and the setting
aside of homesteads are issues addressed to a court's equity jurisdiction. Fla.
Stat. Ch. 222.08-222.10 (1989). "Equity has complete jurisdiction over
homesteads and exemptions." Hillsborough Inv. Co. v. Wilcox, 152 Fla. 889,
13 So. 2d 448, 450 (1943). Equity governs the exercise of a bankruptcy court's
jurisdiction. Bank of Marin v. England, 385 U.S. 99 (1966). Therefore, the contention
that "[T]he predicate to the exercise of federal equity jurisdiction was
absent" (Englanders' Brief at 10) is incorrect.
Homestead exemptions are intended to protect a family from
destitution and to keep its members from becoming public charges. As
illustrated in the Joint Pre-Trial Stipulation (R. 133, 136, R5-192-4) a sale
of the Property will provide the Englanders with four or five hundred thousand
dollars to acquire a new residence; destitution is not in issue.
On numerous occasions Florida courts have stated the homestead
exemption laws should not be applied so as to make them an instrument of fraud
or an imposition on creditors. Milton v. Milton, 63 Fla. 533, 58 So. 718
(1912); Jetton ?? Co. vs. Hall, 67 Fla. 61, 64 So. 440 (1914); *12Hillsborough
Inv. Co. v. Wilcox, 152 Fla. 889, 13 So. 2d 448 (1943); Vandiver v. Vincent,
139 So. 2d 704 (Fla. 2d DCA 1962); Frase v. Branch, 362 So. 2d 317 (Fla. 2d DCA
1978); Heritage Insurance Co. v. Foster Electric Co., 393 So. 2d 28 (Fla. 3d
DCA 1981); Gepfrich v. Gepfrich, 582 So. 2d 743 (Fla. 4th DCA 1991). In their
brief the Englanders do not dispute the applicability of these principles.
Article X, Section 4(a) of the Florida Constitution limits a
homestead exemption within a municipality to one-half of an acre and specifies
certain circumstances in which a homestead may be sold.
The Englanders' contention is that a sale under the facts of this
case is not one of the circumstances stated and that under the "plain
language" doctrine the claimed homestead may not be sold. This contention
is contrary to decisions of Florida Courts interpreting Article X, Section
4(a).
The Florida Constitution addresses sale of a homestead only in the
context of debts which arise from contractual relationships. In re West, 54 B.R.
855, 856 (Bankr. M.D. Fla. 1985). It does not address sale of a homestead to
satisfy equitable liens nor does it address sale of a homestead to satisfy
joint-ownership claims of property not subject to partition.
The courts of Florida have not hesitated to impose equitable liens
on homestead property in appropriate circumstances. Equitable liens may be
enforced by sale. *13 Jones v. Carpenter, 90 Fla. 407, 106 So. 127, 129 (1925).
Equitable liens have been granted as to homesteads in
circumstances not stated in Article X, Section 4(a). Gepfrich v. Gepfrich, 582
So. 2d at 743 (Lien for delinquent alimony imposed on a homestead acquired
after a divorce); Sonneman v. Tuszynski, 139 Fla. 824, 191 So. 18 (Fla. 1939)
(Lien imposed for the giving of money and services in exchange for a promise of
lifetime support).
Florida Statutes sections 222.02 and 222.03 address the right to
select a homestead. In Frase v. Branch, 362 So.2d 317 (Fla. 2d DCA 1978) the
Court stated that "generally" the selection could be of any
contiguous shape; but "generally" is subject to the limitation
established by the Florida Supreme Court that the selection should be exercised
in a reasonable manner, not "in fanciful, queer, whimsical contortions,
making a grotesque figure..." Shone v. Bellmore, 75 Fla. 515, 78 So. 605,
608 (1918). Therefore, any right of selection is not unlimited.
Although in this case the non-divisibility of the Property makes
it impossible to make a selection, it is difficult to characterize the
Englanders' effort to have the doughnut and to give the Estate the doughnut
hole as exercising a right of selection "in a reasonable manner."
The law is clear that the right to select and the right to retain
a specific piece of property as a homestead is not *14 absolute; at best this
right is subject to rules of law and equitable principles.
In Tullis v. Tullis, 360 So. 2d 375 (Fla. 1978) and Wescott v.
Wescott, 487 So. 2d 1099 (Fla. 5th DCA 1978) equitable liens were granted to
co-owners, each being a former spouse. In Tullis, as in this case, the parties
agreed that the property was indivisible. The Tullis Court stated:
Homestead interests should be protected from forced sale whenever
possible, but not at the expense of others owning interests in the property.
Tullis, 360 So. 2d at 378.
In the Partial Summary Judgment order, the Bankruptcy Court
stated:
Here the Bankruptcy trustee's interest in the residence is similar
to that of a co-owner given that the property can't be partitioned and the
trustee has an ownership interest in the non-exempt property.
(R. 179; R5-163.)
Authorization for a sale of co-owned property is expressly granted
in 11 U.S.C. ¤ 363(h) if certain conditions are met. The undisputed facts of
this case and the findings of the bankruptcy court establish each of the
requisite elements for such a sale. The Fed. R. Bankr. P. 7001 requirement of
an adversary proceeding to sell co-owned property has been waived by the
Englanders.
*15 A sale of property in which another party has an interest is
also expressly authorized in 11 U.S.C. ¤ 363(f). The facts of this case meet
the requirements of that Section. Use of ¤ 363(f) to sell homestead property
was expressly directed in In the Matter of Aliotta, 68 B.R. 281, 282 (Bankr.
S.D. Fla. 1986). In two other decisions the courts' statements as to value
issues indicate the possible need to sell property claimed as homestead. In re
Rodriguez, 55 B.R. 519 (Bankr. S.D. Fla. 1985); In re Shillinglaw, 81 B.R. 138
(Bankr. S.D. Fla. 1987).
To treat the Englanders and the Estate as co-owners of the
Property does not elevate "the claims of general creditors to the level of
co-owners" (Englanders'. Brief at 10). Instead, it is a recognition that
all of the Property came into the Estate at the commencement of the case and
that the most that can properly come out of the Estate to the Englanders is the
value of the one-half acre claimed as homestead.
In Title Ins. Co. Etc. v. Agora Leases, Inc, 320 N.W. 2d 884
(Minn. 1982), the Minnesota Supreme Court recognized that Minnesota law
specifically provided for an acreage limitation and reversed the trial court's
determination that .27 acres was de minimis, as that portion exceeded half of
what was allowable (.5 acres) as exempt. Id. at 885. The Court viewed the
decision by the trial court as an unjustified enlargement *16 of the homestead exemption,
stating "neither legal nor equitable principles favor enlarging the
homestead exemption over that expressly provided ..." Id.
If a similar conclusion had not been reached in this case the
Englanders would retain property that contains more than double the allowable
homestead acreage.
Subsequently, in O'Brien v. Heggen, 705 F.2d 1001 (8th Cir. 1983),
the Eighth Circuit also addressed the .5 acre Minnesota homestead exemption.
Minnesota law also provides for a homesteader to select the exempt homestead
property. Id. at 1003.
O'Brien, the Debtor in the bankruptcy case, claimed as homestead a
40,000 square feet lakeshore lot. Id. at 1002. Without objection the Court
authorized a sale of the entire property. Id. O'Brien then sought to claim an
exemption in the entire proceeds minus $1,000, asserting that a hypothetical
selection of a one-half acre homestead would leave an 18,200 square feet
parcel, not accessible by a public road (such a division was not permissible
under a city minimum lot size requirement); O'Brien reasoned that the excess
tract had a nominal value of only $1,000. Id.
The Bankruptcy Court rejected O'Brien's hypothetical selection.
Id. Instead, it determined the value of the exempt and non-exempt property and
allocated the proceeds. In affirming the decision, the Eighth Circuit hailed
the result *17 as "an eminently fair resolution." Id. at 1004. The
Court declared:
This apportionment allows an appropriate recognition of Debtor's
homestead exemption and yet affords creditors some satisfaction of their
rightful claims... Creditors also benefit because there would have been no
reasonable or feasible way of dividing the property and giving the non-exempt
part any value: minimum lot size requirements, irregular topography, and
problems of accessibility would have rendered any physical division of the
property impractical.
Id.
In In re Evans, 51 B.R. 47 (Bankr. D. Vt. 1985) the Court rejected
the Debtor's contention that he was entitled to a homestead exemption in an
entire parcel because it could not be validly subdivided; the Court protected
the Debtors' homestead exemption claim by allowing the trustee to sell all of
the property and by allocating the proceeds, resulting in an "equitable
solution of the existing problem." Id. at 51. See also Matter of
Williamson, 844 F.2d 1166 (5th Cir. 1988).
Under Orange Brevard Plumbing & Heating Co. v. La Croix, 137
So. 2d 201 (Fla. 1962), the Englanders' share of the sale proceeds may be
substituted for their claimed homestead to allow them to acquire another
homestead. Although Orange Brevard involved a voluntary sale of a homestead,
the Court relied on earlier authority holding insurance proceeds from a
destroyed homestead to be exempt. Id. at 203, citing *18Kohn v. Coats, 103 Fla.
264, 138 So. 760 (1931).
A sale of the Property with the Englanders receiving as exempt a
substantial sum with which to acquire a new homestead fulfills the intent of
homestead exemption.
None of the authorities cited by the Englanders authorize the
allowance of a homestead exemption in excess of .5 acres. Although in In re
Hill, 163 B.R. 598 (Bankr. N.D. Fla. 1994) the homestead exemption was allowed
in property containing more than .5 acres, the allowance did not result from a
judicial determination; it resulted from the failure of any party to object to
the excessive size.
Another case cited by the Englanders is In re Wierschem, 152 B.R.
345 (Bankr. M.D. Fla. 1993). In that case the bankruptcy court ordered a sale
of property claimed as the homestead exemption and adopted the allocation
formula used in this case.
2. THE BANKRUPTCY COURT MAY ADMINISTER TENANCY BY ENTIRETIES
PROPERTY
For the first time in this litigation the Englanders now assert
that the Property is tenancy by entireties property, that the Property did not
become part of the Estate, and therefore, the Bankruptcy Court was without
authority to direct a sale of the Property (Englanders' Brief at 24).
As this issue was not raised in the bankruptcy court, or in the
district court, or in the Englanders' Statement of *19 Issues, it is not an
issue properly before this court.
The argument, nevertheless, is without merit.
The property which a debtor owns at the commencement of a
bankruptcy case become part of the bankruptcy estate ("Estate"). 11
U.S.C. ¤ 541(a). A debtor may claim certain property of the Estate as exempt
property. 11 U.S.C. ¤ 522(b); Fed. R. Bankr. P. 4003(a). A trustee or any
creditor may object to the allowance of a claimed exemption. Fed. R. Bankr. P.
4003(b). If an objection is not filed, the claimed exemption is allowed even if
the debtor were not legally entitled to claim the exemption. Taylor v. Freeland
and Kronz, 503 U.S. 638 (1992).
In support of their argument the Englanders state: "[U]nder
Florida law it has been held that entireties property does not become property
of the (sic) bankruptcy estate." In re Wickstrom, 113 B.R. 339 (Bankr.
W.D. Mich 1990), fn 14. (Englanders' Brief at 24). However, the cited footnote
contains no citation of authority for this statement.
In re Browne, 462 F.2d 129, 132 (9th Cir. 1972) is cited for the
contention that a bankruptcy court has no jurisdiction over exempt homestead
and such property 'cannot be administered by the bankruptcy court.'
(Englanders' Brief at 24.)
Although this may have been an accurate statement of the law under
the Bankruptcy Act as it then existed, it has no *20 applicability to the law
under the present Title 11. As the Sixth Circuit Court of Appeals stated:
Under the Bankruptcy Act of 1978, Pub.L. No. 95-598, 92 Stat. 2549
(codified as amended in 11 U.S.C. and scattered sections of 28 U.S.C.), all the
debtor's property is brought into the bankruptcy estate by 11 U.S.C. ¤ 541(a).
It is now established law that this provision brings entireties
property into the bankruptcy estate. (Citations omitted)
Matter of Grosslight, 757 F.2d 773, 775 (6th Cir. 1985).
An issue as to whether tenancy by entireties property may be
excluded from a bankruptcy estate arises if only one of the tenants commences a
case under the Bankruptcy Code. See 11 U.S.C. ¤ 522(b)(2)(B). However, in such
a situation
if there exists a creditor who holds a claim against both debtor
and her non-filing spouse then the property in which debtor has an interest as
a tenant by the entireties is not "exempt from process" under Florida
law as to that creditor and cannot be excluded from the bankruptcy estate under
¤ 522(b) (2) (B) . (Citation omitted)
In re Ciccarello, 76 B.R. 848, 850 (Bankr. M.D. Fla. 1987).
In this case both tenants filed a joint petition, and the
existence of joint creditors is admitted (Englanders' Brief at .6, fn 4).
Therefore, the Property came into the Estate and the issue is still the extent
to which any of it may be claimed as homestead.
*21 3. UNDER THE DECISIONS OF THE BANKRUPTCY COURT HOMESTEAD
PROPERTY IS NOT BEING SOLD
In their brief the Englanders do not mention that on two occasions
the bankruptcy court denied their claim of homestead exemption. (RE 180:
R5-163-3; RE 197; R6-214-14)
Therefore, the property to be sold is not exempt property but
property of the Estate, and the sale of such property does not violate the
Florida Constitution or any statute.
The district court described this argument as "based on
semantics and is not helpful in determining whether a forced sale of the
subject Property violates the Florida Constitution and exemption
statutes." (RE 148; R8-261-8)
Although the district court then considered and determined that a
sale of the Property would not violate the Florida Constitution, it also
affirmed the denial of the homestead exemption.
The basis of the denial was the conduct of the Englanders.
The contention that there is no finding of fraudulent conduct
(Englanders' Brief at 10) is rebutted by the findings of Bankruptcy Judge
Dickinson in the Order Granting Partial Summary Judgment:
In the present action the debtors have, at every turn attempted to
limit the amount of assets available for distribution to their creditors by
first misidentifying the size of their homestead and later partitioning the
tract containing his *22 residence in such a manner as to render the nonexempt
portion of that tract valueless. These actions are not the actions of an honest
debtor merely availing himself of the liberal homestead exemption laws of the
State of Florida but rather the actions of a greedy individual who wishes to
obtain an unconscionable windfall by turning a homestead exemption, enacted to
prevent the impoverishment of families, into an instrument of fraud with which
he can improperly deprive his creditors of an asset with a value of at least
several hundred thousand dollars, based on the debtors own valuation.
(RE 179-180; R5-163.)
The bankruptcy court specifically found that bad faith and an
intent to defraud exist in this case. (RE 172-173; R5-163.) These are findings
of fact which have not been contested.
Even in the absence of such findings, there is no right to a
homestead exemption that contains more than twice the constitutional limit.
4. THE ENGLANDERS MAY RETAIN THE PROPERTY BY PAYING TO THE ESTATE
AN AMOUNT NOMINALLY GREATER THAN THE ESTATE WOULD RECEIVE FROM A SALE TO A
THIRD PARTY
The Englanders in their Brief, at 5, raise as an additional issue
whether they may retain the Property by paying to the Estate an amount
nominally greater than would be paid by a third party. Nothing in the
Allocation Order prohibits this. If a third party bid $700,000 and the
Englanders were the high bidders at $701,000, the Englanders would be the high
bidder and entitled to purchase the *23 property.
However, if the Englanders were the high bidder and then failed to
close the Allocation Order does require a ten percent increase by the
Englanders over an otherwise high bid at a subsequent offering of the Property.
Absent this type of provision the Englanders could continuously be the high
bidder and continuously fail to close, unless there were further judicial
action.
Although the requirement is for an offer from the Englanders for
no less than an additional ten percent, in net dollars it is for substantially
less as the Englanders would receive their percentage of the increase under the
allocation formula to which they agreed.
5. THE ENGLANDERS SHOULD BE LIABLE TO THE ESTATE FOR INTEREST AT A
FIXED RATE ON THE ESTATE'S SHARE OF PROCEEDS FROM A SALE OF THE PROPERTY
An award of interest is required under the circumstances of this
case to compensate the Estate for the loss of use of Estate property.
Trustees successful in avoidance actions may be entitled to
pre-judgment interest in addition to recovery of the improperly transferred
property. See Turner v. Davis, Gillenwater & Lynch (In re Investment
Bankers, Inc.), 135 B.R. 659, 665 (Bankr. D. Colo. 1991), aff'd Turner v.
Davis, et al. (In re Investment Bankers), 161 B.R. 507 (D. Colo. 1992), aff'd
*24Turner v. Davis, et al. (In re Investment Bankers), 4 F.3d 1556 (10th Cir.
1993), cert. den. Davis, Gillenwater & Lynch v. Turner, 510 U.S. 1114, 114
S. Ct. 1061, 127 L.Ed.2d 381 (1994). (An award of pre-judgment interest is
discretionary with the court.) In Parmelee v. Bank of Greensburg (In re L &
T Steel Fabricators, Inc.), 102 B.R. 511 (Bankr. M.D. La. 1989), the court
stated that an award of pre-judgment interest was in part "to compensate
the estate for the loss of use of the property prior to judgement." Id. at
521.
In this case the Property is in possession of the Englanders and
is unable to be used by the Estate, nor may it be immediately converted to cash
for the benefit of the Estate. Had the Property been sold on the date the
bankruptcy petition was filed, and the funds placed in an interest bearing
account pending resolution of this litigation, there would be no basis for
denying to the Estate the interest earned on the Estate's share of the sale
proceeds. The award of interest was an appropriate exercise of the Court's
discretion.
The parties agreed that if interest is payable to the Estate, 28
U.S.C. ¤ 1961 should be the yardstick for determining the applicable interest
rate (R. 195; R6-214-12) The disputed issue is whether the interest rate should
be that in effect on the petition date, or whether it should change in
accordance with changes in 28 U.S.C. ¤ 1961. The bankruptcy *25 court held the
rate should be the rate in effect on petition date. The Englanders have failed
to show that this holding is erroneous as a finding of fact or as a conclusion
of law; nor have they shown that in opting for a fixed rate, as opposed to a
variable rate, the bankruptcy court abused its discretion.
J. CONCLUSION
Bad faith and fraud exist in this case. Concealment of the actual
acreage of the Property and the attempted doughnut-doughnut hole designation of
the claimed homestead show total disregard of the interest of the Estate in the
Property. A denial of the claimed exemption under these circumstances is in
accordance with applicable law and is appropriate and necessary to avoid a
fraud and imposition on the rights of the Estate. Even in the absence of these
uncontested facts, granting the Englanders an exemption in a portion of the
sale proceeds implements and satisfies the purpose of homestead exemptions.
If a homestead exemption in a portion of the Property is allowed,
a sale of the Property would be necessary for the Estate to receive reasonable
value for its interest in the Property and to prevent the Englanders from
retaining a homestead containing more than double the authorized acreage. Such
a sale would not violate Florida law and would implement the provisions and
intent of the Bankruptcy Code.
*26 Each of the findings and conclusions of the bankruptcy court
and the district court are fully supported by the record in this case and by
applicable law.
There is no basis at law or in equity to judicially amend the
organic law of Florida to increase a homestead exemption within the City of
Winter Park, Florida to 1.05 acres.
The decision should be affirmed.
In the Matter of Edward W. ENGLANDER and Phyllis S. Englander
Debtors, In re: Edward W. Englander and Phyllis S. Englander, Appellants, v.
George E. Mills, Jr., Trustee, Appellee.