Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-16-06004/USCOURTS-ca8-16-06004-0/pdf.json

Parties Involved:
D.S.C.N., Inc. Raugh Capital
Not Party
Gail L. Fredrick
Not Party
Carol L. Rauch
Not Party
Lewis Rauch
Not Party
Norman E. Rouse
Appellant
Becky Ann Spence
Not Party
Sunset Cove Condominium Owners Association, Inc.
Appellee

Document Text:

United States Bankruptcy Appellate Panel

For the Eighth Circuit

___________________________

No. 16-6004

___________________________

In re: Becky Ann Spence

lllllllllllllllllllllDebtor

------------------------------

Norman E. Rouse

lllllllllllllllllllll Plaintiff - Appellant

v.

Lewis Rauch; Carol L. Rauch; Gail L. Fredrick

lllllllllllllllllllll Defendants

Sunset Cove Condominium Owners Association, Inc.

lllllllllllllllllllll Defendant - Appellee

D.S.C.N., Inc. Raugh Capital, LLC

lllllllllllllllllllll Defendant

____________

Appeal from United States Bankruptcy Court 

for the Western District of Missouri - Springfield

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Appellate Case: 16-6004 Page: 1 Date Filed: 08/04/2016 Entry ID: 4433938 
____________

 Submitted: July 28, 2016

 Filed: August 4, 2016

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Before KRESSEL, SALADINO and NAIL, Bankruptcy Judges.

____________

SALADINO, Bankruptcy Judge.

TheChapter 7 trustee appeals fromthe bankruptcy court’s judgment and order

1

in favor of Sunset Cove Condominium Owners Association, Inc. (“Sunset Cove”) on

issues of turnover and preference. We have jurisdiction of this appeal from entry of

the bankruptcy court’s final order pursuant to 28 U.S.C. § 158(b). For the reasons set

forth below, we affirm. 

Factual and Procedural Background

In 1996, the debtor purchased a boat slip on Table Rock Lake, near her

condominium unit in Sunset Cove, Missouri. She later fell into arrears on her

condominium homeowners’ assessments, and Sunset Cove obtained a judgment

against her on July 23, 2012, in the amount of $36,262.25, plus interest, for the

unpaid assessments. Subsequently, Sunset Cove filed with the Stone County Circuit

Court an “Execution/Garnishment/Sequestration Application and Order” requesting

a “general execution” for “other personal property levy.” The Instructionsfor Service

on the execution application stated, “Levy on boat slip #16 at Dock #4 located at

Sunset Cove Condominiums, bearing Corps of Engineers permit #7904.” That same

The Honorable Arthur B. Federman, United States Bankruptcy Judge for the

1

Western District of Missouri. 

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date, on the same form as the execution application, the Circuit Court of Stone

County issued a Writ of Execution directing the county sheriff to execute the writ. 

On September 4, 2012, a Stone County deputy sheriff posted a copy of the

execution application and order on a pole bearing slip number 16 on the boat dock

near the boat slip. On the second page of the document, the deputy sheriff filled out

the portion certifying that he had posted it at the location and that the boat slip was

“currently empty.” The boat slip was sold at a sheriff’s sale on October 23, 2012, for

$51,500.00. The amount of the sale proceeds exceeded the amount of the judgment

debt owed to Sunset Cove. The sale proceeds were held in trust and not distributed

pending the outcome of competing claims to the funds. 

On January 6, 2013, the debtor filed a Chapter 11 bankruptcy petition. On May

9, 2014, the case was converted to Chapter 7, and Norman Rouse was appointed as

the Chapter 7 trustee. Thereafter, he filed an adversary proceeding to determine which

party was entitled to the proceeds from the sale of the boat slip. After a trial on the

matter, the bankruptcy court ruled, inter alia, in a memorandum opinion, order, and

judgment filed on January 26, 2016, that the execution and sale were valid, any

failure to give proper notice of levy or sale caused no prejudice to the debtor or the

bankruptcy estate, the sale was not a preference, and Sunset Cove was entitled to

recover the amount of its judgment from the proceeds, with the balance going to the

bankruptcy estate. 

The Chapter 7 trustee timely filed his notice of appeal and asserted the

following two assignments of error: 

1. The bankruptcy court erred when it determined that the sheriff’s act of

posting the execution application to the boat slip constituted a “notice of levy”

required by Mo. R. Civ. P. 76.06(c).

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2. The bankruptcy court erred when it determined that the sheriff’s act in

posting the execution application to the boat slip created a lien on the boat slip

pursuant to Mo. R. Civ. P. 76.07.

The matter before us is whether the sheriff’s posting of the execution

application and order was sufficient as a notice of levy under Missouri law.

According to the trustee, if the levy did not comply with Missouri law and did not

create a perfected judgment lien on the boat slip in favor of Sunset Cove, then the

proceeds purportedly payable to Sunset Cove could be avoided as a preference

because the sale and payment occurred within 90 days prior to the filing of the

bankruptcy petition. 

Standard of Review

The facts of the case are undisputed. On appeal, conclusions of law are given

de novo review. Venture Bank v. Lapides, 800 F.3d 442, 443 (8th Cir. 2015).

Statutory interpretation is a legal question that we review de novo. Hardy v. Fink, 787

F.3d 1189, 1192 (8th Cir. 2015). In performing a de novo review, the court must

independently determine whether the bankruptcy court reached the correct legal

conclusion on the basis of the facts found. Wegner v. Grunewaldt, 821 F.2d 1317,

1320 (8th Cir. 1987); Finstrom v. Huisinga, 101 B.R. 997, 998 (D. Minn. 1989). 

Discussion

Sunset Cove took steps to collect its judgment by executing upon the debtor’s

boatslip, which the parties agree is personal property. The Missouri procedural rules 2

Under Missouri proceduralrules, “[a]n execution may be issued on application 2

signed by the party or his attorney and stating the address of the person making the

application.” Mo. R. Civ. P. 76.01. “Executions shall be directed to ‘any sheriff in the

(continued...)

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Appellate Case: 16-6004 Page: 4 Date Filed: 08/04/2016 Entry ID: 4433938 
describe how a county sheriff is to levy upon property subject to attachment for

execution. Rule 76.06(c) states: “Tangible Personal Property Where Seizure is

Impracticable. A levy upon tangible personal property where seizure isimpracticable

shall be made by the sheriff posting a notice of the levy upon the property or as near

as practicable thereto.” Neither party disputes that physical seizure of a boat slip is

impracticable. The parties agree that the sheriff’s deputy posted the execution

application and order on the pole marking the debtor’s boatslip. Under Missouri law,

a levy creates a lien on the personal property. Mo. R. Civ. P. 76.07. The sheriff isthen

obligated to notify the judgment debtor of the levy:

Within three days after an officer has levied an

execution, the officer shall notify the person against whom

the execution has issued that an execution has been levied,

that certain property, if any, is exempt under sections

513.430 and 513.440, RSMo, and that the person has the

right to hold the property as exempt from attachment and

execution. The officer shall also generally state that there

are certain exemptions under state and federal law that the

judgment debtor may be able to claim with respect to the

property levied upon and describe the procedure for

claiming the property as exempt. The notice shall also

informthe person against whomthe execution issues of the

manner in which the person may obtain a specific

description of the property upon which the levy was made.

The notice may be served in the same manner as a

summons or by mailing the notice to the judgment debtor

at the debtor’s last known address by regular mail. Service

by mail shall be complete upon mailing.

(...continued) 2

State of Missouri’ and may be executed in any county by the sheriff of that county.”

Mo. R. Civ. P. 76.05.

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Mo. R. Civ. P. 76.075(a). It is undisputed that the sheriff did not serve the debtor

personally or by mail with the required notice of levy and exemption from execution. 

The Missouri procedural rules also contain specific requirements requiring

public notice of the time and place of the sale. See, Mo. Ann. Stat. § 513.145 and Mo.

R. Civ. P. 76.13. Concerns about the sale notice were raised to the bankruptcy court,

but were not raised as errors on appeal. In fact, in his brief, the trustee states: “The

Appellant is not arguing that sale pursuant to the execution order was invalid.”

Accordingly, the validity of the sale is not at issue in this appeal.

3

Procedurally, once the judgment creditor makes such an application for

execution to the Clerk of the Court, the Clerk issues a Writ of Execution to the

sheriff, directing the sheriff to execute the writ by levying upon the debtor’s property

and to certify to the court how he or she did so. See, Mo. Rev. Stat. § 513.015, et. seq.

A levy is “the actual seizure of property by the officer charged with the execution of

the writ.” Mo. Rev. Stat. § 513.010.1.

The trustee raises two arguments about the validity of Sunset Cove’s levy.

First, he asserts that the sheriff did not post a true “notice of levy” at the boat slip.

Second, he asserts that the failure to serve the debtor with notice of her exemption

rights prevented the levy from creating a valid lien on the boatslip. With no valid lien

in place, the trustee asserts, Sunset Cove’s receipt of the sale proceeds within 90 days

before the filing of the debtor’s bankruptcy petition was an avoidable preference and

the funds should be turned over to the trustee on behalf of the bankruptcy estate.

Frankly, this concession by the trustee likely resolves this appeal. It is difficult 3

to conceive of a scenario where someone (other than a good faith purchaser for value)

could successfully argue that a sale based on a personal property levy is valid while

the levy itself is invalid. However, this issue was not raised by the parties. 

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As to the first argument, the trustee posits that the sheriff did not post a proper

notice of levy as required by Rule 76.06(c), but simply served the debtor with notice

of the execution order by posting it on the boatslip. The bankruptcy court agreed that

the execution application and order form was not a “model of clarity” because it

contained some confusing information, but ultimately concluded that the posting of

the execution application and order complied with Rule 76.06(c) because anyone

seeing the notice posted at the boat slip would understand that the slip had been

levied and would be sold by the sheriff. The trustee believes that conclusion was

erroneous. 

The trustee’s argument that the sheriff did not actually post a notice of levy

rests entirely on testimony as to the deputy sheriff’s intent when he posted the notice

at the boat slip. However, there is no mention in the statute of the necessary intent on

the part of the sheriff. The officer is simply to post a notice of the levy upon the

property or as near as practicable thereto. There is no real dispute here about the

validity of the execution application and order form, despite its lack of clarity. Itsfirst

page states that it is a “General Execution” for “Other Personal Property Levy” and

the name of the creditor and the debtor are shown. It also contains instructions to the

sheriff to “Levy on boat slip #16 at Dock #4 located at Sunset Cove Condominiums,

bearing Corps of Engineers Permit #7904.” The law simply requires the sheriff to

post a “notice of levy” in the appropriate location. Here, the deputy complied by

posting the execution application and order formon the pole identifying the boatslip,

which was sufficient to be a notice of levy regardless of what the deputy’s thoughts

were about what he was posting. The trustee fails to identify any statute, rule or

requirement that would dictate the form or content of the notice of levy or otherwise

invalidate the posting of the execution application and order as a notice of levy under

the circumstances at issue. 

As to the trustee’s second argument, concerning the lack of notice to the

debtor, Missouri case law is clear that a failure to provide a debtor with notice to

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claim exemptions in levied property is harmless unless the debtor can demonstrate

prejudice as a result of the lack of notice. Rusk v. Rusk, 859 S.W.2d 751, 755 (Mo.

Ct. App. 1993); Mason v. Wilks, 288 S.W. 936, 939 (Mo. Ct. App. 1926); Daugherty

v. Gangloff, 144 S.W. 434, 435-36 (Mo. 1911); Hudson v. Wright, 103 S.W. 8, 12

(Mo. 1907) (stating “Whatever may be the individual views of the writer on the

wisdom of exacting the nicest compliance with exemption statutes, in order to further

the beneficent purposes underlying them, yet it cannot be held that the punishment

meted out on noncompliance with section 3162, supra, goes so far as to make void

an execution levy and sale of real estate.”). 

Here, the trustee did not present to the bankruptcy court any evidence of

prejudice to the debtor or the estate as a result of the lack of notice concerning

exemption rights. The estate will be receiving a portion of the funds from the sale,

and the debtor may then claim whatever exemptions she is entitled to, if any.

Conclusion

The posting of the execution application and order on the boat slip was

sufficient as a notice of levy and created a valid lien on the boat slip under Missouri

law. The sheriff’s failure to give required notice to the debtor did not invalidate the

levy or the lien. Accordingly, the judgment of the bankruptcy court is affirmed. 

______________________________

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