United States Court of Appeals

For the First Circuit

No. 06-2395

IN RE: JOHN GREGORY SKORICH,

Debtor.

__________

EDMOND J. FORD, TRUSTEE,

Plaintiff, Appellant,

v.

DONNA SKORICH,

Defendant, Appellee.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF NEW HAMPSHIRE

[Hon. Paul J. Barbadoro, U.S. District Judge]

Before

 Boudin, Chief Judge,

Campbell, Senior Circuit Judge,

and Howard, Circuit Judge.

Edmond J. Ford with whom Ford, Weaver & McDonald, P.A. was on

brief for appellant.

Eleanor Wm. Dahar with whom Victor W. Dahar, P.A. was on brief

for appellee.

March 30, 2007
The bankruptcy trustee says that Bursey holds only that a 1

spouse has standing to protect legal title to marital property.

But the New Hampshire Supreme Court described a spouse as having an

"equitable interest" and a "legally protectable property interest"

in marital property. Bursey, 719 A.2d at 579. She has standing to

protect legal title because she has an equitable interest in the

property.

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BOUDIN, Chief Judge. On this appeal, state family law

intersects with the federal bankruptcy statute. On May 14, 2003,

Donna Skorich ("Skorich") filed a petition for divorce from J.

Gregory Skorich ("the debtor") with the Portsmouth, New Hampshire,

Family Court. Pursuant to N.H. Rev. Stat. Ann. § 458:16-b (2000),

the Family Court issued an order restraining each party from

disposing of any property belonging to either of them (subject to

narrow exceptions). Under state law, this granted Skorich an

equitable interest in the marital property subject to its later

division by the court. Bursey v. Town of Hudson, 719 A.2d 577, 579

(N.H. 1998); N.H. Rev. Stat. Ann. § 458:16-a (2000).1

Among the property subject to allocation was jointly

owned real estate in Rangeley, Maine. On June 24, 2004, the Family

Court became aware of a pending sale of the Rangeley property, and

it directed that the proceeds (approximately $300,000) be placed in

an escrow account under the joint control of Skorich's and the

debtor's respective divorce counsel. Apparently the court aimed to

protect Skorich's potential interest in the property, given that

(in the Family Court's words) the debtor had "violated almost every

order that this Court has made" and had "concealed assets and
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diverted assets, and taken title to assets in the names of third

parties." 

Shortly thereafter, on July 9, 2004, the debtor filed a

Chapter 7 bankruptcy petition. On September 8, 2004, the

bankruptcy court granted Skorich relief from the automatic stay to

allow her "to obtain a final divorce decree from the Family Court,

which may include allocation of the couple's marital assets" but

not their distribution unless approved by the bankruptcy court. On

March 29, 2005, the Family Court issued its final decree which

awarded Skorich the entire amount in the escrow account, and

Skorich filed a motion with the bankruptcy court to obtain the

escrowed funds awarded to her in the divorce.

The bankruptcy trustee ("the trustee") objected,

contending that the debtor's share of the escrow funds was property

of the debtor's estate subject to administration by the trustee.

On October 19, 2005, the bankruptcy court issued a decision holding

that under state law the debtor was divested of all legal title to

the funds when they were placed in escrow, prior to his filing for

bankruptcy, retaining only a contingent equitable interest in them

subject to the Family Court's ultimate division of marital

property. In re Skorich, 332 B.R. 77, 87 (Bankr. D.N.H. 2005)

("Skorich I").

Based on this decision, Skorich filed a motion for

summary judgment with the bankruptcy court seeking a hand-over of
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the escrowed funds. The trustee filed a cross-motion for summary

judgment, on the ground that the transfer of the debtor's legal

title to the escrow agents was a preferential transfer avoidable

under section 547 of the Code, 11 U.S.C. § 547 (2000). Avoidance

of the transfer would bring legal title to the sale proceeds back

into the debtor's estate, and--according to Skorich I--the

trustee's status as a hypothetical judicial lien creditor, 11

U.S.C. § 544(a), would enable him (based on state law) to cut off

Skorich's contingent equitable interest in the debtor's share of

the proceeds. Skorich I, 332 B.R. at 84.

The bankruptcy court ruled that the transfer to the

escrow agent had not been for Skorich's benefit as "a creditor" nor

was it on account of "an antecedent debt," two preconditions of

section 547(b). Thus, the trustee could not avoid the transfer of

legal title to the funds out of the debtor's estate; and, as the

Family Court decree gave full title to the escrow account to

Skorich, the funds belonged to her. Ford v. Skorich, 337 B.R. 441,

447 (Bankr. D.N.H. 2006) ("Skorich II"). The district court

affirmed, 2006 WL 2482694 (D.N.H. 2006).

The trustee now appeals to contest the ruling under

section 547--an issue of law that we review de novo. Ganett v.

Carp (In re Carp), 340 F.3d 15, 21 (1st Cir. 2003). The Bankruptcy

Code's treatment of equitable interests relating to property is a

subject of great difficulty, and by coincidence another such case
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is also before us, Abboud v. The Ground Round, Inc. (In re Ground

Round), No. 06-9002 (1st Cir.), and is decided today. The process

of unraveling the Bankruptcy Code's obscurities in regard to such

interests is far from over.

The Bankruptcy Code transfers to the estate any interest

in property--whether legal or equitable--held by the filer at the

time of bankruptcy (subject to narrow exceptions not pertinent

here). 11 U.S.C. § 541(a)(1). Once the divorce petition was

filed, the debtor and Skorich each held shared legal title and

(because of the divorce petition) an individual contingent

equitable interest in all of the proceeds from the house sale. The

escrowing divested both parties of legal title to the funds, but

not their equitable interests.

The trustee inherited the debtor's contingent equitable

interest but that contingency never matured; instead, the

contingency vanished when (after the lifting of the automatic stay)

the Family Court awarded all of the escrowed funds to Skorich. If

this were the end of the matter, Skorich would arguably have clean

title to the fund--full equitable ownership and a right to title

from the escrow agents--and third parties holding claims against

the debtor would have to look to other assets.

However, section 547 allows the trustee to "avoid"

preferential transfers. If this provision applied to the transfer

of legal title from the debtor and Skorich to the escrow agents,
Courts disagree as to whether section 541(d) protects a third 2

party against having her equitable interest in property cut off by

the trustee's strong-arm power when the debtor holds only bare

legal title to the property. Compare In re Quality Holstein

Leasing, 752 F.2d 1009, 1013 (5th Cir. 1985), with Belisle v.

Plunkett, 877 F.2d 512, 515 (7th Cir.), cert. denied sub nom, 493

U.S. 893 (1989); see also 11 U.S.C. § 541(d). We assume arguendo

that section 544(a) does, where state law so provides, clothe the

trustee with the power to extinguish the equitable interest. 

Whether New Hampshire law would allow a hypothetical judgment

lien creditor to take ahead of Skorich could be debated, but the

Bankruptcy Court held that a judgment lien creditor would indeed

take ahead of Skorich. Skorich I,332 B.R. at 84. Such a a result

is at least colorable, cf. Charter Fin. Inc. v. Aurora Graphics,

Inc. (In re Jasper-O'Neil), 816 A.2d 989, 991 (N.H. 2003); Rodman

v. Young, 679 A.2d 1150, 1152 (N.H. 1996), and Skorich has not

contested it.

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Skorich's claim to the proceeds--more precisely, to the debtor's

presumptive half share--might begin to unravel. True, Skorich (and

the debtor) would each retain a contingent equitable interest in

the whole and only Skorich's interest would have matured. But

under section 544, the strong-arm power of the trustee could

arguably be used to cut off Skorich's equitable interest in the

debtor's presumptive share of the proceeds.2

This brings us to section 547, which allows the trustee

to avoid a transfer of a debtor's interest in property made within

90 days before the filing of the bankruptcy petition if, among

other things, the transfer was "to or for the benefit of a

creditor" and "for or on account of an antecedent debt owed by the

debtor before such transfer was made." 11 U.S.C. § 547(b)

(emphasis added). In the ordinary sense, Skorich was not a

creditor of her husband as to the property: they owned it together,
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subject to the Family Court's power to allocate it in a divorce

proceeding.

Nevertheless, the Bankruptcy Code has its own technical

definitions. A "creditor" is any "entity that has a claim against

the debtor" that arose before the bankruptcy petition was filed, 11

U.S.C. § 101(10); a "debt means liability on a claim," id. §

101(12); and a "claim" is a:

(A) right to payment, whether or not such

right is reduced to judgment, liquidated,

unliquidated, fixed, contingent, matured,

unmatured, disputed, undisputed, legal,

equitable, secured, or unsecured; or

(B) right to an equitable remedy for breach of

performance if such breach gives rise to a

right to payment, whether or not such right to

an equitable remedy is reduced to judgment,

fixed, contingent, matured, unmatured,

disputed, undisputed, secured, or unsecured.

Id. § 101(5).

Skorich says that she had no "claim" as to the debtor's

presumptive share of the proceeds for two reasons. The first is

that at the time of the bankruptcy filing--normally the critical

date for identifying claims by creditors in bankruptcy, 11 U.S.C.

§ 101(10)--no division of property had yet occurred; the second is

that her equitable interest in the debtor's share was not in any

event a "claim" under either part of section 101(5)'s definition.

If the equitable interest otherwise constituted a claim

within the meaning of the definition, the fact that it was

contingent and unmatured at the time of the bankruptcy petition
Compare Woburn Assocs. v. Kahn (In re Hemingway Transp., 3

Inc.), 954 F.2d 1, 8 (1st Cir. 1992), with Avellino & Bienes v. M.

Frenville Co. (In re M. Frenville Co.), 744 F.2d 332, 337 (3d Cir.

1984), cert. denied, 469 U.S. 1160 (1985).

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would not be a bar to treating it as a claim. Both halves of

section 101(5)'s definition explicitly say that it does not matter

if a claim is contingent and unmatured. Although a few cases lean

in Skorich's direction, our own precedent is in the trustee's favor

on this issue.3

Skorich's better argument--and the basis for the

decisions by the bankruptcy and district courts below--is that her

equitable interest in marital property is not a "claim" at all

under section 101(5), because it is neither a "right to payment"

(subsection (A)) nor a "right to an equitable remedy for breach of

performance" (subsection (B)). See In re Compagnone, 239 B.R. 841,

845 (Bankr. D. Mass. 1999); In re Perry, 131 B.R. 763, 766-67

(Bankr. D. Mass. 1991). 

We start with subsection (A). Just prior to the escrow

transfer, Skorich had shared legal title to the proceeds and a

contingent equitable interest in the whole fund, but this was not

a contingent right to payment from the debtor, whether out of his

property share or otherwise; rather, it was an interest in property

obtained upon the filing of the divorce petition by virtue of her

status as spouse. Bursey, 719 A.2d at 579. 
Compare, e.g., In re White, 212 B.R. 979, 982-83 (10th Cir. 4

BAP 1997) (equitable interest vests when divorce petition is

filed); In re Roberge, 188 B.R. 366, 369 (E.D. Va. 1995) (same),

with, e.g., Ara v. Anjum (In re Anjum), 288 B.R. 72, 76 (Bankr.

S.D.N.Y. 2003) (no interest until divorce award); In re Polliard,

152 B.R. 51, 53-54 (W.D. Pa. 1993); Perlow v. Perlow, 128 B.R. 412,

415 (E.D.N.C. 1991); In re Palmer, 78 B.R. 402, 406 (Bankr.

E.D.N.Y. 1987). 

-9-

The trustee cites numerous cases purporting to establish

that a spouse's interest relating to marital property is inevitably

a "claim" under section 101(5); but in reality, courts take

different views on this issue, seemingly affected in part by how

different state laws treat marital interests. Nor does the fact 4

that the Rangeley property was liquidated change the analysis. Cf.

In re Brown, 168 B.R. 331, 334-35 (Bankr. N.D. Ill. 1994). 

The trustee also says that the divorce court could have

awarded Skorich a monetary sum payable by the debtor in place of

any interest in the real property or sale proceeds; that would

arguably be a right to payment under subsection (A). See In re

Emelity, 251 B.R. 151, 154 (Bankr. S.D. Cal. 2000). But here, the

divorce court did not award Skorich a right to payment in lieu of

an equitable division of property; instead, the divorce court

matured Skorich's equitable interest in the marital property. 

Subsection (B) is even more clearly inapplicable. How

that subsection should be read is the subject of much controversy,

but by its terms it applies only to equitable remedies "for breach

of performance" where money is a substitute remedy. Even if
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division of marital property were regarded as an equitable remedy,

no breach of performance--for example, for failure to perform a

contract--is involved in the present case and only equitable

remedies for breach of performance are potentially claims under

section 101(5). See In re Perry, 131 B.R. at 767.

The trustee also invokes section 102(2) which provides–as

a rule of construction--that "'claim against the debtor' [the

subject of section 101(5)] includes claim against property of the

debtor." 11 U.S.C. § 102(2). The trustee reads this provision as

if it made all claims to third party property in the hands of the

debtor "claims" against the estate. But this would virtually wipe

out section 101(5)(B)'s limitations and is contrary to the limited

role that Congress intended for its "rule of construction."

As its legislative history makes plain, section 102(2)

does nothing more than clarify that claims to money payable out of

the debtor's property are to be treated no differently than claims

to money enforceable against the debtor personally. Thus, under

this provision a non-recourse loan, being a claim for money, is a

claim against the estate even though "the creditor's only rights

are against property of the debtor." S. Rep. No. 95-989, at 28

(1978); see Johnson v. Home State Bank, 501 U.S. 78, 84 (1991).

Skorich has no such money claim against the debtor; her only

interest is an equitable interest to the fund.
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The trustee also says that our decision in Davis v. Cox,

356 F.3d 76 (1st Cir. 2004), assumed that an equitable interest in

marital property constituted a "claim" under section 101(5). Davis

held that Maine law would recognize a constructive trust on the

wife's part in an IRA nominally owned by her debtor husband, id. at

89, and that certain funds held in escrow were not property of the

estate under section 541 and were permissibly awarded to the wife,

id. at 93-94. 

Thus, if anything, Davis is generally helpful to Skorich

on several points and the issue that principally worried the court

in Davis--just what equitable interest Maine courts would recognize

in marital property--is resolved by New Hampshire case law in

Skorich's favor. See Bursey, 719 A.2d at 579. Although the

bankruptcy court in Davis proceeded on the assumption that the

trustee attributes to us, our decision adopted no such holding, see

id. at 83 n.5, and did not even mention section 101(5).

Lastly, the trustee says that allowing Skorich to claim

the escrow fund undercuts the section 547 policies of equal

treatment of creditors and of defeating preferences. By

recognizing a property interest of non-debtor spouses not

dischargeable in bankruptcy, the trustee says we will encourage a

debtor spouse to favor a non-debtor spouse over bankruptcy

creditors, in order to satisfy a nondischargeable obligation that

might otherwise remain unsatisfied. 
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This litigation is far from section 547's heartland: it

is certainly not a case of the debtor smuggling out property to

prefer one creditor to another. Further, equal treatment is hardly

the only interest reflected in the Code's many compromises as to

secured interests, priorities, and preference avoidance provisions.

Nothing in the outcome in this case is an assault on the main

thrust of section 547.

No single case can sort out--let alone answer--the array

of adjacent questions posed where divorce and bankruptcy overlap or

smooth out the many wrinkles in the precedents. Modesty counsels

a focus upon specific provisions and individual facts. Having

sought to trace the respective interests, we conclude that Skorich

does not have a "claim" against the debtor as a "creditor"; nor was

the transfer of legal title to the escrow agents "on account of

antecedent debt." Section 547 therefore does not treat the

transfer as an avoidable preference.

Affirmed.