Court Opinion

ID: 9688521
Source: CourtListenerOpinion
Date Created: 2023-08-24 17:53:58.720294+00
Date Added: 2024-06-11T12:06:31.645969
License: Public Domain

ROGER, Chief Judge,
dissenting
I respectfully dissent. While I do not disagree with the majority’s analysis (as they state), I believe that thé Eighth Circuit’s decision in Garner v. Strauss (In re Garner), 952 F.2d 232 (8th Cir.1991), compels a different result in this case.
Clearly, the majority’s analysis is correct in its determination that the entireties property is property of the debtor’s estate. I also agree that it is not exempt to the extent that the debtor has joint creditors with his non-debtor spouse and that the property can be sold by the trustee pursuant to § 363. Where I disagree with the majority is in how the proceeds are to be distributed once the property is sold.
This disagreement is a result of my interpretation of the Eighth Circuit’s directive in Gamer, which differs from the majority’s interpretation. Essentially, I disagree with the majority’s conclusion that Gamers directive regarding the non-debtor spouse’s share of the entireties proceeds is mere dicta. According to the majority, the Garner Court was not called upon to determine the respective interest's of the parties, but to decide solely whether entireties property becomes property of the estate when only one spouse files bankruptcy.
The majority opinion states that the Garner Court remarked that its ruling “leaves open the question of the trustee’s disposition of the stock.” Garner, 952 F.2d at 235. However, rather than leaving that question open, I believe the Garner Court then went on to immediately answer that question. The paragraph containing that phrase reads in its entirety:
*835Having failed to qualify as exempt under section 522(b)(2)(B) of the Bankruptcy Code, the stock at issue is part of [the debtor’s] bankruptcy estate pursuant to section 541(a) of the Code. Our ruling, however, leaves open the question of the trustee’s disposition of the stock. If liquidation is the intent of the trustee, as is the case here, 11 U.S.C. § 363 (1988) governs the trustee’s disposition of the stock.
Id. As I read this passage, the Court did not leave the question regarding the trustee’s disposition of the entireties property for another day; rather, the Court answered the question in the very next sentence, specifically holding that § 363 governs the trustee’s disposition of the asset.
Even more telling is that the Eighth Circuit then went on to make its analysis under § 363. As I interpret Garner, that analysis is as follows:
Where partition is impracticable, § 363(h) permits the sale of both the debtor’s interest (the estate’s interest) and the non-debtor spouse’s interest in entireties property. Id. The Court noted that the entireties property in that case, stock, could have been relatively easily partitioned, implying that a sale would not have been necessary. Id. at 236. Unfortunately, the stock had already been sold.
Because the stock here, however, has already been liquidated, it cannot be partitioned in accordance with section 363. Thus, in order to comply with the intent of-the Code, we order that one-half of the cash received for the stock be returned to [the non-debtor spouse]. Returning one-half of the proceeds from the sale of the stock shares to [the non-debtor spouse] does not insulate her from creditors pursuing whatever actions they possess against her.
Id. (footnotes omitted). This is a plain order compelling one-half of the proceeds to be returned to the non-debtor spouse. Nowhere in Garner is it suggested that the joint creditors are to be satisfied out of the proceeds first. In fact, the Eighth Circuit specifically suggested that such creditors would be free to pursue the property in the hands of the non-debtor spouse. Id. at 236. (“Returning one-half of the proceeds from the sale of the stock shares to [the non-debtor spouse] does not insulate her from creditors pursuing whatever actions they possess against her”).
I recognize that the Garner Court was addressing ah asset which should have been partitioned, rather than sold, and that in making this order the ■ Garner Court may have been attempting to put the parties into the same position they would have been had the partition, rather than the sale, occurred. However, in an important footnote, the Court went on:
We recognize that we could have ordered similar action under 11 U.S.C. § 363(j) (1988), which provides:
(j) After a sale of property to which subsection (g) or (h) of this section applies, the trustee shall distribute to the debtor’s spouse or the co-owners of such property, as the ease may be, and to the estate, the proceeds of such sale, less the costs and expenses, not including , any compensation of the trustee,, of such sale, according to the interests of such, spouse or co-owners, and of the estate.
Had it been impracticable to partition the stock, we would have certainly ordered the trustee to comply with section 363(j). As noted in the text, however, we have no evidence that the stock could not have been partitioned. We choose to act under section 363(h)(1) and not under section 363(j), because the former subsection does not subtract transactional costs from the non-debtor’s property interest, while the latter provision imposes such costs.
It would not be equitable to penalize [the non-debtor spouse] by reducing her property interest simply because the trustee liquidated the stock without first attempting to comply with section 363(h)(1). .If, however, the . bankruptcy court decides that partitioning the. stock would have been impracticable and that none of the other section 363(h) limitations apply, section 363® becomes the relevant statute.
Id. at 236 n. 5. I interpret these comments by the Eighth Circuit, in conjunction with the order to return half of the proceeds to the non-debtor spouse, to compel the non-debtor *836spouse’s share of the proceeds be distributed to her after- a sale of entireties property by the trustee. Nowhere in § 363(j) or Gamer is it suggested that the joint creditors are to be satisfied out of the proceeds first.
Moreover, while I recognize that several other circuits and bankruptcy courts have agreed with the majority’s opinion here, I believe the Eighth Circuit’s directive that the non-debtor spouse is to be paid from the proceeds is not without merit. Certainly, as the majority states, Missouri law considers the owners of entireties property to each hold an undivided interest in the whole and I find the majority’s conclusion that because Van Der Heide owns an indivisible interest in the whole residence, one hundred percent of the property is property of the estate, to be a sensible extension of that state law premise.
However, I do not believe that the premise that the debtor and his wife each own an indivisible interest in the whole mandates the distribution scheme suggested by the majority. The Code expressly authorizes, and arguably prefers, partition of entireties property where only one tenant files bankruptcy.8 Partitioning, by definition, requires the property to be divided into two halves, despite Missouri entireties law. I see little difference between partitioning the asset and returning the non-debtor’s share of the asset to her on the one hand, and selling the asset and returning the non-debtor’s share of the proceeds to her on the other hand. Arguably, both may be contrary to Missouri en-tireties law. Nevertheless, I would suggest that since the Code specifically authorizes one, the other is not necessarily impermissible.
Furthermore, subsection (j), which the Eighth Circuit plainly directed would be applicable where the bankruptcy court determines that partition is impracticable, directs that after a sale of the entireties property, “the trustee shall distribute to the debtor’s spouse ... and to the estate, the proceeds of such sale ... according to the interests of such spouse ... and of the estate.” 11 U.S.C. § 363(j) (emphasis added). No mention of payment to joint creditors is made here and this section appears to require (by use of the word “shall”) that the non-debtor spouse receive her share of the proceeds.
Restating, I suggest that rather than holding that the debtor owns only a one-half interest in the property, the Eighth Circuit’s directive in Gamer is premised on the Code’s permitting partitioning in § 363(h) and directing in § 363(j) that the trustee is to distribute proceeds from the sale to the non-debtor spouse.
In sum, then, I perceive the Eighth Circuit’s decision in In re Garner mandates that where only one spouse files bankruptcy and entireties property is sold pursuant to § 363, one-half of the proceeds must be returned to the non-debtor spouse before joint creditors are satisfied. Although contrary to the authority coming from the majority of other circuits addressing this issue, I believe the Gamer decision has merit, and more importantly, I am compelled to follow what I interpret the law of the Eighth Circuit to be at this time.
Because I disagree with the majority’s opinion on this narrow issue, I would reverse the bankruptcy court’s dismissal of the debt- or’s case for failure to propose a plan which complies with § 1325(a)(4)’s “best interest of creditors” test. It is my opinion that because Garner requires the non-debtor spouse to be paid her share of the proceeds of the sale of entireties property before unsecured creditors, the debtor’s proposed plan in this case did not violate the best interest of creditors test. For that reason, I respectfully dissent from the majority’s affirmance of the bankruptcy court’s decision dismissing the debtor’s Chapter 13 case.

. Partition appears to be preferred because a trustee is authorized to sell entireties property only if partition is impracticable. 11 U.S.C. § 363(h)(1).