
USCA1 Opinion

	




                            UNITED STATES COURT OF APPEALS                                FOR THE FIRST CIRCUIT        No. 96-1840                                        IN RE                                 DAVID B. EDMONSTON,                                        Debtor                                                                                      __________                                 DAVID B. EDMONSTON,                                      Appellant,                                          v.                                  HAROLD B. MURPHY,                                      Appellee.                                                                                      ____________________                     APPEAL FROM THE UNITED STATES DISTRICT COURT                          FOR THE DISTRICT OF MASSACHUSETTS                   [Hon. Reginald C. Lindsay, U.S. District Judge]                                              ___________________                                                                                      ____________________                                        Before                            Cyr and Lynch, Circuit Judges,                                           ______________                         and McAuliffe,* U.S. District Judge,                                         ___________________                                                                                      ____________________             George R. Desmond for appellant.              _________________             Andrew  G. Lizotte,  with whom  Hanify  & King  was on  brief for             __________________              ______________        appellee.                                                                                       ____________________                                  February 26, 1997                                                                                      ____________________                                    ____________________             *Of the District of New Hampshire, sitting by designation.                    CYR, Circuit  Judge.  Chapter 7  debtor David Edmonston                    CYR, Circuit  Judge                         ______________          challenges a  bankruptcy court  ruling disallowing  his exemption          claim to  entireties property     the primary residence  owned by          him  and his nondebtor spouse since 1980.  Edmonston duly claimed          the residence  exempt, see Bankruptcy Code    522(b)(2)(B); Mass.                                 ___          Gen. Laws  ch. 209,    1, estimated  its value  at $200,000,  and          indicated that he and his nondebtor spouse were jointly obligated          under  the  $59,000  real   estate  mortgage  and  for  unsecured                                                                  _________          indebtedness  totaling  at least  $10,000.    In due  course  the          chapter 7  trustee objected to the exemption  claim and Edmonston          responded  by contesting both the merits of the objection and the          trustee's "standing"  to assert  it.  Ultimately,  the bankruptcy          court  disallowed  the   exemption  claim,  the   district  court          affirmed, and Edmonston appealed.                                            I.                                          I.                    As the facts  are not  in dispute, we  conduct de  novo                                                                   __  ____          review of the conclusions of law challenged on appeal.  See In re                                                                  ___ _____          Caron, 82  F.3d 7, 9 (1st  Cir. 1996).  First,  however, we chart          _____          the legal terrain underlying the contested conclusions of law.                      An interest in property held in tenancy by the entirety          is exempt in bankruptcy "to the  extent . . . exempt from process          under applicable nonbankruptcy law," 11 U.S.C.   522(b)(2)(B), in          this instance  Massachusetts  law.   See Napotnik  v. Equibank  &                                               ___ ________     ___________          Parkvale  Sav. Assoc., 679 F.2d  316, 318 (3d  Cir. 1982) ("Since          _____________________          property law in general and the law of co-tenancies in particular          are creatures of state law, the 'applicable nonbankruptcy law' is                                          2          the  applicable  [state]  law  of  tenancy  by  the  entirety.").          Commonwealth law provides that "[t]he interest of a debtor spouse          in property held as tenants by the entirety  shall not be subject          to seizure  by a creditor of  such debtor spouse so  long as such          property  is the  principal residence  of the  nondebtor spouse."                                                         _________          Mass. Gen. Laws  ch. 209,   1 (1987) (emphasis  added).1  Thus, a          creditor  with  a  claim against  both  tenants  by the  entirety                                            ____          ("joint creditor")  may reach and apply  the entireties property.          See Coraccio v. Lowell Five Cents Sav. Bank, 612 N.E.2d  650, 654          ___ ________    ___________________________          (Mass. 1993) ("Nor, by virtue of G.L. c. 209,   1, may a creditor          of  either  seize  the   principal  residence  absent  the  joint          signature  of the spouses."); In  re McConchie, 94  B.R. 245, 247                                        ________________          (Bankr. D. Mass.  1988) ("[T]he  property is free  from levy  and          execution from [sic] the creditor of one spouse  if the debts are          not  joint  or  for  necessaries.").   Accordingly,  the  present          exemption claim is unsupported by Commonwealth  law to the extent          Edmonston and his  nondebtor spouse were jointly indebted.   See,                                                                       ___          e.g., Sumy  v. Schlossberg, 777 F.2d 921, 928 (4th Cir. 1985) ("A          ____  ____     ___________          debtor does not  lose all  benefit of    522(b)(2)(B) when  joint          creditors are present,  but he does  not benefit from  it to  the                                        ____________________               1Originally, chapter 209,   1, did not apply to tenancies by               1          the entirety created prior to  its effective date, viz., February                                                             ____          11, 1980.  Turner v. Greenway, 459 N.E.2d 821, 823 (Mass.  1984).                     ______    ________          See also In re Robbins, 187 B.R. 400, 402 (Bankr.  D. Mass. 1995)          ___ ____ _____________          ("Tenancies by  the entirety created  prior to February  11, 1980          are governed  by the common  law.").  Subsequently,  however, the          Massachusetts legislature enabled married couples whose tenancies          by the entirety were created prior to February 11, 1980, to elect          to come within  chapter 209,   1.  See Mass. Gen. Laws ch. 209,                                               ___          1 (1987); Mass. Gen. Laws ch. 209,   1A (West Supp. 1996).                                          3          extent of joint claims.").                    Nevertheless,  an exemption claim  becomes effective by          operation of law absent a cognizable objection.   See 11 U.S.C.                                                              ___          522(l) ("Unless a party in interest objects, the property claimed          as exempt on  such list is exempt."); Fed. R.  Bankr. P. 4003(b);          see also  Taylor v. Freeland  & Kronz, 503  U.S. 638,  643 (1992)          ___ ____  ______    _________________          (property  listed as exempt by  debtor is exempt  unless party in          interest objects within 30 days); Mercer v. Monzack, 53 F.3d 1, 3                                            ______    _______          (1st  Cir. 1995)  (property listed  as exempt  becomes exempt  by          operation of  law absent timely objection), cert.  denied, 116 S.                                                      _____  ______          Ct. 1317 (1996).  Since no joint creditor objected to Edmonston's          exemption  claim within  the  allotted time,  the present  appeal          cannot succeed unless the chapter 7 trustee qualifies as a "party          in interest" within the meaning of Bankruptcy Code   522(l).                      We  think  it clear  that  Bankruptcy  Rule 4003(b)              itself "derived  from   522(l)  of the  Code," Fed. R.  Bankr. P.          4003,  Advisory  Committee Note      authoritatively  defines the          section 522(l)  term "party  in interest," by  explicitly stating          that the "trustee or any creditor may file objections to the list                            __          of  property claimed  as  exempt."   Fed.  R. Bankr.  P.  4003(b)          (emphasis added).2  Moreover, the position we make explicit today                                        ____________________               2The Bankruptcy  Rules "govern" procedure  in all bankruptcy               2          proceedings unless inconsistent with either title 11 or title 28,          United States Code.                    Section 247  of Public  Law 95-598, 92  Stat.                    2549  amended  28 U.S.C.     2075. .  .  . to                    require  that  procedural  rules  promulgated                    pursuant to  28 U.S.C.    2075 be  consistent                                                       __________                    with the bankruptcy  statute, both titles  11                    ____                                          4          simply gives voice to  the longstanding, implicit acknowledgement          that a  chapter 7  trustee is  a "party  in interest" within  the          meaning of section 522(l).  See, e.g., Taylor, 503 S. Ct. at 642-                                      ___  ____  ______          43  (as trustee  waived right  to oppose  exemption claim  by not          objecting  within  30-day  period  prescribed  by  Rule  4003(b),          property  became  exempt  by operation  of     522(l));  Petit v.                                                                   _____          Fessenden, 80 F.3d  29, 32-33  (1st Cir. 1996)  (failure to  file          _________          timely schedules relieved trustee of duty to object, as there was          no "list of  property claimed as  exempt" to be  opposed under             522(l) and Rule 4003(b)).                     As  "the representative  of  the estate,"  11 U.S.C.                            ___          323(a) (emphasis added), the chapter 7 trustee is under a duty to          "collect and reduce to money the property of the estate."   Id.                                                                        ___          704(1).3  See First Nat'l Bank of Mobile v. Norris, 701 F.2d 902,                    ___ __________________________    ______                                        ____________________                    and 28  U.S.C.   Thus, .  . .  any procedural                    matters contained  in title  11 or  28 U.S.C.                    with respect to  cases filed under  11 U.S.C.                    would control.   See 1 Collier, Bankruptcy                                        ___                    3.04[2][c] (15th ed. 1980).          Advisory Committee Note (1983) (emphasis added).               Edmonston neither  contends nor intimates that  Rule 4003(b)          is in any  respect inconsistent with either  title 11 (Bankruptcy          Code)  or title 28 (Judiciary and Judicial Procedure).  Nor do we          discern any pertinent inconsistency.  On the contrary,  given the          mandate  in  Bankruptcy Code    704  ("The  trustee shall     (1)          collect and reduce to money the property of the estate . . . ."),          any  suggestion that  a chapter  7 trustee  is not  required, let          alone permitted,  to oppose an unallowable  exemption claim would          be  totally  at  odds  with  the  chapter  7  trustee's principal          statutory responsibility, as "the representative  of the [chapter                                        ___          7] estate," id.   323(a) (emphasis added).                       ___               3Edmonston  does not  dispute that  the entireties  property          became  "property  of the  estate" by  operation  of law,  see 11                                                                     ___          U.S.C.   541(a)(2)(B) (including in estate all property of debtor                                          5          904  (11th Cir. 1983); In re Brooks,  12 B.R. 22, 24 (Bankr. S.D.                                 ____________          Ohio 1981).   Thus,  the statutory  duty to  administer nonexempt          property of the chapter 7 estate implicitly empowers  the trustee          to screen and oppose exemption claims which may not be allowable.          See  Fed. R. Bankr.  P. 4003(b); see  also In re  Atlas, 183 B.R.          ___                              ___  ____ ____________          978, 980 (Bankr. S.D. Fla. 1995) (citing 11 U.S.C.   704; Fed. R.          Bankr. P. 4003(b)).                    We accordingly hold that the trustee, as the designated          representative of the chapter 7 estate, 11 U.S.C.   323(a), whose          duties include  the collection  and liquidation of  the nonexempt          property  of  the  estate, see  id.     704(1),  is  a "party  in                                     ___  ___          interest" entitled  to oppose exemption  claims under  Bankruptcy          Code   522(1).  See also In re Van Rye, 179 B.R. 375, 378 (Bankr.                          ___ ____ _____________          D. Mass. 1995)  (holding that  "the Trustee, in  his capacity  as          representative  of  the  estate,   has  standing  to  object"  to          exemption claims), aff'd, 96 F.3d 1430 (1st Cir. 1996) (Table).                               _____                                         II.                                         II.                    Edmonston  further  contends  that  since  a chapter  7          discharge can only relieve indebtedness of the chapter 7  debtor,          joint creditors may still proceed directly against the entireties          property itself because their claims against the nondebtor spouse                                        ____________________          and  spouse which is "liable  for an allowable  claim against the          debtor,  or  for an  allowable claim  against  the debtor  and an          allowable  claim against the debtor's spouse,  to the extent that          such  interest  is  so  liable"),  and  thus  became  subject  to          administration under chapter 7 unless exempt.                                          6          would be  unaffected by Edmonston's chapter 7  proceeding.4  This          claim impermissibly assumes that the chapter 7 debtor is entitled          to  have  the entireties  property set  apart  as exempt,  on the          theory that joint creditors  would retain their respective rights          to proceed against the entireties property under Commonwealth law          in  any event.    As all  relevant  reported cases  make  clear,5          assuming  a proper objection by a party in interest an entireties          exemption  claim is  invalid ab  initio to  the extent  there are                                       __  ______          joint creditors.  Thereupon, as nonexempt property of the chapter          7   estate   the   entireties   property   becomes   subject   to          administration.                                              III.                                         III.                    For the foregoing reasons,  the district court order is                                        ____________________               4In assailing the Fourth Circuit's holding in Sumy, 777 F.2d                                                             ____          at  929-32    that the  entireties property was  not exempt under          Bankruptcy  Code    522(b)(2)(B)     Edmonston  misapprehends the          court's rationale.  The holding was  not based on a "legal fraud"          rationale,  as  Edmonston  suggests,  but on  Bankruptcy  Code             522(b)(2)(B) and applicable  state law.   Sumy, 777  F.2d at  929                                                    ____          (rejecting   entireties  exemption   claim  "by   interpreting             522(b)(2)(B) in light of state law").                5Other courts of appeals which have weighed in on the matter          are in accord,  see Sumy, 777 F.2d at 932;  In re Grosslight, 757                          ___ ____                    ________________          F.2d  773,  776-77  (6th  Cir.  1985);  Napotnik  v.  Equibank  &                                                  ________      ___________          Parkvale Sav. Assoc., 679  F.2d 316, 321 (3d Cir.  1982); compare          ____________________                                      _______          Paeplow v. Foley, 972 F.2d 730, 737 (7th Cir. 1992) (by virtue of          _______    _____          Indiana Code   34-2-28-1(a)(5),  entireties property is exempt in          bankruptcy, regardless of presence of joint creditors, as long as          only  one  spouse files  bankruptcy  petition);  so too  are  the          bankruptcy  courts (except in  Indiana) which have  done so, see,                                                                       ___          e.g., In re Duncan, 201 B.R. 889, 898 (Bankr. W.D.  Pa. 1996); In          ____  ____________                                             __          re  Harry,  151 B.R.  735, 737  (Bankr.  W.D. Vir.  1992);  In re          _________                                                   _____          Wickham, 130 B.R. 35, 38 (Bankr.  E.D. Vir. 1991); In re Cerreta,          _______                                            _____________          116  B.R. 402, 405-06 (Bankr.  D.Vt. 1990); In  re Geoghegan, 101                                                      ________________          B.R. 329,  330-31 (Bankr. M.D. Fla. 1989);  In re Sefren, 41 B.R.                                                      ____________          747, 748 (Bankr. D.Md. 1984); see also Sumy, 777 F.2d at 929 n.16                                        ___ ____ ____          (collecting cases).                                          7          affirmed, with costs to appellee, and the case is remanded to the          bankruptcy  court for  further proceedings  consistent with  this          opinion.                    SO ORDERED.                    SO ORDERED                    __ _______                                          8
