Opinion
Case No. 2:02CV75DS
March 27, 2003
EDWARD K. BRASS, Salt Lake City, Utah, Attorney for Plaintiff.
MEMORANDUM DECISION
INTRODUCTION
Before the court is an appeal from a Judgment and Memorandum Opinion entered by the United States Bankruptcy Court for the District of Utah in the above-entitled adversary proceeding. The United States District Court for the District of Utah has jurisdiction over this appeal pursuant to the provisions of 28 U.S.C. § 158(a).
Appellee instituted the adversary proceeding, pursuant to 11 U.S.C. § 363(h) and (j) and 28 U.S.C. § 2201 , to determine the extent of the parties' interests in thirteen properties and whether they could be sold and the proceeds thereof distributed to the parties. The parties reached a Partial Settlement prior to trial in which they agreed that twelve of the thirteen properties were owned jointly by debtor and appellant, debtor's wife. Appellant filed a counterclaim asserting that she had a marital property interest in the sole remaining property ("Parcel 10") or, alternatively, that she had an equitable lien against Parcel 10 which entitled her to an undivided ½ interest in that property. The parties stipulated that partition in kind of Parcel 10 was impracticable, and the sale of the estate's undivided interest in Parcel 10 would realize less than a sale free and clear of appellant's interest. Therefore, assuming provisions (3) and (4) of 11 U.S.C. § 363(h) (see note 1 above) are satisfied, and the court determined appellant had an interest in Parcel 10, appellee would be authorized to sell the property and pay appellant the value of her interest. If, however, the court found appellant had no interest in Parcel 10, appellee would be authorized to sell the property, and appellant, of course, would have no claim to the proceeds. Appellant's counterclaim was tried before the Bankruptcy Court which concluded appellant had no interest in Parcel 10. This appeal followed.
Relevant provisions of 11 U.S.C. § 363(h) and (j) state:
(h) . . . the trustee may sell both the estate's interest, and the interest of any co-owner in property in which the debtor had, at the time of the commencement of the case, an undivided interest as a tenant in common, joint tenant, or tenant by the entirety, only if —
(1) partition in kind of such property among the estate and such co-owners is impracticable;
(2) sale of the estate's undivided interest in such property would realize significantly less for the estate than sale of such property free of the interests of such co-owners;
(3) the benefit to the estate of a sale of such property free of the interests of co-owners outweighs the detriment, if any, to such co-owners; and
(4) such property is not used in the production, transmission, or distribution, for sale, of electric energy or of natural or synthetic gas for heat, light, or power.
. . .
(j) After a sale of property to which subsection . . . (h) of this section applies, the trustee shall distribute to the debtor's spouse or the co-owners of such property, as the case 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.
Relevant provisions of 28 U.S.C. § 2201 state:
(a) In a case of actual controversy within its jurisdiction, . . . any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought.
Appellant also sought partition between appellant's and trustee's interests as a third claim in her counterclaim. However, that claim is moot in light of the parties' stipulation, prior to trial, that partition in kind was impracticable. See Bankruptcy Court Memorandum Opinion, p. 4, n. 3.
See 11 U.S.C. § 363(h)(1) and (2) quoted above. The parties did not stipulate to Section 363(h)(3) and (4), and the parties did not address these provisions in Bankruptcy Court. See Bankruptcy Court Memorandum Opinion, p. 2, n. 2.
FACTS
In its Memorandum Opinion, the Bankruptcy Court set forth extensive Findings of Fact. Neither party challenges these facts, and both have listed them practically verbatim in their briefing. The court, therefore, sees no need to restate the facts and hereby adopts the Bankruptcy Court's Findings of Fact.
Appellant has included five "Additional Relevant Facts Not Recited by Bankruptcy Court" in her opening brief for the court's consideration. Brief of Appellant, pp. 10 and 20. The court disregards these specific statements because: (1) Appellant states that she "does not challenge the Bankruptcy Court's Findings of Fact", Brief of Appellant, p. 2; (2) As an appellate court, this court is not a fact-finding forum; and (3) Almost all of the "additional facts" are essentially included within the Bankruptcy Court's Findings of Fact.
ISSUES AND STANDARD OF REVIEW
In her Statement of Issues on Appeal, appellant has framed the issues as follows: (1) the Bankruptcy Court committed clear legal error in analyzing Utah State law concerning marital property interests; (2) the Bankruptcy Court erred in analyzing appellant's equitable interests; and (3) the Bankruptcy Court erred in analyzing affirmative defenses appellee did not raise. See Case File, Docket #1, p. 7. Appellant has stated that "[t]his appeal does not challenge the Bankruptcy Court's Findings of Fact, but its misapplication thereof in [the] determination of Appellant's property interests under Utah state law." Brief of Appellant, p. 2. The parties agree that, on appeal, questions of law are reviewed de novo. See In re Stewart, 175 F.3d 796, 803 (10th Cir. 1999); In re Seneca Oil Co.. 906 F.2d 1445, 1450 (10th Cir. 1990). The Bankruptcy Court's Conclusions of Law are, therefore, subject to de novo review.
DISCUSSION
Property rights in bankruptcy are determined by applicable state law.See Butner v. United States, 440 U.S. 48, 54 (1979); ANR Ltd. v. Chattin, 89 B.R. 898, 901 (D. Utah 1988). This court must, thus, consider appellant's arguments in terms of Utah law.
I. Marital Property Interest
It is undisputed that appellant and debtor are currently married and have never separated or divorced. Nevertheless, appellant cites divorce law to support the first claim in her counterclaim, namely, that she has a "marital property right" equal to an undivided ½ interest in Parcel 10. The issue presented is, thus, whether appellant has an "ownership interest" in Parcel 10, pursuant to Utah law, because Parcel 10 is part of her "marital property". In Utah, the concept of "marital property" arises in the context of property division during a divorce. indeed, all Utah case law appellant cites in support of a "marital property" interest arises from divorce proceedings. In her argument, appellant states directly: "The marital interest of a spouse in jointly acquired property is not created or `vested' upon dissolution of marriage, but upon the acquisition of the property." Brief of Appellant. p. 3. Appellant cites no Utah law supporting this proposition. Instead, appellant cites a case interpreting Kansas statutes. See In re Brollier, 165 B.R. 286 (Bankr. W.D. Okla. 1994). However, even one of the Kansas statutes discussed in Brollier defines "marital property" contrary to the position taken by appellant:
See, e.g., Parker v. Parker, 996 P.2d 565, 568 (Utah Ct.App. 2000)("marital assets are generally valued as of the date of the divorce decree); Shepherd v. Shepherd, 876 P.2d 429, 432 (Utah Ct.App. 1994)("Generally, the marital estate is valued at the time of the divorce decree or trial."); Hoagland v. Hoagland, 852 P.2d 1025, 1028 (Utah Ct.App. 1993) (in divorce action "a court [determines] that something is marital property" and distributes it equitably); Dunn v. Dunn, 802 P.2d 1314, 1317-18 (Utah Ct.App. 1990)("Marital property is ordinarily all property acquired during marriage and it encompasses all of the assets of every nature possessed by the parties, whenever obtained and from whatever source derived."); accord Gardner v. Gardner, 748 P.2d 1076, 1079 (Utah 1988); Woodward v. Woodward, 656 P.2d 431, 432-33 (Utah 1982)("[W]hether a resource is subject to distribution does not turn on whether the spouse can presently use or control it, or on whether the resource can be given a present dollar value. The essential criterion is whether a right to the benefit or asset has accrued in whole or in part during the marriage.") (emphasis in original).
Contrary to appellant's argument, the court is of the opinion thatFinlayson v. Finlayson, 874 P.2d 843, 846-47 (Utah Ct.App. 1994);Hoagland, 852 P.2d at 1028; Dunn, 802 P.2d at 1317-1318; Gardner, 748 P.2d at 1078; and Woodward, 656 P.2d at 432 do not define "marital property" in the abstract but actually address property division once the couples have decided to divorce. Therefore, because the marriages have concluded, "marital property" exists, and the cases then determine how that "marital property", assets which have accumulated during the course of the marriage, should be divided.
All property owned by married persons . . . whether described in subsection (a) or acquired by either spouse after marriage, and whether held individually or by spouses in some form of co-ownership, such as joint tenancy or tenancy in common, shall become marital property at the time of commencement by one spouse against the other of an action in which a final decree is entered for divorce, separate maintenance, or annulment. Each spouse has a common ownership in marital property which vests at the time of commencement of such action, the extent of the vested interest to be determined and finalized by the court.Brollier, 165 B.R. at 291 (quoting K.S.A. 23-201(b)) (emphasis added). The court, therefore, finds no basis in Utah law supporting the conclusion that, absent a divorce, Parcel 10 is "marital property" in which appellant has a ½ ownership interest.
This court is somewhat troubled and confused, however, by the remainder of the Bankruptcy Court's legal analysis of the marital property issue.See Bankruptcy Court Memorandum Opinion, pp. 13-14 n. 4. The Court states in conclusory fashion that Title 57 of the Utah Code Annotated, i.e., "Real Estate", governs appellant's interest in Parcel 10 but does not indicate whether the parties even briefed the relevance of Title 57 to this case. On appeal, appellant makes no reference whatsoever to or argument based upon Title 57.
With the court's emphasis, the Bankruptcy Court initially notes that Utah Code Ann. § 57-4a-4(h)(ii) "for elective share purposes is unnecessary [and] does not apply to this case." The Court then states "it is not clear what application § 57-4a-4 has under current Utah law, because elective share law was amended in 1998." The Court next states the "reference in § 57-4a-4 to elective share law has no relevance under the amended Utah law." The Court proceeds, nevertheless, tointerpret Section 57-4a-4 anyway, concluding it creates "no presumptions which aid in determining [appellant's] ownership of Parcel 10." Although appellee did not file a cross-appeal, he, nevertheless, offers an interpretation of Section 57-4a-4(h)(ii) which appears to conflict with that of the Bankruptcy Court, concerning the identity of the "non-executing spouse". Inexplicably, the Bankruptcy Court then discusses the statutory elective share of the surviving spouse, Utah Code Ann. § 75-2-202, which, by the Court's own admission, was not raised by the parties and which, the Court concedes, "would have no application in this case, unless the debtor died." The Bankruptcy Court then concluded Title 57 provisions do not aid appellant in her quest to establish an ownership interest in Parcel 10 and are unnecessary and irrelevant to this action.
Absent a cross-appeal, appellee may not have the ability to make arguments which conflict with the judgment below. See, e.g., Roe v. Cheyenne Mountain Conference Resort. Inc., 124 F.3d 1221, 1227-1228 (10th Cir. 1997) (without cross-appeal, defendant may not "make arguments which would lead to the vacation of the judgment below . . . unless they are jurisdictional"); Housing Auth. of the Kaw Tribe of Indians of Oklahoma v. City of Ponca City, 952 F.2d 1183, 1195 (10th Cir. 1997) (without cross-appeal, "appellee may present an argument on appeal only if it does not enlarge the rights conferred by the original judgment"), cert. denied, 504 U.S. 912 (1992).
Regrettably, as demonstrated above, this court cannot conclude with sufficient certainty the parameters of issues, rulings, or conclusions of law relative to Title 57, or whether they were fully adjudicated by the parties below such that they are reflected fairly in the Bankruptcy Court Memorandum Opinion. In fairness and justice to the parties, the court is of the opinion that there is no clear joinder of issues regarding the relevance, if any, of Title 57 such that legal analysis of its provisions, if indeed appropriate, is properly before the court for appellate review.
II. Equitable Remedies
Appellant also claims an equitable ownership in Parcel 10. "This interest is equitable only because she does not also appear on the bare legal title, a distinction well recognized in Utah law." Brief of Appellant, p. 15. It is undisputed that appellant's name does not appear on the warranty deed for Parcel 10. Rather, the sole grantee is listed as "David R. Williams, a married man." Nevertheless, appellant argues that, apart from the grantee designation for Parcel 10, numerous Findings of Fact suggest that appellant has, at least, an equitable ownership interest. Appellant has attempted to establish her ownership in the property through equitable lien.
For example, funds in the Industrial Communications accounts belonged to both debtor and appellant. Approximately $15,000.00 was disbursed from the Industrial Communications accounts to buy Parcel 10. When Parcel 10 was purchased, debtor instructed the seller to put the names of both debtor and appellant as grantees on the deed. When debtor purchased other property, his common practice was to list both debtor and appellant on the deeds.
A. Statute of Limitations
As an initial matter, appellant argues that, because she is attempting to establish equitable ownership of Parcel 10 through appellee's partition action, there is no period of limitations for her claims. Even if there were, she argues, the proper statute of limitations would be the seven-year limitations period pursuant to Utah Code Ann. § 78-12-6. The court disagrees.
Appellant cites supporting cases from other jurisdictions. See, e.g., Occhino v. Occhino, 793 P.2d 1149, 1151 (Ariz.Ct.App. 1990);Glennie v. Glennie Ranches, 601 P.2d 699, 701 (Mont. 1979). In Glennie, however, the Supreme Court of Montana disagreed with the appellant's theory that there was no statute of limitations for their partition action. The Montana court ruled that, having waited to file suit until five years after they knew about a problem with property ownership, the appellants were time-barred from bringing suit. Glennie, 601 P.2d at 702.
It is undisputed that debtor and appellant discovered that appellant's name was not on the warranty deed for Parcel 10 in 1995, but appellant's counterclaim seeking to establish an ownership interest in Parcel 10 was not filed until March, 2000. Because Utah Code Ann. § 78-12-25(3) has been applied specifically to equitable actions, each of appellant's equitable claims are time-barred by the statute's four-year statute of limitations period. See American Tierra v. City of West Jordan, 840 P.2d 757, 760-61 (Utah 1992); Brown v. Cleverly, 70 P.2d 881 (Utah 1937). However, as explained below, appellant's equitable claims would fail even were the court to examine their merits.
Section 78-12-25(3) simply states: "An action may be brought within four years . . . (3) for relief not otherwise provided for by law." Utah Code Ann. § 78-12-25(3).
B. Equitable Lien
In addition to an asserted "marital property interest", appellant's counterclaim contends she has an "equitable lien" against Parcel 10 through which she may claim an undivided ½ interest. See Counterclaim, p. 6. In her opening brief on appeal, however, appellant seems to claim that she did not raise the equitable lien issue at trial or argue it in her post-trial memorandum. See Brief of Appellant, pp. 14-16. Because this court, like appellee, remains unsure about the status of appellant's claim for equitable lien, out of an abundance of caution, this issue will be addressed.
The Utah Supreme Court has defined an equitable lien as "a legal charge collectible out of specific property for the payment of a debt." Citizens Bank v. Elks Bldg., 663 P.2d 56, 59 (Utah 1983).
Being only a charge against or encumbrance on property, a lien does not create a title to, or an estate interest in the property. . . . In other words, a lien gives the lienholder a right to collect his debt out of the charged property, but it does not give him an ownership interest in the property.Id.; accord Olsen v. Kidman, 235 P.2d 510, 511 (Utah 1951). The court, thus, concludes, and appellant apparently agrees (see Brief of Appellant, p. 14), that, even if appellant's equitable lien on Parcel 10 were not subject to the four-year statute of limitations period, as appellant claims, the lien would not be sufficient to establish her ownership, interest in it.
Appellant has raised other equitable claims of constructive trust and reformation. However, as they were apparently not raised in the Bankruptcy Court and are also time-barred, the court need not address them. Appellee has also set forth several additional arguments challenging the validity and/or applicability of appellant's claims but, as noted above, has filed no cross-appeal. See Roe, 124 F.3d at 1227-1228; Housing Auth. of the Kaw Tribe of Indians, 952 F.2d at 1195. Moreover, as these claims, concerning theories of constructive trust, estoppel, trustee's priority interest, bona fide purchaser, and hypothetical judgment lienholder were not addressed in the Bankruptcy Court's Memorandum Opinion, and may have not been briefed below, they are not properly before the court.
"Since constructive trust was not plead by [appellant] or argued by her in her post-trial brief, the Court will not analyze whether [appellant] has a constructive trust on Parcel 10." Bankruptcy Court Memorandum Opinion, p. 14, n. 5.
Reformation is often linked with mutual mistake. Pursuant to Utah Code Ann. § 78-12-26(3), "An action may be brought within three years . . . for relief on the ground of . . . mistake; except that the cause of action in such case does not accrue until the discovery by the aggrieved party of the facts constituting the . . . mistake." As it is undisputed that appellant and debtor learned of the omission of appellant's name from the warranty deed for Parcel 10 in 1995, they had until 1998 to pursue reformation of the deed. See Haslem v. Ottosen, 689 P.2d 27, 31 (Utah 1984). However, appellant did not file her counterclaim until March 2000.
CONCLUSION
In sum, the court hereby: (1) AFFIRMS the Bankruptcy Court's Conclusions of Law to the extent they are consistent with this court's ruling that, absent a divorce, Parcel 10 is not "marital property" in which appellant has a ½ ownership interest; (2) VACATES the Bankruptcy Court's Conclusions of Law which address the relevance and/or application of Title 57, "Real Estate", of the Utah Code Annotated, as this issue has not been briefed below and, therefore, not ripe for appellate review; and (3) AFFIRMS the Bankruptcy Court's Conclusions of Law that appellant's equitable claims are time-barred.