Davis v. Carrington

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF INDIANA

HAMMOND DIVISION

ALBERT DAVIS, A.F. DAVIS LAW, ) Bkrtcy. Case No. 17-21208

)

Appellants, )

)

v. ) Cause No. 2:23cv129-PPS

)

JERROLD BRUCE CARRINGTON, )

Appellee. )

)

OPINION AND ORDER

Albert Davis appeals a Bankruptcy Court Order granting a motion to avoid a

judicial lien under § 522(f) of the Bankruptcy Code. I’m affirming that bankruptcy

order because Davis’ contingent future interest in property held as tenants by the

entireties impairs an exemption. Judge Ahler was therefore correct in granting the

motion to avoid the lien.

Background

The facts are not disputed, but rather stipulated by the parties and summarized

in the Bankruptcy Court’s order. Here’s what’s happened in this prolonged fight: Davis

is a lawyer who represents himself in this matter. Way back on August 28, 2012, a

judgment was entered against the Debtor, Jerrold Carrington, in favor of Davis in the

amount of $78,000 in California. Davis v. Carrington, Case Number 2:11-CV-0818-SJO-

AGR (Central District California). Davis subsequently recorded the California

judgment in Indiana in 2013 (Case 45C01-1704-MI-00117 in Lake County Circuit Court).

However, Carrington didn’t pay his debt to Davis.

Several years later, on May 1, 2017, Carrington filed a petition under Chapter 13

of the United States Bankruptcy Code. In Schedule C of his petition, Carrington

exempted his interest in his home pursuant to Ind. Code § 34-55-10-2(c)(5) (the

“entireties exemption”) and Ind. Code § 34-55-10-2(c)(1) (the “homestead exemption”).

(For ease of reference, I will refer to the home as the “Property” in this opinion.) The

Chapter 13 Trustee objected to Carrington claiming both the entireties exemption and

the homestead exemption so in response, Carrington amended his Schedule C and

exempted only his entireties interest in the Property. It is important to note that

Carrington has owned the Property as a tenant by the entirety with his spouse at all

relevant times.

Mr. Davis filed a proof of claim in Carrington’s bankruptcy case in the amount of

$104,700.28 (the “Davis Judicial Lien”). (The Davis Judicial Lien had ballooned over the

years due to interest.) In Claim No. 3, Davis asserted that his debt was secured by the

Property. On November 16, 2017, Carrington objected to Claim No. 3, arguing the

claim was unsecured. The parties agreed the Bankruptcy Court should resolve, as a

matter of law, the dispute regarding whether Claim No. 3 was secured or not.

On October 25, 2018, the judge who was then assigned to the case, the Hon. Kent

Lindquist, issued a memorandum and opinion finding that Claim No. 3 was not

presently secured. Davis filed a notice of appeal. On August 28, 2019, the district court

issued its opinion and order in Davis v. Carrington, 2:18-cv-417-HAB, 2019 WL 4090224,

at *1 (N.D. Ind. Aug. 28, 2019). Judge Brady determined that Claim No. 3 was presently

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secured, and reversed the Bankruptcy Court. Id. In other words, Judge Brady found

that Carrington had an individual future contingent interest in the Property, to which

the Davis lien had attached. The Court remanded the matter back to the Bankruptcy

Court for further findings on whether the Debtor’s future contingent interest in the

Property was exempt, or whether the Davis Judicial Lien could be avoided. Debtor

Carrington attempted to appeal Judge Brady’s order to the Seventh Circuit, but they

stiff-armed him noting that “it appears that appellant must wait for the Bankruptcy

Court to resolve these matters before he can appeal to this court.” [DE 18-1 at 68.1]

On remand, with the case back in the bankruptcy court, Carrington decided to

voluntarily convert his bankruptcy from Chapter 13 to Chapter 7. This occurred on

December 30, 2019. At that point, the case was transferred from Bankruptcy Judge

Lindquist to Bankruptcy Judge Ahler.

A couple months later, Carrington filed a Motion to Avoid Lien (“Entireties

Avoidance Motion”), which is currently the issue of this appeal. Davis opposed the

motion. Judge Ahler heard oral argument from the parties on this motion on May 18,

2022. A couple weeks later, Carrington filed a Motion to Avoid Lien claiming the Davis

Judicial Lien impairs both the Entireties Exemption (which he had already argued) and,

for the first time, the Homestead Exemption. Judge Ahler held a pre-hearing

conference on the Homestead Avoidance Motion on August 2, 2022, where he decided

1 DE 18-1 is the Appellee’s Supplemental Appendix and will be cited to by the

Court because it is comprehensive and the pages are numbered sequentially. The Court

refers to the page number at the top right of each page.

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to hold in abeyance the issue of the Homestead Exemption until after the Entireties

Avoidance Motion was decided. Everyone agreed with this approach. [DE 18-1 at 47.]

Eventually, Judge Ahler issued his memorandum and order granting the motion

to avoid the judicial lien under § 522(f). The focus of his opinion was on the entireties

exemption. It is this order that is being appealed. I held an oral argument in this matter

on February 1, 2024, at which Davis appeared telephonically and counsel for the Debtor

appeared in person. At the conclusion of the hearing, I announced my decision to affirm

the decision of the bankruptcy court with a written opinion to follow. This is that

opinion.

Discussion

In reviewing a bankruptcy court’s decision pursuant to 28 U.S.C. § 158(a), the

district court functions as an appellate court and is authorized to affirm, reverse,

modify, or remand the bankruptcy court’s ruling. Fed. R. Bankr. P. 8013. The standard

for review of bankruptcy court decisions depends upon the issue being reviewed.

Findings of fact are upheld unless clearly erroneous, but legal conclusions are reviewed

de novo. Id.; Wiese v. Cmty. Bank of Cent. Wis., 552 F.3d 584, 588 (7th Cir. 2009). Because

Davis only raises a question of law, the standard of review here is de novo.

I. Motion to Strike

Before we get to the heart of the dispute, I first have to resolve Davis’ motion to

strike the Debtor’s supplemental appendix. [DE 20.] Davis disputes the filing of the

supplemental appendix, claiming the materials were not timely designated pursuant to

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Fed. R. Bank. P. Rule 8009(a)(2). [DE 20 at 2.] Davis himself filed an “Appendix” but it

was not numerically numbered, thus making it difficult to reference. Practically

speaking, the Debtor’s submission is the easiest thing for the court to cite.

To the extent Carrington claims there are a few things in the Supplemental

Appendix that aren’t in the appellate record (like an excerpt from a Seventh Circuit

Order, amended schedules, and Amended Schedule C), these materials are relevant to

the instant dispute and I decline to strike them from the record. Therefore, the motion

to strike is denied.

II. Judge Brady’s Decision

First, the Debtor invites me to revisit Judge Brady’s decision, arguing she was

incorrect in her ruling that Davis had a future contingent interest in the Debtor’s

Property, and that a lien attached to that interest. He argues that given cases like

Warsco v. Creditmax Collection Agency, Inc., 56 F.4th 1134 (7th Cir. 2023), and

consideration of Indiana law, Judge Brady was incorrect in her earlier ruling, and the

Property should really be treated as unsecured. Even though this issue was not

discussed by Judge Ahler since he was bound by the remand order from District Judge

Brady, Carrington may now defend the judgment on all grounds preserved below. Foss

v. Bear, Sterns & Co., Inc. 394 F.3d 540, 542 (7th Cir. 2005). And this issue was plainly

preserved when Carrington previously attempted to appeal the issue to the Seventh

Circuit. So the matter is properly before me.

When this case first hit my docket, I was surprised to learn that our district does

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not have a local rule requiring that multiple appeals from the same bankruptcy case be

assigned to the same district judge. (I intend on proposing such a rule to our Local

Rules Committee in the near future.) In any event, with the case properly before me

under our present assignment system, I must now review the earlier opinion of Judge

Brady.

The first question is whether the law of the case doctrine precludes review of

Judge Brady’s opinion. “The phrase ‘law of the case,’ as applied to the effect of

previous orders on the later action of the court rendering them in the same case, . . .

expresses the practice of courts generally to refuse to reopen what has been decided.”

Messenger v. Anderson, 225 U.S. 436, 444 (1912). In other words, “[t]he doctrine of law of

the case establishes a presumption that a ruling made at one stage of a lawsuit will be

adhered to throughout the suit.” Avitia v. Metropolitan Club of Chicago, Inc., 49 F.3d 1219,

1227 (7th Cir. 1995). Of course, the law of the case doctrine “is not an immutable

concept,” Walsh v. Mellas, 837 F.2d 789, 796 (7th Cir. 1998), and I don’t have to follow it

where there are certain exceptional circumstances. Evans v. City of Chicago, 873 F.2d

1007, 1014 (1989). For example, when new evidence mandates a ruling contrary to a

prior order, controlling authority rendered since a court’s original decision requires

reconsideration of an order, or a prior decision in a case “was clearly erroneous, and

would work a substantial injustice” if allowed to stand. Id. In this case, Davis basically

argues that Judge Brady’s decision was clearly erroneous, and also hints that there is

new controlling authority that mandates another outcome.

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With all due respect to Judge Brady, I agree with the Debtor Carrington that her

decision that the claim was secured was clearly incorrect. Let’s look at her decision.

She found:

Here, the lien was on Debtor Carrington’s contingent future

interest in the Real Estate. The Bankruptcy Court held that the

interest “would affix thereto upon any future severance of the

entireties Real Estate whereby the Debtor may subsequently

acquire sole title thereto by survivorship, or where he would have a

joint interest therein as a tenant in common upon any subsequent

severance.” Only then might the judgment affix to what the Debtor

had acquired. Thus, there was no existing in rem claim with any

present value.

This Court does not agree, entirely. The lien could not attach to the

property itself while it was held in the entirety. See Mid-West Fed.

Sav. Bank v. Kerlin, 672 N.E.2d 82, 86 (Ind. Ct. App. 1996). But, as

the parties all seem to recognize, the Davis Creditors properly

recorded a judgment, which was necessary for the creation of a lien.

Further, Debtor Carrington had an individual interest in the Real

Estate, even if it was only a future contingent interest. That interest

had entered the bankruptcy estate. In the course of the bankruptcy,

the Davis Creditors filed a proof of claim for the amount of the

judgment lien. Thus, they made a claim that was “secured by a lien

on a property in which the estate has an interest.” 11 U.S.C. §

506(a)(1). By definition, then, the Davis Creditors have a secured

claim within the bankruptcy proceeding - to the extent of the actual

value of the collateral.

[DE 18-1 at 65.] Judge Brady went on to reason that while “this approach may seem

simplistic, there has been no adequate explanation why it is not accurate.” Id.

But there is an easy reason why this approach does not work. Indiana judgment

lien law establishes “[a]ll final judgments for the recovery of money or costs in the

circuit court and other courts of record of general original jurisdiction in Indiana,

whether state or federal, constitute a lien upon real estate and chattels real liable to

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execution in the county where the judgment has been duly entered and indexed in the

judgment docket as provided by law . . . .” I.C. 34-55-9-2 (emphasis added). This is the

point - a future contingent interest in a property held as tenants by the entirety is not a

lien “liable to execution” because there is really nothing to execute upon.

It is well established that the Entireties Exemption in Indiana prevents a

judgment against one spouse from affixing as a lien to property held as tenants by

entirety. In re Paeplow, 972 F.2d 730, 733 (7th Cir. 1992) (creditors “cannot execute on

entirety property without first obtaining a judgment against both spouses”); Enloe v.

Franklin Bank & Trust Co., 445 N.E.2d 1005, 1009 (Ind. Ct. App. 1983) (finding in Indiana

“[a]n estate by the entireties is immune to seizure for the satisfaction of the individual

debt of either spouse.”). The Indiana Supreme Court, in Underwood v. Bunger, 70 N.E.3d

338, 342-43 (Ind. 2017), explained entireties law as follows:

Once an entireties estate has vested, each spousal tenant “becomes

seized of the entire estate, but neither is seized of any divisible part

thereof.” Kilgore v. Templer, 188 Ind. 675, 682 (1919) . . . An essential

trait of this tenancy is that it “devolves upon the surviving spouse

the ownership of the property in real estate, free and clear of the

individual indebtedness of the other spouse.” Whitlock v. Public

Service Co. of Ind., 239 Ind. 680, 159 N.E.2d 280, 284 (1959). When

one spouse dies, the survivor, “being already seized of the whole,

can acquire no new or additional interest” due to the survivorship.

Kilgore, 188 Ind. at 682, 125 N.D. at 459. Rather, the survivor “holds

the entire estate, not by virtue of any right which he acquires as

survivor, but by virtue of the original grant.” Id.

Although Judge Brady relied upon the Seventh Circuit case of In re Jaffe, 932 F.3d

602 (7th Cir. 2019), in finding Davis had a secured claim, her reliance on this case was

misplaced. While that case dealt with Illinois exemption law, imperatively, Jaffe also

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pointed out the material difference between the Illinois and Indiana tenancy by the

entirety exemption statutes:

The main protection that Illinois law provides tenants by the

entirety is that a creditor is unable to force the sale of the property

to collect a debt against only one of the tenants. 735 ILCS 5/12-112

(2014). Illinois law does not make all interests held by tenants by

the entirety immune from process and we need not look hard for a

state that does - Indiana law exempts “any interest the judgment has in

real estate as a tenant by the entireties.” Ind. Code § 34-2-28-1(a)(5); In

re Paeplow, 972 F.2d 730, 737 (7th Cir. 1992). Illinois law explicitly

refuses to exempt income from entirety properties and fails to

provide an exemption for the contingent future interests. 765 ILCS

1005/1c.

Jaffe, 932 F.3d at 609 (emphasis added). Judge Brady failed to recognize the distinction

between the Illinois and Indiana exemption law spelled out in Jaffe.

This fundamental misunderstanding is further demonstrated by the recent case

of Warsco v. Creditmax Collection Agency, Inc., 56 F.4th 1134 (7th Cir. 2023). While Warsco

is not squarely on point, and I think I would have to hesitate as qualifying it as

controlling authority issued after Judge Brady’s opinion, it does give additional

credence to my resounding feeling that Judge Brady’s decision was incorrect. Warsco

dealt with the admittedly different factual scenario of a garnishment order and whether

in the bankruptcy context that state court garnishment order issued more than 90 days

before the debtor filed his bankruptcy petition was an avoidable preference payment.

Frankly, I find the terse Warsco opinion a little cryptic, but the Seventh Circuit seems to

hold that under federal law, the date of “transfer” is the time when the money passes to

the creditor’s control and that only the date of payment matters when defining a

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transfer under section 547. Id. The Debtor in this case argues that similarly, the date of

the affixing of a judicial lien is the date when the entireties tenancy is broken and the

property is transferred into a debtor’s individual name or to the debtor as a tenant in

common. [DE 18 at 15.] The lien does not attach with the recording of the judgment, it is

the transfer date, or when the entireties is severed, that matters. Id. I understand the

Debtor’s analogy, but because Warsco is so different factually, I do not put as much

stock in that case as the Debtor does. Nevertheless, due to the reasons I expounded on

before, I do find that Judge Brady erred when she held that the Debtor’s future

contingent interest in the Property was a secured claim.

As noted above, Judge Ahler did not revisit Judge Brady’s decision as he was

bound by it. But when the case was remanded to him, he determined that there was yet

another reason to rule in Carrington’s favor. It is that basis that I take up next.

III. Judge Ahler’s Decision

Davis argues that Judge Ahler failed to consider the fair market value of the

property in determining whether to avoid the judicial lien. Davis claims this procedural

failure infects the decision. In response, Carrington claims the Bankruptcy Court

properly determined the Davis judicial lien was avoidable under section 522(f). Once

again, I agree with Carrington.

In analyzing the scope of the Indiana Entireties Exemption, Judge Ahler

reasoned as follows:

In application of this statute, the Court finds that the exemption

applies to Debtor’s contingent future interest in the Property. Such

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a broad reading of § 34-55-10-2(c)(5) is not completely unsupported.

In In re Jaffe, 932 F.3d 602 (7th Cir. 2019), the Seventh Circuit Court

of Appeals had to decide whether a judicial lien that attached to a

contingent future interest of a debtor in real estate, held as tenants

by the entireties, impaired an exemption to which the debtor was

entitled under Illinois law. Jaffe, 932 F.3d at 607. In holding that the

lien did not impair an exemption to which the debtor was entitled

under Illinois law, the Court of Appeals reasoned that because

Illinois law does not make all interests held as tenants by the

entireties exempt, a contingent future interest was not exempt from

process. Id. at 609. Importantly, the court of appeals further

explained that “we need not look hard for a state that does - -

Indiana law exempts ‘any interest the judgment has in real estate as

a tenant by the entireties.’” Id. (citing Indiana’s prior entireties

exemption statute Ind. Code § 34-2-28-1(a)(5)).

[Ahler Order, DE 18-1 at 19.]

Recall that Debtor Carrington filed the Entireties Avoidance Motion in

Bankruptcy Court, claiming the Davis Judicial lien was avoidable under section 522(f).

This section provides:

(f)(1) Notwithstanding any waiver of exemptions but subject to

paragraph (3), the debtor may avoid the fixing of a lien on an

interest of the debtor in property to the extent that such lien

impairs an exemption to which the debtor would have been

entitled under subsection (b) of this section, if such lien is –

(A) a judicial lien, other than a judicial lien that secures a

debt of a kind that is specified in section 523(a)(5).

11 U.S.C. § 522(f). Davis’ appeal is based upon his claim that the Bankruptcy Court

erred in not requiring evidence of: (1) the mortgage lien or other liens on the Property

as of the Petition Date; (2) the value Debtor’s contingent future interest would have in

the absence of any liens as of the Petition Date; or (3) all elements necessary to avoid the

judicial lien, including valuation, in concluding that the Davis Judicial Lien impairs the

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Entireties Exemption and is avoidable under § 522(f).

It is absolutely true that the Bankruptcy Court did not provide a breakdown of

its lien avoidance calculation or any valuation of the Property. However, it didn’t need

to. Because the Entireties Exemption covers the entire interest the Debtor has in the

Property (including any future contingent interest in the Property), the valuation has no

relevancy. In other words, the Entireties Exemption is not limited in its reach. The

calculation will always come back as the entire judicial lien is avoidable, so it really

doesn’t matter what the value of the Property is or the amount of other liens on the

Property. Whether the Property was valued at 1 million dollars or one dollar, the Davis

Judicial Lien would still be avoidable because 100% of the Debtor’s future contingent

interest in the Property is exempt.

What’s more, Judge Ahler actually stated during a hearing on the record that he

felt he didn’t need to address the Homestead Avoidance Motion yet, conceding that if

he did reach that issue “we have to then confront or address Judge Brady’s opinion, and

we also probably need to be having a homestead valuation evidentiary-based hearing.”

[DE 18-1 at 96.] Neither party had any objection to putting off any determination of the

homestead exemption and not holding a valuation hearing at that point in time. It thus

seems disingenuous for Davis to make the cornerstone of his appeal the fact that Judge

Ahler did not conduct a valuation in regard to the Entireties Avoidance Motion.

One more point: during oral argument, I brought up the practicality of all of this.

Although the value of the Property was not determined by Judge Ahler, Schedule A of

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the Bankruptcy filing lists the Property with a value of $370,000, Schedule D lists a

mortgage with a balance of $368,385 as of the Petition Date, Schedule C claims as

exempt $370,000 under the Entireties Exemption (or 100% of the value of the Property)

and $19,300 under the Homestead Exemption. [DE 18-1 at 69, 75, 76, 90.] Thus, this

information was readily at hand. Since Davis’ lien would be behind a first mortgage in

order of priority, I asked at the hearing: what is the point of fighting over a lien in a

future contingent interest that might not ever come into being, but if it did it would be

worth less than $2,000? Davis didn’t have much of a response. All of which is to say

that Davis appears to be spending his valuable time in a quixotic effort that is likely to

yield him nothing. In all events, Judge Ahler’s ruling was correct.

Conclusion

For the reasons set forth above, I agree with the Bankruptcy Judge’s reasoning

set forth in his Memorandum Opinion and Order [Bankr. Case 17-21208, DE 282] and

AFFIRM the Bankruptcy Court’s order dated April 5, 2023, granting the Debtor’s

motion to avoid the lien. Additionally, the Motion to Strike [DE 20] is DENIED.

SO ORDERED.

ENTERED: February 14, 2024.

/s/ Philip P. Simon

PHILIP P. SIMON, JUDGE

UNITED STATES DISTRICT COURT

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