The opinion
Opinions of the United
1998 Decisions States Court of Appeals
for the Third Circuit
3-3-1998
In Re Gutpelet
Precedential or Non-Precedential:
Docket 97-1148
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Recommended Citation
"In Re Gutpelet" (1998). 1998 Decisions. Paper 37.
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Filed March 3, 1998
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 97-1148
IN RE: SUSANNE GUTPELET,
Debtor
Susanne Gutpelet,
Appellant
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. No. 96-cv-2439)
Argued: December 12, 1997
BEFORE: NYGAARD and ALITO, Circuit Judges
and DEBEVOISE, Senior District Judge*
(Filed: March 3, 1998)
ANDREW O. SCHIFF, ESQUIRE
(ARGUED)
PETER E. MELTZER, ESQUIRE
Fellheimer, Braverman &
Kaskey, P.C.
One Liberty Place, 21st Floor
Philadelphia, Pennsylvania 19103-
7334
Attorneys for Appellant
Susanne Gutpelet
_________________________________________________________________
*Honorable Dickinson R. Debevoise, United States Senior District Judge
for the District of New Jersey, sitting by designation.
MICHAEL H. KALINER, ESQUIRE
(ARGUED)
312 Oxford Valley Road
Fairless Hills, Pennsylvania 19030
Attorney for Appellee
Arthur P. Liebersohn
OPINION OF THE COURT
DEBEVOISE, Senior District Judge.
The trustee in bankruptcy of the Debtor, Susanne
Gutpelet, objected to the Debtor's claimed exemption in
money on deposit in two PNC Bank accounts, asserting
that the money was the proceeds of real estate, the transfer
of which was avoidable pursuant to the provisions of 11
U.S.C. S 548(a). The bankruptcy court sustained the
objection. On appeal the district court affirmed. For the
reasons set forth below we will affirm the judgment of the
district court.
I. Background
In 1987 the Debtor and her former husband, William
Sutphen, were divorced. As part of the marital settlement
the Debtor was obligated to pay Sutphen $125,000, which,
together with interest, was due in July 1993. The Debtor
received real estate which had previously been jointly
owned.
In 1990 the Debtor married Herbert Gutpelet ("Gutpelet").
At the time of their marriage Gutpelet owned in his own
name real estate located at 1137 Evans Road in Lower
Gwynedd Township, Pennsylvania (the "Evans Road
Property"). By that time the Debtor had sold the real estate
which she had received at the time of her divorce. She
received approximately $170,000 net proceeds, which she
placed in The Marian State Bank ("the Marian Bank"). It
was used to collateralize Gutpelet's indebtedness to the
bank and the bank ultimately applied it in payment of
Gutpelet's obligations.
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Gutpelet was deeply in debt in 1992 and 1993, and
various liens had attached to the Evans Road Property,
including a mortgage held by the Marian Bank.
On October 18, 1993 Gutpelet transferred title to the
Evans Road Property to the Debtor. The Debtor testified
that she paid no consideration for the property and that the
purpose of the transfer was to enable her to obtain a home
equity loan in order to pay Gutpelet's creditors. Gutpelet
believed that he was not credit worthy and that he could
not obtain a loan in his own name.
On February 24, 1994 the Gutpelets obtained a loan from
Equity One Incorporated ("Equity One") in the approximate
amount of $500,000. They each executed the note and
mortgage. After payments were made to Gutpelet's creditors
the net proceeds of approximately $128,000 were deposited
in a joint bank account at PNC Bank.
On March 4, 1994 the Debtor executed a deed
transferring title to the Evans Road Property from herself to
"Susanne B. Gutpelet and Herbert J. Gutpelet, her
husband." On September 1, 1994 the Debtor and Gutpelet
sold the Evans Road Property for a sales price of $800,000.
Most of the sale proceeds were used to pay off debts,
including the Equity One refinancing loan. The net
proceeds of the sale of the Evans Road Property,
approximately $158,500, were deposited in a joint account
at PNC Bank.
Not all of the proceeds realized from the equity loan and
from the sale of the Evans Road Property were used to pay
Gutpelet's debts. Some were used to pay the Debtor's living
expenses; a part was used to purchase a sewing business
in Costa Rica to provide income for the Debtor; she loaned
$6,500 to her sister-in-law; she repaid $34,500 which she
had borrowed from friends.
On October 27, 1994 the Debtor filed a petition for relief
under Chapter 7 of the Bankruptcy Code, 11 U.S.C. S 101,
et seq. Her indebtedness for principal and interest to her
former husband amounted at that time to $206,308, about
95% of her total indebtedness. Amended schedulesfiled on
June 20, 1995 disclosed the existence of an account in
Corestates Bank and two accounts in PNC Bank. None of
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these accounts had been disclosed in the Debtor's original
schedules. The PNC Bank accounts contained the balance
of the proceeds of the sale of the Evans Road Property.
The Debtor claimed an exemption of all three accounts
under 11 U.S.C. S 522(b)(2) and applicable Pennsylvania
law. The Trustee filed an objection to the exemption of the
PNC Bank accounts, asserting that the March 4, 1994
transfer of the Evans Road Property was an avoidable
transfer under 11 U.S.C. S 548(a), and therefore the
proceeds of its sale were the property of the Debtor's estate.1
The bankruptcy court sustained the Trustee's objection.
The district court affirmed, and this appeal followed.
II. Discussion
Jurisdiction in the bankruptcy court was proper under
28 U.S.C. S 157(a). The district court had jurisdiction under
28 U.S.C. S 158(a). This Court has jurisdiction over the
appeal of the district court's judgment under 28 U.S.C.
S 158(d).
The bankruptcy court's legal interpretations are subject
to plenary review; the factual findings of the bankruptcy
court are reviewed for clear error. Since we are in as good
a position to review the bankruptcy court's decision as the
district court was, we will review the bankruptcy court's
findings by the standards the district court would apply.
Zolfo, Cooper & Co. v. Sunbeam-Oster Co., Inc., 50 F.3d 253,
257 (3d Cir. 1995).
The Debtor's exemption claim is based upon 11 U.S.C.
S 522(b)(2)(B) which provides that an individual debtor may
exempt from property of the estate "any interest in property
in which the debtor had, immediately before the
commencement of the case, an interest as tenant by the
entirety or joint tenant to the extent that such interest as
_________________________________________________________________
1. The Trustee also objected to the exemption for all three banks
accounts on the ground that the Debtor was precluded from exempting
those moneys pursuant to 11 U.S.C. S 522(g), because she intentionally
concealed the existence of the accounts. The bankruptcy court ruled
against the Trustee on that objection, and the Trustee has not appealed
that ruling.
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a tenant by the entirety or joint tenant is exempt from
process under applicable nonbankruptcy law." The Debtor
notes that under Pennsylvania law property which is held
as tenants by the entirety, whether real property or
personal property, is exempt from process. In re Balber, 112
B.R. 6 (Bankr. W.D. Pa. 1990). The funds in the two joint
accounts at PNC Bank were the proceeds of the sale of the
Evans Road Property which had been held by the Debtor
and her husband as tenants by the entirety since the
March 4, 1994 transfer. Therefore, the Debtor contends, the
funds were immune from process under Pennsylvania law
and are exempt under S 522(b) of the Bankruptcy Code.
The Trustee asserted before the bankruptcy court that
the March 4, 1994 transfer was avoidable under S 548(a)(2)
which provides:
(a) The trustee may avoid any transfer of an interest of
the debtor in property, or any obligation incurred by
the debtor, that was made or incurred on or within one
year before the date of the filing of the petition, if the
debtor voluntarily or involuntarily--
. . .
(2)(A) received less than a reasonably equivalent value
in exchange for such transfer or obligation; and (B)(i)
was insolvent on the date that such transfer was made
or such obligation was incurred, or became insolvent
as a result of such transfer or obligation.
Thus to avoid a transfer under S 548(a)(2) the Trustee must
establish that: (1) the Debtor had an interest in the
property; (2) the interest was transferred within one year of
the filing of the bankruptcy petition; (3) the Debtor was
insolvent at the time of the transfer or became insolvent as
a result thereof; and (4) the Debtor received less than a
reasonably equivalent value in exchange for such transfer.
BFP v. Resolution Trust Corp., 511 U.S. 531, 535, reh'g
denied, 512 U.S. 1247 (1994).
The bankruptcy court found, and it is undisputed, that
the Trustee established elements 2, 3 and 4 of an avoidable
transfer. The disputed issue was whether the Debtor had
an "interest" in the Evans Road Property. The Debtor
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advances two theories to support her contention that she
did not have an interest in the property even though for five
months she held legal title. First, she contends that she
paid no consideration for the transfer from Gutpelet to
herself and therefore had no interest. Second, she contends
that "the two transfers should be viewed as two indivisible
parts of one integrated transaction in which the Evans
Road Property was essentially converted by Mr. Gutpelet
from solely owned property directly to entireties property."
(Debtor's Brief at 18.)
The bankruptcy court found that the Debtor's
involvement in the entire chain of transactions constituted
consideration for the transfer to her. These transactions,
from the October 18, 1993 transfer of the Evans Road
Property to the Debtor until the deposit of the balance of
the $800,000 proceeds of its sale in a joint bank account,
involved mutual benefits and burdens as between the
Debtor and Gutpelet. He was able to repay his debts. She
was able to repay certain of her debts and acquire the
Costa Rica business.
It is unnecessary, however, to find consideration in order
to conclude that the Debtor acquired an interest in the
Evans Road Property for S 548(a)(2) purposes. Her extended
and extensive dealings with the real estate were sufficient
to establish such an interest.
The district court dealt with the Debtor's alternative
theory, namely, that Gutpelet's transfer of title to the
Debtor and the Debtor's transfer of title to herself and
Gutpelet should be viewed as a single transfer of title from
Gutpelet to himself and his wife as tenants by the entirety.
If that concept were accepted the Debtor never possessed
an interest in the Evans Road Property and the first
requirement to avoid the transfer would not be met.
There can be no doubt that the Debtor had legal title to
the Evans Road Property from October 1993 until March
1994. She argues, however, that the bankruptcy court
should have looked beyond the bare passage of title to the
reality of the transactions in their entirety, finding that the
Debtor did not have the requisite control over the Evans
Road Property to give her an "interest" in the property. The
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Debtor relies upon In Re Chase & Sanborn Corp., 813 F.2d
1177 (11th Cir. 1987).
In that case a person referred to as Duque caused
$660,000 to be transferred to an account of the debtor,
Chase & Sanborn. Of this amount $350,000 was
gratuitously transferred to Duque's secretary who used it
and other funds to pay a bank loan upon which Duque was
obligated. The Chase & Sanborn account was opened days
before it received the $660,000 and closed days after the
$350,000 payment. Thereafter Chase & Sanborn filed a
petition under Chapter 11. The Trustee sought to avoid the
transfer under S 548. The Court of Appeals held that
"[a]lthough the debtor corporation had possession of the
funds in controversy by virtue of the transfer to the
account, the record demonstrates that the debtor
corporation did not have sufficient control over the funds to
warrant a finding that the funds were the debtor
corporation's property." Id. at 1180.
In Chase & Sanborn the court stated that "[i]n
determining whether the debtor had control of funds
transferred to a non-creditor, the court must look beyond
the particular transfers in question to the entire
circumstance of the transactions." Id. at 1181-82. The
court found that the Chase & Sanborn account was a mere
conduit of funds from and to other parties; that "the actual
connection between the funds and the debtor was quite
tangential: a two-day layover in a special account then only
recently opened and soon thereafter closed." Id. at 1182.
These circumstances are totally different from the
circumstances of the present case. The connection between
the Evans Road Property and the Debtor was hardly
tangential. She held title to it for five months and during
that time she joined in mortgaging it and later transferring
it to herself and her husband. She contends that she was
nothing but a passive tool of her husband who exercised
total control, but the findings of the bankruptcy court
negating such a limited role are amply supported by the
record.
Matter of Zedda, 103 F.3d 1195 (5th Cir. 1997) does not
require a different result. There the Court considered a pre-
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petition transfer of real estate to the debtor for the sole
purpose of enabling her to obtain a loan secured by the real
estate. Four years later the transferrer-debtor executed and
there was recorded a "counter letter" which recited that (i)
by virtue of the deed she had acquired record title to the
property; (ii) record title had been placed in her name for
convenience only; (iii) the property actually belonged to
another person; (iv) she had paid no cash consideration for
the property and (v) the other person had made all the
monthly mortgage payments. Four months later the debtor
deeded the property back to the original owner and recited
in an addendum to the deed the essential facts set forth in
the counter letter. Within a year after the last transfer the
debtor filed her petition for relief under Chapter 7 of the
Bankruptcy Code. The trustee challenged the re-transfer of
the property in part on S 548(a)(2) grounds. The Court of
Appeals held that the debtor did not have an interest in the
property and rejected the trustee's challenge.
The circumstances of the original transfer to the debtor
in Zedda were significantly different from the circumstances
in the present case. More important, in Zedda the court
noted that whether the debtor had an interest in property
was a question of state law, and held that under applicable
Louisiana law the original deed, as characterized in
subsequent instruments, was a "simulation" which did not
actually transfer ownership of the property. Id. at 1204.
The facts and the applicable law differ in the present case.
We conclude that the bankruptcy court's finding that the
Debtor had an interest in the Evans Road Property and that
the Trustee established each of the other requirements to
avoid the March 4, 1994 transfer of that property was not
clearly erroneous. Therefore the bankruptcy court properly
sustained the Trustee's objection to the Debtor's claimed
exemption in the two PNC Bank accounts.
III. Conclusion
We will affirm the January 27, 1997 order of the district
court, which affirmed the February 20, 1996 order of the
bankruptcy court.
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A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
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