In re: Gregory Chernushin
Filing
13
ORDER Affirming Bankruptcy Court's Determination by Judge R. Brooke Jackson on 1/26/18. (jdyne, )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge R. Brooke Jackson
Civil Action No 17-cv-0962-RBJ
In re: GREGORY CHERNUSHIN,
Debtor.
ROBERTSON B. COHEN, as Chapter 7 Trustee,
Plaintiff,
v.
GREGORY CHERNUSHIN,
ANDREA CHERNUSHIN,
THE JUDY T. COX REVOCABLE TRUST, and
THE ALLEN E. COX REVOCABLE TRUST,
Defendants.
ORDER AFFIRMING BANKRUPTCY COURT’S DETERMINATION
This matter is before the Court on Robertson B. Cohen’s (“the Trustee”) appeal from the
judgment of the Bankruptcy Court, which determined that property owned by now-deceased
Gregory Chernushin (“the Debtor”) is not part of the Debtor’s bankruptcy estate but instead is
owned by Defendant Andrea Chernushin free of the interest of others. This Court exercises
jurisdiction over the appeal pursuant to 28 U.S.C. §§ 1334(a) and 158(a)(1). The Court has
reviewed the record and the parties’ briefs. For the reasons set forth below, the Bankruptcy
Court’s judgment is AFFIRMED.
1
BACKGROUND
The following facts are undisputed. On August 17, 2015 the Debtor filed a voluntary
Chapter 13 bankruptcy petition. ECF No. 7-1 at 54. His wife, Mrs. Andrea Chernushin, neither
joined his petition nor filed her own. At the time of his bankruptcy filing, the Debtor owned a
vacation property located in Crested Butte, Colorado (“the Property”). The Debtor and Mrs.
Chernushin owned the Property in joint tenancy with the right of survivorship. Pursuant to 11
U.S.C. § 541, the Debtor’s interest in the Property became part of his bankruptcy estate when he
filed for bankruptcy.
On October 2, 2015 the Court converted the Debtor’s case to one under Chapter 7 of the
Bankruptcy Code and the Trustee was appointed. On either June 8 or June 9, 2016 the Debtor
died, but his death did not affect the progression of the bankruptcy case pursuant to Fed. R.
Bankr. P. 1016. Days later, on June 15, 2016, the Trustee filed an adversary proceeding against
the Debtor, Mrs. Chernushin, and two secured creditors in an effort to sell the Property. Mrs.
Chernushin filed an answer in which she asserted that the Debtor’s interest in the Property was
terminated by operation of law on the day that he died, and therefore the Property was no longer
part of the bankruptcy estate. Both parties filed motions for summary judgment on the issue.
ECF No. 7-1 at 54. In an April 3, 2017 order, the United States Bankruptcy Court for the
District of Colorado granted Mrs. Chernushin’s motion for summary judgment and determined
that:
the Debtor’s interest in the Property remained in joint tenancy, with its
accompanying right of survivorship, until the time of his death. At the time of his
death, the Debtor’s interest in the Property terminated. The Defendant [Mrs.
Chernushin] now owns the Property free of any interest of the Debtor. The
Property is not property of the Debtor’s bankruptcy estate, and the Trustee is not
entitled to sell it.
2
Id. The Bankruptcy Court thus entered judgment for Mrs. Chernushin and dismissed the
adversary proceeding. Id. On May 3, 2017 the Trustee filed an appeal of the Bankruptcy
Court’s decision. The issues have been fully briefed and are ripe for this Court’s review.
ANALYSIS
A. Standard of Review.
This Court reviews the Bankruptcy Court’s legal determinations de novo. See In
re Baldwin, 593 F.3d 1155, 1159 (10th Cir. 2010). The Court also reviews de novo
mixed questions of law and fact that primarily involve legal issues. See In re Wes Dor
Inc., 996 F.2d 237 (10th Cir. 1993). The Bankruptcy Court’s factual findings are
reviewed for clear error. See In re Johnson, 477 B.R. 156, 168 (10th Cir. BAP 2012). If
a “lower court’s factual findings are premised on improper legal standards or on proper
ones improperly applied, they are not entitled to the protection of the clearly erroneous
standard, but are subject to de novo review.” Id.
Because the Trustee’s appeal is premised on his argument that the Bankruptcy
Court improperly applied the law, I will review the Bankruptcy Court’s decision de novo.
See In re Baldwin, 593 F.3d at 1159.
B. Trustee’s Arguments.
The Trustee makes three arguments on appeal, but they boil down to one basic
assertion: the Bankruptcy Court ignored federal law when it ruled that the Property was
removed from the bankruptcy estate upon the death of the Debtor. ECF No. 9. 1 The
1
Specifically, the Trustee’s arguments are as follows: (1) “The Bankruptcy Court Erred when it Ignored
the Supremacy Clause of the United States Constitution and 11 U.S.C. § 541 to Mandate that Property is
3
Bankruptcy Court made its determination based upon Colorado joint tenancy law, as
codified in C.R.S. § 38-31-101. ECF No. 7-1. The Trustee alleges that the Bankruptcy
Court “ignored the Supremacy Clause of the United States and 11 U.S.C. § 541” and
other provisions of the Bankruptcy Code in making this decision, and the Trustee argues
that had the Bankruptcy Court properly applied federal law it would have ruled in the
Trustee’s favor. Id. After reviewing the briefs and relevant law, I AFFIRM the
Bankruptcy Court’s grant of summary judgment and determination that the Property is no
longer part of the bankruptcy estate. My reasoning is explained below.
The Debtor and Mrs. Chernushin owned the Property as joint tenants. “[J]oint
tenancy is a form of ownership in which each joint tenant possesses the entire estate,
rather than a fractional share.” Taylor v. Canterbury, 92 P.3d 961, 964 (Colo. 2004).
When a joint tenant dies, his or her interest in the property is terminated, and the
surviving joint tenant’s interest in the property continues free of the deceased joint
tenant’s interest. C.R.S. § 38-31-101(6)(c). Jointly held property remains in a joint
tenancy unless that joint tenancy is severed. Taylor, 92 P.3d at 964. The filing of the
bankruptcy petition did not sever the joint tenancy, C.R.S. § 38-31-101(5)(b) and here
neither party makes any other argument that severance occurred. 2 Therefore, the parties
Removed from a Bankruptcy Estate Pursuant to C.R.S. § 38-31-101 Without Administration or Due
Process;” (2) “The Bankruptcy Court Erred when it Ignored the Bankruptcy Code With Respect to the
Trustee’s Standing in the Place of the Debtor and Represents the Interests of the Bankruptcy Estate with
all rights to administer all of a Debtor’s Property as the Property Existed on the Partition Date;” and (3)
“The Bankruptcy Court Erred when it Failed to Address the Authority of the Chapter 7 Trustee Under 11
U.S.C. § 544.”
2
As far as this Court’s research has unveiled, courts that have addressed the effect of a joint
tenant’s death as it relates to bankruptcy have only touched on the issue of severance. Because
the parties here agree that there has been no severance, I will not address the issue. See, e.g.,
4
concur that the joint tenancy remained intact until at least the day the Debtor died, and
the only issue remaining is whether the Debtor’s interest in the Property survives with the
Trustee despite the Debtor’s death.
When a person files for Chapter 7 bankruptcy, his or her property is put into a
“bankruptcy estate” from which his or her creditors will be paid. 11 U.S.C. § 541(a).
The bankruptcy estate “includes all legal or equitable interests of the debtor, including
properties held in joint tenancy, at the commencement of this case.” Id. A trustee is
appointed to oversee the bankruptcy estate and has a duty to recover and liquidate assets
for the benefit of the Debtor’s creditors. Id. at § 704(a). In this case, one such asset that
the Trustee sought to liquidate for the benefit of the Debtor’s creditors is the Property.
The parties agree that when the Debtor filed for bankruptcy protection on August 17,
2015, the Trustee (on behalf of the bankruptcy estate) took over the Debtor’s interest as a
joint tenant in the Property and held this interest until at least the date of the Debtor’s
death.
However, the parties disagree about the impact, if any, that the Debtor’s death had
on the Trustee’s interest in the Property. The Trustee argues that the Debtor’s death had
no impact on the Trustee’s interest in the Property because “all of his property [had
Hahn-Martinez v. Slifco, Adversary No. 05-01923-EEB (Bankr. D. Colo. Aug. 29, 2006), aff’d,
Case No. 06-CV-01781-EWN, 2007 WL 1732782 (D. Colo. June 14, 2007); In re Peet, No. 1162549, 2014 WL 11321405, at *5 (Bankr. W.D. Mo. Aug. 25, 2014) (applying Missouri law and
finding no severance), aff'd, 529 B.R. 718 (B.A.P. 8th Cir. 2015), aff'd, 819 F.3d 1067 (8th Cir.
2016); In re Benner, 253 B.R. 719, 721 (Bankr. W.D. Va. 2000) (applying Virginia law and
finding no severance); Durnal v. Borg–Warner Acceptance Corp. (In re DeMarco), 114 B.R.
121 (Bankr. N.D. W. Va. 1990) (applying West Virginia law and finding no severance);
Feldman v. Panholzer (In re Panholzer), 36 B.R. 647 (Bankr. D. Md. 1984) (applying Maryland
law and finding severance).
5
become] property of [the] bankruptcy estate,” and the Trustee remained standing in the
Debtor’s place after he died. ECF No. 9 at 10. Put differently, because the Trustee had
taken the Debtor’s place, the Trustee argues that the Debtor’s death and resulting
extinguishment of the Debtor’s joint tenancy rights in the Property did not mean that the
Trustee figuratively “died” and also lost rights to the Property. Instead, the Trustee
argues that the Trustee lives on, and as a result, the joint tenancy interest does as well.
Mrs. Chernushin contests this assertion, arguing that the Trustee acquired the same rights
that the Debtor held in the Property, and that the Trustee cannot assert greater title than
the Debtor himself could have asserted. Therefore, Mrs. Chernushin argues that when the
Debtor died and his interest in the Property was terminated, the Trustee’s interest in the
Property was likewise terminated. I agree with Mrs. Chernushin.
The Tenth Circuit has made clear that while a trustee “stands in the shoes” of a
debtor, the trustee is to “take no greater rights than the debtor himself had.” Sender v.
Buchanan (In re Hedged-Investments Assocs., Inc.), 84 F.3d 1281, 1285 (10th Cir. 1996)
(internal citations omitted). Therefore, even though the Trustee acquired and controlled
the Debtor’s interest in the Property, the Trustee’s interest remained subject to the same
limitations as those limiting the Debtor. Id. Under joint tenancy law, the Debtor’s rights
in the Property were to be terminated upon his death. Because the Trustee stood in the
Debtor’s shoes, he too was encumbered by the statutory mandate that a joint tenant’s
rights are terminated upon death. Thus, when the Debtor died, his death terminated both
his rights to the Property and the Trustee’s rights to the Property. “Standing in the shoes”
of the Debtor does not mean that the Trustee’s life can mitigate the Debtor’s death in the
6
context of joint tenancy rights. As stated by the Bankruptcy Court in this case, “the
Trustee has not cited any court to so hold, and this Court will not be the first.” ECF No.
7-1 at 57.
As an alternative argument, the Trustee posits that Colorado’s joint tenancy laws
are irrelevant because Colorado law is superseded by federal law in this case due to the
Supremacy Clause of the United States Constitution. See ECF No. 9 (citing U.S. Const.,
Art. VI, Cl. 2). Here, the Trustee believes that the Bankruptcy Court’s decision conflicts
with federal laws that indicate that a debtor’s death has no impact on a bankruptcy
proceeding. For example, the Trustee cites Federal Rule of Bankruptcy Procedure 1016,
which states that in the event the Debtor dies, “the estate shall be administered and the
case concluded in the same manner, so far as possible, as though the death . . . had not
occurred.” Further, the Trustee notes that under 11 U.S.C. § 541(a) a bankruptcy estate
“includes all legal or equitable interests of the debtor, including properties held in joint
tenancy, at the commencement of this case,” and therefore argues that the Debtor’s death
does not change the interest in the Property that the Trustee acquired from the Debtor at
the commencement of the case. 11 U.S.C. § 541(a) (emphasis added). In the Trustee’s
view, the fact that the Debtor died is of no consequence to the Trustee’s interest in the
Property because there exists “no provision or rule of the Bankruptcy Code that vitiates
the Bankruptcy Estate’s rights to the Crested Butte Property” due to the death of the
Debtor. ECF No. 9 at 4. The Trustee also points to a portion of the House Congressional
Record that states: “Once the estate is created, no interests in property of the estate
remain in the debtor. Consequently, if the debtor dies during the case, only property
7
exempted from property of the estate/acquired by the debtor after the commencement of
the case . . . will be available to the representative of the probate estate.” HR Rep. 95595, 368, 1978 U.S.C.C.A.N. 5963, 6324. Based on these federal laws and
Congressional record, the Trustee argues that under federal law the Property remains a
part of the bankruptcy estate despite the Debtor’s death. Because state joint tenancy law
leads to the opposite result, the Trustee argues that Colorado law is in conflict with the
federal laws. And because the Supremacy Clause mandates that federal laws trump
conflicting state laws, the Trustee posits that it is improper to rely on Colorado joint
tenancy law to determine this issue.
This argument is unavailing. While the Trustee is correct that there are federal
laws describing the way trustees should treat property interests they hold in the event that
a debtor dies, these federal laws do not displace the role of state law in answering the
initial question of which property interests belong to the Trustee to begin with. The
Supreme Court has made clear that “[p]roperty interests are created and defined by state
law” in bankruptcy proceedings. In re Marshall, 550 F.3d 1251, 1255 (10th Cir. 2008)
(citing Butner v. United States, 440 U.S. 48, 55 (1979)). See also In re Duncan, 329 F.3d
1195, 1201 (10th Cir. 2003) (holding that the Bankruptcy Court and the BAP erred
because their determination undermined well-established state joint tenancy law); In re
Tung Thanh Nguyen, 783 F.3d 769, 776 (10th Cir. 2015) (affirming the Bankruptcy
Court’s and the BAP’s interpretation of state law in determining property interests of the
bankruptcy estate). It is not a violation of the Supremacy Clause for the Bankruptcy
Court to apply state law in determining the property interests of the parties involved in
8
the bankruptcy proceeding; indeed, that is the proper procedure. Here, the Bankruptcy
Court correctly turned to Colorado law to determine the property interests of the parties.
Because Colorado law expressly dictates that the property interests of a joint tenant (and
thus of a trustee standing in his shoes) are terminated upon death, the Bankruptcy Court’s
determination that the Trustee’s interest in the Property was also terminated is proper.
Finally, the Trustee argues that the Bankruptcy Court erred when it “failed to
address the authority of the Chapter 7 Trustee [u]nder 11 U.S.C. § 544.” ECF No. 9.
Section 544, commonly referred to as the strong-arm provision, “gives the trustee power,
as of the commencement of the bankruptcy case, to avoid transfers and obligations of the
debtor to the same extent as certain hypothetical ideal creditors.” In re Moreno, 293 B.R.
777, 781 (Bankr. D. Colo. 2003). This section is designed to prevent a debtor from
surreptitiously transferring his property interests beyond the reach of the bankruptcy
estate. See id. Here, however, the Debtor’s interest (and therefore the Trustee’s interest)
in the Property could not be transferred because it was in fact terminated upon Debtor’s
death. Therefore, there was no “transfer” that the Trustee can avoid by using the strongarm provision. Because 11 U.S.C. § 544 is inapplicable to block the transfer of a
property interest that no longer exists, the Bankruptcy Court made no error in failing to
address that provision, and its decision is AFFIRMED.
DATED this 26th day of January, 2018.
BY THE COURT:
___________________________________
9
R. Brooke Jackson
United States District Judge
10
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?