Conrad v. Schlossberg

Filing 16

MEMORANDUM OPINION. Signed by Judge George Jarrod Hazel on 8/10/2016. (aos, Deputy Clerk)

FILED

IN THE UNITED STATES DISTRICT VNlH\i.UT OF MARYLAND
1i~.S'.WSTRICT COURT
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FOR THE DISTRICT OF MARYLAND
Southern Division
ZOlb AUG lOP 3: 55

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CLEHK'S OFF!r.F
AT GprT/l":1 .. ~ "
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MARIA E. CONRAD,

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;:-~.I~

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Appellant,

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v.

Case No,: G,JH-16-I!lO

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ROGER SCHLOSSBERG,

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Appellee.

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MEMORANDUM OPINION
Appellant Maria E. Conrad. the Debtor in the underlying bankruptcy case (the "Debtor").
appeals the January 4. 2016 order of the Bankruptcy Court. sustaining the objection to the
Debtor's claim of exempt property liled by Roger Schlossberg. the Chapter 7 Trustee of the
Debtor's bankruptcy estate (the "Trustee"). Oral argument is not necessary to resolve the present
appeal. See Fed. R.l3ankr. P. 8013(e): see a/so Loc. R. 105.6 (D. Md.). For the reasons that
follow. the Court aflirms the Bankruptcy Court's order sustaining the Trustee's objection.

I.

BACKGROUND
Prior to liling for bankruptcy. on August 27. 2009. the Debtor entered a plea agreement

acknowledging her guilt to conspiracy under

J

8 U.S.c.

Iraud scheme in Criminal Case No. 09-CR.374-GI3L-I

* 1349 I()r her involvement

in a mortgage

in the United States District Court I(Jr the

Eastem District of Virginia. See ECF No. 3-6. As part of her plea agreement. the Debtor agreed
to the entry ofa restitution judgment in the full amount of the losses sustained by the victims of

the traudulent
restitution.

scheme. lei. at 7.1 On December

the sum of $838.004.60

4.2009.

(the "Restitution

Judgment").

On June 24. 2015. the Debtor tiled a Voluntary

as an unsecured

of the Restitution
Restitution

creditor holding an undisputed

Judgment.

Judgment

claim fiJI' $838.004.60-the

non-debtor

husband.

unencumbered

*

(the "Property")
Timothy

See ECF NO.7 at 6 n.2: lOCI' No. 12 at 6.
estate certain real property

Id. at 6. 8. The Debtor listed the Property as having an

id. at 8. but she claimed the Property as an exempt asset under

hi. at 12.

522(b)(3)(B).

On August 25. 2015.the

Trustee tiled an objection

to the Debtor's

Trustee to satisfy thc Restitution
to the Trustee's

on December

On December

Judgmcnt
objection

on September

22.2015.

as wcll as a supplemental

5. 2015. ECF Nos. 3-18. 3-20.

21. 2015. the Bankruptcy

the Trustee's

by the

entered against the Debtor. ECF No. 3-2. The Debtor

Court hcld a hearing on the T ruslee' s objection.

see ECF No. 3-28 at 3. and. on January 4. 2016. issued a memorandum
sustaining

claim of exempt

in which he argued that the Property was not exempt from administration

memorandum

located

which she owns in a joint tenancy by the entirety with her

W. Conrad.

value of $227.447.

tiled an opposition

full amount

Id at 17. The Parties agree that the United States has recorded the

in Charles County. Maryland.

in WaldorL Maryland

property.

lOCI' No. 3-7 at J.

Petition under Chapter 7 of the

The Debtor listed among the assets of her bankruptcy

11 U.S.c.

to pay. as

Code. See lOCI' NO.3. J. Among her debts. the Debtor listed the United States of

Bankruptcy
Ameriea

the Debtor was sentenced

objection.

opinion and order

ECF Nos. 3-25. 3-26: see also 111re COl1rad.

571 (Bankr. D. Md. 2016). On January

19.2016.

544 B.R. 568.

the Debtor Iiled a Noliee of Appeal ti'tlm that

Order in this Court. ECF No. I.

1 Pin cites to documents
by that system.

filed ollihe COllrt's electronic

filing system (CMIECF)

2

refer to the page numbers generated

II.

STANDARD OF REVIEW
The Court hears this bankruptcy

appeal under 2X U.S.C. ~ J 58(a). Parties of bankruptcy

cases can appeal orders that dispose of discrete disputes within the larger case. See Mol'! Ran/a \'.

Gorman, 72 J F.3d 241. 246 (4th Cir. 20 J 3). In this case. the Property exemption
appealable

as it was completely

resolved

by the Bankruptcy

taken in the same manner as appeals in civil proceedings
appeals from the district courts,"

28 U.S.c.

this Court reviews the Bankruptcy

Court's

de novo. See In re Merry-Go-Round

~ J58(c)(2).

Court. Bankruptcy

generally

issue is
appeals "shall be

are taken to the courts of

On appeallrom

the Bankruptcy

Court.

findings of lact for clear error and conclusions

En/elprises. Inc.. 400 F.3d 219.224

or law

In re

(4th Cir. 20(5):

Kielisch. 258 F.3d 3 J 5. 3 J9 (4th Cir. 200 J ).

III.

DISCUSSION
Section 541 of the Bankruptcy

property of the bankruptcy

estate as including

property as of the commencement
certain property
Bankruptcy

Code defines the property ofa debtor that becomes

of the case," II U.s.c.

Irom the bankruptcy

Code. Pursuant

OOalilegal or equitable

estate. however.

proceeding

interests or the debtor in

~ 541 (a)( I ). A debtor may exempt

in accordance

to that section. where a debtor's

tenant by the entirety or joint tenant," that property

the

property

with Section 522 of the
is held as OOannterest as a
i

is exempt Ii-om process in a bankruptcy

OOtohe extent that such interest as a tenant by the entirety or joint tenant is exempt
t

Irom process under applicable
Under Maryland

law," 11 U.S.c.

law. where the Debtor's

"levy upon nor sell a debtor's
solely by the debtor,"

nonbankruptcy

undivided

property

~ 522(b)(3)(B).

is located, a debtor's

interest in entireties

property

creditors

cannot

to satislY debts owed

In re Bell-Breslin, 283 B.R. 834. X37 (Bankr. D. Md. 20(2): .Iee also

Schlossberg \'. Barney. 380 F.3d J 74. 178 (4th Cir. 20(4) (citing Bruce \'. Dyer, 524 A.2d 777.

,

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781 (Md. 1987)) ("While both spous~s are alive. a tenancy by thc entireties may only be se\'cred
by divorce or joint action by both spouses."'). Thus. in an ordinary case applying Maryland law
as "applicable nonb'.lI1kruptcy law."' there is no question that cntireties property may be exempted
from the bankruptcy estate. See lJame}'. 380 l'.3d at 178.
Here. however. the Trustee argues that because a restitution judgment was entered against
the Debtor. making the United States a creditor of the bankruptcy estate. the Property is no!
exempt from process. See ECF No. 12 at 10-14. In support of his position. the Trustee rclics
principally on United States

I'.

CI"((/i.535 U.S. 274.122 S. Ct. 1414 (2002). in which the United

States Supreme Court held that. pursuant to 26 U.S.c. ~ 6321. a federal tax lien can attach to
property held in a tenancy by the entirety to satisfy the debt of only one spouse. See ECl' No. 12
at 11-16. Under ~ 6321. "[i]fany person liable to pay any tax neglects or refuscs to pay the same
after demand. the amount ... shall be a lien in lavor of the United States upon all property and
rights to property. whether real or personal. belonging to such person."' In Cm/i. the Court
considered whether a husband's interest in entireties property constituted "property" or "rights to
property" for purposes of ~ 6321. See Cm/i. 535 U.S. at 278. The Court initially observed that ~
6321 "itself creates no property rights but merely attaches consequences. fcderally defined. to
rights created under state law."' Id. The Court accordingly began its analysis by considering what
rights existed under the relevant state law-therc.

Michigan law-with

respcct to entiretics

property. and then turned to a determination of whether those rights qualilied as "property" or
"rights to property" for purposes of the federal tax lien statute. Id. at 278-89.
Under Michigan law. the husband's right in entireties property included important rights
in the so-called "bundle of sticks" of property ownership. including the right to use the property.
the right to exclude third parties IrOl11 and the right to a share of income produced from it. 1<1.
it.

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at 282. Turning to the federal question respecting whether the rights granted undcr Michigan law"
constituted "propcrty"' or "rights to propcrty"' under ~ 6321. the Suprcmc Court noted that ..[tJhe
statutory language authorizing thc tax lien is broad and revcals on its lilcc that Congrcss meant to
reach every interest in propcrty that a taxpayer might have:' Id. at 283 (citation and intcrnal
quotation marks omitted), Indeed ... [s]tronger language could hardly havc bccn sclccted to rcvcal
a purpose to assure the collcction oftaxcs:'

Id. (citation and internal quotation marks omittcd).

The court therelore concluded that thc property rights associated with a tenancy by thc cntircties
under Michigan law fell within thc broad statutory language of "property" or "rights to propcrty"
under

S 6321.

Id. Thus. the husband's intercst in entireties property was subject to attachmcnt of

the tax lien that arose from his sole unpaid tax obligation, Id. at 288.
The Supreme Court also recognized in Cmfi that a difterent result would bc rcachcd
under Michigan law insofar as state law crcditors would bc unable to attach entireties propcrty to
satisfy debts owed by only one spouse, Id But thc court concluded that state law did not dictatc
their decision: "The interpretation 01'26 U,S.c. ~ 6321 is a lederal question. and in answering
that question wc are in no way bound by state courts' answcrs to similar questions im'olving
state law. As wc elsewhere have held. 'excmpt status under state law docs not bind the federal
collector .... Id. (quoting DI~re\'. United States. 528 U,S, 49. 59 (1999»: see also In Fe Hutchins.
306 RR, 82. 90 (Bankr. D, VI. 2004) ("While federal courts had historically deferred to the
special status of tenancies by the entirety under state law, thc high court madc c1car [in Crafi]
that going forward lederal courts should rely on federal law whcn construing the cxtcnt of liens
created undcr federal law, , , :'),
Like the provision pcrmitting the attachment of a tax lien undcr ~ 6321, thc cnl()rcemcnt
scheme lor restitutionjudgmcnts

provides that "[n]otwithstanding

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any othcr Fcderallaw,

, .. a

judgment imposing a tine may be enforced agaiml all jil'O/)erl}' IIr righls III jil'Ojierl)' of the
person tined:' subject to certain exceptions not applicable here. 18 U.S.c. ~ 36IJ(a) (emphasis
added). The statute further provides that an order of restitution "is a lien in Itl\'or of the United
States on all property and rights to property of the person fined as i(lhe /iahilil)' lI(lhe jierSlI11

.filled

were a /iahililr . .ti))' a lax (lssessed IIl1der Ihe Imemal Rel'el1l1eCode lit" /980" and that such
.

a lien "arises on the entry of judgment ... :' ~ 3613(c) (emphasis added). Additionally. any such
lien is not dischargeable in bankruptcy. ~ 3613(e).
As the Bankruptcy Court recognized .. '[tlhere is no meaningful difference between [the
language of ~ 3613(a)j and the language in 26 U.S.c. ~ 6321:' which both provide that a lien
may be enforced "against all property or rights to property." COl1rad. 544 B.R. at 572-73. The
Bankruptcy Court also correctly noted that the Supreme Court described the tax lien statute as
"'broad' and intended 'to reach every interest' that a person might have:' Id. at 573 (quoting

Craji, 535 U.S. at 283). Perhaps more importantly. the restitution judgment provision explicitly
provides that a restitution judgment creates a lien in Itl\'or of the United States "as if the liability
of the person tined were a liability for a tax assessed under the Internal Revenue Code of 1986:'
18 U.S.c. ~ 3613(c). Even further:
Under 18 U.S.c. ~ 3613(a). a restitution judgment may be enflJl'Ced against all
property or rights to property of the person lined except that "property exempt
from levy for taxes pursuant to section 6334(a)(I). (2). (3). (4). (5). (6). (7). (8).
(10), and (12) of the Internal Revenue Code of 1986 shall be exempt Ii'om
enfiJreement. .. :' 18 U.S.c. ~ 3613(a) .... Under 18 U.S.c. ~ 3613(d).upon the
tiling of the notice of lien "in the manner in \\hich a notice of tax lien would be
tiled under section 6323(1)( I) and (2) of the Internal Revenue Code of 1986" the
lien shall be valid against purchasers. holders of security interests and the like
"except with respect to properties or transactions speeilied in subsection (b), (c).
or (d) of section 6323 of the Internal Revenue Code of 1986 I()r which a notice of
tax lien properly tiled on the same date would not be valid:' 18 U.s.c. ~ 3613(d).
Section 3613(d) also provides that ..[tjhe notice of lien shall be considered a
notice of lien lor taxes payable to the United States I()r the purpose of any State or
local law providing I()r the tiling of a notice of a tax lien:' Id.
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Conrad. 544 B.R. at 573. Congress could not have stated more clearly that it intended that a
restitution judgment enforced pursuant to
lien pursuant to

* 3613 would be treated in the same manner as a tax

* 6321

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Additionally. the Parties here recognize that the rights of a tenant by the entireties under
Maryland law are the same as those under Michigan law. the state law applicable in Crafi. !d at
573. The Court therel(lre concludes that the Supreme Court's reasoning in Crafi applies with
respect to the restitution judgment at issue in this case. and thus. a lien in favor of the United
States attaches to the Debtor's entireties property.
Although neither Party has pointed the Court to a case presenting the precise factual
background as that presented by this case-i. e.. where a debtor in bankruptcy who has had a
restitution judgment entered against her seeks to exempt entireties property Irom her bankruptcy
estate-multiple

eourts have interpreted

* 3613 in the same manner as this Court and as the

Bankruptcy Court did below. See. e.g.. United States \'. De Ce.'pedes. 603 P. App'x 769. 772
(J Ith Cir. 2015) (relying on Crafi and holding that husband. against whom the United Statcs had
obtained a restitution judgmcnt. "had an equitable interest in [entireties] property to which the
restitution lien attached"): United States \'. G'Jihrin. 446 P. Supp. 2d 425. 427 (E.[).N.C. 2006)
(concluding that the "same principles [enunciated in Crafi] apply to interpreting 18 U.S.c.
3613(cn:

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United States \'. MeArthllr. 7 F. Supp. 3d 1220. 1223-24 (S.D. Ala. 2014) (l(lOtnote

omitted) ("[l3lecause 18 U.S.c.

* 3613 confers the same enl(lrCement rights on [the Government]

in the context of a criminal restitution order that a tax licn would conteI' on the IRS. the

For this rcason. the Court is unpcrsuaded by the Debtor's reliance on In re Fainl'i'aflter. 515 B.R. 208 (Hanh. D.
Md. 2014). in which thc coull concluded that the word "debt"" as used in the Fair Debt Collection Praclices Act. 15
U.S.C. ~ 1692el se,f. was not to be interpreted ill the same manner as the same word used in a different statute that
had a different purpose. Set' Fairweather. 515 B.R. at 516-17. Unlike here. the statutory rrovisions at issue in
Faint'eo/her, did not include a cross-reference
to the other statute at issue indicating that the two statutes were
intended to apply the same meaning to the word "debt:"

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Government likewise is entitled to divide and execute on [the defendant's] property rights ....
despite its status as entireties property"'): United States

1'.

Becker. No. 4:03 CV 1602.2005 WL

6120994. at *6 (E.D. Mo. Sept. 25. 2005) (rejecting defendant's argument that the reasoning of
Craji is limited to tax liens and applying reasoning of Cl'lIti to the entiJrcement of rcstitution
judgments under 18 U.S.c. ~ 3613): fill/chins.

306 B.R. at 91 (citing 18 U.S.c. ~ 3613(c»

("Although Crq/i dealt only with tax liens. Congress has uncquivocally stated that criminal lines
are to be treated in the same lashion as federal tax liabilitics."): of United States ". Ahdelhadi.
327 F. Supp. 2d 587. 601 (E.D. Va. 2004) (citing Crati. 535 U.S. at 288) (observing that
defendant's ownership of "his Maryland home as a joint tcnant by the cntirety with his \\.ifc
would not necessarily preclude the government from levying that property to satisl)' the order of
resti tution ").
Additionally. although not directly on point. the rcasoning of SlIm,l' \'. Sehlo.lsher",.

777

F.2d 921 (4th Cir. 1985) is instructive. In that case. the debtor listed certain unsecured claims in
his bankruptcy petition. including $1.474.78 in debts incurred jointly with his non-filing wifc. Id
There. as here, the debtor sought to exempt from his bankruptcy estate. pursuant to ~ 522. ccrtain
entireties property that he jointly owned with his non-debtor spouse. Id at 922. The trustec
objected to the claimed exemption. and. after the bankruptcy court sustained thc trustce' s
objection. the district court reversed thc bankruptcy court and the malleI' was ultimately appealed
to the Unitcd States Court of Appeals fiJI'the Fourth Circuit. Id In looking to Maryland law as
the "applicable nonbankruptcy law'" the Fourth Circuit noted that. although creditors of one
spouse may not reach entireties property for satisl~lction ofthcir claims ... [tJhe opposite is true
for creditors to whom both spouses arc obligated .. [Aljudgmcnt obtained against both husband
and wife arising out of a joint obligation may be satisfied by execution upon property hcld by thc

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entireties .... Id. at 915 (quoting Slale \', 1;"iedl1l(lI1. 393 A,1d 1356. 1359 (Md. 1978)), Thus. the
Court held that ..to the extent the debtor and the nonjiling spouse are indebted jointly. property
owned as a tenant by the entireties may not be exempted from an individual debtor's bankruptcy
estate ... and the trustee may administer such property ror the benefit or the joint creditors:' Id
at 931. In other words. as one court aptly described. "[i]n SillilY. the Fourth Circuit held that ir
there were aelllal credilors that under a non-bankruptcy law could reach the debtor's tenant by
the entirety interest in the property. objection to that exemption would be sustained but only to
the extent of the claims of such actual creditors:' 111 Grealhollse.195
re

B.R. 561. 566 (Bankr. D,

Md. 1003) (emphasis added), Here. the United States is one such "actual creditor'" id. that.
pursuant to 18 U.S.c. ~ 3613. can reach the Debtor's entireties interest in the Property,
In her appeal to this Court. the Debtor relies principally on Sehlossherg

\', Hal'lley. 380

F.3d 174 (4th Cir.1004) in arguing that her entireties property is exempt from process'" ECF No.
7 at 7-8. In that case. the trustee or a bankruptcy estate. relying on Crali. argued that the socalled "strong arm c1ausc" under Section 544 or the Bankruptcy Code allowed the trustee to
assert the rights of the IRS as a hypothetical creditor to reach the debtor's interest in entireties
property for the benefit of her individual creditors, See id at 177. The strong arm provision
provides that a bankruptcy trustee "shall have. as of the commencement or the case. , , . the
rights and powers of, .. a creditor that extends credit to the debtor at the time of the
commencement of the case ... whether or not such a creditor exists:' 11 U,S.c. ~ 544(a)(1). The
Fourth Circuit noted that. unlike in SillilY. the entireties property at issue in Bal'lley was not

:\The Trustee argues that the Court cannot cOl1sid~rthe Debtor's argument in this regard because she did not cite
Barney in her briefs before the Bankruptcy Court. ECF No. 12 at 19-20. but the Debtor indicates that the case was
raised during oral argument before the Bankruptcy Court. see ECF No. 13 at 3: ECF No. 14. Although the Debtor
has failed to comply with the Court"s Order pennilting her to supplement the bankruptcy' record to provide the
tmllscript oflhat proceeding. ECF No. 15. for the reasons explained herrin. even assuming the Debtor properly
preserved this argument. it would not change the result in this case.

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subject to claims by joint creditors of the debtor and the non-tiling spouse. Bomey. 380 ['.3d at
178. Additionally. the Fourth Circuit held that the IRS was not a "crcditor that extends credit"' as
required by the strong arm clause of ~ 544. and. accordingly. the trustee could not rcly on that
provision to reach the debtor's entireties property. ld. at 180-81. The Court tllrther noted that.
even if the court considered the IRS to be a "creditor that extends credit:' there was no reason to
believe that in enacting ~ 544 "Congress intended a bankruptcy trustee to wield the extraordinary
collection powers of the federal government." ld. at 181.
The Trustee here does not rely on ~ 544 and Bamey is therefore inapposite. Here. unlike
in Barney. where no tax lien was in place. the United States government is an actual creditor. not
a hypothetical one. As of the date or the entry of judgment inlhe Debtor's criminal proceeding.
the United States obtained a lien on "all property or rights to property" owned by the Debtor. 18
U.S.c. ~ 3613(a). (c). And that lien is to be enforced "as if the liability of the person lined \wre a
liability for a tax assessed under the Internal Revenue Code or 1986:' ~ 3613(e). Because the
Supreme Court has already detenllined that a tax lien may attach to entireties property.
notwithstanding any protections atlorded to such property interest under state law. era/i. 535
U.S. at 288. where. as here. the United States has become a creditor to a bankruptcy estate
pursuant to ~ 3613. any entireties property is not exempt li'om process in the bankruptcy
proceeding. In other words. under "applicable non bankruptcy law:' 1I U.S.C. ~ 522(b )(3)([3).
the Debtor's interest as a tenant by the entirety is not exempt from process. and the Bankruptcy
COlili properly sustained the Trustee's objection to the Debtor's claimed exemption.

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IV.

CONCLUSION
For the foregoing reasons. the Order of the Bankruptcy Court is affirmed. A separate

Order follows.

Dated: August

{O

/?I-

.2016

GEORGE J. HAZEL
United States District Judge

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