Filed: Aug. 04, 2016
Latest Update: Mar. 03, 2020
Summary: United States Bankruptcy Appellate Panel For the Eighth Circuit _ No. 16-6004 _ In re: Becky Ann Spence lllllllllllllllllllllDebtor - Norman E. Rouse lllllllllllllllllllll Plaintiff - Appellant v. Lewis Rauch; Carol L. Rauch; Gail L. Fredrick lllllllllllllllllllll Defendants Sunset Cove Condominium Owners Association, Inc. lllllllllllllllllllll Defendant - Appellee D.S.C.N., Inc. Raugh Capital, LLC lllllllllllllllllllll Defendant _ Appeal from United States Bankruptcy Court for the Western Distr
Summary: United States Bankruptcy Appellate Panel For the Eighth Circuit _ No. 16-6004 _ In re: Becky Ann Spence lllllllllllllllllllllDebtor - Norman E. Rouse lllllllllllllllllllll Plaintiff - Appellant v. Lewis Rauch; Carol L. Rauch; Gail L. Fredrick lllllllllllllllllllll Defendants Sunset Cove Condominium Owners Association, Inc. lllllllllllllllllllll Defendant - Appellee D.S.C.N., Inc. Raugh Capital, LLC lllllllllllllllllllll Defendant _ Appeal from United States Bankruptcy Court for the Western Distri..
More
United States Bankruptcy Appellate Panel
For the Eighth Circuit
___________________________
No. 16-6004
___________________________
In re: Becky Ann Spence
lllllllllllllllllllllDebtor
------------------------------
Norman E. Rouse
lllllllllllllllllllll Plaintiff - Appellant
v.
Lewis Rauch; Carol L. Rauch; Gail L. Fredrick
lllllllllllllllllllll Defendants
Sunset Cove Condominium Owners Association, Inc.
lllllllllllllllllllll Defendant - Appellee
D.S.C.N., Inc. Raugh Capital, LLC
lllllllllllllllllllll Defendant
____________
Appeal from United States Bankruptcy Court
for the Western District of Missouri - Springfield
____________
____________
Submitted: July 28, 2016
Filed: August 4, 2016
____________
Before KRESSEL, SALADINO and NAIL, Bankruptcy Judges.
____________
SALADINO, Bankruptcy Judge.
The Chapter 7 trustee appeals from the bankruptcy court’s1 judgment and order
in favor of Sunset Cove Condominium Owners Association, Inc. (“Sunset Cove”) on
issues of turnover and preference. We have jurisdiction of this appeal from entry of
the bankruptcy court’s final order pursuant to 28 U.S.C. § 158(b). For the reasons set
forth below, we affirm.
Factual and Procedural Background
In 1996, the debtor purchased a boat slip on Table Rock Lake, near her
condominium unit in Sunset Cove, Missouri. She later fell into arrears on her
condominium homeowners’ assessments, and Sunset Cove obtained a judgment
against her on July 23, 2012, in the amount of $36,262.25, plus interest, for the
unpaid assessments. Subsequently, Sunset Cove filed with the Stone County Circuit
Court an “Execution/Garnishment/Sequestration Application and Order” requesting
a “general execution” for “other personal property levy.” The Instructions for Service
on the execution application stated, “Levy on boat slip #16 at Dock #4 located at
Sunset Cove Condominiums, bearing Corps of Engineers permit #7904.” That same
1
The Honorable Arthur B. Federman, United States Bankruptcy Judge for the
Western District of Missouri.
-2-
date, on the same form as the execution application, the Circuit Court of Stone
County issued a Writ of Execution directing the county sheriff to execute the writ.
On September 4, 2012, a Stone County deputy sheriff posted a copy of the
execution application and order on a pole bearing slip number 16 on the boat dock
near the boat slip. On the second page of the document, the deputy sheriff filled out
the portion certifying that he had posted it at the location and that the boat slip was
“currently empty.” The boat slip was sold at a sheriff’s sale on October 23, 2012, for
$51,500.00. The amount of the sale proceeds exceeded the amount of the judgment
debt owed to Sunset Cove. The sale proceeds were held in trust and not distributed
pending the outcome of competing claims to the funds.
On January 6, 2013, the debtor filed a Chapter 11 bankruptcy petition. On May
9, 2014, the case was converted to Chapter 7, and Norman Rouse was appointed as
the Chapter 7 trustee. Thereafter, he filed an adversary proceeding to determine which
party was entitled to the proceeds from the sale of the boat slip. After a trial on the
matter, the bankruptcy court ruled, inter alia, in a memorandum opinion, order, and
judgment filed on January 26, 2016, that the execution and sale were valid, any
failure to give proper notice of levy or sale caused no prejudice to the debtor or the
bankruptcy estate, the sale was not a preference, and Sunset Cove was entitled to
recover the amount of its judgment from the proceeds, with the balance going to the
bankruptcy estate.
The Chapter 7 trustee timely filed his notice of appeal and asserted the
following two assignments of error:
1. The bankruptcy court erred when it determined that the sheriff’s act of
posting the execution application to the boat slip constituted a “notice of levy”
required by Mo. R. Civ. P. 76.06(c).
-3-
2. The bankruptcy court erred when it determined that the sheriff’s act in
posting the execution application to the boat slip created a lien on the boat slip
pursuant to Mo. R. Civ. P. 76.07.
The matter before us is whether the sheriff’s posting of the execution
application and order was sufficient as a notice of levy under Missouri law.
According to the trustee, if the levy did not comply with Missouri law and did not
create a perfected judgment lien on the boat slip in favor of Sunset Cove, then the
proceeds purportedly payable to Sunset Cove could be avoided as a preference
because the sale and payment occurred within 90 days prior to the filing of the
bankruptcy petition.
Standard of Review
The facts of the case are undisputed. On appeal, conclusions of law are given
de novo review. Venture Bank v. Lapides, 800 F.3d 442, 443 (8th Cir. 2015).
Statutory interpretation is a legal question that we review de novo. Hardy v. Fink,
787
F.3d 1189, 1192 (8th Cir. 2015). In performing a de novo review, the court must
independently determine whether the bankruptcy court reached the correct legal
conclusion on the basis of the facts found. Wegner v. Grunewaldt,
821 F.2d 1317,
1320 (8th Cir. 1987); Finstrom v. Huisinga,
101 B.R. 997, 998 (D. Minn. 1989).
Discussion
Sunset Cove took steps to collect its judgment by executing upon the debtor’s
boat slip, which the parties agree is personal property.2 The Missouri procedural rules
2
Under Missouri procedural rules, “[a]n execution may be issued on application
signed by the party or his attorney and stating the address of the person making the
application.” Mo. R. Civ. P. 76.01. “Executions shall be directed to ‘any sheriff in the
(continued...)
-4-
describe how a county sheriff is to levy upon property subject to attachment for
execution. Rule 76.06(c) states: “Tangible Personal Property Where Seizure is
Impracticable. A levy upon tangible personal property where seizure is impracticable
shall be made by the sheriff posting a notice of the levy upon the property or as near
as practicable thereto.” Neither party disputes that physical seizure of a boat slip is
impracticable. The parties agree that the sheriff’s deputy posted the execution
application and order on the pole marking the debtor’s boat slip. Under Missouri law,
a levy creates a lien on the personal property. Mo. R. Civ. P. 76.07. The sheriff is then
obligated to notify the judgment debtor of the levy:
Within three days after an officer has levied an
execution, the officer shall notify the person against whom
the execution has issued that an execution has been levied,
that certain property, if any, is exempt under sections
513.430 and 513.440, RSMo, and that the person has the
right to hold the property as exempt from attachment and
execution. The officer shall also generally state that there
are certain exemptions under state and federal law that the
judgment debtor may be able to claim with respect to the
property levied upon and describe the procedure for
claiming the property as exempt. The notice shall also
inform the person against whom the execution issues of the
manner in which the person may obtain a specific
description of the property upon which the levy was made.
The notice may be served in the same manner as a
summons or by mailing the notice to the judgment debtor
at the debtor’s last known address by regular mail. Service
by mail shall be complete upon mailing.
2
(...continued)
State of Missouri’ and may be executed in any county by the sheriff of that county.”
Mo. R. Civ. P. 76.05.
-5-
Mo. R. Civ. P. 76.075(a). It is undisputed that the sheriff did not serve the debtor
personally or by mail with the required notice of levy and exemption from execution.
The Missouri procedural rules also contain specific requirements requiring
public notice of the time and place of the sale. See, Mo. Ann. Stat. § 513.145 and Mo.
R. Civ. P. 76.13. Concerns about the sale notice were raised to the bankruptcy court,
but were not raised as errors on appeal. In fact, in his brief, the trustee states: “The
Appellant is not arguing that sale pursuant to the execution order was invalid.”
Accordingly, the validity of the sale is not at issue in this appeal.3
Procedurally, once the judgment creditor makes such an application for
execution to the Clerk of the Court, the Clerk issues a Writ of Execution to the
sheriff, directing the sheriff to execute the writ by levying upon the debtor’s property
and to certify to the court how he or she did so. See, Mo. Rev. Stat. § 513.015, et. seq.
A levy is “the actual seizure of property by the officer charged with the execution of
the writ.” Mo. Rev. Stat. § 513.010.1.
The trustee raises two arguments about the validity of Sunset Cove’s levy.
First, he asserts that the sheriff did not post a true “notice of levy” at the boat slip.
Second, he asserts that the failure to serve the debtor with notice of her exemption
rights prevented the levy from creating a valid lien on the boat slip. With no valid lien
in place, the trustee asserts, Sunset Cove’s receipt of the sale proceeds within 90 days
before the filing of the debtor’s bankruptcy petition was an avoidable preference and
the funds should be turned over to the trustee on behalf of the bankruptcy estate.
3
Frankly, this concession by the trustee likely resolves this appeal. It is difficult
to conceive of a scenario where someone (other than a good faith purchaser for value)
could successfully argue that a sale based on a personal property levy is valid while
the levy itself is invalid. However, this issue was not raised by the parties.
-6-
As to the first argument, the trustee posits that the sheriff did not post a proper
notice of levy as required by Rule 76.06(c), but simply served the debtor with notice
of the execution order by posting it on the boat slip. The bankruptcy court agreed that
the execution application and order form was not a “model of clarity” because it
contained some confusing information, but ultimately concluded that the posting of
the execution application and order complied with Rule 76.06(c) because anyone
seeing the notice posted at the boat slip would understand that the slip had been
levied and would be sold by the sheriff. The trustee believes that conclusion was
erroneous.
The trustee’s argument that the sheriff did not actually post a notice of levy
rests entirely on testimony as to the deputy sheriff’s intent when he posted the notice
at the boat slip. However, there is no mention in the statute of the necessary intent on
the part of the sheriff. The officer is simply to post a notice of the levy upon the
property or as near as practicable thereto. There is no real dispute here about the
validity of the execution application and order form, despite its lack of clarity. Its first
page states that it is a “General Execution” for “Other Personal Property Levy” and
the name of the creditor and the debtor are shown. It also contains instructions to the
sheriff to “Levy on boat slip #16 at Dock #4 located at Sunset Cove Condominiums,
bearing Corps of Engineers Permit #7904.” The law simply requires the sheriff to
post a “notice of levy” in the appropriate location. Here, the deputy complied by
posting the execution application and order form on the pole identifying the boat slip,
which was sufficient to be a notice of levy regardless of what the deputy’s thoughts
were about what he was posting. The trustee fails to identify any statute, rule or
requirement that would dictate the form or content of the notice of levy or otherwise
invalidate the posting of the execution application and order as a notice of levy under
the circumstances at issue.
As to the trustee’s second argument, concerning the lack of notice to the
debtor, Missouri case law is clear that a failure to provide a debtor with notice to
-7-
claim exemptions in levied property is harmless unless the debtor can demonstrate
prejudice as a result of the lack of notice. Rusk v. Rusk, 859 S.W.2d 751, 755 (Mo.
Ct. App. 1993); Mason v. Wilks,
288 S.W. 936, 939 (Mo. Ct. App. 1926); Daugherty
v. Gangloff,
144 S.W. 434, 435-36 (Mo. 1911); Hudson v. Wright,
103 S.W. 8, 12
(Mo. 1907) (stating “Whatever may be the individual views of the writer on the
wisdom of exacting the nicest compliance with exemption statutes, in order to further
the beneficent purposes underlying them, yet it cannot be held that the punishment
meted out on noncompliance with section
3162, supra, goes so far as to make void
an execution levy and sale of real estate.”).
Here, the trustee did not present to the bankruptcy court any evidence of
prejudice to the debtor or the estate as a result of the lack of notice concerning
exemption rights. The estate will be receiving a portion of the funds from the sale,
and the debtor may then claim whatever exemptions she is entitled to, if any.
Conclusion
The posting of the execution application and order on the boat slip was
sufficient as a notice of levy and created a valid lien on the boat slip under Missouri
law. The sheriff’s failure to give required notice to the debtor did not invalidate the
levy or the lien. Accordingly, the judgment of the bankruptcy court is affirmed.
______________________________
-8-
