MEMORANDUM-DECISION AND ORDER

Robert E. Littlefield, Jr., United States Bankruptcy Judge.

The current matters before the Court are objections by Endurance American Insurance Company ("Endurance" or "Creditor"), Douglas J. Wolinsky, Esq., Chapter 11 Trustee ("Trustee"), and Nancy Burbridge ("Burbridge") to an amended exemption claimed by Stanley Lawrence DiStefano, Jr. ("DiStefano" or "Debtor") regarding certain real property in Hawaii located at 68-1050 Mauna Lani Point Drive, Kamuela, Hawaii ("the Property"). The Court has jurisdiction pursuant to 28 U.S.C. §§ 157(a), (b)(1), (b)(2)(A), (b)(2)(B), and 1334.

BACKGROUND

The Debtor served as managing member of Green Island Construction Group, LLC ("LLC"). Due to certain financial requirements involving projects that the LLC bid on, a performance/payment bond was necessary. Endurance provided the necessary bond. The LLC, and a second company that the Debtor managed, guaranteed repayment to Endurance should the bond ever be called into play. However, personal guarantees by seven individuals were the true quid pro quo for the issuance of the required bonding. That warranty of repayment was given by the Debtor, his wife, two of his sisters, a brother-in-law, and two nephews. Four of the seven, the Debtor, his sisters, and one of the nephews are/or have been in this Court due to the collection efforts of Endurance.

These parties have experienced multiple bouts of mediation in this Court and litigation in New York State Supreme Court. The guarantors have battled Endurance and each other. One of the nephew guarantors filed suit post-petition against the Debtor in New York State Supreme Court averring fiduciary improprieties; the Debtor responded in this Court by seeking damages for an alleged violation of the automatic stay. Even the Debtor's mother-in-law has written to the Court asserting financial malfeasance involving certain family members including the Debtor. Familial ties have meant little or nothing; this situation represents the perfect storm of family dysfunction. These cases have also presented a plethora of watershed issues leading to several appeals. In the Debtor's chapter 7, the interesting question concerns the Property, DiStefano's second amended claim of exemption for it, and party in interest objections to it.

FACTS

The following facts are taken from the pleadings and the "Joint Statement of Stipulated Facts and Issues of Law" ("Joint Stip") filed February 1, 2019. (ECF No. 334.)

ARGUMENTS

Endurance states broadly that the Debtor's attempt to exempt the Property should be denied because it was done in bad faith. This is shown by DiStefano's failure to disclose, proposing an unconfirmable plan, and his "pattern of delay and obfuscation . . . ." (Endurance's Obj. Debtor's Am. Exemptions 12, ECF No. 305.) Endurance further argues that the Debtor, as a New York domiciliary, is limited by New York Debtor and Creditor Law ("NYDCL") Section 282 to the exemptions found in the CPLR Sections 5205 and 5206. Endurance's conclusion is that the only real property subject to exemption pursuant to CPLR 5206 is the Debtor's principal residence and not the Property. As an alternative, if the exemption is not prohibited, the Creditor states that (b)(3)(B)'s mention of "nonbankruptcy law" should be interpreted as referring to New York law. However, Endurance's very narrow, main point is that the Property is not exempt from process as to Endurance because of the joint liability created when the Debtor and his spouse signed the Agreement. Thus, the Creditor concludes that the second amended claimed exemption is ineffective at least as to Endurance under Hawaiian law.

The Debtor responds that New York law is irrelevant; Hawaiian law controls on the exemption applicability. The Debtor further states that pursuant to the Supreme Court's decision in Law v. Siegel, 571 U.S. 415, 134 S.Ct. 1188, 188 L.Ed.2d 146 (2014), bad faith is not a factor in the rise or fall of a claimed exemption. However, the heart of the Debtor's defense is his conclusion that Endurance does not have the type of joint obligation necessary to overcome the protection offered by the Property's TBE. He asserts that the other side relies too heavily on the Agreement. He reasons that Endurance has not shown that signing the Agreement is the kind of joint action contemplated by Sawada v. Endo, 57 Haw. 608, 561 P.2d 1291 (1977). Specifically, the Debtor says that because each person signed only as an "individual indemnitor", that action does not meet the "joint liability" that is necessary. Also problematic, according to DiStefano, is that Endurance is not a joint creditor of only the Debtor and his spouse because of the five other co-indemnitors. A further quandary is that the Agreement does not specifically state that Endurance may pursue the Debtor and his wife as a marital couple. The Debtor also posits that Endurance is guilty of not following the Sawada suggestion to insist on the subjection of the Property as a condition for the issuance of the Agreement. Other complications from the Debtor's perspective include an issue raised by Laurie Todd that she is not bound by the Agreement, the Property is not even mentioned in the Agreement, and any liability flowing from it is not backed by a judgment.7

In response, Endurance restates its earlier positions and emphasizes the joint nature and obligation of the Agreement. It further argues that the Debtor offers no legal basis for his position regarding the Agreement and points out that regardless of Laurie Todd's liability, Section 6.7 of the Agreement binds all other indemnitors.8

ISSUES

In order to rule on the objections to the Debtor's exemption, the Court must address the following legal issues:

DISCUSSION

I. BAD FAITH

Endurance reasons that because the Debtor's enumerated acts constitute bad faith, the amended exemption on the Property should be denied. Endurance cites to a lone wolf case, In re Woolner, No. 13-57269, 2014 WL 7184042, 2014 Bankr. LEXIS 5048 (Bankr. E.D. Mich. Dec. 15, 2014), to propose that the bankruptcy court has the inherent authority to deny an amended exemption premised on the bad faith of the debtor. The Woolner court makes many valid, appealing observations about the bankruptcy process and the need to police the system. Exemptions are obviously important for the fresh start of the honest debtor. However, they should not necessarily be considered sacrosanct in cases infected by the debtor's bad faith. This Court agrees that should be the answer. Be that as it may, the United States Supreme Court has indicated in dicta in Law v. Siegel, that bankruptcy courts enjoy no such general equitable power. There has been much academic discussion as to the precedential validity of dicta. However, "[l]ower courts are obligated to follow Supreme Court dicta, particularly where there is not substantial reason for disregarding it, such as age or subsequent statements undermining its rationale." Ellmann v. Baker (In re Baker), 791 F.3d 677, 682 (6th Cir. 2015). Notwithstanding the Supreme Court's observation in Siegel, Endurance invites the Court to follow Woolner's lead and deny the amended exemption. The Court respectfully declines the invitation.10

II. IS THE NYDCL DISPOSITIVE?

Although not entirely clear, it appears that Endurance argues that the Debtor is stuck with only New York state exemptions and, therefore, the Property is not exempt.11 Under the Bankruptcy Code ("Code"), a debtor may exempt property listed in either § 522(b)(2)12 or (b)(3).13 11 U.S.C. § 522(b)(1). A debtor that chooses (b)(2) is commonly referred to as having taken the federal exemptions because that Section consists of the property listed in Section 522(d). However, as indicated in the statute, (b)(2) is not available to a debtor if applicable state law prohibits claiming these exemptions. Under such a scenario, the debtor can only exempt property in (b)(3). Endurance claims that NYDCL Section 282 prohibits the Debtor from claiming the "federal exemptions" in a bankruptcy case. In a vacuum, Endurance is right in that NYDCL 282, together with NYDCL 284,14 made New York an "opt-out" state and prohibited a debtor from claiming property exempt pursuant to the federal exemptions in § 522(b)(2). In re Martiny, 378 B.R. 52, 53 (Bankr. W.D.N.Y. 2007) (holding that through NYDCL 284 the "State of New York has exercised the option to prohibit use of the exemptions listed in 11 U.S.C. § 522(d).").

However, Endurance's position that Section 282 prevents the Debtor from exempting the Property under (b)(3)(B) is fundamentally flawed for two reasons. First, New York's prohibitions against taking (b)(2) federal exemptions were effectively written out of the statute by NYDCL 28515 in 2011. The amendment to the NYDCL turned New York into an "opt-in" state such that a debtor could claim exemptions under either (b)(2) or (b)(3). See In re Castellano, 550 B.R. 214, 216 (Bankr. E.D.N.Y. 2016). Second, and more importantly, debtors in New York could always exempt property using all of (b)(3)'s subsections because the old law only prohibited exempting property using (b)(2). See, e.g., In re Martiny, 378 B.R. at 53; In re Cochrane, 178 B.R. 1011, 1019-20 (Bankr. D. Minn. 1995) ("The use of the conjunction `and' between the two subdivisions of § 522(b)(2) shows that Congress intended to allow debtors to cumulate the protections that might be available under the two different sources described in them.").16 In effect, the Code allows for the possibility of a TBE "wild card" exemption over and above state law exemptions claimed under (b)(3)(A). Endurance does not offer, and the Court is unaware of, any provision in New York or federal law that would prohibit the additional utilization of (b)(3)(B) when electing (b)(3)(A). Thus, Endurance's arguments are without merit and the Property is exempt if the Debtor can find safe harbor within (b)(3)(B).

III. DOMICILE VERSUS SITUS

Since the Court found that the Debtor may claim (b)(3)(B) while also claiming (b)(3)(A) New York exemptions, Endurance's fallback position is that New York law, not Hawaiian law, should be read as (b)(3)(B)'s "applicable nonbankruptcy law" and is largely driven by the case of In re Stockburger, 192 B.R. 908 (E.D. Tenn. 1996), aff'd, No. 96-5409, 1997 WL 41202, 1997 U.S. App. LEXIS 2034 (6th Cir. Jan. 31, 1997). However, Endurance's reliance on Stockburger is misplaced because the debtors in that case did not claim a TBE exemption under (b)(3)(B). Instead, the debtors claimed the proceeds of certain personalty to be exempt pursuant to (b)(3)(A) (formerly known as (b)(2)(A)) which specifically provides that domicile determines the applicable non-bankruptcy law. When taken out of context, Stockburger appears to make broad statements about the entirety of (b)(3) but, based on the issue presented, that decision was clearly limited solely to (b)(3)(A). With all due respect, this Court declines to import Stockburger's ruling regarding (b)(3)(A)'s domicile provision to this separate and distinct choice of law issue concerning the Debtor's (b)(3)(B) TBE exemption. One simply has nothing to do with the other.

Endurance concedes that "other courts have held that the law of the state of the location of the entireties property determines whether the property is exempt. . . ." (Endurance's Obj. Debtor's Am. Exemptions 13, ECF No. 305.) For example, in a case from Pennsylvania, the Third Circuit ruled, "Since property law in general and the law of co-tenancies in particular are creatures of state law, the `applicable nonbankruptcy law' is the applicable Pennsylvania law of tenancy by the entirety." Napotnik v. Equibank & Parkvale Sav. Ass'n, 679 F.2d 316, 318 (3d Cir. 1982); see also In re Jaffe, 932 F.3d 602, 606-07 (7th Cir. 2019) (Same for Illinois); Sumy v. Schlossberg, 777 F.2d 921, 927 (4th Cir. 1985) (Same for Maryland). Additionally, in In re Cochrane, 178 B.R. 1011 (Bankr. D. Minn. 1995), Judge Kishel ruled that "the situs of the asset that is held by a debtor in bankruptcy as a tenant by the entireties is the sole determinant of whether § 522(b)(2)(B) can protect it from claims of the bankruptcy estate." Id. at 1020. In the face of this case law, Endurance still offers "that finding the law of the state of New York as determining the exemptions is more sound." (Endurance's Obj. Debtor's Am. Exemptions 13, ECF No. 305.) However, the only analysis and logic offered for that conclusion is because the Property would not be exempt under New York law.

Moreover, secondary sources overwhelmingly conclude that the law of the situs controls. 4 COLLIER ON BANKRUPTCY ¶ 522.10(3) (Richard Levin & Henry J. Sommer eds., 16th ed.) ("The debtor's entitlement to a claim of exemption under section 522(b)(3)(B) is determined by the law of the state where the entireties property is located and not by the exemption law of the domiciliary state under section 522(b)(3)(A)."); Robert C. Lawrence, III & Elisa Shevlin Rizzo, Basic Conflicts of Laws Principles, in INTERNATIONAL ESTATE PLANNING 4, 6 (2d ed. 2013) ("The traditional ordering process for determining choice of law issues in common law jurisdictions is that the law of the jurisdiction of domicile governs the disposition of personal property . . . and the law of the situs governs the disposition of real property . . . . The situs rule is based upon the rationale that the situs jurisdiction has the greatest interest in controlling the administration of property located within its borders."). The Court agrees with the above reasoning and thus concludes that the law of the situs, is the "applicable nonbankruptcy law" that controls.

IV. DEFEATING A TBE

There is no dispute that, pursuant to (b)(3)(B), the Debtor had an interest in the Property as a TBE immediately before the commencement of this case. The seminal questions are whether that interest is exempt from process pursuant to Hawaiian law and if not, what type of obligation would pierce the envelope of protection provided by the TBE? The final issue that must be addressed is whether a judgment is required to close the loop.

Both sides cite to Sawada v. Endo as controlling law. There, Masako Sawada and Helen Sawada were injured when they were struck by a car driven by Kokichi Endo. Both were awarded judgments against Endo. During the litigation, Endo and his wife conveyed real property, owned by them as tenants by the entirety,17 to their sons. The Sawadas sued to set aside the transfer. The trial court denied the request. The Supreme Court of Hawaii held, in affirming the refusal to overturn the conveyance, that a TBE "is not subject to the claims of the creditors of one of the spouses during their joint lives . . . ." Id. at 617, 561 P.2d 1291. The decision recognized that one of the principal purposes behind a TBE is to provide "a broad immunity from claims of separate creditors. . . ." Id. (citation omitted). The court further held that, "Neither husband nor wife has a separate divisible interest in the property held by the entirety that can be conveyed or reached by execution." Id. at 614, 561 P.2d 1291. The Hawaii Supreme Court analyzed various theories regarding a TBE, based on a 1951 scholarly article,18 that divided the possible avenues into four camps. The appellate court aligned Hawaii with the jurisdictions in the so-called Group III which held "an attempted conveyance by either spouse is wholly void, and the estate may not be subjected to the separate debts of one spouse only." Id. at 612, 561 P.2d 1291 (citations omitted). At that time, the court concluded the jurisdictions in that group were Delaware, District of Columbia, Florida, Indiana, Maryland, Missouri, Pennsylvania, Rhode Island, Vermont, Virginia, and Wyoming. Id. at 612, 561 P.2d 1291. The court stated "we are placing our stamp of approval upon what is apparently the prevailing view of the lower courts of this jurisdiction." Id.

The Second Circuit has not ruled on an interpretation of the phrase "exempt from process." However, the Fourth Circuit has stated that "exempt from process" means "immune from process." Napotnik, 679 F.2d at 319. It is clear from Sawada that the Property is immune from any process of a creditor of one of the spouses. With only one spouse's liability, the Property would be protected. Nonetheless, a TBE is not immune if there has been "joint action of the spouses . . . ." Sawada, 57 Haw. at 614, 561 P.2d 1291. However, the parties disagree what sort of joint action would be required to allow a creditor to issue process. In the case of In re Monzon, 214 B.R. 38 (Bankr. S.D. Fla. 1997), as in the Debtor's case, the husband filed a petition while his wife remained a nondebtor. They had $378 of joint credit card debt. The debtor claimed TBE property as exempt; the trustee objected. The court sustained the objection to the exemption based on the joint credit card obligation alone. That liability was all the "joint action" needed to attack the TBE. The court in that case gave the debtor the option of independently providing the $378. If not, the TBE property would be subject to administration. In a similar situation, an unsecured, joint federal tax debt of $2,095.00 was sufficient to defeat a TBE to the extent of the joint debt. In re Sefren, 41 B.R. 747, 749 (Bankr. D. Md. 1984).

Here, the Debtor concedes that a mortgage on the Property signed by both spouses would constitute the required joint action. (Debtor's Suppl. Opp'n 8, ECF No. 338.) The Debtor also hints that a judgment entered in favor of Endurance against the Debtor's spouse would be, at the very least, the beginning of the necessary joint action. Id. at 9. Endurance maintains that the execution of the Agreement by both spouses is sufficient in and of itself. (Reply Br. 2, ECF No. 347.)

The Court agrees with Endurance. The Debtor's collateral attacks on the Agreement vis-à-vis the meaning of "joint action", while creative, lack any authority in law. The Debtor places numerous asterisks and casts many aspersions on the interpretation and significance of the Agreement and the repercussions of its execution by the Debtor and his spouse. In effect, the Debtor attempts to require much more than the mere joint action mentioned in Sawada. The Debtor offers no case law, points to no prerequisite in the statute, and references no ruling in Sawada for the requirement that any TBE property be specifically referenced in the Agreement or that it contain a caveat that the Property is potentially subject to risk. This was a business arrangement common to the construction industry and not a consumer transaction. With his background in the industry, the Debtor knew or should have known the personal ramifications and consequences of signing of the Agreement. While the Sawada decision mentions the subjection of TBE property as a possible condition imposed by a creditor, that was a mere suggestion and not a necessity or requirement. Similarly, the theory that Endurance's objection should be overruled because there are indemnitors other than the Debtor and his spouse is not persuasive. It is a mere hypothesis with no authority or backdrop offered. Also, the Debtor points to no precedent requiring spouses to sign as a marital entity of some sort to reach TBE property.

A TBE is entitled to special protections but it is not an impenetrable fortress. Debtor's caveats regarding the indemnification process find no support in Hawaiian law and no support in the other Group III jurisdictions. Sawada points only to the need for "joint action." A TBE protects the interests of the innocent half of a marital union from the unilateral bad dealings, bad judgment, and/or bad luck of the other spouse. It should operate as a shield, not a sword. Here, the Debtor and his spouse executed the same Agreement with the same joint and several liability. (Joint Stip ¶ 16-17.) To this Court, that accountability satisfies Sawada's joint action requirement and hypothetically allows Endurance to issue process19 and enter the Property's TBE envelope of protection dependent on the judgment issue that follows.

V. IS A JUDGMENT NECESSARY?

The final crucial question is whether the necessity of Sawada's joint action requires a judgment. While most courts agree that joint creditors with a judgment may reach TBEs, courts are split over whether joint creditors without judgments defeat the TBE exemption. The Debtor argues that Endurance must have obtained a judgment prepetition to be the kind of joint creditor that defeats the exemption. While the Debtor does not cite specific cases in support, several courts have found that a TBE remains exempt from process unless the joint creditor secures a judgment prepetition. See Grant v. Himmelstein (In re Himmelstein), 203 B.R. 1009, 1013 (Bankr. M.D. Fla. 1996) (holding that "an actual in personam judgment is a prerequisite for a trustee's power [to administer a TBE]"); In re Anderson, 132 B.R. 657, 661 (Bankr. M.D. Fla. 1991) (ruling that a joint creditor must show there was a judgment at the time of filing). These courts conclude that a TBE is "exempt from process" unless a creditor in the case could force a sale of the TBE at the filing of the bankruptcy petition. See generally Anderson, 132 B.R. at 661.

However, Judge Mark, in the Monzon case, disagreed with the result in Himmelstein. He stated that he "adopts the majority view that a joint creditor need not hold an actual judgment as a prerequisite to administration by a trustee." Monzon, 214 B.R. at 42. The court further said:

Id.

Other courts have agreed that a judgment is not necessary. See In re Planas, 199 B.R. 211, 217 (Bankr. S.D. Fla. 1996) (holding that "it is not necessary that the joint creditor have a writ of execution or a final judgment, or even a default on the debt. It is only necessary that the creditor be entitled to levy as one of the package of rights which belong to the joint creditor."); In re Helm, No. 11-18801, 2012 WL 1616791, at *2, 2012 Bankr. LEXIS 2048, at *6 (Bankr. S.D. Fla. May 9, 2012) ("In order for the entireties exemption to be defeated, the joint debt need not be reduced to judgment prior to the petition date.") (citing Monzon, 214 B.R. at 42); In re Houck, 184 B.R. 21, 23 (Bankr. E.D. Pa. 1995) (stating that "we conclude that the Third Circuit's holding in Napotnik was not intended to apply only to lienholders, but instead, was intended to apply equally to a creditor who holds an unsecured claim against both spouses based upon a joint debt"); In re Boyd, 121 B.R. 622, 624 (Bankr. N.D. Fla. 1989) ("Where there were joint creditors of both spouses who. . . could have levied on properties held by the Debtor and non-debtor spouse as tenants by the entireties, the trustee was entitled to liquidate the debtor's interests in the properties.").

Without authority, the Debtor argues that the presence of a judgment is necessary to reach a Hawaiian TBE; the Court disagrees and relies on the reasoning of the above cases. Specifically, neither the plain language of the statute nor the Sawada decision require a judgment. Sawada immunizes a TBE against individual creditors of one spouse but not where there has been "joint action." This Property would be immune if the creditor body only consisted of creditors of just the Debtor. However, this Property is not immune from process because the joint action of the Debtor and his spouse makes Endurance the kind of joint creditor that could, at some point, reach the TBE. Whether or not Endurance has a judgment has no impact on the TBE's immunity because the joint action shattered the immunity long ago.

To read the statute any other way would be inconsistent with the Code and would encourage only one spouse to a TBE to file a bankruptcy case to accomplish what other courts have called "legal fraud." Sumy, 777 F.2d at 925, 929. Under such a scheme, if only one spouse to a TBE files a bankruptcy case before a joint creditor obtains a judgment, the TBE would be exempt. Additionally, if the debtor receives a discharge, that "would prevent the joint creditor from ever obtaining a joint judgment" against both tenants to the TBE. Monzon, 214 B.R. at 43; Sumy, 777 F.2d at 925, 929. The Sumy court discussed this "legal fraud" at length and explained that requiring a judgment may allow a debtor to permanently exempt the TBE from prepetition joint creditors that, but for the bankruptcy, would have been able to reach the TBE in state court. Sumy, 777 F.2d at 925, 929. This Court agrees that such a result is counter to the purpose of exemptions to serve as shields, not swords, and further bolsters the conclusion that a judgment is not necessary to render a TBE not exempt from process.

Additionally, requiring a prepetition judgment places undue significance on a lien that can be avoided if the TBE is also a homestead and the mathematical formula of Section 522(f) is met. See 11 U.S.C. § 522(f)(1)(A); Sumy, 777 F.2d at 930. Moreover, Hawaii, like many states, has prejudgment provisional remedies through which joint creditors could restrain TBE property long before obtaining a judgment.20 See Monzon, 214 B.R. at 42. Finally, as mentioned previously, Endurance obtained an order from New York Supreme Court that "operate[d] as a lien, mortgage, or other encumbrance on the assets of each Defendant . . . ." (ECF No. 277, Ex. G.) As such, there is little, if any, logic or additional protection for the TBE behind requiring a judgment as a partial price of admission.

CONCLUSION

The only remaining matter before the Court is Endurance's objection to the second amended claim of exemption for the Property under (b)(3)(B). The objection is sustained to the extent of at least Endurance's claim. Other issues relating to the possible administration of the Property must await another hearing on another day.

It is SO ORDERED.