McCarthy v. Brevik Law (In re McCarthy)

501 B.R. 89, 2013 WL 5778955
CourtUnited States Bankruptcy Appellate Panel for the Eighth Circuit
DecidedOctober 28, 2013
DocketBAP No. 13-6042
StatusPublished
Cited by4 cases

This text of 501 B.R. 89 (McCarthy v. Brevik Law (In re McCarthy)) is published on Counsel Stack Legal Research, covering United States Bankruptcy Appellate Panel for the Eighth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
McCarthy v. Brevik Law (In re McCarthy), 501 B.R. 89, 2013 WL 5778955 (bap8 2013).

Opinion

SCHERMER, Bankruptcy Judge.

Chapter 13 debtor, Michael Stephen McCarthy (the “Debtor”), appeals from the [90]*90judgment of the bankruptcy court dismissing the Debtor’s adversary proceeding in which the Debtor sought to avoid the statutory attorney fee lien of Brevik Law (“Brevik”). We have jurisdiction over this appeal from the final judgment of the bankruptcy court. See 28 U.S.C. § 158(b). For the reasons set forth below, we set aside the bankruptcy court’s dismissal of the Debtor’s adversary proceeding and remand this matter to the bankruptcy court for further proceedings consistent with this decision.

ISSUE

The issue in this appeal is whether the Debtor had standing under Bankruptcy Code § 522(h) to bring his action under Bankruptcy Code § 545(2).

BACKGROUND

On April 16, 2012, the Debtor filed a voluntary petition for relief under Chapter 13 of the Bankruptcy Code. Brevik objected to confirmation of the Debtor’s Chapter 13 plan. The Debtor then commenced his adversary proceeding, seeking to avoid the fixing of an attorney’s lien held by Brevik against the Debtor’s homestead. The complaint in the adversary proceeding states that it is “filed pursuant to [Bankruptcy Code] §§ 522(h), and 545(2), and Federal Rule of Bankruptcy Procedure 7001, to avoid a statutory attorney’s lien against Debtor’s homestead on the grounds that such liens are unenforceable against debtors’ homesteads in Minnesota absent a specific written waiver of homestead exemption.”

Prior to the petition date, the Debtor hired Brevik as his counsel in a marital dissolution action. Ultimately, the state court entered a decree dissolving the Debtor’s marriage. The Debtor received directly (rather than through a transfer from an IOLTA account at Brevik) funds from his former wife’s 401(k) account.

At the request of the Debtor, Brevik withdrew from the position as the Debtor’s counsel in the state court proceedings, even though the Debtor had not made payment in full for fees owed to Brevik. Thereafter, on September 30, 2010, the Debtor used the 401(k) funds to buy a 1987 Chief Bonnevilla (the “Property”). The parties agreed in a stipulation filed on the bankruptcy court’s docket that the Property has constituted the Debtor’s homestead since he purchased it in 2010.

Due to the Debtor’s failure to pay amounts owed to Brevik, Brevik sought pursuant to state law to impress an attorney fee lien on the Property. At an evi-dentiary hearing in state court to establish and foreclose the attorney’s lien, the Debt- or appeared pro se. Ultimately, the state court entered a judgment against the Debtor for attorney fees owed to Brevik, allowing Brevik to enter the judgment as liens against property of the Debtor. Bre-vik perfected the lien against the Property. The parties agreed in a stipulation filed in the bankruptcy court that “[t]his lien is an attorney’s lien created pursuant to Minn. Stat. § 481.13,” and that the lien “constitutes a statutory lien as defined by 11 U.S.C. § 101(53).”

In his bankruptcy schedules, the Debtor listed his ownership of the Property, and claimed it as exempt under Bankruptcy Code § 522(d)(1) for the full value he attributed to it: $16,960. As the bankruptcy court found, Brevik did not file an objection to the Debtor’s scheduled claim of an exemption in the Property.

The bankruptcy court entered an order and a judgment dismissing the Debtor’s adversary proceeding and denying confirmation of the Debtor’s Chapter 13 plan. Although the bankruptcy court stated that it addressed “whether a Chapter 13 debtor [91]*91has to ability to eliminate a statutory lien by utilizing 11 U.S.C. § 545 as provided for under 11 U.S.C. § 522(h)____,” in reality, its decision concerned only whether, as a general matter, a Chapter 13 debtor has the power to exercise the trustee’s avoidance powers, such as those set forth in Bankruptcy Code § 545. It provided no analysis of whether the Debtor met the requirements of Bankruptcy Code § 522(h) to establish standing to bring the § 545 action. The court held that the Debtor “lacks the authority and ability to exercise the strong-arm powers of the trustee to defeat a statutory hen that was properly perfected and enforceable at the time his bankruptcy proceeding was commenced.”

The Debtor appealed the bankruptcy court’s decision dismissing the Debtor’s adversary proceeding1 The Debtor submitted a brief and presented oral argument before us. Brevik did not participate in the appeal.

STANDARD OF REVIEW

The bankruptcy court’s findings of fact are reviewed for clear error, and its conclusions of law are reviewed de novo. Seaver v. New Buffalo Auto Sales (In re Hecker), 496 B.R. 541, 548 (8th Cir. BAP 2013) (citation omitted).

DISCUSSION

Generally, a Chapter 13 trustee has standing to bring certain avoidance actions, such as actions under Bankruptcy Code § 545(2). Section 545(2) provides that:

The trustee may avoid the fixing of a statutory lien on property of the debtor to the extent that such lien ... is not perfected or enforceable at the time of commencement of the case against a bona fide purchaser that purchased such property at the time of commencement of the case....

11 U.S.C. § 545(2) (emphasis added).

Bankruptcy Code § 522(h) allows debtors to avoid certain transfers of exempt property. A debtor may have standing under § 522(h), to bring certain avoidance actions, such as those under § 545. That section provides authority for a debt- or to avoid a transfer of the debtor’s property:

to the extent that the debtor could have exempted such property under subsection (g)(1) of this section if the trustee had avoided such transfer, if—
(1) such transfer is avoidable by the trustee under section 544, 545, 547,548, 549 or 724(a) of this title ...; and
(2) the trustee does not attempt to avoid such transfer.

11 U.S.C. § 522(h). In turn, § 522(g)(1) states that:

Notwithstanding sections 550 and 551 of this title, the debtor may exempt under subsection (b) of this section property that the trustee recovers under section 510(c)(2), 542, 543, 550, 551, or 553 of this title, to the extent that the debtor could have exempted such property under subsection (b) of this section if such property had not been transferred, if—
(1)(A) such transfer was not a voluntary transfer of such property by the debtor; and
(B) the debtor did not conceal such property; ....

11 U.S.C. § 522(g)(1).

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Bluebook (online)
501 B.R. 89, 2013 WL 5778955, Counsel Stack Legal Research, https://law.counselstack.com/opinion/mccarthy-v-brevik-law-in-re-mccarthy-bap8-2013.