655 B.R. 670
Bankr. E.D.N.Y.2023Background
- Debtor Arsland Markisich filed Chapter 7 on Oct. 11, 2022; trustee David J. Doyaga, Sr. was appointed and opened discovery of assets.
- Debtor’s amended Schedule A/B lists a 25% undivided interest in a New Rochelle single‑family home co‑owned (per deed) with wife, son (Edvin), and daughter; debtor did not claim an exemption in that property.
- Trustee sued under 11 U.S.C. § 363(h) to sell the entire property free of co‑owners’ interests, then distribute proceeds according to ownership shares; two co‑defendants defaulted; defendant Edvin moved to dismiss under Rule 12(b)(6).
- Trustee pleaded each § 363(h) element: threshold co‑ownership and estate interest; partition impracticable (single‑family home); sale of entire property yields significantly more than selling debtor’s fractional interest; benefit to estate outweighs detriment to co‑owners; property not used for power/gas production.
- Edvin argued dismissal on grounds that trustee’s pleadings are conclusory, that secured claims/other estate assets make sale unnecessary, that sale would unjustly enrich the trustee and constitute an unconstitutional taking, and that costs should be borne only by debtor’s share.
- Court denied the motion to dismiss, holding the complaint plausibly alleges the § 363(h) threshold and each statutory element; unjust‑enrichment and takings arguments insufficient at pleading stage.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Threshold: debtor had an undivided interest and property became estate property | Complaint + deed + Schedule A/B show debtor held a 25% undivided interest and claimed no exemption | Debtor's true share may be smaller (life‑estate/survivorship valuations) and other estate assets could satisfy creditors | Plausibly pleaded; court accepts allegations and exhibits at pleading stage; threshold satisfied |
| Partition impracticable | Single‑family home; market for fractional interest is poor; partition not practical | Pleading is conclusory; trustee must show factual basis for impracticability | Allegations are plausible for Rule 12(b)(6); element sufficiently pleaded |
| § 363(h)(2): sale of estate’s undivided interest would realize significantly less than sale free & clear | Sale of only 25% interest would yield much less; co‑owner occupation chills market | Debtor’s survivorship value may be low; trustee must show net benefit to unsecured creditors | Allegations (single‑family home, lack of lien/exemption, market reality) are plausibly pleaded; element satisfied at pleading stage |
| Balancing test and ancillary defenses (detriment to co‑owner; unjust enrichment; Takings/ due process) | Benefit to estate substantial (property value unencumbered); co‑owners receive cash equivalent; statutory protections (§§363(i),(j)) exist | Sale would oust Edvin from long‑time home, cause non‑economic harm, risk homelessness; sale would unjustly enrich trustee; §363(h) is unconstitutional as applied | Court finds trustee’s allegations suffice to plausibly show benefit outweighs detriment; unjust‑enrichment and takings claims fail to warrant dismissal at pleading stage |
Key Cases Cited
- Stern v. Marshall, 564 U.S. 462 (2011) (distinguishes core bankruptcy powers and confirms final adjudicatory authority in core matters)
- Wellness Int’l Network, Ltd. v. Sharif, 575 U.S. 665 (2015) (treatment of Article III consent and final adjudication in bankruptcy)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility pleading standard)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (court need not accept legal conclusions; plausibility required)
- Community Nat’l Bank & Trust Co. v. Persky (In re Persky), 893 F.2d 15 (2d Cir. 1989) (factors for weighing detriment to non‑debtor co‑owner under § 363(h))
- Wilk Auslander LLP v. Murray (In re Murray), 900 F.3d 53 (2d Cir. 2018) (economic and non‑economic considerations relevant to § 363(h) balancing)
- Marrama v. Citizens Bank, 549 U.S. 365 (2007) (bankruptcy’s ‘‘fresh start’’ purpose relevant to standing and relief)
- United States v. Rodgers, 461 U.S. 677 (1983) (noting that monetary compensation may not fully substitute for loss of a home)