Entertainment Events, Inc. v. Quade (In re Quade)
498 B.R. 852
N.D. Ill.2013Background
- EEI held a $884,056.55 judgment against Victoria Quade and obtained a state-court turnover order directing Merrill Lynch to liquidate and turn over Quade’s Roth IRA and IRA (≈ $199,000) to EEI.
- The state court supplemented the turnover order and EEI served Merrill Lynch on June 28, 2012, but Merrill Lynch had not turned over funds before events that followed.
- Quade filed for Chapter 7 bankruptcy on July 3, 2012, before Merrill Lynch had complied with the turnover order; the accounts thus remained in Merrill Lynch’s custody at filing.
- Quade moved under 11 U.S.C. § 522(f) to avoid EEI’s judicial lien on the Merrill Lynch retirement accounts as exempt property of the bankruptcy estate.
- The Bankruptcy Court held the accounts were property of the estate (because the turnover order had not been consummated), avoided EEI’s lien, and later denied EEI’s motion to amend as to the exempt status; the district court affirmed.
Issues
| Issue | Plaintiff's Argument (EEI) | Defendant's Argument (Quade) | Held |
|---|---|---|---|
| Whether the state turnover order terminated Debtor’s legal interest before bankruptcy | Turnover order (served on Merrill Lynch) divested Quade of ownership so funds were no longer her property at filing | Because Merrill Lynch had not complied/charged the accounts, Quade retained legal interest at filing | Turnover order did not divest ownership pre-filing; Quade retained interest |
| Whether Debtor had a legal or equitable interest in accounts at petition date | EEI: service of supplement order on Merrill Lynch extinguished Debtor’s interest | Quade: until bank complied (charged accounts), funds remained Debtor’s property and became estate property | Debtor had legal/equitable interest; accounts became estate property under §541 |
| Whether the accounts were part of the bankruptcy estate and thus exemptible under §522 | EEI: funds were no longer Debtor property so not part of estate | Quade: funds were estate property and eligible for exemption (retirement funds) | Accounts were estate property and could be claimed exempt under §522 |
| Whether §522(f)(1) allowed avoiding EEI’s judicial lien on the retirement accounts | EEI: lien valid because turnover order had already transferred interest | Quade: lien avoided because accounts were estate property and exempt at filing | Bankruptcy Court properly avoided EEI’s judicial lien under §522(f)(1) |
Key Cases Cited
- Wiese v. Community Bank of Central Wisconsin, 552 F.3d 584 (7th Cir.) (appellate review standards: law de novo, facts for clear error)
- In re Yonikus, 996 F.2d 866 (7th Cir. 1993) (§541 includes broadly defined legal and equitable interests)
- United States v. Whiting Pools, Inc., 462 U.S. 198 (1983) (property rights depend on applicable nonbankruptcy law)
- Barnhill v. Johnson, 503 U.S. 393 (1992) (transfer occurs when drawee bank honors a check — analogy to when a turnover is effectuated)
- Busey Bank v. Salyards, 304 Ill.App.3d 214 (Ill. App.) (declined to decide effect of turnover on ownership; language suggesting turnover may divest interest relied on federal precedent)