Holley v. Corcoran (In Re Holley)
661 F. App'x 391
| 6th Cir. | 2016Background
- Ralph Holley and Melonee Monson-Holley (husband and wife) owned residential real property in Michigan as tenants by the entirety (TBE) and each claimed the Michigan TBE exemption in their bankruptcy schedules.
- Holley filed Chapter 7; Monson-Holley filed Chapter 13 which was later converted to Chapter 7 and consolidated with Holley’s case.
- The Chapter 7 trustee sold the property under 11 U.S.C. § 363 to a third party (after the Debtors sought and obtained a reduced sale price and later entered a lease-option with the purchaser).
- Trustee’s final report showed net proceeds from the sale; she sought to pay herself substantial administrative fees from those proceeds.
- Debtors objected, arguing the TBE exemption insulated the sale proceeds from trustee administrative expenses, and separately moved for reconsideration of the sale alleging self-dealing.
- The bankruptcy court and district court allowed trustee fees to be paid from the proceeds and denied reconsideration; the Sixth Circuit vacated the orders permitting use of exempt proceeds for trustee fees and remanded, but affirmed denial of reconsideration.
Issues
| Issue | Plaintiff's Argument (Debtors) | Defendant's Argument (Trustee) | Held |
|---|---|---|---|
| Whether Michigan TBE exemption covers the cash proceeds of the property's sale | Debtors: Michigan TBE exemption protects the full equity (cash proceeds) from being used to pay administrative expenses, except for joint creditors | Trustee: Proceeds were not exempt in effect because Debtors received alternative benefits (reduced sale price, opportunity to repurchase) and their schedule conduct increased trustee costs | Held: Debtors properly claimed the Michigan TBE exemption and the bankruptcy court erred in allowing trustee to use exempt sale proceeds to pay administrative fees; exemption protects proceeds (minus joint creditor claims) |
| Whether the Debtors’ amended schedules manifested a claim to a different exemption (homestead) | Debtors: Amended schedules consistently claimed the TBE exemption (statutory subsection renumbered from (o) to (n)) | Trustee: Amended citation and a checked box indicate they meant to claim the homestead exemption (value-limited) | Held: Court affirmed that the Debtors consistently claimed the TBE exemption; Trustee’s interpretation rejected |
| Whether bankruptcy court could use equitable doctrines (laches, §105) to override the exemption and charge fees to exempt proceeds | Debtors: §522(k) and Supreme Court precedent bar charging exempt property for administrative expenses regardless of debtor misconduct | Trustee: Equitable powers under §105(a) and laches justified charging proceeds to compensate trustee for added costs | Held: Equitable doctrines cannot be used to invade an otherwise valid statutory exemption; §522(k) precludes charging exempt proceeds for trustee administrative fees |
| Whether Rule 60(b)(6) relief (reconsideration) was warranted to set aside the sale for alleged trustee self-dealing | Debtors: Sale should be vacated due to alleged self-dealing and other misconduct, justifying extraordinary relief | Trustee: Sale was authorized; Debtors waited too long and did not obtain a stay; purchaser acted in good faith | Held: Denial of Rule 60(b)(6) relief affirmed—no unusual or extreme circumstances; §363(m) protects sale to bona fide purchaser absent a stay |
Key Cases Cited
- Law v. Siegel, 134 S. Ct. 1188 (2014) (exempt property generally not liable for administrative expenses)
- In re Parker, 499 F.3d 616 (6th Cir. 2007) (standard of review and §363(m) sale mootness rule)
- In re Trident Assocs. Ltd. P’ship, 52 F.3d 127 (6th Cir. 1995) (appellate review of bankruptcy court)
- In re M.J. Waterman & Assocs., 227 F.3d 604 (6th Cir. 2000) (standard of review for bankruptcy findings)
- White v. Stump, 266 U.S. 310 (1924) (exemptions determined as of petition date)
- Yeschick v. Mineta, 675 F.3d 622 (6th Cir. 2012) (abuse-of-discretion review for Rule 60(b) relief)
- Blue Diamond Coal Co. v. Trs. of the UMWA Combined Benefit Fund, 249 F.3d 519 (6th Cir. 2001) (Rule 60(b)(6) relief limited to unusual and extreme situations)
- Hopper v. Euclid Manor Nursing Home, Inc., 867 F.2d 291 (6th Cir. 1989) (Rule 60(b) cannot substitute for appeal)