The defendant challenges the constitutionality of § 363(h) and (j) of the Bankruptcy Code. For the reasons that follow, I conclude that those subsections are constitutional.
BACKGROUND
The plaintiff is the chapter 7 trastee in this case and commenced this adversary proceeding against the defendant, the debtor’s wife, seeking to sell both her and the debtor’s interest in their residence located in New Canaan, Connecticut pursuant to § 363(h). See infra, p. 980. The defendant acquired an undivided one-half interest as joint tenant 1 with the debtor by an October 18, 1982 conveyance from him. See Plaintiffs Exhibit A.
The defendant’s answer admitted every essential allegation of the complaint except that “[t]he benefit to the estate of a sale of the Property free of the interest of the defendant outweighs the detriment if any, to the defendant.” See Complaint at ¶ 7.c.; § 363(h)(3). Although the answer raised no affirmative defense that § 363(h) was unconstitutional, the defendant made that assertion in a pretrial memorandum filed April 10, 1992. On April 16, 1992, the defendant filed a motion for leave to file an amended answer, asserting as affirmative defenses that §§ 363(h) and (j) are unconstitutional under Article I, Section 8, clause 4 of the Constitution and the Fifth Amendment to the Constitution. See Rule 7015, Fed.R.Bankr.P. The plaintiff did not object to the inclusion of the affirmative defenses, and an order granting the motion entered on May 6, 1992. The facts relevant to those affirmative defenses are not in dispute. See Stipulation of Facts filed January 7, 1994. The constitutional issues raised by those defenses, which are the subject of this memorandum and order, were bifurcated from the trial on the issues under § 363(h)(3), which was held on April 16, 1992 and is discussed briefly infra at pp. 980-81.
Because this proceeding draws into question the constitutionality of an Act of Congress affecting the public interest, the Attorney General of the United States was notified pursuant to 28 U.S.C.A. § 2403(a) (West 1994), as implemented by Rule 16, Local Rules of Bankruptcy Procedure for this court.
2
The United States exercised its right to intervene under that statute,
see
Rule 24(a)(1), Fed.R.Civ.P., made applicable by Rule 7024, Fed.R.Bankr.P. (court must permit intervention when statute of United
DISCUSSION
This adversary proceeding “arises under title 11” and is therefore a core proceeding as to which this court may enter a dispositive order. 28 U.S.C.A. §§ 157(b)(1), (b)(2)(N), (0); 1334(b) (West 1993);
Whittington v. Gilbralter Sav. & Loan Ass’n (In re Spain),
Section 363(h), (i) and (j) provide in pertinent part:
(h) Notwithstanding subsection (f) of this section, the trustee may sell both the estate’s interest, under subsection (b) or (c) of this section, and the interest of any co-owner in property in which the debtor had, at the time of the commencement of the case, an undivided interest as a tenant in common, joint tenant, or tenant by the entirety, only if—
(1) partition in kind of such property among the estate and such co-owners is impracticable;
(2) sale of the estate’s undivided interest in such property would realize significantly less for the estate than sale of such property free of the interests of such co-owners; [and]
(3) the benefit to the estate of a sale of such property free of the interests of co-owners outweighs the detriment, if any, to such co-owners....
(i) Before the consummation of a sale of property to which subsection ... (h) of this section applies ... the debtor’s spouse ... may purchase such property at the price at which such sale is to be consummated.
(j) After a sale of property to which subsection ... (h) of this section applies, the trustee shall distribute to the debtor’s spouse ... and to the estate, the proceeds of such sale, less the costs and expenses, not including any compensation of the trustee, of such sale, according to the interests of such spouse ... and of the estate.
Article I, Section 8, clause 4 of the United States Constitution provides in relevant part:
The Congress shall have the Power ... [tjo establish ... uniform Laws on the subject of Bankruptcies throughout the United States (the “Bankruptcy Clause”).
The Fifth Amendment to the United States Constitution provides in relevant part:
... nor shall private property be taken for public use, without just compensation (the “Takings Clause”).
Section 363(h), (i), and (j) were enacted as part of the Bankruptcy Reform Act of 1978, effective October 1, 1979. 4 Thus, those subsections were in effect at the time the defendant acquired her interest in the residence.
I.
BALANCING UNDER § 363(h)(3)
As noted, the balancing test under § 363(h)(3) was the subject of an earlier proceeding, which was decided on the record in the plaintiffs favor. I include a reference to that issue here so that the procedural context of the constitutional issue will be clarified. 5
An analysis under § 363(h)(3) requires the consideration of both economic factors, such as the valuation of the non-debtor spouse’s interest, available tax exemptions, etc., and non-economic factors, including the prospects for acquiring a new home, handicaps, and the existence of minor children.
See Community Nat’l Bank and Trust Co. of New York v. Persky (In re Persky),
The essentially uncontroverted evidence adduced at the April 16, 1992, trial demonstrated that the value of the residence was between $260,000 and $280,000. Using the $260,000 figure, the net sale proceeds would be approximately $192,800, of which $96,400 would go to each co-owner. 6 Taking into account tax consequences of approximately $21,000 to each interest, the net proceeds would be approximately $75,000 to the defendant and the estate. As to the detriment to the defendant, the substantial equity in the property, together with the defendant’s income as disclosed at trial, would give her an adequate option of obtaining alternative housing or financing so that she could exercise her right of first refusal under § 363(i). While the defendant testified as to some degree of emotional stress, there was no evidence that that stress was entirely or even substantially due to the possibility of moving, and not due to other factors. There was no evidence of undue hardship to the defendant’s one child. In sharp contrast, the trustee would have no funds for distribution without a sale of the property under § 363(h). It is therefore apparent that the benefit to the estate outweighs the alleged detriment to the defendant. Accordingly, the § 363(h)(3) test has been satisfied.
II.
CONSTITUTIONALITY OF § 363(h)
The issue addressed here is whether the trustee’s sale of the defendant’s interest in the residence under § 363(h), (i) and (j) would exceed the scope of the Bankruptcy Clause, or would constitute a taking of private property prohibited by the Fifth Amendment to the United States Constitution, even assuming that § 363(j) provides for the payment of “just compensation” within the meaning of the Fifth Amendment. 7
Acts of Congress are presumed to be constitutional, so the defendant bears the burden of proving her claim that § 363(h) is constitutionally flawed.
Heller v. Doe By Doe,
- U.S. -, -,
A.
JOINT TENANCIES UNDER CONNECTICUT LAW
Connecticut law does not recognize a tenancy by the entirety, and the legal effect of a conveyance to a husband and wife is the same as though the grantees were unrelated.
New Haven Trolley and Bus Employees Credit Union v. Hill,
The interest of a joint tenant may be attached and taken on execution. Conn.Gen.Stat.Ann. § 47-14f (West 1986);
New Haven Trolley and Bus Employees Credit Union, supra,
Conn.Gen.Stat.Ann. § 52-500(a) (West 1991) provides: “Any court of equitable jurisdiction may, upon the complaint of any person interested, order the sale of any property, real or personal, owned by two or more persons, when, in the opinion of the court, a sale will better promote the interests of the owners.” Partitions in kind are favored over partitions by sale.
Delfino v. Vealencis,
The Connecticut Supreme Court long ago upheld the predecessor to § 52-500(a) against a constitutional challenge.
Richardson v. Monson,
The statute in question does not profess to deprive any one of any interest in his pi’operty, but only to afford a reasonable remedy for its enjoyment, by partition.
The right of partition is incident to all real estate holden in common, whether corporeal or incorporeal, and especially whenever it can not be otherwise enjoyed. The right of beneficial enjoyment of property is as essential as the right of ownership. And, indeed, by the principles of the common law, recognized by stat. 31 and 32, Hen. VIII., this right of partition enters into the very nature of the title of estates holden in common, and is inseparable from them....
The statute giving the power of sale introduces, as we think, no new principle; it provides only for an emergency, when a division cannot be well made, in any other way.
Id.
(emphasis added). The court also determined that the statute was remedial and held that it could constitutionally be applied even to titles in existence on the effective date of the statute.
Id.
at 98.
See also Head v. Amoskeag Mfg. Co.,
Even an express right of surviv-orship may be terminated by an action for partition and sale without the consent of the joint tenant against whom partition is sought.
Geib v. McKinney,
The right to partition has long been regarded an absolute right, and the difficulty involved in partitioning property and the inconvenience to other tenants are not grounds for denying the remedy. “No person can be compelled to remain the owner with another of real estate, not even if he become such by his own act; every owner is entitled to the fullest enjoyment of his property, and that can come only through an ownership free from dictation by others as to the manner in which it may be exercised. Therefore the law afforded to every owner with another relief by way of partition....” Johnson v. Olmsted,49 Conn. 509 , 517 (1882).... That the partition in this case was by sale rather than by kind does not render the right to partition less available to the plaintiff.
Id.,
This distinction leads to one of the more important differences between joint tenancy and tenancy by the entireties at common law: the interest of one joint tenant was freely alienable although transfer of a simple interest would sever[ ] the joint tenancy and transform it to a tenancy in common, while a tenant by the entirety could not unilaterally sever the tenancy or defeat the right of survivorship.
Community Nat’l Bank and Trust Co. of New York v. Persky (In re Persky),
In sum, the right of partition, including, in appropriate circumstances, partition by sale, inheres in the very title to real property in Connecticut. Every person acquiring a cotenancy in Connecticut since at least 1844 has acquired it subject to the right of a cotenant’s creditors to attach and obtain title to the cotenant’s interest and seek partition by sale of the entire property. It therefore follows that the defendant’s property rights in the residence under Connecticut law do not protect her from forced sale of her interest. Indeed, given that the right to partition in Connecticut is absolute and the defendant’s admission that partition in kind is impracticable, if the trustee should sell the debtor’s undivided interest, a partition by sale is not only a possible but practically an inevitable result should the purchaser seek it under state law. 11 The question evolves: is bankruptcy law, which permits a trustee to achieve the same result, unconstitutional as the defendant claims. In that regard, it is observed that the district court, of which this court is a unit, see 28 U.S.C.A. § 151 (West 1993), has exclusive jurisdiction over all property of the bankruptcy estate, see 28 U.S.C. § 1334(e) (1994), so that a state court may not order the partition or sale of that property. 12
B.
SCOPE OF THE BANKRUPTCY CLAUSE
The thrust of the defendant’s Bankruptcy Clause challenge is that bankruptcy laws may not affect the property rights of non-creditor third parties. Her argument appears to rely on Supreme Court precedent which defines the reach of bankruptcy power. Her reliance is misplaced because those decisions cannot even by implication be read to protect non-creditor third party property rights from the collection-distribution scheme at the core of the bankruptcy process where those rights are inextricably intertwined with those of a bankruptcy estate.
The Supreme Court has characterized the Bankruptcy Clause as expansive.
From the beginning, the tendency of legislation and of judicial interpretation has been uniformly in the direction of progressive liberalization in respect of the operation of the bankruptcy power.... Andthese acts, far-reaching though they be, have not gone beyond the limit of congressional power; but rather have constituted extensions into a field whose boundaries may not yet be fully revealed.
Continental Illinois Nat’l Bank & Trust Co. of Chicago v. Chicago, R.I. & P. Ry. Co.,
The history [of the bankruptcy power] is one of an expanding concept. It is, however, an expanding concept that has had to fight its way. Almost every change has been hotly denounced in its beginnings as a usurpation of power. Only time or judicial decision has had capacity to silence opposition.
Ashton v. Cameron Comity Water Improvement Dist. No. 1,
Under the Bankruptcy Clause, Congress may embrace within its legislation whatever may be deemed important to a complete and effective bankrupt system. The object of such a system is to secure a ratable distribution of the bankrupt’s estate among his creditors ... and at the same time relieve the honest debtor from legal proceedings for his debts, upon a surrender of his property.
United States v. Fox,
Although we have noted that “[t]he subject of bankruptcies is incapable of final definition,” we have previously defined “bankruptcy” as the “subject of the relations between an insolvent or nonpaying or fraudulent debtor and his creditors, extending to his and their relief.” Wright v. Union Central Life Ins. Co.,304 U.S. 502 , 513-14,58 S.Ct. 1025 , 1031-32,82 L.Ed. 1490 (1938). See Continental Illinois National Bank & Trust Co. v. Chicago, R.I. & P.R. Co.,294 U.S. 648 , 673,55 S.Ct. 595 , 605,79 L.Ed. 1110 (1935).... It “includes the power to discharge the debtor from his contracts and legal liabilities, as well as to distribute his property. The grant to Congress involves the power to impair the obligation of contracts, and this the States were forbidden to do.” [Hanover Nat’l Bank v. Moyses,186 U.S. 181 , 188,22 S.Ct. 857 , 860,46 L.Ed. 1113 (1902).]
Ry. Labor Executives Ass’n v. Gibbons,
The oft-quoted definitions of the bankruptcy power indicate its broad scope.... “[The bankruptcy power] extends to all cases where the law causes to be distributed the property of the debtor among his creditors; this is its least limit. Its greatest, is a discharge of the debtor from his contracts. And all intermediate legislation, affecting substance and form, but tending to further the great end of the subject — distribution and discharge — are in the competency and discretion of Congress.”
Louisville Joint Stock Land Bank v. Radford,
Those decisions unequivocally state that the bankruptcy power authorizes laws relating to the distribution of the debtor’s property. Section 363(h) is, just as unequivocally, such a law. Indeed, its primary purpose is to facilitate the bankruptcy goal of effective distribution of the property of the bankruptcy estate by the trustee.
The bill makes significant changes in what constitutes property of the estate. Current law is a complicated melange of references to State law, and does little to further the bankruptcy policy of distribution of the debtor’s property to his creditor insatisfaction of his debts.... These changes will bring anything of value that the debtors have into the estate.... [0]n the whole, the trustee will be able to bring all property together for a coherent evaluation of its value and transferability, and then to dispose of it for the benefit of the debtor’s creditors.
H.R.Rep. No. 595, 95th Congress, 2d Session 175-76 (1977), reprinted in 1978 U.S.Code Cong. & Admin.News 5963, 6136-37 (footnotes omitted).
Contrary to the defendant’s argument, the Supreme Court has recognized that collection and distribution of the estate property may affect the rights of non-creditor third parties who share an interest with the estate. In
Wright v. Union Cent. Life Ins. Co.,
[ Respondent urges that under the Bankruptcy Clause Congress is confined to legislation for the adjustment of the debtor-creditor relationship, and insists that the purchaser at an Indiana judicial sale is not a creditor but a grantee with rights acquired by the purchase.... While there may be no relation of debtor and creditor between the bankrupt and the purchaser of his property at judicial sale, we think the purchaser at a judicial sale does enter into the radius of the bankruptcy power over debts.
Id.
at 514,
The trustee’s powers under § 363(h) are all the more compelling here because the defendant is the debtor’s spouse and thus an “insider” under § 101(31) of the Code. “An insider is one who has a sufficiently close relationship with the debtor that his conduct is made subject to closer scrutiny than those dealing at arms length with the debtor.” H.R.Rep. No. 595, 95th Congress, 2d Session 312 (1977), reprinted in 1978 U.S.Code Cong. & Admin.News 5963, 6269. An insider is one who may have an identity of interest with the debtor. That relationship brings the defendant even more squarely within the scope of the bankruptcy power.
The conclusion that § 363(h), which necessarily affects non-creditor third party interests, is within the scope of the Bankruptcy Clause, is bolstered by the fact that other sections of the code have a similar effect. For example, the trustee may recover a fraudulent transfer under § 548 against a non-creditor transferee who has no commercial relationship with the debtor. Section 723 permits the trustee in a partnership case to satisfy a deficiency from assets of non-creditor general partners who are co-liable on the estate debts. The policy served by those sections is the same as that served by § 363(h), to wit: maximization of estate property. Further, it has long been recognized that non-creditor third parties may be enjoined from interfering with the reorganization efforts of debtors.
See
§ 105(a);
Continental Illinois Nat’l Bank & Trust Co. of Chicago v. Chicago, R.I. & P. Ry. Co., supra,
The scope of the powers granted under the Bankruptcy Clause is not without limit. Supreme Court precedent, however, has generally defined those limits in terms of other constitutional requirements, rather than in terms of inherent limitations to the bankruptcy power. For example, in
Ashton v. Cameron County Water Improvement Dist. No. 1, supra,
Typically, challenges to bankruptcy legislation on the basis that it impermissibly interferes with property rights have been based on the Takings Clause, rather than on any inherent limitation in the Bankruptcy Clause. For example, in
Louisville Joint Stock Land Bank v. Radford, supra,
The defendant relies solely on
In re Persky, supra,
The defendant also appears to argue that the Bankruptcy Clause requires uniform bankruptcy laws, and that the absence of a tenancy by the entirety under state law should not determine the applicability of § 363(h).
See
Defendant’s Reply Memorandum, filed May 27,1992, at pp. 7-8. Under the Bankruptcy Clause, bankruptcy laws enacted by Congress must be geographically uniform.
Vanston Bondholders Protective Comm. v. Green,
Notwithstanding this requirement as to uniformity the bankruptcy acts of Congress may recognize the law of the state in certain particulars, although such recognition may lead to different results in different states.... Such recognition in the application of state laws does not affect the constitutionality of the Bankruptcy Act, although in these particulars the operation of the Act is not alike in all the states.
Stellwagen v. Clum,
C.
LIMITATIONS OF THE TAKINGS CLAUSE
I further conclude that § 363(h) does not violate the Takings Clause as applied in the instant proceeding because (i) that statute does not deprive the defendant of any vested property right she has under Connecticut law; (ii) even if it did, any such taking would be for a public purpose and, under the presumption operative here, for just compensation; and (iii) Supreme Court precedent construing an Internal Revenue Code provision supports that conclusion.
1. Is there a “taking”?
The defendant’s argument that § 363(h) authorizes a taking, prohibited by the Fifth Amendment, is defeated because there is no proposed taking under the facts of this case.
“One of the principal purposes of the Takings Clause is ‘to bar Government from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole.’ ”
Dolan v. City of Tigard,
- U.S. -, -,
The Supreme Court has identified two instances in which a so-called “categorical” taking occurs, eliminating the need for a
Penn Central
ad hoc inquiry. The first deals with permanent or temporary actual physical occupations or appropriations resulting from or authorized by government regulation, and is represented by
Loretto v. Teleprompter Manhattan CATV Corp.,
Arguably the categorical takings analysis could apply in the instant case. If the plaintiff succeeds in this action, and the defendant does not exercise her right of first refusal, the residence will be sold and the purchaser will physically occupy it. But that analysis is superficial. The real issue is whether the defendant’s property rights have been appropriated, and under Connecticut law, discussed supra, they have not, because those rights do not include the right to prevent her husband’s creditors from selling the entire residence. Section 363(h) affects the defendant’s rights by precipitating a sale; it does not appropriate or destroy them.
Under both the categorical and ad hoc analyses, interference with a “historically rooted expectation of compensation” or a “reasonable investment backed expectation” is the
sine qua non
of a taking.
See Ruckelshaus v. Monsanto Co.,
It is a purpose of the ancient institution of property to protect those claims upon which people rely in their daily lives, reliance that must not be arbitrarily undermined .... Property interests, of course, are not created by the Constitution. Rather, they are created and their dimensions are defined by existing rules or understandings that stem from an independent source such as state law — rules or understandings that secure certain benefits and that support claims of entitlement to those benefits.
Bd. of Regents of State Colleges v. Roth,
The Supreme Court’s categorical takings analysis in
Lucas v. South Carolina Coastal Council, supra,
505 U.S. -,
Where the State seeks to sustain regulation that deprives land of all economically beneficial use, we think it may resist compensation only if the logically antecedent inquiry into the nature of the owner’s estate shows that the proscribed use interests were not part of his title to begin with. This accords ... with our “takings” jurisprudence, which has traditionally been guided by the understandings of our citizens regarding the content of, and the State’s power over, the “bundle of rights” that they acquire when they obtain title to property_ [A] regulation!] that prohibit[s] all economically beneficial use of land ... cannot be newly legislated or decreed (without compensation), but must inhere in the title itself, in the restrictions that background principles of the State’s law of property and nuisance already place upon land ownership. A law or decree with such an effect must ... do no more than duplicate the result that could have been achieved in the courts — by adjacent landowners (or other uniquely affected persons) under the State’s law of private nuisance ... or otherwise.
Id.
at -, -,
On the first point, the Supreme Court has held that the right to exclude others is “one of the most essential sticks in the bundle of rights that are commonly characterized as property.”
Kaiser Aetna v. United States, supra,
Viewed in the light of Connecticut law, the effect of § 363(h) is no different than the rights of a creditor to alienate the defendant’s interest, except that § 363(h) gives her more protection.
See supra,
footnote 12. That protection is hardly a basis to support the defendant’s claim that § 363(h) is unconstitutional. A comparison of
Louisville Joint Stock Land Bank v. Radford, supra,
Further, § 363(h) was in effect before the defendant acquired her interest in the residence. In
Ruckelshaus v. Monsanto Co., supra,
In
United States v. Security Indus. Bank, supra,
The defendant could have no reasonable expectation that her interest in the residence would never be sold by the trustee if her husband commenced a bankruptcy case under chapter 7. The estate’s interest in the residence was the only nonexempt asset available to satisfy over $4,000,000 in unsecured claims, making the trustee’s use of § 363(h) inevitable. When this case was commenced on November 16,1990, and when this adversary proceeding was commenced on October 21, 1991, the constitutionality of § 363(h) had never been successfully challenged in a reported decision. 18
Congress crafted § 363(h) sedulously to minimize any takings issue, providing a right of first refusal to the non-debtor co-owner in § 363(i); requiring that the court first determine that no less invasive measures are practically available; requiring a consideration of and balancing with the detriment to the co-owner; and requiring distribution of sale proceeds “according to the interests of such spouse or co-owners, and of the estate.”
See
R. Eisenberg and F. Gecker,
Due Process and Bankruptcy: A Contradiction in Terns?,
10 Banicr.Dev.J. 47, 80 n. 231 (1993— 94) (“[Section] 363(h), (i) and (j) do meet constitutional challenges. There are more than adequate protections for third parties.”);
In re Townsend,
2. If there is a “taking, ” is it for a public purpose?
The Takings Clause “is designed not to limit the governmental interference with property rights
per se,
but rather to secure
compensation
in the event of otherwise proper interference amounting to a taking.”
First English Evangelical Lutheran Church of Glendale v. County of Los Angeles, California, supra,
The seminal case defining the scope of the public use requirement is
Hawaii Housing Auth. v. Midkiff,
The “public use” requirement is ... coterminous with the scope of a sovereign’s police powers.... [T]he Court has made clear that it will not substitute its judgment for a legislature’s judgment as to what constitutes a public use “unless the use be palpably without reasonable foundation.” United States v. Gettysburg Electric R. Co.,160 U.S. 668 , 680,16 S.Ct. 427 , 429,40 L.Ed. 576 (1896).... [WJhere the exercise of the eminent domain power is rationally related to a conceivable public purpose, the Court has never held a compensated taking to be proscribed by the Public Use Clause....
Id.
at 240-41,
Subject to specific constitutional limitations, when the legislature has spoken, the public interest has been declared in terms well-nigh conclusive. In such cases the legislature, not the judiciary, is the main guardian of the public needs to be served by social legislation.... The role of the judiciary in determining whether th[e] power [of eminent domain] is being exercised for a public purpose is an extremely narrow one.
Id.
at 32,
The mere fact that only a relatively small class may benefit from a particular “taking” does not render that taking improper.
Rindge Co. v. Los Angeles County,
Nor is a use “private” merely because property is taken from one individual and transferred to another, with resultant economic benefit to the transferee.
The mere fact that property taken outright by eminent domain is transferred in the first instance to private beneficiaries does not condemn that taking as having only a private purpose. The Court long ago rejected any literal requirement that condemned property be put into use for the general public. “It is not essential that the entire community, nor even any considerable portion, ... directly enjoy or participate in any improvement in order [for it] to constitute a public use.” Rindge Co. v.Los Angeles, 262 U.S., at 707 ,43 S.Ct. at 692 .
Hawaii Housing, supra,
In Hawaii Housing Authority v. Midkiff, the Supreme Court emphasized the deference courts owe to legislative determinations of public use. A taking satisfies the constitutional public use requirement if it advances a “conceivable public purpose” and regardless of whether it succeeds in realizing that purpose. Moreover, it is not necessarily constitutionally relevant that the statute may force the transfer of private property, as here, from one private entity or individual to another.
(some citations omitted).
Cf. Head v. Amoskeag Mfg. Co., supra,
Thus I am not persuaded by the defendant’s argument that because only the private creditors of a particular estate will be benefitted any given sale under § 363(h), that statute achieves no “public purpose.” Public purpose is not so narrowly construed. While a § 363(h) sale in any given case will directly benefit a limited creditor body, the public policy served by that section allows a trustee to maximize the return on the sale of estate assets. The creditor body is benefit-ted not because of who they are, but rather because of what they are, i.e. creditors of a bankruptcy estate.
That distinction is aptly demonstrated by
Thompson v. Consol. Gas Utils. Corp., supra,
Under
Hawaii Housing,
I need only determine whether §§ 363(h) is “rationally related to a conceivable public purpose.”
With respect to ... co-ownership interest, such as tenancies by the entirety, joint tenancies, and tenancies in common, the bill does not invalidate the rights, but provides a method by which the estate may realize on the value of the debtor’s interest in the property while protecting the other rights.... The other interest is protected ... by giving the spouse a right of first refusal at a sale of the property, and by requiring the trustee to pay over to the spouse the value of the spouse’s interest in the property if the trustee sells the property to someone other than the spouse.
H.R.Rep. No. 595, 95th Congress, 2d Session 177 (1977), reprinted in 1978 U.S.Code Cong. & Admin.News, 5963, 6137-6138 (emphasis added) (footnotes omitted). 19
Further, the absence § 363(h) could lead to an abuse of the bankruptcy process, which is fundamentally designed to provide honest debtors with a discharge in return for the collection of their nonexempt property for distribution to holders of allowed claims.
Most adversary proceedings under Code § 363(h) arise in chapter 7 cases in which the marital residence is the primary or only property of the estate. Except for an occasional debt which is not discharged by virtue of Code § 523 because it was incurred by fraud or for other reasons set forth therein, discharge of a debtor in chapter 7 under Code § 727(b) terminates his liability for all prepetition unsecured claims. Therefore, if the creditors do not collect anything from liquidation of the estate’s interest in the marital residence, as a matter of law they do not generally have another opportunity to collect after chapter 7 because their claim is wiped out.... [T]here are different equities on the scales of justice here than there are outside of bankruptcy. That difference was one of the reasons for the enactment of Code § 363(h).
Mueller v. Youmans (In re Youmans),
The defendant takes the position that her interest in the residence is separate from the debtor’s and that the trustee cannot use § 363(h) to alienate her rights in that property. Apart from the other stated reasons that her argument lacks merit, her position is premised upon a fiction. Here, despite the fact that the trustee has succeeded to the
The defendant further argues that because the results of a proceeding under § 363(h) could vary depending on the underlying state law, Congress has not achieved its stated public purpose of providing a standard method of selling estate property. Defendant’s Reply Memorandum, filed December 15, 1993, at pp. 2-3. That argument is unavailing. First, Congress has succeeded in creating a uniform system of administration of sales under § 363(h). Second, and more to the point, “the means of executing the project are for Congress and Congress alone to determine, once the public purpose has been established.”
Berman v. Parker, supra,
3. United States v. Rodgers
I further conclude that the constitutionality of § 363(h) is strongly supported by the Supreme Court’s holding in
United States v. Rodgers, supra,
It requires no citation to point out that interests in property, when sold separately, may be worth either significantly moreor significantly less than the sum of their parts. When the latter is the case, it makes considerable sense to allow the Government to seek the sale of the whole, and obtain its fair share of the proceeds, rather than satisfy itself with a mere sale of the part.
Admittedly, if § 7403 allowed for the gratuitous confiscation of one person’s property interests in order to satisfy another person’s tax indebtedness, such a provision might pose significant difficulties under the Due Process Clause of the Fifth Amendment_ If there were any Takings Clause objection to § 7403, such an objection could not be invoked on behalf of property interests that came into being after enactment of the provision.... But ... § 7403 makes no further use of third-party property interests than to facilitate the extraction of value from those concurrent property interests that are properly liable for the taxpayer’s debt. To the extent that third-party property interests are “taken” in the process, § 7403 provides compensation for that “taking” by requiring that the court distribute the proceeds of the sale “according to the findings of the court in respect to the interests of the parties and of the United States.” ... [Section] 7403 is punctilious in protecting the vested rights of third parties caught in the Government’s collection effort, and in ensuring that the Government not receive out of the proceeds of the sale any more than that to which it is properly entitled.
Id.
at 697-98 & n. 24, 699,
While Rodgers deals with the interaction of the taxing power, rather than the bankruptcy power, and the Takings Clause, that distinction is not critical.
The power to “establish ... uniform Laws on the subject of Bankruptcies” can have no higher rank or importance in our scheme of government than the power to “lay and collect taxes.” Both are granted by the same section of the Constitution ....
Ashton v. Cameron County Water Improvement Dist. No. 1, supra,
Part IV of the Court’s opinion is particularly instructive. In that section the Court determined that the district court had limited equitable discretion not to order a sale of a co-owner’s interest under § 7403 and stated a nonexclusive list of the factors which the district court should consider in making that
It is also significant that even under the dissent’s view in
Rodgers
§ 7403, and by analogy § 363(h), could constitutionally be employed to sell the non-debtor co-owner’s interest under the facts of the instant case. The dissent opined that “§ 7403 confers on the Government the power to sell or force the sale of jointly owned property only insofar as the
tax debtor’s
interest in that property would permit
him
to do so; it does not confer on the Government the power to sell jointly owned property if an unindebted co-owner enjoys an
indestructible
right to bar a sale and to continue in possession.... If a joint tenant is delinquent in his taxes, the United States does no more than step into the delinquent taxpayer’s shoes when it compels a sale.”
Id.
at 713, 714,
ORDER
For the foregoing reasons, I conclude that the defendant’s challenge to the constitutionality of § 363(h) and (j) must fail, the plaintiff is authorized to sell the residence, and IT IS SO ORDERED.
Notes
. The parties' Stipulation of Facts filed January 7, 1994 states that the court found on April 16, 1992 that the estate owns a one-half interest as tenant in common with the defendant. The deed of conveyance dated October 18, 1982,
see
Plaintiff's Exhibit A, employs language which would create a joint tenancy with express right of sur-vivorship under Connecticut law.
See
Conn. Gen. Stat.Ann. § 47-14a (West 1986). The only fact essential to the present proceeding is that the defendant and the debtor owned the residence as joint tenants prior to the debtor's chapter 7 filing. I express no opinion as to whether that filing severed the joint tenancy.
Compare Durnal v. Borg-Warner Acceptance Corp. (In re DeMarco),
. I acknowledge that § 2403(a) applies to proceedings in a "court of the United States,” which term includes the district courts but not explicitly the bankruptcy courts.
See 28
U.S.C.A. § 451 (West 1993). As I have discussed at greater length elsewhere,
see In re Melendez,
.The defendant’s answer admitted that this was a core proceeding. At trial, the defendant requested leave to amend the answer to allege that this was a related proceeding. Because a consensual pleading bar date had expired, and because the amendment was in any event without merit, that request was denied. Moreover, the defendant consented to the resolution of all issues by this court pursuant to 28 U.S.C.A. § 157(c)(2) (West 1993).
. Certain nonmaterial amendments were made to § 363(h) and (j) in 1984.
. “[F]ederal courts will not pass on the constitutionality of an Act of Congress if a construction of the Act is fairly possible by which the constitutional question can be avoided.”
Zobrest v. Catalina Foothills Sch. Dist.,
- U.S. -, -,
. The parties agreed that the estate and the defendant would divide the net sale proceeds equally. Differing tax consequences and the fact that the trustee’s fee would be chargeable to the estate's interest were taken into consideration. The fact that the defendant offered to purchase the estate’s interest for about $50,000 in net proceeds to the estate did not alter my conclusion.
. In an April 10, 1992 memorandum, filed before the defendant sought or obtained leave to amend her complaint to assert her claims of unconstitutionality, the defendant made an oblique challenge in a footnote to the constitutionality of § 363(j) because it would require the non-debtor co-owner to pay her portion of the costs of sale. See Memorandum, p. 4 n. 2. That suggestion was repeated in a December 15, 1993 memorandum. No explanation was offered as to why that requirement was unconstitutional, in view of the fact that even in a voluntary sale, the co-owner's share of the proceeds would be reduced by necessary costs of sale. In any event, the defendant expressly abandoned that argument at the hearing on this matter on June 7, 1994. Accordingly, the constitutionality of § 363(i) and (j) are not at issue here. Those subsections are considered, however, to the extent that they provide a right of first refusal and compensation which are linked to § 363(h) and ameliorate the effects of that statute.
.The defendant asserts an "as applied,” not a "facial,” challenge to § 363(h). A facial challenge would require a showing that the statute could under no circumstance operate in a constitutional manner.
See Rent Stabilization Ass’n of the City of New York
v.
Dinkins,
. The fact that a joint tenant’s right of survivor-ship is destructible negates any argument that that property interest is not "undivided” within the meaning of § 363(h).
Cf. Community Nat'l Bank and Trust Co. of New York v. Persky (In re Persky),
. States which recognize tenancies by the entirety do so on the basis of the legal fiction that spouses constitute a single legal entity. Id. at 85. Carrying that fiction to its logical conclusion would obviate the need for § 363(h) as to entire-ties property, because both spouses would have to join in the bankruptcy petition in order to render the single legal entity a debtor in bankruptcy.
.
Cf. Johnson v. Olmsted,
.Although arguably § 544(a) permits the trustee to use Conn.Gen.Stat. § 52-500(a) to partition the residence in this court, Butner holds that state law defines property rights in the absence of a countervailing federal interest. But because § 363(h), (i), and (j) reflect a federal policy in favor of protecting the rights of non-debtor co-owners through the balancing test, right of first refusal, and compensation requirement, those rights must be preserved even if they do not exist under applicable non-bankruptcy law, so that it would not be appropriate for the trustee to use § 52-500(a).
. It is noted that in the recently enacted Bankruptcy Reform Act of 1994, Pub.L. No. 103-394, 108 Stat. 4106, § 111, Congress recognized the bankruptcy court's authority to issue "channeling injunctions" in asbestos cases which preclude actions against third parties which would have the effect of circumventing the terms of a distribution trust.
.
See also Official Comm. of Unsecured Creditors
v.
PSS Steamship Co., Inc. (In re Prudential Lines, Inc.),
. To the extent
Ashton
could be said to define a limit to the Bankruptcy Clause, subsequent authority upholding governmental unit reorganization legislation must be read to have expanded that limit.
See, e.g., United States v. Bekins,
. The defendant raises no due process challenge to § 363(h). For the reasons stated in this memorandum, however, I conclude that that statute serves “a legitimate legislative purpose furthered by rational means,”
Pension Benefit Guar. Corp. v. R.A. Gray & Co., supra,
. Nor is partition by sale an unusual occurrence under the laws of most states.
All jurisdictions permit partition by sale and division of the proceeds.... Despite the substantial weight of tradition favoring partition in kind, a court can readily conclude that fair división is not possible and that sale and division of the proceeds is more equitable. Most partitions today are indeed in the form of sale and division of proceeds.
R. Powell and P. Rohan, Powell on Real Property, ¶ 607[5], p. 50-58, ¶ 607[4], pp. 50-57 — 50-58 (Matthew Bender 1993) (footnotes omitted).
. In re Persky, the only reported decision to find § 363(h) unconstitutional, under strikingly different facts from those present here, was issued on December 3, 1991.
. It is noted that the Report of the Commission on the Bankruptcy Laws of the United States recommended a provision similar to § 363(h) because of the need for uniformity of administration, the unfairness that would result to creditors where the property was held in a tenancy by the entirety, and the need to maximize the return for the debtor's interest in co-owned property. H.R. Doc. 93-137, 93d Cong., 1st Sess. 195-96 (1973), reprinted in App. 2 L. King, ed., Collier on Bankruptcy (15th ed. 1994). Further, that provision, including its constitutional ramifications and impact on various forms of co-ownership, was the subject of extensive testimony before Congress. See, e.g., H.R. 31, Bankruptcy Act Revision: Hearings Before the Subcommittee on Civil and Constitutional Rights of the Committee on the Judiciary, 94th Cong., 2d Sess. 1393, 1519-1526 (1976). That testimony recognized the availability of partition for joint tenancies under the laws of most states, and indicated that it would be in the interest of all parties to have the bankruptcy court conduct the "partition” through a provision similar to § 363(h).
. Texas law created a “vested property right” in the non-debtor spouse, with characteristics similar to undivided life estates in each spouse, with a remainder interest in each.
Id.
at 686,
. The
Persky
court distinguished
Rodgers
on three grounds, none of which is applicable in the instant case.
See Persky, supra,