In re Haines
MEMORANDUM OPINION AND ORDER OVERRULING TRUSTEE’S OBJECTION TO EXEMPTIONS
When a husband and wife open an account together, Missouri law generally
I. Jurisdiction
There is no dispute and the Court finds that it has jurisdiction over this matter. 28 U.S.C. § 1834. This matter is also a core proceeding over which the court has authority to enter a final order. 28 U.S.C. § 157(b)(2)(B).
II. Facts
The Court makes the following findings of fact.
Debtor Randi Kathleen Haines is a married resident of Missouri. She filed a Chapter 7 bankruptcy after a business co-owned with her daughter failed. Her only unsecured creditor is a bank to whom she had personally guaranteed the business loan. Ms. Haines owes the bank approximately $165,000; her husband was not obligated on the business loan or guaranty.
Bruce E. Strauss was duly appointed the Debtor’s Chapter 7 Trustee. Nearly a year after her bankruptcy filing,
The Trustee timely objected to the exemption, arguing, that Mr. and Mrs. Haines had failed to open the UBS account as a TBE account, and that since the box “joint tenants with right of survivorship” or “JTWROS” was cheсked, the account documents controlled. Mrs. Haines responded that the checking of the JTWROS box on the account application — and the concomitant failure to check the TBE box — was as a matter of law insufficient to defeat Missouri law’s presumption of TBE ownership.
The Court conducted an evidentiary hearing on the Trustee’s objection, at which both Mr. and Mrs. Haines testified; the Court finds their testimony generally to be credible, except where noted below.
Mrs. Haines testified that she and Mr. Haines had been married 22 years, and hаd not maintained separate finances during their marriage. Specifically, Mrs. Haines and her husband had two joint checking accounts, and a retirement account, in addition to the UBS account. She testified that she and her husband had always considered and treated their various accounts as being jointly owned. She testified that both contributed funds to their accounts and both made withdrawals or wrote checks from their various accounts.
With respect to the UBS account in particular, Mrs. Haines testified that she and Mr. Haines had had a brokеrage account for a number of years, as recommended by their financial advisor, one Mike Hamilton, and had owned the UBS account for about ten years. The Haines-es opened the UBS account when Mr. Hamilton switched brokerage firms and moved to UBS.
Mrs. Haines testified to a discussion that the brokerage account should be owned in the same form as the previous account (implying that the previous account was a
In light of her otherwise uncontroverted evidence that she signed the account application at her husband’s office; that the application had already been completed when she arrived to sign it; and that she admitted on cross-examination that she likely only glanced at it; the Court believes that Mrs. Haines had no specific intent in creating the UBS account other than that it was some type of joint account that she and her husband both owned and could use. For the same reason, the Court places no weight on the hand-written note on Mrs. Haines’ financial statement, submitted to the Bank in 2010 [Exhibit C], that “all assets are owned jointly with my husband in [TBE] and therefore not subject to enforcement by creditors, except creditors of both husband and wife.”
Mr. Haines also testified, and his testimony largely mirrored that of his wife’s. He agreed that all the household finances were held jointly and that he also had relied on the broker to fill out the paperwork correctly (again, implying without direct testimony that the UBS account was supposed to have been set up as a TBE account). He, too, did not know the difference between JTWROS and TBE accounts; the Court likewise believes that Mr. Haines had no specific intent to establish a TBE account but instead intended that the account be a joint marital account.
In addition to their testimony, Mrs. Haines admitted as an exhibit the UBS brokerage account application she and her husband had signed when opening the ac-' count. The application provided joint account owners with five options for how their accounts could be held: community property, tenants by entirety, joint tenants with rights of survivorship, tenants in common, and joint community funds. The box next to “Joint Tenants with Rights of Sur-vivorship” is checked, presumably by the financial advisor. The application did not contain any explanation of the various species of joint ownership, but instructed those cоmpleting the application to “Please read the joint account section of the New Account booklet carefully.” The parties did not provide the court with the joint account section of the New Account booklet or any testimony about whether Mr. or Mrs. Haines consulted it. The application contains a paragraph entitled “Account Agreement”; however, the provisions in the agreement relate to client management, trading on margin, and disclosure issues, and do not address ownership of the acсount. Neither party called the UBS representative who prepared the paperwork to testify.
III. Summary of the Arguments
Both parties agree that the Court should apply Missouri law to determine the nature of Mrs. Haines’ ownership interest in the brokerage account. The parties also agree that the burden of proof is on the Trustee to provide evidence that the exemption is not proper, at which point the burden shifts to the debtor to show she is entitled to the exemption. Fed. R. Bankr.P. 4003(c); Peoples’ State Bank of Wells v. Stenzel (In re Stenzel),
Additionally, the parties agree that generally there is a presumption under
IY. Discussion
Nature of TBE Property Under Missouri Law
Commencement of a bankruptcy case creates an estate, consisting of “all legal or equitable interests of the debtor in property as of the commencement of the case ... [.]” 11 U.S.C. § 541(a). A debtor may exempt certain property from property of the estate under 11 U.S.C. § 522(b). Missouri has opted out of the federal exemption scheme in § 522, thus “restricting Missouri residents to the exemptions available under Missouri law and under federal statutes other than 11 U.S.C. § 522(d).” In re Benn,
exempt from process under applicable non-bankruptcy law, and that applicable Missouri law so provides.
TBE is a form of marital property ownership originally created by common law, not by statute. In re Bellingroehr,
To create a TBE estate, the four unities&emdash;unities of interest, title, time and possession&emdash;must be present. Once created, TBE tenants have but one estate, which they hold “per my et per tout&emdash;by the moiety or half and by the whole.” In re Gerling’s Estate,
The history of TBE as applied to accounts is quite interesting. Because of the uncertainty that could be engendered with joint accounts — whether adding a person to an account was an intervivos gift or a testamentary disposition — the Missouri legislаture enacted statutes to allow the creation of a TBE account without the presence of all four unities. Known as a “statutory joint tenancy,” accounts created under § 362.470 RSMo (bank and trust company accounts) are statutorily “considered a tenancy by the entirety unless otherwise specified.” § 362.470.5 RSMo.
The Missouri Supreme Court has explained that statutory joint tenancies should be given effect without consideration of the strict common law requirements of the four unities. Estate of LaGarce,
Returning then to the common law: The effect of TBE property is that during the lifetime of the joint tenants, only creditors of both joint tenants may execute on or garnish the TBE property. In re Garner,
Thus, the most important characteristic of entireties property is that neither spouse may unilaterally convey or burden the property. In re King’s Estate,
The distinction carries into bankruptcy in this way: in a bankruptcy case, a debtor may properly exempt TBE property but the Chapter 7 Trustee may invade the TBE property to the extent necessary to pay unsecured joint debts. See Bellingroehr,
Whether the TBE Presumption Applies In this Case
In many respects, this case boils down to a question of whether the TBE presumption applies to the UBS account; if it applies, then the burden under Missouri law (and bankruptcy law) would be on the Trustee to present the type of clear evidence needed to rebut the presumption that thе UBS account is a TBE account. If the presumption does not apply, then the Trustee would have met his initial burden of coming forward with evidence in support of his objection — that the Debtor established a JTWROS and not a TBE account — and the burden of production would have shifted to the Debtor to show they had the requisite intent' to create a TBE account notwithstanding the fact that they checked the JTWROS box. Whether the presumption applies is critical, because, in the Court’s view, if the burden of production shifted to the Debtor, then the Debtоr likely would not win, as the Debt- or’s evidence did not establish any express intent to create specifically a TBE account.
The Court concludes that the TBE presumption applies to the Debtor’s UBS account as a matter of law, for the following reasons.
First, as explained above, there is no Missouri statute that governs the UBS brokerage account; Missouri common law therefore applies. Missouri common law applies because, although the UBS account is physically held at an office located in Kansas, Missоuri law provides that the situs of intangible personal property is governed by the domicile of the owners, and the Debtor and her husband are indisputably Missouri residents. McDougal v. McDougal,
Second, also as explained above, Missouri common law indisputably and strongly presumes that all property owned by a husband and wife is TBE property if the four unities are established'. E.g., Capital Bank v. Barnes,
Third, whether the presumption that a husband and wife own property as TBE arises by statute or by common law, Missouri cases appear to require the same quality of evidence to overcome the presumption; that the evidence “must be so strong, clear, positive, unequivocal and definite as to leave no doubt in the trial judge’s mind.” Brown v. Mercantile Bank of Poplar Bluff,
Scott v. Flynn,
The Court explained that the bank’s reasoning was circular, “because a husband’s and wife’s joint tenancy with right of sur-vivorship satisfies the statute’s definition of what is presumed to be a tenancy by the entirety — i.e., it is a deposit made in the name of two persons or the survivor thereof who are husband and wife.” Scott v. Flynn,
[Designation of a specific type of account that satisfies all of the statutory requirements triggering a presumption of the tenancy by the entirety cannot be construed as a specification that the account be held ‘otherwise’ than by the entirety. Rather, to achieve that result, it would be necessary to designate the account ‘Joint Tenants with Right of Survivorship and not as Tenants by the Entirety,' or words to like effect.
Scott v. Flynn,
Scott v. Flynn thus held that, “absent a specific disclaimer that the account is not being held as tenants by the entirety, an account card signed by a husband and wife as joint tenants with right of survivorship must be considered a tenancy by the entirety.” Id.
Scott v. Flynn relied on two other Missouri cases. In Brown v. Mercantile Bank of Poplar Bluff,
This trio of cases reinforces the Court’s conclusion that a Missouri court would require more evidence before finding that the presumption was rebutted in this case. The evidence was undisputed that the Haineses intended to create a joint, marital account when they set up the UBS account. The UBS account they created was a joint, marital account with rights of survivorship. Without a specific disclаimer of the kind noted in Scott v. Flynn (i.e., JTWROS and not TBE) or other strong evidence, the Court cannot conclude that merely checking the JTWROS box was sufficient to defeat the presumption.
The Trustee’s argument that the presumption did not arise does not address these Missouri cases but instead relies on Beal Bank, SSB v. Almand and Associates,
The Parol Evidence Rule
As a final matter, the Trustee has asked the Court to reconsider its oral ruling at trial that Mr. and Mrs. Haines’ testimony regarding their intent should be barred by the parol evidence rule. The Court be-, lieves its ruling at trial that the parol evidence rule does not apply is correct.
The parol evidence rule “prohibits the trier of fact from using ... evidence to contradict, vary оr alter the terms of an integrated written contract.” Central Stone Co. v. Warning,
The parol evidence rule is not a rule of evidence, but rather a substantive rule that limits the evidence from which inferences may be drawn. Poelker v. Jamison,
The Debtor, by contrast, argues that the parol evidence rule should not apply for two reasons. First, the Debtor argues that the parol evidence rule is limited to contracts, and the writing before the Court is not a contract.
The Debtor’s second argument is similarly unpersuasive. The Debtor cites
Despite disagreeing with the Debtor’s arguments, the Court does agree that the parol evidence rule does not apply in this case. Although it has not been widely litigated in Missouri, courts generally recognize that there is an exception to the parol evidence rule whеn the dispute involves a third party rather than the two parties to the contract. American Bank v. Wegener, et al.,
The “stranger exception” excludes those who are not parties to the document from objecting to the court considering extrinsic evidеnce that affects the interpretation of the document. Stinkard v. Lamb Const. Co.,
Conclusion
The burden on the Trustee is to provide the Court with evidence “so strong, clear, positive, unequivocal and definite as to leave no doubt in the trial judge’s mind,” Scott,
Notes
. As will be discussed below, the general presumption does not apply to all accounts. E.g., § 369.174 RSMo (the savings and loan joint account of a husband and wife presumed to be only joint tenancy, and not a TBE account); § 370.287 RSMo (credit union shares; same); compare § 362.470 RSMo (joint bank account of husband and wife presumed to be a TBE, and not a joint tenancy).
. Thе Trustee has not argued that amendment should be denied for bad faith or other grounds. In re Kaelin,
. The Debtor argues, for the first time in her post-hearing brief, that the Court should amend the UBS account application based on the doctrine of mutual mistake. Setting aside whether the court can consider the Debtor’s new argument, the doctrine of mutual mistake requires the mistake to be mutual. E.g., In re Williams Recycling, Inc., Case No. 12-50669; Adv. No. 13-5002;
. In a post-trial conference, the Court asked counsel about the fact that the UBS account appeared to have been pledged and queried why there had been no argument or testimony about it. Bоth counsel agreed that the pledge occurred after the bankruptcy filing, and that the existence of the pledge had no bearing on the issue before the Court.
. Section 362.470.5 RSMo states: "Any deposit made in the name of two persons or the survivor thereof who are husband and wife shall be considered a tenancy by the entirety unless otherwise specified.”
. The Trustee argues that the “heightened standard” of clear and convincing should not apply here because the account is not one that is expressly presumed by statute to be a tenancy by the entirety account. The Trustee cites In re Wax,
. The parties assume, without discussing, that Missouri law is the relevant state law. Because the parol evidence rule is а substantive rule determining the parties' underlying state law rights, this appears to be correct. Gibbons v. Graves Constr. Co., Inc.,
. The Debtor cites Kinser v. Elkadi,
.The Court would also note it is a bit puzzling for the Debtor to argue that the account application is not a contract, but should be reformed using the contract doctrine of mutual mistake.
. Even without the testimony of the Debtor and her husband, the Court questions whether the checked box, without some evidence of the accompanying explanation, would be a clear manifestation of intent. While the terms “tenancy by the entireties” and "joint tenancy with rights of survivorship” may be understood by many lawyers, they are not terms most lay people have encountered or could be reasonably expected to understand without explanation. The Court need not reach that question, however, because it can consider the testimony. The Court similarly rejects the Trustee's argument that the Debtor