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In re O'Sullivan

United States Court of Appeals, Eighth Circuit

February 1, 2019

In re: Casey Drew O'Sullivan Debtor
v.
Casey Drew O'Sullivan Appellee CRP Holdings A-1, LLC Appellant

          Submitted: September 26, 2018

          Appeal from the United States Bankruptcy Appellate Panel for the Eighth Circuit

          Before SMITH, Chief Judge, MELLOY and STRAS, Circuit Judges.

          SMITH, Chief Judge.

         CRP Holdings, A-1, LLC (CRP) appeals the Bankruptcy Appellate Panel's (BAP) decision affirming the bankruptcy court's order holding that CRP has an unenforceable judicial lien against the real property of the debtor, Casey Drew O'Sullivan, and avoiding that lien pursuant to 11 U.S.C. § 522(f)(1). We affirm.

         I. Background

         O'Sullivan and his wife acquired a residence as tenants by the entirety in November 1995. The residence is located in Barton County, Missouri ("property"). On January 5, 2015, CRP obtained a $765, 151.18 default judgment in the Circuit Court of Platte County, Missouri, against O'Sullivan. The judgment did not include Sullivan's wife. CRP then filed a notice of foreign judgment, registering the judgment on January 26, 2015, in the Circuit Court of Barton County, Missouri, in an attempt to obtain a judicial lien on the property owned by the O'Sullivans as tenants by the entirety. See Mo. Rev. Stat. § 511.440.

         On April 3, 2015, O'Sullivan filed a voluntary Chapter 7 bankruptcy petition, which his wife did not join. O'Sullivan listed the property in his schedules and claimed a $15, 000 homestead exemption under both Mo. Rev. Stat. § 513.475 and 11 U.S.C. § 522(b)(3)(B). CRP did not object to O'Sullivan's claimed exemptions. O'Sullivan simultaneously moved to avoid CRP's purported judicial lien under 11 U.S.C. § 522(f)(1), asserting that the lien impaired his claimed homestead exemption. CRP objected to the motion. While acknowledging that it had a judgment lien, CRP argued that its judgment lien did not attach to the property. Consequently, CRP asserted that its lien did not affix upon the property nor impair O'Sullivan's exemption for lien-avoidance purposes.

         The bankruptcy court granted O'Sullivan's motion to avoid CRP's lien on the property. It concluded that "'CRP's judgment lien-although perhaps not enforceable-certainly affixed upon [O'Sullivan's] home upon CRP's recording of its judgment in Barton County' and therefore impaired O'Sullivan's claimed exemption." CRP Holdings, A-1, LLC v. O'Sullivan (In re O'Sullivan), 841 F.3d 786, 788 (8th Cir. 2016) (alteration in original).

         CRP appealed to the BAP, which affirmed the bankruptcy court's order. The BAP likewise concluded that "an unenforceable judgment lien arose" on the property held by the entireties. CRP Holdings, A-1, LLC v. O'Sullivan (In re O'Sullivan), 544 B.R. 407, 413 (B.A.P. 8th Cir.), vacated, 841 F.3d 786 (8th Cir. 2016). Therefore, the BAP reasoned, it was "possible for [O'Sullivan] to avoid it under § 522(f)." Id. CRP appealed the BAP's affirmance of the bankruptcy court's order avoiding its purported judicial lien.

         On appeal to this court, "CRP challenge[d] the BAP's conclusion that O'Sullivan could avoid its purported judicial lien on the property." In re O'Sullivan, 841 F.3d at 788. "The only contested issues on appeal [were] whether a judicial lien existed and, if so, whether that lien affixed on O'Sullivan's interest in the property." Id.

         We identified a threshold question that neither party had addressed-"whether CRP had a judicial lien properly subject to avoidance under § 522(f)(1)(A)." Id. at 788-89. Ultimately, we "decline[d] to undertake the question of whether there is a cognizable lien under § 522(f)(1) in the first instance." Id. at 790. We opted to vacate the BAP's decision and remand "to the bankruptcy court for it to determine whether CRP has a judicial lien on the property (either enforceable or unenforceable)." Id.

         On remand, the bankruptcy court held that CRP possessed an unenforceable judicial lien against O'Sullivan's property and granted O'Sullivan's motion to avoid the lien. In reaching its conclusion, the bankruptcy court noted that this court "direct[ed] the parties to only one of two possible results on remand." In re O'Sullivan, 569 B.R. 163, 165 (Bankr. W.D. Mo. 2017), aff'd, No. 17-6012, 2017 WL 4844244 (B.A.P. 8th Cir. Sept. 22, 2017). The bankruptcy court could find (1) the debt was dischargeable through the bankruptcy proceedings because CRP's notice of foreign judgment failed to give rise to a lien on O'Sullivan's exempt homestead property, or (2) the lien is avoidable under § 522(f)(1) because CRP's notice of foreign judgment secured an either enforceable or unenforceable lien on the exempt property. The bankruptcy court opted for door number two. First, it found that "CRP's judgment was not an enforceable lien against the Debtor's [tenancy by the entirety] property under Missouri law when the Debtor filed bankruptcy." Id.

         Second, it explained its assumption that "CRP had a cognizable and avoidable lien under § 522(f)(1)" based on "CRP's actions . . . in recording the judgment lien as a foreign judgment in the county where the Debtor owned his exempt home and in challenging ...


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