IN RE: JAMES D. ROSE CASE NO. 95-51680

UNITED STATES BANKRUPTCY COURT 

EASTERN DISTRICT OF KENTUCKY

LEXINGTON

IN RE:

JAMES D. ROSE CASE NO. 95-51680

CHERYL B. ROSE

DEBTORS

MEMORANDUM OPINION

This case is before the court on the motion of the chapter 7 trustee for leave to sell at public auction free and clear of liens and encumbrances property alleged to be property of the bankruptcy estates of the husband and wife debtors. The United States of America opposes sale of the property by the trustee and has moved for relief from stay on the ground the property which the trustee proposes to sell is not property of the estates of the debtors. It is the position of the United States of America that the property should be sold in conformity with a judgment of forfeiture entered by the United States District Court for this district prior to the date the debtors filed their joint petition for relief under chapter 7 of the Bankruptcy Code.

The property which the trustee proposes to sell is a 1995 Chevrolet Z71 pickup truck and real property located on Lots No. 71A and 71B, Unit 8 of Country Club Estates, Clark County, Winchester, Kentucky. The real property, a duplex formerly occupied by the debtors as their residence, is referred to in the record as 509-511 Country Club Court or Country Club Drive or Country Club Estates. The debtors apparently lived at 509 Country Club Court.

This matter is submitted on joint stipulations of fact by the trustee, by counsel, and the United States Attorney.

On July 13, 1995 the debtor James D. Rose was arrested by police officers of the City of Winchester, Clark County, Kentucky. Following a search of the premises at 509-511 Country Club Drive, conducted pursuant to a search warrant, the police confiscated a large amount of U.S. currency, several firearms, and the debtor's 1995 Z71 Chevrolet pickup truck.

On July 18, 1995 the United States of America filed in the U.S. District Court for this district a Verified Complaint of Forfeiture In Rem against the debtor's real property described as 509 and 511 Country Club Drive, $64,500 in U.S. currency seized from James D. Rose and Scott Rose, and a 1995 Chevrolet Z71 pickup truck registered to James D. Rose.

On July 20, 1995 the United States of America caused a lis pendens notice of the aforementioned civil forfeiture action insofar as it related to the real property of the debtors to be filed in the office of the Clark County Clerk in Lis Pendens Book No. 23, page 308.

However, the government's civil forfeiture action was voluntarily dismissed without prejudice on August 4, 1995, the day after the defendant properties were charged with forfeiture in an indictment filed on August 3, 1995 against James D. Rose and Scottie L. Rose. Thus the lis pendens notice on file in Clark County references a civil action that has been dismissed and is therefore inconsequential to the resolution of the issues before the court.

On August 3, 1995 James L. Rose was indicted for crimes in violation of titles 21 U.S.C. 841(a)(1) and 18 U.S.C. 924(c) for drug trafficking and possession of firearms in relation to the drug trafficking offense. The indictment charged that the currency, firearms, motor vehicle, and real property of the debtor constituted property derived from proceeds obtained directly or indirectly as a result of drug trafficking or were used to facilitate drug trafficking and are hereby forfeited to the United States pursuant to title 21 U.S.C. 853.

On September 28-29, 1995 the debtor, James D. Rose, entered into a plea agreement with the United States of America whereby he pleaded guilty to Count I (knowingly distributing marijuana) of the six-count indictment in exchange for the Government's agreement to recommend dismissal of the remaining five counts. Pursuant to paragraph 10 of the plea agreement, James D. Rose agreed to the entry of a forfeiture order whereby he voluntarily forfeited any and all of his right, title and interest in the currency, firearms, and motor vehicle confiscated at the time of his arrest, and in the real property at 509 and 511, Country Club Drive, Winchester, Clark County, Kentucky.

Although she was separated from and living apart from her husband at the time of his arrest and was not charged with any crime, the debtor, Cheryl B. Rose, joined in and signed the plea agreement which provided that she thereby voluntarily forfeited all of her right, title and interest in the properties described in the plea agreement, including the real property, title to which she held jointly with her husband, James D. Rose, in fee simple with right of survivorship.

On September 29, 1995 the U.S. District Court entered a consent decree of forfeiture as to James D. Rose's interest in the personal and real property described in the plea agreement. On the same date, based on the plea agreement and the consent decree of forfeiture, the U.S. District Court entered a Judgment of Forfeiture adjudging that the personal and real property described in the judgment is hereby condemned and forfeited to the United States of America pursuant to title 21 U.S.C. 841 and 843. The property found to be forfeited includes the 1995 Chevrolet Z71 pickup truck and the real property at 509-511 Country Club Drive, Winchester, Clark County, Kentucky which the trustee proposes to sell as assets of the debtors' estates.

The return on the Judgment of Forfeiture shows that the currency and firearms described therein were seized by the U.S. Marshal's Service on October 5, 1995. The return further shows that the 1995 Chevrolet Z71 pickup truck and the real property at 509 and 511 Country Club Drive, Winchester, Clark County, Kentucky, were seized by the U.S. Marshal's Service on October 12, 1995, which was two days after the debtors filed bankruptcy.

On October 10, 1995 the debtors, James D. Rose and Cheryl B. Rose, filed a joint petition for relief under chapter 7 of the Bankruptcy Code. The debtors did not list as assets in the schedules to their joint petition any interest in the 1995 Chevrolet Z71 pickup truck or real estate at 509 and 511 Country Club Drive.

The pickup truck is titled solely in the name of James D. Rose. There are no liens on the vehicle. It was purchased by James D. Rose on or about June 9, 1995 with a trade-in vehicle and cash in the amount of $18,553.80, evidenced by a check drawn on a joint bank account of James D. Rose and Cheryl B. Rose at Winchester Savings Bank.

The real estate at 509-511 Country Club Drive (Lots No. 71A and 71B, Unit 8 of Country Club Estates) was acquired by the debtors by deed dated March 21, 1995, which indicates they paid $17,000 for the property. The debtor, James D. Rose, who lists his occupation as builder, may have been responsible for adding as an improvement the duplex that now stands on the property. On June 21, 1995 the debtors mortgaged the property to Winchester Savings Bank for $87,000. The bank has filed a proof of claim indicating the balance due on the mortgage as of March 6, 1996, the date of the trustee's motion to sell the property, is $91,874.43.

The chapter 7 trustee takes the position that the 1995 Chevrolet Z71 pickup truck and the real estate are property of the bankruptcy estates because, as shown by the public records of Clark County, title to the vehicle was held by James D. Rose and title to the real estate was held by both debtors on the date of bankruptcy. Moreover, the chapter 7 trustee takes the position that the seizure of this property by the U.S. Marshal's Service after bankruptcy violated the automatic stay provided for by title 11 U.S.C. 362(a), and is therefore void.

CONCLUSIONS OF LAW:

Upon the conviction of James D. Rose, based on his guilty plea to Count I of the indictment, he forfeited all of his right, title and interest in the property condemned by the indictment, including his interest in the motor vehicle and real estate which the trustee proposes to sell. Title 21 U.S.C. 853(a) and (b). All of Rose's interest in the property vested in the United States of America as of the date Rose committed the predicate criminal acts on which his conviction was based. Title 21 U.S.C. 853(c). In re Thena, Inc., 190 B.R. 407 (D. Or. 1995). In this instance that was at least as early as the date of his arrest on July 13, 1995. Title to the property in question was transferred to the United States of America retroactively to that date by operation of law irrespective of any provision of state law that might otherwise control the method of transfer to such property. The transfer is comparable to the transfer to the bankruptcy estate of a debtor's legal and equitable interest in property that occurs by operation of law upon the filing of a petition for relief under the Bankruptcy Code. Compliance with state transfer and recordation statutes is not a condition precedent to the effectiveness of such a transfer.

The 1995 Chevrolet Z71 pickup truck was confiscated by the Winchester, Kentucky police on the date James D. Rose was arrested. The vehicle remained in police custody until it was seized by the U.S. Marshal's Service. The debtor had no right to use, sell or lease the vehicle subsequent to his arrest; nor did the chapter 7 trustee acquire such a right upon the intervention of bankruptcy. The debtor did not own any legal or equitable interest in the vehicle on the date of bankruptcy despite the fact the certificate of title issued by the Commonwealth of Kentucky indicated ownership by the debtor. Title had vested in the United States of America "irrespective of any provision of State law" to the contrary.

The same reasoning applies with respect to the interest of James D. Rose in the real estate which he owned jointly with his wife. Upon conviction he forfeited all of his right, title and interest in the real estate retroactively to the date of commission of the predicate crimes of which he was convicted.

The transfer to the United States of America of the wife's interest in the real estate occurred somewhat later upon entry of the Judgment of Forfeiture to which she consented by joining in and signing the plea agreement. She chose to forego her right to contest criminal forfeiture of the property. U.S. v. Certain Real Property Located at 2525 Leroy Lane, West Bloomfield, Mich., 910 F.2d 343 (6th Cir. 1990), rehearing denied, cert. den., 111 S.Ct. 1414, 499 U.S. 947, 113 L.Ed.2d 467; U.S. v. Marks, 703 F.Supp. 623 (E.D. Mich. 1988). Therefore, her interest in the property was transferred to the United States prior to bankruptcy by the Judgment of Forfeiture.

It is possible that the chapter 7 trustee may be able to avoid the forfeiture of the wife's interest in the real property in question as a fraudulent conveyance. 11 U.S.C. 548(a)(2). But that issue is not relevant to disposition of the motion before the court.

The court is not persuaded that seizure of the motor vehicle and real estate by the U.S. Marshal's Service two days after the commencement of the debtors' joint bankruptcy case violated the automatic stay. The seizure was pursuant to the earlier September 29, 1996 judgment of the district court finding the property had been forfeited to the United States of America. Thereafter, the only interest of the debtors in the property that became bankruptcy estate property was their bare legal title, 11 U.S.C. 541(d), which was not affected by the physical seizure of the property.

Accordingly, the court finds the trustee's motion for leave to sell the motor vehicle and real property of the debtors shall be overruled. The objection of the United States of America to the proposed sale of said property shall be sustained.

Dated:

By the court -

 

____________________________

JOE LEE, CHIEF JUDGE

 

Copies to:

 

J. James Rogan, Esq.

Ann E. Samani, Esq.

Thomas Lee Gentry, Esq.

 

 

 

f:\opinions\1996\rose

UNITED STATES BANKRUPTCY COURT

EASTERN DISTRICT OF KENTUCKY

LEXINGTON

 

 

IN RE:

 

JAMES D. ROSE CASE NO. 95-51680

CHERYL B. ROSE

 

DEBTORS

 

 

 

ORDER

 

 

In conformity with the memorandum opinion of the court this day entered, IT IS ORDERED that the motion of the chapter 7 trustee for leave to sell at public auction free and clear of liens and encumbrances the motor vehicle and real property of the debtors is overruled. The objection of the United States of America to the proposed sale of the property by the trustee is sustained. The United States of America is hereby granted relief from the stay and may proceed with the sale of said property pursuant to the Judgment of Forfeiture entered on September 29, 1995 by the United States District Court for this district.

Dated:

By the court -

 

____________________________

JOE LEE, CHIEF JUDGE

 

Copies to:

 

J. James Rogan, Esq.

Ann E. Samani, Esq.

Thomas Lee Gentry, Esq.

 

f:\opinions\1996\rose