Farrey v. Sanderfoot – Oral Argument – March 25, 1991

Media for Farrey v. Sanderfoot

Audio Transcription for Opinion Announcement – May 23, 1991 in Farrey v. Sanderfoot

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William H. Rehnquist:

We’ll hear argument next in No. 90-350, Jeanne Farrey v. Gerald J. Sanderfoot.

Mr. Williamson, you may proceed.

Brady C. Williamson:

Mr. Chief Justice, may it please the Court:

This is a case about bankruptcy and divorce, about the relationship between Federal law and State law, and about fundamental fairness for one woman.

Jeanne Farrey left a Wisconsin courtroom about 4 years ago with half of the property from her long marriage, only to lose it all a few months later in the Federal bankruptcy process.

Yet it was not Jeanne Farrey who filed for bankruptcy.

It was her former husband, who, at least so far, has been permitted to use the Federal Bankruptcy Code, in the words of the dissenting Just… judge in the court of appeals, to steal from his former wife.

For many American families and for the judicial system itself, the resolution of this mundane dispute between Jeanne Farrey and Gerald Sanderfoot will have farreaching and lasting consequences.

Anthony M. Kennedy:

Insofar as future cases… it may be of no help to your client or many others in her position.

So far as future cases, if the court had anticipated this could it have just ordered the husband to execute a mortgage on the property?

Brady C. Williamson:

Justice Kennedy, that raises an interesting question.

The court may well have been able to say to Mr. Sanderfoot sign a mortgage, but that would not have made it, sir, any less a judicial lien under the expansive definition that Congress has provided in section 101 of the Bankruptcy Code.

One of the great difficulties with this case is that, as the Seventh Circuit has decided it–

Anthony M. Kennedy:

Do you have settled authority for that proposition?

Brady C. Williamson:

–No, Your Honor, there is no settled authority.

Indeed, as we have discussed in the brief, one issue that may follow this case to this courtroom, given the appropriate resolution of the case, is what happens in consensual divorces, stipulated divorces, where the parties come to the court and say we’ve reached an agreement, it is not contested.

But yet in most States, including Wisconsin, the courts still have to enter a judgment that adopts the stipulation.

And Congress, whatever it has done with the Bankruptcy Code, has provided in the definition sections on lien and judicial lien an all-encompassing definition.

This Court’s decision–

William H. Rehnquist:

So that in that hypothesis a property settlement agreement which is recorded and the parties exchange a deed and mortgage, and the court adopts… enters a decree based on that, still the mortgage would be a judicial lien?

Brady C. Williamson:

–Your Honor, Mr. Chief Justice, I don’t think there is any question about that.

Under 101 U.S. Code subsection 32 a judicial lien means a lien obtained by judgment, levy, sequestration, or other legal or equitable process or proceeding.

A number of lower courts in situations like this have called this an equitable lien, have tried to suggest that it is not a judicial lien.

But it would be very difficult for me to come here and suggest that it isn’t a judicial lien, because it was a lien imposed by a court in a divorce judgment, and that’s going to happen whether or not it’s a stipulated divorce or, like this case, a divorce in which every issue, including the division of property, was contested.

Sandra Day O’Connor:

Well, as the case comes to us you concede that it’s a judicial lien?

Brady C. Williamson:

Yes.

Sandra Day O’Connor:

And we have to worry, then, about the meaning of section 522(f) and how that plays out in this context, right?

Brady C. Williamson:

That’s correct, Justice O’Connor.

Sandra Day O’Connor:

At bottom, is that a matter of State law as to when the lien fixes?

And what is the State law here that would determining the fixing, when the lien fixed?

Brady C. Williamson:

Your Honor, the definition of the Federal statute, and to be precise the definition of the phrase “the fixing of a lien” is a matter of Federal law.

And of course we contend that Congress used the phrase “the fixing of” for a very deliberate reason.

But we have to understand, this entire debate occurs in–

Sandra Day O’Connor:

Don’t you think the Federal law of necessity refers back to State law as to when and how a lien is fixed?

Brady C. Williamson:

–Absolutely.

And what happened in this case was two things, two things that intimately involve State law and State public policy.

The divorce judge said to the parties in this case I am going to award the homestead to the husband, but as a condition of that award I am going to make it subject to a lien in favor of the spouse, the petitioner here, to ensure that there is a fair and equitable division of State law.

That very much is a creature of State law and always should be.

The second State law issue in this case, Justice O’Connor, is what the exemption itself means.

Since at least the 1898 Bankruptcy Act, Congress has specifically deferred to the States in determining what the exemptions are.

The homestead exemption, of course, is just the most common exemption.

In fact for most families it may well be the most important exemption.

Section 522 of the code itself provides a number of exemptions, most of them geared to State law.

Sandra Day O’Connor:

Yeah, but could you answer my question and tell me under State law exactly when the lien was fixed here?

Brady C. Williamson:

Under State law, Your Honor, the lien fixed at the moment the judge entered the divorce judgment.

In fact the district judge, the Federal district judge in this case, found that the title interest in Mr. Sanderfoot and the lien interest in Ms. Farrey were created simultaneously in the same document in the same divorce judgment.

Antonin Scalia:

Mr. Williamson, I am not sure that our job here ought, you know… the job before us is to make all these divorce proceedings come out in a seemingly fair and happy fashion.

But even if that were our task, I don’t see how your theory of the case achieves it any better than the other side.

Would it not be the case that even if we accept your principal theory, if the husband… if the property was in the husband’s name and then this same thing happened, it was not in their joint names, it was solely in his name, and if there is no State law that automatically gives the wife a joint tenancy, then your theory of the case would still allow the husband to get off scott free, as happened here.

Wouldn’t that be the case, because it would not have fixed… right?

He would have had the property before the lien was fixed.

Brady C. Williamson:

Justice Scalia, if Mr. Sanderfoot had sole title to the house, he didn’t, but if he did–

Antonin Scalia:

Yes.

Brady C. Williamson:

–And then the divorce court in its judgment awarded a lien, imposed a lien on it, then we would probably not be here today and I would not quarrel with the court’s order or suggestion.

Antonin Scalia:

Right.

So the point is that your prologue about how, you know, not going along with you will make for unfair divorce proceedings, really sort of misses the point, because no matter what you do you’re going to have some unfair divorce proceedings, even on your theory of the case.

Brady C. Williamson:

No, Justice Scalia, and if you’ll forgive me, I do want to quarrel with your premise.

Because what we’re asking the Court to do is not guarantee that divorce judgments are equal across the country, even though virtually every State now provides for some kind of equitable 50-50 division subject to different factors.

What we’re asking this Court to do is to prevent the Federal Bankruptcy Code from being used as a device to upset a fair and equitable division.

There should not be any confusion on this point.

Antonin Scalia:

You’re not saying that.

You’re saying it shouldn’t be used to upset a fair division unless the husband has sole title to the property from the outset.

Then it can be used to upset a fair division.

Right?

Brady C. Williamson:

If the husband had sole title, Your Honor, the trial judge could have, and no doubt woul have, taken other steps to correct the difficulty.

Anthony M. Kennedy:

On that point, I thought Wisconsin law was quite specific that all property of the spouses xx presumed to be marital property, and that each spouse has an undivided one-half interest.

So isn’t that true despite the State of the title?

Brady C. Williamson:

That’s precisely correct, Your Honor.

Anthony M. Kennedy:

I’m not sure why you conceded to Justice Scalia, then, that if the property had all been in the husband’s name you wouldn’t be here today.

It seems to me you’d have very much the same argument.

Brady C. Williamson:

We would have a more difficult case.

Justice Scalia’s hypothetical–

Anthony M. Kennedy:

I thought you weren’t going to be here at all.

[Laughter]

Brady C. Williamson:

–Justice Kennedy, I am grateful to be here under any circumstances.

[Laughter]

Justice Scalia’s hypothetical–

Antonin Scalia:

You pushed me beyond my hypothetical.

I said, I said assuming that the State did not have an such law, and you sort of volunteered that Wisconsin did.

And I don’t know whether Wisconsin does or doesn’t, frankly.

Brady C. Williamson:

–Justice Scalia, Justice Kennedy is absolutely correct.

And as we make clear, I think, in our briefs, Wisconsin law… and there is just no dispute about this… Wisconsin law provides for co-ownership of marital property.

The entire marital estate is co-owned.

And that’s why in this case it really doesn’t matter whether Ms. Farrey and her husband held the title as joint tenants, tenants-in-common, tenants by the entirety, or some other device.

Antonin Scalia:

Legally co-owned or equitably co-owned?

Brady C. Williamson:

Both.

Antonin Scalia:

Legally co-owned?

Brady C. Williamson:

Yes, sir.

Antonin Scalia:

So it really doesn’t matter whether you take it out in your own name or not.

Brady C. Williamson:

It does not.

Brady C. Williamson:

In addition, in 1986, effective in early 1986, Wisconsin passed a form of marital property law that reinforces the statutory and case law that up to then had made precisely that point.

But it’s your theory that the marital community is really an entity of its own and that that changes when there is a divorce decree entered and the property is dissolved… and the property is distributed?

Yes.

At that point the divorce judge has to make a decision about how to divide this property.

And the practical problem that the divorce judge faced in this case is really quite commonplace.

This family had a home and some land in Hortonville, Wisconsin, not too far from Greenbay and Appleton, and it was their primary asset.

It may have been their only asset of any value.

Yet a home by definition, except for example in someone’s property law class, is indivisible.

And the judge had to make a difficult decision of to whom would he award that home.

He chose Mr. Sanderfoot.

But he also was committed to making a precisely even distribution of the marital property.

This divorce judge did everything right.

He followed State law to the letter.

And Ms. Farrey walked out of that courtroom thinking that she had gotten as best she could get.

She got half of the marital estate, and what could be better than a lien, a security interest imposed by a judge, to protect that interest.

It was better than a mortgage until, of course, a few months later Mr. Sanderfoot began the bankruptcy process, filed a motion under 522(f), had that motion denied by the bankruptcy judge, and then in relatively quick succession reversed by the Federal district judge, and in a 2 to 1 decision reversed by the court of appeals.

John Paul Stevens:

Mr. Williamson, can I ask you a background question?

Under the old Bankruptcy Code we had this 4 month rule, that liens within the 4 month period could be avoided.

And that seems to have gone up in thin air somewhere.

I don’t know what happened to it.

But are there any cases under the old code where this sequence was filed… of course here there was more than 4 months, but where this series… sequence of events was followed within a 4-month period, where the bankruptcy occurred less than 4 months after the divorce?

Brady C. Williamson:

The… Mr. Justice Stevens, in the respondent’s brief they were unable to cite a single case pre-code in which this happened, although under section 67(a) of the Bankruptcy Act it certainly could have happened.

Our contention is that when Congress overhauled the Bankruptcy Code it in effect replaced 67(a) with 522(f)(1) and this interesting phrase, the fixing of a lien.

It also replaced 67(a) with section 547 of the code, which are the comprehensive preference powers of the trustee.

This is the first case that has squarely presented the issue of the phrase “the fixing of”.

Of course, the Court may touch on this issue in another case that it heard argued on November 5, Owen v. Owen, involving a Florida case.

John Paul Stevens:

One reason I asked the question is I don’t know what this word 4 month period, but then the 4 months just isn’t there anymore.

If it meant fixing after the bankruptcy, obviously you win.

If it means ever fixed, is… which I gather your opponent… it’s a strange use of words.

It’s a fixing of a lien.

John Paul Stevens:

Is there any… and the other thing that’s puzzling about it, they talk, a very brief excerpt from the legislative history talking about the rush to the courthouse and so forth, but there’s no time limit on the rush in the statute, is there?

Brady C. Williamson:

That’s absolutely correct, Your Honor.

John Paul Stevens:

Is there anything in the legislative history that tells us what happened to the 4-month period or why they got rid of it?

Brady C. Williamson:

No, sir.

The single paragraph that you have referred to from the legislative history is the only substantive reference in all the debate, in all the committee hearing, to this phrase.

It’s our contention, chough, sir, that the phrase “the fixing of” has to mean something.

It’s an active phrase.

It’s not passive.

And Mr. Sanderfoot would have us ignore the phrase.

He would have the statute read, and I’ll read it without the phrase, Congress simply would have provided, Mr. Sanderfoot suggests, that the debtor may avoid a lien on an interest of the debtor.

That’s Mr. Sanderfoot’s… position.

But that’s not what the code says.

It uses the phrase “the fixing of”.

Our contention, of course, is that it has to have been a fixing on an interest that the debtor previously held.

Now, Mr. Sanderfoot had an interest in the homestead equivalent to Ms. Farrey’s interest in the homestead pre-divorce.

But that’s not what the lien attached to.

The lien attached to the entire interest.

And Mr. Sanderfoot would not have received that entire interest but for the lien.

Now–

Anthony M. Kennedy:

Could you say that the lien fixed part on his interest and part on her interest, both of which are recognized as being one-half interest, and that one is avoidable and the other is not?

Brady C. Williamson:

–Well, we have thought about that possibility, Your Honor, and in the first place it assumes that Ms. Farrey could have had a lien on her own interest which, whatever the doctrine of merger might say, seems, seems a bit awkward to have a lien on your own interest.

But it is possible for the divorce judge to have said I will place a lien on Mr. Sanderfoot’s half interest.

Could have, but that didn’t happen here.

And it would have been unnatural for that to have happened here because everything about this divorce case was ordinary, everything about this divorce case was done by the book under State law, until it got to the bankruptcy process.

Antonin Scalia:

I guess you say that a whole interest in real estate, a whole fee interest, is equivalent to two divisible half interests, but it’s a different interest from two indivisible half interests?

To have an indivisible half interest in property is simply a different, different estate.

It’s not half of the fee.

If it were half of the fee you could say that he did have the interest, even before the decree was entered, couldn’t you?

Brady C. Williamson:

Yes, you could.

Keep in mind, Justice Scalia, that in this case the Federal district judge who overruled, reversed the bankruptcy court judge, found that what had happened under State law was that the divorce decree eliminated everybody’s interest, and then in a split second, upon the entry of the order, created new interests.

Brady C. Williamson:

And Mr. Sanderfoot walked out of the courtroom, not literally but in effect, owning the entire homestead subject to the lien.

As the dissenting judge in the Seventh Circuit put it, there was not an instant that Mr. Sanderfoot owned title without the lien.

And that’s really a critical, in fact dispositive, fact in this case.

Anthony M. Kennedy:

Would you say the same thing if there were two tenants-in-common, not husband and wife, and there was a partition suit and the court ordered a sale from one to the other?

Brady C. Williamson:

Probably not.

Anthony M. Kennedy:

What’s the difference?

Brady C. Williamson:

Two differences.

One is a matter of law.

What we had here under State law was co-ownership.

Anthony M. Kennedy:

That’s the one I’m interested in.

Brady C. Williamson:

It’s clear, Justice Kennedy, and has been for, probably since the State became a State in 1848, that Wisconsin has recognized a marital estate as being co-owned.

There is a statute that says that, there are cases… case after case from the State supreme court that say just that.

The other factor… that’s the legal explanation.

The other explanation, the other response is practical.

This was a man and a woman, a husband and a wife, who owned the home, maintained the home.

In fact they built the home together.

This was not an arms-length commercial transaction, not a household finance deal, which somebody bought a refrigerator and had a purchased money security interest.

This was two equals who came to the court, asked for a division of their property, and got it, evenly, equally.

But again, 3 months later the bankruptcy process began, and the reason we’re here is to ask this Court to determine the impact of the Federal Bankruptcy Code on State divorce law.

Harry A. Blackmun:

Was any member of the Seventh Circuit panel a Wisconsin jurist?

Brady C. Williamson:

No, sir.

The opinion was written by, I believe, a district judge at the time, Judge Ripple.

The dissenting justice… judge, of course, was Judge Posner from Chicago.

None of the judges had a Wisconsin connection, although they made specific references, as indeed they should have, to State law.

This case is about the intersection of State law and the Federal Bankruptcy Code.

Byron R. White:

I suppose there is no question but what the Bankruptcy Code would discharge the husband from any… just from financial obligations to the wife?

Brady C. Williamson:

Justice White, not, not the slightest doubt in the world.

Byron R. White:

So that if the court orders the husband to pay the wife and sign a note for $100,000, it can be discharged at bankruptcy?

Brady C. Williamson:

Absolutely.

I think the–

John Paul Stevens:

Yes, but how about alimony or support money?

That wouldn’t be discharged, would it?

Brady C. Williamson:

–It would not, Justice Stevens, under section 523(a)(5).

But that’s precisely the point.

Congress, in the Bankruptcy Code, when it has chosen to effect State divorce law has done so explicitly, directly, and clearly.

Section 523(a)(5) is a perfect example.

What Mr. Sanderfoot has asked us to do here is to accept the suggestion that Congress made a deliberate decision to impose Federal policy on the States, to increase the workload of the Federal judiciary, all by implication.

Because there is not the slightest piece of evidence in the legislative history that Congress had any idea this would be the result.

Byron R. White:

Well, the Bankruptcy Code discharges a debt, but you say it can’t discharge a lien.

Brady C. Williamson:

That’s absolutely right, Your Honor.

And since at least the Bankruptcy Act of 1898, probably the Bankruptcy Act of 1867 as well, this Court in a series of decisions has made it clear that there is a difference between a debt, which may be discharged, and the security for that debt.

Let me use this case as a perfect example.

When Ms. Farrey and Mr. Sanderfoot went to the savings and loan to borrow money for the house they signed a mortgage.

That mortgage remains a record.

That mortgage remains an obligation, an encumbrance on the homestead.

And neither Federal bankruptcy law nor State law of any kind would permit that mortgage to be expunged, to be discharged, to be exempted.

Yet we have Jeanne Farrey, who was a partner in the marriage for 20 years, and her interest, the lien she thought she had, is expunged like that by the bankruptcy process.

Antonin Scalia:

I guess they should have written the statute differently, because the statute does not say that mortgages can be discharged, and it says that judicial liens can.

I mean, that may well be an inequity, but that’s what the language says.

Why does it say that mortgages can’t but judicial liens can?

Do you have any idea why that is?

Brady C. Williamson:

Your Honor, in 522(c)(2)(A)(i) Congress has codified the principle that this Court established in the Bullard case, which says that security, valid security interests pass through bankruptcy.

Again, the savings and loan mortgage in this case is a perfect example.

The savings and loan is going to get paid, and if it doesn’t get paid it’s going to foreclose on its mortgage, have the home sold, and then it’ll get paid.

But because of the bankruptcy process Jeanne Farrey doesn’t have that same alternative.

William H. Rehnquist:

Why does the savings and loan mortgage pass through bankruptcy?

Because it’s a purchased money mortgage?

Brady C. Williamson:

No, sir.

Because it is a valid security interest.

And again, this Court has said in Bullard, a case in the 19th century, and in a number of cases since then, that security interests survive bankruptcy; they pass through.

Byron R. White:

Straight bankruptcy.

Liquidation bankruptcy.

Mr. Williamson, why, if your theory should prevail, why didn’t Congress just add another word in 523(a)(5) and instead of excepting merely child support, alimony, and maintenance obligations, put in some other category there that would provide an exception for security for the property settlement?

Brady C. Williamson:

Your Honor, clearly Congress could have done that, but we believe that the Bankruptcy Code, and there is plenty of legislative history on this point, supports the conclusion of Congress and our contention that there was no need for that kind of language because security interests, like mortgages, always survive bankruptcy.

They are not dischargeable.

The personal obligation may not be enforceable.

That’s what we believe dischargeability means.

But the underlying security survives.

It remains attached to the real estate.

I believe, sir, that that’s a cardinal principle of bankruptcy, and it’s certainly a cardinal point in our argument.

Antonin Scalia:

Excuse me, isn’t a judicial lien a security interest?

It’s… I mean, you get a judgment and you get a judicial lien as security for the payment of that judgment.

That’s a security interest.

Brady C. Williamson:

Justice Scalia, the difficulty is that Congress, in defining a security interest, limited it, and it’s in subsection 47 of the definitional sections, limited that interest to consensual liens.

It defined a lien, defined a judicial lien, and it defined a security interest.

Even if this were a security interest it’s hard to escape the fact that it was a security interest imposed in a judicial proceeding which, I believe unfortunately, makes it a judicial lien.

We ask that this Court reverse the judgment of the U.S. court of appeals and that it reinstate the judgment of the bankruptcy court which properly refused to avoid Jeanne Farrey’s homestead lien against her family’s homestead.

Mr. Chief Justice, I would reserve the balance of my time.

William H. Rehnquist:

Very well, Mr. Williamson.

Mr. Samson, we’ll hear now from you.

Harvey G. Samson:

Mr. Chief Justice, and may it please the Court:

On May 4, 1987, Gerald Sanderfoot filed a petition for relief pursuant to Chapter 7 of the United States Bankruptcy Code.

On that date Mr. Sanderfoot was burdened with nearly $50,000 of unsecured debt, not including any amounts owed to his former wife.

Mr. Sanderfoot sought the protection of the Bankruptcy Code, as thousands of others, to produce a fresh start.

This case would have ended like thousands of others except for the fact that a divorce court 8 months prior, on September 12, 1986, had awarded Ms. San… Ms. Farrey a judicial lien in a homestead awarded to Mr. Sanderfoot.

The issue before the Court is whether–

Byron R. White:

xxx her half interest in the house.

Harvey G. Samson:

–That’s correct, Justice White.

Pursuant to… section 767.255 of the Wisconsin statutes, which allows a divorce court to divest and transfer title.

It’s very specific.

Harvey G. Samson:

The issue before the Court in this case is whether that lien is avoidable pursuant to section 522(f)(1) of the code.

Article I, section 8 of the United States Constitution provides that the Congress shall have the power to establish uniform laws on the subject of bankruptcy throughout the States.

The Bankruptcy Code was passed in 1978 after nearly 10 years worth of work.

It was a significant departure from the prior Bankruptcy Act of 1898.

It was not, however, a departure from the primary purpose of bankruptcy, which was and is to provide overburdened debtors with the ability to start over free from his or her other debt.

And that debt has to be incurred prior to the filing of the bankruptcy.

Bankruptcy has been built on the premise that most creditors will have to forfeit their right to payment.

Ms Farrey in this particular case and in oral argument has made much of the economic impact of this bankruptcy on her, that it is not fair and that it divests her of her property.

All creditors in a bankruptcy are deprived of some property using that term in its broadest sense.

William H. Rehnquist:

But sure the Bankruptcy Code isn’t designed to let you start over with part of someone else’s house.

[Laughter]

Harvey G. Samson:

I don’t disagree, Mr. Chief Justice.

The problem is that in the divorce court the property was specifically awarded to Mr. Sanderfoot, very specifically.

The court said in its very first statement, the home of the… the home is awarded to the respondent, Mr. Sanderfoot.

And then after a long statement regarding property division, awarded a money judgment, in effect, to Ms. Farrey for $29,000 plus.

It is not a half of the house interest.

William H. Rehnquist:

But it’s secured by that, is it not?

Harvey G. Samson:

We don’t believe that for bankruptcy purposes that it is a security interest.

Security interest is defined by bankruptcy–

William H. Rehnquist:

No, but I mean just in common parlance there was a requirement this amount of money be paid and the obligation to pay it was secured by some sort of an interest, a security interest on the house.

Harvey G. Samson:

–It was–

William H. Rehnquist:

That’s correct, isn’t it?

Harvey G. Samson:

–It was secured by some sort of lien, yes.

William H. Rehnquist:

Imposed by the bankruptcy court… by the divorce court.

Harvey G. Samson:

Imposed by the divorce court.

And that, Mr. Chief Justice, is the key here.

In bankruptcy Congress has defined certain very key words.

One of the key words that it has defined is judicial lien.

A judicial lien, as Mr. Williamson indicates, is defined as a lien obtained by judgment, levy, sequestration, or other legal or equitable process or proceeding.

That is in section 101(32).

Harvey G. Samson:

In section 101(33) lien is defined as a charge against or interest in property to secure payment of a debt or performance of an obligation.

In 101(46) the Bankruptcy Code defines security agreement as meaning an agreement that creates or provides for a security interest, and (47) defines security interest as meaning a lien created by agreement.

Now, one of the difficulties with this entire case is the fact that this is a bankruptcy case.

It is not a family law case.

And bankruptcy defines the terms.

Antonin Scalia:

Mr. Samson, am I correct that you acknowledge that if Mr. Sanderfoot had bought this real estate subject to a judicial lien, there was already a judicial lien on it against the former… to secure a debt of the former owner, he buys the real estate with a judicial lien, he could not get that lien discharged in bankruptcy?

Is that correct?

Harvey G. Samson:

If I understand your question–

Antonin Scalia:

Because he had no interest when the lien fixed.

Harvey G. Samson:

–If I understand your question, Justice Scalia, what you’re asking is if there was a judgment against Mr. Sanderfoot before he purchased?

Antonin Scalia:

No, no, no.

If he purchased the property from someone… let me make it easier.

Suppose Sanderfoot, who had a lien against the property, a judicial lien against it, had sold the property to a third person, and then that third person went bankrupt.

The third person having purchased the property with a lien, subject to the lien, would that third person have been able to remove the lien in bankruptcy?

Harvey G. Samson:

I am having some difficulty because in the State of Wisconsin, I think as in most other States, a warranty deed requires that you provide a deed free and clear of all those types of questions.

Antonin Scalia:

I didn’t say it was a warranty deed.

He… it was a quit claim.

Harvey G. Samson:

A quit claim deed?

Antonin Scalia:

Sure.

Harvey G. Samson:

In my opinion with a quit claim deed, yes, it would be subject to the prior owner’s lien, assuming that you could not avoid the lien under State law, which would allow a homestead exemption clause.

Antonin Scalia:

But the new owner would not be able to avoid that lien under the Bankruptcy Code, because the lien did not fix upon any interest of that new owner.

Correct?

Harvey G. Samson:

If he paid for it, it may well fix on an interest of his, assuming he can… it’s a homestead of some sort.

Antonin Scalia:

I don’t understand what you’re saying.

Harvey G. Samson:

Well, the difficulty with the–

Antonin Scalia:

Are you saying that even if I buy property that’s already subject to a lien, the lien has never attached to any interest of mine; it attached to somebody else’s interest and then I bought that interest already subject to the lien, I can get rid of that in bankruptcy?

Harvey G. Samson:

–No, I don’t believe so.

Antonin Scalia:

Okay.

Harvey G. Samson:

I don’t believe so.

Antonin Scalia:

I didn’t think you believed so.

Antonin Scalia:

Why not, under the plain language of the code?

Harvey G. Samson:

Because, again, it’s got to fix on an interest… and, with all due respect to Justice Scalia, I don’t think that it’s likely that that kind of situation is going to occur, strictly because–

John Paul Stevens:

I don’t understand why it’s so improbable.

Say when he bought this property it had a mortgage on it, he bought it subject to the mortgage.

There’s also a lien on the property because there’s a judgment against the prior owner for $1,000.

Why wouldn’t you sometimes buy property subject to those two liens?

I don’t know why that’s impossible.

Harvey G. Samson:

–It’s perfectly conceivable–

John Paul Stevens:

And if that’s true, I don’t know why the plain language of the code would have a different impact in that situation.

Harvey G. Samson:

–Under the–

John Paul Stevens:

If fixing means fixed at any time in the past.

If fixing refers to some limited period, like 4 months or after bankruptcy, of course they are different.

Harvey G. Samson:

–If it’s unlimited I don’t believe that there is a problem with that.

It would be subject to that, I believe.

John Paul Stevens:

What in the code justifies that?

What language of the code do you rely on for that position?

Harvey G. Samson:

I think we’re having some semantic difficulty here.

John Paul Stevens:

You just think it’s common sense that it can’t apply that far.

Harvey G. Samson:

I don’t think it would be avoidable.

It is not a debt of the person who has purchased–

Antonin Scalia:

No, but neither is Mrs…. the petitioner’s lien a debt.

It’s security for a debt.

See, Mr. Samson, I thought the reason you said it is that there was no lien fixed on an interest of the debtor.

That’s what the code says.

The debtor may avoid the fixing of a lien on an interest of the debtor.

And in the hypothetical I gave you that lien had never fixed on an interest of the debtor.

Harvey G. Samson:

–That’s correct.

Antonin Scalia:

Right.

Okay.

Now, I haven’t even gotten to my question.

Antonin Scalia:

I’m just trying… if that is so, really all we’re arguing about in this case, I guess, is whether for purposes of the Federal bankruptcy law the… it should be deemed that your client got the property simultaneously with the, with the judgment lien, or did he get the property first and then the judgment lien in the next split second attached to the property.

I suppose that’s, that’s really the theory.

Because if he got the property first and then the lien attached he could avoid it, but if he sort of took the property with the lien already there he couldn’t.

Isn’t… I mean, that’s what it comes down to, doesn’t it?

Harvey G. Samson:

In the broadest sense, yes, but he always had an interest.

His interest didn’t change as drastically as Ms. Farrey’s.

Antonin Scalia:

I understand.

Well, he had a half interest.

I am still not sure why the lien can’t be avoided on the interest that he received from the wife but not on his.

Harvey G. Samson:

In the State of Wisconsin–

Anthony M. Kennedy:

Or vice versa.

Harvey G. Samson:

–In the State of Wisconsin, Justice Kennedy, there is a presumption that all property in a marriage is marital in nature and subject to division.

There has been confusion since 1986 in the State of Wisconsin since the passage of the Wisconsin Marital Property Act regarding the term marital property.

And the State, a State appeals court in the Kuhlman case, which we have cited in our brief, specifically says that marital property law, which is chapter 766 of the Wisconsin statute, has no effect whatsoever on divorce.

None.

Anthony M. Kennedy:

Is either party, is either spouse free to alienate his or her share of the marital property during marriage?

Harvey G. Samson:

Not in the State of Wisconsin.

But that has been the law since well prior to that.

However, in the State of Wisconsin, section 767.255, which is the section that allows division of property, specifically States that the court shall divest and transfer title as it deems appropriate.

Anthony M. Kennedy:

Well, that seems to me, then, to illustrate Justice Scalia’s point that there is something to the argument that the nature of the property changed in a very substantive and generic way at the moment of the marital dissolution.

Harvey G. Samson:

It did change.

Sole ownership in Mr. Sanderfoot.

And thereafter–

Anthony M. Kennedy:

And he received property with a new character, but at that very moment it also had a lien.

Harvey G. Samson:

–It did not have the lien until the point that all of the property division had been concluded.

And this could have been solved very simply by the divorce court by awarding the property, which the court has the power to do, as tenants-in-common with a provision that Mr. Sanderfoot could purchase Ms. Farrey’s interest at a certain point in time for X number of dollars.

Anthony M. Kennedy:

Of course, then, if she had gone bankrupt the home would have had to have been sold.

So we still have the problem of homes being involuntarily sold because of the bankrupt… bankruptcy of, in this case, the party that didn’t get the property.

Harvey G. Samson:

No, the property that… oh, in your case, yes, that didn’t.

But conceivably that’s true.

Harvey G. Samson:

It is in bankruptcy not the economic circumstances of the creditors on which the focus occurs.

Also, this, in our opinion, is not a question of fairness to creditors, for, as we have stated, bankruptcy is not fair to creditors.

The case itself–

Antonin Scalia:

Mr. Samson, let me try again.

I guess we’re all agreed that if the lien attaches before you acquire the property it cannot be discharged.

If it attaches after you acquire the property, or fixes after you acquire the property, it can.

And we’re faced here with a situation right in the middle.

It’s simultaneous.

And we’re trying to figure out how the Bankruptcy Code would treat that.

Why shouldn’t I be guided by the fact that under (f)(1)(2) the code makes it clear that it does not want to allow the discharge of purchased money security interests, that is to say even though you can get out of security interests in personal property, all sorts of it, you cannot get out of purchased money security interests in personal property.

Now, why shouldn’t I think that the code feels the same way about real estate, that basically where there is a simultaneously, a simultaneous creation of your interest and the lien, which is what happens with a purchased money security interest, you should not be able to get out of it?

Don’t you think that the drafters of the code, the people who did (f)(2) would have felt that way about the question before us, that this is sort of a purchased money-type arrangement?

Harvey G. Samson:

–No, Justice Scalia, I don’t think so, because the code also defines purchaser as being a voluntary transferee.

Antonin Scalia:

Oh, I’m not saying it technically comes within it.

I’m just saying it’s the same philosophy if it’s, you know, the simultaneous fixing of the lien with the acquiring of the interest.

Harvey G. Samson:

Again, that is one of the key terms, is “an interest”.

And I don’t believe that you can look at that, at the term the fixing of a lien, without looking at the next phrase, an interest.

It doesn’t say the interest.

It doesn’t say all of the interest.

It says an interest, and “an” is the dictionary equivalent of the term “any”.

So if you start, if you look at that statute and read it with an equivalent term in it, it says the fixing of a lien on any interest of the debtor in exempt property.

And… you had asked a question previously regarding the question of if it’s fixed prior to bankruptcy or fixing after the filing, clearly it cannot fix after the filing because there’s an automatic stay.

It would not occur in any event.

The question is, the term “fixing”, is it used as a term of art, which I don’t believe it is.

I think it has to be on an interest that was in existence on the date of bankruptcy.

Because bankruptcy presumes that we look at the debtor on the date of bankruptcy, not some time prior to the date of bankruptcy.

The estate is defined in section 541 as that as in existence on the date of the filing, and on the date of the filing Mr. Sanderfoot was the only one with any interest in this particular piece of property.

I think that the more basic–

John Paul Stevens:

Yes, but if you look at the date of the filing, it seems to me you ought to look at the fixing as of the date of the filing too.

I think that argument proves too much for you.

John Paul Stevens:

Because if you look at everything at the date of the filing, you say you’re only concerned about post-filing fixing.

Now, I understand there’s another objection, the automatic stay–

Harvey G. Samson:

–Correct.

John Paul Stevens:

–but it seems to me there’s some tension between your saying well, for fixing purposes we go back 100 years, but for, to cancel out all old judicial liens, but for measuring what we’re talking about we look at the date of filing.

I think there’s some tension there.

Harvey G. Samson:

Well, I think that the, that 522(f) specifically says that we look at judicial liens regardless of when they were filed or when they attached.

John Paul Stevens:

Well, why does it use the word avoid the fixing of?

That’s a strange way to describe the concept of avoiding liens previously fixed.

Harvey G. Samson:

I would tend to agree.

I would tend to agree, Justice White.

I think it is, and I think that we can say that although Congress has not been real good at sometimes putting language in the statutes, that we have to look at the overall situation and the policy of Congress under the circumstances.

Antonin Scalia:

So you just read it out?

I mean, as I understand your theory, Congress might as well have said instead of the fixing of a lien on an interest of the debtor, they might as well… the debtor may avoid a lien on an interest in property.

But they didn’t say that.

Harvey G. Samson:

They didn’t say that, and we need to look at what fixing is.

But I think that fixing has to look, be guided by the term “an interest”, again.

And clearly Mr. Sanderfoot, when this lien attached, had an interest in this home.

And under the circumstances I think that it obviously impairs an interest of his.

Again, the code does not require that it impair a total interest.

Anthony M. Kennedy:

Is an explanation that the lien might still exist on other property, so that the lien itself still remains but the fixing of the lien on the interest of the debtor is avoided?

I don’t know if that helps or not.

Harvey G. Samson:

Well, I think, Justice Kennedy, that clearly if you cannot claim property exempt, the lien would still stay on that property.

The question of commercial property is not brought up.

In this particular case we are talking about congressional intent.

That is the question.

Did Congress intend to treat this type of lien to secure a property division payment differently than every other judicial lien?

We do not believe that the Seventh Circuit’s determination is contrary to either the clear language of the statute, nor the legislative intent.

Again–

John Paul Stevens:

On legislative intent, what do you do with the snippet from the legislative history about rush to the courthouse?

Harvey G. Samson:

–Well, the legislative history on rush to the courthouse, Justice Stevens, is in a line from the House report.

Harvey G. Samson:

The Senate report does not contain that language, nor does the final form of 522.

67(a) in the act did.

It was very specific.

There were two requirements in 67(a), 4 months within the filing, plus the debtor had to be insolvent.

Both of those were terminated totally in this situation.

Had Congress intended there to be a time limit, they would have said that.

Now, the legislative history on a lot of the code, and one of the specific ones is 523(d)(1), the Senate had $10,000 in for a homestead exemption and the House had $7,500, and it ended up being $7,500.

John Paul Stevens:

But my question was what do you do with the snippet of legislative history, and you say it really is inconsistent with what they did?

Harvey G. Samson:

Correct.

John Paul Stevens:

Yeah.

Harvey G. Samson:

In determining avoidability it will be the Federal bankruptcy court–

John Paul Stevens:

It’s inconsistent with what they did and with what they intended to do is really what you’re–

Harvey G. Samson:

–In my opinion it is, because it’s got to be inconsistent if the language of the law doesn’t say within so many months, days, years, or whatever.

Antonin Scalia:

–Mr. Samson, can I come back to this language again, it has to be a fixing of a lien on an interest of the debtor in property, and you say it can be any interest of the debtor.

Well, surely it has to be an interest that he now possesses, or that he possesses at the time of the bankruptcy?

Harvey G. Samson:

Correct.

Antonin Scalia:

Right?

Because there’s no problem about avoiding the lien on property he doesn’t possess.

Harvey G. Samson:

Correct.

Antonin Scalia:

Okay.

And so the point is did he possess at the time of the bankruptcy an undivided interest in the entire property?

Harvey G. Samson:

Yes.

Under section 767.255 of the Wisconsin statutes, the court had awarded all of the property to him.

He owned that property.

No one else had an ownership interest.

Anthony M. Kennedy:

Did his property interest… did he have a property interest that survived the divorce?

Harvey G. Samson:

I believe he did.

Anthony M. Kennedy:

Did… but she did not?

Harvey G. Samson:

No.

He interest was changed from a property interest, an interest in her property–

Anthony M. Kennedy:

And where did that interest go?

Harvey G. Samson:

–The interest went to Mr. Sanderfoot.

Anthony M. Kennedy:

Yes.

And so that was a new transfer, and he took it subject to the lien at that time.

Harvey G. Samson:

The one-half interest, but the statute says an interest.

And again, this is not a division of the house itself.

This is a division of an entire marital estate for divorce purposes.

Anthony M. Kennedy:

The statute talks about interests, not properties.

Harvey G. Samson:

That’s correct.

We believe that the plain meaning of the statute provides that this judgment lien is avoidable.

Ms. Farrey is requesting that this Court graft onto section 522(f) an exception not put there by Congress, that exception being for property division equalizing payment liens.

If such an exception is to be placed, it is to be placed by Congress and not the courts.

Congress, since the passage of the Bankruptcy Code, has been very active in modifying the code.

Attempts by courts, in our opinion, to find these types of liens as being nonavoidable under 522 are not based upon the policy determinations nor the intent of Congress, but on emotionalism and a desire to bend the code to meet that particular court’s perception of justice.

Congress is charged with providing… uniform laws on bankruptcy.

Congress is charged with determining policy.

Congress should make the determination if this particular lien should not be avoided.

When Congress has spoken so clearly on a policy determination of avoidance of what is clearly a judicial lien, it should be given its fullest possible effect.

The Seventh Circuit’s determination should be affirmed.

If there are no further questions, Mr. Chief Justice, thank you.

William H. Rehnquist:

Thank you, Mr. Samson.

Mr. Williamson, do you have rebuttal?

You have 3 minutes remaining.

Brady C. Williamson:

Thank you, Mr. Chief Justice.

There is a fundamental difference of opinion in this case.

Jeanne Farrey is not just a creditor.

She and Gerald Sanderfoot shared a marriage, a home, a marital estate, for 20 years.

And to suggest that Congress could have intended to treat someone in that position like a savings and loan or household finance is to ignore reality.

Faced with the Seventh Circuit’s decision, the divorce courts of this country seeking to protect the interests of spouses, men and women, will be left with few if any choices.

The State court could order the home sold immediately, divide the cash, 50-50.

Brady C. Williamson:

Everybody walks away, no liens.

What about the children?

What if there are young children?

Should we… should we promote a policy that forces children cut of a family home?

Mr. Samson has suggested for his client that the State could order the title to the home held jointly.

People in a divorce can’t agree on a marriage.

How are they going to agree on who’s going to pay to fix the furnace?

This simply would perpetuate and compound the problem.

Finally, how does that spouse who leaves the home, man or woman, come up with the equity or the cash to establish her own homestead or his own homestead?

The respondent concedes that the result in this case is… so far at least, has been harsh.

It has been more than harsh.

It has been unconscionable.

And as devastating as those consequences have been for Jeanne Farrey, they will be no less devastating for the judicial system of this country, Federal and State.

The Chief Justice has already expressed his concerns about the growing number of bankruptcies, personal bankruptcies.

This can only compound that burden.

We ask again that the Court reverse–

John Paul Stevens:

May I ask you, do you know if there’s any legislation pending in Congress to clarify this mess?

Brady C. Williamson:

–There is none–

John Paul Stevens:

Because the statute really is very ambiguous in this whole area.

There isn’t any you know of?

Brady C. Williamson:

–I am aware of none introduced at this point, Your Honor.

That concludes my arguments, Mr. Chief Justice.

William H. Rehnquist:

Thank you, Mr. Williamson.

The case is submitted.