Havoco of America, Ltd. v. Hill , 197 F.3d 1135 ( 1999 )

HAVOCO OF AMERICA, LTD., Plaintiff-Appellant,
v.
Elmer C. HILL, Defendant-Appellee.
No. 97-2277.
United States Court of Appeals,
Eleventh Circuit.
Dec. 10, 1999.
Appeal from the United States District Court for the Northern District of Florida.(No. 95-30585/RV), Roger
Vinson, Judge.
Before BIRCH and DUBINA, Circuit Judges, and SMITH*, District Judge.
BIRCH, Circuit Judge:
Havoco of America, Ltd. ("Havoco") appeals the denial of its objection to Elmer C. Hill's ("Hill")
claims in his Chapter 7 bankruptcy petition that the real property located at 209 and 211 Calhoun Avenue,
Destin Florida, (the "Destin Property") was exempt under Article X, Section 4 of the Florida Constitution (
the "homestead exemption") and that the household furnishings in the Destin Property were exempt because
he owns them in tenancy-by-the-entireties with his wife (the "tenancy-by-the-entireties exemption"). Havoco
claims that Hill converted non-exempt assets into these exempt assets with the intent to hinder, delay, or
defraud his creditors. The bankruptcy court found that under Florida law Hill was not prohibited "from
converting non-exempt assets into a homestead, even if done with the intent to place those assets beyond the
reach of his creditors." EXH. vol. 1-243 at 9.1 The bankruptcy court further found that, although Hill's
"creation of a tenancy by the entireties with the intent to defraud creditors may be attacked under Florida
law[,] ... [s]uch attack must be made in the context of an adversary proceeding." Id. Accordingly, the
*
Honorable C. Lynwood Smith, U.S. District Judge for the Northern District of Alabama, sitting by
designation.
1
Citations to EXHIBIT vol. 1 ("EXH.") within this opinion refer to that portion of the record labeled
"Record of Appeal, Elmer C. Hill, Volume 1 of 1, U.S. Bankruptcy Case No. 92-04836, U.S. District
Case No. 95-30585-RV."
bankruptcy court denied both of Havoco's objections, and the district court affirmed. Although we agree with
the district court that Havoco may only challenge the tenancy-by-the-entireties exemption in an adversary
proceeding, we believe that the applicability of the homestead exemption to this case raises an important issue
of state law that would best be decided by the Supreme Court of Florida. Therefore, we AFFIRM IN PART
and CERTIFY a question of state law to the Supreme Court of Florida.
I. BACKGROUND
In 1981, Havoco filed suit against Hill claiming damages for fraud, conspiracy, tortuous interference
with contractual relations, and breach of fiduciary duty. Havoco alleged that Hill conspired to eliminate
Havoco as a principal under its ten year contract to supply coal to the Tennessee Valley Authority. After
several appeals to the Seventh Circuit, Havoco's case finally came to trial nine years later. The jury found
for Havoco on all its claims against Hill and awarded Havoco $15,000,000 in damages. The district court
entered judgment in accordance with the jury verdict on December 19, 1990, and the judgment became
enforceable on January 2, 1991.2
Hill purchased the Destin property on December 30, 1990. Although he was a long-time resident of
Tennessee, Hill claims that he intended to make the Destin property his retirement home. He paid
approximately $650,000 in cash for the Destin property. Additionally, approximately $75,000 of household
furnishings were purchased for the Destin property utilizing funds drawn from a Florida bank account Hill
held jointly with his wife and from Hill's individual accounts in Florida and Tennessee.
On July 22, 1992, Hill filed for Chapter 7 bankruptcy in the Northern District of Florida. In his
petition, he claimed that the Destin property was exempt under the Florida constitution as his homestead. He
also claimed that the furnishings were exempt as property held in tenancy-by-the-entireties with his wife.
Havoco objected to both exemptions. Havoco claimed that Hill engaged in improper pre-bankruptcy planning
2
The facts underlying the judgment Havoco received against Hill are detailed in Havoco of America,
Ltd. v. Sumitomo Corp. of America, 971 F.2d 1332 (7th Cir.1992) (adopting the factual findings of the
district court). Hill continues to dispute these facts.
in order to convert non-exempt assets into exempt assets for the purpose of placing the assets beyond the
reach of creditors, such as Havoco.
The bankruptcy court held an evidentiary hearing on Havoco's objections. During the evidentiary
hearing, Havoco attempted to present evidence of the transfer of other non-exempt assets by Hill in order to
demonstrate that the purchase of the Destin property and home furnishings were part of a larger scheme to
defraud Hill's creditors via bankruptcy. The bankruptcy court found that this evidence was irrelevant and did
not allow Havoco to present fully its evidence regarding Hill's alleged bankruptcy scheme. After the hearing,
the bankruptcy court issued its Findings of Fact and Conclusions of Law overruling Havoco's objections. See
EXH. vol. 1-138, In re Hill, 163 B.R. 598 (Bankr.N.D.Fla.1994). Relying on similar cases, the bankruptcy
court concluded that, although "a debtor loses his entitlement to claim as exempt any asset converted with
the specific intent to defraud creditors," EXH. vol. 10148 at 8,3 Havoco had not proven by a preponderance
of the evidence that Hill had acted with the specific intent to defraud his creditors when he purchased the
Destin property and home furnishings. Additionally, the bankruptcy court found that the home furnishings
were held by Hill and his wife as tenancy-by-the-entireties and, thus, were exempt from claims by Hill's
individual creditors.
Havoco appealed the bankruptcy court's factual findings and legal conclusions. On February 3, 1994,
the district court issued an order reversing the bankruptcy court's conclusion that there was an exception to
the homestead exemption when a debtor acted with the specific intent to defraud his creditors and its finding
that Havoco had failed to prove Hill acted with the intent to defraud his creditors when he purchased the
Destin property and household furnishings. The district court found that Florida state law governed questions
regarding the homestead exemption and, therefore, that the bankruptcy court had erroneously relied upon the
3
The bankruptcy court cited several bankruptcy cases within the Middle District of Florida for this
proposition. In re Coplan, 156 B.R. 88, 91 (Bankr.M.D.Fla.1993); In re Mackey, 158 B.R. 509, 512
(Bankr.M.D.Fla.1993); In re Rightmyer, 156 B.R. 690, 692-3 (Bankr.M.D.Fla.1993); In re Swecker, 157
B.R. 694, 695-6 (Bankr.M.D.Fla.1993); In re Schwarb, 150 B.R. 470, 472 (Bankr.M.D.Fla.1992); In re
Ehnle, 124 B.R. 361, 363 (Bankr.M.D.Fla.1991). EXH. vol 1-138 at 8-10.
interpretations of federal bankruptcy courts sitting in Florida.4 The district court instructed the bankruptcy
court on remand "to determine whether and under what circumstances Florida law prevented debtors in 1990
and 1991 from converting non-exempt property to exempt property." EXH. vol. 1-220 at 17. The district
court further instructed the bankruptcy court that, if it should determine that Hill's claim to the homestead and
entireties exemption was limited under Florida law, the bankruptcy court should conduct a new evidentiary
hearing to determine whether Hill purchased the Destin property and home furnishings with the intent to
defraud his creditors. The district court additionally found that, if a new evidentiary hearing was necessary,
the bankruptcy court should consider Havoco's evidence of Hill's other transfers of non-exempt assets as a
relevant part of Havoco's claim that Hill had purchased the Destin property and furnishings with the intent
to defraud his creditors. Finally, the district court affirmed the bankruptcy court's finding that the household
furnishings for the Destin property were owned by Hill and his wife as tenants-by-the-entireties.
On remand, the bankruptcy court, relying upon Bank Leumi Trust Co. of New York v. Lang, 898
F.Supp. 883 (S.D.Fla.1995) and Butterworth v. Caggiano, 605 So.2d 56 (Fla.1992), concluded that "simply
purchasing a home with 'clean' funds, even done with the intent to hinder creditors, cannot overcome the
Florida homestead exemption." EXH. vol. 1-243 at 4. Further, the bankruptcy court concluded that Florida's
fraudulent conveyance statute did not "affect the debtor's right to the homestead exemption." Id. at 5.
However, the bankruptcy court did find that "Florida fraudulent conveyance law has been properly applied
to situations involving tenancies by the entireties." Id. at 7 (citing Valdivia v. Valdivia, 593 So.2d 1190, 1192
(Fla.Dist.Ct.App.1992)). Thus, Havoco did have a valid basis to challenge Hill's conversion of non-exempt
assets into assets exempt as jointly held property. However, the bankruptcy court further concluded that it
would be improper "to 'collapse' the issue of the alleged fraudulent conveyance of assets into an objection
4
The district court also noted that other federal bankruptcy courts sitting in Florida had "refused to
recognize a rule denying debtors an exemption otherwise allowed under Florida law because the debtor
engaged in pre-bankruptcy planning." EXH. vol. 1-220 at 8 (citing In re Barker, 168 B.R. 773(Bankr.M.D.Fla.1994); In re Davidson, 164 B.R. 782, 787 (Bankr.S.D.Fla.1994), rev'd in part on other
grounds, 178 B.R. 544 (S.D.Fla.1995); In re Primack, 89 B.R. 954, 958-59 (Bankr.S.D.Fla.1988)).
to the exemption of assets," id. at 8, and that Havoco should attack the creation of a tenancy-by-the-entireties
in an adversary proceeding to avoid the transfer. Id. at 9.
The district court, in an order dated February 7, 1997, affirmed the bankruptcy court's decision. The
court emphasized that Havoco may not utilize an objection to challenge the conversion of non-exempt assets
into assets exempt as tenancy-by-the-entirety property, but must seek to avoid the transfer as a fraudulent
conveyance in an adversary proceeding. R1-13 at 2. Havoco appeals this order.
II. DISCUSSION
We review the bankruptcy court's factual findings, as accepted by the district court for clear error,
and the district court's determinations of law de novo. In re Englander, 95 F.3d 1028, 1030 (11th Cir.1996).
The primary focus of Havoco's appeal is the legal conclusions reached by the district court. On appeal,
Havoco argues that its objection to Hill's claim of a tenancy-by-the-entireties exception should be dealt with
in the same manner as any other objection to exemption and that Hill can adequately represent the interests
of his wife in the objection proceeding or his wife could intervene in the objection proceedings. With regard
to the homestead exemption, Havoco argues that the principles and spirit of the Florida constitution require
that the homestead exemption not be used as an instrument of fraud.
A. THE TENANCY-BY-THE-ENTIRETIES EXEMPTION
Havoco does not contest the bankruptcy court's finding that the household furnishings in question
are owned by Hill and his wife as tenants by the entireties. A tenant by the entireties holds "an indivisible
right to own and occupy the entire property." United States v. 15621 S.W. 209th Ave., Miami, Fla., 894 F.2d
1511, 1515 (11th Cir.1990) (holding that property used by its owner to facilitate a controlled substance
transaction is exempt from forfeiture when held by the entireties with an innocent spouse). Under Florida
law, "[n]either spouse can sell, forfeit or encumber any part of the estate without the consent of the other, nor
can one spouse alone lease it or contract for its disposition." Id. at 1514 (quoting Parrish v. Swearington, 379
So.2d 185, 186 (Fla.Dist.Ct.App.1980) (per curiam)). Further "[c]reditors cannot levy on entireties property
to satisfy the debt of an individual spouse." Id. at 1515. see also First Nat. Bank of Leesburg v. Hector
Supply Co., 254 So.2d 777, 781 (Fla.1971) (refusing to allow a bank account held in tenancy-by-the-entireties
to be garnished as a result of the individual debts of one tenant).
In accordance with these principles, property held by a debtor as a tenant-by-the-entireties is exempt
from the claims of individual creditors in bankruptcy under Florida common law. See 11 U.S.C. §
522(b)(2)(B)5. See also In re Hendricks, 237 B.R. 821, 824 (Bankr.M.D.Fla.1999). Cf. Sumy v. Schlossberg,
777 F.2d 921, 928 (4th Cir.1985) (interpreting Maryland law). However, when tenancy-by-the-entireties
property is created via a fraudulent conveyance, it may be avoided as such. See Thomas J. Konrad & Assoc.,
Inc. v. McCoy, 705 So.2d 948 (Fla.Dist.Ct.App.1998); Valdivia v. Valdivia, 593 So.2d 1190, 1192
(Fla.Dist.Ct.App.1992). See also In re Hendricks, 237 B.R. at 824.
Avoiding the transfer which created a tenancy-by-the-entireties will necessarily eliminate the
property rights of one of the tenants. Therefore, a court may not avoid such a transfer, and thereby make the
tenancy-by-the-entireties property available to the creditors of one tenant, without affording both tenants their
rights to due process. Accordingly, a plaintiff seeking to avoid the creation of tenancy-by-the-entireties
property on the basis that the estate resulted from a fraudulent transfer "must join both tenants in the
proceedings." Ellis Sarasota Bank & Trust Co. v. Nevins, 409 So.2d 178, 180 (Fla.Dist.Ct.App.1982)
(requiring joinder of the debtor's wife in proceedings "before an entireties account can be made available to
answer for the judgment debts of one of the tenants individually"). Havoco suggests that a
tenancy-by-the-entireties exemption in bankruptcy can be adjudicated in the same manner as any other
objection to an exemption and that joinder of Hill's wife is unnecessary because Hill, by himself, can raise
all the "defenses" in the objection proceeding which he or his wife could raise in an adversary proceeding.
5
§ 522(b)(2)(b) provides in pertinent part:
Notwithstanding section 541 of this title, an individual debtor may exempt from property
of the estate ...
(2)(b) any interest in property in which the debtor had, immediately before the
commencement of the case, an interest as a tenant by the entirety or joint tenant
to the extent that such interest as a tenant by the entirety or joint tenant is exempt
from process under applicable nonbankruptcy law.
Havoco further argues that Hill's wife could intervene in the objection proceeding or file her own declaratory
proceeding in the bankruptcy court. However, Havoco does not provide, nor are we able to find, any legal
support for its suggestions. Havoco further asserts that requiring it to challenge Hill's
tenancy-by-the-entireties exception in an adversary proceeding "merely exalts form over substance." Havoco
is correct that in its observation "that the distinction between setting aside a transfer as fraudulent and
declaring an otherwise exempt asset to be non-exempt achieves, from their perspective, the same outcome."
However, "it is ... a very real distinction that is provided for by Florida law." Levine v. Weissing, 134 F.3d
1046, 1052 (11th Cir.1998). Moreover, we do not believe that Hill's wife's due process rights are adequately
preserved in a proceeding to which she is not a party and in which her property rights may effectively be
terminated.6 See Meyer v. Faust, 83 So.2d 847, 848 (Fla.1955); see also Logan v. Zimmerman Brush Co.,
455 U.S. 422, 433-434, 102 S.Ct. 1148, 1156-1157, 71 L.Ed.2d 265 (1982) (holding that the State may not
finally destroy a property interest without first giving the putative owner an opportunity to present his claim).
Additionally, Bankruptcy Rule 7001 requires a bankruptcy trustee to initiate adversary proceedings
to avoid transfers by the debtor under section 548 of the Bankruptcy Code. See 11 U.S.C. § 548. Florida's
fraudulent conveyance statute is sufficiently similar to § 548 to expect federal bankruptcy courts to apply
comparable procedures when considering whether to avoid a purportedly fraudulent transfer under Florida
law.7 Cf. In re Golden Plan of California, Inc., 829 F.2d 705, 711 (9th Cir.1986) ("emphasizing that the
trustee's initiation of adversary proceedings was a prerequisite to a legitimate exercise of its avoidance
powers"). Therefore, we agree with the district court that Havoco must seek to avoid the transfer by which
Hill transformed his individual property into home furnishings owned with his wife as
tenants-by-the-entireties through an adversary proceeding to which Hill's wife may be made a party.
B. THE HOMESTEAD EXEMPTION
6
If Havoco's objection to Hill's exemption of the home furnishings from the bankruptcy estate as
tenancy-by-the-entireties property succeeds, the home furnishings will become a part of the bankruptcy
estate, available to satisfy Hill's individual creditors, and, consequently, Hill's wife's property interest in
the home furnishings will be effectively terminated.
7
Compare 11 U.S.C. § 548 with Fla. Stat. chs. 726.105, 222.29, and 222.30.
The exemption of a debtor's homestead from process in Florida is constitutionally protected. See
Fla. Const. Art. X, § 4.8 Relying upon the interpretation of Florida law provided in Bank Leumi, the
bankruptcy court concluded that the homestead exemption would apply even if Hill had purchased the Destin
property with the intent to hinder, delay, or defraud creditors. See EXH. vol. 1-243 at 4. This finding allowed
the bankruptcy court to deny Havoco's objection without holding another evidentiary hearing to consider
Havoco's evidence that Hill had purchased the Destin property as part of a larger scheme to defraud his
creditors via bankruptcy.
We have previously considered the Bank Leumi case and, nonetheless, concluded that this "is a
significant question of Florida law with respect to which the Florida precedent is not clear." In re Jost, 136
F.3d 1455,1458-59 (11th Cir.1998) (stating that "[i]f the Bank Leumi issue were necessarily presented in this
case, we would certify the question to the Florida Supreme Court").9 The case at bar requires resolution of
the question whether the Florida homestead exemption applies when a debtor engages in pre-bankruptcy
planning and uses non-exempt assets to purchase a homestead with the intent to hinder, delay, or defraud his
creditors. Because the homestead exemption is an important part of Florida law, we will set out this question
in some detail and certify it to the Florida Supreme Court.
Federal courts attempting to interpret Florida law regarding this issue have reached contrary
conclusions. Compare In re Mesa, 232 B.R. 508 (Bankr.S.D.Fla.1999) (imposing an equitable lien on
homestead); In re Kravitz, 225 B.R. 515 (Bankr.D.Mass.1998) (denying the homestead exemption when
8
Article X, § 4(a) of the Florida Constitution provides for an unlimited exemption as follows:
Homesteads—exemptions (a) There shall be exempt from forced sale under process of
any court, and no judgment, decree or execution shall be a lien thereon, except for the
payment of taxes and assessments thereon, obligations contracted for the purchase,
improvement or repair thereof, or obligations contracted for house, field or other labor
performed on the realty, the following property owned by a natural person: (1) a
homestead....
Fla. Const. art. X, § 4(a)(1).
9
While we have previously commented on the "sacrosanct" nature of the homestead exemption, we
have never been squarely faced with the issue at hand or rendered a decision based upon it. See Levine,
134 F.3d at 1051 (citing Heddon v. Jones, 115 Fla. 19, 154 So. 891 (1934)).
debtor acted with actual fraudulent intent); In re Bandkau, 187 B.R. 373 (Bankr.M.D.Fla.1995) (denying the
homestead exemption to the extent that it was purchased with non-exempt money); In re Thomas, 172 B.R.
673, 674 (Bankr.M.D.Fla.1994) (granting an objection to a claimed homestead exemption under Fla. Stat.
§ 220.30); In re Coplan, 156 B.R. at 92 (limiting the homestead exemption when the homestead was acquired
in fraud of creditors); In re Grocki, 147 B.R. 274, 278 (Bankr.S.D.Fla.1992) (imposing an equitable lien on
homestead); In re Gherman, 101 B.R. 369, 370 (Bankr.S.D.Fla.1989) (sustaining objection to homestead
exemption where debtor used fraudulently converted funds to purchase a homestead) with Bank Leumi, 898
F.Supp. at 887 (refusing to create a non-textual exception to the homestead exemption based upon the
fraudulent intent of the debtor); In re Hendricks, 237 B.R. at 825 (allowing the homestead exemption); In
re Young, 235 B.R. 666 (Bankr.M.D.Fla.1999) (holding that the homestead exemption could not be
disallowed because nonexempt assets were used to acquire homestead even if debtor fraudulently converted
nonexempt assets with the intent to defeat creditor's claims); In re Lazin, 221 B.R. 982, 988
(Bankr.M.D.Fla.1998) (finding that conversion of non-exempt assets into homestead with the intent to hinder,
delay, or defraud creditors is not an exception to the homestead exemption); In re Lee, 223 B.R. 594(Bankr.M.D.Fla.1998) (finding debtor's intent to defraud creditors did not constitute a basis for disallowing
Florida homestead exemption); In re Statner, 212 B.R. 164 (Bankr.S.D.Fla.1997) (allowing the homestead
exemption); In re Clements, 194 B.R. 923 (Bankr.M.D.Fla.1996) (holding that a debtor is entitled to keep
the homestead as exempt even if it was acquired in fraud of creditors); In re Miller, 188 B.R. 302(Bankr.M.D.Fla.1995) (upholding a homestead exemption even though its purchase was a fraudulent transfer
as to the creditors); In re Popek, 188 B.R. 701 (Bankr.S.D.Fla.1995) (allowing the homestead exemption);
In re Lane, 190 B.R. 125 (Bankr.S.D.Fla.1995) (allowing the homestead exemption).
Those courts which have found that the debtor is entitled to the homestead exemption even if the
homestead was acquired using non-exempt assets with the intent hinder, delay, or defraud creditors have
relied primarily upon Butterworth v. Caggiano, 605 So.2d at 56. See, e.g., Bank Leumi, 898 F.Supp. at 887-
889. In Caggiano, the Florida Supreme Court reasoned that a homestead was exempt from civil or criminal
forfeiture under Florida's RICO statute because forfeitures were not included in the three enumerated
exceptions to the homestead exemption.10 Id. The court noted that it utilized a "liberal, nontechnical
interpretation of the homestead exemption and a strict construction of the exceptions." Id. at 61. Further, the
court cited with approval the Supreme Court of Kansas's holding that the exceptions to the homestead
provision of the Kansas Constitution were "unqualified" and particularly its finding that the exceptions "create
no personal qualifications touching the moral character of the resident nor do they undertake to exclude the
vicious, criminal, or the immoral from the benefits they so provide." Id. at 60 (quoting State ex rel. Apt v.
Mitchell, 194 Kan. 463, 399 P.2d 556, 558 (Kan.1965) and finding that "Florida law likewise prohibits the
implication of limitations to article X"). Based upon this analysis, federal courts have concluded that an
exception for fraud can not be implied to limit the homestead exemption.
Those courts which have limited or disallowed the homestead exemption when debtors engaged in
pre-bankruptcy planning to convert non-exempt assets into a Florida homestead with the intent to hinder,
delay, or defraud creditors have relied upon the Florida Supreme Court's subsequent ruling in Palm Beach
Sav. and Loan Ass'n v. Fishbein, 619 So.2d 267 (Fla.1993). See, e.g., In re Kravitz, 225 B.R. at 520-21. Here
the court, in a four-three decision, allowed the creditor to enforce an equitable lien against the homestead
because the circumstances of the case fell within the "spirit of the exceptions" to Article X.11 Id. at 270. The
court reviewed the relevant Florida case law and concluded that "it is apparent that where equity demands
it this Court has not hesitated to permit equitable liens to be imposed on homesteads beyond the literal
language of article X, section 4." Id. at 270 (citing Jones v. Carpenter, 90 Fla. 407, 106 So. 127, 130
(Fla.1925); La Mar v. Lechlider, 135 Fla. 703, 185 So. 833, 836 (Fla.1939); Sonneman v. Tuszynski, 139
Fla. 824, 191 So. 18 (Fla.1939); Craven v. Hartley, 102 Fla. 282, 135 So. 899 (1931); Ryskind v. Robinson,
10
The three explicit exceptions to the homestead exemption are: (1) unpaid property taxes on the
homestead itself, (2) mortgages for the purchase or improvement of the homestead, and (3) mechanic's
liens for work performed on the homestead. Fla. Const. Art. X, § 4.
11
The three dissenting justices in the Fishbein case stood by the court's previous ruling in Caggiano
and were "disinclined to have the Court impose an equitable lien on homestead in clear violation of the
constitution." Fishbein, 619 So.2d at 271 (Shaw, J. dissenting) (citing Public Health Trust v. Lopez, 531
So.2d 946 (Fla.1988) and Wilhelm v. Locklar, 46 Fla. 575, 35 So. 6 (Fla.1903)).
302 So.2d 427 (Fla.Dist.Ct.App.1974)). The court further noted that "the homestead exemption is intended
to be a shield, not a sword." Id. at 271. Based upon this analysis, some federal courts have attempted to
prevent the homestead exemption from being "applied so as to make [it] an instrument of fraud or imposition
upon creditors," Jones v. Carpenter, 90 Fla. 407, 106 So. 127, 130 (Fla.1925), and, in so doing, have implied
an exception based on the debtor's fraud to the homestead exemption. See, e.g., In re Thomas, 172 B.R. at
674.
More recently, federal courts have attempted to interpret the Florida Supreme Court's synthesis of
Caggiano and Fishbein in Tramel v. Stewart, 697 So.2d 821 (Fla.1997). In Tramel, the Court held that the
homestead exemption does not allow forfeiture of a homestead based upon Florida's Forfeiture Act. Id. at
824. Courts have either emphasized the Florida Supreme Court's refusal to extend the enumerated exceptions
to the homestead exemption, see, e.g., In re Lee, 223 B.R. at 601, or focused upon the Florida Supreme
Court's favorable citing of Fishbein and Jones. See, e.g., In re Mesa, 232 B.R. at 512. The latter courts note
that Florida Supreme Court has not retreated from "the rule stated in Jones that a homestead cannot be
employed as an instrumentality of fraud." Id. Applying Tramel, courts continue to reach inapposite
conclusions, and, thus, the issue remains unresolved.12
Similarly, courts are split regarding the impact of Fla. Stat. §§ 222.29 and 222.30. In 1993, the
Florida legislature amended the Florida Code specifically to make the conversion of a non-exempt asset into
an exempt asset with the intent to hinder, delay, or defraud the creditors a fraudulent asset conversion. See
Fla. Stat. § 222.30(2).13 Courts have spilt as to whether this statute is applicable to the homestead conversion.
12
Adding to the confusion in this area is the conclusion of some courts that, although a debtor's
fraudulent conversion of non-exempt assets into a homestead does not provide a basis for denying him the
homestead exemption, the debtor's fraudulent transfer may serve as the predicate for denying the
discharge. See, e.g. Marine Midland Bank, N.A. v. Mollon, 160 B.R. 860 (M.D.Fla.1993) (denying
discharge under 11 U.S.C. § 727(a)(2)(A) when the "[d]ebtor who clearly by law is entitled to convert
nonexempt assets to exempt assets did so in this case with a fraudulent intent"); In re Hendricks, 237
B.R. at 826; In re Young, 235 B.R. at 671.
13
Fla. Stat. § 222.30(2) states in pertinent part:
Any conversion by a debtor of an asset that results in the proceeds of the asset
becoming exempt by law from the claims of a creditor of the debtor is a fraudulent asset
Compare In re Hendricks, 237 B.R. at 824-825 (finding § 222.29 inapplicable to the homestead exemption
because, by its terms, it only applies to exemptions within Fla. Stat. Ch. 222 and statutory laws cannot impair
constitutional rights) with In re Thomas, 172 B.R. at 674 (holding that §§ 222.29 and 222.30 bar homestead
exemptions resulting from fraudulent asset conversions). While Fla. Stat. §§ 222.29 and 222.30 were not in
effect at the time of this case, we have previously concluded that § 222.30 was "an effort to provide a clearer,
more direct response to fraudulent transfers" of the sort at issue here. Levine, 134 F.3d at 1053. Therefore,
transfers which would be avoidable as fraudulent under §§ 222.29 and 222.30 were also previously avoidable
under § 726.105. Id.
In sum, the issue of whether a claimed Florida homestead exemption can be successfully challenged
if the home was purchased with non-exempt assets with the actual intent to hinder, delay, or defraud creditors
in violation of Fla. Stat. § 726.105 is an unsettled question of Florida law.14 Because the answer to this
question is dispositive of the claims in this case and because it raises important issues of state law, we certify
the following question to the Supreme Court of Florida pursuant to Fla. Stat. Ch. 25.031 (1997) and Fla.
R.App. P. 9.150:
DOES ARTICLE X, SECTION 4 OF THE FLORIDA CONSTITUTION EXEMPT A FLORIDA
HOMESTEAD, WHERE THE DEBTOR ACQUIRED THE HOMESTEAD USING NON-EXEMPT
FUNDS WITH THE SPECIFIC INTENT OF HINDERING, DELAYING, OR DEFRAUDING
CREDITORS IN VIOLATION OF FLA. STAT. § 726.105 OR FLA. STAT. §§ 222.29 and 222.30?
The phrasing of this certified question is not intended to limit the Supreme Court's consideration of the
various issues posed by this case. The entire record and the briefs of the parties shall be transmitted to the
Supreme Court of Florida to assist in its determination.
conversion as to the creditor, whether the creditor's claim to the asset arose before or after
the conversion of the asset, if the debtor made the conversion with the intent to hinder,
delay, or defraud the creditor.
14
For further discussion of this issue see Jules S. Cohen, The Use of the Florida Homestead to Defraud
Creditors, 72-DEC Fla. B.J. 35 (1998); Greta K. Kolcon, Common Law Equity Defeats Florida's
Homestead Exemption, 68-NOV Fla. B.J. 54 (1994); David E. Peterson, Robert F. Higgins, & Matthew
E. Beal, Is the Homestead Subject to the Statute of Fraudulent Assets Conversions?, 68-DEC Fla. B.J. 12
(1994); Richard Blackstone Webber, II, Florida's Homestead Exemption in the Eye of the Hurricane, 71-
APR Fla. B.J. 60 (1997); R. Wade Wetherington, Eleventh-Hour Conversions: A Journey into the
Labyrinth of Prebankruptcy Planning, 69-JAN Fla. B.J. 18 (1995).
III. CONCLUSION
Because we find that Hill's wife is an indispensable party to Havoco's claim that Hill fraudulently
converted his individual property into home furnishings which they owned as tenants-by-the-entireties, we
conclude that Havoco must seek to avoid this transfer in an adversary proceeding. Therefore, we AFFIRM
the district court's denial of Havoco's objection to this claimed exemption. Because we believe that state law
issues are dispositive of Havoco's objection to Hill's claim that the Destin property is an exempt homestead,
we hold that portion of the case in abeyance while we await the Supreme Court of Florida's resolution of the
CERTIFIED question.
AFFIRMED IN PART and CERTIFIED to the Supreme Court of Florida.