In re Ventura

582 B.R. 755

IN RE: Yvonne C. VENTURA, Debtor.

Bankruptcy No. 15–00224

United States Bankruptcy Court, N.D. Iowa.

Signed February 14, 2018

Kevin D. Ahrenholz, Waterloo, IA, for Debtor.

RULING ON MOTION TO DEFINE COMPROMISED CLAIMS AND OBJECTION TO DEBTOR'S CLAIM OF EXEMPTIONS

THAD J. COLLINS, CHIEF BANKRUPTCY JUDGE

Two related matters are before the Court. First, a Motion to Define Compromised Claims came before the Court for hearing on September 20, 2017 in Cedar Rapids, Iowa. Kevin Arhenholtz appeared for Debtor Yvonne Ventura ("Debtor"). Casey Rigdon appeared for the Roberto G. Gonzales Estate ("the Gonzales Estate"). Jared Knight appeared for Chapter 7 Trustee Sheryl Schnittjer ("Trustee"). The Court received evidence, heard argument, and took the matter under advisement.

The second matter is Trustee's Objection to Debtor's Claim of Exemptions, which came before the Court for telephonic hearing on December 12, 2017. Kevin Arhenholtz appeared for Debtor, Casey Rigdon appeared for the Gonzales Estate, and Eric Lam appeared for Trustee. The Court received evidence, heard argument, and took the matter under advisement. These are core proceedings under 28 U.S.C. § 157(b)(2).

STATEMENT OF THE CASE

Debtor was in a long-term relationship with Roberto Gonzales. Debtor filed her bankruptcy. After Debtor's bankruptcy closed, Mr. Gonzales died intestate. Debtor filed probate claims against Mr. Gonzales' estate asserting she was his common-law spouse. This dispute is about whether Debtor's claims against the Gonzales' estate are or were property of the bankruptcy estate. Debtor argues that her claims arose when Mr. Gonzales died, after her bankruptcy and thus were not property of the bankruptcy estate. The Gonzales Estate argues that Debtor's probate claims existed as contingent claims when she filed bankruptcy, before Mr. Gonzales died, and therefore were property of the bankruptcy estate.

BACKGROUND AND FACTS

The facts are not in dispute. Debtor was in a long-term relationship with Roberto Gonzales. Debtor alleges that she and Mr. Gonzales shared a common-law marriage from November 27, 2002 to his death in December 2015.

Debtor filed this bankruptcy on February 27, 2015. On April 30, 2015, Trustee filed a report of no distribution. On June 18, 2015, Debtor received a discharge and the case was closed.

Mr. Gonzales died without a will in December 2015. On July 22, 2016, Debtor filed claims against the Gonzales Probate Estate. In her Notice and Claim of Surviving Spouse, Debtor "requests distribution to her the share afforded to her as the surviving spouse pursuant to the intestacy laws of the State of Iowa." In particular, she asked for "such amount as the Court deems reasonable for the proper support of a surviving spouse for a period of twelve months following the Decedent's death." She also asked for the estate to pay her "such amount as is justly due to her under the intestacy laws of the State of Iowa as the Decedent's surviving spouse."

Debtor also filed a claim. She claims $39,511.58 plus interest "for reimbursement to her of payment of purchase money, cost and value of improvements made, and payments real estate taxes and other expenses associated with the [home] ...." She also claims "fair and reasonable compensation for the value of [her] labor and time invested in maintaining, repairing and improving the [home] ...." Her claim states that it "is contingent upon result of [her] claim she is Decedent's surviving spouse and entitled to her spousal intestate share of the assets of Decedent's estate, including the value asserted in this Claim." She further states that her claim "inheres to the [home]." In neither of these two filings with the probate court (the only documents in the record that set out her probate claims) does she say what specific statutes she relies on for these claims. Debtor simply claims her "spousal share" according to Iowa intestacy law and reimbursement for her contribution to the home.

On January 5, 2017, the United States Trustee ("the UST") filed a Motion to Reopen the bankruptcy case. The UST noted that Debtor had recently filed her Notice and Claim of Surviving Spouse in the Gonzales probate estate claiming a spousal ownership interest in a house. The UST points out that Debtor did not list an ownership interest in real estate on her bankruptcy schedules and did not claim to be married. The UST asked the Court to reopen the case to allow further investigation of this matter. The Court granted the motion.

On January 30, 2017, shortly after the UST's Motion to Reopen to investigate, the Chapter 7 Trustee filed a Motion to Approve Compromise or Settlement. Under the proposed settlement, the Gonzales Estate would pay $13,000 to the Chapter 7 Trustee for whatever claims the Chapter 7 Trustee had against the Gonzales Estate. The Chapter 7 Trustee noted in her Motion to Approve that Debtor had filed a claim in the Gonzales Probate Estate alleging that she was his common-law spouse and claiming an interest in the probate estate assets, but had not listed such interest on her bankruptcy schedules. Trustee further noted that, if Debtor had an interest in the house when she filed bankruptcy, it became property of the estate when she filed and continued to be property of the estate because she never listed it. The Chapter 7 Trustee implied, but never stated, that the bankruptcy estate possessed the Debtor's claims against the Gonzales estate. No one objected to the proposed settlement. On February 23, 2017, the Court approved the settlement of the Chapter 7 Trustee's claims against the Gonzales estate.

On May 9, 2017, the Iowa District Court for Linn County entered an order in the probate proceeding related to this settlement. The Iowa District Court noted that this Court had approved the settlement but that the settlement did not state what claims Trustee and the Gonzales Estate actually settled:

[T]he order granting the motion [to approve compromise or settlement] and the motion itself are not crystal clear as to precisely what has been compromised. The Court reads both as providing that any claims of Ms. Ventura, as defined by bankruptcy law, that existed when she filed her bankruptcy case have been settled in exchange for payment by this estate in the amount of $13,000.

In re Estate of Gonzales, No. 06571 ESPR038964, at 1 (Iowa Dist. Ct. Linn Cnty. May 9, 2017). The Iowa District Court then found that, although it was not authorized to determine what claims have or have not been settled (that is, what claims were or were not a part of the bankruptcy estate), the settlement was in the best interest of the estate. Id. The Court approved the settlement, noting: "[A]ny claims that were a part of the bankruptcy estate are resolved." Id. at 2. The Court reiterated that it was not addressing what substantive claims were settled:

The bankruptcy court approved the compromise but did not rule on what claims it might include. This court is NOT addressing specifically what claims are resolved as part of the compromise. This ruling is premised only on the conclusion that any claims that were part of the bankruptcy estate, that is they existed when Ms. Ventura filed bankruptcy, are resolved as part of the compromise. Any claims that would not be considered part of the bankruptcy estate are not compromised because the Trustee has no standing to compromise such claims.

Id.

On May 25, 2017, the Gonzales Estate filed the Motion to Define Compromised Claims presently before this Court. In the Motion, the Gonzales Estate asks this Court to decide "precisely what has been compromised." That is, the Gonzales Estate is effectively asking what claims Debtor had against Mr. Gonzales' property, if any, when she filed bankruptcy. The Gonzales Estate argues that all of Debtor's probate claims arose prepetition, became part of the bankruptcy estate when she filed, and were settled in full by the Gonzales Estate with the Chapter 7 Trustee. The Chapter 7 Trustee supports the motion and arguments of the Gonzales Estate. Debtor resists. Debtor asks the Court to find that all of her probate claims against the Gonzales Estate arose postpeition. She claims that her status as a probate claimant arose only when Gonzales died without a will providing for her common law spousal interests.

On September 21, 2017, after the hearing on the Motion to Define Compromised Claims, Debtor amended her schedules. She lists: "Any and all matured or unmatured claims to real estate, know or unknown, legal or equitable" as exempt. Debtor listed the value and portion of this exempt property as unknown.

Trustee filed an objection to Debtor's exemption. Trustee argues that Debtor's exemption was inappropriate, untimely, and should be denied. Trustee argues that she had already sold the property interest that Debtor now claims as exempt and distributed the proceeds. Thus, she argues that it is now impossible for Debtor to exempt the property from the estate.

CONCLUSIONS OF LAW AND ANALYSIS

The first issue here is whether the claims that Debtor now asserts in probate existed when she filed bankruptcy and became property of the estate. The second issue is whether the settlement between Trustee and the Gonzales Estate already decided that issue.

I. Property of the Estate—When Did Debtor's Probate Claims Arise?

The key question is whether Debtor's probate claims (as common law spouse with a property interest) became part of her bankruptcy estate when she filed bankruptcy. More specifically, the Court must decide whether Debtor's spousal and equitable interest claims she asserts against Gonzales' probate estate were "legal or equitable interest of the debtor in property as of commencement of the case." 11 U.S.C. § 541. In deciding this issue, the Court addresses only whether Debtor's claims arose prepetition and became property of the bankruptcy estate—not the actual merits of the probate claims she asserts.

The Gonzales Estate argues that Debtor's probate claims arose in 20...