863 F.3d 802
8th Cir.2017Background
- Steven and Karen McCormick guaranteed a $6,475,000 promissory note to Melikian Enterprises secured by Arizona real property held by Centennial Commercial Complex, LLC.
- Centennial defaulted; a trustee’s sale occurred October 9, 2012, and Melikian credit-bid to purchase the property. Melikian then filed an Arizona state suit (Aug. 2, 2012) but failed to perfect service and the suit was dismissed Jan. 30, 2013.
- The McCormicks filed Chapter 11 (Aug. 29, 2012). Melikian filed a proof of claim in bankruptcy for a $6,428,599 deficiency; the McCormicks objected citing A.R.S. § 33-814’s 90-day post-sale limitation.
- Bankruptcy court granted summary judgment for the McCormicks, holding Melikian’s claim barred under A.R.S. § 33-814 because Melikian did not “maintain” an action within the applicable period, and that 11 U.S.C. § 108(c) extended the deadline to 30 days after termination of the automatic stay (which occurred when the case was closed Nov. 14, 2013), making Dec. 16, 2013 the operative cut-off.
- The district court affirmed; the Eighth Circuit likewise affirmed, rejecting Melikian’s preemption, maintenance, and exclusive-jurisdiction arguments.
Issues
| Issue | Melikian's Argument | McCormicks' Argument | Held |
|---|---|---|---|
| Whether Bankruptcy Code preempts A.R.S. § 33-814 so Melikian need not meet state deficiency-timing rules | Bankruptcy Code (§§ 362, 502) displaces state timing rules; §502 mandates allowance determination by the bankruptcy court | State law creates the substantive right to a deficiency; §502 requires consulting applicable state law | §502 does not preempt §33-814; state law governs deficiency claims in bankruptcy |
| Whether automatic stay (§362) prevented compliance with §33-814 and thus preempted it | §362 stay made it impossible to serve within 90 days, so federal law should control | §108(c) governs extensions when nonbankruptcy law prescribes a period; outcome unaffected by §362 argument | Even assuming §362 impeded compliance, §108(c) controls and extended the deadline to Dec. 16, 2013 |
| Whether Melikian’s pre-sale state suit satisfied the §33-814 requirement to “maintain” an action post-sale | Pre-sale suit counts as a maintained action post-sale (no new filing required) | The pre-sale suit was dismissed for failure to serve, so it was not “maintained” within the statute | Pre-sale suit did not satisfy §33-814 because it was dismissed and thus not maintained |
| Whether bankruptcy court’s exclusive jurisdiction obviated need for a state deficiency action | Exclusive bankruptcy jurisdiction meant no separate state action required to preserve deficiency rights | Substantive state law still defines the creditor’s claim; bankruptcy court must apply state law | Exclusive jurisdiction does not excuse failure to meet state substantive requirements; §33-814 controls |
Key Cases Cited
- Travelers Cas. & Sur. Co. of Am. v. Pac. Gas & Elec. Co., 549 U.S. 443 (2007) (bankruptcy courts consult state law to determine validity of claims)
- In re Apex Oil Co., 406 F.3d 538 (8th Cir. 2005) (standard of review for second-level bankruptcy appeals)
- Symens v. SmithKline Beecham Corp., 152 F.3d 1050 (8th Cir. 1998) (framework for implied preemption analysis)
- Mo. Bd. of Exam’rs for Hearing Instrument Specialists v. Hearing Help Express, Inc., 447 F.3d 1033 (8th Cir. 2006) (presumption against implied preemption without clear congressional intent)
- Valley Nat’l Bank of Ariz. v. Kohlhase, 897 P.2d 738 (Ariz. Ct. App. 1995) (pre-sale suit can qualify as a maintained deficiency action if continued after sale)
- ICC v. Holmes Transp., Inc., 931 F.2d 984 (1st Cir. 1991) (automatic stay terminates upon closing or dismissal of the bankruptcy case)