In Re Carolyn L. DAVIS, Debtor. Carolyn L. Davis, Appellant, v. U.S. Bank, N.A.; Onewest Bank; and Elizabeth F. Rojas, Appellees.
No. 12-60069
United States Court of Appeals, Ninth Circuit
Argued and Submitted Dec. 12, 2014. Filed Feb. 17, 2015.
778 F.3d 809
III
We hold that application of the gang enhancement provision under
GRANTED AND REMANDED.
Richard W. Esterkin (argued), Morgan, Lewis & Bockius LLP, Los Angeles, California; and Joshua A. del Castillo (argued) and David R. Zaro, Allen Matkins Leck Gamble Mallory & Natsis LLP, Los Angeles, California, for Appellees.
Before: SUSAN P. GRABER, RONALD M. GOULD, and CONSUELO M. CALLAHAN, Circuit Judges.
OPINION
GRABER, Circuit Judge:
Debtor Carolyn L. Davis apрeals from a decision of the Bankruptcy Appellate Panel (“BAP“) affirming an order of the bankruptcy court that dismissed her voluntary petition under chapter 12 of the Bankruptcy Code. The bankruptcy court dismissed Davis’ petition because her “aggregate debts” exceeded $3,792,650, the statutory limitation for chapter 12 eligibility in effect at the time that Davis filed her petition. See
Davis owns parcels of real property in California, three of which are relevant to this appeal. According to the schedules that she attached to her chapter 12 petition, Davis owns a 110-acre ranch in Paso Robles, a residence in Cayucos, and a triplex in Paso Robles. Each of those properties is encumbered by a deed of trust (and, with respect to the ranch and the residence, an equity line of credit) in an amount exceeding the property‘s appraised value. Davis manages the operations on her properties and, in 1997, undertook to establish a vineyard on the ranch. In 2006, hоwever, her efforts failed, and she defaulted on each of the three loans.
In July 2010, Davis filed a voluntary petition under chapter 7 of the Bankruptcy Code. Thereafter she received a discharge, which released her from personal liability for the unsecured claims associated with the properties. See
In March 2011, Davis filed a second voluntary petition, this time under chapter 12 of the Code, which contains special provisions for family farmers whose “aggregate debts” do not exceed a statutory dollar amount. See
The bankruptcy court dismissed Davis’ petition on the ground that she had “aggregate debts” of $4.1 million, exceeding the statutory limitation for chapter 12 eligibility. Davis appealed to the BAP, arguing that the unsecured portion of each of her secured creditor‘s claims should not be included in her “aggregate debts” and, therefore, should not bar chapter 12 eligibility, because her personal liability for those claims had been discharged in her earlier chaрter 7 case. According to Davis, because the secured portions of her creditors’ claims were limited to the value of the secured collateral, the value of her “aggregate debts” fell well below the statutory limitation for chapter 12 eligibility. The BAP affirmed. Apрlying our decision in Quintana v. Commissioner (In re Quintana) (”Quintana II“), 915 F.2d 513 (9th Cir.1990), the BAP concluded that “obligations enforceable against the debtor‘s property but for which the debtor has no personal liability are nonetheless ‘claims’ and ‘debts’ within the meaning of the Bankruptcy Code.” In re Davis, 2012 WL 3205431, at *5.
Davis timely appeals. We review de novo the BAP‘s decision and “apply the same standard of review that the BAP applied to the bankruptcy court‘s ruling.” AmeriCredit Fin. Servs., Inc. v. Penrod (In re Penrod), 611 F.3d 1158, 1160 (9th Cir.2010) (internal quotation marks omitted).
Under
To answer that question, we first turn to the text of the Bankruptcy Code. Fireman‘s Fund Ins. Co. v. Plant Insulation Co. (In re Plant Insulation Co.), 734 F.3d 900, 910 (9th Cir.2013), cert. denied; 572 U.S. 1047, 134 S.Ct. 1901, 188 L.Ed.2d 914 (2014). As noted, at the time Davis filed her chapter 12 petition the Code limited chapter 12 eligibility to family farmers “whose aggregate debts do not exceed $3,792,650.”
(A) right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; or
(B) right to an equitable remеdy for breach of performance if such breach gives rise to a right of payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured.
In Johnson v. Home State Bank, 501 U.S. 78, 111 S.Ct. 2150, 115 L.Ed.2d 66 (1991), the Supreme Court considered the related question of whether a debtor must include a mortgage lien in a chapter 13 reorganization plan after the obligation secured by the mortgage had been discharged in an earlier chapter 7 proceeding. Relying on the text and legislative history of the Code, the Court characterized the definition of the word “claim” in
Even after the debtor‘s personal obligations have been extinguished, the mortgage holder still retains a “right to payment” in the form of its right to the proceeds from the sale of the debtor‘s property. Alternatively, the creditor‘s surviving right to foreclose on the mortgage can be viewed as a “right to an equitable remedy” for the debtor‘s default on the underlying obligation. Either way, there can be no doubt that the surviving mortgage interest corresponds to an “enforceable obligation” of the debtor.
Id.
Johnson and Davenport teаch that the meaning of “debt” is coextensive with the meaning of “claim” and, in turn, that “claim” is broadly defined to include any right to payment or any right to an equitable remedy giving rise to a right of payment. A creditor retains a right to payment, enforceable in rem, on the unsecured pоrtion of a loan for which in personam liability may have been discharged. We therefore agree with the BAP that Davis’ “aggregate debts” include the unsecured portions of the undersecured mortgage loans that remain enforceable against Davis’ property, evеn though the loans are not enforceable against Davis personally.
Our own precedent likewise supports that reading of the Bankruptcy Code. In Quintana v. Commissioner (In re Quintana) (”Quintana I“), 107 B.R. 234, 235-36 (B.A.P. 9th Cir.1989), aff‘d, Quintana II, 915 F.2d 513, the debtors had borrowed $1 million, which was secured by real property valued at $600,000. The debtors defaulted on the loan, sо the creditor brought an action in Idaho state court for a decree of foreclosure and an order of sale. Id. at 235. In that action, the creditor waived its right to seek a post-sale deficiency judgment. Id. at 236. The state court entered summary judgment in favor of the creditor, and the debtors subsequently filed a chapter 12 petition. Id.
The question for the BAP in Quintana I, then, was whether the creditor‘s decision to waive its right to seek a deficiency judgment had the effect of limiting the value of the debtors’ “aggregate debts” to the value of the secured collateral. Id. The BAP held that it did nоt, reasoning that the word “claim” should be construed broadly to include all rights to payment, id. at 237, and that “[a]lthough, as a practical matter, [the creditor] will only be able to collect the value of the property, it has the right to payment of the entire obligation if under some circumstance, the property is sold for more than its present value,” id. at 239. We agreed, noting further that, “[u]pon the sale of the property, ... [the creditor] will be entitled to all sale proceeds up to the [amount of the loan], plus costs of foreclosure and sale; [the c]reditor will not be limited to the $675,000 scheduled value of the property.... Therefore, ... the amount of the debt is the full $1,527,861.89 of adjudged indebtedness.” Quintana II, 915 F.2d at 516 (citations omitted).
Our decision in Quintana II thus confirms the distinction, established in Johnson and Davenport, between in rem and in personam liability in this context, and likewise compels us to conclude that a creditor‘s claim remains a “debt” so long as it is enforceable against either the debt-
Our decision in Scovis v. Henrichsen (In re Scovis), 249 F.3d 975 (9th Cir.2001), is not to the contrary. In Scovis, we resolved issues that we had avoided in Quintana II—namely, whether and to what extent the schedules attached to a bankruptcy petition should be used to determine the debtor‘s eligibility for relief. 249 F.3d at 981. The debtors in Scovis had petitioned for chapter 13 bankruptcy. We held, among other things, that a debtor‘s eligibility under chapter 13 “should normally be determined by the debtor‘s originally filed schеdules, checking only to see if the schedules were made in good faith.” Id. at 982.
Davis relies on Scovis to argue that her originally filed schedules demonstrate her eligibility under chapter 12. As noted, those schedules list the total “amount of claim[s] without deducting value of the collateral” as $4.1 million. This amount is also referred to on her schedules as her “liabilities.” The schedules go on to list the “unsecured portion” of Davis’ total debts as $2.5 million. According to Davis, those figures demonstrate that her secured debts total only $1.6 million, well below the statutory limitation for chapter 12 eligibility. That may be true but, as we have explained, for the purposes of chapter 12 eligibility the amount of a debtor‘s “aggregate debts” includes the entire amount of her creditors’ claims, whether secured or unsecured, and whether enforceable against the debtor or only against thе debtor‘s property.
Davis’ schedules list claims (liabilities) totaling $4.1 million, which is above the cap for chapter 12 eligibility in effect at the time that Davis filed her petition. See
AFFIRMED.