In re Marshall L. RADER and Barbara J. Rader, Debtors. William E. Pierce, Chapter 7 Trustee, Appellant, v. Robert G. Carson, Trustee of the R & S Carson Family Trust; Sandra J. Carson, Trustee of the R & S Carson Family Trust, Appellees.
BAP No. AZ-12-1241-KIPaMk. Bankruptcy No. 10-14477-RTB.
United States Bankruptcy Appellate Panel of the Ninth Circuit.
Decided March 8, 2013.
408 B.R. 408
Argued and Submitted on Jan. 25, 2013.
Before: KLEIN,* PAPPAS, and MARKELL, Bankruptcy Judges.
OPINION
KLEIN, Bankruptcy Judge.
INTRODUCTION
Chapter 71 trustee, William E. Pierce (“Trustee“), appeals from an order over-
FACTS
Marshall and Barbara Rader (“Debtors“) filed a chapter 13 bankruptcy petition on May 12, 2010. A few months later, the case was converted to a chapter 7, and Trustee was appointed аs the chapter 7 trustee.
On August 12, 2010, the Carsons filed a “Motion for Order Approving Stipulation of Parties Regarding Relief from Automatic Stay” (“Motion“). The Motion indicated that the Carsons, Debtors, and Trustee agreed that the automatic stay should be terminated regarding a parcel of real property located in Valle-Williams, Coconino County, Arizona (“Property“). Attached to the Motion was a stipulation (“Stipulation“), which stated that the Carsons had a security interest in the Property and that Debtors were in default under their obligations to the Carsons. On September 9, 2010, the bankruptcy court entered an “Order Apprоving Stipulation Regarding Relief from Automatic Stay” (“Order“).
On November 1, 2010, the Carsons timely filed a $739,100.61 proof of claim (“Claim“), which indicated that the debt was secured by a trust deed on the Property. The Claim stated that the value of the Property was $370,000. This valuation was supported by an appraisal, and was not challenged in the bankruptcy court nor is it challenged in this appeal. The Claim was bifurcated into a secured claim of $370,000 and an unsecured claim of $369,100.61.
On December 16, 2010, the Carsons purchased the Property for $370,000 at a non-judicial foreclosure sale. Debtors received a discharge on January 11, 2011.
On March 2, 2012, Trustee filed an objection to the Claim (“Claim Objection“), which stated, in its entirety, that: “Said claimant asserts a lien on certain property of the debtor‘s [sic] estate and said claimant has or should have looked to said property for payment of the debt thereby secured. The trustee recommends that said claim be treated as: DISALLOWED.” The Carsons filed a response to the Claim Objection on March 16, 2012. On April 20, 2012, the bankruptcy court heard and overruled the Claim Objection, reasoning that the Carsons could not have filed a state court deficiency action or an adversary proceeding withоut violating the discharge injunction. On May 1, 2012, the bankruptcy court entered an order overruling the Claim Objection and allowing the Carsons’ $369,100.61 unsecured claim. Trustee timely filed a notice of appeal on May 4, 2012.
JURISDICTION
The bankruptcy court had jurisdiction pursuant to
ISSUE
Whether the bankruptcy court erred when it overruled Trustee‘s Claim Objection.
STANDARD OF REVIEW
“An order overruling a claim objection can raise legal issues (such as the proper construction of statutes and rules) which we review de novo, as well as factual issues (such as whether the facts establish compliance with particular statutes or rules), which we review for clear error.”
DISCUSSION
Trustee asserts that the bankruptcy court should have disallowed the unsecured portion of the Carsons’ Claim because they did not comply with
Trustee also argues that the discharge injunction did not prohibit the Carsons from pursuing a deficiency action because: 1) Debtors would not have to be parties to any such action; 2) proceedings can be filed post-discharge that name Debtors as nominal parties without violating the discharge injunction; and 3) the Carsons could have filed a motion with the bankruptcy court to obtain leave to proceed.
The Carsons counter that pursuant to
A. Arizona Revised Statute § 33-814
B. Preemption
Based on the facts of this case, we find that
“There are two types of implied preemption: field preemption and conflict preemption.” Id. Field preemption is present when federal law “so thoroughly occupies a legislative field as to make reasonable the inference that Congress left no room for the States to supplement it.” Cipollone v. Liggett Group, Inc., 505 U.S. 504, 516, 112 S.Ct. 2608, 120 L.Ed.2d 407 (1992). Conflict preemption is present “to the extent that federal law actually conflicts with any state law.” Whistler Invs., 539 F.3d at 1164.
Field preemption is inapplicable in this case. Section 502(b)(1) states that a court “shall allow” a claim unless the claim is “unenforceable against the debtor and property of the debtor, under any agreement or applicable law.” By explicitly incorporating other “applicable law,”
“Conflict preemption analysis examines the federal statute as a whole to determine whether a party‘s compliance with both federal and state requirements is impossible or whether, in light of the federal statute‘s purpose and intended effects, state law poses an obstacle to the accomplishment of Congress‘s objectives.” Whistler Invs., 539 F.3d at 1164. As analyzed belоw, we find that both types of conflict preemption are present in this case. First, the automatic stay and the discharge injunction-two cornerstones of federal bankruptcy law-made it impossible for the Carsons to comply with
1. It was Impossible for the Carsons to Comply with Federal and State Law
a. Automatic Stay
When Debtors filed bankruptcy on May 12, 2010, an automatic stay immediately went into effect that prohibited, among other actions, “the commencement or continuation, including the issuance or employment of process, of a judicial, ad-
It is undisputed that the automatic stay was in effect between December 16, 2010 (the date of the foreclosure sale) and January 11, 2011 (the date Debtors received a discharge). The Carsons would have violated the automatic stay if they had filed a deficiency action during that period of time, unless the Order modified the stay not only to allоw the Carsons to proceed with the foreclosure sale, but also to initiate a deficiency action.
The Order was silent regarding whether the Carsons could pursue a deficiency judgment. The Order could be interpreted as authorizing the Carsons to file a deficiency action because it provided that they could take “any and all steps pursuant to their loan and security agreements” to realize and recover on the indebtedness owed by Debtors. The Order could also be interpreted as only authorizing the Carsons to pursue recovery by way of a foreclosure sale, becausе it provided that the Carsons could schedule and conduct “a non-judicial foreclosure sale of the real property under the deed of trust,” but did not mention filing a deficiency action.
Because the Order is subject to more than one reasonable interpretation, it is ambiguous. See Kester v. Campbell, 652 F.2d 13, 16 (9th Cir. 1981) (“The language of the [executive] order is sufficiently ambiguous to permit several reasonable interpretations. . . .“); Univ. Realty & Dev. Co. v. Omid-Gaf, Inc., 19 Ariz. App. 488, 508 P.2d 747, 750 (1973) (“Language is ambiguous when it can reasonably be construed in more than one sense. . . .“). Therefore, we can refer to the “entire record for determining what was decided.” Colonial Auto Ctr. v. Tomlin (In re Tomlin), 105 F.3d 933, 936 (4th Cir. 1997) (internal quotation marks omitted); see also In re Wachovia Preferred Sec. & Bond/Notes Litig., No. 09 Civ. 6351 RJS, 2012 WL 2589230, at *1 (S.D.N.Y. Jan. 3, 2012) (incorporating by reference definitions in a stipulation into an order); Solutia, Inc. v. McWane, Inc., 726 F.Supp.2d 1316, 1329 (N.D. Ala. 2010) (considering a stipulation, briefs, and a declaration to interpret an ambiguous order).
As the Carsons argue persuasively, the Stipulation, on which the Order is based, states that the Carsons would “seek foreclosure and liquidation of the . . . Real Property,” while the Arizona statute at issue provides that deficiency actions are against persons.
Trustee‘s assertion that any ambiguity must be construed against the Carsons is meritless for two reasons. First, Trustee was represented by counsel and the Order was based on the Stipulation, which Trustee signed. Thus, the general rule that ambiguities are interpreted against the drafter is limited in this case “by the degree of sophistication of the
Second, “the terms of an order lifting the automatic stay are strictly construed.” Griffin v. Wardrobe (In re Wardrobe), 559 F.3d 932, 935 (9th Cir. 2009) (internal quotation marks omitted); InterBusiness Bank, N.A. v. First Nat‘l Bank of Mifflintown, 328 F.Supp.2d 522, 528-29 (M.D. Pa. 2004) (“It is axiomatic that, due to the presumptively expansive scope of the automatic stay, relief from the stay must be narrowly construed.“); Bank of Am. Nat‘l Trust & Sav. Ass‘n v. Va. Hill Partners I (In re Va. Hill Partners I), 110 B.R. 84, 87 (Bankr. N.D. Ga. 1989) (“[U]nless the stay relief order clearly provides otherwise, the determination and allowance of claims, deficiency or otherwise, against the debtor or its estate in the pending bankruptcy case remain within the exclusive jurisdiction of the bankruptcy court.“).
Trustee‘s reliance on In re Tyler, 166 B.R. 21 (Bankr. W.D.N.Y. 1994) and InterBusiness, 328 F.Supp.2d 522, to support his position thаt the Carsons were required to file a state court action to obtain a deficiency judgment is unavailing. Both Tyler and InterBusiness involved judicial foreclosure statutes that required creditors to file state court actions before foreclosing on real property. Any deficiency actions in those cases would have necessarily been part of the state court foreclosure proceeding. InterBusiness, 328 F.Supp.2d at 527 (“Petitions to fix value are filed as part of the foreclosure action itself, as a simple, supplemental proceeding in the existing case.“); In re Tyler, 166 B.R. at 25 (stating that a party seeking a deficiency judgment in New York must file a motion within the mortgage foreclosure proceeding).
The courts in Tyler and InterBusiness considered the interrelationship between the foreclosure and deficiency actions to be an important factor in interpreting the relief from stay orders. InterBusiness, 328 F.Supp.2d at 527; In re Tyler, 166 B.R. at 25 (stating that when it grants relief from stay to allow a party to proceed with foreclosure proceedings, “it is the Court‘s expectation that it has modified or terminated the stay for the completion of all related state court mortgage foreclosure proceedings, including the establishment of any deficiency judgment“). In contrast, the non-judicial foreclоsure procedure authorized by
Trustee contends that even if the Order did not authorize the Carsons to file a deficiency action in state court, they could have filed an adversary proceeding to establish a deficiency. Trustee‘s argument is baseless. Neither the Bankruptcy Code, the Federal Rules of Bankruptcy Procedure, nor any other relevant authority requires a creditor to file an adversary proceeding to have an allowed claim.
A proof of claim “is deemed allowed” unless a party in interest objects.
b. Discharge Injunction
Debtors received a discharge less than one month after the Carsons foreclosed on the Property. Thus, the discharge injunction was in effect during most of the ninety-day period when Trustee asserts the Carsons should have complied with
Section 524(a)(2) provides that a discharge “operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offsеt any such debt as a personal liability of the debtor.” “The § 524(a)(2) discharge injunction casts a wide shadow, with a large penumbra.” Ruvacalba v. Munoz (In re Munoz), 287 B.R. 546, 553 (9th Cir. BAP 2002). It applies “permanently with respect to every debt that is discharged,” Garske v. Arcadia Fin., Ltd. (In re Garske), 287 B.R. 537, 542 (9th Cir. BAP 2002), and “enjoins any creditor‘s effort to collect a discharged debt as a personal liability of the debtor.” Heilman v. Heilman (In re Heilman), 430 B.R. 213, 218 (9th Cir. BAP 2010).
Trustee argues that the discharge injunction did not prevent the Carsons from filing an action pursuant to
In Sun Ok Kim the court was confronted with deciding which parties have standing to object to proofs of claims. Id. at 118. The court stated that usually only the trustee has such standing, but if the “trustee is formally notified and refuses to make an objection, either the debtor or the creditor may then ask the bankruptcy court to disallow the claim.” Id. The fact that a trustee is normally the only party with standing to object to claims does not mean that the trustee is the only party who can be named as a defendant in a state court action or an adversary proceeding involving a claim. Trustee conflates standing to object to a claim with real party in interest with regard to the determination of claims. The former concept is, by its terms, narrower than Trustee contends and does not preclude a debtor‘s involvement in the “determination” of claims.
Additionally, Trustee‘s argument is undercut by the express language of
Alternatively, Trustee cites Ruvacalba v. Munoz (In re Munoz), 287 B.R. 546 (9th Cir. BAP 2002) for the proposition that
Trustee also contends that the Carsons could have “done exactly what the creditor in Munoz did” and “filed a motion with the bankruptcy court tо obtain leave to proceed.” The court in Munoz distinguished between “construing” and “modifying” the discharge injunction. Id. at 553. The former is permissible because a court would merely be defining the parameters of the discharge injunction. Id. The latter, however, is not because the “discharge injunction is set in statutory concrete,” which “constitutes a clear and valid legislative command that leaves no discretion in the court to modify the discharge injunction.” Id. at 550, 553. In Munoz, the court construed the discharge injunction and determined that a creditor seeking to collect from a collateral source would not violate it. Id. аt 555. In contrast, if the Carsons had filed a motion for authorization to proceed with a deficiency action, they would have been impermissibly seeking to modify the discharge injunction to collect debt that was Debtors’ personal liability.
In this case, compliance with the Bankruptcy Code and
Stated differently, the automatic stay and the discharge injunction acted as a legal bar to the Carsons doing what
2. Compliance with A.R.S. § 33-814 Was an Obstacle to Accomplishing the Bankruptcy Code‘s Objectives
Requiring the Carsons to comply with
a. The Bankruptcy Code Provides a Comprehensive, Centralized Process for Adjudication of Claims
The “centralized resolution of bankruptcy claims” and “the avoidance of piecemeal litigation” are fundamental purposes of the Bankruptcy Code. Erie Power Techs., Inc. v. Ref-Chem, L.P. (In re Erie Power Techs., Inc.), 315 B.R. 41, 45 (Bankr. W.D. Pa. 2004); see also In re Tammarine, 405 B.R. 465, 467 (Bankr. N.D. Ohio 2009) (“The determination of claims against the bankruptcy estate is a centrаl function of the bankruptcy courts.“); In re Bargdill, 238 B.R. 711, 716 (Bankr. N.D. Ohio 1999) (noting that the claims allowance process facilitates the orderly distribution of the bankruptcy estate, which is one of the fundamental tenets of bankruptcy law).
“[T]he complex, detailed, and comprehensive provisions of the lengthy Bankruptcy Code,
The Bankruptcy Code defines a “clаim” broadly as 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.”
A proof of claim that is executed and filed in accordance with the Rules “shall constitute prima facie evidence of the validity and amount of the claim.” Rule 3001(f); see also Garner v. Shier (In re Garner), 246 B.R. 617, 620 (9th Cir. BAP 2000) (“There is an evidentiary presumption that a correctly prepared proof of claim is valid as to liability and amount.“). A claim “is deemed allowed, unless a party in interest . . . objects.”
shall determine the amount of such claim . . . as of the date of the filing of the petition, and shall allow such claim in such amount except to the extent that-(1) such claim is unenforceable against the debtor and property of the debtor, under any agreement or applicable law for a reason other than because such claim is contingent or unmatured.
Additionally, filing a deficiency action in state court would have been unnecessary and inefficient because it would have required another court‘s involvement in the adjudication of a core bankruptcy matter.
b. The Bankruptcy Code Has a Framework for Determining the Secured and Unsecured Status of Claims
Requiring the Carsons to file a deficiency action pursuant to
an allowed claim of a creditor secured by a lien on property in whiсh the estate has an interest . . . is a secured claim to the extent of the value of such creditor‘s interest in the estate‘s interest in such property . . . and is an unsecured claim to the extent that the value of such creditor‘s interest . . . is less than the amount of such allowed claim.
The Supreme Court has noted that pursuant to § 506(a), creditors can divide their claims into “secured and unsecured portions, with the secured portion of the claim limited to the value of the collateral.” Assocs. Commercial Corp. v. Rash, 520 U.S. 953, 961, 117 S.Ct. 1879, 138 L.Ed.2d 148 (1997); see also Enewally v. Wash. Mut. Bank (In re Enewally), 368 F.3d 1165, 1168-69 (9th Cir. 2004) (“Under the Bankruptcy Code, a secured loan may be separated into two distinct claims: a secured claim for an amount equal to the value of the security, and an unsecured claim for the difference, if any, between the amount of the loan and the value of the security.“).
Although the unsecured portion of the Carsons’ Claim was unliquidated and contingent before the foreclosure sale, that portion of their Claim was still valid. See
Contrary to Trustee‘s position, “[t]here is no requirement that the creditor first obtain a deficiency judgment in the non-bankruptcy forum as a prerequisite for bifurcating a claim into a secured and an unsecured part.” In re Costello, 184 B.R. 166, 171 (Bankr. M.D. Fla. 1995). As partially secured, partially unsecured creditors, the Carsons timely “submit[ted] to the court . . . a proof of claim enumerating” the unsecured amount of their Claim. In re Bargdill, 238 B.R. 711, 716 (Bankr. N.D. Ohio 1999); see also In re VanDuyn, 374 B.R. 896, 897-98 (Bankr. M.D. Fla. 2007) (noting that creditor filed bifurcated proof of claim, and then determining whether the deficiency claim should be allowed under substantive bankruptcy law).
Trustee contends that the Carsons should have amended their Claim after the foreclosure sale, because “[c]reditors have a duty to amend their claims when they are aware of facts which render their previously filed claims inaccurate.” The Carsons could have amended their Claim to reflect that the secured portion was satisfied, but that portion of the Claim is not in dispute. There was also no reason for the Carsons to amend the unsecured portion of their Claim because they do not assert that they are entitled to more than the unsecured amount listed in their Claim. See In re Five Boroughs Mortg. Co., Inc., 176 B.R. 708, 713 (Bankr. E.D.N.Y. 1995) (noting that after a foreclosure sale, a secured creditor may return to the bankruptcy court to pursue that рortion of its debt that was not satisfied by foreclosure of its collateral “by filing a claim against the bankruptcy estate. It may be the lender‘s original proof of claim. Or the lender may simply amend the proof of claim already filed to reflect the debt‘s correct amount, which is the debt less the foreclosure sale proceeds received by the lender.“).
CONCLUSION
Trustee‘s Claim Objection was based solely on the Carsons’ failure to obtain a deficiency judgment pursuant to
KLEIN
BANKRUPTCY JUDGE