Pederson v. Stedman (In Re Pederson)

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In re Earnest James PEDERSON, Debtor. Earnest James PEDERSON, Appellant, v. Bonnie Jean STEDMAN, Appellee.

BAP No. WW-86-1938-MeEAs

Bankruptcy No. 86-05147-Y7

United States Bankruptcy Appellate Panels of the Ninth Circuit.

Sept. 30, 1987.

78 B.R. 264

ees or debtors in possession to be dilatory in the remitting of payroll taxes would not forward the purposes of Chapter 11 proceedings. While it is conceivable that in some rare instances “borrowing” from tax authorities in this manner might be in the best interests of all parties, such an extraordinary action must receive the prior imprimatur of the court under Section 364(b). Once this authority is achieved, then interest charges on the obligation would be entitled to priority as a Chapter 11 administrative expense.

In determining to reject the Government‘s claim, we are well aware of the contrary authority found in the Fourth Circuit Court of Appeals decision of

United States v. Friendship College, Inc., supra, 737 F.2d 430. In the interest of uniformity, we recognize that the Panel should follow the decisions of other federal appellate courts unless satisfied that they are erroneous.

In re Nelson, 59 B.R. 417, 419 (9th Cir.BAP 1985). We are so satisfied. The Fourth Circuit erroneously relied on the language found in the Report of the Senate Judiciary Committee, S.Rep. No. 95-989, U.S.Code Cong. & Admin.News 1978, p. 5787, but not found in the House Report, stating that interest on post-petition taxes and penalties would also be granted administrative expense priority under Section 503. This reference was in support of language contained in the Senate‘s proposed bill which was not included in the final enactment of the Code. See

In re Stack & Supply Co., supra, 28 B.R. at 156;

Matter of Lumara Foods of America, Inc., supra, 50 B.R. at 817;

Matter of Hirsch-Franklin Enterprises, Inc., supra, 63 B.R. at 870. Likewise, the reliance by the Government and the dissent on

Nicholas v. United States, supra, 384 U.S. 678, 86 S.Ct. 1674 is misplaced for that Act case stood for the very rule granting interest on post-petition debts that the Senate attempted to incorporate into the Code and failed.

In conclusion, we find that the trial court did not abuse its discretion in refusing to recognize a claim for interest on unpaid post-petition payroll taxes where no prior judicial approval had been obtained authorizing delay in payment. As a matter of equity, the failure of the debtor in possession to remit these taxes timely could not be considered an appropriate means to attempt a reorganization. The trial court correctly ruled that the accrual of interest on these unpaid taxes, under these circumstances, could not be considered a necessary expense of “preserving the estate” under Section 503(b).

AFFIRMED.

ELLIOTT, Bankruptcy Judge, dissenting:

I respectfully dissent. I believe we are bound by the decision in

Nicholas v. U.S., 384 U.S. 678, 86 S.Ct. 1674, 16 L.Ed.2d 853 (1966). The majority reasons that because Congress did not expressly adopt the rule of that case as suggested in the Senate version of § 503 of the Code that the rule was abrogated.

I suggest that to the contrary, that if Congress amends the laws without expressly abrogating relevant case law that the case law has continuing vitality.

Laird v. Nelms, 406 U.S. 797, 802, 92 S.Ct. 1899, 1902, 32 L.Ed.2d 499, reh. den. 409 U.S. 902, 93 S.Ct. 95, 34 L.Ed.2d 165 (1972).

I would reverse and remand for allowance of interest on post-petition taxes as a priority claim under 11 U.S.C. § 503.

Peter H. Arkison, Billingham, Wash., for appellant.

M. Kathryn Lee, Lee & Uhrig, Bellingham, Wash., for appellee.

Before MEYERS, ELLIOTT and ASHLAND, Bankruptcy Judges.

MEYERS, Bankruptcy Judge:

I

BACKGROUND

On July 3, 1986, a Superior Court in Washington entered a Decree of Dissolution in the marriage of the Debtor and Bonnie Stedman. The decree did not provide for any alimony, support or maintenance payments but did divide up the parties’ property. As part of the settlement, the Debtor was awarded as his sole and separate property some realty which had been used as the parties’ residence during their marriage. The residence had been his separate property prior to the marriage. The Superior Court found that the marital community had made significant contributions to this real property. In recognition of these contributions and in order to equalize the property division, the court awarded Stedman a judgment against the Debtor of $8,000. Furthermore, the judgment was to constitute a lien against the Debtor‘s real property.

On July 22, 1986, the Debtor filed a bankruptcy petition under Chapter 7 of the Bankruptcy Code (“Code“). The Debtor claimed a $25,000 homestead exemption allowed under Washington state law on his residence. The Debtor then moved to avoid the $8,000 judgment pursuant to Section 522(f)(1) of the Code claiming that the state court‘s decree created a judicial lien which impaired his homestead exemption.

The Bankruptcy Court denied the Debtor‘s motion in a document entitled “Opinion and Order on Motion to Avoid Lien.” The Court stated: “The law is well established that either such a lien is not a judicial lien as contemplated by Section 101(30), or that it is a judicial lien which is not subject to avoidance.”

II

DISCUSSION

A. Separate Order Rule

Bankruptcy Rule 9021(a) requires that “Every judgment entered in an adversary proceeding or contested matter shall be set forth on a separate document.” This means that the judgment or order must be separate from an opinion or memorandum of the court.

In re Rehbein, 60 B.R. 436, 439 (9th Cir. BAP 1986). The purpose of this rule is to avoid confusion over when the time for an appeal begins to run.

Bankers Trust Co. v. Mallis, 435 U.S. 381, 385, 98 S.Ct. 1117, 1120, 55 L.Ed.2d 357 (1978). The rule also helps avoid confusion over which actions of the court constitute the final judgment.

United States v. Indrelunas, 411 U.S. 216, 220-21, 93 S.Ct. 1562, 1564, 36 L.Ed.2d 202 (1973). Failure to comply with Bankruptcy Rule 9021 gives the appellate court discretion to dismiss or remand.

In re Johnson, 62 B.R. 24, 27 (9th Cir. BAP 1986).

In the present case, the opinion, which explains the facts and the Court‘s reasoning, and the Court‘s order, which denied relief to the Debtor, are both found in the same document. This violates Rule 9021(a). However, the parties are free to waive the requirements of Rule 9021(a). See

Bankers Trust Co. v. Mallis, supra, 435 U.S. at 384, 98 S.Ct. at 1119. Since this rule should be interpreted to prevent the loss of the right to appeal, the Panel finds that the parties have waived the requirements of this section.

In re Rehbein, supra, 60 B.R. at 439.

B. Lien Avoidance Under Section 522(f)(1)

Section 522(f)(1) states:

Notwithstanding any waiver of exemptions, the debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debtor would have been entitled under subsection (b) of this section, if such lien is—

(1) a judicial lien.

11 U.S.C. § 522(f)(1). Under this section, a debtor may avoid a judicial lien valid under state law to the extent that it impairs an exemption to which the debtor would otherwise be entitled under Section 522(b).

In re Commercial Western Finance Corp., 761 F.2d 1329, 1337 n. 15 (9th Cir.1985);

In re Dahdah, 20 B.R. 665, 667 (9th Cir. BAP 1982). The Supremacy Clause of the Constitution gives effect to Section 522(f) where it conflicts with a state‘s lien laws.

In re Hall, 752 F.2d 582, 586 n. 4 (11th Cir.1985);

In re Dahdah, supra, 20 B.R. at 667.

In the present case, the Superior Court judgment, which expressly imposed a lien on the Debtor‘s real property to secure future property settlement payments, created a valid equitable lien under Washington law.

Northern Commercial Co. v. E.J. Hermann Co., 22 Wash.App. 963, 593 P.2d 1332, 1335 (1979). Under Washington law, the Debtor‘s homestead declaration did not protect him against an equitable lien.

Webster v. Rodrick, 64 Wash.2d 814, 394 P.2d 689, 691-92 (1964);

Christensen v. Christgard, Inc., 35 Wash.App. 626, 668 P.2d 1301, 1303 (1983). Nevertheless, Section 522(f)(1) authorizes the avoidance of this lien to allow the debtor‘s exemption on property which would otherwise be encumbered by it.

In re Baxter, 19 B.R. 674, 675 (9th Cir. BAP 1982). This fulfills Congress’ intent to favor the debtor‘s right to an exemption over a creditor‘s right to enforce a judicial lien. See

In re Hall, supra, 752 F.2d at 586; H.R.Rep. No. 595, 95th Cong., 1st Sess. 362 (1977), U.S.Code Cong. & Admin.News 1978, p. 5787.

The Eighth Circuit has held that Section 522(f)(1) does not authorize a debtor to avoid a judicial lien arising from a property settlement in a divorce proceeding.

Boyd v. Robinson, 741 F.2d 1112, 1114 (8th Cir. 1984). In Boyd, the debtor owed her former spouse $7,000 from an order dissolving their marriage prior to the debtor‘s bankruptcy. The Court of Appeals first noted that Section 522(f)(1) requires “the fixing of a lien on an interest of the debtor in property ....” 11 U.S.C. § 522(f)(1) (emphasis added). The court then found that the lien in the divorce decree merely protected the creditor‘s pre-existing interest in the homestead that arose by state law prior to the marriage dissolution.

741 F.2d at 1114. Since the lien did not attach to an “interest of the debtor,” it was not avoidable under Section 522(f)(1). Id.

Although decisions of the Eighth Circuit are entitled to great respect, the Panel finds that the lien in the present case did attach to an interest of the Debtor. The Superior Court‘s dissolution decree awarded the real property outright to the Debtor. Any interest Stedman may have gained in the course of the marriage was extinguished by the marriage dissolution decree prior to the Debtor‘s bankruptcy. In its place, the Superior Court granted Stedman an $8,000 judgment. The lien which accompanied this judgment clearly attached to “an interest of the debtor in property.” Therefore, this lien was avoidable under Section 522(f)(1).

The Bankruptcy Court also found that Stedman‘s lien was not a “judicial lien” as that term is used in Section 522(f)(1). The federal definition of “judicial lien” controls the determination of whether a debtor‘s interest is a judicial lien for bankruptcy purposes.

In re Boyd, supra, 741 F.2d at 1115 (Ross dissenting). See also

In re Hulm, 738 F.2d 323, 326 (8th Cir.1984). Section 101(32) defines “judicial lien” as follows:

judicial lien means lien obtained by judgment, levy, sequestration, or other legal or equitable process or proceeding.

11 U.S.C. § 101(32) (West Supp.1987). A “lien“, in turn, is defined as a:

charge against or interest in property to secure payment of a debt or performance of an obligation.

11 U.S.C. § 101(33) (West Supp.1987).

In the present case, the judgment expressly imposed a lien on the Debtor‘s real property to secure future property settlement payments. The Bankruptcy Court found that this did not create a “judicial lien” as defined in Section 101(30). We disagree. The lien gave Stedman a secured interest in the real property and was obtained by a court decree. Thus, it fits precisely within the Code‘s definition of “judicial lien.”

In re Boyd, supra, 741 F.2d at 1115 (Ross dissenting). But see

In re Lodek, 61 B.R. 66, 68 (W.Tex.1986).

Allowing the Debtor to avoid this judicial lien is consistent with the Code‘s treatment regarding exceptions to discharge. The Code clearly favors the discharge of property settlement obligations resulting from divorce. See

Stout v. Prussel, 691 F.2d 859, 861 (9th Cir.1982). On the other hand, if the judgment awards alimony, maintenance or support, the debt is excepted from discharge under Section 523(a)(5).

In re Harrell, 754 F.2d 902, 906 (11th Cir.1985). In the present case, the state court‘s divorce decree set forth a property division. Just as the debt would be dischargeable, the accompanying lien should also be avoidable under Section 522(f)(1). Such a result not only harmonizes different Code sections but also fulfills Congress’ purpose of protecting the debtor‘s exemptions, his discharge and his fresh start.

In re Baxter, supra, 19 B.R. at 676.

REVERSED.

ELLIOTT, Bankruptcy Judge, dissenting:

I respectfully DISSENT. I would follow

Boyd v. Robinson, 741 F.2d 1112 (8th Cir. 1984) and AFFIRM.

Case Details

Case Name: Pederson v. Stedman (In Re Pederson)

Court Name: United States Bankruptcy Appellate Panel for the Ninth Circuit

Date Published: Sep 30, 1987

Citation: 78 B.R. 264

Docket Number: BAP No. WW-86-1938-MeEAs, Bankruptcy No. 86-05147-Y7

Court Abbreviation: 9th Cir. BAP