Rooz v. Kimmel (In Re Kimmel)Rooz v. Kimmel (In Re Kimmel)
OPINION
This appeal turns on the meaning of the community property discharge under
I. FACTS
The dispute dates from 1991, when William B. Rooz (“Rooz”) sued David Kimmel and his wife Roberta Kimmel in the San Mateo County (California) Superior Court (“1991 Litigation”). In 1993, Roberta Kimmel filed a voluntary chaptеr 7 case, in which a discharge was entered in 1994. Thereafter, the 1991 Litigation proceeded against David Kimmel individually and resulted in a judgment against him personally in May 1995 (“1995 Judgment”).
In July 1995, the Kimmels entered into a written postnuptial agreement (“Post-nuptial Agreement”) under California law, with the intention and effect of transmuting Roberta Kimmel’s future wages from community property to her separate property.
Some ten years later, in October 2005, David Kimmel filed his own voluntary chapter 7 case when Rooz began collection activity by obtaining a writ of execution from the San Mateo County Superior Court on the 1995 Judgment. Rooz asserts he first learned of the Postnuptial Agreement when he attended David Kim-mel’s § 341(a) meeting of creditors.
Rooz filed an adversary proceeding in David Kimmel’s bankruptcy case (“David Kimmel Bankruptcy Litigation”), seeking a determination that the 1995 Judgment was nondischargeable. After leаrning of the Postnuptial Agreement, Rooz amended his complaint to add Roberta Kimmel as a defendant. The bankruptcy court held that the 1995 Judgment debt was dis-chargeable as to David Kimmel, and dismissed Rooz’s claim against Roberta Kim-mel for lack of jurisdiction. We affirmed in a memorandum disposition, Rooz v. Kimmel (In re Kimmel), No. NC-06-1252-PaDB (9th Cir. BAP December 29, 2006), which Rooz further appealed to the Ninth Circuit as its No. 07-15155, and which has not yet been decided by that court.
After Roberta Kimmel was dismissed from the David Kimmel Bankruptcy Litigation, and while Rooz’s prior appeal was pending before us, Rooz commenced new litigation against Roberta Kimmel in the San Mateo County Superior Court (the “2006 Litigation”) to recover a portion of the Kimmels’ community property. He sought to recover only that portion of such property consisting of David Kimmel’s community property interest in Roberta Kimmel’s wages. As that interest, however, had been trаnsferred to Roberta Kim-mel under the Postnuptial Agreement, Rooz attacked the Postnuptial Agreement as a fraudulent transfer under California’s Uniform Fraudulent Transfer Act.
In granting Roberta Kimmel’s
This timely appeal ensued.
II.JURISDICTION
The bankruptcy court had jurisdiction pursuant to
III.ISSUE
Whether the 1994 discharge of Roberta Kimmel protected future-acquired community property from enforcement of a discharged community claim.
IV.STANDARDS OF REVIEW
We review de novo the dismissal of a complaint on a motion for judgment on the pleadings pursuant to
V.DISCUSSION
This appeal reflects an attempt to vitiate the discharge entered in the 1993 Roberta Kimmel bankruрtcy case. Rooz’s cause of action in the 1991 Litigation involved a claim that was allowable as a community claim in the 1993 bankruptcy. The black-letter law embodied in
We focus on the effect of the
A. Roberta Kimmel’s Bankruptcy Discharge
Although Rooz concedes that the discharge injunction imposed by
Understanding the community property discharge embodied in
1. Rooz was a “creditor” on a “community claim” in 1993
Rooz unambiguously was a “creditor” holding a “community claim” in the 1993 Bankruptcy.
The term “creditor,” as defined by § 101(10), means:
(A) entity that has a claim against the debtor that arose at the time of or before the оrder for relief concerning the debtor;
...; or
(C) entity that has a community claim.
The term “community claim” is defined in § 101(7) as a:
... claim[ 2 ] that arose before the commencement of the case concerning thedebtor for which property of the kind specified in section 541(a)(2) of this title is liable, whether or not there is any such property at the time of the commencement of the case.
(Emphasis added.)
At the time Roberta Kimmel filed her bankruptcy case in 1993, Rooz was a “creditor” by virtue of § 101(10)(A) and § 101(10)(C). He had asserted a claim against Roberta Kimmel by virtue of the 1991 Litigation in which he was suing both Kimmels. Moreover, it was a “community claim” under § 101(7) because it was enforceable against the property of the Kim-mel community.
Because community claims may be asserted, and are subject to discharge, in the bankruptcy of one spouse, the Bankruptcy Code provides that community property is brought into the estate of that spouse. The definition of property of the estаte includes, by virtue of § 541(a)(2):
All interests of the debtor and the debt- or’s spouse in community property as of the commencement of the case that is — •
(A) under the sole, equal, or joint management and control of the debtor; or
(B) liable for an allowable claim against the debtor, or for both an allowable claim against the debtor and an allowable claim against the debtor’s spouse, to the extent that such interest is so liable.
Cоnstruing §§ 101(7) and 541(a)(2) together, a community claim, for bankruptcy purposes, is a prepetition claim for which the Kimmels’ community property was liable, whether or not such claim had proceeded to a judgment or otherwise was liquidated on the petition date.
In California, this is particularly significant because California community property is exposed to claims against an individual spouse.
A consequence of the alignment of §§ 101(7) and 541(а)(2) is that the nonexempt community property existing at the time of the filing of the petition is liable for payment of community claims.
2. Community claims can be discharged to the benefit of the non-filing spouse
Under
We previously have noted in dictum that
[A] nondebtor spouse in a community prоperty state typically benefits from the discharge of the debtor spouse. According toSection 524(a)(3) , after-acquired community property is protected by injunctions against collection efforts by those creditors who held allowable community claims at the time of filing. This is so even if the creditor claim is against only the nonbankruptcy spouse; the after-acquired community property is immune.
Burman v. Homan (In re Homan),
Although the nondebtor spouse is not actually discharged of liability, the consequence of
There is also a temporal aspect to the
None of this, however, means that nondischargeability concepts do not apply to community claims. If a debt on a community claim would be excepted from discharge in a bankruptcy of the nondebtor spouse, then § 523(a)(3) provides that a nondischargeability action directed at the nondebtor spouse can be initiated in order to establish an exception to the allowable community claims that are discharged. The operative statutory language provides that the protection of after-acquired community property from liability for a pre-petition community claim does not apply when the claim “is excepted from discharge ... [or] would be so excepted, determined in accordance with the provisions of sections 523(c) and 523(d) of this title, in a [hypothetical] case concerning the debt- or’s spouse commеnced on the date of the filing of the petition....”
Similarly, an objection to discharge may be focused on the nondebtor spouse. Under
The net result is that
These provisions for nondis-chargeability and objection-to-discharge actions directed at the nondebtor spouse are, however, subject to a diligent creditor requirement. The failure by creditors to raise nondisсhargeability and discharge objection issues in a timely manner in the case of the debtor spouse will allow the community property discharge to be effected.
If creditors are not diligent, as one commentator has explained, “the Devil himself could effectively receive a discharge in bankruptcy if he were married to Snow White.” Alan Pedlar,
Community Property and the Bankruptcy Act of 1978,
11 St. Maey’s L.J. 349, 382 (1979);
cf. Gonzales v. Costanza (In re
Costanza),
Rooz did not file a complaint in Roberta Kimmel’s bankruptcy case, either as a nondischargeability action or as an objection to discharge, directed at either of the spouses.
6
Accordingly, Rooz long ago waived his right to assert that Roberta Kimmel’s discharge does not enjoin him from attaching after-acquired community property to satisfy his claim against David Kimmel. Even if her wages remain community property notwithstanding the Post-nuptial Agreement, David Kimmel’s interest in that community property is immune pursuant to
3. Community property assets automatically become estate property when a bankruptcy case is commenced
At oral argument, Rooz urged that, as a condition to a debtor receiving a discharge of community debts, the debtor must make community assets available for administration through the bankruptcy estate. On Roberta Kimmel’s schedules of
Section 541 is self effectuating. Roberta Kimmel’s bankruptcy estate was created when she filed her voluntary chapter 7 petition; community property in which she had an interest automatically went into the estate by the mere fact of its existence. Whether it was listed on the schedules is irrelevant. To the extent back wages were owed to her at the time she filed her petition in 1993, they were subject to administration by the chapter 7 trustee.
Rooz did not сhallenge the accuracy of Roberta Kimmel’s schedules in 1993 by questioning her entitlement to discharge or otherwise. Nor has he identified any property that existed but was not scheduled. Nor is there any indication that the trustee who administered Roberta Kim-mel’s bankruptcy estate failed to perform the trustee’s duties under § 704, which include an obligation to collect property of the estate for the benefit of creditors and to investigatе the financial affairs of the debtor.
Finally, whether Roberta Kimmel had no income in 1993 that became part of her bankruptcy estate is irrelevant to the application of her chapter 7 discharge to postpetition community property, such as postpetition wages.
The bankruptcy court correctly held that Roberta Kimmel’s discharge enjoined Rooz from attaching her post-discharge wages, whether they were community property or separate property.
4. Posh-Discharge Conduct Does Not Vitiate a Discharge
Rooz contends that Roberta Kim-mel’s post-discharge conduct in participating in the 1995 Postnuptial Agreement creates a new debt. His argument lacks merit for two independent reasons.
First, the chapter 7 discharge is absolute and, in light of the anti-waiver provisions of
For the reasons we explained in
Gurro-la,
Congress was emphatic that the anti-waiver language in
Second, a false premise underlies Rooz’s theory that, by executing the Postnuptial Agreement, Roberta Kimmel made a fraudulent conveyance that rendered the 1995 Judgment uncolleсtible, thereby creating a new debt that is not discharged. The false premise is that, in the absence of the Postnuptial Agreement, the 1995 Judgment could have been collected from community property.
As we have explained,
The Seventh Circuit decision in
McClellan v. Cantrell,
B. The Postnuptial Agreement
In the proceedings before the bankruptcy court, the parties addressed at length the irrelevant question of the impact of the provisions of California’s version of the Uniform Fraudulent Transfer Act (“UFTA”), codified at
The bankruptcy court gave Rooz’s UFTA argument short shrift because any such action was time-barred under
In view of the controlling effect of the community property discharge injunction imposed by
Regardless of whether the 1995 transmutation validly shifted Roberta Kimmel’s future wages from community to separate property status, all wages she earned after filing her 1993 chapter 7 case were immune from enforcement of Rooz’s 1995 judgment against David Kimmel, which was a discharged community claim as of 1994. 8
C.
The
Under
As we have explained, Roberta Kimmel’s discharge operates to enjoin, as a matter of law under
VI. CONCLUSION
The court correctly determined that Rooz’s claim, finalized in the 1995 Judgment, was a community claim (1) that was discharged in Roberta Kimmel’s bankruptcy case, and (2) from which all interests in her future wages were insulated, regardless of whether her wages constitute community property. Accordingly, the order of the court dismissing the 2006 Litigation pursuant to its grant of the
Notes
. Unless otherwise indicated, all chapter and section references are to the Bankruptcy Code,
. Pursuant to § 101(5), a “claim” is a
(A) right to payment, whether or not such right is rеduced to judgment, liquidated,unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; or (B) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, un-matured, disputed, undisputed, legal, equitable, secured, or unsecured.
.
(a) Except as otherwise expressly provided by stаtute, the community estate is liable for a debt incurred by either spouse before or during marriage, regardless of which spouse has the management and control of the property and regardless of whether one
or both spouses are parties to the debt or to a judgment for the debt.
Family Code § 902 defines the term "debt” in§ 910(a) as:
"Debt” means an obligation incurred by a married person before or during marriage, whether based on contract, tort, or otherwise.
.
A discharge in a case under this title — •... (3) operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect or recover from, or offset against, property of the debtor of the kind specified in section 541(a)(2) of this title that is . acquired after the commencement of the case,on account of any allowable community claim, excеpt a community claim that is excepted from discharge under section 523, 1228(a)(1), or 1328(a)(1) of this title, or that would be so excepted, determined in accordance with the provisions of sections 523(c) and 523(d) of this title, in a case concerning the debtor’s spouse commenced on the date of the filing of the petition in the case concerning the debtor, whether or not discharge of the debt based on such community claim is waived.
.
(b) Subsection (a)(3) of this section does not apply if—
(2) (A) the court would not grant the debt- or’s spouse a discharge in a case under chapter 7 of this title concerning such spouse commenced on the date of the filing of the petition in the case concerning the debtor; and
(B) a determination that the court would not so grant such discharge is made by the bankruptcy court within the time and in the manner provided for a determination under section 727 of this title of whether a debtor is granted a discharge.
(Emphasis added.)
. As Rooz had notice of the Roberta Kimmel bankruptcy case at a time he was suing both spouses, none of the due process concerns attendant to lack of notice regarding the non-debtor spouse are present here. Pedlar,
.
Notwithstanding any other provision of law, a cause of action with respect to a fraudulent transfer or obligation is extinguished if no action is brought or levy made within seven years after the transfer was made or the obligation was incurred.
. Thus, Rooz’s argument, made for the first time on appeal, that the Postnuptial Agreement was invalid because it was not recorded is unavailing.