In re Slack v. Wilshire Ins.

• Citation: 187 F.3d 1070
• Decision Date: 30 July 1999
• Docket Number: No. 98-35115,98-35115
• Parties: (9th Cir. 1999) IN RE: JAMES P. SLACK, DEBTOR. JAMES P. SLACK, APPELLANT, v. WILSHIRE INSURANCE COMPANY, APPELLEE
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 1070

187 F.3d 1070 (9th Cir. 1999)

IN RE: JAMES P. SLACK, DEBTOR. JAMES P. SLACK, APPELLANT, v. WILSHIRE INSURANCE COMPANY, APPELLEE.

No. 98-35115

U.S. Court of Appeals, Ninth Circuit

Argued and Submitted July 14, 1999

July 30, 1999

Sean M. Morris, Worden, Thane & Haines, Missoula, Montana, for the debtor-appellant.

Brian P. Barrow, O'Flaherty, Cross, Martinez, Ovando & Hatton, Anaheim, California, for the appellee.

Appeal from the United States District Court for the District of Montana Donald W. Molloy, District Judge, Presiding D.C. No. CV-97-00134-DWM

Before: Thomas M. Reavley,¹ Arthur L. Alarcon and M. Margaret McKeown, Circuit Judges.

Alarcon, Circuit Judge

James Slack appeals from the decision of the district court affirming the bankruptcy court's order dismissing his petition for Chapter 13 bankruptcy. The bankruptcy court granted Wilshire Insurance Company's ("Wilshire") motion to dismiss upon finding that Slack was ineligible for relief under Chapter 13 because the record showed that he had stipulated that the amount of Wilshire's claim against Slack on its state law action was $255,954. Slack seeks reversal on the ground that the amount of Wilshire's claim was unliquidated because his liability for Wilshire's damages had not been finally determined in state court on the date the petition was filed. We affirm because we conclude that a debt can be liquidated even though liability is in dispute.

I.

On October 7, 1993, Wilshire filed a state court action in the Superior Court of the State of California for the County of Los Angeles against Slack, the law firm of Portigal, Hammerton & Allen, and Prompt Motor Express, Wilshire's former insured (Case No. VC014551). Slack was Prompt Motor Express's lawyer. In its complaint, Wilshire alleged (1) intentional misrepresentation, (2) negligent misrepresentation, (3) violation of, and conspiracy to violate, California's Unfair Practices Act, and (4) negligence. On February 28, 1997, the state court Judge entered a tentative decision that Slack was jointly and severally liable to Wilshire in the amount of $659,971.

On March 17, 1997, Slack filed a Chapter 13 petition for bankruptcy in the bankruptcy court. On April 25, 1997, Wilshire filed a proof of claim against Slack in the amount of $659,971. Slack filed an objection in which he asserted that the debt was unliquidated. Wilshire filed a motion to dismiss the petition arguing that Slack was ineligible for relief because the state court's tentative ruling that Slack was jointly and severally liable for $659,971 established that Slack had a non-contingent, liquidated, unsecured debt which exceeded the statutory limit. The parties stipulated to the amount of damages Wilshire actually suffered before the state and the bankruptcy courts. These damages include: (1) $250,000 for the settlement of the underlying wrongful death claim;

(2) $19,446 incurred by Wilshire for the investigation of the matter; and (3) $5,954 for property damages.²

On June 9, 1997, the bankruptcy court granted Wilshire's motion to dismiss finding that Slack was ineligible for relief under Chapter 13. The bankruptcy court determined that Slack had a non-contingent, liquidated, unsecured debt which exceeded the statutory limit based on the parties' stipulation that Wilshire suffered damages in the amount of $255,954.

Slack filed a motion to stay the bankruptcy court's order pending appeal. He did not post a supersedeas bond. The motion for a stay was denied by the district court. On July 17, 1997, Slack appealed the bankruptcy court's order to the district court. The district court affirmed the judgment of the bankruptcy court on December 19, 1997. Slack filed a timely notice of appeal on January 20, 1998.

In the interim, on September 24, 1997, the state court entered final judgment in favor of Wilshire holding Slack jointly and severally liable for $455,480 plus interest. ³ On March 31, 1998, Wilshire filed a motion for this court to take judicial notice of the state court's judgment. This motion was filed after Slack's initial brief before this court but prior to Wilshire's response. Slack responded to the motion for judicial notice in a separate brief, and in his reply brief. Slack argues that the state court judgment is irrelevant to the issues presented in this appeal because it was entered after the filing of the bankruptcy petition and, therefore, cannot be used to determine the amount of his non-contingent, liquidated, unsecured debts.

Before this court, Slack contends that the bankruptcy court erred in ruling that the stipulation regarding Wilshire's losses demonstrated that the amount of the debt was liquidated as of the date the Chapter 13 petition was filed. He also contends that the state court's tentative judgment finding him liable to Wilshire for $659,971 cannot be used collaterally to estop him from asserting that he did not owe the debt to Wilshire. Slack maintains that under either scenario, "as Wilshire can only establish the amount of its claim, and not Slack's liability, Wilshire's claim is unliquidated." Appellant's Opening Brief at 6.

II.

This court reviews de novo a district court's decision to affirm a bankruptcy court's order. See Fostvedt v. Dow (In re Fostvedt), 823 F.2d 305, 306 (9th Cir. 1987). This court reviews the bankruptcy court's decisions of law de novo and its findings of fact under the clearly erroneous standard. See id. Whether a debt is liquidated involves the interpretation of the Bankruptcy Code and is reviewed de novo. See Federal Deposit Ins. Corp. v. Wenberg (In re Wenberg), 94 B.R. 631, 633 (B.A.P. 9th Cir. 1988), aff'd, 902 F.2d 768 (9th Cir. 1990). The amount of the debt is reviewed for clear error. See id.

An individual qualifies for Chapter 13 relief only if his or her debts do not exceed a certain sum at the time of filing. At the time Slack filed his petition, section 109(e) stated:

"Only an individual with regular income that owes, on the date of filing the petition, non-contingent, liquidated, unsecured debts of less than $250,000 and non-contingent, liquidated, secured debts of less than $750,000, or an individual with regular income and such individual's spouse, except a stockbroker or a commodity broker, that owe, on the date of the petition non-contingent, liquidated, unsecured debts that aggregate less than $250,000 and non-contingent, liq uidated, secured debts of less than $750,000 may be a debtor under chapter 13 of this title." 11 U.S.C. S 109(e) (1997)⁴.

The language of the statute clearly states that the amount of the debt is determined as of "the date of the filing of the petition." 11 U.S.C. S 109(e) (emphasis added). The courts that have considered this issue have narrowly construed the quoted portion of S 109(e). They hold that a bankruptcy court cannot look to post-petition events to determine the amount of the debt. See In re Robertson, 84 B.R. 109 (Bankr. S.D. Ohio 1988) (holding that debt must be proved to exceed the statutory limit at the time of filing) (citing In the Matter of Pearsons, 773 F.2d 751 (6th Cir. 1988) (holding that court will only look at petition to determine the amount of the debts owed)); In re Morton, 43 B.R. 215, 220 (Bankr. E.D.N.Y. 1984). Because we cannot consider the final judgment entered in the state court, after the petition was filed, in deciding the amount of the debt owed by Slack, we must deny Wilshire's motion for judicial notice as irrelevant to our task.

Under S 109(e), a debtor is ineligible for Chapter 13 relief if his or her non-contingent, liquidated, unsecured debts exceed the statutory limit of $250,000. See 11 U.S.C. S 109(e) (1997). This circuit has held that a debt is liquidated for the purposes of calculating eligibility for relief under S 109(e) if the amount of the debt is readily determinable. In In re Fostvedt, we stated that the question of whether a debt is liquidated "turns on whether it is subject to `ready determination and precision in computation of the amount due.' " 823 F.2d at 306 (quoting Sylvester v. Dow Jones and Co., Inc. (In re Sylvester), 19 B.R. 671, 673 (B.A.P. 9th Cir. 1982)). In In re Wenberg, we affirmed for the reasons stated by the bankruptcy appellate panel ("BAP"). See 902 F.2d at 768. The BAP stated in its opinion: "The definition of`ready determination' turns on the distinction between a simple hearing to determine the amount of a certain debt, and an extensive and contested evidentiary hearing in which substantial evidence may be necessary to establish amounts or liability. " In re Wenberg, 94 B.R. at 634.

Bankruptcy courts in this circuit have held that disputes regarding liability arising out of contract and tort claims do not render a debt unliquidated. See Nicholes v. Johnny Appleseed of Wash. (In re Nicholes), 184 B.R. 82, 90 (B.A.P. 9th Cir. 1995) (debt liquidated because amount easily ascertainable); Loya v. Rapp (In re Loya), 123 B.R. 338, 341 (B.A.P. 9th Cir. 1991) (even though claim of creditors was based on tort and no judgment had been entered, debt liquidated because some of the creditors would admit that claim was barred by statute of limitations and, therefore, the amount was readily ascertainable at $0 after a simple hearing); In re Sylvester, 19 B.R. at 673 (contract claim is easily ascertainable and, therefore, debt is liquidated even though liability is disputed); In re King, 9 B.R. 376, 379 (D. Or. 1981) (claim for punitive damages not liquidated because amount not easily ascertainable).

The majority of the courts outside this circuit that have considered the question have determined that a debt is liquidated if the amount of the debt is readily ascertainable. These courts have ruled that a dispute regarding liability does not necessarily render a debt unliquidated. See Mazzeo v. United States (In re Mazzeo), 131 F.3d 295, 304 (2d Cir. 1997) (holding that liquidated refers to the value of the claim and not the existence of liability); United...