First Cmty. Bank v. Gaughan (In re Miller), 14–16854

Citation853 F.3d 508
Decision Date31 March 2017
Docket NumberNo. 14–16854,14–16854
Parties IN RE Larry MILLER, Debtor, First Community Bank, Plaintiff–Appellant, v. Maureen Gaughan, Chapter 7 Trustee, Defendant–Appellee.
CourtUnited States Courts of Appeals. United States Court of Appeals (9th Circuit)

Joseph E. Cotterman (argued), Andante Law Group PLLC, Scottsdale, Arizona, for PlaintiffAppellant.

Steven J. Brown (argued), Steven J. Brown & Associates LLC, Phoenix, Arizona, for DefendantAppellee.

Before: A. Wallace Tashima and Milan D. Smith, Jr., Circuit Judges, and Edward R. Korman,** District Judge.

OPINION

KORMAN, District Judge:

Larry and Kari Miller, both Arizona domiciliaries, owned a cooperative apartment located at 2170 Jackson Street in San Francisco, California. The co-op was held in each of their names, as husband and wife. First Community Bank, a judgment creditor of Larry Miller, obtained a lien against the Millers' co-op.

Under Arizona law, the co-op would be treated as community property. See A.R.S. § 25–211. If Arizona law applies, FCB's judgment lien could not be enforced against the co-op, because the judgment upon which the lien was based arose from a guaranty signed by Larry Miller and not Kari Miller, and a guaranty that is signed by only one of two spouses is not binding on the couple's community property under Arizona law.

Under California law, the co-op would not constitute community property because it was not acquired by the Millers while they were domiciled in California. See CAL. FAM. CODE § 760. Instead, it would constitute a tenancy-in-common. See CAL. CIV. CODE § 685. The application of California law would permit the judgment lien to be enforced against Larry Miller's sole and separate interest in the co-op, because "[t]enants in common may each unilaterally alienate their shares through sale or gift or place encumbrances upon these shares." United States v. Craft , 535 U.S. 274, 280, 122 S.Ct. 1414, 152 L.Ed.2d 437 (2002) (emphasis supplied). Thus, if California law applies, a judgment against Larry Miller would be enforceable only against his interest in the apartment, but not Kari Miller's separate interest.

FACTUAL BACKGROUND

Against this backdrop for the choice-of-law issue presented by this case, we turn to a more detailed discussion of the underlying facts. Larry Miller was the President of Miller Holding Investments, Inc., which in turn was the General Partner of both El Paseo Partners, L.P. and El Rancho Partners, LP, both limited partnerships organized under California law. First Community Bank ("FCB") is a California corporation, doing business in the State of California, with its principal place of business in Sonoma County, California.

In December 2006, FCB extended credit to Paseo and Rancho in exchange for a Business Loan Agreement, a Promissory Note in the original principal amount of $5,744,000, and a Commercial Guaranty from Miller that personally secured repayment of all obligations owed to FCB under the Note and the Loan Agreement. All three of these contracts selected California's local law as the governing law. The Business Loan Agreement and the Promissory Note both stated on their face that they were accepted by FCB in California. Indeed, the guaranty given by Miller not only selected California as the governing law, it also provided that "[a]ny married person who signs this Guaranty hereby expressly agrees that recourse under this Guaranty may be had against both his or her separate property and community property." Unfortunately, Paseo and Rancho could not live up to their obligations on the loans, and Miller defaulted on the guaranty.

PROCEDURAL HISTORY

On October 24, 2008, FCB sued Larry and Kari Miller in the United States District Court for the District of Arizona. FCB moved for summary judgment as to liability and damages on Larry Miller's breach of the Commercial Guaranty, and also requested a "[r]uling that Kari Miller has received notice and due process in connection with this legal action, to the extent that any of the property subject or potentially subject to enforcement and execution upon the judgment, whether located in the State of Arizona, the State of California or elsewhere, is asserted to belong in whole or in part to her marital community." Complaint at 7, First Community Bank v. Larry L. Miller and Kari Miller , No. 2:08–cv–01952–NVW (D. Ariz. 2009), ECF No. 1. While the answer filed to the complaint alleged that neither the "Miller[s'] marital community property, nor Kari Miller's sole and separate property, is subject to the claims in [First Community] Bank's complaint," Answer at ¶ 4, id. , ECF No. 11, the Millers' "only legal opposition" to FCB's motion for summary judgment was that "California law requires [FCB] first to execute on collateral securing the loan," before making their motion. Order Granting Motion for Summary Judgment as to Liability at 2–3, id. , ECF No. 23.

The district court rejected this argument, and entered judgment against Larry Miller for the principal amount of $5.744 million plus accrued interest and ancillary damages, for a total judgment of $6.373 million (the "Arizona judgment"). Judgment, id. , ECF No. 36. The judgment made no reference to the Millers' community property, although the order granting the motion observed, in dictum and without undertaking a choice-of-law analysis, that "any [liability of the marital community] appears to be precluded by A.R.S. § 25–214(C)(2)." Order Granting Motion for Summary Judgment as to Liability at 3, id. , ECF No. 23. FCB registered this judgment in the United States District Court for the Northern District of California pursuant to 28 U.S.C. § 1963. See Certification of a Judgment to be Registered in Another District, First Community Bank v. Miller , No. 09–mc–80131–PJH (N.D. Cal. 2009), ECF No. 1.

As of the time that FCB registered its judgment in California, Larry and Kari Miller held an ownership interest, to which reference was made earlier, in real property located at 2170 Jackson Street, San Francisco, California, which consisted of their ownership share in Twenty–One Seventy Jackson Street Corporation and a leasehold in an apartment owned by the co-op.1 On June 23, 2009, consistent with the manner in which a judgment lien is obtained, FCB recorded the California judgment in the Official Records of the San Francisco County Recorder's Office.

Several years later, Larry Miller filed a petition for reorganization under Chapter 11 of the Bankruptcy Code in the District of Arizona. Miller's proceeding was later converted to a Chapter 7 liquidation. In the course of administering the Miller estate, the Chapter 7 Trustee, Maureen Gaughan, sold the Millers' co-op. FCB filed an adversary proceeding seeking a declaration that it held an enforceable judgment lien on the co-op, thereby granting it priority over the proceeds of the sale.

The bankruptcy court held that, "[b]ecause the Miller Judgment was registered in California, California law governs the enforceability of the Miller Judgment against Debtors' community property located in California, and under California law, Debtors' community property located in California is liable for satisfaction of the Miller Judgment." Judgment in Favor of First Community Bank at 4, First Community Bank v. Miller , No. 2:13–ap–00436–EPB (Bankr. D. Ariz. 2013), ECF No. 25. The Millers appealed to the district court.

THE DISTRICT COURT'S DECISION

The district court framed the issue presented as "whether an Arizona judgment against a husband on his sole and separate debt may be executed against the Arizona couple's community property in California." In re Miller , 517 B.R. 145, 147 (D. Ariz. 2014). Answering this question in the negative, the district court held that "the Arizona federal judgment against the husband alone, later registered in a California federal court and recorded in California, does not lien their community real property in California." Id. Moreover, it continued that "[t]his is the rule by Arizona statute, and California choice of law principles yield to the Arizona rule concerning Arizona domiciliaries." Id. Presumably drawing upon those principles, the district court concluded that "California has no interest in ousting Arizona marital law concerning obligations between husband and wife and of persons contracting with one spouse, and the California community property statute by its terms does not purport to do so." Id.

We reverse the judgment of the district court. While we agree that the co-op apartment does not come within the definition of community property, as that term is defined in Section 760 of the California Family Code, it does come within the definition of a tenancy-in-common. See CAL. CIV. CODE § 685. The interests of a co-tenant in such tenancies, which are presumed to be held in equal shares, see Caito v. United California Bank , 20 Cal.3d 694, 705, 144 Cal.Rptr. 751, 576 P.2d 466 (1978), are subject to the enforcement of a judgment lien. The issue, then, is whether California should yield to Arizona's community property law, and treat the Millers' co-op as community property not subject to the enforcement of a judgment. Applying California's choice-of-law rules, we hold that California law governs, and that the co-op would be treated as a tenancy-in-common, as defined in Section 685 of the California Civil Code, making Larry Miller's interest in the co-op subject to enforcement of the judgment lien.2

DISCUSSION
I. 28 U.S.C. § 1963 Does Not Obviate the Need for a Choice–of–Law Analysis

FCB's principal argument on appeal is that the registration of the judgment against Larry Miller, pursuant to 28 U.S.C. § 1963, in the Northern District of California, was sufficient, by itself, to create an enforceable lien against the co-op. While FCB is correct that § 1963 requires the use of California's lien creation rules, it does not do away with the task of conducting a choice-of-law analysis in the event that another state has an...

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