Quintana, In re

• Decision Date: 09 July 1990
• Docket Number: No. 90-35040,90-35040
• Citation: 915 F.2d 513
• Parties: , Bankr. L. Rep. P 73,657 In re Thomas M. QUINTANA; Deloris J. Quintana, Debtors. Thomas M. QUINTANA; Deloris J. Quintana, Appellants, v. COMMISSIONER OF INTERNAL REVENUE SERVICE; Bureau of Land Management; Clemons, Cosho & Humphrey; Norman Easterday; Farm City Livestock Supply; Connecticut General Life Insurance Company, et al., Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 513

915 F.2d 513

20 Bankr.Ct.Dec. 1715, Bankr. L. Rep. P 73,657

In re Thomas M. QUINTANA; Deloris J. Quintana, Debtors Thomas M. QUINTANA; Deloris J. Quintana, Appellants, v. COMMISSIONER OF INTERNAL REVENUE SERVICE; Bureau of Land Management; Clemons, Cosho & Humphrey; Norman Easterday Farm City Livestock Supply; Connecticut General Life Insurance Company, et al., Appellees.

No. 90-35040.

United States Court of Appeals Ninth Circuit.

Submitted July 9, 1990 ^*.

Decided Sept. 27, 1990.

Richard B. Eismann, Nampa, Idaho, for appellants.

Clifton R. Jessup, Jr., Dixon & Dixon, Omaha, Neb., for appellee.

Appeal from the Ninth Circuit Bankruptcy Appellate Panel.

Before HUG, NELSON and BRUNETTI, Circuit Judges.

BRUNETTI, Circuit Judge:

Appellants Thomas and Deloris Quintana ("Debtors") filed a Chapter 12 Petition in Bankruptcy. Appellee Connecticut General Life Insurance Co. ("Creditor") moved to dismiss the Petition because Debtors' aggregate debts exceeded the $1.5 million statutory limitation for eligibility. After a hearing the bankruptcy court granted Creditor's motion to dismiss, which was affirmed on appeal by the Bankruptcy Appellate Panel ("BAP"). 107 B.R. 234. Debtors timely appeal, and we affirm.

A. Factual and Procedural History

The facts in this case are not disputed. In May 1979 Debtors borrowed $1 million from Creditor. The loan, consisting of a $600,000 note and a $400,000 note, was secured by Debtors' real property in Idaho. Debtors each were jointly and severally liable on both notes; Creditor properly perfected its mortgage and security interests.

Debtors defaulted on both notes, and Creditor brought an action in Idaho state court, pursuant to Idaho Code Sec. 6-101, for a money judgment and for a decree of foreclosure and order of sale of its interest. Debtors counterclaimed, alleging that Creditor had wrongfully procured the appointment of a receiver to conduct Debtors' business and that the receiver had damaged the business by acting in a reckless and grossly negligent manner while acting as Creditor's agent. Debtors sought $75,000 in compensatory damages and $1 million in punitive damages.

At a summary judgment hearing Creditor waived any right to seek a deficiency judgment against Debtors if, after any foreclosure sale of the mortgaged property, the debt was not fully satisfied. The state court partially granted Creditor's summary judgment motion, entering judgment on both notes in the amount of $1,527,861.89 and issuing a decree of foreclosure and order of sale. The court denied Debtors' summary judgment motion on the counterclaim, ruling that there were genuine disputed issues of material fact.

Prior to the foreclosure sale of the mortgaged property, Debtors filed their Petition, scheduling the mortgaged property as having a value of $675,000 (scheduled value) and listing other debts totaling $60,000. Creditor filed a proof of claim in the amount of $1,527,861.89 and then moved to dismiss the Petition because Debtors' aggregate debts exceeded the $1.5 million statutory limitation for eligibility to file under Chapter 12. See 11 U.S.C. Secs. 109(f); 101(17)(A). ¹

After a hearing the bankruptcy court granted Creditor's motion to dismiss, ruling that neither Creditor's state court waiver nor Debtors' state court counterclaim affected the amount of the debt and therefore Debtors' aggregate debts exceeded the statutory limitation. The court also ruled that Creditor was not estopped from seeking dismissal of the Petition.

The BAP affirmed, ruling that (1) Creditor's waiver of any right to a deficiency judgment in the state court foreclosure action did not limit the amount of the debt to the value of the mortgaged property and (2) the amount of the debt was not reduced by the amount of damages sought in Debtors' state court counterclaim.

Debtors appeal this ruling, arguing that at the time of their Petition ² their aggregate debts did not exceed the Chapter 12 $1.5 million statutory limitation because (1) Creditor's waiver of any right to a deficiency judgment in the state court foreclosure action limited the amount of the debt to the value of the mortgaged property; (2) the amount of the debt should have been reduced by the amount of damages sought in Debtors' state court counterclaim; and (3) Creditor was estopped from seeking dismissal of the Petition. Creditor intends to seek attorney's fees for its involvement in the Bankruptcy case and this appeal, pursuant to the terms of the relevant mortgages, security agreement, and promissory notes, as well as Idaho Code Sec. 12-120. ³

B. Standard of Review

We review the bankruptcy court's findings of fact for clear error; we review its conclusions of law de novo. Ragsdale v. Haller, 780 F.2d 794, 795 (9th Cir.1986). The only issues in this case involve the statutory interpretation of federal and Idaho statutes. The interpretation of a federal statute is a question of law reviewed de novo. See, e.g., Saratoga Sav. & Loan Ass'n v. Federal Home Loan Bank Bd., 879 F.2d 689, 691 (9th Cir.1989). The interpretation of a state statute is also reviewed de novo. In re McLinn, 739 F.2d 1395, 1397 (9th Cir.1984) (en banc).

C. Creditor's State Court Waiver

Debtors first argue that under Idaho Code Secs. 6-101 and 6-108, Creditor's waiver of a deficiency judgment in the state court foreclosure action limited the $1,527,861.89 debt to only the $675,000 scheduled value of the property.

Under Sec. 6-101 "[t]here can be but one action for the recovery of any debt, or the enforcement of any right secured by mortgage upon real estate." Idaho Code Sec. 6-101 (emphasis added). This provision requires a real property mortgagee to look first to its security before proceeding on the personal debt. First Sec. Bank v. Stauffer, 112 Idaho 133, 137, 730 P.2d 1053, 1057 (Ct.App.1986). See also Selby v. Kelly Rae Apartments, Inc., 634 P.2d 1303 (Okla.1981) (creditor not entitled to personal judgment until deficiency is determined after the mortgaged property is sold).

Under Sec. 6-108 the amount of a deficiency judgment cannot be "any amount greater than the difference between the mortgage indebtedness, as determined by the decree, plus costs of foreclosure and sale, and the reasonable value of the mortgaged property." Idaho Code Sec. 6-108. Thus, the mortgaged indebtedness must be determined prior to the foreclosure sale. See Thompson v. Kirsch, 106 Idaho 177, 182, 677 P.2d 490, 495 (Ct.App.1984) (mortgage indebtedness is total amount of principal and interest owed on the note). Moreover, under Sec. 6-108 a deficiency cannot arise or be calculated until after proceeds of the foreclosure sale are applied to the debt, with such deficiency limited to the difference between the fair market value of the mortgaged property and the unpaid amount of the debt. Quintana v. Anthony, 109 Idaho 977, 979, 712 P.2d 678, 680 (Ct.App.1985).

Debtors filed their Petition after the state court had issued its $1,527,861.89 judgment and decree of foreclosure and order of sale, but before the actual foreclosure sale of the mortgaged property. Therefore, under Sec. 6-108 there had not yet been any determination of a deficiency, as the property had not yet been sold. See Idaho Code Sec. 6-108; Quintana, 109 Idaho at 979, 712 P.2d at 680.

Upon the sale of the property, under Sec. 6-108 Creditor will be entitled to all sale proceeds up to the $1,527,861.89 of adjudged indebtedness, plus costs of foreclosure and sale; Creditor will not be limited to the $675,000 scheduled value of the property. See Idaho Code Sec. 6-108. Similarly, under Sec. 6-108 Debtors will be entitled to any sale proceeds in excess of the indebtedness plus costs. See id. Therefore, until the actual sale of the property, under Sec. 6-108 the amount of the debt is the full $1,527,861.89 of adjudged indebtedness. Creditor's waiver of its right to a deficiency judgment was not yet of relevance. Only after the actual sale, should the sale proceeds fail to satisfy the full $1,527,861.89 indebtedness plus costs, will Creditor's waiver have relevance.

Debtors next argue that under the Bankruptcy Code's definitions of "claim" and "debt," because "debt" is a narrower term than "claim," and Creditor waived its "claim" to a deficiency judgment, the "debt" was reduced to the $675,000 scheduled value of the property. See 11 U.S.C. Sec. 101(4), (11).

Chapter 12 of the Bankruptcy Code requires that a debtor's "aggregate debts ⁴ do not exceed $1,500,000." 11 U.S.C. Sec. 101(17)(A) (emphasis added). ⁵ "Debt" is defined as "liability on a claim." 11 U.S.C. Sec. 101(11). "Claim" is defined 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." 11 U.S.C. Sec. 101(4)(A). The Supreme Court has held that Congress intended that these terms be coextensive. Pennsylvania Dept. of Pub. Welfare v. Davenport, --- U.S. ----, 110 S.Ct. 2126, 2130, 109 L.Ed.2d 588 (1990).

At the time of Debtors' Petition, under Idaho law Creditor had a "claim" or "right to payment" of the entire $1,527,861.89 of adjudged indebtedness; Debtors had a resulting "debt" or "liability on a claim" for that same amount. See supra at 516. See also 11 U.S.C. Sec. 101(4)(A), (17). Moreover, under Idaho law Creditor's waiver was not yet of relevance, as the property had not yet been sold. See supra at 516. Hence, Creditor did not waive any part of this claim, nor were Debtors released from any part of this debt.

D. Debtors' State Court Counterclaim

Debtors argue that the amount of the debt should be reduced by the amount of damages sought in Debtors' state court counterclaim because Chapter 13 specifically prohibits the consideration of such unliquidated damages, and the absence of such language in Chapter 12 shows a congressional intent to allow consideration of such unliquidated damages in determining Chapter 12 el...