David G. Waltrip, LLC v. Sawyers (In re Sawyers)

• Decision Date: 19 December 2019
• Docket Number: No. 19-6016,19-6016
• Citation: 609 B.R. 331
• Parties: IN RE: Ruby Jeane SAWYERS, Debtor David G. Waltrip, LLC, Creditor-Appellant v. Ruby Jeane Sawyers, Debtor-Appellee
• Court: U.S. Bankruptcy Appellate Panel, Eighth Circuit

609 B.R. 331

IN RE: Ruby Jeane SAWYERS, Debtor

David G. Waltrip, LLC, Creditor-Appellant
v.
Ruby Jeane Sawyers, Debtor-Appellee

No. 19-6016

United States Bankruptcy Appellate Panel of the Eighth Circuit.

Submitted: November 5, 2019
Filed: December 19, 2019

Counsel who presented argument on behalf of the appellant was Angela Redden-Jansen, of Maplewood, Missouri.

Counsel who presented argument on behalf of the appellee was Robert E. Eggmann, of Saint Louis, Missouri.

Before SALADINO, Chief Judge, NAIL and DOW, Bankruptcy Judges.

DOW, Bankruptcy Judge

David Waltrip ("Waltrip") appeals the order of the Bankruptcy Court¹ granting a motion by Ruby Sawyers ("Debtor") to avoid a judicial lien. We have jurisdiction over this appeal. See 28 U.S.C. § 158(b). For the reasons that follow, we affirm.

This is a dispute between the Debtor and Waltrip, who held a judicial lien ("Judicial Lien") against the Debtor's primary place of residence (the "Property"). The Property suffered significant fire damage prior to the bankruptcy filing, and the insurance proceeds were paid to the Debtor. The Property was not restored during the bankruptcy proceeding. The Trustee made no distributions and abandoned all assets, and the case was closed. After receiving notice of a sheriff's sale of the Property, the Debtor reopened the case and instituted a lien avoidance action. The bankruptcy court granted the Debtor's motion for summary judgment and avoided the Judicial Lien, valuing the Property as of the date of the filing of the petition and rejecting Waltrip's position that the value of the Property should be enhanced by the amount of the insurance proceeds. Waltrip appealed.

STANDARD OF REVIEW

We review a bankruptcy court's grant of summary judgment de novo . Mwesigwa v. DAP, Inc. , 637 F.3d 884, 887 (8th Cir. 2011) (citing Anderson v. Durham D & M, L.L.C. , 606 F.3d 513, 518 (8th Cir. 2010) ). We will affirm if "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). "We may affirm on any basis supported by the record." Seaver v. New Buffalo Auto Sales, LLC (In re Hecker ), 459 B.R. 6, 10-11 (8th Cir. BAP 2011). Here we review de novo whether the bankruptcy court's conclusions interpreting the relevant statutes and applying them to the undisputed facts are correct. Fisette v. Keller (In re Fisette ), 455 B.R. 177, 180 (8th Cir. BAP 2011).

We review a bankruptcy court's findings of fact for clear error. In re Potts , 421 B.R. 518, 521 (8th Cir. BAP 2010). "A finding is ‘clearly erroneous’ when although there is

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evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed." United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 92 L.Ed. 746 (1948).

FACTUAL BACKGROUND

The Debtor filed her Chapter 7 petition in February, 2017. Waltrip was a creditor by virtue of a prepetition consent judgment in the amount of $256,739.31 entered in a civil action. The judgment constituted a judicial lien. The Debtor claimed her homestead exemption of $15,000 pursuant to RSMo § 513.475. There were no objections to the exemption.

Prior to the bankruptcy filing, a fire caused significant damage to the Property. The Debtor was the named insured under a homeowner's policy and was paid $132,392.99 for the purpose of repairing and restoring the Property. Waltrip was not a loss payee under the policy, and his Judicial Lien did not extend to the insurance proceeds.

The Trustee filed a Report of No Distribution abandoning all assets; no objection was filed. The Debtor received her discharge, and the case was closed. The Property was later repaired and restored using the insurance proceeds. An appraisal valued it between $95,000 and $103,640 in fully-restored condition, as opposed to between $3,000 and $6,000 on the petition date.

Waltrip later instituted a sheriff's execution sale on the Property. On the day before the sale, the Debtor filed an emergency motion to reopen her case and a motion to avoid Waltrip's judicial lien pursuant to § 522(f). The case was reopened, and the parties filed competing motions for summary judgment.² The parties stipulated that the Judicial Lien met the criteria for avoidance and that the Debtor could avoid it to the extent it impaired her exemptions.

The bankruptcy court denied Waltrip's motion, and granted the Debtor's summary judgment motion and motion to avoid judicial lien. In its Order, the bankruptcy court determined that 1) laches did not apply because the Debtor's delay was not unreasonable and Waltrip did not demonstrate prejudice, 2) the value of real estate is fixed on the date the petition is filed, and thus the pre-restoration value of the Property was the appropriate value to use in the avoidance analysis, 3) there is no case law supporting the theory that insurance proceeds can be added to the value of damaged real estate for the purposes of determining value for judicial lien avoidance, and 4) there is no case law that indicates that appreciation in an abandoned asset constitutes a windfall to the debtor. The court did, however, give Waltrip a timeframe within which to file a pleading to request reimbursement of fees and costs associated with the sheriff's sale, but Waltrip did not do so.

Waltrip makes four main arguments in this appeal. First, he contends that the value of the Property on the petition date should be comprised of the insurance proceeds together with the damaged home. Put another way, the bankruptcy court

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should have used the post-restoration value of the Property in its avoidance analysis rather than the pre-restoration value. Secondly, he argues that depriving him of his right to his Judicial Lien after the Debtor converted the insurance proceeds to equity resulted in an impermissible windfall in contravention of Missouri's equitable principles and those embedded in the Bankruptcy Code. Next, Waltrip asserts that the Debtor's delay in exercising her remedies was deliberate, and she was therefore unjustly enriched at the expense of her creditors. Finally, Waltrip argues that, as a condition precedent to reopening the case or avoiding the Judicial Lien, he should have been paid the costs and expenses he incurred in connection with the sheriff's sale.

The Debtor contends that the bankruptcy court was correct in finding that the appropriate date for purposes of determining the value of the Property was the petition date, and the pre-restoration value was appropriate because it represents what a willing buyer would pay a willing seller for the Property on that date. She also argues that no legal authority exists under Missouri law or bankruptcy law which supports the substitution of insurance proceeds for damaged or destroyed property in the context of judicial lien avoidance. The Debtor also argues that there is no authority that supports the view that post-petition appreciation of real property results in a windfall for a debtor. Next, the Debtor asserts that laches does not apply in this case because the Debtor did not unreasonably delay in moving to avoid the Judicial Lien, and Waltrip was not unduly prejudiced. Finally, the Debtor points out that even though there is no binding legal authority that requires the payment of Waltrip's expenses related to the execution sale, the bankruptcy court afforded Waltrip the opportunity to seek reimbursement, and he failed to avail himself of that opportunity within the court-imposed deadline.

DISCUSSION

In general, the cases on which Waltrip relies involve the determination of the respective rights of parties in two situations: when the transaction in question is based on a contract (e.g., mortgage, lease), or when the property in question is converted from one form to another (e.g., foreclosure sale). As explained below, the cases are distinguishable and inapplicable.

Waltrip asserted that Missouri's view is that the injured property and the sum received for the injury "stand together," citing Graves v. Stanton , 621 S.W. 2d 524, 528 (Mo. App. 1981). While the Graves court did make such a statement, the context in which it was made was not the valuation of property for judicial lien purposes. The issue there was the entitlement to proceeds of an insurance policy between a lessor and lessee of a mobile home when the contract did not provide the answer. The property was destroyed by fire, and only a part of the insurance proceeds was used for repairs. Given that the lessee had exercised his option to buy, the question arose as to who would be entitled to the unexpended insurance money. The court found that the subject of the contract between the parties was the mobile home, or in case of its destruction, the insurance...