Flexmaster Aluminum Awning Co., Inc. v. Hirschberg
| Decision Date | 29 September 1992 |
| Docket Number | Nos. 1,CA-CV,s. 1 |
| Citation | 173 Ariz. 83,839 P.2d 1128 |
| Parties | FLEXMASTER ALUMINUM AWNING CO., INC., a New York corporation, Plaintiff, Counter-defendant-Appellant, v. Janet HIRSCHBERG, Defendant, Counter-claimant-Appellee. 90-469, 1 90-554. |
| Court | Arizona Court of Appeals |
Flexmaster Aluminum Awning Co. ("Flexmaster") sued both Janet ("wife") and William ("husband") Hirschberg on a contractual debt William incurred before his marriage to Janet. While the action was pending, Flexmaster discovered that husband had filed a personal bankruptcy petition. Flexmaster notified the court and opposing counsel of that petition. However, both parties continued to litigate the action. The wife moved for summary judgment on the basis of improper joinder, and the trial court dismissed the suit against her after finding the wife was not a proper party. On appeal, Flexmaster contends the trial court erred in finding wife was improperly joined. We agree and reverse. We hold that the wife is a necessary party to a suit to establish limited liability of the community for the husband's premarital debt. We also hold that if the bankruptcy discharged the husband's premarital debt to Flexmaster, Flexmaster no longer has a claim enforceable against the community.
(1) Can a creditor satisfy a premarital debt subject to discharge in bankruptcy proceedings from the debtor-husband's contribution to the community property?
(2) In an action to establish the liability of community property for the premarital separate debts of the husband, is the creditor required to join the wife as a party?
In an appeal from summary judgment, we view the facts giving every supportable inference to Flexmaster. Gordinier v. Aetna Casualty & Surety Co., 154 Ariz. 266, 267, 742 P.2d 277, 278 (1987). There is no dispute, however, about the material facts.
The claims stated in the first amended complaint relate solely to debts the husband incurred before he was married. The claims arose when he purchased goods from Flexmaster on November 16, 1988. He later married Janet on March 12, 1989. She had no dealings with Flexmaster before the marriage.
On February 14, 1990, Flexmaster filed a complaint naming the marital community. The wife's attorney wrote to Flexmaster's counsel, informing him that the parties did not marry until after the husband contracted with Flexmaster. The wife's attorney requested that Flexmaster drop the wife from the suit.
Instead of dismissing the wife, Flexmaster amended the complaint. The amended complaint alleged that when the debt was incurred, the community obligated itself for the debt because both husband and wife acted on behalf of the marital community. Alternatively, Flexmaster claimed that the community property was liable for payment of the husband's premarital separate debt "to the extent of the value of [the husband's] contribution to the community property which would have been such spouse's separate property if single."
In the wife's answer, she denied being married to William until after he entered into the contract. She also counterclaimed, alleging that Flexmaster and its attorneys had filed the action against her "without substantial justification, primarily for purposes of harrassment [sic], knowing the First Amended Complaint was groundless, and in bad faith." She sought attorney's fees and double damages pursuant to A.R.S. section 12-349.
The wife filed a motion for summary judgment asserting that she was improperly joined. The trial court granted the motion, concluding "Janet Hirschberg is neither a necessary nor a permissible party to this litigation." It awarded her attorney's fees but did not specify on what basis.
The court entered formal judgment on July 3, 1990. Flexmaster appealed. This court docketed the appeal as Case No. 1 CA-CV 90-469. However, the judgment did not dispose of all claims and did not contain the necessary certification. See Ariz.R.Civ.P. 54(b). As a result, this court questioned appellate jurisdiction. The wife then moved to dismiss her counterclaim. The superior court granted her motion and entered final judgment on September 18, 1990. This judgment disposed of the counterclaim and contained the Rule 54(b) certification.
Flexmaster also appealed from the latter judgment, docketed in this court as Case No. 1 CA-CV 90-554. We granted Flexmaster's motion to consolidate. We have jurisdiction pursuant to A.R.S. § 12-2101(B).
We hold that if the husband's premarital liability has been discharged in bankruptcy, no debt exists for which the community is liable. Thus, a creditor may not look to a debtor-spouse's contribution to the community property to satisfy a debt that has been discharged in bankruptcy.
Flexmaster filed its first complaint against the Hirschbergs on February 14, 1990. It personally served the wife and obtained substituted service on the husband by serving the wife. On March 21, 1990, Flexmaster obtained substituted service on the wife by personally serving her husband with an alias summons and amended complaint.
On April 3, 1990, the husband filed a petition for personal bankruptcy under Chapter Seven of the United States Bankruptcy Code. See generally Title 11 United States Code ("U.S.C."). On May 7, 1990, Flexmaster notified the trial court and counsel of the husband's bankruptcy. After the parties briefed the issue of whether the bankruptcy filing triggered an automatic stay, the trial court declined to stay the lawsuit. It concluded:
[T]he bankruptcy stay which precludes action in this case involving defendant William Hirschberg does not apply to the co-defendant, Janet Hirschberg, who is not a party to the bankruptcy.
The wife's attorney argues that the husband's August 10, 1990 discharge released him from liability for all debts existing when he filed the bankruptcy. Our limited record does not indicate whether the bankruptcy court discharged the husband's debt to Flexmaster. If the court discharged the debt, no claim against the community exists.
Once a person files a petition for bankruptcy, a bankruptcy estate is created. See 11 U.S.C. § 541. The bankruptcy estate
consists of all legal or equitable interest in property which the debtor may hold. Administration of the property of the estate is done under guidance of the bankruptcy court. To facilitate that administration, the statutory stay of section 362 of the Bankruptcy Code disallows any action to obtain possession of property of the estate or to create or perfect any interest or claim to property of the estate....
In re Schock, 37 B.R. 399, 400 (Bankr.D.N.D.1984). The debtor's interest in community property is a part of the bankruptcy estate. 11 U.S.C. § 541(a)(2); see also In re Scott, 24 B.R. 738 (Bankr.M.D.Ala.1982)- (staying action seeking division of community property because it was part of bankruptcy estate).
The automatic stay provisions take effect upon the filing of a bankruptcy petition. In re Scott, 24 B.R. at 738. This stay continues in effect until the debtor's discharge in bankruptcy. 11 U.S.C. § 362(c). The automatic stay provides a means to effectively administer the debtor's assets and liabilities. Accordingly, "[a] state court has no right to make a determination or disposition of property which is property of the bankruptcy estate." In re Schock, 37 B.R. at 400.
Actions taken in violation of the automatic stay are voidable. In re Janis, 125 B.R. 274 (Bankr.D.Ariz.1991) (). We note the bankruptcy court's comment on this issue: "The Ninth Circuit, however, has recently taken a strong position in vitiating actions taken in violation of the automatic stay which may have an impact on the bankruptcy estate." Id., 125 B.R. at 278. Furthermore, the bankruptcy code authorizes injunctive relief to preclude creditors from seeking recovery on any discharged debt. 11 U.S.C. § 524(a).
Here, Flexmaster sought to recover community property from which to satisfy the husband's premarital separate debt. The trial court did not stay Flexmaster's lawsuit against either party. Instead, the trial court ruled that the lawsuit was not affected by the husband's personal bankruptcy petition. Although the summary judgment being appealed concerns only the wife's joinder as a party, we disagree with the trial court's conclusion that the husband's bankruptcy does not affect this case.
Flexmaster could proceed against community property only to the extent of the debtor-spouse's contribution to the community; that is, the value of property that would be the husband's if he were single. A.R.S. § 25-215(B). Because the husband's contribution to the community comprised part of the bankruptcy estate, any judicial proceeding against that interest should have been automatically stayed. As a result, any judgment rendered in violation of the automatic bankruptcy stay would be voidable. Furthermore, if the husband's bankruptcy discharged the debt, Flexmaster would be enjoined from attempting to collect from the husband or from his contribution to the marital community.
Put simply, the husband must first be liable to Flexmaster in order for Flexmaster to seek any community property to satisfy the debtor-husband's liability. If his liability has been discharged in bankruptcy, no debt remains to enforce against the community. Under these circumstances, Flexmaster may not proceed against the debtor-spouse's contribution to the community property to satisfy the debt.
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