Good v. Daff (In re Swintek)

• Decision Date: 18 December 2015
• Docket Number: BAP No. CC–14–1569–KiTaKu,Bk. No. 8:10–22458–TA,Adv. No. 8:13–01106–TA
• Citation: Good v. Daff (In re Swintek), 543 B.R. 303 (B.A.P. 9th Cir. 2015)
• Parties: In re: Richard James Swintek, Debtor. Karen M. Good, Appellant, v. Charles W. Daff, Chapter 7 Trustee, Appellee.
• Court: U.S. Bankruptcy Appellate Panel, Ninth Circuit

543 B.R. 303

In re: Richard James Swintek, Debtor.

Karen M. Good, Appellant,

v.Charles W. Daff, Chapter 7 Trustee, Appellee.

BAP No. CC–14–1569–KiTaKu

Adv. No. 8:13–01106–TA

Bk. No. 8:10–22458–TA

United States Bankruptcy Appellate Panel of the Ninth Circuit.

Argued and Submitted on November 19, 2015

Filed December 18, 2015

Roya Rohani argued for appellant Karen M. Good

Arjun Sivakumar of Brown Rudnick LLP argued for appellee Charles W. Daff, Chapter 7 Trustee.

Before: KIRSCHER, TAYLOR and KURTZ, Bankruptcy Judges.

OPINION

KIRSCHER, Bankruptcy Judge:

Appellant and judgment creditor Karen Good appeals an order wherein the bankruptcy court determined that § 108(c)¹ did not toll or extend the one-year expiration period for Good's lien under CAL. CODE CIV. P. ("CCP") § 708.110(d). This precise question of law is a matter of first impression before the Panel. We hold that § 108(c) tolled the one-year expiration period imposed under CCP § 708.110. Therefore, we VACATE AND REMAND.

I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY

A. Prepetition events

In 2001, two law firms obtained money judgments totaling approximately $300,000 against Richard J. Swintek, a former certified public accountant, for unpaid legal fees. In 2009, Good acquired the money judgments by assignment. She renewed the judgments in 2010 and began collection efforts.

On June 30, 2010, the state court issued an Application and Order for Appearance and Examination ("ORAP") to Swintek pursuant to CCP § 708.110. Good claims she personally served Swintek with the ORAP on that same date. Swintek was ordered to appear for examination on August 19, 2010.

In July 2010, Good instructed the Orange County Sheriff to levy upon several deposit accounts and certificates of deposit held in the name of Swintek and/or his wife. The sheriff took custody of approximately $67,000.

Swintek failed to appear for the ordered examination, resulting in the state court continuing it until October 14 and issuing a bench warrant for his arrest. Good claims she served Swintek with the new notice.

B. Postpetition events

Swintek filed a chapter 7 bankruptcy case on September 2, 2010. He identified Good as a secured creditor with an execution lien valued at $2,900, and he identified her as an unsecured creditor holding a claim for $310,000 for "attorney's fees." Notably, Good is Swintek's only creditor. Trustee Charles W. Daff was appointed to Swintek's case.

Trustee eventually acquired the $67,000 in levied funds. Good claimed all rights to them in her filed proof of claim. Thereafter, upon Swintek's motion under § 522(f), the bankruptcy court avoided Good's execution lien to the extent it impaired Swintek's allowed exemption of $21,725. Trustee was to hold the balance of the levied funds, $45,274.79 plus any accrued interest.

1. Good's first adversary complaint

In 2013, Good filed an adversary complaint against Trustee seeking a determination on the priority of her lien and declaratory relief. Good alleged that upon serving Swintek with the ORAP, she obtained a lien (the "ORAP Lien") on all of his personal property assets for one year under CCP § 708.110. Good alleged that all funds held by Trustee were subject to her ORAP Lien, yet he was refusing to distribute them to her.

In his motion to dismiss, Trustee argued that Good's ORAP Lien, issued on June 30, 2010, expired one year after the date of the order; thus, any lien created by service of the ORAP expired on June 30, 2011. Trustee contended the one-year durational period in CCP § 708.110(d) was not extended or tolled by § 108(c), citing In re Gbadebo, 431 B.R. 222, 226 n. 4 (Bankr.N.D.Cal.2010).

Rejecting the "dictum" in Gbadebo that § 108(c) did not apply to ORAP liens and relying on Kipperman v. Proulx (In re Burns), 291 B.R. 846, 849 n. 4 (9th Cir. BAP 2003), the bankruptcy court ruled that § 108(c) applied to Good's ORAP Lien. Therefore, because Good had stated a claim for declaratory relief, Trustee's motion to dismiss was denied.

2. Good's amended adversary complaint and the motions for summary judgment

Good filed an amended complaint against Trustee and the parties filed multiple motions for summary judgment. Good contended her ORAP Lien constituted an "enforcement" lien under California law and remained stayed by § 362 until the levied funds were no longer property of the estate. Because she was not allowed to continue with her enforcement efforts once Swintek filed bankruptcy, Good argued that § 108(c) tolled the one-year enforcement period of her ORAP Lien, citing Miner Corp. v. Hunters Run Ltd. P'ship (In re Hunters Run Ltd. P'ship), 875 F.2d 1425 (9th Cir.1989), In re Burns, 291 B.R. at 849, and S. Cal. Bank v. Zimmerman (In re Hilde), 120 F.3d 950 (9th Cir.1997).

Trustee contended that Good's ORAP Lien expired by its own terms on June 30, 2011, before her adversary complaint was filed, and that § 108(c) did not toll the one-year period. Trustee argued that § 108(c) did not apply to an ORAP lien because it is created by service and does not involve a "commencement" or a "continuation" of a civil action, as § 108(c) requires. In support of his position, Trustee noted a recent case, Wolfe v. Palladino (In re Harris), Adv. No. 8:13–01125 (Bankr.C.D.Cal. Apr. 29, 2014), wherein the same bankruptcy court determined that an ORAP lien is not a "commencement" or "continuation" of a civil action, but rather is an "anomalous lien" arising after judgment has been entered and an ORAP properly served; thus, § 108(c) did not toll an ORAP lien's one-year expiration period.

In ruling for Trustee, the bankruptcy court acknowledged that no appellate court within the Ninth Circuit has addressed the issue of whether § 108(c) tolls the one-year expiration period of an ORAP lien. A split in persuasive authority also exists among bankruptcy courts. Ultimately, the bankruptcy court decided to adopt its prior ruling in Harris: § 108(c) does not toll the one-year expiration period of an ORAP lien. Accordingly, because Good had not renewed her ORAP Lien prior to the expiration date in June 2011, it had expired. Therefore, she had no claim against the levied funds; summary judgment for Trustee was appropriate.

Good timely appealed.

II. JURISDICTION

The bankruptcy court had jurisdiction under 28 U.S.C. § 1334 and 157(a)(2)(K). We have jurisdiction under 28 U.S.C. § 158.

III. ISSUE

Did the bankruptcy court err in determining that § 108(c) did not toll the one-year expiration period for an ORAP lien under CCP § 708.110(d) ?

IV. STANDARD OF REVIEW

We review the bankruptcy court's legal conclusions, including its interpretation of the Code, de novo. Sachan v. Huh (In re Huh), 506 B.R. 257, 262 (9th Cir. BAP 2014) (en banc). Likewise, we review the bankruptcy court's order granting summary judgment de novo. Centre Ins. Co. v. SNTL Corp. (In re SNTL Corp.), 380 B.R. 204, 211 (9th Cir. BAP 2007).

V. DISCUSSION

Trustee disputes and Good contends she held a valid ORAP lien against Swintek at the time he filed his bankruptcy case. This contention may involve a factual matter the bankruptcy court will have to determine on remand. If valid, then it is undisputed the one-year expiration period under CCP § 708.110(d) had not yet run when Swintek filed his bankruptcy case, just two months after Good allegedly served him with the ORAP. Therefore, the question before us is whether § 108(c) tolled the running of the one-year durational period. We conclude it did.

A. CCP § 708.110 and 708.120

In 1982, California enacted a comprehensive Enforcement of Judgments Law governing the enforcement of all civil judgments in California. CCP § 680.010 –709.030. It reflects the legislative intent to allow judgment creditors a " ‘speedy and inexpensive means ... to obtain priority over other creditors....' " In re Hilde, 120 F.3d at 954 (citation omitted)(emphasis in original); In re Burns, 291 B.R. at 850.

Under CCP § 708.110, a judgment creditor may apply to the court for an order requiring the judgment debtor to appear for an examination "to aid [the creditor's] enforcement of the money judgment." CCP § 708.110(a). Service of the ORAP on the judgment debtor creates an enforceable lien on the debtor's personal property. CCP § 708.110(d).²

An ORAP lien exists from the date the order to appear is served and is effective for one year unless extended or sooner terminated by the court. CCP § 708.110(d). In other words, an ORAP lien will expire by its own terms if it is not renewed before the expiration of one year. Service of the ORAP is all that is required to create and establish the priority of the ORAP lien. In re Hilde, 120 F.3d at 953 ; In re Burns, 291 B.R. at 850. An ORAP lien is allowed to be a "secret" or "hidden" lien; it is not recorded or published. " ‘Other creditors are able to discover the lien only if they know about the creditor's judgment and review the court file.’ " Morgan Creek Prods. v. Franchise Pictures LLC (In re Franchise Pictures LLC), 389 B.R. 131, 141 (Bankr.C.D.Cal.2008) (quoting Hon. Alan M. Ahart, Cal. Prac. Guide: Enforcing Judgments & Debts § 6:1306 (The Rutter Group 2007)). See In re Hilde, 120 F.3d at 956 (public policy issues trustee has with an ORAP lien being a "secret" lien is something for the California Legislature to solve).

B. Section 108(c)

Section 108(c) provides that "if applicable nonbankruptcy law ... fixes a period for commencing or continuing a civil action in a court other than a bankruptcy court on a claim against the debtor, ... and such period has not expired before the date of the filing of the petition, then such period does not expire until ... 30 days after notice of the termination or expiration of the stay under section 362...." The "applicable nonbankruptcy law" at issue here is CCP § 708.110(d).

C. The bankruptcy court erred in determining that the one-year expiration period for an ORAP lien is not tolled by § 108(c).

1. Preliminary matters

Before we begin our analysis, we make two preliminary observations. We conclude that CCP § 708.110(d) is a statute...