Hassler v. Assimos
| Decision Date | 29 March 1985 |
| Docket Number | Civ.A.No. 84-135CMW. |
| Citation | 53 BR 453 |
| Parties | Peter M. HASSLER and Genevieve L. Hassler, a/k/a Genevieve Lenoir, Plaintiffs, v. Angel, Charles, George, and Andrew ASSIMOS, Defendants. |
| Court | U.S. District Court — District of Delaware |
Arthur J. Sullivan, c/o Victor F. Battaglia, of Biggs & Battaglia, Wilmington, Del., for plaintiffs.
Gregg E. Wilson, of Wilmington, Del., for defendants.
This appeal1 represents the third occasion that a Court for the District Court of Delaware has had to consider the scope of a debtor's right under § 522(f) of the Bankruptcy Reform Act of 1978, Pub.L.No. 95-598 § 522(f), 92 Stat. 2549 (1978),2 to avoid a judicial lien after the debtor's discharge in bankruptcy. In Noble v. Yingling (hereinafter "Noble I"), 29 B.R. 998 (D.Del. 1983), the District Court reversed the decision of the bankruptcy court. The bankruptcy court had held that an adversary proceeding to avoid a judicial lien pursuant to § 522(f) must be filed prior to the debtor's discharge. While rejecting the bankruptcy court's construction of § 522(f), the District Court recognized that the debtor's failure to initiate an avoidance proceeding may in some situations give rise to a defense based on laches.
On remand, the bankruptcy court, after making certain findings of facts as requested by Judge Schwartz in Noble I, held that the debtor's knowing failure to file an avoidance prior to discharge precluded a debtor from seeking an avoidance after discharge against a creditor who had acted in good faith. See Noble v. Yingling (hereinafter "Noble II"), 37 B.R. 647, 649-50 (D.Del.1984) (). In reversing the decision of the bankruptcy court, Judge Schwartz announced the following rule: "Post-discharge lien avoidance will be barred only if the debtor's delay has resulted in such prejudice as to warrant barring the lien avoidance relief." Noble II, supra, 37 B.R. at 650; accord, e.g., In re Barnett, 30 B.R. 119, 122 (Bankr.M.D.Ala.1983).
The present action was before the bankruptcy court while Noble II was still on appeal. The bankruptcy judge held that plaintiff-debtors' (hereinafter "debtors'") delay in seeking to avoid the defendant-creditors' (hereinafter "creditors'") lien was inexcusable and that therefore, laches applied, barring debtors' motion. See Defendants' Answering Brief, Exhibits 1, 5 . Because neither the record below nor the briefs on appeal disclose any basis from which laches can be inferred, even viewing the record in the light most favorable to the party asserting laches, the decision of the bankruptcy court must be reversed and remanded.
On February 8, 1980, the creditors obtained a judgment against the debtors in the amount of $75,956.00 in the Superior Court of the State of Delaware. The judgment was duly recorded, creating a judicial lien on the debtors' real property. See 10 Del.C. §§ 4701-4737.
On June 4, 1981, the debtors filed a petition in bankruptcy pursuant to 11 U.S.C. Chapter 7. The debtors' petition listed the creditors' outstanding judgment. The debtors' petition also described jointly owned real estate with a market value of $53,000 and two mortgages with a total balance due of $44,253.43. The debtors claimed the $8,746.57 in equity as part of their real estate exemption.
A meeting of creditors was held on June 29, 1981, at which counsel to the judgment creditors in this appeal were present. The meeting's notice had indicated that the exemptions would be granted if no objections were filed within 15 days of the meeting date. At the meeting, the Trustee indicated his intention to abandon the property in question.
Discharge in bankruptcy occurred on September 3, 1981. The Trustee in Bankruptcy, however, did not file the required "Notice of Abandonment" with respect to the debtors' real estate until December 7, 1982, more than a year after the discharge. The abandonment did not take effect until January 7, 1983.
On December 29, 1983, over two years after debtors were discharged in bankruptcy and just less than a year after formal abandonment of the real estate in question, the debtors filed a motion for an order to avoid the Assimos' judgment lien.3
The judgment creditors advanced two objections to debtors' motion. The creditors maintained the motion was untimely. Moreover, they claimed that the intended sale value of the real estate exceeded the debtors' property valuation as contained in their bankruptcy petition, and consequently, the debtors' equity in the real estate exceeded any exemptions they were entitled to claim. The creditors had not undertaken any efforts to enforce their lien after the debtors' discharge in bankruptcy.
The bankruptcy judge, invoking the doctrine of laches, denied debtors' motion from the bench as untimely and plaintiffs appealed.
The sole issue on appeal is whether the bankruptcy judge erred in denying debtors' motion on grounds of laches. Three standards of appellate review are present whenever a district court reviews an equitable decision of the bankruptcy court, which functions, in such matters, as the trier of fact. Review of factual findings is governed by the clearly erroneous standard. In re Morrissey, 717 F.2d 100, 104 (3d Cir.1983). Matters regarding the length of delay or the existence of consequences and circumstances that are prejudicial, are questions of fact.4 Churma v. United States Steel Corp., 514 F.2d 589, 593 (3d Cir.1975). The conclusion, however, that a delay is inexcusable or that a party has suffered prejudice involve the application of legal standards over which this Court's review is plenary. See, id.; E.E.O.C. v. Great Atlantic & Pacific Tea Co., (hereinafter "A & P"), 735 F.2d 69, 81, 84 (3d Cir.), cert. dismissed ___ U.S. ___, 105 S.Ct. 307, 83 L.Ed.2d 241 (1984). If a sufficient factual basis exists for finding the requisite elements of laches, then a decision by the bankruptcy court barring a debtor from further avoiding any judicial liens is subject to scrutiny by this Court only for an abuse of the bankruptcy court's equitable discretion. See A & P, supra, 735 F.2d at 81; Gruca v. United States Steel Corp., 495 F.2d 1252, 1258 (3d Cir. 1974).
Here, the bankruptcy judge's invocation of the doctrine of laches represents an ultimate legal conclusion without any of the requisite subordinate findings to support such a conclusion.5 "The elements of the equitable defense of laches are `(1) lack of diligence by the party against whom the defense is asserted, and (2) prejudice to the party asserting the defense.'" See A & P, supra, 735 F.2d at 69 (quoting Costello v. United States, 365 U.S. 265, 292, 81 S.Ct. 534, 543, 5 L.Ed.2d 551, 555 (1961)). This proposition is true whether the issue is discrimination, as in A & P, or bankruptcy, as here.
The statute of limitations with respect to the underlying claim governs the allocation of burden of proof with respect to these elements between the party seeking to assert laches and the other party. Gruca v. United States Steel Corp., 495 F.2d 1252, 1259 (3d Cir.1974). Because there is no express statutory limitation period that bars lien avoidance proceedings brought under § 522(f),6Noble I, supra, 29 B.R. at 1001, the burden of establishing both inexcusable delay and prejudice was on the judgment creditor. A & P, supra, 735 F.2d at 80.
This Court cannot ascertain whether defendants have carried their evidentiary burden with respect to the issues of inexcusability and prejudice based on the record currently before the Court and in view of the bankruptcy court's failure to offer findings of fact. Indeed, it appears from the record that the bankruptcy judge considered matters arising solely from the procedural history of the case rather than conducting a separate evidentiary proceeding into the excusability or inexcusability of debtors' delay and any prejudice suffered by the creditors.
The bankruptcy judge should resolve a number of factual issues as a predicate to determining whether the party asserting laches has established the requisite elements of the defense. Judge Schwartz has identified a non-exhaustive list of seven equitable factors for consideration by the bankruptcy judge:
1) vigor with which the judgment creditors pursued the debtors prior to the filing of the bankruptcy petition, 2) communication of positions by and between debtors and judgment creditors after filing of the petition and prior to discharge, 3) motivating cause of failure to file lien avoidance complaint prior to discharge, 4) length of time between discharge and filing of lien avoidance complaint, 5) reasons for the delay in filing of lien avoidance complaint, 6) prejudice to the judgment creditors, and 7) good faith, or lack thereof, of the creditors.
Noble I, supra, 29 B.R. at 1003.
Another factor that bankruptcy courts may wish to consider is the creditors' reason for delay in seeking to enforce their lien against the debtors' property. Arguably, this eighth factor is merely an extension of the inquiry into the creditors' good faith as provided in the seventh factor. An explicit consideration of a creditor's post-discharge conduct is likely to produce a more detailed examination of creditor's conduct in determining whether the creditor is entitled to equitable protection.7
Although the bankruptcy court did not address the issue of inexcusability or prejudice, the merits of the appeal can be resolved solely as a matter of law. The defense of laches will lie only if the party asserting the defense can offer a conceivable basis for claiming prejudice as a result of his opponent's inexcusable delay.8 In this context, prejudice exists whenever a creditor's position, in terms of the legal rights he possesses against the debtor, is unfairly compromised relative to the position the creditor would have...
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