In re Barnes, BAP No. CC-95-1845-MeJHa. Bankruptcy No. ND 94-13753 RR.
| Decision Date | 19 July 1996 |
| Docket Number | BAP No. CC-95-1845-MeJHa. Bankruptcy No. ND 94-13753 RR. |
| Citation | 198 BR 779 |
| Parties | In re Pierre T. BARNES and Kathy L. Barnes, Debtors. Melinda K. NELSON, Appellant, v. Pierre T. BARNES and Kathy L. Barnes, Appellees. |
| Court | U.S. Bankruptcy Appellate Panel, Ninth Circuit |
James G. Allen, Thousand Oaks, CA, Diane Pappas, Thousand Oaks, CA, for Appellant.
Kenneth B. Rodman, Westlake Village, CA, for Appellees.
Before: MEYERS, JONES and HAGAN, Bankruptcy Judges.
I
Melinda K. Nelson ("Nelson") appeals an order allowing her former husband, Pierre T. Barnes ("Debtor"), to avoid her judgment liens. We affirm in part and reverse in part.
II
The marriage between Nelson and the Debtor was dissolved pursuant to a judgment of the Ventura County Superior Court. In a "Judgment on Reserved Issues" entered on November 6, 1990, the superior court ordered, among other things, that the Debtor pay the Appellant a total of $21,900. Specifically, the Debtor was to reimburse Nelson $17,000 for the value of their business, $200 for an eight-foot boat and $5,000 for a car, while Nelson was to reimburse the Debtor $300 for a six-foot boat. In addition, the court directed that either party could buy the other's interest in the house. Otherwise, the house would be sold, with profits divided between the parties. The court reserved jurisdiction over any disputes which might arise concerning division of the house.
Both parties indicated their wish to keep the residence. The superior court had ordered that either party could buy it for $240,000. As both Nelson and the Debtor wanted to purchase the residence at that price, they bid for the property. The parties stipulated that the Debtor would buy the residence for $270,000. The superior court orally approved the stipulation on April 8, 1991. Nelson executed a quitclaim deed in the residence in favor of the Debtor on July 26, 1991, which the Debtor recorded four days later. On September 23, 1991, Nelson recorded a notice of pending action which stated that the pending dissolution proceeding affected the residence, as one of the objects of the proceeding was to establish a lien against the residence.
On April 8, 1993, Nelson recorded the Judgment on Reserved Issues in Ventura County, along with two other orders from the Ventura County Superior Court. The first order, dated June 17, 1991, directed the Debtor to pay $1,000 to Nelson's counsel. The second order, dated December 9, 1991, awarded Nelson $8,493.88 to reimburse her for "one-half of the community obligations" she had paid since the court's November 8, 1989 order. Specifically, Nelson was allowed reimbursement for one-half of the property taxes and penalties she had paid on the residence, one-half of the community obligations she had assumed in November 1989 and uninsured medical and dental expenses from November 1989.
The Debtor and his current wife filed a Chapter 7 bankruptcy petition on September 2, 1994. On June 1, 1995, they filed a motion to avoid Nelson's judicial liens. The court granted the motion by order entered on July 24, 1995 and this appeal followed.
On October 20, 1995, the bankruptcy court entered a judgment finding a $21,000 debt owed to Nelson nondischargeable under Bankruptcy Code ("Code") Section 523(a)(2)(A), on the basis that when the Debtor caused the quitclaim deed to be recorded he did not intend to pay Nelson the monies due her.
III
Questions of statutory interpretation are reviewed de novo. In re Morgan, 149 B.R. 147, 150 (9th Cir. BAP 1993). Whether a post-dissolution interest in property is a judicial lien, and whether a judicial lien is avoidable under Code Section 522(f)(1), are questions of law reviewed de novo. In re Yerrington, 144 B.R. 96, 98 (9th Cir. BAP 1992), aff'd without op., 19 F.3d 32, 1994 WL 68254 (9th Cir.1994).
IV
Because this case was filed before October 22, 1994, the date the 1994 Bankruptcy Reform Act went into effect, the 1994 amendments to Code Section 522(f) do not apply. See In re Amiri, 184 B.R. 60, 61 n. 3 (9th Cir. BAP 1995); In re Wilson, 90 F.3d 347 (9th Cir.1996). The former version of Section 522(f)(1) provides:
Notwithstanding any waiver of exemptions, the debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debtor would have been entitled under subsection (b) of this section, if such lien is a judicial lien.
The debtor has the burden of showing he is entitled to avoid a judicial lien under Section 522(f)(1). In re Catli, 999 F.2d 1405, 1406 (9th Cir.1993).
Nelson sets forth several arguments why Section 522(f)(1) does not apply here. First, she contends that her liens are not judicial liens. Rather, she claims they are in the nature of a security interest voluntarily undertaken by the Debtor pursuant to an agreement entered into in the dissolution proceeding.
This argument has been rejected by the Ninth Circuit Court of Appeals. In In re Pederson, 875 F.2d 781, 783 n. 4 (9th Cir. 1989), the court stated:
Other courts have held that a lien created in a settlement agreement is equivalent to a consensual security interest, rather than a judicial lien, for purposes of section 522(f)(1). We reject these theories as implausible and unsupported by the language of the Code.
(Citation omitted.) Although Farrey v. Sanderfoot, 500 U.S. 291, 111 S.Ct. 1825, 114 L.Ed.2d 337 (1991), abrogated the central holding in Pederson, the Court of Appeals has concluded that Sanderfoot "has not overruled our holding in Pederson that a lien imposed by a court in a divorce proceeding is a judicial lien." Catli, supra, 999 F.2d at 1407 n. 3.
Nelson also asserts that the liens are not against the interest of the Debtor in the property, because the Debtor breached the agreement allowing him to acquire the property. Nelson points to the bankruptcy court's finding on the Section 523(a)(2) action that when the Debtor caused the quitclaim deed to be recorded he did not intend to pay Nelson the monies due her. But the court's holding that the debt was incurred fraudulently does not mean that the deed lacked validity. Nelson's objection to the legality of the Debtor's title could have been pursued in a separate proceeding. This apparently was not done. There is no indication that the Debtor does not hold valid title to the residence and thereby lacks an interest in the property. Nelson's argument on this point lacks merit.1
The bankruptcy court held that the liens, because they were recorded after the quitclaim deed had been recorded, fixed after the Debtor obtained his property interest in the residence. Applying Sanderfoot, supra, the court held that Nelson's liens were avoidable. We believe the court's analysis of the issue was in error.
In Sanderfoot, like the instant case, the debtor attempted to avoid liens held by his former wife in connection with the dissolution of their marriage. The Supreme Court summarized its ruling as follows: "We hold that § 522(f)(1) of the Bankruptcy Code requires a debtor to have possessed an interest to which a lien attached, before it attached, to avoid the fixing of the lien on that interest." 500 U.S. at 301, 111 S.Ct. at 1831. The Court stated that whether a debtor ever possessed an interest to which the lien fixed, before it fixed, is a question of state law. 500 U.S. at 299, 111 S.Ct. at 1830. In Sanderfoot, the debtor had conceded that the dissolution judgment created a new property interest. Id. The Supreme Court held that because the lien fixed at the same time the new property interest was created, the debtor could not avoid the fixing of the lien under Section 522(f)(1). Id.
Here, the Debtor has not made any similar concessions. Under Sanderfoot, we look to state law to determine when property interests are created. In Yerrington, supra, we applied Alaska law to the principles stated in Sanderfoot. We noted that Alaska law gave the divorce court the authority to reorder pre-dissolution interests of the parties as required for an equitable result. 144 B.R. at 99. Consequently, the dissolution decree destroyed the previous interests of the parties and created new ones. Id.
In Catli, supra, the Court of Appeals looked at Washington law to determine whether the debtor possessed an interest in the family home before his former spouse's lien fixed. The court found the following elements of that law important: each spouse owns an undivided one-half interest in community property; when a marriage is dissolved, a court in a divorce proceeding must dispose of the couple's community and separate property; and in disposing of the property, the court may award one spouse the property outright subject to a lien awarded to the other spouse. 999 F.2d at 1408. This is what the state court had done. The Court of Appeals held that the debtor never possessed an interest to which his former wife's lien attached, before it attached, making Section 522(f)(1) inapplicable. Id.
California's provisions for division of property in marital dissolution actions are similar to those found relevant in Yerrington and Catli. In California, in a marriage dissolution proceeding, the court has jurisdiction to issue orders concerning the settlement of property rights of the parties. Cal.Fam. Code Sec. 2010(e). The court is to divide the community estate of the parties equally, either in its judgment of dissolution or at a later time if it expressly reserves jurisdiction to make such a property division. Cal.Fam. Code Sec. 2550. Division of the property may include an award of a community asset to one party, in order to effect a substantially equal division of the community estate. Cal. Fam.Code Sec. 2601.2
In sum, in California, property...
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