In Re Dawn Petersen, Civ. No. 09-1600 PHX RCB.
| Decision Date | 27 September 2010 |
| Docket Number | BAP No. AZ-09-1210.,Civ. No. 09-1600 PHX RCB.,Bankruptcy No. 02-01937-PHX SCC.,Adversary No. 02-0576. |
| Citation | 437 B.R. 858 |
| Parties | In re Dawn PETERSEN, Debtor, David Birdsell, Trustee, Appellant, v. David A. Petersen, Appellee. |
| Court | U.S. District Court — District of Arizona |
OPINION TEXT STARTS HERE
COPYRIGHT MATERIAL OMITTED.
Alona Melanie Gottfried, Simmons & Gottfried PLLC, Terry A. Dake, Terry A. Dake Ltd., Phoenix, AZ, for Appellant.
Donald W. Powell, Carmichael & Powell PC, Phoenix, AZ, for Appellee.
This adversary proceeding is before the court now for the third time. Once again the broad issue is what funds, if any, defendant/appellee, David A. Petersen (“defendant”), must turn over to Trustee/appellant, David Birdsell (“Trustee”), as part of the bankruptcy estate pursuant to the Bankruptcy Code (“the Code”), 11 U.S.C. § 542. 1 Despite finding community property assets of $110,881.34, the bankruptcy court found that the bankruptcy estate and defendant each had a one-half interest in that community property, i.e., $55,440.62. Id. at 18:2-4. After also allowing defendant “credits or setoffs” totaling $27,412.50, the bankruptcy court held that defendant “still owed ... $28,028.12 2 ... to the bankruptcy estate.” Id. at 18:15-16 (footnote added). Adding $344.40 in costs, and deducting $14,000.00 which defendant had previously paid to the Trustee, the bankruptcy court entered a final judgment against defendant, ordering him to pay $14,372.52 to the Trustee. R. (Doc. 4-8) at 2, ¶ 1.
The Trustee argues that judgment should have been entered in his favor, however, in the full amount of the community property assets-$110,881.34. Appellant's Br. (Doc. 3) at 9. Therefore, he timely filed a Notice of Appeal. R. (Doc. 4-9). Defendant timely filed a Statement of Election, in accordance with 28 U.S.C. § 158(c) and Fed. R. Bank. Pro. 8001(e), electing to have his appeal heard by this district court rather than by a three-judge panel of the bankruptcy appellate panel service. Doc. 1. Pursuant to 28 U.S.C. § 158(a), 3 this district court has jurisdiction to hear the Trustee's appeal. No party has requested oral argument and the court will not require it because “the facts and legal arguments are adequately presented in the briefs and record and the decisional process would not be significantly aided by oral argument.” Fed. R. Bank. Pro. 8012.
The stipulated facts are simple and straightforward. On April 10, 2000, debtor Dawn L. Petersen served a Petition for Dissolution of Marriage upon defendant. R. (Doc. 4-3) at 1, ¶ I(A). Nearly four years later, on February 23, 2004, the Superior Court in Maricopa County entered a Decree of Dissolution of Marriage. Id. at 1, ¶ I(C). In the intervening years, prior to the entry of the Decree of Dissolution, on February 8, 2002, Ms. Petersen filed a Chapter 7 bankruptcy petition. Id. at 1, ¶ I(B). On June 14, 2002, Ms. Petersen received a discharge of all of her debts. Br. (Doc. 3) at 1:23-25 (citation omitted).
On April 12, 2002, the Trustee commenced an adversary proceeding to recover from defendant the community property allegedly belonging to the bankruptcy estate. See R. (Doc. 4-2). By stipulation, the parties resolved the issue which dominated the prior two appeals-the community's interest in the marital residence. The parties finally agreed, and hence the bankruptcy court found, that $50,000.00 represents the community's interest in the improvements on that residence. R. (Doc. 4-7) at 3:1-13; and 3 n. 9. Additionally, also pursuant to the parties' agreement, the bankruptcy court found that the community held the following interests:
Id. at 3:17-18-4:1 (footnote omitted). Based upon the foregoing assets, the bankruptcy court found that “the interests in community property to be taken into consideration” totaled “$110,881.34.” Id. at 17:19-20; and 18:1.
The bankruptcy court “technically agree[d] with the Trustee[ ]” that pursuant to 11 U.S.C. § 541(a)(2) the “bankruptcy estate includes,” inter alia, “all of the community property of the Debtor and [the defendant], ..., as of the time of the filing of the bankruptcy petition on February 8, 2002[,]” i.e., $110,881.34. Id. at 9:14-16 (footnote omitted). Nevertheless, the bankruptcy court “allocate[d] one-half of the value of the community assets to [the defendant],” and the other half to the bankruptcy estate. Id. at 9:17-18; and at 18:3-4. The bankruptcy court apportioned the community property assets in that way relying upon Arizona statutes governing division of community property in a dissolution proceedings, as more fully discussed herein. The bankruptcy court further relied upon what it perceived to be the “inequit[y]” which would arise from “allow[ing] the bankruptcy estate to retain a 100 percent interest in the community assets.” Id. at 13:2-3.
Concomitantly, the bankruptcy court found that defendant “shall receive ... credits or setoffs” of $27,412.50 against the amount he owes to the bankruptcy estate. The bankruptcy court offered two reasons for allowing those setoffs. First, it found that defendant met the three criteria for a setoff pursuant to section 553 of the Code.
Second, invoking the equitable doctrine of recoupment, the bankruptcy court allowed “the setoff of mutual debts.” Id. at 16:8-9. When the bankruptcy court did that, as just noted, it allowed $27,412.50 in setoffs, and found that defendant still owed the bankruptcy estate $28,028.12. Id. at 18:12-14.
The Trustee's appeal presents two fairly narrow legal issues. Did the bankruptcy court commit “reversible error” by: (1) “failing to order the Defendant to turn over the full value of the community property to the [T]rustee[;]” and (2) “allowing the defendant to assert offsets against property of the bankruptcy estate[.]” Appellant's Br. (Doc. 3) at 1:11-16. The court will address these issues in turn.
In reviewing the bankruptcy court's decision, “[t]he applicable standard of review is identical to that employed by circuit courts of appeal in reviewing district court decisions.” Brooks v. Brooks, 2010 WL 1416702, at *2 (E.D.Cal. April 5, 2010) (citing Ford v. Baroff (In re Baroff ), 105 F.3d 439, 441 (9th Cir.1997)). A bankruptcy court's “factual findings are reviewed for clear error.” Ormsby v. First Am. Title Co. of Nev., 591 F.3d 1199, 1205 n. 2 (9th Cir.2010) (citation and internal quotation marks omitted). However, “a bankruptcy court's legal conclusions, including its interpretation of the bankruptcy code and state law,” are subject to “de novo [ ]” review. Heilman v. Heilman, 430 B.R. 213, 216 (9th Cir. BAP 2010) (citation omitted). Mixed questions of law and fact are, likewise, subject to de novo review. In re Cerchione, 414 B.R. 540, 545 (9th Cir. BAP 2009). “Such issues are reviewed de novo because they require consideration of legal concepts and the exercise of judgment about the values that animate legal principles.” Id. (citation and internal quotation marks omitted).
This court “may affirm, modify, or reverse [the] bankruptcy judge's judgment, order, or decree or remand with instructions for further proceedings.” Fed. R. Bank. P. 8013. An affirmance “may” be based “on any ground supported by the record, even if it differs from the bankruptcy court's stated rationale.” Cerchione, 414 B.R. at 545 (citation omitted).
On this appeal the Trustee is challenging the bankruptcy court's determination that the bankruptcy estate is entitled to one-half the value of community assets, as opposed to “retain[ing] a 100 percent interest in th[os]e assets.” R. (Doc. 4-7) at 13:3. The issue of “[w]hether property is property of the [bankruptcy] estate is a question of law reviewed de novo.” In re Mwangi, 432 B.R. 812, 818 (9th Cir. BAP 2010) (citation omitted). “De novo means review is independent, with no deference given to the trial court's conclusion.” Id. (citation omitted).
The Trustee also challenges the bankruptcy court's allowance of certain setoffs to defendant based upon section 553 of the Code. Decisions to allow or disallow setoffs under that section are subject to review for abuse of discretion. Brown & Cole Stores, LLC v. Associated Grocers, Inc. (In re Brown & Cole Stores, LLC), 375 B.R. 873, 877 (9th Cir. BAP 2007) (citations omitted). Reversal on abuse of discretion grounds is not proper “unless [the court] ha[s] a definite and firm conviction that the bankruptcy court committed a clear error of judgment in the conclusion it reached after weighing the relevant factors.” In re Gould, 401 B.R. 415, 429 (9th Cir. BAP 2009) (citation omitted), aff'd on other grounds, 603 F.3d 1100 (9th Cir.2010). By the same token though, “a bankruptcy court necessarily abuses its discretion if it bases its decision on an erroneous view of the law or clearly erroneous factual findings.” Id. (citation omitted).
“Absent such abuse,” the court “will not set aside the disallowance[,]” or, conversely, the allowance. See United States v. Carey (In re Wade Cook Fin. Corp.), 375 B.R. 580, 588 (9th Cir.BAP2007) (citation omitted).
In according setoffs to defendant, alternatively, the bankruptcy court relied upon the equitable doctrine of recoupment. The Trustee did not explicitly address the bankruptcy court's reliance upon recoupment. Regardless, as with the decision to allow setoffs under section 553, a bankruptcy court's “use” of recoupment is “reviewed for an abuse of discretion.” Aalfs v. Wirum (In re Straightline Invs., Inc.), 525 F.3d 870, 882 (9th Cir.2008) (citations and internal quotation marks omitted). With these standards of review firmly in mind, the court will examine the Trustee's two issues on appeal.
Because the bankruptcy court requir...
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