In re Golden
| Decision Date | 14 October 1981 |
| Docket Number | Bankruptcy No. 80-01313-BKC-SMW,Adv. No. 81-0292-BKC-SMW-A. |
| Parties | In re David Alan GOLDEN and Barbara Rebekah Golden, Debtors. David Alan GOLDEN and Barbara Rebekah Golden, Plaintiffs, v. FLAGSHIP FACTOR CORPORATION, Defendant. |
| Court | United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Southern District of Florida |
COPYRIGHT MATERIAL OMITTED
Susan Walker Schehr, Myers, Kaplan, Levinson, Kenin & Richards, Miami, Fla., for defendant.
Joseph Easthope, Houston, Faircloth, Easthope & Traver, Fort Lauderdale, Fla., for plaintiff.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
This Cause having come on to be heard upon plaintiffs' Complaint to Avoid a Judicial Lien under 11 U.S.C. Section 522(f) filed herein; and the Court, having examined the facts as stipulated to by the parties; having considered the arguments of counsel, and being otherwise fully advised in the premises; does hereby make the following findings of fact and conclusions of law:
The Court has jurisdiction of the parties and the subject matter.
The facts are undisputed. A judicial lien was entered on October 25, 1977 on the homestead property of the plaintiffs, David Alan and Barbara Rebekah Golden (the Debtors) in the amount of Forty-Seven Thousand, Nine Hundred Fifty-Eight and 26/100 Dollars ($47,958.26) in favor of Flagship Factor Corporation (the Bank) and recorded October 27, 1977 in Broward County, Florida. This lien predates the enactment of the Bankruptcy Code of 1978 in effect at the time the bankruptcy petition was filed in this case. The money owed to the Bank was not a purchase money mortgage on the property in question. The Debtors allege that the Bank's lien on the homestead property of the Debtors impairs the exemption to which the Debtors would be entitled under 11 U.S.C. Section 522(f) and Florida Statute 222.01 et seq.
In making an analysis of the constitutionality of a statute, certain presumptions come to bear. Any Congressional act coming before this Court comes with the presumption of constitutionality. It is the burden of the party challenging the statute to overcome this presumption. In re Stump, 8 BR 516 (Bkrtcy. 1981); Usery v. Turner Elkhorn Mining Co., 428 U.S. 1, 96 S.Ct. 2882, 49 L.Ed.2d 752 (1976) hereinafter cited as Usery. Absent a clear showing of a violation of a constitutionally protected right or privilege, a trial court should resolve any question of constitutionality in favor of the act. Goldblatt v. Hempstead, 369 U.S. 590, 82 S.Ct. 987, 8 L.Ed.2d 130 (1962). The Court proceeds with its analysis of the Bank's Fifth Amendment assertions against this background of the presumptive constitutionality of 11 U.S.C. 522(f).
The Bank's Fifth Amendment challenge raises three basic issues: (1) whether Section 522(f) involves a taking of private property for public purposes without just compensation; (2) whether retroactive application of Section 522(f) involves a deprivation of property without procedural due process and (3) whether Section 522(f) violates substantive due process. In re Pillow, 8 B.R. 404 (Bkrtcy.D.Utah, 1981).
In order for Section 522(f) to fall under the "taking" provision of the Fifth Amendment, it is necessary that the taking of property be the direct or indirect result of an actual appropriation of property "by the government for public use." Matter of Joyner, 7 B.R. 596 (Bkrtcy.M.D.Georgia 1980) hereinafter referred to as Matter of Joyner. While there may be an appropriation of property involved in the facts presented here, it is not appropriated for public use. It is the opinion of the Court that the avoidance of a pre-enactment judicial lien under Section 522(f), while possibly depriving the Bank of an interest in property, is not the type of "taking" prohibited by the final section of the Fifth Amendment.
The due process issue consists of two elements, procedural and substantive. Procedural due process concerns the notice necessary to provide a property owner an opportunity to contest the validity of an action to deprive him of his property and serves the purpose of preventing arbitrary, or unfair deprivations. Fuentes v. Shevin, 407 U.S. 67, 92 S.Ct. 1983, 32 L.Ed.2d 556 (1972) as cited in Matter of Joyner. The test for substantive due process, on the other hand, is whether the challenged act is "unreasonable, arbitrary or capricious and (whether it has) a real and substantial relationship to a permissible legislative objective." Matter of Joyner. To prove a Fifth Amendment procedural due process violation, the Bank must show that its property right in the judicial lien is being invaded without an opportunity to object or contest the matter in Court. Rainbow Valley Citrus Corp. v. Federal Crop. Insurance Corp., 506 F.2d 467 (9th Cir. 1974). The Court finds that the Bank has had ample opportunity to be heard in this matter. Notice of this action to avoid the Bank's judicial lien was served on June 23, 1981; answer was filed by the Bank on July 17, 1981. The Court not only heard oral argument on August 5, 1981 but also reviewed memorandums of law submitted by the attorneys for the parties. The Court finds no violation of procedural due process in this matter.
The retroactive application of a law raises the issue of whether creditors had "notice" of the law when credit was given to the Debtors. The Bank argues that the retroactive avoidance of a judicial lien which vested prior to the enactment of the Bankruptcy Code of 1978 is unconstitutional. It is widely recognized that bankruptcy legislation is the subject of broad, express constitutional power. This bankruptcy power is inherently retroactive in that it "necessarily . . . impairs the obligation of contracts" which may have been entered into prior to filing bankruptcy. In re Prima Co., 88 F.2d 785, 788 (7th Cir. 1937).
All parties to a contract are, of necessity, aware of the existence of, and subject to, the power of Congress to legislate on the subject of bankruptcies. They were and are chargeable with knowledge that their rights and remedies, in case the debtor becomes insolvent and is adjudicated a bankrupt, are effected by existing bankruptcy laws and all future lawful bankruptcy legislation which might be enacted . . . Another unavoidable conclusion is that all contracts are made with the knowledge that existing laws may be amended. Id.
The Prima Court recognized that Congress intended that the Bankruptcy Code, and the Bankruptcy Courts, could alter priorities and vested rights among creditors, and that this effect was constitutional.
Historically, bankruptcy statutes have effected rights which predate their enactment. In Hanover National Bank v. Moyses, 186 U.S. 181, 22 S.Ct. 556, 81 L.Ed. 736 (1902), hereinafter cited as Hanover National Bank decided soon after the enactment of The Bankruptcy Act of 1898, the Court found that certain provisions of that act under which the defendants were discharged from an 1892 pre-enactment judgment debt, were constitutional. The Court reiterated its position on the application of bankruptcy legislation to pre-enactment vested rights in Wright v. Vinton Branch of the Mountain Trust Bank of Roanoke, 300 U.S. 440, 57 S.Ct. 556, 81 L.Ed.2d 736 (1937) where it upheld the constitutionality of the application of the Bankruptcy Act amendments in the Frazier-Lemke Act, which provided for a foreclosure moratorium in bankruptcy on pre-enactment liens.
A close examination of the legislative history and statutory language of the Bankruptcy Code of 1978 evidences Congressional intent to follow the traditional application of bankruptcy law to pre-enactment rights. It has been...
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