In re Golden
| Decision Date | 14 October 1981 |
| Docket Number | Adv. No. 81-0291-BKC-SMW-A.,Bankruptcy No. 80-01313-BKC-SMW |
| Parties | In re David Alan GOLDEN and Barbara Golden, Debtors. David Alan GOLDEN and Barbara Golden, Plaintiffs, v. CITY NATIONAL BANK OF HALLANDALE, Defendant. |
| Court | United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Southern District of Florida |
FINDINGS OF FACT AND CONCLUSIONS OF LAW
This Cause having come to be heard upon plaintiffs' Complaint to Avoid a Judicial Lien under 11 U.S.C. Section 522(f) and defendant's Motion to Dismiss filed herein; and the Court, having examined the facts as stipulated to by the parties and 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:
This Court has jurisdiction of the parties and the subject matter.
The facts are undisputed. A judicial lien was entered on September 15, 1977 on the homestead property of the plaintiffs, David Alan and Barbara Rebekah Golden (the Debtors) in the amount of Twenty-Three Thousand, Four Hundred Eighty and 42/100 Dollars ($23,480.42) and recorded on October 21, 1977 in Broward County, Florida. The debt owed to the defendant, City National Bank of Hallandale (the Bank) was not a purchase money mortgage. The Debtors filed a petition in bankruptcy on October 8, 1980 under the Bankruptcy Reform Act of 1978. This adversary proceeding was initiated on June 19, 1981 under 11 U.S.C. Section 522(f) to avoid the Bank's judicial lien on Debtors' homestead property. The Debtors allege that the Bank's lien on the Debtors' homestead impairs the exemption to which the Debtors would be entitled. The Bank has responded with a motion to dismiss under F.R.C.P. 12(b)(6) for failure to state a cause of action alleging that the statutory basis of Debtors' petition, Section 522(f), violates the Bank's Fifth Amendment rights.
In making an analysis of the constitutionality of any 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 B.R. 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 must 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 Fifth Amendment.
It is questionable whether the interest involved here is actually a property interest. In two unreported cases with similar facts and applicable state law, the Bankruptcy Courts have recently held that a judgment lien is merely a remedy which does not vest as a property right until execution on the property is made. In re Lattimore, Debtor: Lattimore, Movant v. Walt's Tree Service, Inc., Respondent, 12 B.R. 97, Bkrtcy.W.D.N.Y.1981. In re Charles E. Ashe and Susan J. Ashe, Debtors: The Commonwealth National Bank, Objector, United States of America, Intervenor, BK No. 1-79-00882, B.C.M.D. Pa. June, 1981. Under Florida law, a judgment lien places a cloud on the title of the property in question and gives the lien holder the right to execute on the property. Judgment liens are not effective against homestead property which under Article 10 Section 4 of the Florida Constitution is exempt from execution by creditors. Under Florida Statute 55.081, a judgment lien not executed upon within twenty years will expire. Unless the property in question loses its homestead character through sale or change in family circumstances within that twenty year period, the creditor has no recourse against that property. In the case at hand, the Bank had not attempted execution against the homestead property of the Debtors in the three years between perfecting its judgment lien and the filing of the bankruptcy petition, being well aware of the futility of such an attempt. If the Bank has a vested property right under these facts, it is not something substantial or easily valued. Assuming though, that the Debtors are being deprived of a property right, it is necessary to determine whether such deprivation is the kind prohibited by the Fifth Amendment due process clause.
The due process issue consists of two elements, procedural and substantive due process. 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). 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 filed on June 22, 1981; a motion to dismiss was filed by the Bank on July 28, 1981 and the Court heard oral argument on August 5, 1981. 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 it is the retroactive avoidance of a judicial lien which vested prior to the enactment of the Bankruptcy Code of 1978 which 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 bankrupties. 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. 857, 46 L.Ed. 1113 (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. 736 (1937) hereinafter referred to as Wright v. Vinton Branch 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 held that the Bankruptcy Code should not be construed to create a legislative gap. Wisconsin Higher Education Aids Board v. Lipke, 630 F.2d 1225 (7th Cir. 1980). If the Bank's argument is given credence, there would be no bankruptcy law governing transactions which occurred prior to the enactment of the Bankruptcy Reform Act of 1978 which, of necessity, would be the substance of any petition filed immediately after the effective date of the new law. Congress contemplated this possibility when it carefully drafted the repeal, the savings and the effective...
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