In re Irizarry, BAP No. NC-93-2233-GPMe. Bankruptcy No. 92-54912-JRG. Adv. No. 93-5414.

• Decision Date: 23 August 1994
• Docket Number: BAP No. NC-93-2233-GPMe. Bankruptcy No. 92-54912-JRG. Adv. No. 93-5414.
• Citation: 171 BR 874
• Parties: In re Renee Stewart IRIZARRY, Debtor. Renee Stewart IRIZARRY, Appellant, v. Marion Luette SCHMIDT, Appellee.
• Court: U.S. Bankruptcy Appellate Panel, Ninth Circuit

171 B.R. 874 (1994)

In re Renee Stewart IRIZARRY, Debtor Renee Stewart IRIZARRY, Appellant, v. Marion Luette SCHMIDT, Appellee.

BAP No. NC-93-2233-GPMe. Bankruptcy No. 92-54912-JRG. Adv. No. 93-5414.

United States Bankruptcy Appellate Panel of the Ninth Circuit.

Argued and Submitted May 19, 1994.

Decided August 23, 1994.

Jeffrey P. Rosenberg, Los Gatos, CA, for appellant.

Edward A. Kent, Jr., Palo Alto, CA, for appellee.

Before GREENWALD¹, MEYERS and PERRIS², Bankruptcy Judges.

OPINION

GREENWALD, Bankruptcy Judge:

Renee Stewart Irizarry, the Debtor, filed a complaint in bankruptcy court against Marion Luette Schmidt. The bankruptcy court denied the Debtor's request for a restraining order, and granted Schmidt's motion for summary judgment. The Debtor appeals these rulings. We AFFIRM.

I. FACTS

The parties do not dispute the relevant facts. The Debtor owns real property located at 16621 Kennedy Road in Los Gatos, California ("Los Gatos Property"). Marion Guyton ("Decedent") transferred the property to the Debtor via a grant deed recorded on September 25, 1987. The Decedent passed away on February 24, 1989, leaving Marion Luette Schmidt, Milton Guyton and Jacqueline Taylor as his heirs ("Heirs").

On February 2, 1990, the Heirs filed a complaint against the Debtor in California Superior Court, County of Santa Clara ("state court"). The complaint contains six causes of action and requests the following relief:

1. Money damages in the amount of $66,161.95, plus interest at the legal rate for breach of contract to repay a $66,161.95 loan;

2. Money damages in the amount of $26,965.00, plus interest at the rate of 7% per annum, and attorney\'s fees for failure to repay a note in the amount of $26,965.00 3. Money damages in the amount of $30,000, plus interest at the rate of 9% per annum, and attorney\'s fees for failure to repay a note in the amount of $30,000;

4. Money damages in the amount of $66,161.95, plus interest for money lent in the amount of $61,161.95;

5. Money damages in the principal amount of all of the outstanding loans, plus interest and punitive damages, for fraudulently entering into loan agreements with no intent to repay;

6. Cancellation of voidable grant deed and underlying contracts; reconveyance of the Los Gatos Property to the Heirs; reasonable rental value of the Los Gatos Property from 2/24/89 until present; and payment in an amount equal to any and all encumbrances placed on the Los Gatos Property by the Debtor.

On February 27, 1990, the Heirs subsequently filed a Notice of Pending Action against the Los Gatos Property with the County of Santa Clara.

On August 13, 1992, the Debtor filed a voluntary Chapter 7 petition with the United States Bankruptcy Court in San Jose. The Debtor listed the Los Gatos Property in her schedules and claimed a $50,000 exemption in the property pursuant to Cal.Civ.Proc.Code §§ 704.720—704.730. Further, the Debtor listed Marion Luette Schmidt as the holder of two unsecured claims in the amount of $50,000 and $79,000.³

On November 16, 1992, the Bankruptcy Court entered a discharge in favor of the Debtor. The Chapter 7 Trustee issued a final report, and the case was closed on January 14, 1993 as a no-asset case.

The Heirs subsequently requested the state court to proceed to trial solely on the sixth cause of action. In her appellate brief, Schmidt claims that the only equitable remedies sought in conjunction with the sixth cause of action are (i) to cancel the grant deed and recover the transferred Los Gatos Property; and (ii) to cancel liens against the Los Gatos Property arising while the Debtor held title. Accordingly, the Heirs appear to have abandoned their request to recover the reasonable rental value of the Los Gatos Property from February 24, 1989 until the present, and for payment in an amount equal to any and all encumbrances placed on the Los Gatos Property by the Debtor. At a hearing on July 15, 1993, the state court set November 15, 1993 as the trial date for the Heirs' two equitable remedies requested with respect to the sixth cause of action against the Debtor.

On August 22, 1993, the Debtor filed a complaint in bankruptcy court against Marion Luette Schmidt, one of the Heirs. The Debtor's complaint seeks (i) an injunction staying enforcement of the state court action; (ii) a declaration that Ms. Schmidt violated the automatic stay; and (iii) an order stating that the Debtor's discharge prevents Ms. Schmidt from seeking any interest in the Los Gatos Property.

The bankruptcy court heard the Debtor's request for a restraining order, and took the matter under submission on September 24, 1993. The court subsequently held a hearing on Ms. Schmidt's motion for summary judgment on October 26, 1993. Both parties agreed that there were no genuine issues of material fact.

At the summary judgment hearing, Ms. Schmidt argued that she was entitled to prevail as a matter of law, since her equitable claims against the Debtor's property were not discharged in bankruptcy. Further, Ms. Schmidt asserted that a discharge of her claims against the Debtor only prevented her from proceeding against the Debtor in personam, and not against the Debtor's property.

In contrast, the Debtor took the position that Ms. Schmidt was not entitled prevail because Ms. Schmidt's motion for summary judgment was not supported by any evidence. The Debtor further argued that the state court action became moot after the bankruptcy court entered her discharge.

After the hearing arguments from both parties, the bankruptcy court orally granted Ms. Schmidt's motion for summary judgment, and denied the Debtor's request for a restraining order. The Debtor filed a timely notice of appeal on November 4, 1993. On November 26, 1993, the bankruptcy court entered an order granting Ms. Schmidt's motion for summary judgment, and an order denying the Debtor's motion for preliminary injunction and temporary restraining order.

II. STATEMENT OF ISSUES

Whether the bankruptcy discharge entered in favor of Ms. Irizarry prevents Ms. Schmidt from continuing a prepetition state court action seeking the equitable remedies of (i) cancellation of the grant deed; (ii) reconveyance of the Los Gatos Property; and (iii) cancellation of liens.

Whether Schmidt waived her right to proceed with the state court action by failing to file a complaint objecting to Ms. Irizarry's discharge.

III. STANDARD OF REVIEW

An order granting summary judgment is reviewed de novo. Jones v. Union Pacific R.R. Co., 968 F.2d 937, 940 (9th Cir.1992); In re Baird, 114 B.R. 198, 201 (9th Cir. BAP 1990). The standard for summary judgment is established in Rule 56, Fed.R.Civ.P. and made applicable to bankruptcy proceedings by Rule 7056, Fed.R.Bankr.P.⁴

Summary judgment is only proper

if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.

Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). In reviewing a summary judgment, the task of an appellate court is the same as a trial court. Hifai v. Shell Oil Co., 704 F.2d 1425, 1428 (9th Cir.1983). "Viewing the evidence in the light most favorable to the non-moving party, the appellate court must determine whether the trial court correctly found that there was no genuine issue of material fact and that the moving party was entitled to judgment as a matter of law." Id.

IV. DISCUSSION

The Debtor first argues that the bankruptcy court erred in granting summary judgment in Ms. Schmidt's favor because Ms. Schmidt did not submit any admissible evidence of fraud. This argument was raised before the bankruptcy court at the summary judgment hearing. The bankruptcy court responded appropriately by stating that it was not

concerned with the truth or falsity of the defendants and her co-plaintiffs\' allegations in the State Court. The sole issue that is before this Court is whether or not the cause of action asserted by the plaintiffs in the State Court and the defendant in the State Court is barred from being proceeded with because of the discharge that was granted to the defendant — or, rather, to the plaintiff and the debtor in her Chapter 7 bankruptcy proceedings. (Summ.J.Tr. at 3, ¶¶ 10-18).

Ms. Schmidt's failure to submit evidence supporting the fraud allegations set forth in the Heirs' complaint does not bar summary judgment in her favor.

Second, the Debtor contends that the discharge prevents Ms. Schmidt from continuing to litigate the prepetition state court action. Additionally, she argues that Ms. Schmidt is now barred from objecting to her discharge, since she did not file a complaint under § 727 within the 60-day statute of limitations period prescribed in Rule 4004(a).⁵

In response, Ms. Schmidt states that she only wishes to proceed with the equitable remedies requested in conjunction with the sixth cause of action. She argues that a prepetition action seeking equitable remedies is not subject to the discharge provisions of §§ 727 and 524(a). She further contends that the discharge does not prevent the Heirs from enforcing prepetition rights against the Debtor's property.

Bankruptcy Code § 727 discharges a debtor from all prepetition debts. In re Beezley, 994 F.2d 1433, 1435 (9th Cir.1993). Under § 524(a), the granting of a discharge operates as a permanent injunction against any attempt to collect or recover on a prepetition debt. In re American Hardwoods, Inc., 885 F.2d 621, 626 (9th Cir.1989) (quoting In re Dickinson, 24 B.R. 547, 550 (Bankr.S.D.Cal. 1982)).

Bankruptcy Code § 101(12) defines debt as "liability on a claim." Pursuant to § 101(5), a claim constitutes a

(A) right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal,

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