In re Kronemyer

• Decision Date: 27 May 2009
• Docket Number: Bankruptcy No. LA 07-10159 ER.,BAP No. 08-1343-DMkPa
• Citation: 405 B.R. 915
• Parties: In re David E. KRONEMYER, Debtor. David E. Kronemyer, Appellant, v. American Contractors Indemnity Co., Appellee.
• Court: U.S. Bankruptcy Appellate Panel, Ninth Circuit

405 B.R. 915

In re David E. KRONEMYER, Debtor David E. Kronemyer, Appellant, v. American Contractors Indemnity Co., Appellee.

BAP No. 08-1343-DMkPa

Bankruptcy No. LA 07-10159 ER.

United States Bankruptcy Appellate Panel of the Ninth Circuit.

Argued and Submitted on May 14, 2009.

Filed May 27, 2009.

COPYRIGHT MATERIAL OMITTED

David E. Kronemyer, Beverly Hills, CA, pro se.

Misty Ann Perry-Isaacson, Pagter and Miller, Santa Ana, CA, for American Contractors Indemnity Co.

Before: DUNN, MARKELL and PAPPAS, Bankruptcy Judges.

DUNN, Bankruptcy Judge.

The bankruptcy court granted relief from the automatic stay to allow an objection to the debtor's final accounting and a related surcharge request in a state court guardianship proceeding to go forward. The debtor appealed, asserting that the movant, a surety with a contingent claim against the debtor, lacked standing to bring the motion, particularly where the beneficiary of the suretyship failed to file a proof of claim in the bankruptcy case. We AFFIRM.¹

I. FACTS

Appellant, David E. Kronemyer, was the court-appointed guardian of the Estate of Yvonne Leal ("Leal Estate") between 1993 and November 18, 2003, the date Yvonne Leal reached the age of 18.² Appellee, American Contractors Indemnity Company ("ACIC"), issued two fiduciary bonds to Mr. Kronemyer in his capacity as guardian of the Leal Estate.

When the guardianship terminated, the State Court appointed a professional fiduciary conservator ("Conservator") for the Leal Estate. Mr. Kronemyer filed his Sixth and Final Account and Report ("Final Account") with respect to the guardianship on May 19, 2004. The Conservator filed objections to the Final Account on March 25, 2005, including a request that Mr. Kronemyer be surcharged ("Surcharge Request").

In addition to making the Surcharge Request, the Conservator filed a criminal complaint ("Criminal Proceeding") against Mr. Kronemyer with the San Diego County District Attorney. On June 25, 2007, Mr. Kronemyer pleaded guilty to one count of violating Cal.Penal Code § 506.³ A $10,000 restitution judgment ("Criminal Court Judgment") was entered against Mr. Kronemyer in the Criminal Proceeding on February 11, 2008. Mr. Kronemyer paid the restitution obligation. He asserts that the Criminal Court Judgment, the terms of which were approved by the Leal Estate, resolved all disputes between the parties, including any claims involved in the Surcharge Request.

Mr. Kronemyer filed a voluntary chapter 11 petition on January 8, 2007. On May 18, 2007, he filed an amended Schedule F, adding the Leal Estate as a creditor, with a disputed claim of $23,043. The bankruptcy case was converted to chapter 7 on his motion on May 16, 2008.

The Leal Estate did not file a proof of claim in the bankruptcy case.⁴ However, ACIC did file a proof of claim based on its potential liability to the Leal Estate as Mr. Kronemyer's surety. ACIC also filed an adversary proceeding ("Adversary Proceeding") seeking a determination that whatever amount it might ultimately be obligated to pay on Mr. Kronemyer's behalf under the bonds it had issued in the guardianship proceeding would be excepted from Mr. Kronemyer's discharge under § 523(a)(4). In response to a question at oral argument, Mr. Kronemyer advised the Panel that the Leal Estate had been joined as a party plaintiff in the Adversary Proceeding.

ACIC filed a motion for relief from the automatic stay ("Motion"), seeking authority for ACIC and the Conservator to proceed in the State Court to final judgment on the Surcharge Request. The Conservator later joined in the Motion.

Mr. Kronemyer opposed the Motion on multiple grounds. First, he asserted that the Criminal Court Judgment not only resolved the Surcharge Request, it barred any further action against him by the Leal Estate. Second, Mr. Kronemyer asserted that because ACIC, a subrogated surety, holds no claim against him, ACIC had no standing to bring the Motion. Finally, Mr. Kronemyer asserted that even if ACIC had standing, ACIC could not demonstrate cause for relief from the automatic stay.

The bankruptcy court held that ACIC, as a creditor holding a contingent claim, was a party in interest and therefore had standing to bring the Motion. The bankruptcy court determined that "cause" existed to grant the Motion because resolution of the Surcharge Request in the State Court would serve to liquidate, in the forum more familiar with the dispute among the parties, ACIC's contingent claim in the bankruptcy case. Further, the bankruptcy court concluded that the preclusive effect of the Criminal Court Judgment on the Surcharge Request could be resolved more expeditiously by the State Court.

Mr. Kronemyer timely appealed the order granting ACIC relief from the automatic stay.

II. JURISDICTION

The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and 157(b)(2)(G). We have jurisdiction under 28 U.S.C. § 158.

III. ISSUES

Whether the bankruptcy court erred when it determined that ACIC had standing to file and prosecute the Motion.

Whether the bankruptcy court abused its discretion when it granted ACIC relief from the automatic stay.

Whether the bankruptcy court erred when it included "ancillary" provisions in the order granting relief from the automatic stay.

IV. STANDARDS OF REVIEW

Standing is a legal issue that we review de novo. Loyd v. Paine Webber, Inc., 208 F.3d 755, 758 (9th Cir.2000); Aheong v. Mellon Mtge. Co. (In re Aheong), 276 B.R. 233, 238 (9th Cir. BAP2002).

We review de novo contentions that present an issue of law regarding stay relief. Mataya v. Kissinger (In re Kissinger), 72 F.3d 107, 108 (9th Cir.1995). The decision of a bankruptcy court to grant relief from the automatic stay under § 362(d) is reviewed for abuse of discretion. Id.; First Fed. Bank v. Robbins (In re Robbins), 310 B.R. 626, 629 (9th Cir. BAP2004).

V. DISCUSSION

A. ACIC Had Standing to File and Prosecute the Motion

Mr. Kronemyer asserts that the bankruptcy court erred in granting the Motion because ACIC had no standing to file and prosecute the Motion.

Section 362(d) authorizes the bankruptcy court to grant relief from the automatic stay "[o]n request of a party in interest." The issue before us, therefore, is whether ACIC is a "party in interest" in Mr. Kronemyer's bankruptcy case. The term "party in interest" is not defined in the Bankruptcy Code. Status as "a party in interest" under § 362(d) "must be determined on a case-by-case basis, with reference to the interest asserted and how [that] interest is affected by the automatic stay." In re Woodberry, 383 B.R. 373, 378 (Bankr.D.S.C.2008) (internal quotation marks and citation omitted).

As noted by the bankruptcy court, the Bankruptcy Code defines "creditor" as "an entity that has a claim against the debtor that arose at the time of or before the order for relief concerning the debtor." § 101(10). The Bankruptcy Code further defines "claim" as a "right to payment, whether or not such right is ... contingent ...." § 101(5) (emphasis added).

While Mr. Kronemyer effectively concedes that ACIC has a contingent claim under this analysis, he argues that holding such a contingent claim, under the facts of this case, does not confer standing on ACIC. Mr. Kronemyer asserts that because ACIC is a surety with a contingent claim on the petition date, § 502(e)(1) mandates that the proof of claim ACIC filed in the case be disallowed. Section 502(e)(1) provides:

Notwithstanding subsections (a), (b) and (c) of this section and paragraph (2) of this subsection, the court shall disallow any claim for reimbursement or contribution of an entity that is liable with the debtor on or has secured the claim of a creditor, to the extent that—

...

(B) such claim for reimbursement or contribution is contingent as of the time of allowance or disallowance of such claim for reimbursement or contribution. ...

In Mr. Kronemyer's view, because the claim must be disallowed under § 502(e)(1), and indeed had been disallowed by the time of oral argument of this appeal,⁵ ACIC cannot be said to hold a claim, and therefore cannot be a creditor for purposes of the Bankruptcy Code in general, and § 362(d) in particular.

Mr. Kronemyer appears to mistake the disallowance of a claim with the existence and, using his term, "viability," of a claim. Many rights under the Bankruptcy Code are keyed to "allowed" claims. In fact, allowability of claims is a bankruptcy concept. For instance, only holders of allowed claims may receive distributions from the bankruptcy estate in chapter 7 cases. See § 726(a). Whether a claim is to be allowed or disallowed is determined by the provisions of § 502, whereas the existence of a claim is controlled by state or other federal law.⁶ Disallowance of ACIC's claim means that ACIC is not entitled to any distribution from Mr. Kronemyer's bankruptcy estate, but determining whether ACIC's claim is valid is crucial to deciding if it should be excepted from Mr. Kronemyer's discharge in the Adversary Proceeding.

Mr. Kronemyer also asserts that because § 502(e)(1) requires ACIC's claim to be disallowed if contingent, any liability he might have to ACIC must be fixed prior to the petition date or ACIC never can have any claim against him. However, the mere fact that rights are fixed as of the petition date does not mean that a claim cannot be liquidated thereafter. As noted by the bankruptcy court, § 502(e)(2) provides that a "claim for reimbursement or contribution ... that becomes fixed after the commencement of the case shall be determined, and shall be allowed ... or disallowed ... the same as if such claim had become fixed before the date of the filing of the petition."

As a secondary argument, Mr. Kronemyer asserts that ACIC can never have more than a contingent claim, because (1) the Leal Estate did not file a proof of claim in his bankruptcy case, and (2) ACIC's claim is derivative of any claim of the Leal Estate.

Under California law, "[a]...