In re: Prestige Limited Partnership v. E. Bay Car Wash

• Decision Date: 28 November 2000
• Docket Number: No. 99-15673,99-15673
• Citation: 234 F.3d 1108
• Parties: (9th Cir. 2000) In re: PRESTIGE LIMITED PARTNERSHIP CONCORD, a California limited partnership, Debtor. PRESTIGE LIMITED PARTNERSHIP CONCORD, a California limited partnership, Appellant, v. EAST BAY CAR WASH PARTNERS, a California limited partnership, Appellee
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1108

234 F.3d 1108 (9th Cir. 2000)

In re: PRESTIGE LIMITED PARTNERSHIP CONCORD, a California limited partnership, Debtor.

PRESTIGE LIMITED PARTNERSHIP CONCORD, a California limited partnership, Appellant, v. EAST BAY CAR WASH PARTNERS, a California limited partnership, Appellee.

No. 99-15673

UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

Argued and Submitted June 14, 2000

Filed November 28, 2000

[Copyrighted Material Omitted]

[Copyrighted Material Omitted] Eugene K. Yamamoto, Oakland, California, for the appellant.

Heinz Binder, Binder & Malter, Santa Clara, California, forthe appellee.

Appeal from the United States District Court for the Northern District of California Ronald M. Whyte, District Judge, Presiding. D.C. No. CV 98-20876 RMW

Before: Andrew J. Kleinfeld, A. Wallace Tashima, and Marsha S. Berzon, Circuit Judges.

TASHIMA, Circuit Judge:

Prestige Limited Partnership ("Prestige") appeals the district court's order affirming an order of the bankruptcy court. We conclude that the unsecured claim held by East Bay Car Wash Partners ("East Bay") against Prestige's bankruptcy estate is not barred by Cal. Civ. Proc. Code 580b nor by East Bay's violation of Cal. Civ. Proc. Code 726. We therefore affirm the district court order.

Background

In 1990, Prestige purchased a car wash business from East Bay, financed in part by a seller carry-back loan of $1,573,000. Prestige gave East Bay a promissory note ("first note") that was secured by a deed of trust and a security interest in Prestige's personal property and equipment. The first note was signed by Prestige's three general partners, including Jerry Brassfield, and included a guaranty provision stating, "This Promissory Note, including all of Trustor's obligations to pay principal and interest are hereby personally guaranteed by Jerry G. Brassfield dba J.G. Brassfield Enterprises."

In September 1991, the first note was split into two notes, one for $800,000 ("second note"), and one for $773,000 ("third note"), both of which were secured by deeds of trust and both of which contained the same personal guaranty as the first note. The second note was subsequently assigned and is no longer at issue. The third note was due in October 1993, but the parties extended the maturity date to October 1995.

In October 1995, Prestige defaulted on the third note. Rather than foreclosing on its security interest, East Bay filed an action on the guaranty against Brassfield, seeking writs of attachment against his personal assets. One of the affirmative defenses Brassfield raised was that the relief sought was a violation of the single action rule found in Cal. Civ. Proc. Code 726(a), which requires that a secured creditor seek foreclosure as the single form of action for the recovery of a debt secured by a mortgage or deed of trust on real property. East Bay obtained the writs of attachment, and, in April 1996,attached approximately $75,000 in Brassfield's personal bank accounts.

In December 1995, Prestige filed a petition for bankruptcy under Chapter 11 of the Bankruptcy Code, listing East Bay as the holder of a disputed secured claim. On April 25, 1996, Prestige filed an adversary proceeding in bankruptcy court, seeking the avoidance of East Bay's lien due to its violation of 726(a), and a declaration that the third note was unenforceable under the anti-deficiency statute found in Cal. Civ. Proc. Code 580b. Prestige filed a motion for summary judgment, setting forth three issues: (1) whether Brassfield was a primary obligor under the third note, such that East Bay violated 726(a) by proceeding against his unpledged assets, (2) whether East Bay's action against Brassfield's unpledged assets constituted an action under 726(a), resulting in a waiver of East Bay's security interest, and (3) whether East Bay had any claim in Prestige's bankruptcy case because of its failure timely to file a proof of claim and because its loan was non-recourse by operation of 580b.

In January 1997, the bankruptcy court entered an Order Granting Partial Summary Judgment in favor of Prestige, ruling on the first two issues. See Prestige Ltd. P'ship-Concord v. East Bay Car Wash Partners (In re Prestige Ltd. P'shipConcord), 205 B.R. 427 (Bankr. N.D. Cal. 1997) ("Prestige I"). The court found that Brassfield was a primary obligor on the third note, "such that the purported guaranty added no additional liability," and that East Bay had taken its action under 726(a), resulting in a waiver of its security interest in the real property. Id. at 433, 436. The court declined to consider the third issue because the issue was not properly before it. See id. at 436. As a result of this ruling, the Santa Clara County Superior Court dissolved the writs of attachment, and, in August 1997, East Bay released the attachments of Brassfield's personal accounts.

The district court affirmed the order granting partial summary judgment. We affirmed, adopting the facts and reasons set forth in the bankruptcy court's decision. See Prestige Ltd. P'ship-Concord v. East Bay Car Wash Partners (In re Prestige Ltd. P'ship-Concord), 164 F.3d 1214, 1215 (9th Cir. 1999) ("Prestige III").

On May 3, 1996, prior to our decision in Prestige III, East Bay filed a proof of claim in Prestige's bankruptcy case. The bankruptcy court then held a hearing to determine the final matter raised by Prestige--whether East Bay had any claim against Prestige. In order to make the determination, the court addressed the following three arguments raised by Prestige as to why East Bay's unsecured claim should be disallowed: (1) it was not timely filed, (2) East Bay's violation ofS 726(a) caused it to lose both its security and its unpaid debt, and (3) the underlying note is a non-recourse purchase money note and is therefore unenforceable under 580b. See Prestige Ltd. P'ship-Concord v. East Bay Car Wash Partners (In re Prestige Ltd. P'ship-Concord), 223 B.R. 203, 207 (Bankr. N.D. Cal. 1998) ("Prestige II").

The bankruptcy court denied Prestige's motion for partial summary judgment and overruled its objection to East Bay's unsecured claim. See id. at 211. The court concluded that East Bay had timely filed its claim, had lost its security only, not its debt, and was not subject to the provisions ofS 580b. See id. at 208-10. East Bay therefore held an unsecured claim in Prestige's bankruptcy case. See id. at 211. The district court affirmed the denial of the remainder of Prestige's summary judgment motion and the overruling of Prestige's objection to East Bay's claim. Prestige filed a timely notice of appeal.

Jurisdiction

We have jurisdiction over an appeal from a final order of the district court under 28 U.S.C. 158(d) & 1291. Ordinarily, a district court order is final if it affirms or reverses a final bankruptcy court order. See Stanley v. Crossland, Crossland, Chambers, MacArthur & Lastreto (In re Lakeshore Village Resort, Ltd.), 81 F.3d 103, 105 (9th Cir. 1996). However, "[i[n bankruptcy proceedings the rules of finality developed under the general grant of appellate jurisdiction provided in 28 U.S.C. 1291 (1982) are given a flexible reading." Century Ctr. Partners Ltd. v. FDIC (In re Century Ctr. Partners Ltd.), 969 F.2d 835, 838 (9th Cir. 1992) (internal quotation marks omitted); see also Walthall v. United States, 131 F.3d 1289, 1292-93 (9th Cir. 1997) ("finality determination in the bankruptcy context has its own set of rules"). We therefore use a "pragmatic approach" to finality in bankruptcy "because `certain proceedings in a bankruptcy case are so distinctive and conclusive either to the rights of individual parties or the ultimate outcome of the case that final decisions as to them should be appealable as of right.' " Alexander v. Compton (In re Bonham), 229 F.3d 750, 761 (9th Cir.2000) (quoting Elliott v. Four Seasons Properties (In re Frontier Properties, Inc.), 979 F.2d 1358, 1363 (9th Cir. 1992)). This approach has led us to exercise jurisdiction over appeals from bankruptcy court orders denying summary judgment. See Alvarado v. Walsh (In re LCO Enters.), 12 F.3d 938, 940-41 (9th Cir. 1993) (affirming BAP's reversal of the bankruptcy court's denial of the debtor landlord's motion for summary judgment).

The district court's order disposed of all the issues in the case by overruling Prestige's objections to East Bay's claim and was thus sufficiently conclusive to be appealable.¹

Because the district court declined to rule on the issue of the amount of East Bay's claim, however, the question arises of whether the district court's order was final. Prestige argued before the district court and to this court that, even if East Bay did hold an unsecured claim, it should be limited to the amount of the avoided security interest, rather than the amount of the debt. The bankruptcy court did not address the issue, presumably because Prestige did not raise it, focusing instead on the issue of whether East Bay held a claim at all. See Prestige II, 223 B.R. at 207 ("The court is now asked to determine whether East Bay has an unsecured claim in the bankruptcy case."); id. ("The ultimate issue is whether East Bay has any claim against Prestige in the bankruptcy case."). The district court noted that the bankruptcy court did not address the amount of the claim and that the record was "void" as to whether Prestige raised the issue below, and so declined to rule on the issue.

Any further proceedings that would be required here in order to determine the amount of East Bay's claim would involve "new proceedings and factual findings independent of the legal conclusion upon which the bankruptcy court based its decision" to allow East Bay's claim at all. Sims v. DeArmond (In re Lendvest Mortgage, Inc.), 42 F.3d 1181, 1183 (9th Cir. 1994). Furthermore, the question of whether East Bay still holds a claim at all " `is clearly potentially dispositive,' " for there is no need to determine the amount of East Bay's claim without a finding...