In re Sheckard

• Decision Date: 19 September 2008
• Docket Number: Civil Action No. 08-00820.
• Citation: 394 B.R. 56
• Parties: In re Seth Clark SHECKARD, Denise Michelle Schekard, Debtors. Unifund C.C.R. Partners, Appellant, v. Seth Clark Sheckard Denise Michelle Sheckard, Appellee.
• Court: U.S. District Court — Eastern District of Pennsylvania

394 B.R. 56

In re Seth Clark SHECKARD, Denise Michelle Schekard, Debtors.

Unifund C.C.R. Partners, Appellant, v. Seth Clark Sheckard Denise Michelle Sheckard, Appellee.

Civil Action No. 08-00820.

United States District Court, E.D. Pennsylvania.

September 19, 2008.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

MEMORANDUM: RE APPEAL FROM BANKRUPTCY COURT ORDER

BAYLSON, District Judge.

Presently before this Court is an appeal from an order by the Bankruptcy Court of the Eastern District of Pennsylvania granting debtors' Motion to Avoid a lien against an interest in their property pursuant to 11 U.S.C. § 522(f)(1).

I. Background

Mr. and Mrs. Sheckard (the "Appellees") jointly filed for Bankruptcy on April 25, 2005 under Chapter 7 of the Bankruptcy Code. The Appellees were discharged and their case was closed on September 19, 2005. In their filings, Appellees identified their residence in Lancaster County, Pennsylvania (the "Property") and valued it at $49,000. They also noted that a mortgage lien existed against the property for $47,335 and they claimed an exemption in the amount of $1,665 (the property value less the mortgage). Appellees identified two debts owed to Unifund Corp., one for $4,012 and one for $6,763, that were "pending."

Two months before the bankruptcy filing, on February 21, 2005, Unifund (the "Appellant") filed a praecipe with the Lancaster county court seeking a default judgment on a credit card debt owed by appellees. A default judgment was entered in the amount of $18,689.32, apparently unbeknownst to appellees, and was subsequently entered as a lien against their property.

On October 30, 2007, Mrs. Sheckard, the sole owner of the Property, executed a deed conveying the Property to third party buyers for $65,000. At this point, the title agent discovered the lien entered after the entry of the default judgment. To proceed with the closing, appellees deposited $18,689.32 (the amount of the lien) from the proceeds of the sale into an escrow account, to be later distributed to either Appellees or Appellants. Appellees then sought to reopen the bankruptcy case to avoid the lien, under 11 U.S.C. § 522(f)(1), which provides:

Notwithstanding any waiver of exemptions but subject to paragraph (3), the debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debtor would have been entitled under subsection (b) of this section if such lien is —

(A) a judicial lien

Judge Fehling of the Bankruptcy Court granted the Motion to Reopen on November 27, 2007 and the Motion to Avoid the Lien on January 17, 2008. Unifund appeals.

II. The Bankruptcy Court's Opinion

In granting Appellee's Motion to Avoid, the Bankruptcy court noted that counsel had agreed to stipulate that their statements at the hearing would be considered as facts unless specifically objected to by opposing counsel. Furthermore, the court took judicial notice of the documents on the docket, specifically the bankruptcy petition, schedules and appellees' statement of financial affairs. In re Sheckard, 386 B.R. 118, 124 (Bankr.E.D.Pa.2008).

A. Laches

Turning first to Appellant's laches argument, the Bankruptcy court concluded that the doctrine did not prevent it from reopening the case and avoiding the lien. The laches defense generally requires (1) the passage of time and (2) prejudice against the party claiming the defense. The court noted the defense also possibly required a showing that the debtors' knew or should have known of the lien at issue. According to the court, the delay of slightly over two years from the time the bankruptcy case closed, to the filing of the Motion to Reopen, was not so long to be overly problematic. Furthermore, the Bankruptcy court was not convinced that the debtors were actually aware of the lien, as they had listed the matter with Unifund as "pending" on their filings and had stated that they did not know about the judgment. Unifund also had not directly asserted that it had provided actual or constructive notice of the lien. Finally, Unifund had not offered any specific arguments as to how it was prejudiced; the court was unwilling to assume that a retrospective appraisal of the property's value in 2005 would be impossible or inaccurate two years later, especially when it was unclear whether Appellant had contacted an appraiser to obtain such an estimate. Although Unifund also argued that it would have used a different strategy had the delay not occurred, it was unable to articulate exactly how it would have pursued the litigation differently. Thus, Unifund had failed to establish the elements of laches. In re Sheckard, 386 B.R. at 126-28.

B. Jurisdiction and Standing

Next, the court concluded that it did have jurisdiction to hear the matter and the debtor did possess standing to bring the claim under 11 U.S.C. § 522(f)(1). Appellant had argued that the court no longer had jurisdiction, and the Appellees no longer possessed standing, because the property against which the lien was secured had been sold prior to the Appellees' Motions to Reopen and Avoid. The court concluded that an ownership interest in the liened property at the time the Motion to Avoid is filed is not necessary for the court to have jurisdiction under § 522(f); rather, a debtor need only have some interest in the liened property at the time the lien attached. Furthermore, the escrow account holding proceeds from the sale of the property allowed Appellees to retain a sufficient interest in the property to invoke jurisdiction. 386 B.R. at 129-30.

C. Bad Faith

The court also rejected several arguments by Appellant that Appellee had acted in bad faith. First, the court rejected the notion that the Appellee had failed to present the value of the property in 2005, pointing out that Appellees had submitted the valuation of their property from their bankruptcy filings and Appellant had offered no alternative value. The court also outright rejected the claim that the Appellees had not disclosed the sale of the property as simply untrue given the record. The court then rejected Appellant's allegations that Appellees had shown bad faith in executing a loan modification agreement for their mortgage but not recording it until after their debt was discharged and in receiving property from Mr. Sheckard's mother because Appellant had not shown how these acts in any way prejudiced Unifund. Finally, the court did not accept Appellant's argument that Appellees showed bad faith in selling the property first and then filing their Motion to Reopen and Avoid. Appellees do not raise these bad faith issues on appeal, and this Court will therefore not address these arguments. In re Sheckard, 386 B.R. at 130-32.

D. Amount of Avoidance

Lastly, the court held that Appellees were entitled to avoid the lien in its entirety, rather than the amount of the claimed exemption ($1,665) listed on their bankruptcy filings, as suggested by Appellant. Applying the arithmetic test of § 522(f)(2)(A), the court found that the judgment lien did impair the exemption to which the Appellees were entitled and thus should be avoided entirely under the wording of the statute. The outcome was the same whether the court used the claimed exemption or the higher amount of exemption to which the Appellees were actually eligible for. Appellants had failed to present the findings of an Appraiser that showed the value of the house in 2005 was higher than that which Appellees suggested, and therefore there was no contrary indication that the lien did not impair the exemption; thus the lien should be avoided in its entirety. In re Sheckard, 386 B.R. at 132-34.

II. Legal Standards

A. Jurisdiction

This court has jurisdiction over this appeal pursuant to 28 U.S.C. § 158. Appellants appeal a final order of the United States Bankruptcy Court for the Eastern District of Pennsylvania.

B. Standard of Review

In an appeal from a bankruptcy court decision, the district court sits as an appellate court. 28 U.S.C. § 158(a)(1). As a general matter, a district court reviews a bankruptcy court's legal determinations de novo, its factual findings for clear error, and its exercise of discretion for abuse. In re Martin's Aquarium, Inc., 98 Fed.Appx. 911, 913 (3d Cir.2004). A trial court's findings of fact are clearly erroneous when, after reviewing the record, the appellate court "is left with the definite and firm conviction that a mistake has been committed." Anderson v. Bessemer City, 470 U.S. 564, 105 S.Ct. 1504, 1511, 84 L.Ed.2d 518 (1985) (quoting United States v. U.S. Gypsum Co., 333 U.S. 364, 68 S.Ct. 525, 542, 92 L.Ed. 746 (1948)). Under this standard, "[i]t is the responsibility of an appellate court to accept the ultimate factual determinations of the fact-finder unless that determination is either (1) completely devoid of minimum evidentiary support displaying some hue of credibility or (2) bears no rational relationship to the supportive evidentiary data." DiFederico v. Rolm Co., 201 F.3d 200, 208 (3d Cir.2000) (citations omitted).

Specifically, questions on appeal as to whether a bankruptcy court had subject matter jurisdiction to hear a particular claim or a party had standing to bring the claim are reviewed de novo. In re RFE Industries, Inc., 283 F.3d 159, 163 (3d Cir.2002). Furthermore, when dealing with issues of statutory interpretation decided by the bankruptcy court, the reviewing court exercises plenary review. Walters v. U.S. Nat'l Bank of Johnstown, 879 F.2d 95, 96 (3d Cir.1989). A court's decision to take judicial notice of certain facts is reviewed for abuse of discretion. In re NAHC, Inc., 306 F.3d 1314, 1323 (3d Cir. 2002). The standard of review used for the laches issue has several components based on the element of laches under scrutiny. The court reviews factual findings, such as length of delay and prejudice, using the clearly erroneous standard. It reviews any...