Kellogg v. First Land Dev., LLC (In re Kellogg)

• Decision Date: 08 May 2019
• Docket Number: Adversary Proceeding No. 19-1029 EEB,Bankruptcy Case No. 16-13956 EEB
• Citation: 601 B.R. 537
• Parties: IN RE: Brooks L. KELLOGG, Debtor. Brooks L. Kellogg, Plaintiff, v. First Land Development, LLC and AMT, LLC, Defendants.
• Court: U.S. Bankruptcy Court — District of Colorado

601 B.R. 537

IN RE: Brooks L. KELLOGG, Debtor.Brooks L. Kellogg, Plaintiff,

v.First Land Development, LLC and AMT, LLC, Defendants.

Bankruptcy Case No. 16-13956 EEB

Adversary Proceeding No. 19-1029 EEB

United States Bankruptcy Court, D. Colorado.

Signed May 8, 2019

Alexander M. Musz, Denver, CO, for Plaintiff.

Matthew M. Wolf, Denver, CO, for Defendants.

ORDER GRANTING PARTIAL SUMMARY JUDGMENT IN FAVOR OF PLAINTIFF AND AGAINST DEFENDANT FIRST LAND DEVELOPMENT, LLC

Elizabeth E. Brown, Bankruptcy Judge

THIS MATTER comes before the Court on the Motion for Partial Summary Judgment ("Motion"), filed by Defendant First Land Development, LLC ("FLD"), and the response filed by Plaintiff Brooks L. Kellogg ("Debtor"). Central to this dispute is whether a lien creditor has the ability to create a new judgment lien once the underlying debt has been discharged in bankruptcy and the creditor's prepetition lien has expired under state law post-discharge. The Court being otherwise advised in the premises hereby FINDS and CONCLUDES:

I. BACKGROUND

Many of the basic facts of this proceeding, at least as they relate to Defendant FLD, are not in dispute.¹ Several years prior to his bankruptcy filing, FLD obtained two judgments against the Debtor on June 30, 2010 and August 16, 2010. Shortly thereafter, FLD recorded both judgments with the Routt County Clerk and Recorder, which is the county in which the Debtor's home is located. These recordings created judgment liens on the Debtor's home pursuant to Colo. Rev. Stat. § 13-52-102. Under that statute, a judgment lien does not last indefinitely. Rather, the statute provides that:

The lien of such judgment shall expire six years after the entry of judgment unless, prior to the expiration of such six-year period, such judgment is revived as provided by law and a transcript of the judgment record of such revived judgment, certified by the clerk of the court in which such revived judgment was entered, is recorded in the same county in which the transcript of the original judgment was recorded, in which event the lien shall continue for six years from the entry of the revived judgment.

Colo. Rev. Stat. § 13-52-102(1). Applying this provision and absent revival, FLD's judgment liens on Debtor's house were set to expire on June 30, 2016 and August 16, 2016, respectively.

Before expiration occurred, the Debtor filed a chapter 7 petition on April 25, 2016. The Debtor listed FLD's claim and judgment liens in his schedules. FLD received notice of the bankruptcy case. Neither the Debtor nor the chapter 7 trustee took any action to avoid FLD's liens² and FLD did not object to the entry of discharge in the Debtor's case. On September 19, 2016, the Debtor received his discharge and on November 2, 2016, the Debtor's bankruptcy case closed.

While the Debtor's bankruptcy case was pending, the deadline for FLD to extend its prepetition judgment liens was tolled by 11 U.S.C. § 108(c).³ Under that subsection, the deadline was extended to the later of (1) the end of the statutory period provided for in Colo. Rev. Stat. § 13-52-102, or (2) thirty days after termination or expiration of the automatic stay with respect to such claim. The later date in this case is the expiration of the automatic stay. The automatic stay terminated as to the Debtor's home when that property was no longer property of the bankruptcy estate. 11 U.S.C. § 362(c)(1). The date on which the home lost its status as property of the estate is tied to the closing of this case. According to § 554(c), property that a debtor schedules, but which a trustee does not administer is deemed abandoned to the debtor upon the closing of the case. Because the Debtor listed the home as an asset, but trustee did not administer it prior to case closing, the home ceased to be property of the estate on November 2, 2016. This means FLD had thirty days from case closing under § 108(c), or until December 2, 2016, to revive and record its judgments, and thereby extend its prepetition judgment liens for another six years. Thus, despite the discharge of the underlying indebtedness, FLD could have acted to revive the judgment, solely as a means of preserving its lien rights, but it had to do so by December 2, 2016. FLD did not act within this timeframe. Instead, almost three months later, on March 7, 2017, FLD obtained verified transcripts of its judgments and recorded them with the Routt County Clerk and Recorder.

FLD admits that this filing was procedurally deficient because it failed to file a motion to revive the judgments as required by Colo. R. Civ. P. 54(h). FLD further concedes that, because of this deficiency, a judgment lien was not created on that date. Nevertheless, in late 2018 when the Debtor was attempting to sell his home and asked FLD to remove the improper filing, FLD instead demanded payment of its judgment debts.

FLD argues that its failed attempt to create a new judgment lien and its subsequent demand for repayment did not violate the discharge injunction. FLD contends that, while entry of discharge eliminated the Debtor's personal or "in personam" liability for its judgments, it did not eliminate FLD's ability to proceed on an "in rem" basis. Because liens "ride through" bankruptcy, FLD argues it can seek to revive its judgment and create a new judgment lien in an in rem action without violating the discharge injunction. The Debtor disagrees, arguing that when FLD's prepetition judgment liens expired, any attempt to impose a new lien post-discharge or to otherwise collect on the judgments was a violation of § 524(a).

II. PROCEDURAL HISTORY

This dispute first came to the Court's attention when the Debtor filed a motion to reopen his bankruptcy case on October 31, 2018, more than two years after entry of discharge. After the Court granted that relief, FLD and another judgment creditor, AMT, LLC ("AMT"), filed a joint motion for relief from stay, seeking either relief to file motions to revive their respective judgments in state court, or an order declaring that the automatic stay does not prevent revival. The Debtor objected to that motion and, shortly thereafter, filed a Motion to Avoid Judicial Liens, seeking to avoid the judgment liens held by FLD, AMT, and two other judgment creditors pursuant to § 522(f). The Court held a hearing on both motions on January 29, 2019, at which the parties agreed to resolve the issues between them in an adversary proceeding. The Court set deadlines for the Debtor to file a complaint against FLD and AMT, as well as a deadline for those Defendants to file a summary judgment motion.

The Debtor then initiated this adversary proceeding. Debtor's complaint in this adversary alleges three claims for relief: (1) violation of the discharge injunction against FLD only; (2) declaratory judgment determining the extent and priority of liens against both FLD and AMT; and (3) a spurious lien claim against FLD only. FLD then filed its Motion for Partial Summary Judgment on the first claim for relief, violation of the discharge injunction. Because that claim does not involve AMT and the facts concerning AMT's lien have not been fully developed, this Order does not address AMT's lien. Instead, this Order addresses only FLD's liability for violation of the discharge injunction. However, to determine that claim, this Court must also rule on the Debtor's second claim for declaratory judgment as to the extent of FLD's liens. Thus, even though FLD did not seek summary judgment on the second claim, this Court's ruling includes both of the first two claims, but only as to Defendant FLD.

III. APPLICABLE STANDARD

Federal Rule of Civil Procedure 56(c), made applicable to this proceeding by Fed. R. Bankr. P. 7056, provides that a court may award summary judgment only when there is no genuine dispute as to any material issue of fact to be tried, and the movant is entitled to judgment as a matter of law. Celotex Corp. v. Catrett , 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). In applying this standard, this Court examines the factual record and reasonable inferences therefrom in the light most favorable to the party opposing summary judgment. Schwartz v. Bhd. of Maint. of Way Employees , 264 F.3d 1181, 1183 (10th Cir. 2001). The movant bears the burden of showing that no genuine issue of material fact exists. Sports Unlimited, Inc. v. Lankford Enter., Inc. , 275 F.3d 996, 999 (10th Cir. 2002). If the moving party makes a prima facie case, the burden then shifts to the non-moving party to set forth specific facts demonstrated by evidence, "from which a rational trier of fact" could find in its favor. Whitesel v. Sengenberger , 222 F.3d 861, 866 (10th Cir. 2000). If both sides are given adequate notice and an opportunity to respond, this Court may grant summary judgment for the nonmovant. Fed. R. Civ. P. 56(f)(1).

IV. DISCUSSION

A. Bankruptcy Discharge and Lien Ride Through

The effect of a bankruptcy discharge is controlled by § 524, which in relevant part provides that a discharge:

(1) voids any judgment at any time obtained, to the extent that such judgment is a determination of the personal liability of the debtor with respect to any debt discharged under section 727 ... of this title, whether or not discharge of such debt is waived;

(2) operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor, whether or not discharge of such debt is waived ....

11 U.S.C. § 524(a). A key part of subsection (a)(2) is that it prohibits only those actions that seek to recover from a debtor personally . This is an important distinction for secured creditors. A secured creditor with a lien on a debtor's property has two ways of collecting on that debt—the creditor can file suit against the debtor personally for damages or it can foreclose on its lien and collect payment from the proceeds of the sale of the debtor's...