Pierce v. Carson (In re Rader)

• Decision Date: 08 March 2013
• Docket Number: Bankruptcy No. 10–14477–RTB.,BAP No. AZ–12–1241–KlPaMk.
• Citation: 488 B.R. 406
• Court: U.S. Bankruptcy Appellate Panel, Ninth Circuit
• Parties: In re Marshall L. RADER and Barbara J. Rader, Debtors. William E. Pierce, Chapter 7 Trustee, Appellant, v. Robert G. Carson, Trustee of the R & S Carson Family Trust; Sandra J. Carson, Trustee of the R & S Carson Family Trust, Appellees.

488 B.R. 406

In re Marshall L. RADER and Barbara J. Rader, Debtors.William E. Pierce, Chapter 7 Trustee, Appellant,

v.Robert G. Carson, Trustee of the R & S Carson Family Trust; Sandra J. Carson, Trustee of the R & S Carson Family Trust, Appellees.

BAP No. AZ–12–1241–KlPaMk.

Bankruptcy No. 10–14477–RTB.

United States Bankruptcy Appellate Panel of the Ninth Circuit.

Argued and Submitted on Jan. 25, 2013.

Decided March 8, 2013.

Limited on Preemption Grounds

A.R.S. § 33–814(D)

Terry A. Dake, Esq., of Terry A. Dake, Ltd., Phoenix, AZ, argued for Appellant; Brian Y. Furuya, Esq., of Aspey Watkins & Diesel, PLLC, Flagstaff, AZ, argued for Appellees.

Before: KLEIN,^*PAPPAS, and MARKELL, Bankruptcy Judges.

OPINION

KLEIN, Bankruptcy Judge.

INTRODUCTION

Chapter 7¹ trustee, William E. Pierce (“Trustee”), appeals from an order overrulinghis objection to a claim filed by Robert G. Carson and Sandra J. Carson on behalf of The R & S Carson Family Trust (“Carsons”). We AFFIRM.

FACTS

Marshall and Barbara Rader (“Debtors”) filed a chapter 13 bankruptcy petition on May 12, 2010. A few months later, the case was converted to a chapter 7, and Trustee was appointed as the chapter 7 trustee.

On August 12, 2010, the Carsons filed a “Motion for Order Approving Stipulation of Parties Regarding Relief from Automatic Stay” (“Motion”). The Motion indicated that the Carsons, Debtors, and Trustee agreed that the automatic stay should be terminated regarding a parcel of real property located in Valle–Williams, Coconino County, Arizona (“Property”). Attached to the Motion was a stipulation (“Stipulation”), which stated that the Carsons had a security interest in the Property and that Debtors were in default under their obligations to the Carsons. On September 9, 2010, the bankruptcy court entered an “Order Approving Stipulation Regarding Relief from Automatic Stay” (“Order”).

On November 1, 2010, the Carsons timely filed a $739,100.61 proof of claim (“Claim”), which indicated that the debt was secured by a trust deed on the Property. The Claim stated that the value of the Property was $370,000. This valuation was supported by an appraisal, and was not challenged in the bankruptcy court nor is it challenged in this appeal. The Claim was bifurcated into a secured claim of $370,000 and an unsecured claim of $369,100.61.

On December 16, 2010, the Carsons purchased the Property for $370,000 at a non-judicial foreclosure sale. Debtors received a discharge on January 11, 2011.

On March 2, 2012, Trustee filed an objection to the Claim (“Claim Objection”), which stated, in its entirety, that: “Said claimant asserts a lien on certain property of the debtor's [sic] estate and said claimant has or should have looked to said property for payment of the debt thereby secured. The trustee recommends that said claim be treated as: DISALLOWED.” The Carsons filed a response to the Claim Objection on March 16, 2012. On April 20, 2012, the bankruptcy court heard and overruled the Claim Objection, reasoning that the Carsons could not have filed a state court deficiency action or an adversary proceeding without violating the discharge injunction. On May 1, 2012, the bankruptcy court entered an order overruling the Claim Objection and allowing the Carsons' $369,100.61 unsecured claim. Trustee timely filed a notice of appeal on May 4, 2012.

JURISDICTION

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

ISSUE

Whether the bankruptcy court erred when it overruled Trustee's Claim Objection.

STANDARD OF REVIEW

“An order overruling a claim objection can raise legal issues (such as the proper construction of statutes and rules) which we review de novo, as well as factual issues (such as whether the facts establish compliance with particular statutes or rules), which we review for clear error.” Veal v. Am. Home Mortg. Serv., Inc. (In re Veal), 450 B.R. 897, 918 (9th Cir.BAP2011). “De novo review is independent, with no deference given to the trial court's conclusion.” Allen v. U.S. Bank, N.A. (In re Allen), 472 B.R. 559, 564 (9th Cir. BAP 2012). Review under the clearly erroneous standard is “significantly deferential,” with reversal requiring “a definite and firm conviction that a mistake has been committed.” Id. Put another way, “[a] court's factual determination is clearly erroneous if it is illogical, implausible, or without support in the record.” Retz v. Samson (In re Retz), 606 F.3d 1189, 1196 (9th Cir.2010) (citing United States v. Hinkson, 585 F.3d 1247, 1261–62 & n. 21 (9th Cir.2009) (en banc)).

DISCUSSION

Trustee asserts that the bankruptcy court should have disallowed the unsecured portion of the Carsons' Claim because they did not comply with Arizona Revised Statute (“A.R.S.”) § 33–814, which establishes procedures for obtaining deficiency judgments after non-judicial foreclosure sales. According to Trustee, the automatic stay was not a bar to the Carsons pursuing a deficiency judgment because the Order was sufficiently broad to allow the Carsons to file a state court action or an adversary proceeding.

Trustee also argues that the discharge injunction did not prohibit the Carsons from pursuing a deficiency action because: 1) Debtors would not have to be parties to any such action; 2) proceedings can be filed post-discharge that name Debtors as nominal parties without violating the discharge injunction; and 3) the Carsons could have filed a motion with the bankruptcy court to obtain leave to proceed.

The Carsons counter that pursuant to §§ 101(5) and 506, the bankruptcy court properly allowed their unsecured claim. According to the Carsons, requiring creditors to file separate actions to obtain deficiencies would be contrary to the law, burdensome, and a waste of judicial resources because: 1) the automatic stay prevented them from filing a deficiency action as required by state law; 2) the Order did not allow them to file a separate deficiency action; and 3) the discharge injunction prohibited them from pursuing any action against Debtors.

A. Arizona Revised Statute § 33–814

A.R.S. § 33–814 sets forth procedures pursuant to which a creditor can obtain a deficiency judgment after a non-judicial foreclosure sale. A.R.S. § 33–814(A) provides, in relevant part, that “within ninety days after the date of sale of trust property under a trust deed pursuant to § 33–807,² an action may be maintained to recover a deficiency judgment against any person directly, indirectly or contingently liable on the contract for which the trust deed was given as security....” If no deficiency action is filed within the ninety-day period, “the proceeds of the sale, regardless of amount, shall be deemed to be in full satisfaction of the obligation and no right to recover a deficiency in any action shall exist.” A.R.S. § 33–814(D).

B. Preemption

Based on the facts of this case, we find that A.R.S. § 33–814 is preempted by the Bankruptcy Code. The preemption doctrine, which implements the Supremacy Clause of the Constitution,³ “invalidate[s] state statutes to the extent they are inconsistent with, or contrary to, the purposes or objectives of federal law.” Sticka v. Applebaum (In re Applebaum), 422 B.R. 684, 688 (9th Cir. BAP 2009) (citing Perez v. Campbell, 402 U.S. 637, 652, 91 S.Ct. 1704, 29 L.Ed.2d 233 (1971)). Congress may preempt state law “either expressly-through clear statutory language-or implicitly.” Whistler Invs., Inc. v. Depository Trust & Clearing Corp., 539 F.3d 1159, 1164 (9th Cir.2008). Nothing in the Bankruptcy Code explicitly preempts statutes such as A.R.S. § 33–814. Thus, the issue is whether A.R.S. § 33–814 is implicitly preempted.

“There are two types of implied preemption: field preemption and conflict preemption.” Id. Field preemption is present when federal law “so thoroughly occupies a legislative field as to make reasonable the inference that Congress left no room for the States to supplement it.” Cipollone v. Liggett Group, Inc., 505 U.S. 504, 516, 112 S.Ct. 2608, 120 L.Ed.2d 407 (1992). Conflict preemption is present “to the extent that federal law actually conflicts with any state law.” Whistler Invs., 539 F.3d at 1164.

Field preemption is inapplicable in this case. Section 502(b)(1) states that a court “shall allow” a claim unless the claim is “unenforceable against the debtor and property of the debtor, under any agreement or applicable law.” By explicitly incorporating other “applicable law,” § 502(b)(1) demonstrates that Congress did not intend the Bankruptcy Code thoroughly to occupy the field related to the claims allowance process. Cf. Hillsborough Cnty., Fla. v. Automated Med. Labs., Inc., 471 U.S. 707, 713, 105 S.Ct. 2371, 85 L.Ed.2d 714 (1985) (stating that preemption is inferred if “Congress ‘left no room’ for supplementary state regulation” (quoting Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230, 67 S.Ct. 1146, 91 L.Ed. 1447 (1947))).

“Conflict preemption analysis examines the federal statute as a whole to determine whether a party's compliance with both federal and state requirements is impossible or whether, in light of the federal statute's purpose and intended effects, state law poses an obstacle to the accomplishment of Congress's objectives.” Whistler Invs., 539 F.3d at 1164. As analyzed below, we find that both types of conflict preemption are present in this case. First, the automatic stay and the discharge injunction-two cornerstones of federal bankruptcy law-made it impossible for the Carsons to comply with A.R.S. § 33–814. Second, A.R.S. § 33–814's requirement that the Carsons file an action as a prerequisite to recovering a deficiency poses an obstacle to Congress' objectives in creating the Bankruptcy Code's comprehensive, centralized claims resolution process and its framework for determining the validity and secured status of claims.

1. It was Impossible for the Carsons to Comply with Federal and State Law

a. Automatic Stay

When...