Prangley v. Cokinos
| Decision Date | 07 May 2014 |
| Docket Number | No. PWG–13–3077.,Bankruptcy No. 12–27809.,PWG–13–3077. |
| Citation | 509 B.R. 822 |
| Parties | Patrick PRANGLEY, Appellant, v. Monica Ferrari COKINOS, Appellee. |
| Court | U.S. District Court — District of Maryland |
OPINION TEXT STARTS HERE
Michelle Ericka Stawinski, Law Office of Michelle E. Stawinski, Riverdale, MD, for Appellant.
Amy K. Kline, The Creditors Firm, Reisterstown, MD, Jonathan P. Morgan, Morgan Rose, LLC, Rockville, MD, for Appellee.
Appellant–Creditor Patrick Prangley (“Prangley”) raises four challenges to the bankruptcy court's decision to strip two judicial liens encumbering the residential property of Appellee–Debtor Monica Ferrari Cokinos (“Cokinos”) in their entirety pursuant to 11 U.S.C. § 522(f). The effect of avoiding his lien deprives Prangley of post-petition recourse against Cokinos's property and converts his secured claim into an unsecured claim. The bankruptcy court found the parties' experts equally credible and valued Cokinos's property at the midpoint between their appraisals, even though Cokinos's appraisal did not express an opinion as to the property's value on the date of the petition, September 28, 2012 (the “Petition Date”). In the absence of evidence to show that the expert's valuation, which expresses an opinion as to the property's value sixteen days later, also fairly values the property as of the Petition Date, it is not relevant for the purposes of determining value on the Petition Date. Additionally, I find that the bankruptcy court incorrectly allowed the avoidance of the liens in their entirety. I therefore vacate the relevant orders and remand the case with instructions for further proceedings.1
Cokinos filed a voluntary petition for bankruptcy protection under Chapter 7 of the Bankruptcy Code on September 28, 2012. Docket, In re Cokinos, No. 12–27809 (Bankr.D.Md.). She lived at 2279 Dunster Lane, Rockville, MD 20854 (the “Property”), see Feb. 21, 2013 Hr'g Tr. 50–51 (“Tr.”), Appellant's Br.App. R6, ECF No. 5–6, and took out two mortgages on the Property from parties not relevant to this appeal, both secured by a single Deed of Trust. Subsequently, the Circuit Court of Maryland for Montgomery County entered two judicial liens encumbering the Property, one to CitiBank and one to Prangley, for reasons not clear from the record. See Sched. D, ECF No. 1–2. Cokinos moved to avoid both liens, ECF No. 1–10 (the “CitiBank Motion”) & ECF No. 1–4 (the “Prangley Motion”). The CitiBank Motion was unopposed, but Prangley filed a timely opposition, ECF No. 1–17. The two motions were consolidated for hearing. At the outset of the hearing, the parties stipulated that the exemptions and liens on the Property totaled $589,706.04, and stipulated to certain evidentiary matters discussed below. Tr. 4–5. During the hearing, the bankruptcy court heard testimony from Cokinos's expert, Paul D'Anna, and Prangley's expert, Jennifer Horn, each of whom prepared appraisals of the Property.
Section 522(a)(2) of the Bankruptcy Code requires the bankruptcy court to determine the Property's value using the fair market value as of the Petition Date. See11 U.S.C. § 522(a)(2). While nothing in the Bankruptcy Code restricts the bankruptcy court from determining what evidence is relevant for this purpose, whatever evidence is admitted must establish the Property's value as of the Petition Date. Where this critical nexus is missing, the evidence is insufficient. Cf. Reconco v. Partners for Payment Relief De III, LLC (In re Reconco), No. 13–10564–RGM, 2014 WL 1295721, at *3 (Bankr.E.D.Va. Mar. 31, 2014) (). The Horn Appraisal, though signed on December 9, 2012, used a valuation date 2 of September 28, 2012—the same as the Petition Date. Horn Appraisal 5, Appellant's Br.App. R13, ECF No. 5–13. The D'Anna Appraisal, signed on October 16, 2012, used a valuation date of October 14, 2012—sixteen days after the Petition Date—and was based on an evaluation of comparable properties that were sold after the Petition Date. D'Anna Appraisal 4, Appellant's Br.App. R8, ECF No. 5–8.
Once the bankruptcy court has determined the Property's value as of the Petition Date, it calculates the extent of avoidance under § 522(f)(2)(A). This is done by subtracting from the Property's value any exemptions and consensual liens (usually mortgages), leaving the remainder “for the partial satisfaction of [the] judicial lien[s].” E. Cambridge Savs. Bank v. Silveira (In re Silveira), 141 F.3d 34, 36 (1st Cir.1998).3 Even though the remainder might be de minimis, it nevertheless may be significant because any remainder would allow a creditor, such as Prangley, to retain a secured claim against Cokinos and also may allow for post-petition recourse against the Property. See11 U.S.C. §§ 522(c), 524.
At the hearing, Cokinos called Paul D'Anna, an experienced residential appraiser but first-time expert witness. Tr. 9. D'Anna appraised the Property at $545,000 as of October 14, 2012, sixteen days after the Petition Date. D'Anna Appraisal 4. Prangley called Jennifer Horn, who has been an appraiser since 2001 and, like D'Anna, never previously testified as an expert witness. Tr. 59. Horn's appraisal valued the Property at $625,000 as of the Petition Date. Horn Appraisal 5. Both looked to the size, location, and conditionof the Property in determining its value. However, D'Anna, who based his appraisal on an evaluation of comparable properties that were sold after the Petition Date, disagreed with the values of the comparable properties used by Horn because reports by the Metropolitan Regional Information Systems, Inc. (“MRIS”) demonstrated sharp declines in those values based on more recent (post-petition) sales. Tr. 28–31. In response, Horn testified that her valuations were preferable to D'Anna's because hers related back to the Petition Date. Id. at 75, 82–84, 110–11.
Each time they were referenced, Prangley objected to the MRIS reports because the sales dates therein postdated the Petition Date. Id. at 31–32. The bankruptcy court overruled the objections, holding that the MRIS reports were not admitted to determine value, but rather to establish the basis for D'Anna's appraisal. Id. at 32–33.
The bankruptcy court, after weighing the evidence and finding the experts equally credible, assigned the Property a value of $585,000—splitting the difference between the two appraisals.4 Tr. 122–25. On that basis, the court found that both liens were avoidable in their entirety even though the value that the court assigned to the Property exceeded its exemptions and consensual liens. Put another way, the Property no longer is encumbered by the two judicial liens, and Prangley's and CitiBank's claims, previously secured, became unsecured. Id. at 125. After the hearing, the bankruptcy court entered two orders, one granting the CitiBank Motion by default, ECF No. 1–40, and the second granting the motion to avoid Prangley's lien over his objection, ECF No. 1–41. Prangley seeks review of those orders as well as several rulings made by the bankruptcy court during the February 21, 2013 hearing.
The issues presented for review are:
1. Did the bankruptcy court err when it determined the Property's value as of the Petition Date based, in part, on an appraisal with a different valuation date?
2. Did the bankruptcy court err in assigning equal weight to the competing expert opinions, considering that the D'Anna Appraisal contained mathematical and linguistic errors, and considering his method of valuing comparable properties?
3. Did the bankruptcy court err in avoiding the two judicial liens in their entirety, rather than avoiding only the portion of the liens that did, in fact, impair Cokinos's exemptions?
4. Did the bankruptcy court abuse its discretion when it consolidated for hearing the unopposed CitiBank Motion with the opposed Prangley Motion?
See Appellant's Br. 1.
On appeal from the bankruptcy court, the district court sits as an appellate court and reviews the bankruptcy court's findings of fact for clear error and its conclusions of law de novo. See Canal Corp. v. Finnman (In re Johnson), 960 F.2d 396, 399 (4th Cir.1992); Travelers Ins. Co. v. Bryson Props., XVIII (In re Bryson Props., XVIII), 961 F.2d 496, 499 (4th Cir.1992). Mixed questions of law and fact also are reviewed de novo.Litton v. Wachovia Bank (In re Litton), 330 F.3d 636, 642 (4th Cir.2003) (citing Carter Enters. v. Ashland Specialty Co., 257 B.R. 797, 800 (S.D.W.Va.2001)). For findings of fact, “due regard shall be given to the opportunity of the bankruptcy court to judge the credibility of the witnesses.” Fed. R. Bankr.P. 8013. Under the clearly erroneous standard, a reviewing court will not reverse “simply because it is convinced that it would have decided the case differently.” Anderson v. Bessemer City, 470 U.S. 564, 573, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985); Citizens Bank of Md. v. Broyles (In re Broyles), 55 F.3d 980, 983 (4th Cir.1995). A finding of fact is clearly erroneous only when the reviewing court “is left with a definite and firm conviction that a mistake has been committed.” Anderson, 470 U.S. at 573, 105 S.Ct. 1504 (quoting United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 92 L.Ed. 746 (1948)) (internal quotation marks omitted). “Where there are two permissible views of the evidence, the factfinder's choice between them cannot be clearly erroneous.” Id. at 574, 105 S.Ct. 1504.
III. DISCUSSIONA. Dismissal of the Appeal
First, Cokinos argues that I should not consider the merits of the valuation date discrepancy (the first issue listed above) because Prangley failed to list it in his designation of appeal. Appellee's Br. 16–17. For the...
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