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NOT FOR PUBLICATION

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE NINTH CIRCUIT

In re: ) BAP No. NC-14-1230-DKiTa

)

GREGORY PAUL BEARDSLEY and ) Bk. No. 11-55414-MEH

REBECCA HARO BEARDSLEY, )

)

Debtors. )

______________________________)

)

RABOBANK, N.A., )

)

Appellant, )

)

v. ) M E M O R A N D U M1

)

GREGORY PAUL BEARDSLEY; )

REBECCA HARO BEARDSLEY; )

JOHN W. RICHARDSON, CHAPTER 7 )

TRUSTEE, )

)

Appellees. )

______________________________)

Argued and Submitted on May 14, 2015

at San Francisco, California

Filed - August 28, 2015

Appeal from the United States Bankruptcy Court

for the Northern District of California

Honorable Charles D. Novack, Bankruptcy Judge, Presiding

 

Appearances: George Cameron Hollister argued for appellant

Rabobank, N.A.; Charles Patrick Maher of Dentons

US LLP argued for appellee John W. Richardson,

Chapter 7 Trustee.

 

FILED

AUG 28 2015

SUSAN M. SPRAUL, CLERK

U.S. BKCY. APP. PANEL

OF THE NINTH CIRCUIT

1 This disposition is not appropriate for publication. 

Although it may be cited for whatever persuasive value it may

have (see Fed. R. App. P. 32.1), it has no precedential value. 

See 9th Cir. BAP Rule 8024-1.
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Before: DUNN, KIRSCHER AND TAYLOR, Bankruptcy Judges.

Memorandum by Judge Dunn

Concurrence by Judge Taylor

Rabobank, N.A. (“Rabobank”) appeals the bankruptcy court’s

order denying its motion under § 506(a) seeking to recharacterize

its secured claim as wholly unsecured.2 We AFFIRM.

FACTS

The debtors, Gregory and Rebecca Beardsley, filed their

chapter 11 bankruptcy petition on June 7, 2011. Among their

assets, they scheduled a commercial real property located in

Pacific Grove, California (“Pacific Grove Property”) with a value

of $880,000.3 The debtors listed a total of $593,108.79 in

secured claims encumbering the Pacific Grove Property:

1) Monterey County Tax Collector’s $48,174 tax lien; 2) Phillip

Giammanco’s $344,000 first deed of trust; and 3) Rabobank’s

$200,934.79 second deed of trust.

On January 30, 2012, Rabobank filed a proof of claim valuing

the Pacific Grove Property at $325,000 and asserting a secured

claim in the amount of $201,942.81.

The debtors’ chapter 11 case was converted to chapter 7 on

October 12, 2012. A month after the conversion, the chapter 7

2 Unless otherwise indicated, all chapter and section

references are to the federal Bankruptcy Code, 11 U.S.C. §§ 101-

1532, and all “Rule” references are to the Federal Rules of

Bankruptcy Procedure, Rules 1001-9037.

3 The Pacific Grove Property consists of four separate but

contiguous lots with a kiosk and a storage building located

thereon.

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trustee (“Trustee”) employed a broker to market the Pacific Grove

Property.

On January 4, 2013, Rabobank filed an amended proof of claim

valuing the Pacific Grove Property at $750,000, but leaving the

amount of its asserted secured claim unchanged. Shortly

thereafter, Rabobank obtained an appraisal of the Pacific Grove

Property. The appraisal valued the Pacific Grove Property at

$185,000 as of January 16, 2013, based on its “as is” condition. 

Rabobank also discovered that accrued unpaid real property taxes

were approaching $70,000.

Based on this information, Rabobank concluded that its lien

“was then and had likely always been wholly unsecured.” 

Consequently, on June 26, 2013, Rabobank filed a second amended

proof of claim,4 this time valuing the Pacific Grove Property at

$185,000 and characterizing its entire claim as unsecured.

On January 29, 2014, the Trustee filed a motion to abandon

the Pacific Grove Property under § 554(a)(“Motion to Abandon”). 

He explained that, despite his efforts to market the Pacific

Grove Property, he had been unable to negotiate a sale that would

“benefit the [bankruptcy] estate sufficiently.” In fact, the

Trustee negotiated a sale but it fell through because he could

not meet the buyer’s condition: that there would be sufficient

water service available to develop the Pacific Grove Property. 

4 In its opposition to the debtors’ motion to dismiss their

chapter 7 case, Rabobank disclosed that it had “amended its claim

to concede that its lien position [was] fully unsecured,

resulting in an additional unsecured claim of $201,942.81 against

the Debtors’ Estate.”

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Because of the water availability issue, the value of the Pacific

Grove Property was less than the Trustee had anticipated and

significantly less than as scheduled by the debtors. He thus

concluded that the Pacific Grove Property was burdensome to the

bankruptcy estate and that “further efforts to market [it] and

maximize its value [were] not warranted.”

On February 19, 2014, Rabobank filed an opposition 

(“Opposition”) to the Motion to Abandon. It contended that the

Trustee failed to provide evidence supporting the abandonment of

the Pacific Grove Property. Rabobank also argued that formal

abandonment of the Pacific Grove Property was unnecessary and

premature as abandonment would occur automatically upon closing

of the case, which was imminent.

Rabobank moreover averred that it would suffer prejudice if

the Pacific Grove Property was abandoned before it obtained a

ruling on its motion to determine the status of its claim under

§ 506(a) (“Status Motion”), which it planned to file. Rabobank

claimed that a “manifest injustice” would occur if the bankruptcy

court denied the Status Motion on the ground that the Trustee had

abandoned the Pacific Grove Property. This “manifest injustice”

would appear in the form of a “windfall distribution” to the

debtors, who could be paid before creditors received full payment

on their claims, as the debtors held equity interests.

On February 25, 2014, Rabobank filed the Status Motion

seeking a determination that it held a wholly unsecured claim in

the amount of $201,942.81, because its collateral, the Pacific

Grove Property, had no value beyond the secured claims of the

senior lienholders. It referenced the second amended proof of

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claim, asking the bankruptcy court to determine that its second

amended proof of claim was “a wholly unsecured claim.” It sought

a “finding that [its] Amended Claim #22 in the amount of

$201,942.81 [was] an entirely unsecured claim because there [was]

no value in the [Pacific Grove] Property beyond the liens of the

senior lienholders Monterey County Tax Collector and Phillip

Giammanco.” Rabobank submitted its appraisal, among other

documents, in support of its assertion as to the value of the

Pacific Grove Property.

In reply to the Opposition, the Trustee countered that

Rabobank itself “made the case for abandonment” in its Status

Motion. He pointed out that in the Status Motion, Rabobank

sought a determination that its claim was unsecured instead of

secured because “its deed of trust attache[d] to no value in the

[Pacific Grove] Property.” Rabobank even submitted evidence –

the appraisal – showing that the Pacific Grove Property had no

value in excess of the first two priority liens.

The Trustee filed an opposition to the Status Motion as

well. He argued that, assuming the bankruptcy court granted the

Motion to Abandon, the Pacific Grove Property would no longer be

property of the bankruptcy estate, thereby rendering the Status

Motion moot.

The Trustee reported that timely-filed general unsecured

claims totaled $140,000 approximately. He estimated that he

would have approximately $330,000 on hand to pay these claims

after paying allowed administrative expenses. He went on to note

that if Rabobank’s claim was reclassified as a general unsecured

claim, holders of timely-filed general unsecured claims would not

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be paid in full.5

The Trustee further contended that Rabobank was trying to

“strip off” its lien through the Status Motion, which was

prohibited under Dewsnup v. Timm, 502 U.S. 410 (1992).6

The bankruptcy court set a hearing on both the Motion to

Abandon and the Status Motion for March 28, 2014 (“Hearing”). A

few weeks before the Hearing, on March 3, 2014, the debtors filed

an objection to Rabobank’s second amended proof of claim (“Claim

Objection”), seeking disallowance of the second amended proof of

claim in its entirety.

The debtors pointed out that Rabobank held a secured claim

against the Pacific Grove Property, which the Trustee intended to

abandon. Once the abandonment was confirmed, they argued,

Rabobank was required to proceed against the Pacific Grove

Property as its sole remedy under state law.

Rabobank filed a response to the Claim Objection, requesting

5 The Trustee also argued that the “one action rule” set

forth in California Civil Procedure (“CCP”) § 726 precluded

Rabobank from seeking to recharacterize its claim unless and

until: 1) it obtained a deficiency judgment through judicial

foreclosure; 2) Giammanco foreclosed on his first deed of trust,

which would extinguish Rabobank’s second deed of trust, thereby

making it unsecured; or 3) its lien became valueless subsequent

to its creation. He argued that Rabobank’s proposed “strip off”

under § 506 would run contrary to CCP § 726. The debtors echoed

these arguments in their own opposition to the Status Motion.

On appeal, Rabobank contends that CCP § 726 does not apply

because § 506(a), a federal statute, trumps CCP § 726, a state

statute. We decline to address this argument as the bankruptcy

court did not make any determinations under CCP § 726.

6 The debtors also opposed the Status Motion, echoing the

Trustee’s arguments regarding Dewsnup.

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a hearing. However, no hearing was set.

At the Hearing, the bankruptcy court addressed the Motion to

Abandon first as “dealing with one makes the other far easier.” 

Counsel for Rabobank protested, asking the bankruptcy court to

address the Status Motion before addressing the Motion to Abandon

because “that way, there wouldn’t be any inequity because we

could just simply have that ruled on.”7 Tr. of March 28, 2014

hr’g, 5:6-8. He also informed the bankruptcy court that the

debtors had filed the Claim Objection.

The bankruptcy court neither acknowledged Rabobank’s request

for a determination on the second amended proof of claim nor the

filing of the Claim Objection. Instead, it considered the

fairness argument by Rabobank’s counsel regarding the order in

which it would handle the Motion to Abandon and the Status

Motion. The bankruptcy court stated that § 554(a) does not

require abandonment to be fair or equitable for “one particular

creditor.” Tr. of March 28, 2014 hr’g, 4:22. Section 554(a) did

not require it to carry out “a balancing of the equities to

determine whether or not” to approve abandonment of property. 

Tr. of March 28, 2014 hr’g, 6:6-7.

7 At the hearing, counsel for Rabobank claimed that the

Status Motion was noticed before the Motion to Abandon. However,

we note that the Trustee filed the Motion to Abandon on

January 29, 2014. He also filed and served a Notice of

Abandonment on the same day. Rabobank did not serve the Status

Motion until February 24, 2014, and filed the Status Motion on

February 25, 2014.

The bankruptcy court dealt with this assertion by telling

counsel for Rabobank that “this [wasn’t] a first-in-line

analysis.” Tr. of March 28, 2014 hr’g, 5:12.

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The bankruptcy court considered the Trustee’s proposed

abandonment of the Pacific Grove Property to be typical and

straightforward: the abandonment was “for the simple reason that

there’s no equity in this property [and it] had no value for the

bankruptcy estate.” Tr. of March 28, 2014 hr’g, 4:7-8. The

bankruptcy court pointed out that Rabobank even conceded in its

Status Motion that the Pacific Grove Property had no equity and

no value for the bankruptcy estate. The bankruptcy court thus

granted the Motion to Abandon.

Although it believed that the Motion to Abandon had resolved

the issue, the bankruptcy court turned to the Status Motion. It

noted that if it granted the Status Motion, Rabobank would

receive a dividend as an unsecured creditor yet still have a lien

when the bankruptcy case closed.

Counsel for Rabobank asserted that Rabobank was secured

under California law – that it had a lien still. However,

Rabobank’s lien had no value because the Pacific Grove Property

had no equity. That is, because the value of its collateral, the

Pacific Grove Property, was less than the combined amount of the

prior two secured liens, its entire claim was unsecured. 

Accordingly, Rabobank requested that the bankruptcy court

“bifurcate” its claim under §506(a) – to determine that the full

amount of its claim was unsecured.

Counsel for Rabobank further argued that if the bankruptcy

court granted the Status Motion, Rabobank still would retain its

lien, but the amount of its lien would be reduced by the amount

of any distribution it received from the bankruptcy estate on its

general unsecured claim.

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The bankruptcy court was not swayed by Rabobank’s arguments. 

It denied the Status Motion on the ground that it had granted the

Motion to Abandon. Because the Pacific Grove Property was no

longer property of the bankruptcy estate, the bankruptcy court

concluded it had “no reason . . . to value [the Pacific Grove

Property] under any circumstances.” Tr. of March 28, 2014 hr’g,

11:24-25, 12:1.

On April 1, 2014, the bankruptcy court entered an order

granting the Motion to Abandon (“Abandonment Order”). On

April 14, 2014, it entered an order denying the Status Motion

“for the reasons stated on the record” (“Status Motion Order”).

Rabobank timely appealed the Status Motion Order. It did

not appeal the Abandonment Order.

On December 10, 2014, the Trustee filed an interim final

report, conditionally listing Rabobank as a general unsecured

creditor in light of its second amended proof of claim. He noted

that its “claim [was the] subject of dispute” because Rabobank

had appealed the bankruptcy court’s decision “to disallow [its]

claim in full based on the Trustee’s abandonment [of its

collateral, the Pacific Grove Property].”

The Trustee indicated that he would reserve the funds that

could be paid to Rabobank as a general unsecured creditor until

final resolution of the dispute. He also indicated that if the

dispute was resolved in its favor, Rabobank would receive a pro

rata distribution of $81,792.30 (i.e., 40.5% of its asserted

general unsecured claim of $201,942.81).

The Trustee also mentioned that Charles and Debra Beardsley,

the brother and sister-in-law of the debtor, Gregory Beardsley,

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tardily filed a proof of claim in the amount of $180,000 (“Family

Claim”).8 He noted that the Family Claim was deemed allowed,

though it would not receive any distribution once all allowed

administrative, priority and timely general unsecured claims

(including Rabobank’s second amended claim) received

distributions. He also indicated that the U.S. Department of

Education had filed an untimely proof of claim as well.

On January 12, 2015, an order was entered, stating that the

Trustee’s interim account was “approved and settled” and that he

“shall distribute the estate . . . .”

At oral argument, the Trustee advised us that he intended to

file an objection to Rabobank’s second amended proof of claim

because he considered the Family Claim to be valid. He explained

that if he did not, the Family Claim would not receive any

distribution, not only because it was late filed, but also

because of the potential distribution on Rabobank’s second

amended claim. The Trustee further noted that if Rabobank’s

second amended claim was not allowed, then all timely allowed

general unsecured claims would receive one hundred cents on the

dollar.

JURISDICTION

The bankruptcy court had jurisdiction under 28 U.S.C. 

§§ 1334 and 157(b)(2)(A) and (K). We have jurisdiction under

28 U.S.C. § 158.

8 Charles and Debra Beardsley filed their proof of claim on

January 21, 2014, nearly one year after the deadline.

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ISSUE

Did the bankruptcy court err in refusing to recharacterize

Rabobank’s secured claim as a wholly unsecured claim under 

§ 506(a)?

STANDARDS OF REVIEW

We review the bankruptcy court’s conclusions of law and

interpretation of provisions of the Bankruptcy Code de novo. 

Anwar v. Johnson, 720 F.3d 1183, 1186 (9th Cir. 2013)(quoting

Greene v. Savage (In re Greene), 583 F.3d 614, 618 (9th Cir.

2009)). We review its findings of fact for clear error. Id.,

quoting Greene, 720 F.3d at 1186.

DISCUSSION9

At the Hearing, Rabobank sought to have its secured second

lien claim recharacterized as a general unsecured claim,

referring to its second amended proof of claim, so that it could

share in a distribution from the bankruptcy estate. On appeal,

Rabobank claims that, in its Status Motion, it only wanted a

determination under § 506(a) that “the value of the secured

portion of [its] claim as of the Petition Date was zero dollars,

and therefore that the entire balance of the claim was

unsecured.” Appellant’s Opening Br. at 16. Rabobank argues that

the bankruptcy court erred in denying the Status Motion because

9 On July 11, 2014, the debtors filed a notice of joinder

(“Joinder”) to the Trustee’s response brief, simply stating that

they joined in the Trustee’s response brief. Notably, they have

not filed a notice of appearance in the appeal. In its reply

brief, Rabobank objected to the Joinder, arguing that the debtors

should not be allowed to participate in the appeal because they

failed to file the Joinder timely. Neither the debtors nor their

counsel appeared to participate at oral argument.

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the abandonment of the Pacific Grove Property under § 554 did not

and should not prevent Rabobank from seeking to recharacterize

its claim under § 506(a).10

The bankruptcy court expressly based its denial of the

Status Motion on its grant of the Motion to Abandon. At the

Hearing, the bankruptcy court explained that it was 

granting the Trustee’s [Motion to Abandon], and upon

granting the motion to abandon, [the Pacific Grove

Property was] no longer property of the estate and

therefore there’s no reason for [it] to value [the

Pacific Grove Property] under any circumstances. And

given my ruling, the [Status Motion] filed by Rabobank

is denied.

Tr. of March 28, 2014 hr’g, 11:22-25, 12:1-2. 

Section 506(a)(1) in relevant part provides that, “an

allowed claim of a creditor secured by a lien on property in

which the estate has an interest . . . is a secured claim to the

extent of the value of such creditor’s interest in the estate’s

interest in such property . . . , and is an unsecured claim to

the extent that the value of such creditor’s interest . . . is

less than the amount of such allowed claim.” Section 554(a) and

(d) provide:

(a) After notice and a hearing, the trustee may abandon

any property of the estate that is burdensome to the

estate or that is of inconsequential value and benefit

to the estate.

. . .

(d) Unless the court orders otherwise, property of the

10 Rabobank also argues that the bankruptcy court abused its

discretion in denying the Status Motion without considering the

evidentiary record. We disagree. The bankruptcy court

repeatedly referred to the fact that Rabobank conceded in its own

pleadings that the Pacific Grove Property had no equity. 

Rabobank moreover had included a copy of its appraisal in its

submissions.

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estate that is not abandoned under this section and

that is not administered in the case remains property

of the estate.

Accordingly, consistent with § 554, when the bankruptcy court

granted the Motion to Abandon, the estate no longer had an

interest in the Pacific Grove Property, and by its terms, 

§ 506(a) no longer applied. 

Rabobank did not appeal the Abandonment Order, and Rabobank

contends that the Trustee’s abandonment of the Pacific Grove

Property did not affect its right to seek bifurcation of its

secured claim. We disagree.

Rabobank challenges the bankruptcy court’s reliance on the

Supreme Court’s Dewsnup decision on the ground that Dewsnup dealt

with a chapter 7 debtor’s attempt to use § 506(d) to strip down

an undersecured lien to the value of the collateral. However, in

its Status Motion, Rabobank argues that it was seeking to

bifurcate or recharacterize its claim under § 506(a), not to

strip its lien under § 506(d). Thus, it contends, Dewsnup does

not apply.

At least two bankruptcy courts have noted that, in Dewsnup,

the Supreme Court did not address directly the issue of whether a

wholly unsecured lien could be stripped when the property to

which the lien was attached had been abandoned. See

In re Bodensiek, 522 B.R. 737, 738-39 (Bankr. S.D. Fla. 2015);

Cole v. Fifth Third Bank (In re Cole), 521 B.R. 410, 414-15

(Bankr. N.D. Ga. 2014). These bankruptcy courts noted that, in

Dewsnup v. Timm, 908 F.2d 588 (10th Cir. 1990), the Tenth Circuit

had held that § 506(a) applies where the collateral is property

in which the estate has an interest. Because the bankruptcy

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estate retains no interest in abandoned property, the Tenth

Circuit reasoned, § 506(a) bifurcation does not apply. The Tenth

Circuit then concluded that if § 506(a) does not apply, the

chapter 7 debtor cannot strip down a lien under § 506(d). 

However, the bankruptcy courts recognized that the Supreme Court

decided Dewsnup on a different ground. See Bodensiek, 522 B.R.

at 739; Cole, 521 B.R. at 415.

We agree with these bankruptcy courts that the Supreme Court

in Dewsnup did not address § 506(a) head on.

Were we writing on a clean slate, we might be inclined to

agree with petitioner that the words “allowed secured claim”

must take the same meaning in § 506(d) as in § 506(a). But,

given the ambiguity in the text, we are not convinced that

Congress intended to depart from the pre-Code rule that

liens pass through bankruptcy unaffected. 

Dewsnup, 502 U.S. at 417.

Moreover, we note that the Supreme Court issued a decision

recently, Bank of America, N.A. v. Caulkett, 135 S. Ct. 1995

(2015), that revisits its decision in Dewsnup. In Caulkett, the

Supreme Court repeated the holding in Dewsnup: a debtor cannot 

strip down the creditors’ lien to the value of the

property under § 506(d) “because the [creditors’] claim

[wa]s secured by a lien and ha[d] been fully allowed

pursuant to § 502.” . . . In other words, Dewsnup

defined the term “secured claim” in § 506(d) to mean a

claim supported by a security interest in property,

regardless of whether the value of that property would

be sufficient to cover the claim. Under this

definition, § 506(d)’s function is reduced to “voiding

a lien whenever a claim secured by the lien itself has

not been allowed.” . . . Because the Bank’s claims here

are both secured by liens and allowed under § 502, they

cannot be voided under the definition given to the term

“allowed secured claim” by Dewsnup.

Caulkett, 135 S. Ct. at 1999, quoting Dewnsup, 502 U.S. at 416,

417. As we read Caulkett, the Supreme Court still has not

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addressed directly the application of § 506(a) where the

characterization or allowance of a claim as secured or unsecured,

rather than lien avoidance under § 506(d), is at issue.

Rabobank still urges us to consider Dewsnup – at least,

Justice Scalia’s dissent, which does analyze the interplay

between § 506(a) and (d). Although we acknowledge that dissents

can be persuasive, they are not precedential. See U.S. v.

Ameline, 409 F.3d 1073, 1083 n.5 (citing Purcell v. BankAtlantic

Fin. Corp., 85 F.3d 1508, 1513 (11th Cir. 1996)). Also, more

importantly, Rabobank did not raise this argument before the

bankruptcy court. We thus decline to consider it. See

In re Healthcentral.com, 504 F.3d 775, 789 (9th Cir. 2007)

(citation omitted).

Contrary to Rabobank’s contention, we determine that the

Trustee’s abandonment of the Pacific Grove Property does affect

its ability to seek a determination of the secured or unsecured

status of its claim under § 506(a). As noted above, § 506(a)(1)

provides for determination of a creditor’s claim as secured

and/or unsecured with respect to property in which the estate has

an interest.

“‘Where the statute’s language is plain, the sole function

of the courts is to enforce it according to its terms, for courts

must presume that a legislature says in a statute what it means

and means in a statute what it says there.’” Meruelo Maddux

Props-760 S. Hill Street, LLC v. Bank of America, N.A.

(In re Meruelo Maddux Props., Inc.), 667 F.3d 1072, 1076 (9th

Cir. 2012)(quoting Int’l Ass’n of Machinists & Aerospace Workers

v. BF Goodrich Aerospace Aerostructures Grp., 387 F.3d 1046, 1051

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(9th Cir. 2004)). Again, by its terms, § 506(a) requires the

creditor to have a lien on property in which the estate has an

interest in order to obtain a decision as to the secured and/or

unsecured status of its claim. 

However, when property has been formally abandoned under 

§ 554(a), the bankruptcy estate no longer has an interest in it.

Within the context of bankruptcy, abandonment is 

the formal relinquishment of the property at issue from

the bankruptcy estate. Upon abandonment, the debtor’s

interest in the property is restored nunc pro tunc as

of the filing of the bankruptcy petition.

Catalano v. Comm’r, 279 F.3d 682, 687 (9th Cir. 2002)(italics in

original). See also Slates v. Reger (In re Slates), 2012 WL

5359489 at *10 (9th Cir. BAP 2012); Achi v. Casey (In re Achi),

2001 WL 36354910 at *1 (9th Cir. BAP 2008). Here, the Trustee

abandoned the Pacific Grove Property, as confirmed by the

bankruptcy court in the Abandonment Order. Once abandoned, the

bankruptcy estate no longer had an interest in the Pacific Grove

Property. Because the bankruptcy estate did not have an interest

in the Pacific Grove Property, Rabobank could no longer obtain a

determination that its claim was unsecured with respect to the

Pacific Grove Property under § 506(a). The bankruptcy court thus

did not err in denying Rabobank’s Status Motion consistent with

the provisions of the Bankruptcy Code.

We recognize that the bankruptcy court’s ruling imposes a

potentially unfair result in the real world. But we cannot

conclude that the bankruptcy court erred in denying the Status

Motion when the Pacific Grove Property was abandoned by the

Trustee, which eliminated the estate’s interest in the property. 

And Rabobank did not appeal the Abandonment Order. 

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We further note that, in light of the Trustee’s interim

final report, the debtors will not benefit from the bankruptcy

court’s ruling. Although Rabobank will not receive a

distribution from the estate if its second amended claim is

disallowed, the debtors will not receive any surplus

distribution, as the Trustee will be using any remaining funds to

pay the Family Claim and the tardy proof of claim filed by the

Department of Education pro rata. 

CONCLUSION

For the reasons set forth above, we AFFIRM.

CONCURRENCE BEGINS ON NEXT PAGE.

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TAYLOR, Bankruptcy Judge, Concurring:

I concur in the result reached by the Panel because I agree

with the technical determination that § 506(a) applies only to

property in which the estate has an interest and that it cannot

be used to bifurcate Rabobank’s claim after abandonment of the

Pacific Grove Property. I write separately to discuss in more

detail the interaction between § 506(a) and CCP § 726(a). 

The bankruptcy court was concerned that Dewsnup v. Timm,

502 U.S. 410 (1992), barred the result Rabobank sought. I do not

share this concern; neither Dewsnup nor the more recently decided

Bank of America, N.A. v. Caulkett, 135 S. Ct. 1995 (2015), are

controlling case authority here or even particularly relevant. 

These cases make clear that a chapter 7 debtor cannot use §

506(d) as a basis for a lien strip where the creditor’s “claim is

secured by a lien and [is an allowed claim] pursuant to § 502.” 

Dewsnup, 502 U.S. at 417. The distinctions here, however, are

that Rabobank requested the § 506(a) valuation and that

California law, not § 506(d) or any other federal statute,

bankruptcy or otherwise, would have formed the basis for a lien

strip.

As stated in the Memorandum at footnote 6, the bankruptcy

court did not make any determination under CCP § 726; I suggest

that it should have. CCP § 726(a) states that there can be only

“one form of action for the recovery of any debt . . . secured by

a [deed of trust] upon real property.” California law defines an

“action” as: “[a]n ordinary proceeding in a court of justice by

which one party prosecutes another for the declaration,

enforcement, or protection of a right [or] the redress or

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prevention of a wrong . . . .” Cal. Code Civ. P. § 22. 

CCP § 726(a), thus, forces a California real property secured

lender to seek recovery of a deficiency claim through one

judicial action and only after obtaining recovery from its real

property collateral in the judicial action. Metro. Life Ins. Co.

v. Sunnymead Shopping Ctr. Co. (In re Sunnymead Shopping Ctr.

Co.), 178 B.R. 809, 815 (9th Cir. BAP 1995). Almost always, the

trustor can require that the judicial action take the form of a

judicial foreclosure. See All. Mortg. Co. v. Rothwell, 10 Cal.

4th 1226, 1236 (1995).

I suggest that Rabobank’s recovery on its claim from

non-collateral estate assets pursuant to an order on its § 506(a)

motion would have constituted an action as contemplated by

CCP § 726(a); and loss of lien would have followed under

California law. See Shin v. Super. Ct., 26 Cal. App. 4th 542,

545-46 (1994) (creditor waived collateral where it obtained a

prejudgment attachment against non-collateral located in Korea

from a Korean court); Sec. Pac. Nat'l Bank v. Wozab, 51 Cal. 3d

991 (1990) (creditor waived collateral after it exercised its

banker’s right of offset and recovered on non-collateral); see

also Disalvo v. Disalvo (In re Disalvo), 221 B.R. 769, 774-75

(9th Cir. BAP 1998).

Given my view that Dewsnup is inapposite, I cannot determine

whether the bankruptcy court’s refusal to conduct a § 506(a)

valuation prior to abandonment constituted error. No one

disputes that this valuation would result in a determination that

Rabobank was entirely unsecured or, to place this determination

in the context of a California judicial foreclosure, that

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Rabobank was entitled to a deficiency judgment equal to 100% of

its claim. I acknowledge, however, that a bankruptcy court

applying California law either must or generally should refrain

from such a valuation determination and, instead, require a

judicial foreclosure.

And I also acknowledge that the Trustee was in a difficult

position; he was subject to criticism if he did not exercise his

probable right under California law, as successor to the debtors,

to the affirmative defense that Rabobank could recover against

non-collateral only through a judicial foreclosure. Indeed, the

Trustee was as even-handed as he could be.

In a narrow circumstance, California law does not allow a

trustor to require that the § 726(a) action be a judicial

foreclosure; in particular, where real property collateral had

value at the time of trust deed recordation, but becomes

valueless through no fault of the secured lender, a direct action

for collection of the deficiency is permitted without the useless

act of foreclosure. See 4 Miller & Starr, California Real

Estate, § 10:197 (3d ed. 2013) (citing Cohen v. Marshall,

197 Cal. 117, 123 (1925)). Here, the Trustee acknowledged the

possibility that Rabobank could establish that judicial

foreclosure was unnecessary.

The record is undeveloped in this respect, but I agree that

it is possible, if not probable, that this case is subject to

this exception; certainly, no one provided evidence definitively

to the contrary. If a judicial foreclosure is not required prior

to establishment of a deficiency under California law, then I see

no reason why the right to a deficiency could not be accomplished

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through a § 506(a) valuation and the bankruptcy claims process,

with the lien strip resulting as a matter of California law. 

I finally acknowledge, however, that Rabobank did not help

its cause. It made statements suggesting that it intended its

lien to ride through the bankruptcy notwithstanding recovery from

estate assets and failed to clearly acknowledge the implications

of California law. It also failed to appreciate the very limited

range of options available to the bankruptcy court. This was not

helpful.

At oral argument, the Trustee conceded that the outcome of

the bankruptcy court’s ruling in this case was “harsh” and

“unfair” and to this end stated that “it wouldn’t break my heart

if I lost [on appeal].” Oral Argument (May 14, 2015). Here,

Rabobank will recover zero from the estate where other unsecured

creditors filing timely claims get paid 100% and the late filed

claim of an insider is also paid meaningfully. Rabobank,

further, will be barred from any deficiency claim against debtors

as a result of the bankruptcy discharge; it merely retains a

worthless lien.

The bankruptcy court stated that “[t]here is no such

requirement in § 554(a) for it to be fair to any one particular

creditor.” Hr’g Tr. (Mar. 28, 2014) at 4:20-22. This is true as

far as it goes, but a decision can be so clearly unfair that this

broad statement must fail. This might be true where a

fundamental principle of bankruptcy law, the requirement that

similarly situated creditors be treated similarly, is violated. 

It certainly could be the case where a creditor entitled to a

lesser level of priority receives preferment.

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Balanced against this inequity are at least three

considerations. First, the Trustee’s objection was based, in

part, on his desire to close the case promptly. Second, Rabobank

retains another option — stay relief, judicial foreclosure, and a

request that the estate remain open. And, third, although there

is no dispute that the Pacific Grove Property is now valueless as

to Rabobank, it is unclear whether this was a result of a posttrust deed recordation loss of value; if not, then only judicial

foreclosure is an option. The bankruptcy court did not consider

these factors as a basis for its decision to immediately abandon;

but as to the first point I note that as a result of this appeal,

the estate remains open. Were I at liberty to do so, I would

consider a remand for additional findings regarding the

bankruptcy court’s decision to hear the abandonment motion first.

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