Court Opinion

ID: 4676596
Source: CourtListenerOpinion
Date Created: 2021-04-12 22:00:59.200279+00
Date Added: 2024-06-11T08:03:33.444427
License: Public Domain

FILED
                                                                                 APR 12 2021
                          NOT FOR PUBLICATION                               SUSAN M. SPRAUL, CLERK
                                                                               U.S. BKCY. APP. PANEL
                                                                               OF THE NINTH CIRCUIT

           UNITED STATES BANKRUPTCY APPELLATE PANEL
                     OF THE NINTH CIRCUIT

In re:                                               BAP No. AZ-20-1171-TBK
MARK E. STUART,
             Debtor.                                 Bk. No. 2:19-bk-05481-BKM

MARK E. STUART,
              Appellant,
v.                                                   MEMORANDUM*
CITY OF SCOTTSDALE,
              Appellee.

               Appeal from the United States Bankruptcy Court
                         for the District of Arizona
               Brenda K. Martin, Bankruptcy Judge, Presiding

Before: TAYLOR, BRAND, and KLEIN, ** Bankruptcy Judges.

       *
         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.
       ** The Honorable Christopher M. Klein, U.S. Bankruptcy Judge for the Eastern

District of California, sitting by designation.
                                I. INTRODUCTION

      Chapter 131 debtor Mark E. Stuart appeals pro se from the

bankruptcy court’s order overruling his objection to the City of Scottsdale’s

claim.2 He argues that the judgment is unsecured and uncollectible and,

thus, subject to disallowance under § 502(b). We disagree; this potentially

uncollectible judgment is not an unenforceable claim within the meaning of

that statute. He also raises a burden of proof argument, but the record

reflects that the bankruptcy court correctly allocated the burden of proof in

the claim objection context. We thus AFFIRM.

                                      II. FACTS 3

      Stuart, the City, and its officials have litigation history. Stuart

unsuccessfully pursued two lawsuits in Maricopa County Superior Court

against the City. And, as the City had given Stuart favorable offers of

settlement that he refused, it obtained a judgment in each of these lawsuits

for costs and damages pursuant to Ariz. R. Civ. P. 68. A 2015 judgment

awarded the City $30,115.44, plus interest at the rate of 4.25 percent per

annum until paid in full (“Judgment I”). Judgment I became final in 2018.

      1   Unless specified otherwise, all chapter and section references are to the
Bankruptcy Code, 11 U.S.C. §§ 101-1532, and all “Rule” references are to the Federal
Rules of Bankruptcy Procedure.
        2 While the claim objection proceedings solely involved Stuart and the City,

Stuart named several City officials as appellees. We grant appellees’ request for
dismissal of the City officials.
        3 We exercise our discretion to take judicial notice of documents electronically

filed in the bankruptcy court, where appropriate. See Atwood v. Chase Manhattan Mortg.
Co. (In re Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003).
                                            2
A 2018 judgment awarded the City $49,845.30, plus interest at the rate of

5.25 percent per annum until paid in full (“Judgment II” and collectively

with Judgment I the “Judgments”).

      Stuart’s appeal of Judgment II was pending when he filed his

chapter 13 bankruptcy case. In bankruptcy schedule E/F, he listed the City

as holding a disputed judgment claim of unknown amount. And he filed a

chapter 13 plan which did not provide for the City’s claim.

      In response, the City filed a proof of claim asserting an $88,326.69

claim secured by a lien on Stuart’s residence and objected to confirmation

of the plan as failing to provide for its claim.

      Stuart thereafter filed three amended chapter 13 plans; all generated

an objection by the City because none of them provided for its claim.

      In addition, Stuart objected to the City’s claim, as relevant to this

appeal, on three grounds. First, he argued that the City’s claim was

contingent on the outcome of his appeal of Judgment II. This objection

became moot during this appeal; the Arizona appellate court affirmed.

Second, he argued that the claim was not secured. And third, he argued

that because the Judgments were against him individually—rather than

jointly against him and his non-debtor spouse—Arizona law prohibited the

City from enforcing its claim against his community property. To Stuart,

this was a critical point. He alleged that his bankruptcy estate consisted

solely of community property and requested that the claim be disallowed

or amended to reflect that it is contingent, unsecured, and unenforceable.

                                        3
      The City opposed Stuart’s claim objection. It disputed his

characterization of its claim as uncollectible against community assets and

subject to disallowance. In its view, what Stuart truly sought was not

disallowance of its claim but a ruling precluding it from receiving plan

distributions.

      Eventually, the bankruptcy court sustained Stuart’s objection to the

City’s secured status and otherwise overruled his objection to the City’s

claim. As to Stuart’s objection that the claim was unenforceable against

community property of the estate, the bankruptcy court determined that

his argument impacted entitlement to plan distributions and not

allowability of the City’s claim.

      Stuart timely appealed.

                             III. JURISDICTION

      The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and

157(b)(2)(B). We have jurisdiction over the appeal under 28 U.S.C. § 158.

                                    IV. ISSUE

      Did the bankruptcy court err in overruling Stuart’s claim objection?

                        V. 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[.]”

Veal v. Am. Home Mortg. Servicing, Inc. (In re Veal), 450 B.R. 897, 918 (9th Cir.

BAP 2011). “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,

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564 (9th Cir. BAP 2012).

                                 VI. DISCUSSION

      Stuart asserts that the bankruptcy court erred in overruling in part

his objection to the City’s claim, arguing that: (1) the claim should be

disallowed because the Judgments are uncollectable from the bankruptcy

estate under Arizona law; (2) the bankruptcy court impermissibly shifted

the burden of proof on the appropriate source of payment for the claim

from the City to him when it deferred ruling on the issue until plan

confirmation; and (3) the claim should be disallowed because it is not

secured. We address his arguments in turn. 4

A. The enforceability of the City’s claim under Arizona law

      A duly executed proof of claim is prima facie evidence of the validity

and amount of a claim. Rule 3001(f). Under § 502(a), the claim is “deemed

allowed” in the absence of an objection. See Heath v. Am. Express Travel

Related Servs. Co. (In re Heath), 331 B.R. 424, 435 (9th Cir. BAP 2005). When

an objection is filed, the burden switches to the objecting party to present

evidence to overcome the prima facie case. Cal. State Bd. of Equalization v.

Off. Unsecured Creditors’ Comm. (In re Fid. Holding Co., Ltd.), 837 F.2d 696,

698 (5th Cir. 1988). However, the ultimate burden of persuasion is on the

claimant. Wright v. Holm (In re Holm), 931 F.2d 620, 623 (9th Cir. 1991).

      An objection may be filed on the basis that the claim falls into one of

      4
        On appeal, Stuart does not challenge the bankruptcy court’s denial of his
objection to the City’s claim as contingent on the outcome of his appeal of Judgment II.
                                            5
the exceptions for allowance under § 502(b). In re Heath, 331 B.R. at 435.

      In the bankruptcy court and on appeal, Stuart presented no evidence

to dispute the amount or validity of the City’s claim beyond reference to

the now resolved Judgment II appeal. Instead, he argues the claim must be

disallowed under § 502(b)(1) because: (1) Arizona law prohibits the City

from collecting on its Judgments from his community property; and (2) the

bankruptcy estate exclusively consists of community property. The City

contests both allegations. But even assuming the City is wrong, Stuart does

not dispute that the Judgments are against him personally and would be

enforceable in full against his separate property. For this reason, his

§ 502(b)(1) objection fails.

      Section 502(b)(1) provides that the bankruptcy court “shall allow” a

claim “except to the extent that such claim is unenforceable against the

debtor and property of the debtor, under . . . applicable law for a reason

other than because such claim is contingent or unmatured[.]” § 502(b)(1)

(emphasis added). As is the case here, when the language of a statute is

plain, courts must enforce the statute according to its terms unless doing so

would produce absurd results. Lamie v. U.S. Tr., 540 U.S. 526, 534 (2004).

Under a plain reading of § 502(b)(1), a bankruptcy court must allow a claim

unless it is unenforceable against both the debtor and the debtor’s property.

      Thus, § 502(b)(1) contemplates circumstances in which an allowable

“claim,” like an in rem claim based on a mortgage that passes through a

chapter 7 proceeding, consists of an obligation enforceable only against the

                                       6
debtor’s property. Likewise, as relevant herein, a creditor who has a claim

that can be enforced against the debtor, but arguably not against the

debtor’s existing property, may also have an allowable claim—albeit a

claim of limited utility in terms of entitlement to distributions from the

estate. See, e.g., Merlino v. Weinstein (In re Merlino), 62 B.R. 836 (Bankr. W.D.

Wash. 1986) (despite state community property laws providing that a claim

based on a separate judgment against the debtor was enforceable only

against the debtor’s separate property, the debtor’s present lack of such

property did not operate to disallow the claim under § 502(b)(1)). In fact,

not infrequently in chapter 7 cases, the appointed trustee will determine

that there are insufficient estate funds from which distributions to creditors

may be made. Similarly, in chapter 13 cases, some plans pay nothing to

unsecured creditors. Yet, in such cases, filed claims are not disallowed

under § 502(b)(1) on the basis that there is no property from which their

claims may be satisfied.

      Stuart resists this analysis. He urges us to instead interpret

“unenforceable against the debtor” in § 502(b)(1) to mean presently

uncollectable against the debtor. We decline to do so.

      The word “uncollectable” does not appear in the Merriam-Webster

definition for “unenforceable,” which is defined as “unable to be enforced.”

Unenforceable, Merriam-Webster Online Dictionary, https://www.merriam-

webster.com/dictionary/unenforceable (last visited Apr. 12, 2021). Neither

does it appear in the Black’s Law Dictionary definition for “unenforceable,”

                                        7
which is defined as “(Of a contract) valid but incapable of being enforced.”

Unenforceable, Black’s Law Dictionary (11th ed. 2019). Merriam-Webster in

turn defines “enforce” to mean “constrain” or “compel.” Enforce, Merriam-

Webster Online Dictionary, https://www.merriam-

webster.com/dictionary/enforce (last visited Apr. 12, 2021). Similarly,

Black’s Law Dictionary defines “enforce” to mean “to compel obedience

to.” Enforce, Black’s Law Dictionary (11th ed. 2019). While Stuart’s wife, her

separate property, and the Stuarts’ community property may not be

constrained or compelled to satisfy the Judgments, Stuart and his separate

property can be.

      During the period of enforceability of an Arizona judgment under

Ariz. Rev. Stat. Ann. § 12-1551(A) (2019) (West), 5 Stuart could be compelled

to satisfy the Judgments from his separate property, and a temporary lack

of assets subject to collection is merely a practical impediment to the

Judgments’ enforcement. The result is no different in a chapter 13 context.

If the estate includes any of Stuart’s separate property, such property is

available for the satisfaction of the Judgments.

      We note that adopting Stuart’s interpretation of the words

“unenforceable against the debtor” as meaning presently uncollectable

could lead to untenable results that further justify its rejection.

      5  “The party in whose favor a judgment is given, at any time within ten years
after entry of the judgment and within ten years after any renewal of the judgment
either by affidavit or by an action brought on it, may have a writ of execution or other
process issued for its enforcement.” Ariz. Rev. Stat. Ann. § 12-1551(A) (2019) (West).
                                            8
      First, the exact character of estate assets, particularly over the

multiple years of a chapter 13 case, is usually unclear at the time of a claim

objection. The schedules may be inaccurate, or the estate may obtain assets

in the future. Indeed, Stuart concedes this point; his fourth amended

chapter 13 plan provides that any separate property he obtains during the

life of the plan will be available for satisfaction of the City’s debt. Given the

uncertainty regarding the character of any chapter 13 estate’s current and,

in particular, future assets, it would be inappropriate to disallow claims

based on a temporary lack of a source of payment.

      And second, if the bankruptcy court entered an order disallowing the

City’s claim solely on the basis that there were presently no estate assets

against which the Judgments may be enforced and later closed the case

without granting Stuart a discharge, the order might confuse or complicate

the City’s enforcement of the Judgments outside of bankruptcy.

      Accordingly, we conclude that the estate’s alleged lack of assets

available to pay the Judgments does not require disallowance of the City’s

claim.

B. The bankruptcy court’s allocation of the burden of proof

      Stuart next argues that the bankruptcy court applied an improper

burden of proof. We disagree. The bankruptcy court correctly identified

and applied the burden of proof for claim objection proceedings and then

determined that the City met its burden of proof to show that it had an

allowable claim despite Stuart’s objections.

                                        9
       Stuart argues the bankruptcy court implicitly reallocated the burden

of proof from the City to him on the issue of the proper source of payment

for the City’s claim by deferring a ruling on the issue until plan

confirmation. But there was no reallocation of the burden of proof. The

bankruptcy court only determined that Stuart’s argument that the City’s

claim was allegedly unpayable from estate assets was irrelevant to claim

disallowance and overruled his objection on that basis.6

C. The unsecured status of the City’s claim

       Stuart’s final argument is that the bankruptcy court erred in

overruling his claim objection because the City’s claim is unsecured. It is

not clear why he appeals on this basis. The bankruptcy court ruled in his

favor on this issue, and the City did not file a cross-appeal. In any event,

the bankruptcy court’s determination that the claim is not secured by a lien

on Stuart’s residence does not necessitate claim disallowance. Stuart

advances no argument equating the failure of security to the elimination of

liability.

D. The City’s request for sanctions

       The City argues that this appeal is frivolous and requests that the

Panel enter sanctions against Stuart under Fed. R. App. P. 38 for filing the

       6
         Stuart seems to be seeking an advisory opinion from us regarding the
appropriate burden of proof on the issue of the proper source of payment for the City’s
claim in future litigation. But we are not in the business of giving advisory opinions on
issues that are not yet ripe and may never ripen into a controversy. We lack jurisdiction
to do so. United States v. Gila Valley Irrigation Dist., 31 F.3d 1428, 1436 (9th Cir. 1994).
                                             10
appeal. Sanctions for frivolous appeals are awarded only upon a separately

filed motion or after notice from the Panel and a reasonable opportunity to

respond. Rule 8020(a); Tanzi v. Comerica Bank-Cal. (In re Tanzi), 297 B.R. 607,

613 (9th Cir. BAP 2003). We, therefore, decline to consider the request.

                            VII. CONCLUSION

      For the reasons set forth above, we AFFIRM the bankruptcy court’s

order overruling Stuart’s claim objection.

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