Court Opinion

ID: 4514614
Source: CourtListenerOpinion
Date Created: 2020-03-11 00:02:00.101192+00
Date Added: 2024-06-11T09:44:47.303220
License: Public Domain

FILED
                                                                            APR 9 2019
                           NOT FOR PUBLICATION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-17-1284-LBTa

ERLING S. CALKINS and ELAINE S.                      Bk. No. 3:13-bk-08354-DPC
CALKINS,

              Debtors.
ERLING S. CALKINS,

                    Appellant,

v.                                                   MEMORANDUM*

COCONINO COUNTY; COCONINO
COUNTY PUBLIC HEALTH SERVICES
DISTRICT,

                    Appellees.

                    Argued and Submitted on March 22, 2019
                             at Phoenix, Arizona

                                 Filed – April 9, 2019

                Appeal from the United States Bankruptcy Court

         *
        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.
                             for the District of Arizona

          Honorable Daniel P. Collins, Bankruptcy Judge, Presiding

Appearances:        Erling S. Calkins argued pro se; Brian Y. Furuya of the
                    Coconino County Attorney’s Office argued for Appellees.

Before: LAFFERTY, BRAND, and TAYLOR, Bankruptcy Judges.

                                 INTRODUCTION

      Chapter 111 debtor Erling S. Calkins2 appeals the bankruptcy court’s

order partially lifting the automatic stay and abstaining from adjudicating

the amount of restitution owed to Appellees for their costs of remediation

of zoning, building, and health code violations on Debtors’ real property.

The order provided that the bankruptcy court would abstain so that the

matter could be determined in ongoing state court litigation that had been

pending for several years, with the parties to return to the bankruptcy

court for a final adjudication of the allowed amount of Appellees’ claim.

      1
        Unless specified otherwise, all chapter and section references are to the
Bankruptcy Code, 11 U.S.C. §§ 101-1532, all “Rule” references are to the Federal Rules
of Bankruptcy Procedure, and all “Civil Rule” references are to the Federal Rules of
Civil Procedure.
      2
        Although the order on appeal affects both debtors, Mr. Calkins filed this appeal
in his name only.

                                            2
        Mr. Calkins does not assign error to the abstention portion of the

order on appeal. He argues, however, that the bankruptcy court erred in

including language in the order providing for a partial stay lift for the

parties to return to state court because that language was neither requested

nor discussed at the hearing.

        We AFFIRM.

                         FACTUAL BACKGROUND

        In 2012, Appellees Coconino County and Coconino County Public

Health Services District (collectively, the “County”) obtained a judgment

from the Coconino County Hearing Officer against Debtors. The Hearing

Officer found Debtors in violation of several county zoning ordinances on

their Flagstaff, Arizona, real property (the “Property”); the judgment

imposed a monetary penalty and ordered Debtors to remedy the violations.

The judgment also imposed daily noncompliance penalties if Debtors did

not meet certain deadlines. In March 2013, the County Board of Supervisors

affirmed the judgment and extended the time for compliance to April 13,

2013.

        In May 2013, Debtors filed the instant chapter 11 case. The County

filed an adversary proceeding in which, among other relief sought, it

requested the bankruptcy court to declare the noncompliance penalties

nondischargeable and the County’s enforcement actions to be excepted

from the automatic stay. Debtors filed a counterclaim for avoidance of liens

                                        3
recorded postpetition. That adversary proceeding has been stayed since

September 2014 by stipulation of the parties, initially so that they could

pursue settlement negotiations and, later, to permit resolution of a state

court appeal.

       In December 2013, the County filed an action in Coconino County

Superior Court (“State Court”) to pursue enforcement of the judgment.3

The State Court granted the County’s motion for injunctive relief, finding

that the Property was in violation of county zoning, building, and health

codes in a manner that endangered public health, safety, and welfare. The

State Court ordered Debtors to remediate those violations, including

removing “trash, filth, second-hand materials, debris, mobile home(s), and

       3
        The County did not obtain relief from stay before filing the December 2013 state
court action, apparently because it believed the action was an exercise of its police and
regulatory power excepted from the stay under § 362(b)(4). Debtors conceded as much
in their answer to the County’s amended complaint filed in the adversary proceeding.
In that answer, Debtors admitted the County’s new allegation that it had filed the State
Court enforcement action “pursuant to its police and regulatory powers.” Debtors
further stated, “Defendants reserve their right to argue that, although Plaintiff was
permitted to bring its state court action without seeking relief from the automatic stay
under 11 U.S.C. § 362(b)(4), Plaintiff is not permitted to take any collection action or
perfect any liens in property of the estate without first seeking relief from the automatic
stay.”

       In addition, as discussed below, the bankruptcy court later entered an order in
the main case stating that any postpetition orders entered in the December 2013 state
court action that related to “the protection of public safety and welfare or that effectuate
public policy and are not in the nature of creating a pecuniary interest assessed against
the debtor or property of the estate are not in violation of the stay.”

                                             4
unlicensed and inoperable vehicles from the property . . . [,]” and obtaining

permits and approvals from the County pertaining to the code violations

and permits to demolish certain structures on the Property. The State Court

also entered a judgment for $230,550 in accrued noncompliance penalties.

Debtors appealed the penalty portion of the State Court judgment to the

Arizona Court of Appeals.4

      In May 2014, the State Court found that Debtors had not met the

deadlines set in its prior order and entered an order authorizing the

County to perform the remediation without interference from Debtors.

      More than two years later, the County sought an order from the

bankruptcy court confirming that the automatic stay did not prohibit them

from performing the remediation on the Property because that conduct fell

within the “police and regulatory power” exception to the automatic stay.

The bankruptcy court granted the motion. In its order entered

September 19, 2016 (the “No Stay Order”), the court found that the County

was not barred by the automatic stay from “taking any and all action that

seeks to protect public safety and welfare or effectuates public policy as it

relates to the matters pending in [the state court].” The No Stay Order also

ordered that

      [P]ost petition Orders issued by Judge Moran [the judge

      4
       The Arizona Court of Appeals eventually remanded the matter to the State
Court because the order on appeal was interlocutory.

                                         5
      presiding over the 2013 state court action], to the extent that
      such Orders relate to the protection of public safety and welfare
      or that effectuate public policy and are not in the nature of
      creating a pecuniary interest assessed against the debtor or
      property of the estate, are not in violation of the automatic stay
      and Judge Moran may enforce or modify such Orders as
      deemed appropriate.

      . . . post petition Orders issued by Judge Moran, to the extent
      that such Orders relate to the County’s pecuniary interest in the
      debtors’ property by way of assessing a monetary fine, penalty,
      fee or sanction or creating a lien against property of the estate,
      and further to the extent that such Orders have yet to be
      determined to be a violation of the Automatic Stay by this
      Court, such Orders remain unenforceable against the Debtor or
      the estate until further Order of this Court.

Debtors did not appeal the No Stay Order.

      In January 2017, several months after the entry of the No Stay Order,

Mr. Calkins, acting pro se, filed a “Notice of False and Fraudlaunt [sic]

Superior Court Order,” alleging that the State Court’s May 2014 order

authorizing the County to perform the remediation, which had been

attached to the County’s motion to confirm the absence of a stay, was a

“false order” that did not reflect the “true wishes” of the State Court. He

asked the court to issue an order to show cause against the County as to

why it “should not be adjudicated guilty for the fraudulent conduct[.]” The

County moved to strike the “Notice” on grounds that Mr. Calkins was

represented by counsel and was not authorized to file papers pro se. The

                                      6
bankruptcy court agreed; it granted the motion to strike and denied

Mr. Calkins’ motion without prejudice to another such motion being filed

by counsel.5

      In the meantime, the County filed a proof of claim, asserting a

priority claim of $230,550 comprised of the penalties awarded by the State

Court. After the County had performed the remediation at the Property, it

amended its proof of claim to add restitution of $53,088, representing the

costs of the remediation. Although Debtors did not file a formal objection

to the claim, they informed the County that they objected. Therefore, the

County requested the bankruptcy court hold a hearing to “preliminarily

address the venue in which Debtors’ objections would be most

appropriately and expeditiously addressed.” Debtors did not file a

response, and the court set a hearing on the matter.

      At that hearing, counsel for the County explained that although the

County had amended its claim, the final amount of restitution had yet to be

finally adjudicated in the state court because of the No Stay Order, which

prohibited any action relating to the County’s pecuniary interest in

      5
        The bankruptcy court entered its written order disposing of both motions on
April 4, 2017, and a minute entry was filed April 28, 2017 vacating the hearing on the
subject motions. On June 2, 2017, Mr. Calkins filed a notice of appeal of the April 28
minute entry. That appeal (BAP No. AZ-17-1173-SBaF) was eventually dismissed
because the minute entry was not an appealable order. The Panel deemed the appeal
timely, “charitably” interpreting the appeal as from the court’s explanation at a May 19,
2017 status conference that the minute entry vacated only the hearing date and not the
April 4 order.

                                            7
property of the estate without a further order. Although Mr. Calkins was

represented by counsel, who was present, the bankruptcy court questioned

Mr. Calkins directly regarding whether he would be willing to have the

claim amount adjudicated in state court. Mr. Calkins responded that he

would be “happy to go back to state court and we’ll talk about the fines.”6

The court clarified that the stay would not be lifted as to the Property itself

or any encumbrance against the Property.

       The court requested the County’s counsel to prepare a form of order

and have Mr. Calkins and his counsel sign off on it. The County’s counsel

prepared a form of order that was approved with minor changes by

Debtors’ counsel, but Debtors would not authorize their counsel to sign it

on their behalf, as they insisted upon the inclusion of language that went

beyond the bankruptcy court’s ruling. Being unable to resolve the dispute,

the parties submitted it to the bankruptcy court, which entered the

County’s proposed order (“Abstention Order”). The Abstention Order

provided:

       ORDERED, partially lifting the automatic stay only to that

       6
        Mr. Calkins’ counsel stated at the hearing that he would likely file an objection
to the County's claim, to which the court suggested that he file a "one-liner that says the
Debtor objects to this claim and understands that it's going to be resolved, if at all, in
state court." On August 21, 2017, Debtors, through counsel, filed an objection to the
County's claim. The objection states: "[t]his claim is to be initially determined and
adjudicated in Coconino County Superior Court and/or in any appropriate appellate
Court. Once the claim, if any, is adjudicated and is final, the claim is to be re-filed in
these proceedings by the County, if it so elects."

                                             8
extent necessary to permit the Coconino County Superior Court
to consider, determine, and set the appropriate amount of
restitution payable to the County for its abatement of code
violations alleged to have existed on property of the
bankruptcy estate in the above-captioned matter, if any; and

FURTHER ORDERED, authorizing Debtors to pursue such
claims, counterclaims, appeals, and other remedies as they may
deem necessary with regard to the State Case on behalf of their
bankruptcy estate in Arizona State courts and/or in the U.S.
District Court; and

FURTHER ORDERED, barring the imposition of any liens or
other encumbrances as to any property of the bankruptcy
estate, pending further order of this Court; and

FURTHER ORDERED, confirming the continuance of the
automatic stay with regard to any and all collection(s) or
enforcement action on any monetary judgment with regard to
property of the bankruptcy estate, pending further order of this
Court; and

FURTHER ORDERED, that except as otherwise limited hereby,
this Bankruptcy Court shall abstain from the final
determination of the State Case, and does hereby authorize
entry of a final judgment by the Coconino County Superior
Court in the State Case, as that court may deem appropriate
under the applicable facts and law considered by it, and for any
Arizona State appellate court(s) to review and pass upon said
final judgment.

Mr. Calkins, acting pro se, timely appealed the order.

After this appeal was filed, the State Court held a trial to establish the

                                 9
restitution amount. On October 27, 2017, the State Court entered a final

judgment in favor of the County in the amount of $283,811.19 plus interest.7

                                JURISDICTION

      The bankruptcy court had jurisdiction pursuant to 28 U.S.C. §§ 1334

and 157(b)(2)(A) and (G). We have jurisdiction under 28 U.S.C. § 158.

                                      ISSUE

      Did the bankruptcy court abuse its discretion in lifting the automatic

stay to permit the state court to litigate the amount of the County’s claim?

                           STANDARD OF REVIEW

      An order lifting the automatic stay is reviewed for abuse of

discretion. Edwards v. Wells Fargo Bank, N.A. (In re Edwards), 454 B.R. 100,

104 (9th Cir. BAP 2011). A bankruptcy court abuses its discretion if it

applies the wrong legal standard, misapplies the correct legal standard, or

if its factual findings are illogical, implausible, or without support in

inferences that may be drawn from the facts in the record. TrafficSchool.com,

Inc. v. Edriver Inc., 653 F.3d 820, 832 (9th Cir. 2011) (citing United States v.

Hinkson, 585 F.3d 1247, 1262 (9th Cir. 2009) (en banc)).

                                  DISCUSSION

      Mr. Calkins’ arguments on appeal are difficult to follow, but he

appears fundamentally to misapprehend the scope of relief granted by the

      7
       Debtors appealed the final judgment to the Arizona Court of Appeals, which
affirmed the judgment on March 7, 2019.

                                         10
Abstention Order. He has not assigned error to the bankruptcy court’s

decision to abstain from determining the amount of restitution to be

awarded to the County. In fact, in his reply brief, Mr. Calkins explicitly

states that the bankruptcy court correctly exercised its discretion to abstain.

      His objection is to the language in the order permitting the partial

lifting of the automatic stay for the state court to adjudicate the restitution

amount. He complains that the County did not request that the stay be

lifted nor did the bankruptcy court state at the hearing that it intended to

lift the stay. While that may be true, stay relief was explicitly limited to the

adjudication of the restitution amount and was necessary to signal the State

Court that it would not be violating the stay in making that determination,

particularly in light of language in the No Stay Order that orders of the

state court relating to the County’s pecuniary interest in the Property were

stayed pending further order of the bankruptcy court.

      In other words, for the Abstention Order to be fully effective, a

partial stay lift–or a comfort order to that effect–was implicitly necessary.

See Piombo Corp. v. Castlerock Props. (In re Castlerock Props.), 781 F.2d 159, 163

(9th Cir. 1986) (no abuse of discretion where district court lifted stay to

permit state court trial to proceed); see also Christensen v. Tucson Estates, Inc.

(In re Tucson Estates, Inc., 912 F.2d 1162, 1166 (9th Cir. 1990) (bankruptcy

court’s abstention to permit pending state court litigation to continue may

constitute cause to lift the stay); and Swift v. Bellucci (In re Bellucci), 119 B.R.

                                         11
763, 778-79 (Bankr. E.D. Cal. 1990) (bankruptcy court may sua sponte lift

stay to permit a state court appeal to proceed). The fact that relief from stay

was not explicitly discussed at the hearing did not prejudice Mr. Calkins,

who stated that he had no objection to the State Court adjudicating the

restitution amount.

      Mr. Calkins seems to conflate the Abstention Order with the No Stay

Order or with other rulings of the bankruptcy court that were not

appealed. He notes–correctly–that the Abstention Order did not authorize

the County to demolish his residence or cure code violations. He quotes the

language of the No Stay Order but seems to construe it as requiring the

County to return to the bankruptcy court to obtain further authorization to

perform remediation. He alleges that counsel for the County “was warned

to come back to the bankruptcy court before any remediation activity takes

place against the Debtors dealing with the destruction of the residence and

zoning issues on the property.” He also alleges that the County “falsified”

the Abstention Order to the State Court judge. But the record does not

support these arguments or allegations.

      The County performed its remediation pursuant to the No Stay

Order, not the Abstention Order. The County sought the No Stay Order

explicitly to confirm that the remediation fell within the “police and

regulatory power” exception to the automatic stay, § 362(b)(4). At the

hearing on the County’s motion to confirm the absence of the stay, Debtors’

                                      12
counsel appeared and agreed that the stay did not apply to the

remediation. He asked the court to include language in its order making it

clear that the stay still applied to enforcement of money judgments and

foreclosure as to property of the estate; the final order entered by the

bankruptcy court implicitly so provided. Debtors did not appeal the No

Stay Order, and the County proceeded with its remediation in reliance

upon that order.

      Thus, by the time the County sought the order on appeal, it had

already completed the remediation and was merely seeking further

authority to have the State Court adjudicate the final amount of the

County’s claim. The Abstention Order did not authorize remediation

because remediation had already been authorized and completed pursuant

to the No Stay Order.

      Mr. Calkins also construes the Abstention Order as improperly

adjudicating the issues in the stayed adversary proceeding. This argument

echoes a concern raised by Debtors’ counsel at the hearing on the No Stay

Order, in which he argued that the relief sought by the County would

essentially grant summary judgment on issues pending in the adversary

proceeding, e.g., whether the postpetition recording of judgment liens on

Debtors’ real property violated the stay. But neither the No Stay Order nor

the Abstention Order purported to resolve that issue.

      In any event, reversal of the Abstention Order would not provide the

                                      13
relief Mr. Calkins seeks. In his opening brief, he asks the Panel to:

(I) combine this appeal with BAP appeal number AZ-17-1173; and (ii) to

“hear the False and Fraudulent Superior Court order[,] Request for Show

Cause, and proposed Orders.” He asks the Panel to adjudicate the merits of

“these cases” or to transfer the matters to district court if appropriate. But

we are without jurisdiction to take any of these actions. BAP appeal

number AZ-17-1137 has been dismissed, and Debtors have not timely

appealed any other relevant bankruptcy court orders.

                                   CONCLUSION

      Because Mr. Calkins has not shown that the bankruptcy court abused

its discretion in lifting the automatic stay for the limited purpose of

permitting the State Court to adjudicate the County’s claim, we AFFIRM.8

      8
        The County argues that this appeal is constitutionally and equitably moot
because the State Court has already adjudicated the final amount of the penalties. We
disagree. We could grant effective relief, as reversal of the Abstention Order would
result in the final judgment entered by the State Court being void. Although this is not
the relief Mr. Calkins seeks, effective relief is at least theoretically possible.

                                           14