Court Opinion

ID: 4089532
Source: CourtListenerOpinion
Date Created: 2016-10-14 00:01:38.015202+00
Date Added: 2024-06-11T09:19:25.359411
License: Public Domain

FILED
                                                              OCT 12 2016
 1                         NOT FOR PUBLICATION
                                                          SUSAN M. SPRAUL, CLERK
 2                                                          U.S. BKCY. APP. PANEL
                                                            OF THE NINTH CIRCUIT
 3                  UNITED STATES BANKRUPTCY APPELLATE PANEL
 4                            OF THE NINTH CIRCUIT
 5   In re:                        )        BAP No. AZ-16-1050-JuFL
                                   )
 6   PETER F. BRONSON and          )        Bk. No. 02:08-bk-00777-GBN
     SHERRI L. BRONSON,            )
 7                                 )        Adv. No. 2:09-ap-01312-GBN
                    Debtors.       )
 8   ______________________________)
     PETER F. BRONSON; SHERRI L.   )
 9   BRONSON,                      )
                                   )
10                  Appellants,    )
                                   )
11   v.                            )        M E M O R A N D U M*
                                   )
12   THOMAS M. THOMPSON,           )
                                   )
13                  Appellee.      )
     ______________________________)
14
                        Submitted Without Oral Argument
15                          on September 23, 2016**
16                          Filed - October 12, 2016
17             Appeal from the United States Bankruptcy Court
                         for the District of Arizona
18
      Honorable George B. Nielsen, Jr., Bankruptcy Judge, Presiding
19                      _________________________
20   Appearances:     Appellants Peter F. Bronson and Sherri L. Bronson
                      on brief pro se; Jimmie D. Smith on brief for
21                    appellee Thomas M. Thompson.
                           _________________________
22
     Before:   JURY, FARIS, and LAFFERTY, Bankruptcy Judges.
23
24       *
          This disposition is not appropriate for publication.
   Although it may be cited for whatever persuasive value it may
25 have (see Fed. R. App. P. 32.1), it has no precedential value.
26 See 9th Cir. BAP Rule 8024-1.
         **
27        By order entered on August 8, 2016, a motions panel
   determined this appeal suitable for submission on the brief and
28 record without oral argument.

                                      -1-
 1           Peter F. Bronson and Sherri L. Bronson (collectively,
 2   Debtors) appeal pro se from the bankruptcy court’s order
 3   dismissing their state law claim in this adversary proceeding
 4   and ordering the adversary case closed.1
 5           Appellee, Thomas M. Thompson (TMT), commenced this
 6   adversary proceeding seeking a deficiency judgment against
 7   Debtors after conducting a foreclosure of commercial property
 8   due to Debtors’ default on the underlying loan.     Although the
 9   bankruptcy court entered a judgment in 2011 in favor of TMT
10   consisting of attorney’s fees and a deficiency, upon
11   reconsideration it determined that the judgment pertaining to
12   the deficiency was entered prematurely and left the deficiency
13   issue to be resolved by future litigation.     In their motion for
14   reconsideration of the amount of the deficiency, Debtors
15   asserted a state law claim against TMT arising out of the
16   deficiency litigation.
17           After lengthy procedural delays caused by conversion of the
18   original chapter 112 proceeding to chapter 7 and several
19   intervening appeals by Debtors, Debtors moved for summary
20   judgment on the fair market value of the property at the time of
21   foreclosure, which was relevant to the deficiency litigation.
22
         1
23        The order on appeal did more than dismiss the state law
   claim. Because we affirm the bankruptcy court’s dismissal of the
24 state law claim and closing of the adversary proceeding, it is
   not necessary to address any other issues.
25
        2
26        Unless otherwise indicated, all chapter and section
   references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532,
27 “Rule” references are to the Federal Rules of Bankruptcy
   Procedure, and “Civil Rule” references are the Federal Rules of
28 Civil Procedure.

                                      -2-
 1   The bankruptcy court denied the summary judgment because the
 2   value of the property presented a disputed issue of fact.
 3            It then addressed the pending adversary on broader terms,
 4   finding that the remaining issues arose under state law and
 5   would have no impact on the administration of Debtors’
 6   bankruptcy estate because (1) the chapter 7 trustee had
 7   abandoned Debtors’ state law claim against TMT and thus it was
 8   not an asset of their estate; (2) Debtors’ estate had been fully
 9   administered; and (3) Debtors had received their discharge.
10   Accordingly, the court sua sponte dismissed Debtors’ state law
11   claim for lack of jurisdiction and ordered the adversary
12   proceeding closed.
13            For the reasons explained below, we conclude the bankruptcy
14   court properly exercised its discretion in dismissing the
15   Debtors’ state law claim and closing the adversary.
16   Accordingly, we AFFIRM.
17                                  I.   FACTS3
18            TMT was a secured creditor of Debtors.   Debtors defaulted
19   on the loan they owed to TMT.       As a result, TMT commenced
20   foreclosure proceedings against the underlying commercial
21   property, an office building (Property), which secured the loan.
22
          3
23          This is the sixth pro se appeal Debtors have pursued
     before the Panel. The decision disposing of BAP No. AZ-12-1320,
24   Bronson v. Thompson, 2013 WL 2350791 (9th Cir. BAP May 29, 2013),
     contains a lengthy recitation of facts concerning Debtors’
25   disputes with TMT throughout this bankruptcy case. We recite
26   here only those facts relevant to our disposition in this appeal.
     To the extent necessary, we take judicial notice of the pleadings
27   filed and docketed in the underlying bankruptcy case and
     adversary proceeding. Atwood v. Chase Manhattan Mortg. Co.
28   (In re Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003).

                                         -3-
 1   In October 2007, TMT recorded a notice of trustee’s sale.
 2           On January 28, 2008, the day before the scheduled trustee’s
 3   sale, Debtors filed their chapter 11 bankruptcy petition.
 4   Thereafter, TMT obtained relief from stay and held a trustee’s
 5   sale, at which TMT was the successful bidder based on a credit
 6   bid of $200,000.
 7           In October 2009, TMT filed an adversary complaint against
 8   Debtors seeking a deficiency judgment.     TMT sought, among other
 9   things, attorney’s fees in the amount of $31,325.10 and a
10   deficiency in the amount of $18,574.15.
11           On October 28, 2011, the bankruptcy court entered a final
12   judgment in favor of TMT, which overruled Debtors’ objections to
13   TMT’s attorney fee request in the amount of $31,325.10 and found
14   a deficiency in the amount of $18,574.15.       On November 14, 2011,
15   Debtors filed a Civil Rule 604 motion for relief from the
16   judgment as it pertained to the deficiency amount, as no
17   determination of the fair market value of the Property had been
18   made.     The bankruptcy court agreed that value had not been
19   determined and on January 19, 2012, vacated the paragraphs in
20   the judgment relating to the deficiency.
21           In their Civil Rule 60 motion and during subsequent
22   hearings, Debtors, relying on Arizona Revised Statute (A.R.S.)
23   § 33-814(A), asserted that the fair market value of the Property
24   on the foreclosure date exceeded the amount due on the secured
25   debt and thus they held a claim against TMT for the excess
26
27
28       4
             Rule 9024 incorporates Civil Rule 60.

                                      -4-
 1   value.5
 2           On April 17, 2012, the bankruptcy court entered an order
 3   converting Debtors’ case to chapter 7.     The case conversion led
 4   to a controversy regarding who had standing to prosecute the
 5   state law claim which Debtors argued gave them a right to
 6   payment from TMT.
 7           On June 26, 2012, the chapter 7 trustee (Trustee) filed a
 8   notice of abandonment of Debtors’ asserted claims of “unjust
 9   enrichment” or “unconscionability” in connection with the
10   foreclosure conducted by TMT.     Trustee also sought to abandon
11   Debtors’ asserted claim for professional negligence against the
12   attorneys involved in the stay relief obtained by TMT concerning
13   the Property.     The bankruptcy court approved the abandonment by
14   order entered on July 23, 2012.
15           Meanwhile, Debtors continued to file a number of pleadings
16   in the adversary proceeding.     In May 2013, the bankruptcy court
17   entered an order staying the proceeding, which prohibited
18   Debtors from filing any further pleadings unless authorized by
19   the court.
20           On March 28, 2014, Debtors received their discharge.
21           A few weeks later, Trustee filed his final report showing
22   that the estate was administratively insolvent.     Trustee was
23   discharged.     The underlying bankruptcy case remains open.
24           Debtors objected to Trustee’s final report on the ground,
25
26       5
          A.R.S. § 33-814(A) sets forth the procedure for
27 determining a deficiency claim. We do not address whether
   Debtors’ assertion has merit under the Arizona statute and case
28 law.

                                      -5-
 1   among others,6 that he had refused to participate in the
 2   litigation with TMT.     Trustee confirmed in a February 14, 2014
 3   email to Mr. Bronson that the bankruptcy estate had no interest
 4   in the outcome of this adversary proceeding, opining that there
 5   “were no estate assets at issue, so there is nothing to
 6   abandon.”     On March 21, 2014, Trustee responded to Debtors’
 7   objection to his final report:
 8           [T]he litigation was unnecessary and functionally
             irrelevant since there are and will never be any funds
 9           to pay on any unsecured deficiency claim.
             Consequently, the [T]rustee is unwilling to
10           participate in that litigation. If Mr. Bronson wishes
             to litigate it for whatever joy it brings to him, he
11           is free to do so.
12           Finally, as for Mr. Bronson’s contention that money
             can be brought into the estate if it can be
13           established that certain real property was worth more
             than the bid at a foreclosure sale, there is no merit
14           to that allegation. The bid at a foreclosure sale has
             nothing to do with the fair market value of the
15           property. The bid is nothing more than what the buyer
             is willing to pay. A bidder at a foreclosure sale can
16           bid as little as $1.00 and, if no one bids more, the
             property is foreclosed for $1.00, regardless of what
17           the property is actually worth. Mr. Bronson’s
             assertion that proof of a greater value creates a
18           cause of action against the bidder is little more than
             wishful and fuzzy thinking.
19
20           At the hearing on Debtors’ objection to Trustee’s final
21   report, the bankruptcy court overruled Debtors’ objection,
22   finding that Trustee had abandoned the state law claim to
23   Debtors.
24           On September 17, 2015, Debtors filed a motion for summary
25   judgment (MSJ) in the adversary proceeding seeking to establish
26
27
         6
          Debtors had numerous other problems with the report which
28 are not relevant to this appeal.

                                      -6-
 1   the Property’s fair market value on the foreclosure date.
 2   Debtors asserted that they were entitled to such a determination
 3   under A.R.S. § 33-814(A) and argued that the fair market value
 4   was higher, such that there would be no deficiency judgment and
 5   TMT would owe money to their estate.    TMT filed a motion to
 6   strike the pleading on the grounds that the bankruptcy court had
 7   previously entered an order which stayed the adversary
 8   proceeding and prohibited Debtors from filing further pleadings
 9   unless authorized by the court.
10           On February 9, 2016, the bankruptcy court heard the matters
11   (Final Hearing).     The court denied Debtors’ MSJ and denied TMT’s
12   motion to strike.    In denying Debtors’ MSJ which sought to
13   establish the fair market value of the Property, the court found
14   there were factual issues in dispute, making summary judgment
15   inappropriate.     It then more broadly addressed Debtors’ claim,
16   observing for the first time that Debtors had not filed what
17   might have been a compulsory counterclaim.    The court further
18   recalled that Trustee refused to advance the “clearly state law
19   cause of action,” and thus it was effectively abandoned.7
20   Finally, the court noted that Debtors’ estate was fully
21   administered and they had received their discharge.    Under these
22   circumstances, the bankruptcy court decided that the deficiency
23   litigation had no impact on Debtors’ bankruptcy estate and thus
24   the court lacked jurisdiction over the matter.    Accordingly, the
25   bankruptcy court sua sponte dismissed the claim.    The court
26
         7
27        The bankruptcy court apparently had forgotten that it had
   entered a formal order of abandonment and that it had advised
28 Debtors they held the claim.

                                      -7-
 1   further held that even if there was a “shred” of jurisdiction,
 2   it would abstain from hearing the matter.
 3        On February 16, 2016, the bankruptcy court entered the
 4   order reflecting its decision and ordering the clerk to close
 5   the adversary proceeding.         Debtors filed a timely appeal.
 6                               II.    JURISDICTION
 7        The bankruptcy court had jurisdiction under 28 U.S.C.
 8   § 157(b)(2)(A).   We have jurisdiction under 28 U.S.C. § 158.
 9                                  III.    ISSUE
10        Whether the bankruptcy court abused its discretion by
11   dismissing Debtors’ state law claim and closing the adversary
12   proceeding.
13                         IV.    STANDARD OF REVIEW
14        We review a bankruptcy court’s decision to decline to
15   exercise jurisdiction over an adversary proceeding for an abuse
16   of discretion.    Carraher v. Morgan Elec., Inc. (In re Carraher),
17   971 F.2d 327, 328 (9th Cir. 1992).          A bankruptcy court abuses
18   its discretion if it applies the wrong legal standard,
19   misapplies the correct legal standard, or if its factual
20   findings are illogical, implausible, or without support in
21   inferences that may be drawn from the facts in the record.          See
22   TrafficSchool.com, Inc. v Edriver Inc., 653 F.3d 820, 832 (9th
23   Cir. 2011) (citing United States v. Hinkson, 585 F.3d 1247, 1262
24   (9th Cir. 2009) (en banc)).
25                                V.     DISCUSSION
26        As a threshold matter, we note that the only ruling
27   properly before this Panel is the bankruptcy court’s decision to
28   dismiss Debtors’ state law claim against TMT and close the

                                           -8-
 1   adversary proceeding.   Therefore, we do not consider Debtors’
 2   requests for additional relief set forth in their opening brief.
 3        The bankruptcy court’s jurisdiction is statutory.     Under
 4   28 U.S.C. § 1334(b), the district courts have original, but not
 5   exclusive, jurisdiction of all civil proceedings arising under
 6   title 11, or arising in or related to cases under title 11.
 7   The district courts may, in turn, refer “any or all proceedings
 8   arising under title 11 or arising in or related to a case under
 9   title 11 . . . to the bankruptcy judges for the district.”
10   28 U.S.C. § 157(a).   Congress empowered the bankruptcy courts to
11   enter final judgment in “core proceedings.”    Congress   provided
12   a non-exhaustive list of core proceedings and indicated a matter
13   may be a core proceeding even if state law may affect its
14   outcome.   See 28 U.S.C. § 157(b)(2), (3); see also Marshall v.
15   Stern (In re Marshall), 600 F.3d 1037, 1054 (9th Cir. 2010),
16   aff’d, 564 U.S. 462 (2011).
17        Among the list of core proceedings is the allowance or
18   disallowance of claims against the estate.    28 U.S.C.
19   § 157(b)(2)(B).   A counterclaim by the estate against a person
20   filing a claim is also core.   28 U.S.C. § 157(b)(2)(C).    When
21   Debtors were in chapter 11, TMT filed the adversary complaint
22   against them seeking to establish the amount of his deficiency
23   claim so that he could participate in distributions to unsecured
24   creditors, if any, under Debtors’ chapter 11 plan.    Therefore,
25   the bankruptcy court had core jurisdiction over the adversary
26
27
28

                                    -9-
 1   when it was filed.8
 2           Although Debtors never filed a formal counterclaim, they
 3   began asserting affirmative rights — i.e., the right to a money
 4   judgment against TMT — at status conferences and other adversary
 5   hearings while the case was still in chapter 11.     The bankruptcy
 6   court and TMT gave credence to those rights by raising the
 7   standing issue after the case was converted to chapter 7,
 8   asserting that the claim could only be prosecuted by Trustee.
 9   This assertion led to multiple attempts by both TMT and Debtors
10   to get Trustee involved and eventually led to the estate’s
11   formal abandonment of the state law claim to Debtors.     At every
12   status conference on the adversary, which were numerous because
13   of the delays caused by the standing issue and the multiple
14   appeals by Debtors, the arguments about Debtors’ rights in the
15   deficiency litigation were discussed on the record.     At no time
16   did TMT argue or the bankruptcy court rule that the claim
17   Debtors were asserting was barred as a compulsory counterclaim
18   or had somehow been waived.
19           After it became clear that the chapter 7 estate would make
20   no distribution to unsecured creditors, TMT’s enthusiasm for the
21   adversary faded.     Since any claim against Debtors would be
22   discharged and TMT would receive no money from the estate, TMT’s
23   need for a determination of the deficiency, if any, abated.
24
25       8
          The bankruptcy court recognized its core jurisdiction when
26 it granted Debtors’ reconsideration motion regarding the
   deficiency part of the final judgment on January 17, 2012. When
27 granting the motion, it remarked: “So I don’t think this
   litigation implicates non-core proceedings or implicates an
28 inability on my part to enter a final order.”

                                      -10-
 1   However, Debtors still maintained that they had a potential
 2   right to recovery from TMT if the fair market value of the
 3   Property exceeded the debt on the foreclosure date,9 and the
 4   bankruptcy court never ruled on the claim.10    As such, while the
 5   main case was pending, the bankruptcy court had jurisdiction not
 6   only over TMT’s deficiency claim, but also over Debtors’ state
 7   law claim.
 8           Full administration of the main case did not automatically
 9   terminate jurisdiction over the adversary.     Our circuit
10   authority instructs us that dismissal of an underlying
11   bankruptcy case does not automatically divest the bankruptcy
12   court of jurisdiction over a related adversary proceeding
13   seeking recovery on state law theories.    In re Carraher,
14   971 F.2d at 328.     We find no principled reason to distinguish a
15   fully administered case, where the estate no longer has any
16   interest in the outcome of the litigation, from a dismissed case
17   where the same circumstance is true.
18
         9
19         At the Final Hearing, the bankruptcy court articulated the
   claim the pro se Debtors had been asserting for years: “The
20 Bronsons are asserting against a former secured creditor a claim
   that the creditor owes them money because the value of property
21 established by a bid at a foreclosure sale was not - was
22 significantly below true market value. And as a result of that,
   the Bronsons were robbed of true market value.”
23
        10
            Because this issue was never joined, we can only
24 speculate whether Debtors as pro se litigants had properly
   asserted a constructive counterclaim sufficient to maintain their
25 right to payment in the litigation. Additionally, Debtors
26 submitted that Arizona case law accorded them a right to a
   judgment against the foreclosing creditor without the need to
27 file an affirmative pleading. The bankruptcy court never ruled
   on that issue, so it was not foreclosed as a possible outcome for
28 the adversary.

                                      -11-
 1        In Carraher, the Ninth Circuit recognized the bankruptcy
 2   court’s discretion to either retain jurisdiction or send the
 3   claims back to state court.   In deciding whether to retain
 4   jurisdiction, the bankruptcy court must consider economy,
 5   convenience, fairness, and comity.    Id.   “The [bankruptcy]
 6   court’s weighing of these factors is discretionary.”     Id.
 7   Although the bankruptcy court here did not formally use this
 8   discretionary test to dismiss the adversary proceeding and
 9   Debtor’s related state law claim, we may affirm on any ground
10   supported by the record.   See Helvering v. Gowran, 302 U.S. 238,
11   245 (1937) (“In the review of judicial proceedings the rule is
12   settled that, if the decision below is correct, it must be
13   affirmed, although the lower court relied upon a wrong ground or
14   gave a wrong reason.”); ASARCO, LLC v. Union Pac. R.R. Co.,
15   765 F.3d 999, 1004 (9th Cir. 2014).    We thus consider whether
16   the court abused its discretion in dismissing Debtors’ state law
17   claim and this adversary under a Carraher analysis.
18        Judicial Economy.   Although the adversary had been pending
19   for an extended period of time and Debtors’ claim had been
20   bandied about on the record and in pleadings for years, whether
21   state law actually supported such claim and whether Debtors were
22   barred from asserting it as a compulsory counterclaim had never
23   been briefed by the parties nor decided by the bankruptcy court.
24   Additionally, assuming there was a properly raised claim, the
25   bankruptcy court had just denied Debtors’ MSJ regarding the fair
26   market value of the Property, finding it a disputed issue of
27   fact.   Consequently, no briefing had occurred nor court time
28   expended on the critical issues in the bankruptcy court; a state

                                    -12-
 1   court could just as efficiently decide those issues.
 2   Accordingly, the record amply supports dismissal under this
 3   factor.
 4        Convenience.    There is no indication in the record that a
 5   proceeding in state court would be inconvenient for either
 6   party.    This proceeding was in Phoenix, and TMT’s counsel was
 7   already appearing from a distance to assert his client’s rights.
 8   A state court in Phoenix would not be any less inconvenient than
 9   the bankruptcy court.    At worst, convenience is a neutral
10   factor.
11        Fairness.    Nothing in the record shows it would be unfair
12   to send the claim to state court.
13        Comity.    This factor most overwhelmingly favors dismissal.
14   As the bankruptcy court noted, the claim was based entirely on
15   state law:    “This is all based on state law procedures.    It’s
16   all based on state law statutes.”      Not only was the remaining
17   claim one arising under a particular state statute, but also the
18   bankruptcy estate no longer had any interest in the outcome.        As
19   the bankruptcy court stated at the final hearing:
20        It’s clearly a state law cause of action, which has
          been refused to be advanced by a bankruptcy trustee
21        who has abandoned this cause of action. The Chapter 7
          case has been closed, so the impact of this litigation
22        has no impact whatsoever on this bankruptcy case.
23        The bankruptcy court properly found no reason to keep the
24   litigation in a closed estate and articulated substantial
25   reasons why state court was the appropriate forum for any
26   continued litigation.    Although its articulated reasons to
27
28

                                     -13-
 1   abstain are ineffective in the Ninth Circuit,11 its stated
 2   rationale - “I’m going to abstain from hearing this matter.
 3   Because all this is a state law case, and I’ve got bankruptcy
 4   issues to hear, and we have an excellent state court judiciary
 5   as well” - fits a comity ruling perfectly.
 6        In sum, we hold that the bankruptcy court did not abuse its
 7   discretion in dismissing Debtor’s state law claim and closing
 8   the adversary.
 9                              VI.   CONCLUSION
10            For the reasons stated, we AFFIRM.
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25       11
          Ninth Circuit case law instructs that abstention can
26 exist only where there is a parallel proceeding in state court.
   Lazar v. California (In re Lazar), 237 F.3d 967 (9th Cir. 2001)
27 (citing Sec. Farms v. Int’l Brotherhood of Teamsters, 124 F.3d
   999 (9th Cir. 1997)). Since no state proceeding was pending,
28 abstention could not be grounds for dismissal here.

                                      -14-