Court Opinion

ID: 2779688
Source: CourtListenerOpinion
Date Created: 2015-02-17 18:01:05.643866+00
Date Added: 2024-06-11T10:55:51.973046
License: Public Domain

FOR PUBLICATION

   UNITED STATES COURT OF APPEALS
        FOR THE NINTH CIRCUIT

IN RE CAROLYN L. DAVIS,                    No. 12-60069
                             Debtor.
                                             BAP No.
                                             11-1692
CAROLYN L. DAVIS,
                          Appellant,
                                            OPINION
                 v.

U.S. BANK, N.A.; ONEWEST BANK;
and ELIZABETH F. ROJAS,
                        Appellees.

              Appeal from the Ninth Circuit
               Bankruptcy Appellate Panel
Kirscher, Markell, and Dunn, Bankruptcy Judges, Presiding

                Argued and Submitted
        December 12, 2014—Pasadena, California

                 Filed February 17, 2015

       Before: Susan P. Graber, Ronald M. Gould,
       and Consuelo M. Callahan, Circuit Judges.

                Opinion by Judge Graber
2                   IN RE CAROLYN L. DAVIS

                           SUMMARY*

                            Bankruptcy

    On appeal from a decision of the Bankruptcy Appellate
Panel, the panel affirmed the bankruptcy court’s dismissal of
a petition under chapter 12 of the Bankruptcy Code.

    The panel held that the appellant was ineligible to be a
chapter 12 debtor because her “aggregate debts” exceeded
the statutory limitation of $3,792,650. The panel held that
appellant’s “aggregate debts” included unsecured portions
of creditors’ claims, even though those liabilities had been
discharged in an earlier chapter 7 proceeding, because a
creditor’s claim remains a “debt” so long as it is enforceable
against either the debtor or the debtor’s property.

                            COUNSEL

Richard L. Antognini (argued), Law Offices of Richard L.
Antognini, Lincoln, California, for Appellant.

Richard W. Esterkin (argued), Morgan, Lewis & Bockius
LLP, Los Angeles, California; and Joshua A. del Castillo
(argued) and David R. Zaro, Allen Matkins Leck Gamble
Mallory & Natsis LLP, Los Angeles, California, for
Appellees.

  *
    This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
                  IN RE CAROLYN L. DAVIS                      3

                          OPINION

GRABER, Circuit Judge:

    Debtor Carolyn L. Davis appeals from a decision of the
Bankruptcy Appellate Panel (“BAP”) affirming an order of
the bankruptcy court that dismissed her voluntary petition
under chapter 12 of the Bankruptcy Code. The bankruptcy
court dismissed Davis’ petition because her “aggregate debts”
exceeded $3,792,650, the statutory limitation for chapter 12
eligibility in effect at the time that Davis filed her petition.
See 11 U.S.C. § 101(18)(A) (2010). The BAP affirmed,
concluding that Davis’ “aggregate debts” included her
liabilities for the unsecured portions of her creditors’ claims,
even though those liabilities had been discharged in an earlier
chapter 7 proceeding. Davis v. Bank of Am., N.A. (In re
Davis), No. CC-11-1692-MkDKi, 2012 WL 3205431 (B.A.P.
9th Cir. 2012) (unpublished). We agree and, therefore, affirm
the dismissal of Davis’ petition because she is statutorily
ineligible to be a chapter 12 debtor.

    Davis owns parcels of real property in California, three of
which are relevant to this appeal. According to the schedules
that she attached to her chapter 12 petition, Davis owns a
110-acre ranch in Paso Robles, a residence in Cayucos, and
a triplex in Paso Robles. Each of those properties is
encumbered by a deed of trust (and, with respect to the ranch
and the residence, an equity line of credit) in an amount
exceeding the property’s appraised value. Davis manages the
operations on her properties and, in 1997, undertook to
establish a vineyard on the ranch. In 2006, however, her
efforts failed, and she defaulted on each of the three loans.
4                 IN RE CAROLYN L. DAVIS

    In July 2010, Davis filed a voluntary petition under
chapter 7 of the Bankruptcy Code. Thereafter she received a
discharge, which released her from personal liability for the
unsecured claims associated with the properties. See
11 U.S.C. § 727(b). The “Explanation of Bankruptcy
Discharge” issued by the bankruptcy court “prohibits any
attempt [by a creditor] to collect from the debtor” any of the
discharged debts. But the creditors retained the “right to
enforce a valid lien, such as a mortgage or security interest,
against the debtor’s property after the bankruptcy.”

    In March 2011, Davis filed a second voluntary petition,
this time under chapter 12 of the Code, which contains
special provisions for family farmers whose “aggregate
debts” do not exceed a statutory dollar amount. See
11 U.S.C. §§ 101(18)(A), 109(f). At the time of the second
petition, the statutory limit was $3,792,650, and the appraised
value of Davis’ properties totaled about $1.6 million, but the
amount of the liens encumbering the properties totaled about
$4.1 million. Thus, on the schedules that she attached to her
petition, Davis listed debts of $4.1 million; of that amount,
$2.5 million was unsecured.

    The bankruptcy court dismissed Davis’ petition on the
ground that she had “aggregate debts” of $4.1 million,
exceeding the statutory limitation for chapter 12 eligibility.
Davis appealed to the BAP, arguing that the unsecured
portion of each of her secured creditor’s claims should not be
included in her “aggregate debts” and, therefore, should not
bar chapter 12 eligibility, because her personal liability for
those claims had been discharged in her earlier chapter 7
case. According to Davis, because the secured portions of her
creditors’ claims were limited to the value of the secured
collateral, the value of her “aggregate debts” fell well below
                     IN RE CAROLYN L. DAVIS                              5

the statutory limitation for chapter 12 eligibility. The BAP
affirmed.      Applying our decision in Quintana v.
Commissioner (In re Quintana) (“Quintana II”), 915 F.2d
513 (9th Cir. 1990), the BAP concluded that “obligations
enforceable against the debtor’s property but for which the
debtor has no personal liability are nonetheless ‘claims’ and
‘debts’ within the meaning of the Bankruptcy Code.” In re
Davis, 2012 WL 3205431, at *5.

    Davis timely appeals. We review de novo the BAP’s
decision and “apply the same standard of review that the BAP
applied to the bankruptcy court’s ruling.” AmeriCredit Fin.
Servs., Inc. v. Penrod (In re Penrod), 611 F.3d 1158, 1160
(9th Cir. 2010) (internal quotation marks omitted).

    Under 11 U.S.C. § 109(f), “[o]nly a family farmer . . .
with regular annual income may be a debtor under chapter
12.” Even assuming that Davis, by operating her vineyard,
qualified as a “farmer” who had “regular annual income,”
§ 101(18)(A) further limits her eligibility to be a chapter 12
debtor by mandating that her aggregate debts not exceed
$3,792,650 and that those debts arise mostly out of the
farming operation. 11 U.S.C. § 101(18)(A) (2010) (emphasis
added).1 Our cases have not yet addressed the precise
question presented here: whether the term “aggregate debts”
in § 101(18)(A) includes the unsecured portion of a creditor’s

  1
     The version of § 101(18)(A) currently in effect limits chapter 12
eligibility to individuals with aggregate debts not exceeding $4,031,575.
The statutory limitation changes periodically pursuant to 11 U.S.C.
§ 104(a); the current limitation took effect in April 2013. See Revision of
Certain Dollar Amounts in the Bankruptcy Code, 78 Fed. Reg. 12,089-01,
12,090 (Feb. 12, 2013).
6                 IN RE CAROLYN L. DAVIS

claim from which the debtor has been discharged in an earlier
chapter 7 bankruptcy proceeding.

    To answer that question, we first turn to the text of the
Bankruptcy Code. Fireman’s Fund Ins. Co. v. Plant
Insulation Co. (In re Plant Insulation Co.), 734 F.3d 900, 910
(9th Cir. 2013), cert. denied, 134 S. Ct. 1901 (2014). As
noted, at the time Davis filed her chapter 12 petition the Code
limited chapter 12 eligibility to family farmers “whose
aggregate debts do not exceed $3,792,650.” 11 U.S.C.
§ 101(18)(A) (2010). A “debt” is “liability on a claim.”
11 U.S.C. § 101(12). The term “claim” means—

           (A) right to payment, whether or not such
       right is reduced to judgment, liquidated,
       unliquidated, fixed, contingent, matured,
       unmatured, disputed, undisputed, legal,
       equitable, secured, or unsecured; or

           (B) right to an equitable remedy for
       breach of performance if such breach gives
       rise to a right of payment, whether or not such
       right to an equitable remedy is reduced to
       judgment, fixed, contingent, matured,
       unmatured, disputed, undisputed, secured, or
       unsecured.

11 U.S.C. § 101(5). “The plain meaning of a ‘right to
payment’ is nothing more nor less than an enforceable
obligation, regardless of the objectives [sought] in imposing
the obligation.” Davenport, 495 U.S. at 559. In light of those
definitions, the Supreme Court has noted that “the meanings
of ‘debt’ and ‘claim’ [were intended by Congress to] be
coextensive.” Pa. Dep’t of Pub. Welfare v. Davenport,
                  IN RE CAROLYN L. DAVIS                     7

495 U.S. 552, 558 (1990) (citing 11 U.S.C. § 101(12); H.R.
Rep. No. 95-595, at 310 (1977); S. Rep. No. 95-989, at 23
(1978)). The Code does not define the term “aggregate.”

    In Johnson v. Home State Bank, 501 U.S. 78 (1991), the
Supreme Court considered the related question of whether a
debtor must include a mortgage lien in a chapter 13
reorganization plan after the obligation secured by the
mortgage had been discharged in an earlier chapter 7
proceeding. Relying on the text and legislative history of the
Code, the Court characterized the definition of the word
“claim” in § 101(5) as “the broadest available definition.” Id.
at 83 (citing Davenport, 495 U.S. at 558, 563–64); see also
Davenport, 495 U.S. at 558 (noting the “expansive language”
that Congress used in the definition of the word “claim”);
H.R. Rep. No. 95-595, at 309 (describing the definition of
“claim” as the “broadest possible” and noting: “By this
broadest possible definition, and by the use of the term
throughout title 11, . . . the bill contemplates that all legal
obligations of the debtor, no matter how remote or
contingent, will be able to be dealt with in the bankruptcy
case. It permits the broadest possible relief in the bankruptcy
court.”). Applying Davenport, the Court had “no trouble
concluding that a mortgage interest that survives the
discharge of a debtor’s personal liability is a ‘claim’ within
the terms of § 101(5).” Johnson, 501 U.S. at 84. According
to the Court, a “claim” can be an enforceable obligation
against either the debtor or the debtor’s property:

       Even after the debtor’s personal obligations
       have been extinguished, the mortgage holder
       still retains a “right to payment” in the form of
       its right to the proceeds from the sale of the
       debtor’s property.           Alternatively, the
8                 IN RE CAROLYN L. DAVIS

       creditor’s surviving right to foreclose on the
       mortgage can be viewed as a “right to an
       equitable remedy” for the debtor’s default on
       the underlying obligation. Either way, there
       can be no doubt that the surviving mortgage
       interest corresponds to an “enforceable
       obligation” of the debtor.

Id.

    Johnson and Davenport teach that the meaning of “debt”
is coextensive with the meaning of “claim” and, in turn, that
“claim” is broadly defined to include any right to payment or
any right to an equitable remedy giving rise to a right of
payment. A creditor retains a right to payment, enforceable
in rem, on the unsecured portion of a loan for which in
personam liability may have been discharged. We therefore
agree with the BAP that Davis’ “aggregate debts” include the
unsecured portions of the undersecured mortgage loans that
remain enforceable against Davis’ property, even though the
loans are not enforceable against Davis personally.

    Our own precedent likewise supports that reading of the
Bankruptcy Code. In Quintana v. Commissioner (In re
Quintana) (“Quintana I”), 107 B.R. 234, 235–36 (B.A.P. 9th
Cir. 1989), aff’d, Quintana II, 915 F.2d 513, the debtors had
borrowed $1 million, which was secured by real property
valued at $600,000. The debtors defaulted on the loan, so the
creditor brought an action in Idaho state court for a decree of
foreclosure and an order of sale. Id. at 235. In that action,
the creditor waived its right to seek a post-sale deficiency
judgment. Id. at 236. The state court entered summary
judgment in favor of the creditor, and the debtors
subsequently filed a chapter 12 petition. Id.
                  IN RE CAROLYN L. DAVIS                       9

     The question for the BAP in Quintana I, then, was
whether the creditor’s decision to waive its right to seek a
deficiency judgment had the effect of limiting the value of the
debtors’ “aggregate debts” to the value of the secured
collateral. Id. The BAP held that it did not, reasoning that
the word “claim” should be construed broadly to include all
rights to payment, id. at 237, and that “[a]lthough, as a
practical matter, [the creditor] will only be able to collect the
value of the property, it has the right to payment of the entire
obligation if under some circumstance, the property is sold
for more than its present value,” id. at 239. We agreed,
noting further that, “[u]pon the sale of the property, . . . [the
c]reditor will be entitled to all sale proceeds up to the
[amount of the loan], plus costs of foreclosure and sale; [the
c]reditor will not be limited to the $675,000 scheduled value
of the property. . . . Therefore, . . . the amount of the debt is
the full $1,527,861.89 of adjudged indebtedness.” Quintana
II, 915 F.2d at 516 (citations omitted).

     Our decision in Quintana II thus confirms the distinction,
established in Johnson and Davenport, between in rem and in
personam liability in this context, and likewise compels us to
conclude that a creditor’s claim remains a “debt” so long as
it is enforceable against either the debtor or the debtor’s
property. Accordingly, the debtor’s “aggregate debts”
include the amount of that claim, even after a prior discharge
from personal liability under chapter 7.

    Our decision in Scovis v. Henrichsen (In re Scovis),
249 F.3d 975 (9th Cir. 2001), is not to the contrary. In
Scovis, we resolved issues that we had avoided in Quintana
II—namely, whether and to what extent the schedules
attached to a bankruptcy petition should be used to determine
the debtor’s eligibility for relief. 249 F.3d at 981. The
10                IN RE CAROLYN L. DAVIS

debtors in Scovis had petitioned for chapter 13 bankruptcy.
We held, among other things, that a debtor’s eligibility under
chapter 13 “should normally be determined by the debtor’s
originally filed schedules, checking only to see if the
schedules were made in good faith.” Id. at 982.

    Davis relies on Scovis to argue that her originally filed
schedules demonstrate her eligibility under chapter 12. As
noted, those schedules list the total “amount of claim[s]
without deducting value of the collateral” as $4.1 million.
This amount is also referred to on her schedules as her
“liabilities.” The schedules go on to list the “unsecured
portion” of Davis’ total debts as $2.5 million. According to
Davis, those figures demonstrate that her secured debts total
only $1.6 million, well below the statutory limitation for
chapter 12 eligibility. That may be true but, as we have
explained, for the purposes of chapter 12 eligibility the
amount of a debtor’s “aggregate debts” includes the entire
amount of her creditors’ claims, whether secured or
unsecured, and whether enforceable against the debtor or only
against the debtor’s property.

    Davis’ schedules list claims (liabilities) totaling $4.1
million, which is above the cap for chapter 12 eligibility in
effect at the time that Davis filed her petition. See 11 U.S.C.
§ 101(18)(A) (2010). As in Scovis, we rely on the schedules.
They show that Davis is not eligible to be a chapter 12 debtor.
The bankruptcy court properly dismissed Davis’ petition.

     AFFIRMED.