Court Opinion

ID: 2682609
Source: CourtListenerOpinion
Date Created: 2014-07-11 01:00:41.965259+00
Date Added: 2024-06-11T13:12:51.386573
License: Public Domain

FILED
                                                            JUL 09 2014
 1                          NO FO PUBL A IO
                              T R     IC T N
                                                        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.   WW-13-1391-JuKuPa
                                   )
 6   GURPREET KAUR,                )         Bk. No.   12-16490-MLB
                                   )
 7                  Debtor.        )         Adv. No. 12-01872-MLB
     ______________________________)
 8                                 )
     GURPREET KAUR,                )
 9                                 )
                    Appellant,     )
10                                 )
     v.                            )         M E M O R A N D U M*
11                                 )
     PARDEEP RATHINAM; SHARMILA    )
12   RATHINAM; SATWANT SINGH;      )
     DHALIWAL REAL ESTATE LLC,     )
13                                 )
                    Appellees.     )
14   ______________________________)
15                       Submitted Without Oral Argument
                                on June 26, 2014**
16
                               Filed - July 9, 2014
17
                  Appeal from the United States Bankruptcy Court
18                    for the Western District of Washington
19            Honorable Marc L. Barreca, Bankruptcy Judge, Presiding
                             _________________________
20
     Appearances:      Masafumi Iwama, Esq., on brief for appellant
21                     Gurpreet Kaur; John H. O’Rourke, Esq.
                       on brief for appellees Pardeep and Sharmila
22                     Rathinam, Satwant Singh and Dhaliwal Real Estate
                       LLC.
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 8013-1.
          **
27          On May 15, 2014, this Panel entered an order determining
     that this appeal was suitable for submission without oral
28   argument.

                                       -1-
 1   Before:      JURY, KURTZ, and PAPPAS, Bankruptcy Judges.
 2            Chapter 111 debtor Gurpreet Kaur owned real property in
 3   Kent, Washington comprised of two tax parcels (Property).
 4   Debtor’s home was on one acre designated as Parcel A and the
 5   contiguous four acres were designated as Parcel B.      Debtor
 6   claimed a homestead exemption on Parcels A and B and filed an
 7   adversary proceeding2 seeking to avoid the judgment lien of
 8   Pardeep and Sharmila Rathinam (Rathinams), Satwant Singh
 9   (Satwant) and Dhaliwal Real Estate, LLC (Dhaliwal)
10   (collectively, Appellees) pursuant to § 522(f).      Debtor then
11   moved for summary judgment.      In response, Appellees argued,
12   among other things, that Parcel B was not reasonably necessary
13   for the use and occupancy of debtor’s homestead under John
14   Hancock Mut. Life Ins. Co. v. Wagner, 174 Wash. 185, 24 P.2d 420
15   (Wash. 1933).
16            Debtor later discovered that Appellees had not recorded
17   their judgment.      Therefore, under Washington law, no lien
18   attached to her Property.      Further, her personal liability on
19   the debt had been discharged in a previous chapter 7 case.
20   Debtor moved to dismiss the adversary proceeding, which the
21   bankruptcy court denied for reasons not apparent from the
22
          1
23          Unless otherwise indicated, all chapter and section
     references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532 and
24   Rule references are to the Federal Rules of Bankruptcy Procedure.
25        2
            Rule 4003(d) provides that a proceeding by the debtor to
26   avoid a lien under § 522(f) shall be by motion in accordance with
     Rule 9014. Appellees did not object to debtor proceeding by
27   adversary complaint rather than by motion. Regardless, no due
     process issues are triggered, since the adversary accords more
28   due process than a motion.

                                       -2-
 1   record.
 2            Thereafter, the court held a trial to determine whether
 3   debtor was entitled to claim Parcel B as part of her homestead
 4   exemption.      Without addressing the lien perfection issue, the
 5   bankruptcy court issued its findings of fact and conclusions of
 6   law, finding that debtor was entitled to claim Parcel A as
 7   exempt, but that Parcel B was not reasonably necessary for the
 8   use and enjoyment of her home as a dwelling under the holding in
 9   Hancock.      The court entered judgment in favor of debtor with
10   respect to Parcel A and in favor of Appellees with respect to
11   Parcel B.      This appeal followed.      For the reasons discussed
12   below, we VACATE the judgment of the bankruptcy court and REMAND
13   this matter with instructions that the bankruptcy court dismiss
14   this adversary proceeding.
15                                  I.    FACTS3
16   A.       The Purchase And Sale Agreement
17            In November 2006, Dhaliwal, through its managing member,
18   Satwant, offered to purchase the Property from the then-owner,
19   Harbhajan Singh (Harbhajan).        Harbhajan agreed to sell the
20   Property for $1,615,000 and, as part of the agreement, Dhaliwal
21   was required to pay a $200,000 earnest money deposit which would
22   be applied to the purchase price.          An addendum to the agreement
23   stated that the earnest money deposit would become nonrefundable
24   after a certain date.      According to the agreement, the closing
25
26        3
            We take judicial notice of various pleadings and documents
27   in this case and the adversary proceeding because the record on
     appeal is incomplete. See Atwood v. Chase Manhattan Mortg. Co.
28   (In re Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003).

                                         -3-
 1   would occur in August 2007 and was conditioned on two
 2   contingencies:   (1) the land had to be subdivisible and (2) the
 3   subdivision had to yield at least seventeen lots.
 4        Because Harbhajan could not speak English, Satwant helped
 5   prepare the subdivision plan and preliminary approval was
 6   granted by the City of Kent.   During the development process,
 7   the Rathinams became parties to the purchase and sale agreement
 8   through an assignment by Dhaliwal.    In connection with the
 9   purchase and sale, Appellees made a downpayment of $500,000,
10   $200,000 of which was the earnest money deposit.    It is unclear
11   from the record whether the Rathinams paid the entire amount.
12   Ultimately, the transaction did not close and none of the money
13   was refunded.
14   B.   The State Court Lawsuits And Transfer Of The Property
15        Appellees commenced a lawsuit against Harbhajan in the King
16   County Superior Court seeking the return of their $500,000
17   downpayment.    They obtained a judgment against him by default in
18   the amount of $501,735.
19        In late October 2008, debtor purchased the Property from
20   Harbhajan.   In connection with the purchase, debtor obtained a
21   loan from Provident Funding Associates, LP (Provident) in the
22   amount of $417,000 which is evidenced by a promissory note
23   secured by a first deed of trust against the Property (both
24   Parcels A and B).   Debtor has been living on the Property since
25   August 2004 with her extended family members, including
26   Harbhajan, who is debtor’s father.
27        After learning about the transfer of the Property,
28   Appellees commenced an action against Harbhajan, his wife, and

                                     -4-
 1   debtor in the King County Superior Court, seeking to avoid the
 2   alleged fraudulent transfer of the Property from Harbhajan to
 3   debtor and alleging that debtor had received $200,000 of the
 4   $500,000 downpayment (Case No. 09-2-15396-5KNT).    In April 2010,
 5   Appellees obtained a judgment by default against debtor in the
 6   amount of $200,000 and the superior court avoided the transfer
 7   of the Property (the April 2010 Judgment).
 8   C.   Debtor’s Chapter 7 And Chapter 13 Cases
 9        Shortly after, on September 21, 2010, debtor filed a
10   chapter 7 petition (Case No. 10-21208-MLB).    In Schedule A,
11   debtor valued the Property at $350,000 and identified it as her
12   residence.    Debtor listed the Rathinams as secured creditors
13   against the Property.    In Schedule C, she claimed the federal
14   homestead exemption.    Debtor obtained her discharge on
15   January 19, 2011.
16        Prior to her discharge, on January 9, 2011, debtor filed a
17   chapter 13 case, this time claiming state exemptions in
18   Schedule C.    That case was dismissed for failure to make plan
19   payments.
20        In January 2012, upon Appellees’ motion, the bankruptcy
21   court reopened debtor’s chapter 7 case so that they could file
22   an adversary proceeding seeking to revoke debtor’s discharge
23   under § 727(d)(1) and (2).    Upon debtor’s motion, the bankruptcy
24   court granted partial relief in her favor, dismissing the
25   § 727(d)(2) claim entirely and dismissing Satwant and Dhaliwal
26   as parties to the § 727(d)(1) claim.    After a trial on the
27   § 727(d)(1) claim, the bankruptcy court denied revocation and
28   upheld debtor’s discharge order in its findings of fact and

                                     -5-
 1   conclusions of law entered on August 7, 2012.     With her § 727
 2   discharge intact, debtor’s personal liability on the debt owed
 3   to Appellees was discharged.
 4   D.   Debtor’s Chapter 11 Case
 5        Meanwhile, Provident commenced foreclosure proceedings
 6   against the Property.    Debtor filed a chapter 11 case on
 7   June 21, 2012, to stop the proceedings.     In Schedule A, debtor
 8   valued the Property at $408,000.      She characterized Parcel B as
 9   wetlands having no value and she indicated the Property was
10   encumbered by approximately $501,000 of secured claims.      She
11   again listed the Rathinams as secured creditors against the
12   Property.    In Schedule C, she claimed the federal homestead
13   exemption.
14        On October 4, 2012, debtor filed an adversary proceeding
15   seeking to avoid Appellees’ judgment lien arising out of the
16   April 2010 Judgment.    Debtor maintained that the lien impaired
17   her homestead exemption within the meaning of § 522(f).
18        Debtor then filed a motion for summary judgment (MSJ) on
19   the lien avoidance issue, which the bankruptcy court denied on
20   February 4, 2013.    In opposition to the MSJ, Appellees argued
21   that Parcel B, which was vacant land, was not necessary for the
22   use and occupancy of debtor’s homestead under Hancock.
23        On January 15, 2013, debtor filed amended Schedules A and
24   C.   In Schedule A, she valued the Property at $600,000.     She
25   again characterized Parcel B as wetlands having no value and she
26   again indicated the Property was encumbered by approximately
27   $501,000 in secured claims.    In Amended Schedule C, she claimed
28   the state law homestead exemption.

                                     -6-
 1            Debtor later discovered that Appellees had never recorded
 2   the judgment at the King County Recorder’s Office.        On
 3   February 11, 2013, debtor moved to dismiss the adversary
 4   proceeding on the grounds that the judgment did not attach to
 5   her homestead under Wash. Rev. Code (RCW) 6.13.0904 and thus
 6   there was no controversy for the court to decide.        The
 7   bankruptcy court denied her motion by order entered on March 28,
 8   2013, for reasons not apparent from the record.5
 9            On May 6, 2013, the bankruptcy court held a trial to
10   determine the exact portion of debtor’s property covered by the
11   homestead exemption.      At the commencement of trial, the court
12   observed that it was the lien claimant’s burden to show that
13   they actually had a lien.      The court later stated:
14            I can’t read [RCW] 6.13.090 as anything other than
              saying, if you don’t record the judgment, you don’t
15            have a lien against real property, even if it’s in the
              county where the judgment was taken. That’s just how
16            [RCW] 6.13.090 works. That’s always been my
              understanding of it. I didn’t see any case law cited
17            to me that may be in the exception for that. I think
              the thing that is missing in the defendants’ analysis
18            on that is the discharge injunction stays from you now
              recording it. So if it wasn’t recorded and I do
19            determine that both parcels are homestead, then as I
20
          4
              RCW 6.13.090 states in relevant part:
21
22        A judgment against the owner of a homestead shall
          become a lien on the value of the homestead property in
23        excess of the homestead exemption from the time the
          judgment creditor records the judgment with the
24        recording officer of the county where the property is
          located. . . .”
25
          5
26          There is no transcript of the hearing on the motion to
     dismiss in the record or on the docket and the order denying
27   debtor’s motion does not contain findings of fact or conclusions
     of law. Therefore, we are unable to discern the precise basis
28   for the bankruptcy court’s decision to deny debtor’s motion.

                                       -7-
 1        see it, there’s just no lien there, and I could enter
          a judgment declaring that there is no lien against
 2        that property, and then your client’s precluded --
          because I already determined the debt’s dischargeable,
 3        you’d be precluded from then recording the judgment
          lien because of the discharge injunction.
 4
 5   Without further discussion or argument on the lien perfection
 6   issue, the matter proceeded to trial on whether Parcel B was
 7   included in debtor’s homestead.
 8        During the trial, debtor testified that she and her family
 9   utilized the entire property for their residence.    Her driveway
10   begins at the west boundary of Parcel B and ends at the
11   northeast corner of Parcel A.   The driveway is the only
12   practical means of access to her residence.   There are two
13   appurtenant buildings located on Parcel B, one of which is
14   served by an electric power line attached to the residence.
15   This structure is used as a storage shed.   The other structure
16   is a goat house where debtor keeps her two goats.    She keeps a
17   garden and maintains fruit trees on the portion of her property
18   designated as Parcel B.   Parcel B also includes a wetland where
19   debtor and her family pick berries and where her children often
20   play.   She parks her commercial vehicles on Parcel B, which
21   affords her additional recreational area for her family.
22        The bankruptcy court issued its ruling on June 6, 2013,
23   where it found in debtor’s favor as to Parcel A.    However,
24   relying on the Washington Supreme Court’s Hancock decision, the
25   court found that the homestead exemption did not cover Parcel B
26   because it was not reasonably necessary for debtor’s use and
27   enjoyment of her home as a dwelling.   The court found that
28   although debtor used Parcel B for storage, for gardens, to house

                                     -8-
 1   her two goats and as a recreation area for children and pets,
 2   those uses did not make Parcel B reasonably necessary for the
 3   use of the dwelling as her home.             The court further opined that
 4   debtor could relocate those activities to Parcel A because
 5   Parcel A was sufficient in size to accommodate those activities.
 6        On July 31, 2013, the bankruptcy court entered the judgment
 7   which states, among other things:            “Defendants are also granted
 8   judgment in their favor as to continued attachment of the stated
 9   judgment lien as to Parcel B because Plaintiff has no exemption
10   in Parcel B . . . .”    Debtor timely appealed from this portion
11   of the judgment.
12                                II.    JURISDICTION
13        The bankruptcy court had jurisdiction pursuant to 28 U.S.C.
14   §§ 1334 and 157(b)(2)(B).          We have jurisdiction under 28 U.S.C.
15   § 158.
16                                   III.    ISSUE
17        Whether the bankruptcy court erred by holding a trial on
18   the scope of debtor’s homestead exemption when there was no case
19   or controversy before it.
20                          IV.    STANDARD OF REVIEW
21        Whether the case or controversy requirement has been met is
22   a question of law.   We review questions of law de novo.           Bias v.
23   Moynihan, 508 F.3d 1212, 1223 (9th Cir. 2007).
24                                 V.     DISCUSSION
25        The bankruptcy court as a unit of the Article III district
26   court is a court of limited jurisdiction and is bound by the
27   requirement that, as a preliminary matter, it have before it an
28   actual case or controversy.         City of L.A. v. Lyons, 461 U.S. 95,

                                            -9-
 1   101 (1983); see also Day v. Klingler (In re Klingler), 301 B.R.
 2   519, 522–23 (Bankr. N.D. Ill. 2003) (“The limits Article III
 3   imposes on federal jurisdiction apply equally to bankruptcy
 4   courts.”).    If the bankruptcy court does not have an actual case
 5   or controversy before it, it has no power to hear the matter in
 6   question.    In re Klinger, 301 B.R. at 523.   The
 7   case-or-controversy requirement subsists through all stages of
 8   federal judicial proceedings, which means that the parties must
 9   continue to have a personal stake in the outcome of the lawsuit.
10   Steffel v. Thompson, 415 U.S. 452, 459 n.10 (1974).
11        The requirement that a claimant have “standing is an
12   essential and unchanging part of the case-or-controversy
13   requirement of Article III.”     See Lujan v. Defenders of
14   Wildlife, 504 U.S. 555, 560 (1992).     To qualify for standing, a
15   claimant must present an injury that is concrete,
16   particularized, and actual or imminent; fairly traceable to the
17   defendant’s challenged behavior; and likely to be redressed by a
18   favorable ruling.    Id.   at 560-61.   “We are obliged to examine
19   standing sua sponte where standing has erroneously been assumed
20   below.”   Adarand Constructors, Inc. v. Mineta, 534 U.S. 103, 110
21   (2001) (per curiam) (citing Steel Co. v. Citizens for a Better
22   Environment, 523 U.S. 83, 95 (1998)).     In Steel Co., the United
23   States Supreme Court went on to say:     “‘[When the lower federal
24   court] lack[s] jurisdiction, we have jurisdiction on appeal, not
25   of the merits but merely for the purpose of correcting the error
26   of the lower court in entertaining the suit.’”       523 U.S. at 95.
27        Here, the case or controversy requirement was not met when
28   debtor filed her adversary complaint.     Instead, the parties and

                                      -10-
 1   the bankruptcy court proceeded under the false assumption that
 2   Appellees had recorded their judgment and thus there was a
 3   judicial lien against debtor’s Property subject to avoidance
 4   under § 522(f).    However, in the context of her motion to
 5   dismiss, debtor showed that Appellees’ judgment lien never
 6   attached to her Property because they failed to record it.      See
 7   RCW 6.13.090; Mehl v. Roberts (In re Deal), 933 P.2d 1084,
 8   1086-87 (Wash. Ct. App. 1997) (judgment creditor who wishes his
 9   or her judgment to attach to the value of a homestead in excess
10   of the homestead exemption need only record the judgment under
11   RCW 6.13.090).    Because the judgment lien did not attach to
12   debtor’s Property, there was no lien to avoid.    Consequently,
13   debtor had no injury in fact.    It follows that the adversary
14   proceeding could give her no more than what she already had — a
15   homestead exemption that was not impaired by Appellees’ judicial
16   lien.   See Cetacean Cmty. v. Bush, 386 F.3d 1169, 1174 (9th Cir.
17   2004) (“A suit brought by a plaintiff without Article III
18   standing is not a ‘case or controversy,’ and an Article III
19   federal court therefore lacks subject matter jurisdiction over
20   the suit”).
21        Appellees fare no better.    Because Appellees had not
22   recorded their judgment in conformance with Washington law,
23   their lien never attached to debtor’s Property and thus they
24   were not secured creditors in debtor’s chapter 11 case.
25   Further, because debtor’s personal liability on the underlying
26   debt had already been discharged in her prior chapter 7 case,
27   they were not unsecured creditors in debtor’s chapter 11 case.
28   As a result, they did not have standing to challenge the

                                      -11-
 1   validity of debtor’s homestead exemption6 nor did they meet the
 2   conditions under the broader constitutional standing test.     See
 3   Rule 4003(d) (stating that a “creditor” may object to a motion
 4   filed under § 522(f) by challenging the validity of the
 5   exemption asserted to be impaired by the lien); Lujan, 504 U.S.
 6   at 560-61.
 7            In sum, there was no dispute between the parties that could
 8   support the case or controversy requirement.     Since there was no
 9   dispute, the bankruptcy court should have dismissed the
10   adversary proceeding, as it had no power to hear the matter.
11   The bankruptcy court compounded the error by granting judgment
12   in Appellees’ favor “as to the continued attachment of the
13   judgment lien,” even though Appellees never recorded their
14   judgment as required for attachment under Washington law.
15                               VI.   CONCLUSION
16            Accordingly, we VACATE the judgment of the bankruptcy court
17   and REMAND this matter with instructions that the bankruptcy
18   court dismiss this adversary proceeding.
19
20
21
          6
            Here, Appellees raised the objection to the claim of
22
     exemption as an affirmative defense to the § 522(f) avoidance.
23   Their need for standing is no different than if they had
     affirmatively objected to the exemption under Rule 4004(b) which
24   states that a “party in interest” may file an objection to the
     list of property claimed exempt. See Brown v. Sobczak
25   (In re Sobczak), 369 B.R. 512, 517-18 (9th Cir. BAP 2007) (a
26   “party in interest” is a party that has a pecuniary interest in
     the matter or that has a practical stake in the resolution of the
27   matter). As they were neither secured nor unsecured creditors,
     Appellees had no pecuniary interest or practical stake in the
28   outcome of a dispute over the validity of debtor’s exemption.

                                       -12-