Melikian Enterprises, LLP v. McCormick

Case Type:
Case Status:
15-3983 (8th Circuit, Jul 11,2017) Published
The bankruptcy court properly disallowed a claim filed by a secured creditor that failed to comply with Arizona state law for preserving the right to a deficiency following the foreclosure. Arizona law has a statute of repose for pursuing deficiency claims. Notwithstanding two state court actions and the reopening of the debtors' Chapter 11 case, the secured creditor failed to preserve its right to pursue a deficiency claim against the debtors. The Bankruptcy Code does not pre-empt the state-law statute of repose.
Procedural context:
The bankruptcy court (Bankr, D. N.D.) granted the debtors' summary judgment motion on their objection to the proof of claim filed by a creditor whose claim was secured by property. The district court affirmed.
The secured creditor (Melikian Enterprises, LLLP) made a loan to a company that was owned, in part, by the debtors. The loan was secured by a deed of trust on real property owned by the borrower. The debtors guaranteed the loan. In August 2012, following the borrower default on the loan, Melikian sued the borrower and the debtors for (1) the debt or, in the alternative, (2) the deficiency following a trustee's sale of the real property. Also in August 2012, the debtors filed a Chapter 11 petition. In October 2012, Melikian purchased the real property collateral at a trustee's sale by credit bid. Melikian never perfected service on the debtors. In January 2013, the Arizona state court dismissed the deficiency action due to Melikian's failure to serve the debtors and the borrower. Melikian filed a proof of claim in the debtors' Chapter 11 case before the state-court deficiency action was dismissed. The debtors objected because the proof of claim did not reflect a credit for the market value of the real property that Melikian acquired by foreclosure. The debtors subsequently filed a motion for summary judgment, arguing at that time that Melikian's claim should be disallowed because Melikian failed to preserve its right to a deficiency under Arizona law (Ariz. Rev. Stat. § 22-814(D)). The bankruptcy court granted the debtors' summary judgment motion. The Court of Appeals rejected Melikian's arguments that 11 U.S.C. § 502 pre-empted Ariz. Rev. Stat. § 33-814. The Court of Appeals dealt with Melikian's argument that § 362(a)(1) pre-empted Arizona law because the extension of the limitations period under 11 U.S.C. § 108 lapsed without Melikian taking action to preserve its rights under Arizona law. The Court of Appeals did not address any potential issue raised by the recent Supreme Court opinion, Midland Funding, LLC v. Johnson, 16-348 (U.S. May 15, 2017), but did state that Arizona courts treated Ariz. Rev. Stat. § 33-814(D) as a statute of repose.
BENTON, SHEPHERD, STRAND (N.D. Iowa, sitting by designation)

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