Negrete v. Citizens State Bank (In re Negrete)

Citation:
Negrete v. Citizens State Bank (In re Negrete), 9th Cir. Bankruptcy Appellate Panel (BAP), CC-13-1557-PaKiTa (August 7, 2014) [Not for Publication]
Tag(s):
Ruling:
In an unpublished opinion, the Bankruptcy Appellate Panel affirmed the bankruptcy court’s order denying Debtor's motion for reconsideration of an order denying his motion for contempt.
Procedural context:
On January 2, 2013, Debtor filed a chapter 7 petition. Debtor listed his interest in the Property on schedule A and advised that it was his intent to avoid Creditor’s judgment lien. On February 19, 2013, Debtor, filed his first motion seeking to avoid Creditor’s judgment lien on the Property, which motion was denied by the bankruptcy court on March 18, 2013. Debtor filed another motion to avoid Creditor’s judgment lien on the Property on April 9, 2013. This second motion was also denied by the bankruptcy court on April 25, 2013. On July 10, 2013, Debtor filed a third motion seeking to avoid Creditor’s judgment lien, the bankruptcy court granted the motion with a partial avoidence of the of the Judgment lien on August 8, 2013, (the “Partial Avoidance Order”). This Partial Avoidance Order avoided Creditor’s judgment lien on the Property. August 9, 2013, Debtor filed an ex parte application to reconsider the Partial Avoidance Order; it was granted by the bankruptcy court in an order entered on September 4, 2013 (the “Total Avoidance Order”). A sale of the Property had been negotiated.On August 19, 2013, the sale of the Property closed, but Debtor’s portion, $19,461.54, was disbursed by the escrow company to Creditor’s counsel on August 20, 2013. On September 4, 2013, Debtor filed a motion in the bankruptcy court seeking an order holding Creditor in contempt. On October 4, 2013, the bankruptcy court entered an order denying the motion for contempt. Debtor requested that the bankruptcy court reconsider the Order Denying Contempt in a motion filed October 10, 2013. On November 27, 2013, the bankruptcy court entered an order denying the motion (“Order Denying Reconsideration”). Debtor filed a timely appeal of the Order Denying Reconsideration.
Facts:
At the center of this appeal are proceeds from the sale of a single family home located on a residential lot in Riverside County, California (the “Property”). Debtor’s mother transferred title to the Property to her eight children as tenants in common in 2006. On October 3, 2011, a state court judgment was entered against Debtor in favor of Citizens State Bank (“Creditor”) for $231,373.65 (“Judgment”). Creditor recorded an Abstract of the Judgment in Riverside County, and thereby obtained a judgment lien against the Property. Cal. Code Civ. Proc. § 697.310(a). The Property was also encumbered by a consensual lien in favor of Wells Fargo Bank which, as of September 9, 2012, had a balance of $4,035.82. On January 2, 2013, Debtor filed a chapter 7 petition. In his schedules, Debtor listed his interest in the Property on schedule A, and claimed it exempt in the amount of $20,815.87 on schedule C pursuant to California’s “wildcard” exemption, Cal. Civ. Proc. Code § 703.140(b)(5). He also listed the Judgment as a secured claim on schedule D, and in his Statement of Intention,Debtor advised that it was his intent to avoid Creditor’s judgment lien. On February 19, 2013, Debtor, filed his first motion seeking to avoid Creditor’s judgment lien on the Property, which motion was denied by the bankruptcy court for “[f]ailure to serve authorized agent of Wells Fargo Bank and the lienholders. Failure to submit reliable evidence of Fair Market Value of property.” Order on Motion to Avoid Lien at 2, March 18, 2013. Debtor filed another motion to avoid Creditor’s judgment lien on the Property on April 9, 2013. This second motion was also denied by the bankruptcy court due to “insufficient and inadmissible evidence of fair market value of property.” Order on Motion to Avoid Lien at 2, April 25, 2013. In May 2013, four of the Property owners commenced an action in California state court against Debtor and the three other owners for partition and for an accounting, seeking to have the Property sold and the proceeds distributed among the eight owners. The Property was listed for sale by July 2013. On July 10, 2013, Debtor filed a third motion seeking to avoid Creditor’s judgment lien, this time accompanied by evidence concerning the Property’s fair market value. The bankruptcy court entered an order on August 8, 2013, granting the motion, but only in part (the “Partial Avoidance Order”). This Partial Avoidance Order avoided Creditor’s judgment lien on the Property, but only to the extent of $96,225.52.4 The following day, August 9, 2013, Debtor filed an ex parte application to reconsider the Partial Avoidance Order; it was granted by the bankruptcy court in an order entered on September 4, 2013 (the “Total Avoidance Order”). The Total Avoidance Order avoided Creditor’s judgment lien on the Property in its entirety, and declared it void and unenforceable. In the meantime, however, a sale of the Property had been negotiated. In anticipation of this sale, on August 12, 2013, after entry of the Partial Avoidance Order, but prior to entry of the Total Avoidance Order, Creditor’s counsel contacted the escrow officer handling the closing of the sale of the Property and offered to release its judgment lien in exchange for payment of Debtor’s share of the net proceeds of the sale. The following day, on August 12, 2013, Debtor recorded the bankruptcy court’s order granting him a discharge, as well as the Partial Avoidance Order, in Riverside County. On August 19, 2013, the sale of the Property closed, and Debtor informed Creditor’s counsel of the existence of the bankruptcy discharge as well as the Partial Avoidance Order. Despite this, according to the closing statement, Debtor’s siblings each received their respective share of the sale proceeds, but Debtor’s portion, $19,461.54, was disbursed by the escrow company to Creditor’s counsel on August 20, 2013. On August 22, 2013, Debtor sent a written demand to Creditor’s counsel seeking payment of the sale proceeds because Creditor’s judgment lien had been avoided by thebankruptcy court and because the sale proceeds were exempt. Creditor did not return the proceeds to Debtor, and on September 4, 2013, Debtor filed a motion in the bankruptcy court seeking an order holding Creditor in contempt. On October 4, 2013, the bankruptcy court entered an order denying the motion for contempt: The Court, having reviewed the pleadings and related docket, and finding that (i) the amended order entered on September 4, 2013 (“Amended Order”) avoiding the Citizens State Bank lien in its entirety was not entered until after Citizens State Bank (the “Creditor”) had already legally collected the proceeds from the sale of the subject property; (ii) there was no evidence to demonstrate that the Creditor willfully violated a direct order of the Court in retaining the funds; and (iii) the Debtor has other means available to him outside of the bankruptcy process in order to collect the funds from the Creditor . . . IT IS HEREBY ORDERED that Debtor’s Motion is DENIED. Order Denying Debtor’s Motion for Contempt at 1, October 4, 2013. (“Order Denying Contempt”). Debtor requested that the bankruptcy court reconsider the Order Denying Contempt in a motion filed October 10, 2013. The motion was set for hearing on November 6, 2013, and the day before the hearing, the bankruptcy court issued a tentative ruling denying the motion. Neither of the parties appeared at the scheduled hearing and, on November 27, 2013, the bankruptcy court entered an order adopting its tentative ruling and denying the motion (“Order Denying Reconsideration”) because, the court explained: [T]he First Order Avoiding Lien only partially avoided Creditor’s lien. Creditor collected Debtor’s 1/8interest in the Property, or $19,480.945, which was within the un-avoided amount under the First Order Avoiding Lien. The Amended Order had not yet been entered. As such, taking into consideration this fact, which the Court did take into consideration when deciding the Motion for Contempt, there was no violation of a Court order. . . . The Court found that Creditor did not wilfully violate a Court order when it obtained the sales proceeds for the reasons explained above. In addition, the Court found that Creditor did not willfully violate a Court order to turn over the sale proceeds. Debtor provides no evidence showing that Creditor willfully disregarded a Court Order. . . . Debtor has not shown by clear and convincing evidence that Creditor violated a specific and definite Order of the Court either in collecting the sale proceeds or in retaining them. Order Denying Reconsideration at 2, November 27, 2013. Debtor filed a timely appeal of the Order Denying Reconsideration.
Judge(s):
PAPPAS, KIRSCHER AND TAYLOR, Bankruptcy Judges.

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