In re: Edward Negrete, Jr.

• Court: United States Bankruptcy Appellate Panel for the Ninth Circuit
• Decided: August 7, 2014
• Docket: CC-13-1557-PaKiTa
• Status: Unpublished

Opinion

FILED AUG 07 2014 1 NOT FOR PUBLICATION 2 SUSAN M. SPRAUL, CLERK U.S. BKCY.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. CC-13-1557-PaKiTa ) 6 EDWARD NEGRETE, JR. ) Bankr. No. 13-10036-RN ) 7 Debtor. ) ______________________________) 8 ) EDWARD NEGRETE, JR., ) 9 ) M E M O R A N D U M1 Appellant, ) 10 ) v. ) 11 ) CITIZENS STATE BANK, ) 12 ) Appellee. ) 13 ______________________________) 14 Submitted Without Oral Argument2 on July 25, 2014 15 Filed - August 7, 2014 16 Appeal from the United States Bankruptcy Court 17 for the Central District of California 18 Honorable Richard M. Neiter, Bankruptcy Judge, Presiding 19 Appearances: Edward Negrete, Jr., on brief, pro se. 20 21 Before: PAPPAS, KIRSCHER AND TAYLOR, Bankruptcy Judges. 22 23 1 This disposition is not appropriate for publication. 24 Although it may be cited for whatever persuasive value it may have (see Fed. R. App. P. 32.1), it has no precedential value. 25 See 9th Cir. BAP Rule 8013-1. 26 2 In an order entered April 4, 2014, the Panel unanimously 27 determined that this appeal is suitable for submission without oral argument. Fed. R. Bankr. P. 8012; Ninth Circuit BAP R. 28 8012-1. 1 Chapter 73 debtor Edward Negrete, Jr. (“Debtor”) appeals the 2 bankruptcy court’s order denying his motion for reconsideration 3 of an order denying his motion for contempt. We AFFIRM. 4 FACTS 5 At the center of this appeal are proceeds from the sale of a 6 single family home located on a residential lot in Riverside 7 County, California (the “Property”). Debtor’s mother 8 transferred title to the Property to her eight children as 9 tenants in common in 2006. 10 On October 3, 2011, a state court judgment was entered 11 against Debtor in favor of Citizens State Bank (“Creditor”) for 12 $231,373.65 (“Judgment”). Creditor recorded an Abstract of the 13 Judgment in Riverside County, and thereby obtained a judgment 14 lien against the Property. Cal. Code Civ. Proc. § 697.310(a). 15 The Property was also encumbered by a consensual lien in favor of 16 Wells Fargo Bank which, as of September 9, 2012, had a balance of 17 $4,035.82. 18 On January 2, 2013, Debtor filed a chapter 7 petition. In 19 his schedules, Debtor listed his interest in the Property on 20 schedule A, and claimed it exempt in the amount of $20,815.87 on 21 schedule C pursuant to California’s “wildcard” exemption, Cal. 22 Civ. Proc. Code § 703.140(b)(5). He also listed the Judgment as 23 a secured claim on schedule D, and in his Statement of Intention, 24 25 3 Unless otherwise indicated, all chapter and section 26 references are to the Bankruptcy Code, 11 U.S.C. §§ 101–1532, all 27 Rule references are to the Federal Rules of Bankruptcy Procedure, Rules 1001–9037, and all Civil Rule references are to the Federal 28 Rules of Civil Procedure 1–86.

-2- 1 Debtor advised that it was his intent to avoid Creditor’s 2 judgment lien. 3 On February 19, 2013, Debtor, acting pro so, filed his first 4 motion seeking to avoid Creditor’s judgment lien on the Property, 5 which motion was denied by the bankruptcy court for “[f]ailure to 6 serve authorized agent of Wells Fargo Bank and the lienholders. 7 Failure to submit reliable evidence of Fair Market Value of 8 property.” Order on Motion to Avoid Lien at 2, March 18, 2013. 9 Debtor filed another motion to avoid Creditor’s judgment lien on 10 the Property on April 9, 2013. This second motion was also 11 denied by the bankruptcy court due to “insufficient and 12 inadmissible evidence of fair market value of property.” Order 13 on Motion to Avoid Lien at 2, April 25, 2013. 14 In May 2013, four of the Property owners commenced an action 15 in California state court against Debtor and the three other 16 owners for partition and for an accounting, seeking to have the 17 Property sold and the proceeds distributed among the eight 18 owners. The Property was listed for sale by July 2013. 19 On July 10, 2013, Debtor filed a third motion seeking to 20 avoid Creditor’s judgment lien, this time accompanied by 21 evidence concerning the Property’s fair market value. The 22 bankruptcy court entered an order on August 8, 2013, granting the 23 motion, but only in part (the “Partial Avoidance Order”). This 24 Partial Avoidance Order avoided Creditor’s judgment lien on the 25 Property, but only to the extent of $96,225.52.4 The following 26 4 27 This amount was determined by the bankruptcy court presumably as the result of erroneously attributing sole 28 continue...

-3- 1 day, August 9, 2013, Debtor filed an ex parte application to 2 reconsider the Partial Avoidance Order; it was granted by the 3 bankruptcy court in an order entered on September 4, 2013 (the 4 “Total Avoidance Order”). The Total Avoidance Order avoided 5 Creditor’s judgment lien on the Property in its entirety, and 6 declared it void and unenforceable. 7 In the meantime, however, a sale of the Property had been 8 negotiated. In anticipation of this sale, on August 12, 2013, 9 after entry of the Partial Avoidance Order, but prior to entry of 10 the Total Avoidance Order, Creditor’s counsel contacted the 11 escrow officer handling the closing of the sale of the Property 12 and offered to release its judgment lien in exchange for payment 13 of Debtor’s share of the net proceeds of the sale. The following 14 day, on August 12, 2013, Debtor recorded the bankruptcy court’s 15 order granting him a discharge, as well as the Partial Avoidance 16 Order, in Riverside County. 17 On August 19, 2013, the sale of the Property closed, and 18 Debtor informed Creditor’s counsel of the existence of the 19 bankruptcy discharge as well as the Partial Avoidance Order. 20 Despite this, according to the closing statement, Debtor’s 21 siblings each received their respective share of the sale 22 proceeds, but Debtor’s portion, $19,461.54, was disbursed by the 23 escrow company to Creditor’s counsel on August 20, 2013. 24 On August 22, 2013, Debtor sent a written demand to 25 Creditor’s counsel seeking payment of the sale proceeds because 26 4 27 ...continue ownership of the Property to Debtor, rather than the one-eighth 28 interest he actually held.

-4- 1 Creditor’s judgment lien had been avoided by the bankruptcy court 2 and because the sale proceeds were exempt. Creditor did not 3 return the proceeds to Debtor, and on September 4, 2013, Debtor 4 filed a motion in the bankruptcy court seeking an order holding 5 Creditor in contempt. On October 4, 2013, the bankruptcy court 6 entered an order denying the motion for contempt: 7 The Court, having reviewed the pleadings and related docket, and finding that (i) the amended order entered 8 on September 4, 2013 (“Amended Order”) avoiding the Citizens State Bank lien in its entirety was not 9 entered until after Citizens State Bank (the “Creditor”) had already legally collected the proceeds 10 from the sale of the subject property; (ii) there was no evidence to demonstrate that the Creditor willfully 11 violated a direct order of the Court in retaining the funds; and (iii) the Debtor has other means available 12 to him outside of the bankruptcy process in order to collect the funds from the Creditor . . . IT IS HEREBY 13 ORDERED that Debtor’s Motion is DENIED. 14 Order Denying Debtor’s Motion for Contempt at 1, October 4, 2013. 15 (“Order Denying Contempt”). 16 Debtor requested that the bankruptcy court reconsider the 17 Order Denying Contempt in a motion filed October 10, 2013. The 18 motion was set for hearing on November 6, 2013, and the day 19 before the hearing, the bankruptcy court issued a tentative 20 ruling denying the motion. Neither of the parties appeared at 21 the scheduled hearing and, on November 27, 2013, the bankruptcy 22 court entered an order adopting its tentative ruling and denying 23 the motion (“Order Denying Reconsideration”) because, the court 24 explained: 25 [T]he First Order Avoiding Lien only partially avoided Creditor’s lien. Creditor collected Debtor’s 1/8 26 27 28

-5- 1 interest in the Property, or $19,480.945, which was within the un-avoided amount under the First Order 2 Avoiding Lien. The Amended Order had not yet been entered. As such, taking into consideration this fact, 3 which the Court did take into consideration when deciding the Motion for Contempt, there was no 4 violation of a Court order. . . . The Court found that Creditor did not wilfully violate a Court order when it 5 obtained the sales proceeds for the reasons explained above. In addition, the Court found that Creditor did 6 not willfully violate a Court order to turn over the sale proceeds. Debtor provides no evidence showing 7 that Creditor willfully disregarded a Court Order. . . . Debtor has not shown by clear and 8 convincing evidence that Creditor violated a specific and definite Order of the Court either in collecting 9 the sale proceeds or in retaining them. 10 Order Denying Reconsideration at 2, November 27, 2013. 11 Debtor filed a timely appeal of the Order Denying 12 Reconsideration. 13 JURISDICTION 14 The bankruptcy court had jurisdiction under 28 U.S.C. 15 §§ 1334 and 157(b)(2)(A). We have jurisdiction under 28 U.S.C. 16 § 158. 17 ISSUES6 18 Whether the bankruptcy court abused its discretion when it 19 denied Debtor’s motion for contempt? 20 5 The closing statement indicated that $19,461.54 was 21 disbursed to Creditor’s counsel. Any difference in this amount 22 is immaterial. 23 6 Although Debtor’s notice of appeal indicates that he appeals only the denial of his motion to reconsider, the 24 arguments in his briefing also reiterate the arguments made in 25 favor of his contempt motion. Because Debtor appears pro se, we have exercised our discretion and construe his papers liberally. 26 Ozenne v. Bendon (In re Ozenne), 337 B.R. 214, 218 (9th Cir. BAP 27 2006). Accordingly, we consider both the Order Denying Contempt as well as the Order Denying Reconsideration to be within the 28 scope of this appeal.

-6- 1 Whether the bankruptcy court abused its discretion when it 2 denied Debtor’s motion to reconsider the denial of the motion for 3 contempt? 4 STANDARDS OF REVIEW 5 We review the bankruptcy court’s denial of the motion for 6 contempt for abuse of discretion. Labor/Cmty. Strategy Ctr. v. 7 L.A. Cnty. Metro. Transp. Auth., 564 F.3d 1115, 1119 (9th Cir. 8 2009); Rosales v. Wallace (In re Wallace), 490 B.R. 898, 904-05 9 (9th Cir. BAP 2013). We also review the denial of the motion for 10 reconsideration for abuse of discretion. Ta Chong Bank Ltd. v. 11 Hitachi High Techs. Am., Inc., 610 F.3d 1063, 1066 (9th Cir. 12 2010); Collect Access LLC v. Hernandez (In re Hernandez), 13 483 B.R. 713, 719 (9th Cir. BAP 2012). Moreover, we review a 14 bankruptcy court’s interpretation of its own order for abuse of 15 discretion. In re Wallace, 490 B.R. at 905. 16 The abuse of discretion standard has two parts. First, we 17 consider whether the bankruptcy court applied the correct legal 18 standard; and second, we decide whether the court's factual 19 findings supporting the legal analysis were clearly erroneous. 20 Alakozai v. Citizens Equity First Credit Union (In re Alakozai), 21 499 B.R. 698 (9th Cir. BAP 2013) (citing United States v. 22 Hinkson, 585 F.3d 1247, 1261-62 (9th Cir. 2009) (en banc). 23 DISCUSSION 24 I. The Contempt Motion 25 Debtor’s contempt motion is premised on his argument that 26 Creditor was not entitled to payment of Debtor’s portion of the 27 Property sale proceeds because Creditor’s lien had been avoided, 28 at least in part, and because the discharge order prohibited

-7- 1 Creditor from enforcing what was now an unsecured Judgment. The 2 bankruptcy court denied Debtor’s contempt motion, reasoning that, 3 at the time Creditor received the sale proceeds, only the Partial 4 Avoidance Order had been entered and that order left a portion of 5 Creditor’s judgment lien intact. Thus, the court ruled, because 6 it held a secured claim, collection of the sale proceeds by 7 Creditor was not prohibited by the discharge order. Moreover, 8 the bankruptcy court concluded, Creditor’s retention of the funds 9 was not a willful violation of any order of the court. Finally, 10 the bankruptcy court noted that if Debtor were entitled to 11 recover the funds paid to Creditor, he could seek that relief in 12 a forum other than the bankruptcy court and through a motion 13 other than one based on contempt. 14 Debtor’s motion for reconsideration was based on what Debtor 15 alleged was newly discovered evidence and manifest injustice 16 resulting from the Order Denying Contempt. Because the 17 bankruptcy court erred in calculating the extent that Creditor’s 18 judgment lien should be avoided when it entered the Partial 19 Avoidance Order, but later corrected that mistake in the Total 20 Avoidance Order, Debtor contended that it would be manifestly 21 unjust to permit Creditor to rely upon the incorrect order to 22 obtain payment of the funds, or to allow Creditor to retain those 23 funds once the error was corrected by the bankruptcy court’s 24 entry of the Total Avoidance Order. 25 The bankruptcy court denied Debtor’s motion for 26 reconsideration, holding that since Creditor still held a partial 27 judgment lien when it obtained Debtor’s portion of the sale 28 proceeds, Creditor did not violate any order in place at the

-8- 1 time. The court again noted there were other avenues by which 2 Debtor could pursue Creditor for the funds. 3 Debtor’s motion for contempt was founded on § 105(a), which 4 provides that the bankruptcy court: 5 may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of 6 this title. No provision of this title providing for the raising of an issue by a party in interest shall be 7 construed to preclude the court from, sua sponte, taking an action or making any determination necessary 8 or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process. 9 10 To hold a party in civil contempt, “the bankruptcy court 11 must find by clear and convincing evidence that the offending 12 party knowingly violated a definite and specific court order.” 13 Knupfer v. Lindblad (In re Dyer), 322 F.3d 1178, 1190 (9th Cir. 14 2003); Renwick v. Bennett (In re Bennett), 298 F.3d 1059, 1069 15 (9th Cir. 2002). Following such showing, the burden shifts to 16 the alleged contemnor to show why it was unable to comply with 17 the order. In re Bennett, 298 F.3d at 1069; FTC v. Affordable 18 Media, 179 F.3d 1228, 1239 (9th Cir. 1999). A court has wide 19 latitude in determining whether there has been contemptuous 20 defiance of its order. Gifford v. Heckler, 741 F.2d 263, 266 21 (9th Cir. 1984) (citing Neebars, Inc. v. Long Bar Grinding, Inc., 22 438 F.2d 47, 48 (9th Cir. 1971)). 23 Civil contempt is appropriate only when a party fails to 24 comply with a court order that is both specific and definite. 25 Balla v. Idaho State Bd. of Corr., 869 F.2d 461, 465 (9th Cir. 26 1989) (citing Gifford, 741 F.2d at 265). Thus, to support a 27 contempt motion, the order alleged to have been disobeyed must be 28 sufficiently specific. In re Dual-Deck Video Cassette Recorder

-9- 1 Antitrust Litig., 10 F.3d at 695 (citing Int’l Longshoremen's 2 Ass’n, Local 1291 v. Phila. Marine Trade Ass’n, 389 U.S. 64, 76 3 (1967)). 4 We conclude the Partial Avoidance Order was sufficiently 5 specific and definite to avoid a portion of Creditor’s lien. 6 Although it was a form order in which the bankruptcy court 7 checked boxes and filled in blanks, it clearly declared in a 8 handwritten notation by the bankruptcy court that Creditor’s lien 9 was avoided “in part” in the amount of “$96,225.57". 10 However, the Partial Avoidance Order was neither specific 11 nor definite regarding how any proceeds should be disbursed in 12 the event the Property subject to Creditor’s judgment lien was 13 sold. The Partial Avoidance Order also made no reference to 14 either the amount of Debtor’s claim of exemption in any sale 15 proceeds, or whether any amount remained above the exemption 16 which Creditor could seize and apply to the unavoided portion of 17 its judgment lien. In short, because nothing in the Partial 18 Avoidance Order — the only order in effect as of the date 19 Creditor was paid — specifically dictated what was to be done 20 with the sale proceeds, Creditor’s actions in directing the 21 escrow company to disburse those funds to Creditor did not run 22 afoul of its terms. See In re Dorado Marine, Inc., 343 B.R. 711, 23 713 (Bankr. M.D. Fla. 2006) (“The Opinion and Final Judgment 24 merely establish Kollenbaum’s right to an equitable lien; they do 25 not specifically direct Lickert or the Debtor to pay any net 26 proceeds of the sale to Kollenbaum,” and thus will not support a 27 finding of contempt); see also Mueller v. Hall (In re Parker), 28 368 B.R. 86 (6th Cir. BAP 2007) (a sale order that approved the

-10- 1 trustee’s sale of the debtor’s interest in an ongoing lawsuit but 2 did not require debtor or his counsel to perform or refrain from 3 performing any particular acts was not specific enough to support 4 an order of contempt when debtor’s counsel continued to prosecute 5 the lawsuit). 6 Simply stated, a party cannot be in contempt of an order 7 that does not yet exist. The bankruptcy court did not abuse its 8 discretion when it determined that Creditor had not violated any 9 specific order and, therefore, denied Debtor’s motion for 10 contempt. 11 II. The Reconsideration Motion 12 Debtor sought reconsideration of the Order Denying Contempt 13 under Civil Rule 59(e), made applicable in bankruptcy cases by 14 Rule 9023. The case law explains that reconsideration under 15 Civil Rule 59(e) is appropriate where the movant establishes the 16 existence of any one of three conditions: 17 To establish that the bankruptcy court abused its discretion in denying the motions for reconsideration, 18 [the movant] must demonstrate the existence of newly discovered evidence that was not available at the time 19 of the original hearing, or that the bankruptcy court committed clear error or made a decision that was 20 manifestly unjust, or that there was an intervening change in controlling law. 21 22 Marciano v. Fahs (In re Marciano), 459 B.R. 27, 51 (9th Cir. BAP 23 2011) (citing Zimmerman v. City of Oakland, 255 F.3d 734, 740 24 (9th Cir. 2001)). 25 Debtor argues that because the Total Avoidance Order was 26 entered after Debtor filed the motion for contempt, it 27 constituted “newly discovered evidence” sufficient to require 28 reconsideration by the bankruptcy court of the Order Denying

-11- 1 Contempt. We disagree. 2 In its ruling concerning Debtor’s motion for contempt, the 3 bankruptcy court explicitly considered the timing and effect of 4 the Total Avoidance Order, but correctly determined that, at the 5 time Creditor was paid, its judgment lien had only been partially 6 avoided. Because the bankruptcy court considered the Total 7 Avoidance Order at the time it made its decision concerning the 8 motion for contempt, it cannot be characterized as newly 9 discovered evidence to support reconsideration of the Order 10 Denying Contempt. That the bankruptcy court entered the Total 11 Avoidance Order completely avoiding Creditor’s judgment did not 12 alter the fact that, at the time Creditor was paid Debtor’s 13 portion of the sale proceeds, Creditor still held a partially 14 valid judgment lien on the Property. 15 Debtor also contends that there was a “manifest failure by 16 the [bankruptcy court] to consider material facts and dispositive 17 legal arguments which were presented to the Court before the 18 entry of the Order Denying Debtor’s Motion For Contempt.” By 19 this contention, we assume Debtor is arguing that the bankruptcy 20 court employed an incorrect legal standard in ruling on the 21 motion for contempt. 22 In the Order Denying Contempt, the bankruptcy court 23 concluded that there was “no evidence to demonstrate that the 24 Creditor willfully violated a direct order of the Court in 25 retaining the funds.” Order Denying Debtor’s Motion for Contempt 26 at 1, October 4, 2013. Debtor correctly asserts that the proper 27 standard for contempt required him to demonstrate that Creditor 28 “violated a specific and definite order of the court,” but argues

-12- 1 that it was not the retention of the funds but rather the 2 Creditor’s original receipt of the funds in the first instance 3 which constituted Creditor’s contemptible act. 4 The bankruptcy court did not abuse its discretion in denying 5 Debtor’s motion for reconsideration. The court’s statement in 6 its order recited the proper standard for civil contempt, i.e., 7 that the moving party must demonstrate that a violation of a 8 definite, specific court order occurred. As explained above, 9 however, the Total Avoidance Order simply did not address either 10 the disbursement or retention of any sale proceeds for the 11 Property. Therefore, especially given the other potential 12 remedies available to Debtor to recover the payment to Creditor,7 13 Debtor has not shown the Order Denying Contempt constitutes a 14 manifest injustice sufficient to warrant reconsideration of the 15 order denying Debtor’s motion for contempt. 16 CONCLUSION 17 We AFFIRM the orders of the bankruptcy court. 18 19 20 21 22 23 24 25 7 Debtor’s motions in the bankruptcy court sought an order 26 holding Creditor in contempt; they did not seek to recover the 27 sale proceeds paid to Creditor. We do not consider and express no opinion as to whether Debtor could obtain such relief in 28 either the bankruptcy court or another forum.

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