In re: Geary Juan Johnson

Opinion

FILED DEC 09 2014 1 NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK 2 U.S. BKCY.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. CC-14-1169-TaKuPa ) 6 GEARY JUAN JOHNSON, ) Bk. No. 13-37898-WB ) 7 Debtor. ) ______________________________) 8 ) GEARY JUAN JOHNSON, ) 9 ) Appellant, ) 10 ) v. ) MEMORANDUM* 11 ) HYUNDAI MOTOR FINANCE, ) 12 ) Appellee. ) 13 ______________________________) 14 Submitted Without Oral Argument** on November 20, 2014 15 Filed - December 9, 2014 16 Appeal from the United States Bankruptcy Court 17 for the Central District of California 18 Honorable Julia W. Brand, Bankruptcy Judge, Presiding ________________________________ 19 Appearances: Appellant Geary Juan Johnson, pro se, on brief; 20 Austin Pillsbury Nagel, Esq. on brief for Appellee Hyundai Motor Finance. 21 __________________________________ 22 Before: TAYLOR, KURTZ, and PAPPAS, Bankruptcy Judges. 23 24 * This disposition is not appropriate for publication. 25 Although it may be cited for whatever persuasive value it may have (see Fed. R. App. P. 32.1), it has no precedential value. 26 See 9th Cir. BAP Rule 8013-1. 27 ** By order entered on August 22, 2014, a motions panel determined this appeal suitable for submission on the briefs and 28 record without oral argument. 1 INTRODUCTION 2 Chapter 131 debtor Geary Juan Johnson appeals an order of 3 the bankruptcy court that overruled in part, and sustained in 4 part, Johnson’s objection to a proof of claim filed on behalf of 5 Hyundai Motor Finance. We AFFIRM. 6 FACTS2 7 On August 3, 2012, Johnson purchased a 2013 Hyundai Accent 8 from Win Hyundai Carson. Win Hyundai financed the full price of 9 the vehicle, paid off Johnson’s debt on a 2010 Hyundai Accent he 10 traded in, and added the negative equity to the amount financed. 11 See Americredit Fin. Servs., Inc. v. Penrod (In re Penrod), 12 392 B.R. 835, 838 (9th Cir. BAP 2008) (in the motor vehicle sales 13 finance business, negative equity is the difference between the 14 value of the trade-in vehicle and the amount owed). Win Hyundai 15 also financed optional service plans totaling $2545 and GAP 16 insurance of $800 for Johnson. Then, Win Hyundai promptly 17 assigned Johnson’s contract to appellee Hyundai Motor Finance.3 18 Johnson filed a chapter 13 petition on November 21, 2013. 19 The filing date was 475 days after Johnson bought the 2013 20 21 1 Unless specified otherwise, all chapter and section references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and 22 references to the Local Bankruptcy Rules are to those of the Central District of California. 23 2 To facilitate our analysis and disposition of this 24 appeal, we exercised our discretion to review documents filed on the bankruptcy court’s electronic case docket. See O’Rourke v. 25 Seaboard Sur. Co. (In re E.R. Fegert, Inc.), 887 F.2d 955, 957-58 (9th Cir. 1989) (holding that the Panel can take judicial notice 26 of contents of the bankruptcy court record). 27 3 There is no issue that the assignment to Appellee affected or altered any rights. See Trejos v. VW Credit, Inc. 28 (In re Trejos), 374 B.R. 210 (9th Cir. BAP 2007). - 2 - 1 Hyundai. Appellee timely filed a proof of claim in the total 2 amount of $22,237.66, which included an annotation that “This is 3 a 910 claim and is not subject to cram down (sic).” Proof of 4 Claim #2. Appellee identified the full claim amount as being 5 secured by the 2013 Hyundai, which it valued at $22,237.66. 6 Johnson objected to Appellee’s proof of claim on multiple 7 grounds.4 First, he argued that Appellee did not properly split 8 the claim into secured and unsecured portions and, because 9 Hyundai sought secured status for an amount that included 10 negative equity financing, the claim should be disallowed in its 11 entirety. Second, he argued that Appellee’s claim was fraudulent 12 because it stated an inaccurate value for the vehicle and failed 13 to acknowledge Debtor’s right to reduce the claim by cancelling 14 the optional service plans and GAP insurance. And, third, he 15 argued that Appellee’s claim should be equitably disallowed or 16 subordinated based on Debtor’s allegations that multiple Hyundai 17 dealerships refused to provide warranty services for Johnson’s 18 vehicle.5 19 In response, Appellee contended that because Johnson 20 incurred the debt within the 910-day period preceding the 21 4 We summarize here only the relevant arguments Johnson 22 made on appeal. We disregard the extraneous allegations and arguments Johnson made regarding, for example, public perception 23 of Hyundai vehicles and financing, pending class action lawsuits, and the workings of the automobile financing industry generally. 24 5 Johnson also argued that the claim should be reduced in 25 order to overcome the creditor’s feasibility objection to Johnson’s chapter 13 plan. Johnson does not renew this argument 26 on appeal, and we consider it waived. Padgett v. Wright, 587 F.3d 983, 986 n.2 (9th Cir. 2009)(per curiam)(appellate 27 courts “will not ordinarily consider matters on appeal that are not specifically and distinctly raised and argued in appellant's 28 opening brief.”). - 3 - 1 petition date and for a motor vehicle acquired for personal use, 2 the claim was secured for the full amount owed, $22,237.66. 3 Appellee stated, however, that if Johnson wanted to cancel the 4 optional service plans or GAP insurance, Appellee would credit 5 unearned premiums against the amount of the claim. Appellee also 6 argued that Johnson failed to support his equitable subordination 7 argument with any admissible evidence. 8 The bankruptcy court conducted a brief hearing on Johnson’s 9 claim objection on March 12, 2014. It started the hearing by 10 commenting that Appellee’s 910 claim could be secured only with 11 respect to its purchase money security interest – which “would 12 not include $3,049 for negative trade in, $2545 for extended 13 service and $800 for GAP insurance.” Hr’g Tr. (Mar. 12, 2014) at 14 1:17-19. 15 Appellee repeated its willingness to reduce the amount of 16 the claim if Johnson allowed the optional service plan and GAP 17 insurance to lapse. When the bankruptcy court asked Johnson if 18 he was willing to do so, Johnson stated that earlier in the case 19 he requested cancellation of these additional costs, but wanted 20 the bankruptcy court to focus on the impropriety of including 21 expenses he had the right to cancel as part of the secured claim. 22 In response, Appellee simply agreed to file an amended claim 23 reducing the amount. 24 The bankruptcy court ruled orally at the hearing. It held 25 that the Appellee was entitled to a secured claim based on the 26 purchase money security interest it had in the car, “which is the 27 cost of the car plus the sales tax and miscellaneous items.” 28 Hr’g Tr. (Mar. 12, 2014) at 4:5-6. It further held that “the

- 4 - 1 other items, $3049 for negative net trade in, $2545 for extended 2 service and $800 for GAP insurance are going to be reclassified 3 as unsecured claims.” Id. at 4:6-8. The bankruptcy court 4 acknowledged that Appellee was willing to amend its claim and 5 specifically found that Appellee did not file its claim in bad 6 faith. 7 Johnson confirmed with the bankruptcy court that his 8 objection, therefore, was “granted in part and denied in part.” 9 Id. at 5:2. The bankruptcy court asked Appellee’s counsel to 10 prepare and upload the order, which counsel agreed to do. On 11 March 24, 2014, however, Johnson lodged a form of order that 12 disallowed Appellee’s claim in its entirety. The following day, 13 Appellee’s counsel separately lodged two different forms of 14 order, one allowing its claim in the total amount of $22,237.66, 15 secured in the amount of $20,649.39 and unsecured for $1588.27, 16 representing “unearned premiums of the GAP and service contracts” 17 (ECF dkt. #56), and the other in the same total amount but 18 classifying $17,600.39 as secured and $4,637.27 as unsecured 19 ($3,049 negative equity trade in and $1,588.27 unearned premiums) 20 (ECF dkt. #58). 21 On March 28, 2014, Johnson filed an objection to both orders 22 lodged by Appellee. Johnson argued that: Appellee waived its 23 right to lodge an order because it failed to lodge the order 24 within the 7 days provided under LBR 9021-1(b)(1)(B); the form of 25 order incorrectly referred to the docket number of the initially 26 filed objection instead of the docket number of the amended 27 objection; the order failed to address the fair market value of 28 the car; and the order incorrectly stated the ruling of the

- 5 - 1 bankruptcy court – the full amounts of the GAP insurance and 2 repair advantage costs were to be deducted, and Johnson recalled 3 that the bankruptcy court disallowed the claim and did not allow 4 Appellee to amend the proof of claim. 5 Also on March 28, 2014, the bankruptcy court filed and 6 entered the Order on Objections to Claims, allowing Appellee’s 7 claim in the amount of $22,237.66, with $17,600.39 secured and 8 $4,637.27 unsecured. The order also required Appellee to cancel 9 the GAP and service contracts and to file an amended proof of 10 claim. 11 Johnson filed a motion for reconsideration on March 31, 12 2014. Before the bankruptcy court considered and ruled on 13 Johnson’s reconsideration motion, however, Johnson filed a notice 14 of appeal from the order allowing Appellee’s claim along with a 15 motion for leave to appeal to the BAP. A motions panel denied 16 the motion for leave to appeal as unnecessary, given that the 17 order on appeal is a final order for purposes of appeal, but 18 required entry of an order resolving the reconsideration motion 19 before the BAP would have jurisdiction and this appeal could go 20 forward. 21 On August 19, 2014, the bankruptcy court entered an order 22 denying Johnson’s motion for reconsideration. The bankruptcy 23 court noted therein that its review included consideration of 24 Appellee’s “duly filed Amended Proof of Claim 2-5 setting forth a 25 secured claim of $15,843.66 and an unsecured claim of $3,049.00.” 26 Order Denying Reconsideration, ECF Dkt. #164. Johnson did not 27 appeal from the denial of reconsideration. 28

- 6 - 1 JURISDICTION 2 The bankruptcy court had jurisdiction pursuant to 28 U.S.C. 3 §§ 1334 and 157(b)(2)(B). We have jurisdiction under 28 U.S.C. 4 § 158. 5 ISSUES6 6 1. Did the bankruptcy court err procedurally when it 7 entered the Appellee’s lodged form of order? 8 2. Did the bankruptcy court err when it overruled Debtor’s 9 objection in part and sustained it in part? 10 STANDARD OF REVIEW 11 Application of basic rules of procedure and construction of 12 the Bankruptcy Code present questions of law that we review de 13 novo. All Points Capital Corp. v. Meyer (In re Meyer), 373 B.R. 14 84, 87 (9th Cir. BAP 2007). We review a bankruptcy court’s 15 compliance with local rules for abuse of discretion. Hinton v. 16 Pac. Enters., 5 F.3d 391, 394 (9th Cir. 1993). A bankruptcy 17 court abuses its discretion if it applied the wrong legal 18 standard or its findings were illogical, implausible or without 19 support in the record. TrafficSchool.com, Inc. v. Edriver Inc., 20 653 F.3d 830, 832 (9th Cir. 2011). 21 22 6 Johnson lists eight issues on appeal. Three issues pertain to alleged procedural errors, while four issues pertain 23 to allowance of the claim. We decline to consider Johnson’s argument that Appellee did not serve him with a copy of the proof 24 of claim, as he raises this issue for the first time on appeal. See Samson v. W. Capital Partners, LLC (In re Blixseth), 684 F.3d 25 865, 872 n.12 (9th Cir. 2012) (appellate court may decline to address argument not raised before bankruptcy court) (citation 26 omitted). Johnson also assigns error to the provision in the bankruptcy court’s order requiring Appellee to cancel the GAP 27 insurance and service contracts but does not address the issue further in his brief. Therefore, we will not consider this issue 28 further. See Padgett v. Wright, 587 F.3d at 986 n.2. - 7 - 1 We review the bankruptcy court's legal conclusions de novo 2 and its findings of fact for clear error. See Allen v. U.S. 3 Bank, N.A. (In re Allen), 472 B.R. 559, 564 (9th Cir. BAP 2012). 4 “An order overruling a claim objection can raise legal issues 5 (such as the proper construction of statutes and rules) which we 6 review de novo, as well as factual issues (such as whether the 7 facts establish compliance with particular statues or rules), 8 which we review for clear error.” Veal v. Am. Home Mortg. Serv., 9 Inc. (In re Veal), 450 B.R. 987, 918 (9th Cir. BAP 2011). 10 DISCUSSION 11 On appeal, Johnson argues that the bankruptcy court erred 12 procedurally and substantively. We address his procedural 13 arguments first. 14 A. The bankruptcy court did not err procedurally. 15 Johnson argues that the bankruptcy court did not comply with 16 the Local Bankruptcy Rules when it entered Appellee’s form of 17 lodged order. First, Johnson argues, without any legal authority 18 in support, that the bankruptcy court should have reduced 19 Appellee’s claim to zero, as provided in Johnson’s lodged order, 20 because Appellee waived its right to lodge any order when it: 21 failed to lodge an order within 7 days of the hearing; did not 22 object to Johnson’s lodged order; and identified the wrong docket 23 number for the amended objection. He also argues that the 24 bankruptcy court erred by not waiting a full 7 days after 25 lodgment before entering the order and by not addressing 26 Johnson’s objection to the lodged order. We determine that 27 Johnson’s arguments involving procedural irregularities are 28 unavailing.

- 8 - 1 Johnson appropriately identifies LBR 9021-1(b) as governing 2 the lodgment procedures in the Central District. And he 3 correctly states that LBR 9021-1(b)(1)(B) requires that a 4 proposed order be served and lodged within 7 days of the granting 5 of the related relief. Johnson misinterprets, however, both the 6 purpose of the Local Bankruptcy Rules and their effect on the 7 bankruptcy court’s inherent authority to enter appropriate 8 orders. 9 The Local Bankruptcy Rules are rules that govern those who 10 appear before the bankruptcy court. They specifically provide 11 that “[t]he court may waive the application of any Local 12 Bankruptcy Rule in any case or proceeding, or make additional 13 orders as it deems appropriate, in the interest of justice.” 14 LBR 1001-1(d). Therefore, to the extent Johnson assigns error to 15 the bankruptcy court’s failure to comply with the Local 16 Bankruptcy Rules, his argument fails. 17 Johnson also argues that Appellee failed to comply with the 18 Local Bankruptcy Rules. Appellee lodged the proposed order on 19 March 25, 2014, which was 13 days after the hearing on Johnson’s 20 objection. He argues that the late lodgment resulted in 21 Appellee’s waiver of its right to prevail against Johnson’s 22 objection to claim. Johnson does not provide any authority to 23 support his waiver argument, and, in fact, LBR 9021-1(b)(1)(C) 24 provides to the contrary. 25 LBR 9021-1(b)(1)(C) provides that failure by a prevailing 26 party to timely lodge its order allows other parties to lodge and 27 serve a proposed order; but if no party timely submits a proposed 28 order, ”the court may prepare and enter such order as it deems

- 9 - 1 appropriate. . . .” Therefore, after March 19, 2014, the 2 bankruptcy court was free to enter its own form of order or such 3 order “as it deems appropriate.” Entry of the Appellee’s late- 4 lodged order was well within the bankruptcy court’s discretion, 5 both pursuant to the bankruptcy court’s inherent authority and 6 under the Local Bankruptcy Rules. 7 Based on the record, the bankruptcy court had Johnson’s 8 lodged order, the two forms of order lodged by Appellee, plus 9 Johnson’s objection to Appellee’s lodged orders all available to 10 it on March 28, 2014. It deemed one of Appellee’s orders 11 appropriate and entered it on the docket that day. Nothing in 12 the Local Bankruptcy Rules required the bankruptcy court to wait 13 any additional period of time before entering the order it deemed 14 appropriate. Based on the final form of order entered by the 15 bankruptcy court, it is apparent that the bankruptcy court 16 implicitly overruled Johnson’s objections to the lodged order it 17 entered. 18 As to the docket number referred to in the entered order, 19 Johnson provides no legal authority to support his contention 20 that such a technical error constitutes reversible error, and we 21 know of none. Johnson included this contention in his objection 22 to Appellee’s lodged orders and the bankruptcy court implicitly 23 overruled it by entry of the final form of order. We conclude 24 that the bankruptcy court did not abuse its discretion by so 25 doing.7 26 27 7 LBR 9021-1(e) provided Johnson the opportunity to file a motion requesting correction of such an error in the entered 28 order, if he so desired. - 10 - 1 B. The bankruptcy court did not err by allowing Appellee’s bifurcated claim. 2 3 We interpret Johnson’s substantive challenges to the 4 bankruptcy court’s order as based on three arguments. Johnson 5 contends that the entered order is inconsistent with the 6 bankruptcy court’s oral ruling that required the full amount of 7 GAP insurance and service contracts be deducted from the secured 8 amount of the claim. He is correct. Prior to the bankruptcy 9 court’s denial of Johnson’s reconsideration motion, however, the 10 Appellee filed multiple amended proofs of claim, each with slight 11 variation in classification and amounts. The bankruptcy court’s 12 order denying reconsideration specifically referred to Appellee’s 13 “Amended Proof of Claim 2-5,” which classified $15,843.66 as 14 secured, and $3,049 as unsecured.8 We note that the referenced 15 amended claim did not merely classify the full $3345 for GAP 16 insurance and service contracts as unsecured, as Johnson argued, 17 it effectively reduced the claim amount by $3345. Thus, based on 18 the Appellee’s duly filed amended claim, the error identified by 19 Johnson is no longer extant. Therefore, any error made by the 20 bankruptcy court was harmless. 21 Other than the now-resolved treatment of GAP insurance and 22 service contracts, Johnson argues that the bankruptcy court erred 23 by not reducing the claim to zero because Appellee failed to 24 bifurcate the claim into secured and unsecured amounts as 25 8 The order denying reconsideration reflects that the 26 bankruptcy court held a hearing on the motion on August 6, 2014, and stated its reasons for denial of the motion on the record. 27 The parties did not include a transcript of the hearing in the record on appeal, and we did not locate a transcript on the 28 bankruptcy court’s electronic docket. - 11 - 1 required by In re Penrod.9 And he also contends that the 2 bankruptcy court erred by not reducing Appellee’s claim based 3 upon his breach of warranty allegations. 4 1. The bankruptcy court properly allowed Appellee’s 5 bifurcated claim. 6 Johnson appropriately argued the applicability to Appellee’s 7 claim of the Ninth Circuit’s decision in In re Penrod. In 8 In re Penrod, the court was presented with the question of 9 “whether a creditor has a purchase money security interest in the 10 ‘negative equity’ of a vehicle traded in at the time of a new 11 vehicle purchase.” 611 F.3d at 1159. As is the case here, the 12 question in Penrod arose in the context of the application of 13 § 1325(a)(*).10 Id. at 1161. The Ninth Circuit held that the 14 9 Johnson identifies another issue as the bankruptcy 15 court’s failure to determine the value of the vehicle. Johnson did not object to Appellee’s claim on vehicle valuation grounds, 16 however, and we decline to consider the new argument asserted for the first time on appeal. See In re Blixseth, 684 F.3d at 872 17 n.12. Moreover, as discussed herein, pursuant to the Hanging Paragraph following §1325(a)(5), valuation of the vehicle is not 18 necessary or appropriate when determining the secured amount of a 910-auto claim. 19 10 Under the Bankruptcy Abuse Prevention and Consumer 20 Protection Act of 2005 (BAPCPA), Congress added the following additional text to § 1325(a)’s requirements for chapter 13 plan 21 confirmation (which has since been referred to as the “Hanging Paragraph”): 22 For purposes of paragraph (5), section 506 shall not 23 apply to a claim described in that paragraph if the creditor has a purchase money security interest 24 securing the debt that is the subject of the claim, the debt was incurred within the 910-day [period] preceding 25 the date of the filing of the petition, and the collateral for that debt consists of a motor vehicle 26 (as defined in section 30102 of title 49) acquired for the personal use of the debtor, or if collateral for 27 that debt consists of any other thing of value, if the debt was incurred during the 1-year period preceding 28 (continued...)

- 12 - 1 creditor does not. Id. at 1164. Nowhere in the opinion did the 2 court discuss or determine that a creditor’s claim should be 3 reduced to zero if, in its filed proof of claim, the creditor 4 failed to separately classify the secured and unsecured 5 components of its total claim. Johnson did not provide authority 6 to support such a result, nor did we locate supporting authority. 7 Here, the bankruptcy court implicitly interpreted Johnson’s 8 argument as one based on alleged creditor bad faith and 9 explicitly found that Appellee did not act in bad faith by 10 failing to classify part of its claim as unsecured. The 11 bankruptcy court instructed Appellee to file an amended proof of 12 claim, and the Appellee complied. Because the bankruptcy court 13 considered the possibility of bad faith as grounds for reduction 14 or disallowance of Appellee’s claim, but found no evidence in the 15 record to support a bad faith finding, we conclude that the 16 bankruptcy court did not err when it refused to reduce Appellee’s 17 claim to zero. 18 2. The bankruptcy court did not err by disregarding 19 Johnson’s breach of warranty arguments. 20 Johnson assigns error to the bankruptcy court’s failure to 21 reduce the Appellee’s claim based on Johnson’s allegations that 22 23 10 (...continued) that filing. 24 The placement of this language in § 1325(a) “and its internal 25 reference to paragraph (5) strongly suggest that it relates specifically to the treatment of secured claims under the plan.” 26 Trejos, Jr. v. VW Credit, Inc. (In re Trejos, Jr.), 374 B.R. 210, 214 (9th Cir. BAP 2007). “[W]hen applying the ‘Hanging 27 Paragraph,’ ‘the value of the collateral is irrelevant in determining the allowed amount of the secured claim’ . . . .” 28 Id. at 220. - 13 - 1 he was refused warranty services by multiple Hyundai dealerships 2 and permanently would be denied such services in the future. At 3 the claim objection hearing, the bankruptcy court did not discuss 4 Johnson’s allegations that he was refused automotive services. 5 The bankruptcy court, however, necessarily overruled Johnson’s 6 argument for disallowance or subordination when it allowed the 7 bifurcated claim. We do not find error in the bankruptcy court’s 8 conclusion because Johnson’s argument is facially defective. 9 Johnson purchased the vehicle from a Hyundai dealership, not 10 from Appellee. Johnson does not allege that his contracts for 11 warranty and service agreements are with Appellee nor that 12 Appellee refused to provide service to his vehicle. Nor does the 13 record support such a determination. Johnson merely refers to 14 Hyundai globally. He offers neither evidence nor legal authority 15 to support equitable disallowance or subordination of Appellee’s 16 claim, which is based on the financing of Johnson’s purchase of 17 his vehicle, based on alleged claims that other persons from whom 18 he sought services to the vehicle treated him improperly. We 19 conclude that the bankruptcy court did not commit error by 20 disregarding Johnson’s request for disallowance or subordination. 21 CONCLUSION 22 Based on the foregoing, we AFFIRM. 23 24 25 26 27 28

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