FILED AUG 01 2012 1 SUSAN M SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT 2 UNITED STATES BANKRUPTCY APPELLATE PANEL 3 OF THE NINTH CIRCUIT 4 5 In re: ) BAP No. EW-11-1538-MkHJu ) 6 JAMES JAHR and CHANELLE JAHR, ) Bk. No. 11-02302 ) 7 Debtors. ) ) 8 ) JAMES JAHR; CHANELLE JAHR, ) 9 ) Appellants, ) 10 ) v. ) MEMORANDUM* 11 ) DONALD R. FRANK, dba Don’s ) 12 Auto Sales, ) ) 13 Appellee. ) ) 14 Argued by Telephone Conference 15 and Submitted on June 14, 2012 16 Filed: August 1, 2012 17 Appeal From The United States Bankruptcy Court for the Eastern District of Washington 18 Honorable Frank L. Kurtz, Chief Bankruptcy Judge, Presiding 19 20 Appearances: Thomas D. Nagle of the Law Offices of Thomas D. Nagle argued on behalf of Appellants James Jahr 21 and Chanelle Jahr; and James P. Hurley of Hurley & Lara argued on behalf of Appellee Donald Frank, 22 dba Don’s Auto Sales. 23 24 Before: MARKELL, HOLLOWELL and JURY, Bankruptcy Judges. 25 26 * This disposition is not appropriate for publication. 27 Although it may be cited for whatever persuasive value it may have (see Fed. R. App. P. 32.1), it has no precedential value. 28 See 9th Cir. BAP Rule 8013-1. 1 INTRODUCTION 2 Chapter 131 debtors James Jahr (“Jahr”) and his wife 3 Chanelle Jahr (jointly, the “Jahrs”) filed a motion for contempt 4 against Donald R. Frank (“Frank”) for an alleged violation of the 5 automatic stay. Frank defended on the basis that the property 6 involved was not estate property and hence was not protected by 7 the automatic stay. Over the Jahrs’ objection, the bankruptcy 8 court accepted Frank’s argument, and determined that Frank had 9 not violated the automatic stay. The bankruptcy court thus did 10 not hold Frank in contempt or sanction him. 11 We VACATE and REMAND, with instructions to the bankruptcy 12 court to enter an order dismissing the contempt motion without 13 prejudice to the Jahrs commencing an adversary proceeding seeking 14 the same relief or, alternatively, seeking relief under § 362(k). 15 FACTS 16 Doing business as Don’s Auto Sales, Frank owned and operated 17 a used car dealership in Union Gap, Washington. On April 18, 18 2011, Jahr and Frank both signed a retail installment contract 19 (“Contract”) under which Frank sold Jahr a 2002 Cadillac Escalade 20 (“Escalade”).2 The purchase price was $14,773.75; with other 21 1 22 Unless specified otherwise, all chapter and section references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and 23 all Rule references are to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037. All Civil Rule references are to the 24 Federal Rules of Civil Procedure. 25 2 Chanelle Jahr was not a party to the Contract, and it is 26 undisputed that Chanelle Jahr was not directly involved in the sales transaction between Jahr and Frank. Nonetheless, for ease 27 of reference, we hereinafter refer to the Jahrs jointly, except when discussing Jahr’s individual testimony at the contempt 28 (continued...)
2 1 charges allocated to the Jahrs, however, the total price came to 2 $15,000. The Jahrs paid $7,000 down. Frank agreed to carry the 3 balance over time at 29.99%, taking back a security interest in 4 the vehicle to secure the unpaid balance. 5 On the face of the Contract, the sale was unconditional. On 6 the day of purchase, April 18, or the next day, Frank delivered 7 possession of the Escalade to the Jahrs, and the Jahrs drove it 8 off Frank’s lot. The Jahrs obtained insurance for the Escalade 9 soon thereafter. 10 About 2-1/2 weeks later, on May 6, Frank repossessed the 11 Escalade, after presumably declaring a default under the Contract 12 because Frank had deemed himself “insecure.” Three days later, 13 on May 9, 2011, the Jahrs filed a chapter 13 bankruptcy case.3 14 On May 23, 2011, the Jahrs filed a motion to hold Frank in 15 contempt of court for willful violation of the automatic stay 16 based on his repossession of the Escalade and his refusal to 17 return it to the Jahrs.4 18 19 2 (...continued) motion hearing. Joint reference to the Jahrs in all other 20 instances does not affect our analysis or disposition of this 21 appeal. 3 22 This was the Jahrs’ third bankruptcy in five years. They filed their first chapter 13 bankruptcy in May 2007 (Case No. 07- 23 01720), which case was dismissed in July 2008, based on the Jahrs’ failure to make their chapter 13 payments. The Jahrs 24 filed their second chapter 13 bankruptcy in June 2009 (Case No. 25 09-03180), which case was dismissed in October 2009, also based on the Jahrs’ failure to make their chapter 13 payments. 26 4 We are somewhat perplexed by the Jahrs’ decision to 27 commence a contempt proceeding instead of commencing a proceeding to recover damages under § 362(k)(1). Section 362(k) provides: 28 (continued...)
3 1 Initially, the Jahrs filed a certificate under penalty of 2 perjury stating that the Escalade was repossessed after they 3 filed bankruptcy. But later, in June 2011, the Jahrs filed a new 4 certificate under penalty of perjury, in which they admitted that 5 the first certificate was inaccurate, that the Escalade actually 6 was repossessed on May 6, 2011, three days before the Jahrs filed 7 their bankruptcy case.5 8 Based on the Jahrs’ motion, on June 1, 2011, the court 9 entered an order to show cause, directing Frank to appear and 10 11 4 (...continued) 12 “Except as provided in paragraph (2), an individual injured by any willful violation of a stay provided by this section shall 13 recover actual damages, including costs and attorneys’ fees, and, 14 in appropriate circumstances, may recover punitive damages.” Contempt proceedings and § 362(k) proceedings are distinct. 15 Different standards and remedies apply to each. See Knupfer v. Lindblade (In re Dyer), 322 F.3d 1178, 1190 (9th Cir. 2003). 16 Moreover, while it generally is accepted in the Ninth Circuit 17 that contempt is a proper remedy for violation of the stay when the contempt proceeding is pursued by an entity who is ineligible 18 for relief under § 362(k), id. at 1189-90, it is far less clear whether an individual who is eligible for relief under § 362(k) 19 also is eligible to seek alternate relief by way of a contempt proceeding under § 105(a). See generally id. at 1189-90. In 20 light of our disposition of this appeal, we do not need to 21 resolve this issue. 5 22 The Jahrs included in their excerpts of record for this appeal the Jahrs’ first, inaccurate certificate, but they did not 23 include the later, accurate certificate. Nonetheless, we can and have considered this later certificate, as well as other 24 documents filed in the Jahrs’ bankruptcy case, even though they 25 were not provided to us by either of the parties. See O’Rourke v. Seaboard Sur. Co. (In re E.R. Fegert, Inc.), 887 F.2d 955, 26 957-58 (9th Cir. 1989); Atwood v. Chase Manhattan Mrtg. Co. (In re Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003). We 27 have obtained copies of those documents online by accessing the bankruptcy court’s electronic docket and the images appended 28 thereto.
4 1 show cause why he should not be held in contempt of court for 2 violation of the automatic stay. After both parties filed briefs 3 in support of their respective positions, the bankruptcy court 4 held an evidentiary hearing on July 14 and 15, 2011.6 5 During the hearing, Frank admitted that, prepetition, Frank 6 had repossessed the Escalade and that, postpetition, he had 7 refused to return the Escalade to the Jahrs. However, Frank 8 asserted that he was entitled under the Contract to declare 9 himself insecure and repossess and retain the Escalade based on 10 certain inaccuracies and omissions in the information – including 11 whether James Jahr had a valid driver’s license – that the Jahrs 12 had provided to Frank in order to induce Frank to sell them the 13 Escalade. 14 Somewhat inconsistently, Frank also asserted that the whole 15 sales transaction was conditioned upon whether Frank was able to 16 sell the Contract to Reliable Credit Association (“Reliable”). 17 Both before and after transferring possession of the Escalade to 18 the Jahrs, Frank worked with Reliable hoping that Reliable would 19 finance the sale in exchange for an assignment of Frank’s rights 20 under the Contract. Frank testified that Frank’s customers, 21 including the Jahrs, were routinely and repeatedly told that all 22 deals were contingent on financing company approval. 23 According to Frank: (1) Reliable had approved the financing 24 for the sale to the Jahrs, but subject to certain stipulations, 25 6 26 Because the Jahrs’ excerpts of record only included limited excerpts from the hearing transcript, we instead have relied upon 27 the full hearing transcript. That full transcript is appended to the bankruptcy court’s electronic docket as document numbers 106 28 and 107, in case number 11-02302.
5 1 like proof of a valid driver’s license, proof of residency, proof 2 of income, and the accuracy of the information that the Jahrs had 3 provided to Frank; and (2) Frank communicated Reliable’s 4 stipulations to the Jahrs and told the Jahrs that the deal was 5 conditioned upon the satisfaction of Reliable’s stipulations. 6 The following passage is representative of Frank’s 7 testimony: 8 Q. . . . So [the Contract, Ex. 107,] was the agreement between you and James Jahr? 9 A. If, if, a big if, if the stipulations meet. 10 Q. Where does it say that? 11 A. We tell him that. I know verbal contracts aren’t 12 any good, but he has to know that if my collateral is in jeopardy, that I can repossess it. And with his 13 stipulations not meeting and me not getting my money, my collateral is in jeopardy. 14 15 Hr’g Trans. (July 14, 2011) at 93:13-21. 16 For his part, Jahr testified that Frank’s staff told him the 17 sale was unconditional and informed him the day he took 18 possession of the Escalade: (1) that Reliable had agreed to 19 finance the transaction and (2) they appreciated him buying the 20 car. The Jahrs also claimed that the Contract, which was 21 unconditional on its face, was controlling. 22 The Jahrs further argued that, to the extent Frank 23 challenged their claim that their bankruptcy estate had an 24 interest in the Escalade, Frank should have commenced an 25 adversary proceeding raising the issue. According to the Jahrs, 26 by not commencing such an adversary proceeding, Frank in essence 27 had waived, for purposes of the contempt motion, his right to 28 challenge the Jahrs’ claim that the estate had an interest in the
6 1 Escalade. 2 Immediately following the close of evidence, the bankruptcy 3 court expressed its preliminary view that, notwithstanding 4 Frank’s prepetition repossession of the Escalade, the Jahrs 5 continued to have an ownership interest in the Escalade because 6 Frank had sold the Escalade to the Jahrs: 7 You know, the bankruptcy estate covers all property in which the debtor has an interest. 8 Now, in this situation, which is very murky, you 9 know, you’ve got a contract, the contract has been signed, [Frank] accepted [a downpayment of] $7000, 10 [Frank] sent the young man off at the dealership with the vehicle, so he’s got an interest in that piece of 11 property. And so there is a question about whether you violated the automatic stay by retaining possession of 12 property of the estate in a dispute over a debt. 13 Hr’g Trans. (July 15, 2011) at 120:11-20. 14 However, by the time the bankruptcy court rendered its oral 15 findings of fact and conclusions of law on September 6, 2011, the 16 court’s thinking had evolved. The court, once again, 17 acknowledged: (1) that both parties had signed the Contract, 18 which was unconditional on its face; (2) that the Jahrs paid to 19 Frank a $7,000 downpayment, which never was returned to him; and 20 (3) that Frank transferred to the Jahrs possession of the 21 Escalade, which transfer occurred on April 18 or 19, 2011. 22 Nonetheless, according to the court, the Jahrs and Frank had 23 agreed that Reliable’s purchase of the Contract was a condition 24 precedent to Frank’s duty to sell the Escalade to the Jahrs. The 25 court based this determination largely on Frank’s testimony 26 regarding the oral statements and course of conduct of the 27 parties while they were negotiating the sale of the Escalade. 28 The court further reasoned that, because Frank’s duty to sell was
7 1 conditional and because Frank had repossessed the Escalade 2 prepetition, the Jahrs had no interest in the Escalade at the 3 time of his bankruptcy filing, so it was not property of the 4 estate. This led the court to conclude that Frank’s postpetition 5 refusal to return the Escalade to the Jahrs had not violated the 6 automatic stay because the Escalade was not estate property. 7 On September 21, 2011, the bankruptcy court entered its 8 order determining that Frank had not violated the automatic stay 9 and hence that Frank should not be held in contempt of court. 10 The Jahrs timely filed their notice of appeal on September 27, 11 2011. 12 JURISDICTION 13 The bankruptcy court had jurisdiction pursuant to 28 U.S.C. 14 §§ 1334 and 157(b)(2)(A), and we have jurisdiction under 15 28 U.S.C. § 158(a)(1). 16 DISCUSSION 17 The dispositive issue in this appeal is procedural: whether 18 the bankruptcy court erred in ruling on the merits of the Jahrs’ 19 contempt motion in the absence of an adversary proceeding. This 20 issue requires us to interpret and apply Rule 7001(2), which is a 21 matter for de novo review. See Ruvacalba v. Munoz (In re Munoz), 22 287 B.R. 546, 550 (9th Cir. BAP 2002); see also All Points 23 Capital Corp. v. Meyer (In re Meyer), 373 B.R. 84, 88 (9th Cir. 24 BAP 2007) (interpreting and applying Civil Rule 55(b)(2)). 25 A. Law generally governing the Jahrs’ contempt motion 26 As a threshold matter, we must survey the legal context in 27 which the above-referenced procedural issue arises before we can 28 properly apply the governing procedural rule. As discussed
8 1 above, this appeal arises from the Jahrs’ contempt motion. As 2 the movants seeking an order finding Frank in contempt, the Jahrs 3 bore the burden of proof to establish by clear and convincing 4 evidence that Frank violated a “specific and definite court 5 order.” In re Dyer, 322 F.3d at 1190-91. For purposes of 6 contempt, the automatic stay provided for in § 362(a) “qualifies 7 as a specific and definite court order.” Id. at 1191. 8 The Jahrs claimed that Frank had violated § 362(a)(3), which 9 stays “any act to obtain possession of property of the estate or 10 of property from the estate or to exercise control over property 11 of the estate.” Congress added the “exercise control” clause to 12 § 362(a)(3) in 1984, and the Ninth Circuit has held that the mere 13 knowing retention of estate property violates § 362(a)(3). Cal. 14 Emp’t Dev. Dep’t v. Taxel (In re Del Mission Ltd.), 98 F.3d 1147, 15 1151 (9th Cir. 1996). Moreover, this Panel has held that the 16 mere failure to return a repossessed motor vehicle that qualifies 17 as property of the estate violates § 362(a)(3). Abrams v. Sw. 18 Leasing & Rental Inc. (In re Abrams), 127 B.R. 239, 241-43 (9th 19 Cir. BAP 1991). 20 Put another way, if the Escalade was estate property, the 21 onus was on Frank, if he wanted to avoid violating the automatic 22 stay, to return the Escalade as soon as the Jahrs notified Frank 23 of their bankruptcy filing and requested return of the car. See 24 Thompson v. General Motors Acceptance Corp., LLC, 566 F.3d 699, 25 707-08 (7th Cir. 2009); see also U.S. v. Whiting Pools, Inc., 26 462 U.S. 198, 206-07, 103 S.Ct. 2309, 2314-15 (1983); Expeditors 27 Int'l of Wash., Inc. v. Colortran, Inc. (In re Colortran, Inc.), 28 210 B.R. 823, 827-28 (9th Cir. BAP 1997), aff'd in part and
9 1 vacated in part on other grounds, 165 F.3d 35 (table) (9th Cir. 2 1998). 3 But the bankruptcy court determined that the Escalade was 4 not property of the estate and thus there was no violation of 5 § 362(a)(3). Whether the Jahrs’ bankruptcy estate had an 6 interest in the Escalade is determined by looking at the debtor’s 7 legal and equitable property rights on the date of the bankruptcy 8 filing, as established under state law. See Nobelman v. Am. Sav. 9 Bank, 508 U.S. 324, 329, 113 S.Ct. 2106, 2110 (1993); Cogliano 10 v. Anderson (In re Cogliano), 355 B.R. 792, 800-01 (9th Cir. BAP 11 2006) (citing Butner v. United States, 440 U.S. 48, 54–55, 99 12 S.Ct. 914, 59 L.Ed.2d 136 (1979)). 13 B. Adversary proceeding requirement 14 On appeal, the Jahrs challenge the bankruptcy court’s 15 determination that the Escalade was not property of the estate. 16 Among other things, the Jahrs have asserted that the bankruptcy 17 court should have determined whether the Escalade was estate 18 property in an adversary proceeding under Rules 7001, et. seq., 19 rather than in a contested matter under Rule 9014. This Panel 20 previously has explained that there are significant differences 21 between contested matter procedure and adversary proceeding 22 procedure, Ung v. Boni (In re Boni), 240 B.R. 381, (9th Cir. BAP 23 1999), and that it is error for a bankruptcy court to employ 24 contested matter procedure when adversary proceeding procedure is 25 required. In re Munoz, 287 B.R. at 551 (citing Bear v. Coben 26 (In re Golden Plan), 829 F.2d 705, 711–12 (9th Cir. 1986), GMAC 27 Mortg. Corp. v. Salisbury (In re Loloee), 241 B.R. 655, 660 (9th 28 Cir. BAP 1999), and In re Boni, 240 B.R. at 385–86).
10 1 Under Rule 7001(2), “a proceeding to determine the validity, 2 priority, or extent of a lien or other interest in property,” 3 must be brought as an adversary proceeding. And it is settled 4 law in this circuit that it is error for a bankruptcy court to 5 determine property interests outside of an adversary proceeding. 6 See, e.g., Brady v. Commercial W. Fin. Corp. (In re Commercial W. 7 Fin. Corp.), 761 F.2d 1329, 1336-38 (9th Cir. 1985) (reversing 8 order confirming chapter 11 plan because plan proponent attempted 9 to invalidate liens through plan confirmation process, rather 10 than by filing required adversary proceeding); Expeditors Int’l 11 of Wash., Inc. v. Citicorp N. Am., Inc. (In re Colortran, Inc.), 12 218 B.R. 507, 510-11 (9th Cir. BAP 1997) (following Commercial W. 13 Fin. Corp, and declaring void bankruptcy court’s order denying 14 compromise motion to the extent the order purported to invalidate 15 creditor’s lien). Moreover, this Panel specifically has held 16 that the issue of whether the estate has an interest in 17 particular property ordinarily should be determined in an 18 adversary proceeding. In re Cogliano, 355 B.R. at 804-05. 19 However, In re Munoz points to one possible loophole in the 20 adversary proceeding requirement that may apply here. If the 21 bankruptcy court’s circumvention of the adversary proceeding 22 requirement was harmless, this Panel need not reverse on that 23 basis. In re Munoz, 287 B.R. at 551-52.7 As Munoz explained: 24 7 25 Another potential loophole that arguably might apply in some cases is the appellant’s waiver of the adversary proceeding 26 requirement. In re Boni, 240 B.R. at 385–86. In Boni, we declined to decide whether and under what circumstances the 27 adversary proceeding requirement can be waived. We similarly decline to do so here. In this instance, it suffices for us to 28 (continued...)
11 1 Such an error may nevertheless be harmless when the record of the procedurally incorrect “contested 2 matter” is developed to a sufficient degree that the record of an adversary proceeding likely would not have 3 been materially different. In such circumstances, the error does not affect the substantial rights of the 4 parties and is not inconsistent with substantial justice. 5 But where the record might have been materially 6 different with an adversary proceeding, reversal ensues. 7 8 Id. at 551 (citations omitted.) In concluding that the failure 9 to use an adversary proceeding there was harmless error, Munoz 10 relied on the following considerations: (1) the material facts 11 were few and undisputed, (2) the dispositive issues were pure 12 questions of law, (3) neither party expressed any discontent with 13 the contested matter procedures the bankruptcy court utilized, 14 and (4) this Panel was “satisfied that neither the factual record 15 nor the quality of the presentation of the arguments would have 16 been materially different had there been an adversary 17 proceeding.” Id. 18 Here, in contrast, the Munoz factors militate in favor of 19 reversal. We will address each factor in turn. 20 1. The dispositive facts were disputed, and the testimony concerning those facts was inconsistent. 21 22 While the material facts were relatively few, the 23 dispositive facts concerning whether Frank transferred title to 24 the Escalade to the Jahrs were disputed and the evidence on this 25 7 26 (...continued) hold that there could not have been any waiver when the Jahrs 27 argued, both in the bankruptcy court and on appeal, that the bankruptcy court should not decide the issue of the estate’s 28 interest in the Escalade outside of an adversary proceeding.
12 1 point was quite equivocal. For their part, the Jahrs claimed 2 that there were no unsatisfied contingencies with respect to 3 either Contract acceptance or the consummation of the sale. On 4 the other hand, Frank’s testimony was inconsistent. At times, he 5 seemed to admit that the sale had been consummated without 6 mentioning any qualifications or conditions. At other times, 7 Frank stated that the “sale” or the “deal” was contingent upon 8 the satisfaction of the financing condition and other 9 conditions.8 The inconsistency of Frank’s testimony is 10 highlighted by his admission that he accepted the benefits of the 11 Contract (particularly the $7,000 downpayment and the right to 12 repossess if he deemed himself insecure), while at the same time 13 denying that the Contract conferred upon the Jahrs any interest 14 in the Escalade or any other rights. This inconsistency is 15 particularly problematic here because Frank's retention of 16 Contract rights for himself was coupled with delivery of 17 possession of the Escalade to the Jahrs.9 18 19 8 It is unclear to us whether Frank’s references to “sale” and “deal” in this context were meant to refer to Frank’s 20 acceptance of the Contract, Frank’s duty to perform under the 21 Contract, Frank’s consummation of the sale by transferring title to Jahr, or all three of the above. Indeed, from our review of 22 the entire record, we suspect that Frank conflated these three questions – that he did not comprehend that the answer to each of 23 these three questions could be different and that each answer could have distinct legal consequences. 24 9 25 Frank’s inconsistent testimony also is problematic because Washington law generally prohibits automobile dealers from 26 holding buyers to a sales contract while at the same time giving themselves the option, for more than a few days, to declare that 27 there is no binding contract between the parties. See RCW § 46.70.180(4)(a); see also Banuelos v. TSA Wash., Inc., 28 (continued...)
13 1 2. The dispositive issue was not a pure question of law. 2 Not only were there material issues of disputed fact in 3 play, but also the underlying issue – whether the Escalade was 4 estate property at the time of the Jahrs’ bankruptcy filing – 5 cannot reasonably be characterized as a “pure question of law” as 6 was extant in Munoz. To the contrary, answering this question 7 required the bankruptcy court to weigh the conflicting and 8 circumstantial evidence regarding whether the parties explicitly 9 agreed that Frank would retain all interest in and title to the 10 Escalade notwithstanding the fully-executed Contract and Frank’s 11 delivery of possession to the Jahrs. The bankruptcy court never 12 found that such an agreement existed.10 13 3. The Jahrs objected to the bankruptcy court resolving the matter absent an adversary proceeding. 14 15 Unlike the parties in Munoz, the Jahrs here more than once 16 objected to the issue of the estate’s interest in the Escalade 17 being decided outside of an adversary proceeding. After Frank 18 raised the issue of whether the Escalade was estate property, the 19 9 (...continued) 20 141 P.3d 652, 655 (Wash. App. 2006). 21 10 Under Washington’s version of the Uniform Commercial Code 22 covering sales, RCW §§ 62A.2-101, et seq., absent explicit agreement to the contrary: (1) identification of the Escalade in 23 the Contract conferred upon the Jahrs a legally-recognized interest in the Escalade, and (2) delivery of possession of the 24 Escalade passed title to the Jahrs (as that is when Frank 25 completed his performance). See RCW §§ 62A.2-401(1), (2); 62A.2-501(1)(a). In other words, unless the bankruptcy court 26 found an explicit agreement to the contrary, the undisputed facts regarding the Contract, Franks’ delivery of the Escalade, and the 27 Jahrs’ driving it off of Franks’ lot would have been sufficient to establish that the Jahrs had an interest in the Escalade that 28 made it estate property at the time of their bankruptcy filing.
14 1 Jahrs twice explicitly argued that the estate property issue 2 needed to be addressed, if at all, in an adversary proceeding. 3 The Jahrs raised this argument in their written brief in support 4 of their contempt motion and reiterated this argument at the 5 evidentiary hearing on the contempt motion. But nothing in the 6 record indicates that the bankruptcy court addressed this 7 argument. 8 4. The factual record and the quality of the presentation of the arguments likely would have been materially 9 different had there been an adversary proceeding. 10 The above discussion of the first three Munoz factors also 11 convinces us that, under the fourth Munoz factor, the development 12 of the factual record and the quality of the parties' 13 presentations of argument, both likely would have benefitted from 14 the more formal and deliberate procedures associated with 15 adversary proceedings. 16 Jahrs' belated parol evidence argument further convinces us 17 that adversary proceeding procedures might have facilitated the 18 resolution of this dispute. The Jahrs have argued for the first 19 time on appeal that the parol evidence rule should have kept the 20 bankruptcy court from considering evidence concerning the 21 parties' alleged oral agreements inconsistent with the written 22 terms on the face of the Contract. Because the Jahrs did not 23 raise the parol evidence rule in the bankruptcy court, we decline 24 to either address or decide the specific parol evidence issues 25 they raise for the first time on appeal. See Golden v. Chicago 26 Title Ins. Co. (In re Choo), 273 B.R. 608, 613 (9th Cir. BAP 27 2002); Branam v. Crowder (In re Branam), 226 B.R. 45, 55 (9th 28 Cir. BAP 1998), aff'd, 205 F.3d 1350 (table) (9th Cir. 1999).
15 1 Nonetheless, the lack of development of the record relating 2 to parol evidence issues further suggests that adversary 3 proceeding procedures might have had a salutary impact on this 4 dispute. Specifically, if the more extensive and formal 5 discovery and pretrial procedures associated with an adversary 6 proceeding had been followed, the parol evidence issues quite 7 likely would have surfaced before trial, and the parties then 8 would have been able to develop the record with the parol 9 evidence rule in mind and to obtain a ruling from the bankruptcy 10 court on the applicability of the rule. 11 For all of the foregoing reasons, we agree with the Jahrs 12 that the bankruptcy court should not have determined the estate's 13 interest in the Escalade outside of an adversary proceeding, and 14 we hold that the bankruptcy court's circumvention of an adversary 15 proceeding was not harmless error. 16 C. The Jahrs’ “arguable estate property” argument 17 There is another aspect of the Jahrs’ adversary proceeding 18 argument that we must discuss. The Jahrs in essence contend that 19 Frank waived any argument that the Escalade was not estate 20 property because he did not file an adversary proceeding seeking 21 to determine whether the Escalade was property of the estate. 22 In support of this contention, the Jahrs rely upon Brown v. 23 Chestnut (In re Chestnut), 422 F.3d 298 (5th Cir. 2005). But the 24 Jahrs’ reliance on Chestnut is misplaced. Chestnut held that 25 property in which the debtor had an “arguable claim of right” on 26 the petition date (which Chestnut referred to as “arguable 27 property of the estate”) was protected by § 362(a)(3) and hence 28 any affirmative actions taken by a nondebtor party to seize,
16 1 possess or foreclose upon arguable estate property was a 2 violation of the automatic stay. Id. at 300, 302-03. 3 Chestnut’s holding hinges on its extension of the meaning of 4 “property of the estate” as used in § 362(a)(3) to include 5 “arguable property of the estate” – property in which the debtor 6 arguably might have an interest on the date the bankruptcy case 7 is commenced. See id. at 302-03. We decline to follow Chestnut 8 because we are convinced that its expansive reading of the term 9 “property of the estate” is inconsistent with the plain language 10 of that term’s statutory definition. See § 541(a)(1); see also 11 Moody v. Amoco Oil Co., 734 F.2d 1200, 1213 (7th Cir. 1984) 12 (stating that property of the estate under § 541(a) consists of 13 the debtor’s property rights as of the date of the bankruptcy 14 filing – “no more, no less”); Frazer v. Drummond (In re Frazer), 15 377 B.R. 621, 626–27 (9th Cir. BAP 2007) (same). 16 In any event, Chestnut also is distinguishable. Unlike 17 Chestnut, where the action was brought under the predecessor of 18 § 362(k),11 the Jahrs sought sanctions for alleged contempt of 19 court. As the party seeking contempt sanctions, the Jahrs were 20 required to prove that Frank violated a “specific and definite 21 court order.” In re Dyer, 322 F.3d at 1190-91. When the Jahrs 22 contend that § 362(a)(3) covers the Escalade as “arguable estate 23 property,” we begin to have trouble perceiving § 362(a)(3) as a 24 “specific and definite court order” on which to ground contempt 25 26 11 As part of Congress’s enactment of the Bankruptcy Abuse 27 Prevention and Consumer Protection Act of 2005, Pub. L. 109-8, 119 Stat. 23 (2005), substantive amendments not relevant to this 28 appeal were made to § 362, and former § 362(h) became § 362(k).
17 1 sanctions. In other words, the scope of the automatic stay 2 potentially becomes so broad and ill-defined when you start 3 adding “arguable estate property” to its coverage that we no 4 longer feel comfortable characterizing § 362(a)(3) as a “specific 5 and definite court order” for purposes of a contempt proceeding. 6 In sum, we hold that the Jahrs, not Frank, needed to 7 commence an adversary proceeding if they desired to duly 8 establish their entitlement to contempt sanctions based on 9 Frank’s alleged violation of the automatic stay. We acknowledge 10 that contempt sanctions ordinarily can be sought by motion. See 11 Rule 9020 (providing that motions for contempt are governed by 12 Rule 9014 and not Rule 7001); see also In re Del Mission Ltd. 13 98 F.3d at 1152-53 (stay violation pursued as motion for 14 contempt). However, because the contempt motion here required a 15 determination of whether certain property was property of the 16 estate, it was incumbent on the Jahrs to commence an adversary 17 proceeding before they could recover their requested contempt 18 sanctions.12 19 CONCLUSION 20 For the reasons set forth above, We VACATE the bankruptcy 21 court’s ruling on the Jahrs’ contempt motion, and we REMAND, with 22 an instruction for the bankruptcy court to enter an order 23 dismissing the contempt motion without prejudice to the Jahrs 24 12 25 We further acknowledge that it might seem ironic for the Jahrs to succeed on appeal by arguing that their contempt motion, 26 a matter which they initiated, should have been disposed of by adversary proceeding. But much if not all of that seeming irony 27 disappears when one considers that the issue necessitating an adversary proceeding – the estate property issue – was raised by 28 Frank in his response to the contempt motion.
18 1 commencing an adversary proceeding seeking the same relief or, 2 alternatively, seeking relief under § 362(k). 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28