FILED SEP 26 2013 1 SUSAN M. SPRAUL, CLERK 2 U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT 3 4 UNITED STATES BANKRUPTCY APPELLATE PANEL 5 OF THE NINTH CIRCUIT 6 In re: ) BAP No. NC-12-1385-DJuPa ) 7 MICHAEL THOMAS FALK, ) Bk. No. 08-12561-AJ ) 8 Debtor. ) ______________________________) 9 ) SHANNON FALK, ) 10 ) Appellant, ) 11 ) v. ) M E M O R A N D U M1 12 ) MICHAEL THOMAS FALK, ) 13 ) Appellee. ) 14 ______________________________) 15 Submitted without Oral Argument September 20, 2013 16 Filed - September 26, 2013 17 Appeal from the United States Bankruptcy Court 18 for the Northern District of California 19 Honorable Alan Jaroslovsky, Chief Bankruptcy Judge, Presiding 20 Appearances: Merle C. Meyers, Esq. and Kathy Quon Bryant, Esq. 21 of Meyers Law Group, P.C. on brief for Appellant Shannon Falk; Craig A. Burnett, Esq. on brief for 22 Appellee Michael Thomas Falk. 23 24 Before: DUNN, JURY and PAPPAS, Bankruptcy Judges. 25 26 1 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 The appellant, Shannon Falk (“Shannon”), appeals the 2 bankruptcy court’s order (1) estimating one of her proofs of 3 claim at zero for distribution purposes in the chapter 72 4 bankruptcy case of her former spouse, the appellee, Michael 5 Thomas Falk (“Michael”), and (2) abstaining from adjudicating her 6 claims under 28 U.S.C. § 1334(c)(1) and (2).3 We AFFIRM. 7 8 FACTS 9 Shannon and Michael’s marital trust and divorce 10 Shannon and Michael married in 1989. While married, they 11 established a marital trust by an agreement (“Marital Trust 12 Agreement”). Under the Marital Trust Agreement, Shannon and 13 Michael transferred various assets into a trust and transmuted 14 them into community property (“Community Property Assets”). The 15 Community Property Assets included the following:4 1) a rental 16 property located in Santa Rosa, California (“Santa Rosa 17 property”); 2) a promissory note and trust deed relating to a 18 19 2 Unless otherwise indicated, all chapter, section and rule 20 references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and 21 to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037. 3 22 The bankruptcy court decided to abstain under both 28 U.S.C. § 1334(c)(1), permissive abstention, and 28 U.S.C. 23 § 1334(c)(2), mandatory abstention. Because we may affirm on any 24 ground supported by the record, see Shanks v. Dressel, 540 F.3d 1082, 1086 (9th Cir. 2008), and have determined that the 25 bankruptcy court did not abuse its discretion in permissively abstaining from adjudicating the claims, we need not address its 26 mandatory abstention decision. 27 4 The Community Property Assets included other assets that 28 are not the subject of this appeal.
2 1 73-acre parcel of real property located in Healdsburg, 2 California;5 3) a life insurance policy;6 4) interests in three 3 limited partnerships, two of which were located in New York 4 (“New York Partnership Interests”); and 5) a general partnership 5 interest.7 6 Two years after Shannon and Michael separated in 2005, the 7 state court entered an order dissolving their marriage. It also 8 entered an order requiring Michael to pay Shannon $969 per month 9 in spousal support (“Spousal Support Order”). However, the state 10 court did not make any determinations as to the division of 11 property or any other domestic support obligations (“Dissolution 12 Issues”). 13 5 14 Shannon described the real property located in Healdsburg, California as consisting of 83 acres. Christopher Johnson 15 purchased the real property from Michael. (Michael financed 16 Christopher’s purchase of the real property in the form of a promissory note secured by a trust deed.) In a declaration, 17 Christopher described the real property as consisting of 73 acres. 18 6 19 It is unclear whether only one life insurance policy or various life insurance policies were placed into the marital 20 trust. Exhibit A to the Marital Trust Agreement appears to list only one life insurance policy with a $75,000 face value. 21 However, in her trial brief for the evidentiary hearing on 22 Michael’s objections to her proofs of claim, Shannon indicates that “various life insurance policies having an aggregate cash 23 surrender value in excess of $30,000 . . .” were placed in the 24 marital trust. 7 25 Shannon described the partnership interest as a 12% interest in a general partnership, Oroville Associates, 26 identified in the Marital Trust Agreement as Feather River 27 Cinemas, LP. Exhibit A to the Marital Trust Agreement simply lists a “Limited Partnership interest in Feather River Cinemas, 28 LP.”
3 1 Shannon’s chapter 11 bankruptcy case 2 On July 20, 2007, Shannon filed a chapter 11 bankruptcy 3 petition.8 At the time she filed for bankruptcy, the Dissolution 4 Issues remained pending in state court. 5 Shannon scheduled the Community Property Assets and $12,000 6 in past due alimony and child support as part of her bankruptcy 7 estate. She scheduled Michael as a general unsecured creditor 8 with an unknown claim amount, characterizing his claim as 9 unliquidated and disputed. 10 Shannon referenced the marital trust in her statement of 11 financial affairs (“SOFA”). She noted that the marital trust 12 involved “all property.” She also mentioned in her SOFA the 13 dissolution proceeding pending in state court. 14 15 Shannon’s adversary proceeding against Michael 16 Shannon initiated an adversary proceeding against Michael 17 seeking a determination that the New York Partnership Interests 18 were community property under the Marital Trust Agreement and 19 were part of her bankruptcy estate. She also sought an order 20 requiring Michael to turn over to her bankruptcy estate all of 21 the distributions received on account of the New York Partnership 22 Interests (“New York Partnership Interest Distributions”). 23 Shannon moved for summary judgment, which the bankruptcy 24 25 26 27 8 Judge Jaroslovsky presided over the bankruptcy cases of 28 both Shannon and Michael.
4 1 court granted in an order entered on February 1, 2008.9 In the 2 memorandum decision issued on January 22, 2008, the bankruptcy 3 court determined that the New York Partnership Interests had been 4 transmuted into community property. In the judgment entered on 5 June 23, 2008 (“Judgment”), the bankruptcy court also determined 6 that the New York Partnership Interests were property of the 7 estate under § 541(a)(2). It ordered Michael to turn over to 8 Shannon’s bankruptcy estate the New York Partnership Interest 9 Distributions.10 10 On November 26, 2008, the bankruptcy court entered an order 11 holding Michael in contempt for failing to comply with the 12 Judgment (“Contempt Order”).11 Two days later, Michael filed his 13 14 15 9 16 Michael filed a cross-motion for summary judgment, which the bankruptcy court denied. 17 10 Michael appealed the bankruptcy court’s order granting 18 summary judgment in favor of Shannon. The district court 19 affirmed the bankruptcy court. Michael then appealed to the Ninth Circuit; the Ninth Circuit dismissed the appeal for failure 20 to file the opening brief. 21 11 On November 5, 2008, Shannon filed an ex parte motion for 22 an order to show cause re: contempt (“Ex Parte OSC Motion”), contending that Michael failed to turn over the New York 23 Partnership Interest Distributions pursuant to the Judgment. One day later, the bankruptcy court entered an order granting the 24 Ex Parte OSC Motion. 25 After a hearing, the bankruptcy court granted Shannon’s contempt motion and entered the Contempt Order. Under the 26 Contempt Order, Michael was required to pay $500 per day 27 (“penalty”) for each day he failed to comply with the terms of the Judgment. If he posted a bond or complied with the Judgment, 28 the penalty would be waived.
5 1 own chapter 7 bankruptcy petition.12 2 3 Michael’s chapter 7 bankruptcy case 4 Michael scheduled the Santa Rosa property, the New York 5 Partnership Interests and the life insurance policy as part of 6 his bankruptcy estate. He also scheduled a “claim for 7 reimbursement against [his] ex-wife[,] Shannon Falk[,] for 8 separate property contribution and for [the] value of 9 contribution of all separate property that was subsequently 10 transmuted at [the] time of transmutation . . . .” He described 11 the value of this claim as “unknown.” 12 Michael referenced the marital trust in his SOFA. Like 13 Shannon, he noted that the marital trust involved “all property.” 14 He also listed in his SOFA the dissolution proceeding pending in 15 state court. He noted that the dissolution proceeding had been 16 bifurcated, addressing the divorce and the division of assets 17 separately. 18 Michael scheduled Shannon as an unsecured priority creditor 19 with a spousal support claim in the amount of $769. He also 20 listed in his SOFA the adversary proceeding, noting the Judgment 21 in Shannon’s favor. 22 23 Shannon’s chapter 11 plan 24 More than a year after she obtained the Judgment, Shannon 25 26 12 Michael previously had filed a chapter 13 bankruptcy 27 petition (07-10860). (Judge Jaroslovsky presided over that bankruptcy case.) Michael’s chapter 13 case was dismissed on 28 July 31, 2007 on a motion filed by Michael.
6 1 submitted a chapter 11 plan in her bankruptcy case.13 She 2 proposed to pay all allowed general unsecured claims in cash in 3 full, plus interest, in quarterly installments over sixty months, 4 “upon satisfaction of the [J]udgment.”14 She also proposed to 5 retain “such interests subject to division as community property 6 consistent with [the Judgment].” Shannon reserved “the right to 7 adjudicate the transmutation of the [Community Property Assets] 8 described in the [Marital Trust Agreement] as between such 9 interest holders, including, but not limited to . . . division 10 . . . and remedies to collect sums found due.” 11 Shannon also mentioned in her Chapter 11 Plan her intent to 12 “compel division of the [Community Property Assets] as determined 13 by [the bankruptcy] court and any other Court of competent 14 jurisdiction.” She also indicated that she would initiate 15 another adversary proceeding “to determine the character of all 16 assets described in the [Marital Trust Agreement] . . . .” Upon 17 confirmation of her Chapter 11 Plan, Shannon asserted “standing 18 to enforce community property rights, collect property of the 19 estate, [and] litigate the rights of the estate and [the] debtor 20 in property . . . .” 21 She further provided in her Chapter 11 Plan that for five 22 23 13 Shannon submitted a total of five chapter 11 plans. She 24 filed the last amended chapter 11 plan titled, “Fourth Amended Chapter 11 Plan of Reorganization” (“Chapter 11 Plan”), on 25 July 17, 2009. 26 14 Shannon proposed to pay the general unsecured claims also 27 with “capital accounts, liquidation proceeds of [the] movie theater interest, [and] proceeds of [the] sale of [the real 28 property located in Santa Rosa, California].”
7 1 years or until “all allowed non-subordinated claims are paid 2 pursuant to the chapter 11 plan,” the chapter 11 trustee was to 3 remain in possession of the bankruptcy estate assets. When that 4 time expired, the bankruptcy court was to approve an inter vivos 5 trust, naming a successor trustee to oversee the remaining 6 assets. Upon payment in full of allowed administrative expenses 7 and allowed priority and general unsecured non-subordinated 8 claims, the successor trustee was to continue to collect the New 9 York Partnership Interest Distributions. The successor trustee 10 was to apply such distributions as follows: 1) to any approved 11 settlement agreement; 2) for a living allowance for Shannon; and 12 3) to payment of subordinated claims.15 13 The bankruptcy court entered an order conditionally 14 confirming Shannon’s Chapter 11 Plan on August 7, 2009. 15 Following a final hearing, the bankruptcy court entered an order 16 confirming the Chapter 11 Plan on October 20, 2009. 17 On May 6, 2011, Shannon filed a motion seeking the 18 bankruptcy court’s approval of a living allowance and an inter 19 vivos trust pursuant to the confirmed Chapter 11 Plan. She 20 reported that the chapter 11 trustee had paid all allowed 21 non-subordinated claims in full as of January 31, 2011. On 22 August 10, 2011, the bankruptcy court entered an order approving 23 the inter vivos trust and directing the successor trustee to pay 24 Shannon $5,000 per month as a living allowance. 25 Shannon later moved for entry of a final decree, 26 15 27 The subordinated claims consisted of the postpetition fees of Shannon’s former bankruptcy counsel, David Chandler, and 28 her former special counsel, Richard Sax.
8 1 representing that all allowed non-subordinated claims and 2 subordinated claims had been paid in full. On August 19, 2012, 3 the bankruptcy court entered a final decree and closed her 4 bankruptcy case. 5 6 Shannon’s proofs of claim in Michael’s chapter 7 bankruptcy case 7 Meanwhile, on January 27, 2011, Michael filed objections 8 (“claim objections”) to three proofs of claim (collectively, 9 “Claims”) filed by Shannon in his bankruptcy case. She filed her 10 first proof of claim on December 24, 2008 (“Claim #1”), her 11 second proof of claim on June 17, 2009 (“Claim #21”), and her 12 third proof of claim on June 18, 2009 (“Claim #24”). Shannon did 13 not attach any documents in support of her Claims. 14 Claim #1 was in the amount of $11,628, all of which was 15 allegedly entitled to priority as a domestic support obligation 16 under § 507(a)(1)(A) or (a)(1)(B). Claim #1 was based on 17 “dissolution of marriage.” 18 Claim #21 was in the amount of $10,100,000. Of this amount, 19 $100,000 was allegedly entitled to priority as a domestic support 20 obligation under § 507(a)(1)(A) or (a)(1)(B). Claim #21 was 21 based on “support, property division, [and] undisclosed 22 property.” 23 Claim #24 was in the amount of $17,442, all of which was 24 allegedly entitled to priority as a domestic support obligation 25 under § 507(a)(1)(A) or (a)(1)(B). Claim #24 was based on 26 “support arrears.” 27 Michael objected to each claim on the same grounds. He 28 contended that there was no way to determine the validity of the
9 1 Claims because Shannon did not submit or produce any documents or 2 proof in support of them. He also argued that the Claims 3 involved non-bankruptcy law issues – child and spousal support 4 and division of property – that should be resolved in state 5 court. Michael further asserted that Claim #1 and Claim #24 were 6 duplicates of Claim #21. He asked that the bankruptcy court 7 abstain from adjudicating the Claims. 8 Shannon responded to Michael’s objections, asserting that 9 she had valid Claims based on the spousal support order, the 10 Marital Trust Agreement and the Judgment. 11 She argued that she had a valid claim for spousal support 12 under the spousal support order, which required Michael to pay 13 her $969 per month. She alleged that Michael owed her 14 approximately $11,000 in spousal support as of the petition date. 15 Shannon also contended that she had a valid general 16 unsecured claim of $1,059,283.04, arising from Michael’s failure 17 to turn over the Community Property Assets and the distributions 18 therefrom pursuant to the Marital Trust Agreement and the 19 Judgment. She moreover alleged that Michael had “a fiduciary 20 duty” to turn over to her any distributions he received from the 21 Community Property Assets. Because he violated his fiduciary 22 duty, Shannon was “entitled to an award of the value of the 23 concealed assets, the income, profits and income from such 24 assets[,] as well as punitive and exemplary damages [under] the 25 Family Code.” 26 Following a preliminary hearing, the bankruptcy court set an 27 evidentiary hearing on Michael’s claim objections for July 24, 28 2012. At the evidentiary hearing, Michael withdrew his objection
10 1 to Claim #1, as it was “the only claim that had any support at 2 all.” Tr. of July 24, 2012 hr’g, 9:11. The bankruptcy court 3 therefore allowed Claim #1 in the amount filed. 4 With respect to Claim #21 and Claim #24, the bankruptcy 5 court decided to abstain from adjudicating them and estimated 6 them at zero for distribution purposes. It believed that, in 7 filing Claim #21 and Claim #24, Shannon was “trying to turn 8 community property arguments into money claims” and “trying to 9 transmute Family Law issues into money claims.” Tr. of July 24, 10 2012 hr’g, 3:20-21, 7:1-2. The bankruptcy court refused “to be a 11 substitute for the Family Law Court,” pointing out that Claim #21 12 and Claim #24 involved family law issues that should be 13 determined by the state court. Tr. of July 24, 2012 hr’g, 4:6-7. 14 The bankruptcy court went on to say that “all [it] cared 15 about [was] making sure the third parties [i.e., creditors] got 16 paid” and “all [the bankruptcy court] ever wanted to do was clear 17 out the bankruptcy issues so it’s strictly a Family Law issue and 18 then send it back to State Court.” Tr. of July 24, 2012 hr’g, 19 6:4-5, 6:21-23. 20 A day after the evidentiary hearing, the bankruptcy court 21 issued a memorandum decision (“Memorandum”). In the Memorandum, 22 it determined that Claim #1 and Claim #24 were for spousal 23 support. It also found Claim #24 to be a duplicate of Claim #1. 24 The bankruptcy court then analyzed Claim #21, finding it to 25 be “a trumped-up affair cobbled together largely or entirely by 26 Shannon calling her community property distribution rights a 27 claim for money.” Memorandum, 1:26, 2:1-2. It determined that 28 Claim #21 included “about $180,000 in other claims, some of which
11 1 may have already been allowed and paid in Shannon’s bankruptcy.” 2 Memorandum, 2:2-3. It concluded that “most that really remains 3 is the ugly dispute between Michael and Shannon.” Memorandum, 4 2:3-4. 5 The bankruptcy court explained that it was abstaining from 6 adjudicating Claim #21 and Claim #24 under § 1334(c)(1) because 7 it did not “deem it appropriate . . . to decide how marital 8 property ought to be divided after creditors [were] paid.” 9 Memorandum, 2:8-9. It “[saw] no reason to hold up distributions 10 to other creditors while Shannon and Michael play[ed] out their 11 drama.” Memorandum, 2:8. It estimated both Claim #21 and 12 Claim #24 at zero for distribution purposes under § 502(c)(1) 13 “without prejudice to all rights and defenses” in the dissolution 14 proceeding. 15 The bankruptcy court lifted all stays against the 16 dissolution proceeding. It provided that no order involving the 17 disposition of Michael’s bankruptcy estate assets could be 18 enforced until his chapter 7 bankruptcy case was closed, without 19 the chapter 7 trustee’s consent or court order. 20 On the same day, the bankruptcy court entered an order 21 consistent with its Memorandum. Shannon timely appealed the 22 bankruptcy court’s determination as to Claim #21 only.16 23 /// 24 /// 25 26 16 Shannon notes in her opening brief that she only 27 challenges the bankruptcy court’s determination as to Claim #21, as Claim #24 is a duplicate of Claim #21. Appellant’s Opening 28 Brief at 16 n.2.
12 1 JURISDICTION 2 The bankruptcy court had jurisdiction under 28 U.S.C. 3 §§ 157(b)(2)(B) and 1334(b). We have jurisdiction under 4 28 U.S.C. § 158.17 5 6 ISSUES 7 1) Did the bankruptcy court err in applying § 502(c)(1) in 8 estimating Claim #21? 9 2) Did the bankruptcy court err in estimating Claim #21 at 10 zero for distribution purposes? 11 3) Did the bankruptcy court err in permissively abstaining 12 from adjudicating Claim #21? 13 14 STANDARDS OF REVIEW 15 We review de novo a bankruptcy court’s interpretation of the 16 Bankruptcy Code. Meruelo Maddux Props.-760 S. Hill Street LLC v. 17 Bank of Am., N.A. (In re Meruelo Maddux Props., Inc.), 667 F.3d 18 1072, 1076 (9th Cir. 2012). We review the bankruptcy court’s 19 factual findings for clear error. Id. 20 We review for abuse of discretion a bankruptcy court’s 21 decision to permissively abstain from adjudicating state law 22 issues. Arizona Bankruptcy Petition Preparers, 307 B.R. at 140. 23 17 28 U.S.C. § 1334(d) prohibits a court of appeal or the 24 Supreme Court from reviewing a bankruptcy court’s permissive or 25 mandatory abstention decision. The statute does not apply to this Panel because we are a bankruptcy appellate panel under 26 28 U.S.C. § 158(c). See also In re Bankruptcy Petition Preparers 27 Who Are Not Certified Pursuant to Requirements of the Arizona Supreme Court, 307 B.R. 134, 140, n.6 (9th Cir. BAP 2004) 28 (“Arizona Bankruptcy Petition Preparers”).
13 1 We apply the same standard of review to its estimation of claims 2 under § 502(c)(1). See In re Corey, 892 F.2d 829, 834 (9th Cir. 3 1989)(“A court has broad discretion when estimating the value of 4 an unliquidated claim”)(citation omitted); First City Beaumont v. 5 Durkay (In re Ford), 967 F.2d 1047, 1049 n.3 (5th Cir. 1992) 6 (“‘Estimation’ for the purposes of section 502(c)(1) simply means 7 that the bankruptcy court may exercise its discretionary powers 8 to determine the allowability of claims in bankruptcy in 9 accordance with the principles of equity.”). 10 We apply a two-part test to determine objectively whether 11 the bankruptcy court abused its discretion. United States v. 12 Hinkson, 585 F.3d 1247, 1261-62 (9th Cir. 2009)(en banc). First, 13 we “determine de novo whether the bankruptcy court identified the 14 correct legal rule to apply to the relief requested.” Id. 15 Second, we examine the bankruptcy court’s factual findings under 16 the clearly erroneous standard. Id. at 1262 & n.20. A 17 bankruptcy court abuses its discretion if it applied the wrong 18 legal standard or its factual findings were illogical, 19 implausible or without support in the record. TrafficSchool.com 20 v. Edriver Inc., 653 F.3d 820, 832 (9th Cir. 2011). 21 We may affirm on any ground supported by the record. Shanks 22 v. Dressel, 540 F.3d 1082, 1086 (9th Cir. 2008). 23 /// 24 /// 25 /// 26 /// 27 /// 28 ///
14 1 DISCUSSION 2 A. Estimation of Claim #21 under § 502(c) 3 1. Application of § 502(c)(1)18 4 Section 502(c)(1) establishes a procedure for the estimation 5 of contingent or unliquidated claims against the bankruptcy 6 estate, if the fixing or liquidation of such claims would unduly 7 delay the administration of the bankruptcy estate. Corey, 8 892 F.2d at 834. “Estimation” simply means that the bankruptcy 9 court may use its discretion in determining the allowability of 10 claims in bankruptcy. Ford, 967 F.2d at 1049 n.3. 11 The Bankruptcy Code does not define the terms “contingent” 12 or “unliquidated.” In re Nicholes, 184 B.R. 82, 88 (9th Cir. BAP 13 1995). However, case law has set forth working definitions of 14 the terms. A contingent claim is “one which the debtor will be 15 called upon to pay only upon the occurrence or happening of an 16 extrinsic event which will trigger the liability of the debtor to 17 the alleged creditor.” Siegel v. Fed. Home Loan Mortg. Corp., 18 143 F.3d 525, 532 (9th Cir. 1998)(quoting Fostvedt v. Dow 19 (In re Fostvedt), 823 F.2d 305, 306 (9th Cir. 1987)(internal 20 quotation marks omitted)). In other words, a contingent claim is 21 one that has not accrued and depends upon a future event. 22 In re Dill, 30 B.R. 546, 548 (9th Cir. BAP 1983). An 23 unliquidated claim is one that is not “subject to ‘ready 24 25 18 Section 502(c)(1) provides: “There shall be estimated for 26 purpose of allowance under this section . . . any contingent or 27 unliquidated claim, the fixing or liquidation of which, as the case may be, would unduly delay the administration of the case 28 . . . .”
15 1 determination and precision in computation of the amount due.’” 2 Fostvedt, 823 F.2d at 306 (quoting In re Sylvester, 19 B.R. 671, 3 673 (9th Cir. BAP 1982)). 4 Shannon argues that the bankruptcy court should not have 5 attempted to estimate Claim #21 at all. She contends that the 6 bankruptcy court erred in estimating Claim #21 under § 502(c)(1) 7 because § 502(c)(1) did not apply, as Claim #21 was not 8 contingent or unliquidated. Shannon asserts that she presented 9 ample evidence demonstrating that Claim #21 already had accrued, 10 triggering Michael’s liability. We disagree. 11 Claim #21 was based on “support, property division, [and] 12 undisclosed property.”19 As she points out, Shannon submitted 13 numerous documents for the evidentiary hearing in support of 14 Claim #21. Most of these documents pertain to the Community 15 Property Assets and the distributions therefrom. 16 With respect to that portion of Claim #21 based on 17 “support,” Shannon submitted her declaration and a copy of the 18 spousal support order as evidence. The declaration briefly 19 refers to the spousal support order and calculates the total 20 amount of spousal support in arrears at $11,724.90. The spousal 21 support order states that Michael must pay $969 per month in 22 spousal support, beginning on January 1, 2008. 23 Clearly, that portion of Claim #21 based on support is not 24 25 19 The bankruptcy court noted in its Memorandum that Shannon 26 had disputed this description of Claim #21, even though she 27 herself had made it in her motion for entry of final decree in her chapter 11 bankruptcy case. The bankruptcy court found her 28 description accurate.
16 1 contingent or unliquidated because the state court already 2 determined Michael’s liability under the spousal support order. 3 (Although the total amount of spousal support due Shannon may be 4 at issue.) But that portion of Claim #21 simply duplicates 5 Claim #1, which the bankruptcy court already allowed. 6 As for the remainder of Claim #21 for “property division, 7 [and] undisclosed property,” we conclude that it is contingent 8 and unliquidated. Shannon argues that Claim #21 is not 9 contingent because “the elements of the claim” were “evident and 10 easy to quantify.” Appellant’s Opening Brief at 22. She seems 11 to imply that a contingent claim is one that is not easily 12 ascertainable. But Shannon misapprehends the meaning of 13 “contingent.” 14 A contingent claim is one that has not yet arisen or 15 developed. A claim is contingent if its existence depends on 16 events outside of the bankruptcy case that give rise to the 17 debtor’s liability to the creditor. Here, looking at only the 18 face sheet of Claim #21, Shannon bases it, in part, on “property 19 division and undisclosed property.” None of the documents she 20 submitted at the evidentiary hearing show that a determination 21 has been made dividing up the Community Property Assets between 22 her and Michael. The documents also do not establish that 23 Michael received the alleged amounts in distributions from the 24 Community Property Assets. And no determination has been made as 25 to Michael’s liability for alleged “undisclosed property.” 26 Shannon alleges that the Judgment and the Marital Trust 27 Agreement require Michael to turn over the Community Property 28 Assets and/or the distributions therefrom. The Marital Trust
17 1 Agreement simply transmuted various assets into community 2 property and then placed them into the marital trust. It did not 3 provide for turnover of these Community Property Assets and any 4 distributions therefrom to Shannon. 5 As for the Judgment, it required Michael to turn over to 6 Shannon the New York Partnership Interest Distributions. But 7 Claim #21 does not indicate that it is based on the Judgment. It 8 simply asserts that it is based on “support, property division, 9 [and] undisclosed property” – none of which comprise the grounds 10 for the Judgment. Also, the Judgment only required Michael to 11 turn over the New York Partnership Interest Distributions, not 12 the other Community Property Assets. 13 Moreover, as the bankruptcy court emphasized, Claim #21 14 involves non-bankruptcy law issues best left to determination by 15 the state court. The division of community property assets is 16 not within the bankruptcy court’s purview. 17 Because Claim #21 is contingent and unliquidated, we 18 determine that the bankruptcy court did not abuse its discretion 19 in applying § 502(c)(1) to estimate Claim #21. 20 21 2. Estimation of Claim #21 at zero for distribution purposes 22 23 “An estimation under section 502(c) may be for broad or 24 narrow purposes.” In re Pac. Gas & Elec. Co., 295 B.R. 635, 642 25 (Bankr. N.D. Cal. 2003). The bankruptcy court must follow “the 26 substantive law governing the nature of the claim (such as 27 following contract law when estimating a breach of contract 28 claim).” Id. (citation omitted). “Otherwise, neither the
18 1 Bankruptcy Code nor the Bankruptcy Rules set forth a procedure 2 for estimating claims; instead, the court may use ‘whatever 3 method is best suited to the particular contingencies at issue.’” 4 Id. (quoting Bittner v. Borne Chem. Co., Inc., 691 F.2d 134, 5 135-36 (3d Cir. 1982)). The bankruptcy court therefore has broad 6 discretion to determine the appropriate method of estimation. 7 See id. 8 The bankruptcy court “only needs to reasonably estimate the 9 probable value of the claim.” Id. (quoting Matter of Fed. Press 10 Co., 116 B.R. 650, 653 (Bankr. N.D. Ind. 1989)(internal quotation 11 marks omitted)). “Such an estimate necessarily implies no 12 certainty and is not a finding or fixing of an exact amount. It 13 is merely the court’s best estimate for the purpose of permitting 14 the case to go forward . . . .” Id. (quoting Fed. Press Co., 15 116 B.R. at 653)(internal quotation marks omitted)). 16 Shannon argues that, even though she proffered sufficient 17 evidence demonstrating the allowability of the entire amount of 18 Claim #21, the bankruptcy court estimated it at zero. She 19 further argues that the bankruptcy court provided no methodology 20 or analysis for arriving at that amount. 21 Claim #21 was based on “support, property division, [and] 22 undisclosed property.” As we earlier explained, no determination 23 had been made as to the division of property and as to the 24 alleged undisclosed assets.20 Aside from the Spousal Support 25 Order, the state court had made no determinations relevant to 26 20 27 Shannon describes these “undisclosed assets” as the distributions from the Community Property Assets that Michael 28 failed to turn over to her.
19 1 Claim #21. 2 Because no determinations had been made on the bases for 3 Claim #21, the bankruptcy court gave its best estimate – zero – 4 in order to permit the bankruptcy case to move forward. Contrary 5 to Shannon’s assertion, the bankruptcy court did in fact explain 6 its methodology: it estimated Claim #21 at zero because it 7 believed it was inappropriate for it to decide how the Community 8 Property Assets should be divided and saw no reason to hold up 9 distributions to other creditors. The bankruptcy court exercised 10 its broad discretion in estimating Claim #21. We see nothing in 11 the record indicating that the bankruptcy court abused its 12 discretion. 13 14 B. Permissive abstention under 28 U.S.C. § 1334(c)(1) 15 “Section 1334(c)(1) provides for permissive abstention in 16 both core and non-core proceedings.” Sec. Farms v. Int’l Bhd. of 17 Teamsters, Chauffers, Warehouseman & Helpers, 124 F.3d 999, 1009 18 (9th Cir. 1997). A bankruptcy court should consider the 19 following factors when deciding whether to abstain: 20 (1) the effect or lack thereof on the efficient administration of the estate if a Court recommends 21 abstention, (2) the extent to which state law issues predominate over bankruptcy issues, (3) the difficulty 22 or unsettled nature of the applicable law, (4) the presence of a related proceeding commenced in state 23 court or other nonbankruptcy court, (5) the jurisdictional basis, if any, other than 28 U.S.C. 24 § 1334, (6) the degree of relatedness or remoteness of the proceeding to the main bankruptcy case, (7) the 25 substance rather than form of an asserted ‘core’ proceeding, (8) the feasibility of severing state law 26 claims from core bankruptcy matters to allow judgments to be entered in state court with enforcement left to 27 the bankruptcy court, (9) the burden of [the bankruptcy court’s] docket, (10) the likelihood that the 28 commencement of the proceeding in bankruptcy court
20 1 involves forum shopping by one of the parties, (11) the existence of a right to a jury trial, and (12) the 2 presence in the proceeding of nondebtor parties. 3 Christensen v. Tucson Estates, Inc. (In re Tucson Estates, Inc.), 4 912 F.2d 1162, 1166-67 (9th Cir. 1990)(quoting In re Republic 5 Reader’s Serv., Inc., 81 B.R. 422, 429 (Bankr. S.D. Tex. 1987) 6 (internal quotation marks omitted)). 7 Shannon contends that the bankruptcy court erred in 8 permissively abstaining from adjudicating Claim #21 because 9 “deciding the merits of Claim No. 21” did not involve state law. 10 Rather, Claim #21 involved a determination as to Michael’s 11 alleged failure to turn over Community Property Assets belonging 12 to her bankruptcy estate. Such a determination, she averred, 13 involved the application of §§ 541(a)(2) and 542(a).21 14 15 21 Section 541(a) provides, in relevant part: 16 The commencement of a case under section 301, 302, or 303 of 17 this title creates an estate. Such an estate is comprised of all the following property, wherever located and by whomever held: 18 . . . 19 (2) All interests of the debtor and the debtor’s spouse in community property as of the commencement of the case that 20 is – (A) under the sole, equal, or joint management and 21 control of the debtor; or 22 (B) liable for an allowable claim against the debtor, or for both an allowable claim against the debtor and 23 an allowable claim against the debtor’s spouse, to the extent that such interest is so liable. 24 25 Section 542(a) provides: Except as provided in subsection (c) or (d) of this section, an entity, other than a custodian, in 26 possession, custody, or control, during the case, of property 27 that the trustee may use, sell, or lease under section 363 of this title, or that the debtor may exempt under section 522 of 28 (continued...)
21 1 We acknowledge that “[f]or purposes of § 541(a)(2), all 2 community property not yet divided by a state court at the time 3 of the bankruptcy filing is property of the bankruptcy estate.” 4 Dumas v. Mantle (In re Mantle), 153 F.3d 1082, 1085 (9th Cir. 5 1998). See also Keller v. Keller (In re Keller), 185 B.R. 796, 6 799-800 (9th Cir. BAP 1995)(“When a bankruptcy petition is filed 7 prior to the final disposition of property between divorcing 8 spouses, the community property comes within the jurisdiction of 9 the bankruptcy court to assure fairness to the creditors of the 10 individual spouses and the marital estate.”). However, we 11 nonetheless conclude that the bankruptcy court did not abuse its 12 discretion in abstaining from determining the division of the 13 Community Property Assets. 14 As we mentioned earlier, one factor in favor of permissive 15 abstention is the effect on the efficient administration of the 16 bankruptcy estate. Here, the bankruptcy court based its decision 17 to abstain on the fact that the creditors in Shannon’s chapter 11 18 bankruptcy case already had been paid and there was “no reason to 19 hold up distributions to other creditors” in Michael’s chapter 7 20 bankruptcy case. Had the bankruptcy court decided to address the 21 issues of community property division, Michael’s chapter 7 22 bankruptcy case could have dragged on to the detriment of other 23 creditors (e.g., litigation costs, possible depreciating value of 24 certain Community Property Assets). Moreover, Shannon’s 25 26 21 (...continued) 27 this title, shall deliver to the trustee, and account for such property or the value of such property, unless such property is 28 of inconsequential value or benefit to the estate.
22 1 chapter 11 case was completed; all of her creditors (other than 2 possibly Michael) had been paid, and her chapter 11 case was 3 closed. There was no need to make any determinations on 4 community property division when they would not have added any 5 value or given any benefit to her chapter 11 bankruptcy estate. 6 Further, the situation is confused because when Michael filed for 7 chapter 7 bankruptcy, all of the Falks’ Community Property Assets 8 became property of his bankruptcy estate as well. There needs to 9 be a division of the Community Property Assets to determine the 10 allocation of those assets between the two battling ex-spouses – 11 and that should be done by the state court. The bankruptcy court 12 did not abuse its discretion in declining to inject itself into 13 resolving the state law issues concerned in Michael and Shannon’s 14 personal marital dissolution disputes. 15 16 CONCLUSION 17 For the foregoing reasons, we AFFIRM. 18 19 20 21 22 23 24 25 26 27 28