In re: Peter F. Bronson and Sherri L. Bronson

• Court: United States Bankruptcy Appellate Panel for the Ninth Circuit
• Decided: October 12, 2016
• Docket: AZ-16-1050-JuFL
• Status: Unpublished

Opinion

FILED OCT 12 2016 1 NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK 2 U.S. BKCY.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. AZ-16-1050-JuFL ) 6 PETER F. BRONSON and ) Bk. No. 02:08-bk-00777-GBN SHERRI L. BRONSON, ) 7 ) Adv. No. 2:09-ap-01312-GBN Debtors. ) 8 ______________________________) PETER F. BRONSON; SHERRI L. ) 9 BRONSON, ) ) 10 Appellants, ) ) 11 v. ) M E M O R A N D U M* ) 12 THOMAS M. THOMPSON, ) ) 13 Appellee. ) ______________________________) 14 Submitted Without Oral Argument 15 on September 23, 2016** 16 Filed - October 12, 2016 17 Appeal from the United States Bankruptcy Court for the District of Arizona 18 Honorable George B. Nielsen, Jr., Bankruptcy Judge, Presiding 19 _________________________ 20 Appearances: Appellants Peter F. Bronson and Sherri L. Bronson on brief pro se; Jimmie D. Smith on brief for 21 appellee Thomas M. Thompson. _________________________ 22 Before: JURY, FARIS, and LAFFERTY, Bankruptcy Judges. 23 24 * This disposition is not appropriate for publication. Although it may be cited for whatever persuasive value it may 25 have (see Fed. R. App. P. 32.1), it has no precedential value. 26 See 9th Cir. BAP Rule 8024-1. ** 27 By order entered on August 8, 2016, a motions panel determined this appeal suitable for submission on the brief and 28 record without oral argument.

-1- 1 Peter F. Bronson and Sherri L. Bronson (collectively, 2 Debtors) appeal pro se from the bankruptcy court’s order 3 dismissing their state law claim in this adversary proceeding 4 and ordering the adversary case closed.1 5 Appellee, Thomas M. Thompson (TMT), commenced this 6 adversary proceeding seeking a deficiency judgment against 7 Debtors after conducting a foreclosure of commercial property 8 due to Debtors’ default on the underlying loan. Although the 9 bankruptcy court entered a judgment in 2011 in favor of TMT 10 consisting of attorney’s fees and a deficiency, upon 11 reconsideration it determined that the judgment pertaining to 12 the deficiency was entered prematurely and left the deficiency 13 issue to be resolved by future litigation. In their motion for 14 reconsideration of the amount of the deficiency, Debtors 15 asserted a state law claim against TMT arising out of the 16 deficiency litigation. 17 After lengthy procedural delays caused by conversion of the 18 original chapter 112 proceeding to chapter 7 and several 19 intervening appeals by Debtors, Debtors moved for summary 20 judgment on the fair market value of the property at the time of 21 foreclosure, which was relevant to the deficiency litigation. 22 1 23 The order on appeal did more than dismiss the state law claim. Because we affirm the bankruptcy court’s dismissal of the 24 state law claim and closing of the adversary proceeding, it is not necessary to address any other issues. 25 2 26 Unless otherwise indicated, all chapter and section references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, 27 “Rule” references are to the Federal Rules of Bankruptcy Procedure, and “Civil Rule” references are the Federal Rules of 28 Civil Procedure.

-2- 1 The bankruptcy court denied the summary judgment because the 2 value of the property presented a disputed issue of fact. 3 It then addressed the pending adversary on broader terms, 4 finding that the remaining issues arose under state law and 5 would have no impact on the administration of Debtors’ 6 bankruptcy estate because (1) the chapter 7 trustee had 7 abandoned Debtors’ state law claim against TMT and thus it was 8 not an asset of their estate; (2) Debtors’ estate had been fully 9 administered; and (3) Debtors had received their discharge. 10 Accordingly, the court sua sponte dismissed Debtors’ state law 11 claim for lack of jurisdiction and ordered the adversary 12 proceeding closed. 13 For the reasons explained below, we conclude the bankruptcy 14 court properly exercised its discretion in dismissing the 15 Debtors’ state law claim and closing the adversary. 16 Accordingly, we AFFIRM. 17 I. FACTS3 18 TMT was a secured creditor of Debtors. Debtors defaulted 19 on the loan they owed to TMT. As a result, TMT commenced 20 foreclosure proceedings against the underlying commercial 21 property, an office building (Property), which secured the loan. 22 3 23 This is the sixth pro se appeal Debtors have pursued before the Panel. The decision disposing of BAP No. AZ-12-1320, 24 Bronson v. Thompson, 2013 WL 2350791 (9th Cir. BAP May 29, 2013), contains a lengthy recitation of facts concerning Debtors’ 25 disputes with TMT throughout this bankruptcy case. We recite 26 here only those facts relevant to our disposition in this appeal. To the extent necessary, we take judicial notice of the pleadings 27 filed and docketed in the underlying bankruptcy case and adversary proceeding. Atwood v. Chase Manhattan Mortg. Co. 28 (In re Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003).

-3- 1 In October 2007, TMT recorded a notice of trustee’s sale. 2 On January 28, 2008, the day before the scheduled trustee’s 3 sale, Debtors filed their chapter 11 bankruptcy petition. 4 Thereafter, TMT obtained relief from stay and held a trustee’s 5 sale, at which TMT was the successful bidder based on a credit 6 bid of $200,000. 7 In October 2009, TMT filed an adversary complaint against 8 Debtors seeking a deficiency judgment. TMT sought, among other 9 things, attorney’s fees in the amount of $31,325.10 and a 10 deficiency in the amount of $18,574.15. 11 On October 28, 2011, the bankruptcy court entered a final 12 judgment in favor of TMT, which overruled Debtors’ objections to 13 TMT’s attorney fee request in the amount of $31,325.10 and found 14 a deficiency in the amount of $18,574.15. On November 14, 2011, 15 Debtors filed a Civil Rule 604 motion for relief from the 16 judgment as it pertained to the deficiency amount, as no 17 determination of the fair market value of the Property had been 18 made. The bankruptcy court agreed that value had not been 19 determined and on January 19, 2012, vacated the paragraphs in 20 the judgment relating to the deficiency. 21 In their Civil Rule 60 motion and during subsequent 22 hearings, Debtors, relying on Arizona Revised Statute (A.R.S.) 23 § 33-814(A), asserted that the fair market value of the Property 24 on the foreclosure date exceeded the amount due on the secured 25 debt and thus they held a claim against TMT for the excess 26 27 28 4 Rule 9024 incorporates Civil Rule 60.

-4- 1 value.5 2 On April 17, 2012, the bankruptcy court entered an order 3 converting Debtors’ case to chapter 7. The case conversion led 4 to a controversy regarding who had standing to prosecute the 5 state law claim which Debtors argued gave them a right to 6 payment from TMT. 7 On June 26, 2012, the chapter 7 trustee (Trustee) filed a 8 notice of abandonment of Debtors’ asserted claims of “unjust 9 enrichment” or “unconscionability” in connection with the 10 foreclosure conducted by TMT. Trustee also sought to abandon 11 Debtors’ asserted claim for professional negligence against the 12 attorneys involved in the stay relief obtained by TMT concerning 13 the Property. The bankruptcy court approved the abandonment by 14 order entered on July 23, 2012. 15 Meanwhile, Debtors continued to file a number of pleadings 16 in the adversary proceeding. In May 2013, the bankruptcy court 17 entered an order staying the proceeding, which prohibited 18 Debtors from filing any further pleadings unless authorized by 19 the court. 20 On March 28, 2014, Debtors received their discharge. 21 A few weeks later, Trustee filed his final report showing 22 that the estate was administratively insolvent. Trustee was 23 discharged. The underlying bankruptcy case remains open. 24 Debtors objected to Trustee’s final report on the ground, 25 26 5 A.R.S. § 33-814(A) sets forth the procedure for 27 determining a deficiency claim. We do not address whether Debtors’ assertion has merit under the Arizona statute and case 28 law.

-5- 1 among others,6 that he had refused to participate in the 2 litigation with TMT. Trustee confirmed in a February 14, 2014 3 email to Mr. Bronson that the bankruptcy estate had no interest 4 in the outcome of this adversary proceeding, opining that there 5 “were no estate assets at issue, so there is nothing to 6 abandon.” On March 21, 2014, Trustee responded to Debtors’ 7 objection to his final report: 8 [T]he litigation was unnecessary and functionally irrelevant since there are and will never be any funds 9 to pay on any unsecured deficiency claim. Consequently, the [T]rustee is unwilling to 10 participate in that litigation. If Mr. Bronson wishes to litigate it for whatever joy it brings to him, he 11 is free to do so. 12 Finally, as for Mr. Bronson’s contention that money can be brought into the estate if it can be 13 established that certain real property was worth more than the bid at a foreclosure sale, there is no merit 14 to that allegation. The bid at a foreclosure sale has nothing to do with the fair market value of the 15 property. The bid is nothing more than what the buyer is willing to pay. A bidder at a foreclosure sale can 16 bid as little as $1.00 and, if no one bids more, the property is foreclosed for $1.00, regardless of what 17 the property is actually worth. Mr. Bronson’s assertion that proof of a greater value creates a 18 cause of action against the bidder is little more than wishful and fuzzy thinking. 19 20 At the hearing on Debtors’ objection to Trustee’s final 21 report, the bankruptcy court overruled Debtors’ objection, 22 finding that Trustee had abandoned the state law claim to 23 Debtors. 24 On September 17, 2015, Debtors filed a motion for summary 25 judgment (MSJ) in the adversary proceeding seeking to establish 26 27 6 Debtors had numerous other problems with the report which 28 are not relevant to this appeal.

-6- 1 the Property’s fair market value on the foreclosure date. 2 Debtors asserted that they were entitled to such a determination 3 under A.R.S. § 33-814(A) and argued that the fair market value 4 was higher, such that there would be no deficiency judgment and 5 TMT would owe money to their estate. TMT filed a motion to 6 strike the pleading on the grounds that the bankruptcy court had 7 previously entered an order which stayed the adversary 8 proceeding and prohibited Debtors from filing further pleadings 9 unless authorized by the court. 10 On February 9, 2016, the bankruptcy court heard the matters 11 (Final Hearing). The court denied Debtors’ MSJ and denied TMT’s 12 motion to strike. In denying Debtors’ MSJ which sought to 13 establish the fair market value of the Property, the court found 14 there were factual issues in dispute, making summary judgment 15 inappropriate. It then more broadly addressed Debtors’ claim, 16 observing for the first time that Debtors had not filed what 17 might have been a compulsory counterclaim. The court further 18 recalled that Trustee refused to advance the “clearly state law 19 cause of action,” and thus it was effectively abandoned.7 20 Finally, the court noted that Debtors’ estate was fully 21 administered and they had received their discharge. Under these 22 circumstances, the bankruptcy court decided that the deficiency 23 litigation had no impact on Debtors’ bankruptcy estate and thus 24 the court lacked jurisdiction over the matter. Accordingly, the 25 bankruptcy court sua sponte dismissed the claim. The court 26 7 27 The bankruptcy court apparently had forgotten that it had entered a formal order of abandonment and that it had advised 28 Debtors they held the claim.

-7- 1 further held that even if there was a “shred” of jurisdiction, 2 it would abstain from hearing the matter. 3 On February 16, 2016, the bankruptcy court entered the 4 order reflecting its decision and ordering the clerk to close 5 the adversary proceeding. Debtors filed a timely appeal. 6 II. JURISDICTION 7 The bankruptcy court had jurisdiction under 28 U.S.C. 8 § 157(b)(2)(A). We have jurisdiction under 28 U.S.C. § 158. 9 III. ISSUE 10 Whether the bankruptcy court abused its discretion by 11 dismissing Debtors’ state law claim and closing the adversary 12 proceeding. 13 IV. STANDARD OF REVIEW 14 We review a bankruptcy court’s decision to decline to 15 exercise jurisdiction over an adversary proceeding for an abuse 16 of discretion. Carraher v. Morgan Elec., Inc. (In re Carraher), 17 971 F.2d 327, 328 (9th Cir. 1992). A bankruptcy court abuses 18 its discretion if it applies the wrong legal standard, 19 misapplies the correct legal standard, or if its factual 20 findings are illogical, implausible, or without support in 21 inferences that may be drawn from the facts in the record. See 22 TrafficSchool.com, Inc. v Edriver Inc., 653 F.3d 820, 832 (9th 23 Cir. 2011) (citing United States v. Hinkson, 585 F.3d 1247, 1262 24 (9th Cir. 2009) (en banc)). 25 V. DISCUSSION 26 As a threshold matter, we note that the only ruling 27 properly before this Panel is the bankruptcy court’s decision to 28 dismiss Debtors’ state law claim against TMT and close the

-8- 1 adversary proceeding. Therefore, we do not consider Debtors’ 2 requests for additional relief set forth in their opening brief. 3 The bankruptcy court’s jurisdiction is statutory. Under 4 28 U.S.C. § 1334(b), the district courts have original, but not 5 exclusive, jurisdiction of all civil proceedings arising under 6 title 11, or arising in or related to cases under title 11. 7 The district courts may, in turn, refer “any or all proceedings 8 arising under title 11 or arising in or related to a case under 9 title 11 . . . to the bankruptcy judges for the district.” 10 28 U.S.C. § 157(a). Congress empowered the bankruptcy courts to 11 enter final judgment in “core proceedings.” Congress provided 12 a non-exhaustive list of core proceedings and indicated a matter 13 may be a core proceeding even if state law may affect its 14 outcome. See 28 U.S.C. § 157(b)(2), (3); see also Marshall v. 15 Stern (In re Marshall), 600 F.3d 1037, 1054 (9th Cir. 2010), 16 aff’d, 564 U.S. 462 (2011). 17 Among the list of core proceedings is the allowance or 18 disallowance of claims against the estate. 28 U.S.C. 19 § 157(b)(2)(B). A counterclaim by the estate against a person 20 filing a claim is also core. 28 U.S.C. § 157(b)(2)(C). When 21 Debtors were in chapter 11, TMT filed the adversary complaint 22 against them seeking to establish the amount of his deficiency 23 claim so that he could participate in distributions to unsecured 24 creditors, if any, under Debtors’ chapter 11 plan. Therefore, 25 the bankruptcy court had core jurisdiction over the adversary 26 27 28

-9- 1 when it was filed.8 2 Although Debtors never filed a formal counterclaim, they 3 began asserting affirmative rights — i.e., the right to a money 4 judgment against TMT — at status conferences and other adversary 5 hearings while the case was still in chapter 11. The bankruptcy 6 court and TMT gave credence to those rights by raising the 7 standing issue after the case was converted to chapter 7, 8 asserting that the claim could only be prosecuted by Trustee. 9 This assertion led to multiple attempts by both TMT and Debtors 10 to get Trustee involved and eventually led to the estate’s 11 formal abandonment of the state law claim to Debtors. At every 12 status conference on the adversary, which were numerous because 13 of the delays caused by the standing issue and the multiple 14 appeals by Debtors, the arguments about Debtors’ rights in the 15 deficiency litigation were discussed on the record. At no time 16 did TMT argue or the bankruptcy court rule that the claim 17 Debtors were asserting was barred as a compulsory counterclaim 18 or had somehow been waived. 19 After it became clear that the chapter 7 estate would make 20 no distribution to unsecured creditors, TMT’s enthusiasm for the 21 adversary faded. Since any claim against Debtors would be 22 discharged and TMT would receive no money from the estate, TMT’s 23 need for a determination of the deficiency, if any, abated. 24 25 8 The bankruptcy court recognized its core jurisdiction when 26 it granted Debtors’ reconsideration motion regarding the deficiency part of the final judgment on January 17, 2012. When 27 granting the motion, it remarked: “So I don’t think this litigation implicates non-core proceedings or implicates an 28 inability on my part to enter a final order.”

-10- 1 However, Debtors still maintained that they had a potential 2 right to recovery from TMT if the fair market value of the 3 Property exceeded the debt on the foreclosure date,9 and the 4 bankruptcy court never ruled on the claim.10 As such, while the 5 main case was pending, the bankruptcy court had jurisdiction not 6 only over TMT’s deficiency claim, but also over Debtors’ state 7 law claim. 8 Full administration of the main case did not automatically 9 terminate jurisdiction over the adversary. Our circuit 10 authority instructs us that dismissal of an underlying 11 bankruptcy case does not automatically divest the bankruptcy 12 court of jurisdiction over a related adversary proceeding 13 seeking recovery on state law theories. In re Carraher, 14 971 F.2d at 328. We find no principled reason to distinguish a 15 fully administered case, where the estate no longer has any 16 interest in the outcome of the litigation, from a dismissed case 17 where the same circumstance is true. 18 9 19 At the Final Hearing, the bankruptcy court articulated the claim the pro se Debtors had been asserting for years: “The 20 Bronsons are asserting against a former secured creditor a claim that the creditor owes them money because the value of property 21 established by a bid at a foreclosure sale was not - was 22 significantly below true market value. And as a result of that, the Bronsons were robbed of true market value.” 23 10 Because this issue was never joined, we can only 24 speculate whether Debtors as pro se litigants had properly asserted a constructive counterclaim sufficient to maintain their 25 right to payment in the litigation. Additionally, Debtors 26 submitted that Arizona case law accorded them a right to a judgment against the foreclosing creditor without the need to 27 file an affirmative pleading. The bankruptcy court never ruled on that issue, so it was not foreclosed as a possible outcome for 28 the adversary.

-11- 1 In Carraher, the Ninth Circuit recognized the bankruptcy 2 court’s discretion to either retain jurisdiction or send the 3 claims back to state court. In deciding whether to retain 4 jurisdiction, the bankruptcy court must consider economy, 5 convenience, fairness, and comity. Id. “The [bankruptcy] 6 court’s weighing of these factors is discretionary.” Id. 7 Although the bankruptcy court here did not formally use this 8 discretionary test to dismiss the adversary proceeding and 9 Debtor’s related state law claim, we may affirm on any ground 10 supported by the record. See Helvering v. Gowran, 302 U.S. 238, 11 245 (1937) (“In the review of judicial proceedings the rule is 12 settled that, if the decision below is correct, it must be 13 affirmed, although the lower court relied upon a wrong ground or 14 gave a wrong reason.”); ASARCO, LLC v. Union Pac. R.R. Co., 15 765 F.3d 999, 1004 (9th Cir. 2014). We thus consider whether 16 the court abused its discretion in dismissing Debtors’ state law 17 claim and this adversary under a Carraher analysis. 18 Judicial Economy. Although the adversary had been pending 19 for an extended period of time and Debtors’ claim had been 20 bandied about on the record and in pleadings for years, whether 21 state law actually supported such claim and whether Debtors were 22 barred from asserting it as a compulsory counterclaim had never 23 been briefed by the parties nor decided by the bankruptcy court. 24 Additionally, assuming there was a properly raised claim, the 25 bankruptcy court had just denied Debtors’ MSJ regarding the fair 26 market value of the Property, finding it a disputed issue of 27 fact. Consequently, no briefing had occurred nor court time 28 expended on the critical issues in the bankruptcy court; a state

-12- 1 court could just as efficiently decide those issues. 2 Accordingly, the record amply supports dismissal under this 3 factor. 4 Convenience. There is no indication in the record that a 5 proceeding in state court would be inconvenient for either 6 party. This proceeding was in Phoenix, and TMT’s counsel was 7 already appearing from a distance to assert his client’s rights. 8 A state court in Phoenix would not be any less inconvenient than 9 the bankruptcy court. At worst, convenience is a neutral 10 factor. 11 Fairness. Nothing in the record shows it would be unfair 12 to send the claim to state court. 13 Comity. This factor most overwhelmingly favors dismissal. 14 As the bankruptcy court noted, the claim was based entirely on 15 state law: “This is all based on state law procedures. It’s 16 all based on state law statutes.” Not only was the remaining 17 claim one arising under a particular state statute, but also the 18 bankruptcy estate no longer had any interest in the outcome. As 19 the bankruptcy court stated at the final hearing: 20 It’s clearly a state law cause of action, which has been refused to be advanced by a bankruptcy trustee 21 who has abandoned this cause of action. The Chapter 7 case has been closed, so the impact of this litigation 22 has no impact whatsoever on this bankruptcy case. 23 The bankruptcy court properly found no reason to keep the 24 litigation in a closed estate and articulated substantial 25 reasons why state court was the appropriate forum for any 26 continued litigation. Although its articulated reasons to 27 28

-13- 1 abstain are ineffective in the Ninth Circuit,11 its stated 2 rationale - “I’m going to abstain from hearing this matter. 3 Because all this is a state law case, and I’ve got bankruptcy 4 issues to hear, and we have an excellent state court judiciary 5 as well” - fits a comity ruling perfectly. 6 In sum, we hold that the bankruptcy court did not abuse its 7 discretion in dismissing Debtor’s state law claim and closing 8 the adversary. 9 VI. CONCLUSION 10 For the reasons stated, we AFFIRM. 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 11 Ninth Circuit case law instructs that abstention can 26 exist only where there is a parallel proceeding in state court. Lazar v. California (In re Lazar), 237 F.3d 967 (9th Cir. 2001) 27 (citing Sec. Farms v. Int’l Brotherhood of Teamsters, 124 F.3d 999 (9th Cir. 1997)). Since no state proceeding was pending, 28 abstention could not be grounds for dismissal here.

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