Golden 1 Credit Union v. Hopper (In re Ahrens)

In re: LISA MARIE AHRENS, Debtor.

THE GOLDEN 1 CREDIT UNION, Appellant, v. J. MICHAEL HOPPER, Chapter 7 Trustee, Appellee.

BAP No. EC-16-1065-JuKuMa

BAP No. EC-16-1117-JuKuMa (consolidated)

UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT

Argued and Submitted: October 20, 2016

October 27, 2016

NOT FOR PUBLICATION

Bk. No. 14-bk-29813-MSM

MEMORANDUM^*

Argued and Submitted on October 20, 2016 at Sacramento, California^**

Appeal from the United States Bankruptcy Court for the Eastern District of California

Honorable Michael S. McManus, Bankruptcy Judge, Presiding.

Appearances: Valerie A. Bantner Peo of Buchalter Nemer argued for appellant The Golden 1 Credit Union; Kristen Renfrow argued for appellee J. Michael Hopper, chapter 7 trustee.

Before: JURY, KURTZ, and MARTIN,^*** Bankruptcy Judges.

Appellant, The Golden 1 Credit Union (Golden 1), filed a proof of claim (POC) in the underlying chapter 7¹ bankruptcy case of Lisa Marie Ahrens (Debtor) for $17,282.29, which represented the balance owed to Golden 1 under a contract for the purchase of a Mazda. Using the amounts shown on Debtor's schedules, Golden 1 bifurcated its claim showing $13,907 as secured and $3,375.29 as unsecured.

Debtor indicated her intent to reaffirm the entire debt owed to Golden 1, but she never did. She continued to make timely installment payments which were accepted by Golden 1 throughout her bankruptcy case and received her discharge. Golden 1 has never declared the contract to be in default.

Appellee, chapter 7 trustee J. Michael Hopper (Trustee), objected to the unsecured portion of the POC, contending that there was insufficient evidence regarding the amount of the deficiency in light of the on-going payments and lack of default. Trustee also asserted that he was entitled to attorney's fees and costs based on the attorney fee clause in the underlying sale contract and Cal. Civ. Code § 1717 which made the clause reciprocal.

After multiple hearings, the bankruptcy court found that Golden 1 had no unsecured deficiency claim because it had not declared a default, continued to accept payments from Debtor, and neither Debtor nor Golden 1 could "strip down" the lien on the car under the holding in Dewsnup v. Timm, 502 U.S. 410 (1992). Alternatively, the bankruptcy court concluded that Golden 1's deficiency claim was contingent or unliquidated and estimated the claim at $0. The bankruptcy court entered civil minutes sustaining Trustee's objection and closed the record as to all issues except for allowing Trustee to amend his request for attorney's fees and allowing Golden 1 to challenge the reasonableness of all fees and costs. Golden 1 filed a notice of appeal from this ruling, commencing BAP No. EC-16-1065.

Thereafter Trustee submitted pleadings relating to his additional request for attorney's fees and costs which Golden 1 challenged on reasonableness and other grounds. After a hearing, the bankruptcy court entered an order (1) sustaining Trustee's objection; (2) disallowing the unsecured portion of Golden 1's POC; and (3) awarding attorney's fees and costs in favor of Trustee and against Golden 1 in the amount of $14,436.60. Golden 1 filed a notice of appeal from that order, commencing BAP No. EC-16-1117.

Golden 1 obtained a stay pending appeal from the bankruptcy court as to the payment of the attorney's fees and costs. On May 19, 2016, the Panel entered an order consolidating the two appeals. For the reasons set forth below, we AFFIRM.

I. FACTS

In January 2013, Debtor bought a Mazda with a dealerfinanced loan in the amount of $23,813.99 under a retail installment sale contract (Sale Contract), which was secured by the car. The dealer assigned the Sale Contract to Golden 1 and Golden 1 perfected its lien on the car.

On September 30, 2014, Debtor filed a chapter 7 petition. Debtor showed in her schedules that she owed $17,282.29 to Golden 1 under the Sale Contract and listed the car's value as $13,907. Debtor's Statement of Intention indicated that she intended to reaffirm the debt owed to Golden 1. Her time to reaffirm the debt expired on December 6, 2014,² without her doing so. As a result, the car was no longer property of her estate and the automatic stay terminated, allowing Golden 1 to take any action with respect to the car permitted under California law.³

Debtor continued to pay the current installments to Golden 1 and Golden 1 never objected to Debtor's failure to reaffirm.⁴ In January 2015, Debtor obtained her § 727 discharge.

Relying on Debtor's schedules, Golden 1 filed a POC in the total amount of $17,282.29, composed of a $13,907 secured claim and a $3,375.29 unsecured balance, Claim No. 1-1. Golden 1 thussought to share pro rata on its unsecured claim in any distribution to unsecured creditors.⁵

Trustee informally objected to the unsecured portion of Golden 1's POC and, through a series of emails, attempted to convince Golden 1 to reduce its unsecured claim to $0. Trustee maintained that Golden 1 was not entitled to an unsecured deficiency claim because Debtor intended to reaffirm the debt, had not defaulted on the loan, and continued to make payments. Further, Trustee explained to Golden 1 that by giving up its unsecured claim, it would receive about $300 less:

The trustee has about $4,000 on hand. After compensation, there will be about $3,000 to distribute. The 3 unsecured claims on file aggregate $10,646.77: (1-1) Golden 1 $3,375.29; (2-1) Golden 1 $4,912.03; and (4-1) American Express $2,359.45. If POC 1-1 is withdrawn, then Golden 1 would receive about 68% (2,040) instead of 78% ($2,340), a difference of $300.

Trustee later filed a formal objection to Golden 1's unsecured claim but, apparently still hoping the matter would resolve, did not notice a hearing. There, Trustee argued for disallowance of the unsecured portion of Golden 1's claim because (1) it was based on an obligation that was contingent and not in default and (2) there was insufficient evidence proving the amount of the alleged deficiency, such as fair market value of the car and the present balance owed under the Sale Contract.

Since the matter did not resolve, on October 23, 2015,Trustee filed his amended objection, including supporting documents and a notice of hearing. Trustee argued that the unsecured portion of Golden 1's claim should be disallowed because the documents in support of the claim were insufficient under Rule 3001(c) and Golden 1 was oversecured by $3,000. Trustee also sought attorney's fees and costs under the attorney fee provision in the Sale Contract, contending that it was reciprocally enforceable under Cal. Civ. Code § 1717.

In support of his objection, Trustee submitted an appraisal showing the car's value at $16,708 as of October 16, 2015. Trustee also submitted his declaration, stating that the balance owed on the car was $13,736.28⁶ as of September 29, 2015, the car appraised at $16,708 as of October 16, 2015, and Debtor was current on the loan. Trustee also informed the court about his efforts to informally resolve the dispute.

In his memorandum of points and authorities, Trustee argued that since Golden 1 was oversecured, the unsecured portion of its claim should be disallowed in total. Trustee also maintained that the bankruptcy court had discretion to determine the date for valuation. He argued that since the purpose of the valuation was for a general unsecured distribution not yet made, the value should be determined as of the date of the hearing on Trustee's objection - October 16, 2015. Trustee finally argued that he was entitled to attorney's fees and costs under theholding and reasoning in Americredit Fin. Servs., Inc. v. Penrod (In re Penrod), 611 F.3d 1158 (9th Cir. 2015).

Golden 1 opposed, asserting that its POC was supported by documentation sufficient to allow the unsecured claim in full. Golden 1 further argued that the valuation date for the car should be the petition date and not the date of the claim objection. Golden 1 requested an opportunity to submit its own appraisal. Finally, Golden 1 contended that Trustee could not avail himself of the attorney fee provision in the Sale Contract because Trustee was not a party to the contract and the Sale Contract was no longer property of the estate under § 362(h). Golden 1 maintained that the attorney fee request was unreasonable and that Trustee had breached his fiduciary duty by spending over $8,600 in objecting to Golden 1's unsecured claim when the estate had only $4,000 for distribution.

On December 7, 2015, the bankruptcy court entered civil minutes continuing the hearing on the claim objection to January 19, 2016, to allow Trustee to submit evidence of his attorney's fees and costs in litigating the claim objection and to allow Golden 1 to obtain an appraisal of the vehicle.

Two weeks later, Trustee submitted evidence that his counsel spent 24.3 hours on the matter for a total of $8,640 in attorney's fees and that he incurred $338.67 in costs.

Golden 1 then submitted an appraisal showing the car's value at $13,833.29 as of January 22, 2016. Golden 1 also argued that Trustee's claim objection essentially rendered the estate insolvent and maintained that the fees requested were unreasonable. According to Golden 1, since the estate had only$4,000 on hand at the outset of the dispute, spending 24.3 attorney hours to prepare the claim objection was excessive.

Prior to the February 29, 2016 hearing on the claim objection, the bankruptcy court issued a tentative ruling sustaining Trustee's objection and reclassifying Golden 1's claim as fully secured. In reaching its decision, the court noted the following: Based upon Golden 1's January 21, 2016 appraisal, the car's value was $13,833.29. The loan balance was less than that amount - $13,736.28 - as of September 29, 2015, and Debtor was current on the loan. Based on these facts, the bankruptcy court concluded that the loan balance as of January 21, 2016, was less than $13,736.28, and "still clearly less than...