John Williams v. United States Bankruptcy Court for the District of New Mexico

FILED
U.S. Bankruptcy Appellate Panel
of the Tenth Circuit
April 3, 2018
PUBLISH Blaine F. Bates
Clerk
UNITED STATES BANKRUPTCY APPELLATE PANEL
OF THE TENTH CIRCUIT
IN RE FRED DALE VAN WINKLE, BAP No. NM-17-031
BAP No. NM-17-032
Debtor. BAP No. NM-17-033
TAMMY SPRAGUE, personal Bankr. No. 13-11743
representative of the estate of Fred Dale Chapter 7
Van Winkle,
Plaintiff – Appellee,
v. OPINION
JOHN WILLIAMS, ELLEN B.
WILLIAMS, and BELLEVIEW
VALLEY LAND CO., INC.,
Defendant – Appellants.
Appeal from the United States Bankruptcy Court
for the District of New Mexico
W.T. Martin, Jr. (Jennie D. Behles, Albuquerque, New Mexico with him on the
brief) of Martin, Dugan & Martin, Carlsbad, New Mexico, Attorneys for
Defendant – Appellants.
R. “Trey” Arvizu, III Las Cruces, New Mexico, Attorney for Plaintiff – Appellee.
Before KARLIN, Chief Judge, NUGENT, and MOSIER, Bankruptcy Judges.
KARLIN, Chief Judge.
John Williams, Ellen Williams, and Belleview Valley Land Co., Inc. (the
“Appellants”) appeal three bankruptcy court rulings: (1) the Order Denying
Motion to Dismiss for Lack of Jurisdiction; 1 (2) the Order Granting Partial
Summary Judgment and Denying Other Relief; 2 and (3) the Final Judgment, 3
which ordered Appellants to pay $50,000 in actual and punitive damages.
Appellants contend the bankruptcy court erred in denying their motion to dismiss
for lack of jurisdiction, failing to certify issues to the New Mexico Supreme
Court, finding Appellants violated the discharge injunction and a court order, and
awarding compensatory and punitive damages. Because we interpret New Mexico
law to allow a judgment lien to reattach upon redemption by the owner of
foreclosed property, we reverse the bankruptcy court’s finding that Appellants
violated the discharge injunction, affirm the finding that Appellants violated a
court order, and remand for further findings regarding damages.
I. Facts
In 2008, Fred Van Winkle (the “Debtor”) brought an action against the
Appellants to quiet title in Otero County, New Mexico. Appellants
counterclaimed and in 2010 ultimately obtained a money judgment against the
Debtor for $261,656 (the “Judgment Lien”). Appellants filed transcripts of that
judgment in Otero, Roosevelt, and Lincoln Counties, New Mexico because the
Debtor owned two tracts in Otero County (one seven acre tract and one thirty acre
tract—the “Otero Land”), his residence, a condominium, in Lincoln County (the
“Condo”), and a one-half interest in 311 acres in Roosevelt County.
The Debtor filed this Chapter 7 proceeding in May 2013. The Debtor
claimed as exempt $60,000 in equity in the Condo under New Mexico’s
homestead exemption. In Schedule D (Creditors Holding Secured Claims), the
1
Appellants’ App. at 358.
2
Appellants’ App. at 950.
3
Appellants’ App. at 1051. Although the Appellants appealed the three
orders separately, the Bankruptcy Appellate Panel entered an Order Joining
Appeals on July 7, 2017. BAP ECF No. 4.
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Debtor listed both the first mortgage on the Condo in the amount of $12,000 in
favor of First National Bank of Ruidoso (the “First Mortgage”) as well as the
Judgment Lien.
In September 2013, soon after receiving his discharge, the Debtor filed a
motion to avoid the Judgment Lien on the Condo, seeking to avoid the lien to the
extent it impaired the $60,000 homestead exemption allowed by New Mexico law.
Appellants objected (as the record reveals they did at almost every turn), stating
the obvious—that the Debtor could only exempt the $60,000 sought, and no more.
Before the matter could be decided, the Debtor passed away (in April 2014).
The Debtor’s daughter, Tammy Sprague, became the personal
representative of his probate estate. 4 Sprague and the Appellants entered into a
stipulated order resolving the Motion to Avoid Judicial Lien (the “Stipulated
Order”). It valued the Condo at $100,000 and avoided the Judgment Lien to the
extent it impaired the Debtor’s $60,000 exemption—capping the Judgment Lien
against the Condo to the remainder after payment of the First Mortgage and the
$60,000 exemption.
1. Foreclosure of the Otero Land
In August 2013, Appellants obtained stay relief to allow them to complete
the 2010 action to foreclose the Judgment Lien against the Otero Land. In May
2014, the New Mexico court entered a final judgment of foreclosure; that
judgment expressly provided that no in personam deficiency could be entered
against the Debtor.
The appointed special master conducted a sale of the Otero Land in July
2014. Appellants Ellen and John Williams were the high bidders, credit bidding
$67,000 of the Judgment Lien. The special master recorded a deed conveying the
Otero Land to the Williamses. Appellants requested the New Mexico court amend
4
Even though the Debtor died in April 2014, we will continue to refer to him
as “the Debtor,” or as “Sprague,” as appropriate for clarity.
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the foreclosure judgment to specify that the deficiency judgment was then
$271,905 plus interest, after crediting the bid against the balance due (the
“Deficiency Judgment”). The Deficiency Judgment provided
[t]he deficiency is a lien on the debtor’s . . . real estate. While no
deficiency judgment is granted on an in personam basis against the
Estate of Fred Van Winkle, deceased, the lien created by the
deficiency is collectable as provided . . . [by New Mexico law]. The
deficiency also remains collectable by the [p]laintiffs through legal
action, or actions, to enforce judgment liens as they may exist in
other New Mexico counties. 5
Appellants recorded a transcript of the Deficiency Judgment in Otero County in
August 2014 (although the only land the Debtor had owned in Otero County was
the subject of the foreclosure).
In March 2015, approximately eight months after the sale, Sprague
amended the Debtor’s Schedule B (Personal Property) to add as an asset of the
bankruptcy estate the New Mexico statutory right of redemption in the Otero
Land. She then filed a motion seeking abandonment of the estate’s interest in that
right of redemption. Neither Appellants nor the trustee objected, and the
bankruptcy court granted the motion. Immediately thereafter, Sprague timely filed
a petition in state court to redeem the Otero Land and deposited in the court
registry the $73,200 required by statute. Appellants responded first by asserting
Sprague was required to pay the entire remaining Deficiency Judgment to
successfully redeem. They also filed a new petition to foreclose the Deficiency
Judgment along with a motion for summary judgment. The petition to redeem
remains pending in the state court, and Appellants still hold title to the Otero
Land.
2. Foreclosure of the Condo
Appellants were simultaneously trying to enforce the Judgment Lien
against the Condo. One of the Appellants, John Williams, purchased the First
5
Amended Order Approving Special Master’s Report & Granting Deficiency
Judgment at 3-4, in Appellants’ App. at 676-77.
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Mortgage from First National Bank of Ruidoso in August 2013. In May 2015,
Appellants filed a complaint in Lincoln County seeking to foreclose the First
Mortgage and the Judgment Lien encumbering the Condo. The prayer for relief in
the amended foreclosure complaint requested, among other things, that Williams
be granted judgment on the note he claimed to have purchased for $15,034, plus
“[i]nterest at the rate of 20% per annum . . . ; plus [] Late Charges . . . ; plus []
Rent in the amount of $13,650 through April 20, 2015.” 6 Ultimately, Appellants
prayed that the proceeds of any Special Master’s sale be applied to satisfy (1) the
First Mortgage to Williams; (2) the homestead exemption; and (3) “the balance of
[Appellants’] judgment lien—payable to [Appellants].” 7
3. The Adversary Proceeding
Soon after the Condo foreclosure was filed, Sprague filed an adversary
proceeding in the bankruptcy court alleging the Appellants violated the discharge
injunction and the terms of the Stipulated Order. The parties agreed to a stay of
both foreclosure actions. Appellants filed a motion to dismiss the adversary
proceeding for lack of jurisdiction (the “Motion to Dismiss”), 8 which the
bankruptcy court denied along with a motion to reconsider that dismissal. 9
Sprague filed a Motion for Partial Summary Judgment as to Liability for
violation of the discharge injunction and for failure to comply with the Stipulated
6
Complaint for Judgment for Debt and Money Due on Promissory Note, to
Foreclose Real Estate Mortgage and to Foreclose Judgment Lien at 7, in
Appellants’ App. at 1481.
7
Opinion at 6, in Appellants’ App. at 939.
8
Motion to Dismiss for Lack of Jurisdiction, in Appellants’ App. at 320.
Appellants argued (1) the adversary proceeding was not a core proceeding; (2) the
bankruptcy court lacked jurisdiction under Stern v. Marshall, 564 U.S. 462(2011); and (3) continuing in the bankruptcy court impaired Appellants’ right to a
jury trial. Memorandum Opinion at 4, in Appellants’ App. at 349.
9
Order Denying Motion to Reconsider, in Appellants’ App. at 620;
Memorandum Opinion, in Appellants’ App. at 611. The Order Denying Motion to
Dismiss for Lack of Jurisdiction and the Memorandum Opinion are appealed in
BAP appeal NM-17-033.
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Order. Appellants responded, but also sought to rescind their agreement to stay
the foreclosure cases 10 and to certify legal issues to the New Mexico Supreme. 11
The bankruptcy court entered the Order Granting Partial Summary Judgment and
Denying Other Relief and the Opinion that: (1) denied certification of issues to
the New Mexico Supreme Court; (2) granted partial summary judgment against
Appellants for violation of the discharge injunction; (3) declined to enter
summary judgment on the issue of violation of the Stipulated Order without
additional factfinding; and (4) denied Appellants’ motion to set aside the stay of
the foreclosure actions. 12
The bankruptcy court conducted a trial on the issue of whether Appellants
violated the Stipulated Order and whether damages were warranted for violation
of the discharge injunction and the Stipulated Order. In its Final Judgment and
Opinion, the bankruptcy court held that Appellants had willfully violated the
discharge injunction by their actions in the Otero Land foreclosure and had
violated the Stipulated Order by their actions in the Condo foreclosure. 13 The
bankruptcy court awarded Sprague $33,161.70 in actual damages and attorneys’
fees, and $16,838.30 in punitive damages, for an even $50,000 in damages.
II. Appellate Jurisdiction & Standards of Review
“With the consent of the parties, this Court has jurisdiction to hear timely-
filed appeals from ‘final judgments, orders, and decrees’ of bankruptcy courts
10
Motion to Set Aside the Stipulated Order in Regard to Stay, in Appellants’
App. at 779.
11
Petition for Certification to the New Mexico Supreme Court, in Appellants’
App. at 861.
12
Order Granting Partial Summary Judgment and Denying Other Relief, in
Appellants’ App. at 950; Opinion, in Appellants’ App. at 934. These two orders
are appealed in BAP NM-17-031.
13
Final Judgment, in Appellants’ App. at 1051; Opinion, in Appellants’ App.
at 1037. These orders are appealed in BAP NM-17-032.
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within the Tenth Circuit.” 14 An order resolving all claims asserted in an adversary
proceeding is a final order for purposes of appeal. 15 Neither party elected for
these appeals to be heard by the United States District Court pursuant to 28
U.S.C. § 158(c). Accordingly, this Court has jurisdiction over these matters.
Appellate courts review the denial of a motion to dismiss for lack of
subject matter jurisdiction de novo. 16 Similarly, a grant of summary judgment is
reviewed de novo. 17 The denial of a motion for certification of a question of state
law is reviewed for abuse of discretion. 18 Whether a creditor violated the
discharge injunction is a question of law reviewed de novo. 19 Whether the
violation of the discharge injunction was willful is a factual finding reviewed for
clear error. 20 A determination that an action violated a court order is reviewed for
an abuse of discretion. 21 Finally, an award of damages and attorneys’ fees for
14
Straight v. Wyo. Dep’t of Trans. (In re Straight), 248 B.R. 403, 409 (10th
Cir. BAP 2000) (quoting 28 U.S.C. § 158(a)(1), (b)(1), and (c)(1)).
15
Adelman v. Fourth Nat’l Bank & Tr. Co, N.A., of Tulsa (In re Durability,
Inc.), 893 F.2d 264, 266 (10th Cir. 1990) (“the appropriate ‘judicial unit’ for
application of [] finality requirements in bankruptcy is not the overall case, but
rather the particular adversary proceeding . . . pursued within the broader
framework cast by the petition.”); see Montgomery v. City of Ardmore, 365 F.3d
926, 934 (10th Cir. 2004) (quoting McBride v. CITGO Petroleum Corp., 281 F.3d
1099, 1104 (10th Cir. 2002)) (“a notice of appeal which names the final judgment
is sufficient to support review of all earlier orders that merge in the final
judgment.”).
16
Merrill Lynch Bus. Fin. Servs., Inc. v. Nudell, 363 F.3d 1072, 1074 (10th
Cir. 2004); Smith v. Colo. Sup. Ct. (In re Smith), No. CO-07-028, 2007 WL
4227255, at *2 (10th Cir. BAP Dec. 3, 2007).
17
Dillon v. Fibreboard Corp., 919 F.2d 1488, 1490 (10th Cir. 1990).
18
Colony Ins. Co. v. Burke, 698 F.3d 1222, 1235 (10th Cir. 2012).
19
In re Houlik, 481 B.R. 661, 668 (10th Cir. BAP 2012) (citing Culley v.
Castleberry (In re Culley), No. NM-05-105, 2006 WL 2091199, at *2 (10th Cir.
BAP July 24, 2006)).
20
Id.21
In re Lucre Mgmt. Grp., LLC, 365 F.3d 874, 875 (10th Cir. 2004) (citing
Fed. Trade Comm’n v. Kuykendall, 312 F.3d 1329, 1333 (10th Cir. 2002)); cf.
(continued...)
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violation of the discharge injunction or for violation of a court order is reviewed
for abuse of discretion. 22
III. Analysis
1. The Bankruptcy Court’s Jurisdiction
Appellants argue the bankruptcy court erred in determining it had
jurisdiction over the adversary proceeding in light of the Rooker-Feldman
doctrine. The Rooker-Feldman doctrine “precludes federal district courts from
exercising appellate jurisdiction over actually-decided claims in state courts” and
“adjudicating claims inextricably intertwined with previously-entered state court
judgments.” 23 This is because the Supreme Court is the only federal court
empowered to exercise appellate jurisdiction to reverse or modify a state court
judgment. 24 As very recently clarified by the Tenth Circuit Court of Appeals in
Mayotte v. U.S. Bank, N.A., 25 a Rooker-Feldman issue only exists to the extent a
federal action “tries to modify or set aside a state-court judgment because the
(...continued)
Auto-Owners Ins. Co. v. Summit Park Townhome Assoc., ___ F.3d ___, Nos. 16-
1348, 16-1352, 2018 WL 1559980, at *7 (10th Cir. Mar. 30, 2018) (giving
deference to trial court’s interpretation of its own orders (citing Chi., Rock Island
& Pac. R.R. v. Diamond Shamrock Ref. & Mktg. Co., 865 F.2d 807, 811 (7th Cir.
1988))).
22
Peyrano v. Sotelo (In re Peyrano), No. EO-16-032, 2017 WL 2731299, at
*3 (10th Cir. BAP June 26, 2017) (citing Anchondo v. Anderson, Crenshaw &
Assoc., 616 F.3d 1098, 1101 (10th Cir. 2010)) (reviewing award of attorneys’ fees
for abuse of discretion). Courts review the constitutionality of punitive damages
de novo. Culley, No. NM-05-105, 2006 WL 2091199, at *2 (10th Cir. BAP July
24, 2006) (citing Cooper Indus. Inc. v. Leatherman Tool Grp., Inc., 532 U.S. 424,
436 (2001)).
23
Culley, 2006 WL 2091199, at *2 (citing Mo’s Express, LLC v. Sopkin, 441
F.3d 1229, 1233 (10th Cir. 2006)) (explaining that in Exxon Mobil Corp. v. Saudi
Basic Indus. Corp., 544 U.S. 280, 284 (2005), the Supreme Court has limited the
Rooker-Feldman doctrine to “cases brought by state-court losers complaining of
injuries caused by state-court judgments.”).
24
Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 284 (2005).
25
Mayotte v. U.S. Bank Nat’l Ass’n for Structured Asset Inv. Loan Tr. Mortg.
Pass-Through Certificates, Series 2006-4, 880 F.3d 1169, 1174 (10th Cir. 2018).
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state proceedings should not have led to that judgment.” In other words, there is a
Rooker-Feldman issue if the federal suit alleges that a defect in the state court
proceedings should invalidate the state judgment.
Applying this reasoning here, we must consider whether the success of the
claims Sprague raised in the adversary proceeding was contingent upon
demonstrating any prior state court judgment was reached in error. Sprague’s
adversary complaint sought damages for Appellants’ violation of the discharge
injunction under 11 U.S.C. § 542 26 and for violation of the Stipulated Order.
Appellants admit no state court has made findings or entered a decision
determining those issues. The only state court findings centered around whether
Appellants could foreclose the Judgment Lien and the amount of the Deficiency
Judgment; Sprague’s complaint challenged none of those findings.
Furthermore, bankruptcy courts clearly have jurisdiction to review alleged
violations of their own orders, including civil contempt matters arising out of core
matters. 27 Issuing an order to enforce its own orders—the discharge order and the
Stipulated Order—neither required the bankruptcy court to challenge the state
court proceedings nor to set aside or unwind any state court decision as explained
in Mayotte. Appellants argue that even if the state court had not yet issued a
decision, Rooker-Feldman was nonetheless implicated because the parties had
briefed some overlapping issues that the bankruptcy court might need to decide.
They are wrong. The state court did not have the opportunity to enter a decision
on those issues because the parties had agreed to stay the state court matters
pending resolution of the adversary proceeding in bankruptcy court.
26
All future references to “Code,” “Section,” and “§” are to the Bankruptcy
Code, Title 11 of the United States Code, unless otherwise indicated.
27
In re Skinner, 917 F.2d 444, 447-8 (10th Cir. 1990) (concluding bankruptcy
court had authority to issue sanctions for violation of automatic stay); see also In
re Unioil, 948 F.2d 678, 682 (10th Cir. 1991) (holding “bankruptcy court had the
inherent power to enforce its [own] order”).
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In light of Mayotte, which was issued after the parties briefed the issue, but
before oral argument (at which time Appellants still argued the doctrine
applicable), it is simply frivolous to argue the bankruptcy court lacked
jurisdiction. 28 Accordingly, the bankruptcy court committed no error in
determining it had jurisdiction over Sprague’s adversary complaint.
2. Certification of Issues to the New Mexico Supreme Court
“Whether to certify a question of state law to the state supreme court is
within the discretion of the federal court.” 29 Federal courts must “‘apply judgment
and restraint before certifying,’ and ‘will not trouble our sister state courts every
time an arguably unsettled question of state law” arises. 30 Federal courts are
bound to apply state law when necessary and “must determine what decision the
state court would make if faced with the same facts and issue.” 31
As a preliminary matter, it is unclear whether Appellants are challenging
the bankruptcy court’s decision declining to certify questions, or this Court’s own
motions panel decision, which also denied certification. They elected not to brief
the issue in their opening brief, instead incorporating by reference earlier briefing
28
Appellants argued this Court should apply Gogola v. Zingale, 141 F. App’x
839 (11th Cir. 2005), an unpublished decision from the Eleventh Circuit, instead
of Mayotte.
29
Armijo v. Ex Cam, Inc., 843 F.2d 406, 407 (10th Cir. 1988) (first citing
Lehman Bros. v. Schein, 416 U.S. 386, 391 (1974); and then citing Holler v.
United States, 724 F.2d 104, 105-06 (10th Cir. 1983)) (affirming denial of
certification of issue to New Mexico Supreme Court); Massengale v. Okla. Bd. of
Exam’rs in Optometry, 30 F.3d 1325, 1331 (10th Cir. 1994) (“Certification of
state law questions is not automatic . . . but discretionary.”).
30
Colony Ins. Co. v. Burke, 698 F.3d 1222, 1235-36 (10th Cir. 2012) (quoting
Pino v. United States, 507 F.3d 1233, 1236 (10th Cir. 2007)); Armijo, 843 F.2d at
407 (“Certification is not to be routinely invoked whenever a federal court is
presented with an unsettled question of state law.”) (citing L. Cohen & Co. v. Dun
& Bradstreet, 629 F.Supp. 1419, 1425 (D. Conn. 1986)).
31
Armijo, 843 F.2d at 407 (first citing Farmers All. Mut. Ins. Co. v. Bakke,
619 F.2d 885, 888 (10th Cir. 1980); and then citing Hartford v. Gibbons & Reed
Co., 617 F.2d 567, 569 (10th Cir. 1980)).
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on the motion made to this Court. 32 They also elected not to address the issue at
oral argument. Because Appellants have failed to sufficiently set forth the
bankruptcy court’s error in denying certification, and because “[a]n issue or
argument insufficiently raised in the opening brief is deemed waived,” 33 we
decline to consider the certification argument.
3. Violation of the Discharge Injunction
Appellants argue that their actions in recording the Deficiency Judgment,
after the foreclosure sale of the Otero Land, and then demanding payment in full
in response to the Debtor’s petition for redemption, do not constitute
postdischarge attempts to collect a prebankruptcy debt against the Debtor,
notwithstanding the original debt’s prebankruptcy origins. They base this
argument on New Mexico case law interpreting New Mexico’s redemption statute
(New Mexico Statute § 39-5-18), which they claim allows judgment lienholders to
re-foreclose, on an in rem basis, any remaining balance due on the already
foreclosed property even after redemption by the former property owner.
In New Mexico, the holder of a money judgment can create a judgment lien
against a debtor’s real property by filing a transcript of the judgment with the
clerk of the county where the real estate is located. 34 That lien can be foreclosed
“in the same manner as ordinary suits for the foreclosure of mortgages.” 35 After
foreclosure, a debtor may redeem the property within nine months by paying the
32
Appellants’ Br. 48 (“The issue was fully briefed and argued in the
Motion for Certification. For that reason, Issue III will not be further briefed.”).
33
Becker v. Kroll, 494 F.3d 904, 913 n.6 (10th Cir. 2007) (citing Headrick v.
Rockwell Int’l Corp, 24 F.3d 1272, 1277-78 (10th Cir. 1994)); Krumm v. Holder,
594 Fed. App’x 497, 501 (10th Cir. 2014) (stating party waives an inadequately
briefed issue); Mooring Capital Fund, LLC v. Knight, 388 F. App’x 814, 823 n.4
(10th Cir. 2010) (stating where brief does not develop issue beyond cursory
identification, issue is considered waived).
34
N.M. Stat. Ann. § 39-1-6 (1978).
35
N.M. Stat. Ann. § 39-4-13 (1978).
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purchaser the amounts set forth in New Mexico Statute § 39-5-18, or by filing a
petition for redemption that is accompanied by payment of the same amounts to
the county clerk. 36
In Construction Engineering & Manufacturing Co. v. Don Adams Mining
Co., 37 the New Mexico Supreme Court held that, although a debtor need only pay
the amount paid at a foreclosure sale, plus taxes, interest, and penalties, in order
to redeem a foreclosed property, “[o]nce the mortgagor redeems foreclosed
property, it again becomes part of his real estate and thus subject to the [prior]
judgment lien and foreclosure. A foreclosure suit would then be the proper
remedy to effect payment of the amount of the deficiency.” 38
In Turner v. Les File Drywall, 39 the New Mexico Supreme Court effectively
reiterated its holding that redeemed property is again subject to a previously
foreclosed judgment lien. In Turner, the debtor/original owner of the foreclosed
property sold his right of redemption to a third party. The third party then
exercised the right of redemption. When the holder of the lien tried to re-
foreclose the property now owned by the third party, the state court denied the
requested relief. On appeal, the New Mexico Supreme Court rejected the
lienholder’s argument that a debtor can assign no greater rights than he possessed,
instead favoring application of the rule that the property of one is not subject to
the payment of debts held by another. As a result, it held that the judgment lien
would not follow the redeemed real estate if the debtor owner transferred the
property (in good faith) to a third party who then redeemed it. The clear
implication of this decision is that while a creditor cannot re-foreclose on
property redeemed by a third party, that same creditor can re-foreclose on
36
N.M. Stat. Ann. § 39-5-18 (1978).
37
572 P.2d 1246 (N.M. 1977).
38
Id. at 1248. See also N.M. Stat. Ann. § 39-4-13 (1978).
39
868 P.2d 652 (N.M. 1994).
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property redeemed by the original debtor.
To rebut these holdings, Sprague relies on § 524(a)(2), which “operates as
an injunction against the commencement or continuation of an action, the
employment of process, or an act, to collect, recover or offset any such
[discharged] debt as a personal liability of the debtor.” 40 Sprague argued, and the
bankruptcy court concluded, that when the Debtor received his discharge, that
discharge intervened to eliminate any part of the judgment that was not satisfied
by the first sale of the property. The bankruptcy court noted that it would not
make policy sense to allow the repeated foreclosure of property postredemption,
and it ultimately held that once the Debtor redeemed the property from the sale, it
became “after-acquired” property. As such, Appellants could not then seek to
attach the Judgment Lien to the redeemed property since it was not property
owned on the date of the bankruptcy petition. From that reasoning, the bankruptcy
court held that Appellants’ actions to pursue collection of its Deficiency
Judgment against that “after-acquired” property violated the discharge injunction.
These conclusions misapply the New Mexico Supreme Court’s holdings in
Construction Engineering and Les File Drywall that redeemed real property “once
again becomes part of the mortgagor’s real estate subject to prior judgment
liens.” 41 In New Mexico, judgment liens attach to real property acquired by a
judgment debtor after the date a transcript of judgment is filed, including property
lost at foreclosure but reacquired through redemption. 42 However, nothing in the
New Mexico Supreme Court’s interpretation of the law indicates property
redeemed is newly acquired property—rather, the property “again becomes part of
40
11 U.S.C. § 524(a)(2).
41
Turner, 868 P.2d at 653 (citing Constr. Eng’g, 572 P.2d at 1248) (emphasis
added).
42
Opinion at 10, in Appellants’ App. at 943. See also Const. Eng’g, 572 P.2d
at 1248.
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[a debtor’s] real estate.” 43 While this statutory scheme, which allows repeated
foreclosures, appears to conflict with New Mexico’s stated public policy behind
redemptions, 44 it is nonetheless the law of New Mexico.
The Special Master’s Deed indicates title to the Otero Land passed to
Appellants on July 8, 2014. 45 Sprague timely filed a petition to redeem on April
20, 2015. 46 Appellants objected to Sprague’s redemption in the state court and
simultaneously filed another action to foreclose the Deficiency Judgment. While
Appellants were admittedly procedurally premature in seeking to re-foreclose
their Deficiency Judgment, as they still held title to the Otero Land because the
state court redemption proceeding was stayed pending resolution of the
bankruptcy issues, their complaint did not seek collection of the discharged debt
in personam. 47 As a result, the filing of the postredemption foreclosure action was
not in violation of § 524(a)(2) because, under New Mexico law, a deficiency
judgment may become a postredemption lien on the real property once properly
transcribed. So long as Appellants were not seeking to hold the Debtor personally
liable for the deficiency judgment, and were instead merely pursuing any
remaining value in the non-exempt real estate, their actions did not constitute a
43
Const. Eng’g, 572 P.2d at 1248.
44
See Chase Manhattan Bank v. Candelaria, 90 P.3d 985, 987 (N.M. 2004)
(“One of the purposes of the redemption statute is to give the property owner . . .
a reasonable opportunity to redeem the property.”) (citing W. Bank. of Las Cruces
v. Malooly, 895 P.2d 265, 271 (N.M. Ct. App. 1995); see also Mortg. Elec.
Registration Sys., Inc. v. Montoya, 186 P.3d 256, 258 (N.M. Ct. App. 2008)
(quoting HSBC Bank USA v. Fenton, 125 P.3d 644, 646 (N.M. Ct. App. 2005)
superseded by statute, N.M. Stat. Ann. § 39-5-18 (2007)) (“[T]he commonly
stated purposes of statutory redemption are to encourage full value bidding at
foreclosure sales and to protect mortgagors.”).
45
Appellants’ App. at 450.
46
Opinion at 5, in Appellants’ App. at 938.
47
Id. at 6, in Appellants’ App. at 939.
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discharge violation. 48
Nothing in the record suggests Appellants sought in personam relief, and in
fact, the Deficiency Judgment expressly indicated it was a lien on the Debtor's
real estate and “no deficiency judgment [was] granted on an in personam basis
against the Estate of Fred Van Winkle.” 49 We thus find that Appellants did not, in
trying to enforce the Deficiency Judgment against the Otero Land, commit any
“act, to collect, recover or offset any such [discharged] debt as a personal
liability of the debtor.” under § 524(a)(2). We therefore REVERSE the
bankruptcy court’s holding of a discharge violation.
4. Violation of the Stipulated Order
Although we hold that Appellants did not violate the discharge injunction,
we now review whether their actions taken in the Condo foreclosure violated the
terms of the Stipulated Order. This question is quickly answered by a careful
review of two documents: the Stipulated Order and the complaint Appellants filed
in state court to foreclose Williams’ first mortgage and Appellants’ Judgment
Lien on the Condo. 50
The parties agreed by the terms of the Stipulated Order that the Judgment
Lien was “partially avoided and attache[d] only to the extent of any value over
and above the stipulated value of the [Condo] ($100,000) less the payoff of the
First Mortgage less the Debtor’s allowed Homestead Exemption ($60,000).” 51 In
48
Turner, 868 P.2d at 653; Const. Eng’g, 572 P.2d at 1248; see also Dewsnup
v. Timm, 502 U.S. 410, 417-18 (1992) (explaining lien rights pass through
bankruptcy unaffected).
49
See Opinion at 5, in Appellants’ App. at 938 (quoting the Amended Order
Approving Special Master’s Report & Granting Deficiency Judgment at 3, in
Appellants’ App. at 448).
50
First Amended Complaint for Judgment for Debt and Money Due on
Promissory Note, to Foreclose on Real Estate Mortgage and to Foreclose
Judgment Lien, in Appellants’ App. at 1521.
51
Stipulated Order at 2, in Appellants’ App. at 121. The Order also provided
(continued...)
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their prayer for relief in the subsequent foreclosure complaint, however,
Appellants requested the proceeds of the foreclosure sale be distributed in the
following priority: “(1) satisfaction of the [First Mortgage]-payable to John
Williams; 52 (2) $60,000 for the homestead exemption-payable to the [Debtor’s]
Estate; and (3) the balance of [Appellants’] judgment lien-payable to
[Appellants].” 53
The bankruptcy court correctly determined that Appellants violated the
Stipulated Order by requesting payment of the entire remaining balance of the
Judgment Lien, instead of limiting the amount due on the First Mortgage and
Judgment Lien to a combined total of $40,000, as the Stipulated Order clearly
contemplated. This example illustrates the distribution contemplated by the
Stipulated Order. If the Condo sold for $110,000 on the date of the foreclosure
complaint (thus using the numbers in that complaint), Williams should have
received approximately $20,199 on the First Mortgage (assuming no advances,
etc.), the Debtor would have received the $60,000 representing the homestead
exemption, the Appellant Judgment Lienholders would have received $19,801
($100,000 stipulated value minus $20,199 then minus $60,000), and all sale
proceeds in excess of $100,000—or $10,000 in this example—would have
51
(...continued)
this: “when the amount of the payoff of the First Mortgage is known, the Court
will enter a further order establishing the exact amount of [Appellants'] judicial
lien that can be applied against the [Condo].” Id. It does not appear that
subsequent order has been entered.
52
The complaint indicated the note balance was $15,034 (purchase price),
plus $5,125 interest through April 20, 2015, plus daily accrual of $8.24, plus $40
in late charges. It also generally referenced amounts advanced and attorney fees.
At oral argument, Appellants counsel indicated the balance on the note now
“exceeds $50,000.” As an aside, Appellants also incorrectly sought a finding that
on top of the principal and interest due on the note, accrued rents in the amount of
$13,650 through April 20, 2015 should be added to its judgment. However,
Appellants’ interest in any rents is limited to security for repayment of the
promissory note, not an additional obligation to be added to principal, as
Appellants’ counsel admitted during oral argument.
53
Opinion at 5, in Appellants’ App. at 1041.
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belonged to the Debtor.
Because Appellants’ demand for payment of the entire remaining balance
of the Judgment Lien disregarded the limitations in the Stipulated Order, the
bankruptcy court correctly found Appellants in contempt of that order.
5. Damages
The bankruptcy court awarded $33,161.70 in actual damages and attorneys’
fees and $16,838.30 in punitive damages, for a total judgment of $50,000. The
actual damages were derived from the attorneys’ fees and costs itemized at trial;
the bankruptcy court did not explain how it arrived at the punitive damage award.
The bankruptcy court based the actual damage award on its determination that
Appellants willfully violated the discharge injunction. It elected not to also assess
damages for the contempt of the Stipulated Order, effectively finding that the
time spent by the Debtor’s counsel in prosecuting the discharge injunction
essentially overlapped the time spent on the contempt of the Stipulated Order.
Appellants first argue the bankruptcy court erred in assessing any damages
because no violation of the discharge or the Stipulated Order occurred. While we
reverse the bankruptcy court’s finding of a violation of the discharge injunction,
we affirm the bankruptcy court’s determination that Appellants violated the
Stipulated Order, so some damage award is undoubtedly appropriate. Bankruptcy
courts clearly have the power to enter monetary sanctions against a party for civil
contempt, 54 and the amount of sanctions awarded for civil contempt is reviewed
for abuse of discretion. 55
54
In re Skinner, 917 F.2d 444, 448 (10th Cir. 1990) (holding bankruptcy
courts may impose sanctions for civil contempt to compel compliance with a
court order or compensate parties for losses caused by noncompliance pursuant to
§ 105); In re Scrivner, 535 F.3d 1258, 1265 n.3 (10th Cir. 2008) (same).
55
Auto-Owners Ins. Co. v. Summit Park Townhome Assoc., ___ F.3d ___,
Nos. 16-1348, 16-1352, 2018 WL 1559980, at 8 (10th Cir. Mar. 30, 2018)
(holding abuse of discretion standard requires appellate court to “consider
whether the [trial] court’s determination appears reasonable in light of the
(continued...)
-17-
Appellants next argue the bankruptcy court erred in awarding any fees
without receiving expert testimony regarding the reasonableness of the attorneys’
hourly rates and hours billed. We reject this argument as Appellants neither
objected to the reasonableness of the itemized hours nor to the $200-225 hourly
rate sought. Instead, in their post-trial brief, they argued that the reasonableness
of fees must be shown through expert testimony, and because no such testimony
was received, no fees could be allowed.
The bankruptcy court is authorized “to independently determine reasonable
fees” under the Bankruptcy Code. 56 As a result, we see no reason why expert
testimony is necessary for the court to determine whether the attorneys’ fees were
reasonable in this case. This is especially the case when the objecting party fails
to object to either any specific time entries or to the hourly rate.
Appellants also argue the bankruptcy court did not have jurisdiction to
award actual damages for Sprague’s time, instead arguing her fees should be
determined by the probate court. 57 We disagree. First, because her time was
incurred in prosecuting the adversary filed in the bankruptcy court, the
bankruptcy court was in the best position to determine what fee should be
allowed. Second, awarding fees for that personal representative’s time in the
55
(...continued)
complexity of the case, the number of strategies pursued, and the responses
necessitated by the other parties maneuvering. But we do not require the [trial]
court to identify and justify every hour allowed or disallowed.”) (emphasis added)
(citations omitted) (first citing AeroTech, Inc. v. Estes, 110 F.3d 1523, 1528 (10th
Cir. 1997); and then citing Malloy v. Monahan, 73 F.3d 1012, 1018 (10th Cir.
1996))).
56
In re Market Ctr. E. Retail Prop., Inc., 730 F.3d 1239, 1246 (10th Cir.
2013) (citing In re Commercial Fin. Servs., Inc., 427 F.3d 804, 810 (10th Cir.
2005)) (holding § 330 authorizes bankruptcy court to determine reasonableness of
fees).
57
Appellants also claim a personal representative’s compensation is “limited
to the statutory rate of $35.00 a day and approximately $.50 per mile.”
Appellants’ Br. 71. They cite no authority for this proposition, and the Court
could find none.
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probate estate would result in those fees being paid by the Debtor’s beneficiaries
out of estate assets, not by Appellants—the parties responsible for so much
unnecessary time and labor their actions caused the probate estate’s
representative.
The bankruptcy court has discretion to enter monetary sanctions for
contempt of the Stipulated Order, and it is competent to determine whether the
damages originally awarded, including attorneys’ fees and the representative’s
costs and fees, remain reasonable, upon remand, in light of these holdings. 58 But
because we reverse the bankruptcy court’s finding that Appellants violated the
discharge injunction, and the bankruptcy court did not make specific findings for
damages related solely to the violation of the Stipulated Order, we remand for the
calculation of actual and punitive damages resulting only from Appellants’
contempt of the Stipulated Order.
Finally, specifically with regard to punitive damages, we do not
suggest—by noting the bankruptcy court did not indicate how the punitive
damage award was arrived at—that the bankruptcy court’s decision to award
punitive damages was in error. We agree that the record is replete with examples
where positions taken by the Appellants appeared to be an unnecessarily
relentless pursuit to collect the Judgment Lien, often without regard to the law or
the practicalities of litigation.
This Court identified, in a thorough review of the record on appeal,
numerous actions that support the bankruptcy court’s conclusion that Appellants
were “litigious” and “aggressive,” including: the premature filing of the second
foreclosure on the Otero Land prior to the state court declaring the redemption
58
In re Skinner, 917 F.2d 444, 448 (10th Cir. 1990); see Commercial Fin.
Servs.,, 427 F.3d at 810 (citing In re Miniscribe Corp., 309 F.3d 1240, 1244
(10th Cir. 2002)) (“bankruptcy courts have wide discretion in awarding
compensation to attorneys, trustees, and professionals so long as it is
reasonable.”).
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effective and while it still held title; improperly delaying the redemption process
by arguing Sprague must pay the entire amount due on the First Mortgage to
properly redeem, which was clearly unsupported by state law; 59 seeking rents in
addition to the balance of the First Mortgage on the Condo when not entitled to
do so under the loan documents; seeking a writ of mandamus from the United
States District Court for the District of New Mexico to obtain a ruling on the
Rooker-Feldman jurisdictional issues when it was clear that doctrine was not
applicable; 60 continuing to assert that the bankruptcy court lacked jurisdiction
when the disputes clearly involved violations of the discharge order and contempt
of the bankruptcy court’s own order, none of which had been decided by the state
court; originally arguing, against clear Tenth Circuit authority, that the Debtor’s
estate lost its homestead exemption upon the Debtor’s post-petition death; 61
agreeing to a stipulation as to the Condo and then attempting to set the agreement
aside; and agreeing to stay the state court foreclosures and then attempting to set
that agreement aside. Even in this Court, Appellants submitted a voluminous
(1,679 pages), internally redundant, and mostly unnecessary record on appeal.
Accordingly, by remanding, we only suggest this Court is unable to
ascertain how the bankruptcy court arrived at the punitive damage award and
whether the amount remains appropriate in light of our reversal of the bankruptcy
59
Exhibit E, Plaintiffs’ Motion for Summary Judgment to Foreclose Judgment
Lien and Supporting Brief at 16, in Appellants’ App. at 278.
60
While Appellants’ argument to the bankruptcy court that it did not have
jurisdiction over clearly core matters–the discharge injunction and enforcement of
its own orders–was in itself a stretch, seeking a writ of mandamus in the district
court, and then continuing to assert at oral argument that this Court should follow
Eleventh Circuit precedent instead of binding Tenth Circuit precedent (Mayotte v.
U.S. Bank Nat’l Ass’n for Structured Asset Inv. Loan Tr. Mortg. Pass-Through
Certificates, Series 2006-4, 880 F.3d 1169, 1174 (10th Cir. 2018)), is even more
troubling.
61
Order Regarding to Motion to Avoid Judicial Lien and Setting Scheduling
Conference at 1-2, in Appellants’ App. at 110-11. See Mansell v. Carroll, 379
F.2d 682, 684 (10th Cir. 1967) (holding exemptions are fixed on date of filing
petition); Grattan v. Trego 225 F. 705 (8th Cir. 1915) (holding debtor’s estate
entitled to homestead exemption after death).
-20-
court’s finding that Appellants also violated the discharge injunction with its
actions regarding the Otero Land. 62 Because we remand for a recalculation of
damages, we do not further review the award of punitive damages.
6. Abandonment
To the extent Appellants allege Sprague acted in bad faith by obtaining an
order abandoning the right of redemption for lack of value and then redeeming the
Otero Land, we dismiss these allegations outright. Appellants and the Chapter 7
Trustee had the opportunity to object to the abandonment if they believed the
property had value to the estate; neither elected to do so. And given the years of
litigation surrounding that property, Appellants are hard-pressed to argue they
were unaware of its value when faced with that motion to abandon.
It is also well settled that property may be burdensome to the bankruptcy
estate despite retaining some value—especially when the asset at issue is
embroiled in litigation, as it was here. 63 The Chapter 7 Trustee clearly did not
believe the right of redemption retained any value for the estate, as evidenced by
the filing of his final report, 64 noting that the Judgment Lien encumbered the
Otero Land—which lien, by then, Appellants claimed exceeded $271,905, and for
which land they only bid $67,000 at the foreclosure sale. It is this kind of
62
See e.g. BMW of N. Am., Inc. v. Gore, 517 U.S. 559, 575 (1996) (explaining
to meet due process requirements regarding notice of the severity of potential
penalty, an award of punitive damages must not be excessive). See also Diviney v.
Nationsbank of Texas, N.A. (In re Diviney), 225 B.R. 762 (10th Cir. BAP 1998)
(holding a court should both analyze, in determining whether punitive damages
are warranted, whether a party acted with actual knowledge (or reckless
disregard) that he was violating a federally protected right and the nature of the
defendant’s conduct, his ability to pay, his motives, and whether there was
provocation by the debtor).
63
In re Eurogas, Inc., 560 B.R. 574, 585-86 (Bankr. D. Utah 2016) (finding
Chapter 7 Trustee exercised reasonable business judgment in determining asset
involved in litigation was burdensome to the estate).
64
Chapter 7 Trustee’s Final Account and Distribution Report Certification
that the Estate has been Fully Administered and Application to be Discharged, in
Appellants’ App. at 141; Order Approving Trustee’s Final Report, Court Costs,
and Trustee’s Commission and Expenses, in Appellants’ App. at 139.
-21-
allegation that furthers our finding that Appellants seem willing to make most any
argument, regardless of its merits, to impede the Debtor’s—and now his probate
estate’s—opportunity for the fresh start anticipated by the Bankruptcy Code.
7. Appeal-related attorney fees.
The last issue we address concerns Sprague’s prayer for appeal-related
attorney fees. The Tenth Circuit has held that a prevailing party on appeal is not
automatically entitled to an award of appeal-related attorney fees. Generally, the
Tenth Circuit looks to see if attorneys’ fees are allowed by a specific statute, and
in the absence of a statutory provision, a party must make a specific application
for appeal-related attorneys’ fees. 65 In either case, the decision to award appeal-
related attorneys’ fees falls within the appellate court’s discretion. If the court
determines such fees are appropriate, it may then remand to the trial court the
determination of the appropriate amount of fees. 66
This Court denies Sprague’s general request for appeal-related attorneys’
fees for three reasons: (1) there is no explicit statutory provision entitling her to
appeal-related attorneys’ fees; (2) there was no separate application for fees as
required; and (3) she is not the prevailing party on a significant issue that requires
remand.
IV. Conclusion
Because we find that New Mexico redemption law mandates it, we
REVERSE the bankruptcy court’s determination that Appellants violated the
discharge injunction. And although we AFFIRM the bankruptcy court’s
65
Crumpacker v. Kan. Dept. of Human Res., 474 F.3d 747, 755 (10th Cir.
2007) (quoting Hoyt v. Robson Cos., 11 F.3d 983, 985 (10th Cir. 1993) (holding
the district court does not have jurisdiction to award appeal-related attorneys’ fees
without a remand to do so)); Fed. R. Bankr. P. 8020(a) (“If the . . . BAP
determines that an appeal is frivolous, it may, after a separately filed motion or
notice from the court and reasonable opportunity to respond, award just damages
and single or double costs to the appellee.”) (emphasis added).
66
Hoyt, 11 F.3d at 985.
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determination that Appellants violated the Stipulated Order, we REMAND the
award of actual and punitive damages to the bankruptcy court to determine what
damages are attributable to the violation of the Stipulated Order.
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