In re: Leiann Toni Fountain

FILED
MAR 10 2020
NOT FOR PUBLICATION
SUSAN M. SPRAUL, CLERK
U.S. BKCY. APP. PANEL
OF THE NINTH CIRCUIT
UNITED STATES BANKRUPTCY APPELLATE PANEL
OF THE NINTH CIRCUIT
In re: BAP No. HI-19-1173-GLB
LEIANN TONI FOUNTAIN, Bk. No. 19-00046
Debtor.
LEIANN TONI FOUNTAIN,
Appellant,
v. MEMORANDUM*
DEUTSCHE BANK NATIONAL TRUST
COMPANY, As Trustee for American
Home Mortgage Assets Trust 2007-2,
Mortgage-Backed Pass-Through
Certificates Series 2007-2,
Appellee.
Argued and Submitted on February 27, 2020
at Pasadena, California
Filed – March 10, 2020
*
This disposition is not appropriate for publication. Although it may be cited for
whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential
value. See 9th Cir. BAP Rule 8024-1.
Appeal from the United States Bankruptcy Court
for the District of Hawaii
Honorable Robert J. Faris, Chief Bankruptcy Judge, Presiding
Appearances: Lars Peterson of Abelmann Peterson LLLC argued for
Appellant; David A. Nakashima argued for Appellee.
Before: GAN, LAFFERTY, and BRAND, Bankruptcy Judges.
INTRODUCTION
Appellant Leiann Fountain (“Debtor”) appeals from an order
dismissing her chapter 131 case on the basis that her unsecured claims
exceeded the limit imposed by § 109(e). Debtor argues that the bankruptcy
court erred in including in the debt limit calculation, Deutsche Bank
National Trust Company’s (“Deutsche Bank”) $1,751,326.06 claim because
Deutsche Bank did not have a claim against Debtor, and if it did, the claim
was contingent and unliquidated. Debtor also argues that the court should
not have looked beyond the schedules to determine the amount of
unsecured claims. We disagree and AFFIRM.
1
Unless specified otherwise, all chapter and section references are to the
Bankruptcy Code, 11 U.S.C. §§ 101-1532.
2
FACTS2
A. Prepetition Events
In 2006, Debtor borrowed $1,092,000 to refinance a mortgage on her
home in Waianae, HI. Debtor signed a promissory note payable to lender
American Broker Conduit. The note was secured by a mortgage serviced by
American Home Mortgage Assets, LLC (“AHMA”). American Broker
Conduit subsequently sold the loan to AHMA.
In 2007, AHMA created American Home Mortgage Assets Trust
2007-2, Mortgage Backed Pass-Through Certificates Series 2007-2 and
appointed Deutsche Bank as trustee. American Broker Conduit indorsed
the promissory note in blank, but it is not clear if Debtor’s loan was
included in the trust. Deutsche Bank asserts that it has possession of the
promissory note, but that the mortgage was lost and never recorded.
In 2015, Debtor sold the property without paying off the loan. After
the sale, the title insurance company filed a quiet title action in state court
naming all parties to the sale, including Debtor and Deutsche Bank.
Deutsche Bank cross-claimed against Debtor for payment of the note and
moved for summary judgment. Debtor opposed summary judgment and
argued that Deutsche Bank failed to establish that it had standing to
2
We exercise our discretion to review the bankruptcy court’s docket as
appropriate. See Woods & Erickson, LLP v. Leonard (In re AVI, Inc.), 389 B.R. 721, 725 n.2
(9th Cir. BAP 2008).
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enforce the note, and that enforcement was barred by the statute of
limitations. Prior to oral argument on the motion for summary judgment,
Debtor filed her bankruptcy case.
B. The Bankruptcy Case
In January 2019, Debtor filed her chapter 13 petition and plan. Debtor
scheduled total unsecured claims of $30,443. Debtor listed Deutsche Bank’s
unsecured claim, but only in the amount of $1,000, and marked it
contingent, unliquidated, and disputed.
Deutsche Bank filed a proof of claim evidencing an unsecured claim
for $1,751,326.06 and attached the note. Deutsche Bank also filed an
objection to Debtor’s plan and a motion to dismiss, arguing that Debtor
exceeded the unsecured debt limit of § 109(e). Debtor opposed the motion
to dismiss and although she admitted signing the note, she asserted that
Deutsche Bank’s claim was both contingent and unliquidated and that the
bankruptcy court had no reason to look beyond the schedules to determine
eligibility under § 109(e). She also questioned whether Deutsche Bank
could enforce the claim.
The bankruptcy court granted the motion to dismiss and determined
that the debt was not contingent because there was “no external real world
event that has to happen before liability is incurred,”and it was not
unliquidated because although there were complicated issues litigated in
the state court action, those issues were not about determining the amount
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of the debt, which could be calculated from the note. The court entered a
written order dismissing the case and Debtor timely appealed.
JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and
157(b)(2)(A). We have jurisdiction under 28 U.S.C. § 158.
ISSUE
Did the bankruptcy court err by including Deutsche Bank’s
unsecured claim for purposes of eligibility under § 109(e)?
STANDARD OF REVIEW
The question of whether a debt is contingent or unliquidated
involves interpretation of the Bankruptcy Code and we review such
determinations de novo. Nicholes v. Johnny Appleseed of Wash. (In re
Nicholes), 184 B.R. 82, 86 (9th Cir. BAP 1995). De novo review requires that
we consider the matter as if no decision had been previously rendered.
Kashikar v. Turnstile Capital Mgmt., LLC (In re Kashikar), 567 B.R. 160, 164
(9th Cir. BAP 2017).
DISCUSSION
Section 109(e) defines who may be a debtor under chapter 13 of the
bankruptcy code. As of the petition date, § 109(e) provided: “[o]nly an
individual with regular income that owes, on the date of the filing of the
petition, noncontingent, liquidated, unsecured debts of less than
$394,725 . . . may be a debtor under chapter 13 of this title.”
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The term “debt” is defined in § 101(12) as “liability on a claim.”
A “claim” is defined in § 101(5) as a “right to payment, whether or not such
right is reduced to judgment, liquidated, unliquidated, fixed, contingent,
matured, unmatured, disputed, undisputed, legal, equitable, secured, or
unsecured.”
Debtor argues that the bankruptcy court erred by including the
Deutsche Bank claim in the eligibility calculation because: (1) Deutsche
Bank did not have an enforceable claim against Debtor; (2) there was no
basis to look beyond Debtor’s schedules to determine total unsecured
debts; and (3) even if Deutsche Bank had a claim, it was contingent and
unliquidated.
A. Deutsche Bank Had An Unsecured Claim For Eligibility Purposes
Debtor argues that the state court litigation had not resolved
disputed issues about whether Deutsche Bank had possession of the note
and a right to enforce it, and whether the statute of limitations had expired.
She asserts that the bankruptcy court never determined that Deutsche Bank
had a claim, which is necessary for the § 109(e) analysis. In short, Debtor
asserts that because the claim was still in dispute, it cannot be included in
the eligibility calculation.
However, a disputed claim is still a “claim” under § 101(5). Section
109(e) excludes unliquidated and contingent debts from the eligibility
calculation, but it does not exclude debts which are merely disputed. In re
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Nicholes, 184 B.R. at 88. Additionally, eligibility under § 109(e) is
determined as of the petition date, and is not based on post-petition events.
Scovis v. Henrichsen (In re Scovis), 249 F.3d 975, 982 (9th Cir. 2001).
As of the petition date, there was no judicial determination that
Deutsche Bank could not enforce the note. Deutsche Bank’s right to
payment is evidenced by the signed promissory note attached to its proof
of claim. Debtor acknowledged Deutsche Bank’s claim by listing it in her
schedules as an unsecured claim. The fact that Debtor disputes the claim is
not a sufficient basis to exclude the claim for purposes of § 109(e). See In re
Nicholes, 184 B.R. at 88.
B. The Bankruptcy Court Properly Considered The Proof of Claim
Although Debtor listed the Deutsche Bank claim in her schedules, she
listed the amount of the debt as $1,000. She argues that the bankruptcy
court impermissibly looked to Deutsche Bank’s proof of claim to determine
the amount of the debt because Deutsche Bank did not allege bad faith and
there was no indicia of bad faith.
Eligibility under § 109(e) “should normally be determined by the
debtor’s originally filed schedules, checking only to see if the schedules
were made in good faith.” In re Scovis, 249 F.3d at 982. But, where a good
faith objection to eligibility has been filed by a party in interest, the
bankruptcy court can make a limited inquiry outside of the schedules to
determine if the Debtor estimated her debts in good faith, and if not,
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whether she was eligible for chapter 13 relief. Guastella v. Hampton (In re
Guastella), 341 B.R. 908, 918 (9th Cir. BAP 2006).
The phrase “checking only to see if the schedules were made in good
faith” does not require the bankruptcy court to find bad faith or that a
debtor intentionally misrepresented her debts. Id. at 920. If it appears to be
a legal certainty from the record that the claim is not as stated in the
schedules, an actual “good faith” inquiry may be unnecessary. Id. at 921.
Here, Deutsche Bank made a good faith objection to eligibility and
asked the court to review its proof of claim. Debtor did not dispute that she
signed the promissory note for $1,092,000. Given this acknowledgment, it
appeared to a legal certainty that Deutsche Bank’s claim was not $1,000 as
stated in Debtor’s schedules. The nature of Debtor’s dispute in the state
court litigation related to Deutsche Bank’s ability to enforce the note, not to
the amounts due under the note. The court was therefore justified in
looking past the schedules and considering the note as evidence of Debtor’s
unsecured debts.
C. The Debt Is Not Contingent
A debt is contingent when “the debtor will be called upon to pay [it]
only upon the occurrence or happening of an extrinsic event which will
trigger the liability of the debtor to the alleged creditor.” Fostvedt v. Dow (In
re Fostvedt), 823 F.2d 305, 306 (9th Cir. 1987). If “all events giving rise to
liability occurred prior to the filing of the bankruptcy petition,” the claim is
8
not contingent. In re Nicholes, 184 B.R. at 88. A dispute over liability for a
claim does not make the debt contingent. Id. at 89 (citing In re Dill, 30 B.R.
546, 549 (9th Cir. BAP 1983)).
Debtor argues that the debt is contingent because liability is
dependent on a final ruling in the state court action, which had not yet
occurred. However, all of the events giving rise to Debtor’s liability on the
note arose pre-petition. Debtor’s liability for the debt was created when she
signed the promissory note in 2006. The fact that she now disputes liability
does not render the contractual obligation contingent.
D. The Debt Is Liquidated
A debt is liquidated if it is capable of “ready determination and
precision in computation of the amount due.” In re Fostvedt, 823 F.2d 305,
306 (9th Cir. 1987).“The test for ‘ready determination’ is whether the
amount due is fixed or certain or otherwise ascertainable by reference to an
agreement or by a simple computation.” In re Nicholes, 184 B.R. at 89.
A dispute about liability does not “necessarily render a debt
unliquidated.” Slack v. Wilshire Ins. Co. (In re Slack), 187 F.3d 1070, 1074 (9th
Cir. 1999). As we stated in Nicholes:
So long as a debt is subject to ready determination
and precision in computation of the amount due,
then it is considered liquidated and included for
eligibility purposes under § 109(e), regardless of
any dispute. On the other hand, if the dispute itself
makes the claim difficult to ascertain or prevents
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the ready determination of the amount due, the
debt is unliquidated and excluded from the § 109(e)
computation.
184 B.R. at 91.
Under this test, disputed contractual claims are generally liquidated.
Id. (citing Sylvester v. Dow Jones & Co., Inc. (In re Sylvester), 19 B.R. 671, 673
(9th Cir. BAP 1982)). Regardless of whether a debtor disputes liability, “if
the amount of the debt is calculable with certainty, then it is liquidated for
the purposes of § 109(e).” In re Slack, 187 F.3d at1074-75 (emphasis in
original).
Debtor argues that the Deutsche Bank claim is unliquidated because
the ultimate question of her liability to Deutsche Bank has not been
determined. But, as the bankruptcy court correctly observed, “there are
complicated issues that have been litigated in the state court for a long
time, but those issues aren’t about determining the amount of the debt and
that’s what makes it liquidated.”
The amount of the debt is readily determinable by reference to the
note. The Deutsche Bank debt is liquidated and was properly included by
the bankruptcy court in the § 109(e) calculation.
CONCLUSION
For the reasons set forth above, we AFFIRM the bankruptcy court's
order dismissing Debtor’s chapter 13 case.
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