Bank of Cushing v. Vaughan (In Re Vaughan)

F I L E D
United States Court of Appeals
Tenth Circuit
UNITED STATES CO URT O F APPEALS
June 27, 2007
FO R TH E TENTH CIRCUIT Elisabeth A. Shumaker
Clerk of Court
In re: H EN RY D EA N V A UG H AN;
JESSIE ELA IN E V A U G HA N ,
Debtors.
No. 04-6249
(BAP N o. W O-03-094)
B AN K OF C USH IN G , (BA P)
Appellant,
v.
H EN RY D EA N V A UG H A N ;
JESSIE ELA IN E V A U G HA N ,
Appellees.
OR D ER AND JUDGM ENT *
Before PO RFILIO, B AL DOC K , and EBEL, Circuit Judges.
*
After examining the briefs and appellate record, this panel has determined
unanimously that oral argument would not materially assist the determination of
this appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is
therefore ordered submitted without oral argument. This order and judgment is
not binding precedent, except under the doctrines of law of the case, res judicata,
and collateral estoppel. It may be cited, however, for its persuasive value
consistent w ith Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
Debtors-appellees the Vaughans owed money to the appellant Bank of
Cushing (the Bank) pursuant to certain guarantee agreements the Vaughans had
signed (Personal Guarantees). The Vaughans entered into a settlement agreement
with the Bank that allowed the Vaughans to repay their debt over time and
secured the debt with interests in various pieces of real and personal property
(Settlement Agreement). In the Settlement Agreement the Bank also released its
rights against the Vaughans under the Personal Guarantees. The Vaughans
subsequently filed for bankruptcy. The Bank filed an adversary proceeding
seeking to have the Vaughans’ debt to it excepted from discharge or to have
discharge generally denied, contending that the Vaughans had made materially
false representations to induce the Bank to enter into the Settlement Agreement
and release the Personal Guarantees. The bankruptcy court found that the Bank
“reasonably and justifiably relied on the materially false oral and written
representations made by [the Vaughans] regarding their assets and liabilities in
agreeing to the Settlement Agreement.” A plt. App., Vol. I at 149. The court
granted the Bank summary judgment, holding that the Vaughans could not
discharge the debt they owed the Bank under the Personal Guarantees and that it
could recover the principal amount of $364,024.75. The bankruptcy court also
found that “because the [Personal Guarantees] provide for the recovery of [the
Bank’s] attorney’s fees and costs, [the Bank] is entitled to recover its reasonable
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attorney’s fees and costs as the prevailing party in [its adversary proceeding],”
the amount to be determined upon later motion. Id.
The parties later entered into a stipulation that the amount of costs and
attorneys’ fees owed by the Vaughans pursuant to the Personal Guarantees was
$440,000 along with post-judgment interest. On July 9, 2002, the bankruptcy
court entered judgment for the Bank accepting the amounts agreed upon in the
stipulation. The Bank then recorded a Statement of Judgment in regard to the
fees and costs award with the Clerk of Payne County, Oklahoma, resulting in a
lien on the Vaughans’ homestead property.
The Vaughans filed a M otion to Avoid Judgment Lien seeking to avoid the
Bank’s lien as a judicial lien under 11 U.S.C. § 522(f)(1), which reads in
pertinent part:
Notwithstanding any waiver of exemptions . . . , the debtor may
avoid the fixing of a lien on an interest of the debtor in property to
the extent that such lien impairs an exemption to which the debtor
would have been entitled under subsection (b) of this section, if such
lien is–
(A ) a judicial lien . . . [.]
The V aughans had listed their homestead as exempt property in their schedules,
valuing their interest in that property at $140,000, and showing a purchase money
mortgage encumbering the property in the amount of $103,497.75. Following a
hearing, the bankruptcy court held that the Vaughans were entitled to avoid the
Bank’s lien and that any proceeds from a sale of the property would also be
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exempt if reinvested in another homestead within six months from the sale date.
The Bank appealed this decision to the Bankruptcy Appellate Panel (BAP), which
affirmed the bankruptcy court’s order. Bank of Cushing v. Vaughan (In re
Vaughan), 311 B.R. 573 (10th Cir. BAP 2004). The Bank has now appealed to
this court.
The Bank raises six points of bankruptcy court error. The Bank first argues
that its lien was a consensual lien and not a “judicial lien” that could be avoided
under 11 U.S.C § 522(f)(1)(A). The Bank’s second point argues that its lien was
not avoidable because it did not affix to the exempt property prior to the date the
Vaughans’ bankruptcy petition was filed. The Bank’s third point argues that the
lien was not avoidable because the $440,000 debt underlying the lien–a debt for
attorneys’ fees and costs due under the pre-petition Personal Guarantees–was
necessarily a post-petition debt because the Bank had released its rights under the
Personal Guarantees at the time the bankruptcy petition was filed. The Bank
argues that its claim to the attorneys’ fees and costs could not therefore have
come into existence until the bankruptcy court’s post-petition resurrection of the
Personal Guarantees and grant of summary judgment. The Bank’s fourth point,
which is a corollary to its third point, argues that the two main legal decisions
relied upon by the bankruptcy court in determining that the $440,000 debt was a
pre-petition debt were distinguishable because the bank involved in those cases
had not released its rights under the pre-petition agreement providing for the
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recovery of attorneys fees. In its fifth point, the Bank argues that the fixing of a
lien to an Oklahoma homestead does not “impair” the homestead exemption under
§ 522(f)(1). Its sixth and final point argues that, because the Vaughans entered
into a stipulation regarding the amount of attorney’s fees owed, they either
waived their right to seek lien avoidance or are equitably estopped from doing so.
Exercising jurisdiction under 28 U.S.C. § 158(d), we affirm.
“On appeal from BAP decisions, we independently review the bankruptcy
court’s decision.” Houlihan Lokey Howard & Zukin Capital v. Unsecured
Creditors’ Liquidating Trust (In re Commercial Fin. Servs., Inc.), 427 F.3d 804,
810 (10th Cir. 2005) (quotation omitted).
W e review the bankruptcy court’s legal determinations de novo and
its factual findings under the clearly erroneous standard. A finding
of fact is clearly erroneous if it is without factual support in the
record or if, after reviewing all of the evidence, we are left with the
definite and firm conviction that a mistake has been made.
Id. (quotation omitted).
W e have carefully reviewed the Bank’s appendix, as well as the briefs
submitted by the parties. W ith the above standards in mind, we deny the B ank’s
first, second, fifth, and sixth points on appeal for substantially the reasons set
forth in the BAP’s July 7, 2004, opinion.
W e decline to review the Bank’s third and fourth points on the ground that
its argument therein w as not properly raised below . Under 11 U.S.C. § 522(c),
“[u]nless the case is dismissed, property exempted under this section is not liable
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during or after the case for any debt of the debtor that arose . . . before the
comm encement of the case.” In determining that the attorneys’ fees and costs at
issue were a debt that arose pre-petition, the bankruptcy court relied mainly on the
reasoning in two cases: In re Keaton (Keaton I), 182 B.R. 203 (Bankr. E.D. Tenn.
1995), and the case that affirmed Keaton I, Keaton v. Boatmen’s Bank of
Tennessee (In re Keaton), 212 B.R. 587 (E.D. Tenn. 1997) (Keaton II). 1 The
bankruptcy court read Keaton I as holding that “attorney fees incurred
post-petition but arising from a pre-petition obligation are treated as a pre-petition
obligation.” Aplt. App., Vol. I at 243. In Keaton II the district court affirmed the
ruling in Keaton I, agreeing with the bankruptcy court that “‘while the
representation may have been performed after the petition was filed, [the
creditor’s] right to collect attorney’s fees arose out of the [pre-petition] contract
and [was] a prepetition claim.’” Keaton II, 212 B.R. at 591 (quoting Keaton I,
182 B.R. at 205). The bankruptcy court in the present case “believe[d] the
reasoning of the Keaton II court [to be] sound and adopt[ed] its analysis and
conclusion.” A plt. App., Vol. I at 245. The BAP affirmed the bankruptcy court’s
determination, ruling that because the Personal Guarantees and the Settlement
Agreement both provided that a defaulting party would be responsible for the
1
As recognized by the bankruptcy court in the case at hand, the Keaton cases
were subsequently vacated by the Sixth Circuit Court of Appeals on other
grounds. See Keaton v. Boatmen’s Bank of Tennessee (In re Keaton),
No. 97-6244, 1998 W L 228123, at *1 (6th Cir. April 30, 1998) (unpublished).
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costs of collection, including attorneys’ fees, the Bank had a contingent or
unmatured claim to attorneys’ fees at the time the petition was filed.
The Bank’s third point on appeal argues that “the petition date is the
relevant date for determinations pursuant to §522” and that “[a]s of the petition
date . . . [the Bank] did not hold a claim against the Vaughans pursuant to its
former Personal G uarantees” because “[t]hat claim had been specifically
released pursuant to the Settlement Agreement.” A plt. Opening Br. at 16. In its
fourth point the Bank argues that the bankruptcy court therefore erred in applying
the logic of the Keaton cases to the case at hand because the factual situation in
those cases was distinguishable. In the Keaton cases, as in this case, a creditor
bank had entered into a pre-petition loan agreement with its debtor that provided
that the debtor would pay any attorneys’ fees incurred by the bank in attempting
to collect on the debt following a default. After the debtor filed for bankruptcy
protection, the bank sought to advance a bankruptcy claim that included $250.00
for attorneys’ fees incurred during representation in the bankruptcy court. The
bankruptcy court and district court in those cases held that the attorneys’ fees
constituted a pre-petition debt. In the instant case the Bank argues that by
applying the reasoning of the Keaton cases to this case, the bankruptcy court
“confused apples and oranges.” Id. at 22 (internal quotation marks omitted). The
Bank’s argument is that, although “the creditor [in the Keaton cases] had a right
to attorney’s fees in question upon the Petition date, due to the default of
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debtors,” id., the Bank had no such right here because of the release contained in
the Settlement Agreement. Therefore the Keaton cases are inapplicable.
There is nothing in the bankruptcy court’s and BAP’s decisions that shows
that this argument was raised below. Those decisions wrestled with a
determination of how to classify a debt for attorney’s fees and costs earned
post-petition but due under an existing pre-petition agreement between the
parties. There is nothing to show that they were asked to consider the effect of a
fraudulently induced pre-petition release of a pre-petition agreement, and the
subsequent post-petition reinstatement of the rights under that agreement by the
bankruptcy court. The Bank’s appendix does not contain its briefs to either the
bankruptcy court or to the BAP despite the obligation it had to prepare and file an
appendix containing relevant portions of the record sufficient for us to consider
and decide the issues raised on appeal. Fed. R. App. P. 30(a)(1); 10th Cir. R.
30.1(A)(1), 10.3(A), (C), (D)(2). Further the Bank’s briefs do not “cite the
precise reference in the record where [each] issue was raised and ruled on” in
contravention of 10th Cir. R. 28.2(C)(2). Issues not raised and ruled on below
will generally not be considered on appeal. Walker v. M ather (In re Walker),
959 F.2d 894, 896 (10th Cir. 1992). 2
2
W e note that the Bank’s reply brief may be read to raise the same
alternative argument on this topic that was raised to and rejected by the courts
below: i.e., that even if its rights to attorneys’ fees and costs under the Personal
Guarantees had not been released pre-petition, the debt from those fees and costs
(continued...)
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W e therefore AFFIRM the judgment of the BAP. W e also DENY the
Bank’s M otion to Supplement Record.
Entered for the Court
David M . Ebel
Circuit Judge
2
(...continued)
would be a post-petition debt because the fees and costs, although due pursuant to
a pre-petition agreement, were incurred post-petition. W e will not address this
argument. See Kaw Nation ex rel. M cCauley v. Lujan, 378 F.3d 1139, 1142
(10th Cir. 2004) (refusing to consider an argument raised for the first time in a
reply brief).
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