Summary
In Leasing Service Corporation, Justice was trying to have his cake and eat it, too. He wanted his bankruptcy discharge to be treated as if it were a payment in full of his debt. He conflated the first and third sentences of § 8.01–455, confusing having the judgment marked “satisfied” in the first sentence upon payment in full and having the judgment marked “discharge in bankruptcy” in the third sentence upon receiving a bankruptcy discharge.
Summary of this case from Johnson v. Cadles of Grassy Meadows, II, LLC (In re Johnson)Opinion
47651 Record No. 911296
April 17, 1992
Present: All the Justices
The trial court erred in ordering a judgment creditor's recorded judgment marked "satisfied in bankruptcy". The discharge in bankruptcy would not prevent plaintiff creditor from post-discharge enforcement of its lien upon real property interests that were acquired before the bankruptcy proceedings and the creditor's judgment was recorded before the bankruptcy petition was filed.
Creditors' Rights — Bankruptcy — Discharge — Lien on Real Property — Recorded Before Bankruptcy — Statutory Construction (Code Sec. 8.01-455)
Plaintiff obtained a large court judgment against the defendant and the judgment was docketed in the county clerk's office. Plaintiff filed a suit in the circuit court seeking to set aside defendant's allegedly fraudulent conveyance of land to his mother. Before the court could rule on that issue, the defendant filed a petition for bankruptcy relief. Pursuant to the provisions of Code Sec. 8.01-455, the defendant sought to have the judgment discharged in bankruptcy. The circuit court sustained the motion and ordered the judgment released. Plaintiff appeals.
1. The plaintiff's judgment was a lien on all the real estate of or to which the defendant was entitled, from the time the judgment was recorded on the judgment lien docket of the clerk's office of the county where such land is situated. Code Sec. 8.01-458.
2. The defendant's discharge in bankruptcy made plaintiff's lien ineffective as to any real property interests in the county that the defendant acquired after the commencement of his bankruptcy proceedings.
3. However, the defendant's discharge in bankruptcy would not prevent the plaintiff from post-discharge enforcement of its lien upon defendant's real property interests in the county that were acquired before the commencement of the bankruptcy proceedings.
4. The plaintiff's judgment lien was not paid off or discharged in the bankruptcy proceedings and the trial court erred in ordering that it be released under the provisions of Code Sec. 8.01-455. The court could only have ordered the release of the lien in a Code Sec. 8.01-455 proceeding upon proof that it had been discharged in bankruptcy.
5. The burden of proof was on the defendant as to his entitlement to relief under Code Sec. 8.01-455 and the trial court erred in imposing the burden on the plaintiff to show that defendant had property in the county which was subject to the lien.
Appeal from a judgment of the Circuit Court of Wise County. Hon. J. Robert Stump, judge presiding.
Reversed and dismissed.
Steven R. Minor (Kurt Pomrenke; White, Elliott Bundy, on brief), for appellant.
Daniel W. Fast (Donald E. Earls, on brief), for appellee.
In this case, we construe Code Sec. 8.01-455 in deciding whether a trial court correctly ordered a judgment creditor's recorded judgment marked "satisfied in bankruptcy."
As pertinent, Code Sec. 8.01-455(A) provides that
[a] defendant in any judgment . . . may, on motion, after ten days' notice thereof to the plaintiff in such judgment, . . . apply to the court in which the judgment was rendered, to have the same marked satisfied, and upon proof that the judgment has been paid off or discharged, such court shall order such satisfaction to be entered on the margin of the page in the book wherein such judgment was entered. . . . Upon a like motion and similar proceeding, the court may order to be marked "discharged in bankruptcy," any judgment which may be shown to have been so discharged.
On September 28, 1981, the United States District Court for the Western District of Virginia awarded Leasing Service Corporation (LSC) a $2,369,897.10 judgment against Virgil B. Justice. On August 6, 1982, this judgment was docketed in the clerk's office of the Circuit Court of Wise County.
In November 1982, LSC filed a suit in the Circuit Court of Wise County seeking to set aside Justice's allegedly fraudulent conveyance of land in Wise County to his mother. Before the circuit court could rule on the issue, Justice filed a voluntary petition for bankruptcy relief. Justice was ultimately discharged from personal liability upon LSC's judgment by a March 30, 1983 order of the United States Bankruptcy Court for the Western District of Virginia.
Justice's trustee in bankruptcy sought to have the conveyance set aside as fraudulent in an adversary proceeding in the bankruptcy court. After a hearing on the merits, the trustee's action was dismissed. The record does not indicate whether this dismissal was appealed.
On February 1, 1991, pursuant to the provisions of Code Sec. 8.01-455, Justice filed a motion to have LSC's judgment marked "discharged in bankruptcy." LSC opposed this motion on the grounds that its judgment was a lien upon any land Justice may have owned in Wise County at the time he filed his petition in bankruptcy, and that the trial court could not release its judgment lien in this proceeding.
Because it found that "LSC can cite no . . . real property owned nor recorded by Justice in Wise County, [other than the property that the trustee unsuccessfully claimed was fraudulently conveyed]," the circuit court held that "no judgment lien ever attached." Therefore, the circuit court sustained Justice's motion and "ordered the judgment released." LSC appeals.
[1-3] LSC's judgment was "a lien on all the real estate of or to which [Justice] is or becomes possessed or entitled, from the time such judgment is recorded on the judgment lien docket of the clerk's office of the county . . . where such land is situated." Code Sec. 8.01-458. That lien is imposed on all of Justice's real property interests in Wise County that were acquired after LSC's judgment was recorded, Miller v. Kemp, 157 Va. 178, 190, 160 S.E. 203, 206 (1931), but Justice's discharge in bankruptcy made LSC's lien ineffective as to any real property interests in Wise County that Justice acquired after the commencement of his bankruptcy proceedings, 11 U.S.C. § 524 (a)(3) (1978).
However, Justice's discharge in bankruptcy would not prevent LSC from a post-discharge enforcement of its lien upon his Wise County real property interests that were acquired before the commencement of the bankruptcy proceedings. Id.; 3 Collier on Bankruptcy Sec. 524.01(3) (Lawrence P. King, ed., 15th ed. 1992). Here, LSC's judgment was recorded in Wise County before Justice filed his bankruptcy petition. Therefore, the judgment continued to be a lien on any interest Justice may have had in land in that county despite his bankruptcy discharge from personal liability for payment of the judgment. Dockery v. Flanary, 194 Va. 318, 323, 73 S.E.2d 375, 378 (1952). Otherwise stated, LSC's judgment lien was not "paid off or discharged" in Justice's bankruptcy proceedings. Accordingly, the trial court erred in ordering that the lien be released under the provisions of Code Sec. 8.01-455.
Furthermore, the trial court erred in two additional respects. First, the trial court could only determine those issues set forth in the statutory authorization for a court-ordered release of liens upon property. Wagner v. Peters, 142 Va. 412, 416, 128 S.E. 445, 446 (1925). In Wagner, we held that a trial court could not adjudicate a collateral issue of whether the payment of insurance proceeds on the secured property to the trustee of the deed of trust constituted the payment of the deed of trust where the proceeding was brought under the provisions of Code Sec. 55-66.5. In pertinent part, Code Sec. 55-66.5 authorized a trial court to order the release of a deed of trust "upon proof that it has been paid or discharged." Thus, in this case, the trial court could only have ordered the release of LSC's lien in a Code Sec. 8.01-455 proceeding upon proof that it had been "discharged in bankruptcy."
Second, Justice has the burden of proof as to his entitlement to relief under Code Sec. 8.01-455. See Hall Bldg. Corp. v. Edwards, 142 Va. 209, 211, 128 S.E. 521, 522 (1925) (burden of proof on proponent of release of deed of trust under the predecessor to Code Sec. 55-66.5). Hence, the trial court erred in imposing the burden on LSC to show that Justice had property in Wise County that was subject to its lien.
For all these reasons, we will reverse the judgment of the trial court and will dismiss Justice's motion.
Reversed and dismissed.