Opinion
NOT FOR PUBLICATION
Argued and Submitted at Seattle, Washington: November 30, 2007
Appeal from the United States Bankruptcy Court for the Western District of Washington. Bk. No. 05-19000. Honorable Philip H. Brandt, Bankruptcy Judge, Presiding.
Before: JURY, KLEIN and MONTALI, Bankruptcy Judges.
MEMORANDUM
I. INTRODUCTION
This is an appeal and related cross-appeal from the disallowance of James and Linnie Bride's (the " Brides") proof of claim #13. The Brides' claim arose out of an alleged breach by Leroy and Anita Wicklund (" debtors") of a purchase and sale agreement to convey real property.
After a multi-day trial and subsequent motion for reconsideration, the bankruptcy court disallowed the Brides' claim and found that: (1) the contract between the parties was a valid and enforceable contract; (2) the mutual agreements between the parties survived the closing of the sale; (3) the Brides' claim for breach of the contract could be satisfied in money damages; (4) the Brides' claim was discharged in debtors' prior bankruptcy; (5) the contract was executory, but was breached before debtors' prior bankruptcy resulting in the discharge of the Brides' claim; and (6) the Brides' claim had a value of $300,000 if it was not discharged in debtors' prior bankruptcy. Both parties timely appealed.
The Brides' appeal involves mostly bankruptcy issues. They contend the court erred in finding they had a " claim" within the meaning of § 101(5)(B) because their remedy for debtors' breach of the contract was specific performance and money damages were inadequate. They also maintain that the contract was executory and rode through debtors' prior bankruptcy because it was not addressed in debtors' plan. Next, they contend that even if the contract had been breached before debtors' prior bankruptcy filing, their claim would have survived as a secured claim under § 365(j). Lastly, they maintain that the court erred in its valuation of their claim.
Debtors' cross-appeal involves mostly state law issues. Debtors contend the court erred in finding that the contract was enforceable because it did not meet the statute of frauds or contain an adequate legal description which is required under Washington law. They also maintain that the court erred in finding neither the statute of limitations nor debtors' performance barred the Brides' claim. Lastly, they assert error in the court's valuation of the Brides' claim.
Because we find that the Brides' claim was discharged through confirmation of the plan in debtors' 2000 bankruptcy, we AFFIRM the bankruptcy court's disallowance of the Brides' claim.
II. FACTS
The Brides owned real property in Edmonds, Washington [hereinafter described as " Lot 83, Lot 84 and Lot 85"). In early 1997, the Brides began marketing Lot 83 for sale with a listing price of $1.475 million. Debtors offered to purchase Lot 83 at a reduced price. To make the sale occur, the Brides reduced the sales price to $1.205 million and proposed to carve out a 20, 000 square foot lot (hereinafter " Lot A"), which they would retain if debtors did not exercise their option to purchase it.
The parties entered into a purchase and sale agreement for Lot 83 on March 13, 1997 (the " PSA"). Various addenda attached to the PSA provided for the carve out of Lot A and the granting of and recording of an easement on Lot 83 and Lot 84 for road access to Lot 83, both of which were to occur prior to closing. The Brides also gave debtors an option to purchase Lot A for $300,000.
The transaction closed on May 23, 1997, with execution of a statutory warranty deed for the entirety of Lot 83 without a reference to Lot A. The escrow instructions, signed by both parties, provided that all requirements and conditions for transfer of the property had been satisfied. However, Lot A was not carved out of Lot 83 through either a short plat process or a boundary line adjustment (" BLA") and no easement documents were delivered or executed. Nonetheless, the parties closed the transaction.
A. Debtors 2000 Chapter 11 Bankruptcy Filing
On October 19, 2000, debtors filed a chapter 11 petition to stop a foreclosure sale of Lot 83.
On December 12, 2000, the Brides transferred Lots 84 and 85 to Talbot Partners, LLC (" Talbot Partners"), a company owned 75% by the Brides and 25% by Howland Homes, LLC (" Howland Homes").
On June 1, 2001, debtors and the Brides entered into a second right of first refusal allowing debtors to buy Lot A from the Brides for $350,000, increased from the original $300,000 option price because of interest and time lapse. At the time debtors signed the second option, Lot A was not a legal lot. Of course, at that time debtors already owned Lot 83, including Lot A.
In August 2001, Talbot Partners and debtors agreed to a BLA between Lot 83 and Lot 84. The BLA gave debtors full legal access to their Lot 83 and added additional property to Talbot Partners' Lot 84. The lot line adjustment survey was recorded. The BLA was approved by the City of Edmonds. However, the BLA could not be completed because debtors owed back taxes on Lot 83. Thus, although deeds evidencing the BLA were exchanged and submitted for recording, they were never recorded.
On April 18, 2003, debtors confirmed their plan. The plan did not mention the Brides' interest in Lot A, but it did address payments to the Brides pursuant to their note. During the chapter 11 case, the Brides never asserted that they had an interest in Lot A or a right to be paid for it. Furthermore, they did not go before the bankruptcy court seeking to compel debtors to assume or reject the PSA which they now allege to be executory. Lastly, they never sought relief from stay to file an action for specific performance.
Postconfirmation, the Brides, presumably on behalf of Talbot Partners, continued to make proposals to debtors regarding the BLA. On September 25, 2003, debtors' attorney sent the Brides a letter stating that debtors declined to execute a new BLA, but indicating a willingness to consider further proposals.
A final decree was entered in debtors' case on January 13, 2004.
B. Transfer of Lot 84
On December 20, 2004, Talbot Partners conveyed Lot 84 to Howland Homes in which the Brides had no interest. Accordingly, from that date on neither the Brides nor an entity in which they had an interest could grant an easement over Lot 84 to debtors as contemplated by the addenda to the PSA.
C. The Current Chapter 11
On July, 14, 2005 the debtors filed their second chapter 11 petition. The bankruptcy court approved debtors' request to enter into a BLA between Lot 83 and Lot 84 with Howland Homes. Lot 83 was sold to third parties free and clear of liens and interests, and the BLA was concluded by the purchasers. The sale was approved by the bankruptcy court and closed on February 9, 2006.
The Brides filed a proof of claim asserting entitlement to money damages for debtors' failure to transfer Lot A to them. The proof of claim stated that the debt arose in May 1997 and had a value of $350,000 plus statutory interest.
After a multi-day trial, the bankruptcy court disallowed the Brides' claim.
Both parties timely appealed.
III. JURISDICTION
The bankruptcy court had jurisdiction pursuant to 28 U.S.C. § § 1334 and 157(b)(1) and (b)(2)(B). We have jurisdiction under 28 U.S.C. § 158.
IV. ISSUES
1. Whether the bankruptcy court erred in finding that the agreement between the parties was an executory contract that did not " ride through" debtors' 2000 bankruptcy case because it was breached prepetition.2. Whether the bankruptcy court erred in finding that the Brides had a claim that fell within the scope of § 101(5) and was discharged in debtors' 2000 bankruptcy case.
V. STANDARD OF REVIEW
Issues relating to disallowance of the Brides' claim are questions of law, which we review de novo. Varela v. Dynamic Brokers, Inc. (In re Dynamic Brokers, Inc.), 293 B.R. 489, 493 (9th Cir. BAP 2003). Questions of contract enforcement and interpretation are subject to de novo review unless extrinsic evidence was admissible on issues, such as intent. Estreito v. Citirealty Corp. (In re Estreito), 111 B.R. 294, 295 (9th Cir. BAP 1990). Where the interpretation of a contract involves review of extrinsic evidence, we review findings of fact for clear error while reviewing de novo principles of law applied to those facts. Tamen v. Alhambra World Inv., Inc. (In re Tamen), 22 F.3d 199, 203 (9th Cir. 1994). Interpretation of state law is reviewed de novo. Bitters v. Networks Elec. Corp. (In re Networks Elec. Corp.), 195 B.R. 92 (9th Cir. BAP 1996).
Whether a contract is executory is a factual question to be determined by the bankruptcy court. Unsecured Creditors' Comm. of Robert L. Helms Constr. & Dev. Co., Inc. v. Southmark Corp. (In re Robert Helms Constr. & Dev. Co., Inc.), 139 F.3d 702, 706 n. 13 (9th Cir. 1998). We review findings of fact for clear error. In re Networks Elec. Corp., 195 B.R. at 96.
We may affirm the bankruptcy court's decision on any ground supported by the record, even if it differs from the reasoning of the court. Grzybowski v. Aquaslide 'N' Dive Corp. (In re Aquaslide 'N' Dive Corp.), 85 B.R. 545, 549-50 (9th Cir. BAP 1987).
VI. DISCUSSION
While the parties have raised a myriad of issues, those dispositive to this appeal are two: 1) whether the PSA was executory and, if so, whether it " rode through" debtors' 2000 bankruptcy and 2) whether the Brides had a claim that fell within the scope of § 101(5) that was discharged in debtors' 2000 bankruptcy. The parties have also raised a myriad of facts, but the one dispositive to this appeal is whether debtors had any obligations under the PSA at the time they filed their 2000 bankruptcy petition other than to pay for Lot A, which had already been transferred to them.
A. The PSA Was Not Executory
The Brides allege that the PSA was executory and, therefore, rode through the debtors' 2000 bankruptcy because it was not addressed in debtors' plan. Initially, the bankruptcy court found the PSA was not executory. After reconsidering, the court found it executory, but decided that the contract did not ride through because it was breached prepetition. We find the bankruptcy court erred in finding that the PSA was executory at the time of debtors' 2000 bankruptcy filing for the reasons set forth below.
An executory contract is one " on which performance remains due to some extent on both sides." Robert Helms Constr. & Dev. Co., Inc., 139 F.3d at 704. " More precisely, a contract is executory if 'the obligations of both parties are so unperformed that the failure of either party to complete performance would constitute a material breach and thus excuse the performance of the other.'" Id . The executory nature of the contract is determined at the time of the filing. Id . at 706.
We step back and take a big-picture view of the facts and circumstances in this case to understand what transpired between the parties, rather than examine the parties' actions under a microscope as the parties seek us to do in this appeal. The big-picture view is that the PSA, upon which the Brides rely for their claim, involved the purchase and sale of Lot 83. We have combed through the record and testimony and find that the parties always intended for debtors to pay the Brides the purchase price of $1.205 million plus $300,000 for the entirety of Lot 83. This conclusion is buttressed by Mr. Bride's testimony that once debtors exercised the option to purchase Lot A, that is, pay for it, the carve out of Lot A would be moot.
When the transaction closed, the debtors received the entirety of Lot 83, but they had not paid for that portion referred to as Lot A. Thus, the PSA was an executed contract with debtors' only remaining obligation to pay the remainder of the purchase price. Contracts that only require payment by the debtor are not executory. Employee's Ret. Sys. v. Osborne (In re THC Fin. Corp.), 686 F.2d 799, 804 (9th Cir. 1982). The Brides' granting of the easement did not make the PSA executory because the debtors could have always brought an action to compel the Brides to grant them an easement.
B. The Brides' Claim Was For Money Damages
The Brides contend their claim was one for specific performance and not for money damages and, therefore, their claim was not discharged in debtors' 2000 bankruptcy case. Whether their remedy for debtors' failure to transfer Lot A to them was one for specific performance must be examined under Washington law. If the Brides did not have a right to specific performance, their claim falls within the scope of § 101(5)(A).
The Washington Supreme Court's analysis focused on the uniqueness of the real property involved. The acreage at issue abutted the 160 acres already owned by the plaintiffs. Further, it had always been considered part of the entire parcel. Id . at 26. The court also held that because of the unique nature of the property, there could be no calculation of its future value and no dollar sign could be placed on the plaintiffs' equitable remedy. Id . at 29. Accordingly, the court affirmed the trial court's finding that the Crafts had a right to specific performance under Washington law.
The court next considered whether the Crafts' equitable claim survived Pitts' chapter 7 bankruptcy discharge because there was no alternative right of money damages that would adequately and completely satisfy the Crafts' claim.[