Opinion
BANKRUPTCY CASE NO. 13-00099
12-15-2016
In Re: KIM, CHONG C., dba AB KON, Debtor.
ORDER RE MOTION FOR ORDER FOR CONTEMPT AND BRIEFING SCHEDULE
Before the court is Mark Heath, Chapter 7 Trustee's ("Trustee") Motion for Order for Contempt (11 USC §§ 105(a)) Against Vanessa L. Williams and the Law Office of Vanessa L. Williams, P.C. See ECF No. 119. On November 21, 2016, the parties appeared before the court for a hearing. After reviewing the parties' submissions, and relevant caselaw and authority, and having heard argument from counsel on the matter, the court hereby DENIES the Motion, and orders the parties to file briefs addressing potential solutions that will permit Hye Chong Kim ("H.C. Kim") to protect her undivided interest in the real property at issue as mandated by Guam's community property law.
I. FACTUAL AND PROCEDURAL BACKGROUND
A. The Underlying Bankruptcy.
Defendant H.C. Kim and Debtor are married, and own the following parcel of Real Property:
Lot 23, Tract 13105, Tamuning Guam, Suburban, as . . . described in . . . Subdivision Survey Map of Lot R11, Tract 13105, as shown [in] Drawing Number GV-33-09, as L.M. Check Number 173 FY 2006, dated 14 September 2006 and recorded on 10 October 2006 under Instrument No. 743930 at Land Management.Heath v. H.C. Kim, AP 16-00001, Compl. Ex. A, ECF No. 2 ("Real Property"). The Real Property was conveyed to Debtor and H.C. Kim through a quitclaim deed. Heath v. H.C. Kim, AP 16-00001, Compl. at ¶ 5, ECF No. 2.
On August 9, 2013, Debtor filed a voluntary bankruptcy petition pursuant to Chapter 7 of the United States Bankruptcy Code. Vol. Pet., ECF No. 2.
Trustee has filed a number of Adversary Proceedings related to Debtor's underlying bankruptcy.
B. Adversary Proceeding ("AP") 14-00003.
On July 28, 2014, a proceeding was filed against Kumho. See Heath v. Kumho, AP 14-00003, Compl., ECF No. 1. The first proceeding involved Trustee's attempt to avoid a 30,000,000.00 Korean Won ("KRW") secured mortgage lien held by Korean corporate lender Kumho. Id. at ¶¶ 4, 6, 11. An Order Granting Trustee's Motion to Approve Settlement and Withdrawing his Motions to Strike and Dismiss was entered on November 3, 2015. See Heath v. Kumho, AP 14-00003, Order, ECF No. 37. The settlement provided that Kumho would receive 30% "of the net proceeds of the Estate's sale of its own 50% undivided interest in the real property secured by the second mortgage." See Heath v. Kumho, AP 14-00003, Mot. Approve Settlement at 2-3, ECF No. 20. The settlement also provided that H.C. Kim's interest in the proceeds "shall be subject to offsets due to any debt owed to her secured creditors." Id. at 3.
The mortgage lien refers to 30,000,000.00 KRW (see Heath v. Kumho, AP 14-00003, Compl. Ex. A at 2, ECF No. 2), yet H.C. Kim's moving papers in the underlying bankruptcy proceeding (Opp'n Mot. Contempt at 1, ECF No. 126) and in H.C. Kim's Complaint in Civil Case No. 16-00033 refer to $30,000.000.00 (See H.C. Kim v. Kumho, CV 16-00033, Compl. at ¶¶ 3-4, 9, ECF No. 1). The court takes judicial notice, sua sponte, that as of the date of this Order, 30,000,000.00 KRW equals approximately $25,539.52 in United States Currency. See YAHOO! FINANCE, http://finance.yahoo.com/currency-converter/#from=USD;to=KRW;amt=25539.5219 (last visited Nov. 28, 2016).
C. Adversary Proceeding 15-00001.
The second proceeding filed by the Trustee on December 10, 2015, sought to sell the family home and other community property of H.C. Kim and Debtor. See Heath v. H.C. Kim, AP 15-00001, Compl. at 5, ECF No. 2; see also Heath v. H.C. Kim, AP 15-00001, Order at 1-2, ECF No. 33.
H.C. Kim moved to dismiss the proceeding for failure to join Kumho as an indispensable party. See Heath v. H.C. Kim, AP 15-00001, Mot. Dismiss at 1, ECF No. 6. This court denied the motion, finding (1) that it could afford complete relief amongst the existing parties; (2) that it was immaterial to the sale of the property that H.C. Kim would have to "'chase down' Kumho in Korea . . . to file a lawsuit against it" to protect her interest; and (3) that Kumho's ability to protect its interest would not be impaired or impeded; and (4) that Kumho's absence did not "leave an existing party subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations because of the interest." See Heath v. H.C. Kim, AP 15-00001, Order at 2, ECF No. 13.
The Trustee subsequently moved for summary judgment. Heath v. H.C. Kim, AP 15-00001, Mot. Summ. J., ECF No. 17. This court granted Trustee's motion in part on August 29, 2016, authorizing Trustee's sale of H.C. Kim's co-ownership in the Real Property, as well as the sale of certain vehicles. Heath v. H.C. Kim, AP 15-00001, Order at 7-8, ECF No. 33. Trustee's request for an Order requiring Debtor and H.C. Kim to vacate the Property within fifteen days was denied, however, because H.C. Kim indicated she would work out a time frame with the Trustee to vacate the premises and show the Real Property to potential buyers. Id. at 8. The parties were ordered to work out an acceptable move-out date. Id.
D. Adversary Proceeding 16-00001.
Trustee filed another Adversary Proceeding to Compel Turnover of Property against H.C. Kim on January 29, 2016. Heath v. H.C. Kim, AP 16-00001, Compl., ECF No. 2. Trustee's Complaint alleges that Debtor's fifty-percent undivided interest in the Real Property is now the property of the estate as defined by 11 U.S.C. § 541, and that H.C. Kim must pay rent for her own fifty-percent undivided interest in the Real Property because she "remains in possession, custody and control of the entire Real Property to the detriment of the bankruptcy estate. Id. at ¶¶ 6-8. The Complaint also contends that H.C. Kim owes the bankruptcy estate approximately $72,500.00 in rent for the time period between September 9, 2013, one month after Debtor's bankruptcy petition, and January 1, 2016, the month the Adversary Proceeding was filed. Id. at ¶ 9. H.C. Kim has not paid rent to the Trustee despite his requests. Id. ¶ 10.
On information and belief, Trustee contends that the property rents at a minimum of $5,000.00 per month, which requires H.C. Kim to pay $2,500.00 per month in rent. Compl. at ¶ 8, ECF No. 2. Trustee represents that this rent and property may be used, sold, or leased under 11 U.S.C. § 363.
Trustee does not clarify the substance and timing of these requests.
On February 25, 2016, H.C. Kim filed an Answer to the Complaint, raising a number of affirmative defenses including failure to state a claim, statute of limitations, and laches. See Heath v. H.C. Kim, AP 16-00001, Answer at 2, ECF No. 5.
1. Motion for Summary Judgment.
H.C. Kim moved for Summary Judgment on April 29, 2016, arguing that because she is married to Debtor Chong Kim (dba AB Kon), and also because she has a joint ownership interest in the property at issue, that the Trustee cannot demand that she pay rent. Heath v. H.C. Kim, AP 16-00001, Mot. Summ. J. at 3, ECF No. 8. In her assessment, she is a co-tenant of Debtor, and a bankruptcy trustee cannot demand rent from a debtor's co-tenant. Id.
2. Motion for Order Granting Leave to File Amended Complaint.
Trustee also moved to amend his Complaint on September 16, 2016. Mot. Am. Compl., ECF No. 16. The Proposed Amended Complaint includes a second count seeking possession of the property because H.C. Kim's community property interests in the Real Property is part of Debtor's bankruptcy estate pursuant to 11 U.SC. § 541(a)(2), and also because Guam is a community property jurisdiction. Heath v. H.C. Kim, AP 16-00001, Mem. P. & A.'s in Supp. of Mot. Am. Compl., Ex. A at ¶¶ 9-15, 12, ECF No. 17.
The Proposed Amended Complaint asserts that Debtor and H.C. Kim were married at the time she received the deed to the Real Property and as of the petition date. Heath v. H.C. Kim, AP 16-00001, Mem. P. & A.'s in Supp. of Mot. Am. Compl., Ex. A at ¶ 12, ECF No. 17.
In H.C. Kim's Opposition, her counsel Vanessa L. Williams ("Williams") represented that as of October 7, 2016, Trustee has not contacted her to work out a time frame for H.C. Kim to vacate and show the Real Property pursuant to the court's August 29, 2016 Order in AP 15-00001. Heath v. H.C. Kim, AP 16-00001, Williams Decl. at ¶ 5, ECF No. 24.
On October 21, 2016, Trustee filed a Reply. Heath v. H.C. Kim, AP 16-00001, Reply to Opp'n Mot. Am. Compl. at 1, 9, 11, 12, ECF No. 25. In the Reply, Trustee's counsel, Jacques G. Bronze ("Bronze") represented that he attempted to contact Debtor's counsel via telephone on or about September 1, 2016, to discuss a mutually agreeable date for Debtor and H.C. Kim to vacate the Real Property, but that his calls were not returned. Heath v. H.C. Kim, AP 16-00001, Reply to Opp'n Mot. Am. Compl. at 12-13, ECF No. 25; see also Suppl. Decl. Bronze in Supp. Mot. Am. Compl. at ¶¶ 4-8, ECF No. 26. Bronze also states that he attempted to contact Williams via email on or about October 10, 2016, to arrange a mutually agreed upon date for her to vacate the Real Property. Reply to Opp'n Mot. Am. Compl. at 12-13, ECF No. 25; see also Suppl. Decl. Bronze in Supp. Mot. Am. Compl. at ¶ 8, Ex. A (Email Exchange between Bronze and Williams), ECF No. 26. Williams sent a responsive email on October 11, 2016, indicating they could discuss the matter the following week. Reply to Opp'n Mot. Am. Compl. at 12-13, ECF No. 25; see also Suppl. Decl. Bronze in Supp. Mot. Am. Compl. Ex. A (Email Exchange between Bronze and Williams), ECF No. 26.
Bronze was off-island from September 5, 2016, through October 5, 2016. Heath v. H.C. Kim, AP 16-00001, Suppl. Decl. Bronze in Supp. Mot. Am. Compl. at ¶ 5, ECF No. 26.
E. H.C. Kim's Civil Action against Kumho in Civil Case ("CV") 16-00033.
Before this court partially granted summary judgment in AP 15-00001 (August 29, 2016), and after its Order denying H.C. Kim's motion to join Kumho in that same proceeding (March 29, 2016), H.C. Kim filed a civil suit against Kumho (April 29, 2016). See H.C. Kim v. Kumho, CV 16-00033, Compl., ECF No. 1; see also Heath v. H.C. Kim, AP 15-00001, Order, ECF No. 13, Heath v. H.C. Kim, AP 15-00001, Order, ECF No. 33. The action was brought after this court denied H.C. Kim's motion to join Kumho as an indispensable party in AP 15-00001. See Heath v. H.C. Kim, AP 15-00001, Order at 2, ECF No. 13.
H.C. Kim's Complaint sets forth three causes of action. See H.C. Kim v. Kumho, CV 16-00033, Compl. at ¶¶ 17-19, ECF No. 1. The first claim seeks Declaratory Judgment as to "the legal rights and duties of the parties respecting the June, 2008 mortgage; and thus to whom [H.C. Kim's] 50% of the proceeds of the upcoming Bankruptcy Trustee's sale of her home will go," to exonerate her from liability to Kumho on said mortgage, and "that the June, 2008 mortgage does not any longer, if ever it did, constitute a lien against the property." Id. at ¶ 17. The second claim seeks cancellation of the instrument at issue, contended it is void or voidable. Id. at ¶ 18. The third claim seeks "a judgment quieting title to the property in her, and in her successors in interest, as against defendant Kumho on its June, 2008 mortgage." Id. at ¶ 19.
H.C. Kim has been unable to effectuate service on Kumho. See H.C. Kim v. Kumho, CV 16-00033, Status Report re: Service on Defs., ECF No. 6.
F. Bronze's Motion for Order for Contempt (11 U.S.C. § 105(a)) Against Williams.
On October 3, 2016, Trustee filed a Motion for Order of Contempt against Williams pursuant to 11 U.S.C. § 105(a). Mot. Contempt, ECF No. 119. Trustee contends that Williams' prosecution of H.C. Kim's action against Kumho in CV 16-00033 is a willful violation of the automatic stay mandated by 11 U.S.C. § 362. In re Chong C. Kim dba AB Kon, BK Case No. 13-00099, Mem. Supp. Mot. Contempt at 7, ECF No. 120. H.C. Kim opposed the motion on October 17, 2016, and Trustee filed a Reply on October 24, 2016. See Opp'n Mot. Contempt at 7-9, ECF No. 126; see also Reply at 7-9, ECF No. 127.
G. Order for Supplemental Briefing.
On November 4, 2016, this court ordered the parties to submit briefs analyzing how Guam community property principles impact the above referenced motions. Heath v. H.C. Kim, AP 16-00001, Order, ECF No. 28. Trustee submitted a Memorandum in Compliance with the Order on November 8, 2016. Heath v. H.C. Kim, AP 16-00001, Trustee's Supp. Mem., ECF No. 30. H.C. Kim filed her Supplemental Brief on November 10, 2016, and Trustee filed his Supplemental Reply on November 14, 2017. See Heath v. H.C. Kim, AP 16-00001, Supp. Opp'n, ECF No. 31; see also Heath v. H.C. Kim, AP 16-00001, Supp. Reply, ECF No. 32.
The parties were also invited to consider any applicability of 19 G.C.A. § 6106(a), which sets forth the conditions under which spouses must join in "transfers, conveyances or encumbrances or contracts to transfer, convey or encumber any interest in community real property." 19 G.C.A. § 6106(a). This subsection relates to property owned by spouses as joint tenants or tenants in common. Id. Although "[p]roperty acquired during marriage by either husband or wife, or both, is presumed to be community property," 19 G.C.A. § 6105(a), the court welcomed any clarification regarding the tenancy status of Debtor Chong C. Kim and H.C. Kim with respect to the real property at issue.
II. APPLICABLE LEGAL STANDARD
A court has broad authority to issue orders under 11 U.S.C. § 105. Specifically, this "court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of" Title 11 of the United States Code. 11 U.S.C. § 105. No provision within Title 11 "providing for the raising of an issue be a real party in interest shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process." Id. Within this statutory authority is the power to conduct civil contempt proceedings. See In re Dyer, 322 F.3d 1178, 1189-90, 1196 (9th Cir. 2003).
III.DISCUSSION
On October 3, 2016, Trustee filed a Motion for Order of Contempt against Williams pursuant to 11 U.S.C. § 105(a). Mot. Contempt, ECF No. 119. Trustee contends that Williams' prosecution of H.C. Kim's action against Kumho in CV 16-00033 is a willful violation of the automatic stay mandated by 11 U.S.C. § 362. Mem. Supp. Mot. Contempt at 7, 10, ECF No. 120. It is Trustee's position that H.C. Kim's community property interest is the property of the bankruptcy estate under 11 U.S.C. 541(a)(1), that her interest is under the control of the estate, and that Trustee is entitled to sanctions against Williams for continuing the action previously filed by Bischoff. Id. at 6-7. 10, 14-15.
H.C. Kim opposed the motion, asserting that the automatic stay in BK 13-00099 does not apply to her one-half undivided interest in the real property at issue, that Trustee should be estopped from claiming her undivided interest in the property of the bankruptcy estate, and that her request for declaratory relief does not damage Trustee. Opp'n Mot. Contempt at 7-9, ECF No. 126. In reply, Trustee maintains that H.C. Kim failed to sufficiently articulate her estoppel argument; that he never admitted that H.C. Kim has a fifty-percent undivided interest in the subject Real Property, that this court's order failed to determine the extent of H.C. Kim's undivided interest, and stresses his entitlement to attorneys' fees. Reply at 7-9, ECF No. 126.
Specifically, H.C. Kim contends that Trustee brought an adversary proceeding in AP 15-00001 because H.C. Kim's undivided interest in the real property was not part of the bankruptcy estate. Opp'n Mot. Contempt at 7-8, ECF No. 126. Thus, she believes he should be estopped from claiming that her fifty-percent undivided interest is property of the bankruptcy estate. Id.
Trustee argues that this court should not construct H.C. Kim's undeveloped arguments for her. Reply at 3, ECF No. 127 (citing United States v. Dunkel, 927 F.2d 955, 956 (7th Cir. 1991) ("Judges are not like pigs, hunting for truffles buried in briefs.").
On November 4, 2016, this court ordered the parties to submit briefs analyzing how Guam community property principles impact the above referenced motions. Heath v. H.C. Kim, AP 16-00001, Order at 1-2, ECF No. 28. In Guam, "[p]roperty acquired during marriage by either husband or wife, or both, is presumed to be community property." 19 G.C.A. § 6105(a). Yet it appears that under Guam law, "[n]either spouse's interest in community property or separate property shall be liable for the separate debt of the other spouse." 19 G.C.A. § 6103(a).
"The Bankruptcy Code has not supplanted community property law." In re McSparran, 410 B.R. 664, 669 (Bankr. D. Mont. 2009).
Section 6103(a), in its entirety, provides:
The separate debt of a spouse shall be satisfied first from the debtor spouse's separate property, excluding that spouse's interest in property in which each of the spouses owns an undivided equal interest as a joint tenant or tenant in common. Should such property be insufficient, then the debt shall be satisfied from the debtor spouse's one-half (1/2) interest in the community property or in which each spouse owns an undivided equal interest as a joint tenant or tenant in common, excluding the residence of the spouses. Should such property be insufficient, then the debt shall be satisfied from the debtor spouse's interest in the residence of the spouses. Neither spouse's interest in community property or separate property shall be liable for the separate debt of the other spouse.19 G.C.A. § 6103 (emphasis added). It appears that Trustee is arguing that H.C. Kim's interest in the community property should be liable for the separate debts of Debtor in contravention of Guam community property law.
Trustee's responsive Memorandum first asserts that 19 G.C.A. § 6103(a) is irrelevant "for the purposes of determining whether the nondebtor[] spouse['s] interest in the real property is community property," because her community property interest in the subject Real Property is automatically vested into the Debtor's bankruptcy estate in light of 11 U.S.C. § 541. Heath v. H.C. Kim, AP 16-00001, Trustee's Supp. Mem. at 2-6, ECF No. 30. Second, the Trustee forcefully insists that community property existing at the time Debtor filed his petition is liable for payment of community claims, which is exclusively governed by the Bankruptcy Code, and confers exclusive jurisdiction to the bankruptcy court over the community property at issue. Id. at 6-8. Third, the Trustee urges that 11 U.S.C. § 541(a)(2) preempts the Guam Code Annotated provisions related to community property under the Supremacy Clause of the Constitution, and insists that 11 U.S.C. § 541(a)(2) is controlling in all respects. Id. at 8-11.
H.C. Kim's Supplemental Brief contends that bankruptcy courts must consult state law to determine Debtor's interest in community property because state law governs the substance of property rights and interests. Heath v. H.C. Kim, AP 16-00001, H.C. Kim's Supp. Opp'n at 2, ECF No. 31 (citations omitted). H.C. Kim provides extensive citations to Guam community property law, and urges that Guam's community property law does not hinder her case. Id. at 3-6.
Trustee's Reply Memorandum reaffirms his arguments regarding his Motion for Summary Judgment, reiterates that the Supremacy Clause preempts Guam community property law, and stresses that H.C. Kim's acknowledgement that her fifty-percent interest in the property at issue is community property which supports his request for sanctions against Williams. Heath v. H.C. Kim, AP 16-00001, Trustee's Supp. Reply Mem. at 1-5, ECF No. 32.
A. The Court's Contempt Powers under 11 U.S.C.A. § 105.
A court has broad authority to issue orders under 11 U.S.C.A. § 105, and "may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of" Title 11 of the United States Code. 11 U.S.C. § 105. This statutory authority confers power to the court to conduct civil contempt proceedings. See In re Dyer, 322 F.3d at 1189.
A "[t]rustee may be entitled to recovery for violation of the automatic stay 'under section 105(a) as a sanction for ordinary civil contempt.'" Id. (quoting In re Pace, 67 F.3d 187, 193 (9th Cir. 1995), amended (Oct. 11, 1995) ("[A] trustee can recover damages in the form of costs and attorney's fees under section 105(a) as a sanction for ordinary civil contempt.")); accord Calif. Employment Dev. Dep't v. Taxel (In re Del Mission), 98 F.3d 1147, 1152 (9th Cir. 1996). Although criticized in the past, "the availability of civil contempt sanctions under § 105(a)" is a remedy available to courts within the Ninth Circuit. See id. at 1189-90 (footnote and citations omitted); In re H Granados Commc'ns, Inc., 503 B.R. 726, 735 (B.A.P. 9th Cir. 2013) ("[W]e hold that a damages award under § 105(a) for a willful stay violation may appropriately include attorneys' fees and costs incurred in pursuing damages for the violation."). A trustee may recover under this court's contempt authority within Section 105(a) rather than under 11 U.S.C. § 362(k), but "the sanction award must conform to the legal standards governing that authority." See In re Dyer, 322 F.3d at 1190 (citation omitted).
Subsection 362(k), previously 362(h), states as follows:
(1) Except as provided in paragraph (2), an individual injured by any willful violation of a stay provided by this section shall recover actual damages, including costs and attorneys' fees, and, in appropriate circumstances, may recover punitive damages.11 U.S.C. § 362(k). The Ninth Circuit has held that the mandatory sanctions of this subsection are inapplicable to a Chapter 7 trustee, because a "trustee is not an 'individual' for purposes of 11 U.S.C. § 362[k] entitled to recover attorney's fees as damages." See In re Pace, 67 F.3d 187, 193 (9th Cir. 1995), amended (Oct. 11, 1995) (referring to former subsection 362(h)).
(2) If such violation is based on an action taken by an entity in the good faith belief that subsection (h) applies to the debtor, the recovery under paragraph (1) of this subsection against such entity shall be limited to actual damages.
B. The Trustee's Rights under 11 U.S.C. § 105(a) and § 362(k).
Earlier Ninth Circuit decisions implied that the contempt remedy in subsection 105(a) was nearly identical to the remedy available to an individual under subsection 362(h) (now subsection 362(k)), with the exception that sanctions pursuant to subsection 105(a) are permissive rather than mandatory. Id. (citation omitted). In re Dyer clarified upon reflection, however, that there are "important distinctions" between the remedies available in subsections 105(a) and 362(k), including "different availability of punitive damages." See id.
Specifically, subsection "105(a) authorizes only such remedies as are necessary and appropriate to carry out the provisions of [the Bankruptcy Title]." Id. (alteration in original) (quoting Walls v. Wells Fargo Bank, 276 F.3d 502, 507 (9th Cir. 2002)). Thus, [b]ecause the remedies traditionally associated with 'compensatory civil contempt' are adequate to meet the goal of § 105(a), [the Ninth Circuit] concluded 'no further remedy is necessary.'" Id.
A bankruptcy trustee "has no private right of action for damages resulting from automatic stay violations" because "Congress chose to exclude the Trustee from the reach of § 362[k]." See id. Thus, the Trustee is limited to "the civil contempt remedy provided by § 105(a)," and this court must "analyze the current contempt sanctions in this case under the legal standards associated with civil contempt awards." See id. (footnote omitted).
C. Trustee's Motion for Contempt.
"To find a party in civil contempt, the court must find that the offending party knowingly violated a definite and specific court order, and the moving party has the burden of showing the violation by clear and convincing evidence." In re Wallace, 490 B.R. 898, 905 (B.A.P. 9th Cir. 2013) (citing In re Dyer, 322 F.3d at 1190-91). An "automatic stay qualifies as a specific and definite court order." In re Dyer, 322 F.3d at 1191; see also In re H Granados Commc'ns, Inc., 503 B.R. at 735 ("[C]ivil contempt under § 105(a) enables the bankruptcy court to remedy a violation of a specific order." (citation omitted)).
If the moving party shows a violation of a specific and definite court order by clear and convincing evidence, "[t]he burden then shifts to the contemnors to demonstrate why they were unable to comply." In re Wallace, 490 B.R. at 905 (citing FTC v. Affordable Media, 179 F.3d 1228, 1239 (9th Cir. 1999)). Failure "to act as ordered by the court" occurs when a person "fails to take all the reasonable steps within [that person's] power to insure compliance with the court's order." Id. (citing Shuffler v. Heritage Bank, 720 F.2d 1141, 1146-47 (9th Cir. 1983)).
Before evaluating whether Williams violated a court order, and whether sanctions are appropriate, this court must determine whether the relief sought in CV 16-00033 violates the automatic stay in BK 13-00099.
1. The Applicability of the Automatic Stay in BK 13-00099 to H.C. Kim's Attempts to Protect her Undivided Interest in the Real Property through the CV 16-00033 Lawsuit.
H.C. Kim's primary argument in opposition is that "[h]er causes of action regarding her undivided interest in the [Real] Property are not property of the estate." Opp'n at 126, ECF No. 126. Consequently, this court must assess the interplay of Guam community property law and the Bankruptcy Code to ascertain the character of the Real Property.
a. The Status of H.C. Kim's Fifty-Percent Undivided Community Property Interest.
"The party seeking to include property in the estate bears the burden of showing that the item is property of the estate." In re Neidorf, 534 B.R. 369, 372 (B.A.P. 9th Cir. 2015) (citing Seaver v. Klein-Swanson (In re Klein-Swanson), 488 B.R. 628, 633 (8th Cir. BAP 2013)). Thus, the burden is on the Trustee to establish that H.C. Kim's undivided interest in community property is property of the estate.
A bankruptcy estate includes "[a]ll interests of the debtor and the debtor's spouse in community property as of the commencement of the case that is . . . under the sole, equal, or joint management and control of the debtor." 11 U.S.C. § 541(a)(2)(A) (emphasis added); see also In re Homan, 112 B.R. 356, 359 (B.A.P. 9th Cir. 1989) (citations omitted) ("The filing by a spouse of an individual bankruptcy petition creates an estate which encompasses community property that is under the spouse's joint management and control as of the date of the petition." (citations omitted)).
Trustee contends that H.C. Kim's community property is property of the estate, and is subject to the automatic stay within 11 U.S.C. § 362(a)(3). Mem. P.'s and A.'s Supp. Mot. Contempt at 10, ECF No. 120. Pursuant to 11 U.S.C. § 362(a)(3), a bankruptcy petition "operates as a stay, applicable to all entities, of . . . any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate." 11 U.S.C. § 362(a)(3).
Guam is a community property jurisdiction. See § 19 G.C.A. 6105(a). The Supreme Court has said that "state laws are . . . suspended only to the extent of actual conflict with the system provided by the Bankruptcy Act of Congress." Butner v. United States, 440 U.S. 48, 54 n.9 (1979) (citations omitted). Federal law "supplants community property law only where the congressional intent to accomplish such a result is clear and unequivocal." In re McSparran, 410 B.R. 664, 669 (Bankr. D. Mont. 2009) (citing Ordlock v. C.I.R., 533 F.3d 1136, 1140 (9th Cir. 2008)); see also Mansell v. Mansell, 490 U.S. 581, 587 (1989); Hisquierdo v. Hisquierdo, 439 U.S. 572, 581 (1979). Thus, "[b]ecause domestic relations are preeminently matters of state law . . . Congress, when it passes general legislation, 'rarely intends to displace statutory authority in this area.'" In re McSparran, 410 B.R. at 669 (citing Mansell, 490 U.S. at 587)); see also In re Terwilliger's Catering Plus, Inc., 911 F.2d 1168, 1172 (6th Cir. 1990) (citations and internal quotation omitted) ("The nature and extent of the debtor's interest are determined by state law, [but] 'once that determination is made, federal bankruptcy law dictates to what extent that interest is property of the estate.'"); Matter of Guiding Light Corp., 217 B.R. 493, 496-97 (Bankr. E.D. La. 1998) (footnote omitted) ("The estate's interest in property, however, can rise no higher than that of the debtor's interest in the property.").
For example, "[t]he Bankruptcy Code has not supplanted community property law." Id.; see also Butner, 440 U.S. at 54 ("Congress has generally left the determination of property rights in the assets of a bankrupt's estate to state law.") (footnote omitted)).
Looking to other courts within the Ninth Circuit guides this court's analysis of the issue. "In states such as California, where each spouse has management and control of community property, see Cal. Civ. Code §§ 5125 and 5127, the bankruptcy estate includes all community property as of the commencement of the case, of both the debtor and the non-debtor spouse." In re McCoy, 111 B.R. 276, 278 (B.A.P. 9th Cir. 1990) (citing In re Teel, 34 B.R. 762, 764 (9th Cir. BAP 1983); 4 Collier on Bankruptcy, ¶ 541.15 (15th Ed. 1988)). Like California, Idaho community property law confers the right to manage and control community property. See Idaho Code Ann. § 32-912. To illustrate further, In re Kido, an Idaho bankruptcy case, held that:
[W]here one party to the community files a petition for relief, the provisions of 11 U.S.C. § 541(a)(2) cause the community property interests of both parties, or, the entire community, to become property of the estate, at least, in Idaho where the community property is under the control and management of both parties. Since the community property is property of the estate, it is subject to the jurisdiction of this court.In re Kido, 142 B.R. 924, 925-26 (Bankr. D. Idaho 1992); see Idaho Code Ann. § 32-912. Thus, where a jurisdiction's community property law permits both parties to control and manage the estate, then the community property is property of the estate under 11 U.S.C. § 541(a)(2).
In Idaho, both spouses have the right to manage and control community property:
Either the husband or the wife shall have the right to manage and control the community property, and either may bind the community property by contract, except that neither the husband nor wife may . . . encumber the community real estate unless the other joins in executing the . . . instrument of conveyance by which the real estate is . . . encumbered, and any community obligation incurred by either the husband or the wife without the consent in writing of the other shall not obligate the separate property of the spouse who did not so consent . . . .Idaho Code Ann. § 32-912.
In Guam, "[p]roperty acquired during marriage by either husband or wife, or both, is presumed to be community property." 19 G.C.A. § 6105(a). Like Idaho, "either spouse alone has full power to manage, control, dispose of and encumber the entire community personal property." 19 G.C.A. § 6107. Thus, it appears that H.C. Kim's community property interest in the Real Property becomes part of the bankruptcy estate pursuant to 11 U.S.C. § 541(a)(2)(A) because Guam community property law permits both Debtor and H.C. Kim to exercise joint control over the Real Property. 11 U.S.C. § 541(a)(2)(A) ("Such estate is comprised of . . . [a]ll interests of the debtor and the debtor's spouse in community property as of the commencement of the case that is . . . under the . . . joint management and control of the debtor.").
Moreover, courts have "recognized, the automatic stay operates in three specific ways. It 'bars certain actions against the (1) debtor, (2) property of the debtor and (3) property of the estate.'" In re Petruccelli, 113 B.R. 5, 6 (Bankr. S.D. Cal. 1990) (quoting In re Johnson, 51 B.R. 439, 442 (Bankr.E.D.Pa. 1985)). Consequently, H.C. Kim's efforts to protect her undivided fifty-percent interest in her community property against Kumho might technically violate the automatic stay to the extent she is seeking to "exercise control over property of the estate." 11 U.S.C. § 362(a)(3) (prohibiting "any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate.").
Although there might be a technical violation when read expansively, the court finds that H.C. Kim's action to protect her interest in CV 16-00033 does not implicate the broader purposes behind Section 362(a). The Ninth Circuit has identified two purposes behind Section 362(a). Dean v. Trans World Airlines, Inc., 72 F.3d 754, 755-56 (9th Cir. 1995). First, the stay "provides debtors with protection against hungry creditors" by giving:
[T]he debtor a breathing spell from its creditors. It stops all collection efforts, all harassment, and all foreclosure actions. It permits the debtor to attempt a repayment or reorganization plan, or simply to be relieved of the financial pressures that drove him into bankruptcy.Id. (quoting H.R.Rep. No. 595, 95th Cong., 1st Sess., at 340 (1977), reprinted in 1978 U.S.C.C.A.N. 5963, 6296-97). H.C. Kim's efforts to protect her undivided property interest does not implicate the first purpose because she is not intruding upon debtor's "breathing space" of Debtor, and is not seeking any sort of recovery against the Debtor. See id.
The second purpose behind the stay provides creditor protection by assuring "creditors that the debtor's other creditors are not racing to various courthouses to pursue independent remedies to drain the debtor's assets." Id. Without the stay, "certain creditors would be able to pursue their own remedies against the debtor's property. Those who acted first would obtain payment of the claims in preference to and to the detriment of other creditors." Id. H.C. Kim's efforts to protect her undivided property interest, however, will not impact other creditors because Guam community property law prohibits a creditor from recovering the separate debts of the debtor spouse from the nondebtor spouses' interest in community property. See 19 G.C.A. § 6103(a).
b. H.C. Kim's Fifty-Percent Undivided Interest in the Community Property is not Liable for Debtor's Separate Debts, and Guam Community Property Law May Impact the Validity of Kumho's Lien.
"[T]he bankruptcy acts of Congress may recognize the laws of the state in certain particulars, although such recognition may lead to different results in different States." Butner, 440 U.S. at 54 n.9 (citations and internal quotation marks omitted). For example, the Bankruptcy Act "recognizes and enforces the laws of the states affecting . . . exemptions, the validity of mortgages, priorities of payment and the like." Id. (emphasis added) (citations and internal quotations omitted). Furthermore, the United States Supreme Court has "long recognized that the basic federal rule in bankruptcy is that state law governs the substance of claims, Congress having generally left the determination of property rights in the assets of a bankrupt's estate to state law." Travelers Cas. & Sur. Co. of Am. v. Pac. Gas & Elec. Co., 549 U.S. 443, 450-51 (2007) (citations and internal quotations omitted).
To illustrate, former Section 910(a) of California's Family Code provided that the "community property is liable not only for the joint debts of the couple, but also for the separate liabilities of one spouse." Ordlock, 533 F.3d at 1138-39. The community property is liable "for a debt incurred by either spouse before or during marriage, regardless of which spouse has management and control of the property and regardless of whether one or both spouses are parties to the debt or to a judgment for the debt. In re McSparran, 410 B.R. at 669 (citing Ordlock, 533 F.3d at 1138-39).
In other words, California's statutes characterizes community property as being "liable not only for the joint debts of the couple, but also for the separate liabilities of one spouse," Ordlock 533 F.3d at 1138-39, which "make the [d]ebtor's nondebtor spouses interests in the community property of the estate under § 541(a)(2)(B)." See In re McSparran, 410 B.R. at 669; see also In re McCoy, 111 B.R. at 279-80 ("the community property is liable for a debt incurred by either spouse before or during the marriage, regardless which spouse has the management and control of the property and regardless whether one or both spouses are parties to the debt or to a judgment for the debt." (footnote omitted) (quoting former Cal. Civ. Code § 5120.010)). The California statutes cited above appear to not only make the Debtor's nondebtor spouse's interests property of the estate under § 541(a)(2)(B), but permit satisfaction of debts from the nondebtor spouse's interest.
Unlike California, however, Guam law provides that "[n]either spouse's interest in community property or separate property shall be liable for the separate debt of the other spouse." 19 G.C.A. § 6103(a). Guam law also invalidates encumbrances on registered real property without the written consent of both spouses:
Community property registered under this Law as such cannot be transferred, mortgage, encumbered, or otherwise disposed of by the registered owner thereof without the written consent of both spouses, which written consent shall be recorded and filed with the registrar.21 G.C.A. § 29157.
Guam's community property law, including 19 G.C.A. § 6103(a) and 21 G.C.A. § 29157 must be considered in determining the validity of Kumho's mortgage on the real property at issue, and also the degree to which H.C. Kim's undivided interest is protected from Debtor's creditors. See Butner, 440 U.S. at 54 n.9 ("The Bankruptcy Act recognizes and enforces the laws of the states affecting . . . exemptions, the validity of mortgages, priorities of payment and the like."). Although this Order does not adjudicate the issue of Kumho's lien, the court observes that Kumho's lien may be invalidated by 21 G.C.A. § 29157 because there is no evidence that H.C. Kim consented to Kumho's encumbrance to the real property at issue. See Decl. Bronze In Supp. Mot. Contempt, Ex. A (Quitclaim Deed, March 5, 2011), ECF No. 121 (registered with the Department of Land Management Office of the Recorder on March 9, 2011).
This court also invited the parties to consider the impact, if any, of 19 G.C.A. § 6106(a) on the motions at issue in this proceeding, and those pending in AP 16-00001. Heath v. H.C. Kim, AP 16-00001, Order at 2, ECF No. 28. In particular, the parties were invited to clarify the status of the ownership interest of Debtor and H.C. Kim in the property. See id. Subsection 6106(a) provides that:
Any transfer, conveyance, encumbrance or lease or contract to transfer, convey, encumber or lease any interest in the community real property or in separate real property owned by the spouses as co-tenants in joint tenancy or tenancy in common, attempted to be made by either spouse alone in violation of the provisions of this Section shall be void and of no effect, except that either spouse may transfer, convey, encumber or lease directly to the other without the other joining therein.19 G.C.A. § 6106(a). H.C. Kim appears to concede that the real property at issue is community property rather than property owned as joint-tenants or tenants in common. See Supp. Opp'n at 3, ECF No. 30. As 19 G.C.A. § 6106(a) relates to invalidating an encumbrance owned by spouses as co-tenants in joint tenancy or tenancy in common, it is inapplicable to the real property at issue.
Although H.C. Kim's and Debtor's community property interest comes within the bankruptcy estate pursuant to 11 U.S.C. § 541(a)(2)(A), and her action in CV 16-00033 may technically violate the automatic stay provision within 11 U.S.C. § 362(a)(3), H.C. Kim should be provided an opportunity to protect her interest as mandated by Guam community property law. The court hereby orders the parties to propose effective and just solutions to resolve this issue in accordance with the briefing schedule set forth below.
2. Williams' Actions.
Trustee asserts that Williams' actions willfully violated the automatic stay. See Mem. P.'s & A.'s in Supp. Mot. Contempt at 13, ECF No. 120. Knowledge of the bankruptcy "is the legal equivalent of knowing of the stay." In re Zartun, 30 B.R. 543, 546 (B.A.P. 9th Cir. 1983) (citation omitted).
"Because civil contempt serves a remedial purpose," the focus in determining whether a contemnor violated the stay "is not on the subjective beliefs or intent of the contemnors in complying with the order, but whether in fact their conduct complied with the order at issue." In re Dyer, 322 F.3d at 1191 (quoting Hardy v. United States (In re Hardy), 97 F.3d 1384, 1390 (11th Cir.1996); accord McComb v. Jacksonville Paper Co., 336 U.S. 187, 191 (1949). The threshold question for determining an award under both subsection 105(a) and subsection 362(k) "turns not on a finding of 'bad faith' or subjective intent, but rather on a finding of 'willfulness.'" See id. (quoting In re Pace, 67 F.3d at 191). A "'willful violation' does not require a specific intent to violate the automatic stay. Rather, the statute provides for damages upon a finding that the defendant knew of the automatic stay and that the defendant's actions which violated the stay were intentional." Id. (quoting In re Pace, 67 F.3d at 191) (citations omitted).
Although Williams' actions in pursuit of the claim might be willful because she was aware of the automatic stay yet chose to pursue her client's claim in CV 16-00033, this court exercises its discretion to refrain from awarding sanctions against Williams.
3. Attorney's Fees and Costs.
Although "an award of damages under section 362(h)[/362(k)] is mandatory, an award of damages under section 105(a) is discretionary." See In re Pace, 67 F.3d at 193 (citation omitted). "Sanctions for civil contempt must either be compensatory or designed to coerce compliance," and may appropriately "include[] reasonable attorneys' fees incurred in the process of voiding the stay violation." In re H Granados Commc'ns, Inc., 503 B.R. at 736 "(citation omitted). Fees may not be awarded, however, for "fees incurred in litigating an issue that does not flow from the stay violation." Id. (citation omitted).
Even though H.C. Kim's action in CV 16-00033 may technically violate the automatic stay, this court hereby exercises its discretion to refrain from awarding sanctions against Williams because H.C. Kim should be permitted to protect her undivided fifty-percent interest in community property.
IV. CONCLUSION
Trustee's Motion is DENIED because an award of sanctions under 11 U.S.C. § 105 is discretionary. Although H.C. Kim's and Debtor's community property interest comes within the bankruptcy estate pursuant to 11 U.S.C. § 541(a)(2)(A), and her action in CV 16-00033 may technically violate the automatic stay provision within 11 U.S.C.A. § 362(a)(3), H.C. Kim should be provided an opportunity to protect her interest as mandated by Guam's community property law. The parties are ordered to brief the issue, and propose the most effective and just manner to go forward. H.C. Kim shall file her responsive brief no later than January 11, 2017, at 3:00 p.m., Trustee shall file his responsive brief no later than January 23, 2017, at 3:00 p.m., and H.C. Kim shall file her reply no later than January 27, 2017, at 3:00 p.m.
Potential solutions include:
• Stipulating to permit H.C. Kim's action;
• Lifting the stay for the limited purposes of permitting H.C. Kim to pursue her action in CV 16-00033 pursuant to 11 U.S.C.A. § 362(d)(1):
On request of a party in interest and after notice and a hearing, the court shall grant relief from the stay provided under subsection (a) of this section, such as by terminating, annulling, modifying, or conditioning such stay--
(1) for cause, including the lack of adequate protection of an interest in property of such party in interest . . . .
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• Permitting an Adversary Proceeding between H.C. Kim against Kumho;
• Staying CV 16-00033 while the parties attempt to resolve these issues within the bankruptcy court;
• Using this court's broad authority pursuant to 11 U.S.C. § 105 to "take any action or make any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process." 11 U.S.C. § 105.
SO ORDERED.
/s/ Frances M. Tydingco-Gatewood
Chief Judge
Dated: Dec 15, 2016