Opinion
NOT FOR PUBLICATION
Argued and Submitted at Las Vegas, Nevada: July 26, 2007
Appeal from the United States Bankruptcy Court for the District of Nevada. Bk. No. 06-10935, Ref. No. 07-04. Honorable Linda B. Riegle, Bankruptcy Judge, Presiding.
Before: SMITH, RUSSELL[ and BRANDT, Bankruptcy Judges.
Hon. Barry Russell, U.S. Bankruptcy Judge for the Central District of California, sitting by designation.
MEMORANDUM
Creditor filed a proof of claim in debtor's bankruptcy case based on money loaned, guarantees, and a judgment it held against debtor's husband. Debtor objected to the claim on the ground that she was not liable for her husband's separate property debt. The bankruptcy court overruled the objection, finding that the claim was a community debt. A timely appeal followed. We AFFIRM.
I. FACTS
Marianne Noble (" Debtor") and her spouse, Larry Noble (" Larry")(collectively, the " Nobles"), were married in May 2002. On October 11, 2003, Larry executed two guarantees in connection with a business venture, one for $35,000 and another for $75,000, on behalf of Mike Andretti and in favor of Ong Commodities Private, Ltd. (" Creditor"). Ultimately, the business venture went bad, causing Creditor to seek payment from Larry.
Larry failed to uphold his obligations under the guarantees. On August 16, 2004, Creditor obtained a default judgment against Larry in the High Court of the Republic of Singapore in the amount of $98,236.669 (U.S. dollars), inclusive of interest and costs, which was subsequently domesticated in the District Court of Clark County, Nevada (the " Judgment").
Following the domestication of the Judgment, the Nobles made three $10,000 payments to Creditor from their joint checking account on January 20, 2005, January 24, 2005, and February 28, 2005. After the February 28 payment no further payments were made. Creditor commenced efforts to recover on the Judgment, obtaining a writ of attachment and writ of garnishment on June 15, 2005, which froze Larry's assets.
In response to Creditor's collection activity, Larry filed for chapter 7 relief on June 20, 2005. The case was later converted to chapter 13.
Unless otherwise indicated, all chapter, section and rule references are to the Bankruptcy Code, 11 U.S.C. § § 101-1330, and to the Federal Rules of Bankruptcy Procedure, Rules 1001-9036, as enacted and promulgated by The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. 109-8, Apr. 20, 2005, 119 Stat. 23.
On February 24, 2006, the court approved Larry's chapter 13 plan. The plan provided for total payments of $168,699, and indicated that this amount was agreed to by his creditors as " consideration [for] resolution of Larry's disposable income and potential preferential transfers." Under the plan, Creditor would be paid 49% of its claim.
On August 12, 2005, Creditor filed a proof of claim in Larry's bankruptcy case in the amount of $98,236.69. The unsecured, nonpriority claim was based on money loaned and the Judgment.
During the pendency of Larry's case, Creditor took 2004 examinations of the Nobles. From these exams, Creditor learned that, just prior to filing for bankruptcy, Larry transferred large amounts of money into Debtor's bank account and removed his name from the couple's joint bank account. Based on this information, Creditor filed a state court complaint against Debtor on March 16, 2006, which prayed for damages related to alleged fraudulent transfers made by Larry, a preliminary injunction, and declaratory relief (the " Complaint"). It also filed a motion for preliminary injunction against Debtor on April 19, 2006, that requested Debtor's bank accounts be frozen.
Before the motion could be heard, Debtor filed for chapter 13 relief on May 5, 2006. In her schedules, she listed Creditor as an unsecured creditor and designated its claim as contingent, unliquidated, and disputed. The amount of Creditor's claim was listed as unknown.
On May 11, 2006, Creditor filed a proof of claim in Debtor's bankruptcy case in the amount of $218,016.48 for money loaned and " [o]ther guarantee; judgment" (the " Claim"). The proof of claim states that the debt was incurred on October 6, 2003, and October 11, 2003, and that Creditor had obtained a state court judgment on August 16, 2004 (i.e., the Judgment obtained against Larry). As support for the Claim, Creditor attached a breakdown of the amounts loaned to Mike Andretti, including the accumulated interest, and copies of the documents related to the Judgment.
Debtor quickly filed an objection to the Claim, arguing that she could not be held liable because the debt represented a business debt incurred exclusively by Larry. She also maintained that Creditor was judicially estopped from asserting that she owed the Claim based on the following statement made in the Complaint, " On or about August 16, 2004, judgment was entered against Larry Wendell Noble in the Republic of Singapore in the amount of $155,395.40 Singapore Dollars, plus interest and costs incurred, in favor of [Creditor] for money due under a personal guarantee which [Larry] failed and/or refused to repay." Objection to Claim 3, Sept. 29, 2006.
Creditor responded that even though the obligation was incurred by Larry and the Judgment named only him, the debt arose during the marriage and was entered into for the community's benefit. Thus, under Nevada law the Claim was a valid community debt for which Debtor was liable.
The bankruptcy court held an evidentiary hearing on the matter on October 12, 2006, at which time testimony was taken from Larry and Debtor. Following the hearing, the court provided both parties the opportunity to file supplemental briefs and informed them that an oral ruling would be made on December 14, 2006.
At the December 14 hearing, the court ruled that Creditor held a valid claim. Though acknowledging that Debtor had not signed the guarantees, the court noted that the debt had been incurred during the marriage and was, therefore, presumed to be a community obligation under Nevada law. The court recognized that the presumption could be rebutted by " show[ing] that there was no intention or expectation when the transaction began that a material economic benefit would accrue." Hr'g Tr. 4:8-10, Dec. 14, 2006. The court found, however, that Debtor had failed to provide evidence sufficient to rebut the presumption. Because Nevada law allows the managing spouse of a community business to encumber assets of the community in the ordinary course of business without the consent of the nonparticipating spouse, the court ruled that Creditor held a legitimate claim against Debtor.
The court made clear that it was not making any determination as to the amount of the Claim, and that the only issue it was deciding was whether Creditor held a claim against Debtor.
The order memorializing the court's oral ruling was entered on January 9, 2007. A timely notice of appeal was filed by Debtor on January 18, 2007.
II. JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. § 1334 and § 157(b)(1) and (b)(2)(B). We have jurisdiction under 28 U.S.C. § 158.
III. ISSUE
Did the bankruptcy court correctly find that Creditor held a valid claim against Debtor's bankruptcy estate?
IV. STANDARD OF REVIEW
A bankruptcy court's conclusions of law are reviewed de novo. Miller v. United States, 363 F.3d 999, 1003 (9th Cir. 2004). We review findings of fact for clear error. Poonja v. Alleghany Props. (In re Los Gatos Lodge Inc.), 278 F.3d 890, 893 (9th Cir. 2002). Clear error will only be found if we are " left with the definite and firm conviction that a mistake has been committed." Easley v. Cromartie, 532 U.S. 234, 242, 121 S.Ct. 1452, 149 L.Ed.2d 430 (2001). Moreover, we " must give due regard to the opportunity of the bankruptcy court to judge the credibility of the witnesses." Fjeldsted v. Lien (In re Fjeldsted), 293 B.R. 12, 18 (9th Cir. BAP 2003); Fed.R.Bankr.P. 8013.
V. DISCUSSION
A claim is a " right to payment, whether or not such right is reduced to judgment, . . . unliquidated, fixed, contingent, . . . disputed, undisputed, legal, [or] equitable." 11 U.S.C. § 101(5)(A). Section 501 provides a creditor with the means to present its claim against a debtor to the bankruptcy court by filing a proof of claim. 11 U.S.C. § 501. A proof of claim " constitutes prima facie evidence of the validity and amount of the claim, " Fed.R.Bankr.P. 3001(f), and will be allowed unless a party in interest objects under § 502(a). 11 U.S.C. § 502(a).
" Upon objection, the proof of claim provides some evidence as to its validity and amount and is strong enough to carry over a mere formal objection without more." Lundell v. Anchor Constr. Specialists, Inc. (In re Lundell), 223 F.3d 1035, 1039 (9th Cir. 2000). To defeat a claim, the objector must come forward with evidence that tends to rebut the claim by probative force equal to that of the creditor's proof of claim. Id .; see also Ashford v. Consol. Pioneer Mortgage (In re Consol. Pioneer Mortgage), 178 B.R. 222, 226 (9th Cir. BAP 1995), aff'd, 91 F.3d 151 (9th Cir. 1996). " 'If the objector produces sufficient evidence to negate one or more of the sworn facts in the proof of claim, the burden reverts to the claimant to prove the validity of the claim by a preponderance of the evidence.'" Consol. Pioneer Mortgage, 178 B.R. at 226 (quoting In re Allegheny Int'l, Inc., 954 F.2d 167, 173-74 (3d Cir. 1992)). Ultimately, the burden of persuasion rests with the claimant. Lundell, 223 F.3d at 1039.
A. Claim Based Upon The Guarantees And Judgment
1. Community property versus separate property liability
Community property cannot be used to satisfy a debt unless it is shown to be a community claim. Case v. Maready (In re Maready), 122 B.R. 378, 381 (9th Cir. BAP 1991). For a claim to be considered a " community claim, " it must have " [arisen] before the commencement of the case concerning the debtor for which property of the kind specified in section 541(a)(2) of this title is liable, whether or not there is any such property at the time of the commencement of the case." 11 U.S.C. § 101(7). In other words, it must be " a debt owed by the debtor or the debtor's spouse, which under state law could have been satisfied from community property that would have passed to the debtor's bankruptcy estate, whether or not such property existed at the commencement of the case." Fed. Deposit Ins. Corp. v. Soderling (In re Soderling), 998 F.2d 730, 733 (9th Cir. 1993). In order to determine whether a creditor holds a community claim, we look to state marital property law. Maready, 122 B.R. at 381 n.2.
Section 541(a)(2) provides that the filing of a bankruptcy petition creates an estate, which, among other types of property, includes [a]ll interests of the debtor and the debtor's spouse in community property as of the commencement of the case that is-
The Nobles lived in Nevada during and immediately after the filing of their respective bankruptcy cases. In Nevada, community property is defined as " [a]ll property, other than that stated in [Nevada Revised Statute (" NRS")] 123.130, acquired after marriage by either husband or wife, or both, " limited by exceptions which are not relevant to the instant matter. NRS § 123.220 (2007). Though all property acquired during marriage is presumed to be community property, the presumption can be rebutted by clear and convincing evidence. Norwest Fin. v. Lawver, 109 Nev. 242, 849 P.2d 324, 326 (Nev. 1993); Fick v. Fick, 109 Nev. 458, 851 P.2d 445, 448 (Nev. 1993). With respect to a loan, the presumption of community obligation is rebutted by a showing that the lender intended to extend the loan on the faith of the existing property belonging to the acquiring spouse. Norwest Fin., 849 P.2d at 326; Schulman v. Schulman, 92 Nev. 707, 558 P.2d 525, 531 (Nev. 1976).
NRS § 123.130 discusses what comprises the separate property of a wife and husband.
Under Nevada law, " either spouse, acting alone, may manage and control community property . . . with the same power of disposition as the acting spouse has over his separate property." NRS § 123.230 (2007).
Debtor believes the court erred in finding that the guarantees and Judgment represented a community claim. To rebut the community property presumption, Debtor relies on the testimony of Larry and herself to establish Creditor's intent. Specifically, she relies on the following facts: 1) Larry was the sole party to the guarantees, 2) the Judgment was entered exclusively against Larry and domesticated only as to him, 3) Debtor was never asked to be a guarantor, and 4) Creditor allegedly did not know that Debtor was married to Larry when the guarantees were entered into. Based on this evidence, Debtor maintains that the Claim represents Larry's separate property debt for which she is not liable.
There is no evidence in the record suggesting that Creditor relied solely on Larry's financial records nor is there testimony from Creditor to indicate that it intended to hold only Larry liable.
In addition, the Nobles' own actions support a finding that the guarantees and Judgment represented a community debt. After the Judgment was domesticated, three payments were made to Creditor - all of which were drawn from the Nobles' joint bank account. The fact that community funds were used to pay the Judgment clearly undermines Debtor's argument that she believed the Judgment was only against Larry and that only his separate property funds should be held liable for it.
Debtor also testified that when the guarantees were executed, Larry was the primary provider for the family and that the majority of the family income came from his business activities. Although Debtor tries to classify the guarantees as personal and not business, Larry's testimony strongly suggests that the guarantees were made in connection with a business venture. The fact that Larry unilaterally managed and controlled the community business does not transmute the obligation from a community debt to his separate debt.
Debtor worked for Larry's business Tri Star Vending for approximately a year sometime during the past ten years. From this employment she received about $900 every two weeks. She also had a telemarketing business sometime during this period, but it is unclear how much income, if any, she obtained from it.
During the evidentiary hearing Debtor's attorney, Christopher Burke, questioned Larry about his relationship with Creditor and the guarantees. The following conversation took place:
The facts and testimony Debtor relies on to rebut the community property presumption does not equate to clear and convincing evidence that the guarantees and Judgment were Larry's separate obligations.
2. Effect of spouse's confirmed chapter 13 plan
Debtor further argues that Larry's confirmed plan resolves any outstanding community debt which was in existence at the time he filed for bankruptcy. Because the Claim was incurred prior to Larry filing his petition, Debtor maintains that even if it were a community claim, § 524(a)(3) prohibits Creditor from seeking satisfaction of it from her. Debtor's reliance on § 524(a)(3) is misplaced.
Section 524(a)(3) provides that a debtor's discharge operates as an injunction by preventing a creditor holding a community claim from trying to recover after-acquired community property from either the filing or non-filing spouse. 11 U.S.C. § 524(a)(3); Collier Family Law & Bankruptcy Code P 4.08 (2007). Under chapter 13 of the Code, a debtor does not receive a discharge until all plan payments are completed. 11 U.S.C. § 1328(a).
Here, Larry confirmed his chapter 13 plan on February 24, 2006. The term of the plan is five years and provides to pay Creditor 49% of its claim held against Larry's estate. At oral argument, Debtor's counsel represented that Larry is two years into the plan term and a discharge has not yet been issued. In the absence of a discharge, § 524(a)(3) presently is not a bar to Creditor filing a proof of claim against Debtor's estate. While it is true that the plan provides for Creditor's claim and stays Creditor from trying to collect the debt from Debtor during its pendency, see 11 U.S.C. § 1301(a), there is no guarantee that Larry will complete his plan. Due to the risk of dismissal or conversion of Larry's bankruptcy case, Creditor had every right to file a proof of claim against Debtor's estate in order to safeguard its interest. Until Larry consummates his plan and receives a discharge, Debtor remains contingently liable on the Claim.
The claim filed in Larry's bankruptcy case is based on the same guarantees and Judgment that the Claim asserted against Debtor's estate is.
3. Judicial Estoppel
We are unpersuaded by Debtor's further argument that Creditor is judicially estopped from claiming she is liable for the Claim based on statements made in the Complaint and preliminary injunction motion. In determining the applicability of judicial estoppel, several factors inform a court's decision such as: 1) whether " a party's later position [is] 'clearly inconsistent' with its earlier position, " 2) " whether the party achieved success in the prior proceeding, " and 3) " whether, if not estopped, the party seeking to assert an inconsistent position would derive an unfair advantage or impose an unfair detriment on the other party." Abercrombie & Fitch Trading Co. v. Moose Creek, Inc., 486 F.3d 629, 633 (9th Cir. 2007)(internal citations omitted).
The specific statements are, " On August 16, 2004 judgment was entered in favor of Ong Commodities Private Limited, . . . and against Larry Wendell Noble, " Preliminary Injunction Mtn. 2, Apr. 19, 2006, and " On or about September 22, 2004, Plaintiff filed an action in Clark County District Court . . . against Larry Wendell Noble . . . to enforce the foreign money judgment." Complaint 2, Mar. 16, 2006.
Here, Creditor has always maintained that it is entitled to payment from Debtor on the basis that the debt represents a community claim. As discussed above, the fact that the guarantees and Judgment were only related to Larry does not alter the Claim's status as a community claim for which Debtor can be liable. While it is true that Creditor did not seek to recover the Claim through the Complaint, this did not bar it from asserting an alternative theory of recovery (i.e., the fraudulent transfer cause of action) nor did it cause Creditor to assert a position inconsistent with the basis of the Claim. Moreover, no ruling by any state court or bankruptcy court has been made in regard to the Complaint. Nothing in the record suggests that Creditor achieved any success from the statements made in the Complaint or that it obtained an unfair advantage over Debtor. We therefore conclude that the equitable doctrine of judicial estoppel has no application in this case.
B. Claim Based Upon The State Court Complaint
Notwithstanding the court's comments respecting the state fraudulent conveyance cause of action, the proof of claim does not identify the Complaint as a basis for the Claim, but instead references only the guarantees and the Judgment and includes only documentation relating to the same. We therefore need not address whether the Complaint would also provide Creditor with an independent claim against Debtor, and note that the judge overseeing Larry's bankruptcy case, ruled that the filing of the Complaint against Debtor was a violation of the stay.
VI. CONCLUSION
Based on the foregoing, we AFFIRM the order of the bankruptcy court.
(A) under the sole, equal, or joint management and control of the debtor; or(B) liable for an allowable claim against the debtor, or for both an allowable claim against the debtor and an allowable claim against the debtor's spouse, to the extent that such interest is so liable.
Q: . . . .Are you familiar with a gentleman name Katai Ong [a.k.a. Creditor]?A: Yes.Q: Okay. When did you first meet him?A: 1986, 1987. . .Q: And what were your dealings with Mr. Ong over the last 20 years?A: He was an owner in a business that I owned. We both had ownership in a -- in a company Operator Services West. And since then, we had multiple business transactions.Q: Okay. Are you familiar with a situation that occurred in 2003 where you personally guaranteed a loan for an individual?A: Yes.Q: Okay. Why don't you tell me a little about that.A: I heard about a business opportunity from a friend of mine, Bradford Writ, and he and I guaranteed a loan with Katai Ong.. . .Q: . . . .Now, what happened with that claim after the guarantee? Did this business deal work out fine, and everybody went home?A: No. No. It did not work out, and I -- I relied on Katai who did the due diligence on the business deal. He gave it a thumbs-up. It didn't work out.
Hr'g Tr. 10-11 & 12, Oct. 12, 2006.