Lipin v. Estate of Robert W Walker and Eve F Walker

Filing 13

ORDER affirming the bankruptcy court's June 26, 2015 and October 1, 2015 orders denying Lipin's Motion for Offsets, Motion to Dismiss, and Motion for Reconsideration. Signed by Judge Neil V Wake on 7/15/16. (LSP)

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1 WO 2 3 4 5 6 7 IN THE UNITED STATES DISTRICT COURT 8 FOR THE DISTRICT OF ARIZONA 9 10 11 In re: No. CV-15-02078-PHX-NVW Niles Lipin, Bk. No. 2:11-bk-26500-GBN Adv. No. 2:11-ap-02323-GBN 12 Debtor. 13 14 ORDER Niles Lipin, 15 Appellant, 16 17 18 19 20 21 v. The Estate of Robert W. Walker and Eve F. Walker, Appellees. 22 23 24 25 26 27 28 Niles Lipin defaulted on a loan secured by a deed of trust on land. The land was sold at a sheriff’s sale, but the sale price did not satisfy all of Lipin’s debt. Lipin then filed for bankruptcy. In bankruptcy court, Lipin argued that his remaining debt should be reduced by the value of improvements he made to the land prior to the sheriff’s sale. The bankruptcy court deemed this argument untimely under A.R.S. § 12-1566(C). For the reasons that follow, the bankruptcy court’s ruling will be affirmed. 1 I. BACKGROUND 2 In 2002, Lipin’s company AWD Ranch, LLC executed a promissory note in favor 3 of Robert and Eve Walker. (See Doc. 12-2 at 6.1) The note was secured by a deed of 4 trust on approximately 240 acres of desert land in Pinal County (“the Land”). (Id.) 5 In 2004, Lipin stopped making payments on the note, and the parties became 6 embroiled in a lawsuit in Pinal County Superior Court. (See Doc. 8-1 at 13–14.) In 7 August 2009, near the end of the lawsuit, the Walkers’ attorney emailed Lipin’s attorney 8 about what Lipin should do before vacating the Land. (Doc. 8-2 at 47.) The email urged 9 the removal of “all debris, garbage and anything at all that is movable,” but not “any 10 fixtures” such as “fencing,” “buildings,” “dams,” “channels,” “berms,” “impoundments,” 11 and “ponds.” (Id.) 12 In December 2009, the Superior Court adjudged Lipin in default of his payment 13 obligation, foreclosed the deed of trust, and ordered a sheriff’s sale of the Land. (Doc. 14 11-1 at 3–5.) In April 2010, the Walkers bought the Land at the sheriff’s sale for 15 $1,100,000. (See Doc. 11-1 at 16.) Lipin’s debt exceeded that amount, so in May 2010 16 the court ordered Lipin to pay the difference, plus various costs and fees. (Id. at 16–17.) 17 In September 2011, Lipin filed for bankruptcy. (Doc. 8-1 at 6–10.) 18 In bankruptcy proceedings, the Walkers claimed that Lipin still owed them 19 $1,040,832. (See Doc. 8-1 at 13.) Lipin then filed a Motion for Offsets against the 20 Walkers’ claim, pointing out that he had made improvements to the Land prior to the 21 sheriff’s sale. (Doc. 8-1 at 233, 236–37.)2 Specifically, he had added “wells, buildings, 22 [plant] nurseries, warehouses, fencing, septic systems, roads, culverts and other assets 23 affixed to the land,” at a cost of “more than $2.6 million.” (Id. at 237.) According to 24 Lipin, these “fixed assets attached to the land” were worth far more than the price the 25 Walkers paid at the sheriff’s sale, yet the Walkers “refused to allow” him to re-acquire or 26 27 1 Citations to document numbers refer to this Court’s docket. 2 Lipin simultaneously filed a Motion to Dismiss the claim. (Doc. 12-1 at 7.) 28 -2- 1 sell these assets. (Id. at 237, 239.) Thus, Lipin concluded that the Walkers enjoyed 2 “undeniable financial benefits” for which he “received no offset.” (Id. at 237.) 3 At oral argument, the bankruptcy judge denied Lipin’s motion as untimely. (Doc. 4 8-1 at 137, 181, 189.) The judge reasoned as follows: Lipin seeks offsets related to the 5 Land’s value. (Id. at 179–180.) But under state law, Lipin could have asked the Superior 6 Court to determine the Land’s fair market value within thirty days of the sheriff’s sale. 7 (Id. (citing A.R.S. § 12-1566(C)).) If the fair market value was higher than the sale price, 8 Lipin’s debt would have been reduced by that value instead. (Id.) Thus, Lipin had an 9 opportunity to seek offsets in Superior Court. (Id. at 181.) By failing to do so, he waived 10 the argument. (Id.) 11 Lipin then filed a Motion for Reconsideration, reiterating that he spent more than 12 $2.6 million in “property improvement” and that the Walkers stood to receive “a double 13 recovery.” (Doc. 8-1 at 331–33.) The bankruptcy judge declined to reconsider, noting 14 that Lipin failed to address the timeliness problem. (Doc. 8-1 at 340, 356, 359.) The 15 judge then issued a written order denying Lipin’s motion for offsets and motion for 16 reconsideration “with prejudice.” (Doc. 8-1 at 375–76.) 17 Lipin appeals these rulings. (Doc. 1 at 5.) He argues that the state law procedure 18 cited by the bankruptcy judge did not apply to his motion for offsets, because his motion 19 rested on broader legal principles and did not challenge the sale price of the Land. (Doc. 20 8.) He also objects to the bankruptcy judge’s decision to deny offsets “with prejudice,” 21 because he might be entitled to other offsets later. (Id.) 22 The Walkers argue that this Court lacks jurisdiction over this appeal, that the 23 bankruptcy judge’s rulings were correct, and that this appeal is so frivolous that they 24 deserve attorneys’ fees and costs. (Doc. 11.) Lipin criticizes these arguments and 25 requests attorneys’ fees and costs of his own. (Doc. 12.) 26 27 28 -3- 1 II. JURISDICTION 2 Federal district courts have jurisdiction to hear appeals from “final” bankruptcy 3 court orders. 28 U.S.C. § 158(a)(1). Finality is a “flexible concept” in the bankruptcy 4 context. In re Perl, 811 F.3d 1120, 1126 (9th Cir. 2016). A bankruptcy court order is 5 “final” if it (1) “resolves and seriously affects substantive rights” and (2) “finally 6 determines the discrete issue to which it is addressed.” In re SK Foods, L.P., 676 F.3d 7 798, 802 (9th Cir. 2012) (quoting In re AFI Holding, 530 F.3d 832, 836 (9th Cir. 2008)). 8 The order denying Lipin’s motion for offsets and motion for reconsideration was 9 final. It rejected one of Lipin’s main defenses against the Walkers’ claim, thereby 10 resolving and seriously affecting his substantive rights. And it did so “with prejudice,” 11 thereby finally determining the issue. This Court has jurisdiction under § 158(a)(1). 12 Even if the order were interlocutory, the Court would grant to leave to appeal 13 under § 158(a)(3) because the order foreclosed a significant potential reduction in Lipin’s 14 debt. 15 16 III. STANDARD OF REVIEW 17 The bankruptcy court’s findings of fact are reviewed for clear error, while its 18 conclusions of law are reviewed de novo. In re JTS Corp., 617 F.3d 1102, 1109 (9th Cir. 19 2010). The Court must accept the bankruptcy court’s findings of fact, unless the Court is 20 left with the definite and firm conviction that a mistake has been committed. Id. Mixed 21 questions of law and fact are reviewed de novo. Id. 22 23 IV. ANALYSIS 24 The bankruptcy court correctly denied Lipin’s motion for offsets as untimely. The 25 fact that the denial was “with prejudice” does not prevent Lipin from raising a different 26 argument for offsets later. No fees or costs will be awarded on appeal. 27 28 -4- 1 A. 2 Arizona law protects foreclosure judgment debtors from the risk that their 3 4 5 6 7 8 9 10 11 12 13 Lipin’s motion for offsets was untimely. foreclosed real property will be sold below market price: Any sale of real property to satisfy a [foreclosure judgment] shall be a credit on the judgment in the amount of either the fair market value of the real property or the sale price of the real property at the sheriff’s sale, whichever is greater, in accordance with § 12-1566. A.R.S. § 33-725(B); see also A.R.S. § 12-1566(B). To invoke this protection, the debtor must request a judicial determination of the property’s fair market value within thirty days after the foreclosure sale, pursuant to A.R.S. § 12-1566(C): Any judgment debtor against whom a [foreclosure judgment] has been entered may, not later than thirty days after sale of the real property, file a written application with the court for determination of the fair market value of the real property which has been sold. 14 A.R.S. § 12-1566(C). 15 window. John Munic Enterprises, Inc. v. Laos, 235 Ariz. 12, 21, 326 P.3d 279, 288 (Ct. 16 App. 2014). If the debtor requests a fair market value determination, all parties must be 17 notified and the court shall hold an evidentiary hearing on the matter: 18 The statute does not authorize extensions of this thirty-day 20 Notice of filing the application and of the hearing shall be given to all parties to the action. The fair market value shall be determined by the court at a priority hearing which shall be held upon such evidence as the court may allow. 21 A.R.S. § 12-1566(C). If the court finds that the property was sold for less than its fair 22 market value, the court shall award the debtor the difference: 19 24 The court shall issue an order crediting the amount due on the judgment with the greater of the sales price or the fair market value of the real property. 25 Id. A debtor’s request for a fair market value determination extinguishes his usual right 26 to redeem the foreclosed property within six months after sale: 23 27 28 If an application has been filed, there shall be no right to redemption as to the real property sold . . . . -5- 1 Id.; see also Gold v. Helvetica Servicing, Inc., 229 Ariz. 328, 331–32, 275 P.3d 627, 630– 2 31 (Ct. App. 2012). 3 Lipin’s motion for offsets argued that his improvements to the Land were worth 4 more than what the Walkers paid at the sheriff’s sale. This is essentially an argument that 5 the Land was sold below market price. Any such argument should have been raised in 6 the time, place, and manner designated by the Arizona legislature in A.R.S. § 12- 7 1566(C). Thus, the bankruptcy court did not err in denying Lipin’s motion. 8 Lipin challenges this conclusion in two ways. First, he says A.R.S. § 12-1566(C) 9 does not supersede the bankruptcy court’s broad power to prevent unjust enrichment. He 10 suggests several sources of this power, including “equitable remedies of restitution,” 11 “Rule 60(c)(5)” of the Arizona Rules of Civil Procedure, and “the general rule against 12 double recovery in Arizona case law.” (Doc. 8 at 9.) 13 But Lipin ignores the basic rule of statutory construction that “the specific governs 14 the general.” See Morales v. Trans World Airlines, Inc., 504 U.S. 374, 384 (1992). The 15 Arizona legislature set a specific time, method, and forum in which to adjudicate debtors’ 16 objections to sale prices of foreclosed real property. 17 legislature’s decision that the fair market value of foreclosed property is best determined 18 near the time of foreclosure, with the input of all parties, by the court most familiar with 19 the matter. The legislature also imposed a consequence on any debtor who invokes these 20 procedures: the extinguishment of the usual right to redeem the foreclosed property. 21 Lipin cannot evade this statutorily prescribed process simply by grounding his argument 22 in broad legal principles. These procedures reflect the 23 Second, Lipin says that even if his objections to the sale price of the Land should 24 have been raised earlier, his motion for offsets was aimed at assets separate from the 25 Land. In support of this distinction, Lipin points out that the deed of trust securing his 26 promissory note refers only to the Land itself, not any subsequent improvements. He also 27 says that one of the ways he improved the Land was by extracting silt from ponds, and 28 that this extracted silt was his “personalty.” (Doc. 8 at 14–15.) -6- 1 Lipin infers too much from the deed of trust’s silence regarding improvements to 2 the Land. Even if the deed of trust did not explicitly grant the Walkers a security interest 3 in subsequent improvements, “the general common law rule is that when a fixture 4 becomes complemental to real property, it becomes part of the realty, and the fixture 5 becomes part of the security with regard to any existing mortgage.” K & L Distributors, 6 Inc. v. Kelly Elec., Inc., 908 P.2d 429, 432–33 & n.6 (Alaska 1995) (alterations omitted) 7 (collecting cases). 8 According to Lipin’s motion for offsets, his improvements consisted of “wells, 9 buildings, [plant] nurseries, warehouses, fencing, septic systems, roads, culverts and other 10 assets affixed to the land.” (Doc. 8-1 at 237.) These were all fixtures that became part of 11 the Land under the deed of trust. Arizona law uses a three-part test for determining when 12 a chattel becomes a fixture: “[1] There must be an annexation to the realty or something 13 appurtenant thereto; [2] the chattel must have adaptability or application as affixed to the 14 use for which the real estate is appropriated; and [3] there must be an intention of the 15 party to make the chattel a permanent accession to the freehold.” Murray v. Zerbel, 159 16 Ariz. 99, 101, 764 P.2d 1158, 1160 (Ct. App. 1998) (quoting Fish v. Valley Nat. Bank of 17 Phoenix, 64 Ariz. 164, 170, 167 P.2d 107, 111 (1946)). The improvements identified by 18 Lipin were annexed to the Land, adaptable to its use, and intended to be permanent. 19 Thus, Lipin’s argument that he was not paid for these improvements is essentially an 20 argument that he was underpaid for the Land, which he could have raised in accordance 21 with A.R.S. § 12-1566(C). That opportunity has long passed. 22 Similarly, Lipin’s claim that the extracted silt is his personalty is overdue. In the 23 bankruptcy court, Lipin did not explain why the silt was relevantly distinct from the 24 Land. In fact, an exhibit to his motion for offsets identified silt as one of the “assets 25 affixed” to the Land. (See Doc. 8-2 at 5, 15.) Lipin’s previous failure to distinguish the 26 silt from the Land dooms his attempt to do so now, since appellate courts “do not 27 normally consider arguments not raised below.” Noel v. Hall, 568 F.3d 743, 750 n.11 28 (9th Cir. 2009). -7- 1 In any event, Lipin’s argument about why the silt is his personalty is unpersuasive. 2 It consists entirely of the following block quotation from the American Jurisprudence 3 legal treatise, describing how objects may be severed from real property and become 4 personal property: 11 As a general rule, property which is essentially real may become personal property by severance from the real property with the intent to change it to personal property. Examples of things that are severable from land are shells, sand, gravel, coal and other minerals, mud, humus, topsoil, leaf mold, and other forms of dirt and soil sold and used to improve lawns and gardens. Therefore, real property in the form of mineral rights or a profit a prendre is transformed into personal property when the physical substance is severed from the land. 12 (Doc. 8 at 14–15 (emphasis added by Lipin).) Lipin cites no case law on the matter, nor 13 does he explain how this description of severance applies to the silt he extracted. Indeed 14 it appears not to apply, because it requires an “intent to change” the severed object “to 15 personal property.” Lipin offers no evidence that he intended to change the silt to 16 personal property. In fact, before the sheriff’s sale, the Walkers’ attorney urged Lipin to 17 remove from the Land “anything at all that is movable” but not “any fixtures.” (Doc. 8-2 18 at 47.) If Lipin truly thought the silt was personal property, he should have removed it. 19 If he thought the silt was a fixture, or if he thought the Walkers wrongly characterized it 20 as a fixture, he should have raised his objection in accordance with A.R.S. § 12-1566(C). 5 6 7 8 9 10 22 The bankruptcy court’s denial of Lipin’s motion for offsets “with prejudice” does not prevent Lipin from raising a different argument for offsets. 23 Lipin says the Walkers are currently pursuing litigation against third parties “for 24 essentially the same damages” they seek against Lipin in bankruptcy. (Doc. 8 at 19.) If 25 the Walkers are successful in that litigation, Lipin hopes to offset the Walkers’ claim 26 against him by whatever amount the Walkers recover from those third parties. (Id. at 20.) 27 He fears that the bankruptcy court has prevented him from requesting that offset because 28 it denied his motion for offsets “with prejudice.” (Id.) 21 B. -8- 1 Lipin’s fear is misplaced. The phrase “with prejudice” does not preclude Lipin 2 from requesting offsets on an entirely different basis. In any event, the Walkers have 3 declared that if they recover in the third-party lawsuit, they will “immediately apply a 4 credit” against any judgment issued by the bankruptcy court in this matter. (Doc. 11 at 5 13.) 6 C. 7 The Walkers seek attorneys’ fees and costs. Costs may be awarded to the appellee 8 in a bankruptcy appeal if the appeal if “frivolous.” Fed. R. Bankr. Proc. 8020(a). Lipin’s 9 appeal is weak but not frivolous. He raises a genuine objection to a consequential ruling 10 11 12 No attorneys’ fees or costs will be awarded. made by the bankruptcy court. Lipin also seeks attorneys’ fees and costs. He cites no authority or good reason for such an award. 13 14 IT IS THEREFORE ORDERED affirming the bankruptcy court’s June 26, 2015 15 and October 1, 2015 orders denying Lipin’s Motion for Offsets, Motion to Dismiss, and 16 Motion for Reconsideration. 17 Dated this 15th day of July, 2016. 18 19 20 Neil V. Wake Senior United States District Judge 21 22 23 24 25 26 27 28 -9-

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