Polk v. County of Contra Costa

Filing 49

ORDER Re: Appeal from Order of the Bankruptcy Court, signed by District Judge Anthony W. Ishii on 8/11/14. (Martin-Gill, S)

1
2
3
4
5

UNITED STATES DISTRICT COURT

6

EASTERN DISTRICT OF CALIFORNIA

7
8

SUSAN MAE POLK,

9

Appellant,

10
11

CASE NO. 1:12-CV-0290
ORDER RE: APPEAL FROM ORDER
OF THE BANKRUPTCY COURT

v.
COUNTY OF CONTRA COSTA,

12

Appellee.

13
14
15

I. Background
Appellant Susan Mae Polk (“Appellant”) was convicted in California state criminal court

16

for the 2002 murder of her husband. Throughout the duration of the criminal proceedings,

17

Appellant was also involved in civil proceedings concerning the division of a house (“Property”)

18

owned by Appellant and the estate of Appellant‟s deceased husband (“Estate”). Numerous

19

appeals were taken by Appellant in both the criminal and civil matters. Appellant filed for

20

bankruptcy protection and received a discharge while her criminal and civil appeals were pending.

21

Appellant then moved to have her bankruptcy case reopened in light of later proceedings in the

22

criminal and civil matters that Appellant alleges violates the terms of her bankruptcy discharge.

23

This is an appeal of a 2012 Bankruptcy Court order denying Appellant relief. Appellant is

24

incarcerated at the California Institute for Women in Chowchilla and is proceeding in propria

25

persona.

26

Appellant‟s husband was killed in October 2002 and Appellant was charged with his

27

murder. Appellant was represented by counsel in her first criminal trial which ended in a mistrial.

28

Appellant represented herself in the second trial, which ended in her conviction for second degree

1
2

murder.
In August 2005, the Estate initiated a partition action in state civil court to divide the

3

Estate‟s and Appellant‟s interests in the Property. Appellant and the Estate each had a one-half

4

ownership interest in the Property.

5

In September 2005, prior to her second criminal trial, Appellant executed a promissory

6

note in favor of Appellee County of Contra Costa (“County”) that was secured by a deed of trust

7

against the Property. The deed of trust was recorded by the County. The purpose of the lien was

8

to secure for the County reimbursement for legal services that were provided for Appellant‟s

9

defense in her first murder trial, pursuant to California Penal Code § 987.8(a). The amount of the

10

lien was to be set by the Superior Court for the County of Contra Costa.

11

In March 2006, the state civil court granted summary judgment in the partition action in

12

favor of the Estate, finding that the Estate was entitled to partition of the Property as a matter of

13

right. This order was not appealed. The state civil court appointed a referee to determine whether

14

the Property should be sold and the proceeds divided amongst the parties.

15

In February 2007, Appellant was found guilty of the criminal charges and later sentenced.

16

In August 2007, the County sought an order from the state criminal court pursuant to California

17

Penal Code § 987.8 requiring Appellant to reimburse the County for her legal expenses. An order

18

was entered by the state criminal court on September 20, 2007, requiring Appellant to repay the

19

County and setting the amount owed at $212,033.31 (“Original Reimbursement Order”).

20

Appellant appealed her conviction and the Original Reimbursement Order. However, Appellant

21

did not appeal the amount that the state criminal court determined Appellant owed for

22

reimbursement.

23

In the partition action in the state civil court, the sale of the Property was underway.

24

Various orders were entered between June 2007 and early 2008 that were appealed by Appellant.

25

Among the relevant orders was a November 30, 2007, order approving the sale of the Property

26

(“Sale Confirmation Order”). The Sale Confirmation Order was appealed by Appellant on

27

December 12, 2007.

28

The County submitted a claim to the state civil court on December 18, 2007, regarding its
2

1

lien against the Property. The County provided the state civil court with the state criminal court‟s

2

Original Reimbursement Order as evidence of the lien amount. The state civil court entered

3

judgment on January 10, 2008, approving the County‟s lien (“Distribution Order”). Appellant

4

appealed the Distribution Order on January 29, 2008.

5

On February 1, 2008, the state civil court formalized the Distribution Order with a written

6

award of costs and liens that stated the sums to be paid from the sale proceeds. Appellant and the

7

Estate each had a share of $200,019.09 after payment of joint encumbrances and the costs of the

8

partition. Appellant‟s share, however, was found to be subject to two liens, one of which was held

9

by the County. Appellant‟s share was distributed to the County and the other lienholder,

10

exhausting Appellant‟s share of the sale proceeds and leaving nothing to be distributed to

11

Appellant. The County was awarded $192,338.09 pursuant to the Distribution Order. The County

12

received a check in that amount shortly thereafter.

13

On May 4, 2009, Appellant filed a Chapter 7 petition with the Bankruptcy Court. No

14

creditor, including the County, filed a proof of claim. Appellant received a discharge on August

15

13, 2009. The bankruptcy case was closed September 4, 2009.

16

At the time Appellant commenced bankruptcy proceedings, appeals were pending in the

17

First Appellate District of the Court of Appeal of California from both the criminal and civil

18

proceedings. From the civil proceedings, the Sale Confirmation Order and the Distribution Order

19

were pending on appeal. From the criminal proceedings, the Original Reimbursement Order and

20

Appellant‟s conviction were pending on appeal.

21

The Appellate Court entered orders on the appeals from the state civil court on August 26,

22

2009, affirming the Sale Confirmation Order and the Distribution Order. Specifically, the

23

Appellate Court upheld the state civil court orders respecting the County‟s lien.

24

On December 13, 2010, the Appellate Court entered an order on the appeals from the state

25

criminal court. Appellant‟s conviction was affirmed. However, the Original Reimbursement

26

Order was vacated and remanded to the trial court to determine whether Appellant had the present

27

ability to pay, as required by California Penal Code § 987.8. On remand, the state criminal court

28

found that Appellant did have the ability to repay the County and ordered the County retain the
3

1
2

amount already distributed to it from the partition sale (“Second Reimbursement Order”).
Appellant moved to reopen the bankruptcy case in July of 2011 to challenge the County‟s

3

post-discharge actions. Appellant sought to have the proceeds from the partition sale that were

4

distributed to the County returned to her. The Bankruptcy Court issued Findings of Fact and

5

Conclusions of Law (“F&C”) on January 31, 2012 entitled “Order Denying Motion for Enjoinder

6

to Creditor and Inferior Court and Denying Motion to Avoid Lien of Contra Costa County,” along

7

with a separate Order denying Appellant‟s motions and denying the relief requested. Appellant

8

filed a timely appeal to this Court. Appellant seeks “an order to the [C]ounty to turn over to

9

[Appellant] the property it seized: $193,233.04 plus $67,278.91 in interest as compensatory

10

damages, and for any additional relief that the [C]ourt deems appropriate.” Doc. 17, Appellant

11

Brief, at 90.

12
13
14

II. Legal Standard
A district court reviews de novo a bankruptcy court‟s conclusions of law. Paulman v.

15

Gateway Venture Partners III, 163 F.3d 570, 575 (9th Cir. 1998). Findings of fact by the

16

bankruptcy judge shall not be disturbed unless they are clearly erroneous. Fed. R. Bankr. Proc.

17

8013. “Mixed questions of law and fact are reviewed de novo. Such a question arises when the

18

historical facts are established, the rule of law is undisputed, and the issue is whether the facts

19

satisfy the legal rule.” In re OTA, 179 B.R. 149, 155 (B.A.P. 9th Cir. 1995).

20
21
22
23

III. Discussion
A. Bankruptcy Court Decision
The Bankruptcy Court noted that the foundation of Appellant‟s arguments before the

24

Bankruptcy Court was her belief that “the County is in unlawful possession of the sale proceeds

25

from the sale of her property, based on either bankruptcy law or state law.” E.R. 263:19-21. The

26

Bankruptcy Court construed Appellant‟s moving papers as “(1) a motion for injunctive relief or

27

other relief for violation of the discharge injunction, and (2) a motion to avoid a judicial lien.”

28

E.R. 263:18-19. The Bankruptcy Court explained that the County had two avenues to justify its
4

1

right to the sale proceeds: a statutory obligation pursuant to California Penal Code § 987.8 that

2

was pursued in the state criminal action and a separate contractual obligation based on the

3

promissory note and deed of trust securing the County‟s interest in the Property that was pursued

4

in the state civil action. The Bankruptcy Court found that the County violated the discharge

5

injunction in the state criminal case but denied Appellant‟s requested relief because “[t]he County

6

did not violate the discharge injunction in retaining the sale proceeds. The County was in

7

possession of the sale proceeds by a valid pre-petition order from the state court in the civil

8

proceeding pursuant to the deed of trust securing the promissory note.” E.R. 275:19-20. Based

9

upon the state civil proceedings, “[t]he County‟s security interest in the sale proceeds arose by

10

way of its pre-petition deed of trust. The bankruptcy case had no effect on the validity of that deed

11

of trust.” E.R. 275:21-22.

12

The County did violate the discharge injunction by continuing the reimbursement portion

13

of the criminal case post-discharge. The Original Reimbursement Order required Appellant to

14

repay the County $212,033.31 pursuant to California Penal Code § 987.8. This was a pre-petition

15

order that was pending on appeal when Appellant filed for bankruptcy and was vacated by the

16

Appellate Court post-discharge. On remand, the County obtained the Second Reimbursement

17

Order without approval of the Bankruptcy Court. The Bankruptcy Court found the Second

18

Reimbursement Order to be void as violating the discharge injunction because the County was

19

proceeding against Appellant in personam on a debt that was discharged in bankruptcy. The

20

County therefore could not retain the sale proceeds based on either the vacated Original

21

Reimbursement Order or the void Second Reimbursement Order. The County has not appealed

22

this determination and Appellant ostensibly does not challenge this determination in her appeal.

23

Appellant was not entitled to compensatory damages, in spite of the finding that the County

24

violated the discharge injunction, because Appellant did not suffer any harm from the County‟s

25

actions.

26

The County‟s retention of funds was justified as the Bankruptcy Court determined that “the

27

County received the sale proceeds by a valid order from the state court in the civil proceeding,

28

which granted the County an interest in the proceeds due to it holding a security interest (the deed
5

1

of trust securing the promissory note) against the sold property.” E.R. 268:23-26. In reaching this

2

determination, the Bankruptcy Court considered the Distribution Order from the partition action in

3

the state civil court and the statutory scheme the court followed. Specifically, the Bankruptcy

4

Court considered California Code of Civil Procedure § 873.8201 for the priority of distribution of

5

sale proceeds and stated that the state civil court, in the partition action, necessarily found

6

Appellant‟s share to be subject to valid lienholders, one of which was the County. The

7

Bankruptcy Court noted that the unrecorded Original Reimbursement Order from the state

8

criminal court would have provided the County with only an unsecured interest in the Property

9

and thus a lower priority than Appellant for distribution of the sale proceeds. The Bankruptcy

10

Court concluded that “[s]ince the state court granted the County with a higher priority interest than

11

[Appellant] in the sale proceeds due to the County‟s status as a lienholder, the court must have

12

necessarily determined that the County‟s lien interest arose from its deed of trust and promissory

13

note.” E.R. 270. The state civil court orders were not void because they did not determine

14

Appellant‟s in personam liability, which was discharged during bankruptcy; rather, the orders

15

determined “[Appellant‟s] in rem liability, as the state court determined that the County had a

16

valid lien interest entitling it to the sale proceeds.” E.R. 272 (emphasis added). The Bankruptcy

17

Court found the state civil decisions valid and entitled to full faith and credit before the

18

Bankruptcy Court. E.R. 272-73.
Appellant did in fact “challenge the validity of the orders from the civil proceeding on

19
20

various substantive and procedural grounds” in the Bankruptcy Court. E.R. 271. The Bankruptcy

21

Court declined to consider Appellant‟s collateral attacks to the state civil court orders, finding

22

such arguments precluded by the Rooker-Feldman doctrine.
Appellant also moved the Bankruptcy Court to avoid the County‟s lien pursuant to 11

23
24

U.S.C § 522(f). The Bankruptcy Court ruled against Appellant for two reasons. First, the

25

County‟s lien was a consensual lien arising from the promissory note and deed of trust, not a

26

judicial lien that could be avoided per the statute. Second, the sale of the Property terminated

27

1

28

The F&C cites California Code of Civil Procedure § 873.810. However, Section 873.820 concerns the priority of
distribution, not Section 873.810. This error does not change the outcome of this appeal, as the Bankruptcy Court‟s
discussion clearly shows that it considered the priority enumerated in Section 873.820. See E.R. 269.

6

1

Appellant‟s interest in the Property itself and the state civil court determined that the County had a

2

higher priority interest in the proceeds than Appellant, therefore Appellant had no interest in either

3

the Property or the sale proceeds at the time she filed her bankruptcy petition.

4
5

B. Rooker-Feldman Doctrine

6

Appellant asserts that it was error for the Bankruptcy Court to rely on the Rooker-Feldman

7

Doctrine and preclusion principles when it refused to consider some of her objections to the

8

underlying state civil court orders. See Doc. 17 at 17 (Issue A.). Appellant also presents several

9

issues on appeal that challenge the Sale Confirmation and Distribution Orders on both substantive

10

and procedural grounds, including what appears to be allegations of due process and equal

11

protection violations. See Doc. 17 at 20 (Issue E.), 22 (Issues G. and H.), 27 (Issue K.). The

12

Bankruptcy Court held that it was precluded from considering these claims based on the Rooker-

13

Feldman doctrine. E.R. 271:12-14. The Bankruptcy Court was correct in refusing to consider

14

Appellant‟s collateral challenges to the state court orders based on purported errors made by the

15

state civil court because it lacks jurisdiction to do so. The application of Rooker-Feldman was

16

proper.

17

The Rooker–Feldman doctrine precludes “cases brought by state-court losers complaining

18

of injuries caused by state-court judgments rendered before the district court proceedings

19

commenced and inviting district court review and rejection of those judgments.” Exxon Mobil

20

Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 284 (2005); see also Johnson v. DeGrandy, 512

21

U.S. 997, 1005–06 (1994) (stating that the losing party in a state court proceeding is generally

22

“barred from seeking what in substance would be appellate review of the state court judgment in a

23

United States district court, based on the losing party‟s claim that the state judgment itself violates

24

the loser‟s federal rights”). In those situations, a district court lacks subject matter jurisdiction to

25

review the state court judgment. See Exxon Mobil, 544 U.S. at 291-92. The doctrine‟s origin is

26

based on the negative inferences arising from federal statutes granting the district courts only

27

original jurisdiction to hear cases and granting only the United States Supreme Court jurisdiction

28

to hear appeals from the state courts. In re Gruntz, 202 F.3d 1074, 1078 (9th Cir. 2000); see 28
7

1

U.S.C. §§ 1331, 1332 (providing federal district courts with original jurisdiction); see 28 U.S.C. §

2

1257(a) (providing the United States Supreme Court with appellate jurisdiction from state courts).

3

“Thus, it follows that federal district courts have „no authority to review the final determinations

4

of a state court in judicial proceedings.‟” In re Gruntz, 202 F.3d at 1078 (quoting Worldwide

5

Church of God v. McNair, 805 F.2d 888, 890 (9th Cir.1986)). “The doctrine applies only in

6

„limited circumstances,‟ [citation] where a party in effect seeks to take an appeal of an unfavorable

7

state-court decision to a lower federal court.” Lance v. Dennis, 546 U.S. 459, 466 (2006) (citations

8

omitted). Bankruptcy cases present an apparent “exception” to the Rooker-Feldman doctrine

9

because bankruptcy courts retain the authority to avoid, modify, and discharge state judgments.

10

See In re Gruntz, 202 F.3d at 1079; see In re Sasson, 424 F.3d 864, 871 (9th Cir. 2005). The

11

Ninth Circuit has stated that “[t]he Rooker-Feldman doctrine has little or no application to

12

bankruptcy proceedings that invoke substantive rights under the Bankruptcy Code or that, by their

13

nature, could arise only in the context of a federal bankruptcy case.” In re Sasson, 424 F.3d at 871

14

(citing In re Gruntz, 202 F.3d at 1081, which discusses “core proceedings” in bankruptcy and

15

holds that Rooker-Feldman does not deprive a bankruptcy court of jurisdiction for core

16

proceedings).

17

The Bankruptcy Court‟s considered Appellant‟s motions and found that the Rooker-

18

Feldman doctrine did not apply to matters which constituted core proceedings in bankruptcy. The

19

Bankruptcy Court properly exercised jurisdiction when it determined that the Second

20

Reimbursement Order was void. A bankruptcy discharge “(1) voids any judgment at any time

21

obtained, to the extent that such judgment is a determination of the personal liability of the debtor

22

with respect to any debt discharged…(2) operates as an injunction against the commencement or

23

continuation of an action, the employment of process, or an act, to collect, recover or offset any

24

such debt as a personal liability of the debtor.” 11 U.S.C. § 524. The Ninth Circuit B.A.P. has

25

specifically stated that, “This necessarily places the bankruptcy court in the position of

26

scrutinizing a state court judgment. The bankruptcy court, of necessity, must be able to ascertain

27

the extent to which the judgment is void under § 524(a)(1) as an essential element of determining

28

whether the § 524(a)(2) discharge injunction has been violated. The Rooker-Feldman doctrine
8

1

does not compel a contrary conclusion.” In re Pavelich, 229 B.R. 777, 782 (B.A.P. 9th Cir. 1999).

2

As the Second Reimbursement Order was a determination as to in personam liability, it was

3

subject to the Bankruptcy Court‟s discharge injunction.

4

However, Rooker-Feldman did partially apply to consideration of the Distribution Order.

5

The Bankruptcy Judge found that the Distribution Order was not subject to the same analysis as it

6

dealt with an in rem liability which does not fall under 11 U.S.C. § 524 which only covers

7

“personal liability.” “[A] bankruptcy discharge extinguishes only one mode of enforcing a claim –

8

namely, an action against the debtor in personam – while leaving intact another – namely an

9

action against the debtor in rem.” Johnson v. Home State Bank, 501 U.S. 78, 84 (1991). This

10

includes in rem liability arising from a lien against real property secured by a deed of trust. See In

11

re Akram, 259 B.R. 371, 375 (Bankr. C.D. Cal. 2001) (“[S]ection 524 does not affect, remove or

12

discharge an in rem liability of property for debts. This means that liens on property are not

13

eliminated by the discharge.”). A lien secured against a debtor‟s real property will “pass through

14

bankruptcy unaffected” by the bankruptcy discharge. In re Cortez, 191 B.R. 174, 177 (B.A.P. 9th

15

Cir. 1995); see Farrey v. Sanderfoot, 500 U.S. 291, 297 (1991) (“Ordinarily, liens and other

16

secured interests survive bankruptcy.”); see In re Frazier, 448 B.R. 803, 809 (Bankr. E.D. Cal.

17

2011) (“[T]here is no dispute that a discharge, in and of itself, does not exonerate the debtor of the

18

obligation or remove a lien. The discharge imposes a statutory injunction preventing the creditor

19

from enforcing the discharged debt against the debtor personally or against specified assets.

20

[citation] The discharge does not release a lien from the [d]ebtor‟s property, and the lien may

21

continue to be enforced against the debtor‟s property which is subject to that lien.”). The

22

Bankruptcy Court correctly held that the County retained the sales proceeds based on its

23

consensual lien against Appellant‟s interest in the Property. The County‟s lien established in rem

24

liability against the Property which was therefore not discharged in bankruptcy.

25

The Bankruptcy Court limited the analysis to the dischargeability of the state civil court

26

judgments. The Bankruptcy Court‟s jurisdiction in this case arises from the implied power to

27

protect the Congressional grant of exclusive jurisdiction to issue a discharge. See In re Pavelich,

28

229 B.R. at 783 (“The issuance of the bankruptcy discharge is a matter within exclusive federal
9

1

jurisdiction. A state court that does not honor a bankruptcy discharge is, in effect, not honoring a

2

federal judgment. And a „Congressional grant of exclusive jurisdiction to the federal courts

3

includes the implied power to protect that grant.‟”). Enforcing the bankruptcy discharge is the

4

method the bankruptcy court uses to protect that grant of authority. To do that it is only necessary

5

to determine whether an order establishes a personal liability of the debtor and whether that

6

liability was discharged in bankruptcy. Once that determination has been made, the inquiry ceases

7

because 11 U.S.C. § 524(a) does not go beyond a debtor‟s discharged personal liability.

8
9

In the present case, Appellant sought to challenge the Distribution Order on other, nonbankruptcy grounds; she essentially sought appellate review of the merits of state civil court

10

judgments in the Bankruptcy Court. Similarly, on appeal in this court, Appellant challenges the

11

validity of the state civil court judgments on grounds separate and distinct from whether the

12

discharge injunction was violated. See Doc. 17 at 20 (Issue E.), 22 (Issues G. and H.), 27 (Issue

13

K.). It is not necessary to address Appellant‟s collateral challenges to the state civil court orders to

14

determine whether they are void for violating the discharge injunction. As the Bankruptcy Court‟s

15

decision and the remainder of this decision demonstrate, the relevant issue is whether Appellant‟s

16

obligation to the County was based on an in personam liability or an in rem liability. Appellant

17

was the loser in the state civil court partition action which found in favor of the County and

18

awarded the County the proceeds from the sale of the Property based on in rem liability. Now in

19

federal court, Appellant seeks to have the state civil court orders set aside based on the merits of

20

the underlying judgments, which have nothing to do with bankruptcy jurisdiction. Such grounds

21

for appeal fall squarely within the bounds of Rooker-Feldman. See Exxon Mobil, 544 U.S. at 284.

22

The Bankruptcy Court properly refused to address those arguments. This court will also refrain

23

from considering Appellant‟s collateral challenges to the state civil court orders because the

24

Rooker-Feldman doctrine deprives the Court of jurisdiction.

25
26
27
28

B. Consensual Lien
The County‟s interest in the sale proceeds of the Property was secured by the deed of trust.
Prior to her trial in the criminal prosecution, Appellant executed a promissory note for the
10

1

County‟s benefit and a deed of trust was recorded against the Property. The Bankruptcy Court

2

found that the discharge injunction was not violated because the County retained the sale proceeds

3

pursuant to a valid lien on the Property that was not frustrated by the bankruptcy discharge. In

4

reaching the this conclusion, the Bankruptcy Court interpreted the state civil court orders as

5

establishing Appellant‟s liability to the County by way of a consensual lien recorded against the

6

Property. Appellant claims this determination was error. See Doc. 17 at 23 (Issue I.) and 28 (Issue

7

L.).2 Specifically, Appellant contends that the County‟s lien was in fact a judicial lien that could

8

be avoided in bankruptcy for frustrating a valid exemption.

9

In reaching its conclusion, the Bankruptcy Court considered the statutory requirements for

10

distributing proceeds from a partition sale as required by the California Code of Civil Procedure.

11

See E.R. 268-69. The Bankruptcy Court determined that the distribution of sale proceeds to the

12

County rather than to Appellant was predicated on a finding by the state civil court that the County

13

held a valid consensual lien against the Property which gave it a higher priority to the proceeds

14

than Appellant. This was a proper interpretation of the state court orders in light of the controlling

15

statutory scheme.

16

California Code of Civil Procedure § 873.820 provides a hierarchy of distribution for

17

proceeds from a partition sale. Following payment of expenses of sale, costs of partition, and joint

18

liens on the property, the residue is distributed to the parties. See Cal. Code Civ. Proc. § 873.820.

19

California Code of Civil Procedure § 873.260 provides that “[w]here a lien is on an undivided

20

interest of a party, the lien shall, upon division of the property, become a charge only on the share

21

allotted to that party.” Cal. Code Civ. Proc. § 873.260; see also Lee v. Nat‟l Collection Agency,

22

Inc., 543 F.Supp. 920, 922 (N.D. Cal. 1982) (“Where a lien exists on just one of the co-tenant‟s

23

undivided interest, the property may be sold free and clear of the lien and the lien satisfied from

24

the proceeds of the sale.”). Under this statutory scheme, liens encumbering an undivided property

25
26
27
28

2

Appellant appears to assert that the Bankruptcy Court took judicial notice of the orders in the partition action and
thereafter relied on the truth of the factual findings made by the state civil court. See Doc. 17 at 28 (Issue L.). The
Bankruptcy Court‟s F&C and the record before this Court do not support the view that judicial notice was taken of the
state court orders or that the Bankruptcy Court relied on facts contained therein. Regardless, this Court takes de novo
review of the F&C, examines applicable California law and to draw reasonable conclusions based on the Distribution
Order, and comes to the same conclusion as the Bankruptcy Court.

11

1

interest will be satisfied before distribution to the property owner, giving the lienholders a priority

2

interest in the sale proceeds.

3

The state civil court followed the distribution procedure in the Distribution Order. See E.R.

4

133-35. Appellant‟s share was specifically found to be burdened by two lienholders – one of

5

which was the County – and her share was used to satisfy those obligations. E.R. 135:1-5. The

6

Distribution Order expressly identified the County as a lienholder. The Bankruptcy Court‟s

7

conclusion that the County – as a lienholder – was found by the state civil court to have a higher

8

priority than Appellant to the partition sale proceeds is consistent with California law.
The determination that the County‟s lienholder status was based on a consensual lien, as

9
10

opposed to a judicial lien, is also supported by applicable law. A judicial lien must be established

11

by recording a judgment from the court against the property. Cal. Code Civ. Proc. § 697.310(a).

12

The County never recorded the Original Reimbursement Order against the Property, thus a judicial

13

lien was never perfected. See Tassone v. Tovar, 28 Cal.App.4th 765, 769 (Cal. App. 2nd Dist.

14

1994) (an unrecorded judgment has no legal effect on property). This clearly demonstrates that

15

the County‟s reimbursement could not have been based on a judicial lien. The fact that the state

16

civil court afforded the County a distribution priority superior to Appellant must be grounded in a

17

determination by that court that there was a valid consensual lien.
Appellant asserts that the Bankruptcy Court erred in determining that the County‟s lien

18
19

could not be avoided. See Doc. 17 at 25 (Issue J.). The language of 11 U.S.C. § 522(f) is clear that

20

a lien on real property that impairs an exemption may only be avoided if it is a judicial lien. 11

21

U.S.C. §522(f)(1)(A). A consensual lien on the Property simply cannot be avoided by 11 U.S.C. §

22

522(f). See 11 U.S.C. §522(f)(1).

23

Appellant also asserts two issues for appeal regarding a homestead exemption. See Doc. 17

24

at 20 (Issue D.) and 21 (Issue F.).3 The Bankruptcy Court determined, as this Court has, that the

25

County had an interest in the sale proceeds based on a consensual lien which was not avoidable

26

under 11 U.S.C. § 522(f). This determination is correct. Case law is clear that a homestead

27

3

28

It is not apparent from the F&C that the Bankruptcy Court considered the matter of Appellant‟s claimed homestead
exemption or if it was even raised below. However, these issues can be disposed on the same basis as the lien
avoidance issue.

12

1

exemption is not superior to a consensual lien. See In re Patterson, 139 B.R. 229, 232 (B.A.P. 9th

2

Cir. 1992) (stating that a consensual lien “cannot be defeated by a homestead exemption.”); see In

3

re Pavich, 191 B.R. 838, 847 (Bankr. E.D. Cal. 1996) (“[E]xemption laws do not protect property

4

from enforcement of consensual liens.”); see In re Bunn-Rodemann, 491 B.R. 132, 136 (Bankr.

5

E.D. Cal. 2013) (“[T]he [d]ebtor cannot claim an exemption in the value of the property subject to

6

the creditor‟s consensual lien. Exemptions may be claimed only against involuntary liens, such as

7

judgments, attachments, and execution liens.”).

8

The Court makes no determination as to whether Appellant would be entitled to a

9

homestead exemption. The determination that Appellant‟s interest in the sale proceeds was

10

subject to the County‟s consensual lien means the lien could not be avoided regardless of the

11

existence of any exemptions and any exemption applicable would not reduce the amount to which

12

the County was entitled.

13
14
15

C. Finality of State Civil Orders
Appellant asserts that the bankruptcy discharge included a discharge of her obligation to

16

the County. See Doc. 17 at 19 (Issue C.). In Appellant‟s view, the bankruptcy discharge precludes

17

the County from retaining the sale proceeds because the discharge was obtained approximately

18

thirteen days prior to the state appellate court‟s decision affirming the orders from the civil court

19

in the partition action. Appellant also asserts that the Bankruptcy Court erred in stating and

20

presumably relying on the erroneous finding that the state civil court orders from the partition

21

action were not appealed. See Doc. 17 at 18 (Issue B.).

22

With reference to the Sale Confirmation and Distribution Orders, the Bankruptcy Judge did

23

mistakenly state “No appeal was taken by Debtor in the civil proceeding, and more than a year

24

later, Debtor filed her bankruptcy petition.” E.R. 262:21-22. An appeal was taken and those

25

orders were not final at the time of the discharge. According to Appellant, the discharge order

26

from the Bankruptcy Court should have preclusive effect against the state appellate court.

27

However, the Bankruptcy Court‟s ultimate conclusion that the County did not violate the

28

discharge injunction by retaining the sale proceeds is based on the recognition that the state court
13

1

orders were a determination of Appellant‟s in rem liability, as opposed to her in personam

2

liability, and therefore passed through bankruptcy. Appellant herself in briefing this appeal

3

recognized the fact that “the Bankruptcy Court for the Eastern District of California had

4

jurisdiction „in rem,‟ i.e. to determine the rights of every person to the property in question,

5

namely the equity in my home.” Doc. 17, Appellant Opening Brief, at 16. Notwithstanding the

6

factual mistake, the Bankruptcy Court‟s ultimate legal determination is correct.

7
8
9

IV. Order
The Order of the Bankruptcy Court denying Appellant‟s Motion for Enjoinder to Creditor

10

and Inferior Court and denying Appellant‟s Motion to Avoid Lien of Contra Costa County is

11

AFFIRMED.

12
13
14

IT IS SO ORDERED.
Dated: August 11, 2014
SENIOR DISTRICT JUDGE

15
16
17
18
19
20
21
22
23
24
25
26
27
28
14