In re: Marshall L. Rader and Barbara J. Rader

FILED 1 ORDERED PUBLISHED MAR 08 2013 SUSAN M SPRAUL, CLERK 2 U .S . B K CY. A P P . P A NE L O F T H E N IN T H C IR C U IT 3 UNITED STATES BANKRUPTCY APPELLATE PANEL 4 OF THE NINTH CIRCUIT 5 6 In re: ) BAP No. AZ-12-1241-KlPaMk ) 7 MARSHALL L. RADER and BARBARA ) Bk. No. 10-14477-RTB J. RADER, ) 8 ) Debtors. ) 9 ______________________________) ) 10 WILLIAM E. PIERCE, Chapter 7 ) Trustee, ) 11 ) Appellant, ) 12 ) v. ) O P I N I O N 13 ) ROBERT G. CARSON, Trustee of ) 14 the R & S Carson Family Trust;) SANDRA J. CARSON, Trustee of ) 15 the R & S Carson Family Trust,) ) 16 Appellees. ) ______________________________) 17 Argued and submitted on January 25, 2013 18 at Phoenix, Arizona 19 Filed - March 8, 2013 20 Appeal from the United States Bankruptcy Court for the District of Arizona 21 Honorable Redfield T. Baum Sr., Bankruptcy Judge, Presiding 22 ____________________________ 23 Appearances: Terry A. Dake, Esq., of Terry A. Dake, Ltd., argued for Appellant; Brian Y. Furuya, Esq., of Aspey 24 Watkins & Diesel, PLLC, argued for Appellees. ____________________________ 25 Before: KLEIN, * PAPPAS, and MARKELL, Bankruptcy Judges. 26 27 28 * Hon. Sandra R. Klein, United States Bankruptcy Judge for the Central District of California, sitting by designation. 1 KLEIN, Bankruptcy Judge: 2 3 INTRODUCTION 4 Chapter 7 1 trustee, William E. Pierce (“Trustee”), appeals 5 from an order overruling his objection to a claim filed by Robert 6 G. Carson and Sandra J. Carson on behalf of The R & S Carson 7 Family Trust (“Carsons”). We AFFIRM. 8 FACTS 9 Marshall and Barbara Rader (“Debtors”) filed a chapter 13 10 bankruptcy petition on May 12, 2010. A few months later, the case 11 was converted to a chapter 7, and Trustee was appointed as the 12 chapter 7 trustee. 13 On August 12, 2010, the Carsons filed a “Motion for Order 14 Approving Stipulation of Parties Regarding Relief from Automatic 15 Stay” (“Motion”). The Motion indicated that the Carsons, Debtors, 16 and Trustee agreed that the automatic stay should be terminated 17 regarding a parcel of real property located in Valle-Williams, 18 Coconino County, Arizona (“Property”). Attached to the Motion was 19 a stipulation (“Stipulation”), which stated that the Carsons had a 20 security interest in the Property and that Debtors were in default 21 under their obligations to the Carsons. On September 9, 2010, the 22 bankruptcy court entered an “Order Approving Stipulation Regarding 23 Relief from Automatic Stay” (“Order”). 24 On November 1, 2010, the Carsons timely filed a $739,100.61 25 proof of claim (“Claim”), which indicated that the debt was 26 27 1 Unless otherwise indicated, all chapter, section, and rule references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and 28 to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037. -2- 1 secured by a trust deed on the Property. The Claim stated that 2 the value of the Property was $370,000. This valuation was 3 supported by an appraisal, and was not challenged in the 4 bankruptcy court nor is it challenged in this appeal. The Claim 5 was bifurcated into a secured claim of $370,000 and an unsecured 6 claim of $369,100.61. 7 On December 16, 2010, the Carsons purchased the Property for 8 $370,000 at a non-judicial foreclosure sale. Debtors received a 9 discharge on January 11, 2011. 10 On March 2, 2012, Trustee filed an objection to the Claim 11 (“Claim Objection”), which stated, in its entirety, that: “Said 12 claimant asserts a lien on certain property of the debtor’s [sic] 13 estate and said claimant has or should have looked to said 14 property for payment of the debt thereby secured. The trustee 15 recommends that said claim be treated as: DISALLOWED.” The 16 Carsons filed a response to the Claim Objection on March 16, 2012. 17 On April 20, 2012, the bankruptcy court heard and overruled the 18 Claim Objection, reasoning that the Carsons could not have filed a 19 state court deficiency action or an adversary proceeding without 20 violating the discharge injunction. On May 1, 2012, the 21 bankruptcy court entered an order overruling the Claim Objection 22 and allowing the Carsons’ $369,100.61 unsecured claim. Trustee 23 timely filed a notice of appeal on May 4, 2012. 24 JURISDICTION 25 The bankruptcy court had jurisdiction pursuant to 28 U.S.C. 26 §§ 1334(b) and 157(b)(2)(B). We have jurisdiction pursuant to 28 27 U.S.C. § 158(b). 28 -3- 1 ISSUE 2 Whether the bankruptcy court erred when it overruled 3 Trustee’s Claim Objection. 4 STANDARD OF REVIEW 5 “An order overruling a claim objection can raise legal issues 6 (such as the proper construction of statutes and rules) which we 7 review de novo, as well as factual issues (such as whether the 8 facts establish compliance with particular statutes or rules), 9 which we review for clear error.” Veal v. Am. Home Mortg. Serv., 10 Inc. (In re Veal), 450 B.R. 897, 918 (9th Cir. BAP 2011). “De 11 novo review is independent, with no deference given to the trial 12 court’s conclusion.” Allen v. U.S. Bank, N.A. (In re Allen), 472 13 B.R. 559, 564 (9th Cir. BAP 2012). Review under the clearly 14 erroneous standard is “significantly deferential,” with reversal 15 requiring “a definite and firm conviction that a mistake has been 16 committed.” Id. Put another way, “[a] court’s factual 17 determination is clearly erroneous if it is illogical, 18 implausible, or without support in the record.” Retz v. Samson 19 (In re Retz), 606 F.3d 1189, 1196 (9th Cir. 2010) (citing United 20 States v. Hinkson, 585 F.3d 1247, 1261-62 & n.21 (9th Cir. 2009) 21 (en banc)). 22 DISCUSSION 23 Trustee asserts that the bankruptcy court should have 24 disallowed the unsecured portion of the Carsons’ Claim because 25 they did not comply with Arizona Revised Statute (“A.R.S.”) 26 § 33-814, which establishes procedures for obtaining deficiency 27 judgments after non-judicial foreclosure sales. According to 28 Trustee, the automatic stay was not a bar to the Carsons pursuing -4- 1 a deficiency judgment because the Order was sufficiently broad to 2 allow the Carsons to file a state court action or an adversary 3 proceeding. 4 Trustee also argues that the discharge injunction did not 5 prohibit the Carsons from pursuing a deficiency action because: 6 1) Debtors would not have to be parties to any such action; 7 2) proceedings can be filed post-discharge that name Debtors as 8 nominal parties without violating the discharge injunction; and 9 3) the Carsons could have filed a motion with the bankruptcy court 10 to obtain leave to proceed. 11 The Carsons counter that pursuant to §§ 101(5) and 506, the 12 bankruptcy court properly allowed their unsecured claim. 13 According to the Carsons, requiring creditors to file separate 14 actions to obtain deficiencies would be contrary to the law, 15 burdensome, and a waste of judicial resources because: 1) the 16 automatic stay prevented them from filing a deficiency action as 17 required by state law; 2) the Order did not allow them to file a 18 separate deficiency action; and 3) the discharge injunction 19 prohibited them from pursuing any action against Debtors. 20 A. Arizona Revised Statute § 33-814 21 A.R.S. § 33-814 sets forth procedures pursuant to which a 22 creditor can obtain a deficiency judgment after a non-judicial 23 foreclosure sale. A.R.S. § 33-814(A) provides, in relevant part, 24 that “within ninety days after the date of sale of trust property 25 under a trust deed pursuant to § 33-807, 2 an action may be 26 2 27 A.R.S. § 33-807 outlines a trustee’s authority under a deed of trust. “[I]n Arizona, non-judicial foreclosure sales, 28 (continued...) -5- 1 maintained to recover a deficiency judgment against any person 2 directly, indirectly or contingently liable on the contract for 3 which the trust deed was given as security . . . .” If no 4 deficiency action is filed within the ninety-day period, “the 5 proceeds of the sale, regardless of amount, shall be deemed to be 6 in full satisfaction of the obligation and no right to recover a 7 deficiency in any action shall exist.” A.R.S. § 33-814(D). 8 B. Preemption 9 Based on the facts of this case, we find that A.R.S. § 33-814 10 is preempted by the Bankruptcy Code. The preemption doctrine, 11 which implements the Supremacy Clause of the Constitution, 3 12 “invalidate[s] state statutes to the extent they are inconsistent 13 with, or contrary to, the purposes or objectives of federal law.” 14 Sticka v. Applebaum (In re Applebaum), 422 B.R. 684, 688 (9th Cir. 15 BAP 2009) (citing Perez v. Campbell, 402 U.S. 637, 652 (1971)). 16 Congress may preempt state law “either expressly–through clear 17 statutory language–or implicitly.” Whistler Invs., Inc. v. 18 Depository Trust & Clearing Corp., 539 F.3d 1159, 1164 (9th Cir. 19 2008). Nothing in the Bankruptcy Code explicitly preempts 20 21 22 (...continued) 23 or trustees’ sales,” are governed by A.R.S. §§ 33-801 to 33- 821. Hogan v. Wash. Mut. Bank, N.A., 277 P.3d 781, 782-83 24 (Ariz. 2012). “When parties execute a deed of trust and the debtor thereafter defaults, A.R.S. § 33-807 empowers the 25 trustee to sell the real property securing the underlying note through a non-judicial sale.” Id. 26 3 The Supremacy Clause provides that the "Constitution, and 27 the Laws of the United States . . . shall be the supreme Law of the Land . . . any Thing in the Constitution or Laws of any State 28 to the Contrary notwithstanding." U.S. Const. art. VI, cl. 2. -6- 1 statutes such as A.R.S. § 33-814. Thus, the issue is whether 2 A.R.S. § 33-814 is implicitly preempted. 3 “There are two types of implied preemption: field preemption 4 and conflict preemption.” Id. Field preemption is present when 5 federal law “so thoroughly occupies a legislative field as to make 6 reasonable the inference that Congress left no room for the States 7 to supplement it.” Cipollone v. Liggett Group, Inc., 505 U.S. 8 504, 516 (1992). Conflict preemption is present “to the extent 9 that federal law actually conflicts with any state law.” Whistler 10 Invs., 539 F.3d at 1164. 11 Field preemption is inapplicable in this case. Section 12 502(b)(1) states that a court “shall allow” a claim unless the 13 claim is “unenforceable against the debtor and property of the 14 debtor, under any agreement or applicable law.” By explicitly 15 incorporating other “applicable law,” § 502(b)(1) demonstrates 16 that Congress did not intend the Bankruptcy Code thoroughly to 17 occupy the field related to the claims allowance process. Cf. 18 Hillsborough Cnty., Fla. v. Automated Med. Labs., Inc., 471 U.S. 19 707, 713 (1985) (stating that preemption is inferred if “Congress 20 ‘left no room’ for supplementary state regulation” (quoting Rice 21 v. Sante Fe Elevator Corp., 331 U.S. 218, 230 (1947))). 22 “Conflict preemption analysis examines the federal statute as 23 a whole to determine whether a party’s compliance with both 24 federal and state requirements is impossible or whether, in light 25 of the federal statute’s purpose and intended effects, state law 26 poses an obstacle to the accomplishment of Congress’s objectives.” 27 Whistler Invs., 539 F.3d at 1164. As analyzed below, we find that 28 both types of conflict preemption are present in this case. -7- 1 First, the automatic stay and the discharge injunction—two 2 cornerstones of federal bankruptcy law—made it impossible for the 3 Carsons to comply with A.R.S. § 33-814. Second, A.R.S. § 33-814’s 4 requirement that the Carsons file an action as a prerequisite to 5 recovering a deficiency poses an obstacle to Congress’ objectives 6 in creating the Bankruptcy Code’s comprehensive, centralized 7 claims resolution process and its framework for determining the 8 validity and secured status of claims. 9 1. It was Impossible for the Carsons to Comply with Federal 10 and State Law 11 a. Automatic Stay 12 When Debtors filed bankruptcy on May 12, 2010, an automatic 13 stay immediately went into effect that prohibited, among other 14 actions, “the commencement or continuation, including the issuance 15 or employment of process, of a judicial, administrative or other 16 action or proceeding against the debtor . . . to recover a claim 17 against the debtor that arose before the commencement of the 18 case.” § 362(a)(1); Dunbar v. Contractors’ State License Bd. of 19 Cal. (In re Dunbar), 235 B.R. 465, 470 (9th Cir. BAP 1999) (“[The 20 automatic stay] is designed to immediately maintain the status quo 21 by precluding and nullifying postpetition actions, whether 22 judicial or nonjudicial, in nonbankruptcy forums against the 23 debtor and property of the estate.”). “The scope of protections 24 embodied in the automatic stay is quite broad, and serves as one 25 of the most important protections in bankruptcy law.” Eskanos & 26 Adler, P.C. v. Leetien, 309 F.3d 1210, 1214 (9th Cir. 2002). 27 It is undisputed that the automatic stay was in effect 28 between December 16, 2010 (the date of the foreclosure sale) and -8- 1 January 11, 2011 (the date Debtors received a discharge). The 2 Carsons would have violated the automatic stay if they had filed a 3 deficiency action during that period of time, unless the Order 4 modified the stay not only to allow the Carsons to proceed with 5 the foreclosure sale, but also to initiate a deficiency action. 6 The Order was silent regarding whether the Carsons could 7 pursue a deficiency judgment. The Order could be interpreted as 8 authorizing the Carsons to file a deficiency action because it 9 provided that they could take “any and all steps pursuant to their 10 loan and security agreements” to realize and recover on the 11 indebtedness owed by Debtors. The Order could also be interpreted 12 as only authorizing the Carsons to pursue recovery by way of a 13 foreclosure sale, because it provided that the Carsons could 14 schedule and conduct “a non-judicial foreclosure sale of the real 15 property under the deed of trust,” but did not mention filing a 16 deficiency action. 17 Because the Order is subject to more than one reasonable 18 interpretation, it is ambiguous. See Kester v. Campbell, 652 F.2d 19 13, 16 (9th Cir. 1981) (“The language of the [executive] order is 20 sufficiently ambiguous to permit several reasonable 21 interpretations . . . .”); Univ. Realty & Dev. Co. v. Omid-Gaf, 22 Inc., 508 P.2d 747, 750 (Ariz. Ct. App. 1973) (“Language is 23 ambiguous when it can reasonably be construed in more than one 24 sense . . . .”). Therefore, we can refer to the “entire record 25 for determining what was decided.” Colonial Auto Ctr. v. Tomlin 26 (In re Tomlin), 105 F.3d 933, 936 (4th Cir. 1997) (internal 27 quotation marks omitted); see also In re Wachovia Preferred Sec. & 28 Bond/Notes Litig., No. 09 Civ. 6351 RJS, 2012 WL 2589230, at *1 -9- 1 (S.D.N.Y. Jan. 3, 2012) (slip opinion) (incorporating by reference 2 definitions in a stipulation into an order); Solutia, Inc. v. 3 McWane, Inc., 726 F. Supp. 2d 1316, 1329 (N.D. Ala. 2010) 4 (considering a stipulation, briefs, and a declaration to interpret 5 an ambiguous order). 6 As the Carsons argue persuasively, the Stipulation, on which 7 the Order is based, states that the Carsons would “seek 8 foreclosure and liquidation of the . . . Real Property,” while the 9 Arizona statute at issue provides that deficiency actions are 10 against persons. A.R.S. § 33-814(A) (“[A]n action may be 11 maintained to recover a deficiency judgment against any person 12 directly, indirectly or contingently liable on the contract for 13 which the trust deed was given as security . . . .”). 14 Trustee’s assertion that any ambiguity must be construed 15 against the Carsons is meritless for two reasons. First, Trustee 16 was represented by counsel and the Order was based on the 17 Stipulation, which Trustee signed. Thus, the general rule that 18 ambiguities are interpreted against the drafter is limited in this 19 case “by the degree of sophistication of the contracting parties 20 [and] the degree to which the contract was negotiated.” New 21 Jersey v. Merrill Lynch & Co., Inc., 640 F.3d 545, 550 (3d Cir. 22 2011); see also Terra Int’l., Inc. v. Miss. Chem. Corp., 119 F.3d 23 688, 692 (8th Cir. 1997) (declining to construe an ambiguous 24 clause in a contract against the drafter “due to the relatively 25 equal bargaining strengths” of the parties and the fact that the 26 non-drafting party was represented by “sophisticated legal 27 counsel” during the formation of the agreement). 28 -10- 1 Second, “the terms of an order lifting the automatic stay are 2 strictly construed.” Griffin v. Wardrobe (In re Wardrobe), 559 3 F.3d 932, 935 (9th Cir. 2009) (internal quotation marks omitted); 4 InterBusiness Bank, N.A. v. First Nat’l Bank of Mifflintown, 328 5 F. Supp. 2d 522, 528-29 (M.D. Pa. 2004) (“It is axiomatic that, 6 due to the presumptively expansive scope of the automatic stay, 7 relief from the stay must be narrowly construed.”); Bank of Am. 8 Nat’l Trust & Sav. Ass’n v. Va. Hill Partners I (In re Va. Hill 9 Partners I), 110 B.R. 84, 87 (Bankr. N.D. Ga. 1989) (“[U]nless the 10 stay relief order clearly provides otherwise, the determination 11 and allowance of claims, deficiency or otherwise, against the 12 debtor or its estate in the pending bankruptcy case remain within 13 the exclusive jurisdiction of the bankruptcy court.”). 14 Trustee’s reliance on In re Tyler, 166 B.R. 21 (Bankr. 15 W.D.N.Y 1994) and InterBusiness, 328 F. Supp. 2d 522, to support 16 his position that the Carsons were required to file a state court 17 action to obtain a deficiency judgment is unavailing. Both Tyler 18 and InterBusiness involved judicial foreclosure statutes that 19 required creditors to file state court actions before foreclosing 20 on real property. Any deficiency actions in those cases would 21 have necessarily been part of the state court foreclosure 22 proceeding. InterBusiness, 328 F. Supp. 2d at 527 (“Petitions to 23 fix value are filed as part of the foreclosure action itself, as a 24 simple, supplemental proceeding in the existing case.”); In re 25 Tyler, 166 B.R. at 25 (stating that a party seeking a deficiency 26 judgment in New York must file a motion within the mortgage 27 foreclosure proceeding). 28 -11- 1 The courts in Tyler and InterBusiness considered the 2 interrelationship between the foreclosure and deficiency actions 3 to be an important factor in interpreting the relief from stay 4 orders. InterBusiness, 328 F. Supp. 2d at 527; In re Tyler, 166 5 B.R. at 25 (stating that when it grants relief from stay to allow 6 a party to proceed with foreclosure proceedings, “it is the 7 Court’s expectation that it has modified or terminated the stay 8 for the completion of all related state court mortgage foreclosure 9 proceedings, including the establishment of any deficiency 10 judgment”). In contrast, the non-judicial foreclosure procedure 11 authorized by A.R.S. § 33-814 did not require the Carsons to file 12 a state court action before foreclosing on the Property. If the 13 Carsons had pursued a deficiency judgment, they would have been 14 required to initiate a separate state court lawsuit. 15 Trustee contends that even if the Order did not authorize the 16 Carsons to file a deficiency action in state court, they could 17 have filed an adversary proceeding to establish a deficiency. 18 Trustee’s argument is baseless. Neither the Bankruptcy Code, the 19 Federal Rules of Bankruptcy Procedure, nor any other relevant 20 authority requires a creditor to file an adversary proceeding to 21 have an allowed claim. 22 A proof of claim “is deemed allowed” unless a party in 23 interest objects. § 502(a). Upon objection, the dispute is 24 considered a “contested matter,” and “relief shall be requested by 25 motion.” Rule 9014(a); Garner v. Shier (In re Garner), 246 B.R. 26 617, 623 (9th Cir. BAP 2000) (“What matters about the procedural 27 status of an objection to claim as a ‘contested matter’ is that 28 Rule 9014 classifies the objection as a ‘motion’ for purposes of -12- 1 Federal Rule of Civil Procedure 43(e).”). Further, Rule 7001, 2 which defines matters that are adversary proceedings, does not 3 mention claims allowance proceedings. Thus, contrary to Trustee’s 4 assertion, the Carsons did not need to file an adversary 5 proceeding to have an allowed unsecured claim. 6 b. Discharge Injunction 7 Debtors received a discharge less than one month after the 8 Carsons foreclosed on the Property. Thus, the discharge 9 injunction was in effect during most of the ninety-day period when 10 Trustee asserts the Carsons should have complied with A.R.S. 11 § 33-814. 12 Section 524(a)(2) provides that a discharge “operates as an 13 injunction against the commencement or continuation of an action, 14 the employment of process, or an act, to collect, recover or 15 offset any such debt as a personal liability of the debtor.” “The 16 § 524(a)(2) discharge injunction casts a wide shadow, with a large 17 penumbra.” Ruvacalba v. Munoz (In re Munoz), 287 B.R. 546, 553 18 (9th Cir. BAP 2002). It applies “permanently with respect to 19 every debt that is discharged,” Garske v. Arcadia Fin., Ltd. (In 20 re Garske), 287 B.R. 537, 542 (9th Cir. BAP 2002), and “enjoins 21 any creditor's effort to collect a discharged debt as a personal 22 liability of the debtor.” Heilman v. Heilman (In re Heilman), 430 23 B.R. 213, 218 (9th Cir. BAP 2010). 24 Trustee argues that the discharge injunction did not prevent 25 the Carsons from filing an action pursuant to A.R.S. § 33-814 26 because Debtors would not have to be parties to any deficiency 27 action. Trustee cites In re Sun Ok Kim, 89 B.R. 116 (D. Haw. 28 -13- 1 1987) for the proposition that the bankruptcy estate, rather than 2 Debtors, would have been the real party in interest. 3 In Sun Ok Kim the court was confronted with deciding which 4 parties have standing to object to proofs of claims. Id. at 118. 5 The court stated that usually only the trustee has such standing, 6 but if the “trustee is formally notified and refuses to make an 7 objection, either the debtor or the creditor may then ask the 8 bankruptcy court to disallow the claim.” Id. The fact that a 9 trustee is normally the only party with standing to object to 10 claims does not mean that the trustee is the only party who can be 11 named as a defendant in a state court action or an adversary 12 proceeding involving a claim. Trustee conflates standing to 13 object to a claim with real party in interest with regard to the 14 determination of claims. The former concept is, by its terms, 15 narrower than Trustee contends and does not preclude a debtor’s 16 involvement in the “determination” of claims. 17 Additionally, Trustee’s argument is undercut by the express 18 language of A.R.S. § 33-814, which states that a deficiency action 19 may be maintained “against any person” liable on the contract. It 20 is undisputed that Debtors were the parties liable on the contract 21 and that their liability was discharged on January 11, 2011. Any 22 action filed by the Carsons after that date would have violated 23 the discharge injunction because it would have been against 24 Debtors personally on account of a discharged debt. In re Garske, 25 287 B.R. at 542 (“[A]n unsecured creditor has no right to any of 26 the debtor’s property post-discharge to satisfy a discharged 27 debt.”). 28 -14- 1 Alternatively, Trustee cites Ruvacalba v. Munoz (In re 2 Munoz), 287 B.R. 546 (9th Cir. BAP 2002) for the proposition that 3 Debtors could have been named to a post-discharge lawsuit as 4 “nominal parties” without violating the discharge injunction. In 5 Munoz, the court was faced with determining whether the discharge 6 injunction would be violated if a party sought to establish 7 liability against a debtor solely for the purpose of pursuing 8 payment from a third party. Id. at 549. The court in Munoz 9 decided it would not, and stated that “[w]here the purpose of the 10 action is to collect from a collateral source, such as insurance 11 or the UEF [Uninsured Employers Fund], and the plaintiff makes it 12 clear that it is not naming the debtor as a party for anything 13 other than formal reasons, no bankruptcy court order is 14 necessary.” Id. at 550. Here, there is no “collateral source” 15 from which the Carsons could collect. If the Carsons had named 16 Debtors in a post-discharge deficiency action, they would have 17 been seeking to hold Debtors personally liable and therefore would 18 not have named Debtors for “formal reasons” only. 19 Trustee also contends that the Carsons could have “done 20 exactly what the creditor in Munoz did” and “filed a motion with 21 the bankruptcy court to obtain leave to proceed.” The court in 22 Munoz distinguished between “construing” and “modifying” the 23 discharge injunction. Id. at 553. The former is permissible 24 because a court would merely be defining the parameters of the 25 discharge injunction. Id. The latter, however, is not because 26 the “discharge injunction is set in statutory concrete,” which 27 “constitutes a clear and valid legislative command that leaves no 28 discretion in the court to modify the discharge injunction.” Id. -15- 1 at 550, 553. In Munoz, the court construed the discharge 2 injunction and determined that a creditor seeking to collect from 3 a collateral source would not violate it. Id. at 555. In 4 contrast, if the Carsons had filed a motion for authorization to 5 proceed with a deficiency action, they would have been 6 impermissibly seeking to modify the discharge injunction to 7 collect debt that was Debtors’ personal liability. 8 In this case, compliance with the Bankruptcy Code and A.R.S. 9 § 33-814 was impossible because the latter required the Carsons to 10 file an action within ninety days of the foreclosure sale, but the 11 automatic stay and the discharge injunction prevented them from 12 doing so. See In re Perry, 425 B.R. 323, 397 (Bankr. S.D. Tex. 13 2010) (excusing compliance with state law deficiency action 14 statute because compliance would violate the automatic stay); 15 Integra Bank v. Sixta (In re Smith), 192 B.R. 397, 401 (Bankr. 16 W.D. Pa. 1996) (finding creditor was not required to comply with 17 state law, which required judgments to be satisfied within six 18 months, because there was never an uninterrupted six-month period 19 of time due to the debtor’s many bankruptcy filings). 20 Stated differently, the automatic stay and the discharge 21 injunction acted as a legal bar to the Carsons doing what A.R.S. 22 § 33-814 required them to do. Thus, the Bankruptcy Code and 23 A.R.S. § 33-814 are in conflict and the state law must yield. 24 Perez, 402 U.S. at 652 (stating that a state law that is in 25 conflict with federal law is invalid); B-Real, LLC v. Chaussee (In 26 re Chaussee), 399 B.R. 225, 230 (9th Cir. BAP 2008) (“[S]tate laws 27 interfering with, or contrary to, federal law are preempted.”). 28 -16- 1 As a result, the Carsons were not required to comply with A.R.S. 2 § 33-814. 3 2. Compliance with A.R.S. § 33-814 Was an Obstacle to 4 Accomplishing the Bankruptcy Code’s Objectives 5 Requiring the Carsons to comply with A.R.S. § 33-814 would be 6 contrary to the Bankruptcy Code’s policy of providing a 7 comprehensive, centralized forum for adjudication of claims. It 8 would also interfere with the Bankruptcy Code’s framework for 9 determining the secured and unsecured status of claims. 10 a. The Bankruptcy Code Provides a Comprehensive, 11 Centralized Process for Adjudication of Claims 12 The “centralized resolution of bankruptcy claims” and “the 13 avoidance of piecemeal litigation” are fundamental purposes of the 14 Bankruptcy Code. Erie Power Techs., Inc. v. Ref-Chem, L.P. (In re 15 Erie Power Techs., Inc.), 315 B.R. 41, 45 (Bankr. W.D. Pa. 2004); 16 see also In re Tammarine, 405 B.R. 465, 467 (Bankr. N.D. Ohio 17 2009) (“The determination of claims against the bankruptcy estate 18 is a central function of the bankruptcy courts.”); In re Bargdill, 19 238 B.R. 711, 716 (Bankr. N.D. Ohio 1999) (noting that the claims 20 allowance process facilitates the orderly distribution of the 21 bankruptcy estate, which is one of the fundamental tenets of 22 bankruptcy law). 23 “[T]he complex, detailed, and comprehensive provisions of the 24 lengthy Bankruptcy Code, 11 U.S.C. §§ 101 et. seq., demonstrates 25 Congress’s intent to create a whole system under federal control 26 which is designed to bring together and adjust all of the rights 27 and duties” of creditors and debtors. MSR Exploration, Ltd. v. 28 Meridian Oil, Inc., 74 F.3d 910, 914 (9th Cir. 1996). A -17- 1 bankruptcy court has “great authority over the allowance and 2 disallowance of claims.” Id. at 914 n.2. 3 The Bankruptcy Code defines a “claim” broadly as a “right to 4 payment, whether or not such right is reduced to judgment, 5 liquidated, unliquidated, fixed, contingent, matured, unmatured, 6 disputed, undisputed, legal, equitable, secured or unsecured.” 7 § 101(5). The breadth of this definition “is designed to ensure 8 that all legal obligations of the debtor, no matter how remote or 9 contingent, will be able to be dealt with in the bankruptcy case.” 10 Siegel v. Fed. Home Loan Mortg. Corp., 143 F.3d 525, 532 (9th Cir. 11 1998) (emphasis and internal quotation marks omitted). 12 A proof of claim that is executed and filed in accordance 13 with the Rules “shall constitute prima facie evidence of the 14 validity and amount of the claim.” Rule 3001(f); see also Garner 15 v. Shier (In re Garner), 246 B.R. 617, 620 (9th Cir. BAP 2000) 16 (“There is an evidentiary presumption that a correctly prepared 17 proof of claim is valid as to liability and amount.”). A claim 18 “is deemed allowed, unless a party in interest . . . objects.” 19 § 502(a). Upon objection, a bankruptcy court 20 shall determine the amount of such claim . . . as of the date of the filing of the petition, and shall allow such 21 claim in such amount except to the extent that— (1) such claim is unenforceable against the debtor and property 22 of the debtor, under any agreement or applicable law for a reason other than because such claim is contingent or 23 unmatured. 24 § 502(b)(1). 25 A.R.S. § 33-814(A) provides that a judgment debtor may file 26 an “application for determination of the fair market value of the 27 real property.” The court then determines the amount of the 28 deficiency owed based on the sale price or what the court -18- 1 determines the fair market value to be, whichever is greater. 2 A.R.S. § 33-814(A). This procedure protects judgment debtors from 3 unfairly high deficiency judgments based on trustee sales that 4 garner inadequate amounts. MidFirst Bank v. Chase, 284 P.3d 877, 5 879 (Ariz. Ct. App. 2012) (“[The] primary purpose of [A.R.S. § 33- 6 814(A)] is to prohibit a creditor from seeking a windfall by 7 buying property at a trustee’s sale for less than fair market 8 value.”). This same valuation evidence can and should be 9 submitted to the bankruptcy court as part of the claims objection 10 process. McCartney v. Integra Nat’l Bank N., 106 F.3d 506, 512 11 (3d Cir. 1997) (finding that a valuation hearing in connection 12 with a proof of claim was “precisely the same opportunity to be 13 heard” that was available in a state court deficiency action and 14 that “debtors should not be burdened by state court litigation 15 when deficiency judgment actions impacting upon the debtor’s 16 estate can be settled in the bankruptcy forum”). 17 Additionally, filing a deficiency action in state court would 18 have been unnecessary and inefficient because it would have 19 required another court’s involvement in the adjudication of a core 20 bankruptcy matter. 28 U.S.C. § 157(b)(2)(B) (“[A]llowance or 21 disallowance of claims against the estate” is a “core 22 proceeding.”); Durkin v. Benedor Corp., (In re G.I. Indus., Inc.), 23 204 F.3d 1276, 1279-80 (9th Cir. 2000) (“The filing of a proof of 24 claim is the prototypical situation involving the ‘allowance or 25 disallowance of claims against the estate,’ a core proceeding 26 under 28 U.S.C. § 157(b)(2).”). 27 28 -19- 1 b. The Bankruptcy Code Has a Framework for Determining the Secured and Unsecured Status of Claims 2 3 Requiring the Carsons to file a deficiency action pursuant to 4 A.R.S. § 33-814 would also be contrary to the Bankruptcy Code’s 5 framework for determining the secured and unsecured status of 6 claims. Section 506 provides that 7 an allowed claim of a creditor secured by a lien on property in which the estate has an interest . . . is a 8 secured claim to the extent of the value of such creditor’s interest in the estate’s interest in such 9 property . . . and is an unsecured claim to the extent that the value of such creditor’s interest . . . is less 10 than the amount of such allowed claim. 11 § 506(a)(1). 12 The Supreme Court has noted that pursuant to § 506(a), 13 creditors can divide their claims into “secured and unsecured 14 portions, with the secured portion of the claim limited to the 15 value of the collateral.” Assocs. Commercial Corp. v. Rash, 520 16 U.S. 953, 961 (1997); see also Enewally v. Wash. Mut. Bank (In re 17 Enewally), 368 F.3d 1165, 1168-69 (9th Cir. 2004) (“Under the 18 Bankruptcy Code, a secured loan may be separated into two distinct 19 claims: a secured claim for an amount equal to the value of the 20 security, and an unsecured claim for the difference, if any, 21 between the amount of the loan and the value of the security.”). 22 Although the unsecured portion of the Carsons’ Claim was 23 unliquidated and contingent before the foreclosure sale, that 24 portion of their Claim was still valid. See § 101(5)(A) (defining 25 a “claim” as a “right to payment, whether or not such right” is, 26 among other things, unliquidated or contingent). After the 27 foreclosure sale, the character of the Carsons’ unsecured claim 28 changed to liquidated and non-contingent. This change did not -20- 1 affect the unsecured claim’s validity. See In re Sneijder, 407 2 B.R. 46, 48 (Bankr. S.D.N.Y. 2009) (“The amount of [an] unsecured 3 deficiency claim ordinarily is fixed when the collateral is sold 4 at a foreclosure sale . . . .”). Nothing in § 101(5) or any other 5 section of the Bankruptcy Code specifies or even implies that when 6 the character of a claim changes—from unliquidated and contingent 7 to liquidated and non-contingent—it affects the claim’s validity. 8 To the extent that A.R.S. § 33-814 mandates a different 9 conclusion, it is at odds with the Bankruptcy Code and is, 10 therefore, preempted. Elliott v. Bumb, 356 F.2d 749, 755 (9th 11 Cir. 1966) (finding that a state law that would “thwart or 12 obstruct the scheme of federal bankruptcy” was preempted by the 13 bankruptcy law). 14 Contrary to Trustee’s position, “[t]here is no requirement 15 that the creditor first obtain a deficiency judgment in the non- 16 bankruptcy forum as a prerequisite for bifurcating a claim into a 17 secured and an unsecured part.” In re Costello, 184 B.R. 166, 171 18 (Bankr. M.D. Fla. 1995). As partially secured, partially 19 unsecured creditors, the Carsons timely “submit[ted] to the court 20 . . . a proof of claim enumerating” the unsecured amount of their 21 Claim. In re Bargdill, 238 B.R. 711, 716 (Bankr. N.D. Ohio 1999); 22 see also In re VanDuyn, 374 B.R. 896, 897-98 (Bankr. M.D. Fla. 23 2007) (noting that creditor filed bifurcated proof of claim, and 24 then determining whether the deficiency claim should be allowed 25 under substantive bankruptcy law). 26 Trustee contends that the Carsons should have amended their 27 Claim after the foreclosure sale, because “[c]reditors have a duty 28 to amend their claims when they are aware of facts which render -21- 1 their previously filed claims inaccurate.” The Carsons could have 2 amended their Claim to reflect that the secured portion was 3 satisfied, but that portion of the Claim is not in dispute. There 4 was also no reason for the Carsons to amend the unsecured portion 5 of their Claim because they do not assert that they are entitled 6 to more than the unsecured amount listed in their Claim. See In 7 re Five Boroughs Mortg. Co., Inc., 176 B.R. 708, 713 (Bankr. 8 E.D.N.Y. 1995) (noting that after a foreclosure sale, a secured 9 creditor may return to the bankruptcy court to pursue that portion 10 of its debt that was not satisfied by foreclosure of its 11 collateral “by filing a claim against the bankruptcy estate. It 12 may be the lender’s original proof of claim. Or the lender may 13 simply amend the proof of claim already filed to reflect the 14 debt’s correct amount, which is the debt less the foreclosure sale 15 proceeds received by the lender.”). 16 CONCLUSION 17 Trustee’s Claim Objection was based solely on the Carsons’ 18 failure to obtain a deficiency judgment pursuant to A.R.S. 19 § 33-814. In this case, state law is preempted by federal law 20 because the automatic stay and the discharge injunction made it 21 impossible for the Carsons to comply with A.R.S. § 33-814. A.R.S. 22 § 33-814 is also preempted because requiring the Carsons to pursue 23 a separate deficiency action, either in state court or in an 24 adversary proceeding, would have been contrary to the Bankruptcy 25 Code’s orderly, efficient, and comprehensive claims administration 26 process and its framework for determining the validity and secured 27 status of claims. Therefore, the bankruptcy court’s order 28 overruling Trustee’s Claim Objection is AFFIRMED. -22-