SUPREME COURT OF ARIZONA
En Banc
In Re: ) Arizona Supreme Court
) No. CV-04-0153-CQ
JAMES M. SMITH, )
) United States
Debtor. ) Bankruptcy Court
__________________________________) No. B-95-06077-PHX-RTB
)
SIDNEY LACHTER and SANDRA )
LACHTER, Successors to Neepawa )
Enterprises, Ltd., a Manitoba )
corporation (registered to do )
business in Arizona), )
) O P I N I O N
Plaintiffs,)
)
v. )
)
JAMES M. SMITH, )
)
Defendant. )
__________________________________)
Certified Questions from the
United States Bankruptcy Court for the District of Arizona
The Honorable Redfield T. Baum, Judge
QUESTIONS ANSWERED
HIRSCH LAW OFFICE, P.C. Scottsdale
by Lawrence D. Hirsch
and Iva S. Hirsch
Attorneys for Plaintiffs
ELLETT LAW OFFICES, P.C. Phoenix
by Ronald J. Ellett
and Jay S. Volquardsen
Attorneys for Defendant
B E R C H, Justice
¶1 This case asks us to resolve whether judgment
creditors timely renewed a state-court judgment. The matter is
before us on certified questions from the United States
Bankruptcy Court for the District of Arizona.
FACTS AND PROCEDURAL BACKGROUND1
¶2 In 1987, Sidney and Sandra Lachter secured a money
judgment against the debtor, James Smith. They renewed the
judgment, as permitted by Arizona law, on March 6, 1992, within
the five-year period provided by statute for such renewals. See
Ariz. Rev. Stat. (“A.R.S.”) §§ 12-1551, -1612(B) (1992). The
debtor did not satisfy the debt and, in July of 1995, filed for
bankruptcy protection, invoking the shield of the automatic stay
of proceedings.
¶3 To protect their interests, the Lachters filed a
complaint in the bankruptcy court alleging that Smith’s debt to
them was nondischargeable. See 11 U.S.C. § 523(a)(2) (1994).
Because Smith had no assets, the bankruptcy court issued a
general discharge on November 12, 1996, before any determination
had been made regarding the dischargeability of Smith’s debt to
the Lachters. The initial determination that Smith’s debt to
1
These facts are taken largely from the opinion of the
Bankruptcy Appellate Panel in In re Smith, 293 B.R. 220 (B.A.P.
9th Cir. 2003) (Smith II). A more detailed exposition of the
facts and procedural background can be found in that opinion.
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the Lachters was nondischargeable was not made until October 24,
1997, and not finalized until much later.
¶4 On November 7, 1997, within thirty days of the
bankruptcy court’s determination of nondischargeability, the
Lachters filed an affidavit of renewal of their judgment. They
filed a “supplement” to the affidavit less than a month later,
on December 5, 1997, after the bankruptcy court issued a signed
minute entry memorializing its previously announced decision.2
Following motions and an appeal by Smith, the Bankruptcy
Appellate Panel (“BAP”) eventually affirmed the bankruptcy
court’s determination of nondischargeability on December 9,
1999. In re Smith, 242 B.R. 694, 696 (B.A.P. 9th Cir. 1999).
¶5 In one of the earlier-filed motions for
reconsideration, Smith had asserted that the Lachters’ judgment
had lapsed because they had failed to timely file their
affidavit of renewal, as required by Arizona law. See Smith II,
293 B.R. at 222 n.4; see also A.R.S. §§ 12-1551, -1612. The
Lachters then sought a determination from the bankruptcy court
that they had timely renewed their judgment. The bankruptcy
judge agreed with the Lachters, but his determination was
reversed on appeal by the BAP. Smith II, 293 B.R. at 226. The
2
Absent a further renewal, the judgment would have lapsed in
March, 1997. See A.R.S. § 12-1551. During the relevant renewal
period, the bankruptcy court had not finally determined whether
the debt was dischargeable.
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BAP, citing In re Spirtos, 221 F.3d 1079 (9th Cir. 2000), and In
re Morton, 866 F.2d 561 (2d Cir. 1989), agreed that 11 U.S.C. §
108(c) extended the time for renewing the judgment, but
concluded that the bankruptcy court erred in relying on §
108(c)(2) in finding that the Lachters timely renewed their
judgment. Smith II, 293 B.R. at 223-24. The BAP concluded
instead that § 108(c)(1) applied. Id. at 225.
¶6 The BAP reasoned that § 108(c)(1) extended the time to
renew the judgment by the number of days the automatic stay was
in effect. Id. It concluded that the extension in this case
was 487 days, encompassing the period from the filing of Smith’s
bankruptcy petition on July 13, 1995, until the date of
discharge, November 12, 1996. Id. at 226. Under this analysis,
the Lachters’ judgment expired on July 6, 1998, 487 days after
the original renewal deadline of March 6, 1997. Id. Because
A.R.S. § 12-1612(E) calls for the renewal affidavit to be filed
“within ninety days of expiration of five years from the date of
the filing of a prior renewal affidavit,” the BAP determined
that the ninety-day period for filing the affidavit of renewal
ran from April 6, 1998 to July 6, 1998. Id. at 227. Although
the BAP stated that the renewal affidavit filed on November 7,
1997, immediately after the entry of the signed
“nondischargeability” minute entry, was filed “much earlier”
than this period, it stopped short of concluding that this
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renewal affidavit was ineffective and remanded the case to the
bankruptcy court to determine whether the Lachters’ filing of
their renewal affidavit might be deemed timely under §
108(c)(1). Id.
¶7 On April 30, 2004, United States Bankruptcy Court
Judge Redfield T. Baum certified two questions of Arizona law to
this court for resolution:
A. When a pending bankruptcy case is unresolved and
the time period under Arizona law to file the
required affidavit of renewal of judgment has
passed, under what circumstances, if any, is the
time period under A.R.S. [§] 12-1551 extended or
otherwise changed to allow the judgment creditor
to file a timely affidavit of renewal of
judgment?
B. Were either of the affidavits of renewal of
judgment filed by the Lachters timely filed?
¶8 We agreed to answer the certified questions. See
A.R.S. § 12-1861 (2003) (permitting the Arizona Supreme Court,
on certain conditions, to “answer questions of law certified to
it by . . . a United States district court”). We have
jurisdiction to decide certified questions pursuant to Article
6, Section 5(6) of the Arizona Constitution, A.R.S. §§ 12-1861
to 12-1867, and Arizona Supreme Court Rule 27.
DISCUSSION
¶9 The first certified question asks whether under
Arizona law the time for filing a renewal affidavit is extended
if the debtor has a bankruptcy proceeding pending and an
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automatic stay is in effect during the ninety-day renewal period
of A.R.S. § 12-1551 or § 12-1612. The answer under Arizona law
is no. A judgment creditor’s inability to enforce a judgment
during the initial or a subsequent statutory five-year period,
whether because of bankruptcy stay or other reasons, does not
extend the deadline imposed by A.R.S. §§ 12-1551 and 12-1612 to
file a renewal affidavit.
¶10 Arizona law allows a judgment creditor to execute on a
judgment within five years after entry of the judgment. A.R.S.
§ 12-1551(A). To execute after that time, the creditor must,
within ninety days before the end of the five-year period, have
filed an affidavit renewing the judgment pursuant to A.R.S. §
12-1612(B) or (E), or have brought an action on the judgment
pursuant to A.R.S. § 12-1611. The Arizona statutory scheme
discusses two separate events: enforcement of the judgment, and
the ministerial filing of an affidavit to renew the judgment.
The affidavit of renewal serves to notify interested parties of
the existence and continued viability of the judgment. J.C.
Penney v. Lane, 197 Ariz. 113, 119, ¶ 29, 3 P.3d 1033, 1039
(App. 1999).
¶11 Under the bankruptcy laws, a petition for bankruptcy
operates to stay any action to “create, perfect, or enforce”
liens or judgments. 11 U.S.C. § 362(a) (1998). Actions to
collect from the debtor may be filed or reinstituted either “30
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days after notice of the termination or expiration of the stay,”
11 U.S.C. § 108(c)(2), or after a period set by “applicable
nonbankruptcy law,” as extended by “any suspension of such
period” that results from the bankruptcy proceedings. 11 U.S.C.
§ 108(c)(1). The BAP determined that A.R.S. § 12-1551 is an
“applicable nonbankruptcy law” setting the time for “commencing
or continuing a civil action” that may be stayed by bankruptcy
proceedings.3 Smith II, 293 B.R. at 223 (citing § 108(c)).
¶12 That determination does no violence to Arizona law
with respect to that portion of A.R.S. § 12-1551 that addresses
bringing an action to enforce the judgment or seeking a writ of
execution. Under Arizona law, enforcement is stayed and the
time in which to enforce the judgment is tolled during the
pendency of bankruptcy actions, just as it is while supersedeas
bonds preclude enforcement and in other similar circumstances.
¶13 As a matter of Arizona law, however, the filing of an
affidavit of renewal is simply a ministerial action intended in
part to alert interested parties to the existence of the
judgment. Such a ministerial filing serves a notice function
and does not seek to enforce a judgment. See J.C. Penney, 197
3
We assume, by implication, that A.R.S. § 12-1612, which
provides the mechanism for filing subsequent renewal affidavits,
would also qualify as an “applicable nonbankruptcy law” that may
be stayed by bankruptcy proceedings. Cf. Smith II, 293 B.R. at
223 (holding A.R.S. § 12-1551 to qualify); 11 U.S.C. § 108(c)
(employing term “applicable nonbankruptcy law”).
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Ariz. at 119, ¶ 29, 3 P.3d at 1039. It therefore is not
prohibited under Arizona law by an automatic bankruptcy stay or
any stay of the enforcement of the judgment, such as might be
imposed by the filing of a supersedeas bond.4
¶14 Thus, for example, under Arizona law, a creditor with
a judgment entered on January 1, 2000, who was prevented by the
existence of a supersedeas bond or bankruptcy stay from
executing on the judgment until January 1, 2004, could
nonetheless file a renewal affidavit within the ninety days
preceding January 1, 2005. See A.R.S. § 12-1612(B). But even
if an affidavit were not filed, the time in which to enforce the
judgment would be tolled and extended through January 1, 2009,
to accommodate the time the creditor was precluded by the bond
or stay from attempting to collect on the judgment. Accord
Hazel v. Van Beek, 954 P.2d 1301, 1310 (Wash. 1998) (summarizing
position of several jurisdictions regarding suspensions, stays,
and tolling of time limits).
¶15 We therefore answer the first certified question in
the negative: Under Arizona law, the time to file an affidavit
4
Several jurisdictions have similarly held that 11 U.S.C. §
362(a)(4) does not prevent the filing of a renewal affidavit.
See, e.g., Morton, 866 F.2d at 564; Barnett v. Lewis, 170 Cal.
App. 3d 1079, 1090, 217 Cal. Rptr. 80, 86 (1985); O’Lane v.
Spinney, 874 P.2d 754, 756 (Nev. 1994) (citing with approval the
holding in Morton); Barber v. Emporium P’ship, 800 P.2d 795, 797
(Utah 1990). The BAP declined to decide this question in this
case. Smith II, 293 B.R. at 223.
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of renewal of judgment is not changed or extended by the
pendency of a bankruptcy case.
¶16 In addressing the second question, we start from the
premise that the BAP has ruled as a matter of federal law that §
108(c)(1) extended the time for filing the renewal affidavit in
this case. Smith II, 293 B.R. at 226. The BAP has also
concluded as a matter of federal law that the effectiveness of a
judgment is extended by the number of days that A.R.S. § 12-1551
would have been suspended by a stay preventing enforcement of
the judgment. In this case, the BAP determined that period to
be 487 days, the length of time the bankruptcy stay precluded
enforcement of the judgment. Id.
¶17 The second certified question asks whether, under
these circumstances, either of the affidavits of renewal that
the Lachters filed was timely. Given the BAP’s determination in
this case that the renewal deadline was extended under §
108(c)(1) by 487 days, see id., we conclude that the time for
filing the renewal affidavit was also extended. As noted above,
one purpose of the filing requirements of A.R.S. §§ 12-1551 and
12-1612 is to provide notice and to limit the amount of record
searching interested parties must do to ascertain whether the
judgment remains valid. J.C. Penney, 197 Ariz. at 119, ¶ 29, 3
P.3d at 1039. Once a bankruptcy stay is imposed, however, that
purpose has been frustrated because § 108(c) extends the
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effectiveness of the judgment beyond the five-year statutory
period.5 Creditors and other interested parties cannot know the
number of days that a stay remains in effect without searching
bankruptcy records outside the usually applicable ninety-day
window. Under these circumstances, little additional burden is
imposed by requiring an interested party to conduct a full
search of state records to determine whether a renewal affidavit
had been filed.
¶18 The debtor is not harmed by this frustration of
purpose because the debtor himself filed the bankruptcy action
and invoked the stay. The debtor already has notice of the
status of the judgment. Cf. Nowels v. Bergstedt, 120 Ariz. 112,
114, 584 P.2d 576, 578 (App. 1978) (noting that debtor has no
vested right in prior interpretation of A.R.S. §§ 12-1551 and
12-1612).
¶19 Because the rationale supporting the limited filing
window has been frustrated in these circumstances, we hold that
Arizona law would treat an affidavit of renewal filed anytime
between December 6, 1996, the date ninety days preceding the
Lachters’ original second renewal deadline under A.R.S. § 12-
1612(E), and the extended deadline of July 6, 1998, as having
been timely filed.
5
The other purpose, renewing the judgment, remains
unaffected.
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¶20 We reach our conclusion as follows: The BAP concluded
in Smith II that § 108(c) applies to determine the renewal
period for a state-court judgment. 293 B.R. at 223. That
period is extended by either subsection (c)(2) to a date thirty
days after notice of the termination of the automatic stay, or
by subsection (c)(1) to a date set by “applicable nonbankruptcy
law,” including “any suspension of such period.” Id. If either
of those sections expands the deadline for filing a renewal
affidavit past the five-year period set forth in state statute,
we will treat an affidavit filed at any time from ninety days
before the expiration of the five-year period through the
expiration of the extended deadline as timely. Honoring
affidavits filed after the fifth year but before the end of the
extended period serves the remedial purposes of A.R.S. §§ 12-
1551 and 12-1612. See Nowels, 120 Ariz. at 114, 584 P.2d at
578.
CONCLUSION
¶21 For the foregoing reasons, we answer the first
certified question in the negative, and the second certified
question in the affirmative.
__________________________________
Rebecca White Berch, Justice
CONCURRING:
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______________________________________
Charles E. Jones, Chief Justice
_______________________________________
Ruth V. McGregor, Vice Chief Justice
________________________________________
Michael D. Ryan, Justice
________________________________________
Andrew D. Hurwitz, Justice
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