Opinion
NOT FOR PUBLICATION
Submitted Without Oral Argument: September 22, 2006
Appeal from the United States Bankruptcy Court for the Central District of California. Bk. No. LA 05-31106-VZ. The Honorable Vincent P. Zurzolo, Bankruptcy Judge, Presiding.
Before: PAPPAS, LEE and BRANDT, [ Bankruptcy Judges.
The Honorable W. Richard Lee, United States Bankruptcy Judge for the Eastern District of California, sitting by designation.
This disposition is not appropriate for publication and may not be cited except when relevant under the doctrine of law of the case or the rules of res judicata, including issue and claim preclusion. See 9th Cir. BAP Rule 8013-1.
Appellant, Chapter 13 debtor Tina Crosby-Simmonds, appeals an order of the bankruptcy court denying her objection to the proof of claim filed by Appellee Timothy Campbell. We AFFIRM.
Unless otherwise indicated, all chapter, section, and rule references are to the Bankruptcy Code, 11 U.S.C. § § 101-1330 and to the Federal Rules of Bankruptcy Procedure, Rules 1001-9036, prior to the effective date of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (" BAPCPA"), Pub. L. 109-8, 119 Stat. 23 (Apr. 20, 2005).
FACTS
On February 5, 1997, Joseph Simmonds (" Joseph") commenced a state civil action in Superior Court, Los Angeles County, against his former business partner, Appellee. The complaint pleaded various tort claims, including breach of fiduciary duty and conversion of personal property (the " Fiduciary Action"). Approximately five weeks later, on March 14, 1997, Joseph married Appellant. On November 18, 1998, judgment was entered in favor of Appellee and against Joseph in the Fiduciary Action.
On August 12, 1999, Appellee commenced a civil action for malicious prosecution against Joseph in Superior Court, Los Angeles County (the " Malicious Prosecution Action"). After a jury trial, on May 31, 2001, judgment was entered in the Malicious Prosecution Action in favor of Appellee and against Joseph in the amount of $36,471.80.
On June 1, 2001, Joseph filed a chapter 7 bankruptcy petition. He was granted a discharge on September 10, 2001. However, in an adversary proceeding, the bankruptcy court ruled that the judgment debt Joseph owed Appellee arising from the Malicious Prosecution Action was excepted from discharge under § 523(a)(6). No appeal was taken.
On March 26, 2004, in the Malicious Prosecution Action, the state court granted Appellee's motion for entry of an order garnishing Appellant's wages as spouse of the judgment debtor Joseph (the " Wage Garnishment Order"). The reason for the state court's decision appears in its hearing minutes:
The court finds that Tina Crosby Simmonds was married to the judgment debtor at the time the debt to the judgment creditor was incurred and therefore the earnings of Tina Crosby Simmonds are subject to a wage garnishment pursuant to Code of Civil Procedure section 706.109. Family Law Code section 903 provides that in the case of a tort, a debt is incurred at the time the tort occurs. . . . The tort occurred on 11/18/98 when the judgment was entered in favor of the judgment creditor and against the judgment debtor in case number BC165328. Tina Crosby Simmonds is not a judgment debtor, but her community property earnings are subject to garnishment.
Appellant appealed the Wage Garnishment Order to the California Court of Appeals. On April 19, 2005, the appeals court affirmed the Wage Garnishment Order. In response to Appellant's principal argument that the tortious conduct of her husband occurred before marriage, and thus she should not be liable for his debts, the appeals court ruled that:
A malicious prosecution action accrues at the time of entry of judgment on the underlying action in the trial court. . . . The prior proceeding in which Joseph sued Campbell terminated with a judgment in favor of Campbell on November 18, 1998. As appellant and Joseph were married on March 14, 1997, the tort of malicious prosecution accrued after their marriage. Accordingly, the court's order was proper.
Appellant did not appeal from the California Court of Appeals' order.
Appellant filed her own bankruptcy petition under chapter 13 on September 13, 2005. Her schedule F, submitted on September 27, 2005, lists a disputed unsecured debt of $52,000 in favor of Appellee arising from the judgment against her husband, Joseph.
On October 17, 2005, Appellee filed a proof of claim in Appellant's bankruptcy case for $52,043.51. The claim was in two parts: $51,931.89 for the Malicious Prosecution Action and $111.62 as a personal debt for the attorney fees awarded to Appellee against Appellant in the State Appeal.
On November 3, 2005, Appellant objected to Appellee's proof of claim, arguing that she was not responsible for her husband's debt. She cited this Panel's decision in In re Tsurukawa, 258 B.R. 192 (9th Cir. BAP 2001), in support of her position. Appellee opposed her objection.
The bankruptcy court conducted a hearing on Appellant's objection to Appellee's claim on December 12, 2005. The court overruled Appellant's objection, reasoning:
Under California Family Code Section 910 the community estate is indeed liable for debts incurred during the marriage. This debt, the judgment was indeed entered and the debt was accrued while the marriage was in existence and it is not disputed. And under Section 542, property of the community estate comes into the bankruptcy estate and this would include the wages of the spouse who is a debtor in this bankruptcy case. . . . Therefore, there is not a basis under law to disallow the claim. The motion is denied.
Tr. Hr'g 4:9-20.
The bankruptcy court entered an order denying Appellant's objection to Appellee's Proof of Claim on December 22, 2005. A timely appeal of that order was filed on December 29, 2005.
Appellant's Third Amended Chapter 13 Plan was filed on February 8, 2006. It does not contain any express provision for payments to Appellee. Presumably, Appellee could share in any distributions to be made to unsecured creditors under that plan. This plan was confirmed by the court on March 7, 2006.
JURISDICTION
The bankruptcy court had jurisdiction pursuant to 28 U.S.C. §§ 1334 and 157(b)(2)(B). This Panel has jurisdiction pursuant to 28 U.S.C. § 158(b).
ISSUE ON APPEAL
Whether the bankruptcy court erred in denying the debtor's objection to Appellee's proof of claim.
Appellant frames the issues on appeal as whether the bankruptcy court properly applied this Panel's holding in In re Tsurukawa, and whether the Supremacy Clause of the United States Constitution, in effect, overruled the provisions of California law relied upon by the bankruptcy court. As discussed below, we need not reach any constitutional questions because Appellant raises them for the first time on appeal, and her presentation of these arguments is simply inadequate to allow us to review them. We do, however, examine the relation of our decision in In re Tsurukawa to the issue on appeal.
STANDARD OF REVIEW
No factual issues are presented in this appeal. We review the bankruptcy court's interpretation and application of the provisions of the Bankruptcy Code de novo. In re Deville, 361 F.3d 539, 547 (9th Cir. 2004). The same de novo standard applies to the bankruptcy court's interpretation and application of state law. Rabkin v. Ore. Health Sciences Univ., 350 F.3d 967, 971 (9th Cir. 2003).
DISCUSSION
A properly filed proof of claim constitutes prima facie evidence of the validity and amount of the claim. Fed.R.Bankr.P. 3001(f). See Heath v. Am. Express Travel Related Services Co., Inc. (In re Heath), 331 B.R. 424, 437 (9th Cir. BAP 2005). A claim, proof of which is properly filed, is deemed allowed unless a party in interest, including the debtor, objects. § 502(a). See Campbell v. Verizon Wireless S-CA (In re Campbell), 336 B.R. 430, 436 (9th Cir. BAP 2005). Under § 502(b)(1), upon objection, the bankruptcy court shall allow the claim unless it is unenforceable against the debtor or her property under applicable law. In re Heath, 331 B.R. at 432. In this context, applicable law is state law. Durkin v. Benedor Corp. (In re G.I. Indus., Inc.), 204 F.3d 1276, 1281 (9th Cir. 2000), citing Johnson v. Righetti (In re Johnson), 756 F.2d 738, 741 (9th Cir. 1985)(" In proof of claim litigation under 11 U.S.C. § 502(b)(1), the validity of the claim is determined under state law.")
In the bankruptcy court and in this appeal, Appellant presented no evidence to dispute the amount of Appellee's judgment debt, nor its validity as against Joseph. Rather, Appellant argues the judgment debt is unenforceable against her and her property.
The bankruptcy court determined that Appellant's wages could be reached to satisfy Appellee's judgment debt. As a result, it allowed Appellee's proof of claim in the bankruptcy case. The bankruptcy court determined that, under California law, the marital community of Appellant and Joseph was liable for debts incurred during their marriage; that Appellee's debt was incurred upon entry of the judgment in the Malicious Prosecution Action, after Appellant and Joseph were married; that Appellant's bankruptcy estate included her interest in any community property, such as her wages; and, therefore, Appellee's claim should be allowed. In other words, the bankruptcy court concluded that there was no basis to decide that Appellee's claim was unenforceable against Appellant's property so as to justify disallowance of Appellee's claim. § 502(b)(1). See also § 102(2).
In her bankruptcy case, Appellant challenged Appellee's claim on the basis of bankruptcy law, arguing that she was an " innocent spouse" and not liable for her husband's debts under our ruling in In re Tsurukawa. We examine Appellant's contention below.
However, Appellant also persists in arguing that Appellee's claim against her is unenforceable under state law and that Appellee's claim is a debt of her husband Joseph alone. Appellant is precluded from this approach since her argument amounts to an improper collateral attack on the Wage Garnishment Order.
Appellant contends that " Debtor cannot be legally bound by a State Court's order against her husband when she had no participation or inkling of the transaction" and " [s]ince Tina Crosby Simmonds was not a named defendant/new party, therefore she could not be named as a judgment debtor and only as a judgment debtor can she be subjected to wage garnishment."
Under the doctrine of issue preclusion, Appellant is prohibited from arguing that the Wage Garnishment Order was incorrectly entered or is invalid. Issue preclusion bars relitigation of an issue of fact or law that was actually decided by a court in an earlier action, in which that issue was necessary to the judgment in such action, and a valid and final judgment was entered. The Wage Garnishment Order was entered against the Appellant (not her husband) by the California superior court. She challenged the propriety of that order by appealing to the California Court of Appeals, which affirmed. The Appeals Court's decision was not appealed and, thus, is a " final judgment."
For an excellent discussion of the operation of this doctrine in the context of bankruptcy proceedings, see Christopher Klein, Lawrence Ponoroff & Sarah Borrey, Principles of Preclusion and Estoppel in Bankruptcy Cases, 79 Am. Bankr. L.J. 839, 852-58 (2005).
The state courts of California give preclusive effect to issues decided in another court of that state under the following circumstances:
First, the issue sought to be precluded from relitigation must be identical to that decided in a former proceeding. Second, this issue must have been actually litigated in the former proceeding. Third, it must have been necessarily decided in the former proceeding. Fourth, the decision in the former proceeding must be final and on the merits. Finally, the party against whom preclusion is sought must be the same as, or in privity with, the party in the former proceeding.
Lucido v. Superior Ct., 51 Cal.3d 335, 272 Cal.Rptr. 767, 795 P.2d 1223, 1226 (Cal., 1990).
All the elements of issue preclusion are present here. The issue litigated by Appellant in state court was whether Appellant's wages could be garnished by Appellee to satisfy the judgment debt against Joseph. Appellant raises the identical issue in this appeal. That issue was fully litigated in the state superior court and court of appeals. That issue was necessarily decided in that the state appeal, and the decision of the court of appeals constitutes a final judgment. Finally, Appellant is the same party as that involved in the state proceedings. Because California state courts are required to give preclusive effect to the Wage Garnishment Order, the Full Faith and Credit Act, 28 U.S.C. § 1738, imposes the same obligation on federal courts, including this Panel. McDonald v. City of W. Branch, Mich., 466 U.S. 284, 287, 104 S.Ct. 1799, 80 L.Ed.2d 302 (1984). Appellant is therefore precluded from asserting that the Wage Garnishment Order is not valid or enforceable as a claim against her in her bankruptcy case.
But even were Appellant not precluded from challenging the validity of Appellee's claim, the bankruptcy court's decision allowing the claim is amply supported by California law. The courts have long held that, in California, the community estate of husband and wife may be reached to satisfy community debts. Hannah v. Swift, 61 F.2d 307, 310 (9th Cir. 1932). This imputed liability is codified in Cal. Fam. Code § 910(a), which provides that " [t]he community estate is liable for a debt incurred by either spouse before or during marriage, regardless of which spouse has the management and control of the property and regardless of whether one or both spouses are parties to the debt or to a judgment for the debt."
The debt represented by Appellee's judgment was incurred at the time the tort of malicious prosecution occurred. Cal. Family Code § 903(b). The tort occurred at the " time of entry of judgment on the underlying action in the court trial, i.e., at the time of successful termination of the prior proceeding." Ray v. First Fed. Bank, 61 Cal.App.4th 315, 320, 71 Cal.Rptr.2d 436 (Cal.Ct.App. 1998). It is uncontroverted that Appellant and Joseph were married on March 14, 1997, and that the judgment in the Malicious Prosecution Action was entered on November 11, 1998. There is no evidence in the record to suggest that Appellant and Joseph were not, at all times relevant, husband and wife. Consequently, Cal. Fam. Code § 910(a) dictates that the community property of Appellant and Joseph is liable for Appellee's judgment debt. Because Appellant's community property wages could be reached to satisfy Appellee's judgment, Appellee held a claim enforceable against " property of the debtor" which was subject to allowance in her bankruptcy case under § 502(a).
Appellant argues that she is an innocent spouse, and therefore, should not be liable for Appellee's judgment in her bankruptcy case. For support, Appellant cites this Panel's opinion in In re Tsurukawa, 258 B.R. 192 (9th Cir. BAP 2001). According to Appellant, Tsurukawa holds that the existence of the marital relationship alone is insufficient to impute liability to her for her husband's fraud.
In Tsurukawa, a husband defrauded his employer by diverting his employer's business to himself. The employer discovered the fraud, fired the husband, sued both the husband and his wife for fraud and deceit, and obtained a stipulated judgment against them for approximately $2 million. The husband and wife filed separate bankruptcy cases. The bankruptcy court determined that the judgment debt was nondischargeable in the husband's case, a ruling which he did not appeal. However, the bankruptcy court also determined the debt was excepted from discharge in the wife's case, and she appealed. This Panel held that the fact that debtors were married was not alone a sufficient basis to render the debt nondischargeable in the " innocent" spouse's bankruptcy case unless an agency relationship existed between them. Id. at 198. The Panel therefore remanded the wife's case to the bankruptcy court to determine if the wife was an agent of the husband such that the fraud of the husband could be imputed to the wife for purposes of a § 523(a) exception to discharge.
Tsurukawa involved a determination of dischargeability of debt under § 523(a). The limited basis of the holding was made clear in our comments in the subsequent appeal of the order entered in the remanded action: " We reversed and remanded [Tsurukawa], clarifying that the wrongful conduct of one spouse could not be attributed to the other spouse for purposes of nondischargeability of debt under section 523(a)." Tsurukawa v. Nikon Precision, Inc. ( In re Tsurukawa ), 287 B.R. 515, 519 (9th Cir. BAP 2002)(emphasis added). The Panel, in its first opinion in Tsurukawa, simply did not address the question of whether the judgment creditor's debt could be allowed as a claim in the wife's bankruptcy case. Consequently, the holding in Tsurukawa is of no import, nor is it of value, to Appellant here.
In addition to her reliance upon Tsurukawa, Appellant asserts a general argument that the Supremacy Clause of the United States Constitution somehow invalidates those sections of the California Family Code relied on by the bankruptcy judge as the basis to allow Appellee's claim. Appellant's argument was not raised in the bankruptcy court. This Panel and the Court of Appeals have discretion whether to consider arguments raised for the first time on appeal. Spurlock v. F.B.I., 69 F.3d 1010, 1017 (9th Cir. 1995); Alcock v. Small Bus. Admin. (In re Alcock), 157 B.R. 23 (9th Cir. BAP 1993). This is not " an exceptional case in which review is necessary to prevent a miscarriage of justice or to preserve the integrity of the judicial process, " nor is this a situation in which " a new issue arose because of a change in the law while an appeal [was] pending[.]" Spurlock, 69 F.3d at 1017. Further, Appellant presents no coherent legal analysis supported by relevant case and statutory law for her constitutional challenge. We are especially reluctant to consider a constitutional challenge to a state family code, an area of law where the federal government traditionally defers to the states. " The whole subject of the domestic relations of husband and wife, parent and child, belongs to the laws of the States and not to the laws of the United States." Ex Parte Burrus, 136 U.S. 586, 593, 10 S.Ct. 850, 34 L.Ed. 500 (1890). The Panel therefore declines to consider Appellant's constitutional argument raised for the first time on appeal.
The one case Appellant cites to support her argument is Stone v. City & County of San Francisco, 968 F.2d 850, 862 (9th Cir. 1992). That decision does not involve a conflict of statutes, but rather holds that a federal court's remedial scheme to cure overcrowding in state prisons will temporarily override state prison regulations. The holding has no application to the instant appeal.
In addition to her constitutional challenge, Appellant introduced three other new arguments on appeal. She argues that (1) Cal. Code Civ. P. § 473 does not allow naming of a new party, (2) Cal. Code Civ. P. § 367 requires that every action must be prosecuted in the name of the real parties in interest and (3) Cal. Code Civ. P. § 1908 (2) requires that non-parties have actual or constructive notice of the pendency of the action. She simply states these arguments without legal analysis or citation to authority. Indeed, she does not coherently explain their relevance in this appeal. The Panel declines to consider these " arguments" .
CONCLUSION
For these reasons, we AFFIRM the decision of the bankruptcy court.