United States District Court, D. Arizona
In re Larry L. Miller, Debtor. Maureen Gaughan, Appellant,
First Community Bank, Appellee BK. No. 11-10746 EPB, ADV. No. 13-ap-00436 EBP
.For Maureen Gaughan, in her capacity as Chapter 7 Trustee, Appellant: Steven Joseph Brown, Steven Douglas Nemecek, LEAD ATTORNEYS, Steve Brown & Associates LLC, Phoenix, AZ.
For First Community Bank, Appellee: Joseph Eldon Cotterman, LEAD ATTORNEY, Jaclyn Dale Foutz, Andante Law Group of Daniel E. Garrison, PLLC, Scottsdale, AZ.
Neil V. Wake, United States District Judge.
This bankruptcy appeal poses the question whether an Arizona judgment against a husband on his sole and separate debt may be executed against the Arizona couple's community property in California. The answer is no, even if the original judgment had been rendered in California.
Specifically, the Arizona federal judgment against the husband alone, later registered in a California federal court and recorded in California, does not lien their community real property in California. This is the rule by Arizona statute, and California choice of law principles yield to the Arizona rule concerning Arizona domiciliaries. California has no interest in ousting Arizona marital law concerning obligations between husband and wife and of persons contracting with one spouse, and the California community property statute by its terms does not purport to do so.
In play here is a vital rule of Arizona marital law that community property cannot be reached to satisfy a guarantee of a debt of another unless both spouses sign. This is an exception to the general rule that either spouse may obligate community property by acts for a community purpose without the approval or even knowledge of the other spouse. This forty-year-old protection of the other spouse from unconsented guarantees is basic knowledge to all Arizona transaction lawyers.
Registering the judgment in California does not defeat that protection. Although applications have sometimes diverged in apparent attempts to do equity, the general principle is clear: The substantive law of the rendering jurisdiction shapes the judgment; forum law governs enforcement consistent with the judgment.
It does not change the question or the answer that this was a federal judgment, registered in a California federal court. The federal registration statute treats the federal court judgment the same as state court judgments are treated between sister states. The federal judgment registration scheme does not transmogrify the Arizona federal judgment into exactly what the rendering court said it was not.
Under California law, which applies Arizona law as to who owes the judgment, the creditor bank has no judgment lien on the Arizona couple's community property in California. The summary judgment for the bank must be reversed with directions to enter summary judgment for the Trustee.
The facts are undisputed. Larry and Kari Miller are married and were domiciled in Arizona at all relevant times. Larry Miller (" Miller" ) personally guaranteed a loan First Community Bank extended to his businesses. Kari Miller did not sign the guarantee. The bank sued Miller in this Court when the businesses defaulted and obtained judgment against Miller alone for approximately $6 million.
The bank later registered the judgment in the Northern District of California pursuant to 28 U.S.C. § 1963 and recorded it in San Francisco County where the Millers own a condominium as community property. Miller filed for bankruptcy in Arizona. The Chapter 7 Trustee, Maureen Gaughan, has sold the condominium. The bank filed this adversary proceeding for a declaration that the recordation in California created a judgment lien on the condominium. That would give the bank priority in the $600,000 net proceeds ahead of the unsecured creditors. Under California law, unlike Arizona law, a guarantee signed by one spouse may be enforced against community property. That is not because California law has a specific rule concerning unilateral guarantees but because it subjects the community estate to payment of all sole and separate debts incurred by either spouse.
The Bankruptcy Court held for the bank, stating, " Because the Miller Judgment was registered in California, California law governs the enforceability of the Miller Judgment against Debtors' community property located in California, and under California law, Debtors' community property located in California is liable for satisfaction of the Miller Judgment." Designation of Record [hereinafter " DR" ] at 289. The Trustee timely appealed.
II. APPELLATE JURISDICTION AND STANDARD OF REVIEW
The District Court has jurisdiction pursuant to 28 U.S.C. § 158(a) of appeals from " final judgments, orders, and decrees" of the bankruptcy court. Grants of summary judgment, which turn on conclusions of law, are reviewed de novo. See In re United Energy Corp., 102 B.R. 757, 760 (B.A.P. 9th Cir. 1989), aff'd, 944 F.2d 589 (9th Cir. 1991).
III. LEGAL ANALYSIS
A. Duties and powers of the Trustee
The Trustee is empowered " to manage the assets in a manner that will satisfy the creditors' claims." In re Taylor, 599 F.3d 880, 886 (9th Cir. 2010) (citing 11 U.S.C. § § 701, 704). This includes a " fiduciary obligation to conserve the assets of the estate and to maximize distribution to ...