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In re Miller

United States Court of Appeals, Ninth Circuit

March 31, 2017

In re Larry Miller, Debtor,
v.
Maureen Gaughan, Chapter 7 Trustee, Defendant-Appellee. First Community Bank, Plaintiff-Appellant,

          Argued and Submitted October 18, 2016 San Francisco, California

         Appeal from the United States District Court for the District of Arizona Neil V. Wake, District Judge, Presiding D.C. No. 2:13-cv-02050-NVW

          Joseph E. Cotterman (argued), Andante Law Group PLLC, Scottsdale, Arizona, for Plaintiff-Appellant.

          Steven J. Brown (argued), Steven J. Brown & Associates LLC, Phoenix, Arizona, for Defendant-Appellee.

          Before: A. Wallace Tashima and Milan D. Smith, Jr., Circuit Judges, and Edward R. Korman, [*] District Judge.

         SUMMARY[**]

         Bankruptcy

         The panel reversed the district court's reversal of the bankruptcy court's summary judgment in favor of a creditor that brought an adversary proceeding against a chapter 7 trustee, seeking a declaration that the creditor had an enforceable judgment lien on real property, thereby granting it priority over the proceeds of the trustee's sale of the property.

         The judgment on which the lien was based arose from a guaranty signed by the debtor but not by his wife. The couple were Arizona domiciles. The panel held that while the real property, a San Francisco co-op apartment owned by both spouses, was not community property under California law, it was a tenancy-in-common. Under California law, the interests of a co-tenant-in-common are subject to the enforcement of a judgment lien. Applying California's choice-of-law rules, the panel held that California law, rather than Arizona law, governed. Therefore, the debtor's interest in the co-op was subject to enforcement of the judgment lien. The panel rejected the argument that the creditor's registration of the judgment in the Northern District of California was sufficient, by itself, to create an enforceable lien against the co-op.

          OPINION

          KORMAN, District Judge:

         Larry and Kari Miller, both Arizona domiciliaries, owned a cooperative apartment located at 2170 Jackson Street in San Francisco, California. The co-op was held in each of their names, as husband and wife. First Community Bank, a judgment creditor of Larry Miller, obtained a lien against the Millers' co-op.

         Under Arizona law, the co-op would be treated as community property. See A.R.S. § 25-211. If Arizona law applies, FCB's judgment lien could not be enforced against the co-op, because the judgment upon which the lien was based arose from a guaranty signed by Larry Miller and not Kari Miller, and a guaranty that is signed by only one of two spouses is not binding on the couple's community property under Arizona law.

         Under California law, the co-op would not constitute community property because it was not acquired by the Millers while they were domiciled in California. See Cal. Fam. Code § 760. Instead, it would constitute a tenancy-in-common. See Cal. Civ. Code § 685. The application of California law would permit the judgment lien to be enforced against Larry Miller's sole and separate interest in the co-op, because "[t]enants in common may each unilaterally alienate their shares through sale or gift or place encumbrances upon these shares." United States v. Craft, 535 U.S. 274, 280 (2002) (emphasis supplied). Thus, if California law applies, a judgment against Larry Miller would be enforceable only against his interest in the apartment, but not Kari Miller's separate interest.

         FACTUAL BACKGROUND

         Against this backdrop for the choice-of-law issue presented by this case, we turn to a more detailed discussion of the underlying facts. Larry Miller was the President of Miller Holding Investments, Inc., which in turn was the General Partner of both El Paseo Partners, L.P. and El Rancho Partners, LP, both limited partnerships organized under California law. First Community Bank ("FCB") is a California corporation, doing business in the State of California, with its principal place of business in Sonoma County, California.

         In December 2006, FCB extended credit to Paseo and Rancho in exchange for a Business Loan Agreement, a Promissory Note in the original principal amount of $5, 744, 000, and a Commercial Guaranty from Miller that personally secured repayment of all obligations owed to FCB under the Note and the Loan Agreement. All three of these contracts selected California's local law as the governing law. The Business Loan Agreement and the Promissory Note both stated on their face that they were accepted by FCB in California. Indeed, the guaranty given by Miller not only selected California as the governing law, it also provided that "[a]ny married person who signs this Guaranty hereby expressly agrees that recourse under this Guaranty may be had against both his or her separate property and community property." Unfortunately, Paseo and Rancho could not live up to their obligations on the loans, and Miller defaulted on the guaranty.

         PROCEDURAL HISTORY

         On October 24, 2008, FCB sued Larry and Kari Miller in the United States District Court for the District of Arizona. FCB moved for summary judgment as to liability and damages on Larry Miller's breach of the Commercial Guaranty, and also requested a "[r]uling that Kari Miller has received notice and due process in connection with this legal action, to the extent that any of the property subject or potentially subject to enforcement and execution upon the judgment, whether located in the State of Arizona, the State of California or elsewhere, is asserted to belong in whole or in part to her marital community." Complaint at 7, First Community Bank v. Larry L. Miller and Kari Miller, No. 2:08-cv-01952-NVW (D. Ariz. 2009), ECF No. 1. While the answer filed to the complaint alleged that neither the "Miller[s'] marital community property, nor Kari Miller's sole and separate property, is subject to the claims in [First Community] Bank's complaint, " Answer at ¶ 4, id., ECF No. 11, the Millers' "only legal opposition" to FCB's motion for summary judgment was that "California law requires [FCB] first to execute on collateral securing the loan, " before making their motion. Order Granting Motion for Summary Judgment as to Liability at 2-3, id., ECF No. 23.

         The district court rejected this argument, and entered judgment against Larry Miller for the principal amount of $5.744 million plus accrued interest and ancillary damages, for a total judgment of $6.373 million (the "Arizona judgment"). Judgment, id, ECF No. 36. The judgment made no reference to the Millers' community property, although the order granting the motion observed, in dictum and without undertaking a choice-of-law analysis, that "any [liability of the marital community] appears to be precluded by A.R.S. § 25-214(C)(2)." Order Granting Motion for Summary Judgment as to Liability at 3, id., ECF No. 23. FCB registered this judgment in the United States District Court for the Northern District of California ...


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