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 ...