In re: Richard James Swintek

Citation: Not availableDocket: CC-14-1569-KiTaKu

Court: United States Bankruptcy Appellate Panel for the Ninth Circuit; December 17, 2015; Us Bankruptcy; United States Bankruptcy Court

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Karen M. Good, the appellant and judgment creditor, is appealing a bankruptcy court order that ruled California Code of Civil Procedure (CCP) § 708.110(d) did not allow for the tolling or extension of her lien's one-year expiration period under Bankruptcy Code § 108(c). The case, presenting a novel legal question, concluded that § 108(c) does indeed toll the expiration period of Good's lien, leading to a decision to vacate and remand the case.

The background includes judgments totaling approximately $300,000 against Richard J. Swintek, which Good acquired in 2009. After renewing the judgments in 2010, Good initiated collection efforts, including an Order for Appearance and Examination (ORAP) served to Swintek on June 30, 2010. Following Swintek's failure to appear, a bench warrant was issued.

Swintek filed for Chapter 7 bankruptcy on September 2, 2010, listing Good as his only secured creditor with a lien valued at $2,900. The appointed trustee, Charles W. Daff, later acquired approximately $67,000 from a levy on Swintek's accounts. Good filed an adversary complaint in 2013 to assert her priority over the funds, claiming her ORAP Lien provided her rights to them. The trustee contended that the lien had expired one year after the ORAP was served, leading to the dispute over whether § 108(c) could extend that expiration period.

The bankruptcy court ruled that § 108(c) applies to Good's ORAP lien, rejecting the previous dictum in Gbadebo that it did not. Good's claim for declaratory relief was upheld, leading to the denial of the Trustee's motion to dismiss. In her amended complaint, Good argued that her ORAP lien constituted an 'enforcement' lien under California law and remained stayed by § 362 until the levied funds were no longer part of the estate. Good contended that § 108(c) tolled the one-year enforcement period due to the bankruptcy filing. Conversely, the Trustee asserted that the ORAP lien expired on June 30, 2011, prior to the complaint, and that § 108(c) did not apply since the lien is created by service, not by the 'commencement' or 'continuation' of a civil action. The Trustee cited a recent case, Wolfe v. Palladino, which supported his position. Ultimately, the bankruptcy court, acknowledging a lack of appellate guidance in the Ninth Circuit and a split in authority, ruled that § 108(c) does not toll the one-year expiration for an ORAP lien. Consequently, Good's lien had expired, and summary judgment for the Trustee was deemed appropriate. Good appealed, and the jurisdiction is established under 28 U.S.C. §§ 1334 and 158. The central issue is whether the bankruptcy court erred in its interpretation of § 108(c) regarding the tolling of the expiration period for the ORAP lien. The reviewing body intends to assess whether § 108(c) indeed tolled the one-year duration.

California's Enforcement of Judgments Law, enacted in 1982, allows judgment creditors to swiftly and economically secure priority over other creditors through mechanisms outlined in CCP 680.010-709.030. Under CCP 708.110, creditors can petition the court to compel judgment debtors to appear for examination to facilitate money judgment enforcement. Serving an Order for Appearance and Examination (ORAP) on the debtor establishes an enforceable lien on their personal property, effective for one year unless extended or terminated by the court. This ORAP lien, which can remain undisclosed to other creditors unless they are aware of the judgment, is created solely through service of the ORAP.

Section 108(c) of the bankruptcy code stipulates that if state law sets a timeframe for initiating or continuing civil actions, that period does not expire until 30 days after a notice of stay termination is provided. In this context, CCP 708.110(d) is considered a statute of duration rather than a statute of limitations, indicating that while the lien has a fixed expiration, it is not subject to the same rules as limitations periods. The bankruptcy court's conclusion that the one-year expiration period for an ORAP lien is not subject to tolling under Section 108(c) is deemed erroneous.

The appeal is deemed not moot despite Swintek's discharge in October 2012, as the automatic stay is still active due to remaining funds in the bankruptcy estate, which have not been abandoned by the Trustee. Relevant case law indicates that as long as assets exist in the estate, the stay remains in effect. There is a split among bankruptcy court decisions regarding the application of 11 U.S.C. § 108(c) concerning the tolling of liens during bankruptcy. Two California bankruptcy courts addressed whether a creditor's ORAP lien, obtained prior to bankruptcy, was still valid despite an argument that it expired during the proceedings. The Franchise Pictures LLC case established that the one-year duration of the ORAP lien was tolled under § 108(c), allowing it to remain enforceable, while the Gbadebo case concluded the lien had expired without extensive analysis. The latter court did not interpret § 108(c) as extending the lien's validity. Other cases, including In re Burns, also touch on the ORAP lien but do not directly address the tolling issue, leading to conclusions that may imply tolling without explicitly ruling on it.

The Ninth Circuit, in the case of Hilde, determined that an ORAP lien does not require perfection. The court reversed a prior panel's decision, which had briefly discussed tolling under section 108(c), noting that if the ORAP lien was perfected, its duration would be tolled. However, the panel did not address the lien's termination and considered its footnote on tolling to be dicta, as the Ninth Circuit focused solely on the perfection issue.

The ruling in Spirtos, a 2000 Ninth Circuit case, provides relevant precedent. In Spirtos, the court addressed a creditor's judgment lien and the California statute of duration, CCP 683.020, which renders a judgment lien unenforceable after ten years. The creditor failed to renew her judgment lien before the ten-year period expired but contended that the limitations period extended due to the automatic stay during the debtor's bankruptcy. The Ninth Circuit held that under section 108(c), the limitations period does not expire until 30 days after the automatic stay ends.

Although Spirtos did not specifically deal with an ORAP lien under CCP 708.110, its reasoning is considered applicable by analogy. The ORAP lien, like a judgment lien, is governed by a state statute of duration, which requires renewal to remain effective. The inability of a creditor to renew an ORAP lien due to an automatic stay does not affect the lien's status; the creditor's ability to enforce the lien against the debtor's nonexempt personal property is restricted during the stay.

The bankruptcy court's decision centered on the interpretation of 11 U.S.C. § 108(c) concerning the commencement or continuation of civil actions in relation to ORAP liens. The court referenced a California Bankruptcy Journal article that characterized an ORAP lien as an 'anomalous lien' that arises post-judgment and upon proper service, rather than being a commencement or continuation of a civil action. The article suggested that equating a request to extend an ORAP lien to a civil action’s commencement is conceptually challenging, as the lien is established solely through service of the ORAP.

Conversely, the Trustee argued that § 108(c) does not apply to ORAP liens, but the court disagreed, noting that the Spirtos court acknowledged § 108(c) without addressing whether the renewal of a judgment lien constitutes a commencement or continuation of a civil action. The court observed that these terms are not defined in the Code and implied that the Ninth Circuit may view lien renewals as a continuation. 

The case involved a judgment creditor, Good, who had obtained money judgments through civil actions and subsequently secured an ORAP to examine the debtor, Swintek, about asset availability for judgment satisfaction. The Trustee contended that since an ORAP lien only requires service for its creation, it does not signify a continuation of civil action. However, the court argued that obtaining an ORAP is not an isolated act; it is a necessary step in the process of enforcing a money judgment. The application for an ORAP is typically filed in the same court where the original judgment was rendered, indicating a connection to the initial civil action. The court concluded that the ORAP and its lien are indeed a continuation of the original civil action, supported by case law that recognizes the renewal of a judgment as a continuation of proceedings, and highlighted that extending an ORAP lien requires judicial oversight.

The renewal of an ORAP lien is considered a continuation of the initial civil action, and it triggers the tolling of the one-year expiration period under CCP § 708.110(d) as stipulated by 11 U.S.C. § 108(c). This interpretation prevents debtors from circumventing secured claims by strategically filing for bankruptcy and allowing the limitation period to lapse during the automatic stay. Consequently, Good's ORAP lien will remain valid until 30 days after she is notified of the automatic stay's termination, assuming its validity is confirmed upon remand. The bankruptcy court's decision to grant the Trustee's motion for summary judgment, based on the claim that Good's ORAP lien had expired, was erroneous. The ruling concludes with a VACATE and REMAND directive.