Unpublished Disposition, 843 F.2d 502 (9th Cir. 1986)

No. 87-1652.

United States Court of Appeals, Ninth Circuit.

Before NOONAN and DAVID R. THOMPSON, Circuit Judges, and DICKRAN M. TEVRIZIAN, Jr., District Judge.^** 

MEMORANDUM^* 

Appellant Paul Unruh ("Unruh") appeals from an Order for Relief which the United States Bankruptcy Court for the District of Nevada entered on October 18, 1985, and which the Bankruptcy Appellate Panel of the Ninth Circuit ("BAP") subsequently affirmed on December 29, 1986. The Order for Relief was based upon an Involuntary Petition in Bankruptcy which appellees Eugene R. Streight, Gary G. Mistak, Sharon L. Mistak, and Lumos & Associates, Inc., ("appellees") originally filed against Unruh on May 10, 1985, pursuant to Title 11 U.S.C. Section 303. We affirm.

FACTUAL BACKGROUND

On May 10, 1985, appellees filed an Involuntary Petition ("Petition") against Unruh in the United States Bankruptcy Court for the District of Nevada ("Bankruptcy Court") pursuant to Title 11 U.S.C. Section 303 wherein appellees claimed they had obtained various judgments against Unruh. At trial the parties agreed that: 1) petitioner/appellee Eugene R. Streight had obtained a judgment against Unruh in the amount of $83,403.66; 2) petitioner/appellee Lumos & Associates, Inc., had obtained a judgment against Unruh and Southwest Land Development Company, Inc. in the amount of $15,557.90 plus interest; and 3) petitioners/appellees Gary G. Mistak and Sharon L. Mistak had obtained a judgment against Unruh in the amount of $14,305.58 plus interest.

In 1982 Unruh acquired a patent for 160 acres of land situated in Douglas County, Nevada, under the Homestead Law of the United States ("subject property"). Appellees charged that Unruh made certain conveyances of the subject property with the intent to hinder, delay and defraud his creditors, including appellees, to protect and preserve for his own use and benefit said real estate and the water rights thereto, and to prevent and hinder appellees from collecting and receiving from the proceeds of any sale of the property the amounts owed to appellees.

Unruh asserted in defense that the Bankruptcy Court lacked proper jurisdiction to entertain the Petition since: 1) Unruh was a farmer against whom an order for relief in involuntary bankruptcy could not be entered; 2) not one of the petitioners held a claim for $5,000.00 or more than the value of the property of the debtor securing the payment of said claim; and 3) each petitioner was a secured creditor and was prohibited from filing an Involuntary Petition.

At the time of trial Unruh testified that the subject property and certain water rights appurtenant to said property belonged to the Southwest Land Development Company, Inc. and the Unruh Trust 201. Counsel for appellees argued that all the requisite elements of a Section 303 involuntary bankruptcy existed since: 1) appellees were unsecured creditors as there was nothing upon which their judgements could be levied; and 2) the aggregate of appellees' claims was more than $5,000.00.

On October 18, 1985, the Bankruptcy Court granted appellees' Petition for an Order for Relief and specifically found that:

"PAUL UNRUH was not a farmer as defined in 11 U.S.C. [Section] 109(17), that the three Petitioners held unsecured claims aggregating at least $5,000.00 more than the value of any lien on property of the Debtor securing such claims held by Petitioners, and that the Debtor was generally not paying his debts as they became due."

We review the Bankruptcy Court's findings of fact under the "clearly erroneous" standard and the Bankruptcy Court's conclusions of law under a de novo standard of review. In Re Global Western Development Corp., 759 F.2d 724, 726 (9th Cir. 1985); In Re Ellsworth, 722 F.2d 1448, 1450 (9th Cir. 1984).

The gravamen of Unruh's appeal is that the Bankruptcy Court lacked subject-matter jurisdiction to entertain the Involuntary Petition which appellees filed against Unruh pursuant to Title 11 U.S.C. Section 303(b) (1). Specifically, Unruh contends that appellees, as creditors of Unruh, did not hold claims amounting in the aggregate, in excess of the value of any lien held by them on the debtor's property securing such claims, to at least $5,000.00.

Unruh further contends that appellees have admitted that the aggregate of all the claims upon which the Petition was based amount to less than the jurisdictional threshold since the claims were secured by liens upon the subject property and appellees could have satisfied their claims by commencing execution proceedings in the state courts instead of the Federal Bankruptcy Courts.

In support of this contention Unruh argues that it is not the purpose of the Bankruptcy Code to adjudicate claims of noncontingent creditors which are fully secured by liens since such creditors may enforce their liens by execution proceedings in the states' courts. See Matter of Tsunis, 39 B.R. 977, 979 (Bankr.E.D.N.Y. 1983).

Thus the relevant question on appeal is whether appellees, as creditors holding noncontingent claims against Unruh, were either: 1) unsecured creditors in possession of judgments upon which there was nothing to levy; or 2) secured creditors with enforceable judgments.

Where a debtor owns real estate against which recorded judgments held by creditors become liens the Bankruptcy Code requires the balancing of lien claims against the value of the real estate in order to determine whether the petitioning creditors hold claims of at least $5,000.00 which are not secured. See In Re Reed, 11 B.R. 755, 758 (S.D.W. Va. 1981). However, where petitioners have filed an Involuntary Petition the fact that judgment creditors have obtained liens on certain real property the enforcement of which may eventually result in satisfaction of debts is insufficient to defeat the status of said judgments as involuntary claims against the debtor since the anticipated satisfaction of the debtor's obligations would merely be speculative. Matter of Hill, 5 B.R. 79, 82 (D. Minn. 1980) (Emphasis added).

In the case at bar the Bankruptcy Court specifically found that appellees, as petitioners, held unsecured claims aggregating at least $5,000.00 more than the value of any lien on the property of Unruh securing such claims held by appellees. A review of the record of the Bankruptcy Court's proceedings and the grounds upon which Judge James H. Thompson of the Bankruptcy Court based his findings does not convince us that the Bankruptcy Court's finding regarding the unsecured status of the appellees was clearly erroneous.

The record shows that at the Bankruptcy Court proceedings counsel appearing for Unruh was unable to identify any real property or other assets to which appellees' judgment liens could have attached as of the date appellees filed the Involuntary Petition. Furthermore, Unruh testified he did not have any assets and it did not appear there was any assets to which appellees could have attached their judgments.

Counsel for Unruh also testified during the Bankruptcy Court's proceedings that the reason appellees' judgments were not secured was due to the fact that the subject property was exempt. The Bankruptcy Court, however, found that Unruh did not fall within the scope of the definition of a farmer for purposes of the exemption status afforded farmers in Title 11 U.S.C. Section 303(a). We do not find the Bankruptcy Court's finding clearly erroneous where said finding was supported by Unruh's own testimony as well as the testimony of other witnesses.

We conclude the Bankruptcy Court's finding that Unruh had no real property or assets upon which appellees could execute their unsecured judgments was not clearly erroneous.

AFFIRMED.