Patrick B Field and Lisa D Field

MEMORANDUM OF DECISION - 1
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF IDAHO
IN RE 	)
)
PATRICK B. FIELD and LISA 	) 	Case No. 04-00028-TLM
FIELD, d/b/a Pat Field Farms, 	)
)
Debtors. 	) 	MEMORANDUM OF DECISION
)
________________________________ 	)
INTRODUCTION
Patrick and Lisa Field (“Debtors”) objected to the proof of claim of Les
Bois Leasing (“Creditor”), Claim No. 19, that asserts a $375,000.00 secured claim.
See Doc. No. 167. Debtors object on the basis that the value of the liened property
and the amount of senior secured debt render the claim fully unsecured. Id.
Following Creditor’s response to the objection, Doc. No. 170, a hearing was held
on March 7, 2005.
Having considered the evidence presented at hearing, and the parties’
arguments at hearing and in their briefing, the Court will sustain Debtor’s
objection but only in part. The Court concludes Creditor has a $176,406.52
allowed secured claim. The following constitutes the Court’s findings of fact and
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1 Debtors’ objection to claim presents a contested matter. See Fed. R. Bankr. P. 3007.
Creditor’s opposition, which raises an issue of valuation of security, is similarly a contested
matter. See Fed. R. Bankr. P. 3012; In re Millspaugh, 302 B.R. 90, 97 n.12, 04.1 I.B.C.R. 25, 27
n.12 (Bankr. D. Idaho 2003).
2 Pursuant to Fed. R. Evid. 201, the Court takes judicial notice of its files in Case No. 02-
04013-TLM and the related adversary, Adv. Case No. 03-6004-TLM.
3 The Court’s use of the term “Creditor” in this Decision will refer to both Les Bois
Leasing and Mr. Ver Mett in those situations where both are involved.
MEMORANDUM OF DECISION - 2
conclusions of law. Fed. R. Bankr. P. 9014, 7052. 1
BACKGROUND AND FACTS
Several years ago, Debtors filed a petition for chapter 12 bankruptcy relief.
See Case No. 02-04013-TLM. 2 In early January, 2003, Creditor and a related
party, Charles Ver Mett, 3 initiated an adversary proceeding objecting to the
dischargeability of the debts owed by Debtors under § 523(a)(2) and objecting to
the entry of Debtors’ discharge under § 727(a). In July 2003, at the time set for
trial in that action, Debtors appeared with counsel and stipulated to entry of a
judgment declaring a $456,000.00 debt to Creditor nondischargeable under
§ 523(a)(2) and § 523(a)(4). See Adv. Case No. 03-6004-TLM at Doc. No. 16
(judgment). On August 5, 2003, Creditor filed its judgment in the real property
records of Owyhee County, Idaho. See Debtors’ Ex. 31.
Shortly after the adversary proceeding was closed, Creditor moved to
dismiss Debtors’ chapter 12 case. That motion was granted and the case was
dismissed on September 11, 2003.
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4 Debtors’ counsel in the present case is not the same attorney as involved in the prior
reorganization and adversary proceeding.
5 Debtors’ schedules also listed the debt to Creditor as unsecured. See Doc. Nos. 14, 31
(at schedules D, F).
MEMORANDUM OF DECISION - 3
Debtors filed the instant case as a chapter 11 on January 6, 2004. 4 Among
Debtors’ declared assets is a co-ownership interest in 436.85 acres of real estate in
Owyhee County, Idaho. See Doc. Nos. 14, 31, 64 (schedules and amended
schedules).
On February 2, 2004, Creditor filed a proof of claim, No. 7, asserting a
$456,000.00 unsecured debt based on the stipulated adversary judgment.5 Debtors
proposed several chapter 11 plans, each treating Creditor as unsecured. Creditor
objected to each plan on several grounds, including an assertion that it held a
secured claim.
Debtors converted their case from chapter 11 to chapter 12 in December,
2004, prior to any confirmation of a chapter 11 plan.
On December 20, 2004, Creditor filed an amended proof of claim, No. 19,
claiming $375,000.00 of the $456,000.00 debt was secured by a judgment lien on
Debtors’ property and the balance of $81,000.00 was unsecured. Debtors objected
to this asserted secured claim, alleging Creditor was wholly unsecured based on
the absence of any unencumbered value in the property subject to Creditor’s
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6 In moving to avoid Creditor’s judgment lien under § 522(f) as impairing a homestead
exemption, Debtors questioned the timing of the judgment’s recordation. See Doc. No. 65.
However, Debtors did not press the point, and the issue of the lien’s validity was not presented
for decision. And the instant objection to Creditor’s claim does not squarely present an argument
that the lien should be found invalid due to its recording during the pendency of the prior chapter
12 case. Were Debtors to properly raise such issues, the decision in Palm v. Klapperman (In re
Cady), 266 B.R. 172 (9th Cir. BAP 2001), aff’d 315 F.3d 1121 (9th Cir. 2003), would appear to
be controlling.
7 The perceived advantage was the ability to “control the unsecured class” and, thus,
“block [chapter 11] confirmation,” an argument apparently based on § 1129(b)(2)(B)(ii). See
Doc. No. 196 at 4; see also Doc. No. 206 at 6.
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judgment lien.6
DISCUSSION AND DISPOSITION
A. Judicial Estoppel
Debtors’ post-hearing brief raised, for the first time, an issue of judicial
estoppel. Debtors contend that, because Creditor initially filed its proof of claim
showing a $465,000.00 wholly unsecured debt and gained advantage in the
chapter 11 stage of this case due to that position, 7 it should be estopped from now
asserting a $375,000.00 secured claim and $81,000.00 unsecured claim through an
amended proof of claim.
Judicial estoppel is a flexible equitable doctrine that encompasses a variety
of abuses, one form of which is preventing a party from gaining an advantage by
taking one position and then seeking another advantage by asserting an
inconsistent position. Alary Corp. v. Sims (In re Associated Vintage Group, Inc),
283 B.R. 549, 565-66 (9th Cir. BAP 2002); accord, New Hampshire v. Maine, 532
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U.S. 742, 749-51 (2001); Hamilton v. State Farm Fire & Cas. Co., 270 F.3d 778,
782-85 (9th Cir. 2001); Cheng v. K & S Diversified Invs., Inc. (In re Cheng) 308
B.R. 448, 452-460 (9th Cir. BAP 2004). The doctrine has been recognized and
applied by this Court. In re Moore, 269 B.R. 864, 869-70, 01.4 I.B.C.R. 147, 149
(Bankr. D. Idaho 2001); In re Pich, 253 B.R. 562, 568-70, 00.4 I.B.C.R. 183, 185-
87 (Bankr. D. Idaho 2000).
Judicial estoppel may be invoked by a litigant or at the Court’s discretion.
New Hampshire, 532 U.S. at 750; Hamilton, 270 F.3d at 782. The Supreme Court
in New Hampshire emphasized that there are no “inflexible prerequisites” to its
application. 532 U.S. at 751. However, the factors generally noted as supporting
application of the equitable doctrine are (i) the existence of inconsistent positions
advanced by a party, (ii) an acceptance of the earlier position by the court to whom
it is advanced, and (iii) either prejudice to an adverse party or creation of an
impression that the legal process is being misused or manipulated. Id.
The Court concludes the requisite factors do not exist in this case. True
enough, Creditor submitted an initial proof of claim alleging a wholly unsecured
nonpriority debt, even though it was well aware that it had recorded the judgment.
However, other than filing its proof of claim, Creditor never advanced the
assertion that it held an entirely unsecured debt in Debtors’ chapter 11 case.
Instead, Creditor consistently objected to Debtors’ chapter 11 plan treatment of the
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MEMORANDUM OF DECISION - 6
debt as unsecured, claiming that its judgment lien on the nondischargeable debt
made it a secured creditor. See Doc. Nos. 68, 72, 103, 112 (objections to
confirmation, each stating that “[Creditor] objects to being classified wholly as an
unsecured creditor” and explaining Creditor had recorded a judgment lien against
Debtors’ property based on a nondischargeable debt). See also Doc. No. 133
(objection to proposed sale alleging that Creditor had a secured claim and a right to
“credit bid” under § 363(k)). While the proof of claim was inconsistent, it appears
to be a matter of neglect or oversight rather than an attempted manipulation or
stratagem.
Moreover, Debtors have not shown that they relied to their prejudice on
Creditors’ characterization, in its initial proof of claim, that the debt was
unsecured. The existence of the putative lien was known to Debtors. For
example, Debtors requested that Creditor’s lien be avoided on their homestead
even before Creditor first objected to the chapter 11 plan and asserted its claim was
secured. See Doc. No. 65. Nor did Debtors show that the Court accepted and
relied on the inconsistent position.
Thus the Court concludes that the elements for application of judicial
estoppel are not present, and judicial estoppel will not be applied to bar the
amended proof of claim which simply clarifies Creditor’s position.
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8 Information provided in Debtors’ schedules may be treated as evidentiary admissions
under Fed. R. Evid. 801(d).
9 Debtors submitted an exhibit with a $955,000.00 value for the property, purportedly
from the same Turner appraisal. See Debtors’ Ex. 30. The inconsistency between this
$955,000.00 figure and the $920,000.00 final value figure reached by Turner was explained at
hearing as flowing from an error on Debtors’ part in photocopying Turner’s appraisal.
MEMORANDUM OF DECISION - 7
B. Value of the property
Debtors originally listed their “undivided one-half interest” in a 436.85
acre parcel of Owyhee County, Idaho property as worth $850,000.00. See Doc.
No. 14 at schedule A (asking for the “current market value of debtor’s interest in
property, without deducting any secured claim or exemption”). See also Doc. No.
31 at schedule A (February, 2004 amendment). However, this appears to be a
value for the entire property, and not just Debtors’ interest in it. In June, 2004,
Debtors amended their schedules to reflect a $425,000.00 value for their one-half
interest in this property. See Doc. No. 64 at schedule A. 8
At the March 7 hearing, both Debtors and Creditor approached the
valuation issue by submitting an appraisal prepared by Russell E. Turner in 2004,
on behalf of Creditor, that arrived at a value for the whole of the subject property
of $920,000.00. See Creditor’s Ex. 8. Debtor Patrick Field testified he believed
Mr. Turner’s $920,000.00 final value conclusion was accurate.9
Mr. Field also testified that the property was “worth $1.2 million” to him.
An owner’s opinion as to the value of his property is admissible, but is not
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determinative and, depending on the basis for the opinion, may not be particularly
probative. See In re Smith, 313 B.R. 785, 791 (Bankr. N.D. Ind. 2004) (noting
that while an owner is always competent to testify to value under Fed. R. Evid.
701, the owner must still have some basis for his opinion that does not conflict
with the court’s valuation standards). Mr. Field’s comment regarding a $1.2
million value might be relevant to the extent it suggests what a willing buyer
would pay to purchase the 436 acre parcel of property. See Taffi v. United States,
96 F.3d 1190, 1192 (9th Cir. 1996) (en banc) (holding that the fair market value
“is the price which a willing seller under no compulsion to sell and a willing buyer
under no compulsion to buy would agree upon after the property has been exposed
to the market for a reasonable time”). However, Mr. Field noted that he did not
believe he could find someone to buy the property for that amount. Therefore, Mr.
Field’s testimony regarding his subjective valuation of the property is not
particularly probative or determinative of market value.
The Turner appraisal is the most recent appraisal of the property. Neither
Debtors nor Creditor claim the appraisal is inaccurate. Neither provides
equivalent objective evidence of value. Though Creditor argues for an increase in
the value based on Mr. Field’s testimony, it was clear from that testimony that Mr.
Field did not believe a buyer could be secured at the higher price. Therefore,
based on the evidence presented, the Court concludes the subject property has a
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market value of $920,000.00.
C. Value of Debtors’ interest in the property
1. Extent of Debtors’ interest
Debtors claim “an undivided one half interest” in the 436.85 acres, as co-
owners with Mrs. Field’s parents, Alvin and Jean Dalley. Doc. No. 64 at schedule
A. Creditor argues that Debtors own more than a one half interest based on the
history of transactions related to or involving the purchase of the property and the
parties’ respective contributions toward purchase.
The property was purchased for $680,000.00. The Dalleys contributed the
entire down payment, which the February 1994 sale agreement indicates was
approximately $174,000.00. The remaining purchase price of $506,000.00 was to
be paid through an assignment of lease payments totaling $114,400.00 and a
promissory note for the remaining $391,600.00. See Debtors’ Ex. 4.
While the Dalleys were the only listed purchasers in the February, 1994
sale agreement (perhaps not surprisingly given the fact that acquisition was in part
made through a “1031 exchange” of property owned by the Dalleys), Mr. Field’s
testimony indicated the parties intended the property be acquired jointly. Several
documents also reflect Debtors’ involvement and interest: Debtors signed an
indemnification agreement dealing with the assignment of lease payments in
March, 1994 (Debtors’ Ex. 5); Debtors were listed in the escrow instructions as
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MEMORANDUM OF DECISION - 10
taking title as “tenants in common” with the Dalleys (Debtors’ Ex. 6); Debtors
received “an undivided one half interest” in the property under a quitclaim deed
signed by Rellis Dorius (Debtors’ Ex. 7); Debtors signed, along with the Dalleys,
the mortgage note and mortgage completing the sale of the property in June 1994
(Debtors’ Exs. 8, 9); and Debtors again signed a promissory note and mortgage
with the Dalleys in 1996 as holders of undivided one half interests in the property
(Debtors’ Exs. 12, 13, 14).
The weight of the evidence indicates the Dalleys and Debtors were tenants
in common, sharing an equal interest in the property. The fact that the Dalleys
contributed the amounts or value initiating the purchase of the property does not
alter this conclusion. The intent of the parties, as shown through testimony and
other evidence, supports the assertion that the Dalleys and Debtors hold undivided
one half interests in the property. Creditor presented insufficient evidence for the
Court to conclude that the ownership interests should be allocated in any different
percentage.
When a debtor who is a joint tenant files bankruptcy, only the debtor’s
interest becomes property of the bankruptcy estate. See § 541(a)(1). Although the
joint tenancy interest may run to the entire property, the estate does not obtain an
interest in the entirety but, instead, obtains the joint tenant’s undivided one-half
interest. Thus, the Ninth Circuit has recognized that the bankruptcy estate has a
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MEMORANDUM OF DECISION - 11
one-half interest in the jointly held property, while the joint tenant retains the other
one-half interest. See Dumas v. Mantle (In re Mantle), 153 F.3d 1082 (9th Cir.
1998); Schwaber v. Reed (In re Reed), 940 F.2d 1317, 1322-23 (9th Cir. 1991);
accord Gorman v. Cochrane (In re Gorman), 159 B.R. 543 (9th Cir. BAP 1993).
2. Debt and equity calculations
Debtors and the Dalleys refinanced the property in November 1996 for
$500,000.00 through North Cascades National Bank. See Debtors’ Exs. 13, 14.
They paid off the initial seller, and Debtors used the remaining funds to pay
personal debts. The North Cascades promissory note and mortgage were
eventually assigned to U.S. Bank. Debtors and Creditor concede that U.S. Bank is
validly secured in the property.
U.S. Bank filed a proof of claim for $651,645.39 as of January 6, 2004.
See Debtors’ Ex. 21. In addition, the Owyhee County Treasurer filed a
$15,618.62 proof of claim for past due taxes secured by the property. See
Debtors’ Ex. 19. There has been no objection to either the U.S. Bank or the
Owyhee County claims and they are therefore treated as prima facie evidence of
the claims’ validity and amounts. Fed. R. Bankr. P. 3001(f).
While there has been no formal objection to the U.S. Bank claim, Creditor
points out that for the purposes of valuation of its lien under § 506(a), the entire
U.S. Bank claim should not be considered. The U.S. Bank proof of claim
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10 $651,645.39 - $100,077.05 = $551,568.34
11 Both the U.S. Bank and Owyhee County claims are senior to Creditor’s judgment lien.
Further, the entirety of the property is subject to those mortgage and tax debts, while the
judgment lien attaches only to Debtors’ interests in the property under Idaho Code § 10-1110.
12 $920,000.00 (total property value) - $551,568.34 (U.S. Bank claim without prepayment
fee) = $368,431.66 - $15,618.62 (Owyhee County claim) = $352,813.04 (net equity in property).
13 Idaho Code § 10-1110 states:
A transcript or abstract of any judgment or decree of any court of this state or any
court of the United States the enforcement of which has not been stayed as provided
by law, if rendered within this state, certified by the clerk having custody thereof,
may be recorded with the recorder of any county of this state, who shall immediately
record and docket the same as by law provided, and from the time of such recording,
(continued...)
MEMORANDUM OF DECISION - 12
expressly includes an “estimated prepayment fee of $100,077.05 which is only due
[when] prepayment is made.” Debtors’ Ex. 21 at 2 and at attached Ex. 10.
Debtors’ plan does not propose to prepay the U.S. Bank secured claim.
The Court therefore concludes that the $100,077.05 prepayment fee should not
presently be included in the amount of U.S. Bank’s claim against the property for
purposes of calculating the value of Creditor’s lien under Rule 3012. The Court
finds for the purposes of the instant Decision that the consensual U.S. Bank
mortgage debt against the 436.85 acres is $551,568.34 10 and the Owyhee County
tax debt against that property is $15,618.62.11 Debtors and the Dalleys have,
collectively, $352,813.04 net equity in the property. 12 Debtors’ undivided one-
half interest is thus valued at $176,406.52. Creditor’s judgment lien attaches to
Debtors’ interest, and its claim is therefore secured to this extent. Idaho Code
§ 10-1110.13
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13
(...continued)
and not before, the judgment so recorded becomes a lien upon all real property of
the judgment debtor in the county, not exempt from execution, owned by him at the
time or acquired afterwards at any time prior to the expiration of the lien[.]
MEMORANDUM OF DECISION - 13
Debtors dispute this analytical approach. They argue that there is no equity
in the property to which Creditor’s lien can attach. See, e.g., Doc. No. 196 at 11.
However, they subtract the entire amount of the U.S. Bank and Owyhee County
obligations from their one-half interest. This is not consistent with the evidence
which shows that the Dalleys and Debtors are jointly obligated on the U.S. Bank
debt, and that the bank’s claim is secured by the interests of both families in the
property.
U.S. Bank’s debt and the taxes encumber the entire property and are not
limited to Debtors’ half interest. See Thurston v. Holden, 45 Idaho 724, 265 P.
697 (1928) (stating that “conscience requires equality among parties equally
responsible for a common burden [and] [e]quity demands that one of them shall
not bear the burden in ease of the others”); see also supra, note 11. Any attempt
to collect either the U.S. Bank claim or the Owyhee County tax claim through
recourse to collateral would be made against the entire 436.85 acres. Thus, it
appears logical that these debts must be deducted from the value of the property as
a whole. Only then can the net value of the property be determined. That value
would then be divided to determine Debtors’ one half interest to which Creditor’s
judgment lien can attach. Debtors have not adequately supported their alternative
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14 Debtors calculated interest using the $651.645.39 claim amount. That amount,
however, includes the $100,077.05 prepayment fee, and Debtors’ calculations are thus obviously
in error. Moreover, there are additional issues concerning the assumptions made by Debtors and
the accuracy of their calculations.
15 That section authorizes plan treatment of an allowed secured claim in one of three
ways: through whatever manner the creditor might accept, § 1225(a)(5)(A); through surrender to
the creditor of the property securing the claim, § 1225(a)(5)(C); or through plan provisions that
(continued...)
MEMORANDUM OF DECISION - 14
approach, either legally or factually.
Debtors also argue, for the first time in their closing brief, that the U.S.
Bank debt is larger than that used above because it accrues interest, at 8.75%
according to Debtors, from the date U.S. Bank’s proof of claim was filed. See
Doc. No. 196 at 10-11. Debtors submit that a “conservative [interest] figure due”
would be $69,516.57 and should be added to the face amount of the claim. Id.14
Debtors’ calculations in briefing, however, are not evidence. The hearing
provided the opportunity to present evidence, and that opportunity was not utilized
to prove the degree to which U.S. Bank’s claim did or would increase under
§ 506(b).
D. Effect of valuation
Valuations are made in light of the purpose of valuation and the proposed
disposition and use of the property. See § 506(a). Here, Debtors attempt to
propose and confirm a chapter 12 plan. Since, on the present evidence, Creditor
has an allowed secured claim of $176,406.52, Debtors would need to address that
secured claim under one of the provisions of § 1225(a)(5). 15
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15
(...continued)
allow the creditor to retain the lien and receive payments of a value, as of the effective date of the
plan, not less than the allowed secured amount of the claim, § 1225(a)(5)(B)(i), (ii).
16 The “reserved” issues include the arguable effect of § 506(d) on the judgment lien
given both (i) the valuation of the secured claim under § 506(a) and (ii) the nondischargeable
nature of the judgment.
MEMORANDUM OF DECISION - 15
Since the presently proposed chapter 12 plan does not do so but, instead,
treats Creditor’s claim as fully unsecured, an amendment would appear necessary.
And since the nature and terms of any amended plan are as yet unknown, the
Court concludes it would be improvident for it to opine on other issues relating to
plan treatment (whether its treatment of this secured claim, or treatment of the
$279,593.48 balance of the claim as unsecured, or treatment of the lien securing a
nondischargeable debt), or the relationship of the plan and confirmation to the
nondischargeable nature of the judgment. 16
CONCLUSION
Debtors’ objection to Creditor’s proof of claim, seeking a determination
that the same is fully unsecured, is not well taken. However, that objection, to the
extent it disputed Creditor’s assertion of a $375,000.00 secured claim will be
sustained, in part, as the valuation process under Rule 3012 establishes that the
allowed secured claim of Creditor is $176,406.52. The Court will enter a separate
order in accord with this Decision.
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MEMORANDUM OF DECISION - 16
DATED: 	April 28, 2005
TERRY L. MYERS
CHIEF U. S. BANKRUPTCY JUDGE
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