Paul Fairfax Soares

OCR transcription for search; preserved printed pages are authoritative

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Entered on Docket
July 19, 2010

GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA

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UNITED STATES BANKRUPTCY COURT
For The Northern District Of California
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In re Case No. 09-55986 ASW
PAUL FAIRFAX SOARES, Chapter 11
Hearing:

Debtor. Date: May 13, 2010
Time: 2:15 PM

Place: Ctrm 3020

PO

MEMORANDUM DECISION SUSTAINING IN PART
AND OVERRULING IN PART DEBTOR’S OBJECTION TO
CLAIM OF PHILIP JOHNSON DBA JOHNSON ARCHITECTURAL GROUP
On July 23, 2009, Debtor Paul Fairfax Soares (“Debtor”) filed
his voluntary Chapter 11 bankruptcy petition (the “Petition Date”).
On October 28, 2009, Creditor Philip Johnson dba Johnson
Architectural Group (“Creditor”) filed a proof of claim in the
total amount of $12,518.22, which was assigned claim number 12-1 in
Debtor’s bankruptcy case (the “Claim”’). On December 3, 2009,
Debtor filed an objection to the claim (the “Objection”).
On May 13, 2010, a evidentiary hearing was held on the

Objection. Both Debtor and Creditor appeared in properia persona.

MEMORANDUM DECISION RE CLAIM OF

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JOHNSON ARCHITECTURAL GROUP Fage ro

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ess 09-55986 Doc# 240 Filed: 07/16/10 Entered: 07/19/10 11:24:03 Page 1 of

jy | At the May 13, 2010 hearing, Debtor and Creditor both stated that
q || they were Satisfied with the record before the Court and the matter
3 |) was taken under submission.
4 This Memorandum Decision constitutes the Court’s findings of
5 fact and conclusions of law, pursuant to Rule 7052 of the. Federal
6 Rules of Bankruptcy Procedure.
7
8 I.
9 FACTUAL BACKGROUND
10 On February 21, 2006, Creditor entered into a contract with
o 11] | Debtor’s former business, New Zealand Investments Company, a copy
3
8 E 12 | cf which is attached to the Claim (the “Contract”).+ The Contract
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5s 13 |) is for $26,550 in architectural services concerning the remodeling
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BO 14|}of an apartment complex.
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x iS 15 The account statement attached to the Claim indicates that
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Oe¢ 16 | Creditor invoiced Debtor between September 30, 2006 and December
Ano
- 17 || 31- 2008 for services rendered. Creditor lists $27,826.97 in
Z
ay 1g || charges to Debtor, and acknowledges Debtor made four payments
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A 5 19 || totaling $15,308.75. The balance owing on the statement is
S
S 0 $12,518.22, of which, $2,850.25 is attributable to finance charges
91 | under the terms of the contract. The contract provides that
92 || accounts more than thirty days past due will incur monthly interest
93 || charges of 1.5%, which is 18% annually.
24
5 ‘An attachment to Debtor’s Statement of Financial Affairs
indicates “New Zealand Hold” was a “single asset” business
26 | cperating from 2004 until 2009. The California Secretary of
/State’s website lists a “New Zealand Holdings Ltd” -- having a
27 || physical address on Drake Ave. in Monterey (the address of Debtor’s
sole real property interest) -- as operating from March 7, 2001
28 f} until May 15, 2008.

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On August 11, 2008, the Small Claims Court of Monterey County
(the “State Court”) entered a judgment in the amount of $7,020.68
in favor of Creditor and against Debtor for amounts owing under the
contract (the “State Court Judgment”). A letter by Creditor
attached to the Claim indicates $7,020.68 “was the maximum I was

allowed in small claims court” although the balance owing was

UNITED STATES BANKRUPTCY COURT

For The Northern District Of California

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higher. As of the date the State Court Judgment was entered, the
balance owing under the Contract, including finance charges, was
approximately $7,231.09. Creditor did not file a memorandum of
costs with the State Court as required by California Rule of Court
3.1700. On December 11, 2008, Creditor obtained an Abstract of the
State Court Judgment, which Creditor filed with the Monterey County
Recorder’s Office on December 12, 2008 (the “Abstract”).

On December 31, 2008, Creditor provided Debtor with Invoice
#1842, in the amount of $3,990. Creditor indicated to Debtor that
these charges were for the costs of obtaining and collecting the
State Court Judgment. At the May 13, 2010 hearing on the
Objection, Creditor stated that Invoice #1842 was for costs
incurred in the collection of the State Court Judgment between the
time the judgment was entered and the Abstract was recorded.

NY

A. Creditor’s Claim

Creditor’s $12,518.22 Claim has two components -- a $7,686.27
secured claim and a $4,831.95 unsecured claim. The secured portion
of the Claim represents the amount of the State Court Judgment,
$7,020.68, plus 10% interest from the date of the State Court
Judgment to the Petition Date. The unsecured portion of the Claim

represents the balance owing to Creditor after subtracting the

MEMORANDUM DECISION RE CLAIM OF

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secured portion of the Claim from the $12,518.22 total owing under
the statement attached to the Claim. The bulk of this unsecured
portion of the Claim -- roughly 83% -- is attributable to the
$3,990.00 invoiced to Debtor by Creditor on December 31, 2008 for

the costs of obtaining and collecting the State Court Judgment.

UNITED STATES BANKRUPTCY COURT

For The Northern District Of California

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B. Debtor’s Objection

On November 30, 2009, the Debtor filed his Objection to the
Claim. The Objection asserts the Claim “misrepresents the correct
amount of the claim” and “misrepresents additional claim against
unrelated Debtor.” The Objection also notes that the Abstract
lists various names for Creditor and his dba, and Debtor asserts he
needs clarification “in order to properly structure the Plan.” The
Objection asks that the Claim be allowed as an unsecured claim in
the amount of $7,722.75, including interest through the Petition
Date. |

On May 10, 2010, Debtor filed his Prehearing Statement related
to the May 13, 2010 hearing. The statement provides that Debtor
and Creditor have reached agreement to allow the secured portion of
the Claim in the amount of $7,686.27 -- the secured amount asserted
in the Claim. The parties further agree that the claimant shall be
“Philip Johnson dba Johnson Architectural Group.”

Debtor continues to object to the unsecured portion of the
Claim. Specifically, Debtor objects to the $3,990 invoice issued
by Creditor on December 31, 2008 for costs related to the State
Court Judgment and the 1.5% interest thereon per month that
Creditor has continued to assess as part of his Claim. Debtor

asserts that Creditor cannot make a claim for any costs associated

Cas

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with the State Court Judgment without filing a “Memorandum of
Costs” with the State Court, within 15 days of the State Court

Judgment.

Il.

ANALYSIS

UNITED STATES BANKRUPTCY COURT

For The Northern District Of California

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Pursuant to Bankruptcy Code § 502(a), a proof of claim is
deemed allowed unless a party in interest objects to it. Rule
3001(f) of the Federal Rule of Bankruptcy Procedure, provides that,
“fa] proof of claim executed and filed in accordance with these
rules shall constitute prima facie evidence of the validity and
amount of the claim.” Fed. R. Bankr. P. 3001(f). If there is an
objection to a filed claim, the objecting party “is then called
upon to produce evidence and show facts tending to defeat the claim
by probative force equal to that of the allegations of the proofs
of claim themselves. But the ultimate burden of persuasion is

always on the claimant.” Wright v. Holm, 931 F.2d 620, 623 (9th

Cir. 1991); In re Pugh, 157 B.R. 898, 901 (9th Cir. BAP 1993).

In this case, Creditor filed his Claim asserting that Debtor
owed him $12,518.22. Creditor’s Claim has a secured portion in the
amount of $7,686.27 and an unsecured portion in the amount of
$4,831.95. Debtor does not dispute the secured portion of the
Claim. Creditor calculated the $4,831.95 unsecured portion of the
Claim by taking the Billing Statement from July 23, 2009 and
subtracting the secured amount of $7,686.27.

Debtor asserts that the unsecured portion of Creditor’s Claim
relates to Invoice #1842 in the amount of $3,990.00, which was

delivered to Debtor on December 31, 2008. Debtor asserts that any

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costs incurred by Creditor from the time that the State Court

2 || Judgment was entered to the time that the Abstract was recorded
3 || cannot be recovered by Creditor. Debtor also asserts that the
4 || amount of $3,990.00 could not have been incurred by Creditor
5 between the time the Abstract was recorded, on December 12, 2008,
6 || to the time that Creditor delivered Invoice #1842 to Debtor, on
7 || December 31, 2008. However, Creditor asserts that the unsecured
g || portion of the claim represents accrued interest at the contractual
g || rate and costs associated with the enforcement of the judgment.
19 || Debtor further objects that Creditor has failed to provide any
2 1] | substantiation for the $3,990 summarily invoiced.
g
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5a 13/4. Accrued Interest at the Contractual Rate
= 14 Under California law, when a party recovers a judgment for
“Ee 15 || breach of contract, the defendant is released from any further
a's 16 | contractual obligations. Tomaselli v. Transamerca Insurance Co.,
EE 17 25 Cal.App.4th 1766, 1770 (1994) (citing Coughlin v. Blair, 41
BS 18 Cal.2d 587, 598 (1953)). The judgment replaces the contractual
- 19 || rights of the parties. Tomaselli, 25 Cal.App.4th at 1770.
3 | 20 In this case, Creditor asserts that Creditor is entitled to
21 | contractual interest represented on the Billing Statement delivered
92 || to Debtor on July 23, 2009. Creditor is incorrect. The State
93 || Court Judgment for damages “replaces the defendant’s duty to
24 perform the contract.” Id. (citing Coughlin, 41 Cal.2d at 598).
95 || The Debtor is no longer required to pay the contractually agreed
76 || Upon interest. However, the State Court Judgment does not act as a
97 || merger or bar to statutory costs, such as statutory interest. See
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Jaffe v. Pacelli, 165 Cal.App.4th 927, 934 (2008) (citing Berti v.

Santa Barbara Beach Properties, 145 Cal.App.4th 70, 77 (2006)).

B. Cost Of Enforcing State Court Judgment
Under California law, the judgment of a Small Claims Court may

be enforced like the judgment of any other court. Cal.Civ.Proc.

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For The Northern District Of California

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§ 116.820(a) (West 2010). The prevailing party is entitled to the
costs of enforcing the judgment and accrued interest.
Cal.Civ.Proc. § 116.820(c). In both Small Claims Court and other
courts, the judgment creditor is entitled to reasonable and
necessary costs of enforcing a judgment. Cal.Civ.Proc. § 685.040.
A “judgment creditor” is a person in whose favor a judgment is
rendered. Cal.Civ.Proc. § 680.240. The “judgment debtor” is the
person against whom a judgment is rendered. Cal.Civ.Proc.
$ 680.250. Pursuant to Section 685.040, the judgment creditor may
claim the reasonable and necessary costs of enforcing the judgment.
Cal.Civ.Proc. § 685.080. Costs include but are not limited to
statutory fees, charges, commissions, and expenses. Cal. Civ. Proc.
§680.150. The California Code of Civil Procedure, section 685.070,
specifically provides that the statutory fees for preparing,
issuing, and recording an abstract of judgment are recoverable.
Debtor asserts that Creditor is. not entitled to recover costs
incurred before the recording of the Abstract, because Creditor
failed to comply with California Rule of Court 870. Debtor asserts
that Creditor was required to file a Memorandum of Costs within
fifteen days of the State Court Judgment. California Rule of Court
870 was amended and renumbered in 2007, and is now California Rule

of Court 3.1700.

MEMORANDUM DECTSTON RE a OF

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Rule 3.1700 deals with prejudgment costs. Creditor asserts
that the unsecured portion of the Claim consists of costs incurred
between the time of the entry of the State Court Judgment and the
recording of the Abstract. In Debtor’s Prehearing Statement filed
on May 10, 2010, Debtor asserts that the procedures for claiming

costs and fees under California State law are mandatory. However,

UNITED STATES BANKRUPTCY COURT

For The Northern District Of California

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Debtor erroneously relies on the time limitation for prejudgment
costs presented in Rule 3.1700. In this case, Creditor asserts
that the unsecured portion of the claim consists of costs incurred
post-judgment.

Pursuant to the California Code of Civil Procedure, a judgment
creditor may claim the reasonable and necessary costs of enforcing
a judgment by noticed motion. Cal.Civ.Proc. § 685.080;
Cal.Civ.Proc. § 685.040. The motion is required to be made before
the judgment is satisfied in full, and not later than two years
after the costs have been incurred. Cali.Civ.Proc. § 685.080(a).
The costs may include, but are not limited to, statutory fees for
preparing, issuing, recording, and indexing an abstract of
judgment. Cal.Civ.Proc. § 685.080(a); Cal.Civ.Proc.

§ 685.070(a) (1).

Pursuant to California Code of Civil Procedure section
685.080(b), the noticed motion must describe the costs claimed and
state the amount of the costs claimed. The motion must be
supported by the affidavit of a person with knowledge of the facts,
that provides that the costs are correct, reasonable, necessary,
and have not been satisfied. Cal.Civ.Proc. § 685.080(b).

-In this case, Creditor has not complied with the requirements

of Section 685.080(b). In an attempt to collect the costs of

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enforcing the State Court Judgment, Creditor has only presented the
Debtor with Invoice #1842 and the July 23, 2009, Billing Statement.
The Billing Statement only presents a summary of claimed invoices
and accrued interest.

However, the time to claim costs authorized by Section 685.040

may not have expired. The motion must be made before the State

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For The Northern District Of California

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Court Judgment is satisfied in full and not later than two years
after the costs were incurred. Cal.Civ.Proc. § 685.080(a). The
State Court Judgment was entered on August 11, 2008. Any costs
recoverable under Section 685.040 must have been incurred post-
judgment. In order to recover the reasonable and necessary costs
of enforcing the State Court Judgment, Creditor must comply with

the procedural requirements of Section 685.080.

Til.
CONCLUSTON

For the reasons stated above, Debtor’s Objection to Creditor’s
Claim is sustained in part and overruled in part. The parties
agree on the amount of the secured portion and it is allowed in its
entirety. The objection as to portion of the unsecured portion
attributable to accrued interest at the contractual rate is
sustained and such portion is disallowed in its entirety. The
objection to the amount of the unsecured portion attributable to
the costs of enforcing the State Court Judgment is overruled as
premature. Creditor is granted immediate relief from stay solely
for the purpose of filing a motion in State Court for the allowance
of costs related to the enforcement of the State Court Judgment.

If Creditor fails to timely move for the allowance of such costs,

MEMORANDUM DECISTON RE CLAIM OF aA ef

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of costs related to the enforcement of the State Court Judgment.

If Creditor fails to timely move for the allowance of such costs,
then the Debtor immediately renew his Objection with respect
unsecured portion of the Claim on that basis. The Court will issue
an order so providing concurrently with the issuance of this

Memorandum Decision.

UNITED STATES BANKRUPTCY COURT

For The Northern District Of California

So CO SN IR

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Dated:

4 (ul \0 Ld Lj

ARTHUR "SY Mee aol
UNITED STATES BANKRUPTCY JUDGE

MEMORANDUM DECISION RE-CL AIM OF

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Court Service List

1
2 || Address Listed on Objection and Pleadings:
Paul Fairfax Soares
3 P.O. Box 51728
Pacific Grove, CA 93950
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5 Address of Record for Debtor:’
Paul Fairfax Soares
6 || P.O. Box 51397
—_--.-______}} Pacific Grove,—CA 93950 -
7 .
g || Philip Johnson
dba Johnson Architectural Group
g || P.O. Box 112
Carmel Valley, CA 93924
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we 11 || John Wesolowski, Esq.
Kg Office of the United States Trustee
Og 12 280 S. 15 St., #268
VE San Jose, CA 95113-0002
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If Debtor’s mailing address has changed, a Notice of Change
27 | of Address must be filed with the Court to change Debtor’s address
of record.
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