IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
Southern Division PATRICK PRANGLEY, *
Appellant, * United States District Court Case No. PWG-13-3077 v. * United States Bankruptcy Court MONICA FERRARI COKINOS, * Case No. 12-27809 Appellee. * * * * * * * * * * * * * *
MEMORANDUM OPINION Appellant Creditor Patrick Prangley raises four challenges to the strip two judicial liens encumbering the residential property of Appellee Debtor Monica Ferrari Cokinos Cokinos in their entirety pursuant to 11 U.S.C. § 522(f). The effect of avoiding his lien deprives Prangley of post-petition recourse The Cokinos midpoint between their appraisals, even though appraisal did not express an opinion as
to the . In , which expresses an opinion as to the sixteen days later, also fairly values the property as of the Petition Date, it is not relevant for the purposes of determining value on the Petition Date. Additionally, I find that the
bankruptcy court incorrectly allowed the avoidance of the liens in their entirety. I therefore vacate the relevant orders and remand the case with instructions for further proceedings. 1 I. BACKGROUND
Cokinos filed a voluntary petition for bankruptcy protection under Chapter 7 of the Bankruptcy Code on September 28, 2012. Docket, In re Cokinos, No. 12-27809 (Bankr. D. Md.). She lived at 2279 Dunster Lane, Rockville, ), see Feb. 21, 2013 Hr g Tr. 50 App. R6, ECF No. 5-6, and took out two mortgages on the Property from parties not relevant to this appeal, both secured by a single Deed of Trust. Subsequently, the Circuit Court of Maryland for Montgomery County entered two judicial liens encumbering the Property, one to CitiBank and one to Prangley, for reasons not clear from the record. See Sched. D, ECF No. 1-2. Cokinos moved to avoid both liens, ECF No. 1-10 (the & ECF No. 1-4 . The CitiBank Motion was unopposed, but Prangley filed a timely opposition, ECF No. 1-17. The two motions were consolidated for hearing. At the outset of the hearing, the parties stipulated that the exemptions and liens on the Property totaled $589,706.04, and stipulated to certain evidentiary matters discussed below. Tr. 4 5. During the hearing, the bankruptcy court heard testimony from of whom prepared appraisals of the Property.
A. Summary of the Legal Issues Presented Section 522(a)(2) of the Bankruptcy Code requires the bankruptcy court to determine the using the fair market value as of the Petition Date. See 11 U.S.C. § 522(a)(2).
1 The remaining issues raised on appeal do not establish reversible error and will be AFFIRMED. argument unnecessary. See Fed. R. Bankr. P. 8012; Loc. R. 105.6.
While nothing in the Bankruptcy Code restricts the bankruptcy court from determining what value as of the Petition Date. Where this critical nexus is missing, the evidence is insufficient.
Cf. Reconco v. Partners for Payment Relief De III, LLC (In re Reconco), No. 13-10564-RGM, 2014 WL 1295721, at *3 (Bankr. E.D. Va. Mar. 31, 2014) (noting that the record did not support petition date). The Horn Appraisal, though signed on December 9, 2012, used a valuation date 2
of September 28, 2012 the same as the Petition Date. R13, ECF No. 5-13. of October 14, 2012 sixteen days after the Petition Date and was based on an evaluation of
comparable properties that were sold after Br. App. R8, ECF No. 5-8.
as of the Petition Date, it calculates the extent of avoidance under § 522(f)(2)(A). This is done by subtracting from the any exemptions and consensual liens (usually mortgages), leaving the remainder E. Cambridge Savs. Bank v. Silveira (In re Silveira), 141 F.3d 34, 36 (1st Cir. 1998). 3
Even though the remainder might be de minimis, it nevertheless may be significant because any remainder would allow a creditor, such as Prangley, to retain a secured claim against Cokinos and also may allow for post-petition recourse against the Property. See 11 U.S.C. §§ 522(c), 524.
2 refers to the date s value, which may or may not coincide with the petition date valuation date of October 14, 2012 means that October 14, 2012. 3 Prangley incorrectly characterized Silveira as a Fourth Circuit decision.
B. Competing Testimony At the hearing, Cokinos an experienced residential appraiser but first- appraised the Property at $545,000 as of October 14, 2012, sixteen days after the Petition Date a Appraisal 4. Prangley called Jennifer Horn, witness. Tr. as of the Petition Date. Horn
Appraisal 5. Both looked to the size, location, and condition of the Property in determining its value , who based his appraisal on an evaluation of comparable properties that were sold after the Petition Date, disagreed with the values of the comparable properties used by Horn because reports by demonstrated sharp declines in those values based on more recent (post-petition) sales. Tr. 28 31. In response, Horn testified that her valuations were preferable to related back to the Petition Date. Id. at 75, 82 84, 110 11.
Each time they were referenced, Prangley objected to the MRIS reports because the sales dates therein postdated the Petition Date. Id. at 31 32. The bankruptcy court overruled the objections, holding that the MRIS reports were not admitted to determine value, but rather to Id. at 32 33.
C. ngs The bankruptcy court, after weighing the evidence and finding the experts equally credible, assigned the Property a value of $585,000 splitting the difference between the two appraisals. 4
Tr. 122 25. On that basis, the court found that both liens were avoidable in their
4 Prangley correctly notes a disparity between the valuation made on the record, $585,000, Tr. ECF No. 1-
entirety even though the value that the court assigned to the Property exceeded its exemptions and consensual liens. Put another way, the Property no longer is encumbered by the two judicial liens became unsecured. Id. at 125. After the hearing, the bankruptcy court entered two orders, one granting the CitiBank Motion by default, ECF No. 1-40, and the second granting the over his objection, ECF No. 1-41. Prangley seeks review of those orders as well as several rulings made by the bankruptcy court during the February 21, 2013 hearing.
The issues presented for review are: 1. value as of the Petition Date
based, in part, on an appraisal with a different valuation date? 2. Did the bankruptcy court err in assigning equal weight to the competing expert opinions,
considering that considering his method of valuing comparable properties?
3. Did the bankruptcy court err in avoiding the two judicial liens in their entirety, rather than
avoiding only the portion of the ? 4. Did the bankruptcy court abuse its discretion when it consolidated for hearing the unopposed
CitiBank Motion with the opposed Prangley Motion? See 1. II. STANDARD OF REVIEW
On appeal from the bankruptcy court, the district court sits as an appellate court and its conclusions of law de novo. See Canal Corp. v. Finnman (In re Johnson), 960 F.2d 396, 399 (4th Cir. 1992); Travelers Ins. Co. v. Bryson Props., XVIII (In re Bryson Props., XVIII), 961 F.2d 496, 499 (4th Cir. 1992). Mixed questions of law and fact also are reviewed de novo. Litton v. Wachovia Bank (In re
3 n the two appraisals, $585,000 appears to be the intended valuation. Still, I am confident the bankruptcy court will correct this typographical error on remand.
Litton), 330 F.3d 636, 642 (4th Cir. 2003) (citing Carter Enters. v. Ashland Specialty Co., 257 B.R. 797, 800 (S.D.W. Va. 2001)). Fed. R. Bankr. P.
8013. Anderson v. Bessemer City, 470
U.S. 564, 573 (1985); Citizens Bank of Md. v. Broyles (In re Broyles), 55 F.3d 980, 983 (4th Cir. 1995). Anderson, 470 U.S. at 573
(quoting United States v. United States Gypsum Co., 333 U.S. 364, 395 (1948)) (internal quotation marks omitted) Where there are two permissible views of the evidence, the Id. at 574. III. DISCUSSION
A. Dismissal of the Appeal First, Cokinos argues that I should not consider the merits of the valuation date discrepancy (the first issue listed above) because Prangley failed to list it in his designation of appeal. Br. 16 17. For the reasons explained in the Order signed on March 20, 2014, ECF No. 10, this question is properly before the Court. Despite citations to non- binding authority to the contrary, it is clear in this District that the designation is not jurisdictional, but only enables the Clerk to assemble an adequate record. See Videsh Sanchar , 300 B.R. 244, 249 (D. Md. 2003) (quoting Office of the U.S. Trustee v. Hayes (In re Bishop, Baldwin, Rewald, Dillingham & Wong, Inc.), 104 F.3d 1147, 1148 (9th Cir. 1997)). In the March 20, 2014 Order, I permitted Cokinos to supplement the record. Cokinos did not do so, suggesting
that the record designated by Prangley was adequate to consider the question. As a matter of good practice, Prangley should have amended his designation prior to filing his brief. See Designation 2, ECF No. 1-1 Still, his designation implied a
challenge to the rulings made regarding the competing appraisals and Cokinos was afforded an opportunity to supplement the record and to further respond to arguments.
Second, Cokinos urges me to dismiss this appeal because statement of facts contains only one direct citation to the 16 18. However, the background section of Brief, which includes more than his statement of facts, contains sufficient substance and citation to the record below to satisfy Fed. R. Bankr. P. 8010(a)(1)(D) statement of the facts relevant to the issues presented for review, with appropriate references to the record And, although the citations are far from ideal, they are sufficient to guide both Cokinos and the Court to the necessary parts of the record. This Circuit long has been committed to the principle that substance will not give way to form, and that Brockington v. Scott (In re Physicians & Dentists Inv. Corp.), 381 F.2d 792, 794 (4th Cir. 1967)
(quoting Pepper v. Litton, 308 U.S. 295, 305 (1939)); see Ghannam v. Standish (In re Protan), No. 11-0057, 2011 WL 4597343, at *20 n.5 (S.D.W. Va. Sept. 30, 2011) (proceeding to the without any specific citations). Although more complete citations would have been preferable,
dismissal for lack of citations is not warranted, at least of prejudice or obstinately dilatory conduct, which has not been shown. Zer-Ilan v. Frankford (In re CPDC Inc.), 221 F.3d 693, 701 (5th Cir. 2000).
B. Effective Date of the Competing Appraisals Prangley weight at all because it used a valuation date different from the Petition Date. But the review of
the valuation depends upon the evidentiary stipulation, as explained below.
1. Federal Rule of Evidence 401 Applied to Valuations of Property Relevance is a two-step determination. See Fed. R. Evid. 401; see also Fed. R. Bankr. P. R. Evid. 1101(a) (b).
tainly has some tendency to make fair market value on October 14, 2012 was $545,000. Next, however, Fed. R. Evid. 401(b) on October 14, 2012 the value on the Petition Date. See 11 U.S.C. § 522(a)(2).
Absent additional facts to provide a logical nexus, the value of the Property on October 14, 2012 does not help to establish the value of the Property on September 28, 2012. See In re Sarno, 463 B.R. 163, 167 (Bankr. D. Mass. 2011). There are many ways that the nexus could have been provided at the hearing. It might have consisted of evidence that real property value is unlikely to change between two dates that are only sixteen days apart. But this evidence is nowhere apparent from the record below. Not only did Cokinos fail to provide the nexus, but also disputed the possibility that the value remained static for that sixteen-day period by testifying that market fluctuations produce quick changes in the real estate market. See Tr. 74 75. Absent this factual nexus, the Horn Appraisal provides the only expert evidence of value on the Petition Date.
Cokinos relies on both In re Bonuccelli, No. 03-31729PM, 2010 WL 2640383, at *1 (Bankr. D. Md. June 25, 2010), and Fitzgerald v. Davis (In re Fitzgerald), 729 F.2d 306, 307 (4th Cir. 1984), to argue that the bankruptcy court properly considered . However, those cases are not relevant because each appraisal referenced therein revised its valuation based on the eventual sale price of the property at issue. In re Fitzgerald held only that the post-petition sale of the subject property may be relevant to, although not dispositive of, its value on the Petition Date. 729 F.2d at 308. Bonuccelli cites to In re Fitzgerald for the same holding case, actual sale price can be considered in its valuation. 2010 WL 2640383, at *1 (citing In re Fitzgerald, 729 F.2d at 306). Neither decision stands for the proposition that appraisals of value on other dates besides the petition date are sufficient, standing alone, to establish a value on the petition date.
Admitting demonstrating that its valuation would have been accurate as of the Petition Date would be an abuse of discretion, because without it the appraisal was insufficient to determine the value of the Property as of the Petition Date. See United States v. Williams, 445 F.3d 724, 732 (4th Cir. 2006) (abuse of ly in admitting evidence .
2. Evidentiary Stipulations As noted above, on the date of the hearing before the bankruptcy court, the parties entered into an evidentiary stipulation before testimony began. The stipulation was as follows:
appraisal. The Court: Okay. Tr. 6.
The bankruptcy court should determine on remand the scope of this stipulation: Did its value as of the Petition Date? The current record is unclear. If the former, the bankruptcy
court should make a finding as to value on the Petition Date, particularly in light of the testimony of both experts
that property values can fluctuate within a very short amount of time. If the latter, the bankruptcy court should fully describe the reasons value as of the Petition Date.
C. Appraisal Errors and Supporting Evidence The next issue presented for review is whether the bankruptcy court abused its discretion in crediting the valuations equally in light of (1) mathematical and linguistic errors in t assertedly improper method of selecting comparable properties. Preliminarily, it should be noted that despite having prior properties considered in its preparation, Prangley to his appraisal under Fed. R. Evid. 702(c) or 702(d). Therefore, any Fed. R. Evid. 702(c) (d) objections are waived. See Mezu v. Morgan State Univ., 269 F.R.D. 565, 574 (D. Md. 2010) (holding that objections not properly raised are waived).
Absent those objections, the only remaining challenge could be to the determinations of credibility and weight of the evidence as assigned by the bankruptcy court. But those determinations particularly are within the province of the finder of fact. See United States v. Leigh, No. 95-5194, 1996 WL 95968, at *4 (4th Cir. Mar. 6, 1996) (citing United States v.
Manbeck, 744 F.2d 360, 392 (4th Cir. 1984)). The bankruptcy judge was in the best position to weigh the competing appraisals, including any shortcomings within, in light of the totality of the evidence before her. Tr. 122 25. I find no clear error in this portion of her factual findings. However, inasmuch as I am remanding this case for further proceedings regarding the valuation, the bankruptcy court should explain clearly the purpose for which any challenged comparables are admitted, particularly in light of Fed. R. Evid. reliable evidence may not be admitted for purposes of evaluating opinion outweighs any prejudicial effect.
D. Avoidance of the Liens in their Entirety Next, Prangley argues that the bankruptcy court erred as a matter of law in stripping the judicial liens in their entirety, rather than only avoiding them to the extent they impair the exemptions. The question of whether a lien is avoidable under 11 U.S.C. § 522(f) is reviewed de novo. See In re Johnson, 960 F.2d at 399; see also Stone v. Instrumentation Lab. Co., 591 F.3d 239, 246 (4th Cir. 2009) ( [b]y definition, de novo review entails consideration of an issue as if it had not been decided previously. (quoting United States v. George, 971 F.2d 1113, 1118 (4th Cir. 1992))).
In calculating the extent of avoidance under § 522(f)(2)(A), the bankruptcy court adds the exemptions permitted on the subject property, any consensual liens encumbering the property (usually mortgages), and any other liens encumbering the property (judicial liens in this case). If that sum is more than the value assigned under § 522(a)(2), the difference is removed from the encumbering judicial liens . See Fed. Credit Union (In re Jones), No. 03-16931-WIL, 2006 WL 4595783, at *4 (Bankr. D. Md.
Aug. 11, 2006) (citing Canelos v. Mignini (In re Canelos), 216 B.R. 159, 165 (Bankr. D. Md. 1997); In re Hemric, 333 B.R. 81, 83 (Bankr. M.D.N.C. 2005)); see also Wachovia Bank & Tr. Co. v. Opperman (In re Opperman) than the exemption available to the debtor does not impair that exemption. Thus, only that part
of a (citations omitted)); In re Silveira, 141 F.3d at 36. This prevents the liens from reducing the homestead exemptions allowed by state law.
In cases with consensual liens (to which § 522(f)(1) does not apply), the easiest way to calculate the impairment is by starting with the value of the property and subtracting the exemptions and liens in order of seniority, as shown below. See generally David Gray Carlson, Security Interests on Exempt Property After the 1994 Amendments to the Bankruptcy Code, 4 Am. Bankr. Inst. L. Rev. 57, 66 (1996). The parties in this case appear to agree on the amounts 19 20; Tr. 4. Accepting arguendo the $585,000, the first step is to subtract the exemptions, which the parties agree are $22,126. That leaves the Property with $562,874 in equity. Subtracting the two mortgages leaves $735.31 In re Silveira, 141 F.3d at 38. Therefore, the decision to avoid the liens in their entirety despite the remaining equity in the Property was contrary to § 522(f).
On remand, after the bankruptcy court reconsiders the value, it must recalculate the extent of impairment and determine in the first instance whether the remainder should be prioritized to Prangley lien in light of § 522(f)(2)(B) subject to more than 1 lien, a lien that has been avoided shall not be considered in making the
. As noted above, even though
the remainder might be de minimis, it may allow Prangley to retain a secured claim against Cokinos and also may allow for post-petition recourse against the Property. See 11 U.S.C. §§ 522(c), 524.
E. Consolidation for Hearing Last, Prangley argues that the bankruptcy court abused its discretion in consolidating the CitiBank and Prangley Motions for hearing. He to contested matters through Fed. R. Bankr. P. 9014, allows the bankruptcy court to consolidate
13. Still, Prangley argues that CitiBank could have benefitted unduly from his efforts because the remaining equity under § 522(f), had the bankruptcy court calculated it correctly, lien, which he argues should be removed from the calculations pursuant to § 522(f)(2)(B). Id.
This argument is without merit.
Presiding judges have considerable discretion in managing their dockets. See Will v. Calvert Fire Ins. Co., 437 U.S. 655, 666 67 (1978). In consolidating these motions for hearing, the bankruptcy judge properly exercised that discretion. See Jalali v. Pierce Assocs., Inc., No. WDQ-11-1069, 2011 WL 3648284, at *3 (D. Md. Aug. 11, 2011). Like district judges presiding over bench trials, the bankruptcy judge is trusted with separating the discrete issues involved in making her decisions. In both contexts, See United States v. Sebolt, No. 13-4093, 2014 WL 522924,
at *6 (4th Cir. Feb. 11, 2014) (citing cases). I find no abuse of discretion in the bankruptcy
For the reasons explained above, the orders avoiding the liens in their entirety will be VACATED by separate order. The case will be REMANDED for further proceedings consistent with the instructions above.
Dated: May 7, 2014 /S/
Paul W. Grimm United States District Judge jwr