Tuesday, October 23, 2018
Page 3
Bankruptcy of Debtor Stays Enforcement of ORAP Lien—Ninth Circuit
By a MetNews Staff Writer
The Bankruptcy Code’s automatic stay provision applies to execution on a lien obtained following a judgment debtor examination in the state Superior Court, the Ninth U.S. Circuit Court of Appeals held yesterday in a 2-1 decision.
The opinion affirms the Bankruptcy Appeals Panel’s reversal of a summary judgment obtained by Santa Ana attorney Charles W. Daff, the trustee in the bankruptcy of Richard J. Swintek, a former certified public accountant. Daff persuaded Bankruptcy Judge Theodor C. Albert of the Central District of California that a one-year lien on the debtor’s personal property held by a creditor of Swintek, Karen M. Good, had expired in June 2011 because it had not been renewed.
This placed Good in the position of an unsecured creditor while, if the lien were in place, she would have priority as a secured creditor and would receive funds being held by Daff.
The lien was automatically created when Good on June 30, 2010, personally served Swintek with an Order for Appearance and Examination (“ORAP”) in connection with two judgments, totaling about $300,000, of which she was the assignee. Swintek had filed his bankruptcy petition in August 2010.
The Bankruptcy Appeals Panel held Dec. 18, 2015, that the lien had not expired in light of the automatic stay provision.
Ninth Circuit Opinion
Agreeing, Circuit Judge Jay S. Bybee, joined by District Court Judge Harvey Bartle III of the Eastern District of Pennsylvania, sitting by designation, said in yesterday’s opinion:
“This appeal presents the question of whether an ORAP lien falls within the scope of the code’s tolling provision, which applies to ‘a period for commencing or continuing a civil action...on a claim against the debtor’ that arose before the bankruptcy petition. 11 U.S.C. §108(c). We hold that the period in which a creditor may execute on a lien constitutes the continuation of the original action that resulted in the judgment and is thus tolled during the automatic stay.”
The opinion points out:
“Here, the imposition of the automatic stay…barred Good from executing on her ORAP lien and thus enforcing her judgment. Indeed, the ORAP lien is the modern iteration in California’s long history of providing judgment creditors with a “supplemental proceeding[] for the purpose of discovering assets of a judgment debtor and applying them to satisfaction of the judgment.”
Wardlaw’s Dissent
Circuit Judge Kim McLane Wardlaw dissented. She wrote:
“I respectfully dissent. The plain language of 11 U.S.C. §108(c), the Bankruptcy Code’s extension provision, applies to fixed periods of time only ‘for commencing or continuing a civil action....’ Karen Good’s secret ORAP lien on personal property, requiring Swintek to appear for a judgment-debtor examination, is simply a different animal. An ORAP lien is merely a tool to enforcing a judgment, interests, which the Eighth Circuit held was outside §108(c)’s scope.”
Wardlaw went on to comment:
“Allowing Good to maintain her priority despite her failure to renew the ORAP lien, on the other hand, creates problems of inequity. The majority’s decision to allow ORAP liens, which are by nature temporary tools of judgment enforcement, to become a secured claim in a bankruptcy proceeding without time limitations, would lead to inequitable results among other creditors. This could not have been what Congress intended.”
During oral argument on Sept. 1 in Pasadena, Wardlaw remarked:
“There’s a lot of problems with ORAP liens. They don’t have to be perfected.
“They’re secret. They’re not on the spirit of the Bankruptcy Code….
“They’re not in the public record.”
The case is In re Swintek, No. 16-60003.
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