Submitted: November 15, 2016
Appeal
from United States District Court for the District of North
Dakota - Bismarck
Before
BENTON and SHEPHERD, Circuit Judges, and STRAND, [1] District
Judge.
SHEPHERD, Circuit Judge.
Debtor-appellees
Steven and Karen McCormick signed a promissory note in favor
of creditor-appellant Melikian Enterprises, LLLP. After the
McCormicks defaulted on their payments and sought bankruptcy
relief, Melikian filed a proof of claim in the bankruptcy
proceeding seeking to recover a deficiency judgment. The
bankruptcy court sustained the McCormicks' objection to
this proof of claim, and the district court[2] affirmed. We see
no error and likewise affirm.
I.
Background
In
January of 2006, Centennial Commercial Complex, LLC
("Centennial")-a company in which the McCormicks
held an ownership interest-purchased from Melikian several
parcels of property located in Arizona. Centennial executed a
promissory note in favor of Melikian in the principal amount
of $6, 475, 000, and the McCormicks signed this note as
guarantors. The promissory note was secured by a deed of
trust covering the real property purchased from Melikian.
Centennial
defaulted on the note at some point late in 2011. On August
2, 2012, Melikian filed a complaint in Arizona state court
against Centennial and the McCormicks to recover the balance
owed under the promissory note or, alternatively, to recover
the deficiency remaining after a trustee's sale. On
August 29, the McCormicks filed a petition for relief under
Chapter 11 of the Bankruptcy Code, listing an unsecured debt
to Melikian owing under the promissory note. A trustee's
sale under Arizona law was held on October 9, 2012, at which
Melikian purchased the properties on credit bids totaling
$444, 000. Melikian never perfected service on Centennial or
the McCormicks in the state court action. As a result, the
Arizona court dismissed the deficiency suit on January 30,
2013.
Melikian
filed a proof of claim with the bankruptcy court for an
unsecured debt in the amount of $6, 428, 599 pursuant to the
McCormicks' guarantee. The McCormicks filed an objection
to this proof of claim on the basis that it neglected to
reflect the market value of the real property securing the
debt, and the court scheduled a hearing on the matter for
December 17, 2013. The court confirmed the McCormick's
Chapter 11 plan in September of 2013, and the case was closed
as fully administered on November 14, 2013. The following
day, however, the case was reopened on a motion from a
different creditor.
For a
number of reasons, the McCormicks requested and were granted
three continuances of the December hearing.[3] Ultimately, on
March 5, 2014, they moved for summary judgment on their
objection to Melikian's proof of claim, arguing that
Arizona law barred Melikian's claim because Melikian had
failed to maintain a deficiency action within 90 days of the
trustee's sale. The bankruptcy court heard argument on
this motion on April 15, 2014, and granted the motion in
favor of the McCormicks.
Ruling
from the bench, the bankruptcy court offered the following
analysis. Consistent with Travelers Casualty & Surety
Co. of America v. Pacific Gas & Electric Co., 549
U.S. 443, 450 (2007), the court noted that Melikian's
entitlement to a deficiency against the debtors was to be
determined by state law. Arizona Revised Statute section
33-814(D) declares,
If no action is maintained for a deficiency judgment within
the time period prescribed in subsections A and B of this
section, the proceeds of the sale, regardless of amount,
shall be deemed to be in full satisfaction of the obligation
and no right to recover a deficiency in any action shall
exist.
Under subsection (A), the court noted, Melikian had to
commence its deficiency action within 90 days of the
trustee's sale. But, the court continued, because
Melikian had already filed the state court suit against the
McCormicks, it needed only to pursue that action. As noted
above, that suit was dismissed for failure to obtain proper
service.
Continuing
its analysis, the court addressed Melikian's preemption
arguments. The court first ruled that Arizona law was not
preempted by 11 U.S.C. §§ 501-02-the sections of
the Bankruptcy Code that determine whether a particular claim
is "allowed"-because it is state, rather than
federal, law that creates the right to a claim. The court
then accepted Melikian's second argument, ruling that
section 33-814 was preempted by 11 U.S.C. §§ 362
and 108. According to the court, § 362(a)(1)-the
automatic stay provision-prevented Melikian from perfecting
service on the McCormicks within the 90-day period allowed by
section 33-814(A), so the state law was impliedly preempted
by § 362. Further, the court ruled that section
33-814(A) was expressly preempted by 11 U.S.C. § 108(c),
under which the time period for Melikian's potential
deficiency action did not expire until the later of (1) 90
days after the trustee's sale or (2) 30 days after the
expiration of the automatic stay. Returning to § 362(c),
the court determined that the stay expired on November 14,
2013, when the case was declared closed. Thus, the court
observed that Melikian's right to file a claim did not
expire until the later of January 7, 2013, under §
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