In re: Alvin Labostrie and Sandra Labostrie

FILED DEC 14 2012 SUSAN M SPRAUL, CLERK 1 U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT 2 3 UNITED STATES BANKRUPTCY APPELLATE PANEL 4 OF THE NINTH CIRCUIT 5 In re: ) BAP No. CC-12-1164-PaMkBe ) 6 ALVIN LABOSTRIE and ) Bankr. No. LA 12-11261-RN SANDRA LABOSTRIE, ) 7 ) Debtors. ) 8 ___________________________________) ) 9 ALVIN LABOSTRIE; SANDRA LABOSTRIE, ) ) 10 Appellants, ) ) 11 v. ) M E M O R A N D U M1 ) 12 L.A. FINANCIAL CREDIT UNION; ) ROSENDO GONZALEZ, Chapter 7 ) 13 Trustee,2 ) ) 14 Appellees. ) ___________________________________) 15 Submitted Without Oral Argument 16 on November 15, 20123 17 Filed - December 14, 2012 18 Appeal from the United States Bankruptcy Court for the Central District of California 19 Hon. Richard M. Neiter, Bankruptcy Judge, Presiding 20 21 1 22 This disposition is not appropriate for publication. Although it may be cited for whatever persuasive value it may have 23 (see Fed. R. App. P. 32.1), it has no precedential value. See 9th Cir. BAP Rule 8013-1. 24 2 Chapter 7 trustee, Rosendo Gonzalez, was named as an 25 appellee in this case. However, the trustee did not file a brief or otherwise participate in this appeal. 26 3 After examination of the briefs and record, and after 27 notice to the parties, the Panel unanimously determined that oral argument was not needed in an order entered October 4, 2012. Fed. 28 R. Bankr. P. 8012.

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1 2 Appearances: Appellants Alvin LaBostrie, Sr. and Sandra LaBostrie pro se on brief; Bruce Paul Needleman, 3 Esq. on brief for appellee L.A. Financial Credit Union. 4 5 Before: PAPPAS, MARKELL, and BEESLEY,4 Bankruptcy Judges. 6 7 Appellants, chapter 75 debtors Alvin and Sandra LaBostrie 8 (“Debtors”), appeal the decision of the bankruptcy court 9 determining the redemption value of their 2005 Ford Freestyle SE 10 (the “Vehicle”) pursuant to § 722 to be $7,500, and granting stay 11 relief to their creditor, appellee L.A. Financial Credit Union 12 (“Creditor”). We AFFIRM. 13 FACTS 14 On January 13, 2012, Debtors filed a pro se petition for 15 relief under chapter 7. In their schedule D filed with the 16 petition, Debtors listed Creditor as a secured creditor for a 17 “vehicle loan” in the amount of $13,000. They listed the value of 18 the Vehicle securing Creditor’s debt as $1,400. 19 On February 6, 2012, Creditor filed a motion for relief from 20 the automatic stay seeking leave of the bankruptcy court to 21 enforce the security interest it claimed in the Vehicle. In the 22 motion, Creditor, presumably relying on Debtors’ schedules, also 23 listed the value of the Vehicle at $1,400. A hearing on the 24 25 4 The Honorable Bruce T. Beesley, U.S. Bankruptcy Judge for 26 the District of Nevada, sitting by designation. 27 5 Unless otherwise indicated, all chapter, section and rule references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and 28 to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037.

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1 motion was set for March 13, 2012. 2 On February 22, 2012, Debtors filed a motion to redeem the 3 Vehicle pursuant to § 722. In the motion, Debtors alleged that 4 the redemption value of the Vehicle was $1,265 based on an online 5 Kelley Blue Book report, less the amount of Debtors’ California 6 state law exemption in the Vehicle of $2,500. Creditor opposed 7 Debtors’ motion arguing that, according to a different Kelley Blue 8 Book online report, the value of the Vehicle was actually $11,056. 9 Creditor also disputed Debtors’ suggestion that their exemption in 10 the Vehicle would reduce the amount they were required to pay to 11 redeem the Vehicle. Debtors’ motion was also set for hearing on 12 March 13, 2012. 13 At the hearing on Debtors’ motion for redemption and 14 Creditor’s motion for stay relief, the bankruptcy court questioned 15 Mr. LaBostrie about the valuation of the Vehicle in Debtors’ 16 redemption motion of $1,265. Mr. LaBostrie explained that he used 17 an online version of Kelley Blue Book which valued the Vehicle at 18 $3,990 to $5,265. He then subtracted from that value Debtors’ 19 California automobile exemption of $2,500.6 The court advised 20 Mr. LaBostrie that he could not deduct an exemption from the value 21 of collateral in which he held no equity. In response, 22 Mr. LaBostrie stated that he would pay $3,990 to Creditor to 23 redeem the Vehicle, which he characterized as a fair value. He 24 then described the Vehicle, representing to the bankruptcy court 25 that it had been driven over 155,000 miles and that it needed 26 6 Using the lowest value provided by Debtors of $3,990, and 27 subtracting the exemption amount of $2,500, even if this had been proper, it is unclear from the record how Debtors concluded that 28 $1,265 was the value of the Vehicle.

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1 repairs. The bankruptcy court advised Mr. LaBostrie that it was 2 required to determine the retail value of the Vehicle, and Debtors 3 would be required to pay that amount to Creditor in order to 4 redeem it. Mr. LaBostrie argued that, although the $3,990 5 represented the trade-in value in the report, in his view, it was 6 also the retail value of the Vehicle. 7 Creditor’s counsel argued that, considering the age, 8 condition, and mileage for the Vehicle, as described by 9 Mr. LaBostrie, its value was $9,500. At that point, the court 10 asked the parties to confer outside the courtroom, suggesting that 11 they should reach a compromise for the value. If the parties were 12 unable to agree on a value after a conference, the court stated 13 that it would determine the value. The parties were unable to 14 agree on a value. 15 The court found the value of the Vehicle to be $7,500, 16 explaining that the trade-in value of $3,990, as argued by 17 Debtors, was not the correct valuation. Rather, the court 18 concluded, retail value was the appropriate valuation. The court 19 then noted that when the condition and mileage of the Vehicle as 20 described by Mr. LaBostrie was considered, an appropriate retail 21 value was $7,500. The court informed Debtors that they could 22 redeem the Vehicle for that amount within ten days, but if they 23 failed to do so, Creditor would be allowed to pursue its state law 24 rights in the Vehicle. The court granted Creditor’s motion for 25 relief from the automatic stay, but allowed Debtors ten days to 26 redeem the Vehicle for the retail value of $7,500. 27 The bankruptcy court entered an order setting the redemption 28 value of the Vehicle at $7,500 on March 15, 2012. On the same

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1 day, the court entered an order granting relief from the automatic 2 stay providing Debtors ten days to redeem the vehicle for $7,500 3 before the automatic stay order became effective. 4 Debtors filed a notice of appeal on March 22, 2012. 5 JURISDICTION 6 The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 7 and 157(b)(2)(K) and (O). We have jurisdiction under 28 U.S.C. 8 § 158. 9 ISSUE 10 Whether the bankruptcy court erred in valuing the Vehicle at 11 $7,500 for purposes of redemption under § 722. 12 STANDARD OF REVIEW 13 “The determination of value is a factual finding. It is 14 reviewed under the clearly erroneous standard.” Tuma v. Firstmark 15 Leasing Corp. (In re Tuma), 916 F.2d 488, 491 (9th Cir. 1990) 16 (internal citations omitted). “Clearly erroneous review is 17 significantly deferential, requiring that the appellate court 18 accept the [trial] court’s findings absent a definite and firm 19 conviction that a mistake has been made.” United States v. Syrax, 20 235 F.3d 422, 427 (9th Cir. 2000). 21 To the extent that this appeal requires the Panel to review 22 the bankruptcy court’s interpretation of § 506(a)(2), its decision 23 is reviewed de novo. Nash v. Clark Cnty. Dist. Atty’s Office, et 24 al. (In re Nash), 464 B.R. 874, 878 (9th Cir. BAP 2012) (citing 25 Smith v. Rojas (In re Smith), 435 B.R. 637, 642-43 (9th Cir. BAP 26 2010)). 27 DISCUSSION 28 On appeal, Debtors argue that the bankruptcy court abused its

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1 discretion in setting the redemption value of the Vehicle because 2 the court: (1) did not consider the value of the Vehicle listed in 3 Creditor’s motion for relief from the automatic stay; (2) did not 4 set the value of the Vehicle based on Debtors’ schedules and other 5 exhibits; (3) did not consider Debtors’ exemptions in fixing the 6 value of the Vehicle; (4) did not properly apply § 506(a) in 7 valuing the Vehicle; and (5) did not make adequate findings of 8 fact based on all the evidence presented. Debtors’ arguments lack 9 merit. 10 I. Applicable Law: Sections 722 and 506(a) 11 Section 722 provides: 12 An individual debtor may, whether or not the debtor has waived the right to redeem under 13 this section, redeem tangible personal property intended primarily for personal, 14 family, or household use, from a lien securing a dischargeable consumer debt, if such 15 property is exempted under section 522 of this title or has been abandoned under section 554 16 of this title, by paying the holder of such lien the amount of the allowed secured claim 17 of such holder that is secured by such lien in full at the time of redemption. 18 19 A lien is a “charge against or interest in property to secure 20 payment of a debt or performance of an obligation.” § 101(37). 21 The amount of an “allowed secured claim” that must be paid to a 22 secured creditor to redeem collateral from a lien is determined by 23 reference to § 506(a). In re Morales, 387 B.R. 36, 39 (Bankr. 24 C.D. Cal. 2008). Section 506(a) provides: 25 (a)(1) An allowed claim of a creditor secured by a lien on property in which the estate has 26 an interest . . . is a secured claim to the extent of the value of such creditor's 27 interest in the estate's interest in such property . . . and is an unsecured claim to 28 the extent that the value of such creditor's

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1 interest . . . is less than the amount of such allowed claim . . . . 2 (2) If the debtor is an individual in a case 3 under chapter 7 or 13, such value with respect to personal property securing an allowed claim 4 shall be determined based on the replacement value of such property as of the date of the 5 filing of the petition without deduction for costs of sale or marketing. With respect to 6 property acquired for personal, family, or household purposes, replacement value shall 7 mean the price a retail merchant would charge for property of that kind considering the age 8 and condition of the property at the time value is determined. 9 10 Determining the replacement value of collateral for purposes 11 of § 506(a) is done on a case-by-case basis. Taffi v. United 12 States (In re Taffi), 96 F.3d 1190, 1193 (9th Cir. 1996); see also 13 In re Morales, 387 B.R. at 41. “[T]he proper measure of the 14 replacement value of a vehicle is its retail value [but] an 15 adjustment to that value may be necessary: A creditor should not 16 receive portions of the retail price, if any, that reflect the 17 value of items the debtor does not receive when he retains his 18 vehicle . . . .” Assocs. Commercial Corp. v. Rash, 520 U.S. 953, 19 965 n.6 (1997). 20 Methods used by bankruptcy courts for determining the 21 replacement value for vehicles vary, but consideration of the 22 Kelley Blue Book retail values, at least as a starting point, has 23 been endorsed by courts. See In re De Anda-Ramirez, 359 B.R. 794, 24 796-97 (10th Cir. BAP 2007) (noting that Kelley Blue Book is not 25 determinative of retail replacement value but holding that the 26 bankruptcy court’s reliance on Kelley Blue Book for the retail 27 replacement value was not clearly erroneous); see also In re 28 Araujo, 464 B.R. 15, 21 (Bankr. N.D. Cal. 2011); In re Martinez,

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1 409 B.R. 35, 40 (Bankr. S.D.N.Y. 2009); In re Cook, 415 B.R. 529, 2 535 (Bankr. D. Kan. 2009); In re Morales, 387 B.R. at 47-48. 3 Because the language of § 506(a)(2) is arguably 4 contradictory,7 the timing of determining the replacement value of 5 collateral under § 722 is subject to some debate. See In re 6 Morales, 387 B.R. at 43 (discussing cases holding that the 7 petition date is the correct date to determine the replacement 8 value, those holding that the date of the hearing on value is the 9 valuation date, and holding that the petition date is the most 10 appropriate date); but see 6 COLLIER ON BANKRUPTCY ¶ 722.05[1] (Alan 11 N. Resnick & Henry J. Sommer eds., 16th ed., 2012) (stating “most 12 courts have held that, for purposes of redemption, valuation 13 should ordinarily be as of the date of the redemption proceeding” 14 and noting that conclusion is supported by the second sentence of 15 § 506(a)(2)); In re Cook, 415 B.R. at 534 (disagreeing with 16 Morales and stating that the appropriate time for determination of 17 the replacement value is the time of the hearing on value). Here, 18 Debtors and Creditor both submitted evidence presumably to show 19 the value of the Vehicle as of the date of the hearing in the 20 bankruptcy court. Therefore, whether the valuation of the Vehicle 21 should have been made as of the petition date or hearing date is 22 not at issue. 23 24 7 The first sentence of § 506(a)(2) states that “value with 25 respect to personal property securing an allowed claim shall be determined based on the replacement value of such property as of 26 the date of filing the petition . . . .” However, in the next sentence, the statute provides that “replacement value shall mean 27 the price a retail merchant would charge for property of that kind considering the age and condition of the property at the time 28 value is determined.” (emphasis added).

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1 II. Analysis and Disposition. 2 Creditor does not dispute that its lien on the Vehicle is 3 subject to redemption by Debtors under § 722. The sole issue on 4 appeal is whether the bankruptcy court erred in its valuation of 5 the Vehicle for redemption purposes and in the order granting 6 relief from the automatic stay. As a question of fact, we review 7 the bankruptcy court’s determination of the Vehicle’s value under 8 the clearly erroneous standard. As to the bankruptcy court’s 9 interpretation of § 506(a)(2), we review de novo. 10 Debtors assign five different types of error at the 11 bankruptcy court’s conclusion as to the value of the Vehicle for 12 § 722 purposes and in the order granting relief from the automatic 13 stay. Each will be addressed in turn. 14 A. The value in creditor’s motion for relief from the automatic stay is not dispositive. 15 16 The fact that Creditor stated the value of the Vehicle to be 17 $1,400 in its motion for relief from the automatic stay, and later 18 changed it to $11,056 in opposition to Debtors’ redemption motion, 19 is of little consequence in this case. The bankruptcy court, as 20 the fact-finder, is the arbiter of the redemption value under 21 § 722 and the value of a lien pursuant to § 506(a)(2). See 22 § 105(a); Rules 3012 and 6008; see also In re Lopez, 224 B.R. 439, 23 443 (Bankr. C.D. Cal. 1998) (holding that the bankruptcy court 24 determines the value of the collateral pursuant to § 722 25 regardless of other valuation processes). That the bankruptcy 26 court did not adopt Creditor’s allegations concerning the value of 27 the Vehicle does not render the bankruptcy court’s decision 28 concerning value clearly erroneous.

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1 B. The value placed by Debtors on the Vehicle in their Schedules and Exhibits was properly considered 2 by the bankruptcy court and rejected. 3 The bankruptcy court considered Debtors’ motion to redeem and 4 the values provided for the Vehicle in that motion. The court 5 determined that the values provided by Debtors were not the 6 replacement value as required by § 506(a)(2). The court then 7 adjusted the retail book value to account for the age and 8 condition of the Vehicle in reaching its final conclusion 9 concerning the value of the Vehicle. 10 The bankruptcy court did not commit clear error when it 11 considered the values offered by Debtors in their motion and 12 schedules but rejected them in favor of a higher valuation for 13 § 722 purposes. 14 C. The bankruptcy court properly held that exemptions do not apply to collateral in which debtors have no equity. 15 16 A debtor may not claim an exemption in property that is 17 wholly encumbered by a consensual lien. See Owen v. Owen, 18 500 U.S. 305, 308 (1991) (stating, “since the equitable interest 19 does not pass to the estate, neither can it pass to the debtor as 20 an exempt interest in property.”) (and citing Long v. Bullard, 21 117 U.S. 617 (1886)). Under § 506(a)(2), Creditor’s allowed claim 22 was the “replacement value” of the Vehicle which means “the price 23 a retail merchant would charge for property of that kind 24 considering the age and condition of the property at the time 25 value is determined.” Because there was no dispute that the debt 26 owed by Debtors to Creditor exceeded the value of the Vehicle, 27 Debtors’ claim of an exemption in the Vehicle is of no import in 28 determining the amount of Creditor’s allowed secured claim. In

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1 other words, since they lacked any equity in the Vehicle, nothing 2 in the Code would allow Debtors to utilize their state law 3 exemptions to reduce the value of the Vehicle for § 722 purposes. 4 See, e.g., In re Longmore, 273 B.R. 633, 635 (Bankr. D. Nev. 2001) 5 (stating “[w]here a vehicle is over-encumbered and thus has no 6 equity, there is no exemptible interest.”). Therefore, the 7 bankruptcy court did not err when it rejected Debtors’ attempt to 8 use their statutory exemption to reduce the value of the Vehicle 9 for § 722 purposes. 10 D. The bankruptcy court applied the correct legal standard under § 506(a). 11 12 As the bankruptcy court correctly observed at the hearing on 13 March 13, and as the Supreme Court instructed in Rash, § 506(a)(2) 14 requires that replacement value be used to determine the amount of 15 Creditor’s allowed secured claim in the Vehicle. In determining 16 that replacement value, the bankruptcy court considered the 17 evidence presented by the parties. The court reviewed the Kelley 18 Blue Book information submitted by each of the parties, and 19 listened to Mr. LaBostrie’s description of the current condition 20 of the Vehicle. When the parties were unsuccessful in privately 21 resolving this value issue, the court adopted a value different 22 from that urged by either party. The court declined to adopt the 23 low, trade-in book value offered by Debtors; it also reduced the 24 value as submitted by Creditor after taking into consideration the 25 age and condition of the Vehicle. In arriving at its value, the 26 court expressly noted the condition and mileage of the Vehicle as 27 represented by Mr. LaBostrie, and that the Vehicle needed repairs. 28 It is unclear from the record at what point in time the bankruptcy

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1 court was determining the value – whether the court fixed the 2 Vehicle’s value as of the hearing date or the petition date. 3 However, because the parties also did not offer different values 4 for the Vehicle for each of the two possible dates, we presume the 5 court properly determined the value of the Vehicle at the time of 6 the hearing. Regardless, the bankruptcy court correctly 7 interpreted § 506(a)(2) to require replacement value to be 8 determined as the retail value and there is no basis to conclude 9 that the bankruptcy court clearly erred in assessing the value of 10 the Vehicle under that standard. 11 E. The bankruptcy court made adequate findings of fact and its valuation of the vehicle was not 12 clearly erroneous. 13 Debtors argue that, “[t]he Trial Judge erred with its 14 decision not to remain partial [sic]” in deciding the value of the 15 vehicle pursuant to § 506(a). Debtors’ Br. at 4. Debtors claim 16 further error in the bankruptcy court’s ruling based on the 17 negotiations of the parties before the court determined the value 18 of the Vehicle. We disagree. 19 Rule 6008 provides that, “[o]n motion by the debtor . . . and 20 after hearing on notice as the court may direct, the court may 21 authorize the redemption of property from a lien . . . .” 22 Rule 9014, governing contested matters, supplied the procedural 23 rules applicable to resolving the issues raised by Debtors’ motion 24 to redeem the Vehicle. 25 Regardless of the parties’ prior negotiations, the bankruptcy 26 court is the finder of fact. Under the Code and Rules, the court 27 conducted a hearing at which the parties submitted evidence and 28 were otherwise heard. The court then entered oral findings of

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1 fact on the record in accordance with Rule 7052. Williams v. Eli 2 Levi et al. (In re Williams), 323 B.R. 691, 700 (9th Cir. BAP 3 2005); In re Harris, 279 B.R. 254, 260 (9th Cir. BAP 2002). From 4 the hearing transcript, it is evident that the bankruptcy court 5 properly interpreted § 506(a)(2) and considered the Kelley Blue 6 Book information submitted by the parties as a starting point in 7 fixing the value of the Vehicle. It concluded that neither book 8 value represented the correct replacement value based upon its 9 findings concerning the Vehicle’s condition and mileage, and its 10 need of repairs. The bankruptcy court then decided, as its 11 ultimate finding of fact, that the replacement value of the 12 Vehicle was $7,500. In this process, the bankruptcy court 13 correctly interpreted § 506(a)(2) and committed no clear error in 14 valuing the Vehicle. 15 CONCLUSION 16 We AFFIRM the order of bankruptcy court. 17 18 19 20 21 22 23 24 25 26 27 28

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