Lachter v. Smith

SUPREME COURT OF ARIZONA
En Banc

In Re: ) Arizona Supreme Court
) No. CV-04-0153-CQ
JAMES M. SMITH, )
) United States
Debtor. ) Bankruptcy Court
__________________________________) No. B-95-06077-PHX-RTB
)
SIDNEY LACHTER and SANDRA )
LACHTER, Successors to Neepawa )
Enterprises, Ltd., a Manitoba )
corporation (registered to do )
business in Arizona), )
) O P I N I O N
Plaintiffs,)
)
v. )
)
JAMES M. SMITH, )
)
Defendant. )
__________________________________)

Certified Questions from the
United States Bankruptcy Court for the District of Arizona
The Honorable Redfield T. Baum, Judge

QUESTIONS ANSWERED

HIRSCH LAW OFFICE, P.C. Scottsdale
by Lawrence D. Hirsch
and Iva S. Hirsch
Attorneys for Plaintiffs

ELLETT LAW OFFICES, P.C. Phoenix
by Ronald J. Ellett
and Jay S. Volquardsen
Attorneys for Defendant

B E R C H, Justice
¶1 This case asks us to resolve whether judgment

creditors timely renewed a state-court judgment. The matter is

before us on certified questions from the United States

Bankruptcy Court for the District of Arizona.

FACTS AND PROCEDURAL BACKGROUND1

¶2 In 1987, Sidney and Sandra Lachter secured a money

judgment against the debtor, James Smith. They renewed the

judgment, as permitted by Arizona law, on March 6, 1992, within

the five-year period provided by statute for such renewals. See

Ariz. Rev. Stat. (“A.R.S.”) §§ 12-1551, -1612(B) (1992). The

debtor did not satisfy the debt and, in July of 1995, filed for

bankruptcy protection, invoking the shield of the automatic stay

of proceedings.

¶3 To protect their interests, the Lachters filed a

complaint in the bankruptcy court alleging that Smith’s debt to

them was nondischargeable. See 11 U.S.C. § 523(a)(2) (1994).

Because Smith had no assets, the bankruptcy court issued a

general discharge on November 12, 1996, before any determination

had been made regarding the dischargeability of Smith’s debt to

the Lachters. The initial determination that Smith’s debt to

1
These facts are taken largely from the opinion of the
Bankruptcy Appellate Panel in In re Smith, 293 B.R. 220 (B.A.P.
9th Cir. 2003) (Smith II). A more detailed exposition of the
facts and procedural background can be found in that opinion.

- 2 -
the Lachters was nondischargeable was not made until October 24,

1997, and not finalized until much later.

¶4 On November 7, 1997, within thirty days of the

bankruptcy court’s determination of nondischargeability, the

Lachters filed an affidavit of renewal of their judgment. They

filed a “supplement” to the affidavit less than a month later,

on December 5, 1997, after the bankruptcy court issued a signed

minute entry memorializing its previously announced decision.2

Following motions and an appeal by Smith, the Bankruptcy

Appellate Panel (“BAP”) eventually affirmed the bankruptcy

court’s determination of nondischargeability on December 9,

1999. In re Smith, 242 B.R. 694, 696 (B.A.P. 9th Cir. 1999).

¶5 In one of the earlier-filed motions for

reconsideration, Smith had asserted that the Lachters’ judgment

had lapsed because they had failed to timely file their

affidavit of renewal, as required by Arizona law. See Smith II,

293 B.R. at 222 n.4; see also A.R.S. §§ 12-1551, -1612. The

Lachters then sought a determination from the bankruptcy court

that they had timely renewed their judgment. The bankruptcy

judge agreed with the Lachters, but his determination was

reversed on appeal by the BAP. Smith II, 293 B.R. at 226. The

2
Absent a further renewal, the judgment would have lapsed in
March, 1997. See A.R.S. § 12-1551. During the relevant renewal
period, the bankruptcy court had not finally determined whether
the debt was dischargeable.

- 3 -
BAP, citing In re Spirtos, 221 F.3d 1079 (9th Cir. 2000), and In

re Morton, 866 F.2d 561 (2d Cir. 1989), agreed that 11 U.S.C. §

108(c) extended the time for renewing the judgment, but

concluded that the bankruptcy court erred in relying on §

108(c)(2) in finding that the Lachters timely renewed their

judgment. Smith II, 293 B.R. at 223-24. The BAP concluded

instead that § 108(c)(1) applied. Id. at 225.

¶6 The BAP reasoned that § 108(c)(1) extended the time to

renew the judgment by the number of days the automatic stay was

in effect. Id. It concluded that the extension in this case

was 487 days, encompassing the period from the filing of Smith’s

bankruptcy petition on July 13, 1995, until the date of

discharge, November 12, 1996. Id. at 226. Under this analysis,

the Lachters’ judgment expired on July 6, 1998, 487 days after

the original renewal deadline of March 6, 1997. Id. Because

A.R.S. § 12-1612(E) calls for the renewal affidavit to be filed

“within ninety days of expiration of five years from the date of

the filing of a prior renewal affidavit,” the BAP determined

that the ninety-day period for filing the affidavit of renewal

ran from April 6, 1998 to July 6, 1998. Id. at 227. Although

the BAP stated that the renewal affidavit filed on November 7,

1997, immediately after the entry of the signed

“nondischargeability” minute entry, was filed “much earlier”

than this period, it stopped short of concluding that this

- 4 -
renewal affidavit was ineffective and remanded the case to the

bankruptcy court to determine whether the Lachters’ filing of

their renewal affidavit might be deemed timely under §

108(c)(1). Id.

¶7 On April 30, 2004, United States Bankruptcy Court

Judge Redfield T. Baum certified two questions of Arizona law to

this court for resolution:

A. When a pending bankruptcy case is unresolved and
the time period under Arizona law to file the
required affidavit of renewal of judgment has
passed, under what circumstances, if any, is the
time period under A.R.S. [§] 12-1551 extended or
otherwise changed to allow the judgment creditor
to file a timely affidavit of renewal of
judgment?

B. Were either of the affidavits of renewal of
judgment filed by the Lachters timely filed?

¶8 We agreed to answer the certified questions. See

A.R.S. § 12-1861 (2003) (permitting the Arizona Supreme Court,

on certain conditions, to “answer questions of law certified to

it by . . . a United States district court”). We have

jurisdiction to decide certified questions pursuant to Article

6, Section 5(6) of the Arizona Constitution, A.R.S. §§ 12-1861

to 12-1867, and Arizona Supreme Court Rule 27.

DISCUSSION

¶9 The first certified question asks whether under

Arizona law the time for filing a renewal affidavit is extended

if the debtor has a bankruptcy proceeding pending and an

- 5 -
automatic stay is in effect during the ninety-day renewal period

of A.R.S. § 12-1551 or § 12-1612. The answer under Arizona law

is no. A judgment creditor’s inability to enforce a judgment

during the initial or a subsequent statutory five-year period,

whether because of bankruptcy stay or other reasons, does not

extend the deadline imposed by A.R.S. §§ 12-1551 and 12-1612 to

file a renewal affidavit.

¶10 Arizona law allows a judgment creditor to execute on a

judgment within five years after entry of the judgment. A.R.S.

§ 12-1551(A). To execute after that time, the creditor must,

within ninety days before the end of the five-year period, have

filed an affidavit renewing the judgment pursuant to A.R.S. §

12-1612(B) or (E), or have brought an action on the judgment

pursuant to A.R.S. § 12-1611. The Arizona statutory scheme

discusses two separate events: enforcement of the judgment, and

the ministerial filing of an affidavit to renew the judgment.

The affidavit of renewal serves to notify interested parties of

the existence and continued viability of the judgment. J.C.

Penney v. Lane, 197 Ariz. 113, 119, ¶ 29, 3 P.3d 1033, 1039

(App. 1999).

¶11 Under the bankruptcy laws, a petition for bankruptcy

operates to stay any action to “create, perfect, or enforce”

liens or judgments. 11 U.S.C. § 362(a) (1998). Actions to

collect from the debtor may be filed or reinstituted either “30

- 6 -
days after notice of the termination or expiration of the stay,”

11 U.S.C. § 108(c)(2), or after a period set by “applicable

nonbankruptcy law,” as extended by “any suspension of such

period” that results from the bankruptcy proceedings. 11 U.S.C.

§ 108(c)(1). The BAP determined that A.R.S. § 12-1551 is an

“applicable nonbankruptcy law” setting the time for “commencing

or continuing a civil action” that may be stayed by bankruptcy

proceedings.3 Smith II, 293 B.R. at 223 (citing § 108(c)).

¶12 That determination does no violence to Arizona law

with respect to that portion of A.R.S. § 12-1551 that addresses

bringing an action to enforce the judgment or seeking a writ of

execution. Under Arizona law, enforcement is stayed and the

time in which to enforce the judgment is tolled during the

pendency of bankruptcy actions, just as it is while supersedeas

bonds preclude enforcement and in other similar circumstances.

¶13 As a matter of Arizona law, however, the filing of an

affidavit of renewal is simply a ministerial action intended in

part to alert interested parties to the existence of the

judgment. Such a ministerial filing serves a notice function

and does not seek to enforce a judgment. See J.C. Penney, 197

3
We assume, by implication, that A.R.S. § 12-1612, which
provides the mechanism for filing subsequent renewal affidavits,
would also qualify as an “applicable nonbankruptcy law” that may
be stayed by bankruptcy proceedings. Cf. Smith II, 293 B.R. at
223 (holding A.R.S. § 12-1551 to qualify); 11 U.S.C. § 108(c)
(employing term “applicable nonbankruptcy law”).

- 7 -
Ariz. at 119, ¶ 29, 3 P.3d at 1039. It therefore is not

prohibited under Arizona law by an automatic bankruptcy stay or

any stay of the enforcement of the judgment, such as might be

imposed by the filing of a supersedeas bond.4

¶14 Thus, for example, under Arizona law, a creditor with

a judgment entered on January 1, 2000, who was prevented by the

existence of a supersedeas bond or bankruptcy stay from

executing on the judgment until January 1, 2004, could

nonetheless file a renewal affidavit within the ninety days

preceding January 1, 2005. See A.R.S. § 12-1612(B). But even

if an affidavit were not filed, the time in which to enforce the

judgment would be tolled and extended through January 1, 2009,

to accommodate the time the creditor was precluded by the bond

or stay from attempting to collect on the judgment. Accord

Hazel v. Van Beek, 954 P.2d 1301, 1310 (Wash. 1998) (summarizing

position of several jurisdictions regarding suspensions, stays,

and tolling of time limits).

¶15 We therefore answer the first certified question in

the negative: Under Arizona law, the time to file an affidavit

4
Several jurisdictions have similarly held that 11 U.S.C. §
362(a)(4) does not prevent the filing of a renewal affidavit.
See, e.g., Morton, 866 F.2d at 564; Barnett v. Lewis, 170 Cal.
App. 3d 1079, 1090, 217 Cal. Rptr. 80, 86 (1985); O’Lane v.
Spinney, 874 P.2d 754, 756 (Nev. 1994) (citing with approval the
holding in Morton); Barber v. Emporium P’ship, 800 P.2d 795, 797
(Utah 1990). The BAP declined to decide this question in this
case. Smith II, 293 B.R. at 223.

- 8 -
of renewal of judgment is not changed or extended by the

pendency of a bankruptcy case.

¶16 In addressing the second question, we start from the

premise that the BAP has ruled as a matter of federal law that §

108(c)(1) extended the time for filing the renewal affidavit in

this case. Smith II, 293 B.R. at 226. The BAP has also

concluded as a matter of federal law that the effectiveness of a

judgment is extended by the number of days that A.R.S. § 12-1551

would have been suspended by a stay preventing enforcement of

the judgment. In this case, the BAP determined that period to

be 487 days, the length of time the bankruptcy stay precluded

enforcement of the judgment. Id.

¶17 The second certified question asks whether, under

these circumstances, either of the affidavits of renewal that

the Lachters filed was timely. Given the BAP’s determination in

this case that the renewal deadline was extended under §

108(c)(1) by 487 days, see id., we conclude that the time for

filing the renewal affidavit was also extended. As noted above,

one purpose of the filing requirements of A.R.S. §§ 12-1551 and

12-1612 is to provide notice and to limit the amount of record

searching interested parties must do to ascertain whether the

judgment remains valid. J.C. Penney, 197 Ariz. at 119, ¶ 29, 3

P.3d at 1039. Once a bankruptcy stay is imposed, however, that

purpose has been frustrated because § 108(c) extends the

- 9 -
effectiveness of the judgment beyond the five-year statutory

period.5 Creditors and other interested parties cannot know the

number of days that a stay remains in effect without searching

bankruptcy records outside the usually applicable ninety-day

window. Under these circumstances, little additional burden is

imposed by requiring an interested party to conduct a full

search of state records to determine whether a renewal affidavit

had been filed.

¶18 The debtor is not harmed by this frustration of

purpose because the debtor himself filed the bankruptcy action

and invoked the stay. The debtor already has notice of the

status of the judgment. Cf. Nowels v. Bergstedt, 120 Ariz. 112,

114, 584 P.2d 576, 578 (App. 1978) (noting that debtor has no

vested right in prior interpretation of A.R.S. §§ 12-1551 and

12-1612).

¶19 Because the rationale supporting the limited filing

window has been frustrated in these circumstances, we hold that

Arizona law would treat an affidavit of renewal filed anytime

between December 6, 1996, the date ninety days preceding the

Lachters’ original second renewal deadline under A.R.S. § 12-

1612(E), and the extended deadline of July 6, 1998, as having

been timely filed.

5
The other purpose, renewing the judgment, remains
unaffected.

- 10 -
¶20 We reach our conclusion as follows: The BAP concluded

in Smith II that § 108(c) applies to determine the renewal

period for a state-court judgment. 293 B.R. at 223. That

period is extended by either subsection (c)(2) to a date thirty

days after notice of the termination of the automatic stay, or

by subsection (c)(1) to a date set by “applicable nonbankruptcy

law,” including “any suspension of such period.” Id. If either

of those sections expands the deadline for filing a renewal

affidavit past the five-year period set forth in state statute,

we will treat an affidavit filed at any time from ninety days

before the expiration of the five-year period through the

expiration of the extended deadline as timely. Honoring

affidavits filed after the fifth year but before the end of the

extended period serves the remedial purposes of A.R.S. §§ 12-

1551 and 12-1612. See Nowels, 120 Ariz. at 114, 584 P.2d at

578.

CONCLUSION

¶21 For the foregoing reasons, we answer the first

certified question in the negative, and the second certified

question in the affirmative.

__________________________________
Rebecca White Berch, Justice

CONCURRING:

- 11 -
______________________________________
Charles E. Jones, Chief Justice

_______________________________________
Ruth V. McGregor, Vice Chief Justice

________________________________________
Michael D. Ryan, Justice

________________________________________
Andrew D. Hurwitz, Justice

- 12 -