Paxton v. Quinlan

Background

John and Elizabeth Paxton appealed the bankruptcy court’s February 19, 2020 final judgment and related orders. The dispute began with a landlord-tenant conflict involving an apartment in San Francisco. Brendan Quinlan, who owned the property from 2005 through 2015, sought a state-court order requiring the Paxtons to give him access to make repairs. The Paxtons had filed for Chapter 13 bankruptcy in October 2012 but did not notify Quinlan or the state court or assert the bankruptcy law’s automatic stay, which generally pauses specified actions against a debtor or bankruptcy estate.

Quinlan prevailed in the state-court declaratory-relief action and was awarded attorney fees after the Paxtons appealed. In 2018, the Paxtons asked the bankruptcy court to hold Quinlan and his current and former attorneys in contempt for violating the automatic stay. The bankruptcy court declared the state-court judgment void but found that the alleged violations were not willful because the Paxtons had not notified the appellees about the bankruptcy. It later awarded the Paxtons $28,479.84 in attorney fees and continued proceedings concerning possible additional damages related to the failure to vacate the judgment and liens.

Issues and analysis

1. Small-claims action for rent. The Paxtons argued that Quinlan’s small-claims action for unpaid rent was barred because the claim arose before the bankruptcy filing. Applying the Ninth Circuit’s “fair contemplation” test, the district court held that the Paxtons were tenants month to month when they filed for bankruptcy. Under California law, each month-to-month tenancy formed a new contract. Because Quinlan sought rent from 2013 through 2015, those claims arose after the bankruptcy filing and were not barred by 11 U.S.C. § 362(a)(1) or (a)(6). The appeal was DENIED as to issue (1).

2. Lien releases. The Paxtons argued that lien releases recorded by Quinlan, William Murphy, and Dillingham & Murphy LLP did not remedy the alleged stay violations because the releases stated they were without prejudice and did not fully vacate the liens. The district court noted that the Paxtons had conceded that the releases complied with California Code of Civil Procedure § 697.370. It also observed that the original contempt motion sought an order declaring the judgment liens void, not vacating them. The bankruptcy court had already declared the judgment void and retained jurisdiction over the Paxtons’ later request for damages based on failure to vacate it. The appeal was DENIED as to issue (2).

3. Final judgment and continuing damages. The Paxtons argued that the bankruptcy court entered its final judgment and damages award too early because alleged stay violations continued afterward. The district court held that the bankruptcy court was still considering post-trial damages and had directed the Paxtons to submit evidence on that subject. The district court concluded that the appeal was premature to the extent it sought review of matters still pending in the bankruptcy court. The appeal was DENIED as to issue (3).

4. Protection for co-debtors. The Paxtons argued that 11 U.S.C. § 1301 barred Quinlan’s small-claims action and the recording of judgment abstracts. The court gave two reasons that § 1301 did not apply: Elizabeth Paxton did not co-sign the lease and therefore was not a co-debtor in the relevant sense, and she was herself a bankruptcy debtor protected by § 362. The Paxtons also had not properly raised this argument in the bankruptcy court before the appeal. The appeal was DENIED as to issue (4).

5. Liens against bankruptcy-estate property. The Paxtons argued that Quinlan and his attorneys violated § 362(a)(4) by creating or perfecting liens against property of the bankruptcy estate through an examination order and a recorded abstract of the small-claims judgment. The district court applied Ninth Circuit precedent stating that property generally revests in the debtor upon plan confirmation unless the plan provides otherwise. The Paxtons’ confirmed plan expressly provided that estate property would revest in the debtors upon confirmation. The court therefore held that the liens were proper. The appeal was DENIED as to issue (5).

6. Attorney-fee award. The Paxtons argued that the bankruptcy court improperly reduced their attorney-fee award by two-thirds after dividing the attorney’s time among the asserted issues. Reviewing the fee decision for abuse of discretion, the district court held that the bankruptcy court had reasonably awarded fees only for issues on which the Paxtons prevailed. The bankruptcy court had compared the attorney’s time tables with the time sheets, identified discrepancies, and based the reduction on the number of unsuccessful issues and the three issues on which the Paxtons prevailed. The appeal was DENIED as to issue (6).

Requests for judicial notice and disposition

The district court also DENIED the Paxtons’ two requests for judicial notice because it would consider only the record that had been before the bankruptcy court.

Judge Phyllis J. Hamilton concluded that the bankruptcy court’s orders and final judgment were AFFIRMED. The opinion did not resolve the bankruptcy court’s still-pending consideration of possible additional damages related to failure to vacate the declaratory judgment.