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Unsecured Debts Are Less Than The  Limit Turns On The Evaluation Of Two Claims That Are The Subject Of Two Separate Lawsuits

"[o]nly an individual with regular income that owes, on the date of the filing of the petition, noncontingent, liquidated, unsecured debts of less than $269,250 . . . may be a debtor under chapter 13 of this title." (3) Only debt that is both noncontingent and liquidated on the date the petition is filed is counted toward the dollar limit set out in § 109(e). Whether Debtor's unsecured debts are less than the § 109(e) limit turns on the evaluation of two claims that are the subject of two separate lawsuits. Debtor scheduled both as unliquidated, disputed, and "unknown" in amount. Debtor's other unsecured debts totaled $175,580.50, consisting of the $101,324.50 of unsecured debts on Debtor's Schedule F and a secured debt in the amount of $74,256 ($2,400,000 Taiwan dollars), which Debtor concedes is fully undersecured because it is secured by worthless stock. Because the unsecured portion of undersecured debt is counted as unsecured for § 109(e) eligibility purposes, In re Scovis, 249 F.3d 975, 983 (9th Cir. 2001), the entire $74,256 counts in determining whether Debtor's unsecured obligations exceed the applicable limit. If the debts that are the subject of the two lawsuits exceed $93,669.50 and are liquidated, (4) Debtor is ineligible to be a chapter 13 debtor under § 109(e). The lawsuits are Dai Hwa Electronics (Malaysia) Sdn. Bhd. v. Daiho Electronic, Inc., Jennifer Ho aka Sheng Ho aka Sheng-Jen Ho, and Does 1 - 100, Los Angeles County Super. Ct., Case No. KC-032523 (filed Feb. 15, 2000) ("Dai Hwa v. Daiho"), and Great Tone Ltd. v. Daiho Electronic, Inc, Los Angeles County Super. Ct., Case No. BC-200289 (filed Nov. 5, 1998) ("Great Tone v. Daiho"). Debtor is a party defendant in Dai Hwa v. Daiho, allegedly liable on counts of accounting, breach of fiduciary duty, and a shareholders' derivative action for damages. The demand for damages is "in excess of $50,000.00." The plaintiff in that case filed a proof of claim in bankruptcy court for $1,387,651.39, (5) most of which reflects Daiho's inventory ($626,578.92) and accounts receivable ($659,041.54) as of June 30, 1998. The bankruptcy court fixed $50,000 as the liquidated debt in Dai Hwa v. Daiho. Assuming that any amount could have been "readily ascertained" as a liquidated debt with respect to this lawsuit, the fact that the amount fixed was less than $93,669.50, means that Great Tone v. Daiho also figures in the calculus. The court evaluated Great Tone v. Daiho as reflecting a liquidated debt of $640,792.50, the amount of the open book account being sued upon. The bankruptcy court stated: Great Tone's claims for breach of contract and common counts for goods sold and delivered are self-evident as arising out of contract. Examination of Great Tone's state court complaint against Debtor confirms this determination. Specifically, Great Tone alleges that Debtor is liable for an open book account for goods and merchandise forwarded to Debtor. Consequently, such liability in the approximate amount of $640,792.50 can be readily ascertained and is liquidated for purposes of § 109(e).

Memorandum of Decision and Order Dismissing Chapter 13 Case, 6:12-19 (footnotes omitted; emphasis added). This conclusion was erroneous because Debtor was not named as a defendant in the Great Tone v. Daiho complaint and the complaint contains no allegations against her. In fact, the bankruptcy court acknowledged that Debtor was not a named defendant in the Great Tone v. Daiho action. The court stated as follows in footnote 2 of its memorandum decision: Debtor is not a named defendant in Great Tone's complaint. However, Debtor listed Great Tone's complaint against [Daiho] in her bankruptcy schedules. Moreover, in Debtor's supplemental papers, Debtor concedes she is a party to the pending [Great Tone action]. As this excerpt indicates, the court relied on the fact that Great Tone was listed as a creditor in Debtor's schedules and that Debtor filed a cross complaint on behalf of Daiho in the Great Tone action. (6) Neither of these reasons is a valid basis for concluding that Great Tone's breach of contract claim is a liquidated debt of Debtor. The problem with counting the $640,792.50 Great Tone v. Daiho debt as a liquidated debt of Debtor's is that Debtor is not a party to the Great Tone lawsuit. Great Tone does not allege that Debtor, who was an officer, director, and minority shareholder of Daiho, is individually liable and nothing alleged in the complaint points in that direction. Not only was Debtor not a party; the court refused to allow her to pursue a cross-complaint on behalf of Daiho. The state court dismissed the cross-complaint for lack of standing, ruling that, as a minority shareholder, Debtor could not direct the litigation activities of Daiho and was limited to the sole remedy of a shareholder derivative suit. Debtor says she scheduled Great Tone as a creditor because of her potential liability for a sanctions-type award for having intermeddled in the case. She did not suggest personal liability for the $640,792.50 open book account. Thus, the prospects for individual liability on the open book account are far-fetched. Because the court's allocation of liability on the open book account was the dispositive reason it concluded that Debtor was ineligible for chapter 13 relief, this appeal reduces itself to the question of whether the probability that a debtor will be held liable plays any role in determining whether the debt should count for purposes of calculating eligibility for chapter 13 relief under § 109(e), and whether it should matter how the debtor lists the debt on her initial schedules. A debt is liquidated if the amount of the debt is readily determinable. In re Slack, 187 F.3d 1070, 1073 (9th Cir. 1999); In re Nicholes, 184 B.R. 82, 89 (9th Cir. BAP 1995). Whether a debt is subject to "ready determination" depends on whether the amount is easily calculable or whether an extensive hearing is needed to determine the amount of the debt. Slack, 187 F.3d at 1074. See also Nicholes, 184 B.R. at 89 ("The test for 'ready determination' is whether the amount due is fixed or certain or otherwise ascertainable by reference to an agreement or by a simple computation.").The panel in Slack stated that it was holding that "a debt is liquidated if the amount is readily ascertainable, notwithstanding the fact that the question of liability has not been finally decided." 187 F.3d at 1075. However, that holding must be tempered by prior Ninth Circuit precedent (which Slack did not overrule) and the facts of that case. Slack was a motion to dismiss that was granted early in the case on the premise that noncontingent, liquidated, unsecured debt reflected in certain state court litigation by an insurance company suing to recover payments exceeded the then-applicable $250,000 limit. Two events had occurred before bankruptcy: the debtor had stipulated that plaintiff's actual damages were $255,954 and the state court had issued a tentative decision that the debtor was jointly and severally liable for $659,971. After the case was dismissed, but while the appeal was pending, the state court entered judgment against the debtor for $854,060 ($455,480 for the relevant plaintiff). Stripped of its dicta, Slack stands for two straightforward propositions: first, postpetition events are irrelevant to whether a debt is liquidated on the date of filing bankruptcy, 187 F.3d at 1073; and second, a debtor's prebankruptcy stipulation in state court that a plaintiff suffered damages of $255,954, liquidated the debt for § 109(e) purposes, making it "readily ascertainable, notwithstanding the fact that the question of liability has not been finally decided." Id. at 1075. Unfortunately, those two straightforward propositions are clouded by the ambiguous discussion in Slack of the effect of disputes over liability. In some places Slack appears to reject any link between liquidation and liability: "Therefore, the concept of a liquidated debt relates to the amount of liability, not the existence of liability. Even if a debtor disputes the existence of liability, if the amount of the debt is calculable with certainty, then it is liquidated for the purposes of § 109(e)." 187 F.3d at 1074-75 (citation omitted)(internal quotations omitted). In other places, Slack suggests liability does matter: "Whether the debt is subject to 'ready determination' will depend on whether . . . an extensive hearing will be needed to determine . . . the liability of the debtor." Id. at 1074. Finally, the Slack panel noted that, in a previous decision that did not involve a liability dispute, it had "declined to resolve the question whether a dispute regarding liability can render a debt unliquidated," 187 F.3d at 1075, and then said: We resolve that question today. We hold that a debt is liquidated if the amount is readily ascertainable, notwithstanding the fact that the question of liability has not been finally decided.