Patrick Jay McCauley and Patricia Lee McCauley

1 UNITED STATES BANKRUPTCY COURT 2 EASTERN DISTRICT OF CALIFORNIA 3 In re: ) Case No. 25-23919-C-11 ) 4 PATRICK J. MCCAULEY and ) PATRICIA L. MCCAULEY, ) DCNs: PPM-23 & PPM-24 5 ) Debtors. ) 6 _________________________________ 7 FINDINGS OF FACT AND CONCLUSIONS OF LAW ON ALLOWANCE OF CONTESTED CLAIMS NOS. 2 AND 3 8 9 Chapter 11 Debtors Patrick J. McCauley and Patricia L. 10 McCauley object to Claims No. 2 and No. 3 filed by Bette M. 11 Dambacher and Gary P. Dambacher, Trustees Dambacher Family Trust. 12 (“Dambachers”). 13 14 Jurisdiction 15 Jurisdiction is founded on 28 U.S.C. § 1334(b). Objections 16 to claims are core proceedings that a bankruptcy judge may hear 17 and determine. 28 U.S.C. § 157(b)(2)(B). 18 In view of the debtors’ history of bankruptcy case filings, 19 this Court has exercised its discretion to conduct a trial 20 proceeding with presentation of testimony and evidence in the 21 interest of determination of the merits of the subject claims 22 with a final order in an issue-preclusive manner, instead of a 23 more summary procedure that could necessitate a later trial if 24 the claims issues linger. 25 26 Case Background 27 This is the Debtors’ fourth bankruptcy case affecting the 28 contested claims: (1) No. 2013-50194, chapter 12, filed 1 1/31/2013, dismissed 4/28/2020; (2) No. 2021-20485, chapter 12, 2 filed 2/10/2021, dismissed 6/29/2021; (3) 2025-20833, chapter 11, 3 filed 2/26/2025, dismissed 7/11/2025; and (4) No. 2025-23919, 4 chapter 11, filed 7/30/2025 now pending in this Court. 5 This Court conducted a trial on the Debtors’ objections to 6 Claims Nos. 2 and 3 in order to fix the allowed amounts of the 7 respective claims so that the Debtors may formulate a chapter 11 8 plan. The procedure is as provided by Federal Rule of Bankruptcy 9 Procedure 3012. 10 The Debtors concede that the Claimants have allowable claims 11 but challenge the amounts owed and demand an accounting. 12 At trial, the Debtors testified by way of declaration, made 13 oral presentations, and presented an “Evidentiary Brief” in 14 support of their objections. The Creditors rested on their 15 written presentations. The evidentiary record is now closed. 16 In addition to the in-court presentations and trial 17 exhibits, the Hearing Record consists of: 18 Claim No. 2 $727,780.90 (Mortgage 8/10/2003 - Modoc County) Claim No. 3 $418,873.82 (Judgment 3/7/2007 renewed - Tuolumne 19 County 9/20/2014; renewed again 10/20/2023) 20 Debtors’ Objection to Claim No. 2 (Dkt. 118) Creditor Response (Dkt. 152) 21 Debtors’ Objection to Claim No. 3 (Dkt. 123) 22 Creditor Response (Dkt. 151) 23 Debtors’ Evidentiary Brief on Claims Nos. 2 & 3 (Dkt. 189) Debtors’ Status Conference Statement (Dkt. 190) 24 Stipulation and Order Between Debtors and Dambacher Trust, 25 U.S. Bankruptcy Court, Dist. of Nevada, Case No. BK-13-50194-btb, Nevada Dkt. No. 252 (10/3/2019) 26 Order Terminating Automatic Stay Upon Default of Second Amended 27 12 Plan, U.S. Bankruptcy Court, Dist. of Nevada, Case No. BK-13- 28 2 1 50194-btb, Nevada Dkt. No. 241 (9/25/2019) 2 Order Dismissing Chapter 12 Proceeding pursuant to 11 U.S.C. § 1208 Effective June 15, 2020 (U.S. Bankruptcy Court, Dist. of 3 Nevada, Case No. BK-13-50194-btb, Nevada Dkt. No. 305 (4/28/2020). 4 5 Findings of Fact 6 I 7 Allowance of Claim No. 2 8 Claim No. 2 for $727,780.90 is based on a Note and Deed of 9 Trust with respect to certain property in Modoc County, 10 California. 11 The Note for $350,000.00 at 6.5% interest was dated August 12 10, 2003. 13 Dambachers purchased from the original mortgagees the Note 14 and Deed of Trust in advance of a pending foreclosure, taking an 15 Assignment of Deed of Trust recorded July 6, 2020. Their 16 explanation is that to have allowed the foreclosure would have 17 placed them in the position of a “sold out junior” and erased 18 their status as judgment lien creditors based on a recordation in 19 Modoc County of their Tuolumne County judgment. That explanation 20 is credible as it accurately states California mortgage 21 foreclosure law. 22 The accounting included in the proof of claim as of July 29, 23 2025, documents an accumulated debt of $727,780.90. 24 The components consist of: principal, interest from 6/15/20 25 to 7/29/25, recording fee, attorney fees (7/6/20 - 2/27/25), 26 foreclosure fees, Modoc County Tax Collector, interest on 27 advances, and attorney fees (2/28/25 - 7/29/25). 28 The Debtors’ Status Conference statement (Dkt. 190), says 3 1 “Debtors contend that additional accounting and supporting 2 documentation are necessary to determine the correct amount of 3 the claim, including documentation relating to principal balance 4 calculations, advances, taxes, fees, foreclosure-related 5 activity, and other charges in the proof of claim.” 6 The only specific item directly questioned is payment of 7 $111,974.42 to the Modoc County Tax Collector. Neither the amount 8 nor the validity of the taxes are questioned. Rather, the Debtors 9 contend that a Farm Credit loan may have been available to pay 10 those taxes and that the ensuing loan may have been forgiven. 11 The Dambachers respond that the taxes were paid by them to 12 prevent an imminent tax sale. 13 There is no question that the Modoc County taxes were due 14 and payable. They were paid and became a legitimate component of 15 the secured debt. 16 The Debtors’ assertions are not enough to rebut the prima 17 facie validity of the $727,780.90 proof of claim. 18 This Court is persuaded that Claim No. 2 is allowable in the 19 full amount claimed. 20 21 II 22 Allowance of Claim No. 3 23 A 24 Claim No. 3 for $418,873.82 is based on a judgment of the 25 Tuolumne County Superior Court in favor of Dambachers against 26 Patrick J. McCauley, individually and dba Mayar’s Halal Meat, and 27 2XP Ranches, LLC, entered March 7, 2007, in the amount of 28 $157,261.90. 4 1 No Satisfaction of Judgment has ever been recorded in 2 Tuolumne County with respect to the 2007 judgment. 3 The Tuolumne County judgment was renewed September 20, 2014, 4 in the amount of $150,103.35, which amount reflected the terms of 5 the Debtors’ Second Amended Chapter 12 Plan (“Chapter 12 Plan”) 6 confirmed by the Nevada Bankruptcy Court July 29, 2014. 7 The 2014 renewal noted that judgment interest calculated at 8 10% in accordance with California Code of Civil Procedure 9 § 685.10 from the date of judgment to the date of confirmation of 10 the Chapter 12 Plan was $118,125.36. 11 The Tuolumne County judgment was renewed again on October 12 20, 2023, in the amount of $355,674.26. 13 The 2023 renewal explained at Attachment 6.b. that the 14 judgment debt was calculated based on the original judgment debt, 15 plus interest at the legal rate of 10%, plus costs, and giving 16 credit of $37,714.00 for payments received under the Chapter 12 17 Plan. 18 The rationale for disregarding the terms of the Chapter 12 19 Plan is that the effect of the March 4, 2020, dismissal of the 20 Chapter 12 case on account of unreasonable delay prejudicial to 21 creditors per 11 U.S.C. § 1208(c)(1) and material default by the 22 debtors with respect to the terms of a confirmed plan per 11 23 U.S.C. § 1208(c)(6), operated to eliminate the terms of the 24 Chapter 12 Plan. 25 Proof of Claim No. 3 for $418,873.82 adds to the 2023 26 renewal interest at the legal rate of 10% for the 649 days 27 between October 20, 2023, and the date of filing the instant 28 Chapter 11 Petition on July 30, 2025. 5 1 B 2 Chapter 12 Plan 3 Pursuant to the Debtors’ Second Amended Chapter 12 Plan, the 4 judgment debt was reduced to $125,000 with interest at 5% as of 5 July 29, 2014, with a requirement of annual payments and then a 6 $25,000 balloon payment at the end of the Plan. 7 At the time of the Chapter 12 confirmation, judgment 8 interest of about $118,125.36 had accrued pursuant to California 9 Code of Civil Procedure § 685.10, but was treated as zero in the 10 chapter 12 plan, with a correlative lump sum of $25,000 due at 11 the end of the plan. 12 The Debtors claimed at that time that they were entitled to 13 credits totaling $109,805.92 in calculating the amount of the 14 judgment debt. By reducing the amount of the judgment debt and by 15 reducing the judgment interest rate from 10% to 5% the Chapter 12 16 plan took into account, and netted out, the credits then claimed 17 by the Debtors. 18 The renewal of the 2007 judgment filed December 31, 2014, 19 was signed by “Milton M. Dambacher” September 20, 2014, and took 20 into account the Debtors’ first Chapter 12 Plan payment of 21 $2,526.00 and noted the effect of the Chapter 12 Plan. 22 Debtors had made the first payment of $2,526.00 on August 1, 23 2014. Interest accrued under the Chapter 12 Plan terms from July 24 29, 2014, to December 31, 2014. 25 Ultimately the Debtors made the following payments: 26 8/1/2014, $2,526.00; 9/1/2015, $8,787.00; 9/1/2016, $8,797.00; 27 10/9/2017, $8,797.00; 11/26/2018, $8,797.00. 28 The Second Amended Chapter 12 Plan provided for $25,000.00 6 1 attorney’s fees at the end of the plan. In addition, it 2 prescribed a 25% penalty ($31,250.00) if Debtors defaulted or the 3 case was dismissed or converted. 4 The Debtors defaulted in 2019. They failed to make the 5 required balloon payment at the end of the plan. 6 After taking into account the payments the Debtors had made 7 under their Chapter 12 plan, the Nevada Bankruptcy Court entered 8 an Order on September 25, 2019, declaring that the judgment that 9 Dambachers may enforce and collect pursuant to its Tuolumne 10 County judgment lien was $178,470.01 as of September 17, 2019. 11 By Order entered October 3, 2019, pursuant to stipulation of 12 the Dambachers and McCauleys, the Nevada Bankruptcy Court 13 temporarily suspended enforcement of the judgment lien, clarified 14 that “the judgment upon which the Dambacher Trust may collect is 15 $178,470.01 as of September 1, 2019, plus interest at the legal 16 rate, and an additional sum of $10,000.00 for Dambacher Trust’s 17 attorney’s fees, which shall be paid upon the sale of the 18 Debtors’ home and farm (aka ranch), whether voluntarily or 19 involuntarily.” 20 The Debtors did not appeal the Nevada Bankruptcy Court’s 21 Order of October 3, 2019. 22 The stipulation was premised on the promise of the Debtors 23 to sell their home and farm (aka ranch). 24 The Debtors did not honor their promise embodied in the 25 stipulation. 26 By Order entered April 28, 2020, the Nevada Bankruptcy Court 27 dismissed the Debtors’ chapter 12 case effective June 15, 2020, 28 on the bases of unreasonable delay and material default of plan 7 1 terms under a confirmed plan. 11 U.S.C. § 1208(c)(1) & (c)(6). 2 The Debtors did not appeal. 3 4 Conclusions of Law 5 I 6 Proof of Claim No. 2 7 Proof of Claim No. 2 for $727,780.90 is based on a mortgage 8 debt incurred August 10, 2003, with respect to certain real 9 property in Modoc County, California. 10 The Dambachers took an Assignment of Deed of Trust from the 11 original mortgagees on July 6, 2020, in order to prevent a 12 pending foreclosure that would have had the effect of making them 13 a “sold out junior,” hence eliminating their judgment lien status 14 against that Modoc County property of the Dambachers’ judgment 15 lien based on the 2007 judgment of the Tuolumne County Superior 16 Court that is the subject of Proof of Claim No. 3. 17 This Court believes the Dambacher evidence regarding the 18 circumstances and intention of taking that Assignment. 19 The proof of claim is in proper form prescribed by Rule 20 3001, is accompanied by evidence the security interest has been 21 perfected, and is accompanied by an itemized statement of the 22 debt. 23 Having been signed and filed in accordance with the Federal 24 Rules of Bankruptcy Procedure, it is entitled to status as prima 25 facie evidence of the claim’s validity and amount. 26 The Debtors contest the inclusion in the mortgage debt of 27 the payment by Dambachers of $111,974.42 to the Modoc County Tax 28 Collector. There is no contention that the $111,974.42 Modoc 8 1 County tax debt was not due and owing. 2 The Dambacher testimony is that they paid the Modoc County 3 tax debt to prevent a tax foreclosure. This Court believes that 4 testimony. 5 The Debtors’ testimony is that they believed that a Farm 6 Credit loan may have been available to the Debtors or to their 7 son to pay $111,974.42 to Modoc County Tax Collector and that 8 Farm Credit might have eventually forgiven such debt. 9 The Debtors’ double-barreled may and might speculations are 10 too remote and too uncertain to rebut the prima facie evidence of 11 the validity and amount of Proof of Claim No. 2. 12 Hence, Proof of Claim No. 2 will be allowed in the full 13 amount claimed. 14 15 II 16 Proof of Claim No. 3 17 A 18 Proof of Claim No. 3 for $418,873.82 is based on a judgment 19 of the Tuolumne County Superior Court in favor of Dambachers 20 against Patrick J. McCauley, individually and dba Mayar’s Halal 21 Meat, and 2XP Ranches, LLC, entered March 7, 2007, in the amount 22 of $157,261.90. 23 Proof of Claim No. 3 is in the proper form prescribed by 24 Rule 3001, is accompanied by evidence the judgment lien security 25 interest has been perfected, and is accompanied by an itemized 26 statement of the debt. 27 Having been signed and filed in accordance with the Federal 28 Rules of Bankruptcy Procedure, it is entitled to status as prima 9 1 facie evidence of the claim’s validity and amount. 2 The Debtors attempt to rebut the prima facie evidence of the 3 claim’s validity with various assertions that are not backed by 4 evidence that this Court finds to be credible. In order to 5 believe them, this Court would be required to ignore the official 6 records regarding the Tuolumne County Superior Court judgment and 7 disregard California law regarding enforcement of judgments. 8 The Debtors have not presented evidence sufficient to 9 persuade this Court that the Claimants’ prima facie evidentiary 10 case has been rebutted. 11 The Debtors testified that the original judgment creditor, 12 Claimants’ predecessor Milton M. Dambacher (now deceased), was 13 always generous and supportive of them and did not immediately 14 seek to enforce his recorded judgment. The initial lack of 15 judgment enforcement activity tends to confirm their view that 16 Milton M. Dambacher was willing to stay his hand. This Court 17 believes the Debtors’ testimony in that respect. 18 Although the Debtors assert that, as early as 2008, they 19 believed that the judgment debt would be forgiven, it is plain 20 that the recorded judgment continued to be enforceable at the 21 discretion of the judgment creditor. 22 If the judgment debt had actually been forgiven, then 23 Tuolumne County records would include recorded Satisfaction of 24 Judgment. There is no recorded Satisfaction of Judgment. 25 It is significant that Milton M. Dambacher personally signed 26 the 2014 renewal of judgment. That is persuasive evidence that 27 the 2007 judgment debt was not forgiven by Milton M. Dambacher. 28 It is plausible that the effect of the Great Recession after 2008 10 1 on real estate values rendered judgment enforcement temporarily 2 undesirable as an uneconomic enterprise until the real estate 3 market recovered. Hence, the lack of enforcement by the judgment 4 creditor does not warrant an inference of an intent to forgive 5 the judgment debt. In any event, the absence of a recorded 6 Satisfaction of Judgment is conclusive. 7 Upon the death of Milton M. Dambacher, the present Claimants 8 as successor trustees of the Dambacher Family Trust, became the 9 judgment creditors and have ever since sought to enforce, or at 10 least to preserve, their judgment lien rights. 11 12 B 13 In their Nevada Chapter 12 case, the Debtors obtained 14 significant benefits regarding the judgment when the Bankruptcy 15 Court reduced the amount of the judgment debt, effectively erased 16 more than $100,000 in accrued judgment interest, and judicially 17 reduced judgment interest rate from the 10% prescribed by 18 California law to 5% for the duration of the Chapter 12 plan. 19 The Debtors contend that the two credits totaling 20 $109,805.92 were not taken into account. The Nevada Bankruptcy 21 Court’s erasure of more than $100,000 in 2014 represents an 22 accommodation of the credits claimed by the Debtors. It follows 23 that the credits were taken in account at the time of confirming 24 the Debtors’ Chapter 12 plan in 2014. 25 When the Debtors defaulted in 2019, the Nevada Bankruptcy 26 Court did a careful accounting, giving credit for all payments 27 the Debtors had made during the plan and fixed the adjusted 28 judgment debt at $178,470.01. 11 1 In addition, pursuant to a stipulation to which the Debtors 2 were party, the Nevada Bankruptcy Court also provided that 3 interest would be at the “legal” rate, which under California law 4 is 10%, not the 5% the Debtors had enjoyed during the Chapter 12 5 plan. 6 The Nevada Bankruptcy Court’s Order was not appealed and 7 became final and binding on the Debtors. Their claim objection 8 amounts to an impermissible collateral attack on that order. 9 By Order entered October 3, 2019, pursuant to stipulation of 10 the Dambachers and McCauleys, the Nevada Bankruptcy Court 11 temporarily suspended enforcement of the judgment lien, clarified 12 that “the judgment upon which the Dambacher Trust may collect is 13 $178,470.01 as of September 1, 2019, plus interest at the legal 14 rate, and an additional sum of $10,000.00 for Dambacher Trust’s 15 attorney’s fees, which shall be paid upon the sale of the 16 Debtors’ home and farm (aka ranch), whether voluntarily or 17 involuntarily.” 18 The Debtors did not appeal the Nevada Bankruptcy Court’s 19 Order of October 3, 2019. 20 The stipulation was premised on the promise by the Debtors 21 to sell their home and farm (aka ranch). 22 The Debtors did not honor their promise embodied in the 23 stipulation. 24 By Order entered April 28, 2020, the Nevada Bankruptcy Court 25 dismissed the Debtors’ chapter 12 case effective June 15, 2020, 26 on the bases of unreasonable delay and material default of plan 27 terms under a confirmed plan. 11 U.S.C. § 1208(c)(1) & (c)(6). 28 The Debtors did not appeal the dismissal order. 12 1 C 2 Effect of Dismissal of Chapter 12 Case 3 As a matter of law, the dismissal of the Chapter 12 case 4 operated to eliminate the orders of the Nevada Bankruptcy Court 5 judicially adjusting the amount of the judgment debt and reducing 6 the judgment interest to 5% from the 10% prescribed by California 7 law. 8 Specifically, unless the court, for cause, orders otherwise, 9 a dismissal of a case reinstates any lien voided under Bankruptcy 10 Code § 506(d). 11 U.S.C. § 349(b)(1)(C). 11 Upon dismissal, the property right inherent in the judgment 12 lien “revests ... in the entity in which such property was vested 13 immediately before the commencement of the case.” 11 U.S.C. 14 § 349(b)(3). 15 As Congress explained at the time of enacting Bankruptcy 16 Code § 349(b): 17 The basic purpose of the subsection is to undo the bankruptcy case, as far as practicable, and to restore all 18 property rights to the position in which they were found at the commencement of the case. 19 House Rep. No. 95-595, 95th Cong., 1st Sess. 337-338 (1977); 20 Senate Rep. No. 95-989, 95th Cong. 2d Sess. 48-49 (1978); 3 21 COLLIER ON BANKRUPTCY ¶ 349.03, 16th ed. Richard Levin & Henry J. 22 Sommer, eds. in chief (2026). 23 Section 349(b) applies to the dismissal of Chapter 12 cases. 24 In re Derrick, 190 B.R. 346, 350-51 (Bankr. W.D. Wis. 1995), see 25 also, In re Whitmore, 154 B.R. 314, 316 (Bankr. D. Nev. 1993). 26 Since a judgment lien is a property right, the Nevada 27 Bankruptcy Court’s provisions in the Chapter 12 Plan judicially 28 13 1 adjusting the amount of the judgment debt and reducing the 2 judgment interest rate from 10% to 5% were exercises in 3 overriding the Dambacher judgment lien. The underlying legal 4 analysis justifying altering a property right that is fixed by 5 governing state law is that § 506(d) operated to “void” the 6 California judgment lien. 7 The lien, however, would be permanently “void” only if the 8 Debtors successfully performed their obligations under the 9 Chapter 12 Plan, completed all payments under the plan, and 10 received a Chapter 12 discharge pursuant Bankruptcy Code § 1228. 11 11 U.S.C. § 1228. 12 As it turned out, the Chapter 12 case was dismissed for 13 unreasonable prejudicial delay and material plan default without 14 the entry of a Chapter 12 discharge. 15 The effect of the Chapter dismissal was to reinstate the 16 Dambacher judgment lien as it existed before commencement of the 17 Chapter 12 case. Accordingly, the judgment lien was not “void” 18 per § 506(d). Further, the property right inherent in judgment 19 lien revested in the Dambachers. 20 21 D 22 Judgment Interest 23 During trial in this Court, the Debtors expressed puzzlement 24 about the interest calculation, particularly the legitimacy of 25 charging interest on interest. They conceded they did not know 26 how judgment interest is calculated. 27 The analysis of interest under the California judgment 28 enforcement statute has two phases. 14 1 In the first phase of California judgment enforcement, post- 2 judgment interest accruing at a rate of 10% from entry of 3 judgment is not compounded (i.e., no interest on interest) with 4 respect to a judgment that has not yet been renewed. 5 Renewal of a judgment, however, triggers the second phase. 6 The renewed judgment debt includes the judgment amount, together 7 with all judgment interest accrued and not paid before renewal. 8 Thereafter accrued unpaid interest from the first phase is added 9 to and becomes part of the principal amount of the judgment, upon 10 which 10% accrues. Cal. Code. Civ. P. § 683; OCM Principal 11 Opportunities Fund, L.P. v. CIBC World Markets Corp., 168 Cal. 12 App. 185, 193 (2008); See Cal. Law Revision Comm’n comment to 13 § 683. 14 In short, the California judgment renewal provisions 15 effectuate a compounding of post-judgment interest. 16 The renewed judgment included in Proof of Claim No. 3 17 correctly states the governing law at attachment 6.b. when it 18 states, “the amounts set forth under Paragraph 5 are based upon 19 the amount of the judgment as originally entered on March 7, 20 2007, plus interest at the rate of 10% per annum, as adjusted for 21 payments” made by the Debtors during the course of the Plan. 22 The adjustments are consistent with the payments identified 23 by the Nevada Bankruptcy Court. 24 It follows that Claim No. 3 is allowed in the full amount 25 claimed as of the date of filing this chapter 11 case. 26 27 Conclusion 28 This Court having rendered these Findings of Fact and 15 1 Conclusions of Law pursuant to Federal Rule of Civil Procedure 2152, as incorporated by Federal Rules of Bankruptcy Procedure 7052 3 Hand 9014, it is ORDERED: 4 The Objection to Proof of Claim No. 2 is OVERRULED; and 5 Claim No. 2 is ALLOWED in full as claimed; and 6 The Objection to Proof of Claim No. 3 is OVERRULED; and 7 Claim No. 3 is ALLOWED in full as claimed; and 8 Any Chapter 11 Plan proposed by the Debtors must take into 9 flaccount the full allowed amounts of Claim No. 2 and Claim No. 3. 10 Separate judgments allowing Claim No. 2 and Claim No. 3 11 |jshall be entered. 12 13 Dated: August 27, 2026 14 \ } bile 16 United States Bankruptcy Judge 17 18 19 20 21 22 23 24 25 26 27 28 16 1 INSTRUCTIONS TO CLERK OF COURT 2 SERVICE LIST 3 4 The Clerk of Court is instructed to send the attached document, via the BNC, to the following parties: 5 Patrick Jay McCauley 6 25247 County Road 1 Cedarville, CA 96104 7 Patricia Lee McCauley 8 25247 County Road 1 Cedarville, CA 96104 9 David C. Johnston 10 1600 G. Street, Suite 102 Modesto, CA 95354 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 17