Justia U.S. 9th Circuit Court of Appeals Opinion Summaries

Debtors, husband and wife filed for Chapter 13 bankruptcy. They listed their home among their assets with a value of $500,000, a mortgage with an outstanding balance of $375,077, and a homestead exemption of $124,923. The bankruptcy court confirmed a Chapter 13 plan, but after roughly twenty months, which included a temporary job loss and deferral of mortgage payments due to the pandemic, the husband contracted Parkinson’s Disease, and the couple could no longer make their required payments. Debtors exercised their right to convert to Chapter 7. In the interim, their home had risen in value by an estimated $200,000. The Chapter 7 trustee (“Trustee”) filed a motion to sell Debtors home to recover the value for creditors.   The Ninth Circuit affirmed the district court’s order which affirmed the bankruptcy court’s order, the panel held that post-petition, pre-conversion increases in the equity of an asset belonging to the bankruptcy estate rather than to debtors who, in good faith, convert their Chapter 13 reorganization petition into a Chapter 7 liquidation. The panel held that the plain language of Section 348(f)(1)(A), coupled with the Ninth Circuit’s previous interpretation of 11 U.S.C. Section 541(a), compelled the conclusion that any appreciation in the property value and corresponding increase in equity belonged to the estate upon conversion. The panel looked to the definition of “property of the estate” in Section 541(a), which addresses the contents of the bankruptcy estate upon filing under either Chapter 7 or Chapter 13, and the court’s prior opinions holding that the broad scope of Section 541(a) means that post-petition appreciation inures to the bankruptcy estate, not the debtor. View "IN RE: JOHN CASTLEMAN, SR., ET AL V. DENNIS BURMAN" on Justia Law

Petitioners moved to quash trial subpoenas issued by the United States Bankruptcy Court for the Central District of California, requiring them to testify via contemporaneous video transmission from their home in the U.S. Virgin Islands. The bankruptcy court denied their motions, and the Petitioners sought mandamus relief from this court. Petitioners argued that Federal Rule of Civil Procedure 45(c)(1) prohibits the bankruptcy court from compelling them to testify, even remotely, where they reside out of state over 100 miles from the location of the trial.   The Ninth Circuit granted the petition. The panel held that the bankruptcy court erred in refusing to quash the trial subpoenas because, under the plain meaning of the text of the Rules, the geographic limitations of Rule 45(c) apply even when a witness is permitted to testify by contemporaneous video transmission. The panel concluded that Rule 45(c) governs the court’s power to require a witness to testify at trial and focuses on the location of the proceeding, while Rule 43(a) governs the mechanics of how trial testimony is presented. Weighing the Bauman factors to determine whether issuance of a writ of mandamus was appropriate, the panel concluded that the third factor, clear error, weighed in favor of granting mandamus relief. The panel concluded that the fifth Bauman factor also weighed in favor because the petition presented an important issue of first impression. The panel held that the third and fifth Bauman factors were sufficient on their own to warrant granting mandamus relief in this case. View "IN RE: JOHN KIRKLAND, ET AL V. USBC, LOS ANGELES" on Justia Law

From 2003 to 2007, Plaintiff took out ten student loans to attend college in Washington state. Defendants National Collegiate Student Loan Trusts (collectively, “the Trusts”) ultimately purchased Plaintiff’s loans. The Trusts appointed Defendant U.S. Bank as their special servicer. The Trusts also hired Defendant Transworld Systems, Inc. (“Transworld”), to collect the defaulted loans, and hired Defendant Patenaude & Felix (“Patenaude”), a law firm specializing in debt collection, to represent them in debt collection actions. Several years after taking out the loans, Plaintiff filed for Chapter 13 bankruptcy relief.   The Ninth Circuit affirmed in part and reversed in part the district court’s dismissal for failure to state a claim, Plaintiff’s action alleging that Defendants’ attempts to collect debts that were discharged in bankruptcy violated the Fair Debt Collection Practices Act and the Bankruptcy Code. Affirming the dismissal of Plaintiff’s claims that were based on a violation of his bankruptcy discharge order, the panel reiterated that Walls v. Wells Fargo Bank, 276 F.3d 502 (9th Cir. 2002), precludes FDCPA claims and other claims based on violations of Bankruptcy Code Section 524. The panel reversed the district court’s dismissal, as barred by the one-year statute of limitations, of Plaintiff’s remaining FDCPA claim based on the theory that Defendants knowingly brought a meritless post-discharge debt collection lawsuit because they knew they could not prove ownership of Plaintiff’s debts. The panel concluded that Plaintiff sufficiently alleged one post-filing FDCPA violation in the filing of an affidavit that presented a new basis, not contained in the complaint, to show that Defendants owned the debts. View "OSURE BROWN V. TRANSWORLD SYSTEMS, INC., ET AL" on Justia Law

The Ninth Circuit reversed the district court’s judgment reversing the bankruptcy court’s order requiring a standing Chapter 13 trustee to return her percentage fee when the case was dismissed prior to confirmation. Joining the Tenth Circuit, the panel held that the trustee was not entitled to a percentage fee of plan payments as compensation for her work in the Chapter 13 case. 28 U.S.C. Section 586(e)(2) provides that the trustee shall “collect” the percentage fee from “payments . . . under plans” that she receives. 11 U.S.C. Section 1326(a)(1) provides for the debtor to make payments in the amount “proposed by the plan to the trustee.” Section 1326(a)(2) provides that the trustee shall retain these payments “until confirmation or denial of confirmation.” This section further provides that if a plan is not confirmed, the trustee shall return to the debtor any payments not previously paid to creditors and not yet due and owing to them. Section 1326(b) provides that, before or at the time of each payment to creditors under the plan, the trustee shall be paid the percentage fee under Section 586(e)(2).   The panel held that, reading these statutes together, “payments . . . under plans” in § 586 refers only to payments under confirmed plans. Prior to confirmation a trustee does not “collect” or “collect and hold” fees under Section 586 but instead “retains” payments “proposed by the plan” pursuant to Section 1326(a)(2). If a plan is not confirmed, then Section 1326(a)(2) requires a return to the debtor of payments “proposed by the plan.” View "IN RE: ROGER EVANS, ET AL V. KATHLEEN MCCALLISTER" on Justia Law

Clifton Capital Group (“Clifton”) was chair of an official committee of unsecured creditors appointed by the Office of the United States Trustee to monitor the activities of debtor East Coast Foods, Inc., manager of Roscoe’s House of Chicken & Waffles. The bankruptcy court appointed Bradley D. Sharp as Chapter 11 trustee. Clifton objected to Sharp’s fee application, but the bankruptcy court awarded the statutory maximum fee. Clifton appealed. The district court concluded that Clifton had standing to appeal, and it remanded. On remand, the bankruptcy court again awarded the statutory maximum. Clifton again appealed, and the bankruptcy court, this time, affirmed.   The Ninth Circuit reversed l reversed the district court’s order affirming the bankruptcy court’s enhanced fee award to the trustee. the panel wrote that the Ninth Circuit historically bypassed the Article III inquiry in the bankruptcy context, instead analyzing whether a party is a “person aggrieved” as a principle of prudential standing. The court, however, has returned emphasis to Article III standing following Susan B. Anthony List v. Driehaus, 573 U.S. 149 (2014), in which the Supreme Court questioned prudential standing. The panel held that Clifton lacked Article III standing to appeal the fee award because it failed to show that the enhanced fee award would diminish its payment under the bankruptcy plan, and thus it failed to establish an “injury in fact.” The panel also concluded that Clifton did not suffer injury to the timing of its payment because Clifton’s alleged harms were conjectural, and it remained possible that Clifton would be paid within the plan’s initial estimated window. View "IN RE: CLIFTON CAPITAL GROUP, LLC, ET AL V. BRADLEY SHARP" on Justia Law

The IRS held a secured claim on the debtor’s real property arising from a tax penalty lien. The debtor claimed a $150,000 homestead exemption in the property under Arizona law. The trustee sought to avoid the tax penalty lien on the debtor’s exempt property and preserve it for the benefit of the estate pursuant to 11 U.S.C. Sections 724(a) and 551.   The Ninth Circuit reversed the district court’s decision affirming the bankruptcy court’s summary judgment in favor of a Chapter 7 trustee who brought an adversary proceeding seeking to avoid an Internal Revenue Service tax lien on property subject to a homestead exemption and to preserve the value of the lien for the benefit of the bankruptcy estate.   The panel held that Section 724(a) concerns the trustee’s avoidance of qualifying liens attached to the property of the estate at the time of distribution. When a debtor exempts a property interest under 11 U.S.C. Section 522, the exemption withdraws that property interest from the bankruptcy estate and, thus, from the reach of the trustee for distribution to creditors. Accordingly, because exempt property is not “property of the estate” which may be “distributed,” a trustee may not avoid a lien under Section 724(a) attached to exempt property which is no longer part of the estate. The panel held that it follows that a trustee is not permitted to preserve the tax lien for the benefit of the estate under Section 551, which provides for automatic preservation of certain avoided liens, including liens avoided under Section 724(a). View "IN RE: SANDRA TILLMAN, ET AL V. LAWRENCE WARFIELD, ET AL" on Justia Law

=This appeal arises from Appellee’s efforts to avoid, in bankruptcy, a judgment lien recorded in 2014 against his Carlsbad, California home. The Ninth Circuit affirmed the bankruptcy court’s judgment in favor of Appellee and against the Chapter 7 Trustee. The panel was called upon to decide how the Bankruptcy Code’s procedure for avoiding judgment liens that “impair[] an exemption to which the debtor would have been entitled,” 11 U.S.C. Section  522(f)(1), interacts with California’s homestead exemption, which allows a debtor to claim a limited exemption in bankruptcy in connection with his primary residence.   The issue gained complexity here because the amount of California’s homestead exemption increased significantly between the time the lien on Appellee’s home was recorded in 2014 and the time he filed for bankruptcy in 2021. Under California law, the exemption Appellee could claim would be fixed at the 2014 amount. Appellee argued that the Bankruptcy Code requires looking to the exemption he could have claimed, but for the lien, at the time he filed his bankruptcy petition. The panel held that in deciding whether a judgment lien impairs a debtor’s California homestead exemption, the Bankruptcy Code requires courts to determine the amount of the exemption to which the debtor would have been entitled in the absence of the lien at issue. Thus, the bankruptcy court correctly applied the $600,000 homestead exemption available in 2021, which, consequently, allowed Appellee to avoid the entirety of the judgment lien placed on his home. View "CHRISTOPHER BARCLAY V. DEJAN BOSKOSKI" on Justia Law

Appellant Smart Capital Investments1 leased several floors of a commercial building in downtown Los Angeles to Appellee Hawkeye Entertainment, LLC. After a rocky relationship developed, Smart Capital took steps to terminate the lease alleging that Hawkeye had committed numerous breaches. Hawkeye failed to resolve Smart Capital’s concerns and filed for Chapter 11 bankruptcy, seeking to assume the lease under 11 U.S.C. Section 365 to prevent eviction. The bankruptcy court allowed Hawkeye to assume the lease over Smart Capital’s objection, and the district court affirmed. Smart Capital now appeals, arguing that the bankruptcy court erred by not requiring Hawkeye to provide “adequate assurances of future performance” of the lease, as required under 11 U.S.C. Section 365.   The Ninth Circuit affirmed the district court’s order affirming the bankruptcy court’s order allowing Hawkeye Entertainment, LLC, a Chapter 11 debtor, to assume an unexpired commercial lease under 11 U.S.C. Section 365. The panel held that Section 365(b)(1) applies where a default has occurred, regardless of whether that default has been resolved or is ongoing. The panel also held that “default” was not limited to material defaults that would trigger forfeiture of the lease under California landlord-tenant law. The panel concluded, therefore, that Section 365(b)(1) was triggered in this case. The panel further held, however, that the bankruptcy court’s failure to analyze Section 365(b)(1)’s curative requirements was harmless error. View "IN RE: SMART CAPITAL INVS. I, LLC, ET AL V. HAWKEYE ENTERTAINMENT, LLC, ET AL" on Justia Law

The bankruptcy court found nondischargeable (1) indebtedness arising from a disbarred attorney’s obligation to reimburse the State Bar for payments made by the Bar’s Client Security Fund to victims of his misconduct while practicing law and (2) the costs for the disciplinary proceedings conducted against the attorney, a Chapter 7 debtor.   The Ninth Circuit filed (1) an order denying Appellant’s petition for panel rehearing, granting Appellee’s petition for panel rehearing, and denying, on behalf of the court, the parties’ petitions for rehearing en banc; and (2) an amended opinion affirming in part and reversing in part the bankruptcy court’s judgment in an adversary proceeding.   Reversing in part, the panel held that the indebtedness arising from the attorney’s obligation to reimburse the State Bar for the payments made to victims of his misconduct was not excepted from discharge under 11 U.S.C. Section 523(a)(7), which provides that a debtor is not discharged from any debt that “is for a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit, and is not compensation for actual pecuniary loss.” Considering the totality of the Client Security Fund program, the panel concluded that any reimbursement to the Fund was payable to and for the benefit of the State Bar and was compensation for the Fund’s actual pecuniary loss in compensating the victims for their actual pecuniary losses. View "ANTHONY KASSAS V. STATE BAR OF CALIFORNIA" on Justia Law

Pacific Gas & Electric Company (“PG&E”), sought chapter 11 protection in a bid to proactively address massive potential liabilities related to a series of wildfires in Northern California. But PG&E was solvent. Its assets at the time of the bankruptcy filing exceeded its known liabilities by nearly $20 billion. As a result, several creditors—including Plaintiffs, the Ad Hoc Committee of Holders of Trade Claims—claimed PG&E must pay post-petition interest at the rates required by their contracts in order for their claims to be “unimpaired” by the reorganization plan   The Ninth Circuit reversed the district court’s order. The panel held that under the “solvent-debtor exception,” the creditors possessed an equitable right to receive post-petition interest at the contractual or default state rate, subject to any other equitable considerations before PG&E collected surplus value from the bankruptcy estate. The solvent-debtor exception is a common-law exception to the Bankruptcy Act’s prohibition on the collection of post-petition interest as part of a creditor’s claim.   The panel concluded that Cardelucci merely interpreted 11 U.S.C. Section 726(a)(5), which requires that creditors of a solvent debtor receive post-petition interest at “the legal rate.” Section 726(a)(5), however, applies only to impaired chapter 11 claims, and the panel concluded that Cardelucci, therefore, did not address what rate of post-petition interest must be paid on the Ad Hoc Committee’s unimpaired claims. The panel reversed and remanded to the bankruptcy court to weigh the equities and determine what rate of interest the creditors were entitled to. View "PG&E CORPORATION V. AD HOC COMMITTEE OF HOLDERS" on Justia Law