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

On remand from the Supreme Court, the Ninth Circuit affirmed the Bankruptcy Appellate Panel's decision reversing the bankruptcy court's finding of civil contempt and vacating its award of civil contempt sanctions against a debtor's former business partners for violation of the discharge injunction.The Supreme Court explained that an objective, rather than subjective, standard is more appropriate in determining whether the Creditors could be held in civil contempt for violating the bankruptcy discharge injunction. Furthermore, "a court may hold a creditor in civil contempt for violating a discharge order if there is no fair ground of doubt as to whether the order barred the creditor's conduct." Applying this standard, the panel held that the Creditors had an objectively reasonable basis to conclude that debtor might have "returned to the fray" in the Oregon state court to obtain some economic benefit from a higher evaluation of the sale of his ownership stake in SPBC and in the amount of interest that had accrued after the date payment was due for the forced sale. View "Lorenzen v. Taggart" on Justia Law

Chapter 7 debtor and his wife (collectively, "appellants") appealed the bankruptcy appellate panel's order affirming the bankruptcy court's judgment in an adversary proceeding brought by the Chapter 7 trustee. At issue is the characterization of two properties acquired by appellants during their marriage but before debtor individually filed for bankruptcy protection.The panel certified to the Supreme Court of California the question whether, in Chapter 7 bankruptcy proceedings, Cal. Evid. Code 662, which affords a presumption based on the property's form of title, supersedes Cal. Fam. Code 760, which applies a presumption in favor of community property for property purchased during the marriage with community property. The California Supreme Court determined that for joint tenancy property acquired during marriage before 1975, each spouse's interest is presumptively separate in character. For such property acquired with community funds on or after January 1, 1975, the property is presumptively community in character. For property acquired before 1985, the parties can show a transmutation from community property to separate property by oral or written agreement or a common understanding. For joint tenancy property acquired with community funds on or after January 1, 1985, a written declaration is required.In light of the Supreme Court of California's opinion answering the panel's certified question, the panel held that the bankruptcy courts properly applied California law to the characterization of the Redlands Property. In this case, the community property presumption applied because the property was acquired with community funds on or after January 1, 1975. However, the panel held that the bankruptcy courts did not make the necessary factual finding regarding when the San Bernardino Property was purchased to apply the proper presumptions when characterizing that property. Finally, the panel saw no clear error in the bankruptcy courts' finding that appellants failed to meet the requirements for a transmutation of either property. Accordingly, the panel affirmed in part and vacated and remanded in part. View "Brace v. Speier" on Justia Law

After Gardens Regional filed for bankruptcy, the State deducted certain "fees"—which Gardens Regional had failed to pay to the State—from various payments that the State was obligated to make to Gardens Regional under its Medicaid program. The bankruptcy court and the Ninth Circuit Bankruptcy Appellate Panel (BAP) both agreed that the deductions were permissible recoupments rather than impermissible setoffs.Although the bankruptcy court and the BAP held that all of the State's withholdings of unpaid Hospital Quality Assurance Fee (HQAF) amounts constituted legitimate instances of equitable recoupment rather than setoff, the Ninth Circuit held that the bankruptcy court and BAP's holding rested on an overly generous conception of what qualifies as "the same transaction or occurrence" for purposes of recoupment. The test remains whether the relevant rights being asserted against the debtor are sufficiently logically connected to the debtor's countervailing obligations such that they may be fairly said to constitute part of the same transaction.The panel affirmed the judgment of the BAP insofar as it holds that California's deduction of unpaid HQAF assessments from the supplemental payments made to Gardens Regional was permissible under the doctrine of equitable recoupment, but the panel reversed its judgment as to the fee-for-service payments. The panel remanded to the BAP with instructions to remand to the bankruptcy court for further proceedings. View "Gardens Regional Hospital & Medical Center Liquidating Trust v. California" on Justia Law

Pena filed for Chapter 11 bankruptcy in 2012, then owning 30 parcels of real estate. After Pena used cash collateral in an unauthorized manner, the bankruptcy court converted his case to a Chapter 7 bankruptcy and appointed a trustee, who managed Pena’s California rental properties. The trustee tendered the rents as cash collateral to the security holders of the respective security interests. The security holders did not accept the funds. In 2014, the trustee abandoned the rental parcels as part of her administration of the bankruptcy estate; her unsuccessful efforts to distribute the rents ended in 2016. She deposited $52,000 in unclaimed funds in the bankruptcy court registry and closed Pena’s bankruptcy case, listing the unclaimed funds (and their rightful owners) in her final account. Pena did not object to the court’s decree approving the trustee’s actions.In 2018, Pena unsuccessfully sought to recover the funds without reopening the bankruptcy. The bankruptcy court noted that when the bankruptcy closed, Pena still had $411,000 in unpaid, unsecured debt. The Bankruptcy Appellate Panel affirmed. The Ninth Circuit affirmed, finding that Pena had prudential standing and was a “person aggrieved” and that the absence of an opposing party, due to the trustee’s dismissal did not prevent it from exercising jurisdiction. The trustee did not abandon the rents by abandoning the properties from which they were collected; the funds remained the property of the bankruptcy estate and did not constitute an estate surplus. View "In re: Pena" on Justia Law

The Ninth Circuit previously reversed, in part, bankruptcy appellate panel decisions. The court subsequently denied the debtors’ applications, as prevailing parties, for attorney fees under the Equal Access to Justice Act, 28 U.S.C. 2412(d). The EAJA did not authorize attorney fees because a bankruptcy court does not fall within the EAJA’s definition of “United States,” and uncontested Chapter 13 bankruptcy cases are not “civil actions brought by or against the United States.” The EAJA is a limited waiver of the government’s sovereign immunity; it must be strictly construed in favor of maintaining immunity not specifically and clearly waived. View "In re: Sisk" on Justia Law

The Ninth Circuit affirmed the district court's judgment affirming the bankruptcy court's dismissal of a chapter 7 debtor's adversary proceeding seeking to exempt retirement funds from the bankruptcy estate. In dismissing the adversary complaint for failure to state a claim, the bankruptcy court held that debtor could not reclaim his retirement funds because he filed the bankruptcy petition after the execution lien had been satisfied.The panel held that debtor failed to state a claim under 11 U.S.C. 522(h), which allows a debtor to step into the role of the bankruptcy trustee and avoid certain transfers of exempt property made before the filing of the bankruptcy petition. The panel also held that, because the judicial lien was satisfied prior to the petition date, it was not voidable under section 522(f). Therefore, because it was not voidable, debtor could not succeed on his separate section 522(f) claim nor establish that the transfer of his IRA funds was a preferential transfer under section 547. Having failed to allege the elements of a section 547 preferential transfer, the panel held that the bankruptcy court correctly concluded that debtor failed to state a claim under section 522(h). View "Elliott v. Pacific Western Bank" on Justia Law

After debtor filed for Chapter 7 bankruptcy, she wanted to keep her leased Toyota vehicle. Debtor sent Toyota a signed assumption agreement and then received her bankruptcy discharge the next day. Debtor alleged that her obligations under the lease did not survive the bankruptcy discharge because the assumption agreement had not been reaffirmed under 11 U.S.C. 524(c).The Ninth Circuit affirmed the district court's judgment affirming the bankruptcy court's determination that lease assumptions survive discharge even if they are not reaffirmed under section 524(c). The panel also held that the parties' failure to comply with the procedures does not nullify debtor's agreement to assume the vehicle lease. Furthermore, debtor and Toyota mutually waived section 365(p)'s writing and timing requirements. View "Mather Bobka v. Toyota Motor Credit Corp." on Justia Law

The Bankruptcy Code does not prevent debtors from proposing and confirming plans with an estimated duration. After determining that it had jurisdiction over debtors' appeal, the Ninth Circuit held on the merits that the text and structure of the Code do not mandate a fixed term requirement for all Chapter 13 plans and that the panel should not add one without clear direction from the statute.The panel also held that none of the reasons given by the bankruptcy appellate panel justify the finding that debtors proposed their initial plans in bad faith. Finally, the panel held that the bankruptcy court did not fail to hold a confirmation hearing within the timeframe prescribed by the Code and properly exercised its discretion by deferring consideration of debtors’ estimated-duration provisions until it could adequately address them. Accordingly, the panel affirmed in part, reversed and vacated in part, and remanded for further consideration. View "In re Nanette Marie Sisk" on Justia Law

The Ninth Circuit affirmed, although on different grounds, the district court's dismissal of appellant's challenge to an exculpation clause approved by the bankruptcy court as part of a settlement and confirmation plan in Chapter 11 proceedings. As a preliminary matter, the panel declined to dismiss the appeal because of appellant's failure to reply to the show cause order. The panel remained bound by its earlier decision that appellant's challenge to the exculpation clause is not equitably moot. On the merits, the panel held that 11 U.S.C. 524(e) does not prohibit the exculpation clause at issue, because the clause covers only liabilities arising from the bankruptcy proceedings and not the discharged debt. View "Blixseth v. Credit Suisse" on Justia Law

After the State Bar of California suspended one of its members for misconduct, it conditioned her reinstatement of the payment of court-ordered discovery sanctions and costs associated with its disciplinary proceedings. The suspended attorney sought to discharge the payment in bankruptcy.The Ninth Circuit held that, while a debtor may not discharge the costs of the State Bar's attorney disciplinary proceedings imposed under California Business and Professions Code 6086.10, the discovery sanctions under California Procedure Code 2023.030 were dischargeable. Under the plain text of 11 U.S.C. 523(a)(7), they were not payable to and for the benefit of a governmental unit and were compensation for actual pecuniary losses. Finally, the panel rejected the attorney's claim that the State Bar violated 11 U.S.C. 525(a) by failing to reinstate her law license because of her nonpayment of dischargeable debts. Accordingly, the panel affirmed in part and reversed in part. View "Albert-Sheridan v. State Bar of California" on Justia Law