Opinion
Case No. 05 CV 1177 JM (NLS).
November 22, 2005
ORDER AFFIRMING DECISION OF BANKRUPTCY COURT
Background
Appellant Albert P. Zappia is appealing the decision of the Bankruptcy Court denying Appellant's motion to re-open his bankruptcy case in order to amend his schedules to change his claims of exemption. Appellant filed a bankruptcy petition under Chapter 7 of the Bankruptcy Code on December 7, 2003. Appellant chose to claim a $50,000 exemption in his home under California Code of Civil Procedure ("CCP") section 704.730 ("General Exemptions") rather than smaller exemptions in both his home and a commercial property he owned under CCP section 703.140(b) ("Specific Exemptions"). At that time, Appellant claimed a one-half interest in each of the properties, with the other half of the interest owned by his girlfriend, Sandra K. Freidrich as a joint tenant.
California has opted out of the federal exemption scheme. Accordingly, California debtors in bankruptcy have a choice between the scheme of exemptions under CCP section 704.730 and the scheme under CCP section 703.140(b). See In re Goswami, 304 B.R. 386, 390 (B.A.P. 9th Cir. 2003).
On April 5, 2004, Appellant filed a motion to avoid the judgment liens held by Appellees Merrill Lynch Business Financial Services, Inc. ("Merrill Lynch"), John Micuda, and Sea Winds Aviation as impairing the $50,000 homestead exemption he was claiming in his residential property pursuant to the General Exemptions ("First Motion to Avoid"). This motion was granted on June 18, 2004. Later, Appellant decided that he would rather claim the set of exemptions established under the Specific Exemptions, which would allow him to avoid the judgment liens on both his residential and commercial properties. On February 8, 2005, Appellant filed a motion to re-open his case to amend his schedules accordingly. The bankruptcy court denied his motion on April 8, 2005.
On May 6, 2005, Appellant filed a Notice of Appeal to the Bankruptcy Appellate Panel, which was transferred to the District Court on June 1, 2005, upon objection by Appellee Merrill Lynch.
Standard of Review
A bankruptcy court's decision whether to re-open a bankruptcy case is reviewed for abuse of discretion. See In re Cisneros, 994 F.2d 1462, 1464-65 (9th Cir. 1993). "Under the abuse of discretion standard, a reviewing court will not reverse unless it has a definite and firm conviction that the court below committed clear error of judgment in the conclusion it reached upon weighing the relevant factors." In re Cortez, 191 B.R. 174, 177 (Bankr. Fed. App. 1995).
Analysis
The Bankruptcy Court denied Appellant's motion to re-open his case on three independent grounds: (1) Appellant did not own the property in which he wished to assert an exemption; (2) judicial estoppel; and (3) res judicata.
The Bankruptcy Court commented that it was not aware of a case that allowed the assertion of an exemption in property to which the debtor did not have legal title. However, In re Chiu held that 11 U.S.C. § 522(f) "only requires that the debtors have an ownership interest in such encumbered homestead property on the petition date. . . . [T]he right to avoid a judicial lien must also be determined as of the petition date." 266 B.R. 743, 751 (B.A.P. 9th Cir. 2001), aff'd, 304 F.3d 905 (9th Cir. 2002).
The Bankruptcy Court issued a tentative ruling on April 7, 2005, and then ruled from the bench at a hearing on April 8, 2005. The final written order did not specify the reasons for denying Appellant's motion. Although the tentative ruling included impermissible "stacking" of exemptions under In re Reaves, 285 F.3d 1152 (9th Cir. 2002), as a basis for denying the motion, the court's oral ruling did not cite to Reaves. This Court, therefore, will not reach the issue.
A. Judicial Estoppel
Appellees argue that the Bankruptcy Court properly invoked the doctrine of judicial estoppel in denying Appellant's motion to re-open his case and argue that the Bankruptcy Court relied on Appellant's earlier position claiming the homestead exemption under the General Exemptions when it granted Appellant's First Motion to Avoid. Appellant responds that he is not taking an inconsistent position by amending his schedules. He maintains that he is simply trying to affect a "do-over" in order to maximize his fresh start.
Judicial estoppel prevents a party from seeking an advantage by asserting one position and then seeking an advantage by asserting an inconsistent position later. See In re Cheng, 308 B.R. 448, 452 (B.A.P. 9th Cir. 2004).
There are three general approaches to judicial estoppel: (1) requiring (like equitable estoppel) that the party injured by the changed position have relied on the first position; (2) merely requiring that the court have relied on, i.e. accepted, the earlier position; and (3) encompassing unseemly adversary behavior that constitutes `playing fast and loose' with the court.Id. (citing Wright, Miller Cooper § 4477 at 550). The United States Supreme Court has stated that there "must" be a clearly inconsistent position, but has also emphasized that judicial estoppel is a flexible doctrine that may be invoked in a court's discretion. See New Hampshire v. Maine, 532 U.S. 742, 750-51 (2001) ("[W]e do not establish inflexible prerequisites or an exhaustive formula for determining the applicability of judicial estoppel."). Here, the Bankruptcy Court followed the third approach noted in Cheng, commenting that Appellant's transfer of the commercial property without court authority and before it was abandoned by the trustee was evidence that Appellant was "playing fast and loose" with the court system. See In re Cheng, 308 B.R. at 452. Furthermore, Appellant's attempt to reverse his decision to elect the General Exemptions to invoke the Specific Exemptions instead can be fairly construed as taking a position inconsistent with one already accepted by the court.See In re Cheng, 308 B.R. at 453 ("The meaning of `acceptance' in the bankruptcy context is construed broadly to `protect the integrity of the bankruptcy process.'"). Therefore, it was not clear error for the Bankruptcy Court to apply judicial estoppel.
B. Res Judicata
Appellant argues that res judicata is inapplicable because the issue of avoidance of judicial liens on the commercial property was never litigated and was not mentioned in the First Motion to Avoid. Appellees respond that under In re Ladd, Appellant is precluded from re-opening his case to assert Specific Exemptions because he could have litigated these exemptions in his first motion. See In re Ladd, 319 B.R. 599 (B.A.P. 8th Cir. 2005).
In Ladd, the debtors asserted a homestead exemption under federal law that was denied. Later, the debtors filed an amended schedule, seeking a homestead exemption under state law. Id. at 601-02. The Bankruptcy Appellate Panel for the Eighth Circuit upheld the Bankruptcy Court's ruling that the debtors' amendment was barred by res judicata. Id. at 603. The panel reasoned that the debtors were obligated to assert all theories under which they might be entitled to an exemption once an objection to the exemption had been filed. Id.
Unlike in Ladd, Appellant could not have asserted General Exemptions and Specific Exemptions as alternate theories in the First Motion to Avoid. Appellees do not contend that Appellant could have done this; rather Appellees argue that once Appellant elected a set of exemptions, the issue became decided. The panel in Ladd analogized a bankruptcy motion to a civil lawsuit, stating that amending exemptions after a final order is "akin to allowing a party to add a new claim to a complaint after trial and entry of a judgment." Id. According to the panel:
[L]iberal amendments are permissible in the bankruptcy context and the bankruptcy court may grant relief not specifically pleaded in the motion prior to entry of an order or judgement [ sic] resolving the matter. However, once a matter has been decided, the parties cannot later assert a new theory to obtain the relief which they have already been denied by a final court order.Id.
The Bankruptcy Court previously granted Appellant's motion to avoid judicial liens based on an election of the General Exemptions. Although Appellant contends that the commercial property was not mentioned in the First Motion to Avoid, the record indicates that at least one issue in the first motion was whether the avoided lien was on the residential or commercial property, or both. In fact, this was the precise concern raised at the hearing on the first motion. At the hearing to re-open the case, the Bankruptcy Court framed the litigated issue as, "[t]he debtor came into the court, moved to set aside liens. I ruled that as to the homestead that was fine and ruled that as to the commercial property, the exemption claims wouldn't apply." Transcript of Proceeding, Apr. 8, 2005 at 6. As the court told Appellant at the April 8 hearing, "[y]ou can't now come in after you lose the case, I guess, with your fingers crossed behind your back and say I want to restart, I want to undo it. That's when judicial estoppel and res judicata come in." Transcript of Proceeding, Apr. 8, 2005 at 7. Because the First Motion to Avoid addressed the issue of which liens would be avoided on which property and in the Second Motion to Avoid Appellant sought to re-address the same issues, res judicata was properly applied.
Because the decision of the Bankruptcy Court is not based on an abuse of discretion, this Court hereby AFFIRMS the decision.
IT IS SO ORDERED.