The U.S. Court of Appeals for the Ninth Circuit recently rejected a loan servicer's appeal from a Bankruptcy Appellate Panel's ruling to remand to the lower bankruptcy court a punitive damages award for alleged discharge violations.
In so ruling, the Court held that it lacked appellate jurisdiction regarding the Bankruptcy Appellate Panel's ruling as to the punitive damages award, but affirmed the Bankruptcy Appellate Panel's denial of debtors' motion for appellate attorney's fees.
A copy of the opinion is available at: Link to Opinion
Husband and wife homeowners defaulted on their mortgage loan, and abandoned their home to foreclosure. Then, they filed for chapter 7 bankruptcy and received a discharge injunction
However, they continued "to receive letters and telephone calls from [the loan servicer] about their former home."
The bankruptcy court held an evidentiary hearing and "found [the loan servicer] in contempt of the discharge injunction and imposed a $119,000 civil contempt sanction."
The servicer appealed "from that order, as well as from the bankruptcy court's order denying its motion for reconsideration." The servicer also appealed "the Bankruptcy Appellate Panel's ("BAP") conclusion that it was 'error for the bankruptcy court to preclude itself from considering an award of punitive damages' under 11 U.S.C. § 105(a)." The debtors appealed "the BAP's denial of their motion for attorney's fees incurred on appeal."
On appeal, the Ninth Circuit began by explaining that its "jurisdiction is limited to 'decisions, judgments, orders, and decrees that are 'final' [and that it lacks] authority … to consider interlocutory orders and decrees.' … Because bankruptcy cases are often complex and litigated in various discrete proceedings, BAP orders may be immediately appealed only if they 'finally dispose of discrete disputes within the larger case.' … An order in a bankruptcy proceeding is final and thus appealable if it 'alters the status quo and fixes the rights and obligations of the parties … [or] alters the legal relationships among the parties.'"
The Court went on to explain, however, that "an order from the BAP is not final if it 'remands for factual determinations on a central issue[.]' We have departed from this rule only when the BAP remands for 'purely mechanical or computational task[s] such that the proceedings on remand are highly unlikely to generate a new appeal.'"
The Ninth Circuit applied "a four-part test to determine if [it] has jurisdiction over an appeal from a BAP decision that remands to the bankruptcy court." After considering "'(1) the need to avoid piecemeal litigation; (2) judicial efficiency; (3) the systemic interest in preserving the bankruptcy court's role as finder of fact; and (4) whether delaying review would cause either party irreparable harm[,]'" the Court concluded "that all four factors compel dismissal of [the servicer's] appeals."
The Court reasoned that "dismissal serves judicial efficiency and avoids piecemeal litigation by allowing the bankruptcy court to make additional findings of fact and conclusions of law before we exercise jurisdiction." This avoids multiple trips up and down the "appellate ladder," which the Supreme Court of the United States has discouraged.
Turning to the third factor, the Ninth Circuit reasoned that "[d]ismissal preserves the bankruptcy court's fact-finding role where, as here, the BAP's decision remands to the bankruptcy court to determine whether punitive damages are appropriate."
Regarding the fourth factor, the Court found that "other than protracted litigation costs, neither party would be irreparably harmed if we declined jurisdiction over [the servicer's] appeals. Litigation costs generally do not qualify as irreparable harm."
Because "the BAP remanded to the bankruptcy court for more factual findings on punitive damages", the Ninth Circuit reasoned that making that decision was not a "ministerial task."
Also, the bankruptcy court's ruling on punitive damages "was part of the same 'discreet proceeding' in which the bankruptcy court imposed sanctions … for violating the discharge injunction." The BAP's decision did not end the contempt proceedings, "in which [the debtors] sought both monetary sanctions and punitive damages."
Because the "BAP remanded to the bankruptcy court to assess whether to award … punitive damages[,]" the Court concluded that "[t]his is therefore not a case in which BAP's decision" left no further judicial labor to be done.
Accordingly, the Ninth Circuit dismissed the servicer's "appeals for lack of appellate jurisdiction."
Turning to address the debtors' appeal of "the BAP's denial of their motion for attorney's fees incurred defending against the appeal before the BAP[,] the Court found that it had jurisdiction because unlike the servicer's appeal, the debtors' appeal raised "an issue that is both final and discrete[;]" namely, "the frivolousness of [the servicer's] appeal to the BAP…."
The Ninth Circuit rejected the debtors' argument that they were entitled to attorney's fees either under Federal Rule of Civil Procedure 38, "the attorney's fees provision in the deed trust with [the servicer], and … section 105(a) of the Bankruptcy Code."
Addressing each in turn, the Court first concluded that "[t]he BAP did not clearly err in finding that the appeal was not frivolous and did not abuse its discretion by declining to sanction [the servicer] under Rule 38."
Next, the Ninth Circuit found that "[t]he BAP did not err in concluding that the deed of trust did not entitle the [debtors] to appellate attorney's fees … [because they] seek to enforce the discharge injunction, not the deed of trust."
Finally, the Court determined that if it awarding the debtors attorney's fees under Bankruptcy Code section 105(a) "would require us to overturn our decision, In re Del Mission Ltd., 98 F. 3d 1147 (9th Cir. 1996), in which we held that section 105(a) does not authorize an award of attorney's fees. The Court declined to do so because only a panel sitting en banc can reverse Ninth Circuit precedent.
The Ninth Circuit dismissed the loan servicer's appeals for lack of jurisdiction, and affirmed the BAP's holding that debtors "were not entitled to attorney's fees for their appeal to the BAP."
Ralph T. Wutscher
Maurice Wutscher LLP
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