Scovis v. Henrichsen

• Decision Date: 11 May 2001
• Docket Number: No. 99-55679,99-55679
• Citation: 249 F.3d 975
• Parties: (9th Cir. 2001) IN RE: ARTHUR LIONEL SCOVIS; JENNY SCOVIS, DEBTORS. ARTHUR LIONEL SCOVIS; JENNY SCOVIS, APPELLANTS, v. CHRISTEN BRUN HENRICHSEN, APPELLEE
• Court: U.S. Court of Appeals — Ninth Circuit

Page 975

249 F.3d 975 (9th Cir. 2001)

IN RE: ARTHUR LIONEL SCOVIS; JENNY SCOVIS, DEBTORS. ARTHUR LIONEL SCOVIS; JENNY SCOVIS, APPELLANTS, v. CHRISTEN BRUN HENRICHSEN, APPELLEE.

No. 99-55679

UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

Argued and Submitted December 6, 2000

Filed May 11, 2001

[Copyrighted Material Omitted]

[Copyrighted Material Omitted] Lisa F. Rosenthal, Esq., Woodland Hills, California, for the appellants.

Christen Brun Henrichsen, Henrichsen and Witting, Thousand Oaks, California, for the appellee.

Appeal from the Ninth Circuit Bankruptcy Appellate Panel Philip H. Brandt, Christopher M. Klein, and Robert C. Jones, Bankruptcy Judges, Presiding. BAP No. CC-98-01064-BKJ

Before: Dorothy W. Nelson, Melvin Brunetti, and Alex Kozinski, Circuit Judges.

Brunetti, Circuit Judge

Appellants Arthur and Jenny Scovis ("Debtors") filed a Chapter 13 petition in Bankruptcy. Appellee Christen Brun Henrichsen ("Henrichsen") moved to dismiss the petition, arguing, among other things, that Debtors' aggregate unsecured debts exceed the $250,000 statutory limitation for eligibility. The bankruptcy court denied Henrichsen's motion to dismiss, and confirmed the plan. The Bankruptcy Appellate Panel ("BAP") reversed the bankruptcy court and remanded for factual findings on two issues. See In re Scovis, 231 B.R. 336 (BAP 9th Cir. 1999). Despite the remand, Debtors have appealed the BAP's determination.

I. Background

Debtors filed a Chapter 11 petition in February 1994. At the time, Debtors were attorneys actively practicing law under the law partnership of Scovis and Scovis. The case was converted to Chapter 7 in August of 1994, and their discharge was granted on March 13, 1995.

During the Chapter 7 case, creditor Christen Brun Henrichsen obtained a judgment declaring Debtors' debt to him, on a state court judgment obtained in 1993, non-dischargeable under 11 U.S.C. §§ 523(a)(6). In an unpublished memorandum disposition, this Court affirmed.

In September 1995, Arthur Scovis underwent quadruple bypass surgery and was also diagnosed with severe insulin-resistant diabetes. Soon after, Debtors filed a Chapter 13 petition. Debtors voluntarily dismissed the petition in March 1996 because they wished to resolve certain claim litigation outside of the Chapter 13 arena, intending to re-file later if necessary.

The second and current Chapter 13 petition was filed on October 25, 1996. An amended petition was filed on November 8, 1996, in which the "Nature of Debt" was changed from "Business" to "Non-Business," the estimated number of creditors was decreased, the estimated liabilities were increased, and the signature of their attorney was added. The only schedule of debts filed by Debtors are those submitted with the amended petition.

In the "Real Property" schedule, Schedule A, Debtors valued their residence at $325,000, encumbered by a first trust deed in favor of Great Western Bank of $249,026.91 along with the Henrichsen judgment lien of $208,000. In the "Property Claimed As Exempt" schedule, Schedule C, Debtors listed a $100,000 homestead exemption, allowed under California law. See Cal. Civ. Proc. Code §§ 704.730(a)(3) (1996). Henrichsen was listed again, this time under the"Creditors Holding Secured Claims" schedule, Schedule D, as having $75,973.09 secured by the residence. A priority claim of $6,000 for IRS payroll taxes, and general unsecured claims of $40,499.83 were listed on the "Creditors Holding Unsecured Priority Claims" and "Creditors Holding Unsecured Nonpriority Claims" schedules, Schedules E and F, respectively.

In addition, Debtors, under Schedule D, listed as secured a debt of $4,136 to Mary Scovis, Arthur Scovis's mother, for a loan she made to Debtors for the purchase of an automobile. However, no written security agreement was ever executed, nor was Mary Scovis ever listed as a lienholder on the title to the car. About a year after the petition date, while the confirmation was being contested before the bankruptcy court, Debtors filed a declaration from Mary Scovis in which she purportedly waived any claim on the loan.

Before the bankruptcy court, Henrichsen objected to confirmation of Debtors' Chapter 13 plan on several grounds. He asserted that Debtors did not propose their plan in good faith; and specifically, that Debtors were misusing the automatic stay to avoid a non-dischargeable judgment, that their schedules were inaccurate, and that their proposed payments were inadequate. Thereafter, Debtors amended Schedule F to delete three creditors who had been paid by insurance or other sources, which lowered the general unsecured debt owed from $40,499.83 to $22,919.85. According to the numbers, the deletion of the three creditors should have resulted in an overall general unsecured debt reduction of $3,779.98, not $17,579.98. A comparison of Schedule F and Amended Schedule F show that Debtors altered the amount they owed for 1991 Federal income taxes and penalties from $25,000 down to $11,200. Oddly, there is no indication in the record that Debtors actually paid to the IRS the $13,800 difference. It is the combined $13,800 and $3779.98 figures that reflect the general unsecured debt reduction of $17,579.98. Furthermore, on Debtors' motion, Henrichsen's judgment lien against their residence was avoided by order entered on April 23, 1997.

In September 1997, Henrichsen further objected to confirmation, arguing that Debtors fail to meet Chapter 13 eligibility requirements. At a hearing held October 20, 1997, the bankruptcy court confirmed Debtors' Chapter 13 plan. In deciding that Debtors met the statutory debt limits set forth in 11 U.S.C. §§ 109(e), the bankruptcy court treated Henrichsen's lien as partially secured by the value of Debtors' home in excess of the first deed of trust, notwithstanding the homestead exemption. The court also concluded that Henrichsen did not meet his burden of proof to overcome Debtors' showing that their Chapter 13 plan had been proposed in good faith. On November 14, 1997, the bankruptcy court filed a written order reiterating its October 20, 1997 eligibility ruling.

Henrichsen moved for reconsideration, arguing that the bankruptcy court had never ruled on his objection to Debtors' expenses. The court agreed to entertain argument on that issue at a continued confirmation hearing, and in January 1998 conditioned confirmation on the reduction of some budget items, but denied Henrichsen's objection to confirmation. On February 10, 1998, Debtors filed an amended Chapter 13 plan, reflecting those reductions in expense items. Henrichsen again objected to confirmation. At a hearing held March 9, 1998, the bankruptcy court confirmed Debtors' amended plan and entered an order to that effect on March 17, 1998.

On appeal, the BAP determined that Debtors' homestead exemption rendered Henrichsen's claim completely unsecured for purposes of §§ 109(e) eligibility. Furthermore, the BAP found that if the $4,136 debt owed to Mary Scovis is considered unsecured, then the total unsecured debt would total $251,903.07. See Scovis, 231 B.R. at 343. The BAP used the following figures in arriving at this total: (1) Henrichsen Debt, $218,847.22; (2) General Unsecured Debt, $22,919.85; (3) Priority Unsecured Debt (IRS Payroll Taxes), $6,000; and (4) Mary Scovis Debt, $4,136. The BAP reversed the bankruptcy court's confirmation of the Chapter 13 plan, and remanded the case to the bankruptcy court to make factual determinations as to whether the Mary Scovis debt is unsecured and"for findings regarding [Debtors'] good faith if they are eligible" under §§ 109(e).

II. Standard of Review

We review decisions of the BAP de novo. See In re Filtercorp, Inc., 163 F.3d 570, 576 (9th Cir. 1998). The bankruptcy court's findings of fact are reviewed for clear error and conclusions of law are reviewed de novo. Id.

III. Jurisdiction

We have jurisdiction to review final orders of the BAP under 28 U.S.C. §§ 158(d). See In re Kelly , 841 F.2d 908, 911 (9th Cir. 1988). The BAP renders a final order when it affirms or reverses a bankruptcy court's final order. Id. However, the BAP's order is ordinarily not final when the BAP remands for further factual findings related to a central issue raised on appeal. Id.

Given the unique nature of bankruptcy proceedings, however, we have taken a "pragmatic" approach by balancing several policies in determining whether a remand order may be considered final, including: (1) the need to avoid piecemeal litigation; (2) judicial efficiency; (3) systemic interest in preserving the bankruptcy court's role as the finder of fact; and (4) whether delaying review would cause either party irreparable harm. See Lundell v. Anchor Constr. Specialists, 223 F.3d 1035, 1038 (9th Cir. 2000).

We have acknowledged two narrow exceptions to the general finality rule. We may assert jurisdiction even though the BAP has remanded a matter for factual findings on a central issue "if that issue is legal in nature and its resolution either (1) could dispose of the case or proceedings and obviate the need for factfinding; or (2) would materially aid the bankruptcy court in reaching its disposition on remand. " Id.

Debtors raise three issues on appeal. First, they contest the BAP's determination that, due to the homestead exemption Henrichsen's entire claim is unsecured. Second, they argue that the $4,136 Mary Scovis automobile loan should not be classified as unsecured debt. Third, they contend that the IRS payroll tax should be disregarded since it was erroneously included in the schedules and because the tax has since been paid.

Here, jurisdiction hinges on the Mary Scovis claim since it is the only claim that was both remanded to the bankruptcy court for further inquiry and appealed to this Court. Because Debtors' unsecured debt obligation, as determined by the BAP, barely exceeds $250,000, the bankruptcy court's findings on remand as to the Mary Scovis claim could...