In re Romano, No. 041-19155.

Decision Date18 May 2005
Docket NumberNo. 041-19155.
PartiesIn re Servio and Gweneth ROMANO, Debtors.
CourtUnited States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Eastern District of Louisiana

Mary M. Taylor, Pontchartrain Law Center, Metairie, LA, for Debtors.

MEMORANDUM OPINION

JERRY A. BROWN, Bankruptcy Judge.

The objection filed by J. Marshall Miller, trustee (hereinafter "trustee") to the debtors' claim of exemption and the response filed by debtors' counsel, were heard on March 2, 2005. At the hearing, the court requested that the parties file memoranda discussing whether a decision of one district court judge in a multi-judge district is binding upon the bankruptcy court in a suit involving the same issue, but different parties. Memoranda were submitted by both the trustee and the debtors, and the matter was taken under submission.

1. The exemption.

The debtors filed a voluntary Chapter 7 petition, schedules and a statement of financial affairs on December 7, 2004. Among the items claimed as exempt on Schedule C are: 1) a 1995 Chevy C-1500 with an exemption value of $7500 and 2) a 1995 International school bus with an exemption value of $20,000. Both vehicles are claimed as exempt under the provisions of La.Rev.Stat. § 13:3881(A)(2), which exempts property necessary to the trade, calling or professions of the debtor.

On February 7, 2005, the trustee filed an objection to the debtor's claim of exemption of the vehicles. The trustee asserts that La.Rev.Stat. 13:3881(A)(2)(d) limits the exemption to one motor vehicle, and only up to an equity value of $7,500. The debtors responded to the objection, asserting that the 1995 school bus is a tool of the trade under La.Rev.Stat. § 13:3881(A)(2)(a), and is exempt for its full value. The court has visited this confusing area of the law before.

On August 6, 2004, this court entered an order and memorandum opinion in the case of Flora Vicknair,1 which sustained the trustee's objection to the exemption of a school bus driven by the debtor. In Vicknair, the debtor had sought to exempt two vehicles, a minibus with an exemption value of $4,000 and a school bus with an exemption value of $25,000. This court, in a written opinion, determined that La.Rev. Stat. § 13:3881(A)(2)(d) permitted the exemption of only one motor vehicle, limited to an equity value of $7500.2 This decision was appealed, but the trustee settled with the debtor, and the appeal was dismissed.3

Shortly after the Vicknair decision, an oral decision was rendered in another case with a similar exemption issue In re Tessie Belsome.4 This court denied the exemption of a 1997 Thomas school bus with a exemption value of $22,500 under La.Rev. Stat. 13:3881(A)(2)(a) as a tool of the trade, but permitted the vehicle's equity value of $7,500 an exemption under Article 3881(A)(2)(d), as an exempt motor vehicle. On appeal, the district court reversed the bankruptcy court's decision, and allowed the entire exemption value of the school bus as a tool of the trade under subsection (a).5

2. Minding Effect of the District Court Opinion.

The issue in this case is whether the Belsome decision, by a single district court judge in a multi-judge district, is binding upon this court in all matters concerning the exemptions of motor vehicles. It is undisputed that the decision of the district court is binding upon this court in all future matters in the Belsome bankruptcy case itself.

The debtor asserts that it is settled law that a bankruptcy court is absolutely bound to follow the district court's decision in the district in which it sits. Not surprisingly, the trustee asserts that the bankruptcy court is not bound by a decision of a single district court judge in a multi-judge district. Case law exists which supports both contentions, and no decision from the Fifth Circuit has been found which addresses the issue.

One leading commentator has noted that "[t]he stare decisis effect of bankruptcy appeals decisions by district courts and Bankruptcy Appellate Panels has been the subject of considerable disagreement."6 Two distinct approaches have emerged from the courts that have considered the issue:

1) the opinion of the district court is viewed as persuasive, and not as binding authority on the bankruptcy court;7

2) the district court opinion is binding precedent in the district where the decision appealed from arose.8

(A). Analysis of decisions holding that the district court opinion is not binding.

One of the first cases to consider an opinion of the district court as merely persuasive, and not binding, is In re Windsor Communications Group, Inc.9 The court was asked whether actions to recover accounts receivable were noncore or core matters, following the decision in Marathon.10 The district court had issued more than one decision, with varying results.11 Ultimately determining that the contrary decision of the district court was mere dictum, the bankruptcy court held that it must give "great deference to, but ... need not blindly follow, decisions of our local district court."12

In re Gaylor13 examined the hierarchical structure of federal courts and the stare decisis effect of a district court opinion on the bankruptcy court. The court noted that while appeals are taken from the bankruptcy court to the district court, the bankruptcy courts are not inferior to district courts for stare decisis purposes. It noted that judges within a multi-judge district are not bound by decisions of other district judges.14 The court reasoned that "a decision of the district court cannot be binding on the bankruptcy courts unless it is also binding on the district court as a whole."15 Noting that 28 U.S.C. § 151 provides that bankruptcy courts constitute "a unit of the district court," the court reasoned that the bankruptcy courts operate as an adjunct to the district court. concluded that bankruptcy courts were not therefore bound by the decisions of a single district court in a multi-judge district.

Other courts have reached the same conclusion, but for slightly different reasons. For example, in In re Rapluxel,16 the court noted a line of cases establishing that "there is no such thing as the law of the district.'"17 Because the district court judges were not bound by opinions of other district court judges, the court reasoned that the bankruptcy court could not be bound by the decision of a single judge where an appeal may be heard by a number of district court judges.18 It noted that:

requiring bankruptcy judges to be bound by a district court opinion in a multi-judge district "would result in allowing the random assignment of cases to a judge to dictate which judge first ruled on any issue and thereby made the binding law of the district, even if all the other judges in the district strongly disagreed with the holding."19

Commentators have noted that a majority of courts hold that a bankruptcy court is not bound by the decision of a single district court judge in a multi-judge district.20

(B). Analysis of decisions holding that the district court opinion is binding precedent on bankruptcy courts lira that district.

Other courts have concluded that the bankruptcy court is bound by a decision of any district court within the district.21 For example, in In re Shunnarah,22 the district court reversed a holding of the bankruptcy court that it was not bound by a decision of a single district judge in a multi-judge district. It reasoned that "[b]ecause a bankruptcy court is an Article I court, and appeals from such court are taken to the Article III courts, which have reversal power over the bankruptcy courts" the bankruptcy court are inferior courts for stare decisis purposes23 Thus, Shunnarah and other courts hold that the bankruptcy court would be bound by published district court opinions, until an opinion containing a different holding is published.24

In In re Phipps,25 the bankruptcy court gave a detailed analysis of the binding nature of district court opinions. It reasoned that a bankruptcy court is an inferior or court because its decisions may be reversed by a single judge of another court.26 It dismissed the argument that the bankruptcy court is not bound because a district court is not bound by the decision of other district judges by stating that "furthermore, whatever else the 1984 jurisdictional amendments did or did not do, they did not make this writer a judge of the district court, for purposes of 28 USC 132(b) and (c)."27 Additionally, the court reasoned that this determination was enforced because a district judge may sua sponte withdraw the reference from a bankruptcy court.28 The court noted that in the Supreme Court decision of Whiting Pools,29 each level of court presumed that the bankruptcy court was bound by a district court decision.30 Finally, the court concluded that the 1984 amendments to the Bankruptcy Code made the bankruptcy courts more subordinate to the district courts, and not merely a "unit" of the district court.31 Because neither the bankruptcy judges nor lawyers who practice in bankruptcy court can be expected to know about district court decisions that have not been published, the decision was limited to published decisions of the district court.32

Other decisions holding that the bankruptcy court is bound by decisions of the district court make no distinction between published and unpublished decisions. In Bryant v. Smith,33 the district court held that the "bankruptcy court is not an Article III court", functions as an adjunct of the district court and that "a bankruptcy judge is no more free to ignore the clear precedent of the district court than is a United States Magistrate Judge."34 Instead, the clear, non-conflicting precedent of the district court must be followed.35 Similarly, in In re Johnson,36 the court held that bankruptcy courts should defer to well-reasoned decisions by a district judge in the same district. Significant to this decision was the determination that deference would case and expedite the appeal...

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