Aspen Skiing Co. v. Cherrett (In re Cherrett)

• Decision Date: 16 October 2017
• Docket Number: No. 14-60079.,14-60079.
• Parties: IN RE Paul Richard CHERRETT; Colleen Courtney Cherrett, Debtors, Aspen Skiing Company, Appellant, v. Paul Richard Cherrett; Colleen Courtney Cherrett; Art Cisneros, Chapter 7 Trustee, Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

873 F.3d 1060

IN RE Paul Richard CHERRETT; Colleen Courtney Cherrett, Debtors,

Aspen Skiing Company, Appellant,

v.Paul Richard Cherrett; Colleen Courtney Cherrett; Art Cisneros, Chapter 7 Trustee, Appellees.

No. 14-60079.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted November 8, 2016 Pasadena, California

Filed October 16, 2017

Scott Talkov (argued) and Michael G. Kerbs, Reid & Hellyer APC, Riverside, California, for Appellant.

Kathleen J. McCarthy (argued) and Thomas H. Casey, Law Office of Thomas H. Casey Inc., Rancho Santa Margarita, California; Leslie Keith Kaufman, Law Offices of Kaufman & Kaufman, Santa Ana, California; for Appellees.

Before: Marsha S. Berzon, Morgan Christen, and Jacqueline H. Nguyen, Circuit Judges.

Dissent by Judge Nguyen

OPINION

CHRISTEN, Circuit Judge:

This case calls for the court to decide whether a housing loan, made by an employer to an employee as a key part of a compensation package, qualified as a non-consumer debt. If the loan was a non-consumer debt, the bankruptcy court properly denied Aspen Skiing Company's motion to dismiss the Cherretts' Chapter 7 bankruptcy petition under 11 U.S.C. § 707(b)(1). On the other hand, if the loan was a consumer debt, the bankruptcy court erred by denying the motion to dismiss. The Bankruptcy Appellate Panel (BAP) affirmed the bankruptcy court, ruling that the bankruptcy court's order was final and appealable and that there was sufficient evidence that the Cherretts incurred the loan for a non-consumer purpose. We have jurisdiction under 28 U.S.C. § 158(d), and we affirm the BAP.

I. BACKGROUND

A. Cherrett's Employment with Aspen

Paul Cherrett (Cherrett) began working in the hospitality industry in 1979. He spent approximately twenty-five years with the Four Seasons hotel chain, including five years at the Four Seasons in Jackson Hole, Wyoming. In December 2006, while Cherrett lived and worked in Jackson Hole, he heard about an open managerial position at Aspen Skiing Company (Aspen) in Colorado. He did not apply for the position because it did not offer any new responsibilities compared to his job at the Four Seasons. Months later, in 2007, Cherrett learned that Aspen had created a new upper-management position with expanded responsibilities. He expressed interest to an executive search firm and interviewed for the job.

Aspen offered Cherrett a position leading its hospitality division as a senior vice president heading up the expansion of Aspen's "Little Nell Hotel" brand, Aspen's prestigious "flagship property." Cherrett understood that if the Little Nell Hotel expansion continued, he might have the opportunity to oversee brand development in Jackson Hole and move back to his home there. Cherrett also understood that if he accepted the position with Aspen, he would need to live near Aspen's office in Colorado, at least initially. This represented a challenge because his daughter had two years of high school left, Cherrett and his wife did not want to relocate her to a new school, and in Cherrett's view, the salary proposed by Aspen did not cover the high cost of living in the Aspen area nor offer sufficient incentive to disrupt his family's life in Wyoming. The salary was not enough for him to afford to buy a home in Aspen, and rentals there were "few and far between" and also very expensive.

In negotiations regarding compensation, Aspen eventually offered a $500,000 housing loan (Housing Loan) in addition to an annual salary of $300,000. The Housing Loan was interest-only for the first ten years and it was coupled with a bonus plan providing Cherrett a guaranteed annual bonus of up to $33,750 to cover the interest payments on the loan. The annual bonuses were timed to coincide with the date the annual interest payments were due, ensuring that, for the first ten years, Cherrett would have no out-of-pocket expenses related to the loan. If Cherrett left his position for any reason other than death or disability within two years, he would have to repay the loan and pay Aspen an additional $140,000. He would have to pay $120,000 for leaving within three to four years; $100,000 for leaving within five to six years; and $80,000 for leaving within seven to eight years. Cherrett would not have to repay any additional interest on the loan if he continued to work for Aspen through 2015. Aspen estimated the value of the plan at $330,750 over a period of ten years.

Only with the Housing Loan did Cherrett find Aspen's offer attractive enough to accept. He left his job and family in Jackson Hole, and purchased a condominium near Aspen for $995,000. The Housing Loan covered $500,000 of the purchase price, and Cherrett financed $417,000 with a loan from a market-rate lender.

Cherrett's wife and daughter remained at the family home in Jackson Hole so that his daughter could finish high school there. The condominium in Colorado was smaller than the family home in Jackson Hole and did not have enough space to accommodate Cherrett's wife and two children. With hopes of relocating back to Jackson Hole to develop the Little Nell Hotel brand, Cherrett considered the Colorado condominium a "place holder" and only moved clothing and personal items there. He visited his home and family in Jackson Hole "at every opportunity," returning for holidays, birthdays, anniversaries, and his daughter's prom and high school graduation. He continued using financial institutions in Wyoming, and kept his vehicle registration there.

In 2008, the economy crashed and Aspen abandoned plans to expand the Little Nell Hotel brand. It became clear that Aspen would not be relocating Cherrett back to Jackson Hole. So in 2009, after Cherrett's daughter graduated from high school and moved away to college, his wife joined him in Colorado and they sold their home in Jackson Hole. In 2011, four years after joining Aspen, Cherrett resigned from his position.

B. Bankruptcy Proceedings

Cherrett and his wife filed a voluntary Chapter 7 bankruptcy petition on August 30, 2013. They owed Aspen $550,000 under the terms of the Housing Loan. Aspen filed a motion to dismiss the Chapter 7 petition for abuse under 11 U.S.C. § 707(b)(1). The statute allows a court to "dismiss a case filed by an individual debtor under this chapter whose debts are primarily consumer debts ... if it finds that the granting of relief would be an abuse of the provisions of this chapter." 11 U.S.C. § 707(b)(1). Aspen argued that because the Cherretts incurred the Housing Loan to purchase a personal residence, the debt was a consumer debt, and they were not entitled to Chapter 7 relief in light of their ability to pay their creditors in a hypothetical Chapter 13 plan.¹

The bankruptcy court held an evidentiary hearing to determine whether the debt owed to Aspen qualified as consumer debt. After hearing testimony from Cherrett, the bankruptcy court found that Aspen offered Cherrett the Housing Loan to entice him "to leave a secured position," and that Cherrett purchased the Colorado property so he could "make more money" and "work at a very prestigious, top of the line" resort. The bankruptcy court thus determined that the Housing Loan "was incurred for a business purpose" and did not constitute consumer debt. The bankruptcy court denied Aspen's motion to dismiss.

Aspen appealed to the BAP. The BAP concluded that the order denying Aspen's motion was final and appealable, and also concluded that the bankruptcy court's finding that Cherrett incurred the Housing Loan for a non-consumer purpose was subject to clear error review. Based on the testimony and facts presented to the bankruptcy court, the BAP ruled that there was sufficient evidence to find that Cherrett obtained the Housing Loan primarily "for a business purpose with respect to his employment with Aspen." The BAP therefore affirmed the bankruptcy court's order denying Aspen's motion to dismiss under 11 U.S.C. § 707(b)(1).

II. STANDARD OF REVIEW

"Decisions of the BAP are reviewed de novo." Carrillo v. Su (In re Su) , 290 F.3d 1140, 1142 (9th Cir. 2002). "We independently review a bankruptcy court's ruling on appeal from the BAP." Id. "We review the bankruptcy court's conclusions of law de novo and its factual findings for clear error." Id.

III. DISCUSSION

A. We Have Jurisdiction Over This Appeal.

The bankruptcy court's ruling must be final for this court to exercise jurisdiction under 28 U.S.C. § 158(d). Zolg v. Kelly (In re Kelly) , 841 F.2d 908, 911 (9th Cir. 1988). Here, the bankruptcy court denied Aspen's motion to dismiss, and the BAP affirmed. Ordinarily, orders denying a motion to dismiss would not constitute final, appealable orders because they do not "end[ ] the litigation on the merits and leave[ ] nothing for the court to do but execute the judgment."

Sahagun v. Landmark Fence Co. (In re Landmark Fence Co.) , 801 F.3d 1099, 1102 (9th Cir. 2015) (quoting Firestone Tire & Rubber Co. v. Risjord , 449 U.S. 368, 373–74, 101 S.Ct. 669, 66 L.Ed.2d 571 (1981) ).

In bankruptcy appeals, however, we have recognized "that the fluid and sometimes chaotic nature of bankruptcy proceedings necessitates a degree of jurisdictional flexibility." Id. A bankruptcy court's order that is affirmed or reversed by the BAP is final and appealable where the order: "1) resolves and seriously affects substantive rights and 2) finally determines the discrete issue to which it is addressed." SS Farms, LLC v. Sharp (In re SK Foods, L.P.) , 676 F.3d 798, 802 (9th Cir. 2012) (quoting Dye v. Brown (In re AFI Holding) , 530 F.3d 832, 836 (9th Cir. 2008) ).

We have not expressly decided whether a bankruptcy court's order denying a motion to dismiss under 11 U.S.C. § 707(b) constitutes a final, appealable order. The majority of circuits that have addressed the issue have concluded that orders on motions to dismiss for abuse of Chapter 7 are appealable. See Morse v. Rudler (In re Rudler) , 576 F.3d 37, 43 (1st Cir. 2009) (collecting cases); but see Barben v. Donovan (In re Donovan) , 532 F.3d 1134,...