Blausey v. U.S. Trustee

• Decision Date: 23 January 2009
• Docket Number: No. 07-15955.,07-15955.
• Parties: John C. BLAUSEY; Deann J. Blausey, Debtors-Appellants, v. U.S. TRUSTEE, Trustee-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

552 F.3d 1124

John C. BLAUSEY; Deann J. Blausey, Debtors-Appellants, v. U.S. TRUSTEE, Trustee-Appellee.

No. 07-15955.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted December 11, 2008.

Filed January 23, 2009.

David N. Chandler, Jr. (argued), David N. Chandler Sr., David N. Chandler, P.C., Santa Rosa, CA, for the debtors-appellants.

Stephanie R. Marcus (argued), Peter D. Keisler, William Kanter, U.S. Department of Justice, Civil Division, Washington, D.C., Roberta A. DeAngelis, P. Matthew Sutko, David A. Levine, Office of the General Counsel, Executive Office for U.S. Trustees, U.S. Department of Justice, Washington, D.C.; James A. Shepherd, Office of the U.S. Trustee, San Francisco, CA, for trustee-appellee.

Appeal from the United States Bankruptcy Court for the Northern District of California; Alan Jaroslovsky, Bankruptcy Judge, Presiding. D.C. No. BK-06-10826-AJ.

Before: B. FLETCHER, M. MARGARET McKEOWN, and NEIL M. GORSUCH^*, Circuit Judges.

PER CURIAM:

John and Deann Blausey appeal the bankruptcy court's dismissal of their petition for Chapter 7 bankruptcy. The bankruptcy court granted the U.S. Trustee's motion to dismiss the case pursuant to 11 U.S.C. § 707(b)(2), a provision of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"), which allows the U.S. Trustee to move for dismissal where a statutory means test demonstrates a presumption of abuse. The bankruptcy court held that the $4,000 per month in disability insurance benefits that Mrs. Blausey received from her private insurer should have been included in the Blauseys' current monthly income ("CMI") under the statutory means test. With the benefits included, the Blauseys' CMI was high enough to trigger the presumption of abuse.

The Blauseys appealed directly to this court under 28 U.S.C. § 158(d)(2), a BAPCPA provision authorizing direct appeal from the bankruptcy courts to the courts of appeals. They argue that the bankruptcy court should have interpreted the word "income" as used in the definition of CMI, 11 U.S.C. § 101(10A), based on the meaning of "gross income" under the Internal Revenue Code. They reason that because private disability insurance benefits are excluded from gross income, Mrs. Blausey's benefits must also be excluded from CMI.

We have jurisdiction to consider this case. We hold that Mrs. Blausey's private disability insurance benefits were income that should have been included in CMI, and we affirm the bankruptcy court.

I. BACKGROUND

A. Deann Blausey's insurance policy and disability

In 1991, Deann Blausey purchased a private disability insurance policy, titled "Disability Income Pro-Inc Plus," from John Hancock Mutual Life Insurance Company. Mrs. Blausey's employer paid none of the premiums for the insurance policy. By its terms, the policy pays disability benefits up to a specified "monthly income benefit amount" if the insured becomes unable to work due to sickness or injury and the injury caused a loss of monthly earnings of 20 percent or more. The policy defines "monthly earnings" as wages, salaries, commissions, fees, and deferred income. The amount of benefits paid depends on the amount of income lost due to the disability. If the insured loses at least 75 percent of her monthly earnings, the policy pays 100 percent of the monthly income benefit amount.

In 1996, Mrs. Blausey suffered an injury to her elbow that made her work as a certified court reporter very painful. After she was diagnosed with a permanent disability, she filed an insurance claim and began to receive benefits in December 1996. She now receives $4,000 per month in disability benefit payments under her policy.

B. Bankruptcy court proceedings

On November 15, 2006, the Blauseys filed a petition for Chapter 7 bankruptcy in the U.S. Bankruptcy Court for the Northern District of California. They disclosed in their petition that Mrs. Blausey received disability benefits of $4,000 per month, but they did not include these benefits in their calculation of CMI.

The U.S. Trustee moved to dismiss the Blauseys' case under 11 U.S.C. § 707(b)(1), arguing that the case was presumptively an abuse of Chapter 7 under § 707(b)(2) or, in the alternative, that the totality of the circumstances demonstrated abuse under § 707(b)(3)(B).¹ The U.S. Trustee urged the bankruptcy court to find that Mrs. Blausey's disability benefits should have been included in the Blauseys' CMI because the benefits constitute both "income" and an "amount paid by any entity other than the debtor . . . on a regular basis for the household expenses of the debtor" under 11 U.S.C. § 101(10A)(A)(B).² With the $4,000 per month added to CMI, a presumption of abuse would arise under the means test of § 707(b).

The bankruptcy court held that the disability insurance payments were "income" within the meaning of CMI. The bankruptcy court rejected the Blauseys' argument that "income" should be defined by reference to the Internal Revenue Code. Finding that the words "all sources" and "without regard to whether such income is taxable income" in the statute demonstrated Congress's intent to define income more expansively than does the Internal Revenue Code, the bankruptcy court adopted what it considered to be the "simplest and most expansive" definition of income: "receipts." The bankruptcy court also found that the disability payments were amounts paid by an entity other than the debtor on a regular basis for household expenses under 11 U.S.C. § 101(10A)(B).

On May 3, 2007, the bankruptcy court entered its order dismissing the case.

C. Proceedings on appeal

On May 10, 2007, the Blauseys filed a notice of appeal, a request to certify a direct appeal to the court of appeals, and a statement of election to appeal to the district court (rather than the bankruptcy appellate panel ("BAP")) with the bankruptcy court. On May 22, 2007, the bankruptcy court entered its order certifying the direct appeal to our court on the ground that the case "involves questions of law for which there is no controlling authority and are a matter of public importance." On the same day as it certified the appeal, the bankruptcy court transferred the record to our court. The bankruptcy court erred when it made this transfer. The bankruptcy court should not have sent the record to our court until we granted the petition for permission to appeal. See Interim Bankruptcy Rule 8001; Bankruptcy Rule 8007. Nevertheless, the Ninth Circuit clerk docketed the appeal on June 1, 2007.

On June 27, 2007, the U.S. Trustee moved this court to remand the appeal to the bankruptcy court with instructions to transmit the notice of appeal and the bankruptcy court record to the district court. The U.S. Trustee argued that we lacked jurisdiction over the appeal because the Blauseys failed to file a petition for permission to appeal within 10 days after the bankruptcy court's grant of the Blauseys' request for certification.

On July 19, 2007, the Blauseys filed a petition for permission to appeal in this court pursuant to 28 U.S.C. § 158(d)(2). On July 23, 2007, they filed an opposition to the U.S. Trustee's Motion to Remand. In their opposition they argued (1) that the 10-day time limit was not jurisdictional, and (2) even if it was jurisdictional, this court should treat the notice of appeal filed by the bankruptcy court as a timely filed petition for permission to appeal.

A motions panel of this court granted the Blauseys' petition for permission to appeal. In relevant part, the panel's order stated:

Appellant's May 10, 2007 notice of appeal, which was erroneously transmitted to this court with the bankruptcy court's order approving certification of direct appeal on May 22, 2007, is construed as a petition for permission to appeal pursuant to 28 U.S.C. § 158(d)(2). So construed, the petition for permission to appeal pursuant to 28 U.S.C. § 158(d)(2) is granted.

II. DISCUSSION

A. Jurisdiction

Our jurisdiction over direct appeals from the bankruptcy court is granted by 28 U.S.C. § 158(d)(2). We have jurisdiction to determine whether we have jurisdiction over a bankruptcy appeal. See, e.g., In re Canter, 299 F.3d 1150, 1152-53 (9th Cir.2002).

1. Relevant statutes and rules

28 U.S.C. § 158(d)(2) provides for direct appeals of orders, judgments, or decrees of a bankruptcy court to the courts of appeals. The statute grants the courts of appeals direct appellate jurisdiction in a bankruptcy case if the bankruptcy court³ certifies that: (1) the order involves a question of law as to which there is no controlling decision of the court of appeals for the circuit or of the Supreme Court, or if it involves a matter of public importance; (2) the order involves a question of law that requires resolution of conflicting decisions; or (3) an immediate appeal from the order may materially advance the progress of the case or proceeding. 28 U.S.C. § 158(d)(2)(A). The parties must request certification no later than 60 days after the entry of the judgment, order, or decree being appealed. Id. § 158(d)(2)(E). If these conditions are met, the court of appeals has discretion to authorize the direct appeal. Id. § 158(d)(2)(A).

BAPCPA § 1233(b) specified temporary procedural rules for these direct appeals. Pub.L. No. 109-8 § 1233(b), codified as 28 U.S.C. § 158 note. Congress intended the temporary rules to apply only until "such time as a rule of practice and procedure relating to such provision and such appeals is promulgated under chapter 131 of title 28." Id. § (1). Because the final rules went into effect on December 1, 2008, the temporary rules at issue in this case expired by the time we heard argument.

Under the temporary bankruptcy rules, a party must file a notice of appeal from the order of the bankruptcy court within 10 days of the entry of the order. Bankruptcy Rule 8002. This notice of appeal is filed in the bankruptcy court. In a separate document filed with the bankruptcy court, the party...