Brissette, Matter of

• Decision Date: 23 September 1977
• Docket Number: No. 75-3288,75-3288
• Citation: Brissette, Matter of, 561 F.2d 779 (9th Cir. 1977)
• Parties: In the Matter of Edward G. BRISSETTE, Gene Paul Master, Michael Anthony Simon, Bankrupts-Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 779

561 F.2d 779

In the Matter of Edward G. BRISSETTE, Gene Paul Master Michael Anthony Simon, Bankrupts-Appellants.

No. 75-3288.

United States Court of Appeals Ninth Circuit.

Sept. 23, 1977.

Rehearing Denied Nov. 25, 1977.

Barry Wolf, California Indian Legal Services, Eureka, Cal., argued for appellant.

Philip M. Arnot, Eureka, Cal., argued for appellee.

Ann Broadwell, Thomas R. Adams, Charles P. Gillet, Daly City, Cal., for The Legal Aid Society of San Mateo County, amicus curiae on behalf of bankrupts-appellants.

Appeal from the United States District Court for the Northern District of California.

Before HUFSTEDLER, GOODWIN, and ANDERSON, Circuit Judges.

HUFSTEDLER, Circuit Judge.

This appeal presents questions of first impression in the administration of the Bankruptcy Act, concerning the interplay between the exempt property provisions of Section 6 of the Bankruptcy Act (11 U.S.C. § 24 (1971)), the wage garnishment restrictions of the Consumer Credit Protection Act (15 U.S.C. §§ 1671-77 (1971)), and the wage exemption provisions of the California law applicable to these bankrupts (Cal.Code Civ.Proc. § 690.6 (West Supp.1977)). After disposing of a threshold jurisdictional issue, we conclude that the Consumer Credit Protection Act ("CCPA") does not itself create an exemption within the meaning of the Bankruptcy Act, but that by reason of its incorporation by California's exemption statute, which, in turn, is adopted by the Bankruptcy Act, it becomes an exemption measure, with the result that 75 percent of appellants' wages are exempt from their creditors. In this appeal, each bankrupt requests that 75 percent of his wages earned but unpaid prior to the filing of the bankruptcy petition be deemed exempt property not subject to become part of the bankruptcy estate, pursuant to Section 6 of the Bankruptcy Act. (See Bankruptcy Rule 403; Bankruptcy Act § 70(a)(5), 11 U.S.C. § 110(a) (5) (1971).) The trustee exempted 50 percent of such wages, rather than 75 percent in his report of exempt property. The district court affirmed the trustee's determination that only 50 percent of the wages were exempt property within the meaning of Section 6. As the sums involved amount to less than $500, appellants duly requested and were granted leave to appeal to this court. (Id. § 47(a); Rule 6, Fed.Rules of App.Proc. ¹) We also granted leave to appeal in forma pauperis.

I

We must first decide whether the district court's order is appealable under Section 24(a) of the Bankruptcy Act (11 U.S.C. § 47(a) (1971)). Interlocutory orders are appealable under this section only if they arise in "proceedings in bankruptcy" and not if they arise in "controversies" in proceedings in bankruptcy. ² (Young Properties Corp. v. United Equity Corp. (9th Cir. 1976) 534 F.2d 847, 849-51; In re Durensky (5th Cir. 1975)519 F.2d 1024, 1027-28; United Kingdom Mutual Steamship Assurance Assoc. v. Liman (2d Cir. 1969) 418 F.2d 9, 9-10 (hereinafter cited as "United Kingdom Mutual "). See generally 9 Moore's Federal Practice P 110.19(5), at 222-271 (2d ed. 1975); 2 Collier on Bankruptcy P 24.11-.39, at 733 et seq. (14th ed. 1976).) Although it is generally assumed that exemption determinations arise in proceedings and appellees do not contest the point, there is no recent authority for this proposition. (But see Young Properties Corp., supra, 534 F.2d at 853 (citing Collier). See also Lines v. Fredrick (1970) 400 U.S. 18, 91 S.Ct. 113, 27 L.Ed.2d 124; In re Cummings (10th Cir. 1969) 413 F.2d 1281; In re Aveni (6th Cir. 1972) 458 F.2d 972 (all reaching the merits in interlocutory appeals of exemption disputes without addressing jurisdictional question).) Moreover, the frequently cited general rule respecting controversies is that they involve disputes "with regard to the propriety of including property in the estate for distribution, rather than a question with regard to the administration of the estate once it is amassed." (United Kingdom Mutual, supra, 418 F.2d at 10; Taylor v. Voss (1926) 271 U.S. 176, 181-82, 46 S.Ct. 461, 70 L.Ed. 889.) While this language usually appears in the context of trustee disputes with creditors, exemption disputes similarly involve "quarrels about what belongs in the bankrupt estate." (See 9 Moore, supra, at 225; Young Properties Corp., supra, 534 F.2d at 853; In re Merle's, Inc. (9th Cir. 1973) 481 F.2d 1016, 1018. See also Cope v. Aetna Finance Company of Maine (1st Cir. 1969) 412 F.2d 635, 638-39 n. 9; In re Christ's Church of the Golden Rule (9th Cir. 1949) 172 F.2d 523, 524; In re National Finance & Mortgage Corp. (9th Cir. 1938) 96 F.2d 74, 75-76.) These broad statements do not truly reflect the vagaries of the cases which are "difficult, if not impossible to reconcile in principle." (United Kingdom Mutual, supra, 418 F.2d at 11.)

The distinction between "proceedings" and "controversies" in Section 24(a) is obscure and indefensibly confusing. (See generally 2 Collier, supra, PP 24.03-. 04, .08, .11-.36; 9 Moore, supra, P 110.19(5). See also United Kingdom Mutual, supra, 418 F.2d at 10; In re Imperial "400" National, Inc. (3rd Cir. 1968) 391 F.2d 163, 168.) Problems in the area are exacerbated by continuing reliance on case law construing identical terms under pre-1938 jurisdictional statutes. (See 2 Collier, supra, P 24.11, at 736-36.1 (earlier case law authoritative as to § 24) and P 24.17, at 742-43 (citing all pre-1938 cases for proposition exemption disputes are proceedings). But see 9 Moore, supra, at 223 n. 4.) Not only was the earlier law chaotic (see 2 Collier, supra, PP 24.03(5)-.04(1), at 706-13 (observations of § 24's draftsmen); Taylor v. Voss, supra, 271 U.S. at 180, 46 S.Ct. 461), but construction of the prior terms led to dramatically different consequences. Under the earlier statutes, the more liberal rights of appeal adhered to "controversies" (appealable as of right and as to matters of law and fact (id. at 180-82, 46 S.Ct. 461)), while "proceedings," even after final judgment, were appealable only by permission of the courts of appeals and only as to matters of law. (id. aT 181, 46 S.ct. 461; 2 collier, supra, P 24.11(2), at 733-34 (discussing statutory exceptions not relevant here). See also In re Christ's Church of the Golden Rule, supra, 172 F.2d at 524.)

Earlier case law does not help us to interpret Section 24(a), which not only gave appeals from final judgments in proceedings the same status as controversies on appeal, ³ but also liberalized the opportunity for appellate review of proceedings by making it available on an interlocutory basis. (Cf. id.) The relevant criteria in deciding whether a dispute is a proceeding or a controversy must be directly related to its special effects on the administration of the Bankruptcy Act and to its special demands on appellate court resources. ⁴

The esoteric draftsmanship of Section 24(a) does not completely obscure the draftsmen's intent that decisions involving interpretation of fundamental provisions of the Bankruptcy Act should be subject to interlocutory appeal. Due to the peculiar nature of bankruptcy proceedings, certain interlocutory decisions may effectively determine the ultimate outcome or finally resolve rights and duties of parties in a manner not susceptible to meaningful review on appeal from the final judgment. (See Cohen v. Beneficial Loan Corp. (1949) 337 U.S. 541, 545-47, 69 S.Ct. 1221, 93 L.Ed. 1528.) Prompt review expedites the ultimate resolution of the proceeding and serves the interests of all participants by eliminating unnecessary and repetitious proceedings. Resolution of such issues will often wind up the entire litigation. If these consequences do not flow from permitting an interlocutory appeal, appeals in this field should be as firmly restricted as those in other kinds of civil litigation. Appealability thus turns on a sensitive examination of the legal issues involved, the impact of the decision on future bankruptcy administration, the need for interlocutory review and its practical utility.

The instant case involves a basic question of interpretation of Section 6 of the Bankruptcy Act. In contrast, disputes between trustees and third parties over title to assets typically involve the property and procedural law of creditors' rights, which are entwined in the bankruptcy proceeding only because the erstwhile debtor has become a bankrupt and the trustee has succeeded to his rights. (See United Kingdom Mutual, supra, 418 F.2d at 10 (controversies involve legal issues "distinct and separable" from Bankruptcy Act); In re National Finance & Mortgage Corp., supra, 96 F.2d at 75 (controversy where creditor relies on right which is hostile to the trustee or bankruptcy jurisdiction).) When such disputes arise outside the bankruptcy court, they are subject to ordinary rules respecting interlocutory appeals. (See 9 Moore, supra, at 227.) They should not be treated differently merely because they arise within the bankruptcy proceeding.

Decisions about the status of exempt property can, and frequently do, determine the entire course of the bankruptcy proceeding. Disputes over exemptions integrally affect the administration process, and are therefore among the issues that are contemplated by Section 24(a)'s exception to the final judgment rule. (See In re Durensky, supra, 519 F.2d at 1028 (application by bankrupt as to which bankruptcy court exercised summary judgment and which involved steps integral to bankruptcy adjudication held proceeding).)

A decision that property is exempt may so deplete the potential estate that creditors will decline to participate further in the proceeding; a decision that it is not exempt will cause title to it to vest in the trustee during the pendency of the action, with all the attendant consequences of vesting. Although the exemption decision is technically interlocutory, it is frequently the final resolution of the rights of the parties for practical purposes. Erroneous...