In Re: Danny Padilla, Debtor

• Decision Date: 06 October 1999
• Docket Number: No. 98-55099,98-55099
• Parties: (9th Cir. 2000) In Re: DANNY PADILLA, Debtor. WILLIAM T. NEARY, United States Trustee for Region 16, Appellant. v. DANNY PADILLA, Appellee. Office of the Circuit Executive
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1184

222 F.3d 1184 (9th Cir. 2000)

In Re: DANNY PADILLA, Debtor.

WILLIAM T. NEARY, United States Trustee for Region 16, Appellant. v. DANNY PADILLA, Appellee.

No. 98-55099

Office of the Circuit Executive

U.S. Court of Appeals for the Ninth Circuit

Argued and Submitted October 6, 1999--Pasadena, California

Filed August 14, 2000

[Copyrighted Material Omitted]

[Copyrighted Material Omitted] Deborah Ruth Kant (signed the briefs) and E. Roy Hawkens (argued), Civil Division, Department of Justice, Washington, D.C., for the appellant.

J. Elliott McIntosh, Pacific Law Group, Santa Ana, California, for the appellee.

Appeal from the Ninth Circuit Bankruptcy Appellate Panel, BAP No. CC-96-01890-HaMaV; Hagan, MacDonald, and Volinn, Judges, Presiding

Before: Pamela Ann Rymer and M. Margaret McKeown, Circuit Judges, and Edward F. Shea,¹ District Judge.

SHEA, District Court Judge:

OVERVIEW

William T. Neary, the United States Trustee for Region 16 ("Trustee"), appeals the Ninth Circuit Bankruptcy Appellate Panel's ("BAP's") order reversing the bankruptcy court's dismissal of Danny Padilla's ("Padilla's") Chapter 7 bankruptcy petition. In the bankruptcy court, the Trustee had filed a motion to dismiss Padilla's petition for bad faith pursuant to 11 U.S.C. S 707(a). The court found Padilla had filed his petition in bad faith and granted the Trustee's S 707(a) motion. On appeal, the BAP reversed and remanded the case for reinstatement of the petition. The Trustee timely filed the instant appeal. During the pendency of this appeal, the bankruptcy court discharged Padilla's debts and closed the case.

At issue are 1) whether this court has jurisdiction over the appeal of the BAP's order to reverse and remand, 2) whether this appeal is moot because Padilla's debts have already been discharged in bankruptcy, and 3) whether the bankruptcy court erred in its decision to dismiss the petition. Holding 1) that we have jurisdiction because the bankruptcy court's and the BAP's decisions are final orders, 2) that the appeal is not moot because the bankruptcy court lacked jurisdiction to discharge the bankruptcy and because no events have occurred that prevent this court from granting any effective relief, and 3) that the bankruptcy court erred in dismissing Padilla's petition pursuant to S 707(a), we affirm the BAP's decision and remand for further proceedings consistent with this opinion.

I. FACTUAL AND PROCEDURAL BACKGROUND

On April 19, 1996, Danny Padilla filed a voluntary petition for Chapter 7 liquidation in the United States Bankruptcy Court for the Central District of California. At the time, Padilla had a monthly take-home income of $1,950 and monthly expenses of $1,830. He had accrued almost $100,000 in credit card debt -a debt apparently related to gambling losses of $50,000 to $80,000 that Padilla had incurred during most of 1995. Padilla's assets consisted of his house and personal property. His house, though mortgaged for $145,000, was valued at $115,000. His personal property, valued at $11,745, included cash, furnishings, a car, and other personal effects. Padilla claimed an exemption for all but $1,000 of his personal property.

On June 27, 1996, the Trustee moved to dismiss Padilla's petition for bad faith under 11 U.S.C. S 707(a) alleging that Padilla had engaged in credit card "bust-out. " Credit card "bust-out" is a term used to describe a person's accumulation of a consumer debt in anticipation of filing for bankruptcy. The bankruptcy court granted the motion and dismissed Padilla's petition on September 10, 1996. On September 23, 1996, Padilla appealed to the BAP. The BAP held that, given the facts presented in the case, the bankruptcy court erred in concluding Padilla's filing constituted bad faith requiring dismissal under S 707(a). The BAP then reversed the bankruptcy court's order dismissing the petition and remanded the case for reinstatement. The BAP entered the judgment on October 24, 1997, and issued its mandate to the bankruptcy court on November 21, 1997. On December 22, 1997, the Trustee filed a notice of appeal to this court. The Trustee did not move to stay the BAP's judgment. In February 1998, the bankruptcy court, having reinstated Padilla's petition and proceeded with the bankruptcy, discharged Padilla's debts and closed the case. The Trustee did not object to the discharge.

II. JURISDICTION OVER THE APPEAL OF THE BAP'S ORDER

This Court has jurisdiction over this appeal only if both the bankruptcy court's order dismissing Padilla's bankruptcy petition and the BAP's order to reverse and remand are final orders. See 28 U.S.C. S 158(d); Zolg v. Kelly (In re Kelly), 841 F.2d 908, 911 (9th Cir. 1988).

The bankruptcy court's order dismissing Padilla's bankruptcy petition is a final order. See id. (stating that "a dismissal of a debtor's bankruptcy petition is final, terminating, as it does, all litigation in the case"). A bankruptcy appellate panel's order is final if it affirms or reverses a final bankruptcy court order. See id. However, where the panel's order reverses and remands the matter, this Circuit has applied a four-factor test to determine whether the order is final. See Stanley v. Crossland, Crossland, Chambers, MacArthur & Lastreto (In re Lakeshore Village Resort, Ltd.), 81 F.3d 103 (9th Cir. 1996). The factors considered are "(1) the need to avoid piecemeal litigation; (2) judicial efficiency; (3) the 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." Id. at 106 (citing Vylene Enterprises, Inc. v. Naugles, Inc. (In re Vylene Enterprises, Inc.), 968 F.2d 887, 895-96 (9th Cir. 1992), vacated on other grounds, 90 F.3d 1472 (9th Cir. 1996)).

While the court has not always explicitly considered these factors, determination of a remanding decision's finality must be based on analysis of these factors. See Lakeshore Village, 81 F.3d at 107; Walthall v. United States, 131 F.3d 1289, 1293 (9th Cir. 1997) (holding district court's decision not final because two factors in the threshold Lakeshore Village bankruptcy finality test weighed against finality).

Here, the four-factor test establishes the BAP's order as a final order: three of the four Lakeshore Village factors favor finality and the fourth is neutral. First, regardless of the court's decision on this appeal, piecemeal litigation is not a concern because no further appeal to this court on the Padilla bankruptcy is foreseeable. In the event the court reverses the BAP, the discharge will be reversed and Padilla's bankruptcy petition will be dismissed. Nothing in that series of events will give rise to an appeal: the creditors stand to benefit by the dismissal and are therefore unlikely to appeal and Padilla has no foreseeable ground on which to appeal. Should the court affirm the BAP's holding that Padilla's petition should not have been dismissed by the bankruptcy court, there appears to be nothing that could be appealed; the bankruptcy court has already entered an Order of Discharge and closed the file without a subsequent appeal. Cf. Walthall, 131 F.3d at 129394 (finding a potential for piecemeal litigation because there would undoubtedly be an appeal of an additional issue if the court found for the debtors); Lakeshore Village , 81 F.3d at 107 (finding potential for piecemeal litigation because another appeal would be likely if the court found for the trustee).

The second factor, judicial efficiency, is neutral.

Third, the bankruptcy court's role as the finder of fact would not be undermined by a finding that the BAP's order is final. The substantive issue before this court, whether the bankruptcy court erred in dismissing Padilla's petition pursuant to S 707(a) on the ground that Padilla filed his petition in bad faith, is predominately "legal" because it involves interpreting S 707(a) and applying that interpretive law to the facts of this case, not pure fact finding.

Finally, delaying review would make little sense. The bankruptcy court entered an Order of Discharge, albeit without jurisdiction, and closed the file. There is nothing pending in that court. Accordingly, delaying review would have no benefit and would irreparably harm the Trustee by preventing review of the BAP decision.

That the BAP's order is final comports with our decision in Kelly. In Kelly, the court held the bankruptcy appellate panel's decision reversing and remanding the bankruptcy court's order was a final order. 841 F.2d at 911. The court reasoned that the remand concerned questions in which legal issues predominated because the underlying facts were not disputed; hence the questions were subject to de novo review. See id. Further, the court found the policies of judicial efficiency were best served by directly resolving the question before it. See id.

We hold that both the bankruptcy court's order of dismissal and the BAP's decision to reverse and remand are final orders; this court has jurisdiction over the instant appeal.

III. MOOTNESS OF THE APPEAL

Padilla maintains that this appeal is moot because the bankruptcy court has discharged his debts already. Federal courts lack jurisdiction to decide moot claims. See Village of Gambell v. Babbitt, 999 F.2d 403, 406 (9th Cir. 1993). This appeal is not moot if the bankruptcy court lacked jurisdiction to proceed with Padilla's bankruptcy during the pendency of this appeal. As is discussed below, with the timely filing of this appeal by the Trustee, the bankruptcy court was divested of jurisdiction to proceed with Padilla's bankruptcy. This court therefore has jurisdiction.

The BAP's mandate, issued November 21, 1997, vested jurisdiction in the bankruptcy court to resume proceedings on Padilla's petition.² See Marino v. Classic Auto Refinishing, Inc. (In re Marino), 234 B.R. 767, 770 (B.A.P. 9th Cir. 1999) (stating that once an appellate court renders its decision on a matter,...