Latman v. Burdette
| Decision Date | 29 April 2004 |
| Docket Number | No. 02-35538.,No. 02-35545.,02-35538.,02-35545. |
| Parties | Richard K. LATMAN; Bettina L. Latman, Plaintiffs-Appellants, v. Virginia BURDETTE, Trustee, Defendant-Appellee, and Bankruptcy Appeals Clerk, Real-party-in-interest. Richard K. Latman; Bettina L. Latman, Plaintiffs-Appellees, v. Virginia Burdette, Trustee, Defendant-Appellant, and Bankruptcy Appeals Clerk, Real-party-in-interest. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Lawrence K. Engel, Seattle, WA, for the appellants-cross appellees.
Alan J. Wenokur, Seattle, WA, for the appellee-cross appellant.
Appeal from the United States District Court for the Western District of Washington, John C. Coughenour, Chief Judge, Presiding. CV-01-01374-JCC.
Before TROTT, FISHER, and GOULD, Circuit Judges.
Appellants Richard and Bettina Latman and cross-appellant Virginia Burdette, the Latmans' bankruptcy trustee, appeal an order of the United States District Court for the Western District of Washington. The district court affirmed in part and reversed in part an order of the United States Bankruptcy Court for the Western District of Washington that had granted the bankruptcy trustee's motion to surcharge the Latmans' bankruptcy exemptions to account for funds not properly disclosed in the Latmans' bankruptcy filings. Holding that the bankruptcy court's surcharge remedy was a permissible equitable remedy under the Bankruptcy Code, and was not barred by election of remedies or res judicata, we affirm the district court in all respects.
On January 12, 2000, Richard and Bettina Latman filed for Chapter 13 bankruptcy protection. On April 14, 2000, the Latmans dismissed their Chapter 13 petition, and, on April 18, 2000, they re-filed for protection under Chapter 7. During the four-day interval between the dismissal of their Chapter 13 petition and their refiling under Chapter 7, the Latmans sold a 1991 Ford Explorer automobile and a 1996 Sea Ray boat, for which they received a total of $8,500 in cash. Contrary to the requirements of the Bankruptcy Code, on their required Chapter 7 Schedule B submission of personal property owned as of the filing date, the Latmans did not list all of the proceeds of these vehicle sales, but instead listed only $1,500 cash on hand.
Noting this discrepancy, the Latmans' bankruptcy trustee (the "Trustee") requested that the Latmans account for the proceeds from the sale of the car and boat. In response to both the Trustee's request and a subsequent bankruptcy court order compelling an accounting of these proceeds, the Latmans gave only inaccurate accountings. The Trustee then commenced an adversary proceeding against the Latmans under 11 U.S.C. § 727 to deny the discharge of their debts. On April 27, 2001, the bankruptcy judge granted the Trustee's motion for summary judgment, finding as a matter of law that the Latmans had failed to explain the loss of the proceeds from the sales of their car and of their boat, had made material false statements on their bankruptcy schedules, had not kept adequate records of their assets and expenditures, and had fraudulently concealed an option to purchase real estate. This ruling was affirmed by the district court on March 6, 2002.
The Trustee filed subsequently a Motion to Charge Debtors' Exemptions for Failure to Make Accounting and for Turnover of Property in June 2001 (the "surcharge motion"). This motion contended that the $7,000 in unaccounted for proceeds from the sale of the Latmans' car and boat should be surcharged against the Latmans' 11 U.S.C. § 522(d)(5) "catch-all" or "wild card" exemption, thereby rendering nonexempt a Chrysler Town & Country minivan and engagement ring (or, $7,000 of the value of these items) that the Latmans had previously exempted under § 522(d)(5).1 The ruling on this motion is challenged on this appeal.
During briefing on the surcharge motion, the Trustee discovered another issue, that at the time of their Chapter 7 filing the Latmans had a bank account with First Western National Bank in La Jara, Colorado (the "La Jara account"). As with the $7,000 received by the Latmans from the car and boat sales, the Latmans had not disclosed the existence of a La Jara account, although required to do so by the bankruptcy schedules and by a prior bankruptcy court order requiring disclosure of bank accounts. After discovery of this account, the Trustee subpoenaed First Western National Bank,2 requesting production of all bank statements for accounts held by the Latmans. From this subpoena, and a subsequent conversation with a bank employee, the Trustee obtained from the bank a spreadsheet showing a balance of $5,813.52 in the La Jara account as of the Latmans' Chapter 7 filing. With this information, the Trustee requested that the bankruptcy court either require the Latmans to tender to the Trustee the $5,813.52 in this account, or alternatively further surcharge the Latmans' § 522(d)(5) "wild card" exemption for this amount.
At a hearing on August 10, 2001, the bankruptcy judge granted the Trustee's surcharge motion, ordering (1) that the Latmans' § 522(d)(5) "wild card" exemption be surcharged $7,000, to account for the proceeds of the pre-filing car and boat sale, and (2) that the Latmans turn over $8,013.523 in cash to the Trustee, or have this amount also charged against their "wild card" exemption. Although the bankruptcy judge expressed concern about the Trustee's use of a subpoena to obtain evidence of the La Jara account, the bankruptcy judge admitted the evidence that the Trustee had acquired through the subpoena, after the Latmans did not deny ownership of the account.4
The Latmans appealed the bankruptcy judge's order to the district court, asserting two grounds for error. First, the Latmans maintained that the bankruptcy court improperly admitted a supplemental declaration of the Trustee's counsel in support of the request that the Latmans be ordered to turn over the monies in the First Western National Bank account, because the evidence of the La Jara account attached to the declaration was unauthenticated and hearsay, and was obtained through an invalid subpoena. Second, the Latmans contended that the bankruptcy judge's surcharge remedy was improper, on the theory that it violated the doctrines of election of remedies and res judicata, and was not authorized explicitly in, and was contrary to the purposes of, the Bankruptcy Code.
The district court entered an order on April 26, 2002 affirming in part and reversing in part the bankruptcy judge's order, and remanding to the bankruptcy court. The district court affirmed all aspects of the bankruptcy court order, except those dependent upon the evidence of the La Jara account. The district court had no difficulty concluding that the Bankruptcy Code permitted an equitable remedy of surcharge against an exemption to avoid injustice over the undisclosed funds, and the district court held this equitable remedy was not precluded by election of remedies or by res judicata. On the other hand, the district court did not think the evidence of the La Jara account had been submitted in admissible form in the bankruptcy court, and reversed and remanded solely on this issue. Both parties appealed the district court's order. The Latmans continue to urge that an equitable remedy of surcharge against their exemptions was not permissible under the circumstances of this case. The Trustee argues to the contrary, and also cross-appeals contending that the evidence of the La Jara account was properly admitted in the bankruptcy court and that the district court erred by reversing on that issue. We have jurisdiction under 28 U.S.C. § 158(d),5 and affirm rejecting both the appeal and the cross-appeal.
We review de novo a district court's decision on appeal from a bankruptcy court, and afford no deference to the prior decision of the district court. In re Saxman, 325 F.3d 1168, 1172 (9th Cir.2003). We also review de novo the bankruptcy court's conclusions of law, including its interpretation of the Bankruptcy Code. We review the bankruptcy court's factual findings for clear error. In re Summers, 332 F.3d 1240, 1242 (9th Cir.2003). Under this standard, we accept findings of fact made by the bankruptcy court unless these findings leave the definite and firm conviction that a mistake has been committed by the bankruptcy judge. In re Banks, 263 F.3d 862, 869 (9th Cir.2001).
The Latmans advance three theories to attack the bankruptcy court's decision to surcharge their § 522(d)(5) "wild card" exemption. The Latmans assert that the doctrines of election of remedies and res judicata preclude the Trustee from seeking such remedy, and that this remedy exceeded the equitable powers of the bankruptcy court. We address these contentions in turn.
The Latmans first maintain that the doctrine of election of remedies bars the Trustee from further seeking to surcharge their "wild card" exemption because the Trustee had previously elected under 11 U.S.C. § 727(a) to seek a denial of the discharge of their debts as a result of their misconduct. The Latmans argue that the Trustee's prior denial of discharge claim was an election of remedies because it was based in part on the same facts as the Trustee's surcharge motion.
The doctrine of election of remedies prevents a party from obtaining double redress for a single wrong. The doctrine "refers to situations where an individual pursues remedies that are legally or factually inconsistent." Alexander v. Gardner-Denver Co., 415 U.S. 36, 49, 94 S.Ct. 1011, 39 L.Ed.2d 147 (1974). As a general rule, three elements must be present for a party to be bound to an election of remedies: (1) two or more remedies must have existed at the time of the election, (2) these remedies must be repugnant and inconsistent with each...
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