Litton Loan Servicing, L.P. v. Schubert (In re Schubert)
| Decision Date | 28 March 2023 |
| Docket Number | 21-3969,3983 |
| Parties | IN RE: DENNIS SCHUBERT, SCHUBERT; SUE Debtors. v. DENNIS SCHUBERT; SUE SCHUBERT, Defendants-Appellees/Cross-Appellants. LITTON LOAN SERVICING, L.P., JPMORGAN CHASE BANK, N.A., and OCWEN FINANCIAL CORPORATION, Plaintiffs-Appellants/Cross-Appellees. |
| Court | U.S. Court of Appeals — Sixth Circuit |
NOT RECOMMENDED FOR PUBLICATION
ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF OHIO
Before: MOORE, THAPAR, and LARSEN, Circuit Judges.
THAPAR, J., delivered the opinion of the court in which LARSEN, J., joined. MOORE, J. (pp. 9-17), delivered a separate opinion concurring in the judgment.
Three companies-Litton, JPMorgan, and Ocwen-appeal a bankruptcy court order directing Dennis and Sue Schubert's bankruptcy estate to abandon a breach-of-contract claim. The Schuberts cross-appeal an order denying their motion to dismiss a related adversary proceeding. Because the companies do not ask us to abrogate a doctrine that bars their appeal their appeal is dismissed. The order denying dismissal of the adversary proceeding is affirmed.
As Dennis and Sue Schubert tell it, Litton Loan Servicing, L.P., JPMorgan Chase Bank, N.A., and Ocwen Financial Corporation (collectively, "the lenders") breached the Schuberts' mortgage agreement between 2000 and 2004 by collecting more late fees from them than allowed. But since the alleged breach occurred while the Schuberts were in bankruptcy, the breach-of-contract claim belonged to the Schuberts' bankruptcy estate. See 11 U.S.C. §§ 521, 541(a), 554(c)-(d). And at the time, neither the Schuberts nor the lenders noted the claim in their bankruptcy filings. So when the Schuberts left bankruptcy in 2006, the bankruptcy court didn't know about the claim, and that meant the court didn't release it. Instead, the claim remained in the estate.
Nearly a decade later, the Schuberts say they discovered the overcharges in the midst of a foreclosure proceeding. They then filed the breach-of-contract claim against Chase, Litton, and Ocwen in Ohio court. The lenders defended by arguing that the claim belonged to the bankruptcy estate and so was under the control of a bankruptcy trustee, not the Schuberts. See 11 U.S.C. § 541(a). To prevail, the Schuberts needed the trustee to abandon the claim.
To do this, the Schuberts stayed the Ohio action (which remains pending) and reopened their old case in bankruptcy court. There, they sought an order directing the trustee to relinquish- in bankruptcy parlance, to "abandon"-the claim. See 11 U.S.C. § 554(b). That way, the Ohio suit could go on.
The lenders opposed the abandonment motion. To stop the Schuberts, they also filed a case of their own in bankruptcy court, known as an "adversary proceeding." In it, they sought an order declaring that the claim belonged to the estate, as well as an injunction barring the Schuberts from pursuing their Ohio suit. The Schuberts moved to dismiss.
At a combined hearing, the bankruptcy court denied the Schuberts' dismissal motion and ruled that the claim belonged to the estate. However, it then abstained from issuing an injunction and instead ordered the trustee to abandon the Schuberts' mortgage claim. The parties crossappealed, and the district court affirmed.
The parties now cross-appeal again. The lenders appeal the bankruptcy court's abandonment order, and the Schuberts appeal the denial of their motion to dismiss.
On appeal, we review the bankruptcy court's order directly, considering all legal questions anew. In re Conti, 982 F.3d 445, 448 (6th Cir. 2020).
The lenders' appeal fails at the threshold. While they have standing, another doctrine, the person-aggrieved test, blocks the lenders' way. There is good reason to think the person-aggrieved test is no longer good law, but the lenders do not ask us to abrogate it. Instead, they simply argue that they meet it. And under existing precedent, they don't.
First, standing. The Schuberts say the lenders lack standing to participate in this litigation. Although the lenders argue that the Schuberts didn't raise this issue soon enough, a party may challenge a court's subject-matter jurisdiction at any time. See Kontrick v. Ryan, 540 U.S. 443, 455 (2004). Even so, the challenge fails. Standing exists so long as a party suffered an injury in fact fairly traceable to the defendant's conduct and likely redressable by a favorable decision. Lujan v. Defs. of Wildlife, 504 U.S. 555, 560-61 (1992). The lenders clear this bar. The threat of certainly impending litigation can satisfy the injury requirement. See MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 126-30, 134 (2007). And here, litigation isn't just impending, it's already pending-and it's plainly traceable to the Schuberts. The Schuberts have filed their claim against the lenders in Ohio court. All they need is the bankruptcy court's approval to proceed. That certainly gives the lenders a concrete interest in the bankruptcy proceedings. And these proceedings can also give the lenders redress. An order consigning the claim to the bankruptcy estate would halt the Ohio lawsuit in its tracks.[1] That's enough to establish standing.
Next, the Schuberts argue that the person-aggrieved test bars the lenders' appeal. Rather than say that the test should be abrogated, the lenders simply reply that they meet it. Since the lenders don't, their appeal is dismissed.
The person-aggrieved test bars parties from appealing a bankruptcy-court order absent a direct financial stake in the appeal's outcome, and our precedent characterizes that test as jurisdictional. In re Cap. Contracting Co., 924 F.3d 890, 894-97 (6th Cir. 2019). As Judge Murphy has explained in a thoughtful opinion, there is good reason to believe this test is no longer good law. Id. Since the Sixth Circuit last applied this test, the Supreme Court has clarified that a court may not limit its jurisdiction for prudential or policy reasons. See Lexmark Int'l, Inc. v. Static Control Components, Inc., 572 U.S. 118, 125-27 (2014). Congress, not the courts, confers the right to sue. See Alexander v. Sandoval, 532 U.S. 275, 286-87 (2001). And that principle comes with a corollary: when Congress creates a right to sue consistent with the Constitution, a court may not take it away.
That basic rule likely dooms the person-aggrieved test as a jurisdictional bar. The personaggrieved test's roots trace to the Bankruptcy Act of 1898. That Act granted circuit courts jurisdiction over bankruptcy appeals filed by "any party aggrieved." Bankruptcy Act of 1898, ch. 541, § 24(b), 30 Stat. 544, 553. Courts interpreted this language as a jurisdictional limit, restricting appeals to only those parties with a direct financial stake in the outcome. In re Cap. Contracting Co., 924 F.3d at 895-96. In other words, the Code permitted a party in a bankruptcy proceeding to appeal only if the appeal's result would put money in the party's pocket or compel it to write a check.
In 1978, though, Congress removed the "any person aggrieved" language from the Bankruptcy Code. Id. at 895-97. Now, Section 158 contains no language limiting who may appeal. See 28 U.S.C. § 158. Nor does the provision governing abandonment. See 11 U.S.C. § 554. In other words, Congress eliminated the person-aggrieved test's statutory foundation.
A statutory provision only limits jurisdiction if it contains clear language saying that it does. See Arbaugh v. Y&H Corp., 546 U.S. 500, 515-16 (2006). And after the 1978 amendment, Section 158 contains no clear language indicating that it contains a jurisdictional limit akin to the person-aggrieved test. Nor may courts limit their jurisdiction for prudential reasons, since courts have a "virtually unflagging" duty to exercise the jurisdiction that Congress has granted them. Lexmark, 572 U.S. at 126 (citation omitted). Thus, the 1978 amendment almost certainly eliminated the person-aggrieved test as a jurisdictional limit on bankruptcy appeals. Two other circuits have reached the same conclusion. See In re Ernie Haire Ford, Inc., 764 F.3d 1321, 1325 n.3 (11th Cir. 2014); In re Petrone, 754 Fed.Appx. 590, 591 (9th Cir. 2019).
But that doesn't end our inquiry. Some courts have suggested that the substance of the person-aggrieved test might live on as a zone-of-interest test. See Ernie Haire Ford, 764 F.3d at 1325 n. 3; Petrone, 754 Fed.Appx. at 591.
The zone-of-interests inquiry is guided by the "traditional tools of statutory interpretation." Lexmark, 572 U.S. at 127. If the person-aggrieved test has a statutory basis, it must be retained, and the statutory language determines its scope and effect. If not, it must be abrogated.
The parties haven't briefed this issue. Why? Because the lenders haven't asked us to abrogate the person-aggrieved test. While the lenders note that whether the person-aggrieved test "is still viable . . . is an unresolved question," they stop short of challenging it. Reply Br. 23-24. Instead, they say that we "need not resolve that issue." Id. at 24. And because they have not asked us to abrogate the test, the Schuberts have had no opportunity to explain what, if anything, might replace it. It may well be that the 1978 amendment ended the test for good. Or some other statutory basis may require imposing a new zone-of-interest test in its place. Either way, the question has not been presented, and we have no briefing on the issue.
Parties can forfeit issues, and we routinely hold them to their forfeitures. See, e.g., In re Isaacs, 895 F.3d 904, 917 (6th Cir. 2018); see also Bannister v. Knox Cnty. Bd. of Educ., 49 F.4th 1000, 1012 (6th Cir. 2022). Since the lenders forfeited any challenge to the doctrine, we need not decide whether the...
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