Opinion ID: 4211955
Heading Depth: 4
Heading Rank: 1

Heading: We Review for Clear Error the Bankruptcy

Text: Court’s Findings Regarding the Purpose of the Debt. 2 On December 3, 2014, after Aspen filed a notice of appeal in this court, the bankruptcy court issued a discharge of the Cherretts’ debts. Aspen argues that the bankruptcy court did not have jurisdiction to enter the discharge and that this court should vacate it. But Aspen did not appeal the discharge to the BAP, seek a stay of proceedings pending appeal, or amend its notice of appeal. The record does not show any exceptional circumstances for failing to appeal the issue to the BAP or a district court. Thus, whether the discharge was erroneously issued is not properly before us. See Int’l Union of Bricklayers & Allied Craftsman Local Union No. 20 v. Martin Jaska, Inc., 752 F.2d 1401, 1404 (9th Cir. 1985). IN RE CHERRETT 11 If the bankruptcy court applied fact to law in a way that “‘requires an inquiry that is essentially factual,’ we review it as if it were a factual finding,” but if the bankruptcy court applied fact to law in a way that “requires reference to ‘the values that animate legal principles,’ we review it as if it were a legal finding.” United States v. Hinkson, 585 F.3d 1247, 1259 (9th Cir. 2009) (quoting United States v. McConney, 728 F.2d 1195, 1202 (9th Cir. 1984) (en banc), abrogated on other grounds as recognized by Teutscher v. Woodson, 835 F.3d 936, 942 (9th Cir. 2016)). Inquiries that are essentially factual “include[] questions such as motive, intent, and negligence.” Id. at 1260. “[M]ixed questions of law and fact” are those “in which the historical facts are admitted or established, the rule of law is undisputed, and the issue is whether the facts satisfy the statutory standard, or to put it another way, whether the rule of law as applied to the established facts is or is not violated.” Pullman-Standard v. Swint, 456 U.S. 273, 289 n.19 (1982). “Mixed questions are typically reviewed de novo, but, depending on the nature of the inquiry involved, may be reviewed under a more deferential clearly erroneous standard.” United States v. Lang, 149 F.3d 1044, 1047 (9th Cir. 1998), amended by 157 F.3d 1161 (9th Cir. 1998) (emphasis added). Aspen argues that because the parties do not dispute the underlying facts concerning the use of the Housing Loan, de novo review applies. Aspen further argues that a debt incurred to purchase a personal residence is a consumer debt as a matter of law. Aspen cites our holding in Zolg v. Kelly (In re Kelly), 841 F.2d 908 (9th Cir. 1988), in support of its arguments. The debtors in Kelly filed a Chapter 7 bankruptcy petition with multiple mortgages against their home. Id. at 910. The 12 IN RE CHERRETT bankruptcy court found that the debt was primarily consumer, but the BAP reversed on the basis that debts secured by real estate mortgages categorically do not qualify as consumer debt. Id. at 911. On appeal to this court, the debtors continued to argue that debts secured by real property can never be consumer debt. Id. at 912. We disagreed and held that consumer debt can include mortgages. Id. at 912–13. In doing so, we reviewed the BAP’s ruling de novo because the question whether mortgages could ever qualify as consumer debt was purely one of law. Id. at 911; see also id. at 911–12 (concluding that legal issues predominated where “the Kellys argue[d] that debts secured by real property are never consumer debts, relying on floor statements made in the House and Senate prior to the enactment of the 1978 Act”). We did not hold that all debts secured by real property are consumer debt. In fact, we expressly left open the possibility that some are not: “While secured debt is not automatically excluded from consumer debt, it is not automatically included either. We must look to the purpose of the debt in determining whether it falls within the statutory definition.” Id. at 913 (emphasis added). Kelly acknowledged that in most cases “the purchase of a home and the making of improvements thereon” will meet the statutory definition of consumer debt, but it did not fashion a bright line rule. Id. Aspen’s argument—that because most debts used to purchase homes are consumer debts, all mortgages must be consumer debts—is contrary to our case law. We have never, as Aspen and the dissent suggest, held that debts used to purchase homes are consumer debts as a matter of law, and unlike in Kelly, where there was no dispute regarding the purpose of the loan, the parties here dispute whether Cherrett incurred the Housing Loan primarily for a IN RE CHERRETT 13 business purpose. Whether Cherrett’s primary purpose satisfies the statutory requirements for a Chapter 7 bankruptcy filing is a mixed question of law and fact. Although we would typically review such a question de novo, the bankruptcy court’s weighing of Cherrett’s multiple motives for incurring the Housing Loan was primarily a factual, rather than legal, inquiry. See Ornelas v. United States, 517 U.S. 690, 702 (1996) (“Where a trial court makes . . . commonsense determinations based on the totality of circumstances, it is ordinarily accorded deference.”). In this case, the purpose of the Housing Loan is the sort of “essentially factual” inquiry that we review for clear error, United States v. Hinkson, 585 F.3d 1247, 1259 (9th Cir. 2009),3 but we would reach the same result on de novo review. 3 Courts are split on this standard of review. The Eighth Circuit BAP is in accord with our conclusion that the purpose of a debt is a factual finding reviewed for clear error. See Lapke v. Mut. of Omaha Bank (In re Lapke), 428 B.R. 839, 842 (B.A.P. 8th Cir. 2010). The Tenth and Fifth Circuits have reached the opposite conclusion. See Stewart v. U.S. Trustee (In re Stewart), 175 F.3d 796, 803 (10th Cir. 1999); Matter of Booth, 858 F.2d 1051, 1053 n.5 (5th Cir. 1988). But like our decision in Kelly, the Fifth Circuit’s decision in Booth turned on whether an entire category of debt must always be consumer or non-consumer, a legal rather than factual question. See Booth, 858 F.2d at 1055 (“Similarly, the district court erred in its determination that a signature loan, no matter what use to which it is put, is always consumer debt.” (emphasis added)). The same is true of IRS v. Westberry (In re Westberry), 215 F.3d 589 (6th Cir. 2000) and Cypher Chiropractic Ctr. v. Runski (In re Runski), 102 F.3d 744 (4th Cir. 1996), unilluminating cases the dissent suggests we overlook. The sole issue presented in Westberry was legal: “whether federal income and self-employment taxes should be considered consumer debt” categorically. Westberry, 215 F.3d at 590. Runski also addressed a categorical question: whether medical equipment used at the debtor’s business was nevertheless intended primarily for personal use solely because it was titled in the debtor’s name. Runski, 102 F.3d at 747. 14 IN RE CHERRETT