Court Opinion

ID: 4234356
Source: CourtListenerOpinion
Date Created: 2018-01-04 20:00:41.162048+00
Date Added: 2024-06-11T14:42:58.135487
License: Public Domain

FILED
                                                            JAN 04 2018
 1                         NOT FOR PUBLICATION
 2                                                      SUSAN M. SPRAUL, CLERK
                                                          U.S. BKCY. APP. PANEL
                                                          OF THE NINTH CIRCUIT
 3                  UNITED STATES BANKRUPTCY APPELLATE PANEL
                              OF THE NINTH CIRCUIT
 4
 5   In re:                        )      BAP No.     HI-16-1391-TaLB
                                   )
 6   DAVID JOSEPH RYAN and         )      Bk. No.     09-01604
     MELISSA ANN RYAN              )
 7                                 )
                     Debtors.      )
 8   ______________________________)
                                   )
 9   CIT BANK, N.A.,               )
                                   )
10                   Appellant,    )
                                   )
11   v.                            )      MEMORANDUM*
                                   )
12   DAVID JOSEPH RYAN;            )
     MELISSA ANN RYAN,             )
13                                 )
                     Appellees.    )
14   ______________________________)
15                  Argued and Submitted on October 26, 2017
                               at Honolulu, Hawaii
16
                            Filed – January 4, 2017
17
               Appeal from the United States Bankruptcy Court
18                       for the District of Hawaii
19     Honorable Robert J. Faris, Chief Bankruptcy Judge, Presiding
20
     Appearances:     Christopher James Muzzi of Mosely Biehl Tsugawa
21                    Lau & Muzzi argued for appellant; Van-Alan H.
                      Shima argued for appellees.
22
23   Before:   TAYLOR, LAFFERTY, and BRAND, Bankruptcy Judges.
24
25
26        *
             This disposition is not appropriate for publication.
27   Although it may be cited for whatever persuasive value it may
     have (see Fed. R. App. P. 32.1), it has no precedential value.
28   See 9th Cir. BAP Rule 8024-1(c)(2).
 1                              INTRODUCTION
 2        During their chapter 71 bankruptcy, debtors David and
 3   Melissa Ryan filed a statement of intent to “surrender” their
 4   house in Kihei, Hawaii (the “Property”).   The secured lender
 5   later non-judicially foreclosed on the Property.
 6        Post-foreclosure, Debtors brought a state court wrongful
 7   foreclosure action against the secured lender’s successor-in-
 8   interest, CIT Bank, N.A. (“CIT”).   Debtors alleged serious non-
 9   compliance with the Hawaii foreclosure law.   CIT moved to
10   dismiss and argued, in part, that Debtors’ bankruptcy case
11   statement of intent to surrender estopped them from asserting a
12   wrongful foreclosure action.   Debtors responded by reopening
13   their bankruptcy case and seeking a clarifying order from the
14   bankruptcy court and an order allowing amendment of their
15   statement of intention.   The bankruptcy court provided the
16   requested relief; its clarifying order did not support CIT’s
17   positions in the state court litigation.
18        CIT appeals; it disagrees with the bankruptcy court’s
19   analysis and argues that the bankruptcy court improperly issued
20   an advisory opinion and allowed amendment of the statement of
21   intention.
22        The state court eventually dismissed the wrongful
23   foreclosure action based solely on a state law statute of
24   limitations affirmative defense.    Because the state court action
25
26        1
             Unless otherwise indicated, all chapter and section
27   references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532.
     All “Rule” references are to the Federal Rules of Bankruptcy
28   Procedure.

                                     2
 1   was dismissed on state law grounds, and notwithstanding a
 2   pending state court appeal, we conclude that this appeal is
 3   moot.   Accordingly, we DISMISS the appeal, VACATE the bankruptcy
 4   court’s order, and REMAND with instructions to close the
 5   bankruptcy case.
 6                                   FACTS
 7        In 2004, Debtors purchased the Property.    They later
 8   obtained a loan and secured repayment with a mortgage on the
 9   Property.
10        In 2009, Debtors filed a chapter 7 petition.    They
11   scheduled their ownership interest in the Property and on their
12   statement of intention stated an intent to surrender the
13   Property.   They also filed a separate “Declaration of Debtor Re:
14   Surrender of Property.”   In it, they declared “that they have
15   surrendered” the Property and “hereby relinquish[] any and all
16   legal, equitable and possessory interests to same.    I/We declare
17   under penalty of perjury that the foregoing is true and
18   correct.”   Consistent with their statement of intention, they
19   did not oppose the secured lender’s stay relief motion, and at
20   no time did they question or impede their secured lender’s right
21   to foreclose on the Property.
22        Debtors received their discharge, and the bankruptcy court
23   closed the case.
24        The wrongful foreclosure action.    The secured lender non-
25   judicially foreclosed in 2010.    In 2016, Debtors eventually
26   brought a wrongful foreclosure action in Hawaii state court
27   against CIT.   They asserted that the secured lender, CIT’s
28   predecessor-in-interest, failed to comply with Hawaii

                                       3
 1   foreclosure law.    Among other things, they alleged serious
 2   noncompliance with the publication notice provisions of Hawaii
 3   law.
 4          CIT moved to dismiss the state court action and argued that
 5   Debtors were judicially estopped from pursuing their claims
 6   because the bankruptcy court relied on the statement of
 7   intention and surrender declaration when it entered the
 8   discharge.    It further argued that Debtors lacked standing to
 9   bring the claims because they surrendered the Property in the
10   bankruptcy case.    It finally argued that the action was barred
11   by the relevant statute of limitations.
12          Debtors reopen their bankruptcy case and seek bankruptcy
13   court relief.    In response, Debtors moved to reopen their
14   chapter 7 case;2 the bankruptcy court granted their motion.
15          Debtors then asked the bankruptcy court for: (1) an order
16   clarifying that their discharge did not compel them to transfer
17   the Property or prevent them from arguing that the foreclosure
18   was wrongful; or, alternatively, (2) an order permitting them to
19   amend their statement of intention and surrender declaration to
20   clarify that they surrendered the Property to the chapter 7
21   trustee and did not intend to relinquish state-law protections.
22          CIT opposed, raising a number of issues.   The bankruptcy
23   court took the matter under submission after hearing oral
24   argument.    While the matter was under submission, the Eleventh
25
26          2
             We exercise our discretion to take judicial notice of
27   documents electronically filed in the underlying bankruptcy
     case. See Atwood v. Chase Manhattan Mortg. Co. (In re Atwood),
28   293 B.R. 227, 233 n.9 (9th Cir. BAP 2003).

                                      4
 1   Circuit decided Failla v. Citibank, N.A. (In re Failla),
 2   838 F.3d 1170 (11th Cir. 2016) and determined that a debtor’s
 3   surrender of real property in a bankruptcy case estopped the
 4   debtor from subsequently opposing foreclosure.
 5        The bankruptcy court’s memorandum decision.   When the
 6   bankruptcy court issued its memorandum decision, it concluded
 7   that: (1) the matter was justiciable and a decision would not be
 8   an advisory opinion because there was a live controversy between
 9   the parties; (2) it had subject matter jurisdiction over the
10   matter in part; (3) it would not abstain from deciding the
11   matter; (4) reopening the case was proper; (5) as a matter of
12   bankruptcy law, Debtors’ “surrender” of the Property under § 521
13   and surrender declaration did not prevent them from defending
14   against a foreclosure or asserting wrongful foreclosure; (6) as
15   a matter of bankruptcy law, Debtors’ discharge was independent
16   of their “surrender” of the Property; and (7) Debtors would be
17   permitted to amend their statement of intention.   The bankruptcy
18   court also acknowledged Failla but disagreed with it in most
19   respects.
20        Debtors’ wrongful foreclosure action is dismissed on non-
21   bankruptcy grounds.   The day after issuance of the bankruptcy
22   court’s memorandum of decision, the state court heard and
23   granted CIT’s motion to dismiss the wrongful foreclosure action
24   as barred by the statute of limitations.3   After entry of a
25
26        3
             Appellants ask us to take judicial notice of: (1) the
27   state court’s order granting CIT’s motion to dismiss; (2) the
     accompanying final judgment in the state court; (3) the
28                                                      (continued...)

                                     5
 1   final judgment, Debtors appealed this decision to the Hawaii
 2   Intermediate Court of Appeals, where the matter remains pending.
 3        The bankruptcy court’s separate order.   Eventually, the
 4   bankruptcy court entered a separate order granting Debtors’
 5   post-reopening motion for the reasons contained in its
 6   memorandum decision.   CIT timely appealed to the Panel.
 7        What the parties want us to do on appeal.   The bankruptcy
 8   court elected to publish its memorandum decision.   In re Ryan,
 9   560 B.R. 339 (Bankr. D. Haw. 2016).   And, perhaps given the
10   bankruptcy court’s commentary on Failla, this appeal drew
11   outsized attention; we allowed the National Consumer Bankruptcy
12   Rights Center and National Association of Consumer Bankruptcy
13   Attorneys to file amici curiae briefs.
14        The parties and amici want us to take a position on the
15   issues decided by the bankruptcy court and by the Eleventh
16   Circuit in Failla.   We briefly observe that Failla is neither
17   factually or legally applicable.4   Otherwise, we decline the
18
19        3
           (...continued)
     transcript of the hearing on the motion to dismiss; and
20
     (4) Debtors’ appeal from the dismissal. We grant the request.
21        4
             In Failla, as is the case here, the debtors executed a
22   statement of intent to surrender real property encumbered by a
     mortgage. After this point of commonality, the cases diverge
23   substantially. The debtors in Failla actively opposed
24   foreclosure at every step of the way. 838 F.3d at 1173-74.
     Here, Debtors did not oppose stay relief and, as CIT’s counsel
25   conceded at oral argument, never opposed their lender’s right to
     foreclose.
26
27        On appeal, CIT asks us both to adopt and then extend Failla
     to hold that a debtor who states an intent to surrender cannot
28                                                     (continued...)

                                     6
 1   invitation to do so; as we discuss below, the appeal is moot.
 2                             JURISDICTION
 3        Subject to the mootness discussion below, the bankruptcy
 4   court had jurisdiction under 28 U.S.C. §§ 1334 and 157(b)(2)(A).
 5   Also subject to the mootness discussion below, we have
 6   jurisdiction under 28 U.S.C. § 158.
 7                                ISSUE
 8        Whether the appeal is moot.
 9                          STANDARD OF REVIEW
10        We review our own jurisdiction and mootness de novo.
11 Wilson v. Lynch, 835 F.3d 1083, 1091 (9th Cir. 2016); Ellis v.
12   Yu (In re Ellis), 523 B.R. 673, 677 (9th Cir. BAP 2014).
13                              DISCUSSION
14   A.   Jurisdiction: Scope of Review
15        Debtors argue that the time to appeal the bankruptcy
16   court’s separate order lapsed.   We disagree.   The bankruptcy
17   court issued its memorandum decision on October 19, 2016, and
18   that decision directed Debtors to submit a proposed order.    CIT
19
20        4
           (...continued)
21   bring a wrongful foreclosure action based on the foreclosing
     lenders’ subsequent noncompliance with state foreclosure laws.
22   Put differently, CIT wants us to read Failla and to interpret
     relevant law as completely immunizing secured lenders from
23   liability for violation of state foreclosure law if a debtor
24   surrenders real property in a pre-foreclosure bankruptcy. But
     Failla, even if otherwise correct (a determination we do not
25   make), does not suggest that a secured creditor no longer needs
     to comply with state foreclosure law. Id. at 1177.
26
27        In short, even if the case was not moot we would not
     “follow” Failla in deciding this appeal because we cannot
28   stretch it so far as to cover the facts of this case.

                                      7
 1   filed its notice of appeal on November 2, 2016.    The bankruptcy
 2   court entered its separate order on January 4, 2017.
 3        Rule 8002(a)(2) addresses this exact situation: “A notice
 4   of appeal filed after the bankruptcy court announces a decision
 5   or order—but before entry of the judgment, order, or decree—is
 6   treated as filed on the date of and after the entry.”    Fed. R.
 7   Bankr. P. 8002(a)(2).   CIT’s notice of appeal is treated as
 8   filed on January 4, 2017, and is timely.    See Fed. R. Bankr.
 9   P. 8002(a)(1).
10        Debtors also argue that we lack jurisdiction over the order
11   reopening the bankruptcy case.    The bankruptcy court entered its
12   order reopening the bankruptcy case in June 2016; CIT filed its
13   notice of appeal in November of 2016, well beyond the 14-day
14   appeal window.   But a reopening order is “simply a mechanical
15   device . . . . [that] has no independent legal significance and
16   determines nothing with respect to the merits of the case.”
17   Abbott v. Daff (In re Abbott), 183 B.R. 198, 200 (9th Cir. BAP
18   1995).    Accordingly, the order granting the motion to reopen the
19   case was interlocutory because it did not resolve the merits of
20   the underlying dispute; instead, it was a preliminary step in
21   the process.   See Wilborn v. Gallagher (In re Wilborn), 205 B.R.
22   202, 206 (9th Cir. BAP 1996).    The process ended with the
23   January 4, 2017 final order; subject to our mootness analysis,
24   we have jurisdiction to review the reopening order.
25   B.   Jurisdiction: Mootness
26        1.    The appeal is moot.
27        “It is not enough that a dispute was very much alive when
28   suit was filed; the parties must continue to have a ‘personal

                                      8
 1   stake’ in the ultimate disposition of the lawsuit.”      Chafin v.
 2   Chafin, 568 U.S. 165, 172 (2013) (internal quotation marks
 3   omitted) (citations omitted).    A case, thus, may become moot
 4   during appeal.
 5          “A case is moot if the issues presented are no longer live
 6   and there fails to be a ‘case or controversy’ under Article III
 7   of the Constitution.”    Pilate v. Burrell (In re Burrell),
 8   415 F.3d 994, 998 (9th Cir. 2005).      Determining constitutional
 9   mootness turns on whether “the appellate court can give the
10   appellant any effective relief in the event that it decides the
11   matter on the merits in [its] favor.”      Id.; Chafin, 568 U.S. at
12   172 (“But a case becomes moot only when it is impossible for a
13   court to grant any effectual relief whatever to the prevailing
14   party.” (internal quotation marks omitted)).      A case is not moot
15   if the parties have a “concrete interest, however small, in the
16   outcome of the litigation . . . .”      Chafin, 568 U.S. at 172.
17          The question, here, is whether we can grant any effective
18   relief.    At present, we cannot.
19          The Hawaii state court dismissed the wrongful foreclosure
20   action based solely on the Hawaii statute of limitations.      It
21   did not consider or rely on bankruptcy law or the bankruptcy
22   court’s decision.5   As a result, even if we conclude that the
23   bankruptcy court erred, reversal would not change the status
24   quo.
25
            5
             See Transcript of Proceedings in Hawaii Circuit Court
26   (Oct. 20, 2016) at 20:3-7 (“While the Court appreciates Judge
27   Faris’ well-reasoned decision that came out yesterday on this
     issue, this matter merits dismissal regardless of Plaintiffs’
28   statement of intent to surrender.”).

                                         9
 1        We acknowledge that Debtors appealed the state court’s
 2   judgment of dismissal.   And on appeal, an appellate court will
 3   either reverse or affirm the dismissal.   If the dismissal
 4   remains intact, the matter would remain moot.
 5        On the other hand, if the dismissal is reversed, then the
 6   wrongful foreclosure action would proceed and the state court
 7   may consider CIT’s bankruptcy related defenses and may agree or
 8   disagree with the bankruptcy court’s analysis.   At oral
 9   argument, CIT’s counsel argued that the case was not moot for
10   this reason.   But this is merely a contingent interest that
11   does not create jurisdiction on this appeal.    See Alcoa, Inc. v.
12   Bonneville Power Admin., 698 F.3d 774, 793 (9th Cir. 2012)
13   (“Specifically, ‘[a] claim is not ripe for adjudication if it
14   rests upon contingent future events that may not occur as
15   anticipated, or indeed may not occur at all.’”   (internal
16   quotation marks omitted) (quoting Texas v. United States,
17   523 U.S. 296, 300 (1998)).    Similarly, Debtors’ counsel argued
18   that the appeal is not moot because the Hawaii appellate court
19   could affirm the state court dismissal on separate grounds, that
20   is, the bankruptcy grounds.   But, that is yet another contingent
21   future event; it is insufficient to establish jurisdiction on
22   appeal.6
23        This mootness analysis is supported by case law arising in
24   cases where a federal court must review a decision of a state
25
          6
             We also note that “[n]o matter what we conclude, the
26   opinion of the [bankruptcy] court will not be ripped from [the
27   Bankruptcy Reporter].” NASD Dispute Resolution, Inc. v.
     Judicial Council of State of Cal., 488 F.3d 1065, 1069 (9th Cir.
28   2007).

                                      10
 1   court.     “As the Supreme Court explained in [a] line of
 2   federalism cases . . ., federal courts will not review a
 3   question of federal law decided by a state court if the decision
 4   of that court rests on a state law that is independent of the
 5   federal question and adequate to support the judgment.”
 6   Cunningham v. Wong, 704 F.3d 1143, 1155 (9th Cir. 2013)
 7   (citations and internal quotation marks omitted).     When the
 8   Supreme Court is directly reviewing a state court judgment, “the
 9   independent and adequate state ground doctrine is
10   jurisdictional.”     Coleman v. Thompson, 501 U.S. 722, 729 (1991).
11   Coleman continues:
12         Because this Court has no power to review a state law
           determination that is sufficient to support the
13         judgment, resolution of any independent federal ground
           for the decision could not affect the judgment and
14         would therefore be advisory.
15   Id.   See Herb v. Pitcairn, 324 U.S. 117, 126 (1945) (“We are not
16   permitted to render an advisory opinion, and if the same
17   judgment would be rendered by the state court after we corrected
18   its views of federal laws, our review could amount to nothing
19   more than an advisory opinion.”).
20         Accordingly, we conclude that the appeal is moot for all
21   purposes.7
22         2.     Because the appeal is moot, we vacate the bankruptcy
                  court’s order.
23
24         “When a case becomes moot on appeal, the established
25
26         7
             In the event of reversal, nothing stops either party
27   from returning to the bankruptcy court and petitioning it for a
     new opinion. In the event the bankruptcy court reissues a
28   similar opinion, CIT may then re-appeal.

                                       11
 1   practice is to reverse or vacate the decision below with a
 2   direction to dismiss.”    NASD Dispute Resolution, Inc., 488 F.3d
3   at 1068 (internal quotation marks omitted); Am. Civil Liberties
 4   Union of Nev. v. Masto, 670 F.3d 1046, 1065 (9th Cir. 2012)
 5   (“The ‘normal rule’ when a case is mooted is that vacatur of the
 6   lower court decision is appropriate.” (citation omitted)).
 7   “Vacatur in such a situation eliminates a judgment the loser was
 8   stopped from opposing on direct review.”      NASD Dispute
 9   Resolution, Inc., 488 F.3d at 1068 (internal quotation marks and
10   alterations omitted).    Otherwise, “the lower court’s judgment
11   . . . would escape meaningful appellate review thanks to the
12   happenstance of mootness.”    Id.    In the Ninth Circuit when a
13   case becomes moot on appeal, vacatur is generally automatic.
14   Id.
15         Given the circumstances, we conclude that vacatur, the
16   standard practice, is appropriate.8
17
           8
18           There are exceptions to the general rule of vacatur, and
     “vacatur is not always appropriate when a case becomes moot on
19   appeal.” NASD Dispute Resolution, Inc., 488 F.3d at 1068;
     Masto, 670 F.3d at 1065-66. One exception arises when “the
20   party seeking appellate relief fails to protect itself or is the
21   cause of subsequent mootness.” NASD Dispute Resolution, Inc.,
488 F.3d at 1069 (emphasis and internal quotation marks
22   omitted). In such a case, the appellate court must consider
     principles of equity and the public interest. Id. Any facial
23   appeal to this exception is insufficient. CIT’s own actions
24   caused the mootness when it prevailed in the state court and
     obtained dismissal, but the Ninth Circuit has already reasoned
25   that this is not enough to avoid vacatur. Id. at 1070
     (“[Appellants] were not even parties to those actions [that
26   mooted the case], though it would not matter if they had been,
27   because they could not be required to abandon their consistent
     position in other pending litigation merely to avoid mooting out
28                                                      (continued...)

                                         12
 1                              CONCLUSION
 2        Accordingly, we DISMISS the appeal as moot, VACATE the
 3   bankruptcy court’s order, and REMAND with instructions to close
 4   the case.
 5
 6
 7
 8
 9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
          8
27         (...continued)
     another case.”). No other exception is even arguably
28   applicable.

                                    13