The Ninth Circuit handed down a terse opinion on a homestead exemption that seemed on cursory reading to validate the practice of buying and burying an unfavorable decision.
The debtor owned a limited liability corporation that was the owner of his home. In chapter 7, he claimed a homestead exemption in the property owned by his LLC.
The bankruptcy court denied the exemption, and the Bankruptcy Appellate Panel affirmed. Schaefers v. Blizzard Energy, Inc. (In re Schaefers), 623 B.R. 777 (B.A.P. 9th Cir. Dec. 1, 2020).
While the debtor’s appeal was pending in the Ninth Circuit, the chapter 7 trustee abandoned the debtor’s interest in the LLC, the appeals court said in a nonprecedential, per curiam opinion on August 31.
Section 522(b)(1) allows a debtor to claim an exemption “from property of the estate.” Because the LLC was no longer part of the bankrupt estate, the Ninth Circuit said that the court could not grant “effectual relief” given that the debtor regained ownership of the LLC.
“Thus, this appeal is moot,” the circuit held.
No surprises there, but here’s where the opinion gets interesting.
“Because the appeal is moot due to reasons outside of [the debtor’s] control, vacatur of the decisions below is warranted,” the circuit said, citing In re Pattullo, 271 F.3d 898, 902 (9th Cir. 2001).
In the next breath, the circuit court dismissed the appeal and said, “the published decision of the Bankruptcy Appellate Panel . . . and the order of the bankruptcy court sustaining the objection to the claimed homestead exemption . . . are VACATED.”
Observations
In this writer’s opinion, the circuit did not contradict its belief that a litigant cannot “buy and bury” an adverse decision because the appeals court said that mootness arose “outside of [the debtor’s] control.”
But there’s more. Was it correct for the circuit to vacate the BAP decision, and did the BAP decision lose its precedential value as a result?
The BAP’s opinion has been cited four times. By vacating the BAP’s opinion, did the circuit mean to say that the BAP’s decision should no longer be cited for the principles covered in the opinion?
In analyses of the citation to the BAP opinion, will sources like Shepard’s show the BAP opinion simply as “vacated,” or will it say “vacated on other grounds”?
The BAP ruled on the merits and dealt with the important question of whether the debtor himself had a property interest in the home under California law. At the time, the BAP had a live controversy over which it had jurisdiction.
Mootness arose after the BAP appeal was completed. Did subsequent mootness retroactively divest the BAP and the bankruptcy court of jurisdiction? Should the debtor’s interest in the home arise in the future and raise questions under California law, will the BAP opinion have value for the purposes of issue or claim preclusion?
Chances are, the BAP opinion would have no preclusive effect in another court between the same parties because the BAP decision never became a final order on the merits.
But here’s the bigger question: May other courts around the country cite the BAP opinion for its persuasive value now that the opinion has been vacated?
Despite vacatur, this writer believes that the circuit’s decision did not and could not disturb the precedential value of the BAP decision. Why? The circuit dismissed the appeal for lack of Article III jurisdiction because there was no longer a case or controversy. Without jurisdiction, the circuit court could not reach the merits to overturn the merits of the BAP opinion.
The Ninth Circuit handed down a terse opinion on a homestead exemption that seemed on cursory reading to validate the practice of buying and burying an unfavorable decision.
The debtor owned a limited liability corporation that was the owner of his home. In chapter 7, he claimed a homestead exemption in the property owned by his LLC.
The bankruptcy court denied the exemption, and the Bankruptcy Appellate Panel affirmed. Schaefers v. Blizzard Energy, Inc. (In re Schaefers), 623 B.R. 777 (B.A.P. 9th Cir. Dec. 1, 2020).
While the debtor’s appeal was pending in the Ninth Circuit, the chapter 7 trustee abandoned the debtor’s interest in the LLC, the appeals court said in a nonprecedential, per curiam opinion on August 31.
Section 522(b)(1) allows a debtor to claim an exemption “from property of the estate.” Because the LLC was no longer part of the bankrupt estate, the Ninth Circuit said that the court could not grant “effectual relief” given that the debtor regained ownership of the LLC.
“Thus, this appeal is moot,” the circuit held