Mastro v. Rigby

764 F.3d 1090

Linda A. MASTRO, Appellant,

v.James F. RIGBY, Jr., Trustee, solely in his capacity as Chapter 7 trustee of the bankruptcy estate of Michael R. Mastro, Appellee.

No. 13–35209.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted July 8, 2014.

Filed Aug. 22, 2014.

Michael E. Gossler (argued), Montgomery Purdue Blankinship & Austin PLLC, Seattle, WA, for Appellant.

Spencer Hall (argued) and Janet D. McEachern, Hall Zanzig Claflin McEachern PLLC, Seattle, WA, for Appellee.

Appeal from the United States District Court for the Western District of Washington, Barbara Jacobs Rothstein, Senior District Judge, Presiding. DC No. 2:11 cv–2077 BJR.

Before: ARTHUR L. ALARCÓN, A. WALLACE TASHIMA, and MARY H. MURGUIA, Circuit Judges.

OPINION

TASHIMA, Circuit Judge:

Linda Mastro (“Linda”), a nonclaimant to the bankruptcy estate, appeals the district court's dismissal of her appeal of the bankruptcy court's judgment in this fraudulent conveyance case. We hold that the bankruptcy court had authority to enter judgment based on the parties' consent. We conclude, however, that the district court abused its discretion in dismissing Linda's appeal under the fugitive disentitlement doctrine, because no necessity justified invoking the rule of disentitlement in this case.

I.

James Rigby (the “Trustee”), in his capacity as Trustee for the Chapter 7 bankruptcy estate of Linda's husband, Michael Mastro (“Michael”), filed an adversary proceeding against Linda. The Trustee alleged, inter alia, that Linda fraudulently transferred estate assets in violation of 11 U.S.C. §§ 544 and 548, and Wash. Rev.Code, ch. 19.40. Linda did not file any counterclaims against the bankruptcy estate.

The bankruptcy court tried the adversary proceeding, with Linda and other witnesses appearing and testifying at trial. It concluded that Linda and Michael utilized an increasingly elaborate series of transactions to shield estate assets and hinder, defraud, or delay their creditors. See Rigby v. Mastro (In re Mastro), 465 B.R. 576, 601–15 (Bankr.W.D.Wash.2011). The bankruptcy court held Linda liable for fraudulent transfers under 11 U.S.C. §§ 544 and 548, and Wash. Rev.Code, ch. 19.40. It ordered Linda to turn over certain specified items of personal property, including two “big” diamond rings, or “the value of such items,” along with gold bars and money worth $1,394,406.00.

Linda appealed to the district court, arguing that the evidence did not support the bankruptcy court's judgment or its finding of liability. Linda, however, went missing when she appealed. Eventually, Linda was discovered by authorities living in France with Michael, where she has declared her intent to remain.

Soon after Linda was found in France, she was indicted on criminal bankruptcy charges arising from this adversary proceeding and the bankruptcy court's opinion. Linda has evaded prosecution, however, because of her presence in France, and because a French Court of Appeal has denied U.S. requests to extradite Linda and Michael.

Due to Linda's flight, the district court refused to reach the merits of Linda's civil bankruptcy appeal. Instead, it dismissed Linda's appeal under the fugitive disentitlement doctrine. The district court determined that Linda “is a fugitive,” that her “fugitive status is connected to this appeal,” and that her “blatant disregard for the authority of the judicial system renders her ineligible to pursue an appeal.”

Linda now appeals to this court, arguing that the district court abused its discretion in dismissing her appeal under the fugitive disentitlement doctrine. She seeks remand to the district court for its consideration of the merits of her appeal.

II.

Before reaching the question of whether the district court correctly invoked the fugitive disentitlement doctrine, we must first assure ourselves that the bankruptcy court and the district court had jurisdiction. We have an obligation to determine our jurisdiction and that of the lower courts, even when the parties do not contest it. Bender v. Williamsport Area Sch. Dist., 475 U.S. 534, 541, 106 S.Ct. 1326, 89 L.Ed.2d 501 (1986). The parties here agree that the bankruptcy court had the authority and jurisdiction to enter final judgment under 28 U.S.C. § 157(b).¹ The Supreme Court, however, has “held invalid” the “application of ... the procedures of § 157(b)” to fraudulent conveyance actions involving the statutes at issue here. Exec. Benefits Ins. Agency v. Arkison (“Arkison”), ––– U.S. ––––, 134 S.Ct. 2165, 2174, 189 L.Ed.2d 83 (2014) (internal quotation marks omitted). Under Arkison, we cannot accept the parties' agreement that the bankruptcy court had jurisdiction under § 157(b). We hold instead that the bankruptcy court had jurisdiction to enter final judgment under 28 U.S.C. § 157(c)(2).

By statute, Congress authorized bankruptcy judges to “hear and determine ... all core proceedings,” and to “enter appropriate orders and judgments.” 28 U.S.C. § 157(b)(1). However, as a constitutional matter, “some claims labeled by Congress as ‘core’ may not be adjudicated by a bankruptcy court” to final judgment. Arkison, 134 S.Ct. at 2172. These claims are called “ Stern claims,” so named after the Supreme Court's decision in Stern v. Marshall, ––– U.S. ––––, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011). Stern claims are claims “designated for final adjudication in the bankruptcy court as a statutory matter, but prohibited from proceeding in that way as a constitutional matter.” Arkison, 134 S.Ct. at 2170.

The adversary proceeding against Linda involved Stern claims. The Trustee alleged, among other things, that Linda fraudulently transferred assets in violation of 11 U.S.C. §§ 544 and 548, and Wash. Rev.Code, ch. 19.40. The bankruptcy court then found Linda liable under these statutes.

We have previously considered exactly the same claims at issue here—“claims of fraudulent conveyance under 11 U.S.C. § 544 [and § 548], and under state law, Wash. Rev.Code, ch. 19.40.” Arkison, 134 S.Ct. at 2169 n. 1; see Exec. Benefits Ins. Agency v. Arkison (In re Bellingham Ins. Agency, Inc.) (“In re Bellingham”), 702 F.3d 553, 557 (9th Cir.2012), aff'd, ––– U.S. ––––, 134 S.Ct. 2165, 189 L.Ed.2d 83 (2014). And we have “held that [these] fraudulent conveyance claims ... are Stern claims—that is, proceedings that are defined as ‘core’ under § 157(b) but may not, as a constitutional matter, be adjudicated as such.” Arkison, 134 S.Ct. at 2172 (citing In re Bellingham, 702 F.3d at 562); see In re Bellingham, 702 F.3d at 565 (holding that “bankruptcy courts [do not] have the general authority to enter final judgments on fraudulent conveyance claims” brought under these statutes).

Because a bankruptcy court generally cannot enter final judgment on a Stern claim, “when a bankruptcy court is presented with [a Stern claim], the proper course is to issue proposed findings of fact and conclusions of law.” Arkison, 134 S.Ct. at 2170. “The district court will then review the claim de novo and enter judgment.” Id.

This “proper course” was not followed in Linda's case. Instead of issuing proposed findings of fact and conclusions of law, the bankruptcy court entered judgment deciding the Stern claims.²

Nevertheless, under our holding in In re Bellingham, we are satisfied that the bankruptcy court did not exceed its jurisdiction. The parties consented to adjudication by the bankruptcy court. This consent, we have held, gives a bankruptcy court jurisdiction over Stern claims. See In re Bellingham, 702 F.3d at 566 (holding that a party's “right to a hearing in an Article III court” in “fraudulent conveyance suits ... is waivable” if the parties consent to adjudication by the bankruptcy court).

In re Bellingham continues to bind us. As a three judge panel, we may not depart from In re Bellingham unless it is “clearly irreconcilable” with an intervening decision of the Supreme Court. See Miller v. Gammie, 335 F.3d 889, 900 (9th Cir.2003) (en banc). And In re Bellingham is not clearly irreconcilable with any intervening Supreme Court decision.

In In re Bellingham, we held that “consent permits a non-Article III judge to decide finally” a Stern claim. In re Bellingham, 702 F.3d at 567. In Arkison, the Supreme Court affirmed our decision in In re Bellingham on other grounds. The Supreme Court held that even if consent does not permit a bankruptcy court to decide finally a Stern claim, any error is “cured” when a district court conducts “ de novo review” and enters “its own valid final judgment.” Arkison, 134 S.Ct. at 2175.

The Supreme Court's decision “not ... to address ... whether Article III permits a bankruptcy court, with the consent of the parties, to enter final judgment on a Stern claim” leaves intact our holding that consent does, in fact, permit a bankruptcy court to enter final judgment on a Stern claim. Id. at 2170 n. 4. Arkison does not “undercut the theory or reasoning underlying [ In re Bellingham ] in such a way that the cases are clearly irreconcilable.” Miller, 335 F.3d at 900; see, e.g., Kismet Acquisition, LLC v. Icenhower (In re Icenhower), 757 F.3d 1044, 1050 (9th Cir.2014) (concluding, based on In re Bellingham, that appellants “waived any objection ... to the bankruptcy court's entry of final judgment,” even though In re Bellingham's holding that such objections are waivable was affirmed on other grounds in Arkison ); Busk v. Integrity Staffing Solutions, Inc., 713 F.3d 525, 530 (9th Cir.2013) (relying on circuit precedent for specific rules of law, even after the Supreme Court affirmed that precedent on other grounds). Arkison simply does “not decide whether” or not our holding in In re Bellingham was correct. Arkison, 134 S.Ct. at 2175. In re Bellingham therefore remains good law.

Because In re Bellingham remains good law, the bankruptcy court had authority to enter final judgment. Under In re Bellingham, a bankruptcy court may constitutionally enter final judgment on a Stern claim...