Ortiz-Peredo v. Viegelahn

587 B.R. 321

Jose Francisco ORTIZ-PEREDO and Lilia Guadalupe Lopez, Debtors-Appellants,

v.Mary K. VIEGELAHN, Standing Chapter 13 Trustee, Appellee.

Civil No. 5:17-CV-796-OLG

United States District Court, W.D. Texas, San Antonio Division.

Signed March 29, 2018

J. Todd Malaise, Steven G. Cennamo, Malaise Law Firm, San Antonio, TX, for Debtors-Appellants.

Mary K. Viegelahn, Vanessa Inez DeLeon Guerrero, San Antonio, TX, for Appellee.

MEMORANDUM OPINION AND ORDER

ORLANDO L. GARCIA, CHIEF UNITED STATES DISTRICT JUDGE

Appellants in this bankruptcy appeal seek review of three orders entered by the bankruptcy court. First, on July 18, 2017, the Bankruptcy Court entered a Memorandum Opinion and Order sustaining the Chapter 13 Trustee's objections to confirmation of Appellants' proposed Chapter 13 plan, and instructing Appellants to submit an amended Chapter 13 plan within 14 days. Docket no. 9 at 14. Second, on August 1, 2017, the Bankruptcy Court entered an Order Denying Confirmation of the Plan. Docket no. 9 at 15. Finally, on August 4, 2017, the Bankruptcy Court entered an Order dismissing the Chapter 13 case after Appellants did not file an amended Chapter 13 plan proposal. Docket no. 9 at 15.

Appellants filed their notice of appeal as to all three orders on August 18, 2017. Docket no. 9 at 15. Appellee filed a Motion to Dismiss Appeal (docket no. 2), which argues that this Court lacks jurisdiction to review the Bankruptcy Court's July 18 and August 1 orders since Appellants did not notice their appeal within 14 days of the entry of those orders. Docket no. 2 at 3 (citing Fed. R. Bankr. P. 8002(a)(1) ). The Court finds that the motion to dismiss should be DENIED and that the Bankruptcy Court's Orders should be AFFIRMED.

Background

Appellants, a husband and wife, filed a joint Voluntary Petition for relief under Chapter 13 of the Bankruptcy Code on April 4, 2017. On the same date, they filed a list of their assets, which included an asset described as "Total Safety worker's compensation filed in 2014 — pending[.]" The value of this entry was listed as "Unknown." Docket no. 9 at 10. Their Schedule C also listed the lawsuit with a value of "Unknown," and Appellants entered "$0.00" as the amount of the exemption they were claiming under 11 U.S.C. § 522(d)(5). Docket no. 9 at 10-11. Appellee, the Chapter 13 Trustee, objected to confirmation of Appellant's plan on May 30, 2017. Docket no. 10 at 9. On June 19, 2017, Appellants filed an Amended A/B Schedule and an Amended Schedule C, reflecting that the worker's compensation lawsuit had settled for $22,500, yielding a recovery of $8,632.85 (the settlement funds) after the payment of litigation costs. Docket no. 11 at 11-12. Appellants filed an Amended Chapter 13 Plan on June 19, 2017, which did not provide for payment of the settlement funds into the Plan, and subsequently filed a motion seeking the Bankruptcy Court's approval of the settlement and the distribution of the settlement funds to the debtor as exempt and not property of the bankruptcy estate. Docket no. 9 at 14. On July 18, 2017, the Bankruptcy Court issued a Memorandum Opinion and Order which granted Appellee's objection to confirmation of Appellants' plan, finding that the settlement funds were "disposable income" within the meaning of 11 U.S.C. § 1325(b)(2) and therefore were required to be applied to make payments to Appellants' unsecured creditors under 11 U.S.C. § 1325(b)(1)(B). Docket nos. 9 at 14; 10 at 11. That determination forms the basis for the parties' arguments on appeal. The Bankruptcy Court granted Appellants fourteen days to propose a new plan, and denied confirmation of the plan and dismissed the case when Appellants did not do so. Docket nos. 9 at 15; 10 at 11.

Jurisdiction and Standard of Review

This Court has jurisdiction to hear appeals from final judgments, orders and decrees entered in proceedings before the United States Bankruptcy Court for the Western District of Texas. 28 U.S.C. § 158(a). On direct appeal of an order of the bankruptcy court to the district court, findings of fact are reviewed for clear error, conclusions of law are reviewed de novo , and missed questions of law and fact are reviewed de novo. Drive Fin. Services, LP v. Jordan , 521 F.3d 343, 346 (5th Cir. 2008) ; In re Bass , 171 F.3d 1016, 1021 (5th Cir. 1999).

The Motion to Dismiss Appeal (docket no. 2)

United States District Courts have jurisdiction to hear appeals from final judgments, orders, and decrees issued by United States Bankruptcy Courts, as well as from interlocutory orders and decrees issued under 11 U.S.C. § 1121(d) and other interlocutory order and decrees "with leave of the court[.]" 28 U.S.C. § 158(a), (c)(2). Appeals pursuant to this section are subject to the time limits established by Rule 8002 of the Federal Rules of Bankruptcy Procedure, which, pertinent to this case, require that "a notice of appeal must be filed with the bankruptcy clerk within 14 days after entry of the judgment, order, or decree being appealed." Fed. R. Bankr. P. 8002(a)(1). The parties do not dispute that Appellants' appeal was noticed within 14 days of the August 4 Order Dismissing Case, but Appellee argues that, because Appellants' notice of appeal was filed more than 14 days after the Bankruptcy Court's July 18 Memorandum Opinion and Order and August 1 Order Denying Confirmation of the Plan, the appeal is untimely under Rule 8002(a)(1). Docket no. 2 at ¶¶ 12-13. The parties appear to be in agreement that the orders of July 18 and August 1 were interlocutory rather than final, and Appellee further argues that, since Appellants did not notice their appeal within 14 days of the interlocutory orders which they seek to have reviewed, and did not seek leave of the Bankruptcy Court to appeal these interlocutory orders under 28 U.S.C. § 158(a)(3) and Fed. R. Bankr. P. 8004(a), this Court lacks jurisdiction to consider their appeals. Docket no. 2 at ¶ 16 (citing In re Berman-Smith , 737 F.3d 997, 1000 (5th Cir. 2013) ).

In response, Appellants correctly note that "[a]n interlocutory appeal is permissive, not mandatory" and that "[a] party does not forfeit its right to appeal a final judgment for failure to appeal interlocutorily." Docket no. 3 at ¶ 7 (citing In re Chicken Antitrust Litig. Am. Poultry , 669 F.2d 228, 236 (5th Cir. 1982) and Matherne v. Wilson , 851 F.2d 752, 756 (5th Cir. 1988) ). The Supreme Court has noted that the policy against piecemeal appeals that applies in most federal cases, which allows appeals of right only from final decisions, applies differently in bankruptcy proceedings, in which the rules authorize appeals of right not only from final judgments, but also from orders and decrees "if they finally dispose of discrete disputes within the larger case." Bullard v. Blue Hills Bank , ––– U.S. ––––, 135 S.Ct. 1686, 1692, 191 L.Ed.2d 621 (2015). However, the Court in Bullard also made clear—as the parties in this case do not appear to dispute—that an order denying confirmation of a Chapter 13 plan is interlocutory, not a final appealable order or decree within the meaning of 28 U.S.C. § 158(a)(1). Bullard , 135 S.Ct. at 1692. Faced with these interlocutory orders, Appellants had the opinion of seeking leave of court to undertake an interlocutory appeal—but nothing in 28 U.S.C. § 158(a)(3) or Fed. R. Bankr. P. 8004 required that they do so. And, when a party elects not to seek leave to appeal an interlocutory order, that order "merges in the final judgment and may be challenged in an appeal from that judgment." Baldwin v. Redwood City , 540 F.2d 1360, 1364 (9th Cir. 1976) ; In re O & S Trucking, Inc. , 529 B.R. 711, 716 (8th Cir. BAP 2015), aff'd , 811 F.3d 1020 (8th Cir. 2016).

The Court therefore concludes that Appellee's Motion to Dismiss Appeal (docket no. 2) should be DENIED.

Statutory Framework

In both Chapter 7 and Chapter 13 cases, the Bankruptcy Code permits debtors to exempt certain property from the bankruptcy estate. 11 U.S.C. §§ 541, 522(b). The debtor may choose between the exemptions set forth in the Bankruptcy Code or those set forth in state law, and the debtor must detail the exemptions claimed pursuant to 11 U.S.C. § 522(1) using a Schedule C. 11 U.S.C. § 522(b), (1). If a claimed exemption is not timely objected to, even if the claimed exemption is improper, the exemption is conclusively established. Fed. R. Bankr. P. 4003(b)(1) ; Taylor v. Freeland & Kronz , 503 U.S. 638, 642-43, 112 S.Ct. 1644, 118 L.Ed.2d 280 (1992) (discussing 11 U.S.C. § 522(1) ). Subject to certain exceptions that the parties agree do not apply, "property exempted ... is not liable during or after the case for any debt of the debtor that arose ... before the commencement of the case[.]" 11 U.S.C. § 522(c) ; see also Taylor v. Freeland & Kronz , 503 U.S. 638, 642, 112 S.Ct. 1644, 118 L.Ed.2d 280 (1992) (the effect of an exemption under Section 522 is to "allow[ ] the debtor to prevent the distribution of ... property" to the bankruptcy estate). The scope of the property distributed to the bankruptcy estate if not exempted is broad, encompassing all property set forth in 11 U.S.C. § 541(a), "wherever located and by whomever held[,]" including, inter alia , "all legal or equitable interests of the debtor in property as of the commencement of the case" and "[a]ny interest in property that the estate acquires after the commencement of the case."

In order to be confirmed, a Chapter 13 plan must satisfy several requirements set forth in 11 U.S.C. § 1325(a) and (b). In re Stretcher , 466 B.R. 891, 893 (Bankr. W.D. Tex. 2011). The proposed plan must satisfy the "Best Interest of the Creditors" test set forth at 11 U.S.C. § 1325(a)(4), under which the bankruptcy court must determine that:

the value, as of the effective date of the plan, of property to be distributed under the plan on account of each allowed unsecured claim is not less than the amount that would be paid on such claim if the estate of the debtor were liquidated under

...