In re: David Joseph Ryan and Melissa Ann Ryan

• Court: United States Bankruptcy Appellate Panel for the Ninth Circuit
• Decided: January 4, 2018
• Docket: HI-16-1391-TaLB
• Status: Unpublished

Opinion

FILED JAN 04 2018 1 NOT FOR PUBLICATION 2 SUSAN M. SPRAUL, CLERK U.S. BKCY.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.