In Re: Fariborz Babaee v. Richard Marshack

• Court: Court of Appeals for the Ninth Circuit
• Decided: September 13, 2023
• Docket: 22-60022
• Status: Unpublished

Opinion

NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS SEP 13 2023 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT

In re: FARIBORZ ZANJANEE BABAEE; No. 22-60022 MALIHE P. BABAEE, BAP No. 21-1230 Debtors,

------------------------------ MEMORANDUM*

FARIBORZ ZANJANEE BABAEE; MALIHE P. BABAEE,

Appellants,

v.

RICHARD A. MARSHACK, Chapter 7 Trustee,

Appellee.

In re: FARIBORZ ZANJANEE BABAEE; No. 22-60023 MALIHE P. BABAEE, BAP No. 21-1231 Debtors,

------------------------------

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. Appellants,

Appeal from the Ninth Circuit Bankruptcy Appellate Panel Lafferty III, Gan, and Taylor, Bankruptcy Judges, Presiding

Argued and Submitted August 24, 2023 Pasadena, California

Before: RAWLINSON and BRESS, Circuit Judges, and ZOUHARY,** District Judge.

In January 2020, Fariborz Zanjanee Babaee and Malihe P. Babaee (“Debtors”)

filed a joint Chapter 7 petition. The appointed Chapter 7 Trustee, Richard Marshack

(“Trustee”), negotiated lien-assignment agreements (“Agreements”) with two of

Debtors’ secured creditors—Comerica Bank (“Comerica”) and Valley Economic

Development Center, Inc. (“VEDC”)—who held liens on Debtors’ overencumbered

residential property. In exchange for partial payment from the sale of the property,

Comerica and VEDC agreed to: (1) subordinate a portion of their liens to the claims

of Trustee and unsecured creditors; (2) transfer those portions to the estate; and (3)

** The Honorable Jack Zouhary, United States District Judge for the Northern District of Ohio, sitting by designation.

2 consent to the sale of the Debtors’ residential property free and clear of their liens.

In the process, Debtors’ homestead exemption became junior to claims of the

Trustee and unsecured creditors.

Debtors challenged the lien assignments, arguing Trustee improperly

circumvented their homestead exemption. The bankruptcy court found Trustee

acted properly, and Debtors appealed to the Bankruptcy Appellate Panel of the Ninth

Circuit (“BAP”). The BAP found Debtors lacked standing because reversing the

Agreements would not allow payment on the homestead exemption. We have

jurisdiction under 28 U.S.C. § 158(d)(1), and affirm.

1. Debtors do not have constitutional or prudential standing to challenge the

lien assignments. We review the BAP’s decision on standing de novo. In re

Palmdale Hills Prop., LLC, 654 F.3d 868, 873 (9th Cir. 2011). Constitutional

standing requires an injury in fact that is caused by, or fairly traceable to, some

conduct, and which the requested relief will likely redress. Id. Prudential standing

provides that “only a person aggrieved, that is, someone who is directly and

adversely affected pecuniarily by a bankruptcy court’s order, has standing to appeal

that order.” In re Point Ctr. Fin., Inc., 890 F.3d 1188, 1191 (9th Cir. 2018) (cleaned

up).

Debtors contend their injury in fact was the impairment of their homestead

exemption. However, Debtors fail to show they would have been eligible to receive

3 their homestead exemption but for the negotiated Agreements. As the BAP noted,

the value of the property encumbered by Comerica and VEDC never belonged to

Debtors and thus could not be subject to their homestead exemption prior to the

execution of the Agreements. California law provides that consensual liens must be

paid ahead of homestead exemptions. See Cal. Civ. Proc. Code § 704.850; see also

Amin v. Khazindar, 112 Cal. App. 4th 582, 588 (Cal. 2003) (finding that homestead

exemption has no effect on liens created voluntarily by property owners, nor does it

have any effect on the claims of creditors secured by liens with priority). Here, the

subject property was overencumbered. At oral argument, counsel confirmed

Debtors are likely to receive nothing at this point in the bankruptcy proceedings.

The same would be true had the Agreements not been executed.

2. The BAP properly concluded that unwinding the Agreements would

provide Debtors no redress. Restoring the parties to their original positions would

simply return the liens to the original lienholders: Comerica and VEDC. Those

creditors would be entitled to payment on the outstanding liens from the sale

proceeds. Because the balance of the outstanding lien assignments is worth more

than the remaining proceeds held by the Trustee, Debtors would not be eligible for

payment on their homestead exemption. Debtors argue, for the first time on appeal,

that the severability provisions in the Agreements allow an alternative option for

redress. As an initial matter, although we have discretion to consider arguments

4 raised for the first time on appeal, we will only do so under “exceptional

circumstances.” In re Am. W. Airlines, 217 F.3d 1161, 1165 (9th Cir. 2000). Debtors

offer no exceptional circumstances that justify consideration of their untimely

argument.

Nonetheless, Debtors’ proposed alternative is without support. Debtors fail

to explain the basis or feasibility of severing portions of the Agreements to which

they are not a party. Debtors propose striking specific sentences in certain sections,

effectively rewriting the Agreements, and ignore a clause in the severability

provisions that states deletion cannot “violate the obvious primary purpose and

intent of the Parties.” Debtors cannot prove Trustee’s actions caused them injury in

fact, or that a viable option for redress is available to them.

AFFIRMED.