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ZAPPIA v. MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC.

November 22, 2005.

ALBERT P. ZAPPIA, Appellant,
v.
MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC.; JOHN MICUDA; and SEA WINDS AVIATION, Appellees.



The opinion of the court was delivered by: JEFFREY MILLER, District Judge

ORDER AFFIRMING DECISION OF BANKRUPTCY COURT

Background

Appellant Albert P. Zappia is appealing the decision of the Bankruptcy Court denying Appellant's motion to re-open his bankruptcy case in order to amend his schedules to change his claims of exemption. Appellant filed a bankruptcy petition under Chapter 7 of the Bankruptcy Code on December 7, 2003. Appellant chose to claim a $50,000 exemption in his home under California Code of Civil Procedure ("CCP") section 704.730 ("General Exemptions") rather than smaller exemptions in both his home and a commercial property he owned under CCP section 703.140(b) ("Specific Exemptions").*fn1 At that time, Appellant claimed a one-half interest in each of the properties, with the other half of the interest owned by his girlfriend, Sandra K. Freidrich as a joint tenant.

  On April 5, 2004, Appellant filed a motion to avoid the judgment liens held by Appellees Merrill Lynch Business Financial Services, Inc. ("Merrill Lynch"), John Micuda, and Sea Winds Aviation as impairing the $50,000 homestead exemption he was claiming in his residential property pursuant to the General Exemptions ("First Motion to Avoid"). This motion was granted on June 18, 2004. Later, Appellant decided that he would rather claim the set of exemptions established under the Specific Exemptions, which would allow him to avoid the judgment liens on both his residential and commercial properties. On February 8, 2005, Appellant filed a motion to re-open his case to amend his schedules accordingly. The bankruptcy court denied his motion on April 8, 2005.

  On May 6, 2005, Appellant filed a Notice of Appeal to the Bankruptcy Appellate Panel, which was transferred to the District Court on June 1, 2005, upon objection by Appellee Merrill Lynch.

  Standard of Review

  A bankruptcy court's decision whether to re-open a bankruptcy case is reviewed for abuse of discretion. See In re Cisneros, 994 F.2d 1462, 1464-65 (9th Cir. 1993). "Under the abuse of discretion standard, a reviewing court will not reverse unless it has a definite and firm conviction that the court below committed clear error of judgment in the conclusion it reached upon weighing the relevant factors." In re Cortez, 191 B.R. 174, 177 (Bankr. Fed. App. 1995).

  Analysis

  The Bankruptcy Court denied Appellant's motion to re-open his case on three independent grounds: (1) Appellant did not own the property in which he wished to assert an exemption;*fn2 (2) judicial estoppel; and (3) res judicata.*fn3

  A. Judicial Estoppel

  Appellees argue that the Bankruptcy Court properly invoked the doctrine of judicial estoppel in denying Appellant's motion to re-open his case and argue that the Bankruptcy Court relied on Appellant's earlier position claiming the homestead exemption under the General Exemptions when it granted Appellant's First Motion to Avoid. Appellant responds that he is not taking an inconsistent position by amending his schedules. He maintains that he is simply trying to affect a "do-over" in order to maximize his fresh start.

  Judicial estoppel prevents a party from seeking an advantage by asserting one position and then seeking an advantage by asserting an inconsistent position later. See In re Cheng, 308 B.R. 448, 452 (B.A.P. 9th Cir. 2004).

 
There are three general approaches to judicial estoppel: (1) requiring (like equitable estoppel) that the party injured by the changed position have relied on the first position; (2) merely requiring that the court have relied on, i.e. accepted, the earlier position; and (3) encompassing unseemly adversary behavior that constitutes `playing fast and loose' with the court.
Id. (citing Wright, Miller & Cooper ยง 4477 at 550). The United States Supreme Court has stated that there "must" be a clearly inconsistent position, but has also emphasized that judicial estoppel is a flexible doctrine that may be invoked in a court's discretion. See New Hampshire v. Maine, 532 U.S. 742, 750-51 (2001) ("[W]e do not establish inflexible prerequisites or an exhaustive formula for determining the applicability of judicial estoppel."). Here, the Bankruptcy Court followed the third approach noted in Cheng, commenting that Appellant's transfer of the commercial property without court authority and before it was abandoned by the trustee was evidence that Appellant was "playing fast and loose" with the court system. See In re Cheng, 308 B.R. at 452. Furthermore, Appellant's attempt to reverse his decision to elect the General Exemptions to invoke the Specific Exemptions instead can be fairly construed ...

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