United States District Court, S.D. California
November 22, 2005.
ALBERT P. ZAPPIA, Appellant,
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
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).
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 § 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
(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 as taking
a position inconsistent with one already accepted by the court.
See In re Cheng, 308 B.R. at 453 ("The meaning of
`acceptance' in the bankruptcy context is construed broadly to
`protect the integrity of the bankruptcy process.'"). Therefore,
it was not clear error for the Bankruptcy Court to apply judicial
B. Res Judicata
Appellant argues that res judicata is inapplicable because the
issue of avoidance of judicial liens on the commercial property
was never litigated and was not mentioned in the First Motion to
Avoid. Appellees respond that under In re Ladd, Appellant is
precluded from re-opening his case to assert Specific Exemptions
because he could have litigated these exemptions in his first
motion. See In re Ladd, 319 B.R. 599 (B.A.P. 8th Cir. 2005).
In Ladd, the debtors asserted a homestead exemption under
federal law that was denied. Later, the debtors filed an amended
schedule, seeking a homestead exemption under state law. Id. at
601-02. The Bankruptcy Appellate Panel for the Eighth Circuit
upheld the Bankruptcy Court's ruling that the debtors' amendment
was barred by res judicata. Id. at 603. The panel reasoned that
the debtors were obligated to assert all theories under which
they might be entitled to an exemption once an objection to the
exemption had been filed. Id.
Unlike in Ladd, Appellant could not have asserted General
Exemptions and Specific Exemptions as alternate theories in the
First Motion to Avoid. Appellees do not contend that Appellant
could have done this; rather Appellees argue that once Appellant
elected a set of exemptions, the issue became decided. The panel
in Ladd analogized a bankruptcy motion to a civil lawsuit,
stating that amending exemptions after a final order is "akin to
allowing a party to add a new claim to a complaint after trial
and entry of a judgment." Id. According to the panel:
[L]iberal amendments are permissible in the
bankruptcy context and the bankruptcy court may grant
relief not specifically pleaded in the motion prior
to entry of an order or judgement [sic] resolving
the matter. However, once a matter has been decided,
the parties cannot later assert a new theory to
obtain the relief which they have already been denied
by a final court order.
The Bankruptcy Court previously granted Appellant's motion to
avoid judicial liens based on an election of the General
Exemptions. Although Appellant contends that the commercial
property was not mentioned in the First Motion to Avoid, the
record indicates that at least one issue in the first motion was
whether the avoided lien was on the residential or commercial
property, or both. In fact, this was the precise concern raised
at the hearing on the first motion. At the hearing to re-open the
case, the Bankruptcy Court framed the litigated issue as, "[t]he
debtor came into the court, moved to set aside liens. I ruled
that as to the homestead that was fine and ruled that as to the
commercial property, the exemption claims wouldn't apply."
Transcript of Proceeding, Apr. 8, 2005 at 6. As the court told
Appellant at the April 8 hearing, "[y]ou can't now come in after
you lose the case, I guess, with your fingers crossed behind your
back and say I want to restart, I want to undo it. That's when
judicial estoppel and res judicata come in." Transcript of
Proceeding, Apr. 8, 2005 at 7. Because the First Motion to Avoid
addressed the issue of which liens would be avoided on which
property and in the Second Motion to Avoid Appellant sought to re-address the
same issues, res judicata was properly applied.
Because the decision of the Bankruptcy Court is not based on an
abuse of discretion, this Court hereby AFFIRMS the decision.
IT IS SO ORDERED.
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