In re: David Joseph Ryan and Melissa Ann Ryan
HI-16-1391-TaLB
| 9th Cir. BAP | Jan 4, 2018Background
- Debtors David and Melissa Ryan filed Chapter 7 in 2009, listed their Kihei, HI home, and stated an intent to "surrender" the property; they also signed a surrender declaration and did not oppose the lender's motion for relief from stay.
- The secured lender non-judicially foreclosed in 2010; Debtors later sued in Hawaii state court (2016) for wrongful foreclosure, alleging statutory noncompliance (e.g., publication notice failures).
- CIT Bank (successor-in-interest) moved to dismiss in state court arguing judicial estoppel/standing from the bankruptcy surrender and statute of limitations; state court dismissal was ultimately granted on statute-of-limitations grounds.
- After CIT moved to dismiss, Debtors reopened their bankruptcy case and asked the bankruptcy court either to clarify that their bankruptcy discharge/surrender did not bar wrongful-foreclosure claims or to allow amendment of their §521 statement of intent; the bankruptcy court granted relief, rejecting an estoppel rule like the Eleventh Circuit’s decision in In re Failla.
- CIT appealed the bankruptcy court’s order; before this Panel could rule, the state court entered final judgment dismissing the wrongful-foreclosure suit on independent state statute-of-limitations grounds and the Debtors appealed that dismissal to the Hawaii Intermediate Court of Appeals.
- The Panel concluded the appeal was moot because the state-court dismissal rested entirely on an independent and adequate state-law ground; it dismissed the appeal, vacated the bankruptcy court’s order, and remanded with instructions to close the bankruptcy case.
Issues
| Issue | Ryan's Argument | CIT's Argument | Held |
|---|---|---|---|
| Mootness — can the Panel grant effective relief given the state court dismissal? | Appeal is not moot because Debtors have an ongoing state-court appeal and a reversal would allow federal defenses to be considered. | Appeal is moot because state court dismissal was based solely on state statute of limitations; Panel reversal would not change the dismissal. | Moot — appeal dismissed; no effective relief available from Panel while state judgment rests on independent state ground. |
| Timeliness of CIT’s appeal from bankruptcy court’s separate order | N/A | Debtors argued CIT’s notice was untimely because issued between memorandum decision and separate order. | Timely: Rule 8002(a)(2) treats notices filed after announcement but before entry as filed on entry date; appeal timely. |
| Jurisdiction over the order reopening the bankruptcy case | N/A | Debtors asserted lack of jurisdiction because reopening order appeal window expired. | Reopening order interlocutory/mechanical; Panel had jurisdiction to review it as part of the final January 4 order. |
| Effect of a §521 surrender on wrongful-foreclosure claims (bankruptcy court’s substantive ruling) | Debtors: surrender under §521 and discharge do not bar asserting wrongful-foreclosure claims or defending foreclosure; amendment should be allowed. | CIT: surrender estops debtors from litigating wrongful-foreclosure claims (citing In re Failla) and debtors lack standing. | Panel declined to resolve this substantive bankruptcy law issue on the merits because the appeal was moot; bankruptcy court’s order on this point was vacated. |
Key Cases Cited
- In re Failla, 838 F.3d 1170 (11th Cir. 2016) (held surrender may estop debtor from opposing foreclosure)
- Chafin v. Chafin, 568 U.S. 165 (2013) (mootness requires a continuing personal stake; relief must be effectual)
- Coleman v. Thompson, 501 U.S. 722 (1991) (independent and adequate state grounds bar federal review)
- Cunningham v. Wong, 704 F.3d 1143 (9th Cir. 2013) (federal courts defer where state decision rests on independent state law)
- NASD Dispute Resolution, Inc. v. Judicial Council, 488 F.3d 1065 (9th Cir. 2007) (vacatur is standard practice when case becomes moot on appeal)
- Am. Civil Liberties Union of Nev. v. Masto, 670 F.3d 1046 (9th Cir. 2012) (vacatur principles when appeals become moot)
- Wilson v. Lynch, 835 F.3d 1083 (9th Cir. 2016) (de novo review of appellate jurisdiction/mootness)
- Pilate v. Burrell (In re Burrell), 415 F.3d 994 (9th Cir. 2005) (a case may become moot on appeal if no effective relief can be granted)