Susan Brown v. Douglas Ellmann
851 F.3d 619
| 6th Cir. | 2017Background
- Debtor Susan G. Brown filed Chapter 7 in 2014, listing a Ypsilanti residence (value $170,000) subject to $219,000 in mortgages and initially indicating surrender of the property.
- The Chapter 7 Trustee obtained court approval to sell the house for $160,000; Brown objected and sought to amend to claim exemptions based on Michigan redemption rights under 11 U.S.C. § 522(d).
- Brown sought $11,475 (§ 522(d)(1)) and $11,675 (§ 522(d)(5)) in exemptions tied to her state-law redemption interest.
- The bankruptcy court approved the sale and denied Brown’s claimed exemptions; the district court affirmed and Brown appealed to the Sixth Circuit.
- The Trustee argued the appeal was moot under 11 U.S.C. § 363(m) and that Brown lacked appellate standing; the Sixth Circuit rejected both contentions.
- On the merits, the Sixth Circuit affirmed denial of exemptions because the sale proceeds ($160,000) were insufficient to satisfy secured claims ($219,000), leaving no residual equity for an exemption to attach.
Issues
| Issue | Plaintiff's Argument (Brown) | Defendant's Argument (Trustee) | Held |
|---|---|---|---|
| Mootness under 11 U.S.C. § 363(m) | Brown argued appeal is not moot because relief can be fashioned without invalidating the sale (e.g., constructive trust or redistribution of proceeds). | Trustee argued appeal is moot because sale to a good-faith purchaser closed and Brown did not obtain a stay. | Court held § 363(m) requires showing that effective relief cannot be granted without affecting sale; Trustee failed to prove mootness, so appeal not moot. |
| Appellate standing in bankruptcy appeal | Brown argued denial of exemptions deprived her pecuniary interest in sale proceeds, giving standing. | Trustee argued Brown had no residual equity and thus no pecuniary interest to appeal. | Court held Brown had been directly and adversely affected pecuniarily (denial deprived her of claimed exempt share) and therefore had standing. |
| Whether § 522 permits exemption for state-law redemption rights when secured claims exceed sale proceeds | Brown argued § 522(d) entitles her to exempt her interest in property (including redemption rights) up to statutory caps, regardless of secured claims. | Trustee and bankruptcy court argued exemption must attach to debtor’s post-lien equity; if secured claims consume proceeds, there is no interest to exempt. | Court affirmed: no residual equity remained after sale, so § 522 cannot support an exemption for redemption rights when proceeds insufficient to satisfy liens. |
| Relevance of Law v. Siegel to allow departure from prior rule | Brown relied on Law v. Siegel to argue courts cannot use equitable rules to defeat clear statutory exemption language. | Trustee argued Law does not change interpretation of § 522 or prior holdings that exemptions attach to debtor’s equitable interest. | Court held Law does not control here; Law limits equitable surcharge under § 105(a) but does not prevent interpreting § 522 to require existing equity for exemptions. |
Key Cases Cited
- Baldridge v. Ellmann, [citation="553 F. App'x 598"] (6th Cir.) (rule that § 522 exemption for redemption rights requires residual equity)
- Nashville Senior Living Prop., LLC v. Official Comm. of Unsecured Creditors, 620 F.3d 584 (6th Cir. 2010) (§ 363(m) protects good-faith purchasers; mootness considerations)
- Parker v. Goodman, 499 F.3d 616 (6th Cir. 2007) (discussion of majority circuit approach to § 363(m))
- In re DSC, Ltd., 486 F.3d 940 (6th Cir. 2007) (burden on party asserting mootness)
- In re Simonson, 758 F.2d 103 (3d Cir. 1985) (exemption limited to debtor’s unencumbered interest; exemptions do not create equity)
- Law v. Siegel, 134 S. Ct. 1188 (U.S. 2014) (limits on using § 105(a) equitable powers to override explicit Bankruptcy Code provisions)