The Ninth Circuit Considers Whether Appellate Rights are Property of the Estate

Posted by Jim Haller - November 14, 2023

In In re Lopez, Case No. 23-55682 (9th Cir. 2023), the Ninth Circuit is considering whether the bankruptcy court erred in (1) ruling that the Chapter 7 debtor’s right to appeal a prepetition personal injury judgment against her was property of the estate, (2) denying the debtor’s motion for the Chapter 7 trustee’s abandonment of the appeal rights, and (3) denying the debtor’s motion for reconsideration.

NCBRC filed an amicus brief requesting that the court narrowly confine its ruling to the specific facts of the case.  The concern is that a broad ruling will have a significant impact in other factual situations.

The fact that something has monetary value is not sufficient, by itself, to make it property of the estate. Just as no one would argue that a debtor’s kidneys should be property of the estate because they could have monetary value, it is not difficult to find many examples of situations in which classifying a right to appeal as property, simply because a trustee could sell it, would be extremely problematic. A debtor could be involved in a hotly-contested custody case, where a very questionable decision was appealed. The opposing party, perhaps far wealthier than the debtor, could offer to buy from the trustee the debtor’s right to appeal for more than the debtor could afford, thus ending the appeal. Similarly, a debtor could be involved in a contested divorce, in which a clearly erroneous support order for $100,000, which would not be dischargeable in bankruptcy, 11 U.S.C. § 523(a)(5), was entered against the debtor. In that situation, too, the opposing party could offer the trustee $10,000 for the right to appeal, cutting off any review of the support order and leaving the debtor with a $100,000 debt after bankruptcy.

And such situations are not limited to family law matters. A debtor could be appealing an erroneous criminal conviction. The alleged crime victim, or even a prosecutor trying to save the costs of appeal, could purchase the debtor’s right to appeal from a bankruptcy trustee, perhaps causing the debtor to be imprisoned for years.  Or the debtor might be appealing an erroneous judgment or other decision that would lead to loss of a professional license, which would severely impair the debtor’s fresh start.

The loss of a debtor’s right to appeal could also lead to large debts becoming nondischargeable in bankruptcy when, in fact, they should be discharged. For example, a debtor could erroneously be found liable for a large amount in a fraud judgment that, if not reversed, would result in a nondischargeability determination under 11 U.S.C. § 523(a)(2). See Grogan v. Garner, 498 U.S. 279, 111 S. Ct. 654 (1991) (collateral estoppel applies in dischargeability determination). If the plaintiff could pay the bankruptcy trustee for the debtor’s right to appeal, and then dismiss the appeal, the debt would not be discharged.

In all these situations, and undoubtedly many others, the fact that a right may have monetary value to the bankruptcy estate, and could be sold by the trustee, should not, by itself, make that right property.

The amicus brief for NCBRC and NACBA is here:  Lopez amicus brief v4



Post a Comment

You must be logged in to post a comment.