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In re Guzman

United States Bankruptcy Appellate Panel of the First Circuit

May 17, 2017

AUBERTO NIEVES GUZMÁN and ANNETTE NAZARIO RODRÍGUEZ, Debtors.
v.
NOREEN WISCOVITCH RENTAS, Chapter 7 Trustee, Appellee. AUBERTO NIEVES GUZMÁN and ANNETTE NAZARIO RODRÍGUEZ, Appellants, Bankruptcy Case No. 13-04232-BKT

         Appeal from the United States Bankruptcy Court for the District of Puerto Rico (Hon. Brian K. Tester, U.S. Bankruptcy Judge)

          Gerardo Santiago Puig, Esq., on brief for Appellants.

          Javier Vilariño Santiago, Esq., on brief for Appellee.

          Before Feeney, Finkle, and Fagone, United States Bankruptcy Appellate Panel Judges.

          Finkle, U.S. Bankruptcy Appellate Panel Judge.

         Auberto Nieves Guzmán and Annette Nazario Rodríguez ("Debtors") appeal from the bankruptcy court's order denying their motion for reconsideration of the court's order sustaining the chapter 7 trustee's (the "Trustee") objection to certain claimed exemptions. Because we find no abuse of discretion, we AFFIRM the bankruptcy court's order.

         BACKGROUND

         The muddled procedural history of this case results from the Debtors' multiple amendments to their asset and exemptions schedules, the Trustee's objections to such amendments, the Debtors' failure to timely respond to those objections, and delays by the parties.[1]

         The Debtors originally filed a voluntary chapter 11 petition in May 2013 and, at their request, the case was converted to chapter 7 a little over two years later. For purposes of this appeal it is sufficient to note that during the chapter 11 case they filed their first amendment to Schedule C-Property Claimed as Exempt ("Schedule C"). Shortly after the case conversion, on July 9, 2015, the Debtors again amended Schedule C ("Second Amended Exemption Schedule") to add to their claimed exemptions under § 522(d)(5)[2] the funds that had been held in the chapter 11 debtor-in-possession bank accounts ("DIP Accounts").

         Within 30 days of the filing of the Second Amended Exemption Schedule, [3] the Trustee filed an objection to the Debtors' claimed exemptions to the DIP Accounts ("First Exemption Objection"). She asserted that the Debtors were not entitled to claim exemptions for those accounts because they were funds earned or acquired post-petition, and as such, were property of the estate to be administered by the Trustee. The objection contained a notice provision incorrectly advising parties in interest, including the Debtors, of a 30-day period in which to object or otherwise respond, or the objection would be deemed unopposed and possibly granted by the court without a hearing.[4] Nineteen days later, the bankruptcy court entered an order sustaining the Trustee's objection as unopposed ("First Exemption Order").

         Shortly thereafter, the Debtors filed a motion requesting reconsideration of the First Exemption Order and also presenting their opposition to the First Exemption Objection. As grounds for reconsideration, the Debtors asserted that the 30-day response period provided by the Trustee in the objection was misleading and led to their admittedly "erroneous" belief that they had 30 days to respond when, in fact, the appropriate response period was only 14 days. As to the merits of their claimed exemption, they maintained that the First Exemption Objection should not be sustained because the funds in the DIP Accounts were property of the estate in which they can properly claim an exemption under § 522(d)(5). The Trustee did not file any opposition to the reconsideration motion.

         On September 9, 2015, before the court acted on this motion, the Debtors filed their third amended Schedule C ("Third Amended Exemption Schedule"). The pertinent change to the schedule updated the balance in the DIP Accounts claimed as exempt. Without conducting a hearing (or referencing the reconsideration motion), by order entered on October 1, 2015, the bankruptcy court vacated the First Exemption Order ("Vacating Order") as "improvidently entered." On that same day, the court also entered a separate order overruling the Trustee's First Exemption Objection ("Order Overruling First Exemption Objection"). No explanation for the court's ruling was given. The Trustee did not appeal either of these orders, but a few days after their entry, she filed a motion requesting a 30-day extension of time to seek reconsideration of the orders. The bankruptcy court did not rule on the extension request for many months and, for unexplained reasons, the Trustee did not file a motion for reconsideration of the orders until almost six months later-March 29, 2016. As grounds she argued that the Order Overruling First Exemption Objection was a manifest error of law. On May 3, 2016, again without explanation, the bankruptcy court denied the Trustee's extension request filed months earlier ("Order Denying Extension"), but it did not acknowledge or rule on the Trustee's motion for reconsideration.

         Meanwhile, on April 4, 2016, the Debtors amended Schedule C for the fourth time ("Fourth Amended Exemption Schedule"), to include an exemption for an apartment they owned. The Debtors made no other additions or changes to their other claimed exemptions. Within 30 days of the filing of this amendment, the Trustee filed a "Second Objection to Claimed Exemption and, in the Alternative for Turnover of Property of the Estate" ("Second Exemption Objection"). She maintained that the Vacating Order and the Order Overruling First Exemption Objection only related to the First and Second Amended Exemption Schedules, and the Debtors' subsequent filings of the Third and Fourth Amended Exemption Schedules rendered those prior orders moot. She asserted that this objection was timely because it was filed within the 30-day period for objection to the Fourth Amended Exemption Schedule. As to the merits, the Trustee primarily pressed her position that as a matter of law the Debtors were not entitled to claim an exemption in the DIP Accounts upon conversion of the case to chapter 7.

         Adding to the procedural mishmash of this case, the Trustee's Second Exemption Objection contained the same notice error as the First Exemption Objection, stating a 30-day response period. The bankruptcy case docket, however, reflected that the actual response period was 14 days. Once again the bankruptcy court acted on this objection prior to the expiration of the incorrectly stated response period, treating it as "unopposed, " and on May 20, 2016, entered an order sustaining the Trustee's objection ("Order Sustaining Second Exemption Objection").

         This time the Debtors reacted swiftly and on that same date filed a motion seeking reconsideration of that order and also opposing the Second Exemption Objection ("Debtors' Second Reconsideration Motion").[5] First, they asserted that the Trustee misled them by providing "inadequate and improper notice" of the appropriate response period for the Second Exemption Objection, and, because they filed their opposition within the 30-day period stated in the objection, the court should consider their opposition on the merits. Second, they challenged this objection as "unwarranted as a matter of law" because: (1) the 30-day time frame for objections to the Fourth Amended Exemption Schedule only applied to newly listed exemptions not previously claimed, and thus, did not apply to the DIP Accounts which were not modified by the Fourth Exemption Schedule; and (2) the Trustee could not reassert her objection to the exemption in the DIP Accounts because the bankruptcy court had already overruled the First Exemption Objection which had raised the same objection, and the court "ended the discussion" when it entered the Order Denying Extension.

         The Trustee filed an opposition to the Debtors' Second Reconsideration Motion ("Trustee's Opposition"), contending that: (1) the Debtors knew of the appropriate response date, which was clearly noted in the bankruptcy court's docket as a 14-day response period, and they had previously acknowledged this time frame as the appropriate response period in connection with the First Exemption Objection; (2) the Second Exemption Objection was timely because a new 30-day objection period as to all listed exemptions arose upon the filing of the Fourth Amended Exemption Schedule; and (3) the Order Overruling First Exemption Objection and the Order Denying Extension only pertained to the First and Second Amended Exemption Schedules, and the subsequent filings of the Third and Fourth Amended Exemption Schedules rendered those previous orders moot. Finally, the Trustee reasserted her substantive argument that as a matter of law the Debtors could not claim an exemption in the funds in the DIP Accounts.

         On July 13, 2016, the bankruptcy court entered an order denying the Debtors' Second Reconsideration Motion ("July 13 Order Denying Reconsideration"), noting only: "for the reasons state[d] in the Chapter 7 Trustee's Opposition." The Debtors then timely filed their notice of appeal of the July 13 Order Denying Reconsideration, and only that order.

         JURISDICTION

         A bankruptcy appellate panel is "duty-bound" to determine its jurisdiction before proceeding to the merits, even if not raised by the litigants. Rivera Siaca v. DCC Operating, Inc. (In re Olympic Mills Corp.), 333 B.R. 540, 546-47 (B.A.P. 1st Cir. 2005) (citing Boylan v. George E. Bumpus, Jr. Constr. Co. (In re George E. Bumpus, Jr. Constr. Co.), 226 B.R. 724, 725-26 (B.A.P. 1st Cir. 1998)). In order to assess our jurisdiction, we must first identify the order or orders on appeal.

         I. Scope of Appeal

         In their notice of appeal, the Debtors only identified the July 13 Order Denying Reconsideration. An appeal from an order denying reconsideration is "generally not considered to be an appeal from the underlying judgment." Batiz Chamorro v. Puerto Rican Cars, Inc., 304 F.3d 1, 3 (1st Cir. 2002) (citation omitted). Notwithstanding this general rule, we have, on occasion, reviewed both the order denying reconsideration and the underlying judgment itself where two conditions have been met. First, both orders may be reviewed when the appeal involves a post-judgment motion filed within 14 days of the judgment, thereby tolling the appeal period for the underlying order by operation of Bankruptcy Rule 8002(b)(1). See Ross v. Garcia (In re Garcia), 532 B.R. 173, 180 (B.A.P. 1st Cir. 2015) (citing Municipality of Carolina v. Baker González (In re Baker González), 490 B.R. 642, 646 (B.A.P. 1st Cir. 2013)); see also Haddock Rivera v. ASUME (In re Haddock Rivera), 486 B.R. 574, 577 n.4 (1st Cir. B.A.P. 2013). Here, the Debtors' Second Reconsideration Motion was filed within 14 days of the entry of the Order Sustaining Second Exemption Objection, and tolled the appeal period. Hence, this timeliness requirement is satisfied.

         Second, both orders may be reviewed only "when it is clear that the appellant intended to appeal both orders, and where both parties brief issues relating to the underlying judgment." In re Baker González, 490 B.R. at 646 (citing Bellas Pavers, LLC v. Stewart (In re Stewart), No. MB 12-017, 2012 WL 5189048, at *4-5 (B.A.P. 1st Cir. Oct. 18, 2012); Vicenty v. San Miguel Sandoval (In re San Miguel Sandoval), 327 B.R. 493, 504 (B.A.P. 1st Cir. 2005). "Where the appellant's intent to appeal the underlying judgment is clear, appellate courts in this circuit generally treat the appeal as encompassing both orders." In re Stewart, 2012 WL 5189048, at *4 (citing Marie v. Allied Home Mortgage Corp., 402 F.3d 1, 8 (1st Cir. 2005); Wilson v. Wells Fargo Bank, N.A. (In re Wilson), 402 B.R. 66, 69 (B.A.P. 1st Cir. 2009); In re San Miguel Sandoval, 327 B.R. at 504).

         Here, the Debtors' intent is unequivocal and plainly limited to an appeal from the July 13 Order Denying Reconsideration. Not only was this the sole order identified in their notice of appeal and in their statement of the issues on appeal, they posed each of the stated issues solely in the context of whether the bankruptcy court erred in denying the Debtors' Second Reconsideration Motion. Precluding any doubts of their intention, at oral argument the Debtors' counsel confirmed that the appeal is only from the July 13 Order Denying Reconsideration. Our review then is confined to that order, and for reasons elucidated below, this limitation significantly impacts the appeal.

         II. Finality

         We have jurisdiction to hear appeals from final judgments, orders and decrees of the bankruptcy court. See 28 U.S.C. § 158(a)(1), (b)(1). "'[A]n order denying reconsideration is final if the underlying order is final and together the orders end the litigation on the merits.'" United States v. Monahan (In re Monahan), 497 B.R. 642, 646 (B.A.P. 1st Cir. 2013) (quoting Garcia Matos v. Oliveras Rivera (In re Garcia Matos), 478 B.R. 506, 511 (B.A.P. 1st Cir. 2012)). A bankruptcy court's order sustaining an objection to a debtor's claimed exemption is a final, appealable order. Massey v. Pappalardo (In re Massey), 465 B.R. 720, 723 (B.A.P. 1st Cir. 2012) (citations omitted); Newman v. White (In re Newman), 428 B.R. 257, 261 (B.A.P. 1st Cir. 2010) (citations omitted). Accordingly, the July 13 Order Denying Reconsideration is also a final order, and we have jurisdiction to hear this appeal.

         STANDARD OF REVIEW

         We review a bankruptcy court's findings of fact for clear error and its conclusions of law de novo. Jeffrey P. White & Assocs., P.C. v. Fessenden (In re Wheaton), 547 B.R. 490, 496 (B.A.P. 1st Cir. 2016) (citation omitted). If the underlying Order Sustaining Second Exemption Objection were before us, we would conduct a de novo review on the merits of the legal issues raised by that order, including whether a new objection period arises as to all claimed exemptions with any amendment of the exemption schedule and whether the DIP Accounts were subject to exemption under § 522(c)(5). But it is not, so our review of the July 13 Order Denying Reconsideration is limited to the abuse of discretion standard. See Rodriguez v. Banco Popular de Puerto Rico (In re Rodriguez), 516 B.R. 177, 183 (B.A.P. 1st Cir. 2014) ("We review a bankruptcy court's order denying a motion for reconsideration of a previous judgment for manifest abuse of discretion."). "The abuse of discretion standard is quite deferential[.]" Berliner v. Pappalardo (In re Sullivan), 674 F.3d 65, 68 (1st Cir. 2012). The First Circuit's explanation of the implications of this type of limited review is instructive:

On appeal from a denial of a [reconsideration] motion, the movant faces a further hurdle. The [bankruptcy] court typically has an intimate, first-hand knowledge of the case, and, thus, is best positioned to determine whether the justification proffered in support of a [reconsideration] motion should serve to override the ...

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