Clabaugh v. Grant (In Re Grant) ( 2016 )

FILED
United States Court of Appeals
UNITED STATES COURT OF APPEALS Tenth Circuit
FOR THE TENTH CIRCUIT September 20, 2016
_________________________________
Elisabeth A. Shumaker
Clerk of Court
In re: JERRY GRANT,
Debtor.
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JUNE CLABAUGH,
Appellant,
No. 16-6062
v. (BAP No. 15-035-WO)
(Bankruptcy Appellate Panel)
JERRY GRANT,
Appellee.
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ORDER AND JUDGMENT*
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Before MATHESON, McKAY, and O’BRIEN, Circuit Judges.
_________________________________
June Clabaugh appeals from a decision of the Tenth Circuit Bankruptcy
Appellate Panel (BAP) that affirmed the bankruptcy court’s order avoiding her
judicial lien on debtor Jerry Grant’s home because it impaired his homestead
exemption. We have jurisdiction under 28 U.S.C. § 158(d)(1) and affirm.
*
After examining the briefs and appellate record, this panel has determined
unanimously to honor the parties’ request for a decision on the briefs without oral
argument. See Fed. R. App. P. 34(f); 10th Cir. R. 34.1(G). The case is therefore
submitted without oral argument. This order and judgment is not binding precedent,
except under the doctrines of law of the case, res judicata, and collateral estoppel. It
may be cited, however, for its persuasive value consistent with Fed. R. App. P. 32.1
and 10th Cir. R. 32.1.
I. BACKGROUND
Ms. Clabaugh inherited valuable coins and heirlooms worth as much as
$2 million from her father and placed them in a safe deposit box. The bank lost the
ownership records and, in attempting to locate the owner, used information in the box
to contact Mr. Grant. Mr. Grant falsely told the bank he was the personal
representative of Ms. Clabaugh’s father’s estate. He took possession of the box’s
contents and says he sold them for $488.00.
Ms. Clabaugh sued the bank and Mr. Grant when she discovered what
happened. She settled with the bank and obtained a $1.25 million judgment against
Mr. Grant for conversion. See Clabaugh v. Grant (In re First Am. Bank & Trust),
347 P.3d 1044, 1049-51. (Okla. Civ. App. 2014) (affirming conversion judgment and
damage award, reversing fraud judgment), cert. denied (Mar. 30, 2015). Ms.
Clabaugh recorded her judgment, which by operation of state law attached a judicial
lien on Mr. Grant’s real estate, including his residence.
Mr. Grant declared bankruptcy and listed his residence as his homestead
exemption. Oklahoma’s Constitution and laws permit a person’s principal residence
to be exempt from attachment or forced sale for payment of debts. See Jones,
Givens, Gotcher & Bogan, P.C. v. Berger, 46 P.3d 698, 701 (Okla. 2002) (citing
Okla. Const. art. 12, § 2; Okla. Stat. Ann. tit. 31, § 1(A)). Ms. Clabaugh initially
objected to the homestead exemption, arguing Mr. Grant used the property as a
business, but later withdrew her objection.
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Mr. Grant then moved under 11 U.S.C. § 522(f)(1)(A) to avoid
Ms. Clabaugh’s judicial lien on his home. The Bankruptcy Code permits a debtor to
avoid a judicial lien if it impairs an exemption the debtor is entitled to claim, such as
a homestead exemption permitted by state law. See id. The bankruptcy court granted
the motion over Ms. Clabaugh’s objections. The court found that Mr. Grant met all
of § 522(f)(1)(A)’s requirements because Ms. Clabaugh’s claim was based on a
judicial lien, it impaired his homestead exemption, and he possessed the residential
property at the time the lien attached. See Farrey v. Sanderfoot, 500 U.S. 291, 295-
96 (1991) (listing requirements to avoid a judicial lien under § 522(f)(1)(A)). The
bankruptcy court later ruled that Mr. Grant’s debt to Ms. Clabaugh was
nondischargeable because he had willfully and maliciously injured her property by
conversion. See 11 U.S.C. § 523(a)(6) (debts arising from “willful and malicious
injury by the debtor to another entity or to the property of another entity” are
nondischargeable).
Ms. Clabaugh appealed the § 522(f)(1)(A) avoidance order to the BAP, which
affirmed, holding that the bankruptcy court lacked authority under the Bankruptcy
Code to deny Mr. Grant’s § 522(f)(1)(A) motion. She now appeals to this court.
II. DISCUSSION
Despite what happened to Ms. Clabaugh and her success in obtaining the
conversion judgment against Mr. Grant, we are bound by Supreme Court precedent
and the Bankruptcy Code to affirm. “In an appeal from a final decision of a
bankruptcy court, we independently review the bankruptcy court’s decision, applying
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the same standard as the bankruptcy appellate panel or district court.” In re
Millennium Multiple Emp’r Welfare Benefit Plan, 772 F.3d 634, 638 (10th Cir. 2014)
(brackets and internal quotation marks omitted). We review the bankruptcy court’s
legal conclusions de novo and its factual findings for clear error. Id. at 639.
Ms. Clabaugh’s first two appellate arguments challenge the validity of
Mr. Grant’s homestead exemption, claiming Mr. Grant is ineligible because he is
single. She did not raise this objection to the homestead exemption in the bankruptcy
court; indeed, after withdrawing her objection contending Mr. Grant used the
property as a business, she expressly told the court she was not contesting the validity
of Mr. Grant’s homestead exemption. Aplt. App. at 388, 390. Because Ms.
Clabaugh intentionally relinquished her objections to the homestead exemption
before the bankruptcy court, her first two arguments are waived, and we will not
consider them. Paycom Payroll, LLC v. Richison, 758 F.3d 1198, 1203 (10th Cir.
2014).
Ms. Clabaugh’s third, fourth, fifth, and sixth arguments all contend that the
bankruptcy court has the equitable power to deny Mr. Grant’s right to avoid the
judgment lien on his home under § 522(f)(1)(A) because Mr. Grant is a dishonest
debtor who is concealing his assets from the court, including her coins and
heirlooms, and because his debt is nondischargeable under § 523(a)(6).
Ms. Clabaugh does not dispute that Mr. Grant meets all of the statutory requirements
for avoiding her judicial lien under § 522(f)(1)(A), and she cites no statutory
provision in the Bankruptcy Code that would limit this exemption. Rather, she
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argues the court has the inherent equitable power to deny this exemption. She relies
upon Marrama v. Citizens Bank of Massachusetts, 549 U.S. 365 (2007), which held
that a bankruptcy court has the equitable power under 11 U.S.C. § 105 to deny a
Chapter 7 debtor’s right to convert to a Chapter 13 bankruptcy if the debtor is an
atypical dishonest debtor who acted in bad faith. 549 U.S. at 371, 374-75. She
contends Mr. Grant acted in bad faith and cites cases holding that equity will not
suffer a wrong without a remedy.
But as the both the bankruptcy court and the BAP explained here, the Supreme
Court’s decision in Law v. Siegel, 134 S. Ct. 1188 (2014), refined Marrama’s
holding, and unanimously rejected her arguments. Siegel held the Bankruptcy Code
does not confer “a general, equitable power in bankruptcy courts to deny exemptions
based on a debtor’s bad-faith conduct.” 134 S. Ct. at 1196; id. at 1197 (“Marrama
most certainly did not endorse, even in dictum, the view that equitable considerations
permit a bankruptcy court to contravene express provisions of the [Bankruptcy]
Code.”). The debtor in Siegel created a fictitious and fraudulent lien on his home to
eliminate any equity and maximize his homestead exemption. The bankruptcy court
granted the trustee’s motion to surcharge the debtor’s exemption to offset the
exorbitant litigation costs of uncovering the debtor’s fraud. The Supreme Court held
that the bankruptcy court exceeded its inherent equitable powers in doing so,
however, because it contravened the specific provisions of § 522 regarding the
debtor’s valid homestead exemption. Id. at 1195-96.
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Siegel recognized that a bankruptcy court has broad equitable powers under
§ 105 “to issue any order . . . necessary or appropriate to carry out the provisions of
the Bankruptcy Code” and has “inherent power to sanction abusive litigation
practices.” 134 S. Ct. at 1194 (ellipsis and internal quotation marks omitted). But it
also said any equitable powers possessed by “the bankruptcy courts must and can
only be exercised within the confines of the Bankruptcy Code,” id. (internal
quotation marks omitted), and Ҥ 522 does not give courts discretion to grant or
withhold exemptions based on whatever considerations they deem appropriate,” id. at
1196. “[T]he court may not refuse to honor the [§ 522] exemption absent a valid
statutory basis for doing so,” nor may it add exceptions not found in the statute. Id.
The Court noted that bankruptcy courts retain “authority to respond to debtor
misconduct with meaningful sanctions[,]” including authority to deny a dishonest
debtor discharge, id. at 1198, but made clear that “federal law provides no authority
for bankruptcy courts to deny an exemption on a ground not specified in the Code,”
id. at 1197 (emphasis omitted).
Ms. Clabaugh attempts to distinguish her case from Siegel, arguing that
(1) Mr. Grant is a more extreme, atypical dishonest debtor than the debtor in Siegel;
(2) the debtor in Siegel had not been found guilty of conversion; and (3) the trustee in
Siegel failed to file a timely objection to the homestead exemption. Although Siegel
involved different misconduct than Mr. Grant’s, its broad holding is dispositive of
this case. However persuasive Ms. Clabaugh’s equitable arguments may be, we
agree with the BAP that, under Siegel, the bankruptcy court could not exercise its
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equitable powers to deny Mr. Grant’s § 522(f)(1)(A) avoidance motion because there
is no statutory basis to do so. 134 S. Ct. at 1196-97; see also Ellmann v. Baker (In re
Baker), 791 F.3d 677, 683 (6th Cir. 2015) (“[U]nder Siegel, bankruptcy courts do not
have authority to use their equitable powers to disallow exemptions or amendments
to exemptions due to bad faith or misconduct.”).
Finally, Ms. Clabaugh’s remaining arguments assert Mr. Grant should be
denied a discharge under § 523(a)(6). The bankruptcy court already ruled in
Ms. Clabaugh’s favor that Mr. Grant’s debt is nondischargable under § 523(a)(6), so
these arguments are moot.
III. CONCLUSION
For the foregoing reasons and for substantially the same reasons stated by the
BAP in its order dated February 4, 2016, we affirm.
ENTERED FOR THE COURT,
Scott M. Matheson, Jr.
Circuit Judge
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