In re: Brenda B. Todd

FILED
APR 07 2015
1 NOT FOR PUBLICATION
SUSAN M. SPRAUL, CLERK
2 U.S. BKCY. APP. PANEL
OF THE NINTH CIRCUIT
3 UNITED STATES BANKRUPTCY APPELLATE PANEL
4 OF THE NINTH CIRCUIT
5 In re: ) BAP No. NV-14-1255-JuKuD
) BAP No. NV-14-1280-JuKuD
6 BRENDA B. TODD, ) (Cross-Appeals)
)
7 Debtor. ) Bk. No. 09-14362
______________________________)
8 )
BRENDA B. TODD, )
9 )
Appellant/Cross-Appellee,)
10 )
v. ) M E M O R A N D U M*
11 )
LOWELL E. ROTHSCHILD, Chapter )
12 11 Trustee for Fort Defiance )
Housing Corp., Inc., )
13 )
Appellee/Cross-Appellant,)
14 )
VICTORIA L. NELSON, Chapter 7 )
15 Trustee, )
)
16 Appellee. )
______________________________)
17
Argued and Submitted on March 19, 2015
18 at Las Vegas, Nevada
19 Filed - April 7, 2015
20 Appeal from the United States Bankruptcy Court
for the District of Nevada
21
Honorable Linda B. Riegle, Bankruptcy Judge, Presiding
22 _________________________
23 Appearances: Brenda Todd argued pro se; Frederick J. Peterson
of Mesch, Clark & Rothschild, P.C. argued for
24 Lowell E. Rothschild, Chapter 11 Trustee for Fort
25
26 *
This disposition is not appropriate for publication.
27 Although it may be cited for whatever persuasive value it may
have (see Fed. R. App. P. 32.1), it has no precedential value.
28 See 9th Cir. BAP Rule 8024-1.
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1 Defiance Housing Corp., Inc.**
_________________________
2
3 Before: JURY, KURTZ, and DUNN, Bankruptcy Judges.
4 Chapter 71 debtor, Brenda Todd (Debtor), was in a car
5 accident and suffered significant injuries. Debtor filed a
6 state court action against the driver and his employer seeking
7 general and special damages, punitive damages, and attorneys’
8 fees and costs. The litigation ended in the settlement and
9 release of Debtor’s claims for $2.5 million (Personal Injury
10 Settlement). The settlement agreement did not allocate the
11 lump-sum amount to any damage theory.
12 Subsequently, in the chapter 11 bankruptcy case of Fort
13 Defiance Housing Corporation (FDHC), the Arizona bankruptcy
14 court entered a judgment for $18,500,883.59 in favor of the
15 chapter 11 trustee, Brenda Moody Whinery (Whinery), and against
16 Debtor, Lodgebuilder Inc. (Lodgebuilder), and others, jointly
17 and severally (Arizona Judgment). The court also issued a
18 permanent injunction, enjoining Debtor from, among other things,
19 accessing her Solomon Smith Barney account (SSB Account), which
20 contained monies from her Personal Injury Settlement. In
21 February 2013, appellee and cross appellant, Lowell E.
22
23
**
Appellee Victoria L. Nelson is the successor chapter 7
24 trustee to James Lisowski. Nelson has not filed a brief or
otherwise participated in this appeal.
25
1
26 Unless otherwise indicated, all chapter and section
references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532.
27 “Rule” references are to the Federal Rules of Bankruptcy
Procedure and “Civil Rule” references are to the Federal Rules of
28 Civil Procedure.
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1 Rothschild, was appointed the successor trustee (Creditor
2 Trustee) in the FDHC case.
3 Soon after the Arizona Judgment was entered against her,
4 Debtor filed a chapter 11 petition in the Nevada bankruptcy
5 court, which was later converted to chapter 7. Months after her
6 filing, in an amended and corrected Schedule C attached to a
7 pleading, Debtor claimed as exempt more than $1 million from the
8 Personal Injury Settlement proceeds as compensation for loss of
9 future earnings under Nev. R. Stat. (N.R.S.) § 21.090(1)(w).
10 Debtor did not file or docket the amended Schedule C, but
11 e-mailed it to the chapter 7 case trustee and Creditor Trustee’s
12 attorney.
13 Meanwhile, Creditor Trustee and the chapter 7 trustee
14 entered into a settlement agreement to avoid litigation over the
15 ownership of Debtor’s assets, which were subject to the Arizona
16 Judgment and injunction (Rule 9019 Settlement). The parties
17 agreed, among other things, that the SSB Account belonged to
18 FDHC’s estate. Debtor objected to the settlement by asserting
19 her exemption rights in various assets, including the Personal
20 Injury Settlement proceeds that were deposited into the SSB
21 Account. The bankruptcy court overruled Debtor’s objection and
22 entered an order approving the settlement (Rule 9019 Settlement
23 Order). Debtor attempted to appeal the order by filing a notice
24 of appeal (NOA) in Lodgebuilder’s bankruptcy case and not her
25 own. She also did not seek a stay pending appeal. The Nevada
26 district court dismissed the appeal based on Debtor’s lack of
27 standing.
28 Creditor Trustee then filed a motion for summary judgment
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1 (MSJ) on the issue of whether Debtor was entitled to an
2 exemption on any portion of the Personal Injury Settlement
3 proceeds for loss of future earnings. The bankruptcy court
4 granted Creditor Trustee’s MSJ. Debtor filed an appeal to the
5 district court. Since there was no stay pending appeal,
6 Creditor Trustee withdrew monies from the SSB Account and made
7 distributions pursuant to the terms of the Rule 9019 Settlement
8 and the confirmed FDHC chapter 11 plan. Meanwhile, the district
9 court reversed the bankruptcy court’s order granting Creditor
10 Trustee’s MSJ, finding there was a genuine issue of material
11 fact as to whether Debtor was entitled to exempt any portion of
12 the Personal Injury Settlement proceeds as loss of future
13 earnings.
14 Subsequently, the bankruptcy court conducted a trial on the
15 proper allocation of the loss of future earnings damages in the
16 Personal Injury Settlement award to determine the amount of
17 Debtor’s exemption. The court entered its findings of fact and
18 conclusions of law (FFCL) and a judgment, finding Debtor was
19 entitled to exempt $461,608.02 for loss of future earnings.
20 Creditor Trustee filed a motion for additional findings,
21 reconsideration, or to alter or amend the judgment (Motion to
22 Alter or Amend), which the bankruptcy court denied.
23 Debtor appealed from the judgment and Creditor Trustee
24 filed a cross appeal. Both parties assign error to the
25 bankruptcy court’s decision on the amount of the exemption.
26 Debtor claims that the exemption for loss of future earnings
27 should be $1,081,540.00. Creditor Trustee contends the amount
28 should be no more than $108,008.13 or, alternatively, that the
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1 exemption should be disallowed in its entirety based on the
2 doctrines of res judicata and judicial estoppel.
3 We conclude that Debtor’s exemption rights in the SSB
4 Account are determined by the Rule 9019 Settlement Order and the
5 Bankruptcy Code. The plain language in the Rule 9019 Settlement
6 Order stated that the FDHC estate owned the funds in the SSB
7 Account, the account was transferred to Creditor Trustee, and
8 there was no carve-out for Debtor’s exemption. As a result, the
9 bankruptcy court no longer had jurisdiction over the SSB Account
10 since it was neither property of Debtor’s estate nor property of
11 the Debtor. See 28 U.S.C. § 1334(e)(1). Further, under
12 § 522(b), the debtor may exempt certain property “from property
13 of the estate.” “[O]bviously, then, an interest that is not
14 possessed by the estate cannot be exempted.” See Owen v. Owen,
15 500 U.S. 305, 308 (1991). Accordingly, the issue of Debtor’s
16 exemption in the funds in the SSB Account became moot once the
17 funds were no longer property of Debtor’s estate or the Debtor.
18 For these reasons, we VACATE the judgment and DISMISS this
19 appeal.
20 I. FACTS
21 The facts are mostly taken from the parties’ Joint Pre-
22 Trial Statement in which they stipulated to certain facts and
23 the bankruptcy court’s FFCL entered on May 6, 2014.
24 A. Prepetition Events
25 1. Debtor’s Employment
26 Debtor was employed by Lodgebuilder, a building contractor
27 which did business with FDHC and other entities. FDHC is a
28 nonprofit Navajo corporation, incorporated for the sole purpose
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1 of building and leasing low income housing on the Navajo
2 reservation. FDHC operations were funded by federal grants and
3 federally supported loans. Debtor owned a 20% stake in
4 Lodgebuilder, and William Aubrey (Aubrey) owned 80%. Debtor
5 received a $10,000 monthly salary from Lodgebuilder prior to and
6 after her car accident.
7 In addition to her interest in Lodgebuilder, Debtor owned
8 and managed a restaurant called Blondie’s in Glacier, Montana.
9 Blondie’s had a gaming license and provided customers with slot
10 machines, food and drinks.
11 2. The Car Accident
12 On May 25, 2003, Debtor was injured in a serious car
13 accident. She filed a state court action against Aaron Wade
14 Melancon and Casablanca Resorts, LLC, alleging causes of action
15 for negligence, negligence per se, respondeat superior, and
16 negligent hiring and supervision. Debtor sought general
17 damages, special damages, property damages, punitive damages,
18 and attorneys’ fees and costs.
19 After some time, the parties settled the matter. In
20 exchange for a lump-sum cash payment of $2.5 million, Debtor
21 released all claims, demands, and causes of action and damages
22 of any kind arising out of the incident. The settlement
23 agreement did not allocate the lump-sum amount to any specific
24 damage claim. After paying her attorney $634,339.42, Debtor
25 received $1,865,660.58 (Settlement Proceeds) and deposited that
26 amount into her checking account at Mountain America Credit
27 Union (MACU).
28 In May 2006, Debtor transferred $1.5 million of the
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1 Settlement Proceeds from her MACU account to her pre-existing
2 SSB Account which had a balance of $535,640.86. Debtor
3 purchased six mutual funds with the $1.5 million and some
4 additional cash. On May 31, 2005, the account balance was
5 $2,037,991.86, consisting of stocks and cash.
6 After the car accident, Lodgebuilder paid Debtor’s medical
7 expenses and continued to pay her salary. Debtor used $130,000
8 of the Settlement Proceeds, plus money from other accounts and
9 payments from Allstate insurance, to repay Lodgebuilder for the
10 medical expenses.
11 3. The FDHC Bankruptcy Case
12 In 2005, FDHC filed a chapter 11 petition in the Arizona
13 bankruptcy court. Whinery was appointed the chapter 11 trustee.
14 In October 2006, Whinery filed an adversary complaint against
15 Lodgebuilder, Debtor, Aubrey, and Everett Ross, alleging breach
16 of contract, conversion, misrepresentation, negligence, breach
17 of fiduciary duty, civil conspiracy/aiding and abetting,
18 fraudulent conveyance, and unjust enrichment, and seeking
19 general and punitive damages. At the same time, she requested a
20 temporary restraining order and preliminary injunction freezing
21 the defendants’ assets and bank accounts.
22 In March 2009, the Arizona bankruptcy court entered a
23 judgment in favor of Whinery and against Lodgebuilder, Aubrey,
24 and Debtor, in the amount of $18,500,883.59.2 The court also
25 enjoined the transfer of assets that were traceable proceeds of
26
2
27 The Arizona bankruptcy court found that Debtor and Aubrey
converted over $16 million of FDHC’s money by transferring it to
28 various Las Vegas casinos.
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1 FDHC’s assets and which were in the name of Debtor and the
2 others, including funds in Debtor’s SSB Account. Although the
3 Arizona bankruptcy court froze Debtor’s SSB Account, the court
4 allowed her to withdraw $206,158.00 from the account for legal
5 fees and living expenses. Debtor withdrew this amount from the
6 cash portion of the monies contained in the account.
7 In February 2013, Rothschild became the successor trustee
8 in the FDHC case.
9 B. Bankruptcy Events
10 Shortly after the Arizona Judgment was entered against her,
11 Debtor filed a chapter 11 petition in the Nevada bankruptcy
12 court.3
13 Prior to her filing, the balance in the SSB Account
14 decreased due to withdrawals authorized by the Arizona
15 bankruptcy court and stock market losses in 2008. On March 26,
16 2009 — the date she filed her petition — the SSB Account had a
17 balance of $1,340,719.00. After Debtor filed her bankruptcy
18 petition, the funds in the SSB Account remained largely
19 untouched, with the exception of withdrawals authorized by the
20 Arizona bankruptcy court.
21 On April 10, 2009, Debtor filed her schedules and statement
22 of financial affairs. In Schedule B, under “Description and
23 Location of Property,” Debtor listed “Smith Barney” with a value
24 of $1,340,719.00. In Schedule C, Debtor did not list an
25 exemption for loss of future earnings under N.R.S.
26
27
3
Aubrey and Lodgebuilder also filed bankruptcy petitions.
28 Those cases were jointly administered with Debtor’s case.
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1 § 21.090(1)(w).
2 On April 30, 2009, Debtor filed amended Schedules B and C,
3 listing her property claimed as exempt. Again, in Schedule B
4 under “Description and Location of Property,” Debtor put “Smith
5 Barney” with a value of $1,340,719.00, but she did not list an
6 exemption for loss of future earnings in her amended Schedule C.
7 In early September 2009, the bankruptcy court converted
8 Debtor’s chapter 11 case to chapter 7. James Lisowski was
9 appointed the chapter 7 trustee.
10 On November 25, 2009, Creditor Trustee filed an objection
11 to Debtor’s claimed exemptions, none of which were based on the
12 loss of future earnings under N.R.S. § 21.090(1)(w). On
13 December 31, 2009, Creditor Trustee filed an amended objection.
14 On January 5, 2010, Debtor filed a response to Creditor
15 Trustee’s amended objection. Attached to the response as
16 “Exhibit 1" was a “Corrected & Amended” Schedule C which, for
17 the first time, claimed an exemption under N.R.S. § 21.090(1)(w)
18 in the amount of $1,122,384.00 and another exemption for
19 compensation for personal injury - pain and suffering - in the
20 amount of $377,616.00. The certificate of service showed that
21 Debtor e-mailed her response to Creditor Trustee’s attorney,
22 Fred Petersen, and to the chapter 7 case trustee. Debtor did
23 not separately file and docket the “Corrected & Amended”
24 Schedule C attached as “Exhibit 1" to her response.
25 In July 2011, Creditor Trustee filed a motion to approve a
26 settlement agreement between himself and the chapter 7 trustee
27 the purpose of which was to avoid litigation relating to the
28 ownership of Debtor’s assets. Paragraph 2.5 entitled
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1 “Accounts” provided:
2 Lisowski acknowledges and agrees that all funds held
in the following accounts: (1) Solomon Smith Barney
3 Account #5240043413532 . . . , all in the name of
Todd, which accounts are subject to the Injunction,
4 are properly owned by, and the assets of, FDHC and
subject to the provisions of the FDHC Plan. Lisowski
5 agrees that such funds will be turned over to Whinery
on the Effective Date and that he will cooperate in
6 such turnover, including executing any documents
necessary to effectuate such turnover.
7
8 (Emphasis added).
9 Debtor objected to the settlement, arguing that it ignored
10 her exemption rights in various assets, including, but not
11 limited to, her homestead, her car, and for loss for future
12 earnings. Debtor argued that any settlement agreement
13 liquidating her estate should first include and identify her
14 exemptions permitted by law.
15 Relying on the properly filed Schedule C, Creditor Trustee
16 responded by pointing out that the bankruptcy court could
17 determine the limited issue of whether Debtor’s homestead
18 assertion trumped Creditor Trustee’s consensual lien on Debtor’s
19 residence and that Debtor had never claimed an exemption for her
20 car, which was also subject to a consensual lien by Creditor
21 Trustee.
22 At the August 10, 2011 hearing on the matter, the
23 bankruptcy court stated:
24 With respect to Ms. Todd’s complaints, any issue as to
what exemption she may have are not resolved in this
25 settlement. . . .the point is all you’re doing is
settlement inter se. If, for example, she titled
26 [sic] to the exemptions she claims, the estate doesn’t
get it. Is that -- everybody agrees that’s the correct
27 -- analysis.
28 Counsel for Creditor Trustee responded “Yes.” Liskowki stated:
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1 “I agree completely. I don’t think this resolve [sic] any
2 issues with the exemptions.” The bankruptcy court then said:
3 Everybody agrees. All right. So to the extent there
are exemptions, those exemption issues are preserved.
4 If you have outstanding objections to exemptions, you
better bring them back on calendar. Otherwise, the
5 exemptions stand.
6 Neither the Rule 9019 Settlement nor the Rule 9019
7 Settlement Order contained any provision regarding Debtor’s
8 exemption rights nor did it provide for the carve-out of any
9 funds in the SSB Account pending the determination of those
10 rights. The order provided that Solomon Smith Barney accept any
11 and all instructions concerning transactions in the SSB Account
12 from Whinery, “as Creditor Trustee, who is the owner of the
13 accounts as of the date of this Order.” Finally, although the
14 funds in the SSB Account were no longer property of Debtor’s
15 estate per the settlement’s plain terms, the bankruptcy court
16 did not expressly retain jurisdiction to decide Debtor’s
17 exemption rights in those funds. Debtor and Aubrey appealed the
18 Rule 9019 Settlement Order to the Nevada district court by
19 filing a NOA in Lodgebuilder’s bankruptcy case and not their
20 own. Lodgebuilder did not file a NOA of the order. The Nevada
21 district court dismissed the appeal in May 2012, finding that
22 neither Debtor nor Aubrey had standing.4
23 Relying on the Rule 9019 Settlement Order, Creditor Trustee
24 withdrew funds from the SSB Account and disbursed those funds to
25
26 4
We take judicial notice of the dismissal which was
27 docketed and imaged in Bankr. Case No. NV-09-14103 at Dkt.
No. 289. Atwood v. Chase Manhattan Mortg. Co. (In re Atwood),
28 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003).
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1 the chapter 7 trustee and others pursuant to the terms of the
2 settlement and FDHC’s confirmed chapter 11 plan.
3 In late November 2011, Creditor Trustee filed a renewed
4 objection to Debtor’s homestead exemption. Debtor responded,
5 arguing that her claims of exemption were contained in the
6 Schedule C that she filed on April 30, 2009.
7 Debtor then filed an emergency motion for turnover of funds
8 based on the exemptions claimed in her “Corrected & Amended”
9 Schedule C. Debtor asserted that the Settlement Proceeds were
10 exempt under N.R.S. § 21.090(1)(w), and argued that the entire
11 amount was reasonably necessary for her support.
12 Creditor Trustee responded, arguing that Debtor had failed
13 to preserve her exemption for loss of future earnings because,
14 among other things, the “Corrected & Amended” Schedule C had not
15 been docketed as an amendment. Creditor Trustee further
16 submitted that under the Rule 9019 Settlement with the chapter 7
17 trustee, the funds in the SSB Account belonged to the FDHC
18 estate. Creditor Trustee maintained that Debtor could not now
19 claim an exemption since the funds had already been transferred
20 to FDHC and administered per the terms of the settlement
21 agreement. Based on these arguments, Creditor Trustee asserted
22 that the doctrines of res judicata, judicial estoppel, and
23 mootness barred Debtor’s motion. Finally, Creditor Trustee
24 contended that creditors of Debtor’s estate and FDHC’s estate
25 would be prejudiced due to Debtor’s late amendment of her
26 Schedule C.
27 In April 2012, the bankruptcy court held a hearing
28 regarding Debtor’s exemptions. In responding to the prejudice
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1 concerns raised by Creditor Trustee, the court held that,
2 although Debtor’s attached January amendment was not filed in
3 compliance with the Rules, it was sufficient to give Creditor
4 Trustee notice of her intent to claim the exemptions. The
5 bankruptcy court ordered Debtor to properly file the exemptions.
6 Despite the court’s directive, Debtor did not file a separately
7 docketed Amended Schedule C listing an exemption for loss of
8 future earnings.
9 On May 8, 2012, at a status hearing, the court again told
10 Debtor to file an official amendment to the claim of exemption
11 and gave her a deadline to do so. About two weeks later, Debtor
12 filed a “Debtor’s Resubmission of Amended Exemptions” with an
13 attached Schedule C listing “Payments for comp. for future
14 earnings” in the amount of $1,122,384.00. Debtor did not file a
15 separately docketed amended Schedule C.
16 Creditor Trustee then filed a “Notice of Creditor Trustee’s
17 Objection To Debtor’s Alleged Exemptions” in which he objected
18 to Debtor’s loss of future earnings exemption and others as
19 well.
20 Subsequently, Creditor Trustee filed a Motion for Summary
21 Judgment (MSJ) on the issue of whether Debtor was entitled to an
22 exemption on any portion of the Settlement Proceeds for loss of
23 future earnings. Creditor Trustee argued that the Personal
24 Injury Settlement agreement did not allocate the funds to any
25 damage theory and did not mention “loss of future earnings.”
26 Creditor Trustee further argued that Debtor continued to receive
27 substantial wages and other payments from Lodgebuilder after her
28 accident. The bankruptcy court granted Creditor Trustee’s MSJ
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1 finding that none of the Settlement Proceeds were exempt as
2 payment for compensation for loss of future earnings. Debtor
3 appealed the MSJ ruling to the Nevada district court. There was
4 no stay pending appeal. The district court reversed the
5 bankruptcy court’s decision, finding that there was a genuine
6 issue of material fact whether the settlement was for lost wages
7 or some other purpose.
8 The bankruptcy court then scheduled a trial on the matter.
9 Both parties submitted trial briefs and the joint pre-trial
10 statement in which they stipulated to certain facts for purposes
11 of the trial. Debtor again claimed she was entitled to an
12 exemption for loss of future earnings in the amount of
13 $1,122,384.00. Creditor Trustee asserted that Debtor’s claim
14 for loss of future earnings should be zero and certainly no
15 greater than $108,008.13. After the trial, the bankruptcy court
16 took the matter under submission.
17 On May 6, 2014, the bankruptcy court issued its FFCL.
18 After tracing the Settlement Proceeds which were commingled in
19 the SSB Account with Debtor’s pre-existing balance, and
20 deducting amounts attributed to future medical expenses and
21 bodily injury, the court concluded that Debtor was entitled to
22 exempt $461,608.02 for loss of future earnings and that the
23 entire amount was reasonably necessary for her support.
24 The bankruptcy court also found that although Debtor had
25 never filed an amended Schedule C, Creditor Trustee’s objection
26 to her exemption for loss of future earnings was timely. The
27 bankruptcy court opined that the matter should be determined on
28 its merits, not prejudicing either party for any apparent
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1 failure to abide by the Bankruptcy Code and Rules.
2 Finally, the bankruptcy court found that the permanent
3 injunction imposed by the Arizona bankruptcy court did not
4 preclude Debtor from litigating her entitlement to exempt the
5 Settlement Proceeds in the SSB Account. The court did not
6 address the impact of the Rule 9019 Settlement on Debtor’s
7 exemption rights apparently because it thought those rights were
8 properly reserved by virtue of the parties’ consent to preserve
9 them at the August 10, 2011 hearing. The bankruptcy court
10 entered the judgment on the same day it issued the FFCL.
11 Debtor filed a timely appeal and Creditor Trustee filed a
12 timely cross-appeal. Creditor Trustee filed a Motion to Alter
13 or Amend which the bankruptcy court denied on September 29,
14 2014. Creditor Trustee then filed an amended notice of cross
15 appeal.
16 Debtor has since filed a motion for collection on the
17 judgment regarding her exemption. Creditor Trustee filed a
18 motion for a stay pending appeal in response. The bankruptcy
19 court denied both motions.
20 II. JURISDICTION
21 We address the bankruptcy court’s jurisdiction and our own
22 jurisdiction to decide the merits of the appeal below.
23 III. ISSUE
24 Did the bankruptcy court have subject matter jurisdiction
25 to decide Debtor’s exemption claim for loss of future earnings
26 after it entered the Rule 9019 Settlement Order?
27 IV. STANDARD OF REVIEW
28 We review de novo questions of subject matter jurisdiction.
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1 Montana v. Goldin (In re Pegasus Gold Corp.), 394 F.3d 1189,
2 1193 (9th Cir. 2005).
3 V. DISCUSSION
4 We are required to consider the presence or absence of
5 subject matter jurisdiction sua sponte. Cannon v. Haw. Corp.
6 (In re Haw. Corp.), 796 F.2d 1139, 1141 (9th Cir. 1986). The
7 bankruptcy court’s jurisdiction is grounded in, and limited by,
8 statute. Kirton v. Valley Health Sys. (In re Valley Health
9 Sys.), 471 B.R. 555, 563 (9th Cir. BAP 2012). Under 28 U.S.C.
10 § 1334(e)(1), the bankruptcy court has exclusive jurisdiction
11 “of all the property, wherever located, of the debtor as of the
12 commencement of such case, and of property of the estate.”
13 The parties do not dispute that the SSB Account contained
14 the Settlement Proceeds. The Rule 9019 Settlement entered into
15 between Creditor Trustee and the chapter 7 trustee placed
16 ownership of the SSB Account in FDHC’s estate. When property is
17 no longer property of the estate the court’s jurisdiction ends.
18 See In re Hall’s Motor Transit Co., 889 F.2d 520, 522 (3d Cir.
19 1989) (“The bankruptcy court’s jurisdiction does not follow the
20 property, but rather, it lapses when the property leaves the
21 debtor’s estate.”); Elscint, Inc. v. First Wis. Fin. Corp.
22 (Matter of Xonics, Inc.), 813 F.2d 127, 131 (7th Cir. 1987)
23 (once property of the estate is sold, the bankruptcy court must
24 obtain a new source of federal jurisdiction); see also Gardner
25 v. United States (In re Gardner), 913 F.2d 1515, 1518 (10th Cir.
26 1990) (“A bankruptcy court has jurisdiction over disputes
27 regarding alleged property of the bankruptcy estate at the
28 outset of the case. When property leaves the bankruptcy estate,
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1 however, the bankruptcy court’s jurisdiction typically lapses,
2 and the property’s relationship to the bankruptcy proceeding
3 comes to an end.”). Accordingly, once the bankruptcy court
4 entered the Rule 9019 Settlement Order, the court’s jurisdiction
5 over the SSB Account lapsed since it was no longer property of
6 the estate nor was it property of the Debtor. See 28 U.S.C.
7 § 1334(e)(1); see also 28 U.S.C. § 157(b)(2)(B) (recognizing
8 proceedings relating to “exemptions from property of the estate”
9 as core proceedings over which the bankruptcy court has
10 jurisdiction).
11 The Rule 9019 Settlement Order did not provide for the
12 bankruptcy court’s retention of jurisdiction over the SSB
13 Account for purposes of determining Debtor’s exemption rights.
14 Further, although the bankruptcy court orally confirmed with
15 Creditor Trustee and the chapter 7 trustee that Debtor’s
16 exemption rights in the SSB Account were preserved, that
17 colloquy did not preserve such rights, nor did it cure the
18 jurisdictional defect that confronts us. The parties cannot
19 create subject matter jurisdiction by consent. Arbaugh v. Y & H
20 Corp., 546 U.S. 500, 514 (2006). Subject matter jurisdiction,
21 which involves a court’s power to hear a case, “can never be
22 forfeited or waived.” Id. A court which lacks subject matter
23 jurisdiction cannot hear the matter at all and must dismiss it.
24 The plain language of § 522(b) also demonstrates why the
25 preservation of Debtor’s exemption rights was ineffective.
26 Section “522(b) provides that the debtor may exempt certain
27 property ‘from property of the estate’; obviously, then, an
28 interest that is not possessed by the estate cannot be
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1 exempted.” See Owen, 500 U.S. at 308. Once the SSB Account was
2 transferred out of Debtor’s bankruptcy estate, there was nothing
3 to exempt per the plain language of § 522(b).
4 Finally, we considered whether the bankruptcy court’s
5 jurisdiction to determine Debtor’s exemption rights could
6 survive under a “related to” jurisdictional analysis. “Related
7 to” jurisdiction exists when “the outcome of the proceeding
8 could conceivably have any effect on the estate being
9 administered in bankruptcy.” Fietz v. Great W. Sav.
10 (In re Fietz), 852 F.2d 455, 457 (9th Cir. 1988) (adopting the
11 test in Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir.
12 1984)). The United States Supreme Court endorsed Pacor’s
13 conceivability standard with the caveats that “related to”
14 jurisdiction “cannot be limitless,” and that the critical
15 component of the Pacor test is that “bankruptcy courts have no
16 jurisdiction over proceedings that have no effect on the estate
17 of the debtor.” Celotex Corp. v. Edwards, 514 U.S. 300, 308 &
18 n.6 (1995).
19 “Related to” jurisdiction does not exist for essentially
20 the same reason as noted above. Because the Rule 9019
21 Settlement transferred 100% ownership of the SSB Account to
22 FDHC’s estate, the chapter 7 trustee gave up any rights to the
23 funds. Thus, the outcome of Debtor’s claim to exemption rights
24 in those funds could not impact creditor recoveries or impact or
25 involve the chapter 7 trustee in her estate.
26 In sum, the bankruptcy court did not have subject matter
27 jurisdiction to decide Debtor’s exemption rights in the SSB
28 Account which was no longer property of her estate. This
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1 unexpected jurisdictional defect resulting from the Rule 9019
2 Settlement Order leaves us without authority to consider the
3 merits of Debtor’s exemption claim for loss of future earnings
4 and the alleged allocation errors raised in this appeal. We
5 express no opinion whether Debtor could successfully move to
6 modify the Rule 9019 Settlement Order under Civil Rule 60(b)(6).
7 VI. CONCLUSION
8 For the reasons stated, we VACATE the judgment and DISMISS
9 this appeal.
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