Linda Mastro v. James Rigby, Jr.

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
LINDA A. MASTRO, No. 13-35209
Appellant,
DC No.
v. 2:11 cv-2077
BJR
JAMES F. RIGBY, JR., Trustee, solely
in his capacity as Chapter 7 trustee
of the bankruptcy estate of Michael OPINION
R. Mastro,
Appellee.
Appeal from the United States District Court
for the Western District of Washington
Barbara Jacobs Rothstein, Senior District Judge, Presiding
Argued and Submitted
July 8, 2014—Seattle, Washington
Filed August 22, 2014
Before: Arthur L. Alarcón, A. Wallace Tashima,
and Mary H. Murguia, Circuit Judges.
Opinion by Judge Tashima
2 MASTRO V. RIGBY
SUMMARY*
Bankruptcy
The panel reversed the district court’s dismissal, pursuant
to the fugitive disentitlement doctrine, of an appeal by a
nonclaimant to the bankruptcy estate from the bankruptcy
court’s judgment in a fraudulent conveyance case.
The trustee for the bankruptcy estate of the nonclaimant’s
husband brought an adversary proceeding against her,
alleging that she fraudulently transferred estate assets in
violation of 11 U.S.C. §§ 544 and 548 and Wash. Rev. Code,
ch. 19.40. After trial, the bankruptcy court held the
nonclaimant liable for fraudulent transfers and ordered her to
turn over certain specified items of personal property.
Instead, she fled to France.
The panel held that the bankruptcy court had authority to
enter judgment based on the parties’ consent. The panel
concluded that after Exec. Benefits Ins. Agency v. Arkison,
134 S. Ct. 2165 (2014) (holding that bankruptcy court
generally cannot enter final judgment on Stern claims, or
proceedings that are defined as “core” under 11 U.S.C.
§ 157(b) but that may not, as a constitutional matter, be
adjudicated as such), this court’s holding in Exec. Benefits
Ins. Agency v. Arkison (In re Bellingham Ins. Agency, Inc.),
702 F.3d 553, 557 (9th Cir. 2012) (ruling that parties’ consent
gives bankruptcy court jurisdiction over Stern claims),
remained good law.
*
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
MASTRO V. RIGBY 3
The panel held that district court abused its discretion in
dismissing the appeal under the fugitive disentitlement
doctrine because no necessity justified invoking the rule of
disentitlement. Declining to hear the merits of the appeal in
the first instance, the panel remanded the case to the district
court.
COUNSEL
Michael E. Gossler (argued), Montgomery Purdue
Blankinship & Austin PLLC, Seattle, Washington, for
Appellant.
Spencer Hall (argued) and Janet D. McEachern, Hall Zanzig
Claflin McEachern PLLC, Seattle, Washington, for Appellee.
OPINION
TASHIMA, Circuit Judge:
Linda Mastro (“Linda”), a nonclaimant to the bankruptcy
estate, appeals the district court’s dismissal of her appeal of
the bankruptcy court’s judgment in this fraudulent
conveyance case. We hold that the bankruptcy court had
authority to enter judgment based on the parties’ consent. We
conclude, however, that the district court abused its discretion
in dismissing Linda’s appeal under the fugitive disentitlement
doctrine, because no necessity justified invoking the rule of
disentitlement in this case.
4 MASTRO V. RIGBY
I.
James Rigby (the “Trustee”), in his capacity as Trustee
for the Chapter 7 bankruptcy estate of Linda’s husband,
Michael Mastro (“Michael”), filed an adversary proceeding
against Linda. The Trustee alleged, inter alia, that Linda
fraudulently transferred estate assets in violation of 11 U.S.C.
§§ 544 and 548, and Wash. Rev. Code, ch. 19.40. Linda did
not file any counterclaims against the bankruptcy estate.
The bankruptcy court tried the adversary proceeding, with
Linda and other witnesses appearing and testifying at trial. It
concluded that Linda and Michael utilized an increasingly
elaborate series of transactions to shield estate assets and
hinder, defraud, or delay their creditors. See Rigby v. Mastro
(In re Mastro), 465 B.R. 576, 601–15 (Bankr. W.D. Wash.
2011). The bankruptcy court held Linda liable for fraudulent
transfers under 11 U.S.C. §§ 544 and 548, and Wash. Rev.
Code, ch. 19.40. It ordered Linda to turn over certain
specified items of personal property, including two “big”
diamond rings, or “the value of such items,” along with gold
bars and money worth $1,394,406.00.
Linda appealed to the district court, arguing that the
evidence did not support the bankruptcy court’s judgment or
its finding of liability. Linda, however, went missing when
she appealed. Eventually, Linda was discovered by
authorities living in France with Michael, where she has
declared her intent to remain.
Soon after Linda was found in France, she was indicted
on criminal bankruptcy charges arising from this adversary
proceeding and the bankruptcy court’s opinion. Linda has
evaded prosecution, however, because of her presence in
MASTRO V. RIGBY 5
France, and because a French Court of Appeal has denied
U.S. requests to extradite Linda and Michael.
Due to Linda’s flight, the district court refused to reach
the merits of Linda’s civil bankruptcy appeal. Instead, it
dismissed Linda’s appeal under the fugitive disentitlement
doctrine. The district court determined that Linda “is a
fugitive,” that her “fugitive status is connected to this
appeal,” and that her “blatant disregard for the authority of
the judicial system renders her ineligible to pursue an
appeal.”
Linda now appeals to this court, arguing that the district
court abused its discretion in dismissing her appeal under the
fugitive disentitlement doctrine. She seeks remand to the
district court for its consideration of the merits of her appeal.
II.
Before reaching the question of whether the district court
correctly invoked the fugitive disentitlement doctrine, we
must first assure ourselves that the bankruptcy court and the
district court had jurisdiction. We have an obligation to
determine our jurisdiction and that of the lower courts, even
when the parties do not contest it. Bender v. Williamsport
Area Sch. Dist., 475 U.S. 534, 541 (1986). The parties here
agree that the bankruptcy court had the authority and
jurisdiction to enter final judgment under 28 U.S.C. § 157(b).1
1
Linda initially contested the bankruptcy court’s jurisdiction over this
adversary proceeding. Soon after the Trustee filed the adversary
proceeding, Linda moved to withdraw the reference to the bankruptcy
court and to proceed instead before the district court. The district court
agreed that Linda was entitled to proceed in an Article III court given the
6 MASTRO V. RIGBY
The Supreme Court, however, has “held invalid” the
“application of . . . the procedures of § 157(b)” to fraudulent
conveyance actions involving the statutes at issue here. Exec.
Benefits Ins. Agency v. Arkison (“Arkison”), 134 S. Ct. 2165,
2174 (2014) (internal quotation marks omitted). Under
Arkison, we cannot accept the parties’ agreement that the
bankruptcy court had jurisdiction under § 157(b). We hold
instead that the bankruptcy court had jurisdiction to enter
final judgment under 28 U.S.C. § 157(c)(2).
By statute, Congress authorized bankruptcy judges to
“hear and determine . . . all core proceedings,” and to “enter
appropriate orders and judgments.” 28 U.S.C. § 157(b)(1).
However, as a constitutional matter, “some claims labeled by
Congress as ‘core’ may not be adjudicated by a bankruptcy
court” to final judgment. Arkison, 134 S. Ct. at 2172. These
claims are called “Stern claims,” so named after the Supreme
Trustee’s fraudulent transfer claims, but denied Linda’s motion to
withdraw the reference as premature, concluding that the non-Article III
bankruptcy court was “manifestly more experienced” at overseeing the
pretrial adversary proceedings.
Linda, however, never renewed her opposition to proceeding before
the bankruptcy court, and she never refiled her motion to withdraw the
reference. Instead, at the close of pretrial proceedings, Linda expressly
consented to trial by the bankruptcy court. The bankruptcy court tried the
adversary proceeding and concluded that the adversary proceeding was “a
core proceeding under 28 U.S.C. § 157(b)(2)(B), (C), (E), (H), (K) and
(O),” over which it had jurisdiction to enter final judgment. See In re
Mastro, 465 B.R. at 599–600. Before the district court, Linda again
accepted the bankruptcy court’s authority to enter final judgment. Linda
stated that the adversary proceeding was a core proceeding under
§ 157(b), in which the bankruptcy court entered final judgment. Before
this court, Linda and the Trustee both accept the bankruptcy court’s
jurisdiction to enter final judgment under § 157(b).
MASTRO V. RIGBY 7
Court’s decision in Stern v. Marshall, 131 S. Ct. 2594 (2011).
Stern claims are claims “designated for final adjudication in
the bankruptcy court as a statutory matter, but prohibited
from proceeding in that way as a constitutional matter.”
Arkison, 134 S. Ct. at 2170.
The adversary proceeding against Linda involved Stern
claims. The Trustee alleged, among other things, that Linda
fraudulently transferred assets in violation of 11 U.S.C.
§§ 544 and 548, and Wash. Rev. Code, ch. 19.40. The
bankruptcy court then found Linda liable under these statutes.
We have previously considered exactly the same claims
at issue here – “claims of fraudulent conveyance under
11 U.S.C. § 544 [and § 548], and under state law, Wash. Rev.
Code, ch. 19.40.” Arkison, 134 S. Ct. at 2169 n.1; see Exec.
Benefits Ins. Agency v. Arkison (In re Bellingham Ins.
Agency, Inc.) (“In re Bellingham”), 702 F.3d 553, 557 (9th
Cir. 2012), aff’d, 134 S. Ct. 2165 (2014). And we have “held
that [these] fraudulent conveyance claims . . . are Stern
claims—that is, proceedings that are defined as ‘core’ under
§ 157(b) but may not, as a constitutional matter, be
adjudicated as such.” Arkison, 134 S. Ct. at 2172 (citing In
re Bellingham, 702 F.3d at 562); see In re Bellingham,
702 F.3d at 565 (holding that “bankruptcy courts [do not]
have the general authority to enter final judgments on
fraudulent conveyance claims” brought under these statutes).
Because a bankruptcy court generally cannot enter final
judgment on a Stern claim, “when a bankruptcy court is
presented with [a Stern claim], the proper course is to issue
proposed findings of fact and conclusions of law.” Arkison,
134 S. Ct. at 2170. “The district court will then review the
claim de novo and enter judgment.” Id.8 MASTRO V. RIGBY
This “proper course” was not followed in Linda’s case.
Instead of issuing proposed findings of fact and conclusions
of law, the bankruptcy court entered judgment deciding the
Stern claims.2
Nevertheless, under our holding in In re Bellingham, we
are satisfied that the bankruptcy court did not exceed its
jurisdiction. The parties consented to adjudication by the
bankruptcy court. This consent, we have held, gives a
bankruptcy court jurisdiction over Stern claims. See In re
Bellingham, 702 F.3d at 566 (holding that a party’s “right to
a hearing in an Article III court” in “fraudulent conveyance
suits . . . is waivable” if the parties consent to adjudication by
the bankruptcy court).
In re Bellingham continues to bind us. As a three-judge
panel, we may not depart from In re Bellingham unless it is
“clearly irreconcilable” with an intervening decision of the
Supreme Court. See Miller v. Gammie, 335 F.3d 889, 900
(9th Cir. 2003) (en banc). And In re Bellingham is not clearly
irreconcilable with any intervening Supreme Court decision.
In In re Bellingham, we held that “consent permits a
non-Article III judge to decide finally” a Stern claim. In re
Bellingham, 702 F.3d at 567. In Arkison, the Supreme Court
affirmed our decision in In re Bellingham on other grounds.
The Supreme Court held that even if consent does not permit
a bankruptcy court to decide finally a Stern claim, any error
is “cured” when a district court conducts “de novo review”
2
The district court, of course, did not review the merits of the Stern
claims, de novo or otherwise, having dismissed the appeal under the
fugitive disentitlement doctrine.
MASTRO V. RIGBY 9
and enters “its own valid final judgment.” Arkison, 134 S. Ct.
at 2175.
The Supreme Court’s decision “not . . . to address . . .
whether Article III permits a bankruptcy court, with the
consent of the parties, to enter final judgment on a Stern
claim” leaves intact our holding that consent does, in fact,
permit a bankruptcy court to enter final judgment on a Stern
claim. Id. at 2170 n.4. Arkison does not “undercut the theory
or reasoning underlying [In re Bellingham] in such a way that
the cases are clearly irreconcilable.” Miller, 335 F.3d at 900;
see, e.g., Kismit Acquisition, LLC v. Icenhower (In re
Icenhower), No. 10-55933, 2014 WL 2978491, at *3 (9th Cir.
July 3, 2014) (concluding, based on In re Bellingham, that
appellants “waived any objection . . . to the bankruptcy
court’s entry of final judgment,” even though In re
Bellingham’s holding that such objections are waivable was
affirmed on other grounds in Arkison); Busk v. Integrity
Staffing Solutions, Inc., 713 F.3d 525, 530 (9th Cir. 2013)
(relying on circuit precedent for specific rules of law, even
after the Supreme Court affirmed that precedent on other
grounds). Arkison simply does “not decide whether” or not
our holding in In re Bellingham was correct. Arkison, 134 S.
Ct. at 2175. In re Bellingham therefore remains good law.
Because In re Bellingham remains good law, the
bankruptcy court had authority to enter final judgment.
Under In re Bellingham, a bankruptcy court may
constitutionally enter final judgment on a Stern claim against
a nonclaimant to the bankruptcy estate with the consent of the
parties. Here, the parties expressly consented to trial before
the bankruptcy court. This consent permitted the bankruptcy
court to enter final judgment on the Trustee’s Stern claims
under 28 U.S.C. § 157(c)(2). See Arkison, 134 S. Ct. at 2174.
10 MASTRO V. RIGBY
It also permitted the district court to hear Linda’s appeal from
the bankruptcy court under 28 U.S.C. § 158(a)(1), and this
court to hear Linda’s appeal from the district court under
§ 158(d)(1).
III.
We now turn to the question whether the district court
abused its discretion when it invoked the fugitive
disentitlement doctrine to dismiss Linda’s appeal. See Bhasin
v. Gonzales, 423 F.3d 977, 989 (9th Cir. 2005) (reviewing the
application of the fugitive disentitlement doctrine for abuse
of discretion); accord Bano v. Union Carbide Corp., 273 F.3d
120, 125 (2d Cir. 2001); FDIC v. Pharaon, 178 F.3d 1159,
1162 (11th Cir. 1999). We conclude that it did.
In its earliest form, the fugitive disentitlement doctrine
allowed courts to dismiss appeals by defendants in criminal
cases who had become fugitives from justice. See Smith v.
United States, 94 U.S. 97, 97–98 (1876). Originally, the
doctrine sought to prevent the entry of unenforceable
judgments against absent criminal defendants. See id. Later,
courts developed new justifications for the doctrine. A
defendant’s fugitive status, it was said, “disentitle[d] the
defendant to call upon the resources of the [c]ourt” whose
very authority he was flouting, Molinaro v. New Jersey,
396 U.S. 365, 366 (1970) (per curiam) – a theory akin to
abandonment or waiver. Additionally, it was thought that the
fugitive disentitlement doctrine “discourage[d] the felony of
escape,” “encourage[d] voluntary surrenders,” and
“promote[d] the efficient, dignified operation” of the courts.
Estelle v. Dorrough, 420 U.S. 534, 537 (1975) (per curiam).
MASTRO V. RIGBY 11
As courts developed new justifications for the fugitive
disentitlement doctrine, they also applied that doctrine in new
contexts. By the last decades of the twentieth century, courts
had extended the fugitive disentitlement doctrine to a wide
range of non-criminal cases – cases in fields like tax,
Conforte v. Commissioner, 692 F.2d 587, 590 (9th Cir. 1982),
immigration, Arana v. INS, 673 F.2d 75, 77 (3d Cir. 1982)
(per curiam), and family law, Prevot v. Prevot, 59 F.3d 556,
567 (6th Cir. 1995).
Faced with this expansion of the fugitive disentitlement
doctrine, the Supreme Court significantly limited the
application of the doctrine in non-criminal contexts. In
Degen v. United States, 517 U.S. 820 (1996), the Supreme
Court held that federal courts lacked inherent power to
dismiss a civil forfeiture appeal, where the appellant was a
fugitive criminal defendant.3 Id. at 821–29. Acknowledging
the government’s interest in preventing Degen from abusing
civil discovery to gain an advantage in his criminal case (a
tactic that was available to Degen only because of his fugitive
status), id. at 825–27, the Supreme Court nevertheless
declared that even this interest did not necessitate “the harsh
sanction of absolute disentitlement,” id. at 827. Likewise,
after reviewing the fugitive disentitlement doctrine’s other
rationales – including preserving the dignity of the courts and
deterring flight from prosecution – the Court concluded that
“disentitlement is too blunt an instrument for advancing”
those interests, even when those “interests are substantial.”
Id. at 828.
3
Congress later conferred this power on the federal courts by statute.
See Civil Asset Forfeiture Reform Act of 2000, Pub. L. No. 106-185, 114
Stat. 202 (codified principally at 18 U.S.C. § 983 and 28 U.S.C. § 2466).
12 MASTRO V. RIGBY
Degen thus stands for the proposition that the fugitive
disentitlement doctrine should be narrowly applied and
subject to significant scrutiny outside of the direct criminal
appeal context. Degen makes clear that fugitive
disentitlement is an exceptionally “harsh sanction,” to be
disfavored whenever its application is not a matter of
“necessity.” Id. at 827. It cautions against the “danger of
overreaching,” and “counsel[s] restraint in resorting to
inherent power.” Id. at 823.
Since Degen was decided, we have taken an increasingly
narrow view of the fugitive disentitlement doctrine.4 We
have recognized that fugitive disentitlement is “a severe
sanction that courts should not lightly impose.” United States
v. Murguia-Oliveros, 421 F.3d 951, 954 (9th Cir. 2005).
Frequently, we have declined to decide appeals based on the
doctrine, or reversed dismissals under the doctrine. See, e.g.,
Mamigonian v. Biggs, 710 F.3d 936, 940 (9th Cir. 2013); Sun
v. Mukasey, 555 F.3d 802, 805 (9th Cir. 2009); Bhasin,
423 F.3d at 988; United States v. Gonzalez, 300 F.3d 1048,
1051 (9th Cir. 2002). After Degen, we have generally
confined our application of the fugitive disentitlement
doctrine to challenges to detentions, where an appellant’s
status as a fugitive from confinement clearly undercuts his
challenge to his confinement. See, e.g., Williams v.
Alameida, 511 F.3d 973, 974 (9th Cir. 2007) (dismissing
criminal fugitive’s 42 U.S.C. § 1983 challenge to his
incarceration); Parretti v. United States, 143 F.3d 508, 509
4
We do not discuss statutory dismissals under the Fugitive
Disentitlement Statute, 28 U.S.C. § 2466, which are rooted in an act of
Congress. The dismissal in this case, by contrast, concerns a court’s
inherent powers under the fugitive disentitlement doctrine.
MASTRO V. RIGBY 13
(9th Cir. 1998) (en banc) (dismissing criminal fugitive’s
challenge to his pretrial detention).
The district court’s application of the fugitive
disentitlement doctrine to Linda’s appeal is inconsistent with
Degen and lacks support in our post-Degen precedents. The
district court’s dismissal of Linda’s civil bankruptcy appeal
was based solely on Linda’s “blatant disregard for the
authority of the judicial system.” But disregard for the
authority of a different court does not constitute a “necessity”
capable of “justify[ing] the rule of disentitlement in this
case.” Degen, 517 U.S. at 829; see also id. at 828(recognizing that the Supreme Court has “held it
unconstitutional to use disentitlement similar to this as
punishment [even] for rebellion against the United States”).
Because the district court dismissed Linda’s civil bankruptcy
appeal on a basis that Degen rejected, that dismissal was, as
in Degen, “an arbitrary response” to Linda’s flight from a
related criminal prosecution.5 Id.The district court erred as a matter of law when it
determined that the fugitive disentitlement doctrine applied
5
The Supreme Court in Degen acknowledged the potential
unenforceability of a judgment against a fugitive party as a possible
justification for applying the fugutive disentitlement doctrine. See Degen,
517 U.S. at 824–25; see also Walsh v. Walsh, 221 F.3d 204, 215 (1st Cir.
2000) (observing that the Degan Court rejected indignity and deterrence
as grounds for applying the fugitive disentitlement doctrine and
concluding that the justifications for the doctrine post-Degen included
“prejudice to the opponent, delay, frustration, and unenforceability”).
Here, the district court did not cite any concerns with unenforceability as
the basis for its decision and made no finding of fact on this front.
Further, the record does not suggest that Linda’s absence impedes the
enforcement of a judgment against her.
14 MASTRO V. RIGBY
to Linda’s civil bankruptcy appeal. Because a “district court
by definition abuses its discretion when it makes an error of
law,” Koon v. United States, 518 U.S. 81, 100 (1996); see
also United States v. Hinkson, 585 F.3d 1247, 1261–62 (9th
Cir. 2009) (en banc), full court rehearing denied, 611 F.3d
1098 (9th Cir. 2010), the district court abused its discretion
by dismissing Linda’s appeal under the fugitive
disentitlement doctrine.
IV.
Having rejected the Trustee’s bid for dismissal under the
fugitive disentitlement doctrine, the Trustee nevertheless
invites us to affirm the bankruptcy court’s judgment in the
first instance on appeal. We decline the Trustee’s invitation.
When a district court improperly dismisses a bankruptcy
appeal without reaching the merits, we generally reverse the
district court’s dismissal and remand for the district court’s
consideration of the appeal in the first instance. See, e.g.,
Brown v. Wilshire Credit Corp. (In re Brown), 484 F.3d 1116,
1123 (9th Cir. 2007) (“revers[ing] the district court’s order
dismissing Brown’s appeal . . . and remand[ing] for the
district court’s consideration of his appeal” from the
bankruptcy court). Nothing in the record concerning Linda’s
appeal makes it an exception to this general rule. We
therefore decline to consider the merits of Linda’s appeal in
the first instance.
V.
We reverse the district court’s dismissal of Linda’s appeal
under the fugitive disentitlement doctrine, and we remand to
MASTRO V. RIGBY 15
the district court with instructions to consider the merits of
Linda’s appeal from the bankruptcy court’s judgment.
REVERSED and REMANDED.