Marino Ii: Ninth Circuit Lacked Jurisdiction to Review Bap's Decision on Contempt Sanctions for Discharge Injunction Violation and Affirmed Bap's Denial of Appellate Fees
| Publication year | 2021 |
| Author | Leonard L. Gumport |
Leonard L. Gumport1
Leonard L. Gumport is a lawyer and mediator at Gumport Law Firm, PC, in Pasadena, California. He has served as a provisional director, bankruptcy examiner, and bankruptcy and SIPC trustee. He is admitted to practice in Alaska, California, the District of Columbia, and New York.
In Ocwen Loan Servicing, LLC v. Marino (In re Marino) ("Marino II"),2 the United States Court of Appeals for the Ninth Circuit ruled that it lacked jurisdiction under 28 U.S.C. § 158(d)(1) of an appeal from the decision of the United States Bankruptcy Appellate Panel for the Ninth Circuit ("BAP") in Ocwen Loan Servicing, LLC v. Marino (In re Marino) ("Marino I").3 The BAP's decision in Marino I, concerning emotional distress and punitive damages for violations of the discharge injunction, was not a final decision as required by § 158(d)(1). The BAP's post-decision order denying appellate attorneys' fees was, however, a final decision. Marino II affirmed the fee denial order because the appeal in Marino I was non-frivolous; a contractual fee provision did not apply; and 11 U.S.C. § 105 did not permit an award of appellate attorneys' fees.
FACTS: On March 15, 2013, Christopher and Valerie Marino ("Debtors") filed a chapter 7 petition in the United States Bankruptcy Court for the District of Nevada in No. 13-bk-50461. In their schedules, Debtors represented that they owned and planned to surrender a residence in Verdi, California (the "Property"). Prior to filing bankruptcy, Debtors vacated the Property.
The Property was encumbered by a deed of trust securing a promissory note (the "Loan") held by Deutsche Bank National Trust Company ("Deutsche Bank") as trustee of a mortgage loan trust. The Loan was serviced by Ocwen Mortgage Loan Servicing, LLC ("Ocwen").
On June 18, 2013, the bankruptcy court entered an order granting Debtors a discharge. On July 19, 2013, the court terminated the automatic stay to permit Deutsche Bank to enforce its rights in the Property. On September 23, 2013, the court closed Debtors' case.
During June 2013 to April 2015, while knowing of Debtors' discharge, Ocwen mailed correspondence to Debtors. Some items of correspondence included payment demands with small-print generic disclaimers, which stated that Ocwen did not seek repayment of any debt that was discharged in bankruptcy.
On November 19, 2015, Debtors filed a motion to reopen their case and to hold Ocwen in civil contempt for seeking to collect the Loan from Debtors personally in violation of the discharge injunction of 11 U.S.C. § 524(a)(2).
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On June 20, 2016, following an evidentiary hearing, the bankruptcy court ruled that Ocwen violated the discharge injunction. The court stated that Ocwen waited two years to foreclose on the Property while "hoping that if they sent enough letters and gave enough phone calls, that the debtor would ultimately pay them some money for something." The court found that, in light of Ocwen's actual knowledge of Debtors' discharge, the small-print generic disclaimers in Ocwen's correspondence did not insulate Ocwen from liability for seeking to collect a discharged debt from Debtors personally.4
As sanctions, the bankruptcy court awarded $119,000 to Debtors in emotional distress damages, consisting of $1,000 for each of nineteen items of correspondence and an estimated 100 telephone calls by Ocwen to Debtors. As additional sanctions, the court awarded attorneys' fees and costs against Ocwen, and subsequently determined them to be $34,955. The court declined to award punitive damages, ruling that it would "probably" award them but lacked legal authority to do so.5
In a reconsideration motion, Ocwen argued that it did not receive adequate notice that Debtors sought sanctions for any phone calls. Ocwen also argued that its records showed only thirty-five phone calls to Debtors. The motion was denied.
During July to August 2016, Ocwen appealed to the BAP from the contempt sanctions and reconsideration denial, and Debtors cross-appealed to the BAP from the bankruptcy court's denial of punitive damages.
On December 22, 2017, the BAP affirmed the award of emotional distress damages against Ocwen. Emotional distress damages were recoverable for violations of the discharge injunction, and the $1,000-per-violation award was a reasonable compensatory award.6 The disclaimers were not a defense because "Ocwen could and should prepare notices that are consistent with the known legal status of its borrowers."7
The BAP reversed and remanded the bankruptcy court's denial of punitive damages. The bankruptcy court had authority to award (or to recommend to the district court that it award) punitive damages, provided that they were "relatively mild." On remand, the bankruptcy court was not required to award punitive damages. Any award of punitive damages in excess of $5,000 ("presumably in 1989 dollars") would be considered "serious" under Ninth Circuit precedent.8
In January 2018, Ocwen appealed to the Ninth Circuit, and Debtors filed a motion in the BAP for $16,950 in appellate attorneys' fees. The BAP denied this motion on July 3, 2018 in an unpublished order, and Debtors appealed from that order. On February 10, 2020, the Ninth Circuit filed its decision in Marino II, dismissing Ocwen's appeal and affirming the fee denial.
During the appeals, the United States Supreme Court decided Taggart v. Lorenzen ("Taggart")9 (overruling Ninth Circuit precedent on civil contempt liability for violating the discharge injunction) and Ritzen Group, Inc. v. Jackson Masonry, LLC ("Ritzen")10 (reaffirming the test for finality stated in Bullard v. Blue Hills Bank ("Bullard")).11
REASONING: Marino II dismissed Ocwen's appeal for lack of jurisdiction because the BAP's decision was not final. Under 28 U.S.C. § 158(d)(1), the appellate jurisdiction of circuit courts is limited to appeals from final decisions, judgments, orders, and decrees, except for interlocutory orders under specified conditions. For three reasons, Marino I was not a final decision of the BAP:
1. BAP orders lack finality unless they "finally dispose of discrete disputes within the larger case."12"Orders in bankruptcy cases qualify as 'final' when they definitively dispose of discrete disputes within the overarching bankruptcy case."13 The discrete dispute was the contempt proceeding, and the BAP's decision did not terminate that dispute or conclusively determine the Debtors' entitlement to all the relief they sought.14
2. An order from the BAP is not final if it remands for factual determinations on a central issue, unless the BAP remands for "purely mechanical or computational" tasks that are highly unlikely to generate a new appeal.15Marino I was not final because the BAP remanded for a non-ministerial decision on punitive damages.16
3. The Ninth Circuit applies a four-part test (the "4-Part Test") to determine whether there is circuit court jurisdiction of an appeal from a BAP decision that remands to the bankruptcy court.17 The 4-Part Test balances: "(1) the need to avoid piecemeal litigation; (2) judicial efficiency; (3) the systemic interest in preserving the bankruptcy court's role as the finder of fact; and (4) whether delaying review would cause either party irreparable harm."18
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Marino I was not final under the 4-Part Test. Dismissing Ocwen's appeal would avoid piecemeal litigation and promote judicial efficiency while permitting the bankruptcy court to make findings on punitive damages issues. The cost of further litigation did not constitute irreparable harm. "Litigation costs generally do not qualify as irreparable harm."19
The Ninth Circuit had jurisdiction of Debtors' appeal from the fee denial, because their appeal "only raise[d] the frivolousness of Ocwen's appeal to the BAP, an issue that is both final and discrete."20
The Ninth Circuit affirmed the BAP's denial of Debtors' motion for appellate attorneys' fees. First, Debtors were not entitled to appellate fees under rule 38 of the...
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