United States District Court, District of Arizona
IN THE MATTER OF Clifford Smith and Robyn Smith, Debtors.
William E. Pierce, Appellee. Clifford Smith and Robyn Smith, Appellants, BK 3:10-bk-19970-MCW
David G. Campbell United States District Judge
Appellants Clifford and Robyn Smith (“Debtors”) appeal an order from the U.S. Bankruptcy Court granting Appellee’s motion to compel turnover of estate property (“turnover motion”). Doc. 5. Appellee William E. Pierce (“Trustee”) asks the Court to affirm the Bankruptcy Court’s decision. Doc. 9. The appeal is fully briefed. Docs. 5, 9, 14. For reasons set forth below, the Court will affirm the Bankruptcy Court’s decision.
The following facts are undisputed. Doc. 5 at 5; Doc. 9 at 4. On June 25, 2010, Debtors filed their Chapter 7 petition and required schedules. Doc. 5 at 5. Debtors’ Schedule A listed their residence located in Prescott Valley, AZ (“the property”), and Debtors’ Schedule C claimed the Property as exempt in the amount of $70, 279.00 pursuant to A.R.S. § 33-1101(A). Id. The schedules have not been amended, and no objection to the exemptions was ever filed. Id. at 5-6. Debtors received their discharge on September 28, 2010. Id.
On July 20, 2012, Debtors filed a motion to sell the property free and clear of the estate (“the sale motion”). Bankr. Doc. 24. The sale motion stated that Debtors were under contract to sell the Property for $280, 000, with a closing set for August 30, 2012. Doc. 5 at 6. The sale motion also stated that any equity Debtors realized from the sale would be protected by the Debtors’ homestead exemption under A.R.S. § 33-1101(A), and that Debtors “should be permitted to sell the property free and clear of the bankruptcy estate.” Id. The Trustee was served with the sale motion and no opposition was filed. Id. On July 31, 2012, the bankruptcy court held a hearing on the sale motion. Id. The Trustee did not attend. Id. The bankruptcy court granted the sale motion in an order dated August 1, 2012. Id.
The Trustee did not appeal. Id On March 8, 2013, Debtors filed a motion to determine that the proceeds from their post-petition sale are not property of the estate under A.R.S. § 33-1101(C). Id. at 7. Debtors noted that they had received communication from the Trustee asserting that “the proceeds from the post-petition sale . . . may become property of the estate unless the Debtors use that money to purchase a new residence before the expiration of eighteen months.” Id. The Trustee filed an objection to the motion to determine on March 22, 2013, in which he confirmed his position that the sale proceeds were subject to the eighteen-month reinvestment requirement of A.R.S. § 33-1101(C). Id. No further action is reflected on the docket regarding the motion to determine. Id
On May 16, 2014, the Trustee filed his turnover motion. Id. The bankruptcy court held oral argument on June 9, 2014. Id. at 5. On July 1, 2014 the bankruptcy court issued a preliminary order directing the Trustee to file an affidavit explaining why he did not close the Debtors’ bankruptcy case prior to the expiration of the eighteen-month reinvestment period, nearly four years after the petition date. Id. On August 26, 2014, after accepting the Trustee’s declaration, the bankruptcy court issued an order granting the Trustee’s turnover motion, holding that the proceeds from the post-petition sale were subject to the eighteen-month reinvestment period imposed under § 33-1101(C). Id. On September 9, 2014, Debtors filed notice of their appeal. Doc. 1.
II. Legal Standard.
Under 28 U.S.C. § 158(a)(1), the Court has jurisdiction over appeals from “final judgments, orders, and decrees” of bankruptcy judges. The Court reviews the bankruptcy court’s conclusions of law de novo and its findings of fact for clear error. In re JTS Corp., 617 F.3d 1102, 1109 (9th Cir. 2010). The Court must accept the bankruptcy court’s findings of fact unless the Court “is left with the definite and firm conviction that a mistake has been committed[.]” In re Greene, 583 F.3d 614, 618 (9th Cir. 2009). The Court reviews the evidence in the light most favorable to the prevailing party. Lozier v. Auto Owners Ins. Co., 951 F.2d 251, 253 (9th Cir. 1991); In re Jake’s Granite Supplies, L.L.C., 442 B.R. 694, 699 (D. Ariz. 2010).
Debtors assert that the bankruptcy court erred in three respects: (1) by refusing to preclude the Trustee’s turnover motion on the basis of the court’s prior approval of the sale motion, (2) by holding that the proceeds from the sale were subject to the eighteen-month reinvestment limitation of § 33-1101(C), and (3) by holding that the equitable defense of laches did not bar the Trustee’s turnover motion. Doc. 5 at 8-19.
A. Sale Order’s Effect on Turnover Motion.
Debtors argue that the Trustee’s turnover motion should be precluded by judicial estoppel. Id. at 8-10. The doctrine of judicial estoppel protects the integrity of the judicial process by precluding a party “from gaining an advantage by asserting one position, and then later seeking an advantage by taking a clearly inconsistent position.” Hamilton v. State Farm Fire & Cas. Co., 270 F.3d 778, 782 (9th Cir. 2001). Judicial estoppel “is an equitable doctrine invoked by a court at its discretion.” Russell v. Rolfs, 893 F.2d 1033, 1037 (9th Cir. 1990). “Federal law governs the application of judicial estoppel in federal courts.” Johnson v. Oregon Dep’t of Human Res., Rehab. Div., 141 F.3d 1361, 1364 (9th Cir. 1998). The bankruptcy court’s application of the doctrine is reviewed for abuse of discretion. See Hamilton, 270 F.3d at 782.
The Supreme Court has listed three factors that may be considered in deciding whether judicial estoppel applies: (1) whether a party’s later position is “clearly inconsistent” with its earlier position, (2) “whether the party has succeeded in persuading a court to accept that party’s earlier position, ” and (3) whether the party “would derive an unfair advantage or impose an unfair detriment on the opposing party if not estopped.” New Hampshire v. Maine, 532 U.S. 742, 750 (2001). These factors are not “inflexible prerequisites or an exhaustive formula for determining the applicability of ...