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In re Copeland

United States District Court, D. Arizona

October 21, 2019

IN THE MATTER OF Duan C. Copeland, et al., Debtors.
v.
Duan C. Copeland, et al., Appellees. Diane M. Mann, Appellant,

          ORDER

          HONORABLE STEVEN P. LOGAN UNITED STATES DISTRICT JUDGE

         Trustee Diane M. Mann (“Appellant”) appeals the denial of a motion to compel the turnover of estate property in the underlying bankruptcy case, In re Copeland 2:14-bk-10119-MCW. (Doc. 3) Appellant seeks a reversal of the bankruptcy court's order and a mandate for the bankruptcy court to consider the motion on the merits without regard to the Ninth Circuit Bankruptcy Appellate Panel's (“BAP”) decision in In re Markosian, 506 B.R. 273 (B.A.P. 9th Cir. 2014). For the following reasons, this Court vacates the bankruptcy court's order and remands for consideration of the motion to compel consistent with this Order.

         I. Background

         In reviewing the bankruptcy court's findings of fact, “[t]his court must accept the bankruptcy court's findings of fact unless, upon review, the court is left with the definite and firm conviction that a mistake has been committed by the bankruptcy judge.” In re Greene, 583 F.3d 614, 618 (9th Cir. 2009) (internal citation omitted). Appellant contends that there are no issues of fact to be decided in this appeal, however, Appellant and Dr. Duan C. Copeland and Lily E. Copeland (“Appellees”) recite different facts in their appellate briefing. (Docs. 3 and 7) For example, Appellant asserts that the vehicles at issue in this appeal were all acquired by Appellees while in a Chapter 11 case.[1] (Doc. 3 at 5) Yet Appellees assert that at least some of the vehicles were purchased prior to their conversion from Chapter 7 to Chapter 11. (Doc. 7 at 13-14) In the order denying the motion to compel, the facts are not clear regarding when Appellees acquired their vehicles. (Doc. 4-9 at 1-2) Therefore, this Court has searched the record on appeal and compiled the facts as represented by the parties' in their past filings in the bankruptcy court.

         Appellees filed for a voluntary Chapter 7 bankruptcy on June 30, 2014. (Doc. 4-1 at 1) In their petition, Appellees listed one vehicle, a 2008 Nissan Rogue, as part of their personal property. (Doc. 4-1 at 8) While in Chapter 7, Appellees traded the Nissan Rogue and purchased a 2007 Porsche Cayman using income Appellees received from Dr. Copeland's job. (Doc. 4-10 at 22-23) Appellees then traded the Porsche Cayman for a 2006 Lexus GX470 and also purchased a 2010 Kawaski Z-1000 motorcycle, again using post-petition income received from Dr. Copeland's job. (Docs. 4-10 at 22-23; 4-7 at 1-2) In September 2015, Appellees converted from Chapter 7 to Chapter 11. (Doc. 4-9 at 1) Subsequently, Appellees purchased a 2014 Nissan Leaf. (Doc. 4-7 at 2) In July 2017, Appellees reconverted back to Chapter 7. (Doc. 4-9 at 1)

         On January 26, 2018, Appellant filed a motion to compel Appellees to turn over the Lexus GX470, Kawaski Z-1000, and Nissan Leaf as property belonging to the bankruptcy estate pursuant to 11 U.S.C. § 521[2] of the Code. (Doc. 4-6 at 1) Appellees objected, arguing that they purchased the vehicles with post-petition earnings, and therefore, the vehicles did not become part of the Chapter 7 bankruptcy estate upon reconversion to Chapter 7 pursuant to 11 U.S.C. § 541.[3] (Doc. 4-7 at 1-2)

         On September 28, 2018, the bankruptcy court denied Appellant's motion to compel. (Doc. 4-9) In denying the motion, the bankruptcy court stated that the BAP's decision in Markosian was controlling. (Doc. 4-9 at 4) Specifically, the bankruptcy court stated that it would follow the BAP's decisions, unless “[the] Court conclude[d] that a [BAP] decision clearly misinterpreted the Code or other law and so long as the District Court of Arizona ha[d] not published a contrary opinion.” (Doc. 4-9 at 4) On October 12, 2018, Appellant timely filed a notice of appeal and elected to have the appeal transferred to this Court. (Doc. 1 at 1)

         Appellant raises two issues on appeal. First, Appellant argues that the bankruptcy court committed reversible error by denying the motion to compel. (Doc. 3 at 4) Second, Appellant argues that the ruling in Markosian is erroneous. (Doc. 3 at 4) Appellant requests that this Court reverse the bankruptcy court's order and direct the bankruptcy court to consider the motion to compel on the merits without regard to Markosian. (Doc. 3 at 9)

         II. Discussion

         A. Standard of Review

         District courts have jurisdiction to review an appeal from the bankruptcy court's “final judgments, orders, and decrees.” 28 U.S.C. § 158. This court reviews the bankruptcy court's legal conclusions de novo. See In re D'Arco, 587 B.R. 722, 726 (Bankr. C.D. Cal. 2018) (internal citation omitted).

         B. The Bankruptcy Court Did Not Commit Reversible Error

         Appellant argues that the bankruptcy court committed reversible error by relying on the flawed holding in Markosian when denying the motion to compel. (Doc. 3 at 8-9) In response, Appellees argue that the holding in Markosian was an accurate interpretation of the statute governing conversions of cases from one chapter to another, 11 U.S.C. § 348(a), [4]and therefore, the bankruptcy court made no error in relying on Markosian. (Doc. 7 at 15-17)

         Where there is a clear split between courts on an issue, it cannot be said that a bankruptcy court commits a reversible error by choosing to follow the view adopted within its own circuit rather than the view of another circuit. Indeed, courts in the Ninth Circuit generally adhere to the belief that Ninth Circuit BAP decisions should be given deference absent any other controlling authority. See In re Muskin, Inc., 151 B.R. 252, 253-55 (Bankr. N.D. Cal. 1993); see also In re Sawicki, No. 2-07-bk-3493-CGC, 2008 WL ...


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