Mastro v. Rigby

¶5OPINION

¶6TASHIMA, Circuit Judge:

¶7Linda 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 disen-titlement doctrine, because no necessity justified invoking the rule of disentitlement in this case.

¶8I.

¶9James 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.

¶10The 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.

¶11Linda 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.

¶12Soon 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 France, and because a French Court of Appeal has denied U.S. requests to extradite Linda and Michael.

¶13Due 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 disen-titlement 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.”

¶14Linda 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.

¶15II.

¶16Before 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 *1093had 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, 106 S.Ct. 1326, 89 L.Ed.2d 501 (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 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”), — U.S. -, 134 S.Ct. 2165, 2174, 189 L.Ed.2d 83 (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).

¶17By 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 Court’s decision in Stem v. Marshall, — U.S. -, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011). Stem 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.

¶18The 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.

¶19We 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, — U.S. -, 134 S.Ct. 2165, 189 L.Ed.2d 83 (2014). And we have “held that [these] fraudulent conveyance claims ... are Stern claims — that is, proceedings that are *1094defined 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).

¶20Because a bankruptcy court generally cannot enter final judgment on a Stem claim, “when a bankruptcy court is presented with [a Stem 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.

¶21This “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 Stem claims.2

¶22Nevertheless, 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).

¶23In 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.

¶24In In re Bellingham, we held that “consent permits a non-Article III judge to decide finally” a Stem claim. In re Bell-ingham, 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 Stem claim, any error is “cured” when a district court conducts “de novo review” and enters “its own valid final judgment.” Arkison, 134 S.Ct. at 2175.

¶25The 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 Stem 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., Kismet Acquisition, LLC v. Icenhower (In re Icenhower), 757 F.3d 1044, 1050 (9th Cir. 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 Belling-ham’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. *1095In re Bellingham therefore remains good law.

¶26Because In re Bellingham remains good law, the bankruptcy court had authority to enter final judgment. Under In re Bell-ingham, a bankruptcy court may constitutionally enter final judgment on a Stem 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. 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).

¶27III.

¶28We 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 Baño v. Union Carhide 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.

¶29In its earliest form, the fugitive disen-titlement 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, 24 L.Ed. 32 (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^] 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, 90 S.Ct. 498, 24 L.Ed.2d 586 (1970) (per curiam) — a theory akin to abandonment or waiver. Additionally, it was thought that the fugitive disentitlement doctrine “discouraged the felony of escape,” “encouraged voluntary surrenders,” and “promoted the efficient, dignified operation” of the courts. Estelle v. Dorrough, 420 U.S. 534, 537, 95 S.Ct. 1173, 43 L.Ed.2d 377 (1975) (per curiam).

¶30As 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).

¶31Faced 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, 116 S.Ct. 1777, 135 L.Ed.2d 102 (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.3Id. at 821-29, 116 S.Ct. 1777. Acknowledging the government’s interest in preventing Degen from abusing civil discovery to gain an advantage in his criminal case (a tactic *1096that was available to Degen only because of his fugitive status), id. at 825-27, 116 S.Ct. 1777, the Supreme Court nevertheless declared that even this interest did not necessitate “the harsh sanction of absolute disentitlement,” id. at 827, 116 S.Ct. 1777. 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 “disen-titlement is too blunt an instrument for advancing” those interests, even when those “interests are substantial.” Id. at 828, 116 S.Ct. 1777.

¶32Degen 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, 116 S.Ct. 1777. It cautions against the “danger of overreaching,” and “counsel[s] restraint in resorting to inherent power.” Id. at 823, 116 S.Ct. 1777.

¶33Since 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. Mwrguior-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 De-gen, 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 (9th Cir.1998) (en banc) (dismissing criminal fugitive’s challenge to his pretrial detention).

¶34The 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 “justifying] the rule of disentitlement in this case.” Degen, 517 U.S. at 829,116 S.Ct. 1777; see also id. at 828,116 S.Ct. 1777 (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.5Id.

¶35*1097The district court erred as a matter of law when it determined that the fugitive disentitlement doctrine applied 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, 116 S.Ct. 2035, 135 L.Ed.2d 392 (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.

¶36IV.

¶37Having 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.

¶38When 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 remanding] 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.

¶39V.

¶40We reverse the district court’s dismissal of Linda’s appeal under the fugitive disen-titlement doctrine, and we remand to the district court with instructions to consider the merits of Linda’s appeal from the bankruptcy court’s judgment.

¶41REVERSED and REMANDED.