FOR PUBLICATION UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT In the Matter of: JOHN FELIX No. 22-35604 CASTLEMAN, Sr.; KIMBERLY KAY CASTLEMAN, D.C. No. Debtors, 2:21-cv-00829- JHC ------------------------------ JOHN FELIX CASTLEMAN, Sr.; OPINION KIMBERLY KAY CASTLEMAN, Appellants, v. DENNIS LEE BURMAN, Chapter 7 Trustee, Appellee. Appeal from the United States District Court for the Western District of Washington John H. Chun, District Judge, Presiding Argued and Submitted May 9, 2023 Seattle, Washington Filed July 28, 2023 2 CASTLEMAN V. BURMAN Before: Michael Daly Hawkins, Richard C. Tallman, and Sandra S. Ikuta, Circuit Judges. Opinion by Judge Hawkins; Dissent by Judge Tallman. SUMMARY * Bankruptcy Affirming the district court’s order, which affirmed the bankruptcy court’s order, the panel held that post-petition, pre-conversion increases in the equity of an asset belong to the bankruptcy estate, rather than to debtors who, in good faith, convert their Chapter 13 reorganization petition into a Chapter 7 liquidation. When debtors filed for bankruptcy, they listed their home among their assets. When they later converted to Chapter 7, the home had risen in value. Debtors argued that the home’s increased equity belonged to them and not the bankruptcy estate under 11 U.S.C. § 348(f)(1)(A), which provides that “property of the estate in the converted case shall consist of property of the estate, as of the date of filing of the petition, that remains in the possession of or is under the control of the debtor on the date of conversion.” * This summary constitutes no part of the opinion of the court. It has been prepared by court staff for the convenience of the reader. CASTLEMAN V. BURMAN 3 On de novo review, the panel held that the plain language of § 348(f)(1)(A), coupled with the Ninth Circuit’s previous interpretation of 11 U.S.C. § 541(a), compelled the conclusion that any appreciation in the property value and corresponding increase in equity belonged to the estate upon conversion. The panel looked to the definition of “property of the estate” in § 541(a), which addresses the contents of the bankruptcy estate upon filing under either Chapter 7 or Chapter 13, and the court’s prior opinions holding that the broad scope of § 541(a) means that post-petition appreciation inures to the bankruptcy estate, not the debtor. Dissenting, Judge Tallman wrote that the Bankruptcy Code as a whole established that post-petition, pre- conversion appreciation belonged to the debtors. He wrote that the majority’s reading of § 348(f)(1)(A) created a circuit split and was inconsistent with the statute’s structure, object, policies, and legislative history. COUNSEL Steven Hathaway (argued), Law Office of Steven C. Hathaway, Bellingham, Washington, for Appellants. Peter H. Arkison (argued), Bellingham, Washington, for Appellee. Russell D. Garrett, Jordan Ramis PC, Portland, Oregon, for Amicus Curiae National Association of Bankruptcy Trustees. 4 CASTLEMAN V. BURMAN OPINION HAWKINS, Circuit Judge: We must decide whether post-petition, pre-conversion increases in the equity of an asset‒‒i.e., the difference between a home’s value and how much is owed on the mortgage, whether a result of …
Original document