1 UNITED STATES BANKRUPTCY COURT

2 EASTERN DISTRICT OF CALIFORNIA

3 FRESNO DIVISION

4

5 In re ) Case No. 19-10708-B-7 ) 6 ) ) 7 ANTONIO AVILES and MARTHA ) Docket Control #TMO-5

AVILES, )

8 ) Debtors. ) Date: January 31, 2024 9 ) Time: 9:30 a.m. ) Dept: U.S. Courthouse 10 ) 2500 Tulare St. ) Dept. B, Fifth Floor, 11 ) Courtroom 13 ) 12 )

13

14 RULING ON DEBTORS’ MOTION FOR STAY OF BANKRUPTCY PROCEEDINGS

UNTIL THE DECISION OF THE BANKRUPTCY APPELLATE PANEL IS RENDERED

15 16 Introduction 17 Antonio and Martha Aviles (“Debtors”) have appealed this 18 court’s ruling denying reconsideration of an order vacating an 19 improvident dismissal of their chapter 13 case.1 Though their 20 chapter 13 case is still pending, Debtors now ask the court to 21 stay all proceedings until the appellate court rules. The 22 Debtors have not made a strong showing that they would likely 23 prevail on appeal nor that they would be irreparably harmed 24 without a stay. For these and other reasons, the motion for stay 25 pending appeal is DENIED.2

26 1 Unless specified otherwise, all chapter and section references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532. Any references to “Civ. Rule” shall 27 be to the Federal Rules of Civil Procedure. Any references to “Rule” shall, unless otherwise specified, be to the Federal Rules of Bankruptcy Procedure. 28 1 I 2 A. 3 The pertinent facts for this motion are set forth in this 4 court’s ruling on the Debtors’ Motion for Reconsideration of 5 Order Vacating Dismissal of Chapter 13 Case (“Reconsideration 6 Ruling”) entered December 14, 2023 (Doc. #136). Any other 7 pertinent facts are set forth in this ruling. 8 Following the issuance of the Reconsideration Ruling and 9 order (Docs. ##136, 138) the Debtors filed a timely notice of 10 appeal on December 27, 2023. Doc. #158. Based on the notice of 11 appeal, the only order appealed is the order issued with the 12 Reconsideration Ruling. 13 On January 24, 2024, Debtors filed this motion. The court 14 granted the Debtors application for an order shortening time the 15 same day. The motion was heard January 31, 2024, and taken under 16 submission. No party requested further briefing. 17 18 B. 19 The United States District Court for the Eastern District of 20 California has jurisdiction over this proceeding under 28 U.S.C. 21 § 1334(b) since this is a civil proceeding arising under Title 11 22 of the United States Code. The District Court has referred this 23 matter to this court under 28 U.S.C. § 157(a). This is a “core” 24 proceeding under 28 U.S.C. § 157(b)(2)(A) and (O). 25 /// 26 ///

27 Should any finding of fact be deemed a conclusion of law it is adopted as such. Should any conclusion of law be deemed a finding of fact it is adopted 28 1 II 2 A stay pending appeal is not a matter of right, even if 3 irreparable injury might otherwise result. Niken v. Holder, 556 4 U.S. 418, 433 (2009) quoting Virginian Ry. Co. v. United States, 5 272 U.S. 658, 672 (1926). “It is instead an exercise of judicial 6 discretion and the propriety of its issue is dependent upon the 7 circumstances of the particular case.” Id. quoting Virginian, 8 272 U.S. at 672, 73. 9 The party requesting the stay pending appeal bears the 10 burden of showing that the circumstances justify an exercise of 11 that discretion. Niken, 556 U.S. at 433-34. To find a stay 12 should be issued, the court must determine: “(1) whether the stay 13 applicant has made a strong showing that the applicant is likely 14 to succeed on the merits; (2) whether the applicant will be 15 irreparably injured absent the stay; (3) whether issuance of the 16 stay will substantially injure the other parties interested in 17 the proceeding; and (4) where the public interest lies.” Lair v. 18 Bullock, 697 F.3d 1200, 1203 (9th Cir. 2012) quoting Niken, 556 19 U.S. at 434. “The first two factors…are the most critical.” Id. 20 The last two steps are reached “once an applicant satisfies the 21 first two factors.” Id. at 435. As will be seen, movants here 22 have not demonstrated the basis for a stay. 23 24 A. 25 Movants have not made a strong showing that they are likely 26 to prevail on appeal. 27 The bankruptcy court’s denial of a motion for 28 reconsideration is reviewed for abuse of discretion. Weiner v. 1 Perry, Settles & Lawson, Inc. (In Re Weiner), 161 F.3d 1216, 1217 2 (9th Cir. 1998). A bankruptcy court abuses its discretion if it 3 applies an incorrect legal rule or makes factual findings that 4 are illogical, implausible, or not supported by the record. U.S. 5 v. Hinkson, 585 F.3d 1247, 1261, 1262 (9th Cir. 2009)(en banc). 6 The court here has applied the correct legal rule to the facts 7 presented. 8 Movants’ argument predicates on the assumption that when the 9 court “reconverted” the chapter 7 case to chapter 13, the court 10 vacated the original order converting the case to chapter 7 11 because of the best interest of the creditors under U.S.C. 12 § 1307(c). The facts do not support the assumption. 13 14 1. 15 It is not enough on a motion for stay that the chance of 16 success on the merits be “better than negligible.” Niken, 556 17 U.S. at 434. As set forth in the Reconsideration Ruling there is 18 nothing in Civ. Rule 60 (Rule 9024) requiring a court to vacate 19 an order to provide the relief sought by the motion.3 The actual 20 order here granting Debtors’ motion to reconvert the case to 21 chapter 13 (which order was prepared by Debtors’ counsel) says 22 nothing about vacating the original order converting the case to 23 chapter 7. Doc. #88. 24 Also, Civ. Rule 60(b) provides that the court may relieve a 25 party from a judgment on “just terms” leaving a spate of options 26 available to a trial court to fashion appropriate relief. See 27 3 It bears repeating that the Debtors’ motion for reconsideration was brought 28 1 eg. Rodriguez v. Bowen, 678 F.2 1456, 1458 (E.D. Cal. 1988) (Upon 2 reconsideration, the court affirmed a previous order and ordered 3 attorneys’ fees to be paid by defendant); Schanen v. United 4 States Department of Justice, 798 F.2d 348, 350 (9th Cir. 5 1986)(remanding a case to the trial court to award costs and fees 6 against the government because of prolonged proceedings due to 7 the government’s lack of diligence); Graziadei v. Graziadei (In 8 Re Graziadei), 32 F.3d 1408, 1411 (9th Cir. 1994) (affirming a 9 district court order requiring restitution of funds obtained to 10 satisfy a judgment when the judgment was subsequently declared 11 void). 12 Debtors’ reliance on Ditto v. McCurdy, 510 F.3d 1070, 1077 13 (9th Cir. 2007) is misplaced. There, an intervening change in 14 the law while a case remained opened after a Rule 60(b) motion 15 was granted permitted the court of appeals to affirm the district 16 court’s affirmance of a bankruptcy court setting aside a 17 dischargeability judgment for fraud related to a medical 18 malpractice claim. No such facts are present here. The court 19 granted the relief requested by the Debtors – reconversion to 20 chapter 13 from chapter 7 – without vacating any previous order. 21 Under controlling ninth circuit law, the Debtors had no right to 22 unilaterally dismiss the chapter 13 case. Nichols v. Marana 23 Stockyard & Livestock Market, Inc., 10 F.4th 956, 964 (9th Cir. 24 2021). 25 Vacating the order dismissing the chapter 13 case after 26 reconversion was not error. In fact, under Nichols and § 1307(b) 27 the dismissal of the case after reconversion at the Debtors’ 28 /// 1 request was erroneous. The court had authority under Rule 60(a) 2 to correct the error. That is what the court did. 3 Debtors make a trifling due process reference because the 4 order vacating the dismissal upon the Chapter 7 trustee’s request 5 was entered without hearing. First, that does not diminish the 6 authority of the court under Civ. Rule 60(a). It is also 7 sophistry. It was the Debtors who invited the error by 8 submitting the dismissal motion and order ex parte. 9 Second, even if it was erroneous to vacate the dismissal 10 without a hearing, it was harmless. The Debtors filed a prompt 11 motion for the court to reconsider the ruling and had a full and 12 fair opportunity to raise all of their objections. The motion 13 was heard, and the court issued the Reconsideration Ruling. Doc. 14 #136. The Debtors’ due process rights were fully utilized. 15 Notwithstanding the above, the Debtors are judicially 16 estopped from now contending the court vacated the order 17 converting the case to chapter 7. 18 19 2. 20 The Reconsideration Ruling detailed the elements of judicial 21 estoppel and applied those elements to the facts here. Doc. 22 #136. The Debtors did not address judicial estoppel in a 23 meaningful way in their motion to stay. Instead, the Debtors 24 trivialize and simply state that the judicial estoppel doctrine 25 as applied in this case is “erroneous.” 26 Application of judicial estoppel is not erroneous. Debtors 27 present no factual or legal argument contesting its 28 applicability. 1 In fact, at the hearing on this motion, the chapter 13 2 trustee’s counsel referenced the transcript of the hearing where 3 the court granted the Debtors’ motion for reconversion. During 4 that early hearing, the court stated it would approve the 5 reconversion of the case from chapter 7 to chapter 13 under 6 § 706. The court went on to state that the Debtors did not have 7 the right to dismiss under § 1307 if the case is reconverted. 8 Debtors’ counsel stated that he understood. Doc. #87 at 2:38- 9 3:05. 10 The Debtors’ position currently is inconsistent with their 11 earlier position. Based upon the Debtors’ previous position, the 12 court reconverted the case to chapter 13. For this court to 13 accept the Debtors current inconsistent position would create a 14 perception that this court was misled. Finally, the Debtors 15 would derive an unfair advantage if not estopped. Specifically, 16 the chapter 7 trustee’s actions would be for naught. The chapter 17 7 trustee’s compromise on his commission claim would be 18 ineffective. There is nothing in the order granting the Debtors’ 19 motion for reconversion suggesting that the original order 20 converting the case to chapter 7 was vacated. Debtors are 21 judicially estopped from now claiming otherwise. See New 22 Hampshire v. Maine, 532 U.S. 742, 750-51 (2001); Ah Quin v. 23 County of Kauai Dept. of Transportation, 733 F.3d 267, 270 (9th 24 Cir. 2013). 25 /// 26 /// 27 /// 28 /// 1 B. 2 1. 3 The Debtors have not shown irreparable injury if the stay is 4 not granted. Debtors contend that if the chapter 13 case was 5 reconverted again to chapter 7 on the chapter 13 trustee’s 6 motion, the chapter 7 trustee would sell the Debtors’ residence 7 causing irreparable damage. Debtors also claim there is no 8 alternative to resist conversion since there are only three 9 months left of their 60-month plan and they are unable to 10 complete the plan. The Debtors present no fact supporting their 11 inability to complete the plan or why they could not have earlier 12 modified the plan. What the Debtors ignore is that this court 13 does not currently have the power to alter the status quo and 14 convert or dismiss the case since that would affect the pending 15 appeal. 16 Simply showing “some possibly of irreparable injury” fails 17 to satisfy this factor. Niken, 556 U.S. at 434-35. The Debtors’ 18 cited cases on this issue either do not support their position or 19 the authority has been rejected by subsequent cases. Abbassi v. 20 I.N.S., 143 F.3d 513 (9th Cir. 1998) has been rejected by the 21 Supreme Court in Niken as too lenient on the irreparable harm 22 factor. See Leiva-Perez v. Holder, 640 F.3d 962, 967-68 (9th 23 Cir. 2011) (holding “the [Debtors’] burden with regard to 24 irreparable harm is higher than it is on the likelihood of 25 success prong, as [the party seeking the stay] must show that an 26 irreparable injury is a more probable or likely outcome”). 27 Debtors only other cited case on this subject , Hilton v. 28 Braunskill, is inapplicable. See 481 U.S. 770, (1987) (applying 1 the traditional stay pending appeal tests to a successful habeas 2 petitioner). Given this court’s current limited power, Debtors 3 have not shown that an irreparable injury is a more probable or 4 more likely outcome. 5 “The filing of a notice of appeal is an event of 6 jurisdictional significance – it confers jurisdiction on the 7 court of appeals and divests the district court of its control 8 over those aspects of the case involved in the appeal.” Marino 9 v. Classic Auto Refinishing, Inc. (In Re Marino), 234 B.R. 767, 10 769 (9th Cir. B.A.P. 1999) (quoting Trulis v. Barton, 107 F.3d 11 685, 694-95 (9th Cir. 1995)). The filing of an appeal will 12 divest the bankruptcy court of jurisdiction to hear and decide 13 matters that will affect the order on appeal. Hill & Sanford, 14 LLP v. Mirzai (In Re Mirzai), 236 B.R. 8, 10 (9th Cir. B.A.P. 15 1999). In the bankruptcy context “[a] pending appeal divests a 16 bankruptcy court of jurisdiction to vacate or modify an order 17 which is on appeal” Marino 234 B.R. at 769. The bankruptcy court 18 must make a distinction between action to enforce the order or 19 judgment on appeal, which actions are permissible, and actions to 20 expand upon or alter the order or judgment on appeal, which 21 actions are impermissible. Id. at 770; Mirzai, 236 B.R. at 10. 22 It is impermissible for the court to alter the judgment that 23 is on appeal. Here, the order denying the motion to reconsider 24 (and presumably the order vacating the dismissal on the chapter 25 13 case) would be altered and modified if the court dismissed the 26 case or converted the case to chapter 7. So, the Debtors suffer 27 no irreparable injury if the stay of proceedings is not granted. 28 The court retains “jurisdiction to take actions that preserve the 1 status quo during the pendency of an appeal,” although the court 2 “may not finally adjudicate substantial rights directly involved 3 in the appeal.” Neary v. Padilla (In Re Padilla), 222 F.3d 1184, 4 1190 (9th Cir. 2000). 5 6 2. 7 Though the Debtors have not shown irreparable injury to 8 support a stay, there is an independent ground to deny this 9 motion. “An exception to the rule divesting the bankruptcy court 10 of jurisdiction upon the appeal recognizes the trial court’s 11 continuing authority to ‘proceed with matters not involved in the 12 appeal’.” Mirzai 236 B.R. at 10 (citing Pyrodyne Corp. v. 13 Pyrotronics Corp., 847 F.2d 1398, 1403 (9th Cir. 1988). 14 Debtors’ stay request here is unlimited. Debtors seek an 15 order staying all proceedings in the bankruptcy case until the 16 bankruptcy appellate panel rules. Thia is far more extensive 17 relief than necessary. The irreparable harm prong has not been 18 met by the Debtors here. But even if it had, there is not a 19 basis to stay all proceedings in the bankruptcy case. For 20 example, an affected party may wish to seek stay relief. The 21 court should not be precluded from acting on that request. The 22 Debtors have alluded to seeking a loan to complete their plan. 23 The pendency of the appeal should not interdict the court from 24 considering a loan request. The “all or nothing” nature of 25 Debtors’ stay request is unsupported. 26 Debtors have not met the first two and most important 27 elements to support a stay pending appeal. Under Niken, this 28 court need go no further in denying the motion. Nevertheless, 1 for the benefit of a reviewing court, the court will briefly 2 review the remaining elements. 3 4 C. 5 The next element looks to the effect a stay will have on 6 third parties interested in the proceeding militates against the 7 stay. The Debtors’ only argument is that there is no substantial 8 damage to staying the entire case because creditors have been 9 paid a majority of their claims. The court disagrees. 10 The plan confirmed in this case calls for 100% payment to 11 unsecured creditors. The Debtors unilaterally decided not to pay 12 the plan payments. Though unsecured creditors have received 13 payments during a majority of the plan term, the plan has not 14 been completed. Further delays are, by themselves, harmful to 15 unsecured creditors. 16 In addition, the breadth of the stay request proposed by the 17 Debtors would preclude claimants with rights in collateral to 18 seek stay relief. Also, other relief requested by the chapter 13 19 trustee or third parties would be precluded if the stay is 20 granted as prayed by the Debtors. If the Debtors’ motion is 21 granted, modification of the plan under § 1329 would also be 22 precluded. 23 On balance, third parties would be injured if the stay as 24 requested by the Debtors was effective. 25 26 D. 27 Finally, the public interest lies with completing the case. 28 The Debtors’ only argument here is that the case will be 1 converted on February 14, 2024, resulting in the sale of the 2 Debtors’ home before the appeal can be decided. Because of those 3 | possibilities, the delay of proceedings is outweighed by the 4 Debtors’ interests. The court has already dealt with the issues 5 concerning its current power to convert the case. 6 This case has been pending since 2019. The Debtors 7 unilaterally chose not to pay the chapter 13 plan payments 8 because, we are told, the Debtors were dissatisfied with a solar 9 system. The Debtors unfortunately conflated their 10 dissatisfaction with a solar company and their duties to continue 11 to make the plan payments. 12 The public interest is to have bankruptcy cases speedily and 13 justly administered and concluded. See Rule 1001. The public 14 interest in finalizing these proceedings in light of the current 15 limits to this court’s power, militate against a stay pending 16 appeal. 17 18 Conclusion 19 For the forgoing reasons, the Debtors’ motion for stay 20 pending appeal shall be DENIED. A separate order shall issue. 21 22 23 24 Dated: Feb 05, 2024 By the Court 25 a“ : bi □□□ ené Lastreto II, Judge 27 United States Bankruptcy Court 28

1 Instructions to Clerk of Court Service List - Not Part of Order/Judgment 2

3 The Clerk of Court is instructed to send the Order/Judgment or other court generated document transmitted herewith to the 4 parties below. The Clerk of Court will send the Order via the BNC or, if checked , via the U.S. mail. 5

6 Antonio Aviles Martha Aviles 7 9365 Bogart Court Delhi CA 95315 8 Lillian G. Tsang 9 P.O. Box 3051 Modesto, CA 95353-3051 10 Peter L. Fear 11 P.O. Box 28490 Fresno CA 93729 12 Office of the U.S. Trustee 13 United States Courthouse 2500 Tulare Street, Room 1401 14 Fresno CA 93721

15 T. Mark O'Toole 1006 H Street 16 Modesto CA 95354

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