                                                                  FILED
                                                                   NOV 07 2014
 1
                                                               SUSAN M. SPRAUL, CLERK
                                                                 U.S. BKCY. APP. PANEL
 2                                                               OF THE NINTH CIRCUIT

 3                  UNITED STATES BANKRUPTCY APPELLATE PANEL
 4                            OF THE NINTH CIRCUIT
 5   In re:                        )      BAP No. CC-14-1056-DKiTa
                                   )
 6   PAUL RICHARD CHERRETT AND     )      Bk. No. RS 13-24792-SC
     COLLEEN COURTNEY CHERRETT,    )
 7                                 )
                    Debtors.       )
 8   ______________________________)
                                   )
 9   ASPEN SKIING COMPANY,         )
                                   )
10                  Appellant,     )
                                   )
11   v.                            )      O P I N I O N
                                   )
12   PAUL RICHARD CHERRETT;        )
     COLLEEN COURTNEY CHERRETT;    )
13   ART CISNEROS, Chapter 7       )
     Trustee,                      )
14                                 )
                    Appellees.     )
15   ______________________________)
16                  Argued and Submitted on October 23, 2014
                                  at Malibu, CA
17
                            Filed -November 7, 2014
18
               Appeal from the United States Bankruptcy Court
19                 for the Central District of California
20       Honorable Scott C. Clarkson, Bankruptcy Judge, Presiding.
21
22   Appearances:     Scott H. Talkov of Reid & Hellyer appeared and
                      argued for appellant Aspen Skiing Co.; Kathleen J.
23                    McCarthy of the Law Office of Thomas H. Casey,
                      Inc. appeared and argued and Leslie Keith Kaufman
24                    of Kaufman & Kaufman appeared for the appellees
                      Paul and Colleen Cherrett.
25
26
27   Before:   DUNN, KIRSCHER, and TAYLOR, Bankruptcy Judges.
28
 1   DUNN, Bankruptcy Judge:
 2
 3         Appellant Aspen Skiing Company (“Aspen”) appeals the
 4   bankruptcy court’s order denying its motion to dismiss Paul and
 5   Colleen Cherretts’ (the “Cherretts”) chapter 7 case under
 6   § 707(b)(1) based on its finding and conclusion that the
 7   Cherretts’ debts were not primarily consumer debts.1     We AFFIRM.
 8                         I.     FACTUAL BACKGROUND
 9   A.   Pre-Bankruptcy Events
10         Paul Cherrett (“Paul”)2 works in the hospitality industry and
11   has worked for a number of employers during his career.
12   Apparently, Paul is good at what he does, and his compensation
13   historically has been high.
14         Beginning in 1998, Paul’s employment compensation packages
15   have included loans to assist him in securing housing.       On
16   January 16, 1998, Paul’s new employer at that time, Four Seasons
17   Hotel - Austin, provided, through its owner, two interest-free
18   loans totaling $150,000 to the Cherretts to assist them in
19   purchasing a residence in Austin, Texas.     The Cherretts
20   subsequently sold their Austin residence on August 9, 2002, for a
21   profit after repaying the senior secured loan and the “employer-
22   sponsored” subordinate loans secured by the property.
23
           1
24           Unless otherwise indicated, all chapter and section
     references are to the federal Bankruptcy Code, 11 U.S.C. §§ 101-
25   1532, and all “Rule” references are to the Federal Rules of
     Bankruptcy Procedure, Rules 1001-9037. All “Civil Rule”
26   references are to the Federal Rules of Civil Procedure.
27         2
             We refer to Mr. Cherrett by his first name for
28   convenience. No disrespect is intended.

                                        -2-
 1        On August 12, 2002, Paul’s new employer, Four Seasons Hotel
 2   - Jackson Hole, provided, through its owner, an interest-free
 3   loan to assist the Cherretts in acquiring a residence in Jackson,
 4   Wyoming (the “Jackson Residence”).    When the Cherretts ultimately
 5   sold the Jackson Residence in 2009, they realized a profit of
 6   approximately $250,000 after paying all liens on the property,
 7   including the employer-sponsored loan.
 8        Paul first was contacted by Aspen in December 2006 to
 9   consider an employment opportunity, but since the open position
10   was essentially comparable to his current job, he thanked Aspen’s
11   representative but indicated that he was not interested.
12   Approximately three months later, Paul received an e-mail from a
13   “headhunter” about a position with Aspen of substantially greater
14   responsibility.   He expressed interest and went through the job
15   interview process.
16        Apparently, Aspen liked what they heard in his interviews,
17   and Paul entered into employment negotiations with Aspen.    The
18   initial salary proposed by Aspen, at least from Paul’s
19   perspective, did not cover the high cost of living/housing in the
20   Aspen, Colorado area.   Ultimately, Paul accepted a written offer
21   of employment from Aspen that included a $300,000 salary, a
22   “signing bonus” of $75,000, participation in an incentive plan
23   for potential additional compensation annually, and the following
24   provisions for a “housing loan” (“Housing Loan”):
25        Your offer includes a housing loan of up to $500,000,
          which would be second to your primary mortgage. This
26        program will include an annual bonus guaranteed to
          offset your tax liability for the interest on this
27        loan, calculated at a 35% tax rate. You will receive a
          guaranteed annual bonus of up to $33,750 to offset the
28        annual interest on this loan, as well as your tax

                                     -3-
 1        liability ($25,000 in interest, $8,750 for taxes,
          assuming principal of $500,000). This bonus will be
 2        paid simultaneous to the date upon which annual
          interest on the loan is due, to ensure you have no
 3        annual out of pocket expenses related to the financing
          of this loan. You will not be required to repay any
 4        additional interest on this loan, if your employment
          with [Aspen] continues through 2015.
 5
 6   In addition, Paul agreed with Aspen that if his employment with
 7   Aspen terminated (other than as a result of death or disability)
 8   or he ceased to reside at the property purchased with the Housing
 9   Loan (either alternative designated as a “Repayment Event”) prior
10   to December 31, 2015, Paul would be required to pay the following
11   amounts in addition to repayment of the Housing Loan:
12        If the Repayment Event occurs in years 1-2, the
          reimbursement amount will be $140,000[;] If the
13        Repayment Event occurs in years 3-4, the reimbursement
          amount will be $120,000; If the Repayment Event occurs
14        in years 5-6, the reimbursement amount will be
          $100,000; If the Repayment Event occurs in years 7-8,
15        the reimbursement amount will be $80,000.
16        An aspect of Paul’s prospective employment with Aspen that
17   particularly interested him was the potential for participating
18   in expanding the “Little Nell Hotel” brand beyond the Aspen,
19   Colorado area.   Aspen owned one Little Nell Hotel, but there was
20   a project already under way to build a new Little Nell Hotel in
21   Jackson Hole, Wyoming.   One of Paul’s roles with Aspen was “to
22   grow the [Little Nell] brand.”
23        Paul went to work for Aspen in the spring of 2007.   When he
24   accepted the job, he realized that he would have to live in the
25   Aspen, Colorado area, at least for a while.
26        In June 2007, the Cherretts purchased a condominium in
27   Basalt, Colorado (“Colorado Residence”) for $995,000, and Paul
28   began living in it.   The Cherretts contributed cash, borrowed

                                      -4-
 1   $417,000 secured by a first trust deed on the Colorado Residence,
 2   and borrowed $500,000, the Housing Loan, from Aspen secured by a
 3   second trust deed, to fund the purchase of the Colorado
 4   Residence.      When he bought the Colorado Residence, Paul hoped
 5   that it would appreciate in value so that when it was sold, the
 6   Cherretts would realize a profit.         Initially, at least, Paul
 7   considered the Colorado Residence to be a “place holder until we
 8   got settled.”      The Cherretts purchased the Colorado Residence at
 9   the “very peak of the real estate bubble.”
10           When the Cherretts bought the Colorado Residence, Mrs.
11   Cherrett (“Colleen”)3 continued to reside in the Jackson
12   Residence.      The Colorado Residence was a 1400 square feet, two
13   bedroom condominium.      The Jackson Residence was a 4,000 square
14   feet, four bedroom house.      The Cherretts have two children.       At
15   the time that they bought the Colorado Residence, their son was
16   graduating from high school and would be off to college in the
17   fall.       However, their daughter had two years more in high school,
18   and Colleen stayed with her at the Jackson Residence until she
19   graduated from high school, by which time, the Jackson Residence
20   was sold.      Colleen did not move to the Colorado Residence until
21   June or July 2009.
22           In the meantime, 2008 brought the recession, and Aspen
23   “pulled the plug” on expanding the Little Nell Hotel brand to
24   Jackson Hole.      In addition, the value of the Colorado Residence
25   plummeted, and the Cherretts’ hopes of realizing a profit on
26
27           3
             Again, we refer to Mrs. Cherrett by her first name for
28   convenience. No disrespect is intended.

                                         -5-
 1   resale evaporated.    Paul remained with Aspen until 2011, when he
 2   resigned from Aspen to go to work for Talisker Mountain Company
 3   (“Talisker”) in Park City, Utah, at a higher level of
 4   compensation.    He worked for Talisker for a year and then
 5   attempted to start his own business.    In April 2013, he accepted
 6   employment with a Hilton company and moved to California.
 7   B.   The Cherretts’ Bankruptcy Proceedings
 8           The Cherretts filed their chapter 7 petition in the
 9   bankruptcy court for the Central District of California on August
10   30, 2013.    In their petition, the Cherretts stated that their
11   debts were primarily “consumer debts,” as defined in § 101(8).
12   The only real property listed on their Schedule A was the
13   Colorado Residence, and on their Schedule D, the Cherretts valued
14   the Colorado Residence at $420,000 and listed two undisputed
15   debts: a $417,000 fully secured first mortgage debt to Everhome
16   Mortgage, and a $550,000 debt to Aspen, of which $547,000 was
17   listed as unsecured.    The only other debts included in the
18   Cherretts’ schedules were two unsecured debts on Schedule F: a
19   $25,444 student loan debt to Sallie Mae, and a $4,200 debt for
20   homeowners association dues.    In their schedules, the Cherretts
21   indicated that they intended to surrender the Colorado Residence.
22           On November 27, 2013, Aspen filed a motion to dismiss
23   (“Motion to Dismiss”) the Cherretts’ chapter 7 case as an abuse
24   under § 707(b)(1) and Rule 1017, arguing that the Cherretts had
25   sufficient projected disposable income to pay all or
26   substantially all of their creditors in full through a chapter 13
27   plan.    Aspen relied on the Cherretts’ admission in their petition
28   that their debts were primarily consumer debts but also cited the

                                       -6-
 1   Ninth Circuit’s decision in Zolg v. Kelly (In re Kelly), 841 F.2d
 2   908, 913 (9th Cir. 1988), for the proposition that, “[i]t is
 3   difficult to conceive of any expenditure that serves a ‘family
 4   . . . or household purpose’ more directly than does the purchase
 5   of a home.”
 6        On December 4, 2013, the Cherretts amended their bankruptcy
 7   petition to state that their debts were primarily business debts.
 8   On the same day, the Cherretts filed their opposition to the
 9   Motion to Dismiss, arguing that their debts (focusing on the
10   Housing Loan debt) were primarily “Non-Consumer” debts.
11   Consequently, § 707(b)(1) did not apply, and their chapter 7 case
12   was not an “abuse.”   They argued that if second mortgage debt,
13   such as the Housing Loan, was incurred for a business purpose or
14   with a profit motive, it was not “consumer debt.”
15        Aspen filed a reply on December 11, 2013, challenging the
16   Cherretts’ credibility and reiterating its position, based on In
17   re Kelly, that debts incurred for the purchase of a personal
18   residence are consumer debts.
19        The bankruptcy court scheduled an evidentiary hearing
20   (“Hearing”) for January 22, 2014 on the Motion to Dismiss,
21   limited to the issue of “whether the debt owed to [Aspen] is a
22   consumer debt or non-consumer debt.”   The parties subsequently
23   exchanged discovery; Aspen’s counsel took the deposition of Paul;
24   and the parties filed trial briefs and evidentiary submissions.
25        At the Hearing, Paul testified and was examined at length by
26   counsel for both Aspen and the Cherretts.   The bankruptcy court
27   then heard argument and engaged in extensive colloquy with
28   counsel.   At the conclusion of the Hearing, the bankruptcy court

                                     -7-
 1   announced its findings and conclusions orally.      Specifically, the
 2   bankruptcy court found that Paul’s purposes in securing the
 3   Housing Loan were primarily employment and business purposes.
 4   Accordingly, the bankruptcy court determined that the Housing
 5   Loan was not consumer debt and denied the Motion to Dismiss.
 6        On February 3, 2014, the bankruptcy court entered an order
 7   (“Order”) denying the Motion to Dismiss for the reasons stated on
 8   the record at the Hearing.     Aspen filed a timely Notice of
 9   Appeal.
10                            II.    JURISDICTION
11        The bankruptcy court had jurisdiction under 28 U.S.C.
12   §§ 1334 and 157(b)(2)(A) and (O).       However, before we can review
13   this appeal, we must consider our own jurisdiction to hear it.
14        We have jurisdiction to hear bankruptcy appeals from final
15   orders, judgments and decrees.    See 28 U.S.C. § 158.     Given the
16   unique nature of bankruptcy proceedings, we apply a pragmatic
17   approach to determine the finality of orders.      Congrejo Invs.,
18   LLC v. Mann (In re Bender), 586 F.3d 1159, 1163 (9th Cir. 2009).
19   A bankruptcy court order is final and thus appealable “‘where it
20   1) resolves and seriously affects substantive rights and 2)
21   finally determines the discrete issue to which it is addressed.’”
22   SS Farms, LLC v. Sharp (In re SK Foods, L.P.), 676 F.3d 798, 802
23   (9th Cir. 2012)(quoting Dye v. Brown (In re AFI Holding, Inc.),
24   530 F.3d 832, 836 (9th Cir. 2008)).
25        Generally, an order denying a motion to dismiss is
26   interlocutory.   Hickman v. Hana (In re Hickman), 384 B.R. 832,
27   836 (9th Cir. BAP 2008)(citing Sherman v. SEC (In re Sherman),
28   491 F.3d 948, 967 n.24 (9th Cir. 2007)(reviewing § 707(a) motion

                                       -8-
 1   to dismiss); and Dunkley v. Rega Props., Ltd. (In re Rega Props.,
 2   Ltd.), 894 F.2d 1136, 1137-39 (9th Cir. 1990)(reviewing § 1112(b)
 3   motion to dismiss)).   But the new provisions added to § 707(b)
 4   under the Bankruptcy Abuse Prevention and Consumer Protection Act
 5   of 2005, Pub. L. 109-8, 119 Stat. 23 (2005)(“BAPCPA”), “manifest
 6   a congressional policy to police all Chapter 7 cases for abuse at
 7   the outset of a Chapter 7 proceeding, and . . . raise pragmatic
 8   considerations that indicate that the denial of a § 707(b) motion
 9   to dismiss is different from the denial of other motions to
10   dismiss [e.g., Civil Rule 12(b) or § 1112(b)(1)-(4) motions].”
11   McDow v. Dudley, 662 F.3d 284, 288 (4th Cir. 2011).    “Section
12   707(b) creates a statutory gateway based on whether the case is
13   abusive, and an order denying that motion to dismiss as abusive,
14   in effect, finally and conclusively resolves the issue.   If the
15   denial of a § 707(b) motion to dismiss cannot be appealed
16   immediately to the district court, the Chapter 7 proceedings
17   would have to be completed before it could be determined whether
18   the proceedings were abusive in the first place.”   Id. at 289-90
19   (citation omitted).
20        The Ninth Circuit has not yet specifically addressed the
21   finality of orders denying motions to dismiss chapter 7 cases for
22   abuse under § 707(b) after BAPCPA.    However, the First, Third,
23   Fourth, Fifth, Seventh and Eighth Circuits consider such orders
24   to be final based on practicality, judicial efficiency and other
25   pragmatic considerations.   See Morse v. Rudler (In re Rudler),
26   576 F.3d 37, 43-44 (1st Cir. 2009)(holding that an order denying
27   a motion to dismiss under § 707(b), “where the dispute at issue
28   turns on a question of law,” is final because delaying

                                     -9-
 1   consideration of the legal question in such an order “may
 2   frustrate both principles of judicial economy and Congress’s goal
 3   of ensuring that debtors allocate as much of their resources as
 4   possible toward repaying their debts. . . . [M]otions to dismiss
 5   for abuse under section 707(b) are subject to statutory
 6   deadlines, presumably foreclosing renewed requests for dismissal
 7   as the Chapter 7 case proceeds.”); In re Christian, 804 F.2d 46,
 8   48 (3d Cir. 1986)(determining it had jurisdiction to review an
 9   order denying a motion to dismiss a chapter 7 case under
10   § 707(b), based on judicial efficiency and practicality, for, if
11   such an order was “not now appealable the entire bankruptcy
12   proceedings must be completed before it can be determined whether
13   they were proper in the first place”); McDow v. Dudley, 662 F.3d
14   at 290 (holding that “pragmatic considerations of preserving
15   resources for creditors in bankruptcy and promoting judicial
16   economy weigh heavily in favor of recognizing the finality of an
17   order denying a § 707(b) motion to dismiss”); U.S. Trustee v.
18   Cortez (In re Cortez), 457 F.3d 448, 453-54 (5th Cir.
19   2006)(determining that a district court’s order remanding a
20   bankruptcy court’s order denying the trustee’s motion to dismiss
21   under § 707(b) is a final order because the remand order left
22   only ministerial tasks for the bankruptcy court); Ross-Tousey v.
23   Neary (In re Ross-Tousey), 549 F.3d 1148, 1152-54 (7th Cir.
24   2008)(determining that the district court’s remand order and the
25   bankruptcy court’s order denying the U.S. Trustee’s motion to
26   dismiss under § 707(b)(2) and (b)(3)(B) were final), abrogated on
27   other grounds by Ransom v. FIA Card Servs., N.A., 562 U.S. 61
28   (2011); Stuart v. Koch (In re Koch), 109 F.3d 1285, 1288 (8th

                                    -10-
 1   Cir. 1997):
 2        If [orders denying dismissal for substantial abuse]
          cannot be appealed, bankruptcy proceedings must ‘be
 3        completed before it can be determined whether they were
          proper in the first place.’ In re Christian, 804 F.2d
 4        [46,] 48 [(3rd Cir. 1986)]. Requiring trustees to
          complete Chapter 7 proceedings before appealing denial
 5        of their § 707(b) motions wastes debtor resources that
          should be used to pay creditors, and forces trustees
 6        and bankruptcy courts to expend their scarce
          institutional resources on abusive Chapter 7
 7        petitioners. Thus ‘the policies of judicial efficiency
          and finality are best served’ by allowing prompt
 8        appellate review of § 707(b) denials. Zolg v. Kelly
          (In re Kelly), 841 F.2d at 911.
 9
10        We agree with the reasoning of the circuits that have
11   addressed the issue regarding the finality of orders denying
12   § 707(b) motions to dismiss.   If such an order is not considered
13   final, the moving party and the debtor will have to wait until
14   the case is completed, which “wastes debtor resources that should
15   be used to pay creditors, and forces trustees and bankruptcy
16   courts to expend their scarce institutional resources on abusive
17   Chapter 7 petitioners.”   McDow, 662 F.3d at 290 (quoting Koch,
18   109 F.3d at 1288)(internal quotation marks omitted).   Moreover,
19   postponing the appeal until the end of the bankruptcy case could
20   result in the need to unwind various administrative actions,
21   likely with some difficulty (e.g., having to revoke the debtor’s
22   discharge, potentially compelling creditors to disgorge
23   distributions made by the trustee).
24        Alternatively, even if the Order is interlocutory, we have
25   jurisdiction to review it because we earlier granted leave to
26   appeal to the extent necessary under 28 U.S.C. § 158(a)(3) based
27
28

                                     -11-
 1   on the pragmatic considerations discussed above.4
 2                                 III.     ISSUE
 3        When denying the Motion to Dismiss for abuse under
 4   § 707(b)(1), did the bankruptcy court err in finding that the
 5   Housing Loan was non-consumer debt?
 6                         IV.   STANDARDS OF REVIEW
 7        We review de novo issues of statutory construction and
 8   conclusions of law, including a bankruptcy court’s interpretation
 9   of the Bankruptcy Code.     Samson v. W. Capital Partners, LLC (In
10   re Blixseth), 684 F.3d 865, 869 (9th Cir. 2012)(per curiam).
11        We review a bankruptcy court’s findings of fact for clear
12   error.   Decker v. Tramiel (In re JTS Corp.), 617 F.3d 1102, 1109
13   (9th Cir. 2010)(quoting Leichty v. Neary (In re Strand), 375 F.3d
14   854, 857 (9th Cir. 2004)).    “We will affirm a [bankruptcy
15   court’s] factual finding unless that finding is illogical,
16   implausible, or without support in inferences that may be drawn
17   from the record.”   U.S. v. Hinkson, 585 F.3d 1247, 1263 (9th Cir.
18   2009) (en banc).    See also Anderson v. City of Bessemer City,
19   N.C., 470 U.S. 564, 574 (1985)(“Where there are two permissible
20   views of the evidence, the factfinder’s choice between them
21   cannot be clearly erroneous.”).        We must accept a bankruptcy
22
23        4
             Aspen filed its opening brief on March 24, 2014. In its
     opening brief, Aspen argued that the Order was final.
24
     Alternatively, Aspen sought leave to appeal.
25        On March 26, 2014, a clerk’s order was issued (“Clerk’s
     Order Re: Finality”), asking the Cherretts to respond to the
26   question of whether the Order was final. After reviewing the
27   Cherretts’ and Aspen’s responses to the Clerk’s Order Re:
     Finality, an order was issued on May 12, 2014, granting leave to
28   appeal to the extent necessary under 28 U.S.C. § 158(a)(3).

                                          -12-
 1   court’s findings of fact unless we have a definite and firm
 2   conviction that a mistake has been committed.    In re JTS Corp.,
 3   617 F.3d at 1109.
 4        We review de novo mixed questions of law and fact.    Id.
 5                               V.   DISCUSSION
 6        Under § 707(b)(1), after notice and a hearing on a motion by
 7   a party in interest, the bankruptcy court may dismiss a chapter 7
 8   case when an individual debtor has primarily consumer debts and
 9   if the bankruptcy court finds that granting relief would be an
10   abuse of the provisions of chapter 7.5    Restated, there are two
11   prerequisites to dismissal under § 707(b)(1): 1) the debtor has
12   primarily consumer debt; and 2) the bankruptcy court finds that
13   granting the debtor’s petition would be an abuse of chapter 7.
14   Price v. U.S. Trustee (In re Price), 353 F.3d 1135, 1138 (9th
15   Cir. 2004).    The moving party bears the burden of proof to
16   support a § 707(b)(1) motion by a preponderance of the evidence.
17   In re Baker, 400 B.R. 594, 597 (Bankr. N.D. Ohio 2009).
18        Only the first § 707(b)(1) prerequisite is at issue in this
19   appeal.    The bankruptcy court denied the Motion to Dismiss
20
21        5
               Section 707(b)(1) provides, in relevant part:
22
          After notice and a hearing, the court, on its own
23        motion or on a motion by the United States trustee,
          trustee (or bankruptcy administrator, if any), or any
24
          party in interest, may dismiss a case filed by an
25        individual debtor under this chapter whose debts are
          primarily consumer debts, or, with the debtor’s
26        consent, convert such a case to a case under chapter 11
27        or 13 of this title, if it finds that the granting of
          relief would be an abuse of the provisions of this
28        chapter. . . .

                                       -13-
 1   because it found that the Cherretts did not have primarily
 2   consumer debt, as the Housing Loan, which formed the bulk of
 3   their debt, was non-consumer debt.         Aspen challenges this fact
 4   finding on two grounds: 1) the Housing Loan is consumer debt as a
 5   matter of law under § 101(8), as interpreted by Zolg v. Kelly (In
 6   re Kelly), 841 F.2d 908 (9th Cir. 1988)(“Kelly”); and 2) the fact
 7   that the Housing Loan was employer-sponsored is irrelevant
 8   because the determination of whether the Housing Loan qualifies
 9   as consumer debt turns on Paul’s purpose.        If Paul’s purpose for
10   incurring the Housing Loan was primarily for personal, family or
11   household use, then the Housing Loan would qualify as consumer
12   debt.       Aspen contends that Paul obtained the Housing Loan
13   specifically to purchase the Colorado Residence as his personal
14   residence.      The Housing Loan thus qualifies as consumer debt.6
15           Given Aspen’s contentions, this appeal turns on whether we
16   agree with the bankruptcy court’s characterization of the Housing
17   Loan as non-consumer debt.      We therefore begin our analysis by
18   examining the definition of “consumer debt” under § 101(8).
19           Section 101(8) defines “consumer debt” as “debt incurred by
20   an individual primarily for a personal, family, or household
21   purpose.”      Consumer debt includes both unsecured and secured
22
23           6
             In its motion to dismiss, Aspen claimed that the
     Cherretts had sufficient disposable income to pay their unsecured
24
     creditors through a chapter 13 plan. However, the Cherretts’
25   schedules, which were signed under penalty of perjury and were
     the sole evidence before the bankruptcy court on this point,
26   indicated that their unsecured debt exceeded the statutory
27   maximum under § 109(e). The Cherretts therefore were potentially
     ineligible for relief under chapter 13, as noted by the
28   bankruptcy court at the Hearing.

                                         -14-
 1   debt.       Kelly, 841 F.2d at 912.   Whether a particular secured debt
 2   is or is not characterized as consumer debt under § 707(b)
 3   depends on the purpose of the debt.          Price, 353 F.3d at 1139;
 4   Kelly, 841 F.2d at 913.      See also Stine v. Flynn (In re Stine),
 5   254 B.R. 244, 249 (9th Cir. BAP 2000)(“It is the purpose for
 6   which the debt was incurred that determines whether it is a
 7   consumer debt.”)(citing Kelly, 841 F.2d at 913)(emphasis added));
 8   Cypher Chiropractic Ctr. v. Runski (In re Runski), 102 F.3d 744,
 9   747 (4th Cir. 1996)(“[C]ourts have concluded uniformly that debt
10   incurred for a business venture or with a profit motive does not
11   fall into the category of debt incurred for ‘personal, family, or
12   household purposes.’”)(citations omitted); and A.L. Lee Mem’l
13   Hosp. v. McFadyen (In re McFadyen), 192 B.R. 328, 333 (Bankr.
14   N.D.N.Y. 1995)(“The courts generally ascribe a business purpose,
15   rather than a personal, family or household purpose to debts
16   which are incurred ‘with an eye toward profit’ and which are
17   ‘motivated for ongoing business requirements.’”)(citations
18   omitted)(emphasis in original).7
19           Aspen insists that Kelly definitively classified all
20   mortgage debt as consumer debt.         It points out that this holding
21   in Kelly was reinforced in Price v. U.S. Trustee (In re Price),
22   353 F.3d 1135, 1139 (9th Cir. 2004).         The Kelly holding therefore
23
24           7
             In a home loan context, an expectation of profit alone,
25   in our view, does not satisfy the Kelly standard for a non-
     consumer debt. It is a truism that every red-blooded American
26   who buys a home expects a profit when it is sold. If that
27   expectation were enough to take home loan debt outside of the
     consumer debt category, the exception would swallow the Kelly
28   rule.

                                           -15-
 1   is the rule of law in the Ninth Circuit.
 2           In Kelly, the debtors filed a petition under chapter 7.
 3   They scheduled $181,350 in assets, $147,000 in debt secured by
 4   mortgages against their home and $25,000 in unsecured debt owed
 5   to certain defendants in a state court action which the debtors
 6   lost.       Kelly, 841 F.2d at 910.    The bankruptcy court sua sponte
 7   found that the debtors owed primarily consumer debts and that
 8   granting them chapter 7 relief would be a substantial abuse
 9   because they could easily pay all of their debts.          It accordingly
10   dismissed the debtors’ chapter 7 case.          After moving for
11   reconsideration with the bankruptcy court, which was denied, the
12   debtors appealed to the BAP, which reversed the bankruptcy court
13   on the ground that the debtors did not have primarily consumer
14   debts because most of their debts were secured by real estate
15   mortgages.      Kelly v. Solot (In re Kelly), 70 B.R. 109, 111-12
16   (9th Cir. BAP 1986).
17           On appeal, the debtors argued that debts secured by real
18   property were never consumer debts.           Because 85% of their debts
19   was secured by their home, the debtors maintained that they could
20   not have primarily consumer debts.           Dismissal under § 707(b) was
21   inappropriate.
22           The Ninth Circuit disagreed with this contention because a
23   literal reading of § 101(8) and related statutes (i.e., § 101(12)
24   and (5)(A)) “inexorably [led] to the conclusion that consumer
25   debt includes secured debt.”8         Kelly, 841 F.2d at 912.   It went on
26
27           8
             The Ninth Circuit issued Kelly years before BAPCPA.
28   Kelly cited § 101(7), 101(4)(A) and (11), which, at the time, set
     forth the definition of “consumer debt,” “claim” and “debt,”
                                                         (continued...)

                                           -16-
 1   to note that secured debt neither was excluded from nor included
 2   in consumer debt automatically.     Id. at 913.   The Ninth Circuit
 3   concluded that it “must look to the purpose of the debt in
 4   determining whether it falls within the statutory definition.”
 5   Id.
 6         Upon review of the debtors’ mortgage debts, the Ninth
 7   Circuit determined that $95,000 consisted of a lien the debtors
 8   assumed in purchasing their home and $32,000 represented a home
 9   equity line of credit incurred for home improvements and the
10   repayment of credit card debts.     Id.   It concluded that all of
11   those debts “fit comfortably within the [Bankruptcy] Code’s
12   definition of consumer debt.”    Id.
13         We acknowledge that on its facts, Kelly characterized
14   mortgage debt as consumer debt.     But Aspen overlooks one of the
15   main points of Kelly:    Kelly held that, “[w]hile secured debt is
16   not automatically excluded from consumer debt, it is not
17   automatically included either.    We must look to the purpose of
18   the debt in determining whether it falls within the statutory
19   definition.”   Id.   (Emphasis added.)    Notably, though Aspen urges
20   us to apply Kelly to the circumstances here without further
21   analysis, it also zeroes in on Paul’s purpose in obtaining the
22   Housing Loan as an alternative basis for reversing the bankruptcy
23   court.
24         Aspen contends that the Cherretts base their
25
26
           8
           (...continued)
27   respectively. Section 101(8), (5)(A) and (12) currently set
28   forth these definitions. Although the numbering of these
     definitions under § 101 has changed, the definitions themselves
     have not since the Ninth Circuit decided Kelly.

                                       -17-
 1   characterization of the Housing Loan as non-consumer debt on
 2   Aspen’s purpose in providing the Housing Loan.     According to
 3   Aspen, the Cherretts argue that the purpose of the Housing Loan
 4   was to augment Paul’s compensation.    In making such an argument,
 5   the Cherretts focus on the lender’s motive.   But, Aspen asserts,
 6   the debtor’s purpose, not the lender’s purpose, is the
 7   controlling determinant under § 101(8).   Section 101(8)
 8   specifically states that consumer debt is debt incurred by an
 9   individual debtor for a personal, family or household purpose.
10   The lender’s motive thus is irrelevant to determining whether a
11   secured debt qualifies as a consumer debt.    Moreover, Aspen
12   contends, if the lender’s motive was the determining factor,
13   every mortgage loan would be non-consumer debt because every
14   lender has a profit motive when it extends a mortgage loan.
15         Aspen further argues that the Cherretts did not incur the
16   Housing Loan for a business purpose.   The Housing Loan did not
17   become a non-consumer debt simply because it was part of Paul’s
18   compensation.   Also, Aspen claims, the Housing Loan was not a
19   condition for his employment.
20         At the Hearing, the bankruptcy court found that “[Paul’s]
21   purpose of securing that debt, or incurring that debt, was for
22   employment purposes.   The man needed to make money.   He wanted to
23   take the job.   He knew he – to leave a [secure] position, he
24   wanted to make more money.”   Tr. of Jan. 22, 2014 hr’g, 103:15-
25   19.   It concluded that Paul incurred the Housing Loan for a
26   business purpose; he “did it so he could work at a very
27   prestigious, top of the line, equal to the Four Seasons, equal to
28   the best hotels in the world [employer] . . . .”    Tr. of Jan. 22,

                                     -18-
 1   2014 hr’g, 104:5-7.   The bankruptcy court therefore ruled that
 2   “primarily this loan was incurred for a business purpose.”    Tr.
 3   of Jan. 22, 2014 hr’g, 103:20.   Based on the record before us, we
 4   perceive no error in the bankruptcy court’s conclusion that
 5   Paul’s primary purpose in obtaining the Housing Loan was for
 6   business (i.e., employment).
 7        As Aspen recognizes, the key factor in determining whether
 8   secured debt is consumer debt lies in the debtor’s purpose in
 9   incurring the secured debt.    Where the debt was incurred for more
10   than one purpose, the primary purpose of the debt will determine
11   its nature.   See, e.g., Price, 353 F.3d at 1139; Swartz v.
12   Strausbaugh (In re Strausbaugh), 376 B.R. 631, 639 (Bankr. S.D.
13   Ohio 2007)(quoting 2 Collier on Bankruptcy ¶ 101.08, at 101-47
14   (Lawrence P. King ed., 15th ed. rev. 2004)(“If a debt is incurred
15   partly for business purposes and partly for personal, family or
16   household purposes, the term ‘primarily’ in the definition
17   suggests that whether the debt is a ‘consumer debt’ should depend
18   upon which purpose predominates.    Presumably, this determination
19   would normally turn on the purpose for which most of the funds
20   were obtained.”)).    Based on the record before us, the bankruptcy
21   court did not err in finding that Paul’s primary purpose in
22   obtaining the Housing Loan was employment related.
23        Paul repeatedly asserted that he obtained the Housing Loan
24   to purchase the Colorado Residence, not only in hopes of
25   realizing a profit on resale, but also because it was an integral
26   part of his entering into employment with Aspen.   He testified at
27   the Hearing that he believed the Housing Loan “was both
28   compensation and [he] certainly expected to profit from

                                      -19-
 1   appreciation.”   Tr. of Jan. 22, 2014 hr’g, 15:16-18.
 2        When he decided to accept employment with Aspen, Paul
 3   “look[ed] at everything in totality[.]”   Tr. of Jan. 22, 2014
 4   hr’g, 53:13.   He considered the salary offered by Aspen, along
 5   with the Housing Loan; together, the salary and the potential for
 6   appreciation in the Colorado Residence “[were] considerably more
 7   than [he] was making” with his previous employer.   Tr. of Jan.
 8   22, 2014 hr’g, 53:14.
 9        In his declaration attached to the Cherretts’ opposition to
10   the Motion to Dismiss, Paul asserted that accepting the position
11   with Aspen required that he move from Jackson, Wyoming to Aspen,
12   Colorado.   Because real estate was expensive in Aspen, Colorado,
13   and his income with Aspen would not allow him to buy real estate
14   there, Aspen offered to help Paul in the purchase of housing.
15   Specifically, he stated that “in lieu of a higher salary,
16   extended in the offer of employment, [Aspen offered] an interest-
17   free loan tied to [his] employment and to be secured by a trust
18   deed against the [real estate] he was to purchase.”     Paul further
19   asserted that, “given the initial salary offered, and in lieu of
20   a higher salary, and specifically to compensate for the higher
21   cost of housing in [Aspen, Colorado], Aspen offered to pay the
22   difference between the purchase price and the amount [he and
23   Colleen] could afford to pay.”
24        At his December 6, 2013 deposition, Paul explained that,
25   when discussing the terms of Aspen’s employment offer, he
26   expressed concern over the cost of living in Aspen, Colorado.     He
27   therefore asked Aspen, “[W]hat other ways could [he] be
28   compensated, for instance, to allow [him] to live in the area[?]”

                                      -20-
 1   Tr. of Dec. 6, 2013 deposition, 10:14-16.   Paul explained that he
 2   had received benefits from his prior employer in Jackson,
 3   Wyoming, that he was not receiving from Aspen.   He then went on
 4   to state that Aspen “offered the [Housing Loan] and the potential
 5   for appreciation in balance and bonus plan.   So, you know, [he]
 6   was looking for a greater net return in time, and one of those –
 7   part of that was appreciation of the home.”   Tr. of Dec. 6, 2013
 8   deposition, 37:22-25, 38:1.
 9        At the Hearing, Paul testified that the Housing Loan was
10   made part of the negotiations for his employment with Aspen.    He
11   stated that he “assume[d] it was because [he] had to weigh the
12   total compensation package, and it either [came] in the form of a
13   salary or other things that convey[ed] with that.”   Tr. of Jan.
14   22, 2014 hr’g, 6:3-5.   He emphasized later at the Hearing that
15   “the solution to let’s say the income that [he] needed to accept
16   the position in Aspen [Colorado] and live in Aspen [Colorado]
17   required that [Aspen] come up with a compensation package that
18   included salary and something else.    So, that’s where the
19   [H]ousing [L]oan came in in the form of a bonus.”    Tr. of Jan.
20   22, 2014 hr’g, 9:12-16.   Paul testified that the Housing Loan was
21   offered instead of a higher salary.    He also testified that Aspen
22   even had characterized the Housing Loan as “a deferred
23   compensation bonus plan.”   Tr. of Jan. 22, 2014 hr’g, 40:21-22.
24        The written offer presented by Aspen supports Paul’s view of
25   the Housing Loan as part of his employment with Aspen.   The
26   written offer provided that it “include[d] a housing loan of up
27   to $500,000.”   It further provided him an annual bonus to offset
28   annual interest on the Housing Loan and his tax liability for the

                                     -21-
 1   interest on the Housing Loan.
 2         Paul further explained that he felt he had no choice but to
 3   purchase the Colorado Residence based on his compensation from
 4   Aspen.   He testified that if he “wanted that compensation plan
 5   and [he] wanted that interest free loan, [he] needed to buy a
 6   home with that money.”   Tr. of Jan. 22, 2014 hr’g, 11:18-20.        He
 7   believed that “[Aspen] said if [he] want[ed] to work here [in
 8   Aspen, Colorado], here’s [his] compensation plan.      This is what
 9   [he could] do with the money.   So, [he] had to buy a home with
10   it.   There was no other way [the offer] was written.”     Tr. of
11   Jan. 22, 2014 hr’g, 11:22-24.   Paul explained that it “made more
12   economic sense to [Aspen] to give [him] a housing loan and pay
13   [him] a certain wage,” given the high cost of rent and the amount
14   of compensation offered by Aspen.       Tr. of Jan. 22, 2014 hr’g,
15   38:25, 39:1-2.   He thus purchased the Colorado Residence “because
16   it just seemed like it was the most cost effective and . . . a
17   financially advantageous route to take.”      Tr. of Jan. 22, 2014
18   hr’g, 39:2-4.
19         At his deposition, Paul stressed that the “only thing [he]
20   could have benefitted from was the appreciation of the [Colorado
21   Residence].”    Tr. of Dec. 6, 2013 deposition, 39:5-6.    “[T]he
22   benefit to [him] would have been at the end when the [Colorado
23   Residence] was sold that [he] had some type of appreciation.”
24   Tr. of Dec. 6, 2013 deposition, 39:8-10.      He further explained
25   that he had a profit motive in purchasing the Colorado Residence
26   because “at the time housing prices were skyrocketing, and so the
27   opportunity there was to benefit from that increasing market.”
28   Tr. of Dec. 6, 2013 deposition, 91:19-21.

                                      -22-
 1        Paul provided ample evidence that he obtained the Housing
 2   Loan for a business purpose with respect to his employment with
 3   Aspen.   Given his testimony at the Hearing, his deposition and
 4   his declaration, as well as the written offer of employment from
 5   Aspen, the bankruptcy court had sufficient evidence to find that
 6   Paul’s purpose in obtaining the Housing Loan was primarily
 7   related to his employment.   We discern no clear error by the
 8   bankruptcy court in making that determination.
 9                              VI.   CONCLUSION
10        To dismiss a chapter 7 case for abuse under § 707(b)(1), the
11   bankruptcy court must find that: 1) the debtor had primarily
12   consumer debt and 2) granting his petition would be an abuse of
13   chapter 7.   Only the first prerequisite is at issue on appeal.
14   Here, the Cherretts provided ample evidence through Paul’s
15   testimony at the Hearing, at his deposition and in his
16   declaration, that their purpose in obtaining the Housing Loan was
17   primarily business/employment-oriented.       Based on the evidence
18   before it, the bankruptcy court did not clearly err in finding
19   that the Housing Loan was not consumer debt within the meaning of
20   § 101(8).    The bankruptcy court properly denied the Motion to
21   Dismiss when it determined that the first prerequisite of
22   § 707(b)(1) was not met.   We AFFIRM.
23
24
25
26
27
28

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