In Re: Even St. Productions Ltd. et al

Filing 40

MINUTE ORDER IN CHAMBERS by Judge Jesus G. Bernal: Order (1) REVERSING the Bankruptcy Court Order Releasing Royalties to Debtors; and (2) REMANDING for Consideration of Developments in the Royalties Ownership Dispute. Case number: 2:13-bk-24363-WB, Adversary number: none. SEE DOCUMENT FOR FURTHER INFORMATION. (MD JS-6. Case Terminated). (twdb)

JS-6
cc: USBK
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES—GENERAL

LACV 17-1756 JGB

Case No.

Date August 6, 2020

Title In re Even St. Productions Ltd., et al.
Present: The Honorable

JESUS G. BERNAL, UNITED STATES DISTRICT JUDGE

MAYNOR GALVEZ

Not Reported

Deputy Clerk

Court Reporter

Attorney(s) Present for Plaintiff(s):

Attorney(s) Present for Defendant(s):

None Present

None Present

Proceedings:

Order (1) REVERSING the Bankruptcy Court Order Releasing Royalties
to Debtors; and (2) REMANDING for Consideration of Developments in
the Royalties Ownership Dispute (IN CHAMBERS)

Appellants Virginia Pope (“Pope”) and Majoken, Inc. (“Roberts Majoken” or “Non-debtor
Majoken”) (collectively “Appellants”) appealed an order from the United States Bankruptcy
Court for the Central District of California releasing royalties in possession of Broadcast Music,
Inc. (“BMI”) to co-Debtors Even St. Productions Ltd. (“Even St.”) and Majoken, Inc
(“Goldstein Majoken” or “Debtor-Majoken”), (collectively “Debtors” or “Appellees”) and
directing payment of future royalties to Debtors.1
The Court finds this matter appropriate for resolution without a hearing. See Fed. R. Civ. P.
78; L.R. 7-15. After considering the papers filed in support of, and in opposition to, the appeal,
the Court REVERSES the Bankruptcy Court Order, and REMANDS for consideration of the
current state of the royalties ownership dispute.
//
//
//
1

Appellant Roberts Majoken is not the same as the co-Debtor Goldstein Majoken,
although both are listed as “Majoken, Inc.” on the docket. Also, in a separately filed appeal that
recently settled, Case No. 17-1424, BMI appealed the same decision, and the appellees there
were the same as here, co-Debtors Event St. and Goldstein Majoken.
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I. BACKGROUND
A. The Appeal
Two separate appeals were filed from the Bankruptcy Court’s turnover order,
(“Turnover Order,” Dkt. No. 1), which involves the ownership of performance royalties. BMI,
the administrator of the royalties, commenced the first appeal in February 2017, Case No. 17-CV01424-JGB (“BMI Docket”). That appeal recently settled. (See BMI Dkt. Nos. 1, 30, 31.) The
instant appeal was filed by Appellants Pope and Roberts Majoken, Case No. 17-CV-1756-JGB.
The Appellees in both cases are Debtors Even St. and Goldstein Majoken.2 In the BMI appeal,
BMI filed an appendix containing the record, which the parties reference in this appeal. (“BMI
Appendix,” BMI Dkt. No. 12.)
Appellants filed their notice of appeal after BMI, on March 3, 2017. (Dkt. No. 1.) They
filed their opening brief on June 30, 2017. (“Pope Appeal,” Pope Dkt. No. 16.) Appellants filed
two supplemental appendices of the record. (“Pope Appendix,” Dkt. Nos. 17, 22.) Appellees
responded on July 28, 2017. (“Appellee Pope Brief (APB)),” Pope Dkt. No. 20.) Appellants
replied on August 8, 2017. (“Pope Reply,” Dkt. No. 21.)
The case involves multiple parties disputing the royalty streams from the music of
Sylvester Stewart and the musical group Sly and the Family Stone. Since 2010, the parties have
engaged in extensive state court litigation over the assignments and ownership of the royalties.
The history of these disputes is long and complex, involving state and federal courts and private
arbitration, and the Court sets forth only the relevant facts to the instant appeal. The cause of
the dispute is that Stewart assigned his royalties to two different entities who are now fighting
over who owns them. Appellees are Chapter 11 Debtors and they want the royalties to be
available as part of their bankruptcy estate. Appellants contend the royalties are theirs and
cannot be turned over as estate property. BMI is the entity that collects and distributes the
royalties. It held the funds and was the target of the Turnover Order.
B. Stewart’s Seemingly Incommensurable Assignments of Royalties
To repay his debts, Stewart executed an assignment of his performance royalties
(“Royalties”), which are administered by BMI, to his then-manager Ken Roberts and/or Ken
Roberts Enterprises on January 30, 1976. (BMI Appendix at 489.) Under the 1976 assignment,
all payments to be made by BMI were assigned to Roberts. Later, on April 10, 1979, Stewart and
Roberts executed a new agreement with BMI to direct all payments to Majoken, Inc. (“Roberts
Majoken”) as the successor to Ken Roberts Enterprises. (Id. at 491.)

2

The Pope Docket indicates that BMI is the appellee, but BMI is merely a party to this
appeal and has not filed a brief. (See, e.g., Dkt. No. 1; Dkt. No. 20 (Appellees’ Opening Brief,
filed by Co-Debtors Event St. and Goldstein Majoken).) As noted above, the case in which BMI
is an appellant has settled. (BMI Dkt. Nos. 30, 31.)
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In 1983, the Internal Revenue Service (IRS) issued a levy on Stewart’s Royalties. Then,
in 1988, Stewart met Gerald Goldstein, another music manager. Goldstein formed Even St.
Productions, Ltd. (“Even St.”) to manage Stewart’s career. In 1989, Stewart assigned Even St.,
his publishing, record, and performance royalties, the last of which are the Royalties at issue here.
(Id. at 194, 509-10 (the “assignment shall include . . . [a]ny royalty or other income now due, past
due, or to become due from [BMI] including but not limited to publisher’s performance royalties
and income”).)
In 1992, Roberts Majoken dissolved and Roberts transferred the royalty payments back to
himself. In 1996, the IRS tax levy on Stewart’s Royalties was lifted. Goldstein then formed his
own Majoken, Inc. (“Goldstein Majoken”). In August 1996, Goldstein’s attorney wrote to BMI
claiming his Majoken, Inc. was a loan-out corporation of Stewart and demanded the Royalties.
(Pope Appendix at 23.) BMI paid Goldstein Majoken the Royalties from 1996 to 2009. (Id. at 3738.)
In 2009, Roberts Majoken was revived. On January 7, 2010, Roberts made a declaration
from the hospital that instructed BMI to pay the Royalties to Allan Law Group Professional
Corporation (“Allan Law”) in trust for Stewart. (BMI Appendix at 216-17, 509-10 (“I . . . hereby
authorize and irrevocably instruct BMI to pay any and all performance royalties on the catalogue
of “works” written or published . . . by Sly Stone to Allen Law Group . . . in Trust for
[Stewart].”)
C. State Court Litigation
In late January 2010, Roberts and Stewart filed a state action against Goldstein, Debtors,
and others for, among other claims, diversion of the performance royalties. (Id. at 395-554.) The
action asserts claims against Debtors for conversion, arising from the diversion of royalties from
1996-2009. (Id.) The case wound its way up and down the state courts over the subsequent
years. Of note to these appeals, on June 19, 2014, after Roberts died, the trial court ordered Pope
as Roberts’ successor. (Id. at 571-99.)
Two pleadings in the underlying State Court litigation are relevant: a fourth amended
complaint (“4AC,” id. at 395-482), and a second amended cross complaint, (“SACC,” id. at
601-17). The 4AC includes claims by Roberts against Debtors for conversion arising from the
diversion of performance royalties from 1996-2009, for breach of contract, and for declaratory
relief. (4AC ¶¶ 282-89.) The thirty-fourth cause of action was by Roberts against BMI for
breach of contract and the thirty fifth was for declaratory relief arising from those payments. (Id.
¶¶ 416-36.)
Debtors filed the SACC against Roberts. The SACC included a claim for declaratory
relief that Debtors acquired right, title and interest in and to Stewart’s Royalties under the 1989
assignment. (SACC ¶¶ 74-80.)

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On August 19, 2014, the state court granted Roberts/Pope’s motion for summary
judgment on the six causes of action in the SACC , finding the 1976 assignment to Roberts was
“unconditional, irrevocable and absolute.” (Id. at 684-89.) The court noted that Even St. could
not raise any triable issue of material fact to support the claim that it was the only rightful
recipient of the Royalties. (Id.) The court also held that because the 1976 assignment was
irrevocable, Stewart was unable to assign those same rights in the 1989 assignment to Even St.
(Id.) The court thus held that the rightful owner of the BMI royalties from January 30, 1976
through 2009 was Roberts. (Id.) The state court did not directly address the period after the
January 7, 2010 hospital bed declaration, because the 4AC included no allegations on the subject
and a challenge to the declaration was being arbitrated. (Pope Appeal at 9 n.2.) The
interlocutory judgment in favor of Roberts was entered on December 19, 2014. (BMI Appendix
at 691-701.)
In March 2015, the trial court conducted a bench trial on the remaining claims. (BMI
Appendix at 703.) The court issued two decisions. On February 24, 2016 in a Statement of
Decision on Stewart’s claim for declaratory relief, the court found the 1989 assignment was not
void just because Stewart had assigned the royalties previously in the 1976 assignment. (Id. at
242-45.) Rather, the court found the 1989 assignment transferred “whatever interest he may have
had tin [sic] the royalties” (italics in original). (Id. at 244.) The royalties encompassed by the
1989 assignment were those that Stewart “now has or to which the Assignor may become
entitled.” (Id.) Then the court stated, “The 1989 Assignment remains in effect and royalties
under that assignment are owned by Even St. Productions and [Goldstein Majoken].” (Id.)
The next day, on February 25, 2016 the state court issued another Statement of Decision,
on Pope’s claim of conspiracy against Debtors and Goldstein. (Id. at 703-8.) The Court found in
favor of the latter on Pope’s claim. (Id. at 708.)
On May 10, 2016, the trial court entered final judgment. (Id. at 229.) The judgment
recited that on August 19, 2014 it had granted summary judgment in favor of Pope and against
Even St. on the sixth cause of action in the SACC and had rendered an interlocutory judgment in
favor of Pope and against Even St. on the SACC on December 19, 2014. (Id. at 228-30.) The
court then found in favor of Goldstein and Debtors on the causes of action asserted by Pope in
the 4AC, declaring that she shall “take nothing” from Debtors on those claims. (Id. at 230.)
Both Debtors and Pope appealed the December 2014 interlocutory judgment and the May
2016 final judgment. A retrial was set for August 14, 2017, including the claim for declaratory
relief as to who owned the present performance royalties. However, the retrial was vacated and
continued.3
3

Appellants state the retrial of claims against BMI, including a prayer to declare who
owns the Royalties presently and for damages and declaratory relief regarding events in and after
2010, was scheduled to commence on August 14, 2017. (Pope Appeal at 13.) The Court notes
the state court docket for California Superior Court for Los Angeles County, Case No.
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In September 2016, Debtors and Stewart attended a mediation and agreed to a settlement
between themselves, resolving their claims against each other. The settlement included the
statement “Stewart, Debtors, and, if necessary, the Goldstein Parties shall jointly instruct BMI
to deliver the BMI royalties to the Royalty Account.” (BMI Appendix at 251.) The bankruptcy
court approved the settlement on November 15, 2016. (Id. at 177.)
D. Bankruptcy Court Turnover Order
In May 2013, Debtors filed their Chapter 11 bankruptcy petitions. (Dkt. No. 1.) On
August 13, 2015, Debtors filed a motion for an order directing BMI to turn over the Royalties
being held in escrow to Debtors and to pay future Royalties to Debtors. (BMI Appendix at 1643.) The Bankruptcy Court held a hearing on September 3, 2015 on the motion, denying the
motion because Debtors had “not met that burden” of establishing a “right to the funds.” (Id. at
161-63.) On September 14, 2015 the Bankruptcy Court entered an order denying the motion.
(Id.)
On December 22, 2016, Debtors filed a renewed motion for an order releasing the
Royalties and directing payment of future Royalties to them. (Id. at 164-83.) Crucially, they
sought turnover of Royalties accruing in and after 2010. (Id. at 170.) Debtors argued the January
7, 2010 Roberts hospital declaration, combined with the 1989 assignment, resulted in those
Royalties being assigned to them. (Id. at 164-83.) BMI opposed the motion for turnover, (id. at
265), as did Pope, (id. at 361).
On January 12 and February 2, 2017, the court held hearings on the turnover motion. (Id.
at 856, 899.) At the February 2, 2017 hearing, the Bankruptcy Court granted the motion, stating,
“I think the Debtor has established that the Debtor has ownership right in these funds based on
the judgments that have been entered in the state court in favor of the Debtor.” (Id. 899-912.)
The Court entered its Turnover Order granting the motion on February 22, 2017. BMI
complied with the Order and deposited the royalties into a bank account for Goldstein Majoken.
BMI and Appellants filed separate appeals.
II.

STANDARD OF REVIEW

Federal district courts generally have jurisdiction over appeals of “final judgments, orders,
and decrees” of bankruptcy courts under Title 28 U.S.C. Section 158(a). 28 U.S.C. § 158(a). A
bankruptcy court’s conclusions of law are reviewed de novo. In re S. Cal. Sunbelt Developers,
Inc., 608 F.3d 456, 461 (9th Cir. 2010). Whether property is property of the estate is a question
BC430809, shows the jury trial is scheduled for October 5, 2020. See Mesa Grande Band of
Mission Indians v. Salazar, 657 F. Supp. 2d 1169, 1172 (S.D. Cal. 2009) (“The Court may also
properly take judicial notice, even sua sponte, of matters capable of accurate and ready
determination by resort to sources whose accuracy cannot reasonably by questioned.”). This is
not a fact the Bankruptcy Court would have been aware of.
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of law reviewed de novo. Warfield v. Salazar, 465 B.R. 875, 877-78 (B.A.P. 9th Cir. 2012). A
bankruptcy court’s findings of fact are reviewed for clear error. Higgins v. Vortex Fishing
Systems, Inc., 379 F.3d 701, 705 (9th Cir. 2004).
III. DISCUSSION
Appellants raise two arguments in their appeal: (1) the Bankruptcy Court erred in
considering and ruling on the Debtor’s second turnover motion, and (2) the Bankruptcy Court
erred in granting the Debtor’s second turnover motion. (Pope Appeal at 21, 26.) Appellees
respond, first that the Court is without jurisdiction to hear these appeals. (See APB at 2-3.)
They then reiterate their view that Debtors’ interest in the Royalties constitutes property of the
bankruptcy estate and that the Royalties were properly subject to turnover. (See APB at 20-23.)
The Court determines that it has appellate jurisdiction. The Bankruptcy Court did not
abuse its discretion in considering the renewed turnover motion. However, the Court finds after
de novo review that Debtors failed to establish a property right in the Royalties, the ownership of
which was actively in dispute, and reverses and remands on this basis.
A. The Court’s Appellate Jurisdiction
Appellees argue the Court lacks jurisdiction over Appellants’ appeal because the
Turnover Order was not a final order and is not an appealable interlocutory order. (See APB at
6.) In particular, Appellees contend the Order is not final and appealable because the Bankruptcy
Court did not make “any determination” as to the ownership of the Royalties. (Id. at 2.) In fact,
the Bankruptcy Court stated, “the Debtor has established that the Debtor has ownership right in
these funds based on the judgments that have been entered in the state court in favor of the
Debtor.” (Id. 899-912.)
A final decision is typically one that “ends the litigation on the merits and leaves nothing
for the court to do but execute the judgment.” In re Frontier Properties, Inc., 979 F.2d 1358,
1362 (9th Cir. 1992) (quoting Caitlin v. United States, 324 U.S. 229, 233 (1945)). In bankruptcy,
the Ninth Circuit also employs a “pragmatic” and “flexible” approach to finality. Id. at 1363. A
bankruptcy order is considered final where it “1) resolves and seriously affects substantive rights
and 2) finally determines the discrete issue to which is it addressed.” In re SK Foods, L.P., 676
F.3d 798, 802 (9th Cir. 2012) (citing In re AFI Holding, 530 F.3d 832, 836 (9th Cir. 2008)).
Courts have held that turnover orders are final and appealable. See, e.g., In re Stasz, 520
Fed. App’x 547, 547 (9th Cir. 2013); In re Moody, 817 F.2d 365, 368 (5th Cir. 1987); In re
Wengerd, 453 B.R. 243, 245 (B.A.P. 6th Cir. 2011). Appellees attempt to distinguish between
turnover orders in the case law and the Turnover Order in this case by arguing it did not involve a
“final determinations regarding ownership of the turned over property and did not prohibit the
use of the turned over property.” (APB at 3.) Appellees liken the Turnover Order to the
establishment of an interpleader account, and cite only one case on interlocutory orders which
did not involve a turnover at all. (Id.)
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Appellees’ attempts to distinguish the case law are unpersuasive. The Turnover Order
considered the question of whether Debtors had more likely than not established an ownership
right in the royalties, and then mandated that BMI turn the disputed funds over to Debtors as
estate property. In re Kana, 478 B.R. 373, 383 (Bankr. D.N.D. 2012) (concluding the bankruptcy
court’s order denying the motion for turnover was a final order, because it resolved the question
of whether the debtors’ interest in the property must be turned over to the Trustee as estate
property). Even if the Bankruptcy Court did not make a final determination on ownership of the
Royalties, its Order had that effect by requiring BMI to relinquish possession of the Royalties to
Debtors. Although the Order prohibited Debtors from using the Royalties without authorization
by the court, the Royalties were ordered placed in a Goldstein Majoken bank account.
An order “requiring the turnover and accounting of property . . . resolves and seriously
affects substantive rights.” Navajo Nation v. Krystal Energy Co., Inc., 2008 WL 2477084, at *3
(D. Ariz. June 18, 2008). BMI has already complied with the Order, turning over the Royalties to
Debtors. Thus, the parties do not have to engage in “protracted litigation before the . . . order
will have any direct impact in the case.” Mosier v. United Educ. & Software, 285 B.R. 442, 445
(C.D. Cal. 2002) (stating an order that would lead the parties into protracted litigation before
having a direct impact generally does not affect substantive rights). For these reasons, the Court
finds the Turnover Order releasing the Royalties to Debtors is final and appealable.
B. The Bankruptcy Court’s Decision to Consider the Motion
Appellants contend the Bankruptcy Court should have declined to hear Appellees’
second turnover motion. (Pope Appeal at 20-21.) They stress that the second motion was not
based upon any new facts or law, in violation of Local Bankruptcy Rule 9013-1(l). (Id. at 21.)
A court’s interpretation and application of a local rule is reviewed for an abuse of
discretion. United States v. Heller, 551 F.3d 1108, 1111 (9th Cir. 2009). A bankruptcy court
abuses its discretion if it applies the wrong legal standard or its findings were illogical, implausible
or without support in the record. TrafficSchool.com, Inc. v. Edriver Inc., 653 F.3d 820, 832 (9th
Cir. 2011).
In this case, the Bankruptcy Court did not abuse its discretion in applying L.B.R. 90131(l). Local Bankruptcy Rule 9013-1(l) requires a party making a subsequent motion for an order
or relief the court has already denied in whole or in part to set forth:
(1) The date of the prior motion; (2) The identity of the judge to whom the prior
motion was made; (3) The ruling, decision or order on the prior motion; (4) The
new or different facts and circumstances claimed to exist, which either did not
exist or were not shown upon the prior motion; and (5) The new or different law
or legal precedent claimed to exist, which either did not exist or were not shown
upon the prior motion.

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L.B.R. 9013-1(l). Appellees assert their motion was brought based upon “at least three new
critical facts since the first turnover motion was denied” in September 2015. (APB at 18.) Those
three facts were: (1) the May 10, 2016 state court final judgment against the Pope Parties, (2)
Stewart’s settlement agreement with Debtors that the Royalties should be paid to Debtors, not to
himself, and (3) Debtors’ proposed reorganization in their bankruptcy cases. (Id. at 18-19.)
Appellants contend these facts are “new desires” or “‘new’ in a narrow chronological sense, but
not ‘new’ in meaning.” (Pope Appeal at 21.)
Local Bankruptcy Rule 9013-1(l) requires movants to include in any renewed motion the
“new or different facts and circumstances” and “new or different law or legal precedent” that
did not exist or were not shown in the earlier motion. L.B.R. 9013-1(l). Appellants fail to point
the Court to any authority restricting the understanding of Rule 9013-1(l) to “new in meaning”
facts or law. Debtors justified their renewed motion based upon new chronological events,
including a new settlement and a new state court judgment. The Rule does not plainly prohibit a
motion on these grounds. Therefore, the bankruptcy court did not abuse its discretion by
considering Debtors’ second turnover motion.
C. The Bankruptcy Court’s Turnover Order
This case hinges on whether the Debtor’s estate had a property right in the Royalties
accrued starting January 7, 2010 and future Royalties collected by BMI. Whether the Royalties
were property of the estate to be turned over is a question of law, which the Court reviews de
novo. See In re Wharton, 563 B.R. 289, 295 (B.A.P. 9th Cir. 2017). The Court concludes that
the Bankruptcy Court erred when it decided Debtors had an ownership right in the Royalties.
1. Estate Property and Turnover
Once the bankruptcy petition is filed, property rights which belong to the debtor become
assets of the estate. 11 U.S.C § 541(a). Bankruptcy code defines property of the bankruptcy
estate to include “all legal or equitable interests of the debtor in property as of the
commencement of the case.” 11 U.S.C. § 541(a)(1); In re Folks, 211 B.R. 378, 384 (9th Cir. BAP
1997). Although federal law defines estate property as including “legal and equitable interests”
of the debtor, state law controls whether the debtor has a legal or equitable interest in the
property at the time the bankruptcy case is filed.4 Butner v. United States, 440 U.S. 48, 55
(1979). In In re Harrell, 73 F.3d 218, 219 (9th Cir. 1996), the Ninth Circuit stated that before
deciding what interests of the debtor belong to the estate under Code Section 541(a), the
threshold questions of the existence and scope of the debtor’s interest in the property should be
determined under state law. Id.

4

Property interests have an independent legal source, antecedent to the distributive rules
of bankruptcy administration, that determines, in the first instance, the interests of claimant
parties in particular property. See Raleigh v. Illinois Dep’t of Revenue, 530 U.S. 15, 20 (2000);
Butner v. United States, 440 U.S. 48, 55 (1979).
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Turnover under 11 U.S.C. § 542 requires a noncustodial entity in possession of estate
property5 to deliver that property to the trustee, subject to certain exceptions not applicable here.
11 U.S.C. § 542(a). To support a cause of action for turnover, the trustee—or in this Chapter 11
case, the debtor-in-possession, 11 U.S.C. § 1107(a)—has the burden of proof, by a preponderance
of the evidence, to establish that: (1) the property is in the possession, custody, or control of a
noncustodial third party; (2) the property constitutes property of the estate; (3) the property is of
the type that the trustee could use, sell or lease pursuant to Section 363 or that the debtor could
exempt under Section 522, and (4) that the property is not of inconsequential value or benefit to
the estate. In re Jacobson, 676 F.3d 1193, 1200–01 (9th Cir. 2012); In re Process Am., Inc., 588
B.R. 82, 98 (Bankr. C.D. Cal. 2018) (citing 5–542 Collier on Bankruptcy P 542.02 (16th Ed.,
2013)). Only the second prong—that the property constitutes the property of the estate—has
been questioned on appeal. Thus, the Court must examine whether Debtors established by a
preponderance of the evidence a legal or equitable interest in the Royalties, and whether the
property was subject to turnover.6
2. The Parties’ Contentions
Appellants argue the Bankruptcy Court erred in granting Debtors’ second turnover
motion. They contend the Bankruptcy Court erred in finding Debtors had established ownership
over the Royalties. (See Pope Appeal at 27.) Appellees counter that the Bankruptcy Court
correctly held Debtors had a property interest in the Royalties. They contend the disputed
property interest constitutes “property of the estate,” and so the Royalties had to be turned as
part of the bankruptcy proceeding. (See APB at 21-22.)
3. Analysis
Debtors moved for turnover of post-January 7, 2010 BMI Royalties based on their
asserted “legal and equitable rights” pursuant to the 1989 assignment. (BMI Appendix at 177
(invoking Section 541 of the Bankruptcy Code) (emphasis added).) However, Section 541(a)
speaks of legal or equitable “interest” and does not specify what this does or does not
encompass. The next section, Section 542(a), provides for turnover not of any estate property
whatsoever, but “property that the trustee may use, sell, or lease under [S]ection 363 of this title,
or that the debtor may exempt under [S]ection 522.” 11 U.S.C. § 542(a).
Debtors explained in their second turnover motion that BMI would not release the
Royalties without an order, because the Pope Parties disputed Debtor’s ownership of the

5

Here, that entity is BMI, the nonprofit entity that collects the Royalties and makes
payments to the owner, or as the owner directs.
6

Appellants do not raise, and the Court does not consider, whether the Royalties were an
interest “as of the commencement of the [bankruptcy case].” 11 U.S.C. § 541(a)(1).
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Royalties in underlying litigation.7 Nevertheless, the Bankruptcy Court ordered BMI to turn over
and pay to Debtors the Royalties accrued from January 7, 2010, which BMI administered and
possessed, and ordered Debtors to place the funds into a segregated bank account. (Dkt. No. 1.)
In so doing, the Bankruptcy Court did not provide its reasoning or a state-law analysis. (Id.) In
the February 2, 2017 hearing on the turnover motion, the Bankruptcy Court stated briefly, “the
Debtor has established that the Debtor has ownership right in these funds based on the
judgments that have been entered in the state court in favor of the Debtor.” (BMI Appendix at
912 (emphasis added).)
It is unclear how the Bankruptcy Court arrived at this conclusion, and on de novo review,
the Court arrives at a different result. The state court judgments did not determine Debtors were
entitled to the Royalties accrued from January 7, 2010 forward, for at least four reasons. First,
the state court judgment holding the 1989 assignment to Debtors was valid merely stated the
assignment transferred “whatever” interest Roberts “may have had” in the Royalties. (BMI
Appendix at 244.) Although the state court went on to say the “royalties under that [1989]
assignment” were owned by Even St. and Goldstein Majoken, the state court did not
unambiguously decide what royalties, if any, these were, or might in the future be. (Id. at 244
(noting the royalties encompassed by the assignment were those Stewart “now has or may
become entitled”).)
Second, the state court’s conclusions on the 1989 assignment were stated in negative
terms: the 1989 assignment was deemed not unconscionable and “not void.” (Id. at 242-45).
The decision neglects to state what effect the “not void” 1989 assignment had or could have in
the future. (Id.)
Third, and most important, the referenced state court judgments did not determine any
claim regarding ownership of the post-January 2010 Royalties. Those were the only Royalties at
issue in the second turnover motion, and the state court had not considered the effect, if any, of
the January 7, 2010 declaration. Yet, Debtors rely on this declaration for their theory that the
Royalties necessarily pass to them.8
7

(BMI Appendix at 178, 187, 188-89 (noting Robert’s claims to pursue BMI were
reinstated by the California Court of Appeal in May 2013, and that Pope and Roberts Majoken’s
claims against BMI to enforce Stewart’s assignments were set for a new trial and that BMI may
assert additional indemnification claims against Debtors, and noting Debtors had appealed the
December 19, 2014 summary judgment against them and Pope had appealed the May 10, 2016
final judgment).)
8

Debtors’ theory is that Roberts’s January 7, 2010 hospital bed declaration irrevocably
instructed BMI to pay all future Royalties to Allan Law in trust for Stewart, and then Stewart
agreed in a settlement with Debtors to pay the Royalties to Debtors. (APB at 21.) Appellants
poke some holes in this theory that the Court need not consider here. It is sufficient to observe
that the state court judgments the Bankruptcy Court believed established Debtors’ ownership
rights include no reference to the January 2010 declaration.
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Fourth, at the time of the Turnover Order, the status of the post-January 2010 Royalties
was being litigated in state court. Just before the Bankruptcy Court’s second hearing on the
second turnover motion, the state court granted Pope leave to reinstate the thirty-fifth cause of
action.9 If the state court’s judgment on the 1989 assignment had established Debtors’
ownership rights, then it likely would not have allowed reinstatement of the thirty-fifth cause of
action. In addition, the claims between Debtors and BMI had been held in abeyance. (Id. at 9095.) Thus, the Bankruptcy Court’s conclusion that “Debtor has established that the Debtor has
ownership right in these funds based on the judgments that have been entered in the state court,”
and the issuance of the Turnover Order on this basis, were in error.10
Underlying the extensive litigation surrounding these Royalties are contract disputes:
who assigned what rights to who and when. Turnover is the incorrect method to decide such
disputes. In re Charter Co., 913 F.2d 1575, 1579 (11th Cir. 1990) (“Turnover proceedings are not
to be used to liquidate disputed contract claims . . . .Clearly, Congress envisioned the turnover
provision of [Section] 542 of the Code . . . to apply to tangible property and money due to the
debtor without dispute which are fully matured and payable on demand.”) (citations omitted);
Matter of Chick Smith Ford, Inc., 46 B.R. 515, 518 (Bankr. M.D. Fla. 1985) (“[T]o extend the
proposition urged by the Debtor would mean that a Debtor may collect, by way of mandatory
injunction, disputed claims to monies, claims based strictly on state law which are unliquidated
and contingent.”).
To avoid this result, Appellees whistle the same jingle again and again: the state court
held that Pope shall “take nothing.” (APB at 6, 10, 11, 14, 16, 18.) That statement contributes
little to the debate regarding who rightfully owns the post-January 2010 Royalties and whether
turnover was appropriate. Review of the state court decision reveals a more narrow conclusion
that Pope shall “take nothing” (1) as to the Goldstein parties and (2) on the basis of the causes of
action asserted by Pope in the 4AC, which were for constructive fraud, fraud, conversion, and
civil conspiracy, with regard to the earlier Royalties. (BMI Appendix at 230.) The judgment
against Appellants did not opine on whether Debtors could take anything from BMI,11 the entity
administering the Royalties. Nor did the judgment discuss the effect, if any, of Roberts’s 2010
9

On January 18, 2017, before the Bankruptcy Court ruled on the second turnover motion,
the state court permitted Pope to reinstate the thirty-fifth cause of action for declaratory relief as
plead in the 4AC, such that the claim would cover post-2010 royalties. (BMI Appendix at 896.)
That fact was before the Bankruptcy Court in a supplemental declaration filed by BMI. (Id.)
10

To be clear, the Court does not conclude Debtors will not at some future date establish
they have an ownership right, and does not weigh in one way or the other on the ultimate
question of who owns the post-January 2010 Royalties. The Court simply concludes that
Debtors did not establish they had that right by a preponderance of the evidence, and that the
ownership rights were in dispute at the time of the Turnover Order.
11

BMI and Debtors tolled their stated claims against one another and the trial court
bifurcated the actions prior to trial. (BMI Appendix at 90-96, 905-07 (referring Debtors’
standstill agreement with BMI).)
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hospital bed declaration. The state court did not contradict its earlier conclusion on summary
judgment: that the 1979 assignment was absolute and irrevocable. Moreover, at the time of the
state court judgments against Appellants, the 4AC did not include allegations regarding the
hospital declaration and the post-January 2010 Royalties.12 The judgments against Appellants,
therefore, did not establish by a preponderance that Debtors had an “ownership right,” (Dkt.
No. 1.), in the Royalties.
Nevertheless, the Court is mindful that estate property under Section 541(a) may extend
beyond undisputed rights. Indeed, “legal or equitable interests of the debtor in property,” 11
U.S.C. § 541(a) include the debtor’s causes of actions.13 See In re Brown, 363 B.R. 591, 604
(Bankr. D. Mont. 2007) (citing Cusano v. Klein, 264 F.3d 936, 945 (9th Cir. 2001)). Perhaps,
then, the Bankruptcy Court’s unstated assumption was that Appellees’ estate included a
disputed claim to post-January 2010 Royalties. If that was the theory, however, nobody
mentioned whether the cause of action was scheduled, when it accrued, or whether debtors can
use turnover motions to obtain disputed funds that are the object of the “cause of action”
property interest. See In re Smith, 293 B.R. 786, 788 (Bankr. D. Kan. 2003) (noting that a later
recovery on the claim is derivative of the cause of action and therefore becomes property of the
estate); In re Ballard, 238 B.R. 610, 624 (Bankr. M.D. La. 1999).
As best the Court can tell, the Bankruptcy Court only considered whether a definite
vested right to the Royalties was established, not whether a more nebulous “interest,” “cause of
action,” or contingent future recovery was the relevant estate asset. Before the Bankruptcy
Court, Appellees repeatedly asserted they had an undisputed right to the Royalties. (BMI
Appendix at 36, 862 (asserting the Royalties were themselves property the trustee could use sell
or lease under 11 U.S.C. § 363 and representing to the Bankruptcy Court that there was “no
dispute at all” as to the Royalty funds themselves); id. at 177 (asserting in their second turnover
motion that Appellees have legal and equitable “rights” and are “entitled” to receive BMI
Royalties).)
12

The Court also observes the settlement approved by the Bankruptcy Court between
Debtors and Stewart is inapposite. The agreement did not include BMI, nor did it resolve the
Pope Parties’ claims to the BMI Royalties. Debtors themselves do not possess any judgment
against BMI establishing either their or the estate’s right to the BMI Royalties.
13

Since litigation rights are property of the estate (for example, a litigation right against
BMI), they may be sold under Section 363. In re Atl. Gulf Communities Corp., 326 B.R. 294,
299–300 (Bankr. D. Del. 2005) (citing 11 U.S.C. § 363(b)). The sale of a litigation claim,
however, does not entitle the assignee to collect in contravention of any defenses to that claim; all
that is conveyed is the right to prosecute the action and collect any potential judgment. See, e.g.,
Folger Adam Sec., Inc. v. DeMatteis/MacGregor, J.V., 209 F.3d 252, 261 n. 11 (3d Cir. 2000)
(holding that affirmative defenses to cause of action are not claims extinguished by a section
363(f) sale in bankruptcy). The conditional, future, speculative, or equitable nature of an interest
does not prevent it from becoming property of the bankruptcy estate. In re Anderson, 128 B.R.
850 (D.R.I. 1991).
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Now, on appeal, Appellees backpedal, and argue that the relevant property was only a
“contingent and disputed” legal “interest.” (APB at 22.) First, arguments raised for the first
time on appeal are disfavored and may be disregarded. In re Jan Weilert RV, Inc., 315 F.3d 1192,
1199 (9th Cir.), amended, 326 F.3d 1028 (9th Cir. 2003). Second, even if causes of action are
legal interests that become estate property, Appellees do not cite authority for their proposition
that funds that are the object of a cause of action property interest can be turned over pursuant to
Section 542(a). That Section allows for turnover of property that can be used, sold, or leased
under Section 363. When a cause of action is sold under Section 363, presumably it is the ability
to prosecute the claim that is sold—not the claimed funds or title to property themselves, which
may or may not ultimately be recovered.
One of Appellees’ authorities, In re Kane, 628 F.3d 631, 641 (3d Cir. 2010), illustrates the
problem. (APB at 22.) Ms. Kane filed for bankruptcy, was in divorce proceedings, and she had a
legally cognizable interest in the equitable distribution of marital property. 628 F.3d at 641. The
Third Circuit explained that Ms. Kane had an “interest” in the equitable distribution, “but she
did not have a right to it. Her claim qualified as a contingent, equitable interest . . . that could not
ripen into a vested property interest—i.e. a tangible asset—until entry of a judgment of divorce.”
628 F.3d at 641. The court noted such claims should be scheduled, but did not require turnover
of the anticipated equitable distribution in advance of the divorce judgment. No equitable
distribution asset existed as a freestanding property right, and the property was at best an
inchoate right. 628 F.3d at 642 (citation omitted). Applying In re Kane to the facts here, the
Court finds Appellees had a at most a colorable claim to the post-January 2010 Royalties.
Appellees did not have the outright “ownership right” they claimed and that the Bankruptcy
Court found. (Dkt. No. 1; BMI Appendix at 899-912.)
Appellees also reference In re Atl. Gulf Communities Corp., 326 B.R. 294, 300 (Bankr. D.
Del. 2005). (APB at 22.) This case helpfully remarks that litigation rights are the property of the
estate and may be sold under Section 363. (Id.) If the case applied here, Debtors would have
attempted to auction off their claim to the Royalties, not the Royalties themselves. The case does
not stand for the proposition that contingent litigation claims may be liquidated by a bankruptcy
court prior to the entry of judgment by means of a turnover order. “The sale of a litigation claim,
[] does not entitle the assignee to collect . . . ; all that is conveyed is the right to prosecute the
action and collect any potential judgment.” Id. (emphasis added). Here, Appellees never argued
to the Bankruptcy Court that they had a merely contingent claim that they wished to sell or
assign. They sought turnover of the Royalties, even though they had no judgment against BMI.
As a result, the order to release Royalties to Debtors—even as the ownership of the post-January
2010 Royalties was in dispute and an active subject of litigation in state court—was in error. In re
Gurga, 176 B.R. 196, 199 (9th Cir. BAP 1994) (“Turnover proceedings involve return of
undisputed funds.”) (emphasis in original).
//
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IV.

CONCLUSION

In sum, the Turnover Order releasing the Royalties to Debtors is REVERSED because the
Court finds the ownership of the Royalties was not established by a preponderance of evidence
and the funds were in dispute. Given the passage of more than three years since the Turnover
Order, the Court REMANDS to the Bankruptcy Court to examine the state of the Royalty
ownership dispute.
IT IS SO ORDERED.

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