In Re: Amber Hotel Corporation

Filing 18

ORDER RE BANKRUPTCY APPEAL by Judge Fernando M. Olguin. Based on the foregoing, IT IS ORDERED THAT the bankruptcy courts decisions in Case Nos. CV 17-2570 FMO and CV 17-3082 FMO are affirmed. Judgment shall be entered accordingly. (yl)

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1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 CENTRAL DISTRICT OF CALIFORNIA 10 11 12 13 14 15 16 17 18 IN RE AMBER HOTEL CORP., ) ) Reorganized Debtor, ) ________________________________ ) ) AMBER HOTEL CORP., et al., ) ) Appellants, ) ) v. ) ) JAMES J. LITTLE, ) ) Appellee. ) Case No. CV 17-2570 FMO CV 17-3082 FMO ORDER RE: BANKRUPTCY APPEALS 19 Having reviewed and considered all the briefing filed with respect to Amber Hotel 20 Corporation (“Amber”) and Post Financial Management Corporation’s (“PFMC”) (collectively 21 “appellants”) bankruptcy appeals, (In re Amber Hotel Corp., Case No. CV 17-2570 FMO (“Appeal 22 I”); In re Amber Hotel Corp., Case No. CV 17-3082 FMO (“Appeal II”)), the court concludes that 23 oral argument is not necessary to resolve the appeals. See Fed. R. Civ. P. 78; Local Rule 7-15; 24 Willis v. Pac. Mar. Ass’n, 244 F.3d 675, 684 n. 2 (9th Cir. 2001). 25 26 27 28 1 BACKGROUND1 2 In July 2010, James J. Little (“Little”) obtained a judgment against Amber in the amount of 3 $882,991.74. (See Opinion at 1). In September 2010, Little perfected his lien securing the 4 judgment against Amber. (See id.). 5 On or about September 20, 2010, Stephen Post (“Post”), Amber’s principal, sole real 6 estate broker and, along with his wife, sole shareholder, (see Dkt. 11-2, Appeal II, Excerpts of 7 Record (“ER”) 297, Declaration of Stephen K. Post), incorporated PFMC as a new corporate 8 entity. (See Opinion at 1-2). Once PFMC was formed, Post caused all income earned from the 9 receivership of hotel properties to be deposited into PFMC’s newly created bank accounts, while 10 Amber continued to shoulder the administrative cost of the receivership activities that produced 11 income. (See id. at 2). 12 On March 17, 2013, Amber filed for Chapter 11 bankruptcy. (See In re Amber Hotel Corp., 13 Case No. BK 13-11804 (MB) (“Bankruptcy Action”), Dkt. 1, Voluntary Petition, Chapter 11 14 (“Petition” )). In its Petition, Amber listed its schedule of assets, liabilities, executory contracts, and 15 income. (See Dkt. 1, Bankruptcy Action, Petition). Amber’s List of Creditors Holding 20 Largest 16 Unsecured Claims identified Post as its largest unsecured creditor. (See id. at ECF p. 8). Amber’s 17 List of Creditors Holding Secured Claims also identified Post as a secured creditor. (See id. at 18 ECF p. 29). 19 Amber’s Petition did not list or otherwise identify PFMC. (See, generally, Dkt. 1, 20 Bankruptcy Action, Petition). Amber amended its schedules in June 2013, but did not add PFMC 21 in any capacity, i.e., as an asset, liability, executory contract, or income. (See Dkt. 103, 22 Bankruptcy Action, Amended Schedule(s) and/or Statement(s)). 23 On October 28, 2013, Amber filed its amended plan for reorganization. (See Dkt. 171, 24 Bankruptcy Action, Amended Disclosure Statement and Amended Plan of Reorganization for 25 26 27 28 1 The court will set forth only the facts and procedural background necessary to resolve these appeals. The court incorporates the statement of facts set forth in its Order of February 9, 2016, in In re Amber Hotel Corp., Case No. CV 15-0134 FMO (Dkt. 19, Court’s Order of February 9, 2016, (“Opinion”) at 1-4). Also, the court notes that its Order of February 9, 2016, incorrectly states 2015 as the year the Order was issued. However, the Order was issued in 2016. 2 1 Amber Hotel Corporation (“Amended Plan”)). The Amended Plan did not list or otherwise identify 2 PFMC. (See, generally, id.). PFMC was also not identified as a party to an executory contract, 3 nor was it identified as an asset or a contingent claim. (See, generally, id.). 4 On December 26, 2013, the bankruptcy court entered an order confirming the Amended 5 Plan. 6 Reorganization). (See Dkt. 257, Bankruptcy Action, Order Confirming Debtor’s Amended Plan of 7 On June 27, 2014, Little filed a complaint against Post and PFMC in the California state 8 court. (See Dkt. 9-2, Appeal I, ER328-51, Complaint; Dkt. 11-2, Appeal II, ER328-51, Complaint). 9 That action was subsequently removed to the bankruptcy court. (See Dkt. 9-2, Appeal I, ER326- 10 27, Notice of Removal of Action to United States Bankruptcy Court (“Notice of Removal”); Dkt. 11- 11 2, Appeal II, ER326-27, Notice of Removal). The bankruptcy court dismissed the complaint, 12 granted Amber’s motion to intervene, and denied Little’s motion to remand as moot. (See Opinion 13 at 1). The decision was appealed to this court, which affirmed in part and reversed in part. The 14 court reversed the bankruptcy’s courts dismissal with respect to the ninth, tenth and eleventh 15 causes of action. (See id. at 11). The court remanded the action to the bankruptcy court to 16 consider whether those causes of action should be remanded to the state court. (See id.). 17 Following the court’s remand, Amber and PFMC entered into a settlement agreement to 18 resolve Little’s ninth, tenth, and eleventh causes of action. Under the settlement, PFMC agreed 19 to pay $12,600 to Amber to be distributed to Amber’s creditors through the Amended Plan. (See 20 Dkt. 11-2, Appeal II, ER277-293, Reorganized Debtor’s Motion to Approve Compromise). Amber 21 filed a motion to approve the compromise, which the bankruptcy court denied. (See Dkt. 11-1, 22 Appeal II, ER007-09). The bankruptcy court concluded that it did not have jurisdiction over the 23 ninth, tenth, and eleventh causes of action, and therefore remanded those causes of action to the 24 state court. (See Dkt. 9-1, Appeal I, ER017 & 022). 25 Amber and PFMC timely appealed the bankruptcy court’s orders remanding the ninth, tenth, 26 and eleventh causes of action to state court and denying Amber’s motion to approve compromise. 27 (See Dkt. 9-1, Appeal I, ER001-04, Notice of Appeal); Dkt. 11-1, Appeal II, ER005-09, Notice of 28 Appeal). 3 1 STANDARD OF REVIEW 2 When reviewing a bankruptcy court’s decision, “a district court functions as [an] appellate 3 court and applies the standard of review generally applied in federal court appeals.” In re Crystal 4 Props., Ltd., 268 F.3d 743, 755 (9th Cir. 2001) (modification in original). “A district court reviews 5 a bankruptcy court’s conclusions of law and interpretation of the Bankruptcy Code de novo.” In 6 re Orange Cnty. Nursery, Inc., 439 B.R. 144, 148 (C.D. Cal. 2010). Questions of subject matter 7 jurisdiction are reviewed de novo. See In re Pegasus Gold Corp., 394 F.3d 1189, 1193 (9th Cir. 8 2005). Factual findings are reviewed for clear error, and the court “must accept the bankruptcy 9 court’s findings of fact unless, upon review, the court is left with the definite and firm conviction 10 that a mistake has been committed by the bankruptcy judge.” In re Greene, 583 F.3d 614, 618 11 (9th Cir. 2009); see In re Retz, 606 F.3d 1189, 1196 (9th Cir. 2010) (“A court’s factual 12 determination is clearly erroneous if it is illogical, implausible, or without support in the record.”); 13 In re Koebel, 2016 WL 354865, *3 (C.D. Cal. 2016). A district court reviews a bankruptcy court’s 14 denial of a compromise under the “abuse of discretion” standard. See In re Weston, 110 B.R. 452, 15 455 (E.D. Cal. 1989), aff’d, 967 F.2d 596 (9th Cir. 1992). 16 The district court may affirm a bankruptcy court’s order “on any ground supported by the 17 record, even if it differs from the ground relied upon by the bankruptcy court.” Thrifty Oil Co. v. 18 Bank of Am. Nat. Trust and Sav. Ass’n, 322 F.3d 1039, 1046 (9th Cir. 2003). However, “[a]n 19 appeal is moot if it is impossible to fashion effective relief[.]” In re Gotcha Int’l L.P., 311 B.R. 250, 20 253 (B.A.P. 9th Cir. 2004) (citations omitted). 21 22 DISCUSSION I. SUBJECT MATTER JURISDICTION. 23 A bankruptcy court has jurisdiction over “all civil proceedings arising under title 11, or 24 arising in or related to cases under title 11.” 28 U.S.C. § 1334(b). The Ninth Circuit has adopted 25 the test set forth in in Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir. 1984) for determining the 26 scope of “related to” jurisdiction. See In re Fietz, 852 F.2d 455, 457 (9th Cir. 1988). Under the 27 “Pacor test,” the court evaluates whether 28 4 1 the outcome of the proceeding could conceivably have any effect on the 2 estate being administered in bankruptcy. Thus, the proceeding need not 3 necessarily be against the debtor or against the debtor’s property. An action 4 is related to bankruptcy if the outcome could alter the debtor’s rights, 5 liabilities, options, or freedom of action (either positively or negatively) and 6 which in any way impacts upon the handling and administration of the 7 bankrupt estate. 8 In re Fietz, 852 F.2d at 457 (quoting Pacor, 743 F.2d at 994) (emphasis in original). 9 However, “the Pacor formulation may be somewhat overbroad in the post-confirmation 10 context[.]” In re Pegasus Gold Corp., 394 F.3d at 1194. In the “post-confirmation context,” the 11 court applies the “close nexus” test in evaluating “related to” jurisdiction. Id. Under that test, 12 “matters affecting the interpretation, implementation, consummation, execution, or administration 13 of the confirmed plan will typically have the requisite close nexus.” Id. (internal quotation marks 14 omitted). “The Pegasus Gold close nexus test requires particularized consideration of the facts 15 and posture of each case, as the test contemplates a broad set of sufficient conditions and retains 16 a certain flexibility.” In re Wilshire Courtyard, 729 F.3d 1279, 1289 (9th Cir. 2013) (internal 17 quotation marks omitted). 18 19 With regards to the ninth, tenth, and eleventh causes of action, the court previously found that 20 [t]he remaining causes of action by [Little] against PFMC will not affect the 21 “interpretation, implementation, consummation, execution, or administration” 22 of the Amended Plan. See In re Pegasus Gold Corp., 394 F.3d at 1194. 23 This is because the Amended Plan clearly provides that class B5 and C 24 creditors would receive distributions from, among other things, “the amount 25 of any net recoveries from Avoidance Actions, if any[.]” Amber has not filed 26 any avoidance action against PFMC, which, “if any” were filed, would benefit 27 class B5 and C creditors. Little, as a class B5 and C creditor, may recover 28 5 1 on his claims against PFMC, which would not disturb the terms of the 2 Amended Plan. 3 (Opinion at 11) (citation omitted). 4 Amber and PFMC2 contend that because the settlement funds will be distributed to Amber’s 5 creditors, the settlement will necessarily “affect” the Amended Plan, and thus there is post- 6 confirmation jurisdiction. (See Dkt. 9, Appeal I, Appellants’ Opening Brief at 19; Dkt. 12, Appeal 7 I, Appellants’ Reply Brief at 5). However, as the court previously determined, because Amber 8 failed to disclose the causes of action in its schedules, disclosure statement, plan, or Amended 9 Plan, Amber is precluded from asserting them now, post-confirmation.3 (See Opinion at 8-10); In 10 re Kelley, 199 B.R. 698, 704 (B.A.P. 9th Cir. 1996); Hay v. First Interstate Bank of Kalispell, N.A., 11 978 F.2d 555, 557 (9th Cir. 1992) (“Failure to give the required notice estops [the debtor.]”). Like 12 the court in In re Pegasus, the court is “not persuaded by [Amber and PFMC’s] argument that 13 jurisdiction lies because the action could conceivably increase the recovery to the creditors. . . . 14 [S]uch a rationale could endlessly stretch a bankruptcy court’s jurisdiction.” 394 F.3d at 1194, n. 15 1. 16 Amber and PFMC’s reliance on In re JZ L.L.C., 371 B.R. 412 (B.A.P. 9th Cir. 2007), for the 17 proposition that estoppel may not apply where the debtor is pursuing the claim for the benefit of 18 the estate, (see Dkt. 9, Appeal I, Appellants’ Opening Brief at 25-29; Dkt. 12, Appeal I, Appellants’ 19 Reply at 11-15), is unpersuasive. The In re JZ court recognized that judicial estoppel is a “flexible 20 equitable doctrine[.]” 371 B.R. at 420. As such, each situation must be “evaluated on its own 21 facts, with remedies fashioned in a way that does not punish innocent bystanders.” Id. at 421. 22 23 24 25 26 2 PFMC is a non-debtor third party. See In re Master Mort. Inv. Fund, Inc., 168 B.R. 930, 93435 (W.D. Mo. 1994) (discussing bankruptcy court’s power over non-debtor third parties); (see, generally, Dkt. 171, Bankruptcy Action, Amended Plan). 3 27 28 The court previously rejected Amber and PFMC’s contention that a post-confirmation estate exists under 11 U.S.C. § 1123(b)(3). (See Opinion at 8-10) (“Post’s and PFMC’s assertion that the reservation of rights in the Amended Plan was ‘sufficient’ for purposes of 11 U.S.C. § 1123(b)(3), is unpersuasive.”) (internal citation omitted). 6 1 Here, Amber failed to disclose the subject causes of action pre-confirmation, (see Opinion 2 at 9), and Little is prosecuting the causes of action on his own behalf. Under these circumstances, 3 there appears to be no danger of punishing innocent creditors or an otherwise inequitable 4 outcome. See In re JZ, 371 B.R. at 421 (recognizing that concern of punishing innocent creditors 5 for the debtors’ omission is alleviated where creditors are authorized to prosecute the undisclosed 6 action). In short, the court is persuaded that the bankruptcy court did not err in concluding that 7 it did not have post-confirmation jurisdiction and, therefore, Amber could not pursue the subject 8 causes of action. 9 II. MOTION TO APPROVE COMPROMISE. 10 Having found that the bankruptcy court did not have post-confirmation jurisdiction, the 11 bankruptcy court arguably did not need to rule on the motion to approve compromise. Assuming, 12 however, that the bankruptcy court did have jurisdiction, the court finds, in the alternative, that the 13 bankruptcy court did not abuse its discretion when it denied Amber and PFMC’s motion to approve 14 compromise. 15 As an initial matter, there appears to be a serious question whether Amber has standing 16 to compromise the claims. See Fed. R. Bankr. P. 9019(a) (requiring a motion by a “trustee” for 17 a court to approve a compromise or settlement). Assuming Amber qualified as a trustee or debtor 18 in possession within the meaning of Rule 9019(a), the bankruptcy court did not abuse its discretion 19 in denying Amber’s motion to compromise. See In re Weston, 110 B.R. at 455. 20 To approve a compromise agreement, the bankruptcy court must find that the compromise 21 is “fair and equitable.” See In re A & C Properties, 784 F.2d 1377, 1381 (9th Cir.), cert. denied, 22 479 U.S. 854 (1986) (setting out a test addressing the following four factors to assess the 23 adequacy of a proposed settlement agreement: “(a) [t]he probability of success in the litigation; 24 (b) the difficulties, if any, to be encountered in the matter of collection; (c) the complexity of the 25 litigation involved, and the expense, inconvenience and delay necessarily attending it; (d) the 26 paramount interest of the creditors and a proper deference to their reasonable views in the 27 premises.”). An even more basic requirement for approval is good faith. See id. (“It is clear that 28 there must be more than a mere good faith negotiation of a settlement by the trustee in order for 7 1 the bankruptcy court to affirm a compromise agreement.”). The bankruptcy court has “great 2 latitude” in ruling on compromise agreements. See In re Woodson, 839 F.2d 610, 620 (9th Cir. 3 1988). 4 Amber and PFMC argue that the bankruptcy court did not apply the factors set forth in In 5 re A&C Properties, and the record does not support the bankruptcy court’s finding. (See Dkt. 11, 6 Appeal II, Appellants’ Opening Brief at 23-25). The court is not persuaded. 7 In denying Amber and PFMC’s motion to approve compromise, the bankruptcy court found 8 that: (1) Amber through Post is “essentially settling with himself” as PFMC’s principal; and (2) “the 9 debtor failed to pursue this cause of action and settlement preconfirmation” and “failed even to 10 disclose its existence[.]”4 (See Dkt. 11-1, Appeal II, ER018). The bankruptcy court held that it 11 was “not able to conclude under the A&C Properties test . . . that this settlement was negotiated 12 in good faith.” (See id.); see In re A&C Properties, 784 F.2d at 1381. Having reviewed the record, 13 the court finds that the bankruptcy court did not abuse its discretion when it denied Amber and 14 PFMC’s motion to approve compromise. See In re Weston, 110 B.R. at 455. 15 16 This Order is not intended for publication. Nor is it intended to be included in or submitted to any online service such as Westlaw or Lexis. 17 CONCLUSION 18 Based on the foregoing, IT IS ORDERED THAT the bankruptcy court’s decisions in Case 19 Nos. CV 17-2570 FMO and CV 17-3082 FMO are affirmed. 20 accordingly. 21 Dated this 30th day of October, 2017. Judgment shall be entered 22 ____________/s/__________________ Fernando M. Olguin United States District Judge 23 24 25 26 27 28 4 The court previously found that Amber did not disclose PFMC or the subject causes of action against PFMC in its Petition, Initial Plan, or Amended Plan. (See Opinion at 2). 8

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