In Re: Empire Land, LLC

Filing 42

ORDER by Judge Dean D. Pregerson: DENYING 6 MOTION for leave to appeal the bankruptcy court's interlocutory order denying summary judgment (shb)

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UNITED STATES DISTRICT COURT

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CENTRAL DISTRICT OF CALIFORNIA

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IN RE DEBTOR: EMPIRE LAND,
LLC, et al.
RICHARD K. DIAMOND, CHAPTER
7 TRUSTEE,

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Plaintiff,
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v.
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EMPIRE PARTNERS, INC., a
California corporation,

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Defendants.
___________________________

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Case No. EDCV 16-00831 DDP

ORDER DENYING DEFENDANT’S MOTION
FOR LEAVE TO FILE INTERLOCUTORY
APPEAL

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Presently before the court is Defendant Empire Partners, Inc.

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(“Empire”)’s “Motion for Leave to Appeal the Bankruptcy Court’s

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Interlocutory Order Denying Summary Judgment.”

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considered the submissions of the parties, the court denies the

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motion and adopts the following Order.

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I.

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(Dkt. 6.)

Having

Background
The Plaintiff/Trustee’s underlying complaint in the Bankruptcy

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Court seeks to invalidate dozens of preferential and fraudulent

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transfers made by Empire and associated entities.

Empire filed a

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motion for summary judgment, arguing, as relevant here, that

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Plaintiff had not presented sufficient evidence of Empire’s

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insolvency or fraudulent intent.1

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Empire contended that the only evidence of insolvency was contained

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in an expert report by William Haegele (the “Haegele Report”) that

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was not based upon reliable scientific principles or methods, and

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was therefore inadmissible.

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Empire objected that the evidence put forth by Plaintiff was

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inadmissible hearsay.

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With respect to the former,

With respect to fraudulent intent,

Notwithstanding Empire’s objections, the Bankruptcy Court

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considered the Haegele Report and denied Empire’s motion for

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summary judgment, finding that the Haegele Report created a triable

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issue of fact with respect to Empire’s insolvency at the time of

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the allegedly fraudulent transactions.

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The Bankruptcy Court also considered, over Empire’s hearsay

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objections, e-mails and memos between Larry Day, one of Empire’s

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officers and Ken Orgen, an accountant, to conclude that Plaintiff

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produced sufficient evidence “with respect to the badges of fraud”

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to create a triable issue of fact regarding Empire’s fraudulent

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intent.

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(Motion, Ex. 2 at 17-18.)

Empire now seeks leave of this Court to file an interlocutory

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appeal the bankruptcy court’s summary judgment order and rulings

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regarding the admissibility of the Haegele Report and the Lay-Ogren

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documents.

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II.

Legal Standard

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The parties agree that insolvency is an essential element of
Plaintiff’s preference and constructive fraudulent transfer claims.
The parties also appear to agree that insolvency is not necessary
to Plaintiff’s intentional fraudulent transfer claims.
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A district court may grant leave to appeal an interlocutory

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order of a bankruptcy judge.

28 U.S.C. § 158(a)(3).

In

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determining whether to grant leave, district courts generally apply

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the same standard that governs interlocutory appeals of civil

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matters.

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150489 at *3 (D. Nev. Jan. 14, 2013).

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1292(b), districts look to (1) whether a controlling issue of law

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is involved, (2) whether there is a “substantial ground for

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difference of opinion,” and (3) whether an immediate appeal will

In re Ahern Rentals, Inc., No. 12-CV-0676-LRH, 2013 WL
Pursuant to 28 U.S.C. §

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materially advance the termination of the litigation.

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1292(b).

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retain discretion to deny permission for interlocutory appeal.

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Tsyn v. Wells Fargo Advisors, LLC, No. 14-cv-02552-LB, 2016 WL

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1718139 at *3 (N.D. Cal. Apr. 29, 2016).

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28 U.S.C. §

Even where all of these elements are met, district courts

Although a question may be controlling so long as resolution

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of the issue could materially affect the outcome of litigation,

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Section 1929(b) typically will not apply to cases that turn “on

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whether there is a genuine issue of fact or whether the district

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court properly applied settled law to the facts or evidence of a

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particular case.”

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2009 WL 4050966, at *2 (N.D. Cal. Nov. 20, 2009) (quoting McFarlin

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v. Conseco Services, LLC, 381 F.3d 1251, 1259 (11th Cir. 2004).

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“Courts traditionally will find that a substantial ground for

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difference of opinion exists where the circuits are in dispute on

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the question and the court of appeals of the circuit has not spoken

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on the point, if complicated questions arise under foreign law, or

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if novel and difficult questions of first impression are presented.

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Couch v. Telescope Inc., 611 F.3d 629, 633 (9th Cir. 2010)

Harris v. Vector Mktg. Corp., No. C-08-5198 EMC,

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(internal quotation marks and citation omitted).

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counsel contends that one precedent rather than another is

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controlling does not mean there is such a substantial difference of

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opinion as will support an interlocutory appeal.”

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seeking leave bears the burden “of showing that exceptional

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circumstances justify a departure from the basic policy of

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postponing appellate review until after the entry of a final

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judgment.”

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(C.D. Cal. 1986) (internal quotation and citation omitted).

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“[J]ust because

Id.

The party

Fukuda v. Los Angeles County, 630 F. Supp. 228, 229

III. Discussion

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A.

The Haegele Report

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The question presented with respect to the Haegele Report, as

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Empire frames it, is “[o]n a motion for summary judgment, where the

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. . . only evidence of one of the essential elements is an expert

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report to which the nonmoving party objects on the grounds that it

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is not reliable, is it error for a bankruptcy court to . . . deny[]

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summary judgment without the court making a Daubert determination

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with respect to the reliability of the purported expert’s

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methodology?”

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whether the issue is controlling is bound up with the question

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whether there is a substantial ground for difference of opinion.

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The answer is no.

(Mot. At 9:25-10:5.)

So phrased, the question

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To qualify as a controlling question of law for purposes of

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interlocutory appeal, the issue “must be stated at a high enough

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level of abstraction to lift the question out of the details of the

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evidence of facts of a particular case and give it general

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relevance to other cases in the same area of law.”

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Reynolds Tobacco Co., No. 2:09-CV-08394-CAS, 2015 WL 3767424, at *2
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Sateriale v. RJ

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(C.D. Cal. June 17, 2015) (internal quotations and citations

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omitted); see also McFarlin, 381 F.3d at 1259.

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to lift the issue out of the details of this particular case by

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suggesting that the bankruptcy court held that an expert opinion

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could defeat summary judgment even if that opinion did not meet the

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Daubert test for admissibility.

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Here, Empire seeks

Under Federal Rule of Evidence 702, trial courts have a

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gatekeeping function regarding expert testimony.

Daubert v.

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Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 589 n.7 (1993).

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Where “scientific, technical, or other specialized knowledge will

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assist the trier of fact” to understand evidentiary or factual

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issues, an expert witness who is qualified by “knowledge, skill,

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experience, training, or education” may “testify thereto in the

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form of an opinion or otherwise.”

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Rule 702 requires that:

Fed. R. Evid. 702.

In addition,

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1) the testimony is “based upon sufficient facts or data”;
2) the testimony is the “product of reliable principles and
methods”; and
3) the witness has “applied the principles and methods
reliably to the facts of the case.”

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Fed. R. Evid. 702.

Courts must evaluate expert scientific

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testimony for both relevance and reliability.

The proponent of the

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expert testimony has the burden of establishing that the relevant
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admissibility requirements are met by a “preponderance of the
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evidence.”

Daubert, 509 U.S. at 592 n.10 (citing Bourjaily v.

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United States, 483 U.S. 171, 175 (1987)).

Courts employ a flexible

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inquiry tied to the facts of the particular case to make
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determinations regarding the reliability of expert testimony.
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Kumho Tire Co., Ltd. v. Carmichael, 526 U.S. 137, 152 (1999).
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The

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focus should be “solely on principles and methodology, not on the

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conclusions they generate.” Daubert, 509 U.S. at 595; see also Fed.

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R. Evid. 702 Adv. Comm. Note to 2000 Amdt.

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alone can provide a sufficient foundation for expert testimony, so

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long as the witness explains “how that experience leads to the

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conclusion reached, why that experience is a sufficient basis for

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the opinion, and how that experience is reliably applied to the

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facts.”

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An expert’s experience

Fed. R. Evid. 702 Advisory Committee Note to 2000 Amdt.

Empire bases its characterization of the bankruptcy court’s

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holding almost entirely upon footnote 15 to the 31-page memorandum

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decision.

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discussion of the Haegele Report, states, “The Court is not making

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any findings regarding the methodology used by Haegele (whether to

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consider the actual sale price of Anaverde); only that Plaintiff

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has presented sufficient evidence to create an issue for trial.”

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(Mot., Ex. 2 at 18:24.)

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isolation, might arguably support Empire’s argument, such a narrow

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reading mischaracterizes the bankruptcy court’s position.

Footnote 15, appended to the bankruptcy court’s

Although that sentence, viewed in

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Nowhere in the bankruptcy court’s decision is there any

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suggestion that a Daubert analysis is unnecessary or that a party

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presenting expert opinion need not satisfy Daubert or Rule 702.

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Indeed, an examination of the transcript of oral argument

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proceedings reveals that the bankruptcy court devoted substantial

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attention to Daubert issues.

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colloquy with counsel, spanning approximately thirty transcript

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pages, regarding the admissibility of the Haegele Report.

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(Plaintiff’s Request for Judicial Notice, Ex. 20 at RJN 4003-4034.)

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During that exchange, the court acknowledged its role as gatekeeper

The court engaged in an extensive

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for scientific evidence and responsibility for determining whether

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the Haegele Report met the standard for admissibility.

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at RJN 4010).

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with respect to the Haegele Report was whether “it is so flawed as

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to be unreliable that it shouldn’t suffice as evidence.”

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RJN 4013:21-23.)

(RJN Ex. 20

Indeed, the court explicitly stated that the issue

(Id. at

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In response to that question, Plaintiff’s counsel argued, in

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part, that the “developer’s approach” methodology employed by Mr.

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Haegele was sound, as evinced by the fact that the methodology had

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been accepted in another bankruptcy case and had only been rejected

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in distinguishable eminent domain cases.

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The bankruptcy court stated, “I am ultimately agreeing with

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[Plaintiff]. . . . [N]othing that’s been shown to me, either in

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oral argument or in the record, shows me that the methodology was

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problematic to the extent that . . . I would not take the [Haegele

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Reort] in to establish an issue of fact.”

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Id. at RJN 4018, 4023-24.

Id. at 4018.

The Daubert colloquy did not end there.

Empire’s counsel

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argued each of the Rule 702 factors in turn, and the bankruptcy

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court explicitly stated that the first two factors, relevance and

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sufficiency of the data, were met.

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the reliability of the Haegele Report’s principles and methods, the

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bankruptcy court opined that that was “not one of [Empire’s]

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stronger arguments” before explaining that the court was not

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convinced that Empire’s “lawyer’s presentation of why the numbers

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are wrong . . . is enough for me to find that the report is not

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something I can rely on as creating an issue of fact. . . . [T]he

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only thing I’m looking at is [whether] the methodology was . . .

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done erroneously.”

Id. at 4019.

With respect to

Id. at 4019:24-25; 4027:13-17; 4029:2-4.
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In the context of this extensive discussion at argument, it is

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clear that the bankruptcy court’s statement in footnote 15 to the

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written decision denying summary judgment, stating that “[t]he

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Court is not making any findings regarding the methodology used by

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Haegele” was not, as Empire suggests, a pronouncement that the

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Daubert analysis is irrelevant or unnecessary.

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is a restatement of the bankruptcy court’s explanation at oral

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argument that “[a]t trial, [Empire] may very well be able to tear

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[Mr. Haegele] apart, and I’m not . . . suggesting otherwise right

Rather, footnote 15

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now, but here . . . the issue is is [the Haegele Report] so flawed

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as to be unreliable that it shouldn’t suffice as evidence.”

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4013:15-23.

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Id. at

In sum, here there is no abstract, high level question whether

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a court may deny summary judgment based solely upon expert

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testimony that has not passed Daubert muster, let alone a question

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whether there is a substantial ground for difference of opinion,

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because the bankruptcy court never took that position.

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bankruptcy court’s reiteration in footnote 15 that admissibility

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determinations have no bearing on credibility determinations at

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trial cannot be fairly read as a refusal to conduct a Daubert

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analysis.

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regarding Empire’s Daubert objections, and overruled them.

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Although Empire may disagree with the bankruptcy court’s

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evidentiary rulings, such determinations do not constitute

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controlling questions of law on a disputed legal issue that would

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merit the exceptional relief of an interlocutory appeal.

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B.

The

The court engaged in a lengthy discussion with counsel

Empire’s Hearsay Objections

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The bankruptcy court determined that “a series of e-mails”

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between one of Empire’s officers, Larry Day, and tax accountant Ken

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Ogren, as well as a memorandum by Ogren, “provided in connection

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with the depositions of Ken Ogren and Larry Day[,]” were sufficient

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to create a triable issue of fact regarding Empire’s fraudulent

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intent.

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evidence, as well as other business records, including checks, bank

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deposits, and journal or ledger entries, which were attached as

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exhibits to a declaration from Plaintiff’s counsel, are hearsay

(Mot., Ex. 2 at 10.)

Here, Empire argues that this

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improperly unauthenticated by counsel and are, therefore,

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inadmissible.2

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(Motion at 9, 19.)

As with the Haegele Report, discussed above, Empire attempts

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to present this hearsay issue as something more than a disagreement

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with the bankruptcy court’s evidentiary rulings.

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question presented here as whether “it is error for a bankruptcy

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court to admit unauthenticated evidence . . . or [whether] it is

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sufficient for . . . counsel to attach unauthenticated documents to

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his own declaration and promise to authenticate the evidence at

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trial?”

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here is broad: that is, whether a Bankruptcy Court can deny summary

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judgment based on unauthenticated and inadmissible documents.

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question not only controls this case, it is of critical importance

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in many others.

(Mot. at 9.

Empire frames the

See also Reply at 7:15-19 (“[T]he question

That

The Trustee[, and by extension, the bankruptcy

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It is somewhat unclear whether all of this evidence is
contained within the e-mails and memorandum to which the bankruptcy
court referred. See Reply at 10 (“[T]he documents attached to the
declaration of the Trustee’s counsel were the only things cited by
the Bankruptcy Court . . . as evidence of intentional fraud . . .
.”).
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court,] argues that he does not need to provide admissible evidence

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to defeat summary judgment.

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EPI contends that he does.”).

As with the Haegele Report, Empire’s characterization of the

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bankruptcy court’s decision sets up a straw man, the analysis of

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which necessarily combines the “controlling question of law” and

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“substantial ground for difference of opinion” factors of the

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interlocutory appeal inquiry.

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at oral argument does the bankruptcy court suggest that, as a

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general legal principle, unauthenticated hearsay evidence is

Nowhere in its written decision or

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admissible or that inadmissible evidence can defeat a motion for

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summary judgment.

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the existence of a substantial ground for disagreement, let alone

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one that implicates a circuit split or a difficult issue of first

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impression.

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To the extent the bankruptcy court may have erred in its

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determination that the records upon which it based its fraudulent

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intent finding were properly authenticated and admissible, either

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because they are not hearsay or are subject to some exception, such

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potential error presents no more than a question whether the “court

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properly applied settled law to the facts of evidence of a

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particular case.”3

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are generally ill-suited to interlocutory review.

Empire cannot, therefore, possibly demonstrate

See Couch, 611 F.3d at 633 (9th Cir. 2010).

Harris 2009 WL 4050966 at *2.

Such questions
Id.

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Contrary to Empire’s suggestion, the bankruptcy court did
not state that the Trustee’s counsel’s declaration was alone
sufficient to authenticate the Day-Ogren e-mails or the memorandum.
The bankruptcy court’s written decision emphasizes that the
documents were “provided in connection with the depositions of Ken
Ogren and Larry Day.” (Mot., Ex. 2 at 10:8.) To the extent Empire
contends that that provenance presents other, distinct
admissibility concerns, those issues also present no more than a
question regarding the proper application of well-settled law.
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Furthermore, even if Empire had successfully shown that a

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highly abstract, controlling issue of law is involved, and that a

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substantial ground for disagreement exists, it has failed to meet

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its burden to show that an immediate appeal will materially advance

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the termination of this litigation.

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did err in finding certain evidence properly authenticated by

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counsel’s declaration, Plaintiff represents that at least some of

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that evidence of fraudulent intent, including general ledgers and

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bank records, was provided by Empire as part of the discovery

Even if the bankruptcy court

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process, proffered by Empire itself in connection with its summary

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judgment, or referenced in Empire’s interrogatory responses.4

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(Opposition at 22-23.)

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stated and followed some novel and erroneous legal principle, it

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appears that certain evidence of fraudulent intent could have been

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admitted on alternative grounds, and that resolution of the

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question presented by Empire in Empire’s favor would not

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necessarily result in a grant of Empire’s summary judgment motion.

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As with the Haegele Report, Empire’s motion for interlocutory

Thus, even if the bankruptcy court had

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appeal of the bankruptcy court’s admission of certain business

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records clothes a straightforward disagreement with the bankruptcy

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court’s evidentiary rulings in the guise of a sweeping,

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To the extent Empire argues in reply that Plaintiff does not
explain why exclusion of the business records would have no effect
on the litigation, the court disagrees. (Reply at 10:7-9.)
Although it is somewhat unclear whether the universe of evidence to
which Plaintiff refers overlaps completely with the evidence cited
in the bankruptcy court’s written order, Plaintiff also explains
potential alternative grounds for admissibility of the evidence
that Empire claims the bankruptcy court improperly admitted and
relied upon. It remains, of course, Empire’s burden to demonstrate
that interlocutory appeal will materially advance the termination
of the litigation. 28 U.S.C. § 1292(b).
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controversial statement of law that the bankruptcy court simply

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never made.

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position, Empire has failed to demonstrate that interlocutory

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review of that error would necessarily result in a grant of summary

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judgment in Empire’s favor or otherwise materially advance the

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termination of these proceedings.

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interlocutory appeal of the bankruptcy court’s order denying

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Empire’s motion for summary judgment is not warranted.

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IV.

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Even if the bankruptcy court had adopted such a

Accordingly, leave to file an

Conclusion
For the reasons stated above, Empire’s Motion for Leave to

Appeal is DENIED.

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IT IS SO ORDERED.

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Dated: December 15, 2017
DEAN D. PREGERSON
United States District Judge

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