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In re Worldpoint Interactive, Inc.

United States Bankruptcy Appellate Panel of the Ninth Circuit
Mar 7, 2007
BAP HI-06-1115-BKMo (B.A.P. 9th Cir. Mar. 7, 2007)

Opinion


In re: WORLDPOINT INTERACTIVE, INC., Debtor. MASSIMO FUCHS, Appellant, v. SANDRA J. LOOMIS, Successor Chapter 7 Trustee; SNYDER TRUST ENTERPRISES; JOHN POPPIN; MARGARET POPPIN; and 706 SANSOME PROPERTIES, Appellees BAP No. HI-06-1115-BKMo United States Bankruptcy Appellate Panel of the Ninth Circuit March 7, 2007

NOT FOR PUBLICATION

Argued and Submitted at Honolulu, Hawaii January 19, 2007

Appeal from the United States Bankruptcy Court for the District of Hawaii. Bk. No. 02-00867. Honorable Lloyd King, Bankruptcy Judge, Presiding.

Before: BRANDT, KLEIN and MONTALI, Bankruptcy Judges.

MEMORANDUM

Massimo Fuchs, debtor's director, officer, shareholder, and alleged creditor, appeals the bankruptcy court's order approving settlement of an adversary proceeding brought by the chapter 7 trustee against owners of commercial property leased by the debtor.

Absent contrary indication, all " Code, " chapter and section references are to the Bankruptcy Code, 11 U.S.C. § § 101-1330 prior to its amendment by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. 109-8, 119 Stat. 23, as the case from which this appeal arises was filed before its effective date (generally 17 October 2005).

Concluding appellant has no pecuniary interest in the outcome of this appeal, as he did not file a timely claim, we DISMISS the appeal for lack of standing.

I. FACTS

Appellees Snyder Trust Enterprises, John Poppin, Margaret Anne Poppin, and 706 Sansome Properties (" Lessors") are the owners of the premises at 706 Sansome Street, San Francisco, California (" Property"). Appellant Massimo Fuchs is a director, officer, and shareholder of debtor WorldPoint Interactive, Inc. (" WorldPoint").

In October 1999 Lessors leased the Property to WorldPoint. The lease required seismic retrofitting and regulatory compliance work to be completed by 1 January 2000. If not, WorldPoint would not be obligated to pay rent or perform any other obligations under the lease until the work was completed, unless the parties agreed otherwise. Lease, ¶ 3.3. Lessors hired Eicon, Inc., to perform the work. WorldPoint separately hired Eicon to perform tenant improvements on the Property.

In April 2001 Eicon sued WorldPoint, Fuchs, Lessors and others in Superior Court of California, San Francisco County (case no. 320236), for breach of contract and other claims relating to work done at the Property. Lessors cross-complained against WorldPoint, Fuchs, and others, alleging numerous causes of action including equitable indemnity, breach of express indemnity agreement, and breach of contract.

The California court entered a default judgment for $250,000 plus attorney's fees against WorldPoint and Fuchs in January 2002. Shortly thereafter, on 8 March 2002, an involuntary chapter 7 petition was filed against WorldPoint, and an order for relief was entered 2 April 2002. Mary Lou Woo was appointed chapter 7 trustee; the case is now being administered by successor trustee Sandra J. Loomis. In January 2004 the trustee had the default judgment against WorldPoint set aside on appeal for improper service on Fuchs. Fuchs also had the default judgment against him set aside; that order was recently upheld on appeal. The state court action is still pending but is stayed as to WorldPoint.

In the meantime, in August 2002 the trustee filed an adversary proceeding against Lessors and others for rescission, and to recover lease payments, the security deposit and letter of credit proceeds, and the value of WorldPoint's property that had been auctioned pursuant to a writ of execution on the default judgment. At Lessors' request, venue of the adversary proceeding was transferred to the Bankruptcy Court for the Northern District of California; it was assigned to the Hon. Thomas E. Carlson.

The parties cross-moved for summary judgment. The Northern District bankruptcy court denied the trustee's motion for partial summary judgment and granted Lessors'. Tentative Ruling, 17 March 2005. The tentative ruling was adopted by order entered 17 May 2005, which is not in the excerpts of record. The bankruptcy court found that, despite the lease provisions allowing termination of the lease for Lessors' failure to deliver a certificate of completion, debtor was estopped from asserting that the lease had terminated. Among the court's findings were that debtor had treated the lease as in full force and effect by paying rent for 15 months, with only one payment made under protest; debtor continued to have tenant improvements built on the property; and debtor had not timely notified Lessors of noncompliance with the lease under its notification provisions.

The trustee moved for leave to file a third amended complaint to assert causes of action for breach of contract and conversion. The bankruptcy court indicated in its tentative ruling that it was not inclined to grant any further motions to amend the complaint due to the length of time the proceeding had been pending. The final order does not so provide, and the trustee's motion has not been ruled upon.

Meanwhile, the Hawaii bankruptcy court set a claims bar date of 26 September 2002. Notice of Need to File Proof of Claim, 28 June 2002. Although this document is not in the excerpts of record provided us, we may take judicial notice of it. In re E.R. Fegert, Inc., 887 F.2d 955, 957-58 (9th Cir. 1989).

In December 2005 the trustee moved for approval of a settlement with Lessors, which calls for a release of all claims in exchange for Lessors' payment of $25,000 to the estate. Fuchs opposed the settlement. After hearing on 28 February 2006, the bankruptcy court approved the settlement, entering its order on 13 March 2006. The order indicates that the parties to the settlement do not intend " to compromise or release any individual claims of Massimo Fuchs . . . ." This appeal followed.

II. JURISDICTION

The bankruptcy court had jurisdiction via 28 U.S.C. § 1334 and § 157(b)(1) and (b)(2)(A) and (O), and we do under 28 U.S.C. § 158(c).

III. ISSUES

A. Whether the appeal should be dismissed for Fuchs' failure to timely file his opening brief;

B. Whether we should grant Appellees' request for judicial notice;

C. Whether the appeal should be dismissed for lack of standing; and

D. Whether the bankruptcy court abused its discretion in granting the trustee's motion for approval of settlement agreement.

IV. STANDARDS OF REVIEW

Standing is a jurisdictional prerequisite which we review de novo. In re Paine, 250 B.R. 99, 104 (9th Cir. BAP 2000). The issue of standing may be raised at any time. Id.

We review a bankruptcy court's order approving a trustee's application to compromise for abuse of discretion. In re A & C Props., 784 F.2d 1377, 1380 (9th Cir. 1986); In re Mickey Thompson Entm't Group, Inc., 292 B.R. 415, 420 (9th Cir. BAP 2003). A bankruptcy court necessarily abuses its discretion if it bases its decision on an erroneous view of the law or clearly erroneous factual findings. Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 405, 110 S.Ct. 2447, 110 L.Ed.2d 359 (1991). Under the abuse of discretion standard, we may reverse only if we have a definite and firm conviction that the bankruptcy court committed a clear error of judgment in the conclusion it reached. S.E.C. v. Coldicutt, 258 F.3d 939, 941 (9th Cir. 2001); In re Black, 222 B.R. 896, 899 (9th Cir. BAP 1998).

V. DISCUSSION

A. Untimely Brief

Appellees contend that Fuchs' opening brief should be stricken and the appeal dismissed. The brief was filed six days late; Appellees do not argue that they were prejudiced, nor have they set forth any evidence of bad faith, negligence, or indifference.

Although we have discretion to impose sanctions for a party's failure to timely file a brief, Fed.R.Bankr.P. 8009(a)1-(b)(3), no prejudice has been shown, and we decline to do so in these circumstances.

B. Request for Judicial Notice

Appellees have requested we take judicial notice of excerpts of a transcript of Fuch's trial testimony taken in another adversary proceeding for the purpose of showing that Fuchs waived his claims against the estate.

We deny the request. This evidence was not before the bankruptcy court in considering the settlement. Although we may take judicial notice of the existence of documents, we do not necessarily take notice of the truth of the matters asserted therein. In re Blumer, 95 B.R. 143, 146-47 (9th Cir. BAP 1988). The fact sought to be noticed must be of the type described in FRE 201(b), which provides, in pertinent part: " A judicially noticed fact must be one not subject to reasonable dispute in that it is either (1) generally known within the territorial jurisdiction of the trial court or (2) capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned." Such is not the case here. Moreover, given our conclusion on standing, the evidence is irrelevant.

C. Standing

To have appellate standing, an appellant must be " aggrieved" by the challenged order. A person is aggrieved if he is directly and adversely affected pecuniarily by an order of the bankruptcy court; in other words, the order must diminish the appellant's property, increase his burdens, or detrimentally affect his rights. In re Fondiller, 707 F.2d 441, 442-43 (9th Cir. 1983). The party asserting appellate standing bears the burden of proof. Spenlinhauer v. O'Donnell, 261 F.3d 113, 118-19 (1st Cir. 2001).

Appellees argue that Fuchs lacks appellate standing because he was not a party to the litigation that was settled: the settlement did not release any claims or rights held by him individually, and Fuchs has presented no evidence of any liability for which he might be entitled to indemnification from the debtor.

Fuchs insists he is a " creditor" as he remains a named crossdefendant in the state court litigation. He claims this gives him an unmatured and/or disputed right to indemnity. He also relies on the fact that the bankruptcy court referred to him as a creditor at the hearing on approval of the settlement agreement, and contends that he may have to litigate the " intent" language in the order on appeal to determine whether it is legally binding.

Fuchs' right to indemnification, if any, is a contingent claim. In re THC Financial Corp., 686 F.2d 799, 803-04 (9th Cir. 1982). He did not file a claim in the bankruptcy case, and the time for doing so has passed, nor does his status as a shareholder, director, or officer, without a direct pecuniary interest, confer standing. In re Dein Host, Inc., 835 F.2d 402, 406-07 (1st Cir. 1987).

We conclude Fuchs lacks standing and, accordingly, will dismiss the appeal.

D. Merits

Even if Fuchs had standing, he could not prevail on the merits. Were we not dismissing, we would affirm:

1. Subject Matter Jurisdiction

Fuchs contends the Hawaii bankruptcy court lacked jurisdiction to enter the order on appeal because the adversary proceeding had been transferred to the Northern District of California. He cites no relevant authority for this argument. A motion to approve settlement of an adversary proceeding is heard in the main case. See In re Thompson, 965 F.2d 1136, 1141 n.5 (1st Cir. 1992). There is no authority for the proposition that the bankruptcy court administering the main case loses jurisdiction to approve a compromise when the adversary proceeding is transferred to another district. Nor would that make sense - all parties in interest in the case, not just those in the adversary proceeding, are entitled to notice, 9019(a), referencing Rule 2002, and the court must consider the impact of any settlement on the estate.

Moreover, the representative of the estate, here the trustee, is the settling party who seeks approval of the compromise from the court that supervises her administration of the estate. Without that approval there could be no effective settlement.

2. Fair and Equitable?

The party proposing a compromise has the burden of persuading the bankruptcy court that it is fair and equitable.

In determining the fairness, reasonableness and adequacy of a proposed settlement agreement, the court must consider:

(a) the probability of success in the litigation; (b) the difficulties, if any, to be encountered in the matter of collection; (c) the complexity of the litigation involved, and the expense, inconvenience and delay necessarily attending it; (d) the paramount interest of the creditors and a proper deference to their reasonable views in the premises.

A & C Props., 784 F.2d at 1381 (citations omitted).

Fuchs argues the bankruptcy court had an insufficient factual foundation for approving the settlement, attacking the trustee's motion for approval as conclusory and lacking specific values for her claims and the estimated costs of continued litigation.

Fuchs is correct that the bankruptcy court must have an adequate record upon which to base its conclusions. Id. at 1383. Although Fuchs raised this argument in his response to the motion to approve the settlement, he abandoned it at hearing. He did not raise the concern in argument, nor did he respond when the bankruptcy court solicited further opposition before ruling. Clearly his fundamental concerns were indemnification and the releases. Transcript, 28 February 2006, at 5-8. An appellate court need not consider arguments raised for the first time on appeal; we see no need to allow appellants to resurrect arguments foregone in the trial court. See In re Roberts, 331 B.R. 876, 881 (9th Cir. BAP 2005).

In any event, the bankruptcy court had an adequate record. Most importantly, Fuchs attached a copy of the Northern District bankruptcy court's detailed tentative ruling to his declaration in opposition. That ruling, adopted in the order granting Lessors' motion for summary judgment and denying the trustee's, doomed the estate's case: the Northern District bankruptcy court had already indicated it was unlikely to grant the trustee's motion to file a third amended complaint. Although the court did not tick off the A & C Properties factors, review of the record unambiguously shows they were taken into account.

The bankruptcy court gave ample consideration to the relevant factors, finding that the trustee had aggressively pursued the litigation but had been " uniformly unsuccessful"; collection of any judgment would not likely be a problem; the litigation had been ongoing since 2002, and involved California state court litigation and a Hawaii trustee, such that " a very substantial recovery would have to be made before anything could flow down to unsecured creditors"; and the objecting creditors (debtor's insider and debtor's former counsel) are not of the class of creditors whose interests are typically considered in this context. Transcript, 28 February 2006, pages 4-5.

The evidence in the record supports the bankruptcy court's findings.

3. Abuse of Discretion?

Fuchs argues that the bankruptcy court abused its discretion in approving the settlement because (1) the trustee has no power to release claims of third parties, specifically, creditors, shareholders, directors, officers, and employees of the debtor; (2) the bankruptcy court relied on an insufficient record; (3) the bankruptcy court failed to make sufficient findings and conclusions; (4) the bankruptcy court failed to treat the settlement as a § 363 sale; and (5) the bankruptcy court erred when it concluded that by-laws are executory contracts.

Fuchs cites In re American Hardwoods, Inc., 885 F.2d 621 (9th Cir. 1989), for the proposition that a bankruptcy trustee has no power to release a debtor's officers. In American Hardwoods, the court of appeals upheld the district court's ruling that the bankruptcy court had lacked power to enjoin a creditor from enforcing a state court judgment against non-debtor guarantors, who were officers of the corporation. Id. at 625-26. The facts of this case are not analogous: the trustee did not purport to release claims on behalf of anyone individually, as the order notes, and all appellees' counsel confirmed again at argument that the release did not bar Fuchs' individual claims.

Fuchs also complains that the bankruptcy court did not treat the compromise as an asset sale, as required by Mickey Thompson, 292 B.R. at 421-22. Specifically, he complains that the bankruptcy court did not make a specific finding of good faith on behalf of the Lessors. Again, Fuchs did not raise good faith in the bankruptcy court, and we need not consider it. Roberts, 331 B.R. at 881.

Moreover, he complains that the trustee did not solicit any other bids, and that his offer to step into the trustee's shoes and pursue the litigation was not considered, citing In re Lahijani, 325 B.R. 282 (9th Cir. BAP 2005). The decision of whether to open an asset sale to competitive bidding is discretionary and fact-specific. Mickey Thompson, 292 B.R. at 421-22. Fuchs did not back up his offer to pursue the litigation with a concrete proposal. Rather, he made a skeletal offer to support the litigation in return for a share of the potential proceeds.

Finally, Fuchs argues that the bankruptcy court erred in concluding WorldPoint's bylaws were an executory contract. He makes this argument in connection with his asserted indemnification right, which he acknowledges is a contingent claim. Opening Brief, at 40. Whether or not the bankruptcy court miscategorized their status is moot: Fuchs filed no claim, and the time for doing so has passed.

We have addressed the sufficiency of the record and the bankruptcy court's findings and conclusions above.

Approval of the settlement was not an abuse of discretion.

VI. CONCLUSION

We deny appellees' request for judicial notice, and will not dismiss the appeal for the late-filed brief, but will for Fuchs' lack of standing.

We DISMISS this appeal.

All " Rule" references are to the Federal Rules of Bankruptcy Procedure; " FRE" references are to the Federal Rules of Evidence.


Summaries of

In re Worldpoint Interactive, Inc.

United States Bankruptcy Appellate Panel of the Ninth Circuit
Mar 7, 2007
BAP HI-06-1115-BKMo (B.A.P. 9th Cir. Mar. 7, 2007)
Case details for

In re Worldpoint Interactive, Inc.

Case Details

Full title:In re: WORLDPOINT INTERACTIVE, INC., Debtor. v. SANDRA J. LOOMIS…

Court:United States Bankruptcy Appellate Panel of the Ninth Circuit

Date published: Mar 7, 2007

Citations

BAP HI-06-1115-BKMo (B.A.P. 9th Cir. Mar. 7, 2007)