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FILED

OCT 29 2015

SUSAN M. SPRAUL, CLERK

U.S. BKCY. APP. PANEL

OF THE NINTH CIRCUIT

NOT FOR PUBLICATION

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE NINTH CIRCUIT

In re: ) BAP No. CC-14-1193-DTaKu

)

ALTERNATIVE GRAPHICS, INC., ) Bk. No. 9:12-bk-11378

)

Debtor. )

______________________________)

)

HEWLETT-PACKARD FINANCIAL )

SERVICES COMPANY, )

)

Appellant, )

)

v. ) M E M O R A N D U M1

)

ALTERNATIVE GRAPHICS, INC., )

)

Appellee. )

______________________________)

Argued and Submitted on September 24, 2015

at Malibu, California

Filed - October 29, 2015

Appeal from the United States Bankruptcy Court

for the Central District of California

Honorable Robin L. Riblet,2 Bankruptcy Judge, Presiding

 

Appearances: Amanda Nichole Ferns of Ferns, Adams & Associates

argued for Appellant; William Charles Beall of

Beall & Burkhardt argued for Appellee.

 

Before: DUNN, TAYLOR AND KURTZ, Bankruptcy Judges.

1This disposition is not appropriate for publication. 

Although it may be cited for whatever persuasive value it may

have (see Fed. R. App. P. 32.1), it has no precedential value. 

See 9th Cir. BAP Rule 8024-1.

2On May 9, 2014, the bankruptcy case was reassigned to the

Honorable Peter Carroll.
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Creditor Hewlett-Packard Financial Services Company

(“HP Financial”) appeals from the bankruptcy court’s order

confirming the Debtor’s chapter 11 plan of reorganization.3

Specifically, HP Financial takes issue with the following: 1) the

confirmed plan’s characterization of HP Financial’s claim; 2) the

amount to be paid to HP Financial under the confirmed plan; and

3) the court’s denial of HP Financial’s motions to alter or amend

previous orders awarding sanctions to the Debtor. We DISMISS AS

EQUITABLY MOOT the aspects of the appeal concerning plan

confirmation generally and the characterization of HP Financial’s

agreement with the Debtor. Otherwise, we AFFIRM.

I. FACTUAL BACKGROUND

This appeal arises from a dispute involving a creditor who,

in the words of the bankruptcy court, “has been fighting tooth

and nail every inch to try and prevent the Debtor from getting

documents” requested in discovery.

The discovery dispute arose out of a disagreement between

the Debtor and creditor HP Financial as to the nature of a

transaction between the parties in 2007. The Debtor acquired a

piece of printing equipment from HP Financial. HP Financial

maintains that it leased the equipment to the Debtor, whereas the

Debtor contends (and the bankruptcy court found) that the

3Unless otherwise indicated, all chapter and section

references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532. 

All “Rule” references are to the Federal Rules of Bankruptcy

Procedure. All "Civil Rule" references are to the Federal Rules

of Civil Procedure. The Local Bankruptcy Rules of the United

States Bankruptcy Court for the Central District of California

are referred to as “Local Bankruptcy Rule” or “LBR.”

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transaction was documented as a lease but was actually intended

as a security arrangement for a sale.

As explained below, this disagreement was the only issue in

need of resolution before the Debtor’s chapter 11 plan could be

confirmed. Unfortunately, that resolution was delayed six months

while the parties waged a heated battle over the Debtor’s

discovery requests and HP Financial’s responses.

The Indigo 5500

The Debtor, Alternative Graphics, Inc., is a corporation

operating a commercial printing business in Goleta, California. 

In December 2007, the Debtor acquired an HP Indigo 5500 digital

printing press (the “Indigo 5500") from HP Financial, a

subsidiary of Hewlett-Packard, Inc. (“HP Inc.”). HP Financial,

in turn, had acquired the Indigo 5500 from Indigo America, Inc.

(“Indigo America”), also a subsidiary of HP Inc., for

$350,000.00. The transaction was governed by a so-called Master

Lease and Financing Agreement (“Master Agreement”).

The Master Agreement, together with its attached schedule,

provided that the value of the Indigo 5500 was $337,002.00. The

Debtor was to pay HP Financial $6,517.00 monthly for 60 months,

for a total of $391,020.00. At the end of the 60-month term, the

Debtor could purchase the Indigo 5500 for an amount equal to its

fair market value at that time.

The Chapter 11 Case

On April 2, 2012, the Debtor filed a petition for

reorganization under chapter 11. The Debtor’s amended plan of

reorganization (“Plan”) listed the claim of HP Financial as a

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secured claim, with the collateral being the Indigo 5500.4 The

Plan proposed to pay HP Financial a total of $90,000.00, plus

interest, which the Debtor asserted was the value of the

Indigo 5500 as of the filing date. HP Financial objected to the

plan, arguing that the Debtor had mischaracterized its claim. 

More specifically, HP Financial objected to its treatment as a

secured creditor, arguing that its status under the Master

Agreement was that of a lessor. HP Financial asserted that it

held an unsecured claim in the amount of $272,219.33 and that the

correct value of the Indigo 5500 was $250,000.00.5 A hearing on

confirmation of the Plan was set for November 14, 2013.

4HP Financial did not include the Plan in its appendix or

excerpts of record. In fact, this is only one of the significant

omissions in the appendix and excerpts filed by HP Financial. 

For example, the excerpts of record include only portions of the

transcript of the hearing on Plan confirmation. We have

exercised our discretion to take judicial notice of documents

filed in the Debtor’s main bankruptcy case, including the Plan

and the full transcript of the confirmation hearing. See

O’Rourke v. Seaboard Sur. Co. (In re E.R. Fegert, Inc.), 887 F.2d

955, 957-58 (9th Cir. 1988); Atwood v. Chase Manhattan Mortg. Co.

(In re Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003).

The Debtor filed supplemental excerpts of record but

declined to file the missing portions of the confirmation hearing

transcript, not wishing to waive its request for summary

affirmance on the basis of an inadequate record. We decline the

request.

5According to HP Financial’s amended proof of claim,

$99,801.89 of its claim was attributable to “Costs (attorney’s

fees, late charges, other costs).” Counsel for HP Financial

later conceded that this number was a “typo,” and that the

correct figure was $9,981.89, approximately a tenth of the

originally stated amount. No further amendment to the proof of

claim was made.

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The Discovery Dispute

On August 14, 2013, the Debtor served HP Financial with a

request for production of documents and a set of

interrogatories.6 These discovery requests were aimed at

establishing the true nature of the Master Agreement. The Debtor

requested documents and information concerning any leases

HP Financial had executed with other customers involving

equipment similar or identical to the Indigo 5500. Specifically,

the Debtor wanted to know: the prices paid by any customers to

acquire their presses at the end of their lease terms; the prices

for which such used presses had been sold to third parties; the

amount HP Financial had charged its customers to remove presses

if the customer did not wish to purchase at the end of the lease

term; HP Financial’s expectations at the outset of its agreements

as to the equipment’s value at the end of the lease term; and

other related matters.

On September 23, 2013, after requesting and receiving an

extension of time to respond to the first set of discovery

requests, counsel for HP Financial submitted responses. 

HP Financial objected that the requests were ambiguous, overly

broad, burdensome and oppressive, and that the requests assumed

facts not in evidence and were not calculated to lead to the

production of admissible evidence. Aside from those very general

objections, HP Financial’s responses were perfunctory. It

6These discovery requests were made in the context both of

confirmation proceedings with respect to the debtor’s initial

plan of reorganization and a relief from stay motion filed by

HP Financial.

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produced only one document, a copy of the Master Agreement, which

the Debtor already possessed.

In addition to its general objections, HP Financial also

refused to provide any documents in the possession of HP Inc. or

Indigo America.

The First Motion to Compel

On Tuesday, September 24, 2013, The Debtor’s attorney,

William Beall, e-mailed HP Financial’s attorney, Amanda Ferns. 

Mr. Beall complained that HP Financial’s responses were

insufficient and threatened to file a motion to compel discovery

unless Ms. Ferns called him within one day to discuss the

situation. Ms. Ferns responded by e-mail on Wednesday evening,

September 25, 2013, stating her willingness to meet and confer

with Mr. Beall by telephone, but asking for more specific

information regarding the Debtor’s grievances. The following

morning, Mr. Beall replied by e-mail, providing further details

and stating that he planned to telephone Ms. Ferns the next day,

Friday, September 27, 2013.

What happened next is a matter of some dispute. Mr. Beall

declared that he called Ms. Ferns’ office “within normal business

hours” on Friday, September 27th, and left a voice mail. 

Ms. Ferns stated in her declaration that she did not receive

Mr. Beall’s voice mail until Monday, September 30th. What is

undisputed is that at 3:26 p.m. on September 30, 2013, the Debtor

filed a motion to compel discovery and for sanctions (“First

Motion to Compel”). Ms. Ferns stated that the First Motion to

Compel was filed “before [she] was able to return Mr. Beall’s

telephone call[.]” Mr. Beall retorted that he did not begin

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working on the First Motion to Compel until Monday morning,

September 30th, and that Ms. Ferns could have called him at any

time before 3:26 p.m. 

In the First Motion to Compel, the Debtor argued that the

First Discovery Responses were so inadequate that the bankruptcy

court should treat HP Financial as if it had not responded at

all. The Debtor requested sanctions, in the form of either

attorney fees or terminating sanctions, i.e., prohibiting

HP Financial from voting against or objecting to the Plan. In

response, HP Financial argued that the First Motion to Compel was

procedurally defective, citing Local Bankruptcy Rule

(“LBR”) 7026-1. Under LBR 7026-1, HP Financial argued, Mr. Beall

was required to send Ms. Ferns a letter requesting a meeting to

resolve the discovery dispute and detailing the discovery order

to be sought. If Ms. Ferns failed to respond within seven days,

only then could the Debtor file a motion to compel. HP Financial

also argued that its discovery responses had been sufficient in

any event.

The bankruptcy court held a hearing on the First Motion to

Compel on October 11, 2013. At the outset of the hearing, the

bankruptcy court agreed with HP Financial that the First Motion

to Compel was procedurally improper. Nevertheless, the court

proceeded with the hearing in the hope of avoiding delay of the

November 14 Plan confirmation hearing. The bankruptcy court

rejected the argument that HP Financial could not obtain records

from HP Inc. or Indigo America, because, as counsel for

HP Financial conceded, HP Financial and Indigo America are

subsidiaries and affiliates of HP Inc. The bankruptcy court gave

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HP Financial until November 1, 2013 to supplement its discovery

responses.

After announcing its rulings on the record at the

October 11, 2013 hearing, the bankruptcy court entered an order

on October 31, 2013 (“First Discovery Order”). In the First

Discovery Order, the bankruptcy court denied the Debtor’s request

for sanctions without prejudice due to the failure to comply with

LBR 7026-1. Consistent with the bankruptcy court’s oral rulings,

the First Discovery Order stated that HP Financial’s objections

were overruled and that HP Financial was required to respond to

discovery requests to which it had not already responded

satisfactorily.

On November 14, 2013, HP Financial filed a motion to alter

or amend the First Discovery Order (“First Motion to Alter”). 

HP Financial requested alteration of the First Discovery Order

based on purportedly new evidence on two points:

(1) HP Financial could not search its files by asset,

making it impossible to find previous leases of equipment similar

or identical to the Indigo 5500. In an attached declaration,

HP Financial’s representative Cindy Roebuck asserted that

HP Financial had entered into some 62,000 lease agreements in

North America since July 2013. Ms. Roebuck stated that it would

take “thousands of hours” for HP Financial to find the requested

documents.

(2) HP Financial did not have custody or control over

documents belonging to HP Inc. or Indigo America. Ms. Roebuck

declared that HP Financial was a subsidiary of HP Inc., but

nevertheless Ms. Roebuck had received no response to her efforts

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at communication with HP Inc.

Due to HP Financial’s failure to comply with the bankruptcy

court’s calendaring procedures, the First Motion to Alter was not

set for hearing.

The Second Motion to Compel

Three days after the hearing on the First Motion to Compel,

the Debtor served HP Financial with a second set of

interrogatories and requests for production of documents. The

Debtor requested all invoices and other communications between

and among HP Financial, HP Inc. and Indigo America regarding

HP Financial’s acquisition of the Indigo 5500, as well as all

accounting documents regarding the Debtor’s account.

The November 1 deadline came and went without any additional

responses by HP Financial. On November 12, 2013, HP Financial

submitted supplemental responses to the first round of discovery.

The supplemental responses contained some new information, but

HP Financial repeated its overruled objections regarding burden,

relevance and lack of custody or control of documents and refused

to provide substantive responses to most of the requests. One

significant addition was an appraisal of the Indigo 5500

performed at HP Financial’s request by an appraiser named Steven

Hjelmstrom. Mr. Hjelmstrom valued the Indigo 5500 at

$173,100.00. On November 15, 2013, HP Financial submitted its

responses to the second set of discovery requests.

Throughout November, Mr. Beall and Ms. Ferns met and

conferred regarding the Debtor’s continuing dissatisfaction with

HP Financial’s various discovery responses. On December 4, 2013,

the Debtor filed a second motion to compel discovery and for

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sanctions (“Second Motion to Compel”). The Debtor again

requested monetary sanctions and terminating sanctions in the

form of an order deeming HP Financial to have consented to

confirmation of the Plan.

The bankruptcy court held a hearing on the Second Motion to

Compel on January 29, 2014. After the bankruptcy court overruled

HP Financial’s objections based on burdensomeness and relevance,

counsel for HP Financial explained that, after “months” of

effort, HP Financial had obtained a number of the requested lease

agreements with other customers. After prolonged colloquy, the

bankruptcy court ordered HP Financial to comply with “each and

every” discovery request, to the extent it had not done so

previously.

The court entered an order (“Second Discovery Order”)

granting the Second Motion to Compel, overruling HP Financial’s

objections and requiring HP Financial to respond to all discovery

requests. The Second Discovery Order also required HP Financial

to pay the Debtor’s reasonable attorney fees incurred in the

filing and prosecution of the First and Second Motions to Compel. 

The Debtor was to file a declaration setting forth such fees,

after which HP Financial would have “two calendar weeks” in which

to object. On February 4, 2014, the Debtor filed a declaration

of Mr. Beall (“Fee Declaration”), with an attached itemization of

his fees in the amount of $16,965.00. The court entered an order

(“Fee Order”) on February 18, 2014, requiring HP Financial to pay

the amount set forth in the declaration.

That evening, after the Fee Order had been entered,

HP Financial filed an objection to the Fee Declaration. 

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Specifically, HP Financial objected to the inclusion in the Fee

Order of fees incurred in connection with the First Motion to

Compel, the Motion to Alter, the Debtor’s review of discovery

responses, and the Debtor’s motion to continue the confirmation

hearing.

Shortly before midnight the same night, HP Financial filed a

motion to alter or amend the Second Discovery Order (“Second

Motion to Alter”). HP Financial argued that it was inappropriate

for the Second Discovery Order to impose sanctions that had been

requested in the First Motion to Compel but denied in the First

Discovery Order. Under this argument, the bankruptcy court

should have awarded sanctions, if at all, only in connection with

the Second Motion to Compel.

On March 4, 2012, HP Financial filed yet another motion to

alter or amend (“Third Motion to Alter”), this time seeking

reconsideration of the Fee Order. For the most part, the Third

Motion to Alter raised the same arguments as the Second Motion to

Alter regarding the impropriety of the fees requested. Apart

from those matters, however, HP Financial now argued that the Fee

Order should be altered because it was entered one day too early. 

The Beall Declaration was filed on February 4, and the Second

Discovery Order provided that HP Financial would have “two

calendar weeks” in which to respond; therefore, HP Financial

argued, the Fee Order should not have been entered before

February 19. HP Financial asked the bankruptcy court to alter or

amend the Fee Order to take into account HP Financial’s

objection, which was filed within the allowed two-week period. 

As with the two previous motions to alter or amend, the Third

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Motion to Alter was not set for hearing.

The Confirmation Hearing

The bankruptcy court held an evidentiary hearing regarding

confirmation of the Plan (“Confirmation Hearing”). The

bankruptcy court heard testimony from Mr. Hjelmstrom, the

appraiser who had performed an appraisal of the Indigo 5500 at

HP Financial’s request. Mr. Hjelmstrom testified consistent with

his report that the value of the Indigo 5500 was $173,100.00. 

This was based on a “desktop appraisal,” which means an appraisal

based on photographs and interviews rather than physical

inspection. Mr. Hjelmstrom said the valuation he performed was

“fair market value in place,” which is higher than other

valuations because it takes into account the fact that the

equipment is already installed and in use. Mr. Hjelmstrom

explained his process for arriving at a valuation:

(1) He began with the selling price of a refurbished unit

equivalent to the Indigo 5500.

(2) He then reduced that figure to reflect that the Indigo

5500 had not been refurbished.

(3) He added “in-place costs;” that is, he increased his

valuation to account for the fact that the Indigo 5500 was

already in place and therefore more valuable than a unit that

would require transportation and installation.

(4) He considered two forms of obsolescence: functional and

economic. Functional obsolescence is a matter of whether the

equipment was functionally out of date. Economic obsolescence

applies when a piece of equipment is non-compliant with

applicable regulations and is thus no longer usable. 

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Mr. Hjelmstrom determined that neither of these applied to the

Indigo 5500.

On cross-examination, Mr. Hjelmstrom admitted that he had

not examined the Indigo 5500 or any other presses of that model.

Mr. Hjelmstrom also testified that he had not considered

comparable sales in general or sales by HP Inc. of previously

leased machines in particular; he had investigated only the

asking prices on equipment offered for sale by various sellers. 

With regard to the sales by HP Inc., Mr. Hjelmstrom explained

that such sales are relevant to “orderly liquidation value,” but

irrelevant to determining fair market value in place. 

Mr. Hjelmstrom further acknowledged that, although the

Indigo 5500 was not yet functionally obsolete, the model was no

longer in production and would “soon” be a “white elephant.”

The bankruptcy court also admitted into evidence a number of

exhibits, including a document produced by HP Financial showing a

history of sales of Indigo 5500 printers to customers at the end

of their lease terms. For each transaction, this document showed

the date on which the lease term had begun, a date labeled “BO,”

which all parties agreed stood for “buyout,” and a price also

designated “BO.” 

After argument and colloquy, the bankruptcy court announced

its findings of fact and conclusions of law. The court found

that Mr. Hjelmstrom’s appraisal value was too high, and that the

better method to determine the value of the Indigo 5500 was to

consider the previous lease buyouts. Considering only the lease

buyouts of five-year-old Indigo 5500 presses, the court

calculated that the average price was approximately $45,000. The

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court then found, based on Mr. Hjelmstrom’s testimony regarding

in-place costs, that the cost to return the equipment under the

Master Agreement would have been $25,000. In light of these

calculations, the court found that HP Financial could not

reasonably have expected to receive anything more than minimal

value at the end of the term of the Master Agreement. The court

further found that “it would not make any sense under the

circumstances of this case for the Debtor to pay $25,000 to send

the [Indigo 5500] back rather than $45,000 to keep it.” On that

basis, the court concluded that the Master Agreement was a

security agreement under applicable law. Even though the value

of the Indigo 5500 was determined to be $45,000, the bankruptcy

court concluded that the Debtor was “stuck with” the $90,000

value stated in the Plan.

On April 15, 2014, the bankruptcy court entered an order

consistent with its rulings at the Confirmation Hearing

(“Confirmation Order”). In addition to confirming the Plan, the

Confirmation Order contained language denying HP Financial’s

relief from stay motion and the Second and Third Motions to

Alter. HP Financial filed a timely notice of appeal but did not

seek a stay of the Confirmation Order pending appeal. Since the

Confirmation Order was entered, the Debtor has proceeded to make

payments as required under the Plan. Among the priority

unsecured creditors, some are employees owed vacation time, some

of whom elected to take the vacation time in lieu of payment.

Other unsecured creditors are customers of the Debtor, some of

whom elected to accept payment in kind, in the form of free

printing services, instead of cash distributions.

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II. JURISDICTION

The bankruptcy court had jurisdiction under 28 U.S.C.

§§ 1334 and 157(b)(2)(A). Except as otherwise stated below, we

have jurisdiction under 28 U.S.C. § 158.

III. ISSUES

1. Whether this appeal is moot insofar as HP Financial

seeks reversal of confirmation of the Plan.

2. Whether the bankruptcy court erred in finding that the

Master Agreement was in the nature of a security agreement rather

than a true lease.

3. Whether the bankruptcy court clearly erred in its

valuation of the Indigo 5500.

4. Whether the bankruptcy court abused its discretion in

awarding monetary sanctions to the Debtor.

IV. STANDARDS OF REVIEW

We review our own jurisdiction, including questions of

mootness, de novo. Ellis v. Yu (In re Ellis), 523 B.R. 673, 677

(9th Cir. BAP 2014). We review the bankruptcy court’s findings

of fact for clear error and its conclusions of law de novo. 

Bronitsky v. Bea (In re Bea), 533 B.R. 283, 285 (9th Cir. BAP

2015). The bankruptcy court’s imposition of sanctions for

discovery abuse is reviewed for abuse of discretion. Pham v.

Golden (In re Pham), 536 B.R. 424, 430 (9th Cir. BAP 2015);

Freeman v. San Diego Ass’n of Realtors, 322 F.3d 1133, 1156 (9th

Cir. 2003). We review the bankruptcy court’s decision to confirm

a chapter 11 plan for an abuse of discretion. Marshall v.

Marshall (In re Marshall), 721 F.3d 1032, 1045 (9th Cir. 2013).

A bankruptcy court abuses its discretion if it applies an

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incorrect legal standard or misapplies the correct legal

standard, or if its factual findings are illogical, implausible

or unsupported by evidence in the record. TrafficSchool.com,

Inc. v. Edriver Inc., 653 F.3d 820, 832 (9th Cir. 2011). Only if

the bankruptcy court did not apply the correct legal standard or

improperly applied it, or if its fact findings were illogical,

implausible, or without support in inferences that can be drawn

from facts in the record, is it proper to conclude that the

bankruptcy court abused its discretion. United States v.

Hinkson, 585 F.3d 1247, 1262 (9th Cir. 2009) (en banc).

We may affirm the decision of the bankruptcy court on any

basis supported by the record. See ASARCO, LLC v. Union Pac. R.

Co., 765 F.3d 999, 1004 (9th Cir. 2014); Shanks v. Dressel,

540 F.3d 1082, 1086 (9th Cir. 2008).

V. DISCUSSION

A. Mootness

The doctrine of equitable mootness counsels that an

appellate body should dismiss an appeal where “a ‘comprehensive

change of circumstances’ has occurred so ‘as to render it

inequitable for this court to consider the merits of the

appeal.’” Motor Vehicle Cas. Co. v. Thorpe Insulation Co.

(In re Thorpe Insulation Co.), 677 F.3d 869, 880 (9th Cir. 2014)

(quoting Trone v. Roberts Farms, Inc. (In re Roberts Farms,

Inc.), 652 F.2d 793, 798 (9th Cir. 1981)). This doctrine exists

to protect the finality of bankruptcy decisions, particularly

where the rights of third parties are implicated. Id. The Ninth

Circuit follows a four-step process to determine whether an

appeal from an order confirming a chapter 11 plan is equitably

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moot:

[1] We will look first at whether a stay was

sought, for absent that a party has not fully

pursued its rights. [2] If a stay was sought

and not gained, we then will look to whether

substantial consummation of the plan has

occurred. [3] Next, we will look to the

effect a remedy may have on third parties not

before the court. [4] Finally, we will look

at whether the bankruptcy court can fashion

effective relief without completely knocking

the props out from under the plan and thereby

creating an uncontrollable situation for the

bankruptcy court.

Id. at 881; JPMCC 2007-C1 Grasslawn Lodging, LLC v. Transwest

Resort Props., Inc. (In re Transwest Resort Props., Inc.),

801 F.3d 1161(9th Cir. 2015).

1. HP Financial’s failure to seek a stay

Here, HP Financial did not seek a stay pending appeal and

has thus “flunked the first step.” In re Roberts Farms, Inc.,

652 F.2d at 798. Granted, the Ninth Circuit has not held that an

appeal of this sort is always moot if the appellant fails to seek

a stay. See Rev Op Grp. v. ML Manager LLC (In re Mortgs. Ltd.)

(“Mortgages I”), 771 F.3d 1211, 1216 (9th Cir. 2014) (noting

“tension” in Ninth Circuit authorities concerning this issue). 

Therefore, consideration of the remaining steps is appropriate.

2. Substantial consummation of the Plan

The Code defines substantial consummation as:

(A) transfer of all or substantially all of

the property proposed by the plan to be

transferred;

(B) assumption by the debtor or by the

successor to the debtor under the plan of the

business or of the management of all or

substantially all of the property to be dealt

with by the plan; and

(C) commencement of distribution under the

plan.

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11 U.S.C. § 1101(2). The transfers of property referred to in

subsection A do not include “payments to creditors in

satisfaction of the debtor’s debts.” Rev Op Grp. v. ML Manager

LLC (In re Mortgs. Ltd.) (“Mortgages II”), 771 F.3d 623, 628 (9th

Cir. 2014). Rather, such payments are “distributions” under

subsection C. Id. The significance of this distinction is that

payments to creditors must merely have “commenced” for a

reorganization plan to be substantially consummated.

Here, the reorganized Debtor has assumed the business of

Alternative Graphics, Inc. No other transfers of property were

proposed by the Plan. The Debtor has paid all tax claims and one

of two administrative claims in full, while its other

administrative claim continues to be paid. The Debtor also has

made ongoing monthly payments to its only secured creditor,

HP Financial. Holders of priority claims, all of whom are the

Debtor’s employees, have been paid either in full or in kind. 

General unsecured creditors who elected to receive printing

services rather than cash distributions have received those

services. Finally, the first and second semiannual distributions

to general unsecured creditors who elected not to receive

services in kind have been made. In short, distributions have

commenced, and the plan has been substantially consummated.

3. The third and fourth steps

The third and fourth steps of the Thorpe Insulation analysis

require us to consider what relief can be accorded if we consider

the merits of this appeal. Step three involves a consideration

of the effects on third parties of any available remedy, and step

four involves the related question of whether such remedy would

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create a difficult and essentially unmanageable situation at the

bankruptcy court. Both of these questions in turn depend on the

nature of the relief that would be available.

To the extent HP Financial takes issue with Plan

confirmation itself, any effective relief that might be granted

would inequitably harm the interests of third parties and would

“knock the props out from under the [P]lan.” If we reverse

confirmation, there will be no viable way to claw back

distributions that already have been made under the Plan,

particularly where employees elected to take vacation time in

lieu of payment and where other creditors received payment in

kind in the form of free printing services. Reversal would be

both prejudicial to these third parties and unmanageable in the

bankruptcy court on remand. Furthermore, since HP Financial

ultimately seeks return of the Indigo 5500, the prospect of any

future confirmable plan might be in jeopardy, which would make

the situation still more unmanageable for the court and third

parties. For these reasons, we decline to consider setting aside

Plan confirmation as equitably moot.7

7We note also the following ambiguous exchange between

counsel for HP Financial and the court that took place near the

end of the Confirmation Hearing, after the court had announced

its decision:

MS. FERNS: As it stands, we do not object to

the plan. We withdraw our objection.

THE COURT: You withdraw your objection to

the plan?

(continued...)

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The same rationale applies to the bankruptcy court’s

determination that the Master Agreement created a security

interest rather than a lease. If this decision were reversed, it

would not only knock the props out from under the plan by casting

doubt on the Debtor’s right to retain the Indigo 5500, but it

would also upset the plan’s treatment of unsecured creditors by

adding HP Financial’s very large claim for lease payments as an

unsecured claim. Again, we decline to consider the merits of

this issue as equitably moot.

The issue of the valuation of the Indigo 5500, on the other

hand, presents a less clear case for mootness. Were we to remand

to the bankruptcy court on this issue, it might be possible to

craft relief in the form of modification of the Plan. The

bankruptcy court could simply augment the amount to be paid to

HP Financial under the Plan, which would result in a longer

7(...continued)

MS. FERNS: Well, the objection has been –-

THE COURT: Okay.

MS. FERNS: -- I –- you know, I mean, I –-

the Court has determined that it’s not a

lease, we’re sticking with the 90,000 -–

THE COURT: Okay.

MS. FERNS: -- we agree with the plan. . . .

Hr’g Tr. (Apr. 11, 2014) at 157:17-158:1.

At oral argument, Debtor’s counsel argued that this colloquy

provides an additional ground for affirmance. Because we do not

consider setting aside confirmation of the Plan, we do not

otherwise address this argument.

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duration before the claim is paid off but would have no impact on

distributions to third parties. Thus, in spite of HP Financial’s

failure to pursue its rights by seeking a stay, we elect to

consider the merits of the valuation issue.

As to the issue of sanctions, no third-party rights are

implicated. We therefore consider the merits of that issue

below.

B. Valuation of the Indigo 5500

The proper standard for valuation in this context is

replacement value. Associates Commercial Corp. v. Rash, 520 U.S.

953, 956 (1997). Replacement value is defined as “the cost the

debtor would incur to obtain a like asset” for the same use. Id.

The bankruptcy court had before it two kinds of evidence

bearing on this question. The Debtor presented evidence of the

prices paid by other customers of HP Financial who had elected to

purchase equivalent equipment at the end of their “lease” terms. 

HP Financial presented evidence of value in the form of expert

appraisal testimony by Mr. Hjelmstrom. The bankruptcy court as

trier of fact concluded that the prior lease buyouts provided

better evidence of value than the appraisal. Based on the

evidence of the most recent lease buyouts provided, the

bankruptcy court determined the value of the Indigo 5500 to be

approximately $45,000. But because the Debtor had already

proposed to pay HP Financial $90,000 in the Plan, the bankruptcy

court concluded that the Debtor was “stuck with” that amount.

An examination of the entire record before the bankruptcy

court, including portions of the Confirmation Hearing transcript

omitted from HP Financial’s record on appeal, provided evidence

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to support the bankruptcy court’s value determination. On crossexamination, Mr. Hjelmstrom admitted that he had neither

inspected the Indigo 5500 nor considered any of the lease buyouts

presented by the Debtor. Indeed, Mr. Hjelmstrom stated that he

had not considered any actual sales of equipment similar to the

Indigo 5500 in making his appraisal. The bankruptcy court

further took issue with Mr. Hjelmstrom’s use of a refurbished

value as the baseline from which he began his analysis. Although

Mr. Hjelmstrom testified that he reduced the refurbished value by

twenty percent to account for the fact that the Indigo 5500 was

not refurbished, the bankruptcy court did not clearly err in

finding that the value given was still too high, particularly in

light of the evidence showing much lower prices obtained from

actual sales. Additionally, Mr. Hjelmstrom acknowledged on

cross-examination that the Indigo 5500 was no longer in

production, but he made no adjustment to account for the prospect

of obsolescence in the future.

On this record, we can neither conclude that the bankruptcy

court clearly erred in its valuation, nor that the court abused

its discretion in confirming the Plan with its provision to pay

HP Financial $90,000, plus interest at six percent per annum, for

the Indigo 5500.

C. Sanctions

The Debtor requested sanctions in both Motions to Compel,

and the bankruptcy court awarded sanctions in the form of

attorney fees in its Second Discovery Order. The amount of those

sanctions was determined in a separate Fee Order. HP Financial

takes issue both with the imposition of sanctions and with the

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amount awarded.

1. Imposition of sanctions was not an abuse of discretion

Civil Rule 37(a)(5), made applicable by Rule 7037, requires

the court to award attorney fees to a movant where a party’s

failure to respond to discovery necessitated a motion to compel. 

Such sanctions are not awarded if the moving party resorted to a

motion to compel without first making a good-faith effort to

obtain discovery through ordinary means; if the opposing party’s

nonresponse was substantially justified; or if circumstances

otherwise make an award of sanctions unjust. Civil

Rule 37(a)(5)(A). An evasive or incomplete response to discovery

requests is equivalent to a failure to respond. Civil

Rule 37(a)(4). Absent a motion for a protective order, the fact

that a discovery request is objectionable is no excuse for a lack

of response. Civil Rule 37(d)(2).

In response to the first round of document requests,

HP Financial produced a single document, the Master Agreement

itself, which was already in the Debtor’s possession. Similarly,

HP Financial’s responses to Debtor’s first set of interrogatories

were largely evasive and incomplete. In some cases HP Financial

simply did not respond, other than to make a boilerplate

objection. After the hearing on the First Motion to Compel, at

which the bankruptcy court required additional responses,

HP Financial provided no further responses whatsoever by the

deadline stated on the record at the hearing and later

incorporated into the First Discovery Order. HP Financial

eventually provided supplemental responses, but other information

was furnished only after the Second Motion to Compel was filed

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and the Second Discovery Order was entered. Still other

information was never provided at all.

a. The court did not commit reversible error in

requiring HP Financial to provide documents in the

custody of HP Inc. and Indigo America

With respect to some of the requested documents and

information, HP Financial has maintained both in the bankruptcy

court and now on appeal that the information, which was held

either by HP Inc. or by Indigo America, was not in the

possession, custody or control of HP Financial.

In the related context of Civil Rule 45, the Ninth Circuit

has held that a party has “control” over documents that it has a

legal right to obtain on demand. In re Citric Acid Litigation,

191 F.3d 1090, 1107 (9th Cir. 1999). The Ninth Circuit stated

that its Citric Acid decision was consistent with the decisions

of other circuits on this question, including the Third Circuit’s

decision in Gerling Int’l Ins. Co. v. Comm’r, 839 F.2d 131 (3d

Cir. 1988). The Third Circuit in Gerling explained that, where a

litigating subsidiary acting as the agent of its parent company

has access to the parent company’s documents for its own business

purposes, the subsidiary cannot deny control for purposes of

litigation. Gerling Int’l Ins. Co., 839 F.2d at 141. See also

Cooper Industries v. British Aerospace Corp., 102 F.R.D. 918, 919

(S.D.N.Y. 1984) (“inconceivable” that subsidiary lacked control

over parent’s materials relevant to its business of marketing and

servicing parent’s aircraft).

There is no dispute that both HP Financial and Indigo

America are subsidiaries of HP Inc. The record amply supports

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the conclusion that HP Financial, as the in-house financing unit

of HP Inc., had access to documents possessed by HP Inc. relating

to the very equipment that HP Financial finances on a daily

basis. We perceive no error in the bankruptcy court’s decision

to require production by HP Financial of relevant documents in

its affiliates’ possession.

HP Financial does not argue that it suffered any prejudice

or harm as a result of the bankruptcy court’s requirement that

these documents be produced. Even if we were to hold that this

determination by the bankruptcy court was erroneous, the error

would be harmless and therefore not reversible. Van Zandt v.

Mbunda (In re Mbunda), 484 B.R. 344, 355 (9th Cir. BAP 2012),

aff’d, 2015 WL 1619469 (9th Cir. Apr. 13, 2015) (no reversal for

harmless error).

b. The court did not abuse its discretion overruling

HP Financial’s other objections

HP Financial also objected to various discovery requests on

the grounds that the requested information was not relevant and

that the requests were unduly burdensome. None of these

objections was meritorious, and the bankruptcy court did not

abuse its discretion in imposing sanctions over HP Financial’s

objections.

The requested materials were highly relevant to the

underlying dispute regarding the nature of the Master Agreement

and the value of the Indigo 5500. The discovery requests at

issue sought information regarding similar equipment and similar

transactions with other putative lessees. As noted above, the

bankruptcy court properly relied on admitted evidence of this

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type in making its factual findings. We perceive no abuse of

discretion in requiring production of this relevant information.

As to the objections regarding burdensomeness, even though

HP Financial never moved for a protective order, the court dealt

with the issue during the hearings on both Motions to Compel. 

The bankruptcy court made it clear during colloquy that

HP Financial was not expected to dedicate “thousands of hours” to

locating the requested documents, and that a more modest volume

of production would be acceptable. HP Financial appears to

argue, on appeal as well as before the bankruptcy court, that it

should not have been required to produce anything in response to

these requests merely because it objected on the grounds of

burdensomeness.

Civil Rule 26(b)(2)(C), which provides that electronically

stored information need not be produced if the responding party

shows the information is not “reasonably accessible,” does not

support HP Financial’s argument. HP Financial asserted that the

information regarding prior leases was unavailable due to undue

burden or cost, but the bankruptcy court did not find this

assertion credible. In fact, at least some of this information

ultimately was produced and was presented as evidence at the

Confirmation Hearing. The bankruptcy court did not abuse its

discretion in requiring production of this relevant information.

2. The amount of sanctions was not reversible error

a. The bankruptcy court did not abuse its discretion

in awarding attorney fees for both Motions to

Compel

LBR 7026-1 requires a party seeking discovery to follow

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certain procedures before filing a motion to compel. 

Specifically, the moving party must first arrange a meeting of

counsel in a good faith effort to resolve any discovery dispute. 

Seven days after requesting such a meeting, the moving party may

file and serve a stipulation by the parties explaining the

unresolvable discovery dispute or a declaration of noncooperation by the opposing party. Only then is a party to file

a motion to compel discovery. LBR 7026-1(c)(3). Failure of

counsel to cooperate in this procedure is grounds for imposition

of sanctions. LBR 7026-1(c)(4).

The Debtor filed the First Motion to Compel without waiting

the full seven days after requesting a meeting of counsel and

without filing the required stipulation. Debtor’s counsel argued

at that time that his failure to follow the steps set out in

LBR 7026-1 was justified, as the Confirmation Hearing was fast

approaching and the discovery dispute was unlikely to be resolved

in time. The court, however, concluded that LBR 7026-1 did not

permit the imposition of sanctions absent strict compliance with

its local rule. Nevertheless, the denial of the sanctions

request was without prejudice.

The Second Motion to Compel was filed after meetings of

counsel had been arranged and concluded in an effort to resolve

the ongoing discovery disputes. Debtor’s counsel also filed,

together with the Second Motion to Compel, a declaration

explaining that he had been unable to obtain the cooperation of

counsel for HP Financial in preparing the required stipulation. 

In the Second Discovery Order, the court awarded attorney fees

incurred in prosecuting both Motions to Compel. The original

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denial, without prejudice, of the sanctions request did not

foreclose this award. The record before the bankruptcy court was

sufficient to establish not only that HP Financial had failed to

comply with discovery, but also that counsel for HP Financial had

not cooperated reasonably with Debtor’s counsel’s attempts to

resolve the discovery dispute. The award of sanctions for both

motions did not constitute an abuse of discretion.

b. Entry of the Fee Order before HP Financial filed

its objection to the Fee Declaration was not

reversible error

Finally, HP Financial argues that the bankruptcy court

abused its discretion by entering the Fee Order before the

expiration of the objection period following the filing of the

Fee Declaration. According to the Second Discovery Order,

HP Financial was to have “two calendar weeks” in which to file

any objection to the Fee Declaration. In fact, the bankruptcy

court entered the Fee Order on the fourteenth day after the Fee

Declaration was filed. HP Financial filed an objection to the

Fee Declaration later the same day in the evening.

Although the Fee Order appears to have been entered

technically in violation of the Second Discovery Order, this

violation was remedied when the bankruptcy court considered and

denied the Second and Third Motions to Alter. Wade v. State Bar

of Arizona (In re Wade), 948 F.2d 1122, 1125 (9th Cir. 1991) (no

due process violation when order was entered before response

deadline if party had meaningful opportunity to respond in

reconsideration motion). In filing those motions, HP Financial

had a meaningful opportunity to raise its objections to the Fee

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Declaration. The bankruptcy court considered and rejected these

objections. We perceive no abuse of discretion in this decision. 

Moreover, HP Financial’s arguments regarding the substance of the

Fee Order are so insubstantial as not to warrant further

proceedings before the bankruptcy court.8

VI. CONCLUSION

Based on the foregoing, because the bankruptcy court did not

clearly err in its valuation of the Indigo 5500, we conclude that

it did not abuse its discretion in approving the Plan provision

requiring the Debtor to pay HP Financial $90,000 on its secured

claim. The bankruptcy court’s award of sanctions also was not an

abuse of discretion. We DISMISS AS EQUITABLY MOOT the aspects of

the appeal concerning confirmation of the Plan generally and the

nature of the Master Agreement. On the issues of sanctions and

the valuation of the Indigo 5500, we AFFIRM.

8In fact, the Debtor argues, as an alternative basis for

affirmance, that the bankruptcy court should have imposed

terminating sanctions. As no cross-appeal was filed, this issue

is not properly before us, but we note that the sanctions

actually imposed were intermediate between the parties’

respective positions.

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