F OR P UBLICATION



### UNIT E D ST AT E S CO URT O F APPE AL S FO R T H E NINT H CIRCUIT

I N T H E M A T T E R O F P O I N T C E N T E R F I N A N C I A L , I N C ., Debtor

,

D A N J

. H A R K E Y ; R O B I

N B

. G R A H A M , as Trustee of the Robin B

. Graham and Celia Allen-Graham Revocable Trust; C E L I A A L L E

N -G R A H A M , as Trustee of the Robin B

. Graham and Celia Allen-Graham Revocable Trust; R I C H A R

D S C H A C H T E R ,

Appellants

,

v

.

H O W A R D B

. G R O B S T E I N , Chapter 7 Trustee, A ppellee. N o. 16-56321

D.C. No. 8:16-cv-01336- DSF

OPI NI ON

A ppeal from the United States District Court for the Central District of California Dale S. F ischer, District J udg e, Presiding

Arg u ed and Submitted December 5, 2017

Pasadena, California

F iled May

29, 2018I N R E P O I N T C E N T E R F I N A N C I A L 2

B efore: A. W allace Tashima and Marsha S. B erz on, Circuit J udg es, and Matthew F . Kennelly

, * District J udg e.

O pinion by J udg e Kennelly

SUMMARY * *

Bankruptcy

The panel reversed the district c ourt’s d ismissal f or lack of standing of a n appeal from a bankruptcy court order that authoriz ed a Chapter 7 trustee to assume the operating
ag reement of a limited liability company whose interests were implicated in the bankruptcy proceeding s.

The district court concluded that the members a nd orig inal president of the c o m pany lacked standing to challeng e the bankruptcy c o u r t order because, despite receiving adequate notice of the trustee’s assumption motion, they did not file an objection or attend the hearing before the bankruptcy

court.

Reversing

, and ag reeing with the F ourth Circuit, the panel held that attendance and ob j e c t ion are not p rerequisites for satisfy ing the “person ag g r ieved” requirement for prudential standing

. The panel remanded the case to the district court.

* T h e Ho n o rab l e Matth ew F. Ken n elly , Un ited States District J u dg e f o r th e No rth ern District o f Illin o is, sittin g b y

d esig n atio n

.

** T h is su m m ary co n stitu

t es n o p art o f th e o p in io n o f th e co u rt. It h as b een p rep ared b y

co u rt staf

f f o r th e co n v en i en ce o f

th e read er.I N R E P O I N T C E N T E R F I N A N C I A L 3

COUNSEL

Sean A. O ’Keefe (arg

u ed), O’Keefe & Associates L aw Corporation P.C., I rvine, California, for Appellants.

Roy e Z ur (arg

ued), L a ndau Gottfried & B erg e r L L P, L os Ang eles, California, for Appellee.

OP INION

KENNEL L Y, District J udg e:

Appellants are m e m bers a nd the orig inal president o f Dillon Avenue 44, L L C (Dillon), a limited liability company whose interests have been implica t e d in the bankruptcy proceeding s o f Point Center F inancial, I n c

. (PCF ). They appealed from a bankruptcy court o rder that, among other thing s, a u t h oriz ed PCF ’s Chapter 7 trustee, Howard B

. Grobstein, to assume Dillon’s operating a g reement long a fter the deadline for assuming or rejecting ex ecutory contracts h ad passed. The district court dismissed the appeal on the g r ound that Appellants lacked standing to ch al leng e the bankruptcy
court o rder because, despite receiving adequate n otice of the motion, they did not file a n objection o r attend the h earing before the bankruptcy

court. W e reverse.

I. Background

A. F acts

This appeal arises from an order issued by the bankruptcy
court in the bankruptcy proceeding of Point Center F inancial, I nc., an orig inator and servicer of r esidential and commercialI N R E P O I N T C E N T E R F I N A N C I A L 4

loans. PCF obtained funding for loans from p rivate investors who would ty

p i c ally receive a fractionaliz ed interest in the loan and in the deed o f t r u s t securing the loan. I n the event of a d efault, PCF would initiate foreclosure proceeding s ag ainst the real property securing the loan. I f PCF purchased that property at the f

oreclosure sale, PCF would create a new limited liability company (L L C) to hold title to the property , and the investors’ interests in the loan and foreclosed deed o f
trust would then be ex chang e d f or membership interests in the L L C, which PCF would manag e

.

After a borrower defaulted on a PCF -orig inated loan secured by an undeveloped property in I ndio, California, PCF f o rmed Dillon Avenue 44, L L C to hold title to the propert y

. Once Dillon obtaine d t itle to the I ndio property a fter foreclosure, the investors who prov i d e d t he funds for the orig inal loan ex cha n g e d their fractional interests in the loan and deed o f trust for membership interests in Dillon. Dillon’s 2011 o perating ag reement desig nated PCF as the manag e r o f
t h e c ompany , and appellant D an J

. H arkey was appointed president. Appellants Robin B

. Graham, Celia AllenGraham, and Richard Schachter a ll h o l d m e m b ership interests in Dillon.

B. P rocedural history

I n F ebruary 2013, PCF filed a voluntary p etition f o r relief under Chapter 11 o f th e U

. S

. B ankruptcy Code. The proceeding was later converted to a Chapter 7 proceeding

. I n J anuary 2 0 1 4
, t he bankruptcy court entered an order setting F ebruary 2 8, 2014 as the deadline for Grobstein, the Chapter 7 trustee, to a ssume o r reject PCF ’s remaining ex ecutory contracts, which included Dillon’s 20 1 1 o p e rating ag r eement.I N R E P O I N T C E N T E R F I N A N C I A L 5

Grobstein did not assume Dillon’s o perating ag reement by the F ebruary 28, 2014 deadline.

I n May 2016, Grobstein fi l e d a motion (the Assumption Motion) asking the bankruptcy cour t to issue an order (1) authoriz ing him to ex ercise manag e ment authority over Dillon, so long as a majority of the membership interests in Dillon so voted, (2) a

u thoriz ing him to as s u m e Dillon’s operating ag reement backdated to F ebruary 2013
, a nd (3) c ompelling delivery to him of the company ’s records a nd property

. Grobstein’s motion a l l e ged that his f ailure to

assume the operating a g reement by t h e February 2014 deadline was the result of ex cusable neg lect s t emming from reliance on deliberate misrepresentations made by appella n t Harkey and others. Grobstein provided notice of the motion
to Appellants. T he notice stated that, pursuant to a l o c al bankruptcy court rule, any response to the motion must be filed and served at least 14 day s p rior to the hearing date. No one filed an opposition to the motion prior to the hearing

.

The bankruptcy c ourt held a hearing on the Assumption Motion on J une 2 1, 2016. Neither Appellants nor counsel for Appellants attended the hearing

. At the end of the hearing

, the bankruptcy court orally g ranted the motion, stating that it

was u nopposed. The transcript of the hearin g m a k e s clear that the c ourt contemplated that G robstein’s counsel would draft an order for the court’s sig nature.

O n J une 28, 2016, evidently h aving learned that the bankruptcy court had orally g ranted the Assumption Motion, Appellants f

iled a n emerg ency motion for recons i d e r a t ion a nd
soug h t an ex pedited hearing on the motion. The bankruptcy
court had not y et i s s u e d the anticipated written order on the Assumption Motion. On J une 29, the bankruptcy courtI N R E P O I N T C E N T E R F I N A N C I A L 6

denied Appellants’ application for an order setting a hearing

on the em e r gency motion for reconsideration. The b ankruptcy court stated that it could construe Appellan t s ’ failure to file a written opposition to the Assumption Motion

as consent to the g ranting of the motion, but instead it addressed the merits o f Appellants’ arg uments in support o f reconsideration. The court n oted tha t t h e order on the Assump t i on Motion had not y et been entered but concluded that Appellants had not shown either that the o ral ruling was manifest error or that they were likely to prevail on ap p e a l. L ater that day

, the bankrup t c y court entered a written order (the Assumption Or d e r ) g ranting the Assumption Motion in its entirety

. Appellants filed a timely notice of appeal, stating that they were appealing from the bankruptcy court’s order on the Assumption Motion.

B e fore the district court, Grobstein moved to dismiss the appeal on the g round that Appellants lacked standing to appeal b eca u s e t h ey did not file an objection to the Assumption Motion or attend the J une 2016 h e a r i n g on the matter, despite having received adequate noti c e of the motion. The district c ourt ag reed and g ra n t e d Grobstein’s motion to dismiss for lack of standing

.

II. Discussion

W e review a district court’s decision on appeal from the bankruptcy court de n ovo, “apply ing the same standards applied by the district court, without d e f erence to the district court.” Hughes v

. T

o w e r Park Props. (

In re Tower Park Props., LLC

)

, 803 F .3d 4 5 0, 456 n.5 (9th Cir. 2015) (internal quotation marks and citation omitted). St a nding is a n issue of law th a t w e review de novo, while related f actual determinations are reviewed for c l e a r error. Palmdale H illsI N R E P O I N T C E N T E R F I N A N C I A L 7

Prop., LLC v

. Leh m a n Commercial Paper, Inc. ( In re Palmdale Hil l

s P r op., LLC

)

, 654 F .3d 868, 873 (9th Cir. 2011).

All circuits, including this one, limit standing to appeal a bankruptcy court order to “ person[ s] ag g rieved” by the order. See, e.g. , Opportunity F

in., LLC v. Kelley

, 822 F .3d 4 51, 457 (8th Cir. 2016); Duckor Spradling & Metzger v. B aum Tr. ( I n

re P.R.T.C., Inc. )

, 1 77 F .3d 774, 777 (9th Cir. 1999). Under this prudential standing doctrine, only a “person ag g rieved,” that is, someon e w h o is “directly a nd adversely affected
pecu n i a r i ly ” by a bankruptcy court’s order, has standing to appeal that order. Fondiller v. Ro bertson ( In re Fondiller ), 707 F .2d 441, 443 (9th Cir. 1983). An order that d iminishes one’s p roperty , increases one’s bu rdens, or detrimentally affects one’s rig

hts has a direct and adverse pecuniary effect for bankruptcy standing purposes

. S ee, e.g. , P .R.T.C.
, 177 F .3d at 777.

A s w e ex p lained in Fondiller

, this prudential standing requirement “ex ists to fill the need for an ex plicit l i m itation

on standing to a

ppeal in bankruptcy proceeding s.” Fondiller

, 707 F

. 2d a t 443. B a

nkruptcy proceeding s invariably g ive r ise
to disputes that implicate the int e r e sts of many different stakeholders, including those who are not formally parties to the litig ation. Id. L imiting a ppellate standing to “person[ s]
ag g r ieved” by a p articular b ankruptcy order serve s the interests of ju d i c i a l efficiency

. Id. ; see also In re Ray, 597 F .3d 871, 874 ( 7 th Cir. 2010) (“[ C] ourts c on s i s t e n tly have noted a public policy interest in reducing the number o f ancillary suits that c a

n be bro u ght in the bankruptcy c ontex t

so as to advance the swift and efficient administration of the bankrupt’s estate. This g oal is achi e v ed primarily b y narrowly def

i n ing who has standing in a bankruptcyI N R E P O I N T C E N T E R F I N A N C I A L 8

proceeding

. ”) (quoting Cult A w a reness Network, Inc. v

. Martino ( In re Cult Awareness Network, Inc. ), 151 F .3d 605, 609 (7th Cir. 1998)).

I n t h e p resent case, the district court concluded that Appellants’ f

ailure to attend the b ankruptcy court h e aring on the Assumption Motion deprived them o f standing to appeal the Assumption Order. The d i s t r ict court relied for this conclusion on Brady v. Andrew ( In re Commercial W

estern Finance Corp. ), 761 F .2d 1 329, 1335 (9th Cir. 1985), which stated in d icta that “ a ttendance and objectio n” at the b a n k r u p t c y co u r t p r oceeding s “shou l d u s u a l l y ” b e prerequisites to meeting the “person ag g rieve d ” bankruptcy standing rule.

Althoug h a number of unpublished, non-binding o p inions in this circuit a

ppear to sug g est otherwise, 1 t h e re is no controlling law in this circuit reg arding whether a person w ho has a pecuniary interest a ffected by a b ankruptcy proceeding and received adequate notice of a bankr u p t cy court hearing

, but failed to a

ppear and object, may b e f ound to satisfy the “person a g g rieved” requirement for appellate standing

. This court’s sug g estion in I

n r e Commercial W

estern Finance Corp. ( Commercial

) that “attendance and objection shou l d usually be p rerequisites to fulfilling the ‘person ag g rieved’ standard” was not a holding and does not bind us. Commercial

, 7 61 F .2d a t 1335. I n Commercial

, we were presented with the question of wh ether investors adversely

1 S ee Fren ch Au to

. LLC v. Gill ( In re W

. Co vin a Mo to rs, In c. ), 69 1 F. A p p’ x 3 6 2
, 3 6 2 (9 th Cir. 2 0 1 7 ); Ben ha m v. Ha g en ( In re Ben h a m ), 6 7 8 F. A p p’ x 4 74
, 4 7 6 (9 th Cir. 20 1 7 ); W a th en v. Y a rn all ( In re W a th en ), 41 2 F. A p p’ x 1 3
, 1 4 (9 th Cir. 2 0 1 1 ); Ma rin v. S a n d ers ( In re Ma rin ko vic ), 2 9 5 F. A p p’ x 1 5 3 , 1 54 (9 th

Cir. 2 0 0 8).I N R E P O I N T C E N T E R F I N A N C I A L 9

affected by a ban kruptcy court order confirming a particular plan of reorg aniz ation could satis f y t he “person ag g rieved” standing requirement despite having failed to at t e n d the h e a r i n g a nd object to the p roposed plan. Id. at 1 332. W e observed that a “leading c o m mentator” supported requiring

a t tendance and o bjection “as a limitation on the num b er o f people who h ave standing to appeal” in lig ht of “the need for
economy and efficiency in t h e bankruptcy sy stem.” Id. at 1335. F o r that reason, we “ag ree[ d] that attendance a nd objection should usually be prerequisites to fulfilling the ‘person ag g rieved’ standard.” Id. (footnote omitted). Nonetheless, we decided the case on different gr o u n d s : we held that the investors’ failure to a p p ear and object did not defeat their standing to appeal the bankruptcy court order at issue because the trustee had not g iven the m proper notice that the reorg aniz ation plan affected their s e curity interests. Id.

Our sister circuits that have addressed the issue disag r ee reg arding w hether attendance and objection are prerequisites for satisfy ing the “person ag g rieved ” standing requirement. Compare In re Schultz Mfg. Fabricating Co

. , 9 56 F .2d 686, 690 (7t h C i r. 1992) ( “Prerequisites for b eing a ‘person
ag g r ieved’ a

re attendance and objection at a bankruptcy court proceeding

. ”) (citing Commercial

, 761 F .2d at 1334–35) with W hite v

. Univision of Va. Inc. ( In re Urban Broad. Corp. ), 401 F .3d 236, 244 (4th Cir. 2005) (attendance and objection

are not re q u i rements f

or standing to a

ppeal a bankruptcy
court order). Courts that ha ve approved of attendance a nd objection standing prerequisites in dicta or otherwise cite the

same c onsiderations of judicial economy and e fficiency that underlie the g eneral “pe r s on ag g rieved” standard. S ee, e.g. , Ray
, 597 F .3d at 874 ( “Th e s e r e quirements reflect the need for eco n omy and efficiency in the bankruptcy sy stem.”);I N R E P O I N T C E N T E R F I N A N C I A L 10

Commercial

, 7 61 F .2d at 1335 (support for a t tendance a nd objection requirement stems from recog nition of “ the need for economy

and efficiency

in the bankruptcy

sy stem”).

Most procedural rules that serve the interests of jud i c ial
economy and efficiency are not r ules of standing

. Rather, we

e nforce applicable procedural rules when appropriate

, sometimes ruling that failure to c omply c onstitutes forfeiture

or waiver. See, e.g. , Cellular 101, Inc. v. Channel Commc’ns, Inc. ( In re Cellular 101, I

nc. ), 5 3 9 F .3d 1150, 1154–57 (9th Cir. 2008); E

newally v. W

ash. Mut. Bank (

I n re Enewally ), 368 F .3d 1165, 1173 (9th Cir. 2004); see also W ellness Int’l Network, Ltd. v

. S

harif

, 135 S. Ct. 1932, 1949 (2015). W e do
not a utomati c a l ly toss a litig a nt out of court for noncompliance with a trial court rule witho u t a l lowing the litig ant to e x plain why the n oncompliance should be ex cused, caused no harm, or had limited impact.

B a nkruptcy standing concerns whether an individual o r entity is “ag g rieved,” not whether one m a kes that known to the bankruptcy c ourt. I n other words, one ne ed n o t h ave attended and made o bjections a t the hearing to be directly a nd adversely affected by a bankruptcy c o u rt’s decision

. W e therefore ag r e e with the F o u r t h Circuit that a n appellant’s failure to attend and object at a bankruptcy c ourt hearing has

no b earing on the question of whether that appellant has standing to appeal a bankruptcy court order:

[ D] efining standing by whether a party waives

or forfeits rig hts to object to claims,

. . . misconstrues the s t a n ding requirement

. . . , th a t the appellant show that he has been directly and adversely a

ffected pecuniarily b y the bankruptcy order. M o r eover, d efiningI N R E P O I N T C E N T E R F I N A N C I A L 11

standing by whether an appellant has objected
to a n order or attended a hearing conflat e s basic notions of standing w i t h notions o f waiver and forfei ture. According ly

, we

. . . ask only whether [ the a

ppellant] was direc t ly

a n d adversely affected pecuniarily by the bankruptcy

court’s order.

Urban Broad. Corp.
, 401 F .3d at 244 (emphasis in the orig inal). F ailure to attend and object may result in waiver o r forfeiture of the rig

ht to make certain a

r g uments or o bject to certain claims, but it d oes not present a jurisdictional standing issue.

W e also note that althoug h Appellants did not attend the hearing on the Assumption Moti o n , they filed a motion to reconsider with the bankruptcy court before it h a d i s sued a written order on the motion—a written or d e r t h a t the court

ex p ressly c o n templated when it made its oral ruling

. Appellants laid out their objections to the Ass u m p tion Motion and the anticipated o rder in g reat d e t a i l i n that motion to reconsider. Sig nificantly , the bankruptcy court did not deny the motion to reconsider based on Appellants’ failu r e to

a p p e a r ; r a t h e r , i t a d d r e s s e d t h e i r a r g u m e n t s f o r reconsideration on the merits. Under these circumstances, we find that Appellants h ave not waived their challeng e to the proprie t y of the underly ing Assumption Order, thoug h the question of f

or f e i t u re is open f

or determination on remand. See Hamer v. Neighborhood Hous. S ervs. Of Chi.

, 138 S. Ct. 13, 17 n.1 (2017) (“The term s w aiver and forfeiture–thoug h often u s e d interchang eably by jurists a nd litig ants–are not

s y nony mous. F orfeiture is the failure to make the t i m el y

a s s e rtion of a rig ht; w aiver is the intentional relinquishmen t

or abandonment of a k

nown r ig ht.”) (internal quotation marksI N R E P O I N T C E N T E R F I N A N C I A L 12

and alterations omitted); Cadillac Fairvi e w /Ca., Inc. v

. United S tates , 41 F

. 3d 5 62, 565 n.3 (9th Cir. 1994) (issue not raised in opposit i on to motion f or summary judg ment was nonetheless p roperly before the court of appeals where it h ad bee n r ai s e d in a motion to vacate the g rant of summary judg ment and the district court rejected it on the merits in an order supplementing its ruling on the summary judg ment motion).

Be cause there is no question that Appellants’ pecuni a r y interests are d irectly a

nd adversely affected by the bankruptcy
court order in que s t i o n , we reverse the district court’s d i s m i s sal of the appeal f or lack of standing

. W e therefore remand the c a s e to the d istrict court. See Mastro v. Rigby

, 764 F .3d 1090, 1097 (9th Cir. 2014) (“W hen a district court improperly d ismisses a bankruptcy a p p e al without reaching the merits, w e g enerally r everse the d istrict court’s d ismissal and remand for the district court’s consideration of the appeal in the first instance.”). On remand, the distr i c t court may consider whether Appellants forfeited their opposition to the Assumption Motion a

nd, if so, whe t h er the bankruptcy court’s g ranting of the Motion sh o u l d b e reviewed for plain

error. See Draper v. Rosario , 836 F

. 3 d 1072, 1085 (9th Cir. 2016) (“In the civil contex t, plain error review requires: (1) an error, ( 2) the error is plain or o b vious, (3) the error was prejudicial o r affects substantial rig hts, and (4) review is
necessary to prevent a miscarri a ge of justice.”) (internal quotation marks and alterations omitted).I N R E P O I N T C E N T E R F I N A N C I A L 13

III. Conclusion

W e reverse the d istrict court’s dismissal for lack o f standing and remand to the district court.

REVERSED and REMANDED.