### NOT FOR PU BLICA TION

U NIT E D ST A T E S BA NK RU PT CYA PPE L L A T E PA N E L

OF T HE NINT H CIRCU IT In re: A N D R E A S T E IN M A N N D O W N S,

Deb to r. N O R IO , I N C ., A p pellant,

v. T H O M A S H. C A S E Y, C hapter 7 Trustee,

A p pellee. BA P N o . C C -19-1160-TaSG Bk. N o . 8:16-b k-12589-C B

MEMO RA N DU M *

A rgued and Sub m itted o n N o vemb er 21, 2019

at Pasadena, C alifo rnia Filed – N o vemb er 25, 2019 A ppeal fro m the United States Bankruptcy C o urt fo r the C entral Distric t o f C alifo rnia 

# FIL ED
NOV 25 2019 SUSAN M . SPRAUL, CLERK U. S. BKCY

. APP. PANEL O F T HE NI NT H CI RCUI T

*Thi s di sposi ti on i s not appr opr i ate for publi cati on. Although i t may be ci ted for whatev er per suasiv e v alue i t may hav e, seeFed. R. App. P. 32.1, i t has no pr ecedenti al v alue, see9th Ci r . BAP Rule 8024-1.Ho no rab le C atherine E. Bauer, Bankruptcy Judge, Presiding

A ppearanc es: Mark D. Jo hnso n o f Duringer Law Gro up PLCargued fo r

appellant; Jeffrey Ian Go lden o f W eiland, Go lden, Go o drich LLP argued fo r appellee.
Befo r e: T A Y L O R, S P R A K E R, and G AN , Bankruptcy Judges. INT ROD U CT I ON A ndrea and Tim o thy Do wns each held a 50% interest in a
c o r po ratio n, Do wns Ho ldings, Inc . It held lim ited liab ility c o rpo r atio n (“LLC ”) and lim ited partnership (“LP”) o w nership interests. Eventually, the Do wns agreed to disso lve the c o rpo ratio n and, as shareho lders, passed
a c o rpo rate reso lutio n elec ting disso lutio n. But o ther than this initial ac t, they failed to c o m ply with C alifo rnia’s requirem ents fo r c o rpo rate disso lutio n. A nd, in particular, they did no thing further when they learned that a fo rm a l change in o wnership o f its investm ent interests require d further effo r ts. Several years later, Ms. Do wns so ught chapter 11 1 b a nkruptc y pro tec tio n; prepetitio n, she b o rro wed $50,000 fro mN o rio , Inc
. , (“N o rio ”) to financ e this effo rt, and pledged “her” interests in the LLCand LP as
c o llateral.

1 Unless specifi ed other wi se, all chapterand secti on r efer ences ar e to the Bankr uptcy Code. 11 U.S
. C. §§ 101–1532. 2A fter her c ase was c o nverted to chapter 7, the chapter 7 Trustee

objec ted to the secured status o f N o rio ’s filed c laim; he argued that Do wns Ho ldings, no t Ms. Do wns, o wned the interests. The b ankruptcy c o urt sustained the obj ec tio n. W e ac kno wledge that so m e o f the b ankruptcy c o u rt’s findings lac k suppo rt in the rec o rd, b ut we igno re harm less erro r b ec ause the b ankruptcy c o urt’s ultim a te c o nc lusio n is c o rrec t: Do w ns Ho ldings o wned the relevant assets, and Ms. Do wns c o uld no t pledge them to N o rio as c o llateral fo r the lo an. A c c o rdingly, we A FFIRM. FA CT S Mr. Do wns and Ms. Do wns c reated Do wns Ho ldings, Inc . as an investm ent vehic le. Each was a 50% shareho lder; Mr. Do wns was sec retary and Ms. Do wns was president. And it held interests in, am o ng o ther things, Ten Twenty University, LLC (“Ten Twenty”) and VPM W estchester LP (“W estchester LP”). A s is typic al o f LLC s, Ten Twenty’s LLCagreem ent restric ted the
vo luntary o r invo luntary transfer o rpledge o f m emb ership interests unless the m emb er c o m plied with c ertain c o nditio ns; it alsopro vided that attem p ted transfers o r pledges wo uld b e null and vo id. The Do wns signed the agreem ent o n Do wns Ho ldings’ b ehalf. In January o f 2012 and after the b reakdo wn o f the m arriage, the Do wns, as shareho lders, ado pted a unanim o u s reso lutio n to disso lve
3Do wns Ho ldings and to assign respo nsib ility fo r im plem entatio n o f the

reso lutio n to Mr. Do wns. And in o ther do cum ents dated January 31, 2012, Do wns Ho ldings direc ted the c o rpo ratio ns m anaging the investm ent interests, Metro po litan Managem ent C o m pany and VPM Managem ent, to distrib ute the paym ents and m o nies o wed to Do w ns Ho ldings to each shareho lder separately, 50% to Mr. Do wns and 50% to Ms. Do wns. Sub sequently, Mr. Do wns sent VPM Managem ent a letter asking it to treat the Do wns as separate interest ho lders in W estchester LP. A ltho ugh it is no t in the rec o rd, it appears that a similar letter was sent toMetro po litan Managem ent in regard to Ten Twenty; the rec o rd c o ntains a respo nse stating that Metro po litan wo uld send Do wns Ho ldings’ distrib utio ns direc tly to its shareho lders as direc ted. But, the respo nse further c larified that Do wns Ho ldings “will fo rm ally rem ain as the m emb er” fo r “legal and tax purpo ses.” And it advised that, if the Do wns wanted toattem pt fo rm al transfer o f the LLC interests, they m ust satisfy the applic ab le transfer restric t io ns and pro vide further do cu m entatio n. Tim e passed. In March 2015, the Do wns exchanged em a ils ab o ut whether Do wns Ho ldings o wed taxes. In O c tob er, Ms. Do wns indic ated that she was c o nsidering selling her half interest in Do wns Ho ldings. In March 2016, they again exchanged em ails ab o ut Do wns Ho ldings, and Mr. Do wns referred to the disso lutio n reso lutio n. O n June 16, 2016, Ms. Downs b o rro wed $50,000 fro mN o rio , Inc .; she
4pledged interests in Ten Twenty and W estchester LP as c o llateral.

Three days later, she filed a chapter 11 petitio n. In Septemb er 2017, the b ankruptcy c o urt c o nverted the c ase to
chapter 7. N o rio thereafter filed a $50,000 secured pro o f o f c laim (“C laim 10”). In March 2018, the Trustee sou ght to sell the estate’s interest in “c ertain m emb ership interests” o wned b y Do w ns Ho ldings; he inc luded a dec laratio n fro mMetro po litan Managem ent that it was prepared to fac ilitate the sale and tr a nsfer o f the Ten Twenty interests. N o rio objec ted b ec ause the sale wo uld no t pro tec t its secured interests. The b ankruptcy c o u rt denied the m o tio n witho ut prejudic e. The Trustee then so ught to disallo w C laim10 as a secured c laim b ec ause Ms. Do wns c o uld no t perso nally pledge Do w ns Ho ldings’ interests in Ten Twenty and W estchester LP. N o rio o ppo s ed and argued that Do wns Ho ldings was disso lved in January 2012, c ausing the m emb ership interests to transfer to the c o m pany’s shareho lders b y o peratio n o f law. The b ankruptcy c o urt entered a m em o randumdec isio n and separate
o rder disallo wing C laim 10 as secured. N o rio tim ely appealed. 2

2 The bankr uptcy cour t’s deci s i on r ender ed Nor i o unsecur ed as to both WestchesterLP and Ten Twenty. On appeal, Nor i o focuses exclusiv ely on Ten Twenty; thi s deci s i on to not di scuss WestchesterLP i s intenti onal. Appellant’s Opening Br . at 6 n.3 (“Nor i o chooses again to omi t much di scussi on of [WestchesterLP] and focus on Ten Twenty inthi s appeal forbr ev i ty’s sake. Howev er, should the BAP r ev er se the (continued...) 5Later, the Trustee so ld, o r ob tained appro val o f sale, o f the Deb to r’s

interests in Do wns Ho ldings in c o o peratio n with Mr. Do w ns. JU RISD ICT ION The b ankruptcy c o urt had jurisdic tio n under 28 U .S.C . §§ 1334 and 157(b )(2)(B). W e have jurisdic tio n under 28 U .S.C . § 158. ISSU E Did the b ankruptcy c o urt err when it sustained the Trustee’s
objec tio n to N o rio ’s pro o fs o f c laim ? ST A ND A RD OF RE V I E W In the c laimobjec t io n c o ntext, we review the b ankruptcy c o urt’s legal
c o nc lusio ns de no vo and its findings o f fac t fo rc lear erro r. Lundell v. Ancho r Co nst. S pecia lists, Inc. (In re Lundell) , 223 F.3d 1035, 1039 (9th Cir. 2000). A finding is “c learly erro neo us” when “altho ugh there is evidenc e to suppo rt it, the reviewing c o urt o n the entire evidenc e is left with the definite and firmc o nvic tio n that a m istake has b een c o m m itted.” Anderso n v. C ity o f Bessem er C ity, 470 U .S. 564, 573 (1985) (quotatio n m arks o m itted). W e m a y affirmfo r any reaso n in the rec o r d. Go d eckev. Kinetic Co ncepts, Inc. , 937 F.3d 1201, 1213 (9th Cir. 2019) (“[W ]e m ay affirmo n any

2 (...continued) Bankr uptcy Cour t Clai m Deci s i on, Nor i o’s inter est in [WestchesterLP] should also be deemed secur ed.”). We do not r ev er se. And we deter mine that to the extent ther e i s any ar gument r elated to the i nter est in WestchesterLP that i s addi ti onal to or di ffer ent fr om the poi nts r ai sed on appeal as to Ten Twenty that such ar gument i s waiv ed. P adgett v. Wright, 587 F.3d 983, 985 n.2 (9th Ci r . 2009). 6gro und finding suppo rt in the rec o r d . If the dec isio n b elo w is c o rrec t , it
m ust b e affirm ed, even if the [] c o urt relied o n the wro ng gro unds o r wro ng reaso ning.” (internal quo tatio n m arks o m itted)). That is, we igno re erro rs o r defec t s that dono t affec t the sub stantial rights o f the parties. 28 U .S.C . § 2111. D ISCU SSION In a perfunc to ry argum ent, the Trustee c o ntends that this appeal is equitab ly m o o t in part b ec a u se he has already so ld the Ten Twenty
m emb ership interest to a b o na fide purchaser and distrib uted so m e o f the pro c eeds. But the appeal is no t m o o t b ec ause N o r io seeks to rec o ver its
secured c laimfro mthe sale pro c eeds. 3 Relev ant law: the bankruptcy c laim s proc es s and California
c orporate dis s olution. Ac redito r asserts a claimin b a nkruptc y b y filing a pro o f o f c laim . 11 U .S.C . § 501(a); Fed. R
. Bankr. P. 3001, 3002. A filed c laim is allo wed unless a party in interest objec ts. 11 U .S.C . § 502(a). And if an interested party objec ts, the b ankruptcy c o urt, after no t ic e and a hearing,

3 At or al ar gument, the Tr ustee suggested that an or der pr ov i d ed that the li en di d not attach to the pr oceeds. The Trustee bear s the heav y bur den to show equi table mootness. Motor Vehicle Cas. Co. v. Thorpe Insulation Co. (In re Thorpe Insulation Co.) , 677 F.3d 869, 880 (9th Ci r . 2012). The only sale or der in the r ecor d says nothing of the sor t; i t si mply gr ants the Tr ustee’s moti on. And the Tr ustee’s sale moti on expli c i tly r equested an or der allowin g the sale of the member shi p inter ests fr ee and clearof the alleged li en but pr ov i d in g for the alleged li en to attach to the pr oceeds subj ect to the Tr ustee’s obj ecti on. Fi nally, the Tr ustee does not suggest that all of the pr oceeds hav e been di str ibuted. 7m ust determ ine the am o unt o f the c laim “as o f the date o f the filing o f the

petitio n” and allo wit ac c o r dingly. 11 U .S.C . § 502(b ). C o rpo rate disso lutio n in C alifo rnia pro c eeds in at least three stages. First, the c o rpo ratio n elec ts to wind up and disso lve. C al. C o r p. C o de § 1900. Ac o rpo ratio n m ay, b efo re it b egins distrib uting assets, revo ke this elec tio n to disso lve. C a l. C o rp. C o de § 1902(a). In m o s t instanc es, the c o rpo r atio n m ust no tify the C alifo rnia Sec retary o f State b y filing a c ertific ate “evidenc ing” the elec tio n to wind up. C al. C o rp. C o d e § 1901(a). That said, if the dissolutio n elec t io n is m ade under C alifo rnia C o rpo rate C o de § 1900(a) b y the vo te o f all the
o utstanding shares and a statement is added tothe later disso lutio n c ertific ate, then “the separate filing o f the c ertific ate o f elec tio n pursuant to this sec tio n is no t required.” C al. C o r p. C o de § 1901(c ). Sim ilarly, if a
c o r po ratio n revo kes its elec tio n, it m ust file a “c ertific ate evidenc ing the
revo c atio n . . . .” C al. C o rp. C o de § 1902(a). These no tific atio n pro visio ns “were enac t ed fo rthe c o nvenienc e o f the Sec retary o f State and the pub lic, and fo r the pro tec tio n o f the direc to r s and trustees, b ut stric t c o m plianc e therewith is no t nec essary.” H erschfelt v. Kno wles-R aym o nd Gra nite Co . , 130 C al. A pp. 2d 347, 351 (1955). The statute’s text c o nfirm s this: the filed c ertific ate evidences the elec tio n; thus, in so m e c irc u m stanc es the c ertific ate need no t b e filed. Sec o nd, the c o rpo ratio n winds up. Vo luntary wind-up pro c eedings
8b egin when the reso lutio n is ado p ted. C a l. C o rp. C o d e § 1903(a). During

the wind-up pro c ess, the “b o ard shall c o ntinue to ac t as a b o ard and shall have full po wers to wind up and settle its affairs, b o th b efo re and after the filing o f the c ertific ate o f disso lutio n.” C al. C o rp. C o de § 1903(b ). The
c o r po ratio n “shall c ease to c arry o n b usiness exc ept to the extent nec essary fo r the b enefic ial winding up thereo f and exc ept during such perio d as the b o ard m ay deemnec essary topreserve the c o rpo r atio n's go o d will o r go ing-c o nc ern value pending a sale o f its b usiness o r assets, o r b o th, in who le o r in part.” C al. C o rp. C o de § 1903(c ). Third, the c o rpo ratio n files a c ertific ate o f disso lutio n. O nc e a c o r po ratio n has b een “c o m pletely wo und up witho ut c o u rt” supervisio n, the direc to rs sign and file a c ertific atio n o f disso lutio n with the Sec retary o f State. C al. C o rp. C o de § 1905(a). A s part o f that c ertific ate, the direc to rs state that the final tax return has b een filed. C a l. C o rp. C o d e § 1905(a)(6). O nc e that c ertific ate is filed, “thereupo n the c o rpo r ate po wers, rights, and privileges o f the c o rpo ratio n shall c ease.” C al. C o rp. C o de § 1905(b ). T he bankruptcy c ourt c orrec tly dis allowed Norio’s c laimas s ec ured. W e pause tono t e that, as N o rio highlights o n appeal, so m e o f the b ankruptcy c o urt’s explic it fac tual findings are either witho ut suppo rt in the rec o r d 4 o r no t relevant. But these defic ienc ies are no tfatal, they do no t

4 In a deposi ti on, Mr . Downs testi fi ed that hi s pr ev i ous statements, made under (continued...) 9affec t o u r review o f the rec o r d, and we igno re harm less erro r— the

b ankruptcy c o urt disallo w ed N o rio ’s c laimo nly to the extent it was a
secured c laim . N o rio ac kno wledges that Do w ns Ho ldings initially o wned the assets. The dec isive questio n, then, is: did N o rio estab lish that Do wns Ho ldings transferred the assets toMs. Do wns? O n N o rio ’ s ac c o unt, Do wns Ho ldings fully disso lved in early 2012 upo n its disso lutio n elec tio n, and, c o nsequently, its assets were distrib uted to its shareho lders as a m atter o f law. The Trustee disagrees; he argues that Do wns Ho ldings did no t c o m plete disso lutio n b ec ause it did no t file either
a c ertific ate with the Sec retary o f State o rits final tax return and, as a result, it c o ntinued to o wn the relevant assets. The b ankruptcy c o urt c o nc luded that Do wns Ho ldings was no t disso lved and, im p lic itly, that it o wned the assets. W e agree with the b ankruptcy c o urt. Here, neither party disputes that in January 2012, Do wns Ho ldings’ b o ard vo ted to disso lve the c o rpo ratio n. A nd we have no do ub t that Mr. Do wns and Ms. Do wns, in fac t, intended c o rpo rate disso lutio n. A t the
sam e tim e, the parties alsodo no t dispute that Do wns Ho ldings did no t file
a c ertific ate o f that elec tio n with the Sec retary o f State; they disagree ab o ut whether such a c ertific ate was nec essary. W e do no t view the presenc e o r

4 (...continued) penalty of per

j ur y, that he was the pr esi dent of Downs Holdings wer e er r oneous. He was nev er pr esi dent. The Tr ustee also acknowledges that he was not the CEO as the bankr uptcy cour t found. 10ab senc e o f the initial c ertific ate as c o nc lusively prob ative o f the

c o r po ratio n’s status. Instead, it is em b lem atico f Do wns Ho ldings’ lax
c o m p lianc e with the disso lutio n prerequisites. In particular, the evidenc e presented to the b ankruptcy c o urt reflec ts that Do wns Ho ldings failed to transfer its o wnership interests in Ten Twenty. Replying to the request fo r divisio n o f Do wns Ho ldings’ interest in Ten Twenty b etween Mr. Do wns and Ms. Do wns, Metro p o litan Managem ent no ted that it c o uld no t do so witho ut c o nsidering the Ten Twenty agreem ent’s restric tio ns o n transfer o f interests and witho ut do cum enting the transfer with further paperwo r k. N o netheless, it agreed to send separate paym ents to the Do wns. The rec o rd reflec ts that, having
achieved their desired go al o f having paym ents sent to themseparately, Mr. Do wns and Ms. Do wns did no t further pursue a fo rm al transfer o f the Ten Twenty o wnership interest. A s a result, Do wns Ho ldings never pro c eeded farther than the first step to ward c o r po rate disso lutio n: a fo rm al elec tio n to disso lve. It did no t file a statem ent evidenc ing that elec tio n with the sec retary o f state. It did
no t o therwise wind up its b usiness. It did no t seek to fo rm ally transfer its assets. It did no t file final tax returns. N o r did it c o nc lude winding up and file the final disso lutio n c ertific ate. This underm ines N o rio ’s suggestio n that Do wns Ho ldings’ assets transferred as a m atter o f law upo n the shareho lders’ vo te to disso lve and
11witho ut any fo rm al ac tio n. To start, the statuto ry language N o rio c ites do es

no t speak o f an auto m atictransfer o f pro perty; instead, it desc rib es the phases o f the wind up pro c ess. C a l. C o rp. C o de § 2004 (“A fter determ ining that all the kno wn deb ts and liab ilities o f a c o r po ratio n in the pro c ess o f winding up have b een paid o r adequately pro vided fo r, the b o ard shall distrib ute all the rem aining c o rpo rate assets am o ng the shareho lders
ac c o r ding to their respec tive rights and preferenc es o r, if there are no shareho lders, to the perso ns entitled thereto .”). N o r do es N o rio c ite a c ase fo r the pro po sitio n that a c o rpo r atio n’s singular statem ent o f an intent to wind up its b usiness wo rks an asset transfer as a m atter o f law. Sec o nd, N o rio ’s c ited c ases are distinguishab le. Several invo lved and
assum ed what is no t present here: a c o m pleted disso lutio n. K wo k v. Tra nsna tio n Title Ins. Co . , 170 C al. A pp. 4th 1562, 1565–66 (2009) (“O n Dec emb er 15, 2005, appellants’ ac c o untant filed a ‘Lim ited Liab ility C o m pany C ertific ate o f C anc ellatio n’ with the C alifo rnia Sec r etary o f State stating that the LLChad b een disso lved b y a vo te o f all m emb ers.”); Bro die v. Ba rnes , 56 C al. A pp. 2d 315, 321 (1942) (“In the hearing b efo re the trial
c o u rt the parties stipulated that the c o rpo r atio n had b een disso lved . . . .”) Y et ano ther invo lved c o pyright rights, whic h are readily transferrab le, as
o ppo sed to the alleged transfer o f an interest in an LLCwhere the go verning do cum ents expressly pro hib it transfer witho ut c o nsent. S ee Fa nta s y, Inc. v. Fogerty

, 664 F. Supp. 1345, 1356 (N .D. C al. 1987) (“A rgo sy

12suc c eeded to the o wnership o f the Jungle c o pyright b y o peratio n o f law.

A rgo s y, as Galaxy’s shareho lder, ac quired all assets o f Galaxy inc luding the Jungle c o pyright upo n Galaxy’s 1970 disso lutio n.” (c itatio ns o m itted)),
a ff’d , 984 F.2d 1524 (9th Cir. 1993), rev’d o n o ther gro unds , 510 U .S. 517 (1994). N ext, C a lifo rnia’s c o rpo rate c o de underm ines N o rio ’s po sitio n. C alifo rnia’s statutes pro vide fo r a c o rpo ratio n’s c o ntinued existenc e as it winds itself up and fo rm ally divides and c o nveys its pro perty. C al. C o rp. C o de § 2010(a). They alsoexplain what happens to fo rgo tten assets: A ny assets inadvertently o r o therwise o m itted fro mthe winding up c o ntinue in the disso lved c o rpo ratio n fo r the b enefit o f the perso ns entitled thereto upo n disso lutio n o f the c o r po ratio n and o n realizatio n shall b e distrib uted ac c o rdingly. C al. C o rp. C o de § 2010(c ). Put differently, c o rpo rate assets rem ain
c o r po rate assets until their ac tual dispo s itio n. In sho rt, Do wns Ho ldings failed to fo rm ally transfer its interest in Ten Twenty to its shareho lders— it was no t guaranteed that it c o uld, and determ ining if it c o uld wo uld require additio nal paperwo rk and c o s t. A nd even if N o rio is c o rrec tand Do wns Ho ldings ac tually wo und up and disso lved, its inadvertent (o r o therwise) o m issio n o f the LLC assets fro m the disso lutio n pro c ess m eant that they rem ained in the o therwise disso lved c o rpo ratio n. In sho rt, N o rio has no t sho wn that the assets transferred fro mDo wns Ho ldings to Ms. Do wns. Sothe b ankruptcy c o u rt did no t err in sustaining
13the Trustee’s obj ec tio n to N o rio ’s secured status. CONCL U SION Based o n the fo rego ing, we A FFIRM.

14