Court Opinion

ID: 3180421
Source: CourtListenerOpinion
Date Created: 2016-02-25 19:05:39.628929+00
Date Added: 2024-06-11T14:28:32.815392
License: Public Domain

FILED
                                                                   FEB 25 2016
 1                         NOT FOR PUBLICATION
                                                             SUSAN M. SPRAUL, CLERK
 2                                                             U.S. BKCY. APP. PANEL
                                                               OF THE NINTH CIRCUIT
 3                  UNITED STATES BANKRUPTCY APPELLATE PANEL
 4                            OF THE NINTH CIRCUIT
 5   In re:                        )        BAP No. NV-15-1096-JuKiD
                                   )
 6   3.78 IRISH ACRES, LLC,        )        Bk. No.   15-10410-ABL
                                   )
 7                  Debtor.        )
     ______________________________)
 8                                 )
     3.78 IRISH ACRES, LLC,        )
 9                                 )
                    Appellant,     )
10                                 )
     v.                            )        M E M O R A N D U M*
11                                 )
     INLAND EMPIRE SERVICING       )
12   COMPANY; YVETTE WEINSTEIN,    )
     Chapter 7 Trustee; SWEENEY    )
13   GOURMET COFFEE, INC.; MARA    )
     ENTERPRISES; FIRST AMERICAN   )
14   TITLE INSURANCE COMPANY; JAMES)
     VAHEY, Trustee; KOLSAR &      )
15   LEATHAM,                      )
                                   )
16                  Appellees.     )
     ______________________________)
17
                Argued and Submitted on February 18, 2016
18                        at Las Vegas, Nevada
19                         Filed - February 25, 2016
20            Appeal from the United States Bankruptcy Court
                        for the District of Nevada
21
         Honorable August B. Landis, Bankruptcy Judge, Presiding
22                      _________________________
23   Appearances:     Steven J. Mack of Black & Lobello argued for
                      appellant 3.78 Irish Acres, LLC; Gary C. Milne of
24                    Gerrard Cox & Larsen argued for appellee Inland
                      Empire Service Company.
25
26       *
          This disposition is not appropriate for publication.
27 Although it may be cited for whatever persuasive value it may
   have (see Fed. R. App. P. 32.1), it has no precedential value.
28 See 9th Cir. BAP Rule 8024-1.

                                      -1-
 1   Before:     JURY, KIRSCHER, and DUNN, Bankruptcy Judges.
 2
 3           James W. Vahey (Vahey), as the sole trustee of the James W.
 4   Vahey Revocable Family Trust (Vahey Trust), filed a chapter 71
 5   case on behalf of 3.78 Irish Acres, LLC (Irish Acres) shortly
 6   after the bankruptcy court dismissed the first case that he
 7   filed on behalf of Irish Acres.     Appellee, Inland Empire Service
 8   Corporation (Inland), filed a motion to dismiss (MTD), asserting
 9   that the Vahey Trust was precluded from filing the second
10   petition based on findings made by the bankruptcy court in
11   connection with its dismissal order in the first case.
12           In the first case, at issue was whether Vahey had authority
13   to file the bankruptcy case as a member or manager of Irish
14   Acres, or as the sole trustee of the Vahey Trust, which was a
15   member.     Although Vahey made an offer of proof at a hearing on a
16   MTD in the first case that the Vahey Trust was a majority member
17   of Irish Acres with authority to file the bankruptcy petition,
18   the court denied his request to file a sur-reply and offer
19   evidence regarding that interest.      In its later oral ruling, the
20   bankruptcy court found that, based on the record before it, the
21   Vahey Trust held a 50% membership interest in Irish Acres.
22   Therefore, because the Vahey Trust was not a majority member,
23   under Nevada limited liability law it did not have the authority
24   to file the bankruptcy petition without the consent of all the
25
26       1
          Unless otherwise indicated, all chapter and section
27 references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and
   “Rule” references are to the Federal Rules of Bankruptcy
28 Procedure.

                                      -2-
 1   members.   Vahey did not appeal that ruling and the dismissal
 2   order became final.
 3        In the second case, the bankruptcy court held that the
 4   Vahey Trust was precluded from filing the case under the
 5   doctrines of claim and issue preclusion and also found that the
 6   case was filed in bad faith.       The court entered an order
 7   dismissing the case and this appeal followed.       For the reasons
 8   discussed below, we AFFIRM.
 9                                 I.    FACTS
10   A.   Prepetition Events
11        Vahey, a medical doctor, associated with Mary Musso (Musso)
12   in making his real estate investments.       According to Vahey,
13   under the investment plan, Musso identified parcels of vacant or
14   improved land, identified buyers, and then purchased the land to
15   resell it to the identified buyers at a premium over the
16   purchase price.   Under this arrangement, Musso and Vahey were
17   required to put up money to purchase the properties and then
18   split the profits on the projects evenly.       Vahey declared that
19   he advanced funds to Musso of approximately $1,200,000 since
20   September 2007.   Vahey described himself as a “passive” investor
21   with Musso taking care of the business, closings, and reviewing
22   deeds of trust.   One of the parcels involved in the investment
23   plan was the 3.78 acre parcel of vacant land which was purchased
24   by Irish Acres.
25        1.    Organization of Irish Acres
26        Musso formed Irish Acres as a limited liability company for
27   the purpose of purchasing the 3.78 acre parcel of vacant land.
28   On July 20, 2009, Irish Acres filed its Articles of Organization

                                        -3-
 1   with the Nevada Secretary of State.         On the same day, Irish
 2   Acres’ Initial List of Manager or Managing Members and
 3   Registered Agent was also filed with the Secretary of State,
 4   naming Vahey and Mace J. Yampolsky2 as Managers.
 5            An operating agreement (OA) governs Irish Acres.     The
 6   agreement was executed by Vahey on behalf of the Vahey Trust and
 7   by Musso on behalf of Sweeney’s Gourmet Coffee (Sweeney’s),3 the
 8   two Members of Irish Acres as identified in OA § 2.3.         Vahey and
 9   Yampolsky were identified as Managers in OA § 5.2.
10            Other relevant sections of the OA include:
11            3. Capital
12            3.1 Initial Capital Contributions. The initial
              capital contribution of the Member will be made by the
13            Member transferring to the Company the assets or cash
              described on the attached Exhibit A.
14
              3.2 Additional Contributions. Except as otherwise
15            provided in the Act, the Member is not required to
              contribute additional capital to the Company. But the
16            Member may make additional contributions to the
              company from time to time as the Member wishes.
17
              5. Administration of Company Business
18
              5.5 Authority. . . [E]ach Manager is an agent of the
19            Company and has authority to bind the Company in the
              ordinary course of the Company’s business. In
20            addition, the Manager has authority to engage in any
              of the following acts.
21
                    5.5.1    To sell, lease, exchange, mortgage,
22                  pledge   or otherwise transfer or dispose of
                    all or   substantially of the property or
23                  assets   of the Company.
24            5.7   Powers of Members.    The Member, in his capacity
25
          2
26          Yampolsky was evidently the attorney who assisted Musso in
     forming Irish Acres.
27
          3
          Sweeney’s was an active corporation at the time of Irish
28 Acres’ formation. Musso was its sole owner.

                                          -4-
 1        as a member of the Company, is authorized to act on
          behalf of the Company.
 2
          7.   Dissolution and Winding up
 3
          7.1 The Company will dissolve on the earlier of the
 4        following events: (a) approval of dissolution by the
          Member or (b) such time as the Company has no members.
 5        Neither the dissolution nor bankruptcy of the Member
          nor the assignment of the Member’s entire membership
 6        interest will dissolve the Company.
 7        7.2 Following the dissolution of the Company, the
          affairs of the Company must be wound up by the
 8        Managers. If the affairs of the Company are to be
          wound up, a full account must be taken of the assets
 9        and liabilities of the Company, and the assets of the
          Company must then be promptly liquidated. The
10        proceeds must first be paid to creditors of the
          Company in satisfaction of all liabilities and
11        obligations of the Company, including, to the extent
          permitted by law, liabilities and obligations owed to
12        the Member as a creditor. Any remaining proceeds may
          then be distributed to the Member. Property of the
13        Company may be distributed in kind in the process of
          winding up and liquidation with the consent of the
14        Member.
15        Exhibit A to the OA shows that each of the two members, the
16   Vahey Trust and Sweeney’s, received a 50% membership interest in
17   Irish Acres in exchange for their capital contributions.   It
18   also reflected that the purchase price for the 3.78 acre vacant
19   parcel was $4,950,000, and showed that money deposits Vahey had
20   made for other investment properties in the amount of $1,200,000
21   were transferred to the escrow through which Irish Acres
22   purchased the property.
23        2.    Deed of Trust Given to Sweeney’s
24        Yampolsky, acting in his capacity as a manager of Irish
25   Acres, executed a note (Note) secured by a deed of trust against
26   the 3.78 acre parcel, dated September 8, 2009, in the amount of
27   $550,000 in favor of Sweeney’s (Note).   His signature on the
28   short form deed of trust and assignment of rents (Deed of Trust)

                                    -5-
 1   was notarized on October 6, 2009.4
 2            Over a year later, Yampolsky resigned as a manager of Irish
 3   Acres by executing a Certificate of Resignation of Officer,
 4   Director, Manager, Member, General Partner, Trustee or
 5   Subscriber, filed on October 15, 2010 with the Nevada Secretary
 6   of State.      Vahey was then the only manager of Irish Acres.
 7            3.   2011 Lawsuit
 8            On October 28, 2011, Vahey and Other Hand, LLC5 filed a
 9   lawsuit in the Nevada state court (Case No. A-11-657496-C)
10   against various defendants, including Musso and Yampolsky,
11   alleging 19 causes of action (2011 Lawsuit).      It appears that
12   the lawsuit related to alleged fraud committed by the defendants
13   in connection with Vahey’s real estate investments, including
14   Irish Acres.
15            By reason of the 2011 Lawsuit and other litigation
16   involving Musso and/or her entities, Musso and Sweeney’s agreed
17   to reimburse First American Title Insurance Company (First
18   American) for attorneys’ fees and costs which it had incurred
19   due to the litigation.       To satisfy some of this debt, Sweeney’s
20   assigned the Note and Deed of Trust executed by Yampolsky as
21   manager for Irish Acres to First American.      This assignment was
22   recorded on February 26, 2014.      Subsequently, the Deed of Trust
23   was assigned to Inland.      This assignment was recorded on
24   March 28, 2014.
25
          4
26          The record indicates that Vahey questioned the validity of
     this Note and Deed of Trust.
27
          5
          The record does not show the relationship, if any, between
28 Vahey and Other Hand, LLC.

                                        -6-
 1        4.     Trustee’s Sale
 2        On May 13, 2014, Gerrard Cox Larsen, acting as Substituted
 3   Trustee under the Deed of Trust, sent a letter to Irish Acres,
 4   c/o James Vahey, M.D., notifying him of Irish Acres’ default
 5   under the terms of the Note and Deed of Trust.     The letter was
 6   followed by a Notice of Default and Election to Sell that was
 7   recorded on May 20, 2014, and Notice of Trustee’s Sale recorded
 8   on October 1, 2014.    The trustee’s sale was set for October 23,
 9   2014.     Vahey filed a motion for temporary restraining order and
10   preliminary injunction in the Nevada state court, seeking to
11   stop the sale.    The state court denied the motion.   At the
12   hearing on this matter, the Panel was informed that a
13   foreclosure sale had taken place.
14        5.     Appointment of Receiver of Sweeney’s
15        In a separate lawsuit initiated by First American against
16   Sweeney’s in the Nevada state court, First American moved for
17   the appointment of a receiver.    The state court granted the
18   motion, finding that First American met the statutory
19   requirements for the appointment of a receiver and that, as a
20   judgment creditor of Sweeney’s, was entitled to protect its
21   interest in Sweeney’s sole asset, Irish Acres.
22   B.   Bankruptcy Events
23        1.     The First Case
24        On October 24, 2014, Vahey filed a voluntary chapter 7
25   bankruptcy petition on behalf of Irish Acres (First Case) after
26   the state court injunction was denied and to stop the
27   foreclosure sale, based upon his authority as the manager of the
28

                                      -7-
 1   company.6    The corporate ownership statement filed on
 2   October 24, 2014, by Irish Acres with its voluntary petition
 3   identifies Sweeney’s as owning 10% or more of Irish Acres, but
 4   an amended voluntary petition filed on November 8, 2014,
 5   included a corporate ownership statement that omitted Sweeney’s
 6   interest.      Therefore, Vahey represented that Sweeney’s
 7   membership interest was less than 10% despite Exhibit A to the
 8   OA which showed that Sweeney’s held a 50% membership interest in
 9   Irish Acres.
10           On December 2, 2014, Inland filed the MTD challenging
11   Vahey’s authority to commence Irish Acres’ bankruptcy as a
12   manager.     Inland argued that under OA § 7.1 and Nevada Revised
13   Statutes (NRS) 86.491 Vahey was not authorized to unilaterally
14   dissolve Irish Acres by filing a bankruptcy petition.     That
15   statute, which pertains to the dissolution and winding up of
16   affairs of a limited liability company, states in relevant part:
17           1. A limited-liability company must be dissolved and
             its affairs wound up:
18
                  (c) Unless otherwise provided in the
19                articles of organization or operating
                  agreement, upon the affirmative vote or
20                written agreement of all the members[.]
21   Inland further maintained that under OA § 5.5, as a manager,
22   Vahey only had authority to bind the company in the ordinary
23   course of the company’s business and the filing of the
24
         6
          In the schedules, Vahey listed the raw land owned by Irish
25 Acres with a value of $1,520,000 and listed creditors, including
26 Inland, with secured claims against the property with $0.00
   value. The Statement of Financial Affairs showed that Irish
27 Acres had no income and Schedule F listed Vahey as having an
   unsecured claim which was unliquidated in connection with a
28 pending state court action.

                                      -8-
 1   bankruptcy case was not in the ordinary course of business.
 2   Therefore, since Vahey did not have the affirmative vote of all
 3   the members to dissolve and wind up the affairs of Irish Acres
 4   and, as manager, was not authorized to file the petition on
 5   behalf of Irish Acres, dismissal was proper.
 6           Vahey opposed, arguing that under the OA he had authority
 7   to file the bankruptcy case on behalf of Irish Acres in at least
 8   three ways:     as a member, as a manager, and as the sole trustee
 9   of the Vahey Trust.     Relying on OA § 5.7 which states, “The
10   Member, in his capacity as a member of the Company, is
11   authorized to act on behalf of the Company,” Vahey asserted that
12   as an individual holding a membership interest in Irish Acres,
13   he was authorized to act on its behalf without any restriction.
14   Since the use of the word “member” in this section was used in
15   the singular, Vahey argued that it should be construed as being
16   singular, citing TIG Specialty Insurance Co. v. Pinkmonkey.com
17   Inc., 373 F.3d 365, 375 (5th Cir. 2004).     Vahey also asserted
18   that while “Inland disputes that Dr. Vahey is a Member of the
19   [Irish Acres], substantial evidence exists to the contrary.
20   Specifically, Dr. Vahey had contributed over $1.2 million
21   dollars into [Irish Acres’] business.”7
22           Next, because Vahey was designated as a manager of Irish
23   Acres under the OA, he maintained that he was authorized to bind
24   the company with respect to matters outside the ordinary course
25   of business as demonstrated by OA § 5.5.1.     That section gave
26
         7
27        Recall that § 2.3 of the Operating Agreement clearly
   stated that the Vahey Trust was a member and not Vahey in his
28 individual capacity.

                                      -9-
 1   managers authority to engage in any of the following:    “To sell,
 2   lease, exchange, mortgage, pledge or otherwise transfer or
 3   dispose of all or substantially all of the property or assets of
 4   the Company.”   Moreover, contrary to Inland’s assertion, Vahey
 5   argued that OA § 7.1 regarding the dissolution and winding up of
 6   Irish Acres’ business was not applicable.
 7        Finally, Vahey argued that the Vahey Trust had authority to
 8   institute the bankruptcy case as a member and reiterated his
 9   position that OA § 5.7 evidenced an intent to vest powers in
10   each member individually.   “In other words, rather than
11   unanimous consent under NRS 86.491(1)(c) (which related to
12   dissolution and winding-up), the [OA] vested authority in each
13   member to authorize bankruptcy filings rather than require
14   unanimous consent.”   Therefore, Vahey suggested that he could
15   amend the bankruptcy petition to conform to his authority by
16   signing it in his capacity as the sole trustee of the Vahey
17   Trust, an undisputed member.
18        In reply, Inland argued that Nevada law placed the
19   management of all actions of a limited liability company in the
20   hands of its members in proportion to their contribution to its
21   capital under NRS 86.291.   NRS 86.291 provides in relevant part:
22        1. Except as otherwise provided in this section or in
          the articles of organization or operating agreement,
23        management of a limited-liability company is vested in
          its members in proportion to their contribution to its
24        capital, as adjusted from time to time to reflect
          properly any additional contributions or withdrawals
25        by the members.
26   Relying on NRS 86.291, Inland argued that since the Vahey Trust
27   and Sweeney’s each owned 50% of Irish Acres, the actions of
28   Irish Acres must be approved by each of the members.    Inland

                                    -10-
 1   maintained that any authority not specifically provided to the
 2   manager in the OA remained in the hands of the members under
 3   NRS 86.291.
 4           Inland acknowledged that the OA was ambiguous by the
 5   interchangeable use of the terms “member” and “members,” but
 6   asserted that although the agreement used the term “member,”
 7   this did not mean that only one member’s consent was required to
 8   take an action.     Rather, Inland opined that “it was clear” that
 9   both terms “member” and “members” referred to “all members of
10   the Company” because OA § 2.3 identified two members, the Vahey
11   Trust and Sweeney’s.     Inland pointed out other provisions in the
12   OA which confirmed a plural “members” construction and
13   interpretation:
14           1.6 Title to Assets . . . The Members8 do not have any
             right to the assets of the Company;
15
             4.1 Profits and Losses. The entire net profit or net
16           loss of the company for each fiscal year will be
             allocated to the Members . . . .;
17
             4.2 Distributions.   Distributions shall be give to
18           members . . . . ;
19           5.3 Election and Term. The Members must elect a
             successor Manager . . . .;
20
             5.4 Resignation and Removal. A Manager may resign at
21           any time by delivering a written resignation to the
             Members.
22
23   In conclusion, Inland argued that the ambiguity caused by the
24   interchangeable use of the terms “member” and “members” simply
25   meant that there was no specific grant of authority in the OA to
26
27
         8
          Sometimes the words member or members is capitalized and
28 other times it is not.

                                       -11-
 1   file a bankruptcy.
 2        On January 7, 2015, the bankruptcy court heard oral
 3   argument.   Inland repeated its arguments that under the OA
 4   there was no clear authorization for a single member or the
 5   manager to place Irish Acres in bankruptcy.     Rather, the
 6   authority would have to be granted by all the members of the LLC
 7   prior to the commencement of the case under NRS 86.291.       Vahey
 8   argued that the OA was clear in its distinctions between a
 9   member or members and that under OA § 5.7, the Vahey Trust, in
10   its capacity as a member of the company, was authorized to act
11   on behalf of the company without restrictions.     He further
12   argued that under NRS 86.291, management power was vested in
13   proportion to membership interests.     At that point, the
14   bankruptcy court inquired as to what level of interest the Vahey
15   Trust actually had in Irish Acres.     Vahey’s counsel responded
16   that he believed it was over 99%.     He then explained that the
17   membership interests had changed over a year ago:
18        They keep citing 50/50, but the documents -- I didn’t
          think that was really relevant to this particular
19        issue, if you look at the [OA] under [§] 5.7 where it
          says ‘a member.’ It’s very specific that a member may
20        take any action, so we didn’t really believe that the
          percentage would be relevant, but we can get that to
21        your court. That was actually brought up for the
          first time in the reply, Your Honor. If you need a
22        sur-reply or need additional information, we can
          provide the exact percentage of ownership.
23
24   The court responded:   “I have a different way I’ll go at it, but
25   I appreciate the information, counsel.”
26        Later in the hearing, Inland argued that there was no
27   evidence before the court that showed Irish Acres was owned
28   other than 50/50 by the Vahey Trust and Sweeney’s.     Inland

                                    -12-
 1   further asserted:     (1) Sweeney’s had never given up any of its
 2   interest and (2) there was no authority under the OA to take
 3   away a membership interest or to dilute a membership interest.
 4   The bankruptcy court took the matter under submission.9
 5           On January 26, 2015, the bankruptcy court announced its
 6   oral ruling.     The court first found that Vahey lacked the
 7   authority to file the case as “the manager” of Irish Acres.
 8   The court found that under OA § 5.5.1, as a manager, Vahey only
 9   had the authority to bind the company in the ordinary course of
10   its business and filing a bankruptcy petition was outside the
11   ordinary course of business.     In re Avalon Hotel Partners, LLC,
12   302 B.R. 377, 380 (Bankr. Or. 2003) (the filing of a chapter 11
13   petition by an LLC’s manager, without member approval, was not
14   authorized by Oregon law or the LLC’s Operating Agreement as
15   “[a] decision to file for bankruptcy protection is a decision
16   outside the ordinary course of business, even for an entity in
17   dissolution.”).     The bankruptcy court further found that no
18   authority for filing the petition existed under the provisions
19   of OA §§ 7.1 and 7.2 relating to the dissolution or winding up
20   of the company.
21           Next, the court found that Vahey did not have the authority
22   to file the bankruptcy case as an individual member and without
23   the full approval of all the members despite the ambiguity of
24   the OA.     In this regard, the bankruptcy court noted that Vahey
25
26       9
          The court made clear that the only thing that would happen
27 at the later hearing is that the court would issue an oral ruling
   and that there would not be any additional evidence or discussion
28 between the court and the parties other than appearances.

                                      -13-
 1   did not sign any of the papers authorizing the bankruptcy filing
 2   in his capacity as a member.   The court further found that
 3   Exhibit A to the OA identified not one, but two members that had
 4   made equal capital contributions and thus Sweeney’s and the
 5   Vahey Trust each owned 50% as stated in Exhibit A.   Therefore,
 6   the court specifically made a factual finding regarding the
 7   50/50 membership interests of the two members “based on the
 8   record” before it.
 9        In addition, the bankruptcy court found that Vahey’s
10   citation to OA § 5.7 to suggest that either member had the
11   unilateral power to file a bankruptcy case was “inconsistent
12   with logic” since one member could exercise that power and the
13   other one would have the same power to immediately dismiss the
14   case.
15        Finally, since there was no specific grant of authority
16   under the OA for a member or manager to place Irish Acres in
17   bankruptcy, the court applied the statutory default rule in
18   NRS 86.291, which required that both members of Irish Acres,
19   having 50/50 interests, would have to approve any action of the
20   company outside the ordinary course of business, including the
21   filing of the bankruptcy case.
22        The bankruptcy court denied Vahey’s request to file an
23   amended corporate resolution substituting the Vahey Trust as
24   authorizing the petition.   The court found that the proposed
25   amendment would be futile because modifying the terms of the
26   resolution would not change the underlying facts; i.e., Vahey,
27   as the sole trustee of the Vahey Trust, would still not have the
28   authority as a manager or member to commence the bankruptcy case

                                      -14-
 1   on behalf of Irish Acres for the reasons stated.
 2        The bankruptcy court entered the order dismissing Irish
 3   Acres’ case on January 27, 2015.   Vahey did not request
 4   reconsideration or seek to amend the bankruptcy court’s findings
 5   of fact or conclusions of law nor did he file an appeal from
 6   that ruling.   The dismissal order in the First Case is a final
 7   order.
 8        2.   The Second Case
 9        Two days later, on January 29, 2015, Vahey filed a second
10   petition for Irish Acres.   The petition indicated that Irish
11   Acres had not filed a bankruptcy petition within the past eight
12   years, which was not accurate.10   This time, the Resolution of
13   Members Authorizing Bankruptcy Filing 3.78 Irish Acres, LLC,
14   stated that Vahey and the Vahey Trust “are the majority members”
15   of 3.78 Irish Acres and thus, under NRS 86.291, their majority
16   interest authorized them to commence the bankruptcy case on
17   behalf of Irish Acres.   The Corporate Ownership Statement
18   accompanying the petition stated that no entity directly or
19   indirectly owned 10% or more of the equity.11
20        Shortly after, Inland filed its MTD the second case and
21   request for sanctions.   Inland argued that the doctrines of
22   claim preclusion and issue preclusion applied for purposes of
23   dismissal and that all elements for each doctrine had been met.
24
        10
            The record does not make clear the reason Vahey failed to
25 disclose the prior case.
26      11
            Since the case was assigned to another judge, Inland
27 filed  a  notice of related case and request for reassignment of
   the case to Judge Landis pursuant to Local Bankruptcy Rule 1015.
28 The case was then reassigned to Judge Landis.

                                    -15-
 1   Inland further asserted that sanctions were appropriate pursuant
 2   to the bankruptcy court’s inherent powers or under § 105(a) and
 3   it requested sanctions in the amount of $5,000.    Inland moved
 4   for an order shortening time on the MTD, which Vahey and the
 5   appointed chapter 7 trustee opposed.    The bankruptcy court
 6   granted the shortened time motion.
 7        In opposition to the MTD, Vahey argued that the bankruptcy
 8   court ruled that he lacked authority as a manager of Irish Acres
 9   to file the bankruptcy petition and nothing more.    Although
10   Vahey acknowledged that the bankruptcy court had found that the
11   two members of Irish Acres were Sweeney’s and the Vahey Trust,
12   each holding a 50% membership interest based upon Exhibit A to
13   the OA, he argued that the court did not have the benefit of the
14   minutes of a meeting conducted in 2013 which changed the
15   ownership interests.   According to Vahey, the notice of the
16   meeting was mailed out on June 28, 2013, approximately 90 days
17   prior to the scheduled meeting to be held on September 27,
18   2013,12 and Sweeney’s did not attend.   Vahey maintained that, as
19   the minutes of that meeting reflected, OA § 2.2 authorized him,
20   as the sole manager of Irish Acres, to approve and provide for
21   the issuance of additional fractional units to the Vahey Trust,
22   as a result of additional monies provided to Irish Acres for the
23   payment of various expenses.   According to the minutes, twenty-
24   six additional ownership units were issued to the Vahey Trust at
25   the meeting for the payment of $2,560 to the Nevada Secretary of
26
         12
27        Vahey’s opposition erroneously referred to the meeting as
   taking place on January 27, 2013, which would have been before
28 the notice of the meeting was sent out.

                                    -16-
 1   State to maintain Irish Acres’ valid status.
 2        Vahey further argued that the bankruptcy court in its
 3   previous ruling found that the OA was ambiguous as to whether a
 4   single member alone could file a bankruptcy case and further
 5   found that holders of a majority interest in a limited liability
 6   company had authority to file a bankruptcy under NRS 86.291.
 7   Thus, Vahey asserted that the authorization to file the second
 8   petition was “clearly distinguishable” from the prior case
 9   “based upon the court’s own ruling.”   That is, the Vahey Trust
10   as owner of 96.3% of Irish Acres had the authority to file the
11   bankruptcy petition on its behalf.
12        Attached to the opposition was the declaration of Vahey
13   attesting to these facts, a copy of the Notice of Meeting of
14   Managers and Members, and the minutes of that meeting where
15   Vahey, as the sole trustee of the Vahey Trust, was the only
16   member in attendance and whereby he changed the ownership
17   percentages such that the Vahey Trust owned twenty-six units
18   (96.3%) and Sweeney’s owned one unit (3.7%].   Also attached was
19   a copy of an invoice showing that $2,560 had been paid to the
20   Nevada Secretary of State on September 26, 2013.
21        In reply, Inland argued, among other things, that the Vahey
22   Trust had no authority to dilute Sweeney’s membership under the
23   OA or Nevada law.
24        On March 12, 2015, the bankruptcy court heard and ruled on
25   the MTD.   The court found that in the context of the first MTD,
26   it decided that Vahey as an individual or as sole trustee of the
27   Vahey Trust did not have the authority to file the bankruptcy
28   case as a manager nor did the Vahey Trust have the authority to

                                    -17-
 1   file it as a single member.   The court further found that the
 2   issue regarding the Vahey’s Trust authority to file the
 3   bankruptcy case as a single member was “in no way . . . an issue
 4   that was raised only in the reply” (as argued by Vahey).     The
 5   court found that this issue was squarely before the court and
 6   the parties and was argued.   “And to the extent there was
 7   information that could have had some bearing on that question,
 8   it was not presented by way of evidence in the record before the
 9   Court in connection with the dismissal order entered in the
10   first case.”
11         The court noted that the evidence should have been
12   presented in the First Case and there was no request to either
13   enlarge or amend the findings of fact or conclusions of law that
14   resulted in the dismissal of the First Case nor was there a
15   request for relief from the judgment or an appeal.   The
16   bankruptcy court considered Vahey’s “belated information”
17   regarding his majority ownership “little more . . . than an
18   effort to collaterally attac[k] the prior dismissal order.”
19   After making these findings, the bankruptcy court decided that
20   all elements for claim and issue preclusion were met.
21         In addition, the court found that dismissal was proper on
22   bad faith grounds.   Considering the factors13 set forth in Little
23
          13
24          These factors include: (1) the debtor has one asset,
     such as a tract of undeveloped or developed real property;
25   (2) the secured creditors’ liens encumber this tract; (3) there
26   are generally no employees except for the principals; (4) the
     debtor has little or no cash flow and there are no available
27   sources of income to sustain a plan of reorganization; (5) there
     are only a few, if any, unsecured creditors whose claims are
28                                                      (continued...)

                                    -18-
 1   Creek Development Co. v. Commonwealth Mortgage Corp. (Matter of
 2   Little Creek Development Co.), 779 F.2d 1068, 72, 73 (5th Cir.
 3   1986), as adopted by the Ninth Circuit in State of Idaho, Dept.
 4   of Lands v. Arnold (In re Arnold), 806 F.2d 937 (9th Cir. 1986),
 5   the court found all factors were met.   Relying on the factors in
 6   total, the bankruptcy court found bad faith and that this
 7   constituted “cause” for dismissal under § 1112(b)(1).14   In the
 8   end, the court analyzed whether conversion or dismissal was in
 9   the best interests of the creditors and the estate and concluded
10   that dismissal better met those criteria since there were no
11   unsecured creditors and dismissal would allow Inland to pursue
12   its collection rights.   In the exercise of its discretion, the
13   bankruptcy court declined to issue sanctions under § 105(a) or
14   its inherent powers.
15        On March 13, 2015, the bankruptcy court entered the order
16   dismissing the Second Case.   On the same date, the order was
17   amended to correct the citation from § 1112(b)(1) to § 707(a)(1)
18   — the applicable dismissal standard in chapter 7 cases.   The
19   substance of the court’s legal and factual analysis remained
20
         13
            (...continued)
21 relatively small; (6) the property has usually been posted for
22 foreclosure because of arrearages on the debt and the debtor has
   been unsuccessful in defending actions against the foreclosure in
23 state court; (7) alternatively, the debtor and one creditor may
   have proceeded to a stand-still in state court litigation, and
24 the debtor has lost or has been required to post a bond which it
   cannot afford; (8) bankruptcy offers the only possibility of
25 forestalling loss of the property and (9) there are sometimes
26 allegations of wrongdoing by the debtor or its principals.
         14
27        As indicated below, the bankruptcy court amended its
   order to cite § 707(a)(1), the applicable dismissal statute in
28 chapter 7 cases.

                                    -19-
 1   unchanged.   Vahey filed a timely notice of appeal.
 2                               II.    JURISDICTION
 3        The bankruptcy court had jurisdiction pursuant to 28 U.S.C.
 4   §§ 1334 and 157(b)(2)(O).         We have jurisdiction under 28 U.S.C.
 5   § 158.
 6                                  III.    ISSUE
 7        Did the bankruptcy court err in dismissing Irish Acres’
 8   Second Case?
 9                         IV.    STANDARDS OF REVIEW
10        We review rulings regarding the availability of res
11   judicata doctrines, including claim and issue preclusion, de
12   novo as mixed questions of law and fact in which legal questions
13   predominate.   Robi v. Five Platters, Inc., 838 F.2d 318, 321
14   (9th Cir. 1988); Alary Corp. v. Sims (In re Assoc’d Vintage
15   Group, Inc.), 283 B.R. 549, 554 (9th Cir. BAP 2002).
16        Once we determine that the doctrines are available to be
17   applied, the actual decision to apply them is left to the trial
18   court’s discretion.   Robi, 838 F.2d at 321.         Review for abuse of
19   discretion has two parts.         First, “we determine de novo whether
20   the bankruptcy court identified the correct legal rule to apply
21   to the relief requested.”         U.S. v. Hinkson, 585 F.3d 1247,
22   1261–62 (9th Cir. 2009) (en banc).          If so, we then determine
23   under the clearly erroneous standard whether the bankruptcy
24   court’s factual findings and its application of the facts to the
25   relevant law were “(1) illogical; (2) implausible; or
26   (3) without support in inferences that may be drawn from the
27   facts in the record.”   Id. at 1262.
28        Because we may affirm on any ground supported by the

                                          -20-
 1   record, Shanks v. Dressel, 540 F.3d 1082, 1086 (9th Cir. 2008),
 2   we need not discuss every reason supporting the bankruptcy
 3   court’s dismissal order.
 4                              V.   DISCUSSION
 5        On appeal, Vahey asserts that the doctrines of claim and
 6   issue preclusion do not apply since the first dismissal order
 7   was based upon the lack of authority by the manager and the
 8   Second Case was filed based upon the authority of the Vahey
 9   Trust, the member holding a majority of the membership interest.
10   To support his position, Vahey contends that the bankruptcy
11   court erred by ruling that the evidence regarding Vahey’s
12   majority interest should have been presented in the First Case
13   because such evidence was proffered and rejected by the court.
14   He further points out that the issue regarding the percentage of
15   membership interests was raised in Inland’s reply brief.     For
16   these reasons, Vahey asserts that the bankruptcy court
17   improperly used the record before it to determine the 50/50
18   membership interests of the Vahey Trust and Sweeney’s in the
19   First Case despite being apprised that the Vahey Trust held a
20   majority position.   We are not persuaded by these arguments as
21   to issue preclusion.
22        “The doctrine of issue preclusion prevents relitigation of
23   all ‘issues of fact or law that were actually litigated and
24   necessarily decided’ in a prior proceeding. . . .    The issue
25   must have been ‘actually decided’ after a ‘full and fair
26   opportunity’ for litigation.”    Robi, 838 F.2d at 322.   Under
27   federal law, issue preclusion applies only where it is
28   established that (1) the issue necessarily decided at the

                                      -21-
 1   previous proceeding is identical to the one which is sought to
 2   be relitigated; (2) the first proceeding ended with a final
 3   judgment on the merits; and (3) the party against whom issue
 4   preclusion is asserted was a party or in privity with a party at
 5   the first proceeding.   Hydranautics v. Filtec Corp., 204 F.3d
6   880, 885 (9th Cir. 2000).
 7        Here, the issue of Vahey’s or the Vahey Trust’s authority
 8   to file the bankruptcy case on behalf of Irish Acres was
 9   necessarily decided in the First Case.    The issue regarding that
10   authority is identical to the one which Vahey sought to
11   relitigate in the Second Case.    The suggestion that Vahey did
12   not have a full and fair opportunity to litigate the issue
13   because the bankruptcy court denied his request to supplement
14   the evidence is without merit.    The Vahey Trust’s authority to
15   file the bankruptcy case as a majority member was clearly
16   relevant to the issues litigated and adjudicated in the First
17   Case.
18        Further, Vahey had an opportunity to present the merits of
19   that argument even after the ruling.    As noted by the bankruptcy
20   court, Vahey did not seek reconsideration nor did he seek to
21   amend or obtain relief from the court’s ruling regarding its
22   finding on the 50/50 membership interest.    Instead, he allowed
23   the dismissal order in the First Case to become final.    It makes
24   no difference that the dismissal order was based on an erroneous
25   factual finding or understanding of the law, or both.    Issue
26   preclusion is concerned with whether the issue was necessarily
27   decided in the first proceeding and whether there is a final
28   judgment.

                                      -22-
 1        As to the third element for issue preclusion, there is no
 2   question that Vahey was a party in the First Case.   Accordingly,
 3   the bankruptcy court’s prior determination that Vahey or the
 4   Vahey Trust did not have the authority to file the bankruptcy is
 5   conclusive.
 6        In sum, the bankruptcy court did not err in ruling that the
 7   doctrine of issue preclusion applied to Vahey’s asserted defense
 8   to the MTD in the Second Case; i.e., that the Vahey Trust had
 9   authority to file the bankruptcy petition on behalf of Irish
10   Acres due to its majority membership interest.   Therefore,
11   dismissal of the Second Case was proper.   There is nothing in
12   the record that shows the bankruptcy court abused its discretion
13   in applying issue preclusion under these circumstances.   Because
14   the doctrine of issue preclusion suffices to dispose of this
15   appeal, we do not consider the bankruptcy court’s other reasons
16   for dismissing the Second Case.   See Shanks v. Dressel, 540 F.3d
17   at 1082.
18                           VI.   CONCLUSION
19        For the reasons stated, we AFFIRM.
20
21
22
23
24
25
26
27
28

                                   -23-