Court Opinion

ID: 3179674
Source: CourtListenerOpinion
Date Created: 2016-02-23 21:06:16.835389+00
Date Added: 2024-06-11T07:38:55.974383
License: Public Domain

FILED
                            NOT FOR PUBLICATION
                                                                            FEB 23 2016
                    UNITED STATES COURT OF APPEALS                      MOLLY C. DWYER, CLERK
                                                                         U.S. COURT OF APPEALS

                             FOR THE NINTH CIRCUIT

In the Matter of: COBALIS                        No. 14-56676
CORPORATION,
                                                 D.C. No. 8:14-cv-00077-JLS
              Debtor,

                                                 MEMORANDUM*
COBALIS CORPORATION and
MONTENEGREX, by Rey Olsen,

              Appellants,

 v.

YA GLOBAL INVESTMENTS LP and
WENETA M.A. KOSMALA, Chapter 7
Trustee in Bankruptcy,

              Appellees.

                   Appeal from the United States District Court
                       for the Central District of California
                   Josephine L. Staton, District Judge, Presiding

                        Argued and Submitted February 9, 2016
                                 Pasadena, California

        *
             This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
Before: BERZON, DAVIS**, and OWENS, Circuit Judges.

      Appellants Cobalis Corporation and Montenegrex appeal from the district

court’s order affirming the bankruptcy court’s dismissal of Cobalis’ adversary

proceeding against Appellees YA Global Investments LP and Weneta M.A.

Kosmala. As the parties are familiar with the facts, we do not recount them here.

We affirm.1

      1.       In 2006, Cobalis agreed to borrow $3.85 million from YA Global. In

2007, after Cobalis failed to comply with the terms of the financing agreement, YA

Global filed involuntary Chapter 7 bankruptcy proceedings against Cobalis.

Cobalis converted the case to Chapter 11, but the case was ultimately converted

back to Chapter 7 after Cobalis failed to comply with its reorganization plan.

Kosmala was appointed as the Chapter 7 bankruptcy trustee, and she entered into a

settlement agreement with YA Global on behalf of the estate. The settlement

agreement included a release of any claims against YA Global, and provided that,

          **
            The Honorable Andre M. Davis, Senior Circuit Judge for the U.S.
Court of Appeals for the Fourth Circuit, sitting by designation.
      1
              We dismiss Appellant Montenegrex because it failed to show that it
has standing to participate in this appeal. See Motor Vehicle Cas. Co. v. Thorpe
Insulation Co. (In re Thorpe Insulation Co.), 677 F.3d 869, 884 (9th Cir. 2012)
(“Appellate standing requires that a party be directly and adversely affected by the
order of the bankruptcy court – that it diminish the appellant’s property, increase
its burdens, or detrimentally affect its rights.”).

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following the sale of Cobalis’ property, the trustee would execute the Certificate of

Dissolution and file it with the Nevada Secretary of State’s office immediately

upon the closing of Cobalis’ bankruptcy case or earlier should the parties so agree.

In 2011, the bankruptcy court approved the settlement agreement and authorized

the public auction of Cobalis’ property. After YA Global made a successful credit

bid, the bankruptcy court approved the sale of Cobalis’ property and provided that

the trustee would cause Cobalis to be dissolved. Cobalis had notice of the motions

related to the settlement agreement and the sale of its property but did not oppose

them.

        Nevertheless, in 2012, over five years after the execution of the financing

agreement and one year after the bankruptcy court’s orders, Cobalis filed a

complaint alleging, for the first time, that the loan provided for usurious interest

because, pursuant to the agreement’s terms, Cobalis provided YA Global with

warrants (i.e., stock options) allegedly worth over $10 million at the time of the

initial transaction. Cobalis also alleged an abuse of process claim against YA

Global and the trustee related to their seeking to dissolve Cobalis.

        At this late stage, Cobalis is estopped from raising the usury claim. Cobalis

failed to include this claim in its disclosure statement in the Chapter 11

proceedings, which were confirmed by the bankruptcy court. See Hamilton v.

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State Farm Fire & Cas. Co., 270 F.3d 778, 784 (9th Cir. 2001); Kelley v. S. Bay

Bank (In re Kelley), 199 B.R. 698, 703 (B.A.P. 9th Cir. 1996). Cobalis has not

shown why it could not have known enough facts about the potential claim to

require disclosure prior to Plan confirmation. See Hay v. First Interstate Bank of

Kalispell, N.A., 978 F.2d 555, 557 (9th Cir. 1992) (“We recognize that all facts

were not known to [the debtor] at that time, but enough was known to require

notification of the existence of the asset to the bankruptcy court.”). Cobalis’

bankruptcy and YA Global’s interest as a creditor have been litigated for years, and

yet Cobalis only now alleges that the loan was usurious or that its stock exceeded

the value of the loan. See Hass v. Darigold Dairy Prods. Co., 751 F.2d 1096, 1099

(9th Cir. 1985) (under equitable estoppel, “a person may be precluded by his act or

conduct . . . from asserting a right which he otherwise would have had” (quoting

Black’s Law Dictionary 483 (5th ed. 1979))). Similarly, Cobalis cannot be

permitted to sit on the sidelines during the approval of the settlement agreement

and the sale of its property, which included provisions for the trustee to take the

specified steps regarding the dissolution of Cobalis, and then later attack that

process. There needs to be finality in these bankruptcy proceedings. See Galt v.

Jericho-Britton (In re Nucorp Energy, Inc.), 812 F.2d 582, 584 (9th Cir. 1987)

(noting that bankruptcy proceedings have “the need for expedient administration of

                                           4
the Bankruptcy estate aided by certain finality of orders issued by the Court in the

course of administration” (citation omitted)). In addition, Cobalis failed to

plausibly allege an abuse of process claim.

       2.    Cobalis has been repeatedly warned to stop its frivolous filings. For

example, in denying Cobalis’ motion for reconsideration of the dismissal of this

adversary proceeding, the bankruptcy court noted that Cobalis had “tested the

court’s patience over the last two years with a never ending stream of motions,

which have become progressively more frivolous” and warned that “this may be

the last one denied without imposition of sanctions.” Indeed, in a related case, the

district court sanctioned Cobalis’ counsel under Federal Rule of Civil Procedure

11(b) for certifying a motion that was “plainly not warranted by existing law or by

a nonfrivolous argument for extending or modifying existing law.”

      We share these same concerns about Cobalis’ litigation in this court. Within

14 days after this memorandum disposition is filed, Cobalis shall show cause in

writing why the court should not award attorneys’ fees and costs to Appellees

under Federal Rule of Appellate Procedure 38 because Cobalis’ appeal is frivolous.

See George v. City of Morro Bay (In re George ), 322 F.3d 586, 591 (9th Cir.

2003) (per curiam) (“An appeal is frivolous if the results are obvious, or the

arguments of error are wholly without merit.” (citation omitted)). Appellees may

                                          5
file a response within 14 days after service of Cobalis’ response. If any of the

Appellees files a response, Cobalis may file a reply within 14 days after service.

The principal briefs shall not exceed 5,000 words and the reply shall not exceed

2,500 words. The submissions must otherwise comply with Federal Rule of

Appellate Procedure 32. The parties’ briefs should consider only the propriety of

an award; the briefs should not address the potential amount of any award.

      IT IS SO ORDERED.

      AFFIRMED.

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