Court Opinion

ID: 4690532
Source: CourtListenerOpinion
Date Created: 2021-05-27 00:01:02.812267+00
Date Added: 2024-06-11T08:05:00.715628
License: Public Domain

NOT FOR PUBLICATION
                                                                             FILED
                                                                              MAY 26 2021
          UNITED STATES BANKRUPTCY APPELLATE PANEL
                                               SUSAN M. SPRAUL, CLERK
                    OF THE NINTH CIRCUIT         U.S. BKCY. APP. PANEL
                                                 OF THE NINTH CIRCUIT

In re:                                               BAP No. CC-20-1236-LFT
JOHN CHRISTIAN LUKES,
             Debtor.                                 Bk. No. 1:19-bk-11902-VK

SALISBURY LEE & TSUDA, LLP,
             Appellant,
v.                                                   MEMORANDUM∗
JOHN CHRISTIAN LUKES,
             Appellee.

               Appeal from the United States Bankruptcy Court
                      for the Central District of California
               Victoria S. Kaufman, Bankruptcy Judge, Presiding

Before: LAFFERTY, FARIS, and TAYLOR, Bankruptcy Judges.

                                 INTRODUCTION

      The law firm of Salisbury, Lee & Tsuda, LLP (“SLT”) appeals the

bankruptcy court’s order disallowing its second amended claim filed in

debtor John Lukes’ chapter 111 case. The bankruptcy court sustained

Debtor’s objection to the claim based on its interpretation of a settlement

      ∗  This disposition is not appropriate for publication. Although it may be cited for
whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential
value, see 9th Cir. BAP Rule 8024-1.
       1 Unless specified otherwise, all chapter and section references are to the

Bankruptcy Code, 11 U.S.C. §§ 101–1532, and all “Rule” references are to the Federal
                                            1
agreement among Debtor, his spouse, and SLT (the “Settlement

Agreement”). Although the chapter 11 case has been dismissed, this appeal

is not moot. And we agree with the bankruptcy court’s conclusion that the

Settlement Agreement released Debtor’s liability for the attorneys’ fees

asserted in SLT’s second amended proof of claim, as well as those accruing

through January 1, 2020, based on the language of the Settlement

Agreement, which released “all liabilities associated with child support

and spousal support orders made in favor of Mrs. Lukes to the extent such

liabilities have accrued through January 1, 2020.” We therefore AFFIRM.

                                   FACTS

      In April 2019, in connection with a contentious dissolution

proceeding between Debtor and his wife, Kathryn A. Lukes, the Los

Angeles County Superior Court entered an order (“Fee Order”) requiring

Debtor to pay attorneys’ fees and costs of $150,000 to SLT, Mrs. Lukes’

dissolution counsel, pursuant to California Family Code § 2030. Shortly

thereafter, SLT recorded in Los Angeles County an abstract of judgment

referencing the Fee Order.

      Debtor filed a chapter 11 petition on July 29, 2019. Mrs. Lukes filed a

proof of claim (No. 14) in which she asserted a secured claim of $100,579.79

for court-ordered child support, spousal support, and arrears. SLT filed a

proof of claim (No. 13) in which it asserted a priority secured claim of

$152,621.77 based on the Fee Order. A week later, SLT filed an amended

Rules of Bankruptcy Procedure.
                                      2
proof of claim, asserting a total claim of $326,129.14. As in the initial proof

of claim, SLT asserted a secured claim of $152,621.77, but added an

unsecured claim of $173,507.37. The description of the basis for the claim

read: “Money judgment ($152,621.77) and legal fees on behalf of debtor’s

spouse Kathryn A. Lukes prior to [the petition date] which may become an

obligation of debtor[.]”

         In January 2020, Debtor, Mrs. Lukes, and SLT entered into the

Settlement Agreement. Under the agreement, Debtor was to pay Mrs.

Lukes $100,579.79 in satisfaction of her proof of claim no. 14, plus

additional amounts to cure postpetition spousal and child support arrears

through January 14, 2020. In exchange, Mrs. Lukes was to withdraw her

proof of claim, reconvey her liens, and report to the family law court that

Debtor was current on his liabilities as of January 1, 2020.

         With respect to SLT, paragraph 2.2.1 of the Settlement Agreement

provided “[t]he Debtor shall pay SLT $152,622 in settlement of its POC No.

13,” after which SLT would withdraw its proof of claim and reconvey its

liens.

         In exchange, Mrs. Lukes and SLT agreed to “relieve, release and

forever discharge the Debtor, from all liabilities associated with the [Fee

Order] and all liabilities associated with child support and spousal support

orders made in favor of Mrs. Lukes to the extent such liabilities have

accrued through January 1, 2020.” No party objected, and the bankruptcy

                                        3
court approved the Settlement Agreement. On February 27, 2020, SLT was

paid $152,652.33. 2

      The next day, SLT again amended its proof of claim, eliminating the

secured portion of $152,621.77 but continuing to assert an unsecured claim

of $173,507.37 based on “[l]egal fees on behalf of debtor’s spouse Kathryn

A. Lukes prior to 7/29/19 not yet liquidated and subject to court approval.”

      Debtor filed an objection to SLT’s amended claim, arguing that it

should be disallowed based on the language in the Settlement Agreement

requiring SLT to withdraw its proof of claim upon receipt of $152,652.33. 3

SLT filed a response in which it asserted that the Settlement Agreement

released only the attorneys’ fees awarded by the Fee Order.

      After a hearing, the bankruptcy court sustained Debtor’s objection

and entered an order disallowing SLT’s second amended claim.4 SLT

timely appealed.

      2
         Mrs. Lukes was also paid the amount of her secured claim, and she withdrew
her claim no. 14.
       3 Debtor also argued that the claim was unenforceable because the fees being

claimed had not yet been awarded by the superior court, and there was no
documentation attached to the amended proof of claim to support the fees requested.
       4 SLT’s counsel’s telephone access was disrupted shortly before the end of the

September 17 hearing, cutting off certain arguments he made, and thus they do not
appear in the transcript. SLT has moved to augment the record with a Statement of
Evidence on Appeal (“SOE”) pursuant to Rule 8009(c), which Debtor did not oppose.
But SLT did not obtain bankruptcy court approval of the SOE as required under Rule
8009(c). In any event, the arguments SLT asserts were made but not preserved in the
hearing transcript are adequately covered in SLT’s appellate briefing. The motion to
augment is DENIED.
                                           4
      During the pendency of this appeal, Debtor and the United States

Trustee stipulated to dismissal of the chapter 11 case, and the bankruptcy

court dismissed the case on February 2, 2021.

                               JURISDICTION

      The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and

157(b)(2)(K). And despite the dismissal of the underlying bankruptcy case,

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

      Dismissal of a bankruptcy case does not necessarily moot all

decisions made during the pendency of the case. Bevan v. Socal Commc’ns

Sites, LLC (In re Bevan), 327 F.3d 994, 997 (9th Cir. 2003). Specifically, where

a decision whether to allow or disallow a claim could have preclusive effect

in future litigation, an appeal of that decision is not moot. Id. Here, the

bankruptcy court interpreted the Settlement Agreement as releasing

Debtor’s liability for attorneys’ fees incurred by Mrs. Lukes through

January 1, 2020. This interpretation is potentially preclusive in a future

family court proceeding. Accordingly, the appeal is not moot.

                                     ISSUE

      Did the bankruptcy court err in sustaining Debtor’s objection to SLT’s

proof of claim?

                          STANDARD OF REVIEW

      In the claim objection context, we review the bankruptcy court’s legal

conclusions de novo and its findings of fact for clear error. Lundell v. Anchor

Constr. Specialists, Inc., 223 F.3d 1035, 1039 (9th Cir. 2000). Here, the

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bankruptcy court’s ruling was based entirely on its interpretation of the

Settlement Agreement, which is a question of law that we review de novo.

See Renwick v. Bennett (In re Bennett), 298 F.3d 1059, 1064 (9th Cir. 2002).

When we conduct a de novo review, “we look at the matter anew, the same

as if it had not been heard before, and as if no decision previously had been

rendered, giving no deference to the bankruptcy court’s determinations.”

Charlie Y., Inc. v. Carey (In re Carey), 446 B.R. 384, 389 (9th Cir. BAP 2011).

                                  DISCUSSION

      The bankruptcy court sustained Debtor’s objection because it

interpreted the Settlement Agreement as releasing Debtor from liability for

attorneys’ fees incurred by Mrs. Lukes through January 1, 2020. In

construing the Settlement Agreement, we must do so “in a manner that

gives full meaning and effect to all of the contract’s provisions and avoid a

construction of the contract that focuses only on a single provision . . . .”

Beal Bank v. Crystal Props., Ltd., L.P. (In re Crystal Props., Ltd., L.P.), 268 F.3d

743, 748 (9th Cir. 2001).

      Although SLT urges this Panel to heed the foregoing rule of

construction, SLT advocates for a reading of the Settlement Agreement that

focuses solely on the release paragraph (¶ 2.3) and ignores the other

provisions of the agreement. SLT points out that the agreement provided

for two separate settlements, and argues that one settlement released

Debtor’s liability to SLT for the fees awarded in the Fee Order, and the

                                          6
other released his liability to Mrs. Lukes for spousal and child support

only, through January 1, 2020.

       To begin, even if we look solely to the release paragraph, it provides

for the release of “all liabilities associated with” domestic support

obligations accruing through January 1, 2020. Those liabilities may include

attorneys’ fees, which, at least initially, would be Mrs. Lukes’ obligation.

SLT seems to assume that such fees would automatically become Debtor’s

obligation, i.e., a direct obligation from Debtor to SLT, enabling SLT to

assert a claim in the bankruptcy or pursue Debtor directly for the fees. But

Debtor would become liable for the fees only upon order of the superior

court pursuant to California Family Code § 2030. 5 It is thus reasonable to

read “all liabilities” associated with child or spousal support as including

attorneys’ fees.

       Construing the Settlement Agreement as releasing Debtor’s liability

for attorneys’ fees through January 1, 2020, is bolstered by SLT’s agreement

to withdraw its proof of claim, which is defined in the Settlement

Agreement as “POC No. 13” and is described in paragraph 1.2 of the

agreement as an “amended Proof of Claim.” The amended proof of claim

no. 13 on file at the time of the settlement included an unsecured claim of

$173,507.37 in unliquidated legal fees; those fees had not been adjudicated

to be Debtor’s liability, as acknowledged in the claim. The Settlement

       5
         That statute requires the court to make findings as to the respective parties’
abilities to pay attorneys’ fees and costs and to order one party to pay another’s fees and
                                            7
Agreement did not provide for SLT to amend its proof of claim but to

withdraw it. For us to accept the interpretation urged by SLT, we would

have to ignore SLT’s agreement to withdraw its proof of claim. Withdrawal

would have eliminated the claim in its entirety. And given that the claims

bar date had passed, SLT could not have asserted a new claim.

       We note that with respect to the settlement with Mrs. Lukes,

paragraph 2.1.3(a) of the agreement provided that once she received the

required payment from Debtor, she would “[w]ithdraw her POC from the

Bankruptcy Case, except as to current child support amounts accruing on

or after January 15, 2020.” This provision demonstrates that SLT took care

to draft the terms portion of the Settlement Agreement (not just the release

paragraph) to protect Mrs. Lukes’ right to postpetition support accruing

after the specified date; that it failed to do the same with its unsecured

claim for prepetition attorneys’ fees supports the conclusion that the

omission was intentional.

       SLT also argues that the bankruptcy court should have entertained

evidence of intent, but the court found the Settlement Agreement

susceptible of only one interpretation.6 In any event, the claim objection

costs in accordance with those findings.
        6 The agreement contains an integration clause. The California parol evidence

rule “generally prohibits the introduction of any extrinsic evidence, whether oral or
written, to vary, alter or add to the terms of an integrated written instrument.” Casa
Herrera, Inc. v. Beydoun, 32 Cal. 4th 336, 343 (2004) (quoting Alling v. Universal Mfg. Corp.,
5 Cal. App. 4th 1412, 1433 (1992)). Still, extrinsic evidence may be introduced to explain
the meaning of a written contract if “the meaning urged is one to which the written
                                              8
was not the first time the bankruptcy court had considered the Settlement

Agreement. The court had approved the agreement, presumably based on

its interpretation of the terms at issue in this appeal. And the bankruptcy

court’s interpretation makes sense because, without the release of

attorneys’ fees other than those explicitly awarded by the superior court,

Debtor would have received virtually no consideration in the settlement.

                                  CONCLUSION

      Because the bankruptcy court did not err in its interpretation of the

Settlement Agreement, it did not err in sustaining Debtor’s objection to

SLT’s claim. Accordingly, we AFFIRM.

contract terms are reasonably susceptible.” Id. (quoting BMW of N. Am., Inc. v. New
Motor Vehicle Bd., 162 Cal. App. 3d 980, 990 n.4 (1984)).
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