Court Opinion

ID: 4279070
Source: CourtListenerOpinion
Date Created: 2018-05-29 17:00:27.665478+00
Date Added: 2024-06-11T12:49:34.302924
License: Public Domain

FOR PUBLICATION

  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

IN THE MATTER OF POINT CENTER            No. 16-56321
FINANCIAL, INC.,
                          Debtor,          D.C. No.
                                        8:16-cv-01336-
                                             DSF
DAN J. HARKEY; ROBIN B. GRAHAM,
as Trustee of the Robin B. Graham
and Celia Allen-Graham Revocable           OPINION
Trust; CELIA ALLEN-GRAHAM, as
Trustee of the Robin B. Graham and
Celia Allen-Graham Revocable
Trust; RICHARD SCHACHTER,
                          Appellants,

                 v.

HOWARD B. GROBSTEIN, Chapter 7
Trustee,
                       Appellee.

      Appeal from the United States District Court
         for the Central District of California
       Dale S. Fischer, District Judge, Presiding

        Argued and Submitted December 5, 2017
                 Pasadena, California

                  Filed May 29, 2018
2                IN RE POINT CENTER FINANCIAL

   Before: A. Wallace Tashima and Marsha S. Berzon,
 Circuit Judges, and Matthew F. Kennelly,* District Judge.

                    Opinion by Judge Kennelly

                            SUMMARY**

                             Bankruptcy

    The panel reversed the district court’s dismissal for lack
of standing of an appeal from a bankruptcy court order that
authorized a Chapter 7 trustee to assume the operating
agreement of a limited liability company whose interests
were implicated in the bankruptcy proceedings.

    The district court concluded that the members and
original president of the company lacked standing to
challenge the bankruptcy court 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 agreeing with the Fourth Circuit, the panel
held that attendance and objection are not prerequisites for
satisfying the “person aggrieved” requirement for prudential
standing. The panel remanded the case to the district court.

    *
      The Honorable Matthew F. Kennelly, United States District Judge
for the Northern District of Illinois, sitting by designation.
    **
       This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
              IN RE POINT CENTER FINANCIAL                  3

                        COUNSEL

Sean A. O’Keefe (argued), O’Keefe & Associates Law
Corporation P.C., Irvine, California, for Appellants.

Roye Zur (argued), Landau Gottfried & Berger LLP, Los
Angeles, California, for Appellee.

                         OPINION

KENNELLY, District Judge:

    Appellants are members and the original president of
Dillon Avenue 44, LLC (Dillon), a limited liability company
whose interests have been implicated in the bankruptcy
proceedings of Point Center Financial, Inc. (PCF). They
appealed from a bankruptcy court order that, among other
things, authorized PCF’s Chapter 7 trustee, Howard B.
Grobstein, to assume Dillon’s operating agreement long after
the deadline for assuming or rejecting executory contracts had
passed. The district court dismissed the appeal on the ground
that Appellants lacked standing to challenge the bankruptcy
court order because, despite receiving adequate notice of the
motion, they did not file an objection or attend the hearing
before the bankruptcy court. We reverse.

I. Background

   A. Facts

    This appeal arises from an order issued by the bankruptcy
court in the bankruptcy proceeding of Point Center Financial,
Inc., an originator and servicer of residential and commercial
4             IN RE POINT CENTER FINANCIAL

loans. PCF obtained funding for loans from private investors
who would typically receive a fractionalized interest in the
loan and in the deed of trust securing the loan. In the event
of a default, PCF would initiate foreclosure proceedings
against the real property securing the loan. If PCF purchased
that property at the foreclosure sale, PCF would create a new
limited liability company (LLC) to hold title to the property,
and the investors’ interests in the loan and foreclosed deed of
trust would then be exchanged for membership interests in
the LLC, which PCF would manage.

    After a borrower defaulted on a PCF-originated loan
secured by an undeveloped property in Indio, California, PCF
formed Dillon Avenue 44, LLC to hold title to the property.
Once Dillon obtained title to the Indio property after
foreclosure, the investors who provided the funds for the
original loan exchanged their fractional interests in the loan
and deed of trust for membership interests in Dillon. Dillon’s
2011 operating agreement designated PCF as the manager of
the company, and appellant Dan J. Harkey was appointed
president. Appellants Robin B. Graham, Celia Allen-
Graham, and Richard Schachter all hold membership interests
in Dillon.

    B. Procedural history

    In February 2013, PCF filed a voluntary petition for relief
under Chapter 11 of the U.S. Bankruptcy Code. The
proceeding was later converted to a Chapter 7 proceeding. In
January 2014, the bankruptcy court entered an order setting
February 28, 2014 as the deadline for Grobstein, the Chapter
7 trustee, to assume or reject PCF’s remaining executory
contracts, which included Dillon’s 2011 operating agreement.
              IN RE POINT CENTER FINANCIAL                   5

Grobstein did not assume Dillon’s operating agreement by the
February 28, 2014 deadline.

    In May 2016, Grobstein filed a motion (the Assumption
Motion) asking the bankruptcy court to issue an order
(1) authorizing him to exercise management authority over
Dillon, so long as a majority of the membership interests in
Dillon so voted, (2) authorizing him to assume Dillon’s
operating agreement backdated to February 2013, and
(3) compelling delivery to him of the company’s records and
property. Grobstein’s motion alleged that his failure to
assume the operating agreement by the February 2014
deadline was the result of excusable neglect stemming from
reliance on deliberate misrepresentations made by appellant
Harkey and others. Grobstein provided notice of the motion
to Appellants. The notice stated that, pursuant to a local
bankruptcy court rule, any response to the motion must be
filed and served at least 14 days prior to the hearing date. No
one filed an opposition to the motion prior to the hearing.

    The bankruptcy court held a hearing on the Assumption
Motion on June 21, 2016. Neither Appellants nor counsel for
Appellants attended the hearing. At the end of the hearing,
the bankruptcy court orally granted the motion, stating that it
was unopposed. The transcript of the hearing makes clear
that the court contemplated that Grobstein’s counsel would
draft an order for the court’s signature.

   On June 28, 2016, evidently having learned that the
bankruptcy court had orally granted the Assumption Motion,
Appellants filed an emergency motion for reconsideration and
sought an expedited hearing on the motion. The bankruptcy
court had not yet issued the anticipated written order on the
Assumption Motion. On June 29, the bankruptcy court
6              IN RE POINT CENTER FINANCIAL

denied Appellants’ application for an order setting a hearing
on the emergency motion for reconsideration.                 The
bankruptcy court stated that it could construe Appellants’
failure to file a written opposition to the Assumption Motion
as consent to the granting of the motion, but instead it
addressed the merits of Appellants’ arguments in support of
reconsideration. The court noted that the order on the
Assumption Motion had not yet been entered but concluded
that Appellants had not shown either that the oral ruling was
manifest error or that they were likely to prevail on appeal.
Later that day, the bankruptcy court entered a written order
(the Assumption Order) granting 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.

   Before the district court, Grobstein moved to dismiss the
appeal on the ground that Appellants lacked standing to
appeal because they did not file an objection to the
Assumption Motion or attend the June 2016 hearing on the
matter, despite having received adequate notice of the motion.
The district court agreed and granted Grobstein’s motion to
dismiss for lack of standing.

II. Discussion

    We review a district court’s decision on appeal from the
bankruptcy court de novo, “applying the same standards
applied by the district court, without deference to the district
court.” Hughes v. Tower Park Props. (In re Tower Park
Props., LLC), 803 F.3d 450, 456 n.5 (9th Cir. 2015) (internal
quotation marks and citation omitted). Standing is an issue
of law that we review de novo, while related factual
determinations are reviewed for clear error. Palmdale Hills
              IN RE POINT CENTER FINANCIAL                    7

Prop., LLC v. Lehman Commercial Paper, Inc. (In re
Palmdale Hills Prop., 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] aggrieved” by the order.
See, e.g., Opportunity Fin., LLC v. Kelley, 822 F.3d 451, 457
(8th Cir. 2016); Duckor Spradling & Metzger v. Baum Tr. (In
re P.R.T.C., Inc.), 177 F.3d 774, 777 (9th Cir. 1999). Under
this prudential standing doctrine, only a “person aggrieved,”
that is, someone who is “directly and adversely affected
pecuniarily” by a bankruptcy court’s order, has standing to
appeal that order. Fondiller v. Robertson (In re Fondiller),
707 F.2d 441, 443 (9th Cir. 1983). An order that diminishes
one’s property, increases one’s burdens, or detrimentally
affects one’s rights has a direct and adverse pecuniary effect
for bankruptcy standing purposes. See, e.g., P.R.T.C.,
177 F.3d at 777.

    As we explained in Fondiller, this prudential standing
requirement “exists to fill the need for an explicit limitation
on standing to appeal in bankruptcy proceedings.” Fondiller,
707 F.2d at 443. Bankruptcy proceedings invariably give rise
to disputes that implicate the interests of many different
stakeholders, including those who are not formally parties to
the litigation. Id. Limiting appellate standing to “person[s]
aggrieved” by a particular bankruptcy order serves the
interests of judicial efficiency. Id.; see also In re Ray,
597 F.3d 871, 874 (7th Cir. 2010) (“[C]ourts consistently
have noted a public policy interest in reducing the number of
ancillary suits that can be brought in the bankruptcy context
so as to advance the swift and efficient administration of the
bankrupt’s estate. This goal is achieved primarily by
narrowly defining who has standing in a bankruptcy
8               IN RE POINT CENTER FINANCIAL

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

    In the present case, the district court concluded that
Appellants’ failure to attend the bankruptcy court hearing on
the Assumption Motion deprived them of standing to appeal
the Assumption Order. The district court relied for this
conclusion on Brady v. Andrew (In re Commercial Western
Finance Corp.), 761 F.2d 1329, 1335 (9th Cir. 1985), which
stated in dicta that “attendance and objection” at the
bankruptcy court proceedings “should usually” be
prerequisites to meeting the “person aggrieved” bankruptcy
standing rule.

    Although a number of unpublished, non-binding opinions
in this circuit appear to suggest otherwise,1 there is no
controlling law in this circuit regarding whether a person who
has a pecuniary interest affected by a bankruptcy proceeding
and received adequate notice of a bankruptcy court hearing,
but failed to appear and object, may be found to satisfy the
“person aggrieved” requirement for appellate standing. This
court’s suggestion in In re Commercial Western Finance
Corp. (Commercial) that “attendance and objection should
usually be prerequisites to fulfilling the ‘person aggrieved’
standard” was not a holding and does not bind us.
Commercial, 761 F.2d at 1335. In Commercial, we were
presented with the question of whether investors adversely

    1
     See French Auto. LLC v. Gill (In re W. Covina Motors, Inc.), 691 F.
App’x 362, 362 (9th Cir. 2017); Benham v. Hagen (In re Benham), 678 F.
App’x 474, 476 (9th Cir. 2017); Wathen v. Yarnall (In re Wathen), 412 F.
App’x 13, 14 (9th Cir. 2011); Marin v. Sanders (In re Marinkovic), 295 F.
App’x 153, 154 (9th Cir. 2008).
              IN RE POINT CENTER FINANCIAL                   9

affected by a bankruptcy court order confirming a particular
plan of reorganization could satisfy the “person aggrieved”
standing requirement despite having failed to attend the
hearing and object to the proposed plan. Id. at 1332. We
observed that a “leading commentator” supported requiring
attendance and objection “as a limitation on the number of
people who have standing to appeal” in light of “the need for
economy and efficiency in the bankruptcy system.” Id. at
1335. For that reason, we “agree[d] that attendance and
objection should usually be prerequisites to fulfilling the
‘person aggrieved’ standard.” Id. (footnote omitted).
Nonetheless, we decided the case on different grounds: we
held that the investors’ failure to appear and object did not
defeat their standing to appeal the bankruptcy court order at
issue because the trustee had not given them proper notice
that the reorganization plan affected their security interests.
Id.

    Our sister circuits that have addressed the issue disagree
regarding whether attendance and objection are prerequisites
for satisfying the “person aggrieved” standing requirement.
Compare In re Schultz Mfg. Fabricating Co., 956 F.2d 686,
690 (7th Cir. 1992) (“Prerequisites for being a ‘person
aggrieved’ are attendance and objection at a bankruptcy court
proceeding.”) (citing Commercial, 761 F.2d at 1334–35) with
White v. Univision of Va. Inc. (In re Urban Broad. Corp.),
401 F.3d 236, 244 (4th Cir. 2005) (attendance and objection
are not requirements for standing to appeal a bankruptcy
court order). Courts that have approved of attendance and
objection standing prerequisites in dicta or otherwise cite the
same considerations of judicial economy and efficiency that
underlie the general “person aggrieved” standard. See, e.g.,
Ray, 597 F.3d at 874 (“These requirements reflect the need
for economy and efficiency in the bankruptcy system.”);
10            IN RE POINT CENTER FINANCIAL

Commercial, 761 F.2d at 1335 (support for attendance and
objection requirement stems from recognition of “the need
for economy and efficiency in the bankruptcy system”).

     Most procedural rules that serve the interests of judicial
economy and efficiency are not rules of standing. Rather, we
enforce applicable procedural rules when appropriate,
sometimes ruling that failure to comply constitutes forfeiture
or waiver. See, e.g., Cellular 101, Inc. v. Channel Commc’ns,
Inc. (In re Cellular 101, Inc.), 539 F.3d 1150, 1154–57 (9th
Cir. 2008); Enewally v. Wash. Mut. Bank (In re Enewally),
368 F.3d 1165, 1173 (9th Cir. 2004); see also Wellness Int’l
Network, Ltd. v. Sharif, 135 S. Ct. 1932, 1949 (2015). We do
not automatically toss a litigant out of court for
noncompliance with a trial court rule without allowing the
litigant to explain why the noncompliance should be excused,
caused no harm, or had limited impact.

    Bankruptcy standing concerns whether an individual or
entity is “aggrieved,” not whether one makes that known to
the bankruptcy court. In other words, one need not have
attended and made objections at the hearing to be directly and
adversely affected by a bankruptcy court’s decision. We
therefore agree with the Fourth Circuit that an appellant’s
failure to attend and object at a bankruptcy court hearing has
no bearing 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 rights to object to claims, . . .
       misconstrues the standing requirement . . . ,
       that the appellant show that he has been
       directly and adversely affected pecuniarily by
       the bankruptcy order. Moreover, defining
               IN RE POINT CENTER FINANCIAL                   11

        standing by whether an appellant has objected
        to an order or attended a hearing conflates
        basic notions of standing with notions of
        waiver and forfeiture. Accordingly, we . . .
        ask only whether [the appellant] was directly
        and adversely affected pecuniarily by the
        bankruptcy court’s order.

Urban Broad. Corp., 401 F.3d at 244 (emphasis in the
original). Failure to attend and object may result in waiver or
forfeiture of the right to make certain arguments or object to
certain claims, but it does not present a jurisdictional standing
issue.

    We also note that although Appellants did not attend the
hearing on the Assumption Motion, they filed a motion to
reconsider with the bankruptcy court before it had issued a
written order on the motion—a written order that the court
expressly contemplated when it made its oral ruling.
Appellants laid out their objections to the Assumption Motion
and the anticipated order in great detail in that motion to
reconsider. Significantly, the bankruptcy court did not deny
the motion to reconsider based on Appellants’ failure to
appear; rather, it addressed their arguments for
reconsideration on the merits. Under these circumstances, we
find that Appellants have not waived their challenge to the
propriety of the underlying Assumption Order, though the
question of forfeiture is open for determination on remand.
See Hamer v. Neighborhood Hous. Servs. Of Chi., 138 S. Ct.
13, 17 n.1 (2017) (“The terms waiver and forfeiture–though
often used interchangeably by jurists and litigants–are not
synonymous. Forfeiture is the failure to make the timely
assertion of a right; waiver is the intentional relinquishment
or abandonment of a known right.”) (internal quotation marks
12             IN RE POINT CENTER FINANCIAL

and alterations omitted); Cadillac Fairview/Ca., Inc. v.
United States, 41 F.3d 562, 565 n.3 (9th Cir. 1994) (issue not
raised in opposition to motion for summary judgment was
nonetheless properly before the court of appeals where it had
been raised in a motion to vacate the grant of summary
judgment and the district court rejected it on the merits in an
order supplementing its ruling on the summary judgment
motion).

    Because there is no question that Appellants’ pecuniary
interests are directly and adversely affected by the bankruptcy
court order in question, we reverse the district court’s
dismissal of the appeal for lack of standing. We therefore
remand the case to the district court. See Mastro v. Rigby,
764 F.3d 1090, 1097 (9th Cir. 2014) (“When a district court
improperly dismisses a bankruptcy appeal without reaching
the merits, we generally reverse the district court’s dismissal
and remand for the district court’s consideration of the appeal
in the first instance.”). On remand, the district court may
consider whether Appellants forfeited their opposition to the
Assumption Motion and, if so, whether the bankruptcy
court’s granting of the Motion should be reviewed for plain
error. See Draper v. Rosario, 836 F.3d 1072, 1085 (9th Cir.
2016) (“In the civil context, plain error review requires:
(1) an error, (2) the error is plain or obvious, (3) the error was
prejudicial or affects substantial rights, and (4) review is
necessary to prevent a miscarriage of justice.”) (internal
quotation marks and alterations omitted).
              IN RE POINT CENTER FINANCIAL            13

III.     Conclusion

    We reverse the district court’s dismissal for lack of
standing and remand to the district court.

       REVERSED and REMANDED.