Court Opinion

ID: 9951765
Source: CourtListenerOpinion
Date Created: 2024-03-18 22:01:24.429487+00
Date Added: 2024-06-11T14:42:23.262408
License: Public Domain

FILED
                                                                               MAR 18 2024
                          NOT FOR PUBLICATION                              SUSAN M. SPRAUL, CLERK
                                                                              U.S. BKCY. APP. PANEL
                                                                              OF THE NINTH CIRCUIT

           UNITED STATES BANKRUPTCY APPELLATE PANEL
                     OF THE NINTH CIRCUIT

 In re:                                             BAP No. NC-23-1128-FBN
 THEOS FEDRO HOLDINGS, LLC,
              Debtor.                               Bk. No. 21-30202

 PHILIP ACHILLES, Individually and as
 Sole Shareholder and Managing Member
 of Theos Fedro Holdings, LLC and Sole
 Trustee of the Achilles Trust,
                  Appellant,
 v.                                    MEMORANDUM*
 JANINA M. HOSKINS, Chapter 7
 Trustee,
                  Appellee.

               Appeal from the United States Bankruptcy Court
                   for the Northern District of California
                Dennis Montali, Bankruptcy Judge, Presiding

Before: FARIS, BRAND, and NIEMANN, ** Bankruptcy Judges.

                                 INTRODUCTION

      Philip Achilles, the sole member and officer of debtor Theos Fedro

      *
        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.
      **
        Hon. Jennifer E. Niemann, U.S. Bankruptcy Judge for the Eastern District of
California, sitting by designation.
Holdings, LLC (“Theos Fedro”), appeals the bankruptcy court’s order

converting Theos Fedro’s chapter 111 case to one under chapter 7.

      Mr. Achilles lacks standing to pursue this appeal. We therefore

DISMISS this appeal.

                                       FACTS2

A.    Prepetition events

      Mr. Achilles owns Theos Fedro and A.A. Parking, Inc. Theos Fedro

owns commercial real estate at 819 Ellis Street in San Francisco, California

(“Property”), which it had acquired from Mr. Achilles’ personal trust.

A.A. Parking leases the Property from Theos Fedro and operates a parking

garage at that location.

      In December 2017, Theos Fedro borrowed $3.6 million from Pender

Capital Asset Based Lending Fund I, LP (“Pender”). The loan is secured by

the Property and the rents generated by the Property.

      Theos Fedro defaulted on the loan. Mr. Achilles and Theos Fedro

sued Pender in state court (“Lender Liability Action”) for breach of contract

and fraud. Pender asserted counterclaims against Theos Fedro, as well as

crossclaims against an escrow agent. In November 2020, Pender initiated

      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
Rules of Bankruptcy Procedure.
      2
          We exercise our discretion to take judicial notice of documents electronically
filed in the underlying bankruptcy case and related cases. See Atwood v. Chase Manhattan
Mortg. Co. (In re Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003).

                                           2
foreclosure proceedings against the Property.

B.    Theos Fedro’s chapter 11 bankruptcy case

      In March 2021, Mr. Achilles, as managing member, caused Theos

Fedro to file a chapter 11 bankruptcy petition. It scheduled the Property as

its primary asset. It also scheduled Pender’s first mortgage lien, in addition

to a number of judgment liens and statutory liens against the Property.

      Initially, Theos Fedro, managed by Mr. Achilles, served as debtor-in-

possession. Pender removed the Lender Liability Action to the bankruptcy

court, and the parties continued to litigate that dispute.

      In July 2021, the bankruptcy court appointed appellee Janina M.

Hoskins (“Trustee”) to serve as chapter 11 trustee. The Trustee substituted

into the Lender Liability Action on behalf of the bankruptcy estate. The

bankruptcy court eventually dismissed the Trustee’s amended complaint

with prejudice in October 2022. The Trustee did not appeal. The

bankruptcy court later granted summary judgment in favor of Pender on

Mr. Achilles’ claims. 3

      Meanwhile, the Trustee marketed the Property for sale, and the

bankruptcy court approved a proposed sale in March 2022. Ultimately, that

      3 After the bankruptcy court’s ruling, Mr. Achilles sought an extension of time to
oppose the summary judgment motion, but the bankruptcy court denied his request.
We dismissed his appeal from that decision as interlocutory. Achilles v. Pender Cap. Asset
Based Lending Fund I, L.P. (In re Theos Fedro Holdings, LLC), BAP No. NC-23-1086-BSC,
2024 WL 246445 (9th Cir. BAP Jan. 23, 2024). We noted that the summary judgment
ruling was also interlocutory because Pender still held cross-claims against Mr. Achilles
and the escrow agent, and the Trustee had claims against the escrow agent. Id. at *4.
                                            3
sale did not close.

      The defeat in the Lender Liability Action and the failure of the

proposed sale left the Trustee with few options. The Trustee sought to

compromise the estate’s remaining disputes with Pender in the Lender

Liability Action and other related disputes. Under the proposed

compromise, Pender would retain its secured claim against the Property

and its rental proceeds, as well as any deficiency claim against the estate.

The Trustee also agreed to stipulate to relief from the automatic stay to

allow Pender to foreclose on the Property.

      Mr. Achilles objected to the proposed compromise. He asserted an

equitable interest in the Property that was protected by the homestead

exemption. He also asked the court to void Pender’s lien and remove

Ms. Hoskins as chapter 11 trustee. After a hearing, the bankruptcy court

entered an order granting the motion to compromise. Mr. Achilles

appealed that order to the BAP (“Compromise Appeal”).

C.    The Trustee’s motion to convert

      The Trustee filed a motion to convert Theos Fedro’s chapter 11 case

to chapter 7 (“Motion to Convert”). She argued that the Property would

soon be foreclosed upon, so the bankruptcy estate would be left with

virtually no assets. She contended that the bankruptcy estate was insolvent

and that there was no prospect for the recovery of other assets. She

concluded that conversion was in the best interest of creditors and the

estate. She explained that “the following factors under § 1112(b)(4) are

                                      4
present: substantial or continuing loss to or diminution of the estate and

the absence of a reasonable likelihood of rehabilitation.”

      Mr. Achilles, proceeding pro se, opposed the Motion to Convert. He

argued that conversion was not in the best interest of the estate because he

could propose a confirmable chapter 11 plan. He also accused the Trustee

of not acting in the best interest of the estate.

      The Trustee filed a reply memorandum, questioning Mr. Achilles’

standing to object to conversion. She also argued that Mr. Achilles was

unable to propose a confirmable plan.

      Mr. Achilles filed a surreply, arguing that the Trustee had

“abandoned” Theos Fedro’s case and the claims against Pender and had

acted against the best interests of the estate.

      Mr. Achilles did not appear at the hearing on the Motion to Convert.

The bankruptcy court granted the motion and explained that Mr. Achilles’

frustration with Pender was not a basis to deny the Motion to Convert. It

said that he “has all sorts of beliefs that he could do something better, but

he hasn’t done anything and he has had plenty of opportunity to sponsor

some sort of bailout to keep this case in a Chapter 11 and seek to have the

plan confirmed, but none of that has materialized.”

      On the same day, the bankruptcy court entered its order converting

the case to one under chapter 7 (“Conversion Order”). Ms. Hoskins later

became chapter 7 trustee.

      Mr. Achilles filed a motion for rehearing and reconsideration of the

                                         5
Conversion Order (“Motion for Reconsideration”). He complained that he

was unable to connect via Zoom to the hearing on the Motion to Convert

and otherwise repeated his arguments accusing Pender of wrongdoing.

D.    Post-appeal events

      Mr. Achilles filed a motion for leave to appeal the Conversion Order

and a notice of appeal. He attached a copy of a proposed chapter 11 plan to

the notice of appeal.

      After a hearing, the bankruptcy court denied the Motion for

Reconsideration (“Reconsideration Order”). Mr. Achilles did not amend his

notice of appeal to include the Reconsideration Order. 4

      On August 17, 2023, Pender apparently completed its foreclosure of

the Property. A trustee’s deed upon sale was recorded in favor of 819 Ellis

CF Holdings, LLC.

      Recently, the BAP merits panel dismissed the Compromise Appeal.

Achilles v. Hoskins (In re Theos Fedro Holdings, LLC), BAP No. NC-23-1103-

SCB, 2023 WL 8802541 (9th Cir. BAP Dec. 20, 2023). It held that Mr. Achilles

failed to establish his Article III standing. It otherwise held that he failed to

present any coherent basis for reversal on the merits.

      4
        Mr. Achilles also does not explicitly challenge the Reconsideration Order on
appeal and has waived any argument concerning that order. See Rule 8002(b)(3)
(amended notice of appeal); Smith v. Marsh, 194 F.3d 1045, 1052 (9th Cir. 1999) (“On
appeal, arguments not raised by a party in its opening brief are deemed waived.”). Even
if we were to consider the Reconsideration Order, we would dismiss this appeal for the
reasons stated herein.
                                          6
                                JURISDICTION

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

157(b)(2)(A).

      Although neither party raises the issue of Mr. Achilles’ standing on

appeal, we have an obligation to examine our own jurisdiction under 28

U.S.C. § 158. See Aheong v. Mellon Mortg. Co. (In re Aheong), 276 B.R. 233, 238

(9th Cir. BAP 2002). It is always the appellant’s burden to establish

standing. See Hasso v. Mozsgai (In re La Sierra Fin. Servs., Inc.), 290 B.R. 718,

726 (9th Cir. BAP 2002).

      The Ninth Circuit has recently held that, “[t]o appeal a bankruptcy

court’s order, a party must establish Article III standing and that it is

‘aggrieved’ by the order.” Clifton Cap. Grp., LLC v. Sharp (In re E. Coast

Foods, Inc.), 80 F.4th 901, 905 (9th Cir. 2023). To establish Article III

standing, an appellant must “show that it has: (1) suffered an ‘injury in

fact’ that is concrete, particularized, and actual or imminent, (2) the injury

is ‘fairly traceable’ to the defendant’s conduct, and (3) the injury can be

‘redressed by a favorable decision.’” Id. at 906; see Raines v. Byrd, 521 U.S.

811, 819 (1997) (“We have consistently stressed that a plaintiff’s complaint

must establish that he has a ‘personal stake’ in the alleged dispute, and that

the alleged injury suffered is particularized as to him.”). “In addition to

having standing at the outset, a plaintiff’s stake in the litigation must

continue throughout the proceedings, including on appeal.” Williams v.

Boeing Co., 517 F.3d 1120, 1128 (9th Cir. 2008).

                                         7
      Mr. Achilles has not established that he has standing to appeal the

Conversion Order. He has admitted that he is not a creditor of Theos

Fedro’s estate, and he has not filed a proof of claim. He also does not

dispute the Trustee’s assertion that Theos Fedro is insolvent, so

Mr. Achilles, as the sole member of the debtor, will not receive any money

at the end of the case. While he claimed that Theos Fedro and A.A. Parking

will go out of business and he will be “homeless” if Pender forecloses on its

lien, that speculation is not directly relevant to the conversion of the

bankruptcy case to chapter 7. The conversion itself does not implicate

Mr. Achilles’ “personal stake” in the dispute or otherwise establish that he

suffered any “injury in fact.”

      Mr. Achilles appears to believe that he can appeal on behalf of Theos

Fedro. He attempts to maintain an illusion of control by filing documents

purportedly on behalf of “debtor-in-possession” Theos Fedro, such as the

plan and disclosure statement. However, he lost the ability to control or act

for Theos Fedro when the bankruptcy court appointed a chapter 7 trustee

upon conversion; only the chapter 7 trustee may act on behalf of the debtor.

Cf. C.W. Mining Co v. Aquila, Inc. (In re C.W. Mining Co.), 636 F.3d 1257, 1265

(10th Cir. 2011) (“[E]ven after conversion to Chapter 7, a corporation’s

management is not without recourse. While they still control the

corporation, managers can contest a conversion to Chapter 7. Accordingly,

they can appeal a conversion order (at least until a trustee is appointed).”

(citation omitted) (emphases added)).

                                       8
      Nothing in Mr. Achilles’ submissions on appeal establishes his

appellate standing. We therefore must dismiss this appeal.5

                                   CONCLUSION

      Mr. Achilles does not have standing to appeal the bankruptcy court’s

order, so we DISMISS this appeal.

      5
        Even if we were to consider the merits of Mr. Achilles’ appeal, we would affirm.
The record amply supports the bankruptcy court’s ruling. Mr. Achilles does not
challenge the basis of the Conversion Order, instead focusing on Pender’s alleged
wrongdoing. None of these allegations have anything to do with the Conversion Order;
they do not refute the Trustee’s allegation of “substantial or continuing loss to or
diminution of the estate and the absence of a reasonable likelihood of rehabilitation” or
prove that conversion is not in the best interest of creditors and the estate. In short,
Mr. Achilles has failed to establish that the bankruptcy court abused its discretion.
                                           9