Court Opinion

ID: 150183
Source: CourtListenerOpinion
Date Created: 2010-07-07 17:18:37+00
Date Added: 2024-06-11T09:05:06.162041
License: Public Domain

FOR PUBLICATION
  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

TA CHONG BANK LTD.,                        
                Plaintiff-Appellant,
                                                 No. 08-17007
                 v.
HITACHI HIGH TECHNOLOGIES                         D.C. No.
                                                CV-08-02452-PJH
AMERICA, INC., a Delaware
                                                     OPINION
corporation,
               Defendant-Appellee.
                                           
         Appeal from the United States District Court
            for the Northern District of California
         Phyllis J. Hamilton, District Judge, Presiding

                  Argued and Submitted
        November 3, 2009—San Francisco, California

                         Filed July 7, 2010

     Before: Alfred T. Goodwin and William A. Fletcher,
     Circuit Judges, and Richard Mills, District Judge.*

                     Opinion by Judge Mills

   *The Honorable Richard Mills, Senior United States District Judge for
the Central District of Illinois, sitting by designation.

                                 9647
9650    TA CHONG BANK v. HITACHI HIGH TECHNOLOGIES

                         COUNSEL

James S. Monroe, Monroe Law Group, San Francisco, Cali-
fornia, for plaintiff-appellant Ta Chong Bank Ltd.

Richard C. Vasquez and Avin P. Sharma, Vasquez, Benisek
& Lindgren LLP, Lafayette, California, for defendant-
appellee Hitachi High Technologies America, Inc.

                         OPINION

MILLS, District Judge:

  Ta Chong Bank (“the Bank”) filed a complaint wherein it
asserted several claims against Hitachi High Technologies
America, Inc. (“Hitachi”). Those claims were based on the
Bank’s interest in the accounts receivable of a third party,
CyberHome Entertainment, Inc. (“CyberHome”), pursuant to
certain factoring agreements entered into by those entities.
Although the factoring agreements provided that Hitachi was
to pay the Bank, Hitachi made payment directly to Cyber-
Home, several months before CyberHome filed for Chapter 7
bankruptcy.

   The district court dismissed the Bank’s claims, reasoning
that they were based solely on its interest in CyberHome’s
accounts receivable, which the bankruptcy court had deter-
mined to be property of CyberHome’s bankruptcy estate.

  We affirm.

                   I.    BACKGROUND

   In August and September of 2005, Hitachi purchased a
large number of DVD players from CyberHome for approxi-
         TA CHONG BANK v. HITACHI HIGH TECHNOLOGIES         9651
mately $1.2 million. Since May 2004, the Bank had entered
into a series of factoring agreements whereby it agreed to pur-
chase from CyberHome certain of CyberHome’s accounts
receivable. CyberHome assigned to the Bank all of its right,
title and interest in and to all amounts due from Hitachi under
the invoices. On or about August 18, 2005, the Bank and
CyberHome gave Hitachi notice in writing that effective Sep-
tember 1, 2005, CyberHome’s future invoices to Hitachi
would bear a notice that such invoices were assigned to the
Bank. The notice instructed Hitachi that all payments on those
CyberHome invoices must be made directly to the Bank.
Despite this assignment, in January 2006, Hitachi paid Cyber-
Home the full amount owed for the DVDs. Neither the Bank
nor the CIT Group/Commercial Services, Inc. (“CIT”), which
handled the processing of certain accounts receivable factored
by the Bank, received any portion of the payment made to
CyberHome. The payment was made to CyberHome without
the Bank’s or CIT’s knowledge or consent.

   On September 5, 2006, eight months after CyberHome was
paid in full by Hitachi, CyberHome filed for Chapter 7 bank-
ruptcy in the U.S. Bankruptcy Court for the Northern District
of California. The Bank has made demand on Hitachi for pay-
ment of the $1,214,852.20 that it paid to CyberHome, but
Hitachi has not made any payment to the Bank.

   On December 19, 2006, the Chapter 7 Trustee for Cyber-
Home’s bankruptcy estate filed an adversary proceeding
against the Bank asserting several claims, including a claim
to avoid the Bank’s security interest in property of the Cyber-
Home bankruptcy estate, including its accounts receivable.
The trustee claimed that the accounts receivable constituted a
preferential transfer and that the Bank had failed to perfect its
security interest prior to 90 days before the bankruptcy peti-
tion.

   On December 22, 2006, the Bank filed a secured proof of
claim in the CyberHome bankruptcy case in the amount of
9652     TA CHONG BANK v. HITACHI HIGH TECHNOLOGIES
$83,000,000 for amounts due under several credit accounts
extended to CyberHome, including the accounts receivable at
issue in this case. On February 2, 2007, the Bank filed a coun-
terclaim for (1) fraud, (2) negligence, and (3) breach of con-
tract in the adversary proceeding. The Bank attached its
previously filed proof of claim as an exhibit to the counter-
claim. The trustee subsequently moved for summary adjudica-
tion against the Bank.

   On June 13, 2007, the bankruptcy court entered an order
which, in part, advised account debtors to disregard any
request from the Bank. The order provided that only the
trustee was authorized to collect any receivables. The Bank
did not oppose the trustee’s motion for summary adjudication,
and the bankruptcy court granted the motion on August 10,
2007. The Bank did not appeal the bankruptcy court’s order.

   Seven months after the bankruptcy court’s order granting
the trustee’s motion for summary adjudication, the Bank
brought suit in state court against Hitachi. The complaint
asserted several causes of action under California law, includ-
ing (1) goods sold and delivered, (2) open book account, and
(3) account stated. The Bank’s complaint sought payment
from Hitachi of the $1.2 million that Hitachi previously paid
to CyberHome. The Bank also attached as exhibits invoices
between Hitachi and CyberHome. Hitachi removed the action
to federal court.

   The district court granted Hitachi’s motion to dismiss the
case for failure to state a claim and entered a judgment of dis-
missal. In granting the motion, the court found that by filing
the action, the Bank was attempting an “end run around” the
bankruptcy process and that the case was “an improper appeal
of the bankruptcy court’s order.” The district court also found
that the bankruptcy court’s order was res judicata as to the
Bank’s interest in CyberHome’s accounts receivable. It held
that the bankruptcy court implicitly found the $1.2 million at
         TA CHONG BANK v. HITACHI HIGH TECHNOLOGIES         9653
issue to be part of the bankruptcy estate because it had been
paid during the pendency of the bankruptcy court’s order.

   The Bank subsequently filed a motion pursuant to Federal
Rule of Civil Procedure 59(e) to alter or amend the previous
judgment. The Bank contended that the district court had
erred in finding that Hitachi paid $1.2 million to CyberHome
during the bankruptcy proceedings. The district court denied
the motion to alter or amend the judgment, finding that the
error regarding timing in its prior order “did not rise to the
level of ‘manifest error’ requiring that the judgment be vacat-
ed.”

                     II.   DISCUSSION

   We have jurisdiction pursuant to 28 U.S.C. § 1291. On
appeal, the Bank contends that the district court erred in deter-
mining that the $1.2 million that Hitachi paid to CyberHome
was part of CyberHome’s bankruptcy estate. The Bank also
disputes that, by filing its proof of claim in the bankruptcy
proceeding, it consented to the exclusive jurisdiction of that
forum as to any claim for the $1.2 million paid by Hitachi to
CyberHome. The Bank further asserts that the district court
abused its discretion in denying the Bank’s motion to alter or
amend the judgment, after the court erroneously found in its
initial order that Hitachi’s payment to CyberHome was made
during the course of CyberHome’s bankruptcy.

  A.   Standard of review

   A district court’s decision to grant a motion to dismiss
under Rule 12(b)(6) is reviewed de novo. See Movsesian v.
Victoria Versicherung AG, 578 F.3d 1052, 1056 (9th Cir.
2009). “All well-pleaded factual allegations are to be con-
strued in the light most favorable to the pleader, and accepted
as true.” Id. The denial of a motion under Rule 59(e) to alter
or amend the judgment is reviewed for abuse of discretion.
9654       TA CHONG BANK v. HITACHI HIGH TECHNOLOGIES
See McQuillion v. Duncan, 342 F.3d 1012, 1014 (9th Cir.
2003).

  B.     The bankruptcy proceeding and the Bank’s state law
         claims

                                 (1)

   [1] The California Commercial Code is applicable to deter-
mine the rights and duties of the parties in this case. Division
9 (Secured Transactions) applies, inter alia, to “[a] transac-
tion, regardless of its form, that creates a security interest in
personal property or fixtures by contract;” and “[a] sale of
accounts, chattel paper, payment intangibles, or promissory
notes.” Cal. Com. Code § 9109(a)(1), (3). “Except as other-
wise provided . . . , while a debtor is located in a jurisdiction,
the local law of that jurisdiction governs perfection, the effect
of perfection or nonperfection, and the priority of a security
interest in collateral.” Cal. Com. Code § 9301(1). CyberHome
was located in California at all relevant times. In order to per-
fect its interest in the CyberHome accounts assigned to the
Bank, the Bank was required to file a financing statement.
Cal. Com. Code § 9310(a).

  The Bank contends that, after receiving notice, Hitachi was
required to pay the invoices directly to CIT, on the Bank’s
behalf. Section 9406(a) provides:

          Subject to subdivisions (b) to (i), inclusive, an
       account debtor on an account, chattel paper, or a
       payment intangible may discharge its obligation by
       paying the assignor until, but not after, the account
       debtor receives a notification, authenticated by the
       assignor or the assignee, that the amount due or to
       become due has been assigned and that payment is
       to be made to the assignee. After receipt of the notifi-
       cation, the account debtor may discharge its obliga-
          TA CHONG BANK v. HITACHI HIGH TECHNOLOGIES                 9655
      tion by paying the assignee and may not discharge
      the obligation by paying the assignor.

Cal. Com. Code § 9406(a) (emphasis added). Hitachi elected
to ignore the notices and its duties under § 9406 and paid
CyberHome instead. The Bank asserts that Hitachi is there-
fore directly liable for the full amount of the payment that
Hitachi made in satisfaction thereof to CyberHome. The Bank
argues that this liability is independent of the accounts receiv-
able.

   [2] The Bank claims that CyberHome’s bankruptcy estate
has no property interest in the Bank’s claims against Hitachi.
A debtor’s bankruptcy estate consists of “all legal or equitable
interests of the debtor in property” at the time the case is com-
menced. See 11 U.S.C. § 541(a)(1). The Bank argues that, as
of the date of its bankruptcy petition, CyberHome had no con-
ceivable property interest in either the invoices or the Bank’s
claims against Hitachi. CyberHome had received payment in
full on the invoices from Hitachi prior to the filing of its bank-
ruptcy petition and was the beneficiary of this improper pay-
ment.

   [3] The Bank argues, as a consequence, that the trustee’s
preference action against the Bank is irrelevant to its claims
against Hitachi. Under the California Commercial Code, the
Bank was required to perfect its security interest in the Cyber-
Home accounts receivable in order to establish the priority of
its interest as against competing secured creditors that were
perfected and any future bankruptcy trustee. The Bank filed
its financing statement within 90 days of CyberHome’s bank-
ruptcy filing. The trustee filed a preference avoidance action
against the Bank under 11 U.S.C. § 547(b)1 and obtained an
unopposed order granting a motion for summary adjudication
on August 10, 2007. The Bank acknowledges that the effect
  1
   Section 547(b) enables the trustee to avoid preferential transfers under
certain circumstances.
9656      TA CHONG BANK v. HITACHI HIGH TECHNOLOGIES
of the bankruptcy court order was to avoid the financing state-
ment filed by the Bank as a preference under § 547(b) and to
thereafter avoid the Bank’s security interest against the
accounts receivable. See 11 U.S.C. § 544(a).2 This made the
Bank an unsecured creditor against the bankruptcy estate and
permitted the trustee to collect all accounts receivable.

   [4] The Bank contends, however, that the bankruptcy court
order does not extend to or have any effect on the obligation
at issue in this case, arguing that it arose pre-bankruptcy inde-
pendently of the accounts receivable. The bankruptcy court
order does nothing to limit or alter the Bank’s rights with
respect to the millions of dollars of transactions that occurred
in the years prior to bankruptcy under the factoring agree-
ments. Consequently, the order does not give the bankruptcy
estate a property interest in either the subject invoices or the
Bank’s claims herein against Hitachi. CyberHome had no
interest when its petition was filed because it had received
payment in full. The trustee has no interest for the same rea-
son.

   Following the same line of logic, the Bank further asserts
that a preference/lien action under 11 U.S.C. §§ 547(b) and
544(a) does not retroactively avoid a security interest as to
past events and/or non-estate property. Instead, it is limited in
its effect to property of the debtor that can be recovered by the
avoidance statutes and property of the bankruptcy estate. The
Bank contends that § 544(a) has no applicability to property
in which the debtor has no interest, such as its claims against
Hitachi.

   The Bank claims that the bankruptcy court order expressly
adheres to these limitations on the bankruptcy avoidance pow-
ers in limiting the scope of the order to cover only receiv-
  2
    Section 544(a) provides, in part, that the trustee “may avoid any trans-
fer of property of the debtor or any obligation incurred by the debtor that
is voidable” by a creditor in certain instances.
         TA CHONG BANK v. HITACHI HIGH TECHNOLOGIES        9657
ables, inventory and proceeds that are property of the
bankruptcy estate. The effect of the court’s order is to pre-
clude the Bank from seeking to collect CyberHome’s remain-
ing receivables in competition with the trustee. The Bank
maintains, however, that the order has no applicability to
Hitachi’s payment of $1.2 million directly to CyberHome,
instead of to the Bank as was required, nearly eight months
prior to CyberHome’s bankruptcy filing.

                              (2)

   Hitachi’s response focuses on the Bank’s proof of claim
and counterclaim in the bankruptcy action. Hitachi claims that
the Bank availed itself of the exclusive jurisdiction of the
bankruptcy court for any claim as to the $1.2 million paid by
Hitachi to CyberHome. Hitachi notes that when a creditor
files a claim against a bankruptcy estate, the creditor subjects
itself to the bankruptcy court’s equitable power. See Lan-
genkamp v. Culp, 498 U.S. 42, 44 (1990). If the creditor sub-
mits an agreement with its proof of claim to provide
evidentiary support of the claim, then that agreement is sub-
ject to the bankruptcy court’s jurisdiction. See In re G.I.
Industries, Inc., 204 F.3d 1276, 1280 (9th Cir. 2000). Citing
Reusser v. Wachovia Bank, N.A., 525 F.3d 855 (9th Cir.
2008), Hitachi claims that the decisions of the bankruptcy
court apply to the property regardless of the parties involved.
See id. at 861.

   In support of its $83 million proof of claim, the Bank sub-
mitted its factoring agreements with CyberHome and a list of
invoices between CyberHome and various companies. Hitachi
alleges the Bank placed at issue in the bankruptcy proceeding
its claim to monies paid or owed to CyberHome when it
included the proof of claim and the same documents as exhib-
its to the counterclaim. In this case, the Bank references many
of the same invoices on which it relied to support its claim.
Hitachi asserts that the Bank cannot now argue that the $1.2
million did not pertain to the bankruptcy action after filing in
9658     TA CHONG BANK v. HITACHI HIGH TECHNOLOGIES
that court a proof of claim which included documentation of
the factoring agreement and the invoices. Accordingly,
Hitachi contends that the Bank consented to the resolution by
the bankruptcy court of any claims regarding the moneys
under the factoring agreement and the invoices.

                              (3)

   [5] We are unable to conclude that the Bank possesses any
claim separate and distinct from those which were adjudicated
in the bankruptcy proceedings. Although the Bank purports to
bring claims under California state law, those claims derive
from Hitachi’s obligation to pay the accounts receivable,
which was determined to be part of CyberHome’s bankruptcy
estate. Accordingly, we are not persuaded by the Bank’s con-
tention that Hitachi’s payment of $1.2 million to CyberHome
means that CyberHome no longer has an interest in the matter
and that Hitachi has incurred liability to the Bank unrelated to
the accounts receivable, pursuant to § 9406(a).

   Section 9406(a) does not impose liability distinct from the
assigned accounts receivable. It merely states, in pertinent
part, that a debtor “may not discharge the obligation by pay-
ing the assignor.” Cal. Com. Code § 9406(a). By paying the
assignor, CyberHome, the $1.2 million, Hitachi did not create
any new liability. Hitachi simply failed to discharge its pre-
existing obligation to the Bank under the assigned accounts
receivable. Even if Hitachi were required to make a second
payment under § 9406(a), the second payment would be for
the same obligation, which Hitachi failed to discharge through
its payment to CyberHome. This obligation—accounts receiv-
able for the purchase of DVDs—was among those addressed
in the bankruptcy proceeding.

  We are not persuaded by the Bank’s assertion that Cyber-
Home no longer has an interest in the matter because it has
been paid the $1.2 million. Because Hitachi did not discharge
         TA CHONG BANK v. HITACHI HIGH TECHNOLOGIES         9659
its obligation, CyberHome retained a property interest in that
obligation, based on § 9318(b), which states:

    For purposes of determining the rights of creditors
    of, and purchasers for value of an account or chattel
    paper from, a debtor that has sold an account or chat-
    tel paper, while the buyer’s security interest is
    unperfected, the debtor is deemed to have rights and
    title to the account or chattel paper identical to those
    the debtor sold.

Cal. Com. Code § 9318(b) (emphasis added).

   Because the account assigned to the Bank was not extin-
guished by Hitachi’s payment to CyberHome under
§ 9406(a), CyberHome’s interest under § 9318(b) also was
not extinguished. CyberHome’s interest does not depend on
whether it has received the $1.2 million, but on whether the
obligation exists and whether the Bank’s security interest was
perfected. For purposes of the bankruptcy proceedings,
§ 9318(b) creates a property interest, as the bankruptcy court
recognized in holding the accounts receivable to be part of the
bankruptcy estate.

   [6] Based on the foregoing, we conclude that there is an
identity of claims between this case and the bankruptcy pro-
ceedings. Regardless of how the Bank’s current claims are
labeled, they are based on Hitachi’s obligation to pay
accounts receivable, which the bankruptcy court held to be
within CyberHome’s bankruptcy estate. See Stratosphere Liti-
gation L.L.C. v. Grand Casinos, Inc., 298 F.3d 1137, 1142 n.3
(9th Cir. 2002) (stating that there is an identity of claims when
two suits arise from “the same transactional nucleus of
facts”). Our conclusion is bolstered by the fact that the Bank
submitted to the bankruptcy court proof of the very same
accounts receivable and factoring agreements at issue in this
case. See G.I. Industries, 204 F.3d at 1279-80 (noting that by
submitting an agreement with its proof of claim, a creditor
9660      TA CHONG BANK v. HITACHI HIGH TECHNOLOGIES
also subjects the agreement to the bankruptcy court’s jurisdic-
tion). Accordingly, the bankruptcy court’s holding controls
this case, even as to the Bank’s claim’s against Hitachi. See
Reusser, 525 F.3d at 861 (observing that bankruptcy courts’
jurisdiction extends to “ ‘all matters connected with the bank-
ruptcy estate’ ”) (citation omitted).3

   [7] The Bank asserts that applying the bankruptcy court’s
order so as to preclude the Bank’s complaint against Hitachi
would serve to immunize the latter from liability for its
wrongful conduct without furthering any bankruptcy policy.
We disagree with the suggestion that the district court’s hold-
ing does not advance bankruptcy policy. A finding that
Hitachi is liable to the Bank may well affect the bankruptcy
proceedings because Hitachi would likely then seek repay-
ment of its $1.2 million from CyberHome. Accordingly, a rul-
ing on the Bank’s claims here could potentially reorder the
preference in which the creditors, including the Bank, are
paid. As the district court observed, moreover, the Bank’s
complaint in this case appears to be an effort to execute an
end-run around the bankruptcy court’s adjudication and the
related distribution of CyberHome’s bankruptcy estate. A
decision in favor of the Bank might serve to encourage liti-
gants to attempt to seek relief outside of the bankruptcy pro-
cess. Therefore, policy reasons support our reliance on the
bankruptcy court’s reasoning in determining how the Bank’s
claims are handled.

  [8] Because the Bank’s current claims are based on Cyber-
Home’s accounts receivable, which were part of the latter’s
bankruptcy estate, the district court did not err in granting
Hitachi’s motion to dismiss.
  3
    We further note that the district court did not abuse its discretion in
denying the Bank’s motion under Rule 59(e) to alter or amend the judg-
ment, on the basis that the judgment did not depend on whether Hitachi
paid the accounts receivable to CyberHome before or after CyberHome
filed for bankruptcy.
    TA CHONG BANK v. HITACHI HIGH TECHNOLOGIES   9661
AFFIRMED.