Court Opinion

ID: 4014284
Source: CourtListenerOpinion
Date Created: 2016-07-09 00:01:37.864478+00
Date Added: 2024-06-11T14:22:51.186812
License: Public Domain

FILED
 1                        ORDERED PUBLISHED             JUL 08 2016
                                                    SUSAN M. SPRAUL, CLERK
 2                                                    U.S. BKCY. APP. PANEL
                                                      OF THE NINTH CIRCUIT
 3                UNITED STATES BANKRUPTCY APPELLATE PANEL
 4                           OF THE NINTH CIRCUIT
 5   In re:                        )     BAP No.    AZ-15-1279-KuJaJu
                                   )
 6   CRAIGHTON THOMAS BOATES,      )     Bk. No.    2:14-bk-17115-GBN
                                   )
 7                  Debtor.        )     Adv. No.   2:15-ap-00269-GBN
     ______________________________)
 8                                 )
     DALE D. ULRICH, Chapter 7     )
 9   Trustee,                      )
                                   )
10                  Appellant,     )
                                   )
11   v.                            )     ORDER ON MOTION FOR REHEARING
                                   )
12   SCHIAN WALKER, P.L.C.,        )
                                   )
13                  Appellee.      )
     ______________________________)
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15   Before:   KURTZ, JAIME1 and JURY, Bankruptcy Judges.
16        This panel has received and reviewed appellee Schian
17   Walker’s motion for rehearing filed pursuant to Rule 8022.               In
18   the motion, Schian Walker raises a single point it claims this
19   Panel misapprehended.   Contrary to this Panel’s ruling, Schian
20   Walker contends that, under the adversary proceeding retainer
21   agreement it entered into with Boates, the $60,000 flat fee was
22   supposed to constitute full advance payment not only for services
23   to be rendered but also for all litigation costs to be incurred.
24        Schian Walker has admitted that its form statement of
25   Billing Policies and Procedures is incorporated into every
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          1
           Hon. Christopher D. Jaime, United States Bankruptcy Judge
28   for the Eastern District of California, sitting by designation.
 1   representation agreement it enters into, including the
 2   November 5, 2014 letter agreement it entered into with Boates.
 3   Indeed, the letter agreement (prepared by Schian Walker) contains
 4   a provision in which Boates is required to acknowledge that he
 5   has read both the letter agreement and the Billing Policies and
 6   Procedures statement and that he has agreed to both of them.
 7        Along similar lines, the Billing Policies and Procedures
 8   statement contains the following introductory paragraph:
 9        It is the policy of Schian Walker, P.L.C. (the “Firm”)
          to provide this statement of Billing Policies and
10        Procedures (the “Policy”) to each of its clients,
          together with a cover letter that defines the scope of
11        the representation and reflects any other agreed terms
          that may be unique to a particular client or
12        representation (the “Engagement Letter”).
13   (Emphasis added.)
14        The Billing Policies and Procedures statement contains a
15   paragraph specifying that Boates is liable “for all out-of-pocket
16   costs incurred in connection with the matter.”   Meanwhile, the
17   letter agreement never refers to costs at all.   Instead, it
18   focuses exclusively on the services Schian Walker was promising
19   to provide in exchange for a flat fee of $60,000.   For instance,
20   the letter agreement stated that Schian Walker was willing to
21   defend Boates in the anticipated nondischargeability litigation
22   for a flat fee of $60,000 and that the flat fee would cover “the
23   value of all work we will perform through the conclusion of the
24   Adversary Proceeding.”   To reiterate, the letter agreement says
25   absolutely nothing about costs.
26        In our June 9, 2016 Opinion, we construed the parties’
27   contract as including an obligation by Boates to pay all
28   litigation costs.   This construction was based on the seemingly

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 1   unequivocal language on the face of the contract.   This
 2   construction also was based on the argument included in Ulrich’s
 3   appeal brief that the legal services contract between Boates and
 4   Schian Walker was an executory contract, in part, because of the
 5   costs provision.   Schian Walker’s responsive appeal brief
 6   cursorily addressed the costs aspect of Ulrich’s executory
 7   contract argument, but Schian Walker never explained how the
 8   seemingly unequivocal language of the letter agreement could be
 9   interpreted to address litigation costs when the letter agreement
10   never mentions them.
11        In its rehearing motion, Schian Walker in essence contends
12   that, when it referred in its letter agreement to a flat fee for
13   services to be rendered, it really meant a flat fee for services
14   to be rendered and for all litigation costs to be incurred.     To
15   support this alternate construction of the parties’ contract,
16   Schian Walker relies for the first time upon extrinsic evidence,
17   which it claims demonstrates the parties’ true intent – that
18   Boates’ $60,000 advance payment would cover both fees and costs.
19        It is not necessary for us to resolve the question of
20   contract interpretation raised by Schian Walker’s rehearing
21   motion.   Even if we were to conclude that Boates did not owe
22   Schian Walker any costs under the retainer agreement and even if
23   we were to conclude, based thereon, that the retainer agreement
24   was not an executory contract, this would not change the ruling
25   we made in our June 9, 2016 Opinion.
26        Contract rights held by the debtor on the date of his or her
27   petition filing are property of the bankruptcy estate regardless
28   of whether the rights are associated with an executory or non-

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 1   executory contract.   See Gordon v. Hines (In re Hines), 147 F.3d
 2   1185, 1189 (9th Cir. 1998) (stating that a prepaid contractual
 3   right to future legal services that “exists at the outset of the
 4   bankruptcy case . . . becomes property of the debtor’s estate”).
 5        In re Hines’s statement regarding the scope of bankruptcy
 6   estate property, and the inclusion of contract rights within it,
 7   is by no means novel.   As early as 1984, the Ninth Circuit held
 8   that prepetition contract rights are included within the
 9   Bankruptcy Code’s definition of bankruptcy estate property.    Rau
10   v. Ryerson (In re Ryerson), 739 F.2d 1423, 1425 (9th Cir. 1984);
11   see also Sliney v. Battley (In re Schmitz), 270 F.3d 1254, 1258
12   (9th Cir. 2001) (listing additional Ninth Circuit cases); Johnson
13   v. Taxel (In re Johnson), 178 B.R. 216, 218-19 (9th Cir. BAP
14   1995) (holding that proceeds of contracts rights arising from
15   prepetition sales contract were estate property).
16        The Ninth Circuit’s more recent decisions dealing with
17   contract rights in bankruptcy are consistent with In re Hines, In
18   re Ryerson and In re Johnson.   See, e.g., Gladstone v. U.S.
19   Bancorp, 811 F.3d 1133, 1136 (9th Cir. 2016) (holding that
20   debtor’s rights arising from prepetition life insurance policies
21   were estate property); First Ave. W. Bldg., LLC v. James (In re
22   Onecast Media, Inc.), 439 F.3d 558, 563 (9th Cir. 2006) (opining
23   that trustee’s rejection of lease did not divest the bankruptcy
24   estate of whatever lease rights debtor was entitled to under the
25   lease and under applicable nonbankruptcy law as of the date of
26   the petition filing).
27        In our June 9, 2016 Opinion, we did not address the status
28   in bankruptcy of contract rights arising from non-executory

                                      4
 1   contracts because we did not consider it necessary to our
 2   resolution of the appeal.   However, Schian Walker’s rehearing
 3   motion has opened the door to our considering whether the result
 4   would be the same for both executory contracts and non-executory
 5   contracts.   We hold that the result is the same based on the
 6   Ninth Circuit case law set forth above.
 7        Accordingly, to the extent we might have erred in holding
 8   that the retainer agreement was executory, any such error was
 9   harmless error, and we must ignore harmless error.   Van Zandt v.
10   Mbunda (In re Mbunda), 484 B.R. 344, 355 (9th Cir. BAP 2012),
11   aff’d, 604 F. App’x 552 (9th Cir. 2015).
12        For the reasons set forth above, Schian Walker’s motion for
13   rehearing is hereby ORDERED DENIED.
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