Court Opinion

ID: 4192582
Source: CourtListenerOpinion
Date Created: 2017-08-03 17:01:47.189169+00
Date Added: 2024-06-11T14:40:18.958675
License: Public Domain

FILED
                                                               JUN 07 2017
 1                         NOT FOR PUBLICATION
                                                           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-16-1084-JuLB
                                   )
 6   Inglewood Woman’s Club, Inc. )         Bk. No.   4:15-BK-15376-SHG
                                   )
 7                  Debtor.        )
     ______________________________)
 8                                 )
     Marlene Fearing,              )
 9                                 )
                    Appellant.     )        M E M O R A N D U M*
10   ______________________________)
11
                      Argued and Submitted on May 18, 2017
12                             at Phoenix, Arizona
13                            Filed - June 7, 2017
14              Appeal from the United States Bankruptcy Court
                              District of Arizona
15
              Honorable Scott H. Gan, Bankruptcy Judge, Presiding
16                         _________________________
17   Appearances:     Appellant Marlene Fearing argued pro se.
                           _________________________
18
19   Before:    JURY, LAFFERTY, and BRAND, Bankruptcy Judges.
20
21
22
23
24
25
26       *
          This disposition is not appropriate for publication.
27 Although it may be cited for whatever persuasive value it may
   have (see Fed. R. App. P. 32.1), it has no precedential value.
28 See 9th Cir. BAP Rule 8013-1.

                                      -1-
 1           This is an appeal from bankruptcy court rulings that
 2   (a) dismissed a chapter 111 bankruptcy case because the debtor,
 3   a non-profit corporation, failed to obtain attorney
 4   representation; (b) denied a request by an interested party that
 5   the bankruptcy court commence an independent investigation of
 6   alleged criminal activity by a United States Attorney, a party
 7   unrelated to the bankruptcy proceeding; and (c) denied
 8   reconsideration of those rulings. For the reasons set forth
 9   below, we AFFIRM.
10                                 I.   FACTS
11           The facts are straightforward. Inglewood Woman’s Club, Inc.
12   (“Debtor”) filed a voluntary chapter 11 petition on December 3,
13   2015. Debtor is a non-profit corporate entity. Debtor’s chief
14   executive officer is Marlene Fearing (“Ms. Fearing”), who is
15   also a creditor of the estate. The main asset of Debtor is a
16   single piece of real property located in Oro Valley, Arizona,
17   with one of the largest creditors, Stoney Canyon I Townhomes
18   Association (“Stoney Canyon”), holding a secured claim.
19            Shortly after filing the bankruptcy petition, Debtor filed
20   an application to employ the Wright Law Offices as counsel,
21   which was approved by the bankruptcy court on December 8, 2015.
22   On January 14, 2016, Ms. Fearing, acting pro se and primarily on
23   her own behalf, filed a motion entitled “Motion to Compel
24   Investigation of Stolen Assets Belonging to the Inglewood
25
         1
26        Unless specified otherwise, all chapter and section
   references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532,
27 all “Rule” references are to the Federal Rules of Bankruptcy
   Procedure, and all “Civil Rule” references are to the Federal
28 Rules of Civil Procedure.

                                        -2-
 1   Woman’s Club” (the “Motion to Compel Investigation”). Generally
 2   speaking, the Motion to Compel Investigation (a) alleged that a
 3   Minnesota United States Attorney stole $2 million of Debtor’s
 4   assets in a prior bankruptcy case, and (b) demanded that the
 5   bankruptcy court call for an independent investigation of the
 6   alleged orchestrated embezzlement. The very next day, on
 7   January 15, 2016, the Wright Law Offices filed a motion to
 8   withdraw as counsel (the “Motion to Withdraw”), citing as cause
 9   “irreconcilable differences” and an “adverse relationship”
10   between Debtor’s representative, Ms. Fearing, and the Wright Law
11   Offices. On January 19, 2016, Stoney Canyon filed a response,
12   requesting that any order granting the Motion to Withdraw
13   require new counsel to file an appearance within ten calendar
14   days. The bankruptcy court set the Motion to Compel
15   Investigation and the Motion to Withdraw for hearing on
16   February 9, 2016.
17        At the February 9th hearing, the bankruptcy court granted
18   the Motion to Withdraw and denied the Motion to Compel
19   Investigation. In doing so, the court (a) gave Debtor ten days
20   to seek employment of counsel or the case would be dismissed,
21   per Stoney Canyon’s request; and (b) made clear that it never
22   could grant the relief Ms. Fearing requested in the Motion to
23   Compel Investigation, as a bankruptcy court does not have
24   jurisdiction to compel an investigation of alleged crimes. On
25   February 16, 2016, the Court entered its order granting the
26   Motion to Withdraw. As a result of Debtor’s failure to retain
27   new counsel, on February 22, 2016, the court entered an order
28   dismissing the case (the “Dismissal Order”). The next day,

                                   -3-
 1   Ms. Fearing, again acting primarily on her own behalf, filed a
 2   request for “Hearing for Motion to Uphold Crime Statutes and
 3   Adversary Complaint” (the “Second Motion to Compel
 4   Investigation”) asserting the same arguments set forth in the
 5   Motion to Compel Investigation. The court set the matter for
 6   hearing on March 22, 2016.
 7           At the March 22nd hearing, the bankruptcy court treated the
 8   Second Motion to Compel Investigation as a motion for
 9   reconsideration of the Dismissal Order and the denial of the
10   Motion to Compel Investigation (the “Reconsideration Motion”).
11   The court denied the Reconsideration Motion for two reasons.
12   First, as to the dismissal of the case, the court stated Debtor
13   did not retain counsel in the ten day time period as required by
14   the court when granting the Motion to Withdraw; therefore,
15   because, under federal law, a corporation must be represented by
16   counsel in federal court, the court denied reconsideration of
17   its decision to dismiss the case. Second, as to the motion to
18   compel a criminal investigation, the court again stressed that
19   it did not have the authority or jurisdiction to commence the
20   action requested by Ms. Fearing against the United States
21   Attorney. The court advised Ms. Fearing to look to a proper
22   forum for such relief, but noted that the bankruptcy court was
23   not the proper forum. Ms. Fearing filed a timely appeal.2
24
25       2
          The timeliness of Ms. Fearing’s appeal was not immediately
26 apparent. The Clerk’s office sent a Notice of Deficient Notice of
   Appeal, questioning whether the appeal was timely filed. A
27 motions panel entered an order determining that the notice of
   appeal was timely filed because the Reconsideration Motion was a
28                                                    (continued...)

                                      -4-
 1                             II.   JURISDICTION
 2        The bankruptcy court had jurisdiction over the Dismissal
 3   Order pursuant to 28 U.S.C. §§ 1334 and 157(b)(2)(A). The
 4   bankruptcy court’s jurisdiction over the criminal investigation
 5   is discussed below. We have jurisdiction of this appeal under
 6   28 U.S.C. § 158.
 7                               III.    ISSUES
 8        A. Whether the bankruptcy court abused its discretion in
 9   dismissing the corporate debtor’s chapter 11 bankruptcy case for
10   failure to obtain replacement counsel;
11        B. Whether the bankruptcy court erred in the denial of
12   Ms. Fearing’s request to commence a criminal investigation;
13        C. Whether the bankruptcy court abused its discretion in
14   not granting Ms. Fearing’s motion to reconsider the dismissal of
15   the case and denial of her request to commence a criminal
16   investigation.
17                       IV.    STANDARD OF REVIEW
18        We review a bankruptcy court’s order to dismiss a
19   bankruptcy case for abuse of discretion. Leavitt v. Soto
20   (In re Leavitt), 171 F.3d 1219, 1223 (9th Cir. 1999); Guastella
21   v. Hampton (In re Guastella), 341 B.R. 908, 915 (9th Cir. BAP
22   2006).
23        The existence of jurisdiction is a question of law which we
24   review de novo. Bethlahmy v. Kuhlman (In re ACI–HDT Supply Co.),
25
26        2
          (...continued)
27 timely  tolling motion pursuant to Rule 8002(b)(1)(D). The panel
   then requested a formal order denying the reconsideration. That
28 order was filed on May 20, 2016.

                                        -5-
 1   205 B.R. 231, 234 (9th Cir. BAP 1997); Nilsen v. Neilson
 2   (In re Cedar Funding, Inc.), 419 B.R. 807, 816 (9th Cir. BAP
 3   2009).
 4        We review a bankruptcy court’s denial of a motion for
 5   reconsideration for an abuse of discretion, whether the motion
 6   for reconsideration is based on Civil Rule 59(e) or Civil
 7   Rule 60(b). First Ave. W. Bldg., LLC v. James (In re OneCast
 8   Media, Inc.), 439 F.3d 558, 561 (9th Cir. 2006); School District
 9   No. 1J v. AC & S, Inc., 5 F.3d 1255, 1262 (9th Cir. 1993).
10        Under the abuse of discretion standard, we reverse only
11   when the bankruptcy court applied an incorrect legal rule or
12   where its application of the law to the facts was illogical,
13   implausible or without support in inferences that may be drawn
14   from the record. TrafficSchool.com, Inc. v. Edriver Inc.,
15   653 F.3d 820, 832 (9th Cir. 2011), citing United States v.
16   Hinkson, 585 F.3d 1247, 1262 (9th Cir. 2009)(en banc).
17                            V.   DISCUSSION
18   A. The scope of the appeal
19        Following the notice of appeal, after briefing had
20   concluded, Ms. Fearing attempted to file supplemental
21   declarations and exhibits based on issues pertaining to pre-
22   appeal and post-appeal events that purportedly related to the
23   requested criminal investigation. On April 11, 2017, a motions
24   panel entered an order rejecting Ms. Fearing’s supplemental
25   filings (the “April 11th Order”). In doing so, the panel stated
26   that Ms. Fearing’s attempted filings contained documents which
27   were not considered by the bankruptcy court when it made its
28   rulings, noting that the sole issue on appeal was the dismissal

                                    -6-
 1   of the Debtor’s bankruptcy case for failure to retain legal
 2   counsel.
 3          On April 27, 2017, Ms. Fearing filed a response to the
 4   April 11th Order, asserting that the dismissal of the case is
 5   not the sole issue on appeal. Recognizing an error in its order,
 6   on April 28, 2017, the panel entered a corrective order finding
 7   that the scope of the appeal includes (1) the order dismissing
 8   the bankruptcy case for failure of the debtor to appear through
 9   counsel, (2) the order denying the motion for criminal
10   investigation, and (3) the order denying reconsideration of
11   those rulings.
12          We agree with the motions panel and conclude that the scope
13   of this appeal includes the three issues described in its order
14   of April 28.
15   B. The bankruptcy court’s dismissal of the chapter 11 case
16          On appeal, Ms. Fearing does not posit any argument as to
17   why the bankruptcy court abused its discretion in dismissing
18   Debtor’s bankruptcy case for not retaining counsel. Nor could
19   she.
20          In federal courts an individual may proceed either pro se
21   or by an attorney. See 28 U.S.C. § 1654 (“In all courts of the
22   United States the parties may plead and conduct their own cases
23   personally or by counsel.”) Although federal statutes protect an
24   individual’s right to conduct her own litigation, that right has
25   never been interpreted to allow a corporation to appear pro se.
26   See Carr Enterprises, Inc. v. United States, 698 F.2d 952, 953
27   (8th Cir. 1983). Unlike an individual, a corporation is an
28   artificial entity, which can only act or appear through an

                                     -7-
 1   authorized agent. See Ritchie Grocer Co. v. Aetna Casualty &
 2   Surety Co., 426 F.2d 499, 500 (8th Cir. 1970) (asserting the
 3   general principle of corporate law that a corporation may only
 4   act through its authorized agents); see also Envtl. Corp. v.
 5   Knight (In re Goodman), 991 F.2d 613, 618 (9th Cir. 1993)
 6   (rejecting the view that a corporation is an “individual” as
 7   defined by the Bankruptcy Code). As a result, it is a well-
 8   settled principle that a corporation must be represented by an
 9   attorney to appear in federal court. Rowland v. Cal. Men’s
10   Colony, Unit II Men’s Advisory Council, 506 U.S. 194, 201-02
11   (1993) (“It has been the law for the better part of two
12   centuries . . . that a corporation may appear in the federal
13   courts only through licensed counsel”); Osborn v. Bank of United
14   States, 22 U.S. 738, 830 (1824); First Hartford Corp. Pension
15   Plan & Trust v. United States, 194 F.3d 1279, 1290 (Fed. Cir.
16   1999); Pridgen v. Andresen, 113 F.3d 391, 392-93 (2d Cir. 1997);
17   In re Tamojira, Inc., 20 F. App’x 133, 133-34 (4th Cir. 2001);
18   National Indep. Theatre Exhibitors v. Buena Vista Distrib.,
19   748 F.2d 602, 609 (11th Cir. 1984); Carr Enter., Inc. v. United
20   States, 698 F.2d at 953.
21        In the instant case, the bankruptcy court did not abuse its
22   discretion by dismissing the bankruptcy case. At the February
23   9th hearing, the bankruptcy court gave Debtor ten days to retain
24   legal counsel or the case would be dismissed. When Debtor did
25   not retain counsel after twelve days, the bankruptcy court
26   entered the Dismissal Order. Although the Dismissal Order is
27   silent as to what authority the bankruptcy court relied upon to
28   dismiss the case, the court made it clear at the February 9th

                                   -8-
 1   hearing that federal law requires a corporation to be
 2   represented by a licensed attorney in a bankruptcy case. Because
 3   the Supreme Court has consistently held that federal law
 4   requires a corporation to be represented through counsel, see
 5   Rowland, 506 U.S. at 201, we conclude that the bankruptcy court
 6   did not err.
 7   C. Bankruptcy court jurisdiction over criminal investigation
 8        Most of Ms. Fearing’s argument takes issue with the
 9   bankruptcy court’s refusal to commence a criminal investigation.
10   Although Ms. Fearing argues that the bankruptcy court had the
11   jurisdictional authority to compel such investigation, she is
12   mistaken.
13        The bankruptcy court is a court of limited jurisdiction.
14   See Bd. of Governors v. MCorp Fin., Inc., 502 U.S. 32, 40
15   (1991). Bankruptcy courts fall outside of the constitutional
16   authority of Article III and derive their authority from federal
17   statutes. N. Pipeline Constr. Co. v. Marathon Pipe Line Co.,
18   458 U.S. 50, 60–87 (1982) (plurality opinion); Celotex Corp. v.
19   Edwards, 514 U.S. 300, 307 (1995) (asserting that the
20   jurisdiction of a bankruptcy court is “grounded in, and limited
21   by, statute.”). Two statutes, 28 U.S.C. §§ 157(a) and 1334,
22   allow district courts to refer proceedings arising in, arising
23   under, or related to a bankruptcy case, to bankruptcy courts.
24   Although generally bankruptcy courts have jurisdiction to hear a
25   wide array of matters, the exercise of bankruptcy court
26   jurisdiction to enter any final order or judgment is limited to
27   (1) “cases under title 11,” § 157(b)(1); (2) “core” bankruptcy
28   proceedings that either “arise under” the Bankruptcy Code or

                                   -9-
 1   “arise in” a case under the Code, id.; or (3) cases in which all
 2   interested parties consent to the bankruptcy court entering a
 3   final order in a matter that is “related to” a case under the
 4   Bankruptcy Code. § 157(c)(2); see also Marathon Pipe Line,
 5   458 U.S. at 68; Harris v. Wittman (In re Harris), 590 F.3d 730,
 6   737 (9th Cir. 2009).
 7            In the Motion to Compel Investigation, Ms. Fearing sought
 8   an order from the bankruptcy court that would commence a
 9   criminal investigation against a Minnesota United States
10   Attorney for allegedly stealing assets of the Debtor. At the
11   February 9th hearing, the bankruptcy court stated very clearly
12   it could not grant Ms. Fearing’s request, as the court does not
13   have the jurisdiction to compel a governmental agency to
14   commence an investigation for any alleged crimes committed. The
15   court pointed out to Ms. Fearing that she must target her
16   request to an agency that would have such jurisdiction, but as a
17   court of limited jurisdiction, it was not the bankruptcy court.
18            We agree. Ms. Fearing seeks a remedy that is well outside
19   the jurisdiction of any bankruptcy court. Although, in limited
20   circumstances, a bankruptcy court may be required to report
21   violations of the law to the United States Attorney,3 no federal
22
          3
23          See 18 U.S.C. § 3057 (“Any judge . . . having reasonable
     grounds for believing that any violation under chapter 9 of this
24   title or other laws of the United States relating to insolvent
     debtors, receiverships or reorganization plans has been
25   committed, or that an investigation should be had in connection
26   therewith, shall report to the appropriate United States attorney
     all the facts and circumstances of the case, the names of the
27   witnesses and the offense or offenses believed to have been
     committed.”) However, § 3057 does not help Ms. Fearing because
28                                                      (continued...)

                                       -10-
 1   statute grants jurisdiction to a bankruptcy court to compel an
 2   investigation, as Ms. Fearing requests. It is well established
 3   that bankruptcy courts merely decide matters involving property
 4   of the debtor and adjudicate disputes between debtors and
 5   creditors. See Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 43
 6   (1989). A bankruptcy court simply lacks any jurisdiction over
 7   criminal proceedings. See e.g.,   Menk v. Lapaglia (In re Menk),
 8   241 B.R. 896, 904 (9th Cir. BAP 1999) (holding that § 1334
 9   grants bankruptcy courts jurisdiction only over certain “civil
10   proceedings”); Gruntz v. City of Los Angeles (In re Gruntz),
11   202 F.3d 1074, 1083 (9th Cir. 2000) (interpreting § 362(b)(1) as
12   rendering the automatic stay inapplicable to all criminal
13   proceeding consistent with “its object and policy”); Knupfer v.
14   Lindblade (In re Dyer), 322 F.3d 1178, 1192–95 (9th Cir.
15   2003)(holding that bankruptcy courts have no authority to impose
16   criminal contempt sanctions based on their punitive nature). Nor
17   does the bankruptcy court have discretion to compel governmental
18   agencies to commence criminal investigations. See e.g., Wayte v.
19   United States, 470 U.S. 598, 607 (1985)(finding that the
20   decision to prosecute is “ill-suited to judicial review”).
21   Because a bankruptcy court does not have the power to compel
22   other independent governmental agencies to investigate criminal
23   matters, Ms. Fearing’s request falls outside any relief the
24   bankruptcy court could have sanctioned under 28 U.S.C. §§ 157(a)
25
          3
26        (...continued)
   creditors do not have a legal right to request the court to make
27 a report. See In re Valentine, 196 B.R. 386, 387 (Bankr. E.D.
   Mich. 1996); see also In re Narumanchi, 471 B.R. 35, 44 (D. Conn.
28 2012).

                                   -11-
 1   or 1334. Therefore, the bankruptcy court properly denied her
 2   request.
 3   D. The bankruptcy court did not abuse its discretion when it
 4   denied the motion to reconsider
 5           The bankruptcy court did not make clear under which rule it
 6   was treating Ms. Fearing’s motion to reconsider.4
 7   Notwithstanding such, we conclude that it fell under Civil
 8   Rule 59(e) since the Second Motion to Compel Investigation was
 9   filed within the required 14 days. Absent highly unusual
10   circumstances, a motion under Civil Rule 59(e) should not be
11   granted unless the court is presented with newly discovered
12   evidence, committed clear error, or if there is an intervening
13   change of controlling law. 389 Orange St. Partners v. Arnold,
14   179 F.3d 656, 665 (9th Cir. 1999). A motion for reconsideration
15   is not for rehashing the same arguments made the first time or
16   to assert new legal theories or new facts that could have been
17   raised at the initial hearing. Greco v. Troy Corp., 952 F.2d 406
18   (9th Cir. 1991).
19           In the ruling, the bankruptcy court first determined that
20   it could not grant reconsideration of the dismissal of the case.
21   The court stated that when it granted the Motion to Withdraw, it
22   gave Debtor ten days to seek employment of counsel or the case
23   would be dismissed. Debtor did not retain counsel. Therefore,
24   because the bankruptcy court, per Supreme Court mandate, could
25
26       4
          Treating the Second Motion to Compel Investigation as a
27 motion to reconsider was solely the court’s interpretation of
   Ms. Fearing’s motion; Ms. Fearing did not specify which rule
28 governed her motion.

                                      -12-
 1   not allow the case to go forward without counsel, it would not
 2   reconsider the Dismissal Order. Second, the bankruptcy court had
 3   determined that it lacked power over any criminal investigation.
 4   Based on this lack of power, the bankruptcy court could not
 5   reverse course and compel the requested investigation just
 6   because Ms. Fearing asked a second time.
 7        The bankruptcy court did not abuse its discretion in
 8   denying both rulings. It identified the correct legal rules of
 9   law and its application of the law to the undisputed facts was
10   not illogical, implausible, or without support in inferences
11   which may be drawn from the record.
12                           VI.   CONCLUSION
13        For the reasons stated above, we AFFIRM.
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