Court Opinion

ID: 4301730
Source: CourtListenerOpinion
Date Created: 2018-08-07 22:00:38.399843+00
Date Added: 2024-06-11T14:29:14.302118
License: Public Domain

FILED
                                                                         AUG 07 2018

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                            NOT FOR PUBLICATION                        U.S. BKCY.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

              UNITED STATES BANKRUPTCY APPELLATE PANEL
                        OF THE NINTH CIRCUIT

In re:                                               BAP No. HI-17-1255-TaLLs

AMKO FISHING CO, INC.,                               Bk. No. 1:15-bk-00489

                      Debtor.

H3O COMMUNICATIONS, LLC,

                      Appellant,

v.                                                    MEMORANDUM*

ELIZABETH A. KANE, Chapter 7 Trustee,

                      Appellee.

                       Argued and Submitted on June 21, 2018
                                 at Pasadena, CA

                                Filed – August 7, 2018

                  Appeal from the United States Bankruptcy Court
                             for the District of Hawaii

             Honorable Robert J. Faris, Chief Bankruptcy Judge, Presiding

         *
        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.
Appearances:        Shawn Anthony Luiz argued for appellant; Elaine Chow
                    of Klevansky Piper, LLP argued for appellee.

Before: Taylor, Lafferty, and Lastreto,** Bankruptcy Judges.

                                 INTRODUCTION

      AMKO Fishing Co., Inc. (“Amko”) operated a fishing business

utilizing its ship, the Deborah Ann, and a Hawaii Longline Limited Entry

Permit (the “Fishing Permit”). At least two companies provided the

Deborah Ann with supplies, H3O Communications, LLC (“H3O”) and

VAK Fisheries, LLC (“VAK”).

      At some point, Amko or its principal entered into an agreement with

VAK and transferred the Fishing Permit to VAK. Despite the transfer, the

Deborah Ann continued as the vessel associated with the Fishing Permit.

Thus, Amko continued to fish and retained beneficial use of the Fishing

Permit.

      In Amko’s chapter 71case, the chapter 7 trustee abandoned the

Deborah Ann and brought a fraudulent conveyance action against VAK to

      **
         The Hon. René Lastreto II, United States Bankruptcy Judge for the Eastern
District of California, sitting by designation.
      1
        Unless specified otherwise, all chapter and section references are to the
Bankruptcy Code, 11 U.S.C. §§ 101-1532, all “Rule” references are to the Federal Rules
of Bankruptcy Procedure, and all “Civil Rule” references are to the Federal Rules of
Civil Procedure.

                                           2
recover the Fishing Permit or its value. She then settled the lawsuit for a

sum certain (the “Proceeds”) and abandoned the Fishing Permit.

      At issue in this appeal is whether H3O holds a claim secured by the

Proceeds as a result of an alleged maritime lien and whether the

bankruptcy judge should have recused. The bankruptcy court decided only

a narrow issue and determined that H3O did not have a maritime lien that

attached to the Proceeds. The bankruptcy judge did not recuse. We

AFFIRM.

                                          FACTS

      The bankruptcy court decided a discrete issue and did not make

extensive factual findings. For our purposes, then, the story is gleaned from

the bankruptcy filings.2

      Amko filed a chapter 12 petition in April 2015.3 The next month, VAK

sought a “comfort” order confirming that the automatic stay did not apply

to the Fishing Permit because, although it was still assigned to the Deborah

Ann, Debtor’s principal transferred it to VAK in 2012. VAK also sought

stay relief to enforce a maritime lien against the Deborah Ann. The

bankruptcy court eventually denied the motion.

      2
          We exercise our discretion to take judicial notice of documents electronically
filed in the bankruptcy case. See Atwood v. Chase Manhattan Mortg. Co. (In re Atwood), 293
B.R. 227, 233 n.9 (9th Cir. BAP 2003).
      3
          Chapter 12 is reserved for family farmers and fishermen. 11 U.S.C. § 109(f).

                                              3
      Debtor later converted to a chapter 7 proceeding, and the chapter 7

trustee, Elizabeth A. Kane, promptly proposed to abandon the Deborah

Ann “with complete longline gear and equipment[.]” Preservation, she

explained, would be burdensome and there was little or no equity in the

property—its scheduled value was $400,000 and possible liens totaled

$324,951.23: the Dojin Shipping Agency for $46,860; H3O for $62,230.23;

and VAK for $215,861.

      VAK remained focused on the Fishing Permit. In response to the

notice of abandonment it argued that, because the “Vessel and Fishing

Permit are inextricably linked[,]” the bankruptcy court should clarify that

the Fishing Permit also was abandoned. But the bankruptcy court did not

accommodate this request; it eventually approved abandonment of the

estate’s interests in the Deborah Ann, “with complete longline gear and

equipment . . . .” Its order did not reference the Fishing Permit.

      The Trustee eventually brought an adversary proceeding against

VAK, alleging that the Fishing Permit was fraudulently transferred. It

resolved quickly through a proposed settlement agreement where VAK

paid the Trustee $75,000 and the Trustee dismissed the complaint, released

VAK, and agreed that the Fishing Permit would be deemed abandoned.

H3O opposed the settlement, arguing that the price was too low. In reply,

the Trustee emphasized that she was settling the fraudulent transfer claim,

not selling the Fishing Permit. But she agreed to sell it to another buyer for

                                       4
a higher price. Some delay followed, but after the potential buyer withdrew

its offer, the bankruptcy court granted the Trustee’s Rule 9019 motion and

approved the settlement agreement.4

      Apparently incentivized by the Proceeds, H3O filed a $47,826.74

proof of claim for “[g]oods and services provided for vessel to operate” and

asserted that it was secured by a maritime lien. As subsequently became

clear, H3O asserted that it had a maritime lien on the Deborah Ann and the

Fishing Permit and, thus, that it was entitled to be repaid from the

Proceeds.

      The Trustee objected and sought to reclassify the claim from secured

to general unsecured. She argued that she received money from settling the

fraudulent transfer action, that she abandoned rather than sold the Fishing

Permit, and that the Proceeds were not subject to any maritime lien.

      Mid-way through oral argument at the hearing on the claim

objection, H3O’s counsel, apologetically, asked about the bankruptcy

judge’s partiality, noting that the bankruptcy judge had previously worked

in the same firm as the Trustee’s counsel. The bankruptcy judge explained

that he took the bench fifteen years ago but acknowledged that when he

was first appointed he recused himself from all cases involving his former

firm. Then the bankruptcy judge, identifying the correct legal test, found

      4
         At oral argument, H3O’s counsel wrongly stated that the bankruptcy court
interfered with the bidding process. It did not.

                                          5
that no “reasonable person would come to the conclusion that at this point

I’m unable to be fair to both sides.” H3O’s counsel never asked the

bankruptcy judge to recuse.

      Eventually, the bankruptcy judge sustained the Trustee’s objection.

He refrained from determining whether H3O had a maritime lien on the

Deborah Ann or the Fishing Permit. He merely found that it did not have a

generalized maritime lien against the estate given abandonment of the

vessel, its equipment, and the Fishing Permit. He then noted that the

Proceeds arose from a settlement, not a sale, and that the abandonment and

release reinforced this point.

      The bankruptcy court entered a separate order sustaining the claim

objection, finding that H3O did not have a security interest in the Proceeds

or an otherwise secured claim against the bankruptcy estate.

      H3O timely appealed.

                                 JURISDICTION

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

157(b)(2)(B). We have jurisdiction under 28 U.S.C. § 158.

                                    ISSUES

      Did the bankruptcy court err when it sustained the Trustee’s

objection to H3O’s secured claim?

      Did the bankruptcy judge err when he did not recuse?

                                      6
                          STANDARDS OF REVIEW

      In the claim objection context, we review the bankruptcy court’s legal

conclusions de novo and its findings of fact for clear error. Lundell v. Anchor

Const. Specialists, Inc. (In re Lundell), 223 F.3d 1035, 1039 (9th Cir. 2000).

      A finding is “clearly erroneous” when “although there is evidence to

support it, the reviewing court on the entire evidence is left with the

definite and firm conviction that a mistake has been committed.” Anderson

v. City of Bessemer City, 470 U.S. 564, 573 (1985) (quotation marks omitted).

      Because H3O did not ask the bankruptcy judge to recuse, we review

this decision for plain error. United States v. Holland, 519 F.3d 909, 911 (9th

Cir. 2008).

      We may affirm on any ground supported by the record, regardless of

whether the bankruptcy court relied upon, rejected, or even considered

that ground. Fresno Motors, LLC v. Mercedes Benz USA, LLC, 771 F.3d 1119,

1125 (9th Cir. 2014).

                                 DISCUSSION

      The bankruptcy court sustained the Trustee’s objection to H3O’s

claim and reclassified H3O’s secured claim as unsecured. In doing so, it

concluded that H3O’s maritime lien did not extend to either the

bankruptcy estate in its entirety or the Proceeds.

                                         7
A.    The bankruptcy court properly reclassified H3O’s claim as
      unsecured.

      We start with a discussion of relevant law.

      1.    The bankruptcy claim objection process governs and
            admiralty law is relevant.

      The bankruptcy claims process. A creditor asserts a claim in

bankruptcy by filing a proof of claim. 11 U.S.C. § 501(a); Fed. R. Bankr.

P. 3001, 3002. And a properly filed proof of claim “constitute[s] prima facie

evidence of the validity and amount of the claim.” Fed. R. Bankr. P. 3001(f).

If a claimant asserts a secured claim, its proof of claim must include

evidence of perfection. Fed. R. Bankr. P. 3001(d).

      Once a claim is filed, it is “deemed allowed, unless a party in interest

. . . objects.” 11 U.S.C. § 502(a). And if an interested party objects, the

bankruptcy court, after notice and a hearing, must determine the amount of

such claim and allow it accordingly. 11 U.S.C. § 502(b).

      To overcome the presumption of validity, the objector must do more

than formally object. Lundell, 223 F.3d at 1039. Instead, to “defeat the claim,

the objector must come forward with sufficient evidence and ‘show facts

tending to defeat the claim by probative force equal to that of the

allegations of the proofs of claim themselves.’ ” Id. (quoting Wright v. Holm

(In re Holm), 931 F.2d 620, 623 (9th Cir. 1991)).

      “If the objector produces sufficient evidence to negate one or more of

the sworn facts in the proof of claim, the burden reverts to the claimant to

                                         8
prove the validity of the claim by a preponderance of the evidence.” Id.

(quoting Ashford v. Consol. Pioneer Mortg. (In re Consol. Pioneer Mortg.), 178
B.R. 222, 226 (9th Cir. BAP 1995)). The ultimate burden of persuasion, thus,

remains with the claimant. Id.

      Admiralty law and maritime liens. “[M]aritime liens have

extraordinarily little in common with land liens, including consensual

security interests.” Walsh v. Placedo Shipping Corp. of Liberia (In re Pac.

Caribbean Shipping (U.S.A.), Inc.), 789 F.2d 1406, 1407 (9th Cir. 1986). “Land

liens and maritime liens are ‘two unlike things . . . called by the same

name.’” Id. (quoting G. Gilmore & C. Black, The Law of Admiralty 589 (2d ed.

1975)). See id. (discussing differences).

      A “maritime lien is a privileged claim upon maritime property, such

as a vessel, arising out of services rendered to or injuries caused by that

property.” 1 Thomas J. Schoenbaum, Admiralty & Mar. Law § 9-1 (5th ed.).

As the Ninth Circuit explains:

      A maritime lien is “one of the most striking peculiarities of
      Admiralty law, constituting a charge upon ships of a nature
      unknown alike to common law and equity.” Black's Law
      Dictionary 943 (8th ed. 2004) (quoting GRIFFITH PRICE, THE LAW
      OF MARITIME LIENS 1 (1940)). It has been defined as: “(1) a
      privileged claim, (2) upon maritime property, (3) for service
      done to it or injury caused by it, (4) accruing from the moment
      when the claim attaches, (5) traveling with the property
      unconditionally, (6) enforced by means of an action in rem.” Id.
      (quoting PRICE at 1). The lien gives the creditor the right to

                                         9
      appropriate the vessel, have it sold, and be repaid the debt from
      the proceeds of the sale. [Equilease Corp. v. M/V Sampson, 793
F.2d 598, 602 (5th Cir. 1986) (en banc).]

Trans-Tec Asia v. M/V Harmony Container, 518 F.3d 1120, 1128 (9th Cir. 2008).

      The Ninth Circuit recently considered the intersection of bankruptcy

and admiralty law in Barnes v. Sea Hawaii Rafting, LLC. 889 F.3d 517 (9th

Cir. 2018). There, an injured seaman commenced an in rem proceeding

against a vessel and an in personam action against its owner (a company)

and its principal; he sought to enforce his seaman’s lien against the vessel

for maintenance and cure. Id. at 523–25. Eventually, the company and its

principal filed for bankruptcy. Id. at 526. The bankruptcy court approved

the chapter 7 trustee’s sale of the vessel, free and clear of any liens. Id.

at 532.

      Relevant to bankruptcy law, the Ninth Circuit held: first, that the

automatic stay did not apply to the seaman’s effort to enforce his maritime

lien; and second, that the bankruptcy court lacked jurisdiction to adjudicate

the maritime lien because the admiralty court had already obtained

jurisdiction over the vessel. Id. at 532–33. It observed that, even if the

“bankruptcy court had in rem jurisdiction over the [vessel], it is an open

question whether bankruptcy courts have the effective ability to sell a

vessel free and clear of maritime liens.” Id. at 533 (internal quotation marks

omitted). Nevertheless, it pointed to two well-established principles. Id. at

534. “First, a maritime lien accompanies the property into the hands of a

                                        10
bona fide purchaser. It can be executed and divested only by a proceeding

in rem.” Id. (internal quotation marks omitted). And second, a “maritime

lien cannot be extinguished except through the application of admiralty

law.” Id. As a result, there “are good reasons why a bankruptcy court, if it

can release a maritime lien at all, should be required to do so pursuant to

admiralty law.” Id.

      2.    The bankruptcy court did not err when it sustained the
            Trustee’s claim objection.

      With some legal context, we now return to the bankruptcy court’s

decision. H3O filed a secured claim, which was prima facie evidence of its

validity; the Trustee objected to the secured status and pointed to facts

sufficient to rebut the prima facie validity; so the burden of persuasion as

to H3O’s secured status was on H3O. And the bankruptcy court

determined only that at the time of the decision H3O did not hold a claim

secured by settlement proceeds or other estate assets.

      On appeal, H3O relies on a tracing argument intermixed with Code

references. Its argument requires some unpacking: its maritime lien against

the Deborah Ann attaches to appurtenances; the Fishing Permit was an

appurtenance; the Trustee brought a fraudulent transfer action under

Hawaii law to recover the Fishing Permit; the Trustee’s settlement of the

litigation was a recovery and the Trustee, in effect, elected under § 550 to

receive monetary value instead of the return of the Fishing Permit;

                                      11
recovery of a fraudulent transfer claim is estate property under § 541(a)(3);

and “such recovery also remains subject to any security interest that

attached to the original asset.” That security interest, it claims, was its

maritime lien.

      We disagree; H3O has not shown that the bankruptcy court erred.

             a.     The bankruptcy court did not extinguish H3O’s
                    maritime lien.

      We start with what the bankruptcy court did not do; it expressly

stated that it was not adjudicating H3O’s maritime lien interest in either the

Deborah Ann or the Fishing Permit. As a result, to the extent H3O had a

maritime lien, the bankruptcy court did not extinguish it. This aligns with

the Ninth Circuit’s recent admonition that a “maritime lien cannot be

extinguished except through the application of admiralty law.” Barnes, 889
F.3d at 534. In the discussion that follows, we assume, without deciding,

that H3O’s underlying position that it had a maritime lien on both the

Deborah Ann and the Fishing Permit is correct.5

      The Trustee’s abandonment of these assets also did not alter, affect,

or extinguish H3O’s maritime lien: when a Trustee abandons property, it

leaves the bankruptcy estate subject to any preexisting interests, such as a

      5
        The Trustee, for her part, asserts that H3O did not have a maritime lien on the
Fishing Permit because it was transferred two years before H3O provided services to
the Deborah Ann or because the Fishing Permit was not an appurtenance to the
Deborah Ann. But the bankruptcy court did not so find; nor will we do so in the first
instance on appeal.

                                           12
maritime lien. Assuming the Fishing Permit is an appurtenance of the

Deborah Ann,6 the maritime lien could extend to the Fishing Permit.7 And

this could be true even if VAK owned the Fishing Permit but assigned it to

the Deborah Ann.8 In sum, after abandonment, H3O maintained its in rem

maritime lien rights and the right to institute an action in admiralty to

enforce them.

      Finally, the fact that the Trustee settled a fraudulent conveyance

action related to the Fishing Permit does not change this analysis. The

fraudulent conveyance action did not involve the application of maritime

law, and the settlement did not liquidate, diminish, or otherwise impact

H3O’s maritime lien rights. Instead, the Trustee stepped into the shoes of

unsecured creditors when she pursued the fraudulent conveyance action.

So to the extent H3O had an in personam, unsecured claim against Debtor

and could have brought the fraudulent conveyance action outside of

      6
         H3O concedes in its reply brief that determining whether something is an
appurtenance is a fact-specific matter, see Appellant’s Reply Brief at 10, so we would not
be able to resolve that question for the first time on appeal.
      7
        E.g., Bank of Am., NT & SA v. Pengwin, 175 F.3d 1109 (9th Cir. 1999) (affirming an
in rem sale of vessel with its fishing permits, but not otherwise engaging with the
underlying question).
      8
       Gowen, Inc. v. F/V Quality One, 244 F.3d 64, 69 (1st Cir. 2001) (“We have
assumed, as appellants assert, that the [fishing] permits could in some circumstances be
severed from the vessel upon its sale and retained by its old owner. But courts have
repeatedly upheld maritime liens upon ‘severable’ equipment, including, surprisingly
enough, equipment merely leased to the owner.” (citing cases)).

                                           13
bankruptcy, the settlement limited H3O’s rights. But again, H3O’s

maritime lien rights remain unaffected by the bankruptcy proceeding and

this settlement. Its lien did not attach to the Proceeds, it remained with the

Fishing Permit after abandonment.

            b.    H3O has not shown how or that its maritime lien
                  entitles it to a preferred position with or priority
                  distribution from the bankruptcy estate.

      Even though H3O’s maritime lien rights remain unaffected by the

bankruptcy proceeding, it seeks, through this appeal, to improve its

position by expanding the scope of its maritime lien: it wants a priority

distribution from the Proceeds.

      But, because maritime liens are secret liens, the Supreme Court,

nearly a hundred years ago, cautioned against extending them. Piedmont &

George’s Creek Coal Co v. Seaboard Fisheries Co., 254 U.S. 1, 4 (1920) (“The

maritime lien is a secret one. It may operate to the prejudice of prior

mortgagees or of purchasers without notice. It is therefore stricti juris and

will not be extended by construction, analogy or inference.”).

      H3O has not shown that it is entitled to improve its position.

      The bankruptcy court determined that H3O’s maritime lien did not

extend to the bankruptcy estate in its entirety. This was unquestionably

correct.

      Running through H3O’s appellate brief is the assumption that

because it has a maritime lien in the Deborah Ann and the Fishing

                                       14
Permit—a finding the bankruptcy court did not make and that we,

similarly, are agnostic about—it also has a secured interest in the entirety

of Debtor’s bankruptcy estate. But it has cited no authority saying that a

maritime lien extends so expansively. Case law (including case law H3O

cites) is to the contrary. As the Third Circuit wrote, in a slightly different

context:

      [T]he law of maritime liens has consistently recognized that a
      maritime lien attaches only to the specific vessel to which
      services are provided. See, e.g., 46 U.S.C. § 31342 (2004) (“[A]
      person providing necessaries to a vessel on the order of the
      owner or a person authorized by the owner-(1) has a maritime
      lien on the vessel . . . .”) (emphasis added); Piedmont & Georges
      Creek Coal Co. v. Seaboard Fisheries Co., 254 U.S. 1, 4, 41 S. Ct. 1, 65
L. Ed. 97 (1920) (“[O]ne vessel of a fleet cannot be made liable
      under the [Federal Maritime Lien Act] for supplies furnished to
      the others, even if the supplies are furnished to all upon orders
      of the owner under a single contract.”); In re Container
      Applications Int’l, Inc., 233 F.3d 1361, 1365-66 (11th Cir. 2000)
      (following Piedmont and denying maritime lien because the
      purported lienholder did not provide necessaries to any
      particular vessel). The vessel-specific character of maritime
      liens results from the legal fiction that a vessel receiving
      services “is considered to be a distinct entity responsible only
      for its own debts.” Foss Launch & Tug Co. v. Char Ching Shipping
      U.S.A., Ltd., 808 F.2d 697, 701 (9th Cir. 1987).

PNC Bank Del. v. F/V Miss Laura, 381 F.3d 183, 185–86 (3d Cir. 2004); id. at

187 (“Instead, maritime liens have consistently been limited to the specific

vessel to which services were provided.”).

                                        15
      So H3O’s argument that § 541(a)(3) matters is a non-starter.

Section 541(a)(3) simply states that property the trustee recovers under

various Code sections is estate property. As a result, H3O is not entitled to

a generalized secured claim against the estate; it has not persuasively

shown that its in rem maritime lien against a vessel entitles it to a secured

interest in the entire bankruptcy estate, a separate and distinct entity.

      H3O’s more specific appellate argument turns on a legal position that

it has not established: its maritime lien extends beyond the vessel or its

appurtenances to proceeds. It cites no case law supporting that premise.

This is not to say H3O cites no legal authority about maritime liens

attaching to proceeds; it does, but only in the context of an in rem action. As

the court in Trans-Tec Asia explains, a maritime lien “gives the creditor the

right to appropriate the vessel, have it sold, and be repaid the debt from the

proceeds of the sale.” 518 F.3d at 1128; see 46 U.S.C. § 31342(a) (granting a

person who provides necessaries to a vessel a maritime lien and allowing

that person to enforce the lien in a civil in rem action). See also In re Muma

Servs., Inc., 322 B.R. 541, 547 (Bankr. D. Del. 2005) (“The Maritime Lien Act

provides that when a vessel is sold in an in rem action by order of a court of

competent jurisdiction the maritime lien claims attach to the proceeds of

the sale in accordance with their priorities.”). But H3O did not bring an in

rem action for sale of the Deborah Ann—or, for that matter, for sale of the

Fishing Permit.

                                       16
       And maritime liens do not always attach to proceeds. For instance,

when a vessel is entirely lost, the maritime liens on it are extinguished and

do not attach to insurance proceeds. Walsh v. Tadlock, 104 F.2d 131, 132 (9th

Cir. 1939) (“With the total destruction of the vessel the liens thereon were

of necessity extinguished. These liens did not attach to the proceeds of the

insurance, nor did appellants’ lien on the boat per se entitle them to

participate in the division of the insurance money.” (citations omitted)).9

Put differently, H3O erroneously assumes that maritime liens attach to

proceeds in the same way that liens governed by the UCC do. Walsh, 789
F.2d at 1408 (“[I]n view of the lack of similarity between Article 9

consensual security interests and maritime liens . . . the U.C.C. should not

be interpreted to apply to such liens . . . .”).

       So H3O has not carried its burden to prove that it has a secured

interest in the Proceeds. As a result, the bankruptcy court did not err when

       9
         Compare Bruce A. King, Ships As Property: Maritime Transactions in State and
Federal Law, 79 Tul. L. Rev. 1259, 1326 n.337 (2005) (“The attachment of maritime liens
to proceeds is a different matter. As discussed above, a maritime lien on unpaid freight
does not attach to proceeds after the freight is paid.”), and Robert J. Zapf,
Appurtenances: What Are They and Are Fishing Permits Among Them?, 79 Tul. L. Rev.
1339, 1348–49 (2005) (“Indeed, even after freights have been paid over, there is authority
that the freights may nonetheless be the subject of a maritime lien. At some point, of
course, freights lose their character as such and become part of the general funds of the
recipient and thus are no longer subject to a maritime lien. However, the lien attaches as
long as the funds can be identified as freights.”), with, Cornish Shipping Ltd. v. Int’l
Nederlanden Bank N.V., 53 F.3d 499 (2d Cir. 1995) (“Moreover, we have stated, in an
older case involving a different type of lien on freights, that once a lien attaches to such
funds, the lien follows the proceeds through all of their traceable transmutations . . . .”).

                                             17
it sustained the Trustee’s objection to H3O’s secured status.

       And in any event, the Trustee did not sell the Fishing Permit. Instead,

she brought a fraudulent conveyance action to recover the Fishing Permit

but then settled it.10 So H3O would have to additionally show that its

secured interest encumbered the litigation or the Trustee’s ultimate

settlement recovery. It has not. And we again note that its maritime lien on

the Fishing Permit, if any, remains in place; it did not attach to Proceeds

and H3O is free to exercise lien rights notwithstanding the settlement.

       H3O relies (for the first time on appeal) on In re Figearo, 79 B.R. 914

(Bankr. D. Nev. 1987). That case, it argues, held that funds recovered by a

chapter 7 trustee on a fraudulent conveyance action are subject to a

prepetition security interest, notwithstanding § 552(b). It asserts that the

same conclusion should therefore be reached here and that its maritime

lien must be deemed secured by the Proceeds.

       We dispense with the easy part: H3O’s maritime lien did not extend

to the fraudulent conveyance litigation. Official Comm. of Unsecured

Creditors v. UMB Bank, N.A. (In re Residential Capital, LLC), 497 B.R. 403, 414

(Bankr. S.D.N.Y. 2013) (“[B]ecause the Debtor does not own the right to

       10
          On H3O’s read, the Trustee’s settlement pragmatically worked a sale of the
Fishing Permit, and thus we must treat it as if it were a § 363 sale of estate property and
award it its secured interest. The Trustee disagrees. The bankruptcy court, for its part,
interpreted its own order approving the transaction as a settlement and not a sale. That
said, to the extent it was a § 363 sale, the sale was subject to any preexisting liens.

                                            18
pursue a fraudulent transfer action in bankruptcy . . ., the Debtor could not

have encumbered or assigned that right prepetition.”). H3O does not argue

this; nor could it reasonably do so, as its own authority establishes that

H3O likely lacked a “proceeds” interest in the Trustee’s fraudulent

conveyance action. In Figearo, the bankruptcy court explained:

      The trustee’s right to set aside the transfers, arguably
      contingent noncash proceeds, is created on the filing of the
      bankruptcy petition. Further, the trustee is generally the only
      party in interest with standing to pursue these rights. Although
      the trustee’s rights are dependent on the nature of the transfer,
      they are not received upon the sale, exchange, collection or
      other disposition of collateral or proceeds. Therefore, the
      trustee’s right to set aside a fraudulent transfer can not be
      considered proceeds under NRS 104.9306(1).
79 B.R. at 917 (citation omitted). While Figearo involves interpretation of

Nevada’s UCC, it underscores the main point: the Trustee accedes to

general unsecured creditors’ right to bring a fraudulent conveyance action,

which the debtor cannot otherwise encumber.

      Instead, H3O focuses on Figearo’s other holding: the trustee’s

recovery of property (or its value) under § 550 is subject to a properly

perfected security interest in that property. Id. at 918 (“Having found that

Haley’s security interest does not attach to the trustee’s right to set aside a

fraudulent transfer but does attach to the recovered property, the court

concludes that the funds held by the trustee as a result of the compromise

of the fraudulent conveyance litigation is subject to Haley’s security

                                       19
interest.”).

      H3O states that it found no BAP ruling on the precise issue presented

here or in Figearo; but, it says, other courts have followed Figearo, and we

should do the same. H3O does not, however, address the cases that hold

otherwise. As a different bankruptcy court in this circuit recently noted,

Figearo “is contrary to the weight of authority and has not been followed by

more recent cases.” Rund v. Kirkland (In re EPD Investment Co., LLC), No.

2:12-ap-02424-ER, 2018 WL 947636, at *10 (Bankr. C.D. Cal. Feb. 17, 2018)

(citing cases and 5 Collier on Bankruptcy ¶ 552.02 (16th ed. 2017)). See

Grossman v. Durham Commercial Capital Corp. (In re Connolly Geaney Ablitt &

Willard, P.C.), 585 B.R. 644, 653–54 (Bankr. D. Mass. 2018) (declining to

follow Figearo); In re Residential Capital, LLC, 497 B.R. at 414. So H3O’s

reliance on Figearo is potentially misplaced. But we do not need to resolve

this legal matter because, as noted above, the burden of persuasion was on

H3O; it has failed to carry that burden.

               c.   This result does not contravene public policy.

      Last, H3O argues that the bankruptcy court’s decision was erroneous

because it contravened public policy: the purpose of the trustee’s strong-

arm power is to protect estate assets for the benefit of creditors; here, it

suggests, the Trustee was standing in H3O’s shoes and was supposed to

“protect H3O’s right in the [Fishing] Permit.” Appellant’s Opening Br.

at 28. It continues: “By holding that Trustee’s settlement of the fraudulent

                                       20
transfer claims somehow dissolved H3O’s secured claim rather than

preserving it, the lower court frustrated the purpose of the Trustee’s

powers.” Id.

      We disagree. The bankruptcy court did not dissolve or otherwise

extinguish H3O’s maritime lien. So to the extent H3O is correct and its

maritime lien extends to the Fishing Permit, it should be able to pursue the

Fishing Permit or the Deborah Ann or both.

B.    The bankruptcy judge did not err by failing to recuse himself.

      On appeal, H3O also argues that the bankruptcy judge erred by not

recusing himself under 28 U.S.C. § 455(a). But H3O never asked the

bankruptcy judge to recuse, either by motion or at the hearing. Now,

“[f]ailure to move for recusal at the trial level . . . does not preclude raising

on appeal the issue of recusal under [28 U.S.C.] § 455.” Noli v. C.I.R., 860
F.2d 1521, 1527 (9th Cir. 1988). But if “no motion is made to the judge . . . a

party will bear a greater burden on appeal in demonstrating that the judge

. . . [erred] in failing to grant recusal under section 455.” Id. (internal

quotation marks omitted) (alteration in original).

      Under 28 U.S.C. § 455(a), a bankruptcy judge “shall disqualify

himself in any proceeding in which his impartiality might reasonably be

questioned.” 28 U.S.C. § 455(a). It thus “covers circumstances that appear to

create a conflict of interest, whether or not there is actual bias.” Preston v.

United States, 923 F.2d 731 (9th Cir. 1991) (quoting Herrington v. Sonoma

                                        21
County, 834 F.2d 1488, 1502 (9th Cir. 1987)). What’s more, “a judge has as

strong a duty to sit when there is no legitimate reason to recuse as he does

to recuse when the law and facts require.” Clemens v. U.S. Dist. Court for

Cent. Dist. of Cal., 428 F.3d 1175, 1179 (9th Cir. 2005) (internal quotation

marks omitted).

      H3O alleges an appearance of impartiality because the Trustee’s

counsel and the bankruptcy judge were once name partners at the same

law firm. H3O also faults the bankruptcy judge for not disclosing the

information. We disagree. We “gauge appearance by considering how the

conduct would be viewed by a reasonable person, not someone

hypersensitive or unduly suspicious.” Blixseth v. Yellowstone Mountain Club,

LLC, 742 F.3d 1215, 1219 (9th Cir. 2014) (internal quotation marks and

citations omitted). This is not a new type of alleged disqualification:

      This general standard contained in § 455(a) is not intended to
      be an invitation for judges to freely disqualify themselves
      whenever their impartiality is questioned on any ground.
      Testimony on this issue was given at the hearings before the
      House Subcommittee on the bill which became the new Section
      455 and is reflective of the legislators’ intent:

            Prof. Thode. [T]he longer the judge is on the bench,
            the less the likelihood that the general standard [of
            Canon 3(c)(1), which became 28 U.S.C. § 455(a)] will
            require his disqualification because of his former
            association [as former partner or former associate
            with a lawyer appearing before him].

                                       22
Hauptmann v. Wilentz, 555 F. Supp. 28, 31 (D.N.J. 1982) (alterations in

original).

       Here, the partnership relationship ended fifteen years ago.11 We

conclude that a reasonable person would not view this as creating an

appearance of impropriety. Local 338, RWDSU v. Trade Fair Supermarkets,

455 F. Supp. 2d 143, 144 (E.D.N.Y. 2006) (“There are a number of recusal

cases involving judges’ former law firms, and it is rare that recusal is

granted based only on a question of impartiality because of the judge’s

former affiliation.”).12 So we determine that the bankruptcy judge did not

err, much less commit plain error, by either failing to disclose the former

relationship or by not sua sponte recusing himself.

                                     CONCLUSION

       Based on the foregoing, we AFFIRM.

       11
          The bankruptcy judge, who is in his second 14-year term, stated that for a
period of time he recused from all cases involving his former firm. That is a standard
practice. See Smith v. Pepsico, Inc., 434 F. Supp. 524, 526 & 526 n.3 (S.D. Fla. 1977) (noting
the practice but commenting that “[t]here is a paucity of reported decisions setting forth
recusal periods in various districts”).
       12
         Webb v. White, No. 2:15-CV-00512-DN-PMW, 2015 WL 6395611, at *3 n.42 (D.
Utah Oct. 22, 2015) (listing cases where disqualification was not required when the
judge’s former partner or law firm appeared: 15 years, 13 years, 6 years, and 3 years
later).

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