Court Opinion

ID: 3036207
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:53:53.684065+00
Date Added: 2024-06-11T07:37:52.133060
License: Public Domain

FILED
                             NOT FOR PUBLICATION                             APR 09 2010

                                                                       MOLLY C. DWYER, CLERK
                      UNITED STATES COURT OF APPEALS                     U .S. C O U R T OF APPE ALS

                             FOR THE NINTH CIRCUIT

In re: C & C JEWELRY MFG., INC., a               No. 09-60024
California corporation,
                                                 BAP No. CC-08-1267-HMoMk
                Debtor.

C & C JEWELRY MFG., INC., a                      MEMORANDUM *
California corporation,

                Appellant,

  v.

LAXMI JEWEL INC.; et al.,

                Appellees.

                            Appeal from the Ninth Circuit
                             Bankruptcy Appellate Panel
             Hollowell, Montali, and Markell, Bankruptcy Judges, Presiding

                              Submitted April 7, 2010 **
                                Pasadena, California

Before: FERNANDEZ, SILVERMAN, and GRABER, Circuit Judges.

        *
             This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
        **
             The panel unanimously concludes this case is suitable for decision
without oral argument. Fed. R. App. P. 34(a)(2).
       In this bankruptcy case, Debtor C & C Jewelry Manufacturing, Inc., argues

that the bankruptcy court, which the Bankruptcy Appellate Panel (BAP) affirmed,

abused its discretion by denying fees and costs and erred by refusing to award

damages. We review the BAP’s decision de novo. Sofris v. Maple-Whitworth,

Inc. (In re Maple-Whitworth, Inc.), 556 F.3d 742, 745 (9th Cir. 2009). We review

the bankruptcy court’s findings of fact for clear error and its decision regarding

attorney fees and costs for abuse of discretion. Higgins v. Vortex Fishing Sys.,

Inc., 379 F.3d 701, 705 (9th Cir. 2004). We affirm in part and vacate and remand

in part.

       1. Debtor, which achieved dismissal of the petitioning creditors’ involuntary

petition on summary judgment, was eligible for an award of attorney fees and costs

under 11 U.S.C. § 303(i). It was "the petitioning creditors’ burden to establish,

under the totality of the circumstances, that factors exist which overcome the

presumption" that Debtor should receive fees and costs. Id. at 707 (internal

quotation marks omitted). Higgins set out several factors that the court should

consider, along with any other relevant factors. Id. at 707-08.

       Here, the bankruptcy court stated without elaboration that the petitioning

creditors had rebutted the presumption in Debtor’s favor. The court failed to

mention any of the Higgins factors, saying only that it had evaluated "all of the

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factors relevant to this case" and had decided that an award of fees was not

appropriate.

      Those conclusory statements do not allow us to understand the grounds for

the bankruptcy court’s decision, and no grounds are apparent from the surrounding

context. The standard for adequacy of findings is "whether they are explicit

enough on the ultimate issues to give the appellate court a clear understanding of

the basis of the decision and to enable it to determine the grounds on which the

trial court reached its decision." Leavitt v. Soto (In re Leavitt), 171 F.3d 1219,

1223 (9th Cir. 1999) (internal quotation marks omitted). In the absence of an

explanation as to how the district court exercised its discretion, we cannot assess

whether that discretion was abused. Stewart v. Gates, 987 F.2d 1450, 1454 (9th

Cir. 1993).

      Because the bankruptcy court’s findings and explanation are inadequate for

appellate review, we vacate and remand the decision denying fees and costs. See,

e.g., McCulloch v. Albert E. Price, Inc., 823 F.2d 316, 323 (9th Cir. 1987),

disagreed with on other grounds by Fogerty v. Fantasy, Inc., 510 U.S. 517, 525-26

(1994). Whatever the court’s decision on remand, whether to grant or deny fees

and costs, the court should make explicit its findings of fact and the reasons for its

decision.

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      2. Title 11 U.S.C. § 303(i)(2) authorizes an award of damages "against any

petitioner that filed the petition in bad faith." Although the court made no formal

finding regarding bad faith, the court in its tentative ruling wrote that it intended to

deny damages because "the court does not find that the involuntary petition was

filed in bad faith." At argument on the motion, Debtor acknowledged the clarity of

that tentative ruling and did not attempt to dissuade the court on that point.

      That ruling was sufficiently definite that we can review it as a finding of fact

that the involuntary petition was not filed in bad faith. The finding is not clearly

erroneous. A presumption of good faith accompanies the filing of an involuntary

petition. In re Mi La Sul, 380 B.R. 546, 557 (Bankr. C.D. Cal. 2007); In re Molen

Drilling Co., 68 B.R. 840, 843 (Bankr. D. Mont. 1987). Bad faith is measured by

an objective test—what a reasonable person would believe. Jaffe v. Wavelength,

Inc. (In re Wavelength, Inc.), 61 B.R. 614, 620 (9th Cir. B.A.P. 1986). The

evidence here would support a finding that the petitioning creditors sought to avoid

preference to some creditors, to recover transferred assets, and to prevent the use of

an alter ego to avoid payment of debts, none of which is an improper purpose and

all of which were objectively reasonable at the time of the filing. The ultimate

disposition of the involuntary petition does not, by itself, show bad faith.

Accordingly, the denial of damages is affirmed.

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     Denial of damages AFFIRMED; denial of attorney fees and costs

VACATED and REMANDED. The parties shall bear their own costs on appeal.

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