Court Opinion

ID: 9373970
Source: CourtListenerOpinion
Date Created: 2023-02-22 16:10:52.194466+00
Date Added: 2024-06-11T17:16:49.904059
License: Public Domain

FILED
                                                                               MAR 23 2022
                          NOT FOR PUBLICATION                              SUSAN M. SPRAUL, CLERK
                                                                             U.S. BKCY. APP. PANEL
                                                                             OF THE NINTH CIRCUIT

          UNITED STATES BANKRUPTCY APPELLATE PANEL
                    OF THE NINTH CIRCUIT

In re:                                               BAP No. AZ-21-1108-LBS
SKYLINE RIDGE, LLC,
             Debtor.                                 Bk. No. 4:18-bk-01908-BMW

SKYLINE RIDGE, LLC,                   Adv. No. 4:20-ap-00155-BMW
                  Appellant,
v.                                    MEMORANDUM∗
CINCO SOLDADOS, LLC; LANDMARK
TITLE ASSURANCE AGENCY OF
ARIZONA, LLC, as Trustee for Landmark
Title Trust No. 1852-T,
                  Appellees.

              Appeal from the United States Bankruptcy Court
                        for the District of Arizona
            Brenda Moody Whinery, Bankruptcy Judge, Presiding

Before: LAFFERTY, BRAND, and SPRAKER, Bankruptcy Judges.

                                 INTRODUCTION

      In the midst of the bankruptcy court’s consideration of competing

plans of reorganization, debtor-in-possession Skyline Ridge, LLC

(“Skyline”) (now the reorganized debtor under the confirmed plan filed by

      ∗  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.
                                            1
Cinco Soldado, LLC (“Cinco”)), filed a state court lawsuit against Cinco,

asserting claims for breach of contract and judicial foreclosure based on a

prepetition note and deed of trust. According to Skyline, the note

comprised the estate’s largest asset. Cinco removed the state court action to

the bankruptcy court. Before the bankruptcy court issued any dispositive

rulings in the removed action, it confirmed Cinco’s plan of reorganization,

which called for settlement of disputes between Skyline and Cinco,

including the disputes arising out of the same note and deed of trust. The

note payment called for under the plan was paid and the deed of trust was

reconveyed. After Skyline refused to dismiss the removed action, Cinco

moved for summary judgment dismissing it without prejudice, as called

for in the plan. The bankruptcy court granted the motion.

      Skyline appeals, arguing that: (1) the bankruptcy court should have

abstained and remanded the removed action; (2) the bankruptcy court

lacked constitutional authority to enter a final order in the adversary

proceeding; and (3) because the order confirming Cinco’s plan is currently

on appeal, Skyline will be prejudiced if the order is reversed because it will

be time-barred from collecting the full amount owed to it.

      As discussed herein, abstention doctrines do not apply to removed

actions, and the bankruptcy court had authority to enter a final order

enforcing the terms of the chapter 11 plan. Further, the note and deed of

trust that were the subject of the claims in the removed action have been

paid and reconveyed, respectively, thus rendering the claims moot.

                                      2
Skyline’s arguments regarding the pending appeal of the confirmation

order have been presented and rejected by this Panel in connection with

Skyline’s request for a stay pending appeal of the confirmation order,

which we denied. We therefore AFFIRM.

                                  FACTS

A.   Pre-petition events

     Skyline is an Arizona limited liability company formed in 1994 by

Ahmad Zarifi, its sole member and manager, to design, build, and sell

homes in the Tucson area. Cinco is an Arizona limited liability company

formed in 2006 by Zarifi and others to acquire and develop a 160-acre

parcel of land known as Rancho Soldados. The purchase of Rancho

Soldados was funded in part by a $4 million loan from Skyline, as

memorialized in a promissory note (the “Skyline Note”), which was

secured by a second position deed of trust on Rancho Soldados (“Skyline

DOT”).

     Although the Skyline Note provided for the payment of interest,

Cinco took the position that the parties had orally agreed that the loan

would not accrue interest and that Zarifi would convert the Skyline Note

into equity when Rancho Soldados was platted. Cinco failed to pay the

Skyline Loan on its amended maturity date of June 30, 2016.

                                      3
B.    Skyline's bankruptcy filing and the adversary proceeding

      Skyline filed its chapter 111 bankruptcy case on March 1, 2018. After

the bankruptcy court terminated Debtor's exclusivity period, Debtor and

Cinco proposed competing chapter 11 plans. Debtor’s plan proposed

litigating disputed claims; Cinco’s plan (the “Cinco Plan”) called for the

settlement of disputed claims, including those relating to the Skyline loan.

      In February 2020, while the competing plans were under

consideration, Skyline filed a complaint against Cinco in the Superior

Court of Arizona, Pima County. The complaint contained two claims for

relief: (1) breach of contract, based on Cinco’s alleged failure to comply

with the terms of the Skyline Note; and (2) judicial foreclosure of the

Skyline DOT. In May 2020, Cinco removed the state court lawsuit to the

bankruptcy court. Skyline promptly filed a motion for abstention and

remand (“Remand Motion”). The bankruptcy court deferred ruling on the

Remand Motion until after plan confirmation.

      In June 2020, after a five-day trial, the bankruptcy court issued a

ruling and order denying confirmation of both plans. The parties each filed

amended plans, and in November 2020, the bankruptcy court entered an

order denying confirmation of Debtor’s plan and confirming the Cinco

Plan (the “Confirmation Order”).

      Unless specified otherwise, all chapter and section references are to the
      1

Bankruptcy Code, 11 U.S.C. §§ 101–1532.
                                           4
      The Cinco Plan provides for compromise and payment of the Skyline

Note, release of the Skyline DOT, and dismissal of the removed adversary

proceeding. Specifically, the Cinco Plan provides: “In consideration of

receipt of the Initial Settlement Payment on the Effective Date, Debtor and

Cinco shall exchange mutual releases, dismiss all pending actions without

prejudice, each party to bear its own attorneys’ fees, and Debtor shall

release all liens and claims upon property of Cinco.” The Cinco Plan also

provides for the retention of bankruptcy court jurisdiction to resolve

pending adversary proceedings and to enter orders necessary to

implement or consummate the provisions of the Cinco Plan.

      On February 19, 2021, Cinco transferred $2,654,942 to the disbursing

agent in satisfaction of the Skyline Note, as provided in the plan.

Thereafter, the disbursing agent executed and delivered and caused to be

recorded a Full Deed of Release and Reconveyance of the Skyline DOT,

which released Skyline’s lien against Rancho Soldados.

      In the meantime, Skyline appealed the Confirmation Order to this

Panel, which affirmed. Skyline Ridge, LLC v. Cinco Soldados, LLC (In re

Skyline Ridge, LLC), BAP Nos. AZ-20-1264-BTL & AZ-21-1000-BTL, 2021

WL 3829311 (9th Cir. BAP Aug. 25, 2021). Skyline has appealed the Panel’s

decision to the Ninth Circuit Court of Appeals (No. 21-60052); as of the

date of this Memorandum, that appeal remains pending. Skyline’s requests

for a stay pending appeal were denied by the bankruptcy court and this

                                      5
Panel; Skyline has not requested a stay pending appeal from the Ninth

Circuit.

      Shortly after the reconveyance was recorded, Cinco moved for

summary judgment dismissing the adversary proceeding. Cinco argued

that the Skyline Note had been paid and the Skyline DOT had been

released, thus there was no basis for litigating the claims, and the

adversary proceeding must be dismissed pursuant to the confirmed plan.

      Skyline opposed the motion, arguing that dismissal was

inappropriate because the Confirmation Order was on appeal and might be

reversed. Skyline asserted that, even though the proposed dismissal was

without prejudice to filing a future action, it would be prejudiced because

the six-year statute of limitations would expire with respect to some of the

unpaid payments on the Skyline Note. Skyline also objected to the

bankruptcy court’s entry of a final order disposing of the adversary

proceeding, arguing that the court lacked constitutional authority to enter

such an order pursuant to Stern v. Marshall, 564 U.S. 462 (2011).

      In Cinco’s reply, it argued that Skyline was again attempting to

obtain a stay pending appeal, which had already been denied. It also

suggested that the bankruptcy court treat the adversary proceeding as non-

core and enter proposed findings and conclusions for de novo review by

the district court.

      After a hearing, the bankruptcy court issued a ruling and order

(“Dismissal Order”) granting Cinco’s motion for summary judgment based

                                      6
on the terms of the confirmed Cinco Plan and the fact that the terms of the

settlement of the Skyline loan had been satisfied. With respect to its

authority to enter a final judgment, the court concluded that it had “related

to” jurisdiction over the adversary proceeding, and that it had ancillary

jurisdiction to enter an order dismissing it because dismissal was required

under the Confirmation Order. The court concluded that, based on its

ancillary jurisdiction, it had constitutional authority to enter a final

judgment because it was enforcing the Confirmation Order. Nevertheless,

the bankruptcy court included a footnote in its ruling stating, “[i]f it is

determined that this Court lacks authority to enter a final order disposing

of this Adversary Proceeding, the foregoing constitute the Court’s

proposed findings of fact and conclusions of law.” The bankruptcy court

did not make any findings or conclusions regarding Skyline’s Remand

Motion.

      Skyline timely appealed. Despite Skyline’s assertion that the

bankruptcy court lacked constitutional authority to enter the Dismissal

Order, it did not elect to have the appeal heard by the district court.

                               JURISDICTION

      As discussed below, the bankruptcy court had jurisdiction under

28 U.S.C. §§ 1334 and 157(b)(2)(L) and the retention of jurisdiction

provision of the confirmed plan.

      We have jurisdiction over final orders and decrees, and from

interlocutory orders with leave. 28 U.S.C. § 158(a). Here, the bankruptcy

                                        7
court’s order dismissed the adversary proceeding “without prejudice.”

Orders dismissing adversary proceedings without prejudice are generally

interlocutory. Barnes v. Belice (In re Belice), 461 B.R. 564, 571‐72 (9th Cir. BAP

2011). At the same time, “[a] disposition is final if it contains a complete act

of adjudication, that is, a full adjudication of the issues at bar, and clearly

evidences the judge’s intention that it be the court’s final act in the matter.”

Slimick v. Silva (In re Slimick), 928 F.2d 304, 307 (9th Cir. 1990) (cleaned up).

       Skyline contends, and we agree, that the Dismissal Order meets these

criteria. The Cinco Plan required that pending proceedings be dismissed

without prejudice, so that is what the court did. But the court dismissed the

adversary proceeding in its entirety, and nothing in the record suggests

that there is anything further to be done in that matter. Accordingly, we

may treat the order as final. We thus have jurisdiction. 2

                                          ISSUES

       Did the bankruptcy court abuse its discretion in implicitly denying

Skyline’s Remand Motion?

       Did the bankruptcy court have constitutional authority to enter a

final order in the adversary proceeding?

       Did the bankruptcy court err in granting summary judgment

dismissing the adversary proceeding?

       2
         Cinco does not dispute that the order was intended to be final. To the contrary,
it asserts in its brief that the Panel has jurisdiction over the appeal of the dismissal order
because the order was final.
                                              8
                         STANDARDS OF REVIEW

      A bankruptcy court’s denial of a motion to remand under 28 U.S.C.

§ 1452(b) is reviewed for abuse of discretion. McCarthy v. Prince (In re

McCarthy), 230 B.R. 414, 416 (9th Cir. BAP 1999). To determine whether the

bankruptcy court abused its discretion, we conduct a two-step inquiry:

(1) we review de novo whether the bankruptcy court “identified the correct

legal rule to apply to the relief requested” and (2) if it did, whether the

bankruptcy court's application of the legal standard was illogical,

implausible, or “without support in inferences that may be drawn from the

facts in the record.” United States v. Hinkson, 585 F.3d 1247, 1261–62 (9th

Cir. 2009) (en banc).

      Whether the bankruptcy court had the constitutional authority to

finally determine an issue is reviewed de novo. Hasse v. Rainsdon (In re

Pringle), 495 B.R. 447, 455 (9th Cir. BAP 2013). We also review de novo a

bankruptcy court’s grant of summary judgment. Salven v. Galli (In re Pass),

553 B.R. 749, 756 (9th Cir. BAP 2016). Under de novo review, we look at the

matter anew, as if it had not been heard before, and as if no decision had

been rendered previously, giving no deference to the bankruptcy court's

determinations. Freeman v. DirecTV, Inc., 457 F.3d 1001, 1004 (9th Cir. 2006).

                                       9
                                   DISCUSSION

A.    The bankruptcy court did not abuse its discretion in implicitly
      denying Skyline’s Remand Motion.
      The bankruptcy court never explicitly ruled on Skyline’s Remand

Motion, but its dismissal of the adversary proceeding operated as an

implicit denial of that motion. On appeal, Skyline does not directly address

remand but focuses its argument on abstention doctrines. Skyline contends

that the bankruptcy court was required to abstain from exercising

jurisdiction over the adversary proceeding pursuant to 28 U.S.C. § 1334(c).

But abstention provisions do not apply when a state court action has been

removed to federal court. This is because abstention, whether discretionary

or mandatory, requires the existence of a parallel state court proceeding.

Schulman v. Cal. (In re Lazar), 237 F.3d 967, 981-82 (9th Cir. 2001); Sec. Farms

v. Int’l Bhd. of Teamsters, Chauffers, Warehousemen & Helpers, 124 F.3d 999,

1009 (9th Cir. 1997). Once a state court proceeding has been removed to

federal court, that requirement is no longer met. See id. at 1010 (state court

proceeding was “extinguished” upon removal to federal court).3

      Accordingly, Skyline’s request for abstention should be treated as a

motion to remand under 28 U.S.C. § 1452(b). Id. That statute provides, “The

court to which such claim or cause of action is removed may remand such

claim or cause of action on any equitable ground.” Skyline’s arguments on

      3
        At oral argument, counsel for Skyline conceded that this is a correct statement
of Ninth Circuit law, but he believes it to be wrong and wishes to preserve the
argument for a potential appeal to the Ninth Circuit Court of Appeals.
                                           10
appeal address only the question of mandatory abstention, which is

inapplicable. The adversary proceeding involved an asset of the

bankruptcy estate, and the Cinco Plan that was on file at the time of filing

provided for resolution of the claims in the adversary proceeding. Further,

the payment of the Skyline Note and reconveyance of the Skyline DOT

mooted the claims in the removed action; there was no case or controversy

to remand. We thus find no abuse of discretion in the bankruptcy court’s

implicit denial of the Remand Motion.

B.    The bankruptcy court had constitutional authority to enter the
      Dismissal Order.
      Skyline contends that the bankruptcy court lacked constitutional

authority, i.e., judicial power, to enter a final order in the adversary

proceeding because it was not a core proceeding and because Skyline did

not consent to entry of a final order. The bankruptcy court rejected this

argument. It implicitly treated Cinco’s motion for summary judgment as a

motion to enforce the Confirmation Order. This was appropriate: despite

its label, the motion was in substance a request for the court to enforce the

provision of the Cinco Plan and Confirmation Order that required the

adversary proceeding to be dismissed once the required payment had been

made and the Skyline DOT reconveyed. See Bankr. Receivables Mgmt. v.

Lopez (In re Lopez), 274 B.R. 854, 862 (9th Cir. BAP 2002) (“A pleading is to

be judged by its substance rather than by its form or label.” (cleaned up),

aff’d, 345 F.3d 701 (9th Cir. 2003)). Although Cinco styled the motion as one

                                       11
for summary judgment of dismissal and filed it in the adversary

proceeding, Cinco could have instead filed a motion to enforce the

Confirmation Order in the main case. The motion alleged that the

conditions for dismissal had been satisfied but that Skyline had refused to

dismiss the action unconditionally, and the evidence attached to the motion

confirmed this. Skyline does not contend otherwise.

      Based on this interpretation, the bankruptcy court reasoned that it

had ancillary jurisdiction to dismiss the adversary proceeding as

enforcement of the Confirmation Order, a core proceeding. 4 See Huse v.

Huse-Sporsem, A.S. (In re Birting Fisheries, Inc.), 300 B.R. 489, 499 (9th Cir.

BAP 2003) (bankruptcy court’s core jurisdiction includes confirmation of

plans, and core jurisdiction continues for the court to enforce its orders,

even after the case has been closed). See also Gray v. CPF Assocs., LLC (In re

Gray), 614 B.R. 96, 105 (D. Ariz. 2020) (“Actions to interpret or enforce a

prior order are effectively a continuation of that earlier proceeding, thus if

that earlier proceeding was ‘core,’ then the later one is too.” (citing

McCowan v. Fraley (In re McCowan), 296 B.R. 1, 3–4 (9th Cir. BAP 2003)). In

concluding that it had ancillary jurisdiction, the bankruptcy court

recognized that its post-confirmation jurisdiction is limited to matters that

      4
        Skyline asserted in its opening brief that the bankruptcy court found that the
adversary proceeding was not a core proceeding. To the contrary, the court stated,
“[g]iven that this Court is exercising ancillary jurisdiction to enforce this Court’s
Confirmation Order by dismissing this Adversary Proceeding, it is this Court’s
determination that this is a ‘core’ proceeding.”
                                           12
have a “close nexus” to the plan; that is, matters affecting “the

interpretation, implementation, consummation, execution, or

administration of the confirmed plan.” Montana v. Goldin (In re Pegasus Gold

Corp.), 394 F.3d 1189, 1194 (9th Cir. 2005) (quoting Binder v. Price Waterhouse

& Co., LLP (In re Resorts Int’l, Inc.), 372 F.3d 154, 167 (3d Cir. 2004)). The

dismissal of the adversary proceeding was indisputably required to

implement the confirmed plan.

       But whether the bankruptcy court had ancillary jurisdiction is not the

relevant question.5 Under the unique facts and procedural posture of this

case, the court’s entry of the Dismissal Order was within its judicial power

for two reasons: first, it was a ministerial act that was required under the

terms of the confirmed plan, i.e., it disposed of the procedural “shell”

containing the resolved claims; and second, it was a determination of

matters which did not require the court to make findings on any disputed

issues of fact, and therefore did not implicate any deferential standard of

review on appeal.

       5 We emphasize here the difference between subject matter jurisdiction and
judicial power. A court’s jurisdiction is determined as of the time of filing. Grupo
Dataflux v. Atlas Glob. Grp., L.P., 541 U.S 567, 570 (2004). And because subject matter
jurisdiction “involves a court’s power to hear a case, it can never be forfeited or
waived.” Arbaugh v. Y&H Corp., 546 U.S. 500, 514 (2006) (quoting United States v.
Cotton, 535 U.S. 625, 630 (2002)). Unlike subject matter jurisdiction, however, a
bankruptcy court’s constitutional authority to enter a final order may be consented to,
or an objection to it can be waived. See Wellness Int’l Network, Ltd. v. Sharif, 575 U.S. 665,
683-84 (2015) (litigant may implicitly consent to bankruptcy court authority).
                                              13
      With respect to the ministerial nature of the dismissal of the

adversary proceeding, we do not suggest that plan confirmation

transformed the substantive claims in the adversary proceeding from non-

core to core. Rather, the fact that the initial complaint involved non-core

claims is irrelevant because those claims, i.e., the parties’ substantive rights,

had already been finally disposed of in the plan confirmation process; the

Confirmation Order was the final order adjudicating the claims.6

      More fundamentally, we discern no error in the court’s disposition of

the adversary proceeding.

      First, the bankruptcy court’s authority to enter a final order or

judgment was not called into question here because there were no

genuinely disputed issues of material fact as to the claims for which

summary judgment was sought. As noted, the bankruptcy court was

therefore not making determinations of disputed issues of fact that would

implicate a deferential standard of review by an Article III tribunal.

Moreover, an order granting summary judgment is subject to de novo

review upon appeal in any event. United States v. Phattey, 943 F.3d 1277,

1280 (9th Cir. 2019) (citation omitted). But Cinco does not even argue that

the adversary proceeding was erroneously dismissed.

      6
        Nothing in this memorandum should be interpreted to mean that the court’s
ancillary jurisdiction to enforce a confirmed plan that settles non-core claims converts
those claims from non-core to core. Rather, as explained, in the unique circumstances
presented here, the bankruptcy court had the judicial power to enter the order granting
summary judgment.
                                           14
      Therefore, to the extent it matters, the policy reasons for limiting the

power of an Article I court to enter a final order in a non-core matter are

not present here. This is not a situation where a stranger to the bankruptcy

is being forced to have its claims heard by a non-Article III court. See

Wellness, 575 U.S. at 682-83 (“[T]he cases in which this Court has found a

violation of a litigant’s right to an Article III decisionmaker have involved

an objecting defendant forced to litigate involuntarily before a non-Article

III court.”). At the time it filed the removed action, Skyline was a debtor-in-

possession, and the claims it asserted involved the estate’s largest asset.

Those claims were in the process of being resolved through plan

confirmation, and while Skyline’s plan called for the claims to be litigated,

Skyline was not required to litigate them in state court.

      Nevertheless, out of an abundance of caution, the bankruptcy court

included language in its order declaring that, if necessary, its order could

be treated as proposed findings of fact and conclusions of law.

      Finally, despite Skyline’s ostensible objection to having a non-Article

III court decide the motion, and the bankruptcy court’s explicit provision

that the Dismissal Order could be treated as proposed findings and

conclusions, Skyline appealed to this Panel rather than the district court,

which arguably constituted a waiver of its Stern objection. See Wellness, 575

U.S. at 683-84.

      For all these reasons, we conclude that the bankruptcy court had the

power to enter the Dismissal Order.

                                      15
C.    The bankruptcy court did not err in granting summary judgment.
      Summary judgment is appropriate if the pleadings and supplemental

materials demonstrate that there is no genuine issue as to any material fact

on the claims at issue, and the moving party is entitled to judgment as a

matter of law. Roussos v. Michaelides (In re Roussos), 251 B.R. 86, 91 (9th Cir.

BAP 2000), aff’d, 33 F. App’x 365 (9th Cir. 2002). This appeal presents no

factual disputes.

      As noted, the payment and release of the Skyline DOT that occurred

in accordance with the Cinco Plan mooted the claims in the adversary

proceeding. Moreover, because the conditions for dismissal of the

adversary proceeding set forth in the Cinco Plan had been satisfied, in the

absence of a stay pending appeal, the bankruptcy court did not err in

granting summary judgment and dismissing the adversary proceeding

without prejudice.

      Skyline argues that if the Confirmation Order is reversed in the

pending Ninth Circuit appeal, then the Dismissal Order should also be

reversed. It further argues that even if that occurs, and Skyline is allowed

to pursue its breach of contract and foreclosure claims against Cinco at a

later date, it would be prejudiced because it may be time-barred from

collecting interest on payments that came due more than six years before

filing. Skyline’s arguments would be pertinent to a request for a stay

pending appeal of the Confirmation Order. But Skyline has already

                                       16
presented similar arguments to the bankruptcy court and this Panel, which

rejected them.

                              CONCLUSION

     For the reasons set forth above, the bankruptcy court did not abuse

its discretion in declining to remand the adversary proceeding. The court

also had the constitutional authority to enter the Dismissal Order, and it

did not err in doing so. Accordingly, we AFFIRM.

                                     17