Court Opinion

ID: 3161339
Source: CourtListenerOpinion
Date Created: 2015-12-09 21:03:12.142134+00
Date Added: 2024-06-11T12:27:12.176541
License: Public Domain

Filed 12/9/15 Fuchs & Associates v. Lesso CA2/2
                  NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 977(b). This opinion has not been certified for publication or
ordered published for purposes of rule 977.

               IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
                                     SECOND APPELLATE DISTRICT
                                                  DIVISION TWO

FUCHS & ASSOCIATES, INC.,                                            No. B252232 c/w B254116

               Plaintiff and Appellant,                              (Los Angeles County
                                                                      Super. Ct. BC441602)
         v.

ELKE LESSO,

               Defendant;

JASON M. RUND, as Trustee in
Bankruptcy, etc.,

         Real Party in Interest and
Respondent.

         APPEAL from orders of the Superior Court of Los Angeles County. John Segal,
Judge. Affirmed.

         Fuchs & Associates, Inc., John R. Fuchs and Gail S. Gilfillan for Plaintiff and
Appellant.

         Law Office of Thomas H. Edwards and Thomas H. Edwards for Real Party in
Interest and Respondent.
       The instant case involves consolidated appeals by plaintiff and appellant Fuchs &
Associates (Fuchs) from an underlying dispute with defendant Elke Lesso (Lesso)
concerning unpaid legal fees.1 Fuchs challenges two orders awarding Lesso her attorney
fees and costs on appeal: (1) an August 21, 2013 order awarding Lesso $20,195 in
attorney fees and $997.04 in costs, and (2) a January 23, 2014 order awarding Lesso
$11,350 in attorney fees and $675.72 in costs. We affirm both orders.
                                    BACKGROUND2
       Lesso retained Fuchs as her attorneys in a marital dissolution action and various
related lawsuits. The fee agreements between the parties provided for binding arbitration
of “[a]ny controversy between the parties regarding the construction, application or
performance of any services under this Agreement.” They also contained an attorney fee
provision stating that “[t]he prevailing party in any action or proceeding arising out of or
to enforce any provision of this Fee Agreement . . . will be awarded reasonable attorneys’
fees and costs incurred in that action or proceeding, or in the enforcement of any
judgment or award rendered.”
The prior appeals
       A dispute arose between the parties regarding unpaid fees purportedly owed by
Lesso to Fuchs, and Fuchs sued Lesso, seeking damages in excess of $647,000. (Fuchs I,
supra, at p. *1.) The matter was submitted to binding arbitration in accordance with the
parties’ fee agreement, and the arbitrator issued a written decision in favor of Lesso,
concluding that Fuchs was not entitled to recover any additional fees, costs, or damages
from Lesso. (Ibid.) Lesso filed a petition to confirm the award and judgment was

1     The instant case involves Fuchs’ third and fourth appeals from orders awarding
Lesso attorney fees and costs incurred in the underlying dispute.

2       The facts concerning the instant appeal are set forth in two previous nonpublished
opinions by this court, Fuchs & Associates, Inc. v. Lesso (Jan. 8, 2013, B239246) (Fuchs
I), and Fuchs & Associates, Inc. v. Lesso (May 29, 2013, B241384) (Fuchs II). We
reiterate the facts pertinent to this appeal.

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entered in Lesso’s favor based on confirmation of the award. That judgment was the
subject of Fuchs’ first appeal. (Fuchs I, supra, at p. *5.)
       Lesso filed a motion to recover attorney fees she incurred prior to entry of the
judgment and the trial court entered an order granting the motion in part, awarding Lesso
$21,125 in attorney fees. That order was the subject of Fuchs’ second appeal. (Fuchs II,
supra, at p. *1.) Lesso prevailed on both of the prior appeals.
Lesso’s bankruptcy filing
       While Fuchs I was pending, Lesso filed on May 26, 2011, a bankruptcy petition
under chapter 11 of the Bankruptcy Code. Fuchs filed a motion for relief from the
automatic stay, and the bankruptcy court granted the motion on June 24, 2011, by signing
and entering an order on a form F4001-10.NA authorized by the United States
Bankruptcy Court for the Central District of California.3 Lesso’s chapter 11 bankruptcy
proceeding was converted to a chapter 7 proceeding on April 18, 2013. Respondent
Jason M. Rund was appointed as the chapter 7 trustee in Lesso’s bankruptcy proceeding.
The instant appeal
       Fuchs I
       On May 16, 2013, the remittitur following the Fuchs I appeal was issued. On June
18, 2013, Lesso filed a memorandum of costs and a motion for fees incurred in
connection with Fuchs I. On July 8, 2013, Fuchs filed a motion to strike or tax costs, and
on August 1, 2013, an opposition to Lesso’s fee motion. In both pleadings, Fuchs argued
that any award of costs or fees belonged to Lesso’s bankruptcy estate, and that following
the conversion of her bankruptcy from a chapter 11 proceeding to a chapter 7 proceeding,
only the trustee had standing to pursue the claims.

3      Section 7 of the form F4001-10.NA order lists various additional orders the
bankruptcy court can make by checking the appropriate box on the form. The box for
option 7a, which states that “[t]his Order shall be binding and effective despite any
conversion of this bankruptcy case to a case under any other chapter of Title 11 of the
United States Code,” is not checked on the form signed by the bankruptcy court in
Lesso’s bankruptcy case.

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       Lesso filed an opposition to Fuchs’ motion to tax costs and a reply to Fuchs’
opposition to her fee motion. Lesso’s opposition and reply were supported by
declarations from Lesso’s counsel, Thomas H. Edwards (Edwards), and from the trustee’s
counsel in the bankruptcy proceeding, Juliet Oh (Oh), stating that (1) Lesso had agreed
with the trustee that any amounts she collected from Fuchs would belong to the
bankruptcy estate; (2) the trustee had agreed to retain Edwards as special litigation
counsel to pursue collection of any costs or fees awarded on behalf of Lesso’s estate; (3)
Oh was preparing an application on behalf of the trustee to be submitted to the
bankruptcy court to approve Edwards’s retention as special litigation counsel; and (4)
pending the bankruptcy court’s approval of the application to retain Edwards, the trustee
had agreed that Lesso could take steps necessary to preserve the fee and cost claims for
the benefit of the estate, including the filing of a cost memorandum and fee motion.
       On August 19, 2013, Fuchs filed evidentiary objections to the Edwards and Oh
declarations. Following a hearing on August 21, 2013, the trial court entered an order
overruling the evidentiary objections; denying Fuchs’ motion to tax costs; and granting in
part Lesso’s fee motion, awarding Lesso $997.04 in costs and $20,195 in fees. Fuchs
appeals from the trial court’s order.
       Fuchs II
       The remittitur following the Fuchs II appeal was issued on July 30, 2013. On
September 24, 2013, Lesso filed a memorandum of costs and a motion for fees incurred
in connection with Fuchs II. Fuchs filed a motion to strike or tax costs on October 9,
2013, and on November 7, 2013, an opposition to Lesso’s fee motion. Fuchs argued, as it
had in Fuchs I, that any award of costs or fees belonged to Lesso’s bankruptcy estate and
that following the conversion of her bankruptcy from a chapter 11 proceeding to a
chapter 7 proceeding, only the chapter 7 trustee had standing to pursue those claims.
       Lesso filed an opposition to Fuchs’ motion to tax costs, as well as a reply to
Fuchs’ opposition to the fee motion. The opposition and reply were supported by a
declaration from Lesso’s counsel, Edwards, stating that the trustee in Lesso’s bankruptcy
case had authorized Lesso to file the memorandum of costs and had retained Edwards as

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special litigation counsel to pursue on behalf of the bankruptcy estate any amounts
awarded to Lesso as fees and costs; and that the bankruptcy court had approved the
trustee’s application to retain Edwards as special litigation counsel.
         Following a January 7, 2014 hearing, the trial court issued an order denying
Fuchs’ motion to tax costs and granting in part Lesso’s fee motion. The trial court
awarded Lesso $675.72 in costs and $11,350 in fees. Fuchs appeals from the trial court’s
order.
         On November 8, 2013 and on April 24, 2014, this court entered, sua sponte,
separate orders staying the Fuchs I and Fuchs II appeals, respectively, pending
determination of Lesso’s bankruptcy proceeding. The chapter 7 trustee filed a motion in
the bankruptcy court for relief from the automatic stay to permit the trustee to litigate the
Fuchs I and Fuchs II fee awards, and the bankruptcy court granted that motion on
February 19, 2015.
         On February 26, 2015, Lesso and the trustee filed a joint motion to lift the stay
imposed by this court on the Fuchs I and Fuchs II appeals. On March 19, 2015, this
court granted the motion and issued an order permitting this appeal to proceed.
                                      CONTENTIONS
         Fuchs contends the orders awarding Lesso her costs and fees on appeal must be
reversed because they were entered in violation of the automatic stay in Lesso’s chapter 7
bankruptcy proceeding and because Lesso lost standing to pursue the fee and cost claims
when her bankruptcy case was converted from a chapter 11 proceeding to a chapter 7
proceeding. Fuchs further contends the trial court erred by overruling evidentiary
objections to the declarations submitted by Edwards and Oh.
                                        DISCUSSION
I. Standard of Review
         The trial court’s construction of the relevant statutes, including the Bankruptcy
Code, is subject to our de novo review. (Daro v. Superior Court (2007) 151 Cal.App.4th
1079, 1092.) The trial court’s factual determinations are reviewed under the substantial
evidence standard (ibid.), and its evidentiary rulings under the abuse of discretion

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standard. (Morrow v. Los Angeles Unified School Dist. (2007) 149 Cal.App.4th 1424,
1444.)
II. Automatic Stay
         The filing of a petition in bankruptcy triggers an automatic stay of any “judicial,
administrative, or other action or proceeding against the debtor” that could have been
commenced prior to the bankruptcy filing. (11 U.S.C. § 362(a)(1).)
         The automatic stay in Lesso’s bankruptcy case went into effect upon the filing of
her chapter 11 petition on May 26, 2011. (11 U.S.C. § 362(a).) That stay was lifted on
June 24, 2011, following a motion for relief by Fuchs. Conversion of Lesso’s bankruptcy
from a chapter 11 proceeding to a chapter 7 proceeding did not trigger or reinstate the
automatic stay. (In re State Airlines, Inc. (11th Cir. 1989) 873 F.2d 264, 267-269
[conversion of bankruptcy case from chapter 11 to chapter 7 does not trigger automatic
stay]; Ramirez v. Whelan (In re Ramirez) (Bankr. 9th Cir. 1995) 188 B.R. 413, 416
[following “great weight of authority” holding that automatic stay is not triggered by
conversation of bankruptcy case].) The fact that the bankruptcy court’s June 24, 2011
order lifting the automatic stay did not expressly state that the order would continue to be
binding and effective despite any subsequent conversion of Lesso’s bankruptcy from a
chapter 11 proceeding to a proceeding under any other chapter of the Bankruptcy Code
does not alter the result, nor does the fact that the chapter 7 trustee subsequently sought
and obtained relief from the automatic stay on February 19, 2015, in order to litigate the
fee and cost awards at issue in this appeal.4 The trial court’s orders awarding Lesso fees
and costs did not violate the automatic stay.

4       In its reply brief on appeal, Fuchs claimed that the bankruptcy court relied on
Parker v. Bain (In re Parker) (9th Cir. 1995) 68 F.3d 1131, as authority for its February
19, 2015 order lifting the automatic stay in Lesso’s chapter 7 bankruptcy case. Fuchs
failed to provide a transcript of the February 19, 2015 hearing, however, or any other
record of the bankruptcy court’s reasoning for lifting the stay a second time in Lesso’s
bankruptcy proceeding. The bankruptcy court’s reasons for doing so are not relevant, in
any event. (In re State Airlines, Inc., supra, 873 F.2d at pp. 267-269; Ramirez v. Whelan,
supra, 188 B.R. at p. 416.)

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III. Standing
       Fuchs contends Lesso lacked standing to file the cost memoranda and fee motions
that are the basis for the trial court’s orders because the fee and cost claims belonged to
Lesso’s bankruptcy estate, and only the chapter 7 trustee had standing to pursue those
claims once Lesso’s bankruptcy was converted from a chapter 11 proceeding to a
chapter 7 proceeding.5 Fuchs cites Bostanian v. Liberty Savings Bank (1997) 52
Cal.App.4th 1075 (Bostanian) as support for its argument that the orders awarding Lesso
her fees and costs should be reversed.
       In Bostanian, Division Five of this court considered whether a cause of action to
set aside a foreclosure sale of the debtor’s residence was property of the bankruptcy
estate that only the chapter 7 trustee could pursue. (Bostanian, supra, 52 Cal.App.4th at
p. 1078.) The allegedly wrongful foreclosure, and the filing of the debtor’s action to set
aside the foreclosure, had both occurred after the debtor filed a chapter 11 bankruptcy
petition. The action was still pending when the bankruptcy was converted to a chapter 7
proceeding. (Id. at p. 1079.)
       The court in Bostanian noted that under federal case authority, a chapter 7 debtor
cannot prosecute a cause of action belonging to the bankruptcy estate unless the claim has
been abandoned by the bankruptcy trustee. (Bostanian, supra, 52 Cal.App.4th at p. 1081,
and cases cited.) The court further noted that the California Supreme Court’s decision in
Reichert v. General Ins. Co. (1968) 68 Cal.2d 822 was consistent with federal law.

       Parker v. Bain is also inapposite. It did not involve conversion of the debtor’s
bankruptcy from a chapter 11 proceeding to a chapter 7 proceeding, nor was there any
issue as to whether relief obtained from the automatic stay in the chapter 11 proceeding
continues in effect after conversion to a chapter 7 proceeding.

5      Fuchs does not dispute that Lesso had standing as a debtor in possession to pursue
any claims she had against Fuchs before the bankruptcy was converted from a chapter 11
proceeding to a chapter 7 proceeding. “With or without court approval, the trustee or
[chapter 11] debtor in possession may prosecute or may enter an appearance and defend
any pending action or proceeding by or against the debtor, or commence and prosecute
any action or proceeding on behalf of the estate before any tribunal.” (Fed. Rules Bankr.,
rule 6009, 11 U.S.C.; California Aviation, Inc. v. Leeds (1991) 233 Cal.App.3d 724, 729.)

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(Ibid.) Applying Reichert and federal case law, the court in Bostanian concluded that the
debtor lacked standing to maintain the wrongful foreclosure action once the bankruptcy
case was converted to a chapter 7 proceeding, absent abandonment of that action by the
bankruptcy trustee. (Bostanian, supra, at pp. 1081-1083.)
       The Bostanian court rejected any argument that Code of Civil Procedure section
368.5,6 which allows continuation of an action in the name of the original party following
transfer of an interest in the action, conferred standing on the debtor to pursue claims
belonging to the bankruptcy estate. The court distinguished, however, actions continued
by the trustee in the debtor’s name: “A chapter 7 trustee may be able to continue to
prosecute an action in the name of the debtor pursuant to Code of Civil Procedure section
368.5; however, as will be noted, the debtor may not pursue the cause of action on his or
her own unless the cause of action has been abandoned by the trustee . . . . Stated
differently, a bankruptcy trustee could continue an action in the name of the debtor under
Code of Civil Procedure section 368.5. However, it is the trustee who must pursue the
action, not the debtor. (Bostanian, supra, 52 Cal.App.4th at p. 1083.)
       In the instant case, the evidence shows that the chapter 7 trustee prosecuted the fee
and cost claims in Lesso’s name, as permitted under Code of Civil Procedure section
368.5. Declarations filed by Lesso’s counsel and by counsel for the chapter 7 trustee
make clear that Lesso had agreed with the trustee that any fee or cost award would belong
to the bankruptcy estate; that the trustee had agreed to retain Lesso’s counsel as special
litigation counsel to pursue the fee and cost claims; that the bankruptcy court had
approved the trustee’s request to retain Lesso’s counsel for this purpose; and that the
trustee had agreed that Lesso could take steps necessary to preserve the fee and cost
claims for the benefit of the estate, including filing cost memoranda and fee motions.

6       Code of Civil Procedure section 368.5 provides: “An action or proceeding does
not abate by the transfer of an interest in the action or proceeding or by any other transfer
of an interest. The action or proceeding may be continued in the name of the original
party, or the court may allow the person to whom the transfer is made to be substituted in
the action or proceeding.”

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Lesso’s lack of standing to pursue those claims on her own is accordingly not a ground
for reversal of the trial court’s orders.
IV. Evidentiary objections
       Fuchs contends the trial court erred by overruling evidentiary objections to the
declarations submitted by Lesso’s counsel, Edwards, and by Oh, counsel for the chapter 7
trustee.
       Fuchs objected to the following portion of paragraph 3 in Edwards’s declaration as
an improper conclusion of law: “Because Ms. Lesso’s status as defendant in this lawsuit
was not affected by the fact that the proceeding had been converted to a Chapter 7
proceeding . . . .” The language objected to is a statement of fact, not a conclusion of
law. Lesso’s status as a defendant in the lawsuit was not affected by the conversion of
her bankruptcy from a chapter 11 to a chapter 7 proceeding. The trial court did not abuse
its discretion by overruling this objection.
       Fuchs objected on hearsay grounds to the following portions of the declarations by
Edwards and Oh:
       Paragraph 3 of Edwards’s declaration: “She [Lesso] understands and agrees that
any amounts that may be collected from Fuchs based on an award of costs to her in this
lawsuit would belong to her bankruptcy estate.”
       Paragraph 4 of Edwards’s declaration: “The trustee in Ms. Lesso’s bankruptcy has
agreed to employ me as special litigation counsel to pursue collection on behalf of the
bankruptcy estate of any amounts that may be awarded to Lesso as fees and costs in the
present lawsuit. The Trustee’s counsel, Juliet Oh, is preparing an employment
application to be filed with the bankruptcy court on behalf of the Trustee requesting
permission to employ me for this purpose, and she informs me that this application will
be filed with the bankruptcy court within the next few days. In the meantime, pending
approval of that application, the Trustee has agreed that Lesso may take the steps
necessary to preserve these assets for the benefit of the estate, including the filing of the
cost memorandum and the filing of Lesso’s motion for an award of attorneys’ fees on the
appeal.”

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       Paragraph 2 of Oh’s declaration: “The trustee has reached an agreement with
Thomas H. Edwards, who is counsel of record for the Debtor in the litigation pending
between the Debtor and Fuchs & Associates, Inc. (‘Fuchs’) in the Los Angeles Superior
Court, bearing the case number BC441602 (the ‘State Court Litigation’), to seek
collection on behalf of the bankruptcy estate of any costs and fees that Fuchs owes to the
Debtor in connection with the State Court Litigation.”
       Paragraph 3 of Oh’s declaration: “Pending the Bankruptcy Court’s approval of the
Trustee’s application to employ Mr. Edwards as special litigation counsel, the Trustee has
consented to Mr. Edwards taking the steps necessary to preserve the Debtor’s claim for
costs/fees against Fuchs in connection with the State Court Litigation for the benefit of
the bankruptcy estate, including the filing of a memorandum of costs and the filing of a
motion for an award of attorneys’ fees in the State Court Litigation.”
       The foregoing portions of the declarations do not constitute hearsay. “‘Hearsay
evidence’ is evidence of a statement that was made other than by a witness while
testifying at the hearing and that is offered to prove the truth of the matter stated.” (Evid.
Code, § 1200, subd. (a).) “The word ‘statement’ as used in the definition of ‘hearsay
evidence’ is defined in [Evidence Code] Section 225 as ‘oral or written verbal
expression’ or ‘nonverbal conduct . . . intended . . . as a substitute for oral or written
verbal expression.’ Hence, evidence of a person’s conduct out of court is not
inadmissible under the hearsay rule expressed in [Evidence Code] Section 1200 unless
that conduct is clearly assertive in character. Nonassertive conduct is not hearsay.” (Cal.
Law Revision Com. com., Deering’s Ann. Code Evid. (2015) § 1200.) None of the
objected to portions of the declarations contain a “statement” offered to prove the truth of
the matter stated. Rather, the objected to testimony concerns actions taken by Lesso,
Edwards, and the chapter 7 trustee to pursue fee and cost claims in Lesso’s name on
behalf of the bankruptcy estate.
       The trial court did not abuse its discretion by overruling Fuchs’s hearsay
objections to Edwards’s and Oh’s declarations.

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                                     DISPOSITION
      The orders awarding Lesso attorney fees and costs are affirmed. The chapter 7
trustee for Lesso’s bankruptcy estate is awarded costs on appeal.
      NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS.

                                                 ____________________________, J.
                                                 CHAVEZ

We concur:

__________________________, P. J.
BOREN

__________________________, J.
ASHMANN-GERST

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