Court Opinion

ID: 3187352
Source: CourtListenerOpinion
Date Created: 2016-03-21 20:03:35.794567+00
Date Added: 2024-06-11T14:35:50.314885
License: Public Domain

FILED
                           NOT FOR PUBLICATION
                                                                           MAR 21 2016
                    UNITED STATES COURT OF APPEALS                      MOLLY C. DWYER, CLERK
                                                                         U.S. COURT OF APPEALS

                            FOR THE NINTH CIRCUIT

In re: STEPHEN FLANAGAN;                         No. 14-60019
CHARLOTTE FLANAGAN,
                                                 BAP No. 13-1188
              Debtors,

                                                 MEMORANDUM*
ROBERT KEETON,

              Appellant,

 v.

STEPHEN FLANAGAN,

              Appellee.

                          Appeal from the Ninth Circuit
                            Bankruptcy Appellate Panel
             Kirscher, Jury, and Taylor, Bankruptcy Judges, Presiding

                            Submitted March 17, 2016**
                             San Francisco, California

        *
             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. See Fed. R. App. P. 34(a)(2).

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Before: McKEOWN, WARDLAW, and TALLMAN, Circuit Judges.

      Appellant Robert Keeton appeals a Ninth Circuit Bankruptcy Appellate

Panel’s (“BAP”) affirmance of the bankruptcy court’s decision to deny Keeton’s

nondischargeability claims against Appellee Stephen Flanagan for violating the

Alaska Uniform Trade Protections Act (“UTPA”) and the Alaska Securities Act,

and for awarding prejudgment interest at the federal rate. We have jurisdiction

under 28 U.S.C. § 158(d), and we affirm.

      1. The bankruptcy court did not err in concluding there was no violation of

the Alaska UTPA. To prove a violation of the UTPA, Keeton must show “(1) that

[Flanagan] is engaged in trade or commerce; and (2) that in the conduct of trade or

commerce, an unfair act or practice has occurred.” ASRC Energy Servs. Power &

Commc’ns, LLC v. Golden Valley Elec. Ass’n, Inc., 267 P.3d 1151, 1158-59

(Alaska 2011); see A.S. § 45.50.471(a). Parties engage in trade or commerce when

one party is a “business entity, regulated under the Department of Commerce,”

State v. O’Neill Investigations, Inc., 609 P.2d 520, 534 (Alaska 1980), and when

the parties purchase “goods and services in business-to-business commercial

transactions as well as in individual consumer transactions.” Alaska Interstate

Const., LLC v. Pac. Diversified Inv., Inc., 279 P.3d 1156, 1169 (Alaska 2012).

Because neither Keeton nor Flanagan is a “business,” and Keeton did not attempt

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to purchase goods or services from Flanagan, they were not engaged in trade or

commerce. Therefore, Flanagan did not violate the UTPA, and the bankruptcy

court did not err in declining to award treble damages. See Borgen v. A & M

Motors, Inc., 273 P.3d 575, 583 (Alaska 2012) (“The [UTPA] provides for treble

damages . . . to a prevailing plaintiff.”). The BAP properly affirmed the

bankruptcy court’s denial of treble damages.

      2. The bankruptcy court was not estopped from entering judgment in an

amount less than $600,000. Based on the assumption that Keeton could prove an

UTPA violation, the bankruptcy court presumptively ruled that the amount owed to

Keeton was $600,000. At the end of the proceedings, however, the bankruptcy

court found there was no legal basis for treble damages and that Keeton was legally

entitled to only $200,000. There simply was no estoppel here. See Hamilton v.

State Farm Fire & Cas. Co., 270 F.3d 778, 782 (9th Cir. 2001) (“Judicial estoppel

is an equitable doctrine that precludes a party from gaining an advantage by

asserting one position, and then later seeking an advantage by taking a clearly

inconsistent position.”). Therefore, the BAP did not err in affirming the

bankruptcy court’s award of an amount less than $600,000.

      3. Because the agreement between Keeton and Flanagan is not an

“investment contract,” the bankruptcy court did not err in denying Keeton’s claim

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for nondischargeability under 11 U.S.C. § 523(a)(19) for violating the Alaska

Securities Act. An “investment contract” is a security that refers to “[a] contract,

transaction or scheme whereby a person [1] invests his money [2] in a common

enterprise and [3] is led to expect profit solely from the efforts of the promoter or a

third party.” Am. Gold & Diamond Corp. v. Kirkpatrick, 678 P.2d 1343, 1345-46

(Alaska 1984) (quoting S.E.C. v. W.J. Howey Co., 328 U.S. 293, 289-99 (1946))

(adopting the federal definition of an investment contract). The “common

enterprise” prong requires only that the investor’s financial interests be

“inextricably interwoven” with those of the promoter or third parties. Hentzner v.

State, 613 P.2d 821, 824 (Alaska 1980). The “managerial efforts” prong requires

that an investor be led to expect profits from the essential managerial efforts of the

promoter. Am. Gold & Diamond Corp., 678 P.2d at 1346.

      Keeton’s loan was to be segregated from other funds and Keeton was to

receive a guaranteed return regardless of Flanagan’s success as a real estate

investor. Keeton’s financial interests were not inextricably interwoven with

Flanagan’s interests. Additionally, Flanagan’s efforts to obtain bank guarantees or

to complete the Redevelopment Project was not essential to the success of

Keeton’s interest-bearing loan. Therefore, the BAP did not err in affirming the

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bankruptcy court’s denial of the nondischargeability claim based on alleged

violations of the Alaska Securities Act.

      4. The bankruptcy court properly awarded prejudgment interest at the

federal rate rather than the Alaska state law rate. If liability arises under state law,

the court may award prejudgment interest under the state law rate. In re Niles, 106

F.3d 1456, 1463 (9th Cir. 1997). The federal rate, however, should govern

“actions brought under federal statute, such as bankruptcy proceedings, unless the

equities of the case require a different rate.” Banks v. Gill Distribution Ctrs., Inc.,

263 F.3d 862, 871 (9th Cir. 2001). Keeton did not plead in his adversary

complaint that the § 523(a)(2)(A) claim for nondischargeability based on false

pretenses arose under Alaska law, and the bankruptcy court did not find any state

law violations. The bankruptcy court applied federal law in finding false pretenses.

Therefore, the debt arose under federal law, and the BAP did not err in affirming

the bankruptcy court’s award of prejudgment interest at the federal rate.

      Costs on appeal are awarded to the Appellee.

      AFFIRMED.

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