Court Opinion

ID: 2757156
Source: CourtListenerOpinion
Date Created: 2014-12-03 19:08:36.69006+00
Date Added: 2024-06-11T10:28:17.002512
License: Public Domain

FILED
 1                                                              FEB 06 2012
 2                          NOT FOR PUBLICATION           SUSAN M SPRAUL, CLERK
                                                            U.S. BKCY. APP. PANEL
                                                            O F TH E N IN TH C IR C U IT
 3
 4                  UNITED STATES BANKRUPTCY APPELLATE PANEL
 5                            OF THE NINTH CIRCUIT
 6
 7   In re:                        )       BAP No.   NC-11-1174-HSaD
                                   )
 8   SAMAN HASNAIN,                )       Bk. No.   10-58064
                                   )
 9                  Debtor.        )       Adv. No. 10-05380
     ______________________________)
10                                 )
     SAMAN HASNAIN,                )
11                                 )
                    Appellant,     )
12                                 )
     v.                            )       M E M O R A N D U M1
13                                 )
     MICHAEL CHADD, AUDREY HARRIS, )
14   Chapter 7 Trustee,            )
                                   )
15                  Appellees.     )
     ______________________________)
16
17                       Submitted on January 19, 2012
                          at San Francisco, California
18
                            Filed - February 6, 2012
19
                 Appeal from the United States Bankruptcy Court
20                   for the Northern District of California
21            Hon. Stephen L. Johnson, Bankruptcy Judge, Presiding.
22
          Appearances:      Both parties argued pro se.   The Trustee did
23        not appear.
24
25
26
27        1
             This disposition is not appropriate for publication.
28   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 8013-1.
 1   Before: HOLLOWELL, SALTZMAN2 and DUNN, Bankruptcy Judges.
 2
 3        Creditor Michael Chadd (Chadd) sought relief under
 4   § 362(d)3 seeking to have a previously rendered final arbitration
 5   award against the debtor confirmed and entered as a judgment in
 6   state court.   Although the chapter 7 debtor had already received
 7   a discharge, Chadd had a timely nondischargeability complaint
 8   pending when he filed for § 362(d) relief.       Nevertheless, the
 9   debtor argued that the discharge injunction of § 524 barred Chadd
10   from seeking confirmation of the arbitration award.       The
11   bankruptcy court disagreed and granted relief from the stay or
12   the discharge injunction, to the extent either applied, to have
13   the award confirmed.   For the reasons set forth below, we DISMISS
14   this appeal as moot.
15                          I.   FACTUAL BACKGROUND
16        Sometime in 2008, Chadd bought securities from Jawad Hasnain
17   (Hasnain), which were sold as membership interests in Hasnain’s
18   company.   However, the securities were not authorized by the
19   California Department of Corporations.    Chadd filed a complaint
20   against Hasnain, his company, and his wife, Saman Hasnain (the
21   Debtor), in California state court, alleging they violated
22   California and Federal securities laws by selling the securities.
23
24        2
             The Hon. Deborah J. Saltzman, Bankruptcy Judge for the
25   Central District of California, sitting by designation.
26        3
             Unless otherwise indicated, all chapter and section
27   references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532.
     All Rule references are to the Federal Rules of Bankruptcy
28   Procedure, Rules 1001-9037.

                                       -2-
 1   Chadd sought damages for fraud and breach of fiduciary duty.
 2        The matter was heard by an arbitrator.    The arbitration took
 3   place over two days in early 2010.    On July 6, 2010, after
 4   considering the evidence offered by the parties, the arbitrator
 5   found that Hasnain and the Debtor had violated California
 6   securities laws, sold the securities by means of
 7   misrepresentation, and breached their fiduciary duties by using
 8   investor funds for their personal use.    The arbitrator determined
 9   that Chadd was entitled to a damage award of $683,000
10   (Arbitration Award).
11        On August 4, 2010, before the Arbitration Award was
12   confirmed4 against the Debtor, she filed a voluntary chapter 7
13   bankruptcy petition.   On November 5, 2010, Chadd filed an
14   adversary proceeding contending that the Arbitration Award was a
15   nondischargeable debt pursuant to § 523(a)(2), (a)(4), (a)(6) and
16   (a)(19) (Nondischargeability Proceeding).
17        On January 27, 2011, while the Nondischargeability
18   Proceeding was still pending, the Debtor received a bankruptcy
19   discharge.   The discharge order specified that not all types of
20   debts were discharged.   It provided specific examples of debts
21   not subject to the discharge, including: “Debts that the
22   bankruptcy court specifically has decided or will decide in [a
23   debtor’s] bankruptcy case are not discharged.”
24
          4
25           Under California law, a party to an arbitration, in which
     an award has been made, may petition the court to confirm,
26   correct, or vacate the award. Cal. Civ. Proc. Code §§ 1285-
27   1287.6. If an arbitration award is confirmed, a conforming
     judgment is entered. The judgment then has the same force and
28   effect as any other civil judgment. Id. at § 1287.4.

                                     -3-
 1        On March 8, 2011, Chadd filed a motion for relief from stay
 2   (MRS) under § 362(d)(1).    He sought stay relief in order to
 3   proceed in state court to confirm the Arbitration Award and have
 4   it entered as a judgment.    Chadd contended that doing so would
 5   promote judicial economy because it would allow him to use the
 6   state court judgment preclusively in the Nondischargeability
 7   Proceeding.   The Debtor filed a response to the MRS asserting
 8   that the discharge injunction of § 524 barred Chadd from having
 9   the Arbitration Award confirmed.       The Debtor alleged that Chadd
10   was attempting to improperly perfect an award for a discharged
11   prepetition debt.
12        On March 29, 2011, the bankruptcy court held a hearing on
13   the MRS.   The bankruptcy court and the Debtor agreed that the
14   automatic stay was not in effect since the Debtor’s discharge had
15   been entered.    However, the bankruptcy court disagreed with the
16   Debtor’s argument that the discharge injunction prevented Chadd
17   from returning to the state court to confirm the Arbitration
18   Award.   The bankruptcy court subsequently entered an order on
19   April 5, 2011, granting Chadd relief from stay under § 362, to
20   the extent the stay applied, and § 524(a)(2)5 to proceed in state
21   court to obtain confirmation of the Arbitration Award (Stay
22   Relief Order).   The Stay Relief Order emphasized that Chadd could
23   not undertake collection actions as a result of the issuance of
24
25
          5
             Section 524(a)(2) provides that a discharge “operates as
26   an injunction against the commencement or continuation of an
27   action, the employment of process, or an act, to collect, recover
     or offset any such debt as a personal liability of the debtor,
28   whether or not discharge of such debt is waived.”

                                      -4-
 1   any state court judgment he obtained.    The Debtor timely
 2   appealed.
 3        The Debtor immediately sought a stay pending appeal from the
 4   bankruptcy court; however, the bankruptcy court denied the
 5   Debtor’s motion.    Thereafter, the Debtor sought a stay pending
 6   appeal from the Bankruptcy Appellate Panel (BAP).     The BAP denied
 7   the Debtor’s motion for stay pending appeal on May 3, 2011.
 8        The state court scheduled a hearing on the confirmation of
 9   the Arbitration Award for May 10, 2011.    On May 9, 2011, the
10   state court issued a tentative ruling to confirm the Arbitration
11   Award.   That afternoon, the Debtor filed a chapter 11 bankruptcy
12   petition (the Second Bankruptcy Case) and sent a letter to Chadd
13   stating that the automatic stay prevented Chadd from following
14   through with the hearing to have the confirmation entered as a
15   judgment.
16        Chadd then filed a motion for stay relief in the Second
17   Bankruptcy Case.6   It was granted on July 7, 2011.   That order
18   was not appealed.    On August 25, 2011, the state court confirmed
19   the Arbitration Award and entered a judgment against the Debtor,
20   Hasnain, and his company, jointly and severally, in the amount of
21   $751,250.11.   Chadd then filed a motion for summary judgment in
22   the Nondischargeability Proceeding asserting that the state court
23   judgment was preclusive as to the § 523(a) issues.    On October
24   27, 2011, the bankruptcy court granted Chadd’s motion for summary
25
26
          6
27           The Hon. Arthur S. Weissbrodt presided over the Second
     Bankruptcy Case. The Debtor’s Second Bankruptcy Case was
28   dismissed on September 13, 2011, and closed December 13, 2011.

                                      -5-
 1   judgment and declared Chadd’s claim nondischargeable.          The Debtor
 2   has separately appealed that ruling (BAP No. NC-11-1631).
 3        On December 12, 2011, Chadd filed with the BAP a Notice of
 4   Mootness contending that because the judgment had been entered,
 5   the appeal was now moot.7    The Debtor filed a response on
 6   December 29, 2011.
 7                              II.   JURISDICTION
 8        The bankruptcy court had jurisdiction under 28 U.S.C. § 1334
 9   and 28 U.S.C. § 157(b)(2)(A) and (G).         We address our
10   jurisdiction under 28 U.S.C. § 158 below.
11                                III.    ISSUES
12        Is the appeal moot?
13        If the appeal is not moot, did the bankruptcy court err in
14   entering the Stay Relief Order allowing Chadd to confirm the
15   Arbitration Award in state court?
16                        IV.    STANDARDS OF REVIEW
17        Mootness is a jurisdictional issue that we review de novo.
18   Paulman v. Gateway Venture Partners III, L.P. (In re Filtercorp,
19   Inc.), 163 F.3d 570, 577 (9th Cir. 1998).         We lack jurisdiction
20   to hear moot appeals.   I.R.S. v. Pattullo (In re Pattullo), 271
21   F.3d 898, 901 (9th Cir. 2001).      If an appeal becomes moot while
22   it is pending before us, we must dismiss it.         Id.
23                               V.   DISCUSSION
24        Constitutional mootness is derived from Article III of the
25   U.S. Constitution, which provides that the exercise of judicial
26
          7
27           Chadd had previously sought to have the appeal dismissed
     as interlocutory. However, the BAP denied that motion on May 12,
28   2011.

                                         -6-
 1   power depends on the existence of a case or controversy.    DeFunis
 2   v. Odegaard, 416 U.S. 312, 316 (1974); Clear Channel Outdoor,
 3   Inc. v. Knupfer (In re PW, LLC), 391 B.R. 25, 33 (9th Cir. BAP
 4   2008).   The mootness doctrine applies when events occur during
 5   the pendency of the appeal that make it impossible for the
 6   appellate court to grant effective relief.   Id.   The determining
 7   issue is “whether there exists a ‘present controversy as to which
 8   effective relief can be granted.’”   People of Village of Gambell
 9   v. Babbitt, 999 F.2d 403, 406 (9th Cir. 1993) (quoting NW Envtl.
10   v. Gordon, 849 F.2d 1241, 1244 (9th Cir. 1988)).   If no effective
11   relief is possible, we must dismiss for lack of jurisdiction.
12   United States v. Arkison (In re Cascade Rds., Inc.), 34 F.3d 756,
13   759 (9th Cir. 1994).
14        Our review of the record leads us to conclude that this
15   appeal is moot.   If the bankruptcy court had erred and the state
16   court judgment was consequently entered in violation of the
17   automatic stay or the discharge injunction, it would be void.
18   Lone Star Sec. & Video, Inc. v. Gurrola (In re Gurrola), 328 B.R.
19   158, 171 (9th Cir. BAP 2005).   As a result, Chadd could not have
20   relied on its preclusive effect in the Nondischargeability
21   Proceeding, and consequently, the appeal would not be moot.
22        However, here, the bankruptcy court in the Second Bankruptcy
23   Case authorized stay relief to allow Chadd to confirm the
24   Arbitration Award.   That decision has not been appealed and is
25   final.   Therefore, a reversal of this appeal would not change the
26   outcome.   Without a stay pending appeal, subsequent events
27   allowed Chadd to confirm the Arbitration Award and obtain a state
28   court judgment against the Debtor that is not subject to being

                                      7
 1   declared void.   As a result, a reversal of the Stay Relief Order
 2   could not provide relief to the Debtor, and therefore, the appeal
 3   is moot.
 4                             VI.   CONCLUSION
 5        Because Chadd was granted stay relief in the Second
 6   Bankruptcy Case, a reversal here would not provide effect relief
 7   to the Debtor.   Therefore, the appeal is moot and we do not reach
 8   its merits.   Accordingly, the appeal is DISMISSED.
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