Court Opinion

ID: 4192669
Source: CourtListenerOpinion
Date Created: 2017-08-03 17:02:07.935421+00
Date Added: 2024-06-11T14:13:50.505774
License: Public Domain

FILED
                                                                    OCT 27 2016
 1                         NOT FOR PUBLICATION
                                                               SUSAN M. SPRAUL, CLERK
 2                                                                 U.S. BKCY. APP. PANEL
                                                                   OF THE NINTH CIRCUIT
 3                  UNITED STATES BANKRUPTCY APPELLATE PANEL
 4                            OF THE NINTH CIRCUIT
 5   In re:                        )        BAP No. EC-15-1401-JuKuMa
                                   )
 6   YOUSIF H. HALLOUM,            )        Bk. No. 12-21477-C-7
                                   )
 7                  Debtor.        )        Adv. No. 15-02091-C
     ______________________________)
 8                                 )
     YOUSIF H. HALLOUM; IMAN Y.    )
 9   HALLOUM,                      )
                                   )
10                  Appellants,    )
     v.                            )        M E M O R A N D U M*
11                                 )
     MICHAEL G. KASOLAS, Trustee, )
12                                 )
                    Appellee.      )
13   ______________________________)
14                      Submitted Without Oral Argument
                             on October 20, 2016**
15
                            Filed - October 27, 2016
16
              Appeal from the United States Bankruptcy Court
17                for the Eastern District of California
18     Honorable Christopher M. Klein, Bankruptcy Judge, Presiding.
                         _________________________
19
     Appearances:     Yousif H. Halloum pro se on brief; Scott H.
20                    McNutt, Michael C. Abel, and Thomas B. Rupp of
                      McNutt Law Group LLP on brief for appellee
21                    Michael G. Kasolas, chapter 7 trustee.
                           _________________________
22
23
24       *
          This disposition is not appropriate for publication.
   Although it may be cited for whatever persuasive value it may
25 have (see Fed. R. App. P. 32.1), it has no precedential value.
26 See 9th Cir. BAP Rule 8024-1.
         **
27        By order entered on August 8, 2016, a motions panel
   determined this appeal suitable for submission on the brief and
28 record without oral argument.

                                      -1-
 1   Before:      JURY, KURTZ, and MARTIN,*** Bankruptcy Judges.
 2
 3            Chapter 71 debtor, Yousif H. Halloum (Debtor) and his non-
 4   debtor spouse, Iman Y. Halloum (Ms. Halloum) (collectively, the
 5   Halloums), appeal from the bankruptcy court’s order denying
 6   their motion for leave to sue the chapter 7 trustee, appellee
 7   Michael Kasolas (Motion For Leave).           We AFFIRM.
 8                                   I.    FACTS
 9   A.       Prepetition Events2
10            Beginning in 2005, the predecessor-in-interest to Midwest
11   Bank N.A. (MBNA) made loans to Debtor which were secured by
12   Debtor’s real and personal property.           Debtor operated an ARCO
13   gas station and convenience store on the real property located
14   in Lodi, California (Real Property).           Debtor also had his
15   business checking account with MBNA.
16            In late 2010 and thereafter, Debtor overdrew his checking
17   account with MBNA.      Although Debtor said the overdrafts would be
18   repaid in the near term and the bank prodded him to do so, the
19   amount due increased over time.        In October 2011, MBNA advised
20
          ***
             Honorable Brenda K. Martin, United States Bankruptcy
21
     Judge for the District of Arizona, sitting by designation.
22        1
          Unless otherwise indicated, all chapter and section
23 references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532,
   “Rule” references are to the Federal Rules of Bankruptcy
24 Procedure, and “Civil Rule” references are to the Federal Rules
   of Civil Procedure.
25
        2
26        To provide context for this appeal we borrow from the
   facts set forth in Halloum v. McCormick, Barstow, Sheppard, Wayte
27 & Carruth LLP; Hilton A. Ryder; Michael G. Kasolas, Trustee
   (In re Halloum), BAP No. EC-14-1219-JuKuPa, 2015 WL 2386544 (9th
28 Cir. BAP May 19, 2015).

                                          -2-
 1   Debtor that he had ten days to establish alternative banking
 2   relationships for his business, no further overdrafts would be
 3   honored after the ten days, and that no overdraft would be
 4   honored in the interim if the cumulative total exceeded
 5   $300,000.    During this ten-day cautionary period, Debtor took
 6   advantage of MBNA’s accommodation to boost the overdrafts from
 7   approximately $190,000 to $297,372.49.
 8        Around this time, Debtor also defaulted under the loans.
 9   On October 12, 2011, MBNA recorded a notice of default that
10   commenced nonjudicial foreclosure as to the Real Property.    On
11   January 20, 2012, a notice of trustee’s sale under the trust
12   deed was recorded.
13        MBNA also sued the Halloums in the San Joaquin County
14   Superior Court to recover on the $297,372.49 overdraft.    The
15   Halloums cross-complained against MBNA, alleging breach of a
16   contract to transform the overdraft into some unspecified term
17   loan.   MBNA’s demurrer to the cross complaint was stayed by the
18   bankruptcy filing.
19   B.   Bankruptcy Events
20        Debtor filed a chapter 11 petition on January 26, 2012.
21   About two years later, Mr. Kasolas was appointed the chapter 11
22   trustee.    Problems ensued which made confirmation of Debtor’s
23   chapter 11 plan extremely unlikely.    Therefore, Trustee advised
24   the bankruptcy court that the case should be converted.    As a
25   result of this advice, the bankruptcy court converted the case
26   to chapter 7 and Mr. Kasolas was appointed the chapter 7 trustee
27
28

                                     -3-
 1   (Trustee).3
 2           Trustee took possession of Debtor’s business.   He also
 3   negotiated a settlement with MBNA that allowed the business to
 4   be sold, with MBNA discounting its claim and further agreeing to
 5   lend up to $100,000 to the estate to support the sale process.
 6   The bankruptcy court approved Trustee’s settlement with MBNA
 7   over Debtor’s objection.
 8           Trustee eventually sold the business,4 but not before
 9   Ms. Holloum intervened and asserted her right as the non-debtor
10   spouse to purchase the business under § 363(i).     She asserted
11   this right even though Debtor’s schedules listed the business
12   and its assets as his separate property, and the real property
13   records showed that the land upon which the business was located
14   was Debtor’s sole and separate property per an inter-spousal
15   transfer deed.     Without concluding that Ms. Halloum had the
16   right, the bankruptcy court afforded her the opportunity to
17   purchase the business.
18           Ultimately, Ms. Halloum was unable to complete her purchase
19   of the business and filed a motion seeking the return of her
20   deposit, which was granted.     In the context of her seeking the
21   return of her security deposit, Ms. Halloum alleged that Trustee
22
         3
23        On November 17, 2103, MBNA filed a motion to convert to
   chapter 7. After several continued hearings on the motion,
24 Trustee conceded that conversion was appropriate and an order
   converting the case was entered on February 12, 2014.
25
        4
26        Debtor appealed the bankruptcy court’s order approving the
   sale to the Panel. The Panel dismissed the appeal as moot since
27 the sale of the business had been completed. Debtor appealed the
   dismissal ruling to the Ninth Circuit. That appeal is still
28 pending. [BAP No. 14-1170; 9th Cir. Case No. 14-60086].

                                      -4-
 1   interfered with her ability to obtain a fuel franchise agreement
 2   and that this prevented her from purchasing the business.      At
 3   other times, including in the underlying adversary complaint,
 4   Ms. Halloum, or Debtor, has alleged that Trustee interfered with
 5   her financing source and convinced the lender not to loan her
 6   money to purchase the business.
 7            Apparently dissatisfied with the way things were going in
 8   the bankruptcy court, on February 13, 2015, the Halloums filed
 9   the underlying complaint in the Superior Court of California,
10   County of San Francisco, as case number CGC–15–544168.      The
11   complaint sought redress against various defendants,5 including
12   Trustee in his individual capacity and as chapter 7 trustee, for
13   the loss of their business as the result of the pending
14   bankruptcy case.      Trustee filed a timely notice of removal in
15   the bankruptcy court for the Northern District of California.
16   That court subsequently transferred the adversary proceeding to
17   the bankruptcy court for the Eastern District of California.6
18
          5
19          Besides Trustee, Plaintiffs sued: Hilton A. Ryder;
     McCormick, Barstow, Sheppard, Wayte & Carruth (“McCormick
20   Barstow”); David I. Katzen; Katzen & Schuricht; Scott H. McNutt;
     Michael C. Abel; McNutt Law Group and Alan Scott Koenig.
21   Defendant Ryder, a partner in defendant law firm McCormick
22   Barstow, was counsel to the debtor, who acted as
     debtor-in-possession performing the duties of the trustee until
23   Trustee was appointed to act as Chapter 11 trustee on
     November 22, 2013. Defendant Katzen, a partner in defendant law
24   firm Katzen & Schuricht, and defendant Koenig are attorneys who
     represented the financial institution, MBNA, that was Plaintiffs’
25   principal adversary in the bankruptcy case. Defendants McNutt
26   and Abel, partners in defendant law firm McNutt Law Group, are
     counsel who represent Trustee in the bankruptcy case.
27
          6
              The Halloums fought the removal and transfer through
28                                                        (continued...)

                                       -5-
 1        Trustee then took steps to prevent the Halloums from forum
 2   shopping and interfering with property of the bankruptcy estate.
 3   On April 23, 2015, Trustee filed a motion requesting (1) a
 4   contempt decree against the Halloums for stay violation;
 5   (2) sanctions; and (3) an order restricting future filings to
 6   the bankruptcy court (Sanctions Motion).   The Sanctions Motion
 7   argued that the Halloums had violated the automatic stay by
 8   filing the complaint and pursuing damage claims which, if they
 9   existed at all, would belong to Debtor’s bankruptcy estate.
10   The Sanctions Motion and Trustee’s reply in support of the
11   motion further asserted that the Halloums’ refusal to accept the
12   jurisdiction of the bankruptcy court justified an order that
13   would “channel” any future litigation through the bankruptcy
14   court.
15        The Halloums opposed Trustee’s motion arguing, among other
16   things, that the complaint should be litigated in the
17   San Francisco Superior Court.
18        The bankruptcy court decided to treat the Sanctions Motion
19   as a counterclaim or affirmative defense to the complaint that
20   would be considered after addressing the substance of the
21   adversary proceeding.
22        Trustee and MBNA filed motions for summary judgment in the
23   adversary proceeding.   Instead of ruling on the motions, the
24   bankruptcy court ordered an evidentiary hearing at which the
25   Halloums were directed to present all their evidence in support
26
27
          6
         (...continued)
28 various motions and appeals, none of which were successful.

                                     -6-
 1   of their claims and to identify aspects of their case that
 2   required discovery.   The evidentiary hearing was held on
 3   August 12 and 13, 2015.   Debtor testified and was cross-
 4   examined; he offered no other witnesses.   Ms. Halloum did not
 5   testify.   After the Halloums presented their case, the
 6   bankruptcy court entered judgment based on partial findings
 7   pursuant to Civil Rule 52(c), made applicable to adversary
 8   proceedings by Rule 7052 and 9014.    The bankruptcy court placed
 9   these findings of fact and conclusions of law orally on the
10   record.    The evidentiary hearing did not reach the stage where
11   the court took evidence on defenses or counterclaims.
12        The bankruptcy court later supplemented its findings of
13   fact and conclusions of law in a memorandum decision Halloum v.
14   Ryder, et al. (In re Halloum), 2015 WL 5095340 (Bankr. E.D. Cal.
15   Aug. 27, 2015).   There, the bankruptcy court determined that
16   there was no basis for liability against any of the defendants.
17   The court also dismissed the case against Trustee because the
18   Halloums had not sought leave from the bankruptcy court before
19   suing Trustee in the San Francisco Superior Court, finding:
20        It is settled law that a trustee may be sued only with
          leave of the court that appointed the trustee. Barton
21        v. Barbour, 104 U.S. 126, 128 (1881); Beck v. Ft.
          James Corp. (In re Crown Vantage, Inc.), 421 F.3d 963,
22        970–71 (9th Cir. 2005).
23        The plaintiffs’ action against Mr. Kasolas filed in
          the state superior court alleges only activity
24        associated with the stewardship by Mr. Kasolas of the
          bankruptcy estate. Accordingly, the assertion that he
25        is being sued in his individual capacity in addition
          to his capacity as trustee is a transparent sham not
26        made in good faith and is stricken.
27        This court did not grant permission to sue the
          trustee. End of analysis. The action against
28        Mr. Kasolas is dismissed.

                                     -7-
 1   2015 WL 5095340, at *3.    On the same date, the bankruptcy court
 2   entered an order dismissing the adversary complaint as to
 3   Trustee and entered a separate judgment in favor of all
 4   defendants on the merits (Dismissal and Merits Judgment).
 5        On August 29, 2015, MBNA and others filed a
 6   motion/application to augment determinations which the
 7   bankruptcy court had made at the evidentiary hearing pursuant to
 8   Rules 7052 and 9023, which incorporate Civil Rules 52(b) and
 9   59(e) (Augment Motion).
10        On August 27, 2015, the Halloums filed a notice of appeal
11   of the bankruptcy court’s order dismissing the complaint against
12   Trustee.    On August 31, 2015, they filed an amended notice of
13   appeal to add the bankruptcy court’s Dismissal and Merits
14   Judgment dated August 27, 2015.
15        On October 5, 2015, the Halloums filed the Motion For
16   Leave.    The motion begins by referring to the bankruptcy court’s
17   dismissal of Trustee from the state court action filed by the
18   Halloums and removed to the bankruptcy court by Trustee.
19   According to the Halloums, they were not required to seek the
20   bankruptcy court’s permission before filing the state court
21   action against Trustee.    The Halloums reasoned that they no
22   longer had a bankruptcy estate and all their assets had been
23   sold.    In other words, there was no bankruptcy proceeding that
24   could be impacted by the suit against Trustee in the state
25   court.    They further argued that their claims against Trustee
26   were not connected to his duties as trustee even though the
27   bankruptcy court had previously found in its memorandum decision
28   that the adversary complaint alleged only activity associated

                                     -8-
 1   with Trustee’s administration of the estate.
 2        Finally, the Halloums contended that the factors for
 3   evaluating a motion for leave to sue a trustee set forth in
 4   Kashani v. Fulton (In re Kashani), 190 B.R. 875, 886-87 (9th
 5   Cir. BAP 1995) weighed in their favor.    According to the
 6   Halloums, none of their claims against Trustee pertained to his
 7   actions while administering the estate.   Instead, they
 8   maintained that the claims involved Trustee as an individual who
 9   was not acting within the scope of his authority and his breach
10   of fiduciary duty through gross negligence and willful and
11   deliberate violations.   For these reasons, the Halloums asserted
12   that their motion should be granted to sue Trustee in the state
13   superior court.
14        On October 16, 2015, the bankruptcy court entered an order
15   denying the Augment Motion, but clarified in its order that in
16   addition to dismissing Trustee due to the Halloums’ failure to
17   request permission to sue in another forum, its detailed no-
18   merit findings and conclusions applied to Trustee (and his
19   counsel).
20        On October 20, 2015, Trustee opposed the Motion For Leave
21   on the ground, among others, that the bankruptcy court had
22   dismissed the Halloums’ claims against him based on the merits.
23        On November 6, 2015, the bankruptcy court entered an order
24   denying the Motion For Leave.   There, the court noted that it
25   had dismissed the adversary proceeding against Trustee because
26   the Halloums did not seek permission to sue him, and, in the
27   alternative, the court found in favor of Trustee (and all other
28   defendants) on the merits after an evidentiary hearing.      The

                                     -9-
 1   court also noted that the judgment in favor of Trustee and the
 2   other defendants was on appeal to this Panel (BAP No. 15-1292).
 3        The court further found the Halloums’ arguments without
 4   merit.    The Halloums had alleged there was no ongoing bankruptcy
 5   proceeding, which the bankruptcy court found incorrect since the
 6   case was still open.   Next, the Halloums’ had asserted that
 7   their claims against Trustee were not connected to the
 8   performance of his duties as Trustee.     The bankruptcy court
 9   found “That is all incorrect - ‘but for’ the existence of
10   Trustee as the trustee in their underlying bankruptcy case, the
11   Halloums would have no connection with, and no claims against,
12   Trustee in any capacity.”
13        The Halloums filed a timely notice of appeal from this
14   order.7
15                            II.    JURISDICTION
16        The bankruptcy court had jurisdiction pursuant to 28 U.S.C.
17   §§ 1334 and 157(b)(2)(A).      We have jurisdiction under 28 U.S.C.
18   § 158.
19
20
        7
          As noted, the Halloums also filed an appeal from the
21 Dismissal and Merits Judgment (EC-15-1292). The Panel issued a
   conditional order of dismissal indicating that appellants had not
22
   filed a brief with respect to this appeal. The Halloums filed a
23 response stating that the brief and excerpts for EC-15-1292
   should be considered in determining this appeal and that the
24 appeals should be consolidated. They also filed a supplemental
   brief in this case. The Panel denied their request for
25 consolidation of the two appeals and further ordered that their
26 supplemental brief would be considered their opening brief in
   this appeal. Attached to the supplemental brief are excerpts of
27 record that mostly pertain to the merits of their underlying
   allegations in the state court complaint. These excerpts are of
28 limited use in this appeal.

                                       -10-
 1                                 III.   ISSUE
 2           Whether the bankruptcy court abused its discretion by
 3   denying the Halloums’ Motion For Leave.
 4                          IV.   STANDARD OF REVIEW
 5           The denial of leave for a party to sue the trustee is
 6   within the sound discretion of the appointing court.
 7   In re Kashani, 190 B.R. at 883–85.        In determining whether the
 8   court abused its discretion we first determine de novo whether
 9   the trial court identified the correct legal rule to apply to
10   the relief requested and then, if the correct legal standard was
11   applied, we determine whether the court’s application of that
12   standard was “(1) illogical, (2) implausible, or (3) without
13   support in inferences that may be drawn from the facts in the
14   record.”     United States v. Loew, 593 F.3d 1136, 1139 (9th Cir.
15   2010).
16                                V.   DISCUSSION
17           Under the Barton doctrine,8 a party must first obtain leave
18   of the bankruptcy court before he or she initiates an action in
19   another forum against a bankruptcy trustee.        Beck v. Fort James
20   Corp. (In re Crown Vantage, Inc.), 421 F.3d 963, 971 (9th Cir.
21   2005); In re Kashani, 190 B.R. at 883–85.        “Before such leave
22   may be granted, the prospective plaintiffs must set forth a
23   prima facie case against the trustee.”         In re Kashani, 190 B.R.
24   at 885.     In considering whether a prima facie case has been
25   made, the appointing court determines whether the plaintiff can
26
         8
27        The doctrine set forth in Barton v. Barbour, 104 U.S. 126
   (1881) requires a party to obtain permission of the appointing
28 court before bringing suit against a receiver.

                                        -11-
 1   present adequate grounds upon which to proceed against the
 2   trustee in another forum.    Id.
 3        We discern no abuse of discretion with the bankruptcy
 4   court’s denial of the Halloums’ Motion For Leave.      Initially,
 5   the Halloums are mistaken that the Barton doctrine does not
 6   apply.   They contend the doctrine is inapplicable because their
 7   assets have been sold.    However, as noted by the bankruptcy
 8   court, Debtor’s main bankruptcy case is open and ongoing.
 9   Further, in this Circuit, the doctrine continues to apply even
10   after the bankruptcy estate has been closed.      In re Crown
11   Vantage, Inc., 421 F.3d at 972.      In addition, the Halloums’
12   claims against Trustee were all connected with his acts or
13   conduct while performing his duties as trustee of Debtor’s
14   bankruptcy estate.   The Barton doctrine applies to claims based
15   on alleged misconduct in the discharge of a trustee’s duties.
16   Id. at 970.   In the end, other than conclusory arguments
17   connected to the Kashani factors, the Halloums failed to
18   demonstrate why the Barton doctrine did not apply.
19        Since the Barton doctrine applies as a threshold matter,
20   the Halloums must plead the elements of a prima facie case
21   against Trustee.   Here, the bankruptcy court acknowledged in its
22   order denying the Motion For Leave that it previously found no
23   merit to the Halloums’ claims against Trustee and that its
24   decision was the subject of a separate appeal.      In doing so, the
25   bankruptcy court implicitly recognized that the Halloums were
26   asserting claims against Trustee which were already litigated in
27   the bankruptcy court.    Therefore, allowing the Halloums to
28   pursue the same underlying claims against Trustee in the state

                                        -12-
 1   court as those involved in their appeal would result in a
 2   tremendous waste of both judicial and the parties’ resources.
 3   See In re Kashani, 190 B.R. at 886 (In exercising its discretion
 4   to grant or deny leave to sue the trustee in a court other than
 5   the one in which the trustee has been appointed, the bankruptcy
 6   court is instructed to balance the interests of all parties
 7   involved.)   This alone would be a sufficient reason for the
 8   bankruptcy court to deny the motion.
 9                            VI.   CONCLUSION
10        For the reasons set forth above, the bankruptcy court’s
11   order denying the Halloums’ Motion For Leave is AFFIRMED.
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                                    -13-