Court Opinion

ID: 4192832
Source: CourtListenerOpinion
Date Created: 2017-08-03 17:02:52.928106+00
Date Added: 2024-06-11T14:40:22.130134
License: Public Domain

FILED
                                                                   OCT 29 2015
 1                         NOT FOR PUBLICATION
 2                                                             SUSAN M. SPRAUL, CLERK
                                                                 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. CC-14-1193-DTaKu
                                   )
 6   ALTERNATIVE GRAPHICS, INC.,   )      Bk. No. 9:12-bk-11378
                                   )
 7                  Debtor.        )
     ______________________________)
 8                                 )
     HEWLETT-PACKARD FINANCIAL     )
 9   SERVICES COMPANY,             )
                                   )
10                  Appellant,     )
                                   )
11   v.                            )      M E M O R A N D U M1
                                   )
12   ALTERNATIVE GRAPHICS, INC.,   )
                                   )
13                  Appellee.      )
     ______________________________)
14
                Argued and Submitted on September 24, 2015
15                         at Malibu, California
16                          Filed - October 29, 2015
17            Appeal from the United States Bankruptcy Court
                  for the Central District of California
18
          Honorable Robin L. Riblet,2 Bankruptcy Judge, Presiding
19
20   Appearances:     Amanda Nichole Ferns of Ferns, Adams & Associates
                      argued for Appellant; William Charles Beall of
21                    Beall & Burkhardt argued for Appellee.
22
     Before: DUNN, TAYLOR AND KURTZ, Bankruptcy Judges.
23
24        1
           This disposition is not appropriate for publication.
25   Although it may be cited for whatever persuasive value it may
     have (see Fed. R. App. P. 32.1), it has no precedential value.
26   See 9th Cir. BAP Rule 8024-1.
27        2
           On May 9, 2014, the bankruptcy case was reassigned to the
28   Honorable Peter Carroll.
 1        Creditor Hewlett-Packard Financial Services Company
 2   (“HP Financial”) appeals from the bankruptcy court’s order
 3   confirming the Debtor’s chapter 11 plan of reorganization.3
 4   Specifically, HP Financial takes issue with the following: 1) the
 5   confirmed plan’s characterization of HP Financial’s claim; 2) the
 6   amount to be paid to HP Financial under the confirmed plan; and
 7   3) the court’s denial of HP Financial’s motions to alter or amend
 8   previous orders awarding sanctions to the Debtor.    We DISMISS AS
 9   EQUITABLY MOOT the aspects of the appeal concerning plan
10   confirmation generally and the characterization of HP Financial’s
11   agreement with the Debtor.   Otherwise, we AFFIRM.
12                        I.   FACTUAL BACKGROUND
13        This appeal arises from a dispute involving a creditor who,
14   in the words of the bankruptcy court, “has been fighting tooth
15   and nail every inch to try and prevent the Debtor from getting
16   documents” requested in discovery.
17        The discovery dispute arose out of a disagreement between
18   the Debtor and creditor HP Financial as to the nature of a
19   transaction between the parties in 2007.   The Debtor acquired a
20   piece of printing equipment from HP Financial.   HP Financial
21   maintains that it leased the equipment to the Debtor, whereas the
22   Debtor contends (and the bankruptcy court found) that the
23
24        3
           Unless otherwise indicated, all chapter and section
25   references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532.
     All “Rule” references are to the Federal Rules of Bankruptcy
26   Procedure. All "Civil Rule" references are to the Federal Rules
27   of Civil Procedure. The Local Bankruptcy Rules of the United
     States Bankruptcy Court for the Central District of California
28   are referred to as “Local Bankruptcy Rule” or “LBR.”

                                      2
 1   transaction was documented as a lease but was actually intended
 2   as a security arrangement for a sale.
 3        As explained below, this disagreement was the only issue in
 4   need of resolution before the Debtor’s chapter 11 plan could be
 5   confirmed.   Unfortunately, that resolution was delayed six months
 6   while the parties waged a heated battle over the Debtor’s
 7   discovery requests and HP Financial’s responses.
 8   The Indigo 5500
 9        The Debtor, Alternative Graphics, Inc., is a corporation
10   operating a commercial printing business in Goleta, California.
11   In December 2007, the Debtor acquired an HP Indigo 5500 digital
12   printing press (the “Indigo 5500") from HP Financial, a
13   subsidiary of Hewlett-Packard, Inc. (“HP Inc.”).       HP Financial,
14   in turn, had acquired the Indigo 5500 from Indigo America, Inc.
15   (“Indigo America”), also a subsidiary of HP Inc., for
16   $350,000.00.   The transaction was governed by a so-called Master
17   Lease and Financing Agreement (“Master Agreement”).
18        The Master Agreement, together with its attached schedule,
19   provided that the value of the Indigo 5500 was $337,002.00.       The
20   Debtor was to pay HP Financial $6,517.00 monthly for 60 months,
21   for a total of $391,020.00.   At the end of the 60-month term, the
22   Debtor could purchase the Indigo 5500 for an amount equal to its
23   fair market value at that time.
24   The Chapter 11 Case
25        On April 2, 2012, the Debtor filed a petition for
26   reorganization under chapter 11.       The Debtor’s amended plan of
27   reorganization (“Plan”) listed the claim of HP Financial as a
28

                                        3
 1   secured claim, with the collateral being the Indigo 5500.4   The
 2   Plan proposed to pay HP Financial a total of $90,000.00, plus
 3   interest, which the Debtor asserted was the value of the
 4   Indigo 5500 as of the filing date.    HP Financial objected to the
 5   plan, arguing that the Debtor had mischaracterized its claim.
 6   More specifically, HP Financial objected to its treatment as a
 7   secured creditor, arguing that its status under the Master
 8   Agreement was that of a lessor.   HP Financial asserted that it
 9   held an unsecured claim in the amount of $272,219.33 and that the
10   correct value of the Indigo 5500 was $250,000.00.5   A hearing on
11   confirmation of the Plan was set for November 14, 2013.
12
13
          4
14         HP Financial did not include the Plan in its appendix or
     excerpts of record. In fact, this is only one of the significant
15   omissions in the appendix and excerpts filed by HP Financial.
16   For example, the excerpts of record include only portions of the
     transcript of the hearing on Plan confirmation. We have
17   exercised our discretion to take judicial notice of documents
     filed in the Debtor’s main bankruptcy case, including the Plan
18   and the full transcript of the confirmation hearing. See
19   O’Rourke v. Seaboard Sur. Co. (In re E.R. Fegert, Inc.), 887 F.2d
     955, 957-58 (9th Cir. 1988); Atwood v. Chase Manhattan Mortg. Co.
20   (In re Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003).
          The Debtor filed supplemental excerpts of record but
21
     declined to file the missing portions of the confirmation hearing
22   transcript, not wishing to waive its request for summary
     affirmance on the basis of an inadequate record. We decline the
23   request.
24        5
           According to HP Financial’s amended proof of claim,
25   $99,801.89 of its claim was attributable to “Costs (attorney’s
     fees, late charges, other costs).” Counsel for HP Financial
26   later conceded that this number was a “typo,” and that the
27   correct figure was $9,981.89, approximately a tenth of the
     originally stated amount. No further amendment to the proof of
28   claim was made.

                                       4
 1   The Discovery Dispute
 2        On August 14, 2013, the Debtor served HP Financial with a
 3   request for production of documents and a set of
 4   interrogatories.6   These discovery requests were aimed at
 5   establishing the true nature of the Master Agreement.    The Debtor
 6   requested documents and information concerning any leases
 7   HP Financial had executed with other customers involving
 8   equipment similar or identical to the Indigo 5500.   Specifically,
 9   the Debtor wanted to know: the prices paid by any customers to
10   acquire their presses at the end of their lease terms; the prices
11   for which such used presses had been sold to third parties; the
12   amount HP Financial had charged its customers to remove presses
13   if the customer did not wish to purchase at the end of the lease
14   term; HP Financial’s expectations at the outset of its agreements
15   as to the equipment’s value at the end of the lease term; and
16   other related matters.
17        On September 23, 2013, after requesting and receiving an
18   extension of time to respond to the first set of discovery
19   requests, counsel for HP Financial submitted responses.
20   HP Financial objected that the requests were ambiguous, overly
21   broad, burdensome and oppressive, and that the requests assumed
22   facts not in evidence and were not calculated to lead to the
23   production of admissible evidence.   Aside from those very general
24   objections, HP Financial’s responses were perfunctory.    It
25
26        6
           These discovery requests were made in the context both of
27   confirmation proceedings with respect to the debtor’s initial
     plan of reorganization and a relief from stay motion filed by
28   HP Financial.

                                      5
 1   produced only one document, a copy of the Master Agreement, which
 2   the Debtor already possessed.
 3        In addition to its general objections, HP Financial also
 4   refused to provide any documents in the possession of HP Inc. or
 5   Indigo America.
 6   The First Motion to Compel
 7        On Tuesday, September 24, 2013, The Debtor’s attorney,
 8   William Beall, e-mailed HP Financial’s attorney, Amanda Ferns.
 9   Mr. Beall complained that HP Financial’s responses were
10   insufficient and threatened to file a motion to compel discovery
11   unless Ms. Ferns called him within one day to discuss the
12   situation.   Ms. Ferns responded by e-mail on Wednesday evening,
13   September 25, 2013, stating her willingness to meet and confer
14   with Mr. Beall by telephone, but asking for more specific
15   information regarding the Debtor’s grievances.    The following
16   morning, Mr. Beall replied by e-mail, providing further details
17   and stating that he planned to telephone Ms. Ferns the next day,
18   Friday, September 27, 2013.
19        What happened next is a matter of some dispute.    Mr. Beall
20   declared that he called Ms. Ferns’ office “within normal business
21   hours” on Friday, September 27th, and left a voice mail.
22   Ms. Ferns stated in her declaration that she did not receive
23   Mr. Beall’s voice mail until Monday, September 30th.    What is
24   undisputed is that at 3:26 p.m. on September 30, 2013, the Debtor
25   filed a motion to compel discovery and for sanctions (“First
26   Motion to Compel”).    Ms. Ferns stated that the First Motion to
27   Compel was filed “before [she] was able to return Mr. Beall’s
28   telephone call[.]”    Mr. Beall retorted that he did not begin

                                       6
 1   working on the First Motion to Compel until Monday morning,
 2   September 30th, and that Ms. Ferns could have called him at any
 3   time before 3:26 p.m.
 4          In the First Motion to Compel, the Debtor argued that the
 5   First Discovery Responses were so inadequate that the bankruptcy
 6   court should treat HP Financial as if it had not responded at
 7   all.    The Debtor requested sanctions, in the form of either
 8   attorney fees or terminating sanctions, i.e., prohibiting
 9   HP Financial from voting against or objecting to the Plan.      In
10   response, HP Financial argued that the First Motion to Compel was
11   procedurally defective, citing Local Bankruptcy Rule
12   (“LBR”) 7026-1.    Under LBR 7026-1, HP Financial argued, Mr. Beall
13   was required to send Ms. Ferns a letter requesting a meeting to
14   resolve the discovery dispute and detailing the discovery order
15   to be sought.    If Ms. Ferns failed to respond within seven days,
16   only then could the Debtor file a motion to compel.    HP Financial
17   also argued that its discovery responses had been sufficient in
18   any event.
19          The bankruptcy court held a hearing on the First Motion to
20   Compel on October 11, 2013.    At the outset of the hearing, the
21   bankruptcy court agreed with HP Financial that the First Motion
22   to Compel was procedurally improper.    Nevertheless, the court
23   proceeded with the hearing in the hope of avoiding delay of the
24   November 14 Plan confirmation hearing.    The bankruptcy court
25   rejected the argument that HP Financial could not obtain records
26   from HP Inc. or Indigo America, because, as counsel for
27   HP Financial conceded, HP Financial and Indigo America are
28   subsidiaries and affiliates of HP Inc.    The bankruptcy court gave

                                       7
 1   HP Financial until November 1, 2013 to supplement its discovery
 2   responses.
 3        After announcing its rulings on the record at the
 4   October 11, 2013 hearing, the bankruptcy court entered an order
 5   on October 31, 2013 (“First Discovery Order”).       In the First
 6   Discovery Order, the bankruptcy court denied the Debtor’s request
 7   for sanctions without prejudice due to the failure to comply with
 8   LBR 7026-1.   Consistent with the bankruptcy court’s oral rulings,
 9   the First Discovery Order stated that HP Financial’s objections
10   were overruled and that HP Financial was required to respond to
11   discovery requests to which it had not already responded
12   satisfactorily.
13        On November 14, 2013, HP Financial filed a motion to alter
14   or amend the First Discovery Order (“First Motion to Alter”).
15   HP Financial requested alteration of the First Discovery Order
16   based on purportedly new evidence on two points:
17        (1)   HP Financial could not search its files by asset,
18   making it impossible to find previous leases of equipment similar
19   or identical to the Indigo 5500.       In an attached declaration,
20   HP Financial’s representative Cindy Roebuck asserted that
21   HP Financial had entered into some 62,000 lease agreements in
22   North America since July 2013.   Ms. Roebuck stated that it would
23   take “thousands of hours” for HP Financial to find the requested
24   documents.
25        (2)   HP Financial did not have custody or control over
26   documents belonging to HP Inc. or Indigo America.       Ms. Roebuck
27   declared that HP Financial was a subsidiary of HP Inc., but
28   nevertheless Ms. Roebuck had received no response to her efforts

                                        8
 1   at communication with HP Inc.
 2        Due to HP Financial’s failure to comply with the bankruptcy
 3   court’s calendaring procedures, the First Motion to Alter was not
 4   set for hearing.
 5   The Second Motion to Compel
 6        Three days after the hearing on the First Motion to Compel,
 7   the Debtor served HP Financial with a second set of
 8   interrogatories and requests for production of documents.    The
 9   Debtor requested all invoices and other communications between
10   and among HP Financial, HP Inc. and Indigo America regarding
11   HP Financial’s acquisition of the Indigo 5500, as well as all
12   accounting documents regarding the Debtor’s account.
13        The November 1 deadline came and went without any additional
14   responses by HP Financial.    On November 12, 2013, HP Financial
15   submitted supplemental responses to the first round of discovery.
16   The supplemental responses contained some new information, but
17   HP Financial repeated its overruled objections regarding burden,
18   relevance and lack of custody or control of documents and refused
19   to provide substantive responses to most of the requests.    One
20   significant addition was an appraisal of the Indigo 5500
21   performed at HP Financial’s request by an appraiser named Steven
22   Hjelmstrom.    Mr. Hjelmstrom valued the Indigo 5500 at
23   $173,100.00.    On November 15, 2013, HP Financial submitted its
24   responses to the second set of discovery requests.
25        Throughout November, Mr. Beall and Ms. Ferns met and
26   conferred regarding the Debtor’s continuing dissatisfaction with
27   HP Financial’s various discovery responses.    On December 4, 2013,
28   the Debtor filed a second motion to compel discovery and for

                                       9
 1   sanctions (“Second Motion to Compel”).     The Debtor again
 2   requested monetary sanctions and terminating sanctions in the
 3   form of an order deeming HP Financial to have consented to
 4   confirmation of the Plan.
 5        The bankruptcy court held a hearing on the Second Motion to
 6   Compel on January 29, 2014.   After the bankruptcy court overruled
 7   HP Financial’s objections based on burdensomeness and relevance,
 8   counsel for HP Financial explained that, after “months” of
 9   effort, HP Financial had obtained a number of the requested lease
10   agreements with other customers.      After prolonged colloquy, the
11   bankruptcy court ordered HP Financial to comply with “each and
12   every” discovery request, to the extent it had not done so
13   previously.
14        The court entered an order (“Second Discovery Order”)
15   granting the Second Motion to Compel, overruling HP Financial’s
16   objections and requiring HP Financial to respond to all discovery
17   requests.    The Second Discovery Order also required HP Financial
18   to pay the Debtor’s reasonable attorney fees incurred in the
19   filing and prosecution of the First and Second Motions to Compel.
20   The Debtor was to file a declaration setting forth such fees,
21   after which HP Financial would have “two calendar weeks” in which
22   to object.    On February 4, 2014, the Debtor filed a declaration
23   of Mr. Beall (“Fee Declaration”), with an attached itemization of
24   his fees in the amount of $16,965.00.     The court entered an order
25   (“Fee Order”) on February 18, 2014, requiring HP Financial to pay
26   the amount set forth in the declaration.
27        That evening, after the Fee Order had been entered,
28   HP Financial filed an objection to the Fee Declaration.

                                      10
 1   Specifically, HP Financial objected to the inclusion in the Fee
 2   Order of fees incurred in connection with the First Motion to
 3   Compel, the Motion to Alter, the Debtor’s review of discovery
 4   responses, and the Debtor’s motion to continue the confirmation
 5   hearing.
 6        Shortly before midnight the same night, HP Financial filed a
 7   motion to alter or amend the Second Discovery Order (“Second
 8   Motion to Alter”).   HP Financial argued that it was inappropriate
 9   for the Second Discovery Order to impose sanctions that had been
10   requested in the First Motion to Compel but denied in the First
11   Discovery Order.   Under this argument, the bankruptcy court
12   should have awarded sanctions, if at all, only in connection with
13   the Second Motion to Compel.
14        On March 4, 2012, HP Financial filed yet another motion to
15   alter or amend (“Third Motion to Alter”), this time seeking
16   reconsideration of the Fee Order.    For the most part, the Third
17   Motion to Alter raised the same arguments as the Second Motion to
18   Alter regarding the impropriety of the fees requested.    Apart
19   from those matters, however, HP Financial now argued that the Fee
20   Order should be altered because it was entered one day too early.
21   The Beall Declaration was filed on February 4, and the Second
22   Discovery Order provided that HP Financial would have “two
23   calendar weeks” in which to respond; therefore, HP Financial
24   argued, the Fee Order should not have been entered before
25   February 19.   HP Financial asked the bankruptcy court to alter or
26   amend the Fee Order to take into account HP Financial’s
27   objection, which was filed within the allowed two-week period.
28   As with the two previous motions to alter or amend, the Third

                                     11
 1   Motion to Alter was not set for hearing.
 2   The Confirmation Hearing
 3        The bankruptcy court held an evidentiary hearing regarding
 4   confirmation of the Plan (“Confirmation Hearing”).    The
 5   bankruptcy court heard testimony from Mr. Hjelmstrom, the
 6   appraiser who had performed an appraisal of the Indigo 5500 at
 7   HP Financial’s request.    Mr. Hjelmstrom testified consistent with
 8   his report that the value of the Indigo 5500 was $173,100.00.
 9   This was based on a “desktop appraisal,” which means an appraisal
10   based on photographs and interviews rather than physical
11   inspection.   Mr. Hjelmstrom said the valuation he performed was
12   “fair market value in place,” which is higher than other
13   valuations because it takes into account the fact that the
14   equipment is already installed and in use.    Mr. Hjelmstrom
15   explained his process for arriving at a valuation:
16        (1) He began with the selling price of a refurbished unit
17   equivalent to the Indigo 5500.
18        (2) He then reduced that figure to reflect that the Indigo
19   5500 had not been refurbished.
20        (3) He added “in-place costs;” that is, he increased his
21   valuation to account for the fact that the Indigo 5500 was
22   already in place and therefore more valuable than a unit that
23   would require transportation and installation.
24        (4) He considered two forms of obsolescence: functional and
25   economic.   Functional obsolescence is a matter of whether the
26   equipment was functionally out of date.    Economic obsolescence
27   applies when a piece of equipment is non-compliant with
28   applicable regulations and is thus no longer usable.

                                      12
 1   Mr. Hjelmstrom determined that neither of these applied to the
 2   Indigo 5500.
 3        On cross-examination, Mr. Hjelmstrom admitted that he had
 4   not examined the Indigo 5500 or any other presses of that model.
 5   Mr. Hjelmstrom also testified that he had not considered
 6   comparable sales in general or sales by HP Inc. of previously
 7   leased machines in particular; he had investigated only the
 8   asking prices on equipment offered for sale by various sellers.
 9   With regard to the sales by HP Inc., Mr. Hjelmstrom explained
10   that such sales are relevant to “orderly liquidation value,” but
11   irrelevant to determining fair market value in place.
12   Mr. Hjelmstrom further acknowledged that, although the
13   Indigo 5500 was not yet functionally obsolete, the model was no
14   longer in production and would “soon” be a “white elephant.”
15        The bankruptcy court also admitted into evidence a number of
16   exhibits, including a document produced by HP Financial showing a
17   history of sales of Indigo 5500 printers to customers at the end
18   of their lease terms.   For each transaction, this document showed
19   the date on which the lease term had begun, a date labeled “BO,”
20   which all parties agreed stood for “buyout,” and a price also
21   designated “BO.”
22        After argument and colloquy, the bankruptcy court announced
23   its findings of fact and conclusions of law.   The court found
24   that Mr. Hjelmstrom’s appraisal value was too high, and that the
25   better method to determine the value of the Indigo 5500 was to
26   consider the previous lease buyouts.   Considering only the lease
27   buyouts of five-year-old Indigo 5500 presses, the court
28   calculated that the average price was approximately $45,000.     The

                                     13
 1   court then found, based on Mr. Hjelmstrom’s testimony regarding
 2   in-place costs, that the cost to return the equipment under the
 3   Master Agreement would have been $25,000.   In light of these
 4   calculations, the court found that HP Financial could not
 5   reasonably have expected to receive anything more than minimal
 6   value at the end of the term of the Master Agreement.   The court
 7   further found that “it would not make any sense under the
 8   circumstances of this case for the Debtor to pay $25,000 to send
 9   the [Indigo 5500] back rather than $45,000 to keep it.”     On that
10   basis, the court concluded that the Master Agreement was a
11   security agreement under applicable law.    Even though the value
12   of the Indigo 5500 was determined to be $45,000, the bankruptcy
13   court concluded that the Debtor was “stuck with” the $90,000
14   value stated in the Plan.
15        On April 15, 2014, the bankruptcy court entered an order
16   consistent with its rulings at the Confirmation Hearing
17   (“Confirmation Order”).   In addition to confirming the Plan, the
18   Confirmation Order contained language denying HP Financial’s
19   relief from stay motion and the Second and Third Motions to
20   Alter.   HP Financial filed a timely notice of appeal but did not
21   seek a stay of the Confirmation Order pending appeal.   Since the
22   Confirmation Order was entered, the Debtor has proceeded to make
23   payments as required under the Plan.   Among the priority
24   unsecured creditors, some are employees owed vacation time, some
25   of whom elected to take the vacation time in lieu of payment.
26   Other unsecured creditors are customers of the Debtor, some of
27   whom elected to accept payment in kind, in the form of free
28   printing services, instead of cash distributions.

                                     14
 1                                II.    JURISDICTION
 2        The bankruptcy court had jurisdiction under 28 U.S.C.
 3   §§ 1334 and 157(b)(2)(A).          Except as otherwise stated below, we
 4   have jurisdiction under 28 U.S.C. § 158.
 5                                  III.     ISSUES
 6        1.   Whether this appeal is moot insofar as HP Financial
 7   seeks reversal of confirmation of the Plan.
 8        2.   Whether the bankruptcy court erred in finding that the
 9   Master Agreement was in the nature of a security agreement rather
10   than a true lease.
11        3.   Whether the bankruptcy court clearly erred in its
12   valuation of the Indigo 5500.
13        4.   Whether the bankruptcy court abused its discretion in
14   awarding monetary sanctions to the Debtor.
15                          IV.    STANDARDS OF REVIEW
16        We review our own jurisdiction, including questions of
17   mootness, de novo.    Ellis v. Yu (In re Ellis), 523 B.R. 673, 677
18   (9th Cir. BAP 2014).    We review the bankruptcy court’s findings
19   of fact for clear error and its conclusions of law de novo.
20   Bronitsky v. Bea (In re Bea), 533 B.R. 283, 285 (9th Cir. BAP
21   2015).    The bankruptcy court’s imposition of sanctions for
22   discovery abuse is reviewed for abuse of discretion.         Pham v.
23   Golden (In re Pham), 536 B.R. 424, 430 (9th Cir. BAP 2015);
24   Freeman v. San Diego Ass’n of Realtors, 322 F.3d 1133, 1156 (9th
25   Cir. 2003).    We review the bankruptcy court’s decision to confirm
26   a chapter 11 plan for an abuse of discretion.         Marshall v.
27   Marshall (In re Marshall), 721 F.3d 1032, 1045 (9th Cir. 2013).
28        A bankruptcy court abuses its discretion if it applies an

                                            15
 1   incorrect legal standard or misapplies the correct legal
 2   standard, or if its factual findings are illogical, implausible
 3   or unsupported by evidence in the record.    TrafficSchool.com,
 4   Inc. v. Edriver Inc., 653 F.3d 820, 832 (9th Cir. 2011).      Only if
 5   the bankruptcy court did not apply the correct legal standard or
 6   improperly applied it, or if its fact findings were illogical,
 7   implausible, or without support in inferences that can be drawn
 8   from facts in the record, is it proper to conclude that the
 9   bankruptcy court abused its discretion.    United States v.
10   Hinkson, 585 F.3d 1247, 1262 (9th Cir. 2009) (en banc).
11        We may affirm the decision of the bankruptcy court on any
12   basis supported by the record.   See ASARCO, LLC v. Union Pac. R.
13   Co., 765 F.3d 999, 1004 (9th Cir. 2014); Shanks v. Dressel,
14   540 F.3d 1082, 1086 (9th Cir. 2008).
15                              V. DISCUSSION
16   A.   Mootness
17        The doctrine of equitable mootness counsels that an
18   appellate body should dismiss an appeal where “a ‘comprehensive
19   change of circumstances’ has occurred so ‘as to render it
20   inequitable for this court to consider the merits of the
21   appeal.’”   Motor Vehicle Cas. Co. v. Thorpe Insulation Co.
22   (In re Thorpe Insulation Co.), 677 F.3d 869, 880 (9th Cir. 2014)
23   (quoting Trone v. Roberts Farms, Inc. (In re Roberts Farms,
24   Inc.), 652 F.2d 793, 798 (9th Cir. 1981)).    This doctrine exists
25   to protect the finality of bankruptcy decisions, particularly
26   where the rights of third parties are implicated.    Id.   The Ninth
27   Circuit follows a four-step process to determine whether an
28   appeal from an order confirming a chapter 11 plan is equitably

                                      16
 1   moot:
 2              [1] We will look first at whether a stay was
                sought, for absent that a party has not fully
 3              pursued its rights. [2] If a stay was sought
                and not gained, we then will look to whether
 4              substantial consummation of the plan has
                occurred. [3] Next, we will look to the
 5              effect a remedy may have on third parties not
                before the court. [4] Finally, we will look
 6              at whether the bankruptcy court can fashion
                effective relief without completely knocking
 7              the props out from under the plan and thereby
                creating an uncontrollable situation for the
 8              bankruptcy court.
 9   Id. at 881; JPMCC 2007-C1 Grasslawn Lodging, LLC v. Transwest
10   Resort Props., Inc. (In re Transwest Resort Props., Inc.),
11   801 F.3d 1161(9th Cir. 2015).
12        1.    HP Financial’s failure to seek a stay
13        Here, HP Financial did not seek a stay pending appeal and
14   has thus “flunked the first step.”   In re Roberts Farms, Inc.,
15   652 F.2d at 798.   Granted, the Ninth Circuit has not held that an
16   appeal of this sort is always moot if the appellant fails to seek
17   a stay.   See Rev Op Grp. v. ML Manager LLC (In re Mortgs. Ltd.)
18   (“Mortgages I”), 771 F.3d 1211, 1216 (9th Cir. 2014) (noting
19   “tension” in Ninth Circuit authorities concerning this issue).
20   Therefore, consideration of the remaining steps is appropriate.
21        2.    Substantial consummation of the Plan
22        The Code defines substantial consummation as:
23              (A) transfer of all or substantially all of
                the property proposed by the plan to be
24              transferred;
                (B) assumption by the debtor or by the
25              successor to the debtor under the plan of the
                business or of the management of all or
26              substantially all of the property to be dealt
                with by the plan; and
27              (C) commencement of distribution under the
                plan.
28

                                     17
 1   11 U.S.C. § 1101(2).    The transfers of property referred to in
 2   subsection A do not include “payments to creditors in
 3   satisfaction of the debtor’s debts.”       Rev Op Grp. v. ML Manager
 4   LLC (In re Mortgs. Ltd.) (“Mortgages II”), 771 F.3d 623, 628 (9th
 5   Cir. 2014).    Rather, such payments are “distributions” under
 6   subsection C.    Id.   The significance of this distinction is that
 7   payments to creditors must merely have “commenced” for a
 8   reorganization plan to be substantially consummated.
 9        Here, the reorganized Debtor has assumed the business of
10   Alternative Graphics, Inc.    No other transfers of property were
11   proposed by the Plan.    The Debtor has paid all tax claims and one
12   of two administrative claims in full, while its other
13   administrative claim continues to be paid.       The Debtor also has
14   made ongoing monthly payments to its only secured creditor,
15   HP Financial.    Holders of priority claims, all of whom are the
16   Debtor’s employees, have been paid either in full or in kind.
17   General unsecured creditors who elected to receive printing
18   services rather than cash distributions have received those
19   services.    Finally, the first and second semiannual distributions
20   to general unsecured creditors who elected not to receive
21   services in kind have been made.       In short, distributions have
22   commenced, and the plan has been substantially consummated.
23        3.     The third and fourth steps
24        The third and fourth steps of the Thorpe Insulation analysis
25   require us to consider what relief can be accorded if we consider
26   the merits of this appeal.    Step three involves a consideration
27   of the effects on third parties of any available remedy, and step
28   four involves the related question of whether such remedy would

                                       18
 1   create a difficult and essentially unmanageable situation at the
 2   bankruptcy court.   Both of these questions in turn depend on the
 3   nature of the relief that would be available.
 4        To the extent HP Financial takes issue with Plan
 5   confirmation itself, any effective relief that might be granted
 6   would inequitably harm the interests of third parties and would
 7   “knock the props out from under the [P]lan.”    If we reverse
 8   confirmation, there will be no viable way to claw back
 9   distributions that already have been made under the Plan,
10   particularly where employees elected to take vacation time in
11   lieu of payment and where other creditors received payment in
12   kind in the form of free printing services.    Reversal would be
13   both prejudicial to these third parties and unmanageable in the
14   bankruptcy court on remand.    Furthermore, since HP Financial
15   ultimately seeks return of the Indigo 5500, the prospect of any
16   future confirmable plan might be in jeopardy, which would make
17   the situation still more unmanageable for the court and third
18   parties.   For these reasons, we decline to consider setting aside
19   Plan confirmation as equitably moot.7
20
21        7
           We note also the following ambiguous exchange between
22   counsel for HP Financial and the court that took place near the
     end of the Confirmation Hearing, after the court had announced
23   its decision:
24
                MS. FERNS: As it stands, we do not object to
25              the plan. We withdraw our objection.
26              THE COURT:   You withdraw your objection to
27              the plan?

28                                                        (continued...)

                                      19
 1        The same rationale applies to the bankruptcy court’s
 2   determination that the Master Agreement created a security
 3   interest rather than a lease.      If this decision were reversed, it
 4   would not only knock the props out from under the plan by casting
 5   doubt on the Debtor’s right to retain the Indigo 5500, but it
 6   would also upset the plan’s treatment of unsecured creditors by
 7   adding HP Financial’s very large claim for lease payments as an
 8   unsecured claim.     Again, we decline to consider the merits of
 9   this issue as equitably moot.
10        The issue of the valuation of the Indigo 5500, on the other
11   hand, presents a less clear case for mootness.      Were we to remand
12   to the bankruptcy court on this issue, it might be possible to
13   craft relief in the form of modification of the Plan.        The
14   bankruptcy court could simply augment the amount to be paid to
15   HP Financial under the Plan, which would result in a longer
16
          7
17            (...continued)
                  MS. FERNS:   Well, the objection has been –-
18
19                THE COURT:   Okay.

20                MS. FERNS: -- I –- you know, I mean, I –-
                  the Court has determined that it’s not a
21                lease, we’re sticking with the 90,000 -–
22
                  THE COURT:   Okay.
23
                  MS. FERNS:   -- we agree with the plan. . . .
24
25   Hr’g Tr. (Apr. 11, 2014) at 157:17-158:1.
26        At oral argument,    Debtor’s counsel argued that this colloquy
27   provides an additional    ground for affirmance. Because we do not
     consider setting aside    confirmation of the Plan, we do not
28   otherwise address this    argument.

                                        20
 1   duration before the claim is paid off but would have no impact on
 2   distributions to third parties.    Thus, in spite of HP Financial’s
 3   failure to pursue its rights by seeking a stay, we elect to
 4   consider the merits of the valuation issue.
 5        As to the issue of sanctions, no third-party rights are
 6   implicated.   We therefore consider the merits of that issue
 7   below.
 8   B.   Valuation of the Indigo 5500
 9        The proper standard for valuation in this context is
10   replacement value.   Associates Commercial Corp. v. Rash, 520 U.S.
11   953, 956 (1997).   Replacement value is defined as “the cost the
12   debtor would incur to obtain a like asset” for the same use.    Id.
13        The bankruptcy court had before it two kinds of evidence
14   bearing on this question.   The Debtor presented evidence of the
15   prices paid by other customers of HP Financial who had elected to
16   purchase equivalent equipment at the end of their “lease” terms.
17   HP Financial presented evidence of value in the form of expert
18   appraisal testimony by Mr. Hjelmstrom.   The bankruptcy court as
19   trier of fact concluded that the prior lease buyouts provided
20   better evidence of value than the appraisal.   Based on the
21   evidence of the most recent lease buyouts provided, the
22   bankruptcy court determined the value of the Indigo 5500 to be
23   approximately $45,000.   But because the Debtor had already
24   proposed to pay HP Financial $90,000 in the Plan, the bankruptcy
25   court concluded that the Debtor was “stuck with” that amount.
26        An examination of the entire record before the bankruptcy
27   court, including portions of the Confirmation Hearing transcript
28   omitted from HP Financial’s record on appeal, provided evidence

                                       21
 1   to support the bankruptcy court’s value determination.    On cross-
 2   examination, Mr. Hjelmstrom admitted that he had neither
 3   inspected the Indigo 5500 nor considered any of the lease buyouts
 4   presented by the Debtor.    Indeed, Mr. Hjelmstrom stated that he
 5   had not considered any actual sales of equipment similar to the
 6   Indigo 5500 in making his appraisal.    The bankruptcy court
 7   further took issue with Mr. Hjelmstrom’s use of a refurbished
 8   value as the baseline from which he began his analysis.    Although
 9   Mr. Hjelmstrom testified that he reduced the refurbished value by
10   twenty percent to account for the fact that the Indigo 5500 was
11   not refurbished, the bankruptcy court did not clearly err in
12   finding that the value given was still too high, particularly in
13   light of the evidence showing much lower prices obtained from
14   actual sales.    Additionally, Mr. Hjelmstrom acknowledged on
15   cross-examination that the Indigo 5500 was no longer in
16   production, but he made no adjustment to account for the prospect
17   of obsolescence in the future.
18        On this record, we can neither conclude that the bankruptcy
19   court clearly erred in its valuation, nor that the court abused
20   its discretion in confirming the Plan with its provision to pay
21   HP Financial $90,000, plus interest at six percent per annum, for
22   the Indigo 5500.
23   C.   Sanctions
24        The Debtor requested sanctions in both Motions to Compel,
25   and the bankruptcy court awarded sanctions in the form of
26   attorney fees in its Second Discovery Order.    The amount of those
27   sanctions was determined in a separate Fee Order.    HP Financial
28   takes issue both with the imposition of sanctions and with the

                                      22
 1   amount awarded.
 2        1.   Imposition of sanctions was not an abuse of discretion
 3        Civil Rule 37(a)(5), made applicable by Rule 7037, requires
 4   the court to award attorney fees to a movant where a party’s
 5   failure to respond to discovery necessitated a motion to compel.
 6   Such sanctions are not awarded if the moving party resorted to a
 7   motion to compel without first making a good-faith effort to
 8   obtain discovery through ordinary means; if the opposing party’s
 9   nonresponse was substantially justified; or if circumstances
10   otherwise make an award of sanctions unjust.   Civil
11   Rule 37(a)(5)(A).   An evasive or incomplete response to discovery
12   requests is equivalent to a failure to respond.   Civil
13   Rule 37(a)(4).    Absent a motion for a protective order, the fact
14   that a discovery request is objectionable is no excuse for a lack
15   of response.   Civil Rule 37(d)(2).
16        In response to the first round of document requests,
17   HP Financial produced a single document, the Master Agreement
18   itself, which was already in the Debtor’s possession.     Similarly,
19   HP Financial’s responses to Debtor’s first set of interrogatories
20   were largely evasive and incomplete.   In some cases HP Financial
21   simply did not respond, other than to make a boilerplate
22   objection.   After the hearing on the First Motion to Compel, at
23   which the bankruptcy court required additional responses,
24   HP Financial provided no further responses whatsoever by the
25   deadline stated on the record at the hearing and later
26   incorporated into the First Discovery Order.   HP Financial
27   eventually provided supplemental responses, but other information
28   was furnished only after the Second Motion to Compel was filed

                                      23
 1   and the Second Discovery Order was entered.     Still other
 2   information was never provided at all.
 3             a.     The court did not commit reversible error in
 4                    requiring HP Financial to provide documents in the
 5                    custody of HP Inc. and Indigo America
 6        With respect to some of the requested documents and
 7   information, HP Financial has maintained both in the bankruptcy
 8   court and now on appeal that the information, which was held
 9   either by HP Inc. or by Indigo America, was not in the
10   possession, custody or control of HP Financial.
11        In the related context of Civil Rule 45, the Ninth Circuit
12   has held that a party has “control” over documents that it has a
13   legal right to obtain on demand.      In re Citric Acid Litigation,
14   191 F.3d 1090, 1107 (9th Cir. 1999).     The Ninth Circuit stated
15   that its Citric Acid decision was consistent with the decisions
16   of other circuits on this question, including the Third Circuit’s
17   decision in Gerling Int’l Ins. Co. v. Comm’r, 839 F.2d 131 (3d
18   Cir. 1988).    The Third Circuit in Gerling explained that, where a
19   litigating subsidiary acting as the agent of its parent company
20   has access to the parent company’s documents for its own business
21   purposes, the subsidiary cannot deny control for purposes of
22   litigation.    Gerling Int’l Ins. Co., 839 F.2d at 141.   See also
23   Cooper Industries v. British Aerospace Corp., 102 F.R.D. 918, 919
24   (S.D.N.Y. 1984) (“inconceivable” that subsidiary lacked control
25   over parent’s materials relevant to its business of marketing and
26   servicing parent’s aircraft).
27        There is no dispute that both HP Financial and Indigo
28   America are subsidiaries of HP Inc.     The record amply supports

                                      24
 1   the conclusion that HP Financial, as the in-house financing unit
 2   of HP Inc., had access to documents possessed by HP Inc. relating
 3   to the very equipment that HP Financial finances on a daily
 4   basis.   We perceive no error in the bankruptcy court’s decision
 5   to require production by HP Financial of relevant documents in
 6   its affiliates’ possession.
 7        HP Financial does not argue that it suffered any prejudice
 8   or harm as a result of the bankruptcy court’s requirement that
 9   these documents be produced.   Even if we were to hold that this
10   determination by the bankruptcy court was erroneous, the error
11   would be harmless and therefore not reversible.    Van Zandt v.
12   Mbunda (In re Mbunda), 484 B.R. 344, 355 (9th Cir. BAP 2012),
13   aff’d, 2015 WL 1619469 (9th Cir. Apr. 13, 2015) (no reversal for
14   harmless error).
15              b.   The court did not abuse its discretion overruling
16                   HP Financial’s other objections
17        HP Financial also objected to various discovery requests on
18   the grounds that the requested information was not relevant and
19   that the requests were unduly burdensome.    None of these
20   objections was meritorious, and the bankruptcy court did not
21   abuse its discretion in imposing sanctions over HP Financial’s
22   objections.
23        The requested materials were highly relevant to the
24   underlying dispute regarding the nature of the Master Agreement
25   and the value of the Indigo 5500.    The discovery requests at
26   issue sought information regarding similar equipment and similar
27   transactions with other putative lessees.    As noted above, the
28   bankruptcy court properly relied on admitted evidence of this

                                     25
 1   type in making its factual findings.       We perceive no abuse of
 2   discretion in requiring production of this relevant information.
 3        As to the objections regarding burdensomeness, even though
 4   HP Financial never moved for a protective order, the court dealt
 5   with the issue during the hearings on both Motions to Compel.
 6   The bankruptcy court made it clear during colloquy that
 7   HP Financial was not expected to dedicate “thousands of hours” to
 8   locating the requested documents, and that a more modest volume
 9   of production would be acceptable.       HP Financial appears to
10   argue, on appeal as well as before the bankruptcy court, that it
11   should not have been required to produce anything in response to
12   these requests merely because it objected on the grounds of
13   burdensomeness.
14        Civil Rule 26(b)(2)(C), which provides that electronically
15   stored information need not be produced if the responding party
16   shows the information is not “reasonably accessible,” does not
17   support HP Financial’s argument.        HP Financial asserted that the
18   information regarding prior leases was unavailable due to undue
19   burden or cost, but the bankruptcy court did not find this
20   assertion credible.    In fact, at least some of this information
21   ultimately was produced and was presented as evidence at the
22   Confirmation Hearing.      The bankruptcy court did not abuse its
23   discretion in requiring production of this relevant information.
24        2.   The amount of sanctions was not reversible error
25             a.      The bankruptcy court did not abuse its discretion
26                     in awarding attorney fees for both Motions to
27                     Compel
28        LBR 7026-1 requires a party seeking discovery to follow

                                        26
 1   certain procedures before filing a motion to compel.
 2   Specifically, the moving party must first arrange a meeting of
 3   counsel in a good faith effort to resolve any discovery dispute.
 4   Seven days after requesting such a meeting, the moving party may
 5   file and serve a stipulation by the parties explaining the
 6   unresolvable discovery dispute or a declaration of non-
 7   cooperation by the opposing party.     Only then is a party to file
 8   a motion to compel discovery.    LBR 7026-1(c)(3).    Failure of
 9   counsel to cooperate in this procedure is grounds for imposition
10   of sanctions.   LBR 7026-1(c)(4).
11        The Debtor filed the First Motion to Compel without waiting
12   the full seven days after requesting a meeting of counsel and
13   without filing the required stipulation.     Debtor’s counsel argued
14   at that time that his failure to follow the steps set out in
15   LBR 7026-1 was justified, as the Confirmation Hearing was fast
16   approaching and the discovery dispute was unlikely to be resolved
17   in time.   The court, however, concluded that LBR 7026-1 did not
18   permit the imposition of sanctions absent strict compliance with
19   its local rule.   Nevertheless, the denial of the sanctions
20   request was without prejudice.
21        The Second Motion to Compel was filed after meetings of
22   counsel had been arranged and concluded in an effort to resolve
23   the ongoing discovery disputes.     Debtor’s counsel also filed,
24   together with the Second Motion to Compel, a declaration
25   explaining that he had been unable to obtain the cooperation of
26   counsel for HP Financial in preparing the required stipulation.
27   In the Second Discovery Order, the court awarded attorney fees
28   incurred in prosecuting both Motions to Compel.      The original

                                       27
 1   denial, without prejudice, of the sanctions request did not
 2   foreclose this award.    The record before the bankruptcy court was
 3   sufficient to establish not only that HP Financial had failed to
 4   comply with discovery, but also that counsel for HP Financial had
 5   not cooperated reasonably with Debtor’s counsel’s attempts to
 6   resolve the discovery dispute.    The award of sanctions for both
 7   motions did not constitute an abuse of discretion.
 8             b.   Entry of the Fee Order before HP Financial filed
 9                  its objection to the Fee Declaration was not
10                  reversible error
11        Finally, HP Financial argues that the bankruptcy court
12   abused its discretion by entering the Fee Order before the
13   expiration of the objection period following the filing of the
14   Fee Declaration.   According to the Second Discovery Order,
15   HP Financial was to have “two calendar weeks” in which to file
16   any objection to the Fee Declaration.   In fact, the bankruptcy
17   court entered the Fee Order on the fourteenth day after the Fee
18   Declaration was filed.   HP Financial filed an objection to the
19   Fee Declaration later the same day in the evening.
20        Although the Fee Order appears to have been entered
21   technically in violation of the Second Discovery Order, this
22   violation was remedied when the bankruptcy court considered and
23   denied the Second and Third Motions to Alter.   Wade v. State Bar
24   of Arizona (In re Wade), 948 F.2d 1122, 1125 (9th Cir. 1991) (no
25   due process violation when order was entered before response
26   deadline if party had meaningful opportunity to respond in
27   reconsideration motion).   In filing those motions, HP Financial
28   had a meaningful opportunity to raise its objections to the Fee

                                       28
 1   Declaration.   The bankruptcy court considered and rejected these
 2   objections.    We perceive no abuse of discretion in this decision.
 3   Moreover, HP Financial’s arguments regarding the substance of the
 4   Fee Order are so insubstantial as not to warrant further
 5   proceedings before the bankruptcy court.8
 6                              VI. CONCLUSION
 7        Based on the foregoing, because the bankruptcy court did not
 8   clearly err in its valuation of the Indigo 5500, we conclude that
 9   it did not abuse its discretion in approving the Plan provision
10   requiring the Debtor to pay HP Financial $90,000 on its secured
11   claim.   The bankruptcy court’s award of sanctions also was not an
12   abuse of discretion.   We DISMISS AS EQUITABLY MOOT the aspects of
13   the appeal concerning confirmation of the Plan generally and the
14   nature of the Master Agreement.    On the issues of sanctions and
15   the valuation of the Indigo 5500, we AFFIRM.
16
17
18
19
20
21
22
23
24
          8
25         In fact, the Debtor argues, as an alternative basis for
     affirmance, that the bankruptcy court should have imposed
26   terminating sanctions. As no cross-appeal was filed, this issue
27   is not properly before us, but we note that the sanctions
     actually imposed were intermediate between the parties’
28   respective positions.

                                       29