Court Opinion

ID: 3151815
Source: CourtListenerOpinion
Date Created: 2015-11-04 00:01:19.23907+00
Date Added: 2024-06-11T12:11:50.711143
License: Public Domain

FILED
                                                               NOV 03 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 1                         NOT FOR PUBLICATION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. NC-14-1559-DJuTa
                                   )
 6   SAN JOSE AIRPORT HOTEL, LLC, )       Bk. No. 09-51045
     DBA Holiday Inn San Jose,     )
 7                                 )
                    Debtor.        )
 8   ______________________________)
                                   )
 9   MEYERS LAW GROUP, P.C.,       )
                                   )
10                  Appellant,     )
                                   )
11   v.                            )      M E M O R A N D U M1
                                   )
12   MOHAMMED POONJA, Chapter 7    )
     Trustee; MANOU MOBEDSHAHI,    )
13                                 )
                    Appellees.     )
14                                 )
     ______________________________)
15
                    Argued and Submitted on October 23, 2015
16                        at San Francisco, California
17                          Filed - November 3, 2015
18            Appeal from the United States Bankruptcy Court
                  for the Northern District of California
19
         Honorable Stephen L. Johnson, Bankruptcy Judge, Presiding
20
21   Appearances:     Merle Cooper Meyers argued for Appellant.
22
     Before: DUNN, JURY AND TAYLOR, Bankruptcy Judges.
23
24
25
26        1
            This disposition is not appropriate for publication.
27   Although it may be cited for whatever persuasive value it may
     have (see Fed. R. App. P. 32.1), it has no precedential value.
28   See 9th Cir. BAP Rule 8024-1.
 1        Meyers Law Group, P.C. (“MLG”) served as counsel for the
 2   debtors in two jointly administered chapter 112 cases
 3   (“Chapter 11 Cases”).    After the bankruptcy court converted both
 4   cases to chapter 7, MLG applied for and obtained approval of its
 5   fees and costs earned in the chapter 11 cases.     MLG subsequently
 6   moved the bankruptcy court for a determination that MLG was
 7   entitled to payment of interest on its fees and costs pursuant to
 8   a subordination agreement entered into between MLG and the
 9   debtors’ principal during the Chapter 11 Cases.     The bankruptcy
10   court denied the motion without prejudice to refiling in the
11   event of a change of circumstances.     MLG appealed.   We DISMISS
12   the appeal for lack of jurisdiction.
13                           I.   FACTUAL BACKGROUND
14        San Jose Airport Hotel, LLC, and its affiliate, Mobedshahi
15   Hotel Group (collectively the “Debtors”) filed chapter 11
16   petitions in February 2009.3     Manouchehr Mobedshahi was the
17   principal of both Debtors, and both Debtors were represented in
18   the Chapter 11 Cases by MLG.     On August 25, 2009, the bankruptcy
19   court ordered joint administration of the Chapter 11 Cases.
20   MLG’s employment agreement provided for payment of hourly fees
21
22
          2
            Unless otherwise indicated, all chapter and section
23   references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532.
24   All “Rule” references are to the Federal Rules of Bankruptcy
     Procedure. All "Civil Rule" references are to the Federal Rules
25   of Civil Procedure.
26        3
            We exercise our discretion to take judicial notice of
27   documents filed in the Debtors’ bankruptcy cases and related
     adversary proceedings. See Atwood v. Chase Manhattan Mortg. Co.
28   (In re Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003).

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 1   and reimbursement of costs, with interest to accrue at the rate
 2   of twelve percent per annum.
 3        During the Chapter 11 Cases, Mr. Mobedshahi made a $400,000
 4   loan to the Debtors, secured by a postpetition lien on all of the
 5   Debtors’ assets, including causes of action.   This loan was
 6   governed by a debtor-in-possession loan agreement (“Loan
 7   Agreement”), which granted Mr. Mobedshahi a superpriority
 8   administrative expense claim.   Pursuant to the Loan Agreement, as
 9   approved by the bankruptcy court, Mr. Mobedshahi’s secured claim
10   was to be paid prior to all administrative and other claims with
11   two exceptions.   First, the Loan Agreement acknowledged the
12   priority of a prepetition lien on most of the Debtors’ assets in
13   favor of General Electric Capital Corporation (“GE”).    Second,
14   the Loan Agreement included the following provision regarding
15   subordination (“Subordination Clause”):
16        [T]he liens and security interests of [Mr. Mobedshahi],
          and the superpriority administrative expense claim of
17        [Mr. Mobedshahi], shall be fully and irrevocably
          subordinated to the following: (a) the allowed fees and
18        expenses of professionals retained by [the Debtors in
          the Chapter 11 Cases]; and (b) any fees accruing and
19        payable after the [p]etition [d]ate to the United
          States Trustee pursuant to 28 U.S.C. Section
20        1930(a)(6).
21        The Debtors’ primary asset was the Holiday Inn San Jose
22   hotel, which was subject to GE’s deed of trust.    The Debtors
23   twice attempted to sell the hotel, once to Infinity HI, LLC, and
24   once to Sevak & Sons, L.P.   When these sales ultimately failed,
25   GE sought and obtained relief from the automatic stay to
26   foreclose on the hotel.   The foreclosure sale took place on
27   April 9, 2010, after which the Chapter 11 Cases promptly were
28   converted to chapter 7 on the Debtors’ motion.    Mohamed Poonja

                                      3
 1   (“Trustee”) was appointed chapter 7 trustee for the converted
 2   cases (“Chapter 7 Cases”).
 3        In the Chapter 7 Cases, MLG applied for and obtained
 4   approval of its fees earned and costs incurred in the Chapter 11
 5   Cases.    The bankruptcy court’s order granting the application
 6   (“Fee Order”) directed the Trustee to pay the total amount
 7   requested, $335,129.52,4 from available estate funds, including
 8   any funds subject to Mr. Mobedshahi’s postpetition lien.    The Fee
 9   Order permitted MLG to seek additional amounts “to the extent
10   accruing after October 31, 2010.”
11        The Trustee brought adversary proceedings against Infinity
12   HI, LLC and Sevak & Sons, L.P., alleging various claims arising
13   out of the failed sales.    Infinity HI, LLC eventually paid
14   $175,000 to the estate in settlement of the Trustee’s claim
15   (“Infinity Settlement”), and the Trustee ultimately obtained
16   judgment against Sevak & Sons, L.P. in the amount of $11,648,758
17   (“Sevak Judgment”).    The Sevak Judgment remains on appeal with
18   the United States District Court for the Northern District of
19   California.
20        After the Trustee received the Infinity Settlement, MLG
21   demanded payment of its fees out of the Infinity Settlement
22   proceeds, pursuant to Mr. Mobedshahi’s lien and the Subordination
23   Clause.    MLG prepared a stipulation that would have provided for
24   the payment of interest on MLG’s claim out of funds that
25   otherwise would have been paid to Mr. Mobedshahi on his
26
27        4
            This amount was net of a retainer MLG received during the
28   pendency of the Chapter 11 Cases.

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 1   superpriority administrative expense claim.   The Trustee refused
 2   to sign the stipulation, citing concerns that the estates would
 3   be burdened by interest on MLG’s fees as well as on
 4   Mr. Mobedshahi’s claim.   However, the Trustee did move the
 5   bankruptcy court to permit disbursement of the Infinity
 6   Settlement proceeds to MLG and to the United States Trustee, pro
 7   rata, for allowed fees and costs pursuant to the Subordination
 8   Clause.   The Trustee’s motion did not address whether the payment
 9   to MLG was to be credited to interest or to principal.    The
10   bankruptcy court granted the motion, and the funds were
11   disbursed.
12        On October 15, 2014, MLG filed a supplemental application
13   for compensation (“Supplemental Application”), seeking payment of
14   fees and costs in the combined amount of $20,897.75, which MLG
15   incurred in defending its prior fee application.   Concurrently
16   with the Supplemental Application, MLG filed a document entitled
17   Meyers Law Group’s Motion to Determine Disposition of Collateral,
18   Pursuant to 11 U.S.C. § 725 (“Disposition Motion”).   In the
19   Disposition Motion, MLG requested “an order determining the
20   disposition of present and future collateral encumbered by MLG’s
21   secured claim (by way of subordination of the secured
22   postpetition lender [i.e., Mr. Mobedshahi]).”   MLG argued that
23   the Subordination Clause operated to “trade” the respective
24   priorities of MLG’s and Mr. Mobedshahi’s claims.   Thus, MLG would
25   be entitled to payment of its entire claim, with interest, out of
26   the Infinity Settlement proceeds and ultimately out of the Sevak
27   Judgment before any distribution could be made to Mr. Mobedshahi.
28   In the conclusion of the Disposition Motion, MLG requested “an

                                      5
 1   order directing the disposition of any and all funds that may be
 2   received by the Trustee” to which Mr. Mobedshahi’s lien would
 3   attach, according to the following scheme (“Proposed
 4   Disposition”):
 5             A. First, to MLG and the UST, proportionately, up
          to the lesser of (I) the sum of the UST’s fees and
 6        MLG’s allowed fees and costs . . . plus interest, and
          (ii) Mr. Mobedshahi’s loan balance, including interest
 7        accrual;
               B. Second, to Mr. Mobedshahi, up to the remaining
 8        amount of his loan balance, including interest; and
               C. Third, to Mr. Mobedshahi, up to the amount of
 9        MLG’s allowed fees and costs . . ., without interest
          accrual, plus the amount of the UST’s fees . . . .
10
11        MLG acknowledged that attorney fees ordinarily do not accrue
12   interest except in surplus estates.   In spite of this, MLG argued
13   that the court should order payment of interest on MLG’s attorney
14   fees, as the Proposed Disposition would have no effect on
15   creditors other than MLG and Mr. Mobedshahi.   Since the Proposed
16   Disposition would not increase the aggregate amount of the two
17   claims, there would be no increased burden on the estate.
18        The Trustee filed a joint response to the Supplemental
19   Application and the Disposition Motion.   In his response, the
20   Trustee described his discussions with MLG and his concerns
21   regarding the propriety of paying interest on MLG’s claim.
22   Nevertheless, the Trustee did not oppose the Disposition Motion
23   and “recognize[d] that this issue was between Mr. Mobedshahi and
24   MLG; provided however, there was no adverse impact upon the
25   estate.”   Mr. Mobedshahi did not respond to the Disposition
26   Motion.
27        The bankruptcy court held a hearing on the Disposition
28   Motion and the Supplemental Application (“Hearing”).   At the

                                      6
 1   Hearing, the court announced that it would grant the Supplemental
 2   Application but deny the Disposition Motion.   In colloquy during
 3   the Hearing, MLG’s counsel acknowledged that “there really are no
 4   funds right now.   We’re not - we’re saying if and when there -
 5   there is collateral proceeds . . . it should be paid to us
 6   . . . .”   The court likewise noted that “we’re not in a situation
 7   where there’s enough money to pay everybody, anyway.”   Even with
 8   respect to Mr. Mobedshahi’s secured claim, the court noted that
 9   it was “not clear at this point” whether there would be enough
10   funds in the estate to pay that amount in full.
11        In explaining its rationale for denying the Disposition
12   Motion, the bankruptcy court stated that the bankruptcy estate
13   had no liability for post-petition interest except in a surplus
14   case and that MLG therefore had a claim only for the face amount
15   of its fees and costs.   The court went on to conclude that, if
16   MLG wished to receive interest payments, it would have to seek
17   them from Mr. Mobedshahi rather than from the estate.   With
18   regard to MLG’s argument that payment of interest on its claim
19   would be carved out solely from funds that would otherwise go to
20   Mr. Mobedshahi, the court made the following statements:
21
          I think it’s a nice distinction, but I don’t think it’s
22        a correct result. I think what I have to award is
          nominal fees and that’s what I’m going to award.
23        That’s all that [§] 726(a)(5) allows. . . .
          . . .
24        Your argument is that the [Subordination Clause] and
          the - the retainer agreement that you signed with the
25        estate gives you the right to - to interest. And I
          don’t think that those two provisions trump the Code.
26        . . .
          And I’m telling you that I’m not going to give you an
27        order that says that the proceeds from this estate
          [will] be distributed in that way [i.e., according to
28        the Proposed Disposition]. You are only entitled to a

                                      7
 1        nominal claim . . . .
          . . .
 2        [E]ssentially I think there’s a conflict between the
          statute and the way your subordination and employment
 3        arrangement worked.
 4        After discussing the pending appeal of the Sevak Judgment,
 5   the court told counsel for MLG that MLG was “free to refile the
 6   motion” in the event of a change of circumstances, and added, “at
 7   this stage in the proceedings that’s - that’s actually the way I
 8   think it should play out.”
 9        After the Hearing, the bankruptcy court entered an order
10   denying the Disposition Motion (“Disposition Order”).       The
11   Disposition Order contained the following language:
12        Except as stated in the Court’s oral ruling with
          respect to the accrual of interest, nothing herein
13        shall be deemed to prejudice MLG’s rights and claims
          against the estate herein or against Manouchehr
14        Mobedshahi or any other party under the terms of [the
          Subordination Clause], as described in the
15        [Disposition] Motion.
16   MLG appealed.
17                             II.    JURISDICTION
18        The bankruptcy court had jurisdiction under 28 U.S.C.
19   §§ 1334 and 157(b)(2)(A).       We discuss our jurisdiction below.
20                                   III.   ISSUE
21        Whether we have jurisdiction over this appeal.
22                       IV.     STANDARDS OF REVIEW
23        We can raise issues concerning our own jurisdiction sua
24   sponte, and we address them de novo.       Giesbrecht v. Fitzgerald
25   (In re Giesbrecht), 429 B.R. 682, 687 (9th Cir. BAP 2010).
26                               V.    DISCUSSION
27        Before considering the substance of this appeal, we consider
28   sua sponte whether we have jurisdiction to do so.

                                            8
 1          Unless an appellant requests and receives leave to appeal
 2   from an interlocutory order of the bankruptcy court, we have
 3   jurisdiction only over appeals from final orders.    28 U.S.C.
 4   § 158(b).    A bankruptcy court’s order is final if it “1) resolves
 5   and seriously affects substantive rights and 2) finally
 6   determines the discrete issue to which it is addressed.”      Rosson
 7   v. Fitzgerald (In re Rosson), 545 F.3d 764, 769 (9th Cir. 2008)
 8   (emphasis added).    A final order is one that “clearly evidences
 9   the judge’s intention that it be the court’s final act in the
10   matter.”    In re Giesbrecht, 429 B.R. at 687 (citing Slimick v.
11   Silva (In re Slimick), 928 F.2d 304, 307 (9th Cir. 1990)).
12   Otherwise, the order does not “end any of the interim disputes
13   from which appeal would lie.”    In re Slimick, 928 F.2d at 307
14   n.1.
15          The Disposition Order was not final.   The bankruptcy court
16   stated that MLG was “free to refile” the Disposition Motion
17   should additional funds become available.     The Disposition Order
18   moreover provided that it should “not be deemed to prejudice
19   MLG’s rights and claims against the estate . . . or against
20   Manouchehr Mobedshahi or any other party.”    Although this
21   provision contained an exception regarding the bankruptcy court’s
22   oral statements “with respect to the accrual of interest,” the
23   context of those statements makes clear that the Disposition
24   Order was not intended as the bankruptcy court’s final act in the
25   matter.
26          Indeed, as the bankruptcy court noted and counsel for MLG
27   conceded at the Hearing, at the time the Disposition Motion was
28   filed, the estate did not have sufficient funds to pay even the

                                       9
 1   principal amount of MLG’s claim in full, let alone interest on
 2   that claim.    Under these circumstances, the issue of interest
 3   accrual was not ripe for decision.    See Texas v. U.S., 523 U.S.
4   296, 300 (1998) (claim resting upon “contingent future events
 5   that may not occur” is not ripe for consideration); see also Ray
 6   Charles Foundation v. Robinson, 795 F.3d 1109, 1117 (9th Cir.
 7   2015) (“abstract inquiries” into “speculative” future events are
 8   not ripe).    The Disposition Motion’s lack of ripeness bolsters
 9   our conclusion that the Disposition Order was not, and indeed
10   could not have been, a final order.
11        Having concluded that the Disposition Order was not a final
12   order, we cannot exercise jurisdiction over the appeal unless we
13   grant leave to appeal.    Although MLG did not request leave to
14   appeal, we treat the timely notice of appeal as a motion for
15   leave to appeal.    Rule 8004(d); Roderick v. Levy (In re Roderick
16   Timber Co.), 185 B.R. 601, 604 (9th Cir. BAP 1995).    In
17   determining whether to exercise our discretion to grant leave to
18   appeal, we consider whether the Disposition Order “involve[d] a
19   controlling question of law as to which there is a substantial
20   ground for difference of opinion and whether an immediate appeal
21   may materially advance the ultimate termination of the
22   litigation,” as well as whether refusal to grant leave will
23   result in wasted litigation and expense.    Id. (citing Official
24   Comm. of Unsecured Creditors v. Credit Lyonnais Bank Nederland,
25   N.V. (In re NSB Film Corp.), 167 B.R. 176, 180 (9th Cir. BAP
26   1994)).   Considering these factors in light of the circumstances
27   discussed above, in particular the lack of sufficient funds in
28   the estate, we conclude that it would be inappropriate to grant

                                      10
 1   leave to appeal.
 2                            VI.   CONCLUSION
 3        Based on the foregoing, we conclude that the Disposition
 4   Order was not a final order.   Because we deny leave to appeal, we
 5   lack jurisdiction over the appeal.   We DISMISS.
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