Court Opinion

ID: 4192777
Source: CourtListenerOpinion
Date Created: 2017-08-03 17:02:37.452152+00
Date Added: 2024-06-11T14:40:21.205203
License: Public Domain

FILED
                                                                   FEB 24 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 1                         NOT FOR PUBLICATION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.      CC-15-1180-FCTa
                                   )
 6   CHARLENE M. MILBY,            )      Bk. No.      11-14487-PC
                                   )
 7                  Debtor.        )      Adv. No.     14-01132-PC
     ______________________________)
 8                                 )
     PATRICIA A. TEMPLETON and     )
 9   G. CRESSWELL TEMPLETON, III, )
     individuals on behalf of      )
10   the Bankruptcy Estate of      )
     Debtor Charlene M. Milby, and )
11   derivatively on behalf of     )
     Charlene’s Transportation,    )
12   Inc.,                         )
                                   )
13                  Appellants,    )
                                   )
14   v.                            )      MEMORANDUM*
                                   )
15   JON A. MILBY; D&J TRUCKING    )
     CO.; SANDRA HOLDER MILBY;     )
16   SANJON, INC.; 5TH ST CONDO,   )
     LLC; CHARLENE M. MILBY;       )
17   CHARLENE’S TRANSPORTATION,    )
     INC.,                         )
18                                 )
                    Appellees.     )
19   ______________________________)
20
                    Argued and Submitted on January 21, 2016
21                           at Pasadena, California
22                         Filed – February 24, 2016
23               Appeal from the United States Bankruptcy Court
                     for the Central District of California
24
              Honorable Peter Carroll, Bankruptcy Judge, Presiding
25
26
          *
            This disposition is not appropriate for publication.
27   Although it may be cited for whatever persuasive value it may
28   have (see Fed. R. App. P. 32.1), it has no precedential value.
     See 9th Cir. BAP Rule 8024-1.
 1
 2   Appearances:    Daniel Joseph McCarthy argued on behalf of
                     Appellants Patricia A. Templeton and G. Cresswell
 3                   Templeton, III; Karen L. Grant argued on behalf of
                     Appellees Jon A. Milby, D&J Trucking Company,
 4                   Sandy Holder Milby, Sanjon, Inc., 5th St. Condo,
                     LLC, Charlene M. Milby, and Charlene’s
 5                   Transportation, Inc.
 6
     Before: FARIS, CORBIT**, and TAYLOR, Bankruptcy Judges.
 7
                                INTRODUCTION
 8
          Appellants Patricia A. Templeton and G. Cresswell Templeton,
 9
     III initiated an adversary proceeding on behalf of themselves and
10
     Debtor Charlene M. Milby’s bankruptcy estate to avoid fraudulent
11
     transfers.   Appellees Jon A. Milby, D&J Trucking Company, Sandy
12
     Holder Milby, Sanjon, Inc., 5th St. Condo, LLC, Charlene M.
13
     Milby, and Charlene M. Milby’s wholy-owned company Charlene’s
14
     Transportation, Inc. (“CTI”) moved for summary judgment on the
15
     ground that the claims were untimely by virtue of the two-year
16
     statute of limitations under § 546(a)(1).1   We address the
17
     statute of limitations issue in a separate published opinion.
18
     This memorandum addresses the bankruptcy court’s decision to
19
     grant summary judgment and dismiss portions of the complaint,
20
     with leave to amend, for failure to state claims upon which
21
     relief could be granted.
22
23
          **
            Honorable Frederick P. Corbit, Chief United States
24   Bankruptcy Judge for the Eastern District of Washington, sitting
     by designation.
25
          1
26          Unless specified otherwise, all chapter and section
     references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, all
27   “Rule” references are to the Federal Rules of Bankruptcy
     Procedure, Rules 1001-9037, and all “Civil Rule” references are
28   to the Federal Rules of Civil Procedure, Rules 1-86.

                                      2
 1        We hold that the bankruptcy court did not err in granting
 2   summary judgment and dismissing with leave to amend the claims
 3   based on transfers by people or entities other than the Debtor.
 4                          FACTUAL BACKGROUND2
 5        The factual and procedural background of this case is set
 6   out in our separate published decision.    We will not repeat it
 7   here.
 8                             JURISDICTION
 9        The bankruptcy court had jurisdiction pursuant to 28 U.S.C.
10   §§ 1334, 157(b)(1), and 157(b)(2)(F) and (H).    We have
11   jurisdiction under 28 U.S.C. § 158.
12        As a general rule, “an order dismissing a complaint with
13   leave to amend is not a final, appealable order[.]”    Indian
14   Oasis-Baboquivari Unified Sch. Dist. No. 40 of Pima Cty., Ariz.
15   v. Kirk, 109 F.3d 634, 636 (9th Cir. 1997).    In the present case,
16   however, the appellants gave notice that they would not be
17   amending their complaint and obtained a final judgment of
18   dismissal from the bankruptcy court.    Accordingly, we have
19   jurisdiction to consider this appeal.
20                                 ISSUE
21        Whether the bankruptcy court erred in granting summary
22   judgment and dismissing with leave to amend the First, Second,
23   and Third Claims for Relief to the extent they are based on
24
25        2
            The Templetons’ excerpts of record are incomplete and make
26   reference to certain documents on the bankruptcy court’s docket
     without including the actual document. We have exercised our
27   discretion to review the bankruptcy court’s docket, as
     appropriate. See Woods & Erickson, LLP v. Leonard (In re AVI,
28   Inc.), 389 B.R. 721, 725 n.2 (9th Cir. BAP 2008).

                                     3
 1   transfers by people and entities other than the Debtor (as
 2   alleged in paragraphs 31 through 35 of the complaint) for failing
 3   to state a claim upon which relief may be granted.
 4                            STANDARDS OF REVIEW
 5        We review de novo the bankruptcy court’s decision to grant
 6   or deny summary judgment.    Boyajian v. New Falls Corp.
 7   (In re Boyajian), 564 F.3d 1088, 1090 (9th Cir. 2009).
 8        Similarly, a bankruptcy court’s decision to dismiss a
 9   complaint for failure to state a claim is a question of law that
10   we review de novo.    AlohaCare v. Haw. Dep’t of Human Servs.,
11   572 F.3d 740, 744 n.2 (9th Cir. 2009); Stoll v. Quintanar
12   (In re Stoll), 252 B.R. 492, 495 (9th Cir. BAP 2000).
13        We review for abuse of discretion the denial of a motion for
14   reconsideration.    See N. Alaska Envtl. Ctr. v. Lujan, 961 F.2d
15   886, 889 (9th Cir. 1992).    Under an abuse of discretion standard,
16   a reviewing court cannot reverse unless it has “a definite and
17   firm conviction that the [court below] committed a clear error of
18   judgment” in the conclusion it reached upon a weighing of the
19   relevant factors.    Marchand v. Mercy Med. Ctr., 22 F.3d 933, 936
20   (9th Cir. 1994).
21                                DISCUSSION
22   A.   The court did not err in granting summary judgment on and
          dismissing the First, Second, and Third Claims for Relief to
23        the extent they are based on transfers by non-Debtor
          parties.
24
          The Templetons assert that the bankruptcy court erred by
25
     dismissing without prejudice the First, Second, and Third Claims
26
     for Relief to the extent they are based on paragraphs 31 through
27
     35 of the complaint.    We find no reversible error.
28

                                       4
 1         The Templetons first argue that the bankruptcy court should
 2   not have granted summary judgment on this issue because the
 3   motions for summary judgment were strictly based on the statute
 4   of limitations.   This argument misses three points.
 5        First, a court always has discretion to raise issues sua
 6   sponte, provided that the court gives the parties an adequate
 7   opportunity to address those issues.   See Seismic Reservoir 2020,
 8   Inc. v. Paulsson, 785 F.3d 330, 335 (9th Cir. 2015) (a court may
 9   dismiss claims sua sponte under Civil Rule 12(b)(6), but
10   “must give notice of its sua sponte intention to dismiss and
11   provide the plaintiff with an opportunity to at least submit a
12   written memorandum in opposition to such motion.” (internal
13   citations and quotation marks omitted)); see also Young v.
14   Hawaii, 911 F. Supp. 2d 972, 995 (D. Haw. 2012) (“a court may
15   properly dismiss an action sua sponte, without giving a plaintiff
16   notice of its intention to dismiss and an opportunity to respond
17   if a plaintiff ‘cannot possibly win relief’” (citing Sparling v.
18   Hoffman Constr. Co., 864 F.2d 635, 638 (9th Cir. 1988); Omar v.
19   Sea–Land Serv., Inc., 813 F.2d 986, 991 (9th Cir. 1987))).    In
20   this case, the court saw evident flaws in the complaint and
21   decided to deal with those flaws promptly.   The bankruptcy court
22   gave the parties ample opportunities to respond at the hearing on
23   the motion and in a motion for reconsideration.   We cannot say
24   that the bankruptcy court erred when it decided to “cut to the
25   chase.”
26        Second, the bankruptcy court did not act entirely without
27   prompting.   The Templetons first raised this issue (albeit
28   tangentially) in their opposition to the motions for summary

                                      5
 1   judgment.    The Templetons cannot complain that the court decided
 2   an issue that they raised.
 3        Third, the court addressed the issue because, in order to
 4   decide whether the claims were timely under the limitations
 5   period of § 546(a)(1)(A) (the primary argument of the Appellees’
 6   motion), it had to decide what claims are subject to that
 7   statute.    The Templetons’ first two claims involve alleged
 8   fraudulent transfers under § 544(b) and California Civil Code
 9   §§ 3439.04(a)(1), 3439.04(a)(2) and 3439.05.    Section 544(b)
10   provides that “the trustee may avoid any transfer of an interest
11   of the debtor in property . . . that is voidable under applicable
12   law by a creditor holding an unsecured claim . . . .”    § 544(b)
13   (emphasis added).    The court stated that § 544(b) means that “a
14   trustee may avoid transfers or obligations that could have been
15   avoided by an unsecured creditor under applicable non-bankruptcy
16   law had the bankruptcy case not been filed, provided such a
17   creditor actually exists.”
18        The bankruptcy court pointed out that the transfers alleged
19   in paragraphs 31 through 35 of the complaint were transfers from
20   bank accounts in the name of the non-Debtor defendants.    The
21   bankruptcy court ruled that those transfers “are not subject to
22   avoidance under § 544(b) as fraudulent, either actually or
23   constructively, pursuant to CUFTA [California Uniform Fraudulent
24   Transfers Act] as a matter of law because they do not involve a
25   ‘transfer of an interest of the debtor in property’ by the terms
26   of the complaint.”
27        The Templetons basically agreed that some of their claims
28   were not viable under § 544(b).    Rather, they argued that the

                                       6
 1   complaint adequately stated avoidance claims because it cited
 2   CUFTA, included shareholder derivative claims on behalf of CTI,
 3   and alleged that CTI was an alter ego of the Debtor.     In essence,
 4   the bankruptcy court determined that the Templetons “[could not]
 5   possibly win relief” under those theories, but did not exclude
 6   the possibility that they could state such claims in an amended
 7   complaint.
 8          We agree with the bankruptcy court.   CUFTA does not help the
 9   Templetons, because it only permits a creditor of a debtor to
10   attack a transfer of an interest of the debtor in property, see
11   Cal. Civ. Code § 3439.04 (“A transfer made or obligation incurred
12   by a debtor is voidable as to a creditor . . . if the debtor made
13   the transfer or incurred the obligation” in particular ways.),
14   and the complaint does not allege that the Templetons or the
15   bankruptcy estate of the Debtor are creditors of CTI or the other
16   non-Debtor transferors.    For a similar reason, the shareholder
17   derivative claims are unavailing.     Derivative status allows a
18   shareholder to assert claims belonging to a corporation, such as
19   CTI.    See Quinn v. Anvil Corp., 620 F.3d 1005, 1012 (9th Cir.
20   2010) (“A derivative action is an extraordinary process where
21   courts permit ‘a shareholder to step into the corporation’s shoes
22   and to seek in its right the restitution he could not demand in
23   his own.’” (quoting Lewis v. Chiles, 719 F.2d 1044, 1047 (9th
24   Cir. 1983))).    But only a creditor of a debtor/transferor can
25   seek avoidance of the debtor’s fraudulent transfers.     CTI could
26   not avoid any fraudulent transfers that CTI itself made, and
27   therefore a shareholder asserting derivative claims on behalf of
28   CTI can not avoid such transfers either.     The alter ego claims

                                       7
 1   might provide support, but the bankruptcy court did not err in
 2   deciding that those claims were not adequately alleged.
 3        Therefore, we hold that the court did not err in granting
 4   summary judgment and dismissing with leave to amend the non-
 5   Debtor transfer claims (based on paragraphs 31 through 35).
 6   B.   The Panel will not consider the Templetons’ standing to
          bring a derivative claim on behalf of CTI for the first time
 7        on appeal.
 8        Appellees argue that the complaint did not provide them with
 9   adequate notice that it included a corporate shareholder
10   derivative claim.   They argue that the Templetons lack standing
11   to bring a derivative suit on behalf of CTI.   As such, they state
12   that the Panel “should find that neither Templetons’ stipulation
13   with [the Trustee] nor the order entering it conveyed
14   jurisdiction or standing where none existed under applicable
15   law.”
16        We decline to consider this issue on appeal, as it was not
17   properly raised before the bankruptcy court in the first
18   instance.   As a general rule, “federal appellate courts will not
19   consider issues not properly raised in the trial courts.   An
20   issue only is ‘properly raised’ if it is raised sufficiently to
21   permit the trial court to rule upon it.”   Ezra v. Seror
22   (In re Ezra), 537 B.R. 924, 932 (9th Cir. BAP 2015) (internal
23   citations omitted) (emphasis added).
24        Here, the bankruptcy court noted that Appellees’ argument
25   was beyond the scope of the motion for summary judgment and “not
26   before the court today.”   It stated that the issue “may very well
27   be raised in another motion with – with notice and an opportunity
28   to respond[,]” but the court declined to consider Appellees’

                                      8
 1   argument.
 2        There are no circumstances that would cause us to exercise
 3   our discretion to consider this issue for the first time on
 4   appeal.   See In re Ezra, 537 B.R. at 932-33.   As such, we do not
 5   consider whether the Templetons had standing to bring claims on
 6   behalf of CTI.
 7   C.   The Templetons did not need to amend their complaint before
          filing an appeal.
 8
 9        Appellees argue that the Templetons lack standing to appeal
10   the bankruptcy court’s ruling as to the transfers alleged in
11   paragraphs 31 through 35, because they elected not to amend the
12   complaint.   Appellees urge the Panel to hold that the Templetons
13   waived their right to appeal when they declined to amend.
14        The Ninth Circuit has made clear that the operative question
15   is not whether the plaintiff has chosen to amend the complaint,
16   but whether the lower court has issued a final judgment.    In WMX
17   Technologies, Inc. v. Miller, 104 F.3d 1133 (9th Cir. 1997), the
18   court considered whether it had standing to hear an appeal from
19   an appellant who had been granted leave to amend, but instead
20   filed an appeal without first amending the complaint.    The court
21   concluded that it did not, noting the rule that, “[u]nless a
22   plaintiff files in writing a notice of intent not to file an
23   amended complaint, such dismissal order is not an appealable
24   final decision.   In a typical case, filing of such notice gives
25   the district court an opportunity to reconsider, if appropriate,
26   but more importantly, to enter an order dismissing the action,
27   one that is clearly appealable.”     Id. at 1135-36 (quoting Lopez
28   v. City of Needles, 95 F.3d 20, 22 (9th Cir. 1996)) (emphases

                                      9
 1   added).   The court then clarified that, in the face of
 2   conflicting case law, “a plaintiff, who has been given leave to
 3   amend, may not file a notice of appeal simply because he does not
 4   choose to file an amended complaint.     A further district court
 5   determination must be obtained.”     Id. at 1136.
 6        In the present case, the Templetons both informed the court
 7   of their intention not to amend and obtained a final judgment.
 8   Therefore, the Templetons have the right to appeal the dismissal
 9   of the claims relating to the transfers alleged in paragraphs 31
10   through 35.
11                               CONCLUSION
12        For the reasons set forth above, we conclude that the
13   bankruptcy court did not err in determining that transfers by
14   non-Debtor parties are not subject to § 544(b) and dismissing
15   those claims with leave to amend.     For the reasons set forth in
16   our published opinion, we also hold that the court erroneously
17   applied the doctrine of equitable tolling when it dismissed the
18   Templetons’ remaining claims as untimely under § 546(a)(1)(A).
19   Therefore, we AFFIRM IN PART and VACATE IN PART the bankruptcy
20   court’s orders and REMAND for further proceedings consistent with
21   this memorandum and the accompanying opinion.
22
23
24
25
26
27
28

                                     10