Court Opinion

ID: 4185701
Source: CourtListenerOpinion
Date Created: 2017-07-13 00:01:46.671376+00
Date Added: 2024-06-11T14:39:45.323982
License: Public Domain

FILED
                                                             JUL 12 2017
                                                         SUSAN M. SPRAUL, CLERK
 1                          NOT FOR PUBLICATION            U.S. BKCY. APP. PANEL
                                                           OF THE NINTH CIRCUIT
 2
 3                   UNITED STATES BANKRUPTCY APPELLATE PANEL
 4                             OF THE NINTH CIRCUIT
 5   In re:                        )       BAP No.     AZ-16-1221-BJuL
                                   )
 6   PRM FAMILY HOLDING COMPANY,   )       Bk. No.     13-09026-BKM
     LLC,                          )
 7                                 )
                    Debtor.        )
 8                                 )
                                   )
 9   EL CHILERITO SPICE CO., INC., )
                                   )
10                  Appellant,     )
                                   )
11   v.                            )       M E M O R A N D U M1
                                   )
12   DALE C. SCHIAN, Creditor      )
     Trustee of the PRM Family     )
13   Holding Company, LLC Trust;   )
     PRM FAMILY HOLDING COMPANY,   )
14   LLC; UNITED STATES TRUSTEE,   )
                                   )
15                  Appellees.     )
     ______________________________)
16
                      Argued and Submitted on May 18, 2017,
17                              at Phoenix, Arizona
18                             Filed - July 12, 2017
19                Appeal from the United States Bankruptcy Court
                            for the District of Arizona
20
              Honorable Brenda K. Martin, Bankruptcy Judge, Presiding
21
22   Appearances:      Helen K. Santilli argued for appellant El Chilerito
                       Spice Co., Inc.; Elizabeth L. Janczak of Freeborn &
23                     Peters LLP argued for appellee Dale C. Schian,
                       Creditor Trustee of the PRM Family Holding Company,
24                     LLC Trust.
25
     Before:      BRAND, JURY and LAFFERTY, Bankruptcy Judges.
26
27        1
             This disposition is not appropriate for publication.
     Although it may be cited for whatever persuasive value it may
28   have, it has no precedential value. See 9th Cir. BAP Rule 8024-1.
 1        Creditor El Chilerito Spice Co., Inc. ("El Chilerito")
 2   appeals an order correcting the order confirming the joint plan of
 3   liquidation of jointly administered chapter 112 debtors PRM Family
 4   Holding Company, LLC ("PRM Family") and its seven affiliates.3     We
 5   DISMISS because El Chilerito lacks standing to bring this appeal.
 6               I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY
 7   A.   Events leading to the corrective order
 8        1.    Bankruptcy filings, joint plan and confirmation order
 9        On March 28, 2013, PRM Family and its seven affiliates filed
10   eight chapter 11 bankruptcy cases in Arizona.   The cases were
11   jointly administered under the first filed case, PRM Family
12   (collectively, "Debtors"); an official joint committee of
13   unsecured creditors ("Committee") was appointed.
14        Debtors and the Committee (together "Plan Proponents") filed
15   their Joint Plan of Liquidation Dated December 30, 2014 ("Joint
16   Plan").   Section 7.1 of the Joint Plan — Substantive Consolidation
17   of Estates — provided that the forthcoming confirmation order
18   would "contain one or more provisions substantively consolidating
19   the Estates (defined as the estates of all eight Debtors) into the
20   Estate of PRM Family[.]"   See Section 7.1.1.   That section further
21   provided, among other things, that all debts of the Debtors would
22   be substantively consolidated upon the Effective Date.
23
24
          2
             Unless specified otherwise, all chapter, code and rule
25   references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and
     the Federal Rules of Bankruptcy Procedure, Rules 1001-9037.
26
          3
             The other debtors are Prodigio Mercado, LLC; Pro's ABQ
27   Ranch Markets, LLC; Pro's ELP Ranch Markets, LLC; Pro's ELP Ranch
     Markets Beverage Company, LLC; Pro's & Son's, LLC; Provenzano's,
28   LLC; and Pro’s Ranch Markets (CA), LLC.

                                     -2-
 1        Section 7.2 of the Joint Plan — Vesting of Assets — provided,
 2   in relevant part:   "On the Effective Date, assets of the Estates
 3   (including . . . all Causes of Action) will be transferred to and
 4   vest in the Creditor Trust (defined as the trust established for
 5   the benefit of certain creditors) and be deemed contributed
 6   thereto, subject to the terms of the Plan."    Thus, according to
 7   this section, the avoidance actions that were later filed against
 8   El Chilerito and others would transfer to the Creditor Trust on
 9   the Effective Date.
10        Sections 5.1.1, 5.2.1, 5.3.1 and 5.7 of the Joint Plan
11   (regarding treatment of certain claims) each contained language
12   stating:   "In accordance with the Creditor Trust Agreement, the
13   Creditor Trust Assets (defined as the assets of all eight Debtors)
14   will be transferred to the Creditor Trust no later than seven (7)
15   days after entry of the Confirmation Order."   These sections
16   indicated that the avoidance actions would be transferred to the
17   Creditor Trust within 7 days of the confirmation date, not on the
18   Effective Date as stated in Section 7.2 of the Joint Plan.
19        Section 7.10 of the Joint Plan — Case Administration —
20   provided that attorney Dale Schian, former counsel for the
21   Committee, was to be appointed as Creditor Trustee and that on the
22   "Effective Date" would possess the rights of the Debtors for all
23   matters, including standing to file the avoidance actions.
24        Finally, Section 10.3 of the Joint Plan — Retention of
25   Jurisdiction — provided that the bankruptcy court retained
26   jurisdiction to "correct[] . . . any defect and the curing of any
27   omission or inconsistency in the Plan or Confirmation Order as may
28   be necessary to carry out the purposes and intent of the Plan."

                                     -3-
 1           El Chilerito, a Class 1 creditor, voted in favor of the Joint
 2   Plan.
 3           The bankruptcy court entered the Confirmation Order for the
 4   Joint Plan on April 13, 2015.      Notably, the Confirmation Order did
 5   not include a provision for substantive consolidation of the
 6   jointly administered estates.      However, it did provide that upon
 7   confirmation "all of the assets of the Debtors" would "immediately
 8   be transferred to the Creditor Trust."      Thus, contrary to the
 9   Joint Plan, the Confirmation Order provided that the Debtors'
10   assets would transfer immediately to the Creditor Trust, not
11   within 7 days after confirmation or on the Effective Date.4
12           The Confirmation Order also approved the Creditor Trust
13   Agreement, which was attached to the Confirmation Order as its
14   Exhibit A.      Contrary to the Confirmation Order but consistent with
15   portions of the Joint Plan, the Creditor Trust Agreement provided
16   that:       "Within seven (7) days of the Effective Date, the Debtors
17   shall transfer the Creditor Trust Assets to the [Creditor] [T]rust
18   . . . ."      However, the Creditor Trust Agreement also stated that,
19   if any of its terms or provisions conflicted with the terms and/or
20   provisions of the Joint Plan or Confirmation Order, the Joint Plan
21   and Confirmation Order governed.      Unfortunately, those two
22   documents had inconsistencies within them and between them.
23           About six weeks postconfirmation, Creditor Trustee and all
24   eight Debtors entered into an Assignment Agreement which
25   transferred, assigned, conveyed and delivered to the Creditor
26   Trust all of Debtors' rights, title and interests in the Creditor
27
             4
             The Effective Date did not occur until March 18, 2016,
28   nearly one year after confirmation.

                                         -4-
 1   Trust Assets.     The Assignment Agreement provided that, in the
 2   event of any conflict or inconsistency between its terms and the
 3   Joint Plan and Confirmation Order, the Joint Plan and Confirmation
 4   Order prevailed.     The Assignment Agreement was not filed with the
 5   court until March 22, 2016, after the dispositive motion,
 6   discussed below, had been filed.
 7        2.      The adversary proceedings and dispositive motion
 8        On May 27, 2015, just two days before the statute of
 9   limitations was to run, Creditor Trustee on behalf of the Creditor
10   Trust filed adversary complaints against El Chilerito and others,
11   seeking to avoid and recover preferential transfers under § 547
12   and § 550.     The caption of the complaint against El Chilerito
13   named the Debtors as "PRM Family Holding Company LLC, et al."
14   Creditor Trustee was named as the plaintiff.     The complaint stated
15   that it applied to "All Debtors."
16        El Chilerito moved for summary judgment on Creditor Trustee's
17   avoidance action, alleging that the bankruptcy court lacked
18   subject matter jurisdiction because the complaint failed to name
19   the proper debtor.     El Chilerito claimed it had not engaged in any
20   business with PRM Family; rather, it had done business only with
21   affiliate Pro's Ranch Markets, LLC, which was not the named
22   debtor.   Further, naming Creditor Trustee as plaintiff for just
23   PRM Family failed to invoke the court's jurisdiction because
24   PRM Family had no preference claims against El Chilerito.       In
25   short, El Chilerito argued that, because the Debtors' estates had
26   not been substantively consolidated, PRM Family could not bring
27   preference claims belonging to other Debtors which may hold such
28   claims.

                                       -5-
 1        In opposition, Creditor Trustee contended the Joint Plan
 2   clearly contemplated substantive consolidation of the Debtors'
 3   estates, but through a simple oversight, the Confirmation Order
 4   did not contain a substantive consolidation provision; Creditor
 5   Trustee was filing a motion to correct retroactively that
 6   omission.   Creditor Trustee argued that, with retroactive
 7   substantive consolidation of the Debtors' estates into the
 8   PRM Family estate, PRM Family was the proper case in which to file
 9   the adversary complaints.
10        The bankruptcy court denied El Chilerito's motion for summary
11   judgment.   Recognizing the conflicts between and among the Joint
12   Plan, the Confirmation Order, the Creditor Trust Agreement and the
13   Assignment Agreement as to the timing of the asset transfer to the
14   Creditor Trust, the court determined that the Confirmation Order,
15   which was a final order and enforceable, controlled.   The court
16   found that because Debtors' assets, including the avoidance
17   actions, were properly transferred to the Creditor Trust upon
18   confirmation, Creditor Trustee had standing to bring the avoidance
19   actions against El Chilerito (and the other defendants) when he
20   filed his complaints on May 27, 2015.
21        The court also determined that the adversary complaints were
22   properly captioned.   In reviewing the Joint Plan and the Creditor
23   Trust Agreement, which the court opined were "not models of
24   clarity," it found that the Creditor Trust arose in the PRM Family
25   case and that Creditor Trustee was charged with acting on behalf
26   of the consolidated creditors.   The jointly administered Debtors
27   had assigned their causes of action, including the avoidance
28   actions, to the Creditor Trust for Creditor Trustee to pursue.

                                      -6-
 1   The court noted that, although the Joint Plan and Creditor Trust
 2   Agreement granted Creditor Trustee authority over only debtor
 3   PRM Family, this was not an obstacle; the avoidance actions no
 4   longer belonged to any of the other Debtors.5
 5        3.   Motion to amend the Confirmation Order
 6        While the dispositive motions were pending in the avoidance
 7   actions, Creditor Trustee moved to amend the Confirmation Order
 8   retroactive to April 13, 2015, to include a provision
 9   substantively consolidating Debtors' estates into the estate of
10   PRM Family ("Motion to Amend").    As former counsel for the
11   Committee, Creditor Trustee had assisted in drafting the Joint
12   Plan and Confirmation Order.   He asserted that the substantive
13   consolidation provision was not intentionally omitted from the
14   Confirmation Order; it was merely an oversight.
15        El Chilerito opposed the Motion to Amend, raising arguments
16   that were later rejected by the court in the orders denying the
17
18        5
             In addition to El Chilerito's summary judgment motion,
     defendants GH Dairy and Shamrock had moved to dismiss the Creditor
19   Trustee's avoidance actions against them. As part of the court's
     ruling on those dispositive motions, the court noted that, to the
20   extent corrective action was needed to state that all debts were
     consolidated into the PRM Family estate, it could amend the
21   Confirmation Order for that purpose. Accordingly, because the
     Confirmation Order was inconsistent with the Joint Plan, which
22   appeared to the court to have been an oversight by both the court
     and Plan Proponents, the court further ordered that the
23   Confirmation Order was corrected and amended to contain a
     provision substantively consolidating the debts of the jointly
24   administered Debtors into the estate of PRM Family.
25        Following comment from defendant GH Dairy, the court agreed
     that, insofar as the orders denying the dispositive motions
26   contained a determination that the Confirmation Order was amended
     to correct an omission, such correction should be reflected in a
27   separate order entered in the administrative case. That is what
     led to the sua sponte corrective order entered on July 1, 2016,
28   which is the subject of this appeal.

                                       -7-
 1   dispositive motions as noted above.6
 2        On July 1, 2016, without a hearing, the bankruptcy court
 3   entered the Order Correcting Joint Plan of Liquidation Dated
 4   December 30, 2014 as Amended ("Corrective Order").   Despite the
 5   consolidation language in Section 7.1.1 of the Joint Plan, it was
 6   not clear to the court whether substantive consolidation of all
 7   debts and assets were intended, or merely debt consolidation.
 8   Ultimately, the court found that the consolidation of debts was
 9   anticipated and material to the Joint Plan and "was omitted in
10   error by the Plan Proponents who prepared the Confirmation Order
11   and the Court that signed it."   Order (July 1, 2016) 2:9-10
12   (emphasis in original).
13        Therefore, based on its "inherent authority" to correct
14   mistakes or omissions, citing Wiersma v. Bank of the West
15   (In re Wiersma), 483 F.3d 933, 939 (9th Cir. 2007), the bankruptcy
16   court sua sponte corrected the Confirmation Order to conform with
17   Section 7.1.1 of the Joint Plan and amended that order to provide,
18
19        6
             Specifically, El Chilerito argued: (1) amending the
     Confirmation Order to substantively consolidate the estates would
20   adversely affect the rights of the parties to the jointly
     administered cases; (2) the Joint Plan could not be amended by
21   Creditor Trustee; (3) Creditor Trustee did not gain power over the
     avoidance actions until the Effective Date — March 18, 2016 — when
22   the Debtors' assets were effectively transferred to the Creditor
     Trust, which was ten months after he filed the avoidance actions;
23   (4) any consolidation contemplated by the Joint Plan in Section
     7.1.1 was limited only to the Debtors' debts, not the assets, as
24   reflected by Section 7.2, which vested the separate assets of each
     estate in the Creditor Trust by assignment without merging them;
25   (5) Creditor Trustee provided no foundation which demonstrated his
     knowledge about what the Debtors, Committee and others did or did
26   not intend respecting the Confirmation Order's omission of
     substantive consolidation; and (6) the purpose of the Motion to
27   Amend was to allow Creditor Trustee to avoid his negligent errors
     in his "willy nilly" filing of preference actions in the wrong
28   cases and his failure to read the Confirmation Order.

                                      -8-
 1   upon the Effective Date, that the "debts" of the jointly
 2   administered Debtors' estates were substantively consolidated into
 3   the estate of PRM Family.    This timely appeal followed.
 4                               II. JURISDICTION
 5        The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334
 6   and 157(b)(2)(A) & (L).   Our jurisdiction is discussed below.
 7                                 III. ISSUES
 8   1.   Does El Chilerito have standing to appeal the Corrective
 9   Order?
10   2.   If so, did the bankruptcy court err when it entered the
11   Corrective Order?
12                        IV. STANDARDS OF REVIEW
13        Standing is an issue of law we review de novo.    Palmdale
14   Hills Prop., LLC v. Lehman Comm. Paper, Inc. (In re Palmdale Hills
15   Prop., LLC), 654 F.3d 868, 873 (9th Cir. 2011) ("standing is a
16   necessary component of subject matter jurisdiction.").
17                                V. DISCUSSION
18        El Chilerito lacks standing to appeal the Corrective Order.
19        Creditor Trustee contends that El Chilerito lacks standing to
20   appeal the Corrective Order because it has not established that it
21   suffered any harm as a result of the order's entry.7   We agree.
22        "A federal court may exercise jurisdiction over a litigant
23   only when that litigant meets constitutional and prudential
24
25        7
             El Chilerito's brief on appeal focuses primarily on its
     desire to dismiss Creditor Trustee's avoidance action. Whether
26   Creditor Trustee had standing to file that action and whether the
     correct caption was used on the adversary complaint were issues
27   determined in the bankruptcy court's order denying El Chilerito's
     motion for summary judgment. Accordingly, those issues are not
28   properly before us.

                                       -9-
 1   standing requirements."   Veal v. Am. Home Mortg. Servicing, Inc.
 2   (In re Veal), 450 B.R. 897, 906 (9th Cir. BAP 2010) (citing Elk
 3   Grove Unified Sch. Dist. v. Newdow, 542 U.S. 1, 11 (2004)).
 4   "Standing is a 'threshold question in every federal case,
 5   determining the power of the court to entertain the suit.'"      Id.
 6   (quoting Warth v. Seldin, 422 U.S. 490, 498 (1975)).
 7        Bankruptcy appellate standing, or prudential standing, is
 8   narrower than Article III standing.    It requires an appellant to
 9   show that he or she has been "directly and adversely affected
10   pecuniarily" by the bankruptcy court's decision.    In re Palmdale
11   Hills Prop., LLC, 654 F.3d at 874.     The appellant must show that
12   the order on appeal diminished its property, increased its
13   burdens, or detrimentally affected its rights.    Fondiller v.
14   Robertson (In re Fondiller), 707 F.2d 441, 442 (9th Cir. 1983).
15        El Chilerito argues that the Corrective Order effectively
16   altered vested rights and created disparate treatment of parties
17   in interest.   The only "vested rights" identified by El Chilerito
18   are their alleged standing and jurisdictional defenses to the
19   avoidance actions.   The "disparate treatment" it alleges is that
20   those defendants who have settled with Creditor Trustee will be
21   treated differently from the 50-some defendants whose adversary
22   actions are not yet resolved.   El Chilerito does not articulate
23   what that disparate treatment would be.
24        El Chilerito fails to recognize that the Corrective Order,
25   which substantively consolidated only the Debtors' "debts"
26   retroactive to the Effective Date of March 18, 2016, has no
27   possible impact on their rights vis-a-vis the avoidance action.
28   The debt consolidation had no effect on the Creditor Trustee's

                                     -10-
 1   standing8 or the bankruptcy court's subject matter jurisdiction
 2   over the avoidance actions, which were clearly an "asset" of the
 3   Debtors and, ultimately, the Creditor Trust.    We perceive no
 4   adverse change in El Chilerito's rights by the limited amendment
 5   to the Confirmation Order, and El Chilerito has identified no such
 6   impaired rights.   Simply put, our resolution of the order on
 7   appeal will not give El Chilerito the relief it really seeks —
 8   dismissal of Creditor Trustee's avoidance action.
 9        Because we are dismissing the appeal for El Chilerito's lack
10   of standing, we do not reach the issue of whether the bankruptcy
11   court erred by entering the Corrective Order.
12                              VI. CONCLUSION
13        We DISMISS El Chilerito's appeal for lack of standing.
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          8
             The bankruptcy court held in the orders denying the
27   dispositive motions that Creditor Trustee's standing was derived
     from the Confirmation Order and the Assignment Agreement. The
28   Corrective Order does nothing to change that result.

                                     -11-