FILED FEB 25 2016 1 NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK 2 U.S. BKCY.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. NV-15-1096-JuKiD ) 6 3.78 IRISH ACRES, LLC, ) Bk. No. 15-10410-ABL ) 7 Debtor. ) ______________________________) 8 ) 3.78 IRISH ACRES, LLC, ) 9 ) Appellant, ) 10 ) v. ) M E M O R A N D U M* 11 ) INLAND EMPIRE SERVICING ) 12 COMPANY; YVETTE WEINSTEIN, ) Chapter 7 Trustee; SWEENEY ) 13 GOURMET COFFEE, INC.; MARA ) ENTERPRISES; FIRST AMERICAN ) 14 TITLE INSURANCE COMPANY; JAMES) VAHEY, Trustee; KOLSAR & ) 15 LEATHAM, ) ) 16 Appellees. ) ______________________________) 17 Argued and Submitted on February 18, 2016 18 at Las Vegas, Nevada 19 Filed - February 25, 2016 20 Appeal from the United States Bankruptcy Court for the District of Nevada 21 Honorable August B. Landis, Bankruptcy Judge, Presiding 22 _________________________ 23 Appearances: Steven J. Mack of Black & Lobello argued for appellant 3.78 Irish Acres, LLC; Gary C. Milne of 24 Gerrard Cox & Larsen argued for appellee Inland Empire Service Company. 25 26 * 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- 1 Before: JURY, KIRSCHER, and DUNN, Bankruptcy Judges. 2 3 James W. Vahey (Vahey), as the sole trustee of the James W. 4 Vahey Revocable Family Trust (Vahey Trust), filed a chapter 71 5 case on behalf of 3.78 Irish Acres, LLC (Irish Acres) shortly 6 after the bankruptcy court dismissed the first case that he 7 filed on behalf of Irish Acres. Appellee, Inland Empire Service 8 Corporation (Inland), filed a motion to dismiss (MTD), asserting 9 that the Vahey Trust was precluded from filing the second 10 petition based on findings made by the bankruptcy court in 11 connection with its dismissal order in the first case. 12 In the first case, at issue was whether Vahey had authority 13 to file the bankruptcy case as a member or manager of Irish 14 Acres, or as the sole trustee of the Vahey Trust, which was a 15 member. Although Vahey made an offer of proof at a hearing on a 16 MTD in the first case that the Vahey Trust was a majority member 17 of Irish Acres with authority to file the bankruptcy petition, 18 the court denied his request to file a sur-reply and offer 19 evidence regarding that interest. In its later oral ruling, the 20 bankruptcy court found that, based on the record before it, the 21 Vahey Trust held a 50% membership interest in Irish Acres. 22 Therefore, because the Vahey Trust was not a majority member, 23 under Nevada limited liability law it did not have the authority 24 to file the bankruptcy petition without the consent of all the 25 26 1 Unless otherwise indicated, all chapter and section 27 references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and “Rule” references are to the Federal Rules of Bankruptcy 28 Procedure.
-2- 1 members. Vahey did not appeal that ruling and the dismissal 2 order became final. 3 In the second case, the bankruptcy court held that the 4 Vahey Trust was precluded from filing the case under the 5 doctrines of claim and issue preclusion and also found that the 6 case was filed in bad faith. The court entered an order 7 dismissing the case and this appeal followed. For the reasons 8 discussed below, we AFFIRM. 9 I. FACTS 10 A. Prepetition Events 11 Vahey, a medical doctor, associated with Mary Musso (Musso) 12 in making his real estate investments. According to Vahey, 13 under the investment plan, Musso identified parcels of vacant or 14 improved land, identified buyers, and then purchased the land to 15 resell it to the identified buyers at a premium over the 16 purchase price. Under this arrangement, Musso and Vahey were 17 required to put up money to purchase the properties and then 18 split the profits on the projects evenly. Vahey declared that 19 he advanced funds to Musso of approximately $1,200,000 since 20 September 2007. Vahey described himself as a “passive” investor 21 with Musso taking care of the business, closings, and reviewing 22 deeds of trust. One of the parcels involved in the investment 23 plan was the 3.78 acre parcel of vacant land which was purchased 24 by Irish Acres. 25 1. Organization of Irish Acres 26 Musso formed Irish Acres as a limited liability company for 27 the purpose of purchasing the 3.78 acre parcel of vacant land. 28 On July 20, 2009, Irish Acres filed its Articles of Organization
-3- 1 with the Nevada Secretary of State. On the same day, Irish 2 Acres’ Initial List of Manager or Managing Members and 3 Registered Agent was also filed with the Secretary of State, 4 naming Vahey and Mace J. Yampolsky2 as Managers. 5 An operating agreement (OA) governs Irish Acres. The 6 agreement was executed by Vahey on behalf of the Vahey Trust and 7 by Musso on behalf of Sweeney’s Gourmet Coffee (Sweeney’s),3 the 8 two Members of Irish Acres as identified in OA § 2.3. Vahey and 9 Yampolsky were identified as Managers in OA § 5.2. 10 Other relevant sections of the OA include: 11 3. Capital 12 3.1 Initial Capital Contributions. The initial capital contribution of the Member will be made by the 13 Member transferring to the Company the assets or cash described on the attached Exhibit A. 14 3.2 Additional Contributions. Except as otherwise 15 provided in the Act, the Member is not required to contribute additional capital to the Company. But the 16 Member may make additional contributions to the company from time to time as the Member wishes. 17 5. Administration of Company Business 18 5.5 Authority. . . [E]ach Manager is an agent of the 19 Company and has authority to bind the Company in the ordinary course of the Company’s business. In 20 addition, the Manager has authority to engage in any of the following acts. 21 5.5.1 To sell, lease, exchange, mortgage, 22 pledge or otherwise transfer or dispose of all or substantially of the property or 23 assets of the Company. 24 5.7 Powers of Members. The Member, in his capacity 25 2 26 Yampolsky was evidently the attorney who assisted Musso in forming Irish Acres. 27 3 Sweeney’s was an active corporation at the time of Irish 28 Acres’ formation. Musso was its sole owner.
-4- 1 as a member of the Company, is authorized to act on behalf of the Company. 2 7. Dissolution and Winding up 3 7.1 The Company will dissolve on the earlier of the 4 following events: (a) approval of dissolution by the Member or (b) such time as the Company has no members. 5 Neither the dissolution nor bankruptcy of the Member nor the assignment of the Member’s entire membership 6 interest will dissolve the Company. 7 7.2 Following the dissolution of the Company, the affairs of the Company must be wound up by the 8 Managers. If the affairs of the Company are to be wound up, a full account must be taken of the assets 9 and liabilities of the Company, and the assets of the Company must then be promptly liquidated. The 10 proceeds must first be paid to creditors of the Company in satisfaction of all liabilities and 11 obligations of the Company, including, to the extent permitted by law, liabilities and obligations owed to 12 the Member as a creditor. Any remaining proceeds may then be distributed to the Member. Property of the 13 Company may be distributed in kind in the process of winding up and liquidation with the consent of the 14 Member. 15 Exhibit A to the OA shows that each of the two members, the 16 Vahey Trust and Sweeney’s, received a 50% membership interest in 17 Irish Acres in exchange for their capital contributions. It 18 also reflected that the purchase price for the 3.78 acre vacant 19 parcel was $4,950,000, and showed that money deposits Vahey had 20 made for other investment properties in the amount of $1,200,000 21 were transferred to the escrow through which Irish Acres 22 purchased the property. 23 2. Deed of Trust Given to Sweeney’s 24 Yampolsky, acting in his capacity as a manager of Irish 25 Acres, executed a note (Note) secured by a deed of trust against 26 the 3.78 acre parcel, dated September 8, 2009, in the amount of 27 $550,000 in favor of Sweeney’s (Note). His signature on the 28 short form deed of trust and assignment of rents (Deed of Trust)
-5- 1 was notarized on October 6, 2009.4 2 Over a year later, Yampolsky resigned as a manager of Irish 3 Acres by executing a Certificate of Resignation of Officer, 4 Director, Manager, Member, General Partner, Trustee or 5 Subscriber, filed on October 15, 2010 with the Nevada Secretary 6 of State. Vahey was then the only manager of Irish Acres. 7 3. 2011 Lawsuit 8 On October 28, 2011, Vahey and Other Hand, LLC5 filed a 9 lawsuit in the Nevada state court (Case No. A-11-657496-C) 10 against various defendants, including Musso and Yampolsky, 11 alleging 19 causes of action (2011 Lawsuit). It appears that 12 the lawsuit related to alleged fraud committed by the defendants 13 in connection with Vahey’s real estate investments, including 14 Irish Acres. 15 By reason of the 2011 Lawsuit and other litigation 16 involving Musso and/or her entities, Musso and Sweeney’s agreed 17 to reimburse First American Title Insurance Company (First 18 American) for attorneys’ fees and costs which it had incurred 19 due to the litigation. To satisfy some of this debt, Sweeney’s 20 assigned the Note and Deed of Trust executed by Yampolsky as 21 manager for Irish Acres to First American. This assignment was 22 recorded on February 26, 2014. Subsequently, the Deed of Trust 23 was assigned to Inland. This assignment was recorded on 24 March 28, 2014. 25 4 26 The record indicates that Vahey questioned the validity of this Note and Deed of Trust. 27 5 The record does not show the relationship, if any, between 28 Vahey and Other Hand, LLC.
-6- 1 4. Trustee’s Sale 2 On May 13, 2014, Gerrard Cox Larsen, acting as Substituted 3 Trustee under the Deed of Trust, sent a letter to Irish Acres, 4 c/o James Vahey, M.D., notifying him of Irish Acres’ default 5 under the terms of the Note and Deed of Trust. The letter was 6 followed by a Notice of Default and Election to Sell that was 7 recorded on May 20, 2014, and Notice of Trustee’s Sale recorded 8 on October 1, 2014. The trustee’s sale was set for October 23, 9 2014. Vahey filed a motion for temporary restraining order and 10 preliminary injunction in the Nevada state court, seeking to 11 stop the sale. The state court denied the motion. At the 12 hearing on this matter, the Panel was informed that a 13 foreclosure sale had taken place. 14 5. Appointment of Receiver of Sweeney’s 15 In a separate lawsuit initiated by First American against 16 Sweeney’s in the Nevada state court, First American moved for 17 the appointment of a receiver. The state court granted the 18 motion, finding that First American met the statutory 19 requirements for the appointment of a receiver and that, as a 20 judgment creditor of Sweeney’s, was entitled to protect its 21 interest in Sweeney’s sole asset, Irish Acres. 22 B. Bankruptcy Events 23 1. The First Case 24 On October 24, 2014, Vahey filed a voluntary chapter 7 25 bankruptcy petition on behalf of Irish Acres (First Case) after 26 the state court injunction was denied and to stop the 27 foreclosure sale, based upon his authority as the manager of the 28
-7- 1 company.6 The corporate ownership statement filed on 2 October 24, 2014, by Irish Acres with its voluntary petition 3 identifies Sweeney’s as owning 10% or more of Irish Acres, but 4 an amended voluntary petition filed on November 8, 2014, 5 included a corporate ownership statement that omitted Sweeney’s 6 interest. Therefore, Vahey represented that Sweeney’s 7 membership interest was less than 10% despite Exhibit A to the 8 OA which showed that Sweeney’s held a 50% membership interest in 9 Irish Acres. 10 On December 2, 2014, Inland filed the MTD challenging 11 Vahey’s authority to commence Irish Acres’ bankruptcy as a 12 manager. Inland argued that under OA § 7.1 and Nevada Revised 13 Statutes (NRS) 86.491 Vahey was not authorized to unilaterally 14 dissolve Irish Acres by filing a bankruptcy petition. That 15 statute, which pertains to the dissolution and winding up of 16 affairs of a limited liability company, states in relevant part: 17 1. A limited-liability company must be dissolved and its affairs wound up: 18 (c) Unless otherwise provided in the 19 articles of organization or operating agreement, upon the affirmative vote or 20 written agreement of all the members[.] 21 Inland further maintained that under OA § 5.5, as a manager, 22 Vahey only had authority to bind the company in the ordinary 23 course of the company’s business and the filing of the 24 6 In the schedules, Vahey listed the raw land owned by Irish 25 Acres with a value of $1,520,000 and listed creditors, including 26 Inland, with secured claims against the property with $0.00 value. The Statement of Financial Affairs showed that Irish 27 Acres had no income and Schedule F listed Vahey as having an unsecured claim which was unliquidated in connection with a 28 pending state court action.
-8- 1 bankruptcy case was not in the ordinary course of business. 2 Therefore, since Vahey did not have the affirmative vote of all 3 the members to dissolve and wind up the affairs of Irish Acres 4 and, as manager, was not authorized to file the petition on 5 behalf of Irish Acres, dismissal was proper. 6 Vahey opposed, arguing that under the OA he had authority 7 to file the bankruptcy case on behalf of Irish Acres in at least 8 three ways: as a member, as a manager, and as the sole trustee 9 of the Vahey Trust. Relying on OA § 5.7 which states, “The 10 Member, in his capacity as a member of the Company, is 11 authorized to act on behalf of the Company,” Vahey asserted that 12 as an individual holding a membership interest in Irish Acres, 13 he was authorized to act on its behalf without any restriction. 14 Since the use of the word “member” in this section was used in 15 the singular, Vahey argued that it should be construed as being 16 singular, citing TIG Specialty Insurance Co. v. Pinkmonkey.com 17 Inc., 373 F.3d 365, 375 (5th Cir. 2004). Vahey also asserted 18 that while “Inland disputes that Dr. Vahey is a Member of the 19 [Irish Acres], substantial evidence exists to the contrary. 20 Specifically, Dr. Vahey had contributed over $1.2 million 21 dollars into [Irish Acres’] business.”7 22 Next, because Vahey was designated as a manager of Irish 23 Acres under the OA, he maintained that he was authorized to bind 24 the company with respect to matters outside the ordinary course 25 of business as demonstrated by OA § 5.5.1. That section gave 26 7 27 Recall that § 2.3 of the Operating Agreement clearly stated that the Vahey Trust was a member and not Vahey in his 28 individual capacity.
-9- 1 managers authority to engage in any of the following: “To sell, 2 lease, exchange, mortgage, pledge or otherwise transfer or 3 dispose of all or substantially all of the property or assets of 4 the Company.” Moreover, contrary to Inland’s assertion, Vahey 5 argued that OA § 7.1 regarding the dissolution and winding up of 6 Irish Acres’ business was not applicable. 7 Finally, Vahey argued that the Vahey Trust had authority to 8 institute the bankruptcy case as a member and reiterated his 9 position that OA § 5.7 evidenced an intent to vest powers in 10 each member individually. “In other words, rather than 11 unanimous consent under NRS 86.491(1)(c) (which related to 12 dissolution and winding-up), the [OA] vested authority in each 13 member to authorize bankruptcy filings rather than require 14 unanimous consent.” Therefore, Vahey suggested that he could 15 amend the bankruptcy petition to conform to his authority by 16 signing it in his capacity as the sole trustee of the Vahey 17 Trust, an undisputed member. 18 In reply, Inland argued that Nevada law placed the 19 management of all actions of a limited liability company in the 20 hands of its members in proportion to their contribution to its 21 capital under NRS 86.291. NRS 86.291 provides in relevant part: 22 1. Except as otherwise provided in this section or in the articles of organization or operating agreement, 23 management of a limited-liability company is vested in its members in proportion to their contribution to its 24 capital, as adjusted from time to time to reflect properly any additional contributions or withdrawals 25 by the members. 26 Relying on NRS 86.291, Inland argued that since the Vahey Trust 27 and Sweeney’s each owned 50% of Irish Acres, the actions of 28 Irish Acres must be approved by each of the members. Inland
-10- 1 maintained that any authority not specifically provided to the 2 manager in the OA remained in the hands of the members under 3 NRS 86.291. 4 Inland acknowledged that the OA was ambiguous by the 5 interchangeable use of the terms “member” and “members,” but 6 asserted that although the agreement used the term “member,” 7 this did not mean that only one member’s consent was required to 8 take an action. Rather, Inland opined that “it was clear” that 9 both terms “member” and “members” referred to “all members of 10 the Company” because OA § 2.3 identified two members, the Vahey 11 Trust and Sweeney’s. Inland pointed out other provisions in the 12 OA which confirmed a plural “members” construction and 13 interpretation: 14 1.6 Title to Assets . . . The Members8 do not have any right to the assets of the Company; 15 4.1 Profits and Losses. The entire net profit or net 16 loss of the company for each fiscal year will be allocated to the Members . . . .; 17 4.2 Distributions. Distributions shall be give to 18 members . . . . ; 19 5.3 Election and Term. The Members must elect a successor Manager . . . .; 20 5.4 Resignation and Removal. A Manager may resign at 21 any time by delivering a written resignation to the Members. 22 23 In conclusion, Inland argued that the ambiguity caused by the 24 interchangeable use of the terms “member” and “members” simply 25 meant that there was no specific grant of authority in the OA to 26 27 8 Sometimes the words member or members is capitalized and 28 other times it is not.
-11- 1 file a bankruptcy. 2 On January 7, 2015, the bankruptcy court heard oral 3 argument. Inland repeated its arguments that under the OA 4 there was no clear authorization for a single member or the 5 manager to place Irish Acres in bankruptcy. Rather, the 6 authority would have to be granted by all the members of the LLC 7 prior to the commencement of the case under NRS 86.291. Vahey 8 argued that the OA was clear in its distinctions between a 9 member or members and that under OA § 5.7, the Vahey Trust, in 10 its capacity as a member of the company, was authorized to act 11 on behalf of the company without restrictions. He further 12 argued that under NRS 86.291, management power was vested in 13 proportion to membership interests. At that point, the 14 bankruptcy court inquired as to what level of interest the Vahey 15 Trust actually had in Irish Acres. Vahey’s counsel responded 16 that he believed it was over 99%. He then explained that the 17 membership interests had changed over a year ago: 18 They keep citing 50/50, but the documents -- I didn’t think that was really relevant to this particular 19 issue, if you look at the [OA] under [§] 5.7 where it says ‘a member.’ It’s very specific that a member may 20 take any action, so we didn’t really believe that the percentage would be relevant, but we can get that to 21 your court. That was actually brought up for the first time in the reply, Your Honor. If you need a 22 sur-reply or need additional information, we can provide the exact percentage of ownership. 23 24 The court responded: “I have a different way I’ll go at it, but 25 I appreciate the information, counsel.” 26 Later in the hearing, Inland argued that there was no 27 evidence before the court that showed Irish Acres was owned 28 other than 50/50 by the Vahey Trust and Sweeney’s. Inland
-12- 1 further asserted: (1) Sweeney’s had never given up any of its 2 interest and (2) there was no authority under the OA to take 3 away a membership interest or to dilute a membership interest. 4 The bankruptcy court took the matter under submission.9 5 On January 26, 2015, the bankruptcy court announced its 6 oral ruling. The court first found that Vahey lacked the 7 authority to file the case as “the manager” of Irish Acres. 8 The court found that under OA § 5.5.1, as a manager, Vahey only 9 had the authority to bind the company in the ordinary course of 10 its business and filing a bankruptcy petition was outside the 11 ordinary course of business. In re Avalon Hotel Partners, LLC, 12 302 B.R. 377, 380 (Bankr. Or. 2003) (the filing of a chapter 11 13 petition by an LLC’s manager, without member approval, was not 14 authorized by Oregon law or the LLC’s Operating Agreement as 15 “[a] decision to file for bankruptcy protection is a decision 16 outside the ordinary course of business, even for an entity in 17 dissolution.”). The bankruptcy court further found that no 18 authority for filing the petition existed under the provisions 19 of OA §§ 7.1 and 7.2 relating to the dissolution or winding up 20 of the company. 21 Next, the court found that Vahey did not have the authority 22 to file the bankruptcy case as an individual member and without 23 the full approval of all the members despite the ambiguity of 24 the OA. In this regard, the bankruptcy court noted that Vahey 25 26 9 The court made clear that the only thing that would happen 27 at the later hearing is that the court would issue an oral ruling and that there would not be any additional evidence or discussion 28 between the court and the parties other than appearances.
-13- 1 did not sign any of the papers authorizing the bankruptcy filing 2 in his capacity as a member. The court further found that 3 Exhibit A to the OA identified not one, but two members that had 4 made equal capital contributions and thus Sweeney’s and the 5 Vahey Trust each owned 50% as stated in Exhibit A. Therefore, 6 the court specifically made a factual finding regarding the 7 50/50 membership interests of the two members “based on the 8 record” before it. 9 In addition, the bankruptcy court found that Vahey’s 10 citation to OA § 5.7 to suggest that either member had the 11 unilateral power to file a bankruptcy case was “inconsistent 12 with logic” since one member could exercise that power and the 13 other one would have the same power to immediately dismiss the 14 case. 15 Finally, since there was no specific grant of authority 16 under the OA for a member or manager to place Irish Acres in 17 bankruptcy, the court applied the statutory default rule in 18 NRS 86.291, which required that both members of Irish Acres, 19 having 50/50 interests, would have to approve any action of the 20 company outside the ordinary course of business, including the 21 filing of the bankruptcy case. 22 The bankruptcy court denied Vahey’s request to file an 23 amended corporate resolution substituting the Vahey Trust as 24 authorizing the petition. The court found that the proposed 25 amendment would be futile because modifying the terms of the 26 resolution would not change the underlying facts; i.e., Vahey, 27 as the sole trustee of the Vahey Trust, would still not have the 28 authority as a manager or member to commence the bankruptcy case
-14- 1 on behalf of Irish Acres for the reasons stated. 2 The bankruptcy court entered the order dismissing Irish 3 Acres’ case on January 27, 2015. Vahey did not request 4 reconsideration or seek to amend the bankruptcy court’s findings 5 of fact or conclusions of law nor did he file an appeal from 6 that ruling. The dismissal order in the First Case is a final 7 order. 8 2. The Second Case 9 Two days later, on January 29, 2015, Vahey filed a second 10 petition for Irish Acres. The petition indicated that Irish 11 Acres had not filed a bankruptcy petition within the past eight 12 years, which was not accurate.10 This time, the Resolution of 13 Members Authorizing Bankruptcy Filing 3.78 Irish Acres, LLC, 14 stated that Vahey and the Vahey Trust “are the majority members” 15 of 3.78 Irish Acres and thus, under NRS 86.291, their majority 16 interest authorized them to commence the bankruptcy case on 17 behalf of Irish Acres. The Corporate Ownership Statement 18 accompanying the petition stated that no entity directly or 19 indirectly owned 10% or more of the equity.11 20 Shortly after, Inland filed its MTD the second case and 21 request for sanctions. Inland argued that the doctrines of 22 claim preclusion and issue preclusion applied for purposes of 23 dismissal and that all elements for each doctrine had been met. 24 10 The record does not make clear the reason Vahey failed to 25 disclose the prior case. 26 11 Since the case was assigned to another judge, Inland 27 filed a notice of related case and request for reassignment of the case to Judge Landis pursuant to Local Bankruptcy Rule 1015. 28 The case was then reassigned to Judge Landis.
-15- 1 Inland further asserted that sanctions were appropriate pursuant 2 to the bankruptcy court’s inherent powers or under § 105(a) and 3 it requested sanctions in the amount of $5,000. Inland moved 4 for an order shortening time on the MTD, which Vahey and the 5 appointed chapter 7 trustee opposed. The bankruptcy court 6 granted the shortened time motion. 7 In opposition to the MTD, Vahey argued that the bankruptcy 8 court ruled that he lacked authority as a manager of Irish Acres 9 to file the bankruptcy petition and nothing more. Although 10 Vahey acknowledged that the bankruptcy court had found that the 11 two members of Irish Acres were Sweeney’s and the Vahey Trust, 12 each holding a 50% membership interest based upon Exhibit A to 13 the OA, he argued that the court did not have the benefit of the 14 minutes of a meeting conducted in 2013 which changed the 15 ownership interests. According to Vahey, the notice of the 16 meeting was mailed out on June 28, 2013, approximately 90 days 17 prior to the scheduled meeting to be held on September 27, 18 2013,12 and Sweeney’s did not attend. Vahey maintained that, as 19 the minutes of that meeting reflected, OA § 2.2 authorized him, 20 as the sole manager of Irish Acres, to approve and provide for 21 the issuance of additional fractional units to the Vahey Trust, 22 as a result of additional monies provided to Irish Acres for the 23 payment of various expenses. According to the minutes, twenty- 24 six additional ownership units were issued to the Vahey Trust at 25 the meeting for the payment of $2,560 to the Nevada Secretary of 26 12 27 Vahey’s opposition erroneously referred to the meeting as taking place on January 27, 2013, which would have been before 28 the notice of the meeting was sent out.
-16- 1 State to maintain Irish Acres’ valid status. 2 Vahey further argued that the bankruptcy court in its 3 previous ruling found that the OA was ambiguous as to whether a 4 single member alone could file a bankruptcy case and further 5 found that holders of a majority interest in a limited liability 6 company had authority to file a bankruptcy under NRS 86.291. 7 Thus, Vahey asserted that the authorization to file the second 8 petition was “clearly distinguishable” from the prior case 9 “based upon the court’s own ruling.” That is, the Vahey Trust 10 as owner of 96.3% of Irish Acres had the authority to file the 11 bankruptcy petition on its behalf. 12 Attached to the opposition was the declaration of Vahey 13 attesting to these facts, a copy of the Notice of Meeting of 14 Managers and Members, and the minutes of that meeting where 15 Vahey, as the sole trustee of the Vahey Trust, was the only 16 member in attendance and whereby he changed the ownership 17 percentages such that the Vahey Trust owned twenty-six units 18 (96.3%) and Sweeney’s owned one unit (3.7%]. Also attached was 19 a copy of an invoice showing that $2,560 had been paid to the 20 Nevada Secretary of State on September 26, 2013. 21 In reply, Inland argued, among other things, that the Vahey 22 Trust had no authority to dilute Sweeney’s membership under the 23 OA or Nevada law. 24 On March 12, 2015, the bankruptcy court heard and ruled on 25 the MTD. The court found that in the context of the first MTD, 26 it decided that Vahey as an individual or as sole trustee of the 27 Vahey Trust did not have the authority to file the bankruptcy 28 case as a manager nor did the Vahey Trust have the authority to
-17- 1 file it as a single member. The court further found that the 2 issue regarding the Vahey’s Trust authority to file the 3 bankruptcy case as a single member was “in no way . . . an issue 4 that was raised only in the reply” (as argued by Vahey). The 5 court found that this issue was squarely before the court and 6 the parties and was argued. “And to the extent there was 7 information that could have had some bearing on that question, 8 it was not presented by way of evidence in the record before the 9 Court in connection with the dismissal order entered in the 10 first case.” 11 The court noted that the evidence should have been 12 presented in the First Case and there was no request to either 13 enlarge or amend the findings of fact or conclusions of law that 14 resulted in the dismissal of the First Case nor was there a 15 request for relief from the judgment or an appeal. The 16 bankruptcy court considered Vahey’s “belated information” 17 regarding his majority ownership “little more . . . than an 18 effort to collaterally attac[k] the prior dismissal order.” 19 After making these findings, the bankruptcy court decided that 20 all elements for claim and issue preclusion were met. 21 In addition, the court found that dismissal was proper on 22 bad faith grounds. Considering the factors13 set forth in Little 23 13 24 These factors include: (1) the debtor has one asset, such as a tract of undeveloped or developed real property; 25 (2) the secured creditors’ liens encumber this tract; (3) there 26 are generally no employees except for the principals; (4) the debtor has little or no cash flow and there are no available 27 sources of income to sustain a plan of reorganization; (5) there are only a few, if any, unsecured creditors whose claims are 28 (continued...)
-18- 1 Creek Development Co. v. Commonwealth Mortgage Corp. (Matter of 2 Little Creek Development Co.), 779 F.2d 1068, 72, 73 (5th Cir. 3 1986), as adopted by the Ninth Circuit in State of Idaho, Dept. 4 of Lands v. Arnold (In re Arnold), 806 F.2d 937 (9th Cir. 1986), 5 the court found all factors were met. Relying on the factors in 6 total, the bankruptcy court found bad faith and that this 7 constituted “cause” for dismissal under § 1112(b)(1).14 In the 8 end, the court analyzed whether conversion or dismissal was in 9 the best interests of the creditors and the estate and concluded 10 that dismissal better met those criteria since there were no 11 unsecured creditors and dismissal would allow Inland to pursue 12 its collection rights. In the exercise of its discretion, the 13 bankruptcy court declined to issue sanctions under § 105(a) or 14 its inherent powers. 15 On March 13, 2015, the bankruptcy court entered the order 16 dismissing the Second Case. On the same date, the order was 17 amended to correct the citation from § 1112(b)(1) to § 707(a)(1) 18 — the applicable dismissal standard in chapter 7 cases. The 19 substance of the court’s legal and factual analysis remained 20 13 (...continued) 21 relatively small; (6) the property has usually been posted for 22 foreclosure because of arrearages on the debt and the debtor has been unsuccessful in defending actions against the foreclosure in 23 state court; (7) alternatively, the debtor and one creditor may have proceeded to a stand-still in state court litigation, and 24 the debtor has lost or has been required to post a bond which it cannot afford; (8) bankruptcy offers the only possibility of 25 forestalling loss of the property and (9) there are sometimes 26 allegations of wrongdoing by the debtor or its principals. 14 27 As indicated below, the bankruptcy court amended its order to cite § 707(a)(1), the applicable dismissal statute in 28 chapter 7 cases.
-19- 1 unchanged. Vahey filed a timely notice of appeal. 2 II. JURISDICTION 3 The bankruptcy court had jurisdiction pursuant to 28 U.S.C. 4 §§ 1334 and 157(b)(2)(O). We have jurisdiction under 28 U.S.C. 5 § 158. 6 III. ISSUE 7 Did the bankruptcy court err in dismissing Irish Acres’ 8 Second Case? 9 IV. STANDARDS OF REVIEW 10 We review rulings regarding the availability of res 11 judicata doctrines, including claim and issue preclusion, de 12 novo as mixed questions of law and fact in which legal questions 13 predominate. Robi v. Five Platters, Inc., 838 F.2d 318, 321 14 (9th Cir. 1988); Alary Corp. v. Sims (In re Assoc’d Vintage 15 Group, Inc.), 283 B.R. 549, 554 (9th Cir. BAP 2002). 16 Once we determine that the doctrines are available to be 17 applied, the actual decision to apply them is left to the trial 18 court’s discretion. Robi, 838 F.2d at 321. Review for abuse of 19 discretion has two parts. First, “we determine de novo whether 20 the bankruptcy court identified the correct legal rule to apply 21 to the relief requested.” U.S. v. Hinkson, 585 F.3d 1247, 22 1261–62 (9th Cir. 2009) (en banc). If so, we then determine 23 under the clearly erroneous standard whether the bankruptcy 24 court’s factual findings and its application of the facts to the 25 relevant law were “(1) illogical; (2) implausible; or 26 (3) without support in inferences that may be drawn from the 27 facts in the record.” Id. at 1262. 28 Because we may affirm on any ground supported by the
-20- 1 record, Shanks v. Dressel, 540 F.3d 1082, 1086 (9th Cir. 2008), 2 we need not discuss every reason supporting the bankruptcy 3 court’s dismissal order. 4 V. DISCUSSION 5 On appeal, Vahey asserts that the doctrines of claim and 6 issue preclusion do not apply since the first dismissal order 7 was based upon the lack of authority by the manager and the 8 Second Case was filed based upon the authority of the Vahey 9 Trust, the member holding a majority of the membership interest. 10 To support his position, Vahey contends that the bankruptcy 11 court erred by ruling that the evidence regarding Vahey’s 12 majority interest should have been presented in the First Case 13 because such evidence was proffered and rejected by the court. 14 He further points out that the issue regarding the percentage of 15 membership interests was raised in Inland’s reply brief. For 16 these reasons, Vahey asserts that the bankruptcy court 17 improperly used the record before it to determine the 50/50 18 membership interests of the Vahey Trust and Sweeney’s in the 19 First Case despite being apprised that the Vahey Trust held a 20 majority position. We are not persuaded by these arguments as 21 to issue preclusion. 22 “The doctrine of issue preclusion prevents relitigation of 23 all ‘issues of fact or law that were actually litigated and 24 necessarily decided’ in a prior proceeding. . . . The issue 25 must have been ‘actually decided’ after a ‘full and fair 26 opportunity’ for litigation.” Robi, 838 F.2d at 322. Under 27 federal law, issue preclusion applies only where it is 28 established that (1) the issue necessarily decided at the
-21- 1 previous proceeding is identical to the one which is sought to 2 be relitigated; (2) the first proceeding ended with a final 3 judgment on the merits; and (3) the party against whom issue 4 preclusion is asserted was a party or in privity with a party at 5 the first proceeding. Hydranautics v. Filtec Corp., 204 F.3d 6 880, 885 (9th Cir. 2000). 7 Here, the issue of Vahey’s or the Vahey Trust’s authority 8 to file the bankruptcy case on behalf of Irish Acres was 9 necessarily decided in the First Case. The issue regarding that 10 authority is identical to the one which Vahey sought to 11 relitigate in the Second Case. The suggestion that Vahey did 12 not have a full and fair opportunity to litigate the issue 13 because the bankruptcy court denied his request to supplement 14 the evidence is without merit. The Vahey Trust’s authority to 15 file the bankruptcy case as a majority member was clearly 16 relevant to the issues litigated and adjudicated in the First 17 Case. 18 Further, Vahey had an opportunity to present the merits of 19 that argument even after the ruling. As noted by the bankruptcy 20 court, Vahey did not seek reconsideration nor did he seek to 21 amend or obtain relief from the court’s ruling regarding its 22 finding on the 50/50 membership interest. Instead, he allowed 23 the dismissal order in the First Case to become final. It makes 24 no difference that the dismissal order was based on an erroneous 25 factual finding or understanding of the law, or both. Issue 26 preclusion is concerned with whether the issue was necessarily 27 decided in the first proceeding and whether there is a final 28 judgment.
-22- 1 As to the third element for issue preclusion, there is no 2 question that Vahey was a party in the First Case. Accordingly, 3 the bankruptcy court’s prior determination that Vahey or the 4 Vahey Trust did not have the authority to file the bankruptcy is 5 conclusive. 6 In sum, the bankruptcy court did not err in ruling that the 7 doctrine of issue preclusion applied to Vahey’s asserted defense 8 to the MTD in the Second Case; i.e., that the Vahey Trust had 9 authority to file the bankruptcy petition on behalf of Irish 10 Acres due to its majority membership interest. Therefore, 11 dismissal of the Second Case was proper. There is nothing in 12 the record that shows the bankruptcy court abused its discretion 13 in applying issue preclusion under these circumstances. Because 14 the doctrine of issue preclusion suffices to dispose of this 15 appeal, we do not consider the bankruptcy court’s other reasons 16 for dismissing the Second Case. See Shanks v. Dressel, 540 F.3d 17 at 1082. 18 VI. CONCLUSION 19 For the reasons stated, we AFFIRM. 20 21 22 23 24 25 26 27 28
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