In re: Brennon Ty Bishop and Michelle Bishop

Opinion

FILED AUG 23 2017

1 NOT FOR PUBLICATION 2 SUSAN M. SPRAUL, CLERK U.S. BKCY.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 Nos. CC-16-1341-TaKuL ) CC-16-1342-TaKuL 6 BRENNON TY BISHOP and ) (related)

MICHELLE BISHOP, )

7 ) Bk. No. 2:12-bk-1600-RK Debtors. )

8 ______________________________) Adv. No. 2:12-ap-01302-RK )

9 FEDCHEX, LLC; FEDCHEX )

RECOVERY, LLC; ED ARNOLD; )

10 RODNEY DAVIS, )

)

11 Appellants, )

)

12 v. ) MEMORANDUM* )

13 ELECTRONIC FUNDS SOLUTIONS, )

LLC, )

14 )

Appellee. )

15 ______________________________) 16 Argued and Submitted on June 22, 2017 at Pasadena, California

17 Filed – August 23, 2017

18 Appeal from the United States Bankruptcy Court 19 for the Central District of California 20 Honorable Robert N. Kwan, Bankruptcy Judge, Presiding 21 Appearances: Louis H. Altman of Haberbush & Associates LLP 22 argued for appellants. 23 Before: TAYLOR, KURTZ, and LAFFERTY, Bankruptcy Judges.

24 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(c)(2).

1 INTRODUCTION 2 Thirteen years after litigation commenced and following a 3 thirteen day trial, the bankruptcy court entered judgment 4 largely in favor of defendant-appellants FedChex, LLC, FedChex 5 Recovery, LLC, Ed Arnold, and Rodney Davis. Appellants escaped 6 liability on claims based on alleged fraudulent or preferential 7 transfers. But the bankruptcy court also determined that they 8 received unauthorized postpetition transfers of estate property; 9 it thus concluded that the plaintiff could recover the 10 transferred property. 11 On appeal, Appellants contend that the bankruptcy court 12 erred in three respects: first, by awarding plaintiff the 13 transferred property; second, by excluding the testimony from an 14 individual they characterize as their rebuttal expert witness; 15 and third, by not entering judgment in favor of Mr. Arnold and 16 Mr. Davis on all theories. 17 We disagree. Appellants provide an incomplete record on 18 appeal, sometimes misstate the record they do provide, concede 19 the bankruptcy court’s factual findings, and fail to challenge 20 the bankruptcy court’s legal conclusions adequately. 21 We AFFIRM. 22 FACTS 23 Near the beginning of its 92-page memorandum decision, the 24 bankruptcy court noted the complex and convoluted facts of this 25 case. Appellants, however, concede that the facts, for purposes 26 of these appeals, are undisputed and are as set forth by the 27 bankruptcy court. We take them at their word. 28 In early 2000, Brennon Ty Bishop (“Debtor”) and two

3

1 business acquaintances, Michael Murphy and Michael Barry, formed 2 Electronic Funds Solutions, LLC (“EFS”). EFS was in the 3 business of assisting merchants with electronic funds 4 processing, including electronic collection of bounced checks. 5 In late 2000 and early 2001, Debtor and Mr. Murphy formed a 6 new company (“EPT”) and disassociated from Mr. Barry. Shortly 7 thereafter, Debtor and Mr. Murphy went into business with 8 Mr. Davis and Mr. Arnold (two of the Appellants) and formed two 9 LLCs: FedChex and FedChex Recovery. Mr. Barry eventually sued 10 Debtor, Mr. Murphy, and EPT. 11 On November 19, 2002, Debtor and his wife, Michelle Bishop, 12 filed a chapter 71 bankruptcy petition.2 13 Debtor’s bankruptcy filing was a dissolution event under 14 the FedChex and FedChex Recovery operating agreements.3 Thus, 15 the other LLC members held an emergency meeting and agreed to 16 terminate Debtor’s membership interests pursuant to Section 8.1 17 18

1

Unless otherwise indicated, all chapter and section 19 references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532. 20 All “Rule” references are to the Federal Rules of Bankruptcy Procedure. All “Civil Rule” references are to the Federal Rules 21 of Civil Procedure. 22 2 We exercise our discretion to take judicial notice of documents electronically filed in the adversary proceeding and 23 in the underlying bankruptcy case. See Atwood v. Chase 24 Manhattan Mortg. Co. (In re Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003).

25

3

Appellants filed a motion to supplement the record and 26 to transmit documentary exhibits. BAP Dkt. No. 10. Most of the 27 documents attached to the motion were already included in Appellants’ excerpts of record. That said, to the extent 28 necessary, we grant the motion.

4

1 of the operating agreements for the LLCs. But they did not take 2 immediate steps in this regard; Debtor’s membership interests 3 continued to be reflected in FedChex and FedChex Recovery 4 documents until December 4, 2002 when Debtor sold his remaining 5 interests for $64,000. In this transaction, Debtor waived his 6 right to an appraisal of his membership interest, completed the 7 sale without approval from either the trustee or the bankruptcy 8 court, and received a promissory note. Debtor never received 9 payment on that note. 10 In 2003, the bankruptcy court granted stay relief to 11 Mr. Barry and EFS to continue their suit against Debtor, 12 Mr. Murphy, and EPT. They eventually obtained a default 13 judgment of more than $30 million. 14 Also in 2003, Debtor’s chapter 7 trustee commenced the 15 present adversary proceeding against a variety of parties. 16 Thereafter, the bankruptcy court entered an order approving the 17 trustee’s sale and assignment of substantially all estate assets 18 to EFS. Accordingly, EFS became plaintiff in the adversary 19 proceeding as the trustee’s successor-in-interest; the 20 bankruptcy estate, however, retained a contingent interest in a 21 portion of the recovery. 22 And the adversary proceeding slowly lumbered along. The 23 fourth amended complaint, the operative one, alleged seven 24 claims for relief. As relevant here, the third claim for relief 25 sought avoidance of unauthorized post-petition transfers under 26 § 549 while the fourth sought recovery of avoided transfers 27 under § 550. 28 Eventually the bankruptcy court found that Plaintiff

5

1 established a viable claim under § 549 for the unauthorized 2 postpetition transfers of Debtor’s 9.12% ownership interest in 3 FedChex for $62,000 and his 2.64% ownership interest in FedChex 4 Recovery for $2,000. 5 Having determined that Plaintiff had established a § 549 6 claim, and thus that the transfers were avoidable and 7 recoverable, the bankruptcy court turned to selection of a 8 remedy under § 550. After reciting the relevant law and 9 caselaw, it found that “there was little evidence in the record 10 as to the market value of FedChex and FedChex Recovery in 2002.” 11 December 8, 2014 Tentative Amended Memorandum Decision on 12 Plaintiff’s Fourth Amended Complaint to Avoid and Recover 13 Intentional and Constructive Fraudulent Transfers and Post- 14 Petition Transfers (“Mem. Dec.”) at 90. It noted that Davis 15 stated, in a deposition, that he did not know the values. And, 16 particularly relevant here, the bankruptcy court explained: 17 Defendants offered the testimony of Michael Issa, in which Issa offered his opinion on the value of FedChex 18 and FedChex Recovery, but these values were first offered as of October 13, 2004 (valuing FedChex at 19 $1,100,000 to $1,300,000, and valuing FedChex Recovery at $500,000 to $1,000,000). These values are not 20 helpful for the Plaintiff’s fourth claim for relief because the court should consider the value at the 21 time of the transfer. 22 Id. (citation omitted). 23 The bankruptcy court determined that it would award 24 Plaintiff the property, rather than its value; “[t]hus, 25 Plaintiff shall recover for the benefit of the estate [Debtor]’s 26 9.12% interest in FedChex and [Debtor]’s 2.64% interest in 27 FedChex Recovery.” Id. 28 The bankruptcy court later entered an order adopting the

6

1 analysis in the memorandum decision as its final ruling. It 2 clarified: 3 To the extent that the court had not specified the nature of Plaintiff’s interests in the various FedChex 4 entities as a result of the court’s partial ruling in its favor on its avoidance claims, Plaintiff would 5 have an economic interest in those entities based on its claims to recover debtor’s interest in those 6 entities unless Plaintiff can show that it should be admitted as a Manager or Member of those entities 7 under the Operating Agreements or applicable state law, which it has not shown.

8 9 September 29, 2016 Order Adopting [the Mem. Dec.] as Final 10 Ruling at 3. 11 The bankruptcy court also entered a separate judgment. 12 Appellants timely appealed. 13 JURISDICTION 14 The bankruptcy court had jurisdiction under 28 U.S.C. 15 §§ 1334 and 157(b)(2). We have jurisdiction under 28 U.S.C. 16 § 158. 17 ISSUES 18 Whether the bankruptcy court erred in excluding a rebuttal 19 expert witness. 20 Whether the bankruptcy court abused its discretion by 21 awarding Plaintiff the LLC interests rather than their value. 22 Whether the bankruptcy court erred by not entering judgment 23 in favor of Mr. Arnold and Mr. Davis. 24 STANDARDS OF REVIEW 25 We review the bankruptcy court’s “evidentiary decisions for 26 abuse of discretion, and ‘the appellant is . . . required to 27 establish that the error was prejudicial.’ ” Allstate Ins. Co. 28 v. Herron, 634 F.3d 1101, 1110 (9th Cir. 2011) (quoting

7

1 Tritchler v. Cty. of Lake, 358 F.3d 1150, 1155 (9th Cir. 2004)); 2 see also Valdivia v. Schwarzenegger, 599 F.3d 984, 988 (9th Cir. 3 2010). 4 We review the bankruptcy court’s choice of remedies, which 5 includes choices under § 550, for an abuse of discretion. USAA 6 Fed. Sav. Bank v. Thacker (In re Taylor), 599 F.3d 880, 890 (9th 7 Cir. 2010). 8 We apply a two-step test to determine whether the 9 bankruptcy court abused its discretion. First, we “determine de 10 novo whether the bankruptcy court identified the correct legal 11 rule to apply to the relief requested.” Id. at 887 (quotation 12 marks and alterations omitted). If the bankruptcy court 13 identified the correct legal rule, “we then determine whether 14 its application of the correct legal standard to the facts was 15 (1) illogical, (2) implausible, or (3) without support in 16 inferences that may be drawn from the facts in the record.” Id. 17 (quotation marks and alterations omitted). 18 DISCUSSION 19 On appeal, Appellants’ brief lists fifteen issues for 20 appeal, but acknowledges that “[m]any of these issues overlap 21 and for purposes of this Brief, they have been analyzed as three 22 issues.” Br. at 7. We consider on appeal only the issues they 23 actually argue. Pierce v. Multnomah Cty., Or., 76 F.3d 1032, 24 1037 n.3 (9th Cir. 1996); Leer v. Murphy, 844 F.2d 628, 634 (9th 25 Cir. 1988) (“Issues raised in a brief which are not supported by 26 argument are deemed abandoned.”); cf. Fed. R. App. P. 28(a)(8).

8

1 A. We treat the facts as undisputed for purposes of this appeal.

2 3 As already noted, we hold Appellants to a concession in 4 their opening brief: “The facts underlying the Appeals are 5 undisputed for purposes of these Appeals, and all of the issues 6 in the Appeals involve solely legal questions . . . .” Br. 7 at 4. 8 But we acknowledge that Appellants’ brief creates some 9 tension in connection with this conclusion. The brief is 10 littered with suggestions that the bankruptcy court “clearly 11 erred” in making a particular finding; in doing so, Appellants 12 refer generally to the entirety of the testimony at trial and 13 the record. We resolve that tension in favor of their 14 concession for two reasons. 15 First, the statements noting alleged error are followed by 16 an acknowledgment that the alleged error was either harmless or 17 immaterial. 18 Second, in their excerpts of record, Appellants provide 19 only partial transcripts from three days of the thirteen-day 20 trial. This is insufficient to challenge the bankruptcy court’s 21 factual findings. Kritt v. Kritt (In re Kritt), 190 B.R. 382, 22 387 (9th Cir. BAP 1995) (“The appellants bear the responsibility 23 to file an adequate record, and the burden of showing that the 24 bankruptcy court’s findings of fact are clearly erroneous. 25 Appellants should know that an attempt to reverse the trial 26 court’s findings of fact will require [that] the entire record 27 relied upon by the trial court be supplied for review.” 28 (internal quotation marks and citations omitted)). And the fact

9

1 that the bankruptcy court docket contains complete transcripts 2 is of no aid to Appellants where they dispute the bankruptcy 3 court’s factual conclusions; we are not “obliged to search the 4 entire record, unaided, for error[,]” Tevis v. Wilke, Fleury, 5 Gould & Birney, LLP (In re Tevis), 347 B.R. 679, 686 (9th Cir. 6 BAP 2006), and we certainly are not required to scour the many 7 transcripts outside the record for testimony supporting the 8 Appellants’ view of the facts. 9 Accordingly, we rely on the facts as the bankruptcy court 10 determined them. 11 B. The bankruptcy court did not abuse its discretion in excluding Mr. Issa’s testimony.

12 13 On appeal, Appellants argue that the bankruptcy court erred 14 “in excluding the rebuttal testimony of Mr. Issa such that this 15 court should remand to the bankruptcy court to consider 16 Mr. Issa’s testimony to determine the amount to award to EFS.” 17 Br. at 28 (capitalization removed). We disagree. 18 Mr. Issa submitted two declarations as his proposed 19 testimony at trial. In one declaration, described as his direct 20 testimony, Mr. Issa opined about the LLCs’ value in 2004 (the 21 “First Issa Declaration”). In a second declaration, described 22 as rebuttal testimony, Mr. Issa opined about the LLC’s value on 23 the petition date (the “Second Issa Declaration”). The 24 bankruptcy court excluded both declarations at different points 25 in time and for different reasons. 26 In their brief, Appellants conflate these decisions and the 27 two declarations. But when the record is sorted out, it is 28 clear that the bankruptcy court did not err in excluding all of

10

1 this testimony. 2 The bankruptcy court did not err in excluding Mr. Issa’s 3 declaratory testimony as untimely. The bankruptcy court 4 established a date in June of 2009 for submission of testimony 5 through declarations. The Appellants neither argue that the 6 bankruptcy court established a second date for rebuttal 7 testimony nor do they provide us with the relevant transcript in 8 the record. In fact, they concede that both Issa declarations 9 were filed well after the deadline. 10 Appellants filed the First Issa Declaration in October of 11 2009. In April 2010, during the trial, the bankruptcy court 12 excluded the First Issa Declaration as untimely. Appellants 13 filed the Second Issa Declaration almost a year late on May 5, 14 2010, during the middle of the trial. The Court was well within 15 its rights in determining that the Issa Declarations should not 16 be considered as they were untimely and thereby enforcing the 17 requirements of its pretrial procedures. See Lee-Benner v. 18 Gergely (In re Gergely), 110 F.3d 1448, 1452 (9th Cir. 1997). 19 We may affirm summarily as the Appellants failed to provide 20 us with an adequate record on appeal. Appellants primarily 21 complain that the bankruptcy court failed to appropriately 22 consider the Second Issa Declaration. They failed to provide a 23 record that would allow us to adequately consider this issue on 24 appeal. 25 First, they fail to include the Second Issa Declaration in 26 the record. Appellants thus did not provide us with the 27 evidence that is the foundation for their claim of error. 28 Second, as already noted, they failed to provide us with

11

1 all relevant transcripts. 2 Most importantly, in connection with exclusion of the 3 Second Issa Declaration, the bankruptcy court’s order after 4 hearing incorporated its oral ruling by reference; in its oral 5 ruling, which we can review, the bankruptcy court affirmatively 6 adopted a prior tentative ruling. Appellants, however, did not 7 provide the tentative ruling in the record, and we cannot locate 8 it on the bankruptcy court docket. Accordingly, we cannot 9 adequately review the bankruptcy court’s decision. Welther v. 10 Donell (In re Oakmore Ranch Mgmt.), 337 B.R. 222, 226 (9th Cir. 11 BAP 2006) (“If a tentative decision is necessary to 12 understanding the court’s ruling, it must be included in the 13 designation and the excerpts of the record.”); Gertsch v. 14 Johnson & Johnson Fin. Corp. (In re Gertsch), 237 B.R. 160, 169 15 (9th Cir. BAP 1999); see Ehrenberg v. Cal. State Univ., 16 Fullerton Found. (In re Beachport Entm’t), 396 F.3d 1083, 1087- 17 88 (9th Cir. 2005); Morrissey v. Stuteville (In re Morrissey), 18 349 F.3d 1187, 1189 (9th Cir. 2003) (failing to provide a 19 critical document may result in summary affirmance). 20 Appellants must demonstrate prejudice from the exclusion of 21 the Issa testimony, but they fail to do so. To reverse the 22 bankruptcy court on the basis of an erroneous evidentiary 23 ruling, we must conclude that the error was prejudicial. 24 Allstate Inc. Co., 634 F.3d at 1110. The record we have does 25 not support an assertion of prejudice. 26 Appellants argue that the Issa Declarations would allow the 27 bankruptcy court to value the LLC interests and to award 28 monetary damages instead of a return of the transferred LLC

12

1 interests themselves. We question this assertion and for 2 various reasons conclude that exclusion of the Issa testimony 3 did not prejudice the Appellants. 4 As to the First Issa Declaration, the bankruptcy court 5 noted that it was not helpful; among other things, it valued the 6 LLC interests well after the transfer date. For that reason, it 7 was irrelevant to the bankruptcy court’s valuation 8 determinations as of the transfer date. The Appellants’ 9 arguments are confusing, but they implicitly acknowledge this 10 fact; despite sweeping language, their focus is on the Second 11 Issa Declaration. 12 At the hearing, shortly after the bankruptcy court stated 13 that it was excluding the First Issa Declaration, Appellants’ 14 counsel asked about Mr. Issa’s rebuttal testimony. The 15 bankruptcy court allowed a later offer of proof regarding 16 rebuttal testimony and stated that it would rule on it later. 17 Appellants subsequently filed a motion and the offer of 18 proof; the matter was fully briefed and set for hearing. At the 19 hearing, the bankruptcy court stated that it read the late-filed 20 Second Issa Declaration but found that it would not be helpful 21 because: 22 • “It’s really disguised argument”; 23 • “It’s just taking whatever the witness testified at trial 24 and is just offering rebutting arguments”; 25 • “I don’t see how there’s any expertise that Mr. Issa is 26 providing”; and 27 • “he’s just giving commentary on the testimony and he’s not 28 a fact witness.”

13

1 AP Dkt. No. 716, Hr’g Tr (June 2, 2010) 4:25-5:5. The 2 bankruptcy court, in short, concluded: “[S]o I would hold that 3 . . . Mr. Issa’s testimony would not be helpful to the Court. 4 It would not assist the trier of fact, and it was filed 5 untimely.” Id. at 5:24-6:2. The bankruptcy court thus decided 6 to “adopt its tentative ruling as its order”. Id. at 6:9-13. 7 Appellants argue as if submission of Mr. Issa’s Rebuttal 8 Testimony would have been a fait accompli: the bankruptcy court 9 would have found his testimony credible and helpful and would 10 have adopted it. This notion is fanciful; the bankruptcy court 11 did review the Second Issa Declaration and for a variety of 12 reasons found it neither helpful nor compelling. Appellants do 13 not dispute this point; thus, they fail to demonstrate any 14 prejudice in relation to the Second Issa Declaration, and the 15 bankruptcy court did not abuse its discretion in excluding it. 16 The Second Issa Declaration was not true rebuttal 17 testimony. The purpose of rebuttal testimony “is to explain, 18 repel, counteract[,] or disprove evidence of the adverse party.” 19 Marmo v. Tyson Fresh Meats, Inc., 457 F.3d 748, 759 (8th Cir. 20 2006) (internal quotation marks omitted) (citing cases). To the 21 extent labels matter here, we agree with the implicit 22 determination of the bankruptcy court: the Second Issa 23 Declaration does not appear to be true rebuttal testimony. 24 Thus, it was properly excluded because “[i]t is well settled 25 that evidence which properly belongs in the case-in-chief but is 26 first introduced in rebuttal may be rejected . . . .” Emerick 27 v. U.S. Suzuki Motor Corp., 750 F.2d 19,22 (3d Cir. 1984). 28 On appeal, Appellants argue that Mr. Issa provided proper

14

1 rebuttal testimony on one central point: the LLCs’ value.4 And, 2 the Second Issa Declaration discussed, in part, the value of the 3 LLCs on the petition date; he opined that they were worth 4 nothing. 5 But Appellants miss the point. Plaintiff did not need to 6 establish the LLCs’ value on the transfer date to prevail on its 7 § 549 and § 550 claims for relief. Thus, it was incumbent on 8 Appellants to present evidence of value if they wanted to argue 9 that Plaintiff should only recover the monetary value of the 10 transferred property. They did not do so in their case in 11 chief; having failed to do so, they cannot properly remedy the 12 defect through rebuttal.5 13 14 4 Appellants raise a second, irrelevant point: “Mr. Issa 15 was a relevant rebuttal or impeachment witness as to issues or claims. . . that either the ownership interest of Mr. Davis was 16 misstated . . . or that Mr. Davis did not contribute everything noted on Exhibits 140-145.” Br. at 32. This testimony was 17 relevant to the fraudulent transfer claims, not the § 549 and 18 § 550 claims involved in this appeal.

5

19 We also note reluctantly that Appellants seriously misstate the record in connection with this point. Appellants 20 argue: 21 When the bankruptcy court issued its order sustaining Plaintiff’s Objection to the Trial Declaration of 22 Michael Issa, and ordering the preclusion of any evidence from Mr. Issa, . . . . no trial date had been 23 set, and there was no prejudice at all for Plaintiff 24 to take the offer made by Defendants’ counsel in October of 2008 to depose the expert[] . . . . There 25 was no issue of delaying a trial, requesting a continuance, forcing a continuance, or any other 26 prejudice. The real issue was Plaintiff’s attempt to 27 achieve an overwhelming strategic advantage by using a clever tactic. That advantage was not warranted.

28 (continued...)

15

1 And despite Appellants’ convoluted and conflated arguments, 2 they appear to have waived any argument in relation to the 3 Second Issa Declaration. The bankruptcy court decided not to 4 accept the Second Issa Declaration into evidence at the June 2, 5 2010 hearing; Appellants completely fail to discuss this hearing 6 or to address the bankruptcy court’s analysis. True, they 7 discuss the April 28, 2010 order; but they never explain how or 8 argue that the June 2, 2010 decision was wrong. They thus 9 waived any argument on the point, and we can affirm on that 10 ground. See Padgett v. Wright, 587 F.3d 983, 986 n.2 (9th Cir. 11 2009) (per curiam) (appellate courts “will not ordinarily 12 consider matters on appeal that are not specifically and 13 distinctly raised and argued in appellant’s opening brief”). 14 Accordingly, we find no merit to Appellants’ argument that 15 the bankruptcy court erred in its April 28, 2010 order by 16 excluding the rebuttal testimony of Mr. Issa; it did no such 17 thing. Because Appellants do not argue that the June 2, 2010 18 order was in error, we affirm. 19 20 5 (...continued)

21 Br. at 34-35. At best, this is misleading.

First, Appellants’ record citation is to an April 28, 2010 22 order entered after the ninth day of a thirteen day trial.

Their analysis is thus inapt.

23 Second, the next day of trial had already been set for 24 May 6, 2010. Again, their argument is wrong.

Third, the bankruptcy court sustained the timeliness 25 objection to the First Issa Declaration; it did not bar Mr. Issa’s testimony for other reasons. More directly, the 26 bankruptcy court did not exclude the Second Issa Declaration on 27 that date.

In sum, the April 28, 2010 order was in the middle of trial 28 and did not preclude Mr. Issa from testifying in rebuttal.

16

1 C. The bankruptcy court did not abuse its discretion in awarding Plaintiff the property transferred instead of the 2 value of the property. 3 In this appeal, no one directly questions the bankruptcy 4 court’s determination that there was a § 549 unauthorized 5 postpetition transfer of estate property. We now turn to the 6 remedy. 7 Section 550(a) provides that “to the extent that a transfer 8 is avoided under section . . . 549 . . ., the trustee may 9 recover, for the benefit of the estate, the property 10 transferred, or, if the court orders, the value of such property 11 . . . .” 11 U.S.C. § 550(a). As the bankruptcy court observed, 12 the Code “does not provide guidelines by which the court is to 13 determine whether the Plaintiff recovers the property itself 14 . . . or the monetary value of those interests.” Mem. Dec. at 15 89. Section 550’s purpose “is to restore the estate to the 16 financial condition it would have enjoyed if the transfer had 17 not occurred.” Decker v. Tramiel (In re JTS Corp.), 617 F.3d 18 1102, 1111 (9th Cir. 2010) (quotation marks omitted) (citing 19 Acequia Inc. v. Clinton (In re Acequia, Inc.), 34 F.3d 800, 812 20 (9th Cir. 1994)); Aalfs v. Wirum (In re Straightline Invs., 21 Inc.), 525 F.3d 870, 883 (9th Cir. 2008). “The primary goal is 22 equity and restoration, i.e., putting the estate back where it 23 would have been but for the transfer.” In re JTS Corp., 24 617 F.3d at 1111 (quotation marks omitted) (quoting 5 Collier on 25 Bankruptcy § 550.02[3][a] at 550-10 (Alan N. Resnick & Henry J. 26 Sommer 16th Ed.)) (also citing other sources). 27 Thus, here, the question is whether the bankruptcy court 28 abused its discretion when it decided to award the transferred

17

1 property itself, instead of the value of the property 2 transferred. Cf. In re Taylor, 599 F.3d at 890 (considering 3 opposite situation). 4 “It is well established that in deciding to award an estate 5 the value of property, a bankruptcy court must decide whether 6 there is conflicting evidence as to the value of the property 7 and whether the value of the property is readily determinable.” 8 Id. at 892 (internal quotation marks and citation omitted). But 9 “[w]here the value of the property cannot be easily or readily 10 determined — as is the case here — the correct remedy is to 11 return the property, not award an estimate of the value of the 12 property.” Id. at 892. 13 On appeal, Appellants correctly state that nonbankruptcy 14 law defines the scope of the bankruptcy estate’s property 15 interests. They then try to frame the remedy issue in that 16 light: the bankruptcy estate (i.e., Plaintiff) was entitled to 17 only what Debtor was entitled to and no more. Because Debtor’s 18 interest was defined by the LLCs’ operating agreements, 19 Appellants argue that the bankruptcy court erred when it did not 20 enforce those operating agreements: 21 • When a member withdraws, the LLCs need only pay the 22 withdrawing member the balance in that member’s capital 23 account. That is the withdrawing member’s only remedy. 24 • Debtor’s bankruptcy filing was a dissolution event for both 25 LLCs. Accordingly, the LLC members met. They agreed to 26 continue business. And they agreed to purchase Debtor’s 27 remaining interests in the LLCs. 28 • Debtor’s capital accounts contained a combined $50,000

18

1 balance. As a result, Debtor, and thus the bankruptcy 2 estate, was entitled to only $50,000. 3 • By awarding Plaintiff the Debtor’s economic interest in the 4 LLCs, instead of $50,000, the bankruptcy court erred. 5 This is perplexing.6 Appellants never directly engage with 6 the bankruptcy court’s legal conclusion; they approach it only 7 by various traverses. What’s more, put slightly differently, 8 Appellants argue that state law limited the bankruptcy court’s 9 choice of remedy on a bankruptcy claim for relief. 10 First, Appellants’ attempt to retreat to state law must 11 fail; the Code is not silent on the point.7 It speaks directly 12 to unauthorized postpetition transfers of estate property; they 13 are avoidable. 11 U.S.C. § 549. When they are avoidable, the 14 trustee may recover the property itself or, if the court so 15 orders, the value of that property. 11 U.S.C. § 550. 16 Accordingly, we are in the bankruptcy law world. 17 Second, Appellants fail to explain why an award of the LLC 18 interests expands rights under the LLCs. If the Debtor’s rights 19 20 6 Our review of the adversary docket shows that Appellants 21 raised a similar argument early in the case. AP Dkt. No. 156 at 2 (“By the Motion Movants seek an order limiting judgment on the 22 avoidance claims to an award of the value of the property interests rather than for the recovery of actual property 23 interests.”). It was opposed. The bankruptcy court denied the 24 motion. AP Dkt. No. 184. Again, Appellants do not refer to this motion or the bankruptcy court’s order.

25

7

Appellants quote Mortgage Guaranty Insurance Corporation 26 v. Pascucci (In re Pascucci): “Where the Bankruptcy Code is 27 silent, and no uniform bankruptcy rule is required, the rights of the parties are governed by the underlying non-bankruptcy 28 law.” 90 B.R. 438, 442 (Bankr. C.D. Cal. 1988).

19

1 were limited as they discuss, it is unclear how the rights of 2 the estate or its transferee would be expanded as a result of a 3 § 550 recovery of the economic value of the interest. 4 Finally, they fail to explain how the award of the LLC 5 interests constituted error given the facts of the case and the 6 latitude allowed by the Code. The bankruptcy court had two 7 possible remedies after determining that unauthorized post- 8 petition transfers existed. Because there was little evidence 9 in the record about the market value of FedChex and FedChex 10 Recovery on the relevant date, the bankruptcy court awarded the 11 property itself, not its value. This was appropriate given the 12 questions as to value, but it would also have been appropriate 13 even if value were more clear. In re Taylor, 599 F.3d at 892. 14 Cf. Trout v. Drive Fin. Servs. (In re Trout), 609 F.3d 1106, 15 1113 (10th Cir. 2010) (“Moreover, as other courts have also 16 recognized, the language of § 550(a) suggests that the default 17 rule is the return of the property itself, whereas a monetary 18 recovery is a more unusual remedy to be used only in the court’s 19 discretion.”). 20 In any event, having concluded that Appellants have not 21 shown any error in the bankruptcy court’s exclusion of 22 Mr. Issa’s testimony, we also conclude that the bankruptcy court 23 did not clearly err in determining that there was little 24 evidence in the record about the LLCs’ value on the petition 25 date. Appellants point to no other evidence of value. 26 Accordingly, the bankruptcy court did not misapply the correct 27 legal standard or otherwise abuse its discretion in this

20

1 respect.8 2 D. The bankruptcy court did not err by not entering judgment in Mr. Davis and Mr. Arnold’s favor and indicating that 3 they were prevailing parties. 4 Last, Appellants argue that the bankruptcy court erred by 5 not entering judgment in favor of Mr. Arnold and Mr. Davis and 6 indicating that they were prevailing parties on all claims 7 brought against them. Appellants had submitted a judgment that 8 included that language; the bankruptcy court struck that 9 language when it entered the final judgement. 10 Appellants claim that the bankruptcy court only ordered 11 recovery against the LLCs and that no recovery was granted 12 against any individual defendant. They ask us to either amend 13 the judgment or remand so the bankruptcy court may make separate 14 findings of fact and conclusions of law about Mr. Davis and 15 Mr. Arnold. They state: “More importantly, no statements in the 16 Memorandum Decision even suggest the bankruptcy court believed 17 Mr. Arnold and Mr. Davis were liable to EFS for any of the 18 claims for relief.” Br. at 45. 19 We disagree. First, the bankruptcy court found that Debtor 20 “sold his remaining interests in FedChex and FedChex Recovery to 21

8

22 At oral argument, Appellants’ counsel suggested that there were “regulatory” issues raised when the bankruptcy court 23 awarded the LLC interests and not their value. They, however, 24 did not raise this in their opening brief; it is also not clear if they raised it below — in our review of the underlying docket 25 (admittedly not exhaustive), we have not seen a similar argument. Both of these failures waive the argument. See 26 Padgett, 587 F.3d at 986 n.2; Samson v. W. Capital Partners, LLC 27 (In re Blixseth), 684 F.3d 865, 872 n.12 (9th Cir. 2012)

(appellate court may decline to address argument not raised 28 before bankruptcy court).

21

1 the remaining members of the LLCs.” Mem. Dec. at 21. 2 Mr. Arnold and Mr. Davis were two of the remaining members. 3 Second, and contrary to Appellants’ statement otherwise, the 4 bankruptcy court’s memorandum decision clearly finds Mr. Davis 5 and Mr. Arnold liable on the third and fourth claims for relief: 6 “As discussed in this memorandum decision, the following 7 transfers are avoided under 11 U.S.C. § 549 and recoverable 8 pursuant to 11 U.S.C. § 550, and are recoverable from Mr. Davis, 9 Mr. Arnold, FedChex, and FedChex Recovery . . . .” Id. at 89 10 (emphasis added). 11 Accordingly, we reject Appellants’ argument and decline to 12 amend the bankruptcy court’s judgment or remand for additional 13 findings. 14 CONCLUSION 15 Based on the foregoing, we AFFIRM. 16 17 18 19 20 21 22 23 24 25 26