FILED MAR 20 2018 SUSAN M. SPRAUL, CLERK 1 NOT FOR PUBLICATION U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT 2 3 UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT 4 5 In re: ) BAP No. NV-17-1200-BHTa ) 6 CAPRIATI CONSTRUCTION ) Bk. No. 2:15-BK-15722-ABL CORPORATION, INC., ) 7 ) Debtor. ) 8 ) ) 9 CAPRIATI CONSTRUCTION ) CORPORATION, INC., ) 10 ) Appellant, ) 11 ) v. ) M E M O R A N D U M1 12 ) SPER, INC., ) 13 ) Appellee. ) 14 ______________________________) 15 Argued and Submitted on December 1, 2017, at Las Vegas, Nevada 16 Filed - March 20, 2018 17 Appeal from the United States Bankruptcy Court 18 for the District of Nevada 19 Honorable August B. Landis, Bankruptcy Judge, Presiding 20 Appearances: Aj Kung argued for appellant Capriati Construction 21 Corporation, Inc.; H. Stan Johnson of Cohen- Johnson, LLC argued for appellee SPER, Inc. 22 23 Before: BRAND, HOULE2 and TAYLOR, Bankruptcy Judges. 24 25 1 This disposition is not appropriate for publication. 26 Although it may be cited for whatever persuasive value it may have (see Fed. R. App. P. 32.1), it has no precedential value. See 9th 27 Cir. BAP Rule 8024-1. 2 28 Hon. Mark D. Houle, Bankruptcy Judge for the Central District of California, sitting by designation. 1 Reorganized debtor Capriati Construction Corp., Inc. appeals 2 an order denying its motion for contempt against SPER, Inc., for 3 SPER's alleged violations of the automatic stay and discharge 4 and/or plan injunction. Capriati alleged that the fraudulent 5 transfer and alter ego claims SPER was prosecuting in state court 6 against the non-debtor principal of Capriati were property of 7 Capriati's bankruptcy estate or of the reorganized debtor; 8 therefore, SPER's pursuit of those claims prior to confirmation of 9 Capriati's chapter 113 plan violated the automatic stay and 10 violated the discharge and/or plan injunction once Capriati's plan 11 was confirmed. Capriati also appeals the court's order denying 12 reconsideration. We VACATE and REMAND. 13 I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY 14 A. The parties 15 Capriati is a construction company that historically 16 generated average annual income of $55-$65 million, primarily from 17 public work projects. The recent recession ultimately led 18 Capriati to file for bankruptcy relief. David Rocchio, Sr. is the 19 owner, sole shareholder and person in control of Capriati. 20 SPER is a corporate entity owned by Susan Frankewich, Esq., 21 through which she conducts her law practice. Frankewich has 22 practiced bankruptcy law for over 30 years. Frankewich was the 23 attorney for Rocchio and his various entities from 2003 to mid 24 2015. Rocchio did not sign any retention agreements with 25 SPER/Frankewich individually and was not a guarantor for any 26 3 Unless specified otherwise, all chapter, code and rule 27 references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and the Federal Rules of Bankruptcy Procedure, Rules 1001-9037. The 28 Federal Rules of Civil Procedure are referred to as "Civil Rules."
-2- 1 unpaid legal fees owed by his various entities, including 2 Capriati. 3 B. Capriati's bankruptcy filing, the state court action and the chapter 11 plan 4 5 Capriati filed its chapter 11 bankruptcy case on October 7, 6 2015. The court subsequently approved Capriati's application to 7 employ Kung & Brown as its bankruptcy counsel. SPER later filed 8 an unsecured proof of claim for Capriati's unpaid legal fees of 9 $109,459.50. 10 One week later, SPER, represented by Frankewich, sued Rocchio 11 and his entities in state court for Capriati's unpaid legal fees, 12 alleging breach of contract, monies owed, quantum meruit, 13 misrepresentation, alter ego, and fraudulent transfer. SPER did 14 not name Capriati as a defendant, but SPER's claims for alter ego 15 and fraudulent transfer alleged that Rocchio (and the other 16 defendants) manipulated and transferred assets and funds between 17 Capriati and themselves to avoid payment of creditors, including 18 SPER. SPER requested that Rocchio be declared the alter ego of 19 Capriati and be held liable for any judgment. 20 Rocchio retained Capriati's bankruptcy counsel, Kung & Brown, 21 to file a motion to dismiss the state court action as to all 22 defendants. Rocchio argued that, because SPER's fraudulent 23 transfer claim alleged that Capriati fraudulently conveyed assets 24 prior to its filing bankruptcy, such claim had to be heard by the 25 bankruptcy court. In opposition to SPER's later summary judgment 26 motion, Rocchio argued that SPER could not recover Capriati's debt 27 from him or his entities under an alter ego theory, because 28 Capriati had to be named as a necessary and indispensable party
-3- 1 but could not be due to the bankruptcy stay. Rocchio also argued 2 that, to the extent any alleged transfers from Capriati to Rocchio 3 were avoidable, they would be reclaimed as property of Capriati's 4 bankruptcy estate; thus, SPER was impermissibly seeking recovery 5 against property of the estate. 6 Kung & Brown thereafter filed a supplement to its employment 7 application, disclosing to the bankruptcy court that the firm had 8 represented Rocchio in the state court action. Kung & Brown 9 asserted that its limited representation of Rocchio and his 10 entities did not create a conflict of interest in Capriati's 11 pending bankruptcy but rather preserved estate assets and 12 prevented further violation of the automatic stay. Kung & Brown 13 maintained that any alleged claims of alter ego and fraudulent 14 transfers by Capriati to Rocchio and his entities were claims 15 belonging to Capriati's bankruptcy estate, and so the firm had to 16 act quickly to ensure that SPER did not usurp estate assets. Both 17 Kung & Brown and Rocchio represented that Rocchio had no adverse 18 interests to the Capriati estate. 19 Capriati filed various reorganization plans and disclosure 20 statements. SPER was the only party to oppose confirmation of 21 Capriati's third amended plan of reorganization, which ultimately 22 became the confirmed plan ("Plan"). In each of its objections to 23 Capriati's disclosure statements, proposed plans and Plan 24 confirmation, SPER alleged that Capriati was not accounting for 25 avoidable fraudulent transfers involving Capriati, Rocchio, his 26 other entities and his family members. In response to one of 27 SPER's objections, Capriati's financial expert opined that either 28 the transfers alleged by SPER were not avoidable fraudulent
-4- 1 transfers, or, to the extent that any were avoidable, no benefit 2 existed for the estate and creditors because any amount recovered 3 would not be collectible. In short, the cost of pursuing such 4 claims exceeded any likely recovery. 5 After a two-day confirmation trial, at which the bankruptcy 6 court considered SPER's allegations of fraudulent transfers 7 involving Capriati, the court entered an order confirming the 8 Plan. The Plan provisions relevant here are: 9 9.1. Vesting of Assets. Subject to the provisions of this Plan and as permitted by Section 1123(a)(5)(B) of the 10 Bankruptcy Code, the Assets, including the Litigation Claims4 and right, title, and interest being assumed by 11 Reorganized Debtor in the assumed Executory Contracts, shall be transferred to Reorganized Debtor on the 12 Effective Date. 13 9.2. Preservation of Litigation Claims. In accordance with Section 1123(b)(3) of the Bankruptcy Code, and except 14 as otherwise expressly provided herein, all Litigation Claims shall be assigned and transferred to Reorganized 15 Debtor. Reorganized Debtor, as the successor in interest to Debtor and the Estate, may and shall have the exclusive 16 right to sue on, settle, or compromise any and all Litigation Claims, including derivative actions existing 17 against Debtor on the Effective Date. 18 9.4. Injunction. From and after the Effective Date . . . all entities that have held, currently hold, or may hold 19 a Claim . . . that is terminated pursuant to the terms of this Plan are permanently enjoined from taking any of the 20 following actions on account of any such Claims . . . : (I) commencing or continuing in any manner any action or 21 other proceeding against Reorganized Debtor or its property[.] 22 (Emphasis added). 23 24 25 4 Section 1.1.41 of the Plan defined "Litigation Claims" as "[a]ll rights, claims, torts, liens, liabilities, obligations, 26 actions, causes of action, Avoidance Actions [including under §§ 544, 548, 550 & 551] derivative actions, proceedings, debts, 27 contracts, judgments, damages and demands whatsoever in law or in equity, whether known or unknown, contingent or otherwise, that 28 Debtor or the Estate may have against any Person."
-5- 1 C. Capriati's motion for contempt 2 More than a year after SPER was on notice that the fraudulent 3 transfer and alter ego claims alleged in the state court action 4 were property of the estate or of the Reorganized Debtor, SPER 5 filed another amended complaint in the state court action, this 6 time asserting claims against just Rocchio for Capriati's unpaid 7 legal fees, including claims for fraudulent transfer and alter 8 ego. Capriati was not named as a defendant, but SPER alleged that 9 Rocchio had caused Capriati to transfer its assets to him to avoid 10 paying creditors, including SPER. SPER again requested that 11 Rocchio be declared the alter ego of Capriati. 12 In response, Capriati filed a motion for contempt in the 13 bankruptcy court, seeking sanctions against SPER for its alleged 14 violations of the automatic stay and the discharge and/or Plan 15 injunction ("Contempt Motion"). Capriati argued that SPER's 16 fraudulent transfer and alter ego claims, which alleged only 17 general claims of injury to all creditors of Capriati, were 18 property of the estate that could only be pursued by Capriati and 19 which revested in the Reorganized Debtor upon confirmation; thus, 20 SPER's state court action pursuing those claims after Capriati's 21 bankruptcy filing and prior to Plan confirmation violated the 22 automatic stay under § 362(a)(3) and violated the Plan injunction 23 after confirmation. Capriati requested sanctions against SPER of 24 $25,000 plus attorney's fees. 25 In opposition, SPER argued that Capriati was judicially 26 estopped from claiming that the fraudulent transfer and alter ego 27 claims were estate assets: Capriati never disclosed any possible 28 avoidance actions against Rocchio in its schedules or statements
-6- 1 of financial affairs; at no time prior to confirmation did 2 Capriati ever amend its schedules or statements of financial 3 affairs to disclose the fraudulent transfer and alter ego claims; 4 neither the Plan nor confirmation order reserved or disclosed the 5 claims as a "litigation asset" of the estate; the expert report 6 minimized the value of any fraudulent transfer claim; and the 7 approved disclosure statement disavowed the existence of any such 8 claim. Therefore, argued SPER, Capriati could not now assert that 9 the fraudulent transfer and alter ego claims were estate assets, 10 when Capriati had previously and successfully asserted before the 11 bankruptcy court in connection with Plan confirmation that no such 12 claims existed. 13 Next, SPER argued that Rocchio, a non-debtor, was not 14 protected by the automatic stay or Capriati's discharge. SPER 15 maintained that the claims against Rocchio in the state court 16 action were "direct" claims against him under Nevada law, not 17 derivative corporate claims. SPER argued that at least $1,285,500 18 in Capriati distributions to Rocchio were recoverable for 19 unsecured creditors, which was more than double what they were 20 getting under the Plan. 21 In reply, Capriati maintained that it did not list any 22 avoidance actions against Rocchio in its schedules or statements 23 of financial affairs because it never believed that any such 24 claims existed. Moreover, the alleged excessive salary payments 25 to Rocchio were the subject of SPER's many objections and the crux 26 of its objection to Plan confirmation, which SPER fully litigated 27 at the confirmation trial. Capriati maintained that SPER's 28 allegations of fraudulent transfers were without merit or support
-7- 1 in fact or law; SPER presented no witnesses at the confirmation 2 trial and entered only one document into evidence — Capriati's 3 financial expert's report — which concluded that no viable 4 fraudulent transfer or avoidance actions against Rocchio existed. 5 At the Contempt Motion hearing, counsel for SPER conceded 6 that SPER had no "direct" claim against Rocchio individually and 7 independent from Capriati, but then argued that SPER had a direct, 8 in personam claim against Rocchio as "transferee" of a fraudulent 9 conveyance. Counsel maintained that such claim did not violate 10 the automatic stay or the Plan injunction, because it was not an 11 action to recover the asset for the benefit of Capriati's estate. 12 D. The bankruptcy court's ruling on the Contempt Motion 13 The bankruptcy court first determined that the Contempt 14 Motion failed on the basis of judicial estoppel. The court 15 focused on Capriati's prior statement that it did not believe any 16 fraudulent transfer and alter ego claims against Rocchio existed 17 and was unaware of any such claims. To the extent Capriati 18 believed otherwise, Capriati never disclosed the claims in its 19 bankruptcy papers filed under oath. Thus, because of its failure 20 to disclose and outright denial of the existence of any such 21 claims against Rocchio, the court reasoned that Capriati was 22 judicially estopped from now taking the inconsistent position that 23 such claims were estate assets revested in the Reorganized Debtor 24 upon confirmation of the Plan. 25 Alternatively, the court held that the Contempt Motion failed 26 because neither the automatic stay nor the discharge injunction 27 applied to Rocchio, a non-debtor Capriati officer and insider. 28 Sections 9.4 and 9.5 of the Plan prohibited post-confirmation and
-8- 1 post-discharge actions against the Reorganized Debtor or its 2 property but excepted direct liability claims against Capriati's 3 officers and other insiders. The court summarily concluded that 4 SPER's claims for fraudulent transfer and alter ego were "direct" 5 claims against Rocchio individually and therefore not protected by 6 the automatic stay or the discharge and/or Plan injunction. 7 Finally, the court found that Capriati failed to meet its 8 burden of proving either a willful violation of the automatic stay 9 or the discharge injunction; SPER legitimately believed that its 10 claims in the state court action were against Rocchio 11 individually. 12 E. Capriati's motion for reconsideration 13 Capriati timely moved for reconsideration of the Contempt 14 Order. The bankruptcy court denied the motion, determining that 15 Capriati had not presented any grounds for reconsideration. 16 This timely appeal followed. 17 II. JURISDICTION 18 The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 19 and 157(b)(2)(A). We have jurisdiction under 28 U.S.C. § 158. 20 III. ISSUES 21 1. Did the bankruptcy court err by determining that SPER had not 22 willfully violated the automatic stay or the Plan injunction 23 without determining first whether the fraudulent transfer and 24 alter ego claims were either property of the estate or property of 25 the Reorganized Debtor? 26 2. Did the bankruptcy court err in determining that SPER had not 27 willfully violated the automatic stay or the Plan injunction and 28 therefore abused its discretion by not holding SPER in contempt?
-9- 1 3. Did the bankruptcy court abuse its discretion by invoking 2 judicial estoppel to deny the Contempt Motion? 3 4. Did the bankruptcy court abuse its discretion in denying the 4 motion to reconsider? 5 IV. STANDARDS OF REVIEW 6 Determining whether the bankruptcy court applied the correct 7 legal standard is a question of law reviewed de novo. Emmert v. 8 Taggart (In re Taggart), 548 B.R. 275, 286 (9th Cir. BAP 2016). 9 An erroneous view of the law may induce the bankruptcy court to 10 make a clearly erroneous finding of fact. Ozenne v. Bendon (In re 11 Ozenne), 337 B.R. 214, 218 (9th Cir. BAP 2006) (citing Power v. 12 Union Pac. R.R. Co., 655 F.2d 1380, 1382–83 (9th Cir. 1981)). 13 Whether property is included in a bankruptcy estate is a 14 question of law subject to de novo review. Cisneros v. Kim (In re 15 Kim), 257 B.R. 680, 684 (9th Cir. BAP 2000). 16 We review for abuse of discretion the bankruptcy court's 17 decision to apply judicial estoppel, or preclusion of inconsistent 18 positions, to the facts of a case. Hamilton v. State Farm Fire & 19 Cas. Co., 270 F.3d 778, 782 (9th Cir. 2001); Diamond Z Trailer, 20 Inc. v. JZ L.L.C. (In re JZ L.L.C.), 371 B.R. 412, 416 (9th Cir. 21 BAP 2007). 22 We review for an abuse of discretion the bankruptcy court's 23 decision whether to hold a party in civil contempt. Knupfer v. 24 Lindblade (In re Dyer), 322 F.3d 1178, 1191 (9th Cir. 2003); 25 Rediger Inv. Servs. v. H. Granados Commc'ns, Inc. (In re H 26 Granados Commc'ns, Inc.), 503 B.R. 726, 731 (9th Cir. BAP 2013). 27 The underlying factual findings are reviewed for clear error. 28 In re Dyer, 322 F.3d at 1191; In re H Granados Commc'ns, Inc.,
-10- 1 503 B.R. at 731-32. A finding is clearly erroneous when it is 2 illogical, implausible or without support in the record. United 3 States v. Hinkson, 585 F.3d 1247, 1262 (9th Cir. 2009) (en banc). 4 We review for an abuse of discretion the bankruptcy court's 5 decision to deny a reconsideration motion under Civil Rule 59. 6 Ybarra v. McDaniel, 656 F.3d 984, 998 (9th Cir. 2011); Cruz v. 7 Stein Strauss Tr. # 1361, PDQ Invs., LLC (In re Cruz), 516 B.R. 8 594, 601 (9th Cir. BAP 2014). 9 A bankruptcy court abuses its discretion if it applies the 10 wrong legal standard, misapplies the correct legal standard, or if 11 it makes factual findings that are illogical, implausible or 12 without support in inferences that may be drawn from the facts in 13 the record. TrafficSchool.com, Inc. v. Edriver Inc., 653 F.3d 14 820, 832 (9th Cir. 2011). 15 V. DISCUSSION 16 A. The bankruptcy court's failure to determine ownership of the fraudulent transfer and alter ego claims led to error. 17 18 The bankruptcy court denied the Contempt Motion in the first 19 instance based on its determination that judicial estoppel barred 20 the relief sought by Capriati, and second, summarily, on the 21 alternative grounds that the automatic stay and discharge and/or 22 Plan injunction did not apply to preclude SPER's filing and 23 pursuit of its "direct" claims for fraudulent transfer and alter 24 ego against Rocchio, a non-debtor third party and Capriati 25 insider. The bankruptcy court never determined whether the 26 fraudulent transfer and alter ego claims were property of the 27 estate or property of the Reorganized Debtor. This approach puts 28 the cart before the horse. The omission led to the erroneous or
-11- 1 incomplete finding that SPER's claims for fraudulent transfer and 2 alter ego were exclusively "direct" claims against Rocchio; the 3 record and the law are to the contrary. And this conclusion 4 improperly colored the determinations that followed. 5 Property of the estate includes "all legal or equitable 6 interests of the debtor in property as of the commencement of the 7 case." § 541(a)(1). A debtor's "causes of action" are "property 8 of the estate." Smith v. Arthur Andersen LLP, 421 F.3d 989, 1002 9 (9th Cir. 2005) (citing United States v. Whiting Pools, Inc., 10 462 U.S. 198, 205 n.9 (1983)). Thus, the trustee, or in this case 11 the debtor-in-possession, stands in the shoes of the debtor 12 corporation and has standing to bring any suit that the debtor 13 corporation could have instituted had it not filed for bankruptcy 14 relief. Id. The trustee's standing to sue on behalf of the 15 estate is exclusive; a debtor's creditors cannot prosecute such 16 claims belonging to the estate absent abandonment. Estate of 17 Spirtos v. One San Bernardino Cty. Super. Ct., 443 F.3d 1172, 1175 18 (9th Cir. 2006). 19 Furthermore, § 1141(b) "vests all of the property of the 20 estate, scheduled and unscheduled, in the debtor upon plan 21 confirmation, unless the court or plan provides otherwise." In re 22 JZ L.L.C., 371 B.R. at 418 (emphasis in original). Hence, because 23 of § 1141(b), the general rule under § 554(d) — that property of 24 the estate that is not scheduled and not otherwise administered 25 before the case is closed and is not abandoned to the debtor at 26 the time of closing, but rather remains property of the estate, 27 forever — does not apply. Id. Thus, even undisclosed assets in a 28 chapter 11 case vest in the debtor under § 1141(b), unless the
-12- 1 plan provides otherwise. Id. at 419. Section 9.1 of the Plan 2 provides that all Litigation Claims, including all known or 3 unknown causes of action, Avoidance Actions and derivative 4 actions, vested in the Reorganized Debtor on the effective date. 5 This is not inconsistent with § 1141(b). 6 1. The fraudulent transfer claim 7 The crux of SPER's fraudulent transfer claim was Capriati's 8 alleged over-payment of salary to Rocchio, which SPER argued was a 9 transfer in fraud of all creditors and harmful to Capriati. In 10 other words, SPER's complaint alleged a direct injury to Capriati, 11 from which an injury to SPER was derived. "If a cause of action 12 alleges only indirect harm to a creditor (i.e., an injury which 13 derives from harm to the debtor), and the debtor could have raised 14 a claim for its direct injury under the applicable law, then the 15 cause of action belongs to the estate." Schertz-Cibolo-Universal 16 City, Indep. Sch. Dist. v. Wright (In re Educators Grp. Health 17 Tr.), 25 F.3d 1281, 1284 (5th Cir. 1994). 18 We conclude that SPER's fraudulent transfer claim asserted in 19 the state court action was property of Capriati's bankruptcy 20 estate by virtue of § 544(b) once Capriati filed its bankruptcy 21 petition, and such claim could only be pursued by Capriati. 22 § 548(a); The Cadle Co. v. Mims (In re Moore), 608 F.3d 253, 261 23 (5th Cir. 2010) (fraudulent transfer claims become estate property 24 "once bankruptcy is under way" by virtue of trustee's successor 25 rights under § 544(b)); Nat'l Tax Credit Partners, L.P. v. Havlik, 26 20 F.3d 705, 708-09 (7th Cir. 1994) (same). See also Whiting 27 Pools, Inc., 462 U.S. at 205 ("Section 541(a)(1) is intended to 28 include in the estate any property made available to the estate by
-13- 1 other provisions of the Bankruptcy Code," which would include 2 property made available through § 544). 3 We reject SPER's argument that it could pursue a direct claim 4 against Rocchio as the "transferee" of a fraudulent transfer under 5 Nevada law, namely NRS 112.220, which provides for recovery of the 6 value of the asset transferred from the transferee, during the 7 chapter 11 case. That statute does not consider the effect of a 8 corporate debtor's bankruptcy filing and the fact that a 9 prepetition claim for injury to the debtor by an insider's 10 fraudulent transfers is property of the corporate debtor's estate. 11 2. The alter ego claim 12 Whether the alter ego claim was property of the estate or of 13 the Reorganized Debtor is not as easy to determine. The alter ego 14 doctrine is used to establish the direct liability of a 15 shareholder when that shareholder improperly uses the corporate 16 entity to commit acts which harm the corporation. Here, SPER 17 alleged a traditional veil-piercing (alter ego) claim, whereby a 18 creditor attempts to place liability for a debtor-corporation's 19 obligations on its shareholders. 20 Whether an alter ego claim is property of the bankruptcy 21 estate depends on two things: (1) whether under state law where 22 the corporate debtor is incorporated, the debtor is permitted to 23 pierce its own corporate veil; and (2) whether the claim is a 24 general one, of the type that could be brought by any creditor of 25 the debtor. Kalb, Voorhis & Co. v. Am. Fin. Corp., 8 F.3d 130, 26 132-33 (2d. Cir. 1993); S.I. Acquistion, Inc. v. Eastway Delivery 27 Serv., Inc., 817 F.2d 1142, 1152-53 (5th Cir. 1987); CBS, Inc. v. 28 Folks (In re Folks), 211 B.R. 378, 384, 387 (9th Cir. BAP 1997);
-14- 1 Murray v. Miner, 876 F. Supp. 512, 516 (S.D.N.Y. 1995); In re 2 Landmark Fence Co., 424 B.R. 461, 463 (Bankr. C.D. Cal. 2010); 3 In re Davey Roofing Inc., 167 B.R. 604, 608 (Bankr. C.D. Cal. 4 1994). If the answer to both of these questions is yes, then the 5 alter ego claim is property of the estate, belongs to the trustee 6 or debtor-in-possession, and cannot belong to any individual 7 creditor. In re Folks, 211 B.R. at 387 (citing Davey Roofing, 8 Inc., 167 B.R. at 606). "This rule ensures that all of a debtor's 9 creditors receive equal treatment: otherwise, those who asserted 10 alter ego claims first would obtain payment of the claims in 11 preference to and to the detriment of other creditors, despite 12 having no greater claim on the alter ego's assets." Murray, 13 876 F. Supp. at 516 (internal quotation marks and citation 14 omitted). 15 Despite SPER's assertion and the bankruptcy court's finding 16 to the contrary, the alter ego claim alleged here was a general, 17 as opposed to a personal or individualized, claim. "A cause of 18 action is personal if the claimant himself is harmed and no other 19 claimant or creditor has an interest in the cause." In re Folks, 20 211 B.R. at 387 (internal quotation marks and citation omitted). 21 "A general claim exists if the liability is to all creditors of 22 the corporation without regard to the personal dealings between 23 such officers and such creditors." Id. (internal quotation marks 24 and citation omitted). In other words, if the alter ego claim 25 alleges acts that harmed the financial condition of the 26 corporation as a whole and all creditors equally, such claims are 27 general alter ego claims. Id. See Kalb, Voorhis & Co., 8 F.3d at 28 133; In re Landmark Fence Co., 424 B.R. at 463-64; In re Davey
-15- 1 Roofing, Inc., 167 B.R. at 608. 2 SPER's alter ego claim alleging that Rocchio (1) had failed 3 to observe corporate formalities with respect to Capriati, 4 (2) used corporate funds for his own personal use, and (3) had 5 manipulated Capriati's assets and funds to avoid payment of 6 creditors was a general claim because all creditors are affected; 7 no particularized injury to SPER existed that could not be brought 8 by other Capriati creditors harmed by Rocchio's alleged bad acts. 9 Accordingly, the bankruptcy court clearly erred to the extent that 10 it found SPER had a "direct" or personal alter ego claim against 11 Rocchio that was not an asset of the chapter 11 estate. 12 As for the question of whether Capriati could pierce its own 13 corporate veil, the parties have been operating under the 14 assumption that Nevada alter ego law applies. However, Capriati 15 is a Rhode Island corporation. Thus, as noted above, Rhode Island 16 alter ego law applies. 17 Rhode Island recognizes the equitable doctrine of alter ego. 18 McFarland v. Brier, 769 A.2d 605, 613 (R.I. 2001) (alter ego 19 doctrine permits creditors of a corporation to reach assets of 20 individual(s) that control the corporation). However, we could 21 not locate any Rhode Island Supreme Court case answering the 22 question of whether a corporation may pierce its own veil. 23 In any event, the general rule in most (if not all) states is 24 that "alter ego" is not an independent cause of action, but is an 25 equitable remedy — a legal theory or doctrine used to impose 26 liability against the alter ego defendant under another cause of 27 28
-16- 1 action.5 We could not locate a Rhode Island Supreme Court case 2 stating whether this is the law in Rhode Island, but based on that 3 Court's use of the terms "equitable" and "doctrine" in cases 4 discussing alter ego, we can assume that Rhode Island follows this 5 general rule. See Heflin v. Koszela, 774 A.2d 25, 30 (R.I. 2001) 6 ("To invoke the equitable alter ego doctrine . . . ."). 7 Thus, we question what value SPER's alter ego claim has as a 8 remedy absent the ability to pursue the fraudulent transfer claim. 9 3. SPER violated the automatic stay 10 The bankruptcy court determined that SPER could not have 11 violated the automatic stay by filing and pursuing its "direct" 12 claims for fraudulent transfer and alter ego against Rocchio 13 individually in the state court action. We do not argue the point 14 that generally a non-debtor is not protected by the automatic 15 stay. However, as we have determined, SPER's fraudulent transfer 16 claim was not a "direct" claim against Rocchio, because it became 17 property of the estate once Capriati filed its bankruptcy case. 18 The automatic stay continues to protect property of the 19 estate so long as it retains that status. § 362(c)(1). While the 20 automatic stay did not apply to Rocchio, it did apply to claims 21 against property of the estate prior to confirmation under 22 23 24 5 For example, in California "[a] claim against a defendant, based on the alter ego theory, is not itself a claim for 25 substantive relief, e.g., breach of contract or to set aside a fraudulent conveyance, but rather, procedural . . . " Hennessey's 26 Tavern, Inc. v. Am. Air Filter Co., 204 Cal. App. 3d 1351, 1359 (1988). "Alter ego is merely a legal theory, or doctrine, 27 employed to make a substantive cause of action applicable to the 'alter ego defendant' where otherwise that claim could only be 28 stated against the corporate entity." Id.
-17- 1 § 362(a)(3).6 As a result, SPER violated the automatic stay when 2 it asserted the fraudulent transfer and related alter ego claims 3 in its state court complaint. And acts in violation of the stay 4 are void, absent an annulment of the stay. SPER cannot rely on 5 those claims for relief either as initially pled or as amended. 6 Schwartz v. United States (In re Schwartz), 954 F.2d 569, 571 (9th 7 Cir. 1992) (actions taken in violation of the automatic stay are 8 void). 9 Whether SPER has a post-Plan confirmation "direct" claim is 10 an issue for further consideration, but it must assert such a 11 claim as a new matter after confirmation and without reliance on 12 void assertions during the course of the case. However, SPER's 13 new attempt would remain subject to potentially successful attack 14 based on the discharge and Plan injunction and subject to defenses 15 such as the statute of limitations, as applicable. 16 Section 362(k) permits the recovery of damages resulting from 17 a stay violation. This subsection, however, applies only to 18 individuals, not corporations. In re H Granados Commc'ns, Inc., 19 503 B.R. at 733. Nonetheless, a corporation may be entitled to 20 recovery for a stay violation under § 105(a) as a sanction for 21 civil contempt. Id. 22 To find a party in civil contempt for a stay violation, the 23 threshold inquiry focuses on a finding of "willfulness." Id. 24 (citing In re Dyer, 322 F.3d at 1191). The bankruptcy court must 25 find that: (1) the party knew of the automatic stay; and (2) the 26 27 6 Under § 362(a)(3), the automatic stay prohibits "any act to obtain possession of property of the estate or of property from 28 the estate or to exercise control over property of the estate."
-18- 1 party's actions that violated the stay were intentional. Id. 2 Whether the party exhibited bad faith or had a subjective intent 3 to violate the stay is irrelevant. Id. The movant bears the 4 burden of showing by clear and convincing evidence that the party 5 violated the stay. Id. 6 SPER has never claimed that it did not receive notice of 7 Capriati's bankruptcy filing. Indeed, it was careful not to 8 include Capriati as a defendant in the state court action, filed 9 just one week after Capriati filed its chapter 11 case. Further, 10 Frankewich, a bankruptcy attorney of over 30 years, is certainly 11 familiar with the rules of the automatic stay and knew or should 12 have known that usurping property of the bankruptcy estate is a 13 willful violation of the automatic stay. Her subjective belief 14 that the claims in the state court action were against Rocchio 15 only and not Capriati makes no difference for purposes here, 16 despite the bankruptcy court's ruling to the contrary. Because 17 the court applied an incorrect legal standard, its finding that 18 SPER had not willfully violated the automatic stay is clearly 19 erroneous. In re Ozenne, 337 B.R. at 218. 20 The record supported a determination that SPER willfully 21 violated the automatic stay by filing and continuing to pursue the 22 fraudulent transfer claim against Rocchio in the state court 23 action after Capriati filed its bankruptcy case and prior to 24 confirmation of the Plan. Therefore, the bankruptcy court abused 25 its discretion by not holding SPER in contempt. 26 4. Whether SPER violated the discharge and/or Plan injunction can be determined on remand. 27 28 Per § 1141(b) and Sections 1.1.41, 9.1, 9.2 and 9.4 of the
-19- 1 Plan, the fraudulent transfer claim (and maybe the alter ego claim 2 if viable under Rhode Island law and if it was property of the 3 estate) appears to be a "Litigation Asset" that reverted to the 4 Reorganized Debtor upon confirmation of the Plan, gave the 5 Reorganized Debtor exclusive right to sue on, settle or compromise 6 that claim, and permanently enjoined any other parties from 7 commencing or continuing any action regarding that claim. 8 Capriati argues that the bankruptcy court erred by not holding 9 SPER in contempt for willfully violating the Plan injunction and 10 confirmation order, when it was clear that SPER was attempting to 11 take control over claims belonging to the Reorganized Debtor. 12 The contempt remedy is also available with respect to 13 violations of the discharge injunction under § 105(a). ZiLOG, 14 Inc. v. Corning (In re ZiLOG, Inc.), 450 F.3d 996, 1007 (9th Cir. 15 2006); Walls v. Wells Fargo Bank, N.A., 276 F.3d 502, 507 (9th 16 Cir. 2002); In re Taggart, 548 B.R. at 286. The party seeking 17 contempt sanctions has the burden of proving, by clear and 18 convincing evidence, that the alleged contemnor "(1) knew the 19 discharge injunction was applicable and (2) intended the actions 20 which violated the injunction." In re ZiLOG, Inc., 450 F.3d at 21 1007; Renwick v. Bennett (In re Bennett), 298 F.3d 1059, 1069 (9th 22 Cir. 2002) ("The moving party has the burden of showing by clear 23 and convincing evidence that the contemnors violated a specific 24 and definite order of the court."). Knowledge of the injunction 25 is a question of fact that can normally be resolved only after an 26 evidentiary hearing. In re ZiLOG, Inc., 450 F.3d at 1007. 27 However, where the facts are not in dispute, no hearing need be 28 held. Id. at 1007 n.11 (citing In re Dyer, 322 F.3d at 1191-92).
-20- 1 Here, the bankruptcy court applied the correct legal standard 2 for a willful violation of the discharge or Plan injunction. It 3 is undisputed that SPER knew of the Plan injunction and 4 confirmation order given its objections to Plan confirmation, 5 which were overruled at the confirmation trial, and that SPER 6 continued to pursue the state court action post-confirmation. 7 However, it is not clear on this record whether SPER was aware 8 that the Plan injunction applied to its claims against Rocchio for 9 fraudulent transfer and alter ego. The bankruptcy court may need 10 to conduct an evidentiary hearing on remand to make that 11 determination. 12 B. We need not decide whether the bankruptcy court abused its discretion by invoking judicial estoppel to deny the Contempt 13 Motion. 14 Capriati argues that the bankruptcy court misapplied and 15 grossly over-extended the doctrine of judicial estoppel. We do 16 not fault the court for wanting to apply some sort of equitable 17 doctrine in this case to deny Capriati's request for monetary 18 damages for contempt, which is all it requested. Like the 19 bankruptcy court, we question why a corporate debtor like Capriati 20 would concern itself with a creditor’s pursuit of a third party, 21 albeit a corporate insider, in state court. The fairly obvious 22 reason Capriati was seeking monetary damages for contempt in the 23 bankruptcy court was to protect and benefit Rocchio, Capriati’s 24 principal and sole shareholder. 25 Judicial estoppel is an equitable doctrine that precludes a 26 party from gaining an advantage by asserting one position, and 27 then later seeking an advantage by taking a clearly inconsistent 28 position, either in the same or different actions. Hamilton,
-21- 1 270 F.3d at 782-83. The court invokes judicial estoppel not only 2 to prevent a party from gaining an advantage by taking 3 inconsistent positions, "but also because of general 4 considerations of the orderly administration of justice and regard 5 for the dignity of judicial proceedings, and to protect against a 6 litigant playing fast and loose with the courts." Id. (internal 7 quotation marks and citation omitted). 8 Although Capriati as a chapter 11 debtor-in-possession and 9 revested debtor had exclusive standing to sue on causes of action 10 that were property of the estate, that right is subject to certain 11 equitable constraints. In re JZ, L.L.C. 371 B.R. at 418; § 1107.7 12 As the Panel has noted: 13 Section 1141(b) vesting does not mean that a debtor necessarily has unfettered control over property of the 14 estate. It neither authorizes nor condones mischief, such as omitting to schedule property. For that reason, 15 equitable constraints may be imposed in order to preserve the integrity of the system. In principle, the full 16 panoply of equitable remedies, from constructive trust through equitable and judicial estoppel, are available to 17 assure that debtors do not overreach. 18 In re JZ L.L.C., 371 B.R. at 420. Accordingly, as JZ L.L.C. 19 instructs, the bankruptcy court had discretion to apply an 20 equitable doctrine like judicial estoppel to deny Capriati 21 contempt damages. We simply disagree that applying the doctrine 22 without recognizing that a stay violation occurred and that SPER 23 continues to rely on void claims for relief is appropriate. 24 On remand, the bankruptcy court may certainly revisit any 25 equitable doctrine it deems appropriate to deny contempt damages 26 7 Under § 1107(a), the debtor in possession is vested with 27 the rights, powers, and duties of a trustee, including the right to sue and be sued. See § 323(b) (trustee has capacity to sue and 28 be sued).
-22- 1 to Capriati. 2 C. The bankruptcy court abused its discretion in denying the motion to reconsider. 3 4 A motion under Civil Rule 59(e) should not be granted unless 5 the court is presented with newly discovered evidence, committed 6 clear error, or if there is an intervening change of controlling 7 law. 389 Orange St. Partners v. Arnold, 179 F.3d 656, 665 (9th 8 Cir. 1999). Capriati asked the bankruptcy court to reconsider its 9 ruling on the Contempt Motion, arguing that the court had erred 10 when it determined that (1) SPER had a direct claim against 11 Rocchio, (2) that judicial estoppel authorized the court to allow 12 a single creditor to bring postpetition and post-confirmation 13 fraudulent transfer and alter ego claims, which were property of 14 the estate and of the Reorganized Debtor, for the creditor's sole 15 benefit, and that (3) SPER had not willfully violated the 16 automatic stay or Plan injunction. Because we have determined 17 that the court applied incorrect standards of law and made clearly 18 erroneous findings of fact based on its erroneous view of the law, 19 it abused its discretion by not granting Capriati's motion to 20 reconsider.8 21 VI. CONCLUSION 22 For the foregoing reasons, we VACATE and REMAND the Contempt 23 Order for the bankruptcy court to determine what sanctions are 24 25 8 SPER requests sanctions against Capriati for filing a frivolous appeal. First, Capriati has prevailed in this appeal. 26 In addition, we deny SPER's request because it fails to comply with Rule 8020, which requires a party to request sanctions for a 27 frivolous appeal by separate motion. State of Cal. Emp't Dev. Dep't v. Taxel (In re Del Mission Ltd.), 98 F.3d 1147, 1154 (9th 28 Cir. 1996).
-23- 1 appropriate for SPER's willful violation of the automatic stay and 2 perhaps willful violation of the Plan injunction. We leave to the 3 court's discretion as to whether any further proceedings are 4 necessary for it to make that determination. 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
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