In re: Charlene M. Milby

Opinion

FILED FEB 24 2016 1 NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK 2 U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT

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

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

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

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

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

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

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

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

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