In Re: Collins

• Court: District Court, S.D. California
• Decided: March 16, 2020
• Docket: 3:19-cv-00247
• Status: Unknown

Opinion

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 CHARLES G. COLLINS, JANELLE L. Case No.: 19-CV-247 JLS (BLM) COLLINS, and CHADWICK C. 12 COLLINS, ORDER GRANTING MOTION TO 13 DISMISS APPEAL FOR LACK OF Appellants, JURISDICTION 14 v. 15 (ECF No. 9) NANCY L. WOLF, Chapter 7 Trustee, 16 Appellee. 17 18 Presently before the Court is Appellee Nancy L. Wolf’s Motion to Dismiss 19 Appellants Charles G. Collins, Chadwick C. Collins, and Janelle Collins’ Bankruptcy 20 Appeal (“Mot.,” ECF No. 9). Also before the Court is Appellants’ Opposition to (“Opp’n,” 21 ECF No. 15) and Appellee’s Reply in support of (ECF No. 16) the Motion to Dismiss. 22 Having considered the Parties’ arguments and the law, the Court GRANTS Appellee’s 23 Motion to Dismiss. 24 BACKGROUND 25 On December 7, 2011, Appellant Chadwick Collins filed for Chapter 7 bankruptcy. 26 Mot. at 5. The relevant history for purposes of this appeal began on March 7, 2013, when 27 Appellee Nancy L. Wolf, the appointed Chapter 7 Trustee, filed an adversary complaint 28 against the Appellants seeking declaratory relief and recovery of Janelle and Chadwick’s 1 former residence located at 1480 Beechtree Road, San Marcos, California 92078 (the 2 “Beechtree Property”).1 Id. at 6. 3 Throughout these proceedings, Appellants have contended that Chadwick and 4 Janelle sold Charles the Beechtree Property and that, even if that sale was ineffective, 5 Charles owns an equitable interest in the property. Id. Appellants have also argued that, 6 if Charles does not own the Beechtree Property, half the Property is separate property 7 owned by Janelle and thus not part of the bankruptcy estate because she owned the 8 Beechtree Property in joint tenancy with Chadwick. Id. The Bankruptcy Court disagreed, 9 finding that the Charles had no right, title, or interest in the Beechtree Property and that 10 Chadwick and Janelle owned the Property as community property, making it part of the 11 bankruptcy estate. Id. Accordingly, the Bankruptcy Court entered an order for turnover 12 of the Property in December 2016. Id. Appellants appealed the turnover order but did not 13 seek or obtain a stay.2 Id. 14 On August 10, 2017, the Bankruptcy Court approved the sale of the Beechtree 15 Property. Id. at 7. The Beechtree Property was sold to a third-party purchaser, and the sale 16 proceeds were paid to several creditors, with the remainder going to Chadwick’s 17 bankruptcy estate. Id. Appellants did not seek or obtain a stay of the sale order. Id. 18 On October 4, 2017, the Bankruptcy Court entered final judgment in the bankruptcy 19 proceeding. Id. at 6. Appellants appealed to this Court two days later. Id. at 7. The Court 20 affirmed the Bankruptcy Court’s judgment on September 10, 2018, finding that neither 21 Charles nor Janelle held any interest in the Beechtree Property. See Collins v. Wolf, 591 22 B.R. 752, 779 (S.D. Cal. 2018). Shortly after, Appellants filed a notice of appeal to the 23 /// 24 /// 25 26 1 A more detailed recitation of the facts can be found in the Court’s September 10, 2018 Order entered in the adversary proceeding. See Collins v. Wolf, 591 B.R. 752, 758–60 (S.D. Cal. 2018). 27

28 2 The appeal of the turnover order was dismissed for lack of jurisdiction. See In re Collins, No. 1 Ninth Circuit Court of Appeals. Mot. at 7. Appellants did not seek a stay pending their 2 appeal. Id. 3 The current appeal arises from the Bankruptcy Court’s three November 15, 2018 4 Orders (together, the “Fee Orders”) authorizing final compensation to: Chapter 7 Trustee 5 Nancy Wolf (Appellants’ Excerpt of Record (“ER”), ECF No. 8-1 at 104–108); Etes & 6 Hoyt, APC, attorneys for the Trustee (id. at 109–13); and R. Dean Johnson, accountant for 7 the Trustee (id. at 114–18) (together, the “Estate Professionals”). Appellants did not 8 oppose the amount of the Fee Orders or whether the Estate Professionals should be paid. 9 Appellants did, however, request that “any fee award be interim, not final” or that “any 10 order awarding fees to the [Estate Professionals] specifically state that any compensation 11 paid . . . be subject to disgorgement in the event the Collins Defendants prevail on their 12 appeal.” Id. at 101–02. The Bankruptcy Court rejected their request and entered the final 13 Fee Orders without a disgorgement clause. Id. at 104–18. Appellants filed a motion to 14 reconsider the Fee Orders, id. at 119–24; the Bankruptcy Court denied that motion. Id. at 15 164–69. Appellants then appealed all three of the final Fee Orders to this Court. Id. at 16 172–73. 17 STANDARD OF REVIEW 18 A district courts reviews a bankruptcy court’s legal conclusions de novo and its 19 factual findings for clear error. In re Mortgs. Ltd., 771 F.3d 1211, 1214 (9th Cir. 2014). 20 “Standing and ripeness are questions of law.” San Diego Cty. Gun Rights Comm. v. Reno, 21 98 F.3d 1121, 1124 (9th Cir. 1996). 22 DISCUSSION 23 Appellants raise five issues on appeal that all essentially ask the same question: Did 24 the Bankruptcy Court commit reversable error in granting the Fee Orders without making 25 them subject to disgorgement? See ECF No. 8 at 4–5. 26 27 28 3 The Ninth Circuit appeal has been held in abeyance pending a ruling by the California Supreme Court 1 Appellee contends that the Court must dismiss this appeal because Appellants lack 2 standing to challenge the Fee Orders. Mot. at 8–10. After reviewing the current record on 3 appeal to determine whether the Court has jurisdiction, as it must, see Chapman v. Pier 1 4 Imports (U.S.) Inc., 631 F.3d 939, 954 (9th Cir. 2011) (en banc) (holding courts must 5 examine jurisdictional issues sua sponte), the Court concludes that Appellants lack 6 standing to appeal the Fee Orders under both the bankruptcy-specific “person aggrieved” 7 standing test and traditional Article III standing principles.4 8 I. Standing Under the Person Aggrieved Test 9 “[T]o have standing to appeal a bankruptcy court’s order, ‘[t]he appellant must be a 10 “person aggrieved” by the bankruptcy court’s order.’” In re Kyung Sook Kim, 433 B.R. 11 763, 781 (D. Haw. 2010) (second alteration in original) (quoting In re P.R.T.C., Inc., 177 12 F.3d 774, 777 (9th Cir. 1999)). To meet the so-called “person aggrieved” test, an appellant 13 must show they are “directly and adversely affected pecuniarily by an order of the 14 bankruptcy court.” In re P.R.T.C., 177 F.3d at 777 (quoting Fondiller v. Robertson, 707 15 F.2d 441, 442 (9th Cir.1983)). An order has a direct and adverse pecuniary effect if it 16 “diminish[es] the appellant’s property, increase[s] its burdens, or detrimentally affect[s] its 17 rights.” Id. 18 To assess standing under the person aggrieved test in this case, the Court must 19 determine the interests of each of the Appellants. Both Parties treat Appellants as a single 20 unit with one interest. Janelle and Charles, however, have claimed an ownership interest 21 in the Beechtree Property, while Chadwick has not. And Chadwick is a Chapter 7 debtor, 22 while Janelle and Charles are not. Thus, their interests in having the Fee Orders be subject 23 /// 24

25 4 The Court notes that in Appellee’s Motion, Appellee confines her argument to the narrow issue of 26 standing to appeal the Fee Orders under the “aggrieved person” test. Mot. at 8–10. Although Appellee does not raise Article III standing, because the Court has an “independent obligation to inquire into [its] 27 own jurisdiction,” the Court finds it appropriate to address standing under Article III as well. See Bova 28 v. City of Medford, 564 F.3d 1093, 1095 (9th Cir. 2009) (quoting Perez-Martin v. Ashcroft, 394 F.3d 752, 1 to disgorgement differ. For this reason, the Court finds it necessary to assess Chadwick’s 2 standing under the person aggrieved test separately from Charles and Janelle’s standing. 3 Regarding Chadwick, the Court finds that he lacks standing to bring this appeal. 4 “Ordinarily, a debtor cannot challenge a bankruptcy court’s order unless there is likely to 5 be a surplus after bankruptcy.” In re P.R.T.C., 177 F.3d at 778 n.2. If the Ninth Circuit 6 determines that the Beechtree Property is owned in whole or in part by Charles or Janelle, 7 the estate assets could be dramatically reduced, making a surplus at the end of bankruptcy 8 unlikely. And if Appellants are successful in making the Fee Orders subject to 9 disgorgement—which is the only relief sought in this appeal—a surplus would be even less 10 likely. Because Chadwick has not shown that making the Fee Orders subject to 11 disgorgement could lead to a surplus of the estate, he cannot show that the omission of a 12 disgorgement clause in the final Fee Orders “diminish[es his] property, increase[s] his 13 burdens, or detrimentally affect[s] his rights.” See Fondiller, 707 F.2d at 442. Therefore, 14 Chadwick lacks standing to bring this appeal. 15 Turning to Janelle and Charles, the Court similarly finds that they lack standing. 16 Appellee contends that because both the Bankruptcy Court and this Court determined that 17 Janelle and Charles have no interest in the Beechtree Property or the money from its sale, 18 they have no interest in the estate funds used to pay the fee awards authorized in the Fee 19 Orders. Mot. at 9. 20 Janelle and Charles counter, arguing that the “Fee Orders have a tangible negative 21 impact” on their interests for two reasons. Opp’n at 5. First, Janelle and Charles contend 22 that their ownership interests in the Beechtree Property have not been finally decided 23 because that issue is still being appealed. Id. If they win that appeal, they could have an 24 interest in proceeds from the sale, some of which has been used to satisfy the final Fee 25 Orders. Id. To fully protect their potential rights in the proceeds from the Beechtree 26 Property, Janelle and Charles contend that the Fee Orders must either be interim or 27 expressly subject to disgorgement. Id. 28 /// 1 This interest, however, is entirely contingent on future events that might not occur. 2 Currently, Janelle and Charles have no actual interest in the estate funds. Thus, the Fee 3 Orders have not diminished Janelle or Charles’s current property in any way. More 4 importantly, Janelle and Charles have not shown that, absent the express disgorgement 5 clause, they will be unable to recover the funds from the Estate Professionals if they prevail 6 on appeal. Indeed, several Courts have noted that disgorgement of attorney’s fees is a 7 remedy available if funds are improperly disbursed. See, e.g., S.S. Retail Stores Corp. v. 8 Ekstrom, 216 F.3d 882, 884 (9th Cir. 2000) (finding disgorgement of attorney’s fees a 9 possible remedy because “[a]n order compelling disgorgement of [attorney’s] fees and 10 expenses would not require the bankruptcy court to unravel a complicated bankruptcy 11 plan”); see also In re Int’l Envtl. Dynamics, Inc., 718 F.2d 322, 326 (9th Cir. 1983) (noting 12 disgorgement was a possible remedy because, despite the appellant failing to obtain a stay 13 before appealing the bankruptcy court’s order granting attorney’s fees, the counsel 14 receiving the fees was a party before the bankruptcy court and knew the appellant contested 15 the fee award). The Fee Orders have therefore not adversely affected Janelle’s or Charles’s 16 rights to recover the proceeds from the sale of the Beechtree Property if they are successful 17 on appeal. 18 Second, Janelle and Charles contend that, absent an express disgorgement clause in 19 the Fee Orders, Appellee will gain an advantage in their pending Ninth Circuit appeal. 20 Opp’n at 6. Janelle and Charles believe that Appellee will argue their appeal is equitably 21 moot because the money they could recover if they win their appeal has been disbursed. 22 Id. The Court does not find this argument persuasive. Having to defend against a possible 23 legal argument on appeal “has no direct and immediate impact on [Janelle’s or Charles’s] 24 pecuniary interests.” See Fondiller, 707 F.2d at 442 (finding appellant was not a “person 25 aggrieved” where “only demonstrable interest in [the bankruptcy] order” was “as a 26 potential party defendant in an adversary proceeding”). Moreover, Janelle and Charles 27 have not shown that omitting the disgorgement clause will guarantee they will lose their 28 /// 1 appeal. It may mean more briefing, but this is not a burden sufficient to confer standing 2 under the person aggrieved test. See id. 3 For the reasons stated, the Court finds that none of the Appellants are persons 4 aggrieved by the Fee Orders. As such, Appellants lack standing to bring this appeal. 5 II. Article III Standing 6 In addition to failing the narrower standing requirements to appeal a bankruptcy 7 court’s order, the Court also finds that Appellants fail to show standing to bring this appeal 8 under the traditional Article III standing requirements. Article III standing requires that 9 the plaintiff “(1) suffered an injury in fact, (2) that is fairly traceable to the challenged 10 conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial 11 decision.” Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 1547 (2016) (citing Lujan v. Defenders 12 of Wildlife, 504 U.S. 555, 560–61 (1992)). The “party seeking to invoke the court’s 13 jurisdiction” bears the burden of establishing jurisdiction. Cedars-Sinai Med. Ctr. v. 14 Watkins, 11 F.3d 1573, 1584 (Fed. Cir. 1993). 15 At issue here is whether Appellants have suffered an injury in fact.5 “To establish 16 injury in fact, a plaintiff must show that he or she suffered ‘an invasion of a legally 17 protected interest’ that is ‘concrete and particularized’ and ‘actual or imminent, not 18 conjectural or hypothetical.’” Id. (quoting Lujan, 504 U.S. at 560). “Particularized injuries 19 ‘affect the plaintiff in a personal and individual way,’ while a ‘concrete injury must be de 20 facto; that is, it must actually exist.’” Fleming v. Charles Schwab Corp., 878 F.3d 1146, 21 1151 (9th Cir. 2017) (quoting Spokeo, 136 S. Ct. at 1548). 22 /// 23

24 5 The injury-in-fact component of standing is “closely related” to another Article III case or controversy 25 requirement: ripeness. Bova, 564 F.3d at 1096. “[I]n many cases, ripeness coincides squarely with standing’s injury in fact prong,” Thomas v. Anchorage Equal Rights Comm’n, 220 F.3d 1134, 1138 (9th 26 Cir. 2000) (en banc), because “the inquiry is largely the same: whether the issues presented are definite and concrete, not hypothetical or abstract.” In re Parvin, 549 B.R. 268, 274 (W.D. Wash. 2016) (internal 27 quotations omitted) (quoting Wolfson v. Brammer, 616 F.3d 1045, 1058 (9th Cir. 2010)). Although the 28 Court focuses its analysis on injury in fact, Appellants’ challenge to the Fee Orders is also not ripe for the 1 The Court finds Appellants have not shown they suffered an injury in fact. 2 Appellants seek only the right to disgorge the fees paid to the Estate Professionals if they 3 win on appeal. Before they would have a right to even ask for disgorgement, however, 4 multiple courts must make multiple rulings in their favor on multiple issues. Their alleged 5 injuries are therefore not actual or imminent but are instead based on “a chain of events” 6 that “can be hypothesized in which the action challenged eventually leads to actual injury.” 7 N.W. Airlines v. FAA, 795 F.2d 195, 201 (D.C. Cir. 1986). 8 For example, Janelle might suffer an injury from the lack of an express disgorgement 9 clause only if the California Supreme Court rules in her favor in In re Brace, No. S252473 10 (filed Nov. 9, 2018), and the Ninth Circuit rules that Charles does not own the Beechtree 11 property. Likewise, Charles would need the Ninth Circuit to rule in his favor on multiple 12 issues regarding his interest in the property. In both of these scenarios, for an injury to 13 occur based on the Fee Orders, the Ninth Circuit would have to rule that disgorgement is 14 inappropriate (which, as noted above, is not a foregone conclusion, see S.S. Retail Stores, 15 216 F.3d at 884; see also In re Int’l Envtl. Dynamics, 718 F.2d at 326). Their ultimate 16 injury thus “rests upon contingent future events that may not occur as anticipated, or indeed 17 may not occur at all.” Texas v. United States, 523 U.S. 296, 300 (1998) (quoting Thomas 18 v. Union Carbide Agric. Prods. Co., 473 U.S. 568, 580–81 (1985) (internal quotation marks 19 omitted)). “Reaching th[ese] ultimate conclusion[s] is highly ‘conjectural or hypothetical,’ 20 such that [A]ppellant[s] ha[ve] not alleged an injury in fact.” See In re Parvin, 549 B.R. 21 268, 273 (W.D. Wash. 2016) (quoting Northwest Airlines, 795 F.2d at 201). 22 For these reasons, the Court finds that Appellants have failed to show a cognizable 23 injury and thus lack standing. 24 /// 25 /// 26 /// 27 /// 28 /// 1 CONCLUSION 2 Based on the foregoing, the Court GRANTS Appellee’s Motion to Dismiss (ECF 3 || No. 9) for lack of jurisdiction and DISMISSES WITHOUT PREJUDICE Appellants’ 4 ||appeal (ECF No. 1). Appellee’s pending motion for extension of time (ECF No. 10) is 5 || DENIED AS MOOT. The Clerk of Court SHALL CLOSE the file. 6 IT IS SO ORDERED. 7 Dated: March 16, 2020 . tt 8 jen Janis L. Sammartino 9 United States District Judge 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28