In re: Ddj, Inc.

• Court: United States Bankruptcy Appellate Panel for the Ninth Circuit
• Decided: May 29, 2015
• Docket: EC-13-1409-KuPaJu EC-13-1410-KuPaJu
• Status: Unpublished

Opinion

FILED MAY 29 2015 1 NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL 2 OF THE NINTH CIRCUIT

3 UNITED STATES BANKRUPTCY APPELLATE PANEL 4 OF THE NINTH CIRCUIT 5 In re: ) BAP Nos. EC-13-1409-KuPaJu ) EC-13-1410-KuPaJu 6 DDJ, INC., ) ) Bk. No. 05-10001 7 Debtor. ) ______________________________) 8 ) JOE FLORES; CONNIE FLORES, ) 9 ) Appellants, ) 10 ) v. ) MEMORANDUM* 11 ) JAMES E. SALVEN, Chapter 7 ) 12 Trustee; DDJ, INC.; ROBERT ) ROSE; STATE OF CALIFORNIA ) 13 FRANCHISE TAX BOARD; UNITED ) STATES TRUSTEE, ) 14 ) Appellees. ) 15 ______________________________) 16 Submitted Without Oral Argument on May 14, 2015** 17 Filed – May 29, 2015 18 Appeal from the United States Bankruptcy Court 19 for the Eastern District of California 20 Honorable Fredrick E. Clement, Bankruptcy Judge, Presiding 21 Appearances: Appellants Joe Flores and Connie Flores, pro se, on brief; Thomas H. Armstrong, on brief, for 22 Appellee James E. Salven, chapter 7 trustee 23 Before: KURTZ, PAPPAS and JURY, Bankruptcy Judges. 24 25 * 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. 27 See 9th Cir. BAP Rule 8024-1. ** 28 By order entered on August 15, 2014, a motions panel determined these appeals suitable for submission on the briefs and record without oral argument. 1 INTRODUCTION 2 Joe and Connie Flores appeal pro se from an order of the 3 bankruptcy court overruling their objections to chapter 71 4 trustee James Salven’s final report in the DDJ, Inc. bankruptcy 5 case. Because none of the Floreses’ factual or legal contentions 6 on appeal have any merit, we AFFIRM. 7 FACTS 8 In 2004, the Floreses obtained a judgment after a jury trial 9 against DDJ, Inc. and its affiliate DDJ, LLC. Since that time, 10 the Floreses have been attempting, unsuccessfully, to collect on 11 that judgment. In 2005, both DDJ, Inc. and DDJ, LLC commenced 12 their chapter 7 bankruptcy cases, and Salven was duly appointed 13 to serve as the chapter 7 trustee in the DDJ, Inc. bankruptcy 14 case.2 Both before and after the bankruptcy filings, the 15 Floreses in furtherance of their collection efforts have sued a 16 host of individuals and entities related to the debtors. The 17 specifics of this litigation and the parties involved are not 18 material to our resolution of this appeal, except to note that 19 none of the litigation has resulted in the Floreses successfully 20 collecting on their judgment. 21 A dispute arose between the debtors, their bankruptcy 22 1 23 Unless specified otherwise, all chapter and section references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and 24 all "Rule" references are to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037. 25 2 26 Even though someone other than Salven was appointed to serve as the chapter 7 trustee for DDJ, LLC, Salven effectively 27 became responsible for the assets of both estates as a result of a September 2007 settlement between the Floreses and Salven, 28 among others, as described infra.

2 1 trustees and the Floreses regarding, among other things, who was 2 entitled to pursue claims against third parties. One of the 3 critical issues was whether the claims in question belonged to 4 the debtors’ bankruptcy estates or to the Floreses. The 5 Floreses, Salven and the DDJ, LLC trustee entered into a 6 settlement, which was approved by the bankruptcy court in 7 September 2007, and which cleared the way for Salven to sell the 8 estates’ interest in the litigation to a group of defendant 9 entities. As one of the settlement terms, the parties agreed 10 that all of DDJ, LLC’s rights were to be assigned to DDJ, Inc. 11 Another settlement term provided that Salven as the chapter 7 12 trustee for DDJ, Inc. would pursue all claims on behalf of both 13 DDJ, Inc. and DDJ, LLC.3 14 The Floreses later sought to vacate the order approving the 15 settlement, but the bankruptcy denied the Floreses’ motion to 16 vacate that order and all other attempts by the Floreses to undo 17 the settlement and Salven’s claims sale. 18 After extensive and repetitive disputes with the Floreses, 19 Salven sought and obtained from the bankruptcy court an order 20 declaring the Floreses to be vexatious litigants. Before 21 entering that order in February 2012, the court issued detailed 22 and comprehensive findings of fact addressing each of the 23 3 24 In addition to reviewing the record presented by the parties, we also have reviewed the bankruptcy court’s electronic 25 docket in the underlying bankruptcy case and the imaged documents 26 attached thereto. We can take judicial notice of the filing and content of those documents. See O'Rourke v. Seaboard Sur. Co. 27 (In re E.R. Fegert, Inc.), 887 F.2d 955, 957–58 (9th Cir. 1989); Atwood v. Chase Manhattan Mrtg. Co. (In re Atwood), 293 B.R. 227, 28 233 n.9 (9th Cir. BAP 2003).

3 1 vexatious litigant standards articulated by the Ninth Circuit 2 Court of Appeals. Among other things, the court’s analysis 3 included an examination of the myriad motions the Floreses had 4 filed since the beginning of 2011 in both debtors’ bankruptcy 5 cases and concluded that all of the Floreses’ motions since at 6 least the beginning of 2011 were frivolous. 7 The bankruptcy court narrowly tailored its vexatious 8 litigant order to address the specific problem it perceived – the 9 Floreses’ frivolous filings in the debtors’ bankruptcy cases. 10 The order in relevant part required the Floreses to obtain 11 advance approval from any bankruptcy court in the Eastern 12 District of California before filing any additional papers in the 13 debtors’ bankruptcy cases. The order also set forth specific 14 procedures the Floreses needed to follow if they sought to obtain 15 such approval. 16 The vexatious litigant order is a final order. The Floreses 17 have exhausted all of their appeal rights with respect to that 18 order and have not obtained its vacatur or reversal. More 19 specifically, the BAP entered an order dismissing as moot roughly 20 twenty of the Floreses’ appeals, including their appeals from the 21 vexatious litigant order, because the sole remaining asset of the 22 bankruptcy estates over which the parties were litigating – their 23 claimed interests in a state court lawsuit – had become 24 valueless: the state court lawsuit had been dismissed and that 25 dismissal had been affirmed on appeal. 26 In turn, the Floreses appealed the BAP dismissals to the 27 Court of Appeals, but the Court of Appeals denied the Floreses’ 28 request to pursue their appeals in forma pauperis and ultimately

4 1 dismissed their appeals for nonpayment of the filing fees. The 2 Court of Appeals issued mandates returning full jurisdiction to 3 the bankruptcy court during the first week of August 2013. 4 In April 2013, the bankruptcy court entered an order in DDJ, 5 Inc.’s bankruptcy case approving the final fee application of 6 Thomas Armstrong, Salven’s general counsel. That application was 7 unopposed, and no timely appeal was taken from the order. 8 In June 2013, Salven filed his final report, and notice was 9 issued to the estate’s creditors and interested parties advising 10 them that, if they objected to the final report, they needed to 11 file a written objection within twenty-one days. In July 2013, 12 the Floreses filed several papers with the court in opposition to 13 Salven’s final report. The Floreses asserted that the bankruptcy 14 court lacked jurisdiction to approve the final report while their 15 appeals to the Ninth Circuit were pending. The Floreses also 16 asserted that the court should not approve the final report 17 because many of the prior orders of the bankruptcy court were 18 void and invalid. In this respect, the Floreses’ opposition 19 papers largely reiterated the arguments they had made in the 20 bankruptcy court in 2011 and before. More importantly, before 21 filing their opposition papers, the Floreses did not make any 22 attempt to comply with the pre-filing procedures imposed on them 23 by the vexatious litigant order. 24 After Salven filed a reply and the Floreses filed a sur- 25 reply (again without complying with the vexatious litigant 26 order), the bankruptcy court held a hearing on the Trustee’s 27 final report, at which time it concluded that there was no 28 remaining jurisdictional impediment to it considering Salven’s

5 1 final report because the Court of Appeals by that time had 2 disposed of all of the Floreses’ appeals. The court proceeded to 3 overrule the Floreses’ opposition to the final report because the 4 Floreses had not complied with the vexatious litigant order. The 5 court entered an order memorializing this ruling on August 20, 6 2013. 7 On August 22, 2013, the Floreses timely filed a notice of 8 appeal from the order overruling their opposition to Salven’s 9 final report. 10 JURISDICTION 11 The bankruptcy court had jurisdiction pursuant to 28 U.S.C. 12 §§ 1334 and 157(b)(2)(A) and (B). Except as noted in the 13 jurisdiction discussion set forth below, we have jurisdiction 14 under 28 U.S.C. § 158. 15 ISSUES 16 1. Do we have jurisdiction over the portions of the Floreses’ 17 appeal challenging the order approving Armstrong’s final fee 18 application? 19 2. Did the bankruptcy court abuse its discretion when it 20 overruled the Floreses’ objections to Salven’s final report? 21 STANDARDS OF REVIEW 22 We review jurisdictional issues de novo. See Wilshire 23 Courtyard v. Cal. Franchise Tax Bd. (In re Wilshire Courtyard), 24 729 F.3d 1279, 1284 (9th Cir. 2013). 25 As with most rulings concerning estate administration, we 26 review the bankruptcy court’s order on the trustee’s final report 27 for an abuse of discretion. See, e.g., Goodwin v. Mickey 28 Thompson Entm't. Grp., Inc. (In re Mickey Thompson Entm't. Grp.,

6 1 Inc.), 292 B.R. 415, 420 (9th Cir. BAP 2003) (reviewing 2 compromise order for abuse of discretion); Vu v. Kendall 3 (In re Vu), 245 B.R. 644, 647 (9th Cir. BAP 2000) (reviewing 4 abandonment order for abuse of discretion). 5 The bankruptcy court abuses its discretion when it applies 6 an incorrect legal standard or when its findings are illogical, 7 implausible or without support in the record. See United States 8 v. Hinkson, 585 F.3d 1247, 1262 (9th Cir. 2009) (en banc). 9 DISCUSSION 10 While the Floreses timely appealed the order overruling 11 their objections to Salven’s final report, the Floreses also seek 12 by way of this appeal to challenge the court’s order approving 13 Armstrong’s final fee application. The court entered that order 14 in April 2013, but the Floreses did not file their notice of 15 appeal until August 2013. The order disposing of Armstrong’s 16 final fee application was a final order subject to immediate 17 appellate review. See, e.g., Circle K Corp. v. Houlihan, Lokey, 18 Howard & Zukin, Inc., (In re Circle K Corp.), 279 F.3d 669 (9th 19 Cir. 2002). As such, the Floreses needed to appeal that order 20 within the fourteen-day time period set forth in Rule 8002(a). 21 See Anderson v. Kalashian (In re Mouradick), 13 F.3d 326, 327 22 (9th Cir. 1994). 23 Rule 8002 is jurisdictional. The untimely filing of the 24 notice of appeal deprives this Panel of jurisdiction to review 25 the bankruptcy court's order granting the fee application. Id.; 26 see also Bowles v. Russell, 551 U.S. 205, 214 (2007) (“The timely 27 filing of a notice of appeal in a civil case is a jurisdictional 28 requirement.”).

7 1 Consequently, we cannot consider any of the Floreses’ 2 arguments challenging the order granting Armstrong’s fee 3 application. It does not matter whether the Floreses assert that 4 the order is void or merely wrong. We have no authority to 5 review or consider the order given the untimeliness of the 6 Floreses’ appeal. 7 Nonetheless, we can and will review the bankruptcy court’s 8 order overruling the Floreses’ opposition to Salven’s final 9 report. The Floreses’ main argument is that the order is void 10 because the bankruptcy court lacked jurisdiction to approve the 11 final report. According to the Floreses, in light of their Ninth 12 Circuit appeals, the court could not rule upon Salven’s final 13 report. 14 Generally speaking, when an appeal is taken from a trial 15 court’s final judgment or order, the trial court is divested of 16 most of its authority to hear and decide matters in that same 17 case. Rains v. Flinn (In re Rains), 428 F.3d 893, 903 (9th Cir. 18 2005). However, the rule regarding the effect of an appeal on 19 trial court jurisdiction is a judge-made prudential doctrine and 20 is far from absolute. Id. at 904 (citing Neary v. Padilla 21 (In re Padilla), 222 F.3d 1184, 1190 (9th Cir. 2000)). While an 22 appeal is pending, the trial court can still take certain actions 23 and decide certain matters, so long as the trial court does not 24 interfere with the status quo of the order on appeal. See 25 Hill & Sanford, LLP v. Mirzai (In re Mirzai), 236 B.R. 8, 10 (9th 26 Cir. BAP 1999) (stating that, while appeal is pending, trial 27 court may still “correct clerical errors, take steps to maintain 28 the status quo, take steps that aid in the appeal, award

8 1 attorney's fees, impose sanctions, and proceed with matters not 2 involved in the appeal.”). 3 As a matter of necessity, a bankruptcy court often needs to 4 continue to preside over the administration of a bankruptcy case, 5 even while appeals from prior, discrete orders are pending. A 6 pending appeal does not preclude a bankruptcy court from doing 7 so, as long as the bankruptcy court’s subsequent actions and 8 orders do not interfere with the status quo of the matters on 9 appeal. See id. The Floreses have not identified any impact the 10 bankruptcy court’s order on Salven’s final report had on their 11 appeals, nor are we aware of any such impact. 12 Even if we were to assume that the bankruptcy court’s order 13 on the final report somehow could have affected matters on 14 appeal, the Floreses’ argument regarding exclusive appellate 15 jurisdiction is fatally flawed as a factual matter. By virtue of 16 the mandates the Court of Appeals issued during the first week of 17 August 2013, all of the Floreses’ appeals were disposed of and 18 full jurisdiction was returned to the bankruptcy court before the 19 bankruptcy court ruled on the final report. See Sgaraglino v. 20 State Farm Fire & Cas. Co., 896 F.2d 420, 421 (9th Cir. 1990); 21 In re Mirzai, 236 B.R. at 10-11. Accordingly, we reject on both 22 factual and legal grounds the Floreses’ argument regarding 23 exclusive appellate jurisdiction. 24 The Floreses also assert that this Panel’s dismissal of 25 their prior appeals as moot automatically voided or invalidated 26 27 28

9 1 the bankruptcy court’s vexatious litigant order.4 This assertion 2 is simply wrong. In the absence of an order explicitly vacating 3 the orders on appeal, the dismissal of the appeals as moot did 4 not automatically vacate the orders appealed. See U.S. Bancorp 5 Mortg. Co. v. Bonner Mall P'ship, 513 U.S. 18, 22-24 (1994). 6 Instead, upon learning that their appeals might be dismissed as 7 moot, it was incumbent on the Floreses to request vacatur of the 8 orders appealed on mootness grounds if that is what they desired. 9 See United States v. Munsingwear, Inc., 340 U.S. 36, 39-41 10 (1950). Because they never requested a Munsingwear vacatur 11 order, they forfeited any entitlement they otherwise might have 12 held to such an order. Id. We cannot go back now into the prior 13 appeals and fix the Floreses’ omission. Id. 14 The Floreses claim that this result – the dismissal of their 15 appeals as moot followed by the continued enforcement of the 16 vexatious litigant order – effectively denied them due process of 17 law. We disagree. The Floreses’ due process argument is 18 inconsistent with Munsingwear, which held that an appellant 19 desiring vacatur of an order on appeal that has become moot must 20 timely ask for vacatur. Id. In the prior appeals, the Floreses 21 filed voluminous papers addressing the mootness issue both before 22 and after this Panel ruled. Thus, the Floreses had ample 23 opportunity to request a Munsingwear vacatur order in the prior 24 4 The Floreses do not otherwise challenge the bankruptcy 25 court’s finding that their conduct violated the vexatious 26 litigant order or its decision to disregard their opposition. Consequently, we decline to address any other issues potentially 27 arising from these rulings. See Christian Legal Soc'y v. Wu, 626 F.3d 483, 487–88 (9th Cir. 2010); Brownfield v. City of 28 Yakima, 612 F.3d 1140, 1149 n.4 (9th Cir. 2010).

10 1 appeals. Their failure to do so does not constitute a denial of 2 due process. 3 The Floreses’ other arguments on appeal focus on the 4 bankruptcy court’s order approving Armstrong’s final fee 5 application. Indeed, the last seven pages of the Floreses’ 6 appeal brief appear exclusively devoted to the court’s order on 7 Armstrong’s fees. Even so, it is conceivable (albeit barely so) 8 that the Floreses also meant to challenge the order on Salven’s 9 final report on the same grounds: based on allegations of fraud 10 on the court. We must liberally interpret the Floreses’ pro se 11 appeal brief, so we will briefly address their fraud on the court 12 argument. Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 13 (9th Cir. 1988), partially overruled on other grounds by Bell 14 Atl. Corp. v. Twombly, 550 U.S. 544 (2007). 15 The Floreses’ fraud on the court argument is a nonstarter. 16 The argument is premised on the allegation that Salven and his 17 counsel Armstrong made misrepresentations to the bankruptcy court 18 regarding: (1) the scope of their authority to represent the 19 interests of both debtors; and (2) the scope of Armstrong’s work 20 on behalf of both debtors. More specifically, the Floreses 21 contend that neither Salven nor Armstrong was authorized to do 22 anything on behalf of DDJ, LLC. As the Floreses explain, Salven 23 only was appointed to serve as chapter 7 trustee for DDJ, Inc., 24 and Armstrong only was retained to represent Salven as chapter 7 25 trustee in the DDJ, Inc. bankruptcy case. According to the 26 Floreses, Salven and Armstrong led the court to believe that 27 Armstrong’s services were performed solely for DDJ, Inc. when in 28 fact many of those services actually were performed for DDJ, LLC.

11 1 The parties’ September 2007 settlement tells a different 2 story. The settlement, agreed to by the Floreses and approved by 3 the bankruptcy court, effectively gave Salven (as trustee for 4 DDJ, Inc.) ownership and control over all of DDJ, LLC’s claims 5 against third parties and further provided that Salven (as 6 trustee for DDJ, Inc.) would pursue the claims of both bankruptcy 7 estates for the benefit of DDJ, Inc. Even though the Floreses 8 might construe the settlement differently or might challenge the 9 settlement’s validity, it is hard to conceive how Salven’s and 10 Armstrong’s statements to the court regarding their authority and 11 their services could qualify as misrepresentations in light of 12 the explicit terms of the September 2007 settlement. 13 In any event, as a matter of law, the statements Salven and 14 Armstrong made to the court regarding the scope of their 15 authority and the scope of work performed on behalf of the 16 debtors do not constitute fraud on the court, given that the 17 Floreses at all times had the opportunity to challenge any such 18 statements they perceived as false. See Apotex Corp. v. Merck & 19 Co., 507 F.3d 1357, 1361-62 (Fed. Cir. 2007) (holding that fraud 20 on the court does not include statements made by adverse party 21 that moving party had opportunity to challenge in court). 22 CONCLUSION 23 For the reasons set forth above, we AFFIRM the bankruptcy 24 court’s order overruling the Floreses’ objections to Salven’s 25 final report. 26 27 28