In re: Elke Magdalena Lesso

• Court: United States Bankruptcy Appellate Panel for the Ninth Circuit
• Decided: May 10, 2013
• Docket: CC-12-1515-MkTaMo
• Status: Unpublished

Opinion

FILED MAY 10 2013 1 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-12-1515-MkTaMo ) 6 ELKE MAGDALENA LESSO, ) Bk. No. 11-32945 ) 7 Debtor. ) _______________________________) 8 ) FUCHS & ASSOCIATES, INC. ) 9 ) Appellant, ) 10 ) v. ) MEMORANDUM* 11 ) ELKE MAGDALENA LESSO, ) 12 ) Appellee.** ) 13 _______________________________) 14 Argued on February 21, 2013 at Pasadena, California 15 Submitted on March 25, 2013 16 Filed – May 10, 2013 17 Appeal from the United States Bankruptcy Court 18 for the Central District of California 19 Honorable Sandra R. Klein, Bankruptcy Judge, Presiding 20 21 * This disposition is not appropriate for publication. Although it may be cited for whatever persuasive value it may 22 have (see Fed. R. App. P. 32.1), it has no precedential value. 23 See 9th Cir. BAP Rule 8013-1. ** 24 In its Notice of Appeal, Fuchs & Associates, Inc. named three additional parties as appellees in this appeal: (1) Lone 25 Oak Fund, LLC, (2) the Los Angeles County Treasurer & Tax Collector, (3) and the Perfect Bite Company. But Fuchs & 26 Associates, Inc. later stipulated with these three parties for 27 their removal as appellees herein. Based on that Stipulation, the Panel entered an order on January 13, 2013 effectively 28 removing these three parties as appellees. 1 Appearances: John R. Fuchs of Fuchs & Associates, Inc. argued for Appellant Fuchs & Associates, Inc.; Thomas H. 2 Edwards argued for Appellee Elke M. Lesso. 3 Before: MARKELL, TAYLOR and MONTALI,*** Bankruptcy Judges. 4 5 INTRODUCTION 6 Chapter 111 debtor Elke Lesso (“Lesso”) moved for authority 7 under § 363(f) to sell two parcels of real property located in 8 Glendale, California (“Properties”) free and clear of liens. 9 Appellant Fuchs & Associates, Inc. (“FAAI”) opposed the sale 10 motion, claiming among other things that it held valid liens 11 against the Properties. In the process of granting the sale 12 motion, the bankruptcy court declared that one of FAAI’s liens 13 was invalid and that the other was subject to bona fide dispute 14 and, hence, the Properties could and would be sold free and clear 15 of the alleged liens in accordance with § 363(f)(4). The 16 bankruptcy court entered an order granting Lesso’s sale motion, 17 and FAAI appealed. Because it is impossible for us to provide 18 FAAI with any meaningful relief on the state of this record, we 19 DISMISS this appeal as moot. 20 FACTS 21 In September 2007, Lesso commenced a dissolution proceeding 22 against her ex-husband, Piotr Andrzejewski (“Andrzejewski”), in 23 24 *** Hon. Dennis Montali, United States Bankruptcy Judge for the Northern District of California, 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, and 27 all “Rule” references are to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037. All “Civil Rule” references are to 28 the Federal Rules of Civil Procedure.

2 1 the Family Law Division of the Los Angeles Superior Court 2 (“Family Court”) (LASC Case No. GD041694), and the Family Court 3 entered an interlocutory judgment of dissolution on January 21, 4 2011. FAAI represented Lesso in the dissolution proceeding 5 between October 2008 and June 2010. This representation 6 ultimately led to a dispute between Lesso and FAAI over fees. It 7 is undisputed that Lesso paid FAAI over $400,000 in attorney’s 8 fees, but FAAI claims that Lesso owes it hundreds of thousands of 9 dollars more. 10 In the course of the dissolution proceeding, the Family 11 Court made several rulings significant to the parties’ fee 12 dispute. First, on October 8, 2009, the Family Court issued an 13 order (“$375,000 Judgment”) against Andrzejewski that in relevant 14 part awarded Lesso $375,000 under Cal. Fam. Code § 2030(a)(1),2 15 as pendente lite attorney’s fees, on account of fees she then 16 owed FAAI and fees she expected to owe FAAI in the future. While 17 the $375,000 Judgment stated that the fees were awarded to Lesso, 18 2 19 The statute provides in relevant part:

20 (a)(1) In a proceeding for dissolution of marriage, nullity of marriage, or legal separation of the 21 parties, and in any proceeding subsequent to entry of a related judgment, the court shall ensure that each 22 party has access to legal representation, including 23 access early in the proceedings, to preserve each party's rights by ordering, if necessary based on the 24 income and needs assessments, one party, except a governmental entity, to pay to the other party, or to 25 the other party's attorney, whatever amount is 26 reasonably necessary for attorney's fees and for the cost of maintaining or defending the proceeding during 27 the pendency of the proceeding.

28 Cal. Fam. Code § 2030(a)(1).

3 1 it also directed Andrzejewski to wire the fees to FAAI’s trust 2 account. To date, Andrzejewski has not satisfied the $375,000 3 Judgment. 4 Much of the current dispute between Lesso and FAAI arises 5 from the $375,000 Judgment because of its language directing 6 Andrzejewski to wire the fees to FAAI’s trust account and because 7 of the language of Cal. Fam. Code § 2030(a)(1), which among other 8 things directs the Family Court to order payment of such fees 9 either to a party or that party’s attorney. FAAI claims that it 10 – not Lesso – is the judgment creditor entitled to enforce the 11 $375,000 Judgment. Lesso contends that she – not FAAI – is the 12 judgment creditor entitled to enforce the $375,000 Judgment. 13 After FAAI ceased representing Lesso in the dissolution 14 proceeding in June 2010, it focused its efforts on recovering the 15 additional attorney’s fees it claimed Lesso owed it (“Additional 16 Fees”). While some of its collection efforts were aimed directly 17 at Lesso, others were aimed at Andrzejewski based on its supposed 18 rights under the $375,000 Judgment. For example, in June 2010, 19 within days of Lesso terminating FAAI as her counsel, FAAI 20 recorded an abstract of judgment (“Abstract”) in which it 21 identified itself as the judgment creditor of the $375,000 22 Judgment.3 23 FAAI also sought to enforce its purported judgment creditor 24 rights by filing a motion in the Family Court seeking an 25 3 26 Even before Lesso terminated FAAI as her counsel, FAAI sought and obtained a writ of execution on the $375,000 Judgment 27 (“Writ Of Execution”), which identified FAAI as the judgment creditor. FAAI claims that Lesso consented to FAAI obtaining the 28 Writ Of Execution in its own name as judgment creditor.

4 1 assignment of rents from the Properties. Lesso opposed that 2 motion. The Family Court held a hearing on the assignment of 3 rents motion on August 30, 2010. At the hearing, the Family 4 Court recited the respective positions taken by Lesso and FAAI. 5 According to the Family Court, Lesso argued that FAAI was not a 6 bona fide judgment creditor and that she was the person entitled 7 to enforce the $375,000 Judgment. As for FAAI, the Family Court 8 stated that FAAI pointed to the Writ Of Execution and the 9 Abstract as supporting its claim to be the judgment creditor 10 under the $375,000 Judgment. The Family Court agreed with Lesso. 11 It in essence held that, in granting the $375,000 Judgment, it 12 never had intended for FAAI to be able to attach that amount of 13 money.4 14 4 15 FAAI claims that at the August 30, 2010 hearing the Family Court never addressed whether FAAI was a bona fide creditor 16 entitled to enforce the $375,000 Judgment. According to FAAI, the form of order the Family Court signed therefore should not 17 have purported to resolve that issue. But page 6 of the August 30, 2010 hearing transcript tends to contradict FAAI’s 18 claim. We acknowledge that page 6 and many other pages of that 19 transcript are subject to legibility problems, but we are comfortable that a sufficient amount of the transcript is 20 legible, such that we have accurately reflected in this decision the gist of the Family Court’s relevant statements. In any 21 event, the content of the written order controls over any alleged inconsistency with the Family Court’s oral ruling. See Kong v. 22 City of Hawaiian Gardens Redevelopment Agency, 134 Cal.Rptr.2d 23 260, 265 n.9 (Cal. App. 2002). We apply the same rule to bankruptcy court orders. See Cashco Fin. Servs., Inc. v. McGee 24 (In re McGee), 359 B.R. 764, 774 n.9 (9th Cir. BAP 2006). 25 FAAI claims to have obtained a full and legible copy of the 26 August 30, 2010 Family Court hearing transcript. We will not consider the more legible version of the transcript at all, 27 because it was not made available to the bankruptcy court before it ruled. But FAAI only saw fit to attach to its opening appeal 28 (continued...)

5 1 The Family Court thereafter entered its order denying FAAI’s 2 assignment of rents motion (“Rents Assignment Denial Order”). In 3 that order the Family Court explicitly held that FAAI was not 4 entitled to an assignment of rents because it was not a bona fide 5 judgment creditor and was not entitled to the Writ Of Execution 6 for $375,000. 7 In addition to the judgment lien (“Judgment Lien”) arising 8 from FAAI’s recordation of its Abstract, FAAI claimed to hold a 9 valid attorney fee and cost lien (“Charging Lien”) against all of 10 Lesso’s property. The Charging Lien allegedly arose from FAAI’s 11 hourly attorney fee agreements (“Fee Agreements”) with Lesso. On 12 June 25, 2010, in furtherance of its purported Charging Lien, 13 FAAI filed in the Family Court a notice of attorney fee and cost 14 lien for $625,000. 15 FAAI also initiated a collection action against Lesso. On 16 July 14, 2010, FAAI sued Lesso in the Civil Division of the Los 17 Angeles County Superior Court (“State Court”) seeking to recover 18 all of the Additional Fees Lesso allegedly owed it. In September 19 2011, that matter was heard pursuant to mandatory binding 20 arbitration in accordance with the terms of the Fee Agreements. 21 In October 2011, the arbitrator issued an award (“Arbitration 22 Award”) finding, among other things, that the Abstract was 23 “invalidated by the [Family Court], and the [Judgment Lien] 24 4 (...continued) 25 brief (Ex. A thereto) a single page – page 7 – from its more- 26 legible version of the transcript. Apparently, FAAI believes that page 7 supports its version of what transpired at the 27 hearing. We presume that FAAI did not make available to the Panel the more legible version of page 6 from the same transcript 28 because it does not support its version of events.

6 1 should be expunged and title cleared.” Arbitration Award 2 (Oct. 12, 2011) at p. 12; see also id. at 7. The arbitrator 3 further found that FAAI had no right under the Fee Agreements to 4 a Charging Lien against the Properties. Id. at 12. Ultimately, 5 the arbitrator concluded: “[1] [FAAI] shall recover no additional 6 attorney fees, costs or damages; [2] The lien recorded by [FAAI] 7 is invalid and should be expunged; [and 3] [FAAI] need not refund 8 any of the $480,998.68 previously paid [by Lesso].” Id. at 13. 9 On January 19, 2012, the State Court confirmed the 10 Arbitration Award in its entirety. In addition, the California 11 Court of Appeal recently affirmed the State Court’s judgment 12 confirming the Arbitration Award. See Fuchs & Associates, Inc. 13 v. Lesso, No. B239246, 2013 WL 74441 (Cal. Ct. App. Jan. 8, 2013, 14 modified on denial of reh’g, January 28, 2013). A discretionary 15 appeal was lodged with the California Supreme Court. See Fuchs & 16 Associates v. Lesso, No. S208621 (Cal. S. Ct. Feb. 14. 2013). 17 However, on May 1, 2013, the California Supreme Court denied 18 review. 19 Meanwhile, Lesso filed her chapter 11 bankruptcy case on 20 May 26, 2011, and she moved to sell the Properties under § 363(f) 21 on August 6, 2012 (“Sale Motion”). Several parties, including 22 FAAI, responded to the Sale Motion, and Lesso filed replies 23 addressing each response. On August 30, 2012, the bankruptcy 24 court held its first hearing on the Sale Motion. Shortly before 25 that hearing, the bankruptcy court issued a lengthy and detailed 26 tentative ruling setting forth a history of key events from the 27 dissolution proceeding and addressing the parties’ issues. 28 For purposes of this appeal, however, only two issues are

7 1 important. First, as to the Judgment Lien, the bankruptcy court 2 relied on the Family Court’s Rents Assignment Denial Order to 3 hold that the Judgment Lien was invalid. In light of that 4 holding, the bankruptcy court rejected FAAI’s objection to the 5 sale to the extent that objection was based on its Judgment Lien. 6 Second, as to the Charging Lien and the Additional Fees, the 7 bankruptcy court referenced the Arbitration Award, which had 8 determined that Lesso owed no Additional Fees to FAAI. The 9 bankruptcy court further noted that the State Court had confirmed 10 the Arbitration Award and that the confirmed Arbitration Award 11 was the subject of an appeal then pending in the California Court 12 of Appeal. Based thereon, the bankruptcy court held that FAAI's 13 Charging Lien claim could be dealt with under § 363(f)(2). FAAI 14 has not challenged this holding on appeal. 15 The bankruptcy court did not fully dispose of the Sale 16 Motion immediately at or after the August 30, 2012 hearing. 17 Instead, the bankruptcy court continued the hearing until 18 September 27, 2012. The continuance gave Lesso the opportunity 19 to serve additional notice of the sale and gave interested 20 parties the opportunity to file supplemental briefs on the issues 21 they raised in response to the proposed sale. 22 At the September 27, 2012 continued sale hearing, the 23 bankruptcy court adopted as its final ruling a slightly amended 24 version of its August 2012 tentative ruling. For our purposes, 25 the final ruling did not materially differ from the August 2012 26 tentative ruling regarding the bankruptcy court’s disposition of 27 the Judgment Lien (held invalid), the Charging Lien (held subject 28 to bona fide dispute), and the Additional Fees Lesso allegedly

8 1 owed FAAI (also held subject to bona fide dispute). 2 Based on the final ruling, the bankruptcy court entered on 3 October 5, 2012, its order approving the sale of the Properties 4 free and clear of all liens under § 363(f) (“Sale Order”), and 5 FAAI timely filed a notice of appeal from the Sale Order on 6 October 10, 2012. 7 JURISDICTION 8 The bankruptcy court had jurisdiction pursuant to 28 U.S.C. 9 §§ 1334 and 157(b)(2)(N). Subject to the mootness discussion set 10 forth below, we have jurisdiction under 28 U.S.C. § 158. 11 ISSUE 12 Is this appeal moot? 13 STANDARD OF REVIEW 14 Constitutional mootness is a jurisdictional issue that we 15 review de novo. See Hunt v. Imperial Merchant Servs., Inc., 16 560 F.3d 1137, 1141 (9th Cir. 2009). 17 DISCUSSION 18 This Panel lacks jurisdiction over appeals when they do not 19 present an actual “case or controversy” within the meaning of 20 Article III of the Constitution. See Motor Vehicle Cas. Co. v. 21 Thorpe Insulation Co. (In re Thorpe Insulation Co.), 677 F.3d 22 869, 880 (9th Cir. 2012) (citing Felster Publ'g v. Burrell 23 (In re Burrell), 415 F.3d 994, 998 (9th Cir. 2005)). In turn, an 24 appeal is considered moot, and does not present a live case or 25 controversy, when it would be impossible for us to grant any 26 effective or meaningful relief to the appellant even if it were 27 to prevail on the merits of its appeal. See id. Sometimes, the 28 existence of a final, non-appealable order may render an appeal

9 1 from another order moot because it would be impossible to grant 2 relief from the appealed order without unwinding the effect of 3 the final, non-appealable order. See Parks v. Drummond 4 (In re Parks), 475 B.R. 703, 706 (9th Cir. BAP 2012); Omoto v. 5 Ruggera (In re Omoto), 85 B.R. 98, 99–100 (9th Cir. BAP 1988). 6 In this appeal, FAAI has not sought to unwind the sale. 7 Instead, FAAI has sought to establish its entitlement to a share 8 of the sale proceeds based on the Judgment Lien, the Charging 9 Lien and the Additional Fees. But the California Court of Appeal 10 has affirmed the State Court’s judgment confirming the 11 Arbitration Award, which in relevant part held: (1) that the 12 Judgment Lien was invalid, (2) that FAAI had no right to a 13 Charging Lien under the Fee Agreements, and (3) that in any event 14 Lesso did not owe any Additional Fees to FAAI. Those holdings 15 are now final, and they are not subject to further appeal. As a 16 result, even if we were to conclude that the bankruptcy court 17 committed some form of reversible error, our vacatur or reversal 18 of the bankruptcy court’s sale order would not provide FAAI with 19 any meaningful relief. In light of the Arbitration Award, FAAI 20 still would not be entitled to any share of the proceeds from the 21 sale of the Properties. 22 While Lesso’s sale motion was a core bankruptcy matter, see 23 28 U.S.C. 157(b)(2)(N), the respective rights and interests of 24 the parties in the Properties and the sale proceeds were 25 determined by reference to state law. See Butner v. United 26 States, 440 U.S. 48, 55 (stating that property interests in 27 bankruptcy proceedings generally are defined by state law); 28 Ahcom, Ltd. v. Smeding, 623 F.3d 1248, 1250 (9th Cir. 2010)

10 1 (same). Here, the State Court’s order confirming the Arbitration 2 Award effectively established that, under California law, FAAI 3 had no valid claim against Lesso and no valid interest in the 4 sale proceeds. As a matter of comity and federalism, we 5 generally must give deference to state court judgments and 6 proceedings. See, e.g., Marciano v. Chapnick (In re Marciano), 7 708 F.3d 1123, 1128 (9th Cir. 2013); G.C. and K.B. Investments, 8 Inc. v. Wilson, 326 F.3d 1096, 1107 (9th Cir. 2003). 9 Under these circumstances, we cannot grant FAAI any relief 10 that would improve its position vis-a-vis Lesso or the proceeds 11 from sale of the Properties. Accordingly, this appeal is moot. 12 We acknowledge that FAAI also lacks standing. More 13 specifically, in light of the Arbitration Award, FAAI no longer 14 has a stake in the sale or the proceeds. In this instance, 15 mootness is manifesting itself as “‘the doctrine of standing set 16 in a time frame: [t]he requisite personal interest that must 17 exist at the commencement of the litigation (standing) must 18 continue throughout its existence (mootness).’” Arizonans for 19 Official English v. Ariz., 520 U.S. 43, 68 n.22 (1997) (quoting 20 United States Parole Comm'n v. Geraghty, 445 U.S. 388, 397 21 (1980)). Accord, Foster v. Carson, 347 F.3d 742, 745 (9th Cir. 22 2003) (quoting Cook Inlet Treaty Tribes v. Shalala, 166 F.3d 986, 23 989 (9th Cir. 1999)). While in some contexts, this statement 24 might oversimplify the two doctrines, see Friends of the Earth, 25 Inc. v. Laidlaw Envtl. Servs. (TOC), Inc., 528 U.S. 167, 189-93 26 (2000), the statement is quite apt here. Simply put, because the 27 Arbitration Award effectively has stripped FAAI of its standing, 28

11 1 this appeal has become moot.5 2 CONCLUSION 3 For the reasons set forth above, we DISMISS this appeal as 4 moot. 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 5 While we can and do hold in the alternative that FAAI lacks 26 standing, we need not alter our disposition of this appeal based on mootness. Indeed, it would be permissible for us to dismiss 27 based on mootness without addressing the standing issue at all. See, e.g., Cook Inlet Treaty Tribes, 166 F.3d at 989 (citing 28 Arizonans for Official English, 520 U.S. at 66–67).