1 JS-6 2 3 4 5 6 UNITED STATES DISTRICT COURT 7 CENTRAL DISTRICT OF CALIFORNIA 8 LOS ANGELES DIVISION 9 IN RE: HOAG URGENT CARE- CASE NO. SACV 19-2485 MWF 10 TUSTIN, INC. 11 ORDER RE: APPEAL FROM THE 12 UNITED STATES BANKRUPTCY 13 COURT’S SUMMARY JUDGMENT ORDER 14 15 Before the Court is an appeal from the United States Bankruptcy Court 16 (United States Bankruptcy Judge Theodor C. Albert). Appellant Your 17 Neighborhood Urgent Care, LLC (“YNUC”) appeals the bankruptcy court’s order 18 granting summary judgment in favor of Appellees Hoag Memorial Hospital 19 Presbyterian (“Hoag”) and Newport Healthcare Center, LLC (“Newport”) and 20 finding Appellant liable for conversion, issued on December 20, 2019 (the 21 “Summary Judgment Order”) and the resulting Judgment. (See Docket No. 1). 22 Appellant submitted its opening brief (“OB”) on March 18, 2020. (Docket 23 No. 16). Appellees Hoag and Newport submitted their answering brief (“AB”) on 24 May 18, 2020. (Docket No. 18). 25 The Court has read and considered the papers filed in this appeal, and held a 26 telephonic hearing on February 12, 2021, pursuant to General Order 20-09 arising 27 from the COVID-19 pandemic. 1 The Summary Judgment Order is AFFIRMED in part, REVERSED in part, 2 and REMANDED for further proceedings consistent with this Order. The 3 bankruptcy court erred in holding that Appellees proved the second element of their 4 conversion claim as a matter of law. A breach of contract alone is insufficient to 5 prove conversion and triable issues exist as to whether YNUC committed a knowing 6 or intentional act to wrongfully exerted dominion over Appellees’ personal property. 7 However, the bankruptcy court correctly applied the preponderance of the evidence 8 standard, rather than the clear and convincing standard that Appellant espouses. 9 I. BACKGROUND 10 A. The Bankruptcy Case and the Missing Equipment 11 In late 2010, Appellee Newport subleased four commercial properties (the 12 “Properties”) to Appellant, which then sub-subleased the Properties to Hoag Urgent 13 Care – Anaheim Hills, Inc., Hoag Urgent Care – Tustin, Inc., and Hoag Urgent Care 14 – Huntington Harbour, Inc. (collectively, the “HUC Debtors”), which operated 15 urgent care clinics at the Properties. (Appellees’ Excerpts of Record (“Appellees 16 ER”) 1-22 (Docket No. 19-1)). Appellant YNUC is an affiliate and the former 17 management company of the HUC Debtors. (Appellees ER 6). The HUC Debtors 18 leased from Appellant, who leased from Newport, certain equipment used to operate 19 the urgent care clinics (the “Equipment”). (Appellees ER 295). 20 On August 2, 2017, the HUC Debtors filed for chapter 11 bankruptcy. 21 (Appellees ER 13). 22 On February 4, 2018, the HUC Debtors, Appellant, and Appellees entered 23 into an agreement to terminate the sub and sub-subleases and surrender possession 24 of the Properties to Appellees (the “Transition Agreement”). (Appellees ER 297- 25 298). Pursuant to the Transition Agreement, the HUC Debtors were required to 26 leave the Equipment at the Properties upon vacating the Properties. (Appellant’s 27 Excerpt of Record (“Appellant ER”) 222-223 (Docket No. 17)). 1 By February 11, 2018, Appellant and the HUC Debtors had surrendered the 2 Properties to Appellees, but several pieces of the Equipment were missing (the 3 “Missing Equipment”). (Appellees ER 297-298, ¶ 42). 4 On March 15, 2018, Appellees filed a counterclaim against Appellant YNUC 5 and the HUC Debtors alleging that they wrongfully converted the Missing 6 Equipment. (Appellees ER 268-285). 7 B. The Bankruptcy Court’s Summary Judgment Order 8 On February 11, 2019, Appellees filed a motion for summary judgment on 9 their conversion counterclaim. (Appellees ER 49-54). The bankruptcy court held a 10 hearing on Appellees’ summary judgment motion on May 2, 2019. (Appellees ER 11 305). 12 The bankruptcy court acknowledged the lack of evidence establishing which 13 entity or entities had removed the Missing Equipment but concluded that this 14 “uncertainty” did not create a disputed issue of material fact. (Appellees ER 313- 15 314). The bankruptcy court found it undisputed that (1) the Missing Equipment was 16 removed without authorization, and (2) YNUC had a duty under the express terms 17 of the Transition Agreement to leave all of the Equipment in place upon vacating the 18 Properties. (Appellees ER 313-314). Relying upon these undisputed facts, the 19 bankruptcy court determined that Appellees had met their burden to show that 20 YNUC had converted the Missing Equipment as a matter of law. (Appellees ER 21 313-314). 22 Specifically, the bankruptcy court concluded that YNUC presented no 23 evidence creating a genuine dispute of material fact with respect to YNUC’s failure 24 to comply with the Transition Agreement. (Appellees ER 314). It determined that 25 YNUC’s self-serving and conclusory declaration of Dr. Amster, which stated that he 26 was “not ‘aware’ of the taking of any equipment in a manner inconsistent with the 27 Transition Agreement,” did not create a disputed fact. (Appellees ER 314). At the 1 Declaration created a triable issue because it gave no specific explanation about 2 what happened to the Missing Equipment. (Appellant ER 868-869) (bankruptcy 3 court explaining that there was no dispute of fact because Dr. Amster’s Declaration 4 did not say, for example, “We had a burglary last week, so I’m not sure what 5 happened to it.”). The bankruptcy court concluded that “[i]f anyone knows what 6 happened to the Missing Equipment it must be Dr. Amster.” (Appellees ER 314). 7 The bankruptcy court also rejected Appellant’s argument that YNUC is a 8 separate and distinct entity from the HUC Debtors and could not be held liable for 9 HUC Debtors’ failure to return the missing equipment. (Appellees ER 313-314). 10 The court determined that the legally separate status of YNUC and the HUC 11 Debtors was irrelevant because the Transition Agreement was signed by Dr. Robert 12 Amster on behalf of both entities, and both entities appeared to be under the 13 complete control of Dr. Amster. (Appellees ER 313-314). 14 The bankruptcy court held that Appellees had proved Appellant’s conversion 15 of the Missing Equipment as a matter of law, since no evidence in the record created 16 a triable issue with respect to YNUC’s breach of the Transition Agreement. 17 (Appellees ER 314). 18 On May 30, 2019, the court granted Appellees’ motion. (Appellant ER 640- 19 642). On December 4, 2019, the parties stipulated to damages. (Appellant ER 20 1254-1259). On December 6, 2019, the bankruptcy court issued an order approving 21 the stipulated damages amount and entering judgment in favor of Appellees on the 22 conversion claim. (Appellant ER 1260-1262). 23 II. STANDARD OF REVIEW 24 The Court has jurisdiction to hear appeals from final judgments, orders, and 25 decrees of the bankruptcy court. 28 U.S.C. § 158(a). When considering an appeal 26 from the bankruptcy court, a district court uses the same standard of review that a 27 circuit would use in reviewing a decision of a district court. See In re Baroff, 105 1 “A grant of summary judgment is reviewed de novo.” L. F. v. Lake 2 Washington Sch. Dist. #414, 947 F.3d 621, 625 (9th Cir. 2020) (citation omitted). A 3 reviewing court must determine, “viewing the evidence in the light most favorable 4 to the nonmoving party, whether there are any genuine issues of material fact and 5 whether the district court correctly applied the relevant substantive law.” Id. 6 (citation omitted). 7 “When the party moving for summary judgment would bear the burden of 8 proof at trial, ‘it must come forward with evidence which would entitle it to a 9 directed verdict if the evidence went uncontroverted at trial.’” C.A.R. Transp.
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1 JS-6 2 3 4 5 6 UNITED STATES DISTRICT COURT 7 CENTRAL DISTRICT OF CALIFORNIA 8 LOS ANGELES DIVISION 9 IN RE: HOAG URGENT CARE- CASE NO. SACV 19-2485 MWF 10 TUSTIN, INC. 11 ORDER RE: APPEAL FROM THE 12 UNITED STATES BANKRUPTCY 13 COURT’S SUMMARY JUDGMENT ORDER 14 15 Before the Court is an appeal from the United States Bankruptcy Court 16 (United States Bankruptcy Judge Theodor C. Albert). Appellant Your 17 Neighborhood Urgent Care, LLC (“YNUC”) appeals the bankruptcy court’s order 18 granting summary judgment in favor of Appellees Hoag Memorial Hospital 19 Presbyterian (“Hoag”) and Newport Healthcare Center, LLC (“Newport”) and 20 finding Appellant liable for conversion, issued on December 20, 2019 (the 21 “Summary Judgment Order”) and the resulting Judgment. (See Docket No. 1). 22 Appellant submitted its opening brief (“OB”) on March 18, 2020. (Docket 23 No. 16). Appellees Hoag and Newport submitted their answering brief (“AB”) on 24 May 18, 2020. (Docket No. 18). 25 The Court has read and considered the papers filed in this appeal, and held a 26 telephonic hearing on February 12, 2021, pursuant to General Order 20-09 arising 27 from the COVID-19 pandemic. 1 The Summary Judgment Order is AFFIRMED in part, REVERSED in part, 2 and REMANDED for further proceedings consistent with this Order. The 3 bankruptcy court erred in holding that Appellees proved the second element of their 4 conversion claim as a matter of law. A breach of contract alone is insufficient to 5 prove conversion and triable issues exist as to whether YNUC committed a knowing 6 or intentional act to wrongfully exerted dominion over Appellees’ personal property. 7 However, the bankruptcy court correctly applied the preponderance of the evidence 8 standard, rather than the clear and convincing standard that Appellant espouses. 9 I. BACKGROUND 10 A. The Bankruptcy Case and the Missing Equipment 11 In late 2010, Appellee Newport subleased four commercial properties (the 12 “Properties”) to Appellant, which then sub-subleased the Properties to Hoag Urgent 13 Care – Anaheim Hills, Inc., Hoag Urgent Care – Tustin, Inc., and Hoag Urgent Care 14 – Huntington Harbour, Inc. (collectively, the “HUC Debtors”), which operated 15 urgent care clinics at the Properties. (Appellees’ Excerpts of Record (“Appellees 16 ER”) 1-22 (Docket No. 19-1)). Appellant YNUC is an affiliate and the former 17 management company of the HUC Debtors. (Appellees ER 6). The HUC Debtors 18 leased from Appellant, who leased from Newport, certain equipment used to operate 19 the urgent care clinics (the “Equipment”). (Appellees ER 295). 20 On August 2, 2017, the HUC Debtors filed for chapter 11 bankruptcy. 21 (Appellees ER 13). 22 On February 4, 2018, the HUC Debtors, Appellant, and Appellees entered 23 into an agreement to terminate the sub and sub-subleases and surrender possession 24 of the Properties to Appellees (the “Transition Agreement”). (Appellees ER 297- 25 298). Pursuant to the Transition Agreement, the HUC Debtors were required to 26 leave the Equipment at the Properties upon vacating the Properties. (Appellant’s 27 Excerpt of Record (“Appellant ER”) 222-223 (Docket No. 17)). 1 By February 11, 2018, Appellant and the HUC Debtors had surrendered the 2 Properties to Appellees, but several pieces of the Equipment were missing (the 3 “Missing Equipment”). (Appellees ER 297-298, ¶ 42). 4 On March 15, 2018, Appellees filed a counterclaim against Appellant YNUC 5 and the HUC Debtors alleging that they wrongfully converted the Missing 6 Equipment. (Appellees ER 268-285). 7 B. The Bankruptcy Court’s Summary Judgment Order 8 On February 11, 2019, Appellees filed a motion for summary judgment on 9 their conversion counterclaim. (Appellees ER 49-54). The bankruptcy court held a 10 hearing on Appellees’ summary judgment motion on May 2, 2019. (Appellees ER 11 305). 12 The bankruptcy court acknowledged the lack of evidence establishing which 13 entity or entities had removed the Missing Equipment but concluded that this 14 “uncertainty” did not create a disputed issue of material fact. (Appellees ER 313- 15 314). The bankruptcy court found it undisputed that (1) the Missing Equipment was 16 removed without authorization, and (2) YNUC had a duty under the express terms 17 of the Transition Agreement to leave all of the Equipment in place upon vacating the 18 Properties. (Appellees ER 313-314). Relying upon these undisputed facts, the 19 bankruptcy court determined that Appellees had met their burden to show that 20 YNUC had converted the Missing Equipment as a matter of law. (Appellees ER 21 313-314). 22 Specifically, the bankruptcy court concluded that YNUC presented no 23 evidence creating a genuine dispute of material fact with respect to YNUC’s failure 24 to comply with the Transition Agreement. (Appellees ER 314). It determined that 25 YNUC’s self-serving and conclusory declaration of Dr. Amster, which stated that he 26 was “not ‘aware’ of the taking of any equipment in a manner inconsistent with the 27 Transition Agreement,” did not create a disputed fact. (Appellees ER 314). At the 1 Declaration created a triable issue because it gave no specific explanation about 2 what happened to the Missing Equipment. (Appellant ER 868-869) (bankruptcy 3 court explaining that there was no dispute of fact because Dr. Amster’s Declaration 4 did not say, for example, “We had a burglary last week, so I’m not sure what 5 happened to it.”). The bankruptcy court concluded that “[i]f anyone knows what 6 happened to the Missing Equipment it must be Dr. Amster.” (Appellees ER 314). 7 The bankruptcy court also rejected Appellant’s argument that YNUC is a 8 separate and distinct entity from the HUC Debtors and could not be held liable for 9 HUC Debtors’ failure to return the missing equipment. (Appellees ER 313-314). 10 The court determined that the legally separate status of YNUC and the HUC 11 Debtors was irrelevant because the Transition Agreement was signed by Dr. Robert 12 Amster on behalf of both entities, and both entities appeared to be under the 13 complete control of Dr. Amster. (Appellees ER 313-314). 14 The bankruptcy court held that Appellees had proved Appellant’s conversion 15 of the Missing Equipment as a matter of law, since no evidence in the record created 16 a triable issue with respect to YNUC’s breach of the Transition Agreement. 17 (Appellees ER 314). 18 On May 30, 2019, the court granted Appellees’ motion. (Appellant ER 640- 19 642). On December 4, 2019, the parties stipulated to damages. (Appellant ER 20 1254-1259). On December 6, 2019, the bankruptcy court issued an order approving 21 the stipulated damages amount and entering judgment in favor of Appellees on the 22 conversion claim. (Appellant ER 1260-1262). 23 II. STANDARD OF REVIEW 24 The Court has jurisdiction to hear appeals from final judgments, orders, and 25 decrees of the bankruptcy court. 28 U.S.C. § 158(a). When considering an appeal 26 from the bankruptcy court, a district court uses the same standard of review that a 27 circuit would use in reviewing a decision of a district court. See In re Baroff, 105 1 “A grant of summary judgment is reviewed de novo.” L. F. v. Lake 2 Washington Sch. Dist. #414, 947 F.3d 621, 625 (9th Cir. 2020) (citation omitted). A 3 reviewing court must determine, “viewing the evidence in the light most favorable 4 to the nonmoving party, whether there are any genuine issues of material fact and 5 whether the district court correctly applied the relevant substantive law.” Id. 6 (citation omitted). 7 “When the party moving for summary judgment would bear the burden of 8 proof at trial, ‘it must come forward with evidence which would entitle it to a 9 directed verdict if the evidence went uncontroverted at trial.’” C.A.R. Transp. 10 Brokerage Co. v. Darden Restaurants, Inc., 213 F.3d 474, 480 (9th Cir. 2000) 11 (quoting Houghton v. South, 965 F.2d 1532, 1536 (9th Cir. 1992)). “In such a case, 12 the moving party has the initial burden of establishing the absence of a genuine issue 13 of fact on each issue material to its case.” Id. (citation omitted). “Once the moving 14 party comes forward with sufficient evidence, the burden then moves to the 15 opposing party, who must present significant probative evidence tending to support 16 its claim or defense.” Id. (citation omitted) (internal quotation marks omitted). 17 III. DISCUSSION 18 Appellant challenges the bankruptcy court’s order only with respect to the 19 second element of conversion, “the defendant’s conversion by a wrongful act or 20 disposition of property rights.” (See OB at 8-11); (Appellees ER 311) (bankruptcy 21 court stating the three elements of conversion, quoting Lee v. Haney, 61 Cal. 4th 22 1225, 1240 (2015)). Appellant contends that the bankruptcy court erred in granting 23 summary judgment because Appellees produced no evidence that Appellant made 24 an intentional, affirmative act that constituted a conversion of the Missing 25 Equipment. (OB at 9-11). The Court agrees. 26 “The tort of conversion is an ‘act of dominion wrongfully exerted over 27 another’s personal property in denial of or inconsistent with his rights therein.’” 1 omitted). While conversion “does not require bad faith, knowledge, or even 2 negligence,” it does require “that the defendant have intentionally done the act 3 depriving the plaintiff of his or her rightful possession.” Voris v. Lampert, 7 Cal. 4 5th 1141, 1158, 250 Cal. Rptr. 3d 779 (2019). “Because the act must be knowingly 5 done, neither negligence, active or passive, nor a breach of contract, even though it 6 result[s] in injury to, or loss of, specific property, constitutes a conversion.” 7 Multani, 23 Cal. App. 5th at 854. 8 “Negligence in caring for the goods is not an act of dominion over them such 9 as is necessary to make the bailee liable as a converter.” Gonzales v. Pers. Storage, 10 Inc., 56 Cal. App. 4th 464, 477, 65 Cal. Rptr. 2d 473 (1997) (emphasis in original) 11 (offering as an example, “a warehouseman’s negligence in causing a fire which 12 destroyed the plaintiffs’ goods will not support a conversion claim”). “[T]he 13 California Supreme Court has stated that if redelivery is impossible because the 14 goods have been lost or destroyed, either without fault on the part of the bailee or 15 merely because of his negligence, there is no conversion.” Simonian v. Patterson, 16 27 Cal. App. 4th 773, 781, 32 Cal. Rptr. 2d 722 (1994) (internal alterations and 17 quotation marks omitted) (quoting George v. Bekins Van & Storage Co., 33 Cal. 2d 18 834, 838, 205 P.2d 1037 (1949)). 19 “A conversion can occur when a willful failure to return property deprives the 20 owner of possession.” Fearon v. Dep’t of Corr., 162 Cal. App. 3d 1254, 1257, 209 21 Cal. Rptr. 309 (1984) (emphasis added) (citing Schroeder v. Auto Driveaway Co., 22 11 Cal. 3d 908, 918, 114 Cal. Rptr. 622 (1974)). However, “[n]ot every failure to 23 deliver property to the rightful owner constitutes a conversion. To establish a 24 conversion, it is incumbent upon the plaintiff to show an intention or purpose to 25 convert the goods and to exercise ownership over them, or to prevent the owner 26 from taking possession of the property.” Spates v. Dameron Hosp. Assn., 114 Cal. 27 App. 4th 208, 222, 7 Cal. Rptr. 3d 597 (2003) (internal citation and quotation marks 1 Under California law, YNUC’s breach of the Transition Agreement by failing 2 to return the Missing Equipment, without more, cannot support a conversion claim. 3 See Multani, 23 Cal. App. 5th at 854 (explaining that a breach of contract which 4 results in loss of property does not constitute a conversion). The California jury 5 instruction on conversion confirms that a mere failure to return property in violation 6 of a contract is insufficient. See Judicial Council of California Civil Jury Instruction 7 2100 (February 2021), Conversion No. 2100. An element of the tort of conversion 8 requires a plaintiff to prove that the defendant “substantially interfered with [the 9 plaintiff’s] property by knowingly or intentionally” committing one of the 10 following acts: (1) taking possession of the property; (2) preventing the plaintiff 11 from accessing the property; (3) destroying the property; or (4) refusing to return the 12 property after the plaintiff demanded its return. CACI No. 2100 (emphasis added). 13 The question, then, is whether the circumstantial evidence alone — i.e. that 14 the Equipment was missing when YNUC returned possession of the Properties to 15 Appellees — Proves YNUC’s knowing or intentional conversion as a matter of law. 16 Samm v. Martin, 940 A.2d 138, 141 (D.C. 2007) is instructive on this point. 17 In Samm, the appellant brought a conversion claim against the desk clerks in her 18 apartment building, alleging that they took personal items from her apartment after 19 she gave them a key and asked them to water her plants while she was out of 20 town. 940 A.2d at 138-39. The trial court granted summary judgment in favor of 21 the desk clerks and the appellate court reversed. Id. at 139. The court determined 22 that summary judgment was improper because the appellant had produced sufficient 23 evidence to support an inference of conversion, including that she had seen the desk 24 clerks in possession of missing items that she recognized as her own and that the 25 thefts stopped after she changed the locks to her apartment. Id. The Samm court 26 noted that “[a]lthough the individual defendants flatly denied appellant’s 27 accusations, their contending testimony created a dispute on a material fact — in 1 The plaintiff in Samm arguably had stronger evidence of conversion than 2 Appellees had here, since the defendants in Samm were allegedly seen in possession 3 of the converted goods. In contrast here, and four to six weeks had passed between 4 the initial walkthrough of the Properties when the Equipment was present, and 5 Appellees’ repossession of the Properties, when the Equipment was missing, 6 (Hearing Transcript at 8:3-8); no evidence in the record establishes that Appellant 7 was ever in possession of the Equipment after vacating the Properties. While the 8 fact that YNUC was the last known possessor of the Equipment certainly creates a 9 reasonable inference that YNUC took or destroyed the Equipment, Appellees were 10 not entitled to such an inference as the party moving for summary judgment. See 11 Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986) (on summary judgment, 12 “[t]he evidence of the non-movant is to be believed, and all justifiable inferences are 13 to be drawn in his favor”). 14 In the absence of any direct evidence that YNUC knowingly or intentionally 15 took or destroyed the Equipment, YNUC was not required to put forth evidence of 16 an alternative explanation as to what happened to the missing equipment to avoid 17 summary judgment. Rather, as in Samm, Dr. Amster’s Declaration stating that he 18 was not aware of any taking of the Equipment created a dispute of material fact as to 19 the parties’ credibility. Of course, without evidence showing that a third party could 20 have accessed the premises after the walkthrough, the trier of fact may find YNUC’s 21 defense ludicrous. But it is up to the trier of fact, not the bankruptcy court on 22 summary judgment, to decide which party to believe. See Banks v. Hayward, 216 23 F.3d 1082, 1082 (9th Cir. 2000) (courts “may not make credibility determinations or 24 weigh conflicting evidence” on a motion for summary judgment). 25 Appellant also contends that the bankruptcy court erred by determining that 26 the evidentiary standard to prove conversion is preponderance rather than clear and 27 convincing evidence. (OB at 7-8). l In California, the general rule is that issues of fact in civil cases are 2 || determined by a preponderance of the evidence, “[e]xcept as otherwise provided by 3 || law[.]” Weiner v. Fleischman, 54 Cal. 3d 476, 483, 286 Cal. Rptr. 40 (1991) (citing 4 || Evidence Code § 115) (holding that trial court committed reversible error by 5 || instructing the jury that plaintiff had to establish the existence of a partnership 6 || agreement by clear and convincing evidence, rather than by a preponderance of the 7 ||evidence). Appellant points to no California statute or opinion requiring the tort of 8 || conversion to be established by clear and convincing evidence. Because no 9 || “constitutional, statutory or decisional law (1.e., case law) requires a burden of proof 10 || higher than preponderance of the evidence to establish [conversion],” see id., 11 || Appellant’s argument must be rejected. The portion of the bankruptcy court’s 12 || Summary Judgment Order applying the preponderance standard is AFFIRMED. 13 |]IV. CONCLUSION 14 For the reasons stated above, the bankruptcy court’s Summary Judgment 15 || Order and the Judgment thereon are REVERSED as to the second element of 16 || conversion and REMANDED for further proceedings consistent with this Order. 17 || The portion of the bankruptcy court’s Summary Judgment Order applying the 18 || preponderance standard is AFFIRMED. 19 IT IS SO ORDERED.
DATED: March 26, 2021. | ‘ 22 33 MICHAEL W. FITZGERALD United States District Judge 24 25 || CC: Bankruptcy Court 26 27 28