FILED JUN 20 2025 SUSAN M. SPRAUL, CLERK NOT FOR PUBLICATION U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT
UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT
In re: BAP No. CC-25-1032-FLS ITTELLA INTERNATIONAL LLC, a California limited liability company; Bk. No. 2:23-bk-14154-SK ITTELLA’S CHEF, INC., a California limited liability company; TATTOOED CHEF, INC., a Delaware corporation; MYJOJO, INC., a Delaware corporation; NEW MEXICO FOOD DISTRIBUTORS, INC., a New Mexico corporation; KARSTEN TORTILLA FACTORY, LLC, a New Mexico limited liability company; BCI ACQUISITION, INC., a Delaware corporation; TTCF-NM HOLDINGS INC., a New Mexico corporation, Debtors.
PETER HURWITZ, Liquidating Trustee, Appellant, v. MEMORANDUM* GRATEFUL EGG, LLC, Appellee.
* This disposition is not appropriate for publication. Although it may be cited for whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential value, see 9th Cir. BAP Rule 8024-1. Appeal from the United States Bankruptcy Court for the Central District of California Sandra R. Klein, Bankruptcy Judge, Presiding
Before: FARIS, LAFFERTY, and SPRAKER, Bankruptcy Judges.
INTRODUCTION
Liquidating trustee Peter Hurwitz (the “Liquidating Trustee”)
appeals the bankruptcy court’s denial of his motion for reconsideration of
the court’s approval of appellee Grateful Egg, LLC’s administrative claim.
He contends that he was denied due process because the court did not give
notice of a deadline to object to the claim and that the bankruptcy court
improperly considered confidential settlement communications.
We discern no abuse of discretion and AFFIRM.
FACTS
A. Prepetition events
In 2021, Grateful Egg agreed to lease a cold storage facility located in
Vernon, California to Ittella International LLC (“Ittella”). In lieu of a
security deposit, Ittella provided a $558,120 letter of credit.
B. The bankruptcy cases
In July 2023, Ittella and related entities Ittella’s Chef, Inc., Tattooed
Chef, Inc., Myjojo, Inc., New Mexico Food Distributors, Inc., Karsten
Tortilla Factory, LLC, BCI Acquisition, Inc., and TTCF-NM Holdings, Inc.
2 (collectively, the “Debtors”) filed voluntary chapter 111 petitions. Those
cases were ordered jointly administered.
Ittella did not assume the lease within 120 days after the petition
date. Grateful Egg argued that § 365(d)(4) obligated Ittella to surrender the
property to Grateful Egg. Grateful Egg also asserted that Ittella was in
material default under the lease because it failed to pay rent, property
taxes, and insurance; caused significant damage to the property; 2 and
refused to allow Grateful Egg to repair the property during the
bankruptcy. Grateful Egg filed a motion to compel Ittella to turn over the
property.
Grateful Egg and the Debtors entered into a stipulation (the “Expense
Allowance Stipulation”) to resolve most of their dispute. The parties
agreed that the lease would be deemed rejected on January 16, 2024, and
the Debtors would return possession of the property to Grateful Egg and
pay Grateful Egg for prorated rent. Additionally, Grateful Egg would have
an allowed administrative expense claim “for all post-Petition Date
amounts owed under the Lease for taxes, insurance, and equipment”
1 Unless specified otherwise, all chapter and section references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, all “Rule” references are to the Federal Rules of Bankruptcy Procedure, all “Civil Rule” references are to the Federal Rules of Civil Procedure, and all “LBR” references are to the local bankruptcy rules for the Central District of California. 2 Grateful Egg filed a proof of claim for $800,000 due to damage Ittella allegedly caused to the cold storage facility. Grateful Egg later amended the proof of claim to increase the claim to $2,387,786.70. 3 through January 16, 2024. The bankruptcy court approved the Expense
Allowance Stipulation on the same day.
The Debtors filed a motion to set January 19, 2024 as the deadline for
creditors to file and serve requests for payment of administrative claims
arising before the cutoff date of December 31, 2023. They requested that the
bankruptcy court approve the following procedure:
(a) claimants shall not set hearings on their Admin. Claim Requests and (b) a hearing on any Admin. Claim Request shall only be set in the event there is a dispute regarding the Admin. Claim Request and the Debtors and/or the Committees and the subject claimant are not able to resolve the dispute, in which case the Debtors and/or the Committees shall set the Admin. Claim Request for hearing on not less than fourteen (14) days’ notice and provide notice thereof to the subject claimant and other parties entitled to notice of the hearing on the Admin. Claim Request[.] (Emphases added.) The motion did not specify a deadline for objections to
an administrative expense claim. The bankruptcy court granted the motion
and entered an order (the “Administrative Bar Date Order”) adopting the
proposed deadlines and procedure.
C. Grateful Egg’s request for payment of its administrative claim
On January 19, 2024, Grateful Egg filed its timely Request of
Allowance and Payment of Administrative Claims (the “Request for
Payment”). Pursuant to the Expense Allowance Stipulation, Grateful Egg
asserted an administrative claim for property taxes, insurance premiums,
and equipment rental totaling $182,065.05.
4 In compliance with the Administrative Bar Date Order, Grateful Egg
did not set the Request for Payment for hearing. The Debtors made some
desultory efforts to reach a settlement with Grateful Egg about the Request
for Payment, but there was no agreement. The Debtors and the creditors’
committees did not file any objections to the Request for Payment or
request a hearing.
In the meantime, the Debtors proposed a joint chapter 11 plan that
called for the creation of a liquidating trust overseen by a liquidating
trustee. The bankruptcy court approved the plan and disclosure statement
on May 9, 2024. Mr. Hurwitz was appointed Liquidating Trustee. He did
not file an objection to or request a hearing on the Request for Payment.
On November 12, 2024, the bankruptcy court entered its Order
Granting Application of Grateful Egg, LLC for Allowance and Payment of
Administrative Expense Claim (the “Administrative Claim Order”).3 It
approved the Request for Payment in the full amount of $182,065.05 and
authorized the Liquidating Trustee to pay Grateful Egg that amount.
D. The Liquidating Trustee’s motion for reconsideration
Twenty days later, on December 2, 2024, the Liquidating Trustee filed
a motion (the “Motion for Reconsideration”) asking the bankruptcy court
to reconsider the Administrative Claim Order under Civil Rule 60(b). 4 He
3 The record is silent, but at oral argument, Grateful Egg’s counsel represented that Grateful Egg lodged a proposed order a few days prior to entry of that order. 4 Inexplicably, the Liquidating Trustee failed to apprise this Panel that he initially 5 argued that Grateful Egg did not provide him with notice of a hearing or
deadline to object to the administrative claim. He said that the Expense
Allowance Stipulation preserved all defenses to the administrative claim
and that § 503(b) requires notice and a hearing before the bankruptcy court
can allow payment of administrative expenses. As a result, he asserted that
he was denied due process.
The Liquidating Trustee also argued that the bankruptcy court
should vacate the Administrative Claim Order because Grateful Egg did
not apply the amount of the letter of credit to its administrative claim.
Grateful Egg opposed the Motion for Reconsideration. It argued that
the Debtors’ counsel received notice of the Request for Payment and chose
not to object. It also contended that the Liquidating Trustee should have
known about the letter of credit, as it was attached to the lease agreement.
In support of this assertion, it attached e-mail correspondence between
Grateful Egg and the Debtors in which the Debtors’ counsel attempted to
negotiate a resolution of the Request for Payment. Grateful Egg used these
e-mails to show that the Debtors knew about the letter of credit.
The Liquidating Trustee filed a reply brief. He repeated his
filed a motion for reconsideration fourteen days after entry of the Administrative Claim Order. The bankruptcy clerk pointed out a procedural error, so the Liquidating Trustee filed a “new” motion for reconsideration the following day. The clerk advised the Liquidating Trustee that that filing was also deficient. The Liquidating Trustee then filed the subject Motion for Reconsideration on December 2, which was twenty days after entry of the Administrative Claim Order.
6 argument that there was no deadline to object to the Request for Payment
or to request a hearing. He argued that the majority of the claim was not
entitled to priority because those expenses arose after the Debtors vacated
the property and rejected the lease.5 He also complained that Grateful Egg
would obtain a “windfall” by receiving payment on both the
administrative claim and the letter of credit.
The Liquidating Trustee argued that it was improper for Grateful Egg
to disclose privileged settlement communications under Rule 408 of the
Federal Rules of Evidence (“FRE”). He claimed that the discussions were
irrelevant because they did not support the validity of the administrative
claim.
Finally, the Liquidating Trustee argued that the Request for Payment
did not comply with the Administrative Bar Date Order and in any event
should have been set for hearing.
The bankruptcy court held a hearing on the Motion for
Reconsideration. The court pointed out that Grateful Egg served the
Debtors’ counsel with notice of the administrative claim. It asked whether
the Liquidating Trustee believed additional service on the Liquidating
Trustee was necessary. The Liquidating Trustee acknowledged that the
Debtors were served with the Request for Payment but explained that he
5 The Liquidating Trustee argued that the insurance policy premiums covered a full year and that the administrative claim should include only a prorated portion of the total premium, reflecting that the Debtors occupied the property for only three-and-a- half months after the petition date. 7 was complaining about the lack of a deadline to object, not necessarily the
lack of service.
The bankruptcy court orally announced its ruling denying the
Motion for Reconsideration under Civil Rule 60(b)(1). It rejected the
Liquidating Trustee’s argument that he did not have proper notice of the
Request for Payment. It first found that it was beyond dispute that the
Debtors’ counsel had notice of the Expense Allowance Stipulation and the
Request for Payment. The bankruptcy court recognized that the
Liquidating Trustee was appointed after the Administrative Bar Date
Order and the Request for Payment were filed, but it held that the
Liquidating Trustee did not provide any authority that Grateful Egg
needed to provide him with additional notice.
The court also rejected the Liquidating Trustee’s argument that
Grateful Egg did not provide notice of a hearing or objection deadline,
noting that “the express[ ] provisions of the bar date order indicated that it
was not Grateful [Egg]’s responsibility to set the matter for hearing, but
instead, it was the debtor’s and/or the committees[’] responsibility to do
so.”
The bankruptcy court declined to consider the Liquidating Trustee’s
arguments regarding the letter of credit, the insurance premiums, or the
settlement discussions, as they were new arguments not properly the
subject of a Civil Rule 60(b) motion.
The bankruptcy court entered an order denying the Motion for
8 Reconsideration for the reasons stated on the record. The Liquidating
Trustee timely appealed.
JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and
157(b)(2)(A), (B). We have jurisdiction under 28 U.S.C. § 158.
ISSUE
Whether the bankruptcy court erred in denying the Liquidating
Trustee’s Motion for Reconsideration.
STANDARD OF REVIEW
We review for an abuse of discretion the bankruptcy court’s denial of
a motion for reconsideration. First Ave. W. Bldg., LLC v. James (In re Onecast
Media, Inc.), 439 F.3d 558, 561 (9th Cir. 2006).
To determine whether the bankruptcy court has abused its discretion,
we conduct a two-step inquiry: (1) we review de novo whether the
bankruptcy court “identified the correct legal rule to apply to the relief
requested” and (2) if it did, we consider whether the bankruptcy court’s
application of the legal standard was illogical, implausible, or without
support in inferences that may be drawn from the facts in the record.
United States v. Hinkson, 585 F.3d 1247, 1263 (9th Cir. 2009) (en banc).
DISCUSSION
A. The Liquidating Trustee assigns the wrong legal standard to his Motion for Reconsideration.
The parties disagree about the legal standard that the bankruptcy
9 court should have applied to the Motion for Reconsideration. Grateful Egg
takes the position that the bankruptcy court properly reviewed it under
Civil Rule 60(b) (which was the stated basis for the Motion for
Reconsideration) and faults the Liquidating Trustee for failing to address
the court’s ruling under that legal standard. Conversely, although the
Liquidating Trustee had only sought relief under Civil Rule 60(b), he now
argues for the first time in his reply brief on appeal that the bankruptcy
court should have analyzed the Motion for Reconsideration under Civil
Rule 59. We are unpersuaded by the Liquidating Trustee’s argument.
The Liquidating Trustee never argued in the bankruptcy court that
the Civil Rule 59 standard applies. Instead, the Motion for Reconsideration
rested solely on Civil Rule 60(b): “The relief requested herein is predicated
on FRCP 60(b).” He also does not argue in his opening brief that the
bankruptcy court erred when it applied Civil Rule 60(b) (rather than Civil
Rule 59(e)). Therefore, he has waived any argument that we should
consider the standard of Civil Rule 59. See Padgett v. Wright, 587 F.3d 983,
985 n.2 (9th Cir. 2009) (stating that the court ordinarily will not consider
issues raised for the first time on appeal); Smith v. Marsh, 194 F.3d 1045,
1052 (9th Cir. 1999) (“[O]n appeal, arguments not raised by a party in its
opening brief are deemed waived.”).6
6 The Liquidating Trustee’s Civil Rule 59 argument (raised only in his reply brief on appeal) rests on the assertion that his Motion for Reconsideration filed fifteen days after the Administrative Claim Order is timely under Civil Rule 59. He is wrong. He disregards the fact that Rule 9023 makes Civil Rule 59 applicable in bankruptcy court 10 Civil Rule 60, made applicable in bankruptcy proceedings by Rule
9024, provides that the movant must show entitlement to one of the
specified grounds for relief in Civil Rule 60(b):
(1) mistake, inadvertence, surprise, or excusable neglect;
(2) newly discovered evidence that, with reasonable diligence, could not have been discovered in time to move for a new trial under [Civil] Rule 59(b);
(3) fraud (whether previously called intrinsic or extrinsic), misrepresentation, or misconduct by an opposing party;
(4) the judgment is void;
(5) the judgment has been satisfied, released, or discharged; it is based on an earlier judgment that has been reversed or vacated; or applying it prospectively is no longer equitable; or
(6) any other reason that justifies relief.
Civil Rule 60(b).
The Liquidating Trustee’s decision to seek relief under Civil Rule
60(b) (rather than Civil Rule 59) has a crucial implication: the legal
but changes the deadline to fourteen days. Curiously, the bankruptcy court’s docket sheet reveals that the Liquidating Trustee did file a motion for reconsideration on the fourteenth day after the bankruptcy court entered its order. See Wolverine Endeavors VIII, LLC v. E. W. Bank (In re King), 664 B.R. 356, 361 n.2 (9th Cir. BAP 2024) (This Panel may take “judicial notice of the bankruptcy court docket and various documents filed through the electronic docketing system.”). We fail to understand why the Liquidating Trustee did not bring this earlier motion to the attention of the bankruptcy judge, let alone mention it in any of his appellate briefs. But it is irrelevant because, although the Liquidating Trustee might have been able to rely on the substantive standard of Civil Rule 59, his arguments rest entirely on Civil Rule 60, and thus he has waived any argument based on Civil Rule 59. 11 standard and standard of review is much less favorable to the Liquidating
Trustee. Under Civil Rule 60(b), the Liquidating Trustee “is not permitted
to revisit the merits of the underlying judgment or argue that the trial court
committed some legal error in arriving at that judgment.” United Student
Funds, Inc. v. Wylie (In re Wylie), 349 B.R. 204, 209 (9th Cir. BAP 2006). We
review the Liquidating Trustee’s arguments “solely as they bear on the
[bankruptcy court’s] exercise of discretion on the [Civil] Rule 60(b) motion.
[Appellant] cannot prevail merely by showing that the [underlying
judgment] . . . was erroneous.” SEC v. Seaboard Corp., 666 F.2d 414, 415-16
(9th Cir. 1982); see also 11 Fed. Prac. & Proc. Civ. § 2858 (3d ed.) (“[R]elief
will not be granted under [Civil] Rule 60(b)(1) merely because a party is
unhappy with the judgment. The party must make some showing
justifying the failure to avoid the mistake or inadvertence.”). Rather, the
Liquidating Trustee must seek relief under “the narrow grounds
enumerated in [Civil Rule] 60(b). These grounds generally require a
showing that events subsequent to the entry of the judgment make its
enforcement unfair or inappropriate, or that the party was deprived of a
fair opportunity to appear and be heard in connection with the underlying
dispute.” In re Wylie, 349 B.R. at 209 (citation omitted).
The court correctly analyzed the Motion for Reconsideration under
Civil Rule 60(b)(1). The Liquidating Trustee argues briefly that the
Administrative Claim Order should be set aside for “surprise (FRCP
60(b)(1)[)], misrepresentation and misconduct (FRCP 60(b)(3)[)] and . . .
12 because the [Administrative Claim Order] was entered without any notice,
it should be vacated as a mistake.” For the reasons explained below, we
reject each of these arguments.7
B. The Liquidating Trustee’s alleged lack of notice or opportunity to object did not warrant reconsideration.
The Liquidating Trustee argues that Grateful Egg failed to provide
the Debtors and the Liquidating Trustee with required notice of its Request
for Payment, hearing, and proposed order, which deprived the Liquidating
Trustee of an opportunity to respond to and contest the Request for
Payment. We disagree.
Section 503(b) provides in part that, “[a]fter notice and a hearing,
there shall be allowed administrative expenses . . . .” Section 102(1)
specifies that the phrase “after notice and a hearing” does not always
require notice or a hearing; rather, it “means after such notice as is
appropriate in the particular circumstances, and such opportunity for a
hearing as is appropriate in the particular circumstances; but . . . authorizes
7 We would reach the same conclusion herein even if we were to analyze the Motion for Reconsideration under Civil Rule 60(b)(6), which allows a trial court to set aside an order for “any other reason that justifies relief.” For the reasons stated herein, the Liquidating Trustee offers no reason that would justify relief from the Administrative Claim Order. Additionally, relief from a judgment or order should be granted “sparingly as an equitable remedy to prevent manifest injustice, and only where extraordinary circumstances prevented a party from taking timely action to prevent or correct an erroneous judgment.” In re Wylie, 349 B.R. at 212 (cleaned up). The Liquidating Trustee has failed to argue or present any extraordinary circumstances justifying the requested relief. 13 an act without an actual hearing if such notice is given properly and if . . .
such a hearing is not requested timely by a party in interest[.]” We have
stated that “the concept of notice and a hearing is flexible and depends on
what is appropriate in the particular circumstance.” Tennant v. Rojas (In re
Tennant), 318 B.R. 860, 870 (9th Cir. BAP 2004). However, we have also
acknowledged that the “flexible” notice and hearing requirement does not
allow a bankruptcy court to steamroll over a party’s due process rights. Id.
at 871.
In this case, the bankruptcy court’s Administrative Bar Date Order
defined the notice and opportunity for a hearing that were appropriate for
administrative claims in the circumstances of this case. The bankruptcy
court found that Grateful Egg fully complied. Grateful Egg filed its Request
for Payment within the deadline set by the Administrative Bar Date Order.
It properly served its Request for Payment on the Debtors’ counsel, and the
Liquidating Trustee conceded in the bankruptcy court that he was not
entitled to service of the Request for Payment. Grateful Egg did not set the
matter for hearing because the Administrative Bar Date Order prohibited it
from doing so. The Debtors and the creditors’ committees, who were the
only parties entitled to object or request a hearing, did nothing. In short,
Grateful Egg did everything the Administrative Bar Date Order permitted
and required.
In contrast, the Liquidating Trustee could have avoided the
predicament in which he finds himself. He could have reviewed the
14 bankruptcy court’s docket sheet for filed requests for payment of
administrative expenses and promptly requested hearings on any that
appeared questionable. Instead, he did nothing for six months after his
appointment. He did not take any steps to challenge Grateful Egg’s claim
until after the bankruptcy court entered its order. We cannot say that the
bankruptcy court failed “to apprise interested parties of the pendency of
the action and afford them an opportunity to present their objections[,]”
Mullane v. Cent. Hanover Bank & Tr. Co., 339 U.S. 306, 314 (1950), when it
approved the Request for Payment.
The Liquidating Trustee tries to avoid the consequences of his own
inaction by arguing that it was the lack of notice of lodgment of the
proposed order 8 or of a deadline to object (rather than a lack of notice of
8 The Central District of California employs a Lodged Order Upload – or “LOU” – system that allows users to upload proposed orders electronically. The rules and guidelines that govern the LOU system specify that a party lodging a proposed order need not serve that order on a party that did not object to the request for relief. Section 1.2(b)(4) of the LOU supplement to The Central Guide provides: [A] proposed order must be served only upon any person, entity, or attorney who filed an opposition to the moving papers, or who was required to sign approval of a stipulation that resolved the motion or other request for relief. There is no obligation to serve the proposed order on any other person or entity . . . . See also LBR 9021-1(b)(4) (“[I]f no opposition was filed, no service or proof of service of the proposed order is required prior to lodging of the proposed order . . . .”); The Central Guide section 2-16 (“A proposed order or judgment must be served on other parties only when parties filed an opposition to the motion or other request . . . . If these conditions do not exist, . . . there is no reason to serve the proposed order before lodging it with the court.”). Thus, because no one objected to the Request for Payment, the local bankruptcy rules and guidelines did not require Grateful Egg to serve the 15 the Request for Payment) that deprived him of due process. But the
Administrative Bar Date Order imposed no such notice requirements.
Grateful Egg timely filed its Request for Payment and gave notice to the
Debtors. Under the Administrative Bar Date Order’s procedures (that the
Debtors had proposed), this put the onus on the Debtors and the committee
(and the Liquidating Trustee, standing in the Debtors’ shoes) to challenge
the Request for Payment. But the Liquidating Trustee did not act, even
though he had six months to do so. He was not entitled to an open-ended
period to object, and the bankruptcy court must have implicitly been
satisfied that he had a reasonable opportunity to object to the Request for
Payment. 9 See Mathews v. Eldridge, 424 U.S. 319, 334 (1976) (“Due process is
flexible and calls for such procedural protections as the particular situation
demands.” (cleaned up)).
proposed order on the Liquidating Trustee. Additionally, the purpose of the LOU service requirement is to give parties an opportunity to comment on whether the proposed order accurately reflects the court’s ruling, not to give parties another opportunity to object to the underlying motion. 9 The Debtors suggested in their motion requesting an administrative bar date order that they would quickly raise any objections to administrative claim requests. The motion explained that the bar date would “allow the Debtors and/or the Committees to ascertain the amount of administrative claims that need to be treated under a plan or plans, which are expected to be filed by no later than January 29, 2024 (i.e., just 10 days after the proposed January 19, 2024 Admin. Claim Bar Date . . . )” so they could “formulat[e] a plan . . . with information that is as accurate as possible regarding administrative claims . . . .” This stated intent flies in the face of the Liquidating Trustee’s position that the lack of a deadline to object afforded him an unlimited amount of time to object to an administrative claim.
16 We acknowledge, with the benefit of hindsight, that the
Administrative Bar Date Order probably should have expressly stated a
deadline to object to administrative claims. But the question is not whether
that order was perfect. Rather, the question is whether, in the absence of a
specific deadline, the Liquidating Trustee had a due process right to an
unlimited amount of time to file an objection. We hold that, because the
Liquidating Trustee had notice of Grateful Egg’s Request for Payment and
an ample time in which to object, there was no denial of due process.
C. The settlement correspondence was not inadmissible under FRE 408.
The Liquidating Trustee next argues that the bankruptcy court
erroneously relied on confidential settlement communications offered by
Grateful Egg that purported to show that the Debtors’ counsel was aware
of the Request for Payment. He contends that the correspondence was
inadmissible under FRE 408. Moreover, he claims that the correspondence
only shows that the Debtors were aware of the administrative claim, not
the Request for Payment. He also claims that the correspondence does not
establish that the Liquidating Trustee had any knowledge of the Request
for Payment.
We again reject all of the Liquidating Trustee’s arguments. First, the
bankruptcy court did not err in considering the correspondence. FRE 408
only bars evidence used “either to prove or disprove the validity or
amount of a disputed claim or to impeach by a prior inconsistent statement
17 or a contradiction[.]” Fed. R. Evid. 408(a). But courts can consider
settlement communications “for a purpose other than establishing liability.
Courts have admitted evidence of offers or agreements to compromise . . .
to show the defendant’s knowledge . . . .” Bankcard Am., Inc. v. Universal
Bancard Sys., Inc., 203 F.3d 477, 484 (7th Cir. 2000) (citations omitted); see
also Fed. R. Evid. 408 advisory committee’s note to 2006 amendment
(“[FRE] 408 [is] inapplicable when compromise evidence is offered for a
purpose other than to prove the validity, invalidity, or amount of a
disputed claim. . . . The amendment does not affect the case law providing
that Rule 408 is inapplicable when evidence of the compromise is offered to
prove notice.”). Here, the Debtors’ counsel’s statements were not offered to
prove the liability on or amount of the administrative claim but to prove
notice via the Debtors’ knowledge of the existence of the Request for
Payment. Thus, the correspondence falls outside of the ambit of FRE 408.
Second, we reject the Liquidating Trustee’s contention that the e-mail
does not show that the Debtors were aware of the administrative claim.
Within days after Grateful Egg filed the Request for Payment, counsel for
the Debtors e-mailed Grateful Egg’s counsel at least twice and specifically
referenced the administrative claim and the letter of credit. Counsel
included a summary of charges that appears to have been taken directly
from an exhibit to the Request for Payment. Thus, the correspondence
supports Grateful Egg’s position that the Debtors had notice of the Request
for Payment (and of the letter of credit).
18 Third, although the Liquidating Trustee faults Grateful Egg for
failing to communicate with or provide notice to the Liquidating Trustee
“related to the Motion for Allowance and Payment” (i.e., the Request for
Payment), he conceded in the bankruptcy court that Grateful Egg was not
required to provide “additional service” on him. The Liquidating Trustee
has apparently changed his position on appeal, but he fails to offer any
authority to support this argument.
D. The bankruptcy court did not err in refusing to consider the letter of credit and other arguments concerning the underlying merits.
Finally, the Liquidating Trustee argues that the Administrative Claim
Order results in an inequitable “windfall” for Grateful Egg. He contends
that the entirety of the administrative claim was not entitled to
administrative expense priority and that the letter of credit should have
been applied to reduce the administrative claim.
As the bankruptcy court correctly pointed out, these arguments were
not appropriate on a Civil Rule 60(b) motion. The Liquidating Trustee was
“not permitted to revisit the merits of the underlying judgment or argue
that the trial court committed some legal error in arriving at that
judgment.” In re Wylie, 349 B.R. at 209.
The Liquidating Trustee admitted that he would have raised these
arguments as an objection to the Request for Payment. We agree that that
would have been the proper time to make those arguments. Although there
was no stated deadline to object to the Request for Payment, the Request
19 for Payment was in the court’s file, and the Administrative Bar Date Order
established the procedure for asserting and objecting to it. But the
Liquidating Trustee sat on his hands and did not object. This does not
indicate mistake, inadvertence, surprise, excusable neglect,
misrepresentation, or misconduct. Civil Rule 60(b)(1), (3). We therefore do
not review the Liquidating Trustee’s arguments concerning the merits of
the Request for Payment in this appeal from the Motion for
Reconsideration. See In re Wylie, 349 B.R. at 210 (“[T]he merits of the claim
objection are no longer fair game unless the claimant first establishes a
good excuse, cognizable under FRCP 60(b), for its failure to timely contest
the objection.”). 10
10 The analysis would have been different if the Liquidating Trustee had sought relief under Civil Rule 59(e), but the result would likely have been the same. “Amendment or alteration is appropriate under Rule 59(e) if . . . the district court committed clear error or made an initial decision that was manifestly unjust . . . .” Zimmerman v. City of Oakland, 255 F.3d 734, 740 (9th Cir. 2001). Under that more permissive standard, a movant under Civil Rule 59(e) “may seek a reconsideration of the correctness and merits of the trial court’s underlying judgment.” In re Wylie, 349 B.R. at 209. But even if the bankruptcy court had reached the merits under Civil Rule 59, we would affirm. The Liquidating Trustee argues that the bankruptcy court should have applied the letter of credit to Grateful Egg’s administrative claim, rather than to its prepetition unsecured claim. But neither the lease, nor the Bankruptcy Code, nor any case law provides that, when a landlord has both a prepetition claim and an administrative claim, the landlord must apply a letter of credit backstopping the debtor/lessee’s obligations to the administrative claim rather than the prepetition claim. The Liquidating Trustee also argues that the premium for an annual insurance policy that Grateful Egg paid before Ittella rejected the lease should have been prorated. But the Liquidating Trustee ignores the fact that Grateful Egg actually paid the full premium during the pre-rejection period, and he offers no evidence that Grateful Egg 20 CONCLUSION
The bankruptcy court did not abuse its discretion when it denied the
Liquidating Trustee’s Motion for Reconsideration. We AFFIRM.
was entitled or able to obtain a refund of the premium for the post-rejection period, or that Grateful Egg would have purchased the same insurance at the same price after the lease was terminated.