FILED NOV 13 2017 1 NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK U.S. BKCY.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 No. CC-17-1010-STaL ) 6 JAMES DONZIL ROBERTS, SR. and ) Bk. No. 1:12-bk-16474-MT DEENA WALDMAN ROBERTS, ) 7 ) Adv. No. 1:12-ap-01371-MT Debtors. ) 8 ______________________________) ) 9 JAMES DONZIL ROBERTS, SR., ) ) 10 Appellant, ) ) 11 v. ) MEMORANDUM* ) 12 MICHAEL BARNES; CALIFORNIA ) FARMS INVESTORS LLC, ) 13 ) Appellees. ) 14 ______________________________) 15 Argued and Submitted on September 29, 2017 at Pasadena, California 16 Filed – November 13, 2017 17 Appeal from the United States Bankruptcy Court 18 for the Central District of California 19 Honorable Maureen A. Tighe, Bankruptcy Judge, Presiding 20 Appearances: Peter T. Steinberg of Steinberg, Nutter & Brent argued for appellant; Cathrynne Dale argued for 21 appellees 22 Before: SPRAKER, TAYLOR, and LAFFERTY, Bankruptcy Judges. 23 24 25 26 * This disposition is not appropriate for publication. 27 Although it may be cited for whatever persuasive value it may have (see Fed. R. App. P. 32.1), it has no precedential value. 28 See 9th Cir. BAP Rule 8024-1. 1 INTRODUCTION 2 Chapter 71 debtor James Donzil Roberts appeals from a 3 judgment excepting from discharge the debt arising from his 4 scheme to defraud Michael Barnes and California Farms Investors 5 LLC (collectively, “Barnes”). Roberts contends that the 6 bankruptcy court committed reversible error by not crediting the 7 value of the farm equipment collateral that secured repayment of 8 Barnes’ loan against his damages. According to Roberts, there 9 was no loss caused by his fraud because the value of the 10 collateral was more than sufficient to offset the amount lent. 11 Roberts’ disposition of collateral argument ignores the 12 bankruptcy court’s determination that Barnes was forced to assign 13 his interest in the collateral to third party produce suppliers 14 in order to obtain a release of potentially massive liability 15 under the Perishable Agricultural Commodities Act – liability 16 that flowed from Roberts’ fraud. Roberts’ disposition of 17 collateral argument, furthermore, relies on California Commercial 18 Code statutes enacted to restrict the collection of contract- 19 based debts and attempts to apply them without any supporting 20 authority to a nondischargeable fraud claim. 21 Most importantly, Roberts admits that he failed to raise the 22 disposition of collateral argument at or before trial. Having 23 not raised this argument in response to the foreclosure of the 24 collateral or in the nondischargeability adversary proceeding, 25 26 1 Unless specified otherwise, all chapter and section 27 references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and all "Rule" references are to the Federal Rules of Bankruptcy 28 Procedure, Rules 1001-9037.
2 1 Roberts forfeited this argument under clear and longstanding 2 doctrines of appellate process and as a matter of substantive 3 commercial law. 4 Accordingly, we AFFIRM. 5 FACTS 6 We primarily rely on the findings of fact set forth in the 7 bankruptcy court’s Memorandum Decision. Roberts has not directly 8 challenged any of those findings, and the incomplete record 9 provided by the parties supports the findings made. 10 Roberts and two other individuals formed a joint venture 11 in 2009 for the stated purpose of producing and selling direct to 12 retail packages containing gourmet organic salads. Roberts and 13 his colleague Daniel Fantz were in charge of soliciting 14 financing. The third joint venturer – Santos Martinez – had 15 extensive farming experience as well as some 450 or so acres of 16 farmland that were to be used to grow at least some of the 17 lettuce varieties needed for the salads. Martinez also agreed to 18 contribute millions of dollars of farming equipment to the joint 19 venture. 20 The corporate structure of the joint venture was 21 straightforward. Roberts and Fantz formed California Farms, Inc. 22 (“California Farms”) which became one of the two members of the 23 joint venture, California Farms II, LLC. The other member was 24 Manjar, Inc. – Martinez’s wholly-owned farming business. The 25 joint venture was later renamed California Organics LLC 26 (“Organics”). 27 In October 2009, a third party introduced Roberts and Fantz 28 to Barnes. Roberts and Fantz, through emails, phone calls and
3 1 in-person meetings made over the next several months, marketed 2 their Organics investment opportunity to Barnes. During the 3 course of that marketing, Roberts and Fantz presented a good deal 4 of information – much of it false or deceptive. As the 5 bankruptcy court later put it, this information included: 6 A. a business plan providing “projections” which Defendant did not verify; 7 B. misleading “use of proceeds” projections; C. false assurances regarding the status of accounts 8 receivable; D. false assurances about guaranteed purchase contracts 9 which in fact did not exist. 10 Mem. Dec. (Sep. 9, 2015) at 3:13-16. 11 Overall, Roberts represented to Barnes that the joint 12 venture was an ongoing farming business already selling their 13 self-grown organic produce to wholesalers and that a short-term 14 bridge loan would enable the venture to shift their operations 15 into much more lucrative sales to retail grocers like Stater 16 Bros., Albertsons and others - some of whom already were 17 supposedly lined up to buy from the venture. 18 In reality, the venture was entirely dependent on Martinez’ 19 and Manjar’s farming expertise, acreage and certified organic 20 growers license to grow the produce they wanted to sell. At the 21 time Roberts began soliciting investment funds from Barnes, 22 however, Manjar had not started growing any produce. In fact, 23 neither Manjar nor the venture ever grew any produce for the 24 venture’s business. Martinez and Manjar refused to grow any 25 produce for Organics unless Organics paid Manjar $375,000, which 26 was never paid. Organics either was unable or unwilling to pay 27 that amount in order to grow its own produce. 28 This was a critical departure from the business model and
4 1 projections Roberts presented to Barnes in his solicitation 2 materials. The exceptional profits Roberts represented Organics 3 was poised to realize were dependent on self-grown produce sold 4 to retail grocers. Instead, Organics began purchasing produce 5 from third party growers and suppliers and then processed it and 6 resold it – mostly in the wholesale market. These operations 7 effectively enabled Organics to present itself to the investors 8 as a going concern, but they came at a steep cost: the incurrence 9 of massive debt. To make matters worse, unbeknownst to Barnes, 10 Organics’ management – including Roberts, Fantz, Martinez and 11 others – paid themselves hundreds of thousands of dollars in 12 draws or “management fees.”2 13 Between November 2009 and April 2010, Barnes loaned Organics 14 the aggregate amount of $822,000.3 The loans were secured by 15 substantial personal property – mostly Manjar’s farm equipment. 16 In addition, as one of a number of preconditions to investment, 17 Barnes was named in the venture’s amended operating agreement as 18 a “class B manager.” We do not specifically know all of Barnes’ 19 rights and duties as a class B manager because the parties have 20 not included in their excerpts of record any of the exhibits 21 admitted at trial. But, the trial testimony indicated that 22 Barnes was entitled to routinely receive from the company 23 financial and operating reports and to approve or reject certain 24 2 On top of this, Roberts failed to disclose to Barnes that 25 Organics' executive manager – Geoffrey Mousseau – was a convicted 26 felon. Roberts, a licensed attorney, knew that Mousseau's criminal record should have been disclosed to the investors. 27 3 Barnes also paid an additional $3,000 as an equity 28 investment in California Organics.
5 1 transactions. In the event of a loan default Barnes could, and 2 eventually did, assume control of Organics’ assets and operations 3 as manager of the joint venture. 4 The naming of Barnes as a manager, and his rights and duties 5 with respect to Organics’ operations, is a key point because his 6 role in the venture potentially exposed him to personal liability 7 to Organics’ produce suppliers under the Perishable Agricultural 8 Commodities Act – also known as PACA – 7 U.S.C. § 499a, et seq. 9 Pursuant to PACA, all commission merchants, dealers and brokers 10 of perishable agricultural goods hold those goods (and their 11 proceeds) in trust for the benefit of the vendor of such goods 12 unless and until the vendor is repaid. 7 U.S.C. § 499e(c)(2). 13 Those entities, and their control persons, are liable for any 14 dissipation of the trust’s assets under ordinary trust 15 principles. Sunkist Growers v. Fisher, 104 F.3d 280, 282-283 16 (9th Cir. 1997); see also Nickey Gregory Co., LLC v. AgriCap, 17 LLC, 597 F.3d 591, 595 (4th Cir. 2010) (“[g]eneral trust 18 principles govern PACA trusts unless the principle conflicts with 19 PACA”); Weis-Buy Servs. v. Paglia, 411 F.3d 415, 421 (3d Cir. 20 2005) (“[i]ndividual liability in the PACA context is not derived 21 from the statutory language, but from common law breach of trust 22 principles”). The record below is devoid of any analysis of 23 either PACA or its application. What is clear, however, is that 24 the unpaid produce suppliers asserted substantial PACA claims 25 against Organics and Barnes individually. 26 At the time of his investment in Organics, Barnes had no way 27 of knowing of his potential PACA liability because he did not 28 know that Organics was purchasing produce from third party
6 1 suppliers. To the contrary, Roberts’ offering materials and 2 projections created the false impression that all of Organics’ 3 produce would be self grown. During the loan funding period, 4 Roberts affirmatively concealed from Barnes that Organics was 5 buying all of its produce from third party suppliers and that 6 Organics was incurring a large amount of PACA debt in the 7 process. 8 In or around June 2010, after discovering that Organics was 9 accumulating massive debt, Barnes exercised his right under 10 Organics’ amended operating agreement to assume control over 11 Organics’ operations and assets. We cannot say with any greater 12 precision when, or even whether, Barnes triggered the PACA 13 liability provisions for two reasons. First, the testimony 14 regarding Barnes’ assumption of control did not provide a full 15 account of the timing and nature of Barnes’ control. Second, the 16 appellate record provided by the parties is gravely incomplete: 17 the parties did not include copies of their trial exhibits for 18 review. Regardless, the unpaid produce suppliers asserted that 19 when Barnes assumed control over Organics he became liable for 20 the company’s PACA debts. 21 Organics eventually failed and a number of PACA creditors 22 sued Organics and Barnes in September 2010. As with the issue of 23 Barnes’ control over Organics, the specifics of the PACA lawsuit 24 are unknown. But, the trial record does disclose a handful of 25 critical facts. Namely, the litigation involved hundreds of 26 thousands of dollars in unpaid PACA debt. Additionally, as part 27 of that litigation, the produce suppliers asserted that the 28 equipment collateral securing the debt owed to Barnes was PACA
7 1 trust property or the proceeds of PACA trust property, and the 2 produce suppliers threatened injunctive relief against Barnes if 3 he attempted to foreclose on the collateral. 4 Faced with protracted litigation and potential exposure for 5 the alleged mishandling of PACA trust property, Barnes settled 6 with the PACA suppliers by assigning to them his security 7 interest in the equipment collateral.4 The precise nature of the 8 settlement and the assignment remains unclear given the record 9 provided. However, after the settlement was consummated, the 10 PACA suppliers commenced foreclosure proceedings in which they 11 claimed to be assignees of Barnes’ rights under the notes and 12 security agreements that Organics and Manjar executed in favor of 13 Barnes. 14 The PACA suppliers subsequently foreclosed on the equipment. 15 The record on appeal does not disclose much about the foreclosure 16 either, other than it occurred in 2013. There are a few oblique 17 references to Exhibit 151, which was a copy of the PACA 18 creditors’ foreclosure notice. As for the value of the 19 collateral at the time of foreclosure, there is nothing in the 20 record. The limited discussion at trial regarding collateral 21 value varied widely and was not attributed to the relevant time 22 frame of the foreclosure. Moreover, the statements regarding 23 value of the collateral were entirely based on hearsay – the 24 witnesses’ recollections of other people’s representations 25 26 27 4 Again, the record is unclear whether Organics, Barnes, or 28 both, entered into the settlement or executed the assignment.
8 1 concerning the collateral’s value.5 2 Roberts and his spouse filed a chapter 7 bankruptcy 3 petition, and Barnes thereafter filed an exception to discharge 4 complaint. While Barnes initially sought nondischargeability on 5 multiple grounds, the bankruptcy court after trial ruled in favor 6 of Barnes solely on his § 523(a)(2)(A) claim for relief. 7 According to the bankruptcy court, the solicitation 8 materials that Roberts presented to Barnes were “replete with 9 misrepresentations,” which created the false impression that 10 California Farms (one of Organics’ two members) was a going 11 concern when in reality that entity was nothing more than 12 Roberts’ and Fantz’ prospective plan to sell gourmet organic 13 salads. As the bankruptcy court further explained, Roberts’ 14 offering materials concealed that no one at California Farms had 15 any material or relevant farming experience and that it had no 16 operational history with Martinez or Manjar. 17 The bankruptcy court also pointed to Roberts’ 18 misrepresentations regarding California Farms’ ability to grow – 19 and experience growing – its own produce. Roberts stated in his 20 offering brochure that “California Farms . . . was a ‘Direct Farm 21 - to Volume Retail Sales Model,’” and that it would use “‘farming 22 operations and processing equipment’ and ‘existing growing 23 fields.’” As the bankruptcy court put it: 24 5 For instance, Barnes testified at trial that Roberts 25 represented to him, at the time of Barnes’ investment, that the 26 collateral was worth more than three million dollars. Roberts later seized on this testimony and attempted to argue that it 27 constituted proof of the value of the collateral and proof that Barnes gave the PACA creditors more than $3 million in 28 collateral.
9 1 With reckless disregard, Roberts boasted how Organics LLC could triple revenues, with negligible increase in 2 costs, through redirecting delivery of self-grown lettuce from wholesalers to retailers. Roberts 3 claimed, “we have now successfully established the mechanism to grow, harvest, process, sell and deliver 4 to major market retailers at levels that we believe will be in excess of our own conservative projections.” 5 6 Mem. Dec. (Sept. 9, 2015) at 10:2-5. 7 The bankruptcy court also specified that Roberts’ deception 8 continued during the entire investment period, from November 2009 9 through April 2010. During this period, the bankruptcy court 10 noted, Roberts concealed that Organics was not growing any 11 produce, was still primarily selling to wholesalers in three- 12 pound packages and was relying on third party produce vendors who 13 were PACA trust beneficiaries to supply Organics with all produce 14 necessary to maintain operations.6 15 Based on these and other findings, the bankruptcy court 16 concluded that Roberts’ scheme to defraud Barnes had resulted in 17 the complete loss of his $825,000 investment: “Plaintiffs’ loss 18 of its $825,000 investment in the Venture was actually and 19 proximately caused by Roberts’ misrepresentations. . . . But for 20 21 6 The following paragraph is representative of the bankruptcy court’s findings: 22 23 Roberts also withheld disclosing the PACA orders because he knew that if he sought permission from 24 Plaintiffs to undertake the purchasing from third party growers that Plaintiffs would have learned the true 25 state of affairs of the Venture and would have 26 exercised their remedies, which would have frustrated and prevented the additional funding the Venture was 27 seeking.
28 Mem. Dec. (Sept. 9, 2015) at 12:1-11.
10 1 Roberts’ misrepresentations, Plaintiffs would not have invested 2 in the Venture and subsequently lost their investment when the 3 Venture could [no] longer pay the PACA creditors it was 4 purchasing from.” Mem. Dec. (Sept. 9, 2015) at 14:4-11. 5 The bankruptcy court entered judgment in favor of Barnes on 6 December 8, 2016. Roberts timely appealed. 7 JURISDICTION 8 The bankruptcy court had jurisdiction pursuant to 28 U.S.C. 9 §§ 1334 and 157(b)(2)(I), and we have jurisdiction under 10 28 U.S.C. § 158. 11 ISSUE 12 Did the bankruptcy court err by not crediting the value of 13 the equipment collateral against the $825,000 Barnes invested? 14 STANDARDS OF REVIEW 15 In nondischargeability appeals, we review the bankruptcy 16 court's findings of fact under the clearly erroneous standard and 17 its conclusions of law de novo. Oney v. Weinberg 18 (In re Weinberg), 410 B.R. 19, 28 (9th Cir. BAP 2009), aff’d, 19 407 Fed. Appx. 176 (2010). 20 DISCUSSION 21 Section 523(a)(2)(A) excepts from discharge debts for money, 22 property or services “obtained by false pretenses, a false 23 representation, or actual fraud . . . .” There are five 24 elements bankruptcy courts typically look for in order to 25 conclude that debtor’s liability arose from a fraudulent, 26 nondischargeable act. Those elements are: 27 (1) misrepresentation, fraudulent omission or deceptive conduct by the debtor; (2) knowledge of the falsity or 28 deceptiveness of his statement or conduct; (3) an
11 1 intent to deceive; (4) justifiable reliance by the creditor on the debtor's statement or conduct; and 2 (5) damage to the creditor proximately caused by its reliance on the debtor's statement or conduct. 3 4 Id. at 35 (quoting Turtle Rock Meadows Homeowners Ass'n v. Slyman 5 (In re Slyman), 234 F.3d 1081, 1085 (9th Cir. 2000)). 6 In his appeal brief, Roberts does not challenge the 7 bankruptcy court’s determination that he defrauded Barnes or that 8 Barnes lost $825,000 as a result of his fraud. Rather, he 9 maintains that the bankruptcy court did not credit him for the 10 value of the equipment collateral in calculating Barnes’ fraud 11 damages. According to Roberts, there was evidence in the record 12 demonstrating that the collateral was worth millions of dollars. 13 Roberts, therefore, posits that once the value of the collateral 14 is taken into account Barnes really did not suffer any loss. He 15 argues that the bankruptcy court’s failure to credit the value of 16 the collateral against the amount of Barnes’ damages constitutes 17 reversible error. 18 Barnes points out Roberts did not raise this argument in the 19 bankruptcy court and contends that he may not raise this argument 20 for the first time on appeal. Roberts concedes that he did not 21 raise the disposition of collateral issue at trial.7 Rather, he 22 argues that this Panel has the equitable discretion to consider 23 this argument for the first time on appeal. 24 Before we address the propriety of potentially considering 25 Roberts’ application of the collateral argument for the first 26 7 27 Roberts never raised the value of the collateral or its disposition, nor any legal argument related to these facts, in 28 his answer, statement of pretrial issues, or closing brief.
12 1 time on appeal, it is important to note the substantive legal 2 context in which this argument is made. Roberts attempts to 3 invoke commercial law principles governing the recovery of a 4 deficiency judgment for contract-based debts in the context of a 5 nondischargeable fraud claim. He does so without citing any 6 authority that would enable him to insert the square peg of the 7 California Commercial Code into the round hole of 8 nondischargeability litigation for fraud. 9 Equally important, although Roberts never raised the 10 collateral issue at trial, there was enough evidence generally 11 concerning the collateral that the bankruptcy court did, in fact, 12 take into account both the PACA liability and the foreclosure of 13 the collateral in assessing the consequences of Roberts’ fraud. 14 As the bankruptcy court found: “Without Plaintiffs' knowledge or 15 consent, Barnes was exposed to personal liability for [Organics’ 16 PACA] debts. . . . Ultimately, Barnes was forced to assign the 17 collateral securing repayment of [his] investment to the PACA 18 creditors in order to settle his liability under the PACA 19 lawsuits.” Mem. Dec. (Sept. 9, 2015) at 4:10-13. In other 20 words, Barnes “lost” the collateral when it was used to satisfy 21 the PACA related damages that also flowed from Roberts’ fraud. 22 Roberts simply ignores this finding and its consequences in 23 making his collateral argument. 24 We decline to dwell on the above-referenced deficiencies in 25 Roberts’ argument. There is a simpler response to his argument: 26 neither sound doctrines of appellate process nor substantive 27 commercial law permit us to consider Roberts’ application of the 28 collateral argument for the first time on appeal. We explain why
13 1 below. 2 We start with the unremarkable proposition that issues not 3 raised before appeal ordinarily are forfeited on appeal. Scovis 4 v. Henrichsen (In re Scovis), 249 F.3d 975, 984 (9th Cir. 2001). 5 Absent exceptional circumstances, the appellate court can refuse 6 to consider them. Id.; El Paso City of Tex. v. Am. W. Airlines, 7 Inc. (In re Am. W. Airlines), 217 F.3d 1161, 1165 (9th Cir. 8 2000). 9 The Ninth Circuit Court of Appeals has recognized the 10 following as exceptional circumstances that may permit the 11 appellate court to consider an issue for the first time on 12 appeal: 13 (1) when review is required to “prevent a miscarriage of justice or to preserve the integrity of the judicial 14 process,” (2) “when a new issue arises while appeal is pending because of a change in the law,” and (3) “when 15 the issue presented is purely one of law and either does not depend on the factual record developed below, 16 or the pertinent record has been fully developed.” 17 Mano–Y & M, Ltd. v. Field (In re Mortg. Store, Inc.), 773 F.3d 18 990, 998 (9th Cir. 2014) (quoting In re Mercury Interactive Corp. 19 Sec. Litig., 618 F.3d 988, 992 (9th Cir. 2010)). 20 Roberts has not presented anything on appeal that suggests 21 his failure to raise the collateral issue at trial has resulted 22 in a miscarriage of justice. Nor has he established that the 23 disposition of collateral issue arose from a change in the law. 24 Finally and most importantly, the disposition of collateral issue 25 is decidedly not an issue of law but is closely tied to the 26 27 28
14 1 facts.8 The record was never developed to address this factual 2 issue because Roberts failed to raise it. 3 Even if well settled principles of appellate procedure did 4 not prevent Roberts from raising the disposition of collateral 5 argument for the first time on appeal, the substantive commercial 6 law he relies upon does. The sole legal basis now advanced by 7 Roberts in support of his disposition of collateral argument is 8 premised on California Commercial Code section 9626. Generally 9 speaking, this provision governs a creditor’s right to a 10 deficiency judgment and incorporates the requirement that secured 11 creditors dispose of their collateral in a commercially 12 reasonable manner. California Commercial Code section 9610(b) 13 requires secured creditors to dispose of collateral in a 14 commercially reasonable manner.9 In turn, California Commercial 15 Code section 9626(a)(3) provides: 16 (3) Except as otherwise provided in Section 9628, if a secured party fails to prove that the collection, 17 enforcement, disposition, or acceptance was conducted in accordance with the provisions of this chapter 18 relating to collection, enforcement, disposition, or acceptance, the liability of a debtor or a secondary 19 obligor for a deficiency is limited to an amount by which the sum of the secured obligation, expenses, and 20 attorney's fees exceeds the greater of either of the following: 21 22 8 The factual nature of Roberts’ sole argument on appeal is further discussed below. 23 9 24 That commercial code provision states:
25 (b) Every aspect of a disposition of collateral, including the method, manner, time, place, and other 26 terms, must be commercially reasonable. If commercially reasonable, a secured party may dispose of 27 collateral by public or private proceedings, by one or 28 more contracts, as a unit or in parcels, and at any time and place and on any terms.
15 1 (A) The proceeds of the collection, enforcement, 2 disposition, or acceptance. 3 (B) The amount of proceeds that would have been realized had the noncomplying secured party proceeded 4 in accordance with the provisions of this chapter relating to collection, enforcement, disposition, or 5 acceptance. 6 Roberts now seeks to reduce his liability to Barnes by 7 citing California Commercial Code section 9626(a)(3) and by 8 alleging that he failed to dispose of the collateral in a 9 commercially reasonable manner. 10 Roberts bases his argument upon the California Commercial 11 Code. However, Barnes has recovered damages for fraud, not a 12 deficiency judgment for breach of a secured contractual 13 obligation. Even if the court were to apply the commercial 14 reasonableness requirement set forth in California Commercial 15 Code section 9626(a)(3), additional issues abound. Roberts’ 16 argument implicitly assumes that: (1) the assignment of the 17 collateral to the PACA creditors constituted a disposition of 18 collateral, (2) such disposition was not commercially reasonable, 19 and (3) the judgment entered by the bankruptcy court constituted 20 a “deficiency judgment” under California’s Commercial Code. 21 Roberts fails to address these matters in any detail, saying only 22 that the bankruptcy court failed to credit the value of the 23 collateral against his liability. 24 It is far from clear whether the Commercial Code would treat 25 the subject assignment as a disposition of collateral (or treat 26 the nondischargeability judgment as a deficiency judgment). The 27 Commercial Code indicates that some – but not all – assignments 28 qualify as dispositions of collateral. See generally Cal. Com.
16 1 Code §§ 9406(e), 9618(b)(1). Case law confirms that not all 2 assignments of security interests constitute dispositions of 3 collateral that could result in a deficiency or surplus. See, 4 e.g., Lee & Mason Int'l Agency, Inc. v Daugherty, 828 S.W.2d 677, 5 679 (Ky. App. 1992); Reeves v. Assocs. Fin. Servs. Co., 6 247 N.W.2d 434, 439 (Neb. 1976); but see also Charles E. Brauer 7 Co. v. NationsBank of Virginia, N.A., 251 Va. 28, 34 (Va. 1996) 8 (“[t]he term ‘disposition’ is not defined in the U.C.C., but the 9 language of [the predecessor to section 9610(a) and (b)] 10 indicates that it means an actual transfer of an interest in the 11 collateral by sale, lease, or contract”). 12 We need not decide whether the assignment at issue herein 13 qualified as a disposition of collateral. Even if the assignment 14 were a disposition resulting in a deficiency, Roberts is 15 precluded by substantive commercial law from arguing for the 16 first time on appeal that the assignment was commercially 17 unreasonable. Section 9626(a) of the California Commercial Code 18 provides: 19 (a) In an action arising from a transaction, other than a consumer transaction, in which the amount of a 20 deficiency or surplus is in issue, the following rules apply: 21 (1) A secured party need not prove compliance 22 with the provisions of this chapter relating to collection, enforcement, disposition, or 23 acceptance unless the debtor or a secondary obligor places the secured party's compliance 24 in issue. 25 (2) If the secured party's compliance is placed in issue, the secured party has the 26 burden of establishing that the collection, enforcement, disposition, or acceptance was 27 conducted in accordance with this chapter. 28 (Emphasis added.)
17 1 As the Assembly Committee Comment accompanying the statute 2 explains, a debtor seeking to block a deficiency judgment must 3 raise the issue of noncompliance with the Commercial Code (i.e., 4 the failure to act in a commercially reasonable manner) “in 5 accordance with the forum’s rules of pleading and practice.” Id. 6 If the debtor fails to do so, then “the secured party need not 7 prove compliance with the relevant provisions” of the Commercial 8 Code. Id. In short, Barnes was under no duty to prove that his 9 conduct was commercially reasonable – and the bankruptcy court 10 was not obliged to make any sort of commercial reasonableness 11 finding – when Roberts never raised the issue. 12 Requiring the obligor to raise the disposition of collateral 13 issue makes eminent sense. Commercial reasonableness is an 14 inherently factual issue whose resolution typically depends on 15 all of the particularized circumstances of each individual case. 16 Ford & Vlahos v. ITT Commercial Fin. Corp., 8 Cal. 4th 1220, 1235 17 (1994); Crosby v. Reed (In re Crosby), 176 B.R. 189, 195 (9th 18 Cir. BAP 1994), aff'd, 85 F.3d 634 (9th Cir. 1996); see also 19 In re El Camino Charter Lines, Inc., 2012 WL 1514815, *2 (Bankr. 20 N.D. Cal. Apr. 27, 2012). When, as here, the debtor did not 21 properly raise the commercial reasonableness issue before trial, 22 the secured creditor is denied an opportunity to adequately 23 prepare and present evidence on the issue. A trial court 24 attempting to address the issue that has not been properly raised 25 or developed would be left to speculate whether all of the 26 relevant circumstances concerning reasonableness have been 27 disclosed. 28 This Panel cannot consider Roberts’ disposition of
18 1 collateral argument for the first time on appeal. The governing 2 commercial statute relied upon by Roberts, as well as sound 3 appellate practice, dictate this result. Given that Roberts has 4 not raised any other issues on appeal, we AFFIRM. 5 CONCLUSION 6 For the reasons set forth above, we AFFIRM the bankruptcy 7 court’s nondischargeability judgment. 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28