In Re: Livelife, LLC v. Bay Point Capital Partners, Lp

• Court: Court of Appeals for the Ninth Circuit
• Decided: April 11, 2024
• Docket: 23-15815
• Status: Unpublished

Opinion

NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS APR 11 2024 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT

In re: ARRON AUGUSTIN AFFLALO, No. 23-15815

Debtor. D.C. No. 2:21-cv-02106-ART ______________________________

LIVELIFE, LLC, MEMORANDUM*

Appellant,

v.

BAY POINT CAPITAL PARTNERS, LP; SHELLEY D. KROHN, Chapter 7 Trustee for the Estate of Arron Augustin Afflalo,

Appellees.

Appeal from the United States District Court for the District of Nevada Anne R. Traum, District Judge, Presiding

Submitted April 9, 2024** Pasadena, California

Before: MURGUIA, Chief Judge, and MENDOZA and DE ALBA, Circuit Judges.

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. ** The panel unanimously concludes this case is suitable for decision without oral argument. See Fed. R. App. P. 34(a)(2). LiveLife, LLC appeals three bankruptcy court orders on motions for

summary judgment denying LiveLife’s claim to a first-priority lien on 16 Soaring

Bird Court in Las Vegas (“the Property”). Those orders confirmed that Bay Point

Capital Partners, LP (“Bay Point”) and the Chapter 7 Trustee are the only parties

that retain a security interest in the Property. The district court affirmed the

bankruptcy court orders on appeal pursuant to 28 U.S.C. § 158(a)(1). We have

jurisdiction pursuant to 28 U.S.C. § 158(d) and affirm.

1. LiveLife argues that the district court committed reversible error when

it reviewed the bankruptcy court’s factual conclusions for clear error, rather than

de novo. In cases like this one where there is no genuine dispute regarding the

basic facts, it is proper to review the bankruptcy court’s factual findings for clear

error. See In re Com. Money Ctr., Inc., 350 B.R. 465, 473–74 (B.A.P. 9th Cir.

2006). Regardless, we review the bankruptcy court’s decision directly, so the

district court’s purported use of the wrong standard of review would be

“completely harmless.” Ratanasen v. State of Cal., Dep’t of Health Servs., 11 F.3d

1467, 1469 (9th Cir. 1993) (internal quotation and citation omitted).

2. Debtor Aaron Afflalo did not ratify the LiveLife Deed of Trust when

he executed the Recorded Subordination Agreement. Under Nevada law, “contract

ratification is the adoption of a previously formed contract, notwithstanding a

quality that rendered it relatively void.” Merrill v. DeMott, 951 P.2d 1040, 1044

2 (Nev. 1997) (quoting Schagun v. Scott Mfg. Co., 162 F. 209, 219 (8th Cir. 1908))

(emphasis added). As the bankruptcy court and district court correctly concluded,

the chronology of events precluded the Recorded Subordination Agreement from

ratifying the later-formed LiveLife Deed of Trust. LiveLife’s invitation to read the

loan documents as a “single, integrated transaction,” does not alter this conclusion.

In some cases, “where two or more written instruments are executed

contemporaneously the documents evidence but a single contract if they relate to

the same subject matter and one of the two refers to the other.” Collins v. Union

Fed. Sav. & Loan Ass’n, 662 P.2d 610, 615 (Nev. 1983). By their express

language, the relevant documents—the Recorded Subordination Agreement, the

secured note, the LiveLife Deed of Trust, the personal guaranty, and Afflalo’s loan

application—reference different transactions between different parties. But even if

we read these documents as a single contract, ratification would still be

inappropriate. The documents would simply constitute a single contract expressing

the intent of the parties, and there would be nothing to ratify.

3. The bankruptcy court and district court correctly held that LiveLife

does not have a lien, equitable or otherwise, on the Property. In Nevada, “[i]f the

parties intend to create a mortgage, no particular form of instrument or words is

necessary to create an equitable mortgage.” Nee v. L.C. Smith, Inc., 624 P.2d 4, 7

(Nev. 1981). When a party claims that an equitable lien “arises out of an express

3 contract, the intention to create a lien must clearly appear.” Union Indem. Co. v.

A.D. Drumm, Jr., Inc., 70 P.2d 767, 768 (Nev. 1937). LiveLife argues that the

Recorded Subordination Agreement created a lien on the Property, but LiveLife’s

assertion is at odds with the express language of that document. The Recorded

Subordination Agreement states that a separate deed of trust would create

LiveLife’s security interest, but nobody drafted, executed, or recorded that separate

deed of trust. Because the Recorded Subordination Agreement’s language is

unambiguous, LiveLife’s gestures toward parol evidence are unavailing. See Kaldi

v. Farmers Ins. Exch., 21 P.3d 16, 21 (Nev. 2001) (“Where ‘a written contract is

clear and unambiguous on its face, extraneous evidence cannot be introduced to

explain its meaning.’” (quoting Geo. B. Smith Chem. Works, Inc. v. Simon, 555

P.2d 216, 216 (Nev. 1976))).

Because LiveLife does not have a legal interest in the Property, we need not

address whether the Recorded Subordination Agreement binds Bay Point to a

second-priority lien.

4. LiveLife’s claim for equitable subrogation is meritless because the

Trustee has the power to avoid it. Under 11 U.S.C. §§ 544(a)(1) and (3), the

Trustee acts both as “a creditor that extends credit to the debtor at the time of the

commencement of the case, and that obtains . . . a judicial lien” as well as a “bona

fide purchaser.” Accordingly, if such a hypothetical creditor or purchaser could,

4 under Nevada law, set aside LiveLife’s claim of equitable subrogation, the Trustee

can do so as well. See In re Deuel, 594 F.3d 1073, 1076 (9th Cir. 2010)

(recognizing that state law defines the extent of a trustee’s power of avoidance).

At the beginning of the bankruptcy proceedings, the records of the Clark County

Recorder would have shown entries for the LiveLife Deed of Trust and the

Recorded Subordination Agreement—both invalid documents giving notice of a

conveyance that did not exist. They would also have shown a deed of

reconveyance to Afflalo from BofI Federal Bank, the entity whose lien position

LiveLife seeks to assume. A bona fide purchaser looking at these entries would

only have notice of BofI’s discharged lien. The purchaser would have no notice

that a judge might, at some point, grant LiveLife an equitable security interest in

the Property. Granting equitable subrogation in such circumstances would be

inappropriate. See In re Deuel, 594 F.3d at 1080.

The Trustee’s power to avoid LiveLife’s claim to equitable subrogation

relegates LiveLife to the role of an unsecured creditor of the bankruptcy estate.

See In re Pac. Exp., Inc., 780 F.2d 1482, 1486 (9th Cir. 1986) (holding that the

right to avoid a party’s interest under 11 U.S.C. § 544(a) leaves that party “with an

unsecured claim”). Accordingly, we need not address the denial of LiveLife’s

claim of equitable subrogation against Bay Point.

AFFIRMED.