FILED DEC 16 2011
1 SUSAN M SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT
2 UNITED STATES BANKRUPTCY APPELLATE PANEL 3 OF THE NINTH CIRCUIT
4 5 In re: ) BAP No. ID-11-1175-MkDJu )
6 MAC R. MAYER AND DIANNE H. ) Bk. No. 10-02238 MAYER, )
7 )
Debtors. )
8 ______________________________)
)
9 BAUER & FRENCH, )
)
10 Appellant, )
)
11 v. ) MEMORANDUM* )
12 UNITED STATES TRUSTEE; JEREMY )
J. GUGINO, Chapter 7 Trustee, )
13 )
Appellees. )
14 ______________________________) 15 Argued and Submitted by Video Conference on November 17, 2011
16 Filed – December 16, 2011 17 Appeal from the United States Bankruptcy Court 18 for the District of Idaho 19 Honorable Terry L. Myers, Chief Bankruptcy Judge, Presiding 20 Appearances: Randal Jay French, Esq. of Bauer & French appeared 21 on behalf of Appellant Bauer & French; no Appellee filed a brief or appeared at oral argument.
22 23 Before: MARKELL, DUNN and JURY, Bankruptcy Judges. 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 8013-1.
1 INTRODUCTION 2 Randal J. French1 appeals the bankruptcy court's order 3 authorizing his employment ("Employment Order") as counsel for 4 former chapter 112 debtors Mac and Diane Mayer. French also 5 appeals the bankruptcy court's order denying his motion to alter 6 or amend the Employment Order and the order granting in part 7 French's final application for professional compensation for 8 services he rendered while serving as chapter 11 counsel for the 9 debtors ("Compensation Order"). Because French’s appeal does not 10 present a live case or controversy, we must DISMISS it as moot. 11 FACTS 12 On July 14, 2010, the Mayers (with French’s assistance) 13 commenced their chapter 11 bankruptcy case, and French filed an 14 employment application pursuant to § 327 (“Employment 15 Application”). In the Employment Application and in the 16 accompanying disclosures and affidavits, French disclosed that he 17 had received funds from the Mayers two days before the bankruptcy 18 filing. In relevant part, the funds received included a payment 19 of $7,500, which French stated he already had applied “as a 20
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While the notice of appeal identified “Bauer & French” as 21 the appellant, two of the three orders on appeal refer to “Randal 22 J. French” as “Counsel” for purposes of the order, and the third order generically refers to “Counsel” without identifying to whom 23 it was referring. We need not decide this issue because any distinction between Randal J. French and Bauer & French is not 24 material to the resolution of this appeal. For the sake of convenience, we use the term “French” as the appellant throughout 25 this Memorandum.
26 2 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.
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1 minimum fee for my services in this chapter 11.” Affidavit of 2 Proposed Attorney and Disclosure of Compensation (July 14, 2010) 3 at ¶ 6. In subsequent filings, French shed more light on the 4 $7,500 minimum fee. According to French, he and the Mayers had 5 agreed that the $7,500 (“Retainer”) was a non-refundable advance 6 payment for services to be rendered in the chapter 11, and that 7 French could credit services performed both before and after the 8 Mayers’ bankruptcy filing against the Retainer. 9 At the first hearing on the Employment Application, the 10 court raised a number of concerns, one of which was the nature of 11 the Retainer. In particular, the court expressed concern that 12 the Retainer might not be subject to review under § 330, and thus 13 could not be approved for that reason. 14 After a series of additional disclosures and continued 15 hearings at which the nature of the Retainer was further 16 discussed, the court ruled that it would not authorize the 17 Retainer as French had proposed. According to the court, the 18 Retainer as proposed was neither an advance payment retainer 19 (which should be a flat fee for the services to be performed and 20 remains subject to review under § 329) nor a security retainer 21 (which remains property of the estate, and which only can be 22 drawn upon to the extent compensation has been awarded and 23 authorized for payment pursuant to §§ 330 and 331). Ultimately, 24 the court concluded that the Retainer looked more like a security 25 retainer and should be treated as a security retainer. It 26 further concluded that the $7,500 should be held in trust pending 27 the issuance of orders approving compensation under either § 330 28 or § 331. On January 24, 2011, roughly six months after the
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1 filing of the Employment Application, the court entered its 2 Employment Order, which granted the Employment Application, 3 except it provided that the Retainer would be treated as a 4 security retainer and that the $7,500 would be held in trust 5 “pending orders entered under § 331 or § 330.” Shortly 6 thereafter, on February 3, 2011, the court granted the 7 U.S. Trustee’s motion to convert the case from chapter 11 to 8 chapter 7. 9 French then filed a motion to alter or amend the Employment 10 Order. The target of that motion was the court’s treatment of 11 the Retainer. Specifically, French argued that the court erred 12 by treating the Retainer as a security retainer and by directing 13 that the $7,500 must be held in trust. The only relief French 14 sought in the motion was the alteration of the treatment of the 15 Retainer to what he originally had proposed. 16 Around the same time, French also filed his first and final 17 application for compensation as counsel for the chapter 11 18 debtors (“Fee Application”). In the Fee Application, French 19 represented that he previously had drawn against the Retainer for 20 prepetition chapter 11-related services in the amount $1,642.50. 21 He further represented that he had incurred $21,270.00 in fees 22 for postpetition services, and he sought the court’s approval of 23 this entire amount and a court order authorizing the chapter 7 24 trustee to pay from the estate $15,412.50. According to French, 25 the first $5,857.50 in postpetition fees already had been “paid” 26 by his exhausting the remaining balance of the Retainer. 27 French’s Fee Application did not seek approval of his crediting 28 of prepetition and postpetition fees against the Retainer. In
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1 essence, the Fee Application was premised on French’s concept of 2 the Retainer as he originally had proposed it to the court, 3 rather than on the treatment of the Retainer provided for in the 4 Employment Order. 5 The court denied the motion to amend, but the court granted 6 in part the Fee Application. When the court orally ruled on the 7 Fee Application, the court noted that its prior Employment Order 8 did not account for the fact that French already had applied the 9 Retainer to pay prepetition and postpetition fees, French 10 apparently taking on faith that the court ultimately would accept 11 his view of the Retainer (which it did not). After recounting 12 what the court had intended in treating the Retainer as a 13 security retainer, the court orally modified its prior employment 14 order to only require $5,857.50 to be held in trust (deducting 15 the $1,642.50 applied to pay prepetition fees). The court then 16 allowed $19,312.50 in fees (of the total $21,270.00 sought) and 17 authorized the exhaustion of the balance of the retainer (even 18 though French had not asked for such authorization and already 19 had applied the remainder of the retainer to his postpetition 20 fees), thereby leaving a balance owed for fees of $13,455.00, to 21 be paid if or when the chapter 7 trustee determined that the 22 estate had sufficient funds to pay the balance. 23 French appealed the Employment Order, the Compensation Order 24 and the order denying the motion to alter or amend the Employment 25 Order. 26 JURISDICTION 27 The bankruptcy court had jurisdiction pursuant to 28 U.S.C. 28 §§ 1334 and 157(b)(2)(A). We discuss our jurisdiction below.
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1 ISSUES 2 1. Did French have standing? 3 2. Is this appeal moot? 4 STANDARD OF REVIEW 5 Standing and mootness are jurisdictional questions that we 6 review de novo. See Palmdale Hills Prop., LLC v. Lehman 7 Commercial Paper, Inc (In re Palmdale Hills Prop., LLC), 654 F.3d 8 868, 873 (9th Cir. 2011); Siskiyou Reg’l Educ. Project v. U.S. 9 Forest Serv., 565 F.3d 545, 559 (9th Cir. 2009). 10 DISCUSSION 11 We have a duty to sua sponte consider justiciability issues 12 like standing and mootness. American Civil Liberties Union of 13 Nevada v. Lomax, 471 F.3d 1010, 1015 (9th Cir. 2006); see also 14 In re Palmdale Hills Prop., LLC, 654 F.3d at 873 (stating that 15 “standing is a necessary component of subject matter 16 jurisdiction.”). 17 Constitutional standing and mootness issues arise from 18 Article III of the United States Constitution, which requires a 19 live case or controversy before judicial power can be exercised. 20 Id.; Lomax, 471 F.3d at 1015; Clear Channel Outdoor, Inc. v. 21 Knupfer (In re PW, LLC), 391 B.R. 25, 33 (9th Cir. BAP 2008) 22 (citing DeFunis v. Odegaard, 416 U.S. 312, 316 (1974)). 23 A party has Article III standing if he or she can show: 24 “(1) injury in fact; (2) causation; and (3) likelihood that the 25 injury will be redressed by a favorable decision.” Lomax, 26 471 F.3d at 1015 (citing Lujan v. Defenders of Wildlife, 504 U.S. 27 555, 560 (1992)); see also Camreta v. Greene, 131 S.Ct. 2020, 28 2028 (2011); Veal v. Am. Home Mortg. Servicing, Inc. (In re
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1 Veal), 450 B.R. 897, 906 (9th Cir. BAP 2011). Article III 2 standing is measured based on circumstances as they existed at 3 the time the action was commenced. Lomax, 471 F.3d at 1015; Clark 4 v. City of Lakewood, 259 F.3d 996, 1006 (9th Cir. 2001).3 5 French appears to have met the requirements for Article III 6 standing. French had a concrete and particularized stake in the 7 resolution of his Employment Application. Absent court approval, 8 French would not have been eligible for an award of compensation 9 under § 330. See 11 U.S.C. 330(a). Nor do we doubt that the 10 court’s action on the Employment Application “injured” French for 11 12 13 14 3 The minimum standing requirements arising from Article III 15 of the Constitution are distinct from the prudential standing concerns that we also need to consider even if the minimum 16 standards are satisfied. See, e.g., In re Palmdale Hills Prop., LLC, 654 F.3d at 873-74; In re Veal, 450 B.R. at 906 (finding 17 constitutional standing but then examining one aspect of prudential standing – whether the movant was pursuing its own 18 legal rights rather than pursuing rights belonging to others). 19 The prudential standing concern most relevant here is whether French had standing to appeal the bankruptcy court’s orders.
20 Bankruptcy appellate standing is narrower than Article III standing, in that it requires the appellant to show that he or 21 she has been “directly and adversely affected pecuniarily” by the order(s) on appeal. See In re Palmdale Hills Prop., LLC, 22 654 F.3d at 874. In light of our ultimate ruling here based on 23 Article III mootness grounds, we do not reach any prudential standing or mootness issues. However, for essentially the same 24 reasons that we find this appeal constitutionally moot, we arguably could have found that French lacked standing to appeal 25 the bankruptcy court’s orders. But see id. (stating that the 26 Ninth Circuit Court of Appeals generally does not invoke the prudential doctrine of bankruptcy appellate standing when the 27 appellant is the same party who sought relief in the bankruptcy court leading to the order appealed); Sherman v. SEC (In re 28 Sherman), 491 F.3d 948, 957 n.8 (9th Cir. 2007) (same).
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1 purposes of Article III standing.4 By requiring French to hold 2 the Retainer in trust (instead of accepting French’s immediate 3 exhaustion of the entire retainer), the trust funds would become 4 property of the estate under § 541 and would be subject to the 5 potential restrictions and infirmities associated with property 6 of the estate under the Bankruptcy Code. See, e.g., 11 U.S.C. 7 §§ 363, 542. In addition, once the court ordered the Retainer to 8 be treated as a security retainer, French could not legally 9 exhaust the retainer to pay postpetition fees absent a court 10 order pursuant to § 330 or § 331. Finally, if the court had 11 ruled entirely in French’s favor, the Retainer immediately would 12 have been considered fully exhausted and would not have been 13 subject to the limitations associated with property of the 14 estate. Thus, the above-referenced circumstances establish that 15 French had Article III standing. 16 Having concluded that French had Article III standing, we 17 next must consider whether this matter became moot. Whereas an 18 Article III standing issue calls into question whether a live 19 case or controversy existed at the time the action was commenced, 20 an Article III mootness issue focuses on whether subsequent 21 events have deprived the dispute of its "live" character. Lomax, 22 471 F.3d at 1015. In this sense, "[m]ootness can be 23 characterized as the doctrine of standing set in a time frame: 24 The requisite personal interest that must exist at the 25
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26 In bankruptcy cases, either a defendant’s actions or the court’s actions can be the source of the injury for purposes of 27 establishing Article III standing. See In re Palmdale Hills Prop., LLC, 654 F.3d at 873 n.4 (citing In re Sherman,491 F.3d at 28 965).
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1 commencement of the litigation (standing) must continue 2 throughout its existence (mootness)." Dittman v. California, 3 191 F.3d 1020, 1025 (9th Cir. 1999)(internal quotations and 4 citation omitted). 5 A dispute can lose its live character when a party ceases to 6 have a legally cognizable interest, in other words an actual 7 stake, in its outcome. City News & Novelty, Inc. v. City of 8 Waukesha, 531 U.S. 278, 282-83 (2001). In this context, “legally 9 cognizable interest” means essentially the same thing as “injury 10 in fact,” which is the term typically used when examining 11 standing issues. Clark, 259 F.3d at 1011 n.7. 12 Here, French lost any legally cognizable interest in the 13 outcome of this matter when the court entered the Compensation 14 Order. The Compensation Order approved (after the fact) French’s 15 exhaustion of the Retainer. Thus, upon the entry of the 16 Compensation Order, the legal characterization of the nature of 17 the Retainer ceased to have any continuing significance to 18 French’s rights or duties. By way of this appeal, French only 19 seeks to have the bankruptcy court’s prior rulings and orders 20 modified concerning the nature of the Retainer. According to 21 French, the court’s characterization of the Retainer as a 22 security retainer should be deleted, and instead the Retainer 23 should be validated as an advance payment retainer as French had 24 proposed. However, as indicated above, the Retainer no longer 25 exists; French has exhausted it with the bankruptcy court’s 26 blessing. The Compensation Order is a final order that no one 27 but French has appealed. Consequently, regardless of whether we 28 were to grant the relief that French seeks on appeal, French’s
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1 rights in the funds that he received from the Retainer would not 2 change.5 3 French claimed at oral argument that he is concerned that 4 the chapter 7 trustee at some future time may seek disgorgement 5 of the Retainer funds. But French could not identify any legal 6 theory that would support such action by the trustee, nor are we 7 aware of any. To the contrary, we have held that prepetition 8 security retainers are not subject to disgorgement for the 9 purpose of facilitating equality of distribution among creditors 10 under § 726(b). See Rus, Miliband & Smith, APC v. Yoo (In re 11 Dick Cepek, Inc.), 339 B.R. 730, 739 (9th Cir. BAP 2006). 12 Moreover, any attempt by the trustee to seek disgorgement of such 13 funds from French likely would amount to an impermissible 14 collateral attack on the bankruptcy court’s Employment Order and 15 its Compensation Order. 16 We further note that the issue raised in French’s appeal 17 does not fall within the exception to the mootness doctrine for 18 injuries capable of repetition but evading review. “The ‘capable 19 of repetition, yet evading review’ exception applies when (1) the 20 challenged action is too short in duration to allow full 21 litigation before it ceases, and (2) there is a reasonable 22 expectation that the plaintiffs will again be subject to the same 23 action.” Lomax, 471 F.3d at 1017 (citing First Nat'l Bank of 24 Boston v. Bellotti, 435 U.S. 765, 774, (1978)); see also 25 26 5 French has not argued, either on appeal or in the 27 bankruptcy court, that the ruling he challenges has had or might have collateral consequences concerning the potential violation 28 of state ethics or professional responsibility rules.
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1 Weinstein v. Bradford, 423 U.S. 147, 149 (1975) (applying the 2 same standards and holding that circumstances demonstrated an 3 absence of an expectation that the plaintiff subsequently would 4 be subjected to the same challenged action). 5 French has pending two subsequent appeals, both arising in 6 unrelated bankruptcy cases, in which French raises essentially 7 the same issue. See In re Danner, BAP No. ID-11-1315, and In re 8 Ridgerunner, LLC, BAP No. ID-11-1316.6 Danner and Ridgerunner 9 demonstrate that the court action French challenges is capable of 10 repetition. However, they also tend to demonstrate that the 11 challenged court action will not evade review. The procedural 12 posture of Danner and Ridgerunner is significantly different from 13 what we have here. In each, the court outright denied French’s 14 employment application based on French having included an advance 15 payment retainer as one of the terms of employment – the same 16 type of advance payment retainer French proposed herein. 17 Having not been approved for employment under § 327 in 18 either Danner or Ridgerunner, French cannot be awarded 19 professional compensation under either § 330 or § 331, so the 20 issue on appeal in Danner and Ridgerunner cannot be mooted out as 21 it was here by a subsequent professional compensation order. 22 Accordingly, we conclude that this appeal is moot and should 23 be dismissed. 24
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25 We can and hereby do take judicial notice of the filing and contents of French’s opening briefs filed in Danner and 26 Ridgerunner. See Atwood v. Chase Manhattan Mortg. Co. (In re Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003)(citing 27 O'Rourke v. Seaboard Sur. Co. (In re E.R. Fegert, Inc.), 887 F.2d 28 955, 957-58 (9th Cir. 1989)).
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1 CONCLUSION 2 For all of the reasons set forth above, this appeal is 3 DISMISSED as moot. 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26