In re: Prm Family Holding Company, LLC

• Court: United States Bankruptcy Appellate Panel for the Ninth Circuit
• Decided: July 12, 2017
• Docket: AZ-16-1221-BJuL
• Status: Unpublished

Opinion

FILED JUL 12 2017 SUSAN M. SPRAUL, CLERK 1 NOT FOR PUBLICATION U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT 2 3 UNITED STATES BANKRUPTCY APPELLATE PANEL 4 OF THE NINTH CIRCUIT 5 In re: ) BAP No. AZ-16-1221-BJuL ) 6 PRM FAMILY HOLDING COMPANY, ) Bk. No. 13-09026-BKM LLC, ) 7 ) Debtor. ) 8 ) ) 9 EL CHILERITO SPICE CO., INC., ) ) 10 Appellant, ) ) 11 v. ) M E M O R A N D U M1 ) 12 DALE C. SCHIAN, Creditor ) Trustee of the PRM Family ) 13 Holding Company, LLC Trust; ) PRM FAMILY HOLDING COMPANY, ) 14 LLC; UNITED STATES TRUSTEE, ) ) 15 Appellees. ) ______________________________) 16 Argued and Submitted on May 18, 2017, 17 at Phoenix, Arizona 18 Filed - July 12, 2017 19 Appeal from the United States Bankruptcy Court for the District of Arizona 20 Honorable Brenda K. Martin, Bankruptcy Judge, Presiding 21 22 Appearances: Helen K. Santilli argued for appellant El Chilerito Spice Co., Inc.; Elizabeth L. Janczak of Freeborn & 23 Peters LLP argued for appellee Dale C. Schian, Creditor Trustee of the PRM Family Holding Company, 24 LLC Trust. 25 Before: BRAND, JURY and LAFFERTY, Bankruptcy Judges. 26 27 1 This disposition is not appropriate for publication. Although it may be cited for whatever persuasive value it may 28 have, it has no precedential value. See 9th Cir. BAP Rule 8024-1. 1 Creditor El Chilerito Spice Co., Inc. ("El Chilerito") 2 appeals an order correcting the order confirming the joint plan of 3 liquidation of jointly administered chapter 112 debtors PRM Family 4 Holding Company, LLC ("PRM Family") and its seven affiliates.3 We 5 DISMISS because El Chilerito lacks standing to bring this appeal. 6 I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY 7 A. Events leading to the corrective order 8 1. Bankruptcy filings, joint plan and confirmation order 9 On March 28, 2013, PRM Family and its seven affiliates filed 10 eight chapter 11 bankruptcy cases in Arizona. The cases were 11 jointly administered under the first filed case, PRM Family 12 (collectively, "Debtors"); an official joint committee of 13 unsecured creditors ("Committee") was appointed. 14 Debtors and the Committee (together "Plan Proponents") filed 15 their Joint Plan of Liquidation Dated December 30, 2014 ("Joint 16 Plan"). Section 7.1 of the Joint Plan — Substantive Consolidation 17 of Estates — provided that the forthcoming confirmation order 18 would "contain one or more provisions substantively consolidating 19 the Estates (defined as the estates of all eight Debtors) into the 20 Estate of PRM Family[.]" See Section 7.1.1. That section further 21 provided, among other things, that all debts of the Debtors would 22 be substantively consolidated upon the Effective Date. 23 24 2 Unless specified otherwise, all chapter, code and rule 25 references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and the Federal Rules of Bankruptcy Procedure, Rules 1001-9037. 26 3 The other debtors are Prodigio Mercado, LLC; Pro's ABQ 27 Ranch Markets, LLC; Pro's ELP Ranch Markets, LLC; Pro's ELP Ranch Markets Beverage Company, LLC; Pro's & Son's, LLC; Provenzano's, 28 LLC; and Pro’s Ranch Markets (CA), LLC.

-2- 1 Section 7.2 of the Joint Plan — Vesting of Assets — provided, 2 in relevant part: "On the Effective Date, assets of the Estates 3 (including . . . all Causes of Action) will be transferred to and 4 vest in the Creditor Trust (defined as the trust established for 5 the benefit of certain creditors) and be deemed contributed 6 thereto, subject to the terms of the Plan." Thus, according to 7 this section, the avoidance actions that were later filed against 8 El Chilerito and others would transfer to the Creditor Trust on 9 the Effective Date. 10 Sections 5.1.1, 5.2.1, 5.3.1 and 5.7 of the Joint Plan 11 (regarding treatment of certain claims) each contained language 12 stating: "In accordance with the Creditor Trust Agreement, the 13 Creditor Trust Assets (defined as the assets of all eight Debtors) 14 will be transferred to the Creditor Trust no later than seven (7) 15 days after entry of the Confirmation Order." These sections 16 indicated that the avoidance actions would be transferred to the 17 Creditor Trust within 7 days of the confirmation date, not on the 18 Effective Date as stated in Section 7.2 of the Joint Plan. 19 Section 7.10 of the Joint Plan — Case Administration — 20 provided that attorney Dale Schian, former counsel for the 21 Committee, was to be appointed as Creditor Trustee and that on the 22 "Effective Date" would possess the rights of the Debtors for all 23 matters, including standing to file the avoidance actions. 24 Finally, Section 10.3 of the Joint Plan — Retention of 25 Jurisdiction — provided that the bankruptcy court retained 26 jurisdiction to "correct[] . . . any defect and the curing of any 27 omission or inconsistency in the Plan or Confirmation Order as may 28 be necessary to carry out the purposes and intent of the Plan."

-3- 1 El Chilerito, a Class 1 creditor, voted in favor of the Joint 2 Plan. 3 The bankruptcy court entered the Confirmation Order for the 4 Joint Plan on April 13, 2015. Notably, the Confirmation Order did 5 not include a provision for substantive consolidation of the 6 jointly administered estates. However, it did provide that upon 7 confirmation "all of the assets of the Debtors" would "immediately 8 be transferred to the Creditor Trust." Thus, contrary to the 9 Joint Plan, the Confirmation Order provided that the Debtors' 10 assets would transfer immediately to the Creditor Trust, not 11 within 7 days after confirmation or on the Effective Date.4 12 The Confirmation Order also approved the Creditor Trust 13 Agreement, which was attached to the Confirmation Order as its 14 Exhibit A. Contrary to the Confirmation Order but consistent with 15 portions of the Joint Plan, the Creditor Trust Agreement provided 16 that: "Within seven (7) days of the Effective Date, the Debtors 17 shall transfer the Creditor Trust Assets to the [Creditor] [T]rust 18 . . . ." However, the Creditor Trust Agreement also stated that, 19 if any of its terms or provisions conflicted with the terms and/or 20 provisions of the Joint Plan or Confirmation Order, the Joint Plan 21 and Confirmation Order governed. Unfortunately, those two 22 documents had inconsistencies within them and between them. 23 About six weeks postconfirmation, Creditor Trustee and all 24 eight Debtors entered into an Assignment Agreement which 25 transferred, assigned, conveyed and delivered to the Creditor 26 Trust all of Debtors' rights, title and interests in the Creditor 27 4 The Effective Date did not occur until March 18, 2016, 28 nearly one year after confirmation.

-4- 1 Trust Assets. The Assignment Agreement provided that, in the 2 event of any conflict or inconsistency between its terms and the 3 Joint Plan and Confirmation Order, the Joint Plan and Confirmation 4 Order prevailed. The Assignment Agreement was not filed with the 5 court until March 22, 2016, after the dispositive motion, 6 discussed below, had been filed. 7 2. The adversary proceedings and dispositive motion 8 On May 27, 2015, just two days before the statute of 9 limitations was to run, Creditor Trustee on behalf of the Creditor 10 Trust filed adversary complaints against El Chilerito and others, 11 seeking to avoid and recover preferential transfers under § 547 12 and § 550. The caption of the complaint against El Chilerito 13 named the Debtors as "PRM Family Holding Company LLC, et al." 14 Creditor Trustee was named as the plaintiff. The complaint stated 15 that it applied to "All Debtors." 16 El Chilerito moved for summary judgment on Creditor Trustee's 17 avoidance action, alleging that the bankruptcy court lacked 18 subject matter jurisdiction because the complaint failed to name 19 the proper debtor. El Chilerito claimed it had not engaged in any 20 business with PRM Family; rather, it had done business only with 21 affiliate Pro's Ranch Markets, LLC, which was not the named 22 debtor. Further, naming Creditor Trustee as plaintiff for just 23 PRM Family failed to invoke the court's jurisdiction because 24 PRM Family had no preference claims against El Chilerito. In 25 short, El Chilerito argued that, because the Debtors' estates had 26 not been substantively consolidated, PRM Family could not bring 27 preference claims belonging to other Debtors which may hold such 28 claims.

-5- 1 In opposition, Creditor Trustee contended the Joint Plan 2 clearly contemplated substantive consolidation of the Debtors' 3 estates, but through a simple oversight, the Confirmation Order 4 did not contain a substantive consolidation provision; Creditor 5 Trustee was filing a motion to correct retroactively that 6 omission. Creditor Trustee argued that, with retroactive 7 substantive consolidation of the Debtors' estates into the 8 PRM Family estate, PRM Family was the proper case in which to file 9 the adversary complaints. 10 The bankruptcy court denied El Chilerito's motion for summary 11 judgment. Recognizing the conflicts between and among the Joint 12 Plan, the Confirmation Order, the Creditor Trust Agreement and the 13 Assignment Agreement as to the timing of the asset transfer to the 14 Creditor Trust, the court determined that the Confirmation Order, 15 which was a final order and enforceable, controlled. The court 16 found that because Debtors' assets, including the avoidance 17 actions, were properly transferred to the Creditor Trust upon 18 confirmation, Creditor Trustee had standing to bring the avoidance 19 actions against El Chilerito (and the other defendants) when he 20 filed his complaints on May 27, 2015. 21 The court also determined that the adversary complaints were 22 properly captioned. In reviewing the Joint Plan and the Creditor 23 Trust Agreement, which the court opined were "not models of 24 clarity," it found that the Creditor Trust arose in the PRM Family 25 case and that Creditor Trustee was charged with acting on behalf 26 of the consolidated creditors. The jointly administered Debtors 27 had assigned their causes of action, including the avoidance 28 actions, to the Creditor Trust for Creditor Trustee to pursue.

-6- 1 The court noted that, although the Joint Plan and Creditor Trust 2 Agreement granted Creditor Trustee authority over only debtor 3 PRM Family, this was not an obstacle; the avoidance actions no 4 longer belonged to any of the other Debtors.5 5 3. Motion to amend the Confirmation Order 6 While the dispositive motions were pending in the avoidance 7 actions, Creditor Trustee moved to amend the Confirmation Order 8 retroactive to April 13, 2015, to include a provision 9 substantively consolidating Debtors' estates into the estate of 10 PRM Family ("Motion to Amend"). As former counsel for the 11 Committee, Creditor Trustee had assisted in drafting the Joint 12 Plan and Confirmation Order. He asserted that the substantive 13 consolidation provision was not intentionally omitted from the 14 Confirmation Order; it was merely an oversight. 15 El Chilerito opposed the Motion to Amend, raising arguments 16 that were later rejected by the court in the orders denying the 17 18 5 In addition to El Chilerito's summary judgment motion, defendants GH Dairy and Shamrock had moved to dismiss the Creditor 19 Trustee's avoidance actions against them. As part of the court's ruling on those dispositive motions, the court noted that, to the 20 extent corrective action was needed to state that all debts were consolidated into the PRM Family estate, it could amend the 21 Confirmation Order for that purpose. Accordingly, because the Confirmation Order was inconsistent with the Joint Plan, which 22 appeared to the court to have been an oversight by both the court and Plan Proponents, the court further ordered that the 23 Confirmation Order was corrected and amended to contain a provision substantively consolidating the debts of the jointly 24 administered Debtors into the estate of PRM Family. 25 Following comment from defendant GH Dairy, the court agreed that, insofar as the orders denying the dispositive motions 26 contained a determination that the Confirmation Order was amended to correct an omission, such correction should be reflected in a 27 separate order entered in the administrative case. That is what led to the sua sponte corrective order entered on July 1, 2016, 28 which is the subject of this appeal.

-7- 1 dispositive motions as noted above.6 2 On July 1, 2016, without a hearing, the bankruptcy court 3 entered the Order Correcting Joint Plan of Liquidation Dated 4 December 30, 2014 as Amended ("Corrective Order"). Despite the 5 consolidation language in Section 7.1.1 of the Joint Plan, it was 6 not clear to the court whether substantive consolidation of all 7 debts and assets were intended, or merely debt consolidation. 8 Ultimately, the court found that the consolidation of debts was 9 anticipated and material to the Joint Plan and "was omitted in 10 error by the Plan Proponents who prepared the Confirmation Order 11 and the Court that signed it." Order (July 1, 2016) 2:9-10 12 (emphasis in original). 13 Therefore, based on its "inherent authority" to correct 14 mistakes or omissions, citing Wiersma v. Bank of the West 15 (In re Wiersma), 483 F.3d 933, 939 (9th Cir. 2007), the bankruptcy 16 court sua sponte corrected the Confirmation Order to conform with 17 Section 7.1.1 of the Joint Plan and amended that order to provide, 18 19 6 Specifically, El Chilerito argued: (1) amending the Confirmation Order to substantively consolidate the estates would 20 adversely affect the rights of the parties to the jointly administered cases; (2) the Joint Plan could not be amended by 21 Creditor Trustee; (3) Creditor Trustee did not gain power over the avoidance actions until the Effective Date — March 18, 2016 — when 22 the Debtors' assets were effectively transferred to the Creditor Trust, which was ten months after he filed the avoidance actions; 23 (4) any consolidation contemplated by the Joint Plan in Section 7.1.1 was limited only to the Debtors' debts, not the assets, as 24 reflected by Section 7.2, which vested the separate assets of each estate in the Creditor Trust by assignment without merging them; 25 (5) Creditor Trustee provided no foundation which demonstrated his knowledge about what the Debtors, Committee and others did or did 26 not intend respecting the Confirmation Order's omission of substantive consolidation; and (6) the purpose of the Motion to 27 Amend was to allow Creditor Trustee to avoid his negligent errors in his "willy nilly" filing of preference actions in the wrong 28 cases and his failure to read the Confirmation Order.

-8- 1 upon the Effective Date, that the "debts" of the jointly 2 administered Debtors' estates were substantively consolidated into 3 the estate of PRM Family. This timely appeal followed. 4 II. JURISDICTION 5 The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 6 and 157(b)(2)(A) & (L). Our jurisdiction is discussed below. 7 III. ISSUES 8 1. Does El Chilerito have standing to appeal the Corrective 9 Order? 10 2. If so, did the bankruptcy court err when it entered the 11 Corrective Order? 12 IV. STANDARDS OF REVIEW 13 Standing is an issue of law we review de novo. Palmdale 14 Hills Prop., LLC v. Lehman Comm. Paper, Inc. (In re Palmdale Hills 15 Prop., LLC), 654 F.3d 868, 873 (9th Cir. 2011) ("standing is a 16 necessary component of subject matter jurisdiction."). 17 V. DISCUSSION 18 El Chilerito lacks standing to appeal the Corrective Order. 19 Creditor Trustee contends that El Chilerito lacks standing to 20 appeal the Corrective Order because it has not established that it 21 suffered any harm as a result of the order's entry.7 We agree. 22 "A federal court may exercise jurisdiction over a litigant 23 only when that litigant meets constitutional and prudential 24 25 7 El Chilerito's brief on appeal focuses primarily on its desire to dismiss Creditor Trustee's avoidance action. Whether 26 Creditor Trustee had standing to file that action and whether the correct caption was used on the adversary complaint were issues 27 determined in the bankruptcy court's order denying El Chilerito's motion for summary judgment. Accordingly, those issues are not 28 properly before us.

-9- 1 standing requirements." Veal v. Am. Home Mortg. Servicing, Inc. 2 (In re Veal), 450 B.R. 897, 906 (9th Cir. BAP 2010) (citing Elk 3 Grove Unified Sch. Dist. v. Newdow, 542 U.S. 1, 11 (2004)). 4 "Standing is a 'threshold question in every federal case, 5 determining the power of the court to entertain the suit.'" Id. 6 (quoting Warth v. Seldin, 422 U.S. 490, 498 (1975)). 7 Bankruptcy appellate standing, or prudential standing, is 8 narrower than Article III standing. It requires an appellant to 9 show that he or she has been "directly and adversely affected 10 pecuniarily" by the bankruptcy court's decision. In re Palmdale 11 Hills Prop., LLC, 654 F.3d at 874. The appellant must show that 12 the order on appeal diminished its property, increased its 13 burdens, or detrimentally affected its rights. Fondiller v. 14 Robertson (In re Fondiller), 707 F.2d 441, 442 (9th Cir. 1983). 15 El Chilerito argues that the Corrective Order effectively 16 altered vested rights and created disparate treatment of parties 17 in interest. The only "vested rights" identified by El Chilerito 18 are their alleged standing and jurisdictional defenses to the 19 avoidance actions. The "disparate treatment" it alleges is that 20 those defendants who have settled with Creditor Trustee will be 21 treated differently from the 50-some defendants whose adversary 22 actions are not yet resolved. El Chilerito does not articulate 23 what that disparate treatment would be. 24 El Chilerito fails to recognize that the Corrective Order, 25 which substantively consolidated only the Debtors' "debts" 26 retroactive to the Effective Date of March 18, 2016, has no 27 possible impact on their rights vis-a-vis the avoidance action. 28 The debt consolidation had no effect on the Creditor Trustee's

-10- 1 standing8 or the bankruptcy court's subject matter jurisdiction 2 over the avoidance actions, which were clearly an "asset" of the 3 Debtors and, ultimately, the Creditor Trust. We perceive no 4 adverse change in El Chilerito's rights by the limited amendment 5 to the Confirmation Order, and El Chilerito has identified no such 6 impaired rights. Simply put, our resolution of the order on 7 appeal will not give El Chilerito the relief it really seeks — 8 dismissal of Creditor Trustee's avoidance action. 9 Because we are dismissing the appeal for El Chilerito's lack 10 of standing, we do not reach the issue of whether the bankruptcy 11 court erred by entering the Corrective Order. 12 VI. CONCLUSION 13 We DISMISS El Chilerito's appeal for lack of standing. 14 15 16 17 18 19 20 21 22 23 24 25 26 8 The bankruptcy court held in the orders denying the 27 dispositive motions that Creditor Trustee's standing was derived from the Confirmation Order and the Assignment Agreement. The 28 Corrective Order does nothing to change that result.

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