Nichols v. Marana Stockyard & Livestock Market Incorporated

• Court: District Court, D. Arizona
• Decided: March 16, 2020
• Docket: 2:19-cv-04658
• Status: Unknown

Opinion

1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA

9 IN THE MATTER OF: No. CV-19-04658-PHX-SMB

10 Donald Hugh Nichols and Jane Ann Nichols, BK NO. 4:18-bk-09638-BMW

11 Debtors. ORDER

12 Donald Hugh Nichols and Jane Ann Nichols, 13 Appellants, 14 v. 15 Marana Stockyard & Livestock Market 16 Incorporated, et al.,

17 Appellees. 18 19 This appeal concerns a complex factual background involving a state civil action, 20 two federal criminal proceedings, and a bankruptcy proceeding. All proceedings, except 21 the bankruptcy one, are brought against Donald Hugh Nichols and Jane Ann Nichols 22 (“Appellants”) concerning their alleged participation in fraudulent conduct involving 23 millions of dollars. Appellants appeal from the decision of the United States Bankruptcy 24 Court in the District of Arizona (“bankruptcy court”), which (1) denied Appellants’ 25 requested stay pending resolution of their criminal case; and refused to (2) suspend 26 bankruptcy proceedings under 11 U.S.C. § 305 or (3) abstain under 28 U.S.C. § 1334(c)(1). 27 (Doc. 16.) Appellees responded, (Doc. 20), and Appellants replied, (Doc. 23). This Court 28 1 affirms the bankruptcy court’s order not to stay, suspend, or abstain from its proceedings.1 2 I. BACKGROUND 3 Appellants initiated Chapter 13 bankruptcy on August 10, 2018 after Appellees sued 4 them in state court. (Docs. 16-1 at 4; 16 at 8.) Two months later, Appellants testified at 5 Rule 2004 examinations. (See generally Doc. 22-2 at 128-190.) The next month, 6 Appellants appeared in a bankruptcy evidentiary hearing, invoking their Fifth Amendment 7 privileges in response to most questions. (See generally id. at 15-106.) Then, after roughly 8 nine months of bankruptcy proceedings elapsed, Appellants moved for the bankruptcy 9 court to stay, suspend, and abstain from its proceedings (“motion”). (Id. at 70-98.) 10 Appellees responded to that motion and Appellants replied. (Doc. 16-1 at 20-21.) More 11 specifically, the motion requested (1) a stay pending resolution of Appellants’ criminal 12 case, (2) suspension of proceedings under section 305, and (3) abstention from proceedings 13 under section 1334(c)(1). (Doc. 22-1 at 70.) The bankruptcy court heard oral argument on 14 June 20, 2019, (Doc. 16-1 at 28), and denied the motion four days later after considering 15 the pleadings, entire record of the case, and oral arguments of counsel. (Id. at 20-21.) 16 In addition to the arguments raised in both parties’ briefs, the bankruptcy court listed 17 numerous considerations at oral argument for why a stay, suspension, or abstention was 18 inappropriate. (See Doc. 16-1 at 45-49.) These considerations included:

19 (1) the extent to which Appellants’ Fifth Amendment privileges are implicated, 20 were previously invocated, and the nonexistent right not to be forced to choose between testifying in a civil matter and asserting the privilege; 21

22 (2) Appellants’ interests, including no constitutional right to bankruptcy and prejudice caused by a delay; 23

24 (3) proceeding expeditiously with bankruptcy or a particular aspect of it;

25 (4) the burden a particular aspect of bankruptcy may impose on Appellees; 26 (6) convenience and efficiency of the bankruptcy court in managing its cases and 27

28 1 The Court previously denied a motion to stay the bankruptcy court’s decision pending this appeal. (Doc. 18.) 1 resources;

2 (7) non-parties’ interests in the bankruptcy proceeding; 3 (8) the public’s interest in the pending bankruptcy and criminal proceedings; 4

5 (9) Appellants’ failures to advance their self-initiated bankruptcy action since its inception; and 6

7 (10) Appellants’ unfair use of the Fifth Amendment as a shield and the Bankruptcy Code as a sword to which to take unfair advantage of creditors. 8

9 (See id. (quotations omitted)). After identifying these considerations, the bankruptcy court 10 explained in more detail why Appellants’ bankruptcy proceeding should not be stayed, 11 suspended, or abstained from. (Id.) For instance, the bankruptcy court denied the stay after 12 considering Molinaro’s nonexclusive considerations and evaluating the “specific 13 circumstances surrounding and competing interest[s] involved in the case” because a 14 “complete stay of a pending civil action is an extreme remedy.” (Id. at 45-46.) The 15 bankruptcy court further reasoned that their requested stay is inappropriate absent 16 “substantial prejudice to the rights of the parties involved.” (Id.) Further, the bankruptcy 17 court denied Appellants’ request to suspend proceedings under section 305(a)(1) after 18 considering the pleadings and whether “the interests of creditors and the debtor would be 19 better served by such dismissal or suspension.” (Id. at 47.) The court concluded that 20 “[Appellants] have provided no compelling argument to justify suspension of this case 21 pursuant to Section 305.” (Id. at 49.) Relatedly, the bankruptcy court refused to abstain 22 under section 1334(c)(1) after considering the pleadings and In re Tucson’s suggested 23 permissive abstention factors. (Id. at 47.) The bankruptcy court reasoned that “the request 24 for abstention makes no sense . . . since it is unclear how [the bankruptcy court] can abstain 25 as to an entire bankruptcy court and who it would be abstaining to.” (Id. at 49.) 26 In sum, the bankruptcy court denied the motion after “consideration of the entirety 27 of facts and circumstances” before it. (Id.) Appellants now appeal the bankruptcy court’s 28 denial of their requested stay pending resolution of their criminal case, refusal to suspend 1 proceedings, and decision not to abstain. (Doc. 16 at 12.) This Court reviews each decision 2 in turn. 3 II. STANDARD OF REVIEW 4 This Court has jurisdiction to hear appeals from final bankruptcy court orders. 28 5 U.S.C. § 158(a)(1). A bankruptcy court’s denial of a stay, refusal to suspend proceedings, 6 and decision to abstain are each reviewed for abuse of discretion. See JPMCC 2007-CIBC 7 19 East Greenway, LLC v. Bataa/Kierland, LLC, 2013 WL 210845, *2 (D. Ariz. Jan. 18, 8 2013) (citing In re Wymer, 5 B.R. 802, 807-808 (B.A.P. 9th Cir. 1980)); see also In re 9 Tucson Estates, Inc., 912 F.2d 1162, 1169 (9th Cir. 1990); In re Carraher, 971 F.2d 327, 10 328 (9th Cir. 1992). A court abuses its discretion when it “fails to identify and apply the 11 correct legal rule to the relief requested, or if its application of the correct legal standard 12 was (1) illogical, (2) implausible, or (3) without support in inferences that may be drawn 13 from the facts in the record.” In re Roman Catholic Archbishop of Portland in Or., 661 14 F.3d 417, 424 (9th Cir. 2011). An “abuse of discretion standard encompasses a de novo 15 review of the law and a clearly erroneous review of the facts with respect to the underlying 16 issues.” Bataa/Kierland, LLC, 2013 WL 210845, at *2 (citing In re Irwin, 338 B.R. 839, 17 848 (E.D. Cal. Mar. 2, 2006)). Appellants’ primary concern here is that the bankruptcy 18 court failed to apply the correct legal standards. (Doc. 16 at 12; Doc. 23 at 5 (“The thrust 19 of Appellants’ argument is that the bankruptcy court failed to consider or analyze the 20 factors set out by controlling precedent.”)). 21 III. DISCUSSION 22 A. Parallel Proceeding Stay. 23 Appellants concede the bankruptcy court correctly identified the applicable 24 balancing test for highly discretionary parallel proceeding stays, but nonetheless argue the 25 bankruptcy court abused its discretion because it incorrectly applied the test. (Doc. 16 at 26 12-13.) Appellants relatedly argue the bankruptcy court’s reasons for denying their stay are 27 insufficient. (Id. at 15.) Moreover, in their reply, they argue the bankruptcy court’s decision 28 1 cannot be upheld on the ground that a stay is not constitutionally required.2 (Doc. 23 at 9.) 2 Appellees argue the bankruptcy court properly applied the test. (Doc. 20 at 10.) Because 3 the bankruptcy court appropriately balanced the unique, fact-dependent Molinaro 4 considerations¸ this Court affirms its decision denying Appellants’ stay.3 5 As identified by the bankruptcy court, the Constitution rarely requires a stay of civil 6 proceedings pending the outcome of criminal proceedings. (Doc. 16-1 at 45 (citing Fed. 7 Sav. & Loan Ins. Corp. v. Molinaro, 889 F.2d 899, 902 (9th Cir. 1989)). A civil proceeding 8 may be conducted at the same time as a related criminal proceeding, even if it necessitates 9 the invocation of the Fifth Amendment privilege. Baxter v. Palmigiano, 425 U.S. 308, 318 10 (1976). The trier of fact may even draw adverse inferences from the invocation of the Fifth 11 Amendment in a civil proceeding. Id. “The decision to stay civil proceedings in the face of 12 a parallel criminal proceeding should be made ‘in light of the particular circumstances and 13 competing interests involved in the case.’” Keating v. Office of Thrift Supervision, 45 F.3d 14 322, 324 (9th Cir. 1994) (quoting Molinaro, 889 F.2d at 902). “[T]he extent to which the 15 defendant’s Fifth Amendment rights are implicated is a significant factor . . . but it is only 16 one consideration to be weighed against others.” Keating, 45 F.3d at 326 (citing Molinaro, 17 889 F.2d at 902). Whether other innumerable possible considerations apply depends on a 18 case’s unique facts.4 19 Here, Appellants fail to show the bankruptcy court abused its discretion in denying 20 their requested stay. As a preliminary matter, Appellants improperly cite Bateman v. U.S. 21

22 2 The Court finds unpersuasive Appellants’ unsupported proposal that “[t]he fact that a stay is not constitutionally mandated is . . . irrelevant in determining whether it was improperly 23 denied.” (Doc. 23 at 9.) Clearly, considering the bankruptcy court’s reasoning for denying Appellants’ stay is relevant to this appeal. 24 3 Both parties mistakenly discuss in their briefs whether this Court should grant a stay instead of further discussing how the bankruptcy court abused its discretion in denying one. 25 (Doc. 16 at 17-24; Doc. 20 at 14-16.) 4 Possible considerations include: “(1) the interest of the non-movants in proceeding 26 expeditiously with this litigation or any particular aspect of it, and the potential prejudice to them if a stay is granted; (2) the convenience of the court in the management of its cases 27 and efficient use of judicial resources; (3) the interests of persons not parties to the civil litigation; (4) the interest of the public in pending civil and criminal litigation; and (5) the 28 burden that any particular aspect of the proceedings may impose on the criminal defendants.” Molinaro, 889 F.2d at 903. 1 Postal Serv., 231 F.3d 1220, 1224 (9th Cir. 2000), for the proposition that the bankruptcy 2 court’s failure to consider each of Molinaro’s considerations requires reversal of its denial 3 of a stay. (Doc. 16 at 14.) In Bateman, the Ninth Circuit reversed the district court’s denial 4 of a Rule 60(b)(1) motion “because . . . the district court applied the wrong legal standard.” 5 Id., 231 F.3d at 1225. In fact, the Ninth Circuit reasoned that “[t]he court would have been 6 within its discretion if it spelled out the equitable test and then concluded that [plaintiff] 7 had failed to present any evidence relevant to the four factors. But it abused its discretion 8 by omitting the correct legal standard altogether.” Id. at 1224. Again, Appellants concede 9 the bankruptcy court identified the appropriate test set forth in Molinaro. (Doc. 16 at 13.) 10 As a result, Bateman is unavailing because the bankruptcy court did not “omit[] the correct 11 legal standard altogether.” 231 F.3d at 1224. 12 Moreover, Appellants’ speculative argument that the bankruptcy court failed to 13 analyze the considerations clearly listed in its oral ruling is belied by the record, which 14 shows the bankruptcy court analyzed numerous considerations before denying the stay. 15 (See Doc. 16-1 at 45-49.) For instance, after considering the pleadings and oral argument, 16 it appears the bankruptcy court applied Molinaro’s balancing test for a parallel proceeding 17 stay and even used additional considerations to determine whether a stay was in the 18 interests of justice. (Doc. 16-1 at 45-49.) To reiterate, Molinaro’s list of specific 19 considerations is not exclusive. See Keating, 45 F.3d at 324. Appellants admit that “[i]t 20 cannot be disputed that all of the Molinaro factors are relevant.” (Doc. 23 at 7.) Even if the 21 bankruptcy court did not identify and apply any of the suggested considerations, which it 22 did, it would not necessarily have abused its discretion because each stay decision requires 23 analyzing a unique situation. The bankruptcy court, being privy to the unique situation of 24 its own proceedings, is the ultimate fact-finder as to which considerations are most 25 appropriate. The bankruptcy court did not abuse its discretion for failing to elaborate upon 26 any single consideration in a vast, suggestive list to Appellants’ liking. Based on the 27 considerations identified by the bankruptcy court, which include the Molinaro ones, this 28 Court finds its denial of a stay plausible, logical, and supported by the record before it. 1 Thus, the Court finds Appellants fail to show the court abused its discretion by denying a 2 highly discretionary parallel proceeding stay. 3 B. “Suspension” under 11 U.S.C. § 305.5 4 Appellants next argue the bankruptcy court abused its discretion by refusing to 5 abstain under 11 U.S.C. § 305 because it failed to “evaluate or discuss the interests of 6 Appellants or the creditors.” (Doc. 16 at 24.) In claiming the nonexclusive considerations 7 under this section are substantially similar to those for parallel proceeding stays, (Doc. 20 8 at 20), Appellees argue the bankruptcy court already considered whether abstention would 9 serve the creditors and debtors’ interests when it denied Appellants’ stay. (Id.) The Court 10 agrees with Appellees. 11 Under section 305, a “[bankruptcy] court . . . may suspend all proceedings in a case 12 under this title, at any time if—(1) the interests of creditors and the debtor would be better 13 served by . . . suspension[.]” Abstention under section 305 dismisses or suspends the entire 14 bankruptcy proceeding. In re Bellucci, 119 B.R. 763, 771 (E.D. Cal. 1990) (citing 11 15 U.S.C. § 305). The standard is “whether the ‘interests of creditors and the debtor would be 16 better served by’ abstention.” Id. (citing 11 U.S.C. § 305(a)(1)). 17 This Court finds that refusing to abstain under section 305 was not an abuse of 18 discretion. The bankruptcy court identified the applicable standard and refused to abstain 19 only after considering the pleadings, oral argument, and whether “the interests of creditors 20 and the debtor would be better served by such dismissal or suspension.” (Doc. 16-1 at 47.) 21 The bankruptcy court reasoned that “[Appellants] have provided no compelling argument 22 to justify suspension of this case pursuant to Section 305.” (Doc. 16-1 at 49.) Just as it was 23 not the bankruptcy court’s responsibility to raise compelling arguments for abstention, it is 24 not this Court’s responsibility either. While the bankruptcy court did not explicitly state 25 “abstention under section 305 would not serve the creditors’ and debtors’ interests,” as 26 Appellants seemingly request, it had already considered both parties’ interests in analyzing 27 5 Appellants classify this section as permitting the bankruptcy court to suspend 28 proceedings. Suspension is a technical effect of the court’s decision to abstain. However, since the statute is called “Abstention,” the Court refers to this procedure as abstention. 1 their requested stay. (See Doc. 16-1 at 46 (“[A] court should consider . . . the interest of the 2 plaintiffs” and “[t]he burden with which any particular aspect of the proceeding may 3 impose on defendants.”)). Appellants’ suggestion that the bankruptcy court identified these 4 interests at oral argument only minutes before refusing to abstain but failed to analyze them 5 is speculative and unpersuasive to this Court. Therefore, this Court finds the bankruptcy 6 court did not abuse its discretion by refusing to abstain under section 305. 7 C. Abstention under 28 U.S.C. § 1334(c)(1). 8 Appellants argue the bankruptcy court inappropriately refused to abstain from all 9 bankruptcy proceedings under section 1334(c)(1). (Doc. 16 at 25.) As an initial matter, they 10 concede the bankruptcy court identified the correct considerations in In re Tucson Estates, 11 but nevertheless argue it failed to properly apply them. (Id.) Appellees claim the 12 bankruptcy court applied these considerations when it denied Appellants’ stay. (Doc. 20 at 13 20.) The Court agrees that the bankruptcy court already analyzed the illustrative list of 14 abstention considerations and therefore finds no abuse of discretion. 15 “Section 1334 sets forth when a bankruptcy court . . . may abstain in favor of state 16 court adjudication of an issue.” In re Tucson Estates, 912 F.2d 1162, 1166 (9th Cir. 1990) 17 (emphasis added). Under section 1334(c)(1), a bankruptcy court may abstain “from hearing 18 a particular proceeding arising under title 11 or arising in or related to a case under title 19 11” when abstention is “in the interest of justice, or in the interest of comity with State 20 courts or respect for State law.” 28 U.S.C. § 1334(c)(1). Like stays, there is a nonexclusive 21 list of “common-sense factors . . . identified as pertinent to the inquiry.” In re Republic 22 Reader’s Serv., Inc., 81 B.R. 422, 429 (Bankr. S.D. Tex. 1987).6

23 6 Twelve Ninth Circuit considerations include: “(1) the effect or lack thereof on the efficient administration of the estate if a Court recommends abstention, (2) the extent to which state 24 law issues predominate over bankruptcy issues, (3) the difficulty or unsettled nature of the applicable law, (4) the presence of a related proceeding commenced in state court or other 25 non-bankruptcy court, (5) the jurisdictional basis, if any, other than 28 U.S.C. § 1334, (6) the degree of relatedness or remoteness of the proceeding to the main bankruptcy case, (7) 26 the substance rather than form of an asserted ‘core’ proceeding, (8) the feasibility of severing state law claims from core bankruptcy matters to allow judgments to be entered 27 in state court with enforcement left to the bankruptcy court, (9) the burden of [the bankruptcy court's] docket, (10) the likelihood that the commencement of the proceeding 28 in bankruptcy court involves forum shopping by one of the parties, (11) the existence of a right to a jury trial, and (12) the presence in the proceeding of nondebtor parties.” In re 1 This Court finds that refusing to abstain under section 1334(c)(1) after identifying 2 the appropriate standard was not an abuse of discretion for three reasons. First, Appellants’ 3 request under section 1334(c)(1), as the court pointed out, was unclear as to “who [the 4 court] would be abstaining to.” (Doc. 16-1 at 49.) Appellants requested the bankruptcy 5 court “abstain from all [proceedings] that may implicate [their] constitutional rights . . . 6 until the resolution of the criminal case,” but identified no particular proceeding. (Doc. 22- 7 2 at 82.) It goes without saying that a bankruptcy court cannot abstain from its own 8 proceedings. Moreover, Appellants identify no particular bankruptcy proceeding 9 implicating their constitutional rights. After trying to apply In re Tucson’s nonexclusive 10 abstention factors, (Doc. 16-1 at 47), the bankruptcy court understandably refused to 11 blindly abstain to itself based on Appellants’ overbroad and ambiguous request. 12 Second, and contrary to Appellants’ assertion, the bankruptcy court correctly 13 analyzed abstention under this section. For instance, under In re Tucson’s first factor, the 14 bankruptcy court reasoned that abstention from an entire bankruptcy proceeding would be 15 inefficient because Appellants already “have made little or no progress towards [their 16 Chapter 13 plan confirmation].” (Doc. 16-1 at 47.) Moreover, as Appellants concede, not 17 all of In re Tucson’s considerations automatically apply to every case. (Doc. 22-2 at 83) 18 (“These factors, to the extend applicable here, warrant abstention.”). While Appellants 19 claim “the failure to analyze any of the applicable factors constitutes an abuse of 20 discretion,” (Doc. 16 at 25), a bankruptcy court need only analyze applicable factors. Here, 21 it appears that the bankruptcy court found many of In re Tucson’s factors inapplicable 22 because Appellants failed to identify any particular bankruptcy proceeding warranting 23 abstention, or another court it should abstain to. The bankruptcy court was correct in not 24 applying inapplicable considerations. 25 Lastly, Appellants’ conclusory arguments for abstention before the court are also 26 unpersuasive here. (See Doc. 22-2 at 83-84.) For example, Appellants argue under In re 27 Tucson’s third consideration that “[t]he applicable law may or may not be settled.” (Id. at

28 Tucson Estates, 912 F.2d at 1167 (quoting In re Republic Reader’s Serv., Inc., 81 B.R. at 429). 1 83.) This is entirely unhelpful. They fail to identify what this “applicable law” is or how it 2 predominates over any bankruptcy issues. As another example, Appellants argue under the 3 ninth consideration that “[t]he burden on the [bankruptcy court’s] docket would be lessened 4 by abstention, as the issues would likely be streamlined by the conclusion of the criminal 5 case.” (Id.) Again, Appellants’ conclusory statement falls short. They fail to explain how 6 an idle bankruptcy proceeding with numerous creditors would lessen the bankruptcy 7 court’s burden, let alone how the criminal case’s resolution would streamline bankruptcy 8 proceedings. As a final example, contrary to Appellants’ bleak assertion that “[t]he forum 9 shopping factor does not apply,” Appellants appear, as the bankruptcy court found, to be 10 using bankruptcy as a shield without actually moving forward with its bankruptcy 11 proceedings. (Doc. 16-1 at 49.) Accordingly, the bankruptcy court was correct in not 12 finding these unsupported conclusions favor abstention. 13 In sum, Appellants’ ambiguous and overbroad abstention request, propped up by 14 conclusory justifications, did not warrant abstention and the bankruptcy court correctly 15 refused to abstain. The burden rests with Appellants, not the bankruptcy court, to show 16 why abstention is appropriate. Where Appellants fail to identify compelling arguments for 17 abstention, let alone identify which bankruptcy proceedings they wish to abstain from, a 18 request to abstain is correctly denied. Consequently, the bankruptcy court did not abuse its 19 discretion in refusing to abstain under section 1334(c)(1). 20 IV. CONCLUSION 21 Appellants fail to show the bankruptcy court abused its discretion in denying their 22 stay or refusing to abstain under section 305 or section 1334(c)(1). 23 24 25 Accordingly, 26 27 28 IT IS ORDERED that the Bankruptcy Court's Order of June 24, 2019 is affirmed. 1 || Pursuant to Federal Rule of Bankruptcy Procedure 8024(a), the Clerk of the Court shall || enter judgment accordingly and terminate this case. 3 4 Dated this 16th day of March, 2020. 5 6 a . ~P 7 SO

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