Ussec v. Detail Construction & Waterproofing, Inc.

• Court: Court of Appeals for the Ninth Circuit
• Decided: June 28, 2023
• Docket: 22-16364
• Status: Unpublished

Opinion

NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS JUN 28 2023 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT

U.S. SECURITIES & EXCHANGE No. 22-16364 COMMISSION, D.C. No. 3:20-cv-09247-SI Plaintiff-Appellee,

MARWAN NABOULSI; RANA MEMORANDUM* NABOULSI,

Creditors-Appellants,

ACRES LOAN ORIGINATION, LLC,

Creditor-Appellee,

and

WESTERN ALLIANCE BANK; et al.,

Creditors,

POPPY BANK, FKA First Community Bank; et al.,

DETAIL CONSTRUCTION & WATERPROOFING, INC.,

Claimant,

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. v.

SILICONSAGE BUILDERS, LLC, AKA Silicon Sage Builders; et al.,

Defendants,

CITY VENTURES; et al.,

Real-party-in-interest,

v.

PARKVIEW FINANCIAL REIT LP,

Movant, ______________________________

DAVID P. STAPLETON,

Receiver-Appellee.

Appeal from the United States District Court for the Northern District of California Susan Illston, District Judge, Presiding

Submitted June 6, 2023** San Francisco, California

Before: MILLER and KOH, Circuit Judges, and CHRISTENSEN,*** District Judge.

** The panel unanimously concludes this case is suitable for decision without oral argument. See Fed. R. App. P. 34(a)(2). *** The Honorable Dana L. Christensen, United States District Judge for the District of Montana, sitting by designation.

2 Marwan and Rana Naboulsi appeal from the district court’s order granting a

receiver’s motion to reject their purchase agreement for two condominium units.

“A district court’s decision concerning the supervision of an equitable receivership

is reviewed for abuse of discretion.” SEC v. Capital Consultants, LLC, 397 F.3d

733, 738 (9th Cir. 2005). We affirm.

1. We have jurisdiction over this appeal because the district court’s order

was a final decision under 28 U.S.C. § 1291. “To be final, a judgment must dispose

of all the rights and liabilities of at least one party as to at least one claim.” CFTC

v. Topworth Int’l, Ltd., 205 F.3d 1107, 1112 (9th Cir. 1999) (quoting State St. Bank

& Tr. Co. v. Brockrim, Inc., 87 F.3d 1487, 1489 (1st Cir. 1996)). Thus, in the

receivership context, an order is final if it “finally resolve[s] the parties’ rights to

[the entity in receivership’s] assets.” Id. at 1111 (second alteration in original)

(quoting FTC v. Overseas Unlimited Agency, Inc., 873 F.2d 1233, 1234 (9th Cir.

1989)). The district court’s order does that: By approving the receiver’s rejection

of the Naboulsis’ purchase agreement, it establishes that the Naboulsis will receive

only a lien against the units that they had originally contracted to purchase.

2. The district court did not abuse its discretion in approving the rejection of

the purchase agreement. “It is well established that receivers are not liable on the

contracts of [the receivership entity] by operation of law . . . .” Irving Tr. Co. v.

Densmore, 66 F.2d 21, 23 (9th Cir. 1933). Rather, “[u]pon taking possession of the

3 property, [a receiver is] entitled to a reasonable time to elect whether he would

adopt [such a] contract and make it his own.” Id. (quoting Sunflower Oil Co. v.

Wilson, 142 U.S. 313, 322 (1892)). In the analogous bankruptcy context, we have

stated that “[t]he primary issue is whether rejection [of an executory contract]

would benefit the general unsecured creditors.” In re Chi-Feng Huang, 23 B.R.

798, 801 (B.A.P. 9th Cir. 1982); see also Irving Tr., 66 F.2d at 25 (“[T]he powers

of a receiver in equity are closely analogous to those of a receiver in bankruptcy . .

. .”).

The receiver offered a reasonable explanation of why rejection of the

purchase agreement would benefit the receivership estate and its creditors. The

receiver explained that “the delta between what these purchasers paid and the fair

market value of the units is approximately $6 million.” By rejecting the agreements

and selling the units at fair market value, the receiver would “increase the amount .

. . recovered from the sale of the units which can then be paid to lienholders,”

thereby “reduc[ing] unsecured claims against the receivership estate.”

The Naboulsis argue that the receiver impermissibly “act[ed] for the sole

benefit of one creditor, Acres [Loan Origination, LLC], to the detriment of other

creditors.” See Chi-Feng Huang, 23 B.R. at 801. But the Naboulsis have not shown

that rejection of their purchase agreement would damage them disproportionately

to the benefit that rejection has for the estate. Nor is Acres a third party who stands

4 to benefit at the expense of the estate’s creditors. Rather, Acres—the senior

lienholder on the condominium project—is itself a creditor of the estate. So long as

rejection of the purchase agreement reduces the loss on the condominium project,

it will benefit the receivership estate by reducing the estate’s debt to Acres.

The Naboulsis claim that it was improper for Acres to pay the receiver’s fees

arising in connection with his administration of the condominium projects. But this

arrangement does not demonstrate that the receiver was acting in bad faith or in a

manner inconsistent with his fiduciary duty to the estate. The fee agreement was

part of a larger construction funding agreement, under which Acres promised to

give the receivership estate $400,000 out of the proceeds from the eventual sales of

units in the Almaden and Osgood condominiums. The receiver explained that

having Acres pay for fees incurred during construction of the condominiums

“ensures that the carveouts agreed to by Acres are preserved for the receivership

estate” rather than being used to pay the receiver’s fees. The agreement with Acres

thus ensured that, even if the condominium projects did not generate enough

proceeds to fully satisfy Acres’ claims against the receivership estate, the estate

would still have at least $400,000 to distribute to creditors other than Acres.

Because the receiver offered a reasonable explanation for why rejection of

the Naboulsis’ purchase agreement is in the best interest of the receivership estate,

and because there is no evidence that the receiver was acting in bad faith, the

5 district court did not abuse its discretion in approving rejection of the Naboulsis’

purchase agreement.

AFFIRMED.