Woman's Club of Hollywood, Cal v. Jennifer Morgan

• Court: Court of Appeals for the Ninth Circuit
• Decided: March 10, 2021
• Docket: 18-55293
• Status: Unpublished

Opinion

NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS MAR 10 2021 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT

WOMAN'S CLUB OF HOLLYWOOD, No. 18-55293 CALIFORNIA, D.C. No. 2:17-cv-04157-RGK Appellant,

v. MEMORANDUM*

JENNIFER MORGAN,

Appellee.

JENNIFER MORGAN, No. 18-55324

Appellant, D.C. Nos. 2:17-cv-04157-RGK 2:17-cv-04252-RGK v.

WOMAN'S CLUB OF HOLLYWOOD, CALIFORNIA, Chapter 11 Trustee,

Appeal from the United States District Court for the Central District of California R. Gary Klausner, District Judge, Presiding

Argued and Submitted January 14, 2021 Pasadena, California

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. Before: FRIEDLAND and BENNETT, Circuit Judges, and BLOCK,** District Judge.

The Woman’s Club of Hollywood, California (“the Club”), filed for

bankruptcy in December 2012, its third such filing in two years. The bankruptcy

court appointed a Chapter 11 Trustee, Heide Kurtz, who brought an adversary

proceeding against Jennifer Morgan and other officers and directors of the Club.

After a bench trial, the bankruptcy court found Morgan liable for a breach of

fiduciary duty and awarded Kurtz $160,903.48 in damages.

Both Morgan and Kurtz appealed to the district court, which affirmed in

part, reversed in part, and vacated and remanded in part. Morgan and Kurtz again

appealed.1

The parties subsequently stipulated to a dismissal of the remanded claims.

Accordingly, the district court’s judgment is now final and appealable. See

Rodriguez v. Taco Bell Corp., 896 F.3d 952, 956 (9th Cir. 2018) (distinguishing

Microsoft Corp. v. Baker, 137 S. Ct. 1702 (2017)). We therefore proceed to the

merits.

** The Honorable Frederic Block, United States District Judge for the Eastern District of New York, sitting by designation. 1 As part of the Club’s reorganization plan, Kurtz assigned her interest to the Club while this appeal was pending. We therefore refer to Kurtz and the Club interchangeably, except where the context dictates otherwise.

2 1. Kurtz did not fail to prove her standing to bring the adversary

proceeding. The bankruptcy court appointed her Chapter 11 Trustee and, in

approving the reorganization plan, authorized her to continue her duties as “Plan

Trustee.” The bankruptcy court took judicial notice of the appointments. Morgan

challenges that decision on several procedural grounds, but we need not address

them because formal judicial notice was unnecessary; it was sufficient for the

bankruptcy court to rely on its knowledge of its own prior orders in the same case.

Cf. Mica v. Sun Life Assurance of Can., Inc., 874 F.3d 1052, 1055 n.5 (9th Cir.

2017) (“[I]t is unnecessary to take notice of documents contained in this court’s

docket.”).

2. The bankruptcy court did not err in finding that Morgan breached her

fiduciary duty to the Club by disbursing part of the proceeds of the Scapa loan to

herself. Morgan argues that she was entitled to the money as back salary, but the

evidence she offered at trial reflected a board resolution to pay her “only if money

exists.” Even assuming, as Morgan contends, that the resolution constituted a

written contract, it was contingent on “money exist[ing],” an ambiguous phrase in

the circumstances. Therefore, it was not error for the bankruptcy court to consider

extrinsic evidence. See Morey v. Vannucci, 75 Cal. Rptr. 2d 573, 578 (Ct. App.

1998) (“Extrinsic evidence is thus admissible to interpret the language of a written

instrument, as long as such evidence is not used to give the instrument a meaning

3 to which it is not reasonably susceptible.”). Nor did it clearly err in interpreting the

conflicting evidence to find that the phrase referred to income, not borrowed funds.

Cf. id. at 579 (“As trier of fact, it is the jury’s responsibility to resolve any conflict

in the extrinsic evidence properly admitted to interpret the language of a

contract.”).

3. We agree with the district court that it was error for the bankruptcy

court not to reduce its award by $19,000. There was unrebutted testimony that

Morgan had returned that amount to the Club. Whether or not Morgan was entitled

to payment of back salary, she is not liable for an amount that she actually returned

to the Club.

4. The Club argues that it was error for the bankruptcy court not to

award additional damages flowing from the Scapa loan, in particular the $1.6

million the Club had to expend to prevent foreclosure as part of its reorganization

plan. We agree that taking out a loan against the best interests of a corporation

might constitute a breach of a fiduciary’s duty to “exercise due care and undivided

loyalty for the interests of the corporation.” Frances T. v. Vill. Green Owners

Ass’n., 723 P.2d 573, 587 (Cal. 1986). But the record is unclear as to whether that

happened here. The bankruptcy court variously found that the board did not

approve the Scapa loan; that a loan was needed, “but not for that amount, not at

that time;” and that the Club “couldn’t get a loan for less” so it “had to have it for

4 that amount.” Moreover, while the bankruptcy court found that Alda Shelton

forged a board resolution approving the loan, it did not make any finding as to

Morgan’s knowledge of, or involvement in, Shelton’s action.

Thus, although Kurtz advanced this claim at trial, the bankruptcy court did

not explicitly decide whether taking out the Scapa loan was a further breach of

Morgan’s fiduciary duties to the Club. We remand to the district court with

instructions for it to remand to the bankruptcy court to determine whether and, if

so, how Morgan further breached her fiduciary duties. If the bankruptcy court

finds that Morgan’s role in taking out the loan amounted to a breach of fiduciary

duty, it should then determine what damages flowed from that breach according to

the general rule that “the faithless fiduciary shall make good the full amount of the

loss of which his breach of faith is a cause.” Fragale v. Faulkner, 1 Cal. Rptr. 3d

616, 622 (Ct. App. 2003) (quoting Salahutdin v. Valley of Cal., Inc., 29 Cal. Rptr.

2d 463, 470 (Ct. App. 1994)).

AFFIRMED in part, VACATED in part, and REMANDED.