In re: James W. Keenan ( 2022 )

FILED
FEB 8 2022
NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK
U.S. BKCY. APP. PANEL
OF THE NINTH CIRCUIT
UNITED STATES BANKRUPTCY APPELLATE PANEL
OF THE NINTH CIRCUIT
In re: BAP No. SC-21-1021-LSF
JAMES W. KEENAN,
Debtor. Bk. No. 96-00871-MM11
JAMES W. KEENAN,
Appellant,
v. MEMORANDUM∗
THOMAS L. CURTIN,
Appellee.
Appeal from the United States Bankruptcy Court
for the Southern District of California
Margaret M. Mann, Bankruptcy Judge, Presiding
Before: LAFFERTY, SPRAKER, and FARIS, Bankruptcy Judges.
INTRODUCTION
In 1984, James W. Keenan obtained an interest in a commercial
property in Oceanside, California (the “Property”). Paul Rule and
Dr. Thomas Curtin also held interests in the Property. The three owners
formed a partnership to own and manage the Property, but they never
executed a formal partnership agreement, nor did they transfer title to the
∗ This disposition is not appropriate for publication. Although it may be cited for
whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential
value, see 9th Cir. BAP Rule 8024-1.
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Property into the partnership. In 1995, the partners orally agreed to a
reallocation of Keenan and Curtin’s partnership interests, which resulted in
a reduction in Keenan’s interest and a proportionate increase in Curtin’s
interest. Record title, however, was not changed to reflect this agreement.
During Keenan’s chapter 11 1 case, he consistently treated the
Property as being owned by the partnership in the adjusted amounts,
including stating so in several documents executed under oath. This
changed after the effective date of the confirmed chapter 11 plan, when he
filed an amended Schedule B asserting that he owned his larger original
interest in the partnership. He later took the same position when the
liquidating trustee filed a motion to approve an interim distribution in the
adjusted, reduced percentage. The bankruptcy court rejected Keenan’s
argument on grounds of judicial estoppel.
After the bankruptcy case was closed, Curtin filed an action in state
court seeking reformation of the deed to the Property to reflect that it was
held in the adjusted amounts, along with other equitable remedies
resolving the dispute over the ownership interests in the partnership. The
state court entered judgment in favor of Curtin in 2017. After Keenan’s
appeal of the judgment was dismissed for lack of prosecution, he returned
to the bankruptcy court, seeking an order to enforce the discharge
provision of the confirmed chapter 11 plan. The bankruptcy court denied
Unless specified otherwise, all chapter and section references are to the
1
Bankruptcy Code, 11 U.S.C. §§ 101–1532, and all “Rule” references are to the Federal
2
the motion on the grounds that the causes of action in the state court
litigation were not discharged because they involved a property interest
rather than a claim, the equitable claims could not be monetized, and any
“claim” arose after the effective date of the plan. It also found that, under
the law of the case, Keenan was judicially estopped from asserting that the
Property was not owned by the partnership in the adjusted amount.
We affirm, primarily because the state court litigation involved a
property interest rather than a claim that could be discharged in
bankruptcy.
FACTS
Keenan filed a chapter 11 petition in January 1996. A few months
later, the bankruptcy court appointed a chapter 11 trustee. As of the
petition date, record title to the Property was held by Keenan and his wife
as to an undivided 85.007% interest, Paul A. Rule as to a 6% interest, and
appellee Thomas L. Curtin as to an 8.993% interest, all as tenants in
common. Despite record title, the three owners treated the Property as
being held and operated by a partnership known as the Loma Alta
Partnership, although they never executed a formal written partnership
agreement. In 1995, Curtin and Keenan orally agreed to a modified
ownership allocation, with Curtin’s ownership share being increased to
37.328% and Keenan’s ownership share being reduced to 55%. Although
record title did not change, the adjustment was reflected in the written
Rules of Bankruptcy Procedure.
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accounts for the partnership, and the parties received income (distributed
by Keenan) in accordance with those reallocated percentages.
Keenan, under oath, repeatedly described the Property as owned by
the partnership in the adjusted percentage amounts, i.e., in his bankruptcy
schedules and statement of financial affairs, his tax returns, his Rule 2004
examination, other state court litigation, and declarations filed in the
bankruptcy case.
During the chapter 11 case, the trustee sued the partnership, Curtin,
and Rule, asserting avoiding power and turnover claims and seeking to
quiet title in property owned by putative partnerships of which Keenan
was a partner (the “Partnership Adversary Proceeding”). In his
declarations filed in opposition to the trustee’s emergency motion for
immediate surrender of estate property, Keenan testified under penalty of
perjury that he had a 55% interest in the partnership and that Curtin had a
37.328% interest. The Partnership Adversary Proceeding was eventually
dismissed without prejudice in January 2011.
On May 13, 1998, the bankruptcy court confirmed the chapter 11 plan
jointly proposed by the chapter 11 trustee and the Official Creditor’s
Committee. Keenan received a discharge on the plan’s effective date of
June 27, 1998.
After plan confirmation, Keenan changed his position regarding his
ownership interest. In April 1999, he filed an amended Schedule B in which
he increased his partnership share to 83.335%.
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In October 2001, after creditors had been paid in full under the
confirmed plan, the trustee entered into an interim distribution agreement
(“IDA”) with Curtin and Rule to distribute the partnership profits in
accordance with the adjusted interests. When the trustee sought court
approval of the IDA, Keenan opposed it, taking the position that the
partnership agreement had never been signed and the percentage
adjustments had not been consummated. After a five-day evidentiary
hearing, the bankruptcy court overruled Keenan’s opposition, finding, for
purposes of resolving the motion, that Rule, Curtin, and Keenan were
partners holding the adjusted interests. The court found that Keenan’s
statements under oath in his bankruptcy case, in which he admitted the
existence of the partnership and the adjusted interests, were judicial
admissions; thus, he was judicially estopped from contending otherwise.
In 2005, Curtin filed an adversary proceeding against Keenan seeking
to compel a buyout of his partnership interest. Keenan moved to dismiss
the complaint, contending that the action did not involve property of the
estate and claiming that the court lacked subject matter jurisdiction.2
The bankruptcy case was closed in August 2010, and a final decree
was entered in March 2011.
Shortly after the case was closed, Curtin filed a complaint against
Keenan and his wife in San Diego Superior Court (the “State Court
2
That adversary proceeding was dismissed without prejudice pursuant to a
court-approved tolling agreement between Curtin and the trustee.
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Action”), asserting claims for: (1) imposition of constructive trust;
(2) reformation of deed; (3) quiet title; (4) anticipatory breach of contract;
(5) injunctive relief; and (6) partnership dissolution, accounting, and
liquidation of assets. Curtin initially sought damages relating to loss of the
partnership interest, lost profits, and interest, but the anticipatory breach
claim was dismissed before trial, leaving only the equitable claims. Keenan
did not assert the discharge as a defense to the claims.
After a bench trial, the superior court found in favor of Curtin on the
deed reformation, constructive trust, and quiet title causes of action. The
court determined that the Property was owned by a partnership according
to the adjusted interests. The court also found Keenan was not a credible
witness based in part on the statements he had made under oath in the
bankruptcy case that he was a partner in the partnership and that the
partners held their interests in the adjusted amounts. The state court
entered a judgment (the “Judgment”) that, among other things, imposed a
constructive trust on the Property and ordered the reformation of the deed
to reflect the adjusted percentages. The judgment also permanently
enjoined the Keenans from taking any action to adversely affect the
interests of the other partners. No money damages were awarded.
The Keenans appealed the Judgment, but that appeal was dismissed
for failure to prosecute. After the Keenans refused to execute the reformed
grant deed, the state court appointed an elisor, who executed it, and the
deed was recorded.
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Keenan then filed a motion to enforce the plan discharge against
Curtin, arguing that the Judgment was based on a pre-petition breach of
contract and therefore the underlying claims had been discharged in the
chapter 11 case. The motion stated that he sought an order enforcing the
discharge and injunction provisions of Article XV of the confirmed chapter
11 plan and the confirmation order, an order enforcing the discharge under
§ 727(b) [sic] and § 524(a)(1), and an order voiding the Judgment. Curtin
opposed the motion. After hearing argument, the bankruptcy court took
the matter under advisement and issued a memorandum decision and
order denying the motion. The court found that the discharge did not
apply to Curtin’s rights regarding the partnership because: (1) it was a
property interest rather than a claim; and (2) Keenan’s dishonor of the
adjusted partnership interest arose post-effective date. The court also found
as an alternate ground for denial that the bankruptcy judge’s findings in
the IDA matter regarding judicial estoppel were preclusive as law of the
case.
Keenan timely appealed.
JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and
157(b)(2)(O) and its retention of jurisdiction in the order confirming the
chapter 11 plan. We have jurisdiction under 28 U.S.C. § 158.
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ISSUE
Did the bankruptcy court err in denying the motion to enforce the
discharge injunction?
STANDARD OF REVIEW
“The scope of the bankruptcy discharge injunction is a mixed
question of law and fact to be reviewed either de novo or for clear error,
depending upon whether questions of law or questions of fact
predominate.” Mellem v. Mellem (In re Mellem), 625 B.R. 172, 177 (9th Cir.
BAP 2021), aff’d, No. 21-60020, 2021 WL 5542226 (9th Cir. Nov. 26, 2021)
(citing U.S. Bank Nat'l Ass'n ex rel. CWCapital Asset Mgmt. LLC v. Vill. at
Lakeridge, LLC, 138 S. Ct. 960, 967-68 (2018). Here, legal questions
predominate; therefore, our review is de novo.
The bankruptcy court’s interpretation of the terms of a confirmed
chapter 11 plan is reviewed de novo. Pioneer Liquidating Corp. v. U.S. Tr. (In
re Consol. Pioneer Mortg. Entities), 248 B.R. 368, 375 (9th Cir. BAP 2000).
Under de novo review, we look at the matter anew, as if it had not been
heard before, and as if no decision had been rendered previously, giving no
deference to the bankruptcy court’s determinations. Freeman v. DirecTV,
Inc., 457 F.3d 1001, 1004 (9th Cir. 2006).
DISCUSSION
A. The Scope of the Discharge
The scope of the discharge in this case is determined by reference to
both the Bankruptcy Code and the terms of the confirmed plan and
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confirmation order. The relevant code sections are §§ 1141 and 524. Section
1141(d)(1)(A) states: “Except as otherwise provided in this subsection, in
the plan, or in the order confirming the plan, the confirmation of a plan . . .
discharges the debtor from any debt that arose before the date of such
confirmation . . . .” Section 524(a)(2) implements the statutory discharge by
providing that the discharge “operates as an injunction against the
commencement or continuation of an action, the employment of process, or
an act, to collect, recover or offset any such debt as a personal liability of
the debtor . . . .”
Paragraph 9 of the confirmation order provides in relevant part:
“Except as otherwise provided in the Plan or this Confirmation Order,
Confirmation will discharge the Estate from all Claims or other debts that
arose before the date of Confirmation, and all debts of the kind specified in
sections 502(g), 502(h), or 502(i) of the Bankruptcy Code . . . .”
And paragraph 10 of the confirmation order provides:
As of the Effective Date, except as provided in the Plan or this
Confirmation Order, all entities will be precluded from
asserting against the Estate, its successors, or its property, any
other or further Claims, debts, rights, causes of action, or
liabilities based on any act, omission, transaction or other
activity of any kind or nature that occurred prior to the
Effective Date. In accordance with the foregoing, except as
provided in the Plan or this Confirmation Order, this
Confirmation Order will be a judicial determination of
discharge of all such Claims and other debts and liabilities
against the Estate pursuant to sections 524 and 1141 of the
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Bankruptcy Code, and such discharge will void any judgment
obtained against the Estate at any time, to the extent that such
judgment relates to a discharged Claim. 3
As defined in the plan, the term “Claim” has the same meaning as
provided under § 101(5) of the Bankruptcy Code, which defines the term
as:
(A) right to payment, whether or not such right is reduced to
judgment, liquidated, unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal, equitable, secured, or
unsecured; or
(B) right to an equitable remedy for breach of performance if
such breach gives rise to a right to payment, whether or not
such right to an equitable remedy is reduced to judgment,
fixed, contingent, matured, unmatured, disputed, undisputed,
secured, or unsecured.
Under this definition, an equitable remedy is a “claim” that can be
discharged only if a monetary payment is a viable alternative. In re Ben
Franklin Hotel Assocs., 186 F.3d 301, 305 (3d Cir. 1999). On the other hand,
“[i]f the only remedy allowed by law is non-monetary, then the equitable
remedy is not considered a claim for purposes of bankruptcy and it
survives the discharge of the debtor.” TKO Prop., LLC v. Young (In re
Young), 214 B.R. 905, 912 (Bankr. D. Idaho 1997) (citing In re Aslan, 65 B.R.
826, 830-31 (Bankr. C.D. Cal.1986), aff’d, 909 F.2d 367 (9th Cir. 1990)). See
also In re Wright Flight Aviation, Inc. v. Krasnoff (In re Mach I Aviation, Inc.),
3
This language is very similar to that used in the plan itself, except that the plan
included language precluding the assertion of claims against the debtor rather than the
estate.
10
BAP Nos. CC–10–1520–MkBPa, CC–10–1521–MkBPa, 2011 WL 5838520, at
*7 (9th Cir. BAP Sept. 15, 2011) (quoting In re Young, 214 B.R. at 912).
B. The bankruptcy court did not err in finding that the state court
litigation did not violate the discharge provisions of the
Bankruptcy Code or the Confirmation Order.
1. The bankruptcy court did not err in finding that the
Judgment did not arise from a “claim” as defined in the
Bankruptcy Code.
The Judgment does not constitute a “claim” under the Code for two
reasons. First, a partnership interest is a property interest rather than a
claim. Second, even if the Judgment could be construed as arising from a
breach of a pre-petition contract, it does not fit into the Code’s definition of
a “claim.”
A partnership interest does not constitute a claim against the
partnership. Estes & Hoyt v. Crake (In re Riverside-Linden Inv. Co.), 925 F.2d
320, 323 (9th Cir. 1991) (per curiam). This is because partners are not
creditors of the partnership with respect to their partnership interests, i.e.,
their ownership interests are not a debt of the partnership. Id. (citing Estes
& Hoyt v. Crake (In re Riverside-Linden Inv. Co.), 99 B.R. 439, 444 (9th Cir.
BAP 1989)). “Partners own the partnership subject to the profits or losses.
Creditors, however, hold claims regardless of the performance of the
partnership business. Thus, an ownership interest is not a claim against the
partnership.” Id. (quoting In re Riverside-Linden Inv. Co., 99 B.R. at 444). See
also Baker v. Al-Ruwaished (In re Al-Ruwaished), 266 B.R. 194, 196 (Bankr.
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N.D. Cal. 2001) (“Where there is a claim that a trust arises out of intended
ownership rights in property, the person claiming the ownership rights
does not do so as a creditor and is not barred by the discharge.”).
Keenan correctly points out that Riverside-Linden involved a debtor
partnership, while here the debtor is an individual partner, and the dispute
is between partners, not between a partner and the partnership. But he
cites no legal or factual basis for recharacterizing a partnership interest as a
“claim” solely because the dispute is between partners.
In any event, the causes of action in the State Court Action do not fall
into the category of “claims” as defined in § 101(5) because there is no
alternative monetary remedy. Only equitable relief was sought by Curtin in
the State Court Action—constructive trust, deed reformation, quiet title,
injunctive relief, and dissolution of the partnership. The fact that Curtin
initially sought money damages for anticipatory breach is inconsequential.
See In re Ben Franklin Hotel Assocs., 186 F.3d at 306 (“Nor do we agree with
debtor’s related suggestion that BFG, by originally seeking damages for the
loss of its partnership interest in its state court complaint, has somehow
conceded that monetary relief is a viable alternative remedy.”).
And the Judgment granted only equitable relief: declaratory relief as
to the ownership interests in the Property and the partnership, deed
reformation, the imposition of a constructive trust, an injunction
prohibiting the Keenans from adversely impairing Curtin’s and Rule’s
interests in the Property and the partnership, and the appointment of
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Curtin and the estate of Paul Rule as co-managing partners of the
partnership.
The bankruptcy court correctly found that Curtin had no viable
monetary remedy. See In re Mach I Aviation, 2011 WL 5838520, at *8
(holding that appellant’s equitable claims for declaratory relief, cancellation
of documents, and for quiet title to its property have no precise or viable
damage alternatives, citing In re Ben Franklin Hotel Assocs., 186 F.3d at 306).
See also Irizarry v. Schmidt (In re Irizarry), 171 B.R. 874, 878 (9th Cir. BAP
1994) (equitable remedies of cancellation of the grant deed, recovery of real
property, and cancellation of liens are not claims or debts subject to
discharge); Sheerin v. Davis (In re Davis), 3 F.3d 113, 116-17 (5th Cir. 1993)
(equitable remedies of resulting trust, partition in kind, and deed
reformation are not dischargeable claims).
Keenan argues that money damages were available, even if they were
not sought or awarded. But he fails to explain how the equitable remedies
awarded in the Judgment could be monetized. Although he cites cases in
which courts found that a particular equitable claim could be monetized—
Route 21 Associates of Belleville, Inc. v. MHC, Inc., 486 B.R. 75 (S.D.N.Y. 2012),
In re Young, 214 B.R. at 912, and Abboud v. The Ground Round, Inc. (In re The
Ground Round, Inc.), 335 B.R. 253 (1st Cir. BAP 2005), aff’d, 482 F.3d 15 (1st
Cir. 2007)—he provides no analysis of the facts of this case from which one
could draw the conclusion that monetary damages would have been
available. California courts recognize that the legal remedy of damages is
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generally inadequate in real property disputes. Wilkison v. Wiederkehr, 101
Cal. App. 4th 822, 830 (2002) (citing Morrison v. Land, 169 Cal. 580, 586-87
(1915)).
2. The bankruptcy court did not err in concluding that the broad
language of the confirmation order did not result in the
discharge of Curtin’s claims.
As noted, the confirmation order discharges the estate from “claims,
debts, rights, causes of action, or liabilities based on any act, omission,
transaction or other activity of any kind or nature that occurred prior to the
Effective Date.” Keenan argues that this language is broad enough to
encompass Curtin’s equitable claims. But he forgets that as of the petition
date, he held a 55% interest in the partnership, as reflected in his schedules
filed under penalty of perjury. That interest became property of the estate,
but the other partners’ interests did not. Accordingly, the discharge under
the confirmation order could not have affected Curtin’s interest.
Keenan also asserts that Curtin’s claims were addressed in the
confirmed plan, but the plan did not overtly address or resolve the
partners’ interests in the partnership. It provided for alternative treatment
depending on the outcome of the Partnership Adversary Proceeding.
Specifically, if the proceeds from the sale or operation of a partnership
were determined not to be property of the estate, the estate would receive
its proportionate interest, and the partnership and remaining partners
would not participate in the remaining estate assets. On the other hand, if
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proceeds were determined to be estate property, the partners could file
proofs of claim and participate in the distribution of assets of the estate.
Keenan argues that this provision means that the only way Curtin
could have a determination that the Property was owned by a partnership
or that he had an increased interest was if that “claim” was pursued to a
final judgment in the bankruptcy case. But nothing in this provision
purports to require resolution of any dispute between the partners as to
their respective ownership interests, nor could it have, as there was no
dispute at that time; the litigation was between the trustee and the
partners.
In a related argument, Keenan contends that Curtin’s interests could
only have been resolved by the filing of an adversary proceeding in the
bankruptcy court. But Curtin filed such an adversary proceeding in 2005, in
which Keenan took the position that the action did not involve property of
the estate so that the court lacked subject matter jurisdiction.
Keenan’s argument, if accepted, would lead to an absurd and unjust
result. If Keenan were right, he could have asserted that he owned 100% of
the partnership, and the discharge would have barred Curtin from
defending his interest in the partnership. This shows that Keenan’s
argument rests on a fundamental misunderstanding: the discharge and
plan injunction protect the debtor from claims, but they do not disable
other parties from defending their property interests against the debtor’s
assertions of ownership.
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As noted, the bankruptcy court alternatively denied the motion based
on the doctrine of law of the case. Because we find no error in the
bankruptcy court’s ruling on the merits, we need not address this
alternative ground, although we see no reason why the bankruptcy court
could not have independently treated Keenan’s schedules and other sworn
documents as judicial admissions.
CONCLUSION
For all these reasons, the bankruptcy court did not err in denying
Keenan’s motion to enforce the discharge. Accordingly, we AFFIRM.
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