In re: Moisey Fridman and Rosa Fridman ( 2016 )

FILED
1 NOT FOR PUBLICATION JUL 15 2016
SUSAN M. SPRAUL, CLERK
2 U.S. BKCY. APP. PANEL
OF THE NINTH CIRCUIT
3 UNITED STATES BANKRUPTCY APPELLATE PANEL
4 OF THE NINTH CIRCUIT
5
6 In re: ) BAP No. CC-15-1151-FKiKu
)
7 MOISEY FRIDMAN and ) Bk. No. 8:12-bk-11721-ES
ROSA FRIDMAN, )
8 )
Debtors. )
9 _____________________________ )
)
10 MOISEY FRIDMAN; ROSA FRIDMAN, )
)
11 Appellants, )
)
12 v. ) MEMORANDUM*
)
13 KARL T. ANDERSON, Chapter 7 )
Trustee; KARL AVETOOM, )
14 )
Appellees. )
15 ______________________________)
16 Argued and Submitted on June 23, 2016
at Pasadena, California
17
Filed – July 15, 2016
18
Appeal from the United States Bankruptcy Court
19 for the Central District of California
20 Honorable Erithe A. Smith, Bankruptcy Judge, Presiding
21
Appearances: Appellant Rosa Fridman argued pro se; Juliet Y. Oh
22 argued for Appellee Karl T. Anderson, Chapter 7
Trustee; Appellee Karl Avetoom argued pro se.
23
24 Before: FARIS, KIRSCHER, and KURTZ, Bankruptcy Judges.
25
26 *
This disposition is not appropriate for publication.
27 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
28 9th Cir. BAP Rule 8024-1.
1 INTRODUCTION
2 Appellants/chapter 71 debtors Moisey and Rosa Fridman appeal
3 the bankruptcy court’s order approving the sale of their right to
4 appeal an adverse state court judgment in favor of Appellee Karl
5 Avetoom. We hold that the court did not abuse its discretion in
6 approving the sale. Accordingly, we AFFIRM.
7 FACTUAL BACKGROUND2
8 The Fridmans and Mr. Avetoom are former neighbors at Beach
9 Crest Villas, where Mr. Avetoom is the president of the Beach
10 Crest Villas Homeowners Association (“HOA”). This appeal arises
11 from a long and contentious history of litigation between the
12 Fridmans and Mr. Avetoom, most of which is not relevant to this
13 case and need not be recounted here.
14 A. State court judgment and appeal
15 In November 2011, following a jury trial in California
16 superior court, Mr. Avetoom obtained a state court judgment
17 against the Fridmans for, among other things, intentional
18 infliction of emotional distress. The jury awarded Mr. Avetoom
19 non-economic damages totaling $600,000 and punitive damages
20 totaling $400,000. The punitive damages award was later reduced
21 to $50,000.
22
1
23 Unless specified otherwise, all chapter and section
references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, all
24 “Rule” references are to the Federal Rules of Bankruptcy
Procedure, Rules 1001-9037, and all “Civil Rule” references are
25 to the Federal Rules of Civil Procedure, Rules 1-86.
26 2
The Fridmans present us with a limited record. We have
27 exercised our discretion to review the bankruptcy court’s docket,
as appropriate. See Woods & Erickson, LLP v. Leonard (In re AVI,
28 Inc.), 389 B.R. 721, 725 n.2 (9th Cir. BAP 2008).
2
1 After the superior court denied the Fridmans’ motion for new
2 trial and a motion for judgment notwithstanding the verdict, the
3 Fridmans appealed.
4 B. Bankruptcy proceedings
5 While the appeal was pending, the Fridmans filed for
6 chapter 13 bankruptcy. They converted their case to chapter 7,
7 and appellee Karl Anderson (“Trustee”) was appointed as chapter 7
8 trustee (apparently after an election).
9 According to the Fridmans’ schedules, they have general
10 unsecured debts totaling approximately $60,245.76. Their only
11 other debts are the $650,000 judgment and a $119,000 equity line
12 of credit.
13 The Trustee made several attempts to extricate the estate
14 from the litigation and appeal. First, he filed a motion for
15 authority to sell the estate’s rights to pursue the Fridmans’
16 appeal to Mr. Avetoom for $25,000, subject to overbid. The
17 Fridmans complained that they could not afford to bid and would
18 oppose any such sale. The United States Trustee also expressed
19 concern that the proposed sale might be tantamount to an
20 impermissible waiver of discharge in violation of § 524(c).3 As
21
22 3
Debts for “willful and malicious injury” are not
23 dischargeable in bankruptcy under § 523(a)(6). A prebankruptcy
judgment that includes punitive damages can sometimes establish,
24 under issue preclusion principles, that the debtor’s conduct was
“willful and malicious.” See, e.g., Khaligh v. Hadaegh
25 (In re Khaligh), 338 B.R. 817, 831-32 (9th Cir. BAP 2006), aff’d,
26 506 F.3d 956 (9th Cir. 2007) (holding that “it was permissible
for the court to apply issue preclusion to establish willful and
27 malicious injury for purposes of § 523(a)(6)”). The sale (and
extinguishment) of the Fridmans’ appellate rights thus could have
28 saddled them with a nondischargeable debt.
3
1 a result, the Trustee withdrew the motion.
2 The Trustee then attempted to transfer the appeal rights to
3 the Fridmans. The Trustee filed a motion for approval of a
4 compromise with the Fridmans (“Compromise Motion”). He sought
5 authority to abandon the appeal rights and to allow the Fridmans
6 to prosecute the appeal at their own expense. They were required
7 to recover and return to the estate certain funds that they had
8 paid to their prebankruptcy lawyers.
9 While the Compromise Motion was pending, the Trustee
10 commenced an adversary proceeding against the Fridmans, seeking a
11 denial of discharge under § 727.
12 At the hearing on the Compromise Motion, the court found
13 that the Trustee had the power to sell the right to appeal
14 because it was property of the Fridmans’ estate, but ordered that
15 the Compromise Motion be taken off calendar pending the
16 resolution of the adversary proceeding. The court also ordered
17 the state court appeal stayed.
18 Just prior to trial in the § 727 adversary proceeding, the
19 Fridmans stipulated to the entry of judgment denying their
20 discharge.
21 C. Sale of the appeal rights
22 The Trustee did not renew the Compromise Motion after the
23 § 727 adversary proceeding was concluded. Instead, the Trustee
24 filed a motion seeking authority to sell the appeal rights to
25 Mr. Avetoom and the HOA, subject to overbid (“Sale Motion”).
26 The Sale Motion drew opposition from two parties. First,
27 the Fridmans argued that the sale of the right to appeal was
28 improper and that the overbid procedures were unfair. They
4
1 argued that Mr. Avetoom was engaging in “threatening, unethical,
2 and malicious behavior” to prevent an appeal of the state court
3 judgment. They also claimed that the Trustee had already agreed
4 to abandon the appeal rights to them. Second, the law firm of
5 Darling & Risbrough, LLP, which had formerly represented the
6 Fridmans, objected to the inclusion of the HOA as one of the
7 proposed buyers, contending that the HOA lacked power to make
8 such a purchase.
9 In his reply brief, the Trustee represented that the HOA
10 agreed not to participate as a buyer. Mr. Avetoom agreed to
11 purchase the right to appeal with his own monies.
12 The court issued a tentative ruling indicating that it was
13 inclined to grant the Sale Motion. At the hearing,4 the Trustee
14 conducted an auction of the right to appeal pursuant to the
15 overbid procedures. The Fridmans were present, but only
16 Mr. Avetoom and the Darling & Risbrough law firm participated in
17 the auction. Mr. Avetoom eventually won the right to appeal with
18 a purchase price of $37,000. Following the auction, the court
19 granted the Sale Motion.
20 D. BAP appeal and post-appeal events
21 The court entered a written order approving the sale (the
22 “Sale Order”), which was a short, counsel-prepared order that
23 incorporated the court’s tentative ruling. The Fridmans had
24 already filed a premature notice of appeal. They did not obtain
25
26 4
The Fridmans did not include in their excerpts of record a
27 transcript of the hearing on the Sale Motion. They represented
that they did not have the financial resources to order the
28 transcript and asked for the Panel’s understanding.
5
1 a stay of the Sale Order.
2 Shortly thereafter, the state appellate court dismissed the
3 Fridmans’ state court appeal at Mr. Avetoom’s request (since he
4 then owned the appeal rights).
5 After filing the opening brief in this appeal, Mr. Fridman
6 passed away. A California state court appointed the Fridmans’
7 son Val Fridman as personal representative of Mr. Fridman’s
8 estate.
9 Appellees filed a motion to dismiss the appeal as moot.
10 They argued that, because the Fridmans did not seek a stay of the
11 Sale Order and the state court appeal has been dismissed, the
12 present appeal is moot. The motions panel denied the motion,
13 subject to final decision by the merits panel.5
14 JURISDICTION
15 The bankruptcy court had jurisdiction pursuant to 28 U.S.C.
16 §§ 1334 and 157(b)(2)(N) and (O). Subject to our discussion of
17 mootness below, we have jurisdiction under 28 U.S.C. § 158.
18 ISSUES
19 (1) Whether this appeal is moot.
20 (2) Whether a right to appeal is an estate asset that may be
21 sold by auction.
22 (3) Whether the bankruptcy court erred in approving the sale
23 of the Fridmans’ right to appeal the state court judgment.
24 (4) Whether the HOA is a bona fide creditor that may
25
5
26 Because they are relevant to the question of mootness and
Val Fridman’s appointment as personal representative, we will
27 take judicial notice of exhibits 3, 4, and 5 to docket 17;
exhibits 1, 2, and 3 to docket 54; docket 69; and docket 70. All
28 other requests for judicial notice are DENIED.
6
1 participate in the bankruptcy case.
2 (5) Whether the sale is subject to scrutiny by the
3 Department of Homeland Security (“DHS”).
4 STANDARDS OF REVIEW
5 We review de novo our own jurisdiction, including questions
6 of mootness. Silver Sage Partners, Ltd. v. City of Desert Hot
7 Springs (In re City of Desert Hot Springs), 339 F.3d 782, 787
8 (9th Cir. 2003). “De novo review requires that we consider a
9 matter anew, as if no decision had been made previously.”
10 Francis v. Wallace (In re Francis), 505 B.R. 914, 917 (9th Cir.
11 BAP 2014) (citations omitted).
12 The question whether a purchaser is a good faith purchaser
13 under § 363(m) is a question of fact that we review for clear
14 error. Thomas v. Namba (In re Thomas), 287 B.R. 782, 785 (9th
15 Cir. BAP 2002).
16 We review for abuse of discretion an order approving a § 363
17 sale. Moldo v. Clark (In re Clark), 266 B.R. 163, 168 (9th Cir.
18 BAP 2001). Similarly, the bankruptcy court’s decision to approve
19 a compromise under Rule 9019 is reviewed for abuse of discretion.
20 Mart. v. Kane (In re A&C Props.), 784 F.2d 1377, 1380 (9th Cir.
21 1986).
22 To determine whether the bankruptcy court has abused its
23 discretion, we conduct a two-step inquiry: (1) we review de novo
24 whether the bankruptcy court “identified the correct legal rule
25 to apply to the relief requested” and (2) if it did, whether the
26 bankruptcy court’s application of the legal standard was
27 illogical, implausible, or “without support in inferences that
28 may be drawn from the facts in the record.” United States v.
7
1 Hinkson, 585 F.3d 1247, 1262–63 & n.21 (9th Cir. 2009) (en banc).
2 “If the bankruptcy court did not identify the correct legal rule,
3 or its application of the correct legal standard to the facts was
4 illogical, implausible, or without support in inferences that may
5 be drawn from the facts in the record, then the bankruptcy court
6 has abused its discretion.” USAA Fed. Sav. Bank v. Thacker
7 (In re Taylor), 599 F.3d 880, 887–88 (9th Cir. 2010) (citing
8 Hinkson, 585 F.3d at 1261–62).
9 DISCUSSION
10 A. This appeal is not moot.
11 Appellees urge us to hold that this appeal is moot, because
12 the Fridmans did not obtain a stay of the Sale Order and the
13 state court appeal has been dismissed. We discuss two alternate
14 mootness grounds: statutory mootness and equitable mootness.
15 1. Statutory mootness
16 The “safe harbor” provision of § 363(m) states:
17 The reversal or modification on appeal . . . of a sale
or lease of property does not affect the validity of a
18 sale or lease under such authorization to an entity
that purchased or leased such property in good faith,
19 whether or not such entity knew of the pendency of the
appeal, unless such authorization and such sale or
20 lease were stayed pending appeal.
21 § 363(m) (emphases added).
22 With respect to an appeal of a sale of assets in bankruptcy,
23 the Ninth Circuit has stated: “[W]hen, in the absence of a stay
24 of the order of sale, a sale to a ‘good faith purchaser’ has been
25 concluded, an appellate court cannot undo the sale. Because the
26 court cannot provide meaningful relief to the appellant under
27 those circumstances, any appeal of the order of sale thereby
28 becomes moot.” Dunlavey v. Ariz. Title Ins. & Tr. Co.
8
1 (In re Charlton), 708 F.2d 1449, 1454 (9th Cir. 1983) (quoting
2 Taylor v. Lake (In re CADA Invs., Inc.), 664 F.2d 1158, 1160 (9th
3 Cir. 1981)).
4 However, “[e]ven though an appeal from an order approving a
5 sale is moot if the sale has not been stayed and is consummated,
6 there are several exceptions. One exception to the mootness rule
7 is for appeals questioning whether the purchaser purchased the
8 property in good faith.” Fitzgerald v. Ninn Worx Sr, Inc.
9 (In re Fitzgerald), 428 B.R. 872, 880 (9th Cir. BAP 2010) (citing
10 Sw. Prods., Inc. v. Durkin (In re Sw. Prods., Inc.), 144 B.R.
11 100, 102-03 (9th Cir. BAP 1992)); see Onouli-Kona Land Co. v.
12 Richards (In re Onouli-Kona Land Co.), 846 F.2d 1170, 1173 (9th
13 Cir. 1988) (“Bankruptcy’s mootness rule operates only when a
14 purchaser bought an asset in good faith.”).
15 In the present case, it is undisputed that the Fridmans did
16 not seek a stay of the Sale Order and that the state court appeal
17 has been dismissed. The question, then, is whether Mr. Avetoom
18 is a “good faith” purchaser entitled to the protections of
19 § 363(m).
20 A good faith purchaser is “one who buys ‘in good faith’ and
21 ‘for value.’” Ewell v. Diebert (In re Ewell), 958 F.2d 276, 281
22 (9th Cir. 1992). The Ninth Circuit has “defined lack of good
23 faith as ‘fraud, collusion . . . or an attempt to take grossly
24 unfair advantage of other bidders.’” In re Onouli-Kona Land Co.,
25 846 F.2d at 1173 (quoting Cmty. Thrift & Loan v. Suchy
26 (In re Suchy), 786 F.2d 900, 902 (9th Cir. 1985)).
27 “‘Good faith’ is a factual determination to be reviewed for
28 clear error . . . .” In re Thomas, 287 B.R. at 785. The
9
1 bankruptcy court’s factual finding must be supported by evidence
2 in the record. In re Fitzgerald, 428 B.R. at 880-81. An
3 appellate court will look past a “boilerplate ‘good faith’
4 finding” and ascertain whether the finding has “an evidentiary
5 foundation.” Id. at 881. “[P]arties who desire the protection
6 of section 363(m) [must] establish an evidentiary record for the
7 bankruptcy court to make the necessary findings of fact and
8 conclusions of law.” T.C. Inv’rs v. Joseph (In re M Capital
9 Corp.), 290 B.R. 743, 745 (9th Cir. BAP 2003); see
10 In re Fitzgerald, 428 B.R. at 881 (“The boilerplate ‘good faith’
11 finding in the Sale Order does not suffice under section 363(m),
12 and the bankruptcy court should not have signed such an order
13 without an evidentiary foundation.”).
14 The BAP will not make a finding of good faith (or the lack
15 thereof) in the first instance on appeal, because “determination
16 of section 363(m) good faith is the province of the trial court.”
17 In re M Capital Corp., 290 B.R. at 747; see id. at 752 (“Without
18 such affirmative findings, the ramifications should be obvious:
19 no safe harbor[.]”).
20 Here, the bankruptcy court made a finding of good faith in
21 the Sale Order: “The Purchaser is a ‘good faith’ purchaser of the
22 Appeal Rights within the meaning of 11 U.S.C. § 363(m).” The
23 court’s tentative ruling covered the elements of “good faith”
24 under the Ninth Circuit standard: “There is no evidence of any
25 fraud or collusion between the purchaser, Avetoom, and the court
26 finds that the transaction was negotiated and proposed in good
27 faith.” The court may have said more on this topic on the record
28 at the hearing on the Sale Motion, but the Trustee and
10
1 Mr. Avetoom have not provided us with a copy of the hearing
2 transcript.
3 The bankruptcy court’s finding has evidentiary support in
4 the record. Cf. In re Fitzgerald, 428 B.R. at 880 (“we see
5 absolutely no evidence in the record to support a ‘good faith’
6 finding under section 363(m)”). The Trustee offered evidence
7 that: the Trustee and Mr. Avetoom negotiated the proposed sale at
8 arm’s length and in good faith; there had been no fraud and
9 collusion; the Trustee sought competitive bids for the appeal
10 rights; and the Trustee had taken steps to obtain the highest
11 price possible. As such, we discern no clear error in the
12 bankruptcy court’s finding of good faith.
13 We make this determination with some unease. The amount of
14 energy which the parties have devoted to this litigation, and the
15 extraordinary degree of venom they have poured on each other,
16 make it clear that this case is more of a personal vendetta than
17 a rational attempt by the parties to protect their legitimate
18 interests. To say that either of these parties is acting in
19 “good faith” stretches the common meaning of that phrase to the
20 breaking point. But the case law ascribes a special meaning to
21 the phrase in the context of § 363(m). Given that definition, we
22 cannot say that the bankruptcy court erred.
23 But all of this assumes that § 363(m) applies. We have
24 repeatedly held that a transaction presented as a settlement of
25 litigation often must be analyzed both as a settlement under
26 Rule 9019 and as a sale under § 363(m). See Goodwin v. Mickey
27 Thompson Entm’t Grp., Inc. (In re Mickey Thompson Entm’t Grp.,
28 Inc.), 292 B.R. 415, 421 (9th Cir. BAP 2003). The converse is
11
1 also true: a transaction presented as a sale that is in substance
2 a settlement under Rule 9019 must be analyzed under both
3 provisions. See In re Lahijani, 325 B.R. at 290;
4 In re Fitzgerald, 428 B.R. at 884.
5 The hybrid nature of the motion is important here because,
6 while § 363(m) applies to sales, no comparable provision applies
7 to settlements under Rule 9019. Further, applying § 363(m) to
8 settlements would not further that subsection’s purpose.
9 Section 363(m) is intended to increase the confidence of
10 purchasers in bankruptcy sales and then encourage them to buy
11 estate assets for higher prices. See In re Ernst Home Ctr.,
12 Inc., 209 B.R. 974, 986 (Bankr. W.D. Wash. 1997) (“The intent of
13 Section 363(m) is to encourage third parties to do business with
14 a debtor in possession, by providing certainty and finality to a
15 transaction where consideration is paid in good faith to the
16 estate by that third party.”). This purpose is not directly
17 related to settlements.
18 We therefore conclude that this appeal is not statutorily
19 moot under § 363(m).
20 2. Equitable mootness
21 Equitable mootness requires “that practical and equitable
22 factors should be taken into consideration in determining if an
23 appeal is moot.” Twenty-Nine Palms Enters. Corp. v. Bardos
24 (In re Bardos), BAP No. CC-13-1316, 2014 WL 3703923, at *6 (9th
25 Cir. BAP July 25, 2014). Equitable mootness arises when
26 “appellants have failed and neglected diligently to pursue their
27 available remedies to obtain a stay of the objectionable orders
28 of the Bankruptcy Court, thus ‘permitting such a comprehensive
12
1 change of circumstances to occur as to render it inequitable
2 . . . to consider the merits of the appeal.” Id. (quoting Focus
3 Media, Inc. v. NBC (In re Focus Media, Inc.), 378 F.3d 916, 922
4 (9th Cir. 2004)). The party asserting equitable mootness must
5 “demonstrate that the case involves transactions ‘so complex or
6 difficult to unwind’ that equitable mootness applies.” Id. at *7
7 (quoting Lowenschuss v. Selnick (In re Lowenschuss), 170 F.3d
8 923, 933 (9th Cir. 1999)). “Equitable mootness requires the
9 court to look beyond impossibility of a remedy to ‘the
10 consequences of the remedy and the number of third parties who
11 have changed their position in reliance on the order that is
12 being appealed.’” Clear Channel Outdoor, Inc. v. Knupfer
13 (In re PW, LLC), 391 B.R. 25, 33 (9th Cir. BAP 2008) (quoting
14 Darby v. Zimmerman (In re Popp), 323 B.R. 260, 271 (9th Cir. BAP
15 2005)).
16 The Trustee argues that this appeal is equitably moot,
17 because the state appellate court dismissed the appeal, and that
18 order is final and non-appealable. Mr. Avetoom adds that other
19 litigation has been dismissed because the appeal has been
20 dismissed.
21 While perhaps unlikely, it may not be impossible for the
22 Fridmans to obtain effective relief if we were to reverse. We
23 cannot rule out the possibility that the California appellate
24 courts might exercise their inherent powers6 to set aside the
25
6
26 The California state courts have broad inherent powers to
effect justice. See, e.g., Clark v. First Union Sec., Inc.,
27 153 Cal. App. 4th 1595, 1608 (2007) (“All courts have inherent
powers that enable them to carry out their duties and ensure the
28 (continued...)
13
1 dismissal of the appeal if we were to rule that the bankruptcy
2 court should not have put Mr. Avetoom in control of the appeal
3 rights. Similarly, Mr. Avetoom does not give us enough
4 information about the other dismissed litigation to persuade us
5 that the transaction cannot be unwound.
6 Moreover, the HOA is the only third party affected by this
7 case. But because the HOA was a party to the underlying
8 litigation, the HOA is not the type of third party that the
9 equitable mootness doctrine was meant to shield. See Bardos v.
10 Gladstone (In re Bardos), BAP No. CC–15–1217–FDKu, 2016 WL
11 1161225, at *6 (9th Cir. BAP Mar. 23, 2016) (“While it is true
12 that Twenty-Nine Palms is not a party to this appeal, it is the
13 largest creditor and a participant in both the Individual Case
14 and the Corporate Case. Accordingly, we cannot say that Twenty-
15 Nine Palms is the type of third party that equitable mootness is
16 meant to protect.”). Also, there is no indication that the HOA
17 or other third parties have changed their positions in reliance
18 on the Sale Order.
19 Thus, the appeal is not equitably moot.
20 B. The Fridmans’ right to appeal the adverse state court
judgment is property of their bankruptcy estate that the
21 Trustee can sell or compromise.
22 The Fridmans argue that the Trustee had no power to sell the
23 right to appeal. Essentially, they contend that, because the
24 sale of the right to appeal to Mr. Avetoom forecloses the
25
26 6
(...continued)
27 orderly administration of justice. The inherent powers of courts
are derived from California Constitution, article VI, section 1,
28 and are not dependent on statute.”).
14
1 possibility of reversing the state court judgment, the sale is
2 improper and against their “Constitutional right” of appeal. We
3 disagree.
4 The right to appeal a state court judgment is property that
5 is part of a debtor’s estate. See, e.g., McCarthy v. Goldman
6 (In re McCarthy), BAP No. CC-07-1083-MoPaD, 2008 WL 8448338, at
7 *16 (9th Cir. BAP Feb. 19, 2008) (implicitly agreeing with the
8 bankruptcy court that the debtor’s “Appeal Rights are property of
9 the estate”); In re Marciano, No. 1:11-BK-10426-VK, 2012 WL
10 4369743, at *1 (C.D. Cal. Sept. 25, 2012) (under California law,
11 the right to appeal an adverse judgment is a property right);
12 Mozer v. Goldman (In re Mozer), 302 B.R. 892, 896 (C.D. Cal.
13 2003) (“all of the Debtors’ appellate rights, including the
14 Defensive Appellate Rights, are saleable by the Trustee”).
15 The Fridmans fail to provide any legal authority in support
16 of their position. Rather, as discussed above, a right to appeal
17 may be sold as part of estate assets, even to the party against
18 whom the appeal is directed. See In re Mozer, 302 B.R. at 896.
19 The fact that Mr. Avetoom purchased the appeal rights to
20 foreclose an appeal of the state court judgment in his favor is
21 not out of the ordinary or otherwise improper.
22 The Fridmans also argue that the Trustee could not sell the
23 appeal rights to Mr. Avetoom, because he had already sold those
24 rights to them. The Fridmans misapprehend the bankruptcy
25 process. While it is true that the Trustee initially entered
26 into an agreement with the Fridmans to abandon the appeal rights,
27 the Trustee had no power to abandon or sell the appeal rights to
28 anyone absent court approval, and the bankruptcy court never
15
1 approved the abandonment to the Fridmans.
2 The Fridmans complain that the Trustee kept part of the
3 funds he received pursuant to the compromise, even though the
4 court never approved the compromise and the Trustee did not carry
5 out his end of the deal. The record on this issue is opaque, but
6 the Trustee apparently handled the funds in accordance with the
7 bankruptcy court’s orders that no one appealed. In any event,
8 the only issue before us is whether the court erred in approving
9 the transaction with Mr. Avetoom.
10 Therefore, the right to appeal was property of the
11 bankruptcy estate that the Trustee could choose to sell or
12 auction.
13 C. The bankruptcy court did not abuse its discretion in
granting the Sale Motion.
14
15 The Fridmans contend that the sale of the appeal rights to
16 Mr. Avetoom was improper for a number of reasons. Although the
17 Fridmans do not state a legal basis for their position, we
18 consider whether the Sale Order was proper under § 363 and
19 Rule 9019.
20 1. The sale was proper under § 363(b)(1).
21 Section 363(b)(1) provides that “[t]he trustee, after notice
22 and a hearing, may use, sell, or lease, other than in the
23 ordinary course of business, property of the estate . . . .”
24 § 363(b)(1). “The trustee (and, ultimately, the bankruptcy
25 court) must assure that the estate receives optimal value as to
26 the asset to be sold.” DeBilio v. Golden (In re DeBilio),
27 BAP No. CC-13-1441-TaPaKi, 2014 WL 4476585, at *6 (9th Cir. BAP
28 Sept. 11, 2014) (citing § 363(b)(1); Simantob v. Claims
16
1 Prosecutor, LLC (In re Lahijani), 325 B.R. 282, 288-89 (9th Cir.
2 BAP 2005)). “Ordinarily, the position of the trustee is afforded
3 deference, particularly where business judgment is entailed in
4 the analysis or where there is no objection. Nevertheless,
5 particularly in the face of opposition by creditors, the
6 requirement of court approval means that the responsibility
7 ultimately is the court’s.” In re Lahijani, 325 B.R. at 289. We
8 also stated that, “[i]n the Ninth Circuit, a § 363(b)(1) sale
9 does not require a good faith finding.” Id. (citing
10 In re Thomas, 287 B.R. at 785 (“While no bankruptcy judge is
11 likely to approve a sale that does not appear to be in ‘good
12 faith,’ an actual finding of ‘good faith’ is not an essential
13 element for approval of a sale under § 363(b).”)).
14 In its tentative ruling (incorporated in the Sale Order),
15 the court held:
16 The trustee has exercised sound business judgment
in pursuing the sale of the Appeal Rights. The
17 proposed sale will generate funds in the amount of
$25,000 for the benefit of the bankruptcy estate. The
18 alternative, prosecuting the appeal, would result in
the incurring of additional attorneys fees and, best
19 case scenario, a reduction of Avatoom’s [sic] claim
against the estate. Given the nature of the asset, the
20 proposed sale is fair and reasonable.
21 There is no evidence of any fraud or collusion
between the purchaser, Avatoom [sic], and the court
22 finds that the transaction was negotiated and proposed
in good faith. Further, the trustee and the trustee
23 [sic] has sought competitive bids for the Appeal Rights
from those most interested -- Debtors and the Darline
24 [sic] & Risbrough law firm but neither has expressed an
intent to submit an overbid. In this regard, the court
25 also finds that the proposed overbid procedure
(starting at $26,000 with subsequent overbids in
26 increments of $1000) to be reasonable. As the trustee
has a duty to maximize the liquidation of assets of the
27 estate, it follows that no limit should be placed on
the purchase price.
28
17
1 The court properly determined that: (1) the sale had a sound
2 business purpose of bringing money into the estate; (2) the sale
3 was in the best interest of the estate, because the sale price
4 was fair and reasonable, and it would bring in $25,000 or more
5 and avoid the cost and uncertainty of further litigation; (3) the
6 Trustee marketed the asset and sought competitive bids from the
7 Fridmans and Darling & Risbrough; and (4) the sale was proposed
8 and made in good faith, because there was no fraud or collusion.
9 We find no error in the court’s ruling.
10 The Fridmans allege that Mr. Avetoom was allowed to select
11 the chapter 7 trustee overseeing his case; there was “collusion
12 between Mr. Avetoom and Trustee Anderson, but nobody listened,
13 and if they did, no one cared enough to stop it”; the Trustee was
14 self-interested and was only concerned about his commission; and
15 it was improper for Mr. Avetoom to overbid. The Fridmans provide
16 no support for these allegations,7 and we find no basis in the
17 record for any of them.
18 The Fridmans also argue that good faith requires an
19 “identifiable purchaser” who gives “value.” They contend that
20 Mr. Avetoom cannot be an “identifiable purchaser” because he
21 “said he got the money from several different generous sources,
22 presumably ‘people,’ but never disclosed their identities[,]”
23 which “reeks of a sham transaction, or raises questions of the
24 involvement of money that has potentially been laundered.” The
25
7
26 The record suggests that the Trustee was elected under
§ 702. This may be the basis for the Fridmans’ argument that
27 Mr. Avetoom chose the Trustee (since Mr. Avetoom is the largest
creditor). But there is nothing improper about the election of a
28 trustee.
18
1 Fridmans again have no legal authority for the proposition that a
2 purchaser in a bankruptcy sale must always identify the
3 purchaser’s funding sources. Nor have they offered any evidence
4 that Mr. Avetoom got any of the money from a tainted source.
5 They also argue that Mr. Avetoom could not have given
6 “value.” They say that value “has yet to be determined, because
7 the value of the appeal is only realized once it is heard.” They
8 assert that the Trustee did not consider the real value of the
9 right to appeal, which ranged from $1,000,000 (the original
10 judgment) to $720,000 (the purported value of their home) to
11 $375,000 (the “discounted sale price”) to “priceless” (the value
12 of their “vindication”). The Fridmans fail to recognize another
13 possibility: the appellate court might reject the appeal, in
14 which case the appeal rights were worthless. In any event, the
15 Fridmans’ argument leads to the absurd conclusion that a trustee
16 cannot settle an appeal, or sell the estate’s right to appeal,
17 until after the appeal has concluded. The bankruptcy court did
18 not err when it found that the Trustee properly exercised his
19 business judgment in selling those rights to the highest bidder
20 for $37,000.
21 We thus hold that the court did not abuse its discretion in
22 holding that the sale was proper under § 363(b)(1).
23 2. Viewing the transaction as a compromise under
Rule 9019, the bankruptcy court did not err.
24
25 Our inquiry does not end with § 363(b)(1). Fitzgerald and
26 Lahijani both considered the sale of litigation claims to a
27 person against whom those claims might be asserted. Both
28 decisions rest on the common-sense proposition that a “sale” of
19
1 claims to a defendant has the same effect as a settlement of
2 those claims, and vice versa, so such transactions should be
3 evaluated both as sales and as settlements. See In re Lahijani,
4 325 B.R. at 290; In re Fitzgerald, 428 B.R. at 884 (“The
5 bankruptcy court erred when it issued the Sale Order without
6 performing the analysis required by the case law regarding
7 compromises under Rule 9019.”).
8 Rule 9019(a) provides that, “[o]n motion by the trustee and
9 after notice and a hearing, the court may approve a compromise or
10 settlement. Notice shall be given to creditors, the United
11 States trustee, the debtor, and indenture trustees as provided in
12 Rule 2002 and to any other entity as the court may direct.”
13 Rule 9019(a).
14 “The bankruptcy court has great latitude in approving
15 compromise agreements.” Woodson v. Fireman’s Fund Ins. Co.
16 (In re Woodson), 839 F.2d 610, 620 (9th Cir. 1988) (citing
17 In re A&C Props., 784 F.2d at 1380-81).
18 It is clear that there must be more than a mere
good faith negotiation of a settlement by the trustee
19 in order for the bankruptcy court to affirm a
compromise agreement. The court must also find that
20 the compromise is fair and equitable. See, e.g.,
Citibank, N.A. v. Baer, 651 F.2d 1341, 1345–46 (10th
21 Cir. 1980).
22 In determining the fairness, reasonableness and
adequacy of a proposed settlement agreement, the court
23 must consider:
24 (a) The probability of success in the litigation;
(b) the difficulties, if any, to be encountered in
25 the matter of collection; (c) the complexity of
the litigation involved, and the expense,
26 inconvenience and delay necessarily attending it;
(d) the paramount interest of the creditors and a
27 proper deference to their reasonable views in the
premises.
28
20
1 In re A&C Props., 784 F.2d at 1381 (citation omitted). The Ninth
2 Circuit has also stated that “[t]he trustee, as the party
3 proposing the compromise, has the burden of persuading the
4 bankruptcy court that the compromise is fair and equitable and
5 should be approved.” Id. (citing In re Hallet, 33 B.R. 564,
6 565–66 (Bankr. D. Me. 1983)).
7 The law favors compromise, “and as long as the bankruptcy
8 court amply considered the various factors that determined the
9 reasonableness of the compromise, the court’s decision must be
10 affirmed. Thus, on review, we must determine whether the
11 settlement entered into by the trustee was reasonable, given the
12 particular circumstances of the case.” Id. (internal citations
13 omitted).
14 Moreover, “‘[w]hen assessing a compromise, courts need not
15 rule upon disputed facts and questions of law, but only canvass
16 the issues.’ If the court were required to do more than canvass
17 the issue, ‘there would be no point in compromising; the parties
18 might as well go ahead and try the case.’” Suter v. Goedert,
19 396 B.R. 535, 548 (D. Nev. 2008) (citations omitted).
20 In the present case, the bankruptcy court acknowledged that
21 the sale may be subject to Rule 9019. Neither the tentative
22 ruling nor the counsel-prepared Sale Order indicates that the
23 bankruptcy court engaged in the analysis required by A&C
24 Properties. But we cannot conclusively say that the court did
25 not consider Rule 9019 and make appropriate findings at the
26 hearing. We cannot review the oral ruling because the Fridmans
27 have not provided us with the hearing transcript.
28 Without the benefit of the hearing transcript, we are unable
21
1 to discern (1) whether the bankruptcy court identified the proper
2 legal standard and (2) whether the bankruptcy court’s application
3 of the legal standard was illogical, implausible, or “without
4 support in inferences that may be drawn from the facts in the
5 record.” Hinkson, 585 F.3d at 1261–62.
6 It is the Fridmans’ duty to provide the Panel with a
7 complete record on appeal. See Welther v. Donell (In re Oakmore
8 Ranch Mgmt.), 337 B.R. 222, 226 (9th Cir. BAP 2006) (the
9 appellant “bears the burden of presenting a complete record”)
10 (citing Kritt v. Kritt (In re Kritt), 190 B.R. 382, 387 (9th Cir.
11 BAP 1995)). “The settled rule on transcripts in particular is
12 that failure to provide a sufficient transcript may, but need
13 not, result in dismissal or summary affirmance and that the
14 appellate court has discretion to disregard the defect and decide
15 the appeal on the merits.” Kyle v. Dye (In re Kyle), 317 B.R.
16 390, 393 (9th Cir. BAP 2004), aff’d, 170 F. App’x 457 (9th Cir.
17 2006) (citations omitted). But see Ehrenberg v. Cal. State Univ.
18 (In re Beachport Entm’t), 396 F.3d 1083, 1087 (9th Cir. 2005)
19 (“Although summary dismissal is within the BAP’s discretion, it
20 ‘should first consider whether informed review is possible in
21 light of what record has been provided.’”).
22 Even if the court did not articulate an analysis of the
23 A&C Properties factors, we may affirm on any ground supported by
24 the record. See California ex. rel. Cal. Corps. Comm’r v. Yun
25 (In re Yun), 476 B.R. 243, 251 (9th Cir. BAP 2012). There is no
26 doubt that the record supports a determination that the test is
27 satisfied. Therefore, we find no error concerning the
28 application of Rule 9019.
22
1 D. The Fridmans’ argument that the HOA is not a bona fide
creditor is untimely and irrelevant.
2
3 Next, the Fridmans argue that the court erred, because the
4 HOA was not a bona fide creditor under 28 U.S.C. § 1359. We
5 perceive no error.
6 28 U.S.C. § 1359 (incorrectly cited by the Fridmans as
7 23 U.S.C. § 1359) states: “A district court shall not have
8 jurisdiction of a civil action in which any party, by assignment
9 or otherwise, has been improperly or collusively made or joined
10 to invoke the jurisdiction of such court.” Although the Fridmans
11 invoke this section, they fail to explain how it is relevant to
12 this appeal or how the HOA was “improperly or collusively made or
13 joined” in the bankruptcy court litigation. Their bottom-line
14 argument appears to be that, because the HOA is colluding with
15 Mr. Avetoom, it was an error to sell the appeal rights to
16 Mr. Avetoom.
17 The Fridmans did not raise this argument before the
18 bankruptcy court and have waived this argument for the purposes
19 of appeal. See Yamada v. Nobel Biocare Holding AG, No. 14-55263,
20 --- F.3d ----, 2016 WL 3207650, at *5 (9th Cir. Apr. 20, 2016)
21 (“[g]enerally, an appellate court will not hear an issue raised
22 for the first time on appeal”); Ezra v. Seror (In re Ezra),
23 537 B.R. 924, 932 (9th Cir. BAP 2015) (“Ordinarily, federal
24 appellate courts will not consider issues not properly raised in
25 the trial courts.”). No exceptional circumstances warrant our
26 review of these issues in the first instance on appeal. See
27 In re Ezra, 537 B.R. at 932.
28 Moreover, the Fridmans incorrectly argue that only creditors
23
1 can bid in a bankruptcy sale. The Trustee is tasked with
2 realizing the greatest profit when selling estate assets, and
3 limiting sales only to creditors would not serve this purpose.
4 Further, the HOA ultimately did not bid.
5 Accordingly, the Fridmans waived their argument concerning
6 the HOA’s standing as a creditor, and, in any event, the argument
7 is unpersuasive.
8 E. The Fridmans’ argument that the sale is subject to DHS
jurisdiction is untimely and irrelevant.
9
10 Finally, the Fridmans contend that the funds that
11 Mr. Avetoom used to purchase the right to appeal are of suspect
12 origin and should have been scrutinized by the DHS. Again, we
13 discern no error.
14 The Fridmans did not raise this argument before the
15 bankruptcy court, and we deem it waived on appeal. See id.
16 Even if we were to consider the merits of the Fridmans’
17 argument, they do not identify any error. The Fridmans offer no
18 evidence that Mr. Avetoom’s funds are from some nefarious source.
19 They do not provide any authority for their assertion that all
20 transactions of more than $5,000 are subject to DHS review.
21 Nor do we find any merit in the Fridmans’ implication that
22 the Trustee behaved improperly or abused his position.
23 Accordingly, we reject this unsupported argument.
24 CONCLUSION
25 For the reasons set forth above, we AFFIRM the bankruptcy
26 court’s order approving the sale of the Fridmans’ appeal rights
27 to Mr. Avetoom.
28
24