Lowery v. Channel Commucation ( 2008 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
In re: CELLULAR 101, INC., 
Debtor,
PATRICK T. LOWERY; CELLULAR No. 06-55779
101, INC.,
Appellants,  BAP No.
CC-05-01093-HBK
v.
OPINION
CHANNEL COMMUNICATIONS, INC.;
JOHN PRICE; UNITED STATES
TRUSTEE,
Appellees.

Appeal from the Ninth Circuit
Bankruptcy Appellate Panel
Klein, Brandt, and Haines, Bankruptcy Judges
Argued and Submitted
February 15, 2008—Pasadena, California
Filed August 21, 2008
Before: Stephen S. Trott, Richard R. Clifton, and
Consuelo M. Callahan, Circuit Judges.
Opinion by Judge Clifton
11311
IN RE: CELLULAR 101 11313
COUNSEL
Timothy J. Lowery (argued); William E. Winfield, Susan M.
Seemiller, Nordman Cormany Hair & Compton LLP, Oxnard,
California, for the appellants.
Kenneth P. Roberts (argued), Kenneth P. Roberts, APLC,
Woodland Hills, California, for the appellees.
OPINION
CLIFTON, Circuit Judge:
The question posed by this case is whether a party’s failure
to timely inform the court of appeals of a settlement that it
11314 IN RE: CELLULAR 101
believes disposes of a pending appeal precludes the party
from asserting the affirmative defense of settlement and
release in a later proceeding. Over its objection, Chapter 11
debtor Cellular 101, Inc. was ordered to pay an administrative
claim of approximately $200,000. Cellular 101 appealed the
order to this court. While the appeal was pending, Cellular
101 entered into a settlement agreement that it believed
released the claim. Rather than advise the court of appeals of
the settlement, though, Cellular 101 continued to pursue its
appeal on other grounds. That effort proved unsuccessful, as
we affirmed the award. After it lost on appeal, Cellular 101
tried to fend off payment of the award by raising a settlement
and release defense. The bankruptcy court and the Bankruptcy
Appellate Panel (BAP) both concluded that it was too late for
Cellular 101 to unveil that argument and ordered disburse-
ment of funds to pay the administrative claim. We agree and
affirm, answering “Yes” to the question posed above.
I. Background
This case arises out of a bankruptcy court order in 2001
awarding $206,317.60 to Channel Communications, Inc. and
John Price from the estate of Cellular 101, for attorneys’ fees
and costs incurred in connection with Cellular 101’s Chapter
11 proceedings. The details of that award are not necessary
for resolution of the current appeal, but some understanding
of the relationship among the players and the genesis of the
award may be helpful.
As its name suggests, Cellular 101 sold wireless telephone
services and equipment in Santa Barbara, California. It did so
as an agent of Channel, which was an authorized AT&T wire-
less services dealer. Cellular 101 was thus a subdealer of
AT&T wireless services in the area. At the time the relevant
events began, Channel was entirely owned by John Price and
his wife. Cellular 101 had a right of first refusal if Price sold
Channel.
IN RE: CELLULAR 101 11315
AT&T sought to terminate its contract with Channel, com-
plaining that Channel and Cellular 101 engaged in improper
business practices. To resolve their dispute, Price and AT&T
agreed that Price would sell a controlling interest in Channel
to AT&T. AT&T and Channel took the position that the sale
would not trigger Cellular 101’s right of first refusal because
it would involve a transfer of only 80 percent of Channel’s
shares, and they left Cellular 101 out of the deal. Cellular 101
saw things differently and sued AT&T in state court for inter-
ference with its business. Cellular 101 also filed a petition for
reorganization under Chapter 11 in bankruptcy court.
Once in bankruptcy court, Cellular 101 failed to present a
reorganization plan. After the statutory period of exclusivity
expired, Price, Channel, and AT&T jointly filed a reorganiza-
tion proposal that permitted the partial sale of Channel to
AT&T to go forward and included a payment to Cellular 101
of nearly $2 million from the proceeds. The plan also permit-
ted Cellular 101 to continue to prosecute its lawsuit against
AT&T. The bankruptcy court approved the plan over Cellular
101’s objections.
Shortly thereafter, Channel and Price filed an administra-
tive priority claim seeking $495,252.83 in attorneys’ fees and
costs pursuant to 11 U.S.C. § 503(b) for their “substantial
contribution” to Cellular 101’s reorganization. The bank-
ruptcy court granted the claim, in a reduced amount, over the
objection of Cellular 101. It awarded $175,000 in fees and
$31,317.60 in expenses, for a total of $206,317.60. Cellular
101 appealed to the district court, which affirmed. Cellular
101 then filed its first appeal to this court. See Cellular 101,
Inc. v. Channel Commc’ns, Inc. (In re Cellular 101, Inc.), 377
F.3d 1092 (9th Cir. 2004).
After briefing, but before oral argument, Cellular 101 exe-
cuted a settlement agreement with AT&T, resolving the state
court lawsuit. According to Cellular 101, the broad language
of the agreement’s irrevocable release of all claims against
11316 IN RE: CELLULAR 101
Cellular 101 held by AT&T, its subsidiaries, predecessors, or
affiliates, also encompassed the administrative claim of Chan-
nel and Price against Cellular 101.1 Cellular 101 did not
inform this court of the settlement, however, or argue to us
that the settlement released the administrative claim that was
the subject of the appeal. Instead, the questions Cellular 101
presented on appeal concerned only the statutory basis for the
claim. Id. at 1094. Specifically, Cellular 101 argued that Price
and Channel were ineligible to recover fees and costs under
11 U.S.C. § 503(b) for their assistance in Cellular 101’s reor-
ganization because (1) Price was not a “creditor” of the estate,
(2) Channel did not “substantially contribute” to the reorgani-
zation plan, and (3) Price and Channel acted in their own self
interest. Id. at 1095-98. Unaware of the settlement agreement
or of its potential impact on the dispute, we issued a published
opinion considering and rejecting Cellular 101’s arguments
and affirming the bankruptcy court’s award in full. Id.Shortly after our decision, Price and Channel filed a motion
with the bankruptcy court to disburse the funds held to pay
their administrative claim. At that point Cellular 101 asserted
that the claim had been released by its agreement with AT&T.
In an oral ruling, the bankruptcy court held that the AT&T
settlement agreement did not apply to the administrative claim
and ordered disbursement of the funds. The court also noted
that, if the release did apply to the administrative claim, as
Cellular 101 asserted, then the prior appeal was
moot by the time that it got to the Ninth Circuit for
oral argument, [and the argument] certainly could
have been and should have been raised there. If this
ultimately goes back up to the Ninth Circuit, I won-
1
Cellular 101 offered a number of theories to explain why AT&T had
the power to release Price’s interest in the claim, including (1) that Price
was a predecessor in interest or affiliate of AT&T and (2) that Channel
had become a subsidiary of AT&T and the claim was a joint claim of Price
and Channel subject to release by either joint claimant.
IN RE: CELLULAR 101 11317
der what kind of reception it would get when the
Ninth Circuit finds out, “Well, you were rolling the
dice to see if the judge on — below would get
reversed. Otherwise, you’ve got another arrow in
your quiver.” I think you have to shoot all the arrows
at one time.
Cellular 101 appealed again, but chose to present its appeal
to the BAP rather than to the district court. The BAP affirmed
the bankruptcy court’s disbursement order, declining to reach
the merits of Cellular 101’s argument that its settlement with
AT&T released Channel and Price’s joint administrative
claim on behalf of Price. It simply held that Cellular 101 had
an obligation to raise the release issue when it was before the
Ninth Circuit previously because “the alleged release would
have mooted the appeal.” The BAP concluded that Cellular
101 had therefore waived the argument. Cellular 101 peti-
tioned for rehearing, arguing that a party cannot waive a
mootness defense because it is jurisdictional. The BAP denied
the petition, stating that Cellular 101 had not raised a moot-
ness defense, only the non-jurisdictional affirmative defense
of settlement and release. Cellular 101 timely appealed.
II. Discussion
We review decisions of the BAP de novo. Price v. U.S. Tr.
(In re Price), 353 F.3d 1135, 1138 (9th Cir. 2004); Christian
Life Ctr. Litig. Def. Comm. v. Silva (In re Christian Life Ctr.),
821 F.2d 1370, 1373 (9th Cir. 1987). We review the bank-
ruptcy court’s conclusions of law de novo and its factual find-
ings for clear error. See Price, 353 F.3d at 1135; see also
Salazar v. McDonald (In re Salazar), 430 F.3d 992, 994 (9th
Cir. 2005).
The litigation over this administrative claim has been going
on since 2001, and the parties have fought their way over the
issue from the bankruptcy court to this court twice, passing
through the district court and the BAP one time each along
11318 IN RE: CELLULAR 101
the way. As a result, the matter has now been considered by
no fewer than eleven judges and is the subject of two pub-
lished opinions of this court. Cellular 101 contends that it has
followed proper procedure and that it was appropriate for it to
wait to raise its settlement defense when it did. We disagree.
[1] The Supreme Court has held that all counsel have a
duty “to bring to the federal tribunal’s attention, without
delay, facts that may raise a question of mootness.” Arizonans
for Official English v. Arizona, 520 U.S. 43, 68 n.23 (1997)
(internal quotations, citations and emphasis omitted). Accord-
ing to the argument now made by Cellular 101, its settlement
with AT&T released Channel and Price’s administrative
claim and rendered the litigation moot. That happened while
Cellular 101’s first appeal was pending before this court, as
Cellular 101 was necessarily aware. Cellular 101 had an obli-
gation to inform the court of the settlement and its belief that
the claim had been released.
[2] The obligation to inform the court of a potential settle-
ment is of such critical importance to the maintenance of
orderly proceedings and to the prevention of needless delay
that a lawyer who fails to fulfill that obligation may be per-
sonally subject to sanctions. See Gould v. Bowyer, 11 F.3d 82,
84 (7th Cir. 1993) (“[I]n order to spare busy courts unneces-
sary work, parties must advise a court when settlement is
imminent. . . . The duty is implicit in the characterization of
lawyers as officers of the court, and a breach of it therefore
opens a lawyer to sanctions.”) (citation omitted); see also
DHX, Inc. v. Allianz AGF MAT, Ltd., 425 F.3d 1169, 1174-75
(9th Cir. 2005) (Beezer, J., concurring) (noting that “[w]e are
engaged to decide live cases or controversies as presented by
the attorneys of record, and it is not for a court to smoke out
who settled with whom,” and that the “failure to promptly dis-
close” complete and accurate settlement information is “sanc-
tionable conduct”). A party claiming the benefit of a
settlement is no less accountable.
IN RE: CELLULAR 101 11319
[3] Cellular 101’s current appeal rests upon the premise
that the AT&T agreement released the administrative claim.
But if that is true now, it was true when Cellular 101 appeared
before this court the first time. Even if we assume that Cellu-
lar 101 knew that Channel and Price would contest the asser-
tion that the AT&T agreement released their claim, Cellular
101 still should have brought the agreement to the court’s
attention. If the court ultimately concluded that the claim was
released, the disclosure would have obviated the need for the
court to resolve the other issues raised in the first appeal. At
a minimum, knowledge of the agreement and the parties’
arguments would have permitted the court to determine, logi-
cally and properly, which issues it needed to reach and in
what order they should be addressed. Cellular 101 chose,
instead, to arrogate to itself the power to make those judg-
ments. Cellular 101 elected to try to win its appeal with the
arguments it had already briefed, presumably hoping that if it
lost, it could try for a second bite at the apple by raising the
release defense afterwards. Regardless of Cellular 101’s
motives, we cannot permit the court to be subject to such
manipulation. We conclude that by failing to raise the release
issue in the prior appeal, Cellular 101 waived its right to
assert the defense in subsequent proceedings.
[4] Settlement and release is an affirmative defense and is
generally waived if not asserted in the answer to a complaint.
See FED. R. CIV. P. 8(c) (“In responding to a pleading, a party
must affirmatively state any avoidance or affirmative defense,
including: . . . release”); Metcalf v. Golden (In re Adbox, Inc.),
488 F.3d 836, 841 (9th Cir. 2007).2 Even though Cellular 101
2
Although, consistent with our prior decisions, we use the term waiver
here to describe the loss of an affirmative defense through the failure to
raise it in a timely manner, a more accurate term may be forfeiture. See
United States v. Olano, 507 U.S. 725, 731 (1993) (holding that “a consti-
tutional right, or a right of any other sort, may be forfeited in criminal as
well as civil cases by the failure to make timely assertion of the right
before a tribunal having jurisdiction to determine it”) (internal quotations
11320 IN RE: CELLULAR 101
could not have asserted the defense at the pleading stage
because its settlement with AT&T did not occur until Cellular
101’s first appeal was already pending, Cellular 101 had an
opportunity and an obligation to raise the issue at that time
because the purported release, in its view, mooted the appeal.
[5] We have held that we “need not and do not consider a
new contention that could have been but was not raised on the
prior appeal.” Munoz v. County of Imperial, 667 F.2d 811,
817 (9th Cir. 1982). Permitting a case to proceed to a decision
on the merits before asserting a previously available defense
“undermines the integrity of the judicial system,” “wastes
judicial resources,” and “imposes substantial costs upon the
litigants.” Hill v. Blind Indus. & Servs., 179 F.3d 754, 756
(9th Cir. 1999); see also Fogel v. Chestnutt, 668 F.2d 100,
109 (2d Cir. 1981) (Friendly, J.) (“It would be absurd that a
party who has chosen not to argue a point on a first appeal
should stand better as regards the law of the case than one
who had argued and lost.”).
We already decided that Cellular 101 is required to pay
Price and Channel’s administrative claim, when it affirmed
the bankruptcy court’s order. Cellular 101, Inc., 377 F.3d at
1098. That decision has achieved finality. It is the law of the
case, and Cellular 101 may not now attack it on a ground that
it had a fair opportunity to argue previously. Munoz, 667 F.2d
at 817.3
and citations omitted). The term forfeiture may also be more precise
because the “waiver” in this context need not be knowing or intentional.
See id. at 733 (clarifying that “[w]hereas forfeiture is the failure to make
the timely assertion of a right, waiver is the intentional relinquishment or
abandonment of a known right”) (internal quotations and citations omit-
ted); see also Harris v. Sec’y, U.S. Dep’t of Veterans Affairs, 126 F.3d
339, 343 n.2 (D.C. Cir. 1997) (discussing the potential inaccuracy of the
term waiver and holding that “[t]he failure to plead need not be intentional
for the party to lose its right to raise the defense”).
3
Cellular 101 maintains that the failure to raise an issue in a prior appeal
does not result in waiver, citing U-Haul International, Inc. v. Jartran, Inc.,
IN RE: CELLULAR 101 11321
Cellular 101 contends that it properly waited until its case
was remanded to the bankruptcy court before raising its settle-
ment and release defense because it accurately anticipated that
Price and Channel would contest the applicability of the
release to their claim and because the viability of the defense
turned on facts not present in the appellate record. It argues
that the defense therefore could not have been raised previ-
ously because it did not fit within the three exceptions to the
general rule that appellate courts will not consider an issue
raised for the first time on appeal: (1) where “review is neces-
sary to prevent a miscarriage of justice or to preserve the
integrity of the judicial process,” (2) “when a new issue arises
while appeal is pending because of a change in the law,” or
(3) “when the issue presented is purely one of law and either
does not depend on the factual record developed below, or the
pertinent record has been fully developed.” Bolker v. Comm’r,
760 F.2d 1039, 1042 (9th Cir. 1985). Cellular 101 insists that
even if it had raised the release issue during the prior appeal,
we would have been required to remand the matter for factual
findings, implying that its failure to inform the court of the
settlement agreement was harmless and should be without
consequence.
First, the above list of exceptions is not exhaustive. Appel-
late courts may always consider challenges to their jurisdic-
tion, including any relevant factual developments, regardless
of whether the issue was raised below. See Lowry v. Barnhart,
329 F.3d 1019, 1024 (9th Cir. 2003) (discussing when a court
may look outside the district court record and noting that
“[c]onsideration of new facts may even be mandatory, for
example, when developments render a controversy moot and
793 F.2d 1034 (9th Cir. 1986). U-Haul involved a prior interlocutory
appeal, however, where the court’s jurisdiction was limited to consider-
ation of a specific issue. Id. at 1037-38. Accordingly, the other issues
raised in the later appeal could not have been raised previously, because
the court of appeals did not have jurisdiction over them, and the appellant,
unlike Cellular 101, did not forgo any opportunity to present its arguments
or defenses at an earlier time. Id.11322 IN RE: CELLULAR 101
thus divest us of jurisdiction”). That there actually be an
ongoing dispute to resolve is a prerequisite for jurisdiction.4
Second, the question of whether the release applied to Price
and Channel’s administrative claim was arguably “purely one
of law” capable of being resolved by this court without
remand for factfinding, and thus may have fallen within the
third exception identified above. Cellular 101 argues that
AT&T, through its ownership and control of Channel, may
have released the claim held jointly by Price and Channel
because California Civil Code § 1475 provides that a release
by one joint claimant entirely releases a jointly held debt.
Relying on Hurley v. Southern California Edison Co., 183
F.2d 125, 131 (9th Cir. 1950), Cellular 101 maintains that the
validity of the release turns on its knowledge at the time of the
AT&T agreement, including whether it had reason to know
that AT&T would not account to Price, and that factfinding
and further development of the record was therefore neces-
sary. Had Cellular 101 apprised us of the AT&T settlement
during the first appeal, however, we might have held as a mat-
ter of law that the terms of the AT&T agreement were unam-
biguous and did not release Price and Channel’s
administrative claim. Alternatively, we could have concluded
that the provisions of California Civil Code § 1475, which
4
We have held that we lack jurisdiction over cases in which all the par-
ties have signed a settlement contract that we have interpreted as resolving
the issues on appeal. See, e.g., Lasar v. Ford Motor Co., 399 F.3d 1101,
1108-09 (9th Cir. 2005) (holding that a settlement applied only to the par-
ties to the agreement); Exxon Corp. v. Heinze, 32 F.3d 1399, 1400, 1403
(9th Cir. 1994) (declining to issue an advisory opinion reviewing a district
court order resolving claims both parties agreed were later settled).
Lest there be any doubt about the present appeal, we note that the par-
ties continue to contest the applicability of the settlement agreement, of
which Price is not a signatory. Although Cellular 101 may have an argu-
ment that Price’s right to collect the administrative claim was extinguished
by that agreement, we are satisfied that a live dispute requiring adjudica-
tion of the parties’ respective rights persists and that we therefore continue
to have jurisdiction over the case.
IN RE: CELLULAR 101 11323
pertain to obligations held by joint creditors, are simply inap-
plicable to joint administrative claims awarded in a bank-
ruptcy proceeding. Indeed, it appears that, when the case was
actually remanded, the bankruptcy court rejected Cellular
101’s settlement and release argument on the merits without
reference to any newly discovered evidence and without mak-
ing any findings regarding Cellular 101’s mental state.
Third, and most importantly, regardless of the likelihood
that remand for factfinding might have been necessary, the
decision whether and when to remand the matter was one for
the court to make, not Cellular 101. Cellular 101 usurped the
decision as to how the case should be organized when it pro-
ceeded with the arguments it had already presented on appeal
and elected not to advise the court of an event which it
believed disposed of the claim. The bankruptcy court was cor-
rect in its assessment that, having taken its shot, Cellular 101
does not get another opportunity to reach into its quiver for
another arrow. Cellular 101 did not have the right to compel
the court to reach Cellular 101’s other arguments and to
devote considerable effort to writing a published opinion,
prior to ascertaining whether the parties had already resolved
their dispute.
III. Conclusion
[6] Cellular 101 breached its duty to timely inform the
court that it had reached a settlement with AT&T that it
understood potentially mooted its prior appeal. As a conse-
quence of failing to timely raise the defense of settlement and
release, it waived or forfeited that defense. The BAP properly
affirmed the bankruptcy court’s order to disburse funds to pay
the administrative claim.
AFFIRMED.