In re: Erik Samuel De Jong and Daryl Lynn De Jong

FILED
AUG 03 2018
ORDERED PUBLISHED
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 Nos. AZ-17-1280-FSBa
AZ-17-1292-FSBa
ERIK SAMUEL DE JONG and DARYL (Cross-Appeals)
LYNN DE JONG,
Bk. No. 2:14-bk-00886-PS
Debtors.
ERIK SAMUEL DE JONG; DARYL LYNN
DE JONG,
Appellants/Cross-Appellees,
v. OPINION
JLE-04 PARKER, L.L.C.,
Appellee/Cross-Appellant.
Argued and Submitted on June 21, 2018
at Phoenix, Arizona
Filed – August 3, 2018
Appeal from the United States Bankruptcy Court
for the District of Arizona
Honorable Paul Sala, Bankruptcy Judge, Presiding
Appearances: Michael Warren Carmel argued on behalf of
appellants/cross-appellees Erik Samuel de Jong and Daryl
Lynn de Jong; Kiersten Ann Murphy of Henze Cook
Murphy, PLLC argued on behalf of appellee/cross-
appellant JLE-04 Parker, L.L.C.
Before: FARIS, SPRAKER, and BASON,* Bankruptcy Judges.
FARIS, Bankruptcy Judge:
INTRODUCTION
Chapter 111 debtors Erik Samuel de Jong and Daryl Lynn de Jong
(collectively “Debtors”) refused to vacate appellee JLE-04 Parker, L.L.C.’s
(“JLE”) property for a period of months following termination of their
lease. Instead, they continued their profitable dairy operation. After a trial,
the bankruptcy court awarded JLE damages based on disgorgement of the
relevant portion of the Debtors’ net profits plus the value of silage, a form
of cow feed, which the Debtors’ cows consumed after the lease terminated.
The court separately calculated the damages that accrued before and after
the Debtors filed their bankruptcy petition.
*
The Honorable Neil W. Bason, United States Bankruptcy Judge for the Central
District of California, sitting by designation.
1
Unless specified otherwise, all chapter and section references are to the
Bankruptcy Code, 11 U.S.C. §§ 101-1532.
2
This Panel affirmed the bankruptcy court’s judgment except for the
portion of the damages that consisted of the value of silage consumed
during the postpetition period. On remand, the bankruptcy court deducted
that portion from the total damages.
Both sides are dissatisfied.
The Debtors argue that the bankruptcy court should have also
reduced the damages by the value of silage consumed during the
prepetition period, even though the Panel did not address this point. We
reluctantly agree. In the first appeal, the Debtors argued at length that the
postpetition silage damages were improper; they only challenged the
prepetition silage damages in a single terse footnote. As a result, this
Panel’s prior decision was silent about the prepetition silage damages, and
our silence misled the bankruptcy court. We perceive no reason why the
prepetition and postpetition silage should be treated differently, and we
will adjust the judgment accordingly.
JLE cross-appeals, arguing that the bankruptcy court too narrowly
followed the Panel’s mandate and incorrectly calculated the other elements
of damages. We agree in part. Our mandate did not preclude the
bankruptcy court from recalculating all damages on remand. We agree
with one of JLE’s contentions about the award.
We therefore REVERSE and REMAND for entry of judgment in the
amount set forth below. We publish to clarify the rule of mandate.
3
FACTUAL BACKGROUND2
A. Prepetition events
The Debtors operated a dairy farm on real property (the “Property”)
owned by Sonora Desert Dairy, LLC. In May 2013, Sonora Desert Dairy,
which was a debtor in a separate bankruptcy case, informed the Debtors
that their lease would terminate on November 30. Separately, a foreclosure
sale of the Property was set for December 6. Despite reminders that they
needed to vacate the Property, the Debtors failed to do so.
Around this time, the Debtors inquired about moving their operation
to another farm owned by Brian Van Leeuwen (the “Van Leeuwen
Property”), but they learned that there was not enough room for all of the
cows. The Debtors were also worried about the silage inventory, which
they claimed would be worthless if they had to relocate.
JLE purchased the Property at the December 6 foreclosure sale, but
the Debtors refused to leave, insisting that the lease entitled them to stay on
the Property. JLE filed a forcible entry and detainer proceeding (“FED
Action”) in state court against the Debtors.
B. Bankruptcy events
The day before a scheduled trial in the FED Action, the Debtors filed
a chapter 11 petition. The bankruptcy court later modified the automatic
2
For a more comprehensive background, see de Jong v. JLE-04 Parker, LLC (In re de
Jong), BAP No. AZ-16-1337-JuLB, 2017 WL 2417189 (9th Cir. BAP June 2, 2017).
4
stay to allow the state court to hold the trial and determine the Debtors’
right to possession. It also ordered JLE not to pursue a writ of restitution or
otherwise enforce the judgment and prohibited JLE from removing or
repossessing livestock, personal property, or feed on the Property without
further order from the bankruptcy court.
Following trial, the state court found that the nonjudicial foreclosure
of the deed of trust terminated the Debtors’ leasehold interest, such that the
Debtors remained on the property “without any right to be there.”
JLE then asked the bankruptcy court to compel the Debtors to vacate
the Property. The bankruptcy court ordered the Debtors to vacate the
Property by June 1, 2014.3
JLE filed a proof of claim for over $8.8 million in damages arising
from the Debtors’ trespass. It sought damages measured mostly by the
disgorgement of the Debtors’ profits and its own lost profits.
By May 31, 2014, the Debtors had removed all of their cows from the
Property. They relocated their dairy operation to the Van Leeuwen
Property, including approximately 2,000 cows, but had to sell at auction
1,405 cows that could not fit on the smaller property.
The parties filed cross-motions for summary judgment on the issue of
3
Following the court’s ruling, Mr. de Jong sent a text message to one of JLE’s
creditors, bragging that he got exactly what he wanted from the bankruptcy court and
that he was “making a sh**load of money off his cows.” 2017 WL 2417189 at *5.
5
the Debtors’ trespass. The bankruptcy court ruled that the state court’s
judgment (that the Debtors were trespassers) was entitled to issue
preclusive effect and also independently found that the Debtors were
trespassers under Arizona law.
JLE filed an administrative claim for $7.9 million based on the
Debtors’ postpetition trespass and moved for summary judgment. The
bankruptcy court granted the motion in part as to the unlawful trespass.
However, the court denied summary judgment as to whether the trespass
was intentional and the extent to which the Debtors benefitted from the
trespass.
In November 2015, the bankruptcy court held a trial to
determine whether the Debtors’ trespass was conscious and the
appropriate measure of damages.
The bankruptcy court found that the Debtors were conscious
trespassers after the foreclosure sale on December 6, 2013. It held that the
Debtors were liable to JLE for the benefits that the Debtors received from
wrongfully staying on the Property. The court decided that the Debtors
realized two benefits from their retention of the Property: first, they earned
additional net profits from keeping a larger herd at the Property than they
could have maintained at the Van Leeuwen Property; and second, they
used silage that would otherwise have gone to waste.
To calculate net profits, the bankruptcy court began with the Debtors’
6
draft financial statement which indicated that the Debtors’ net income for
the first six months of 2014 was $2,762,587. (In doing so, it rejected JLE’s
argument that the court should use the monthly operating reports to
determine net income.) The court adjusted this amount to reflect that the
relevant period for purposes of damages was December 6, 2013 to May 31,
2014.
The bankruptcy court then subtracted the Debtors’ profit realized
from the sale of the cows ($1,050,835), because the court determined that
the Debtors would have earned the same profit even if they had not
remained on the Property after the lease was terminated. The total net
profit was $1,711,752.
The court prorated the net profits between the prepetition period and
the postpetition period based on the number of days in each period (forty-
seven days and 128 days, respectively).
Finally, the court further reduced the net profits component of the
damages by about sixty percent because the Debtors could have moved
about sixty percent of their herd to the Van Leeuwen Property and made a
corresponding profit. The court explained that:
The Debtors directly benefitted to the extent they profited from
being able to use the 1405 cows that they could not use on the
Van Leeuwen Property; their likely and eventual business
home. Where the Debtors owned 3538 cows on the petition
date, those 1405 cows made up 39.71% of their herd. Thus,
39.71% of the net profits generated by the Debtors[’] dairy
7
operations were a direct benefit from their trespass.
(Emphasis added.) In other words, the bankruptcy court concluded that
39.71 percent of the Debtors’ net profit represented the additional benefit
that they gained from wrongfully trespassing on the Property, in excess of
what they would have earned had they not trespassed and instead moved
their cows to the Van Leeuwen Property. According to the court, only that
portion of their total profit needed to be disgorged.
Next, the bankruptcy court turned to the amount of silage that the
Debtors owned and used. The bankruptcy court reasoned that the silage
should be included in the benefits received by the Debtors from their
trespass because Mr. de Jong testified that moving the silage would have
ruined it. Therefore, “the Debtors benefitted from the use of what would
otherwise have been worthless silage . . . .”
The court calculated that the Debtors used an average of $8,864.34 of
silage per day, based on available data for an overlapping period. The
court calculated that the Debtors used $416,623.98 of silage during the
prepetition trespass and $1,134,635.52 of silage during the postpetition
trespass.
The bankruptcy court totaled the silage and profit amounts.4 It then
reduced the award by the prorated amounts that the Debtors paid in pre-
4
The bankruptcy court rejected JLE’s claims for lost opportunities, cost of
restoration, annoyance/discomfort, fair market rental value, and punitive damages.
8
and postpetition rent and taxes. It concluded that JLE’s prepetition damage
claim was $558,716.24 and its postpetition administrative claim was
$1,517,069.64.
The bankruptcy court later entered an amended award (“Amended
Damages Order”) that reduced the credit for the amount of rent paid to
correspond with its proration of the additional “benefit” received by the
Debtors from their trespass: “to ensure that the Debtors do not receive a
duplicative credit for rent paid, the amount of the rent paid that would not
be attributable to JLE’s disgorgement damages (60.29%) should be credited
to reduce JLE’s damages award.” It thus laid out its final calculations as
follows:
Pre-petition
Pre-petition silage $416,623.98
5
Pre-petition profits $191,541.45
Pre-petition hay conversion $720.00
Subtotal $608,885.43
Credit for 60.29% of pre-petition rent ($29,812.92)
($49,449.19 x .6029)
Total pre-petition claim $579,072.51
Post-petition
Post-petition silage $1,134,635.52
5
These are profits from the additional 1,405 “cows that [the Debtors] could not
have used in their operations had they not trespassed on JLE’s property.”
9
Post-petition profits6 $521,644.79
Subtotal $1,656,280.31
Credit for 60.29% of post-petition rent ($84,364.20)
($139,930.67 x .6029)
Total post-petition claim $1,571,916.11
C. The first BAP appeal
The Debtors appealed from the bankruptcy court’s Amended
Damages Order. They argued that the bankruptcy court erred by: applying
issue preclusion to the state court’s findings in the FED Action;
independently deciding that the Debtors were trespassers; finding that the
Debtors were conscious trespassers; and applying an incorrect measure of
damages that exceeded the fair market rental value of the Property.
The Debtors also contended that the bankruptcy court improperly
calculated JLE’s postpetition damages. They argued that the bankruptcy
court erroneously counted silage as a profit, when in actuality it was an
operating cost. As such, the value of the silage could not be awarded to
JLE.
The BAP affirmed the bankruptcy court in all respects except for the
last damages issue. It held that the bankruptcy court erred in calculating
the postpetition profits by “double counting” the silage:
This double-counting occurred because the court took the
amount of silage used in the relevant time period and added
6
See footnote 5, supra.
10
that figure to a portion of the net income derived from its
profits gained from operating a larger dairy operation on JLE’s
property. Debtors argue that it was error to include both items
in the measure of restitution. Debtors also contend that the
court’s analysis of the amount of silage utilized by Debtors
during their occupancy is not a proper method to calculate
“profits” since it is an expense item. We agree.
2017 WL 2417189, at *13. The BAP thus instructed the bankruptcy court to
recalculate the postpetition damages:
The proper measure of recovery in this case must be the
benefits, or net profits, received by Debtors from the wrongful
use of JLE’s property. Net profit is the business’s gross
revenues less any operating expenses. An operating expense
would include the silage that was bought by Debtors to feed
their cows, including the extra cows that Debtors kept on the
property by virtue of their wrongful trespass. Debtors did not
generate a direct profit, or benefit, by use of the silage after
their trespass. Instead, they simply avoided a loss of something
that they had already paid for. Nonetheless, their purchase of
the silage was a legitimate operating expense because it was fed
to the cows which generated the profits that accrued to Debtors
as a direct result of their wrongful trespass. Accordingly, the
bankruptcy court erred by considering the silage as a separate
component of damages which resulted in overstating and
double counting the wrongfully obtained profits. Therefore,
we vacate the bankruptcy court’s postpetition damage award
and remand for a calculation of damages consistent with this
memorandum.
Id. at *14 (emphasis added).
11
D. Proceedings on remand
On remand, the bankruptcy court recalculated JLE’s damages by
eliminating the line item for postpetition silage damages. The court also
called attention to its award of prepetition silage damages. It noted that the
BAP’s decision specifically concerned postpetition damages only, despite
the rationale for awarding silage damages being the same across both pre-
and postpetition periods. It indicated that it might be appropriate to
eliminate the prepetition silage award but that it was constrained by the
BAP’s directive.7
Accordingly, the bankruptcy court issued its order (“Order After
Remand”) holding that JLE was entitled to a prepetition claim of
$579,072.51 and a postpetition administrative claim of $437,280.59, as
follows:
Pre-petition
Pre-petition silage $416,623.98
Pre-petition profits $191,541.45
Pre-petition hay conversion $720.00
Total $608,885.43
Credit for 60.29% of pre-petition rent ($29,812.92)
($49,449.19 x .6029)
Total pre-petition claim $579,072.51
Post-petition
7
The bankruptcy court noted that the BAP’s decision “specifically refers to
postpetition profits in at least five instances[.]”
12
Post-petition silage $0
Post-petition profits $521,644.79
Total $521,644.79
Credit for 60.29% of post-petition rent ($84,364.20)
($139,930.67 x .6029)
Total post-petition claim $437,280.59
The Debtors filed a timely notice of appeal from the Order After
Remand. JLE filed a timely notice of cross-appeal.
JURISDICTION
The bankruptcy court had jurisdiction pursuant to 28 U.S.C. §§ 1334
and 157(b)(1) and (b)(2)(B). We have jurisdiction under 28 U.S.C. § 158.
ISSUES
(1) Whether the bankruptcy court erred by not subtracting the
prepetition silage value from the damages award.
(2) Whether the bankruptcy court erred by not revising its calculation
of net profits.
STANDARDS OF REVIEW
We review de novo whether the bankruptcy court used the correct
legal standard in computing damages. See Neptune Orient Lines, Ltd. v.
Burlington N. & Santa Fe Ry. Co., 213 F.3d 1118, 1119 (9th Cir. 2000). De
novo review is independent and gives no deference to the trial court’s
conclusions. Roth v. Educ. Credit Mgmt. Corp. (In re Roth), 490 B.R. 908, 915
(9th Cir. BAP 2013).
13
We also review de novo a whether the trial court complied with an
appellate mandate on remand. See E.M. ex rel. E.M. v. Pajaro Valley Unified
Sch. Dist. Office of Admin. Hearings, 758 F.3d 1162, 1170 (9th Cir. 2014);
United States v. Thrasher, 483 F.3d 977, 982 (9th Cir. 2007) (“[I]f a district
court errs by violating the rule of mandate, the error is a jurisdictional
one.”). We review for abuse of discretion the trial court’s decision to
consider an issue on remand that the mandate does not foreclose. See Hall
v. City of L.A., 697 F.3d 1059, 1067 (9th Cir. 2012) (holding, under an abuse
of discretion standard, that the district court on remand “did not violate the
law of the case [when considering a issue on remand that] . . . had never
been considered or decided by any court”); Carter v. Astrue, 295 F. App’x
868, 869 (9th Cir. 2008) (holding that “[t]he district court acted within its
discretion in construing the remand order” to allow introduction of new
evidence); Nguyen v. United States, 792 F.2d 1500, 1503 (9th Cir. 1986)
(“Absent a mandate explicitly or impliedly precluding amendment, the
decision whether to allow leave to amend is within the trial court’s
discretion.”).
We also review for an abuse of discretion the bankruptcy court’s
“grant of equitable monetary and injunctive relief.” Consumer Fin. Prot.
Bureau v. Gordon, 819 F.3d 1179, 1187 (9th Cir. 2016). To determine whether
the bankruptcy court has abused its discretion, we conduct a two-step
inquiry: (1) we review de novo whether the bankruptcy court “identified
14
the correct legal rule to apply to the relief requested” and (2) if it did,
whether the bankruptcy court’s application of the legal standard was
illogical, implausible, or without support in inferences that may be drawn
from the facts in the record. United States v. Hinkson, 585 F.3d 1247, 1262-63
& n.21 (9th Cir. 2009) (en banc).
The bankruptcy court’s “computation of damages is a finding of fact
we review for clear error.” Simeonoff v. Hiner, 249 F.3d 883, 893 (9th Cir.
2001). A finding of fact is clearly erroneous if it is illogical, implausible, or
without support in the record. Retz v. Samson (In re Retz), 606 F.3d 1189,
1196 (9th Cir. 2010). The bankruptcy court’s choice among multiple
plausible views of the evidence cannot be clear error. United States v. Elliott,
322 F.3d 710, 715 (9th Cir. 2003).
DISCUSSION
A. The bankruptcy court should have removed the silage costs from
the prepetition damages award.
The Debtors’ only argument in this appeal is that the bankruptcy
court should have removed the prepetition silage value from the award in
the Order After Remand.8 The Debtors argue that they “merely strive for
consistency in the manner in which damages are calculated. If the silage
8
The Debtors submit a lengthy opening brief but admit that they are only
reiterating their arguments raised in the earlier appeal in order to preserve the
arguments for further appellate review. Accordingly, we do not consider those issues.
15
usage expense should be excluded for post-petition profits, it should
similarly be reduced for pre-petition profits.” This requires us to consider
the extent to which our mandate was binding on the bankruptcy court.
Under the“rule of mandate,” the trial court must adhere to the
appellate court’s decision: “‘The rule of mandate is similar to, but broader
than, the law of the case doctrine.’ The rule provides that any ‘district court
that has received the mandate of an appellate court cannot vary or examine
that mandate for any purpose other than executing it.’” Stacy v. Colvin, 825
F.3d 563, 567-68 (9th Cir. 2016) (citations omitted). The trial court “commits
‘jurisdictional error’ if it takes actions that contradict the mandate.” Id. at
568 (citing Hall, 697 F.3d at 1067).
Nothing in the BAP’s mandate compelled the bankruptcy court to
disturb its prepetition silage damages award. As the bankruptcy court
correctly noted, the BAP specified in multiple instances that it was vacating
the postpetition damage award and did not refer to prepetition damages.9
9
This is consistent with the overwhelming emphasis of the Debtors’ arguments
before the prior Panel. The Debtors’ opening brief mentioned postpetition profits or
damages at least seven times. Only a single terse footnote at the end of the opening brief
made reference to the prepetition silage award: “The Court utilized the same
methodology in calculating Appellee’s pre-petition claim of $579,072.51. The Court’s
calculations of the Pre-Petition disgorgement/silage usage is reversible error for the
same reasons Appellants appeal the Court’s calculation of the amount awarded for the
Post-Petition Administrative claim.” Moreover, the Debtors did not mention prepetition
silage at oral argument. On remand, they admitted to the bankruptcy court that they
did not focus the Panel’s attention on the issue of prepetition damages.
16
Accordingly, the Order After Remand was consistent with the BAP’s
mandate.
The rule of mandate, however, does not prohibit the trial court from
addressing issues that were not decided by the appellate court or made a
part of the mandate. The Ninth Circuit has stated that the trial court “may,
however, ‘decide anything not foreclosed by the mandate.’” Id. (quoting
Hall, 697 F.3d at 1067). It noted:
We have previously allowed district courts to reexamine
any issue on remand that is not inconsistent with the mandate.
See Odima v. Westin Tucson Hotel, 53 F.3d 1484, 1497 (9th Cir.
1995). To illustrate, in Odima we remanded with instructions to
make specific findings concerning an employer’s reasons for
not promoting the plaintiff. Id. On remand, the district court
did as we directed but also reevaluated and expanded upon the
remedies available to the plaintiff. Id. We held the district court
was free to revisit the issue of remedies on remand because
“any issue not expressly or impliedly disposed of on appeal [is]
available for consideration by the trial court on remand.” Id.
(quoting Firth v. United States, 554 F.2d 990, 993-94 (9th Cir.
1977)).
Id.; see Hall, 697 F.3d at 1067 (“[W]hen a court is confronted with issues that
the remanding court never considered, the ‘mandate[ ] require[s] respect
for what the higher court decided, not for what it did not decide.’”
(quoting United States v. Kellington, 217 F.3d 1084, 1093 (9th Cir. 2000))). 10
10
As an authoritative treatise explains:
(continued...)
17
This Panel’s prior decision was simply silent on the question of the
prepetition silage. Nothing in the Panel’s reasoning implies that the
prepetition silage should be included in the damages award but the post-
petition damages should not. Because the BAP did not consider or decide
the propriety of the prepetition silage award, the bankruptcy court had
discretion to reexamine that award upon remand.
The bankruptcy court thought, however, that this Panel’s prior
decision precluded it from changing its prepetition damages award. In this
respect, we think that the bankruptcy court was led astray by the lacuna in
our prior decision (and that the prior Panel was led astray by the Debtor’s
decision to bury their discussion of the issue in a single brief footnote).
Therefore, we are constrained to say that the bankruptcy court
misunderstood its powers under the rule of mandate, applied an incorrect
legal standard, and abused its discretion by declining to consider a
10
(...continued)
Focus on the mandate rule is desirable only if its requirements are met—
if the appellate court in fact did not consider and resolve an issue not
presented on the first appeal, the trial court acting on remand should
not be bound as tightly as if the issue had in fact been resolved. The trial
court should take account of the needs of orderly progression through the
trial and appeals processes in deciding whether to reconsider its own
pre-appeal ruling, but so long as further proceedings are otherwise
appropriate on remand there is no point in pretending that the trial court
owes fealty to a nonexistent appellate ruling.
18B Wright, Miller & Cooper, Federal Practice and Procedure: Jurisdiction 2d § 4478.6
(2002) (emphases added).
18
modification of the prepetition silage award.
We agree with the Debtors that striking the prepetition silage award
is appropriate. The prior BAP Panel held that the postpetition silage award
was an operating expense, not a part of the Debtors’ net profit; this logic
applies equally to prepetition silage.
Fortunately, the bankruptcy court foresaw the possibility of our
conclusion and made a finding about the value of the prepetition silage.
Therefore, rather than remanding the case again, we will simply strike the
silage value ($416,623.98) from the prepetition damage award in the
Amended Damages Order. See Six (6) Mexican Workers v. Ariz. Citrus
Growers, 904 F.2d 1301, 1310 (9th Cir. 1990) (“Our exercise of this discretion
[to recalculate an award prior to remand] is particularly appropriate where
recalculation involves issues that we are equally situated to decide.”);
Felder v. United States, 543 F.2d 657, 671 (9th Cir. 1976) (“Most of the
changes we have made involved arithmetical calculations that we could
perform as easily as the trial court and a remand would necessarily have
involved a waste of judicial resources.”).
B. The bankruptcy court erred in calculating net profits.
On its cross-appeal, JLE argues that the bankruptcy court failed “to
follow both the letter and the spirit” of the BAP’s earlier decision because
the Panel directed the court to calculate damages as the gross revenue less
expenses. JLE contends that, on remand, the bankruptcy court erred by
19
failing to recalculate the profits using “the Panel’s formula (the entire
business’s gross profits less expenses)[.]” We disagree with most of JLE’s
contentions, but we hold that our mandate did not constrain the
bankruptcy court as tightly as it thought and that the court should have
made one adjustment to its calculation of net profits.
1. JLE did not waive its arguments on cross-appeal by failing to
raise them in the first BAP appeal.
In the first appeal, JLE fully supported the bankruptcy court’s
damages calculation. This raises the question whether JLE may attack that
calculation for the first time in this second appeal.
As a general rule, an appellant may not raise issues in a second
appeal that it failed to raise in a prior appeal:
By waiting to raise the argument after the first appeal,
defendants required the district court and plaintiff to deal with
the case again and have forced our court to deal with a second
appeal. We do not condone and cannot encourage that
inefficient and uneconomical approach. Defendants knew
everything they needed to know about their joint and several
liability for the attorney fee award at the time of the prior
appeal. If they wanted to challenge the joint and several
liability, they should have done so at that time. They did not,
so the challenge has been waived.
Jimenez v. Franklin, 680 F.3d 1096, 1100 (9th Cir. 2012) (emphases added); see
Jules Jordan Video, Inc. v. 144942 Canada, Inc., 468 F. App’x 676, 678 (9th Cir.
2012) (“To the extent that defendants attempt now to raise new arguments .
20
. . , those matters could have and should have been raised in the initial
appeal. Because they were not, they are waived.”); United States v. Nagra,
147 F.3d 875, 882 (9th Cir.1998) (“When a party could have raised an issue
in a prior appeal but did not, a court later hearing the same case need not
consider the matter.”); Munoz v. Cty. of Imperial, 667 F.2d 811, 817 (9th Cir.
1982) (“[D]efendants . . . are now raising a new issue that they did not raise
in their last appeal to this court. We need not and do not consider a new
contention that could have been but was not raised on the prior appeal.”).
All of these cases hold that an appellant in the first appeal may not
raise brand new arguments in a second appeal. The remaining question is
whether an appellee may do so. Here, the case law is less clear. The Ninth
Circuit has held that defendant/appellees “did not need to take a cross
appeal in the prior appeal in order to argue, as an alternative ground for
affirming the judgment, that they had qualified immunity” in a second
appeal following remand. Rivero v. City & Cty. of S.F., 316 F.3d 857, 862 (9th
Cir. 2002). Courts in other circuits have reached mixed conclusions. See 18B
Wright, Miller & Cooper, Federal Practice and Procedure: Jurisdiction 2d §
4478.6 (2002) (“some decisions allow renewal on remand of questions that
the appellee did not raise on an earlier appeal, while other decisions bar
renewal”); compare Crocker v. Piedmont Aviation, Inc., 49 F.3d 735, 740 (D.C.
Cir. 1995) (“While there are clear adjudicative efficiencies created by
requiring appellants to bring all of their objections to a judgment in a single
21
appeal rather than seriatim . . . , forcing appellees to put forth every
conceivable alternative ground for affirmance might increase the
complexity and scope of appeals more than it would streamline the
progress of the litigation.”), with Lazare Kaplan Int'l, Inc. v. Photoscribe Techs.,
Inc., 714 F.3d 1289, 1294 (Fed. Cir. 2013) (agreeing with appellant that “the
district court erred by allowing [appellee] to address validity on remand
despite its failure to file a cross-appeal from the adverse final judgment” in
the first appeal), and Kessler v. Nat'l Enterprises, Inc., 203 F.3d 1058, 1059-60
(8th Cir. 2000) (dismissing cross-appeal for failure to raise arguments in
earlier appeal).
We hold that JLE’s decision to support the judgment in the first
appeal does not preclude it from challenging the damages calculation in
this appeal. The bankruptcy court awarded JLE less than it wanted, but JLE
was apparently willing to live with the reduced award. It is easy to say,
knowing what we know now, that it would have been more efficient if JLE
had raised all of its arguments in the first appeal. But we have the benefit of
hindsight, and we cannot expect an appellee like JLE to have perfect
foresight. To require an appellee to raise all possible challenges to a
damages award, even if the appellee is willing to live with the result,
would expand the scope of many appeals, increasing the burden on
appellants, appellees, and appellate courts. And because the vast majority
of appeals result in affirmance, that additional effort and expense would be
22
wasted in most cases.
In this case, the BAP substantially altered the dollar amount of the
judgment. The BAP thus “lessened” JLE’s rights under the Amended
Damages Order, which then allowed it to challenge other portions of the
damages award in this second appeal. See Rivero, 316 F.3d at 862 (“If the
court of appeals agrees with the plaintiff-appellant and alters the judgment
in some way, it provides relief that was not provided by the district court,
and thereby ‘enlarges’ the rights of the plaintiff-appellant and ‘lessens’ the
rights of the defendant-appellee.”).
Accordingly, JLE did not waive its arguments by failing to raise them
in the first appeal.
2. The Panel’s mandate did not preclude the bankruptcy court
from recomputing the lost profits damages.
JLE contends that the Panel’s mandate in the prior appeal required
the bankruptcy court to revisit its calculation of lost profits. In contrast, the
bankruptcy court believed that our mandate precluded it from doing so.
We disagree with both JLE and the bankruptcy court. The mandate did not
require the bankruptcy court to recompute the profits, and also did not
preclude the court from doing so.
The Panel said that “[t]he proper measure of recovery in this case
must be the benefits, or net profits, received by Debtors from the wrongful
use of JLE’s property.” 2017 WL 2417189, at *14. The Panel affirmed the
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court’s use of “a restitutionary measure of damages, including the
disgorgement of profits.” Id. at *13. Thus, nothing in the Panel’s prior
decision required the bankruptcy court to recompute the damages.
On the other hand, nothing in the Panel’s decision prevented the
court from doing so either. The prior Panel did not reach the issue of
whether the bankruptcy court’s calculations of net profits were correct. JLE
correctly points out that, if the Panel intended to preclude such a
reassessment, the Panel could have simply struck the postpetition silage
award rather than remanding the case. Therefore, the bankruptcy court
was free to revisit that issue on remand.
The bankruptcy court incorrectly thought that our mandate
precluded it from recalculating the profits. Thus, the bankruptcy court
misapprehended its powers and applied an incorrect legal standard on
remand.
3. The bankruptcy court erroneously reduced the disgorgement
award by the hypothetical profits that the Debtors could have
earned without trespassing on the Property.
JLE contends that the bankruptcy court erred in awarding only a
portion of the Debtors’ net profits during the trespass period. We agree that
the bankruptcy court’s measure of damages was incorrect in one respect.
The Ninth Circuit has recognized that “[d]isgorgement is a remedy in
which a court orders a wrongdoer to turn over all profits obtained by
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violating the law. A district court has broad equity powers to order
disgorgement, and its disgorgement calculation requires only a reasonable
approximation of profits causally connected to the violation.” Gordon, 819
F.3d at 1195 (internal citation and quotation marks omitted).
As we noted in our previous decision, the bankruptcy court did not
err by using a restitutionary measure of damages, including disgorgement
of net profits. 2017 WL 2417189, at *13. We also stated that net profits are
determined by subtracting operating costs from gross revenues. Id. at *14.
But the bankruptcy court did not award all of the net profits that the
Debtors earned while trespassing on JLE’s property. Instead, it reduced the
net profits by 60.29 percent, because the Debtors could have moved 2,133 of
their 3,538 cows to the Van Leeuwen Property and earned a profit there.
This reasoning suffers from a fatal logical flaw; it impermissibly capped the
calculation of net profits. As JLE argues, if the Van Leeuwen Property were
large enough to accommodate the Debtors’ entire herd, the bankruptcy
court’s formula would find that the Debtors received no “benefit” from
trespassing on the Property. That a trespasser could have earned some or
all of those profits without trespassing does not negate the fact that these
net profits were earned by trespassing.11 Therefore, the Debtors were
11
The Restatement (Third) of Restitution and Unjust Enrichment instructs that
the trial court should apportion the net profits between the wrongdoer’s lawful and
unlawful activities:
(continued...)
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required to disgorge all of their net profits earned during the trespass.
Fortunately, we need not remand again for calculation of damages.
The bankruptcy court has already determined the daily net profits, and we
are persuaded that those calculations are consistent with the methodology
we outlined in the prior appeal (the bankruptcy court apparently thought
so too, because, unlike its two alternative silage calculations, it did not offer
any alternative calculation of daily net profits).
As we have noted above, the bankruptcy court’s calculation of the
Debtors’ net profits started with $2,762,587 net income for the first six
months of 2014 (those six months are not coterminous with the period of
trespass, but they largely overlap and appear to be the closest period of
reliable data presented to the court). The bankruptcy court then deducted
11
(...continued)
When the net profit in question has been realized in part as a result of the
wrong to the claimant and in part from the defendant’s legitimate
activities—so that some part, at least, of the defendant’s profit would have
been realized in the absence of the wrong—what proportion of the net
profit is attributable to the wrong to the claimant? Because precise
answers to this part of the apportionment problem are often unattainable,
the court will reach the best approximation it can under the circumstances.
Restatement (Third) of Restitution and Unjust Enrichment § 51 cmt. g (Am. Law Inst.
2011). While apportionment may be appropriate in other circumstances, such as where
“the underlying wrong to the claimant affects only one” component of the defendant’s
business, id., in this case, apportionment is unnecessary. The Debtors’ wrongful trespass
affected and enabled their entire dairy business, not a mere component of a larger
enterprise. As such, the entire benefit that the Debtors gained is attributable to the
wrongful trespass on the Property and must be disgorged.
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the Debtors’ profit from the sale of the cows ($1,050,835), because that
profit was not shown to have resulted from the trespass, to arrive at net
profit of $1,711,752 for that six month period. Next, the bankruptcy court
recognized that the Debtors’ profits were not necessarily spread out evenly
during the half-year period, so the bankruptcy court compared milk sales
during the trespass portion of 2014 (January 2014 through May 2014) with
milk sales after the trespass ended (June 2014), and determined that 90.56
percent of the net profits were earned during the trespass period from
January 1 through May 31, 2014 – i.e., $1,550,162.61 in net profits
($1,711,752 x 90.56%). Then the bankruptcy court converted this figure to a
daily net profit amount: it divided the total of $1,550,162.61 by the number
of days from January 1 through May 31, 2014 (151 days, including the start
and end days). This yields a daily net profit of $10,262.98 ($1,550,162.61/151
days).12 Because the herd size did not change between the 2014 trespass
period and the December 2013 trespass period, the court used the same
daily net profit figure for December 2013, so the daily net profit throughout
the entire trespass period was $10,262.98. Neither party has established any
clear error in the court’s determination of daily net profits.
We convert these daily net profits into total profits below.
12
We cannot verify the bankruptcy court's arithmetic concerning the daily net
profit. Nevertheless, the parties do not challenge this figure, and JLE urges us to adopt
the $10,262.98 daily net profit calculation, so we do not disturb this calculation.
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Meanwhile, we note that, as the bankruptcy court recognized, any damages
must be reduced to account for rent and taxes that the Debtors paid.
Because we reject the bankruptcy court’s proration of the net profits, we
also do not prorate the credit for rent and taxes paid that the court applied
to offset the damages award. Accordingly, we subtract $49,449.19 (rather
than $29,812.92) from the prepetition damages and $139,930.67 (rather than
$84,364.20) from the postpetition damages.
4. We reject JLE’s other points of error, with one minor
exception.
JLE raises other arguments related to the calculation of profits and
urges us to increase the damages award accordingly. With one minor
exception, we decline to do so.
First, JLE argues that the bankruptcy court should have calculated the
Debtors’ profits using the monthly operating reports, rather than the draft
financial statement. But the bankruptcy court thoroughly explained its
reasons for rejecting the monthly operating reports, which it found to paint
an incomplete picture of the Debtors’ finances. We discern no clear error.
JLE also argues in passing that the bankruptcy court should have
awarded it the profits that the Debtors realized from the sale of the 1,405
cows. We find no error. There was no evidence that the profit gained from
the sale of the cows was tied to the wrongful trespass. For example, there is
no evidence that the cows gained value during the period of the trespass.
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Regarding the number of days pre- and postpetition, we disagree
with JLE’s argument that they are entitled to forty-eight post-
trespass/prepetition days. The court awarded net profits for forty-seven
days, which excludes the date of the foreclosure sale and continues through
the day before the Debtors filed their petition. JLE does not provide any
evidence that we should count the entirety of December 6, 2013 as a
compensable trespass day. The bankruptcy court counted the days of
trespass beginning the following day, and we find no clear error with its
calculation.
However, we agree with JLE’s assertion that the bankruptcy court
miscounted the number of postpetition/post-trespass days. The period
from January 23, 2014 to May 31, 2014 is 129 days inclusive of the petition
date and the end date. We adjust the postpetition net profits calculation by
an additional day.
Finally, JLE contends that the trespass period lasted until June 15,
2014, not May 31. But the bankruptcy court found that the Debtors had
vacated the Property by May 31 as it had ordered, and we discern no clear
error. Although some machinery and equipment remained on the Property
until June 15, there is no dispute that the Debtors removed the cows by
May 31. Disgorgement is based on the profits earned while the Debtors
wrongfully remained on the Property, and the Debtors were no longer
earning money from the Property after May 31. The bankruptcy court was
29
correct to order disgorgement of profits only until May 31.
CONCLUSION
For the foregoing reasons, we REVERSE the bankruptcy court’s
Order After Remand as to (1) the award of prepetition silage, (2) the pre-
and postpetition net profits calculation, (3) the proration of the rent credits,
and (4) the number of postpetition days used in the net profits calculation.
With these four modifications, the prepetition claim and postpetition
administrative claim are adjusted as follows:
Pre-petition
Pre-petition silage $0
Pre-petition profits $482,360.06
(47 days @ $10,262.98/day)
Pre-petition hay conversion $720.00
Subtotal $483,080.06
Credit for 100% of pre-petition rent ($49,449.19)
Total pre-petition claim $433,630.87
Post-petition
Post-petition silage $0
Post-petition profits $1,323,924.42
(129 days @ $10,262.98/day)
Subtotal $1,323,924.42
Credit for 100% of post-petition rent ($139,930.67)
Total post-petition claim $1,183,993.75
We REMAND for entry of judgment in the foregoing amounts.
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