Sino Clean Energy, Inc. v. Robert Seiden

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
IN RE SINO CLEAN ENERGY, INC., No. 17-15316
Debtor.
D.C. No.
2:15-cv-01781-
SINO CLEAN ENERGY, INC., acting by JAD
and through BAOWEN REN, PENG
ZHOU, WENJIE ZHANG, ZHIXIN JING,
and PAUL CHUI; and HUIQIN CHEN, OPINION
LI HAN, GUANGJON HUANG,
XIAODONG JIANG, XUELING JING,
YUFENG LI, HAICHO LI, LANYING LI,
LIANG WANG, ZHEN WU, TING XTE,
HESHUN YANG, CHUNYUN ZHANG,
TIEKUAN ZHANG, personally and as
shareholders,
Plaintiffs-Appellants,
v.
ROBERT W. SEIDEN, in his capacity
as Receiver over Sino Clean Energy
Inc.,
Defendant-Appellee.
Appeal from the United States District Court
for the District of Nevada
Jennifer A. Dorsey, District Judge, Presiding
2 IN RE SINO CLEAN ENERGY
Argued and Submitted July 9, 2018
San Francisco, California
Filed August 27, 2018
Before: Susan P. Graber and Richard C. Tallman, Circuit
Judges, and Ivan L.R. Lemelle, * Senior District Judge.
Opinion by Judge Lemelle
SUMMARY **
Bankruptcy
The panel affirmed the district court’s affirmance of the
bankruptcy court’s dismissal of a Chapter 11 bankruptcy
petition filed by former board members of a corporation.
The panel held that the former board members lacked
corporate authority under Nevada law when they filed the
bankruptcy petition because a receiver appointed by the
Nevada state court already had removed them from the
corporation’s board of directors. Accordingly, the former
board members were not authorized to file the bankruptcy
petition on behalf of the corporation.
*
The Honorable Ivan L.R. Lemelle, Senior United States District
Judge for the Eastern District of Louisiana, sitting by designation.
**
This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
IN RE SINO CLEAN ENERGY 3
COUNSEL
Matthew C. Zirzow (argued), Larson & Zirzow LLC, Las
Vegas, Nevada, for Plaintiffs-Appellants.
Katherine R. Catanese (argued) and Douglas E. Spelfogel,
Foley & Lardner LLP, New York, New York; Ryan J.
Works, McDonald Carano LLP, Las Vegas, Nevada; for
Defendant-Appellee.
OPINION
LEMELLE, Senior District Judge:
Former board members of Sino Clean Energy, Inc.
(collectively, “Appellants”), appeal the district court’s order
affirming the bankruptcy court’s dismissal of their Chapter
11 bankruptcy petition. The bankruptcy court dismissed the
petition because it found that the petition lacked the requisite
authority from the corporation’s board of directors. The
district court agreed, ruling that the individuals attempting to
file the petition lacked authority where a receiver appointed
by the Nevada state court already had removed them from
the corporation’s board of directors. We affirm. The
bankruptcy court correctly dismissed the action because
Appellants lacked corporate authority when they filed the
rogue bankruptcy petition.
BACKGROUND AND PROCEDURAL HISTORY
Sino Clean Energy, Inc. (“SCEI”), is a Nevada holding
company that, through various subsidiary entities, produces
coal-water slurry in China. SCEI wholly owns Wiscon
Holdings Limited which, in turn, owns 100% of the interests
4 IN RE SINO CLEAN ENERGY
in Tongchuan Suoke Clean Energy Company. Both
subsidiaries are entities of the People’s Republic of China.
Until the legal troubles described here, SCEI had been
under control in major part by former chairman and CEO
Baowen Ren. Starting in 2011, SCEI became the subject of
much legal controversy. In May 2012, the Securities and
Exchange Commission deregistered SCEI after it abruptly
stopped filing certain required forms and financial
information. In September 2012, SCEI was suspended from
the NASDAQ stock exchange.
By October 2013, a group of forty-three shareholders
had filed a Nevada state-court petition in an attempt to
acquire financial information from SCEI, including books
and records regarding the money invested with SCEI. The
shareholders also sought certain declaratory relief under
Nevada Revised Statute section 78.345. SCEI was properly
served with the complaint, but SCEI opted not to offer any
responsive pleadings in the Nevada state-court action. After
more than a year of SCEI’s disregard for the Nevada state-
court action, the plaintiffs filed for entry of default, which
the state court granted. A few months after an entry of
default, on March 17, 2014, the shareholder plaintiffs filed a
motion for the appointment of a receiver. The Nevada state
court granted the motion on May 12, 2014.
The order appointing a receiver held that SCEI, through
its board of directors (at that time), was liable for
nonfeasance and gross mismanagement pursuant to Nevada
Revised Statutes section 78.650. After finding that SCEI’s
board of directors “failed to properly manage SCEI’s
affairs,” the state court appointed a receiver and granted him
many powers, including the power to reconstitute SCEI’s
board of directors. The receiver eventually replaced the
IN RE SINO CLEAN ENERGY 5
SCEI board of directors, effective in December 2014, with
current and sole director, Gregg Graison.
In July 2015, former chairman and CEO Ren purported
to “reconstitute” the former SCEI board of directors, and
thereafter attempted to file a voluntary petition for Chapter
11 bankruptcy on behalf of SCEI. The bankruptcy court
dismissed the action on August 26, 2015, holding that, at the
time the petition was filed by Ren and the former board
members, the petition “was filed without corporate
authority” because SCEI’s board of directors “had been
replaced by the Receiver.” The district court affirmed.
STANDARD OF REVIEW
We review de novo the district court’s decision on an
appeal from bankruptcy court. Educ. Credit Mgmt. Corp. v.
Coleman (In re Coleman), 560 F.3d 1000, 1003 (9th Cir.
2009). “We apply the same standard of review to the
bankruptcy court decision as does the district court: findings
of fact are reviewed under the clearly erroneous standard,
and conclusions of law, de novo.” Id. (internal quotation
marks and brackets omitted).
DISCUSSION
The Bankruptcy Code defines the term “petition” to
mean a “petition filed under section 301, 302, 303 and 1504”
of the Act. 11 U.S.C. § 101(42). A voluntary petition for
bankruptcy under § 301 is commenced by the filing of a
bankruptcy petition by an entity that may be a debtor. Id.
§ 301. State law determines who has the authority to file a
voluntary bankruptcy petition on behalf of a debtor. Price v.
Gurney, 324 U.S. 100, 106–07 (1945); see also Keenihan v.
Heritage Press, Inc., 19 F.3d 1255, 1258 (8th Cir. 1994) (“A
person filing a voluntary bankruptcy petition on a
6 IN RE SINO CLEAN ENERGY
corporation’s behalf must be authorized to do so, and the
authorization must derive from state law.”).
The corporation involved here, SCEI, was formed under
Nevada state law, which vests decision-making authority in
a corporation’s current board of directors. See Nev. Rev.
Stat. § 78.315. In regard to actions taken by a Nevada
corporation,
[u]nless the articles of incorporation or the
bylaws provide for a greater or lesser
proportion, a majority of the board of
directors of the corporation then in office, at
a meeting duly assembled, is necessary to
constitute a quorum for the transaction of
business, and the act of directors holding a
majority of the voting power of the
directors, present at a meeting at which a
quorum is present, is the act of the board of
directors.
Id. § 78.315(1) (emphases added). The statute also provides
that action may be taken with “written consent” that is
“signed by all the members of the board,” in lieu of a
meeting. Id. § 78.315(2). Nevada state law includes the
decision of its state courts. Tenneco W., Inc. v. Marathon Oil
Co., 756 F.2d 769, 771 (9th Cir. 1985). Applying Nevada
law to the facts in the record, the individuals who filed the
bankruptcy petition were not members of the board of
directors of SCEI at the time they filed the petition, and they
were not authorized to file a bankruptcy petition on behalf of
SCEI.
Our decision in Oil & Gas Co. v. Duryee, 9 F.3d 771 (9th
Cir. 1993), is directly on point. In Duryee, an Ohio state
court placed Oil & Gas Insurance Company into
IN RE SINO CLEAN ENERGY 7
rehabilitation and appointed a rehabilitator. Id. at 772. The
bankruptcy court ultimately dismissed a petition pursuant to
the Bankruptcy Code’s preclusion of insurance companies’
ability to seek bankruptcy relief. Id. Nevertheless, an “initial
difficulty” for us was deciding who the appellant was. Id. at
773. We ruled that, pursuant to the rehabilitation order, the
rehabilitator was the only person authorized to commence
bankruptcy proceedings on behalf of Oil & Gas. Id. As a
result, we held that the individual not authorized by the
rehabilitation order who was purporting to file bankruptcy
on behalf of the corporation was an “impostor,” and the
action was “null and void” as “fraudulently filed.” Id. That
same logic applies in this instance.
In asserting a contrary conclusion, Appellants rely
heavily on In Re Corporate & Leisure Event Prods., Inc.,
351 B.R. 724 (Bankr. D. Ariz. 2006). To the extent that
Corporate & Leisure contradicts our decision in Duryee, it
is wrong. No matter the equitable considerations, state law
dictates which persons may file a bankruptcy petition on
behalf of a debtor corporation. We understand Corporate &
Leisure as announcing the more limited holding that, where
a state court purports to enjoin a corporation from filing
bankruptcy altogether, federal law preempts that injunction.
Here, however, SCEI was and is fully able to file for
bankruptcy through valid filings made by its eligible board
of directors. Corporate & Leisure is inapposite.
AFFIRMED.