C & C Jewelry Mfg., Inc. v. Laxmi Jewel Inc.

FILED
NOT FOR PUBLICATION APR 09 2010
MOLLY C. DWYER, CLERK
UNITED STATES COURT OF APPEALS U .S. C O U R T OF APPE ALS
FOR THE NINTH CIRCUIT
In re: C & C JEWELRY MFG., INC., a No. 09-60024
California corporation,
BAP No. CC-08-1267-HMoMk
Debtor.
C & C JEWELRY MFG., INC., a MEMORANDUM *
California corporation,
Appellant,
v.
LAXMI JEWEL INC.; et al.,
Appellees.
Appeal from the Ninth Circuit
Bankruptcy Appellate Panel
Hollowell, Montali, and Markell, Bankruptcy Judges, Presiding
Submitted April 7, 2010 **
Pasadena, California
Before: FERNANDEZ, SILVERMAN, and GRABER, Circuit Judges.
*
This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
**
The panel unanimously concludes this case is suitable for decision
without oral argument. Fed. R. App. P. 34(a)(2).
In this bankruptcy case, Debtor C & C Jewelry Manufacturing, Inc., argues
that the bankruptcy court, which the Bankruptcy Appellate Panel (BAP) affirmed,
abused its discretion by denying fees and costs and erred by refusing to award
damages. We review the BAP’s decision de novo. Sofris v. Maple-Whitworth,
Inc. (In re Maple-Whitworth, Inc.), 556 F.3d 742, 745 (9th Cir. 2009). We review
the bankruptcy court’s findings of fact for clear error and its decision regarding
attorney fees and costs for abuse of discretion. Higgins v. Vortex Fishing Sys.,
Inc., 379 F.3d 701, 705 (9th Cir. 2004). We affirm in part and vacate and remand
in part.
1. Debtor, which achieved dismissal of the petitioning creditors’ involuntary
petition on summary judgment, was eligible for an award of attorney fees and costs
under 11 U.S.C. § 303(i). It was "the petitioning creditors’ burden to establish,
under the totality of the circumstances, that factors exist which overcome the
presumption" that Debtor should receive fees and costs. Id. at 707 (internal
quotation marks omitted). Higgins set out several factors that the court should
consider, along with any other relevant factors. Id. at 707-08.
Here, the bankruptcy court stated without elaboration that the petitioning
creditors had rebutted the presumption in Debtor’s favor. The court failed to
mention any of the Higgins factors, saying only that it had evaluated "all of the
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factors relevant to this case" and had decided that an award of fees was not
appropriate.
Those conclusory statements do not allow us to understand the grounds for
the bankruptcy court’s decision, and no grounds are apparent from the surrounding
context. The standard for adequacy of findings is "whether they are explicit
enough on the ultimate issues to give the appellate court a clear understanding of
the basis of the decision and to enable it to determine the grounds on which the
trial court reached its decision." Leavitt v. Soto (In re Leavitt), 171 F.3d 1219,
1223 (9th Cir. 1999) (internal quotation marks omitted). In the absence of an
explanation as to how the district court exercised its discretion, we cannot assess
whether that discretion was abused. Stewart v. Gates, 987 F.2d 1450, 1454 (9th
Cir. 1993).
Because the bankruptcy court’s findings and explanation are inadequate for
appellate review, we vacate and remand the decision denying fees and costs. See,
e.g., McCulloch v. Albert E. Price, Inc., 823 F.2d 316, 323 (9th Cir. 1987),
disagreed with on other grounds by Fogerty v. Fantasy, Inc., 510 U.S. 517, 525-26
(1994). Whatever the court’s decision on remand, whether to grant or deny fees
and costs, the court should make explicit its findings of fact and the reasons for its
decision.
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2. Title 11 U.S.C. § 303(i)(2) authorizes an award of damages "against any
petitioner that filed the petition in bad faith." Although the court made no formal
finding regarding bad faith, the court in its tentative ruling wrote that it intended to
deny damages because "the court does not find that the involuntary petition was
filed in bad faith." At argument on the motion, Debtor acknowledged the clarity of
that tentative ruling and did not attempt to dissuade the court on that point.
That ruling was sufficiently definite that we can review it as a finding of fact
that the involuntary petition was not filed in bad faith. The finding is not clearly
erroneous. A presumption of good faith accompanies the filing of an involuntary
petition. In re Mi La Sul, 380 B.R. 546, 557 (Bankr. C.D. Cal. 2007); In re Molen
Drilling Co., 68 B.R. 840, 843 (Bankr. D. Mont. 1987). Bad faith is measured by
an objective test—what a reasonable person would believe. Jaffe v. Wavelength,
Inc. (In re Wavelength, Inc.), 61 B.R. 614, 620 (9th Cir. B.A.P. 1986). The
evidence here would support a finding that the petitioning creditors sought to avoid
preference to some creditors, to recover transferred assets, and to prevent the use of
an alter ego to avoid payment of debts, none of which is an improper purpose and
all of which were objectively reasonable at the time of the filing. The ultimate
disposition of the involuntary petition does not, by itself, show bad faith.
Accordingly, the denial of damages is affirmed.
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Denial of damages AFFIRMED; denial of attorney fees and costs
VACATED and REMANDED. The parties shall bear their own costs on appeal.
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