Collins v. Wolf
| Decision Date | 16 March 2020 |
| Docket Number | Case No.: 19-CV-242 JLS (BLM) |
| Citation | 614 B.R. 589 |
| Parties | Charles G. COLLINS, Janelle L. Collins, and Chadwick C. Collins, Appellants, v. Nancy L. WOLF, Chapter 7 Trustee, Appellee. |
| Court | U.S. District Court — Southern District of California |
Susan C. Stevenson, Pyle Sims Duncan and Stevenson, San Diego, CA, for Appellants.
Kevin J. Hoyt, Estes & Hoyt, APC, San Diego, CA, for Appellee.
ORDER GRANTING MOTION TO DISMISS APPEAL FOR LACK OF JURISDICTION
Hon. Janis L. Sammartino, United States District Judge Presently before the Court is Appellee Nancy L. Wolf's Motion to Dismiss Appellants Charles G. Collins, Chadwick C. Collins, and Janelle Collins' Bankruptcy Appeal ("Mot.," ECF No. 15). Also before the Court is Appellants' Opposition to ("Opp'n," ECF No. 22) and Appellee's Reply in support of (ECF No. 23) the Motion to Dismiss. Having considered the Parties' arguments and the law, the Court GRANTS Appellee's Motion to Dismiss.
On December 7, 2011, Appellant Chadwick Collins filed for Chapter 7 bankruptcy. Mot. at 5. The relevant history for purposes of this appeal began on March 7, 2013, when Appellee Nancy L. Wolf, the appointed Chapter 7 Trustee, filed an adversary complaint against the Appellants seeking declaratory relief and recovery of Janelle and Chadwick's former residence located at 1480 Beechtree Road, San Marcos, California 92078 (the "Beechtree Property").1 Id. at 6.
Throughout these proceedings, Appellants have contended that Chadwick and Janelle sold Charles the Beechtree Property and that, even if that sale was ineffective, Charles owns an equitable interest in the property. Id. Appellants have also argued that, if Charles does not own the Beechtree Property, half the Property is separate property owned by Janelle and thus not part of the bankruptcy estate because she owned the Beechtree Property in joint tenancy with Chadwick. Id. The Bankruptcy Court disagreed, finding that the Charles had no right, title, or interest in the Beechtree Property and that Chadwick and Janelle owned the Property as community property, making it part of the bankruptcy estate. Id. Accordingly, the Bankruptcy Court entered an order for turnover of the Property in December 2016. Id. Appellants appealed the turnover order but did not seek or obtain a stay.2 Id.
On August 10, 2017, the Bankruptcy Court approved the sale of the Beechtree Property. Id. at 7. The Beechtree Property was sold to a third-party purchaser, and the sale proceeds were paid to several creditors, with the remainder going to Chadwick's bankruptcy estate. Id. Appellants did not seek or obtain a stay of the sale order. Id.
On October 4, 2017, the Bankruptcy Court entered final judgment in the bankruptcy proceeding. Id. at 6. Appellants appealed to this Court two days later. Id. at 7. The Court affirmed the Bankruptcy Court's judgment on September 10, 2018, finding that neither Charles nor Janelle held any interest in the Beechtree Property. See Collins v. Wolf , 591 B.R. 752, 779 (S.D. Cal. 2018). Shortly after, Appellants filed a notice of appeal to the Ninth Circuit Court of Appeals.3 Mot. at 7. Appellants did not seek a stay pending their appeal. Id.
The current appeal arises from the Bankruptcy Court's three November 15, 2018 Orders (together, the "Fee Orders") authorizing final compensation to: Chapter 7 Trustee Nancy Wolf (Appellants' Excerpt of Record ("ER"), ECF No. 14-1 at 104–108); Etes & Hoyt, APC, attorneys for the Trustee (id. at 109–13); and R. Dean Johnson, accountant for the Trustee (id. at 114–18) (together, the "Estate Professionals"). Appellants did not oppose the amount of the Fee Orders or whether the Estate Professionals should be paid. Appellants did, however, request that "any fee award be interim, not final" or that "any order awarding fees to the [Estate Professionals] specifically state that any compensation paid ... be subject to disgorgement in the event the Collins Defendants prevail on their appeal." Id. at 101–02. The Bankruptcy Court rejected their request and entered the final Fee Orders without a disgorgement clause. Id. at 104–18. Appellants filed a motion to reconsider the Fee Orders, id. at 119–24; the Bankruptcy Court denied that motion. Id. at 164–69. Appellants then appealed all three of the final Fee Orders to this Court. Id. at 172–73.
A district courts reviews a bankruptcy court's legal conclusions de novo and its factual findings for clear error. In re Mortgs. Ltd. , 771 F.3d 1211, 1214 (9th Cir. 2014). "Standing and ripeness are questions of law." San Diego Cty. Gun Rights Comm. v. Reno , 98 F.3d 1121, 1124 (9th Cir. 1996).
Appellants raise five issues on appeal that all essentially ask the same question: Did the Bankruptcy Court commit reversable error in granting the Fee Orders without making them subject to disgorgement? See ECF No. 14 at 4–5.
Appellee contends that the Court must dismiss this appeal because Appellants lack standing to challenge the Fee Orders. Mot. at 8–10. After reviewing the current record on appeal to determine whether the Court has jurisdiction, as it must, see Chapman v. Pier 1 Imports (U.S.) Inc. , 631 F.3d 939, 954 (9th Cir. 2011) (en banc) (), the Court concludes that Appellants lack standing to appeal the Fee Orders under both the bankruptcy-specific "person aggrieved" standing test and traditional Article III standing principles.4
"[T]o have standing to appeal a bankruptcy court's order, ‘[t]he appellant must be a "person aggrieved" by the bankruptcy court's order.’ " In re Kyung Sook Kim , 433 B.R. 763, 781 (D. Haw. 2010) () (quoting In re P.R.T.C., Inc. , 177 F.3d 774, 777 (9th Cir. 1999) ). To meet the so-called "person aggrieved" test, an appellant must show they are "directly and adversely affected pecuniarily by an order of the bankruptcy court." In re P.R.T.C. , 177 F.3d at 777 (quoting Fondiller v. Robertson , 707 F.2d 441, 442 (9th Cir. 1983) ). An order has a direct and adverse pecuniary effect if it "diminish[es] the appellant's property, increase[s] its burdens, or detrimentally affect[s] its rights." Id.
To assess standing under the person aggrieved test in this case, the Court must determine the interests of each of the Appellants. Both Parties treat Appellants as a single unit with one interest. Janelle and Charles, however, have claimed an ownership interest in the Beechtree Property, while Chadwick has not. And Chadwick is a Chapter 7 debtor, while Janelle and Charles are not. Thus, their interests in having the Fee Orders be subject to disgorgement differ. For this reason, the Court finds it necessary to assess Chadwick's standing under the person aggrieved test separately from Charles and Janelle's standing.
Regarding Chadwick, the Court finds that he lacks standing to bring this appeal. "Ordinarily, a debtor cannot challenge a bankruptcy court's order unless there is likely to be a surplus after bankruptcy." In re P.R.T.C. , 177 F.3d at 778 n.2. If the Ninth Circuit determines that the Beechtree Property is owned in whole or in part by Charles or Janelle, the estate assets could be dramatically reduced, making a surplus at the end of bankruptcy unlikely. And if Appellants are successful in making the Fee Orders subject to disgorgement—which is the only relief sought in this appeal—a surplus would be even less likely. Because Chadwick has not shown that making the Fee Orders subject to disgorgement could lead to a surplus of the estate, he cannot show that the omission of a disgorgement clause in the final Fee Orders "diminish[es his] property, increase[s] his burdens, or detrimentally affect[s] his rights." See Fondiller , 707 F.2d at 442. Therefore, Chadwick lacks standing to bring this appeal.
Turning to Janelle and Charles, the Court similarly finds that they lack standing. Appellee contends that because both the Bankruptcy Court and this Court determined that Janelle and Charles have no interest in the Beechtree Property or the money from its sale, they have no interest in the estate funds used to pay the fee awards authorized in the Fee Orders. Mot. at 9.
Janelle and Charles counter, arguing that the "Fee Orders have a tangible negative impact" on their interests for two reasons. Opp'n at 5. First, Janelle and Charles contend that their ownership interests in the Beechtree Property have not been finally decided because that issue is still being appealed. Id. If they win that appeal, they could have an interest in proceeds from the sale, some of which has been used to satisfy the final Fee Orders. Id. To fully protect their potential rights in the proceeds from the Beechtree Property, Janelle and Charles contend that the Fee Orders must either be interim or expressly subject to disgorgement. Id.
This interest, however, is entirely contingent on future events that might not occur. Currently, Janelle and Charles have no actual interest in the estate funds. Thus, the Fee Orders have not diminished Janelle or Charles's current property in any way. More importantly, Janelle and Charles have not shown that, absent the express disgorgement clause, they will be unable to recover the funds from the Estate Professionals if they prevail on appeal. Indeed, several Courts have noted that disgorgement of attorney's fees is a remedy available if funds are improperly disbursed. See, e.g. , S.S. Retail Stores Corp. v. Ekstrom , 216 F.3d 882, 884 (9th Cir. 2000) (); see also In re Int'l Envtl. Dynamics, Inc. , 718 F.2d 322, 326 (9th Cir. 1983) (...
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