H3o Commc'ns, LLC v. Kane (In re Amko Fishing Co.), BAP No. HI-17-1255-TaLLs
| Decision Date | 07 August 2018 |
| Docket Number | BAP No. HI-17-1255-TaLLs |
| Parties | In re: AMKO FISHING CO, INC., Debtor. H3O COMMUNICATIONS, LLC, Appellant, v. ELIZABETH A. KANE, Chapter 7 Trustee, Appellee. |
| Court | U.S. Bankruptcy Appellate Panel, Ninth Circuit |
NOT FOR PUBLICATION
MEMORANDUM*Argued and Submitted on June 21, 2018 at Pasadena, CA
Appeal from the United States Bankruptcy Court for the District of Hawaii
Appearances: Shawn Anthony Luiz argued for appellant; Elaine Chow of Klevansky Piper, LLP argued for appellee.
Before: Taylor, Lafferty, and Lastreto,** Bankruptcy Judges.
AMKO Fishing Co., Inc. ("Amko") operated a fishing business utilizing its ship, the Deborah Ann, and a Hawaii Longline Limited Entry Permit (the "Fishing Permit"). At least two companies provided the Deborah Ann with supplies, H3O Communications, LLC ("H3O") and VAK Fisheries, LLC ("VAK").
At some point, Amko or its principal entered into an agreement with VAK and transferred the Fishing Permit to VAK. Despite the transfer, the Deborah Ann continued as the vessel associated with the Fishing Permit. Thus, Amko continued to fish and retained beneficial use of the Fishing Permit.
In Amko's chapter 71case, the chapter 7 trustee abandoned the Deborah Ann and brought a fraudulent conveyance action against VAK torecover the Fishing Permit or its value. She then settled the lawsuit for a sum certain (the "Proceeds") and abandoned the Fishing Permit.
At issue in this appeal is whether H3O holds a claim secured by the Proceeds as a result of an alleged maritime lien and whether the bankruptcy judge should have recused. The bankruptcy court decided only a narrow issue and determined that H3O did not have a maritime lien that attached to the Proceeds. The bankruptcy judge did not recuse. We AFFIRM.
The bankruptcy court decided a discrete issue and did not make extensive factual findings. For our purposes, then, the story is gleaned from the bankruptcy filings.2
Amko filed a chapter 12 petition in April 2015.3 The next month, VAK sought a "comfort" order confirming that the automatic stay did not apply to the Fishing Permit because, although it was still assigned to the Deborah Ann, Debtor's principal transferred it to VAK in 2012. VAK also sought stay relief to enforce a maritime lien against the Deborah Ann. The bankruptcy court eventually denied the motion.
Debtor later converted to a chapter 7 proceeding, and the chapter 7 trustee, Elizabeth A. Kane, promptly proposed to abandon the Deborah Ann "with complete longline gear and equipment[.]" Preservation, she explained, would be burdensome and there was little or no equity in the property—its scheduled value was $400,000 and possible liens totaled $324,951.23: the Dojin Shipping Agency for $46,860; H3O for $62,230.23; and VAK for $215,861.
VAK remained focused on the Fishing Permit. In response to the notice of abandonment it argued that, because the "Vessel and Fishing Permit are inextricably linked[,]" the bankruptcy court should clarify that the Fishing Permit also was abandoned. But the bankruptcy court did not accommodate this request; it eventually approved abandonment of the estate's interests in the Deborah Ann, "with complete longline gear and equipment . . . ." Its order did not reference the Fishing Permit.
The Trustee eventually brought an adversary proceeding against VAK, alleging that the Fishing Permit was fraudulently transferred. It resolved quickly through a proposed settlement agreement where VAK paid the Trustee $75,000 and the Trustee dismissed the complaint, released VAK, and agreed that the Fishing Permit would be deemed abandoned. H3O opposed the settlement, arguing that the price was too low. In reply, the Trustee emphasized that she was settling the fraudulent transfer claim, not selling the Fishing Permit. But she agreed to sell it to another buyer fora higher price. Some delay followed, but after the potential buyer withdrew its offer, the bankruptcy court granted the Trustee's Rule 9019 motion and approved the settlement agreement.4
Apparently incentivized by the Proceeds, H3O filed a $47,826.74 proof of claim for "[g]oods and services provided for vessel to operate" and asserted that it was secured by a maritime lien. As subsequently became clear, H3O asserted that it had a maritime lien on the Deborah Ann and the Fishing Permit and, thus, that it was entitled to be repaid from the Proceeds.
The Trustee objected and sought to reclassify the claim from secured to general unsecured. She argued that she received money from settling the fraudulent transfer action, that she abandoned rather than sold the Fishing Permit, and that the Proceeds were not subject to any maritime lien.
Mid-way through oral argument at the hearing on the claim objection, H3O's counsel, apologetically, asked about the bankruptcy judge's partiality, noting that the bankruptcy judge had previously worked in the same firm as the Trustee's counsel. The bankruptcy judge explained that he took the bench fifteen years ago but acknowledged that when he was first appointed he recused himself from all cases involving his former firm. Then the bankruptcy judge, identifying the correct legal test, foundthat no "reasonable person would come to the conclusion that at this point I'm unable to be fair to both sides." H3O's counsel never asked the bankruptcy judge to recuse.
Eventually, the bankruptcy judge sustained the Trustee's objection. He refrained from determining whether H3O had a maritime lien on the Deborah Ann or the Fishing Permit. He merely found that it did not have a generalized maritime lien against the estate given abandonment of the vessel, its equipment, and the Fishing Permit. He then noted that the Proceeds arose from a settlement, not a sale, and that the abandonment and release reinforced this point.
The bankruptcy court entered a separate order sustaining the claim objection, finding that H3O did not have a security interest in the Proceeds or an otherwise secured claim against the bankruptcy estate.
H3O timely appealed.
The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and 157(b)(2)(B). We have jurisdiction under 28 U.S.C. § 158.
Did the bankruptcy court err when it sustained the Trustee's objection to H3O's secured claim?
Did the bankruptcy judge err when he did not recuse?
In the claim objection context, we review the bankruptcy court's legal conclusions de novo and its findings of fact for clear error. Lundell v. Anchor Const. Specialists, Inc. (In re Lundell), 223 F.3d 1035, 1039 (9th Cir. 2000).
A finding is "clearly erroneous" when "although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed." Anderson v. City of Bessemer City, 470 U.S. 564, 573 (1985) (quotation marks omitted).
Because H3O did not ask the bankruptcy judge to recuse, we review this decision for plain error. United States v. Holland, 519 F.3d 909, 911 (9th Cir. 2008).
We may affirm on any ground supported by the record, regardless of whether the bankruptcy court relied upon, rejected, or even considered that ground. Fresno Motors, LLC v. Mercedes Benz USA, LLC, 771 F.3d 1119, 1125 (9th Cir. 2014).
The bankruptcy court sustained the Trustee's objection to H3O's claim and reclassified H3O's secured claim as unsecured. In doing so, it concluded that H3O's maritime lien did not extend to either the bankruptcy estate in its entirety or the Proceeds.
We start with a discussion of relevant law.
The bankruptcy claims process. A creditor asserts a claim in bankruptcy by filing a proof of claim. 11 U.S.C. § 501(a); Fed. R. Bankr. P. 3001, 3002. And a properly filed proof of claim "constitute[s] prima facie evidence of the validity and amount of the claim." Fed. R. Bankr. P. 3001(f). If a claimant asserts a secured claim, its proof of claim must include evidence of perfection. Fed. R. Bankr. P. 3001(d).
Once a claim is filed, it is "deemed allowed, unless a party in interest . . . objects." 11 U.S.C. § 502(a). And if an interested party objects, the bankruptcy court, after notice and a hearing, must determine the amount of such claim and allow it accordingly. 11 U.S.C. § 502(b).
To overcome the presumption of validity, the objector must do more than formally object. Lundell, 223 F.3d at 1039. Instead, to "defeat the claim, the objector must come forward with sufficient evidence and 'show facts tending to defeat the claim by probative force equal to that of the allegations of the proofs of claim themselves.' " Id. (quoting Wright v. Holm (In re Holm), 931 F.2d 620, 623 (9th Cir. 1991)).
"If the objector produces sufficient evidence to negate one or more of the sworn facts in the proof of claim, the burden reverts to the claimant toprove the validity of the claim by a preponderance of the evidence." Id. ). The ultimate burden of persuasion, thus, remains with the claimant. Id.
Admiralty law and maritime liens. "[M]aritime liens have extraordinarily little in common with land liens, including consensual security interests." Walsh v. Placedo Shipping Corp. of Liberia (In re Pac. Caribbean Shipping (U.S.A.), Inc.), 789 F.2d 1406, 1407 (9th Cir. 1986). "Land liens and maritime liens are 'two unlike things . . . called by the same name.'" Id. (quoting G. Gilmore & C. Black, The Law of Admiralty 589 (2d ed. 1975)). See id. (discussing differences).
A "maritime lien is a privileged claim upon maritime property, such as a vessel, arising out of services rendered to or injuries caused by that property." 1 Thomas J....
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