In re Ankeny, BAP No. NC-94-1986-OJR. Bankruptcy No. 93-11832.

• Decision Date: 20 June 1995
• Docket Number: BAP No. NC-94-1986-OJR. Bankruptcy No. 93-11832.
• Citation: In re Ankeny, 184 B.R. 64 (B.A.P. 9th Cir. 1995)
• Parties: In re Charles Willett ANKENY, Debtor. Charles Willett ANKENY, Appellant, v. Stephen MEYER, Appellee.
• Court: U.S. Bankruptcy Appellate Panel, Ninth Circuit

184 B.R. 64 (1995)

In re Charles Willett ANKENY, Debtor Charles Willett ANKENY, Appellant, v. Stephen MEYER, Appellee.

BAP No. NC-94-1986-OJR. Bankruptcy No. 93-11832.

United States Bankruptcy Appellate Panel of the Ninth Circuit.

Argued and Submitted February 23, 1995.

Decided June 20, 1995.

COPYRIGHT MATERIAL OMITTED

Steven M. Olson, Santa Rosa, CA, for appellant.

William J. Arnone, Jr., Santa Rosa, CA, for appellee.

Before OLLASON, JONES and RUSSELL, Bankruptcy Judges.

OLLASON, Bankruptcy Judge:

Debtor appeals the bankruptcy court's orders overruling his objection to his employee's claim for indemnification, and denying his motion for reconsideration. We AFFIRM.

STATEMENT OF FACTS

Charles Ankeny ("Ankeny") was president and largest shareholder of Willett's Brewing Company ("Willett's"), a restaurant and microbrewery, in Napa, California. Stephen Meyer ("Meyer") was employed as a chief chef at Willett's.

At the time of his employment, Meyer was unaware that the restaurant's waitress and dining room manager, Jennifer Kobylka ("Kobylka"), was attempting to end a sexual relationship between herself and Ankeny. According to Meyer, there were many clashes of personality between Meyer and Kobylka before she quit within six months of Meyer's employment.

In the summer of 1992, Kobylka sued Ankeny, Willett's and Meyer, alleging sexual harassment and other claims. Meyer sought to settle with Kobylka since all of his alleged conduct was work related and Meyer did not believe his conduct constituted sexual harassment. Meyer and Kobylka settled prior to the trial; the settlement did not involve any financial payment by Meyer. Kobylka released her claims against Meyer, and he was dismissed with prejudice as a defendant. Meyer's cross-complaint was severed from the main trial. In it he sought indemnification from his employer for attorney's fees, pursuant to Cal.Labor Code § 2802. This section provides:

An employer shall indemnify his employee for all that the employee necessarily expends or loses in direct consequence of the discharge of his duties as such, or of his obedience to the directions of the employer, even though unlawful, unless the employee, at the time of obeying such directions, believed them to be unlawful.

Cal.Labor Code § 2802 (West 1995).

The jury, in its Special Verdict, found that Meyer sexually harassed Kobylka while Meyer was acting within the course and scope of his employment. It also found that Ankeny had created an offensive or hostile work environment. It found that Ankeny and/or Willett's had engaged in outrageous conduct and acted with oppression or malice. Both defendants were found to have failed to prevent or stop the sexual harassment of Kobylka, to have retaliated against her, and to have constructively terminated her without good cause. Kobylka was awarded $46,400 in economic damages and $100,000 in punitive damages against both Ankeny and Willett's.¹

Before the court could conduct a second trial on Meyer's right to indemnification, Ankeny and Willett's filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code² on July 28, 1993.

Meyer filed timely proofs of claim in each case for $34,463, representing his expense for attorney's fees to defend against the Kobylka suit. Under the confirmed plan of reorganization in the Willett's case, Meyer received partial payment on his claim in the amount of $9,322.53. The balance of Meyer's claim was $25,140.47. Under the confirmed plan in the Ankeny case, Ankeny was obliged to obtain a personal loan to pay in full all allowed claims. Ankeny objected to Meyer's claim on March 4, 1994, on the grounds that he was not Meyer's employer. Meyer's response stated that Ankeny was responsible as an owner and operator of Willett's, as well as under a theory of alter ego liability.

On April 8, 1994, the bankruptcy court heard Ankeny's objection to Meyer's claim. The court issued an order on April 28, 1994, instructing the parties to file briefs and declarations. Both parties submitted briefs, declarations, and documentary evidence.

Meyer's evidence included a Letter of Intent ("agreement" or "contract") that predated Meyer's employment at Willett's. The agreement, drafted by Meyer, stated in pertinent part:

The purpose of this letter is to summarize and document the points discussed in pre-employment interviews between Stephen Meyer and Mr. and Mrs. Ankeny d.b.a. Willett\'s Brewing Company. The Chef/Kitchen Manager position discussed will encompass the following areas of responsibility; however, final authority will always reside with Mr. and Mrs. Ankeny.³

The agreement also set forth job duties, benefits and termination provisions. It was signed by "Charles Ankeny" and "Stephen Meyer."

Meyer also filed a portion of Ankeny's deposition taken for the state court proceedings. According to this evidence, Ankeny did not recall when his wife had acquired shareholder status in Willett's; he did not recall when the corporation had held annual meetings for the years 1988 through 1991, although he stated that there was an annual meeting in October of 1992 where his wife had kept minutes.

Ankeny also filed his declaration wherein he stated that he executed the agreement in his capacity as agent for Willett's. He stated that Willett's paid Meyer's salary. In addition, all business permits and licenses for the business were in the name of Willett's Brewing Company, which kept its separate books and records, according to Ankeny. Ankeny also stated that his uncertainty concerning his wife's status in the corporation was because they had only married in 1988 and he was unfamiliar with community property law.

The bankruptcy court entered its Order Overruling Objection to Meyer's claim and Memorandum of Decision, on May 27, 1994. The bankruptcy court premised its decision on the fact that "the jury found that Ankeny and his corporation failed to take action to stop the harassment, retaliated against the waitress for complaining, and constructively terminated her without good cause." The bankruptcy court further found that "since Meyer had a contract with Ankeny personally and was working as an employee of the corporation, his claim shall be allowed as filed in both cases."

On June 6, 1994, Ankeny filed a timely motion for reconsideration, alleging that Willett's, not Ankeny, was Meyer's employer at the time of the harassment and the commencement of the Kobylka suit. Both parties submitted briefs. The bankruptcy court denied the motion on August 11, 1994.

Ankeny filed a timely notice of appeal in which he appealed both orders.⁴

ISSUE

The sole issue on appeal is whether Ankeny was Meyer's employer for purposes of indemnification under the California labor statute.

STANDARD OF REVIEW

Questions of contract enforcement and interpretation are subject to de novo review unless extrinsic evidence was admissible on issues, such as intent. In re Estreito, 111 B.R. 294, 295 (9th Cir. BAP 1990). Where the interpretation of a contract involves review of extrinsic evidence, we review findings of fact for clear error while reviewing de novo the principles of law applied to those facts. In re Tamen, 22 F.3d 199, 203 (9th Cir.1994).

A trial court's findings of fact, whether based on oral or documentary evidence, shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the bankruptcy court to judge the credibility of the witnesses. Fed. R.Bankr.P. 8013. See also Anderson v. City of Bessemer City, N.C., 470 U.S. 564, 573-76, 105 S.Ct. 1504, 1511-13, 84 L.Ed.2d 518 (1985). A finding of fact is clearly erroneous if, after looking at the entire evidence, we are left with the definite and firm conviction that a mistake has been committed. United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 542, 92 L.Ed.2d 746, reh'g denied, 333 U.S. 869, 68 S.Ct. 788, 92 L.Ed. 1147 (1948).

Questions of law are reviewed de novo, In re Pacific Far East Lines, Inc., 889 F.2d 242, 245 (9th Cir.1989). We make an independent review of the bankruptcy court's interpretation of California state law. In re Kirkland, 915 F.2d 1236, 1238 (9th Cir.1990). To the extent that questions of fact cannot be separated from questions of law, we review them as mixed questions of law and fact applying a de novo standard. Ratanasen v. Cal. Dep't of Health Servs., 11 F.3d 1467, 1469 (9th Cir.1993).

Whether the bankruptcy court erred in denying a motion for reconsideration is reviewed under the abuse of discretion standard. In re Cleanmaster Indus., Inc., 106 B.R. 628, 630 (9th Cir. BAP 1989).

DISCUSSION

The Bankruptcy Code provides that the court shall allow a claim to which an objection has been raised except to the extent that it is unenforceable against the debtor under any agreement or applicable law. § 502(b)(1).

A duly executed proof of claim is prima facie evidence of the validity and amount of a claim. Fed.R.Bankr.P. 3001(f). The burden then switches to the objecting party to present evidence to overcome the prima facie case. In re Fidelity Holding Co., Ltd., 837 F.2d 696, 698 (5th Cir.1988). The ultimate burden of persuasion is on the claimant. In re Holm, 931 F.2d 620, 623 (9th Cir.1991).

(a) Standard of review

Ankeny argues on appeal that the standard of review for the order overruling the objection to the claim should be de novo because the bankruptcy court took declaration evidence and treated the proceedings like one for summary judgment.

Declaration evidence may be used in lieu of direct testimony. Fed.R.Bankr.P. 8013; In re Adair, 965 F.2d 777, 779 (9th Cir.1992). Declaration evidence is subject to the same in-court evidentiary objections. Id.; In re Heckenkamp, 110 B.R. 1, 4 (Bankr.C.D.Cal.1989); Fed.R.Evid. 611. Ankeny did not object to the evidence presented by Meyer or request cross-examination.

The trial judge's ability to observe witnesses is not a necessary condition for application of the...