In re Emery
| Decision Date | 28 January 2003 |
| Docket Number | No. 01-55969.,No. 01-55971.,01-55969.,01-55971. |
| Citation | 317 F.3d 1064 |
| Parties | In re James H. EMERY; In re Cheryl A. Emery, Debtors, Kasdan, Simonds, McIntyre, Epstein & Martin, Appellant, v. World Savings & Loan Association, Appellee. In re James H. Emery; In re Cheryl A. Emery, Debtors, Kasdan, Simonds, McIntyre, Epstein & Martin, Appellant, v. World Savings & Loan Association, Appellee. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Edward J. Horowitz, Pacific Palisades, CA, for the appellant.
David M. Wiseblood, Berg & Parker LLP, San Francisco, CA, for the appellee.
Appeal from the United States District Court for the Central District of California; Alicemarie H. Stotler, District Judge, Presiding. D.C. Nos. CV-00-00456-AHS, CV-00-00588-AHS.
Before: WARDLAW and BERZON Circuit Judges, and ISHII, District Judge.*
The parties, the firm of Kasdan, Simonds, McIntyre, Epstein and Martin ("Kasdan") and World Savings & Loan Association ("World Savings") appeal from cross-summary judgment motions. The district court held that Kasdan converted World Savings' property interest in settlement funds obtained by Kasdan on behalf of its clients, James and Cheryl Emery ("the Emerys"), and was therefore liable for damages. We reverse.
This action arose from a bankruptcy proceeding. The current dispute began as (and, in our view, remains) a dispute between World Savings and the Emerys.
In 1993 James and Cheryl Emery refinanced their home through World Savings. As security for the loan, the Emerys executed a deed of trust in favor of World Savings, which was subsequently recorded. Paragraph Eighteen of the deed of trust ("Paragraph Eighteen") provides for the assignment to World Savings of the Emerys' rights in any legal cause of action relating to injury or damage to their home. Paragraph Eighteen states:
An assignment is a transfer of rights to another. I may have rights to bring legal action against persons, other than Lender, for injury or damages to the Property ... and which arose or will arise before or after the date of this Security Instrument. These rights to bring legal action may include an action for breach of contract, fraud, concealment of a material fact or for intentional or negligent acts. I assign these rights and any proceeds arising from these rights, as permitted by applicable law, to Lender. Lender may, at its option, enforce these rights in its own name, and may apply any proceeds resulting from this assignment to any amount that I may owe to Lender under the Note and this Security Instrument after deducting any expenses, including attorneys fees, incurred in enforcing these rights. At the request of the Lender, I will sign any further assignment or other document that may be necessary to enforce this assignment.
(emphasis added).
After refinancing their home, the Emerys discovered construction defects. At this juncture, the Kasdan law firm entered the scene. On behalf of the Emerys and their neighbors, Kasdan sued the contractors who built the housing development (the "underlying litigation").
The underlying litigation settled in 1996. After the Emerys paid attorneys fees ($198,686) and costs ($62,250), the Emerys' net share of the proceeds totaled $335,272. At the direction of its client, Kasdan disbursed this amount to the Emerys and to the Emerys' creditors. Neither the Emerys nor Kasdan notified World Savings of the lawsuit.
After the Emerys received the settlement proceeds, they defaulted on their loan to World Savings and filed for bankruptcy protection. Although World Savings obtained relief from the automatic bankruptcy stay and foreclosed on the Emerys' home, it did not recoup the full amount of the Emerys indebtedness. With the Emerys in bankruptcy, World Savings points its finger at Kasdan as the party responsible for the shortfall. Hence, the current lawsuit.
World Savings filed suit against Kasdan in the United States Bankruptcy Court for the Central District of California, claiming exclusive ownership over the underlying lawsuit and the resulting settlement funds and claiming that Kasdan converted the proceeds by distributing $335,272 to the Emerys and retaining $198,686 in fees. Kasdan cross-claimed for quantum meruit (to recover fees incurred in litigating the Emerys' claim) and for declaratory relief.
The parties filed cross-motions for summary judgment. After the bankruptcy court concluded that Kasdan's and World Savings' claims were "related proceedings" under 28 U.S.C. § 157(a), Kasdan and World Savings consented to the bankruptcy court's issuance of a final judgment. See 28 U.S.C. § 157(c)(2). The bankruptcy court entered summary judgment in favor of Kasdan, and, concluding that the summary judgment ended the litigation between Kasdan and World Savings, certified the judgment as final according to Fed.R.Civ.P. 54(b) and Fed. R. Bankr.P. 7054(a).
World Savings appealed to the United States District Court for the Central District of California, which reversed the decision of the bankruptcy court. Because we agree with the bankruptcy court, we reverse.
Although both parties urge us to decide this appeal, we have an independent duty to examine our subject matter jurisdiction. Bonner Mall P'ship v. U.S. Bancorp Mortgage Co. (In re Bonner Mall P'ship), 2 F.3d 899, 903 (9th Cir.1993) dismissed on other grounds, 513 U.S. 18, 115 S.Ct. 386, 130 L.Ed.2d 233 (1994). We have jurisdiction if both the bankruptcy court's order and the district court's order are final. Id.; 28 U.S.C. § 158(d).
Even though the district court remanded the case to the bankruptcy court for further fact-finding, the district court order is final under the pragmatic approach to finality employed in the bankruptcy context. See Scovis v. Henrichsen (In re Scovis), 249 F.3d 975, 980 (9th Cir.2001). Given the unique nature of bankruptcy proceedings, we balance several policies in determining whether a remand order is final: (1) the need to avoid piecemeal litigation; (2) judicial efficiency; (3) the systematic interest in preserving the bankruptcy court's role as a finder of fact; and (4) whether delaying review would cause irreparable harm. Id. (citing Lundell v. Anchor Constr. Specialists (In re Lundell), 223 F.3d 1035, 1038 (9th Cir. 2000)). We have consistently recognized that when an appeal "could dispose of the case or proceedings and obviate the need for factfinding" the competing considerations usually tip in favor of immediate review. See Scovis, 249 F.3d at 980 (); Lundell 223 F.3d at 1038 (same). Because this appeal "involves the very existence of the rule pursuant to which the bankruptcy court would be required to make factual findings on remand," we have jurisdiction. Bonner Mall, 2 F.3d at 904.
Because this court is in as good a position as the district court to review the findings of the bankruptcy court, we independently review the bankruptcy court's decision. Atalanta Corp. v. Allen (In re Allen), 300 F.3d 1055, 1058 (9th Cir.2002). We review conclusions of law de novo and findings of facts for clear error. Id.
This dispute centers around the interpretation of Paragraph Eighteen in the deed of trust. The meaning of this contractual provision is a question of law, which we review de novo. Kassbaum v. Steppenwolf Prods. Inc., 236 F.3d 487, 490 (9th Cir.2000) cert. denied, 534 U.S. 815, 122 S.Ct. 41, 151 L.Ed.2d 13 (2001). The parties agree that California law governs the contract.
Under California law, conversion is the wrongful exercise of dominion over another's personal property in denial of or inconsistent with his rights in the property. Bino v. Bailey (In re Bailey), 197 F.3d 997, 1000 (9th Cir.1999); Weiss v. Marcus, 51 Cal.App.3d 590, 599, 124 Cal. Rptr. 297 (1975). The elements of conversion are (1) the plaintiff's ownership or right to possession of the property; (2) the defendant's conversion by wrongful act inconsistent with the property rights of the plaintiff; and (3) damages. Burlesci v. Petersen, 68 Cal.App.4th 1062, 1065, 80 Cal.Rptr.2d 704 (1998). In California, conversion is a strict liability tort: Questions of good faith, lack of knowledge, and motive are ordinarily immaterial. Id. (quoting Moore v. Regents of Univ. of Cal., 51 Cal.3d 120, 144, 271 Cal.Rptr. 146, 793 P.2d 479 (1990)).
World Savings contends that Kasdan converted the property interest created by Paragraph Eighteen in two different ways. First, World Savings argues that it had an immediate possessory interest in the litigation proceeds and that Kasdan converted those proceeds by disbursing them to the Emerys. Second, World Savings argues that it had exclusive rights to litigate the underlying cause of action and that Kasdan, by pursuing litigation without World Savings' consent, interfered with World Savings' rights to litigate. We reject both contentions.
Assuming that Paragraph Eighteen created the type of property interest to which the tort of conversion applies,1 we conclude that Kasdan did not convert World Savings' interest in the settlement proceeds. Kasdan's actions did not injure World Savings and so Kasdan did not convert World Savings' property.
Paragraph Eighteen did not vest World Savings with exclusive rights to the settlement proceeds. Rather, Paragraph Eighteen entitled World Savings to demand only the amount which the Emerys "owe[d] to Lender." At oral argument, World Savings recognized that, even if Kasdan had disbursed the settlement funds directly to World Savings — as World Savings alleges Kasdan was required to do — World Savings would have been obliged to reimburse the Emerys for any settlement proceeds over and above the amount "owe[d] ... under the Note."
At the time that Kasdan distributed the settlement...
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