In re Levander
| Decision Date | 07 July 1999 |
| Docket Number | No. 97-56525.,97-56525. |
| Citation | 180 F.3d 1114 |
| Parties | In re Roger LEVANDER; Josie Levander, Debtors. Roger Levander; Josie Levander, Appellants, v. Edwin Prober; Elias Miller; Peter Miller, Estate of; All Carr Communications Company; Calgrind Homes Inc.; Dalby Homes Inc.; Denormandia Land Co.; Dreamland Homes Inc.; Effington Homes Inc.; Eldridge Corporation; Floraday Park Inc.; Granton Homes Inc.; Gregory Knolls Inc.; Ladds Homes Inc.; Laurel Apartments; Miller Mortgage Co.; Millgee Investment Co. Inc.; Phalanx Homes Inc.; Prichard Homes Inc.; Rowena Homes Inc.; Shepard Homes Inc.; Suffolk Homes Inc.; Thrifty Estates Inc., Appellees. |
| Court | U.S. Court of Appeals — Ninth Circuit |
COPYRIGHT MATERIAL OMITTED
Daniel J. McCarthy, Hill, Farrer, & Burrill, Los Angeles, California, for the appellants.
Irving M. Gross, Robinson, Diamant, Brill, & Klausner, Los Angeles, California, for the appellees.
Before: FERGUSON, O'SCANNLAIN, and TASHIMA, Circuit Judges.
The opinion filed on July 7, 1999, is amended to include Judge Ferguson's concurring opinion attached hereto.
In December, 1993, the bankruptcy court awarded attorneys' fees to Chapter 11 debtors Roger and Josie Levander against All-Carr Communications Company, Inc. ("Corporation"). In November, 1996, the bankruptcy court entered two orders that amended the December, 1993, order to add All-Carr Communications Company, a general partnership ("Partnership"), as an additional judgment-debtor. On appeal, the district court reversed the November, 1996, order for lack of jurisdiction. The Levanders appeal, contending that jurisdiction existed to amend the original order under the bankruptcy court's inherent equitable powers, Rule 60(a) and (b) of the Federal Rules of Civil Procedure, and § 187 of the California Code of Civil Procedure. We have jurisdiction under 28 U.S.C. § 158(d), and we reverse. We hold that the bankruptcy court had jurisdiction to amend its order under § 187 and its inherent power based on the fraud perpetrated upon it by the Corporation and the Partnership.
The Levanders owned a cellular telephone service company. In 1991 and 1992, they filed separate bankruptcy petitions, which were consolidated in April, 1992, and thereafter jointly administered. On July 29, 1992, the Corporation filed a proof of claim against the Levanders' bankruptcy estate alleging a nonpriority general unsecured claim for $714,742.21 that the Levanders owed the Corporation on three promissory notes. At a hearing on July 30, 1993, the bankruptcy court disallowed this claim on the ground that the Corporation had previously accepted stock in satisfaction of the obligation. The bankruptcy court confirmed the Levanders' plan of reorganization on August 11, 1993.
On August 20, 1993, the Corporation appealed the confirmation order and the order disallowing its claim. The bankruptcy court, the bankruptcy appellate panel (BAP), and this court all refused to grant the Corporation's motion for a stay of the confirmation pending appeal. The Corporation subsequently abandoned its appeal and the BAP dismissed the Corporation's appeal with prejudice on September 30, 1994.
Meanwhile, on December 13, 1993, the bankruptcy court granted the Levanders' motion for attorneys' fees and costs totaling $44,170.00 against the Corporation for the time period of May 17, 1993, through August 31, 1993. The court did not know of the existence of the Partnership or that the Corporation had transferred its assets, so it awarded the attorneys' fees and costs only against the Corporation. The reason the court so believed was that when one of the Corporation's officers was asked during a May, 1993, deposition whether the Corporation's assets had been sold, he answered: To the question of "as far as you know, All-Carr Communications Corporation is still an active company?" the same officer answered: The court ordered the Corporation to pay the awarded amount, but reserved final judgment on the total amount of fees and costs to be awarded until the Corporation's appeal was completed.
On July 20, 1995, after unsuccessfully seeking voluntary payment from the Corporation, the Levanders had the marshal levy a writ of execution against the Corporation's bank accounts. That same day, a former employee of the Corporation responded to the writ, stating that she owned what had been the Corporation's assets in the bank and produced a bill of sale to that effect. This bill of sale, dated December 7, 1993,1 showed that the Partnership had transferred to her the ownership of what had formerly been the Corporation's assets, including the store, inventory, and all of the equipment, for one dollar.
On September 29, 1995, the Levanders requested documents and depositions from the Corporation's officers regarding the sale or transfer of the Corporation's assets. On the day that production was to commence, the Corporation filed a voluntary bankruptcy petition, which stayed discovery. The Corporation's bankruptcy filing also prevented the Levanders from proceeding with a motion they had filed for additional attorneys' fees against the Corporation. The Levanders then filed a motion under Rule 2004 of the Federal Rules of Bankruptcy Procedure, which was granted on November 14, 1995, for the same documents and depositions.
These documents and depositions revealed that the assets traveled in a circle. Beginning on February 4, 1993, months before the officer testified that the Corporation still had its assets, the Corporation transferred its assets to 19 corporate entities. These corporate entities later conveyed the Corporation's assets to the Partnership, which had been formed on February 25, 1993. Finally, in December, 1993, the Partnership sold the assets to the former employee for one dollar.
On June 14, 1996, the Levanders filed a motion to amend the attorneys' fees order to designate the Partnership as an additional judgment-debtor.2 On November 6, 1996, the bankruptcy court granted the motion to amend the order, stating that "equity screams for some remediation"3 because the Partnership was the real party in interest in the Corporation's litigation against the Levanders' estate.4 The Partnership appealed the order to the BAP on November 15, 1996, and, on December 30, 1996, the appeal was transferred to the district court.
On September 25, 1997, the district court entered an order reversing the decision of the bankruptcy court to add the Partnership as a judgment-debtor for lack of jurisdiction. Specifically, the district court concluded that the ten-day time limit of Federal Rule of Civil Procedure 59(e) had expired. The district court also held that § 187 of the California Code of Civil Procedure did not govern because the federal—not state—rules of procedure control in bankruptcy court.
"We stand in the same position as did the district court in reviewing the bankruptcy court's order." United States v. Wyle (In re Pacific Far E. Lines, Inc.), 889 F.2d 242, 244 (9th Cir.1989). We therefore review the bankruptcy court's findings of fact for clear error and its conclusions of law de novo. See Diamant v. Kasparian (In re Southern Cal. Plastics, Inc.), 165 F.3d 1243, 1245 (9th Cir. 1999).
"The inherent powers of federal courts are those that `are necessary to the exercise of all others.'" Primus Automotive Fin. Servs., Inc. v. Batarse, 115 F.3d 644, 648 (9th Cir.1997) (quoting Roadway Express, Inc. v. Piper, 447 U.S. 752, 764, 100 S.Ct. 2455, 65 L.Ed.2d 488 (1980) (quoting United States v. Hudson, 11 U.S. (7 Cranch) 32, 34, 3 L.Ed. 259 (1812))). This inherent power, which is based on equity, see Hazel-Atlas Glass Co. v. Hartford-Empire Co., 322 U.S. 238, 244, 64 S.Ct. 997, 88 L.Ed. 1250 (1944), not only springs forth from courts' traditional power "to manage their own affairs so as to achieve the orderly and expeditious disposition of cases," Chambers v. NASCO, Inc., 501 U.S. 32, 43, 111 S.Ct. 2123, 115 L.Ed.2d 27 (1991) (quoting Link v. Wabash R. Co., 370 U.S. 626, 630-31, 82 S.Ct. 1386, 8 L.Ed.2d 734 (1962)), but also "furthers the pursuit of achieving complete justice by enabling the court to suspend those judgments whose enforcement leads to inequitable results." Hadix v. Johnson, 144 F.3d 925, 937 (6th Cir.1998). In Chambers, the Supreme Court observed that the inherent power of federal courts includes, inter alia, the power to vacate judgments on proof that a fraud upon the court has been committed. See Chambers, 501 U.S. at 44, 111 S.Ct. 2123.
The Court justified the "historic power of equity to set aside fraudulently begotten judgments" on the basis that Id. (internal quotation marks and alterations omitted) (citation omitted); see also Hazel-Atlas Glass Co., 322 U.S. at 246, 64 S.Ct. 997 (); Universal Oil Products Co. v. Root Refining Co., 328 U.S. 575, 66 S.Ct. 1176, 90 L.Ed. 1447 (1946) (bribery of judge).
Just as a court may use its inherent power to protect its integrity by vacating a judgment obtained by fraud, it also may amend a judgment for the same purpose. When a court vacates a judgment obtained by fraud, it not only rids itself of the defilement caused by the fraud, but also restores balance and fairness between the parties by removing the benefit gained by the party that committed the fraud. Amending a judgment serves these same goals by removing the benefit—for example, the avoidance of a judgment against itself—that the...
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