In re PACIFIC/WEST COMMUNICATIONS GROUP, INC. 0156047

Docket Nº:0156047
Party Name:In re PACIFIC/WEST COMMUNICATIONS GROUP, INC.
Case Date:August 05, 2002
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit
 
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In re PACIFIC/WEST COMMUNICATIONS GROUP, INC. 0156047

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

In re: PACIFIC/WEST COMMUNICATIONS GROUP, INC., a California corporation, Debtor, FIFTEENTH RMA PARTNERS, L.P., a New York limited partnership, Appellant-Cross-Appellee, v. PACIFIC/WEST COMMUNICATIONS GROUP, INC., a California corporation, Chapter 11 Debtor and Debtor in Possession, Appellee-Cross-Appellant.

Nos. 01-56047; 01-56051; D.C. Nos. CV-00-09288-AHM; CV-00-09739-AHM

OPINION

Appeal from the United States District Court for the Central District of California

  1. Howard Matz, District Judge, Presiding

Argued and Submitted August 5, 2002—Pasadena, California

Filed August 29, 2002

Before: Thomas G. Nelson, Richard A. Paez and Richard C. Tallman, Circuit Judges.

Opinion by Judge Tallman

COUNSEL

Templeton Briggs, Brewer & Brewer, Costa Mesa, California, for the appellant-cross-appellee.

Gary E. Klausner, Stutman, Treister & Glatt, Los Angeles, California, for the appellee-cross-appellant.

OPINION

TALLMAN, Circuit Judge:

We must decide whether under the California Commercial Code (CCC or the Code) as it existed prior to July 1, 2001, a creditor with a security interest in another’s personal property, including general intangibles, and all proceeds thereof, can attach its interest to the proceeds of a commercial tort claim, despite the Code’s prohibition against "[a] transfer in whole or in part of any claim arising out of tort." Cal. Com. Code § 9104(k) (1997). The bankruptcy court held that it could, and the district court affirmed the ruling. Because we hold that the California legislature intended to change the law, effective July 1, 2001, by significantly altering the statute so that from that date forward a party could attach its security interest to tort proceeds, we hold that the law prior to the change prohibited such an attachment. We therefore reverse.

I

Pacific/West Communications Group, Inc. (PacWest), a public relations firm, became involved in a dispute with one of its major clients, the California Department of Transportation (CalTrans), that eventually resulted in a 1997 lawsuit in the California court system. PacWest’s complaint contended that CalTrans breached contracts with PacWest and engaged in tortious activity, including defamation, which PacWest claimed destroyed its business. Approximately one year later, PacWest filed a petition for Chapter 11 bankruptcy relief. Not long thereafter, Fifteenth RMA Partners, L.P. (RMA), which had acquired PacWest’s loan portfolio from the FDIC following the collapse of Guardian Bank,1 filed a proof of claim for $927,163.84 as a secured creditor against PacWest.2

While in Chapter 11 reorganization, PacWest continued to pursue its claims against CalTrans by using special counsel working on a contingency fee basis. The parties to the Cali-fornia suit eventually agreed to submit their dispute to binding arbitration, and the arbitrator determined that CalTrans had breached one contract, resulting in $218,478 in damages. The arbitrator also awarded PacWest $1,935,000 in damages as a result of CalTrans’s defamation of PacWest; this amount represented the value of PacWest as a "going concern."3

RMA sought to attach its security interest to the arbitration award. Over PacWests objection that Commercial Code § 9104(k) prohibited an attachment to the proceeds of a tort claim, the bankruptcy court held that RMA could attach its security interest to the proceeds, but also that RMA was subject to a surcharge under § 506(c) of the Bankruptcy Code. The court, therefore, first awarded PacWests arbitration attorneys $1,040,296.51 for their successful work on a contingency fee basis. It then allowed the estate to pay $32,471 to PacWests bankruptcy counsel and $115,000 to PacWests CEO, Stephen Tobia, for their efforts in the CalTrans litigation. Finally, the bankruptcy court imposed a surcharge of $522,605 upon RMA so that RMA only recovered $490,118 of its...

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