Lundell v. Anchor Construction

• Decision Date: 11 April 2000
• Docket Number: No. 98-17090,98-17090
• Citation: 223 F.3d 1035
• Parties: (9th Cir. 2000) RE: DWIGHT C. LUNDELL; DINAH F. LUNDELL, debtors, Appellants, v. ANCHOR CONSTRUCTION SPECIALISTS, INC.; LORAL TERRACOM; FOSHAY ELECTRIC CO., INC.; U.S. POWER & TELEPHONE SUPPLY COMPANY, Appellees. ; 98-17260 Office of the Circuit Executive
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1035

223 F.3d 1035 (9th Cir. 2000)

RE: DWIGHT C. LUNDELL; DINAH F. LUNDELL, debtors, Appellants, v. ANCHOR CONSTRUCTION SPECIALISTS, INC.; LORAL TERRACOM; FOSHAY ELECTRIC CO., INC.; U.S. POWER & TELEPHONE SUPPLY COMPANY, Appellees.

No. 98-17090; 98-17260

Office of the Circuit Executive

U.S. Court of Appeals for the Ninth Circuit

Argued and Submitted April 11, 2000--San Francisco, California

Filed September 11, 2000

Bradley J. Stevens; Phoenix, AZ; for the appellants and crossappellees Anchor Construction Specialists, Inc., Foshay Electric Co., Inc. and U.S. Power & Telephone Supply Co. Davide Golia and Theodore S. Drcar; Marks & Golia, LLP; San Diego, CA; for the appellant and crossappellee Loral Terracom, Inc.

Merwin D. Grant and Kenneth B. Vaughn; Grant Williams & Dangerfield, P.C.; Phoenix, AZ; for the appellee and cross-appellant Dwight C. Lundell.

Appeal from the United States District Court for the District of Arizona, D.C. No. CV-96-01452-RGS; Roger G. Strand, District Judge, Presiding

Before: Alfred T. Goodwin, Melvin Brunetti and Sidney R. Thomas, Circuit Judges.

THOMAS, Circuit Judge:

We are asked to decide whether, upon objection to a proof of claim filed pursuant to 11 U.S.C. S 501, a bankruptcy court improperly allocated the burden of proving the invalidity of the claim on the objector by discounting in its entirety his testimony in support of his objection. We hold that the bankruptcy court properly allocated the burdens of proof and persuasion.

I

This action arises out of the failure by West Coast Construction ("West Coast"), a construction company formed by Ronald and Lloyd Hawkins ("the Hawkins"), to complete several federal construction projects awarded to it and to subsequently pay subcontractors, including Anchor Construction Specialists, Inc., and three other claimants (collectively, "claimants" or "appellants"), for their work.

Debtor Dwight Lundell, a childhood friend of the Hawkins, became involved in West Coast when the Hawkins sought financial help in starting West Coast. Lundell initially loaned several hundred thousand dollars to West Coast and acted as surety for bonds required to obtain federal construction contracts. The Hawkins and Lundell later entered into a clearly marked partnership agreement, signed by Lundell and notarized by his secretary.

After West Coast failed to complete the federal projects and pay claimants, claimants sued the Hawkins and Lundell for breach of contract under a partnership liability theory. Faced with numerous lawsuits, Lundell filed for Chapter 11 bankruptcy. His case was converted into a Chapter 7 proceeding.

Claimants filed separate proofs of claim pursuant to Bankruptcy Rule 3001 and 11 U.S.C. S 501. Lundell subsequently filed objections to the proofs of claim pursuant to Bankruptcy Rule 3007, in which he maintained that certain proofs of claim were untimely filed and that he was not a partner of West Coast and therefore not liable for its debts.

The bankruptcy court conducted an evidentiary hearing during which both the claimants and Lundell presented significant evidence in support of their respective positions. The claimants presented evidence of a signed partnership agreement between Lundell and the Hawkins. In disavowing this signed partnership agreement, Lundell asserted that the press of business as a heart surgeon prevented him from fully considering the agreement and realizing that it contained a partnership provision. He also maintained that he obtained an oral rescission of the agreement from the Hawkins and that he acted only in the capacity of a lender.

The bankruptcy court overruled Lundell's objections to the proofs of claim. In an oral decision, the court provided a lengthy and thorough synopsis of the evidence presented at trial, but made abbreviated findings of fact. In a brief section reciting findings of fact in connection with Lundell's testimony, the trial court found "incredible" Lundell's contention that he, "a highly educated and sophisticated physician" who had been involved in prior partnerships, signed the West Coast partnership agreement without realizing that he had done so and without forming the intent to become a partner. In light of its findings, the bankruptcy court concluded that Lundell "failed to meet his burden of proof that the partnership debts asserted in the proof of claims of the creditors is not an estate liability against him as a partner in West Coast."

Lundell appealed the bankruptcy court decision to federal district court, arguing that the trial court had wrongly placed upon him the burden of proving that he had not entered into a partnership agreement with the Hawkins. The district court agreed. It held that the bankruptcy court "erred in placing the burden of proof on the debtor" by requiring him not only to "rebut the presumption of a valid claim but . . . also required [him] to prove that he had not formed the requisite intent to form a partnership." It also noted that it had been "hampered in considering this matter by the lack of specific findings of fact" in the bankruptcy court's oral decision. The district court remanded the action to bankruptcy court for more specific findings of fact and for further proceedings to apply the correct burden of proof. Claimants appealed.

II

We have jurisdiction to review final orders of a district court acting in its bankruptcy appellate capacity under either 28 U.S.C. S 158(d) or 28 U.S.C. S 1291.¹ See Stanley v. Crossland, Crossland, Chambers, MacArthur & Lastreto (In re Lakeshore Village Resort, Ltd.), 81 F.3d 103, 105 (9th Cir. 1996). A district court renders a final order when it affirms or reverses a bankruptcy court's final order. See Vylene Enterprises, Inc. v. Naugles, Inc. (In re Vylene Enterprises, Inc.), 968 F.2d 887, 895 (9th Cir. 1992).

However, a district court's order is ordinarily not final "when the district court remands for further factual findings related to a central issue raised on appeal." Bonner Mall Partnership v. U.S. Bancorp Mortgage Co. (In re Bonner Mall Partnership), 2 F.3d 899, 904 (9th Cir. 1993). Nevertheless, we have taken a "pragmatic approach" in determining finality in light of the "unique nature" of bankruptcy proceedings where a district court reverses a bankruptcy court decision and remands for further proceedings. See id. at 903-04. In such cases, we have balanced several policies in determining whether a remand order may be considered final:"(1) the need to avoid piecemeal litigation; (2) judicial efficiency; (3) systemic interest in preserving the bankruptcy court's role as the finder of fact; and (4) whether delaying review would cause either party irreparable harm." Walthall v. U.S., 131 F.3d 1289, 1293 (9th Cir. 1997) (internal quotation marks and citations omitted).

We have oft considered in the context of the Vylene analysis two narrow exceptions to the finality rule as set forth in Bonner Mall. See, e.g., Walthall, 131 F.3d at 1293; Foothill Capital Corp. v. Clare's Food Market (In re Coupon Clearing Service, Inc.), 113 F.3d 1091, 1098 (9th Cir. 1997). In Bonner Mall, we held that we could assert jurisdiction even though a district court has remanded a matter for factual findings on a central issue if that issue is legal in nature and its resolution either (1) could dispose of the case or proceedings and obviate the need for factfinding; or (2) would materially aid the bankruptcy court in reaching its disposition on remand. See In re Bonner Mall, 2 F.3d at 904 (citing King v. Stanton (In re Stanton), 766 F.2d 1283, 1288 n.8 (9th Cir. 1985)); see also Dominguez v. Miller (In re Dominguez), 51 F.3d 1502, 150607 (9th Cir. 1995).

The central issue on appeal is whether the bankruptcy court wrongly allocated to Lundell the burden of proving that he was not a general partner of West Coast. Because the resolution of this issue -a purely legal issue -in favor of claimants would both obviate the need for further factfinding and end the case, we find that our assertion of jurisdiction over this appeal is proper. Consideration of the Vylene factors does not dictate otherwise.

III

We review de novo the decision of a district court which has acted as an appellate court in reviewing a bankruptcy court's decision on appeal. See Feder v. Lazar (In re Lazar), 83 F.3d 306, 308 (9th Cir. 1996). We apply the same standard of review as the district court applied to the bankruptcy court's decision: findings of fact are reviewed under a clearly erroneous standard and conclusions of law are reviewed de novo. See id.

Section 501 of Title 11 of the United States Code allows creditors a means to present their claims against a debtor to the bankruptcy court by filing a proof of claim. See 11 U.S.C. S 501. Whether such a claim for which a proper proof has been filed is "allowable" is a matter for determination pursuant to 11 U.S.C. S 502 and the procedural rules governing the bankruptcy courts. These rules and our case law have put in a place a general procedure to allocate the burdens of proof and persuasion in determining whether a claim is allowable.

A proof of claim is deemed allowed unless a party in interest objects under 11 U.S.C. S 502(a) and constitutes "prima facie evidence of the validity and amount of the claim" pursuant to Bankruptcy Rule 3001(f). See also Fed. R. Bankr. P. 3007. The filing of an objection to a proof of claim "creates a dispute which is a contested matter" within the meaning of Bankruptcy Rule 9014 and must be resolved after notice and opportunity for hearing upon a motion for relief. See Adv. Comm. Notes to Fed. R. Bankr. P. 9014.

Upon objection, the proof of claim provides "some evidence as to its validity and amount" and is "strong enough to carry over a mere formal objection without more. " Wright v. Holm (In re Holm), 931 F.2d 620, 623 (9th Cir. 1991) (quoting 3 L. King, Collier on Bankruptcy S 502.02, at 502-22 (15th ed. 1991)); see also Ashford v. Consolidated...