Nobles v. MUFG Union Bank (In re Brower )
| Decision Date | 16 May 2023 |
| Docket Number | 5:20-cv-06889-EJD |
| Parties | IN RE ROBERT BROWER, SR., Debtor. v. MUFG UNION BANK, N.A., Appellee. ANTHONY NOBLES, Appellant, |
| Court | U.S. District Court — Northern District of California |
ORDER AFFIRMING BANKRUPTCY COURT'S ORDER AND JUDGMENT
Appellant Anthony Nobles (“Nobles”) appeals the Bankruptcy Court's order and judgment holding that 50,000 shares of Coastal Cypress Corporation (“Coastal”) stock issued to Nobles were void for lack of consideration. Having considered the parties' briefing and the record in this matter, the Court AFFIRMS the Bankruptcy Court's order and judgment.
In 1982, Debtor Robert Brower, Sr. (“Brower”) founded Coastal as a California corporation. Nobles Appx., ECF Nos. 16-1 & 16-2, at 167. As relevant here, on January 31, 2011, Nobles executed an agreement to purchase 200,000 shares of Coastal stock for $200,000, and he paid that amount into an account held jointly by Brower and his wife. Id. at 167, 197. On February 4, 2011, Brower deposited $50,000 of that money into a Coastal account. Id. at 418-19. On the same day, Coastal also issued a promissory note to Brower for a $50,000 loan, a note which Coastal later repaid. Id. at 426, 430-31. However, bank records show that between January 12, 2011 and February 11, 2011, there was only one $50,000 transfer between Brower and Coastal. Id. at 385-87. The Bankruptcy Court determined that, because the $50,000 were repaid to Brower, Coastal never received consideration for 50,000 of the shares that it issued to Nobles, and therefore those shares were void. Order After Trial, ECF No. 1-2.
On May 11, 2017, Appellee MUFG Union Bank, N.A. (“MUFG”) filed its adversary complaint against Nobles and other defendants, seeking a declaration that Brower and his wife owned 100% of the equity interests in Coastal. Nobles Appx. at 1-10. Shortly thereafter, the Bankruptcy Court granted MUFG's motion to proceed derivatively on behalf of Brower's bankruptcy estate in the adversary proceedings. MUFG Appx., ECF No. 19-1, at 3-4. On November 20, 2019, the Bankruptcy Court granted in part MUFG's motion for summary judgment, finding, inter alia, that 150,000 of Nobles' 200,000 Coastal shares were void for lack of consideration, but determining that the disposition of the remaining 50,000 shares could not be resolved on summary judgment. Nobles Appx. at 279-82. Nobles and other defendants appealed the summary judgment order, and this Court affirmed. Brower v. MUFG Union Bank, N.A. (In re Brower), No. 5:19-cv-08135-EJD, 2020 WL 3184860 (N.D. Cal. June 15, 2020). Subsequently, the Bankruptcy Court held trial on all issues unresolved at summary judgment, including on the remaining 50,000 Coastal shares held by Nobles. The Bankruptcy Court issued its order and judgment on September 9, 2020, holding that the those remaining 50,000 shares were void for lack of consideration. Order After Trial; Judgment, ECF No. 1-2. This appeal followed. Nobles presents three issues on appeal:
In deciding appeals from a bankruptcy court, district courts review conclusions of law de novo and review factual findings for clear error. Greene v. Savage (In re Greene), 583 F.3d 614, 618 (9th Cir. 2009). When reviewing a decision de novo, a court reviews the decision below independently and without deference. First Ave. W. Bldg., LLC v. James (In re Onecast Media, Inc.), 439 F.3d 558, 561 (9th Cir. 2006). When applying clear error review, a court does not disturb factual findings unless it is “left with the definite and firm conviction that a mistake has been committed.” In re Greene, 583 F.3d at 618.
Generally, “if an issue is not raised before the trial court, it will not be considered on appeal and will be deemed waived.” Starky v. Birdsell (In re Starky), 522 B.R. 220, 230 (B.A.P. 9th Cir. 2014) (citation omitted); see also Mano-Y & M, Ltd. v. Field (In re Mortg. Store, Inc.), 773 F.3d 990, 998 (9th Cir. 2014) (“A litigant may waive an issue by failing to raise it in a bankruptcy court.”). But “it is within the district court's discretion whether to consider issues not presented to the bankruptcy court.” Pizza of Haw., Inc. v. Shakey's, Inc. (In re Pizza of Haw., Inc.), 761 F.2d 1374, 1377 (9th Cir. 1985). Only if there are “exceptional circumstances” should a district court address a waived issue. In re Mortg. Store, 773 F.3d at 998 ). Such exceptional circumstances include: “(1) when review is required to prevent a miscarriage of justice or to preserve the integrity of the judicial process, (2) when a new issue arises while appeal is pending because of a change in the law, and (3) when the issue presented is purely one of law and either does not depend on the factual record developed below, or the pertinent record has been fully developed.” Id. (citation and internal quotations omitted).
As a threshold issue, Nobles argues that MUFG is without standing to bring its claims against him. This creates some difficulty, though, because the term “standing” is susceptible to ambiguity and is used to describe both arguments that are not waivable and those that are. Such distinction matters here because Nobles raises his standing arguments for the first time on appeal, meaning that parts of his argument may be waived.
In general, standing refers to both constitutional and prudential limitations on a federal court's power. The constitutional limitation derives from the case-or-controversy requirement of Article III and is an “irreducible constitutional minimum.” Lujan v. Defs. of Wildlife, 504 U.S. 555, 560 (1992). “Article III standing is jurisdictional and can neither be waived by the parties nor ignored by the court.” Yakima Valley Mem'l Hosp. v. Wash. State Dep't of Health, 654 F.3d 919, 932 n.17 (9th Cir. 2011). Prudential standing is a set of “judicially self-imposed limits on the exercise of federal jurisdiction” that are non-constitutional in nature. City of L.A. v. Cnty. of Kern, 581 F.3d 841, 845 (9th Cir. 2009) (quoting Allen v. Wright, 468 U.S. 737, 751 (1984)). Unlike Article III standing, issues of prudential standing can be waived. Id.; see also Pershing Park Villas Homeowners Ass'n v. United Pac. Ins. Co., 219 F.3d 895, 899 (9th Cir. 2000) (). Prudential standing encompasses several doctrines, including statutory standing. Potter v. Hughes, 546 F.3d 1051, 1055 (9th Cir. 2008).
Nobles does not clearly distinguish between Article III and prudential standing in his briefing, but the Court endeavors to separate the two in its analysis below so that it may properly address the issue of waiver.
To comply with Article III's standing requirements, a plaintiff must establish that “(1) it has suffered an ‘injury in fact' that is (a) concrete and particularized and (b) actual or imminent, not conjectural or hypothetical; (2) the injury is fairly traceable to the challenged action of the defendant; and (3) it is likely, as opposed to merely speculative, that the injury will be redressed by a favorable decision.” Palmdale Hills Prop., LLC v. Lehman Com. Paper, Inc. (In re Palmdale Hills Prop., LLC), 654 F.3d 868, 873 (9th Cir. 2011) (footnote omitted) (quoting Friends of the Earth, Inc. v. Laidlaw Env't Servs. (TOC), Inc., 528 U.S. 167, 180-81 (2000)). In the context of Chapter 11 bankruptcy, as here, “Article III standing exists where the participant holds a financial stake in the outcome of the proceeding such that the participant has an appropriate incentive to participate in an adversarial form to protect his or her interests.” Motor Vehicle Cas. Co. v. Thorpe Insulation Co. (In re Thorpe Insulation Co.), 677 F.3d 869, 887 (9th Cir. 2012) (citation and internal quotations omitted). When evaluating standing, a court's “proper focus . . . [is] the facts existing at the time the complaint under consideration was filed.” C.R. Educ. & Enf't Ctr. v. Hosp. Props. Tr., 867 F.3d 1093, 1102 (9th Cir. 2017).
The Court concludes that MUFG has Article III standing to pursue its claims. MUFG suffered an injury in fact because the transfer of 50,000 Coastal shares to Nobles diluted Brower's ownership interest in Coastal and therefore reduced the value of Brower's bankruptcy estate. This, in turn, created a risk that MUFG would not be repaid or would be repaid less on the unsecured debt owed to it by Brower. Such risk to repayment is a “classic” injury in fact. Artesanias Hacienda Real S.A. v. North Mill Cap LLC (In re Wilton Armetale, Inc.), 968 F.3d 273, 281 (3d Cir. 2020). The injury is also fairly traceable to the challenged stock transfer as there is a straight line from the transfer to the bankruptcy estate's diminution in value, and then from that diminution to MUFG's risk. Lastly, the relief sought by MUFG is likely to redress its injury. Granting relief in favor of MUFG would increase the value of the bankruptcy estate by increasing Brower's ownership interest in Coastal. It is highly probable that the increased value will flow to MUFG because it is by far the largest of Brower's creditors, being owed approximately $5.09 million out of a total of $5.25 million...
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