Opinion
NOT FOR PUBLICATION
Argued and Submitted at Pasadena, California: July 31, 2009
Appeal from the United States Bankruptcy Court for the Central District of California. Bk. No. LA-05-23588-EC. Hon. Ellen Carroll, Bankruptcy Judge, Presiding.
Before: MONTALI, PAPPAS, and RIEGLE, [ Bankruptcy Judges.
Hon. Linda B. Riegle, Bankruptcy Judge for the District of Nevada, sitting by designation.
MEMORANDUM
Before the debtor filed his bankruptcy petition, an assignee of a judgment creditor filed a state law fraudulent transfer action against the debtor, the debtor's wife and others. After debtor filed bankruptcy, the chapter 7 trustee moved to intervene in the state court fraudulent transfer action as the proper party plaintiff; after defendants objected, the state court held that it would not grant the trustee's motion to intervene until the bankruptcy court granted relief from the automatic stay to the trustee. The trustee moved for an order determining that the automatic stay was inapplicable, or, alternatively, for relief from the automatic stay.
Unless otherwise indicated, all chapter, section and rule references are to the Bankruptcy Code, 11 U.S.C. § § 101-1330, and to the Federal Rules of Bankruptcy Procedure, Rules 1001-9036, as enacted and promulgated prior to the effective date of The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. 109-8, 119 Stat. 23.
In addition, the non-debtor defendants in the state fraudulent transfer action filed a motion for relief from stay so that they could file a motion to dismiss that action. They contended that, upon the filing of debtor's case, the creditor plaintiff lost standing and thus the chapter 7 trustee could not intervene or substitute herself as the plaintiff.
The bankruptcy court denied the non-debtor defendants' motion for relief from stay, holding that the creditor plaintiff did not lose standing and that the trustee could intervene in the state court lawsuit. For the same reasons, the court entered an order terminating the automatic stay as to the trustee, even though it struck the trustee's requested language that the stay was inapplicable. The defendants appealed the denial of their motion and the granting of the trustee's motion, and the trustee cross-appealed the court's order granting her relief from the stay because it did not specifically provide that the stay was inapplicable. We AFFIRM the order denying the defendants' motion for relief from stay, AFFIRM the order granting the trustee's motion for relief from stay, and DISMISS the trustee's cross-appeal on jurisdictional grounds.
I. FACTS
On April 12, 2002, Robert E. McKee, Inc. obtained a judgment in the amount of $730, 193.15 against Lee Vandevort. In June 2004, Robert E. McKee, Inc. assigned its rights and interests in the judgment to Creditors Adjustment Bureau, Inc. (" CAB"). On November 22, 2004, CAB filed a state court complaint (the " State Court Action") to set aside a fraudulent transfer pursuant to the Uniform Fraudulent Transfer Act, naming Leland W.Vandevort a/k/a Lee Vandevort, Melissa Hanlin (individually and as trustee of the Melissa Hanlin Trust) (" Hanlin") and Always There Nursing Care, Inc. (" Always There") as defendants. On December 10, 2004, CAB recorded a Notice of Pendency of Action (the " Lis Pendens") against real property located in Los Angeles (the " Property").
On January 20, 2005, Leland W.Vandevort a/k/a Lee Vandevort a/k/a Milton Lee Vandevort (" Debtor") filed a chapter 7 petition in Wyoming. After CAB filed a motion to transfer venue, the Wyoming bankruptcy court transferred venue to the Central District of California in May 2005. Helen Ryan Frazer (" Trustee") was appointed chapter 7 trustee. Debtor's discharge has been denied.
On January 5, 2007, Trustee filed an adversary proceeding (the " AP") against Debtor, Hanlin, Always There and others to, among other things, recover preferential and fraudulent transfers. As CAB had alleged in the State Court Action, Trustee alleged that Debtor, Hanlin and Always There participated in a fraudulent transfer of the Property.
In May 2008, Hanlin filed a motion for relief from stay so that she could bring a motion to expunge CAB's Lis Pendens. Trustee opposed it, noting that after the Lis Pendens was recorded, Hanlin refinanced the Property. In July 2008, Trustee obtained (by stipulation) an order stating that to the extent the recording of the Lis Pendens constituted a transfer, the transfer was avoided as preferential and preserved for the benefit of the estate. On February 25, 2009, the bankruptcy court granted relief from the automatic stay as to Hanlin and Always There so that they could seek an order from the state court expunging the Lis Pendens. That order is not the subject of these appeals.
On pages 3-4 of her Opening Brief, Trustee explained the significance of the Lis Pendens to the estate. Trustee wants to preserve the benefit of the recording of the Lis Pendens for the estate, thereby giving the estate a priority over the holders of subsequent encumbrances. California Code of Civil Procedure section 405.24 states that from the time of the recording of a pendency of action, a subsequent purchaser, encumbrancer, or other transferee has constructive notice of the action. The rights and interests of the claimant/plaintiff, as ultimately determined in the action, relate back to the date of the recording of the notice. Cal. Code Civ. Pro. § 405.24.
On September 28, 2008, Hanlin and Always There (collectively, " Appellants") filed another motion for relief from stay (the " Hanlin MRS") so that they could file a motion to dismiss the State Court Action on the grounds of lack of standing. In particular, the Hanlin MRS stated that " relief from the stay only is sought so that a motion may be brought to dismiss a State Court action that a plaintiff-creditor lacks standing to pursue and that the Trustee has no interest in." (Emphasis added).
Thereafter, Trustee moved in the State Court Action to intervene as the proper plaintiff. On November 5, 2008, the state court entered a minute order denying Trustee's motion to intervene " without prejudice to re-filing if [Trustee] can obtain relief from the automatic stay from the bankruptcy court." Consequently, on November 19, 2008, Trustee filed a motion for relief from stay (the " Trustee MRS") so that she could move to intervene in the State Court Action. Trustee sought a ruling that the automatic stay was inapplicable; alternatively, Trustee requested relief from the automatic stay.
The bankruptcy court held a joint hearing on the Trustee MRS and the Hanlin MRS on January 6, 2009. The court held that CAB did not lose the standing it held as of the commencement of the State Court Action; rather, the filing of Debtor's bankruptcy stayed CAB from pursuing that action. The court further held that Trustee had the right to intervene in the State Court Action and to prosecute it on behalf of the estate. The court therefore indicated that it would deny the Hanlin MRS and grant the Trustee MRS.
On January 21, 2009, the bankruptcy court entered an order granting the Trustee MRS. The court struck language in the order proposed by the Trustee indicating that the automatic stay was inapplicable with respect to the Trustee's intervention in and prosecution of the State Court Action. On February 2, 2009 (a Monday), before the court entered an order denying the Hanlin MRS, Appellants filed a motion to vacate and amend the order denying the Hanlin MRS and the order granting the Trustee MRS. The order denying the Hanlin MRS was entered on February 13, 2009, and the order denying the motion to vacate or amend was entered on February 25, 2009.
On March 5, 2009, Appellants filed their notice of appeal of the order denying the Hanlin MRS, the order granting the Trustee MRS and the order denying the motion to vacate and amend both of those orders. This notice of appeal commenced BAP No. 09-1078 (the " Appeal"). Trustee filed her timely notice of cross-appeal on March 11, 2009, leading to BAP No. 09-1086 (the " Cross-Appeal").
A motion to amend a judgment filed before entry of the order suspends the appeal period that would otherwise start when the order is entered. The appeal period recommences upon entry of an order disposing of the tolling motion. Larez v. City of Los Angeles, 946 F.2d 630, 636-37 (9th Cir. 1991); Fjeldsted v. Lien (In re Fjeldsted), 293 B.R. 12, 18-19 (9th Cir. BAP 2003). Appellants' notice of appeal was thus timely under Rule 8002(b).
The matter was argued before us on July 31, 2009; on August 14, 2009, Trustee filed a motion to augment the record with a conformed copy of her request for dismissal of her complaint in intervention in the State Court Action; this motion provided evidence of representations made by Trustee's counsel at oral argument. Notwithstanding her request to dismiss her complaint in intervention, Trustee stated in her motion that she eventually intends to intervene again in the State Court Action and thus the " propriety of the [order granting the Trustee MRS] remains contested and at issue" in the Appeal and Cross-Appeal. Appellants filed an opposition to the motion to augment on August 19, 2009. Appellants did not oppose the augmentation itself, but argued that Trustee's post-appeal actions in the State Court Action may have mooted the Cross-Appeal, but did not moot the portion of the Appeal pertaining to the order granting the Trustee MRS.
We hereby grant the motion to augment the record, and will address the legal ramifications of Trustee's post-appeal actions in Part III (Jurisdiction).
II. ISSUES
A. Do we have jurisdiction over the Appeal and Cross-Appeal?
B. Did the bankruptcy court err in denying the Hanlin MRS?
III. JURISDICTION
The bankruptcy court had jurisdiction over both the Hanlin MRS and the Trustee MRS under 28 U.S.C. § 157(b)(2)(G) and § 1334. For the reasons set forth below, we have jurisdiction over the Appeal, but not the Cross-Appeal.
A. The Appeal
" Orders granting or denying relief from the automatic stay are deemed to be final orders." Nat'l Envtl. Waste Corp. v. City of Riverside (In re Nat'l Envtl. Waste Corp.), 129 F.3d 1052, 1054 (9th Cir. 1997). As noted in footnote 5, the Appellants' notice of appeal is timely and therefore we have jurisdiction over the Appeal pursuant to 28 U.S.C. § 158, to the extent it is not moot. Appellants expressed concern in their opposition to the motion to augment that we would treat as moot their appeal of both the order granting the Trustee MRS and the order denying the Hanlin MRS, in light of the Trustee's request to dismiss her complaint in intervention in the State Court Action. We do not, as reversal in the Appeal would grant effective relief to Appellants.
In determining whether an appeal is moot, our " inquiry focuses upon whether we can still grant relief between the parties." I.R.S. v. Pattullo (In re Pattullo), 271 F.3d 898, 901 (9th Cir. 2001). Here, reversal would grant relief to Appellants if we ultimately agree with them that the bankruptcy court erred as a matter of law in granting the Trustee MRS and denying the Hanlin MRS. The Trustee MRS order granted relief from the stay so that Trustee could move to intervene in the State Court Action; the court placed no temporal limitation on such intervention. Thus, the order remains effective whether Trustee intervenes now or at a later date; in other words, Trustee can move to intervene at some uncertain date in the future (which she intends to do, according to her motion to augment the record) without requesting further relief from the stay. A reversal would negate that extant order, to the benefit of Appellants.
Similarly, notwithstanding Trustee's withdrawal of her complaint in intervention, Appellants are still prevented from moving for dismissal of the State Court Action in light of the denial of the Hanlin MRS (which specifically requested relief from the stay so that Appellants could move for dismissal because CAB " lacks standing to pursue [it] . . . and Trustee has no interest in [it].)" Appellants contend that the bankruptcy court erred as a matter of law when granting the Trustee MRS and denying the Hanlin MRS, and request that we address the purported error now. Because a reversal of either order would provide effective relief to Appellants, the events described in Trustee's motion to augment do not render the Appeal moot.
B. The Cross-Appeal
The Cross-Appeal, however, presents different jurisdictional issues. In determining if we have jurisdiction, we must examine whether the parties have standing, whether the case or controversy is ripe, or whether the issue is moot. Lee v. Oregon, 107 F.3d 1382, 1387 (9th Cir. 1997). " [J]usticiability requires that a dispute be ripe and present an actual controversy." Menk v. Lapaglia (In re Menk), 241 B.R. 896, 905 (9th Cir. BAP 1999). We do not have jurisdiction over the Cross-Appeal because Trustee lacks standing as a party " aggrieved" by the order granting the Trustee MRS and the issues raised in the Cross-Appeal are not ripe for review.
For the reasons described in subsection A (regarding the Appeal) above, we do not believe the Cross-Appeal is moot. The order granting the Trustee MRS is still extant, and Trustee has indicated an intent to take the action permitted by the order (intervention in the State Court Action) at a future date.
First, only a party aggrieved by a judgment may appeal from it. United States v. Good Samaritan Church, 29 F.3d 487, 488 (9th Cir. 1994) (appeal dismissed even though appellants lost on issue appealed because decision on that issue was immaterial to judgment below, had no preclusive effect on appellants, and appellants otherwise won the case). Here, even though Trustee obtained the relief she sought (leave from the bankruptcy court to file a motion or complaint to intervene in the State Court Action), she wants us to issue an advisory opinion on her alternate theory of relief: " A definitive ruling by this Court in a published opinion [that the automatic stay is inapplicable to trustees] will hopefully provide adequate precedent so that State Court judges will no longer be in a quandary regarding this issue." Trustee's Opening Brief at page 2.
Because the Trustee received relief from the automatic stay, the bankruptcy court did not have to reach or decide the Trustee's alternate theory that the automatic stay is inapplicable to trustees; a finding or conclusion as to that theory was not necessary for the granting of Trustee's MRS. As the Supreme Court said in Elec. Fittings Corp. v. Thomas & Betts Co., 307 U.S. 241, 59 S.Ct. 860, 83 L.Ed. 1263, 1939 Dec. Comm'r Pat. 889 (1939): " A party may not appeal from a judgment or decree in his favor, for the purpose of obtaining a review of findings he deems erroneous which are not necessary to support the decree." In any event, the bankruptcy court made no findings as to the applicability of the stay, so the doctrine of issue preclusion should not apply. The court did not make a finding adverse to Trustee which was necessary or material to the order granting relief from the stay. Pension Trust Fund for Operating Engrs. v. Fed. Ins. Co., 307 F.3d 944, 947 n.1 (9th Cir. 2002). In the absence of an adverse ruling with preclusive effect, Trustee lacks standing to bring the cross-appeal. Id.
In addition, the Cross-Appeal is not ripe. Trustee is concerned that the bankruptcy court's refusal to make a finding as to the applicability of the stay will somehow affect issues pertaining to the removal and possible remand of the State Court Action. Such issues regarding removal and remand, however, are uncertain and contingent; a determination by us as to the applicability of the stay would be an advisory opinion on a speculative, abstract controversy. We therefore lack jurisdiction to resolve the Cross-Appeal and will dismiss it. Richardson v. City and County of Honolulu, 124 F.3d 1150, 1160 (9th Cir. 1997).
IV. STANDARDS OF REVIEW
" The decision to grant or deny relief from the automatic stay is committed to the sound discretion of the bankruptcy court, and we review such decision under the abuse of discretion standard." Benedor Corp. v. Conejo Enters. (In re Conejo Enters.) 96 F.3d 346, 351 (9th Cir. 1996); citing Idaho v. Arnold (In re Arnold), 806 F.2d 937, 938 (9th Cir. 1986). We review findings of fact for clear error and issues of law de novo. Litton Loan Serv'g, LP v. Garvida (In re Garvida), 347 B.R. 697, 703 (9th Cir. BAP 2006).
V. DISCUSSION
Appellants argue that the bankruptcy court erred as a matter of law in granting the Trustee MRS and in denying the Hanlin MRS. Specifically, Appellants contend that the bankruptcy court erred in concluding that (1) CAB did not lose standing in the State Court Action and (2) Trustee had the right to intervene as the proper plaintiff in the State Court Action. Appellants assert that the bankruptcy court therefore abused its discretion in denying the Hanlin MRS and depriving Appellants of the ability to move for dismissal on standing grounds, and in granting the Trustee relief from the stay to intervene in the State Court Action. We disagree.
A. CAB's Standing
As the bankruptcy court correctly noted in its oral ruling, standing is determined at the time a lawsuit is commenced. Skaff v. Meridien N. Am. Beverly Hills, LLC, 506 F.3d 832, 850 (9th Cir. 2007) (" Standing is determined at the time of the lawsuit's commencement, and we must consider the facts as they existed at that time the complaint was filed, with the effect of subsequent events generally analyzed under mootness principles."), citing Lujan v. Defenders of Wildlife, 504 U.S. 555, 571 n.4, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992). No one disputes that CAB had standing to bring the State Court Action at the time it was commenced. Viewing the facts as they existed when the state court complaint was filed (as directed by the Supreme Court in Lujan), we agree with the bankruptcy court that CAB had standing in the State Court Action and dismissal would be inappropriate on standing grounds.
Moreover, Debtor's filing of the bankruptcy petition did not cause CAB to lose its standing. As the First Circuit held in Unisys Corp. v. Dataware Prods., Inc., 848 F.2d 311, 313-14 (1st Cir. 1988), a creditor who filed a prepetition fraudulent transfer action did not " lose" standing; to the contrary, upon the abandonment of the fraudulent transfer causes of action by the trustee, those causes of action " reposed" in the creditor " free of any stay." Id . at 314. The creditor could therefore pursue its prepetition fraudulent transfer litigation.
In City Nat'l Bank v. Chabot (In re Chabot), 100 B.R. 18, 23 (Bankr. C.D. Cal. 1989), the bankruptcy court examined this issue and held that a creditor may pursue a state law fraudulent conveyance (transfer) cause of action upon a trustee's abandonment of that cause of action:
The bankruptcy court's decision was affirmed by the district court at 131 B.R. 720 (C.D. Cal. 1991) and by the Ninth Circuit at 992 F.2d 891 (9th Cir. 1993). The primary focus of all three Chabot decisions was whether, under section 522(f), the homestead exemption was impaired by a judicial lien when its nominal value was not diminished in value. The section 522(f) aspect of the Ninth Circuit's Chabot decision was overruled by statute as noted in Wynns v. Wilson (In re Wilson), 90 F.3d 347, 350 (9th Cir. 1996) (the mathematical formula inserted by Congress into section 522(f) in its 1994 amendments overruled Chabot). The bankruptcy court's other holding -- that a creditor does not " lose" standing to prosecute a prepetition fraudulent transfer action, but is instead stayed from acting on it -- has not been reversed or overruled.
" Under Code § 544(b), the filing of a bankruptcy petition does not strip creditors of state-created rights to avoid transfers, it merely shifts that right to the creditors' representative." 4 Norton Bankruptcy Law & Practice § 30.06, at 12 (1988). The mere fact that Section 544(b) gave the Chapter 7 Trustee standing in a representative capacity to assert the Bank's claim for a period of time did not act to destroy the Bank's rights. When a case is closed in which the trustee did not pursue a fraudulent conveyance cause of action pursuant to Section 544(b), such as happened in the Chabots' case, the right to pursue the state law cause of action reposes once again in whomever is able to assert it.
Chabot, 100 B.R. at 23 (emphasis added). In other words, the filing of a bankruptcy petition does not strip a creditor of standing to pursue a fraudulent transfer action if the trustee abandons it, particularly where (as here) the debtor's discharge has been denied. Rather, the creditor is stayed from prosecuting the claim and unless the trustee opts to intervene or to file his or her own fraudulent transfer action, the creditor may pursue the cause of action upon closing of the bankruptcy estate (unless the matter has become moot because the creditor's claim has been discharged).
Appellants have cited only one case where a prepetition fraudulent transfer was dismissed because the plaintiff " lost" standing; most of the cases cited by Appellants involve the standing of creditors to bring postpetition fraudulent transfer actions. Appellants cite California v. PG& E Corp. (In re Pac. Gas & Elec. Co.), 281 B.R. 1 (Bankr. N.D. Cal. 2002) and other distinguishable cases holding that a creditor lacks standing to commence a postpetition fraudulent transfer action. They also cite In re Daniele Laundries, Inc., 40 B.R. 404 (Bankr. S.D.N.Y. 1984) in which the bankruptcy court held that a trustee's adversary proceeding to avoid fraudulent transfers " supersedes" a creditor's prepetition state court action to avoid the same transfers. The creditor therefore did not have " standing" to prosecute its state court action.
Here, no one disputes that CAB lacks the right (denominated as " standing" by the Daniele Laundries court) to prosecute the State Court Action as long as the Trustee possesses the authority to prosecute such claims under section 544. Notwithstanding the language of Daniele Laundries, we believe that the First Circuit and the bankruptcy court in Chabot correctly held that prepetition standing of a creditor plaintiff is not " lost" but rather its rights are superseded unless and until claims are abandoned under section 554, particularly when the discharge of the debtor has been denied.
A case cited by Appellants further supports this conclusion. In Barber v. Westbay (In re Integrated Agri, Inc.), 313 B.R. 419, 422-23 (Bankr. C.D. Ill. 2004), the court held that a " creditor who had the right to bring, outside of bankruptcy, a UFTA claim to recover prepetition transfers fraudulently made by the debtor, has no standing to commence or continue the suit during the bankruptcy case, until and unless the trustee relinquishes the Section 544(b) claim or the trustee no longer has a viable cause of action." (Emphasis added.) Thus, standing is not " lost" but merely suspended while the case is pending.
B. Trustee's Right to Intervene
Appellants also argue that the bankruptcy court should have granted their request for relief from stay so that they could move for dismissal of an action " that the Trustee has no interest in." Specifically, Appellants contend that Trustee has no right to intervene or substitute herself as the proper plaintiff in the State Court Action. We disagree. Bankruptcy Rule 6009 permits a trustee to prosecute any action or proceeding on behalf of the estate " before any tribunal." Case law demonstrates that such prosecution encompasses the substitution or intervention by the trustee in a fraudulent transfer action commenced by a creditor.
In Matter of Leonard, 125 F.3d 543, 544 (7th Cir. 1997), creditors filed a prepetition fraudulent transfer action and recorded a lis pendens against the transferred property. The chapter 7 trustee, obviously having intervened or otherwise acquiring the right to appear in the state court lawsuit, removed the action to bankruptcy court. The creditors moved for relief from the stay and for abandonment of the property. The bankruptcy court denied the relief and the Seventh Circuit affirmed. The Seventh Circuit noted that the fraudulent transfer action remained on the bankruptcy court's docket, implicitly confirming that the trustee had the right to remove and prosecute the prepetition fraudulent conveyance action.
In In re Zwirn, 362 B.R. 536, 541-42 (Bankr. S.D. Fla. 2007), a creditor brought a prepetition fraudulent transfer against the debtor and other defendants. The bankruptcy court held that the chapter 7 trustee had exclusive standing to prosecute those claims during the pendency of the case and therefore could settle those claims over the objection of the creditor, noting that the trustee was free to file his own fraudulent transfer claim or to intervene in the state court fraudulent transfer action. In Sturgeon State Bank v. Perkey (In re Perkey), 194 B.R. 846, 851 (Bankr. W.D. Mo. 1996), the court held that the trustee had the right to intervene in a fraudulent conveyance action commenced by a creditor as long as the creditor waived a potential conflict of interest problem.
A review of published California state cases reflect that bankruptcy trustees have been substituted as the proper plaintiffs in state court fraudulent transfer cases filed by the debtor's creditors. See Chichester v. Mason, 43 Cal.App.2d 577, 111 P.2d 362 (1941); Wells v. Lloyd, 35 Cal.App.2d 6, 94 P.2d 373 (1939). Appellants have not demonstrated by citation to any law that Trustee is prohibited from intervening in the State Court Action. The bankruptcy court therefore did not abuse its discretion in granting the Trustee MRS and denying the Hanlin MRS; granting the Hanlin MRS would have been futile, because Appellants would not have prevailed on a motion to dismiss the State Court Action based on the purported absence of standing by both CAB and Trustee.
VI. CONCLUSION
For the foregoing reasons, we AFFIRM the orders denying the Hanlin MRS and granting the Trustee MRS. We DISMISS the Cross-Appeal for lack of jurisdiction.