Opinion
NOT FOR PUBLICATION
Argued and Submitted at San Francisco, California: November 16, 2005
Appeal from the United States Bankruptcy Court for the Northern District of California. Honorable Thomas E. Carlson, Bankruptcy Judge, Presiding. Bk. No. 03-33382.
Before: SMITH, ZURZOLO[ and MARLAR, Bankruptcy Judges.
Hon. Vincent Zurzolo, United States Bankruptcy Judge for the Central District of California, sitting by designation.
MEMORANDUM
Appeal is taken from two orders made by the bankruptcy court: 1) an order, entered July 22, 2004, sustaining in part an objection to proof of claim (" Claim Objection Order"); and 2) an order, entered October 8, 2004, denying in part a motion for its reconsideration (" Reconsideration Order"). We REVERSE in part, VACATE and REMAND in part, and AFFIRM in part.
I. FACTS
Collin Stone (" Debtor") was the sole proprietor of a web design business known as Cogneo. Debtor employed James Yett (" Yett") as a consultant between September 1999 through early 2002. During this period, Debtor failed to maintain Yett's employment time records in an organized fashion, and paid him on a fairly irregular basis. In addition, Yett's salary structure was not determined up front, but was subject to ongoing negotiations during the tenure of his employment.
Debtor filed his chapter 13 petition on November 17, 2003, which was subsequently converted to a chapter 7 on May 5, 2005. During the pendency of the chapter 13, both Yett and the chapter 13 trustee filed separate objections to the confirmation of Debtor's plan. Yett also appeared at the § 341(a) creditors meeting and at a subsequent pre-trial hearing (held on February 11, 2004) to assert the objection and a claim for unpaid wages. At the pre-trial hearing, the bankruptcy court instructed Yett to file a proof of claim and to communicate any information that Yett may have with regard to Debtor's property, income, and/or expenses to the trustee.
Unless otherwise indicated, all Code, chapter and section references are to the United States Bankruptcy Code, 11 U.S.C. § § 101-1330 prior to its amendment by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. 109-8, 119 Stat. 23 (2005).
On March 9, 2004, Yett filed his proof of claim for unpaid wages in the amount of $261,330.50. The claim reflected that Debtor owed Yett for: 1) unpaid wages, including overtime, for the month of December 1999 and all of 2000 in the amount of $138,710; 2) wages earned in 2001 in the amount of $53,954.50 (earned $75,954.50, but $22,000 was paid); 3) a statutory wage penalty in the amount of $13,200; and 4) interest in the amount of $55,466. Debtor objected on the grounds that the wages were disputed and unliquidated.
A pre-trial hearing (continued from February 11, 2004) was held on March 10, 2004, where the trustee informed the bankruptcy court that the amount of Yett's claim was substantial and the total debt may be outside the maximum limits for a chapter 13 as imposed by § 109(e). The court inquired as to whether the claim was readily determinable, and advised Yett that if he wanted to pursue a § 109(e) objection to either file a motion with the court (with supporting documents) or give the documents to the trustee to allow him to determine the direction of the case.
Neither Yett, nor the trustee, filed formal motions to dismiss the chapter 13 case pursuant to § 109(e).
On April 26, 2004, a scheduling order was entered that indicated that a trial was to be held on the " objections to [the] confirmation of Debtor's chapter 13 plan by Creditor James Yett and the Chapter 13 Trustee." However, the trial briefs, and later, the written memorandum issued by the court, construed the matter to be the liquidation of Yett's proof of claim for purposes of § 109(e).
The matter went to trial on July 7, 2004. The evidence presented at trial consisted of, among other things, Yett's palm pilot time records and a 605-page employee " chat log." Debtor presented his testimony, as well as that of two employee witnesses: Todd Markle and Anna Englewood. Markle was employed in the latter part of 2000 and testified generally about Yett's working habits - that he often arrived around 10:00 or 11:00 a.m. and usually left by 6:00 p.m. Markle conceded that he could not testify about weekend hours or work performed outside the office. Englewood, who did not become employed full-time until 2001 (after the overtime claim period) but worked as a bookkeeper, testified about Yett's work hours, as well as the ongoing negotiations over his compensation rate.
The bankruptcy court determined that Yett had an allowable general unsecured claim in the amount of $105,627. More specifically, the bankruptcy court ruled
I find that in 1999 Yett worked an equivalent of 35 hours per week for 10 weeks. His resulting earnings are $19,250. I find that Debtor paid Yett $10,000 for 1999 work. Yett is thus entitled to recover $9,250, plus prejudgment interest in the amount of $4,162.
I find that in 2000 Yett worked an equivalent of 40 hours per week for 48 weeks. His resulting earnings are $105,600. I find that Debtor paid Yett $60,389 for 2000 work. Yett is thus entitled to recover $45,211, plus prejudgment interest in the amount of $18,804.
The parties agree that Yett would be paid on commission basis in 2001. He would be paid an hourly rate only for certain maintenance work. I find that Yett was paid all the commissions he earned. Yett was not paid for 290 hours of maintenance work. Yett contends that he was to be paid $100 per hour for that work, Debtor contends Yett was to be paid $40 per hour. I find that the parties agreed that Yett was to be paid $40 per hour for the work in question. Yett is entitled to recover $11,600, plus prejudgment interest in the amount of $3,400.
See Memorandum Decision, July 16, 2004, p. 2-3.
On July 26, 2004, Yett filed a motion for reconsideration, or in the alternative, to either amend the Claim Objection Order or for a new trial. He argued that reconsideration was warranted as the bankruptcy court: 1) made calculation errors as to the 2001 wage findings; 2) overlooked the number of hours worked, including overtime hours during the 1999-2000 period; and 3) mislead Yett as to the purpose of the trial.
Debtor opposed the motion on the ground that Yett had not presented evidence of a manifest error of law or mistake of fact, but merely provided the court the same evidence he submitted for trial.
The hearing on the reconsideration motion was held on September 30, 2004. The bankruptcy court acknowledged its error with regard to certain mathematical calculations and amended the Claim Objection Order, changing the 2001 commission amount from $11,600 to $42,476.50 plus prejudgment interest in the amount of $13,274. The remaining portions of the reconsideration motion were denied.
The court found that Yett earned $64,476.50 ($15,580 maintenance, $49,896.50 commission) in 2001, but that he was only paid $22,000 for his work.
The Reconsideration Order fails to state the grounds for which the other portions of the motion were denied. However, a tentative ruling was issued by the court, which indicates that the basis of the court's decision was due to Yett's failure to demonstrate any manifest error of law or fact.
Yett was represented by counsel during the bankruptcy proceedings, but appears before the panel pro se.
II. ISSUES ON APPEAL
A. Whether the bankruptcy court erred when it disallowed a portion of Yett's proof of claim.
B. Whether the bankruptcy court erred when it denied in part a motion to reconsider the Claim Objection Order.
III. JURISDICTION
Federal subject matter jurisdiction is founded under 28 U.S.C. § 1334(b). An objection to a claim is an enumerated core proceeding that the bankruptcy court has the authority to determine. 28 U.S.C. § 157(b)(2)(B). The bankruptcy court may also reconsider a disallowed claim under Rule 3008 and § 502(j). We have appellate jurisdiction over final orders pursuant to 28 U.S.C. § 158(c).
IV. STANDARD OF REVIEW
We review the bankruptcy court's legal conclusions de novo, findings of fact for clear error, and mixed questions of law and fact de novo. In re Roberts, 331 B.R. 876, 880 (9th Cir. BAP 2005). A bankruptcy court's interpretation of state law is also reviewed de novo. Id.
We also " give due regard to the opportunity of the bankruptcy court to judge the credibility of witnesses." In re Carolan, 204 B.R. 980, 984 (9th Cir. BAP 1996). " If two views of the evidence are possible, the bankruptcy court's choice between them cannot be clearly erroneous." Id.; Anderson v. Bessemer City, 470 U.S. 564, 573, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985).
Denial of a motion for reconsideration of the allowance or disallowance of a claim under Rule 3008 and § 502(j) is reviewed for abuse of discretion. In re Negrete, 183 B.R. 195, 197 (9th Cir. BAP 1995); In re Edelman, 237 B.R. 146, 150 (9th Cir. BAP 1999); In re Cleanmaster Industries, Inc., 106 B.R. 628, 630 (9th Cir. BAP 1989). A court abuses its discretion if it bases its ruling on either an erroneous view of the law or a clearly erroneous assessment of the evidence. In re Captain Blythers, Inc., 311 B.R. 530, 534 (9th Cir. BAP 2004).
V. DISCUSSION
A. Notwithstanding the Subsequent Conversion to a Chapter 7, the Appeal is Not Moot
A preliminary issue is whether the appeal is rendered moot in light of Debtor's subsequent voluntary conversion to a chapter 7 following the filing of this appeal. The record reflects that the underlying purpose of the trial was to determine the liquidation of Yett's claim, and whether that amount would impel Debtor out of a chapter 13 bankruptcy due to the debt limitations imposed under § 109(e) .
Section 109(e) provides
To this limited extent, we indeed believe the issue is moot as the case has now been converted to a chapter 7. However, notwithstanding the conversion, the bankruptcy court made certain findings and conclusions at trial as to Yett's proof of claim for unpaid wages that is relevant to the bankruptcy case. Further, as nothing in the bankruptcy court docket, or record, reflects that this is a no asset case, we believe the merits of the appeal are worthy of adjudication.
We note that the docket reflects 1) a notice of possible dividends (filed June 16, 2005); and 2) an adversary proceeding filed by Yett against Debtor objecting to his discharge pursuant to § § 727(a)(2) and (a)(3).
B. The Bankruptcy Court Erred in Disallowing a Portion of Yett's Proof of Claim
In support of his position that the bankruptcy court erred in disallowing a portion of Yett's proof of claim, Yett proposes the following arguments (set forth as " issues on appeal" in his briefs):
1) The contemporaneous and reconstructed hourly records, unrefuted by Debtor, were authoritative and binding on the court;
2) The testimony of Debtor's witnesses should not have been admitted;
3) The court erroneously relied on a single, isolated commission invoice, which did not accurately reflect the agreed upon rate in making its finding as to the commission portion of the claim; and,
4) The court mislead Yett, to his detriment, into believing that the issue to be determined at trial was merely whether his claim could be " readily liquidated" - not the liquidation of the claim itself.
1. Yett's Contemporaneous and Reconstructed Work Recordsfor 1999 and 2000
In Hernandez v. Mendoza, 199 Cal.App.3d 721, 245 Cal.Rptr. 36 (1988), a dispute arose as to a former employee's overtime compensation against an employer. The employee introduced a self-created calendar that he had filled out from memory that purported to reflect his work log. The employer introduced time cards (that he subsequently admitted were falsified). The trial court entered judgment for the employer holding that the employee did not carry his burden of certainty since the court could not tell how much overtime was worked. The Court of Appeal reversed, holding
Although the employee's evidence was imprecise as to the amount of overtime he had worked, the consequences of the employer's failure to keep accurate records as required by statute should fall on the employer, not the employee. The employee carried out his burden, the court held, by proving that he had performed work for which he was improperly compensated and by producing sufficient evidence that showed the amount and extent of that work as a matter of just and reasonable inference. The burden then shifted to the employer to produce evidence either of the precise amount of work or evidence to negate the reasonableness of the inference to be drawn from the employee's evidence.
Id.
The bankruptcy court expressly adopted the approach in Hernandez, noting that
[w]here an employer fails to meet its state-law obligation to keep time records, an employee may satisfy his burden of proof by submitting his own estimate of hours worked, and the burden then shifts to the employer to introduce " evidence to negative the reasonableness of the inference to be drawn from the employee's evidence."
See Memorandum Decision, July 16, 2004, p. 2. Applying the standard in Hernandez, the bankruptcy court found that Yett had not been fully compensated for regular work hours completed in 1999 and 2000, but determined that he was not entitled to overtime wages for the same period. Yett disagrees.
Yett asserts that the bankruptcy court erred in not crediting him with overtime (45-hour weeks) for 1999 and 2000. More specifically, he complains that the court's determination that he worked only 35-hour weeks for 10 weeks in 1999 and 40-hour weeks for 48 weeks in 2000 is not supported by the record and reflects a misapplication of the very case upon which it relies ( Hernandez v. Mendoza, 199 Cal.App.3d 721, 245 Cal.Rptr. 36 (1988)). By illustration, Yett claims that his palm pilot records (as corroborated by evidence presented by Debtor) shows that he worked 780 hours from December 1, 1999 through March 31, 2000, or 45 hours per week. Since Debtor did not oppose the evidence, Yett maintains that the bankruptcy court should have given him credit for all the overtime hours asserted.
A letter, written by Yett (dated June 15, 2000), and submitted as part of Debtor's trial exhibits, references an agreement that Yett worked 780 hours during the respective period.
In addition, Yett argues that the bankruptcy court erroneously included months (October and November 1999) for which he was fully paid and did not include in his proof of claim. By including these months into the calculation, the bankruptcy court effectively drove down the average number of hours worked from 45 hours per week to 35 hours per week.
We agree. The record does reflect that Debtor failed to offer viable evidence to refute Yett's contemporaneous and reconstructed hourly records for December 1999 and 2000.
a. Overtime Claim for December 1999
Debtor submitted no evidence to counter Yett's evidence for December 1999. Neither of Debtor's witnesses testified about Yett's work hours during the month of December 1999. Further, the June 15, 2001 letter (the content of which was not challenged by Debtor at trial), supports a 45-hour average for December 1999. In addition, Yett's unrefuted testimony and records showing payment of $20,000 for October and November 1999 also advances his position that he earned overtime. Finally, his palm pilot records for December 1999 demonstrate that he worked a total of 186 hours (which averages to approximately 45 hours a week).
It is not clear from the record how the bankruptcy court, in the face of this evidence, calculated a weekly average of only 35 hours over a ten-week period for 1999. We, therefore, conclude that the bankruptcy court erred in disallowing Yett's claim for overtime for December 1999.
b. Overtime Claim for 2000
The record does not clearly reflect the basis of the bankruptcy court's findings (that Yett worked 40 hours for 48 weeks) with regard to wage claims for 2000. Yett's documentation, submitted with his proof of claim, indicates that he worked a total of 2796.5 hours (deducting 186 hours worked in December 1999) for 51 weeks, which averages to 54.83 hours per week. While direct witness testimony (the only evidence provided by Debtor) may refute Yett's claim and support the court's findings, the hearing on the motion for reconsideration reflects that the bankruptcy court did not consider the testimony significant:
Yett's computations are as follows: 1) Q1 2000, worked 780 hours for 17 weeks; 2) Q2 2000, worked 754 hours for 13 weeks; 3) Q3 2000, worked 968.5 hours for 13 weeks; and 4) Q4 2000, worked 480 hours for 12 weeks.
The Court: Well, I'll just tell you this. They [witnesses] - they quoted various sections of [the chat log]. I didn't rely on that at all. I did a sample of a good number of a good period of time in this log. And I relied on my own sample of this log during the period in question, not anybody's testimony.
The testimony only raised the question for me that I should go look at this and see - and see what it showed. So they sort of did a sample, and I just ignored their sample and did my own.
Transcript of Proceeding, September 30, 2004, p. 9.
The bankruptcy court's failure to identify the " sample, " as well as other factors for which it relied on in arriving at its decision to ultimately reduce Yett's overtime claims for 2000 can only lead us to believe that the court erred. Therefore, we vacate and remand for further findings consistent with this memorandum as to the wage claims for 2000.
2. Weight of Witnesses' Testimony
Yett claims that the bankruptcy court erred in considering the testimony of Debtor's witnesses because neither had personal knowledge of Yett's work records for the time periods in question (December 1999 - 2000). In particular, Yett asserts that Englewood was not employed by Cogneo during this period, and Markle was only present for the final month of the coverage period and, even then, he did not have personal knowledge of Yett's work schedule.
Yett's assessment of the evidence provided by Debtor is partially correct. Although the record does reflect that the witnesses were not employed with Cogneo - for the most part - during the time periods in question, Englewood was a part-time bookkeeper and was, therefore, in a position to provide testimony as to documents relevant to Yett's claim, i.e., bills and invoices for 2000 and 2001. Nevertheless, as the court relied on its own sample and not anyone's testimony in calculating the number of hours Yett worked, we find Yett's challenge to the weight placed on the testimony by the court to be immaterial.
We do note, however, that even if the court did rely to some extent on the testimony of Debtor's witnesses, we are bound to give deference to its findings as the bankruptcy court is in a much better position to evaluate and weigh the evidence than the appellate courts. Fed.R.Civ.P. 52(a); See United States v. McConney, 728 F.2d 1195 (9th Cir. 1984)(cert. denied, 469 U.S. 824, 105 S.Ct. 101, 83 L.Ed.2d 46 (1984)). And, unless there is a showing that the bankruptcy court clearly erred in assessing the credibility and evidentiary content of witness testimony, we will not overturn its ruling. In re Hawley, 51 F.3d 246, 248 (11th Cir. 1994). In this case, we find nothing in the record to warrant such an action. The bankruptcy court did not err in considering, or not considering for that matter, the testimony of Debtor's witnesses.
3. Mistaken Commission Invoice
Yett contends that the $40 hourly rate the bankruptcy court determined as part of the invoice in connection with the VTA Maintenance Work was improper. According to Yett, there was no such agreement to lower his agreed upon hourly rate from $55 to $40 per hour. Moreover, even if he had consented to such terms, the Fair Labor Standards Act and California Labor Code prohibits such reductions in wages.
" VTA Maintenance Work" references miscellaneous work done for Cogneo's primary client, Valley Transportation Agency.
Yett maintains that he asserted the hourly rate for commission compensation to be $55 per hour, not $100 per hour.
As Yett's argument with regard to the Fair Labor Standards and California Labor Code is void of any analysis whatsoever, we decline comment on the issue.
In the Summary of the 2001 Invoices submitted with Yett's proof of claim, Invoice 0204 reflects 290 hours of work performed as part of the " VTA Maintenance Work for $22,787 ($40/hr.=$11,600. See Labor Code sect. 206)." An examination of the invoice itself, however, indicates the billable rate to be $100 per hour. Although Yett testified that the work for the VTA Maintenance Work was to be billed at $55 per hour, Englewood testified that the hourly rate was never settled:
Q: Do you remember sitting in a meeting with Mr. Yett and your brother [Debtor] in which you said - or which the fact that VTA maintenance work would not be paid on a commission basis but on a $40-an-hour basis was discussed; do you remember those discussions?
Questions were asked by Mr. Ronald P. St. Clair, Yett's counsel at trial.
A: Yes.
Q: Can you - can you describe - did Mr. Yett agree to earn $40 an hour for VTA maintenance work?
A: Once again, I don't think that there was ever a clear agreement to any of this. It was - it was a working document. We were still negotiating when Mr. - Mr. Yett chose to leave.
Transcript of Proceeding, July 7, 2004, p. 82.
Based on calculations from portions billed to clients from the other invoices, the bankruptcy court made its own determination that the VTA Maintenance Work hourly rate was $40. At the hearing on the motion for reconsideration, the court reasoned
The Court: [Omitted] And I didn't find it was a hundred dollars an hour. All the invoices for 2001, except the invoice for the 290 hours [for VTA Maintenance Work], claim compensation built on the commission which is a portion of the amount billed the client.
Mr. Hibbard: Correct.
Mr. Howard L. Hibbard represented Debtor at trial.
The Court: The hundred hours did not have such a commission calculation. It was just sought for the whole amount. And on the basis of that I determined that this was not commission work, that it was $40 an hour work. But I didn't find anything was compensated to the claimant at a hundred dollars an hour.
Transcript of Proceeding, September 30, 2004, p. 6-7.
Our own review of the documentation supporting Yett's proof of claim reflects that the VTA Maintenance Work was listed at $40 per hour. Though it may prove inconclusive, we cannot, with firm conviction, find that the bankruptcy court erred.
Moreover, Yett has the burden on appeal to demonstrate that the bankruptcy court clearly erred. See In re Hongisto, 293 B.R. 45, 48 (Bankr. N.D. Cal. 2003) (the " [b]urden is on appellant, with respect to any challenged findings of fact by bankruptcy court, to demonstrate that challenged findings are clearly erroneous; mere showing that bankruptcy court could have reached another conclusion based upon evidence presented is insufficient."). As he fails to direct us to any specific facts in the record to illuminate the court's error, we affirm the court's decision with regard to the $40 hourly rate for VTA Maintenance Work.
4. Misleading Trial Instruction
Yett believes that the bankruptcy court misled him (and apparently his attorney as well) when it commented at a pre-trial hearing that the purpose of the trial was to determine if the claim was able to be " readily liquidated, " and not with regard to the liquidation of the claim itself. Had Yett known that the court would allow Debtor to make substantive arguments against the claim itself, he asserts that he would have presented counter evidence in his defense.
Although the scheduling order indicates that the trial was to be held on the objections to the confirmation of Debtor's plan, it is clear that at trial the bankruptcy court construed the purpose of the proceeding to include a determination as to whether the amount of Yett's claim was subject to easy calculation. In addition, the written memorandum (following trial) describes the trial as a hearing on Debtor's objection to Yett's claim.
Nonetheless, amidst the ambiguity, the record is clear: Yett was represented by counsel at both the trial and the hearing on the motion for reconsideration. At no time during the proceedings did Yett, or his attorney, convey to the court that the trial instructions were misleading. Furthermore, Yett made no attempt to preserve the issue on appeal. See Perry v. O'Donnell, 759 F.2d 702, 706 (9th Cir. 1985). Consequently, we consider the issue waived.
C. The Bankruptcy Court Abused Its Discretion in Denying in Part the Motion to Reconsider the Claim Objection Order
The bankruptcy court denied the motion to reconsider the Claim Objection Order based on Yett's failure to demonstrate a manifest error of law or fact. For the reasons consistent with our determination herein, we find that the bankruptcy court abused its discretion when it denied a portion of the motion for reconsideration.
VI. CONCLUSION
The bankruptcy court's decision as to the Claim Objection Order is
1. REVERSED with regard to the overtime wages for 1999;
2. VACATED and REMANDED for further findings consistent with this decision with regard to the overtime wages for 2000;
3. AFFIRMED as to the weight the bankruptcy court placed on the testimony of Debtor's witnesses;
4. AFFIRMED as to the bankruptcy court's finding of a $40 hourly rate for the VTA Maintenance Work;
5. AFFIRMED with regard to the alleged misleading trial instructions.
The Reconsideration Order is also REVERSED in part, VACATED and REMANDED in part, and AFFIRMED in part consistent herewith.
Only an individual with regular income that owes, on the date of the filing of the petition, noncontingent, liquidated, secured debts of less than $922,975, or an individual with regular income and such individual's spouse, except a stockbroker or a commodity broker, that owe, on the date of the filing of the petition, noncontingent, liquidated, unsecured debts that aggregate less than $307,675 and noncontingent, liquidated, secured debts of less than $922,975 may be a debtor under chapter 13 of this title. § 109(e).