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Klestadt & Winters, Llp v. Donna Cangelosi

March 6, 2012

KLESTADT & WINTERS, LLP; TRACY L. KLESTADT, PETITIONERS-APPELLANTS,
v.
DONNA CANGELOSI; CERTAIN DIRECT LENDERS, RESPONDENTS-APPELLEES, AND WILLIAM A. LEONARD, CHAPTER TRUSTEE, TRUSTEE-APPELLEE.
BRYAN CAVE LLP; KATHERINE M. WINDLER, PETITIONERS-APPELLANTS,
v.
DONNA CANGELOSI; CERTAIN DIRECT LENDERS, RESPONDENTS-APPELLEES, AND WILLIAM A. LEONARD, CHAPTER TRUSTEE, TRUSTEE-APPELLEE.
SILAR ADVISORS, LP; SARA PFROMMER; ROBERT LEEDS; JAY GRACIN, PETITIONERS-APPELLANTS,
v.
DONNA CANGELOSI; CERTAIN DIRECT LENDERS, RESPONDENTS-APPELLEES, AND WILLIAM A. LEONARD, CHAPTER TRUSTEE, TRUSTEE-APPELLEE.



Appeals from the United States District Court for the District of Nevada Robert C. Jones, Chief District Judge, Presiding D.C. No. 09-32824-RCJ D.C. No. BK-S- 09-32824-RCJ

The opinion of the court was delivered by: Ikuta, Circuit Judge:

FOR PUBLICATION

OPINION

D.C. No. BK-S-09-32824-RCJ

Argued and Submitted October 27, 2011-San Francisco, California

Before: Susan P. Graber and Sandra S. Ikuta, Circuit Judges, and Gordon J. Quist,*fn1 Senior District Judge.

Opinion by Judge Ikuta; Concurrence by Judge Quist; Partial Concurrence and Partial Dissent by Judge Graber

OPINION

Silar Advisors, LP, Robert Leeds, Jay Gracin, and Sara P frommer (collectively "the Silar Parties"), and Tracy Klestadt and Klestadt & Winters, LLP, Katherine M. Windler, and Bryan Cave, LLP (collectively "Counsel"), appeal the district court's order imposing sanctions on them pursuant to Rule 9011 of the Federal Rules of Bankruptcy Procedure and the district court's inherent powers. We must decide whether the district court's order is immediately appealable. We hold that it is not and dismiss the appeal for lack of jurisdiction.

I

The Silar Parties are the owners and officers of Asset Resolution, LLC, which serviced loans that were funded in part by appellee lenders. Asset Resolution is the sole member and manager of fourteen special purpose limited liability companies. Asset Resolution and these special purpose companies (collectively "Debtors") have each filed a petition in bankruptcy. The appellees here are the lenders (now creditors in the bankruptcy proceeding) and the bankruptcy trustee, both of whom were awarded sanctions against the Silar Parties and Counsel.

Debtors' bankruptcy proceedings are the latest in a complicated series of legal proceedings involving these various parties. In 2007, before the bankruptcy proceedings commenced, the lenders and Silar Advisors' predecessor-in-interest began to dispute their respective rights to proceeds under the relevant loan servicing agreements. As a result, the lenders brought a lawsuit in Nevada district court to clarify their contractual rights under these servicing agreements. While this contract dispute was ongoing, Silar Advisors, which held a security interest in the disputed servicing agreements, fore-closed on its collateral and assigned its interest in the agreements to its newly formed subsidiary, Asset Resolution. Subsequently, the lenders added Silar Advisors and Asset Resolution as defendants in the contract dispute lawsuit.

During the summer of 2009, the Nevada district court presiding over the contract suit issued a series of orders regarding the compensation owed to Asset Resolution under the disputed loan servicing agreements. Among other things, the orders awarded Asset Resolution substantially less than the full amount of servicing fees it had requested. In October 2009, Debtors filed chapter 11 petitions in the bankruptcy court for the Southern District of New York. This bankruptcy case was transferred to the bankruptcy court for the District of Nevada in November 2009. On January 25, 2010, the Nevada district judge presiding over the contract dispute entered an order withdrawing the reference for the entire bankruptcy case. Four days later, that Nevada district court, now sitting as a bankruptcy court, converted Debtors' chapter 11 bankruptcy filing to a chapter 7 proceeding.

On February 9, 2010, the lenders filed a motion for sanctions against the Silar Parties and Counsel. The district court granted the motion, holding that sanctions under Federal Rule of Bankruptcy Procedure 9011*fn2 and the court's inherent powers were appropriate because the underlying bankruptcy case was filed "for improper purposes and [was] frivolous." In support of this holding, the district court found that the Silar Parties "never had any intention or ability to reorganize" Asset Resolution, which was merely a "shell entity" without any assets to reorganize. Further, the Nevada district court found that Debtors' bankruptcy filing in the Southern District of New York was solely an attempt to evade the district court's jurisdiction and, specifically, the allegedly adverse impact of its orders over the summer of 2009.

The district court's sanctions order made the Silar Parties and Counsel jointly and severally liable for some $279,615 in sanctions, an amount based on the lenders' attorney's fees and expenses. The district court also ordered Counsel to disgorge its retainers ($300,000 each) received for filing and litigating the underlying bankruptcy case. The Silar Parties and Counsel appealed.

II

[1] We have jurisdiction over appeals from a district court sitting in bankruptcy under 28 U.S.C. § 1291.*fn3 Klenske v. Goo (In re Manoa Fin. Co.), 781 F.2d 1370, 1372 (9th Cir. 1986) (per curiam). Section 1291 provides that federal appellate courts, with certain exceptions not applicable here, "shall have jurisdiction of appeals from all final decisions of the district courts of the United States." A "final decision" is one that "ends the litigation on the merits and leaves nothing for the court to do but execute the judgment." Catlin v. United States, 324 U.S. 229, 233 (1945). The Supreme Court has construed § 1291 slightly more broadly than its narrow language would suggest, holding that it gives appellate courts jurisdiction over a "small class" of interlocutory orders that are nevertheless appealable "final decisions." See Cohen v. Beneficial Indus. Loan Corp., 337 U.S. 541, 546 (1949). These appealable collateral orders "must [1] conclusively determine the disputed question, [2] resolve an important issue completely separate from the merits of the action, and

[3] be effectively unreviewable on appeal from a final judgment." Coopers & Lybrand v. Livesay, 437 U.S. 463, 468 (1978). "Because collateral jurisdiction requires all three elements, we lack collateral order jurisdiction if even one is not met." McElmurry v. U.S. Bank Nat'l Ass'n, 495 F.3d 1136, 1140 (9th Cir. 2007).

The Silar Parties and Counsel do not claim that the sanctions order in this case meets Cohen's tests. Instead, they assert that we may hear their appeal of the sanctions order in light of the more flexible jurisdictional principles that apply in bankruptcy. See Benny v. England (In re Benny), 791 F.2d 712, 718 (9th Cir. 1986) (recognizing that "the general standards for appealability of bankruptcy orders are broader and more flexible than those that apply to ordinary civil cases.").

[2] This argument overlooks the fact that the order in this case was issued by a district court sitting in bankruptcy. Our more flexible standard for interlocutory appeals in the bankruptcy context applies only to appeals from orders issued by a bankruptcy appellate panel or by a district court hearing an appeal from a bankruptcy court. See Cannon v. Haw. Corp. (In re Haw. Corp.), 796 F.2d 1139, 1141 (9th Cir. 1986); see, e.g., Congrejo Invs., LLC v. Mann (In re Bender), 586 F.3d 1159, 1163 (9th Cir. 2009). We have made this distinction because our jurisdiction over these two types of appeals arises from different statutes. We have jurisdiction to hear appeals from district courts sitting in bankruptcy under § 1291, but have jurisdiction to hear appeals from district courts reviewing bankruptcy court decisions under 28 U.S.C. § 158(d)(1),*fn4 as well as § 1291. See Conn. Nat'l Bank v. Germain, 503 U.S. 249, 253 (1992). While § 1291 gives us jurisdiction only over "final decisions," the scope of § 158(d) is broader: it gives appellate courts the authority to hear appeals from "final decisions, judgments, orders, and decrees" entered by district courts. We have interpreted this jurisdictional grant to give us flexibility in asserting jurisdiction over interlocutory orders, because "certain proceedings in a bankruptcy case are so distinct and conclusive either to the rights of individual parties or the ultimate outcome of the case" that their resolution should be immediately appealable, even if such resolution does not end the entire litigation on the merits. Mason v. Integrity Ins. Co. (In re Mason), 709 F.2d 1313, 1316-17 (9th Cir. 1983).*fn5 We recognized that because § 158 is an "appellate jurisdictional provision[ ] specifically designed for bankruptcy appeals," a flexible definition of finality in that context is in accord with Congress's intent to ensure prompt resolution of matters involving estate property. In re Haw. Corp., 796 F.2d at 1142, n.1.*fn6

[3] We have made clear, however, that these flexible jurisdictional principles "do not apply to [§ 1291] appeals from district judges sitting in bankruptcy." In re Haw. Corp., 796 F.2d at 1141 (emphasis added). Hawaii Corp. considered the appealability of an order, issued by a district court sitting in bankruptcy, requiring the debtor's director to make an immediate transfer of certain stock to the bankruptcy trustee. Id. at 1140. Although the parties agreed that we had jurisdiction under the flexible finality rules enunciated in Mason, we dis- agreed. Id. at 1141. We held that Mason's determination that Congress intended § 158 to give appellate courts more flexibility in asserting jurisdiction did not apply to § 1291, because there was no evidence that Congress retroactively intended to enlarge our jurisdiction under that statute with the passing of § 158. Id. at 1142 n.1. Accordingly, we rejected reliance on flexible finality when determining our jurisdiction to hear appeals from district courts sitting in bankruptcy, holding that these appeals, arising exclusively under § 1291, would be governed by the finality rule applicable to all civil appeals. Id. at 1141-42.

We disagree with the concurrence's suggestion that, notwithstanding § 1291 and Cohen, we should "simply treat jurisdiction of bankruptcy appeals under § 1291 in the same way that we treat bankruptcy appeals under § 158(d)(1)." Graber, J. concurrence at 2575. First, as the concurrence itself acknowledges, we are bound by our decision in Hawaii Corp., and as a three-judge panel, we cannot overrule it. Hart v. Massanari, 266 F.3d 1155, 1171 (9th Cir. 2001) ("Once a panel resolves an issue in a precedential opinion, the matter is deemed resolved, unless overruled by the court itself sitting en banc, or by the Supreme Court.").

[4] But even if Hawaii Corp. were erased, we would remain bound by Supreme Court decisions interpreting the scope of § 1291's jurisdictional grant, because our power to hear appeals from district courts sitting in bankruptcy arises solely from that provision. We cannot expand our jurisdiction under § 1291 to match what we have under § 158(d), even when it arguably makes sense from a policy perspective. We have previously recognized this limitation. In SEC v. Capital Consultants LLC, the appellants argued that we should apply flexible finality principles to review interlocutory appeals arising in a receivership context because such cases raise the same policy concerns as bankruptcy appeals. 453 F.3d 1166, 1170 & n.4 (9th Cir. 2006) (per curiam). We held that we lacked the authority to do so because "Title 28 U.S.C. § 158 governs bankruptcy appeals . . . and provides the more 'flexible' approach to which appellants refer. Title 28 U.S.C. § 1291 governs here." Id. at 1170-71 n.4. ...


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