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In Re Palmdale Hills Property, Inc., et al v. Joint Committee of Creditors Holding Unsecured Claims

October 5, 2012


Bankruptcy Case No. 8:08-bk-17206-ES

The opinion of the court was delivered by: Dolly M. Gee United States District Judge


This matter is before the Court on an appeal from the Bankruptcy Court. The Court deems this matter suitable for decision without oral argument. See Fed. R. Civ. P. 78(b); C.D. Cal. L.R. 8012-7. Having duly considered the respective positions of the parties, the Court now renders its decision. For the reasons set forth below, the judgment of the Bankruptcy Court is AFFIRMED.


SunCal Century City, LLC (the "Debtor") owned 2.4 acres of undeveloped real property located at 10000 Santa Monica Boulevard in Santa Monica, California at the commencement of its bankruptcy case. The Debtor planned to develop a forty-four story luxury condominium on the premises ("the "Project"). At the time, the sole member of the Debtor was SunCal Century City Member LLC, and the sole member of SunCal Century City Member, LLC was Lehman SunCal Real Estate Fund, LLC. Lehman SunCal Real Estate Fund, LLC is, in turn, made up of two members, LBREP II/SunCal Land Fund Member, LLC, and SunCal Communities II, LLC ("SunCal II"), with a 90% and 10% interest, respectively.

On March 19, 2009, SunCal Management, LLC ("SunCal Management") filed a claim in the bankruptcy court totaling $1,023,802.98, including management fees of $579,000.00, reimbursement of staff salary and expenses of $111,466.48, reimbursement of in-house legal fees of $23,450.00, reimbursement of consultants' fees of $201,762.50, and expenses relating to private jet travel of $108,124 ("the Claim"). SunCal II and SunCal Management executed a Development Management Agreement (the "Agreement") (Appellant's Excerpts of R. at 324)[Doc. ##14-16] on August 10, 2006, providing that SunCal Management would "perform, contract for or supervise all Development and Sale Services & Functions that are required in connection with the development, marketing and sale of the Project." (Agreement at ¶ 1.1.) SunCal II agreed to pay SunCal Management's management fee and expenses for the Project. Debtor did not sign the Agreement and is not a party to it.

After the execution of the Agreement, from August 2006 until January 2009, SunCal Management provided the services described. From August 2006 to August 2008, SunCal Management directly invoiced Debtor, and Debtor paid SunCal Management for its management services. (Appellant's Excerpts of R. at 233 (Declaration of Tom Rollins ¶ 8).) From August 2006 to August 2007, SunCal Management invoiced Debtor for its expenses, and Debtor reimbursed SunCal Management directly. (Id. at ¶¶ 11-15 (listing unpaid amounts and dates of services).) In November 2008, the bankruptcy proceeding commenced. On March 19, 2009, SunCal Management filed the Claim. On March 16, 2012, Appellee Joint Committee of Creditors Holding Unsecured Claims (the "Committee"), filed an objection and motion to disallow the Claim, on the grounds that (1) Debtor was not a party to the written agreement with SunCal Management; (2) the fees and expenses asserted were unreasonable; and (3) SunCal Management received preferences or fraudulent transfers within the one year preceding the commencement of Century City's bankruptcy case. (Appellant's Excerpts of R. at 9, 24 (The Joint Committee Of Creditors Holding Unsecured Claims' Motion For Order Disallowing Claim No. 2 Of Suncal Management, LLC).) SunCal Management argued that the parties to the Agreement had mutually abandoned it in favor of an implied-in-fact or express oral contract between itself and the Debtor, evidenced by the history of direct payments.

On April 17, 2012, the Bankruptcy Court issued an oral ruling. On May 31, 2012, the court issued its findings of fact and conclusions of law (collectively, "Findings"). (Appellant's Excerpts of R. at 997.) The Bankruptcy Court found that SunCal II, not Debtor, was obligated to pay SunCal Management according to the Agreement. The court also found that there was no implied or quasi-contract between the Debtor and SunCal Management, and Debtor had no liability to SunCal Management. The court then dismissed the Claim and SunCal Management filed this appeal.


A district court reviews the bankruptcy court's findings of fact for clear error and its conclusions of law de novo. Fed. R. Bankr. P. 8013; Gebhart v. Gaughan (In re Gebhart), 621 F.3d 1206, 1209 (9th Cir. 2010) (citing Abele v. Modern Fin. Plans Servs., Inc. (In re Cohen), 300 F.3d 1097, 1101 (9th Cir. 2002)). Mixed questions of law and fact, such as whether a claim is non-dischargeable, are reviewed de novo. Hamada v. Far E. Nat'l Bank (In re Hamada), 291 F.3d 645, 649 (9th Cir. 2002) (citing Beaupied v. Chang (In re Chang), 163 F.3d 1138, 1140 (9th Cir. 1998); Murray v. Bammer (In re Bammer), 131 F.3d 788, 792 (9th Cir. 1997) (en banc)).

"The clear error standard is significantly deferential and is not met unless the reviewing court is left with a 'definite and firm conviction that a mistake has been committed.'" Fisher v. Tucson Unified Sch. Dist., 652 F.3d 1131, 1136 (9th Cir. 2011) (quoting Cohen v. U.S. Dist. Court for N. Dist. of Cal., 586 F.3d 703, 708 (9th Cir. 2009)) (internal quotation marks omitted). A court's factual determination is clearly erroneous only if it is illogical, implausible, or lacks "support in inferences that may be drawn from facts in the record." United States v. Hinkson, 585 F.3d 1247, 1261 (9th Cir. 2009) (en banc) (quoting Anderson v. City of Bessemer City, N.C., 470 U.S. 564, 577, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985)) (internal quotation mark omitted).


SunCal Management makes two separate legal arguments based on the fact that it was paid directly by Debtor, rather than SunCal II, in exchange for services required by the Agreement. First, SunCal Management argues the payments show that neither party adhered to the Agreement, thus allowing an inference of mutual rescission or, at least, modification. Second, SunCal Management argues that this history of behavior was evidence of an express oral contract, or alternatively gave rise to an implied-in-fact contract. SunCal Management goes on to argue that the Bankruptcy Court misapplied California Medical Assoc., Inc. v. Aetna U.S. Healthcare of Cal. ...

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