HYUN J. UM; THOMAS W. PRICE; PATRICIA A. PRICE v. SPOKANE ROCK I, LLC
No. 16-35753
United States Court of Appeals for the Ninth Circuit
September 14, 2018
D.C. No. 3:15-cv-05787-BHS
FOR PUBLICATION
Aрpeal from the United States District Court for the Western District of Washington Benjamin H. Settle, District Judge, Presiding
Argued and Submitted May 17, 2018 Seattle, Washington
Filed September 14, 2018
Before: Marsha S. Berzon and Andrew D. Hurwitz, Circuit Judges, and Raymond J. Dearie,* District Judge.
Opinion by Judge Hurwitz
SUMMARY**
Bankruptcy
The panel affirmed the district court‘s affirmance of the bankruptcy court‘s summary judgment denying discharge, under
The panel affirmed, albeit on somewhat different grounds, the district court and bankruptcy court‘s conclusion that the debtors, co-founders of several real-estate management companies, were not entitled to disсharge of the debt. The panel concluded that the Chapter 11 plan provided for the liquidation of all or substantially all of the property of the bankruptcy estate under
COUNSEL
J. Todd Tracy (argued) and Steven J. Reilly, The Tracy Law Group PLLC, Seattle, Washington, for Defendants-Appellants.
Charles R. Ekberg (argued), Ryan P. McBride, and Laura Marquez-Garrett, Lane Powell PC, Seattle, Washington, for Plaintiff-Appellee.
HURWITZ, Circuit Judge:
Confirmation of a Chapter 11 plan of reorganization generally discharges a petitioner from pre-confirmation debts.
(A) the plan provides for the liquidation of all or substantially all of the property of the estate;
(B) the debtor does not engage in business after consummation of the plan; and
(C) the debtor would be denied a dischаrge under section 727(a) of [the Bankruptcy Code] if the case were a case under chapter 7 [of the Bankruptcy Code].
The central issue in this case is whether two individual Chapter 11 debtors engaged in business after consummation of a Chapter 11 plan. The bankruptcy court held that they did not and were therefore not entitled to discharge a debt arising out of a state-court judgment for fraud and misrepresentation; the district court agreed. So do we, albeit on somewhat different grounds than those relied upon by the bankruptcy and district courts, and we therefore affirm.
I. Background
Hyun Um and Thomas Price (“Debtors“) co-founded several real-estate management companies. They filed separate petitions in 2010 seeking reorganization under Chapter 11 of the Bankruptcy Code; the petitions were later consolidated. The bankruptcy court eventually approved the Trustee‘s First Amended Disclosure Statement (“Disclosure Statement“) and First Amended Plan of Reorganization (“the Plan“), which provided for the sale of all of the Debtors’ nonexempt individual assets and those of their jointly-owned business entities.
Before the Chapter 11 filings, Spokane Rock, LLC had obtained a state-court judgment against the Debtors for fraud and misrepresentation. Spokane Rock filed an adversary complaint in bankruptcy court, alleging that its claims arising out of the judgment were nondischargeable pursuant to
The bankruptcy court granted summary judgment to Spokane Rock and denied a discharge of the Spokane Rock debt. Spokane Rock I, LLC v. Um (In re Um), Ch. 11 Case Nos. 10-46731, 10-46732, Adv. No. 14-04311, 2015 WL 6684504, at *9 (Bankr. W.D. Wash., Sept. 30, 2015) (“Bankr. Op.“).1 The Debtors appealed to the district court. They conceded that they would not have been entitled to a discharge of the Spokane Rock debt had they sought relief under Chapter 7, and that
The district court affirmed the bankruptcy court‘s summary judgment. We review that decision de novo. See Suncrest Healthcare Ctr. LLC v. Omega Heаlthcare Inv‘rs, Inc. (In re Raintree Healthcare Corp.), 431 F.3d 685, 687 (9th Cir. 2005).
II. Discussion
A. 11 U.S.C. § 1141(d)(3)(A)
The Debtors first contend that they are entitled to a discharge because the approved Plan did not provide for “the liquidation of all or substantially all of the property of the estate.”
The Debtors nonetheless contend that the Plan does not satisfy
Nor does the Trustee‘s manаgement of the assets of the subsidiary LLCs pending their sale render the Plan anything other than a liquidation. As the bankruptcy court aptly noted, this feature is in “the very nature of a complex chapter 11 liquidation,” id. at *5, which the Ninth Circuit Bankruptcy Appellate Panel has observed is designed to allow the debtоr “the ability to plan for an orderly divestiture of the assets over time,” U.S. Internal Revenue Serv. v. Deer Park, Inc. (In re Deer Park, Inc.), 136 B.R. 815, 818 (B.A.P. 9th Cir. 1992), aff‘d, 10 F.3d 1478 (9th Cir. 1993). We therefore agree with the bankruptcy court‘s determination that the Plan satisfies the liquidation requirement of
B. 11 U.S.C. § 1141(d)(3)(B)
Chapter 11 was originally designed to deal with corporаte debtors. See Toibb v. Radloff, 501 U.S. 157, 162-63 (1991). Indeed, the Supreme Court did not clarify until 1991 that an individual consumer debtor could seek Chapter 11 reorganization. Id. at 160-61.
The application of the “engage in business” requirement of
How to apply
Whatever the merits of the reading of
The Debtors argue that all employees necessarily “engage” in some respect in the business of their employers. But no court has ever read
An individual debtor is “in business” for the purpose of this form if the debtor is or has been, within six years immеdiately preceding the filing of this bankruptcy case, any of the following: an officer, director, managing executive, or owner of 5 percent or more of the voting or equity securities of a corporation; a partner, other than a limited partner, of a partnership; a sole proprietor or self-employed full-time or part-time.
An individual debtor also may be “in business” for the purpose of this form if the debtor engages in a trade, business, or other activity, other than as an employee, to supplement income from the debtor‘s primary employment.
This definition comports with our common understanding of what it means to “engage in business.” See Williams v. Taylor, 529 U.S. 420, 431 (2000) (“We give the words of a statute their ‘ordinary, contemporary, common meaning,’ absent an indication Congress intended them to bear some different import.” (quoting Walters v. Metro. Educ. Enters., Inc., 519 U.S. 202, 207 (1997))). One would not ordinarily refer to cashiers employed by a grocery store as engaging in the grocery
More importantly, the phrase “engage in business” in
As the Debtors concede, had they filed for protection under Chapter 7 of the Bankruptcy Code,
We hold that, assuming that
III. Conclusion
We AFFIRM the judgment of the district court.
Notes
The Debtors cite a 2014 statement by the Trustee that he was analyzing the operating statements of eаch of the entities at issue to understand their valuations, and suggest that the membership interests might again have value in the future. However, the Trustee subsequently concluded that the membership interests were worthless. See Disclosure Statement (noting that “Debtors’ membership interest in Prium is worthless“; “the effect of the Prium Companies, LLC bankruptcy effectively makes PPM unsaleable and worthless on a going forward basis“; and “the Trustee anticipates that he will have liquidated all the real property owned by QHFH and its subsidiaries by or shortly following the Effective Date“).
The bankruptcy court also correctly rejeсted the Debtors’ argument that “their pledge of post-petition income negates a finding that” this Plan provided for liquidation, because the payment is expected only to “the extent necessary for execution of the Plan.” Bankr. Op., 2015 WL 6684504, at *5.