[00:00:01] Speaker 01:
Good afternoon, everyone.

[00:00:04] Speaker 01:
Well, we've got one case set for argument at 1.30 today, and that's in Ray Phillip Metchan, Christina Shays, the debtor versus Hoffman.

[00:00:15] Speaker 01:
When you're ready, Council.

[00:00:24] Speaker 03:
Good afternoon, and please the court.

[00:00:26] Speaker 03:
I'm Andrew J. Christensen, appearing for Appellant Christina Shea, the creditor.

[00:00:32] Speaker 03:
In our brief, we laid out the reasons why the Supreme Court and this court's prior rulings about exclusive jurisdiction of bankruptcy courts makes it so the abstention order ... What about 11 USC 1334D?

[00:00:54] Speaker 03:
What about it?

[00:00:56] Speaker 03:
Do we have jurisdiction?

[00:01:00] Speaker 03:
Do we, the Ninth Circuit?

[00:01:04] Speaker 01:
It says, any decision to abstain or not to abstain made under subsection C is not revealable by appeal or otherwise by the Court of Appeals.

[00:01:17] Speaker 03:
I think we do because the abstention was

[00:01:26] Speaker 02:
Did you consider that statute?

[00:01:29] Speaker 03:
Yes, I did.

[00:01:29] Speaker 03:
And I can't remember the answer to your question right now.

[00:01:37] Speaker 03:
But we did consider that before appealing.

[00:01:38] Speaker 03:
And there is case law that says that it is an appealable order in this particular case.

[00:01:45] Speaker 01:
What is that case law?

[00:01:46] Speaker 03:
Well, you could appeal it to the district court, as you did.

[00:01:52] Speaker 03:
We did.

[00:01:52] Speaker 03:
I believe it is.

[00:01:53] Speaker 01:
If you have a case saying that we, the Court of Appeals, has jurisdiction despite subsection D, you can provide that site.

[00:02:04] Speaker 03:
I believe I do.

[00:02:05] Speaker 03:
I apologize, I'm not prepared for that.

[00:02:22] Speaker 03:
It's 28 USC 158A.

[00:02:25] Speaker 03:
And the basis of jurisdiction for this court to hear it is 28 USC 158D and Federal Rule of Appellate Procedure 6B.

[00:02:36] Speaker 02:
Of case authority.

[00:02:37] Speaker 01:
Generally, to the extent we have jurisdiction, I think it would be under 158.

[00:02:42] Speaker 01:
But the problem is this statutory language in 1334 is pretty clear.

[00:02:47] Speaker 01:
We can't reach a decision to abstain

[00:02:55] Speaker 02:
Do you have case authority to support you?

[00:02:58] Speaker 03:
You know, I know I do somewhere, and I'm looking for where that is.

[00:03:02] Speaker 03:
If I cannot find it here, I would.

[00:03:07] Speaker 02:
In your briefs, you seem to rely on a couple of cases just before the United States got into World War II, Pepper v. Litton and Thompson v. Magnolia.

[00:03:19] Speaker 02:
Yes.

[00:03:20] Speaker 02:
Petroleum, are those your authority, of which you're speaking?

[00:03:25] Speaker 03:
They could be because Pepper v. Litton was about a proof of claim also and exclusive jurisdiction over claims.

[00:03:35] Speaker 03:
Because this is a jurisdictional issue.

[00:03:38] Speaker 03:
I mean, this is primarily should be treated as a jurisdictional issue.

[00:03:44] Speaker 03:
that there is no authority for lower court to abstain, or bankruptcy court, excuse me, from exclusive jurisdiction, so.

[00:03:51] Speaker 01:
But any decision to abstain is not reviewable by the Court of Appeals under Section 158D.

[00:03:59] Speaker 01:
So despite 158D, we don't have jurisdiction to take up a decision to abstain.

[00:04:07] Speaker 01:
That's what it means to me, so I wanna hear your best argument on that statutory language.

[00:04:13] Speaker 03:
You know, I do I'm sorry I'm not prepared to answer that question today I I did Look into that before we made the decision to appeal and that was resolved in my mind, but I didn't was not prepared to address that today All right Well, you can save some time and mull it over and then we can hear from miss Barney if you wish Okay

[00:04:47] Speaker 02:
Same question.

[00:04:49] Speaker 00:
Good afternoon, Your Honor.

[00:04:51] Speaker 00:
Jean Barnier for the trustee, Timothy W. Hoffman.

[00:04:56] Speaker 00:
And I only wish I had thought about it as clearly because, of course, we are raised in the Banker's Court that you all have jurisdiction over every Banker's Court order.

[00:05:05] Speaker 00:
which is how I approached it.

[00:05:07] Speaker 00:
I also believe in this particular matter because it is an interlocutory order and not a final order.

[00:05:13] Speaker 00:
The court might find that it has jurisdiction.

[00:05:16] Speaker 00:
But if this court is so inclined that it does not have jurisdiction, I don't want to waste any further time of this court.

[00:05:24] Speaker 00:
And I would sit down at this point.

[00:05:26] Speaker 00:
I have other arguments that I would make, but I don't see any reason to waste the court's time if this court's going to base its decision on one of those.

[00:05:33] Speaker 02:
We have one thing I want you to address, because it bothers me intensely.

[00:05:36] Speaker 02:
And I'm going to erase it with your opposing counsel.

[00:05:39] Speaker 02:
And that is the whole wastage of the estate.

[00:05:47] Speaker 02:
This is a divorced woman.

[00:05:50] Speaker 02:
who didn't have much there to start.

[00:05:54] Speaker 02:
And it looks to me like the way this case is developing, or at least the way counsel, your counsel on the other side wants it to develop, is the entire state goes to pay attorney's fees.

[00:06:09] Speaker 02:
Doesn't that bother you?

[00:06:11] Speaker 00:
Absolutely.

[00:06:13] Speaker 00:
Unfortunately, when we came to terms of settlement,

[00:06:18] Speaker 00:
can I say, the terms were terms the trustee could not accept given his duty.

[00:06:26] Speaker 00:
There were attempts to settle on numerous occasions, starting from the very beginning when the property was sold.

[00:06:33] Speaker 00:
I do not, despite the court's inference, it is my personal opinion based on

[00:06:41] Speaker 00:
Miss Shays ability to refi her house and obtain quite a bit of money.

[00:06:45] Speaker 00:
She has other sources of money So I don't believe this is a case where the fourteen thousand dollars is critical to her

[00:06:53] Speaker 00:
If it was, Your Honor, I would have believed that they would have agreed more readily to settle, which we did try, and as you know, the judge did.

[00:07:00] Speaker 00:
We did have to try the priority claim.

[00:07:03] Speaker 00:
We did not have a choice as to that, because under the Banker C Code, only the Banker C Court can rule on a priority claim.

[00:07:12] Speaker 02:
The remainder of it was, you know, to be honest, I'm just- Your opposing counsel's taking the position that his attorney's fees will become the priority claim.

[00:07:22] Speaker 00:
Oh, that they will be included in the priority claim?

[00:07:25] Speaker 00:
First of all, Your Honor, the bankruptcy court vehemently disagreed with that position, as you know.

[00:07:30] Speaker 00:
The district court also disagreed with that position.

[00:07:34] Speaker 00:
And I believe the irony of it is that would have been the strongest argument to send this back to state court because, of course, that's what California Superior Courts do, determine attorney's fees if they're justifiable.

[00:07:45] Speaker 00:
In my mind, Your Honor, it would be very difficult to justify, and I have no idea what Mr. Christensen's fees are at this point.

[00:07:53] Speaker 00:
I can already tell you right now, I am working for free.

[00:07:56] Speaker 00:
I am not going to get paid for all the work that our firm has put into this.

[00:08:02] Speaker 00:
But it's hard to believe that any court would find that Mr. Christensen's work to obtain $14,000 for his client would justify legal fees in much more of that amount.

[00:08:15] Speaker 00:
Furthermore, the case that Mr. Christensen relies on, Inri STNL, is clearly distinguishable.

[00:08:24] Speaker 00:
And in that matter, it was a contract dispute that had been resolved before the bankruptcy was entered.

[00:08:32] Speaker 00:
So you then have to go back to the state court provisions for fees from attorneys, which is a lengthy hearing, to my understanding.

[00:08:40] Speaker 00:
I don't practice in that area.

[00:08:42] Speaker 00:
But under the code, and I believe as the district court outlined, district court found it very unlikely that Mr. Chris would obtain his fees.

[00:08:53] Speaker 00:
And it's difficult because we have not had the claim modified at all, so we even know to do it.

[00:08:59] Speaker 00:
Would I love to have this case wrapped up and done?

[00:09:03] Speaker 00:
So would the trustee, because it's such a minor amount of money that we even started with to drag this out to this point.

[00:09:12] Speaker 02:
Thank you.

[00:09:14] Speaker 01:
Subsequent to the decision in this case, have state court proceedings been initiated or re-initiated?

[00:09:20] Speaker 00:
I have no knowledge of that, Your Honor.

[00:09:23] Speaker 00:
I do not know.

[00:09:26] Speaker 00:
Thank you.

[00:09:28] Speaker 00:
Thank you.

[00:09:32] Speaker 00:
I do have five minutes and 30 seconds, so I guess I will reserve that time if another issue comes up, but I don't believe it will be necessary.

[00:09:47] Speaker 03:
Your honor, I was not able to find in my notes where I have the authority to answer your question, but if you continue this matter to the end of the calendar, I can find that to answer that question if you'd like.

[00:09:56] Speaker 03:
The one answer I do have to that though is that part of the order here is to send ... One of the reasons this order is unusual is because it is not abstaining from liquidating the amount of a proof of claim.

[00:10:12] Speaker 03:
It is sending bankruptcy estate funds to the state court.

[00:10:16] Speaker 03:
That's not part of abstention.

[00:10:17] Speaker 03:
That part of the order should not be considered an abstention.

[00:10:21] Speaker 03:
It's an express affirmative order to turn bankruptcy court funds over to the state court.

[00:10:27] Speaker 03:
And there's no jurisdiction to do that.

[00:10:28] Speaker 03:
That violates their exclusive jurisdiction.

[00:10:30] Speaker 03:
So that's not technically abstaining.

[00:10:33] Speaker 03:
Abstaining is only refusing to rule on something.

[00:10:36] Speaker 03:
But there's three parts of the order that are appealed here.

[00:10:40] Speaker 03:
One is the abstention.

[00:10:43] Speaker 03:
The second part is sending the money to the state court.

[00:10:45] Speaker 03:
And the third part is ordering the trustee to close the estate and pay claims before the claims are final.

[00:10:52] Speaker 03:
So those two of the three parts of that order are appealable and they're not abstention.

[00:10:58] Speaker 03:
So if the court would like, I can continue arguing or we could pause and I could find that authority to answer your first question.

[00:11:05] Speaker 01:
Well, if you do find something that's directly on point,

[00:11:08] Speaker 01:
Why don't you go ahead and file a letter of submission with the court?

[00:11:12] Speaker 02:
Sure.

[00:11:12] Speaker 01:
Anything further to add to your argument today?

[00:11:15] Speaker 02:
I'm going to let you address what I raised with your opposing counsel.

[00:11:19] Speaker 02:
And that is, it seems to me, in the blue brief, you can see that the bankruptcy court, I'm quoting you, correctly observed that the estate does not have the money to litigate this claim.

[00:11:33] Speaker 02:
Explain to me how litigating these appeals to the district court and then to us is in Shay's best interest.

[00:11:41] Speaker 03:
The first reason is the distinction between the trustee has an affirmative duty to minimize the costliest of litigating claims.

[00:11:49] Speaker 03:
They cannot exceed in their fees the value that they get back.

[00:11:52] Speaker 03:
That's an affirmative fiduciary duty the trustee has.

[00:11:55] Speaker 03:
Creditors and my client does not have the same duty.

[00:11:57] Speaker 03:
She can pursue collection of the amount owed to her for the domestic support obligation.

[00:12:02] Speaker 03:
and to the fullest extent that she's able to recover that.

[00:12:05] Speaker 03:
She needs this money to survive.

[00:12:07] Speaker 03:
And just because one side decides to make unreasonable, expensive litigation does not bear on my clients.

[00:12:18] Speaker 03:
She has no duty to minimize that.

[00:12:19] Speaker 03:
In other words, my client does not have a duty to give up her claim.

[00:12:22] Speaker 03:
Don't you have a duty?

[00:12:24] Speaker 03:
I have a duty to my client, and I have no duty to the estate or to other creditors.

[00:12:28] Speaker 03:
But the real reason this is important is because this claim and the attorney fees incurred are non-dischargeable.

[00:12:34] Speaker 03:
So my client isn't able to recover those fees from the debtor himself after the bankruptcy case is over.

[00:12:40] Speaker 03:
So whether or not my client's entire claim gets paid by the bankruptcy funds is not the end of my client's case.

[00:12:48] Speaker 03:
She will get the rest of that money from the debtor after the case is over.

[00:12:55] Speaker 03:
Yes, through, she can collect it directly through state court collection means after the bankruptcy case is over.

[00:13:04] Speaker 03:
So her entire claim is non-dischargeable.

[00:13:06] Speaker 03:
So it doesn't, so she's fighting for her life here, Your Honor.

[00:13:09] Speaker 03:
She's starving.

[00:13:10] Speaker 03:
She can't make her payments.

[00:13:11] Speaker 03:
I mean, she's having a hard time and she's not going to give up because the trustee has began ill-advised litigation and spent too much money.

[00:13:22] Speaker 03:
The trustee's duty when it becomes this point, there's lots of case law in this, when the amount of money it costs the estate to pursue claims exceeds the potential recovery, the trustee's affirmative duty is to stop and abandon those claims.

[00:13:34] Speaker 03:
That's what all the cases are.

[00:13:38] Speaker 03:
So that brings us to another point, which is what I want to focus on is the harm that's caused here by this abstention order.

[00:13:45] Speaker 03:
Because in this case, it was not an abstention of an entire proceeding, only half of a proceeding.

[00:13:50] Speaker 03:
So the bankruptcy court ruled on three out of the six parts of the claim.

[00:13:54] Speaker 03:
That interlocutory order is not appealable at the time.

[00:13:56] Speaker 03:
And the question is now, is it appealable?

[00:13:58] Speaker 03:
It's not clear whether that's now final retroactively, or when it can be appealed, or if it can be appealed.

[00:14:04] Speaker 03:
And it's a reversible order.

[00:14:06] Speaker 03:
My client, for many reasons, anyway.

[00:14:10] Speaker 03:
So it leaves us in this limbo where we don't know what can be appealed and what can't.

[00:14:14] Speaker 03:
And the same problem is if my client goes to state court and gets a ruling there.

[00:14:17] Speaker 03:
There's no unified ruling about the amount that she's owed, no unified place to appeal of any kind.

[00:14:24] Speaker 03:
And also, the debtor who will be the party litigating in state court is an entirely different party from the trustee, who will argue that the state court order allowing this money is void, because it's not just liquidating the claim, it's allowing a proof of claim in state court, and that order is void.

[00:14:43] Speaker 03:
And so we'll have spent all the money and time to do that, then it's declared void and we have to go back or we would get stuck.

[00:14:51] Speaker 03:
There's no recourse in bankruptcy court, no recourse in state court.

[00:14:53] Speaker 03:
My client gets left with no ability to enforce the amount that's owed to her.

[00:14:58] Speaker 03:
And then the last major harm is that when my client does amend the proof of claim shortly after this matter, to add her fees that she's allowed to under the SNTL court case under this binding authority, bankruptcy courts do it all the time.

[00:15:12] Speaker 03:
That is a priority claim, and that is entitled to take all the money in front of the other creditor.

[00:15:20] Speaker 03:
So it will greatly affect the distribution of the estate.

[00:15:23] Speaker 03:
And the problem that brings is that now also there is no final adjudication of unallowed proof of claim in the bankruptcy court, because half the claims in state court, half the claims here.

[00:15:35] Speaker 03:
So those are the main,

[00:15:41] Speaker 03:
Those are the main points of harm as to why abstention is so important to reverse in this case.

[00:15:46] Speaker 01:
All right.

[00:15:46] Speaker 01:
Thank you very much, counsel, for your argument.

[00:15:49] Speaker 01:
Just so that there's no uncertainty, if you have a case that's helpful to your side from your prior research, go ahead and file it by 5 o'clock tonight.

[00:15:59] Speaker 03:
Thank you.

[00:15:59] Speaker 01:
Thank you.

[00:16:01] Speaker 01:
We'll be in recess until 2 o'clock.