Woman's Club of Hollywood, Cal v. Jennifer Morgan ( 2021 )

NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS MAR 10 2021
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
WOMAN'S CLUB OF HOLLYWOOD, No. 18-55293
CALIFORNIA,
D.C. No. 2:17-cv-04157-RGK
Appellant,
v. MEMORANDUM*
JENNIFER MORGAN,
Appellee.
JENNIFER MORGAN, No. 18-55324
Appellant, D.C. Nos. 2:17-cv-04157-RGK
2:17-cv-04252-RGK
v.
WOMAN'S CLUB OF HOLLYWOOD,
CALIFORNIA, Chapter 11 Trustee,
Appellee.
Appeal from the United States District Court
for the Central District of California
R. Gary Klausner, District Judge, Presiding
Argued and Submitted January 14, 2021
Pasadena, California
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
Before: FRIEDLAND and BENNETT, Circuit Judges, and BLOCK,** District
Judge.
The Woman’s Club of Hollywood, California (“the Club”), filed for
bankruptcy in December 2012, its third such filing in two years. The bankruptcy
court appointed a Chapter 11 Trustee, Heide Kurtz, who brought an adversary
proceeding against Jennifer Morgan and other officers and directors of the Club.
After a bench trial, the bankruptcy court found Morgan liable for a breach of
fiduciary duty and awarded Kurtz $160,903.48 in damages.
Both Morgan and Kurtz appealed to the district court, which affirmed in
part, reversed in part, and vacated and remanded in part. Morgan and Kurtz again
appealed.1
The parties subsequently stipulated to a dismissal of the remanded claims.
Accordingly, the district court’s judgment is now final and appealable. See
Rodriguez v. Taco Bell Corp., 896 F.3d 952, 956 (9th Cir. 2018) (distinguishing
Microsoft Corp. v. Baker, 137 S. Ct. 1702 (2017)). We therefore proceed to the
merits.
**
The Honorable Frederic Block, United States District Judge for the
Eastern District of New York, sitting by designation.
1
As part of the Club’s reorganization plan, Kurtz assigned her interest to the
Club while this appeal was pending. We therefore refer to Kurtz and the Club
interchangeably, except where the context dictates otherwise.
2
1. Kurtz did not fail to prove her standing to bring the adversary
proceeding. The bankruptcy court appointed her Chapter 11 Trustee and, in
approving the reorganization plan, authorized her to continue her duties as “Plan
Trustee.” The bankruptcy court took judicial notice of the appointments. Morgan
challenges that decision on several procedural grounds, but we need not address
them because formal judicial notice was unnecessary; it was sufficient for the
bankruptcy court to rely on its knowledge of its own prior orders in the same case.
Cf. Mica v. Sun Life Assurance of Can., Inc., 874 F.3d 1052, 1055 n.5 (9th Cir.
2017) (“[I]t is unnecessary to take notice of documents contained in this court’s
docket.”).
2. The bankruptcy court did not err in finding that Morgan breached her
fiduciary duty to the Club by disbursing part of the proceeds of the Scapa loan to
herself. Morgan argues that she was entitled to the money as back salary, but the
evidence she offered at trial reflected a board resolution to pay her “only if money
exists.” Even assuming, as Morgan contends, that the resolution constituted a
written contract, it was contingent on “money exist[ing],” an ambiguous phrase in
the circumstances. Therefore, it was not error for the bankruptcy court to consider
extrinsic evidence. See Morey v. Vannucci, 75 Cal. Rptr. 2d 573, 578 (Ct. App.
1998) (“Extrinsic evidence is thus admissible to interpret the language of a written
instrument, as long as such evidence is not used to give the instrument a meaning
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to which it is not reasonably susceptible.”). Nor did it clearly err in interpreting the
conflicting evidence to find that the phrase referred to income, not borrowed funds.
Cf. id. at 579 (“As trier of fact, it is the jury’s responsibility to resolve any conflict
in the extrinsic evidence properly admitted to interpret the language of a
contract.”).
3. We agree with the district court that it was error for the bankruptcy
court not to reduce its award by $19,000. There was unrebutted testimony that
Morgan had returned that amount to the Club. Whether or not Morgan was entitled
to payment of back salary, she is not liable for an amount that she actually returned
to the Club.
4. The Club argues that it was error for the bankruptcy court not to
award additional damages flowing from the Scapa loan, in particular the $1.6
million the Club had to expend to prevent foreclosure as part of its reorganization
plan. We agree that taking out a loan against the best interests of a corporation
might constitute a breach of a fiduciary’s duty to “exercise due care and undivided
loyalty for the interests of the corporation.” Frances T. v. Vill. Green Owners
Ass’n., 723 P.2d 573, 587 (Cal. 1986). But the record is unclear as to whether that
happened here. The bankruptcy court variously found that the board did not
approve the Scapa loan; that a loan was needed, “but not for that amount, not at
that time;” and that the Club “couldn’t get a loan for less” so it “had to have it for
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that amount.” Moreover, while the bankruptcy court found that Alda Shelton
forged a board resolution approving the loan, it did not make any finding as to
Morgan’s knowledge of, or involvement in, Shelton’s action.
Thus, although Kurtz advanced this claim at trial, the bankruptcy court did
not explicitly decide whether taking out the Scapa loan was a further breach of
Morgan’s fiduciary duties to the Club. We remand to the district court with
instructions for it to remand to the bankruptcy court to determine whether and, if
so, how Morgan further breached her fiduciary duties. If the bankruptcy court
finds that Morgan’s role in taking out the loan amounted to a breach of fiduciary
duty, it should then determine what damages flowed from that breach according to
the general rule that “the faithless fiduciary shall make good the full amount of the
loss of which his breach of faith is a cause.” Fragale v. Faulkner, 1 Cal. Rptr. 3d
616, 622 (Ct. App. 2003) (quoting Salahutdin v. Valley of Cal., Inc., 29 Cal. Rptr.
2d 463, 470 (Ct. App. 1994)).
AFFIRMED in part, VACATED in part, and REMANDED.
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