Ussec v. Detail Construction & Waterproofing, Inc. ( 2023 )

NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS JUN 28 2023
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
U.S. SECURITIES & EXCHANGE No. 22-16364
COMMISSION,
D.C. No. 3:20-cv-09247-SI
Plaintiff-Appellee,
MARWAN NABOULSI; RANA MEMORANDUM*
NABOULSI,
Creditors-Appellants,
ACRES LOAN ORIGINATION, LLC,
Creditor-Appellee,
and
WESTERN ALLIANCE BANK; et al.,
Creditors,
POPPY BANK, FKA First Community
Bank; et al.,
Creditors,
DETAIL CONSTRUCTION &
WATERPROOFING, INC.,
Claimant,
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
v.
SILICONSAGE BUILDERS, LLC, AKA
Silicon Sage Builders; et al.,
Defendants,
CITY VENTURES; et al.,
Real-party-in-interest,
v.
PARKVIEW FINANCIAL REIT LP,
Movant,
______________________________
DAVID P. STAPLETON,
Receiver-Appellee.
Appeal from the United States District Court
for the Northern District of California
Susan Illston, District Judge, Presiding
Submitted June 6, 2023**
San Francisco, California
Before: MILLER and KOH, Circuit Judges, and CHRISTENSEN,*** District
Judge.
**
The panel unanimously concludes this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).
***
The Honorable Dana L. Christensen, United States District Judge for
the District of Montana, sitting by designation.
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Marwan and Rana Naboulsi appeal from the district court’s order granting a
receiver’s motion to reject their purchase agreement for two condominium units.
“A district court’s decision concerning the supervision of an equitable receivership
is reviewed for abuse of discretion.” SEC v. Capital Consultants, LLC, 397 F.3d
733, 738 (9th Cir. 2005). We affirm.
1. We have jurisdiction over this appeal because the district court’s order
was a final decision under 28 U.S.C. § 1291. “To be final, a judgment must dispose
of all the rights and liabilities of at least one party as to at least one claim.” CFTC
v. Topworth Int’l, Ltd., 205 F.3d 1107, 1112 (9th Cir. 1999) (quoting State St. Bank
& Tr. Co. v. Brockrim, Inc., 87 F.3d 1487, 1489 (1st Cir. 1996)). Thus, in the
receivership context, an order is final if it “finally resolve[s] the parties’ rights to
[the entity in receivership’s] assets.” Id. at 1111 (second alteration in original)
(quoting FTC v. Overseas Unlimited Agency, Inc., 873 F.2d 1233, 1234 (9th Cir.
1989)). The district court’s order does that: By approving the receiver’s rejection
of the Naboulsis’ purchase agreement, it establishes that the Naboulsis will receive
only a lien against the units that they had originally contracted to purchase.
2. The district court did not abuse its discretion in approving the rejection of
the purchase agreement. “It is well established that receivers are not liable on the
contracts of [the receivership entity] by operation of law . . . .” Irving Tr. Co. v.
Densmore, 66 F.2d 21, 23 (9th Cir. 1933). Rather, “[u]pon taking possession of the
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property, [a receiver is] entitled to a reasonable time to elect whether he would
adopt [such a] contract and make it his own.” Id. (quoting Sunflower Oil Co. v.
Wilson, 142 U.S. 313, 322 (1892)). In the analogous bankruptcy context, we have
stated that “[t]he primary issue is whether rejection [of an executory contract]
would benefit the general unsecured creditors.” In re Chi-Feng Huang, 23 B.R.
798, 801 (B.A.P. 9th Cir. 1982); see also Irving Tr., 66 F.2d at 25 (“[T]he powers
of a receiver in equity are closely analogous to those of a receiver in bankruptcy . .
. .”).
The receiver offered a reasonable explanation of why rejection of the
purchase agreement would benefit the receivership estate and its creditors. The
receiver explained that “the delta between what these purchasers paid and the fair
market value of the units is approximately $6 million.” By rejecting the agreements
and selling the units at fair market value, the receiver would “increase the amount .
. . recovered from the sale of the units which can then be paid to lienholders,”
thereby “reduc[ing] unsecured claims against the receivership estate.”
The Naboulsis argue that the receiver impermissibly “act[ed] for the sole
benefit of one creditor, Acres [Loan Origination, LLC], to the detriment of other
creditors.” See Chi-Feng Huang, 23 B.R. at 801. But the Naboulsis have not shown
that rejection of their purchase agreement would damage them disproportionately
to the benefit that rejection has for the estate. Nor is Acres a third party who stands
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to benefit at the expense of the estate’s creditors. Rather, Acres—the senior
lienholder on the condominium project—is itself a creditor of the estate. So long as
rejection of the purchase agreement reduces the loss on the condominium project,
it will benefit the receivership estate by reducing the estate’s debt to Acres.
The Naboulsis claim that it was improper for Acres to pay the receiver’s fees
arising in connection with his administration of the condominium projects. But this
arrangement does not demonstrate that the receiver was acting in bad faith or in a
manner inconsistent with his fiduciary duty to the estate. The fee agreement was
part of a larger construction funding agreement, under which Acres promised to
give the receivership estate $400,000 out of the proceeds from the eventual sales of
units in the Almaden and Osgood condominiums. The receiver explained that
having Acres pay for fees incurred during construction of the condominiums
“ensures that the carveouts agreed to by Acres are preserved for the receivership
estate” rather than being used to pay the receiver’s fees. The agreement with Acres
thus ensured that, even if the condominium projects did not generate enough
proceeds to fully satisfy Acres’ claims against the receivership estate, the estate
would still have at least $400,000 to distribute to creditors other than Acres.
Because the receiver offered a reasonable explanation for why rejection of
the Naboulsis’ purchase agreement is in the best interest of the receivership estate,
and because there is no evidence that the receiver was acting in bad faith, the
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district court did not abuse its discretion in approving rejection of the Naboulsis’
purchase agreement.
AFFIRMED.
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