Unpublished Disposition, 848 F.2d 198 (9th Cir. 1988)

Annotate this Case
U.S. Court of Appeals for the Ninth Circuit - 848 F.2d 198 (9th Cir. 1988)

JOHN B. FRANZWA, INC., Plaintiff-Appellant,v.Lavelle MULLENNEX; Lawrence W. Erwin, Defendants-Appellees,andIn re MARQUAM INVESTMENT CORPORATION, Debtor.Suzan BREWER, Plaintiff-Appellee, Cross-Appellant,v.Warde H. ERWIN and Lavelle Mullennex, Defendants-Appellants,Cross-Appellees.Lawrence W. ERWIN, Creditor-Appellant, Cross-Appellee,v.Suzan BREWER, Creditor-Objector, Cross-Appellant.

Nos. 86-4386, 87-3674, 87-3753 and 87-3754.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted March 9, 1988.Decided May 24, 1988.

Before GOODWIN, NELSON and LEAVY, Circuit Judges.


Marquam Investment Corp. ("Marquam") filed for bankruptcy under Chapter 11 of the Bankruptcy Code. The consolidated appeals1  decided here arise out of the allowance or disallowance of creditor claims. As each of the consolidated appeals lacks merit, we affirm the decisions of the district court.

Bankruptcy trustee John B. Franzwa, Inc. ("Franzwa") appeals the district court's summary affirmance of the bankruptcy court's denial of Franzwa's claim against Warde Erwin ("Erwin") and Lavelle Mullennex ("Mullennex") for interest on a loan from Marquam. Franzwa argues that summary affirmance violated its right to have the district court consider briefs, oral argument, and the bankruptcy court record as provided by Bankr.R. 8006, 8009, 8012. Franzwa's contention lacks merit.

The propriety of summary affirmance is a question of law reviewable de novo. See United States v. McConney, 728 F.2d 1195, 1201 (9th Cir.) (en banc), cert. denied, 469 U.S. 824 (1984). "In the interest of expediting decision or for other good cause, the district court ... may suspend the requirements or provisions of the rules in Part VIII ... and may order proceedings in accordance with its direction." Bankr.R. 8019.

Here, summary disposition was appropriate because the district court reviewed the bankruptcy court record and because Franzwa presented to the district court what amounted to a brief within what it designated as a motion for leave to appeal. Thus, the district court had before it sufficient information to give due consideration to the issues raised by Franzwa's appeal. Contrary to Franzwa's argument, the bankruptcy court's findings indicate there was competent testimony that the loan was expressly intended to be interest-free. Absent a clear indication that the finding was erroneous, neither the district court nor this court could find otherwise. See Bankr.R. 8013 (findings of fact of bankruptcy court may not be set aside unless clearly erroneous). Also, Franzwa is mistaken in contending that a loan by a corporation to directors who are also sole shareholders violates Oregon Revised Statutes Sec. 57.265 (1987 replaced chapters). Accordingly, in Franzwa's appeal, we affirm the district court.

Erwin and Mullennex contend that the district court erred in reversing the bankruptcy court's allowance of their claims for indemnification against the Marquam estate for actual damages they paid Suzan Brewer ("Brewer") in a tort claim.

We review the bankruptcy court's decision allowing Erwin and Mullennex's indemnity claim independently, because we are in as good a position as the district court to review the bankruptcy court's findings. See In re Wolf & Vine, 825 F.2d 197, 199 (9th Cir. 1987). We review the bankruptcy court's findings of fact under the clearly erroneous standard and its conclusions of law de novo. Id. The issue of whether the bankruptcy court erred in allowing Erwin and Mullennex's claim for indemnity in the amount they paid to Brewer in satisfaction of the tort judgment against them is a mixed question of fact and law which is essentially legal. It is reviewed de novo. See id.; McConney, 728 F.2d at 1202.

Erwin and Mullennex argue that they are entitled to indemnity under Oregon Revised Statutes Sec. 57.255 and under common law. Oregon Revised Statutes Sec. 57.255(1) provides for a corporation's indemnification of its directors who incur civil liability if the director "acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interest of the corporation." ORS Sec. 57.255(1) (1987 replaced chapters). In Brewer v. Erwin, 61 Or.App. 642, 658 P.2d 1180 (1983), the reviewing court found there was sufficient evidence to support the jury's findings that Erwin and Mullennex engaged in outrageous conduct involving a claim of intentional infliction of emotional distress. Id. at 644-46; 1182-83. Therefore, they are not entitled to indemnity under Oregon's indemnity statute.

Erwin and Mullennex argue that they are entitled to common law indemnity. Oregon law requires one who seeks indemnity to prove that their liability was secondary and that equity requires that it be discharged by a primarily responsible party. Fulton Ins. v. White Motor Corp., 261 Or. 206, 210-11, 493 P.2d 138, 140-41 (1972). Because Marquam was wholly owned and operated by Erwin and Mullennex, and because they committed the tortious acts giving rise to the civil judgment against them, we hold that Marquam is not primarily liable for Erwin and Mullennex's acts.

Erwin and Mullennex also argue that they are entitled to subrogation under 11 U.S.C. § 509. However, Erwin and Mullennex are not entitled to subrogation because their claim for indemnity is disallowed. See 11 U.S.C. § 509(b) (1) (B) (1982).

Erwin and Mullennex have not established that they are entitled to either indemnity or subrogation. Accordingly, we affirm the district court's order reversing the bankruptcy court's allowance of the claim.

Brewer cross appeals from the district court's denial of her request for attorney fees under Bankruptcy Rule 9011(a). She contends that the district court should have granted her request because Mullennex's and Erwin's indemnity claims were brought in bad faith. We review de novo the district court's legal conclusion as to whether denial of sanctions was correct. See Wasyl, Inc. v. First Boston Corp., 813 F.2d 1579, 1581 (9th Cir. 1987).

Bankruptcy Rule 9011(a) provides in part that, if after reasonable inquiry an attorney brings a claim that is not to the best of his knowledge, information, and belief well-grounded in fact and warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law, the court shall impose a sanction on the attorney or his client which may include attorney fees and costs. Cf. Fed. R. Civ. P. 11.

While Erwin and Mullennex's claim for indemnity or subrogation ultimately proved meritless, the governing statutes, while clear, have not been subject to much published interpretation and review. Therefore, Erwin and Mullennex are not subject to sanctions for filing that claim. Accordingly, we affirm the district court's denial of sanctions.

Lawrence Erwin appeals the district court's decision reducing from ninety-five to forty the hours the bankruptcy court allowed in his claim for legal services rendered in Brewer v. Erwin, 61 Or.App. 642, 658 P.2d 1180 (1983). We review the bankruptcy court's decision as to the reasonableness of the hours claimed, an essentially factual decision, for clear error. See Matter of 268 Ltd., 789 F.2d 674, 677 (9th Cir. 1986).

A claim for prepetition services of an insider or attorney of the debtor shall be allowed except to the extent such claim exceeds the reasonable value of the services. 11 U.S.C. § 502(b) (4) (Supp. IV 1986). Here, Lawrence Erwin, Warde Erwin's son, presented to the bankruptcy court no testimony other than his own as to the reasonableness of his spending ninety-five hours to prepare and make oral argument before the Oregon Court of Appeals and to prepare a petition for review to the Oregon Supreme Court. This extraordinary amount of time was due solely to Warde Erwin's demands. Moreover, the amount awarded Lawrence Erwin will come out of funds available to satisfy Brewer's judgment. Under the circumstances, we find that the bankruptcy court's allowance of Lawrence Erwin's claim is clearly erroneous to the extent it was based on more than forty hours of legal services rendered. We affirm the district court.

V. Cross Appeal of Allowance of Legal Fees and Interest

Brewer cross appeals from the district court's allowance of Lawrence Erwin's claim for legal fees and interest. Brewer contends that attorney fees for the preparation of the petition for review are not properly chargeable to Marquam because the petition was not in the best interest of the corporation. However, the Oregon appeals court reversed the trial court's new trial order and reinstated a jury verdict of approximately $100,000. Nothing in the record indicates that pursuing the petition for review was not in the best interest of the corporation in a belief that the trial court was correct.

Brewer also contends that Lawrence Erwin's claim for eighteen percent interest on the unpaid attorney fees violates Oregon Revised Statutes Sec. 82.010(2) (1987 replaced chapters), which states that, absent an agreement to the contrary, the interest rate on accounts receivable is nine percent. However, Oregon Revised Statutes Sec. 82.010(1) (1987 replaced chapters) states that "the rate of interest for any transaction shall be as agreed between the parties to the transaction." The evidence before the bankruptcy court was that the parties had agreed that the interest rate would be eighteen percent, and Lawrence Erwin's billing statements reflect that agreement. Thus, the bankruptcy court's allowance of the claim for eighteen percent interest is not clearly erroneous. Accordingly, we affirm the district court's order allowing Lawrence Erwin's claim for attorney fees and interest.



This disposition is not appropriate for publication and may not be cited to or by the courts of this circuit except as provided by Ninth Circuit Rule 36-3


I. Franzwa v. Mullennex, No. 86-4386 (interest claim)

II. Brewer v. Erwin & Mullennex, No. 87-3674 (indemnification claim).

III. Brewer v. Erwin & Mullennex, No. 87-3753 (cross-appeal regarding sanctions).

IV. Brewer v. Lawrence Erwin, No. 87-3753 (attorney fees for prepetition legal work).

V. Brewer v. Lawrence Erwin, No. 87-3754 (cross-appeal re attorney fees).