Unpublished Disposition, 865 F.2d 263 (9th Cir. 1987)

MEMORANDUM^* 

David L. Cottle appeals a decision of the Bankruptcy Appellate Panel (BAP). BAP affirmed the final judgment of the bankruptcy court in an adversary proceeding brought by Cottle against his former business partner, debtor Michael B. Carroll. The bankruptcy court had granted Carroll partial summary judgment on grounds that Cottle had waived some of his rights. After a trial on the remaining issues, that court had ordered Cottle to contribute $29,572.40 to the partnership estate. We affirm BAP's judgment of affirmance.

FACTS AND PROCEEDINGS BELOW

Cottle and Carroll formed a general partnership in 1973 through which they managed real property, operated a bar, and engaged in other activities under various names. Apparently the relationship between the partners became strained. In October 1976, Cottle sued Carroll in a California state court for dissolution of the partnership, appointment of a receiver, and an accounting. Cottle alleged that Carroll had expended insurance proceeds for his own use, had commingled funds, had converted partnership assets, had forged signatures on partnership checks, and otherwise had violated their partnership agreement. Cottle also asked the court to determine the parties' rights and obligations with respect to certain real properties that he and Cottle held as tenants in common.

On April 7, 1977, at 2:00 a.m., Cottle's neighbors in Sacramento, California, heard a gunshot from Cottle's house and called the police. When police officers arrived, Cottle told them that he had fired his gun at a burglar who had attempted to enter his home. Cottle said that he believed that the attempted burglary was one of a series of bizarre incidents, including suspicious fires, a chase by a motorcycle gang, and other occurrences, that Carroll had staged to frighten him. At that point, with the officers as witnesses, Cottle wrote and signed the following statement:

Be it known that I, David L. Cottle, as of this date no longer wish to sue my partner Michael B. Carroll for a dissolution of the partnerships collectively known as "C Street Saloon," "Carroll/Cottle Properties," and [/]or "Grunt Enterprises." And [I] further do not wish for any further accounting from Michael B. Carroll for any monies he has received.

E.R. at 63. Cottle also sent a letter to his attorney and to Carroll's attorney stating that he no longer wished to sue Carroll. Matters remained in this posture for over four years.

The controversy, however, was not at its end. In November 1981, Cottle commenced an adversary proceeding against Carroll in the Bankruptcy Court for the Eastern District of California where Carroll had filed for relief under Chapter 11 of the Bankruptcy Code. In November 1983, Cottle amended his adversary complaint to ask for five types of relief: (1) an accounting; (2) a partition sale and distribution of jointly owned property; (3) damages for breach of fiduciary duty, fraud, and conversion; (4) damages for negligence; and (5) the creation of constructive trust.

In December 1983, Carroll answered the amended complaint, and therein argued that release, waiver, and estoppel barred Cottle's first two claims, and that the statute of limitations barred the remaining three claims. To litigate the waiver issue, Carroll filed a so-called "Motion for Separate Determination of Issues or Summary Judgment (Partial)." After conducting extensive evidentiary hearings on the motion, Bankruptcy Judge Dahl granted partial summary judgment to Carroll on grounds that Cottle's April 1977 statement constituted a valid waiver of his first two claims against Carroll.

After the district court denied an interlocutory appeal, the bankruptcy court held a trial to determine the parties' rights to the real property that they held as tenants in common. On June 6, 1986, Judge Dahl ruled that Cottle had to contribute $29,572.40 to the partnership estate to enable it to reimburse Cottle for his expenses in maintaining the partnership property. BAP affirmed on September 11, 1987. Apparently Cottle never pressed his last three claims and hence each is deemed waived.

BAP agreed that Cottle had waived his rights to an accounting. Although it held that the bankruptcy court erred in conducting an evidentiary hearing on the motion for a separate determination of issues, it ruled that the error was harmless and nonprejudicial because the bankruptcy court properly had granted summary judgment on the issue of waiver. BAP upheld the bankruptcy court's subsequent findings of fact and conclusions of law.

JURISDICTION

The bankruptcy court had jurisdiction under 28 U.S.C. § 1471 while that of BAP rests on Sec. 158(b). This court has jurisdiction under Sec. 158(d).

STANDARD OF REVIEW

We review a grant of summary judgment de novo. See Ashton v. Cory, 780 F.2d 816, 818 (9th Cir. 1986). Bankr.R. 8013 provides that a bankruptcy court's "findings of fact shall not be set aside unless clearly erroneous, and [that] due regard shall be given to the opportunity of the bankruptcy court to judge the credibility of the witnesses." See Ragsdale v. Haller, 780 F.2d 794, 795 (9th Cir. 1986); In re Global W. Dev. Corp., 759 F.2d 724, 726 (9th Cir. 1985).

SUMMARY JUDGMENT

A bankruptcy court's grant of summary judgment is governed by Fed. R. Civ. P. 56. See Bankr.R. 7056. That is, it must find that "no genuine issue as to any material fact [exists] and that the moving party is entitled to judgment as a matter of law." Fed. R. Civ. P. 65. Applying this standard in light of California law and the facts on this record, we conclude that the bankruptcy court properly granted summary judgment to Carroll on the issue of waiver.

Under California law, a party may waive a right if (1) the right exists; (2) the party has actual or constructive knowledge of its existence; and (3) the party has an actual intent to relinquish the right or engages in conduct so inconsistent with an intent to enforce the right as to induce a reasonable belief that it has been relinquished. See Wienke v. Smith, 179 Cal. 220, 226, 76 P. 42, 44 (1918); Trujillo v. City of Los Angeles, 276 Cal. App. 2d 333, 343, 81 Cal. Rptr. 146, 153 (1969); Scott v. Federal Life Ins. Co., 200 Cal. App. 2d 384, 391, 19 Cal. Rptr. 258, 262 (1962); Kay v. Kay, 188 Cal. App. 2d 214, 218, 10 Cal. Rptr. 196, 199 (1961).

The April 1977 letter and the circumstances surrounding its writing satisfy each of these elements: Cottle had a right to sue Carroll for his alleged misconduct, he knew he had this right, and he produced a document unmistakably evincing his decision to waive it. Moreover, despite the assertion of the dissent from BAP's judgment, the waiver was valid even though Cottle received no consideration for it. See Knarston v. Manhatten Life Ins. Co., 140 Cal. 57, 65-66, 73 P. 740, 742 (1903).

Although Cottle contends that the waiver was involuntary and a product of duress, his showing is inadequate to sustain his contention. The record undisputedly shows that Cottle had counsel, that he executed various letters indicating his intent to waive his rights over a period of several days, and that he signed them in the presence of police officers who could protect him from any immediate danger. To show duress in California, a party must prove that he performed an act while deprived of his free will by an unlawful act of another. See Lewis v. Fahn, 113 Cal. App. 2d 95, 98-100, 247 P.2d 831, 833-34 (1952). True, Cottle executed the waiver under unusual circumstances. Also, he may have executed it reluctantly, but he has failed to show he executed it while deprived of his free will.

We also reject Cottle's contention that the April 1977 letter leaves the scope of the waiver unclear. Cottle argues that all the documents admitted into evidence, taken together, permit factual inferences to be drawn, such as the possibility that Cottle thought that he already had received the benefit of an accounting at the time he executed the waiver. These speculations do not qualify as "genuine" issues of material fact. Like the bankruptcy court, we find Cottle's waiver extremely clear and he has alleged no facts that should change our interpretation of it.

THE DUAL PROCEEDING

Cottle asserts that the bankruptcy court erred in conducting an evidentiary hearing and entering findings of fact on the issue of waiver before disposing of Carroll's motion for either a separate trial under Fed. R. Civ. P. 42(b) or partial summary judgment under Fed. R. Civ. P. 56. Rule 42, made applicable by Bankr.R. 7042, allows a court to "order a separate trial of any ... issue" upon the motion of a party, but does not authorize the court to try any issues when considering the motion. Rule 56, moreover, generally requires a court to render or deny summary judgment on the basis of the pleadings, depositions, answers to interrogatories, admissions, and affidavits on file; it does not authorize the court to hold a trial.

We conclude, however, that the bankruptcy court's choice of procedure, even if erroneous, did not prejudice Cottle. See United States Gypsum Co. v. Schiavo Bros., Inc., 668 F.2d 172, 181 (3rd Cir. 1981) ("The touchstone, in reviewing bifurcated proceedings, is whether the party bearing the burden of proof was unfairly prejudiced by the proceedings employed."), cert. denied, 456 U.S. 961 (1982). He had ample notice. At the pretrial and settlement conference on February 14, 1984, the bankruptcy court scheduled Carroll's motion and allocated time for the taking of testimony. Cottle, thus, knew that the proceeding would include a trial and had ample time to prepare for the trial inasmuch as the first hearing on the motion was not until April 27, 1984. Also, it should be remembered that, by this time, Cottle had had several years to conduct discovery. Finally, like BAP, we agree that Cottle was not prejudiced because summary judgment was proper in any event.

FINDINGS OF FACT REGARDING THE PARTNERSHIP ACCOUNTING

Cottle raises a number of objections to the bankruptcy court's findings in regard to partnership properties. In reviewing Cottle's objection, we note that Bankruptcy Judge Dahl had extensive experience with the adversary proceeding. He made his decision partly on the basis of each party's credibility and found:

1. Defendant's testimony is more worthy of belief and of greater credibility than plaintiff's testimony.

2. Plaintiff has failed to present any records which have any credibility.

3. Defendant has introduced creditable evidence both orally and by exhibits corroborating testimony produced by defendants.

E.R. at 132.

The ultimate determination of Cottle's liability was accomplished in three steps. First, on the basis of a trustee's affidavit, the court concluded that partnership estate had assets of $77,032.01. See E.R. at 132. Second, on the basis of the parties' submissions and testimony, the court found that the partnership owed Carroll $139,907.32 and owed Cottle $6,930.46. It then reduced the indebtedness to Carroll by one-half of the partnership debt to Cottle. See E.R. at 132-33. The result was a partnership debt to Carroll of $136,176.32 and to Cottle of $3,730.46. Third, on the basis of the preceding figures, the court calculated the amount that Cottle would have to contribute to the partnership estate to enable it to pay its debt to Carroll. After crediting each partner with one-half of the partnership assets ($38,516.03), it concluded that Cottle would have to pay $29,572.40. That is, Cottle, after contributing his half of the partnership assets, would be required to contribute an additional $29,572.40 to equal one-half of the partnership debt owed Carroll, $68,088.43. ($38,516.03 + $29,572.40 = $68,088.43). See E.R. at 133.

Addressing each of the allegations of error that Cottle raises in his brief, we reach the following conclusions:

(1) The bankruptcy court made no clearly erroneous findings of fact when it credited Carroll for expenditures made prior to May 13, 1976. Although Cottle argues that all payments made prior to this time came out of partnership accounts, we find that the bankruptcy court could have believed Carroll's testimony that some payments from this period came out of his own funds. See E.R.Supp. at 198-201.

(2) The bankruptcy court made no clearly erroneous findings of fact when it reduced the partnership assets by $2914.00 because of the trustee's mistaken crediting of the figure to a partnership account instead of to Carroll's individual account. Cottle, in effect, contends that the figure has been subtracted twice from partnership assets. We cannot find clear support for Cottle's position. The trustee's affidavit does not mention the $2914.00 figure. See E.R. at 137. Moreover, although the figure appears on a ledger labelled "Carroll-Kerr (Rent on Cap. Ave)," one cannot conclude from this ledger that the trustee subtracted the figure before informing the court of the size of partnership assets. See E.R. at 225.

(3) The bankruptcy court made no clearly erroneous findings of fact in crediting Carroll with $2100.00 for funds spent in boarding up the Bret Harte property. We see some support for Cottle's position that the $2100.00 came out of partnership funds because the record contains a photocopy of two checks that were drawn on a partnership account, that add up to $2100.00, and that bear memoranda saying "Bret Harte restoration" and "Boarding and securing ... Bret Hart." See E.R. at 226. We hesitate to reverse the bankruptcy court, however, because the record does not show that the checks were ever indorsed. The court could have believed Carroll's contention that he paid the money.

(4) The bankruptcy court made no clearly erroneous findings of fact when it debited Cottle for the $14,977.50 that he had received as rent on the Capital Avenue, First Avenue, and Bret Harte Court properties. Carroll contends that, even though he received the money, he gave $6000.00 to Carroll's attorney and that he used the rest to pay for expenses on the property. Although the record contains some testimony and other evidence to this effect, see E.R. at 309-10, 323, 363-64, 373, the issue is one of Cottle's credibility. We accept the bankruptcy court's findings.

(5) The bankruptcy court made no clearly erroneous findings in determining Carroll's expenditures on the Bret Harte Court property. Cottle contends, first, that court should not have believed that Carroll used an insurance check to pay for partnership expenses because Carroll had not received the check at the time he paid the expenses. Carroll, however, made clear that he had paid the expenses out of his funds and that he took the insurance check as compensation for money that Cottle owed him. See E.R. at 340-41. Cottle contends, second, that the court erred in finding that Carroll incurred expenses between June 1976 to May 1976 when Carroll "refused" to provide the court with income figures for the period. We disagree because Carroll testified that the property had no income and the court allowed Cottle exceptional opportunities to discover evidence to the contrary. See, e.g., E.R.Supp. at 10, 22. Cottle contends, third, that the court improperly credited Carroll with making seven mortgage payments of $125.00 each to Evelyn Carroll subsequent to the date Carroll claims he had paid off the note. See E.R. at 176, 188. We disagree because the record shows that Carroll paid off the note to Florence Cheff, not to Evelyn Carroll. The bankruptcy court, therefore, could have concluded that even though the partnership no longer owed money to Florence Cheff, it still owed money to Evelyn Carroll.

(6) The bankruptcy court made no clearly erroneous findings of fact in its examination of the Capitol Avenue property. Although Cottle contends that the court allowed Carroll a credit of $30,098.45 for his expenditures when Carroll paid "most" of the expenditures from joint funds, Cottle cites only his own testimony to support his position. See E.R. at 310, 323, 355-56, 358-60. The court did not have to believe this contention nor did it have to believe Cottle's bare testimony that he spent $15,000.00 of his own funds in expenses. See E.R. at 359.

(7) The bankruptcy court made no clearly erroneous findings in accounting for the 24th Street property. We recognize that the court found that the property had no income for a period of several years, and that Cottle testified that a "reasonable" rent for the property was $250.00 per month. See E.R. at 316-18, 335. Such testimony, however, hardly constituted evidence of the actual rent; given Cottle's failure to discover more accurate numbers, the court's decision not to include a figure for the rent was not clearly erroneous.

AFFIRMED.