Unpublished Disposition, 907 F.2d 155 (9th Cir. 1990)

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U.S. Court of Appeals for the Ninth Circuit - 907 F.2d 155 (9th Cir. 1990)

In re SUNSET BAY ASSOCIATES, Debtor.Javier ALVAREZ; Alberto Compean, Plaintiffs-Appellants,andDennis W. Alfaro, Plaintiff,v.EUREKA FEDERAL SAVINGS & LOAN ASSOCIATION, Defendant-Appellee.

No. 89-55451.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted June 6, 1990.Decided July 11, 1990.

Before HUG, BOOCHEVER and BEEZER, Circuit Judges.


MEMORANDUM* 

Plaintiffs, Alvarez, Compean and Alfaro (collectively "Avanti"), appeal a grant of summary judgment in favor of Eureka Federal Savings & Loan Association ("Eureka"), denying Avanti a priority position over Eureka in Sunset's bankruptcy. We affirm.

In 1984, Avanti settled a lawsuit against some of its former partners, known as the Baywood group ("Baywood"). Baywood's chief asset was its partnership in Sunset Bay Associates ("Sunset"), a joint venture that was formed to build a condominium project known as the Towers. In settlement, Baywood gave Avanti a promissory note for $1,750,000 secured by a deed of trust on the Towers. This deed of trust was third in priority, behind a construction loan from Eureka and a purchase money loan.

Under the terms of the Baywood note, rider to the deed of trust, and settlement agreement, Avanti would receive 4% of the sale price of each condominium unit as it was sold. Avanti would then release its lien on that unit. The entire settlement was contingent upon the approval of Eureka, who not only held the first priority lien on the Towers but had also been named as a defendant in Avanti's suit against Baywood. Eureka was not involved in the settlement negotiations but gave its consent to the settlement documents and was dismissed from the Baywood lawsuit.

In 1985, when the Towers project was 90% complete, Sunset incurred several events of default. Eureka stopped fully funding requests for advances on the construction loan, even though some money remained in the loan account. Sunset subsequently declared bankruptcy. In 1987, the property was sold by the bankruptcy trustee for $23,000,000, considerably less than the $33,000,000 balance due on Eureka's construction loan. A segregated fund was set aside to be distributed between Eureka and Avanti, in accordance with the priority of their respective claims on the property. Avanti, although a secured creditor, received nothing.

Avanti now claims that it is entitled to 4% of the sales price of the property, payable by Eureka, because its secured interest was equal or superior to Eureka's. Avanti advances two theories to support this claim: either Eureka impliedly consented to give Avanti a priority lien when it approved the Baywood settlement, or the bankruptcy court should have awarded Avanti an equitable subordination because Eureka caused the bankruptcy by withholding construction money. The bankruptcy court rejected both arguments and the district court affirmed, granting summary judgment to Eureka. Avanti appeals, claiming material issues of fact remain regarding both theories.

We have jurisdiction over this timely appeal under 28 U.S.C. § 1291. We review a district court's grant of summary judgment de novo. Kruso v. International Telephone & Telegraph Corp., 872 F.2d 1416, 1421 (9th Cir. 1989), cert. denied, --- S. Ct. ----, 58 U.S.L.W. 3801 (1990). Summary judgment is appropriate if, viewing the evidence in the light most favorable to the nonmoving party, there are no genuine issues of material fact and the district court correctly applied the relevant substantive law. Tzung v. State Farm Fire & Casualty Co., 873 F.2d 1338, 1339-40 (9th Cir. 1989). To establish a genuine issue of fact, the nonmoving party must "go beyond the pleadings" and "designate specific facts showing that there is a genuine issue for trial." Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986).

Avanti first argues that Eureka impliedly agreed to give its deed of trust a priority position when it approved the settlement agreement with Baywood. In support, Avanti cites the venerable case of Baltimore & Ohio R.R. v. United States, 261 U.S. 592, 597 (1923), and International Union of Bricklayers & Allied Craftsman Local Union No. 20, AFL-CIO v. Martin Jaska, Inc., 752 F.2d 1401, 1405 (1985).

In B & O Railroad, the Supreme Court set forth the criteria for an "implied in fact" agreement. Unlike an agreement "implied in law," the Court explained, an "implied in fact" agreement is

founded upon a meeting of the minds ... inferred, as a fact, from the conduct of the parties showing, in light of the surrounding circumstances, their tacit understanding....

Such an agreement will not be implied unless the meeting of the minds was indicated by some intelligible conduct, act or sign.

261 U.S. at 597-58 (discussing Dent Act claim).

Avanti concedes that there is no overt evidence that an agreement was made, but argues that summary judgment was still improper because an agreement could be inferred from the circumstances. In Bricklayers, 752 F.2d at 1405, we held that

Even where basic facts are stipulated, if parties dispute what inferences should be drawn from them, summary judgment is improper. [But] the parties must actually dispute which inferences are properly drawn from the stipulated facts.

752 F.2d at 1405. The opponent of summary judgment "must counter with specific factual allegations revealing a genuine dispute of fact" regarding the contested inferences. Id.

Here, Avanti argues that Eureka agreed it should get 4% of the proceeds from the sale of individual units, and thus agreed to give it 4% of the proceeds from the sale of the entire project. Avanti then contends that a "logical inference" from these facts is that Eureka also "tacitly agreed" to give Avanti a priority payment of 4% on the sale of the project in the case of a bankruptcy.

The uncontested fact that Avanti identifies to support this claim is that Eureka consented to the recording of the deed of trust in consideration for its dismissal from the Baywood lawsuit. The specific circumstances that Avanti identifies to support its inference are that the object of the documents was to give Avanti monetary consideration in settlement of a lawsuit, and that the consent by Eureka was voluntary.

These circumstances are insufficient to meet the test of Bricklayers and Celotex. Avanti points to no other specific fact in the record that shows that Eureka's agreement that Avanti should get 4% under normal circumstances also meant it should get a priority in the case of a bankruptcy. Eureka, in turn, points to several specific facts that support the opposite conclusion. There were no overt discussions regarding subordination between Eureka and Avanti; Eureka was not involved in the settlement negotiations of the Baywood lawsuit; and Avanti's agreement to release its lien on individual units sold is not unusual but required by California state law. We agree with the district court that Avanti has not alleged facts sufficient to defeat summary judgment.

Avanti argues next that it is entitled to equitable subordination of Eureka's lien. A bankruptcy court has discretion to grant equitable subordination under 11 U.S.C. § 510(c). To show it is entitled to subordination, a claimant must show three things:

(1) the claimant who is to be subordinated has engaged in inequitable conduct; (2) the misconduct results in injury to competing claimants or an unfair advantage to the claimant to be subordinated; and (3) subordination is not inconsistent with bankruptcy law.

In re: Universal Farming Industries, 873 F.2d 1334, 1337 (9th Cir. 1989); In re: Westgate-California Corp., 642 F.2d 1174, 1177-78 (9th Cir. 1981). To succeed, "the record must disclose findings or sufficient facts that claimant acted wrongfully." Wardley Int'l Bank, Inc. v. Nasipit Bay Vessel, 841 F.2d 259, 263 (9th Cir. 1988).

Here, Avanti identifies no specific facts in the record that show Eureka's handling of the funds was improper. The parties agree that Eureka did not fund all loan requests. But Eureka explains that Sunset had incurred at least two events of default under the terms of the loan by the time the funds were refused. Eureka may have acted in disregard of Avanti's interests. This does not make Eureka's conduct improper.

Avanti next claims that the bankruptcy court failed to serve it with a copy of the proposed findings of fact before they were submitted to the district court. Bankruptcy Rule 9033(a) requires the bankruptcy clerk to serve copies of proposed findings on all counsel. Under the local rules of the Bankruptcy Court of the Central District of California, however, the attorney for the prevailing party must file and serve proposed findings on opposing counsel. Local Rule 116(b), (d). Opposing counsel is instructed to file objections and propose an alternative order. Local Rule 116(e). "The failure to file timely objections shall be deemed a waiver of any defects in the form of the document." Id.

Eureka lodged its proposed findings in September, 1988. Avanti does not argue that it did not receive a copy of the proposed findings at that time. Nor did Avanti file any objections or submit its own proposed alternative findings. The proposed findings were not submitted to the district court until February, 1989. They were not entered until March, 1989. Even if Eureka were not yet the "prevailing party" at the time its proposed findings were lodged in September, Avanti cannot claim it had no notice that the findings were before the court or that it had no opportunity to respond.

Finally, Eureka argues in its brief that when Avanti settled its dispute with Baywood, its claim on the note and deed of trust became moot. As Avanti points out, the individuals named on the note were not dismissed, only the Baywood corporate entity. Avanti's claim is not moot.

ATTORNEYS' FEES

Eureka requests attorneys' fees under 28 U.S.C. § 1912 and Fed. R. App. P. 38 as a sanction for a frivolous appeal. Eureka relies on Bricklayers, 752 F.2d at 1406. In that case, the appellant's arguments on appeal were "baffling" and inconsistent with its claims in the trial court. We noted that arguable claims, though novel and unsuccessful, would not have merited an award of fees.

Here, Avanti's claims are weak, but arguable. They are also consistent with its arguments before the district court. Bricklayers is distinguishable on this ground. We decline to grant a fee award.

Eureka is awarded its costs.

CONCLUSION

We conclude that no genuine questions of fact remain regarding Avanti's two theories of recovery from Eureka.

The district court's order is

AFFIRMED.

 *

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 Cir.R. 36-3