FILED OCT 14 2021 SUSAN M. SPRAUL, CLERK NOT FOR PUBLICATION U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT

UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT

In re: BAP No. NV-21-1054-GTL DRAFT BARS LLC, Debtor. Bk. No. 2:16-bk-16656-GS

LENARD SCHWARTZER, Chapter 7 Adv. No. 2:17-ap-1176-GS Trustee, Appellant, v. MEMORANDUM* ANHEUSER BUSCH, LLC; ANHEUSER- BUSCH COMPANIES LLC, Appellees.

Appeal from the United States Bankruptcy Court for the District of Nevada Gary A. Spraker, Bankruptcy Judge, Presiding

Before: GAN, TAYLOR, and LAFFERTY, Bankruptcy Judges.

INTRODUCTION

Chapter 71 debtor Draft Bars, LLC (“Debtor”) built mobile bar units,

called “Bar Pods,” for appellees Anheuser Busch, LLC and Anheuser-Busch

* This disposition is not appropriate for publication. Although it may be cited for whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential value, see 9th Cir. BAP Rule 8024-1. 1 Unless specified otherwise, all chapter and section references are to the Companies, LLC (together “AB”), which AB and its distributors used to

market Budweiser beer at sporting events, concerts, and other events.

Debtor also provided management services to AB in connection with the

operation of the Bar Pods at certain events at AB’s request.

Debtor alleged an oral agreement with AB which permitted Debtor to

directly market, deliver, and manage the Bar Pods at other third-party

events. AB disagreed that any such agreement existed.

After filing a chapter 11 case, Debtor filed an adversary complaint

against AB for breach of the alleged third-party marketing, delivery and

management contract and related claims and sought over $69 million in

future lost profits. Although the bankruptcy court did not determine

whether there was an enforceable contract, it granted summary judgment

in favor of AB because, if a contract existed, it would have been terminable

at will; thus, future lost profits were not recoverable under state law. We

agree and AFFIRM.

FACTS

A. Prepetition Events

Debtor was a Nevada LLC, wholly owned by Michael Manion

(“Manion”). Beginning in late 2014, Debtor began building Bar Pods for

AB. After constructing the Bar Pods, Debtor sometimes provided delivery

and management services at AB’s request. AB supplied written contracts

Bankruptcy Code, 11 U.S.C. §§ 101–1532, all “Rule” references are to the Federal Rules of Bankruptcy Procedure, and all “Civil Rule” references are to the Federal Rules of 2 for the construction of each Bar Pod and for reimbursement of Debtor’s

expenses incurred in delivering and managing the Bar Pods at events

requested by AB. Each contract indicated that Debtor was an independent

contractor.

Manion testified that in 2015, Ari Opsahl (“Opsahl”), AB’s then-

director of sales and marketing, requested a proposal for standard pricing

of management services. Manion states that after he submitted a proposal,

Opsahl informed him that AB’s operating expense budget was spent.

According to Manion, Opsahl then developed the “Sustainable

Marketplace Agreement” (“SMA”), which expanded what Debtor had

already been doing in managing the Bar Pods. Manion contends that the

terms of the SMA are reflected in a November 15, 2015 email from Opsahl

which states:

Mike – we are trying to expand our mobile asset strategy beyond the contracted events that we have with you and Fusion. What we would like to do is have you activate the PODs at your own expense negotiated with the event that is requesting. We can provide the beer for the events to help cover your cost. Does that make sense? It’s a model we have looked into with the food trucks to lower or eliminate ABs operating costs. You are more than welcome and encouraged to advertise these assets in the marketplace as long as the product being sold is AB.

AB disputes that it had a service agreement with Debtor. Instead, it

says that it held a competitive bid process in the fall of 2015 and selected

Civil Procedure. 3 Fusion Marketing (“Fusion”) to manage and operate its mobile assets,

including the Bar Pods. Manion was aware of AB’s decision but testified

that Debtor continued to provide management services related to some of

the Bar Pods, and the record shows that through the spring of 2016, AB

continued to direct its account managers to schedule activation of certain

Bar Pods through Bar Pods, LLC, an entity apparently affiliated with

Debtor. 2

In May 2016, AB’s Manager of Event Activation announced that he

was leaving AB and informed AB’s distributors to contact Fusion for Bar

Pod needs. Manion then contacted AB and requested a formal arrangement

for managing the Bar Pods. Manion states that he submitted a proposal, but

by May or June of 2016, AB directed Bar Pods LLC to turn over scheduling

and operation of the remaining Bar Pods to Fusion. AB took possession of

the Bar Pods over the next several months.

B. The Adversary Complaint And Motion For Summary Judgment

In December 2016, prior to completing its contract to manufacture its

last Bar Pod for AB, Debtor filed a chapter 11 petition. Three days after the

petition date, Manion sent a letter to AB outlining Debtor’s position

regarding the alleged breach of the SMA. Manion stated that after Debtor

“delivered each pod complete,” they “have since been managed by another

company over the years.” He also wrote, “[w]e still have not received any

2 Debtor did not report any interest in other businesses in its Schedules and Statements, but the bankruptcy court order converting the case states that Debtor was 4 Service and/or Activation contract that’s been promised to us at every turn,

requesting us to formulate numerous proposals which we have submitted

with no response.”

Debtor filed an adversary complaint against AB in April 2017,

asserting claims for: (1) Breach of Contract; (2) Breach of Covenant of Good

Faith and Fair Dealing; (3) Unjust Enrichment; and (4) Promissory

Estoppel. In March 2018, the bankruptcy court appointed a chapter 11

trustee and, on the trustee’s motion, converted the case to chapter 7 in May

2018. Trustee substituted into the adversary proceeding on behalf of the

estate.

In October 2019, AB filed a motion for summary judgment. It argued

that Manion admitted, in the December 2016 letter and in his deposition,

that there was no service contract between Debtor and AB, and therefore

the claims for breach of contract and breach of the covenant of good faith

and fair dealing failed as a matter of law. AB alternatively argued that

under Nevada law, a contract without a stated term is terminable at will,

and consequently, future lost profits damages are not recoverable. Manion

admitted in his deposition that the SMA had no set term and “from day

one, it was an event-by-event basis.”

AB also asserted that any contract to manage the Bar Pods would

have incorporated AB’s general terms, which state that Debtor is an

the parent company of Bar Pods, LLC. 5 independent contractor. And, under Nevada law, an independent

contractor relationship is also terminable at will.

AB contended that Debtor’s claims for unjust enrichment and

promissory estoppel must fail because Debtor failed to introduce any

evidence of reliance-based damages. AB argued that the promissory

estoppel claim was based on the same alleged promise as the breach of

contract claim but, under that alleged agreement, all costs and expenses

were Debtor’s responsibility. Because Debtor failed to identify any

management costs incurred after AB retrieved the Bar Pods, AB argued

that summary judgment on counts three and four was also appropriate.

Finally, AB sought summary judgment on its affirmative defense to set off

any potential liability against its prepetition claim against Debtor, which

was based on a breach of the final Bar Pod purchase contract.

Trustee opposed the motion for summary judgment and argued that

there was ample evidence to support the existence of a contract. He

contended that Manion’s statements about the lack of a contract were taken

out of context, and he attached a declaration from Manion to clarify those

statements.

Trustee admitted that the estate’s damages were for lost profits but

argued that lost profits were recoverable based on Manion’s declaration

that the parties understood and agreed that the SMA would be in place for

“many years to come.” Trustee also maintained that the terms of the SMA

6 were negotiable and did not require incorporation of AB’s general terms

for service contracts.

Regarding the “reliance-based claims,” Trustee argued that the estate

had compensable damages caused by AB’s failure to immediately retrieve

the Bar Pods in June 2016. Manion stated that some Bar Pods remained in

Debtor’s warehouse until December 2016, and reasonable costs for

maintenance, storage, and cleaning totaled $47,800.

Lastly, Trustee argued that AB was not entitled to setoff as a matter

of equity because by taking management of the Bar Pods away from

Debtor, AB caused financial hardships which contributed to Debtor’s

inability to finish construction of the Bar Pods.

In reply, AB asserted that Manion’s declaration clearly contradicted

his prior deposition testimony that the contract had no term, and therefore,

should be disregarded as a sham declaration. AB noted that Trustee failed

to dispute that any agreement would have been an independent contractor

relationship. The court held a hearing on the motion for summary

judgment and took the matter under advisement.

C. The Court’s Ruling

On September 29, 2020, the bankruptcy court entered its

memorandum decision granting AB’s motion for summary judgment on

the claims for Breach of Contract, Breach of Covenant of Good Faith and

Fair Dealing, and Promissory Estoppel. The court also granted summary

7 judgment on AB’s affirmative defense of setoff but denied summary

judgment on Trustee’s claim for Unjust Enrichment.

The court reasoned that although Manion made statements that no

contract existed, construing all reasonable inferences in favor of the

nonmoving party, there was a genuine issue of fact about the existence of a

contract.

However, the court determined that even if there were a contract as

alleged by Trustee, such a contract would have been terminable at will and

thus, the estate could not recover lost profits under the holding of Dalton

Props., Inc. v. Jones,

(Nev. 1984). The bankruptcy court held that,

even taking as true Manion’s statement that the SMA would be in place for

“many years,” the alleged contract lacked a definite term and, pursuant to

the Restatement (Second) of Contracts § 33, cmt. d, “[w]hen the contract

calls for successive performances but is indefinite in duration, the contract

is commonly terminable by either party, with or without a requirement of

reasonable notice.”

Additionally, the court agreed with AB that any contractual

relationship formed with Debtor would have been as an independent

contractor based on the imposition of AB’s standard terms and conditions.

The court noted that Trustee did not dispute the characterization of

Debtor’s relationship with AB as that of an independent contractor.

The bankruptcy court held that a claim for breach of the implied

covenant of good faith and fair dealing cannot be based on the same

8 conduct as a separately pleaded breach of contract claim. Because Trustee

did not differentiate between the alleged facts supporting the breach of

contract claim and the breach of the implied covenant of good faith and fair

dealing, summary judgment on that count was also appropriate for the

reasons stated in Shaw v. CitiMortgage, Inc.,

(D.

Nev. 2016).

The court denied summary judgment on Trustee’s claim for unjust

enrichment because Debtor could provide an opinion of the value of its

services, which was evidence of damages. It granted summary judgment

on the claim for promissory estoppel because Trustee did not allege a

promise, separate from the alleged contract, on which Debtor relied.

The bankruptcy court granted summary judgment on AB’s

affirmative defense of setoff because Trustee did not dispute that the

elements for the defense were satisfied, and he failed to demonstrate

compelling circumstances against the presumption of enforcing setoff.

After the court granted partial summary judgment, the parties settled

the remaining claim for unjust enrichment and stipulated to certify the

court’s summary judgment order as a final order pursuant to Civil Rule

54(a), made applicable by Rule 7054(a). The bankruptcy court entered an

order dismissing the unjust enrichment claim and certified its order as

final. Trustee timely appealed.

9 JURISDICTION

The bankruptcy court had jurisdiction under

and

157(b)(2)(O). We have jurisdiction under

.

ISSUES

Did the bankruptcy court err by granting summary judgment in

favor of AB on Trustee’s claims?

Did the bankruptcy court err by granting summary judgment on

AB’s affirmative defense of setoff?

STANDARDS OF REVIEW

We review the bankruptcy court’s grant of summary judgment de

novo. Lewis v. Kaelin (In re Cresta Tech. Corp.),

(9th Cir.

BAP 2018). Under de novo review, we look at the matter anew, giving no

deference to the bankruptcy court’s determinations.

Summary judgment may be appropriate on a claim that involves a

mixed question of law and fact if the underlying facts are undisputed.

Citicorp Real Est., Inc. v. Smith,

, 1103 (9th Cir. 1998); Miller v.

Schuman (In re Schuman),

, 586 n.1 (9th Cir. BAP 1987) (“[W]here

the underlying facts are undisputed, a [bankruptcy] court is free, on a

motion for summary judgment, to determine whether the established facts

satisfy the statutory standard.”).

We review the bankruptcy court’s allowance of a setoff for abuse of

discretion. Camelback Hosp., Inc. v. Buckenmaier (In re Buckenmaier),

(9th Cir. BAP 1991). A bankruptcy court abuses its discretion if it

10 applies an incorrect legal standard or its factual findings are illogical,

implausible, or without support in the record. TrafficSchool.com v. Edriver,

Inc.,

(9th Cir. 2011).

DISCUSSION

Civil Rule 56(a), made applicable by Rule 7056, provides that

summary judgment is appropriate when “there is no genuine dispute as to

any material fact and the movant is entitled to judgment as a matter of

law.” A fact is material only if it is one that “under the governing

substantive law . . . could affect the outcome of the case.” Caneva v. Sun

Communities Operating Ltd. P’ship (In re Caneva),

(9th Cir.

2008) (quotation omitted). A factual dispute is genuine if “a jury could

reasonably find in the nonmovant’s favor from the evidence presented.”

Emeldi v. Univ. of Or.,

(9th Cir. 2012).

In reviewing summary judgment, we must view the evidence in the

light most favorable to the nonmoving party and draw all justifiable

inferences in its favor. Anderson v. Liberty Lobby, Inc.,

(1986).

A. The Bankruptcy Court Did Not Err By Granting Summary Judgment On The Breach Of Contract Claim.

To prevail on a breach of contract claim under Nevada law, 3 a

plaintiff must prove: (1) the existence of a contract; (2) a breach by the

3 Although not specifically addressed, both parties apply Nevada law to the claims at issue in this case. Accordingly, we accept that Nevada law applies. 11 defendant; and (3) damages resulting from the breach. Shaw,

.

Trustee admits that the only damages sought were future lost profits,

but he argues that the SMA was not terminable at will and lost profits are

recoverable even if the contract had no definite term.

Under Nevada law, “[w]here a contract provides that either party

may terminate the agreement at will, the party so terminated may not

recover damages for those profits that he purportedly could have gained

over the maximum life of the contract.” Dalton,

. Trustee

argues that the bankruptcy court misapplied Dalton because the SMA did

not expressly provide that it was terminable at will. We disagree.

The reasoning of Dalton applies whether a contract is terminable at

will either expressly or implicitly. Compensatory damages for breach of

contract should place the injured party in the same position it would have

been in had the breach not occurred. “Since a party to a contract which is

terminable at the will of another cannot rely on duration of the contract, if

damages for lost profits were permitted, the injured party would be in a

better position than the terms of the contract allowed.”

The November 15, 2015 email, which Manion testified contains the

terms of the SMA, has no duration. If a contract does not specify a

duration, the court typically looks to surrounding circumstances to discern

the intent of the parties and may hold that the contract will last for a

reasonable time, or that the contract is terminable at will by either party, or

12 terminable upon the occurrence of a specific event or condition. See e.g., 5

Corbin on Contracts § 24.29 (2021); 1 Richard A. Lord, Williston on Contracts

§ 4:22 (4th ed. 2014); Restatement (Second) of Contracts § 33, cmt. d.

But we need not determine whether a duration is implied under the

circumstances because Trustee did not dispute the characterization of

Debtor as an independent contractor either to the bankruptcy court or in

his opening brief. He has thus waived the issue. Mano-Y & M, Ltd. v. Field

(In re Mortg. Store, Inc.),

(9th Cir. 2014) (“A litigant may

waive an issue by failing to raise it in a bankruptcy court.”); Smith v. Marsh,

(9th Cir. 1999) (“[O]n appeal, arguments not raised by a

party in its opening brief are deemed waived.”); Alaska Ctr. For Env’t v. U.S.

Forest Serv.,

, 858 n.4 (9th Cir. 1999) (stating that an argument

waived by an appellant’s failure to raise it in its opening brief cannot be

raised for the first time in its reply brief).

Under Nevada law, “[a]bsent a contractual provision to the contrary,

an independent contractor/principal agency relationship is terminable at

any time at the will of the principal or the agent.” Kaldi v. Farmers Ins.

Exch.,

(Nev. 2001) (per curiam) (emphasis added).

Consequently, if the SMA created a contractual relationship, AB could

terminate it at any time and such termination would neither constitute a

breach of the contract, nor give rise to damages for lost profits as a matter

of law.

13 B. The Bankruptcy Court Did Not Err By Granting Summary Judgment On The Breach Of Implied Covenant Of Good Faith And Fair Dealing Claim.

Under Nevada law, “every contract imposes upon the contracting

parties the duty of good faith and fair dealing.” State, Univ. & Cmty. Coll.

Sys. v. Sutton,

(Nev. 2004) (en banc) (quotation omitted). A

party breaches the implied covenant when “the terms of a contract are

literally complied with but one party to the contract deliberately

countervenes the intention and spirit of the contract.” Hilton Hotels Corp. v.

Butch Lewis Prods., Inc.,

(Nev. 1991).

A breach of the implied covenant is limited to assuring compliance

with the express terms of the contract and does not create additional

obligations beyond the contract terms. Shaw,

. “It is

well established that a claim alleging breach of the implied covenants of

good faith and fair dealing cannot be based on the same conduct

establishing a separately pled breach of contract claim.”

Trustee maintains that his claim for breach of the implied covenant is

based on separate conduct. He argues that AB breached the contract by

taking possession of the Bar Pods, but it breached the implied covenant by

“not only taking away the pods, but taking them away without giving Draft

Bars a reasonable period to execute the agreement, and by not giving Draft Bars

reasonable notice prior to taking the pods.” App’t Op. Brief at 21.

14 This is not separate conduct. It is the exact basis for Trustee’s breach

of contract claim, and thus, fails as a matter of law. See Shaw,

. Furthermore, Trustee did not identify any damages allegedly

caused by a breach of the implied covenant other than future lost profits.

Because any contract created by the SMA would have been terminable at

will at any time, the alleged conduct could not be a breach of the implied

covenant and the estate would not be entitled to future lost profits.

C. The Bankruptcy Court Did Not Err By Granting Summary Judgment On The Promissory Estoppel Claim.

Nevada follows the doctrine of promissory estoppel articulated in the

Restatement (Second) of Contracts. Dynalectric Co. of Nev., Inc. v. Clark &

Sullivan Constuctors, Inc.,

(Nev. 2011). Damages for

promissory estoppel claims are the same as damages for breach of contract.

(“Although the doctrine of promissory estoppel is conceptually

distinct from traditional contract principles, there is no rational reason for

distinguishing the two situations in terms of the damages that may be

recovered.” (cleaned up)); Restatement (Second) of Contracts § 90 cmt. d

(“A promise binding under this section is a contract, and full-scale

enforcement by normal remedies is often appropriate.”).

Trustee argues that the promissory estoppel claim was pleaded in the

alternative to the breach of contract claim, and, because the court did not

decide whether a contract existed, summary judgment on the promissory

estoppel claim was not warranted.

15 Regardless of the bankruptcy court’s holding about the existence of a

contract, the damages asserted by Trustee consist only of future lost profits,

which, as discussed above, are not available when the contract is

terminable at will. And while Trustee argued that Debtor incurred storage

and maintenance costs after the SMA was terminated but before AB took

possession of the Bar Pods, he did not identify any separate promise to

support a claim for those damages. 4

D. The Bankruptcy Court Did Not Err By Granting Summary Judgment On AB’s Defense Of Setoff.

Subject to exceptions that are not applicable here, § 553 provides that

bankruptcy does “not affect any right of a creditor to offset a mutual debt

owing by such creditor to the debtor that arose before the commencement

of the case . . . against a claim of such creditor against the debtor that arose

before the commencement of the case.”

To establish a right to setoff under § 553, AB must prove two

elements: timing and mutuality. Camelback Hosp., Inc. v. Buckenmaier (In re

Buckenmaier),

(9th Cir. BAP 1991) (citing Verco Indus. v.

Spartan Plastics (In re Verco Indus.),

(9th Cir. 1983)). The

timing element requires that both parties have prepetition claims.

4 Pursuant to the stipulation and settlement of the unjust enrichment claim, AB agreed to pay Debtor’s storage, maintenance, and cleaning costs in the asserted amount of $47,800. The parties stipulated that the settlement amount would be set off against AB’s claim. 16 Mutuality requires that “something must be ‘owed’ by both sides.”

(quoting 4 Collier on Bankruptcy, ¶¶ 553.04, 553.18 (15th ed. 1990)).

Setoffs in bankruptcy are “generally favored,” and there is a

presumption that they be enforced. Carolco Television Inc. v. Nat’l Broad. Co.

(In re De Laurentiis Ent. Grp. Inc),

(9th Cir. 1992).

“[B]ecause the setoff right is an established part of our bankruptcy laws, it

should be enforced unless compelling circumstances require otherwise.” In

re Buckenmaier,

(cleaned up).

Trustee does not dispute that AB has established the requisite

elements for setoff. Instead, he argues that AB’s unilateral removal of the

Bar Pods crippled Debtor’s finances which resulted in AB’s claim against

Debtor. He maintains that AB’s “unclean hands” should eliminate any

ability to set off liability against the claim.

Because the underlying facts pertaining to AB’s removal of the Bar

Pods from Debtor’s possession are undisputed, the bankruptcy court could

decide the issue on summary judgment. Citicorp Real Est., Inc. v. Smith, 155

F.3d at 1103; In re Schuman,

n.1. The bankruptcy court held

that Trustee did not present any evidence of compelling circumstances and

therefore setoff should be allowed. We agree and see no abuse of discretion

in the bankruptcy court’s decision.

Additionally, we note that the parties stipulated to allow setoff of

restitutionary damages of $47,800 against AB’s claim. Because we affirm

17 the bankruptcy court’s ruling on summary judgment, no other damages

remain which might be set off and consequently, the issue is moot.

CONCLUSION

Based on the foregoing, we AFFIRM the bankruptcy court’s order

granting summary judgment.

18