FILED NOT FOR PUBLICATION JUL 11 2024 SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT OF THE NINTH CIRCUIT

In re: BAP Nos. CC-23-1168-SCL EAST COAST FOODS, INC., CC-23-1169-SCL Debtor. Bk. No. 2:16-bk-13852-BB EAST COAST FOODS, INC., Appellant, Adv. No. 2:23-ap-01192-BB v. DEVELOPMENT SPECIALISTS, INC.; MEMORANDUM* BRADLEY D. SHARP, Chapter 11 Trustee, Appellees.

Appeal from the United States Bankruptcy Court for the Central District of California Sheri Bluebond, Bankruptcy Judge, Presiding

Before: SPRAKER, CORBIT, and LAFFERTY, Bankruptcy Judges.

INTRODUCTION

East Coast Foods, Inc. (“ECF”) is the reorganized debtor in the above-

captioned chapter 11 bankruptcy case. 1 ECF has repeatedly sought to sue

* 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. Unless specified otherwise, all chapter and section references are to the 1

Bankruptcy Code, 11 U.S.C. §§ 101–1532, all “Rule” references are to the Federal Rules the former chapter 11 trustee, Bradley D. Sharp, and Development

Specialists, Inc. (“DSI”), the company through which Sharp does business,

for actions he took as chapter 11 trustee. None of its attempts have been

successful. The bankruptcy court previously ordered ECF to dismiss two of

its prior lawsuits based on the “Barton doctrine.”2 We affirmed the

bankruptcy’s court denial of ECF’s Barton motion in a prior decision. E.

Coast Foods, Inc. v. Dev. Specialists, Inc. (In re E. Coast Foods, Inc.) (“East Coast

I”),

(9th Cir. BAP 2023).

The bankruptcy court dismissed the latest action, an adversary

proceeding, with prejudice when ECF failed to appear at the initial status

conference. ECF then moved for reconsideration under Rule 9023 and

sought an extension of the time to serve the summons and complaint under

Civil Rule 4(m). The bankruptcy court denied both motions. The court

explained that dismissal was appropriate for a variety of reasons. ECF now

appeals from the dismissal order, the reconsideration denial order, and the

extension denial order.

We affirm the dismissal of the complaint based on ECF’s lack of

standing as well as the denial of leave to amend the complaint. There is no

set of facts consistent with the existing complaint that ECF plausibly could

have alleged to cure ECF’s lack of standing. However, once the court

of Bankruptcy Procedure, and all “Civil Rule” references are to the Federal Rules of Civil Procedure. 2 See Barton v. Barbour,

(1881). 2 correctly determined that ECF lacked standing, it lacked subject matter

jurisdiction to reach the substantive issues it identified as additional

grounds for dismissal. Nor did the court render sufficient findings to

support a dismissal based on lack of prosecution or violation of local rules.

Accordingly, the bankruptcy court’s dismissal order is hereby ordered

MODIFIED to dismiss solely for lack of standing without leave to amend.

As modified, we AFFIRM. Dismissal as modified is without prejudice to

the right of the claims’ true owner to pursue or otherwise dispose of such

claims, if any remain viable, if so desired.

As for the denial of reconsideration, review of this ruling largely has

been rendered unnecessary by our resolution of the appeal from the

dismissal order. But to the extent ECF sought reconsideration of the

bankruptcy court’s standing decision, ECF failed to present sufficient

grounds for reconsideration. Therefore, we AFFIRM the denial of

reconsideration. Similarly, because the court properly dismissed the

adversary proceeding for lack of jurisdiction, there was no justification to

extend the time to serve the summons and complaint in the dismissed

action. Thus, we AFFIRM the extension denial.

Accordingly, we AFFIRM IN PART, MODIFY IN PART, AND

AFFIRM AS MODIFIED.

//

//

//

3 FACTS3

A. Sharp’s retention of TNI to manage ECF’s operations and ECF’s plan of reorganization.

We need not recount ECF’s history leading up to its bankruptcy filing

or the circumstances that precipitated Sharp’s appointment as chapter 11

trustee. Those facts are set forth in East Coast I, as are the details concerning

Sharp’s employment of The Next Idea [International] LLC (“TNI”) and its

principal Robert Ancill to manage operations at ECF’s four restaurant

properties. East Coast I also discussed the reorganization plan the

bankruptcy court confirmed.

Two points from our prior decision deserve emphasis because they

are directly relevant to ECF’s lack of standing. First, though Sharp, as

chapter 11 trustee, was in charge of ECF’s bankruptcy estate at the time of

plan confirmation, ECF’s principal Herbert Hudson and the Official

Committee of Unsecured Creditors (“OCC”) (jointly, “Plan Proponents”)

spearheaded the plan confirmation efforts. The Plan Proponents filed their

first draft reorganization plan in January 2018, and the court confirmed an

amended version of their plan in July 2018 (“Plan”).

Second, while the Plan provided that ECF’s assets generally revested

in the reorganized debtor as of its effective date, some of ECF’s assets were

3 We exercise our discretion, when appropriate, to take judicial notice of documents electronically filed in the underlying bankruptcy case and adversary proceeding. See Atwood v. Chase Manhattan Mortg. Co. (In re Atwood),

, 233 n.9 (9th Cir. BAP 2003). 4 carved out from revesting and instead vested in a “Plan Trust” to be

controlled and administered by the “Plan Trustee” and to be distributed in

accordance with the Plan. Hudson was classified as ECF’s sole equity

interest holder, and the Plan did not designate any specific amount for

distribution to him. Instead, the Plan provided that he would retain his

equity interest in the reorganized debtor and was prohibited from

receiving any Plan distributions on account of his equity interest unless

and until all allowed claims were paid in full. The Plan’s distribution

scheme also did not provide for any distributions to ECF as the

reorganized debtor. Nor did the Plan identify either Hudson or ECF as

“Beneficiaries” of the Plan Trust. The designated Beneficiaries consisted

solely of holders of allowed claims, who by virtue of their Beneficiary

status were entitled to Plan distributions.4

The Plan Trust’s assets included causes of action and claims referred

to as “Estate Claims.” The Plan broadly defined “Estate Claims” as “any

and all claims and causes of action that constitute property of the Estate

including, but not limited to, . . . any causes of action or claims for recovery

of any amounts owing to the Debtor or the Estate.” In turn, the Plan

specified that “’Estate’ means the Debtor’s bankruptcy estate created under

4 Under the Plan, the Plan Trust had a fixed “initial” duration of six years, subject to extension upon Plan Trustee request and bankruptcy court approval. The Plan further provided: “[u]pon the termination of the Plan Trust, . . . all of the Plan Trust’s assets shall be re-vested in the Reorganized Debtor or such other original owner of such assets.” 5 Section 541 of the Bankruptcy Code in the Case.” The Plan also contained

roughly a half dozen provisions making it abundantly clear that Estate

Claims were assets of the Plan Trust and the Plan Trustee held exclusive

authority over such claims. The following Plan provision is representative:

On or after the Effective Date, the Plan Trustee shall have sole authority and responsibility for investigating, analyzing, commencing, prosecuting, litigating, compromising, collecting, and otherwise administering . . . Estate Claims. . . . Unless an Estate Claim is expressly waived, relinquished, compromised or settled as provided or identified in the Plan, the Confirmation Order, or any other order of the Court, the Plan Trust expressly reserves any Estate Claim for later adjudication.

B. The Plan Trustee’s discovery of TNI’s misconduct and the immediate fallout therefrom.

Sharp’s control over estate administration and TNI’s role managing

ECF’s operations ended on the effective date of the Plan in September 2018.

In October 2018, the Plan Trustee began a review of ECF’s transactions with

its vendors, including postpetition, preconfirmation vendors Hospitality

Merchandise (‘‘Hospitality’’) and Restaurant Extensions (‘‘Extensions’’).

According to the Plan Trustee, TNI’s principal Ancill formed Hospitality

and Extensions postpetition and then caused them to sell excessive

amounts of goods to ECF and overcharged it in the amount of $660,841.55.

Based on this conduct, and TNI’s failure to disclose its lack of

disinterestedness to the bankruptcy court and interested parties, the Plan

Trustee successfully opposed TNI’s third and final fee application.

6 Additionally, the bankruptcy court ordered TNI to disgorge $376,550 in

fees received by TNI on its first and second interim fee applications.

C. ECF initiates litigation against Sharp and DSI in state court.

In November 2022, roughly four years after the Plan Trustee sought

and obtained disgorgement of TNI’s fees, ECF filed a complaint against

Sharp and DSI (collectively, “Sharp”) in the Los Angeles County Superior

Court. The complaint sought damages for fraud (intentional and negligent

misrepresentation), breach of fiduciary duty, and aiding and abetting fraud

and breach of fiduciary duty (against DSI).

ECF’s allegations initially mirrored the points made by the Plan

Trustee regarding TNI’s overordering and overpayment of Hospitality and

Extensions. However, ECF then alleged that Sharp knew or should have

known that TNI was using affiliated entities including Hospitality,

Extensions, and Touch Bistro to procure goods for ECF. It further alleged

that Sharp failed to do anything to prevent TNI and Ancill from engaging

in self-dealing transactions with their affiliates, to its detriment. According

to ECF’s state court complaint, Sharp had a duty under § 327(a) to disclose

that TNI was not disinterested. Furthermore, the complaint stated that,

under these circumstances, Sharp should not have verified and approved

TNI’s fee applications. It also broadly claimed that Sharp negligently

permitted ECF’s labor and supply costs to balloon during his tenure as

chapter 11 Trustee.

7 D. The motion for leave to sue Sharp, the bankruptcy court’s denial of the motion, and the appeal to this Panel.

Roughly a month after it filed the state court action, ECF moved for

leave to sue Sharp outside the bankruptcy court pursuant to the Barton

doctrine. Sharp opposed the motion.5 According to Sharp, ECF lacked

standing to sue him because the Plan vested authority to sue on account of

Estate Claims exclusively in the Plan Trustee. Sharp additionally

maintained that the motion needed to be denied because ECF violated the

Barton doctrine by filing its state court complaint before seeking and

obtaining leave from the bankruptcy court. Sharp also contended that the

three-year limitations period for actions based on misrepresentation

already had run, as well as the four-year limitations period for breach of

fiduciary duty based on neglect. Finally, Sharp asserted that ECF had failed

to set forth a prima facie case in support of any of its causes of action, so

the motion for leave had to be denied.

The bankruptcy court denied ECF’s motion for leave. It ruled that it

held “exclusive jurisdiction” over all claims arising from Sharp’s acts as the

chapter 11 trustee. But the court additionally held that ECF lacked standing

to assert affirmative claims against Sharp. It also noted: (1) the complaint

appeared to be a collateral attack on its prior order granting Sharp’s final

5ECF also filed a complaint against Sharp in federal district court. But the parties and the bankruptcy court focused on the state court complaint in addressing ECF’s motion for leave to sue. Even so, the order denying the leave motion required ECF to dismiss both non-bankruptcy complaints. 8 fee application; (2) the stated claims appeared to be barred by the

applicable statute of limitations; (3) ECF had violated the Barton doctrine

by filing the complaint before obtaining leave; and (4) ECF had failed to

present a prima facie case in support of any of its claims.6

On appeal, this Panel affirmed the denial of the motion for leave.

Though the bankruptcy court believed that it had exclusive jurisdiction

over challenges to Sharp’s performance as chapter 11 trustee, we declined

to decide the appeal on that basis. Instead, citing the factors articulated in

Kashani v. Fulton (In re Kashani),

(9th Cir. BAP 1995), we

held that the record supported the bankruptcy court’s decision to deny

ECF leave to sue Sharp outside the bankruptcy court. East Coast I, 652 B.R.

at 918-19. As an alternate basis for our affirmance, we held that ECF lacked

standing to pursue the claims stated in its state court complaint. As we

explained, the Plan vested all Estate Claims in the Plan Trust, only the Plan

Trustee could pursue them, and ECF’s causes of action constituted Estate

Claims. East Coast I, 652 B.R. at 921.

E. ECF’s adversary proceeding against Sharp.

While the East Coast I appeal was pending, ECF filed an adversary

proceeding in the bankruptcy court against Sharp. The complaint stated

claims for fraudulent concealment, constructive fraud, fraud on the court,

6 Despite its remarks regarding limitations periods and collateral attacks, the bankruptcy court explained that it was not rendering any substantive ruling on the merits of ECF’s claims against Sharp. 9 and professional negligence. Similar to the state court complaint, the

adversary proceeding complaint alleged that Sharp knew or should have

known that Hospitality, Extensions, and Touch Bistro were affiliates of TNI

and Ancill. The complaint asserted that Sharp wrongfully failed to prevent

and disclose TNI’s over-ordering goods from these affiliates and the

affiliates’ overcharging for those goods.

However, unlike the state court complaint, the adversary complaint

also alleged a host of additional chapter 11 trustee misconduct. ECF alleged

that Sharp failed to vet TNI and monitor its status as a limited liability

company. According to ECF, if Sharp had done so, he would have learned

that, at the time he employed TNI, it was delinquent in submitting certain

information to the California Secretary of State and later was suspended

from operating in California. ECF further alleged that TNI and Ancill were

unknown in restaurant management circles but Sharp failed to consider

alternatives to hiring TNI. ECF additionally assailed Sharp for allegedly

failing to cooperate with Hudson and the OCC—and for overseeing ECF’s

finances, taxes, and labor issues in an inept and incompetent manner. ECF

asserted that as a direct result of Sharp’s incompetence (and his failure to

disclose his incompetent oversight and the resulting harm), Sharp caused

ECF to suffer roughly $20 million in damages.7

7 ECF specifically maintained that Sharp caused ECF to suffer the loss of roughly $15 million in Franchise Tax Board tax credits when he authorized the firing of between 75 and 100 of ECF’s employees. This was in addition to the alleged $5 million in

10 F. The court’s dismissal of the adversary proceeding and ECF’s motion to reconsider.

Promptly after ECF commenced the adversary proceeding, the

bankruptcy court duly issued its form summons to ECF for service. The

summons also provided notice that the court had scheduled a status

conference for August 29, 2023. But ECF never served the summons and

complaint.

Prior to the status conference, the bankruptcy court issued a tentative

ruling. The court noted that “[t]his complaint appears to be a rehash of the

complaint that was commenced in state court . . . that this court found was

a violation of the Barton Doctrine. Plaintiff overlooks the fact that its

violation of the Barton Doctrine was only one of several problems with this

action.” The court then incorporated a portion of its prior tentative ruling

addressing ECF’s Barton motion, which began by stating that ECF lacked

standing to sue Sharp but also observed that any such action was barred by

the statutes of limitations and issue preclusion. The court then concluded

its tentative ruling for the status conference by stating that it would issue

an order to show cause why the adversary proceeding should not be

dismissed for the reasons discussed in the prior tentative ruling for the

damages ECF claimed arose from Sharp’s other missteps. These missteps allegedly disrupted ECF’s regular business practices and caused ECF to incur excessive and unnecessary operating and administrative costs. 11 Barton motion and based on quasi-judicial immunity.

ECF did not appear at the August 29, 2023 status conference. The

bankruptcy court noted ECF’s failure to appear and recognized that it had

not served the summons and complaint. The court referenced the Panel’s

affirmance of the denial of ECF’s Barton motion. It also referenced the

concerns it had raised in its status conference tentative ruling, including

lack of standing, collateral estoppel, and statutes of limitations.

At the same time, the court acknowledged it had stated in its status

conference tentative ruling that it would enter an order to show cause why

the adversary proceeding should not be dismissed. But the court concluded

that the order to show cause was unnecessary in light of ECF’s failure to

serve the complaint and appear at the status conference, which it construed

as a voluntary abandonment of the adversary proceeding. The bankruptcy

court entered its order dismissing the adversary proceeding on August 30,

2023, “[f]or the reasons set forth on the record at the time of hearing[.]”

ECF timely moved for reconsideration of the dismissal order under

Rule 9023, which incorporates by reference Civil Rule 59. It argued that the

dismissal constituted clear legal error and was manifestly unjust. As ECF

reasoned, its failure to serve the summons negated the August 29 status

conference the court had calendared on the docket as of June 20, 2023.

Alternatively, ECF insisted it had no way of knowing that the status

conference would proceed when it had not served the summons and when

the court’s tentative ruling stated that the court would continue the status

12 conference to be held at the same time as the hearing on the anticipated

order to show cause. 8 ECF also contended that the court deprived it of any

meaningful opportunity to address the standing, preclusion, and

limitations issues raised in the bankruptcy court’s tentative ruling. In

addition, it asserted that it was manifestly unjust for the bankruptcy court

to dismiss the adversary proceeding for lack of prosecution without first

considering the five factors set forth in Bautista v. Los Angeles County,

(9th Cir. 2000). Finally, ECF maintained that the court should

have given it some opportunity to amend its complaint to address the

court’s standing, preclusion, and limitations concerns.9

Though he had not been served with the summons and complaint,

Sharp appeared and responded to ECF’s reconsideration motion. Sharp

stated that he took no position on whether the dismissal should be set aside

but nonetheless claimed that the adversary proceeding was frivolous and

filed to harass him. He further opined that ECF consciously disregarded

the court’s status conference procedures when it elected to ignore the duly-

scheduled status conference.

At the hearing on the reconsideration motion, the court initially

8 ECF conceded at oral argument that it did not know of the tentative ruling posted by the bankruptcy court before the status conference. 9 ECF also requested issuance of an alias summons and moved to extend the 90-

day deadline under Civil Rule 4(m) for it to serve the summons and complaint on the defendants. The bankruptcy court denied these requests in light of the dismissal of the underlying adversary proceeding. 13 observed that its local rules and procedures were unambiguous, the status

conference had been set, it had not been taken off calendar, and ECF had a

clear duty to appear at the status conference. But the court then indicated

that its dismissal was only partly based on the failure to appear. The court

explained that dismissal was appropriate based on the continuing

standing, preclusion, and limitations problems first identified when it

denied ECF’s Barton motion. The court explained that it might have been

willing to issue an order to show cause to give ECF an additional

opportunity to address the standing, preclusion, and limitations problems

if ECF had appeared at the status conference. In light of ECF’s failure to

appear, however, the court concluded that it was appropriate to dismiss

the case because “we already went through all of this,” and “[t]he action

that the debtor seeks to prosecute is entirely lacking in merit.”

In responding to the court’s comments, ECF argued that it “should

have an opportunity to address your questions in the context of a motion to

dismiss or a summary judgment.” The court then asked ECF for an offer of

proof, which led to a colloquy between the court and ECF’s counsel

regarding ECF’s standing and other issues. At the end of the colloquy, the

court held that its observations and reasoning stated at the outset of the

hearing justified dismissal.

On October 5, 2023, the bankruptcy court entered its order denying

the Rule 9023 motion. On that same date, the court denied ECF’s motion

for more time to serve the complaint and an alias summons. ECF timely

14 appealed both orders, as well as the order dismissing the adversary

proceeding.

JURISDICTION

The bankruptcy court had subject matter jurisdiction under

. We have jurisdiction under

.

ISSUES

1. Whether the bankruptcy court erred when it dismissed ECF’s

adversary proceeding.

2. Whether the bankruptcy court abused its discretion when it denied

ECF’s motion for reconsideration under Rule 9023 and its motion for

extension of time to serve the summons and complaint.

STANDARDS OF REVIEW

We review de novo the bankruptcy court’s dismissal for lack of

Article III standing. See Clifton Cap. Grp., LLC v. Sharp (In re E. Coast Foods,

Inc.) (“East Coast II”),

(9th Cir. 2023). When we review a

matter de novo, we give no deference to the bankruptcy court’s decision.

Francis v. Wallace (In re Francis),

(9th Cir. BAP 2014).

Dismissals based on a failure to prosecute, or on a local rules

violation, are reviewed for an abuse of discretion. Olomi v. Tukhi (In re

Tukhi),

(9th Cir. BAP 2017). We also review for an abuse of

discretion the bankruptcy court’s denial of ECF’s reconsideration motion.

Carruth v. Eutsler (In re Eutsler),

(9th Cir. BAP 2017). The

bankruptcy court abused its discretion if it applied an incorrect legal rule

15 or its factual findings were illogical, implausible, or without support in the

record. TrafficSchool.com v. Edriver Inc.,

(9th Cir. 2011).

DISCUSSION

A. Standing doctrine and applicable procedure.

Our resolution of this appeal hinges on ECF’s standing to sue Sharp.

Standing is a threshold question in every federal case. Warth v. Seldin,

(1975); East Coast II,

. The standing inquiry

typically considers both constitutional and prudential concerns. Warth,

. However, when the plaintiff fails to allege sufficient facts to

establish Article III standing, prudential standing limits “are beside the

point.” Fleck & Assocs., Inc. v. Phoenix,

(9th Cir. 2006). A

plaintiff has constitutional or Article III standing when: “(1) the plaintiff

suffered an injury in fact, i.e., one that is sufficiently ‘concrete and

particularized’ and ‘actual or imminent, not conjectural or hypothetical,’ (2)

the injury is ‘fairly traceable’ to the challenged conduct, and (3) the injury is

‘likely’ to be ‘redressed by a favorable decision.’” Bates v. United Parcel

Serv., Inc.,

(9th Cir. 2007) (quoting Lujan v. Defenders of

Wildlife,

, 560–61 (1992)).

“In the absence of standing, a federal court lacks subject matter

jurisdiction over the suit.” Righthaven LLC v. Hoehn,

(9th

Cir. 2013) (cleaned up). Because it is jurisdictional, the bankruptcy court

appropriately raised the standing issue sua sponte. See Fleck & Assocs., Inc.,

n.4. Indeed, even if the bankruptcy court had not

16 addressed ECF’s standing, we would have an independent duty to assess

not only our own jurisdiction but also the bankruptcy court’s. See Steel Co.

v. Citizens for a Better Env't,

(1998); Aheong v. Mellon Mortg.

Co. (In re Aheong),

(9th Cir. BAP 2002).

To satisfy Article III standing concerns, the plaintiff must at the

pleading stage allege sufficient facts plausibly demonstrating each element

of Article III standing. Jones v. L.A. Cent. Plaza LLC,

(9th

Cir. 2023) (citing Spokeo, Inc. v. Robins,

(2016)). When the

plaintiff fails to do so, “the complaint is subject to dismissal at the outset ...

upon the court’s own inquiry.”

(citation omitted). When assessing the

complaint’s standing allegations at the pleading stage, the court considers

them in the same manner it would consider the complaint’s allegations for

purposes of reviewing the complaint’s sufficiency under Civil Rule

12(b)(6). See id. at 1057-58. Thus, we must accept as true all well-pled,

material factual allegations. Thomas v. Mundell,

(9th Cir.

2009); Fleck & Assocs., Inc.,

n.2. But conclusory allegations

are not sufficient to establish standing. Brown v. Bank of Am., N.A.,

, at *1 (C.D. Cal. Feb. 24, 2014) (citing Lopez v. Candaele,

(9th Cir. 2010)), aff'd,

(9th Cir. 2016). Similarly,

allegations contradicted by documents referenced in the complaint or that

are properly subject to judicial notice will not preclude dismissal. Lazy Y

Ranch Ltd. v. Behrens,

(9th Cir. 2008) (citing Sprewell v.

Golden State Warriors,

(9th Cir. 2001)).

17 B. ECF’s lack of standing supports the bankruptcy court’s dismissal.

The bankruptcy court repeatedly ruled that ECF lacks standing to

pursue the types of claims it asserted in both its state court complaint and

its adversary proceeding complaint. Furthermore, this Panel in its prior

decision agreed with the bankruptcy court’s initial ruling that ECF lacked

standing. We specifically held:

[T]he bankruptcy court stated that ECF lacks standing to sue the Trustee, because the Plan vested all estate claims in the plan trust, and only the Plan Trustee could pursue those claims. We agree; the Plan clearly provided that “Estate Claims,” including “any causes of action or claims for recovery of any amounts owing to the Debtor or the Estate,” were property of the estate, did not revest in ECF, and were under the Plan Trustee’s exclusive control. This is an independently sufficient reason to affirm the court’s decision.

East Coast I, 652 B.R. at 921. Our prior holding is law of the case. See Am.

Express Travel Related Servs. Co. v. Fraschilla (In re Fraschilla),

(9th Cir. BAP 1999). We typically follow our law of the case.

As the bankruptcy court correctly recognized, the current claims

present the same standing issue as the similar state court causes of action.

They all are based on alleged injuries to the bankruptcy estate during

Sharp’s preconfirmation administration of ECF as the chapter 11 trustee. As

explained above, the Plan vested such claims in the Plan Trustee. The Plan

further gave the Plan Trustee exclusive authority to pursue and dispose of

18 such claims. 10

The Plan could have provided for all property of the estate simply to

revest in the reorganized debtor on the effective date. But it did not.

Instead, the confirmed Plan created a trust which specifically carved out

assets of the estate from revesting in the reorganized debtor. Upon the

effective date, certain bankruptcy estate assets, including the Estate Claims,

were transferred to the Plan Trust for the Plan Trustee to administer and

eventually distribute.

1. ECF’s claims against Sharp are property of the bankruptcy estate and hence are “Estate Claims” held by the Plan Trust.

ECF contends that the claims against Sharp arose postpetition and are

not property of estate. Therefore, it argues, the claims against Sharp are not

Estate Claims within the meaning of the Plan. However, § 541(a)(7)

includes within the Bankruptcy Code’s definition of property of the estate,

“[a]ny interest in property that the estate acquires after the commencement

of the case.” ECF argues that any property acquired postpetition must be

traceable to or arise from estate property to constitute property of the estate

(and therefore be an Estate Claim) under § 541(a)(7). This is a partially

correct albeit incomplete statement of our precedent. In MacKenzie v.

Neidorf (In re Neidorf),

(9th Cir. BAP 2015), we held that

10Any attempt by ECF to allege facts inconsistent with the plain and unequivocal terms of the Plan would be ineffectual. The Plan is both referenced in ECF’s adversary complaint and is properly subject to judicial notice. See Lazy Y Ranch Ltd. v. Behrens,

; Sprewell,

. 19 “for the after-acquired interest to be considered property of the estate

under § 541(a)(7), the interest (1) must be created with or by property of the

estate; (2) acquired in the estate’s normal course of business; or (3)

otherwise be traceable to or arise out of any prepetition interest included in

the bankruptcy estate.”

Without citing any authority, ECF baldly maintains that its claims

against Sharp for the mismanagement of the debtor’s prepetition business

are not after-acquired property of the estate under § 541(a)(7) because ECF

had no prepetition relationship to Sharp. This argument ignores Sharp’s

relationship to the bankruptcy estate. Sharp was the chapter 11 trustee of

the bankruptcy estate and was responsible for the estate’s administration

and for ECF’s operations while in chapter 11. Inherently, the ongoing

business of the estate was property of the bankruptcy estate, and any

mismanagement of that business falls squarely within § 541(a)(7).

Indeed, ECF‘s complaint recognizes as much. ECF specifically alleged

that Sharp’s misconduct harmed the estate either by increasing its

expenses, decreasing its income, or diminishing the value of its assets while

operating in chapter 11. Any postpetition, preconfirmation harm to the

estate’s income, expenses, and assets injured the bankruptcy estate rather

than ECF personally. When, as here, the asserted misconduct allegedly

harms the estate’s assets or interests rather than the debtor’s personal

assets or interests, a legal claim (even if accruing postpetition) belongs to

the bankruptcy estate under § 541(a)(7). O'Dowd v. Trueger (In re O'Dowd),

20

(3d Cir. 2000); Winick & Rich, P.C. v. Strada Design Assocs.,

Inc. (In re Strada Design Assocs., Inc.),

, 239–40 (Bankr. S.D.N.Y.

2005).

We recognized this principle in Solano v. Magnum Prop. Invs. LLC

(In re Solano),

, at *5-6 (9th Cir. BAP July 24, 2020), aff'd,

(9th Cir. 2021). In Solano, the plaintiff debtor commenced

an adversary proceeding attacking the postpetition foreclosure of his house

and alleging fraud and other misconduct against the purchaser and

additional parties. Id. at *2-3. The bankruptcy court dismissed the

adversary proceeding based on the debtor’s lack of standing. Id. at *3.

Debtor appealed, and we affirmed. In upholding the bankruptcy court’s

standing ruling, we pointed out that debtor’s claims arose out of the

postpetition sale of the debtor’s house, which was property of the estate,

and the misconduct alleged by debtor pertained to the postpetition sale of

the house. Therefore, the postpetition causes of action were property of the

estate pursuant to § 541(a)(7). Id. at *5. We further reasoned:

Although Debtor’s alleged fraud claims are predicated on his premise that no sale occurred, he suggests that the Property was no longer property of the estate after Magnum purchased it at the foreclosure sale. But, Debtor does not explain how the claims against the purchaser vested in Debtor upon sale of the Property. The alleged fraudulent sale would harm the estate’s interest in the Property, not Debtor’s, and the estate did not abandon the potential claims.

Id. at 6 (emphasis added); see also Ehrenberg v. Roussos (In re Roussos), 2016

, at *12 n.12 (Bankr. C.D. Cal. Sept. 22, 2016) (similarly holding

that the debtors lacked standing over “fraud on the court claim” because

the alleged misrepresentations were made “in connection with the

administration of the Properties, an asset of the estate.”).

In sum, ECF alleged injury to the bankruptcy estate rather than to the

debtor’s property. As a result, the claims against Sharp belonged to the

estate under § 541(a)(7) before plan confirmation. Upon confirmation, those

claims became Estate Claims belonging to the Plan Trust. Consequently,

ECF’s scope of Estate Claims argument must fail.

2. Third-party beneficiary doctrine is irrelevant to this appeal.

ECF’s other standing-related arguments are hardly worthy of

mention. Citing Lucas v. Hamm,

(1961), ECF argues that

Sharp is merely an “incidental beneficiary” of the Plan terms vesting Estate

Claims in the Plan Trust, and he cannot enforce those Plan terms. This

argument is frivolous. Assuming without deciding that third-party

beneficiary doctrine has any relevance to the enforcement of a confirmed

plan, this doctrine generally permits an intended beneficiary to enforce an

unperformed promise set forth in a contract even though the third-party

beneficiary is not a contracting party. See Goonewardene v. ADP, LLC,

(2019).

Sharp is not seeking to enforce unperformed Plan terms. Rather, he

has been sued by ECF. It is incumbent on ECF to establish its Article III

standing and that it is suing on its own rights. But ECF is ignoring the

22 binding effect of the Plan. Any postconfirmation right ECF otherwise might

have held to sue Sharp was disposed of by the Plan, which expressly

conveyed the Estate Claims to the Plan Trust and vested the Plan Trustee,

not ECF, with the right to sue. Whether Sharp was a party to the Plan or an

incidental beneficiary of the Plan is irrelevant to ECF’s standing to sue.

3. ECF’s Plan Trustee acquiescence theory also lacks merit.

ECF’s only other standing-related argument concerns the Plan

Trustee’s purported acquiescence to ECF pursuing the claims against

Sharp. ECF did not allege the Plan Trustee acquiesced in its adversary

complaint. Nonetheless, if granted leave to amend, it potentially could do

so. Even so, such purported acquiescence does not help ECF. According to

ECF, the Plan Trustee exercised his absolute discretion and exclusive

control over the claims against Sharp by “greenlight[ing]” ECF’s

prosecution of the claims. In ECF’s own words, the Plan Trustee

“interposed no objection [nor] asserted any exclusive right to pursue these

claims,” and the Plan Trustee characterized ECF’s action as “a two-party

dispute that does not affect the interests of the Plan Trust.” ECF thus

concludes that these facts give it standing to sue Sharp.

ECF’s acquiescence theory is at odds with the Plan, which provides:

“Unless an Estate Claim is expressly waived, relinquished, compromised

or settled as provided or identified in the Plan, the Confirmation Order, or

any other order of the Court, the Plan Trust expressly reserves any Estate

Claim for later adjudication.” In short, ECF’s Plan Trustee acquiescence

23 theory is insufficient to confer standing on ECF to pursue claims owned by

the Plan Trust.

C. The bankruptcy court did not err by dismissing the adversary proceeding without leave to amend.

ECF contends that the bankruptcy court should not have dismissed

its complaint before its right to amend under Civil Rule 15(a)(1) had

expired. Civil Rule 15(a) is made applicable in adversary proceedings by

Rule 7015. In relevant part, it permits a party to amend its pleading once

“as a matter of course” within certain specified time constraints.11

ECF’s argument is based on a mistaken reading of this Civil Rule.

The rule simply does not restrict the bankruptcy court’s authority to enter

dismissal on appropriate grounds. Rather, the question is whether the

court erred in denying leave to amend. Ordinarily, “leave to amend should

be granted unless the court determines that the allegation of other facts

consistent with the challenged pleading could not possibly cure the

deficiency.” Schreiber Distrib. Co. v. Serv–Well Furniture Co.,

,

1401 (9th Cir. 1986); see also Lopez v. Smith,

(9th Cir.

2000). Here, we now have twice affirmed the bankruptcy court’s rulings

that the Plan Trust, not ECF, owns the Estate Claims, including any claims

11 Civil Rule 15(a)(1) permits a litigant to “amend its pleading once as a matter of course” within: “(A) 21 days after serving it, or (B) if the pleading is one to which a responsive pleading is required, 21 days after service of a responsive pleading or 21 days after service of a motion under Rule 12(b), (e), or (f), whichever is earlier.”

24 against Sharp for the administration of the chapter 11 estate. There is no set

of facts that ECF plausibly could have alleged to establish its standing to

sue Sharp. ECF certainly has not identified any such facts. Accordingly,

ECF’s amendment-related arguments do not justify reversal.

D. The bankruptcy court had authority to dismiss the adversary proceeding for lack of subject matter jurisdiction.

ECF also asserts that under Stern v. Marshall,

(2011), it

was unconstitutional for the bankruptcy court to enter a dismissal with

prejudice, fully and finally disposing of the merits of ECF’s state law causes

of action. See

. Here, however, we are only affirming the dismissal

of ECF’s adversary proceeding based on ECF’s lack of standing. A

jurisdictional dismissal simply does not implicate the Article III concerns

addressed in Stern. See

. When, as here, the appellant could avail

itself of a fully de novo review before an Article III judge, the bankruptcy

court’s decision does not infringe on the appellant’s Article III interests. See

Exec. Benefits Ins. Agency v. Arkison (In re Bellingham Ins. Agency, Inc.),

(9th Cir. 2012), aff'd sub nom., Exec. Benefits Ins. Agency v.

Arkison,

(2014).12

12 Because we have concluded that Stern does not apply, we need not address whether ECF’s conduct in the bankruptcy case and on appeal constituted express or implied consent to final determination of matters by an Article III court. See generally Wellness Int'l Network, Ltd. v. Sharif,

(2015) (holding that “Article III permits bankruptcy courts to decide Stern claims submitted to them by consent”). 25 E. Dismissal for lack of standing did not deny ECF due process.

Finally, ECF claims that the bankruptcy court’s actions immediately

before, during, and after the status conference denied it due process. To

support its due process claim, ECF needed not only to establish a denial of

a full and fair opportunity to be heard,13 but also that it was prejudiced as a

result, see Rosson v. Fitzgerald (In re Rosson),

(9th Cir.

2008), partially abrogated on other grounds as recognized by Nichols v. Marana

Stockyard & Livestock Mkt., Inc. (In re Nichols),

, 962 (9th Cir.

2021).

Before the status conference, the court issued a tentative ruling

indicating it would issue an order to show cause requiring ECF to explain

why the adversary proceeding should not be dismissed and would

continue the status conference pending the resolution of the show cause

proceedings. The court then changed course at the status conference and

decided to immediately dismiss the adversary proceeding. Shortly after the

status conference, it issued its order dismissing the adversary proceeding

with prejudice. Assuming without deciding that the bankruptcy court’s

actions implicated ECF’s due process rights by initially depriving it of a

meaningful opportunity to address the court’s standing concerns, ECF has

not established any prejudice. ECF has known that its standing to sue

Sharp was a significant issue for the bankruptcy court since the court

13 See Mullane v. Cent. Hanover Bank & Tr. Co.,

(1950). 26 denied ECF’s Barton motion. ECF additionally knew by the time of the

August 2023 status conference that East Coast I had held that ECF lacked

standing to sue Sharp.

Perhaps more importantly, by the time ECF moved for

reconsideration of the bankruptcy court’s dismissal of the adversary

proceeding in September 2023, it obviously had reviewed the bankruptcy

court’s prior rulings—tentative and final. It knew that its standing to sue

Sharp was a critical jurisdictional issue. And yet its moving papers did

little or nothing to explain how ECF plausibly could allege standing.

At the hearing on the reconsideration motion, the bankruptcy court

addressed the standing issue. It also invited ECF to give an “offer of proof”

to apprise the court as to how ECF could plead around the standing issue.

ECF responded that it would allege and prove the Plan Proponents

intended that the Plan Trustee would not have exclusive control over

Estate Claims. We reject this argument based on the unequivocal Plan

terms vesting such exclusive authority in the Plan Trustee discussed above.

Under California contract law, the undisclosed intent of the Plan

Proponents cannot supersede their stated intent as objectively manifested

in the plain and unambiguous terms of the Plan. See Founding Members of

Newport Beach Country Club v. Newport Beach Country Club, Inc.,

(2003) (holding that extrinsic evidence of a party’s

undisclosed intent is immaterial in construing an unambiguous contract

under California law, which adheres to the objective theory of contracts);

27 see also Green Coin v. Khadavi (In re Khadavi),

, at *5 (9th Cir.

BAP Apr. 3, 2023) (“The language of a contract is to govern its

interpretation, if the language is clear and explicit, and does not involve an

absurdity.” (quoting

)), aff'd,

(9th

Cir. Dec. 12, 2023). We previously have affirmed the bankruptcy court’s

reading of the Plan and its determination that its clear language vested the

Plan Trustee with exclusive control over the Estate Claims, including any

claims against Sharp for his actions and inactions as the chapter 11 trustee.

ECF’s desire to rely on the unstated intent of the Plan Proponents is

insufficient to establish reversible error as to due process or leave to

amend. In the parlance of Rosson, there is no reason to think on this record

that additional notice and opportunity for hearing would have changed the

resolution of the standing issue. In re Rosson,

.

Consequently, without any demonstrable prejudice, any deprivation of due

process ECF allegedly suffered does not justify reversal of the bankruptcy

court’s dismissal for lack of standing.

F. To the extent of the jurisdictional dismissal, the bankruptcy court correctly denied ECF’s Rule 9023 motion for relief.

ECF has not specifically and distinctly argued that the bankruptcy

court’s denial of its reconsideration motion was, by itself, reversible error.

Instead, as to every other issue it has raised on appeal, it has argued that a

favorable ruling on any one of those issues would justify reversal of both

the dismissal order and the reconsideration order.

28 Because we limit our affirmance of the bankruptcy court’s dismissal

to lack of standing, there is only one issue concerning reconsideration that

we need discuss: whether anything in the reconsideration motion

established grounds for reconsideration with respect to the bankruptcy

court’s determination that ECF lacked standing.

When a litigant’s motion under Rule 9023 fails to demonstrate clear

error, an intervening change in the law, or newly discovered evidence,

denial of the motion is appropriate. See In re Eutsler,

. As

indicated throughout this decision, nothing in ECF’s reconsideration

motion established either that dismissal for lack of standing was improper

or that ECF should have been granted leave to amend its standing

allegations. Nor did ECF present newly discovered evidence or an

intervening change in the law. Accordingly, the bankruptcy court did not

abuse its discretion when it denied ECF’s reconsideration motion.

Similarly, there was no need for an extension of time to serve the

summons and complaint in a dismissed adversary proceeding.

G. The bankruptcy court should not have dismissed the adversary proceeding on any ground other than lack of standing.

When the plaintiff lacks standing, the court should dismiss based on

the absence of subject matter jurisdiction. Fleck & Assocs., Inc.,

. Typically, a jurisdictional dismissal should not be conjoined with a

merits dismissal.

. This is particularly so when, as here, the

court dismissed the action at the initial status conference—before either of

29 the defendants had been served. The bankruptcy court’s concerns

regarding issue preclusion and statutes of limitations are affirmative

defenses that a defendant must assert, or they are waived. See Pauma v.

NLRB,

(9th Cir. 2018); Rivera v. Anaya,

(9th Cir. 1984).

Nor was the bankruptcy court’s dismissal of the action with prejudice

to the underlying merits warranted to the extent it was based on a failure to

prosecute or on a violation of the court’s local rules. Dismissal for failure to

prosecute only should be entered after a showing of unreasonable delay

and consideration of the five factors identified in Henderson v. Duncan,

(9th Cir. 1986). See In re Tukhi,

.14 In turn,

local-rules based dismissals must be supported not only by the Henderson

factors but also by a determination that the plaintiff harbors a sufficiently

culpable state of mind, and the penalty must be proportionate to the

offense.

.15

Here, the bankruptcy court did not specifically consider any of these

14 The five Henderson factors are: “(1) the public’s interest in expeditious resolution of litigation; (2) the court’s need to manage its docket; (3) the risk of prejudice to the defendants; (4) the public policy favoring disposition of cases on their merits[;] and (5) the availability of less drastic sanctions.” In re Tukhi,

(citing Lee v. Roessler–Lobert (In re Roessler–Lobert),

(9th Cir. BAP 2017)). 15 With respect to ECF’s state of mind, the bankruptcy court’s comments at the

reconsideration hearing indicated that the court did not attribute ECF’s failure to appear to any egregiously culpable state of mind but rather to counsel’s lack of familiarity with the district’s local rules and procedures, which differed from counsel’s local practice in another district. 30 factors. We have discretion in appropriate cases to consider these factors

ourselves as part of our appellate review, or we can vacate and remand, so

that the bankruptcy court can consider the appropriate factors in the first

instance. See id. at 113; see also Zambrano v. City of Tustin,

, 1484

& n.32 (9th Cir. 1989). However, in light of the valid dismissal of the

adversary proceeding on jurisdictional grounds, we consider it

unnecessary for either the bankruptcy court or this Panel further to address

either of these procedural grounds for dismissal. The dismissal here should

have been based solely on ECF’s lack of standing.

Therefore, we will MODIFY the court’s dismissal order. The

dismissal order’s dispositive language should read as follows:

IT IS HEREBY ORDERED that this Adversary No. 2:23-ap- 01192-BB is DISMISSED for lack of standing, without leave to amend. But this dismissal is without prejudice to the substance of the claims set forth in the complaint and the right of the claims’ true owner to pursue or otherwise dispose of such claims, if any remain viable, if so desired.

CONCLUSION

For the reasons set forth above, we AFFIRM IN PART, MODIFY IN

PART, AND AFFIRM AS MODIFIED.

31