FILED NOT FOR PUBLICATION MAY 8 2025 SUSAN M. SPRAUL, CLERK U.S. BKCY.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 No. NC-24-1156-BCF HELLER EHRMAN LLP, Debtor. Bk. No. 08-32514

MICHAEL F. BURKART, Chapter 11 Plan Adv. No. 23-03036 Administrator for Heller Ehrman LLP, Appellant, v. MEMORANDUM∗ JOHN ROBERTSON; MARK MEDEARIS; MARK WINDFELD-HANSEN; VLG INVESTMENTS, LLC, a Delaware limited liability company; VLG INVESTMENTS 2006, LLC, a Delaware limited liability company; VLG INVESTMENTS 2007, LLC, a Delaware limited liability company; VLG INVESTMENTS 2008, LLC, a Delaware limited liability company, Appellees.

Appeal from the United States Bankruptcy Court for the Northern District of California Dennis Montali, Bankruptcy Judge, Presiding

Before: BRAND, CORBIT, and FARIS, Bankruptcy Judges.

∗ 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 INTRODUCTION

Appellant Michael Burkhart, the chapter 11 1 plan administrator ("Plan

Administrator") for debtor Heller Ehrman LLP ("Heller"), appeals orders

dismissing his original and first amended complaints. His primary claim was

that the Heller estate was entitled to more than it received from the sale of

some stock interests in 2021. The bankruptcy court determined that the Plan

Administrator failed to plead a plausible claim for any additional proceeds

from the stock sale. Seeing no reversible error, we AFFIRM.

FACTS

A. Background

In 2003, Venture Law Group ("Venture Law") was a Silicon Valley-

based law firm specializing in representing start-up technology and

biotechnology companies. Eligible attorneys and staff at Venture Law

personally invested in the firm's clients. These individual investments were

made into separate LLCs, including VLG Investments, LLC ("VLGI"), which,

in turn, invested in and held common and preferred stock in clients of

Venture Law. From 1999 to 2003, Venture Law itself was an investor in the

preferred stock investments of VLGI. Only Venture Law partners were

eligible to invest in any common stock.

VLGI placed its investments into separate "subfunds" for each year,

1 Unless specified otherwise, all chapter and section references are to the Bankruptcy Code,

, all "Rule" references are to the Federal Rules of Bankruptcy Procedure, and all "Civil Rule" references are to the Federal Rules of Civil Procedure. 2 which existed under the umbrella of VLGI – e.g., 1999 subfund, 2000 subfund,

and so on. Each "subfund" was governed by a separate "appendix" attached

to VLGI's operating agreement. Starting in 2006, instead of creating a new

subfund for each year, new limited liability companies were organized to

hold the investments for each of the respective years: VLGI Investments 2006,

LLC ("VLGI 2006"), VLGI Investments 2007, LLC ("VLGI 2007"), and VLGI

Investments 2008, LLC ("VLGI 2008") (together with VLGI, the "Funds").

In 2003, Venture Law merged with Heller. Unlike Venture Law, Heller

itself did not invest in the Funds, but Heller did inherit Venture Law's

existing interests in VLGI's subfunds from 1999 through 2003. Prior to the

merger, Venture Law was the manager of VLGI but delegated management

duties to three Venture Law partners as a "board of managers." Following the

merger, Heller became the manager and continued the practice of delegating

management duties to the board of managers – defendants John Robertson,

Mark Medearis, and Mark Windfeld-Hanson (the "Fund Managers," together

with VLGI, VLGI 2006, VLGI 2007, and VLGI 2008, the "Defendants"). In

October 2008, Heller was removed as manager due to the bankruptcy filing.

Heller was also a member of the Funds until 2008, except for the 2004 and

2005 subfunds.

In fall 2008, Heller voted to dissolve and wind-up its business, and

shortly thereafter, on December 28, 2008, filed a chapter 11 bankruptcy case.

In 2010, the bankruptcy court confirmed a plan of liquidation, under which

the Plan Administrator was appointed.

3 In 2010, the court approved settlement agreements and mutual general

releases between Heller and many of its former shareholders, including the

Fund Managers (the "2010 Releases"). The 2010 Releases released the former

shareholders from "Estate Claims," which included "any claim . . . (v) arising

out of Settling Shareholder's service or status as an officer, director, manager,

shareholder, partner, member or employee of any of Heller Ehrman LLP or

the Heller Affiliates, as a member of any committee of any of them[.]"

B. SpaceX stock sale, Plan Administrator's original complaint, and motion to dismiss

1. The stock sale

While the majority of VLGI's start-up investments were unsuccessful,

one notable success was Space Exploration Technologies Corp., better known

as SpaceX. At the time of SpaceX's founding in 2002, VLGI acquired 35,000

shares of its common stock and 35,000 shares of its preferred stock. In 2021,

VLGI sold its SpaceX stock at a substantial profit for the 2002 subfund

investors. The common and preferred stock sold at the same price per share.

VLGI distributed the sale proceeds to the 2002 subfund members, which

included a large payout to Heller's estate based on its interest in SpaceX's

preferred stock.

2. The original complaint

After conducting extensive discovery by way of Rule 2004 exams,2 the

2 In 2023, the Plan Administrator conducted Rule 2004 exams relating to the Funds where Defendants produced thousands of pages of documents. 4 Plan Administrator filed his original complaint alleging seven causes of

action against Defendants: turnover under § 542(a); breach of fiduciary duty;

fraudulent concealment; intentional and negligent misrepresentation;

conversion; and unjust enrichment. The gist of the complaint was that the

Heller estate did not receive all that it should have received from the Funds

and specifically with respect to the SpaceX distribution, and that the Fund

Managers engaged in actionable conduct to deprive the Heller estate of

distributions from the Funds.

The complaint alleged that, shortly before Heller's bankruptcy filing in

2008, the Fund Managers recognized that the VLGI stock investments might

be considered assets of the estate and took steps to conceal any interest the

estate had in those investments. To demonstrate misconduct by Defendants,

the Plan Administrator pointed to emails among the Fund Managers, and the

"Master Amendment Agreement Among Funds" ("MAAAF"), which

amended each of the Funds' operating agreements and removed Heller as

manager just before the bankruptcy filing without Heller's approval or

signature. The Plan Administrator alleged that Heller's removal as manager

of the Funds negatively impacted its rights.

The Plan Administrator further alleged that, by 2019, VLGI and the

Fund Managers knew that the SpaceX stock had significant value. At that

time, he alleged, there was uncertainty as to what percentage of the 2002

subfund was owned by Heller, and the Fund Managers discussed whether to

"erase" Heller's interest or "transfer" it to one of the other VLGI subfunds. The

5 Plan Administrator alleged that, in December 2020, with knowledge of the

substantial value of the SpaceX stock, Robertson, as manager of the Funds

and a fiduciary to the Funds and to Heller, unsuccessfully attempted to

purchase Heller's interests in the Funds from the estate for a de minimis

amount, without disclosing to the Plan Administrator the stock's substantial

value. The Plan Administrator inferred that Robertson's timing was suspect,

given that VLGI soon thereafter sold the SpaceX stock at a significant profit.

The SpaceX stock sale closed in April 2021, and the proceeds were

distributed to members of the 2002 subfund. The Plan Administrator alleged

that, before the distribution, VLGI ran a distribution calculation whereby

Heller was to receive amounts based on the sale of both common and

preferred stock in SpaceX. But later, he alleged, Robertson instructed VLGI to

rerun the calculation to provide for a distribution based only on the sale of

preferred stock. Robertson maintained this distribution was consistent with

the appendix to the 2002 subfund operating agreement (the "2002 Subfund

Appendix"), which stated in Section 4(a)(iv)(A)(II) that the "Common Interest

of VLG (i.e., Heller) is zero." However, alleged the Plan Administrator, the

revised distribution decision was based on an unsigned and incomplete

version of the 2002 Subfund Appendix. Further, Robertson repeatedly

represented that Heller had only a preferred stock interest and that the

distribution to Heller was correct, knowing that he and VLGI did not have a

fully executed or complete 2002 Subfund Appendix.

After the SpaceX distribution, alleged the Plan Administrator, VLGI

6 and the Fund Managers realized that they might have incorrectly determined

the distribution of the SpaceX stock sale proceeds to Heller and that it might

have been inconsistent with VLGI's prior distributions.

In mid-2022, VLGI and the Fund Managers located a signed version of

the 2002 Subfund Appendix, but it was missing Venture Law's signature and

the required schedules. The Plan Administrator alleged that VLGI and the

Fund Managers knew that the lack of schedules was problematic, and so they

pulled them from other files to attach to the 2002 Subfund Appendix after the

fact. They also knew, he alleged, that the signed version with the cobbled-

together schedules might raise suspicion from the Plan Administrator, and

they considered not providing it to him.

As for defendants VLGI 2006, VLGI 2007, and VLGI 2008, the Plan

Administrator alleged that Heller was a member and manager of these funds.

However, VLGI and the Fund Managers represented that Heller's estate had

no interest in these funds, no distributions had been made to Heller during

the bankruptcy, and they never disclosed the terms of any fully executed

operating agreements or whether such documents existed. Thus, he

continued, it was "unclear" as to what Heller's ownership interest was in

VLGI 2006, VLGI 2007, and VLGI 2008 and whether any amounts were owed.

3. Motion to dismiss original complaint

Defendants moved to dismiss the original complaint, arguing: (1) the

§ 542 turnover claim failed because title to the assets to be turned over was

disputed; (2) the remaining six claims failed to plausibly state a claim for

7 relief, and they, along with the turnover claim, were time-barred; and (3) any

claims against the Fund Managers were released by the estate in the 2010

Releases ("Motion to Dismiss"). In support, Defendants requested that the

court take judicial notice of various documents, including the signed 2002

Subfund Appendix and the 2010 Releases.

Defendants argued that turnover under § 542 could not be used to

demand assets whose title is in dispute. Not only did the complaint fail to

allege that the estate's entitlement to the Funds and the SpaceX common stock

sale proceeds was undisputed, but the complaint made clear that Defendants

believed that the Funds were not estate assets (other than the pre-merger

interest Heller inherited from Venture Law), and that the estate had no right

to the SpaceX common stock investment.

As for the remaining six claims, Defendants argued that the complaint

failed to plead facts to support that they engaged in wrongdoing or that

Heller was injured. Defendants argued that the fiduciary duty claim failed

because the complaint did not allege that Defendants departed from the

procedures for making distributions or violated the express terms of the 2002

Subfund Appendix. Although the Plan Administrator made much ado about

the signed version of the 2002 Subfund Appendix being found after the

SpaceX distribution, it was identical to the unsigned version relied on to

make the distribution, which explicitly stated that the "Common Interest of

[Heller] will equal zero." Likewise, argued Defendants, the fraudulent

concealment and misrepresentation claims failed because the Plan

8 Administrator did not allege that he relied upon or was damaged by any of

the alleged omissions or misrepresentations. Because the remaining claims

for conversion and unjust enrichment hinged on the failed breach of fiduciary

duty and fraudulent concealment claims, argued Defendants, they should

also be dismissed. Both claims relied on the erroneous assumption that VLGI

or the Fund Managers improperly took or withheld funds from Heller.

As for Robertson's offer to purchase Heller's interest in the Funds from

the estate, Defendants argued that the Plan Administrator never ended up

selling that interest for the alleged "de minimis" amount or otherwise. The

complaint also failed to allege that Robertson ever stated a price for it, much

less a misleading or fraudulent price. Defendants argued that this was

because he never offered the Plan Administrator a price; he merely offered

the estate an opportunity to sell its interest if it was so inclined.

Defendants argued that even if the claims against the Fund Managers

were timely, they were released under the "extremely broad" 2010 Releases,

which covered any claims against them arising out of their service as

managers of the Funds for Heller. Defendants argued that the 2010 Releases

were prospective and included any claims that the Fund Managers took

actions to create the impression that the Funds and their assets were not

property of Heller's estate, or that they converted them.

Lastly, Defendants argued that the Plan Administrator pled no claims

against VLGI 2006, VLGI 2007, and VLGI 2008. The complaint failed to allege

that Heller had an economic interest in these funds or that it was entitled to

9 any distribution from them. The complaint also failed to allege that Heller

suffered damages when it was removed as manager of these funds in 2008 by

the MAAAF.3

4. Opposition to Motion to Dismiss

In opposition, the Plan Administrator argued that he plausibly alleged

claims for breach of fiduciary duty, concealment, and misrepresentation by

alleging: (1) Defendants tried to create the impression that the Funds and

their assets were not estate property; (2) Defendants denied that Heller was a

member of VLGI 2006, VLGI 2007, and VLGI 2008 and refused to produce

signed versions of their operating agreements, while the unsigned and

incomplete versions reflected that Heller was a member, and it received no

distributions from these funds; (3) Robertson suggested that VLGI "erase"

Heller's ownership because Heller was "dead and gone" and tried to purchase

the estate's interest for a de minimis amount, while he and VLGI knew of the

assets' significant value; (4) VLGI distributed the SpaceX stock sale proceeds

based on the unsigned and incomplete 2002 Subfund Appendix, and the

signed version located later was incomplete and cobbled together after-the-

fact; and (5) when the Plan Administrator inquired as to how VLGI calculated

the distribution to Heller, VLGI and the Fund Managers provided incomplete

and inaccurate information, concealing and omitting material information

and documents. The Plan Administrator argued that the complaint also

3 The MAAAF did not alter Heller's status as a member of, or its economic interests in, the Funds.

10 plausibly alleged claims for turnover, conversion, and unjust enrichment.

Finally, the Plan Administrator argued that the court could not consider

the 2010 Releases because they were not attached to or referenced in the

complaint and were not central to his claims. Alternatively, he argued that

the 2010 Releases did not cover the Fund Managers' acts and omissions done

for their own self-interest to the detriment of Heller. In addition, the

settlement which gave rise to the 2010 Releases was for Heller's overpayment

of compensation to the settling shareholders for 2007-2008, not for turnover

or any fraud-based or misrepresentation claims.

5. Ruling on Motion to Dismiss

The bankruptcy court granted the Motion to Dismiss with leave to

amend only as to VLGI and the Fund Managers, and only as to the discrete

events occurring during or after 2021 as they related to the claims for breach

of fiduciary duty, fraudulent concealment, negligent and intentional

misrepresentation, conversion, and unjust enrichment. The court took judicial

notice of the 2010 Releases and determined that the Fund Managers were

released from the Plan Administrator's claims relating to conduct pre-2010.

Consequently, the claims against them were dismissed without leave to

amend any cause of action based on their conduct prior to 2010, including the

removal of Heller as manager of the Funds in 2008. The court also determined

that the Plan Administrator failed to state a claim for turnover, which was a

remedy to recover undisputed estate assets.

The court determined that the Plan Administrator failed to state any

11 claim against VLGI 2006, VLGI 2007, and VLGI 2008. With the turnover claim

dismissed, the only claims remaining against these defendants were for

conversion and unjust enrichment. The court found that the complaint

alleged only the improper removal of Heller as manager of these funds in

2008 (for which any remedy was time-barred), and a bare statement that these

defendants were "related entities" with VLGI, meaning all acts of VLGI

should also be attributed to them. The complaint alleged no facts that the

separate entities of VLGI 2006, VLGI 2007, and VLGI 2008 were part of the

alleged concealment or conversion of SpaceX funds. The complaint also failed

to plead that there was any distribution from these funds that was not made

to Heller due to its removal as manager, or facts implicating these defendants

in a conversion scheme or that they were recipients of the SpaceX distribution

or any other unjust enrichment. Instead, noted the court, the complaint

merely alleged that Heller had not received any distributions from these

funds and that the terms of the fully executed operating agreement had not

been disclosed, and so it was "unclear" as to what Heller's ownership interest

was and whether any amounts were owed. The court found that these

grievances amounted to a "discovery dispute" and speculation about what

might be established through further discovery.

C. First amended complaint and motion to dismiss

1. First amended complaint

The Plan Administrator's first amended complaint ("FAC") alleged the

same causes of action against VLGI and the Fund Managers, minus the

12 turnover claim, and added new claims for accounting and declaratory relief.

The allegations in the FAC largely tracked those in the original complaint, but

the FAC added some new facts regarding the 2002 subfund's distribution of

the SpaceX proceeds to Heller.

The Plan Administrator alleged that Heller had previously received

distributions from the 2002 subfund based on both common and preferred

stock and that VLGI had made distributions to Heller with percentages that

differed from the one used in 2021. Precisely, he alleged that, in August and

December 2006, the 2002 subfund made distributions to Heller based on an

interest in both common and preferred stock resulting in Heller receiving

17.087% of the total distribution in each instance, which was different from

the percentage VLGI applied based on the 2002 Subfund Appendix in 2021.

The Plan Administrator alleged that VLGI and the Fund Managers

knew or should have known that the 2002 subfund had previously made

distributions to Heller based on both common and preferred stock and that

VLGI did not historically differentiate between the stock types in prior

distributions. The Plan Administrator alleged that, despite this, VLGI

distributed the SpaceX proceeds to Heller based on the sale of preferred stock

only, and it did so by relying upon the unsigned and incomplete 2002

Subfund Appendix. In addition, Robertson repeatedly represented that Heller

had only a preferred stock interest and that the 2021 distribution was correct,

knowing the contrary prior distribution history and that VLGI was relying on

unsigned and incomplete documents for that distribution. Later, once the

13 signed but still incomplete 2002 Subfund Appendix was found, VLGI and the

Fund Managers cobbled together its missing schedules and continued to

represent that the document controlled.

2. Motion to Dismiss the FAC

VLGI and the Fund Managers moved to dismiss the FAC, arguing that

the Plan Administrator still failed to plausibly allege that the 2021 SpaceX

distribution was incorrect. The only new substantive allegation was that it

was inconsistent with two distributions made in 2006. However, they argued,

merely alleging that the 2002 subfund made two distributions 15 years earlier

that included amounts based on the sale of both common and preferred stock

as "inconsistent" with the 2021 distribution did not plausibly establish that the

2021 distribution was incorrect. All it established, they argued, was that the

2006 distribution was an error and violated the 2002 Subfund Appendix's

explicit language. In addition, although the Plan Administrator claimed that

the 17.087% distribution Heller received in 2006 was "inconsistent" with what

it received in 2021, Heller actually received a greater percentage of the

distribution in 2021 (17.828%).

Other than referencing these 2006 distributions, argued VLGI and the

Fund Managers, the Plan Administrator provided no facts supporting that

they were made correctly. While he tried to cast doubt as to whether the

unsigned 2002 Subfund Appendix was the correct and operative version by

alleging "infirmities" in the document and inconsistencies in distributions,

every version of the 2002 Subfund Appendix in existence said the same thing:

14 Heller had no interest in the common stock of the 2002 subfund. VLGI and

the Fund Managers argued that the Plan Administrator offered no plausible

reason, only speculation, to believe that there existed some undiscovered

document giving Heller such an interest.

3. Opposition to Motion to Dismiss the FAC

Although VLGI and the Fund Managers maintained that they could not

deviate from the distribution method and percentages in the "cobbled-

together" 2002 Subfund Appendix, the Plan Administrator argued that the

FAC alleged that past distribution methods by VLGI differed significantly

from the method used in 2021. Therefore, the FAC plausibly pleaded that

Heller did not receive all that it was entitled to from the 2021 distribution.

The Plan Administrator objected to VLGI and the Fund Managers'

request for judicial notice of the signed 2002 Subfund Appendix, which he

argued suffered from several infirmities. First, it included signature pages

from the Second Amended and Restated Limited Liability Company

Agreement, rather than the Third Amended and Restated Limited Liability

Company Agreement that the 2002 Subfund Appendix was attached to.

Second, the VLGI members participating in the 2002 subfund listed in

Schedule A did not all match with the attached member signature pages.

Finally, as previously noted, the schedules being offered were not included in

this later-located 2002 Subfund Appendix but were pulled from different

documents in different locations. The Plan Administrator argued that more

discovery was needed to further probe prior distributions, and to determine

15 whether a complete or operative 2002 Subfund Appendix or other agreement

existed and what the terms were of any such agreement.

4. Ruling on Motion to Dismiss the FAC

The bankruptcy court granted the Motion to Dismiss the FAC without

leave to amend and dismissed it with prejudice. In short, it determined that

the FAC failed to plead a plausible claim under Civil Rule 12(b)(6) standards

and that any amendment was futile.

The court determined that the claims for fraudulent concealment,

negligent and intentional misrepresentation, and unjust enrichment rose and

fell together because they were based on the same factual allegations. The

court reasoned that there were two possible explanations for the difference in

the 2006 and 2021 distributions, but only one resulting in liability (i.e., if the

2021 distribution was done incorrectly). Citing In re Century Aluminum

Company Securities Litigation,

(9th Cir. 2013), the court

determined that the facts the Plan Administrator alleged for an alternative to

the 2002 Subfund Appendix's explicit language were merely conjecture, and

thus nothing more than a "mere possibility" that there was an explanation to

contradict the recital that the "[c]ommon interest of [Heller] will equal zero."

Put differently, the "possibility" that the distribution method used in 2006

was correct did not equate to "plausibility" that the 2021 distribution method

was incorrect, in the absence of "facts tending to exclude the possibility" that

the 2021 distribution was done in accordance with the 2002 Subfund

Appendix. The court also determined that the conversion claim failed since

16 no property interest of Heller was converted, and the accounting and

declaratory relief claims sought the same possible, but not plausible,

outcome.

This timely appeal followed.

JURISDICTION

The bankruptcy court had jurisdiction under

and

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

.

ISSUES

1. Did the bankruptcy court err in granting the Motion to Dismiss the

FAC?

2. Did the bankruptcy court err in considering the 2002 Subfund

Appendix in granting the Motion to Dismiss the FAC?

3. Did the bankruptcy court err in dismissing certain claims in the original

complaint without leave to amend?

4. Did the bankruptcy court abuse its discretion in denying leave to

amend the FAC?

STANDARDS OF REVIEW

We review de novo the bankruptcy court's grant of a Civil Rule 12(b)(6)

motion to dismiss. See Freeman v. DirecTV, Inc.,

(9th Cir.

2006); Barnes v. Belice (In re Belice),

(9th Cir. BAP 2011). For

de novo review, we look at the matter anew as if no decision had been

rendered previously, giving no deference to the bankruptcy court's

determinations. Freeman,

.

17 We review the bankruptcy court's dismissal of a complaint without

leave to amend for abuse of discretion. Zadrozny v. Bank of N.Y. Mellon,

(9th Cir. 2013). A bankruptcy court abuses its discretion if

it applies the wrong legal standard, misapplies the correct legal standard, or

makes factual findings that are illogical, implausible, or without support in

inferences that may be drawn from the facts in the record. United States v.

Hinkson,

(9th Cir. 2009) (en banc).

DISCUSSION

A. Standards for dismissal under Civil Rule 12(b)(6)

Under Civil Rule 12(b)(6), applicable here by Rule 7012, a court must

dismiss a complaint if it fails to state a claim upon which relief can be

granted. To survive a motion under Civil Rule 12(b)(6), a complaint must

present cognizable legal theories and sufficient factual allegations to support

those theories. Johnson v. Riverside Healthcare Sys., LP,

(9th Cir. 2008). Dismissal is proper where there is no cognizable legal theory

or the plaintiff has failed to allege sufficient facts to support a cognizable

legal theory. Navarro v. Block,

(9th Cir. 2001).

Under Civil Rule 12(b)(6), the plaintiff must allege in his complaint

"sufficient factual matter, accepted as true, to 'state a claim to relief that is

plausible on its face.'" Ashcroft v. Iqbal,

(2009) (quoting Bell

Atl. Corp. v. Twombly,

(2007)). A claim is facially plausible

"when the plaintiff pleads factual content that allows the court to draw the

reasonable inference that the defendant is liable for the misconduct alleged."

18

(citing Twombly,

). The plausibility standard seeks more

than "a sheer possibility that a defendant has acted unlawfully."

(citing

Twombly,

).

Although the focus is on the complaint, we may consider the existence

and content of documents attached to and referenced in the complaint as

exhibits. United States v. Ritchie,

(9th Cir. 2003); Durning v.

First Boston Corp.,

(9th Cir. 1987) (noting that documents

attached to the complaint may be considered in determining whether the

plaintiff can prove any set of facts in support of the claim). Even when a

document is not attached to the complaint, we may consider its existence and

content when its authenticity is not contested and the plaintiff either refers

extensively to the document or the document forms the basis of the plaintiff's

claim. Ritchie,

. The defendant may offer such a document,

which we may treat as part of the complaint and assume that its contents are

true for purposes of a motion to dismiss under Civil Rule 12(b)(6).

(discussing the doctrine of "incorporation by reference").

B. The bankruptcy court did not err in granting the Motion to Dismiss the FAC.

As a threshold matter, the Plan Administrator argues that the

bankruptcy court improperly took judicial notice of the 2002 Subfund

Appendix in deciding to grant the Motion to Dismiss the FAC without leave

to amend and dismiss the FAC with prejudice. Specifically, he argues that the

court erred in considering and interpreting the 2002 Subfund Appendix

19 though its authenticity was disputed, and then determining that allegations

contradicting the document were not plausible. His arguments lack merit.

Nothing in the bankruptcy court's decision indicates that it took

"judicial notice" of the 2002 Subfund Appendix. The Plan Administrator

attached copies of both the signed and unsigned versions of the 2002 Subfund

Appendix to the original complaint. He did not attach copies of either version

to the FAC, but the substance of the document was extensively referenced in

the FAC in the many "quoted" email communications between the Fund

Managers discussing its express terms and their reliance on those terms for

the 2021 SpaceX distribution. Although Defendants, and later VLGI and the

Fund Managers, attached a copy of the 2002 Subfund Appendix to their

motions to dismiss and asked the court to take judicial notice of it, that was

not necessary in order for the court to consider it. Ritchie,

.

Nonetheless, the Plan Administrator argues that the court could not

consider the 2002 Subfund Appendix because its authenticity was disputed.

He has argued that the version of the 2002 Subfund Appendix relied upon by

VLGI and the Fund Managers to make the 2021 SpaceX distribution was

unsigned and incomplete, and that the later-discovered signed version was

missing some signatures and schedules, which the Fund Managers cobbled

together and attached and failed to disclose that fact. However, these

arguments go to the documents' legal effectiveness, not their "authenticity."

The Plan Administrator has not argued that the unsigned or incomplete

versions of the 2002 Subfund Appendix that were produced are not what

20 they purport to be – i.e., unsigned or incomplete versions of the 2002 Subfund

Appendix. In fact, nowhere in his pleadings did he even use the word

"authenticity." Rather, his argument is that, because these copies were

unsigned or incomplete, we cannot be sure that they reflect the legally

operative version of the 2002 Subfund Appendix. Further, the alleged

"infirmities" he complained of – the missing signatures or schedules – had no

bearing on the relevant and unrefuted language in the body of the document,

that Heller had zero interest in the 2002 subfund common stock. Accordingly,

the bankruptcy court did not err by considering the 2002 Subfund Appendix.

The Plan Administrator next argues that the bankruptcy court erred in

determining that the FAC failed to plausibly allege that Heller did not receive

all that it was entitled to from the 2021 SpaceX distribution. In the FAC, the

Plan Administrator alleged that, in 2006, Heller received two distributions

from the 2002 subfund based on both common and preferred stock and that

the distribution percentage differed from the one used in 2021. Therefore,

based on these allegations, it was plausible that the 2002 Subfund Appendix

incorrectly stated the proper distribution amounts and that Heller had more

than a zero interest in common stock. The court disagreed, finding that the

facts about the 2006 distributions showed nothing more than a "mere

possibility" that there was some explanation to contradict the explicit

language in the 2002 Subfund Appendix, and that "possibility" without

something more did not equate to "plausibility." We agree.

As the Ninth Circuit Court of Appeals held in Starr v. Baca,

(9th Cir. 2011), if both the plaintiff and defendant offer a

"plausible" alternative explanation, the complaint survives a motion to

dismiss under Civil Rule 12(b)(6). A complaint may be dismissed only when

defendant's plausible alternative explanation is so convincing that plaintiff's

explanation is implausible.

See also In re Century Aluminum Co. Sec. Litig.,

(holding that, for a "possible" alternative explanation to

become a "plausible" one, "[s]omething more is needed, such as facts tending

to exclude the possibility that the alternative explanation is true[.]" (citations

omitted)). While the Plan Administrator alleged facts about the 2006

distributions as an alternative explanation to the 2002 Subfund Appendix's

explicit language that Heller had no interest in the common stock, the fact the

2006 distributions were inconsistent with the 2021 distribution did not

"plausibly" show that the 2021 distribution was incorrect and not consistent

with the 2002 Subfund Appendix. In other words, just because the 2006

distributions were done differently than the 2021 distribution did not

plausibly exclude the possibility that the 2021 distribution was done

correctly.

Accordingly, we find no error in the bankruptcy court's decision to

dismiss all claims in the FAC based on the 2021 SpaceX distribution.4

4 The Plan Administrator argues that the bankruptcy court erred by not allowing him to proceed with his claims for declaratory relief and unjust enrichment when VLGI and the Fund Managers did not challenge those claims until their reply brief. He further argues that the court failed to state on what grounds those claims were dismissed, and, to the extent the court dismissed them sua sponte without notice, it erred. VLGI and the Fund Managers challenged the declaratory relief and unjust 22 C. The bankruptcy court did not err in dismissing certain claims in the original complaint without leave to amend.

1. Claims against VLGI 2006, VLGI 2007, and VLGI 2008

The Plan Administrator argues that the bankruptcy court should not

have dismissed his claims against VLGI 2006, VLGI 2007, and VLGI 2008. In

the original complaint, he alleged claims for turnover (which we discuss

below), conversion, and unjust enrichment. He argues that the court

erroneously dismissed the conversion and unjust enrichment claims on the

basis that they amounted to a "discovery dispute" that had to be determined

in a motion to compel in the main case prior to filing an adversary complaint.

Nothing in the memorandum decision could be interpreted as a "holding" by

the bankruptcy court that parties are required to move to compel production

of documents during a Rule 2004 examination prior to filing a complaint.

Rather, the court was admonishing the Plan Administrator for including

multiple pages of allegations about purported discovery problems (for which

he never sought relief) that did not relate to a particular claim for relief but

served only to overcrowd and confuse the complaint.

In reality, the court dismissed these claims because the Plan

Administrator failed to support them with adequate allegations. This was not

enrichment claims in their Motion to Dismiss the FAC, arguing that the FAC should be dismissed "in its entirety with prejudice." Consequently, the court did not dismiss these claims "sua sponte." In any event, the unjust enrichment claim fails since no defendant was unjustly enriched by receiving a distribution purportedly belonging to Heller. As for declaratory relief, no determination as to the estate's rights in the common stock of the 2002 subfund is warranted. 23 error. The complaint failed to allege that there was a distribution from VLGI

2006, VLGI 2007, or VLGI 2008 that was not made to Heller due to its removal

as manager (or otherwise), or any facts implicating them in a conversion

scheme, or any facts that they received any of the SpaceX distribution that

allegedly was supposed to go to Heller. In fact, the Plan Administrator

admitted that it was "unclear" as to what Heller's ownership interest was in

these funds and whether any amounts were owed.

Lastly, we need not address the Plan Administrator's argument that the

bankruptcy court should not have, if it did, taken judicial notice of the

unsigned and incomplete operating agreements for VLGI 2006, VLGI 2007,

and VLGI 2008, because their authenticity was disputed. Even without these

documents, the complaint failed to plausibly allege that Heller did not receive

distributions it should have from these funds, if there ever were any.

2. Turnover claim

The Plan Administrator argues that that turnover claim against

Defendants should not have been dismissed without leave to amend. The

bankruptcy court determined that this claim failed because it did not concern

undisputed property of the bankruptcy estate. The Plan Administrator argues

that § 542 does not require that ownership of the asset be undisputed and that

more recent decisions have ruled as such, contrary to our holding in MCI

Telecommunications Corp. v. Gurga (In re Gurga),

(9th Cir. BAP

1994) (stating that "turnover proceedings involve return of undisputed funds").

The cases cited by the Plan Administrator are not binding on this Panel.

24 However, because we have decided that he failed to plausibly allege that

Heller was entitled to more than it received from the 2021 SpaceX

distribution, we need not decide this issue. There is nothing that Defendants

need to turn over.

3. Claims against the Fund Managers for pre-2010 conduct

The Plan Administrator argues that the bankruptcy court erred in

dismissing the claims against the Fund Managers to the extent of their pre-

2010 conduct because the 2010 Releases absolved them of any such claims. He

maintains that the 2010 Releases did not encompass claims against the Fund

Managers in their capacity as managers of and fiduciaries to the Funds. Such

claims, he argues, were outside the scope of what was released in the

settlement agreements.

We need not address this argument. Even if the bankruptcy court

misconstrued the 2010 Releases, the claims against the Fund Managers failed

because the complaint did not plausibly allege that Heller was entitled to

more than it received from the 2021 SpaceX distribution. Without a plausible

claim for a distribution from the common stock, the Plan Administrator had

no claim against the Fund Managers for their conduct that caused no

damages. Assuming for the sake of argument that the bankruptcy court's

interpretation of the 2010 Releases was wrong, that error would be harmless.

D. The bankruptcy court did not abuse its discretion in denying leave to amend.

If a court dismisses a complaint for failure to state a claim, it may grant

25 leave to amend. Lopez v. Smith,

(9th Cir. 2000) (en banc);

see Civil Rule 15(a)(2) (leave to amend should be freely given). Generally,

when a party can plead a viable claim, the court should grant leave to amend.

Cafasso v. Gen. Dynamics C4 Sys., Inc.,

(9th Cir. 2011). At

the same time, if the court determines that amendment would be futile, it

must dismiss the complaint with prejudice. Tracht Gut, LLC v. Cnty. of L.A.

Treasurer & Tax Collector (In re Tracht Gut, LLC),

(9th Cir.

BAP 2014) (citation omitted), aff’d,

(9th Cir. 2016); see Zadrozny,

(stating that amendment is futile when plaintiff's claims "are

factually and legally implausible").

In granting the Motion to Dismiss the FAC without leave to amend and

dismissing the FAC with prejudice, the bankruptcy court ruled that any

amendment would be futile because the Plan Administrator had still not

pleaded a plausible claim for relief despite his extensive informal discovery

efforts and the extensive litigation of the original complaint. To the extent the

Plan Administrator argues that the court should have granted leave to

amend, whether it is the claims that were dismissed in the original complaint

without leave to amend, or the claims dismissed with prejudice in the FAC,

we agree with the bankruptcy court's finding that granting leave in this case

would have been futile. Accordingly, it did not abuse its discretion in

denying leave to amend.

CONCLUSION

For the reasons set forth above, we AFFIRM.

26