In Re Zodiac Investment, Inc., Debtor. Zodiac Investment, Inc. Patrick C. Clary Ronald A. Kastanek v. California Pozzolan Edward Scharf

Citations: 45 F.3d 438; 1994 U.S. App. LEXIS 40354Docket: 94-15297

Court: Court of Appeals for the Ninth Circuit; December 22, 1994; Federal Appellate Court

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

Ninth Circuit Rule 36-3 states that non-published dispositions should not be cited except under specific legal doctrines. In the case of In re Zodiac Investment, Inc., the Ninth Circuit reviewed the Bankruptcy Appellate Panel's (BAP) interpretation of its prior memorandum opinion regarding the transfer of mining claims from California Pozzolan, Inc. (Cal Pumice) to Zodiac Investment, Inc. This appeal is the fourth instance of Cal Pumice contesting the bankruptcy court’s orders related to these claims. In 1988, the bankruptcy court recognized a joint venture between Cal Pumice and Zodiac, ordering an accounting and later imposing sanctions on Cal Pumice and its principal, Edward Scharf, for attempting to evade jurisdiction. Following these events, the bankruptcy court dissolved the joint venture, granting sole ownership of the claims to Zodiac.

Cal Pumice appealed to the BAP, which reversed the finding of a joint venture but did not address other orders from the bankruptcy court. After further appeals and denials for property transfer, the bankruptcy court issued supplemental orders that confirmed sanctions and property transfer to Zodiac, interpreting the BAP's decision as a partial reversal. The BAP later reversed these supplemental orders, claiming that the reversal of the joint venture finding negated the entire bankruptcy court ruling. Zodiac, along with former counsel Clary and Kastanek, now appeals this 1993 BAP decision, arguing that the BAP misapplied the prior court’s directives. The Ninth Circuit found that, while the BAP had jurisdiction, it misapplied the earlier decision, leading to a reversal of the BAP's ruling.

Jurisdiction to review final decisions is granted to the Bankruptcy Appellate Panel (BAP) and the Court under Rule 8001(a) of the Bankruptcy Procedure and 28 U.S.C. Sec. 1291. A final decision is defined as one that concludes litigation on the merits, leaving only execution of the judgment. Although orders that execute a final judgment cannot be appealed solely for the purpose of challenging that judgment, in this case, the bankruptcy court's orders regarding sanctions and property transfer are appealable because they substantively affect the parties' rights and were not considered in the 1992 decision. 

The 1992 decision is established as the law of the case, which must be adhered to in subsequent proceedings unless certain exceptions apply, none of which are present here. Thus, the bankruptcy court, BAP, and this Court are bound to follow the 1992 ruling, which affirmed the BAP's reversal of the bankruptcy court’s finding on the existence of a joint venture. Appellants' claims that res judicata bars further actions related to sanctions and transfer orders are incorrect, as res judicata applies to separate causes of action, while the law of the case pertains to matters adjudicated during the same litigation after a reversal and remand. The 1990 BAP reversal and its 1992 affirmation only adjudicated the joint venture issue, and the prior opinions did not expand the scope of the adjudication to other matters, such as sanctions or property transfers.

The 1992 decision establishes that lower courts, including the bankruptcy court and the Bankruptcy Appellate Panel (BAP), must treat the prior appeal's adjudication solely as a reversal of the joint venture finding, barring exceptional circumstances. The BAP incorrectly interpreted this ruling when it concluded that reversing the joint venture finding also necessitated the reversal of sanctions and the transfer of mining claims to Zodiac. The imposition of sanctions on Scharf and Cal Pumice was independent of the joint venture finding, as they were found in contempt of court. Even if the orders they disobeyed were later reversed, this would not retroactively absolve them of their contempt. The BAP's reasoning regarding the transfer of mining claims being contingent on the joint venture finding was noted, but the Court clarified that the BAP lacked the authority to amend previous findings. The bankruptcy court had legitimate equitable reasons for transferring the claims and did not need to consider the joint venture finding in this context. Consequently, the BAP's judgment is reversed, and the bankruptcy court's orders are reinstated. In dissent, Judge Kleinfeld argues that the record does not support a finding of fraud by Scharf, noting that the bankruptcy judge's ruling was previously reversed, and the appellate court cannot establish facts on appeal. He maintains that the BAP's determination of no joint venture was the sole basis for the bankruptcy court's order concerning property conveyance.

The Bankruptcy Appeals Panel affirmed that sanctions and accounting orders were invalidated alongside the joint venture decision, consistent with the ruling in Thomassen v. United States. The panel's decision did not contravene the previous mandate, which solely affirmed prior findings. The panel unanimously deemed the case appropriate for submission based on the existing record and briefs, foregoing oral argument, and specified that the disposition is not suitable for publication or citation, except as allowed by Ninth Circuit Rule 36-3. California Pozzolan, Inc. has since changed its name to Cal-Pumice, Inc. The bankruptcy court's prior orders that were reversed by the BAP included: a June 10, 1992 order interpreting BAP and Ninth Circuit memoranda as partial reversals; a July 8, 1992 order for payment of sanctions and attorney's fees; a July 31, 1992 order for accounting fees and costs; and an October 30, 1992 order denying Scharf's motion to vacate judgments regarding fees and claims. Additionally, the court's earlier rulings on Scharf's and Cal Pumice's motions do not prevent future determinations regarding the propriety of sanctions or claims transfer, given that the emergency motion was denied on procedural grounds.