In the Matter of: R2D2, LLC v. RONALD L. DURKIN, Chapter 11 Trustee

NOT FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
In the Matter of: R2D2, LLC,
Debtor,
RONALD TUTOR AND ZELUS, LLC,
Appellants,
v.
RONALD L. DURKIN, Chapter 11
Trustee,
Appellee.
No. 12-56481
D.C. No. 2:12-cv-01886-PSG
MEMORANDUM*
Appeal from the United States District Court
for the Central District of California
Philip S. Gutierrez, District Judge, Presiding
Argued and Submitted December 12, 2014
Pasadena, California
In the Matter of: R2D2, LLC,
Debtor,
No. 12-56483
D.C. No. 2:12-cv-01627-PSG
FILED
JAN 13 2015
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
* This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.

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DAVID BERGSTEIN,
Appellant,
v.
RONALD L. DURKIN, Chapter 11
Trustee,
Appellee.
Appeal from the United States District Court
for the Central District of California
Philip S. Gutierrez, District Judge, Presiding
Submitted December 12, 2014 **
Pasadena California
Before: PREGERSON, WARDLAW, and BERZON, Circuit Judges.
Ronald Tutor, Zelus, LLC, and David Bergstein appeal the district court’s
order affirming the bankruptcy court’s order authorizing the Trustee of R2D2,
LLC’s bankruptcy estate to use R2D2’s one-hundred percent membership interest
in non-debtor Pangea Media Group, LLC (Pangea), to adopt a resolution removing
Bergstein as Pangea’s manager, and authorizing the Trustee to place Pangea into
** The panel unanimously concludes this case is suitable for decision without
oral argument. See Fed. R. App. P. 34(a)(2).
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bankruptcy proceedings. We have jurisdiction pursuant to 28 U.S.C. § 158(d)(1),
and we affirm.
Under 28 U.S.C. § 158(d)(1), we have jurisdiction over appeals from “final
orders of the district courts reviewing bankruptcy court decisions.” In re SK
Foods, L.P., 676 F.3d 798, 801 (9th Cir. 2012) (quoting In re Westwood Shake &
Shingle, Inc., 971 F.2d 387, 389 (9th Cir. 1992)). A district court order is final
only if the underlying bankruptcy court order is final. Id. at 801-02; In re Rains,
428 F.3d 893, 901 (9th Cir. 2005). Here, the bankruptcy court’s order finally
determined a discrete issue—that the Trustee could use R2D2’s membership
interest in Pangea to vote to remove Bergstein as Pangea’s manager. And no
further determination or order will be required to allow the Trustee to place Pangea
into bankruptcy, if the Trustee so decides. This order seriously affects Bergstein’s
substantive rights by divesting him of his managerial position in Pangea. Under
our “pragmatic approach” to finality in bankruptcy appeals, In re AFI Holding,
Inc., 530 F.3d 832, 836 (9th Cir. 2008) (quoting In re Lazar, 237 F.3d 967, 985
(9th Cir. 2001)), the bankruptcy court’s order was final, and we therefore have
jurisdiction to entertain the appeal of that order.
The district court did not err in concluding that the bankruptcy court had
constitutional authority to enter its order. A bankruptcy court exercises the
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“judicial Power of the United States” and infringes on the authority of Article III
courts when it “enter[s] final judgment on a common law tort claim.” Stern v.
Marshall, 131 S. Ct. 2594, 2601 (2011). Here, although the bankruptcy court
considered whether the Trustee could remove Bergstein as Pangea’s manager
pursuant to Pangea’s operating agreement, the bankruptcy court did so for the sole
purpose of delineating the Trustee’s right to “use” R2D2’s property under 11
U.S.C. § 363(b), rather than to adjudicate a common law claim. The bankruptcy
court, therefore, determined a public right, and its order was permissible under
Stern. See Stern, 131 S. Ct. at 2611-15; see also In re Deitz, 760 F.3d 1038, 1044
(9th Cir. 2014).
Nor did the district court err in concluding that the bankruptcy court acted
within its “considerable discretion” in approving the Trustee’s use of R2D2’s
property. In re Walter, 83 B.R. 14, 17 (9th Cir. BAP 1988). The Trustee
submitted ample evidence to support the bankruptcy court’s reasonable conclusion
that Bergstein could not be trusted to manage Pangea, which was wholly owned by
R2D2. Specifically, the Trustee provided evidence that Bergstein failed to identify
to the Trustee that Pangea was 100 percent owned by R2D2; verified bankruptcy
schedules for R2D2 that did not list Pangea as a subsidiary; failed to provide the
Trustee with any federal tax returns or financial statements for Pangea; and,
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through counsel, submitted papers to the bankruptcy court in 2010 that suggested
Pangea was an operating, successful business, but later represented that Pangea
was “a woefully insolvent entity.” Based on this evidence, the bankruptcy court
reasonably concluded that Bergstein’s representations and decisions concerning the
assets and financial status of Pangea were not to be trusted; that the Trustee has a
right to investigate and determine whether Pangea has assets that can be recovered
to benefit the bankruptcy estate; and that the Trustee may place Pangea in
bankruptcy for that purpose if he determines that to be the prudent course. See 11
U.S.C. § 1106(a)(3).
AFFIRMED.
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