Hoskins v. De Hoyos et al

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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re 	) Bankruptcy Case
) No. 09-30205DM
DOLPHIN REAL ESTATE NO. 1, 	)
)
Debtor. 	) Chapter 7
___________________________________)
JANINA M. ELDER, Trustee in 	) Adversary Proceeding
Bankruptcy, 	) No. 09-3176DM
)
Plaintiff, 	)
)
v. 	)
)
LAWRENCE E. PELZNER; HUGO DE HOYOS;)
FRANCES LOW; LAURA FLORES; MICHAEL )
CHALHOUB; PETER LOMMORI; FRANK 	)
VENTO; CHRISTINE STAHL; LARRY 	)
MUELLER; MIKE FOOR; RICO BAUTISTA; )
HIRMA GARABEDIAN; 	)
)
Defendants. )
___________________________________)
MEMORANDUM DECISION ON MOTIONS FOR SUMMARY JUDGMENT
At the hearing on August 27, 2010, counsel for defendants
argued that the principal theory on which he relies to support
judgment for his clients is the idea that the Independent
Contractor Agreement manifests an intent to create a lien that
cannot be defeated by the trustee. 	He relies primarily on In re
Pacific Far East Line, Inc., 654 F. 2d 664 (9th Cir.
1981)(“PFEL”), which in turn drew upon Isrin v. Superior Court of
Los Angeles County, 63 Cal. 2d 153 (1965).
Signed and Filed: September 01, 2010
________________________________________
DENNIS MONTALI
U.S. Bankruptcy Judge
________________________________________
Entered on Docket
September 02, 2010
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 09-03176 Doc# 25 Filed: 09/01/10 Entered: 09/02/10 10:24:17 Page 1 of 5

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While defendants’ counsel had not abandoned alternative
theories of constructive or resulting trusts, the court commented
that those were not persuasive arguments, and took the matter
under advisement to review Isrin and PFEL, and also to permit the
parties to explore settlement.
The parties have advised the court that this matter will not
be settled. 	Accordingly, the court issues its ruling, denying
defendants’ motion for summary judgment and granting the trustee’s
counter-motion.
First, Isrin is not about liens, equitable, express or
otherwise. 	The court was confronted with the question of whether
an in forma pauperis plaintiff needed to advance jury fees when
her contingent fee attorney presumably was solvent and had the
economic means to advance those costs. 	In ruling for the
plaintiff, the California Supreme Court overturned a contrary
court of appeal decision (Gomez v. Superior Court (1933) 134 Cal.
App. 19), holding that “the right to proceed in forma pauperis in
appropriate cases may not be denied on the ground that counsel for
the indigent plaintiff is representing [her] pursuant to a
contingent fee contract.” 	63 Cal. 2d at 165.
Notwithstanding Isrin’s specific and seemingly irrelevant (to
the matter before the court) holding, PFEL is binding and this
court must follow it if its holding applies.
In PFEL an attorney convinced the Ninth Circuit that his
prepetition legal work under a contingent fee contract,
representing 95% of the entire effort necessary to obtain a $10
million cash settlement (along with other consideration), was
secured by a lien on the fund that had been created by his
Case: 09-03176 Doc# 25 Filed: 09/01/10 Entered: 09/02/10 10:24:17 Page 2 of 5

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efforts. 	The reasonable value of his prepetition services were
not questioned; rather the creditors committee wanted the claim
relegated to prepetition unsecured status.
Here the sequence of events is different, and defendants are
defending payments they received rather than seeking to be paid,
but the analysis is similar. 	Defendants’ efforts took place
during the unsuccessful Chapter 11 case. 	The trustee wants to
recover post conversion (to Chapter 7) payments made to them; she
does not question the reasonableness of their claims or that if
surrendered to her, they would support unsecured Chapter 11
expenses of administration.
The PFEL court sustained the attorney’s claim of a lien on
the fund, first noting that California does not recognize a common
law attorneys’ charging lien. 	654 F. 2d at 668 (internal
citations omitted). 	Rather, interpreting Isrin, the court
instructed that the intent of the parties determines the type of
claim an attorney may assert against a fund the attorney’s efforts
created. 	Id., at 669. (“In essence, Isrin holds that if the
parties intend that the attorney look directly to the settlement
for payment, then a lien against that settlement is created in the
attorney’s favor.” 	Id.)
The court then referred to the district court’s determination
that the attorney was entitled to look to the fund he had helped
create, and thus was entitled to an equitable lien. 	Such a
determination necessarily included a finding of requisite intent,
even without use of the term “lien.” 	This finding was itself
supported by the evidence: the attorney had been hired, and the
first attorney terminated, because of the inability of the debtor
Case: 09-03176 Doc# 25 Filed: 09/01/10 Entered: 09/02/10 10:24:17 Page 3 of 5

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to pay fees “except from a fund generated by the litigation.” Id.
This court is unwilling to extend this principle to the
situation before it, namely real estate agents’ claims of lien on
funds received by their broker upon close of escrows handled
through the debtor’s brokerage. 	First, PFEL is about a
contingent fee arrangement between an attorney and a financially
constrained client. 	Of course, Isrin’s dictum is about an
indigent litigant’s relationship with her contingent fee attorney.
There is nothing in either case suggesting that a lien will be
implied outside of the attorney-client relationship.
Looking to the Independent Contractor Agreement, there is no
expressed or implied grant of a lien. 	If fact, there is a
disclaimer of any relationship between the broker and the agent
except as an independent contractor. 	And there is nothing that
suggests or implies that the agent is to be treated specially
because of any financial limitations of the broker. 	While the
right to a real estate commission is certainly almost always
dependent (perhaps even contingent) upon escrow closing and the
commission being paid by the seller and shared among participating
brokers and their respective agents, that arrangement has nothing
in common with the contingent nature of the fee for the attorney
who gambles his or her efforts on a litigation matter in an
attempt to recover a percentage of the recovery. 	The two
businesses - contingent fee attorney and real estate broker - have
little in common and certainly not enough to extend the PFEL lien
approach as defendants argue.
Finally, the very language of the Independent Contractor
Agreement undermines defendants’ theory. 	Paragraph 3(c) directs
Case: 09-03176 Doc# 25 Filed: 09/01/10 Entered: 09/02/10 10:24:17 Page 4 of 5

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the broker to transmit the agents’ share of any commission, but
allows the broker, by incorporation of Paragraph 6, to deduct fees
and other charges otherwise owing by the agent. 	This is
inconsistent with any lien or trust theory of recovery.
Similarly, the final sentence of Paragraph 3(c) allows the broker
to pay referral fees or shared commissions from commissions
received by it. 	Plainly the relationship between the broker and
the agent is one of debtor-creditor.
The debtor received its commission revenue and deposited it
its general bank account. 	In the normal course of business it
then paid agents their share of earned commissions. 	Those shares,
from receipt of the commission until payment of the agent’s share,
represented unsecured obligations of the debtor. 	This case is not
governed by the Ninth Circuit’s PFEL decision, and is more like
the situation presented in Oxford Management, Inc. v. Chiasson, 4
F. 3d 1329 (5th Cir. 1993).
Accordingly, payments to defendants after conversion to
Chapter 7 were unauthorized transfers of estate property that can
be recovered by the plaintiff trustee under Bankruptcy Code § 549.
She is entitled to summary judgment in her favor. 	Counsel for
plaintiff should serve and upload an order denying defendants’
motion and granting her counter-motion, and a judgment against
defendants for each of their respective post conversion transfers
that are the subject of this action.
***END OF MEMORANDUM DECISION***
Case: 09-03176 Doc# 25 Filed: 09/01/10 Entered: 09/02/10 10:24:17 Page 5 of 5