MEYERS LAW GROUP, P.C., a professional corporation v. DIVERSIFIED REALTY SERVICES, INC., a California corporation

NOT FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
MEYERS LAW GROUP, P.C., a
professional corporation,
Plaintiff - Appellee,
v.
DIVERSIFIED REALTY SERVICES,
INC., a California corporation,
Defendant - Appellant.
No. 14-15397
D.C. Nos. 3:13-cv-03965-WHA
3:13-cv-03966-WHA
MEMORANDUM*
Appeal from the United States District Court
for the Northern District of California
William Alsup, District Judge, Presiding
Argued and Submitted March 16, 2016
San Francisco, California
Before: FERNANDEZ, GOULD, and FRIEDLAND, Circuit Judges.
Diversified Realty Services, Inc. (“Diversified”) appeals the district court’s
judgment in favor of Meyers Law Group, P.C. (“Meyers”), which served as
bankruptcy counsel for Greg James Ventures, a car dealership that entered chapter
FILED
APR 04 2016
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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11 bankruptcy. Diversified provided financing to Greg James Ventures pursuant to
a debtor-in-possession loan agreement. On February 24, 2012, Meyers filed an
adversary proceeding in bankruptcy court alleging that Diversified breached a
subordination clause in the loan agreement. According to Meyers, the
subordination clause required Diversified to set aside three repayments it received
from Greg James Ventures in January, February, and April 2008, for payment of
Meyers’s legal fees.
The bankruptcy court held on partial summary judgment that Diversified
breached the subordination clause. After trial, it held that the four-year statute of
limitations barred Meyers’s claim to the January and February 2008 repayments.
Meyers filed its complaint more than four years after Diversified’s receipt of these
repayments, which the bankruptcy court considered the date of the breach. The
parties cross-appealed to the district court, which affirmed on the breach issue but
found that the statute of limitations was not a bar to recovery because it did not
start to run until April 30, 2008, the date when the bankruptcy court approved
Meyers’s fees. We affirm the district court’s judgment.
The bankruptcy court and the district court both correctly determined that
Diversified subordinated its lien to Meyers’s fees and expenses. Section 2.13 of
the loan agreement explicitly made Diversified’s right to repayment subordinate to
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the rights of professionals to be paid fees for their work on behalf of Greg James
Ventures. The correspondence between Diversified and Meyers shows that the
parties intended the subordination provision to give Meyers’s fees and expenses
priority over loan repayments. Diversified contends on appeal that the
subordination clause was meant to apply only to collateral, not to repayments, but
we reject this distinction. Nothing in the record suggests that the cash for the
repayments was derived from anything other than sale of collateral, such as Greg
James Ventures’s cars. If Diversified’s interpretation were correct, the
subordination clause would be rendered a nullity: if Greg James Ventures sold all
of its assets and used the cash to repay Diversified’s loan, under Diversified’s
reading Diversified would keep all of the payments with nothing accruing to
Meyers because the cash would be “repayments,” not “collateral” per se. Although
Diversified later re-advanced to Greg James Ventures the payments it received,
that does not alter Meyers’s priority over the loan repayments.
Another part of the loan agreement, section 2.14, stated that Diversified was
not obligated to pay the fees and costs of counsel for Greg James Ventures. Both
the bankruptcy court and the district court were correct that this section does not
change Diversified’s obligation to Meyers. Section 2.14 does not curtail
Diversified’s obligation to reimburse a beneficiary of the subordination clause,
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even if the amount to be reimbursed represents attorneys’ fees. As the district
court concluded, this dispute “is an inter-creditor issue and not the shifting of
attorneys’ fees.”
We also affirm the district court’s conclusion that the statute of limitations
began running on April 30, 2008, when the bankruptcy court approved Meyers’s
fees. The subordination clause requires that Diversified’s lien be subordinated to
prior payment of such fees and expenses of professionals retained by debtor Greg
James Ventures “as are allowed by the Court.” Meyers brought its adversary
proceeding in February 2012, within four years of the breach. Meyers’s recovery
of the January and February 2008 repayments is not time-barred.
Meyers has changed its position on the timing of the breach over the course
of this litigation. Meyers first contended that Diversified breached the agreement
on the dates it received the repayments from Greg James Ventures; later it argued
that the breach occurred only after the bankruptcy court approved its fees.
However, that change in position does not preclude us from affirming. Despite
what it contended at earlier stages of litigation, Meyers is correct that Diversified
breached the loan agreement once the bankruptcy court approved Meyers’s fees.
Nor is Meyers judicially estopped from making this claim. The bankruptcy court’s
finding that Diversified breached the loan agreement was not contingent on the
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breach happening before April 2008. Meyers gained no unfair advantage, and
Diversified suffered no unfair detriment, from Meyers’s earlier contention. See
Milton H. Greene Archives, Inc. v. Marilyn Monroe LLC, 692 F.3d 983, 994 (9th
Cir. 2012).
AFFIRMED.
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