860 F.2d 1090
NOTICE: Ninth Circuit Rule 36-3 provides that dispositions other than opinions or orders designated for publication are not precedential and should not be cited except when relevant under the doctrines of law of the case, res judicata, or collateral estoppel.
In re WHITE SAVAGE ASSOCIATES, Debtor.
TRUSTEE SERVICES CORPORATION, Trustee, Plaintiff-Appellee,
IDANHA PROPERTIES GENERAL PARTNERSHIP, Defendant,
Calvin M. Jensen, Proposed Intervenor-Appellant.
United States Court of Appeals, Ninth Circuit.
Submitted July 14, 1988.*
Decided Oct. 12, 1988.
Before POOLE, CANBY and LEAVY, Circuit Judges.
Jensen appeals from a district court order denying his motion to intervene as of right under Fed.R.Civ.P. 24(a)(2), in an adversary action in a bankruptcy proceeding. We reverse and remand.
Jensen is a partner in White Savage Associates, a general partnership and the debtor in this bankruptcy proceeding. As a partner Jensen is liable to the White Savage's creditors, and he would be entitled to share in any surplus remaining after the creditors are paid. White Savage was a partner in Idanha Partnership, which, in turn, was a partner in Idanha Properties. Pursuant to a 1983 reorganization plan, White Savage withdrew from the partnerships in exchange for an agreement that Idanha Properties would make certain future payments. Because no payments were made, the trustee began an adversary action on August 5, 1986, to collect the full amount owed to White Savage, which by that time was approximately $320,000. By letter dated October 14, 1986, counsel for the trustee notified Jensen's counsel that the trustee was proceeding to compromise the controversy and informed him that Idanha Properties would make its financial documents available to Jensen and would facilitate interviews with its officers and employees. The letter also stated:
I understand you will undertake this review on an informal basis without formal intervention in the pending Adversary.... Should your discovery reveal any information that is relevant to a viable claim against the principals of the Partnership on either a fraud or breach of fiduciary duty claim, we can review and address it in the context of the Compromise Hearing.
A few days later Jensen requested that Idanha Properties provide copies of specified documents, but the record does not reveal whether he pursued discovery after sending that letter.
On December 12, 1986, the trustee filed a motion for approval of compromise of the controversy, based on its determination that Idanha Properties had minimal, if any, assets with which to satisfy the claim. On the same day, it gave notice to all interested parties, including Jensen, that it intended to compromise the claim for $10,000, informing them that a hearing would be held on January 14 and advising them of their right to file written objections at least five days in advance of the hearing. It was not until January 13, one day before the scheduled hearing, that Jensen filed an objection to the compromise and a motion to intervene.
The hearing was conducted by a magistrate on referral from the district court. Jensen's counsel appeared at the hearing and argued the opposition to the compromise and the motion to intervene. Jensen's opposition had three main points: 1) the value of the partnership property had been underestimated; 2) there was an outstanding offer to buy the property for $1.4 million; and, 3) the partnership property may have been so mismanaged as to constitute breach of fiduciary duty, making the individual partners liable to White Savage, and Idanha Properties' records did not give an accurate picture of its value. With respect to the last point, Jensen claimed that the trustee had not examined the questions and that he had been unable to determine the extent of the mismanagement because Idanha Properties never responded to his request for documents and interviews.
The magistrate filed his report on January 28, 1987, recommending approval of the compromise and denial of Jensen's motion to intervene. The report addressed each point raised in Jensen's opposition, finding that Jensen had failed to substantiate the first claim and that the offer to purchase the property was unacceptable because it did not include $1 million owed to other partners. As to the last point, the magistrate said that Jensen had presented no specific allegations to support his opinion that the property had been mismanaged, and that if there was any evidence he should have been able to point to it by that date. The motion to intervene was not addressed until the last paragraph of the report, which stated:
The remaining matter is Mr. Jensen's Motion to Intervene in the adversary action. If the compromise is accepted, the case is closed and intervention is no longer an issue. Since I have recommended the compromise be accepted, I would recommend the Motion to Intervene be denied.
The district court adopted the magistrate's report over Jensen's objections and entered an order approving the compromise and denying the motion to intervene, without further comment or explanation. Jensen appeals, arguing that his motion to intervene was timely and that he met the other requirements for intervention as of right under Fed.R.Civ.P. 24(a)(2).
An order to intervene as of right should be granted if: 1) the applicant's motion is timely; 2) the applicant has asserted an interest relating to the property or transaction which is the subject of the action; 3) the applicant is so situated that without intervention the disposition may, as a practical matter, impair or impede its ability to protect that interest; and, 4) the applicant's interest is not adequately represented by the existing parties. Fed.R.Civ.P. 24(a)(2); County of Orange v. Air California, 799 F.2d 535, 537 (9th Cir.1986), cert. denied, 107 S.Ct. 1605 (1987). Three factors are weighed in determining timeliness: 1) the stage of the proceeding at which an applicant seeks to intervene; 2) the prejudice to other parties; and, 3) the reason for the length of the delay. Id. The fact that a potential intervenor waits until after the parties have reached an agreement weighs heavily against intervention. Id. at 538.
Except for the issue of timeliness, denial of a motion to intervene is reviewed de novo because it usually involves application of the above stated rules to established facts. County of Orange, 799 F.2d at 537. The issue of timeliness is reviewed for abuse of discretion. Id.
Had the district court, after weighing the relevant factors, out determined that Jensen's motion to intervene was untimely, we would have given strong consideration to the denial of the motion on that ground. Based on the record before us, it clearly would have been a close question as to abuse of discretion. However, we can find no indication that either the magistrate or the district court ever weighed the timeliness factors. Failure to consider the relevant factors is an abuse of discretion. Central Valley Typographical Union, No. 46 v. McClatchy Newspapers, 762 F.2d 741, 748-49 (9th Cir.1985). The court's only stated reason for denying the motion to intervene is that intervention was "no longer an issue" should the compromise be approved as recommended by the magistrate. The trustee's motion for approval of the compromise and Jensen's motion to intervene were simultaneously pending, but the court chose to render Jensen's motion moot by ruling on the compromise first. Denial of Jensen's motion for that reason was not proper. See Garrett v. City and County of San Francisco, 818 F.2d 1515, 1519 (9th Cir.1987) (court failed to exercise its discretion when it first granted summary judgment and then denied a pending discovery motion as moot). The district court ought first have determined whether Jensen's motion was timely, and, if so, whether it was meritorious.
Whether the district court considered the timeliness factors without explicitly discussing them, we cannot glean from this record. Either the district court must state the reasons for its discretionary decisions or it must be clear from the record that its exercise of discretion was based on consideration of the relevant factors. Insurance Co. of North America v. Moore, 783 F.2d 1326, 1328 (9th Cir.1986). Otherwise, we cannot review the decision for "abuse of discretion," and we must remand. Id. Because neither alternative was met in this case, we cannot affirm denial of Jensen's motion on timeliness grounds.
Timeliness of the motion is merely a threshold requirement for intervention as of right. If it could be determined from established facts of record that Jensen failed to meet the other three requirements, a question which we review de novo, denial of the motion on that ground might be appropriate. See Thos. P. Gonzalez Corp. v. Consejo Nacional de Produccion de Costa Rica, 614 F.2d 1247, 1256 (9th Cir.1980) (not only 'may' we affirm on any ground squarely presented in the record, we 'must' affirm correct decisions even if the lower court relied upon a wrong ground or gave a wrong reason).
To reiterate, the other requirements for intervention as of right under Rule 24(a)(2) are: 1) the applicant has asserted an interest relating to the property or transaction which is the subject of the action; 2) the applicant is so situated that without intervention the disposition may, as a practical matter, impair or impede its ability to protect that interest; and, 3) the applicant's interest is not adequately represented by the existing parties. County of Orange, 799 F.2d at 537. Jensen clearly met the first requirement; we cannot determine whether he met the other two.
Whether denial of intervention would impair or impede Jensen's ability to protect his interest depends, primarily, on whether he needed formal discovery. Without intervention Jensen was represented by counsel and participating to some extent in the action, having been afforded some informal discovery. He claims, however, that this was inadequate. We simply cannot determine from the record before us the validity of this claim.
Nor is it clear that Jensen's interests were adequately represented by the trustee. A person seeking intervention has only a minimal burden of showing that representation of his interests by the existing parties "may be" inadequate. Legal Aid Society of Alameda Co. v. Dunlop, 618 F.2d 48, 50 (9th Cir.1980). The factors considered in determining the adequacy of representation include: 1) whether the interests of a present party are sufficiently similar to that of the absentee such that the legal arguments of the latter will undoubtedly be made by the former; 2) whether the present party is capable of and willing to make such arguments; and 3) whether the intervenor offers a necessary element to the proceedings that would not be covered by the parties. Sagebrush Rebellion, Inc. v. Watt, 713 F.2d 525, 528 (9th Cir.1983); Blake v. Pallan, 554 F.2d 947, 954-55 (9th Cir.1977).
On the surface these factors weigh inconclusively against Jensen. To some extent he and the trustee shared the same ultimate objective of maximizing the recovery for the estate. Jensen sought to reduce or eliminate the shortfall to creditors for which he would be liable as a partner of the debtor, and the trustee sought to maximize the amount available to pay the creditors. See In re Rigden, 795 F.2d 727, 730 (9th Cir.1986) (trustee has fiduciary obligation to conserve assets and maximize distribution to creditors); Heyman v. Exchange Nat'l Bank of Chicago, 615 F.2d 1190, 1194 (7th Cir.1980) (debtor's interest in maximum recovery may differ in size but not in kind from the interest of creditors). We have considered Jensen's arguments that the trustee did not adequately represent his interest; at least one is meritorious.
One argument that raises question is based on Trbovich v. United Mine Workers of America, 404 U.S. 528, 538-39 (1972), where the Supreme Court held that a union member had a right to intervene in an action brought by the Secretary of Labor to set aside an election of union officers. The Secretary had a duty to act as the union member's lawyer for purposes of enforcing his rights against the union, but he also had a duty to protect public interest in free and democratic union elections--an interest which transcended the interest of the complaining union member. Even if the Secretary performed these dual duties as well as could be expected, the union member might have a valid complaint about representation of his interests. That was enough to warrant relief in the form of intervention. Id. at 539.
Jensen argues that a similar potential for conflict arises here because the trustee had not only a duty to maximize the recovery for the estate, but also a statutory duty to "close such estate as expeditiously as is compatible with the best interests of the parties in interest." 11 U.S.C. Sec. 704(1). This is not necessarily a potential for conflict similar to that in Trbovich, because the statute is specific that the duty to close expeditiously does not transcend the interests of the parties in interest. Nonetheless, before the motion to intervene could properly be denied on the grounds that the trustee adequately represented Jensen's interest, Jensen should have been given an opportunity to show that in this particular case the trustee's duty to close the estate expeditiously conflicted with his own interests. We are unwilling to affirm on this ground without allowing Jensen to develop this aspect of the record.
The appellees urge two additional grounds for affirming. First, they argue that the appeal is moot because Jensen appealed only from the denial of his motion to intervene and not from the concurrent final judgment disposing of the action. This is incorrect. Jensen appealed from the entire judgment, without limitation. It was not necessary that he explicitly argue the merits of the compromise in his opening brief. The very purpose of seeking to intervene was to put him in a better position to oppose the compromise in district court.
Second, appellees contend that Jensen's motion to intervene failed to comply with the five-day notice rule under Fed.R.Civ.P. 24(c) and Fed.R.Civ.P. 6(d). This is correct, but the district court may set a shorter time for notice when no prejudice will result. Fed.R.Civ.P. 6(d); United States v. Weinberg, 439 F.2d 743, 747 (9th Cir.1971). Here, the magistrate's consideration of the motion, without rejecting it for non-compliance with the five-day notice requirement, acted to shorten the time under Fed.R.Civ.P. 6(d). See Weinberg, 439 F.2d at 746-47.
It was error for the district court to deny Jensen's motion as moot, and the established facts are insufficient for us to affirm on any other ground. Accordingly, we REVERSE and REMAND to the district court with directions to reconsider the issue of timeliness, and, if necessary, to determine whether Jensen met the other requirements for intervention as of right under Fed.R.Civ.P. 24(a)(2).
LEAVY, Circuit Judge, dissenting:
I dissent. According to the appellant's brief, it was clear before the adversary action was initiated that the trustee intended to compromise the claim for $10,000. The adversary proceeding was filed on August 5, 1986. On December 12, 1986, the debtor was given notice of the trustee's intent to compromise and notice of a hearing to be held January 14, 1987. In a single paper filed a day before the scheduled hearing, the appellant objected to the trustee's intent to compromise and moved to intervene.
I think the record shows that the magistrate evaluated the timeliness factors we require be considered in motions to intervene. The factors are: the stage of the proceedings, the prejudice to other parties, and the reason for the delay. County of Orange v. Air Cal., 799 F.2d 535, 537 (9th Cir.1986). See Fed.R.Civ.P. 24(a)(2).
The magistrate noted that Jensen's objection was untimely but proceeded to consider the merits of his objection and recommended that the compromise be accepted. The magistrate also found that Jensen had ample time and opportunity to engage in discovery to substantiate his claims of mismanagement.
Mr. Jensen presented to the magistrate no suggested reason for his delay in moving to intervene. After the magistrate recommended denial of his intervention and knowing that the magistrate had noted that his objections were untimely, Jensen gave no reason for his delay. The burden was on Mr. Jensen to explain his delay. County of Orange, 799 F.2d at 538. Jensen made no explanation of the delay until he reached page five of his reply brief in this court, where he said:
The first indication on the record of this case that a compromise was in the offing was Trustee's Notice of Compromise. (Excerpt of Record, p. 28.) Until that time, Jensen could not have intervened, because his Motion to Intervene would have been judged on the record in the adversary proceeding at the time the Motion was made, and not on Jensen's knowledge of Trustee's off the record announcements that Trustee intended to compromise the claim.
The record as presented to the district judge showed a compelling reason for denial of the motion to intervene. It was so untimely that the merits of his objection were about to be decided. Even at this stage of the proceedings, it looks as if he is only interested in opposing the compromise. He has been heard on that issue.
The panel unanimously finds this case appropriate for submission without oral argument pursuant to Ninth Circuit Rule 34-4 and Federal Rule of Appellate Procedure 34(a)
This disposition is not appropriate for publication and may not be cited to or by the courts of this circuit except as provided by Ninth Circuit Rule 36-3