Opinion
NOT FOR PUBLICATION
Argued and Submitted at San Francisco, California: June 16, 2011
Appeal from the United States Bankruptcy Court for the Eastern District of California. Bk. No. 07-28444, Adv. No. 09-2576. Honorable David E. Russell, Bankruptcy Judge, Presiding.
Celia R. Bernal, Attorney at Law, argued for the Appellants.
Daniel L. Egan of Wilke, Fleury, Hoffelt, Gould & Birney, LLP, argued for the Appellee.
Before: HOLLOWELL, PAPPAS, and JURY, Bankruptcy Judges.
This disposition is not appropriate for publication. Although it may be cited for whatever persuasive value it may have (see Fed. R. App. P. 32.1), it has no precedential value. See 9th Cir. BAP Rule 8013-1.
Micro Medical Management Consulting, Inc. (Micro Medical) and Life Pharmaceutical Management Group, Inc. (Life Pharmaceutical) (collectively, the Appellants) appeal the bankruptcy court's denial of their request to continue a trial on whether certain transfers made to the Appellants by OccMeds Billing Services, Inc. (OccMeds) could be recovered as fraudulent transfers. Additionally, they argue the bankruptcy court erred in allowing two of OccMeds' exhibits into evidence during the trial. We AFFIRM.
The record on appeal is scant. Therefore, the " facts" in this section are largely taken from the parties' opening briefs on appeal and documents we retrieved from the bankruptcy court's electronic docket. See O'Rourke v. Seaboard Sur. Co. (In re E.R. Fegert, Inc.), 887 F.2d 955, 957-58 (9th Cir. 1989) (noting that the appellate court may take judicial notice of items of record).
In 2006, OccMeds was in the business of purchasing medical workers' compensation claims from Micro Medical and Life Pharmaceutical. Under a July 2006 contract, Life Pharmaceutical sold OccMeds certain insurance claims. OccMeds immediately paid Life Pharmaceutical approximately 50% of the value of the sold claims and then billed the insurance company for the claims and kept the remaining collections. OccMeds and Micro Medical executed a similar contract in August 2006.
Over the next several months, the contracts were re-negotiated twice due to issues that arose between the parties regarding the exchange of information, documentation, and payments. The renegotiated contracts (Contracts) continued the same agreement whereby OccMeds paid a percentage of the claims and retained whatever it collected on the claim; however, the parties altered the percentages paid and the procedures for transferring and paying the claims. At some point in 2007, OccMeds did not make payments to Micro Medical or Life Pharmaceutical under the Contracts. Micro Medical filed a state court action, alleging breach of contract for OccMeds' failure to pay more than $500,000 on transferred claims (the State Action).
On October 10, 2007, OccMeds filed for chapter 11 relief. On September 11, 2009, OccMeds filed a complaint against the Appellants for the avoidance and recovery of fraudulent transfers pursuant to § § 544, 548 and 550 (the Complaint). OccMeds alleged that within the two years before OccMeds filed its bankruptcy case, and during a period when OccMeds was insolvent, OccMeds paid the Appellants for medical claims that turned out to be invalid, uncollectible and worthless. The Appellants filed an Answer to the Complaint denying the allegations and asserting various affirmative defenses including the failure to mitigate, that the payments were made in the ordinary course of business and with reasonable business justification, unclean hands, and estoppel.
Unless otherwise indicated, all chapter and section references are to the Bankruptcy Code, 11 U.S.C. § § 101-1532. All " Rule" references are to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037.
On December 16, 2009, the bankruptcy court held a status conference on the Complaint and set a trial date for June 7, 2010 (the Trial). Before the Trial, both OccMeds and the Appellants filed exhibits and direct testimony of their witnesses (Mr. Morrell and Mr. Brodie for OccMeds and Mr. Sorat for the Appellants) through declarations pursuant to Local Rule 9017-1. OccMeds filed objections to certain testimony of Mr. Sorat and some of the Appellants' exhibits. The Appellants did not file any objections to OccMeds' direct testimony or exhibits.
On the day of the Trial, the Appellants' counsel appeared and requested a continuance on the basis that Mr. Sorat's son recently had emergency surgery and Mr. Sorat could not attend the Trial. The Appellants had alerted OccMeds of the situation the Friday before the Monday Trial and asked OccMeds to stipulate to continue the Trial. OccMeds requested verification of the medical situation. The morning of the Trial, the Appellants provided the verification in the form of an email ostensibly sent by a physician affiliated with a Weight Loss Center who stated " Mr. Sorat's child was temporarily disabled until June 9, and was under the care of his parents." There was no indication from the email (or from the Appellants) as to the nature of the medical situation, the age of the child, or whether the child was out of the city or state. While sympathetic, the bankruptcy court found that the continuance was unwarranted because there was " no indication . . . that there wasn't some alternative way of handling the matter." Trial Tr. (June 7, 2010) at 4-7.
A copy of the doctor's email is not in the record. The content of the email was read to the bankruptcy court.
The bankruptcy court then addressed OccMeds' objections to Mr. Sorat's testimony and the Appellants' exhibits as " beneficial . . . to go through . . . because it might be possible still to take part of [Mr. Sorat's] direct testimony into evidence." Trial Tr. at 8:1-6. The bankruptcy court subsequently sustained OccMeds' objections to the Appellants' evidence. It also ultimately admitted all of OccMeds' exhibits, including two particular exhibits, K and L, which were computer spreadsheets that summarized the uncollectible claims OccMeds bought from the Appellants, and which were the subject of the Appellants' repeated assertion that they were inadmissible because they lacked proper foundation (Exhibits K and L are collectively referred to as the Spreadsheets).
Exhibits K and L are not included in the record. The description of the Spreadsheets had to be gleaned from the Trial transcript, only excerpts of which were provided in the appellate record.
The bankruptcy court made its ruling on the record at the close of the Trial. It determined that the elements of fraudulent transfer were satisfied because it found that the Appellants received payment from OccMeds for claims that were invalid and uncollectible during a period when OccMeds was insolvent. Based on the figures and information presented by OccMeds in the Spreadsheets, the bankruptcy court determined the amount of the recovery to be $204,873. A judgment was entered on September 1, 2010, against Micro Medical for the avoidance and recovery of fraudulent transfers in the amount of $204,669, and against Life Pharmaceutical in the amount of $204 (the Judgment). The Appellants timely appealed.
II. JURISDICTION
The bankruptcy court had jurisdiction pursuant to 28 U.S.C. § 157(b)(1) and (b)(2)(H). We have jurisdiction under 28 U.S.C. § 158.
III. ISSUES
1. Did the bankruptcy court err in denying the Appellants' request to continue the Trial?
2. Did the bankruptcy court err in admitting the Spreadsheets?
IV. STANDARDS OF REVIEW
The decision to grant or deny a requested continuance lies within the broad discretion of the trial court, and " will not be disturbed on appeal absent clear abuse of that discretion." United States v. Flynt, 756 F.2d 1352, 1358 (9th Cir. 1985) (A clear abuse of discretion exists if the denial was arbitrary or unreasonable.); see also, United States v. Kloehn, 620 F.3d 1122, 1126-27 (9th Cir. 2010) (same).
Evidentiary rulings are reviewed for an abuse of discretion. Kulas v. Flores, 255 F.3d 780, 783 (9th Cir. 2001); Am. Express Travel Related Servs. Co., Inc. v. Vee Vinhnee (In re Vee Vinhnee), 336 B.R. 437, 442-43 (9th Cir. BAP 2005).
A bankruptcy court abuses its discretion when it applies the incorrect legal rule or its application of the correct legal rule is " (1) illogical, (2) implausible, or (3) without support in inferences that may be drawn from the facts in the record." United States v. Loew, 593 F.3d 1136, 1139 (9th Cir. 2010), quoting United States v. Hinkson, 585 F.3d 1247, 1261-62 (9th Cir. 2009) (en banc).
V. DISCUSSION
A. The Bankruptcy Court Did Not Abuse Its Discretion In Denying The Request To Continue.
There is no mechanical test for determining when a denial of a continuance is a clear abuse of discretion; it involves a case-by-case analysis. United States v. Kloehn, 620 F.3d at 1127. Four factors are considered when reviewing denials of requests for continuances: (1) the extent of the appellant's diligence in his efforts to ready his defense prior to the date set for hearing; (2) how likely it is that the need for a continuance could have been met if the continuance had been granted; (3) the extent to which granting the continuance would have inconvenienced the court and the opposing party, including its witnesses; and (4) the extent to which the appellant might have suffered harm as a result of the denial of the continuance. United States v. Flynt, 756 F.2d at 1358-59 (internal citations omitted). In order to obtain a reversal of the bankruptcy court's denial of the request for continuance, the Appellants must demonstrate that, at a minimum, they suffered prejudice as a result of the denial. Id . at 1359.
The Appellants argue they were prejudiced by the denial of the continuance because they were unable to have Mr. Sorat be cross-examined or have components of his direct testimony considered by the bankruptcy court. Additionally, they contend their exhibits were not admitted because of Mr. Sorat's inability to authenticate them. Finally, they contend they were unable, without Mr. Sorat's presence, to present evidence in response to OccMeds' testimony or exhibits.
The Appellants, however, do not provide specific examples of how their exhibits or Mr. Sorat's testimony were critical to their defense. See e.g., id. at 1359 n.7 (The showing a party must make when seeking a continuance to obtain absent witnesses includes the substance and relevance of the desired testimony). They also did not provide in the record on appeal the direct testimony declarations, Trial exhibits, or full transcript of the Trial proceedings, which limits our ability to fully understand the evidence submitted to the bankruptcy court.
A review of the bankruptcy court's electronic docketing system reveals that while the Appellants' Trial briefs and the direct testimony of Mr. Sorat are available for review, the exhibits are not. Additionally, OccMeds' declarations and exhibits, apparently filed with the bankruptcy court on May 20, 2010, are not docketed.
From the parties' appellate briefs and the Trial transcript, it seems that the Appellants took the position that under the terms of the Contracts, OccMeds should have notified them of any invalid claims so that the Appellants could either attempt the collection themselves or reimburse OccMeds on the claim. This appears to form the basis of the Appellants' defense: " Without evidence to support [OccMeds has] complied with the contractual terms, OccMeds cannot prevail." Appellants' Opening Br. at 7. However, because performance under the Contracts is not an element to be considered when determining if a fraudulent transfer has occurred, the bankruptcy court correctly found that evidence related to the Contracts was irrelevant.
OccMeds' objections to the portions of Mr. Sorat's declaration related to Micro Medical's State Action and its breach of contract claim. The bankruptcy court sustained the objections because it found (1) that the reasons for the renegotiation of the Contracts were not relevant to the issue of whether there was a fraudulent transfer and (2) Mr. Sorat's declaration testimony regarding the nature of the State Action could be " available to offset a claim if it turns out that [OccMeds'] claim is not a fraudulent transfer, " but that " the existence of prepetition obligations just isn't relevant" to whether fraudulent transfers were made. Trial Tr. (June 7, 2010) at 9-10. It appears, however, that the balance of Mr. Sorat's direct testimony was admitted.
OccMeds' objections to two of the Appellants' exhibits also related to the State Action. The bankruptcy court found that one of the exhibits was irrelevant as it was the complaint in the State Action and the other exhibit (ostensibly listing the amount of money that OccMeds owed Micro Medical as the basis for the state court complaint) was illegible and irrelevant. Thus, the two objectionable exhibits were excluded solely on relevancy grounds and not due to Mr. Sorat's inability to authenticate them.
On appeal, the Appellants argue that without Mr. Sorat's presence, the " end result was a one-sided trial devoid of a fair presentation of balanced evidence." However, the bankruptcy court noted that it was " quite impressed with [the Appellants], not having [their] client present and yet [they] did a good job of attacking the plaintiff's case." Trial Tr. (June 7, 2010) at 103:7-11. The direct testimony of Mr. Sorat was largely considered by the bankruptcy court, along with all but two of the Appellants' exhibits. Furthermore, the Appellants had the ability to cross-examine OccMeds' witnesses and make objections to OccMeds' exhibits; it is not clear what benefit Mr. Sorat's testimony would have provided in that endeavor. Thus, the Trial was not one-sided. The Appellants were able to put forward an adequate defense despite Mr. Sorat's absence. Consequently, the Appellants have not been able to demonstrate that they were prejudiced by the denial of the continuance and no reversal is required.
Moreover, the bankruptcy court's reasons for not continuing the Trial were not unreasonable under the circumstances. While the Appellants appear to have sought the continuance as soon as practicable, the nature of the alleged medical situation was not established. The email from the physician merely stated that Mr. Sorat's child was temporarily disabled and was under the care of his parents. The bankruptcy court was ready for the Trial, having spent time reviewing all the pretrial briefs, declarations, and exhibits. OccMeds was also fully prepared for the Trial, appearing with three witnesses. Therefore, it would have been inconvenient to them and to the bankruptcy court to continue the Trial, particularly because the bankruptcy court found that, based on the email and representations made by the Appellants' counsel, there was no indication that there was no alternative method of handling the medical situation that could have allowed Mr. Sorat to appear for Trial. As a result, we conclude that the bankruptcy court did not abuse its discretion in denying the continuance.
B. The Bankruptcy Court Did Not Abuse Its Discretion In Admitting the Spreadsheets.
To reverse an evidentiary ruling, we must conclude that the bankruptcy court both abused its discretion and that the error was prejudicial. Latman v. Burdette, 366 F.3d 774, 786 (9th Cir. 2004); Fed.R.Evid. 103(a).
The Appellants argue that OccMeds failed to lay a proper foundation for the Spreadsheets but do not cite to any legal authority to support their contention that the Spreadsheets failed to meet admissibility standards. They merely argue that the Spreadsheets were manipulated and unreliable. The Appellants assert that without the Spreadsheets, OccMeds had no basis for recovery; however, they do not explain how the Spreadsheets related to the fraudulent transfer claim. They make no argument as to how they were prejudiced by the admission of the Spreadsheets beyond a conclusory statement that " the outcome of the Trial would be different" if OccMeds could not rely on the Spreadsheets to support their fraudulent transfer claim.
Although the Appellants identified the Spreadsheets as " the underpinning" of the judgment against them, the Spreadsheets themselves are not included in the record. Based on the testimony elicited at the Trial, they appear to be computer printouts of claim information pulled from OccMeds' database that summarized the amounts that OccMeds paid to Micro Medical (Exhibit K) and Life Pharmaceutical (Exhibit L) for claims, which OccMeds recorded as uncollectible. They support OccMeds' fraudulent transfer claim by demonstrating the payments on claims for which they did not receive reasonably equivalent value.
Business records may be introduced into evidence as long as the proponent lays a foundation through testimony that the documents were (1) made in the regular practice of business, (2) prepared from a source or method that is trustworthy, (3) kept in the regular course of business, (4) made by a person with knowledge, and (5) made at or near the time of the event. Fed.R.Evid. 803(6); In re Vee Vinhnee, 336 B.R. at 444. Furthermore, computer print-outs reflecting data stored in a computer may qualify as an admissible business record if it is established that the data stored in the computer is an accurate account of admissible business records and the computer printout accurately reflects the stored data. See U-Haul Int'l v. Lumbermens Mut. Cas. Co., 576 F.3d 1040, 1043-44 (9th Cir. 2009) (printouts prepared for litigation from databases that were compiled in the ordinary course of business are admissible as business records to the same extent as if the printouts themselves were prepared in the ordinary course of business).
Fed.R.Evid. 803(6) provides that the following is not excluded from evidence under the hearsay rule:
Eleven specific criteria have been identified as satisfying a foundation for computer records:
During the Trial, the Appellants objected several times to the Spreadsheets based on a lack of foundation--questioning how they were prepared and how the data was entered in order to understand their accuracy. The bankruptcy court repeatedly sustained the objections but also allowed OccMeds and the Appellants to continue examining Mr. Morrell regarding the Spreadsheets. The bankruptcy court ultimately found that there was sufficient " further explanation as to how [the Spreadsheets were] prepared. I am now satisfied that [they] are reliable and should be admitted." Trial Tr. at 73:1-7.
The bankruptcy court's determination that the Spreadsheets were admissible was not illogical, implausible, or unsupported by the record. Mr. Morrell testified that the Spreadsheets contained data regarding the claims it purchased from the Appellants, including the amount of money paid and the history of collection (or non-collection) on the claim. The Spreadsheets contained the data only for the claims that OccMeds was unable to collect. Mr. Morrell's testimony revealed that the Spreadsheets were a summary version of the entire claims report contained in OccMeds' computer database and maintained in the ordinary course of business. He testified that OccMeds' computer database collects the historical data on each claim purchased, including codes for the reason a claim is denied or paid by the insurance company, and that he prepared the Spreadsheets based on queries that sorted the billing records in the OccMeds' database by date, provider, and uncollected claims.
Additionally, Mr. Morrell testified that the database was specifically designed for OccMeds and was a secure system. He testified that the system had been tested for bugs or blips and that he had spot-checked the extracted data for accuracy. He described how the claims were identified and extracted. Finally, he testified that the information regarding the claims was tracked as the information was received in the ordinary course of business. Based upon this testimony, the bankruptcy court's determination that a proper foundation was established and the Spreadsheets satisfied the criteria for the admission of computer business records was not an abuse of discretion.
VI. CONCLUSION
The Appellants did not demonstrate that they were prejudiced by the bankruptcy court's rulings to deny a continuance of the Trial or to admit the Spreadsheets. Furthermore, the bankruptcy court's findings supporting its decisions were not illogical, implausible, or unsupported by inferences from the evidentiary record. Accordingly, we AFFIRM.
A memorandum, report, record, or data compilation, in any form, of acts, events, conditions, opinions, or diagnoses, made at or near the time by, or from information transmitted by, a person with knowledge, if kept in the course of a regularly conducted business activity, and if it was the regular practice of that business activity to make the memorandum, report, record or data compilation, all as shown by the testimony of the custodian or other qualified witness . . . unless the source of information or the method or circumstances of preparation indicate lack of trustworthiness.
1. The business uses a computer; 2. The computer is reliable; 3. The business has developed a procedure for inserting data onto the computer; 4. The procedure has built-in safeguards to ensure accuracy and identify errors; 5. The business keeps the computer in a good state of repair; 6. The witness had the computer readout certain data; 7. The witness used the proper procedures to obtain the readout; 8. The computer was in working order at the time the witness obtained the readout 9. The witness recognizes the exhibit as the readout; 10. The witness explains how he or she recognizes the readout; and, 11. If the readout contains symbols, the meaning of those symbols are explained.
See In re Vee Vinhnee, 336 B.R. at 446.