                                                              FILED
                           NOT FOR PUBLICATION                 JUN 02 2017
 1
                                                          SUSAN M. SPRAUL, CLERK
 2                                                           U.S. BKCY. APP. PANEL
                                                             OF THE NINTH CIRCUIT
 3                  UNITED STATES BANKRUPTCY APPELLATE PANEL
 4                            OF THE NINTH CIRCUIT
 5   In re:                        )        BAP No. AZ-16-1337-JuLB
                                   )
 6   ERIK SAMUEL DE JONG and       )        Bk. No. 2:14-bk-00886-PS
     DARYL LYNN DE JONG,           )
 7                                 )
                    Debtors.       )
 8   ______________________________)
     ERIK SAMUEL DE JONG; DARYL    )
 9   LYNN DE JONG,                 )
                                   )
10                  Appellants,    )
                                   )
11   v.                            )        M E M O R A N D U M*
                                   )
12   JLE-04 PARKER, LLC,           )
                                   )
13                  Appellee.      )
     ______________________________)
14
                      Argued and Submitted on May 18, 2017
15                             at Phoenix, Arizona
16                            Filed - June 2, 2017
17              Appeal from the United States Bankruptcy Court
                          for the District of Arizona
18
               Honorable Paul Sala, Bankruptcy Judge, Presiding
19                    _____________________________________
20   Appearances:     Michael W. Carmel argued for appellants Erik
                      Samuel de Jong and Daryl Lynn de Jong; Lindsi M.
21                    Weber of Gallagher & Kennedy argued for appellee
                      JLE-04 Parker, LLC.
22                    _____________________________________
23   Before:   JURY, LAFFERTY, and BRAND, Bankruptcy Judges.
24
25
26       *
          This disposition is not appropriate for publication.
27 Although it may be cited for whatever persuasive value it may
   have (see Fed. R. App. P. 32.1), it has no precedential value.
28 See 9th Cir. BAP Rule 8024-1.

                                      -1-
 1            Appellants-debtors, Erik Samuel de Jong (Erik) and Daryl

 2   Lynn de Jong (collectively, Debtors), operated a dairy farm on

 3   real property leased from chapter 111 debtor Sonora Desert

 4   Dairy, LLC (Sonora Desert).     During Sonora Desert’s bankruptcy,

 5   the property was foreclosed upon and sold at a trustee’s sale to

 6   appellee-creditor, JLE-04 Parker, LLC (JLE), thereby

 7   extinguishing Debtors’ leasehold interest under Arizona law.

 8   Debtors refused to vacate the property.

 9           JLE filed a forcible entry and detainer proceeding (FED)

10   against Debtors in the Arizona state court.     On the eve of

11   trial, Debtors filed a chapter 11 petition.     After JLE obtained

12   relief from the automatic stay, the state court found Debtors’

13   leasehold interest was extinguished by the trustee’s sale.       JLE

14   then sought relief in the bankruptcy court to have Debtors

15   vacate the property.     Debtors contended that they needed months

16   to move their cows and silage (feed) off the property.     JLE

17   objected, asserted Debtors were trespassers, and claimed

18   millions of dollars in damages for Debtors’ conscious and

19   continuing trespass, which were embodied in a proof of claim

20   (POC).     The POC sought damages of $8,863,250.00, which included,

21   among other things, restitution damages for disgorgement of

22   profits.     JLE later filed an Application for Administrative

23   Priority Claim (Administrative Claim) for $7,900,000.00 for

24   damages allegedly incurred due to Debtors’ postpetition

25
         1
26        Unless otherwise indicated, all chapter and section
   references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532,
27 “Rule” references are to the Federal Rules of Bankruptcy
   Procedure, and “Civil Rule” references are to the Federal Rules
28 of Civil Procedure.

                                      -2-
 1   trespass.

 2            After Debtors objected to JLE’s POC and Administrative

 3   Claim, the matter proceeded to trial to liquidate JLE’s damages.

 4   In a memorandum decision, the bankruptcy court concluded that

 5   JLE had a prepetition claim for $558,716.24 and a postpetition

 6   administrative claim for $1,517,069.64.      JLE filed a motion for

 7   clarification on the calculation of damages, and Debtors filed a

 8   motion for reconsideration.      The bankruptcy court granted JLE’s

 9   motion in part and denied Debtors’ motion.      On September 30,

10   2016, the bankruptcy court entered an amended order on JLE’s POC

11   finding that JLE had a prepetition claim in the amount of

12   $579,072.51 and a postpetition administrative claim for

13   $1,571,916.11.      This appeal followed.

14            For the reasons explained below, we AFFIRM the bankruptcy

15   court’s findings regarding Debtors’ conscious trespass in the

16   pre and postpetition periods.      We VACATE the bankruptcy court’s

17   postpetition damage award and REMAND for a calculation of

18   damages consistent with this memorandum.

19                                  I. FACTS2

20   A.       Prepetition Events

21            Sonora Desert owned three properties referred to throughout

22   this case as Dairy I, Dairy II, and Dairy III.      Debtors entered

23   into a lease agreement dated February 27, 2012 (February 27,

24   2012 Lease), with Sonora Desert and Robert Lueck (Lueck), its

25   managing member.      The lease was for Dairy I with monthly rent of

26   $30,000 and a term of three years with an option to extend.

27
          2
          Most of the background facts are set forth in the
28 bankruptcy court’s memorandum decision.

                                       -3-
 1   Debtors used the property, located in Buckeye, Arizona, to run

 2   their business known as Valkyrie Dairy.

 3        When Debtors entered into the lease agreement, Sonora

 4   Desert was a chapter 11 debtor-in-possession in a bankruptcy

 5   case filed in the District of Arizona.3   Lueck advised Erik that

 6   the bankruptcy court had to approve the lease before Debtors

 7   moved onto Dairy I.   Debtors did not wait for court approval,

 8   instead moving 1649 cows onto Dairy I one day after they signed

 9   the lease.

10        In a matter of days, Debtors executed a new lease for

11   Dairy I dated March 1, 2012 (March 1 Lease).   The March 1 Lease

12   provided that either party could terminate the lease upon

13   180 days written notice to the other party.    Section 18.1 of the

14   lease gave Debtors the right of first refusal if Sonora Desert

15   or Lueck sought to sell Dairy I and its other dairy properties.4

16        On May 29, 2012, the bankruptcy court in Sonora Desert’s

17   case approved the March 1 Lease with some variations (Sonora

18   Order).   The Sonora Order provided, among other things, that

19   Debtors, as lessees, acknowledged that the lessors were

20   currently marketing Dairy I for sale and also that the March 1

21   Lease was junior to a first priority deed of trust held by

22   Agstar and a second priority Wells Fargo replacement lien.   The

23   Sonora Order also clarified that the March 1 Lease provided that

24
        3
          Sonora Desert’s case was substantively consolidated with
25 the cases of Sonora Desert Dairy II, LLC, Sonora Desert
26 Dairy III, LLC, Lueck Cattle Company, LLC, and Bob Lueck Farms,
   LLC.
27
        4
          The right of first refusal pertained to all three
28 properties.

                                    -4-
 1   Debtors would pay $2,615.42 per month for real estate taxes on

 2   the Dairy I property and $921.46 in real estate taxes on the

 3   nine residential housing units also located on the property.

 4   The order further amended the March 1 Lease, reducing the time

 5   period for Debtors to exercise their right of first refusal if

 6   the leased property were sold.

 7           About a year later, in May 2013, Erik communicated with

 8   Brian Van Leeuwen about leasing his dairy farm (Van Leeuwen

 9   Property) to Debtors.     Erik learned that if he moved his dairy

10   operation to the Van Leeuwen Property he would not have room for

11   all his cows.

12           Lueck mailed Debtors a Notice of Termination (NOT) dated

13   May 30, 2013, which stated that the March 1 Lease would

14   terminate on November 30, 2013.5    In September 2013,

15   Mr. Havranek, the real estate broker hired to help Sonora Desert

16   sell its properties, advised Erik that a trustee’s sale of the

17   property was set for December 6, 2013.

18           On October 16, 2013, Sonora Desert’s attorney, Mr. May,

19   mailed and emailed a letter to Erik reminding him of the

20   termination of the March 1 Lease and the need to vacate Dairy I.

21   Debtors made no plans to move from the property.

22           At the December 6, 2013, trustee’s sale, JLE purchased

23   Dairy I, Dairy II, and Dairy III for $6,936,264.02.      Erik and

24
25       5
          Whether Debtors received proper notice for termination of
26 the March 1 Lease is not at issue in this appeal. The bankruptcy
   court found that Debtors’ trespass began December 6, 2013, the
27 date of the trustee’s sale, and ended when they vacated the
   Property on May 31, 2014. The court calculated JLE’s damages
28 based on that time period.

                                      -5-
 1   other family members attended the trustee’s sale but did not

 2   bid.    The sale included the real property and fixtures used to

 3   operate dairy farms at the Sonora Dairies.      The trustee’s sale

 4   extinguished any leasehold interest or any other interest that

 5   Debtors had in Dairy I as of December 6, 2013.

 6          JLE purchased the properties using all of the funds

 7   available to it from a 1031 exchange sale; a $1,000,000 loan

 8   from Mr. Accomazzo/Ambien Dairy; and loans from the families of

 9   Joseph Echeverria and Chad Odom.      JLE leased Dairy II to the

10   Accomazzo/Ambien Dairy entity for no rent through May 2014 and

11   for $15,000.00 per month thereafter.      JLE leased Dairy III to

12   Rio Loco for $50,000.00 per month.

13          About a week after the trustee’s sale, Mr. Echeverria and

14   Mr. Odom had multiple conversations with Erik confirming their

15   prior communications that JLE did not want to enter into a lease

16   or other arrangement with Debtors and that Debtors needed to

17   vacate the Dairy I property.     Mr. Odom and Mr. Echeverria made

18   various proposals to Erik for a reasonable and rapid exit from

19   the property.    Erik made no proposals to leave and after further

20   conversations, Erik insisted he did not have to leave because of

21   the March 1 Lease and his belief that no court would remove him

22   from the Dairy I property.

23          JLE’s counsel served Debtors with a notice and demand

24   letter dated December 20, 2013, in which JLE’s counsel notified

25   them of JLE’s purchase and current ownership of the property and

26   explained that any right of possession had been terminated by

27   the NOT and trustee’s sale.    The letter gave notice that any

28   remaining tenancy or leasehold interest that Debtors had in the

                                     -6-
 1   Property was terminated immediately.   Finally, it informed

 2   Debtors that as a holdover tenant at will, they would be liable

 3   to JLE for a fair market rental value of the property from the

 4   date of ownership through the date Debtors vacated.   JLE

 5   asserted a right to recover $30,000 in monthly rent plus other

 6   expenses.   In the end, JLE demanded that Debtors vacate Dairy I

 7   by January 14, 2014, and if they did not do so, JLE would file a

 8   FED action against them.

 9        Debtors responded to the letter by sending a copy of the

10   February 27, 2012 Lease to JLE’s counsel.   This was not the

11   lease that was approved by the bankruptcy court in the Sonora

12   Order.

13        On January 7, 2014, JLE’s counsel faxed and emailed Debtors

14   another notice and demand, informing them that the January 14,

15   2014 date was a typographical error and that they needed to

16   vacate Dairy I by January 4, 2014.    The notice informed Debtors

17   that JLE would file a FED action against them on January 9,

18   2014, if they did not comply.   Debtors refused to vacate the

19   property.

20        Prior to the filing of Debtors’ bankruptcy petition, Erik

21   was worried about the loss of the value of Debtors’ silage,

22   which would be worthless if Debtors were forced to move.    To

23   preserve the value of the silage, Erik identified three

24   potential exit plans and settlement proposals which he

25   communicated to JLE:   (i) sell the feed silage and other feed

26   inventory to JLE and auction the cattle by the end of February

27   2014; (ii) feed the silage and other feed inventory to his

28   cattle and, when exhausted, auction the cattle and likely occupy

                                     -7-
 1   the property until at least the end of July; or (iii) move to

 2   another dairy, if he could find an affordable dairy, after

 3   selling or using the silage and feed inventory.

 4            JLE filed the FED action on January 9, 2014.   Prior to the

 5   scheduled January 23, 2014 trial in the FED action, Thomas

 6   de Jong, Erik’s father, made an offer on Debtors’ behalf to sell

 7   Debtors’ cows and feed to JLE.      JLE declined.   In addition,

 8   counsel for Debtors, Reed Haddock, presented an exit plan

 9   settlement proposal to JLE.      On January 21, 2014, Mr. Haddock

10   advised Erik and his father that JLE had not responded to the

11   proposal and that there was a good chance that JLE would prevail

12   in getting a restitution order.

13   B.       Bankruptcy Events

14            On January 23, 2014, Debtors filed a chapter 11 petition

15   which stayed the FED action.      On the petition date, Debtors

16   owned or leased approximately 3538 cows worth $2,178.85 per

17   head.

18            1.   JLE’s Emergency Motion For Relief From Stay

19            JLE filed an emergency motion seeking a determination that

20   the automatic stay did not apply or, in the alternative, for

21   relief from the automatic stay to proceed with the FED trial.6

22   The bankruptcy court modified the stay by order entered on

23   February 13, 2014, allowing the state court to hold the FED

24   trial and to decide the issue regarding Debtors’ right to

25   possession, including whether the trustee’s sale extinguished

26   the March 1 Lease under Arizona law.      At the stay relief

27
28        6
              JLE also sought to dismiss the bankruptcy case.

                                       -8-
 1   hearing, the bankruptcy court had observed that the Sonora Order

 2   stated that Debtors’ leasehold interest was subordinated to the

 3   first deed of trust and replacement lien and, therefore, the

 4   March 1 Lease would be affected by the trustee’s sale.

 5        The stay relief order stated that the parties should

 6   provide the state court with a copy of the Sonora Order and

 7   ordered JLE not to pursue a writ of restitution or otherwise

 8   enforce the judgment until further hearings in the bankruptcy

 9   court.    Finally, the order prohibited JLE from removing or

10   repossessing any of the livestock, personal property, or feed

11   existing on the Dairy I property as of the petition date without

12   a further order from the bankruptcy court.

13        2.     The FED Trial

14        The state court held the FED trial on March 10, 2014, and

15   took the matter under advisement.     On March 13, 2014, the state

16   court issued a minute entry ruling in JLE’s favor.    The state

17   court found that Debtors’ leasehold interest was terminated by

18   the nonjudicial foreclosure of the deed of trust.    Accordingly,

19   the state court concluded that when Debtors continued in

20   possession they became tenants at sufferance and remained on the

21   property “without any right to be there.”    The state court

22   further found that the notices sent by JLE on December 20, 2013,

23   and January 7, 2014, met or exceeded the procedural requirements

24   for notice and demand of possession.    In the end, the court

25   concluded that Debtors were guilty of forcible detainer.

26        3.     JLE Sells Dairy I

27        On February 5, 2014, JLE signed a Purchase and Sale

28   Agreement and opened escrow to sell the Dairy I property to

                                     -9-
 1   G & K Land & Cattle, LLC (G&K) for $2,228,006.12.    Escrow was

 2   scheduled to close on the earlier of (a) December 31, 2014, or

 3   (b) ten (10) days following written notice from the buyer to the

 4   seller and escrow agent.   On September 5, 2014, JLE and G&K

 5   executed a first amendment to the Purchase and Sale Agreement.

 6   The purchase price did not change.    Escrow closed on

 7   September 29, 2014, at the purchase price of $2,228,006.12.

 8        4.    The March 18, 2014 Hearing

 9        After the ruling in the FED action, JLE filed a motion in

10   the bankruptcy court to expedite consideration of that ruling,

11   seeking to compel Debtors to vacate Dairy I.    At the March 18,

12   2014 hearing, Debtors argued that they needed to remain on the

13   property until June 1, 2014.   JLE objected and put Debtors on

14   notice that their failure to vacate the property exposed them to

15   continuing damages for trespass and other claims.    The

16   bankruptcy court acknowledged that JLE claimed damages as a

17   result of Debtors’ delay in vacating the property and set a

18   pretrial schedule to address those damages.    In the end, the

19   bankruptcy court concluded that Debtors must vacate the property

20   on June 1, 2014, unless JLE notified the court that an earlier

21   date was warranted.   The bankruptcy court also told JLE to file

22   its POC.

23        After this hearing, on March 26, 2014, Erik sent a text

24   message to Mr. Accomazzo, the principal of JLE’s purchaser for

25   Dairy I.   In the message, Erik indicated that he got exactly

26   what he wanted from the bankruptcy court and that he was “making

27   a sh**load of money off his cows.”

28

                                    -10-
 1        5.   Debtors Object To JLE’s POC

 2        On March 28, 2014, JLE filed its POC, asserting damages in

 3   the amount of $8,863,240.00, including, among other things,

 4   disgorgement of Debtors’ profits and its own lost profits due to

 5   Debtors’ trespass.   Debtors objected to the POC, arguing that

 6   JLE was not entitled to a claim for disgorgement of profits or

 7   lost profits under any legal theory.    In reply, JLE claimed over

 8   $2 million in its lost profits and sought disgorgement of

 9   Debtors’ profits in the amount of approximately $4.8 million.

10   JLE argued that under Arizona law, it was entitled to recover

11   for any physical damages to the property, the cost of restoring

12   the property, the fair market rental value of the land during

13   Debtors’ trespass, as well as compensation for annoyances and

14   damages for loss of use of the Property.   JLE further asserted

15   that it was entitled to its actual/compensatory damages as a

16   result of Debtors’ trespass and that those damages included lost

17   profits of JLE.   Finally, JLE argued that under the Restatement

18   (Second) of Torts, disgorgement of Debtors’ profits was an

19   appropriate element of damages as a result of Debtors’ trespass.

20        6.   The April 2, 2014 Hearing

21        Apparently displeased with the March 18, 2014 ruling, JLE

22   sought an expedited hearing in the bankruptcy court by filing a

23   Motion for Clarification and Supplemental Relief Re:   Court’s

24   Ruling Regarding Debtors’ Continuing Trespass and Wrongful

25   Possession.   At the April 2, 2014 hearing on the matter, the

26   bankruptcy court reiterated that Debtors would leave the

27   property by June 1, 2014.   The bankruptcy court also appointed

28   an onsite manager at JLE’s request to make sure Debtors left the

                                    -11-
 1   property by that date.

 2        By May 31, 2014, Debtors had moved all of their cows from

 3   Dairy I and were no longer operating their business on the

 4   property.

 5        7.      Cross Motions For Summary Judgment on JLE’s POC

 6        Meanwhile, Debtors filed a motion for summary judgment

 7   (MSJ) on their objection to JLE’s POC.     They argued, as a matter

 8   of law, they were not trespassers because (1) they entered the

 9   Dairy I property pursuant to the terms of a valid lease which

10   was approved by the bankruptcy court in Sonora Desert’s

11   bankruptcy case and (2) the bankruptcy court directed that

12   Debtors remain on the property and operate their business.

13   Debtors further maintained that under Arizona law, JLE could

14   recover damages for rent, or a fair and reasonable satisfaction

15   for the use and occupation of the property.

16        JLE filed a cross MSJ.     JLE argued that, as a matter of

17   law, the state court conclusively established that Debtors were

18   in wrongful possession of the Dairy I property after JLE

19   purchased the property at the trustee’s sale on December 6,

20   2013.     JLE maintained that after that point in time, Debtors

21   were trespassers.     JLE asserted that under Arizona law, certain

22   types of damages were proper to assess for trespass, including

23   damages for lost profits and disgorgement of profits resulting

24   from the trespass.     Finally, JLE contended that any postpetition

25   damages should be granted administrative priority.

26        On October 14, 2014, the bankruptcy court heard oral

27   argument on the cross MSJs and took the matter under advisement.

28        On December 14, 2014, the court granted JLE’s MSJ and

                                      -12-
 1   denied Debtors’ MSJ, placing its oral findings of fact and

 2   conclusions of law on the record.     The bankruptcy court observed

 3   that central to both motions was the issue of trespass and thus

 4   the undisputed facts must establish one way or another that

 5   Debtors’ physical presence on JLE’s property after the trustee’s

 6   sale was without authorization.

 7        The bankruptcy court applied the doctrine of issue

 8   preclusion in granting JLE’s MSJ on the issue of Debtors’

 9   prepetition trespass.   The court observed that the state court’s

10   findings in the FED action regarding ownership of Dairy I and

11   Debtors’ unauthorized possession of the property were entitled

12   to preclusive effect.   Therefore, the court concluded that

13   Debtors’ continued possession of the property after the

14   trustee’s sale constituted a trespass as a matter of law.

15        The court also independently found Debtors were trespassers

16   under Arizona law.   The court observed that the trustee’s sale

17   extinguished Debtors’ right to remain on Dairy I based on Ariz.

18   Rev. Statutes (A.R.S.) § 33-811(e), which provides that a

19   trustee’s deed conveys title clear of liens, claims, and

20   interests junior to the deed of trust.    Accordingly, Debtors’

21   right to possess Dairy I terminated on December 6, 2013, and

22   after that date Debtors’ possession of the property was

23   unauthorized.

24        The bankruptcy court made no determination regarding

25   Debtors’ trespass or liability for their postpetition occupancy

26   of the property since JLE’s POC was based on prepetition

27   actions.   The bankruptcy court also found that JLE presented no

28   evidence of pre or postpetition damages and thus the court would

                                    -13-
 1   not offer an advisory ruling.

 2        On January 20, 2015, the bankruptcy court entered an order

 3   denying Debtors’ MSJ and granting JLE’s MSJ in part, solely as

 4   it related to Debtors’ prepetition trespass on the Dairy I

 5   property.

 6        8.     JLE’s Administrative Claim

 7        On December 31, 2014, JLE filed its Administrative Claim

 8   which included a claim for Debtors’ postpetition trespass.

 9   JLE then filed an MSJ addressing Debtors’ postpetition trespass,

10   seeking a determination that Debtors’ trespass was conscious and

11   that Debtors were required to disgorge their profits.    JLE also

12   argued that any damages resulting from Debtors’ wrongful

13   postpetition conduct should be granted administrative priority

14   under the holding in Reading Co. v. Brown, 391 U.S. 471, 483-85

15   (1968).

16         The bankruptcy court held a hearing on August 20, 2015,

17   and granted JLE’s MSJ in part as to the trespass based on the

18   state court’s ruling in the FED action and its own determination

19   that Debtors were trespassers since they had no authorization to

20   remain on the Dairy I property.    As to the damages, the court

21   denied summary judgment finding factual issues on whether

22   Debtors’ trespass was intentional and, if so, the degree to

23   which they benefitted.    The court also denied summary judgment

24   on the issue of administrative priority, concluding that any

25   priority issue would be determined after JLE had proved its

26   damages.

27        9.     The Trial

28        The bankruptcy court held a trial on the issues of whether

                                     -14-
 1   Debtors’ trespass was conscious and the appropriate measure of

 2   damages.   After trial, JLE advised the bankruptcy court that it

 3   was seeking judgment for the following:    For the trespass:

 4   (a) Loss of use of land:   lost opportunities - $97,500 and lost

 5   profits - $3,503,831; (b) cost of restoration of land -

 6   $1,200,000, plus additional amounts after March 28, 2014;

 7   (c) annoyance/discomfort of owner - $70,000, plus additional

 8   amounts after March 28, 2014; (d) fair market rental value -

 9   $83,000 as of March 28, 2014; (e) punitive damages - TBD;

10   (f) disgorgement of Debtors’ profits:    prepetition - $1,145,000

11   and postpetition - $7,632,756.    For waste/conversion bailment:

12   (a) physical damage to property - $2,500.    Although included in

13   its POC, JLE was no longer pursuing claims for (1) damages to a

14   hay barn, (2) stall cleaning costs, or (3) potential liability

15   to the Arizona Department of Water Resources.    As to JLE’s

16   claims for lost profits, JLE advised the bankruptcy court that

17   the claim was brought as an alternative to the disgorgement

18   claim and agreed that it was not entitled to lost profits and

19   disgorgement.   The bankruptcy court took the matter under

20   advisement.

21        On April 19, 2016, the court issued a memorandum decision

22   finding that Debtors were conscious trespassers from at least

23   the time of the trustee’s sale on December 6, 2013.    The court

24   determined that due to Debtors’ conscious trespass, they were

25   liable to JLE for the benefits they received for wrongfully

26   staying on the Dairy I property.    In the end, the bankruptcy

27   court found that disgorgement of Debtors’ profits was

28   appropriate and concluded that JLE’s prepetition damage claim

                                      -15-
 1   was $558,716.24 and its postpetition administrative claim was

 2   $1,517,069.64.   The court entered an order consistent with its

 3   ruling on the same day.

 4        10.   Debtors’ Motion for Reconsideration; JLE’s Motion For
                Clarification
 5
 6        On May 2, 2016, Debtors filed a motion for reconsideration

 7   and/or to alter or amend the bankruptcy court’s (1) January 20,

 8   2015 order denying Debtors’ MSJ regarding Debtors’ prepetition

 9   trespass; (2) September 17, 2015 minute entry ruling regarding

10   Debtors’ postpetition trespass; (3) Memorandum Decision; and

11   (4) Order re proof of claim filed by JLE-04.

12        In the motion, Debtors maintained that the state court

13   determined Debtors were tenants at sufferance.   Since JLE never

14   appealed that decision, Debtors argued that JLE was bound by

15   that ruling under the principles of issue and claim preclusion.

16   Debtors asserted that under these circumstances, JLE was

17   entitled to damages only in the form of reasonable rent.

18        On September 30, 2016, the bankruptcy court denied the

19   motion, finding there was no basis to reconsider or alter or

20   amend the rulings.   The bankruptcy court noted that FED

21   proceedings were limited in scope with the only issue being the

22   right of actual possession.   The court further observed that due

23   to the narrow scope of FED proceedings, the Arizona legislature

24   made clear that plaintiffs could pursue claims for damages by a

25   separate action, including claims for trespass damages.    A.R.S.

26   § 12-1183.   Accordingly, the bankruptcy court concluded that the

27   state court’s statement that Debtors were tenants at sufferance

28   did not preclude JLE from seeking a determination that they were

                                    -16-
 1   conscious trespassers liable for damages based on restitution.

 2        The bankruptcy court also concluded that the state court’s

 3   determination that Debtors were tenants at sufferance was not

 4   necessary or essential to its decision regarding whether

 5   Debtors’ occupancy was lawful.    Rather, once the state court

 6   found that completion of the trustee’s sale terminated Debtors’

 7   right to possess the Property, the status attributed to Debtors’

 8   post-termination occupancy was of no import to its decision.

 9        Finally, the bankruptcy court noted that the issue of

10   trespass was not litigated nor was it required to be litigated

11   in the state court FED proceeding.      The court also observed that

12   JLE obtained limited relief from stay authorizing the FED action

13   to go forward, but JLE was prohibited from executing on the

14   judgment if obtained.   Therefore, the issues regarding damages,

15   if any, were to be determined in the bankruptcy court.     For

16   these reasons, the court concluded that the trespass issue was

17   not and should not have been raised in the summary FED

18   proceeding.   In the end, the court found no grounds to disturb

19   its rulings that Debtors were trespassers in the pre and

20   postpetition periods.

21        JLE also filed a motion for clarification of the bankruptcy

22   court’s calculations for the amount of its pre and postpetition

23   claims.   In a September 30, 2016 memorandum decision, the

24   bankruptcy court granted JLE’s motion in part and entered an

25   amended order on September 30, 2016, finding that JLE had a

26   prepetition claim for $579,072.51 and a postpetition claim

27   entitled to administrative priority in the amount of

28   $1,571,916.11.   The bankruptcy court entered an amended order on

                                      -17-
 1   JLE’s POC on the same day.       Debtors filed a timely appeal from

 2   that order.

 3                              II.   JURISDICTION

 4        The bankruptcy court had jurisdiction over this proceeding

 5   under 28 U.S.C. §§ 1334 and 157(b)(2)(B).       We have jurisdiction

 6   under 28 U.S.C. § 158.

 7                                III.    ISSUES

 8        A.    Did the bankruptcy court err by applying issue

 9   preclusion to the state court’s findings in the FED action and

10   granting JLE’s MSJ on the issue whether Debtors were

11   trespassers?

12        B.    Did the bankruptcy court err by independently deciding

13   that Debtors were trespassers in the pre and postpetition

14   periods?

15        C.    Did the bankruptcy court err by finding that Debtors

16   were conscious trespassers?

17        D.    Did the bankruptcy court err by applying an incorrect

18   measure of damages for trespass; i.e., damages beyond the fair

19   market rental value of Dairy I?

20        E.    Did the bankruptcy court err by improperly calculating

21   JLE’s postpetition damages?

22                        IV.    STANDARDS OF REVIEW

23        Rulings based on claim and issue preclusion are reviewed de

24   novo as mixed questions of law and fact in which legal questions

25   predominate.   Khaligh v. Hadaegh (In re Khaligh), 338 B.R. 817,

26   823 (9th Cir. BAP 2006) (citing Robi v. Five Platters, Inc.,

27   838 F.2d 318, 321 (9th Cir. 1988)).        Once it is determined that

28   preclusion doctrines are available to be applied, the actual

                                         -18-
 1   decision to apply them is left to the trial court’s discretion.

 2   In re Khaligh, 338 B.R. at 823.    When state preclusion law

 3   controls, such discretion is exercised in accordance with state

 4   law.    Id. (citing Gayden v. Nourbakhsh (In re Nourbakhsh),

 5   67 F.3d 798, 800–01 (9th Cir. 1995)).

 6          We review de novo a bankruptcy court’s summary judgment as

 7   well as its interpretation and application of relevant state

 8   law.    Botosan v. Paul McNally Realty, 216 F.3d 827, 830 (9th

 9   Cir. 2000); Kona Enters. Inc. v. Estate of Bishop, 229 F.3d 877,

10   883 (9th Cir. 2000).

11          We review factual findings such as the conscious nature of

12   Debtors’ trespass for clear error.      Banks v. Gill Distribution

13   Ctrs., Inc., 263 F.3d 862, 869 (9th Cir. 2001).     A bankruptcy

14   court’s factual finding is not clearly erroneous unless it is

15   illogical, implausible or without support in the record.      Retz

16   v. Samson (In re Retz), 606 F.3d 1189, 1196 (9th Cir. 2010).

17          Whether the bankruptcy court used the correct legal

18   standard in computing damages is reviewed de novo.     Neptune

19   Orient Lines, Ltd. v. Burlington N. and Santa Fe Railway Co.,

20   213 F.3d 1118, 1119 (9th Cir. 2000).

21          The bankruptcy court’s “computation of damages is a finding

22   of fact we review for clear error.”     Simeonoff v. Hiner,

23   249 F.3d 883, 893 (9th Cir. 2001).

24                              V.   DISCUSSION

25   A.     The bankruptcy court did not err by finding Debtors liable
            for trespass in the pre and postpetition periods.
26
27          Debtors argue that the bankruptcy court erred by finding

28   them guilty of trespass on several grounds.     First, they contend

                                      -19-
 1   that the state court’s finding in the FED action that Debtors
 2   were tenants at sufferance was preclusive as to their status
 3   regardless of when they vacated the Property.    According to
 4   Debtors, they were liable as tenants at sufferance, if at all,
 5   for the reasonable rental value of the Property.
 6        Next, Debtors argue that the state court never made any
 7   factual findings or legal conclusions that Debtors were
 8   trespassers.   Therefore, Debtors assert that the bankruptcy
 9   court erred by applying issue preclusion as a basis for granting
10   JLE’s summary judgment on the issue of Debtors’ trespass and
11   erroneously drew no distinction between a tenant at sufferance
12   and a trespasser.
13        Finally, Debtors maintain they could not be trespassers
14   postpetition when the bankruptcy court directed them to remain
15   on the Property.    As explained below, we are not persuaded by
16   these arguments.
17        1.   Issue Preclusion
18        Whether the state court’s finding of facts or legal
19   conclusions are entitled to preclusive effect is determined
20   under Arizona law.    Child v. Foxboro Ranch Estates, LLC
21   (In re Child), 486 B.R. 168 (9th Cir. BAP 2013).    Under Arizona
22   law, issue preclusion applies when: (1) the issue or fact to be
23   litigated was actually litigated in a previous suit; (2) a final
24   judgment was entered; (3) the party against whom the doctrine is
25   to be invoked had a full opportunity to litigate the matter;
26   (4) actually did litigate it; and (5) such issue or fact was
27   essential to the prior judgment.    Id. at 172 (citing Chaney
28   Bldg. Co. v. City of Tucson, 716 P.2d 28, 30 (1986)).

                                     -20-
 1        Before applying these factors to this case, we briefly
 2   examine the nature of an FED action to place Debtors’ “tenants
 3   at sufferance” argument in context.   Since Debtors’ leasehold
 4   interest was terminated by the trustee’s sale, JLE had an
 5   immediate right to the Property.   A.R.S. § 33-811(e).   Under
 6   Arizona law, an FED action is one way to obtain possession of
 7   one’s property.   A.R.S. § 12-1173.01 (FED action proper when
 8   property has been sold at a trustee’s sale).   The FED proceeding
 9   is statutory and meant “to provide a summary, speedy and
10   adequate means for obtaining possession of premises by one
11   entitled to actual possession.”    Heywood v. Ziol, 372 P.2d 200,
12   201 (Ariz. 1962).   The only issue determined in the proceeding
13   is the right to actual possession of the property.   Id. (citing
14   A.R.S. § 12-1177(A):   “On the trial of an action of forcible
15   entry or forcible detainer, the only issue shall be the right of
16   actual possession and the merits of title shall not be inquired
17   into.”).   Given the limited scope of FED actions, “the only
18   appropriate judgment is the dismissal of the complaint or the
19   grant of possession to the plaintiff.”   United Effort Plan Trust
20   v. Holm, 101 P.3d 641, 645 (Ariz. Ct. App. 2004).    Because the
21   state court is not authorized to decide any other issue besides
22   the right of actual possession, the Arizona Legislature has
23   provided in A.R.S. § 12-1183 that the FED action and judgment
24   does not bar a separate action for trespass or trespass damages.
25        Against this background, the state court’s finding that
26   Debtors were tenants at sufferance cannot be given preclusive
27   effect - their legal status as tenants at sufferance was neither
28   litigated nor essential to the FED judgment.   As noted by the

                                    -21-
 1   bankruptcy court, once the state court found that the completion
 2   of the trustee’s sale terminated Debtors’ right to possess the
 3   Dairy I property, the status attributed to Debtors’ post
 4   termination occupancy was of no import to its decision.
 5        In contrast, the state court’s findings regarding JLE’s
 6   right to possession of the property are entitled to preclusive
 7   effect on the issue of Debtors’ trespass.   Issue preclusion bars
 8   relitigation of identical issues that were resolved in a prior
 9   proceeding, even if the later suit involves a different cause of
10   action.   Fund for Animals, Inc. v. Lujan, 962 F.2d 1391, 1399
11   (9th Cir. 1992).   “At common law, any unauthorized physical
12   presence on another’s property is a ‘trespass.’”   State ex rel.
13   Purcell v. Sup. Ct. In and For the Cty. of Maricopa, 535 P.2d
14   1299, 1301 (Ariz. 1975).   Restatement (First) of Torts (1934)
15   § 329 defines a trespasser as a “person who enters or remains
16   upon land in the possession of another without a privilege to do
17   so created by the possessor’s consent or otherwise.”   See
18   Webster v. Culbertson, 761 P.2d 1063, 1065 n.3 (Ariz. 1988)
19   (following   Restatement (First) of Torts in connection with
20   landowner’s liability towards trespassers).
21        The state court found that the trustee’s sale terminated
22   Debtors’ right to possess the Dairy I property and thus Debtors
23   “had no right to be there.”   For purposes of determining whether
24   Debtors were trespassers under the Purcell definition or the
25   Restatement (First) of Torts definition, the identical issue
26   regarding Debtors’ lawful or authorized possession of the
27   property was actually litigated in the FED action.   In other
28   words, Debtors’ physical presence on Dairy I was unauthorized

                                    -22-
 1   and they remained on the property without the consent of JLE.      A
 2   final judgment was entered, Debtors had a full opportunity to
 3   litigate the matter and actually did litigate it, and the issue
 4   was essential to the prior judgment.   Therefore, since all the
 5   elements for issue preclusion were met, we discern no error with
 6   the bankruptcy court’s decision granting JLE’s MSJ on the issue
 7   of Debtors’ trespass based on issue preclusion.
 8        Even if issue preclusion was not appropriate, the
 9   bankruptcy court independently decided on summary judgment that
10   Debtors were trespassers as a matter of law.   Under either the
11   Purcell definition or the Restatement (First) of Torts
12   definition of trespass, the record shows that JLE never
13   consented to Debtors’ continued possession of Dairy I.
14   Accordingly, Debtors’ possession was unauthorized and they had
15   “no right to be there.”   The bankruptcy court thus properly
16   found that Debtors were trespassers under Arizona law.
17        Debtors’ reliance on their “tenants at sufferance” status
18   in the FED action for their damage claim is misplaced.    As the
19   Arizona Court of Appeal explained:
20        Use of the word ‘tenant’ in this phrase is unfortunate
          as a tenancy at sufferance is not a true landlord-
21        tenant relationship, but rather an interest in
          property. It exists when a party who had a lawful
22        possessory interest in property wrongfully continues
          in possession of the property after its interest
23        terminated.
24   Grady v. Barth ex rel. Cty. Maricopa, 312 P. 117, 120 (Ariz. Ct.
25   App. 2013).   Contrary to Debtors’ view, there is little, if any
26   distinction, between a tenant at sufferance and a trespasser
27   under Arizona law.   As tenants at sufferance, Debtors had no
28   right to possession and thus they continued to occupy Dairy I

                                    -23-
 1   wrongfully.   As trespassers, Debtors remained on the property
 2   without JLE’s consent and therefore Debtors’ possession was
 3   unauthorized.   Indeed, the relationship between JLE and Debtors
 4   was that of owner and trespassers absent some agreement as to
 5   Debtors’ continued occupancy.   In short, whether tenants at
 6   sufferance or trespassers, Debtors were wrongdoers by their
 7   unauthorized continued possession of Dairy I.
 8        In the end, the status of Debtors as tenants at sufferance
 9   is not legally inconsistent with being a conscious trespasser
10   and the bankruptcy court implicitly so found.      See generally
11   Brady v. Scott, 175 So. 724, 725 (Fla. 1937) (“[A] tenant at
12   sufferance is the most shadowy estate recognized at common law
13   and practically the only distinction between such a tenant’s
14   holding and the possession of a trespasser is that the landowner
15   may, by his acquiescence at any time base upon the tenancy at
16   sufferance the relation of landlord and tenant, which he cannot
17   establish at law against a mere trespasser, and that the tenant
18   cannot be subjected to an action in trespass before entry or
19   demand for possession.”).
20        In sum, the FED action did not bar JLE’s separate action
21   for trespass or trespass damages.      See A.R.S. § 12-1183.   Based
22   on the record before us, the bankruptcy court properly found
23   Debtors were trespassers under Arizona law when they continued
24   in possession of Dairy I after the trustee’s sale.
25        2.   The bankruptcy court did not immunize Debtors from
               liability for their postpetition trespass.
26
27        Debtors maintain that the bankruptcy court specifically
28   directed them to remain on Dairy I until June 1, 2014, and

                                     -24-
 1   therefore they cannot be deemed trespassers and liable for
 2   trespass damages.   This argument is without merit.   We found no
 3   place in the record where the bankruptcy court authorized
 4   Debtors’ occupancy of Dairy I nor did we find any place where
 5   the court specifically directed them to remain on the property
 6   or indicated an intent to limit the damages available to JLE.
 7   Rather, the court’s ruling in its April and May 2014 orders was
 8   that Debtors would leave the property by June 1, 2014.   Further,
 9   as the bankruptcy court properly observed, the bankruptcy filing
10   could not grant Debtors property rights that the state court
11   ruled did not exist.   See Dominic’s Rest. of Dayton, Inc. v.
12   Mantia, 683 F.3d 757, 760-61 (6th Cir. 2012) (a debtor’s
13   bankruptcy filing does not protect the debtor from claims
14   relating to the tortious use of another’s property.).    In short,
15   Debtors’ delay in vacating Dairy I after the conclusion of the
16   FED action had nothing to do with the bankruptcy court’s
17   rulings.
18   B.   Damages
19        Debtors argue that the bankruptcy court erred by finding
20   that they were conscious trespassers and awarding damages to JLE
21   on the basis of the disgorgement of profits.   According to
22   Debtors, the bankruptcy court’s use of restitution damages is
23   not supported by any cases or statutes.   Therefore, they are
24   liable, if at all, for the fair market rental value of the
25   property.   Finally, Debtors maintain that the bankruptcy court’s
26   calculation of postpetition profits was not supported by the
27   evidence and constitutes clear error.
28

                                    -25-
 1        1.   The bankruptcy court did not err in finding Debtors
               were conscious trespassers.
 2
 3        A “conscious wrongdoer” is one who benefits by his
 4   misconduct and who acts “with knowledge of the underlying wrong
 5   to the claimant,” or “despite a known risk that the conduct in
 6   question violates the rights of the claimant.”    Restatement
 7   (Third) of Restitution and Unjust Enrichment § 51(3) (2011).
 8   Misconduct is defined as “actionable interference by the
 9   defendant with the claimant’s legally protected interests for
10   which the defendant is liable.”    Id. at § 51(1).
11        The bankruptcy court found that Debtors’ trespass was
12   conscious from the December 6, 2013 trustee’s sale until they
13   vacated Dairy I on May 31, 2014.    We need not repeat each of the
14   facts that support the bankruptcy court’s conclusion, as the
15   record contains ample instances showing Debtors’ knowledge that
16   their right to remain on Dairy I was coming to an end — either
17   by termination of the March 1 Lease or by its extinguishment at
18   the trustee’s sale.   The record demonstrates that Debtors knew
19   that they had to vacate the Dairy I property at the latest by
20   the date of the trustee’s sale.    Furthermore, Erik knew that JLE
21   was the owner of the property and, based on the email from
22   Mr. May and Erik’s statement to Judge Haines at the June 26,
23   2014 hearing, Debtors knew that the trustee’s sale extinguished
24   their rights in the March 1 Lease and their right to occupy the
25   Dairy I property.   Nonetheless, Debtors continued to operate
26   their dairy at the property until May 31, 2014.      Given these
27   facts, the bankruptcy court’s finding that Debtors were
28   conscious trespassers was logical, plausible, and supported by

                                    -26-
 1   inferences drawn from facts in the record.
 2         2.     The bankruptcy court did not err by using a
                  restitutionary measure of damages, including
 3                disgorgement of profits, to determine Debtors’
                  liability.
 4
 5         We found no Arizona case or statute that discusses
 6   restitution damages and disgorgement of profits in a trespass
 7   case such as this.     Where the state’s highest appellate court
 8   has not spoken on an issue, the federal court’s role is to
 9   predict what decision the state’s highest court would reach.
10   See Evanston Ins. Co. v. OEA, Inc., 566 F.3d 915, 921 (9th Cir.
11   2009).     A federal court uses “intermediate appellate court
12   decisions, decisions from other jurisdictions, statutes,
13   treatises, and restatements as guidance” to predict how the
14   state’s highest court would rule.       Assurance Co. of Am. v. Wall
15   & Assocs. LLC of Olympia, 379 F.3d 557, 560 (9th Cir. 2004).
16         In the absence of controlling law, Arizona courts follow
17   the Restatements.     Keck v. Jackson, 593 P.2d 668, 669 (Ariz.
18   1979).     Restatement (Third) of Restitution and Unjust Enrichment
19   § 40 states:     “A person who obtains a benefit by an act of
20   trespass . . . is liable in restitution to the victim of the
21   wrong.”     In comment b to this section, the Restatement explains
22   that “[e]richment resulting from intentional trespass is not
23   properly measured by ordinary rental value.”      Id. § 40, cmt. b
24   (noting that when restitution takes the form of a money
25   judgment, the measure of recovery depends on the blameworthiness
26   of the defendant).     “[A] conscious wrongdoer will be stripped of
27   gains from unauthorized interference with another’s property.”
28   Id.

                                      -27-
 1        There are policy reasons for mandating disgorgement of the
 2   wrongdoer’s profits:
 3        Restitution requires full disgorgement of profit by a
          conscious wrongdoer, not just because of the moral
 4        judgment implicit in the rule of this section, but
          because any lesser liability would provide an
 5        inadequate incentive to lawful behavior. If A
          anticipates (accurately) that unauthorized
 6        interference with B’s entitlement may yield profits
          exceeding any damages B could prove, A has a dangerous
 7        incentive to take without asking - since the
          nonconsensual transaction promises to be more
 8        profitable than the forgone negotiation with B. The
          objection of that part of the law of restitution
 9        summarized by the rule of § 3 is to frustrate any such
          calculation.
10
          . . .
11
          If a conscious wrongdoer were able to make profitable,
12        unauthorized use of the claimant’s property, then pay
          only the objective value of the assets taken or the
13        harm inflicted, the anomalous result would be to
          legitimate a kind of private eminent domain (in favor
14        of a wrongdoer) and to subject the claimant to a
          forced exchange. The law of restitution responds to
15        this anomaly by making the wrongdoer liable to
          disgorge profits wrongfully obtained, whenever such
16        profits exceed recoverable damages.
17   Id. § 40, cmt. c.
18        Restatement (Third) of Restitution and Unjust Enrichment
19   § 51(4) states:
20        The unjust enrichment of a conscious wrongdoer . . .
          is the net profit attributable to the underlying
21        wrong. The object of restitution in such cases is to
          eliminate profit from wrongdoing while avoiding, so
22        far as possible, the imposition of a penalty.
          Restitution remedies that pursue this object are often
23        called ‘disgorgement’ or ‘accounting.’
24        The Arizona Supreme Court has held that the “remedy of
25   restitution is not confined to any particular circumstance or
26   set of facts.   It is, rather, a flexible, equitable remedy
27   available whenever the court finds that ‘the defendant, upon the
28   circumstances of the case, is obliged by the ties of natural

                                    -28-
 1   justice and equity’ to make compensation for benefits received.”
 2   Murdock-Bryant Const., Inc. v. Pearson, 703 P.2d 1197, 1202
 3   (Ariz. 1985).   Although the facts in Murdock-Bryant are
 4   distinguishable from those here, the Arizona Supreme court’s
 5   view on the remedy of restitution demonstrates that it can be
 6   used in a variety of circumstances and its application is left
 7   to the court’s discretion.   In other words, restitutionary
 8   damages are not per se foreclosed in a trespass case such as
 9   this.
10        Finally, the case of Anderson v. Bureau of Indian Affairs,
11   764 F.2d 1344, 1348 (9th Cir. 1985), stands for the proposition
12   that a lessor of real property is not limited to the recovery of
13   rent and may be entitled to a portion of profits earned by a
14   holdover tenant who knows that a lease has been terminated and
15   wrongfully holds over.   In Anderson, the Bureau of Indian
16   Affairs (BIA) appealed from a summary judgment awarding it
17   $35,938.00 of $1,000,000.00 in proceeds from crops planted and
18   harvested on tribal land by former lessees after termination of
19   their lease, and awarding the balance of the proceeds to the
20   lessee.   The district court relied upon two Arizona statutes:
21   A.R.S. § 12-1271, which permits a landowner to bring an action
22   to “recover rent, or a fair and reasonable satisfaction for the
23   use and occupation of real property . . . when a tenant remains
24   in possession after termination of his right of possession” and
25   A.R.S. § 12-1257, which states that “[a] tenant in possession in
26   good faith, under a lease . . . , is not liable beyond the rent
27   in arrears at the time the action is brought, and that which
28   afterward accrues during continuance of his possession.”     The

                                    -29-
 1   district court concluded that the tribe was entitled to recover
 2   rent in arrears under A.R.S. § 12-1271 and was limited to the
 3   recovery of the rent under § A.R.S. 12-1257.
 4            The Ninth Circuit reversed.   The court construed the
 5   meaning of “fair and reasonable satisfaction” in A.R.S.
 6   § 12-1271 and concluded that the BIA was not limited to the
 7   recovery of rent when the lessees planted their cotton crop
 8   knowing that the lease had been terminated.       The court reasoned
 9   that it would be neither fair nor reasonable to limit the BIA’s
10   and tribe’s recovery to an amount equivalent to the rent due
11   because the tribe members could have chosen to farm the land
12   themselves, and if they had, the crop proceeds would be theirs.
13   However, the court found that the lessees should recover the
14   costs they incurred in producing the crops as otherwise the BIA
15   would receive a windfall.
16            While the Anderson court does not mention the Restatement
17   (Third) of Restitution and Unjust Enrichment, the reasoning of
18   the case supports the conclusion that a landlord is not limited
19   to the recovery of rent for the wrongful use and occupation of
20   his or her property.      Instead, a court may order the
21   disgorgement of profits as a remedy under certain
22   circumstances.7
23
          7
24          Debtors contend the case is distinguishable because JLE
     could not have used the Dairy I property to run a dairy farm
25   itself. While it is true that JLE was the entity created for
26   holding the dairy properties, the record shows that
     Mr. Echeverria’s and Mr. Odom’s business plan was to update all
27   three dairies on a rotating basis so that the Accomazzo/Ambien
     Dairy and Rio Loco dairy could operate effectively. They were
28                                                       (continued...)

                                       -30-
 1        In sum, these authorities collectively show that under
 2   Arizona law a plaintiff in a trespass action is permitted to
 3   claim restitution as a measure of damages as an alternative to
 4   damages for payment of rent.   Accordingly, we conclude that the
 5   bankruptcy court did not err by calculating JLE’s damages using
 6   a restitutionary measure of damages, including the disgorgement
 7   of profits.   Since none of the cases cited by Debtors are
 8   binding or compel a different result, it is not necessary for us
 9   to discuss them.
10        3.    The bankruptcy court erred in calculating the
                postpetition profits.
11
12        Where the trespasser’s conduct is conscious, his or her
13   liability may be measured by the trespasser’s benefit or profit
14   from the trespass.   Restatement of Restitution §§ 40, 51(4).
15   In calculating Debtors’ liability under this standard, the
16   bankruptcy court first considered Debtors’ use of its silage,
17   which Erik admitted would have been valueless if Debtors were
18   required to move from the property.   The court calculated the
19   amount of silage used by Debtors on a daily basis and
20   multiplied that number by the number of days they used JLE’s
21   property postpetition to arrive at a total representing Debtors’
22   benefit.
23        Next, the court considered the profits Debtors gained by
24   being able to operate a larger dairy during the trespass period.
25   In this regard, the bankruptcy court noted that to move onto the
26
          7
27       (...continued)
   unable to implement that plan due to Debtors’ trespass on
28 Dairy I.

                                    -31-
 1   Van Leeuwen Property, Debtors had to sell 1405 dairy cows at a
 2   May auction.   The remainder of their herd was moved to the Van
 3   Leeuwen property and used in Debtors’ continued dairy
 4   operations.    The court found Debtors directly benefitted to the
 5   extent they profited from being able to use the 1405 cows on the
 6   Dairy I property that they could not use on the Van Leeuwen
 7   property.   The court then calculated Debtors’ profit based on
 8   these additional cows.    After applying credits for rent paid,
 9   the bankruptcy court found in the September 30, 2016 order that
10   JLE had a prepetition claim for $579,072.51 and a postpetition
11   claim entitled to administrative priority in the amount of
12   $1,571,916.11.
13        Debtors contend that the bankruptcy court erred in
14   calculating JLE’s postpetition claim.    According to Debtors, the
15   bankruptcy court make a “critical mistake” of double-counting.
16   This double-counting occurred because the court took the amount
17   of silage used in the relevant time period and added that figure
18   to a portion of the net income derived from its profits gained
19   from operating a larger dairy operation on JLE’s property.
20   Debtors argue that it was error to include both items in the
21   measure of restitution.    Debtors also contend that the court’s
22   analysis of the amount of silage utilized by Debtors during
23   their occupancy is not a proper method to calculate “profits”
24   since it is an expense item.    We agree.
25        The proper measure of recovery in this case must be the
26   benefits, or net profits, received by Debtors from the wrongful
27   use of JLE’s property.    Net profit is the business’s gross
28   revenues less any operating expenses.    An operating expense

                                     -32-
 1   would include the silage that was bought by Debtors to feed
 2   their cows, including the extra cows that Debtors kept on the
 3   property by virtue of their wrongful trespass.   Debtors did not
 4   generate a direct profit, or benefit, by use of the silage after
 5   their trespass.   Instead, they simply avoided a loss of
 6   something that they had already paid for.   Nonetheless, their
 7   purchase of the silage was a legitimate operating expense
 8   because it was fed to the cows which generated the profits that
 9   accrued to Debtors as a direct result of their wrongful
10   trespass.   Accordingly, the bankruptcy court erred by
11   considering the silage as a separate component of damages which
12   resulted in overstating and double counting the wrongfully
13   obtained profits.   Therefore, we vacate the bankruptcy court’s
14   postpetition damage award and remand for a calculation of
15   damages consistent with this memorandum.
16                            VI.   CONCLUSION
17        For the reasons stated, we AFFIRM the bankruptcy court’s
18   findings regarding Debtors’ conscious trespass in the pre and
19   postpetition periods.   We VACATE the bankruptcy court’s
20   postpetition damage award and REMAND for a calculation of
21   damages consistent with this memorandum.
22
23
24
25
26
27
28

                                    -33-
