                                                         FILED
                                                          AUG 09 2012
 1
                                                      SUSAN M SPRAUL, CLERK
                                                        U.S. BKCY. APP. PANEL
 2                                                      OF THE NINTH CIRCUIT


 3                UNITED STATES BANKRUPTCY APPELLATE PANEL
 4                          OF THE NINTH CIRCUIT
 5   In re:                        )    BAP No. MT-11-1574-JuHPa
                                   )    BAP No. MT-11-1575-JuHPa*
 6   EDRA D. BLIXSETH,             )    (related appeals)
                                   )
 7                  Debtor.        )    Bk. No.     09-60452
     ______________________________)
 8   WESTERN CAPITAL PARTNERS, LLC,)    Adv. No. 09-00105
                                   )
 9                  Appellant,     )
                                   )
10   v.                            )    M E M O R A N D U M**
                                   )
11   ATIGEO LLC; XPATTERNS, LLC;   )
     RICHARD J. SAMSON, Chapter 7 )
12   Trustee; EDRA D. BLIXSETH;    )
     OPSPRING, LLC; BLXWARE, LLC; )
13   JOSEPH V. WOMACK, Trustee for )
     the Chapter 7 Estate of       )
14   Matthew Crocker; HMJZ, LLC;   )
     HEATHER SANDOVAL; MICHAEL     )
15   SANDOVAL; JULIE BARVE,        )
                                   )
16                  Appellees.     )
     ______________________________)
17
                   Argued and Submitted on July 20, 2012
18                        at Pasadena, California
19                         Filed - August 9, 2012
20             Appeal from the United States Bankruptcy Court
                         for the District of Montana
21
          Honorable John L. Peterson, Bankruptcy Judge, Presiding
22       Honorable Ralph B. Kirscher, Bankruptcy Judge, Presiding
                      ________________________________
23
24        *
            While not formally consolidated, these two related appeals
25   were heard at the same time and were considered together. This
     single disposition applies to the two appeals, and the clerk is
26   directed to file a copy of this disposition in each appeal.

27        **
            This disposition is not appropriate for publication.
     Although it may be cited for whatever persuasive value it may
28   have (see Fed. R. App. P. 32.1), it has no precedential value.
     See 9th Cir. BAP Rule 8013-1.
 1   Appearances:    Robert W. Hatch, II, Esq. of Hatch Ray Olsen LLC
                     argued for appellant, Western Capital Partners,
 2                   LLC; David Brian Cotner, Esq. of Datsopoulos,
                     MacDonald & Lind, P.C. argued for appellee Richard
 3                   J. Sampson, Chapter 7 trustee; Brian Chung Park,
                     Esq. of Stoel Rives LLP argued for appellees
 4                   Atigeo, LLC and xPatterns, LLC; Roland Karim
                     Tellis, Esq. of Baron & Budd, P.C. appeared for
 5                   appellees Michael Sandoval and Heather Sandoval
                     and HMJZ, LLC.
 6                     ________________________________
 7   Before:   JURY, HOLLOWELL, and PAPPAS, Bankruptcy Judges.
 8
 9        In BAP No. 11-1574, secured creditor-appellant, Western
10   Capital Partners, LLC (“WCP”), appeals from the bankruptcy
11   court’s order approving a settlement under Rule 90191 among
12   appellees, chapter 7 trustee, Richard J. Samson (“Samson” or
13   “Trustee”), and Michael Sandoval (“Sandoval”), xPatterns, LLC
14   (“xPatterns”) and Atigeo, LLC (“Atigeo”) (collectively, we refer
15   to Sandoval, xPatterns and Atigeo as the “Atigeo Parties”).
16        The bankruptcy court’s approval of the settlement was
17   contingent on its approval of a stipulated declaratory judgment
18   on Count I in an adversary proceeding brought by Atigeo and
19   xPatterns (collectively, “Plaintiffs”) against the Trustee, Edra
20   Blixseth (“Edra” or “Debtor”) and others, and to which WCP joined
21   as a party defendant.   In BAP No. 11-1575, WCP appeals the
22   bankruptcy court’s entry of the stipulated declaratory judgment
23   on Count I.
24
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                         Summary of the Dispute
 2        Plaintiffs’ adversary proceeding against Edra and her estate
 3   was functionally the extension of a prepetition state court
 4   lawsuit filed by the Plaintiffs against Edra and others
 5   concerning her numerous alleged breaches of a March 31, 2007
 6   letter agreement (the “Letter Agreement”) and a related
 7   $8 million note (the “Note”) executed by xPatterns in Edra’s
 8   favor.   Due to the alleged breaches, Plaintiffs sought
 9   alternative forms of relief in their complaint.   In Count I they
10   sought a declaration that the Letter Agreement was repudiated and
11   unenforceable and in other Counts sought offsets and damages for
12   breach of contract if the agreement was found enforceable between
13   the parties.
14        After a mediation, the Trustee and Atigeo Parties stipulated
15   to facts which established that Edra had breached the Letter
16   Agreement resulting in its repudiation (the “Stipulation”).
17   Although WCP had joined the adversary as a party defendant, it
18   was not a party to the Stipulation.
19        WCP’s interest in the adversary proceeding stemmed from its
20   security interest in Edra’s contract rights under the Letter
21   Agreement, including the right to collect under the Note.   WCP’s
22   contract rights and right to the receivable were not property of
23   Edra’s estate under the holding in Samson v. W. Capital Partners,
24   LLC, (In re Blixseth), 454 B.R. 92 (9th Cir. BAP 2011) aff’d 684
25   F.3d 865, 873 (9th Cir. 2012).   If the Letter Agreement was
26   declared repudiated and unenforceable under Count I, WCP’s rights
27   under the Letter Agreement, which were derivative of Edra’s,
28   became worthless.

                                      3
 1        In contrast, repudiation of the agreement paved the way for
 2   the Trustee to pursue certain tort claims against the Atigeo
 3   Parties which existed in March 2007, but were subject to a broad
 4   release provision contained in the Letter Agreement.   Those tort
 5   claims, which were not yet ripe for adjudication until
 6   repudiation of the Letter Agreement was established under
 7   Count I, were the subject of the settlement under Rule 9019.
 8        The Trustee and Atigeo Parties sought approval of the
 9   Stipulation and, without a hearing, the bankruptcy court granted
10   the requested relief and entered judgment.   The next day, at
11   WCP’s request, the court issued an order holding the judgment in
12   abeyance and set the matter for hearing on September 7, 2011 (the
13   “September 7th Hearing”).   The September 7th Hearing on the
14   Stipulation was combined with the hearing on the settlement.
15        The Trustee was the only witness at the September 7th
16   Hearing.   After the hearing, the bankruptcy court took the
17   matters under advisement.   The parties submitted additional
18   briefs and proposed Findings of Fact and Conclusions of Law.    In
19   a Memorandum Decision and Order, the court approved the
20   Stipulation, entered a declaratory judgment on Count I and
21   approved the settlement of the estate’s tort claims against the
22   Atigeo Parties for $1.25 million.    WCP moved for reconsideration
23   of the court’s decisions.   After a hearing, the bankruptcy court
24   denied WCP’s reconsideration requests in a Memorandum Decision.
25        WCP’s primary challenge on appeal is to the bankruptcy
26   court’s entry of the stipulated declaratory judgment on Count I.
27   WCP argues that the bankruptcy court’s decision approving the
28   judgment was plagued by numerous procedural errors, including,

                                      4
 1   among others, that the bankruptcy court lacked jurisdiction to
 2   enter judgment in the adversary proceeding on WCP’s contractual
 3   claims against nondebtors, that the court erred by treating the
 4   hearing on the approval of the Stipulation as a de facto motion
 5   for summary judgment in the adversary proceeding without
 6   procedural protections, and that the court deprived WCP of
 7   procedural due process by approving the Stipulation through the
 8   guise of a Rule 9019 settlement.       As a result, WCP seeks reversal
 9   of the declaratory judgment on procedural due process grounds.
10        After a review of the extensive record provided, we conclude
11   that the bankruptcy court had jurisdiction to enter      judgment on
12   Count I with respect to all parties involved in the adversary
13   proceeding.   However, for the reasons discussed below, we agree
14   that WCP was denied   procedural due process before the court
15   entered the declaratory judgment.      Accordingly, we VACATE the
16   judgment and orders on appeal and REMAND for further proceedings.
17                                I.    FACTS
18   A.   Edra’s Relationship With the Atigeo Parties
19        Sometime in 2006, Sandoval, the CEO for Atigeo and
20   xPatterns,2 persuaded Edra to invest $15 million in xPatterns.
21   Edra invested $10 million and allegedly agreed that xPatterns
22   could loan $5 million of that amount to Sandoval so that he could
23   purchase a home in Kirkland, Washington.      In early 2007, a
24   disagreement developed between Sandoval and Edra about the terms
25
26
27
          2
            Atigeo and xPatterns are affiliated software development
28   and sales companies. Atigeo was formerly known as Azimyth, LLC.

                                        5
 1   of xPatterns’ loan to Sandoval.3       In addition, Edra was unable to
 2   make the final $5 million investment in xPatterns.
 3        Edra had also invested $8 million in Opspring, LLC
 4   (“Opspring”), a start-up company formed to develop technology
 5   used by governments.   Opspring was a subsidiary of Atigeo and
 6   owned by Sandoval.   Opspring had hired Dennis Montgomery
 7   (“Montgomery”) to develop certain products.       Before working for
 8   Opspring, Montgomery had been employed by eTreppid Technologies,
 9   LLC (“eTreppid”).    eTreppid filed an action against Opspring
10   alleging, among other things, that Montgomery had converted
11   eTreppid property, interfered with and misappropriated eTreppid
12   business relationships, and misappropriated eTreppid trade
13   secrets for Opspring’s benefit.
14        While this litigation was pending, Edra demanded the return
15   of her full investment of capital in xPatterns and, in exchange,
16   she offered to relinquish her ownership interest in xPatterns and
17
          3
            The record shows that there was a dispute as to whether
18   Edra agreed to the loan from xPatterns to Sandoval. According to
19   the Trustee’s third-party complaint filed in the adversary (which
     we discuss below), Sandoval converted the funds and once Edra
20   found out, Sandoval agreed to repay the “loan” in thirty to sixty
     days.   At an October 12, 2010 hearing, the Trustee stated on the
21   record that “at one point in time [Edra] alleged that
     Mr. Sandoval had wrongfully diverted money to his benefit.” Hr’g
22
     Tr. 16:15-16, Oct. 12, 2010. Later, the Trustee submitted Edra’s
23   and Sandoval’s affidavits in support of the Stipulation.
     Sandoval’s affidavit states that Edra agreed to the loan. Edra’s
24   affidavit does not mention the loan. At the September 7th
     Hearing on the approval of the Stipulation, the Trustee stated
25   that it would be difficult to establish the wrongful taking of
26   money when Edra gave her permission to Sandoval to take the loan
     from xPatterns. Further, the advances were classified as loans
27   on xPatterns financial statements and there was evidence that the
     loans owed to xPatterns by Sandoval were later satisfied. Hr’g
28   Tr. 72-73, Sept. 7, 2011.

                                        6
 1   obtain full ownership of Opspring.   To resolve these disputes,
 2   the parties negotiated and entered into the Letter Agreement.
 3        The parties agreed to convert the $10 million equity
 4   interest that Edra (and her family members) held in xPatterns
 5   into a $10 million debt obligation from xPatterns to the Blixseth
 6   family.   The agreement also provided that Edra would assume
 7   complete ownership of Opspring, including all liabilities.     In
 8   exchange for the conversion of Edra’s equity position in
 9   xPatterns into a debt position, and the transfer of all ownership
10   in Opspring to Edra, xPatterns and Atigeo required certain
11   performance from Edra and Opspring, which Edra would control.
12        The terms of the Letter Agreement required Opspring4 to
13   indemnify, defend, and hold harmless the Atigeo Parties with
14   respect to all claims, causes of action, liability and damages
15   arising out of or related in any way to the eTreppid litigation
16   or Opspring’s relationship with Montgomery.    Edra also agreed
17   that Opspring would pay Atigeo quarterly performance fees equal
18   to 5% of Opspring’s revenue (up to a maximum of $15 million).
19   The first $5 million of this 5% royalty was to be used to off-set
20   the debt obligations imposed upon xPatterns by Edra in the Letter
21   Agreement.
22        Finally, the Letter Agreement required xPatterns to sign a
23   promissory note for $10 million payable to Edra.   xPatterns
24   satisfied the first $2 million owed through agreed upon set-offs
25   and a payment of $382,568 on March 10, 2008.   The remaining $8
26
          4
27          Blxware, LLC (“Blxware”) is a company controlled by Edra
     and is the successor-in-interest to some if not all of Opspring’s
28   rights and obligations under the Letter Agreement.

                                      7
 1   million, $5 million of which was unconditionally guaranteed by
 2   Sandoval, was never paid.
 3        Following the execution of the Letter Agreement, Edra
 4   allegedly induced third parties to breach confidentiality
 5   agreements that they had with Atigeo and provide her and Opspring
 6   with its proprietary information.   Edra also failed to cause
 7   Opspring to pay performance fees or defend the Atigeo Parties in
 8   the eTreppid litigation.
 9        On September 23, 2008, Atigeo and xPatterns filed an action
10   in the Washington Superior Court against Edra and others that
11   related to the parties’ rights and responsibilities under the
12   Letter Agreement (the “Washington Action”).5
13   B.   Edra’s Relationship with WCP
14        After the execution of the Letter Agreement, Edra guaranteed
15   a $13,650,000 loan made to her son by WCP and pledged certain
16   personal property as collateral for the loan.   WCP held a
17   perfected security interest in virtually all of Edra’s lienable
18   personal property pursuant to a security agreement executed by
19   her on June 5, 2007, in favor of WCP.   Included in WCP’s security
20   agreement were, among other things, all of Edra’s contractual
21   rights in the Letter Agreement and the related Note.
22   C.   Bankruptcy Events
23        On March 26, 2009, Edra filed for chapter 11 relief.    In
24
25        5
            Prior to this lawsuit, Edra had commenced an action in the
26   Washington Superior Court, Blixseth v. Atigeo, LLC et al. (Case
     No. 08-2-18054-4) in connection with the Letter Agreement and the
27   balance owed on the Note. Edra’s complaint was dismissed with
     prejudice because the suit was filed prematurely as no money was
28   yet due. Hr’g Tr. 102:2-14, Sept. 7, 2011.

                                     8
 1   Schedule B, Edra listed the receivable of $8 million due from
 2   xPatterns/Sandoval.   Edra listed eTreppid as her largest
 3   unsecured creditor owed $20 million.   On May 29, 2009, Edra’s
 4   case was converted to chapter 7 and Samson was appointed the
 5   trustee.
 6        On October 2, 2009, Atigeo and xPatterns filed unliquidated
 7   proofs of claim (“POC”) in Edra’s case.   The POCs were identical
 8   and primarily based on the allegations in the Washington Action
 9   and Edra’s breaches of the Letter Agreement.
10                         The Adversary Complaint
11        On December 7, 2009, Atigeo and xPatterns filed an adversary
12   complaint against Samson, Edra, Opspring, Blxware, and others.6
13   The factual allegations and demands set forth in the complaint
14   were virtually identical to those alleged in the POCs.    In total,
15   the Plaintiffs alleged sixteen Counts with fifteen of those
16   Counts seeking offsets or damages arising under the Letter
17   Agreement and other relief.7   If the Plaintiffs succeeded on
18   Count I, entitled “Declaratory Judgment Regarding Repudiation of
19   Letter Agreement,” and repudiated the Letter Agreement, the
20   remaining Counts asserted in the complaint became moot.
21
          6
22          The other defendants were Julie Barve (“Barve”) and
     Matthew Crocker (“Crocker”), family members of Edra, and Erik
23   Bergsagel. The bankruptcy court entered default judgments
     against Opspring and Blxware on May 27, 2011.
24
          7
            Other Counts asserted against the Trustee/Edra included:
25   Declaratory Judgment Regarding Blixseth Family Interest; Breach
26   of Contract (Indemnification); Breach of Contract (Performance
     Fee); Breach of Contract (Confidentiality); Breach of Contract
27   (Return of Property); Tortious Interference; Trade Secret
     Misappropriation; Conversion; Civil Conspiracy; and Injunctive
28   Relief.

                                      9
 1   Plaintiffs filed a copy of the adversary complaint in the main
 2   bankruptcy case.
 3     The Trustee’s Answer, Counterclaim and Third-Party Complaint
 4        On February 10, 2010, the Trustee filed an answer, a
 5   counterclaim against Plaintiffs, and a third-party complaint
 6   against Sandoval, Heather Sandoval, and HMJZ LLC (the “Sandoval
 7   Parties”).   In his counterclaim and third-party complaint, the
 8   Trustee asserted thirteen Counts based on Sandoval’s alleged
 9   conversion of Edra’s $5 million investment in xPatterns that he
10   used without authority, or Edra’s consent, to purchase the real
11   property in Kirkland, Washington and his numerous
12   misrepresentations to Edra regarding the technology owned by
13   Atigeo and xPatterns.   In Count I of the counterclaim and third-
14   party complaint, the Trustee alleged that due to the fraudulent
15   representations made by the Atigeo Parties, Debtor was induced to
16   enter into the Letter Agreement.     As a result, the Trustee
17   requested a declaratory ruling that the Letter Agreement was
18   void.8
19        The Sandoval Parties moved to dismiss the Trustee’s third-
20   party complaint on res judicata grounds, contending that the
21   claims and allegations were identical to those Edra previously
22   asserted against them in her state court action, Blixseth v.
23   Atigeo, LLC et al. (Case No. 08-2-18054-4).     That action was
24   dismissed with prejudice on the basis that Edra’s claims were
25   premature since no money was yet due on the Note.    The Sandoval
26
          8
27          In essence, then, the Trustee agreed with Plaintiffs that
     the Letter Agreement should be repudiated and declared
28   unenforceable, albeit for different reasons.

                                     10
 1   Parties further alleged that the Trustee’s fraud claims failed to
 2   comply with Civil Rule 9(b) and the non-fraud claims failed to
 3   state a claim for relief.    Plaintiffs moved to dismiss the
 4   counterclaim on essentially the same grounds.    The bankruptcy
 5   court denied the motions and gave the Trustee until July 6, 2010
 6   to amend.     On July 6, 2010, the Trustee filed his amended
 7   counterclaim and    third-party complaint.
 8       The Trustee’s Motion For Second-Amended Counterclaim and
          Third-Party Complaint And Motion to Bifurcate the Trial
 9
10        On August 31, 2010, the Trustee moved to file a second
11   amended counterclaim and third-party complaint because he did not
12   believe he had “active tort claims” against the Atigeo Parties
13   due to the broad releases in the Letter Agreement.    The Trustee
14   admitted that these contingent tort claims did not exist unless
15   the Plaintiffs prevailed on their declaratory relief action to
16   repudiate the Letter Agreement under Count I in the adversary
17   complaint.    Hr’g Tr. 9:15-19, Oct. 12, 2010.
18        Also on August 31, 2010, the Trustee filed a Motion to
19   Bifurcate the trial in the adversary proceeding pursuant to
20   Rule 7042.9    The Trustee sought to have the court first determine
21   whether the Letter Agreement was unenforceable under Count I and,
22   if so, to then try the Trustee’s dormant, or “contingent” tort
23   claims.
24        The Sandoval and Atigeo Parties opposed the Trustee’s
25
26        9
            Rule 7042 authorizes the court to have separate trials of
27   one or more separate issues, claims, crossclaims, counterclaims,
     or third-party claims for convenience, to avoid prejudice, or to
28   expedite and economize.

                                       11
 1   motions.   They opposed the motion to bifurcate on the grounds,
 2   among others, that the facts and issues relevant to the formation
 3   of the Letter Agreement and the parties’ performance or non-
 4   performance thereunder were inextricably intertwined with the
 5   facts and legal theories underlying the Trustee’s “contingent”
 6   tort claims.   The Parties maintained that, if anything, the
 7   Trustee’s motion to bifurcate demonstrated that his tort claims
 8   would only “stay alive” in the event the bankruptcy court
 9   invalidated the Letter Agreement.     This supported, the Parties’
10   argued, dismissal of the Trustee’s “contingent” tort claims, but
11   did not justify piecemeal litigation, both of which revolved
12   around materially similar facts.
13        On October 12, 2010, the court heard the Trustee’s motions,
14   along with other matters.    With counsel for the Trustee, the
15   Atigeo Parties, the Sandoval Parties, and WCP present, the
16   bankruptcy court questioned whether Count I could be “dealt with
17   on summary judgment.”   Hr’g Tr. 10:7-8, Oct. 12, 2010.   Counsel
18   for the Sandoval Parties answered that it “would depend on,
19   obviously, the discovery.”   Id. at 10:16-17.
20        The bankruptcy court ultimately denied the Trustee’s motion
21   to bifurcate without prejudice and denied the Trustee’s motion to
22   amend.   The court found that the Trustee’s tort claims were not
23   “ripe” and, therefore, ruled that the Trustee’s original
24   counterclaim and third-party complaint filed February 1, 2010,
25   were the operative pleadings.
26        After the hearing, the Trustee filed a notice of dismissal
27   of his original pleadings without prejudice.    The bankruptcy
28   court dismissed the Trustee’s counterclaim and third-party

                                      12
 1   complaint by order entered on October 13, 2010.
 2                       WCP’s UCC Foreclosure Sale
 3        On March 9, 2010, WCP submitted a Notice of UCC Public Sale
 4   that certain collateral was to be sold at a public sale on
 5   March 22, 2010.   WCP’s notice included the sale of all accounts
 6   receivable and/or contract rights of Edra D. Blixseth in which
 7   WCP had a perfected security interest.
 8        WCP had the right to foreclose due to the fact that Edra had
 9   failed to timely file her Statement of Intention under § 521.
10   Therefore, under § 362(h), all her personal property secured by
11   WCP’s debt was released from the automatic stay.   See In re
12   Blixseth, 684 F.3d 865.
13        On March 19, 2010, three days prior to the sale, Atigeo and
14   xPatterns filed a Notice of Potential Impact in Debtor’s main
15   bankruptcy case, which provided notice of their allegation that
16   Edra had failed to meet her obligations under the Letter
17   Agreement.
18        At the March 22, 2010 sale, WCP purchased, among other
19   personal property assets, the contract claims and accounts
20   receivable arising out of the Letter Agreement for $250,000.
21                       WCP’S Motion to “Intervene”
22        On March 29, 2010, WCP filed an Unopposed Motion to
23   Intervene in the adversary proceeding.10   The bankruptcy court
24
25        10
            Although WCP titled its pleading “Unopposed Motion to
26   Intervene”, WCP relied on Civil Rule 20(a) which allows
     permissive joinder of parties, and not Civil Rule 24, which sets
27   forth the requirements for intervention. Civil Rule 20(a),
     authorizes persons to join an action as a defendant if: (A) any
28                                                      (continued...)

                                     13
 1   granted the motion by order entered March 30, 2010.
 2        WCP later filed a motion to file a third-party complaint.
 3   The bankruptcy court heard WCP’s motion on October 12, 2010.
 4   During that hearing, WCP stated that it had foreclosed on Edra’s
 5   contract rights under the Letter Agreement and, as owner of the
 6   contract rights, sought to file a third-party complaint against
 7   the Atigeo Parties to collect on the Note.   At that time, WCP’s
 8   counsel affirmed that “we do not have any tort claims related to
 9   this matter, and those would still rest with the trustee.”   Hr’g
10   Tr. 46:22-23, Oct. 12, 2010.
11        Also at that hearing, the parties and the court discussed
12   whether WCP should file an answer to the complaint given that it
13   had stepped into the shoes of the Trustee on the contract claims
14   after it had foreclosed on Edra’s contract rights.    WCP
15   maintained that it would make more sense for the Plaintiffs’
16   complaint to actually assert what claims it had against WCP so
17   that WCP could answer the complaint in a clear way.   In the end,
18   the bankruptcy court authorized WCP to answer the complaint as a
19   defendant by stating its interest in the litigation and answering
20   whatever Counts it thought appropriate.   Plaintiffs never amended
21   their complaint to include reference to WCP.
22                WCP’S Answer and Third-Party Complaint
23        On November 3, 2010, WCP filed an answer and third-party
24
          10
           (...continued)
25   right to relief is asserted against them jointly, severally, or
26   in the alternative with respect to or arising out of the same
     transaction, occurrence, or series of transactions or
27   occurrences; and (B) any question of law or fact common to all
     defendants will arise in the action. There is no indication in
28   the record whether these requirements were met.

                                    14
 1   complaint against the Atigeo Parties.
 2        WCP’s answer included a Preliminary Statement on Procedure
 3   in which it stated that it was an interested party due to its
 4   status as a secured creditor of the Debtor and as the party which
 5   foreclosed on certain interests of Edra which were the subject of
 6   the underlying complaint.   In its answer, WCP stated that it was
 7   unable to respond to the vast majority of allegations set forth
 8   in the adversary complaint for lack of sufficient information.11
 9   In the third-party complaint, WCP sought to enforce the Letter
10   Agreement and collect the $8 million due under Note, including
11   $3 million from Sandoval due on his guarantee.   On December 28,
12   2010, WCP filed notice that it was dismissing, without prejudice,
13   all claims against Atigeo.12
14                               The Mediation
15        All parties to the adversary proceeding participated in a
16   private mediation on June 16, 2011.   During that mediation, the
17   Trustee and the Atigeo Parties negotiated a framework for a
18
19
          11
            Although WCP professed to be nothing more than Edra’s
20   creditor, and despite the fact that it had assumed no liabilities
     under the Letter Agreement, WCP answered all the Counts in the
21   adversary complaint. WCP also asserted as an affirmative defense
22   that the Plaintiffs’ complaint failed due to their breach of the
     Letter Agreement.
23
          12
            It is unclear from the record why WCP dismissed Atigeo
24   from the third-party complaint. However, the docket shows that
     after dismissing Atigeo, WCP sought to amend its third-party
25   complaint to seek declaratory relief on the issue whether
26   xPatterns was the alter ego of Atigeo. WCP alleged that such a
     determination was necessary to determine Atigeo’s obligations
27   under the Letter Agreement. The bankruptcy court granted WCP’s
     motion to amend by order entered May 23, 2011. Atigeo answered
28   the amended third-party complaint on June 10, 2011.

                                      15
 1   possible settlement with respect to Count I in the adversary and
 2   the Trustee’s contingent tort claims.      WCP’s participation in the
 3   mediation was limited.    Hr’g Tr. 28:10-11, Sept. 7, 2011.
 4                            The Scheduling Order
 5        Pursuant to the parties’ stipulation and proposed amended
 6   scheduling order, the bankruptcy court entered an order on
 7   June 22, 2011, extending certain pretrial dates in connection
 8   with the adversary.   The court declined however to reschedule the
 9   trial which was set for September 26-30, 2011.
10                   WCP’s Discovery in the Adversary
11        On March 4, 2011, WCP deposed Sandoval for a full day and
12   that deposition was continued.    On March 7, 2011, WCP responded
13   to Sandoval’s Requests for Admission.      In that response, WCP
14   stated that it succeeded to Blixseth’s rights under the Letter
15   Agreement and was not involved in any way with the facts leading
16   to the Letter Agreement, the execution, performance or anything
17   related to the Letter Agreement.       Therefore, WCP had no personal
18   knowledge of the events surrounding the Letter Agreement.
19        On August 10, 2011, WCP took the deposition of the Trustee.
20   WCP also took the depositions of Alan Annex (Edra’s attorney in
21   her negotiations with the Atigeo Parties) and Nick Rhodes (Edra’s
22   advisor in technology companies).
23               The Stipulation For Entry of Declaratory
               Judgment On Count 1 of Plaintiffs’ Complaint
24
25        On July 20, 2011, the Trustee filed the Stipulation and
26   proposed order entering declaratory judgment On Count 1 of
27
28

                                       16
 1   Plaintiffs’ Complaint in the adversary.13   The Stipulation was
 2   not accompanied by a motion or served on WCP.   However, one day
 3   prior, the Trustee’s counsel notified WCP’s counsel by email that
 4   the Trustee had entered into the Stipulation with the Atigeo
 5   Parties on Count I.
 6        The Stipulation was based on the Trustee’s investigation
 7   into the parties’ performance under the Letter Agreement.   The
 8   Trustee discovered that Edra and the entities she controlled
 9   breached the Letter Agreement in various ways, including: (1) her
10   failure to direct Opspring to pay xPatterns’ performance fees
11   owed, despite Opspring earning revenue and despite Sandoval’s
12   reliance on anticipated performance fees; (2) her failure to keep
13   the Letter Agreement confidential; (3) her failure to keep trade
14   secrets and intellectual property of Sandoval and Atigeo
15   confidential; and (4) Opspring and Blxware’s failure to defend
16   and indemnify the Atigeo Parties in the eTreppid litigation.      As
17   a result of the investigation, the Trustee determined that Edra’s
18   estate could not prevail in a defense of Count I.   Hr’g Tr. 69-
19   71, Sept. 7, 2011.    Thus, Plaintiffs and the Trustee stipulated
20   to the entry of a declaratory judgment on Count 1 of the
21   adversary complaint such that the Letter Agreement and all of its
22
23
24
          13
            Although the Stipulation referenced the affidavits of
25   Edra and Sandoval to support the facts stated, those affidavits
26   were not filed with the Stipulation in the adversary proceeding.
     Rather, the affidavits were filed in connection with the parties’
27   motion to settle the estate’s tort claims against the Atigeo
     Parties under Rule 9019 in the main bankruptcy case. The
28   settlement is discussed below.

                                      17
 1   terms and instruments were repudiated.14   The bankruptcy court
 2   entered the order approving the Stipulation one day later on July
 3   21, 2011.
 4       WCP’s Emergency Motion to Vacate the July 21, 2011 Order
 5        On the same day that the court entered the order, WCP filed
 6   an emergency motion to vacate or in the alternative reconsider
 7   the July 21, 2011 order approving the Stipulation.   WCP argued
 8   that it would be a denial of due process to approve the
 9   Stipulation because the Trustee had no right to stipulate away
10   the rights of third parties.
11        On July 22, 2011, the bankruptcy court rescinded its order
12   and provided WCP with notice of a hearing:
13        The Court’s Order entered July 21, 2011, shall be held
          in abeyance and a hearing on approval of the
14        Stipulation [for] Declaratory Judgment on Count I of
          Plaintiff’s Complaint . . . at Dkt 240 and on [WCP]’s
15        Emergency Motion to Vacate or in the alternative
          Reconsider July 21, 2011 Order [Approving] Stipulation
16        filed July 21, 2011, at dkt. 242 shall be held
          Wednesday, September 7, 2011, at 9:00 a.m.
17
18             The Trustee’s Settlement With The Atigeo Parties
19        Contemporaneous with the negotiation of the Stipulation, the
20   Trustee also negotiated a settlement with the Atigeo Parties
21   relating to the estate’s tort claims against them, which would
22   become ripe upon the repudiation of the Letter Agreement.    Those
23
          14
24          As part of the Stipulation the Trustee also obtained
     contingent assignments from Barve and the trustee of Crocker’s
25   bankruptcy estate of all their interests in Atigeo, xPatterns and
26   their interest or claims arising from or related to the Letter
     Agreement and the related note. In exchange, the Trustee would
27   pay Barve and the trustee in Crocker’s estate $40,000 each out of
     the settlement proceeds. The Trustee also obtained from Edra a
28   similar assignment.

                                      18
 1   claims consisted of claims for alleged misrepresentations, fraud,
 2   conversion, negligence, and others which were pled in the
 3   Trustee’s original counterclaim filed February 1, 2010, and later
 4   dismissed.
 5        On July 20, 2011, the Trustee filed a “Motion for an Order
 6   Approving the Settlement with [Plaintiffs] and Third Party
 7   Defendant Michael Sandoval” (the “9019 Motion”), discussing the
 8   four factors set forth in Martin v. Kane (In re A&C Props.),
 9   784 F.2d 1377, 1381 (9th Cir. 1986).   Attached to the motion were
10   the affidavits of Edra and Sandoval.   The next day, the Trustee
11   filed a notice of the motion and notice of opportunity to respond
12   and request a hearing and a proof of service.
13        The Atigeo Parties filed a Joinder Motion to approve the
14   settlement.   WCP filed a brief in opposition.
15        On July 28, 2011, the bankruptcy court provided notice to
16   all parties in the main case, including WCP, that “a hearing will
17   be held on [the Atigeo Parties’] Joinder Motion for Approval of
18   Settlement.”15   On August 5, 2011, the Court issued an Order
19   stating that a “hearing on the Trustee’s Motion for Order
20   approving Settlement with Plaintiffs Atigeo LLC and xPatterns LLC
21   and Third Party Defendant Michael Sandoval” will be held on
22   “Wednesday, September 7, 2011.”    The Trustee and WCP each filed
23   Lists of Exhibits and Witnesses prior to the September 7th
24   Hearing in the main bankruptcy case and in the adversary
25
26
          15
27          The court’s notice and order was necessary because WCP
     failed to notice its objection for hearing in accordance with
28   Mont. LBR 9013-1.

                                       19
 1   proceeding.16
 2         The Atigeo Parties’ Request for a Pretrial Conference
 3        On July 25, 2011, the Atigeo Parties filed a Request for a
 4   Pretrial Conference.   The request set forth several reasons why a
 5   pretrial conference was necessary, including the proximity of the
 6   September 7th Hearing on approval of the settlement to the
 7   September 26, 2011 trial date in the adversary.   The Atigeo
 8   Parties noted that if the settlement was approved by the court,
 9   the Letter Agreement, and all its terms and instruments, would be
10   invalid and unenforceable as a matter of law.   As a result, they
11   would dismiss their complaint against the estate and WCP’s third-
12   party complaint seeking to enforce the terms of the Letter
13   Agreement would be rendered moot.
14        On July 26, 2011, the bankruptcy court entered an order
15   suspending all unexpired pretrial deadlines and the trial date in
16   the adversary proceeding and provided notice to the parties that
17   a pretrial conference would be held Wednesday, September 7, 2011.
18
19
20
          16
            The Trustee’s exhibit list included the Letter Agreement;
21   WCP’s notice of UCC sale; Atigeo and xPatterns’ notice regarding
     the possible impact on the adversary proceeding; assignments from
22
     Edra, Barve, and the trustee from Crocker’s estate; and the
23   affidavits of Michael Sandoval and Edra. WCP’s exhibit list
     included its security agreement, promissory note, pleadings from
24   the Washington Action and Edra’s Washington Superior Court Case
     No. 08-2-18054-4; various emails; and letters. The Trustee’s
25   witness list identified himself and “any witness identified by
26   any other party” and “[a]nyone presented in the courtroom as may
     be necessary for rebuttal, impeachment witnesses, or witnesses
27   necessary to establish foundation.” WCP’s witness list mirrored
     the Trustee’s, i.e., the only witness identified by name to
28   testify was the Trustee.

                                     20
 1                       The September 7, 2011 Hearing
 2        On September 7, 2011, Judge Peterson presided over the
 3   hearing on the approval of the Stipulation for declaratory
 4   judgment on Count I of Plaintiffs’ complaint, WCP’s emergency
 5   motion to vacate the Stipulation and the Trustee’s 9019 Motion.17
 6   The Trustee and his counsel, WCP’s counsel and the Atigeo
 7   Parties’ counsel attended.    The Trustee was the only witness.
 8        The Trustee submitted the affidavit of Edra in which she
 9   stated, under penalty of perjury, that Opspring did not pay any
10   performance fees owed under the Letter Agreement and that
11   Opspring did not defend and indemnify the Atigeo Parties in the
12   eTreppid litigation despite having received a request to do so.
13   The affidavit of Michael Sandoval mostly reiterated Edra’s
14   rendition of the facts showing that she breached the Letter
15   Agreement.
16        WCP objected to the Trustee’s conclusions drawn from his
17   reading of Edra’s and Sandoval’s affidavits on the ground that
18   the affidavit[s] contained hearsay.    The bankruptcy court
19   overruled WCP’s objection.
20        WCP examined the Trustee at length, including detailed
21   cross-examination regarding the Trustee’s factual investigation
22   related to Count I and the events that led to the settlement.
23   WCP objected to the introduction of certain evidence, questioned
24   the Trustee on several pieces of evidence, and introduced its own
25   documentary evidence.    However, the record shows that WCP
26   produced no witnesses or other evidence that was contrary to the
27
28        17
               Judge Kirscher was unable to hear the matter.

                                       21
 1   affidavit testimony of Edra and Sandoval.
 2        At the end of the hearing, the bankruptcy court gave the
 3   parties fifteen days to file proposed findings of fact and
 4   conclusions of law, along with briefs in support of their
 5   respective positions.   The Atigeo parties, together with the
 6   Trustee, and WCP submitted the requested papers.
 7        In WCP’s closing brief, WCP argued that it was entitled to a
 8   full and fair opportunity to complete discovery.    WCP also made
 9   an offer of proof that Alan Annex, Edra’s attorney and the
10   drafter of the Letter Agreement, expressly contradicted the
11   factual conclusions set forth in the Stipulation.   WCP further
12   stated that the trial was scheduled for September 26, 2011 and
13   discovery was to be completed by August 31, 2011.   WCP argued
14   that it had outstanding document requests and had served
15   subpoenas and there were at least nine depositions to be
16   completed, including Edra’s.
17        On September 27, 2011, after considering the evidence
18   presented at the September 7th Hearing, and reviewing the
19   parties’ briefs, the bankruptcy court issued Findings of Fact and
20   Conclusions of Law18 and entered an order approving the
21   settlement and Stipulation in Debtor’s main case.
22        On September 28, 2011, the court entered an order approving
23   the Stipulation and entered a separate judgment in favor of
24   Plaintiffs’ on Count I in the adversary proceeding.   The
25   bankruptcy court concluded that the Letter Agreement and all of
26
          18
27          The bankruptcy court adopted the Trustee’s and Atigeo
     Parties’ proposed Findings of Fact and Conclusions of Law
28   verbatim.

                                     22
 1   its terms and instruments were repudiated and thus were invalid
 2   and unenforceable as a matter of law.
 3                   WCP’S Motions For Reconsideration
 4        On September 29, 2011, WCP moved for reconsideration of the
 5   bankruptcy court’s September 27, 2011 order approving the
 6   settlement and Stipulation under Civil Rule 60(b)(1),
 7   incorporated by, Rule 9024.   WCP contended the order contained
 8   fundamental mistakes of law and fact.   The order stated that WCP
 9   failed to present any evidence at the September 7, 2011 hearing
10   but, WCP argued, there was no rule of procedure that required WCP
11   to present any evidence.   Therefore, WCP maintained that the
12   effect of the court’s order approving the Stipulation was to deny
13   WCP its fundamental rights of due process because no evidentiary
14   hearing took place.   WCP also maintained that the Trustee had no
15   interest in Count I because WCP had foreclosed on Edra’s contract
16   rights under the Letter Agreement which divested the estate of
17   any remaining interest that it may have had in the Letter
18   Agreement or Count I.   In this regard, WCP asserted that the
19   Trustee was stipulating not to his own legal rights, but legal
20   rights of others.
21        Finally, WCP pointed out that on September 16, 2011, the
22   court ordered Edra to be made available for a deposition prior to
23   September 30, 2011, to address statements made in her affidavit
24   to support the Stipulation and declaratory judgment.    WCP
25   contended that the court cut off its ability to depose Edra when
26   it entered the September 27, 2011 order the day before Edra’s
27   deposition was scheduled to take place in California.
28        On October 10, 2011, WCP filed a Motion to Reconsider the

                                     23
 1   court’s initial July 21, 2011 order approving the Stipulation
 2   prior to a hearing and Judge Peterson’s September 28, 2011
 3   judgment.
 4        The Trustee and the Atigeo Parties opposed WCP’s motions.
 5   In connection with the hearing, the Trustee filed an Exhibit List
 6   showing emails back and forth between the parties regarding
 7   further discovery and pertaining to Edra’s deposition.     The
 8   Trustee’s supplemental Exhibit List showed that WCP was to
 9   complete Edra’s deposition by September 30, 2011, which it did
10   not do.
11        WCP sought an expedited hearing on the motions to
12   reconsider, which the bankruptcy court granted.     While WCP’s
13   motions were pending, WCP filed notices of appeal on the
14   Stipulation and settlement on October 10 and 11, 2011,
15   respectively.
16                       The October 26, 2011 Hearing
17        On October 26, 2011, the bankruptcy court held a hearing on
18   WCP’s motions for reconsideration.    At the hearing, WCP’s counsel
19   stated that he did not know the September 7th Hearing was a
20   trial.    Hr’g Tr. 74:8-25, Oct. 26, 2011.   He further stated that
21   he understood the September 7th Hearing was an evidentiary
22   hearing on the 9019 Motion in the main bankruptcy case, not a
23   trial in the adversary proceeding.    Id.    Finally, he stated on
24   the record that “everybody anticipated that this was a pretrial
25   conference on the adversary.   We understood, certainly understood
26   that this was a hearing on the, an evidentiary hearing on the
27   9019 order, but we did not prepare for trial, we did not bring
28   our witnesses, we did not subpoena witnesses.”     Id. at 83:15-19.

                                      24
 1        WCP again made an offer of proof that Alan Annex, Edra’s
 2   lawyer, would testify, among other things, that it was the intent
 3   of the parties for the Atigeo Parties to get Edra’s membership
 4   interest in xPatterns in exchange for a repayment of $10 million
 5   investment and that repayment was not conditioned upon any other
 6   obligations in the Letter Agreement.   Id. at 76:17-25; 77:1-17.
 7   WCP also argued that the court should hear from Nick Rhodes, an
 8   employee of Opspring and Blxware, and Sandoval, who had been
 9   deposed.   Id.
10        On November 10, 2011, the bankruptcy court entered a
11   Memorandum of Decision and Order denying WCP’s motions for
12   reconsideration.   The court found that the bankruptcy court’s
13   orders made it clear that the September 7th Hearing was an
14   evidentiary hearing on the approval of the Stipulation.    The
15   court concluded that WCP’s counsel’s misunderstanding about the
16   nature of the hearing and failure to present evidence was not
17   grounds for reconsideration.   In addition, the bankruptcy court
18   found that WCP was not a stranger to the adversary proceeding and
19   indeed had been an active participant and had ample notice of the
20   September 7th Hearing.   The court concluded that by participating
21   in the adversary (filing an answer, filing a counterclaim and a
22   third-party complaint and by being a party to the stipulated
23   scheduling order), WCP waived and forfeited its right to
24   challenge the court’s authority to decide all claims asserted in
25   the adversary proceeding, including Plaintiffs’ Count I seeking
26   repudiation of the Letter Agreement.
27        With respect to the 9019 Motion, the court found that WCP
28   failed to show the settlement was not fair and equitable as

                                     25
 1   required under A&C Properties.
 2                                II.   JURISDICTION
 3        WCP contends that the bankruptcy court did not have
 4   jurisdiction over its claims against the Atigeo Parties because
 5   those claims were state law contract-based claims and between two
 6   nondebtor parties.    We address WCP’s jurisdictional argument
 7   below.    WCP does not challenge our jurisdiction over this appeal
 8   under § 28 U.S.C. § 158.
 9                                  III.   ISSUES
10        A.      Whether the bankruptcy court had jurisdiction to enter
11   the stipulated declaratory judgment on Count I in the adversary
12   with respect to all parties, including WCP;
13        B.      Whether the bankruptcy court’s proceedings in
14   connection with its approval of the stipulated declaratory
15   judgment on Count I in the adversary denied WCP procedural due
16   process; and
17        C.      Whether the bankruptcy court abused its discretion in
18   approving the Trustee’s 9019 Motion when the underlying
19   settlement eliminated the causes of action that WCP had asserted
20   against the Atigeo Parties in its third-party complaint in the
21   adversary.
22                          IV.    STANDARDS OF REVIEW
23        We review questions regarding jurisdiction de novo.     Durkin
24   v. Benedor Corp. (In re G.I. Indus. Inc.), 204 F.3d 1276, 1279–80
25   (9th Cir. 2000).
26        We also review de novo whether a bankruptcy court’s
27   proceedings violated a party’s right to procedural due process.
28   Price v. Lehtinen (In re Lehtinen), 564 F.3d 1052, 1058 (9th Cir.

                                           26
 1   2009).
 2          We review for abuse of discretion the bankruptcy court’s
 3   approval of a settlement.    Martin v. Kane (In re A & C Props.),
 4   784 F.2d 1377, 1380 (9th Cir. 1986).     A bankruptcy court abuses
 5   its discretion if it applied the wrong legal standard or its
 6   findings were illogical, implausible or without support in the
 7   record.    TrafficSchool.com, Inc. v. Edriver Inc., 653 F.3d 820,
 8   832 (9th Cir. 2011).
 9                               V.   DISCUSSION
10   A.     Jurisdiction
11          WCP asserts multiple arguments challenging the bankruptcy
12   court’s jurisdiction to render a judgment on Count I that
13   affected its rights against the Atigeo Parties.    None have merit.
14            The adversary proceeding embodies the demands set forth in
15   the Plaintiffs’ POCs filed in Edra’s bankruptcy case.    Therefore,
16   resolution of Count I in the adversary will also resolve the
17   allowance or disallowance of the Plaintiffs’ unliquidated POCs.
18   The allowance or disallowance of claims against the estate are
19   core proceedings under 28 U.S.C. § 157(b)(2)(B) regardless of
20   whether resolution of the matter involves application of state
21   law.   In re G.I. Indus. Inc., 204 F.3d at 1279–80.
22          Bankruptcy courts also have jurisdiction over proceedings
23   that are not core, but “related to” a bankruptcy case.    The test
24   for determining the scope of “related to” jurisdiction is
25   whether:
26          the outcome of the proceeding could conceivably have
            any effect on the estate being administered in
27          bankruptcy. Thus, the proceeding need not necessarily
            be against the debtor or against the debtor’s property.
28          An action is related to bankruptcy if the outcome could

                                        27
 1        alter the debtor’s rights, liabilities, options, or
          freedom of action (either positively or negatively) and
 2        which in any way impacts upon the handling and
          administration of the bankrupt estate.
 3
 4   Fietz v. Great W. Sav. (In re Fietz), 852 F.2d 455, 457 (9th Cir.
 5   1988) (quoting Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d
 6   Cir.1984)).
 7        Whether the Letter Agreement is enforceable or unenforceable
 8   under Count I is directly related to Edra’s   potential liability
 9   for breach of contract damages as alleged in other Counts in the
10   complaint.    WCP’s UCC foreclosure sale did not eliminate the
11   estate’s potential liability for Edra’s breaches of the Letter
12   Agreement because, as a secured creditor, WCP did not assume any
13   duty or liability on behalf of Edra or her estate.   See U.C.C.
14   § 9-402 (“Secured Party Not Obligated on Contract of Debtor or in
15   Tort.”).   Therefore, Edra’s estate would incur liability for
16   breach of contract damages if the adversary went to trial on
17   Count I and the Letter Agreement ultimately found enforceable.
18   Because of the estate’s potential liability, the litigation over
19   the enforceability of the Letter Agreement was not, as WCP
20   argues, only between WCP and the Atigeo Parties, two nondebtor
21   parties.   In addition, the bankruptcy court’s decision on the
22   enforceability of the Letter Agreement was inextricably
23   intertwined with the existence of the estate’s tort claims
24   against the Atigeo Parties.   If the Letter Agreement was found
25   unenforceable, then the estate could proceed with its tort claims
26   against the Atigeo Parties.
27        For these reasons, resolution of Count I could alter Edra’s
28   rights and liabilities.   Accordingly, we conclude that the

                                      28
 1   bankruptcy court had “related to” jurisdiction over Count I.
 2        By statute, a “bankruptcy judge may hear a proceeding that
 3   is not a core proceeding but otherwise related to a case under
 4   title 11.”   28 U.S.C. § 157(c)(1).   In those cases, a bankruptcy
 5   judge may enter a final judgment if the parties consent.19
 6   28 U.S.C. § 157(c)(2).   Otherwise, the court must make findings
 7   of fact and conclusions of law which are reviewed de novo by the
 8   district court.   Here, WCP voluntarily joined as a party to the
 9   adversary and fully participated in the proceedings.   By
10   participating, WCP consented to the bankruptcy court entering
11   judgment on Count I.   See Mann v. Alexander Dawson Inc. (In re
12   Mann), 907 F.2d 923, 926 (9th Cir. 1990); Daniels-Head & Assocs.
13   v. William M. Mercer, Inc., 819 F.2d 914, 919 (9th Cir. 1987).20
14        Finally, to the extent WCP contends that its third-party
15   contract-based claims against the Atigeo Parties fall outside the
16   bankruptcy court’s original jurisdiction, the bankruptcy court
17   had supplemental jurisdiction under 28 U.S.C. § 1367(a) over
18   those claims.   WCP’s contract-based claims against the Atigeo
19   Parties were so related to the Plaintiffs’ claims against the
20   Trustee and Edra’s estate (which were within the bankruptcy
21   court’s original jurisdiction) that they formed part of the same
22
          19
23          Actually, the declaratory judgment was not “final”
     because it did not dispose of all claims in the adversary. The
24   Panel granted WCP leave to appeal the declaratory judgment by
     order entered March 9, 2012.
25
          20
26          28 U.S.C. § 157 allocates the authority to enter final
     judgment between the bankruptcy court and the district court. See
27   §§ 157(b)(1), (c)(1). That allocation does not implicate
     questions of subject matter jurisdiction. Stern v. Marshall,
28   ___ U.S. ___, 131 S.Ct. 2594, 2607 (2011).

                                     29
 1   case or controversy.   Sasson v. Sokoloff (In re Sasson), 424 F.3d
 2   864, 869 (9th Cir. 2005).
 3        In the end, we find no basis for reversal of the bankruptcy
 4   court’s decisions on jurisdictional grounds.
 5   B.   Procedural Due Process
 6        WCP was a party defendant to Count I for declaratory relief
 7   after the court ordered it to file an answer as such.   Therefore,
 8   before WCP’s interests in the Note and Letter Agreement
 9   referenced in Count I were extinguished, it was entitled to
10   receive notice plus an opportunity to be heard.
11        An elementary and fundamental requirement of due
          process in any proceeding which is to be accorded
12        finality is notice reasonably calculated, under all the
          circumstances, to apprise interested parties of the
13        pendency of the action and afford them an opportunity
          to present their objections. The notice [of the
14        proceedings] must be of such nature as reasonably to
          convey the required information.
15
16   Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 314
17   (1950).
18        Under the rules in Part VII of the Federal Rules of
19   Bankruptcy Procedure, applicable to adversary proceedings, a
20   contested judgment can be achieved by a default judgment, a
21   dispositive summary judgment motion under Civil Rule 56,
22   incorporated by Rule 7056, or by trial.   Because none of these
23   occurred here,21 the filing of the Stipulation and proposed order
24
25        21
            The Trustee and settling parties never filed a motion for
26   summary judgment in connection with their request for approval of
     the Stipulation. Thus, Mont. LBR 7056-1, which governs summary
27   judgment motions, was not followed. At minimum, that rule
     requires a motion with service and an opportunity to be heard.
28                                                      (continued...)

                                     30
 1   for declaratory judgment on Count I was procedurally flawed from
 2   the beginning.
 3        The Atigeo Parties argue that the filing of a motion for
 4   summary judgment was unnecessary because the facts were
 5   “undisputed”.    However, this argument is disingenuous when WCP
 6   was a party defendant in the adversary but not a party to the
 7   stipulated facts on which declaratory judgment was based.     As a
 8   party defendant, WCP’s interests in the Note and Letter Agreement
 9   were directly affected by the settling parties’ stipulated facts
10   to which WCP would be bound.   Accordingly, the filing of the
11   Stipulation, accompanied only by a proposed order, deprived WCP
12   of fair notice, possible discovery, and the opportunity to
13   participate in motion practice with respect to the stipulated
14   facts.    “When third parties are affected, we scrutinize carefully
15   the fairness of the hearing afforded.”   Feld v. Zale Corp. (In re
16   Zale Corp.), 62 F.3d 746, 764 (5th Cir. 1995).
17        Generally speaking, “procedural errors are cured by      holding
18   a new hearing in compliance with due process requirements.”     See
19   Batanic v. Immigration and Naturalization Serv., 12 F.3d 662, 667
20   (7th Cir. 1993).   However, the bankruptcy court’s July 22, 2011
21   order and notice regarding the September 7th Hearing did not
22   correct the initial procedural irregularity.   Granted, the
23   court’s notice set a “hearing,” but the notice gave no indication
24   that the purpose of the hearing was to resolve factual issues
25
26        21
           (...continued)
27   See Mont. LBR 9013-1(d) & (e). If this had been done, WCP would
     have been able to adequately respond to the motion with a
28   Statement of Genuine Issues. Mont. LBR 9013(a)(2).

                                      31
 1   regarding Edra’s breaches under the Letter Agreement — a motion
 2   for summary judgment would have given that type of notice.
 3   Further, the notice did not specify September 7th as a trial date
 4   nor did it invoke any alternative direct testimony rule that
 5   required the parties to submit direct testimony by declaration,
 6   and to have all witnesses giving testimony by declaration
 7   available at trial for cross-examination.   Although the Trustee
 8   submitted the affidavits of Edra and Sandoval, neither of them
 9   were available for cross-examination.
10        Undoubtedly WCP had an obligation to press forward on its
11   objection to the Stipulation.   However, some guidance was
12   necessary here, especially in light of the fact that the
13   Stipulation had been filed without a motion or notice.
14        Adding to the confusion was the combining of the hearings
15   for declaratory relief in the adversary proceeding with the
16   settlement under Rule 9019 in the main case.   The settlement was
17   contingent on the approval of the Stipulation.   Therefore, as
18   described by the Trustee, there was a two-step process in play —
19   the first of which was to obtain approval of Stipulation, which
20   was for declaratory judgment in the adversary proceeding.
21   However, as already noted, neither the purpose of the hearing nor
22   the procedure for approving of the Stipulation was ever addressed
23   by the court’s notice.   Thus, it is difficult to discern from the
24   record exactly what procedure was followed for each of the
25   matters before the court.
26        While approval of the settlement was governed under the
27
28

                                     32
 1   rules in Part IX,22 approval of the contested judgment was not.
 2   Neither the bankruptcy court’s orders nor Memorandum Decisions
 3   state which provision of the adversary rules it relied upon to
 4   enter the stipulated declaratory judgment over WCP’s objection.
 5   Even if we were to consider the bankruptcy court’s approval of
 6   the Stipulation as a sua sponte (or de facto) ruling on summary
 7   judgment,23 the procedural protections of notice are still
 8   lacking.   To exercise the right to oppose summary judgment, a
 9   party must have notice.   That notice gives a party a reasonable
10   opportunity to present to the court material relevant to a Civil
11   Rule 56 proceeding.   Bradly v. Pittsburgh Bd. of Educ., 913 F.2d
12   1064, 1069-70 (3d Cir. 1990).   Here, because notice was
13   inadequate, WCP was not afforded a reasonable opportunity to
14   present evidence disputing the facts on which declaratory
15   judgment was based.   Moreover, since there was no “formal” motion
16   for summary judgment, WCP was under “no formal compulsion to
17   marshall all the evidence in support of [its] claims.”     Id.
18        On September 7th, the bankruptcy court could have continued
19   the matter for summary judgment or for trial because discovery
20   was on-going.   WCP’s counsel repeatedly made offers of proof with
21   respect to evidence it already had and informed the court
22
          22
23          Mont. LBR 9014-1 which governs contested motions states
     that “[u]nless requested by a party and allowed by the Court, in
24   its discretion, the Part VII rules identified in [Rule] 9014(c)
     shall not apply to any contested matter.”
25
          23
26          This is truly a stretch since the bankruptcy court
     characterized the hearing as an “evidentiary hearing” and made
27   findings of fact and conclusions of law. Furthermore, the court
     heard testimony and made evidentiary rulings which are
28   inconsistent with a hearing for summary judgment.

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 1   regarding its outstanding discovery.   By issuing its ruling
 2   before WCP finished with discovery, the bankruptcy court
 3   effectively barred WCP from impeaching the veracity of Edra and
 4   Sandoval when both had “testified” only through hearsay
 5   declarations at the hearing.24   Further, courts which allow
 6   direct testimony by declaration (the record does not reflect that
 7   the district of Montana authorizes this procedure), all require
 8   declarants to be present for cross examination or fundamental due
 9   process is absent.   Edra and Sandoval were not present at the
10   September 7th Hearing.
11        The bankruptcy court’s characterization of the September 7th
12   Hearing as an “evidentiary hearing” does not equate to due
13   process nor can we say that conducting the hearing as an
14   “evidentiary” hearing was harmless error under these
15   circumstances.   In contested matters, which this was not,
16   Rule 9014(e) requires bankruptcy courts to “provide procedures
17   that enable parties to ascertain at a reasonable time before any
18   scheduled hearing whether the hearing will be an evidentiary
19
20
          24
            The Atigeo Parties argue that the affidavits of Edra and
21   Sandoval were not inadmissible hearsay. Because Blixseth, her
     estate and the Trustee faced adverse judgment as defendants to
22
     Plaintiffs’ Counts I and II-VI, they contend Blixseth’s affidavit
23   testimony constitutes a party-opponent’s admission and, by
     definition, is not hearsay. Fed. R. Evid. 801(d)(2)(A). They
24   further argue that Sandoval’s affidavit independently
     corroborated Blixseth’s affidavit so it too was not hearsay.
25   However, on the hearsay issue, the record is unclear. We cannot
26   tell if the bankruptcy court overruled WCP’s hearsay objection
     because it considered the affidavits in connection with the
27   Trustee’s business judgment on the settlement or because the
     affidavits were being offered for the truth of the matter in
28   connection with the court’s approval of the Stipulation.

                                      34
 1   hearing at which witnesses may testify.”     There was nothing in
 2   the bankruptcy court’s July 22, 2011 notice that would enable WCP
 3   to determine that the hearing on the approval of the Stipulation
 4   and declaratory judgment would be an “evidentiary hearing” at
 5   which witnesses may testify and be cross-examined.
 6        Finally, although the hearing required by due process is
 7   subject to waiver, there was no waiver here.    Waiver is the
 8   intentional relinquishment or abandonment of a known right.
 9   Kontrick v. Ryan, 540 U.S. 443, 458 n. 13 (2004).     There is no
10   basis in the record to conclude that WCP “knew or should have
11   known” that the hearing on the approval of the Stipulation was in
12   essence a de facto summary judgment or, alternatively a “trial,”
13   and that by failing to set forth its evidence or bring its
14   witnesses, it would forever waive its rights to present evidence
15   on the disputed facts.   Due process is not simply satisfied by
16   serving notice of a hearing.    The notice served must contain
17   adequate information and the content must have been reasonably
18   calculated to put WCP on notice that it was required to produce
19   its witnesses and submit all its evidence on September 7th or be
20   forever barred.   As discussed above, the initial procedure
21   employed and the subsequent notice of the hearing fall far short
22   of these requirements.
23        For all these reasons, we conclude that WCP did not have an
24   adequate or meaningful opportunity to present contrary evidence
25   at the September 7th Hearing on the approval of the Stipulation.
26                             VI.   CONCLUSION
27        Our holding on the due process issue obviates the need to
28   resolve any issues concerning the bankruptcy court’s approval of

                                      35
 1   the settlement because the settlement was contingent on approval
 2   of the stipulated declaratory judgment.   Without the stipulated
 3   judgment, there is no settlement.   Because WCP was not afforded
 4   due process in connection with the stipulated judgment, we VACATE
 5   the judgment and orders on appeal and REMAND for further
 6   proceedings.
 7
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 9
10
11
12
13
14
15
16
17
18
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20
21
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28

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