United States Bankruptcy Appellate Panel of the Ninth Circuit
In re: MICHAEL YOUNESSI, Debtor.
MICHAEL YOUNESSI, Appellee. DIAMOND ENTERPRISES, LTD., LP Appellant, Adv. Pro. 8:18-ap-01150-MW
and Submitted on June 20, 2019 at Pasadena, California
from the United States Bankruptcy Court for the Central
District of California Honorable Mark S. Wallace, Bankruptcy
Douglas Flahaut of Arent Fox LLP argued for appellant
Diamond Enterprises, Ltd., LP; Michael Jones of M Jones &
Associates, PC argued for appellee Michael Younessi.
Before: FARIS, LAFFERTY, and KURTZ, Bankruptcy Judges
bankruptcy court confirmed debtor Michael Younessi's
chapter 11 plan, then granted (in part) creditor
Diamond Enterprises, Ltd., LP's ("Diamond")
motion to modify the confirmation order. Over 180 days after
the original confirmation order, but less than 180 days after
the modification, Diamond filed a complaint to revoke
confirmation, contending that the original confirmation order
was procured by fraud. Mr. Younessi filed a motion to dismiss
the complaint, arguing that it was barred by the 180-day
deadline in § 1144. The bankruptcy court agreed with Mr.
Younessi, and Diamond appealed.
narrow question on appeal is whether the modification order
reset the 180-day deadline for Diamond to seek revocation of
the plan confirmation. We agree with Diamond that, on the
facts of this case, the 180-day period ran from the order
modifying the plan confirmation order. Accordingly, we
REVERSE and REMAND.
Younessi was close friends with Dr. Bruce Houman,
Diamond's manager, and solicited investments from Dr.
Houman to develop commercial real estate. Dr. Houman, through
Diamond, contributed over $2 million toward the purchase of
real estate and interests in Mr. Younessi's companies.
Younessi and Dr. Houman obtained a $1.2 million line of
credit secured against the investment properties. Almost
immediately, Mr. Younessi began unilaterally withdrawing
money for personal use without Dr. Houman's knowledge or
2009, Diamond sued Mr. Younessi and his company in California
superior court for fraud, breach of fiduciary duty,
securities violations, and other claims. Following a trial,
the state court ruled against Mr. Younessi and in favor of
Diamond. The court found that Mr. Younessi made material
misrepresentations to Dr. Houman regarding his and his
companies' finances and net worth and the nature and
value of some of the companies and real properties. It
entered judgment totaling $3, 979, 242.68 plus attorneys'
fees. The court of appeal affirmed.
Mr. Younessi's chapter 11 case and confirmed
Younessi filed his chapter 11 petition on December 27, 2016.
filed an adversary complaint seeking a determination that the
state court judgment was nondischargeable under §§
523(a)(2), (4), (6), and (19). Diamond also filed a proof of
claim for $7, 220, 122.60 based on the state court judgment
Younessi filed his proposed chapter 11 plan and disclosure
statement on July 30, 2017. He filed a first amended plan
(the "Plan") and first amended disclosure statement
on September 1, 2017. The bankruptcy court approved the
amended disclosure statement.
Plan classified Diamond as a Class 7 Creditor, acknowledging
that the judgment debt was "potentially
non-dischargeable." The Plan proposed three options for
treatment of Diamond's claim. Treatment A provided that
Diamond would receive a single payment of $22, 000 in full
satisfaction of its claims, that Diamond would
"consent" to the discharge of Mr. Younessi's
liability to it and Dr. Houman, and that "Houman will
provide a statement to Debtor that Houman no longer believes
the actions of Debtor forming the basis of Diamond's
claim were improper, and Diamond's claim ultimately arose
because of a business deal that went bad without malfeasance
of any of the parties." Treatment B required Mr.
Younessi to "pay Diamond 5% of his annual earnings
between $250, 000 and $350, 000, and 10% of his annual
earnings in excess of $350, 000.00 until Claim 7 is paid in
full, the debt is discharged, or the Debtor's obligations
to continue with these payments is otherwise
terminated." Treatment C provided that Mr. Younessi
would pay Diamond a lump-sum distribution of $80, 000 in
exchange for Diamond conveying certain property interests to
Mr. Younessi. If Diamond selected none of the options,
"Class 7 Treatment A will be the default treatment for
was the only voting creditor to cast a ballot rejecting the
Plan. It did not choose any of the proposed treatments.
also objected to the Plan. It argued that the Plan did not
satisfy the statutory requirements for plan confirmation and
sought to compel Diamond to make false and misleading
statements regarding the state court action. It contended
that Mr. Younessi did not disclose all material information,
assets, and risks in the Plan, including prior bankruptcy
proceedings, related bankruptcy proceedings, and interests in
bankruptcy court entered an order confirming the Plan
("Confirmation Order") on December 21, 2017. It
stated that "nothing in the Chapter 11 Plan shall have
any effect on Diamond's pending non-dischargeability
action against Debtor except to the extent that Diamond is
determined to have actually or constructively consented to
such effect or as otherwise provided by law, and except to
the extent, if any, that Diamond's ineligibility to vote
on the Chapter 11 Plan has a bearing on these
findings of fact and conclusions of law, the court found that
the Plan complied with the applicable provisions of the
Bankruptcy Code. The court found that Diamond selected
Treatment A by not picking either Treatment B or C. It stated
that "Diamond elected this treatment by its own
decision, and as such Diamond effectively waived its
objections by agreeing to that treatment by consent."
Motion for reconsideration
filed a motion for reconsideration of the Confirmation Order
under Rules 9023 and 9024. It requested that the bankruptcy
court either decline to confirm the Plan or modify the
Confirmation Order to make clear that the Confirmation Order
and Plan shall not "have any effect on Diamond's
pending Nondischargeability Action against the Debtor and, in
the event Diamond prevails in that action, such
nondischargeable judgment in favor of Diamond (if any) will
not be adversely affected or discharged pursuant to the
[Plan] . . . ." It argued that it did not consent to
plan confirmation or its treatment under the Plan, and that
the Plan did not satisfy the requirements for confirmation.
Younessi opposed the motion for reconsideration. He argued
that Diamond waived its objections by not raising them until
after the deadline for objections had passed. He argued that
Diamond had consented to its ...