Sino Clean Energy, Inc. v. Robert Seiden

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

IN RE SINO CLEAN ENERGY, INC., No. 17-15316

Debtor.

D.C. No.

2:15-cv-01781-

SINO CLEAN ENERGY, INC., acting by JAD

and through BAOWEN REN, PENG

ZHOU, WENJIE ZHANG, ZHIXIN JING,

and PAUL CHUI; and HUIQIN CHEN, OPINION

LI HAN, GUANGJON HUANG,

XIAODONG JIANG, XUELING JING,

YUFENG LI, HAICHO LI, LANYING LI,

LIANG WANG, ZHEN WU, TING XTE,

HESHUN YANG, CHUNYUN ZHANG,

TIEKUAN ZHANG, personally and as

shareholders,

Plaintiffs-Appellants,

v.

ROBERT W. SEIDEN, in his capacity

as Receiver over Sino Clean Energy

Inc.,

Defendant-Appellee.

Appeal from the United States District Court

for the District of Nevada

Jennifer A. Dorsey, District Judge, Presiding

2 IN RE SINO CLEAN ENERGY

Argued and Submitted July 9, 2018

San Francisco, California

Filed August 27, 2018

Before: Susan P. Graber and Richard C. Tallman, Circuit

Judges, and Ivan L.R. Lemelle, * Senior District Judge.

Opinion by Judge Lemelle

SUMMARY **

Bankruptcy

The panel affirmed the district court’s affirmance of the

bankruptcy court’s dismissal of a Chapter 11 bankruptcy

petition filed by former board members of a corporation.

The panel held that the former board members lacked

corporate authority under Nevada law when they filed the

bankruptcy petition because a receiver appointed by the

Nevada state court already had removed them from the

corporation’s board of directors. Accordingly, the former

board members were not authorized to file the bankruptcy

petition on behalf of the corporation.

*

The Honorable Ivan L.R. Lemelle, Senior United States District

Judge for the Eastern District of Louisiana, sitting by designation.

**

This summary constitutes no part of the opinion of the court. It

has been prepared by court staff for the convenience of the reader.

IN RE SINO CLEAN ENERGY 3

COUNSEL

Matthew C. Zirzow (argued), Larson & Zirzow LLC, Las

Vegas, Nevada, for Plaintiffs-Appellants.

Katherine R. Catanese (argued) and Douglas E. Spelfogel,

Foley & Lardner LLP, New York, New York; Ryan J.

Works, McDonald Carano LLP, Las Vegas, Nevada; for

Defendant-Appellee.

OPINION

LEMELLE, Senior District Judge:

Former board members of Sino Clean Energy, Inc.

(collectively, “Appellants”), appeal the district court’s order

affirming the bankruptcy court’s dismissal of their Chapter

11 bankruptcy petition. The bankruptcy court dismissed the

petition because it found that the petition lacked the requisite

authority from the corporation’s board of directors. The

district court agreed, ruling that the individuals attempting to

file the petition lacked authority where a receiver appointed

by the Nevada state court already had removed them from

the corporation’s board of directors. We affirm. The

bankruptcy court correctly dismissed the action because

Appellants lacked corporate authority when they filed the

rogue bankruptcy petition.

BACKGROUND AND PROCEDURAL HISTORY

Sino Clean Energy, Inc. (“SCEI”), is a Nevada holding

company that, through various subsidiary entities, produces

coal-water slurry in China. SCEI wholly owns Wiscon

Holdings Limited which, in turn, owns 100% of the interests

4 IN RE SINO CLEAN ENERGY

in Tongchuan Suoke Clean Energy Company. Both

subsidiaries are entities of the People’s Republic of China.

Until the legal troubles described here, SCEI had been

under control in major part by former chairman and CEO

Baowen Ren. Starting in 2011, SCEI became the subject of

much legal controversy. In May 2012, the Securities and

Exchange Commission deregistered SCEI after it abruptly

stopped filing certain required forms and financial

information. In September 2012, SCEI was suspended from

the NASDAQ stock exchange.

By October 2013, a group of forty-three shareholders

had filed a Nevada state-court petition in an attempt to

acquire financial information from SCEI, including books

and records regarding the money invested with SCEI. The

shareholders also sought certain declaratory relief under

Nevada Revised Statute section 78.345. SCEI was properly

served with the complaint, but SCEI opted not to offer any

responsive pleadings in the Nevada state-court action. After

more than a year of SCEI’s disregard for the Nevada state-

court action, the plaintiffs filed for entry of default, which

the state court granted. A few months after an entry of

default, on March 17, 2014, the shareholder plaintiffs filed a

motion for the appointment of a receiver. The Nevada state

court granted the motion on May 12, 2014.

The order appointing a receiver held that SCEI, through

its board of directors (at that time), was liable for

nonfeasance and gross mismanagement pursuant to Nevada

Revised Statutes section 78.650. After finding that SCEI’s

board of directors “failed to properly manage SCEI’s

affairs,” the state court appointed a receiver and granted him

many powers, including the power to reconstitute SCEI’s

board of directors. The receiver eventually replaced the

IN RE SINO CLEAN ENERGY 5

SCEI board of directors, effective in December 2014, with

current and sole director, Gregg Graison.

In July 2015, former chairman and CEO Ren purported

to “reconstitute” the former SCEI board of directors, and

thereafter attempted to file a voluntary petition for Chapter

11 bankruptcy on behalf of SCEI. The bankruptcy court

dismissed the action on August 26, 2015, holding that, at the

time the petition was filed by Ren and the former board

members, the petition “was filed without corporate

authority” because SCEI’s board of directors “had been

replaced by the Receiver.” The district court affirmed.

STANDARD OF REVIEW

We review de novo the district court’s decision on an

appeal from bankruptcy court. Educ. Credit Mgmt. Corp. v.

Coleman (In re Coleman), 560 F.3d 1000, 1003 (9th Cir.

2009). “We apply the same standard of review to the

bankruptcy court decision as does the district court: findings

of fact are reviewed under the clearly erroneous standard,

and conclusions of law, de novo.” Id. (internal quotation

marks and brackets omitted).

DISCUSSION

The Bankruptcy Code defines the term “petition” to

mean a “petition filed under section 301, 302, 303 and 1504”

of the Act. 11 U.S.C. § 101(42). A voluntary petition for

bankruptcy under § 301 is commenced by the filing of a

bankruptcy petition by an entity that may be a debtor. Id.

§ 301. State law determines who has the authority to file a

voluntary bankruptcy petition on behalf of a debtor. Price v.

Gurney, 324 U.S. 100, 106–07 (1945); see also Keenihan v.

Heritage Press, Inc., 19 F.3d 1255, 1258 (8th Cir. 1994) (“A

person filing a voluntary bankruptcy petition on a

6 IN RE SINO CLEAN ENERGY

corporation’s behalf must be authorized to do so, and the

authorization must derive from state law.”).

The corporation involved here, SCEI, was formed under

Nevada state law, which vests decision-making authority in

a corporation’s current board of directors. See Nev. Rev.

Stat. § 78.315. In regard to actions taken by a Nevada

corporation,

[u]nless the articles of incorporation or the

bylaws provide for a greater or lesser

proportion, a majority of the board of

directors of the corporation then in office, at

a meeting duly assembled, is necessary to

constitute a quorum for the transaction of

business, and the act of directors holding a

majority of the voting power of the

directors, present at a meeting at which a

quorum is present, is the act of the board of

directors.

Id. § 78.315(1) (emphases added). The statute also provides

that action may be taken with “written consent” that is

“signed by all the members of the board,” in lieu of a

meeting. Id. § 78.315(2). Nevada state law includes the

decision of its state courts. Tenneco W., Inc. v. Marathon Oil

Co., 756 F.2d 769, 771 (9th Cir. 1985). Applying Nevada

law to the facts in the record, the individuals who filed the

bankruptcy petition were not members of the board of

directors of SCEI at the time they filed the petition, and they

were not authorized to file a bankruptcy petition on behalf of

SCEI.

Our decision in Oil & Gas Co. v. Duryee, 9 F.3d 771 (9th

Cir. 1993), is directly on point. In Duryee, an Ohio state

court placed Oil & Gas Insurance Company into

IN RE SINO CLEAN ENERGY 7

rehabilitation and appointed a rehabilitator. Id. at 772. The

bankruptcy court ultimately dismissed a petition pursuant to

the Bankruptcy Code’s preclusion of insurance companies’

ability to seek bankruptcy relief. Id. Nevertheless, an “initial

difficulty” for us was deciding who the appellant was. Id. at

773. We ruled that, pursuant to the rehabilitation order, the

rehabilitator was the only person authorized to commence

bankruptcy proceedings on behalf of Oil & Gas. Id. As a

result, we held that the individual not authorized by the

rehabilitation order who was purporting to file bankruptcy

on behalf of the corporation was an “impostor,” and the

action was “null and void” as “fraudulently filed.” Id. That

same logic applies in this instance.

In asserting a contrary conclusion, Appellants rely

heavily on In Re Corporate & Leisure Event Prods., Inc.,

351 B.R. 724 (Bankr. D. Ariz. 2006). To the extent that

Corporate & Leisure contradicts our decision in Duryee, it

is wrong. No matter the equitable considerations, state law

dictates which persons may file a bankruptcy petition on

behalf of a debtor corporation. We understand Corporate &

Leisure as announcing the more limited holding that, where

a state court purports to enjoin a corporation from filing

bankruptcy altogether, federal law preempts that injunction.

Here, however, SCEI was and is fully able to file for

bankruptcy through valid filings made by its eligible board

of directors. Corporate & Leisure is inapposite.

AFFIRMED.