NOT FOR PUBLICATION.

MEMORANDUM DECISION ON MOTION OF CARL W. COOPER TO CLARIFY THE COURT'S PRIOR ORDER ON SALE OF ESTATE ASSETS.

ROBERT KWAN, Bankruptcy Judge.

Pending before the court is the Motion of Carl W. Cooper ("Cooper") to Clarify the Court's Prior Order on Sale of Estate Assets (the "Motion"), ECF 66, filed on August 23, 2016, requesting that the court clarify its Order Granting [Trustee's] Motion to Confirm Sale of Estate's Right, Title and Interest in Property of the Estate and to Approve Settlement of Claims, ECF 38, filed and entered on April 17, 2015. Through the Motion, Cooper seeks a determination that the settlement agreement that he entered into with Richard K. Diamond, the Chapter 7 Trustee ("Trustee") for the bankruptcy estates of Debtor eClaris, Inc. ("Debtor") and eClaris Software, Inc. ("Related Debtor"), to purchase the assets of Debtor and Related Debtor, eClaris Software, Inc. and settle claims (the "Settlement Agreement"), ECF 30, included a derivative cross-claim of breach of fiduciary duty against Debtor's principal, Jacques Nack Ngue ("Ngue" or "Nack"), ECF 66 at 3.

Having considered the moving and opposing papers and the oral arguments of the parties, and the other papers and pleadings before the court, the court determines that the Motion should be granted because the express contractual language of the Settlement Agreement between the Trustee and Cooper is unclear and ambiguous as to the treatment of the cross-claim asserted by Cooper against Ngue as a derivative claim on behalf of Debtor for breach of fiduciary duty in the state court action, eClaris Inc. v. Omega Equipment, et al., Case No. GC050458 (Superior Court of California, County of Los Angeles). as part of the settlement between the Trustee and Cooper.

The Motion asks the court to construe the Settlement Agreement, a contract between Cooper and the Trustee for sale of assets of Debtor and Related Debtor and settle claims, to include the sale of Debtor's derivative claim against Ngue for breach of fiduciary duty, which presents a matter of contractual interpretation.

Because the Settlement Agreement is governed by California law, the court applies the law of contracts of California to the Settlement Agreement. Settlement Agreement attached as Exhibit 4 to Cooper's Supplemental Submission, ECF 76, filed on September 27, 2016, Exhibit 4, ¶ 21 at 9-10. "When considering a question of contractual interpretation, the court applies the following rules. `A contract must be so interpreted as to give effect to the mutual intentions of the parties as it existed at the time of contracting, so far as the same is ascertainable and lawful.' ([Cal.] Civ. Code, § 1636.) "The language of a contract is to govern its interpretation, if the language is clear and explicit, and does not involve an absurdity." (Civ. Code, § 1638.) "When a contract is reduced to writing, the intention of the parties is to be ascertained from the writing alone, if possible...." (Civ. Code, § 1639.)" WYDA Associates v. Merner, 42 Cal.App.4th 1702, 1709 (1996).

When the language of the contract is ambiguous, may parol or extrinsic evidence be admitted. "Parol or extrinsic evidence is admissible to resolve an ambiguity. In such cases, the court engages in a two-step process: `First, the court provisionally receives (without actually admitting) all credible evidence concerning the parties' intentions to determine `ambiguity,' i.e., whether the language is `reasonably susceptible' to the interpretation urged by a party. If in light of the extrinsic evidence the court decides the language is `reasonably susceptible' to the interpretation urged, the extrinsic evidence is then admitted to aid in the second step-interpreting the contract." Id. at 1710, citing inter alia, Garcia v. Truck Ins. Exchange, 36 Cal.3d 426, 435 (1984); Winet v. Price, 4 Cal.App.4th 1159, 1165 (1992); [Cal.] Code Civi. Proc., § 1856(g).

Cooper argues that the Settlement Agreement should be interpreted to include the sale of the derivative claim against Ngue in the sale by the Trustee of "Debtors' right, title and interest in and to the eClaris Assets and the eClaris Software Assets (collectively, the `Property'), including, without limitation. . . ." Reply Memorandum of Carl W. Cooper of Points and Authorities in Support of Motion to Clarify the Court's Prior Order on Sale of Estate Assets, filed on September 6f, 2016, ECF 72 at 2. In opposition, Ngue and Debtor argue that the Settlement Agreement should be interpreted not to include the derivative claim against Ngue in the sale by the Trustee because the derivative claim against Ngue was not expressly listed in the definitions of the eClaris Assets and eClaris Software Assets in the Agreement. Opposition of Debtor eClaris, Inc., and Jacques Ngue to Carl W. Cooper's Motion to Clarify the Court's Prior Order on Sale of Estate Assets; Declaration of Jacques Ngue in Support thereof, filed on August 30, 2016, ECF 71 at 7.

The court's order approving the Settlement Agreement and sale of assets by the Trustee to Cooper, ECF 38, filed and entered on April 17, 2015, authorized the Trustee "to sell, on the terms stated in the [Settlement] Agreement attached to the Trustee's Declaration appended to the Motion, the estate's right, title and interest in the property identified in the Agreement (the `Property'), to Carl W. Cooper." ECF 38 at 2.

The operative provisions of the Settlement Agreement for the transaction between the Trustee and Cooper were in the Stipulation Section of the Settlement Agreement, including the sale of assets in Paragraph 9 which stated as follows: "9. Sale of Assets. The Trustee will file with the Court a motion to sell, pursuant to Bankruptcy Code § 363 of all of the Debtors' right, title and interest in and to the eClaris Assets and the eClaris Software Assets (collectively, the `Property'), including without limitation:. . . [various categories of intellectual property rights]."; and (2) the settlement and release of claims by the Trustee and Cooper in Paragraph 13 which stated as follows:

Settlement Agreement attached as Exhibit 4 to Cooper's Supplemental Submission, ECF 76, filed on September 27, 2016, Exhibit 4, ¶ 9 at 2-4 and ¶ 13 at 6-8.

The terms "eClaris Assets" and "eClaris Software Assets" are specifically described in the Recitals Section of the Settlement Agreement. Settlement Agreement attached as Exhibit 4 to Cooper's Supplemental Submission, ECF 76, filed on September 27, 2016, Exhibit 4, ¶ 3 at 1. Paragraph 3 of the Settlement Agreement in the Recitals Section stated:

Paragraph 4 of the Settlement Agreement in the Recitals Section stated: "Among the assets listed in the eClaris Software bankruptcy schedules are the following (the `eClaris Software Assets'): a. Certain intellectual property identified as `Phigrid Software'; and b. Certain intellectual property identified as `System and Method for Controlling Access to Electronic Data (Patent Pending).'" Settlement Agreement attached as Exhibit 4 to Cooper's Supplemental Submission, ECF 76, filed on September 27, 2016, Exhibit 4, ¶ 4 at 1-2. Thus, the "eClaris Software assets" were defined in the Settlement Agreement as these two separately listed categories of property, a., b. and c. Id. The eClaris Software Assets were similarly described in the Trustee's motion to approve the Settlement Agreement. The Trustee's Notice of Motion and Motion to Confirm Sale of Estate's Right, Title and Interest in Property of the Estate and to Approve Settlement of Claims; Memorandum of Points and Authorities; Declaration of Richard K. Diamond in Support thereof, ECF 30, filed on February 11, 2015, ¶ 4 at 6.

Paragraph 5 of the Settlement Agreement in the Recitals Section stated: "Cooper and Omega filed a cross-complaint in the Omega Lawsuit, and between them, they have asserted claims against the Debtors [i.e., Debtor eClaris, Inc., and Related Debtor, eClaris Software, Inc.] for Breach of Contract, Conversion, Inspection of Books and Records, Breach of Fiduciary Duty and Involuntary Dissolution of Corporation (the `Cross-Claims')." Settlement Agreement attached as Exhibit 4 to Cooper's Supplemental Submission, ECF 76, filed on September 27, 2016, Exhibit 4, ¶ 5 at 2. The Cross-Claims were similarly described in the Trustee's motion to approve the Settlement Agreement. The Trustee's Notice of Motion and Motion to Confirm Sale of Estate's Right, Title and Interest in Property of the Estate and to Approve Settlement of Claims; Memorandum of Points and Authorities; Declaration of Richard K. Diamond in Support thereof, ECF 30, filed on February 11, 2015, ¶ 5 at 6. However, as indicated by the actual cross-complaint of Cooper and Omega, not all of the causes of action between them and Debtor eClaris, Inc., were cross-claims against Debtor eClaris, Inc., but also, cross-claims against Ngue, which were derivative claims through Debtor eClaris, Inc. Third Amended Verified Cross-Complaint of Omega Equipment Leasing Co., and Carl W. Cooper, versus eClaris, Inc., Jacques Nack Ngue and Roes 1 through 20, Case No. GC 054458 (Superior Court of California, County of Los Angeles), filed on December 24, 2013, attached as Exhibit 2 to Cooper's Supplemental Submission, ECF 76, filed on September 27, 2016. This Cross-Complaint had seven causes of action: the first through fourth causes of actions against Debtor eClaris, Inc., and Roes 1 through 20, were for breach of lease (two causes of action), breach of implied-in-law contract and conversion, the fifth cause of action against Debtor eClaris, Inc., Ngue and Roes 1 through 20 was to enforce right of inspection of books and records of eClaris, Inc., pursuant to California Corporations Code § 1601, 1603 and 1604, the sixth cause of action against Ngue and Roes 1 through 20, but against eClaris, Inc., nominally, was for breach of fiduciary duty by Ngue as to his obligations of trust, loyalty, good faith and due care to eClaris, Inc., and its shareholders, and the seventh cause of action against Ngue and Roes 1 through 20, but against eClaris, Inc., nominally, was for involuntary dissolution of eClaris, Inc., based on alleged management by Ngue and his alleged breaches of his obligations of trust, loyalty, good faith and due care to eClaris, Inc., and its shareholders. Id.

Paragraph 11 of the Settlement Agreement in the Stipulation Section stated:

Settlement Agreement attached as Exhibit 4 to Cooper's Supplemental Submission, ECF 76, filed on September 27, 2016, Exhibit 4, ¶ 11 at 5.

The Settlement Agreement between the Trustee and Cooper was not self-executing, but required approval of this court pursuant to Federal Rule of Bankruptcy Procedure 9019. To obtain the necessary court approval of the Settlement Agreement, the Trustee filed his motion to confirm the sale of the Property to Cooper and to approve the settlement of claims with Cooper. The Trustee's Notice of Motion and Motion to Confirm Sale of Estate's Right, Title and Interest in Property of the Estate and to Approve Settlement of Claims; Memorandum of Points and Authorities; Declaration of Richard K. Diamond in Support thereof, ECF 30, filed on February 11, 2015.

In the Trustee's declaration in support of his motion to confirm sale of property to Cooper and approve settlement of claims, the Trustee described the transaction with Cooper for which court approval was sought as follows:

Declaration of Richard K. Diamond, attached to the Trustee's Notice of Motion and Motion to Confirm Sale of Estate's Right, Title and Interest in Property of the Estate and to Approve Settlement of Claims; Memorandum of Points and Authorities; Declaration of Richard K. Diamond in Support thereof, ECF 30, filed on February 11, 2015, ¶ 8 at 15. The Trustee in his declaration further explained his intent in entering into this transaction:

Id., ¶¶ 10, 13 and 14 at 15-16.

The transactional documents for the sale of the assets of Debtor eClaris, Inc. and Related Debtor eClaris Software, Inc., to Cooper and the settlement and release of all claims between the Trustee and Cooper and his company, Omega, were meant to resolve all disputes between these parties, the transactional documents, through the sale of the assets of Debtor and Related Debtor, including the litigation assets, i.e., the claims in the Omega Lawsuit, and the settlement and mutual release of all claims between the parties. The Trustee stated in his declaration in support of the sale and compromise with Cooper that he had investigated the claims in the Omega Lawsuit and determined that they had inconsequential value or benefit to the estate, absent the sale to and settlement with Cooper, and that he had no means to pursue the claims, and that but for the sale to Cooper, he would abandon the claims or leave them un-administered. Thus, the Trustee contemplated the sale/settlement transaction with Cooper would transfer any and all rights in the Omega Litigation to Cooper, though the transactional documents, notably, the Settlement Agreement, did not expressly refer to the derivative claim that Cooper on behalf of Debtor eClaris, Inc., had against Ngue for breach of fiduciary duty with Debtor being a nominal defendant. Based on this provisionally received credible extrinsic evidence of the parties' intentions to determine ambiguity, the language of the Settlement Agreement to sell the eClaris Assets to Cooper is reasonably susceptible to the interpretation urged by Cooper, and thus, may be admitted in aid in the second step of interpreting the Settlement Agreement as a contract. WYDA Associates v. Merner, 42 Cal.App.4th at 1709-1710 (citations omitted).

The lack of a specific reference to the derivative claim in the Settlement Agreement does not mean that the Trustee intended to exclude that claim from the sale/settlement transaction because there is no such express exclusion of that claim from the transaction in the documents, and the documents indicate that there would have been no reason to exclude such claim from the transaction because the Trustee represented to the court that the Debtor's rights in the Omega Lawsuit were of inconsequential value or benefit to the estate, that the only value they had were to Cooper in purchasing such rights and that the Trustee did not intend to make use of such rights since he intended to abandon or leave them un-administered but for the sale to Cooper. Thus, the court determines that the lack of specific reference to the derivative claim in the Settlement Agreement makes the Agreement does not render the contract unambiguous as to the treatment of the derivative claim, and the court may admit parol or extrinsic evidence to interpret the contract between the Trustee and Cooper in the Settlement Agreement as to give effect to the mutual intentions of these parties as it existed at the time of contracting.

As parol or extrinsic evidence of contractual intent of the Trustee and Cooper for the Settlement Agreement, Cooper offered the Trustee's declaration in support of his motion to reopen this bankruptcy case. Declaration of Richard K. Diamond, attached to Motion of Carl W. Cooper to Reopen Chapter 7 Case (Ex Parte), etc., ECF 63, filed on July 1, 2016. In the Trustee's declaration, he stated:

Id., ¶ 7 at 2. The court considers that this parol or extrinsic evidence of the parties' contractual intent to be probative of their intent because it is completely consistent with the Trustee's contemporaneous expressions of his contractual intent in his motion to approve the sale/settlement with Cooper as discussed above. The Trustee was selling the assets of Debtor and Related Debtor, including the estates' litigation rights in the Omega Lawsuit, because Cooper wanted to buy them and the Trustee determined after an extensive investigation that such rights were assets having inconsequential value or benefit to the estates other than through Cooper's offer to buy them for the agreed price.

In this regard, the court has considered the arguments of Ngue and Debtor in opposition to the motion that the plain language of the Settlement Agreement which did not expressly refer to the derivative claim governs and that the parties' contractual intent was to exclude that asset. The court does not accept the opposition because there is no evidence in the record to indicate that the Trustee intended to exclude the derivative claim from the transaction since the transactional documents are silent on any such exclusion and to the contrary, the exclusion of the asset would have been contrary to the Trustee's representations to the court in his motion for approval of the sale/settlement transaction with Cooper that the estates' litigation rights or claims in the Omega Lawsuit were of inconsequential value or benefit to the estate and that he would not realize any value from the claims, but for the sale to Cooper. The evidence discussed herein is uncontroverted and indicates that the Trustee was not excluding any litigation claim in the Omega Lawsuit from Cooper as argued by the opposition. Thus, the court concludes that the derivative claim was sold to Cooper in the sale/settlement transaction previously approved by the court in this case, and the motion should be granted to so clarify the prior order approving the transaction by further order to be issued by the court. See, e.g., In re Chinichian, 784 F.2d 1440, 1443 (9th Cir. 1986)(as a court of equity, the bankruptcy court can modify a prior order as long as no intervening right has become vested in reliance thereon)(citation omitted). The court finds on this record that there was no intervening right vested in reliance thereon as the opposition papers do not describe circumstances to establish this. See, Opposition of Debtor eClaris, Inc., and Jacques Ngue to Carl W. Cooper's Motion to Clarify the Court's Prior Order on Sale of Estate Assets; Declaration of Jacques Ngue in Support thereof, filed on August 30, 2016, ECF 71 at 9-13 (Ngue Declaration saying in hindsight that he would have offered money for the derivative claim during the overbidding process for the Settlement Agreement approval if the claim had been included in the Agreement, but the court gives no credence to this testimony, given the uncontroverted evidence of the intent of the contracting parties that they meant to completely resolve their disputes and claims through approval of the Settlement Agreement).

For the foregoing reasons, IT IS HEREBY ORDERED as follows:

IT IS SO ORDERED.