ROBERT KWAN, Bankruptcy Judge.
This bankruptcy case came on for trial on February 7, 2019 before the undersigned United States Bankruptcy Judge on the Motion for Reconsideration of Order Disallowing Creditor Ghazar Zehnaly's Proof of Claim 7-1 ("Motion") of Creditor Ghazar Zehnaly, Electronic Case Filing Number ("ECF") 589, filed on November 27, 2018. Creditor Ghazar Zehnaly ("Creditor Zehnaly") appeared for himself. Ashley M. McDow of the law firm of Foley & Lardner, LLP appeared for Debtor Sarkis Investments Company, LLC ("Debtor"). Ralph V. Palmieri, Attorney at Law, appeared for Interested Party Angelique Bernstein.
Having considered the moving and opposing papers, including the supplemental post-trial briefing of the parties, filed on February 14, 2019 and March 21, 2019, the exhibits received and testimony of the witnesses heard, the court sets forth its findings of fact and conclusions of law in this memorandum decision, pursuant to Federal Rule of Civil Procedure 52, made applicable here by Federal Rules of Bankruptcy Procedure 7052 and 9014(c), and determines that the Motion should be granted for the reasons stated below.
Debtor owned commercial real estate which was operated as a multi-tenant shopping center located at the following addresses: 3550 Porsche Way, 3640 Porsche Way, 3660 Porsche Way, 3700 Inland Empire Boulevard, and 370 Inland Empire Boulevard, Ontario, California 91764 (collectively, the "Sarkis Properties"). Schedule A—Real Property, ECF 5, filed on July 30, 2013; Chapter 11 Status Report, ECF 67, filed on September 4, 2013. On Debtor's Schedule A — Real Property, Debtor asserted that the current value of the Sarkis Properties was approximately $25,000,000.00 subject to a secured claim of approximately $22,000,000.00. Id.
Creditor Zehnaly is a real estate investor and has been a real estate investor since 1994. Testimony of Creditor Zehnaly, Audio Recording of Trial, February 2, 2019. 2:09-2:10 p.m. He owns nine buildings. Id. Creditor Zehnaly immigrated to the United States from Iran in 1990, and Farsi is his first language. Id., 10:44 a.m. English is a second language for him. Id.
On October 31, 2012, Creditor Zehnaly entered into a Probate Purchase Agreement to purchase three commercial properties from Debtor for $23,300,000.00. Declaration of Ghazar Zehnaly, attached to Motion, ECF 589 at 11 and Exhibit 1 attached thereto. In accordance with this agreement, Creditor Zehnaly paid an initial $500,000.00 down payment for the Sarkis Properties. Id. According to Creditor Zehnaly, he paid the initial down payment of $500,000 directly to Debtor as the seller for purchase of the real property owned by Debtor, and there was no escrow. Testimony of Creditor Zehnaly, Audio Recording of Trial, February 2, 2019.11:35-11:36 a.m. According to Attachment One to the Counter Offer to the Purchase Agreement, Creditor Zehnaly needed to obtain the consent from the holder of the deed of trustee encumbering the Sarkis Properties to assume the loan secured by the deed of trust in the amount of $19,300,000.00. Declaration of Ghazar Zehnaly, attached to Motion, ECF 589 at 11 and Exhibit 2 attached thereto.
On April 16, 2013, Creditor Zehnaly learned for the first time that Debtor had failed to disclose to him that it was already in default under the terms of the existing loan, and that the outstanding balance on the loan was $20,847,414.59 with accrued note interest of $518,694.10 and accrued default interest of $3,516,034.59, plus costs of $209,921.85, which increased the obligations of the lender to $25,092,065.28. Declaration of Ghazar Zehnaly, attached to Motion, ECF 589 at 11. According to Creditor Zehnaly, as of April 2013, he was adamant that he would be only willing to proceed with the Probate Purchase Agreement if he received assurances that he would not be responsible for curing the default. Declaration of Ghazar Zehnaly, attached to Motion, ECF 589 at 11 and Exhibit 3 attached thereto. Creditor Zehnaly continued to cooperate and provide documents and information to the lender in the hopes that he would be able to resolve the issue of the default and that he would be able to purchase the Sarkis Properties at the originally agreed price of $23,300,000.00, free and clear of any default, default interest or costs. Id.
However, as of July 29, 2013, Creditor Zehnaly and Debtor were unable to resolve the issue regarding the default, and the Probate Purchase Agreement was cancelled, and according to Creditor Zehnaly, Debtor refused to return his $500,000.00 down payment. Declaration of Ghazar Zehnaly, attached to Motion, ECF 589 at 12. On the same day, on July 29, 2013, Debtor commenced this bankruptcy case by filing a voluntary petition for relief under Chapter 11 of the Bankruptcy Code, 11 U.S.C. ECF 1; Declaration of Ghazar Zehnaly, attached to Motion, ECF 589 at 12 and Exhibit 4 attached thereto.
Creditor Zehnaly retained Shant Ohanian ("Ohanian"), of the law firm of Ohanian & Tikriti, as his attorney to protect his rights, file a proof of claim and to attempt to acquire the Sarkis Properties for him though the bankruptcy case. Declaration of Ghazar Zehnaly, attached to Motion, ECF 589 at 12 and Exhibit 4 attached thereto. According to Creditor Zehnaly, he believed thereafter that Ohanian "was representing and advocating [his] rights in the Bankruptcy Court." Id.
On November 12, 2013, Creditor Zehnaly filed his proof of claim in this case, Claim Number 7-1. Declaration of Ghazar Zehnaly, attached to Motion, ECF 589 at 11 and Exhibit 4 attached thereto. The proof of claim was signed and filed on behalf of Creditor Zehnaly by his attorney, Shant Ohanian, of the law firm of Ohanian & Tikriti, PC, of Pasadena, California. Id. The amount of the claim asserted in the proof of claim was $500,000, and the proof of claim indicated that notices relating to the proof of claim should be sent to Ohanian at his office address at Ohanian & Tikriti, PC, 35 North Lake Ave., Suite 720, Pasadena, CA 91101. Exhibit 4 to Declaration of Ghazar Zehnaly at 1. The proof of claim did not indicate any other address for Creditor Zehnaly, such as his mailing or residence address. See id. The proof of claim stated that the basis of the claim was a "Deposit for Commercial Real Estate Purchase." Id. at 1. Attached to the proof of claim in support of Creditor Zehnaly's claim were copies of a real estate purchase and sales agreement entitled "Counter Offer No. 1" dated October 31, 2012 with various attached documents which were signed by Creditor Zehnaly and Debtor by Donald L. Scoggins for Pamela Muir, Debtor's managing member. Id. Creditor Zehnaly hired Ohanian as his attorney only a few days before the proof of claim was filed. Testimony of Creditor Zehnaly, Audio Recording of Trial, February 2, 2019, 10:44 a.m.
On August 10, 2015, Debtor filed its Motion for Order Disallowing Proof of Claim No. 7-1 filed by Ghazar Zehnaly. ECF 343, filed on August 10, 2015. The proof of service of Debtor's motion for order disallowing Creditor Zehnaly's claim indicated that service on him was in care of his counsel, Ohanian, at Ohanian's office address, which was the address indicated for notices to him on the proof of claim. Id.; see Proof of Claim 7-1, filed on November 12, 2013. Debtor had noticed the hearing on the Motion for September 9, 2015, but the court continued the hearing to September 16, 2015.
On August 31, 2015, Creditor Zehnaly by his counsel, Ohanian, filed an opposition to Debtor's motion for an order disallowing his claim. ECF 366, filed on August 31, 2015. Counsel for Creditor Zehnaly, Ohanian, filed this document manually rather than electronically as it appears that he was not an authorized electronic filer with the court pursuant to Local Bankruptcy Rule 5005-4. Id. Although Ohanian listed an email address on the caption of this document, the court would not serve him electronically because he is not an authorized electronic filer and apparently has not otherwise consented to electronic service by the court pursuant to Local Bankruptcy Rule 9036-1. The only declaration in support of the factual allegations in opposition to Debtor's motion was the declaration of Creditor Zehnaly's counsel, Ohanian, and there was no declaration from Creditor Zehnaly himself in support of the factual allegations of his opposition to Debtor's motion. See ECF 366, filed on August 31, 2015.
At the hearing on Debtor's motion objecting to Creditor Zehnaly's claim on September 16, 2015, Ohanian appeared on Zehnaly's behalf. Audio Recording of Hearing on September 16, 2015. At the hearing, the court expressed its concern that the declaration in support of Creditor Zehnaly's opposition to the motion was not that of Creditor Zehnaly, but that of Ohanian, who did not appear to have personal knowledge of the factual allegations in the opposition. Id. Ohanian stated that he was having "some personal issues" and was trying to find a new attorney who was familiar with bankruptcy law to represent Creditor Zehnaly. Id. At the hearing, the court continued the hearing for two weeks to September 30, 2015 and ordered Creditor Zehnaly to submit a declaration in support of his factual allegations in opposition to the motion within one week by September 23, 2015. Id.
By order filed and entered on September 21, 2015 (ECF 382), the court continued the hearing on the Motion from September 16, 2015 to September 30, 2015 in order for Creditor Zehnaly to file a declaration based on his personal knowledge and executed under penalty of perjury attesting to the veracity of the allegations in the opposition and the authenticity of the exhibits appended thereto.
On September 23, 2015, Creditor Zehnaly filed his declaration signed by him which set forth his factual allegations under penalty of perjury in support of opposition to Debtor's motion objecting to his claim. ECF 384, filed on September 23, 2015. The caption of the declaration did not indicate that Creditor Zehnaly was still represented by Ohanian as his counsel and did not otherwise refer to Ohanian. Id.
At the continued hearing on Debtor's motion objecting to Creditor Zehnaly's claim on September 30, 2015, Ohanian appeared on Zehnaly's behalf. Audio Recording of Hearing on September 30, 2015. At the hearing on September 30, 2015, the court set a schedule of pretrial proceedings on the motion, including a post-discovery status conference for February 24, 2016 at 1:30 p.m. Id. The schedule of pretrial proceedings was set forth in the court's scheduling order filed and entered on October 6, 2015. ECF 394, filed and entered on October 6, 2015. The court's notice of electronic filing (NEF) for this document indicated as a party "Shant Ohanian on behalf of Interested Party Ghazar Zehnaly, 600 S Lake Ave Ste 200, Pasadena, CA 91106," but that notice would not be electronically mailed to such party. Id.
However, while counsel for Creditor Zehnaly, Ohanian, was present at the hearing on September 30, 2015 when the court set the schedule of pretrial proceedings, including a further status conference on February 24, 2016, the proof of service of the scheduling order of October 6, 2015 by the Bankruptcy Noticing Center on behalf of the court indicated that neither Creditor Zehnaly nor his counsel, Ohanian, was served with the order to show cause. Bankruptcy Noticing Center Certificate of Notice, ECF 396, filed on October 8, 2015.
At the status conference on Debtor's motion objecting to Creditor Zehnaly's claim on February 24, 2016, counsel for Debtor appeared, but no appearance was made on behalf of Creditor Zehnaly by his counsel, Ohanian. Audio Recording of Hearing on February 24, 2016. Counsel for Debtor reported that the parties were scheduled to appear for a mediation conference on March 12, 2016 and requested a continuance of the status conference after the mediation. Id. The court set a further status conference for April 6, 2016 at 11:00 a.m. and directed counsel for Debtor to notify Creditor Zehnaly, through Ohanian, of the further status conference on April 6, 2019 at the mediation or by email, and counsel for Debtor said he would. Id. The case docket reflects that no formal notice of the status conference on April 6, 2016 was served on Creditor Zehnaly or his counsel, Ohanian.
At the status conference on Debtor's motion objecting to Creditor Zehnaly's claim on April 6, 2016, counsel for Debtor appeared, but no appearance was made on behalf of Creditor Zehnaly by his counsel, Ohanian. Audio Recording of Hearing on April 6, 2016. Counsel for Debtor reported that the scheduled mediation did not go forward on March 12, 2016 because counsel for Creditor Zehnaly, Ohanian, advised her that he was not sure that he was still representing Creditor Zehnaly. Id. The court indicated that counsel for Creditor Zehnaly should have appeared and indicated that it would issue an order to show cause regarding the failure of Creditor Zehnaly or his counsel to appear at the status conference, and counsel for Debtor confirmed that she had confirmation that an email notification of the April 6, 2016 status conference was sent to Ohanian. Id.
Later that day, on April 6, 2016 at 6:38 p.m., counsel for Debtor filed a Bankruptcy Case Status Report for the status conference in the underlying bankruptcy case set for April 13, 2016. ECF 442, filed on April 6, 2016. The status report was addressed on page 1 to the undersigned United States Bankruptcy Judge, and to no one else, but the proof of service of the status report indicated that counsel for Debtor mailed copies of the status report on April 6, 2016 to serve: (1) counsel for Creditor Zehnaly, Ohanian, at his office address; and (2) Creditor Zehnaly himself at his mailing address at 4326 Fairlawn Drive, La Canada, CA 91101-3115. Id. The subject matter of the two-page status report was the Debtor's motion objecting to Creditor Zehnaly's claim, which Debtor described as follows: "The principal dispute remaining in the Bankruptcy Case pertains to the validity and amount of the proof of claim (the `Zehnaly Claim') asserted by Ghazar Zehnaly ('Claimant')." Id. at 1. Debtor reported that the deposition of Creditor Zehnaly had been taken on March 7, 2016, and Debtor and Creditor Zehnaly had agreed to mediation, which was first scheduled for January 25, 2016 and rescheduled to March 14, 2016 at the request of Creditor Zehnaly's counsel, Ohanian, due to a family emergency of counsel. Id. at 1-2. Debtor then reported that Creditor Zehnaly's counsel informed Debtor that Creditor Zehnaly was no longer willing to participate in mediation, and despite Debtor's attempts to follow up with Creditor Zehnaly's counsel to proceed with mediation, Debtor did not receive any response from Creditor Zehnaly or his counsel. Id. at 2. Debtor then stated as follows: "On or about April 6, 2016, the Court held a status conference regarding the motion to disallow the Zehnaly Claim. Despite being directed to do so, the Claimant failed to appear for the status conference. Accordingly, the Court stated its intention to issue an order to show cause why the Zehnaly Claim should not be disallowed for want of prosecution (the `OSC'). The Court indicated that the hearing on the OSC will be held on May 4, 2106 at 11:00 a.m." Id. According to Creditor Zehnaly, he did not receive Debtor's Bankruptcy Case Status Report of April 6, 2016 and did not otherwise know of it. Testimony of Creditor Zehnaly, Audio Recording of Trial, February 2, 2019. 2:00-2:01 p.m. and 2:18 p.m.
On April 11, 2016, the court issued its order to show cause why the claim of Creditor Zehnaly should not be disallowed for lack of prosecution as a sanction for failing to appear at the status conference on April 6, 2016. ECF 443, filed and entered on April 11, 2016. The order to show cause set a hearing date and time of May 4, 2016 at 11:00 a.m. Id. The court's notice of electronic filing (NEF) for this document indicated as a party "Shant Ohanian on behalf of Interested Party Ghazar Zehnaly, 600 S Lake Ave Ste 200, Pasadena, CA 91106," but that notice would not be electronically mailed to such party. Id. The proof of service of the order to show cause by the Bankruptcy Noticing Center on behalf of the court indicated that neither Creditor Zehnaly nor his counsel, Ohanian, was served with the order to show cause. Bankruptcy Noticing Center Certificate of Notice, ECF 446, filed on April 13, 2016.
According to Creditor Zehnaly, from November 2013 through September 2017, Ohanian represented to Creditor Zehnaly both orally and in writing on numerous occasions that Creditor Zehnaly's proof of claim was being litigated in the Bankruptcy Court. Declaration of Ghazar Zehnaly, attached to Motion, ECF 589 at 12 and Exhibit 4 attached thereto. Also, according to Creditor Zehnaly, on numerous occasions between April 2016 and September 2017, Ohanian represented to Creditor Zehnaly both orally and in writing that the Bankruptcy Court had awarded the Sarkis Properties as well as other assets and properties to Creditor Zehnaly, subject to certain conditions. Declaration of Ghazar Zehnaly, attached to Motion, ECF 589 at 12-15 and Exhibits 5-16 attached thereto. Moreover, according to Creditor Zehnaly, on numerous occasions between April 2016 and September 2017, Ohanian advised Creditor Zehnaly both orally and in writing that there were numerous complications with taking possession of the Sarkis Properties due to multiple lien claimants, tax liabilities, various law and motion matters and appeals. Id. Thus, according to Creditor Zehnaly, Ohanian advised Creditor Zehnaly orally and in writing that the Bankruptcy Court required Creditor Zehnaly to deposit or pay certain funds to protect his interest in the Sarkis Properties and to ensure that Creditor Zehnaly could acquire the Sarkis Properties free and clear of all liens, taxes and encumbrances. Id.
Creditor Zehnaly testified that on or about April 18, 2016, he received a hand-delivered copy of a purported order of the court in this case entitled "Order: Granting Creditor Zehnaly Possession of Debtor's Assets Inclusive Sold Property—Pending Election of Assets by Creditor," which bore a file-stamped date of entry of April 18, 2016 and a docket entry number of 188. Declaration of Ghazar Zehnaly, attached to Motion, ECF 589 at 12-15 and Exhibit 5 attached thereto. The purported order stated that the court, upon consideration of Creditor Zehnaly's motion "for an order requesting Debtor's surrender of all assets, inclusive of prior sold properties due to Debtor's failure to fully compensate Creditor," ordered the granting of the motion. Id. The purported order further ordered that the prior sale of Debtor's real property (which had been previously ordered in the case) be cancelled and nullified, that Creditor Zehnaly had 30 days "to complete change of title for the Property," but that if this was not completed, "Creditor retain[ed] the rights to collect from Debtor's other assets." Id. The purported order bore the electronic signature of the undersigned United States Bankruptcy Judge. Id. The purported order is bogus, as demonstrated by at least the following facts: the purported order is not shown on the docket of this case; the docket number of 188 for this purported order is false because the case docket reflects another document, Debtor's monthly operating report number 32 for March 2016, filed on the same date of April 18, 2016, as docket number 447; the docket number at the top of the purported order has inconsistent dating, "Filed 04/18/16" and "Entered 04/13/13"; and the language of the purported order is internally inconsistent and uses incorrect terms, e.g., stating that the motion being considered was "the motion of Creditor, Ghazar Zehnaly (the `Creditor'; the `Creditor-in-Possession') for an order requesting Debtor's surrender of all assets)," versus "1. The Debtor's Motion is granted." Id.
According to Creditor Zehnaly, in his declaration in support of the motion, a copy of this purported order was hand-delivered to him by a purported court courier who he later discovered was Ohanian's wife, Silva Sevlian. Id. Also according to Creditor Zehnaly in his declaration in support of his motion, at about the same time, Creditor Zehnaly received oral and written advice from his attorney, Ohanian, that he was required to deposit or pay funds to protect his interest in the Sarkis Properties and to ensure that he could acquire them free and clear of liens. Id. Furthermore, Creditor Zehnaly stated in his declaration in support of his motion, also at about the same time, he received a telephone call from a purported court clerk using the name "Debra" or "Barbara" regarding the purported order. Id. At trial, Creditor Zehnaly clarified his prior statement in his declaration that he got this particular order from Ohanian. Testimony of Creditor Zehnaly, Audio Recording of Trial, February 2, 2019, 10:47-10:48 a.m. Creditor Zehnaly did not realize at the time that this order was a bogus document or that Ohanian was defrauding him because Creditor Zehnaly trusted Ohanian. Id., 10:48-10:49 a.m., 11:01 a.m.
On April 20, 2016, counsel for Debtor filed a Bankruptcy Case Status Report for the status conference in the underlying bankruptcy case set for May 4, 2016. ECF 448, filed on April 20, 2016. The status report was addressed on page 1 to the undersigned United States Bankruptcy Judge, "ALL INTERESTED PARTIES AND/OR THEIR COUNSEL OF RECORD," and the proof of service of the status report indicated that counsel for Debtor mailed copies of the status report on April 20, 2016 to serve: (1) counsel for Creditor Zehnaly, Ohanian, at his office address; and (2) Creditor Zehnaly himself at his mailing address at 4326 Fairlawn Drive, La Canada, CA 91101-3115. Id. The subject matter of the three-page status report was the Debtor's motion objecting to Creditor Zehnaly's claim which stated that the court had conducted a status conference in the underlying bankruptcy case on February 24, 2016, which counsel for Creditor Zehnaly failed to attend; that the court set a further status conference on April 6, 2016; that it ordered Creditor Zehnaly to appear through counsel at the April 6, 2016 status conference and directed counsel for Debtor to give written notice of the continued status conference on April 6, 2016 to counsel for Creditor Zehnaly, which they did; that Debtor had taken the deposition of Creditor Zehnaly during which "Sarkis uncovered numerous facts that undercut the positions advanced by Claimant [Zehnaly] in opposition the Claim Objection"; that Creditor Zehnaly's counsel informed Debtor that Creditor Zehnaly was no longer willing to participate in mediation; and that the court had conducted another status conference in the bankruptcy case on April 6, 2016, at which counsel for Creditor Zehnaly also failed to appear, and the court had issued an order to show cause to Creditor Zehnaly to file a written response to the order to show cause and set a hearing on the order to show cause for May 4, 2016 at 11:00 a.m. Id. at 2-3. Debtor in this status report stated that "Sarkis has not been contacted by the Claimant or counsel for the Claimant regarding the proposed mediation or the OSC. Furthermore, as of the filing of this Status Report, the Claimant has failed to file anything relating to the OSC or justifying his unilateral termination of the proposed mediation or failure to appear for the February 24, 2016 and April 6, 2016, status conferences." Id. at 3.
Creditor Zehnaly testified that on or about April 28, 2016, he received a hand-delivered copy of a purported order of the court in this case entitled "Court's Disclosure of Liabilities Connected to Property Located in Ontario, CA," which bore a file-stamped date of entry of April 28, 2016 and a docket entry number of 189. Declaration of Ghazar Zehnaly, attached to Motion, ECF 589 at 12-15 and Exhibit 6 attached thereto. The purported order stated that, based upon Creditor Zehnaly's motion, "asking to take possession of Debtor's present assets, the court must disclose the current liabilities connected to the Property commonly known as 3550 Porsche Way, 3640 Porsche Way, 3660 Porsche Way, 3700 Inland Empire Boulevard, and 3760 Inland Empire Boulevard, Ontario, CA 91764 (collectively, the `Property')." Id. The purported order further ordered that "[t]he Court commence proceedings to assign the Property to the Creditor after full disclosure of the Property's liabilities have been satisfied"; that "[t]he Court provide the Creditor 30 calendar days to complete the assignment or satisfaction of any lien holders on the Property"; and that "Creditor satisfy all approved claims of remaining creditors within 180 days after change of title has been completed." Id. The purported order bore the electronic signature of the undersigned United States Bankruptcy Judge. Id. The purported order is bogus, as demonstrated by at least the following facts: the purported order is not shown on the docket of this case; the docket number of 189 for this purported order is false because the case docket reflects another document, Debtor's status report filed about a week earlier on the date of April 20, 2016, as docket number 448; the docket number at the top of the purported order has inconsistent dating, "Filed 04/27/16" and "Entered 04/13/13"; and the language of the purported order does not reflect proper court procedures, such as to "commence proceedings to assign the Property to the Creditor after full disclosure of the Property's liabilities have been satisfied." Id.
According to Creditor Zehnaly, in his declaration in support of the motion, a copy of this purported order was hand-delivered to him by a purported court courier who he later discovered was Ohanian's wife, Silva Sevlian. Id. At about the same time, Creditor Zehnaly received oral and written advice from his attorney, Ohanian, that he was required to deposit or pay funds to protect his interest in the Sarkis Properties and to ensure that he could acquire them free and clear of liens. Id. Also at about the same time, Creditor Zehnaly received a telephone call from a purported court clerk using the name "Debra" or "Barbara" regarding the purported order. Id.
At the hearing on the order to show cause on May 4, 2016, counsel for Debtor appeared, and counsel for Creditor Zehnaly, Ohanian, appeared. Audio Recording of Hearing on May 4, 2016. Counsel for Creditor Zehnaly, Ohanian, stated that he was contacted by his client on March 27, 2016 who told Ohanian that he was going to find new counsel to represent him, but Ohanian said he told Creditor Zehnaly about the April 6, 2016 status conference. Id. Ohanian further stated that his client, Creditor Zehnaly, told him on May 2, 2016 that he had not found new counsel and asked Ohanian to appear for him at the order to show cause hearing on May 4, 2016. Id. In response, Counsel for Debtor requested that the court deny the claim for lack of prosecution because it was a recurrent theme of Creditor Zehnaly over 9 months that the claim objection had been pending that he was seeking to retain new counsel to defend the claim. Id. After hearing from counsel for the parties, the court ruled that the claim of Creditor Zehnaly should be disallowed for failure to prosecute due to the failure to appear at the status conference on April 6, 2016, the failure to file a written response to the order to show cause, and the failure to retain counsel to defend the claim objection. Id.
On May 12, 2016, counsel for Debtor filed a notice of lodgment of a proposed order regarding the motion for disallowing the proof of claim filed by Ghazar Zehnaly with a copy of a proposed order for disallowance of the proof of claim. ECF 451, filed on May 12, 2016. The proof of service of the notice of lodgment indicated that counsel for Debtor mailed the notice of lodgment on May 12, 2016 to counsel for Creditor Zehnaly, Ohanian, at his office address, on behalf of Creditor Zehnaly, but there is no indication of service on Creditor Zehnaly himself at his mailing address. Id.
Creditor Zehnaly testified that on or about May 24, 2016, he received a hand-delivered copy of a purported order of the court in this case entitled "Order: Granting Creditors' Request to Secure Funds to Make Creditors Whole," which bore a file-stamped date of entry of May 24, 2016 and a docket entry number of 208. Declaration of Ghazar Zehnaly, attached to Motion, ECF 589 at 12-15 and Exhibit 7 attached thereto. The purported order stated that it was based upon the motion of purported creditors Bank of America, First Financial, Capital One, and BankUnited "for an order requesting Creditor Zehnaly ('Zehnaly') to provide guarantees for monies to be paid to Creditors after Zehnaly has taken possession of the Property commonly known as 3550 Porsche Way, 3640 Porsche Way, 3660 Porsche Way, 3700 Inland Empire Boulevard, and 3760 Inland Empire Boulevard, Ontario, CA 91764 (collectively, the `Property'). . . ." Id. The purported order further ordered that "Zehnaly deposit an amount equal to 25% of the monies owed to the creditors in an interest-bearing client trust account," noting that "[t]he current total due to the Creditors is $442,002.65," that "Zehnaly is to fully compensate the remaining Creditors within 180 days of title to the Property having been recorded in Zehnaly's name," and that "[t]he Trustee [was] to record a lien on the Property for the remaining balance owed to the Creditors following the change of title to the Property. . . ." Id. The purported order bore the electronic signature of the undersigned United States Bankruptcy Judge. Id. The purported order is bogus, as demonstrated by at least the following facts: the purported order is not shown on the docket of this case; the docket number of 208 for this purported order is false because the case docket reflects another document, Debtor's monthly operating report number 33 for April 2016 filed about a week earlier on the date of May 16, 2016, as docket number 452; the document was stamped "CONFIDENTIAL" at the top of the purported order; and the language of the purported order does not reflect proper court procedures, such as to "grant Creditors' request to secure funds to make Creditors whole." Id. According to Creditor Zehnaly, in his declaration in support of the motion, a copy of this purported order was hand-delivered to him by a purported court courier who he later discovered was Ohanian's wife, Silva Sevlian. Id. At about the same time, Creditor Zehnaly received oral and written advice from his attorney, Ohanian, that he was required to deposit or pay funds to protect his interest in the Sarkis Properties and to ensure that he could acquire them free and clear of liens. Id. Also at about the same time, Creditor Zehnaly received a telephone call from a purported court clerk using the name "Debra" or "Barbara" regarding the purported order. Id.
On June 1, 2016, counsel for Debtor filed a Bankruptcy Case Status Report for the status conference in the underlying bankruptcy case set for June 15, 2016. ECF 453, filed on June 1, 2016, Debtor's Exhibit A. The status report was addressed on page 1 to the undersigned United States Bankruptcy Judge, and to no one else, but the proof of service of the status report indicated that counsel for Debtor mailed copies of the status report on June 1, 2016 to serve: (1) counsel for Creditor Zehnaly, Ohanian, at his office address, and (2) Creditor Zehnaly himself at his mailing address at 4326 Fairlawn Drive, La Canada, CA 91101-3115. Id. The status report provided a detailed one and a half pages of text reporting on the status of the litigation of Debtor's objection to the claim of Creditor Zehnaly, which stated that the court had issued an order to show cause to Creditor Zehnaly on April 11, 2016 why his claim should not be disallowed for his failure to appear personally or by counsel at the status conference on the claim objection on April 6, 2016; that the court had found that Creditor Zehnaly failed to respond to the order to show cause and failed to discharge the order to show cause; that the court granted the claim objection as a sanction for Creditor Zehnaly's failure to defend; and that Debtor had lodged a proposed order granting the claim objection, which was under court review. Id. Debtor then stated in its status report that "[u]pon entry of the Claim Objection Order, the Claimant [Creditor Zehnaly] will have an opportunity to seek reconsideration or file an appeal from such order. Accordingly, the Debtor requests that the Court continue the status conference for a period of thirty (30) days to allow for the expiration of the appeal and reconsideration periods after entry of the Claim Objection Order." Id. at 3.
At trial, Creditor Zehnaly testified that he was not aware of the Bankruptcy Case Status Report filed and served by counsel for Debtor on June 1, 2016 because he did not receive it. Zehnaly Testimony, Audio Recording of Trial, February 2, 2019, 2:00-2:01 p.m. Creditor Zehnaly also testified that he did not receive bankruptcy court related documents from the court in the mail to his mailbox. Id., 11:27 a.m. and 2:04 p.m. Creditor Zehnaly testified that a reason for him not receiving his bankruptcy related mail was that Ohanian was probably intercepting his mail. Id.
On June 3, 2016, the court filed and entered its order disallowing the Proof of Claim Number 7-1 of Creditor Zehnaly. ECF 454, filed and entered on June 3, 2016. The court's notice of electronic filing (NEF) for this document indicated as a party "Shant Ohanian on behalf of Interested Party Ghazar Zehnaly, 600 S Lake Ave Ste 200, Pasadena, CA 91106," but that notice would not be electronically mailed to such party. Id. The proof of service of the order disallowing Creditor Zehnaly's proof of claim by the Bankruptcy Noticing Center on behalf of the court indicated that neither Creditor Zehnaly nor his counsel, Ohanian, was served with that order. Bankruptcy Noticing Center Certificate of Notice, ECF 455, filed on June 5, 2016.
Creditor Zehnaly testified that on or about July 19, 2016, he received a hand-delivered copy of a purported order of the court in this case entitled "Order: Granting Creditor Zehnaly Final Possession of Debtor's Assets," which bore a file-stamped date of entry of July 19, 2016 and a docket entry number of 256. Declaration of Ghazar Zehnaly, attached to Motion, ECF 589 at 12-15 and Exhibit 8 attached thereto. The purported order stated that the motion of Creditor Zehnaly was granted; that "Creditor Zehnaly be given possession and title of Debtor's Property commonly known as 3550 Porsche Way, 3640 Porsche Way, 3660 Porsche Way, 3700 Inland Empire Boulevard, and 3760 Inland Empire Boulevard, Ontario, CA 91764 (collectively, the `Property')"; and that "[t]he date of change of possession for the Property shall be retroactively be deemed to be June 17, 2016, and Creditor Zehnaly shall receive a pro-rated award of all rents and monies originally due to the Debtor." Id. The purported order further ordered that "[t]he Trustee assigned to this matter shall work with Creditor Zehnaly to facilitate the Orders of this Court;" and "[s]pecifically, The Trustee shall ensure that the tenants currently leasing units at the Property shall be duly informed of the change of ownership and provided adequate time and assistance in meeting their contractual duties, including payment of rent." Id. The purported order bore the electronic signature of the undersigned United States Bankruptcy Judge. Id. The purported order is bogus, as demonstrated by at least the following facts: the purported order is not shown on the docket of this case; the docket number of 256 for this purported order is false because the case docket reflects another document, Declaration of Pamela Muir in Support of the Third Interim Application of Approval of Compensation and Expense Reimbursement of Baker & Hostetler LLP filed by Debtor Sarkis Investments Company, the day before on the date of July 18, 2016, as docket number 463; and the order referred to the "Trustee," though no trustee had been appointed in this Chapter 11 bankruptcy case. Id. According to Creditor Zehnaly, in his declaration in support of the motion, a copy of this purported order was hand-delivered to him by a purported court courier who he later discovered was Ohanian's wife, Silva Sevlian. Id. At about the same time, Creditor Zehnaly received oral and written advice from his attorney, Ohanian, that he was required to deposit or pay funds to protect his interest in the Sarkis Properties and to ensure that he could acquire them free and clear of liens. Id. Also at about the same time, Creditor Zehnaly received a telephone call from a purported court clerk using the name "Debra" or "Barbara" regarding the purported order. Id.
Creditor Zehnaly testified that on or about July 25, 2016, he received a hand-delivered copy of a purported letter from Alvin Mar, Chapter 11 Trustee to Shant Ohanian, Esq., in this case dated July 25, 2016, purportedly transmitted by facsimile. Declaration of Ghazar Zehnaly, attached to Motion, ECF 589 at 12-15 and Exhibit 9 attached thereto. The purported letter stated that Mr. Mar as the Chapter 11 Trustee was assigned to this case and pursuant to the court's purported order of July 21, 2016 "granting the properties formerly owned by SARKIS INVESTMENTS COMPANY, LLC, to your client, GHAZAR ZEHNALY" that Mr. Mar had initially set up an appointment "to meet with the concerned parties at the property location to finalize the exchange of applicable documents, deposit checks, rent checks and keys," but due to Mr. Mar's "various involvements with other matters, and the recent date of the order, my office has not concluded all the necessary paperwork." Id. Thus, according to this purported letter, Mr. Mar had requested additional time to conclude his work and would in the next week contact Mr. Ohanian to schedule a new appointment. Id. The purported order bore the signature of Alvin Mar as "Trustee." Id. The purported order is bogus, as demonstrated by the fact that no one, including Mr. Mar, has been appointed as a Chapter 11 trustee in this case, which requires an order pursuant to 11 U.S.C. § 1104 reflected on the docket of this case, and no such order is shown on the case docket. Moreover, the purported letter refers to a bogus order, that is, the purported order described above which purportedly grants Creditor Zehnaly possession of all of Debtor's assets. According to Creditor Zehnaly, in his declaration in support of the motion, his attorney, Ohanian, made both oral and written representations to him that he had prevailed in this case on his dispute with Debtor to acquire its assets, and it appears that this purported letter is one of the written misrepresentations that Ohanian made to him. Id. At trial, Creditor Zehnaly clarified that Ohanian gave him a copy of this purported letter. Testimony of Creditor Zehnaly, Audio Recording of Trial, February 2, 2019, 10:37 a.m.
On September 15, 2016, August 24, 2017, December 6, 2017, and January 1, 2018, counsel for Debtor filed a Bankruptcy Case Status Report for the status conferences in the underlying bankruptcy case set for September 21, 2016, August 30, 2017, December 13, 2017 and January 28, 2018 respectively. ECF 471, filed on September 15, 2016; ECF 551, filed on August 24, 2017; ECF 555, filed on December 6, 2017; and ECF 557, filed on January 1, 2018. Each of these status reports was addressed on page 1 to the undersigned United States Bankruptcy Judge and "ALL INTERESTED PARTIES AND/OR THEIR COUNSEL OF RECORD," and the proof of service of each status report indicated that counsel for Debtor mailed copies of the each status report on September 15, 2016, August 24, 2017, December 6, 2017 and January 1, 2018 to serve: (1) counsel for Creditor Zehnaly, Ohanian, at his office address; and (2) Creditor Zehnaly himself at his mailing address at 4326 Fairlawn Drive, La Canada, CA 91101-3115. Id. The subject matter of the each of these status reports related to the bankruptcy case in general relating to Debtor's motion for structured dismissal and fee applications of its attorneys and did not refer to Debtor's motion objecting to Creditor Zehnaly's claim or the order thereon filed and entered on June 3, 2016. Id.
Creditor Zehnaly testified that on or about October 7, 2016, he received a hand-delivered copy of a purported order of the court in this case entitled "Order: Approving Settlement Terms and Setting Final Schedule for Dismissal of Bankruptcy and Creditor Payments," which bore a file-stamped date of entry of October 7, 2016 and a docket entry number of 397. Declaration of Ghazar Zehnaly, attached to Motion, ECF 589 at 12-15 and Exhibit 10 attached thereto. The purported order stated that the motion of Creditor Zehnaly and Creditor LNR Partners, LLC was granted; that "[t]he settlement agreement reached between Creditor Zehnaly and LNR Partners, LLC be reflected in the official records of this Court"; that "[u]nder the agreement, the principal amount of the first mortgage interested [sic] held by LNR will be reduced from $11,245,114.56 to $4,245,114.56, commencing on October 11, 2016"; and that "[t]he interest rate shall remain 2.25% over a fixed 30-year period." Id. This purported order further provided that "[o]n October 12, 2016, all monies due Creditor Zehnaly and the properties commonly known as 3550 Porsche Way, 3640 Porsche Way, 3660 Porsche Way, 3700 Inland Empire Boulevard, and 3760 Inland Empire Boulevard, Ontario, CA 91764 (collectively, the `Property') be released to Creditor Zehnaly," but that "prior to the release of any properties, Creditor Zehnaly is required to pay the outstanding mortgage balance of $42,983.78 previously due by October 1, 2016." Id. The purported order bore the electronic signature of the undersigned United States Bankruptcy Judge. Id. The purported order is bogus, as demonstrated by at least the following facts: the purported order is not shown on the docket of this case; the docket number of 397 for this purported order is false because the case docket reflects another document, Debtor's status report for the status conference on September 21, 2016, Docket No. 471, which was the last filed document in the case before the filing date of the purported order of October 7, 2016; and the order referred to the "Trustee," though no trustee had been appointed in this Chapter 11 bankruptcy case. Id. According to Creditor Zehnaly, in his declaration in support of the motion, a copy of this purported order was hand-delivered to him by a purported court courier who he later discovered was Ohanian's wife, Silva Sevlian. Id. At about the same time, Creditor Zehnaly received oral and written advice from his attorney, Ohanian, that he was required to deposit or pay funds to protect his interest in the Sarkis Properties and to ensure that he could acquire them free and clear of liens. Id. Also at about the same time, Creditor Zehnaly received a telephone call from a purported court clerk using the name "Debra" or "Barbara" regarding the purported order. Id.
In connection with this purported order of October 7, 2016, Creditor Zehnaly testified that he received a copy of a purported Form 4102B, Notice of Cure Payment, that reflects the amount of the purported outstanding mortgage balance of $42,983.78 that he purportedly had to pay pursuant to the purported order of October 7, 2016. Declaration of Ghazar Zehnaly, attached to Motion, ECF 589 at 12-15 and Exhibit 11 attached thereto. The purported Form 4102B, Notice of Cure Payment, appears to be a bankruptcy case related form. According to Creditor Zehnaly, in his declaration in support of the motion, his attorney, Ohanian, made both oral and written representations to him that he had prevailed in this case on his dispute with Debtor to acquire its assets, and it appears that this purported notice of cure payment is one of the written misrepresentations that Ohanian made to him. Id.
Creditor Zehnaly testified that on or about October 26, 2016, he received a hand-delivered copy of a purported order of the court in this case entitled "Order: Approving Final Settlement Terms Between Creditors Zehnaly and LNR Partners, LLC.," which bore a file-stamped date of entry of October 26, 2016 and a docket entry number of 399. Declaration of Ghazar Zehnaly, attached to Motion, ECF 589 at 12-15 and Exhibit 12 attached thereto. The purported order stated that the motion of Creditor Zehnaly and Creditor LNR Partners, LLC was granted; that "[t]he settlement agreement reached between Creditor Zehnaly and LNR Partners, LLC be reflected in the official records of this Court"; that "[u]nder the agreement, LNR agrees to convey a full dead [sic] of trust for the properties listed below in return for a payment of $1,298,940.00 made by Creditor Zehnaly"; and that "[t]he properties commonly known as 3550 Porsche Way, 3640 Porsche Way, 3660 Porsche Way, 3700 Inland Empire Boulevard, and 3760 Inland Empire Boulevard, Ontario, CA 91764 (collectively, the `Property') shall be conveyed to Creditor Zehnaly, free of any liens and encumbrances, after both parties follow the required procedures, as required under California Civil Code Section 1091-1099, including but not limited to: representations and warranties, environmental and hazardous waste provisions (disclosure of known conditions or defects), relevant zoning and land use issues, and Internal Revenue Code Section 1031 exchange provisions." Id. With respect to the implementation of the property transfer, the purported order further provided that "Creditor Zehnaly's Attorney [i.e., Ohanian] shall be temporarily appointed as the trustee for the Property conveyance, and is ordered to work in conjunction with this Court to ensure that all required documents and materials are submitted in a timely manner"; that "[t]he parties are required to complete the sale no later than November 11, 2016"; and that "[t]he court shall be notified of any potential delays." Id. The purported order bore the electronic signature of the undersigned United States Bankruptcy Judge. Id. The purported order is bogus, as demonstrated by at least the following facts: the purported order is not shown on the docket of this case; the docket number of 399 for this purported order is false because the case docket reflects another document, the court's order taking off calendar the third interim fee application of Baker & Hostetler, LLC, Debtor's general bankruptcy counsel, filed about a week earlier on the date of October 20, 2016 as docket number 477, which was the last filed document in the case before the filing date of the purported order of October 26, 2016; and the order referred to the "temporary appointment" of Ohanian, Creditor Zehnaly's attorney, as a property transfer trustee, which is completely fraudulent as such appointment is not reflected in any order of the court entered on the case docket. Id. According to Creditor Zehnaly, in his declaration in support of the motion, a copy of this purported order was hand-delivered to him by a purported court courier who he later discovered was Ohanian's wife, Silva Sevlian. Id. At about the same time, Creditor Zehnaly received oral and written advice from his attorney, Ohanian, that he was required to deposit or pay funds to protect his interest in the Sarkis Properties and to ensure that he could acquire them free and clear of liens. Id. Also at about the same time, Creditor Zehnaly received a telephone call from a purported court clerk using the name "Debra" or "Barbara" regarding the purported order. Id.
Creditor Zehnaly testified that on or about December 27, 2016, he received a hand-delivered copy of a purported order of the court in this case entitled "Tentative Order: Granting Creditor Zehnaly's Request for Supplemental Award of Real Property," which bore a file-stamped date of entry of December 27, 2016 and a docket entry number of 403. Declaration of Ghazar Zehnaly, attached to Motion, ECF 589 at 12-15 and Exhibit 13 attached thereto. The purported order stated that the motion of Creditor Zehnaly was granted; that "[b]ased upon findings of this Court in the corresponding bankruptcy matter, and good cause appearing therefor, that the real property located at 11321 South Main Street, Los Angeles, CA 90006 ("Main St. property"), be transferred in fee simple absolute to Creditor Zehnaly"; that "[t]he value of the property is set at $2,100,000.00 and shall be deemed as full and fair payment for actual damages suffered by Creditor Zehnaly"; and that "[w]ithin 48 hours from this tentative order, the Court shall release a binding order specifying the release of the Main St. property and all other payments and releases connected to the properties located in Ontario, CA." Id. The purported order bore the electronic signature of the undersigned United States Bankruptcy Judge. Id. The purported order is bogus, as demonstrated by the fact that the purported order is not shown on the docket of this case; the docket number of 403 for this purported order is false because the case docket reflects another document, Debtor's monthly operating report number 40 for November 2016 filed about two weeks earlier on the date of December 15, 2016, as docket number 491, which was the last filed document in the case before the filing date of the purported order of December 27, 2016. Id. According to Creditor Zehnaly, in his declaration in support of the motion, a copy of this purported order was hand-delivered to him by a purported court courier who he later discovered was Ohanian's wife, Silva Sevlian. Id. At about the same time, Creditor Zehnaly received oral and written advice from his attorney, Ohanian, that he was required to deposit or pay funds to protect his interest in the Sarkis Properties and to ensure that he could acquire them free and clear of liens. Id. Also at about the same time, Creditor Zehnaly received a telephone call from a purported court clerk using the name "Debra" or "Barbara" regarding the purported order. Id.
Creditor Zehnaly testified that on or about February 17, 2017, he received a hand-delivered copy of a purported order of the court in this case entitled "Order: Amending Final Bankruptcy Discharge Order," which bore a file-stamped date of entry of February 17, 2017 and a docket entry number of 427. Declaration of Ghazar Zehnaly, attached to Motion, ECF 589 at 12-15 and Exhibit 14 attached thereto. The purported order stated that the court ordered on its own motion that "[t]he bankruptcy matter In re. SARKIS INVESTMENTS COMPANY, LLC be hereby discharged and all monies and properties owed to Creditors be disbursed after all outstanding fees and tax liabilities have been satisfied"; that "Creditor, Zehnaly provide payment to this court in the amount of $69,544.23 for an amended 2015 tax liability for the properties commonly known as 3550 Porsche Way, 3640 Porsche Way, 3660 Porsche Way, 3700 Inland Empire Boulevard, and 3760 Inland Empire Boulevard, Ontario, CA 91764 (collectively, the `Property')"; and that "[t]his payment will satisfy all liabilities owed in connection to the property by Creditor ZEHNALY and any and all corporate entities controlled by Creditor ZEHNALY." Id. The purported order bore the electronic signature of the undersigned United States Bankruptcy Judge. Id. The purported order is bogus, as demonstrated by the fact that the purported order is not shown on the docket of this case; the docket number of 427 for this purported order is false because the case docket reflects another document, the court's order continuing hearings on the final fee application of Baker & Hostetler, LLP, Debtor's general bankruptcy counsel; and Debtor's motion for conditional dismissal filed about a month earlier on the date of January 23, 2017 as docket number 497, was the last filed document in the case before the filing date of the purported order of February 17, 2017. Id. According to Creditor Zehnaly, in his declaration in support of the motion, a copy of this purported order was hand-delivered to him by a purported court courier who he later discovered was Ohanian's wife, Silva Sevlian. Id. This particular purported order had a purported notice of entered order and service list indicating service by the court by personal delivery on Creditor Zehnaly at his address as well as Debtor and Creditor LNR Partners, LLC. Id. At about the same time, Creditor Zehnaly received oral and written advice from his attorney, Ohanian, that he was required to deposit or pay funds to protect his interest in the Sarkis Properties and to ensure that he could acquire them free and clear of liens. Id. Also at about the same time, Creditor Zehnaly received a telephone call from a purported court clerk using the name "Debra" or "Barbara" regarding the purported order. Id.
Creditor Zehnaly testified that on or about February 28, 2017, he received a hand-delivered copy of a purported order of the court in this case entitled "Order: Denying Sarkis Investments Company, LLC's Motion to Reverse on Appeal and for Sanctions," which bore a file-stamped date of entry of February 28, 2017 and a docket entry number of 428. Declaration of Ghazar Zehnaly, attached to Motion, ECF 589 at 12-15 and Exhibit 15 attached thereto. The purported order stated that the court denied an emergency motion of Debtor "requesting a reversal of the previous order granting Creditor ZEHNALY various properties and monies under Proof of Claim 7-1 filed individual Ghazar Zehnaly." Id. This purported order recited the purported issue on appeal, stating:
Id. The purported order said that the court had heard oral arguments on the emergency motion, which were purportedly made by Debtor's counsel, Ashley McDow, and Creditor Zehnaly's attorney, Ohanian, on February 27, 2017, and "Mr. Ohanian presented evidence that any error in not including the corporation in the proof of claim was not due to a deliberate act by Creditor Zehnaly and thus should not set forth a new permissible period for appeal since the appeals period has already expired." Id. The purported order stated that the court held "that Mr. Ohanian has carried his burden of proof in establishing Creditor Zehnaly shall not be held liable for the failure to bring a proof of claim on behalf of the corporation and SARKIS INVESTMENTS COMPANY, LLC's motion is hereby denied." Id. The purported order bore the electronic signature of the undersigned United States Bankruptcy Judge. Id. The purported order is bogus, as demonstrated by the fact that it is not shown on the docket of this case; the docket number of 428 for this purported order is false because the case docket reflects another document, Debtor's monthly operating report number 42 for the month of January 2017 filed about a week earlier on the date of February 20, 2017, as docket number 504, which was the last filed document in the case before the filing date of the purported order of February 27, 2017. Id. According to Creditor Zehnaly, in his declaration in support of the motion, a copy of this purported order was hand-delivered to him by a purported court courier who he later discovered was Ohanian's wife, Silva Sevlian. Id. This particular purported order had a purported notice of entered order and service list indicating service by the court by personal delivery on Creditor Zehnaly at his address as well as Debtor and Creditor LNR Partners, LLC. Id. At about the same time, Creditor Zehnaly received oral and written advice from his attorney, Ohanian, that he was required to deposit or pay funds to protect his interest in the Sarkis Properties and to ensure that he could acquire them free and clear of liens. Id. Also at about the same time, Creditor Zehnaly received a telephone call from a purported court clerk using the name "Debra" or "Barbara" regarding the purported order. Id.
Creditor Zehnaly testified that on or about March 2, 2017, he received a hand-delivered copy of a purported order of the court in this case entitled "Order: Denying Sarkis Investments Company, LLC's Motion to Appeal and Amending Tax Liabilities for Properties," which bore a file-stamped date of entry of March 2, 2017 and a docket entry number of 429 on page 1 of the order and 427 on page 2 of the order. Declaration of Ghazar Zehnaly, attached to Motion, ECF 589 at 12-15 and Exhibit 16 attached thereto. The purported order stated that it related to the purported order of February 28, 2016 denying the emergency motion to appeal "this Court's grant of various properties and monies to Creditor ZEHNALY" and that "[t]he Debtor asked this Court to reconsider the order under Federal Rules of Evidence 4(3)(a) or in the alternative reconsider the current outstanding tax liabilities of Sarkis Investments connected to the properties now owned by Creditor ZEHNALY, due to the fact that previous liabilities calculated and apportioned were done with the understanding that Creditor ZEHNALY acted as an individual rather than in his capacity as a director of a corporation." Id. This purported order further stated that "Creditor ZEHNALY filed a counter-motion arguing that if Creditor ZEHNALY is required to make any supplemental tax payments, Creditor ZEHNALY should receive a tax indemnification certificate to recoup any payments due to the fact that any 2015 unpaid tax liabilities were amassed while SARKIS INVESTMENTS COMPANY, LLC was still the owner of the properties." Id. The purported order provides that "Debtor SARKIS INVESTMENTS COMPANY, LLC'S motion to reconsider the motion and grant Debtor right to appeal is
According to Creditor Zehnaly, during the time period from April 2016 to September 2017, Ohanian's wife, Silva Sevlian made numerous telephone calls to him (2-3 times a week on average) with a "spoofed" telephone number which showed the identification of the Bankruptcy Court. Declaration of Ghazar Zehnaly, attached to Motion, ECF 589 at 15. Also, according to Creditor Zehnaly, Sevlian claimed that she was a court clerk named "Debra" or "Barbara," calling from the Bankruptcy Court, and advising him regarding the status of the Bankruptcy Proceedings, which confirmed Ohanian's oral representations to him, and written representations in the forged court orders and documents. Id. Moreover, according to Creditor Zehnaly, "Debra" or "Barbara" confirmed to him that the Bankruptcy Court was awarding the Sarkis Properties to him, and she also explained the reasons why his ability to acquire the Sarkis Properties had been delayed and assured him that such delays were due to court procedures which needed to be followed to ensure that clean and proper title would be awarded to him. Id.
According to Creditor Zehnaly, after Ohanian represented orally and in writing to him that Sarkis's appeal had been denied in March 2017, between April 2017 and September 2017, Ohanian and Sevlian orally explained to him on numerous occasions that there were still lien issues that needed to be taken care of and addressed for the Main Street Property, another property owned by Debtor that Creditor Zehnaly was interested in purchasing. Declaration of Ghazar Zehnaly, attached to Motion, ECF 589 at 15 and Exhibit 13 attached thereto. Moreover, according to Creditor Zehnaly, Ohanian and Sevlian further represented to him that they needed to serve notices on all the tenants at the Main Street Property, or alternatively work out new leases with the tenants. Id. Furthermore, according to Creditor Zehnaly, Ohanian and Sevlian explained that the reason for the delay in recording title to the Sarkis Properties was that the Bankruptcy Court wanted all title issues to be taken care of at the same time, and therefore, title would be recorded in his name for the Sarkis Properties after lien and tenant issues were resolved regarding the Main Street Property, so that Creditor Zehnaly would receive title to the Sarkis Properties and the Main Street Property at the same time. Id.
Creditor Zehnaly testified that between 2016 and 2017, he paid Ohanian approximately $3,000,000.00 based on Ohanian's representations that the funds were necessary to protect Creditor Zehnaly's interest in the Sarkis Properties and to pay for Ohanian's alleged legal services. Declaration of Ghazar Zehnaly, attached to Motion, ECF 589 at 15; Testimony of Creditor Zehnaly, Audio Recording of Trial, February 2, 2019, 2:06-2:11 p.m. Based on the fake and forged court orders that Ohanian showed him, Creditor Zehnaly transferred these funds to Ohanian by check and wire transfer to Ohanian's client trust account for the purported purpose of satisfying Debtor's creditors to acquire the Sarkis Properties. Id. According to Creditor Zehnaly, Ohanian came over to his house to meet with him and to give him the bogus court orders and documents, and these visits of Ohanian were more frequent in 2016 than before in the period between 2013 and 2016. Testimony of Creditor Zehnaly, Audio Recording of Trial, February 2, 2019, 11:07-11:08 a.m. That is, Ohanian frequently came over to get checks from Creditor Zehnaly. Id., 10:59 a.m. A particularly striking example of this is the bogus order that Ohanian gave Creditor Zehnaly purportedly appointing him as a temporary trustee to handle the transfer of the Sarkis Properties to Creditor Zehnaly which included a payment of $1,298,940.00 to be made by Creditor Zehnaly to the secured lender, which Ohanian would handle under the bogus order. Declaration of Ghazar Zehnaly, attached to Motion, ECF 589 at 12-15 and Exhibit 12 attached thereto. Asked on cross-examination whether he had given such large sums to an attorney before and why he gave such large sums to Ohanian, Creditor Zehnaly answered that he had trusted Ohanian. Id.
As discussed above, according to Creditor Zehnaly, he did not know of the court's order of June 2016 disallowing his proof of claim or of Debtor's status reports describing the order to show cause proceedings because he did not receive copies of the court's orders or other bankruptcy case-related documents. Declaration of Ghazar Zehnaly, attached to Motion, ECF 589 at 11-15 and Exhibits 1-16 attached thereto; Testimony of Creditor Zehnaly, Audio Recording of Trial, February 2, 2019, 2:00-2:04 p.m, 2:17-2:18 p.m. Creditor Zehnaly suspected that Ohanian had intercepted his mail because his mailbox at his house was on the street and susceptible of theft. Testimony of Creditor Zehnaly, Audio Recording of Trial, February 2, 2019., 2:00-2:03 p.m., 2:17-2:18 p.m. Although Creditor Zehnaly admitted at trial that he did not observe Ohanian intercepting his mail, his testimony is credible because in order for Ohanian's scheme to induce Creditor Zehnaly to transfer large sums of money to him under the ruse that the Bankruptcy Court was requiring payment of Debtor's creditors for Creditor Zehnaly to acquire the Sarkis Properties, Creditor Zehnaly had to be kept in the dark about the actual court proceedings, including the order disallowing his proof of claim and the order to show cause proceedings. Creditor Zehnaly's testimony about the frequent visits of Ohanian and the imposter court courier to deliver the fabricated and forged court orders and documents and the frequent calls by the imposter court clerk to deliver false reports about the status of the bankruptcy court proceedings indicate the extensive efforts that Ohanian needed to take to induce Creditor Zehnaly to transfer the large sums of money to him. Ohanian's scheme would not have worked if the true case information got through to Creditor Zehnaly, who would not have given Ohanian all the money that he did.
On June 28, 2017, the State Bar Court of California, Hearing Department, Los Angeles, filed its Decision and Order of Involuntary Inactive Enrollment in the Matter of Shant Ohanian, Case Numbers 16-O-12139-CV and 16-O-12892-CV. Declaration of Ghazar Zehnaly, attached to Motion, ECF 589 at 12-15 and Exhibit 17 attached thereto. This decision and order of the State Bar Court is a public matter and is of public record and provided for the involuntarily inactive enrollment of Ohanian, Creditor Zehnaly's attorney in this case. Id. The website of the State Bar of California indicates that Ohanian was disbarred, effective December 2, 2017, and the court takes judicial notice of this fact and the decision and order of the State Bar Court pursuant to Federal Rule of Evidence 201.
According to Creditor Zehnaly, he later discovered that all of the court orders and documents that Ohanian provided him were fake and forged. Declaration of Ghazar Zehnaly, attached to Motion, ECF 589 at 15. In his declaration in support of his motion for reconsideration, Creditor Zehnaly stated that he learned in late 2017 that the Bankruptcy Court did not award him the Sarkis Properties or the opportunity to acquire the Sarkis Properties. Id. Furthermore, Creditor Zehnaly testified in his declaration that according to the documents he was able to obtain online, Ohanian did file a proof of claim on his behalf, but acknowledged, however, that on June 3, 2016 the court issued an order disallowing his proof of claim against Debtor in its entirety. Declaration of Ghazar Zehnaly, attached to Motion, ECF 589 at 15 and Exhibits 4 and 18 attached thereto. At trial, Creditor Zehnaly clarified that he discovered that Ohanian had defrauded him in September 2017 and that he found out that the purported court orders and documents that Ohanian gave him were fake and forged after visiting the court and being shown the real court orders and documents by court personnel. Testimony of Creditor Zehnaly, Audio Recording of Trial, February 2, 2019, 10:50 a.m. and 11:20-11:25 a.m. What led Creditor Zehnaly to suspect Ohanian was that he had a criminal law matter regarding one of his properties brought by the City of Los Angeles, and he asked Ohanian to represent him and Ohanian told Creditor Zehnaly that he was busy and Creditor Zehnaly should represent himself. Id., 11:12 a.m. Although Creditor Zehnaly had not known that Ohanian had been disciplined and involuntarily enrolled as inactive by that time, Creditor Zehnaly became suspicious and went to the Bankruptcy Court to see the real court orders and documents in this case. Id., 11:09 a.m. After learning that Ohanian had defrauded him, Creditor Zehnaly attempted to file a police report with the Pasadena Police Department, who referred him to the Los Angeles County Sheriff. Id.
On or about December 25, 2017, Creditor Zehnaly and his son, Armen Zehnaly, sent an application for reimbursement from the State Bar of California Client Security Fund for compensation from losses they allegedly incurred from being represented by Ohanian, and by letter dated January 3, 2018, the State Bar of California Client Security Fund Unit acknowledged receipt of this application. Letter from State Bar of California Client Security Fund Unit to Ghazar Zehnaly and Armen Zehnaly, re: Your Application for Reimbursement from the Client Security Fund, dated June 19, 2018, Debtor's Exhibit B; Testimony of Creditor Zehnaly, Audio Recording of Trial, February 2, 2019, 10:50 a.m. In his application for reimbursement, Creditor Zehnaly alleged that the loss occurred from July 2013 to September 2017 and acknowledged that he discovered the loss in September 2017. Id. Creditor Zehnaly also stated that he had filed a complaint about Ohanian with the State Bar of California on November 7, 2017. Id.; Testimony of Creditor Zehnaly, Audio Recording of Trial, February 2, 2019. 2:05 p.m.
On January 23, 2018, Ohanian filed his Declaration of Shant Ohanian, stating that he was a former attorney at law licensed to practice in the State of California; that he was no longer authorized to practice law; that he was counsel of record for Creditor Ghazar Zehnaly in this case; that he had filed a proof of claim on behalf of Creditor Zehnaly denominated as Proof of Claim No. 7-1 on November 12, 2013; and that "[d]ue to my negligence and inadequate representation of Claimant Zehnaly, this Court dismissed Zehnaly's rightful claim." ECF 558, filed on January 23, 2018. No notice of hearing accompanied this document. Id. No proof of service was filed for this document, and there is no indication of service of a judge's copy on Judge Kwan presiding over this case as required by Local Bankruptcy Rule 5005-2 or on Creditor Zehnaly. Id. However, the court's notice of electronic filing (NEF) of January 23, 2018 for this document indicated that electronic notice of this document would be electronically mailed to electronic notice parties, including counsel for Debtor. Id.
On February 2, 2018, Creditor Zehnaly filed in this case a Petition and Declaration of Ghazar Zehnaly. ECF 560, filed on February 2, 2018. In this document addressed to the attention of Judge Kwan, Creditor Zehnaly asserted that he was a victim of the deceitful and fraudulent acts of his former attorney Ohanian; that Ohanian had been lying to him and not appearing in court to represent him; that Ohanian showed him fake documents, including forged orders of this court; and that Ohanian's female associate made phone calls to him, alleging the caller was from this court, to verify the authenticity of the fake court documents. Id. At the end of this document, Creditor Zehnaly is his prayer for relief stated: "I, Ghazar Zehnaly, hereby plead to the Honorable Judge Robert Kwan in the United States Bankruptcy Court to grant me an opportunity to find and hire another attorney to represent me properly in this case." Id. Although the document is called a "declaration," there is no declaration under penalty of perjury as required by 28 U.S.C. § 1746(2). No notice of hearing accompanied this document. Id. No proof of service was filed for this document when it was filed on February 2, 2018, and there is no indication of service of a judge's copy on Judge Kwan presiding over this case as required by Local Bankruptcy Rule 5005-2 or on Creditor Zehnaly. Id. Creditor Zehnaly admitted that he did not know what to do when filing the motion. Testimony of Creditor Zehnaly, Audio Recording of Trial, February 2, 2019. 10:52 a.m.
The court's notice of electronic filing (NEF) of February 2, 2018 for the Petition indicated that electronic notice of this document would be electronically mailed to electronic notice parties, including counsel for Debtor. ECF 560, filed on February 2, 2018. A proof of service was filed for this document on February 8, 2018, but the only service party listed on the proof of service was counsel for Debtor by personal delivery. ECF 562, filed on February 8, 2018. The court's notice of electronic filing (NEF) of February 8, 2018 for this document indicated that electronic notice of this document would be electronically mailed to electronic notice parties, including counsel for Debtor. Id.
Creditor Zehnaly's Petition was handwritten and prepared by himself without the assistance of an attorney. Testimony of Creditor Zehnaly, Audio Recording of Trial, February 2, 2019. 10:45 a.m., 10:52-10:53 a.m. Creditor Zehnaly testified that after he found out that Ohanian had defrauded him, he consulted three or four attorneys, one of whom identified himself as a bankruptcy attorney, but he did not retain any one of them because he "was not convinced of their advice." Id., 11:37 a.m.
On February 5, 2018, Creditor Zehnaly filed an "Amendment" of the petition and declaration filed on February 2, 2018. ECF 561, filed on February 5, 2018. This amended document is not materially different from the original document filed on February 2, 2018. Id. No notice of hearing accompanied this document. Id. No proof of service was filed for this document, and there is no indication of service of a judge's copy on Judge Kwan presiding over this case as required by Local Bankruptcy Rule 5005-2 or on Creditor Zehnaly. Id. However, the court's notice of electronic filing (NEF) of February 5, 2018 for this document indicated that electronic notice of this document would be electronically mailed to electronic notice parties, including counsel for Debtor. Id.
On June 19, 2018, Creditor Zehnaly, represented by counsel, filed a complaint for legal malpractice, breach of contract, intentional and negligent misrepresentation, breach of fiduciary duty and conversion against Ohanian, Ohanian's law firm, and Ohanian's wife in the Superior Court of California, County of Los Angeles. Complaint for Legal Malpractice, Breach of Contract, Intentional Misrepresentation, Negligent Misrepresentation, Breach of Fiduciary Duty and Conversion, Ghazar Zehnaly v. Shant Ohanian, et al., No. BC 710351 (Superior Court of California, County of Los Angeles, complaint filed on June 19, 2018), Debtor's Exhibit C. In the complaint, Creditor Zehnaly alleged that Ohanian and his wife conspired in a scheme to defraud him of money during Ohanian's representation of him during this bankruptcy case in the time period from April 2016 to September 2017 providing him with copies of fake court orders and other documents with forged signatures of the undersigned United States Bankruptcy Judge and a purported bankruptcy trustee with the purpose of inducing him to give the funds to Ohanian purportedly necessary to perfect the transfer of the real property owned by Debtor to him on grounds that Creditor Zehnaly prevailed in litigation with Debtor in this case and, as a result, the court ordered Debtor to transfer the real property to Creditor Zehnaly. Id. Creditor Zehnaly further alleged that as part of this scheme, Ohanian fabricated and provided him with copies of fake court orders dated from April 2016 to March 2017 purportedly showing that he had prevailed in litigation in the bankruptcy case against Debtor, which awarded him possession of Debtor's assets, including its real property, and ordering Creditor Zehnaly to make payment of funds to the court in the case to perfect the transfer of the real property to him, which Ohanian would receive and handle on behalf of Creditor Zehnaly, though Ohanian actually converted the funds. Id. Creditor Zehnaly alleged that he paid Ohanian approximately $3,000,000 based on Ohanian's representations that the funds were necessary to protect Zehnaly's interest in Debtor's real property and Zehnaly's other properties in the Los Angeles and to pay Ohanian for his alleged legal services. Id. at 8.
On November 27, 2018, Creditor Zehnaly filed the Motion for Reconsideration of Order Disallowing Creditor Ghazar Zehnaly's Proof of Claim 7-1 of Creditor Ghazar Zehnaly, which is the matter before the court. ECF 589, filed on November 27, 2018. On December 6, 2018, Debtor filed its opposition to the motion. ECF 593, filed on December 6, 2018. On December 12, 2018, Creditor Zehnaly filed his reply to Debtor's opposition. ECF 594, filed on December 12, 2018. On December 19, 2018, the court conducted an initial hearing on the motion for reconsideration and set the matter for an evidentiary hearing on February 7, 2019 because there were disputed issues of material fact.
On February 7, 2019, the court conducted a one-day trial on the contested matter of Creditor Zehnaly's motion for reconsideration. Counsel for Debtor requested leave of court to file a supplemental brief on the so-called "mailbox rule" because Creditor Zehnaly testified at trial that he did not receive Debtor's status reports that counsel for Debtor mailed to him, and on February 14, 2019, Debtor filed its Brief with Memorandum of Points and Authorities Regarding Mailbox Rule filed by Debtor, ECF 599. On March 21, 2019, Creditor Zehnaly filed a response to Debtor's supplemental brief. Supplemental Brief of Ghazar Zehnaly re Mailbox Rule, ECF 602, filed on March 21, 2019.
Having considered the evidence received at trial and the written and oral arguments of the parties, the papers and pleadings relating to this contested matter, the court renders its ruling as set forth below.
In the Motion for Reconsideration, Creditor Zehnaly seeks reconsideration of the court's order disallowing his proof of claim pursuant to Federal Rule of Civil Procedure Rule 59(e) and 11 U.S.C. § 502(j). ECF 589; see also Federal Rule of Bankruptcy Procedure 9023 (making Federal Rule of Civil Procedure 59 applicable in bankruptcy cases).
Debtor in its opposition to Creditor Zehnaly's motion for reconsideration opposes the motion on grounds that it is untimely under Federal Rule of Civil Procedure 59(e), it does not meet the requirements of Federal Rule of Civil Procedure 60(b), the claim cannot be reconsidered pursuant to 11 U.S.C. § 502(j), and Creditor Zehnaly's former attorney's alleged malpractice does not provide a basis to set aside the court's order disallowing his claim. Debtor's Opposition, ECF 593, filed on December 6, 2018, at 2-9.
Federal Rule of Civil Procedure 59(e) provides: "A motion to alter or amend a judgment must be filed no later than 28 days after the entry of the judgment." Federal Rule of Civil Procedure 59(e). Creditor Zehnaly filed his petition and declarations in February 2018 and his motion for reconsideration on November 27, 2018, apparently seeking to alter or amend the court's order disallowing his claim filed and entered on June 3, 2016. Creditor Zehnaly filed his petition and declarations over 19 months after entry of the order disallowing his claim (and his motion for reconsideration 9 months later), well beyond the 28-day period set forth in Rule 59(e). Thus, he may not rely upon Federal Rule of Civil Procedure 59 to alter or amend the final order disallowing his claim because his motions to alter or amend this final order disallowing his claim are untimely. To the extent that Creditor Zehnaly seeks relief under Federal Rule of Civil Procedure 59, the court agrees with Debtor's opposition on this ground and denies such relief.
Pursuant to 11 U.S.C. § 502(j), a claim that has been disallowed may be reconsidered for cause. Federal Rule of Bankruptcy Procedure 3008 provides that "[a] party in interest may move for reconsideration of an order allowing or disallowing a claim against the estate." According to the United States Bankruptcy Appellate Panel of the Ninth Circuit, there is no time limit to bringing a Rule 3008 motion. In re Levoy, 182 B.R. 827, 832 (9th Cir. BAP 1995). Thus, Creditor Zehnaly's motion for reconsideration of the order disallowing his claim is not untimely by reason of Federal Rule of Bankruptcy Procedure 3008.
However, Creditor Zehnaly must still show that his motion for reconsideration of the order disallowing his claim is timely under Federal Rule of Bankruptcy Procedure 9024 and Federal Rule of Civil Procedure 60(c). See also Debtor's Opposition, ECF 593 at 7-8. If a motion to reconsider an order disallowing a claim is filed after the appeal period has expired, a motion to reconsider should be treated as a motion for relief from judgment under Federal Rule of Bankruptcy Procedure 9024. In re Cleanmaster Industries, Inc., 106 B.R. 628, 630 (9th Cir. BAP 1989). Federal Rule of Bankruptcy Procedure 9024 provides that Federal Rule of Civil Procedure 60 sets forth the standards for reconsideration of claims and helps define "cause" under 11 U.S.C. § 502(j). Id. Thus, Creditor Zehnaly's motion for reconsideration under 11 U.S.C. § 502(j) must be considered under the standards of Federal Rule of Civil Procedure 60.
"It has generally been held that a Rule 60(b) motion, at least in the context of bankruptcy cases, is an extraordinary remedy and that the grant or denial of such motion may be reviewed only for an abuse of discretion." 10 Levin and Sommer, Collier on Bankruptcy, ¶ 9024.05 (16th ed. 2019). In general, the burden of proof is on the party bringing a Rule 60(b) motion. Rufo v. Inmates of Suffolk County Jail, 502 U.S. 367, 383 (1992). Thus, Creditor Zehnaly has the burden of proof on his motion for reconsideration pursuant to Federal Rule of Civil Procedure 60(b).
The grounds for relief for judgment pursuant to Federal Rule of Civil Procedure 60 are set forth in Rule 60(b), which are: (1) mistake, inadvertence, surprise or excusable neglect; (2) newly discovered evidence that, with reasonable diligence, could not have been discovered in time to move for a new trial under Rule 59(b); (3) fraud (whether previously called intrinsic or extrinsic), misrepresentation, or misconduct by an opposing party; (4) the judgment is void; (5) the judgment has been satisfied, released, or discharged; it is based on an earlier judgment that has been reversed or vacated; or applying it prospectively is no longer equitable; and (6) any other reason that justifies relief. Federal Rule of Civil Procedure 60(b)(1)-(6).
The grounds for relief asserted by Creditor Zehnaly do not fall within the specific categories of Federal Rule of Civil Procedure 60(b)(1)-(5) since there is no claim of mistake, inadvertence, surprise or excusable neglect, newly discovered evidence, fraud, misrepresentation or misconduct by the opposing party, a void judgment, or a satisfaction, release or discharge of judgment. Thus, Creditor Zehnaly's claim for relief would have to come under the catch-all provision of Federal Rule of Civil Procedure 60(b)(6) for any other reason that justifies relief.
Federal Rule of Civil Procedure 60(b)(6) is used sparingly as an equitable remedy to prevent manifest injustice and is to be used only where extraordinary circumstances prevents a party from taking timely action to prevent or correct an erroneous judgment. Fantasyland Video, Inc. v. Country of San Diego, 505 F.3d 996, 1005 (9th Cir. 2007). In order for a movant to obtain relief under Rule 60(b)(6), the movant must show extraordinary circumstances justifying the reopening of a final judgment. Ackermann v. United States, 340 U.S. 193, 199 (1950). In determining whether extraordinary circumstances are present, the court may consider "the risk of injustice to parties" and "the risk of undermining the public's confidence in the judicial process." Buck v. Davis, 137 S.Ct. 759, 778 (2017) (quoting Liljeberg v. Health Services Acquisition Corp., 486 U.S. 847, 863-864 (1998)).
In his motion for reconsideration, Creditor Zehnaly alleges that his failure to prosecute his claim and the denial of the claim by the court "was the result of fraud and fake orders which were forged by Zehnaly's former counsel, disbarred attorney, Shant Ohanian." Motion, ECF 589 at 2. According to Creditor Zehnaly, "Ohanian led Zehnaly to believe that the Court had issued orders in Zehnaly's favor and was awarding Zehnaly with the right to acquire real property owned by the Debtor Sarkis Investments Company, LLC subject to Zehnaly's payment of taxes and liens totaling nearly $3,000,000.00, all of which Zehnaly paid to Ohanian." Id. As Creditor Zehnaly described in the motion, "Ohanian and his wife accomplished this fraud by providing Zehnaly with no less than ten forged orders purportedly signed by Judge Robert N. Kwan, including pacer file stamp numbers on the top of each page. Ohanian even forged a letter from the Bankruptcy Trustee which misrepresented the status of the proceedings to Zehnaly. Silva Sevlian called Zehnaly approximately 2-3 times per week claiming that she was Judge Kwan's Bankruptcy Clerk and confirmed all of the false representations contained in the court orders forged by Ohanian." Id. at 3.
Creditor Zehnaly gave testimony and submitted documentation in support of these allegations. See Declaration of Ghazar Zehnaly, attached to Motion, ECF 589 at 1-16 and Exhibits 1-18 attached thereto; Zehnaly Testimony, Audio Recording, Trial, February 7, 2019. Creditor Zehnaly testified that he had retained Attorney Shant Ohanian of the law firm of Ohanian & Tikriti to protect his rights regarding his efforts to purchase Debtor's real property, to file a proof of claim in Debtor's bankruptcy case and to attempt to acquire the property through the bankruptcy case. Declaration of Ghazar Zehnaly, attached to Motion, ECF 589 at 12. As Creditor Zehnaly further testified, "Thereafter, I believed that Ohanian was representing and advocating Zehnaly's rights in the Bankruptcy Court. More particularly, in November 2013, Ohanian filed a Proof of Claim 7-1 on my behalf . . . ." Id. Regarding communications with Ohanian, his attorney, Creditor Zehnaly testified: "From November 2013, through September 2017, Ohanian represented to me both orally and in writing on numerous occasions that my Proof of Claim was being litigated in the Bankruptcy Court. On numerous occasions between approximately April 2016 and September 2017 . . ., Ohanian represented to me both orally and in writing that the Court had awarded the Sarkis Properties, as well as other assets and properties, to me subject to certain conditions." Id.
Creditor Zehnaly further testified:
Declaration of Ghazar Zehnaly, attached to Motion, ECF 589 at 12. According to Creditor Zehnaly, these forged documents and false orders included: (1) a purported April 18, 2016 court conformed Order Granting Creditor Zehnaly Possession of Debtor's Assets Including Sold Property—Pending Election of Assets by Creditor purportedly signed by Judge Kwan; (2) a purported April 18, 2016 court conformed Court's Disclosure of Liabilities Connected to Property Located in Ontario, CA purportedly signed by Judge Kwan; (3) a purported May 24, 2016 court conformed Order: Granting Creditor's Request to Secure Funds to Make Creditors Whole purportedly signed by Judge Kwan; (4) a purported July 19, 2016 court conformed Order: Granting Creditor Zehnaly Final Possession of Debtor's Assets purportedly signed by Judge Kwan; (5) a purported letter from Alvin Mar, the purported Bankruptcy Trustee, dated July 25, 2016, stating that the bankruptcy judge had issued an order awarding the Sarkis Properties to Zehnaly (the court takes judicial notice that Alvin Mar is not a bankruptcy trustee, but an attorney with the Office of the United States Trustee in Los Angeles who has appeared many times before this court, see Federal Rule of Evidence 201); (6) a purported court conformed October 7, 2016 Order: Approving Settlement Terms and Setting Final Schedule for Dismissal of Bankruptcy and Creditor Payments purportedly signed by Judge Kwan; (7) a purported Form 4102B Notice of Cure Payment purportedly reflecting use of Zehnaly's payments of $42,983.78; (8) a purported court conformed October 26, 2016 Order: Approving Final Settlement Terms Between Creditor Zehnaly and LNR Partners, LLC purportedly signed by Judge Kwan, stating that LNR would convey a deed of trust to Zehnaly based on a payment by him of $1,298,940.00; (9) a purported December 27, 2016 court conformed Tentative Order: Granting Creditor Zehnaly's Request for Supplemental Award of Real Property purportedly signed by Judge Kwan; (10) a purported February 17, 2017 court conformed Order: Amending First Bankruptcy Discharge Order purportedly signed by Judge Kwan, stating that Zehnaly was to pay $69,544.23 for amended 2015 tax liability relating to the Sarkis Properties; (11) a purported February 28, 2017 Order: Denying Sarkis Investment Company, LLC's Motion to Reverse on Appeal and for Sanctions purportedly signed by Judge Kwan, stating that Debtor's motion to reverse the order allowing Zehnaly's claim for lack of standing was denied; and (12) a purported March 2, 2017 court conformed Order: Denying Sarkis Investments Company, LLC's Motion to Appeal and Amending Tax Liabilities for Properties purportedly signed by Judge Kwan, which stated that Zehnaly was to pay $65,867.00 for outstanding tax liabilities for the Sarkis Properties. Declaration of Ghazar Zehnaly, attached to Motion, ECF 589 at 12-15. Creditor Zehnaly submitted copies of these purported orders with his motion at trial as Exhibits 4-16.
With respect to Ohanian's wife, Silva Sevlian, Creditor Zehnaly testified:
Debtor in its opposition to Creditor Zehnaly's motion for reconsideration does not dispute his factual assertions in his declaration in support of the motion and did not offer evidence to rebut his factual showing at trial. Debtor's Opposition, ECF 593 at 8; Audio Recording, Trial, February 7, 2010, 2:22-2:23 p.m. Rather, citing Latshaw v. Trainer Wortham & Co., 452 F.2d 1097 (9th Cir. 2006), Debtor argues: "Even if the allegations against Zehnaly's former counsel are true it would not establish grounds to set aside under Rule 60(b). Where a party is aggrieved by his or her attorney's negligence, such claim is addressed through a malpractice claim as opposed to relief under Rule 60(b)." Id. (citing Latshaw v. Trainer Wortham & Co., 452 F.3d at 1101).
However, the Ninth Circuit in Latshaw v. Trainer Wortham & Co., acknowledged that "[a]cts of `fraud on the court' can sometimes constitute extraordinary circumstances meriting relief under Rule 60(b)(6)." 452 F.3d at 1104 (citation omitted). The Ninth Circuit explained, "Such fraud on the court `embrace[s] only that species of fraud which does or attempts to, defile the court itself, or is a fraud perpetuated by officers of the court so that the judicial machinery cannot perform in the usual manner its impartial task of adjudging cases that are presented for adjudication." Id. (citations omitted). As the Ninth Circuit further stated:
Id. (citations and internal quotation marks omitted).
In Latshaw v. Trainer Wortham & Co., the Ninth Circuit affirmed the trial court's judgment denying Rule 60(b) relief where the plaintiff sought to set aside a judgment based on a settlement that she accepted under coercion from and based on fraud by her counsel, who allegedly gave her erroneous legal advice and threatened to resign from the case if she did not accept the officer. 452 F.3d at 1099-1100. The Ninth Circuit held that the plaintiff was not entitled to relief under these facts, observing that "[g]enerally speaking, Rule 60(b) is not intended to remedy the effects of a deliberate and independent litigation decision that a party later comes to regret through second thoughts or subsequently gained knowledge that corrects prior erroneous legal advice of counsel." Id. at 1099. The Ninth Circuit also noted that Rule 60(b)(6) "is used sparingly as an equitable remedy to prevent manifest injustice and is to be utilized only where extraordinary circumstances prevented a party from taking timely action to prevent or correct an erroneous judgment." Id. at 1103 (citations and internal quotation marks omitted). Thus, "a party who moves for such relief [under Rule 60(b)(6)] must demonstrate both injury and circumstances beyond his control that prevented him from proceeding . . . with the action in a proper fashion." Id. (quoting Community Dental Services v. Tani, 282 F.3d 1164, 1168 (9th Cir. 2002)) (internal quotation marks omitted).
In Latshaw v. Trainer Wortham & Co., the Ninth Circuit also distinguished Community Dental Services v. Tani, where it concluded that the party was entitled to Rule 60(b) relief. 452 F.3d at 1103. In discussing the Tani case, the Ninth Circuit in Latshaw stated:
Latshaw v. Trainer Wortham & Co., 452 F.3d at 1103 (quoting Community Dental Services v. Tani, 282 F.3d at 1168, 1170-1171).
In a case subsequent to Tani and Latshaw, the Ninth Circuit, following Tani, held that an attorney's gross negligence resulting in dismissal of the client's case with prejudice for failure to prosecute constituted extraordinary circumstances under Rule 60(b)(6) warranting relief from judgment. Lal v. State of California, 610 F.3d 518, 524-525 (9th Cir. 2010). In the Lal case, the Ninth Circuit defined gross negligence as "neglect so gross that it is inexcusable." Id. at 524 (quoting Community Dental Services v. Tani, 282 F.3d at 1168). The Ninth Circuit in Lal further stated that an attorney who virtually abandons his client by failing to proceed with this client's defense despite court orders to do so and deliberately deceiving his client about what he is doing or not doing is considered gross negligence. Lal v. State of California, 610 F.3d at 524.
In discussing the particular facts presented in the Lal case, the Ninth Circuit focused on the attorney's egregious conduct:
Lal v. State of California, 610 F.3d at 525-526.
Based on the evidence offered by Creditor Zehnaly in this case, which is not seriously disputed by Debtor, the court finds that he has met his burden of proving extraordinary circumstances to warrant relief under Rule 60(b)(6). The facts in this case bear an uncanny resemblance to the facts of an attorney's extreme negligence or egregious conduct of Tani and Lal warranting Rule 60(b)(6) relief and are dissimilar to the facts of an attorney's neglectful or negligent acts of Latshaw which does not merit Rule 60(b)(6) relief.
The facts of this case, like those in Lal, involve a lack of prosecution that resulted in a judgment against the client, here, Creditor Zehnaly. Allowing the court's order disallowing Creditor Zehnaly's claim to stand in the face of the gross negligence, if not fraud, by his attorney, Ohanian, in scheming to hide from Zehnaly the true facts of the lack of prosecution of his claim in order for the attorney to misappropriate his funds, would work an injustice to Zehnaly and would undermine public confidence in the judicial process. The evidence presented in this case shows that Creditor Zehnaly's attorney, Ohanian, failed to prosecute Zehnaly's claim while at the same time making oral and written misrepresentations to Zehnaly that he had prevailed in the claim process in order to misappropriate Zehnaly's funds. The evidence also shows that Ohanian went to great efforts to disguise his scheme to defraud Creditor Zehnaly by fabricating false court orders and case related documents as fake bankruptcy trustee letters, having his wife pretend to be a court courier to hand-deliver these fake orders and documents to Zehnaly, and having his wife constantly call Zehnaly masquerading as a court clerk to deceive Zehnaly about the status of his claim in Debtor's bankruptcy case.
The court finds that the risk of injustice to Creditor Zehnaly and the risk of undermining the public's confidence in the judicial process are strong factors in finding that Creditor Zehnaly has demonstrated extraordinary circumstances to warrant Rule 60(b)(6) relief. The factual circumstances here fall within the description of "fraud on the court" justifying relief under Rule 60(b)(6) as stated by the Ninth Circuit in Latshaw v. Trainer Wortham & Co.: "Such fraud on the court `embrace[s] only that species of fraud which does or attempts to, defile the court itself, or is a fraud perpetuated by officers of the court so that the judicial machinery cannot perform in the usual manner its impartial task of adjudging cases that are presented for adjudication." 453 F.3d at 1104. The conduct of Ohanian, a licensed member of the State Bar of California and an officer of the court, in lying to his client, Creditor Zehnaly, and in fabricating false court orders and documents and forging the judge's signature to deceive and cheat his client of large sums of money, some $3 million, defiles the court and the judiciary and is a fraud perpetuated by an officer of the court so that the judicial machinery could not perform in its usual manner in this case its impartial task of adjudging cases that are presented for adjudication because Ohanian failed to appear and defend Creditor Zehnaly in this case and lied to Creditor Zehnaly about the status of the case, which resulted in Creditor Zehnaly suffering a defeat on his proof of claim by default caused by his attorney's gross negligence, if not fraud. The sense of injustice is heightened in this case because of the circumstances and alleged amount of Creditor Zehnaly's claim against Debtor. The basis for Creditor Zehnaly's claim is that he allegedly made a deposit of $500,000 with Debtor for the purchase of its real property, which Debtor did not return even though it did not sell the property to him, and the amount of Creditor Zehnaly's unrefunded deposit is substantial. See Motion, ECF 589 at 3 and Proof of Claim No. 7-1. Therefore, the court determines that Creditor Zehnaly has presented sufficient evidence to prove that extraordinary circumstances warrant granting his motion for reconsideration under Federal Rule of Civil Procedure 60(b)(6) by a preponderance of the evidence.
Creditor Zehnaly's motion for reconsideration of the order disallowing his claim is subject to the requirement of timeliness of Federal Rule of Civil Procedure 60(c), which states that "[a] motion under Rule 60(b) must be made within a reasonable time." Federal Rule of Civil Procedure 60(c). Debtor's primary objection to Creditor Zehnaly's motion is that the motion was not made within a reasonable time. Debtor's Opposition, ECF 593 at 6-8. Specifically, Debtor argues:
Debtor's Opposition, ECF 593 at 6-7.
What constitutes "reasonable time" depends on the facts of each case. In re Pacific Far East Lines, Inc., 889 F.2d 242, 249 (9th Cir. 1989). Among the factors a court should consider are whether a party is prejudiced by the delay and whether movant had a good reason for failing to act sooner. Id.
The court entered its order disallowing Creditor Zehnaly's claim on June 3, 2016. According to Creditor Zehnaly in his reply to Debtor's Opposition, he was "not aware of the Court's Order until late 2017." Reply, ECF 454 at 2. The evidence at trial indicates that Creditor Zehnaly was aware that his attorney, Ohanian, had deceived him about the status of his claim in the bankruptcy case at least by September 2017. With respect to the factor that the court must consider as to whether Creditor Zehnaly as the movant here had a good reason for failing to act sooner than November 2018 when he filed his motion for reconsideration, Debtor argues that he did not because the various notices and status reports filed earlier should have put him on notice of the order disallowing his claim. Thus, Debtor argues, November 2018, about 30 months after the court entered its order disallowing his claim in June 2016, is much too late.
Creditor Zehnaly contends that he was not aware of the court's order disallowing his claim until late 2017. The evidence supports his contention. The proofs of service of the court's order to show cause regarding the failure of Creditor Zehnaly to appear at the status conferences of February 24, 2016 and April 6, 2016 and the order disallowing his claim filed and entered on June 3, 2016 do not show service on him directly. Moreover, the proofs of service of the order to show cause and the order disallowing Creditor Zehnaly's proof of claim do not show service on his attorney, Ohanian, and it is inexplicable why the Bankruptcy Noticing Center did not serve copies of these orders on Creditor Zehnaly's counsel, Ohanian, who was listed as the notice party on the proof of claim and in the opposition to Debtor's motion objecting to his proof of claim, which lack of service indicates a serious procedural due process issue. However, Debtor had filed a notice of lodgment of a proposed order disallowing the claim, but the proof of service showed service of that document only on Creditor Zehnaly's attorney, Ohanian, and not on Creditor Zehnaly directly. Ohanian was aware of the order to show cause proceedings because he made an appearance at the hearing on the order to show cause purportedly for Creditor Zehnaly on May 4, 2019. However, it was at this time that Ohanian was implementing his scheme to defraud his client, Creditor Zehnaly, by fabricating and forging court orders and delivering them to Creditor Zehnaly as indicated by the bogus orders dated April 18, 2016, April 28, 16 and May 24, 2016, stating that the Sarkis Properties were being awarded by the Bankruptcy Court to Creditor Zehnaly, but that Creditor Zehnaly had to pay off the claims of Debtor's creditors to acquire the properties, and Ohanian was collected the funds from Creditor Zehnaly for this alleged purpose, but in reality, keeping the funds for himself. Under these circumstances, it is problematic to attribute notice of the order to show cause to the dishonest attorney, Ohanian, as notice to Creditor Zehnaly.
As discussed above, Creditor Zehnaly testified that Ohanian never told him about the court's order disallowing his claim because Ohanian was deceiving him by providing him with false representations and fabricated court orders showing that he had prevailed in his litigation with Debtor, which representations and orders were not true. As previously stated, Creditor Zehnaly in his petition and declaration filed on February 2, 2018 claimed he was a victim of fraud by his attorney, Ohanian, and that by September 2017, he discovered his attorney was lying and committed fraud. Thus, by Creditor Zehnaly's admission, he was aware as of September 2017 that his attorney lied to him about the status of his claim and that his claim was disallowed.
Debtor contends that its status reports during the time period from April 2016 through January 2018 put Creditor Zehnaly on notice of the court's order disallowing his claim in June 2016; that is, Debtor argues that the status reports specifically described the status of proceedings relating to Debtor's objection to his claim, including the status conferences in February and April 2016 at which Ohanian, Creditor Zehnaly's attorney, failed to appear, which led to the issuance of the order to show cause why the claim should not be disallowed for lack of prosecution based on failure of appearance by Ohanian at the status conferences, the withdrawal from the mediation proceedings, the taking of Creditor Zehnaly's deposition, and Ohanian's failure to communicate with counsel for Debtor. The status reports of April 6, 2016, April 20, 2016 and June 1, 2016 described Ohanian's failures to appear at the status conferences on Creditor Zehnaly's behalf and the court's issuance of the order to show cause for disallowance of his claim based on such failures, and the proofs of service of these status reports indicate service by mail not only on Ohanian, but also on Creditor Zehnaly himself at his admitted mailing address. Citing In re Bucknum, 951 F.2d 204 (9th Cir. 1991), Debtor argues that the presumption from the "mailbox rule" applies here and that its mailing of the status reports to Creditor Zehnaly at his mailing address created a presumption of receipt of notice to him of the status reports. Debtor's Brief with Memorandum of Points and Authorities Regarding Mailbox Rule, ECF 599, filed on February 14, 2019. "Mail that is properly addressed, stamped and deposited into the mails is presumed to be received by the addressee." In re Bucknum, 951 F.2d at 207. The proof of service of Debtor's status reports show that they were served by mail on Creditor Zehnaly at his mailing address on the dates of mailing indicated in the proofs of service, and Creditor Zehnaly does not dispute that the status reports were duly mailed to him as represented on the proofs of service.
In response to Debtor's contentions that Creditor Zehnaly was aware of the court proceedings regarding the disallowance of his claim based on its status reports, Creditor Zehnaly testified that he was not aware of these reports because he did not receive any bankruptcy case related papers in the mail, stating that he suspected that Ohanian and his wife intercepted his mail since his mailbox in front of his house could have been opened and the contents removed. Creditor Zehnaly testified that his neighbor saw someone who looked like Ohanian's wife near his mailbox. However, Creditor Zehnaly did not testify that he personally observed anyone removing anything from his mailbox.
The court finds Creditor Zehnaly's testimony that he was not aware of the court's order disallowing his claim until September 2017 to be credible. His testimony that Ohanian lied and deceived him about the status of his claim in this case and that he did not otherwise know about the court's order disallowing his claim is also credible. Creditor Zehnaly's testimony is credible that Ohanian made false oral and written representations to him that he was prevailing in his dispute with Debtor to acquire its real property; that he was provided with false bankruptcy court documents, including fabricated orders with forged signatures of the bankruptcy judge, showing that he prevailed in the litigation with Debtor; that a purported court courier hand-delivered such false documents to him during the time period of approximately April 2016 to March 2017; that this purported court courier was Ohanian's wife; that a purported bankruptcy court clerk identifying herself as "Debra" or "Barbara" regularly called him with the spoofed court identification to tell him false reports of the status of the litigation stating that the court had found in his favor and against Debtor; and that he relied upon Ohanian's representations supported by the purported court orders and other court documents and telephone calls from the purported court clerk to make the payments of approximately $3 million to Ohanian purportedly to satisfy the conditions set by the purported court orders to acquire Debtor's real property. If Creditor Zehnaly had notice otherwise that the court did not rule in his favor in the litigation to acquire Debtor's property, he would not have given Ohanian all the money totaling approximately $3 million to secure the acquisition of the Debtor's real property. Ohanian's barrage of fraudulent visits and advice supported by fraudulent court orders and fraudulent telephone calls and deliveries from imposter court staff obscured Debtor's status reports served on Creditor Zehnaly to the extent that they were actually delivered and received, which it appears that they were not because Ohanian needed to intercept them to carry out his fraud scheme.
The various notices and status reports in the case did not put Creditor Zehnaly on notice of the court's order disallowing his claim. As previously noted, the proofs of service of the court's order to show cause and its order disallowing Creditor Zehnaly's claim did not list him at his mailing address. These proofs of service indicated that Ohanian was served, but as Creditor Zehnaly testified, Ohanian did not provide him with these documents; rather, Ohanian provided him with false and fabricated court orders and documents to further the scheme to defraud Creditor Zehnaly.
Additionally, Debtor's status reports did not provide adequate notice of the court's order disallowing Creditor Zehnaly's claim to him. First, the status reports were status reports, and captioned as such did not put the service parties on notice that the status reports pertained to their specific circumstances or that there were going to be specific consequences to them. Second, not all of the status reports pertained to the specific circumstances of Debtor's objection to Creditor Zehnaly's claim; only the status reports of April 6, 2016, April 20, 2016 and June 1, 2016 pertained to that matter, while the other status reports of September 15, 2016, August 24, 2017, December 6, 2017, and January 12, 2018 pertained only to the general status of the bankruptcy case. Third, the status reports were not specifically addressed to Creditor Zehnaly; rather, they were addressed to the court and to interested parties in general, and this did not meaningfully alert the service parties that they were specifically affected by the matters discussed in the status reports.
Fourth, the court is persuaded that bankruptcy related mail to Creditor Zehnaly was probably intercepted by Ohanian because Ohanian had a motive and ability to do so in order to keep Creditor Zehnaly from learning the true facts about the claims objection litigation because that would have foiled Ohanian's elaborate scheme to extract money from Zehnaly and Ohanian was on the service list of any bankruptcy related correspondence since his address was the address on Creditor Zehnaly's proof of claim for notice purposes and was in contact with Debtor's counsel regarding its motion objecting to Creditor Zehnaly's proof of claim. Moreover, as a lawyer practicing before the court, Ohanian would also have been familiar with the PACER system to access electronic records of the court, including the case docket for this case, and thus Ohanian would have had prior access of developments in the case before Creditor Zehnaly who was a layperson and not familiar with court procedures. Creditor Zehnaly's testimony and evidence regarding the false court orders and documents, the scam hand-delivery of these documents by Ohanian's agent, and bogus telephone calls from Ohanian's agent impersonating a bankruptcy court is credible and shows the extent to which Ohanian went in carrying out his elaborate scheme to deceive and defraud Creditor Zehnaly to the tune of $3 million. The court finds that Creditor Zehnaly's testimony and evidence is credible and that his contention that Ohanian also intercepted his mail is credible because if Ohanian was fabricating false court orders and documents and having an agent hand-deliver these documents to Zehnaly, it is quite conceivable that he had an agent intercept Zehnaly's mail if Ohanian did not do it himself. Allowing Debtor's status reports, which reported the true status of the case, to be received by Creditor Zehnaly would have put Ohanian's scheme in jeopardy, and it is quite likely that Ohanian also took the precaution of intercepting Zehnaly's mail, as far-fetched and incredible as that may seem. While the presumption from the mailbox rule applies here because it is undisputed that counsel for Debtor mailed copies of its status reports to Creditor Zehnaly at his admitted mailing address, the court determines that Creditor Zehnaly has rebutted the mailbox rule presumption based on the evidence of Ohanian's fraud and interception of Zehnaly's mail to prevent Zehnaly from receiving the status reports and other bankruptcy case related mailing, which enabled Ohanian to provide Zehnaly with false bankruptcy case orders and documents to carry out the scheme to defraud Zehnaly of approximately $3 million.
At the same time that the status reports were mailed to Creditor Zehnaly during the time period of April 2016 to September 2017, Creditor Zehnaly was given constant representations from his attorney, Ohanian, that he had prevailed in the case, which were backed up by purported signed orders of the court on their face showing that he prevailed. The status reports were merely representations from another party in the case, Debtor, that did not have the same gravity of authority as purported signed orders of the court. The purported orders showed that Creditor Zehnaly had prevailed, which were backed by representations of Creditor Zehnaly's retained counsel, Ohanian, who at the time was a member of the State Bar of California and an officer of the court. If Creditor Zehnaly had received Debtor's status reports, which the court does not find, he may have well disregarded them as the representations of an interested party litigant in favor of purported signed orders having the apparent authority of the court adjudicating his dispute with Debtor, and thus it is understandable that Creditor Zehnaly may not have considered or remembered receiving Debtor's status reports.
Debtor further argues that even if Creditor Zehnaly did not learn of the court's order disallowing his claim until September 2017, his motion to reconsider filed in November 2018 is not made within a reasonable time (i.e., 14 months later). Creditor Zehnaly, who was self-represented, did not file his formal motion to reconsider until November 2018. According to Creditor Zehnaly, after he learned of Ohanian's fraud, he did not know what to do, and while he consulted three or four attorneys, including one who identified himself as a bankruptcy attorney, Creditor Zehnaly said that he was not convinced of their advice, and therefore, he did not retain an attorney to seek reconsideration of the court's order disallowing his proof of claim. Counsel for Debtor argued that Creditor Zehnaly just did not like what the lawyers he consulted had told him, and his delay in seeking reconsideration until November 2018 is unreasonable. Debtor's argument is not without force because it is troubling that Creditor Zehnaly learned of Ohanian's deception and the court's order disallowing his claim by September 2017 and his motion for reconsideration was not filed until November 2018, 14 months later. Although Creditor Zehnaly did consult four or five attorneys about what to do about the situation, he declined to retain any one of them and attempted to handle the situation himself, even though he is not an attorney, but with nine properties, had the means to retain counsel.
However, Creditor Zehnaly did try to bring the matter to the court's attention when he, as a self-represented party, filed his "petition" and declarations earlier in February 2018, which was only about 6 months after his discovery of Ohanian's deceit and the true facts about his claim. Creditor Zehnaly's petition and declaration were ineptly presented to the court because he did not comply with the applicable rules of notice of hearing and service on the court. For example, Creditor Zehnaly did not present his requests for court ordered relief in a motion noticed for hearing before the court pursuant to Federal Rule of Bankruptcy Procedure 9013 and Local Bankruptcy Rule 9013-1. He did not serve a judge's copy of his petition and declaration in accordance with Local Bankruptcy Rule 5005-2(d). Creditor Zehnaly in filing his petition and declarations with the court in February 2018 did, nevertheless, cause the court to make electronic notice to the electronic notice parties, including counsel for Debtor, who is on the court's notice of electronic filing service list. Moreover, Creditor Zehnaly served a copy of his petition and declaration in February 2018 by hand-delivery by his son, Armen, on counsel for Debtor, so Debtor was put on notice of the issue of Creditor Zehnaly's being deceived and victimized by his attorney, Ohanian, with respect to the attorney's handling of Zehnaly's claim. Also, the court notes that notice of Ohanian's declaration admitting that he had mishandled Creditor Zehnaly's claim filed with the court in January 2018 was sent by the court to counsel for Debtor. Thus, Debtor through counsel was aware that there was a controversy regarding the disallowance of Creditor Zehnaly's claim as of January 2018, but Debtor did not advise the court of this controversy in any status report filed afterwards, including the status reports filed on March 15, 2018 and September 26, 2018, ECF 564 and ECF 585. Apparently, Debtor thought it could just ignore Creditor Zehnaly's inconvenient petition and hopefully he would go away without it having to explain in this court why it did not return his $500,000 down payment for the purchase of the Sarkis Properties that he never got.
Debtor asserts that it would be prejudiced if the court reconsiders its order disallowing Creditor Zehnaly's claim because Debtor is near completion of the administration of this bankruptcy case, and the events related to this claim go back to 2012-2013. Debtor's Opposition, ECF 593 at 7. However, Debtor provides no specific facts or evidence supporting its claim that it would be prejudiced by reconsideration. Audio Recording of Trial, February 2, 2019. 2:24 p.m. Debtor has pending with the court a motion for a structured dismissal and a final fee application for its general bankruptcy counsel, but Debtor is not pursuing a plan of reorganization at this time. The court does not see that there would be any prejudice for Debtor to address Creditor Zehnaly's claim on the merits since it has to deal with creditors' claims for a structured dismissal, it is not pursuing a plan of reorganization, distributions have not been made to creditors, and not all of the disputes relating to creditors' claims have been resolved, i.e., Creditor Zehnaly's claim. The court does not give much credence to Debtor's claim that the events relating to this claim go back to 2012-2013. Debtor does not indicate specifically how this would adversely affect it, and Debtor did not provide any evidence in support of this claim. Debtor did not file its objection to Creditor Zehnaly's claim until August 2015, and while the objection was determined by the order disallowing the claim in June 2016, Debtor was on notice that there may be an issue regarding the order when Ohanian filed his declaration about the order disallowing claim in January 2018, and Creditor Zehnaly filed his petition and declarations in February 2018. Accordingly, the court finds that extraordinary circumstances justify granting the motion, that reconsideration of the order disallowing Creditor Zehnaly's claim will not prejudice Debtor, and that Creditor Zehnaly brought his motion for reconsideration within a reasonable time under the circumstances.
The granting of Creditor Zehnaly's motion for reconsideration does not imply that he is entitled to relief on the merits of his proof of claim with respect to Debtor's objection to it. The validity of Creditor Zehnaly's proof of claim remains to be decided with the opportunity of Debtor to fully and fairly contest the proof of claim on its objection. The granting of Creditor Zehnaly's motion for reconsideration simply means that he gets to have his day in court on the merits of his claim, which he had been wrongly deprived of due to the egregious conduct of his dishonest attorney, Ohanian, who deceived him and betrayed his trust, which, the court adds, was done without any fault on the part of Debtor.
Based on the foregoing, the court determines that it should grant Creditor Zehnaly's motion for reconsideration of the order denying his claim entered on June 3, 2016 for cause under 11 U.S.C. § 502(j) based on extraordinary circumstances under Federal Rule of Civil Procedure Rule 60(b)(6), made applicable here by Federal Rule of Bankruptcy Procedure 9024. The court will enter a separate order granting the motion.
IT IS SO ORDERED.
