On October 24, 2011, the Panel issued a Memorandum (
"THE COURT: Yeah, I'm going to rule (portion of proceedings not available.)
(Proceedings concluded.)" Accordingly, there were no findings available to allow the Panel to conduct a full appellate review of the bankruptcy court's default judgment ("2011 Default Judgment") entered against Appellant.
On remand, the bankruptcy court conducted further proceedings on a renewed motion for default judgment, made findings of fact and conclusions of law on two claims for relief asserted against the Appellant,
The remand proceedings at issue in the current appeal were framed by the
Following remand, the bankruptcy court set a status conference for December 19, 2011 at 2:00 p.m. Just before that status hearing, the plaintiff in the adversary proceeding ("Trustee") applied to the bankruptcy court to schedule a "prove-up hearing on the issue of damages." No record of the December 19 hearing is available for our review.
On January 17, 2012, the Trustee filed a new motion for default judgment ("Default Judgment Motion") and noticed a hearing on the Default Judgment Motion for 10:00 a.m. on February 7, 2012. On the same date, the Trustee filed his Memorandum of Points and Authorities and Evidence in Support of Trustee's Request for Entry of Default Judgment Against Defendant Nick Alden; Declaration of Irv M. Gross in Support Thereof ("Submissions"). The Submissions also contained a statement that a "Prove-Up Hearing" would be held at 10:00 a.m. on February 7, 2012.
Mr. Alden filed an opposition ("Opposition") to the Default Judgment Motion, which included his memorandum of points and authorities, and his declaration. The Opposition noted the correct hearing date, but stated that the hearing time was "2:00 a.m." [sic]. On January 16, 2012, Mr. Alden issued a subpoena to City National Bank ("Bank"), commanding it to appear and testify on February 7, 2012 at 2:00 p.m, and to produce at that time "[a]ll the documents evidencing the wire transfer of the sum of $150,000 from PIA Development, Inc. account, xxxx997, to Unique Holding Corporation, dated March 5, 2007, a copy of which is attached." The subpoena was served by personal service on "Ramon Nuno" by process server Chad Van Hazelan on January 17, 2012. The certificate of service does not establish Mr. Nuno's relationship to the Bank. In addition, the subpoena had an incorrect case number in the caption, and it did not reference the adversary proceeding in which the February 7 appearance was to be made. Mr. Alden apparently provided no notice to the Trustee that the subpoena had been issued.
On February 7, 2012, the bankruptcy court called the matter for hearing ("February 7 Hearing") at 10:00 a.m. Mr. Alden was not present. Counsel for the Trustee advised the bankruptcy court that when he reviewed the Opposition, he saw Mr. Alden's notation of the hearing time of 2:00 p.m., assumed that was the correct time, and sent a revised notice of hearing stating the February 7 Hearing would take place at 2:00 p.m. On the morning of the February 7 Hearing, however, he realized the revised notice of hearing should not have been sent, and called Mr. Alden, who advised he would be unavailable to be at the bankruptcy court at 10:00 a.m., because he was to be at state court ex parte proceedings that morning. In light of the Trustee's explanation of Mr. Alden's absence, the bankruptcy court agreed to postpone the proceedings on the Default Judgment Motion until 2:00 p.m.
However, at the end of its morning calendar at approximately 11:30 a.m., the bankruptcy court observed that Mr. Alden in fact was in the courtroom. Rather than have the parties reappear at 2:00 p.m., the bankruptcy court called the case again. The colloquy between Mr. Alden and the bankruptcy court was confusing, and concluded with the bankruptcy court agreeing to recall the case at 2:00 p.m., apparently because of Mr. Alden's subpoena of the Bank to provide documents to explain the Wire Transfer. No record of the 2:00 p.m. portion of the February 7 Hearing is available for our review.
A continued hearing on the Default Judgment Motion was held on March 12, 2012 ("March 12 Hearing"). After the case was called, the bankruptcy court recapped the reason for not conducting the February 7 Hearing: "Well, last time we were here, we continued it, because you were going to get a witness." Hr'g Tr. (March 12, 2012) at 1:10-11. At the March 12 Hearing, the bankruptcy court recounted the evidence and made preliminary findings, granting the Default Judgment Motion and stating that the 2012 Default Judgment, when entered, would be for the amount of $250,000.
It appears that after the March 12 Hearing, the Trustee prepared proposed findings of fact and conclusions of law ("Proposed Findings"). On March 26, 2012, Mr. Alden filed a declaration regarding his objection to the Proposed Findings, to which the Trustee responded on April 2, 2012. The bankruptcy court entered its Findings of Fact and Conclusions of Law After Hearing on Motion for Entry of Default Judgment ("Findings and Conclusions") on April 10, 2012,
Few facts of the actual dispute are set out in
The debtor in this case, Tina Chi Houng, acquired title to her residence ("Residence") on October 24, 2003. In mid-2006, Ms. Houng entered into a purported agreement to sell the Residence to her friend, Conglin Shen, for a sale price of $2,150,000. At that time, liens against the Residence totaled approximately $1,100,000.
To facilitate the "sale" of the Residence, Ms. Houng borrowed $430,000 from Kenneth Lu ("Lu Loan").
On October 3, 2006, Ms. Houng executed a grant deed ("Houng Grant Deed") purporting to transfer all of her right, title, and interest in the Residence to Ms. Shen. Escrow closed on the "sale" of the Residence from Ms. Houng to Ms. Shen on October 26, 2006. The Houng Grant Deed was recorded with the Los Angeles County Recorder as Document 062376824 on October 26, 2006.
Also on October 3, 2006, Ms. Shen executed a grant deed ("Shen Grant Deed") purporting to transfer all of her right, title, and interest in the Residence to Unique Holding Corporation ("Unique"), a California corporation owned by Ms. Houng. The Shen Grant Deed was recorded with the Los Angeles County Recorder as Document 062431473 on November 1, 2006, and it reflects that it was a "[c]onveyance given for no value. Gift."
The bankruptcy court found that as a result of the "sale" from Ms. Houng to Ms. Shen, and the "almost immediate gift" of the Residence by Ms. Shen to Unique, Ms. Houng (1) effectively continued to own the Residence and (2) obtained several hundred thousand dollars out of escrow.
Ms. Houng's real estate agent in connection with the "sale" was Mr. Alden's son, Guy Alden ("Guy"). At the time of the purported "sale," Ms. Houng was a defendant in litigation filed against her by Guaranty Bank of California ("Guaranty Bank Litigation"). Guy referred Ms. Houng to Mr. Alden, who thereafter represented Ms. Houng, inter alia, in the Guaranty Bank Litigation. Mr. Alden also represented Ms. Houng in litigation filed against her and others by Tianjin New Sun Light Industry Products Co., Ltd. ("Tianjin Litigation"). Default was entered against Ms. Houng in the Tianjin Litigation on October 6, 2006, and a default judgment was entered against her in the Tianjin Litigation on October 24, 2006.
Although Mr. Alden denies that he participated in the "sale," the Shen Grant Deed states on its face that after recording, it was to be mailed to Mr. Alden, as were the tax statements on the Residence. On October 30, 2006, Ms. Houng directed the escrow company to deliver a check representing $250,000 of the "sale" proceeds to Mr. Alden.
After Ms. Houng filed her bankruptcy petition, the Trustee filed an adversary proceeding against Mr. Alden, among others, seeking (1) a determination among other claims, that the "sale" was a fraudulent transfer, and (2) to recover the $250,000 in "sale" proceeds received by Mr. Alden.
Mr. Alden's position, both before the bankruptcy court and on appeal, is that $100,000 of the $250,000 was to pay legal fees Ms. Houng owed to him.
With respect to the remaining $150,000, Mr. Alden asserted that pursuant to a written agreement between Ms. Houng and Ms. Shen, Mr. Alden was to hold the $150,000 as a reserve, for the benefit of Ms. Shen, to make mortgage payments, presumably on the loans she obtained on the property, for a one-year period. Mr. Alden allegedly drafted the agreement, but could not produce either a copy of it or any evidence of its existence at the time of the March 12 Hearing. Notwithstanding his purported understanding that he was to hold the $150,000 for the period of one year in order to ensure Ms. Shen's loans on the Property were paid, Mr. Alden paid the $150,000 to Unique on Ms. Houng's sole instructions on March 5, 2007, less than five months after Mr. Alden received the funds. At Mr. Alden's direction, City National Bank wired $150,000 from the account of "Pia Development, Inc." to East-West Bank for the benefit of Unique. Mr. Alden asserts that, having made this transfer, he should be insulated from any fraudulent transfer claim brought by the Trustee, because he effectively "gave back the money" to Ms. Houng.
The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and 157(b)(2)(H). We have jurisdiction under 28 U.S.C. § 158.
Mr. Alden asserts numerous issues on appeal. To the extent they assert error on the part of the bankruptcy court in entering default, as opposed to entering the 2012 Default Judgment, they are not properly before us, having previously been the subject of the Panel's decision in
Neither do we address Mr. Alden's issue argued before us that the bankruptcy court erred in entering the 2012 Default Judgment because the claim against him for preferential transfer was untimely. That issue was raised and affirmatively disposed of, in Mr. Alden's favor, in
To the extent Mr. Alden's issues raise defenses, affirmative or otherwise, to the complaint, they were foreclosed by the entry of default, and we need not consider them here. Those issues include Mr. Alden's assertions that the Trustee acted with "unclean hands," that the alleged refinance of the Residence did not render Ms. Houng insolvent, and whether Mr. Alden's legal advice to Ms. Houng is privileged.
The only issue with which we are concerned in this appeal is whether the bankruptcy court abused its discretion when it entered the 2012 Default Judgment.
As the Panel stated in
We apply a two-part test to determine whether the bankruptcy court abused its discretion.
We must affirm the bankruptcy court's fact findings unless we conclude that they are "(1) `illogical,' (2) `implausible,' or (3) without `support in inferences that may be drawn from the facts in the record.'"
We may affirm the bankruptcy court's ruling on any basis supported by the record.
In the Ninth Circuit, the law is clear regarding the factors a trial court may consider in exercising its discretion in deciding whether to enter a default judgment. Those factors ("Eitel factors") include:
In
Findings and Conclusions at 7:11-15.
The Trustee is a fiduciary for Ms. Houng's bankruptcy estate, charged with liquidating nonexempt assets for distribution to Ms. Houng's creditors in conformance with statutory priorities established in the Bankruptcy Code.
Because they are interwoven, we consider together three of the Eitel factors: whether the complaint was sufficient, whether the Trustee's claim against Mr. Alden has merit, and whether there is a dispute regarding material facts.
The third claim for relief in the Trustee's complaint against Mr. Alden alleges, inter alia, that [Ms.] Houng (1) made the transfer of $250,000 to Mr. Alden from the escrow of the "sale" of the Residence "with the actual intent to hinder, delay or defraud" an entity to which [Ms.] Houng was, or became, on or after the date that the escrow transfer was made indebted. The bankruptcy court determined that the complaint sufficiently alleged all of the necessary elements of a fraudulent transfer pursuant to § 548(a)(1)(A). We agree, and therefore reject Mr. Alden's assertion on appeal that the complaint failed to state a claim for relief.
Mr. Alden challenged the allegations on several grounds. First, Mr. Alden asserts that the bankruptcy court's prior determinations (1) that the Shen Grant Deed was a fraudulent transfer, and (2) that Ms. Houng acted with the requisite "intent to hinder, delay, or defraud a creditor," in making the escrow transfer to him (and others) cannot be used against him because those determinations were made by default in litigation to which he was not a party.
We need not reach these issues, because in light of Mr. Alden's default, the allegations identified above are deemed to be true.
Second, Mr. Alden asserts that because the claim for relief was made on the Trustee's "information and belief," it must fail because the Trustee provided no evidence of facts to support the information and belief. Mr. Alden disregards the evidence presented by the Trustee in support of the Default Judgment Motion, which was appropriately considered by the bankruptcy court, and which Mr. Alden did not counter with evidence of his own.
Third, Mr. Alden asserts that there could be no fraudulent transfer because Ms. Houng had no creditors at the time the transfer was made. We consider this assertion specious, all the more so because Mr. Alden was representing Ms. Houng in litigation in which she was a defendant both at the time the "sale" of the Residence occurred and at the time he received the $250,000 from the escrow proceeds of the "sale."
Despite the fact that the Trustee made sufficient allegations to establish that the transfer of $250,000 to Mr. Alden constituted a fraudulent transfer and that the bankruptcy court was entitled to deem the allegations true, the bankruptcy court nevertheless provided Mr. Alden with an opportunity in responding to the Default Judgment Motion to present evidence to establish that the allegations were not true. Thereafter, the bankruptcy court made the following analysis with respect to the Eitel factor requiring an evaluation of the Trustee's substantive claims:
The bankruptcy court implicitly suggested that this factor likely was at issue in
Mr. Alden appears to assert that the judgment is too large, because he "returned" $150,000 to Ms. Houng. The record reflects otherwise. Mr. Alden, at Ms. Houng's request, transferred $150,000 to Unique, a separate legal entity from Ms. Houng. This transfer assisted Ms. Houng in placing the $150,000 beyond the reach of her personal creditors. As to the $100,000 Mr. Alden asserted he retained for payment of his attorney's fees, we agree with the bankruptcy court that there is insufficient evidence in the record to support Mr. Alden's claim that Ms. Houng owed him anything, let alone $100,000, for services Mr. Alden provided to Ms. Houng between the date he was retained, August 23, 2006, and the date he received the escrow proceeds, October 26, 2006.
In light of the foregoing, judgment in the amount of $250,000 is supported by the record, and is not excessive.
We turn finally to the Eitel factor that emphasizes the strong policy favoring decisions on the merits.
The bankruptcy court's findings in support of the 2012 Default Judgment satisfy the Eitel factors and are not illogical, implausible, or without support in inferences that may be drawn from the facts in the record. The 2012 Default Judgment was based only on the conspiracy and fraudulent transfer claims asserted against Mr. Alden, not on the preference claim that the
The second reads:
The Trustee filed separate fraudulent transfer litigation against Ms. Shen and Unique (Adv. Proc. 08-01481). The Trustee obtained default judgments ("Shen Default Judgment") against these defendants on July 27, 2009, after they failed to comply with discovery and failed to defend or appear. The Shen Default Judgment avoided the Houng Grant Deed which effectuated the transfer of the Residence from Ms. Houng to Ms. Shen. No appeal was taken from the Shen Default Judgment.
