In re Bruce Elieff

1 JS-6 [8] 9 UNITED STATES DISTRICT COURT 10 CENTRAL DISTRICT OF CALIFORNIA [11] Case No. 8:20-CV-01780-JLS 12 IN RE: BRUCE ELIEFF, BK Case No. 8:19-BK-13858-ES 13 Debtor. ORDER AFFIRMING 14 _________________________________ BANKRUPTCY COURT ORDER 15 CITI INVESTMENT CAPITAL, INC., [16] Appellant, [17] v. [18] 19 HOWARD M. EHRENBERT, ET AL., [20] Appellee. [28] 1 Appellant Citi Investment Capital, Inc. (“Citi”) appeals the Bankruptcy Court’s 2 Order authorizing the sale of certain real property listed by a bankruptcy debtor on his 3 schedule of property. In authorizing the sale, the Bankruptcy Court considered, but 4 rejected, Citi’s claim to the real property. Citi filed an Opening Brief and an 5 Appendix (Docs. 12-13), to which the Chapter 11 Trustee (“Trustee”) has responded 6 (Doc. 14), filing the Trustee’s own Appendix (Doc. 15). Citi filed a Reply Brief.1 7 (Doc. 18.) The Court has considered the matter and, as set forth herein, the Court 8 AFFIRMS the Bankruptcy Court’s Order. 9 I. BACKGROUND 10 A. Chapter 11 Bankruptcy Petition Converted to Chapter 7 11 Debtor filed a Chapter 11 bankruptcy petition on October 2, 2019. (BK Doc. 12 1.) Included in his schedule of assets was real property described as 4507 Perham 13 Road, Corona del Mar, CA 92625, held as community property with divorce 14 proceedings still pending (“the Property”). (BK Doc. 38 at 4, Schedule A/B.) A 15 Chapter 11 Trustee was appointed on June 27, 2020. (BK Doc. 712.) The bankruptcy 16 proceeding was eventually converted to a Chapter 7 proceeding. (BK Doc. 921; see 17 BK Doc. 941 (appointing Chapter 11 Trustee as Chapter 7 Trustee).) 18 B. Recorded Transfers of the Property 19 Prior to the relevant events, the Property was owned by Debtor and his former 20 spouse. On July 20, 2018, Debtor transferred interest in the Property to an entity he 21 controlled, WCR Development Company LLC (“WCR”). (BK Doc. 768 at 18-20, 22 Citi Opp. to Mot. for Sale, Prince Decl., Ex. 1.) The day after the transfer, WCR filed 23 a Chapter 11 bankruptcy petition, eventually listing the Property as an asset of WCR. 24 (See BK Doc. 768 at 27, Citi Opp. to Mot. for Sale, Prince Decl., Ex. 3.) WCR’s 25 petition was later voluntarily dismissed on December 12, 2018.2 (See In Re: WCR 26 Development Company LLC, No. 8:18-BK-12667-MW (C.D. Cal.) (Doc. 45).) [27] 1 Herein the Court cites to the record below by the entries on the bankruptcy docket as “BK Doc.” 28 2 Thus, there is no concern that the Property was part of the WCR bankruptcy estate at any time 1 Shortly thereafter, the Property was subject to non-judicial foreclosure 2 proceedings. At the foreclosure sale of the Property on February 25, 2019, Citi was 3 the winning bidder, and the real estate trustee issued its February 25, 2019 Trustee 4 Certificate of Sale/Receipt evidencing this. (See BK Doc. 768 at 58-60, Citi Opp. to 5 Mot. for Sale, Prince Decl., Ex. 7.) Despite this sale, the record is devoid of any 6 indication that a deed upon sale was ever issued or recorded. Instead, the record 7 reveals that, prior to the sale, the lender erroneously failed to notify the real estate 8 trustee that the loan was no longer in default and that the foreclosure sale should be 9 cancelled.3 10 Specifically, the absence of the issuance of a deed upon sale is evidenced by 11 Citi’s allegations in its (now dismissed) Adversary Complaint wherein Citi alleges 12 only its winning bid and the issuance of a Trustee Certificate of Sale/Receipt but does 13 not allege any subsequent transfer of title. (See Citi Investment Capital, Inc. v. 14 Howard M. Ehrenberg, Chapter 11 Trustee, 8:20-AP-01109-ES (Bankr. Cent. Dist.) 15 (Doc. 1 (Adv. Compl. ¶¶ 10-12); cf. id. Doc. 5 (voluntarily dismissal).) That no deed 16 upon sale was ever issued is also evidenced by allegations made in a civil action 17 action filed by Citi on March 5, 2019. In its complaint, Citi alleged that the real estate 18 trustee informed Citi the day after the foreclosure sale that the lender had received 19 “reinstatement funds and that the sale may be rescinded.” (See BK Doc. 631-1 at 120 15, Couchot Decl., Ex. 1, Sup. Ct. Compl. ¶ 34.)4 Citi also alleged that the trustee 21 informed it that it would not deliver “the Trustee’s Deed Upon Sale” until the matter 22 was resolved. (Id. ¶ 37.) Citi sought specific performance, that is, recordation of the 23 Trustee’s Deed Upon Sale. (Id. ¶¶ 40-45.) There is no indication in the record that 24 such relief was ever granted. Instead, on March 27, 2019, the trustee recorded its [26] 3 As detailed below, about a month after the sale, a Notice of Recission was filed by the real estate 27 trustee. 4 The Superior Court case was filed on March 5, 2019, and is captioned CITI Investment Capital, 28 Inc. v. MTC Financial, Inc., et al., Case No. 30-2019-01055778-CU-OR. (See BK Doc. 631-1.) 1 Notice of Recission of Notice of Default and Election and to Sell Under Deed of 2 Trust. (BK Doc. 631-1 at 153, Couchet Decl. Ex. 17.) 3 Seven months later, on October 2, 2019, Debtor caused WCR to execute a 4 quitclaim deed in his favor. (See BK Doc. 630, Elieff Decl. Ex. 1 (quitclaim deed).) 5 The quitclaim deed was recorded on October 4, 2019. (Id.) Consistent with this 6 action, Debtor included the Property on his October 24, 2019 Schedule A/B of assets. 7 (BK Doc. 38 at 2.) On July 20, 2020, the Chapter 11 Trustee sought authorization to 8 sell the Property. (See BK Doc. 738.) 9 C. Interim Orders of Bankruptcy Court 10 Two interim Orders of the Bankruptcy Court relate to the question of ownership 11 of the Property. On October 13, 2019, Debtor moved to employ professional real 12 estate broker Timothy Tamura of VALIA Properties to provide services as to the 13 Property. (BK Doc. 50.) On November 14, 2019, Citi filed its Opposition to 14 Tamura’s employment on the basis that Citi owned the Property by virtue of its 15 winning bid at the foreclosure sale and therefore Debtor lacked any right to market or 16 sell the Property. (BK Doc. 75.) Debtor’s Reply brief was filed on January 30, 2020, 17 and therein Debtor expressed the intention to file a motion allowing sale of the 18 property pursuant to Bankruptcy Code § 363. (BK Doc. 221.) On February 20, 2020, 19 the Bankruptcy Court tentatively approved the Motion to Employ Tamura to sell the 20 Property; the approval was tentative to allow for the possibility that the parties would 21 be able to resolve Citi’s disputed claim to the property. (BK Doc. 253.) After 22 negotiations to settle the matter of ownership to the Property broke down,5 in early 23 April 2020, counsel for the Debtor sought and obtained an Amended Order employing [24] 5 On January 9, 2020, Debtor filed a Motion to Approve Compromise regarding the Property, 25 seeking approval of an agreement among the parties, including Citi. (BK Doc. 179.) The agreement would vest title of the Property in Citi based on its payment of the winning bid plus an additional 26 $50,000 to be paid to the estate. (Id. at 4.) Most if not all of the other interested parties opposed the Motion to Approve Compromise. (See BK Docs. 184 (Chase Bank, the lien holder), 193 (MTC 27 Financial Inc. DBA TRUSTEE CORPS, the real estate trustee), 195 (the United States, on behalf of its agency the Internal Revenue Service), 196 (Secured Creditor Todd Kurtin, who was also Debtor’s 28 former business partner), 201 (Kathy Elieff, Debtor’s former spouse), 208 (the Official Committee 1 Tamura, that “authorize[d] Timothy Tamura, real estate broker[,] to commence 2 marketing the residential real property located at 4507 Perham Road, Corona del Mar, 3 California,” which was not subject to any contingency. (BK Doc. 385.) 4 Later, on June 29, 2020, the Bankruptcy Court denied without prejudice Citi’s 5 Motion for Relief from Automatic stay, which sought relief to give Citi the option of 6 filing a civil action to quiet title to the Property. (See BK Doc. 719.) Therein, the 7 Bankruptcy Court adopted its tentative ruling, which reasoned in part that Citi did not 8 adequately explain its change in position from an expressed intention to abandon 9 claims of ownership to the Property. (Id. at 2-3, 5.) Citi did not thereafter refile its 10 Motion for Relief from Stay, although it did oppose the Chapter 11 Trustee’s Motion 11 for Order Authorizing Sale, offering evidence in support of its claim to ownership of 12 the Property. (See BK Doc. 768.) Over Citi’s Opposition, the Bankruptcy Court 13 issued an order authorizing sale of the Property, described next. 14 D. Sale Order 15 On August 21, 2020, the Bankruptcy Court issued an order granting the Chapter 16 11 Trustee’s Order Granting Motion of Chapter 11 Trustee for Order Authorizing Sale 17 of Real Property (“Sale Order”), which forms the basis of the present appeal. (See 18 generally BK Doc. 887, Sale Order.) Therein, the Bankruptcy Court expressly 19 concluded that the notice provisions and bidding procedures regarding the Property 20 were adequate, that the Property was an asset of the estate and that, as such, it was 21 subject to sale by the Trustee pursuant to Bankruptcy Code § 363(b)(1). 22 The Bankruptcy Court expressly rejected Citi’s claimed interest in the Property 23 on two separate grounds. First, the Bankruptcy Court concluded that Citi waived and 24 released any claim to the Property. (Id. at 2-3.) Second, the Bankruptcy Court noted 25 that, “[b]ased upon the evidence presented in support of the Motion, there is no 26 persuasive evidence that Citi holds any legally cognizable claim to the Property.” 27 (Sale Order at 3.) Based on the record, and having rejected Citi’s claim to the [28] 1 Property, the Bankruptcy Court approved a Sale Agreement between the bankruptcy 2 estate and the Buyer (as defined in the Sale Order). (Sale Order at 4.) 3 II. STANDARD OF REVIEW 4 An appellate court reviews an order authorizing the sale of property of a 5 bankruptcy estate for an abuse of discretion. In re Lahijani, 325 B.R. 282 , 287 6 (B.A.P. 9th Cir. 2005). “The abuse of discretion test involves two distinct 7 determinations: first, whether the court applied the correct legal standard; and second, 8 whether the factual findings supporting the legal analysis were clearly erroneous.” In 9 re Veal, 450 B.R. 897, 915 (B.A.P. 9th Cir. 2011) (citing United States v. Hinkson, [10] 585 F.3d 1247, 1261-63 (9th Cir. 2009) (en banc)). Where a bankruptcy court failed to 11 apply the correct legal standard, “it has ‘necessarily abuse[d] its discretion.’” In re 12 Veal, 450 B.R. at 915 (quoting Cooter & Gell v. Hartmarx Corp., 496 U.S. 384 , 405 13 (1990)). Whether the bankruptcy court applied the correct legal standard is reviewed 14 de novo. Hinkson, 585 F.3d at 1261-62 . Factual findings are reviewed for clear error. [15] Id. at 1262 . A bankruptcy court’s findings of fact are clearly erroneous if they are 16 “illogical, implausible, or without support in inferences that may be drawn from the 17 record.” Hinkson, 585 F.3d at 1263 . 18 A reviewing court may affirm a bankruptcy court’s order on any basis 19 supported by the record. In re E. Airport Dev., LLC, 443 B.R. 823, 828 (B.A.P. 9th 20 Cir. 2011). 21 III. DISCUSSION 22 A. Jurisdiction 23 The Bankruptcy Court’s jurisdiction is not challenged; it had jurisdiction to 24 approve the sale of the real property because an order approving the sale of estate 25 property is enumerated as a core proceeding that bankruptcy judges are empowered to 26 hear and determine. See 28 U.S.C. § 157 (b)(2)(N) (conferring jurisdiction to issue 27 certain “orders approving the sale of property”). [28] 1 B. Issues on Appeal 2 Citi identifies four overlapping issues on appeal.6 (See Opening Br. at 2.) 3 These relate to the Bankruptcy Court’s determination of ownership of the Property, its 4 finding of waiver, and its granting of authorization to sell the Property while Citi’s 5 Adversary Complaint seeking to quiet title to the Property was pending. 6 As set forth below, the Bankruptcy Court did not abuse its discretion in 7 determining that Citi had no legally cognizable interest in the Property and that the 8 Property was instead part of the estate. Nor did the Bankruptcy Court abuse its 9 discretion in authorizing the sale of the Property while Citi’s Adversary Proceeding 10 was still pending. 11 C. The Bankruptcy Court Did Not Abuse Its Discretion in Concluding 12 that the Property Was the Part of the Estate 13 Prior to sale, the estate must establish that the property it proposes to sell is 14 property of the estate. See In re Popp, 323 B.R. 260, 266 (B.A.P. 9th Cir. 2005) 15 (“Section 363(b) . . . requires that the estate demonstrate that the property it proposes 16 to sell is ‘property of the estate.’”). The estate has met this burden. It has established 17 that the Property belongs to the estate by establishing that Debtor (rather than Citi) 18 owned the Property as of the date of the filing of the Chapter 11 Petition. 19 1. Citi’s Claim to the Property Was and Is Untenable 20 On this factual record, Citi claims an interest on the Property as a result of a 21 foreclosure sale that should not have proceeded because the default that authorized the 22 trustee’s sale had been cured. Although Citi has a Trustee Certificate of Sale/Receipt, 23 no deed upon sale was ever recorded, and instead, about a month later, the real estate 24 trustee recorded a Notice of Recission. A trustee’s deed on sale would have conferred [25] 6 Appellant does not clearly delineate its arguments as relating to factual findings or to legal 26 conclusions. As noted above, the standard of review differs significantly. Nevertheless, as noted above, the factual record here appears to be undisputed, and Appellant has not suggested that the 27 Bankruptcy Court’s Sale Order rests upon a foundation of facts that are clearly erroneous. The Court finds no such clear error and, as set forth herein, the Bankruptcy Court did not abuse its 28 discretion by applying the incorrect legal standard. 1 upon Citi the benefit of a presumption that it was a bona fide purchaser, but where no 2 deed upon sale is issued, that presumption does not arise. See Biancalana v. T.D. 3 Serv. Co., 56 Cal. 4th 807, 814 (2013). Indeed, because “[t]he purchaser at a 4 foreclosure sale takes title by a trustee’s deed,” and because no such trustee’s deed 5 was ever issued here, Citi did not acquire title to the Property by virtue of its winning 6 bid. Id. (internal quotation marks omitted). 7 2. Debtor Owned the Property at the Time of the Filing of His 8 Chapter 11 Petition 9 If the Property belonged to Debtor at the time of the filing of his bankruptcy 10 petition, then it became property of the bankruptcy estate. See 11 U.S.C. § 541 (a)(1); 11 Turner v. Cook, 362 F.3d 1219, 1225-26 (9th Cir. 2004) (all legal or equitable 12 interests of a debtor in property become property of the bankruptcy estate upon the 13 commencement of a bankruptcy case). That occurred here. 14 Prior to Debtor’s filing of his Chapter 11 Petition, the Property was owned by 15 WCR, an entity controlled by Debtor. However, on the same day he filed his Chapter 16 11 Petition, on behalf of WCR, Debtor quitclaimed WCR’s interest in the Property in 17 favor of himself, effectively conveying the Property to himself. The quitclaim deed 18 was not filed until two days later. 19 “To determine whether a transfer has occurred, [a bankruptcy court] looks at 20 state law.” In re Roosevelt, 176 B.R. 534, 537 (B.A.P. 9th Cir. 1995) (citing Butner v. 21 United States, 440 U.S. 48, 55 (1979)). Under California law, a quitclaim deed 22 effectuates a transfer of “all the right and title of the grantor.” City of Manhattan 23 Beach v. Superior Ct., 13 Cal. 4th 232, 239 (1996). Property is conveyed at the time 24 of execution and delivery of the deed. See generally Cal. Civ. Code § 1054-1056 . 25 The recordation date merely perfects the interest conveyed against a third-party; by 26 statute, unrecorded instruments are valid between the parties thereto and as to anyone 27 who has notice of those instruments. See Cal. Civ. Code § 1217 . Here, Debtor 28 conveyed the Property to himself, executing the quitclaim deed on behalf of an entity 1 he controlled. Therefore, in this instance, execution and delivery of the deed occurred 2 on October 2, 2019, thereby effectuating transfer to Debtor. Therefore, upon the filing 3 of the Chapter 11 Petition, by operation of bankruptcy law, the Property became part 4 of the estate, subject to an order authorizing its sale pursuant to § 363. The 5 Bankruptcy Court therefore correctly concluded that the Property was property of the 6 estate. 7 D. The Court Does Not Determine the Issue of Waiver 8 Citi challenges the Bankruptcy Court’s conclusion it waived its claim to 9 ownership of the Property. Specifically, Citi challenges the Sale Order’s reliance on a 10 theory of waiver and its reliance on evidence related to settlement negotiations among 11 the parties. (See Opening Br. at 18-23; Reply at 7-8.) 12 The conclusion regarding waiver is related to certain prior orders of the 13 Bankruptcy Court. Here, the Bankruptcy Court may have intended to find no merit to 14 Citi’s claim to the Property when it entered the Amended Order Authorizing Timothy 15 Tamura to Commence Marketing the Perham Property for Sale on Behalf of the Elieff 16 Estate. (BK Doc. 385.) After all, there is no reason to employ a broker to market the 17 Property for sale on behalf of the estate if the Property could not be sold to benefit the 18 estate. However, this Court stops short of concluding that that the Amended Order 19 conclusively determined that Citi’s claim to the Property was without merit when it 20 entered the Amended Order. 21 This is because when the Bankruptcy Court denied Citi’s Motion for Relief 22 from Stay, it did so without prejudice; had the Bankruptcy Court previously 23 determined that Citi had no right to the Property, there would have been no need to 24 deny the Motion for Relief from Stay without prejudice. The stated reason as to why 25 the denial was being made without prejudice was to allow Citi to adequately explain 26 its earlier disavowance, based on counsel’s statements, of any intent to pursue a quiet 27 title action. (See Doc. 719 at 5.) This ruling dovetails with the rationale of waiver set 28 forth in the Sale Order, which relied on those statements of counsel. (See Sale Order 1 at 3.) Here, the Answering Brief does not address key points related to a theory of 2 waiver. (See generally Answering Br.; see Reply at 3.) Therefore, this Court does not 3 address the issue of whether Citi waived its rights to continue to pursue any ownership 4 rights to the Property. Instead, as set forth below, the Court affirms the Sale Order on 5 the alternative basis articulated by the Bankruptcy Court in the Sale Order, that “there 6 is no persuasive evidence that Citi holds any legally cognizable claim to the Property.” 7 (Sale Order at 3); see In re E. Airport Dev., LLC, 443 B.R. at 828 (allowing for 8 affirmance of a bankruptcy court on any basis supported by the record). 9 E. The Bankruptcy Court Did Not Abuse Its Discretion by 10 Authorizing Sale of the Property Notwithstanding the Pendency 11 of the Adversary Complaint 12 Citi challenges the Bankruptcy Court’s decision to authorize sale of the 13 Property as the resolution of the Trustee’s Motion, contending instead that the 14 Bankruptcy Court should have waited and adjudicated Citi’s claim to the Property 15 within the confines of the Adversary Proceeding. (See Opening Br. at 11-14.) 16 Citi appears to agree with the Trustee that, generally, questions of ownership of 17 property of the estate may be resolved through a contested matter such as a § 363 18 motion. (See Opening Br. at 14.) Indeed, a purpose of many of the subsections of 19 § 363 is to authorize the sale or transfer of real property of the estate with a clear title 20 to good faith purchasers or lessees. The Sale Order merely made express 21 determinations under these subsections based on the record before it. Specifically, the 22 Sale Order authorizes sale pursuant to (b)(1), which permits “[t]he trustee, after notice 23 and a hearing, [to] use, sell, or lease . . . property of the estate.” (See Sale Order at 2 24 (“The Property is an asset of the chapter 11 estate and the Trustee may sell the 25 Property pursuant to §363(b)(1) after notice and a hearing[.]”).) The Sale Order uses 26 the language of § 363(f) to authorize the Property to be sold “free and clear of any 27 interest in [the] property of an entity other than the estate.” 11 U.S.C. § 363 (f); (see 28 Sale Order at 4 (specifying subsections (f)(3) and (f)(4)).) And the Sale Order 1 expressly confers upon the buyer or lessee of the Property the protections of 2 subsection (m) that arise for good faith purchasers and lessees thereunder. (Sale Order 3 at 4.) 4 Citi contends the Bankruptcy Court was required to adjudicate the matter within 5 the adversary case rather than the Chapter 11 Trustee’s § 363 Motion. (See Opening 6 Br. at 11-14.) The authority upon which Citi relies, however, does not specifically 7 require that an adversary case involving the same disputes as a sale motion be 8 resolved prior to sale authorization. (See id. at 13 (relying on In re Popp, 323 B.R. at 9 268-70.) Instead, the authority cited merely requires that determinations of the 10 estate’s ownership be made before a bankruptcy court authorizes sale of property 11 under § 363. See In re Popp, 323 B.R. at 608 . Such a requirement is obvious: 12 § 363(b) itself uses the language “property of the estate” to define that property which 13 may be subject to sale by the trustee. The Bankruptcy Court made an express finding 14 here that the Property is “property of the estate,” and Citi does not establish that the 15 Bankruptcy Court abused its discretion in making this finding.7 16 F. The Bankruptcy Court Did Not Abuse Its Discretion in Authorizing 17 Sale of the Property 18 Based on the evidence and argument before it in connection with the Chapter 11 19 Trustee’s Motion for Order Authorizing Sale, including Citi’s Opposition and Exhibits 20 (BK Doc. 768), the Bankruptcy Court concluded that Citi’s claim to the Property was 21 not legally cognizable. (Sale Order at 3.) As set forth supra section III.C.1, the Court 22 agrees with this conclusion. 23 Based on that determination, and based on other recitations not challenged in 24 the present appeal, the Bankruptcy Court concluded that “[t]he Property is an asset of 25 the chapter 11 estate and the Trustee may sell the Property pursuant to § 363(b)(1).” [26] 27 7 Notably, Citi does not claim it lacked notice and opportunity to be heard, and the record establishes it had notice and opportunity to be heard. Indeed, Citi filed a comprehensive Opposition to the 28 Chapter 11 Trustee’s Motion, along with evidence regarding its claim to the Property. (See BK Doc. 1 ||(Sale Order at 2.) As set forth supra section III.C.2, the Court agrees with this 2 |}conclusion as well. 3 Therefore, under the relevant standard of review, the Court affirms the Sale 4 || Order. 5 ||IV. CONCLUSION 6 As set forth herein, the Court AFFIRMS the Bankruptcy Court’s Sale Order and 7 ||DISMISSES the present appeal. 8 IT IS SO ORDERED. 9 DATED: September 22, 2021 ee — 10 ~ J oo The Hon. Josepk ine L. Staton United States District Judge