In re: Tina Chi Houng, 9th Cir. BAP (2012)

7/25/2019 In re: Tina Chi Houng, 9th Cir. BAP (2012)

http://slidepdf.com/reader/full/in-re-tina-chi-houng-9th-cir-bap-2012 1/21

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1 Thi s di sposi t i on i s not appropr i at e f or publ i cat i on.Al t hough i t may be ci t ed f or whatever persuasi ve val ue i t may have( see Fed. R. App. P. 32. 1) , i t has no pr ecedent i al val ue. See 9t hCi r . BAP Rul e 8013- 1.

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UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE NINTH CIRCUIT

I n r e: ) BAP No. CC- 12- 1208- DHKi)

TI NA CHI HOUNG, ) Bk. No. 2: 07- bk- 21354- BR)

Debt or . ) Adv. No. 2: 09- ap- 02717- BR ________________________________ )

)NI CK ARGAMAN ALDEN, )

)Appel l ant , ))

v. ) M E M O R A N D U M 1

)EDWARD M. WOLKOWI TZ, Chapt er 7 ) Tr ust ee, )

)Appel l ee. )

________________________________ )

Ar gued and Submi t t ed on November 15, 2012at Pasadena, Cal i f or ni a

Fi l ed - December 6, 2012

Appeal f r om t he Uni t ed St at es Bankrupt cy Cour tf or t he Cent r al Di str i ct of Cal i f or ni a

Honor abl e Bar r y Russel l , Bankrupt cy J udge, Pr esi di ng

Appearances: Appel l ant , Ni ck Argaman Al den, appeared i n proper ; I r v M. Gr oss of Levene, Neal e, Bender , Yoo& Br i l l , LLP, appear ed and ar gued f or Appel l ee,Edward M. Wol kowi t z, Chapt er 7 Trust ee.

Bef or e: DUNN, HOLLOWELL, and KI RSCHER, Bankr upt cy J udges.

FILED

DEC 06 2012

SUSAN M SPRAUL, CLERKU.S. BKCY. APP. PANELOF THE NINTH CIRCUIT



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2 On r emand, t he Appel l ee advi sed t he bankr upt cy cour t :“However , when I or der ed a t r anscr i pt of t he hear i ng i n connect i onwi t h t he not i ce of appeal , I di scover ed t hat t he el ect r oni ct r anscr i pt i on of t he hear i ng had pr ematur el y ended ( “THE COURT: Yeah, I ’ m goi ng t o r ul e ( Por t i on of proceedi ngs not avai l abl e. )( Pr oceedi ngs concl uded. ) ”) . I t appear s t hat somehow event ual l y t hef ul l r ecor d was r ecover ed. A compl et e t r anscr i pt of t he Febr uar y 12011 hear i ng i s now avai l abl e.

3 The Houng I Panel di d det er mi ne, as a mat t er of l aw, t hatt he cl ai m agai nst Appel l ant , whi ch sought t o avoi d and r ecover apr ef er ent i al t r ansf er , was unt i mel y. The bankrupt cy cour t not ed i nt he pr oceedi ngs on r emand t hat t he pr ef er ence cl ai m was not vi abl e.

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On Oct ober 24, 2011, t he Panel i ssued a Memor andum

( “Houng I ”) af f i r mi ng t he ent r y of def aul t agai nst Appel l ant . Al dev. Wol kowi t z ( I n re Houng) , 2011 WL 6989900 (9t h Ci r . BAP 2011) .

Al t hough t he r ecor d i n Houng I suggest ed t hat t he bankr upt cy cour t

had made a r ul i ng at t he hear i ng on t he Appel l ee’ s mot i on f or

def aul t j udgment , t he of f i ci al t r anscr i pt of t he hear i ng ended:

“THE COURT: Yeah, I ’ m goi ng t o r ul e ( por t i on of pr oceedi ngs

not avai l abl e. )

( Pr oceedi ngs concl uded. ) ”

Accor di ngl y, t her e wer e no f i ndi ngs avai l abl e t o al l ow t he Panel t o

conduct a f ul l appel l at e r evi ew of t he bankrupt cy cour t ’ s def aul t

j udgment ( “2011 Def aul t J udgment ”) enter ed agai nst Appel l ant . 2 The

Houng I Panel vacat ed t he 2011 Def aul t J udgment and remanded t he

mat t er t o t he bankrupt cy cour t f or f ur t her pr oceedi ngs. 3

On remand, t he bankr upt cy cour t conduct ed f ur t her pr oceedi ngs

on a renewed mot i on f or def aul t j udgment , made f i ndi ngs of f act and



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4 The r emai ni ng cl ai ms agai nst Appel l ant wer e ( 1) conspi r acyt o commi t f r aud, and ( 2) avoi dance and r ecover y of f r audul entt r ansf er s.

5 Unl ess ot her wi se i ndi cat ed, al l chapt er and sect i onr ef er ences ar e t o t he Bankrupt cy Code, 11 U. S. C. §§ 101- 1532, andal l r ul e r ef er ences ar e t o t he Feder al Rul es of Bankrupt cyPr ocedur e, Rul es 1001- 9037. The Feder al Rul es of Ci vi l Pr ocedur ear e r ef er r ed t o as Ci vi l Rul es.

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concl usi ons of l aw on t wo cl ai ms f or r el i ef asser t ed agai nst t he

Appel l ant , 4 and agai n ent ered a def aul t j udgment ( “2012 Def aul t

J udgment ”) agai nst t he Appel l ant , whi ch we now AFFI RM.

I . FACTS5

A. Scope of t he Remand.

The r emand proceedi ngs at i ssue i n t he cur r ent appeal wer e

f r amed by t he Houng I deci si on.

Ci vi l Rul e 55( b) ( 1) al l ows f or ent r y of a def aul t j udgmentby the Cl erk onl y when the amount demanded i s f or a sum

cer t ai n, “or a sum t hat can be made cer t ai n bycomput at i on. ” Ot herwi se, ent r y of a def aul t j udgment mustbe by the cour t , pur suant t o Rul e 55( b) ( 2) :

(2) By the Court. I n al l ot her cases, t he par t ymust appl y t o t he cour t f or a def aul t j udgment .. . . The cour t may conduct hear i ngs or maker ef er r al s - pr eser vi ng any f eder al st at ut or yr i ght t o a j ur y t r i al - when, t o ent er oref f ect uat e a j udgment , i t needs t o:

( A) conduct an account i ng;( B) det er mi ne t he amount of damages;( C) est abl i sh t he t r ut h of any

al l egat i on by evi dence; or( D) i nvest i gat e any ot her mat t er .

Cour t s have wi de di scr et i on i n deci di ng whet her t oent er a def aul t j udgment . Wel l s Far go Bank v. Bel t r an( I n r e Bel t r an) , 182 B. R. 820, 823 ( 9t h Ci r . BAP 1995) .Fact or s a cour t may consi der i n exer ci si ng i t s di scret i on



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i ncl ude:

( 1) t he possi bi l i t y of pr ej udi ce t o t he

pl ai nt i f f , ( 2) t he mer i t s of pl ai nt i f f ’ ssubst ant i ve cl ai m, ( 3) t he suf f i ci ency of t hecompl ai nt , ( 4) t he sum of money at st ake i n t heacti on, ( 5) t he possi bi l i t y of a di sput econcer ni ng mat er i al f act s, ( 6) whet her t hedef aul t was due to excusabl e negl ect , and( 7) t he st r ong pol i cy under l yi ng t he Feder alRul es of Ci vi l Pr ocedur e f avor i ng deci si ons ont he mer i t s.

Ei t el v. McCool , 782 F. 2d [ 1470, ] 1471- 72 ( 9t h Ci r . 1986) .

Where a def aul t has been ent ered, t he cour t shoul d

accept as t r ue al l al l egat i ons i n t he compl ai nt , exceptt hose r el at i ng t o damages. Tel evi deo Sys. , I nc. v.Hei ddent hal , 826 F. 2d 915, 917 ( 9t h Ci r . 1987) ; Geddes v.Uni t ed Fi n. Gr p. , 559 F. 2d 557, 560 ( 9t h Ci r . 1977) .

Houng I , 2011 WL 6989900 at *5- *6.

B. Proceedi ngs Fol l owi ng Remand

Fol l owi ng r emand, t he bankrupt cy cour t set a st at us

conf erence f or December 19, 2011 at 2: 00 p. m. J ust bef ore t hat

st at us hear i ng, t he pl ai nt i f f i n t he adver sar y pr oceedi ng

( “Trust ee”) appl i ed t o the bankrupt cy cour t t o schedul e a “pr ove- up

hear i ng on t he i ssue of damages. ” No r ecor d of t he December 19

hear i ng i s avai l abl e f or our r evi ew.

On J anuary 17, 2012, t he Trust ee f i l ed a new mot i on f or

def aul t j udgment ( “Def aul t J udgment Mot i on”) and not i ced a hear i ng

on t he Def aul t J udgment Mot i on f or 10: 00 a. m. on Febr uary 7, 2012.

On t he same date, t he Tr ust ee f i l ed hi s Memorandum of Poi nt s and

Aut hor i t i es and Evi dence i n Suppor t of Tr ust ee’ s Request f or Ent r y

of Def aul t J udgment Agai nst Def endant Ni ck Al den; Decl ar at i on of

I r v M. Gr oss i n Suppor t Ther eof ( “Submi ssi ons”) . The Submi ssi ons



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6 A di scussi on about whether t he Tr ust ee was ser ved wi t h t hsubpoena i s i n t he r ecor d:

MR. GROSS: I never even r ecei ved not i ce of t he subpoena,by t he way. I don’ t know i f you sent i t t o me.

MR. ALDEN: We al ways send a copy of t he subpoena.

Hr ’ g Tr . ( Febr uar y 7, 2012) at 5: 3- 5. I n l i ght of ( 1) Mr . Al den’ s( cont i nued. . .

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al so cont ai ned a st atement t hat a “Prove- Up Hear i ng” woul d be hel d

at 10: 00 a. m. on Febr uary 7, 2012.

Mr . Al den f i l ed an opposi t i on ( “Opposi t i on”) t o t he Def aul t

J udgment Mot i on, whi ch i ncl uded hi s memor andum of poi nt s and

aut hor i t i es, and hi s decl ar at i on. The Opposi t i on not ed t he cor r ect

hear i ng dat e, but st at ed t hat t he hear i ng t i me was “2: 00 a. m. ”

[ si c] . On J anuar y 16, 2012, Mr . Al den i ssued a subpoena t o Ci t y

Nat i onal Bank ( “Bank”) , commandi ng i t t o appear and test i f y on

Febr uar y 7, 2012 at 2: 00 p. m, and t o pr oduce at t hat t i me “[ a] l l t hdocument s evi denci ng t he wi r e t r ansf er of t he sumof $150, 000 f r om

PI A Devel opment , I nc. account , xxxx997, t o Uni que Hol di ng

Cor por at i on, dat ed Mar ch 5, 2007, a copy of whi ch i s at t ached. ” Th

subpoena was ser ved by per sonal ser vi ce on “Ramon Nuno” by pr ocess

server Chad Van Hazel an on J anuar y 17, 2012. The cer t i f i cat e of

ser vi ce does not est abl i sh Mr . Nuno’ s rel at i onshi p t o t he Bank. I n

addi t i on, t he subpoena had an i ncor r ect case number i n t he capt i on,

and i t di d not r ef er ence t he adver sar y pr oceedi ng i n whi ch t he

Febr uary 7 appear ance was t o be made. Mr . Al den apparent l y pr ovi de

no not i ce t o t he Tr ust ee t hat t he subpoena had been i ssued. 6



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6( . . . cont i nued)cont i nuous di sr egar d of pr ocedur es and ( 2) t he bankrupt cy cour t ’ sobservat i on t hat Mr . Al den di d not f i l e any st at ement t hat he had “wi t ness t hat ’ s j ust goi ng t o appear , ” i t i s unl i kel y t hat t he Tr ust ee di d r ecei ve a copy of t he subpoena. See i d. at 5: 5- 6.

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On Febr uary 7, 2012, t he bankr upt cy cour t cal l ed t he mat t er

f or hear i ng ( “Febr uar y 7 Hear i ng”) at 10: 00 a. m. Mr . Al den was not

pr esent . Counsel f or t he Tr ust ee advi sed t he bankrupt cy cour t t hat

when he r evi ewed t he Opposi t i on, he saw Mr . Al den’ s not at i on of t he

hear i ng t i me of 2: 00 p. m. , assumed t hat was t he cor r ect t i me, and

sent a r evi sed not i ce of hear i ng st at i ng t he Febr uar y 7 Hear i ng

woul d t ake pl ace at 2: 00 p. m. On t he morni ng of t he Febr uary 7

Hear i ng, however , he r eal i zed t he r evi sed not i ce of hear i ng shoul d

not have been sent , and cal l ed Mr . Al den, who advi sed he woul d beunavai l abl e to be at t he bankrupt cy cour t at 10: 00 a. m. , because he

was t o be at st ate cour t ex par t e pr oceedi ngs t hat mor ni ng. I n

l i ght of t he Tr ust ee’ s expl anat i on of Mr . Al den’ s absence, t he

bankr upt cy cour t agr eed to post pone t he pr oceedi ngs on t he Def aul t

J udgment Mot i on unt i l 2: 00 p. m.

However , at t he end of i t s mor ni ng cal endar at appr oxi mat el y

11: 30 a. m. , t he bankrupt cy cour t obser ved t hat Mr . Al den i n f act wa

i n t he cour t r oom. Rat her t han have t he par t i es r eappear at

2: 00 p. m. , t he bankrupt cy cour t cal l ed t he case agai n. The col l oquy

between Mr . Al den and t he bankr upt cy cour t was conf usi ng, and

concl uded wi t h t he bankrupt cy cour t agr eei ng t o r ecal l t he case at

2: 00 p. m. , apparent l y because of Mr . Al den’ s subpoena of t he Bank

t o pr ovi de document s t o expl ai n t he Wi r e Tr ansf er . No r ecor d of t h



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7 Ther e i s no r ecor d of proceedi ng or t r anscr i pt f or t he2: 00 p. m. por t i on of t he Febr uar y 7 Hear i ng. Ther e ar e onl y t wounnumber ed ent r i es on t he docket f or Febr uar y 7, 2012. The f i r st

r eads:

Hear i ng (Adv. Mot i on) Cont i nued (RE: r el at ed document ( s)96 MOTI ON FOR DEFAULT J UDGMENT f i l ed by Edwar d M.Wol kowi t z) Hear i ng t o be hel d on 02/ 07/ 2012 at 02: 00 PM255 E. Templ e St . Cour t r oom 1668 Los Angel es, CA 90012 f or96, ( For t i er , St acey) ( Ent er ed: 02/ 07/ 2012)

The second r eads:

Hear i ng (Adv. Mot i on) Cont i nued (RE: r el at ed document ( s)96 MOTI ON FOR DEFAULT J UDGMENT f i l ed by Edwar d M.Wol kowi t z) Hear i ng t o be hel d on 03/ 12/ 2012 at 02: 00 PM255 E. Templ e St . Cour t r oom 1668 Los Angel es, CA 90012 f or96, ( For t i er , St acey) ( Ent er ed: 02/ 07/ 2012)

8 The adver sar y proceedi ng docket does not cont ai n anyr ecor d of t he March 12 Hear i ng or any notat i on t hat t he March 12Hear i ng was hel d.

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2: 00 p. m. por t i on of t he Febr uar y 7 Hear i ng i s avai l abl e f or our

r evi ew. 7

A cont i nued hear i ng on t he Def aul t J udgment Mot i on was hel d

on March 12, 2012 ( “March 12 Hear i ng”) . Af t er t he case was cal l ed,

t he bankrupt cy cour t r ecapped the reason f or not conduct i ng the

Febr uar y 7 Hear i ng: “Wel l , l ast t i me we wer e her e, we cont i nued i t

because you were goi ng t o get a wi t ness. ” Hr ’ g Tr . ( March 12, 2012

at 1: 10- 11. At t he Mar ch 12 Hear i ng, t he bankrupt cy cour t r ecount e

t he evi dence and made pr el i mi nar y f i ndi ngs, gr ant i ng t he Def aul t J udgment Mot i on and st at i ng t hat t he 2012 Def aul t J udgment , when

ent ered, woul d be f or t he amount of $250, 000. 8

I t appear s t hat af t er t he Mar ch 12 Hear i ng, t he Tr ust ee



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9 Mr . Al den f i l ed hi s Not i ce of Appeal on Apr i l 2, 2012,bef ore t he Fi ndi ngs and Concl usi ons and t he 2012 Def aul t J udgmentwere ent ered by t he bankr upt cy cour t .

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pr epar ed pr oposed f i ndi ngs of f act and concl usi ons of l aw ( “Propose

Fi ndi ngs”) . On Mar ch 26, 2012, Mr . Al den f i l ed a decl ar at i on

r egar di ng hi s obj ect i on t o t he Pr oposed Fi ndi ngs, t o whi ch t he

Tr ust ee r esponded on Apr i l 2, 2012. The bankrupt cy cour t ent er ed

i t s Fi ndi ngs of Fact and Concl usi ons of Law Af t er Hear i ng on Mot i on

f or Ent r y of Def aul t J udgment ( “Fi ndi ngs and Concl usi ons”) on

Apr i l 10, 2012, 9 wi t h r espect t o t he conspi r acy and f r audul ent

t r ansf er cl ai ms f or r el i ef . The 2012 Def aul t J udgment was ent er ed

t he same dat e.C. The Under l yi ng Fact s

Few f act s of t he act ual di sput e ar e set out i n Houng I .

Accor di ngl y, we rest at e her e t he f i ndi ngs t he bankrupt cy cour t made

on r emand t o t he extent necessar y t o resol ve t he onl y i ssue i n t he

pendi ng appeal , i . e. , whet her t he bankrupt cy cour t abused i t s

di scr et i on when i t ent er ed the 2012 Def aul t J udgment .

The debtor i n t hi s case, Ti na Chi Houng, acqui r ed t i t l e t o

her r esi dence ( “Resi dence”) on Oct ober 24, 2003. I n mi d- 2006,

Ms. Houng ent ered i nt o a pur port ed agr eement t o sel l t he Resi dence

t o her f r i end, Congl i n Shen, f or a sal e pr i ce of $2, 150, 000. At

t hat t i me, l i ens agai nst t he Resi dence t ot al ed appr oxi mat el y

$1, 100, 000.

To f aci l i t at e t he “sal e” of t he Resi dence, Ms. Houng bor r owed



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10 Addi t i onal f act s about t he Lu Loan ar e avai l abl e i n t her ecor d, i ncl udi ng t he f act t hat Mr . Lu r ecei ved mor e than $20, 000f r om t hi s t r ansact i on. Fur t her , t he Tr ust ee was successf ul i n

obt ai ni ng j udgment agai nst Mr . Lu t o recover t he $21, 118. 49 i ni nt er est det er mi ned t o be usur i ous. The bankrupt cy cour t ent er edsummary j udgment on t he Tr ust ee’ s mot i on agai nst Mr . Lu on J ul y 29,2010. Mr . Lu appeal ed t he summary j udgment ent ered agai nst hi m ( BANo. CC- 10- 1319) , but l at er st i pul at ed t o the di smi ssal of t he appeaon t he basi s t hat he no l onger wi shed t o pur sue t he appeal . SeeDocket Nos. 57 and 59 i n t he adver sar y pr oceedi ng.

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$430, 000 f r omKenneth Lu ( “Lu Loan”) . 10 The r ecor d r ef l ect s t hat

t he Lu Loan was r epai d wi t hi n days f r om t he “sal e” pr oceeds. The

bankrupt cy cour t f ound t hat t he sal e pr oceeds f r om whi ch t he Lu Loa

was r epai d i ncl uded $14, 773. 42 f r om Ms. Shen and t he pr oceeds of t w

l oans Ms. Shen obt ai ned, secur ed by t he Resi dence, appar ent l y t o

f i nance t he pur chase. The l oans obt ai ned by Ms. Shen i n connect i on

wi t h t he “sal e” ul t i mat el y went i nt o def aul t .

On Oct ober 3, 2006, Ms. Houng executed a gr ant deed ( “Houng

Gr ant Deed”) pur por t i ng t o t r ansf er al l of her r i ght , t i t l e, andi nt er est i n t he Resi dence t o Ms. Shen. Escr ow cl osed on t he “sal e”

of t he Resi dence f r om Ms. Houng t o Ms. Shen on Oct ober 26, 2006.

The Houng Gr ant Deed was r ecor ded wi t h t he Los Angel es County

Recor der as Document 062376824 on Oct ober 26, 2006.

Al so on Oct ober 3, 2006, Ms. Shen execut ed a gr ant deed

( “Shen Gr ant Deed”) pur por t i ng t o t r ansf er al l of her r i ght , t i t l e,

and i nt er est i n the Resi dence to Uni que Hol di ng Cor por at i on

( “Uni que”) , a Cal i f or ni a cor por at i on owned by Ms. Houng. The Shen

Gr ant Deed was r ecorded wi t h t he Los Angel es County Recor der as

Document 062431473 on November 1, 2006, and i t r ef l ect s t hat i t was



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11 Al t hough t he def aul t j udgment agai nst Ms. Houng i n t he Ti anj i n Li t i gat i on was set asi de approxi mat el y t wo years af t er i twas ent er ed, Ti anj i n was a credi t or of Ms. Houng at t he t i me of t he“sal e. ”

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a “[ c] onveyance gi ven f or no val ue. Gi f t . ”

The bankrupt cy cour t f ound t hat as a r esul t of t he “sal e”

f r om Ms. Houng t o Ms. Shen, and t he “al most i mmedi at e gi f t ” of t he

Resi dence by Ms. Shen t o Uni que, Ms. Houng ( 1) ef f ect i vel y

cont i nued t o own the Resi dence and (2) obt ai ned sever al hundr ed

t housand dol l ar s out of escr ow.

Ms. Houng’ s r eal est at e agent i n connect i on wi t h t he “sal e”

was Mr . Al den’ s son, Guy Al den ( “Guy”) . At t he t i me of t he

pur por t ed “sal e, ” Ms. Houng was a def endant i n l i t i gat i on f i l edagai nst her by Guar ant y Bank of Cal i f or ni a ( “Guar ant y Bank

Li t i gat i on”) . Guy r ef er r ed Ms. Houng t o Mr . Al den, who t her eaf t er

r epr esent ed Ms. Houng, i nt er al i a, i n t he Guar ant y Bank Li t i gat i on.

Mr . Al den al so r epr esent ed Ms. Houng i n l i t i gat i on f i l ed agai nst he

and ot her s by Ti anj i n New Sun Li ght I ndust r y Product s Co. , Lt d.

( “Ti anj i n Li t i gat i on”) . Def aul t was ent er ed agai nst Ms. Houng i n

t he Ti anj i n Li t i gat i on on Oct ober 6, 2006, and a def aul t j udgment

was ent er ed agai nst her i n t he Ti anj i n Li t i gat i on on Oct ober 24,

2006. 11 Fi nal l y, Expor t - I mpor t Bank of t he Uni t ed St at es

( “Export - I mport Bank Li t i gat i on”) sued Ms. Houng on November 9, 200

t o col l ect on a guar ant y she had execut ed f or a pr omi ssory not e.

The promi ssor y note had been decl ar ed i n def aul t f or nonpayment i n

Mar ch of 2006, and demand had been made upon Ms. Houng f or payment



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12 I n hi s opposi t i on t o t he Def aul t J udgment Mot i on,Mr . Al den admi t t ed t hat he was f i r st hi r ed on August 23, 2006 t or epr esent Ms. Houng i n t he Guar ant y Bank Li t i gat i on. He al so

admi t t ed t hat he was l at er hi r ed t o repr esent Ms. Houng i n ot herl i t i gat i on. He asser t ed t hat t he $100, 000 he was pai d f r om escr owas at t or neys f ees was f or wor k he perf or med i n f our l awsui t s over aper i od of t wo year s. Si nce at t he t i me he r ecei ved t he $100, 000f r om escr ow he had, by hi s own admi ssi on, pr ovi ded l egal servi ces tMs. Houng f or no more than 68 days, he cannot al so cl ai m t he$100, 000 as at t orneys f ees ear ned f or r epr esent i ng Ms. Houng i n f oul awsui t s over t wo year s.

13 The ot her def endant s i n t hi s l i t i gat i on wer e Mr . Lu, baseon t he Tr ust ee’ s cl ai m t o r ecover t he usur i ous i nt er est , andMr . Al den’ s son, Guy. Guy f i l ed a chapt er 7 bankrupt cy case,

determi ned t o be a no asset case, i n whi ch Guy recei ved a di schar ge The Tr ust ee di d not pur sue a nondi schar geabl e j udgment agai nst Guyi n Guy’ s bankrupt cy case. Ther ef or e, he i s f or ecl osed f r om pur sui nt he l i t i gat i on agai nst Guy i n t he adver sar y pr oceedi ng i nMs. Houng’ s bankr upt cy case.

The Tr ust ee f i l ed separ at e f r audul ent t r ansf er l i t i gat i on( cont i nued. . .

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under t he guar ant y pr i or t o t he t i me of t he “sal e. ”12

Al t hough Mr . Al den deni es t hat he par t i ci pat ed i n t he “sal e, ”

t he Shen Gr ant Deed st at es on i t s f ace t hat af t er r ecor di ng, i t was

t o be mai l ed t o Mr . Al den, as were the tax st atement s on t he

Resi dence. On Oct ober 30, 2006, Ms. Houng di r ected t he escr ow

company t o del i ver a check r epr esent i ng $250, 000 of t he “sal e”

pr oceeds t o Mr . Al den.

Af t er Ms. Houng f i l ed her bankrupt cy pet i t i on, t he Tr ust ee

f i l ed an adver sar y pr oceedi ng agai nst Mr . Al den, among other s,seeki ng ( 1) a deter mi nat i on among ot her cl ai ms, t hat t he “sal e” was

a f r audul ent t r ansf er , and ( 2) t o r ecover t he $250, 000 i n “sal e”

pr oceeds r ecei ved by Mr . Al den. 13



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13( . . . cont i nued)agai nst Ms. Shen and Uni que ( Adv. Proc. 08- 01481) . The Trust eeobt ai ned def aul t j udgment s ( “Shen Def aul t J udgment ”) agai nst t hesedef endant s on J ul y 27, 2009, af t er t hey f ai l ed t o compl y wi t hdi scover y and f ai l ed t o def end or appear . The Shen Def aul t J udgmentavoi ded t he Houng Gr ant Deed whi ch ef f ectuated t he t r ansf er of t heResi dence f r omMs. Houng t o Ms. Shen. No appeal was taken f r omt heShen Def aul t J udgment .

14 See n. 12 above.

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Mr . Al den’ s posi t i on, bot h bef or e the bankrupt cy cour t and on

appeal , i s t hat $100, 000 of t he $250, 000 was t o pay l egal f ees

Ms. Houng owed t o hi m. 14 However , t he bankr upt cy cour t f ound t hat

Mr . Al den was unabl e to pr oduce “any document at i on ( ex: t i me

r ecor ds, bi l l i ng st at ement s) evi denci ng t hat any l egal f ees wer e

owed hi m by [ Ms. ] Houng at t hat t i me, l et al one i n t he amount of

$100, 000. ” Fi ndi ngs and Concl usi ons at 5: 8- 10.

Wi t h r espect t o t he remai ni ng $150, 000, Mr . Al den asser t ed

t hat pur suant t o a wr i t t en agr eement bet ween Ms. Houng and Ms. ShenMr . Al den was t o hol d t he $150, 000 as a r eserve, f or t he benef i t of

Ms. Shen, t o make mor t gage payment s, presumabl y on t he l oans she

obt ai ned on t he pr oper t y, f or a one- year per i od. Mr . Al den

al l egedl y dr af t ed t he agr eement , but coul d not pr oduce ei t her a copy

of i t or any evi dence of i t s exi st ence at t he t i me of t he Mar ch 12

Hear i ng. Not wi t hst andi ng hi s pur por t ed under st andi ng t hat he was t

hol d t he $150, 000 f or t he per i od of one year i n or der t o ensure

Ms. Shen’ s l oans on t he Pr oper t y wer e pai d, Mr . Al den pai d t he

$150, 000 t o Uni que on Ms. Houng’ s sol e i nst r uct i ons on March 5,

2007, l ess t han f i ve mont hs af t er Mr . Al den r ecei ved t he f unds. At



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15 Mr . Al den asser t s t hat t he bankrupt cy cour t er r ed when i tf ai l ed t o consi der hi s “Ant i - SLAPP” mot i on at t he t r i al on t he

mer i t s, as t he bankrupt cy cour t pr omi sed t o do when i t deni ed themot i on pr i or t o t he ent r y of def aul t and t he 2011 Def aul t J udgmentagai nst Mr . Al den. As t he Panel st at ed i n Houng I , “[ g] i ven t hatt he j udgment ent ered by t he bankr upt cy cour t and appeal ed by[ Mr . Al den] i s based on a cl ai m under f eder al bankrupt cy l aw, noneof t he st at e l aw [ Ant i - SLAPP] pr ovi si ons ci t ed [ by Mr . Al den] ar eappl i cabl e. We t her ef or e decl i ne t o del ve any f ur t her i nt o t hecour t ’ s f ai l ur e t o consi der t hose pr ovi si ons. ”

13

Mr . Al den’ s di r ect i on, Ci t y Nat i onal Bank wi r ed $150, 000 f r om t he

account of “Pi a Devel opment , I nc. ” t o East - West Bank f or t he benef i

of Uni que. Mr . Al den asser t s t hat , havi ng made t hi s t r ansf er , he

shoul d be i nsul at ed f r om any f r audul ent t r ansf er cl ai m br ought by

t he Trust ee, because he ef f ect i vel y “gave back t he money” t o

Ms. Houng.

I I . J URI SDI CTI ON

The bankrupt cy cour t had j ur i sdi ct i on under 28 U. S. C. §§ 1334

and 157( b) ( 2) ( H) . We have j ur i sdi ct i on under 28 U. S. C. § 158.I I I . I SSUES

Mr . Al den asser t s numerous i ssues on appeal . To t he ext ent

t hey asser t er r or on t he par t of t he bankrupt cy cour t i n ent er i ng

def aul t , as opposed t o ent er i ng t he 2012 Def aul t J udgment , t hey ar e

not pr oper l y bef or e us, havi ng pr evi ousl y been t he subj ect of t he

Panel ’ s deci si on i n Houng I . Speci f i cal l y, we do not addr ess

Mr . Al den’ s i ssues ( 1) t hat t he bankrupt cy cour t er r ed when i t

ent ered a def aul t af t er he had made a general appear ance, and

( 2) t hat t he bankrupt cy cour t er r ed as a mat t er of l aw when i t

f ai l ed t o consi der hi s mot i on t o di smi ss at t r i al . 15



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Nei t her do we addr ess Mr . Al den’ s i ssue argued bef ore us t hat

t he bankr upt cy cour t err ed i n ent er i ng t he 2012 Def aul t J udgment

because t he cl ai m agai nst hi m f or pr ef er ent i al t r ansf er was

unt i mel y. That i ssue was r ai sed and af f i r mat i vel y di sposed of , i n

Mr . Al den’ s f avor , i n Houng I i n connect i on wi t h t he 2011 Def aul t

J udgment . The 2012 Def aul t J udgment was not based on a pref er ence

cl ai m.

To t he ext ent Mr . Al den’ s i ssues r ai se def enses, af f i r mat i ve

or ot her wi se, t o the compl ai nt , t hey wer e f or ecl osed by t he ent r y odef aul t , and we need not consi der t hem her e. Those i ssues i ncl ude

Mr . Al den’ s asser t i ons t hat t he Tr ust ee act ed wi t h “uncl ean hands, ”

t hat t he al l eged r ef i nance of t he Resi dence di d not r ender Ms. Houn

i nsol vent , and whet her Mr . Al den’ s l egal advi ce t o Ms. Houng i s

pr i vi l eged.

The onl y i ssue wi t h whi ch we ar e concer ned i n t hi s appeal i s

whet her t he bankr upt cy cour t abused i t s di scr et i on when i t ent er ed

t he 2012 Def aul t J udgment .

I V. STANDARDS OF REVI EW

As t he Panel st at ed i n Houng I , t he bankrupt cy cour t ' s

deci si on t o ent er a def aul t j udgment i s r evi ewed f or abuse of

di scr et i on. Spei ser , Kr ause & Madol e P. C. v. Or t i z, 271 F. 3d 884,

886 ( 9t h Ci r . 2001) .

We appl y a two- part t est t o determi ne whether t he bankr upt cy

cour t abused i t s di scr et i on. Uni t ed St at es v. Hi nkson, 585 F. 3d

1247, 1261- 62 ( 9t h Ci r . 2009) ( en banc) . Fi r st , we consi der de novo

whet her t he bankrupt cy cour t appl i ed t he cor r ect l egal st andar d t o



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t he r el i ef r equest ed. I d. Then, we r evi ew t he bankrupt cy cour t ’ s

f act f i ndi ngs f or cl ear er r or . I d. at 1262 & n. 20. We must af f i r m

t he bankrupt cy cour t ’ s f act f i ndi ngs unl ess we concl ude t hat t hey

are “( 1) ‘ i l l ogi cal , ’ ( 2) ‘ i mpl aus i bl e, ’ or ( 3) wi t hout ‘ support i n

i nf er ences t hat may be dr awn f r om t he f act s i n t he r ecor d. ’ ” I d.

We may af f i r m t he bankrupt cy cour t ’ s r ul i ng on any basi s

suppor t ed by t he r ecor d. See, e. g. , Hei l man v. Hei l man ( I n r e

Hei l man) , 430 B. R. 213, 216 ( 9t h Ci r . BAP 2010) ; FDI C v. Ki pperman

( I n r e Commer ci al Money Ct r . , I nc. ) , 392 B. R. 814, 826- 27 ( 9t h Ci r .BAP 2008) ; see al so McSherr y v. Ci t y of Long Beach, 584 F. 3d 1129,

1135 ( 9t h Ci r . 2009) .

V. DI SCUSSI ON

A. The Bankr upt cy Cour t Appl i ed t he Cor r ect Legal St andar d i nDet ermi ni ng Whet her t o Ent er t he 2012 Def aul t J udgment

I n t he Ni nt h Ci r cui t , t he l aw i s cl ear r egar di ng t he f actor s

a t r i al cour t may consi der i n exer ci si ng i t s di scret i on i n deci di ng

whet her t o ent er a def aul t j udgment . Those f act or s ( “Ei t el

f actor s”) i ncl ude:

( 1) t he possi bi l i t y of pr ej udi ce t o t he pl ai nt i f f , ( 2) t hemer i t s of pl ai nt i f f ’ s subst ant i ve cl ai m, ( 3) t hesuf f i ci ency of t he compl ai nt , ( 4) t he sum of money atst ake i n t he act i on, ( 5) t he possi bi l i t y of a di sput econcer ni ng mat er i al f act s, ( 6) whet her t he def aul t was duet o excusabl e negl ect , and ( 7) t he st r ong pol i cy under l yi ngt he Feder al Rul es of Ci vi l Pr ocedur e f avor i ng deci si ons ont he mer i t s.

Ei t el v. McCool , 782 F. 2d 1470, 1471- 72 ( 9t h Ci r . 1986) .

1. The possi bi l i t y of pr ej udi ce t o t he Tr ust ee

I n Houng I , t he Panel caut i oned t hat t he st andar d t o appl y i n



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det er mi ni ng whet her set t i ng asi de a j udgment i s pr ej udi ci al i s

“whet her [ pl ai nt i f f ’ s] abi l i t y t o pur sue hi s cl ai m wi l l be

hi ndered. ” Houng I , 2011 WL 6989900 at *8 ( quot i ng TCI Gr oup Li f e

I ns. Pl an v. Knoebber , 244 F. 3d 691, 701 ( 9t h Ci r . 2001) ) . The

bankr upt cy cour t ’ s det er mi nat i on concer ni ng t hi s f act or i s expl i ci t

Wi t hout a def aul t j udgment , t he est at e wi l l be pr ej udi cedbecause i t wi l l have been depr i ved of t he si gni f i cantequi t y i n the [ Resi dence] whi ch was st ol en by [ Ms. ] Houng,a subst ant i al por t i on of whi ch, $250, 000, was f r audul ent l yt r ansf er r ed by [ Ms. ] Houng t o [ Mr . ] Al den. The[ Resi dence] has been l ost i n f or ecl osur e and t he est at e

has no ot her r ecour se or r emedy f or r ecover i ng thef r audul ent l y t r ansf er r ed f unds.

Fi ndi ngs and Concl usi ons at 7: 11- 15.

The Tr ust ee i s a f i duci ar y f or Ms. Houng’ s bankrupt cy est at e,

char ged wi t h l i qui dat i ng nonexempt asset s f or di st r i but i on t o

Ms. Houng’ s cr edi t or s i n conf or mance wi t h st at ut or y pr i or i t i es

est abl i shed i n t he Bankrupt cy Code. See §§ 323( a) and 704( a) . The

Tr ust ee was hampered i n hi s r ol e t o l i qui dat e hi s cl ai m agai nst

Mr . Al den, f or t he benef i t of Ms. Houng’ s cr edi t or s, by Mr . Al den’ s

r ecur r i ng f ai l ur es t o meet t he obl i gat i ons of a l i t i gant vi s- a- vi s

t he Rul es r egar di ng pl eadi ngs, appear ances and ot her f or mal i t i es.

I t i s cl ear on t hi s r ecor d t hat gi vi ng Mr . Al den mor e t i me woul d no

l ead t o a di f f er ent r esul t . Mr . Al den was not abl e t o pr ovi de t he

bankr upt cy cour t wi t h any of t he document s upon whi ch hi s def enses

were based, despi t e bei ng gi ven numerous opport uni t i es over t i me t o

do so.

/ /

/ /



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2. The suf f i ci ency of t he compl ai nt , t he mer i t s of Tr ust ee’ s subst ant i ve cl ai ms, and t he possi bi l i t y of a di sput e concer ni ng mat er i al f act s

Because t hey are i nt erwoven, we consi der t ogether t hr ee of

t he Ei t el f act or s: whet her t he compl ai nt was suf f i ci ent , whet her

t he Tr ust ee’ s cl ai m agai nst Mr . Al den has mer i t , and whet her t her e

i s a di sput e r egar di ng mat er i al f act s.

The t hi r d cl ai m f or r el i ef i n t he Tr ust ee’ s compl ai nt agai nst

Mr . Al den al l eges, i nt er al i a, t hat [ Ms. ] Houng ( 1) made t he

t r ansf er of $250, 000 t o Mr . Al den f r om t he escr ow of t he “sal e” of t he Resi dence “wi t h t he act ual i nt ent t o hi nder , del ay or def r aud”

an ent i t y t o whi ch [ Ms. ] Houng was, or became, on or af t er t he date

t hat t he escr ow t r ansf er was made i ndebt ed. The bankr upt cy cour t

det er mi ned t hat t he compl ai nt suf f i ci ent l y al l eged al l of t he

necessary el ement s of a f r audul ent t r ansf er pur suant t o

§ 548( a) ( 1) ( A) . We agr ee, and t her ef or e r ej ect Mr . Al den’ s

asser t i on on appeal t hat t he compl ai nt f ai l ed t o st at e a cl ai m f or

r el i ef .

Mr . Al den chal l enged t he al l egat i ons on sever al gr ounds.

Fi r st , Mr . Al den asser t s t hat t he bankr upt cy cour t ’ s pr i or

determi nat i ons ( 1) t hat t he Shen Gr ant Deed was a f r audul ent

t r ansf er , and ( 2) t hat Ms. Houng act ed wi t h t he r equi si t e “i nt ent t

hi nder , del ay, or def r aud a cr edi t or , ” i n maki ng t he escr ow t r ansf e

t o hi m ( and ot her s) cannot be used agai nst hi m because t hose

det er mi nat i ons wer e made by def aul t i n l i t i gat i on t o whi ch he was

not a par t y.

We need not r each t hese i ssues, because i n l i ght of



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Mr . Al den’ s def aul t , t he al l egat i ons i dent i f i ed above ar e deemed t o

be t r ue. See Pepsi co, I nc. v. Cal . Sec. Cans, 238 F. Supp. 2d 1172

1177 ( C. D. Cal . 2002) .

Second, Mr . Al den assert s t hat because t he cl ai m f or r el i ef

was made on t he Tr ust ee’ s “i nf or mat i on and bel i ef , ” i t must f ai l

because t he Tr ust ee pr ovi ded no evi dence of f act s t o suppor t t he

i nf or mat i on and bel i ef . Mr . Al den di sr egar ds the evi dence pr esent e

by the Trust ee i n support of t he Def aul t J udgment Mot i on, whi ch was

appr opr i at el y consi der ed by the bankr upt cy cour t , and whi chMr . Al den di d not count er wi t h evi dence of hi s own.

Thi r d, Mr . Al den asser t s t hat t her e coul d be no f r audul ent

t r ansf er because Ms. Houng had no credi t or s at t he t i me the t r ansf e

was made. We consi der t hi s asser t i on speci ous, al l t he mor e so

because Mr . Al den was r epr esent i ng Ms. Houng i n l i t i gat i on i n whi ch

she was a def endant both at t he t i me the “sal e” of t he Resi dence

occur r ed and at t he t i me he recei ved the $250, 000 f r om t he escr ow

pr oceeds of t he “sal e. ”

Despi t e t he f act t hat t he Tr ust ee made suf f i ci ent al l egat i ons

t o est abl i sh t hat t he t r ansf er of $250, 000 t o Mr . Al den const i t ut ed

a f r audul ent t r ansf er and t hat t he bankrupt cy cour t was ent i t l ed t o

deem t he al l egat i ons t r ue, t he bankrupt cy cour t never t hel ess

pr ovi ded Mr . Al den wi t h an oppor t uni t y i n r espondi ng t o t he Def aul t

J udgment Mot i on t o present evi dence t o est abl i sh t hat t he

al l egat i ons wer e not t r ue. Ther eaf t er , t he bankrupt cy cour t made

t he f ol l owi ng anal ysi s wi t h r espect t o t he Ei t el f actor r equi r i ng a

eval uat i on of t he Tr ust ee’ s subst ant i ve cl ai ms:



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The Tr ust ee’ s cl ai ms ar e mer i t or i ous. The Tr ust ee and[ Mr . ] Al den had ever y oppor t uni t y t o pr esent evi dence andar gue i n suppor t of t hei r r espect i ve posi t i ons. The

evi dence and ar gument of t he Tr ust ee was per suasi ve i ndemonst r at i ng ( I ) [ Ms. ] Houng’ s f r audul ent scheme andi nt ent t o st r i p t he [ Resi dence] of i t s equi t y and pl acesuch equi t y out of t he r each of her cr edi t or s by, amongot her t hi ngs, causi ng $250, 000 of t he escr ow pr oceeds t obe t r ansf er r ed t o [ Mr . ] Al den ( i i ) [ Mr . ] Al den’ s r ecei ptof $250, 000 i n f r audul ent l y obt ai ned f unds ( i i i ) [ Mr . ]Al den’ s par t i ci pat i on i n assi st i ng [ Ms. ] Houng t o di ver tt he f r audul ent l y obt ai ned and t r ansf er r ed f unds. [ Mr . ]Al den, on t he ot her hand, was unabl e t o of f er anyprobat i ve compet ent evi dence t hat he was owed $100, 000 i nat t or neys f ees by [ Ms. ] Houng at t he t i me of t he t r ansf er ,or t hat he hel d $150, 000 ( out of t he $250, 000) i n good

f ai t h pur suant t o a wr i t t en agr eement between [ Ms. ] Houngand [ Ms. ] Shen ( who al so par t i ci pat ed i n t he f r aud) t hat[ Mr . ] Al den woul d hol d t he money as a reserve t o coverunpai d mort gage payment s, a wr i t t en agr eement [ Mr . ] Al dencl ai ms he pr epared but coul d not pr oduce.

Fi ndi ngs and Concl usi ons at 7: 16- 27. Ther e i s adequat e evi dence i n

t he r ecor d bef or e us t o suppor t t he bankrupt cy cour t ’ s anal ysi s t ha

t he Tr ust ee’ s cl ai m f or r ecover y of t he $250, 000 as a f r audul ent

t r ansf er was bot h suf f i ci ent l y st at ed i n t he compl ai nt and

mer i t or i ous. Mor e i mpor t ant , al t hough gi ven t he oppor t uni t y t o

pr esent evi dence t o est abl i sh a di sput e as t o mat er i al f act s,

Mr . Al den di d not do so.

3. The sum of money at st ake

The bankrupt cy cour t i mpl i ci t l y suggest ed t hat t hi s f act or

l i kel y was at i ssue i n Ei t el i t sel f , wher e t he def aul t j udgment

t here was i n t he amount of $3 mi l l i on. The bankr upt cy cour t

det ermi ned t hat a j udgment i n t he amount of $250, 000 was “not so

l ar ge as t o wei gh agai nst ent r y of a def aul t j udgment , ” especi al l y

where Mr . Al den admi t t ed t hat he r et ai ned $100, 000 of t he amount

t hat Ms. Houng t r ansf er r ed t o hi m. The bankrupt cy cour t poi nt ed t o



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16 We agr ee wi t h t he bankrupt cy cour t t hat t he Ei t el f act orwhi ch r equi r es consi der at i on of whet her t he def aul t was t he r esul tof excusabl e negl ect was addr essed i n Houng I .

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an unpubl i shed deci si on hol di ng t hat a $250, 000 def aul t j udgment wa

not excessi ve. See Val l avi st a Cor p. v. Ver a Br adl ey Desi gns,

2011 WL 7462065 *3 (N. D. Cal . 2011) .

Mr . Al den appear s t o asser t t hat t he j udgment i s t oo l ar ge,

because he “r etur ned” $150, 000 t o Ms. Houng. The r ecor d r ef l ect s

ot her wi se. Mr . Al den, at Ms. Houng’ s request , t r ansf er r ed $150, 000

t o Uni que, a separ at e l egal ent i t y f r om Ms. Houng. Thi s t r ansf er

assi st ed Ms. Houng i n pl aci ng the $150, 000 beyond the reach of her

per sonal cr edi t or s. As t o t he $100, 000 Mr . Al den asser t ed her et ai ned f or payment of hi s at t or ney’ s f ees, we agr ee wi t h t he

bankr upt cy cour t t hat t her e i s i nsuf f i ci ent evi dence i n t he r ecor d

t o suppor t Mr . Al den’ s cl ai m t hat Ms. Houng owed hi m anythi ng, l et

al one $100, 000, f or ser vi ces Mr . Al den pr ovi ded t o Ms. Houng betwee

t he date he was r etai ned, August 23, 2006, and t he date he recei ved

t he escr ow pr oceeds, Oct ober 26, 2006.

I n l i ght of t he f or egoi ng, j udgment i n t he amount of $250, 000

i s suppor t ed by t he r ecor d, and i s not excessi ve.

4. The st r ong pol i cy f avor i ng deci si ons on t he mer i t s

We t ur n f i nal l y t o t he Ei t el f act or t hat emphasi zes t he

st r ong pol i cy f avor i ng deci si ons on t he mer i t s. 16 “J udgment by

def aul t i s a dr ast i c st ep appr opr i at e onl y i n ext r eme ci r cumst ances

a case shoul d, whenever possi bl e, be deci ded on t he mer i t s. ” Uni t e

St ates v. Si gned Per sonal Check No. 730 of Yubr an S. Mesl e, 615 F. 3



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1085, 1091 ( 9t h Ci r . 2010) , quot i ng Fal k v. Al l en, 739 F. 2d 461, 46

( 9t h Ci r . 1984) . Awar e of t hi s admoni t i on, t he bankrupt cy cour t

asser t ed t hat t he pol i cy i s st r ong, but not di sposi t i ve, i n l i ght o

t he exi st ence of Ci vi l Rul e 55( b) whi ch aut hor i zes t he ent r y of a

j udgment by def aul t i n appropr i at e cont ext s. The r ecor d est abl i she

t hat t he bankrupt cy cour t accor ded Mr . Al den ever y oppor t uni t y t o

chal l enge ent r y of t he def aul t j udgment by pr ovi di ng evi dence t o

suppor t bot h hi s cl ai ms and hi s def enses. The r ecor d est abl i shes

Mr . Al den had no evi dence t o pr esent beyond hi s own t est i mony.Requi r i ng t he bankrupt cy cour t t o conduct a t r i al on t he mer i t s

woul d be a poi nt l ess exer ci se under t hese f act s.

VI . CONCLUSI ON

The bankrupt cy cour t ’ s f i ndi ngs i n support of t he 2012

Def aul t J udgment sat i sf y the Ei t el f actor s and ar e not i l l ogi cal ,

i mpl ausi bl e, or wi t hout suppor t i n i nf er ences t hat may be dr awn f r o

t he f act s i n t he r ecor d. The 2012 Def aul t J udgment was based onl y

on t he conspi r acy and f r audul ent t r ansf er cl ai ms asser t ed agai nst

Mr . Al den, not on t he pr ef er ence cl ai m t hat t he Houng I Panel

det er mi ned was unt i mel y. Accor di ngl y, t he bankrupt cy cour t di d not

abuse i t s di scr et i on when i t ent er ed t he 2012 Def aul t J udgment . We

AFFI RM.

In re: Tina Chi Houng, 9th Cir. BAP (2012)

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Transcript of In re: Tina Chi Houng, 9th Cir. BAP (2012)