Avery v. Gonzalez

• Court: United States Bankruptcy Court, C.D. California
• Decided: August 23, 2019
• Docket: 2:16-ap-01037
• Status: Unknown

Opinion

2 FILED & ENTERED 3 AUG 23 2019 4

5 CLERK U.S. BANKRUPTCY COURT Central District of California 6 BY t a t u m DEPUTY CLERK

7 NOT FOR PUBLICATION

8 UNITED STATES BANKRUPTCY COURT

9 CENTRAL DISTRICT OF CALIFORNIA 10 LOS ANGELES DIVISION 11 In re: Case No. 2:15-bk-25283-RK 12 ARTURO GONZALEZ, Chapter 7 13

14 Debtor. Adv. No. 2:16-ap-01037-RK

15 MEMORANDUM DECISION ON MOTIONS WESLEY H. AVERY, Chapter 7 Trustee, OF DEFENDANT TO ALTER OR AMEND 16 JUDGMENT, OR FOR NEW TRIAL IN Plaintiff, ADVERSARY PROCEEDING PURSUANT 17 TO FEDERAL RULE OF BANKRUPTCY 18 v. PROCEDURE 9023 AND TO AMEND FINDINGS OF FACT AND CONCLUSIONS 19 ARTURO GONZALEZ, OF LAW PURSUANT TO FEDERAL RULE OF BANKRUPTCY PROCEDURE 7052 20 Defendant. Date: August 20, 2019 21 Time: 10:30 a.m. 22 Place: Courtroom 1675 Roybal Federal Building 23 255 E. Temple Street Los Angeles, CA 90012 24 25 This adversary proceeding came on for hearing before the undersigned United 26 States Bankruptcy Judge on August 20, 2019 on the motions of Defendant Arturo 27 Gonzalez ("Defendant") to alter or amend judgment, or for new trial, in this adversary proceeding pursuant to Federal Rule of Bankruptcy Procedure 9023 and to amend findings 1 of fact and conclusions of law pursuant to Federal Rule of Bankruptcy Procedure 7052, 2 filed on July 8, 2019 (Docket Number 159). Defendant Arturo Gonzalez appeared for 3 himself. Brett Curlee, of the Law Offices of Brett B. Curlee, appeared for Plaintiff Wesley 4 H. Avery, Chapter 7 Trustee (“Trustee”). Trustee Wesley H. Avery also appeared for 5 himself. 6 On March 27, 2019, the court filed and entered its findings of fact and conclusions of 7 law after trial on (1) the sixth claim for relief in the complaint to revoke discharge for fraud 8 under 11 U.S.C. § 727(d)(1); and (2) the seventh claim for relief in the complaint to revoke 9 the debtor’s discharge for fraudulent acquisition of estate assets under 11 U.S.C. 10 § 727(d)(2) (Docket Number 123). On April 16, 2019, the court filed and entered its 11 judgment thereon (Docket Number 129). In its findings of fact and conclusions of law and 12 judgment thereon, the court granted the Chapter 7 Trustee’s claims for relief to revoke 13 Defendant’s discharge for failing to disclose all of his sales commission income on his 14 bankruptcy petition and schedules as amended and for failing to report and deliver this 15 estate property to the Trustee (Docket Numbers 123 and 129). By order filed and entered 16 on April 19, 2019 (Docket Number 131), the court granted Defendant’s request to clarify 17 the deadline when a notice of appeal of the judgment must be filed and extended the 18 deadline to May 14, 2019. 19 On May 14, 2019, Defendant filed his initial motions to alter or amend judgment, or 20 for new trial, pursuant to Federal Rule of Bankruptcy Procedure 9023 and to amend 21 findings of fact and conclusions of law pursuant to Federal Rule of Bankruptcy Procedure 22 7052 (Docket Number 137). Defendant’s argument in support of these motions was that 23 his real property was sold without due process of law because the Chapter 7 Trustee failed 24 to object to time-barred claims of certain creditors under 11 U.S.C. § 704(a)(5). Id. On 25 May 22, 2019, the Chapter 7 Trustee filed a written opposition to these motions (Docket 26 Number 139). By order filed and entered on June 19, 2019 (Docket Number 152), the 27 court denied Defendant’s initial motions to alter or amend judgment, or for new trial, and to 1 the requirement of Local Bankruptcy Rule 9013-1(c) relating to notice of motion, and the 2 order stated that the motions were being denied without prejudice and that Defendant 3 could renotice the motions in compliance with Local Bankruptcy Rule 9013-1(c). 4 On July 8, 2019, Defendant filed his subsequent motions to alter or amend 5 judgment, or for new trial, pursuant to Federal Rule of Bankruptcy Procedure 9023 and to 6 amend findings of fact and conclusions of law pursuant to Federal Rule of Bankruptcy 7 Procedure 7052 (Docket Number 159), which are the matters now before the court. 8 Defendant’s argument in support of these motions was that his discharge should not have 9 been revoked for failure to disclose or deliver to the Trustee the real estate sales 10 commissions as estate property because the commissions belonged to a separate legal 11 entity, Long Beach Realty, Inc., and need not have been turned over to the Trustee 12 because the Trustee had not “pierced the corporate veil.” Id. Defendant’s argument in his 13 subsequent motion is different from the one in his initial motions, which was that his 14 property was sold without due process of law because the Chapter 7 Trustee failed to 15 object to time-barred claims of certain creditors under 11 U.S.C. § 704(a)(5). Id. On July 16 30, 2019, the Chapter 7 Trustee filed a written opposition to these subsequent motions 17 (Docket Number 163). 18 Defendant’s motions to alter or amend judgment, or for new trial, pursuant to 19 Federal Rule of Bankruptcy Procedure 9023 and to amend findings of fact and conclusions 20 of law pursuant to Federal Rule of Bankruptcy Procedure 7052 are subject to time 21 limitations; that is, the motions must be timely filed within 14 days of entry of judgment as 22 set forth in these rules. See also In re Captain Blythers, Inc., 311 B.R. 530, 539 (9th Cir. 23 BAP 2004), affirmed, 182 Fed. Appx. 708 (9th Cir. 2006). Since judgment was entered on 24 April 16, 2019, the 14-day deadline to file was April 30, 2019, but the court had ordered the 25 deadline for appeal extended to May 14, 2019, which extended the deadline to file these 26 motions. Defendant thus timely filed his initial motions to alter or amend judgment, or for 27 new trial, pursuant to Federal Rule of Bankruptcy Procedure 9023 and to amend findings of 1 he filed them on May 14, 2019. The court denied these initial motions on procedural 2 grounds by its order filed and entered on June 19, 2019. However, in this order, the court 3 stated that the motions were denied without prejudice and that Defendant “may renotice 4 the Motions for a hearing if he complies with Local Bankruptcy Rule 9013-1(c), filing with 5 the court and serving on the other parties a proper written notice of the date, time and 6 place of hearing on the Motions” (Docket Number 152). However, instead of refiling the 7 initial motions to alter or amend judgment, or for new trial, pursuant to Federal Rule of 8 Bankruptcy Procedure 9023 and to amend findings of fact and conclusions of law pursuant 9 to Federal Rule of Bankruptcy Procedure 7052, Defendant filed the subsequent and 10 different motions to alter or amend judgment, or for new trial, pursuant to Federal Rule of 11 Bankruptcy Procedure 9023 and to amend findings of fact and conclusions of law pursuant 12 to Federal Rule of Bankruptcy Procedure 7052. Because the subsequent motions are 13 different than the initial motions, the court determines that the language permitting the 14 initial motions to be renoticed for hearing does not apply to the subsequent motions 15 because the subject matter of the subsequent motions does not relate back to the initial 16 motions. Thus, the subsequent motions are untimely and should be denied as untimely, 17 having not been brought by the deadline of May 14, 2019. 18 Assuming for the sake of argument that Defendant’s subsequent motions to alter or 19 amend judgment, or for new trial, pursuant to Federal Rule of Bankruptcy Procedure 9023 20 and to amend findings of fact and conclusions of law pursuant to Federal Rule of 21 Bankruptcy Procedure 7052 were timely, the court addresses these pending motions on 22 the merits. 23 Federal Rule of Bankruptcy Procedure 9023 makes applicable Federal Rule of Civil 24 Procedure 59 in cases under the Bankruptcy Code, 11 U.S.C. The grounds for motions to 25 alter or amend judgment under Federal Rule of Civil Procedure 59(e) are shown if movant 26 demonstrates one of the following: (1) there is newly discovered evidence that could not 27 have been discovered previously; (2) the court committed clear error or its initial decision is 1 Rosen, Wegner and Jones, Rutter Group Practice Guide: Federal Civil Trials and 2 Evidence, ¶ 20-300 at 20-59 (2018) (citing, inter alia, Allstate Insurance Co. v. Herron, 634 3 F.3d 1101, 1111 (9th Cir. 2011)) (citation omitted). “A motion to alter or amend judgment 4 ‘may not be used to relitigate old matters, or to raise arguments or present evidence that 5 could have been raised prior to the entry of judgment.’” 3 Jones, Rosen, Wegner and 6 Jones, Rutter Group Practice Guide: Federal Civil Trials and Evidence, ¶ 20-271 at 20-55, 7 citing, Exxon Shipping Co. v. Baker, 554 U.S. 471, 485 n. 5 (2008), citing and quoting, 11 8 Wright and Miller, Federal Practice and Procedure, §2810.1 at 127-128 (2nd ed. 1995). As 9 the Ninth Circuit has stated, “amending a judgment after its entry remains ‘an extraordinary 10 remedy which should be used sparingly.’” Allstate Insurance Co. v. Herron, 634 F.3d at 11 1111. 12 Defendant has not demonstrated that there are grounds under Federal Rule of Civil 13 Procedure 59 to amend or alter judgment. Defendant’s argument is that the court’s 14 findings of fact and conclusions of law and judgment are incorrect because the income 15 from the real estate sales commissions belonged to Long Beach Realty, Inc., his wholly 16 owned California S corporation, as a separate legal entity, rather than him personally, and 17 thus, it was error to grant relief to the Trustee to revoke Defendant’s discharge for failure to 18 report and deliver this income to the Trustee. This argument does not establish relief to 19 amend or alter judgment because Defendant does not argue that there is newly discovered 20 evidence or that there is an intervening change in the law and because he has not shown 21 that the court committed clear error or that its initial decision was unjust because there is 22 sufficient legal authority and evidence to support the decision. This argument may not be 23 raised now because it is simply an argument that could have been raised before the court 24 entered judgment in this adversary proceeding, but it was not raised before judgment. 25 As the Trustee points out in his opposition to these motions, Defendant had 26 scheduled the commissions on his original bankruptcy petition and schedules (he listed 27 Long Beach Realty, Inc., as an asset, including its accounts receivable (i.e., the 1 was Long Beach Realty, Inc.'s alter ego, and he claimed the commissions as his personal 2 income in support of his motion to convert the case to Chapter 13, saying at trial that he 3 withheld the commissions from the Trustee to repay creditors. Opposition, Docket Number 4 163, at 3-4, citing, Trial Transcript, January 12, 2018 at page:line(s) 28:10-30:2, 31:9- 5 33:16; see also, e.g., Petition, Main Bankruptcy Case, Docket Number 1. As litigated in 6 this adversary proceeding, Defendant had listed some, but not all, of the commissions as 7 assets on his amended bankruptcy schedules and claimed personal exemptions in the 8 commissions which exemptions were litigated on the Trustee’s motion for turnover, and 9 Defendant and the Trustee stipulated to allow Debtor to retain some of the commissions as 10 his personally exempt assets. See generally, Findings of Fact and Conclusions of Law, 11 Docket Number 123. The evidence at trial showed that Defendant paid himself the 12 commissions when they were received from escrow because he was the real estate broker 13 and salesperson who earned the commissions from his personal activities in the real estate 14 sales transactions which generated the commissions (which facts Defendant also 15 acknowledged during at the hearing on the motions on August 20, 2019), and this fact 16 alone indicates that the commissions were property of the bankruptcy estate that 17 Defendant was obligated to disclose on his bankruptcy documents and turn over to the 18 Trustee because the sales transactions were in escrow as of the date that Defendant filed 19 his bankruptcy petition, and he had the right to the commissions as the participating real 20 estate broker and sales agent. Id. Whether the sales commissions were payable to Long 21 Beach Realty, Inc. does not matter because Defendant had the right to payment of the 22 commissions as the participating real estate broker and sales agent responsible for 23 generating the commissions, whether directly payable from escrow or indirectly through 24 Long Beach Realty, Inc., Defendant’s wholly owned and controlled California S 25 corporation1. The sales commissions were accounts receivable of Long Beach Realty, 26 1 A California S Corporation (with the “S” referring to Subchapter S of the Internal Revenue Code, 26 U.S.C.) 27 is a corporation incorporated under California law which is treated like a partnership for federal and state income tax purposes whereby each item of income and expense is “passed through” directly to the 1 Inc., but they were also accounts receivable of Defendant because he was the real estate 2 broker and sales agent who generated the sales commissions from his involvement in the 3 sales transactions pending at the time he filed his bankruptcy petition. 2 Therefore, 4 Defendant cannot show clear error or manifest injustice because the evidence in this case 5 showed that he had income due to him as of the petition date, which is property of the 6 bankruptcy estate, that he failed to disclose on his bankruptcy schedules and failed to 7 deliver to the Trustee. 8 Guide: Corporations, ¶¶119 and 120 (online ed., February 2019 update), citing inter alia, California Revenue 9 & Taxation Code, §§23801(a); Subchapter S of the Internal Revenue Code, 26 U.S.C. §§1361-1379; Valentino v. Franchise Tax Board, 87 Cal.App.4th 1284, 1288-1289 (2001); Handlery Hotels, Inc. v. Franchise 10 Tax Board, 39 Cal.App.4th 1360, 1363 (1995). As one California corporate law treatise has observed, “[t]his gives the owners of closely-held corporations the advantages of the corporate form (e.g., centralized 11 management, limited personal liability), while avoiding the double-taxation of corporate profits.” Id. While California imposes a 1.5% franchise tax on the S corporation’s net taxable income, the profits and losses of a 12 California S corporation are “passed through” to the shareholders for state and federal income tax purposes. Id. The income and expenses of Long Beach Realty, Inc., Defendant’s wholly owned California S corporation 13 “passed through” and are attributable to him and reportable on his state and federal income tax returns. Thus, the income from the real estate sales commissions paid to Long Beach Realty, Inc., “passed through” 14 to Defendant as its sole shareholder, and while it may have a business deduction for paying compensation to its broker and salesperson whose services generated the commissions, who was Defendant anyway, the net 15 income from the commissions paid to the S corporation are attributable to Defendant, and the compensation from the S corporation to its broker and salesperson, Defendant, are reportable by Defendant on his state 16 and federal income tax returns. Defendant had prepetition accounts receivable from the commissions generated by his prepetition services as a broker and salesperson either way attributable to him as the sole 17 shareholder of his S corporation, Long Beach Realty, Inc., and/or its broker and salesperson.

18 2 At the hearing on August 20, 2019, Defendant blamed his former bankruptcy attorney, Anerio Altman, for listing his sales commissions earned prepetition but received postpetition as his assets on his bankruptcy 19 schedules filed in this case, when Defendant now says that they were not his assets required to be listed on his schedules because they belonged to Long Beach Realty, Inc., a separate legal entity. Audio Recording of Hearing, August 20, 2019, at 11:05-11:07 a.m. This is ironic because as late as May 2019, only two months 20 ago, Defendant has taken the contrary position in other litigation in this case that the sales commissions earned prepetition and received postpetition were his in making factual allegations in his second amended 21 complaint filed on May 9, 2019 in Adversary Proceeding No. 2:18-ap-01371-RK (Docket No. 45, ¶¶27-28) that “Plaintiff [Debtor Arturo Gonzalez] had earned $44,303 in sales commissions prepetition and received 22 postpetition” and “Plaintiff had received all commissions by December 15th, 2015.” See also, First Amended Complaint, Adv. No. 2:18-ap-01371-RK, filed on January 28, 2019 (Docket No. 17, ¶¶27-28) (identical factual 23 allegations that the sales commissions earned prepetition and received postpetition were his). In these pleadings, which he filed on his own without the assistance of counsel, Defendant did not allege that these 24 sales commissions were not his because they were Long Beach Realty’s. Id. In Defendant’s signing and filing these pleadings containing factual allegations that he earned $44,303 in sales commissions prepetition 25 and received post petition, Defendant as plaintiff in Adversary Proceeding No. 2:18-ap-01371-RK had certified under Federal Rule of Bankruptcy Procedure 9011 to the best of his “knowledge, information and 26 belief, formed after an inquiry reasonable under the circumstances” that his allegations had evidentiary support. Federal Rule of Bankruptcy Procedure 9011(b)(3). Defendant cannot blame his former attorney for 27 the alleged mischaracterization of the sales commissions because the truth is that he earned them and was required to list them on his bankruptcy schedules. Litigation should not be a game of Whac-A-Mole where 1 The grounds for motions for new trial under Federal Rule of Bankruptcy Procedure 2 9023 and Federal Rule of Civil Procedure 59 are not specifically enumerated, but some of 3 the more common grounds recognized in the federal courts for such motions include the 4 following: (1) the verdict is against the clear weight of the evidence; (2) there is newly 5 discovered evidence that could not have been discovered previously; (3) there is 6 prejudicial misconduct by the court; and (4) there is prejudicial misconduct by opposing 7 counsel. 3 March, Ahart and Shapiro, Rutter Group California Practice Guide: Bankruptcy, 8 ¶20:100 at 20-19, citing inter alia, Federal Rule of Civil Procedure 59; 3 Jones, Rosen, 9 Wegner and Jones, Rutter Group Practice Guide: Federal Civil Trials and Evidence, ¶¶ 20- 10 100 - 20-247 at 20-19 - 20-50). As for Defendant’s motion to amend or alter judgment, 11 similarly, Defendant’s motion for new trial should be similarly denied because there is no 12 error of law, there is no newly discovered evidence or there are no other grounds to 13 warrant a new trial. 14 Federal Rule of Bankruptcy Procedure 7052 makes applicable Federal Rule of Civil 15 Procedure 52 in adversary proceedings. Motions to amend findings of fact and 16 conclusions of law under Federal Rule of Civil Procedure 52(b) are granted only if movant 17 demonstrates one of the following: (1) the court made a mistake of law or fact; (2) there is 18 newly discovered evidence that could not have been discovered previously; or (3) the 19 result is unjust. 3 Jones, Rosen, Wegner and Jones, Rutter Group Practice Guide: Federal 20 Civil Trials and Evidence, ¶ 17-152 at 17-33, citing Deutsch v. Burlington Northern Railroad 21 Co., 983 F.2d 741, 744 (7th Cir. 1992) (citation omitted). However, motions to amend 22 findings of fact and conclusions of law cannot be used to raise arguments that could have 23 been raised prior to entry of judgment. Id., ¶ 17-153 at 17-33, citing inter alia, Diocese of 24 Winona v. Interstate Fire & Casualty Co., 89 F.3d 1386, 1397 (8th Cir. 1996) (citation 25 omitted). As previously discussed, Defendant’s new argument is one that could have been 26 raised before judgment, but it was not. As for Defendant’s motions to amend or alter 27 judgment, or for new trial, Defendant’s motion to amend findings of fact and conclusions of 1 evidence and the result is not unjust, and in addition, the motion should be denied because 2 there is no showing that Defendant raised his argument before judgment was entered. 3 If Defendant believes that the judgment of the court should be reversed because 4 either the findings of fact are clearly erroneous and/or the conclusions of law are 5 erroneous, his remedy is to take an appeal of the judgment because the judgment will 6 become final if he does not take a timely appeal pursuant to Federal Rules of Bankruptcy 7 Procedure 8001 et seq. Defendant’s remedy is not filing repetitive motions to amend or 8 alter judgment, for new trial or to amend findings of fact and conclusions of law, which will 9 be going over the same ground and will likely result in the court imposing sanctions 10 pursuant to Federal Rule of Bankruptcy Procedure 9011 since it is not likely that such 11 repetitive motions will be filed in good faith because the court’s judgment and this order 12 denying these motions will be the “law of the case.” See Dye v. Communications Ventures 13 III, LP (In re Flashcom, Inc.), 503 B.R. 99, 127 (C.D. Cal. 2013), citing and quoting, In re 14 United States v. Jingles, 702 F.3d 494, 499 (9th Cir. 2012) (“Under the ‘law of the case’ 15 doctrine, a court [will not] reexamine[e] an issue previously decided by the same or higher 16 court in the same case.”); United States v. Smith, 389 F.3d 944, 948 (9th Cir. 2004) (The 17 law of the case doctrine “is founded upon the sound public policy that litigation must come 18 to an end” and “serves to advance the principle that in order to maintain consistency during 19 the course of a single lawsuit, reconsideration of legal questions previously decided should 20 be avoided.”). 21 For the foregoing reasons, the court denies Defendant’s motions to alter or amend 22 judgment, or for new trial, pursuant to Federal Rule of Bankruptcy Procedure 9023 and to 23 amend findings of fact and conclusions of law pursuant to Federal Rule of Bankruptcy 24 /// 25 /// 26 27 1 || Procedure 7052 on procedural grounds as untimely and on substantive grounds on the 2 ||merits. A separate final order is being filed and entered concurrently herewith. 3 IT IS SO ORDERED. 4 Hitt 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 D4 Date: August 23, 2019 Oe Robert Kwan 25 United States Bankruptcy Judge 26 27 28