Bula Developments, Inc.

• Court: United States Bankruptcy Court, E.D. California
• Decided: February 6, 2025
• Docket: 23-24619
• Status: Unknown

Opinion

1 FOR PUBLICATION 2 UNITED STATES BANKRUPTCY COURT 3 EASTERN DISTRICT OF CALIFORNIA 4 In re: ) ) 5 BULA DEVELOPMENTS, INC., ) Case No. 23-24619-C-11 ) 6 Debtor. ) 7 ________________________________) 8 MEMORANDUM ON TRANSFER UNDER 28 U.S.C. § 1412 AND RULE 1014(b) OF CASE PENDING IN ANOTHER DISTRICT (amended) 9 CHRISTOPHER M. KLEIN, Bankruptcy Judge 10 The controlling shareholder of the chapter 11 debtor filed a 11 chapter 13 case in another judicial district and tried to use the 12 new automatic stay to thwart results of chapter 11 developments. 13 Rule 1014(b), as revised in 2024, provides the procedural 14 tool to coordinate venue of related cases. This decision reviews 15 the terms of the newly revised and renumbered Rule 1014(b).1 16 17 1Rule 1014(b) provides: 18 (b) Petitions Involving the Same or Related Debtors Filed in 19 Different Districts. 20 (1) Scope. This Rule 1014(b) applies if petitions commencing cases or seeking recognition under Chapter 15 are filed in 21 different districts by, regarding, or against: (A) the same debtor; 22 (B) a partnership and one or more of its general partners; 23 (C) two or more general partners; or (D) a debtor and an affiliate. 24 (2) Court Action. The court in the district where the first petition is filed may determine the district or districts in 25 which the cases should proceed in the interest of justice or for 26 the convenience of the parties. The court may do so on timely motion and after a hearing on notice to: 27 · the United States trustee; · entities entitled to notice under Rule 2002(a); and 28 · other entities as the court orders. 1 Decisions rendered under the former version of Rule 1014(b) 2 remain viable because there were no substantive changes in 2024, 3 the revisions being intended to be stylistic only.2 4 5 Facts 6 The debtor Bula Developments, Inc. is owned in four equal 25 7 percent shares by Natasha Mora, her spouse, and her parents. Mora 8 acts as the person in control. 9 Bula constructed a luxury home in La Jolla, California, that 10 has been rendered unsaleable by virtue of land subsidence issues 11 following collapse of a retaining wall allegedly attributable to 12 faulty engineering and/or construction. 13 Unfavorable developments in state court and a looming 14 foreclosure prompted Mora to file a chapter 11 petition for Bula 15 in the Eastern District of California on December 26, 2023. 16 Since no attorney signed the Bula petition, notice was 17 issued that the case would be dismissed, converted, or a trustee 18 19 20 21 (3) Later-Filed Petitions. The court in the district where the first petition is filed may order the parties in the later- 22 filed cases not to proceed further until the motion is decided. 23 Fed. R. Bankr. P. 1014(b) (as amended Dec. 1, 2024). 24 2The 2024 Advisory Committee Notes explained: 25 The language of Rule 1014 has been amended as part of the general restyling of the Bankruptcy Rules to make them more 26 easily understood and to make style and terminology 27 consistent throughout the rules. The changes are intended to be stylistic only. 28 Rule 1014, Adv. Comm. Notes to 2024 Amendments. 1 appointed if a counsel did not promptly enter an appearance.3 2 Bula engaged counsel, who eventually sought permission to 3 withdraw because Mora was not cooperating in performing debtor- 4 in-possession duties. That problem led this court to order 5 appointment of a chapter 11 trustee for cause. 6 The chapter 11 trustee filed a report detailing his 7 investigation and consultations. Dkt. 93. The property had been 8 marketed for two years with no offers. The asking price was $15.8 9 million (down from $25 million). Interest was accruing at a rate 10 of $110,061 per month. There was an invalid mechanics lien. Site 11 repairs could cost $300,000. He concluded that without either a 12 consensual priming lien of at least $300,000 or agreement by 13 secured creditors to a significant carve-out sale would result in 14 little or no dividend to unsecured creditors. 15 This Court granted a pending stay relief motion to permit 16 foreclosure to proceed. 17 The chapter 11 trustee later sold the estate’s causes of 18 action regarding construction and engineering defects. 19 In a post-foreclosure unlawful detainer action, the San 20 Diego County Superior Court denied Mora’s claims of right of 21 possession and ordered the Sheriff to enforce the writ of 22 possession. The California Court of Appeal, Fourth District, 23 denied Mora’s emergency writ of mandamus on December 30, 2024. 24 The next day, December 31, 2024, Mora filed her chapter 13 25 3The Clerk of Court accepted the petition out of respect for 26 Rule 5005(a)(1) (“The clerk must not refuse to accept for filing 27 any petition or other paper solely because it is not in the form required by these rules or by any local rule or practice.”). A 28 corporation must be represented by counsel. Cf., Rowland v. California Men’s Colony, 506 U.S. 194 (1993). 1 case, No. 24-04961, in the Southern District of California. 2 On January 6, 2025, Mora filed in U.S. District Court, 3 Southern District of California, a complaint alleging one cause 4 of action under the Fourteenth Amendment Due Process Clause. 5 Mora then filed an Ex Parte Application to rescind the 6 Sheriff’s restoration notice in connection with its enforcement 7 of the state court’s post-foreclosure lockout order. 8 On January 23, 2025, District Court denied Mora’s 9 application, making three pertinent observations: first, 10 Plaintiff’s attempts to obtain possession of the Property have been rejected numerous times by different courts, 11 including the Bankruptcy Court, the San Diego Superior Court, and the California Court of Appeal ... This calls 12 into question whether Plaintiff’s counsel conducted “an inquiry reasonable under the circumstances” to confirm their 13 legal contentions were warranted under law;

14 second, 15 the Bankruptcy Court has previously observed Plaintiff’s “unclean hands” and found Plaintiff intended to “delay in 16 order to continue living rent-free in the property as long as possible ... The Court warns Plaintiff that a legally 17 meritless complaint could expose Plaintiff and Plaintiff’s counsel to sanctions or referral to the State Bar of 18 California for violation of his Rule 11 obligations; 19 third, 20 the circumstances surrounding Plaintiff’s similar filings before several state and federal courts suggests Plaintiff 21 may have filed this action in federal court for an improper purpose. Rule 11(b) makes clear that an intent to cause 22 unnecessary delay is an improper purpose. 23 Mora v. Black Horse Capital Inc., 2025 WL 255459, Slip op. at 5-6 24 (S.D. Cal. 2025). 25 On January 24, 2025, this Court sua sponte invoked Rule 26 1014(b), issued an order to show cause why Mora’s chapter 13 case 27 should not be transferred to this district and ordered the 28 parties not to proceed further until the question is decided. 1 Notice was given as required by Rule 1014(b). The sole 2 responses consist of a statement of non-opposition by Mora and an 3 assertion by the chapter 11 trustee supporting transfer. No other 4 party in interest has stated a position. Neither the United 5 States trustee or any other party entitled to notice under Rule 6 2002(a) requested a hearing. 7 8 I 9 Bankruptcy Venue Transfer Statute 10 Bankruptcy has its own venue transfer statute. A case or 11 proceeding under title 11 may be transferred to another district 12 “in the interest of justice or for the convenience of the 13 parties.” 28 U.S.C. § 1412. 14 Unlike the general venue transfer statutes, transfer may be 15 to any district under the interest of justice or convenience of 16 parties criteria. Compare 28 U.S.C. §§ 1404 & 1406, with, id. 17 § 1412; 17 James Wm. Moore, et al., Moore’s Fed. Prac. 3d 18 § 110.43[5](2024) (“Moore’s”); 15 Charles Alan Wright, et al., 19 Fed. Prac. & Proc. § 3843 n.29 (2024). 20 Although § 1412 speaks of transfer by and to district 21 courts, decisional law recognizes that bankruptcy courts 22 ordinarily do the transferring, subject to the district court’s 23 power to withdraw the reference. E.g., In re Emerson Radio Corp., 24 52 F.3d 50, 52 (3d Cir. 1995). 25 The § 1412 transfer power is also unusual in that a court 26 may order transfer to itself of a case or proceeding pending in 27 another district. Emerson Radio Corp., 52 F.3 at 55 n.8. 28 It follows that the transfer power is subsumed in the 1 standing orders of reference of district courts to bankruptcy 2 courts pursuant to 28 U.S.C. § 157(a). E.g., Burlingame v. 3 Whilden (In re Whilden), 67 B.R. 40, 41-42 (Bankr. M.D. Fla. 4 1986) (Paskay, B.J.). 5 6 II 7 Rule 1014(b) 8 Rule 1014(b) implements § 1412 when there are proceedings or 9 petitions, including Chapter 15 petitions, in related cases in 10 different districts by, regarding, or against: the same debtor; a 11 partnership and one or more of the general partners; two or more 12 general partners; or a debtor and an affiliate. Fed. R. Bankr. P. 13 1014(b)(1); 9 Collier on Bankruptcy ¶ 1014.04 (Richard Levin & 14 Henry J. Sommer, 16th ed.). 15 It requires a hearing on a “timely motion” with notice to 16 all entities entitled to notice under Rule 2002(a), the United 17 States trustee, and others designated by the Court. The standard, 18 as stated in § 1412 is “the interest of justice or the 19 convenience of the parties.” A “timely motion” includes the 20 court’s own motion. Fed. R. Bankr. P. 1014(b)(2).4 21 The court in the district where the first petition is filed 22 may order the parties to the later-filed cases not to proceed 23 24 4The Advisory Committee explained in 2007: 25 Courts have generally held that they have the authority to dismiss or transfer cases on their own motion. The 26 amendment recognizes this authority and also provides that 27 dismissal or transfer of the case may take place only after notice and a hearing. 28 Fed. R. Bankr. P. 1014(b), Advisory Comm. Note to 2007 Amendment. 1 further until the “timely motion” is decided. Fed. R. Bankr. P. 2 1014(b)(3).5 3 The primacy of the first-filed case is a “bright line” rule 4 designating the court that will make the venue decision. Near v. 5 Great Am. First Savings Bank, FSB (In re Reddington Invs. LP- 6 VIII), 90 B.R. 429, 431 (9th Cir. BAP 1988). Orderly procedure 7 dictates that somebody must be in charge so courts do not disrupt 8 each other. Rule 1014(b) tasks the bankruptcy court with the job. 9 As the Third Circuit has observed, while § 1412 does not 10 provide direct authority for a court to transfer to itself a case 11 pending in another court, “Rule 1014(b) provides precisely such 12 authority.” In re Emerson Radio Corp., 52 F.3d at 55 n.8 13 (emphasis in original). 14 15 5The stay provision has evolved – (1) Pre-2014: “Except as 16 otherwise ordered by the court in the district in which the petition filed first is pending, the proceedings on the other 17 petitions shall be stayed by the courts in which they have been filed until the determination is made.” (2) 2014: “The court may 18 order the parties to the later-filed cases not to proceed further until it makes the determination.” (3) 2024: “The court in the 19 district where the first petition is filed may order the parties to the later-filed cases not to proceed further until the motion 20 is decided.” 21 The primary change came in 2014 with the explanation: 22 Subdivision (b) is amended to clarify when proceedings in 23 the subsequently filed cases are stayed. It requires an order of the court in which the first-filed petition is 24 pending to stay proceedings in the related cases. Requiring a court order to trigger the stay will prevent the 25 disruption of other cases unless there is a judicial determination that this subdivision of the rule applies and 26 that a stay of related cases is needed while the court makes 27 its venue determination. 28 Fed. R. Bankr. P. 1014(b), Advisory Comm. Note to 2014 Amendments. 1 The transfer decision is committed to the court’s discretion 2 and is reviewed for abuse of discretion. E.g., In re Commonwealth 3 Oil Refining Co., 596 F.2d 1239, 1247-48 (5th Cir. 1979). 4 The § 1412 “interest of justice” basis for transfer has 5 attracted little explication in reported decisions. 6 The more numerous § 1412 “convenience of the parties” cases 7 describe a variety of factors on the theme of totality of 8 circumstances tailored to the particular situation. Common lists 9 include location of parties, location of assets, location of 10 persons necessary to administration of estate, and forum that 11 would permit efficient and economical administration of the case. 12 E.g., Commonwealth Oil, 596 F.2d at 1247-48; 17 Moore’s 13 § 110.43[5]. 14 15 III 16 This Case 17 Mora’s status as a 25 percent shareholder qualifies her as 18 an “affiliate” for purposes of Rule 1014(b)(1)(D) because she is 19 an entity that owns 20 percent or more of the outstanding voting 20 securities of the debtor corporation. 11 U.S.C. § 101(2)(A). 21 The Rule 1014(b) “timely motion” raising the transfer issue 22 was this Court’s own motion. As noted above, the Rules Advisory 23 Committee has noted the ability of courts to act on their own 24 motion to effect a transfer. Moreover, Congress authorized sua 25 sponte motions in § 105(a).6 26 27 6The second sentence of § 105(a) provides: 28 (a) ... No provision of this title providing for the raising of an issue by a party in interest shall be 1 Notice was given to all those entitled to notice as provided 2 by Rule 1014(b)(2). 3 There having been no requests for a hearing in the responses 4 to the notice, no actual hearing is required. 11 U.S.C. 5 § 102(1)(B). 6 The Bula chapter 11 case has been pending in this district 7 for more than one year. Its docket has 298 entries. The chapter 8 11 trustee filed a statement supporting transfer to this 9 district. Dkt. 298. 10 Mora filed a statement to the effect that she does not 11 oppose transfer. Dkt. 297. 12 Consideration of the “interest of justice” militates in 13 favor of transfer. The justice system has a strong interest in 14 preventing abusive litigation practices. The District Court’s 15 January 23, 2025, Order Denying Ex Parte Application to Rescind 16 Postjudgment Lockout documented Mora’s multiple filings in 17 multiple courts. The District Court’s warning to Mora of the 18 potential for Rule 11 consequences for filings made for an 19 improper purpose and without inquiry reasonable under the 20 circumstances is indicative of that strong interest. 21 Transfer under § 1412 is warranted in this case on account 22 of the “interest of justice” in preventing abusive litigation 23 without reference to the “convenience of the parties.” 24 Nevertheless, the “convenience of the parties” also provides 25 construed to preclude the court from, sua sponte, taking any 26 action or making any determination necessary or appropriate 27 to enforce or implement court orders or rules, or to prevent an abuse of process. 28 11 U.S.C. § 105(a) an adequate, independent basis for ordering transfer. 2 Of the various factors articulated in the various reported 3 || transfer decisions, considerations of economic and efficient case 4] administration loom particularly large. No party in interest has 5 || asserted that the Eastern District of California is an 6 || inconvenient forum. As to location, this court permits liberal remote access to court proceedings so as to ease the burden of 8 || requiring traveling to the courthouse. 9 In short, the “convenience of the parties” favors transfer to the Eastern District of California. 11 12 Conclusion 13 Having concluded that the interest of justice and the 14} convenience of the parties within the meaning of 28 U.S.C. § 1412 15 |} and Rule 1014 (b) (2) will be served by transfer to this judicial district of Chapter 13 Case No. 24-04961 presently pending in the 17} Southern District of California. A separate order requiring transfer will be entered. 19 20 || pated: February 06, 2025 Wi i Me 23 United States Bankruptcy Judge 24 25 26 27 28