In re: Alen L. Ly

Opinion

FILED

1 MAY 29 2013

2 SUSAN M SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT

3 UNITED STATES BANKRUPTCY APPELLATE PANEL 4 OF THE NINTH CIRCUIT 5 In re: ) BAP No. CC-12-1395-DKiTa )

6 ALEN L. LY, ) Bk. No. LA 12-25257-TD )

7 Debtor. )

______________________________)

8 )

ALEN L. Ly, )

9 )

Appellant, )

10 )

v. ) M E M O R A N D U M1 11 )

MICHELLE V. CHE, )

12 )

Appellee. )

13 ______________________________) 14 Argued and Submitted on May 15, 2013 at Pasadena, California

15 Filed - May 29, 2013

16 Appeal from the United States Bankruptcy Court 17 for the Central District of California 18 Honorable Thomas B. Donovan, Bankruptcy Judge, Presiding 19 Appearances: Edgardo M. Lopez, Esq. argued for Appellant 20 Alen L. Ly; Caroline S. Kim, Esq. argued for Appellee Michelle V. Che.

21 22 Before: DUNN, KIRSCHER, and TAYLOR, Bankruptcy Judges. 23 24 25 26 1 This disposition is not appropriate for publication.

27 Although it may be cited for whatever persuasive value it may have (see Fed. R. App. P. 32.1), it has no precedential value.

28 See 9th Cir. BAP Rule 8013-1.

1 The appellant, Alen L. Ly (“Ly”), appeals the decision of 2 the bankruptcy court granting relief from stay for cause to the 3 appellee, Michelle V. Che (“Che”), to pursue her California state 4 law unlawful detainer action against Ly for all purposes. 5 Subsequent to this appeal being filed, Che filed a motion with 6 this Panel for sanctions (“Sanctions Motion”) against Ly and his 7 counsel for pursuing a frivolous appeal. We AFFIRM the 8 bankruptcy court’s relief from stay order, and we GRANT the 9 Sanctions Motion and award sanctions in the amount of Che’s 10 attorney’s fees, totaling $6,650, and costs in the amount of 11 $114, for a total award of $6,764, jointly and severally against 12 Ly and his attorney. 13 I. FACTS 14 Although the parties dispute one another’s accounts of 15 prebankruptcy events, what occurred in Ly’s chapter 72 case is 16 essentially undisputed. 17 In Appellant’s Opening Brief, Ly states that he filed his 18 bankruptcy petition on May 14, 2012. The record reflects that 19 Ly’s bankruptcy petition actually was filed on April 30, 2012.3 20 21 2 Unless otherwise indicated, all chapter and section 22 references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and all “Rule” references are to the Federal Rules of Bankruptcy 23 Procedure, Rules 1001-9037. The Federal Rules of Civil Procedure 24 are referred to as “Civil Rules.”

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25 The original excerpts of record submitted by Ly did not include any of the exhibits filed by Che to her Declarations 26 filed in support of her motion for relief from stay. After Che 27 filed a Motion to Augment Record with this Panel and the subsequent order of the motions panel requiring Ly to supplement 28 (continued...)

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1 On June 20, 2012, Che filed a motion for relief from stay 2 (“Stay Motion”) with respect to certain residential property in 3 Long Beach, California (“Property”). In his Schedule A, Ly 4 declared that he owned the Property. In the Stay Motion, Che 5 stated that she was a “Holder of Deed of Trust.” In her Real 6 Property Declaration, however, Che stated that she was “the 7 Movant and owner of the Property.” In her further Declaration 8 (“Further Declaration”) in support of the Stay Motion, Che stated 9 that she had leased the Property to Ly’s sister, Vanessa A. Ly 10 (“Vanessa”), on or about March 1, 2006. Che further stated that 11 she did not find out that Ly was residing at the Property until 12 October 2008. Che also stated that after making one rent 13 payment, neither Vanessa nor Ly paid any further rent. 14 In the Further Declaration, Che stated that Ly “forged my 15 signature and transferred the [Property] to himself.” Che stated 16 that she sued Ly in 2009 for the alleged fraudulent transfer of 17 the Property (“State Court Lawsuit”) and obtained a judgment 18 (“Judgment”). A certified copy of the Judgment was attached as 19 Exhibit A to the Further Declaration. The Judgment, that was 20 entered on Ly’s default, included a specific description of the 21 Property and ordered that it be transferred from Ly to Che. The 22 Judgment included the following additional provisions: 23 2) The previously recorded Grant Deed, Los Angeles County recorder number 061576358 recorded on July 18, 24 2006 is hereby declared void based upon the forged signature of Michelle Che.

25 3) The clerk of this court is empowered and ordered to 26

3

27 (...continued)

the record, Ly filed supplemental excerpts of record, including 28 the critical exhibits for our review.

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1 sign a quit claim deed and all of the related papers on behalf of Alen Lang Ly and to Plaintiff Michelle Che.

2 4) Defendant Alen Lang Ly is hereby prohibited from approaching less than 100 yards from said [Property].

3 4 Ly, through his counsel, Edgardo M. Lopez (“Lopez”), opposed 5 the Stay Motion (“Opposition”). In his Declaration in support of 6 the Opposition (“Opposition Declaration”), Ly stated that he 7 purchased the Property from Che in July 2006 for $525,000. He 8 further stated that he had been living on the Property as his 9 primary residence since July 2006 and had paid monthly mortgage 10 payments and annual property taxes. 11 Ly admitted in the Opposition Declaration that he had 12 received service of the summons and Che’s complaint in the State 13 Court Lawsuit. He further declared that he had retained counsel 14 to represent him in the State Court Lawsuit who assured him that 15 “he will take care of everything.” Thereafter, he stated that he 16 was “completely shocked” when he received a five-day notice to 17 vacate the Property from Che’s attorney and blamed attorney 18 neglect for the entry of the Judgment against him. In the 19 Memorandum of Points and Authorities filed in support of the 20 Opposition, Lopez argued that stay relief should be denied 21 because Che was not a real party in interest and therefore lacked 22 standing to seek stay relief, and Che was not a secured creditor 23 entitled to invoke § 362(d)(1) to argue a lack of adequate 24 protection of her interest in the Property. 25 Che filed a Reply (“Reply”) to the Opposition. In her 26 Memorandum of Points and Authorities filed in support of the 27 Reply, Che argued that she never sold the Property to Ly, and 28 Che’s standing arose from the fact that Che was the “legal owner

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1 of the Property.” Among other things, Che argued that “cause” to 2 grant the Stay Motion existed to allow Che to undo Ly’s 3 “fraudulent transaction.” 4 The bankruptcy court heard argument (“Hearing”) on the Stay 5 Motion on July 12, 2012. At the outset of the Hearing, the 6 bankruptcy court stated its tentative conclusions that Che had 7 produced evidence, including the Judgment, that she owned the 8 Property and was entitled to relief to pursue her unlawful 9 detainer action in state court. Lopez essentially argued that 10 the fact that the Judgment was obtained by default cut against 11 Che’s position that she retained an ownership interest in the 12 Property. Reminding Lopez that, “A judgment is a judgment,” the 13 bankruptcy court overruled Ly’s argument and advised the parties 14 that he would grant the Stay Motion but would not waive the 15 fourteen-day stay of the effectiveness of his order under 16 Rule 4001(a)(3). 17 On July 26, 2012, the bankruptcy court entered an order 18 (“Order”) granting the Stay Motion for cause under § 362(d)(1) to 19 allow Che to “pursue her state court unlawful detainer suit 20 against [Ly] for all purposes.” In effect, the bankruptcy court 21 granted relief from stay to allow the parties to resolve their 22 competing claims to the Property in state court. Ly filed a 23 timely notice of appeal on August 7, 2012. 24 Che filed the Sanctions Motion with this Panel, requesting 25 an award of sanctions against both Ly and his counsel, Lopez, for 26 filing a frivolous, meritless appeal, on November 16, 2012. Ly 27 has not responded to the Sanctions Motion. 28 ///

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1 II. JURISDICTION 2 The bankruptcy court had jurisdiction under 28 U.S.C. 3 §§ 1334 and 157(b)(2)(A) and (G). We have jurisdiction under 4 28 U.S.C. § 158. 5 III. ISSUES 6 1. Did the bankruptcy court err in determining that Che had 7 standing to pursue the Stay Motion?4 8 2. Should sanctions be awarded against Ly and Lopez under 9 Rule 8020 for filing and pursuing a frivolous appeal? 10 IV. STANDARD OF REVIEW 11 Standing is an issue that we review de novo. Loyd v. Paine 12 Webber, Inc., 208 F.3d 755, 758 (9th Cir. 2000); Kronemyer v. Am. 13 Contractors Indem. Co. (In re Kronemyer), 405 B.R. 915, 919 (9th 14 Cir. BAP 2009). De novo review requires that we consider a 15 matter anew, as if it had not been heard before, and as if no 16 decision had been rendered previously. United States v. 17 Silverman, 861 F.2d 571, 576 (9th Cir. 1988); B-Real, LLC v. 18 Chaussee (In re Chaussee), 399 B.R. 225, 229 (9th Cir. BAP 2008). 19 /// 20 /// 21 22

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In Appellant’s Statement of Issues on Appeal, Ly also 23 asserts as an issue whether the bankruptcy court erred in granting the Stay Motion under § 362. However, in Appellant’s 24 Opening Brief, Ly only argues that Che lacked standing to seek 25 stay relief. Accordingly, any argument that the Stay Motion was improperly granted, beyond the question of Che’s standing, is 26 waived. City of Emeryville v. Robinson, 621 F.3d 1251, 1261 (9th 27 Cir. 2010) (Appellate courts in this circuit “will not review issues which are not argued specifically and distinctly in a 28 party’s opening brief.”).

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1 V. DISCUSSION 2 1. Che had standing to seek stay relief. 3 Ly argues one issue on appeal: whether Che had standing to 4 seek relief from the automatic stay in Ly’s bankruptcy case. 5 Whether a party has standing to pursue a claim is a 6 “threshold question in every federal case, determining the power 7 of the court to entertain the suit.” Warth v. Seldin, 422 U.S. 8 490, 498 (1975); Edwards v. Wells Fargo Bank, N.A. 9 (In re Edwards), 454 B.R. 100, 104 (9th Cir. BAP 2011). 10 “Standing” has both constitutional and prudential aspects, but Ly 11 only challenges Che’s standing as a prudential matter.5 12 Ly argues that Che has no prudential standing because she is 13 not a real party in interest. Appellant’s Opening Brief at 6-10. 14 In stay relief proceedings, the moving party bears the burden of 15 proof to establish that it has standing to prosecute the motion. 16 See In re Wilhelm, 407 B.R. 392, 399-400 (Bankr. D. Id. 2009), 17 citing Lujan v. Defenders of Wildlife, 504 U.S. at 561. Under 18 § 362(d), a “party in interest” may request relief from the 19 automatic stay. Because “party in interest” is not defined in 20 the Bankruptcy Code, whether a party moving for relief from stay 21

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22 Constitutional standing relates to whether a party’s stake in a matter is adequate to create a “case or controversy” to 23 which the federal judicial authority under Article III of the Constitution may apply. Warth v. Seldin, 422 U.S. at 498-99;

24 Lujan v. Defenders of Wildlife, 504 U.S. 555, 559-60 (1992). In 25 her Further Declaration, Che declared that she had been paid no rent for the Property, occupied by Ly, since March 2006 and that 26 Ly had forged her signature to engineer a fraudulent transfer of 27 the Property to himself. That evidence is adequate to establish Che’s constitutional standing to file and prosecute the Stay 28 Motion.

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1 has the status of a party in interest under § 362(d) is a fact- 2 based inquiry, determined on a case-by-case basis, considering 3 the claimed interest of the moving party and the impact of the 4 stay on that interest. In re Kronemyer, 405 B.R. at 919. A 5 party in interest can include any party that has a pecuniary 6 interest in the matter, a practical stake in its resolution or 7 whose interest is impacted by the stay. Brown v. Sobczak 8 (In re Sobczak), 369 B.R. 512, 517-18 (9th Cir. BAP 2007). 9 Motions for relief from stay are contested matters. See 10 Rules 4001(a) and 9014(a). Rule 9014(c) provides that Rule 7017 11 applies in contested matters. Rule 7017 incorporates Civil 12 Rule 17(a), which provides that “[a]n action must be prosecuted 13 in the name of the real party in interest. . . .” Considering 14 the application of these rules, as a threshold matter, relief 15 from stay proceedings are very limited in scope. 16 Given the limited grounds for obtaining . . . relief from stay, read in conjunction with the expedited 17 schedule for a hearing on the motion, most courts hold that motion for relief from stay hearings should not 18 involve an adjudication on the merits of claims, defenses, or counterclaims, but simply determine 19 whether the creditor has a colorable claim to the property of the estate.

20 21 Biggs v. Stovin (In re Luz Int’l), 219 B.R. 837, 842 (9th Cir. 22 BAP 1998) (emphasis added). See, e.g., Johnson v. Righetti 23 (In re Johnson), 756 F.2d 738, 740-41 (9th Cir. 1985). 24 Cornell University Law School’s Legal Information Institute 25 defines a “colorable claim” as: 26 A plausible legal claim. In other words, a claim strong enough to have a reasonable chance of being 27 valid if the legal basis is generally correct and the facts can be proven in court. The claim need not 28 actually result in a win.

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1 http://topics.law.cornell.edu/wex/colorable_claim. 2 As noted above, in her Real Property Declaration filed in 3 support of the Stay Motion, Che stated that she was the “Movant 4 and owner of the Property.” Attached as Exhibit A to her Further 5 Declaration was a certified copy of the Judgment voiding Ly’s 6 deed to the Property as obtained through forgery and ordering 7 that the Property be transferred from Ly to Che. That the 8 Judgment was obtained by default does not negate its impact as 9 providing clear evidence that Che had at least a “colorable 10 claim” to ownership of the Property. In fact, there is no 11 evidence in the record before us that Ly ever moved to set aside 12 the default or appealed the Judgment. At oral argument, Lopez 13 confirmed that the Judgment had become final. A party moving for 14 stay relief has a colorable claim sufficient to establish 15 standing to prosecute the motion if it has an ownership interest 16 in the subject property. In re Edwards, 454 B.R. at 105; Veal v. 17 Am. Home Mortg. Servicing, Inc. (In re Veal), 450 B.R. 897, 913 18 (9th Cir. BAP 2011). 19 Ly lays down a red herring when he argues, “It is clear from 20 [Che’s] relief from stay motion that she is seeking to enforce 21 the right of a holder of a deed of trust on the subject property 22 . . . ; [Che] claims as a holder of the deed of trust and to have 23 an interest on the [Property] given as collateral.” Appellant’s 24 opening Brief at 8-9. The bankruptcy court did not take that 25 bait, and neither do we. 26 It is true that when the Stay Motion was filed, Che’s 27 counsel checked the box on the motion form stating that “Movant

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1 is the (check one) Holder of Deed of Trust.”6 However, again as 2 noted above, Che’s declarations filed in support of the Stay 3 Motion asserted and provided evidence to support her claim that 4 she owned the Property. The Judgment provided admissible 5 evidence, independent of Che’s own self-serving statements, of 6 her ownership interest in the Property. 7 Based on the evidence before the bankruptcy court, focusing 8 on the Judgment, the bankruptcy court did not err in finding that 9 Che had standing to file and prosecute the Stay Motion as a real 10 party in interest. As the bankruptcy court aptly noted, “A 11 judgment is a judgment.” Ly’s appeal of the Order, based solely 12 on his argument that Che lacked prudential standing to pursue 13 stay relief, is patently meritless. 14 2. Che’s motion to sanction Ly and his counsel for pursuing a frivolous appeal should be granted.

15 16 In the Sanctions Motion, Che requested sanctions against Ly 17 and his counsel for filing a meritless and frivolous appeal 18 pursuant to Federal Rule of Appellate Procedure (“FRAP”) 38. The 19 relevant Rule before this Panel is Rule 8020. Rule 8020, which 20 conforms to the language of FRAP 38, provides in relevant part 21 that: 22 If a . . . bankruptcy appellate panel determines that an appeal from an order . . . of a bankruptcy judge is 23 frivolous, it may, after a separately filed motion . . . and reasonable opportunity to respond, 24 award just damages and single or double costs to the appellee.

25 26 6 The other two choices on the motion form that were not 27 checked were: “Assignee of Holder of Deed of Trust,” and “Servicing Agent for Holder of Deed of Trust or Assignee of 28 Holder of Deed of Trust.”

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1 As previously noted, Che filed the Sanctions Motion on 2 November 16, 2012. Ly has not filed any response to the 3 Sanctions Motion. However, in response to the Clerk’s Notice of 4 Possible Mootness of this appeal, Ly responded that the appeal 5 was not moot because the Property now was subject to a pending 6 adversary proceeding in Ly’s bankruptcy, and “the state court 7 action affecting the subject [Property] has been held in 8 abeyance.” Compliance Statement Re: Notice of Possible Mootness, 9 filed with this Panel on February 11, 2013. 10 Rule 8020 requires that all filed papers, including appeal 11 briefs, be signed, “thereby certifying that the signer has done 12 appropriate legal and factual research and believes that the 13 submission of the paper has merit.” 10 Collier on Bankruptcy 14 ¶ 8020.02 (Alan N. Resnick and Henry J. Sommer eds., 16th ed. 15 2013). The Panel may impose sanctions to penalize an appellant 16 and/or counsel who pursue a frivolous appeal and to compensate 17 the appellee for the delay and expense of defending the appeal. 18 Id. ¶ 8020.03. Cf. Burlington N. R. Co. v. Woods, 480 U.S. 1, 7 19 (1987). 20 “An appeal is frivolous if the result is obvious or the 21 arguments of error are wholly without merit.” Coghlan v. 22 Starkey, 852 F.2d 806, 811 (5th Cir. 1988). See Henry v. Farmer 23 City State Bank, 808 F.2d 1228, 1241 (7th Cir. 1986); Cannon v. 24 The Hawaii Corp. (In re The Hawaii Corp.), 796 F.2d 1139, 1144 25 (9th Cir. 1986). Unfortunately, this appeal meets that standard 26 on both counts. 27 Lopez should have known from our published opinions in 28 In re Veal and In re Edwards that Panel precedent quite clearly

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1 recognizes that a party moving for relief from stay who has a 2 colorable claim to ownership of the subject property has 3 prudential standing. We assume that he read the Panel’s opinion 4 in In re Veal because he cited it to us in Appellant’s Opening 5 Brief specifically for its “exhaustive” discussion of standing 6 and real party in interest issues. See Appellant’s Opening Brief 7 at 8. 8 Particularly troubling to us is the fact that when Lopez 9 submitted Ly’s original excerpts of record, he omitted to include 10 the exhibits to Che’s Declarations filed in support of the Stay 11 Motion, including the certified copy of the Judgment, even though 12 he did include the exhibits to Ly’s Declaration filed in 13 opposition to the Stay Motion. Lopez had to be aware that the 14 Judgment was a critical part of the evidentiary record before the 15 bankruptcy court supporting its finding that Che had standing to 16 seek stay relief, because the bankruptcy court specifically 17 discussed the importance of the Judgment to its decision at the 18 Hearing in its direct responses to Lopez’s arguments. Lopez 19 supplemented the excerpts of record to include the Judgment 20 exhibit only after Che’s counsel filed her motions requesting 21 judicial notice and to supplement the record and the Sanctions 22 Motion, and the motions panel ordered Ly to supplement the record 23 with a complete copy, “including exhibits,” of the Stay Motion. 24 As we previously have determined, Ly’s appeal on the issue 25 of Che’s standing lacks merit, and that lack of merit is obvious 26 from review of the Judgment alone. We conclude that Ly’s appeal 27 is both meritless and frivolous, justifying the imposition of 28 sanctions.

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1 “If we determine that an appeal is frivolous, then damages 2 and single or double costs may be awarded to the appellee.” 3 Burkhart v. Fed. Deposit Ins. Corp. (In re Burkhart), 84 B.R. 4 658, 661 (9th Cir. BAP 1988). In conjunction with the Sanctions 5 Motion, Kim filed her Declaration itemizing her attorney’s fees 6 in this appeal totaling $6,650 and costs totaling $114 “for 7 attorney service” to file Appellee’s Brief and the Sanctions 8 Motion. We find the attorney’s fees and costs requested to be 9 reasonable. In the circumstances of this appeal, we conclude 10 that the Sanctions Motion should be granted, and we award Che 11 attorney’s fees of $6,650 and costs in the amount of $114, for 12 total sanctions of $6,764, jointly and severally against Ly and 13 Lopez. 14 VI. CONCLUSION 15 Based on the foregoing analysis, findings and conclusions, 16 we AFFIRM the Order granting relief from stay to Che and GRANT 17 the Sanctions Motion, awarding sanctions for pursuing a frivolous 18 appeal totaling $6,764 jointly and severally against Ly and his 19 counsel, Lopez. 20 21 22 23 24 25 26