FILED MAY 26 2020 NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT
UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT
In re: BAP Nos. NC-19-1235-BTaF NC-19-1255-BTaF ARTEM KOSHKALDA, (Cross Appeals)
Debtor. Bk. No. 18-30016-HLB
ARTEM KOSHKALDA, Adv. No. 18-03020-HLB
Appellant/Cross-Appellee,
v. MEMORANDUM*
SEIKO EPSON CORPORATION; EPSON AMERICA, INC.,
Appellees/Cross-Appellants.
Argued and Submitted on March 26, 2020
Filed – May 26, 2020
Appeal from the United States Bankruptcy Court for the Northern District of California
* This disposition is not appropriate for publication. Although it may be cited for whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential value, see 9th Cir. BAP Rule 8024-1. Honorable Hannah L. Blumenstiel, Bankruptcy Judge, Presiding
Appearances: Appellant/Cross-Appellee Artem Koshkalda argued pro se; Henry S. David of The David Firm argued for Appellees/ Cross-Appellants Seiko Epson Corporation and Epson America, Inc.
Before: BRAND, TAYLOR, and FARIS, Bankruptcy Judges.
INTRODUCTION
Appellant/Cross-Appellee Artem Koshkalda appeals a judgment
granting partial summary judgment to Seiko Epson Corporation and Epson
America, Inc. (together "Seiko Epson") on its objection to discharge claims
under § 727(a)(2)(A),1 (a)(3), and (a)(7), and denying Koshkalda's motion for
summary judgment on those claims and others. Seiko Epson cross-appeals
the court's ruling summarily denying its costs under Rule 7054(b).
We conclude that the bankruptcy court did not err in granting Seiko
Epson's motion for partial summary judgment and denying Koshkalda's
motion for summary judgment. However, the bankruptcy court should have
allowed Seiko Epson an opportunity to submit a bill of costs before denying
them. Accordingly, we AFFIRM in part, VACATE in part, and REMAND.
1 Unless specified otherwise, all chapter and section references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, all "Rule" references are to the Federal Rules of Bankruptcy Procedure, and all "Civil Rule" references are to the Federal Rules of Civil Procedure.
2 I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY
A. The Nevada District Court litigation
Prior to his bankruptcy filing, Koshkalda was in the business of
importing and selling ink cartridges and selling printers overseas. He also
invested heavily in residential real estate, individually and through some of
his many wholly-owned entities.
On September 8, 2016, Seiko Epson filed suit against Koshkalda, ART,
LLC (his wholly-owned LLC), and others in the District of Nevada for
trademark infringement and counterfeiting, unfair competition, and false
advertising. In September and October 2016, Seiko Epson seized two laptops
and business records from ART's offices in Reno, Nevada.
On July 31, 2017, the district court issued a temporary restraining order
("TRO"), freezing Koshkalda's and ART's assets and enjoining them from
transferring, selling or otherwise disposing of any existing or acquired real or
personal property, and from spending more than $3,000 per month without
prior court approval. Koshkalda and ART were also prohibited from opening
any new bank accounts. Koshkalda appeared at an August 3, 2017 hearing
before the district court, where the TRO was addressed.
On August 7, 2017, the district court held a hearing on an Order to
Show Cause on issuance of a preliminary injunction. None of the defendants
appeared. The court orally granted the injunction, after finding that Seiko
Epson had demonstrated a substantial likelihood of success on the merits and
3 that Koshkalda was dissipating and would continue to dissipate assets.
On August 22, 2017, the district court issued an Order for Asset Seizure
and Impoundment, which froze the assets of Koshkalda and ART ("Freeze
Order"). Koshkalda's emergency motions seeking relief from the Freeze Order
to permit him and his companies to pay various obligations were denied.
When Koshkalda continued to violate the Freeze Order, the district
court entered an order on October 27, 2017, finding him in contempt and
ordering turnover of his and ART's assets to Seiko Epson. The court then
entered an Amended Freeze Order (together with the TRO and Freeze Order,
the "Freeze Orders"), in which it eliminated the $3,000 monthly spending
allowance but otherwise retained substantially the same provisions as the
Freeze Order.
Eventually, the district court struck Koshkalda's and ART's answers
due to repeated discovery abuses and violations of court orders and entered
their defaults. On January 16, 2018, it entered a $12 million default judgment
against Koshkalda and ART. That decision was appealed to the Ninth Circuit
Court of Appeals, which recently affirmed.
B. Postpetition events
Koshkalda and ART filed chapter 11 bankruptcy cases in California on
January 5, 2018.2 Upon conversion to chapter 7, E. Lynn Schoenmann was
2 The bankruptcy court later retroactively annulled the automatic stay to let the default judgment stand and to allow Koshkalda's and ART's appeal to proceed.
4 appointed as trustee in Koshkalda's case.
Seiko Epson filed a complaint objecting to Koshkalda's discharge under
§ 727(a)(2)(A), (a)(3), (a)(5), and (a)(7), and seeking to except the judgment
from Koshkalda's discharge under separate fraudulent transfer and actual
fraud theories under § 523(a)(2)(A) and under (a)(6). In total, Seiko Epson
asserted seven claims.3
1. The parties' cross-motions for summary judgment
Koshkalda moved for summary judgment on Seiko Epson's five
unstayed claims for relief ("MSJ"). Seiko Epson opposed the MSJ and filed its
own motion for partial summary judgment ("PSJ"), seeking relief on four of
its five unstayed claims.
Seiko Epson's claim under § 727(a)(2)(A)/(a)(7) and fraudulent
transfer claim under § 523(a)(2)(A)
In support of these claims, Seiko Epson submitted undisputed evidence
that Koshkalda had sold property, opened new bank accounts, obtained
loans, encumbered his assets, made charges to his credit cards and spent
more than $3,000 per month, all of which Seiko Epson argued violated the
Freeze Orders. In particular, on August 10, 2017, one week after he
admittedly knew about the TRO, Koshkalda, on behalf of Renoca, LLC (his
3 After the complaint was filed, the bankruptcy court stayed Seiko Epson's claim for actual fraud under § 523(a)(2)(A) and its § 523(a)(6) claim, pending resolution of the appeal of the Nevada judgment. Prosecution of the § 523(a)(2)(A) fraudulent transfer claim and the § 727 claims continued.
5 wholly-owned LLC), sold what is known as the Giacomo Property, and
deposited the $380,506.48 in sale proceeds into a new bank account, which he
had opened two days prior on August 8, 2017. On August 11, 2017,
Koshkalda transferred $308,119.84 of the deposited sale proceeds to third
parties.
As direct evidence of his intent to hinder, delay or defraud Seiko Epson,
Seiko Epson offered Koshkalda's deposition testimony that he opened the
new bank account on August 8, 2017, for the sole purpose of depositing the
$380,506.48 in proceeds from the Giacomo Property sale so they would not
"vanish" or "disappear" or "something" — as would have happened if he had
deposited those funds into the pre-existing bank accounts known to Seiko
Epson or had disclosed the new account's existence to Seiko Epson.
To establish that the transfer of the Giacomo Property (and other
property) constituted Koshkalda's property, Seiko Epson alleged that
Koshkalda commingled his and his companies' money. For example, he
deposited the Giacomo Property sale proceeds into his personal bank
account, though the property was owned by Renoca, LLC. Further,
Koshkalda's wholly-owned real property servicing company, Privat Group,
LLC, did not keep the revenues and expenses for each of the other companies
in separate accounts — much less segregate the revenue and expenses for
each property. And Koshkalda deposited rental income from tenants into one
of his personal bank accounts rather than into Privat Group's bank account.
6 Moreover, many millions of dollars were transferred back and forth between/
among Koshkalda and his companies, and he provided no accounting for
these transfers — just bank statements showing withdrawals of "cash" and
numerous unidentifiable "counter" transactions. In addition, ART had made
deposits for properties it never owned on Koshkalda's behalf, or on behalf of
his other companies, and paid expenses for properties as to which Koshkalda
claimed he and his companies had no interest.
In defense of Seiko Epson's § 727(a)(2)(A)/(a)(7) and § 523(a)(2)(A)
fraudulent transfer claims, Koshkalda argued that opening the new bank
account, selling the Giacomo Property, depositing the sale proceeds and
using them to pay his mortgage creditors did not violate the Freeze Orders or
establish his intent to hinder, delay or defraud Seiko Epson. Koshkalda
argued that, had he not made the mortgage payments, it would have
triggered the accrual of default interest, which would have "encumbered" the
assets in violation of the Freeze Orders. Thus, his actions did not constitute a
dissipation of funds, but rather they were an attempt to comply with the
Freeze Orders. Koshkalda did not dispute that he commingled funds with his
companies. However, he argued that he never hid his activities from Seiko
Epson nor used his companies to defraud creditors.
Seiko Epson's claims under § 727(a)(3)/(a)(7)
Seiko Epson moved for summary judgment based on Koshkalda's and
ART's lack of records for the post-seizure period. Seiko Epson argued that
7 Koshkalda failed to keep basic records one would expect to be kept for his
businesses, especially given the millions of dollars in transfers from one
account to another, millions of dollars in product sales and related expenses,
millions of dollars for the purchase and sale of numerous properties, and the
revenues and expenses associated with renting out certain real property.
For example, Koshkalda failed to keep for himself, ART, and his other
companies any general ledgers, check registers, cancelled checks, balance
sheets, income statements, credit card statements, customer invoices, invoices
from vendors/suppliers, accounts payable/receivable aging reports, loan
agreements, and many of the bank statements from his and his companies' at
least 118 bank accounts. Specifically, as to the bank statements for ART: the
entity had 31 bank accounts and there were no bank statements for 14 of
them; five accounts were missing statements from November 2016 through
March 2019; three accounts were missing statements from December 2017
through March 2019; and one account in Koshkalda's name dba ART was
missing statements from September 2015 through March 2019.
Seiko Epson's forensic accountant and expert witness, Ryan Nguyen,
opined that, given the businesses of Koshkalda and his companies, the books
and records from October 2016 to the petition date of January 5, 2018, were
inadequate to ascertain the financial condition or the business transactions of
Koshkalda and his companies. Nguyen said he was unable to determine:
(1) the amount of assets and liabilities of Koshkalda and his companies; (2) if
8 there were undisclosed assets; (3) the validity of creditors' claims; (4) whether
the chapter 7 trustee had any claims to pursue; (5) the purpose of Koshkalda's
and his companies' 118 bank accounts; and (6) the accuracy of the information
in what records Koshkalda (or third parties) provided or whether any
apparent discrepancies in those records could be reconciled. In
defense of Seiko Epson's claims under § 727(a)(3)/(a)(7), Koshkalda argued
that, because Seiko Epson had not returned the seized business records taken
in September and October 2016, he could not provide them. In any case,
argued Koshkalda, Seiko Epson could determine his and his companies'
financial condition with the over 10,000 pages of post-seizure documents he
did provide. Koshkalda asserted that, because of the Freeze Orders, he was
denied electronic access to his bank accounts and therefore was unable to
download all of his bank statements.
Koshkalda conceded that he was not the best bookkeeper but argued
that the law did not require him to be. He admittedly never kept certain
records, such as general ledgers, check registers or cancelled checks. And
some things, such as customer invoices or invoices from vendors/suppliers,
did not exist, because ART's ink cartridge business was on hold since the
September and October 2016 seizures. Koshkalda argued that he was not an
"insider" of ART within the meaning of § 101(31)(B), and so Seiko Epson was
not entitled to summary judgment on its § 727(a)(7) claim for failure to keep
records under (a)(3).
9 Seiko Epson's claim under § 727(a)(5)
Koshkalda moved for summary judgment on Seiko Epson's § 727(a)(5)
claim. Seiko Epson had alleged that Koshkalda failed to explain satisfactorily
the loss of substantial assets, including $1.7 million in a Ukrainian bank
account. Koshkalda argued that he disclosed all of his assets, that all cash in
his bank accounts was transferred to his bankruptcy estate, and that he lost
real properties to foreclosure as a result of the Freeze Order, which prohibited
him from paying the mortgages.
2. Ruling on the PSJ and MSJ
Prior to the hearing on the cross-motions for summary judgment, the
bankruptcy court issued tentative rulings, which it later adopted as its final
rulings in two written orders. As to the PSJ, the court: granted the motion on
Seiko Epson's § 727(a)(2)(A), (a)(3), and (a)(7)/(a)(3) claims; denied the motion
on Seiko Epson's § 727(a)(7)/(a)(2)(A) claim; and denied as moot the motion
for Seiko Epson's claim under § 523(a)(2)(A) (for fraudulent transfer). The
court denied the MSJ in its entirety, including relief to Koshkalda on Seiko
Epson's § 727(a)(5) claim, finding that disputed material facts existed, making
summary judgment on that claim inappropriate.
The bankruptcy court also entered a final judgment in the adversary
proceeding, which disposed of all of Seiko Epson's claims. The court entered
judgment in favor of Seiko Epson under § 727(a)(2)(A), (a)(3), and
(a)(7)/(a)(3), and it dismissed as moot its remaining claims under § 727(a)(5)
10 and § 523(a)(2)(A) and (a)(6). The court ordered that each party bear its own
attorney's fees and costs. These timely cross-appeals followed.
II. JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and
157(b)(2)(I) and (J). We have jurisdiction over the MSJ and PSJ orders and
judgment under 28 U.S.C. § 158.4
III. ISSUES
1. Did the bankruptcy court err in granting the PSJ and denying the MSJ?
2. Did the bankruptcy court err in denying costs without allowing Seiko
Epson an opportunity to submit a bill of costs?
IV. STANDARDS OF REVIEW
We review de novo the bankruptcy court's summary judgment ruling.
Salven v. Galli (In re Pass), 553 B.R. 749, 756 (9th Cir. BAP 2016).
In objection to discharge appeals under § 727, the bankruptcy court's
determinations of the facts are reviewed for clear error, and its selection of the
applicable legal rules under § 727 and application of the facts to those rules
are reviewed de novo. See Retz v. Samson (In re Retz), 606 F.3d 1189, 1196 (9th
Cir. 2010).
4 After filing his notice of appeal, Koshkalda filed a motion to alter or amend, which the bankruptcy court denied. To the extent he appeals the order denying that motion, we lack jurisdiction because Koshkalda did not file a notice of appeal after the order was entered or file an amended notice of appeal to include that order. See Olomi v. Tukhi (In re Tukhi), 568 B.R. 107, 112 (9th Cir. BAP 2017).
11 The bankruptcy court's decision whether to award costs is reviewed for
an abuse of discretion. Hosseini v. Key Bank, N.A. (In re Hosseini), 504 B.R. 558,
563 (9th Cir. BAP 2014); Young v. Aviva Gelato, Inc. (In re Aviva Gelato, Inc.), 94
B.R. 622, 624 (9th Cir. BAP 1988). A bankruptcy court abuses its discretion if it
applies an incorrect legal standard or if its factual findings are illogical,
implausible or without support from evidence in the record. United States v.
Hinkson, 585 F.3d 1247, 1262 (9th Cir. 2009) (en banc).
V. DISCUSSION
A. The bankruptcy court did not err in granting the PSJ and denying the MSJ.
1. Summary judgment standards
Civil Rule 56, made applicable in adversary proceedings by Rule 7056,
mandates entry of summary judgment where the moving party demonstrates
the absence of a genuine issue of material fact and entitlement to judgment as
a matter of law. Thrifty Oil Co. v. Bank of Am. Nat'l Tr. & Sav. Ass'n, 322 F.3d
1039, 1045 (9th Cir. 2003). A material fact is one that, "under the governing
substantive law . . . could affect the outcome of the case." Id. at 1046 (citing
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). A genuine issue of
material fact exists when "'the evidence is such that a reasonable jury could
return a verdict for the nonmoving party.'" Id. (quoting Anderson, 477 U.S. at
248).
////
12 2. Analysis
We begin our analysis by noting that, to effectuate the fresh start policy,
a claim for denial of a discharge under § 727 is construed liberally in favor of
the debtor and strictly against the party objecting to discharge. First Beverly
Bank v. Adeeb (In re Adeeb), 787 F.2d 1339, 1342 (9th Cir. 1986).
a. The bankruptcy court did not err by denying Koshkalda's discharge under § 727(a)(3).
As relevant here, § 727(a)(3) directs the court to grant a debtor a
discharge unless the debtor has failed to keep or preserve any recorded
information, including books, documents, records, and papers, from which
the debtor's financial condition or business transactions might be ascertained,
unless the debtor's failure to act was justified under the circumstances. The
purpose of § 727(a)(3) is to make discharge dependent on the debtor's true
presentation of his financial affairs. Caneva v. Sun Cmtys. Operating Ltd. P'ship
(In re Caneva), 550 F.3d 755, 761 (9th Cir. 2008). "The disclosure requirement
removes the risk to creditors of 'the withholding or concealment of assets by
the bankrupt under cover of a chaotic or incomplete set of books or records.'"
Id. (quoting Burchett v. Myers, 202 F.2d 920, 926 (9th Cir. 1953)). "The statute
does not require absolute completeness in making or keeping records." Id.
(citing Rhoades v. Wikle, 453 F.2d 51, 53 (9th Cir. 1971)). "Rather, the debtor
must 'present sufficient written evidence which will enable his creditors
reasonably to ascertain his present financial condition and to follow his
13 business transactions for a reasonable period in the past.'" Id. (quoting
Rhoades, 453 F.2d at 53).
To establish a prima facie case under § 727(a)(3), a creditor must show:
(1) that the debtor failed to maintain and preserve adequate records, and (2) that such failure makes it impossible to ascertain the debtor's financial condition and material business transactions. After showing inadequate or nonexistent records, the burden of proof then shifts to the debtor to justify the inadequacy or nonexistence of the records.
Id. The bankruptcy court found that the undisputed evidence
overwhelmingly demonstrated that Koshkalda failed to keep adequate
business records, and that this failure made it impossible to ascertain his
financial condition and material business transactions.
Many of Koshkalda's arguments here are irrelevant because they
pertain to pre-seizure documents he claims Seiko Epson failed to return. The
documents at issue in the PSJ were those that Seiko Epson claimed Koshkalda
failed to keep and preserve post-seizure. We also reject his argument that the
bankruptcy court improperly considered the adequacy of his pre-seizure
records. It did not consider such records. In any case, it appears that Nguyen
only referenced such records to illustrate Koshkalda's and his companies'
need for business records.
Koshkalda argues that the bankruptcy court should not have faulted
him for not having post-seizure business records for ART because it was no
14 longer engaged in the ink cartridge business after the September and October
2016 seizures. But ART was apparently engaged in other types of business
after October 2016 because Koshkalda testified that ART had $2 million in
revenues in 2017. Yet, he produced no invoices, purchase orders, or anything
else for those sales.
Lastly, Koshkalda argues that he explained all of the transactions with
which Seiko Epson took issue and supported those explanations with
documents that he and third parties produced in discovery. He argues that
these documents provided a clear picture as to his financial condition and
were enough for the chapter 7 trustee to effectively administer his estate. But
§ 727(a)(3) "places an affirmative duty on the debtor to create books and
records accurately documenting his business affairs." In re Caneva, 550 F.3d at
762 (emphasis added). The trustee and creditors are not required to subpoena
third parties to get financial information a debtor should have. Further,
according to Nguyen's undisputed testimony, what post-seizure records
Koshkalda did produce for himself and his entities were incomplete. He
provided only some (but not all) bank statements, a few credit card
statements, and documents relating to the purchase and sale of real
properties.
"[W]hen a debtor is sophisticated and carries on a business involving
substantial assets, creditors have an expectation of greater and better record
keeping." Id. Koshkalda owned numerous businesses and had substantial
15 assets. Yet, he provided no evidence of any basic record keeping whatsoever
for the post-seizure period for himself or any entity, such as general ledgers,
check registers, invoices, balance sheets and income statements, and he
admitted that he had none. Without those documents, which Koshkalda
admitted he did not keep, the trustee and creditors could not ascertain his
true financial condition and material business transactions.
Accordingly, the bankruptcy court did not err in granting Seiko Epson
and denying Koshkalda summary judgment on Seiko Epson's claim under
§ 727(a)(3).
b. The bankruptcy court did not err by denying Koshkalda's discharge under § 727(a)(7)/(a)(3).
Section 727(a)(7) provides for denial of a debtor's discharge if the debtor
has committed any act specified in paragraph (2), (3), (4), (5), or (6) of §
727(a), on or within one year before the date of the filing of the petition, or
during the case, in connection with another bankruptcy case concerning an
insider. Simply put, § 727(a)(7) deprives an individual debtor of a discharge if
he or she engages in conduct on behalf of an insider which violates any of
these enumerated subsections of § 727(a).
To succeed on a § 727(a)(7) claim, the movant must prove by a
preponderance of the evidence: (1) the elements of § 727(a)(2), (3), (4), (5), or
(6) are met; (2) the actions occurred during the current case or within one year
prepetition; and (3) the actions are in connection with the bankruptcy case of
16 an insider. De Anda v. Song (In re Song), 449 B.R. 84, 97 (Bankr. N.D. Cal. 2011).
For an "individual" debtor, the term "insider" includes a "corporation of
which the debtor is a director, officer, or person in control." § 101(31)(A)(iv).
The term "corporation" includes an "unincorporated company or association."
§ 101(9)(A)(iv). Because the term "corporation" is a "term of art that is broader
than the ordinary meaning of that word," Gilliam v. Speier (In re KRSM Props.,
LLC), 318 B.R. 712, 717 n.5 (9th Cir. BAP 2004), we have interpreted §
101(9)(A)(iv) to include limited liability companies, Vill. at Lakeridge, LLC v.
U.S. Bank N.A. (In re Vill. at Lakeridge, LLC), BAP Nos. NV-12-1456-PaKiTa and
NV-12-1474-PaKiTa, 2013 WL 1397447, at *4 n.8 (9th Cir. BAP Apr. 5, 2013)
(citing In re Longview Aluminum, LLC, 657 F.3d 507, 509 n.1 (7th Cir. 2011)),
aff'd sub nom. U.S. Bank N.A. v. Vill. at Lakeridge, LLC (In re Vill. at Lakeridge,
LLC), 814 F.3d 993 (9th Cir. 2016), aff'd sub nom. U.S. Bank N.A. ex rel. CW
Capital Asset Mgmt. LLC v. Vill. at Lakeridge, LLC, 138 S. Ct. 960 (2018).
Ordinarily, determination of insider status is a question of fact. Miller
Ave. Prof'l & Promotional Servs., Inc. v. Brady (In re Enter. Acquisition Partners,
Inc.), 319 B.R. 626, 630 (9th Cir. BAP 2004). In this case, however, the
bankruptcy court held that ART was an insider of Koshkalda as a matter of
law, based on undisputed facts. Koshkalda does not dispute that ART is a
debtor or that he, as the human responsible for ART, failed to keep and
preserve books and records for ART. He disputes the bankruptcy court's
purported ruling that he is a statutory insider of ART. The court made no
17 such ruling. In fact, it correctly stated that the relevant inquiry is whether
ART is a statutory insider of Koshkalda. The court found that ART was an
insider of Koshkalda under § 101(9)(A)(iv) and (31)(A)(iv). It also found that
ART was a non-statutory insider of Koshkalda.
We reject Koshkalda's argument that the bankruptcy court's ruling is
contrary to the Panel's holding in Enterprise Acquisition Partners, 319 B.R. at
632. There, the Panel considered a different statute, namely § 101(31)(B), and
the term "insider" in the context of when the debtor is a "corporation." The
debtor at issue here was Koshkalda, not ART. Further, whether the term
"corporation" in § 101(9)(A)(iv) includes an LLC was not before the Panel.
Thus, Enterprise Acquisition Partners has no relevance here. In any case, as we
stated above, the Panel has opined that the term "corporation" in
§ 101(9)(A)(iv) includes an LLC. In re Vill. at Lakeridge, LLC, 2013 WL 1397447,
at *4 n.8.
Accordingly, the bankruptcy court did not err in granting Seiko Epson
and denying Koshkalda summary judgment on Seiko Epson's claim under
§ 727(a)(7)/(a)(3). 5
5 Koshkalda also appeals the bankruptcy court's order denying his motion to compel discovery. Interlocutory orders such as this merge into the final judgment deciding the merits. Roque v. Yniguez (In re Roque), BAP No. EC-13-1048-KiPaJu, 2014 WL 351424, at *5 (9th Cir. BAP Jan. 31, 2014) (citing United States v. Real Prop. Located at 475 Martin Ln., Beverly Hills, Cal., 545 F.3d 1134, 1141 (9th Cir. 2008)). We review orders concerning discovery for an abuse of discretion. See Epstein v. MCA, Inc., 54 F.3d 1422, 1423 (9th Cir. 1995) (per curiam). (continued...)
18 c. The bankruptcy court did not err by denying Koshkalda's discharge under § 727(a)(2)(A).
Although we could affirm on the bankruptcy court's decisions to deny
Koshkalda's discharge under § 727(a)(3) or (a)(7), we also review its ruling
denying his discharge under § 727(a)(2)(A). While it is the rare case where a
debtor's intent to hinder, delay or defraud a creditor can be established on
summary judgment, the court's finding of intent was warranted here.
Section 727(a)(2)(A) directs the court to grant a debtor a discharge
unless the debtor, with intent to hinder, delay, or defraud a creditor has
transferred or concealed property of the debtor, within one year before the
date of the filing of the petition. The burden of proof is on the creditor to
show by a preponderance of the evidence that: (1) the debtor transferred or
concealed property; (2) the property belonged to the debtor; (3) the transfer
occurred within one year of the bankruptcy filing; and (4) the debtor executed
the transfer with the intent to hinder, delay or defraud a creditor. Aubrey v.
Thomas (In re Aubrey), 111 B.R. 268, 273 (9th Cir. BAP 1990). The intent to
5 (...continued) Koshkalda argued that Seiko Epson failed to return the business records it seized from ART's premises in September and October 2016, and that without them, he was unable to defend against the § 727(a)(3) claim. Koshkalda moved to compel access to the storage facility where he believed Seiko Epson was still allegedly storing the seized records. Seiko Epson maintained that all records had been returned and submitted sworn declarations in support. The bankruptcy court denied the motion because Koshkalda failed to provide any evidence that the records remained at the storage facility. We conclude that the bankruptcy court did not abuse its discretion in denying Koshkalda's motion to compel discovery.
19 hinder, delay, or defraud is a "question of fact that requires the trier of fact to
delve into the mind of the debtor and may be inferred from surrounding
circumstances." Searles v. Riley (In re Searles), 317 B.R. 368, 379 (9th Cir. BAP
2004) (citing Emmett Valley Assocs. v. Woodfield (In re Woodfield), 978 F.2d 516,
518 (9th Cir. 1992)).
Koshkalda does not challenge the bankruptcy court's finding that he
was an alter ego of his many wholly-owned companies including, but not
limited to, ART and Renoca, LLC. Thus, the transfers at issue consisted of
Koshkalda's property. See Singh v. Singh (In re Singh), BAP No. CC-17-1353-
FLS, 2019 WL 1231146, at *6 (9th Cir. BAP Mar. 14, 2019) (debtor's property
includes property held by debtor's alter ego). There is also no dispute that the
transfers at issue occurred within one year of the petition date.
Koshkalda does, however, challenge the bankruptcy court's finding as
to his intent. He first argues that whether or not the transfers violated the
Freeze Orders was "highly disputable" and should have been adjudicated by
trial. Koshkalda also continues to defend the monthly mortgage payments he
made after the Freeze Orders, arguing that they were necessary to avoid
accrual of default interest and late charges, which he believed constituted an
"encumbrance" that violated the Freeze Orders. Koshkalda fails to recognize
that payments to other creditors would not necessarily negate his intent to
hinder, delay or defraud Seiko Epson. Section 727(a)(2)(A) "requires only that
the debtor make the transfer with intent to hinder, delay, or defraud 'a
20 creditor.' There is no requirement that the debtor intend to hinder all of his
creditors." In re Adeeb, 787 F.2d at 1343. Thus, Koshkalda's intent to protect his
mortgage creditors does not negate his intent to hinder or delay Seiko Epson.
Id.
As the bankruptcy court noted, the Freeze Orders were intended to
preserve Koshkalda's property for Seiko Epson's benefit and to prevent the
very activity he engaged in. He clearly ignored them, and was even cited for
contempt by the district court for doing so. As much as Koshkalda wants to
debate what the Freeze Orders permitted or prohibited, the direct evidence
showed that he consciously and deliberately transferred property that clearly
was subject to the Freeze Orders and concealed property from Seiko Epson.
His intent to hinder, delay or defraud Seiko Epson was established by his sale
of the Giacomo Property on August 10, 2017, his opening of the bank account
two days prior (unbeknownst to Seiko Epson) in order to deposit the
$380,506.48 in sale proceeds, and his immediate transfer of those funds to
others for the admitted purpose of preventing the money from "vanishing" or
"disappearing" to Seiko Epson. A debtor's admission that property was
transferred to another to avoid garnishment by a judgment creditor
establishes a prima facie case under § 727(a)(2)(A). In re Aubrey, 111 B.R. at
273.
Koshkalda argues that the TRO expired on August 7, 2017. Thus,
during the "gap" period of time between August 7, 2017, and the August 22,
21 2017 Freeze Order, he maintains that he was permitted to engage in the
conduct he did. Koshkalda did not raise this argument in the cross-motions
for summary judgment. In any case, we reject it. Koshkalda knew that Seiko
Epson was seeking a permanent restraining order at the August 7, 2017
hearing, which the district court orally granted. Therefore, his transfers
during the "gap" period were made with the knowledge that his assets were
likely to be frozen or were possibly subject to being frozen. And his
admission shows his intent in opening the new bank account and
immediately transferring nearly all of the sale proceeds to third parties was to
prevent Seiko Epson from getting any of the available funds.
Accordingly, the bankruptcy court did not err in granting Seiko Epson
and denying Koshkalda summary judgment on Seiko Epson's claim under
§ 727(a)(2)(A).
d. The bankruptcy court did not err in denying Koshkalda summary judgment on Seiko Epson's § 727(a)(5) claim.
The only argument Koshkalda raises here is that the bankruptcy court
erred by "completely ignoring his arguments" and ruling in favor of Seiko
Epson on this claim. We disagree. The court carefully reviewed the evidence
submitted by both parties regarding Seiko Epson's § 727(a)(5) claim and
found that material facts existed to preclude summary judgment. In any case,
even if we were to reverse on this issue, the record supports the court's
decision to deny Koshkalda's discharge under § 727(a)(2)(A), (a)(3), and
22 (a)(7).6
B. The bankruptcy court erred in denying costs without allowing Seiko Epson an opportunity to submit a bill of costs.
Seiko Epson argues that the bankruptcy court erred by not giving it the
opportunity to file a bill of costs after entry of the judgment. Instead, the
court summarily denied them in the judgment. Koshkalda responds that
Seiko Epson never raised the argument of awarding attorney's fees in its PSJ,
so it should be precluded from doing so on appeal. Seiko Epson is not asking
for attorney's fees; it is asking for the opportunity to file a bill of costs, which
were prayed for in the complaint.
Rule 7054(b)(1) provides —
Costs Other Than Attorney's Fees. The court may allow costs to the prevailing party except when a statute of the United States or these rules otherwise provides. . . . Costs may be taxed by the clerk on 14 days' notice; on motion served within seven days thereafter, the action of the clerk may be reviewed by the court.
It is undisputed that Seiko Epson was the prevailing party in an objection to
discharge case, and there is no statutory prohibition to the award of costs.
6 The bankruptcy court denied Seiko Epson's claim under § 523(a)(2)(A) (fraudulent transfer) as moot, entered a judgment dismissing that claim as moot and, therefore, denied the MSJ with respect to that claim and dismissed as moot Koshkalda's then-pending motion to dismiss that claim. Other than reciting those facts, Koshkalda does not assign any error by the court in denying his MSJ on this claim or dismissing as moot the motion to dismiss this claim. Thus, this issue has been abandoned. Wilcox v. Comm'r, 848 F.2d 1007, 1008 n.2 (9th Cir. 1988) (arguments not addressed on appeal by a pro se litigant are deemed abandoned).
23 With its permissive language, an award of costs under Rule 7054(b)(1)
is within the sound discretion of the bankruptcy court. In re Aviva Gelato, Inc.,
94 B.R. at 624. Other than citing Rule 7054(b), Seiko Epson does not cite any
authority that a prevailing party must be given the opportunity to submit a
bill of costs before the court can deny them.
While the rule may provide support for Seiko Epson's argument despite
its permissive nature, Civil Local Rule 54-1 for the Northern District of
California7certainly suggests that what Seiko Epson argues is true:
54-1. Filing of Bill of Costs
(a) Time for Filing and Content. No later than 14 days after entry of judgment or order under which costs may be claimed, a prevailing party claiming taxable costs must serve and file a bill of costs. ... (c) Waiver of Costs. Any party who fails to file a bill of costs within the time period provided by this rule will be deemed to have waived costs.
In other words, the prevailing party has the opportunity to file and serve
within 14 days after entry of the judgment a bill of costs, and if the party fails
to do so, the party is deemed to have waived costs. Accordingly, because the
rule contemplates the opportunity to request costs after judgment, the
7 Bankruptcy Local Rule 1001-2(a) for the Northern District of California states that Civil Local Rules 54-1 through 54-4 apply to matters regarding costs in bankruptcy cases and adversary proceedings.
24 bankruptcy court should have given Seiko Epson an opportunity to submit a
bill of costs before summarily denying them in the judgment.
Alternatively, we conclude that the bankruptcy court's ruling denying
costs cannot stand, because the court failed to provide any reasons for
denying them. Even though Rule 7054(b)(1) is more permissive as to the
allowance of costs as compared to the more mandatory nature of Civil Rule
54(d)(1) (the court "should" allow costs to the prevailing party), the court
must state its reasons for denying costs under Rule 7054(b)(1). In re Hosseini,
504 B.R. at 564; In re Aviva Gelato, Inc., 94 B.R. at 624.
Accordingly, because the bankruptcy court did not give Seiko Epson an
opportunity to submit a bill of costs as contemplated by Civil Local Rule 54-1,
if not also Rule 7054(b)(1), and further erred by not providing the reasons for
denying costs, we must VACATE that part of the judgment.
VI. CONCLUSION
For the foregoing reasons, we AFFIRM the judgment in part, VACATE
the judgment in part, and REMAND for the limited purpose of allowing
Seiko Epson the opportunity to submit a bill of costs. Koshkalda will have the
opportunity to object to the bill of costs once filed.