In re: The Zuercher Trust of 1999

Opinion

FILED JUL 07 2016 1 NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL 2 OF THE NINTH CIRCUIT

3 UNITED STATES BANKRUPTCY APPELLATE PANEL 4 OF THE NINTH CIRCUIT 5 In re: ) BAP No. NC-14-1372-KuWJu ) 6 THE ZUERCHER TRUST OF 1999, ) Bk. No. 12-32747 ) 7 Debtor. ) Adv. No. 13-03046 ______________________________) 8 ) UPTOWN STERLING, LLC; MONICA ) 9 HUJAZI, ) ) 10 Appellants, ) ) 11 v. ) MEMORANDUM* ) 12 E. LYNN SCHOENMANN, Chapter 7 ) Trustee, ) 13 ) Appellee. ) 14 ______________________________) 15 Argued on January 21, 2016 at San Francisco, California 16 Submitted - May 26, 2016 17 Filed – July 7, 2016 18 Appeal from the United States Bankruptcy Court 19 for the Northern District of California 20 Honorable Hannah L. Blumenstiel, Bankruptcy Judge, Presiding 21 Appearances: Bradley Kass of Kass & Kass Law Offices argued for appellants Uptown Sterling, LLC and Monica Hujazi; 22 Thomas F. Koegel of Crowell & Moring LLP argued for appellee E. Lynn Schoenmann, Chapter 7 23 Trustee. 24 25 26 * 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 8024-1. 1 Before: KURTZ, WANSLEE** and JURY, Bankruptcy Judges. 2 INTRODUCTION 3 Uptown Sterling, LLC and Monica Hujazi appeal from an 4 interlocutory order appointing a receiver and granting injunctive 5 relief pursuant to state law, as made applicable in adversary 6 proceedings by Rule 7064.1 By order entered December 17, 2014, a 7 motions panel of this court previously granted the appellants 8 leave to appeal. 9 However, upon further consideration, because the appellants 10 lack standing to appeal all but one limited aspect of the order 11 on appeal, and because the probability we could grant meaningful 12 relief as to this limited aspect is remote, we conclude (with the 13 benefit of hindsight) that leave to appeal was improvidently 14 granted. There is no legitimate reason why this appeal needs to 15 be decided now as to the narrow issue that survives our standing 16 inquiry. 17 Accordingly, we hold that leave to appeal will be DENIED and 18 this appeal will be DISMISSED for lack of jurisdiction. 19 FACTS 20 The Zuercher Trust was owned and controlled by Monica Hujazi 21 and was formed as a business trust to own, develop and manage 22 California real estate. Hujazi commenced a chapter 11 bankruptcy 23 24 ** Hon. Madeleine C. Wanslee, United States Bankruptcy Judge for the District of Arizona, sitting by designation. 25 1 26 Unless specified otherwise, all chapter and section references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and 27 all "Rule" references are to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037. All “Civil Rule” references are to 28 the Federal Rules of Civil Procedure.

2 1 case on behalf of the Zuercher Trust in September 2012 because a 2 foreclosure sale of some of the trust’s real property was 3 imminent. 4 In January 2013 the bankruptcy court ordered the appointment 5 of a chapter 11 trustee, and in March 2013 the trustee commenced 6 an adversary proceeding seeking to avoid and recover as 7 fraudulent transfers under § 548 several transfers of real 8 property the Zuercher Trust made to other entities. According to 9 the complaint, these transfers included: (1) an apartment 10 building located on Martin Luther King Junior Way in Oakland 11 California to Uptown Sterling; (2) an apartment building located 12 on Mission street in San Francisco to SF Corners LLC; (3) a 13 parcel of real property located on Amphlett Boulevard in San 14 Francisco to Peninsula Commons LLC; and (4) a parcel of real 15 property located on San Raymundo Road in Hillsborough, California 16 to Peninsula Commons LLC. 17 Defendants admitted in their answer that the Zuercher Trust 18 transferred the Oakland apartment building in September 2011 and 19 that it transferred the other parcels of real property referenced 20 in the complaint in April 2011. Hujazi was unable during 21 discovery to produce any documentation demonstrating that the 22 Zuercher Trust received anything of value in exchange for these 23 transfers, nor was she able to recollect during her January 2014 24 deposition any such value given. Also during discovery, Hujazi 25 confirmed that she owned and/or controlled each of the transferee 26 entities that had received real property from the Zuercher Trust 27 in 2011. 28 After a significant amount of discovery was completed, in

3 1 March 2014 the trustee filed a motion for the appointment of a 2 receiver.2 The moving papers discussed at length the risks the 3 trustee allegedly faced if the transferees continued to retain 4 possession and control of the transferred properties before the 5 resolution of the fraudulent transfer litigation. In addition, 6 the trustee pointed out that, after considerable discovery, 7 Hujazi had been unable to demonstrate that the Zuercher Trust had 8 received any value in exchange for the transferred properties, so 9 the trustee asserted that he had a high likelihood of success in 10 the fraudulent transfer action. 11 Otherwise, however, the moving papers did not go into any 12 detail regarding the trustee’s claimed interest in the 13 properties, the merits of the trustee’s fraudulent transfer 14 claims, or the likelihood that the trustee would prevail. For 15 instance, there was no discussion in the moving papers regarding 16 the Zuercher Trust’s intent in transferring the property, which 17 is an essential element for obtaining relief under § 548(a)(1)(A) 18 from an actually fraudulent transfer, and there also was no 19 discussion regarding the Zuercher Trust’s financial condition, 20 which is a critical factor for obtaining relief under 21 § 548(a)(1)(B) from a constructively fraudulent transfer. 22 In their opposition to the receivership motion, the 23 2 24 In the midst of the receivership proceedings, the Zuercher Trust’s bankruptcy case was converted to chapter 7, and a 25 chapter 7 trustee was appointed, who took over in place of the 26 chapter 11 trustee in the adversary proceeding. For purposes of resolving this appeal, there is no significant distinction 27 between the chapter 11 trustee’s role in this matter and the chapter 7 trustee’s role, so for ease of reference, we refer to 28 both herein simply as the trustee.

4 1 defendant transferees and Hujazi contended that the trustee had 2 not demonstrated a likelihood of success on the merits. 3 After holding two hearings on the receivership motion and 4 considering the additional information submitted by the 5 transferee entities and Hujazi, the bankruptcy court ruled that 6 it would appoint a receiver to take possession and control of two 7 of the transferred properties, one of which was the Oakland 8 apartment building and the other was the Mission Street apartment 9 building. In essence, the bankruptcy court found that there was 10 a substantial risk of loss associated with these two properties. 11 The bankruptcy court inferred this risk of loss based largely on 12 the financial records that the transferee entities and Hujazi had 13 provided to the court, which contained significant errors and 14 omissions. According to the bankruptcy court, the inaccurate and 15 incomplete nature of their financial disclosures demonstrated 16 either that the transferee entities and Hujazi were not competent 17 to operate and maintain the transferred properties or that they 18 were deliberately obfuscating the true financial condition of the 19 properties in order keep the trustee and the Zuercher Trust’s 20 creditors at bay. Either way, the court reasoned, the 21 appointment of a receiver was necessary to preserve both the 22 Mission Street apartment building and the Oakland apartment 23 building and to preserve the rents derived from those two 24 buildings. 25 In the process of ruling on the receivership motion, the 26 bankruptcy court did not make any determination regarding the 27 probability that the trustee actually had an interest in the 28 transferred properties, regarding the merits of the trustee’s

5 1 fraudulent transfer claims or regarding the likelihood of the 2 trustee’s success on the merits. 3 The bankruptcy court entered its receivership and injunction 4 order on July 7, 2014. That order appointed a receiver with 5 respect to the Oakland apartment building and the Mission Street 6 apartment building and enjoined the transferee entities from 7 interfering with the receiver’s control and operation of these 8 two apartment buildings. The order further enjoined Hujazi and 9 the transferee entities from transferring or encumbering any of 10 the four transferred properties. Only Uptown Sterling and Hujazi 11 filed a notice of appeal. 12 On December 17, 2014, a motions panel of this court issued 13 an order holding that the order on appeal was interlocutory 14 because it did not fully and finally dispose of the underlying 15 litigation. See Slimick v. Silva (In re Slimick), 928 F.2d 304, 16 307 (9th Cir. 1990). Nonetheless, the motions panel held that 17 leave to appeal should be granted under 28 U.S.C. § 158(a)(3). 18 JURISDICTION 19 The bankruptcy court had jurisdiction pursuant to 28 U.S.C. 20 §§ 1334 and 157(b)(2)(H).3 We discuss our jurisdiction below. 21 22 3 While not directly at issue in this appeal, there is no 23 question here that the bankruptcy court will have authority to enter a final judgment in the underlying adversary proceeding 24 because both parties expressly consented to the bankruptcy court entering a final judgment in this matter. See Wellness Int'l 25 Network, Ltd. v. Sharif, 135 S. Ct. 1932, 1941-45 (2015) (holding 26 that parties may consent to have bankruptcy court enter a final judgment in “Stern claims” – core claims that could be heard and 27 finally determined by bankruptcy courts but for the unconstitutionality of the statute granting the bankruptcy 28 court’s authority to hear and determine such claims).

6 1 ISSUES 2 1. Do appellants Uptown Sterling, LLC and Hujazi have standing 3 to appeal? 4 2. Is Hujazi’s appeal from the injunction imposed against her 5 moot? 6 3. Is granting leave to appeal appropriate under the specific 7 circumstances of this matter? 8 STANDARDS OF REVIEW 9 We have an independent duty to examine our jurisdiction, 10 which we consider de novo. Couch v. Telescope, Inc., 611 F.3d 11 629, 632 (9th Cir. 2010); Wolkowitz v. Beverly (In re Beverly), 12 374 B.R. 221, 230 (9th Cir. BAP 2007), aff'd in part, dismissed 13 in part, 551 F.3d 1092 (9th Cir. 2008). 14 Standing and mootness are questions of law we may review sua 15 sponte and that we consider de novo. Menk v. LaPaglia 16 (In re Menk), 241 B.R. 896, 903 (9th Cir. BAP 1999). 17 DISCUSSION 18 1. Standing and Mootness Issues 19 Even though the bankruptcy court’s receivership and 20 injunction order affected real property owned by Uptown 21 Sterling, LLC, Peninsula Commons, LLC and SF Corners, LLC, only 22 Huzaji and Uptown Sterling filed a notice of appeal seeking 23 appellate review of the bankruptcy court’s order. 24 Hujazi has no standing to appeal the appointment of the 25 receiver, nor does she have standing to challenge the injunctive 26 relief granted against any of the three Limited Liability 27 Companies. Litigants lack appellate standing unless they are 28 directly and adversely affected pecuniarily by the order on

7 1 appeal. Cheng v. K & S Diversified Invs., Inc. (In re Cheng), 2 308 B.R. 448, 455 (9th Cir. BAP 2004), aff'd, 160 Fed.Appx. 644 3 (9th Cir. 2005); In re Menk, 241 B.R. at 917. Hujazi claims 4 that, because she owns Peninsula Commons, SF Corners, and Uptown 5 Sterling, she is sufficiently affected by the bankruptcy court’s 6 order to satisfy the appellate standing requirement. We 7 disagree. The aforementioned limited liability companies are 8 separate legal entities with their own rights and liabilities and 9 can sue and be sued. Abrahim & Sons Enters. v. Equilon Enters., 10 LLC, 292 F.3d 958, 962 (9th Cir. 2002) (citing PacLink Commc'ns 11 Int'l., Inc. v. Superior Court, 90 Cal.App.4th 958, 963 (2001)). 12 Consequently, under California law, a manager or member of a 13 limited liability company cannot pursue in his or her own name an 14 action regarding assets belonging to the company. PacLink 15 Commc'ns Int'l, Inc., 90 Cal. App. 4th at 964-65. 16 As for Uptown Sterling, it owns one of the four parcels at 17 issue: the Oakland apartment building. This ordinarily would 18 have been sufficient to confer appellate standing on Uptown 19 Sterling to challenge the appointment of the receiver and the 20 injunctive relief granted, at least with respect to the Oakland 21 apartment building. However, just before this Panel heard oral 22 argument, the trustee’s counsel filed a declaration indicating 23 that the California Secretary of State had suspended Uptown 24 Sterling as of July 23, 2015, for failing to file certain tax 25 returns with the California Franchise Tax Board. At oral 26 argument, Uptown Sterling’s counsel admitted that Uptown Sterling 27 has been suspended and that it could not prosecute the appeal as 28 a suspended limited liability company.

8 1 Thereafter, this Panel issued an order to show cause why 2 this appeal should not be dismissed. In relevant part, the order 3 to show cause directed Uptown Sterling to explain whether it had 4 been reinstated. In response, Uptown Sterling acknowledged that 5 it has not been reinstated and that it does not have the 6 requisite financial resources to take the steps necessary to 7 cause reinstatement. 8 Nearly a year has elapsed since the California Secretary of 9 State suspended Uptown Sterling. Uptown Sterling has conceded 10 that it cannot pursue this appeal while suspended, and the 11 parties’ responses to our order to show cause reflect that Uptown 12 Sterling will not be reinstated for the foreseeable future. 13 Under these circumstances, we cannot and will not review the 14 bankruptcy court’s appointment of the receiver, nor will we 15 review the injunctive relief granted against the limited 16 liability companies. See Schwartz v. Magyar House, Inc., 17 168 Cal. App. 2d 182, 188-90 (1959). 18 This only leaves the injunctive relief the bankruptcy court 19 granted against Hujazi. Because the injunction directly and 20 specifically prohibits Hujazi from taking certain actions, Hujazi 21 has appellate standing to challenge this limited aspect of the 22 order on appeal. See generally Giesbrecht v. Fitzgerald 23 (In re Giesbrecht), 429 B.R. 682, 688 (9th Cir. BAP 2010) (“A 24 party has standing to appeal an order if it diminishes his or her 25 property, increases his or her burdens, or detrimentally affects 26 his or her rights.”). 27 Even so, we also must account for the fact that, in November 28 2015, an order for relief was entered against Hujazi on an

9 1 involuntary bankruptcy petition. As a result, a chapter 7 2 trustee has been appointed, who has stepped into Hujazi’s shoes 3 for purposes of ownership and control of the three limited 4 liability companies that are relevant to this appeal – Uptown 5 Sterling, Peninsula Commons and SF Corners. See Fursman v. 6 Ulrich (In re First Prot., Inc.), 440 B.R. 821, 830 (9th Cir. BAP 7 2010). Because Hujazi no longer has ownership and control of the 8 limited liability companies, even if she were to succeed in her 9 efforts to overturn the injunction imposed against her, she still 10 would lack any authority or legal right to act on behalf of the 11 limited liability companies or to cause them to take action with 12 respect to the four parcels of real property affected by the 13 order on appeal. See id. 14 Therefore, at first blush, Hujazi’s challenge to the 15 injunctive relief granted against her appears moot. The fact 16 that Hujazi’s chapter 7 trustee – and not Hujazi – currently has 17 the right to act on behalf of the limited liability companies 18 means that, even if Hujazi were to prevail in this appeal, we 19 could not grant her any effective relief. In re Menk, 241 B.R. 20 at 903 (holding that “appeal is moot if we cannot fashion 21 effective relief in the event of reversal.”). 22 On the other hand, Hujazi also has appealed the chapter 7 23 order for relief entered against her and that appeal is still 24 pending. See Hujazi v. Recoverex, Corp. (In re Hujazi), BAP No. 25 NC-16-1018 (appeal filed Jan. 27, 2016). As a result, if she 26 were to prevail in that appeal, all meaningful relief in this 27 appeal would not be foreclosed to her. Her success in the appeal 28 from the order for relief would mean that the chapter 7 trustee

10 1 no longer would be entitled to act on behalf of the limited 2 liability companies and the right to act would re-vest in Hujazi. 3 If her right to act on behalf of the limited liability companies 4 were reinstated, her appeal of the injunction prohibiting her 5 from taking certain actions affecting the four parcels owned by 6 the limited liability companies no longer would be meaningless. 7 In sum, the only portion of the bankruptcy court’s order 8 that satisfies our standing and mootness concerns is the portion 9 of the order enjoining Hujazi from further transferring or 10 encumbering any of the four transferred properties. Given this 11 extremely limited scope of review and given the limited and 12 contingent nature of the impact such review might have on the 13 parties and on the litigation, we consider it appropriate to 14 revisit the finality and leave issues formerly addressed by one 15 of our motions panels. 16 2. Finality and Leave Issues 17 When an appeal is taken from an interlocutory order, we must 18 dismiss the appeal for lack of jurisdiction unless we decide to 19 grant leave to appeal. In re Giesbrecht, 429 B.R. at 687. Here, 20 our motions panel previously determined that the bankruptcy 21 court’s injunction and receivership order was interlocutory 22 because it did not fully and finally dispose of the underlying 23 litigation. See In re Slimick, 928 F.2d at 307. We agree with 24 that determination. 25 However, the motions panel further determined that leave to 26 appeal should be granted. In so holding, the motions panel 27 concluded that the appeal satisfied the criteria we typically 28 apply in deciding whether to grant leave to appeal. Under those

11 1 criteria, “[g]ranting leave is appropriate if the order involves 2 [1] a controlling question of law where there is substantial 3 ground for difference of opinion and [2] when the appeal is in 4 the interest of judicial economy because an immediate appeal may 5 materially advance the ultimate termination of the litigation.” 6 Kashani v. Fulton (In re Kashani), 190 B.R. 875, 882 (9th Cir. 7 BAP 1995). 8 We are not bound by the motions panel’s determination. See 9 Telescope Inc., 611 F.3d at 632; Stagecoach Utilities, Inc. v. 10 County of Lyon (In re Stagecoach Utilities, Inc.), 86 B.R. 229, 11 230 (9th Cir. BAP 1988). After further consideration, and having 12 the benefit of the standing and mootness analyses set forth 13 above, we conclude that neither of the criteria for granting 14 leave to appeal have been met. Addressing now the injunction 15 against Hujazi would not require us to consider novel or 16 unsettled legal standards. See generally Butt v. State of 17 California, 4 Cal.4th 668, 677–78 (1992) (stating California’s 18 legal standard for preliminary injunctive relief). Moreover, 19 addressing it now is highly unlikely to have any immediate impact 20 on the parties or the ongoing litigation – let alone materially 21 advance the ultimate termination of the litigation. 22 Accordingly, we are persuaded that leave to appeal was 23 improvidently granted in this matter, that leave to appeal should 24 be denied, and that this appeal should be dismissed for lack of 25 jurisdiction. 26 CONCLUSION 27 For the reasons set forth above, we DISMISS this appeal for 28 lack of jurisdiction.