In re: Yan Sui

Opinion

FILED JUL 26 2016 SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL 2 OF THE NINTH CIRCUIT

5 In re: ) BAP No. CC-16-1053-KuFKi ) 6 YAN SUI, ) Bk. No. 8:11-bk-20448-CB ) 7 Debtor. ) ______________________________) 8 ) YAN SUI; PEI-YU YANG, ) 9 ) Appellants, ) 10 ) v. ) MEMORANDUM* 11 ) RICHARD A. MARSHACK, Chapter 7) 12 Trustee, ) ) 13 Appellee. ) ______________________________) 14 Submitted Without Oral Argument 15 on June 23, 2016 16 Filed – July 26, 2016 17 Appeal from the United States Bankruptcy Court for the Central District of California 18 Honorable Catherine E. Bauer, Bankruptcy Judge, Presiding 19 20 Appearances: Appellants Yan Sui and Pei-Yu Yang, pro se, on brief; David Edward Hays and Chad V. Haes of 21 Marshack Hays LLP on brief for appellee Richard A. Marshack, Chapter 7 Trustee. 22 23 Before: KURTZ, FARIS and KIRSCHER, Bankruptcy Judges. 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. 2 Chapter 71 debtor Yan Sui and his wife Pei-Yu Yang appeal, 3 pro se, from the bankruptcy court’s order authorizing the trustee 4 Richard A. Marshack to offset against Yang’s interest in the 5 proceeds from the sale of the couple’s residence $93,832.72 in 6 contempt sanctions awarded in favor of the trustee and against 7 Sui and Yang. The order also authorized the trustee to pay 8 roughly $70,000 to Yang in full satisfaction of her claimed 9 interest in the sale proceeds and further authorized the trustee 10 to file a notice of acknowledgment of satisfaction of judgment 11 reflecting Yang’s “payment” of the sanctions award by way of the 12 offset. 13 On appeal, Sui and Yang argue that the bankruptcy court 14 lacked jurisdiction to enter the setoff order while their appeals 15 from other, prior orders were pending. Sui and Yang’s 16 jurisdictional argument lacks merit. Even so, in one of their 17 other appeals, the Panel has vacated the sanctions order on which 18 the setoff order was based. Based thereon, we also must VACATE 19 the setoff order, and we must REMAND for further proceedings. 21 In July 2011, Sui filed a voluntary chapter 7 petition, and 22 Marshack was appointed to serve as the chapter 7 trustee in Sui’s 23 bankruptcy case. In May 2013, Marshack obtained from the United 24 States District Court for the Central District of California a 25 26 1 Unless specified otherwise, all chapter and section 27 references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and all "Rule" references are to the Federal Rules of Bankruptcy 28 Procedure, Rules 1001-9037.

2 1 judgment avoiding Sui’s fraudulent transfer to Yang of his 2 interest in the couple’s residence located in Costa Mesa, 3 California. This judgment provided in relevant part that the 4 avoidance resulted in the revesting of the residence in the names 5 of both Sui and Yang as joint tenants. Yang appealed the 6 fraudulent transfer avoidance judgment, but the Ninth Circuit 7 Court of Appeals affirmed.2 8 In October 2014, Marshack obtained a second judgment, this 9 one from the bankruptcy court. The bankruptcy court’s judgment 10 required Sui and Yang to turn over possession of the Costa Mesa 11 residence to Marshack and authorized Marshack to sell the 12 residence free and clear of all liens, claims and other 13 interests, including Yang’s joint tenancy interest. The order 14 further provided that the trustee could divide the sale proceeds 15 in accordance with § 363(j) and other applicable law. 16 In June 2015, the bankruptcy court entered an order 17 authorizing Marshack to sell the Costa Mesa residence to third 18 party EFK Properties, LLC. Among other things, the sale order 19 specified as follows: “Neither Yan Sui nor Pei-yu Yang shall 20 assert any lien, claim, or interest in the Property in violation 21 of the free and clear provisions of this order. Any actions 22 taken in violation of this order may be adjudicated to be 23 contempt.” 24 Sui and Yang appealed both the bankruptcy court judgment and 25 2 26 We have exercised our discretion to take judicial notice of the contents of the district court’s and the bankruptcy court’s 27 dockets and the imaged documents attached thereto. See O'Rourke v. Seaboard Surety Co. (In re E.R. Fegert, Inc.), 887 F.2d 955, 28 957–58 (9th Cir. 1989).

3 1 the sale order to this Panel, which dismissed both appeals as 2 moot. Sui and Yang then appealed the Panel’s dismissals to the 3 Ninth Circuit Court of Appeals, which appeals are still pending. 4 On November 5, 2015, the bankruptcy court entered an order 5 holding Sui and Yang in contempt of court. As set forth in the 6 contempt order, Sui and Yang had violated both the bankruptcy 7 court’s judgment and its sale order by interfering with 8 Marshack’s efforts to sell the Costa Mesa residence. The 9 bankruptcy court awarded in favor of the trustee and against Sui 10 and Yang, jointly and severally, civil contempt sanctions in the 11 aggregate amount of $93,832.72. 12 This brings us to the motion from which this appeal arose. 13 In December 2015, Marshack filed his motion seeking to setoff 14 from Yang’s share of the sale proceeds the $93,832.72 contempt 15 sanction award. Marshack’s motion also requested authorization 16 to pay to Yang roughly $70,000 in full satisfaction of Yang’s 17 claimed interests in the sale proceeds and authorization for 18 Marshack to file a notice acknowledging full satisfaction of 19 judgment, reflecting Yang’s “payment” of the sanctions award by 20 way of the offset. 21 Sui and Yang filed a four-page opposition to the setoff 22 motion. Sui and Yang noted that appeals were pending from all of 23 the orders and judgments leading up to Marshack’s setoff motion, 24 including the bankruptcy court judgment, the sale order and the 25 contempt order. Sui and Yang asserted that the bankruptcy court 26 lacked jurisdiction to hear and decide Marshack’s setoff motion 27 while these appeals were pending. 28 At the hearing on the setoff motion, the bankruptcy court

4 1 granted all of the relief Marshack requested in his motion. On 2 February 19, 2016, the bankruptcy court entered an order granting 3 Marshack’s motion in full, and Sui and Yang timely filed a notice 4 of appeal. 5 Recently, the Panel issued a decision in Sui and Yang’s 6 appeal from the bankruptcy court’s sanctions order (BAP No. 7 CC-15-1352). In that decision, the Panel affirmed in part, 8 reversed in part, and (most importantly for our purposes) vacated 9 the sanctions order. 11 Subject to the jurisdictional discussion set forth below, 12 the bankruptcy court had jurisdiction pursuant to 28 U.S.C. 13 §§ 1334 and 157(b)(2)(A). We have jurisdiction under 28 U.S.C. 14 § 158. 16 1. Did the bankruptcy court have jurisdiction to hear and 17 decide Marshack’s setoff motion while Sui and Yang’s appeals 18 from other, prior orders were pending? 19 2. Can the bankruptcy court’s setoff order stand in light of 20 the Panel’s decision vacating the sanctions order? 22 We review jurisdictional issues de novo. See Wilshire 23 Courtyard v. Cal. Franchise Tax Bd. (In re Wilshire Courtyard), 24 729 F.3d 1279, 1284 (9th Cir. 2013). 25 The issue presented here regarding the availability of 26 setoff is a question of law. The resolution of this appeal 27 merely requires us to identify and apply the the correct legal 28 rule to the undisputed facts presented. We review questions of

5 1 law de novo. Bechtold v. Gillespie (In re Gillespie), 516 B.R. 2 586, 590 (9th Cir. BAP 2014) 4 The only comprehensible argument that Sui and Yang raised in 5 their appeal brief is jurisdictional. Sui and Yang contend that 6 the bankruptcy court lacked jurisdiction to hear and decide 7 Marshack’s setoff motion while their appeals from the bankruptcy 8 court’s other, prior orders were pending. We disagree. 9 It generally is true that the filing of an appeal will 10 divest the bankruptcy court of jurisdiction to hear and decide 11 matters that will affect the order on appeal. Hill & Sandford, 12 LLP v. Mirzai (In re Mirzai), 236 B.R. 8, 10 (9th Cir. BAP 1999). 13 However, there are several exceptions to this rule. Id. One 14 exception recognizes the trial court's continuing authority, 15 while an appeal is pending and in the absence of a stay pending 16 appeal, to issue orders enforcing a prior judgment or order. Id. 17 (citing Wedbush, Noble, Cooke, Inc. v. SEC, 714 F.2d 923, 924 18 (9th Cir. 1983)). Another exception recognizes the trial court's 19 continuing authority to "proceed with matters not involved in the 20 appeal." Id. (citing Pyrodyne Corp. v. Pyrotronics Corp., 21 847 F.2d 1398, 1403 (9th Cir. 1988)). This latter exception is 22 particularly important in bankruptcy cases. The rule divesting 23 courts of jurisdiction during the pendency of an appeal must be 24 applied with caution in the bankruptcy context because it is not 25 practicable for all aspects of a bankruptcy case to come to a 26 halt when an appeal is filed from a bankruptcy court ruling. To 27 hold otherwise would enable one recalcitrant party in interest to 28 bring a bankruptcy case to a standstill by the simple expedient

6 1 of filing appeals from various bankruptcy court orders. 2 Here, no stay pending appeal had been granted, so the 3 bankruptcy court had authority to enter the setoff order to 4 effectuate and enforce the contempt order and the sale order. 5 Absent a stay pending appeal, federal judgments are immediately 6 enforceable. Bennett v. Gemmill (In re Combined Metals Reduction 7 Co.), 557 F.2d 179, 190 (9th Cir. 1977). 8 Accordingly, we reject Sui and Yang’s jurisdictional 9 argument. 10 Sui and Yang’s other complaints set forth in their appeal 11 brief either make no sense or demonstrate a fundamental 12 misunderstanding of how bankruptcy courts and federal appellate 13 courts resolve matters before them. For instance, Sui and Yang 14 complain that the bankruptcy court should not have affirmed its 15 own order and should not have taken steps that might render Sui 16 and Yang’s other appeals moot. The bankruptcy court did not 17 “affirm” any of its prior orders. It merely permitted Marshack 18 to proceed with administration of the bankruptcy estate in 19 accordance with the orders’ terms. As for their mootness 20 complaint, we express no opinion as to whether the bankruptcy 21 court’s setoff order might have rendered any of Sui and Yang’s 22 other, prior appeals moot, but we note that there is no rule 23 generally prohibiting bankruptcy courts from taking subsequent 24 actions that might render an appeal moot. In fact, appeals from 25 bankruptcy court orders often become moot upon the occurrence of 26 subsequent events, including further action by the bankruptcy 27 court. See, e.g., Armel Laminates, Inc. v. Lomas & Nettleton Co. 28 (In re Income Prop. Builders, Inc.), 699 F.2d 963, 964 (9th Cir.

7 1 1983); Bay Vista Apartments, LLC v. Fed. Nat'l Mortg. Ass'n 2 (In re Bay Vista Apartments, LLC), 2011 WL 7145995, at *1 3 (Mem. Dec.) (9th Cir. BAP Dec. 19, 2011); Omoto v. Ruggera 4 (In re Omoto), 85 B.R. 98, 100 (9th Cir. BAP 1988). 5 Finally, Sui and Yang complain that the bankruptcy court 6 should not have authorized Marshack to file the notice 7 acknowledging satisfaction of the judgment unless and until Yang 8 actually cashed the sale proceeds check Marshack sent to Yang 9 pursuant to the setoff order. This complaint is premised on Sui 10 and Yang’s mistaken belief that there is some relationship 11 between the notice of acknowledgment and Marshack’s payment of 12 sale proceeds to Yang. To the contrary, the notice of 13 acknowledgment only concerned Yang’s satisfaction of the 14 sanctions award provided for in the bankruptcy court’s contempt 15 order. That satisfaction occurred as a result of the setoff the 16 bankruptcy court authorized Marshack to make. Yang’s cashing (or 17 not cashing) of the sale proceeds check has no relevance to the 18 setoff. 19 Notwithstanding Sui and Yang’s failure to present a 20 meritorious argument in their appeal brief, we nonetheless will 21 vacate the bankruptcy court’s setoff order. The Panel’s recent 22 decision vacating the bankruptcy court’s sanctions order fatally 23 undermines the setoff order because the relief granted in the 24 setoff order was premised on the validity of the sanctions order. 25 It is axiomatic that there can be no right of setoff unless there 26 exist two valid offsetting debts. See generally McDaniel v. City 27 & Cty. of S.F., 259 Cal. App. 2d 356, 364-65 (1968) (describing 28 when right of setoff arises under California law); FDIC v.

8 1 Mademoiselle of Cal., 379 F.2d 660, 663 (9th Cir. 1967) 2 (describing same under federal common law). 3 Thus, we consider ourselves compelled to vacate and remand 4 the setoff order so that the bankruptcy court, on remand, can 5 take a fresh look at the setoff motion in light of the Panel’s 6 ruling on the sanctions order. 7 There is one other issue we need to address. Sui and Yang 8 filed a motion in both this appeal and in the sanctions order 9 appeal requesting that the Panel order Marshack to withdraw his 10 filing of the notice acknowledging satisfaction of the sanctions 11 award, which reflects Yang's "payment" of the sanctions award by 12 way of the offset. According to Sui and Yang, the filed notice 13 of acknowledgment might interfere with or hinder disposition of 14 the sanctions order appeal, the setoff order appeal, or both. We 15 will DENY this motion as unnecessary. The notice of 16 acknowledgment has not, in fact, interfered with either appeal. 17 Nor are we aware of any other grounds necessitating the 18 withdrawal of the notice of acknowledgment. All the notice of 19 acknowledgment currently does is give notice of the satisfaction 20 of a vacated sanctions award. If, for whatever reason, either 21 party on remand decides it is necessary to take action with 22 respect to the notice of acknowledgment, they are free to revisit 23 the issue with the bankruptcy court. 25 For the reasons set forth above, we conclude that the 26 bankruptcy court had jurisdiction to hear and decide Marshack’s 27 setoff motion. However, the recent decision of the Panel 28 vacating the bankruptcy court’s sanctions order fatally

9 1 undermined the bankruptcy court’s setoff order. Therefore, we 2 also must VACATE the setoff order, and we REMAND for further 3 proceedings. 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28