THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS OF T v. Ace Gallery New York Corporation, a California cor

• Court: United States Bankruptcy Court, C.D. California
• Decided: September 23, 2021
• Docket: 2:15-ap-01679
• Status: Unknown

Opinion

2 FILED & ENTERED

4 SEP 23 2021

5 C CL enE tR raK l U D. iS st. r B icA t N ofK CR aU liP foT rC nY ia COURT 6 BY b a k c h e l l DEPUTY CLERK 7 UNITED STATES BANKRUPTCY COURT 8 CENTRAL DISTRICT OF CALIFORNIA 9 LOS ANGELES DIVISION

10 In re: Case No. 2:13-bk-14135-RK

11 Chapter 11 ART & ARCHITECTURE BOOKS OF 12 THE 21st CENTURY, Adv. No. 2:15-ap-01679-RK

13 Debtor. Consolidated with Adv. No. 2:14-ap-01771-RK 14 and Adv. No. 2:15-ap-01680-RK

15 SEPARATE STATEMENT OF DECISION ON PLAINTIFF’S MOTION FOR SUMMARY 16 ADJUDICATION OF DEFENDANT 17 DOUGLAS CHRISMAS’S FIRST AMENDED COUNTER-COMPLAINT ON FIRST, THIRD, 18 AND FOURTH CLAIMS FOR RELIEF REGARDING “ARMAN” ARTWORK, AND 19 FOR SANCTIONS 20

21 D ate: August 4, 2021 22 SAM LESLIE, PLAN AGENT FOR ART & Time: 11:00 a.m. Place: Courtroom 1675 ARCHITECTURE BOOKS OF THE 21st Roybal Federal Building 23 CENTURY, 255 East Temple Street 24 Los Angeles, California 90012 Plaintiff, 25 vs. Hearing conducted via Zoom for Government

26 ACE GALLERY NEW YORK CORPORATION, et al., 27

28 Defendants. 1 This adversary proceeding came on for hearing before the undersigned United 2 || States Bankruptcy Judge on August 4, 2021 on the motion of Plaintiff Sam Leslie, Plan 3 || Agent for Art & Architecture Books of the 21°' Century for summary adjudication of 4 || Defendant Douglas Chrismas’s first amended counter-complaint on first, third, and 5 || fourth claims for relief regarding “Arman” Artwork and for sanctions, ECF 1015, filed on 6 || June 23, 2021. Appearances were made as noted on the record. 7 By separate order, the court has issued a report and recommendation to the 8 || United States District Court for the Central District of California that it grant the motion of 9 || Plaintiff Sam Leslie, Plan Agent for Art & Architecture Books of the 21%' Century for 10 ||summary adjudication of Defendant Douglas Chrismas'’s first amended counter- 11 || complaint on first, third, and fourth claims for relief regarding “Arman” Artwork and for 12 sanctions, ECF 1015, filed on June 23, 2021. (However, by separate statement of 13 || decision and order, the court has separately ruled on Plaintiff's request for sanctions in 14 || the motion, which does not need to be referred to the United States District Court for de 15 || novo review.) 16 The reasons for the court’s ruling on the motion are set forth in the court’s 17 || tentative ruling for the motion which was posted on the court’s website in advance of the 18 || hearing before the court on the motion on August 4, 2021, as orally stated by the court 19 the record at the hearing and as set forth in the separate report and recommendation 20 || to the United States District Court. The text of the court’s tentative ruling on the motion 21 || is set forth in the Attachment below. 22 IT |S SO ORDERED. Hit 23 2 25 Date: September 23, 2021 Robert Kwan 6 United States Bankruptcy Judge 27 28

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1 ATTACHMENT 2 3 TENTATIVE RULING RE: PLAINTIFF’S MOTION AND MOTION FOR SUMMARY 4 ADJUDICATION OF DEFENDANT DOUGLAS CHRISMAS’S FIRST AMENDED 5 COUNTER-COMPLAINT ON FIRST, THIRD, AND FOURTH CLAIMS FOR RELIEF 6 REGARDING “ARMAN” ARTWORK, AND FOR SANCTIONS 7 8 Grant plaintiff's motion for summary adjudication on defendant Douglas Chrismas's first 9 amended counter-complaint on the first, third and fourth claims for relief regarding the 10 Arman artwork for the reasons stated in the moving papers and for lack of timely written 11 opposition in light of defendant Chrismas's statement of nonopposition as to plaintiff's 12 request for summary adjudication. 13 14 Deny plaintiff's motion for sanctions pursuant to FRBP 9011 because the motion does 15 not comply with the requirements of the rule, specifically, the motion does not comply 16 with the safe harbor provisions of FRBP 9011(c)(1)(A) requiring that the sanctions 17 motion may not be filed within 21 days of service of the motion because plaintiff did not 18 serve any motion for sanctions on defendant before it was filed and plaintiff's counsel's 19 email warnings to counsel for defendant do not suffice as they do not constitute a formal 20 motion in order to trigger the 21-day safe harbor opportunity period for defendant to 21 withdraw the offending pleading. Barber v. Miller, 146 F.3d 707, 710-711 (9th Cir. 22 1998); Radcliffe v. Rainbow Construction Co., 254 F.3d 772, 788-789; In re Crystal 23 Cathedral Ministries, No. 2:12-bk-15665-RK, 2020 WL 1649619 (Bankr. C.D. Cal. Mar. 24 31, 2020), slip op. at *22-27, affirmed on other grounds, BAP No. CC-20-1103-FLT, 25 2021 WL 2182975 (9th Cir. BAP May 28, 2021); see also, FRCP 11(c)(2) (similar rule, 26 similar result). Plaintiff's argument that defendant Chrismas waived his rights under 27 FRBP 9011 by refusing to sign the stipulation proposed by plaintiff's counsel lacks merit 28 as such act does not indicate any voluntary relinquishment of his rights. The FRBP 1 9011 motion should also be denied because it is not made as a motion separate from 2 other motions and requests as it was combined with the motion for summary 3 adjudication as required by FRBP 9011(c)(1)(A); see also, FRCP 11(c)(2) (similar rule, 4 similar result). 5 6 Deny plaintiff's motion for sanctions based on 28 U.S.C. § 1927 because: (1) such relief 7 was only first raised in the reply and new arguments or matters raised in the reply will 8 not be considered pursuant to LBR 9013-1(g) and (2) the bankruptcy court lacks 9 authority to grant sanctions as not being a "court of the United States" for purposes of 10 that statute as held by the Ninth Circuit Bankruptcy Appellate Panel in In re DeVille, 280 11 B.R. 483, 494 (9th Cir. BAP 2002), affirmed in part, reversed in part and remanded on 12 other grounds, 361 F.3d 539 (9th Cir. 2004). 13 14 Grant plaintiff's motion for sanctions under the court's inherent authority against 15 defendant Chrismas as the court finds by clear and convincing evidence that he acted in 16 bad faith in alleging in his counter-complaints that he owned the Arman artwork as the 17 uncontroverted facts show that he no longer owned the artwork because he sold the 18 artwork to the debtor during the pendency of this bankruptcy case as shown by the sale 19 and other documents in evidence, Exhibits 1 through 5 to the motion, the schedule 20 listing the Armen artwork claimed as owned by Chrismas attached to the counter- 21 complaints, the purchase order for the artwork, the check on debtor's bank account 22 signed by Chrismas to pay himself for the artwork and debtor's monthly operating report 23 listing the sale transaction. Chambers v. NASCO, Inc., 501 U.S. 32, 43-46 (1991); In re 24 DeVille, 361 F.3d at 547-551; In re Crystal Cathedral Ministries, No. 2:12-bk-15665-RK, 25 2020 WL 1649619, slip op. at *27-32, affirmed on relevant grounds, BAP No. CC-20- 26 1103-FLT, 2021 WL 2182975, slip op. at *6-10. Chrismas knew that he sold the artwork 27 to the debtor, and he acted in bad faith in alleging that he still owned the artwork in his 28 counter-complaints that he filed in this court, forcing plaintiff to needlessly make the 1 motion for summary adjudication. Chrismas's allegations in his counter-complaints of 2 continuing ownership of the Arman artwork after his sale of the artwork to the debtor 3 were factual misstatements which were frivolous, reckless and/or both, which only 4 served to harass plaintiff and create needless litigation. 5 6 Chrismas had the opportunity to mitigate his bad faith conduct by filing with the court a 7 withdrawal of the counter-complaints as to the the bad faith allegations of ownership of 8 the Arman artwork when plaintiff's counsel brought these matters to the attention of 9 Chrismas's counsel in the emails before the motion for summary adjudication was filed, 10 but Chrismas failed to do so, which indicates continued bad faith. The court does not 11 impose sanctions on Chrismas's counsel because the evidence does not show by clear 12 and convincing evidence that counsel knew of the sale documents showing Chrismas's 13 sale of the artwork to the debtor when counsel prepared and filed the counter- 14 complaints for Chrismas. 15 16 Award against defendant Chrismas in favor of plaintiff a reasonable compensatory 17 sanction of $10,400 in attorneys' fees as appropriate, representing 20 hours of attorney 18 services at an associate attorney rate of $400 an hour and 4 hours of attorney services 19 at a supervisory or partner rate of $600 a hour for preparing and filing the motion for 20 summary adjudication and sanctions based on the court's inherent authority as the 21 motion was a relatively simple and straightforward motion based on the documents 22 showing that defendant Chrismas knew that he sold the artwork to the debtor by signing 23 and depositing the check for payment for his sale of the artwork to the debtor and that 24 there is no factual basis for his allegations relating to the artwork in his counter- 25 complaints and for communications with opposing counsel requesting withdrawal of 26 these frivolous and/or reckless allegations. In re Crystal Cathedral Ministries, No. 2:12- 27 bk-15665-RK, 2020 WL 1649619, slip op. at *56-62, affirmed on relevant grounds, BAP 28 No. CC-20-1103-FLT, 2021 WL 2182975, slip op. at *11. No award is made with 1 respect to attorney services rendered in arguing FRBP 9011 sanctions because such 2 argument should not have been made based on plaintiff's failure to comply with the 3 strict procedural requirements of the rule which are actually quite formulaic as held by 4 the Ninth Circuit in the authorities cited above and as argued by defendant. No award 5 of expenses is made because the request for reimbursement of expenses is not 6 substantiated. 7 8 Deny plaintiff's motion for sanctions as to his request for alternative sanctions, including 9 terminating sanctions on defendant Chrismas's remaining claims in his counter- 10 complaint as generally speaking, sanctions should be progressive in effect, and the 11 court should not resort to such extreme measures in the first instance. 12 13 Appearances are required on 8/4/21 to discuss rescheduling the final hearing on the 14 motion, but counsel and self-represented parties must appear through Zoom for 15 Government in accordance with the court's remote appearance instructions. 16 17 18 19 20 21 22 23 24 25 26 27 28