Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_17-cv-00381/USCOURTS-casd-3_17-cv-00381-1/pdf.json

Nature of Suit Code: 422
Nature of Suit: Bankruptcy Appeals Rule 28 USC 158
Cause of Action: 28:0158 Notice of Appeal re Bankruptcy Matter (District or BAP)

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

In re:

TAC FINANCIAL, INC.,

Debtor,

DIRECT BENEFITS, LLC, and 

ANDREW C. GELLENE, 

Appellants,

CHRISTOPHER R. BARCLAY, Chapter 

7 Trustee, and REMAR INVESTMENTS, 

LP,

Appellees.

Case No.: 17cv00381-AJB-BGS

ORDER:

(1) DENYING APPELLANTS’ EX 

PARTE MOTION TO STAY ORDER 

PENDING APPEAL; AND

(2) DENYING AS MOOT 

APPELLANTS’ AMENDED EX 

PARTE MOTION TO STAY WITH 

APPLICATION TO SHORTEN TIME

(Doc. Nos. 44, 47)

Presently before the Court is Appellants Direct Benefits, LLC and Andrew C. 

Gellene’s (“Appellants”) ex parte application for an order staying implementation of the 

Bankruptcy Court Order that is being reviewed on appeal in this appellate case. (Doc. No. 

44.) Appellees Remar Investments, L.P. (“Remar”) and the Chapter 7 Trustee (“Trustee”) 

oppose the application. (Doc. Nos. 46, 48.) As explained more fully below, the Court 

DENYS Appellants’ motion. 

///

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BACKGROUND

The Court provides the foregoing abbreviated summary of material facts pertinent 

to the instant action. Debtor TAC Financial, Inc. (“TAC”) employed Mr. Roy Eder as its 

chief executive officer. (Doc. No. 44-1 at 3.) In February of 2013, TAC applied to ReliaStar 

for a life insurance policy for Mr. Eder. (Id.) TAC was the owner of the policy and paid all 

the premiums. (Id.) At that time, the listed beneficiaries were as follows (1) TAC 60%; (2) 

Andrea Kutsch 10%; (3) Cameron Eder 10%; (4) Henry Eder 10%; and (5) Kendall Eder 

10%. (Id.) 

Thereafter, in June or July of 2014, Mr. Eder was diagnosed with terminal brain 

cancer. (Id.) Around that same time, Michael Frager, TAC’s insurance broker, faxed 

ReliaStar a transfer of ownership form dated June 27, 2014. (Id.) The form requested that 

ReliaStar change the policy’s owner from TAC to Mr. Eder. (Id.) On July 15, 2014, 

ReliaStar sent Mr. Eder a letter confirming the ownership change. (Id.) 

In November of 2014, Remar agreed to purchase the policy from Mr. Eder (“the 

Policy”). (Id.) The policy amount at that time was $4,750,000. (Id.) On November 20, 

2014, a third-party, unrelated family trust, grant deeded 3030 Calle Bonita, Santa Ynez, 

CA 93460 (the “Eder Ranch”) to the Eder Trust. (Id.) In December 2014, Mr. Eder sold 

the policy to Remar through Montage Financial for $2,025,300, subject to Mr. Eder 

retaining a $1,100,000 death benefit until the policy would become uncontestable. (Id.)

Once the contestability period ended, Remar would pay an additional $1,100,000 and Mr. 

Eder’s retained death benefit would shift. (Id.) Moreover, it also agreed to pay $250,000 of 

this retained death benefit in exchange for Mr. Eder accepting a $25,000 discount on the 

price. (Id.)

On January 6, 2015, TAC filed a Chapter 7 bankruptcy petition. (Id. at 4.) The 

Trustee assigned to TAC then brought an adversary proceeding alleging nine causes of 

action against various defendants including: (1) fraudulent conveyance; (2) recovery from 

subsequent transferor’s conversion; (3) conversion; (4) two causes for breach of fiduciary 

duty; (5) negligence; and (6) injunctive relief. (Id.) As a whole, the Trustee believed that 

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TAC owned the policy when it was transferred to Mr. Eder without consideration. (Id.; 

Doc. No. 48 at 7.) At the time of this complaint, the policy’s sale proceeds consisted of 

money in various banks and stock trading accounts and the Eder Ranch. (Id.) Specifically, 

the Trustee asserts that the Eder Ranch was purchased with the policy proceeds and is 

likewise property of TAC’s estate. (Id.) 

On July 27, 2016, the court granted ReliaStar’s motion for interpleader. (Doc. No. 

48 at 7.) The interpleader order: (1) discharged and dismissed ReliaStar from this adversary 

proceeding without prejudice; (2) allowed ReliaStar to continue administering the policy; 

(3) required ReliaStar, if the death benefit became payable under the policy, to immediately 

deposit it with the court; (4) released ReliaStar from all liability as to the policy’s 

ownership; (5) enjoined Remar and the Trustee from maintaining or pursuing any future 

claim out of the policy’s ownership; and (6) awarded ReliaStar attorneys’ fees payable 

from the policy’s death benefit. (Id.) 

At issue in the present matter are two different settlements. The first is a settlement 

between Remar and the Trustee wherein the Trustee was to assign the Policy and 93% of 

its proceeds ($4,383,903.02) in exchange for Remar assigning its fraud claims against Eder 

to the Trustee so that it could prosecute them. (Doc. No. 44 at 9; Doc. No. 44-1 at 14–15.)

Moreover, the settlement stated that the parties would enter into a general mutual release 

agreement as to the adversary proceeding and that the Trustee would dismiss the estate’s 

claim against Remar with prejudice. (Doc. No. 48 at 8.) Appellants objected to this 

settlement arguing that it was not fair and equitable to creditors nor in the best interests of 

the bankruptcy estate. (Id.) Nonetheless, the bankruptcy court overruled the objections and 

approved this settlement (“the Remar Settlement”). (Id.) 

The second settlement was between the Trustee and Eder’s estate. (Doc. No. 44-1 at 

4–5.) The pertinent terms of this settlement are (1) the parties stipulate to a judgment that 

the Eder Ranch is property of the TAC estate; (2) Upon the Eder Ranch’s transfer, the 

Trustee shall market it for sale; and (3) the Trustee, Mrs. Eder, and the Eder Trust mutually 

release all claims against one another. (Id. at 4–5.) Similarly, Appellants objected to this 

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settlement. (Id. at 3.) However, after analyzing the Ninth Circuit’s multi factor test 

determining if a settlement agreement is fair, reasonable, or adequate, the bankruptcy court 

approved the Eder Settlement. (Id. at 12.) 

LEGAL STANDARD

A motion to stay of a judgment, order, or decree of the bankruptcy court must 

ordinarily be presented to the bankruptcy judge in the first instance. Fed. R. Bankr. P. 8007. 

A motion for relief, or of modification or termination of relief granted by the bankruptcy 

court, may be made to the district court, but such motion must show why the relief, 

modification, or termination was not obtained from the bankruptcy court. Id.; In re North 

Plaza, LLC, 395 B.R. 113, 118 (S.D. Cal. 2008). 

Where the bankruptcy court has already denied a stay under Rule 8007 of the Federal 

Rules of Bankruptcy Procedure, the reviewing court is limited to determining whether the 

bankruptcy court abused its discretion. In re Wymer, 5 B.R. 802, 807 (9th Cir. 1980); In re 

North Plaza, LLC, 395 B.R. at 119. Under this standard, the bankruptcy court’s conclusions 

of law are reviewed de novo, but its findings of facts will be upheld unless they are clearly 

erroneous. Figter Ltd. v. Teachers Ins. & Annuity Ass’n, 118 F.3d 635, 638 (9th Cir. 1997) 

(citing Feder v. Lazar, 83 F.3d 306, 308 (9th Cir. 1996)). 

DISCUSSION

Appellants request that this Court stay both the disbursement of Mr. Eder’s life 

insurance policy and the implementation of the Eder Settlement.1(Doc. No. 44 at 2.) Remar 

counters that Appellants are not entitled to ex parte relief, that they have not made a 

showing of irreparable harm, and that Appellants delayed in bringing this motion. (See 

generally Doc. No. 46.) Trustee contends that Appellants failed to follow Judge Battaglia’s 

 

1 Appellants filed a motion to stay with this Court on May 30, 2017, (Doc. No. 16), which 

was denied on June 30, 2017, for failure to first file their motion to stay with the bankruptcy 

court per Rule 8007, (Doc. No. 28 at 5). The Court finds that Appellants have fixed that 

error in the present motion and filed a motion to stay with the bankruptcy court first, which 

the court later denied. (Doc. No. 44-1 at 11.)

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civil case procedures for ex parte applications, the relief requested in the motion is largely 

moot, and that Judge Latham’s motion to stay was well-reasoned. (See generally Doc. No. 

48.) The Court notes that neither Remar nor the Trustee addressed any of the Ninth Circuit 

factors related to motions to stay. 

In assessing the propriety of a stay pending appeal under Rule 8007, courts within 

the Ninth Circuit apply the same four-factor test that applies to motions for preliminary 

injunction. Hilton v. Braunskill, 481 U.S. 770, 776 (1987); Wymer, 5 B.R. at 806; In re 

North Plaza, LLC, 395 B.R. at 119–20. Accordingly, the party seeking a stay must establish 

the following factors: “(1) whether the stay applicant has made a strong showing that he is 

likely to succeed on the merits; (2) whether the applicant will be irreparably injured absent 

a stay; (3) whether the issuance of the stay will substantially injure other parties’ interest 

in the proceeding; and (4) where the public interest lies.” Nken v. Holder, 556 U.S. 418, 

434 (2009) (citation omitted). “Failure to establish even one of these elements dooms the 

motion.” In re Lindsey, No. CC-08-1287-PaDMK, 2009 WL 7751414, at *2 (B.A.P. 9th 

Cir. 2009).

As a threshold matter, the Court notes that it disagrees with Remar’s contentions that 

Appellants’ ex parte motion to stay is procedurally defective as they have failed to follow 

the emergency motion procedures in Rule 8011(d). (Doc. No. 46 at 2.) The Court notes 

that Rule 8011 makes no mention of emergency filing procedures. Instead, Rule 8011 

relates to filing, service, and signatures. Fed. R. Bankr. P. 8011. 

Next, as to the Trustee’s procedural arguments, the Court agrees. This Court’s civil 

case procedures clearly state that the moving party is to contact opposing counsel prior to 

filing the motion to meet and confer, and that all ex parte motions will be accompanied by 

a declaration documenting their various efforts. Civ. Case Proc. III.1. The Trustee states 

that he only found out about the motion after it was filed through ECF notice and that no 

meet and confer efforts were made by Appellants. (Doc. No. 48 at 2.) Consequently, 

Appellants have failed to follow the case procedures set forth by this Court. 

Nevertheless, despite these procedural deficiencies, the Court finds it important to 

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reach the Ninth Circuit factors to address whether a motion to stay is warranted in this 

matter. Consequently, the Court turns its attention to the first element. 

A. Likelihood of Success on the Merits 

Appellants argue that they will likely succeed on their appeal because, according to 

them, the bankruptcy court erred by using the wrong legal standard in assessing the 

Trustee’s actions and that the bankruptcy court failed to examine the fact and law 

surrounding their fraud claims. (Doc. No. 44 at 18–23.) 

The Ninth Circuit adopts a multi-factor test a court must consider in determining a 

settlement agreement’s fairness, reasonableness, and adequacy: (1) “the probability of 

success in the litigation”; (2) “the difficulties, if any, to be encountered in the matter of 

collection”; (3) “the complexity of the litigation involved, and the expense, inconvenience, 

and delay necessarily attending it”; and (4) “the paramount interest of the creditors and a 

proper deference to their reasonable views in the premises.” Martin v. Kane (In re A & C 

Props.), 784 F.2d 1377, 1381 (9th Cir. 1986). Specifically, “[a]lthough the bankruptcy 

court has ‘great latitude’ in authorizing a compromise, it may only approve a proposal that 

is ‘fair and equitable.’” In re MGS Mktg., 111 B.R. 264, 267 (B.A.P. 9th Cir. 1990) (citing 

Woodson v. Fireman’s Fund Ins. Co., 839 F.2d 610, 620 (9th Cir. 1988)). 

Appellants first argue that the bankruptcy court ignored the role and capacity of the 

Trustee as a fiduciary. (Doc. No. 44 at 20.) However, the Court disagrees. As the 

bankruptcy court clearly stated, the court’s holding in A & C, i.e., the business judgment 

rule, controls approval of settlements and compromises. (Doc. No. 48 at 14.) Thus, the 

court should presume that the debtor-in-possession acted “prudently, on an informed basis, 

in good faith, and in the honest belief that the action taken was in the best interests of the 

bankruptcy estate.” In re Pomona Valley Med. Grp., Inc., 476 F.3d 665, 670 (9th Cir. 

2007). Here, the bankruptcy court specifically followed the guidelines as set forth in A & 

C and deferred to the trustee’s business judgment in settling litigation. (Doc. No. 48 at 14.)

To oppose the use of the business judgment rule, Appellants cite to In re Woodson, 

839 F.2d 619 (9th Cir. 1988), to contend that the business judgment standard runs “counter 

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to controlling legal authority.” (Doc. No. 44 at 19.) Curiously, the court in Woodson

reiterates the standard for the business judgment standard—“The Court may approve a 

compromise only if it is ‘fair and equitable.’” Id. at 620. Moreover, the court in Woodson

rejected the compromise as it left nothing to the creditors. Id. This is not the case here 

where the Trustee now has control of the Eder Ranch, which he will market and sell, and 

where Appellants have retained 7% of the Policy proceeds. (Doc. No. 44 at 13; Doc. No. 

48 at 17.) 

Appellants also contend that there are serious legal issues revolving around the 

bankruptcy court’s decision to approve the Eder and Remar Settlements. (Doc. No. 44 at 

19–22.) The Court does not agree. As the bankruptcy court made clear in its order denying 

Appellants’ motion for stay, the court did base its findings in approving the Remar 

Settlement based on sufficient facts in the record involving the ultra vires claim. (Doc. No. 

48 at 14.) Specifically, based on the significant litigation risk in bringing this case to trial 

where a jury could find for Remar and thus the estate would receive nothing, as well as 

based on the fact that a board member of TAC suggested that the board ratified Eder’s life 

insurance policy transfer, the court found that Appellants failed to make a minimum 

permissible showing that it would prevail on the merits of their appeal. (Id. at 14–17.)

Furthermore, the bankruptcy court highlighted that the expense and burdens that came with 

continuing to litigate this issue were reasons enough alone to approve the settlement. (Id.

at 15 (citing In re WCI Cable, Inc., 282 B.R. 457, 472–73 (Bankr. D. Or. 2002).) 

Additionally, in denying Appellants’ motion to stay, the bankruptcy court 

highlighted that it did give deference to their views as TAC’s largest creditor. (Doc. No. 

48 at 16.) However, finding that the Trustee represented all of the creditors’ interests, has 

no personal stake in the case’s outcome, reviewed several thousand documents, and only 

attended mediation after gaining a thorough grasp of the parties’ claims and defenses, the 

bankruptcy court found the Remar Settlement fair and equitable. (Id. at 15–16.) Thus, 

because Appellants have not raised a colorable question as to whether the Remar 

Settlement was fair and equitable, let alone a strong showing of their likely success on this 

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issue’s merits, the Court finds that Appellants have failed to carry their burden on this 

motion. See Hughes v. Arnold, No. 2:08-00490 JAM, 2008 WL 2169511, at *1 (E.D. Cal. 

May 22, 2008) (“The movant’s failure to establish even one of the elements dooms the 

motion.”). Thus, the Court DENIES Appellants’ ex parte application for a motion to stay. 

CONCLUSION

As explained more fully above, the Court DENIES Appellants’ ex parte application 

for a motion to stay and DENIES AS MOOT Appellants’ amended ex parte motion to stay 

order pending appeal with application to shorten time. (Doc. Nos. 44, 47.) 

IT IS SO ORDERED.

Dated: September 22, 2017

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