Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_15-cv-06324/USCOURTS-cand-3_15-cv-06324-2/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 (BAP)

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United States District Court 

Northern District of California 

 

IN THE UNITED STATES DISTRICT COURT 

FOR THE NORTHERN DISTRICT OF CALIFORNIA 

In re 

PACIFIC THOMAS CORPORATION, 

dba PACIFIC THOMAS CAPITAL, dba 

SAFE STORAGE, 

 Debtor. 

_________________________________

KYLE EVERETT, Chapter 11 Trustee, 

Plaintiff, 

v. 

DARROW FAMILY PARTNERS, 

Defendant. 

Case No. 15-cv-06324-MMC 

Bankruptcy Case No. 14-54232 MEH, 

 Adv. Proc. No. 14-05105 

DECISION AFFIRMING JUDGMENT OF 

BANKRUPTCY COURT 

Before the Court is defendant/appellant Darrow Family Partner's ("Darrow") appeal 

from the judgment entered December 8, 2015, in the United States Bankruptcy Court, in 

favor of Kyle Everett, the Chapter 11 trustee ("Trustee") for the estate of Pacific Thomas 

Corporation ("Debtor"). Having read and considered appellant's brief1

 and the record on 

appeal, the Court rules as follows. 

On August 5, 2014, the Trustee commenced an adversary proceeding against 

Darrow, in which the Trustee sought to avoid and recover from Darrow transfers in the 

amount of $22,024.15, which transfers allegedly were made to or for the benefit of 

Darrow by the Debtor or another entity, Pacific Trading Ventures ("PTV"), in violation of 

Title 11 of the United States Code. (See Compl., filed August 5, 2014, Ex. 1.) With 

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The Trustee, appellee herein, did not file a brief. 

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respect to the transfers by PTV, the parties appeared to agree that the funds transferred 

were rental payments collected by PTV from customers of a self-storage facility owned by 

the Debtor. The parties disagreed, however, as to whether the rental payments were the 

property of the Debtor or PTV, said dispute being centered on the nature of the 

contractual relationship between the Debtor and PTV. The Trustee took the position that 

the relationship was governed by a 2003 management services agreement under which 

PTV collected rent on behalf of the Debtor, i.e., that the rental payments were the 

property of the Debtor, whereas Darrow took the position that the relationship was 

governed by a 2005 lease agreement whereby PTV leased the self-storage facility from 

the Debtor, i.e., that the rental payments were the property of PTV. 

After conducting a court trial, the bankruptcy court found the Trustee was entitled 

to the total amount sought, specifically, $22,059.51. 

In the instant appeal, Darrow raises two arguments, which the Court considers in 

turn. 

A. Issue Preclusion 

Darrow argues the bankruptcy court erred in finding the sums transferred by PTV 

were the property of the Debtor.2 In that regard, Darrow first observes that, in a prior 

adversary proceeding brought by the Trustee against PTV and others, but not Darrow, 

the bankruptcy court had found the lease agreement between the Debtor and PTV was 

invalid and that the contractual relationship between said entities was governed by the 

management services agreement.3

 Based thereon, Darrow contends the bankruptcy 

 2

In its brief, Darrow contends all of the challenged transfers were made by PTV. 

Darrow, however, cites no evidence to support such contention, and the above-cited 

exhibit to the complaint reflects at least one transfer by the Debtor. (See id.) 

Nevertheless, in light of the ruling set forth below, the Court does not further address 

herein Darrow's failure to identify the transfers implicated by its issue preclusion 

argument. 

3

The judgment entered in the prior proceeding was affirmed by this Court. See 

Everett v. Whitney (In Re Pacific Thomas Corp.), 2016 WL 2643679, at *5 (N.D Cal. May 

10, 2016) (affirming judgment; finding bankruptcy court "did not err in finding the 2005 

[l]ease was invalid and unenforceable"). 

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court, in the instant adversary proceeding, erroneously determined that Darrow was 

"bound" by the judgment entered against PTV in the prior adversary proceeding (see 

Opening Brief at 11:14-16), despite the fact that Darrow was not a party to that action. 

As set forth below, the Court finds the bankruptcy court did not base its 

determination on a finding that Darrow was bound by the bankruptcy court's decision in 

the prior adversary proceeding. 

First, the bankruptcy court found the Trustee had met its burden to show that any 

transfers to Darrow by PTV were the property of the Debtor. As the bankruptcy court 

explained, the Trustee had served on Darrow requests for admission in which Darrow 

was asked to admit (1) the Debtor and PTV were parties to a management services 

agreement in which PTV agreed to "provide property management services to [the] 

Debtor at [the] Debtor's self-storage facilities" and (2) any transfer made to Darrow by 

PTV that the Trustee sought to avoid and recover was "a transfer of an interest of the 

Debtor in property" (see Memorandum Decision, filed December 8, 2015, at 2:5-6, 2:26, 

3:2-12), after which Darrow failed to respond to either such request (see id. at 2:6-7). As 

the bankruptcy court further explained, where a party fails to respond to a request for 

admission, the request is deemed "admitted," see Fed. R. Civ. P 36(a)(3), and such 

admitted matter is "conclusively established unless the court, on motion, permits the 

admission to be withdrawn or amended," see Fed. R. Civ. P. 36(b). Noting Darrow "did 

not file a motion to withdraw its admissions" (see Memorandum Decision at 2:10), the 

bankruptcy court found the Trustee "had established by [Darrow's] admissions that each 

Transfer was a transfer of an interest of the Debtor in property" (see id. at 2:11-12; 13:10-

11). 4

// 

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Darrow has not challenged the bankruptcy court's rulings with respect to the effect 

of Darrow's failure to respond to the Trustee's requests for admission. 

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Next, the bankruptcy court, although finding the Trustee, given Darrow's 

admissions, had established the subject transfers were the property of the Debtor, 

nonetheless afforded Darrow the "opportunity to introduce evidence in support of its 

defenses," including its defense that any transfers Darrow received from PTV were the 

property of PTV. (See id. at 2:26, 3:8-12, 6:21-22, 6:24-7;1; 13:2-3.) 5 In that regard, to 

support its position that the contractual relationship between the Debtor and PTV was 

governed by the lease agreement and not the management services agreement, Darrow 

offered testimony by one of its officers, documentary evidence and the "transcript from 

the trial in the prior adversary proceeding." (See id. at 13:11-14.) The bankruptcy court, 

while noting its prior ruling on the issue as presented in the earlier adversary proceeding, 

expressly acknowledged Darrow's argument that Darrow was not bound by such prior 

determination (see id. at 13:3-9), after which the bankruptcy court identified the evidence 

Darrow had offered "[i]n this case" (see id. at 13:10), and made the following findings: 

On the basis of the evidence presented, the court does not find [Darrow's] 

argument persuasive in this adversary proceeding — particularly when taking 

into consideration the testimony introduced through the prior trial transcript. 

The evidence presented is insufficient to overcome [Darrow's] admission that 

each transfer was a transfer of an interest in Debtor's property. 

(See id. at 13:14-18.) 

The Memorandum Decision thus makes clear that the bankruptcy court's 

determination was based on the evidence presented at the trial conducted on the claims 

in the Trustee's complaint against Darrow, i.e., "in this adversary proceeding" (see id.), 

and not based on a finding that Darrow was bound by the bankruptcy court's decision in 

the prior adversary proceeding. Indeed, if the bankruptcy court was of the view that its 

prior determination was binding on Darrow, there would have been no need to allow 

Darrow to offer evidence and then determine whether or not such evidence was 

persuasive. 

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The bankruptcy court made the ruling over objection by the Trustee. As the 

Trustee has not filed a brief in response to Darrow's appellate brief, the merits of such 

objection are not before this Court. 

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B. Claim Preclusion 

 Darrow asserts, in the alternative to the above-referenced argument, that it was in 

privity with a party to the prior adversary proceeding, and that the bankruptcy court erred 

by finding Darrow had failed to show the claims alleged by the Trustee in the instant 

adversary proceeding were barred under the doctrine of claim preclusion. 

"Under the doctrine of claim preclusion, a final judgment forecloses successive 

litigation of the very same claim, whether or not relitigation raises the same issues as the 

earlier suit." Taylor v. Sturgell, 553 U.S. 880, 892 (2008) (internal quotation and citation 

omitted). Claim preclusion applies "when there is: (1) an identity of claims; (2) a final 

judgment on the merits; and (3) identity or privity between parties." Stewart v. U.S. 

Bancorp, 297 F.3d 953, 956 (9th Cir. 2002). "A party asserting preclusion must carry the 

burden of establishing all necessary elements." Taylor, 553 U.S. at 907 (internal citation 

and quotations omitted). 

Before the bankruptcy court, Darrow argued that, under the doctrines of privity and 

claim preclusion, the Trustee was barred from proceeding against Darrow in the instant 

adversary proceeding, having named, as a defendant to the prior adversary proceeding, 

Randall Whitney, a general partner in Darrow. The bankruptcy court rejected Darrow's 

argument. Having reviewed that ruling de novo, the Court finds no error because, as 

discussed below, the claims alleged in the two actions are not the same. See Robi v. 

Five Platters, Inc., 838 F.2d 318, 321 (9th Cir.1988) (holding trial court's "ruling as to 

availability of . . . claim preclusion" is reviewed "de novo").6

As noted above, the Trustee, in the prior adversary proceeding, sought to recover 

payments made to PTV by customers of the self-storage facility owned by the Debtor. 

(See Complaint, Everett v. Whitney, Bankr. Case No. 13-4079, filed April 11, 2013.) As 

further noted above, the Trustee, in the instant adversary proceeding, sought to recover 

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In light of this finding, the Court does not address herein Darrow's argument that it 

was in privity with Randall Whitney. 

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payments made to Darrow by PTV; Darrow has not shown the propriety of any such 

transfer was at issue in the prior proceeding. (See, e.g., Compl. Ex. 1 (identifying, as 

among transfers Trustee sought to recover from Darrow in instant proceeding, $2500 

yacht harbor fee, $559.79 drapery fee, $279.30 for meals in Hawaii, $256.64 medical 

services charge, $467.68 in fees owed to "legal" consultants, and numerous bank fees 

and charges).) 

C. Summary 

In sum, as the bankruptcy court did not base its decision on a finding that Darrow 

was bound by the determination in the prior proceeding, and did not err in finding Darrow 

failed to show that any claim in the instant proceeding was barred by the doctrine of claim 

preclusion, Darrow has failed to show it is entitled to any relief on appeal. 

CONCLUSION 

 For the reasons stated above, the judgment of the bankruptcy court is hereby 

AFFIRMED. 

IT IS SO ORDERED. 

Dated: December 8, 2016 

 MAXINE M. CHESNEY 

 United States District Judge 

Case 3:15-cv-06324-MMC Document 24 Filed 12/08/16 Page 6 of 6