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FILED

MAR 21 2017

SUSAN M. SPRAUL, CLERK

U.S. BKCY. APP. PANEL

OF THE NINTH CIRCUIT

NOT FOR PUBLICATION

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE NINTH CIRCUIT

In re: ) BAP No. CC-16-1273-FCTa

)

LIBERTY ASSET MANAGEMENT ) Bk. No. 2:16-bk-13575-TD

CORPORATION, a California )

corporation, )

)

Debtor. )

_____________________________ )

)

MAXWELL REAL ESTATE )

INVESTMENT, LLC; CHUNBO ZHANG;)

CHENHAN WU; GOLDEN STONE )

INVESTMENT, LLC, )

)

Appellants, )

)

v. ) MEMORANDUM*

)

LIBERTY ASSET MANAGEMENT )

CORPORATION, a California )

corporation, )

)

Appellee. )

______________________________)

Argued and Submitted on February 23, 2017

at Pasadena, California

Filed – March 21,2017

Appeal from the United States Bankruptcy Court

for the Central District of California

Honorable Thomas B. Donovan, Bankruptcy Judge, Presiding

 

Appearances: Stephen E. Ensberg argued on behalf of Appellants

Maxwell Real Estate Investment, LLC, Chunbo Zhang,

Chenhan Wu, and Golden Stone Investment, LLC;

David B. Golubchik of Levene, Neale, Bender, Yoo &

FILED

MAR 21 2017

SUSAN M. SPRAUL, CLERK

U.S. BKCY. APP. PANEL

OF THE NINTH CIRCUIT

* This disposition is not appropriate for publication. 

Although it may be cited for whatever persuasive value it may

have, see Fed. R. App. P. 32.1, it has no precedential value, see

9th Cir. BAP Rule 8024-1.
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Brill LLP argued on behalf of Appellee Liberty

Asset Management Corporation. 

 

Before: FARIS, CLEMENT,** and TAYLOR, Bankruptcy Judges.

INTRODUCTION

Appellants Maxwell Real Estate Investment, LLC, Chunbo

Zhang, Chenhan Wu, and Golden Stone Investment, LLC

(collectively, “Maxwell Defendants”) sought relief from the

automatic stay to prosecute their counterclaims against

chapter 111 debtor Liberty Asset Management Corporation

(“Liberty”) in California state court or the bankruptcy court. 

The bankruptcy court correctly noted that the Maxwell Defendants

did not need stay relief to pursue their claims against Liberty

in the bankruptcy forum and described their arguments as “a whole

lot of nothing.” We agree and AFFIRM.

FACTUAL BACKGROUND

A. Prepetition events and Liberty’s bankruptcy filing

In 2012, the Maxwell Defendants loaned Liberty $5.4 million. 

Liberty misused the funds, and the Maxwell Defendants demanded

that Liberty return the money. Liberty agreed to repay the loan

with interest. Liberty also agreed to convey to the Maxwell

Defendants several parcels of real property. The proceeds from

** he Honorable Fredrick E. Clement, United States

Bankruptcy Judge for the Eastern District of California, sitting

by designation.

1 Unless specified otherwise, all chapter and section

references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, 

all “Rule” references are to the Federal Rules of Bankruptcy

Procedure, and all “Civil Rule” references are to the Federal

Rules of Civil Procedure.

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the sales of those properties were to pay down Liberty’s debt. 

After the properties were sold, Liberty still owed the Maxwell

Defendants over $1.4 million.

The parties entered into another agreement whereby Liberty

agreed to transfer real property located on 10th Street in Santa

Monica, California (the “10th Street Property”) to the Maxwell

Defendants for sale. Following the sale of the 10th Street

Property, the Maxwell Defendants alleged that Liberty still owed

them $489,910.81. In contrast, Liberty argued that the Maxwell

Defendants owed it over $2.5 million.

Liberty filed a lawsuit in the California superior court

(the “State Court Action”) against the Maxwell Defendants. 

Before the Maxwell Defendants responded to the operative second

amended complaint, Liberty filed a voluntary chapter 11 petition. 

Liberty also removed the State Court Action to the bankruptcy

court.

B. The motion for relief from stay

The bankruptcy court issued an order to show cause (“OSC”)

why the State Court Action should not be remanded to the state

court. On July 27, 2016, the Maxwell Defendants filed a motion

for relief from the automatic stay (“Motion for Relief”), an

answer to the second amended complaint, a proposed counterclaim,

and a motion to remand the case to the state court (“Motion to

Remand”).

The Motion for Relief requested that the bankruptcy court

grant the Maxwell Defendants relief from the automatic stay so

that they could pursue their counterclaims against Liberty in the

state court. They argued that the State Court Action involved

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state law claims that did not affect the bankruptcy proceedings. 

They also contended that they wanted to litigate their

counterclaims in a “non-bankruptcy forum.”

Liberty opposed the Motion for Relief, arguing that the

request was inappropriate because there was no longer any

proceeding in the state court after Liberty removed the State

Court Action to the bankruptcy court; that there was no “cause”

to grant relief; and that the State Court Action was a core

bankruptcy proceeding.

In their reply, the Maxwell Defendants insisted that the

State Court Action was not a core proceeding and should be

litigated in the state court. They claimed that Liberty was

attempting to prevent them from “fully presenting and litigating

[their] contractual transactional dispute with Liberty[.]” They

also rejected the notion of pursuing their counterclaims against

Liberty in the bankruptcy court: “A Proof of Claim is obviously

an insufficient vehicle to enable the Court to evaluate the

nature and breadth of the full and complete dispute between the

Parties.” Although the Maxwell Defendants requested that the

court grant the Motion for Relief “so that the state court

action, BC588682 may proceed in state court[,]” they implied for

the first time that they also sought stay relief to file their

counterclaim in the adversary proceeding before the bankruptcy

court: “[i]f the Court does not remand the case, Maxwell still

needs stay relief to file and present its claims in the pending

removed Adversary Proceeding based on the 2nd Amended Complaint

filed by Liberty.”

After a hearing, the bankruptcy court withdrew the OSC and

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denied the Motion to Remand. This appeal does not include those

decisions.2 

The bankruptcy court held a separate hearing on the Motion

for Relief. The Maxwell Defendants argued that the bankruptcy

court “should allow us to proceed with this counterclaim in the

bankruptcy court as part of this adversary proceeding, so that

the Court can have a full elucidation of the facts presented by

the parties, rather than a truncated, restrictive issue . . . .”

The court explained to the Maxwell Defendants that they did

not need stay relief to file anything in the bankruptcy court and

that their claims would be heard at the appropriate time and

context: 

I still don’t see the problem. You know, we’re

here today because of your motion for relief from stay,

and I think your premise for the motion is just --

doesn’t fit with what we do in this bankruptcy world we

live in here.

The bankruptcy world’s a little different than the

outside world. You don’t need relief from stay to make

trouble for the debtor in this court. You can file

anything you want to in this court to call the debtor

to account. You don’t need relief from stay to do

that. If you think the debtor has cheated you out of

something, or is cheating you out of something, or is

taking money out of your pocket, you can file the

motion, and I’ll hear the motion. That’s really the

answer to your relief from stay motion, it’s just not

necessary. There’s nothing that I’m aware of in the

bankruptcy law that prevents you from making any claim

you want against this debtor, if you think this debtor

has treated you badly. And that will be heard in this

court whenever it comes up, however it comes up.

2 The Maxwell Defendants appealed the denial of the Motion

to Remand to the BAP, BAP No. CC-16-1270. A motions panel

determined that the appeal was interlocutory, denied leave to

appeal, and dismissed the appeal. The Maxwell Defendants do not

seek further review of the bankruptcy court’s denial of the

Motion to Remand in this appeal.

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(Emphases added.) The court accordingly denied the Motion for

Relief, and the Maxwell Defendants timely appealed.

JURISDICTION

The bankruptcy court had jurisdiction pursuant to 28 U.S.C.

§§ 1334 and 157(b)(2)(G). We have jurisdiction under 28 U.S.C.

§ 158.

ISSUE

Whether the bankruptcy court erred in denying the Maxwell

Defendants relief from the automatic stay.

STANDARDS OF REVIEW

We review for an abuse of discretion the bankruptcy court’s

decision to grant or deny relief from the automatic stay under

§ 362(d). Kronemyer v. Am. Contractors Indem. Co.

(In re Kronemyer), 405 B.R. 915, 919 (9th Cir. BAP 2009)

(citation omitted). We apply a two-part test to determine

whether the bankruptcy court abused its discretion. United

States v. Hinkson, 585 F.3d 1247, 1261–62 (9th Cir. 2009)

(en banc). First, we consider de novo whether the bankruptcy

court applied the correct legal standard to the relief requested. 

Id. Then, we review the bankruptcy court’s factual findings for

clear error. Id. at 1262. We must affirm the bankruptcy court’s

factual findings unless we conclude that they are illogical,

implausible, or without support in inferences that may be drawn

from the facts in the record. Id.

Additionally, “[w]e review de novo contentions that present

an issue of law regarding stay relief.” In re Kronemyer,

405 B.R. at 919. “De novo review requires that we consider a

matter anew, as if no decision had been made previously.” 

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Francis v. Wallace (In re Francis), 505 B.R. 914, 917 (9th Cir.

BAP 2014) (citations omitted).

DISCUSSION

A. Section 362(d)(1) allows a court to grant relief from the

automatic stay “for cause.”

The filing of a bankruptcy petition creates an automatic

stay under § 362(a), which stays specific acts against the

debtor, his property, and the property of the estate, including:

“the commencement or continuation . . . of a judicial . . .

action or proceeding against the debtor that was or could have

been commenced before the commencement of the case under this

title, or to recover a claim against the debtor that arose before

the commencement of the case under this title.” § 362(a)(1).

Section 362(d) allows the court to grant relief from the

automatic stay in certain circumstances. Section 362(d)(1)

provides that the bankruptcy court may grant a creditor relief

from stay “for cause.”

“Because there is no clear definition of what constitutes

‘cause,’ discretionary relief from the stay must be determined on

a case by case basis.” MacDonald v. MacDonald (In re MacDonald),

755 F.2d 715, 717 (9th Cir. 1985); see Fadel v. DCB United LLC

(In re Fadel), 492 B.R. 1, 11 (9th Cir. BAP 2013) (“What

constitutes ‘cause’ to terminate the stay is determined on a

case-by-case basis.”).3

3 When considering whether to lift the stay so that the

creditor may pursue prepetition litigation, we have previously

used the twelve nonexclusive factors enumerated in In re Curtis,

40 B.R. 795, 799-800 (Bankr. D. Utah 1984). See Lapierre v.

(continued...)

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“[T]he party seeking relief must first establish a prima

facie case that ‘cause’ exists for relief under § 362(d)(1). 

Once a prima facie case has been established, the burden shifts

to the debtor to show that relief from the stay is unwarranted. 

If the movant fails to meet its initial burden to demonstrate

cause, relief from the automatic stay should be denied.” 

In re Advanced Med. Spa Inc., 2016 WL 6958130, at *4. 

B. The bankruptcy court did not abuse its discretion in denying

stay relief.

1. The Maxwell Defendants sufficiently raised before the

bankruptcy court the issue of lifting the stay in the

adversary proceeding.

Liberty argues that the Maxwell Defendants only requested

that the bankruptcy court lift the stay to allow them to

prosecute their counterclaims in the state court. It contends

that, as a result, the Maxwell Defendants cannot argue for the

first time on appeal for stay relief to pursue their claims in

the bankruptcy court. We disagree.

As a general rule, we will only consider on appeal issues

that were distinctly raised before the bankruptcy court. See

O’Rourke v. Seaboard Sur. Co. (In re E.R. Fegert, Inc.), 887 F.2d

955, 957 (9th Cir. 1989) (“appellate courts will not consider

arguments that are not ‘properly raise[d]’ in the trial courts”). 

An issue “must be raised sufficiently for the trial court to rule

on it” in the first instance. Id.

3(...continued)

Advanced Med. Spa Inc. (In re Advanced Med. Spa Inc.), BAP No.

EC-16-1087, 2016 WL 6958130, at *3-4 (9th Cir. BAP Nov. 28, 2016)

(enumerating the Curtis factors); In re Kronemyer, 405 B.R. at

921 (recognizing the Curtis factors).

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Liberty is correct that the Motion for Relief emphasized the

request for stay relief to pursue counterclaims in the state

court. The only mention of the Maxwell Defendants’ desire for

relief to pursue claims in the bankruptcy court came in one

passing sentence in their reply brief. There is no doubt that

the Maxwell Defendants’ filings focused almost exclusively on

getting their claims litigated in the state court. 

 However, following the court’s denial of the Motion to

Remand, the Maxwell Defendants changed tactics at the hearing on

the Motion for Relief and emphasized their request for stay

relief to proceed in the bankruptcy court. They specifically

requested that the court “allow us to proceed with this

counterclaim in the bankruptcy court as part of this adversary

proceeding.”

While the Maxwell Defendants did not raise the request to

lift the stay to proceed in bankruptcy court in their written

submissions until the reply brief, the argument was sufficiently

raised at the hearing, and it was the only relief considered by

the court.4 Because the court had a sufficient opportunity to

consider the issue and made an informed ruling, this issue is

appropriate for our review.

Conversely, Liberty attempts to confuse the issues by

introducing new arguments at the oral argument before this Panel. 

4 Liberty argues that we cannot consider arguments not

raised in the Motion for Relief, since it could not respond in

writing. However, Liberty could have addressed the arguments at

the hearing on the motion. Moreover, the only operative question

is whether the court was presented with sufficient argument to

rule on the issue currently on appeal, not whether Liberty could

sufficiently respond to that argument.

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Liberty argued for the first time at oral argument that relief

from stay is required to assert a setoff but is not required to

asserts claims of recoupment. We will not consider these new

arguments on appeal.

2. The automatic stay does not bar the Maxwell Defendants

from pursuing their claims in the bankruptcy court.

The only issue on appeal is whether the bankruptcy court

erred in denying the Maxwell Defendants relief from stay to

litigate their claims against Liberty in the bankruptcy court. 

We consider only the narrow issue of whether relief from stay is

warranted, not whether the court must afford the Maxwell

Defendants’ claims any particular procedure or consideration.

The Maxwell Defendants argue that they require stay relief

to file their counterclaim in the adversary proceeding and

consolidate all matters regarding the $5.4 million loan and

10th Street Property before the bankruptcy court. They claim

that the bankruptcy court’s ruling is prejudicial because the

mischaracterization of the issues will prevent the bankruptcy

court from understanding the full scope of the parties’

transaction. The Maxwell Defendants misapprehend the bankruptcy

court’s decision. 

We previously answered the question whether the automatic

stay prevents the bankruptcy court from adjudicating an adversary

proceeding against the debtor in a bankruptcy forum. In Prewitt

v. North Coast Village, Ltd. (In re North Coast Village, Ltd.),

135 B.R. 641 (9th Cir. BAP 1992), the debtor and a creditor were

involved in litigation in the state court. When the debtor filed

for chapter 11 bankruptcy protection, the creditor filed an

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adversary proceeding against the debtor, alleging the same claims

that were raised in the state court action. The debtor moved to

dismiss the creditor’s adversary complaint as a violation of the

automatic stay and sought sanctions. The bankruptcy court

granted the debtor’s motion and dismissed the adversary complaint

for violating the automatic stay. 135 B.R. at 642.

On appeal, the BAP reversed. We considered whether the

automatic stay prevented the creditor from pursuing an adversary

proceeding in the bankruptcy court where the bankruptcy case was

pending. Id. at 642-43. We pointed to the consensus among

various courts and said:

We agree that the stay does not apply to

proceedings commenced against the debtor in the

bankruptcy court where the debtor’s bankruptcy is

pending. Although the statutory language does not

differentiate between proceedings in bankruptcy courts

and proceedings in other courts, the application of the

stay to proceedings against the debtor in the home

bankruptcy court would be illogical and would not serve

the purposes underlying the automatic stay.

Id. at 643 (emphases added). 

As the bankruptcy court correctly told the Maxwell

Defendants, “You don’t need relief from stay to make trouble for

the debtor in this court. You can file anything you want to in

this court to call the debtor to account. You don’t need relief

from stay to do that. . . . That’s really the answer to your

relief from stay motion, it’s just not necessary.” We agree. 

The automatic stay does not preclude the Maxwell Defendants from

asserting their claims in either the main bankruptcy case or the

adversary proceeding, and the bankruptcy court’s order did not

prevent the Maxwell Defendants from filing anything concerning

the $5.4 million loan transaction. The bankruptcy court denied

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the Motion for Relief simply because relief from stay to proceed

in the bankruptcy court is unnecessary. As it said at the

hearing, the Maxwell Defendants are free to file anything they

want, and its filings will be “heard in this court whenever it

comes up, however it comes up.” Accordingly, there was no cause

to lift the stay, and the bankruptcy court did not abuse its

discretion. 

Although the automatic stay does not prevent the Maxwell

Defendants from filing counterclaims in the adversary proceeding, 

other rules might. Ordinarily, creditors assert prepetition

claims by filing proofs of claim, not complaints or counterclaims

in adversary proceedings. Compare §§ 501(a), 502(a), with

Rule 7001. The bankruptcy court may impose sanctions on a party

who files a complaint or a counterclaim where a proof of claim

would have been proper. In re N. Coast Vill., Ltd., 135 B.R. at

644 (“an adversary proceeding against the debtor seeking to

recover on a pre-petition dischargeable claim would not, under

our holding today, violate the automatic stay. Such a proceeding

could, however, be dismissed and sanctions could be awarded under

[Rule] 9011 in an appropriate proceeding, because the claim

should have been asserted through the claims allowance process”). 

But this is not an inexorable command. The bankruptcy court

could, if it so chooses, permit the Maxwell Defendants to file a

counterclaim, rather than just a proof of claim, or consolidate

an objection to the Maxwell Defendants’ proof of claim with the

adversary proceeding. The bankruptcy court also might find this

unnecessary; we do not agree with the Maxwell Defendants’

argument that they can only defend themselves and put Liberty’s

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claims in context by filing a counterclaim. 

But these broader issues are not before us. The bankruptcy

court denied the Motion for Relief simply because the motion was

unnecessary: the automatic stay did not preclude the Maxwell

Defendants from doing what they wanted to do. The bankruptcy

court’s decision was correct. 

CONCLUSION

For the reasons set forth above, the bankruptcy court did

not abuse its discretion in denying the Maxwell Defendants relief

from the automatic stay. Accordingly, we AFFIRM.

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