1

NOT FOR PUBLICATION

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE NINTH CIRCUIT

In re:

NATHANIEL BASOLA SOBAYO,

Debtor.

BAP No. NC-20-1151-BSG

Bk. No. 19-50887-SLJ

Adv. No. 19-05044-SLJ 

MEMORANDUM1

NATHANIEL BASOLA SOBAYO

Appellant,

v.

HIEN THI NGUYEN; ROBERT K. LANE;

DANIEL BUTT; KHIEM NGUYEN;

AVALON NGUYEN GARDNER LIVING

TRUST; HONG JACQUELINE

GARDNER,

Appellees.

Appeal from the United States Bankruptcy Court

for the Northern District of California

Stephen L. Johnson, Bankruptcy Judge, Presiding

Before: BRAND, SPRAKER, and GAN, Bankruptcy Judges.

INTRODUCTION

Nathaniel B. Sobayo appeals an order dismissing with prejudice his 

adversary complaint against Hien Thi Nguyen ("Nguyen"), Khiem Nguyen,

1 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.

FILED

JUN 9 2021

SUSAN M. SPRAUL, CLERK

U.S. BKCY. APP. PANEL

OF THE NINTH CIRCUIT
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and their attorney, Robert K. Lane (collectively, "Defendants").2 Sobayo 

claimed that Defendants willfully violated the automatic stay with their 

foreclosure sales of real property purportedly co-owned by Sobayo and his 

solely-owned limited liability company, Kingsway Capital Partners, LLC 

("Kingsway"). On Defendants' motion to dismiss, the bankruptcy court 

determined that there was no stay violation and therefore neither Sobayo nor 

Kingsway had a claim against Defendants. Sobayo also appeals a previous 

order setting aside a default entered against Defendants. Seeing no reversible 

error by the bankruptcy court with respect to either order, we AFFIRM.

FACTS

A. Events leading to the adversary complaint3

In May 2017, Kingsway purchased a single-family home which it 

financed by borrowing $580,000 from Nguyen ("Residence"). The promissory 

note was secured by a deed of trust against the Residence in favor of Nguyen.

Once Kingsway ceased making payments to Nguyen in February 2018, 

Defendants started foreclosure proceedings. What followed was a series of 

state court litigation and bankruptcy filings by Kingsway and Sobayo in what 

could only be viewed as an attempt to enjoin the foreclosure sales.

Kingsway filed a chapter 114 case on October 31, 2018. It was dismissed 

on November 8, 2018, for lack of counsel. One week later, Kingsway 

2 Appellees Daniel Butt, Avalon Nguyen Gardner Living Trust, and Hong 

Jacqueline Gardner did not appear in this appeal.

3 We exercised our discretion to take judicial notice of documents electronically filed 

in the bankruptcy court in this case. See Atwood v. Chase Manhattan Mortg. Co. (In re 

Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003).
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transferred 95% of its interest in the Residence to Sobayo. This left Kingsway 

with a 5% interest in the Residence.

Sobayo then began filing his chapter 13 cases. The first was filed on 

December 5, 2018, and dismissed on February 4, 2019, for failure to file 

documents. The second was filed on April 30, 2019. The 30-day automatic 

stay in the second case was set to expire on May 30. After briefly extending

the stay, the bankruptcy court terminated the stay in Sobayo's second case on 

June 25, 2019. The second case was ultimately dismissed in August 2019.

On May 1, 2019, Defendants foreclosed on Kingsway's 5% interest in 

the Residence. On July 3, 2019, Defendants foreclosed on Sobayo's 95% 

interest in the Residence.

B. The adversary complaint

1. The default

Sobayo then filed the instant adversary complaint against Defendants.

He alleged that Defendants violated the automatic stay in his second case 

with the May 1 foreclosure sale of Kingsway's 5% interest in the Residence.

When Defendants did not file an answer by the deadline, Sobayo 

obtained an entry of default. Just before Sobayo filed his motions for default 

judgment, Defendants moved to set aside the default on the ground that they 

did not receive service of the summons and complaint. Defendants argued

4 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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that they first learned of the adversary complaint in a pleading Sobayo filed 

in state court months later. In response, Sobayo filed a 63-page document 

requesting a continuance to find an attorney, which Defendants' opposed.

A hearing on the motion to set aside the entry of default was set for 

March 24, 2020. However, with the court closure due to the COVID-19 

pandemic and the bankruptcy court's belief that oral argument was 

unnecessary to decide the issue, on March 20, 2020, the court entered a 

written decision and order and vacated the hearing. The court granted 

Defendants' motion on three grounds. First, it questioned the veracity of 

Sobayo's certificate of service and found that Defendants may not have been 

served with the summons and complaint. The court further found that 

Defendants presented a meritorious defense. It appeared from the record that 

they did not violate the automatic stay with respect to Kingsway or Sobayo 

with the two foreclosure sales. Finally, the court found that Sobayo would 

suffer no prejudice if the default were set aside. Sobayo's motions for default 

judgment were denied as moot.

Sobayo appealed the order setting aside the entry of default to the BAP. 

The appeal was dismissed as interlocutory on May 26, 2020.

2. The motion to dismiss 

Defendants then moved to dismiss Sobayo's complaint under Civil Rule 

12(b)(6) and Rule 7012, arguing that he failed to state a claim upon which 

relief could be granted. Although Sobayo's complaint appeared to address 

only the foreclosure of Kingsway's 5% interest in the Residence, Defendants 
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argued that neither foreclosure sale violated the automatic stay in either 

debtor's case. As argued by Defendants, the foreclosure of Kingsway's 5% 

interest in the Residence occurred on May 1, 2019, months after its chapter 11 

case was dismissed. Further, Sobayo's individual bankruptcy filing on April 

30, 2019, had no effect on Kingsway's 5% interest in the Residence, so the May 

1 foreclosure sale did not violate the stay in Sobayo's case either. Finally, the 

foreclosure of Sobayo's 95% interest in the Residence on July 3, 2019, did not 

violate the stay in Sobayo's case because there was no stay in effect in his case 

after June 25, 2019.

Sobayo opposed the motion to dismiss and requested a continuance to 

find an attorney. His lengthy "cut and paste" brief offered little in defense of 

the motion, other than to say that Defendants violated the automatic stay.

The bankruptcy court entered a written decision and order granting

Defendants' motion to dismiss, finding that, as a matter of law, the two 

foreclosure sales did not violate the automatic stay in either debtor's case. The 

court further found that granting Sobayo leave to amend would be futile. His 

complaint was dismissed with prejudice. This timely appeal followed. 

JURISDICTION

The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and 

157(b)(2)(G). We have jurisdiction under 28 U.S.C. § 158.5

5 Defendants argue that Sobayo lacked standing to bring the adversary, and thus 

lacks standing to appeal, because it was Kingsway's interest that was foreclosed in the first 

sale, not Sobayo's. If the order addressed only Kingsway's interest we would agree. But the 

bankruptcy court also found that Defendants did not violate the automatic stay with the 

foreclosure of Sobayo's 95% interest. Thus, he is a "person aggrieved," at least in part, by 
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ISSUES

1. Did the bankruptcy court abuse its discretion in setting aside the entry 

of default?6

2. Did the bankruptcy court err in dismissing Sobayo's complaint?

3. Did the bankruptcy court abuse its discretion in dismissing Sobayo's 

complaint without leave to amend? 

STANDARDS OF REVIEW

We review for abuse of discretion the bankruptcy court's decision to set 

aside an entry of default. Mendoza v. Wight Vineyard Mgmt., 783 F.2d 941, 945 

(9th Cir. 1986).

We review de novo the bankruptcy court's grant of a Civil Rule 12(b)(6) 

motion to dismiss. Movsesian v. Victoria Versicherung AG, 670 F.3d 1067, 1071 

(9th Cir. 2012). In considering a motion to dismiss under Civil Rule 12(b)(6), 

all well-pleaded factual allegations in the complaint must be accepted as true 

and construed in the light most favorable to the plaintiff. Johnson v. Riverside 

Healthcare Sys., LP, 534 F.3d 1116, 1122 (9th Cir. 2008).

We review the bankruptcy court's dismissal of a complaint without 

leave to amend and with prejudice for abuse of discretion. Tracht Gut, LLC v. 

L.A. Cnty. Treasurer & Tax Collector (In re Tracht Gut, LLC), 836 F.3d 1146, 1150 

the order. See Fondiller v. Robertson (In re Fondiller), 707 F.2d 441, 442-43 (9th Cir. 1983).

6 Now that the bankruptcy court has entered a final order dismissing the complaint 

with prejudice, the interlocutory order setting aside the default is reviewable on appeal. 

See Harvey v. Waldron, 210 F.3d 1008, 1012 (9th Cir. 2000) (an appeal from a final judgment 

draws in question all earlier, non-final orders which led to the judgment), overruled in part 

on other grounds by Wallace v. Kato, 549 U.S. 384 (2007).
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(9th Cir. 2016) (citing AE ex rel. Hernandez v. Cnty. of Tulare, 666 F.3d 631, 636 

(9th Cir. 2012)). A bankruptcy court abuses its discretion if it applies the 

wrong legal standard, or misapplies the correct legal standard, or if it makes 

factual findings that are illogical, implausible, or without support in 

inferences that may be drawn from the facts in the record. United States v. 

Hinkson, 585 F.3d 1247, 1261-62 (9th Cir. 2009) (en banc).

DISCUSSION

A. The bankruptcy court did not abuse its discretion in setting aside the 

entry of default.

The court may set aside an entry of default for good cause. Civil Rule 

55(c); Rule 7055. Defaults are disfavored by the courts, since defaults are 

inconsistent with the court's preference for resolving disputes on the merits. 

United States v. Signed Pers. Check No. 730 of Yubran S. Mesle, 615 F.3d 1085, 

1091 (9th Cir. 2010). The court's discretion is particularly broad where a party 

seeks to set aside an entry of default rather than a default judgment.

Mendoza, 783 F.2d at 945.

A court should consider three factors when deciding whether to set 

aside a default: (1) whether the movant engaged in culpable conduct that led 

to the default; (2) whether the movant had no meritorious defense; and (3) 

whether setting aside the default would prejudice the non-moving party. 

Signed Pers. Check No. 730 of Yubran S. Mesle, 615 F.3d at 1091. The factors are 

disjunctive, and the court may deny relief if any one of the three is true. Id.
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Sobayo's brief not only violates a number of appellate briefing rules, it 

is incomprehensible. However, he appears to argue that the bankruptcy court 

erred in finding that he may not have served Defendants with the summons 

and complaint. Defendants maintained that they were not served and that 

they did not learn of Sobayo's adversary action until he referenced it in a state 

court filing months later. Sobayo claimed he did serve Defendants through 

his process server, Mr. Christopher Franz Wuillemin. "If a defendant has 

received actual or constructive notice of the filing of the action and failed to 

answer, its conduct is culpable." Franchise Holding II, LLC v. Huntington Rests. 

Grp., Inc., 375 F.3d 922, 926 (9th Cir. 2004) (cleaned up).

The bankruptcy court questioned Sobayo's purported service, and for

good reason. Mr. Wuillemin's business address listed in the certificate of 

service was the same as Sobayo's home address. The court further observed 

that Mr. Wuillemin's email address in another pleading filed by Sobayo was 

nathaniel.sobayo@gmail.com. Given the record, the court's finding that 

Defendants may have not been served was not clearly erroneous. In addition, 

when Defendants did learn of Sobayo's complaint and the entry of default, 

they promptly filed the motion to set aside. This too cuts against any 

culpability.

Sobayo fails to address the bankruptcy court's other reasons for setting 

aside the default – meritorious defense and lack of prejudice to Sobayo. A 

defense is meritorious if "there is some possibility that the outcome of the suit 

after a full trial will be contrary to the result achieved by the default." Haw. 
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Carpenters' Tr. Funds v. Stone, 794 F.2d 508, 513 (9th Cir. 1986) (citation 

omitted). In their motion to set aside, Defendants offered strong prima facie 

evidence that they did not violate the automatic stay with the two foreclosure 

sales. And, as the court later found, they did not. There was also no prejudice 

to Sobayo. As the court correctly observed, setting aside the default meant 

only that Sobayo had to litigate his claims on the merits, which is what he 

signed up for when he filed his complaint. There was no evidence that setting 

aside the default would hinder Sobayo's ability to prosecute his case. See TCI 

Grp. Life Ins. Plan v. Knoebber, 244 F.3d 691, 701 (9th Cir. 2001), overruled on 

other grounds by Egelhoff v. Egelhoff, 532 U.S. 141 (2001) (delay in resolution of 

the case is not enough to establish prejudice when setting aside a default; the 

standard is whether plaintiff's ability to pursue its claim will be hindered).

In sum, all of the "good cause" factors supported setting aside the entry 

of default. Accordingly, the bankruptcy court did not abuse its discretion in 

granting Defendants' motion. To the extent Sobayo contends that the court 

violated his due process rights by vacating the hearing set for March 24, 2020, 

and deciding the matter on the papers, we disagree. The courthouse was 

closed for in-person hearings during this time due to the COVID-19 

pandemic. Further, Sobayo had the opportunity to present an objection in his 

papers. "[I]t is well settled that oral argument is not necessary to satisfy due 

process." Toquero v. I.N.S., 956 F.2d 193, 196 n.4 (9th Cir. 1992) (citing cases). 

Given the circumstances, the bankruptcy court was well within its discretion 

to dispense with oral argument and vacate the hearing.
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B. The bankruptcy court did not err in dismissing Sobayo's complaint.

Under Civil Rule 12(b)(6), applicable here by Rule 7012, a complaint is 

subject to dismissal where it lacks a cognizable legal theory, Balistreri v. 

Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990), or where the allegations 

on their face "show that relief is barred" for some legal reason, Jones v. Bock, 

549 U.S. 199, 215 (2007). When ruling on a Civil Rule 12(b)(6) motion to 

dismiss, the court may consider documents attached to the complaint, 

documents incorporated by reference in the complaint, or matters of judicial 

notice without converting the motion into one for summary judgment. United 

States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003).

The pleading of a pro se litigant is held to a less stringent standard than 

a pleading drafted by an attorney and is afforded the benefit of any doubt. 

Hebbe v. Pliler, 627 F.3d 338, 342 (9th Cir. 2010). Further, a pro se litigant must 

be given leave to amend unless it is absolutely clear that the complaint's 

deficiencies cannot be cured by amendment. Lucas v. Dep't of Corr., 66 F.3d 

245, 248 (9th Cir. 1995).

Sobayo argues that the bankruptcy court erred in granting the motion 

to dismiss because Defendants violated the automatic stay. Precisely, Sobayo 

argues that the Kingsway entity is his personal property, and thus any 

interest Kingsway held in the Residence was his interest as well. Hence, his 

argument goes, Defendants violated the automatic stay in his individual 

chapter 13 case filed on April 30, 2019, when they foreclosed on Kingsway's 

5% interest in the Residence on May 1, 2019.
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As the bankruptcy court explained, Sobayo has a fundamental 

misunderstanding as to the legal separation between him and his solelyowned LLC. Kingsway is (or was) a Delaware limited liability company. 

Under Delaware law, although a limited liability company interest is 

personal property, a member has no interest in specific property of the LLC. 

DEL. CODE ANN. TIT. 6, § 18-701. See also Burtch v. Opus, L.L.C. (In re Opus East 

L.L.C.), 480 B.R. 561, 575 (Bankr. D. Del. 2012) (finding under § 18-701 that the 

chapter 7 trustee lacked standing to bring a cause of action for conversion of

the LLC's property because the sole member of the LLC had no interest in the 

LLC's property). Thus, Sobayo, as a member of Kingsway, had no interest in 

Kingsway's 5% interest in the Residence, and Defendants' foreclosure of 

Kingsway's interest could not have violated the automatic stay in Sobayo's 

chapter 13 case. And, to be thorough, the later foreclosure of Sobayo's 95% 

interest in the Residence on July 3, 2019, did not violate the stay in Sobayo's 

case because it terminated on June 25, 2019.

Sobayo's claims were barred as a matter of law. Accordingly, the 

bankruptcy court did not err in granting Defendants' motion and dismissing 

the complaint.

C. The bankruptcy court did not abuse its discretion in dismissing 

Sobayo's complaint without leave to amend.

"Dismissal of a pro se complaint without leave to amend is proper only 

if it is absolutely clear that the deficiencies of the complaint could not be 
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cured by amendment." Schucker v. Rockwood, 846 F.2d 1202, 1203-04 (9th Cir. 

1988) (cleaned up); see also Lucas, 66 F.3d at 248. 

Sobayo did not request an opportunity to amend his complaint. He 

does not contend that the bankruptcy court should have allowed him to 

amend his complaint nor does he suggest what amendment he would make 

had he been allowed to do so. However, given that his claims are barred as a 

matter of law, any deficiencies of his complaint could not be cured by 

amendment. See Jones, 549 U.S. at 215 (a complaint is subject to dismissal 

under Civil Rule 12(b)(6) where the allegations on their face are barred for 

some legal reason). Accordingly, the bankruptcy court did not abuse its 

discretion in dismissing Sobayo's complaint without leave to amend.7

CONCLUSION

For the reasons stated above, we AFFIRM.

7 In his final plea, Sobayo asks that we provide him justice by correcting all of the 

evils done to him by Defendants and others with respect to the Residence. This Panel is 

bound by the Code as well as other federal and state law. We cannot correct any of his 

perceived wrongs inconsistent with the law and the facts of the case.