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FILED

MAY 02 2016

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NOT FOR PUBLICATION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-15-1273-TaKuF

)

CHONGHEE JANE KIM, ) Bk. No. 2:13-bk-25661-BB

)

Debtor. ) Adv. No. 2:14-ap-01456-BB 

______________________________)

)

BENJAMIN HOOSHIM; ALEXANDRE )

OH, )

)

Appellants, )

)

v. ) MEMORANDUM*

)

EDWARD M. WOLKOWITZ, CHAPTER ) 

7 TRUSTEE, )

)

Appellee. )

______________________________)

Argued and Submitted on February 19, 2016

at Pasadena, California

Filed – May 2, 2016

Appeal from the United States Bankruptcy Court

for the Central District of California

Honorable Sheri Bluebond, Bankruptcy Judge, Presiding

 

Appearances: Andrew Edward Smyth argued for appellants;

Matthew Abbasi argued for appellee.

 

Before: TAYLOR, KURTZ, and FARIS, Bankruptcy Judges.

* 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(c)(2).
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INTRODUCTION

Benjamin Hooshim and Alexandre Oh appeal from the

bankruptcy court’s entry of a default judgment against them and

in favor of the chapter 71 trustee. The default judgment

avoided their liens against real property pursuant to

§ 544(b)(1) and California Civil Code § 3439.04 and provided for

the Trustee’s recovery of the liens and the related notes under

§§ 550 and 551. The default judgment, however, also denied the

Trustee’s request for a recovery of title to and possession of

the real property itself given that the Trustee previously sold

it subject to the liens. The Trustee did not cross-appeal from

this determination.

Once the bankruptcy court determined that the Trustee was

not entitled to recover the real property, the only other relief

the Trustee sought in his complaint – set aside of the liens -

could not benefit the estate. We, thus, hold that the Trustee

lacked standing to seek such relief. As a result, we VACATE the

default judgment and DISMISS this appeal.

FACTS

Pre-petition Transfers and Litigation

Chapter 7 debtor Chonghee Jane Kim owned real property

located in or around Los Angeles, California, including

investment property in Sylmar (the “Property”). 

In 2010, Finnegan & Diba, a law corporation, sued Kim in

state court and obtained a judgment against her in the principal

1 Unless otherwise indicated, all chapter and section

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

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amount of $109,843.89. Unbeknownst to the law firm, during the

course of this litigation, Kim transferred all of her real

property to two wholly-owned limited liability companies for no

consideration. As relevant to this appeal, Kim transferred the

Property to E & E Global, LLC (the “LLC”).

Kim later caused the LLC to encumber the Property with two

deeds of trust, each securing a promissory note payable to one

of the Appellants.2 Appellants had previously loaned money to

Kim – not to the LLC - in the amounts set forth in the notes. 

The LLC executed its notes and recorded the trust deeds several

months later, and the timing of execution and recordation was

far from random; they were executed and recorded just one week

before entry of the judgment against Kim in the state court

action. Appellants, however, did not participate in the LLC

transactions,3 and they learned about the notes and trust deeds

at a later, unknown point in time. 

After its discovery of these transfers, Finnegan & Diba

commenced a second state court action against Kim. Among other

things, the complaint sought to set aside the transfers as

fraudulent. Within days, Kim caused the LLC to transfer the

Property back to her via quitclaim deed. She then filed a

chapter 7 petition; that case was dismissed almost a year later,

2 One note referenced a $50,000 debt owed to Hooshim; the

other note referenced a $100,000 debt owed to Oh.

3 While Appellants may not have initially known about the

LLC’s notes and trust deeds, they were close associates of Kim. 

Hooshim was married to Kim’s sister. Oh was a longtime friend

and client of Kim’s bookkeeping and accounting services.

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based on Kim’s failure to attend a continued § 341(a) meeting of

creditors. 

Following dismissal of the first bankruptcy case, Finnegan

& Diba obtained a default judgment against Kim in the second

state court action; the judgment avoided Appellants’ trust

deeds. Just days before entry of this judgment, however, Kim

filed a second chapter 7 petition. The immediate result was

that the state court default judgment was void.

Trustee’s Sale of the Property

Expeditious in his liquidation efforts, the Trustee shopped

the Property and received a third party purchase offer. The

Trustee moved for authority to sell the Property under § 363(b),

subject to overbid. Of particular importance, the sale of the

Property was subject to any existing liens. 

At the sale hearing, Kim emerged as the successful bidder.4

Following the bankruptcy court’s entry of an order confirming

the sale and receipt of payment, the Trustee quitclaimed the

Property to Kim. 

No one appealed from the sale order, and it is now final.

Trustee’s Avoidance Proceeding

Seven months after the sale order became final, the Trustee

commenced an adversary proceeding against Appellants; he did not

name Kim as a party. As relevant to this appeal,5 the adversary

4 Kim paid $35,000 and acquired the Property and two other

real properties.

5 The adversary complaint also asserted fraudulent

transfer claims pursuant to § 548(a)(1)(A) and (a)(1)(B). The

(continued...)

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complaint asserted the following claims and sought the following

relief:

! First Claim for Relief (§ 544 / Cal. Civ. Code (“CC”)

§ 3439). Avoidance of title transfer and lien transfers and

recovery of the Property.

! Fourth Claim for Relief (Quiet Title). 100% title to

and possession of the Property free and clear of the liens.

! Prayer:

! Avoidance of transfer of title and liens under

§§ 544 and CC § 3439.

! A declaration that the Property was property of

the estate free and clear of liens.

! Vesting of legal title to the Property in the

estate.

! Recovery of the Property under § 550.

! The usual “other relief” catch all and costs.

Appellants did not initially defend the avoidance

proceeding, and, when they did enter the fray, they did not

timely comply with the bankruptcy court’s directive to

participate in a mediation. As a result, the bankruptcy court

struck Appellants’ answer to the complaint and entered defaults

against them.

In moving for default judgment, the Trustee argued that

judgment was warranted by the evidence that Kim transferred and

encumbered the Property with actual intent to hinder, delay, or

5(...continued)

bankruptcy court ultimately determined that these claims were

time-barred. No cross-appeal was taken from this determination.

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defraud. Appellants opposed and focused on the effect of the

sale of the Property to Kim. They asserted that the Trustee

quitclaimed to Kim any and all interest the estate had in the

Property and, thus, that he lacked standing to pursue the

avoidance and recovery claims. 

Following a hearing, the bankruptcy court entered an order

granting in part and denying in part the Trustee’s motion for

default judgment. It determined that the Trustee had standing

to avoid Kim’s fraudulent transfers of her interests in the

Property. And it concluded that the notes and trust deeds “were

created solely for the purpose of intentionally hindering,

defrauding and delaying Creditor, Finnegan & Diba . . . and for

no other purpose.” Emphasis in original. The bankruptcy court,

thus, avoided the trust deeds as fraudulent transfers under

§ 544 and CC § 3439.04 and provided that all rights, title, and

interests in the trust deeds were transferred to the Trustee and

preserved for the benefit of the estate pursuant to §§ 550 and

551. The bankruptcy court also ruled that as the “holder in due

course” of the notes and trust deeds, the Trustee was “entitled

to fully and completely enforce the terms of the assumed

encumbrances.”

The bankruptcy court, however, denied the Trustee’s

requests for recovery, title, and possession in relation to the

Property given the Trustee’s prior sale of the Property.

Appellants timely appealed.

While this appeal was pending - at oral argument, in fact -

the Trustee informed the Panel that he had exercised the power

of sale under the trust deeds and foreclosed on the Property. 

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This information prompted the Panel to re-visit and grant

Appellants’ motion for a temporary stay, which prevents the

Trustee’s disbursement of any proceeds from the sale pending

final disposition of this appeal.

ISSUE

Whether the Trustee had standing to assert the avoidance

and recovery claims against Appellants.

DISCUSSION6

On appeal, Appellants continue to challenge the Trustee’s

standing to assert the avoidance and recovery claims.7 They

also maintain that the claims either were sold to Kim by the

Trustee or extinguished by the quitclaim deed. We agree with

the bankruptcy court that the Trustee did not sell avoidance

claims to Kim and that the quitclaim deed did not extinguish the

claims; in the absence of a sale expressly so providing, only

the Trustee could assert the estate’s fraudulent transfer

claims. But the sale did affect the estate’s remedies on

account of such claims. 

In short, after the sale of the Property subject to the

6 Appellants request that the Panel take judicial notice

of an adversary complaint filed by Kim against the Trustee while

this appeal was pending; the complaint asserts claims for quiet

title and declaratory relief. We grant the request, solely for

the fact that it was filed and not for the truth of the matters

asserted in the complaint.

7 Although Appellants do not frame their arguments as a

constitutional standing issue, we have an independent duty to

examine issues of jurisdiction and justiciability, even sua

sponte. See Am. Civ. Liberties Union of Nev. v. Lomax, 471 F.3d

1010, 1015 (9th Cir. 2006).

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liens, the estate’s injury was no longer redressable through a

lien avoidance action. If this was unclear when the Trustee

filed the adversary complaint which requested recovery of the

Property, it became clear when the bankruptcy court denied

recovery of title by the estate. 

Standing exists only when an injury can be redressed

through favorable judicial decision. The judicial power of the

federal courts, including the bankruptcy courts, is both

supplied and limited by the Constitution of the United States. 

One limitation is standing, which involves the question of

“whether the litigant is entitled to have the court decide the

merits of the dispute or of particular issues.” Warth v.

Seldin, 422 U.S. 490, 498 (1975). Thus, “standing imports

justiciability: whether the plaintiff has made out a ‘case or

controversy’ between himself and the defendant within the

meaning of Art. III. This is the threshold question in every

federal case, determining the power of the court to entertain

the suit.” Id. (citation omitted). 

To establish standing, “[t]he plaintiff must have suffered

or be imminently threatened with a concrete and particularized

‘injury in fact’ that is fairly traceable to the challenged

action of the defendant and likely to be redressed by a

favorable judicial decision.” Lexmark Int’l, Inc. v. Static

Control Components, Inc., 134 S. Ct. 1377, 1386 (2014) (citation

omitted). “[R]edressability analyzes the connection between the

alleged injury and requested judicial relief. [It] does not

require certainty, but only a substantial likelihood that the

injury will be redressed by a favorable judicial decision.” 

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Nw. Requirements Utilities v. FERC, 798 F.3d 796, 806 (9th Cir.

2015) (internal quotation marks and citation omitted).

Here, there is no dispute that Kim transferred the Property

to the LLC. The resulting injury was remedied in part when,

pre-petition, Kim caused the LLC to reconvey the Property. But

while the Property was in the hands of the LLC, Kim caused the

LLC to grant liens on the Property in favor of Appellants. We

see no error in the bankruptcy court’s determination that Kim

caused the LLC to encumber the Property with the actual intent

to hinder, delay, or defraud Finnegan & Diba.8 The reconveyance

of the Property did not extinguish the liens. Consequently, the

Trustee’s sale of the Property did not entirely redress the

injury to the estate caused by Kim’s pre-petition fraudulent

transfers. No doubt, the existence of Appellants’ liens reduced

the sale price received for the Property. We, thus, agree that

the trust deed transfers were actually fraudulent and that there

was injury to the estate. 

The Trustee had options for addressing this injury. He

could have moved to avoid the trust deeds prior to sale of the

Property. Or, he could have sold the Property, free and clear

8 We acknowledge that CC § 3439.05(a) applies only when

there is a transfer “by the debtor” and recognize that, here,

the LLC transferred the trust deeds. At oral argument before

the Panel, the Trustee responded to this concern by asserting

that there was substantial evidence in the record supporting

that the LLC was the alter ego of Kim; we cannot find any direct

discussion of this topic – nor is there an express finding by

the bankruptcy court in this regard. But the bankruptcy court’s

implicit conclusion that the LLC’s transfer of the trust deeds

was the equivalent of a transfer by Kim is not disputed by

Appellants and can be inferred on the record we do have.

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of the trust deed liens. In such a case, he could then move to

avoid the liens on the sale proceeds. In both cases, he could

have achieved full value through sale. The Trustee, however,

chose neither of these options. Prior to the time he filed the

adversary complaint, he sold the Property subject to Appellants’

liens.

Once the Trustee sold the Property subject to Appellants’

liens, any injury to the estate was no longer redressable by

avoiding the trust deeds. Set aside of the trust deeds after

the sale benefitted only Kim. Despite this fact, the only

relief both requested by the Trustee in the adversary complaint

and before the Panel on appeal was lien set aside. Again, had

the Trustee possessed a meritorious claim to reacquire title to

the Property after the sale, then his request for lien set aside

was a remedy that addressed the continuing injury. 

Unfortunately, he did not possess such a right to reacquire

title, and - even if he did - he did not preserve this claim on

appeal.

The Trustee neither requested nor preserved a claim for a

money judgment under § 550. We acknowledge that in a case

involving fraudulent conveyance of a trust deed, § 550 allows a

trustee to file a complaint seeking either set aside of the

liens or recovery of their value. The Trustee, however, never

sought recovery of the value of the liens through a money

judgment. At this post-judgment point in time, the historical

possibility of a claim for a money judgment (equal to the value

of the lien rights in the Property transferred) against

Appellants pursuant to § 550(a) does not cure the standing

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problem. Again, the Trustee did not seek this relief, and the

time for doing so has passed. See 11 U.S.C. § 546(a).9 

Rights to enforce the notes do not follow from recovery of

the trust deeds or otherwise. We also acknowledge the relief

accorded in connection with the notes but conclude that the

standing problem remains. The adversary complaint did not

assert that the LLC’s execution of the notes was fraudulent.10

9 We assume that the Trustee recognized the significant

hurdles to such a recovery. The Ninth Circuit has made

clear that in the context of a § 550 lien recovery award, a

money judgment is available only where the lien can be

appropriately valued. See USAA Fed. Sav. Bank v. Thacker

(In re Taylor), 599 F.3d 880, 892 (9th Cir. 2010). Nothing in

this record suggests an attempt by the Trustee to value

Appellants’ liens. This makes sense, as the record is unclear

as to if and when the notes were ever delivered to Appellants

and there is no evidence that Appellants provided consideration

to the LLC. Valuation of a trust deed where there are serious

barriers to foreclosure could be difficult.

10 We recognize that California law permits the avoidance,

not only of transfers made by a debtor, but also of “obligations

incurred by a debtor” if actual or constructive fraud exists.

Cal. Civ. Code §§ 3439.04(a), 3439.05(a). For example, if a

debtor executes a promissory note in favor of a friend

evidencing a fictitious debt, for the purpose of diverting some

of the debtor’s assets to the friend rather than to legitimate

creditors, the obligation is avoidable. This provision does not

help the Trustee, however, for several reasons.

First, the record indicates that Kim owed legitimate debts

to Appellants. Therefore, signing the notes did not create a

fraudulent obligation that could be avoided. 

Second, even if the notes were avoidable, the statute would

not authorize the Trustee to recover the notes and become the

holder of them. If a transfer is avoided, the statute permits

the trustee to recover either the property or its value. Id.

§ 3439.08(b)(1). By its terms, however, the statute does not

permit “recovery” of an avoidable obligation. There is a good

reason for this difference. Avoidance of a fraudulent

(continued...)

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The bankruptcy court made no such finding. Indeed, the

bankruptcy court’s determination that Appellants loaned money to

Kim in the amounts included in the LLC notes is inconsistent

with such a conclusion; the notes, even in an alter ego

situation, merely evidence a legitimate debt. On this record,

the relief as to the notes follows, if at all, only from the

recovery of the trust deeds. Thus, our conclusion that the

Trustee lacks standing to recover the trust deeds makes recovery

of the notes and the exercise of rights thereunder impossible.

Our conclusion in this regard is supported by other

considerations. First, to the extent the bankruptcy court

granted recovery as to the notes other than as following from

recovery of the trust deeds, it erred. The adversary complaint

did not seek this relief. Given that the Trustee recovered

judgment through a default prove-up, the bankruptcy court could

not grant relief beyond that pled in the complaint. See Fed. R.

Civ. P. 54(c) (“A default judgment must not differ in kind from,

or exceed in amount, what is demanded in the pleadings.”),

incorporated into adversary proceedings by Fed. R. Bankr.

P. 7054; see also McDonald v. Checks-N-Advance, Inc.

(In re Ferrell), 539 F.3d 1186, 1192-93 (9th Cir. 2008); Sec. &

Exch. Comm’n v. Wencke, 577 F.2d 619, 623 (9th Cir. 1978). 

Second, even if the trust deeds were recoverable, the

record does not support the bankruptcy court’s determination

10(...continued)

obligation – i.e., eliminating that obligation – restores the

creditors to the status quo that existed before the fraudulent

obligation was incurred. No further remedy is needed to provide

complete relief to the affected parties.

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that the Trustee was the holder in due course of the notes and,

therefore, was entitled to exercise the power of sale under the

trust deeds.

In California, it is well-established that a deed of trust

follows the debt, whether evidenced by a promissory note or

otherwise; the converse is not true. See Willis v. Farley,

24 Cal. 490, 497-98 (1864) (“The doctrine that a mortgage is a

mere incident of the debt which it is executed to secure, and

follows the same in whosoever hands it may come by transfer or

assignment . . . may be regarded as the settled law of this

State.”); see also W. Loan & Bldg. Co. v. Scheib, 218 Cal. 386,

393 (1933) (“A mortgage is merely security for a debt, and if

there is no debt there is no mortgage.”). Only a party with

rights to enforce the note can properly authorize a foreclosure. 

See Yvanova v. New Century Mortg. Corp., 62 Cal. 4th 919, 927

(2016).

No provision of the Bankruptcy Code converts a note payable

by third parties to a non-debtor (or to a debtor, for that

matter) into an obligation that can be enforced by a trustee

pursuant to a fraudulent conveyance action that attacks the

security for the note. Even where a trustee successfully avoids

a trust deed, there is no resultant right to collect debt owed

to the trust deed transferee by a third party or a debtor. 

Further, the record does not establish that the Trustee was

the holder in due course of the notes. A holder can enforce a

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note.11 Cal. Com. Code § 3301. One, however, must have more

than possession to be a holder; one also must be named as the

payee in the note or the note must be bearer paper. Cal. Com.

Code § 1201(a)(21)(A). Here, the record establishes that the

notes named Appellants as payees and there is no evidence that

the notes were endorsed in blank or to the Trustee. 

Given our determination, the Trustee’s foreclosure may be

problematic. As stated, the Panel ordered a stay pending final

disposition of this appeal. Once the mandate issues, the

bankruptcy court will need to address the repercussions of the

foreclosure sale.

CONCLUSION

Based on the foregoing, we VACATE the judgment and DISMISS

the appeal.

11 There are two other mechanisms by which a non-holder may

enforce a note. See Cal. Com. Code § 3301. Here, the

bankruptcy court solely determined holder in due course status;

it did not discuss the other mechanisms nor does the record

suggest their applicability under these facts.

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