Court Opinion

ID: 4018956
Source: CourtListenerOpinion
Date Created: 2016-07-26 20:01:32.937285+00
Date Added: 2024-06-11T14:35:03.634029
License: Public Domain

FILED
                                                               JUL 26 2016
 1                         NOT FOR PUBLICATION
                                                          SUSAN M. SPRAUL, CLERK
                                                            U.S. BKCY. APP. PANEL
 2                                                          OF THE NINTH CIRCUIT

 3                  UNITED STATES BANKRUPTCY APPELLATE PANEL
 4                            OF THE NINTH CIRCUIT
 5   In re:                        )      BAP No.    CC-16-1053-KuFKi
                                   )
 6   YAN SUI,                      )      Bk. No.    8:11-bk-20448-CB
                                   )
 7                  Debtor.        )
     ______________________________)
 8                                 )
     YAN SUI; PEI-YU YANG,         )
 9                                 )
                    Appellants,    )
10                                 )
     v.                            )      MEMORANDUM*
11                                 )
     RICHARD A. MARSHACK, Chapter 7)
12   Trustee,                      )
                                   )
13                  Appellee.      )
     ______________________________)
14
                        Submitted Without Oral Argument
15                              on June 23, 2016
16                           Filed – July 26, 2016
17            Appeal from the United States Bankruptcy Court
                  for the Central District of California
18
         Honorable Catherine E. Bauer, Bankruptcy Judge, Presiding
19
20   Appearances:     Appellants Yan Sui and Pei-Yu Yang, pro se, on
                      brief; David Edward Hays and Chad V. Haes of
21                    Marshack Hays LLP on brief for appellee Richard A.
                      Marshack, Chapter 7 Trustee.
22
23   Before: KURTZ, FARIS and KIRSCHER, Bankruptcy Judges.
24
25
26        *
           This disposition is not appropriate for publication.
27   Although it may be cited for whatever persuasive value it may
     have (see Fed. R. App. P. 32.1), it has no precedential value.
28   See 9th Cir. BAP Rule 8024-1.
 1                              INTRODUCTION
 2        Chapter 71 debtor Yan Sui and his wife Pei-Yu Yang appeal,
 3   pro se, from the bankruptcy court’s order authorizing the trustee
 4   Richard A. Marshack to offset against Yang’s interest in the
 5   proceeds from the sale of the couple’s residence $93,832.72 in
 6   contempt sanctions awarded in favor of the trustee and against
 7   Sui and Yang.   The order also authorized the trustee to pay
 8   roughly $70,000 to Yang in full satisfaction of her claimed
 9   interest in the sale proceeds and further authorized the trustee
10   to file a notice of acknowledgment of satisfaction of judgment
11   reflecting Yang’s “payment” of the sanctions award by way of the
12   offset.
13        On appeal, Sui and Yang argue that the bankruptcy court
14   lacked jurisdiction to enter the setoff order while their appeals
15   from other, prior orders were pending.    Sui and Yang’s
16   jurisdictional argument lacks merit.   Even so, in one of their
17   other appeals, the Panel has vacated the sanctions order on which
18   the setoff order was based.   Based thereon, we also must VACATE
19   the setoff order, and we must REMAND for further proceedings.
20                                  FACTS
21        In July 2011, Sui filed a voluntary chapter 7 petition, and
22   Marshack was appointed to serve as the chapter 7 trustee in Sui’s
23   bankruptcy case.   In May 2013, Marshack obtained from the United
24   States District Court for the Central District of California a
25
26        1
           Unless specified otherwise, all chapter and section
27   references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and
     all "Rule" references are to the Federal Rules of Bankruptcy
28   Procedure, Rules 1001-9037.

                                      2
 1   judgment avoiding Sui’s fraudulent transfer to Yang of his
 2   interest in the couple’s residence located in Costa Mesa,
 3   California.   This judgment provided in relevant part that the
 4   avoidance resulted in the revesting of the residence in the names
 5   of both Sui and Yang as joint tenants.    Yang appealed the
 6   fraudulent transfer avoidance judgment, but the Ninth Circuit
 7   Court of Appeals affirmed.2
 8        In October 2014, Marshack obtained a second judgment, this
 9   one from the bankruptcy court.    The bankruptcy court’s judgment
10   required Sui and Yang to turn over possession of the Costa Mesa
11   residence to Marshack and authorized Marshack to sell the
12   residence free and clear of all liens, claims and other
13   interests, including Yang’s joint tenancy interest.    The order
14   further provided that the trustee could divide the sale proceeds
15   in accordance with § 363(j) and other applicable law.
16        In June 2015, the bankruptcy court entered an order
17   authorizing Marshack to sell the Costa Mesa residence to third
18   party EFK Properties, LLC.    Among other things, the sale order
19   specified as follows: “Neither Yan Sui nor Pei-yu Yang shall
20   assert any lien, claim, or interest in the Property in violation
21   of the free and clear provisions of this order.    Any actions
22   taken in violation of this order may be adjudicated to be
23   contempt.”
24        Sui and Yang appealed both the bankruptcy court judgment and
25
          2
26         We have exercised our discretion to take judicial notice of
     the contents of the district court’s and the bankruptcy court’s
27   dockets and the imaged documents attached thereto. See O'Rourke
     v. Seaboard Surety Co. (In re E.R. Fegert, Inc.), 887 F.2d 955,
28   957–58 (9th Cir. 1989).

                                       3
 1   the sale order to this Panel, which dismissed both appeals as
 2   moot.   Sui and Yang then appealed the Panel’s dismissals to the
 3   Ninth Circuit Court of Appeals, which appeals are still pending.
 4        On November 5, 2015, the bankruptcy court entered an order
 5   holding Sui and Yang in contempt of court.   As set forth in the
 6   contempt order, Sui and Yang had violated both the bankruptcy
 7   court’s judgment and its sale order by interfering with
 8   Marshack’s efforts to sell the Costa Mesa residence.   The
 9   bankruptcy court awarded in favor of the trustee and against Sui
10   and Yang, jointly and severally, civil contempt sanctions in the
11   aggregate amount of $93,832.72.
12        This brings us to the motion from which this appeal arose.
13   In December 2015, Marshack filed his motion seeking to setoff
14   from Yang’s share of the sale proceeds the $93,832.72 contempt
15   sanction award.   Marshack’s motion also requested authorization
16   to pay to Yang roughly $70,000 in full satisfaction of Yang’s
17   claimed interests in the sale proceeds and authorization for
18   Marshack to file a notice acknowledging full satisfaction of
19   judgment, reflecting Yang’s “payment” of the sanctions award by
20   way of the offset.
21        Sui and Yang filed a four-page opposition to the setoff
22   motion.   Sui and Yang noted that appeals were pending from all of
23   the orders and judgments leading up to Marshack’s setoff motion,
24   including the bankruptcy court judgment, the sale order and the
25   contempt order.   Sui and Yang asserted that the bankruptcy court
26   lacked jurisdiction to hear and decide Marshack’s setoff motion
27   while these appeals were pending.
28        At the hearing on the setoff motion, the bankruptcy court

                                       4
 1   granted all of the relief Marshack requested in his motion.    On
 2   February 19, 2016, the bankruptcy court entered an order granting
 3   Marshack’s motion in full, and Sui and Yang timely filed a notice
 4   of appeal.
 5        Recently, the Panel issued a decision in Sui and Yang’s
 6   appeal from the bankruptcy court’s sanctions order (BAP No.
 7   CC-15-1352).   In that decision, the Panel affirmed in part,
 8   reversed in part, and (most importantly for our purposes) vacated
 9   the sanctions order.
10                               JURISDICTION
11        Subject to the jurisdictional discussion set forth below,
12   the bankruptcy court had jurisdiction pursuant to 28 U.S.C.
13   §§ 1334 and 157(b)(2)(A).   We have jurisdiction under 28 U.S.C.
14   § 158.
15                                  ISSUES
16   1.   Did the bankruptcy court have jurisdiction to hear and
17        decide Marshack’s setoff motion while Sui and Yang’s appeals
18        from other, prior orders were pending?
19   2.   Can the bankruptcy court’s setoff order stand in light of
20        the Panel’s decision vacating the sanctions order?
21                           STANDARDS OF REVIEW
22        We review jurisdictional issues de novo.   See Wilshire
23   Courtyard v. Cal. Franchise Tax Bd. (In re Wilshire Courtyard),
24   729 F.3d 1279, 1284 (9th Cir. 2013).
25        The issue presented here regarding the availability of
26   setoff is a question of law.   The resolution of this appeal
27   merely requires us to identify and apply the the correct legal
28   rule to the undisputed facts presented.    We review questions of

                                      5
 1   law de novo.   Bechtold v. Gillespie (In re Gillespie), 516 B.R.
 2   586, 590 (9th Cir. BAP 2014)
 3                               DISCUSSION
 4        The only comprehensible argument that Sui and Yang raised in
 5   their appeal brief is jurisdictional.    Sui and Yang contend that
 6   the bankruptcy court lacked jurisdiction to hear and decide
 7   Marshack’s setoff motion while their appeals from the bankruptcy
 8   court’s other, prior orders were pending.   We disagree.
 9        It generally is true that the filing of an appeal will
10   divest the bankruptcy court of jurisdiction to hear and decide
11   matters that will affect the order on appeal.   Hill & Sandford,
12   LLP v. Mirzai (In re Mirzai), 236 B.R. 8, 10 (9th Cir. BAP 1999).
13   However, there are several exceptions to this rule.   Id.   One
14   exception recognizes the trial court's continuing authority,
15   while an appeal is pending and in the absence of a stay pending
16   appeal, to issue orders enforcing a prior judgment or order.      Id.
17   (citing Wedbush, Noble, Cooke, Inc. v. SEC, 714 F.2d 923, 924
18   (9th Cir. 1983)).   Another exception recognizes the trial court's
19   continuing authority to "proceed with matters not involved in the
20   appeal."   Id. (citing Pyrodyne Corp. v. Pyrotronics Corp.,
21   847 F.2d 1398, 1403 (9th Cir. 1988)).    This latter exception is
22   particularly important in bankruptcy cases.   The rule divesting
23   courts of jurisdiction during the pendency of an appeal must be
24   applied with caution in the bankruptcy context because it is not
25   practicable for all aspects of a bankruptcy case to come to a
26   halt when an appeal is filed from a bankruptcy court ruling.      To
27   hold otherwise would enable one recalcitrant party in interest to
28   bring a bankruptcy case to a standstill by the simple expedient

                                      6
 1   of filing appeals from various bankruptcy court orders.
 2        Here, no stay pending appeal had been granted, so the
 3   bankruptcy court had authority to enter the setoff order to
 4   effectuate and enforce the contempt order and the sale order.
 5   Absent a stay pending appeal, federal judgments are immediately
 6   enforceable.   Bennett v. Gemmill (In re Combined Metals Reduction
 7   Co.), 557 F.2d 179, 190 (9th Cir. 1977).
 8        Accordingly, we reject Sui and Yang’s jurisdictional
 9   argument.
10        Sui and Yang’s other complaints set forth in their appeal
11   brief either make no sense or demonstrate a fundamental
12   misunderstanding of how bankruptcy courts and federal appellate
13   courts resolve matters before them.    For instance, Sui and Yang
14   complain that the bankruptcy court should not have affirmed its
15   own order and should not have taken steps that might render Sui
16   and Yang’s other appeals moot.   The bankruptcy court did not
17   “affirm” any of its prior orders.    It merely permitted Marshack
18   to proceed with administration of the bankruptcy estate in
19   accordance with the orders’ terms.    As for their mootness
20   complaint, we express no opinion as to whether the bankruptcy
21   court’s setoff order might have rendered any of Sui and Yang’s
22   other, prior appeals moot, but we note that there is no rule
23   generally prohibiting bankruptcy courts from taking subsequent
24   actions that might render an appeal moot.    In fact, appeals from
25   bankruptcy court orders often become moot upon the occurrence of
26   subsequent events, including further action by the bankruptcy
27   court.   See, e.g., Armel Laminates, Inc. v. Lomas & Nettleton Co.
28   (In re Income Prop. Builders, Inc.), 699 F.2d 963, 964 (9th Cir.

                                      7
 1   1983); Bay Vista Apartments, LLC v. Fed. Nat'l Mortg. Ass'n
 2   (In re Bay Vista Apartments, LLC), 2011 WL 7145995, at *1
 3   (Mem. Dec.) (9th Cir. BAP Dec. 19, 2011); Omoto v. Ruggera
 4   (In re Omoto), 85 B.R. 98, 100 (9th Cir. BAP 1988).
 5        Finally, Sui and Yang complain that the bankruptcy court
 6   should not have authorized Marshack to file the notice
 7   acknowledging satisfaction of the judgment unless and until Yang
 8   actually cashed the sale proceeds check Marshack sent to Yang
 9   pursuant to the setoff order.   This complaint is premised on Sui
10   and Yang’s mistaken belief that there is some relationship
11   between the notice of acknowledgment and Marshack’s payment of
12   sale proceeds to Yang.   To the contrary, the notice of
13   acknowledgment only concerned Yang’s satisfaction of the
14   sanctions award provided for in the bankruptcy court’s contempt
15   order.    That satisfaction occurred as a result of the setoff the
16   bankruptcy court authorized Marshack to make.    Yang’s cashing (or
17   not cashing) of the sale proceeds check has no relevance to the
18   setoff.
19        Notwithstanding Sui and Yang’s failure to present a
20   meritorious argument in their appeal brief, we nonetheless will
21   vacate the bankruptcy court’s setoff order.    The Panel’s recent
22   decision vacating the bankruptcy court’s sanctions order fatally
23   undermines the setoff order because the relief granted in the
24   setoff order was premised on the validity of the sanctions order.
25   It is axiomatic that there can be no right of setoff unless there
26   exist two valid offsetting debts.     See generally McDaniel v. City
27   & Cty. of S.F., 259 Cal. App. 2d 356, 364-65 (1968) (describing
28   when right of setoff arises under California law); FDIC v.

                                       8
 1   Mademoiselle of Cal., 379 F.2d 660, 663 (9th Cir. 1967)
 2   (describing same under federal common law).
 3        Thus, we consider ourselves compelled to vacate and remand
 4   the setoff order so that the bankruptcy court, on remand, can
 5   take a fresh look at the setoff motion in light of the Panel’s
 6   ruling on the sanctions order.
 7        There is one other issue we need to address.    Sui and Yang
 8   filed a motion in both this appeal and in the sanctions order
 9   appeal requesting that the Panel order Marshack to withdraw his
10   filing of the notice acknowledging satisfaction of the sanctions
11   award, which reflects Yang's "payment" of the sanctions award by
12   way of the offset.   According to Sui and Yang, the filed notice
13   of acknowledgment might interfere with or hinder disposition of
14   the sanctions order appeal, the setoff order appeal, or both.      We
15   will DENY this motion as unnecessary.    The notice of
16   acknowledgment has not, in fact, interfered with either appeal.
17   Nor are we aware of any other grounds necessitating the
18   withdrawal of the notice of acknowledgment.    All the notice of
19   acknowledgment currently does is give notice of the satisfaction
20   of a vacated sanctions award.    If, for whatever reason, either
21   party on remand decides it is necessary to take action with
22   respect to the notice of acknowledgment, they are free to revisit
23   the issue with the bankruptcy court.
24                               CONCLUSION
25        For the reasons set forth above, we conclude that the
26   bankruptcy court had jurisdiction to hear and decide Marshack’s
27   setoff motion.   However, the recent decision of the Panel
28   vacating the bankruptcy court’s sanctions order fatally

                                       9
 1   undermined the bankruptcy court’s setoff order.   Therefore, we
 2   also must VACATE the setoff order, and we REMAND for further
 3   proceedings.
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