Court Opinion

ID: 4692775
Source: CourtListenerOpinion
Date Created: 2021-06-03 23:01:14.785758+00
Date Added: 2024-06-11T08:05:18.065100
License: Public Domain

FILED
                                                                                  JUN 3 2021

                          NOT FOR PUBLICATION                                SUSAN M. SPRAUL, CLERK
                                                                               U.S. BKCY. APP. PANEL
                                                                               OF THE NINTH CIRCUIT

          UNITED STATES BANKRUPTCY APPELLATE PANEL
                    OF THE NINTH CIRCUIT

In re:                                               BAP Nos. HI-20-1250-GBS
ADAM LEE,                                                     HI-20-1251-GBS
                    Debtor.                                   (Related Appeals)

ADAM LEE,                                            Bk. No. 13-01356
                    Appellant,
v.                                                   MEMORANDUM1
DANE S. FIELD, Trustee; CHUCK C.
CHOI,
               Appellees.

               Appeal from the United States Bankruptcy Court
                            for the District of Hawaii
               Robert J. Faris, Chief Bankruptcy Judge, Presiding

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

                                 INTRODUCTION

      In these related appeals, chapter 72 debtor Adam Lee (“Debtor”)

seeks reversal of the bankruptcy court’s order denying his motions under

      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.
       2 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
Rule 2004 for production of documents and examinations of chapter 7

trustee Dane S. Field (“Trustee”) and Debtor’s former attorney, Chuck

Choi. Debtor sought the Rule 2004 examinations to discover evidence of

alleged misconduct surrounding comments made by Trustee to Mr. Choi in

2013. Debtor argued that the Rule 2004 exams were relevant to Trustee’s

efforts to deny Debtor’s discharge.

      The bankruptcy court denied Debtor’s motions because the propriety

of discharge is independent of any misconduct by Trustee, Debtor had

already deposed Trustee in an adversary proceeding, and the judgment

denying discharge had already been entered and appealed before Debtor

filed his Rule 2004 motions.3 We AFFIRM.

                                       FACTS 4

A.    The Bankruptcy Case And Alleged Improper Conduct By Trustee

      Debtor filed his chapter 7 petition in 2013 and was represented by

attorney Chuck Choi. Dane Field was appointed as chapter 7 trustee. After

concluding the § 341 meeting of creditors in December 2013, Trustee filed

an adversary complaint to recover a fraudulent transfer of real property. In

April 2014, Mr. Choi withdrew, and Debtor obtained new counsel.

Civil Procedure.
        3 We subsequently affirmed the judgment denying Debtor’s discharge. Lee v. Field

(In re Lee), BAP Nos. HI-20-1224-TBK, HI-20-1225-TBK, 2021 WL 1294110 (9th Cir. BAP
Apr. 7, 2021).
        4 We exercise our discretion to take judicial notice of documents electronically

filed in Debtor’s main case and related adversary proceedings. See Atwood v. Chase
Manhattan Mortg. Co. (In re Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003).
                                           2
     In October 2014, Debtor sent a complaint letter to the Executive Office

of the United States Trustee and alleged that at the § 341 meeting, Trustee

improperly pressured Mr. Choi to settle the fraudulent transfer litigation

by suggesting that he would withhold new cases from Mr. Choi’s firm. The

United States Trustee (“UST”) responded and advised Debtor that Trustee

did not act improperly by suggesting settlement. The UST determined that

Trustee’s comment about new cases referred to other cases in which

Trustee was requesting additional work from Mr. Choi’s firm. Although

the UST found that Trustee did not act improperly, it admonished Trustee

because such comments could be misunderstood by bystanders.

     In May 2016, Debtor sent a second letter to the UST requesting a

“reinvestigation” of Trustee concerning the alleged misconduct. The UST

responded in July 2016 and again advised Debtor that no misconduct

occurred. The UST stated that Debtor’s “apparent misunderstanding over

the Trustee’s comments caused us to admonish the Trustee from making

comments in front of others that could be misconstrued,” but that the

matter was considered closed.

B.   The Adversary Proceedings

     The bankruptcy court set the fraudulent transfer action for trial in

February 2015. Two weeks before the start of trial, Debtor moved to

dismiss his chapter 7 case, the fraudulent transfer case, and two

nondischargeability actions. He argued that Trustee’s alleged comments

made to Chuck Choi at the § 341 hearing violated his constitutional rights

                                      3
and constituted misconduct and breach of fiduciary duties which

necessitated dismissal. Trustee and the UST opposed the motion, which the

court denied.

      After trial, the bankruptcy court entered judgment avoiding the

fraudulent transfer, and the United States District Court affirmed. Field v.

Lee (In re Lee), Civil No. 15-00100 SOM/RLP, 2015 WL 5598319 (D. Haw.

Sept. 21, 2015).

      Trustee then moved for turnover of the real property and filed a

separate adversary complaint seeking to sell both Debtor’s interest and a

nondebtor’s interest in the property under § 363(h). The court granted the

motion for turnover in June 2015. Debtor appealed, and the order was

affirmed by the United States District Court, Lee v. Field (In re Lee), Civil No.

15-00278 SOM/RLP, 2015 WL 7274035 (D. Haw. Nov. 17, 2015), and the

Ninth Circuit Court of Appeals, Lee v. Field (In re Lee), 889 F.3d 639 (9th Cir.

2018).

      In September 2015, Trustee filed a motion for summary judgment in

the § 363(h) action. Debtor then noticed the depositions of Trustee and the

UST. At the Trustee’s deposition, Debtor asked numerous questions

pertaining to Trustee’s duties and the alleged misconduct involving

comments made to Mr. Choi at the § 341 meeting, but Trustee refused to

answer questions which were not relevant to the adversary proceeding.

Debtor filed a motion to compel Trustee to answer. The bankruptcy court

                                        4
denied the motion to compel and granted the motion for summary

judgment.

      In March 2020, Trustee filed an adversary complaint objecting to

Debtor’s discharge. 5 Debtor failed to answer the complaint, and in April

2020, the clerk entered default. Trustee then moved for default judgment

and noticed a hearing for July 2020. Debtor filed an untimely response to

the motion for default judgment and failed to appear at the hearing.

      The bankruptcy court entered default judgment and denied Debtor’s

motion for reconsideration. We affirmed. Lee v. Field (In re Lee), BAP Nos.

HI-20-1224-TBK, HI-20-1225-TBK, 2021 WL 1294110 (9th Cir. BAP Apr. 7,

2021).

C.    The 2004 Motions And The Court’s Ruling

      After Debtor’s discharge was denied, he filed a motion under Rule

2004 for production of documents and an examination of Trustee. Trustee

opposed the motion on the basis that the subject matter of the examination

was not disclosed, and the requested documents were not described with

any particularity. Debtor filed a reply and alleged that Trustee committed

gross misconduct during the § 341 meeting which Debtor had presented to

the court numerous times. He argued “[s]ince the debtor’s behavior was

      5
         Although the deadline to object to discharge under Rule 4004(a) had long
passed, discharge was not entered due to Debtor’s failure to complete the financial
management course required by § 727(a)(11). The bankruptcy court granted Trustee’s
unopposed motion to extend the deadline under Rule 4004(b)(2), and Trustee timely
filed the complaint objecting to discharge.
                                          5
the basis of the court’s denial of discharge, the fair and just thing would be

for the court to allow the debtor to present all evidence related to the

interactions with the trustee and the ethics of the interactions.”

      Concurrent with filing his reply, Debtor filed a second motion under

Rule 2004 for production of documents and examination of Trustee.

Trustee again opposed the motion and argued that Debtor failed to

demonstrate that the proposed examination was within the scope of Rule

2004, but based on Debtor’s reply, it was clear he sought to again question

Trustee about the alleged comments made to Chuck Choi at Debtor’s § 341

meeting. Trustee asserted that Debtor’s allegations were frivolous, were

resolved years earlier, and had nothing to do with the administration of the

estate or the denial of Debtor’s discharge, which was based on events

occurring years after the alleged comments in 2013.

      Roughly two weeks later, Debtor filed a motion for a Rule 2004

examination of Chuck Choi. Debtor’s statement in support of his motion

indicated that “Mr. Choi’s testimony is needed for all parties to have all the

relevant information related to the alleged debtor’s misconduct which is

the basis of the trustee’s motion to deny a discharge to the debtor, and the

basis for the court’s order to deny a discharge to the debtor.”

      The bankruptcy court denied Debtor’s motions and stated that

although Trustee’s conversation with Mr. Choi may have been in bad form

because it carried a risk of misperceptions, there was no evidence or

likelihood of evidence being developed through discovery, that it was

                                       6
anything more than bad form. The court reasoned that a debtor’s right to

discharge is completely independent of any conduct or misconduct by a

trustee, and it noted that Debtor’s discharge had already been denied.

Finally, the court said that the timing of Debtor’s request could suggest that

the purpose of the motions was really harassment and retaliation.

      The bankruptcy court entered a single order denying both of Debtor’s

Rule 2004 motions, and Debtor timely appealed.

                               JURISDICTION

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

157(b)(2)(A). We have jurisdiction under 28 U.S.C. § 158.

                                     ISSUE

      Whether the bankruptcy court abused its discretion by denying

Debtor’s motions for Rule 2004 examinations.

                          STANDARD OF REVIEW

      We review a bankruptcy court’s ruling on a motion for a Rule 2004

examination for abuse of discretion. Rigby v. Mastro (In re Mastro), 585 B.R.

587, 591 (9th Cir. BAP 2018). A bankruptcy court abuses its discretion if it

applies an incorrect legal standard or its factual findings are illogical,

implausible, or without support in the record. TrafficSchool.com v. Edriver,

Inc., 653 F.3d 820, 832 (9th Cir. 2011).

                                 DISCUSSION

      Debtor argues that the bankruptcy court erred by not finding good

cause to allow the Rule 2004 examination of Trustee and by not separately

                                           7
stating its findings of fact and conclusions of law. He argues that the court

erred by denying his motion for a Rule 2004 examination of Chuck Choi

because the motion satisfied Rule 2004 and Mr. Choi did not object. We

disagree.

      Rule 2004(a) provides that “[o]n motion of any party in interest, the

court may order the examination of any entity.” Such examination is

limited to “the acts, conduct, or property or to the liabilities and financial

condition of the debtor, or to any matter which may affect the

administration of the debtor’s estate, or to the debtor’s right to a

discharge.” Rule 2004(b). Thus, third parties subject to examination under

Rule 2004 are “only those persons possessing knowledge of the debtor’s

acts, conduct or financial affairs so far as this relates to a debtor’s

proceeding in bankruptcy.” In re Dinubilo, 177 B.R. 932, 940 (E.D. Cal. 1993)

(cleaned up). The court may deny a Rule 2004 examination if the purpose is

abuse or harassment. In re Roman Cath. Church of Diocese of Gallup, 513 B.R.

761, 764 (Bankr. D.N.M. 2014); 9 COLLIER ON BANKRUPTCY ¶ 2004.01 [1]

(Alan N. Resnick & Henry J. Sommer, eds. 16th ed. rev. 2020)).

      The party seeking a Rule 2004 examination bears the burden of

showing “good cause” for the examination. In re Millennium Lab Holdings II,

LLC, 562 B.R. 614, 627 (Bankr. D. Del. 2016); In re AOG Ent., Inc., 558 B.R. 98,

108 (Bankr. S.D.N.Y. 2016). Good cause is established if the Rule 2004

examination is necessary to establish the movant’s claim or if denial would

cause the movant undue hardship or injustice. In re Millennium Lab

                                        8
Holdings II, LLC, 562 B.R. at 627; In re AOG Ent., Inc., 558 B.R. at 109; In re

Dinubilo, 177 B.R. at 943.

      Debtor’s asserted basis for the Rule 2004 examinations was that the

information he sought was related to his discharge. But he filed the

motions after his discharge had been denied and appealed. The subject

matter of the Rule 2004 examinations was not related to matters affecting

Debtor’s discharge and was therefore beyond the scope of Rule 2004.

      On appeal, he argues that good cause existed because the information

he sought in the Rule 2004 examinations was related to Trustee’s pre-

existing relationship with Mr. Choi, which Debtor suggests was a basis for

inappropriate influence that “distorted and harmed” his case, denied him

due process, and prevented zealous representation from Mr. Choi.

      The nature of Trustee’s relationship with Mr. Choi is not relevant to

Debtor’s acts, conduct, property, liabilities, or financial condition, and it

does not affect the administration of the estate or Debtor’s right to a

discharge. The record in this case does not demonstrate any influence by

Trustee over Mr. Choi. Furthermore, Mr. Choi withdrew from the case—

and Debtor obtained new counsel—long before the fraudulent transfer and

denial of discharge judgments. And, as the bankruptcy court correctly

reasoned, any alleged misconduct by Trustee is independent of Debtor’s

actions which led to the judgments against him.

      Debtor offers no legitimate purpose for seeking Rule 2004

examinations of Trustee and Chuck Choi nearly seven years after the

                                        9
alleged comments were made. Given the lack of relevancy to Debtor’s

discharge or to administration of the estate, we agree with the bankruptcy

court that the true purpose of the motions appears to be harassment and

retaliation.

      Debtor’s contention that the bankruptcy court failed to adequately

state its findings of fact and conclusions of law is similarly unavailing. Civil

Rule 52(a), made applicable by Rule 7052, requires a bankruptcy court to

“find the facts specially and state its conclusions of law separately,” but

provides that findings and conclusions may be stated on the record or may

appear in an opinion or memorandum of decision.

      “The standard for adequacy of factual findings in the Ninth Circuit is

‘whether they are explicit enough on the ultimate issues to give the

appellate court a clear understanding of the basis of the decision and to

enable it to determine the grounds on which the trial court reached its

decision.’” Leavitt v. Soto (In re Leavitt), 171 F.3d 1219, 1223 (9th Cir. 1999)

(quoting Amick v. Bradford (In re Bradford), 112 B.R. 347, 353 (9th Cir. BAP

1990)). And we may affirm the bankruptcy court on any ground fairly

supported by the record. Id.

      At the hearing, the bankruptcy court sufficiently stated the basis for

its ruling on the record. Debtor did not show that the Rule 2004

examinations were within the scope of Rule 2004(b) and he has not shown

that the bankruptcy court erred by determining that Debtor failed to

establish good cause.

                                        10
     Finally, it is not relevant that Mr. Choi did not object to the motion or

appear at the hearing. The permissive language of Rule 2004 indicates that

the bankruptcy court has discretion to grant or deny a request for a Rule

2004 examination. Debtor had the burden of showing the request was

within the scope of Rule 2004 and that good cause existed to permit the

examination. He failed to carry that burden, and the bankruptcy court did

not abuse its discretion by denying the request, regardless of whether Mr.

Choi objected or appeared at the hearing.

                              CONCLUSION

     Based on the foregoing, we AFFIRM the bankruptcy court’s order

denying Debtor’s motions for Rule 2004 examinations of Trustee and

Chuck Choi.

                                     11