Court Opinion

ID: 4192598
Source: CourtListenerOpinion
Date Created: 2017-08-03 17:01:51.040773+00
Date Added: 2024-06-11T08:46:19.397219
License: Public Domain

FILED
 1                                                          APR 20 2017

 2                            NOT FOR PUBLICATION       SUSAN M. SPRAUL, CLERK
                                                          U.S. BKCY. APP. PANEL
                                                          OF THE NINTH CIRCUIT
 3                  UNITED STATES BANKRUPTCY APPELLATE PANEL
 4                            OF THE NINTH CIRCUIT
 5   In re:                        )      BAP No.     CC-16-1374-KuFL
                                   )
 6   DESERT SPRINGS FINANCIAL, LLC,)      Bk. No.     6:16-bk-14859-MW
                                   )
 7                  Debtor.        )
     ______________________________)
 8                                 )
     YUN HEI SHIN; RAMON PALM LANE,)
 9   INC.,                         )
                                   )
10                  Appellants,    )
                                   )
11   v.                            )      MEMORANDUM*
                                   )
12   MITCHELL ALTMAN,              )
                                   )
13                  Appellee.      )
     ______________________________)
14
15                   Argued and Submitted on March 23, 2017
                             at Pasadena, California
16
                             Filed – April 20, 2017
17
               Appeal from the United States Bankruptcy Court
18                 for the Central District of California
19        Honorable Mark S. Wallace, Bankruptcy Judge, Presiding
20   Appearances:     Kathleen P. March argued for appellants; Todd L.
                      Turoci argued for appellee.
21
22   Before:   KURTZ, FARIS and LAFFERTY, Bankruptcy Judges.
23
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          Yun Hei Shin and Ramon Palm Lane, Inc.1 appeal from an order
 3   overruling their objection to the proof of claim Mitchell Altman
 4   filed against the chapter 112 debtor Desert Springs Financial,
 5   LLC.
 6          The bankruptcy court determined that the facts in the record
 7   at the time of the claim objection hearing were insufficient to
 8   rebut the presumption of validity applicable to Mitchell’s
 9   procedurally compliant proof of claim under Rule 3001(f).
10   Because the bankruptcy court’s determination was clearly
11   erroneous, we VACATE its order overruling the claim objection,
12   and we REMAND for further proceedings.
13                                    FACTS
14          Mitchell Altman is the son of Desert Springs Financial’s
15   managing member Murray Altman.    Murray owns 75% of the debtor and
16   Shin owns 25%.    Murray and Shin engaged in years of state court
17   litigation, and Shin claims she ultimately obtained a state court
18   judgment against Murray for roughly $1.4 million.    Desert Springs
19   Financial’s schedules reflect that Shin (or her wholly owned
20   corporation) is a judgment creditor of the company for a similar
21   amount.
22
23
            1
             Ramon Palm Lane is Shin’s wholly owned corporation. For
24   purposes of this appeal, Ramon Palm Lane and Shin appear to have
     an identity of interest. Unless otherwise indicated, all
25   references to Shin herein are to both Shin and Ramon Palm Lane.
26          2
             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        After Desert Springs Financial commenced its bankruptcy case
 2   in May 2016, Mitchell filed a proof of claim in which he asserted
 3   that Desert Springs Financial was indebted to him based on a
 4   $600,000 secured loan he made to the company in May 2013.    With
 5   accrued prepetition interest, Mitchell claimed he was owed over
 6   $760,000 as of the date of Desert Springs Financial’s petition
 7   filing.   Mitchell attached to his proof of claim a note and deed
 8   of trust executed by his father Murray on behalf of Desert
 9   Springs Financial in January 2014.   The loan documents tend to
10   demonstrate that a debt exists and that it is secured by Desert
11   Springs Financial’s real property located in Palm Desert,
12   California, as described in the deed of trust.
13        Shin filed her claim objection in September 2016.   Among
14   other things, Shin pointed out that the note and deed of trust
15   were executed by Murray – who qualified as an insider under the
16   Code’s statutory definition and who controlled Desert Springs
17   Financial as its managing member.    Shin further pointed out that
18   on the other side of the purported loan transaction was Murray’s
19   son Mitchell – who also qualified as an insider under the Code.
20   Shin additionally noted that Murray executed the loan documents
21   roughly eight months after the loan transaction supposedly was
22   entered into.
23        While Shin did not point it out in her objection, it also
24   seems odd that the alleged loan apparently went into default
25   roughly 12 days after the parties got around to documenting it.
26   On its face, the note dated January 16, 2014 provided for the
27   first annual interest payment of $36,000 to be made on January
28   23, 2014 – and provided for a five day grace period before the

                                      3
 1   nonpayment of interest became an event of default.   The statement
 2   of indebtedness attached to the proof of claim indicates that
 3   Desert Springs Financial never made the the January 23, 2014
 4   interest payment or any of the other annual interest payments due
 5   under the note.   It additionally seems peculiar that the
 6   statement of indebtedness charged Desert Springs Financial for 31
 7   months of prepetition interest at the default interest rate, when
 8   there were only 28 months between the first interest payment
 9   default and the date of Desert Springs Financial’s petition.3
10        Instead of focusing on the loan documents, Shin focused on
11   Desert Springs Financial’s books and records.   She claimed to
12   have reviewed the company’s books and records between 2009 and
13   March 2014 and opined based on that review that there was no
14   evidence in those books and records of any loan from Mitchell to
15   Desert Springs Financial.   Shin also characterized as suspicious
16   Desert Springs Financial’s inconsistent listing of the company’s
17   debts to Mitchell in its initial and amended bankruptcy
18   schedules.   None of the variously scheduled amounts came anywhere
19   near the amount of the $600,000 note.
20        In his response to Shin’s claim objection, Mitchell noted
21   that, while Shin might dispute that he was the source of the
22   $600,000, there was no dispute regarding the existence of the
23   $600,000 or the use of those funds in May 2013 to pay off a
24
          3
             There is yet another curiosity in the note: one note
25   provision identifies interest payment dates as annual events,
26   whereas another note provision requires the borrower to make
     “consecutive monthly installments” on each “Interest Payment
27   Date.” Presumably, a business entity executing bona fide loan
     documents would be concerned about the note’s apparent
28   inconsistency regarding when interest payments were due.

                                      4
 1   $600,000 loan that Desert Springs Financial owed to Shin.    As
 2   Mitchell explained, Desert Springs Financial paid Shin the
 3   $600,000 in May 2013 to prevent Shin from levying on a writ of
 4   attachment she had obtained from the state court.    Shin has not
 5   disputed Desert Springs Financial’s payment of the $600,000 to
 6   her for this purpose.
 7        More importantly for purposes of this appeal, Mitchell
 8   asserted that his proof of claim was filed in compliance with the
 9   applicable bankruptcy rules, so his claim was entitled to a
10   presumption as to its validity and amount under Rule 3001(f).
11   According to Mitchell, nothing in Shin’s claim objection or in
12   the declarations accompanying her claim objection was sufficient
13   to rebut this presumption.
14        Mitchell contended that most of the contents of the claim
15   objection declarations was really argument, or lacked a
16   foundation as to the declarant’s personal knowledge, or both.     In
17   furtherance of this contention, Mitchell filed evidentiary
18   objections at the same time he filed his claim objection
19   response.   In relevant part, Mitchell challenged paragraph six of
20   Shin’s declaration, which stated:
21        From the Superior Court litigation against [Murray] and
          DSF, I have copies of DSF’s books, from 2009 through
22        3/5/14 (date the supposed DOT was recorded). I have
          reviewed those DSF books and records thoroughly, and
23        those DSF books and records do NOT show that Mitchell
          Altman lent ANY money to DSF.
24
25   Shin Decl. (Sept. 13, 2016) at ¶ 6 (Emphasis in original).
26   Mitchell maintained that paragraph six was inadmissible based on
27   the following grounds:    “Lack of personal knowledge, lack of
28   foundation, argument.    Fed.R.Evid.602.   Not the best evidence as

                                       5
 1   to contents of documents.     Fed.R.Evid.1002.   Inadmissible
 2   hearsay.   Fed.R.Evid.802.    Improper opinion testimony.
 3   Fed.R.Evid.701.” Evid. Objections (Oct. 4, 2016).
 4        Mitchell’s response to the claim objection did not contain
 5   much in the way of evidence.     Instead, Mitchell seemed content,
 6   for the most part, to rely upon the prima facie validity of his
 7   proof of claim.   Mitchell did submit a half-page declaration in
 8   support of his response.     In it, Mitchell stated that: (1) he
 9   loaned Desert Springs Financial $600,000 so that the company
10   could pay off Shin’s $600,000 loan; (2) even before the loan was
11   documented, he made the loan on the understanding that he would
12   be given a deed of trust securing the loan against Desert Springs
13   Financial’s property; and (3) he does not know why it took Desert
14   Springs Financial’s counsel eight months to document the
15   transaction.   The only other evidence Mitchell presented with his
16   claim objection response pertained to the fact that the $600,000
17   was paid to Shin to prevent her from levying on the writ of
18   attachment she had obtained in that amount.
19        Shin filed a reply brief and a response to Mitchell’s
20   evidentiary objections.    In an attempt to fend off Mitchell’s
21   best evidence objection regarding paragraph six of her
22   declaration, Shin filed a supplemental declaration and attached
23   to it what she represented were excerpts from Desert Springs
24   Financial’s books and records.     The excerpts include what appears
25   to be a page from Desert Springs Financial’s general ledger.       Two
26   ledger entries dated May 6, 2013 are of particular interest.
27   From the parties’ other evidence, on or about that date, Desert
28   Springs Financial repaid Shin’s $600,000 loan.      The first ledger

                                        6
 1   entry shows a debit to Murray’s capital account in the amount of
 2   $600,000 and the second ledger entry shows a credit to Shin’s
 3   loan payable account in the same amount.
 4        The same general ledger page on which these two ledger
 5   entries appear contains other ledger entries dated between April
 6   16, 2013 and May 23, 2013.   None of these ledger entries show any
 7   ledger activity on a loan payable account in Mitchell’s name.
 8   In fact, the Desert Springs Financial Balance Sheet pages
 9   accompanying Shin’s supplemental declaration reflect that, as of
10   September 25, 2013, Desert Springs Financial had no loan payable
11   account at all for Mitchell.
12        At the hearing on the claim objection, the bankruptcy court
13   sustained most of Mitchell’s evidentiary objections.    Concerning
14   paragraph 6 of Shin’s declaration, the bankruptcy court sustained
15   the objection based on the best evidence rule and on a lack of
16   foundation.   Shin argued that her supplemental declaration, with
17   the excerpts from Desert Springs Financial’s books and records
18   attached, cured any evidentiary defect in her original
19   submission.   The bankruptcy court disagreed.   As a threshold
20   matter, the bankruptcy court commented that there was no evidence
21   presented that Shin was an accountant or otherwise qualified to
22   explain what the books and records demonstrated in terms of the
23   May 2013 funding of Shin’s loan repayment.   The court also
24   reasoned that the books and records excerpts did not include any
25   recent financials from around the time Desert Springs Financial
26   filed its bankruptcy petition.   According to the court, the
27   assets and liabilities of the company at the time the petition
28   was filed (in May 2016) were critical and how the company

                                      7
 1   originally booked the transaction in May 2013 was not.   The
 2   following quote is representative of the bankruptcy court’s
 3   reasoning:
 4        All right. I think we are arguing paragraph 6 [of the
          Shin declaration]. And the Court’s looked at the
 5        attachments to the exhibits to Ms. Shin’s supplemental
          declaration and the Court’s ruling [sustaining the
 6        evidentiary objection to paragraph 6] stands. I think
          that what’s attached is a partial excerpt from the
 7        books and records balance sheets going back almost --
          actually over three years and I think what counts is
 8        what the financial -- what the books and records showed
          on the petition date, not what they showed three years
 9        ago.
10   Hr’g Tr. (Oct. 18, 2016) at 6:7-15; see also id. at 19:4-7 (“The
11   records that are attached are actually out-of-date records.     They
12   show what might have been the state of affairs in 2013, but they
13   don’t show the state of affairs on the petition date.”).
14   Apparently, the court believed that, even if the funding of the
15   $600,000 was not originally conceived as a loan from Mitchell to
16   Desert Springs Financial in May 2013, it might have been re-
17   conceived as that at some point before Desert Springs Financial’s
18   bankruptcy filing.   As the bankruptcy court reasoned, because of
19   the limited time period covered by Shin’s books and records
20   excerpts, they did not show whether “Murray Altman may have
21   gifted that loan to his son between 2013 and the petition date.”
22   Hr’g Tr. (Oct. 18, 2016) at 7:10-12.
23        On the merits, the bankruptcy court held that Mitchell was
24   entitled to the benefit of the Rule 3001(f) presumption and that,
25   to rebut this presumption, Shin had the burden of presenting
26   evidence with a “probative force . . . equal to or greater than
27   the probative force of the proof of claim.”   Hr’g Tr. (Oct. 18,
28   2016) at 18:6-8.   The court explained that the evidence Shin

                                      8
 1   presented in support of her claim objection – including the “out-
 2   of-date” books and records excerpts – was insufficient to
 3   overcome the Rule 3001(f) presumption.     According to the court,
 4   in light of Shin’s failure to overcome the presumption, it was
 5   unnecessary to reach the larger burden of proof issues, which
 6   would have required Mitchell to prove the validity of his claim
 7   by a preponderance of the evidence.
 8        The bankruptcy court entered its order overruling Shin’s
 9   claim objection on October 20, 2016, and Shin timely appealed.
10                               JURISDICTION
11        The bankruptcy court had jurisdiction pursuant to 28 U.S.C.
12   §§ 1334 and 157(b)(2)(B).   We have jurisdiction under 28 U.S.C.
13   § 158, subject to the mootness discussion set forth immediately
14   below.
15        While this appeal has been pending, the bankruptcy court
16   entered an order dismissing the underlying bankruptcy case.    In
17   light of the case dismissal, we must consider whether this appeal
18   is moot.   If we no longer can grant any meaningful relief to Shin
19   even if she were to prevail on appeal, this appeal must be
20   dismissed as moot.   Ellis v. Yu (In re Ellis), 523 B.R. 673, 676
21   (9th Cir. BAP 2014) (citing Pitts v. Terrible Herbst, Inc., 653
22   F.3d 1081, 1087 (9th Cir. 2011)).
23        It is debatable whether case dismissal can render moot an
24   appeal from an order allowing or disallowing a claim.    Compare
25   Bevan v. Socal Commc’ns Sites, LLC    (In re Bevan), 327 F.3d 994,
26   996–97 (9th Cir. 2003) (appeal from order overruling claim
27   objection not moot because of potential preclusive effect that
28   order might have in future litigation), with Center For

                                      9
 1   Biological Diversity v. Lohn, 511 F.3d 960, 965 (9th Cir. 2007)
 2   (citing Pilate v. Burrell (In re Burrell), 415 F.3d 994, 998-99
 3   (9th Cir. 2005)) (potential preclusive effect of the order on
 4   appeal did not prevent the appeal from that order from becoming
 5   moot).
 6          We do not need to resolve this debate.   Even if case
 7   dismissal sometimes can render moot an appeal from an order
 8   overruling a claim objection, this appeal has not yet become moot
 9   because the time to appeal the case dismissal order has not yet
10   run.    As long as the case dismissal order potentially is subject
11   to reversal on appeal, effective and meaningful relief for Shin
12   in her current appeal is not foreclosed.
13          The time to appeal the case dismissal order has not yet run
14   because that order is not yet final.    The case dismissal order
15   explicitly reserved for future hearing, on a date certain, the
16   issue of whether its dismissal of the current bankruptcy case
17   should include a 180-day bar to the filing of a new bankruptcy
18   case.    Requests for restrictions on future bankruptcy filings
19   typically are heard and determined as part of the case dismissal
20   proceedings, and rulings granting such restrictions typically are
21   appealed as part of the appellate review of the case dismissal
22   order.    See Ellsworth v. Lifescape Med. Assocs., P.C. (In re
23   Ellsworth), 455 B.R. 904, 922 (9th Cir. BAP 2011) (stating that,
24   once the bankruptcy court has determined that cause for dismissal
25   exists, court should then determine whether any sort of
26   restriction on future bankruptcy filings should be imposed).
27          More importantly, a bankruptcy court’s order is not final
28   and immediately appealable unless it fully adjudicated the issues

                                      10
 1   at bar and clearly evidenced “the judge’s intent that it be the
 2   court’s final act in the matter.”      Slimick v. Silva (In re
 3   Slimick), 928 F.2d 304, 307 & n.1 (9th Cir. 1990).      By expressly
 4   reserving the 180-day bar issue for future determination, the
 5   bankruptcy court manifested its intent that the dismissal order
 6   was not its final act in the matter.     Consequently, the order
 7   dismissing Desert Springs Financial’s bankruptcy case has not yet
 8   become final and appealable, and the time to appeal has not yet
 9   run.    Id.
10                                   ISSUES
11   1.     Was Mitchell’s proof of claim sufficiently compliant with
12          the Rules to qualify for the Rule 3001(f) presumption?
13   2.     Did Shin present sufficient evidence in support of her claim
14          objection to overcome the presumptive validity of Mitchell’s
15          claim?
16                             STANDARDS OF REVIEW
17          Claims objection appeals can involve both legal and factual
18   issues.    We review the legal issues de novo and the factual
19   issues for clear error.    See Veal v. Am. Home Mortg. Servicing,
20   Inc. (In re Veal), 450 B.R. 897, 918 (9th Cir. BAP 2011).
21          Whether the bankruptcy court identified and applied the
22   correct burden of proof is a question of law we review de novo.
23   Margulies Law Firm v. Placide (In re Placide), 459 B.R. 64, 71
24   (9th Cir. BAP 2011) (citing People’s Ins. Co. of China v. M/V
25   Damodar Tanabe, 903 F.2d 675, 682 (9th Cir. 1990)).      On the other
26   hand, “[w]hether evidence is sufficient to rebut an evidentiary
27   presumption is a question of fact reviewed for clear error.”
28   Garner v. Shier (In re Garner), 246 B.R. 617, 619 (9th Cir. BAP

                                       11
 1   2000) (citing Sierra Steel, Inc. v. Totten Tubes, Inc. (In re
 2   Sierra Steel, Inc.), 96 B.R. 275, 277 (9th Cir. BAP 1989)).
 3        While interpreting the Rules to determine what is required
 4   to file a procedurally compliant proof of claim is a question of
 5   law, whether a particular proof of claim has been executed and
 6   filed in compliance with those Rules is a question of fact
 7   reviewed for clear error.   Id. (citing Ashford v. Consolidated
 8   Pioneer Mortg. (In re Consolidated Pioneer Mortg.), 178 B.R. 222,
 9   225 (9th Cir. BAP 1995)).
10        “A bankruptcy court’s factual findings are not clearly
11   erroneous unless they are illogical, implausible or without
12   support in the record.”   Ezra v. Seror (In re Ezra), 537 B.R.
13   924, 929 (9th Cir. BAP 2015) (citing Retz v. Samson (In re Retz),
14   606 F.3d 1189, 1196 (9th Cir. 2010)).
15                               DISCUSSION
16   1.   General Legal Standards Applicable To Claims Litigation
17        We travel a well-worn path in stating the respective burdens
18   and obligations of the parties in claims litigation.
19   Nonetheless, because this appeal hinges on the appropriate
20   allocation and application of these burdens and obligations, we
21   once again state them in detail.
22        A claim is deemed allowed absent objection from a party in
23   interest, § 502(a), and a procedurally compliant proof of claim
24   is prima facie evidence of the validity and amount of the claim.
25   Rule 3001(f).
26        A mere formal claim objection, without evidence, cannot
27   defeat a claim presumed to be valid under Rule 3001(f).   Lundell
28   v. Anchor Constr. Specialists, Inc., 223 F.3d 1035, 1039 (9th

                                     12
 1   Cir. 2000).   To overcome the Rule 3001(f) presumption, the
 2   objecting party must present evidence tending to rebut the claim
 3   – evidence with probative force equal to that of the creditor’s
 4   proof of claim.   Id.   As a practical matter, “the objector must
 5   produce evidence which, if believed, would refute at least one of
 6   the allegations that is essential to the claim’s legal
 7   sufficiency.”   Id. at 1040 (quoting In re Allegheny Int’l, Inc.,
 8   954 F.2d 167, 173–74 (3d Cir. 1992)) (emphasis omitted).
 9        If the objecting party successfully rebuts the presumption,
10   the claimant bears the burden of proof to show by a preponderance
11   of the evidence that its claim is valid, and “the ultimate burden
12   of persuasion remains at all times upon the claimant.”    Id. at
13   1039.
14        But if the objecting party does not rebut the presumption,
15   the claims litigation ends there; the claim should be allowed
16   without the claimant bearing any further burden to demonstrate
17   the validity of its claim.   Id. at 1041.
18   2.   Applicability of Rule 3001(f) Presumption
19        Rule 3001(f) states: “A proof of claim executed and filed in
20   accordance with these rules shall constitute prima facie evidence
21   of the validity and amount of the claim.”    (Emphasis added.)   In
22   turn, other parts of Rule 3001 set forth the various requirements
23   for a procedurally compliant proof of claim.    Subdivision (a) of
24   Rule 3001 requires proofs of claim to be in writing and to
25   substantially conform to the Official Form (currently, Official
26   Form 410).    With exceptions not relevant here, subdivision (b) of
27   Rule 3001 specifies that a proof of claim should be signed by the
28   creditor or its authorized agent.     Meanwhile, subdivision (c)(1)

                                      13
 1   required Mitchell to attach to his proof of claim the writings on
 2   which his claim and his security interest were based – the note
 3   and the deed of trust – and subdivision (d) required Mitchell to
 4   submit with his proof of claim evidence that his security
 5   interest had been perfected.
 6        On its face, Mitchell’s proof of claim satisfied all of the
 7   above requirements.   While there are additional requirements for
 8   claims arising from open-end or revolving consumer credit
 9   agreements, see Rule 3001(c)(3), and for claims against
10   individual debtors, see Rule 3001(c)(2), none of those special
11   requirements apply here.
12        Shin argues that Mitchell’s proof of claim was not
13   procedurally compliant, but most of her arguments make no sense.
14   Shin contends that the proof of claim should have been signed by
15   Mitchell, should have been signed by someone with personal
16   knowledge of the original loan transaction and should have been
17   accompanied by a supporting declaration signed under penalty of
18   perjury and by foundational evidence authenticating
19   the note and the deed of trust.    None of these items are
20   identified in the Rules as proof of claim requirements, nor has
21   Shin cited us any authority making them requirements.    Of
22   particular note, Mitchell’s proof of claim was signed by the same
23   attorney who has been representing Mitchell throughout this claim
24   dispute, and in the proof of claim’s signature block, Mitchell’s
25   attorney checked the appropriate box on the Official Form
26   reflecting that he is “the creditor’s attorney or authorized
27   agent.”
28        Most of the other points Shin raises in an attempt to

                                       14
 1   demonstrate that Mitchell was not entitled to the Rule 3001(f)
 2   presumption more properly pertain to the issue of whether there
 3   was adequate evidence in the record to rebut the presumption.
 4        There is, however, one aspect of Shin’s challenge to the
 5   application of Rule 3001(f) that we must consider more carefully.
 6   In essence, Shin argues that, because Murray and Mitchell both
 7   were insiders and because Murray was the managing member of
 8   Desert Springs Financial, Rule 3001(f) should not apply at all to
 9   Mitchell’s proof of claim.   Put another way, Shin asserts that,
10   in light of Supreme Court and Ninth Circuit authority calling for
11   heightened scrutiny of insider transactions with debtor business
12   entities, the Rule 3001(f) presumption should not apply at all to
13   claims arising from insider transactions.   Shin relies upon
14   Pepper v. Litton, 308 U.S. 295 (1939), and Brewer v. Erwin &
15   Erwin, P.C. (In re Marquam Investment Corp.), 942 F.2d 1462 (9th
16   Cir. 1991).   These two cases stand for the general proposition
17   that, in bankruptcy claims litigation, insider transactions must
18   be “subjected to rigorous scrutiny” and the insider claimant has
19   the additional burden of proving “the good faith of the
20   transaction” and “its inherent fairness.”   Pepper, 308 U.S. at
21   306; accord, Marquam Inv. Corp., 942 F.2d at 1465.
22        Even so, nothing on the face of Rule 3001(f) (or on the face
23   of Pepper or Marquam) restricts insider creditors from the
24   benefit of the presumption, and the circuit decisions that have
25   specifically considered the relationship between insider claims
26   and Rule 3001(f) have concluded that the presumption still
27   applies.   More specifically, the additional burden under Pepper
28   and Marquam comes into play only if the proof of claim does not

                                     15
 1   procedurally qualify for the presumption or if the objecting
 2   party successfully rebuts the presumption.   See, e.g., Stancill
 3   v. Harford Sands Inc. (In re Harford Sands Inc.), 372 F.3d 637,
 4   640–41 (4th Cir. 2004); McGee v. O’Connor (In re O’Connor), 153
 5   F.3d 258, 260–61 (5th Cir. 1998).
 6        Harford Sands’ and O’Connor’s treatment of the
 7   interrelationship between Rule 3001(f) and the Pepper/Marquam
 8   rigorous scrutiny standard makes sense.    Congress obviously knew
 9   how to qualify and restrict the claims of insiders when it wanted
10   to do so.   See § 502(b)(4).   And yet nothing in the Code or Rules
11   suggests that insiders should not have the benefit of the Rule
12   3001(f) presumption.   In the absence of a Congressional
13   directive, or some explicit qualifying language in the Rules, we
14   decline Shin’s invitation to create our own insider exception to
15   the Rule 3001(f) presumption based on the general principles of
16   equity Pepper and Marquam relied upon.    To engage in this type of
17   equitable revision of the Code or the Rules would invite
18   reversal.   See, e.g., Law v. Siegel, 134 S. Ct. 1188, 1196-97
19   (2014) (reversing bankruptcy court’s order surcharging exemption
20   on equitable grounds not set forth in Code); Gardenhire v. IRS
21   (In re Gardenhire), 209 F.3d 1145, 1152 (9th Cir. 2000)
22   (reversing Panel decision affirming allowance of an untimely
23   proof of claim because Panel impermissibly extended on equitable
24   tolling grounds claim filing deadline specified in Rules).
25        Thus, the bankruptcy court did not err in applying the Rule
26   3001(f) presumption to Mitchell’s claim.
27   3.   Evidence In The Record Countering the Presumption
28        Having concluded that the Rule 3001(f) presumption applied,

                                      16
 1   we next must consider whether Shin rebutted the presumption of
 2   validity arising from Mitchell’s procedurally compliant proof of
 3   claim.   The undisputed facts in the record establish that:
 4   (1) the debtor LLC’s managing member executed the note and deed
 5   of trust in favor of his son roughly eight months after the loan
 6   transaction supposedly occurred; (2) the note and the statement
 7   of indebtedness attached to the proof of claim contained errors
 8   and/or irregularities; (3) the debtor’s general ledger entries at
 9   the time the Shin loan was repaid included a $600,000 credit to
10   the Shin loan payable account and a $600,000 debit to the Murray
11   capital account; and (4) the same books and records showing the
12   repayment of the Shin loan do not show any Mitchell loan payable
13   account or any activity related to such an account.4
14        Taken together, the above-referenced undisputed facts
15   potentially tend to show that Mitchell and Murray, after the
16   transaction occurred, attempted to re-label what actually was a
17   capital investment by Murray as a secured loan from Mitchell in
18   an attempt to keep Desert Springs Financial’s assets away from
19   its creditors.   These facts were “some evidence” that Murray and
20   Mitchell fabricated documentation for a nonexistent loan in a
21
22        4
             Both parties at oral argument claimed that the bankruptcy
23   court did not consider the books and records Shin presented with
     her reply brief. This claim is incorrect. The bankruptcy
24   court’s evidentiary rulings only addressed Shin’s original
     declaration; nothing in the record suggests that the bankruptcy
25   court excluded any part of Shin’s supplemental declaration or any
26   of the exhibits attached to the supplemental declaration. To the
     contrary, the bankruptcy court specifically stated that it had
27   considered the books and records Shin presented and specifically
     addressed those documents in the process of explaining its
28   reasoning for overruling Shin’s claim objection.

                                     17
 1   manner that is reminiscent of the sham transaction described in
 2   Pepper, 308 U.S. at 297-301.   And we conclude that this evidence
 3   was of equal probative force to the proof of claim and its
 4   attachments (including the note and the deed of trust).
 5        The bankruptcy court’s determination that the above-
 6   referenced facts were insufficient to rebut the presumption of
 7   validity arising from Mitchell’s proof of claim was illogical and
 8   hence clearly erroneous.   The bankruptcy court relied upon its
 9   own speculation that Murray and Mitchell might have agreed to
10   change the nature of the transaction after it occurred.   (This
11   theory is inconsistent with the loan documentation and with
12   Mitchell’s declaration, in which he insisted that the transaction
13   always was conceived of as a secured loan from him to Desert
14   Springs Financial.)   More to the point, the bankruptcy court’s
15   reliance on this theory begs the question as to whether Shin
16   presented sufficient evidence to rebut the presumption of
17   validity – a question we have now answered in the affirmative.
18        Because we have determined that the bankruptcy court’s order
19   overruling Shin’s claim objection must be vacated as it was based
20   on a clearly erroneous factual finding, we do not need to
21   consider any of the bankruptcy court’s evidentiary rulings
22   against Shin.
23   4.   Proceedings On Remand
24        We acknowledge that the bankruptcy court has entered an
25   order dismissing Desert Springs Financial’s bankruptcy case.    As
26   a result, the bankruptcy court on remand might determine that
27   there is no need (or continuing jurisdiction) to address further
28   Shin’s claim objection unless an appeal is taken from the case

                                     18
 1   dismissal order and unless that order is reversed on appeal.
 2        Should there be any future claim objection proceedings
 3   following remand, in light of Shin’s rebuttal of Mitchell’s prima
 4   facie case, Mitchell would bear the burden of proof to establish
 5   the validity of his claim by a preponderance of the evidence,
 6   Lundell, 223 F.3d at 1039, plus Mitchell would bear the
 7   additional burden of showing both good faith and the inherent
 8   fairness of the transaction.   In re Marquam Inv. Corp., 942 F.2d
 9   at 1465; accord In re Harford Sands Inc., 372 F.3d at 640–41; In
10   re O’Connor, 153 F.3d at 260–61.
11        If further claim objection proceedings do take place after
12   remand, unless the parties agree otherwise, the bankruptcy court
13   likely would need to reopen the record and likely would need to
14   hold an evidentiary hearing to resolve the claim objection.    We
15   understand why the bankruptcy court previously did not hold an
16   evidentiary hearing.   Neither party argued that an evidentiary
17   hearing was necessary.   Instead, both parties asserted that they
18   should prevail without the need for an evidentiary hearing.    The
19   bankruptcy court largely agreed with Mitchell’s position, ruling
20   that Shin had not presented sufficient evidence to rebut the
21   presumption of validity of Mitchell’s claim, so no further
22   proceedings (evidentiary or otherwise) were necessary.    In
23   addition, Shin has not argued on appeal that the bankruptcy court
24   should have held an evidentiary hearing.
25        Sometimes, claim objections can be so lacking in merit, and
26   in evidence presented, that an evidentiary hearing would not be
27   needed to properly dispose of them.   Compare In re Garner, 246
28   B.R. at 623-25, with Reliance Steel & Aluminum Co. v. Locklin (In

                                     19
 1   re Locklin), 2015 WL 8267995, at *6-7 & n.4 (Mem. Dec.) (9th Cir.
 2   BAP Dec. 7, 2015).   This is not one of those cases.   Here, the
 3   bankruptcy court overruled Shin’s claim objection without holding
 4   an evidentiary hearing based on the incorrect premise that Shin
 5   had not presented sufficient evidence to overcome the presumption
 6   of validity of Mitchell’s claim.     On remand, the bankruptcy court
 7   will need to reevaluate the necessity of an evidentiary hearing
 8   in light of our holding.
 9                               CONCLUSION
10        For the reasons set forth above, the bankruptcy court’s
11   order overruling Shin’s claim objection is VACATED, and this
12   matter is REMANDED for further proceedings consistent with this
13   decision.
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

                                     20