Court Opinion

ID: 4153431
Source: CourtListenerOpinion
Date Created: 2017-03-16 20:00:27.755936+00
Date Added: 2024-06-11T07:46:35.492697
License: Public Domain

NOT PRECEDENTIAL

                       UNITED STATES COURT OF APPEALS
                            FOR THE THIRD CIRCUIT
                                 _____________

                                      No. 15-2768
                                     _____________

                               In re: JOON HYUN PARK,
                                            Debtor

                                      CHUNG CHO,
                                          Appellant

                                             v.

                                   JOON HYUN PARK
                                     _____________

                      Appeal from the United States District Court
                              for the District of New Jersey
                    (D.C. Civ. Nos. 2-14-cv-07613 & 2-15-cv-01045)
                        District Judge: Hon. Madeline Cox Arleo
                                     ______________

                      Submitted Under Third Circuit L.A.R. 34.1(a)
                                  October 24, 2016
                                  ______________

           Before: VANASKIE, KRAUSE, and NYGAARD, Circuit Judges.

                             (Opinion Filed: March 16, 2017)
                                    ______________

                                        OPINION*
                                     ______________

VANASKIE, Circuit Judge.

       *
        This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7
does not constitute binding precedent.
       Appellant Chung Cho seeks review of two orders entered during the Chapter 7

Bankruptcy case of Joon Hyun Park. First, on December 1, 2014, the Bankruptcy Court

approved a settlement of a fraudulent transfer action between the Bankruptcy Estate and

two parties: Cho’s sister (Ryung Hee Cho), and Seventh Avenue Fine Foods Corp., d/b/a

“Smiler’s Deli,” the effect of which was to effectively moot a fraudulent transfer lawsuit

filed by Cho in the United States District Court for the Southern District of New York.

And second, on January 20, 2015, the Bankruptcy Court denied Cho’s motion to strike

Park’s answer to Cho’s adversary complaint and motion for sanctions stemming from the

conduct of Park’s counsel at Park’s deposition. The District Court affirmed both orders

in a decision dated June 30, 2015, and Cho appealed the District Court’s ruling to our

Court. For the reasons that follow, we will affirm.

                                            I.

       In 2001, Park purchased a residence from Cho for $665,000. According to Cho,

Park obtained a mortgage for $450,000 and tendered a check for the difference. Park,

however, asked Cho not to cash the check for a period of time. Cho completed the

transfer of the residence while awaiting the remaining balance. Park subsequently closed

the account on which the check to Cho had been drawn without depositing any money,

leaving the remaining balance unpaid.

       At the time of the purchase of the residence, Park worked for Cho’s sister at

Smiler’s Deli. Shortly after he purchased the residence from Cho, Park and his wife

                                             2
bought Smiler’s Deli for $2 million, payable in monthly installments of $20,000 to

$30,000.

         Approximately ten years after the purchase of the residence, Park and Cho entered

into binding arbitration over the unpaid balance. In December of 2010, the arbitrator

found in favor of Cho. The arbitration award was confirmed the New Jersey Superior

Court.

         Shortly after the arbitration proceeding, Cho learned that Park had transferred

Smiler’s Deli back to Cho’s sister because the business had allegedly been failing.

Unable to collect on the arbitration award, Cho commenced a fraudulent transfer action in

the United States District Court for the Southern District of New York against Park,

Park’s wife, Smiler’s Deli, and his sister. Cho alleged that the Parks’ purchase of the deli

was designed to allow Park to siphon money from the business while shielding his assets

from Cho.

         In July of 2011, while the fraudulent transfer action was pending, Park filed a

Chapter 13 bankruptcy petition in the Bankruptcy Court for District of New Jersey.

Pursuant to a reorganization plan approved by the Bankruptcy Court, Park was to satisfy

his debt to Cho over a period of five years. When Park defaulted on his payments, the

Bankruptcy Court, in June of 2012, dismissed Park’s Chapter 13 petition.

                                               3
       On November 1, 2013, Park filed a Chapter 7 petition in the Bankruptcy Court for

the District of New Jersey. His petition referenced the debt to Cho in the schedule of

creditors holding unsecured non-priority claims.1

       The Chapter 7 Trustee asserted preferential or fraudulent transfer claims against

Cho’s sister and Smiler’s Deli. On March 10, 2014, over Cho’s objection, the Southern

District of New York stayed Cho’s action pending in that court. On October 9, 2014, the

Trustee filed a notice of settlement of the fraudulent transfer claims. The settlement

provided that Cho’s sister and Smiler’s Deli would pay the Trustee $25,000 in settlement

of any claims the Trustee and the Bankruptcy Estate had against them. Cho objected to

the settlement and moved in the Bankruptcy Court to lift the stay of the Southern District

of New York action. On December 1, 2014, the Bankruptcy Court approved the

settlement after a hearing. Cho then appealed this order to the District Court. After filing

his appeal to the District Court, Cho moved for reconsideration in the Bankruptcy Court,

arguing that he had discovered proof of funds that had been siphoned from Smiler’s Deli

to another entity. After another hearing, the Bankruptcy Court found that Cho’s appeal

divested it of jurisdiction to address the motion. The Bankruptcy Court noted, however,

that it would not have granted the motion on the merits given that the evidence submitted

       1
         On January 30, 2014, Cho filed an adversary proceeding in the Bankruptcy Court
objecting to the discharge of Park’s indebtedness to him because of Park’s allegedly
fraudulent operation of Smiler’s Deli. The Bankruptcy Court granted summary judgment
in favor of Park in this adversary proceeding, and the District Court affirmed the
summary judgment ruling. Cho appealed this decision to our Court, docketed to No. 16-
1409, and we recently affirmed the grant of summary judgment in favor of Park.
                                             4
could not be considered “new.” (App. 836.) Cho appealed this decision to the District

Court as well. At the same time, Cho, citing the conduct of Park’s counsel at Park’s

deposition, sought to impose sanctions and to strike Park’s answer to Cho’s adversary

complaint. On January 20, 2015, the Bankruptcy Court denied Cho’s sanctions motions.

Cho appealed this third order to the District Court.

       In reviewing the Bankruptcy Court orders, the District Court held that the

Bankruptcy Court: (1) did not abuse its discretion in approving the settlement; (2)

properly found a lack of jurisdiction to adjudicate the motion for reconsideration; and (3)

did not abuse its discretion in denying the motion for sanctions and the motion to strike

Park’s pleadings. Cho filed this timely appeal.2

                                             II.

       The Bankruptcy Court had jurisdiction over the initial proceedings pursuant to 28

U.S.C. §§ 157(b) and 1334. The District Court had jurisdiction over the appeal pursuant

to 28 U.S.C. § 158(a). We have appellate jurisdiction to review the District Court's ruling

under 28 U.S.C. §§ 158(d) and 1291. “We exercise plenary review over the District

Court's appellate review of the Bankruptcy Court’s decision and exercise the same

standard of review as the District Court in reviewing the Bankruptcy Court's

determinations.” In re Miller, 730 F.3d 198, 203 (3d Cir. 2013). “We review a

bankruptcy court’s legal determinations de novo, its factual findings for clear error, and

       2
        Cho does not challenge in this Court the District Court’s decision that affirmed
the Bankruptcy Court’s denial of his reconsideration motion.
                                            5
its exercises of discretion for abuse thereof.” Id. A bankruptcy court exercises discretion

both in its imposition or denial of sanctions and in its approval or disapproval of a

settlement. Id. at 203; In re Martin, 91 F.3d 389, 391 (3d Cir. 1996).

                                              III.

       We first examine the Bankruptcy Court’s order approving the Chapter 7 Trustee’s

settlement with Cho’s sister and Smiler’s Deli. On motion by a trustee, bankruptcy

courts have the authority to approve a settlement that is “fair and equitable” after notice

and a hearing. Protective Comm. for Indep. Stockholders of TMT Trailer Ferry, Inc. v.

Anderson, 390 U.S. 414, 424 (1968); see Fed. R. Bankr. P. 9019. In determining whether

a settlement is fair and equitable, a bankruptcy court must “assess and balance the value

of the claim that is being compromised against the value to the estate of the acceptance of

the compromise proposal.” In re Martin, 91 F.3d at 393. This Court has identified four

factors to consider when attempting to accomplish this balance: “(1) the probability of

success in litigation; (2) the likely difficulties in collection; (3) the complexity of the

litigation involved, and the expense, inconvenience and delay necessarily attending it;

and (4) the paramount interest of the creditors.” Id.

       The Bankruptcy Court addressed the Martin factors directly at the settlement

hearing and found the settlement to be fair and equitable. The Bankruptcy Court noted

that—with respect to the underlying fraudulent transfer claims—even if the statute of

limitations did not bar recovery entirely, the likelihood of success was at best uncertain.

The Bankruptcy Court also recognized the factual complexity of the case and the costs

                                               6
that would accompany the litigation, including the need for a forensic accountant. The

Bankruptcy Court therefore concluded that the settlement offer was superior to what

could be achieved through continued litigation on the claim and ultimately in the

paramount interest of the creditors. We agree with the District Court that the Bankruptcy

Court did not abuse its discretion in its application of the Martin factors or its approval of

the proposed settlement.

       Cho also contends that the Bankruptcy Court should have modified the automatic

stay of the fraudulent transfer action to allow him to pursue that claim in the Southern

District of New York. The Bankruptcy Court, however, found that this claim was part of

the estate and within the sole authority and duty of the trustee to administer. In this

regard a bankruptcy “estate” encompasses “all legal or equitable interests of the debtor in

property as of the commencement of the case.” 11 U.S.C. § 541(a)(1). This broad

definition of a bankruptcy estate includes causes of action that arise out of preferential or

fraudulent transfers. See United States v. Whiting Pools, Inc., 462 U.S. 198, 205 n. 10

(1983). Park’s bankruptcy estate clearly included the fraudulent transfer claims against

Cho’s sister and Smiler’s Deli. Under these circumstances, the Bankruptcy Trustee

plainly had standing to pursue the claims against Cho’s sister and Smiler’s Deli, and

Cho’s action in the Southern District of New York was properly stayed. See In re Keene

Corp., 164 B.R. 844, 850 (Bankr. S.D.N.Y. 1994) (“[A] third party action to recover

fraudulently transferred property is properly regarded as undertaken to recover a claim

                                              7
against the debtor and subject to the automatic stay pursuant to § 362(a)(1).”) (internal

quotation marks and citation omitted).3

       Finally, Cho appeals the denial of his motion for sanctions and his motion to strike

Park’s entire answer to Cho’s adversary complaint. Cho moved for sanctions and moved

to strike based on the conduct of Park’s counsel at Park’s deposition. Cho states that

Park’s counsel objected 75 times during the one-hour deposition, that counsel used

aggressive and disruptive language, and that he ultimately walked out before the

deposition had concluded. After a hearing on the matter, the Bankruptcy Court found

that sanctions, including striking the answer, should not be imposed. The Bankruptcy

Court concluded that striking the answer was too severe, especially considering the fact

that the conduct complained of was that of Park’s counsel and not Park himself. The

Bankruptcy Court also determined that sanctions were inappropriate given that Park had

no history of delays or bad faith and because Park had agreed to proceed with the

deposition. The District Court concluded that the Bankruptcy Court neither abused its

discretion nor erred in its factual determinations in deciding these motions. Once again,

we agree.

                                            IV.

       3
         Once the settlement was approved, the District Court for the Southern District of
New York dismissed Cho’s fraudulent transfer action as precluded by the doctrine of res
judicata. Cho v. Seventh Ave. Fine Foods Corp., No. 11 CIV. 3436 (KPF), 2016 WL
1717214 (S.D.N.Y. Apr. 28, 2016). Cho did not pursue an appeal of the Southern
District decision.
                                            8
        For the foregoing reasons we will affirm the District Court’s order of June 30,

2015.

                                             9