Court Opinion

ID: 3167384
Source: CourtListenerOpinion
Date Created: 2016-01-05 23:01:05.816296+00
Date Added: 2024-06-11T12:00:56.130785
License: Public Domain

FILED
                                                               JAN 05 2016
 1                         NOT FOR PUBLICATION
 2                                                        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-15-1106-TaKuKi
                                   )
 6   HOLY HILL COMMUNITY CHURCH,   )      Bk. No.     2:14-bk-21070-WB
                                   )
 7                  Debtor.        )      Adv. No.    2:14-ap-01744-WB
     ______________________________)
 8                                 )
     DANA PARK,                    )
 9                                 )
                    Appellant,     )
10                                 )
     v.                            )      MEMORANDUM*
11                                 )
     RICHARD J. LASKI, Chapter 11 )
12   Trustee; 1111 SUNSET, LLC;    )
     DOWNTOWN CAPITAL, LLC,        )
13                                 )
                    Appellees.**   )
14   ______________________________)
15               Argued and Submitted on November 19, 2015
                          at Pasadena, California
16
                            Filed – January 5, 2016
17
               Appeal from the United States Bankruptcy Court
18                 for the Central District of California
19      Honorable Julia Wagner Brand, Bankruptcy Judge, Presiding
20
     Appearances:     Marvin Levy argued for appellant Dana Park;
21                    Richard D. Buckley, Jr. of Arent Fox LLP argued
                      for appellee Richard J. Laski, Chapter 11
22                    Trustee.
23
24        *
             This disposition is not appropriate for publication.
25   Although it may be cited for whatever persuasive value it may
     have (see Fed. R. App. P. 32.1), it has no precedential value.
26   See 9th Cir. BAP Rule 8024-1(c)(2).
27        **
             Although named by Appellant in the notice of appeal,
28   1111 Sunset, LLC was not a party to the adversary proceeding.
     And Downtown Capital, LLC did not appear in the appeal.
 1   Before:   TAYLOR, KURTZ, and KIRSCHER, Bankruptcy Judges.
 2                              INTRODUCTION
 3        Dana Park appeals from an order dismissing, without leave
 4   to amend, a complaint against chapter 111 debtor Holy Hill
 5   Community Church.   DISMISSAL of the appeal, based on mootness,
 6   is warranted.   To the extent any portion of the appeal retains
 7   vitality, a merits review yields no basis for reversal and we
 8   would AFFIRM.
 9                                  FACTS
10        The Debtor is a Presbyterian church that formerly owned
11   valuable real property located in Los Angeles, California (the
12   “Property”).
13                           Prepetition Events
14        In 2010, a schism developed between the Debtor’s membership
15   and leadership.   Eventually, The Western California Presbytery,
16   a governing organization for the Debtor, became involved.    The
17   dispute escalated, and the Presbytery took action; on March 24,
18   2011, it terminated Dong Sub Bang as pastor and president of the
19   board of elders, and it replaced the three members of the board
20   of elders.   The result of the Presbytery’s actions was a
21   competition between the factions for possession and control of
22   the church and the Property.
23        In April 2011, the Presbytery sought a secular solution to
24   the discord and commenced an action against Bang and the three
25
          1
             Unless otherwise indicated, all chapter and section
26   references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532.
27   All “Rule” references are to the Federal Rules of Bankruptcy
     Procedure and all “Civil Rule” references are to the Federal
28   Rules of Civil Procedure.

                                      2
 1   removed elders (collectively, the “Bang Faction”) in California
 2   state court (the “Presbytery action”).   The Bang Faction
 3   responded by recording two deeds of trust purporting to create
 4   liens in their favor and against the Property.   And in August
 5   2011, it executed and recorded a quitclaim deed (“Beverly Deed”)
 6   purporting to transfer the Property from the Debtor to Beverly
 7   Real Estate Investments LLC (“Beverly LLC”).   Beverly LLC later
 8   recorded a quitclaim deed transferring the Property to Golden
 9   Fish, LLC.   Park now entered the fray; she controls both
10   Beverly LLC and Golden Fish, LLC.
11        After its discovery of this activity, the Debtor took
12   action independent of the Presbytery and commenced a quiet title
13   action against Park, Beverly LLC, and the Bang Faction in state
14   court.   Subsequently it filed an application for an order
15   restoring title in the Property to the Debtor, based on an order
16   entered in the related Presbytery action.
17        In the Presbytery action, the court had issued an order
18   finding the Beverly Deed invalid because the Bang Faction
19   executed it after their removal from the Debtor’s governance
20   (“Presbytery action order”).   Based on that finding, the court
21   then granted a request for injunctive relief preventing the Bang
22   Faction, Park, and Beverly LLC from interfering with the
23   Debtor’s possession, management, and control of the Property.
24   It also ordered restoration of the Property to the Presbytery.
25   Notably, the Presbytery action order contained express reference
26   to Park and Beverly LLC, although neither was a named party in
27   the litigation.
28        Consistent with the Presbytery action order, the court in

                                     3
 1   the Debtor’s quiet title action granted the Debtor’s
 2   application, over Park’s objection, and ordered that title in
 3   the Property be restored to the Debtor (“order restoring
 4   title”).   Its decision was made in accordance with the
 5   Presbytery action order, “finding invalid the attempt to
 6   transfer the Property . . . .”   Concurrently, the state court
 7   clerk of court, on behalf of Beverly LLC, executed a quitclaim
 8   deed that transferred the Property from Beverly LLC back to the
 9   Debtor; the deed was properly recorded.   The Debtor also moved
10   for and obtained a state court order expunging the deeds of
11   trust recorded by the Bang Faction (“order expunging liens”).
12        Park and Beverly LLC soon found themselves without counsel
13   in the quiet title action.   As a result, the state court struck
14   their answers and entered defaults (but not default judgments)
15   against them; they did not appear again in the litigation.
16   Meanwhile, having obtained restoration of title to the Property,
17   the Debtor successfully petitioned for voluntary case dismissal
18   of its action.
19              Bankruptcy Filing and Post-Petition Events
20        The Debtor filed its chapter 11 petition in June 2014.   A
21   chapter 11 trustee was appointed soon after.
22        In September 2014 and in spite of knowledge of the
23   bankruptcy, Park commenced an action against the Debtor and
24   members of the Bang Faction (but not Bang), in state court; she
25   did not seek stay relief prior to filing the action.    The
26   complaint alleged broadly that Park held an interest in the
27   Property based on “a quitclaim deed.”   It sought to quiet title
28   against the Debtor’s claims to the Property as of the chapter 11

                                      4
 1   petition date and requested a declaration that the defendants
 2   did not have any right, title, estate, lien, or interest in the
 3   Property.   The complaint also alleged that the defendants
 4   wrongfully threatened to sell the Property; thus, Park sought
 5   injunctive relief preventing interference with her use of the
 6   Property.
 7        The Trustee removed Park’s action to the bankruptcy court
 8   and moved to dismiss the complaint under Civil Rule 12(b)(6),
 9   without leave to amend, based on the issue preclusive effect of
10   the state court orders in the Debtor’s quiet title action.
11   Thus, he discounted the impact of the Beverly Deed because the
12   state court previously deemed it invalid.   Similarly, he also
13   dismissed the impact of an unrecorded deed in lieu of
14   foreclosure relied upon by Park; the Bang Faction signed it
15   during a time when the state court previously determined they
16   lacked authority to take action on behalf of the Debtor.
17        Park opposed.   Beyond a broad assertion that the complaint
18   contained sufficient factual allegations supporting a plausible
19   claim for relief, she also asserted, vaguely, that other claims
20   for relief possibly existed, including fraud, unjust enrichment,
21   and “other causes of action.”   Park admitted, however, that she
22   needed to propound discovery on the Debtor and “other involved
23   parties” to flesh out these claims.
24        At the bankruptcy court’s request, the parties submitted
25   supplemental briefs on the issue of issue preclusion; the
26   bankruptcy court was particularly concerned with whether the
27   “final judgment” element was satisfied, given that the Debtor
28   had dismissed its quiet title action prior to trial.    Park

                                     5
 1   responded with an assertion aslant of this request; according to
 2   Park, the Beverly Deed was executed on account of Beverly LLC’s
 3   purchase of the promissory note evidencing an obligation owed
 4   for the Property in July 2011.   She also argued more generally
 5   that the state court orders were not final for issue preclusion
 6   purposes and that, in any event, she was not a party to or in
 7   privity with the party subject to the Presbytery action order.
 8        At a continued hearing, the bankruptcy court stated that
 9   after a careful review of the Trustee’s motion, Park’s
10   opposition, and the supplemental briefs, it would dismiss the
11   complaint without leave to amend.    It found all of the elements
12   for issue preclusion satisfied, as it deemed the order restoring
13   title a final order.   It also noted that quitclaim deed executed
14   by the state court clerk of court had transferred the Property
15   back to the Debtor, and that no appeal followed.   The bankruptcy
16   court concluded with the observation that Park was free to file
17   a proof of claim in the bankruptcy case if she had claims beyond
18   the complaint, but that leave to amend the complaint was not
19   warranted.
20        The bankruptcy court entered an order dismissing Park’s
21   claims with prejudice.   Park appealed.
22                               JURISDICTION
23        The bankruptcy court had jurisdiction pursuant to 28 U.S.C.
24   §§ 1334 and 157(b)(2)(A).   We have jurisdiction under 28 U.S.C.
25   § 158, as discussed further below.
26                                  ISSUES
27        Whether this appeal is moot; if not, whether the bankruptcy
28   court erred in dismissing the complaint or abused its discretion

                                      6
 1   in dismissing without leave to amend.
 2                          STANDARDS OF REVIEW
 3         We review the following issues de novo: our jurisdiction,
 4   including questions of mootness, Ellis v. Yu (In re Ellis),
 5   523 B.R. 673, 677 (9th Cir. BAP 2014); dismissal of an adversary
 6   proceeding under Civil Rule 12(b)(6), Johnson v. Fed. Home Loan
 7   Mortg. Corp., 793 F.3d 1005, 1007 (9th Cir. 2015); and the
 8   availability of issue preclusion.   Plyam v. Precision Dev., LLC
 9   (In re Plyam), 530 B.R. 456, 461 (9th Cir. BAP 2015).
10         If issue preclusion was available, we next review the
11   bankruptcy court’s application for an abuse of discretion.     Id.
12   A bankruptcy court abuses its discretion if it applies the wrong
13   legal standard, misapplies the correct legal standard, or if its
14   factual findings are illogical, implausible, or without support
15   in inferences that may be drawn from the facts in the record.
16   Id.   We also review for an abuse of discretion a bankruptcy
17   court’s decision to dismiss a complaint without leave to amend.
18   Tracht Gut, LLC v. Cty. of Los Angeles Treasurer & Tax Collector
19   (In re Tracht Gut, LLC), 503 B.R. 804, 810 (9th Cir. BAP 2014).
20         Finally, we may affirm on any basis supported by the
21   record.   Heers v. Parsons (In re Heers), 529 B.R. 734, 740 (9th
22   Cir. BAP 2015).
23                               DISCUSSION
24         Following the filing of the notice of appeal, the
25   bankruptcy court entered an order approving a § 363 sale (the
26   “§ 363 order”) of the Property to a third party purchaser, “free
27   and clear of all liens, liabilities, claims and encumbrances of
28   any kind and nature . . . .”   The § 363 order contained several

                                     7
 1   critical findings: the bankruptcy estate was “the sole and
 2   lawful owner of the Property”; the sale vested the purchaser
 3   with all of the estate’s “right, title, and interest . . . to
 4   the Property”; and the purchaser was a good faith buyer within
 5   the meaning of § 363(m).    Park received notice of the motion to
 6   sell; she did not file any opposition.    No appeal was taken from
 7   the § 363 order, and it is now final.
 8        In response to a BAP Clerk order on potential mootness,
 9   Park contends that the sale did not moot the appeal, as the
10   Panel could provide that the sale was subject to Park’s claims
11   in her quiet title action.    And she contends that the buyer was
12   not a bona fide purchaser because it knew or should have known
13   of Park’s quiet title action.    In the alternative, she asserts
14   that the Panel could order the “Trustee [to] hold in reserve,
15   from future distributions to be made to unsecured creditors,
16   funds sufficient to pay [Park’s] pro rate [sic] share of her
17   claim as required by section 502(j) of the Bankruptcy Code,
18   especially since the Chapter 11 Plan has not yet been confirmed
19   by the bankruptcy court.”    In closing, Park argues that hotly
20   contested issues remain as to her asserted rights and claims to
21   the Property.
22        Based on the record before us, we conclude that the appeal
23   is moot as to Park’s claims for injunctive relief and requesting
24   a quiet title order as to the Property.
25        “A case is moot if the issues presented are no longer live
26   and there fails to be a ‘case or controversy’ under Article III
27   of the Constitution.”   Pilate v. Burrell (In re Burrell),
28   415 F.3d 994, 998 (9th Cir. 2005).    Determining constitutional

                                      8
 1   mootness turns on whether “the appellate court can give the
 2   appellant any effective relief in the event that it decides the
 3   matter on the merits in [its] favor.”     Id.   An appeal may be
 4   equitably moot if an appellant fails to seek a stay pending
 5   appeal.   See JPMCC 2007-C1 Grasslawn Lodging, LLC v. Transwest
 6   Resort Properties, Inc. (In re Transwest Resort Props., Inc.),
 7   801 F.3d 1161, 1167 (9th Cir. 2015).
 8        Here, the complaint sought to quiet title in Park’s favor
 9   and for injunctive relief barring the Debtor’s “interference”
10   with Park’s use of the Property.     Curiously, title to and
11   possession of the Property was restored to the Debtor nearly two
12   and a half years before Park commenced her action.     In any
13   event, the § 363 sale extinguished Park’s requests as to title
14   and possession.    As stated, the § 363 order is now final.
15   Park’s failure to appeal, let alone seek a stay pending appeal
16   of the § 363 order, only strengthens a mootness determination.
17   See Rev Op Grp. v. ML Manager LLC (In re Mortgs. Ltd.), 771 F.3d
18   1211, 1216 (9th Cir. 2014).
19        To the extent Park believes that she possesses a damages
20   claim or is entitled to the sale proceeds based on an
21   extinguished ownership interest in the Property, on this record,
22   we disagree.   Park’s interest in the Property was premised on
23   the Beverly Deed.    But, the state court in the Presbytery action
24   determined that the deed was invalid.     As the bankruptcy court
25   determined, Park was precluded from relitigating the validity of
26   the Beverly Deed issue so as to establish an ownership interest
27   in the Property.    Therefore, it did not err in dismissing the
28   complaint with prejudice.    But, even if issue preclusion was not

                                      9
 1   available, any error was harmless as the § 363 order supplies an
 2   ultimate bar to Park’s claims to the Property.
 3         A motion to dismiss under Civil Rule 12(b)(6) (incorporated
 4   into adversary proceedings by Rule 7012(b)) challenges the
 5   sufficiency of the allegations set forth in a complaint and “may
 6   be based on either a lack of [: (1)] a cognizable legal theory
 7   or   . . . [(2)] sufficient facts alleged under a cognizable
 8   legal theory.”    Johnson v. Riverside Healthcare Sys., LP,
 9   534 F.3d 1116, 1121 (9th Cir. 2008) (internal quotation marks
10   and citation omitted).    The court’s review is limited to the
11   allegations of material facts set forth in the complaint, which
12   must be read in the light most favorable to the non-moving
13   party, and together with all reasonable inferences therefrom,
14   must be taken as true.    Pareto v. Fed. Dep’t Ins. Corp.,
15   139 F.3d 696, 699 (9th Cir. 1998).
16         Consistent with Civil Rule 8(a)(2), the factual allegations
17   in the complaint must state a claim for relief that is facially
18   plausible.    Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009); see
19   also Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007).    Thus,
20   based on the Iqbal/Twombly rubric, the bankruptcy court must
21   first identify bare assertions that “do nothing more than state
22   a legal conclusion—even if that conclusion is cast in the form
23   of a factual allegation,” and discount them from an assumption
24   of truth.    See Moss v. U.S. Secret Serv., 572 F.3d 962, 969 (9th
25   Cir. 2009).    Then, if there remain well-pleaded factual
26   allegations, the bankruptcy court should assume their truth and
27   determine whether the allegations “and reasonable inferences
28   from that content” give rise to a plausible claim for relief.

                                      10
 1   Id.   “[D]etermining whether a complaint states a plausible claim
 2   is context-specific, requiring the reviewing court to draw on
 3   its experience and common sense.”    556 U.S. at 679.
 4         In California, issue preclusion applies: (1) after final
 5   adjudication; (2) of an identical issue; (3) actually litigated
 6   in the former proceeding; (4) necessarily decided in the former
 7   proceeding; and (5) asserted against a party in the former
 8   proceeding or in privity with that party.    See DKN Holdings LLC
 9   v. Faerber, 61 Cal. 4th 813, 825 (2015).
10         Park challenges only the bankruptcy court’s determinations
11   in relation to two of the elements of issue preclusion: that the
12   state court orders were final and that Park was a party to or in
13   privity with the parties to those orders.    To be clear, there
14   are two sets of state court orders: the Presbytery action order
15   (consisting of a preliminary injunction order) and the Debtor’s
16   quiet title action orders (consisting of the order restoring
17   title and the order expunging liens).    In issuing its orders,
18   the state court in the Debtor’s quiet title action explicitly
19   relied on the Presbytery action order.
20         These orders, admittedly, provided for injunctive relief,
21   so as to preserve the status quo during the pendency of the
22   Debtor’s quiet title action (and the Presbytery action).     In
23   California, “a decision on an application for a preliminary
24   injunction does not amount to a decision on the ultimate rights
25   in controversy.”   Bomberger v. McKelvey, 35 Cal. 2d 607, 612
26   (1950).   Nonetheless, an exception is carved out when “it
27   appears that the court intended a final adjudication of the
28   issue involved . . . .”   Id.

                                     11
 1        That was the result here.   As stated, Park’s interest in
 2   the Property is premised on the Beverly Deed.    But, the state
 3   court in the Presbytery action found that the Beverly Deed was
 4   invalid because the Bang Faction had been removed from their
 5   positions in the church at the time that the Beverly Deed was
 6   executed and recorded.   In particular:
 7        The evidence show[ed] that the attempt by Bang and his
          affiliates to quitclaim the deed to the Property was
 8        invalid as these individuals had already been removed
          from their positions by the Presbytery, and thus, had
 9        no authority to act on behalf of the Church. See
          August 29, 2011 Order (finding that Bang was removed
10        by the Presbytery as Senior Pastor on March 29, 2011,
          that the Presbytery appointed a new Board of Elders
11        headed by the new Senior Pastor Reverend Abraham Cho,
          and that “the Cho faction was entitled to operate and
12        manage Church property on an interim basis.”).
13   Adv. Dkt. No. 11 at 124 (emphasis added).
14        On appeal in the Presbytery action, the California court of
15   appeal in effect reaffirmed this finding.    See The W. Cal.
16   Presbytery v. Holy Hill Cmty. Church, 2012 WL 5360909, at *2, 4
17   (Cal. Ct. App. Nov. 1, 2012) (the record supported the trial
18   court’s determination that Bang was removed from his pastorship
19   in March 2011); see also Jun Ki Kim v. True Church Members of
20   Holy Hill Cmty. Church, 236 Cal. App. 4th 1435, 1442 (2015)
21   (“[W]ithout authority, Rev. Bang entered into financial
22   arrangements with . . . other entities which had the effect of
23   encumbering the [Property] . . . .”).     That Bang and his faction
24   were no longer in control of the church and, thus, lacked any
25   authority to effectuate a transfer of the Property in August
26   2011 is beyond dispute; it is now a conclusive fact.    Nothing
27   Park asserts can change this fact.    And, even if Park could
28   surmount this hurdle, she ignores the consequences of the

                                      12
 1   quitclaim deed later issued by the state court clerk of court,
 2   transferring the Property back to the Debtor.
 3        Park’s arguments as to the same party or privity element
 4   similarly fail.    There is no question that Park was a party to
 5   the Debtor’s quiet title action or that the state court’s orders
 6   in that litigation applied to Park and Beverly LLC.    Again, the
 7   state court in the Debtor’s quiet title action relied on the
 8   finding in the Presbytery action order, but it acted
 9   independently.    In any event, the state court in the Presbytery
10   action identified Park and Beverly LLC in its order.    That Park
11   and Beverly LLC were not parties to the Presbytery action is,
12   thus, irrelevant.
13        Based on the foregoing, issue preclusion was available and
14   the bankruptcy court did not abuse its discretion in giving
15   preclusive effect to the state court orders.    But, even if issue
16   preclusion was not available, any error was harmless based on
17   the § 363 order.
18        Again, the § 363 order contained critical findings, such as
19   the estate’s sole ownership of the Property.    The order,
20   inclusive of the findings, is now final and non-appealable.    The
21   result serves to bar any assertion by Park of an interest in the
22   Property.   Instead, Park’s continued efforts to challenge
23   ownership constitute an impermissible collateral attack of the
24   § 363 order.
25        In sum, Park could not show that she had a valid interest
26   in the Property when she filed her complaint.    The § 363 order
27   now further bars any such assertion.   Consequently, there was no
28   error in the bankruptcy court’s dismissal of the complaint; nor

                                      13
 1   did it abuse its discretion in denying leave to amend as any
 2   amendment would be futile.
 3                                CONCLUSION
 4        We conclude that DISMISSAL of the appeal as moot is
 5   appropriate.   In the alternative, based on a merits review, we
 6   would AFFIRM the bankruptcy court.
 7
 8
 9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

                                      14