Court Opinion

ID: 1042835
Source: CourtListenerOpinion
Date Created: 2013-10-01 21:26:23.973759+00
Date Added: 2024-06-11T12:05:46.159701
License: Public Domain

FILED
                                                          OCT 1 2013
                                                      SUSAN M. SPRAUL, CLERK
                                                        U.S. BKCY. APP. PANEL
 1                                                      OF THE NINTH CIRCUIT

 2
 3                  UNITED STATES BANKRUPTCY APPELLATE PANEL
 4                            OF THE NINTH CIRCUIT
 5   In re:                        )     BAP No.      CC-12-1558-KiTaKu
                                   )
 6   ERLINDA KOO,                  )     Bk. No.      2:11-59180-SK
                                   )
 7                  Debtor.        )
                                   )
 8                                 )
                                   )
 9   ERLINDA KOO,                  )
                                   )
10                  Appellant,     )
                                   )
11   v.                            )     M E M O R A N D U M1
                                   )
12   VNO SHOPS ON LAKE, LLC,       )
                                   )
13                  Appellee.      )
     ______________________________)
14
                Argued and Submitted on September 19, 2013,
15                         at Pasadena, California
16                          Filed - October 1, 2013
17             Appeal from the United States Bankruptcy Court
                   for the Central District of California
18
          Honorable Sandra R. Klein, Bankruptcy Judge, Presiding.
19
20   Appearances:    Tony Otha Thompson, Esq., argued for appellant,
                     Dr. Erlinda Koo; Todd E. Whitman, Esq. of Allen
21                   Matkins argued for appellee, VNO Shops on Lake,
                     LLC.
22
23   Before: KIRSCHER, TAYLOR and KURTZ, Bankruptcy Judges.
24
25
26
          1
            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. See 9th
28   Cir. BAP Rule 8013-1.
 1          Individual chapter 112 debtor, Dr. Erlinda Koo ("Koo"),
 2   appeals an order from the bankruptcy court overruling her
 3   objection to a proof of claim filed by appellee, VNO Shops on
 4   Lake, LLC ("VNO").      We DISMISS the appeal as MOOT.
 5                   I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY
 6   A.     Prepetition events
 7          On or about May 14, 2003, VNO's predecessor, as landlord, and
 8   Gemini Business Concepts, Inc. ("Gemini"), as tenant, entered into
 9   a five-year written lease agreement ("Lease") for certain
10   commercial property located at The Shops on Lake Avenue, Pasadena,
11   California ("Premises").      Gemini was a California corporation
12   owned by Koo, who signed the Lease as Gemini's "chairperson."       The
13   Premises was used for the operation of a Japanese restaurant.       The
14   Lease contained an option to renew for another five-year term from
15   2008-2013.      The parties disagreed about whether Koo ever exercised
16   the option, but the bankruptcy court found that she had.
17          Concurrently with the Lease, Koo executed a written guaranty
18   of lease ("Guaranty"), wherein Koo personally guaranteed, among
19   other things, Gemini's payment of all rents and other sums payable
20   under the Lease.
21          On or about November 17, 2007, Koo as "owner" of Gemini
22   executed an assignment of the Lease ("Assignment") to Royal Jade
23   Investments, Inc. ("Royal Jade"), another corporation owned by
24   Koo.       Koo also executed as "owner" of Royal Jade an acceptance of
25   the Assignment, agreeing to be bound by all terms, conditions and
26
27          2
            Unless specified otherwise, all chapter, code and rule
     references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and
28   the Federal Rules of Bankruptcy Procedure, Rules 1001-9037.

                                         -2-
 1   covenants in the Lease, including the payment of rent.   VNO, as
 2   landlord, consented to the Assignment.
 3        On December 14, 2007, Koo executed an affirmation of
 4   guarantors ("Affirmation"), wherein Koo reaffirmed her Guaranty of
 5   Royal Jade's obligations under the Lease, including the payment of
 6   all rents due and payable to VNO.
 7        As the result of VNO's unlawful detainer action against Royal
 8   Jade, the state court entered a judgment for possession in favor
 9   of VNO on November 18, 2011.   The parties also agreed to a
10   settlement on the record whereby Royal Jade would pay VNO
11   $113,063, with $24,000 to be paid by November 11, 2011, and five
12   monthly payments of $17,812.70 to be paid by the 15th of each
13   month.   The parties further agreed that if all payments were made,
14   Royal Jade and Koo would be released from all past and future
15   liability.    If any payments were missed, VNO could pursue all past
16   and future amounts less any payments made.
17        On December 2, 2011, the state court entered a writ of
18   possession directing the sheriff to enforce the judgment against
19   Royal Jade.   Koo was not personally named on either the possession
20   judgment or the writ of possession.    The parties agree that Koo
21   timely tendered the $24,000 payment.   However, no further payments
22   were made.
23   B.   Koo's objection to VNO's claim
24        Koo filed a chapter 11 bankruptcy case on December 1, 2011.
25   Royal Jade filed a chapter 7 bankruptcy case two weeks later on
26   December 14, 2011.
27        Based on her Guaranty, VNO filed an amended proof of claim
28   ("Claim") in Koo's bankruptcy case for $228,902.61:   $152,110.26

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 1   in pre-surrender rent and $76,792.35 in damages per § 502(b)(6).
 2        Koo objected to VNO's Claim contending, among other things,
 3   that the Guaranty failed to impose liability on her because it was
 4   an unenforceable "sham guaranty" under CAL. CIV. CODE § 2787.3
 5   VNO disputed Koo's sham guaranty argument.
 6        On October 10, 2012, the bankruptcy court issued a tentative
 7   ruling on the Claim objection.   In short, the court found that
 8   Koo's Guaranty was not a sham, and that she was liable for breach
 9   of the Lease.   The court rejected Koo's "sham guaranty" argument
10   on two bases.   First, Koo was estopped from arguing that she and
11   Royal Jade were not legally distinct.   Royal Jade had filed for
12   bankruptcy, and Koo had signed the petition as Royal Jade's
13   president.   Therefore, reasoned the court, Koo had acknowledged
14   that Royal Jade was a separate legal entity.   Further, the
15   schedules showed that Royal Jade owned separate property,
16   including a liquor license.   Second, Koo could not use the alter
17   ego doctrine defensively to "accomplish an 'inequitable purpose'
18   of avoiding her obligations under the Guaranty."
19        The bankruptcy court distinguished the cases cited by Koo as
20   "inapplicable," because they involved issues regarding whether a
21   general partner is liable for a partnership's debts and
22   liabilities for deficiencies related to real property purchases
23   governed by California's antideficiency statues.   The court
24   further rejected Koo's argument that Royal Jade was a "dummy"
25   corporation.    Koo had Royal Jade file its own bankruptcy case.   To
26
27        3
            Koo had also argued that VNO's Claim should be offset by
     the $24,000 payment she made in November 2011. VNO and the
28   bankruptcy court agreed. The Claim was reduced accordingly.

                                      -4-
 1   take Koo's argument to its logical conclusion would mean that Koo
 2   was individually liable to all of Royal Jade's creditors, and that
 3   Royal Jade's bankruptcy case itself was a sham.
 4        The bankruptcy court held a hearing on the Claim objection on
 5   October 11, 2012.    After hearing oral argument from the parties,
 6   the court announced that its tentative ruling would be the final
 7   ruling.
 8        On October 17, 2012, the bankruptcy court entered its order
 9   overruling Koo's objection in part, sustaining it in part, and
10   allowing VNO's Claim for $204,902.61, which reflected the conceded
11   $24,000 reduction.    The court entered its tentative ruling as its
12   final ruling on November 2, 2012.       This timely appeal followed.
13                               II. JURISDICTION
14        The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334
15   and 157(b)(2)(B).    We discuss our jurisdiction under 28 U.S.C.
16   § 158 below.
17                                 III. ISSUES
18        Is this appeal moot?    If not, did the bankruptcy court err by
19   not applying the "sham guaranty" test to determine Koo's liability
20   under the Guaranty?
21                          IV. STANDARDS OF REVIEW
22        Mootness is a question of law reviewed de novo.       S. Ore.
23   Barter Fair v. Jackson County Ore., 372 F.3d 1128, 1133 (9th Cir.
24   2004)(citing Ore. Advocacy Ctr. v. Mink, 322 F.3d 1101, 1116 (9th
25   Cir. 2003)).   “The basic question in determining mootness is
26   whether there is a present controversy as to which effective
27   relief can be granted.”   Feldman v. Bomar, 518 F.3d 637, 642 (9th
28   Cir. 2008)(citation omitted).

                                       -5-
 1        An order overruling a claim objection can raise legal issues,
 2   which we review de novo, as well as factual issues, which we
 3   review for clear error.   Veal v. Am. Home Mortg. Serv., Inc.
 4   (In re Veal), 450 B.R. 897, 918 (9th Cir. BAP 2011).      "De novo
 5   review is independent, with no deference given to the trial
 6   court’s conclusion."   Allen v. U.S. Bank, N.A. (In re Allen),
 7   472 B.R. 559, 564 (9th Cir. BAP 2012).      A finding of fact is
 8   clearly erroneous if it is illogical, implausible or without
 9   support in the record.    Retz v. Samson (In re Retz), 606 F.3d
10   1189, 1196 (9th Cir. 2010)(citing United States v. Hinkson,
11   585 F.3d 1247, 1261-62 & n.21 (9th Cir. 2009)(en banc)).
12                               V. DISCUSSION
13        Counsel for VNO informed us at oral argument that Koo's
14   bankruptcy case had been dismissed while this appeal was pending,
15   thereby rendering the appeal of her Claim objection moot.4     We
16   reviewed the bankruptcy court's electronic docket and have
17   confirmed that Koo's chapter 11 case was dismissed on
18   September 13, 2013.    (Dkt. no. 227).   See FED. R. EVID. 201(c) &
19   (f); O’Rourke v. Seabord Sur. Co. (In re E.R. Fegert, Inc.),
20   887 F.2d 955, 957-58 (9th Cir. 1989)(panel may take judicial
21   notice of the bankruptcy court docket or of matters relevant to
22   the appeal).
23        We lack jurisdiction over moot appeals.      I.R.S. v. Pattullo
24   (In re Pattullo), 271 F.3d 898, 901 (9th Cir. 2001).      If the
25
26        4
            While we appreciate this information from VNO, it really
     should have been provided to us by counsel for Koo. See Arizonans
27   for Official English v. Ariz., 520 U.S. 43, 68 n.23 (1997)(“It is
     the duty of counsel to bring to the federal tribunal’s attention,
28   ‘without delay,’ facts that may raise a question of mootness.”).

                                      -6-
 1   appeal is moot, we must dismiss it.      Id.    A case is moot “[i]f an
 2   event occurs while a case is pending on appeal that makes it
 3   impossible for the court to grant any effectual relief whatever to
 4   a prevailing party . . . .”   Id.
 5        With the dismissal of a bankruptcy case, property of the
 6   bankruptcy estate revests in the debtor (or other entity that
 7   owned the estate property prepetition).        See § 349(b)(3).   The
 8   dismissal order terminates the bankruptcy estate.       Lomagno v.
 9   Salomon Bros. Realty Corp. (In re Lomagno), 320 B.R. 473, 478 (1st
10   Cir. BAP 2005), aff'd, 429 F.3d 16 (1st Cir. 2005)("dismissal of
11   the bankruptcy petition immediately terminates both the automatic
12   stay and the bankruptcy estate.").      If the bankruptcy estate no
13   longer exists, then the court need not resolve an objection to a
14   proof of claim that seeks a distribution against the (now)
15   non-existent bankruptcy estate.     Cf. Nash v. Kester (In re Nash),
16   765 F.2d 1410, 1412-13 (9th Cir. 1985)(allowed claim in chapter 13
17   plan had no right to further payment under plan after bankruptcy
18   case was dismissed).   See also Robbs v. Hughes, Hubbard & Reed
19   (In re Robbs), 67 F.3d 308 (9th Cir. 1995)(unpublished table case)
20   (appeal of order allowing claim is rendered moot when underlying
21   bankruptcy case is dismissed).
22        We conclude that Koo's appeal is moot, because subsequent
23   events have occurred making it impossible for us to fashion any
24   effective form of relief for her.       The bankruptcy estate, from
25   which VNO's Claim seeks payment, no longer exists, and VNO will
26   now have to pursue its remedies for breach of the Lease against
27   Koo in state court.    Hence, a reversal of the Claim order would be
28   meaningless.

                                       -7-
 1                             VI. CONCLUSION
 2        Accordingly, because the appeal is MOOT, we DISMISS for lack
 3   of jurisdiction.
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