Court Opinion

ID: 4584581
Source: CourtListenerOpinion
Date Created: 2020-11-06 23:00:37.754051+00
Date Added: 2024-06-11T08:48:16.351781
License: Public Domain

FILED
                                                                           NOV 5 2020
                            NOT FOR PUBLICATION                       SUSAN M. SPRAUL, CLERK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 No. EC-19-1317-TLS
HSIN-SHAWN CYNDI SHENG,
            Debtor.                                  Bk. No. 2:17-bk-25114

HSIN-SHAWN CYNDI SHENG,
                Appellant,
v.                                                   MEMORANDUM*
ERIC J. NIMS, Chapter 7 Trustee; SARINA
M. PERALES,
                Appellees.

              Appeal from the United States Bankruptcy Court
                    for the Eastern District of California
             Ronald H. Sargis, Chief Bankruptcy Judge, Presiding

      Before: TAYLOR, LAFFERTY, and SPRAKER, Bankruptcy Judges.

                           INTRODUCTION
                  1
      Chapter 7 debtor Hsin-Shawn Cyndi Sheng appeals from the

bankruptcy court’s order authorizing the refund of a tenant’s security

deposit. While she alleges leasehold damage, her attorney neither timely

      *
        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.
      1
        Unless specified otherwise, all chapter and section references are to the
Bankruptcy Code, 11 U.S.C. §§ 101–1532, and all “Rule” references are to the Federal
Rules of Bankruptcy Procedure.
opposed the relevant motion nor provided evidence of such damage to the

bankruptcy court. We AFFIRM.

                                          FACTS2

       Ms. Sheng filed a chapter 13 case and scheduled approximately $2.7

million in assets, $1.6 million in secured claims, and $17,000 in unsecured

claims. Her financial difficulties apparently arose from a lack of liquidity.

Because her secured debt exceeded the § 109(e) maximum for a chapter 13

case, however, the case promptly converted to chapter 7.

       The record reflects that Ms. Sheng found the post-conversion loss of

asset control difficult. Despite conversion, she entered into an

unauthorized lease of her Fremont, California residential rental property

(“Property”) and took possession of a $3,500 security deposit (“Security

Deposit”). Because the Property had over $600,000 of scheduled non-

exempt equity, the Trustee initially elected to sell it and obtained turnover

orders. But subsequently, the Trustee and the tenant, Ms. Perales, reached

an agreement; she remained in the Property and the Trustee collected

approximately $32,000 in ongoing rental income. And then he changed

course; he abandoned the Property and other estate assets to Ms. Sheng

       2
         We note that Ms. Sheng failed to provide the Panel with a record sufficient to
permit review of her claims of error. While we have the discretion to dismiss her appeal
for this error, see Jones v. City of Santa Monica, 382 F3d 1052, 1057 (9th Cir. 2004), we will
consider it to the extent we can take judicial notice of documents electronically filed in
the underlying bankruptcy case to ascertain the relevant facts, see Atwood v. Chase
Manhattan Mortg. Co. (In re Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003).

                                              2
while retaining cash to pay all unsecured creditors and administrative

claims.

      Ms. Perales thereafter vacated the Property and requested a refund of

her Security Deposit. Ms. Sheng refused the request and told her to obtain

it from the Trustee.

      So Ms. Perales sought a refund from the Trustee, who then filed a

motion seeking to abandon $3,500 of estate property to her. He explained

that after accounting for payment of all unsecured claims and approved

administrative expenses, surplus funds approximating $6,400 remained in

the estate. Thus, the estate could afford to pay Ms. Perales.

      Ms. Sheng did not file a written opposition to the abandonment

motion, but her counsel appeared at the hearing and stated her contention

that she recently discovered damage to the Property and now wanted the

Security Deposit retained. But he hedged on this assertion, also stating that

he did not file a written opposition because he, at least initially, suspected

that Ms. Sheng caused the damage. And he provided neither specifics nor

proof of damage and further failed to request a continuance of the hearing

to do so. His one point of law was a statement that abandonment to Ms.

Perales would be improper because she did not have a possessory interest

in the Security Deposit.

      The bankruptcy court rejected these arguments and assertions and

later entered its order granting the motion. Ms. Sheng timely appealed.

                                       3
                               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.

                                     ISSUES

      (1) Did the bankruptcy court abuse its discretion when it approved

the Trustee’s payment of $3,500 to Perales?

      (2) Was the bankruptcy court biased against Ms. Sheng?

                          STANDARD OF REVIEW

      The bankruptcy court’s decision to award or deny administrative

expense claims is reviewed for abuse of discretion. Gonzalez v. Gottlieb (In re

Metro Fulfillment, Inc.), 294 B.R. 306, 309 (9th Cir. BAP 2003). The

bankruptcy court abuses its discretion if it applies the wrong legal

standard, misapplies the correct legal standard, or makes factual findings

that are illogical, implausible, or without support in inferences that may be

drawn from the facts in the record. See TrafficSchool.com, Inc. v. Edriver Inc.,

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

      We may affirm on any basis supported by the record. Shanks v.

Dressel, 540 F.3d 1082, 1086 (9th Cir. 2008).

                                DISCUSSION

A. The bankruptcy court did not err in approving the payment to Ms.

Perales.

      While the Trustee packaged his request to pay Ms. Perales as an

                                        4
abandonment, he acknowledged that Ms. Sheng had dissipated the

Security Deposit. Thus, there was no asset to abandon, and, in substance,

he requested authorization to pay Ms. Perales $3,500 as an administrative

expense claimant under § 503(b)(1)(A). The bankruptcy court apparently

understood the true nature of the relief requested; it confirmed that the

Trustee sought payment of a postpetition claim from estate funds rather

than a turnover of the actual Security Deposit.

      A chapter 7 trustee generally administers property of the estate by

liquidating the assets to cash and then distributing them to the estate’s

creditors. See § 704(a)(1). But a trustee may manage rental property for a

time under § 721 and collect rents for the benefit of the estate. This is

consistent with § 541(a)(6), which defines property of the estate to include

certain: “[p]roceeds, product, offspring, rents, or profits of or from

property of the estate . . . .” § 541(a)(6) (emphasis added).

      Section 503(b)(1)(A) allows as administrative expenses “the actual,

necessary costs and expenses of preserving the estate[.]” § 503(b)(1)(A). A

claimant seeking administrative expense treatment must show that the

debt asserted to be an administrative expense: (I) arose postpetition;

(ii) arose from a transaction with the trustee (or, alternatively, that the

claimant gave consideration to the trustee); and (iii) directly and

substantially benefitted the estate. Microsoft Corp. v. DAK Indus., Inc. (In re

DAK Indus., Inc.), 66 F.3d 1091, 1094 (9th Cir. 1995).

                                        5
      There is no dispute that Ms. Perales paid the Security Deposit and

rents under a postpetition rental agreement. True, Ms. Sheng improperly

initiated the lease, but the Trustee eventually adopted it as binding on the

estate. And the transaction was directly and substantially beneficial to the

estate as the Trustee collected approximately $32,000.

      Once the tenancy ended, Ms. Perales had a claim for her Security

Deposit. Under California law, a residential landlord must hold a tenant’s

security deposit and, when a tenant vacates the premises, the landlord

must return it or assert a claim against the tenant as compensation for,

among other things, a tenant’s rent default or to pay for damages caused

by the tenant. See Cal. Civil Code §§ 1950.5(d), (e). A bad faith claim or

retention by the landlord or the landlord’s successor in interest of the

security deposit may subject the landlord or the landlord’s successor in

interest to statutory damages of up to twice the amount of the security, in

addition to actual damages. Cal. Civil Code § 1950.5(l).

      Here, Ms. Sheng did not hold the Security Deposit, refused the

requested refund, and directed Ms. Perales to seek it from the Trustee. Ms.

Perales then provided declaratory evidence that she returned the Property

in satisfactory condition. In the absence of any evidence of rent default or

damage to the Property, the Trustee and the bankruptcy court

appropriately assumed that the estate faced a damage claim if the Trustee

refused the refund request. Thus, he appropriately sought bankruptcy

                                       6
court authorization to pay the $3,500 administrative claim, and the record

entirely supports affirmance.

      While Ms. Sheng complains on appeal that she provided her counsel

with evidence of Property damage, such evidence was never filed with the

bankruptcy court, and her counsel never requested a continuance of the

hearing to do so. Thus, Ms. Sheng waived her only opposition to the

payment to Ms. Perales. See Rule 8009(b)(5); Mano-Y & M, Ltd. v. Field (In re

Mortg. Store, Inc.), 773 F.3d 990, 998 (9th Cir. 2014); Syncom Capital Corp. v.

Wade, 924 F.2d 167, 169 (9th Cir. 1991). To the extent she takes issue with

the adequacy of her counsel’s representation, her dispute lies with him and

not with the bankruptcy court.

B. There is no evidence that the bankruptcy court was prejudiced.

      Ms. Sheng also asserts that the bankruptcy court was prejudiced

against her. The record does not support this assertion.

      “Judicial impartiality is presumed.” First Interstate Bank of Ariz., N.A.

v. Murphy, Weir & Butler, 210 F.3d 983, 987 (9th Cir. 2000). An individual

claiming judicial bias must “overcome a presumption of honesty and

integrity in those serving as adjudicators.” Withrow v. Larkin, 421 U.S. 35, 47

(1975). And where, as here, the allegation does not stem from an

extrajudicial source, the party claiming bias must submit evidence that the

judge exhibited “such a high degree of favoritism or antagonism as to

make fair judgment impossible.” Liteky v. United States, 510 U.S. 540, 554-55

                                        7
(1994). The test is as follows: “whether a reasonable person with

knowledge of all the facts would conclude that the judge's impartiality

might reasonably be questioned.” Seidel v. Durkin (In re Goodwin), 194 B.R.
214, 222 (9th Cir. BAP 1996) (citations and internal quotation marks

omitted).

      Ms. Sheng failed to meet her heavy burden. Her unsubstantiated

assertion that the bankruptcy court was prejudiced against her “starting

from day one” is legally insufficient.

                               CONCLUSION

      Based on the foregoing, we AFFIRM.

                                         8