Court Opinion

ID: 2757201
Source: CourtListenerOpinion
Date Created: 2014-12-03 19:08:40.923812+00
Date Added: 2024-06-11T09:34:20.082403
License: Public Domain

FILED
                                                               OCT 24 2011
                                                         SUSAN M SPRAUL, CLERK
                                                           U.S. BKCY. APP. PANEL
                                                           OF THE NINTH CIRCUIT
 1
 2
 3                  UNITED STATES BANKRUPTCY APPELLATE PANEL
 4                              OF THE NINTH CIRCUIT
 5   In re:                                  )   BAP Nos. CC-11-1088-AlPaMk
                                             )            CC-10-1425-AlPaMk
 6   TINA CHI HOUNG,                         )            (Consolidated)
                                             )
 7                          Debtor.          )   Bk. No. LA 07-21354-BR
                                             )
 8                                           )   Adv. No. LA 09-02717-BR
      NICK A. ALDEN,                         )
 9                                           )
                            Appellant,       )
10                                           )
               v.                            )   MEMORANDUM1
11                                           )
     EDWARD M. WOLKOWITZ,                    )
12   Chapter 7 Trustee,                      )
                                             )
13                          Appellee.        )
                                             )
14
                       Argued and Submitted on July 22, 2011
15                             at Pasadena, California
16                            Filed - October 24, 2011
17               Appeal from the United States Bankruptcy Court
                     for the Central District of California
18
              Honorable Barry Russell, Bankruptcy Judge, Presiding
19
20   Appearances:      Appellant Nick Alden appeared pro se. Irv Gross, of
                       Levene, Neale, Bender, Yoo & Brill LLP, appeared for
21                     Appellee Edward Wolkowitz, Chapter 7 Trustee.
22
23
24
          1
           This disposition is not appropriate for publication. Although
25   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
26   Rule 8013-1.

                                         1
 1   Before: Alley2, Pappas and Markell, Bankruptcy Judges.
 2
 3        Appellant appeals the bankruptcy court’s order denying his
 4   motion to set aside an order finding Appellant in default and the
 5   subsequent entry of a default judgment.   We AFFIRM the entry of the
 6   order of default.   We VACATE the default judgment and REMAND for
 7   further proceedings related thereto.
 8                                     I
                                     FACTS
 9
10        Appellant Nick Alden is an attorney admitted to practice law in
11   the State of California since 1982, who practices civil litigation
12   exclusively in state court.
13        Appellant’s son Guy Alden is a real estate salesman who was
14   hired in 2006 to handle the sale of Debtor Tina Houng’s personal
15   residence. At some point, Debtor asked Guy for a referral to an
16   attorney with civil litigation experience.   Guy suggested she talk
17   to his father Nick Alden and, several days after the initial
18   interview, the Debtor hired Appellant to represent her in a civil
19   action.   Appellant thereafter represented Debtor in three other
20   civil cases and it was agreed, according to Appellant, that he would
21   be paid his attorney fees and costs through escrow from the sale of
22   Debtor’s personal residence.
23        The sale of the property closed on October 26, 2006, and a
24   total of $250,000 was transferred from escrow to Appellant. Other
25
          2
           Hon. Frank. R. Alley, III, Chief Bankruptcy Judge for the
26   District of Oregon, sitting by designation.

                                       2
 1   amounts were transferred to other parties. In a complicated set of
 2   transactions engineered to refinance the property, the Debtor
 3   obtained a short-term loan from another party prior to the sale and
 4   provided a deed to that party.   After the sale on October 26, the
 5   other party was paid from the proceeds and the property was then
 6   deeded back to Debtor’s wholly-owned corporation, Unique Holding
 7   Corp. Appellant states that Houng did not hire him to advise her in
 8   connection with the sale of the property and she never sought his
 9   advice on the issue.   Appellant alleges that $100,000 of the amount
10   transferred was earmarked for the payment of attorney fees and costs
11   and the remaining $150,000 was to be held in trust by Appellant to
12   secure Debtor’s mortgage payments, in case a payment was missed.     By
13   March 2007, according to Appellant, there had been no missed
14   mortgage payments and, pursuant to Debtor’s instructions, Appellant
15   wired to Debtor’s corporation on March 5, 2007 the amount of
16   $150,000.
17        Debtor filed bankruptcy under chapter 73 on December 5, 2007.
18   The chapter 7 trustee, Edward Wolkowitz, Appellee herein, filed an
19   adversary proceeding against Appellant, Appellant’s son Guy Alden,
20   and against a Kenneth Lu on November 24, 2009.   The Summons and
21   Complaint were served by mail on the Defendants which required that
22   answers be filed by December 28, 2009. The complaint included a
23
24        3
           Unless otherwise indicated, all statutory references are to
     the Bankruptcy Code, 11 U.S.C. §§ 101 to 1532, and all “Rule”
25   references are to the Federal Rules of Bankruptcy Procedure,
     Rules 1001-9037. All “Civil Rule” references are to the Federal
26   Rules of Civil Procedure.

                                       3
 1   claim against all defendants for conspiracy to defraud creditors,
 2   and claims against the Appellant for avoidance of a preferential
 3   transfer under 11 U.S.C. § 547, and avoidance of a fraudulent
 4   transfer under §§ 548 and 544.   Appellant failed to file an answer
 5   and the Appellee filed a motion for an order of default, which order
 6   was entered by the bankruptcy court on January 27, 2010.      On
 7   January 28, 2010, Appellant filed a motion to strike the complaint
 8   which was characterized by the court as a motion to dismiss.
 9   Thereafter, the parties executed and filed a Stipulation to Vacate
10   Defaults which had been entered against both Appellant and his son.
11   The stipulation was premised on Appellant’s representation that he
12   was unfamiliar with bankruptcy practice and didn’t realize that he
13   had been properly served by mail.       An Order Approving Stipulation to
14   Vacate was entered on February 26, 2010, giving each Defendant until
15   March 5, 2010 to file a response to the complaint. On March 22,
16   2010, an answer was filed by Appellant for his son Guy (whom he
17   represented in the matter), but the Appellant did not file an answer
18   for himself.
19        A hearing on Appellant’s motion to dismiss was held on April 7,
20   2010 and, on April 14, 2010, an order was entered denying the motion
21   to dismiss, without prejudice, with the bankruptcy court to consider
22   Appellant’s various defenses at the time of trial.      Appellant
23   appealed the order denying his motion to dismiss to the Bankruptcy
24   Appellate Panel which, on July 6, 2010, entered an order dismissing
25   the appeal for lack of jurisdiction.      The appeal had been filed on
26   May 5, 2010, twenty-one days after the entry of the order appealed.

                                         4
 1   The Panel stated that “[e]ven an appeal from an interlocutory order,
 2   as in this case, must be filed within the time period provided by
 3   Fed. R. Bankr. P. 8002.”
 4        On June 30, 2010, Appellee filed a Request for Entry of
 5   Default, and an order of default was entered by the bankruptcy court
 6   on July 7, 2010.   On July 14, 2010, the Appellant filed an answer in
 7   the adversary proceeding4 and, on August 31, 2010, he filed a Motion
 8   to Set Aside Default.   The motion recites that Appellant was under
 9   the mistaken belief that when he filed an answer for Defendant Guy
10   Alden, the answer was also filed for himself.
11        A hearing was held on October 5, 2010 to consider Appellant’s
12   motion to set aside the order of default.   Appellant did not appear
13   at the hearing.    The bankruptcy judge indicated to the Appellee’s
14   attorney that he felt that the Appellant was playing fast and loose
15   with the court and that he would deny the motion to vacate the
16   default.   An order was entered on October 15, 2010 denying
17   Appellant’s motion to set aside the order of default.   On
18   October 22, 2010, Appellant timely appealed the order denying his
19   motion to set aside default to the Bankruptcy Appellate Panel.
20        A prove-up hearing was set for February 1, 2011, for entry of a
21   default judgment, at which both the Appellant and counsel for
22   Appellee appeared.   Appellant began by arguing that the order of
23   default should not have been entered against him because he had made
24
          4
           In response to Appellant’s filing of his answer, the Appellee,
25   through his attorney, wrote to Appellant demanding that he withdraw
     his answer on pain of Civil Rule 11 sanctions, as the answer had
26   been filed one week after default had been entered.

                                        5
 1   a general appearance and had filed a motion to dismiss - he had
 2   filed an “Anti-SLAPP” motion (discussed more fully below).      The
 3   court interrupted the Appellant, informing him that the issue before
 4   the court was whether the Plaintiff had presented sufficient
 5   evidence to prove default given that the failure to file an answer
 6   admitted everything in the complaint.
 7        Appellee’s attorney stated that the declaration submitted by
 8   Appellant in the materials for the hearing “purports to attach some
 9   sort of a wire transfer in the amount of $150,000 to Unique Holding
10   Corporation.” In response, the court stated that “[o]n an
11   evidentiary basis, though, I don’t know if that’s a genuine document
12   or not, . . . [and] strictly as an evidence matter, I don’t see how
13   that can be admitted.”
14        The court then asked the Appellant about his motion to set
15   aside the order of default and his failure to appear at the earlier
16   hearing.   The Appellant stated that he was embarrassed to admit that
17   he is 72 years old and sometimes has a loss of memory.      He woke up
18   that morning, got dressed to come to court, and started working on
19   something else and forgot the hearing.      The court then asked some
20   substantive questions that the judge had intended on asking the
21   Appellant at the earlier hearing.       Appellant explained that he
22   initially failed to timely file an answer because, while he had
23   received the complaint in the mail, he believed he could only be
24   properly served in person, as he doesn’t practice bankruptcy and
25   under state law personal service is required.      He believed that it
26   was the Plaintiff’s obligation to tell him that service by mail is

                                         6
 1   allowed under the federal rules.   The court then asked Appellant
 2   whether he knew that, after the original default had been vacated
 3   and he had filed his motion to dismiss, he was not required to file
 4   an answer until that motion had been resolved.   He said he did not
 5   know that as he only practices in state court.   He filed an answer
 6   for his son Guy Alden and was later under the impression that he had
 7   filed it for himself.   The court examined the answer filed for Guy
 8   Alden with the Appellant, who admitted that it was not his answer,
 9   but his son’s.   The Appellant said he could not explain it, but he
10   just later thought that he had also filed the answer on his own
11   behalf.
12        As to the sufficiency of the complaint, the Appellant had the
13   following comments at the hearing:
14        1. The complaint indicates that Appellant received the $250,000
15   in October 2006, fourteen months prior to the Debtor’s bankruptcy
16   filing, which would take the transfer out of the statute of
17   limitations.   (Appellant did not indicate to which statute of
18   limitation he was referring.)
19        2. The Complaint alleges that Appellant paid $150,000 of the
20   total back to the Debtor about a year after the sale of the
21   property, but the Plaintiff is ignoring the allegation of fact in
22   the complaint and seeking a judgment for the entire $250,000.
23   Appellant told the Court that he had explained at his deposition
24   that the bank had made a mistake and put the entire $250,000 into a
25   single account, rather than open a separate trust account for the
26   $150,000 as requested by the Appellant.

                                        7
 1        The Appellee’s attorney responded that he did not know to which
 2   statute of limitation the Appellant was referring, but that the
 3   lawsuit was instituted within the two-year limitation period under
 4   the Bankruptcy Code to bring a fraudulent transfer claim.   Second,
 5   the allegation in the complaint that $150,000 was paid back by the
 6   Appellant was made only on information and belief. Moreover, ¶ 50 of
 7   the complaint talks about a fraudulent transfer of $250,000 and the
 8   Trustee is permitted to plead alternative theories.
 9        The transcription of the hearing ends as follows:
10        “THE COURT: Yeah, I’m going to rule (portion of proceedings not
11   available.)
12            (Proceedings concluded.)”
13        An order was entered by the court on February 14, 2011,
14   granting the trustee’s motion for entry of the default judgment. The
15   order did not contain any findings of fact or conclusions of law
16   other than entry of judgment in the amount of $250,000 against the
17   Appellant.
18        The Appellant’s appeal of the bankruptcy court’s denial of his
19   motion to set aside the order of default was still pending with the
20   Bankruptcy Appellate Panel when Appellant filed an appeal of the
21   bankruptcy court’s entry of default judgment.   Both appeals were
22   consolidated and are the subject of the matter currently before the
23   Panel.
24                                      II
                                   JURISDICTION
25
26        The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334

                                          8
 1   and 157(b)(2)(H). We have jurisdiction under 28 U.S.C. § 158.
 2                                       III
                                  ISSUES ON APPEAL
 3
 4        1) Whether the bankruptcy court erred in entering its order
 5   denying Appellant’s motion to set aside the court’s order of
 6   default.
 7        2) Whether the bankruptcy court erred in entering its default
 8   judgment against Appellant.
 9                                       IV
                                 STANDARD OF REVIEW
10
11        Pursuant to Fed. R. Civ. P. 55(a) and (b)5, a bankruptcy court
12   may enter an order of default and default judgment against a party
13   and may set aside the default and default judgment under subsection
14   (c). The bankruptcy court’s denial of a Civil Rule 55(c) motion is
15   reviewed for abuse of discretion.        United States v. Signed Personal
16   Check No. 730 of Yubran S. Mesle, 615 F.3d 1085, 1091 (9th Cir.
17   2010).     The bankruptcy court’s decision to enter a default judgment
18   is also reviewed for abuse of discretion.       Speiser, Krause & Madole
19   P.C. v. Ortiz, 271 F.3d 884, 886 (9th Cir. 2001).
20        The appellate court may review the record independently to
21   determine if the bankruptcy court has abused its discretion.        Ferdik
22   v. Bonzelet, 963 F.2d 1258, 1261 (9th Cir. 1992), cert. denied,
23   506 U.S. 915; O’Rourke v. Seaboard Surety Co. (In re E.R. Fegert),
24   887 F.2d 955, 957-58 (9th Cir. 1989).       An abuse of discretion occurs
25
26        5
              Made applicable to bankruptcy by Fed. R. Bankr. P. 7055.

                                          9
 1   where “there is a definite and firm conviction that the court below
 2   committed clear error of judgment in the conclusion it reached upon
 3   a weighing of relevant factors.”   Nealey v. Transportacion Maritima
 4   Mexicana, S.A., 662 F.2d 1275, 1278 (9th Cir. 1980)(citations
 5   omitted). In reviewing the record, findings of fact are reviewed for
 6   clear error and conclusions of law are reviewed de novo.   Liberty
 7   Tool & Mfg. v. Vortex Fishing Sys., Inc. (In re Vortex Fishing Sys,
 8   Inc.), 277 F.3d 1057, 1064 (9th Cir. 2002).
 9                                       V
                                    DISCUSSION
10
11   A.   Record Available for Review
12        The bankruptcy court reopened the record with respect to the
13   order of default when it interrogated the Appellant at the prove-up
14   hearing about the circumstances leading to the default order being
15   entered and Appellant’s failure to appear at the hearing on his
16   motion to set aside default.   Besides the transcript of the hearing
17   on Appellant’s motion to set aside the default, Appellant’s actual
18   motion to set aside default is part of the record as well as his
19   answer filed July 14, 2010 (attached as Exhibit A to Appellant’s
20   motion).   Appellant also filed, prior to the prove-up hearing, a
21   memorandum in opposition to the Trustee’s motion for a default
22   judgment, with an attached declaration containing a copy of a wire
23   transfer in the amount of $150,000 to Unique Holding Corp., Debtor’s
24   wholly-owned corporation.
25        The bankruptcy court made no findings with respect to the order
26   denying Appellant’s motion to set aside the default, and we have no

                                        10
 1   way of knowing whether findings were made, or what they may be,
 2   regarding the court’s granting of the Trustee’s motion for default
 3   judgment, due to the apparent failure of the electronic recording
 4   system.   However, “[e]ven when a bankruptcy court does not make
 5   formal findings, . . . the BAP may conduct appellate review ‘if a
 6   complete understanding of the issues may be obtained from the record
 7   as a whole or if there can be no genuine dispute about omitted
 8   findings.’ . . .    After such a review, however, when the record does
 9   not contain a clear basis for the court’s ruling, we must vacate the
10   court’s order and remand for further proceedings.”   Veal v. Am. Home
11   Mortg. Serv., Inc. (In re Veal), 450 B.R. 897, 919-20 (9th Cir. BAP
12   2011)(citations omitted).
13        When a bankruptcy court elects to use electronic audio
14   recording in place of a court reporter, the resulting audio record
15   constitutes the official record of the proceeding for appeal
16   purposes.   Fed. R. Bankr. P. 8009(b) requires that an appellant to
17   the Bankruptcy Appellate Panel file as an appendix to his brief
18   excerpts of the record, including a transcript of the opinion,
19   findings of fact, or conclusions of law delivered orally by the
20   court. An appellant has the burden of filing an adequate record to
21   allow review of the order or judgment appealed from.   Drysdale v.
22   Educ. Credit Management Corp. (In re Drysdale), 248 B.R. 386, 388
23   (9th Cir. BAP 2000), aff’d, 2 Fed.Appx 776 (9th Cir. 2001).
24   Appellant, however, failed to provide a complete transcript of the
25   official record of the court’s ruling with regard to the hearing on
26   February 1, 2011.   The official record of the hearing which was

                                        11
 1   filed is incomplete due to the apparent failure of the court’s
 2   electronic recording device.
 3        Part VIII of the Federal Rules of Bankruptcy Procedure are
 4   silent as to an appellant’s responsibility when the official record
 5   is incomplete, as are the Local Rules of the Ninth Circuit
 6   Bankruptcy Appellate Panel.    When that is the case, 9th Cir. BAP
 7   R. 8018(b)-1 provides that “a Panel may apply the Rules of the
 8   United States Court of Appeals for the Ninth Circuit and the Federal
 9   Rules of Appellate Procedure.”   Fed. R. App. P. 10(c), followed by
10   the Courts of Appeal, provides as follows:
11        (c) Statement of the Evidence When the Proceedings Were
          Not Recorded or When a Transcript is Unavailable. If the
12        transcript of a hearing or trial is unavailable, the
          appellant may prepare a statement of the evidence or
13        proceedings from the best available means, including the
          appellant’s recollection. The statement must be served on
14        the appellee, who may serve objections or proposed
          amendments within 14 days after being served. The
15        statement and any objections or proposed amendments must
          then be submitted to the district court for settlement and
16        approval. As settled and approved, the statement must be
          included by the district clerk in the record on appeal.
17
18        As noted above, Appellant failed to follow the requirement that
19   he augment the official record to provide for appellate review the
20   court’s findings of fact and conclusions of law for the ruling from
21   which he appeals.   That failure would entitle us to dismiss this
22   appeal.   McCarthy v. Prince, 230 B.R. 414, 417 (9th Cir. BAP
23   1999)(citing Syncom Capital Corp. v. Wade, 924 F.2d 167, 169 (9th
24   Cir. 1999)).   “If we do not dismiss, we are entitled to presume that
25   the appellant does not regard the court’s findings of fact and
26   conclusions of law as helpful to his appeal.”   Id. (citing Gionis v.

                                        12
 1   Wayne (In re Gionis), 170 B.R. 675, 680-81 (9th Cir. BAP 1994),
 2   aff’d mem., 92 F.3d 1192 (9th Cir. 1996)).    The Panel may, in its
 3   discretion, consider an appeal notwithstanding appellant’s failure
 4   to comply with applicable rules.    In determining whether to do so in
 5   the context of a default judgment, we consider the same factors a
 6   trial court considers in determining whether to enter a default
 7   judgment, including the size of the judgment, and the strong policy
 8   of federal courts favoring decisions on the merits.   Eitel v.
 9   McCool, 782 F.2d 1470, 1471-72 (9th Cir. 1986).    Accordingly, as did
10   the Panel in McCarthy v. Prince, we exercise our discretion to
11   examine the record that was provided.    “In doing so, we look for any
12   plausible basis upon which the bankruptcy court might have exercised
13   its discretion to do what it did.    If we find any such basis, then
14   we must affirm.”   McCarthy v. Prince at 417.
15   B.   Fed. R. Bankr. P. 7055
16        Rule 7055 incorporates Rule 55 of the Federal Rules of Civil
17   Procedure, which provides that a default may be entered by the Clerk
18   when a party fails to plead or otherwise defend an action. Fed. R.
19   Civ. P. 55(a). Civil Rule 55(b)(1) allows for entry of a default
20   judgment by the Clerk only when the amount demanded is for a sum
21   certain, “or a sum that can be made certain by computation.”
22   Otherwise, entry of a default judgment must be by the court,
23   pursuant to Rule 55(b)(2):
24        (2) By the Court. In all other cases, the party must apply
          to the court for a default judgment. . . . The court may
25        conduct hearings or make referrals - preserving any
          federal statutory right to a jury trial - when, to enter
26        or effectuate a judgment, it needs to:

                                         13
 1             (A) conduct an accounting;
               (B) determine the amount of damages;
 2             (C) establish the truth of any allegation by
          evidence; or
 3             (D) investigate any other matter.
 4        Courts have wide discretion in deciding whether to enter a
 5   default judgment.   Wells Fargo Bank v. Beltran (In re Beltran),
 6   182 B.R. 820, 823 (9th Cir. BAP 1995).   Factors a court may consider
 7   in exercising its discretion include:
 8        (1) the possibility of prejudice to the plaintiff, (2) the
          merits of plaintiff’s substantive claim, (3) the
 9        sufficiency of the complaint, (4) the sum of money at
          stake in the action, (5) the possibility of a dispute
10        concerning material facts, (6) whether the default was due
          to excusable neglect, and (7) the strong policy underlying
11        the Federal Rules of Civil Procedure favoring decisions on
          the merits.
12
13   Eitel v. McCool, 782 F.2d at 1471-72.
14        Where a default has been entered, the court should accept as
15   true all allegations in the complaint, except those relating to
16   damages.   Televideo Sys., Inc. v. Heiddenthal, 826 F.2d 915, 917
17   (9th Cir. 1987); Geddes v. United Fin. Grp, 559 F.2d 557, 560 (9th
18   Cir. 1977).   As noted by the Geddes court, the proposition that
19   damages are not deemed established by the default order is supported
20   by Fed. R. Civ. P. 8, which provides that “[a]verments in a pleading
21   to which a responsive pleading is required, other than those as to
22   the amount of damages, are admitted when not denied in the
23   responsive pleading.”   Id. at 560.
24        Civil Rule 55(c) provides that a “court may set aside an entry
25   of default for good cause, and it may set aside a default judgment
26   under [Civil] Rule 60(b).”

                                       14
 1             ‘The first step of our abuse of discretion test [in
          reviewing denial of a Rule 55(c) motion] is to determine
 2        de novo whether the trial court identified the correct
          legal rule to apply to the relief requested.’ . . . ‘[T]he
 3        second step . . . is to determine whether the trial
          court’s application of the correct legal standard was
 4        (1)’illogical,’ (2) ‘implausible,’ or (3) without ‘support
          in inferences that may be drawn from the facts in the
 5        record.’ Due to the policy of favoring judgments on the
          merits, a glaring abuse of discretion is not required for
 6        reversal of a court’s refusal to relieve a party of the
          harsh sanction of default.
 7
 8   Signed Personal Check No. 730, 615 F.3d at 1091 (citations omitted).
 9        To determine “good cause” under this Rule, a court “must
10   ‘consider [ ]three factors: (1) whether [the party seeking to set
11   aside the default] engaged in culpable conduct that led to the
12   default; (2) whether [it] had [no] meritorious defense; or
13   (3) whether reopening the default judgment would prejudice’ the
14   other party.”   Id.(citing Franchise Holding II v. Huntington Rests.
15   Group, Inc., 375 F.3d 922, 925-26 (9th Cir. 2004), cert. denied
16   544 U.S. 949 (2005)).   This test is disjunctive, such that a finding
17   that any one of the factors is true is sufficient for the court to
18   refuse to set aside the default.   It is the same test used to
19   determine whether a default judgment should be set aside under Civil
20   Rule 60(b).   Id.   While a court has the discretion to refuse to set
21   aside a default judgment for excusable neglect under Fed. R. Civ.
22   P. 60(b) if it finds one of the enumerated factors present, it is
23   not mandatory that it do so.   See Brandt v. Am. Bankers Ins. Co. of
24   Fla., 653 F.3d 1108 (9th Cir. 2011).    “Crucially, however, ‘judgment
25   by default is a drastic step appropriate only in extreme
26   circumstances; a case should, whenever possible, be decided on the

                                        15
 1   merits.’”    Signed Personal Check No. 730 at 1091 (citing Falk v.
 2   Allen, 739 F.2d 461, 463 (9th Cir. 1984)).
 3        The record before us provides a plausible basis upon which the
 4   bankruptcy court could have exercised its discretion to enter the
 5   order of default.   The record does not, however, support findings
 6   that the bankruptcy court considered and applied the Eitel factors
 7   with respect to entry of the default judgment or, alternatively, the
 8   factors applicable under Fed. R. Civ. P. 55 for setting aside a
 9   default judgment.
10        1. Culpable Conduct
11        “[A] defendant’s conduct is culpable if he has received actual
12   or constructive notice of the filing of the action and intentionally
13   failed to answer.” TCI Group Life Ins. Plan v. Knoebber, 244 F.3d
14   691, 697 (9th Cir. 2001)(italics in original)(citation omitted).
15   “In this context the term ‘intentionally’ means that a movant cannot
16   be treated as culpable simply for having made a conscious choice not
17   to answer; rather, to treat a failure to answer as culpable, the
18   movant must have acted with bad faith, such as an ‘intention to take
19   advantage of the opposing party, interfere with judicial
20   decisionmaking, or otherwise manipulate the legal process.’” Signed
21   Personal Check No. 730, 615 F.3d at 1092 (citing TCI Group, 244 F.3d
22   at 697).    “We have ‘typically held that a defendant’s conduct was
23   culpable for purposes of the [good cause] factors where there is no
24   explanation of the default inconsistent with a devious, deliberate,
25   willful, or bad faith failure to respond.”   Signed Personal Check
26   No. 730 at 1092 (citing TCI Group at 698).

                                        16
 1        The transcript of the February 1, 2011, hearing to consider
 2   entry of the default judgment and the record as a whole provide us
 3   with evidence from which we could find a plausible basis for the
 4   bankruptcy court exercising its discretion to deny the Appellant’s
 5   motion to set aside the order of default on the basis of bad faith:
 6   (1) the bankruptcy court did not find Appellant’s assertion credible
 7   that he had believed the answer filed for his son had also been
 8   filed for himself; (2) Appellant’s erroneous belief that personal
 9   service was required in a bankruptcy adversary proceeding was not
10   excused under the circumstances of the case; (3) Appellant failed to
11   timely file an answer on two occasions in the same adversary
12   proceeding, the first order of default having been vacated by
13   stipulation of the trustee; (4)Appellant failed to attend the
14   hearing on his motion to set aside the order of default; and (5) the
15   bankruptcy court generally concluded that the Appellant was “playing
16   fast and loose with the court.”
17        2. Meritorious Defense
18        “A defendant seeking to vacate a default judgment must present
19   specific facts that would constitute a defense.   But the burden on
20   the party seeking to vacate a default judgment is not
21   extraordinarily heavy.”   TCI Group, 244 F.3d at 700 (citations
22   omitted).   “All that is necessary to satisfy the ‘meritorious
23   defense’ requirement is to allege sufficient facts that, if true,
24   would constitute a defense: ‘the question whether the factual
25   allegation [i]s true’ is not to be determined by the court when it
26   decides the motion to set aside the default.”   Signed Personal Check

                                       17
 1   No. 730, 615 F.3d at 1094 (citing TCI Group at 700). “Rather, that
 2   question ‘would be the subject of the later litigation.’”   Id.
 3        Appellant argues that $150,000 of the money alleged to be the
 4   subject of a fraudulent transfer to him from Debtor was returned to
 5   the Debtor prior to bankruptcy.   He made this allegation in his
 6   memorandum to set aside the default and he made it at oral argument
 7   at the prove-up hearing, and provided a copy of the $150,000 wire
 8   transfer as part of his memorandum in opposition to the Trustee’s
 9   motion to enter a default judgment.    His explanation was that the
10   Debtor requested he hold the $150,000 received from escrow until she
11   instructed him to return it to her, and that that is what he did.
12   He also alleges that he did not advise his client with respect to
13   the real property sale and that $100,000 of the money transferred to
14   him was in payment of attorney fees for representing the Debtor in
15   various court cases.   This would constitute a meritorious defense to
16   the fraudulent transfer claim if proven true.   The bankruptcy court,
17   however, appeared to base its ruling, at least in part, on whether
18   the copy of the wire transfer attached to Appellant’s declaration
19   would be admissible in court.   That is not the test in an action to
20   set aside a default or a default judgment.   Signed Personal Check
21   No. 730, 615 F.3d at 1094.   Rather, the question as to the truth of
22   the factual allegations, or the admissibility of evidence, is to be
23   made at trial.
24        While it appears that the $250,000 default judgment is based
25   entirely on the fraudulent transfer claim, the complaint also
26   contained a claim for a $100,000 preferential transfer in which

                                       18
 1   Appellant is alleged to be an insider.   The rationale for the
 2   Trustee considering Appellant an insider is that he had complete
 3   dominion and control over the bank account in which the $250,000
 4   transfer was placed.   As the $250,000 transfer from escrow to
 5   Appellant occurred on October 26, 2006, more than twelve months
 6   prior to the Debtor filing bankruptcy, the preferential transfer
 7   claim must fail.    See 11 U.S.C. § 547(b)(4)(B)(preferential transfer
 8   to an insider may be avoided for transfer occurring up to one year
 9   before the date of the filing of the bankruptcy petition).
10        3. Prejudice
11        “To be prejudicial, the setting aside of a judgment must result
12   in greater harm than simply delaying resolution of the case.
13   Rather, ‘the standard is whether [plaintiff’s] ability to pursue his
14   claim will be hindered.’”   TCI Group, 244 F.3d at 701 (citing Falk,
15   739 F.2d at 463). “To be considered prejudicial, ‘the delay must
16   result in tangible harm such as loss of evidence, increased
17   difficulties of discovery, or greater opportunity for fraud or
18   collusion.’”   Id. (citing Thompson v. Am. Home Assur. Co., 95 F.3d
19   429, 433-34 (6th Cir. 1996)).
20        There is nothing in the record to indicate that the Appellee
21   would be prejudiced if the order of default and the default judgment
22   were set aside and it does not appear that Appellee has advanced
23   that argument.   Nor is there a record of the bankruptcy court making
24   a finding of prejudice.
25        4. Extreme Circumstances
26        In Signed Personal Check No. 730, the Court stated that the

                                        19
 1   trial court must consider the requirement that judgment by default
 2   be granted in only “extreme circumstances.”6   Failure to do so, the
 3   court stated, is no minor omission, but “fundamentally alter[s] the
 4   standard.” 615 F.3d at 1091-92.   There is nothing in the record from
 5   which we can find that the bankruptcy court considered this element.
 6   C.   Appellant’s Motion to Dismiss Adversary Proceeding
 7        Appellant argues in his opening brief that the Bankruptcy
 8   Appellate Panel should revisit the bankruptcy court’s denial of his
 9   motion to dismiss (“motion to strike”) that he had earlier appealed
10   to the BAP.   The Appellee argues that the order denying the motion
11   to dismiss, which was interlocutory in nature, did not merge with
12   the final judgment and is therefore not reviewable.   To answer this,
13   we must examine the prior appeal and the nature of the motion to
14   dismiss.
15        1. The Prior Appeal
16        Appellant appealed the bankruptcy court’s denial of his motion
17   to strike the complaint to the Bankruptcy Appellate Panel.   The
18   Panel dismissed the appeal, finding that it lacked jurisdiction due
19   to the untimeliness of the filing of the notice of appeal.
20        2. The Final Judgment Rule
21        Generally, “[a]n interlocutory order becomes appealable when
22
          6
           It should be noted that if this were to be considered as the
23   imposition of a $250,000 fine as a sanction against the Appellant
     for his failure to timely file an answer, it would most likely be
24   considered as inappropriate under the circumstances. See Dyer v.
     Lindblade (In re Dyer), 322 F.3d 1178, 1193 (9th Cir. 2003)
25   (Relatively mild non-compensatory fines may be necessary under some
     circumstances, but the language of § 105(a) does not allow for
26   serious punitive penalties).

                                       20
 1   final judgment is entered. . . .   A necessary corollary to the final
 2   judgment rule is that a party may appeal interlocutory orders after
 3   entry of final judgment because those orders merge into that final
 4   judgment.”   Am. Ironworks & Erectors, Inc. v. N. Am. Const. Corp.,
 5   248 F.3d 892, 897 (9th Cir. 2001).
 6        The fact that the Appellant had earlier appealed the
 7   interlocutory order and it was dismissed on jurisdictional grounds
 8   does not foreclose the ability of the Appellant to appeal the matter
 9   once the final judgment is entered.     See e.g. Victor Talking Mach.
10   Co. v. George, 105 F.2d 697 (3d Cir. 1939)(Appeal of order dismissed
11   on jurisdictional grounds and later heard after entry of final
12   decree).
13        3. The Motion to Strike Complaint (Motion to Dismiss)
14        The Appellant’s motion to strike the complaint is based on
15   alleged violations of Cal. Code Civ. Proc. § 425.16 (Anti-SLAPP
16   Statute), Cal. Civil Code § 47(b)(Litigation Privilege), and Cal.
17   Code of Civ. Proc. § 1714.10 (Conspiracy action against an
18   attorney).
19        Each of the three state-law provisions cited by Appellant in
20   his motion to dismiss (strike) may have some relevance in an
21   adversary proceeding in bankruptcy court.    None, however, may be
22   applied to claims involving federal law, including bankruptcy law.
23   See Restaino v. Bah (In re Bah), 321 B.R.41, 44-45 (9th Cir. BAP
24   2005)(citing Globetrotter Software, Inc. v. Elan Computer Grp, Inc.,
25   63 F.Supp.2d 1127, 1128 (N.D.Cal. 1999))(Anti-SLAPP statute);
26   In re Cedar Funding, Inc., 419 B.R. 807, 824 (9th Cir. BAP 2009);

                                        21
 1   Johnson v. JP Morgan Chase Bank, 536 F.Supp.2d 1207, 1213 (E.D.Cal.
 2   2008)(citing Martinez v. California, 444 U.S. 277, 284 (1980))
 3   (Litigation Privilege); Spielbauer v. Brigham (In re Brigham),
 4   2007 WL 7532287 (9th Cir. BAP, October 9, 2007)(Conspiracy action
 5   against attorney).
 6        Given that the judgment entered by the bankruptcy court and
 7   appealed by Appellant is based on a claim under federal bankruptcy
 8   law, none of the state law provisions cited above are applicable.
 9   We therefore decline to delve any further into the court’s failure
10   to consider those provisions.
11                                       VI
                                     CONCLUSION
12
13        We find that there is a plausible basis upon which the
14   bankruptcy court might have exercised its discretion to deny
15   Appellant’s motion to set aside the order of default on the basis of
16   culpable conduct on the part of the Appellant.   Accordingly, the
17   bankruptcy court’s denial of Appellant’s motion to set aside the
18   order of default is AFFIRMED.
19        We do not find in the record, however, a plausible basis upon
20   which the bankruptcy court could have entered the default judgment.
21   Appellant provided a plausible defense to the claims alleged against
22   him and the amounts claimed in the complaint.    These issues are
23   subject to review in the prove-up hearing. Fed. R. Civ. P. 55(b)(2).
24   The bankruptcy court’s entry of the default judgment will therefore
25   be VACATED and the matter REMANDED for further proceedings under
26   Fed. R. Bankr. P. 7055.

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