United States Bankruptcy Court Central District of...

United States Bankruptcy CourtCentral District of California

Judge Neil Bason, PresidingCourtroom 1545 Calendar

Los Angeles

Tuesday, July 7, 2020 1545 Hearing Room

10:00 AMChristopher Omotunde2:20-10555 Chapter 13

#1.00 Hrg re: Motion for relief from stay [RP]

DEUTSCHE BANK NATIONAL TRUST COvsDEBTOR

33Docket

Appearances required.

Pursuant to Judge Bason's COVID19 Procedures, ONLY TELEPHONIC APPEARANCES WILL BE PERMITTED until further notice. Please contact CourtCall at (888) 882-6878 to make arrangements for any telephonic appearance. There is no need to contact the Court for permission. Parties who are not represented by an attorney will be able to use CourtCall for free through 8/31/20. Attorneys will receive a 25% discount (for more information, see www.cacb.uscourts.gov, "Judges," "Bason, N.," "Telephonic Instructions").

There is no tentative ruling, but the parties should be prepared to address (a) whether the alleged arrears have been brought current and/or (b) whether they will agree to the terms of an adequate protection order (see the debtor's response, dkt. 35).

If appearances are not required at the start of this tentative ruling but you wish to dispute the tentative ruling, or for further explanation of "appearances required/are not required," please see Judge Bason's Procedures (posted at www.cacb.uscourts.gov) then search for "tentative rulings." If appearances are required, and you fail to appear telephonically without adequately resolving this matter by consent, then you may waive your right to be heard on matters that are appropriate for disposition at this hearing.

Tentative Ruling:

Party Information

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10:00 AMChristopher OmotundeCONT... Chapter 13

Debtor(s):Christopher Omotunde Represented By

Stephen S Smyth

Movant(s):

Deutsche Bank National Trust Represented ByJennifer C Wong

Trustee(s):

Kathy A Dockery (TR) Pro Se

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10:00 AMEric L Creer2:19-17084 Chapter 13

#2.00 Hrg re: Motion for relief from stay [PP]

XCHANGE TITLING TRUST, LLCvsDEBTOR

86Docket

Grant as set forth below. Appearances are not required. If you wish to dispute the tentative ruling you must notify other parties of your intent to appear telephonically.


Proposed order: Movant is directed to lodge a proposed order via LOU within 7 days after the hearing date. See LBR 9021-1(b)(1)(B).

TerminationTerminate the automatic stay under 11 U.S.C. 362(d)(1).To the extent, if any, that the motion seeks to terminate the automatic

stay in other past or pending bankruptcy cases, such relief is denied on the present record. See In re Ervin (Case No. 14-bk-18204-NB, docket no. 311).

Effective date of reliefGrant the request to waive the 14-day stay provided by FRBP 4001(a)

(3).

Tentative Ruling:

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10:00 AMEric L CreerCONT... Chapter 13

Co-debtor stayAny co-debtor stay (11 U.S.C. 1301(c)) has not been shown to have

any basis for any different treatment from the stay under 11 U.S.C. 362(a), so the tentative ruling is to grant the identical relief regarding any co-debtor stay.


Party Information

Debtor(s):

Eric L Creer Pro Se

Movant(s):

XChange Titling Trust, LLC Represented ByReilly D Wilkinson

Trustee(s):


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10:00 AMTea Station Investment Inc.2:20-14175 Chapter 7

#3.00 Hrg re: Motion for relief from stay [UD]

SUN RICH DEVELOPMENT I, LLCvsDEBTOR

10Docket



There is no tentative ruling, but the parties should be prepared to address (a) whether the alleged arrears have been brought current and/or (b) whether they will agree to the terms of an adequate protection order (see the debtor's response, dkt. 13). In addition, Debtor should be prepared to address the issues raised in Movant's reply (dkt. 14).


Tentative Ruling:

Party Information

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10:00 AMTea Station Investment Inc.CONT... Chapter 7

Debtor(s):

Tea Station Investment Inc. Represented ByLeslie A Cohen

Movant(s):

Sun Rich Development I, LLC Represented ByDavid Brian Lally

Trustee(s):

Brad D Krasnoff (TR) Pro Se

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10:00 AMFrank Larrybuck Buchanan2:20-15438 Chapter 13

#4.00 Hrg re: Motion in Individual Case for Order Imposing a Stay or Continuing the Automatic Stay as the CourtDeems Appropriate

9Docket

Tentative Ruling for 7/7/20:Appearances required. Pursuant to Judge Bason's COVID19 Procedures, ONLY TELEPHONIC APPEARANCES WILL BE PERMITTED until further notice. Please contact CourtCall at (888) 882-6878 to make arrangements for any telephonic appearance. There is no need to contact the Court for permission. Parties who are not represented by an attorney will be able to use CourtCall for free through 8/31/20. Attorneys will receive a 25% discount (for more information, see www.cacb.uscourts.gov, "Judges," "Bason, N.," "Telephonic Instructions").

This Court has reviewed the motion papers (dkt. 9), the late-filed opposition papers (dkt. 18, 19, 20) filed by Norman Pomeranz and Tom Block (together, "Creditors"), and other filed documents.

The tentative ruling is that (1) the debtor apparently seeks to continue the automatic stay of 11 U.S.C. 362(a) as to all property, not just the debtor’s real property; (2) the burden is on the debtor to show good faith in filing the current bankruptcy petition; (3) there is a presumption that the debtor did not file this case in good faith, which can only be rebutted by clear and convincing evidence; and (4) the debtor has not adequately rebutted that presumption.

Proposed order: Creditors are directed to lodge a proposed order via LOU within 7 days after the hearing date, and attach a copy of this tentative ruling, thereby incorporating it as this Court's final ruling, subject to any changes ordered at the hearing. See LBR 9021-1(b)(1)(B).

Analysis:

Tentative Ruling:

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10:00 AMFrank Larrybuck BuchananCONT... Chapter 13

(1) BackgroundThe debtor seeks an order continuing the automatic stay in this case

pursuant to 11 U.S.C. 362(c)(3). The motion (dkt. 9, p.3) only expresslyreferences the real property and improvements at 8320 – 8350 La Tuna Canyon Road, Sun Valley, CA 91352 (the "Sun Valley Property"), although the debtor seeks to continue the stay as against all creditors (id., para. 1.e) regardless whether they have liens against that property. In any event, the motion focuses on two creditors in particular (apparently the holders of the first priority deed of trust against the Sun Valley Property): (1) Norman Pomeranz and (2) Tom Block (dkt. 9).

At the hearing the debtor is directed to clarify whether relief is sought as to all property of the estate. The tentative ruling is that any attempt to do otherwise would inappropriately discriminate among creditors.

For example, if the debtor seeks to stay acts against the Sun Valley Property but not stay garnishment of wages, that might create a race to seize those wages. Such an unrestricted race to seize assets could be disruptive to the orderly restructuring of the debtor’s finances that is at the heart of the Bankruptcy Code’s attempt to treat creditors equally and maximize creditors’ recoveries.

Accordingly, the tentative ruling is to interpret the ambiguous motion as a request to continue the automatic stay as against all property and creditors.

(2) The automatic stay will terminate 30 days after the petition date unless this Court enters an order extending it

On November 25, 2019, the debtor filed a voluntary chapter 13 petition (1:19-bk-12954-VK) (the "Prior Case"). The Prior Case was dismissed on 6/10/20 based on debtor’s failure to make post-petition plan payments (id., dkt. 40). Six days later, on 6/16/20, the debtor filed this chapter 13 case. Therefore, the automatic stay will terminate on 7/16/20 if this Court does not extend the stay, pursuant to 11 U.S.C. 362(c)(3):

(3) if a single or joint case is filed by or against a debtor who is an individual in a case under chapter 7, 11, or 13, and if a single or joint case of the debtor was pending within the preceding 1-year period but was dismissed, other than a case refiled under a chapter other than chapter 7 after dismissal under section 707(b) –

(A) the stay under subsection (a) with respect to any action

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taken with respect to a debt or property securing such debt or with respect to any lease shall terminate with respect to the debtor on the 30th day after the filing of the later case;

(B) on motion of a party in interest for continuation of the automatic stay and upon notice and a hearing, the court may extend the stay in particular cases as to any or all creditors (subject to such conditions or limitations as the court may then impose) after notice and a hearing completed before the expiration of the 30-day period only if the party in interest demonstrates that the filing of the later case is in good faith as to the creditors to be stayed. [Emphasis added.]

The following principles guide this Court’s application of 11 U.S.C. 362(c) to this case. First, there is authority that if the automatic stay is not continued beyond 30 days then it terminates in all aspects, i.e., not only as to the debtor individually but as to all parties and the bankruptcy estate. In re Reswick, 446 B.R. 362 (9th Cir. BAP 2011); In re Hernandez, case no. 2:11-bk-53730-NB, docket #40 (Memorandum Decision).

Second, there is authority that "good faith" is a factual inquiry, although to the extent the statute defines what is good faith the interpretation of the statute is a legal question. See generally, e.g., In re Ellsworth, 455 B.R. 904, 914, 917 (9th Cir. BAP 2011) (holding that good and bad faith in other contexts are factual inquiries). Cf. U.S. Bank v. Village at Lakeridge, LLC,138 S.Ct. 960 (2018) (analyzing what issues are factual and what are legal).

Third, the factual nature of "good faith" does not necessarily mean that live testimony is required. See, e.g., In re Nicholson, 435 B.R. 622, 635-36 (9th Cir. BAP 2010). In fact, the tentative ruling is that, just like hearings on whether to grant relief from the automatic stay, any hearing on whether to continue the automatic stay is intended to be an expedited, summary proceeding, not a full blown trial. See 11 U.S.C. 362(c)(3)(B) (30 day limit to conclude hearing), and compare 11 U.S.C. 362(d)&(e) (30 day limit to conclude hearing) and In re Johnson, 756 F.2d 738, 740 (9th Cir. 1995) (summary nature of proceedings on whether to grant relief from stay); In re Veal, 450 B.R. 897, 914-15 (9th Cir. BAP 2011) (same, requiring only "colorable" basis for standing to seek relief from stay).

Fourth, the "good faith" inquiry is narrowly focused on the filing of the

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petition. For example, debtors sometimes argue that because they have a genuine desire to retain a roof over their and their family's heads they are acting in good faith, but the question is not the genuineness of that motive. The question is whether the debtor had a sufficient basis to believe that the current bankruptcy case could be properly prosecuted notwithstanding the dismissal of one or more earlier bankruptcy cases. In a reorganization case, such as this one, the tentative ruling is that the test of good faith is analogous to a standard test of whether relief from the automatic stay is appropriate: when the petition was filed, did the debtor have a good faith basis to believe that there would be "a reasonable possibility of a successful reorganization within a reasonable time." United Savings Assn. v. Timbers of Inwood Forest,484 U.S. 365, 376 (1988) (interpreting 11 U.S.C. 362(d)(2)) (citation and internal quotation marks omitted), and see 11 U.S.C. 362(d)(3)(A) (similar test in small business cases).

Fifth, a finding of good faith for the preliminary purpose of whether to continue the automatic stay under 11 U.S.C. 362(c)(3) is not necessarily determinative of good faith for any other purposes. See, e.g., 11 U.S.C. 1129(a)(3), and In re Abdelgadir, 455 B.R. 896, 900 (9th Cir. BAP 2011).

(3) The tentative ruling is that this case presumptively was not filed in good faith, and that presumption is only rebuttable by clear and convincing evidence

The statute provides, in relevant part: (C) … a case is presumptively filed not in good faith (but such presumption may be rebutted by clear and convincing evidence to the contrary) – as to all creditors, if –

…(II) a previous case under any of chapters 7, 11, and 13 in which the individual was a debtor was dismissed within such 1-year period, after the debtor failed to –

(aa) file or amend the petition or other documentsas required by this title or the court without substantial excuse (but mere inadvertence or negligence shall not be a substantial excuse unless the dismissal was caused by the negligence of the debtor’s attorney);

…

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(III) there has not been [x] a substantial change in the financial or personal affairs of the debtor since the dismissal of the next most previous case under chapter 7, 11, or 13 or [y] any other reason to conclude that the later case will be concluded –

…(bb) if a case under chapter 11 or 13, with a confirmed plan that will be fully performed. [11 U.S.C. 362(c)(3)(C) (emphasis added)]

Creditors argue (dkt. 18, p.4-5) that this case is presumptively not filed in good faith under 362(c)(3)(C)(i)(III)(bb), because the debtor has not shown a sufficient change in the debtor’s financial or personal affairs to conclude that the debtor will be able to propose a chapter 13 plan of reorganization that will be confirmed and fully performed.

The tentative ruling is that Creditors are correct. Therefore, the burden is on the debtor to show, by "clear and convincing" evidence, that he has filed this latest bankruptcy petition in good faith (whether he has done so is the topic of part "(4)" of this tentative ruling – this part "(3)" only addresses the presumptions and burdens of proof).

(a) Insufficient evidence of a substantial change in circumstances, or other reason to believe that this case will conclude in a confirmed and fully performed plan

(I) Flaws in debtor’s evidence of Crystal Clear Aquarium Service ("CCAS") income

The debtor’s declaration states that he "was unable to pay [his] May 2020 Chapter 13 Plan payments because COVID-19 dramatically reduced" his income from Crystal Clear Aquarium Service ("CCAS") (dkt. 9, Debtor Decl., para. 9), but that his "CCAS business has bounced back and [he is] earning more income than [he has] from January 2020 – May 2020" (id., para. 10). The debtor does not specify how much of an increase in income he saw in June 2020. Additionally, debtor’s Schedule I reflects $2,600 in net monthly income (dkt. 1, line 12), which is only slightly higher than the $2,386 figure provided in the Schedule I filed in the Prior Case (1:19-bk-12954-VK, dkt. 10, line 12). In addition, debtor has not followed the instructions to line 8.a which required him to attach a separate statement for each business showing gross receipts, ordinary and necessary expenses and net income, so it is not clear if the increase is attributable to CCAS or debtor’s second business (discussed

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below) and debtor has not filed a Declaration of Current/Postpetition Income and Expenses on local form F 3015.1.20.DEC.INCOME.EXPENSE,subsequent to commencing this case, to reflect the asserted surge in business.

(II) Flaws in debtor’s evidence of Treasure Hollow Film Location ("THFL") income

The debtor’s declaration states that his THFL income was reduced by wildfires, mudflows, and a lack of financing to make the land useable again (dkt. 9, Debtor Decl. para. 9), but that he is currently renting a portion of the property out for $500/month (id. para. 8). As mentioned above, it is unclear whether this income is accounted for in his Schedule I because debtor did not follow the instructions to line 8.a. Furthermore, as Creditors highlight, debtor’s declaration fails to address whether he has adequate insurance in place to insulate himself from potential liability resulting from leasing the property out while COVID19 cases persist (dkt. 18, p.5:1-7).

(III) Unexplained discrepancies between Schedules I and JAs Creditors highlight, debtor’s declaration does not provide any

explanation for the discrepancies between Schedule I and J filed in this case and the Prior Case. Debtor’s Schedule I in this case identifies $1,557 in gross monthly expenses (dkt. 1, line 22c) and $1,043 in net monthly income (id., line 23c), whereas debtor’s Schedule I filed in the Prior Case identifies $2,365 in gross monthly expenses and $21 in net monthly income (1:19-bk-12954-VK, dkt. 10, lines 23b and 23c). Debtor does not adequately account for the alleged $1,022 change in net monthly income in the relatively short period of time between filing the Prior Case and filing this case.

(IV) Insufficient evidence of a likelihood of bifurcating Creditors’ lien

As for Debtor’s reasons to believe that this case will result in a confirmed and fully performed plan, Debtor states that he intends to file a motion to value the Sun Valley Property, which will make his chapter 13 plan feasible and confirmable (dkt. 9, Debtor Decl. para.11-13). Although Debtor’s declaration is some evidence that the Sun Valley Property is worth $50,000 (because Debtor, as the owner of the Sun Valley Property, is competent to testify as his opinion of value), this evidence is significantly undercut by the fact that Debtor’s Schedule A, filed 12/9/19 in the Prior Case (1:19-bk-12954-VK, dkt. 10), values the same property at $464,000. Debtor’s declaration provides no explanation for this extreme drop in value. For example, Debtor

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does not assert that he had the Sun Valley Property appraised since he filed his schedules in the Prior Case. Debtor's declaration (dkt.25) refers to mud slides in 2018, so his Prior Case in 2019 should have already taken into account any decrease in value from the mud slides. On the present record it appears that Debtor may have simply picked a figure lower than Creditors’ asserted claim, in an attempt to buy himself more time under the protection of the automatic stay and to thwart Creditors’ foreclosure sale scheduled for 7/7/20 (the same date as this hearing).

Furthermore, Creditors have presented a competing valuation from a licensed real estate appraiser that values the Sun Valley Property at $700,000, which further calls into question the accuracy and reliability of Debtor’s valuation.

(4) Whether Debtor has rebutted the presumption of lack of good faith by "clear and convincing" evidence

The tentative ruling is that, in view of the deficiencies noted above, Debtor has not met his burden to show that when he filed this case he had a sufficient basis for a good faith belief that this case is likely to result in a "confirmed plan that will be fully performed" within the meaning of 11 U.S.C. 362(c)(3)(C)(i)(III)(b), nor has he met his burden to rebut the other evidence and presumptions of a lack of good faith.

(5) ConclusionThe tentative ruling is that there is a presumption that Debtor has not

filed this case in good faith for two alternative factual grounds: first, he has not presented enough evidence of a change in his income; and second, he has not presented enough evidence to support his valuation of the Sun Valley Property to believe in good faith, as of the petition date, that this case has a reasonable possibility of resulting in a confirmed and fully performed plan. The tentative ruling is also that the burden is on Debtor to rebut this presumption by clear and convincing evidence and Debtor has not met that burden. For all of these reasons, the tentative ruling is to deny Debtor's motion as to all creditors.

If appearances are not required at the start of this tentative ruling but you wish to dispute the tentative ruling, or for further explanation of "appearances required/are not required," please see Judge Bason's Procedures (posted at www.cacb.uscourts.gov) then search for "tentative rulings." If appearances are required, and you fail to appear telephonically without adequately

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resolving this matter by consent, then you may waive your right to be heard on matters that are appropriate for disposition at this hearing.

Party Information

Debtor(s):

Frank Larrybuck Buchanan Represented ByDonald E Iwuchuku

Movant(s):

Frank Larrybuck Buchanan Represented ByDonald E IwuchukuDonald E IwuchukuDonald E Iwuchuku

Trustee(s):


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10:00 AMFrank Larrybuck Buchanan2:20-15438 Chapter 13

#4.10 Order directing debtor to appear and show causewhether this court should take any action based onapparently inconsistent addresses for debtor

15Docket



The tentative ruling is that Debtor's belated declaration (dkt.25) adequately addresses the venue-shopping concerns raised in this Court's "Order Directing Debtor to Appear and Show Cause Whether This Court Should Take Any Action Based on Apparently Inconsistent Addresses for Debtor" (dkt. 15). Nevertheless, the parties are directed to address whether this case, if it is not dismissed or converted, should be transferred to Judge Kaufman in view of her familiarity with Debtor.

This Court will prepare an appropriate order after the hearing.


Tentative Ruling:

Party Information

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Debtor(s):

Frank Larrybuck Buchanan Represented ByDonald E Iwuchuku

Trustee(s):


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10:00 AMElin Khachatourian2:19-24696 Chapter 13

#5.00 Cont'd hrg re: Motion for relief from stay [RP]fr. 6/16/20

SPECIALILZED LOAN SERVICING LLCvsDEBTOR

44Docket

Tentative Ruling for 7/7/20: Appearances required.


This matter was continued to this date to allow time for the parties to negotiate the terms of an adequate protection agreement. There is no tentative ruling, but the parties should be prepared to address the status of those negotiations.


Tentative Ruling:

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10:00 AMElin KhachatourianCONT... Chapter 13

Tentative Ruling for 6/16/20: Appearances required.


There is no tentative ruling, but the parties should be prepared to address (a) whether the alleged arrears have been brought current (b) whether they will agree to the terms of an adequate protection order and/or (c) whether Movant will consent to a 30 day continuance (see the debtor's response, dkt. 47).


Party Information

Debtor(s):

Elin Khachatourian Represented ByJeffrey J Hagen

Movant(s):

Specialized Loan Servicing LLC Represented ByMukta SuriErin M McCartney

Trustee(s):


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10:00 AMElin KhachatourianCONT... Chapter 13

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10:00 AMGabriel S Fernando2:16-20827 Chapter 13

#6.00 Cont'd hrg re: Motion for relief from stay [RP]fr. 6/2/20

NEWREZ LLCvsDEBTOR

74Docket *** VACATED *** REASON: Voluntary dismissal of motion [dkt. 78]

Tentative Ruling:

Party Information

Debtor(s):

Gabriel S Fernando Represented ByJulie J Villalobos

Movant(s):

NewRez LLC d/b/a Shellpoint Represented ByDane W Exnowski

Trustee(s):


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11:00 AMChristine R Aull2:17-15073 Chapter 7

#0.00 Hrg re: Trustee's final report and account;Application for fees and expenses[Sam S. Leslie, Ch. 7 Trustee]

39Docket

Approve the Chapter 7 Trustee's final report, and allow the Chapter 7 Trustee $2,684.99 in fees. Appearances are not required. If you wish to dispute the tentative ruling you must notify other parties of your intent to appear telephonically.




Tentative Ruling:

Party Information

Debtor(s):

Christine R Aull Represented By

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11:00 AMChristine R AullCONT... Chapter 7

Christie Cronenweth

Trustee(s):

Sam S Leslie (TR) Pro Se

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11:00 AMChristine R Aull2:17-15073 Chapter 7

#0.00 Hrg re: Application for payment of final fees and/or expenses[LEA Accountancy, LLP, Accountant for Ch 7 Trustee]

37Docket

Allow LEA Accountancy, LLP $2,552.00 in fees and $153.38 in expenses, for a total of $2,705.38. Appearances are not required. If you wish to dispute the tentative ruling you must notify other parties of your intent to appear telephonically.




Tentative Ruling:

Party Information

Debtor(s):

Christine R Aull Represented By

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11:00 AMChristine R AullCONT... Chapter 7

Christie Cronenweth

Trustee(s):

Sam S Leslie (TR) Pro Se

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1:00 PMTatung Company of America, Inc.2:19-21521 Chapter 11

#1.00 Cont'd hrg re: Debtor's Emergency Motion for Entry of an Interim Order, Pending a Final Hearing Authorizing the Debtorto Use Cash Collateralfr. 10/2/19, 10/15/19, 10/29/19, 12/10/19, 1/7/20, 02/18/20, 4/21/20, 6/2/20

5Docket

Tentative Ruling for 7/7/20:Please see the tentative ruling for the status conference (calendar no. 2, 7/7/20 at 1:00 p.m.)






Tentative Ruling for 10/29/19:

Tentative Ruling:

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1:00 PMTatung Company of America, Inc.CONT... Chapter 11

Please see the tentative ruling for the status conference (calendar no. 21, 10/29/19 at 2:00 p.m.)


[PRIOR TENTATIVE RULING OMITTED]

Party Information

Debtor(s):

Tatung Company of America, Inc. Represented ByRon BenderLindsey L SmithJuliet Y Oh

Movant(s):


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1:00 PMTatung Company of America, Inc.2:19-21521 Chapter 11

#2.00 Cont'd Status Conference re: Chapter 11 Case fr. 10/2/19, 10/15/19, 10/29/19, 11/5/19, 12/10/19,12/17/19, 01/07/20, 1/14/20, 02/18/20, 4/21/20,6/2/20, 6/16/20

1Docket

Tentative Ruling for 7/7/20:Continue as set forth below. Appearances are not required on 7/7/20. If you wish to dispute the tentative ruling you must notify other parties of your intent to appear telephonically.


(1) Current issues (a) Cash collateral motion (dkt. 5, as supplemented, dkt. 288), and

East West Bank non-opposition (dkt. 289)Grant on a further interim basis, on the same terms and conditions as

previously ordered (dkt. 286), except for the revised budget (dkt. 288, Ex.A), and authorize the payment of previously-allowed professional fees as set forth therein, with such authorization to use cash collateral extending through the conclusion of a continued hearing concurrent with the continued status conference (see below).

Proposed order: Debtor is directed to lodge a proposed order via LOU within 7 days after the hearing date. See LBR 9021-1(b)(1)(B).

(2) Deadlines/dates. This case was filed on 9/30/19.

Tentative Ruling:

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1:00 PMTatung Company of America, Inc.CONT... Chapter 11(a) Bar date: 1/17/20 (Order dkt. 97, timely served, dkt.101). (b) Procedures order: dkt.18 (timely served, dkt. 25) (c) Plan/Disclosure Statement*: TBD (Debtor must use the forms

required by Judge Bason, absent an order excusing the use of such forms) (DO NOT SERVE yet, except on the U.S. Trustee -this Court will set a deadline and procedures at a later time).

(d) Continued status conference: 8/18/20 at 1:00 p.m. No written status report required.

*Warning: special procedures apply (see order setting initial status conference).


[PRIOR TENTATIVE RULINGS OMITTED]

Party Information

Debtor(s):


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2:00 PMGL Master Inc2:18-24302 Chapter 7

#1.00 Order to Show cause re: Civil Contempt Against GL Master Inc., and Sanctions Against Polis & Associates, PLC

0Docket

Grant as set forth below. Appearances are not required.


Proposed order: The Alleged Employees are directed to lodge a proposed order via LOU within 7 days after the hearing date, and attach a copy of this tentative ruling, thereby incorporating it as this Court's final ruling, subject to any changes ordered at the hearing. See LBR 9021-1(b)(1)(B).

Current issues (1) Alleged employees’ motion for issuance of OSC re contempt (dkt. 95, "Motion for OSC"), Law offices of Lynn Chao, APC ("Chao") and Debtor’s opposition papers (dkt. 106, 107, 108), Alleged employees’ reply (dkt. 111), Order setting hearing on Motion for OSC (dkt. 128), Alleged employees’ supplemental papers (dkt. 131, 132, 133), Ms. Chao/Debtor’s supplemental opposition papers (dkt. 136, 137), Alleged employees’ supplemental reply papers (dkt. 138, 139, 140)

The tentative ruling is to overrule Ms. Chao/Debtor’s evidentiary objections on all of the grounds asserted by the Alleged Employees, grant the Motion for OSC and, for the reasons stated in the Alleged Employees’ papers, issue an order to show cause ("OSC") directing Ms. Chao, Mr. Polis,

Tentative Ruling:

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2:00 PMGL Master IncCONT... Chapter 7

Ms. Wang and debtor (collectively, the "Responding Parties") to appear and show cause why this Court should not find them in contempt and impose compensatory and coercive sanctions, including coercive sanctions in a daily amount for each day from the date of this hearing that they fail to produce the requested discovery.

(a) The Alleged Employees have made a sufficient showing to warrant issuance of an OSC

The Alleged Employees request the issuance of an OSC re contempt and sanctions against the Responding Parties for their alleged failure to comply with this Court’s 2004 Orders (dkt. 25, 30). For example, the Alleged Employees’ contend that Ms. Fang (aka Freda) Wang appeared for examination on 1/30/20 as debtor’s designated "person most knowledgeable" but Ms. Wang was not prepared to address several of the Alleged Employees’ topics of questioning (dkt. 95, p.9:9-12:8), including a line of questioning about the alleged misuse of her signature stamp. Id., p.12-17-13:6.

In response to the Motion for OSC, the Responding Parties admit that Ms. Wang was not prepared to speak to that issue and argue that the stamp was used after she resigned and without her knowledge. Dkt. 106, p.9:4-10. But the Responding Parties have not cited any authority to persuade this Court that, even if Ms. Wang’s testimony is true, she would be excused from taking steps prior to the examination to inform herself about the circumstances surrounding the use of her signature stamp or obtain information about how to contact the employees who allegedly used her stamp without her knowledge.

Similarly, Mr. Polis has failed to explain satisfactorily his instructions to Ms. Wang not to answer questions on attorney client privilege grounds, despite his knowledge that the Chapter 7 Trustee had already waived that privilege. And Ms. Chao has failed to satisfactorily explain all efforts undertaken to produce responsive documents (dkt. 95, p.16:19-18:7) or confirm that she had complied in good faith with the Alleged Employees’ document requests.

Therefore, the tentative ruling is that there is more than sufficient cause to issue the OSC to address what coercive and compensatory sanctions this Court should impose for the Respondents' failure to comply with this Court's discovery orders without a sufficient showing of any

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legitimate inability to do so.

(b) The requested discovery is pertinent to the administration of debtor’s estate

The Responding Parties object yet again that this Court is permitting discovery to go forward even though there is similar discovery taking place in connection with the pending State Court litigation. If this is intended as a request to reconsider this Court's discovery orders, it is neither procedurally proper nor persuasive. If, instead, it is intended as an excuse for not complying with this Court's discovery orders, it fails to meet the standards for showing that compliance was impossible and, again, it is not persuasive.

This Court has previously explained why it is appropriate for discovery to continue in this form - including that Respondents' argument has been waived and forfeited because it was not raised until after the Alleged Employees had expended significant time and resources pursuing this information. In addition, this Court points out that requested discovery is very much relevant to bankruptcy-specific issues that could not be asserted in State Court.

For example, the discovery is relevant to assessing whether there are grounds to bring a motion for substantive consolidation of Debtor and the entities to which Debtor allegedly transferred funds or other assets. The discovery is also relevant to assessing whether there are grounds to pursue avoidance actions that might only be available in this bankruptcy case (the filing of which may have preserved actions that were available as of the commencement of this case, and as to which applicable statutes of limitation could apply but for statutory or equitable bankruptcy tolling principles). The discovery is also relevant precisely because the scope of discovery under Rule 2004 (Fed. R. Bankr. P.) is intentionally very broad (it has been described as a legitimate "fishing expedition"), because when a debtor in bankruptcy asserts that it lacks the ability to pay its creditors, it is appropriate to conduct a broad reaching examination of its "acts, conduct, or property" and its "liabilities and financial condition" and any other "matter which may affect the administration of the debtor's estate ...." Rule 2004(b).

(c) No hearing at this stageThe tentative ruling is to excuse appearances at today's hearing

because the issue presently before this Court is only whether to issue the

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OSC. The tentative ruling is that the Alleged Employees have provided more than enough grounds to issue the OSC, and the OSC itself will provide all parties with an opportunity to file briefs regarding (i) whether compensatory and coercive sanctions are appropriate for the Respondents' non-compliance with this Court's discovery orders, (ii) from what date, (iii) in what dollar amounts, and (iv) with what schedule and procedures for briefs and an evidentiary hearing on those issues.

The parties are directed to meet and confer regarding the proposed form of such OSC. As set forth at the start of this tentative ruling, the Alleged Employees must lodge their proposed form of order within seven days of this hearing date. In addition, as stated in the posted Procedures of Judge Bason (available at www.cacb.uscourts.gov), Judge Bason typically does not hold orders for any set period of time before issuing them so, if there is any disagreement regarding the form or substance of a proposed order, parties are directed to contact chambers and lodge an alternative proposed order as soon as possible.

The parties are advised that a "Sanctions Table" is posted on this Court's website, under Judge Bason' portion of that website, as a research tool for all parties in matters before this Court. As noted on that Sanctions Table, it is only a starting point for research, and all parties must Shepardize any cited authorities and otherwise satisfy their research obligations.

(2) Future proceedings(a) DiscoveryThe tentative ruling is that, in view of ongoing health concerns arising

from COVID-19, the parties are directed to meet and confer to discuss their availability for continued oral examinations via video within the next two weeks and then contact Chambers with their available dates. The tentative ruling is that Judge Bason will attend any such examinations via audio or video technology, and will rule on any objections as they arise. The tentative ruling is to use Zoomgov, because it is more secure than regular Zoom, and can be initiated by this Court and recorded on this Court's audio recording system which may be useful for future factfinding and rulings.

The tentative ruling is that once the parties have tentatively arranged for the dates of the examinations, they are directed to contact chambers to verify the availability of Judge Bason on each date. Once the dates are finalized, Judge Bason will email Zoomgov invitation links for each of the

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dates to the Alleged Employees’ counsel, who will then be instructed to circulate the link with participating parties.

The parties are also directed to meet and confer regarding agreeable dates, in advance of the oral examinations, for a supplemental document production. Those dates must be sufficiently far in advance of the oral examinations to provide the Alleged Employees' counsel with adequate time to review the documents and prepare questions based on those documents.

(b) Scheduling the OSC evidentiary hearingThe parties are directed to meet and confer to discuss an agreeable

day, that does not conflict with Judge Bason's posted hearing dates, for this Court to conduct an evidentiary hearing on the OSC via Zoomgov during or approximately on the dates of 8/17/20 through 8/21/20. The tentative ruling is to conduct that hearing starting at 9:00 a.m. on Wednesday 8/19/20.

If appearances are not required at the start of this tentative ruling but you wish to dispute the tentative ruling, or for further explanation of "appearances required/are not required," please see Judge Bason's Procedures (posted at www.cacb.uscourts.gov) then search for "tentative rulings." If appearances are required, and you fail to appear without adequately resolving this matter by consent, then you may waive your right to be heard on matters that are appropriate for disposition at this hearing.

Party Information

Debtor(s):

GL Master Inc Represented ByThomas J Polis

Trustee(s):

Edward M Wolkowitz (TR) Pro Se

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