Chan v. Brady, 20-CV-05593-LHK

SIMON CHAN, Appellant, v. LOIS I. BRADY, et al., Appellees.

No. 20-CV-05593-LHK

United States District Court, N.D. California, San Jose Division

August 13, 2021

ORDER AFFIRMING BANKRUPTCY COURT'S ORDER DENYING APPELLANT'S MOTION TO CONVERT TO CHAPTER 13

RE: DKT. NO. 14

LUCY H. KOH, UNITED STATES DISTRICT JUDGE

Appellant Simon Chan (“Appellant”) appeals the Bankruptcy Court's order denying Appellant's motion to convert Appellant's Chapter 7 bankruptcy proceedings to Chapter 13. ECF No. 1. Trustee Lois I. Brady (“the bankruptcy trustee”) and Michael Scott Frazer, Alan Miller William Chan, Michelle Chan, Jeff Chang, Tomas Velken, and Julie Lam (collectively, “the Frazer Creditors”) (all collectively, “Appellees”) filed response briefs. ECF Nos. 15, 16. Appellant filed a reply. ECF No. 19. Having considered the parties' submissions, the relevant law, and the record in this case, the Court AFFIRMS the Bankruptcy Court's order denying Appellant's motion to convert to Chapter 13.

I. BACKGROUND

A. The January 24, 2018 Statement of Decision

On March 28, 2014, the Frazer Creditors sued Appellant in California Superior Court for the County of Contra Costa and alleged that Appellant defrauded the Frazer Creditors in connection with a real estate investment venture in Beijing, China. Bankruptcy Trustee's ER 73-90; see also Chan v. Frazer, 620 B.R. 106, 108 (N.D. Cal. 2020). According to the Frazer Creditors, Appellant received funds from the Frazer Creditors but never provided an accounting or any records regarding these funds. Bankruptcy Trustee's ER at 77-78. Instead, Appellant deposited the funds into his personal bank accounts and placed title to the condominium units in his name. Id. The Frazer Creditors claimed that Appellant concealed this information and made misrepresentations about the status of the investments. Id. at 77-78, 84-85. As a result, the Frazer Creditors alleged causes of action for intentional fraud and deceit, negligent misrepresentation, breach of fiduciary duty, unfair business practice, and unjust enrichment. Id. at 80.

On January 24, 2018, following a bench trial, the California Superior Court issued detailed factual findings and conclusions of law in a 17-page Statement of Decision. Id. at 73-90. The Statement of Decision rejected all of Appellant's cross claims, id. at 86-88, and found in favor of the Frazer Creditors on all their causes of action except their negligent misrepresentation claim. Id. at 80-84. Accordingly, the California Superior Court awarded compensatory damages as follows: $373, 109 for Julie Lam; $263, 371 for Michael Scott Frazer; $131, 686 for Jeff Chang; $131, 686 for William and Michelle Chan; $131, 686 for Tomas Velken; and $131, 686 for Alan Miller. Id. at 86. The Statement of Decision also noted that the parties stipulated to bifurcate the issue of punitive damages and set a conference for February 6, 2018 to schedule the punitive damages phase of the trial. Id. at 89. On April 18, 2018, the California Superior Court entered judgment in favor of the Frazer Creditors and against Appellant. Id. at 36.

B. Appellant's Chapter 7 Bankruptcy Proceedings

On January 25, 2018, one day after the Statement of Decision was issued, Appellant filed a Chapter 7 bankruptcy petition in this district. Id. at 4-5. This automatically stayed the California Superior Court action before the California Superior Court could conduct the punitive damages trial and before the California Superior Court entered judgment. See 11 U.S.C. § 362 (stating that the initiation of bankruptcy proceedings triggers an automatic stay of the continuation of any “judicial, administrative, or other action or proceeding” against the debtor).

C. Appellant's First Bankruptcy Appeal

On August 9, 2019, the Bankruptcy Court entered an order denying Appellant's motion for summary judgment and granting the Frazer Creditors' motion for summary judgment as to compensatory damages. Chan v. Frazer, 620 B.R. at 110. The Bankruptcy Court concluded that the California Superior Court decision granting the Frazer Creditors compensatory damages had preclusive effect, and thus, Appellant was collaterally estopped from relitigating that issue before the Bankruptcy Court. Id. at 109-10.

On August 23, 2019, Appellant filed a notice of appeal of the Bankruptcy Court's order. Id. On November 22, 2019, Appellant filed an opening brief. Id. On January 10, 2020, the Frazer Creditors filed a response brief. Id. On February 6, 2020, Appellant filed a reply brief. Id.

On August 17, 2020, this Court affirmed the Bankruptcy Court's order granting the Frazer Creditors' motion for summary judgment as to compensatory damages. Id. at 110-14. This Court concluded that Appellant was barred from relitigating compensatory damages by the doctrine of collateral estoppel because Appellant litigated the issues of liability and compensatory damages in the California Superior Court action to final judgment and application of the collateral estoppel doctrine would not be contrary to public policy. Id.

D. Appellant's Second Bankruptcy Appeal

On July 8, 2019, Appellant amended his Schedules A/B, which list property, to include potential RICO, malicious prosecution, and abuse of process claims (collectively, the “RICO claims”) against the Frazer Creditors and their attorneys with a value of $0. See Case No. 20-CV-6569-LHK, ECF No. 19, at 3. Appellant states that his RICO claims allege that, in the state court litigation between the Frazer Creditors and Appellant, the Frazer Creditors committed perjury when they testified regarding which version of the private placement memorandum they relied on when determining whether to invest in the Beijing project and when they denied any knowledge of a legal opinion that stated that the investment funds had to be held in Appellant's personal account. Id. On October 23, 2019, Appellant amended his Schedules A/B to change the value of the RICO claims from $0 to $2, 500, 000. Id.

On April 10, 2020, the bankruptcy trustee agreed to settle the RICO claims with the Frazer Creditors for $7, 500. Id. That same day, Appellant filed a motion to compel abandonment of the RICO claims on the grounds that the RICO claims are burdensome and of inconsequential value. Id.

On June 10, 2020, the Bankruptcy Court entered an order approving the bankruptcy trustee's settlement of the RICO claims and denying Appellant's motion to compel abandonment of the RICO claims. Id. at 4.

On September 18, 2020, Appellant filed a timely notice of appeal of the Bankruptcy Court's order regarding the RICO claims. Case No. 20-CV-06569-LHK, ECF No. 1. On March 18, 2021, Appellant filed an opening brief. Case No. 20-CV-06569-LHK, ECF No. 14. On April 15, 2021, the bankruptcy trustee filed a response brief. Case No. 20-CV-06569-LHK, ECF No. 15. On May 14, 2021, Appellant filed a reply brief. Case No. 20-CV-06569-LHK, ECF No. 18.

On August 13, 2021, this Court affirmed the Bankruptcy Court's order approving the bankruptcy trustee's settlement of the RICO claims and denying Appellant's motion to compel abandonment of the RICO claims. See Case No. 20-CV-06569-LHK, ECF No. 19. The Court concluded that the Bankruptcy Court did not err in concluding that the settlement was reasonable, fair, and equitable because Appellant's RICO claims were unlikely to succeed, RICO claims are complex and time-consuming to litigate, and it was in the interest of the creditors to settle the bankruptcy and allow the bankruptcy trustee to disburse funds. Id. at 5-7. The Court then concluded that the Bankruptcy Court did not err in denying Appellant's motion to compel abandonment of Appellant's RICO claims because Appellant's RICO claims were not burdensome to Appellant's estate and conferred value and benefit to Appellant's estate. Id. at 10-11.

E. Appellant's Motion to Convert His Chapter 7 Proceedings to Chapter 13

On May 22, 2020, more than 30 months after filing his bankruptcy petition, Appellant sought to convert his Chapter 7 bankruptcy proceedings to Chapter 13. Bankruptcy Trustee's ER at 20. On May 27, 2020, the bankruptcy trustee filed an objection to Appellant's motion to convert to Chapter 13. Id. at 21. On May 28, 2020, the Frazer Creditors filed an objection to Appellant's motion to convert to Chapter 13. Id.

On July 20, 2020, the Bankruptcy Court denied Appellant's motion to convert to Chapter 13. Bankruptcy Trustee's ER at 273-79. The Bankruptcy Court concluded that Appellant was ineligible for Chapter 13 under Bankruptcy Code Section 109(e), which stated at the time that Appellant filed his bankruptcy petition that “[o]nly an individual with regular income that owes, on the date of the filing of the petition, noncontingent, liquidated, unsecured debts of less than $394, 725 . . . may be a debtor under chapter 13 of this title.” Id.

On August 12, 2020, Appellant filed a timely notice of appeal of the Bankruptcy Court's July 20, 2020 decision denying Appellant's motion to convert to Chapter 13. ECF No. 1. On January 18, 2021, Appellant filed an opening brief. ECF No. 14 (“Appellant's Br.”). On February 16, 2021, Trustee filed a response brief. ECF No. 15 (“Trustee's Br.”). On February 17, 2021, The Frazer Creditors filed a response brief. ECF No. 16 (“The Frazer Creditors' Br.”). On March 19, 2021, Appellant filed a reply brief. ECF No. 19 (“Appellant's Reply”).

II. LEGAL STANDARD

A federal district court has jurisdiction to entertain an appeal from a bankruptcy court under 28 U.S.C. § 158(a) which provides that “[t]he district courts of the United States shall have jurisdiction to hear appeals . . . from final judgments, orders, and decrees[ ] of bankruptcy judges[.]” On appeal, a district court reviews a bankruptcy court's conclusions of law de novo, and ...