Kvassay v. Kvassay (In re Kvassay)

514 B.R. 307

In re Peter Emanuel KVASSAY, Debtor.Peter Emanuel Kvassay, Appellant,

v.Robert Kvassay; Russakow, Greene and Tan, LLP, Appellees.

No. 2:13–cv–08380–ODW.

Bankruptcy No. 2:13–bk–40267–PC.

Adversary No. 2:13–ap–01852–PC.

United States District Court, C.D. California.

Signed July 31, 2014.

Troy A. Stewart, Troy A. Stewart Law Office, Glendale, CA, for Appellant.

Richard Roscoe Clements, Richard R. Clements Law Offices, Signal Hill, CA, for Appellees.

ORDER AFFIRMING BANKRUPTCY COURT'S DECISION DISMISSING ADVERSARY COMPLAINT WITHOUT LEAVE TO AMEND

OTIS D. WRIGHT, II, District Judge.

I. INTRODUCTION

Three feuding brothers, a campaign of “threatening and harassing conduct,” and a deteriorating multimillion-dollar Los Angeles chateau set the stage for this bankruptcy appeal—the latest in the Kvassay family's legal saga. Peter Emanuel Kvassay, the debtor involved in the bankruptcy petition, lived in the famed “Chateau Emanuel” in Los Angeles following the death of the brothers' parents. Peter ¹ also served as the initial trustee of their family trust, which included the residence. But Robert wrested control of the trust due to Peter's alleged damage to the property and then sued Peter in Los Angeles County Superior Court's Probate Department to evict him from the property and offset his distributive share from the trust.

The Probate Court issued an order evicting Peter, which was stayed once a third party posted a $216,000 cash deposit in lieu of an appeal bond. Once the eviction order was affirmed, Robert moved to cash in on the deposit. The same day as the Probate Court was set to hold an evidentiary hearing, Peter filed for Chapter 7 bankruptcy—thus invoking an automatic litigation stay under 11 U.S.C. § 362(a). Robert later obtained leave from the bankruptcy court to continue with his state-court actions so long as he joined the bankruptcy trustee in those cases and did not enforce any judgment without further bankruptcy-court order.

After losing in the Probate Court, Peter filed this adversary proceeding in the bankruptcy court against Robert and the law firm that represented him, Russakow, Greene and Tan, LLP (“RGT”). After making detailed oral findings, the bankruptcy court dismissed the complaint without leave to amend, finding that Peter failed to state a plausible claim for relief under § 362. Peter then appealed to this Court. Finding no errors of law, this Court now AFFIRMS the bankruptcy court's decision.

II. FACTUAL BACKGROUND

Robert is the current trustee of the Kvassay Family Trust Dated February 26, 1993 (“Trust”). (ER 2.) Peter, Robert's brother, is a Los Angeles County resident and beneficiary under the Trust. ( Id.)

1. Robert initiates two probate proceedings against Peter

In May 2010, Robert filed a petition in the Los Angeles County Superior Court's Probate Department (“Probate Court”) in his capacity as trustee seeking to evict Peter from trust real property located at 1554 Hill Drive in Los Angeles, California; and offset Peter's “distributive share” in the Trust. ( Id. at 3, 188.) Robert requested over $1.5 million against Peter, plus attorneys' fees and costs. ( Id. at 3.)

In August 2010, the Probate Court issued a minute order evicting Peter and his brother Richard (a nonparty) from the residence. ( Id. at 4.) Peter and Richard filed an appeal, and a third party posted a $216,000 cash deposit with the Superior Court in lieu of an appeal bond. ( Id. at 4.) This entitled Peter and Richard to remain in the residence. ( Id.)

In October 2010, Robert, represented by RGT, filed another action in Probate Court for accounting and settlement of account arising out of a $221,000.00 contractual claim. ( Id.)

2. Peter files for bankruptcy; Probate Court evidentiary hearing continues

After a California appellate court affirmed the eviction order, Robert moved in the Probate Court to release the $216,000 cash deposit. ( Id. at 4–5.) The Probate Court scheduled an evidentiary hearing on the motion for September 5, 2012. ( Id. at 5.) On September 5, 2012, Peter filed for Chapter 7 bankruptcy in the United States Bankruptcy Court for the Central District of California. ( Id.) Peter's counsel gave written and oral notice of the bankruptcy petition to the Probate Court and RGT at the start of the hearing. ( Id. at 5–6.)

The Probate Court continued with the hearing and took evidence on Peter's use and occupancy of the Trust real property. ( Id. at 6.) At the end of the hearing, the Probate Court acknowledged the pending bankruptcy petition and deferred ruling on the bond motion until Robert could obtain relief from the stay. ( Id. at 6–7.)

3. Robert seeks relief from the automatic stay

On September 28, 2012, Robert moved before the bankruptcy court for relief from the automatic stay. ( Id. at 7.) On November 1, 2012, the bankruptcy court granted the motion on the conditions that Robert join the bankruptcy trustee as a real party in interest in the state-court matters and not take any action to enforce any state-court judgment without further order of the court. ( Id. at 8.) The bankruptcy court issued a written order on November 16, 2012, which terminated the automatic stay with respect to the state-court proceedings, annulled the stay retroactively to the bankruptcy-petition filing, and allowed Robert to proceed in the state-court matters to final judgment, including appeals (“Relief Order”). ( Id. at 224–25.) The court specifically ordered that the stay was terminated “subject to conditions set forth below.” ( Id. at 224.) Those conditions were that:

1. The movant is to join the bankruptcy trustee as the real party in interest in both the state court proceedings; and

2. The movant may not take any action to enforce any state court judgment without a further order of the court.

( Id. at 225.)

On December 4, 2012, Robert filed a Notice of a Motion for Joinder of the Bankruptcy Trustee for Peter Kvassay in the Probate Court (“Joinder Motion”). ( Id. at 10.) Robert subsequently filed a declaration from the bankruptcy trustee, Timothy Yoo, stating, “I have no intention of making a claim on the bond monies at issue herein, nor are there any pending proceedings in this matter which I foresee participating in, including the pending [probate] trial. I do not object to the Superior Court continuing its proceeding in my absence.” ( Id. at 11 (emphasis omitted).)

On December 12, 2012, the Probate Court held a status conference at which RGT represented to the court that the relief from the automatic stay was “immediate” despite the two conditions imposed by the bankruptcy court. ( Id. at 12 (emphasis omitted).) The Probate Court stated, “[RGT] is here saying, ‘we don't have any conditions that have to be met. The stay has been lifted, and we can proceed,’ and I'm going to accept [its] representation.” ( Id. (emphasis omitted).) The Probate Court subsequently “order[ed] the release of those funds [held on deposit with the Superior Court] and [issued] a judgment against those funds in the amount of $192,660 jointly and severally against Richard S. Kvassay and Peter E. Kvassay.” ( Id. at 12–13, 137.)

4. Stay terminates

On December 21, 2012, the bankruptcy court closed Peter's case without entry of discharge because he failed to file Official Form 23, Debtor's Certification of Completion of Postpetition Instructional Course Concerning Personal Financial Management—thus terminating the automatic stay. ( Id. at 13, 137.)

On January 4, 2013, the Probate Court granted the Joinder Motion. ( Id.) Three days later, the bankruptcy court reopened Peter's petition so that he could file Form 23. ( Id. at 137.) The bankruptcy court subsequently granted Peter a discharge. ( Id. at 137–38.)

On January 24, 2013, the Probate Court issued its First Amended Order Re. Release of Bond, finding against Peter and Richard “for a total due, jointly and several [ sic ] from Peter and Richard to Robert, as trustee of the Kvassay family trust, of $192,660.” ( Id. at 15.) The court ordered the Superior Court Clerk to issue a check in that amount to Robert. ( Id.)

5. Peter files the adversary proceeding

On August 20, 2013, Peter filed this adversary proceeding against Robert and RGT alleging willful violation of the automatic stay under 11 U.S.C. § 362(k)(1). ( Id. at 1–21.) On October 2, 2013, Appellees moved to dismiss the complaint under Federal Rule of Civil Procedure 12(b)(6), arguing that Peter had not adequately pleaded a claim for violation of the automatic stay. ( Id. at 26–52.)

On October 24, 2013, the bankruptcy court held a hearing and granted the motion without leave to amend. ( Id. at 108–09.) The bankruptcy court recounted a detailed event timeline surrounding the automatic stay and state-court proceedings. ( Id. at 128–38.) The court's decision hinged on the fact that the trustee made an informed decision not to participate in the state-court proceedings because, in his business judgment, those actions would not result in any benefit to the estate. ( Id. at 138–39.) The court noted that if a reviewing court were to find that strict compliance with the Relief Order was necessary—i.e., that the bankruptcy trustee had to be joined to the state-court proceedings prior to continuing with them—then the result might be different. ( Id. at 139.)

6. Peter appeals to this Court

On November 12, 2013, Peter filed a Notice of Appeal and elected to proceed before this Court. (ECF Nos. 2, 3.) Both parties timely submitted briefing, and the Court subsequently took the appeal under submission. The appeal is now before the Court for decision.

III. JURISDICTION

The Court has jurisdiction to hear this bankruptcy-court appeal under 28 U.S.C. § 158(a) and Federal Rule of Bankruptcy Procedure 8001(b).

IV. STANDARD OF REVIEW

In reviewing a bankruptcy court's decision, a district court reviews legal determinations de novo. In re Olshan, 356 F.3d 1078, 1083 (9th Cir.2004). This means that the court reviews the legal issues involved ...