The Lovering Tubbs Tr. v. Hoffman (In re O'Gorman)

In re: DEBBIE REID O'GORMAN, Debtor.

THE LOVERING TUBBS TRUST; CLC COMPLIANCE, INC., TRUSTEE; PACIFIC EQUITIES, LLC, Appellants, v. TIMOTHY W. HOFFMAN, Chapter 7 Trustee, Appellee.

Adv. No. 21-01009

BAP No. NC-22-1062-BFT

Bk. No. 21-10374

United States Bankruptcy Appellate Panel of the Ninth Circuit

December 21, 2022

NOT FOR PUBLICATION

Appeal from the United States Bankruptcy Court for the Northern District of California Roger L. Efremsky, Bankruptcy Judge Presiding

Before: BRAND, FARIS, and TAYLOR, Bankruptcy Judges.

MEMORANDUM ^[*]

INTRODUCTION

Appellants The Lovering Tubbs Trust ("LT Trust"), CLC Compliance, Inc., ("CLC"), and Pacific Equities LLC ("Pacific") (collectively, "Appellants"), appeal an order granting summary judgment to the chapter 7^[1] trustee, Timothy W. Hoffman ("Trustee"), on his claim against Appellants under § 548(a)(1)(A) as transferees of an actual fraudulent transfer, and the judgment avoiding the transfer and recovering the property. Trustee alleged, and the bankruptcy court determined, that debtor Debbie Reid O'Gorman transferred real property to Appellants with the actual intent to hinder, delay, or defraud a creditor. Appellants also argue that the bankruptcy court should have granted their request for time to continue discovery. Seeing no reversible error by the bankruptcy court, we AFFIRM.

FACTS

A. Prepetition events

O'Gorman was the owner of a home on about 30 acres in Calistoga, California ("Property"). In 2010, she gave Grant Reynolds a second deed of trust against the Property as security for a loan.

In 2019, O'Gorman was in default on her mortgage with the senior lienholder on the Property. Protecting his junior interest, Reynolds cured O'Gorman's default with the senior lienholder. In early 2020, Reynolds initiated a nonjudicial foreclosure on his deed of trust.

In July 2020, attorney William Utnehmer contacted O'Gorman and offered to assist her with the foreclosure. O'Gorman agreed and entered into an attorney-client relationship with Utnehmer and his firm, Sonoma Law Center. According to their Retainer Agreement, Utnehmer promised to provide O'Gorman legal services "for the research, strategic advisory and representation related to foreclosure proceedings, bankruptcy, bridge financing, repositioning, marketing and/or sale of [the Property]."

As the nonjudicial foreclosure progressed, Utnehmer told O'Gorman that she could save the Property by transferring it into an "irrevocable land trust," making herself a 20% beneficiary and another entity as an 80% beneficiary. To accomplish the transfer, Utnehmer created Pacific, the LT Trust, and CLC. Utnehmer holds an interest in both Pacific and CLC. Pacific was a real estate investment group created to arrange for funding and development of the Property, the LT Trust was the land trust, and CLC served as trustee of the LT Trust. The LT Trust beneficiaries were the O'Gorman Family Trust (20% beneficial interest) and Pacific (80% beneficial interest). O'Gorman signed a grant deed transferring the Property to the LT Trust. She did not receive any money in exchange for the transfer, and no transfer tax was paid. No notice of the transfer was provided to the senior lienholder or to Reynolds. O'Gorman occupied the Property after the transfer and was still living there on the petition date.

In a document dated June 30, 2021, and signed by Utnehmer and O'Gorman ("June Letter"), Utnehmer described how he had "successfully structured a work-out" for the Property by transferring it to the LT Trust and how Pacific had arranged for its clean-up, renovation, and remediation of building code violations. However, explained Utnehmer, these improvement efforts were frustrated by the COVID-19 pandemic, tenants refusing to vacate, and his business partner's unstable mental condition and failure to fund his share of the project. Thus, Utnehmer recommended that the Property be immediately marketed while his law firm maintained a legal defense to postpone the foreclosure to accommodate a sale.

O'Gorman terminated her relationship with Utnehmer in August 2021.

B. Postpetition events

After a failed pro se chapter 13 case, O'Gorman, with the assistance of counsel, filed a chapter 7 case on August 19, 2021.

Trustee filed an adversary complaint against Appellants, seeking to avoid and recover what he alleged was O'Gorman's fraudulent transfer of the Property to Appellants under § 548(a)(1)(A). Appellants, represented by Utnehmer's law firm, filed an answer denying Trustee's allegations.

Five weeks after Appellants filed their answer and before the parties had engaged in discovery, Trustee moved for summary judgment ("MSJ"). He argued that the transfer of the Property to the LT Trust was an intentionally fraudulent transfer designed to hinder and delay (if not defraud) Reynolds in his efforts to foreclose on his deed of trust. To establish O'Gorman's requisite intent, Trustee argued that at least six of the eleven enumerated "badges of fraud" under Cal. Civ. Code § 3439.04(b)(1)-(11)^[2] were met: (a) the transfer was to an insider - the LT Trust - in which O'Gorman held a 20% beneficial interest; (b) O'Gorman remained in control of the Property after the transfer to the LT Trust; (c) at the time of the transfer, Reynolds had been pursuing a foreclosure on his deed of trust and the transfer was admittedly designed to thwart that effort; (d) the transfer was a transfer of substantially all of O'Gorman's assets; (e) by transferring the Property to the LT Trust, O'Gorman removed the Property from the reach of her creditors; and (f) the LT Trust paid no consideration in exchange for the transfer of the Property to it.

In support of the MSJ, Trustee provided a declaration from O'Gorman. She admitted that she understood the transfer would prevent or delay Reynolds from foreclosing on his deed of trust and that this was her only reason for following Utnehmer's advice. O'Gorman said that Utnehmer told her that he would devise a plan to improve the Property so that it could be sold at a higher price. O'Gorman said she relied on his legal advice at the time because she was desperate to save her home. O'Gorman now believed that the scheme of creating the LT Trust, Pacific, and CLC and transferring the Property to the LT Trust was an attempt by Utnehmer to defraud her.

O'Gorman said the Property was worth at least $2.5 million when she transferred it to the LT Trust and that it comprised substantially all of her assets. Contrary to what Utnehmer said in the June Letter, implying that some form of consideration was exchanged, O'Gorman said she did not receive any funds for clean-up, development, or sale of the Property. She was also not aware of any third party who received funds for those reasons. O'Gorman said that she should have read the June Letter more carefully before she signed it and regretted signing it at all.

Appellants filed a late opposition to the MSJ, arguing that it should be denied because it was premature and Trustee had not demonstrated the absence of a genuine issue of material fact. Appellants argued that the parties had not yet engaged in any discovery, including conducting a Civil Rule 26(f) conference. Appellants requested time to continue discovery under Civil Rule 56(d)^[3] so they could obtain and present facts essential to their opposition. Appellants further argued that Trustee had not provided sufficient evidence that the transfer was done with actual intent to hinder, delay, or defraud Reynolds, who they argued Trustee had not shown was a legitimate creditor. Thus, genuine issues of material fact were in dispute and precluded summary judgment.

In reply to Appellants' discovery arguments, Trustee argued that Appellants had failed to demonstrate that they were entitled to a continuance under Civil Rule 56(d). As architect of the transfer, argued Trustee, Utnehmer was in possession of more facts than O'Gorman and did not need discovery to formulate an opposition to the MSJ. Further, he argued, Appellants had failed to submit an affidavit or declaration in support of a continuance. In fact, Appellants failed to even articulate in their opposing brief what facts they needed or hoped to elicit if they had more time for discovery.

In addition, Trustee argued that Appellants had failed to establish the existence of a triable issue of material fact. Appellants did not support their opposition with a declaration (or any other evidence) contradicting any of the specifically averred facts in the MSJ. Simply put, Appellants' opposition was not supported by any admissible evidence as required by Civil Rule 56(c)(1) and failed to show that Trustee was not entitled to judgment as a matter of law.

After a hearing, the bankruptcy court granted the MSJ and denied Appellants' request for time to conduct discovery. The court concluded that Appellants had failed to establish the existence of a triable issue of material fact with any admissible controverting evidence, or to comply with Civil Rule 56(d)'s requirement of an affidavit or declaration for a continuance. This timely appeal followed.

JURISDICTION

The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and 157(b)(2)(A) and (O). We have jurisdiction under 28 U.S.C. § 158.

ISSUES

1. Did the bankruptcy court err when it granted summary judgment in favor of Trustee?

2. Did the bankruptcy court abuse its discretion when it denied Appellants' request for time to allow discovery prior to ruling on the MSJ?

STANDARDS OF REVIEW

We review the appeal of a summary judgment ruling de novo. Stadtmueller v. Sarkisian (In re Medina), 619 B.R 236, 240 (9th Cir. BAP 2020), aff'd, No 20-60045, 2021 WL 3214757 (9th Cir. July 29, 2021). Under de novo review, we vie...