In re: Holy Hill Community Church ( 2016 )


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  •                                                              FILED
    JAN 05 2016
    1                         NOT FOR PUBLICATION
    2                                                        SUSAN M. SPRAUL, CLERK
    U.S. BKCY. APP. PANEL
    OF THE NINTH CIRCUIT
    3                  UNITED STATES BANKRUPTCY APPELLATE PANEL
    4                            OF THE NINTH CIRCUIT
    5   In re:                        )      BAP No.     CC-15-1106-TaKuKi
    )
    6   HOLY HILL COMMUNITY CHURCH,   )      Bk. No.     2:14-bk-21070-WB
    )
    7                  Debtor.        )      Adv. No.    2:14-ap-01744-WB
    ______________________________)
    8                                 )
    DANA PARK,                    )
    9                                 )
    Appellant,     )
    10                                 )
    v.                            )      MEMORANDUM*
    11                                 )
    RICHARD J. LASKI, Chapter 11 )
    12   Trustee; 1111 SUNSET, LLC;    )
    DOWNTOWN CAPITAL, LLC,        )
    13                                 )
    Appellees.**   )
    14   ______________________________)
    15               Argued and Submitted on November 19, 2015
    at Pasadena, California
    16
    Filed – January 5, 2016
    17
    Appeal from the United States Bankruptcy Court
    18                 for the Central District of California
    19      Honorable Julia Wagner Brand, Bankruptcy Judge, Presiding
    20
    Appearances:     Marvin Levy argued for appellant Dana Park;
    21                    Richard D. Buckley, Jr. of Arent Fox LLP argued
    for appellee Richard J. Laski, Chapter 11
    22                    Trustee.
    23
    24        *
    This disposition is not appropriate for publication.
    25   Although it may be cited for whatever persuasive value it may
    have (see Fed. R. App. P. 32.1), it has no precedential value.
    26   See 9th Cir. BAP Rule 8024-1(c)(2).
    27        **
    Although named by Appellant in the notice of appeal,
    28   1111 Sunset, LLC was not a party to the adversary proceeding.
    And Downtown Capital, LLC did not appear in the appeal.
    1   Before:   TAYLOR, KURTZ, and KIRSCHER, Bankruptcy Judges.
    2                              INTRODUCTION
    3        Dana Park appeals from an order dismissing, without leave
    4   to amend, a complaint against chapter 111 debtor Holy Hill
    5   Community Church.   DISMISSAL of the appeal, based on mootness,
    6   is warranted.   To the extent any portion of the appeal retains
    7   vitality, a merits review yields no basis for reversal and we
    8   would AFFIRM.
    9                                  FACTS
    10        The Debtor is a Presbyterian church that formerly owned
    11   valuable real property located in Los Angeles, California (the
    12   “Property”).
    13                           Prepetition Events
    14        In 2010, a schism developed between the Debtor’s membership
    15   and leadership.   Eventually, The Western California Presbytery,
    16   a governing organization for the Debtor, became involved.    The
    17   dispute escalated, and the Presbytery took action; on March 24,
    18   2011, it terminated Dong Sub Bang as pastor and president of the
    19   board of elders, and it replaced the three members of the board
    20   of elders.   The result of the Presbytery’s actions was a
    21   competition between the factions for possession and control of
    22   the church and the Property.
    23        In April 2011, the Presbytery sought a secular solution to
    24   the discord and commenced an action against Bang and the three
    25
    1
    Unless otherwise indicated, all chapter and section
    26   references are to the Bankruptcy Code, 
    11 U.S.C. §§ 101-1532
    .
    27   All “Rule” references are to the Federal Rules of Bankruptcy
    Procedure and all “Civil Rule” references are to the Federal
    28   Rules of Civil Procedure.
    2
    1   removed elders (collectively, the “Bang Faction”) in California
    2   state court (the “Presbytery action”).   The Bang Faction
    3   responded by recording two deeds of trust purporting to create
    4   liens in their favor and against the Property.   And in August
    5   2011, it executed and recorded a quitclaim deed (“Beverly Deed”)
    6   purporting to transfer the Property from the Debtor to Beverly
    7   Real Estate Investments LLC (“Beverly LLC”).   Beverly LLC later
    8   recorded a quitclaim deed transferring the Property to Golden
    9   Fish, LLC.   Park now entered the fray; she controls both
    10   Beverly LLC and Golden Fish, LLC.
    11        After its discovery of this activity, the Debtor took
    12   action independent of the Presbytery and commenced a quiet title
    13   action against Park, Beverly LLC, and the Bang Faction in state
    14   court.   Subsequently it filed an application for an order
    15   restoring title in the Property to the Debtor, based on an order
    16   entered in the related Presbytery action.
    17        In the Presbytery action, the court had issued an order
    18   finding the Beverly Deed invalid because the Bang Faction
    19   executed it after their removal from the Debtor’s governance
    20   (“Presbytery action order”).   Based on that finding, the court
    21   then granted a request for injunctive relief preventing the Bang
    22   Faction, Park, and Beverly LLC from interfering with the
    23   Debtor’s possession, management, and control of the Property.
    24   It also ordered restoration of the Property to the Presbytery.
    25   Notably, the Presbytery action order contained express reference
    26   to Park and Beverly LLC, although neither was a named party in
    27   the litigation.
    28        Consistent with the Presbytery action order, the court in
    3
    1   the Debtor’s quiet title action granted the Debtor’s
    2   application, over Park’s objection, and ordered that title in
    3   the Property be restored to the Debtor (“order restoring
    4   title”).   Its decision was made in accordance with the
    5   Presbytery action order, “finding invalid the attempt to
    6   transfer the Property . . . .”   Concurrently, the state court
    7   clerk of court, on behalf of Beverly LLC, executed a quitclaim
    8   deed that transferred the Property from Beverly LLC back to the
    9   Debtor; the deed was properly recorded.   The Debtor also moved
    10   for and obtained a state court order expunging the deeds of
    11   trust recorded by the Bang Faction (“order expunging liens”).
    12        Park and Beverly LLC soon found themselves without counsel
    13   in the quiet title action.   As a result, the state court struck
    14   their answers and entered defaults (but not default judgments)
    15   against them; they did not appear again in the litigation.
    16   Meanwhile, having obtained restoration of title to the Property,
    17   the Debtor successfully petitioned for voluntary case dismissal
    18   of its action.
    19              Bankruptcy Filing and Post-Petition Events
    20        The Debtor filed its chapter 11 petition in June 2014.   A
    21   chapter 11 trustee was appointed soon after.
    22        In September 2014 and in spite of knowledge of the
    23   bankruptcy, Park commenced an action against the Debtor and
    24   members of the Bang Faction (but not Bang), in state court; she
    25   did not seek stay relief prior to filing the action.    The
    26   complaint alleged broadly that Park held an interest in the
    27   Property based on “a quitclaim deed.”   It sought to quiet title
    28   against the Debtor’s claims to the Property as of the chapter 11
    4
    1   petition date and requested a declaration that the defendants
    2   did not have any right, title, estate, lien, or interest in the
    3   Property.   The complaint also alleged that the defendants
    4   wrongfully threatened to sell the Property; thus, Park sought
    5   injunctive relief preventing interference with her use of the
    6   Property.
    7        The Trustee removed Park’s action to the bankruptcy court
    8   and moved to dismiss the complaint under Civil Rule 12(b)(6),
    9   without leave to amend, based on the issue preclusive effect of
    10   the state court orders in the Debtor’s quiet title action.
    11   Thus, he discounted the impact of the Beverly Deed because the
    12   state court previously deemed it invalid.   Similarly, he also
    13   dismissed the impact of an unrecorded deed in lieu of
    14   foreclosure relied upon by Park; the Bang Faction signed it
    15   during a time when the state court previously determined they
    16   lacked authority to take action on behalf of the Debtor.
    17        Park opposed.   Beyond a broad assertion that the complaint
    18   contained sufficient factual allegations supporting a plausible
    19   claim for relief, she also asserted, vaguely, that other claims
    20   for relief possibly existed, including fraud, unjust enrichment,
    21   and “other causes of action.”   Park admitted, however, that she
    22   needed to propound discovery on the Debtor and “other involved
    23   parties” to flesh out these claims.
    24        At the bankruptcy court’s request, the parties submitted
    25   supplemental briefs on the issue of issue preclusion; the
    26   bankruptcy court was particularly concerned with whether the
    27   “final judgment” element was satisfied, given that the Debtor
    28   had dismissed its quiet title action prior to trial.    Park
    5
    1   responded with an assertion aslant of this request; according to
    2   Park, the Beverly Deed was executed on account of Beverly LLC’s
    3   purchase of the promissory note evidencing an obligation owed
    4   for the Property in July 2011.   She also argued more generally
    5   that the state court orders were not final for issue preclusion
    6   purposes and that, in any event, she was not a party to or in
    7   privity with the party subject to the Presbytery action order.
    8        At a continued hearing, the bankruptcy court stated that
    9   after a careful review of the Trustee’s motion, Park’s
    10   opposition, and the supplemental briefs, it would dismiss the
    11   complaint without leave to amend.    It found all of the elements
    12   for issue preclusion satisfied, as it deemed the order restoring
    13   title a final order.   It also noted that quitclaim deed executed
    14   by the state court clerk of court had transferred the Property
    15   back to the Debtor, and that no appeal followed.   The bankruptcy
    16   court concluded with the observation that Park was free to file
    17   a proof of claim in the bankruptcy case if she had claims beyond
    18   the complaint, but that leave to amend the complaint was not
    19   warranted.
    20        The bankruptcy court entered an order dismissing Park’s
    21   claims with prejudice.   Park appealed.
    22                               JURISDICTION
    23        The bankruptcy court had jurisdiction pursuant to 28 U.S.C.
    24   §§ 1334 and 157(b)(2)(A).   We have jurisdiction under 28 U.S.C.
    25   § 158, as discussed further below.
    26                                  ISSUES
    27        Whether this appeal is moot; if not, whether the bankruptcy
    28   court erred in dismissing the complaint or abused its discretion
    6
    1   in dismissing without leave to amend.
    2                          STANDARDS OF REVIEW
    3         We review the following issues de novo: our jurisdiction,
    4   including questions of mootness, Ellis v. Yu (In re Ellis),
    5   
    523 B.R. 673
    , 677 (9th Cir. BAP 2014); dismissal of an adversary
    6   proceeding under Civil Rule 12(b)(6), Johnson v. Fed. Home Loan
    7   Mortg. Corp., 
    793 F.3d 1005
    , 1007 (9th Cir. 2015); and the
    8   availability of issue preclusion.   Plyam v. Precision Dev., LLC
    9   (In re Plyam), 
    530 B.R. 456
    , 461 (9th Cir. BAP 2015).
    10         If issue preclusion was available, we next review the
    11   bankruptcy court’s application for an abuse of discretion.     
    Id.
    12   A bankruptcy court abuses its discretion if it applies the wrong
    13   legal standard, misapplies the correct legal standard, or if its
    14   factual findings are illogical, implausible, or without support
    15   in inferences that may be drawn from the facts in the record.
    16   
    Id.
       We also review for an abuse of discretion a bankruptcy
    17   court’s decision to dismiss a complaint without leave to amend.
    18   Tracht Gut, LLC v. Cty. of Los Angeles Treasurer & Tax Collector
    19   (In re Tracht Gut, LLC), 
    503 B.R. 804
    , 810 (9th Cir. BAP 2014).
    20         Finally, we may affirm on any basis supported by the
    21   record.   Heers v. Parsons (In re Heers), 
    529 B.R. 734
    , 740 (9th
    22   Cir. BAP 2015).
    23                               DISCUSSION
    24         Following the filing of the notice of appeal, the
    25   bankruptcy court entered an order approving a § 363 sale (the
    26   “§ 363 order”) of the Property to a third party purchaser, “free
    27   and clear of all liens, liabilities, claims and encumbrances of
    28   any kind and nature . . . .”   The § 363 order contained several
    7
    1   critical findings: the bankruptcy estate was “the sole and
    2   lawful owner of the Property”; the sale vested the purchaser
    3   with all of the estate’s “right, title, and interest . . . to
    4   the Property”; and the purchaser was a good faith buyer within
    5   the meaning of § 363(m).    Park received notice of the motion to
    6   sell; she did not file any opposition.    No appeal was taken from
    7   the § 363 order, and it is now final.
    8        In response to a BAP Clerk order on potential mootness,
    9   Park contends that the sale did not moot the appeal, as the
    10   Panel could provide that the sale was subject to Park’s claims
    11   in her quiet title action.    And she contends that the buyer was
    12   not a bona fide purchaser because it knew or should have known
    13   of Park’s quiet title action.    In the alternative, she asserts
    14   that the Panel could order the “Trustee [to] hold in reserve,
    15   from future distributions to be made to unsecured creditors,
    16   funds sufficient to pay [Park’s] pro rate [sic] share of her
    17   claim as required by section 502(j) of the Bankruptcy Code,
    18   especially since the Chapter 11 Plan has not yet been confirmed
    19   by the bankruptcy court.”    In closing, Park argues that hotly
    20   contested issues remain as to her asserted rights and claims to
    21   the Property.
    22        Based on the record before us, we conclude that the appeal
    23   is moot as to Park’s claims for injunctive relief and requesting
    24   a quiet title order as to the Property.
    25        “A case is moot if the issues presented are no longer live
    26   and there fails to be a ‘case or controversy’ under Article III
    27   of the Constitution.”   Pilate v. Burrell (In re Burrell),
    28   
    415 F.3d 994
    , 998 (9th Cir. 2005).    Determining constitutional
    8
    1   mootness turns on whether “the appellate court can give the
    2   appellant any effective relief in the event that it decides the
    3   matter on the merits in [its] favor.”     
    Id.
       An appeal may be
    4   equitably moot if an appellant fails to seek a stay pending
    5   appeal.   See JPMCC 2007-C1 Grasslawn Lodging, LLC v. Transwest
    6   Resort Properties, Inc. (In re Transwest Resort Props., Inc.),
    7   
    801 F.3d 1161
    , 1167 (9th Cir. 2015).
    8        Here, the complaint sought to quiet title in Park’s favor
    9   and for injunctive relief barring the Debtor’s “interference”
    10   with Park’s use of the Property.     Curiously, title to and
    11   possession of the Property was restored to the Debtor nearly two
    12   and a half years before Park commenced her action.     In any
    13   event, the § 363 sale extinguished Park’s requests as to title
    14   and possession.    As stated, the § 363 order is now final.
    15   Park’s failure to appeal, let alone seek a stay pending appeal
    16   of the § 363 order, only strengthens a mootness determination.
    17   See Rev Op Grp. v. ML Manager LLC (In re Mortgs. Ltd.), 
    771 F.3d 18
       1211, 1216 (9th Cir. 2014).
    19        To the extent Park believes that she possesses a damages
    20   claim or is entitled to the sale proceeds based on an
    21   extinguished ownership interest in the Property, on this record,
    22   we disagree.   Park’s interest in the Property was premised on
    23   the Beverly Deed.    But, the state court in the Presbytery action
    24   determined that the deed was invalid.     As the bankruptcy court
    25   determined, Park was precluded from relitigating the validity of
    26   the Beverly Deed issue so as to establish an ownership interest
    27   in the Property.    Therefore, it did not err in dismissing the
    28   complaint with prejudice.    But, even if issue preclusion was not
    9
    1   available, any error was harmless as the § 363 order supplies an
    2   ultimate bar to Park’s claims to the Property.
    3         A motion to dismiss under Civil Rule 12(b)(6) (incorporated
    4   into adversary proceedings by Rule 7012(b)) challenges the
    5   sufficiency of the allegations set forth in a complaint and “may
    6   be based on either a lack of [: (1)] a cognizable legal theory
    7   or   . . . [(2)] sufficient facts alleged under a cognizable
    8   legal theory.”    Johnson v. Riverside Healthcare Sys., LP,
    9   
    534 F.3d 1116
    , 1121 (9th Cir. 2008) (internal quotation marks
    10   and citation omitted).    The court’s review is limited to the
    11   allegations of material facts set forth in the complaint, which
    12   must be read in the light most favorable to the non-moving
    13   party, and together with all reasonable inferences therefrom,
    14   must be taken as true.    Pareto v. Fed. Dep’t Ins. Corp.,
    15   
    139 F.3d 696
    , 699 (9th Cir. 1998).
    16         Consistent with Civil Rule 8(a)(2), the factual allegations
    17   in the complaint must state a claim for relief that is facially
    18   plausible.    Ashcroft v. Iqbal, 
    556 U.S. 662
    , 678 (2009); see
    19   also Bell Atl. Corp. v. Twombly, 
    550 U.S. 544
     (2007).    Thus,
    20   based on the Iqbal/Twombly rubric, the bankruptcy court must
    21   first identify bare assertions that “do nothing more than state
    22   a legal conclusion—even if that conclusion is cast in the form
    23   of a factual allegation,” and discount them from an assumption
    24   of truth.    See Moss v. U.S. Secret Serv., 
    572 F.3d 962
    , 969 (9th
    25   Cir. 2009).    Then, if there remain well-pleaded factual
    26   allegations, the bankruptcy court should assume their truth and
    27   determine whether the allegations “and reasonable inferences
    28   from that content” give rise to a plausible claim for relief.
    10
    1   
    Id.
       “[D]etermining whether a complaint states a plausible claim
    2   is context-specific, requiring the reviewing court to draw on
    3   its experience and common sense.”    
    556 U.S. at 679
    .
    4         In California, issue preclusion applies: (1) after final
    5   adjudication; (2) of an identical issue; (3) actually litigated
    6   in the former proceeding; (4) necessarily decided in the former
    7   proceeding; and (5) asserted against a party in the former
    8   proceeding or in privity with that party.    See DKN Holdings LLC
    9   v. Faerber, 
    61 Cal. 4th 813
    , 825 (2015).
    10         Park challenges only the bankruptcy court’s determinations
    11   in relation to two of the elements of issue preclusion: that the
    12   state court orders were final and that Park was a party to or in
    13   privity with the parties to those orders.    To be clear, there
    14   are two sets of state court orders: the Presbytery action order
    15   (consisting of a preliminary injunction order) and the Debtor’s
    16   quiet title action orders (consisting of the order restoring
    17   title and the order expunging liens).    In issuing its orders,
    18   the state court in the Debtor’s quiet title action explicitly
    19   relied on the Presbytery action order.
    20         These orders, admittedly, provided for injunctive relief,
    21   so as to preserve the status quo during the pendency of the
    22   Debtor’s quiet title action (and the Presbytery action).     In
    23   California, “a decision on an application for a preliminary
    24   injunction does not amount to a decision on the ultimate rights
    25   in controversy.”   Bomberger v. McKelvey, 
    35 Cal. 2d 607
    , 612
    26   (1950).   Nonetheless, an exception is carved out when “it
    27   appears that the court intended a final adjudication of the
    28   issue involved . . . .”   
    Id.
    11
    1        That was the result here.   As stated, Park’s interest in
    2   the Property is premised on the Beverly Deed.    But, the state
    3   court in the Presbytery action found that the Beverly Deed was
    4   invalid because the Bang Faction had been removed from their
    5   positions in the church at the time that the Beverly Deed was
    6   executed and recorded.   In particular:
    7        The evidence show[ed] that the attempt by Bang and his
    affiliates to quitclaim the deed to the Property was
    8        invalid as these individuals had already been removed
    from their positions by the Presbytery, and thus, had
    9        no authority to act on behalf of the Church. See
    August 29, 2011 Order (finding that Bang was removed
    10        by the Presbytery as Senior Pastor on March 29, 2011,
    that the Presbytery appointed a new Board of Elders
    11        headed by the new Senior Pastor Reverend Abraham Cho,
    and that “the Cho faction was entitled to operate and
    12        manage Church property on an interim basis.”).
    13   Adv. Dkt. No. 11 at 124 (emphasis added).
    14        On appeal in the Presbytery action, the California court of
    15   appeal in effect reaffirmed this finding.    See The W. Cal.
    16   Presbytery v. Holy Hill Cmty. Church, 
    2012 WL 5360909
    , at *2, 4
    17   (Cal. Ct. App. Nov. 1, 2012) (the record supported the trial
    18   court’s determination that Bang was removed from his pastorship
    19   in March 2011); see also Jun Ki Kim v. True Church Members of
    20   Holy Hill Cmty. Church, 
    236 Cal. App. 4th 1435
    , 1442 (2015)
    21   (“[W]ithout authority, Rev. Bang entered into financial
    22   arrangements with . . . other entities which had the effect of
    23   encumbering the [Property] . . . .”).     That Bang and his faction
    24   were no longer in control of the church and, thus, lacked any
    25   authority to effectuate a transfer of the Property in August
    26   2011 is beyond dispute; it is now a conclusive fact.    Nothing
    27   Park asserts can change this fact.    And, even if Park could
    28   surmount this hurdle, she ignores the consequences of the
    12
    1   quitclaim deed later issued by the state court clerk of court,
    2   transferring the Property back to the Debtor.
    3        Park’s arguments as to the same party or privity element
    4   similarly fail.    There is no question that Park was a party to
    5   the Debtor’s quiet title action or that the state court’s orders
    6   in that litigation applied to Park and Beverly LLC.    Again, the
    7   state court in the Debtor’s quiet title action relied on the
    8   finding in the Presbytery action order, but it acted
    9   independently.    In any event, the state court in the Presbytery
    10   action identified Park and Beverly LLC in its order.    That Park
    11   and Beverly LLC were not parties to the Presbytery action is,
    12   thus, irrelevant.
    13        Based on the foregoing, issue preclusion was available and
    14   the bankruptcy court did not abuse its discretion in giving
    15   preclusive effect to the state court orders.    But, even if issue
    16   preclusion was not available, any error was harmless based on
    17   the § 363 order.
    18        Again, the § 363 order contained critical findings, such as
    19   the estate’s sole ownership of the Property.    The order,
    20   inclusive of the findings, is now final and non-appealable.    The
    21   result serves to bar any assertion by Park of an interest in the
    22   Property.   Instead, Park’s continued efforts to challenge
    23   ownership constitute an impermissible collateral attack of the
    24   § 363 order.
    25        In sum, Park could not show that she had a valid interest
    26   in the Property when she filed her complaint.    The § 363 order
    27   now further bars any such assertion.   Consequently, there was no
    28   error in the bankruptcy court’s dismissal of the complaint; nor
    13
    1   did it abuse its discretion in denying leave to amend as any
    2   amendment would be futile.
    3                                CONCLUSION
    4        We conclude that DISMISSAL of the appeal as moot is
    5   appropriate.   In the alternative, based on a merits review, we
    6   would AFFIRM the bankruptcy court.
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