Avery v. Leya Techs., LLC (In re Prototype Eng'g & Mfg., Inc.)
| Decision Date | 07 July 2020 |
| Docket Number | Case No. 2:17-bk-21018-RK,Adv. No. 2:19-ap-01332-RK |
| Citation | 628 B.R. 132 |
| Court | U.S. Bankruptcy Court — Central District of California |
| Parties | IN RE: PROTOTYPE ENGINEERING & MANUFACTURING, INC., Debtor. Wesley H. Avery, Chapter 7 Trustee, Plaintiff, v. Leya Technologies, LLC ; Bahram Bordbar, Individually, and as Trustee of the Bordbar Family Trust; Malahat Bordbar, Individually, and as Trustee of the Bordbar Family Trust; Sara Bordbar; and Does 1-10, Inclusive, Defendants. |
Carmela Pagay, Irving M. Gross, Levene, Neale, Bender et al., Los Angeles, CA, for Plaintiff Wesley H. Avery.
Kevin M. Davis, Todd E. Phillips, Caplin & Drysdale Chartered, Washington, DC, for Plaintiffs Cameron and Michelle Witzler, Colette Carpenter, and Jon and Maria Ternstrom.
Todd L. Turoci, The Turoci Firm, Riverside, CA, for Defendants.
Pending before the court in this adversary proceeding is the motion of defendants Bahram and Malahat Bordbar (the "Bordbars"), individually and as Trustees of the Bordbar Family Trust (collectively, "Defendants"), to expunge the Notices of Pendency of Action filed by Plaintiff Wesley H. Avery, Chapter 7 Trustee (the "Trustee"), Electronic Case Filing ("ECF") 63 (the "Motion"). The Trustee and intervening plaintiffs Jon and Maria Ternstrom, Cameron and Michelle Witzler, and Colette Carpenter, both individually and in her capacity as administrator of the estate of Clayton O. Carpenter (collectively, the "Crash Victim Claimants," and together with the Trustee, "Plaintiffs") opposed the Motion (the "Opposition"). Plaintiffs’ Opposition to Motion to Expunge Lis Pendens, ECF 77, filed on March 27, 2020. Defendants filed their consolidated reply to Plaintiffs’ Opposition on April 7, 2020 (the "Reply"). Defendants’ Reply in Support of Motion to Expunge, ECF 79. A hearing on the Motion was conducted on April 30, 2020. Brian L. Davidoff, of the law firm of Greenberg Glusker Fields Claman & Machtinger LLP, appeared for Defendants, the moving parties. Kevin M. Davis, of the law firm of Caplin & Drysdale, Chartered, and Carmela T. Pagay, of the law firm of Levene, Neale, Bender, Yoo & Brill, L.L.P., appeared for Plaintiffs, the responding parties.
On September 6, 2019, the Trustee commenced this adversary proceeding by filing a complaint alleging fraudulent transfer, breach of fiduciary duty, and unjust enrichment claims, among others. ECF 1. On September 19, 2019, the Trustee filed an amended complaint. Plaintiff's Amended Complaint, ECF 9 (the "Amended Complaint"). In the Amended Complaint, the Trustee alleged twenty-one claims for relief, including a claim for substantive consolidation pursuant to 11 U.S.C. § 105(a) (the "Substantive Consolidation Claim"). ECF 9 at 31 ("Claim for Relief XX").
On September 24, 2019, the Trustee recorded a "Notice of Pendency of Action [Lis pendens] [ Cal. Civ. Proc. Code § 405.20 ]" on two pieces of real property allegedly owned by Defendants. Notice of Recordation of Notice of Pendency of Action [Lis Pendens], ECF 7, 8. The Trustee alleges that the first property, 140 E. 162nd Street, Gardena, CA 90248 (the "Gardena property"), was the business premises of debtor Prototype Engineering & Manufacturing, Inc. ("Debtor"). ECF 9 at 3 (¶ 6); see also Debtor's Petition and Schedules, ECF 1 at 1 ().1 The Bordbar Family Trust (the "Bordbar Trust") leased the Gardena property to Debtor. ECF 1 at 25 (). The Trustee alleges that the second property, 21600 Brisbane Way, Yorba Linda, CA 92887 (the "Yorba Linda property") is the Bordbars’ residence and the address for the Bordbar Trust. ECF 9 at 11 (¶ 44); see also ECF 1 at 21 (); ECF 1-1 at 4 (). Together with the Gardena property, these two parcels of real property are referred to herein as "the Properties."
Defendants filed a motion to dismiss the Amended Complaint. Defendants’ Motion to Dismiss Claims Pursuant to Rule 12(b)(6), ECF 10, filed on October 7, 2019; Defendants’ Supplemental Motion to Dismiss the Twenty-First Claim for Relief, ECF 37, filed on November 12, 2019. On December 12, 2019, the court granted in part and denied in part the motion to dismiss the Amended Complaint, specifically dismissing the Substantive Consolidation Claim without prejudice, with leave to amend, but without any time limit for amendment of that claim. Order Granting in Part and Denying in Part Defendants’ Motion to Dismiss Plaintiff's First Amended Complaint , ECF 57 at 15 (¶ 1) (the "December 2019 Order").
On February 4, 2020, the Crash Victim Claimants filed a complaint in intervention, joining the Trustee as Plaintiffs in this adversary proceeding pursuant to the court's Order Re: Stipulation Conveying Standing And Motion Of Crash Victim Claimants To Substitute Trustee As Plaintiff Or, In The Alternative, To Intervene, ECF 43. Complaint in Intervention, ECF 60. Because the court had dismissed the Trustee's Substantive Consolidation Claim in its December 2019 Order, the Crash Victim Claimants did not include a substantive consolidation claim in the Complaint in Intervention filed in the adversary proceeding. ECF 60 at 2 (¶ B.). The Complaint in Intervention does not otherwise substantively differ from the Amended Complaint, ECF 9. Thus, the court refers to Plaintiffs, instead of only the Trustee, when discussing the Substantive Consolidation Claim and the Amended Complaint. On February 27, 2020, Defendants filed the Motion, which requests that the court expunge the two notices of pendency of action on the Properties.
California Code of Civil Procedure § 405.20 provides that "a party to an action who asserts a real property claim may record a notice of pendency of action in which that real property claim is alleged." A notice of pendency of action is commonly referred to as a lis pendens.2 At common law, "[a] lis pendens is a recorded document giving constructive notice that an action has been filed affecting title or right to possession of the real property described in the notice." Kirkeby v. Superior Court , 33 Cal.4th 642, 647, 15 Cal.Rptr.3d 805, 93 P.3d 395 (2004) (hereinafter " Kirkeby ") (citation omitted). Defendants assert that no claim in the Amended Complaint that survived their motion to dismiss is a "real property claim" within the meaning of California Code of Civil Procedure § 405.4, and therefore, the lis pendens must be expunged under California Code of Civil Procedure § 405.31. Defendants’ Motion to Expunge Lis Pendens, ECF 63 at 12. Defendants further contend that pursuant to California Code of Civil Procedure § 405.38, the Trustee filed the lis pendens without "substantial justification" and is liable to pay Defendants’ their attorneys’ fees and costs for bringing the Motion. Id. at 13-14.
In their Opposition to the Motion, Plaintiffs argue that although dismissed, the Substantive Consolidation Claim provides a basis for maintaining the lis pendens as they have leave to amend and add such a claim. Plaintiffs specifically contend that the Substantive Consolidation Claim is a "real property claim" under California Code of Civil Procedure § 405.4 and the California Supreme Court's Kirkeby decision. Plaintiffs’ Opposition to Motion to Expunge Lis Pendens, ECF 74 at 4 (). As discussed above, in the December 2019 Order, the court dismissed the Substantive Consolidation Claim without prejudice, with leave to amend, and without any time limit on amendment. ECF 57 at 15 (¶ 1). Plaintiffs assert in the Opposition that they intend to pursue the Substantive Consolidation Claim and that it is premature to expunge the lis pendens where, as here, leave to amend has been granted. ECF 74 at 5-6.
In their Reply to Plaintiffs’ Opposition, Defendants argue that the Substantive Consolidation Claim is not a "real property claim" under California Code of Civil Procedure § 405.4 because the claim is a mechanism for making property available to satisfy claims, not a direct claim to title or possession of real property. Defendants’ Reply in Support of Motion to Expunge, ECF 79 at 6 (citing Kirkeby, 33 Cal.4th at 647, 649-650, 15 Cal.Rptr.3d 805, 93 P.3d 395 ). Pursuant to California Code of Civil Procedure § 405.20, Defendants also contend that the lis pendens must be expunged because the court stated that if Plaintiffs amend the Substantive Consolidation Claim, they should do so by separate motion or adversary proceeding. Defendants’ Reply in Support of Motion to Expunge, ECF 79 at 10-11.
On April 10, 2020, the court on its own motion ordered Plaintiffs to file a sur-reply to further address the issue of whether a substantive consolidation claim can be considered a "real property claim" within the meaning of California Code of Civil Procedure § 405.4. The court ordered that any response of Defendants to Plaintiffs’ sur-reply could be made orally at a continued hearing on the Motion set for April 30, 2020.
On April 23, 2020, Plaintiffs filed their sur-reply, ECF 85 (the "Sur-reply"). In the Sur-reply, Plaintiffs contend that the Substantive Consolidation Claim is a "real property claim" because a substantive consolidation order would pass title to and right to possession of the Properties from a non-debtor to the bankruptcy estate. Plaintiffs therefore assert that the Substantive Consolidation Claim unquestionably "affect[s] ... title to, or the right to possession of" real property. Plaintiffs’ Sur-reply to Defendants’ Reply in Support of Motion to Expunge, ECF 85 at 2-3 (quoting Cal. Civ. Proc. Code § 405.4 ).
On April 30, 2020, ...
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