Bank of Am., N.A. v. CD-04, Inc. (In re Owner Mgmt. Serv., LLC)

• Decision Date: 29 April 2015
• Docket Number: Adv No: 1:13–ap–01394–MT,Case No.: 1:12–bk–10231–MT
• Citation: 530 B.R. 711
• Parties: In re: Owner Management Service, LLC Trustee Corps, Debtor(s). Bank of America, N.A., Plaintiff(s), v. CD–04, Inc., Creative Group Resource, LLC, Dorothy Matsuba, Thomas Matsuba, Jamie Matsuba, OMS Global, LLC, OMS, LLC, OMS, LLC dba OMS Global LLC fka Ramsfire Global LLC, Owner Management Service, LLC, Ramsfire Equity Partners, Inc., Ramsfire Global, LLC, Westside Servicing Company, Defendant(s).
• Court: U.S. Bankruptcy Court — Central District of California

530 B.R. 711

In re: Owner Management Service, LLC Trustee Corps, Debtor(s).Bank of America, N.A., Plaintiff(s)

v.CD–04, Inc., Creative Group Resource, LLC, Dorothy Matsuba, Thomas Matsuba, Jamie Matsuba, OMS Global, LLC, OMS, LLC, OMS, LLC dba OMS Global LLC fka Ramsfire Global LLC, Owner Management Service, LLC, Ramsfire Equity Partners, Inc., Ramsfire Global, LLC, Westside Servicing Company, Defendant(s).

Case No.: 1:12–bk–10231–MT

Adv No: 1:13–ap–01394–MT

United States Bankruptcy Court, C.D. California, San Fernando Valley Division .

Signed April 29, 2015

Natalie B. Daghbandan, Bryan Cave LLP, Irvine, CA, Richard P. Steelman, Sharon Z. Weiss, Bryan Cave LLP, Santa Monica, CA, for Plaintiff(s).

Michael D. Kolodzi, Beverly Hills, CA, Leslie M. Baker, Chatsworth, CA, David M. Poitras, Jeffer, Mangels, Butler & Mitchell, LLP, Leslie M. Baker, Thomas M. Geher, Los Angeles, CA, Lisa R. Yamasaki, Arcadia, CA, Melissa Davis Lowe, Irvine, CA, for Defendant(s).

MEMORANDUM OF DECISION RE: MOTION FOR SUMMARY JUDGMENT

Maureen A. Tighe, United States Bankruptcy Judge

On January 9, 2012, debtor Owner Management Service, LLC; Trust Holding Service Co; Bill Pay Service and Boston Holding (collectively, the “Debtor”) filed a voluntary chapter 11 petition. This adversary proceeding (the “Substantive Consolidation Complaint”) is related to the Debtor's pending chapter 7 bankruptcy case and was commenced on December 18, 2013, by Bank of America N.A. (“Bank of America” or “Plaintiff”). A motion for preliminary injunction was filed on the same day seeking to enjoin Defendants and their employees from selling, transferring, wasting, encumbering or otherwise disposing of their assets, Real Properties, or Non–Debtor Real Properties among themselves or with any third party without express approval of this Court. The motion also requested that Defendants be ordered to disclose and produce a schedule of non-Debtor real property, a full accounting of all revenues for the period of 2006 to the date of the motion, and a schedule of all accounts held in their name at financial institutions. Along with the motion, Plaintiff filed a request for judicial notice containing 148 exhibits. On February 12, 2014, an order taking judicial notice of the exhibits and granting Plaintiff's application for preliminary injunction against defendants was entered.

Plaintiff then filed a motion for summary judgment (the “Motion”) on September 30, 2014. Plaintiff Bank of America seeks to substantively consolidate Defendants OMS, LLC; OMS Global, LLC; Ramsfire Global, LLC; Ramsfire Equity Partners, Inc.; Westside Servicing Company; CD–04, Inc.; Creative Group Resource, LLC (collectively the “Entity Defendants”); Dorothy Matsuba (“Dorothy”), Thomas Matsuba (“Tom”), and Jamie Matsuba (“Jamie”), (collectively the “Individual Defendants”). The Entity Defendants and Individual Defendants are collectively referred to herein as the “Defendants.” The hearing was initially set to be heard on December 16, 2014. On October 8, 2014, Defendants filed a motion to continue the hearing. The Court continued the hearing to January 23, 2015. On November 3, 2014, the Court entered an order granting Nationstar's motion to intervene. Nationstar subsequently filed a notice of joinder to Bank of America, N.A.'s motion for summary judgment.

Plaintiff alleges that Defendants' financial affairs and business dealings are so entangled with the Debtor that significant estate resources will be required to attempt to identify and distinguish estate property, if it is even possible. Defendants oppose the motion and argue that it does not establish (a) the time or expense required to trace the proceeds into and out of the Debtor's prepetition bank account(s) or (b) that such time or expense is so substantial or burdensome as to threaten the realization of any net assets for creditors.

I. EVIDENTIARY OBJECTIONS

Before addressing the merits of the motion, the various evidentiary issues raised by the parties must be addressed.

A. Motion to Strike Grobstein's Declarations

Defendants have filed the expert opinion of Howard B. Grobstein (“Grobstein”) and assert that it creates a question of material fact on whether it will be time consuming or costly to trace the proceeds into and out of the Debtor's pre-petition bank accounts. Plaintiff filed a motion to strike the Grobstein Declaration because it will not assist the trier of fact as required under Federal Rule of Evidence 702 and it is insufficient to form the basis of an expert opinion under Federal Rule of Evidence 703. Plaintiff claims that Grobstein is only offering an opinion as to whether he thinks he can reconstruct the records and provide a tracing. Defendants' opposition to the motion to strike argues that the Grobstein Declaration goes directly to the critical issue of whether “the time and expense necessary to even attempt to unscramble the affairs/transactions/assets is so substantial as to threaten the realization of any net assets for all of the creditors' or where no accurate identification and allocation of assets is possible.”

Defendants filed the Grobstein Declaration on December 2, 2014 with their opposition to the motion for summary judgment and a supplemental declaration was subsequently filed, without leave from the court, on January 21, 2015 (two days before the hearing). The supplemental declaration is untimely as it was filed after Defendants' deadline to oppose the Motion. Local Rule 7056–1(c)(3) requires Defendants to submit all evidence by the opposition date. LBR 7056–1(c)(3) (“The respondent is responsible for filing with the court all necessary evidentiary documents cited in the response ...”). The Defendants had ample notice and time, to assemble and offer their evidence in support of the Opposition, sixty three days specifically, three times the amount of time provided under the Local Rules. LBR 7056–1(c)(1).

According to the Grobstein Declaration, Defendants Dorothy and Jamie met with Grobstein on November 24, 2014. The Defendants provided Grobstein with “only minimal documentary information.” See Grobstein Decl. ¶ 6:18–21. Grobstein appears to have been told that this was primarily because the FBI had seized and taken possession of the books and records of OMS Global. Jaime states in her declaration that the FBI seized records on August 6, 2014. That Defendants' records were fairly recently seized is no excuse for the lack of adequate and separate records for years prior to the seizure. The Substantive Consolidation Complaint was filed almost a year before the seizure of the records. On January 30, 2014, at the preliminary injunction hearing, the parties discussed the Ninth Circuit substantive consolidation factors. The purpose of the preliminary injunction was to try to sort out the different companies and determine whether the impression Defendants had been giving all along was accurate. Even prior to the complaint, Defendants were on notice about the allegation of improper commingling of properties and accounts. As early as March 7, 2012, Plaintiff raised this as the basis of its joinder to the U.S. Trustee's opposition to the Debtor's motion to dismiss. See Docket # 74 in bankruptcy case no. 12–10231. The U.S. Trustee also raised concerns over adequate disclosures of expenditures in the bank accounts for non-debtor entities in the early months of the bankruptcy case. The lack of documentary information has been a common theme throughout this case. Long before the seizure by the FBI, Debtor and Defendants have failed to provide anything more than minimal information despite repeated orders and opportunities.

Even if both the Grobstein and supplemental Declarations were considered, they do not raise a material disputed fact prohibiting summary judgment because the mere promise to produce admissible evidence at a later time is insufficient to defeat a motion for summary judgment. Garside v. Osco Drug, Inc., 895 F.2d 46 (1st Cir.1990) ; see also, Crawford v. Lamantia, 34 F.3d 28 (1st Cir.1994) (holding that neither conclusory allegations, improbable inferences, and unsupported speculation nor brash conjecture coupled with earnest hope that something concrete will materialize is sufficient to block summary judgment).

Grobstein's expert opinion is also not admissible because of its speculative and unsupported nature. Rule 702 of the Federal Rules of Evidence provides:

A witness who is qualified as an expert by knowledge, skill, experience, training, or education may testify in the form of an opinion or otherwise if: (a) the expert's scientific, technical, or other specialized knowledge will help the trier of fact to understand the evidence or to determine a fact in issue; (b) the testimony is based on sufficient facts or data; (c) the testimony is the product of reliable principles and methods; and (d) the expert has reliably applied the principles and methods to the facts of the case.

An expert's opinion can offer no assistance to the trier of fact and is inadmissible on relevance grounds, where the factual basis for the expert's opinion is fundamentally unsupported, either because the expert fully relied on altered facts and speculation, or because the expert failed to consider relevant facts in reaching a conclusion. In re Nellson Nutraceutical, Inc., 356 B.R. 364 (Bankr.D.Del.2006) ; see also In re Evans, 492 B.R. 480 (Bankr.S.D.Miss.2013) (A valuation of collateral that is unsupported by sufficient data is “unreliable” under rule governing admissibility of expert testimony); Aegis Ins. Services, Inc. v. 7 World Trade Co., L.P., 737 F.3d 166, 180 (2nd Cir.2013) (Expert reports speculating how various design features of a high-rise building could have been modified to withstand a collapse were too speculative and conjectural to create triable issues of fact on a motion for summary judgment.)

Although both declarations are inadmissible under Rule 702, and the second one because of its tardiness, the Court has read and...