Diamond v. Friedman (In re Century City Doctors Hosp., LLC)

CourtUnited States Bankruptcy Courts. Ninth Circuit. U.S. Bankruptcy Court — Central District of California
Citation56 Bankr.Ct.Dec. 43,466 B.R. 1
Decision Date24 January 2012
Docket NumberBankruptcy No. 2:08–bk–23318–PC.,Adversary No. 2:10–ap–02401–PC.
PartiesIn re CENTURY CITY DOCTORS HOSPITAL, LLC, Debtor.Richard K. Diamond Chapter 7 Trustee, Plaintiff, v. Robert Friedman, Defendant.

466 B.R. 1
56 Bankr.Ct.Dec.
43

In re CENTURY CITY DOCTORS HOSPITAL, LLC, Debtor.Richard K. Diamond Chapter 7 Trustee, Plaintiff,
v.
Robert Friedman, Defendant.

Bankruptcy No. 2:08–bk–23318–PC.

Adversary No. 2:10–ap–02401–PC.

United States Bankruptcy Court, C.D. California,Los Angeles Division.

Jan. 24, 2012.


[466 B.R. 4]

Howard Kollitz, Esq., Enid M. Colson, Esq., Kevin D. Meek, Esq., Danning, Gill, Diamond & Kollitz LLP, Los Angeles, CA, for Plaintiff, Richard K. Diamond, Chapter 7 Trustee.

Louis E. Kempinsky, Esq., Howard J. Weg, Esq., John C. Keith, Esq., Peitzman Weg & Kempinsky LLP, Los Angeles, CA, for Defendant, Robert Friedman.

MEMORANDUM DECISION
PETER H. CARROLL, Chief Judge.

This matter comes before the court on a motion by defendant Robert Friedman (“Friedman”) for summary judgment or, in the alternative, summary adjudication of each claim of plaintiff Richard K. Diamond (“Diamond”), the chapter 7 trustee. The court, having considered the pleadings, evidentiary record, and arguments of counsel, makes the following findings of fact and conclusions of law pursuant to F.R.Civ.P. 52(a)(1),1 as incorporated into FRBP 7052 and applied to adversary proceedings in bankruptcy cases.

I. STATEMENT OF FACTS

In 2004, Friedman learned that Century City Doctors Hospital, L.P. (“CCDH”) was offering limited partnership interests in CCDH (“Units”) at $40,000 per Unit. Mark Bidner (“Bidner”), whom Friedman knew personally and professionally, was then the

[466 B.R. 5]

President of Salus Surgical Group, LLC (“Salus”), the general partner of CCDH.2 Friedman inquired about investing in CCDH.

In response to Friedman's inquiry, Bidner sent Friedman a letter dated August 7, 2004 (“2004 Letter”). The 2004 Letter was accompanied by certain documents, including: (1) an Amended and Restated Limited Partnership Agreement of the Century City Doctors Hospital, L.P., dated August 6, 2004 (“LP Agreement”); and (2) an Updated Confidential Private Placement Memorandum of Century City Doctors Hospital, L.P., dated August 6, 2004 (“Private Placement Memo”).

Although Friedman was interested in investing in CCDH, he had reservations about making a substantial investment in a new hospital project that might not succeed without Bidner's leadership. To address this concern, Bidner, in his capacity as President of Salus, made the following oral representation: if Bidner ceased to maintain an active, full-time role in managing the hospital project, Friedman would have a right to withdraw from the partnership and receive a refund of his investment in return for relinquishing his limited partnership interest (“Withdrawal Agreement”).3

In August 2004, Friedman signed a joinder to the LP Agreement and purchased $450,000 in CCDH Units at $40,000 per Unit (“Investment”), which constituted a 1.2797033% limited partnership interest in CCDH (“LP Interest”).4 In December 2004, Bidner resigned as President of Salus. Shortly before resigning, Bidner contacted CCDH investors, including Friedman, to disclose his impending resignation.

Once he learned of Bidner's imminent departure, Friedman exercised his right to withdraw under the Withdrawal Agreement. Subsequently, Friedman received a letter from Kerri Nickerson of CCDH, dated January 19, 2005 (“Refund Letter”), which was accompanied by a check, dated January 18, 2005, from CCDH and made payable to Friedman in the amount of

[466 B.R. 6]

$450,000 (“Transfer”).5 The Refund Letter reads in part: “Dear Mr. Friedman, Please find enclosed a check in the amount of $450,000 refunding your investment in Century City Doctors Hospital per your request.” 6 On March 3, 2008, CCDH converted from a limited partnership to a limited liability company.

On August 22, 2008—more than three and half years after the Transfer was made—CCDH filed a petition for relief under chapter 7 of the Code and Diamond was appointed as trustee in the case. On July 30, 2010, Diamond commenced this adversary proceeding against Friedman seeking to avoid and recover the Transfer. On August 13, 2010, Diamond filed a First Amended Complaint to Avoid and Recover Value of Fraudulent Transfer; Turnover; Unjust Enrichment; and for Unlawful Distribution (“Complaint”) stating, in pertinent part:

Plaintiff is informed and believes and, based thereon, alleges, that the Debtor made a transfer to [Friedman] totaling no less than $450,000.00 including, but not limited to, the transfer identified in Exhibit “1” attached hereto and incorporated herein by this reference (the “Subject Transfer”). 7

Exhibit “1” to Diamond's Complaint identifies Friedman and lists the following information:

+---------------------------------------------------------------------------+
                ¦704 ¦01/18/05 ¦01/24/05 ¦450,000 ¦450,000 ¦ ¦
                +------+--------------+--------------+-------------+--------------------+---¦
                ¦ ¦ ¦ ¦ ¦0.00 450,000 ¦8 ¦
                +---------------------------------------------------------------------------+
                
Diamond does not allege in his Complaint any other facts regarding the Transfer, but claims that the Transfer is avoidable for one or more of the following reasons:

1. CCDH allegedly “made the Subject Transfer [to Friedman] with the actual intent to hinder, delay, or defraud one or more of its creditors.” 9

2. CCDH allegedly “received less than reasonably equivalent value in exchange for such transfer or obligation,” and “at the time the Subject Transfer was made, [CCDH] was either insolvent or became insolvent as a result of the Subject Transfer.” 10

3. CCDH, at the time of the Subject Transfer, allegedly “was engaged, or was about to engage, in business or a transaction or transactions for which their remaining assets were unreasonably small capital.” 11

4. CCDH allegedly “intended to incur, or believed or reasonably should have believed, that it would incur debts that would be beyond the ability to pay as such debts matured.” 12

Diamond also demands a turnover of the Transfer,13 asserts that Friedman “received a benefit and unjustly retained that benefit at the expense of [CCDH], unsecured creditors, and each of them,” 14 and claims that the Transfer was “an unlawful distribution under 6 Del. C. § 17–607(b), Cal. Corp.Code § 15905.08(b), Cal. Corp.Code § 15905.09, and other applicable law.” 15 Friedman filed his answer to Diamond's Complaint on February 15, 2011.

[466 B.R. 7]

By this motion, Friedman seeks summary judgment as to all of Diamond's claims. Friedman argues, among other things, that all of Diamond's claims are time-barred under applicable Delaware law. Diamond disagrees, arguing that the court should not apply Delaware law; or alternatively, that to the extent the court looks to Delaware law, the statute upon which Friedman relies is not applicable to the facts of this case.

II. DISCUSSION

This court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. §§ 157(b) and 1334(b). This matter is a core proceeding under 28 U.S.C. § 157(b)(2)(A), (E), (H) and (O). Venue is appropriate in this court. 28 U.S.C. § 1409(a).

A. Summary Judgment

Rule 56(a) authorizes a party to “move for summary judgment, identifying each claim or defense—or the part of each claim or defense—on which summary judgment is sought.” F.R.Civ.P. 56(a). Summary judgment must be granted “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Id. In determining whether a genuine factual issue exists, “a trial judge must bear in mind the actual quantum and quality of proof necessary to support liability....” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 254, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). “[T]he judge's function is not himself to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial.... If the evidence is merely colorable, ... or is not significantly probative, ... summary judgment may be granted.” Id. at 249–50, 106 S.Ct. 2505. However, the court's function on a motion for summary judgment is “issue-finding, not issue-resolution.” United States v. One Tintoretto Painting Entitled The Holy Family with Saint Catherine and Honored Donor, 691 F.2d 603, 606 (2d Cir.1982). Rule 56 does not permit “trial on affidavits. Credibility determinations, the weighing of the evidence, and the drawing of legitimate inferences from the facts are [fact finder] functions....” Anderson, 477 U.S. at 255, 106 S.Ct. 2505.

When the nonmoving party has the burden of proof at trial, the moving party need only point out “that there is an absence of evidence to support the nonmoving party's case.” Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); see Fairbank v. Wunderman Cato Johnson, 212 F.3d 528, 532 (9th Cir.2000) (stating that the Celotex showing can be made by “pointing out through argument-the absence of evidence to support plaintiff's claim”). “Once the moving party carries its initial burden, the adverse party ‘may not rest upon the mere allegations or denials of the adverse party's pleading,’ but must provide affidavits or other sources of evidence that ‘set forth specific facts showing that there is a genuine issue for trial.’ ” Devereaux v. Abbey, 263 F.3d 1070, 1076 (9th Cir.2001) (quoting former F.R.Civ.P. 56(e)); see Celotex, 477 U.S. at 323–24, 106 S.Ct. 2548. If the nonmoving party fails to establish a triable issue “on an essential element of her case with respect to which she has the burden of proof,” the moving party is entitled to judgment as a matter of law. Celotex, 477 U.S. at 323, 106 S.Ct. 2548.

B. Fraudulent Transfer Claim under § 544(b)

Section 544(b) of the Code provides that a chapter 7 trustee may avoid transfers or obligations that could have been avoided by an unsecured creditor under

[466 B.R. 8]

nonbankruptcy law had the bankruptcy case not been filed, provided such a creditor actually exists. 11 U.S.C. § 544(b); Barclay v. Mackenzie (In re AFI Holding, Inc.), 525 F.3d 700, 703 (9th...

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