First Korean Christian Church of San Jose v. Dong Wuk Kim (In re First Korean Christian Church of San Jose)

Decision Date21 February 2017
Docket NumberAdversary Proceeding No. 16–5071,Bankruptcy Case No. 15–52857 DM
Citation567 B.R. 575
Parties IN RE FIRST KOREAN CHRISTIAN CHURCH OF SAN JOSE ("FKCC"), Debtor. First Korean Christian Church of San Jose, Plaintiff, v. Dong Wuk Kim, Myung Il Youm, and Korean Evangelical Church of Amer., Defendants. First Evangelical Church of America, Counter–Plaintiff, v. Dong Wuk Kim, Myung Il Youm, and FKCC, Counter–Defendants
CourtU.S. Bankruptcy Court — Northern District of California

Frank H. Kim, National Legal Associates, San Francisco, CA, Stanley A. Zlotoff, Law Offices of Stanley A. Zlotoff, San Jose, CA, for Plaintiffs.

George G. Benetatos, Law Offices of George G. Benetatos, San Francisco, CA, Alex C. Park, Law Offices of Alex C. Park, Santa Clara, CA for Defendants.

MEMORANDUM DECISION ON PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT AND DEFENDANTS' MOTION TO DISMISS

DENNIS MONTALI, U.S. Bankruptcy Judge

On January 25, 2017, this court held a hearing on the motion for summary judgment ("MSJ") filed by debtor and plaintiff First Korean Christian Church of San Jose ("FKCC" or "Debtor"), a non-profit religious California corporation, and the motions of the individual defendants Dong Wuk Kim ("DW Kim") and Myung Il Youm (collectively, "the Kim Defendants") to dismiss this adversary proceeding ("MTD AP") and to dismiss the counterclaim filed by Korean Evangelical Church of American ("KECA") against them ("MTD CC") and Debtor.1 For the reasons set forth below, the court will grant the MSJ and deny the MTD AP and the MTD CC.2

I. BACKGROUND

FKCC filed the underlying chapter 11 bankruptcy case (the "Main Case") on September 3, 2015, and continues as debtor in possession. FKCC and KECA were co-borrowers on a loan secured by church property located in Sunnyvale, CA (the "Property"). As of the petition date, BBCN Bank held the underlying note and a valid and perfected deed of trust lien on the Property. BBCN Bank filed a motion for relief from stay ("MRS") on February 24, 2016; the Kim Defendants, identifying themselves as the True FKCC, filed a motion to dismiss the bankruptcy case ("MTD BK") two days later.

At a hearing on March 29, 2016, the court indicated that it would deny the MTD BK, holding that Debtor, through its current pastor, had the authority to file the chapter 11 petition and that DW Kim did not have authority to act on behalf of FKCC. The order denying the MTD BK was entered on April 4, 2016, and the Kim Defendants filed a notice of appeal on April 13, 2016 (the "Appeal"). The Appeal is currently pending in the U.S. District Court for the Northern District of California as Case No. 16–cv–01959–EJD. A motion to dismiss the Appeal as interlocutory is pending in that matter.

The court continued the hearing on BBCN Bank's MRS to allow FKCC an opportunity to sell the Property for the benefit of the estate. FKCC thereafter obtained an order authorizing it to hire real estate brokers and, in July 2016, filed a motion to sell the Property free and clear of liens. The court entered an order on September 14, 2016, authorizing a sale of the Property for $6,650,000 and providing for payment in full of the BBCN Bank debt as well as all secured tax liens. The sale has closed.

Pursuant to the sale order, the various and conflicting interests asserted by Debtor, the Kim Defendants and KECA in the Property were transferred to the net proceeds of the sale (the "Net Funds"). The Net Funds were deposited into an interest-bearing joint account, disbursement from which requires the written consent of all parties or a judicial determination of the parties' respective rights in the funds. See Order Granting Motion to Sell Real Property Free and Clear of Interests Combined with Motion to Sell Real Property at Docket No. 117 in the Main Case.

On October 7, 2016, Debtor filed this adversary proceeding, alleging that it and KECA owned the Property and thus now own the Net Proceeds. KECA filed an answer seeking the same relief, and asserting the counterclaim against the Kim Defendants. Both parties requested that the Net Funds be released to the estate and to KECA. The Kim Defendants filed the MTD AP on December 10, 2016, and the MTD CC on December 14, 2017. Debtor filed its MSJ on December 27, 2016. Because Debtor has established as a matter of law and undisputed fact that the estate and KECA are entitled to the Net Funds, the court is granting the MSJ and denying the MTD AP and the MTD CC.

II. JURISDICTION

The Kim Defendants erroneously contend that this court lacks jurisdiction to resolve the dispute as to the ownership of the Net Funds. This is a dispute over an identified sum of money in which the Debtor claims ownership. The court has jurisdiction and constitutional authority to determine whether identified property constitutes property of the estate under 11 U.S.C. § 541(a). See, e.g. Waldron v. F.D.I.C. (In re Venture Financial Group, Inc.) , 558 B.R. 386 (Bankr. W.D. Wash. 2016) ; see also Velo Holdings, Inc. v. Paymentech, LLC (In re Velo Holdings, Inc.) , 475 B.R. 367, 387–88 (Bankr. S.D.N.Y. 2012) ("[t]he determination whether something is property of the estate is a core matter") (collecting cases). In addition, turnover actions are core pursuant to 28 U.S.C. § 157(b)(2)(E). Here, Debtor is seeking a determination that the Net Funds are property of the estate which must be turned over to it. This court has core jurisdiction to resolve the disputed claims to the Net Funds. Inherent in such a resolution is the issue of who controls Debtor: DW Kim or an appointed successor.

The Kim Defendants also argue that the pendency of the Appeal deprives this court of jurisdiction to decide the MSJ. They are incorrect. Even though control of Debtor is a central issue in both the Appeal and this adversary proceeding, the court can enter a judgment as to disposition of the Net Proceeds. The appealed order denying the motion to dismiss the chapter 11 case is interlocutory. In re 405 N. Bedford Dr. Corp ., 778 F.2d 1374, 1379 (9th Cir. 1985). As the Ninth Circuit held in In re Rains , 428 F.3d 893, 904 (9th Cir. 2005), an appeal from an interlocutory order is premature and does not transfer jurisdiction to the appellate court absent leave of that court. Id ., citing In re United States Abatement Corp. , 39 F.3d 563, 568 (5th Cir. 1994) (holding that premature notice of appeal from interlocutory bankruptcy order was of no effect and the trial court retains jurisdiction to enter final judgment) and Albiero v. City of Kankakee , 122 F.3d 417, 418 (7th Cir. 1997) .

The Kim Defendants have also suggested that this court lacks jurisdiction to resolve the dispute over entitlement to the Net Funds as it implicates matters of religious doctrine and practice. This court undoubtedly must "defer to the resolution of issues of religious doctrine or polity by the highest court of a hierarchical church organization." Jones v. Wolf , 443 U.S. 595, 602, 99 S.Ct. 3020, 61 L.Ed.2d 775 (1979). Nonetheless, "the First Amendment does not dictate that a State must follow a particular method of resolving church property disputes. Indeed, ‘a State may adopt any one of various approaches for settling church property disputes so long as it involves no consideration of doctrinal matters, whether the ritual and liturgy of worship or the tenets of faith.’ " Id. Thus, this court cannot review decisions to excommunicate, a religious matter, or matters involving religious doctrines and tenets. It can, however, apply "neutral principles of law" such as corporate governance in settling disputes as to ownership of church property as long as the analysis does not involve inquiry into religious doctrine. Id. at 602–03, 99 S.Ct. 3020.

Consequently, this court can consider the relevant by-laws as well as minutes and orders from governing bodies to determine whether a particular faction controls the Debtor and its property disposition. Such a determination does not invoke religious precepts but is instead a secular examination of documents of governance.

The Kim Defendants also assert that they are entitled to a trial by jury and thus this court cannot issue a dispositive ruling. Assuming without deciding that they are entitled to a jury trial, that entitlement does not preclude this court from ruling on the MSJ or the MTD AP. In Sigma Micro Corp. v. Healthcentral.com (In re Healthcentral.com) , 504 F.3d 775 (9th Cir. 2007) the Ninth Circuit adopted the majority rule that the valid right to a jury trial does not require the bankruptcy court to cede jurisdiction and transfer the action immediately, but instead may retain jurisdiction over the action for pretrial matters (such as motions to dismiss or motions for summary judgment) until the matter is ready for trial. Id. at 788 ("allowing the bankruptcy court to retain jurisdiction over pre-trial matters, does not abridge a party's Seventh Amendment right to a jury trial").

IV. STANDARDS FOR SUMMARY JUDGMENT

Summary judgment is appropriate when the moving party "shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a), applicable here by Fed. R. Bankr. P. 7056. The moving party "initially bears the burden of proving the absence of a genuine issue of material fact." In re Oracle Corp. Sec. Litigation , 627 F.3d 376, 387 (9th Cir. 2010). If the moving party meets its initial responsibility, the burden then shifts to the opposing party to establish that a genuine issue as to any material fact actually does exist. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp. , 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).

"In evaluating the evidence to determine whether there is a genuine issue of fact," the court draws "all reasonable inferences supported by the evidence in favor of the non-moving party." Walls v. Central Contra Costa Transit Auth. , 653 F.3d 963, 966 (9th Cir. 2011). It is the opposing party's obligation to produce a factual predicate from which the...

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