Gottlieb v. Elkwood Assocs., LLC (In re Yashouafar)

• Decision Date: 28 September 2017
• Docket Number: Case No.: 1:16-bk-12255-GM,Adv No: 1:17-ap-01040-GM
• Court: U.S. Bankruptcy Court — Central District of California
• Parties: In re: Solyman Yashouafar and Massoud Yashouafar Debtors. DAVID K GOTTLIEB Plaintiff, v. Elkwood Associates, LLC, Fieldbrook, Inc. Defendants.

In re: Solyman Yashouafar and Massoud Yashouafar Debtors.DAVID K GOTTLIEB Plaintiff, v. Elkwood Associates, LLC, Fieldbrook, Inc. Defendants.

Case No.: 1:16-bk-12255-GM

Adv No: 1:17-ap-01040-GM

UNITED STATES BANKRUPTCY COURT CENTRAL DISTRICT OF CALIFORNIA SAN FERNANDO VALLEY DIVISION

September 28, 2017

CHAPTER 11

MEMORANDUM OF OPINION RE DEFENDANTS' MOTION TO DISMISS FIRST AMENDED COMPLAINT

Date: August 28, 2017

Time: 1:30 p.m.

Courtroom: 303

21041 Burbank Blvd.

Woodland Hills, CA 91381 By way of this Motion, Defendants Elkwood Associates, LLC and Fieldbrook, Inc. ("Elkwood" or "Fieldbrook" or "Defendants") move to dismiss Plaintiff David Gottlieb's ("Plaintiff" or "Trustee") First Amended Complaint ("FAC") filed on May 11, 2017. Defendants move to dismiss all twelve claims for relief under Rule 12(b)(6) of the Federal Rules of Civil Procedure on the ground that the FAC fails to state a claim upon which relief may be granted.

Furthermore, Defendants move to dismiss the first and second claims under Rule 12(b)(7) and Rule 19 on the ground that Plaintiff has failed to name necessary parties to those claims. Finally, Defendants ask that the Court dismiss all claims without leave to amend unless the Plaintiff can show how he will cure the deficiencies in the FAC.

Background: (primarily as set forth in the Motion, Opposition, and FAC)

On August 3, 2016, involuntary petitions were filed against the Debtors. Debtors stipulated to entry of the Orders for Relief and the Orders for Relief were entered on September 12, 2016. Thereafter, Trustee initiated the instant adversary proceeding. The First Amended Complaint was filed on May 11, 2017. The FAC contains twelve claims for relief including those seeking quiet title and setting aside the foreclosure of the Rexford property; avoiding transfer/foreclosure of both the Rexford property and the Chalette property under the theories of actual and constructive fraudulent transfer pursuant to state and bankruptcy law; and finally recovering both properties by applying 11 U.S.C. § 550.

The focus of the FAC is the February 2015 foreclosure sales of residential properties, Rexford and Chalette, in which the Debtors had an alleged interest. The Rexford home was allegedly owned by Massoud and the Chalette home was allegedly owned by Solyman. Trustee estimates Rexford to be worth between $12,000,000 and $15,000,000. It is/was currently being used as Massoud's residence. Chalette was sold for close to $9,000,000.First Amended Complaint:

A summary of the FAC's facts are as follows:

• Defendants Elkwood and Fieldbrook are controlled by Jack Nourafshan ["Nourafshan"], the brother-in-law of Massoud. Elkwood and Fieldbrook are owned by Nourafshan and his two brothers. [¶5]

• The Rexford home is valued at $12,000,000 to $15,000,000 and is currently being used as Massoud's family residence. [¶¶9, 10]

• Prior to the foreclosure sale, Rexford was owned by the Massoud and Parinaz Yashouafar 2003 Trust, which the Plaintiff believes is a revocable trust. [¶¶12, 13]

• Prior to the foreclosure sale, Chalette was owned by the Solyman and Sheila Yashouafar 2004 Trust, which the Plaintiff believes is a revocable trust. The Chalette home was sold by Fieldbrook in May 2015 for nearly $9,000,000. [¶¶15, 17, 18]

Indebtedness Prior to Foreclosure

• Indebtedness relating to Rexford (exclusive of the PWB DOT): In 2004, Massoud and his wife borrowed $2,516,300 from Chase and $2,000,000 from Tri-Center Group. The loans were secured by a first and second deed of trust, respectively, against Rexford. [¶¶19, 20] Before the foreclosure sale, on or about December 30, 2014, Tri-Center executed and delivered to Elkwood a reconveyance of the Tri-Center deed of trust. Elkwood did not record the reconveyance until July 14, 2015. [¶21] In September 2013, Chase declared a default under its loan. The noticed foreclosure sale was continued various times during which Massoud attempted to cure or to restructure the loan. [¶24]

• Indebtedness relating to Chalette (exclusive of the PWB DOT): The Solyman Family Trust borrowed $1.475 million from Chase which was secured by a first deed of trust against Chalette. [¶23]• Indebtedness to PWB: In March 2009, Massoud and Solyman executed a promissory note for the benefit of Pacific Western Bank ("PWB") for the amount of $6,551,575. The PWB Note was secured by a third deed of trust against Rexford and second deed of trust against Chalette. [¶22, 23] In January 2014, PWB declared a default of its loan and started foreclosure proceedings against both Rexford and Chalette. [¶25]

Transfer of PWB Loan

• Massoud introduced Kensington to PWB as a potential purchaser of the PWB loan. Kensington sought to purchase the PWB Note. Part of the negotiations between Kensington and PWB dealt with Kensington's desire that PWB bifurcate the Note into two separate notes, each secured by only one of the properties. This was followed by a series of negotiations of price, etc. [¶¶29-36] However, this sale did not close and on December 29, 2014, the PWB Loan was sold to Elkwood rather than to Kensington [¶¶37-38].

• Kensington is owned by the Nourafshan Family and Nourafshan controlled both Kensington and Elkwood. [¶¶29, 39]

• Plaintiff alleges that prior to the purchase of the loan, Massoud and Nourafshan had a secret agreement as to how Rexford and Chalette's value would benefit the Nourafshan family and Massoud rather than Debtors' creditors. The substance of this agreement was that Massoud and his family would continue to live at Rexford, rent free, and that Chalette would be vacated so that the Nourafshan Family could sell it for a quick profit. [¶39]

• After the PWB loan was assigned to Elkwood, Citivest assumed the role of trustee under the two Deeds of Trust.

• On February 18, 2015, Elkwood assigned the PWB loan, the Chalette DOT, and the Rexford DOT to Fieldbrook. The assignment of the Note and of the Chalette DOT from Elkwood to Fieldbrook was signed by Thelma S. Guerrero as Managerof Elkwood. [¶43, Ex. B] On February 17, 2015, the day before the actual assignment to Fieldbrook, Thelma Guerrero advised Citivest of the assignment and that Elkwood would be acting as agent of Fieldbrook. She further advised Citivest that the portion of the note that had been transferred to Fieldbrook was $5,800,000 and that was to be the opening and only bid at the upcoming foreclosure sale of Chalotte. The remaining balance on the Note was to be the opening bid on Rexford. [Ex. C]

The Foreclosure Sales

• Chalette: On February 20, 2015, Citivest conducted the foreclosure sale under the Chalette DOT. Nourafshan, on behalf of Fieldbrook, credit bid at $5.8 million for Chalette at the foreclosure sale. This was the only bid. [¶45]

• Fieldbrook incurred about $200,000 in post-foreclosure expenses and then sold Chalette for $8,995,000. Nourafshan admitted to a profit of $2.6 million for Chalette. [¶¶47, 48]

• Rexford: The foreclosure sale was noticed for February 23, 2015 on the steps of the United States Post Office located at 222 N. Grand Ave., Los Angeles. The sale was held at that time. At the sale, Rexford was sold to Elkwood for a credit bid of $782,508.05, though the balance due on the PWB Loan was $6,569,508.05. Elkwood was the foreclosing party according to the foreclosure sale deed. [¶¶51-54]

• Plaintiff alleges several irregularities relating to Rexford foreclosure including the following: the wrong amount was credit bid; at the time Elkwood was not the holder of the PWB Loan or the DOT and was not entitled to credit bid; there was no Post Office located at 222 N. Grand Ave.; Elkwood waited nearly five months after the foreclosure sale to record the reconveyance; and at the foreclosure sale, it appeared a potential bidder would have to bid more than $10 million tobuy the property when in fact the principal amount of the PWB Loan was reduced to $782,000. [¶¶55-60]

• Massoud and his family continue to live rent free in the Rexford property despite the lease between Massoud and Elkwood.

Rexford Lease

• On March 7, 2015, Massoud and Elkwood executed a two year lease of Rexford which allowed Massoud and his family to live there for $25,000 per month. Massoud does not have the ability to make these rental payments. [¶61]

• Massoud has testified that he does not know who owns Elkwood even though Nourafshan executed the Rexford lease. Massoud has testified that either his mother-in-law or brother-in-law (Nourafshan) is paying the rent. No rent has actually been paid. [¶¶62-63]

FAC's claims for relief:

• Quiet title: At the time of the Rexford foreclosure sale, Elkwood had already assigned all of its interest in the PWB Loan and in the Rexford DOT to Fieldbrook. Therefore, at the time of the sale Elkwood was not entitled to credit bid.

• Set aside foreclosure sale of Rexford: Elkwood, by failing to timely record the Fieldbrook assignment, created an impression that any potential buyer would need to bid at least $10 million for the property when really the property could have been secured for approximately $3 million. Moreover, the Rexford foreclosure sale was incorrectly noticed by claiming the place of sale was the US Post Office when it was really the Kenneth Hanh County Administrative Building. Elkwood obtained Rexford for a credit bid of $782,508.05, which it was not entitled to make.

• Avoid transfer/foreclosure of Rexford as an actual fraudulent transfer under 11 U.S.C. § 548(a)(1)(A): Trustee is entitled to avoid the transfer and foreclosure of Rexford because Massoud and Nourafshan conspired to divert the value of Chalette and Rexford to the detriment of Debtor's creditors.

• Avoid transfer/foreclosure of Rexford as an actual fraudulent transfer under 11 U.S.C. § 544(b) and Section 3439.04(a)(1) of California Civil Code: There is at least one creditor holding an unsecured claim against Massoud that is allowable under Section 502 or that is not allowed under Section 502(e). Massoud received less than equivalent value in exchange for Rexford.

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