Gottlieb v. Rose (In re Khalil)

• Decision Date: 01 May 2014
• Docket Number: Case No.: 1:12-bk-11156-MT,Adv No: 1:13-ap-01234-MT
• Citation: Gottlieb v. Rose (In re Khalil), Adv No: 1:13-ap-01234-MT, Case No.: 1:12-bk-11156-MT (Bankr. C.D. Cal. May 01, 2014)
• Court: U.S. Bankruptcy Court — Central District of California
• Parties: In re: Sie Khalil Debtor(s). David K Gottlieb, Chapter 7 Trustee Plaintiff(s), v. Lawrence D Rose Defendant(s).

In re: Sie Khalil Debtor(s).David K Gottlieb, Chapter 7 Trustee Plaintiff(s), v. Lawrence D Rose Defendant(s).

Case No.: 1:12-bk-11156-MT

Adv No: 1:13-ap-01234-MT

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

Date: April 30, 2014

Date: May 1, 2014

CHAPTER 7

MEMORANDUM OF DECISION RE:

MOTION FOR SUMMARY JUDGMENT

On or about late 2010, Sie Khalil ("Khalil" or "Debtor") and Lawrence D. Rose ("Rose" or "Defendant" or "Movant") were involved in litigation in the Los Angeles Superior Court. As a result of a compromise and settlement of the litigation between the parties, Khalil and Rose entered into a real estate transaction together, purchasing real property located at 18431 Arminta Ave., Reseda, CA 91335 (the "Property"). The parties purchased the Property for $375,000, with Khalil allegedly contributing $75,000 to the purchase price and Rose allegedly contributing $300,000.

The parties applied for a loan together for purchase of the Property, which was secured by Rose's portfolio account with MorganStanley. The loan was approved and $300,000 was wired from MorganStanley to escrow. On or about December 20, 2010, Khalil wired $69,065.99 to escrow. Khalil also provided an additional $11,250 deposit, and the parties split the closing costs, closing escrow on or about December 21, 2010. The grant deed vested title in Rose and Khalil as tenants in common.

On or about April 2011, Khalil and Rose entered into a settlement agreement (the "Settlement Agreement"). The parties dispute whether this Settlement Agreement establishes their respective interests in the Property based on: (1) their contributions to the purchase price of the Property and; (2) its terms regarding how the proceeds of a sale of the Property would be distributed between the parties.

On February 6, 2012, Khalil filed a chapter 7 voluntary petition. David Gottlieb was the duly appointed trustee (the "trustee"). Debtor's Schedule D listed the Property with a value of $312,900 encumbered by a secured debt held by MorganStanley in the amount of $295,000.

Allegedly, on or about April 2012, Debtor stopped making interest payments on the loan, and Rose needed to make the payments in order to protect his portfolio. On or about June 25, 2012, Rose paid off the $300,000 loan plus $1,256 in interest.

On October 16, 2013, Rose filed a motion for settling property value of co-owned property (the "Valuation Motion").¹ The Motion sought to have the Court determine Debtor's and Rose's respective interests in the Property. The Valuation Motion asserted that the Court should find Debtor to have a 20% interest in the Property and Rose an 80% interest in the Property based on their respective contributions to the purchase price.

On October 22, 2013, the trustee commenced an adversary proceeding under § 363(h) to sell co-owned property ("Sale Adversary"). The complaint seeks to sell both the estate's and Rose's interests in the Property.

On October 23, 2013, the trustee opposed the Valuation Motion, and Debtor filed a declaration in opposition thereto. The trustee stated that Rose's counsel had requested that he stipulate and agree that Rose has an 80% interest in the Property based on an unexecuted settlement agreement and unrecorded deed of trust. The trustee refused to agree to such a stipulation. In opposition to the Valuation Motion, the trustee stated that the issues involved required an adversary proceeding to be filed; Rose was estopped to deny a 50% interest in the Property based on prior statements asserting a 50% interest and; that the Valuation Motion failed to include several material terms regarding the Property. Among other reasons for estoppel, the trustee pointed to two of Rose's statements contained in a declaration wherein he stated he was a half-owner of the Property with Debtor.

On October 29, 2013, Rose filed a reply to the trustee's opposition.

On November 7, 2013, the Court held hearing on the Valuation Motion and issued a "notice of tentative ruling re motion for setting property value of co-owned property interests." [Compendium Exhibit 16]. On November 14, 2013, the Court entered an order denying the Motion based on the reasons as outlined in the tentative ruling ("Valuation Order").²

On January 15, 2014, Rose filed a motion for summary judgment ("MSJ") in the Sale Adversary. The MSJ states that the sole issue before the Court is the ownership interests in the Property of Debtor and Rose. Specifically, Movant argued that the extent of the interest of a tenant in common in co-owned property is proportionate to the contributions of the co-owners pursuant to California law. Motion at 2-6. As a result, Movant contended that he was 80% owner and entitled to that proportion of the sale proceeds. Motion at 5.

On February 5, 2014, the trustee filed an opposition (the "Opposition") to the MSJ and evidentiary objections to the declarations filed in support of the MSJ. The trustee argues that Rose is prevented from litigating ownership interests in the Property based on the Valuation Order under claim and issue preclusion as well as judicial estoppel. In the alternative, the trustee argues that Rose is not entitled to summary judgment, as genuine issues of material fact exist.

On February 12, 2014, Rose filed a reply to the Opposition (the "Reply"). The Reply reiterates the same arguments about ownership interests based on purchase price contributions and argues that the Court can reconsider the Valuation Order under FRCP 60(b). Rose contends that no final judgment has been entered by the Court determining property interests for estoppel to apply and judicial estoppel is inapplicable because there is no reliance.

The parties have both agreed to sale of the Property pursuant to a joint status report. The parties have further agreed to allow the sale to move forward despite the dispute regarding distribution of the sale proceeds.

On March 26, 2014, this Court held oral argument on Rose's MSJ. Trustee's counsel appeared on behalf of the trustee and Defendant's newly retained counsel appeared on behalf of Rose. Defendant's counsel made arguments during oral argument that were not explicitly contained in Rose's memorandum of points and authorities in support of the MSJ. In response, trustee's counsel made arguments not contained in his opposition. Based on these new arguments, the Court took the matter under advisement to review the cases cited on the record and consider the new arguments, which are explained below.

Movant argued that he is entitled to $300,000 reimbursement claim for his respective contribution in the Property pursuant to California law regardless of the respective interests as outlined in the grant deed (i.e., the 50% 50% ownership interests). The trustee disagreed with Movant's contentions because: (1) the sale of the property will be executed pursuant to the Bankruptcy Code, which include the trustee's strong arm powers under § 544(a)(3), giving the trustee the power to avoid an unperfected security interest as a bona fide purchaser ("BFP") and; (2) the presumption under California law that tenants in common hold 50/50% interests in the Property pursuant to the grant deed governs this dispute.

Evidentiary Objections

The Court has reviewed the trustee's evidentiary objections, and the Court did not rely on any of the objectionable evidence in reaching its ruling as outlined below.

Standard

Summary judgment should be granted "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. FRCP 56(c) (incorporated by FRBP 7056).

The moving party has the burden of establishing the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). If the moving party shows the absence of a genuine issue of material fact, the nonmoving party must go beyond the pleadings and identify facts that show a genuine issue for trial. Id. at 324. The court must view the evidence in the light most favorable to the nonmoving party. Bell v. Cameron Meadows Land Co., 669 F.2d 1278, 1284 (9th Cir.1982). All reasonable doubt as to the existence of a genuine issue of fact should be resolved against the moving party. Hector v. Wiens, 533 F.2d 429, 432 (9th Cir.1976). The inference drawn from the underlying facts must be viewed in the light most favorable to the party opposing the motion. Valadingham v. Bojorquez, 866 F.2d 1135, 1137 (9th Cir.1989). Where different ultimate inferences may be drawn, summary judgment is inappropriate. Sankovich v. Insurance Co. of N. Am., 638 F.2d 136, 140 (9th Cir.1981).

Analysis

The question before the Court is whether a genuine issue of material exists on any of the required elements of a § 363(h) claim such that judgment may be entered as a matter of law. This statute reads in relevant part:

(h) Notwithstanding subsection (f) of this section, the trustee may sell both the estate's interest, under subsection (b) or (c) of this section, and the interest of any co-owner in property in which the debtor had, at the time of the commencement of the case, an undivided interest as a tenant in common, joint tenant, or tenant by the entirety, only if—

(1) partition in kind of such property among the estate and such co-owners is impracticable;

(2) sale of the estate's undivided interest in such property would realize significantly less for the estate than sale of such property free of the interests of such co-owners;

(3) the benefit to the estate of a sale of such property free of the interests of co-owners outweighs the detriment, if any, to such co-owners; and

(4) such property is not used in the production, transmission, or distribution, for sale, of electric energy or of natural or synthetic gas for heat, light, or power.

Upon review of the parties' statements of undisputed and disputed...