In re Korean W. Presbyterian Church of L. A.
| Decision Date | 21 April 2020 |
| Docket Number | Case No: 2:20-bk-11675-NB |
| Citation | 618 B.R. 282 |
| Parties | IN RE: KOREAN WESTERN PRESBYTERIAN CHURCH OF LOS ANGELES, Debtor. |
| Court | U.S. Bankruptcy Court — Central District of California |
Won Lee, M.E.T.A.L. Law Group, LLP, Steven Werth, SulmeyerKupetz, Victor A. Sahn, Los Angeles, CA, for Debtor.
Dare Law, Office of the United States Trustee, Los Angeles, CA, for U.S. Trustee.
For the reasons set forth below, and on the record at the above-captioned hearing, this Court will grant (a) the motion of the Ko Faction1 for confirmation that the automatic stay of § 362(a) applies to pending state court litigation (dkt. 71, the "Stay Motion"), and (b) the motion of the Choi Faction for relief from the automatic stay under § 362(d)(1) (dkt. 79, 80, 81, the "R/S Motion").
The background is set forth in this Court's concurrently issued Memorandum Decision To Appoint Chapter 11 Trustee.
On March 6, 2020, the Ko Faction filed the Stay Motion seeking an order stating that the automatic stay applies in the case of Korean Western Presbyterian Church of Los Angeles v. Jong Suk Choi, et al , Case No. 19STCV40052 (the "State Court Litigation"), pending in the Superior Court of California for the County of Los Angeles (the "State Court"). The Ko Faction had initiated that litigation pre-petition, on November 6, 2019.
On March 10, 2020, the Choi Faction filed the R/S Motion. That motion disputes that any stay applies to the State Court Litigation but, to the extent this Court determines that the automatic stay does apply, it requests that this Court grant relief from the automatic stay to allow the State Court Litigation to proceed.
On March 31, 2020 at 1:00 p.m., this Bankruptcy Court held a hearing on the Stay Motion and R/S Motion, among other motions. Appearances were as noted on the record.
At the conclusion of the hearing, this Bankruptcy Court took under submission a number of issues. One issue was whether the Choi Faction's earlier filed Dismissal/Trustee Motion (dkt. 29) and supplemental notice (dkt. 74, the "Supplemental Notice"), provided adequate notice of the Choi Faction's request for relief from the automatic stay under 11 U.S.C. § 362. Another issue was whether the R/S Motion was served in compliance with Rule 4001. Another issue was whether there was sufficient "cause" to modify the automatic stay, as to which this Court set a deadline of April 3, 2020 for supplemental pleadings from the Ko Faction. On April 3, 2020, the Ko Faction submitted supplemental papers in opposition to the R/S Motion (dkt. 106).
Based on a review of the Dismissal/Trustee Motion, the Supplemental Notice, the R/S Motion, and the other filed documents in this case, this Bankruptcy Court was not persuaded that sufficient notice was provided to creditors that the Choi Faction sought relief from the automatic stay, in compliance with Rule 4001(a) (Fed. R. Bankr. P.). Accordingly, this Court directed the Choi Faction to provide further notice by April 6, 2020 (dkt. 108). On April 6, 2020, the Choi Faction filed and served additional notice on interested parties (dkt. 109), beyond the Ko Faction that already had received notice and had already filed its papers. The deadline for such other parties to file an opposition was April 16, 2020, but no such opposition is on file.
For the reasons stated below, this Court is persuaded that the automatic stay applies to the State Court Litigation, but "cause" exists to modify the automatic stay to allow the State Court Litigation to proceed.
This is a thornier issue than first appears. And arguably it is not necessary to determine whether the automatic stay applies because, as set forth below, there is "cause" ( § 362(d)(1) ) to grant relief from any stay that does exist.
But, as set forth later in this discussion, this Court finds that "cause" exists to modify but not terminate the automatic stay, so it makes a difference if there is or is not any automatic stay to begin with. Although several aspects of the automatic stay do not apply, one does apply.
Section 362(a)(1) operates as a stay of "the commencement or continuation ... of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title." § 362(d)(1) (emphasis added). No stay exists under § 362(a)(1) because the subject litigation does not include any claims, counterclaims, or other legal actions against Debtor. See Parker v. Bain , 68 F.3d 1131 (9th Cir. 1995).
The Ko Faction asserts that § 362(a)(1) applies because the claims by Debtor (or, more precisely, by the Ko Faction purporting to act for Debtor) "have the same effect as if they had been brought by the Defendants instead" (i.e. , by the Choi Faction) and therefore should be characterized as "effectively causes of action against the Debtor." Dkt.93, p.10:9-10 (emphasis added). There is no authority cited for that proposition. To the contrary, it is well established that the act of defending against claims brought in the name of a debtor is not stayed. See, e.g. , In re Merrick , 175 B.R. 333, 338 (9th Cir. BAP 1994). Accordingly, the automatic stay of § 362(a)(1) does not apply.
Section 362(a)(3) operates as a stay of "any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate." § 362(a)(3).
Although claims held by a debtor are property of the bankruptcy estate, claims about who controls a debtor are not "property of the estate." Any "possession" of property that Debtor owned as of the petition date stays with Debtor, regardless who controls Debtor. The Ko Faction's arguments to the contrary (e.g. , dkt. 93, pp.10:25-6:12) are not persuasive.
The Ko Faction's alternative argument is more persuasive. In this case the gravamen of the parties' disputes is who has control over Debtor's real property, alleged to be worth roughly $17 to $25 million or more (dkt. 71, p.4:9; dkt.84, p.5:19-21). There are interrelated disputes about whether each faction is entitled to control Debtor or is merely a creditor or other type of interested party - e.g. , whether LA Open Door is merely a lessee, which is or is not current on rent, or if LA Open Door merged with Debtor and the Choi Faction now controls Debtor.
The issues involve not merely theoretical or future control. The issues include who has current control over physical access to the real property for church services, who can examine books and records, who can use Debtor's name, who can speak for Debtor, who can make agreements for Debtor, who has signing authority over its bank accounts, etc.
In this situation this Bankruptcy Court finds that the stay does apply, because the disputes over governance are so intertwined with the control of Debtor's property that they constitute acts "to exercise control over property of the estate" within the meaning of § 362(a)(3) (emphasis added). See, e.g. , dkt.71, p.16:20-26; Allentown Ambassadors , 361 B.R. 422, 435-40 & nn.34-40 (Bankr. E.D. Pa. 2007) () (footnotes omitted).
As the Ko Faction explains:
The Complaint [in the State Court action that is the main subject of the motions regarding the automatic stay] thus alleges that the current state of affairs is that the [Choi Faction] are exerting control over the Property, to the exclusion of the Debtor [i.e. , the Ko Faction]. The Debtor [i.e. , the Ko Faction] seeks a declaration by the Court as to the respective rights of the parties. The relief sought in the Complaint is thus a zero sum game; if the Debtor [i.e. , the Ko Faction] fails to obtain this relief, Defendants [i.e. , the Choi Faction] will continue to exert control over the Property to the exclusion of the Debtor [i.e. , the Ko Faction]. If the Debtor [i.e. , the Ko Faction] prevails, the opposite result will occur. [Dkt.71, p.8:17-22 (emphasis added) ]
The same exclusive control applies not just to Debtor's real property but also to every other type of property: Debtor's name, bank account, goodwill, etc.
The Choi Faction cites authority that, at least as a general proposition, governance disputes are not stayed by § 362(a)(3). Dkt.84, pp.18:26-20:10. But the cited authorities are distinguishable.
The decision on which the Choi Faction principally relies is In re Am. Media Distribs. , LLC , 216 B.R. 486 (Bankr. E.D. N.Y. 1998). But that decision notes that there was "little or no explanation as to why the automatic stay would apply" and the principal focus was only on the "distraction" that the dispute would cause. Id. at 489. Another decision cited by the Choi Faction did not involve the automatic stay - it never even cites § 362. Rather, it involved whether to enjoin stockholders from exercising their regular voting rights to elect directors, which is not at issue in this case. See In re Johns-Manville Corp. , 801 F.2d 60, 64-69 (2d Cir. 1986).
The last decision cited by the Choi Faction involved the voting of pledged shares, but there is no indication that such voting was anything beyond the conventional application of nonbankruptcy contract and...
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