Kleidman v. Hyland (In re Kleidman)

• Decision Date: 20 August 2020
• Docket Number: Adv. Proc. No.: 1:17-ap-01007-MB,Case No.: 1:12-bk-11243-MB
• Court: U.S. Bankruptcy Court — Central District of California
• Parties: In re: PETER BROWN KLEIDMAN, Reorganized Debtor. PETER KLEIDMAN Plaintiff, v. HILTON & HYLAND; JOSHUA ALTMAN; MATTHEW ALTMAN, DOES 1 - 100. Defendants.

In re: PETER BROWN KLEIDMAN, Reorganized Debtor.PETER KLEIDMAN Plaintiff, v. HILTON & HYLAND; JOSHUA ALTMAN; MATTHEW ALTMAN, DOES 1 - 100. Defendants.

Case No.: 1:12-bk-11243-MB

Adv. Proc. No.: 1:17-ap-01007-MB

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

August 20, 2020

NOT FOR PUBLICATION

Chapter 11

FINDINGS OF FACT AND CONCLUSIONS OF LAW RE: MOTION FOR SUMMARY JUDGMENT OF DEFENDANTS HILTON & HYLAND, JOSHUA ALTMAN AND MATTHEW ALTMAN [ADV. DKT. 248]

Defendants Hilton & Hyland Real Estate, Inc., Joshua Altman and Matthew Altman (collectively, the "Defendants") filed their Motion for Summary Judgment (the "Motion") and Statement of Uncontroverted Facts and Conclusions of Law supported by the declarations of Joshua Altman, Matthew Altman, Dustin Cumming, Danelle Lavin, Bruce Makowksy, Aviv L. Tuchman, expert witness Allan Wallace, Branden Williams, Rayni Williams, William G. Willson, and a request for judicial notice. Adv. Dkt. 248 - 262. Peter Kleidman, the reorganized debtor and plaintiff in the above-captioned adversary proceeding ("Kleidman") opposes the Motion based on his Opposition and Statement of Genuine Issues, supported by his own declaration, the declaration of Dan Rinsch and a request for judicial notice. Adv. Dkt. 348 - 350. The Defendants' reply papers are supported by the supplemental declaration of Aviv Tuchman. Adv. Dkt. 354. The Motion came on for hearing on May 9, 2019. Appearances were as noted in the record. Having considered the parties' papers filed in support of and in opposition to the Motion for Summary Judgment, oral arguments, as well as other pleadings and papers on file in this Adversary Proceeding and the main bankruptcy case, the Court now finds and concludes as follows:

UNCONTROVERTED FACTS

1. Kleidman is a sophisticated and experienced businessman. He graduated from Cambridge University with a Ph.D. in mathematics and thereafter worked for several years in New York City and London at Goldman Sachs, Bankers Trust, Dresdner Bank AG, ABN AMRO Bank and HSBC Bank, principally as a financial analyst. Declaration of Aviv L. Tuchman ("Tuchman Decl."), ¶ 19, Exh. P [Deposition of Peter Kleidman ("Kleidman Depo."], Adv. Dkt. 250-3 at 11-21.¹

2. At some point in time, Kleidman began purchasing real properties in Southern California, including at least six properties, several of which he eventually "flipped" for a profit. Tuchman Decl., ¶ 19, Exh. P [Kleidman Depo.], Adv. Dkt. 250-3 at 22-23, 27-29, 33-36. Among the properties he purchased were 21942 Pacific Coast Highway, Malibu, California, which he purchased for $2.9 million and sold for approximately $13.4 million, and 22420 Pacific Coast Highway, Malibu, California, which he purchased for $15.5 million and sold for approximately $18.9 million. Id. Adv. Dkt. 250-3 at 70-73, 78.

3. In 2006, Kleidman sold the 21942 Pacific Coast Highway property for $13.4 million, and used the net sales proceeds to purchase two properties, including 9380 Sierra Mar Drive, Los Angeles, California, 90069 (the "Property"), the property at issue in this Adversary Proceeding. Id. Adv. Dkt. 250-3 at 22, 30, 78.

4. In or about May, 2010, Kleidman received an appraisal for the Property which valued it at $4.25 million, and was informed by the appraiser that the Property would need significant updating as it was "ugly and undesirable." Tuchman Decl., ¶ 16, Exh. M [Plaintiff's Amended Responses to Hilton & Hyland's RFAs, Set Two], Adv. Dkt. 250-2 at 56; Tuchman Decl., ¶ 19, Exh. P, Adv. Dkt. 250-3 at 97, 99, 177-183.

5. In 2011, Kleidman entered into a listing agreement with real estate broker Sun Heritage Real Estate, which listed the 9380 Sierra Mar Property on the MLS with a listing price of $4.2 million. Id. Adv. Dkt. 250-3 at 100, 184-194.

6. In or about February, 2012, Kleidman received an appraisal for the Property which valued it at $3.8 million and which stated that the "[i]nterior finish does not match the quality of the basic construction. . . . The interior walls are faux painted in dark, cave like colors. . . Most buyers of this home will look to remodel most of the interior with a new kitchen, bathrooms, flooring and HVAC. . . There is functional obsolescence not only associated with the pool and spa but with the interior improvements." Declaration of William G. Willson, ¶ 3 and Exh. A [February 4, 2012 Appraisal] thereto, Adv. Dkt. 259 at 11. Kleidman knew in 2012 that it would be worth significantly more if it were renovated, but Kleidman was unable to renovate the Property at that time. Tuchman Decl., ¶ 14, Exh. K [Plaintiff's Amended Responses to Hilton & Hyland's RFAs, Set One], Adv. Dkt. 250-2 at 29; Tuchman Decl., ¶ 19, Exh. P, Adv. Dkt. 250-3 at 108-109 ("Q: And you also understood, because you received this appraisal and you knew independently that that house, 9380 Sierra Mar, is potentially - can be worth significantly more if it's renovated, right? A: Right. Q: Okay. Did you renovate it? A: No. Q: Could you renovate it in February of 2012? A: No.").

7. In 2012, Sun Heritage Real Estate relisted the Property on the MLS for $3.9 million. While listed at that price, Kleidman received purchase offers, however, Wells Fargo Bank would not accept any of the offers that were received. Tuchman Decl., ¶ 14, Exh. K, Adv. Dkt. 250-2 at 27-29.

8. Having lost money in the stock market and in other non-real estate investments, Kleidman was not able to maintain the mortgages on all of his investment real properties.Tuchman Decl., ¶ 19, Exh. P [Kleidman Depo.], Adv. Dkt. 250-3 at 68-69. As a result, Kleidman commenced this bankruptcy case on February 8, 2012. Case Dkt. 1.

9. Kleidman listed the value of the Property at $3.8 million on his Schedule A. Case Dkt. 1 at 20. Thereafter, Wells Fargo Bank filed a proof of claim for $512,937, secured by the Property, which Wells Fargo Bank stated was worth $4.2 million. POC #5. On or about October 18, 2012, Kleidman amended his Schedule A and listed the value of the Property as $4.2 million. Case Dkt. 65 at 3.

10. Postpetition, Kleidman contacted multiple real estate agents about selling the Property, including Michael Eisenberg, Benjamin Bacal of Rodeo Realty, Inc., and Lee Wasser of Sotheby's International Realty. Like the agents at Sun Heritage Real Estate before them, all of them told Kleidman that the Property could not be sold for more than the total liens and recommended a short sale. Tuchman Decl., ¶ 19, Exh. P [Kleidman Depo.], Adv. Dkt. 250-3 at 53, 69-71, 112-116, 126; Declaration of Dustin Cumming ("Cumming Decl."), ¶ 6; Declaration of Danelle Lavin ("Lavin Decl."), ¶ 6.

11. In November 2012, Benjamin Bacal brought Bruce Makowsky ("Makowsky") to Kleidman as a prospective buyer of the Property. Kleidman knew that Makowsky wanted to buy the Property to flip it. Tuchman Decl., ¶ 19, Exh. P [Kleidman Depo.], Adv. Dkt. 250-3 at 113-115 ("A: [Bacal] actually brought me Makowsky in November of '12. Q: And you knew Makowsky was going to buy it to flip it? A: Yeah."); Declaration of Bruce Makowsky ("Makowsky Decl."), ¶¶ 4, 6.

12. Although multiple agents told him a short sale was his only option, Dustin Cumming, Aaron Kirman, and Danelle Lavin (formerly, Danelle Vance) at Defendant Hilton & Hyland, told Kleidman that they believed that the Property could be sold for more than the total liens and without a short sale. For that reason, he selected Mr. Kirman, Mr. Cumming, and Ms. Lavin (collectively, the "Listing Agents") at Hilton & Hyland to sell the Property Tuchman Decl., ¶ 19, Exh. P [Kleidman Depo.], Adv. Dkt. 250-3 at 72-73, 103, 136; Cumming Decl., ¶ 6; Lavin Decl., ¶ 6.

13. On or about December 1, 2012, Kleidman and Defendant Hilton & Hyland entered into a Residential Listing Agreement ("RLA") to list the Property for $5,495,000. Case Dkt. 99 at 5-6, 8, 24-32.

a. The RLA, at Paragraph 8, entitled "Broker's And Seller's Duties," provided that: "Seller is responsible for determining at what price to list and sell the Property." The RLA did not expressly require Defendant Hilton & Hyland to determine the value of the Property at the time it was listed.

b. The RLA, at Paragraph 10.C, entitled "Possible Dual Agency With Buyer," provided that in the event of a dual agency, "Seller understands and agrees that: . . . Broker, without the prior written consent of Buyer, will not disclose to Seller that Buyer is willing to pay a price greater than the offered price."

c. The RLA, at Paragraph 10.D, further provided that: "Seller consents to Broker's representation of sellers and buyers of other properties before, during and after the end of this Agreement."

d. The RLA did not expressly require Defendant Hilton & Hyland to investigate what a fully renovated version of the Property would be worth.

14. In support of their Motion, the Defendants offer the declaration of their expert witness, Alan D. Wallace, regarding the applicable standard of care for real estate brokers under the facts of this case. Case Dkt. 354. Kleidman does not offer any expert testimony to rebut or otherwise respond to the Wallace Declaration or the opinions expressed therein.

15. The custom and practice in the industry is that the seller determines the price and that a real estate agent or broker, in the absence of a specific agreement to do so, does not owe a duty to provide an opinion or make any determination as to a property's value or to opine or determine the value of a "fully renovated version" of the property. Expert Witness Declaration of Allan Wallace ("Wallace Decl."), ¶ 7(a).

16. On or about January 24, 2013, Kleidman filed in his bankruptcy case his Application to Employ Hilton & Hyland, Aaron Kirman, Dustin Cumming as Real Estate Broker / Agents to Sell Estate Real Property (the "Employment Application"). Case Dkt. 99. The only listing agentsidentified in the Employment Application were Aaron Kirman, Dustin Cumming and Danelle Vance. Defendants Joshua Altman and Matthew Altman were not...