Marciano v. Fahs (In re Marciano)

• Citation: 2011 Daily Journal D.A.R. 15334,11 Cal. Daily Op. Serv. 12966,161 Lab.Cas. P 82132,459 B.R. 27
• Decision Date: 15 September 2011
• Docket Number: BAP No. CC–11–1008–DMkKi.,Bankruptcy No. SV 11–10426–VK.
• Parties: In re Georges MARCIANO, Debtor.Georges Marciano, Appellant, v. Joseph Fahs, Steven Chapnick, and Elizabeth Tagle, Appellees.
• Court: United States Bankruptcy Courts. Eighth Circuit. U.S. Bankruptcy Court — Southern District of Iowa

11 Cal. Daily Op. Serv. 12,966

161 Lab.Cas. P 82,132

2011 Daily Journal D.A.R. 15,334

459 B.R. 27

In re Georges MARCIANO, Debtor.Georges Marciano, Appellant,

v.Joseph Fahs, Steven Chapnick, and Elizabeth Tagle, Appellees.

BAP No. CC–11–1008–DMkKi.

Bankruptcy No. SV 11–10426–VK.

United States Bankruptcy Appellate Panel, of the Ninth Circuit.

Argued and Submitted June 17, 2011.Decided Sept. 15, 2011.

Daniel J. McCarthy, Hill, Farrer & Burrill LLP, Los Angeles, CA, for Georges Marciano.

Bradley E. Brook, Law Office of Badley E. Brook, Los Angeles, CA, for Steven Chapnick, Joseph Fahs, Elizabeth Tagle.

Before: DUNN, MARKELL, and KIRSCHER, Bankruptcy Judges.

OPINION

DUNN, Bankruptcy Judge.

The bankruptcy court adopted a per se rule that, even though they were on appeal, unstayed California judgments entered against the alleged debtor following terminating sanctions for discovery abuses in state court litigation constituted claims that were not subject to bona fide dispute for purposes of entering an order for relief under § 303.¹ Accordingly, the judgment creditors were not precluded from filing an involuntary bankruptcy petition against the judgment debtor. Further, the bankruptcy court declined to stay the proceedings on the involuntary chapter 11 petition pursuant to § 305(a) pending resolution of the alleged debtor's state court appeals. We AFFIRM.

I. SUMMARY OF FACTS ²

Vanderbilt once telegraphed to some double crossing partners: “Gentlemen you have undertaken to cheat me. I will not sue you, for the law takes too long. I will ruin you.” He did.³

On August 24, 2006, Georges Marciano sent an e-mail which included the above language to his accountant and other long-term employees. This e-mail was the opening salvo in a course of conduct that ultimately led to the entry of six California state court judgments against Mr. Marciano in the aggregate amount of $260.3 million for libel, defamation, and intentional infliction of emotional distress.

The judgments were entered after the state court entered terminating sanctions against Mr. Marciano following repeated violations of the discovery process, which the trial court characterized as “demonstrating a consistent pattern of discovery abuses....” The terminating sanctions dismissed Mr. Marciano's claims against the judgment creditors and struck his answers to their cross claims.

Mr. Marciano appealed all six judgments, but he could not afford to post a bond to stay the judgments pending the appeals, and his requests for a stay pending appeal were denied by the trial court and by the state Court of Appeal. As a result, the judgment creditors initiated various collection efforts. On July 31, 2009, two judgment creditors, Camille Abat and Miriam Choi, obtained an order for Mr. Marciano's judgment debtor examination. Under California law, service of the order created a lien on Mr. Marciano's assets. See C.C.P. § 708.110(d).

On October 27, 2009, 88 days after the creation of this lien, judgment creditors Joseph Fahs, Steven Chapnick and Elizabeth Tagle (collectively, the “Petitioning Creditors”) filed an involuntary Chapter 11 petition (“Involuntary Petition”) in accordance with § 303 for the purpose of preserving the right to avoid this lien pursuant to § 547 in order to allow all judgment creditors to participate equally in any distribution of Mr. Marciano's assets. Mr. Marciano rejects the notion that in filing the Involuntary Petition, the Petitioning Creditors were acting other than in bad faith.

Rather than file an answer, Mr. Marciano invoked the procedure available to him under Civil Rule 12(b), applicable pursuant to Rule 1011(b), and filed a motion to dismiss the Involuntary Petition (“First Dismissal Motion”). In the First Dismissal Motion, Mr. Marciano asserted that he had not been properly served with the summons and Involuntary Petition; alternatively, he sought to have the summons quashed. He also asserted in the First Dismissal Motion that the Involuntary Petition was facially unconstitutional where it had been filed to initiate a Chapter 11 case against an individual. The bankruptcy court issued its oral ruling denying the First Dismissal Motion at its hearing held on January 13, 2010 (“January 13 Hearing”). The order denying the First Dismissal Motion was entered May 28, 2010.

Although Mr. Marciano filed his answer to the Involuntary Petition on February 1, 2010, adjudication of the Involuntary Petition moved slowly. Following a status hearing on April 8, 2010, the bankruptcy court entered a scheduling order (“Scheduling Order”), which identified the agreed facts relating to adjudication of the Involuntary Petition pursuant to § 303, and which invited the filing of a motion for summary judgment on those agreed facts.

Thereafter, a dispute arose regarding whether Mr. Marciano should be allowed to proceed with discovery, inter alia, on the issue of whether the Petitioning Creditors' filing of the Involuntary Petition constituted “bad faith.” In the course of resolving the dispute, the bankruptcy court entered an order (“Marciano Sanctions Order”) which denied Mr. Marciano's request that terminating sanctions be entered against the Petitioning Creditors based upon their alleged failures to respond to his discovery requests. The bankruptcy court also entered a protective order (“Protective Order”), which deferred discovery until after the determination of whether it was appropriate to enter an order for relief in the case.

On April 26, 2010, Mr. Marciano filed a motion to dismiss or suspend the proceedings pursuant to § 305(a) (“Second Dismissal Motion”), which the bankruptcy court denied by its order entered July 2, 2010. The bankruptcy court also denied two motions filed by Mr. Marciano in which he requested that the bankruptcy court reconsider its denial of a “stay” under § 305(a) until the state court appeals had been resolved.

Ultimately, on July 14, 2010, the Petitioning Creditors filed their motion for summary judgment (“Summary Judgment Motion”), seeking a determination from the bankruptcy court that they were entitled to entry of an order for relief on the Involuntary Petition pursuant to § 303. In response, Mr. Marciano filed his cross-motion for summary judgment (“Summary Judgment Cross–Motion”). On December 28, 2010, the bankruptcy court entered its order (“Summary Judgment Order”), granting the Summary Judgment Motion and denying the Summary Judgment Cross–Motion, and an order for relief (“Order for Relief”) in the case.

Mr. Marciano promptly filed his notice of appeal. He also requested reconsideration of the bankruptcy court's Summary Judgment Order, which the bankruptcy court denied without a hearing. In addition, Mr. Marciano filed an application for a temporary stay of the Order for Relief, and an emergency motion for a temporary stay and for a stay pending appeal. The bankruptcy court entered a 30–day temporary stay of the Chapter 11 case to allow Mr. Marciano to seek a stay pending appeal from this Panel (“Temporary Stay Order”).

Our motions panel denied Mr. Marciano's motion for stay pending appeal; the Ninth Circuit thereafter dismissed Mr. Marciano's appeal of our order denying the stay pending appeal.

The following ten orders of the bankruptcy court are included in this appeal:

1. Order Denying First Dismissal Motion;

2. Order Denying Second Dismissal Motion;

3. Order Denying First Motion for Reconsideration of Order Denying Second Dismissal Motion;

4. Order Denying Second Motion for Reconsideration of Order Denying Second Dismissal Motion;

5. Marciano Sanctions Order;

6. Protective Order;

7. Summary Judgment Order; 8. Order Denying Motion for Reconsideration of Summary Judgment Order;

9. Order for Relief; and

10. Temporary Stay Order.

II. JURISDICTION

The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and 157(b)(2)(A) and (O). We have jurisdiction under 28 U.S.C. § 158.

III. ISSUES

1. Whether the bankruptcy court abused its discretion when it determined that Mr. Marciano had not abandoned his residence.

2. Whether the bankruptcy court erred when it determined that service on Mr. Marciano had been properly effected.

3. Whether the bankruptcy court abused its discretion when it entered the Marciano Sanctions Order and the Protective Order.

4. Whether the bankruptcy court abused its discretion when it denied the Second Dismissal Motion and the related motions for reconsideration.

5. Whether the bankruptcy court erred when it granted the Summary Judgment Motion.

6. Whether the bankruptcy court erred when it adopted a per se rule that the unstayed judgments held by the Petitioning Creditors were not subject to bona fide dispute.

7. Whether the bankruptcy court erred when it entered the Order for Relief.

8. Whether the bankruptcy court abused its discretion when it denied a stay of the Chapter 11 proceedings while the Order for Relief was on appeal.

IV. STANDARDS OF REVIEW

A. General Standards of Review.

De novo means review is independent, with no deference given to the trial court's conclusion. See First Ave. West Bldg., LLC v. James (In re Onecast Media, Inc.), 439 F.3d 558, 561 (9th Cir.2006).

We apply a two-part test to determine whether the bankruptcy court abused its discretion. United States v. Hinkson, 585 F.3d 1247, 1261–62 (9th Cir.2009). First, we consider de novo whether the bankruptcy court applied the correct legal standard to the relief requested. Id. Then, we review the bankruptcy court's fact findings for clear error. Id. at 1262 & n. 20. We must affirm the bankruptcy court's fact findings unless we conclude that they are “(1) ‘illogical,’ (2) ‘implausible,’ or (3) without ‘support in inferences that may be drawn from the facts in the record.’ ” Id.

We may affirm the bankruptcy court's ruling on any basis supported by the record. See, e.g., Heilman v. Heilman (In re Heilman), 430 B.R. 213, 216 (9th Cir. BAP 2010); FDIC v. Kipperman (In re Commercial Money Center, Inc.), 392 B.R. 814, 826–27 (...