Tracht Gut, LLC v. Cnty. of L. A. Treasurer & Tax Collector (In re Tracht Gut, LLC)

• Decision Date: 03 January 2014
• Docket Number: Bankruptcy No. SV 12–20308–MT.,Adversary No. SV 12–01433–MT.,BAP No. CC–13–1229–PaTaD.
• Citation: 503 B.R. 804
• Parties: In re TRACHT GUT, LLC, Debtor. Tracht Gut, LLC, Appellant, v. County of Los Angeles Treasurer and Tax Collector; David Haghnazarzadeh; Yuri Volodinsky, Appellees.
• Court: U.S. Bankruptcy Appellate Panel, Ninth Circuit

503 B.R. 804

In re TRACHT GUT, LLC, Debtor.Tracht Gut, LLC, Appellant,

v.County of Los Angeles Treasurer and Tax Collector; David Haghnazarzadeh; Yuri Volodinsky, Appellees.

BAP No. CC–13–1229–PaTaD.

Bankruptcy No. SV 12–20308–MT.

Adversary No. SV 12–01433–MT.

United States Bankruptcy Appellate Panel of the Ninth Circuit.

Argued and Submitted on Nov. 22, 2013.

Decided Jan. 3, 2014.

Mark Eugene Goodfriend, Encino, CA, argued for appellant Tracht Gut, LLC. Barry S. Glaser, Los Angeles, CA, argued for appellee County of Los Angeles Treasurer and Tax Collector.

Before: PAPPAS, TAYLOR and DUNN, Bankruptcy Judges.

OPINION

PAPPAS, Bankruptcy Judge.

Chapter 11 ¹ debtor Tracht Gut, LLC (“Debtor”) appeals the orders of the bankruptcy court dismissing without leave to amend its adversary complaint against appellees Los Angeles County Treasurer and Tax Collector (“the County”), David Haghnazarzadeh (“Haghnazarzadeh”) and Yuri Volodinsky (“Volodinsky”) under Rule 7012 and Civil Rule 12(b)(6), and denying reconsideration of that order under Rule 9024 and Civil Rule 60(b)(1). We AFFIRM.

FACTS

This appeal concerns Debtor's efforts to avoid the County's prepetition tax sales of two parcels of real property formerly owned by Debtor.

The first property is located on Hatteras Street in Tarzana, California (the “Hatteras Property”). Real property taxes owed to the County had not been paid on the Hatteras Property since 2008. Pursuant to California tax law, the properties were “tax defaulted” and “subject to [the County's] power to sell” three years after default. Debtor purchased the Hatteras Property from E.R. Financial Services & Development, Inc. (“E & N”), NH Simpson Partnership, OF General Partnership, and EM Partnership on April 9, 2012, for $60,000, subject to three deeds of trust totaling $920,000. Debtor recorded the grant deed on July 11, 2012.

The second property is located in San Fernando, California (the “San Fernando Property” and together, the “Properties”). Taxes on the San Fernando Property also had not been paid since 2008. On April 9, 2012, E & N transferred the San Fernando Property to Debtor for “valuable consideration.” ² The record does not indicate if there were any encumbrances on the San Fernando Property at the time of that sale. Debtor recorded a grant deed on November 26, 2012, one day before filing its bankruptcy petition.

On August 31, 2012, the County served a Notice of Auction for a tax sale of the Properties on all interested parties; the sale was set for October 22, 2012. The Notice of Auction was published on that date in the Los Angeles Daily News. The record indicates that Debtor, as record owner of the Hatteras Property, was notified of the auction. Debtor is not on the list of parties given notice concerning the sale of the San Fernando Property, likely because the record owner of the San Fernando Property in August 2012 was still E & N, who received notice.

The County conducted the tax sales of the Properties at public auction on October 22, 2012. The Hatteras Property was sold to appellee Haghnazarzadeh for $300,000, subject to the three deeds of trust. The San Fernando Property was sold to appellee Volodinsky for approximately $100,000.

Debtor filed its petition for relief under chapter 11 on November 27, 2012. On December 11, 2012, Debtor filed schedules. In Schedule A, Debtor claimed to own both of the Properties and indicated that:

A disputed tax sale occurred on or about October 21, 2012. The sales price was far less than the market value of this property. Debtor attempted to pay the taxes in full, which the [County] refused to take. As of the date of this petition, no Tax Deed has been recorded and Debtor disputes the validity of the transfer as an avoidable transfer.

The tax deeds transferring title of the Hatteras Property to Haghnazarzadeh and the San Fernando Property to Volodinsky were both recorded by the County on December 13, 2012.

On December 12, 2012, Debtor commenced the adversary proceeding at issue in this appeal. In its complaint against the Appellees, Debtor asked the bankruptcy court to grant relief on five separate claims: (1) to avoid the tax sales as fraudulent transfers; (2) for declaratory judgment; (3) for an injunction; (4) for violation of the automatic stay; and (5) for unjust enrichment.

The County filed a motion to dismiss the complaint on January 22, 2013, citing Civil Rule 12(b)(6), made applicable in adversary proceedings by Rule 7012. The County argued that Debtor, on all five counts, had failed to state an adequate claim for relief. According to the County, there were no facts alleged in the complaint to support granting any relief to Debtor on its claims. Additionally, the County argued that the Properties were each sold before bankruptcy was commenced, at a regularly scheduled tax sale with competitive bidding procedures, all in compliance with applicable state law. As a result, the County contended, the purchase price paid by the buyers of the Properties should be conclusively presumed to represent reasonably equivalent value and, therefore, there was no legal basis to avoid the tax sales as fraudulent transfers under § 548(a). Further, since the tax sales occurred prepetition, the County argued that the Properties were not property of the estate under § 541 and thus were not protected by the automatic stay when Debtor's bankruptcy petition was filed. Haghnazarzadeh filed a substantially similar motion to dismiss under Civil Rule 12(b)(6) on January 24, 2013.³

Debtor responded to the dismissal motions on February 11, 2013. It generally repeated its arguments that the sales were not made for reasonably equivalent value and, thus, were avoidable.

The hearing on the motions to dismiss was set for February 20, 2013. Before the hearing, the bankruptcy court posted a tentative ruling providing, in part:

The Complaint is comprised purely of threadbare recitals of the elements of the causes of action and conclusory statements. As it reads, the Complaint and the allegations therein, are not entitled to the assumption of truth. Most of the information surrounding the events in question (dates, relationship among parties, etc.) is fleshed out solely within the [motions to dismiss].... For all the reasons stated above, the Court shall dismiss the Complaint with leave to amend.

The bankruptcy court's tentative ruling also indicated its intent to dismiss Debtor's claims for declaratory relief and an injunction because they were not claims, but merely forms of relief.

At the hearing on the motions to dismiss on February 20, 2013, the bankruptcy court heard arguments from counsel for Debtor, the County and Haghnazarzadeh. The bankruptcy court concluded that the complaint should be dismissed and that amendment of the complaint would be an exercise in futility.

Well, I generally allow one amendment ... but this complaint was unbelievably bad and just clearly was such a placeholder to see if you could stab at some legal theory that might slow things down, but it was shockingly bad, and now I'm thinking about the legal theories that you've really refocused my attention on here at the argument.... I agree [with the County] that I don't see what you could plead to get around, and you haven't convinced me, Mr. Brownstein [Debtor's counsel], that you have some theory that can allow you to plead facts which would warrant relief under [§ ] 548.... So I'm going to grant the motion to dismiss with prejudice for the reasons stated in the tentative as supplemented by the argument here today.

Hr'g Tr. 10:18–11:12, April 20, 2013.

The bankruptcy court entered an order granting the motions to dismiss on March 13, 2013 (the “Dismissal Order”), stating that:

1. The Debtor can never amend the Complaint to state a viable cause of action as the real properties foreclosed upon at the duly conducted tax sale of the subject properties held on October 22, 2012 as set forth in the Complaint, were and are not properties of the Debtor's estate for purposes of 11 U.S.C. § 541;

2. [t]he Debtor could not properly allege that the County's post-petition recording of the deeds violated the automatic stay in 11 U.S.C. § 362 as it was solely a ministerial act;

3. [t]he Debtor could not properly allege that the duly conducted tax sale of the subject properties could be the basis of an action under 11 U.S.C. §§ 548 or 549; and

4. [t]he Court thereby dismissed the Complaint, with prejudice.

On March 27, 2013, Debtor filed a motion for reconsideration of the Dismissal Order, arguing that “the judgment/order(s) were entered as a result of surprise, excusable mistake, inadvertence and/or neglectand/or error of law, that good cause exists therefore, and that such relief would be in the interests of justice.” ⁴ Attached to the reconsideration motion was a proposed First Amended Complaint. The First Amended Complaint contained additional factual allegations for the first claim for avoidance of the tax sales as fraudulent transfers, but simply restated without factual support the second through fifth claims.

On May 7, 2013, the bankruptcy court entered a memorandum of decision and an order denying reconsideration. The court also concluded that Debtor's proposed First Amended Complaint was not viable:

The fact that Debtor now has a proposed amended complaint is too little too late.... Debtor had ample opportunity to address the lack of a viable complaint prior to the filing of the [dismissal motions].... There is no explanation why Debtor did not complete due diligence or amend within the 21 days following the filing of the complaint. Fed.R.Civ.P. 15(a)(1)(A). There is also no explanation why Debtor did not complete due diligence and amend in response to the [Civil Rule 12(b)(6) motions] as opposed to filing an Opposition. Fed.R.Civ.P. 15(a). That Debtor's counsel filed an opposition to the [dismissal motions] and now admits that his complaint was conclusory and lacked specificity tests the...