Opinion
BANKRUPTCY CASE NO. 13-00099 ADVERSARY PROCEEDING NO. 16-00001
12-16-2016
In Re: KIM, CHONG C., dba AB KON, Debtor. MARK HEATH, CHAPTER 7 TRUSTEE, Plaintiff, v. HYE CHONG KIM, Defendant.
DECISION AND ORDER RE DEFENDANT'S MOTION FOR SUMMARY JUDGMENT AND PLAINTIFF'S MOTION FOR ORDER DENYING LEAVE TO FILE AMENDED COMPLAINT
Before the court are Defendant Hye Chong Kim's ("H.C. Kim") Motion for Summary Judgment, and Plaintiff Mark Heath, Chapter 7 Trustee's ("Trustee") Motion for Order Granting Leave to File Amended Complaint. See ECF Nos. 8 and 16. On November 21, 2016, the parties appeared before the court for a hearing. After reviewing the parties' submissions, and relevant caselaw and authority, and having heard argument from counsel on the matter, the court hereby GRANTS H.C. Kim's Motion for Summary Judgment and DENIES Trustee's Motion for Order Granting Leave to File Amended Complaint.
I. FACTUAL AND PROCEDURAL BACKGROUND
A. The Underlying Bankruptcy.
Defendant H.C. Kim and Debtor Chong C. Kim dba AB Kon ("Debtor") are married, and own the following parcel of real property:
Lot 23, Tract 13105, Tamuning Guam, Suburban, as . . . described in . . . Subdivision Survey Map of Lot R11, Tract 13105, as shown [in] Drawing Number GV-33-09, as L.M. Check Number 173 FY 2006, dated 14 September 2006 and recorded on 10 October 2006 under Instrument No. 743930 at Land Management.Compl. Ex. A, ECF No. 2 ("Real Property"). The Real Property was conveyed to Debtor and H.C. Kim through a quitclaim deed. Compl. at ¶ 5, ECF No. 2.
On August 9, 2013, Debtor filed a voluntary bankruptcy petition pursuant to Chapter 7 of the United States Bankruptcy Code. In re Chong C. Kim dba AB Kon, BK Case No. 13-00099, Vol. Pet., ECF No. 2.
Trustee has filed a number of Adversary Proceedings related to Debtor's underlying bankruptcy.
B. Adversary Proceeding ("AP") 14-00003.
On July 28, 2014, a proceeding was filed against Kumho Investment Bank and Kumho Life Insurance Company, LTD ("Kumho"). See Heath v. Kumho, AP 14-00003, Compl., ECF No. 1. This proceeding involved Trustee's attempt to avoid a 30,000,000.00 Korean Won ("KRW") secured mortgage lien held by Korean corporate lender Kumho. Id. at ¶¶ 4, 6, 11. An Order Granting Trustee's Motion to Approve Settlement and Withdrawing his Motions to Strike and Dismiss was entered on November 3, 2015. See Heath v. Kumho, AP 14-00003, Order, ECF No. 37. The settlement provided that Kumho would receive 30% "of the net proceeds of the Estate's sale of its own fifty-percent undivided interest in the real property secured by the second mortgage." See Heath v. Kumho, AP 14-00003, Mot. Approve Settlement at 2-3, ECF No. 20. The settlement also provided that H.C. Kim's interest in the proceeds "shall be subject to offsets due to any debt owed to her secured creditors." Id. at 3.
The mortgage lien refers to 30,000,000.00 KRW (see Heath v. Kumho, AP 14-00003, Compl. Ex. A at 2, ECF No. 2), yet H.C. Kim's moving papers in the underlying bankruptcy proceeding (In re Chong C. Kim dba AB Kon, BK Case No. 13-00099, Opp'n Mot. Contempt at 1 ECF No. 126) and in H.C. Kim's Complaint in Civil Case No. 16-00033 refer to $30,000.000.00 (See H.C. Kim v. Kumho, CV 16-00033, Compl. at ¶¶ 3-4, 9, ECF No. 1). The court takes judicial notice, sua sponte, that as of the date of this Order, 30,000,000.00 KRW equals approximately $25,539.52 in United States Currency. See YAHOO! FINANCE, http://finance.yahoo.com/currency-converter/#from=USD;to=KRW;amt=25539.5219 (last visited Nov. 28, 2016).
C. Adversary Proceeding 15-00001.
The second relevant adversary proceeding filed by the Trustee on December 10, 2015, sought to sell the family home and other community property of H.C. Kim and Debtor. See Heath v. H.C. Kim, AP 15-00001, Compl. at 5, ECF No. 2; see also Heath v. H.C. Kim, AP 15-00001, Order at 1-2, ECF No. 33.
H.C. Kim moved to dismiss the proceeding for failure to join Kumho as an indispensable party. See Heath v. H.C. Kim, AP 15-00001, Mot. Dismiss at 1, ECF No. 6. This court denied the motion, finding (1) that it could afford complete relief amongst the existing parties; (2) that it was immaterial to the sale of the property that H.C. Kim would have to "'chase down' Kumho in Korea . . . to file a lawsuit against it" to protect her interest; (3) that Kumho's ability to protect its interest would not be impaired or impeded if it was not joined; and (4) that Kumho's absence did not "leave an existing party subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations because of the interest." See Heath v. H.C. Kim, AP 15-00001, Order at 2, ECF No. 13.
The Trustee subsequently moved for summary judgment. Heath v. H.C. Kim, AP 15-00001, Mot. Summ. J., ECF No. 17. This court granted Trustee's motion in part on August 29, 2016, authorizing Trustee's sale of H.C. Kim's co-ownership in the Real Property, as well as the sale of certain vehicles. Heath v. H.C. Kim, AP 15-00001, Order at 7-8, ECF No. 33. Trustee's request for an Order requiring Debtor and H.C. Kim to vacate the Property within fifteen days was denied, however, because H.C. Kim indicated she would work out a time frame with the Trustee to vacate the premises and show the Real Property to potential buyers. Id. at 8. The parties were ordered to work out an acceptable move-out date. Id.
Trustee's Reply Memorandum in Support of his Motion for Summary Judgment requested an order requiring H.C. Kim to vacate the property within fifteen days. See Heath v. H.C. Kim, AP 15-00001, Reply in Supp. Mot. Summ. J. at 2, ECF No. 26.
D. Adversary Proceeding 16-00001.
Trustee filed another Adversary Proceeding to Compel Turnover of Property against H.C. Kim on January 29, 2016, which is the subject of the motions at issue. Compl., ECF No. 2. Trustee's Complaint alleges that Debtor's fifty-percent undivided interest in the Real Property is now the property of the estate as defined by 11 U.S.C. § 541, and that H.C. Kim must pay rent for her own fifty-percent undivided interest in the Real Property because she "remains in possession, custody and control of the entire Real Property to the detriment of the bankruptcy estate. Id. at ¶¶ 6-8. The Complaint also contends that H.C. Kim owes the bankruptcy estate approximately $72,500.00 in rent for the time period between September 9, 2013, one month after Debtor's bankruptcy petition, and January 1, 2016, the month the Adversary Proceeding was filed. Id. at ¶ 9. H.C. Kim has not paid rent to the Trustee despite his requests, but the Complaint does not set forth the substance and timing of such requests. Id. ¶ 10.
On information and belief, Trustee contends that the property rents at a minimum of $5,000.00 per month, which requires H.C. Kim to pay $2,500.00 per month in rent. Compl. at ¶ 8, ECF No. 2. Trustee represents that this rent and property may be used, sold, or leased under 11 U.S.C. § 363.
On February 25, 2016, H.C. Kim filed an Answer to the Complaint, raising a number of affirmative defenses including failure to state a claim, statute of limitations, and laches. See Answer at 2, ECF No. 5.
1. Motion for Summary Judgment.
H.C. Kim moved for Summary Judgment on April 29, 2016, arguing that the Trustee cannot demand that she pay rent because she is married to Debtor, and also because she has a joint ownership interest in the property at issue. Mot. Summ. J. at 3, ECF No. 8. In her assessment, she is a co-tenant of Debtor, and a bankruptcy trustee cannot demand rent from Debtor's co-tenant. Id.
Trustee did not file an Opposition to H.C. Kim's Motion for Summary Judgment until September 6, 2016. Opp'n Mot. Summ. J. at 1-2, ECF No. 14. The Opposition maintains that recovery of damages in this case is permissible because H.C. Kim's conduct amounts to an ouster. Opp'n Mot. Summ. J. at 3, ECF No. 14. No reply was filed.
Trustee's counsel states that he was not aware of the Motion for Summary Judgment because H.C. Kim's prior counsel Attorney William C. Bischoff ("Bischoff") never served his office a copy of the Motion, and never filed a certificate of service for the Motions. See Suppl. Decl. Bronze in Supp. Mot. Am. Compl. at ¶ 3, ECF No. 26.
2. Motion for Order Granting Leave to File Amended Complaint.
Trustee also moved to amend his Complaint on September 16, 2016. Mot. Am. Compl., ECF No. 16. The Proposed Amended Complaint includes a second count seeking possession of the property because H.C. Kim's community property interests in the Real Property is part of Debtor's bankruptcy estate pursuant to 11 U.SC. § 541(a)(2), and also because Guam is a community property jurisdiction. Mem. P. & A.'s in Supp. of Mot. Am. Compl., Ex. A at ¶¶ 9-15, ECF No. 17.
The Proposed Amended Complaint asserts that Debtor and H.C. Kim were married at the time she received the deed to the Real Property and as of the petition date, which means that H.C. Kim's property interests in the Real Property are part of Debtor's bankruptcy estate. Mem. P. & A.'s in Supp. of Mot. Am. Compl., Ex. A at ¶ 12, ECF No. 17.
H.C. Kim opposed Trustee's Motion for Leave to File Amended Complaint. Opp'n Mot. Am. Compl. at 5-9, ECF No. 23. H.C. Kim's counsel Vanessa L. Williams ("Williams") represented that as of October 7, 2016, Trustee has not contacted her to work out a time frame for H.C. Kim to vacate and show the Real Property pursuant to the court's August 29, 2016 Order in AP 15-00001. Williams Decl. at ¶ 5, ECF No. 24. On October 21, 2016, Trustee filed a Reply. Reply to Opp'n Mot. Am. Compl. at 1, 9, 11, 12, ECF No. 25.
Trustee's counsel, Jacques G. Bronze ("Bronze"), represents that he attempted to contact Debtor's counsel via telephone on or about September 1, 2016, to discuss a mutually agreeable date for Debtor and H.C. Kim to vacate the Real Property, but that his calls were not returned. Reply to Opp'n Mot. Am. Compl. at 12-13, ECF No. 25; see also Suppl. Decl. Bronze in Supp. Mot. Am. Compl. at ¶¶ 4-8, ECF No. 26. Bronze also states that he attempted to contact Williams via email on or about October 10, 2016, to arrange a mutually agreed upon date for her client to vacate the Real Property. Reply to Opp'n Mot. Am. Compl. at 12-13, ECF No. 25; see also Suppl. Decl. Bronze in Supp. Mot. Am. Compl. at ¶ 8, Ex. A (Email Exchange between Bronze and Williams), ECF No. 26. Williams sent a responsive email on October 11, 2016, indicating they could discuss the matter the following week. Reply to Opp'n Mot. Am. Compl. at 12-13, ECF No. 25; see also Suppl. Decl. Bronze in Supp. Mot. Am. Compl. Ex. A (Email Exchange between Bronze and Williams), ECF No. 26.
Bronze was off-island from September 5, 2016, through October 5, 2016. Suppl. Decl. Bronze in Supp. Mot. Am. Compl. at ¶ 5, ECF No. 26.
E. H.C. Kim's Civil Action against Kumho in Civil Case No. ("CV") 16-00033.
Before this court partially granted summary judgment in AP 15-00001 (August 29, 2016), and after its Order denying H.C. Kim's motion to join Kumho in that same proceeding (March 29, 2016), H.C. Kim filed a civil suit against Kumho (April 29, 2016). See H.C. Kim v. Kumho, CV 16-00033, Compl., ECF No. 1; see also Heath v. H.C. Kim, AP 15-00001, Order, ECF No. 13, Heath v. H.C. Kim, AP 15-00001; Heath v. H.C. Kim, AP 15-00001, Order, ECF No. 33.
H.C. Kim's Complaint sets forth three causes of action. See H.C. Kim v. Kumho, CV 16-00033, Compl. at ¶¶ 17-19, ECF No. 1. The first claim seeks Declaratory Judgment as to "the legal rights and duties of the parties respecting the June, 2008 mortgage; and thus to whom [H.C. Kim's] 50% of the proceeds of the upcoming Bankruptcy Trustee's sale of her home will go," to exonerate her from liability to Kumho on said mortgage, and "that the June, 2008 mortgage does not any longer, if ever it did, constitute a lien against the property." Id. at ¶ 17. The second claim seeks cancellation of the instrument at issue, contended it is void or voidable. Id. at ¶ 18. The third claim seeks "a judgment quieting title to the property in her, and in her successors in interest, as against defendant Kumho on its June, 2008 mortgage." Id. at ¶ 19.
H.C. Kim has been unable to effectuate service on Kumho. See H.C. Kim v. Kumho, CV 16-00033, Status Report re: Service on Defs., ECF No. 6.
F. Bronze's Motion for Order for Contempt (11 U.S.C. § 105(a)) Against Williams.
On October 3, 2016, Trustee filed a Motion for Order of Contempt against Williams pursuant to 11 U.S.C. § 105(a). Mot. Contempt, ECF No. 119. Trustee contends that Williams' prosecution of H.C. Kim's action against Kumho in CV 16-00033 is a willful violation of the automatic stay mandated by 11 U.S.C. § 362. In re Chong C. Kim dba AB Kon, BK Case No. 13-00099, Mem. Supp. Mot. Contempt at 7, ECF No. 120.
G. Order for Supplemental Briefing.
On November 4, 2016, this court ordered the parties to submit briefs analyzing how Guam community property principles impact the above referenced motions (Mot. Summ. J., ECF No. 8; Mot. Am. Compl., ECF No. 16, and the Mot. Contempt, ECF No. 119 in BK Case No. 13-00099). Order at 1-2, ECF No. 28. In Guam, "[p]roperty acquired during marriage by either husband or wife, or both, is presumed to be community property." 19 G.C.A. § 6105(a). Yet it appears that under Guam law, "[n]either spouse's interest in community property or separate property shall be liable for the separate debt of the other spouse." 19 G.C.A. § 6103(a).
The parties were also invited to consider any applicability of 19 G.C.A. § 6106(a), which sets forth the conditions under which spouses must join in "transfers, conveyances or encumbrances or contracts to transfer, convey or encumber any interest in community real property." 19 G.C.A. § 6106(a). This subsection relates to property owned by spouses as joint tenants or tenants in common. Id. Although "[p]roperty acquired during marriage by either husband or wife, or both, is presumed to be community property," 19 G.C.A. § 6105(a), the court welcomed any clarification regarding the tenancy status of Debtor Chong C. Kim and H.C. Kim with respect to the real property at issue.
"The Bankruptcy Code has not supplanted community property law." In re McSparran, 410 B.R. 664, 669 (Bankr. D. Mont. 2009).
Section 6103(a), in its entirety, provides:
The separate debt of a spouse shall be satisfied first from the debtor spouse's separate property, excluding that spouse's interest in property in which each of the spouses owns an undivided equal interest as a joint tenant or tenant in common. Should such property be insufficient, then the debt shall be satisfied from the debtor spouse's one-half (1/2) interest in the community property or in which each spouse owns an undivided equal interest as a joint tenant or tenant in common, excluding the residence of the spouses. Should such property be insufficient, then the debt shall be satisfied from the debtor spouse's interest in the residence of the spouses. Neither spouse's interest in community property or separate property shall be liable for the separate debt of the other spouse.19 G.C.A. § 6103 (emphasis added).
II. APPLICABLE LEGAL STANDARDS.
A. Federal Rules of Civil Procedure ("FRCP") 56.
"The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." FRCP 56(a). A fact is material if it might affect the outcome of the suit under the governing substantive law. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A factual dispute is "genuine" where "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Id.
A shifting burden of proof governs motions for summary judgment under Rule 56. In re Oracle Corp. Securities Litig., 627 F.3d 376, 387 (9th Cir. 2010). The party seeking summary judgment bears the initial burden of proving an absence of a genuine issue of material fact. Id. (citing Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986)). Where, as here, the nonmoving party will have the burden of proof at trial, "the movant can prevail merely by pointing out that there is an absence of evidence to support the nonmoving party's case." Soremekun v. Thrifty Payless, Inc., 509 F.3d 978, 984 (9th Cir. 2007).
If the movant meets its burden, the burden then shifts to the nonmoving party to set forth "specific facts showing that there is a genuine issue for trial." Liberty Lobby, 477 U.S. at 250. "The mere existence of a scintilla of evidence . . . will be insufficient" and the nonmoving party must do more than simply show that there is "some metaphysical doubt as to the material facts." Id. at 261; see also Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). Viewing the evidence in the light most favorable to the nonmoving party, "[w]here the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no genuine issue for trial." Matsushita, 475 U.S. at 587.
B. FRCP 15.
FRCP 15(a)(2) provides that "[t]he court should freely give leave [to amend] when justice so requires." FRCP 15(a)(2). In deciding whether justice requires granting leave to amend, factors to be considered include "the presence or absence of undue delay, bad faith, dilatory motive, repeated failure to cure deficiencies by previous amendments, undue prejudice to the opposing party, and futility of the proposed amendment." Moore v. Kayport Package Express, Inc., 885 F.2d 531, 538 (9th Cir. 1989) (citing Foman v. Davis, 371 U.S. 178, 182 (1962)).
III.DISCUSSION
A. Whether H.C. Kim's Motion for Summary Judgment Should be Granted.
H.C. Kim moved for Summary Judgment on April 29, 2016, arguing that that the Trustee cannot demand that she pay rent because she is married to Debtor and has a joint ownership interest in the property at issue. Mot. Summ. J. at 3, ECF No. 8. Consequently, she is a co-tenant of Debtor, and a bankruptcy trustee cannot demand rent from a cotenant of the debtor. Id. Trustee's Opposition maintains that recovery of damages in this case is permissible because H.C. Kim's conduct amounts to an ouster. Opp'n Mot. Summ. J. at 3, ECF No. 14.
1. H.C. Kim's Argument.
H.C. Kim primarily relies on In re Sontag to argue that much like "[a] co-tenant cannot demand rent from another co-tenant in possession of jointly held property[,] . . . a bankruptcy trustee cannot demand rent from a co-tenant of the debtor." Mot. Summ. J. at 3, ECF No. 8 (citing 151 B.R. 664, 669 (Bankr. E.D.N.Y. 1993)). In that case, the trustee sought a court order requiring the non-debtor ex-spouse to pay the fair market rental value of the property from the date of her husband's petition until she vacated the premises. In re Sontag, 151 B.R. at 669. In a disposition proceeding, the New York State court granted her "exclusive occupancy of the property pending the sale and until three days after the closing," but provided no provision for the non-debtor spouse to pay rent to the debtor. 151 B.R. at 669. The bankruptcy court noted that "[o]ccupancy by one of the tenants in common does not, in and of itself, make the occupant liable to the co-tenant for either rental payments or use and occupancy payments." Id. (citing Oliva v. Oliva, 523 N.Y.S.2d 859, 860 (App. Div. 2nd Dept. 1988)). Additionally, the bankruptcy court acknowledged that "[a] court [can] direct that an ex-spouse maintain her exclusive possession of the marital residence in order to ensure her welfare until the time of sale without continuing the cotenancy." Id. There was no court order In re Sontag by the state court providing for the non-debtor ex-spouse to pay any sort of rent, but there was an order that provided that she was to "vacate the premises prior to a sale or no later than three days after the closing." Id.
The court determined that the debtor's petition for bankruptcy did not alter the obligation to permit the non-debtor spouse to remain in the house rent free because the "[t]rustee in a bankruptcy case stands in the shoes of the Debtor, and does not have any greater rights than the Debtor would have if there were no bankruptcy filing." Id. (citing Hays and Co. v. Merrill Lynch, Pierce Fenner & Smith, Inc., 885 F.2d 1149, 1154 (3rd Cir. 1989) ("trustee stands in the shoes of the debtor and can only assert those causes of action possessed by the debtor."). Accordingly, the non-debtor ex-spouse was "not liable to the Trustee for either post-petition rent or use and occupancy of the premises." Id.
H.C. Kim contends the holding of In re Sontag is "consistent with common law." Mot. Summ. J. at 3, ECF No. 8. She cites American Jurisprudence's summary of Cotenancy and Joint Ownership, which states that "[a] cotenant who enjoys occupancy of a common premises or some part of it is generally not liable to the others for rent, and is not accountable to them for the reasonable value of the occupancy, so long as the other cotenants have not been ousted or excluded." 20 Am. Jur. 2d Cotenancy and Joint Ownership § 47 (footnotes omitted).
2. Trustee's Argument.
Trustee maintains that In re Sontag is inapposite because there is no court order in this case granting H.C. Kim exclusive occupancy pending the sale of the property at issue. Opp'n Mot. Summ. J. at 2-3, ECF No. 14. Moreover, Heath stresses that the general rule prohibiting one co-tenant to demand rent from the other is subject to the exception of an ouster. Id. at 3 (citing Miller v. Myers, 46 Cal. 535, 538 (1873)).
In Miller, which is a rather old case, the Supreme Court of California held that "[i]t is well settled that a refusal, after a proper demand by a tenant in common in possession to admit his cotenant into the possession, is itself an ouster, and dispenses with the necessity of further proof on that point." 46 Cal. at 538. The Miller court continued that "[i]t is equally clear that in an action by a tenant in common against his cotenant to be admitted into the possession, a denial in the answer of the plaintiff's title and right of entry is equivalent to an ouster." Id. Thus, in Heath's view, H.C. Kim's denial that she owes rent to trustee "makes it expressly clear that she is claiming the entire property," and amounts to an ouster which entitles him to recover damages from the time that the ouster began. Opp'n Mot. Summ. J. at 3-4, ECF No. 14 (citing Miller, 46 Cal. at 538).
"An ouster, in the law of tenancy in common, is the wrongful dispossession or exclusion by one tenant in common of his cotenant or cotenants from the common property of which they are entitled to possession." Cardoza v. Machado, 46 Cal. App. 2d 809, 811-12 (1941) (citations and internal quotations omitted).
The Supreme Court of California stated that a lawsuit:
[I]s the most effective demand the plaintiff could make to be let into possession; and if his title and right of entry be denied, he need make no further proof of the ouster. But an ouster established in this method relates only to the commencement of the action; and if there be no proof of an ouster at a prior date, it will be deemed to have occurred immediately before the institution of the suit. In that event the plaintiff can recover in ejectment the value of the use and occupation only from the commencement of the action, when the ouster is deemed to have occurred. . . The recovery for use and occupation ought, therefore, to have been limited to that period, unless there was proof of an ouster at an earlier date.
Trustee argues that to defeat his cause of action for turnover of property to the estate under 11 USC § 542(a), the burden is on H.C. Kim to disprove the following elements:
[T]hat: (1) the property is in the possession, custody or control of a noncustodial third party; (2) the property constitutes property of the estate; (3) the property is of the type that the trustee could use, sell or lease pursuant to section 363 or that the debtor could exempt under section 522, and (4) that the property is not of inconsequential value or benefit to the estate.In re Labib, No. 1:05-BK-21422-MT, 2013 WL 5934326, at *4 (Bankr. C.D. Cal. Nov. 5, 2013) (citing 5-542 Collier on Bankruptcy P 542.02 (16th Ed., 2013)) (enumerating the elements of a cause of action for turnover of property to the estate); see also Opp'n Mot. Summ. J. at 4, ECF No. 14. It is Trustee's position that H.C. Kim has failed to meet her burden of presenting facts showing that he is barred from recovering the value of rent from her period of exclusive occupation of the real property. Opp'n Mot. Summ. J. at 4, ECF No. 14.
3. Analysis.
The Seventh Circuit Court of Appeals has analogized the relationship between a Chapter 7 trustee and debtors to a "tenancy in common." Matter of Szekely, 936 F.2d 897, 903 (7th Cir. 1991). In a tenancy in common, no "tenant can charge the other rent, but either can demand that the property be partitioned between them." Id. "(citing Massman v. Duffy, 76 N.E. 2d 547, 551-52 (Ill. App. Ct. 1947). Furthermore, bankruptcy law provides safeguards to those with an interest in property a trustee intends to sell. See In re Payne, 512 B.R. 421, 422, 431-32 (Bankr. E.D.N.Y. 2014) (denying trustee's motion to sell the debtor's residence and to "obtain an order forcibly evicting [d]ebtor and his family from their residence" absent compensation by the trustee adequately protecting the debtor). Id. at 431-32 (citing 11 U.S.C. § 363(e)).
Section 363(e) provides safeguards to one's interest in a property "proposed to be used, sold or leased, by the trustee," specifically:
Notwithstanding any other provision of this section, at any time, on request of an entity that has an interest in property used, sold, or leased, or proposed to be used, sold, or leased, by the trustee, the court, with or without a hearing, shall prohibit or condition such use, sale, or lease as is necessary to provide adequate protection of such interest. This subsection also applies to property that is subject to any unexpired lease of personal property (to the exclusion of such property being subject to an order to grant relief from the stay under section 362).11 U.S.C. § 363(e) (emphasis added).
In this case, the substance of the Complaint's prayer for relief "requests that [H.C. Kim] be ordered to account for the rental value of the Real Property, that a judgment be entered against her for the outstanding rental value of the Real Property and such other and further relief as is proper and just." Compl. at 3, ECF No. 2. This court approved Trustee's request to sell the property, and ordered the parties to work together to determine an acceptable move-out date. Heath v. H.C. Kim, AP 15-0001, Order at 8, ECF No. 33. Thus, the Trustee, Debtor, and H.C. Kim have an interest in the property that is analogous to a "tenancy in common." See Matter of Szekely, 936 F.2d 897, 903 (7th Cir. 1991).
In re Sontag's reasoning that a trustee cannot demand rent from a co-tenant of debtor is sound and equitable. See 151 B.R. 664, 669 (Bankr. E.D.N.Y. 1993). Debtor filed his Petition on August 9, 2013, yet Trustee waited until January 29, 2016, approximately 29 months later, to file an action to recover rent from H.C. Kim. See In re Chong C. Kim dba AB Kon, BK Case No. 13-00099, Vol. Pet., ECF No. 2; see also Compl., ECF No. 2.
In support of his Motion for Order Granting Leave to File Amended Complaint, Trustee claims to have delayed filing a turnover action for possession of the property so that the parties can settle the matter. See Decl. Heath at ¶ 4, ECF No. 19. The Declaration does not explain the reason for delaying filing an action for rent.
Trustee is incorrect that there is no court order permitting H.C. Kim to remain in the property as In re Sontag. See Supp. Reply at 2-3, ECF No. 32. Although it is not related to a disposition proceeding as In re Sontag, this court's Order in AP 15-0001 permitted H.C. Kim to remain in the premises pending a mutually agreed upon move-out date. Heath v. H.C. Kim, AP 15-0001, Order at 8, ECF No. 33. Furthermore, the bankruptcy court In re Sontag acknowledged that "[a] court [can] direct that an ex-spouse maintain her exclusive possession of the marital residence in order to ensure her welfare until the time of sale without continuing the cotenancy." See 151 B.R. at 669. This court can likewise permit H.C. Kim to remain in the property, without paying rent, to ensure her welfare and protect her from an untimely and inequitable demand of over $72,500.00 in back-rent to reside in property that she owned. See id., see also 11 U.S.C. § 363(e) (permitting the court to condition Trustee's use, sale, or lease of Debtor's property as is necessary to provide adequate protection of such interest); 11 U.S.C. § 105.
A court has broad authority to issue orders under 11 U.S.C. § 105. No provision within Title 11 "shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process." Id.
The court only recently (August 29, 2016) approved Trustee's request to sell the property in AP 15-00001 (which is devoid of any demand for rent by H.C. Kim), and ordered the parties to work out an acceptable move-out date. See Heath v. H.C. Kim, AP 15-00001, Order at 8, ECF No. 33. Thus, an ouster has not yet occurred. Consequently, H.C. Kim's Motion for Summary Judgment is GRANTED because the action is premature, and is contrary to the general rule that a co-tenant cannot demand rent from another co-tenant.
Bronze Declaration does not indicate when these purported demands for rent began.
If Debtor and H.C. Kim fail to cooperate with the court's Order in AP 15-00001, then Trustee is encouraged to file a motion for order of contempt, or similar motion for enforcement, in that case following the parties' good faith and reasonable efforts to meet and confer.
B. Whether Trustee's Request For Leave to Amend His Complaint Should Be Granted.
Trustee also moved to amend his Complaint on September 16, 2016, requesting an order requiring H.C. Kim to "forthwith" surrender possession of the Real Property. Mot. Am. Compl., ECF No. 16; see also Mem. P. & A.'s in Supp. of Mot. Am. Compl., Ex. A at ¶¶ 9-15, ECF No. 17.
Trustee's Reply in Support of his Motion for Summary Judgment in AP 15-00001 "respectfully request[ed] that [H.C. Kim] be given 15 days to vacate the subject real property. [Trustee] should not have to incur substantial legal fees to file another motion against [H.C. Kim] to force her to vacate the property." See Heath v. H.C. Kim, AP 15-0001, Reply at 2, ECF No. 26.
This court denied Trustee's request in its August 29, 2016 Order. Opp'n Mot. Am. Compl. at 6, ECF No. 23; see also Heath v. H.C. Kim, AP 15-00001, Order at 8, ECF No. 33 (denying Trustee's request to order Debtor and Kim to vacate the property within fifteen days, and ordering the parties to work out a time frame to show and vacate the property).
The Trustee moved to amend his Complaint seventeen days after this court's unambiguous Order in AP 15-00001 denying his request to order H.C. Kim to vacate the property within fifteen days. See Heath v. H.C. Kim, AP 15-00001, Order at 8, ECF No. 33. H.C. Kim opposed Trustee's Motion for Leave to File Amended Complaint contending that: (1) the amendment is futile because the claim is barred by res judicata, (2) Trustee's delay is unjustifiable, (3) Trustee's proposed Amended Complaint seeks to circumvent this court's Order in AP 15-00001, which demonstrates bad faith with a dilatory motive, (4) Trustee "squandered numerous opportunities to cure deficiencies" in his Complaint, and (5) leave to amend would be unduly prejudicial. Opp'n Mot. Am. Compl. at 5-9, ECF No. 23.
On October 21, 2016, Trustee filed a Reply, arguing that: (1) H.C. Kim failed to satisfy the elements of claim preclusion, (2) undue delay, standing alone, is insufficient to deny Trustee's Motion for Leave to File Amended Complaint, (3) H.C. Kim failed to demonstrate that substantial prejudice would result from the proposed amendment, and (4) Trustee unsuccessfully attempted to arrange a date for H.C. Kim to vacate the property. Reply to Opp'n Mot. Am. Compl. at 1, 9, 11, 12, ECF No. 25.
Although leave to amend should be granted liberally, there are some limitations. See Ascon Props., Inc. v. Mobil Oil Co., 866 F.2d 1149, 1160 (9th Cir. 1989) (citing DCD Programs, Ltd. v. Leighton, 833 F.2d 183, 186 (9th Cir. 1987)). For example, leave to amend need not be granted if it "constitutes an exercise in futility." Id.; see also Klamath-Lake Pharm. Ass'n v. Klamath Med. Serv. Bureau, 701 F.2d 1276, 1293 (9th Cir. 1983) (holding that, while leave to amend shall be freely given, the court need not grant leave for futile amendments). Additional factors that weigh against granting leave to amend include: "undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, [and] undue prejudice to the opposing party by virtue of allowance of the amendment." Foman v. Davis, 371 U.S. 178, 182 (1962).
1. Whether the Proposed Amendment is Futile.
H.C. Kim argues that the proposed amendment is futile because it is barred by res judicata. Opp'n Mot. Am. Compl. at 5, ECF No. 23. The doctrine of "'[r]es judicata, also known as claim preclusion, bars litigation in a subsequent action of any claims that were raised or could have been raised in the prior action.'" Owens v. Kaiser Found. Health Plan, Inc., 244 F.3d 708, 713 (9th Cir. 2001) (quoting Western Radio Servs. Co. v. Glickman, 123 F.3d 1189, 1192 (9th Cir.1997)). For the doctrine to apply, there must be: "(1) an identity of claims, (2) a final judgment on the merits, and (3) identity or privity between parties." Id.
The doctrine of res judicata is inappropriate in this case, however, because the Order in AP 15-00001 did not foreclose or adjudicate Trustee's ability to seek possession of the property in the event that the parties were unable to reach an agreeable, reasonable, and good-faith move-out date. See Heath v. H.C. Kim, AP 15-00001, Order at 8, ECF No. 33.
Trustee's proposed claim, however, is premature. Although it might become apparent at some future date that Debtor and H.C. Kim refuse to vacate the property in compliance with this court's August 29, 2016 Order, such a refusal is not yet apparent.
2. Whether the Proposed Amendment is Unduly Prejudicial.
Permitting numerous Adversary Proceedings against H.C. Kim is unnecessary, dilatory, and prejudicial. "[S]ubstantial or undue prejudice to the non-moving party is a sufficient ground for denial of leave to amend." Cureton v. Nat'l Collegiate Athletic Ass'n, 252 F.3d 267, 273 (3d Cir. 2001) (citation omitted). In considering whether amendment is appropriate, a court should consider whether the defendant will be faced with "additional discovery, cost, and preparation to defend against new facts or new theories." Id. (citations omitted). Yet "[a]ny prejudice to the nonmovant must be weighed against the prejudice to the moving party by not allowing the amendment." Bell v. Allstate Life Ins. Co., 160 F.3d 452, 454 (8th Cir. 1998) (citation omitted).
Additionally, filing numerous adversary proceedings runs contrary to the concern Trustee expressed in AP 15-00001 regarding incurring "substantial legal fees to file another motion against [H.C. Kim] to force her to vacate the property." See Heath v. H.C. Kim, AP 15-0001, Reply at 2, ECF No. 26. Filing a separate proceeding results in far more legal fees than a simple motion for enforcement.
"[T]he consideration of prejudice to the opposing party" is the factor "that carries the greatest weight," and is "the 'touchstone of the inquiry under rule 15(a).'" Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048, 1052 (9th Cir. 2003) (quoting Lone Star Ladies Inv. Club v. Schlotzsky's Inc., 238 F.3d 363, 368 (5th Cir. 2001) (citations omitted); see also DCD Programs, Ltd., 833 F.2d at 185. Without "prejudice, or a strong showing of any of the remaining Foman factors, there exists a presumption under Rule 15(a) in favor of granting leave to amend." Id. (emphasis omitted) (citing Lowrey v. Tex. A & M Univ. Sys., 117 F.3d 242, 245 (5th Cir. 1997)).
The Proposed Amendment in this case is inappropriate because it would subject H.C. Kim to additional discovery and cost to defend against a theory that this court already addressed in a separate proceeding. See Cureton, 252 F.3d at 273 (citation omitted). Although the prejudice to H.C. Kim must be weighed against the prejudice to the Trustee, See Bell, 160 F.3d at 454, the Trustee is not without recourse. If it becomes clear that H.C. Kim has no intention of arranging an appropriate and good-faith move-out date in compliance with this court's Order, then Trustee should simply file a motion for contempt, or a similar motion for enforcement, in AP 15-00001. This court has the inherent authority to enforce its Order in AP 15-00001, and deems that addressing this issue in AP 15-00001 is within its powers to manage cases in a manner it deems most efficient. See California Dep't of Soc. Servs. v. Leavitt, 523 F.3d 1025, 1033 (9th Cir. 2008) (citing Shillitani v. United States, 384 U.S. 364, 370 (1966) ("There is no question that courts have inherent power to enforce compliance with their lawful orders through civil contempt.") (alteration omitted)); see also Ready Transp., Inc. v. AAR Mfg., Inc., 627 F.3d 402, 404 (9th Cir. 2010) (A court's "inherent powers are mechanisms for 'control necessarily vested in courts to manage their own affairs so as to achieve the orderly and expeditious disposition of cases.'" (quoting Chambers v. NASCO, 501 U.S. 32, 43 (1991)).
The period of reasonableness has not yet lapsed, and a separate proceeding would place unnecessary strain on the parties' and this court's resources. Accordingly, the motion to amend is DENIED.
Additionally, the parties should refrain from leveraging such motions against each other, and should instead work together in good faith. Correspondence between parties' counsel shows Trustee's attempt to condition withdrawal of his Motion to Amend on H.C. Kim's agreement to move out of the property within fifteen days from the award of a successful bid for purchase of the real property. See Suppl. Decl. Bronze in Supp. Mot. Am. Compl. at Ex. A (Email Exchange between Bronze and Williams), ECF No. 26.
The decision to grant or deny a motion to amend is within the discretion of this court provided that the court offers justifications. See Foman, 371 U.S. at 182.
IV. CONCLUSION
H.C. Kim's Motion for Summary Judgment is GRANTED because as a cotenant, she is not liable to the Trustee for rent.
Additionally, Trustee's Motion to Amend the Complaint is DENIED because this court addressed the issue of possession of the real property at issue in AP 15-00001, and forcing H.C. Kim to litigate this issue in a separate proceeding would be unduly prejudicial. This court retains jurisdiction over the property at issue under AP 15-00001. If H.C. Kim and Debtor fail to vacate the real property at issue, and otherwise fail to act in accordance with this court's Order Granting in Part, and Denying in Part, Trustee's Motion for Summary Judgment, then Trustee may bring a motion for contempt, or similar motion for enforcement, in AP 15-00001.
The parties should refrain from excessive future filings, and address futures disputes against each other via motions in AP 15-00001 only where absolutely necessary. Furthermore, the parties should meet and confer in good faith before filing future adversarial motions. Any such motion, in this case and related proceedings, should include a declaration by counsel chronicling the parties' good faith efforts to meet and confer.
At the hearing, Trustee expressed concern regarding meet and confer requirement. The requirement to meet and confer, however, is not a requirement to resolve the issues on the parties' own under all circumstances. Rather, it means the parties should contact each other, and attempt to resolve their dispute in good faith prior to seeking court intervention. --------
SO ORDERED.
/s/ Frances M. Tydingco-Gatewood
Chief Judge
Dated: Dec 16, 2016
Miller, 46 Cal. at 537-38 ("The value of the rents and profits furnishes the measure for determining the amount of damages . . . ").