Opinion
19-16396-mkn Adv. Proc. 20-01098-mkn
07-07-2022
In re: NINETY-FIVE/TWO-FIFTEEN CENTER PART II, LLC, Debtor. v. NINETY-FIVE/TWO-FIFTEEN CENTER PART II, LLC, a Nevada limited liability company; STAR ONE PROPERTIES, a Texas general partnership; SPRING VALLEY DEVELOPMENT, LLC, a Nevada limited liability company; RAKESH PATEL, an individual; REENA PATEL, an individual; DONALD J. KUNKLE, an individual; INGRID M. KUNKLE, an individual; DI KUNKLE SECOND FAMILY LIMITED PARTNERSHIP, a Nevada limited partnership, ARTS DISTRICT REAL ESTATE #1, LLC, a Nevada limited liability company; LAS VEGAS BOULEVARD HIGH RISE, LLC, a Nevada limited liability company; OSSO BLANCA ST. LAS VEGAS G.P., a California general partnership; LIBERTY TOWER CONDOMINIUMS, LLC, a Nevada limited liability company; and AKM GRADING, a Nevada sole proprietorship, Defendants. GUY SHANI, Trustees of the Shani Investments Inc. Defined Benefit Pension Plan and Trust; NITZAN SHANI, Trustees of the Shani Investments Inc. Defined Benefit Pension Plan and Trust, Plaintiffs, RAKESH PATEL, an individual, Counter-Claimant, v. GUY SHANI, Trustee of the SHANI INVESTMENTS INC. DEFINED BENEFIT PENSION PLAN AND TRUST Counter-Defendant.
ORDER ON PLAINTIFFS' APPLICATION FOR DEFAULT JUDGMENT BY THE COURT PURSUANT TO FED. R. CIV. P. 55(b)(2) AGAINST DEFENDANT ARTS DISTRICT REAL ESTATE #1, LLC AND DEFENDANT ARTS DISTRICT REAL ESTATE #1, LLC'S COUNTERMOTION TO SET ASIDE ENTRY OF DEFAULT
In this Order, all references to "ECF No." are to the number assigned to the documents filed in the above-captioned bankruptcy case as they appear on the docket maintained by the clerk of court. All references of "AECF No." are to the documents filed in the above-captioned adversary proceeding. All references to "Section" or "§§ 101-1532" are to the provisions of the Bankruptcy Code. All references to "FRE" are to the Federal Rules of Evidence. All references to "Bankruptcy Rule" shall be to the Federal Rules of Bankruptcy Procedure. All references to "Civil Rule" shall be to the Federal Rules of Civil Procedure. All references to "NRS" are to the Nevada Revised Statutes.
MIKE K. NAKAGAWA, UNITED STATES BANKRUPTCY JUDGE
On June 1, 2022, the court heard the Plaintiffs' Application for Default Judgment by the Court Pursuant to Fed.R.Civ.P. 55(b)(2) Against Defendant Arts District Real Estate #1, LLC ("Default Judgment Application") and Defendant Arts District Real Estate #1, LLC's Countermotion to Set Aside Entry of Default ("Default Relief Countermotion"). The appearances of counsel were noted on the record. After arguments were presented, the matter was taken under submission.
Pursuant to FRE 201(b), the court takes judicial notice of all materials appearing on the docket in the above-captioned adversary proceeding and the above-captioned Bankruptcy Case See U.S. v. Wilson, 631 F.2d 118, 119 (9th Cir. 1980); see also Bank of Am., N.A. v. CD-04, Inc. (In re Owner Mgmt. Serv., LLC Trustee Corps.), 530 B.R. 711, 717 (Bankr. C.D. Cal. 2015) ("The Court may consider the records in this case, the underlying bankruptcy case and public records.").
On October 2, 2019, a voluntary "skeleton" Chapter 7 petition ("Petition") was filed on behalf of Ninety-Five/Two Fifteen Center Part II, LLC ("Debtor"). (ECF No. 1). The Petition was signed by Daniel Barness ("Barness") who attested that he is the "duly authorized representative" of the Debtor. The Petition describes the Debtor's business as a "single asset real estate" under Section 101(51B). The case is assigned for administration to Chapter 7 panel trustee Shelley D. Krohn ("Trustee"). Attached to the Petition is a list of nine other Chapter 7 cases pending in this district filed by related entities, all of which apparently are assigned to the Trustee. The debtor in one of those other cases is identified as Ninety-Five/Two-Fifteen Center, LLC, denominated Case No. 19-15837-mkn. Also attached is a List of Equity Security Holders identifying eighteen individual and non-individual members of the limited liability company that is the Debtor in the instant case ("Equity Holders List"). According to that list, the largest percentage (24.9%) membership interest in the Debtor is held by DI Kunkle Second Family LTD. PTNSHP.
According to Part 9 of property Schedule "A/B" at ECF No. 9 in the latter proceeding, that entity has a joint tenancy interest in "3.14 acres of unimproved land located at 6705 U.S. Hwy 95, APN 125-21-301-003."
It is not clear what source of information was used to prepare the Equity Holders List.
On October 29, 2019, schedules of assets and liabilities ("Schedules") and a statement of financial affairs ("SOFA") was filed on behalf of the Debtor. (ECF No. 14). Part 9 of property Schedule "A/B" attests that the Debtor has an interest in one parcel of real property identified as APN 125-21-301-002, legally described as: PT NE4 SW4 SEC 2119 60, Las Vegas, Clark County, State of Nevada ("Parcel 002"). Part 11 of the same Schedule attests that the Debtor owns a cause of action against third parties described as "Possible quiet title and claims for preferential judicial sale of Debtor's interest in real property (APN 125-21-301-002) against LLC members Kunkle and/or Fidler, et al." Part 2 of creditor Schedule "E/F" includes non-priority unsecured claims for all of the parties appearing on the Equity Holders List, based on "possible claims arising from wrongful acts in connection with investments in company."
Part 3 of the SOFA attests that within one year before the Debtor filed the Petition, it was involved in two actions that had been commenced in the Eighth Judicial District Court, Clark County, Nevada ("State Court"): (1) Rakesh Patel and Reena Patel ("Patels") v. Ninety Five Two Fifteen Center, LLC, Ninety Five Two Fifteen Center Part II, LLC, Star One Properties, David A. Rifkind, Helen R. Rifkind, Guy Shani, and Nitzan Shani, denominated Case No. A-18-785851-C, and (2) Marla Fidler, Jonathan Fidler, and Harriet Fidler ("Fidlers") v. Michael Bash, Havard Oxford, LLC, Emerson Twain, LLC, Ninety-Five Fort Apache Complex, LLC, Ninety-Five/Two Fifteen Center Part II, LLC, Palm Eight Land Development, LLC, and Berkley Enterprises, Inc., denominated Case No. 18-771426-B ("Fidler Action"). The first action is described as "Pending" while the latter action is described as "Concluded." Part 6 of the SOFA attests that on August 27, 2019, Arts District Real Estate #1 LLC ("Arts District") received from the Debtor "3.79 acres of land located on West Frontage Road/OSO Blanca Road adjacent to [the] Oran K. Gragson Freeway/US Highway No. 95 in Las Vegas, NV 89149; APN 125-21-301-002; purchased for $10,000.00."
On November 27, 2019, the Trustee filed a notice of assets that included a March 5, 2020, bar date for proofs of claim to be filed. (ECF No. 21).
On December 9, 2019, Spring Valley Development, LLC ("Spring Valley"), timely filed a proof of claim in the amount of $1,159,860, allegedly based on a development agreement that limits its claim to a maximum of 39 percent of the value of Parcel 002 ("Spring Valley POC").
The Spring Valley POC is signed by Spring Valley's counsel as its authorized agent.
On December 10, 2019, Arts District timely filed a proof of claim in the amount of $1,000,000, allegedly based on a recorded judgment entitling it to priority under Section 507(a)(2). On the same date, Arts District filed a separate proof of claim in the same amount alleging the same priority, to which is attached a copy of a "Writ of Execution" entered by the State Court in the Fidler Action. The writ indicates that it was issued to collect a judgment entered on April 12, 2019, in favor of the Fidlers ("Fidler Judgment"), in the principal amount of $160,000
These proofs of claim identify the claimant as "Art District" rather than "Arts District." The claimant is not an individual and these proofs of claim are not executed by an authorized agent on behalf of the claimant as required by Bankruptcy Rule 3001(b).
"There is no dispute that on August 22, 2019, the Fidlers assigned all of their rights under the Fidler Judgment to Arts District. There is no dispute that on August 27, 2019, the Debtor's interest in Parcel 002 was acquired by Arts District at a sheriff's sale through a credit bid of $10,000. There is no dispute that under Nevada law, the Debtor has a one-year right of redemption ("Redemption Rights") commencing from the date of the sheriff's sale, i.e., through August 27, 2020. There is no dispute that the Redemption Rights constitute a legal interest held by the Debtor when the Chapter 7 was commenced, and therefore constitutes property of the estate under Section 541(a)(1). There is no dispute that the Trustee has exclusive authority to exercise the Redemption Rights on behalf of the bankruptcy estate, but currently does not have funds available to do so." See Order on Motion for Approval of Settlement Agreement with Arts District Real Estate #1, LLC, at 7:9-18, entered June 16, 2020 (ECF No. 133). Redemption Rights under Nevada law are provided by NRS 21.210. Under that statute, a judgment debtor generally may redeem property from a purchaser within one year of the sale by paying the purchaser the amount of the purchase price with an additional one percent per month, plus any assessments, taxes or lien payments made by the purchaser, as well as interest thereon.
On March 28, 2020, Arts District filed two separate proofs of claim in the amount of $160,000, representing that they are not amendments to a prior claim, but which also represent that they are replacing a previous claim as "overstated."
On January 13, 2020, the Trustee filed an application to employ a real estate agent to sell Parcel 002. (ECF No. 31). The Trustee's declaration in support of the application states that "I have determined that the assets of this estate consist of real property legally described as PT NE4 SW4 SEC 2119 60, Las Vegas, Clark County, State of Nevada, APN 125-21-301-002…" The declaration does not indicate the basis for that determination, i.e., whether it is based on the representation in Schedule "A/B," or, on a title report.
On January 31, 2020, an order was entered granting the Trustee's application to employ a real estate agent to sell Parcel 002 under an exclusive real estate listing agreement. (ECF No. 42). Under Section 2 of the listing agreement, the listing agreement expires six months after entry of the order, i.e., approximately July 31, 2020.
On February 6, 2020, a motion to dismiss the Chapter 7 case ("Kunkle Dismissal Motion") was filed on behalf of DI Kunkle Second Family LTD Partnership ("Kunkle"). (ECF No. 46). The motion asserts that the filing of the Chapter 7 petition was unauthorized.
The Kunkle Dismissal Motion originally was noticed to be heard on March 11, 2020 (ECF No. 48), but was continued to June 17, 2020.
On February 26, 2020, the Trustee filed opposition to the Kunkle Dismissal Motion, accompanied by the Declaration of Daniel I. Barness. (ECF Nos. 59 and 60). On the same date, Barness filed a separate opposition (ECF No. 61) to which he attaches an additional declaration, in addition to a separate request for judicial notice. (ECF No. 62).
On March 4, 2020, Kunkle filed an omnibus reply in support of the Kunkel Dismissal Motion that was accompanied by the Declaration of Rakesh Patel ("Patel Declaration"). (ECF Nos. 66 and 67).
On March 5, 2020, Guy Shani and Nitzan Shani as Trustees of Shani Investments, Inc. Defined Benefit Pension Plan & Trust ("Shani Trust"), timely filed a proof of claim in the amount of $380,750, allegedly secured by a deed of trust against Parcel 002 ("Shani POC"). Shani Trust alleges that the value of Parcel 002 is $1,327,000 and that the entire amount of its claim is secured. Attached as Exhibit "1" to the Shani POC is a copy of a Promissory Note Secured by Deed of Trust dated May 12, 2017 ("Note"), in the principal amount of $300,000. The Note has a maturity date of May 12, 2019, and requires monthly interest payments of $3,000 commencing June 1, 2017. Attached as Exhibit "2" to the Shani POC is a copy of a Deed of Trust, Assignment of Leases and Rents, Security Agreement, and Fixture Filing with respect to Parcel 002 in favor of Shani Trust evidencing that it was recorded in Clark County on May 12, 2017. Attached as Exhibit "3" to the Shani POC is a copy of a separate deed of trust securing the Note on an adjacent parcel of real property identified as APN 125-21-301-003 ("Parcel 003"). The latter deed of trust was recorded on April 12, 2018.
On March 6, 2020, Barness filed an objection to the Patel Declaration. (ECF No. 69).
On March 10, 2020, a motion for relief from stay ("Shani RAS Motion") was filed on behalf of Shani Trust, accompanied by the Declaration of Guy Shani and a request for judicial notice. (ECF Nos. 74, 75, and 76). The Shani RAS Motion was noticed to be heard on April 15, 2020. (ECF No. 77).
On March 11, 2020, a separate Declaration of George Smith ("Smith Declaration") was filed in support of the Shani RAS Motion, and further amended on March 12, 2020. (ECF Nos. 82 and 83). According to page 1 of the appraisal report attached to the Smith Declaration ("Smith Appraisal"), two adjacent parcels of land totaling approximately 6.93 net acres (i.e., Parcel 002 and Parcel 003) were appraised as of February 26, 2020, at a total value of $3,019,000. At page 27, the Smith Appraisal separately values Parcel 002 at $1,327,000 and Parcel 003 at $1,505,000.
On March 30, 2020, Rick Patel ("Patel"), filed an untimely proof of claim in a nonpriority unsecured amount of $175,000, based on an alleged ownership interest in the Debtor ("Patel POC").
The Patel POC is electronically signed by the individual claimant. Patel's name, however, does not appear on the Equity Holders List attached to the Petition.
On March 30, 2020, Kunkle filed an untimely proof of claim in the amount of $750,000, allegedly based on a deed recorded on November 14, 2018, with respect to unidentified real property ("Kunkle POC").
The Kunkle POC is not executed by an authorized agent on behalf of the claimant as required by Bankruptcy Rule 3001(b).
On April 3, 2020, the Trustee filed her opposition to the Shani RAS Motion and related documents. (ECF Nos. 87, 88, and 89).
On April 9, 2020, the Shani Trust filed its reply in support of the Shani RAS Motion. (ECF No. 93).
On April 14, 2020, the Trustee filed a supplement to her opposition to the Shani RAS Motion. (ECF No. 98).
On April 30, 2020, the Trustee filed a motion to approve a certain settlement agreement ("Settlement Motion") reached with Arts District. (ECF No. 102).
On May 4, 2020, an order was entered shortening time so that the Settlement Motion could be heard on May 27, 2020. (ECF No. 111).
On May 6, 2020, a joinder to the Settlement Motion was filed by Arts District. (ECF No. 113).
On May 14, 2020, an opposition to the Settlement Motion was filed by Spring Valley ("Spring Valley Opposition"). (ECF No. 117).
On May 15, 2020, an opposition to the Settlement Motion was filed by Guy Shani and Nitzan Shani, as Trustees of Shani Investments, Inc. ("Shani Opposition"), along with a supplemental request for judicial notice and a declaration of Guy Shani. (ECF Nos. 118, 119, and 120).
On May 21, 2020, the Trustee filed a reply to the Spring Valley Opposition as well as the Shani Opposition. (ECF No. 122). On the same date, a joinder to the reply was filed by Arts District. (ECF No. 123).
On May 26, 2020, an interim order was entered on the Shani RAS Motion directing the Trustee and the Shani Trust to jointly submit a copy of a title report or equivalent documentary evidence establishing the Debtor's legal title to Parcel 002 ("Interim RAS Order"). (ECF No. 126).
On June 10, 2020, the Trustee and Shani Trust filed status reports as required by the Interim RAS Order. (ECF Nos. 129 and 130).
On June 16, 2020, an order was entered denying approval of the Settlement Motion. (ECF No. 133). Approval of the Settlement Motion was denied by the court without prejudice to the Trustee seeking to sell the Redemption Rights and certain avoidance claims on a lien free basis.
On June 22, 2020, a final order was entered conditionally granting the Shani RAS Motion by allowing the Trustee until August 31, 2020, to commence appropriate avoidance actions or take other steps to administer the estate's interests in the subject property. (ECF No. 137).
On July 31, 2020, the Trustee filed a motion to approve a sale of the bankruptcy estate's Redemption Rights as well as certain designated avoidance actions ("Sale Motion"). (ECF No. 142). The Sale Motion was set to be heard on August 19, 2020, pursuant to an order shortening time. (ECF No. 148).
On August 10, 2020, Arts District filed a joinder in support of the Sale Motion. (ECF No. 150).
On August 17, 2020, an order was entered approving a stipulation to withdraw the Kunkel Dismissal Motion. (ECF No. 154).
On August 19, 2020, Guy Shani and Nitzan Shani, Trustees of the Shani Investments Inc. Defined Benefit Pension Plan and Trust ("Plaintiffs") commenced the above-captioned adversary proceeding ("Adversary Proceeding") by filing an adversary complaint ("Complaint"). (AECF No. 1). Defendants named in the Complaint include the above-captioned Debtor, as well as the following parties: Star One Properties; Spring Valley Development, LLC; Rakesh Patel; Reena Patel; Donald J. Kunkle; Ingrid M. Kunkle; DI Kunkle Second Family Limited Partnership; Arts District; Las Vegas Boulevard High Rise, LLC; Osso Blanca St. Las Vegas G.P.; Liberty Tower Condominiums, LLC; AKM Grading; and various fictitiously named entities. The Complaint alleges that the Adversary Proceeding arises out of and is related to the Chapter 7 case, that the bankruptcy court has subject matter jurisdiction under 28 U.S.C. §§ 157 and 1334, and that the Adversary Proceeding is a core proceeding under 28 U.S.C. § 157(b)(2)(K) seeking to determine the validity, extent or priority of liens. See Complaint at ¶¶ 1, 3, and 4.
Unless otherwise indicated, hereafter defendants Rakesh Patel and Reena Patel will be referenced as the "Patel Defendants."
Unless otherwise indicated, hereafter defendants Donald J. Kunkle, Ingrid M. Kunkle, and DI Kunkle Second Family Limited Partnership will be referenced as the "Kunkle Defendants."
The court is uncertain whether at the time the Adversary Proceeding was commenced there already was a pending action in another court where the claims between all of the parties were being adjudicated.
Plaintiffs allege that each of the named defendants have or may assert an interest in Parcel 002 that is adverse to the interest of the Plaintiffs. Plaintiffs allege that they are the beneficiaries of a Deed of Trust, Assignment of Leases and Rents, Security Agreement, and Fixture Filing ("Shani Deed of Trust") recorded against Parcel 002 on May 12, 2017. See Complaint at ¶ 25. They also allege that there were no other liens against Parcel 002 at the time the Shani Deed of Trust was recorded, see id. at ¶¶ 26 and 55, and that the obligation has not been paid. Id. at ¶ 27. Plaintiffs allege that the Shani Deed of Trust includes an incorrect legal description of Parcel 002, see id. at ¶¶29 and 56, but does include the correct Assessor's Parcel Number. Id. at ¶¶ 30 and 59. They also allege that because the Shani Deed of Trust contains the correct Assessor's Parcel Number and was properly recorded under the Plaintiffs' name, all other parties had either actual, constructive, and/or inquiry notice of the Shani Deed of Trust. Id. at ¶ 58. Plaintiffs, therefore, allege three separate claims: (1) Quiet Title to Parcel 002 based on the Shani Deed of Trust recorded on May 12, 2017; (2) Reformation of the Shani Deed of Trust to include the correct legal description; and (3) imposition of an Equitable Lien against Parcel 002 in the event quiet title or reformation is not granted.
On August 20, 2020, an order was entered granting the Sale Motion ("Sale Order"). The Sale Order approves a Purchase Agreement for the Redemption Rights and certain avoidance claims to be acquired by Arts District for the total amount of $251,000, with the full purchase price to be paid no later than December 31, 2021. (ECF No. 158).
On September 21, 2020, a copy of the Complaint and summons was served on Arts District. (AECF No. 21).
On September 23, 2020, a copy of the Complaint and summons was served on the Patel Defendants. (AECF Nos. 29 and 30).
On September 29, 2020, the Kunkle Defendants filed an answer to the Complaint. (AECF No. 34).
On October 28, 2020, defendant Spring Valley Development, LLC, filed an answer to the Complaint. (AECF No. 36).
On November 20, 2020, Plaintiffs filed an application for entry of default against the Patel Defendants along with a supporting declaration of their counsel ("Patel Defendants' Default Application"). (AECF Nos. 40 and 41). On the same date, a certificate of service was filed attesting that the Patel Defendants' Default Application was served by first class mail. (AECF No. 42).
On November 20, 2020, Plaintiffs filed an application for entry of default against Arts District along with a supporting declaration of their counsel ("Arts District Default Application"). (AECF Nos. 46 and 47). On the same date, a certificate of service was filed attesting that the Arts District Default Application was served by first class mail. (AECF No. 48).
On November 23, 2020, default was entered on the Complaint against Arts District. (AECF No. 55).
On December 2, 2020, default was entered on the Complaint against the Patel Defendants. (AECF No. 78 and 80).
On December 2, 2020, default was entered on the Complaint against Arts District. (AECF No. 81).
On December 23, 2020, Arts District filed a Motion to Set Aside Default and Dismiss Case on Behalf of Arts District Real Estate #1, LLC ("Set Aside and Dismissal Motion"). (AECF No. 97). Attached to the Set Aside and Dismissal Motion is a copy of the Sale Order. The motion sought to set aside the default for failure to answer the Complaint, and also to dismiss the Complaint for failure to state a claim for relief apparently based on a lack of jurisdiction to consider a quiet title action.
On December 29, 2020, Arts District noticed its Set Aside and Dismissal Motion to be heard on February 3, 2021. (AECF No. 102).
On January 20, 2021, Plaintiffs filed an opposition to the Set Aside and Dismissal Motion, supported by a declaration of Guy Shani and a request for judicial notice. (AECF Nos. 105, 106, and 107).
On February 22, 2021, and order was entered denying the Set Aside and Dismissal Motion ("Set Aside Order"). (AECF No. 113).
On March 9, 2021, the Patel Defendants filed a Motion to Set Aside Defaults and noticed it for hearing on April 14, 2021. (AECF Nos. 119 and 120).
On June 17, 2021, an order was entered granting the Patel Defendants' Motion to Set Aside Defaults conditioned on the payment of attorney's fees to the Plaintiffs. (AECF No. 131).
On July 1, 2021, the Patel Defendants filed an answer to the Complaint which included a counterclaim. (AECF No. 139). The answer specifically admits the allegations of paragraphs 1, 3, and 4 of the Complaint.
On July 2, 2021, the Patel Defendants amended their answer and counterclaim. (AECF No. 141). The amended answer specifically admits the allegations of paragraphs 1, 3, and 4 of the Complaint.
On July 6, 2021, an order was entered regarding the Patel Defendants' Motion to Set Aside Defaults. (AECF No. 142).
On September 15, 2021, the Patel Defendants filed another amended answer that does not include a counterclaim. (AECF No. 146). The amended answer specifically admits the allegations of paragraphs 1, 3, and 4 of the Complaint.
A response to the counterclaim had never been filed by the Plaintiffs at the time of this amended answer, so it may be that the Patels were attempting to amend their answer "as a matter of course" to withdraw the counterclaim under FRCP 15(a)(1). It appears that the parties have treated the amendment as an effective withdrawal of the counterclaim because there is no response to the counterclaim that appears on the docket.
On September 22, 2021, the Patel Defendants filed a further amended answer that does not include a counterclaim. (AECF No. 150). The amended answer specifically admits the allegations of paragraphs 1, 3, and 4 of the Complaint.
On October 7, 2021, Plaintiffs filed a notice of subpoena duces tecum issued to the Custodian of Records of the Clark County Recorder's Office, along with a certificate of service showing service to all attorneys of record. (AECF Nos. 159 and 160).
On January 19, 2022, the Trustee filed a report of receipt of $251,000.00 as a result of the Purchase Agreement approved by the Sale Order. (ECF No. 173).
On April 20, 2022, Plaintiffs filed a motion seeking partial summary judgment against the Kunkle Defendants and Patel Defendants ("Partial MSJ"). (AECF No. 175). The motion is supported by a Statement of Undisputed Facts, and the declarations of Guy Shani and J. Bushnell Nielsen. (AECF Nos. 176, 177, and 178). The motion was noticed to be heard on June 2, 2022. (AECF No. 179). Opposition to the Partial MSJ was required to be filed by no later than May 19, 2022, under LR 9014(d)(3).
On May 16, 2022, the court ordered that the Partial MSJ be heard on June 15, 2022, instead of June 2, 2022.
On April 20, 2022, Plaintiffs filed the instant Default Judgment Application against Arts District along with the supporting declarations of Guy Shani and J. Bushnell Nielsen ("Nielsen Declaration"). (AECF Nos. 181-183). Attached to the Default Judgment Application are 10 documents marked as exhibits. The Default Judgment Application was noticed to be heard on June 1, 2022. (AECF No. 184).
Nielsen is offered as an expert witness in land title matters and was retained to examine the chain of title for Parcel 002. No objection has been raised as to Nielsen's qualifications as an expert or to consideration of his testimony.
Plaintiffs request that the court take judicial notice of exhibits 1 through 8. See Default Judgment Application at 3 n.1. Those exhibits consist of copies of (1) the grant deed by which the Debtor took title to Parcel 002 in April 2005, (2) the grant deed by which the Debtor allegedly transferred an interest in Parcel 002 to Star One Properties in September 2005, (3) the acknowledgement of disclaimer of interest by Star One Properties in September 2020, (4) the Shani Deed of Trust, (5) a notice of entry of the Fidler Judgment, (6) the notice of Sheriff's Sale, (7) the recorded Sheriff's Certificate of Sale, and (8) a mechanic lien notice by AKM Grading. A Certificate of Custodian of Records executed by Lenora Soil-Alia on October 26, 2021, is attached as exhibit 9. Attached as exhibit 10 is a transcript of a deposition taken March 9, 2022, of Lenora Soil-Ali ("Soil-Ali Deposition") who is the Assistant County Recorder of the Clark County Recorder's Office.
On May 3, 2022, the Patel Defendants filed a motion to dismiss the adversary proceeding for lack of jurisdiction pursuant to Civil Rule 12(b)(1) ("12(b)(1) Motion"). (AECF No. 188). That motion was noticed to be heard on June 15, 2022. (AECF No. 189).
On May 12, 2022, the Patel Defendants filed a limited opposition to the Partial MSJ. (AECF No. 197). The opposition is based on the 12(b)(1) Motion, i.e., that partial summary judgment cannot be granted because the Adversary Proceeding must be dismissed for lack of jurisdiction.
On May 17, 2022, Plaintiffs filed an opposition to the 12(b)(1) Motion supported by the Declaration of Guy Shani. (AECF Nos. 202 and 203).
On May 18, 2022, defendant Arts District filed its Opposition to Application for Default Judgment and Countermotion to Set Aside Entry of Default ("Default Relief Countermotion"), along with a supporting Declaration of Robert Ford ("Ford Declaration"). (AECF Nos. 206 and 207).
The Default Relief Countermotion and supporting declaration subsequently were refiled by Arts District due to errors in having them docketed. (AECF Nos. 211, 212, 215, and 216). Attached to the Default Judgment Countermotion are copies of documents marked as 11 separate exhibits ("Arts Ex. ___").
On May 19, 2022, the deadline to file opposition to the Partial MSJ expired with no opposition having been filed by the Kunkle Defendants.
On May 25, 2022, Plaintiffs filed a reply in support of its Default Judgment Application and opposition to the Default Relief Countermotion, along with the supporting declarations of Guy Shani and Andrew J. Glendon ("Glendon Declaration"). (AECF Nos. 217-219).
Copies of multiple documents are attached to the written arguments and declarations submitted in connection with the Default Judgment Application and the Default Relief Countermotion. No objections have been raised to the court's consideration of any of the documents. Likewise, no objections have been raised to any documents for which the court has been requested to take judicial notice. Accordingly, all of the documents offered as exhibits by the parties are admitted for their full probative value.
There is no dispute that the Complaint was filed on August 19, 2020. There is no dispute that the Complaint and summons were served on Arts District on September 21, 2020. There is no dispute that Plaintiffs filed the Default Judgment Application and served the Default Judgment Application on Arts District on November 20, 2020. There is no dispute that default was entered against Arts District on November 23, 2020.
Pursuant to Civil Rule 55, made applicable in this bankruptcy proceeding through Bankruptcy Rule 7055, "a default may be entered against a party when that party fails to plead or otherwise defend an action." Jones-Theophilious v. Avery (In re Jones), 2015 WL 1544524, at *4 (B.A.P. 9th Cir. Apr. 7, 2015).
There is no dispute that Arts District filed its Set Aside and Dismissal Motion on December 23, 2020. There is no dispute that Plaintiffs filed opposition to the Set Aside and Dismissal Motion on January 20, 2021. There is no dispute that the Set Aside and Dismissal Motion was heard on February 3, 2021. There is no dispute that the Set Aside and Dismissal Motion was denied and that the Set Aside Order denying the motion was entered on February 22, 2021. In view of this record, the inescapable conclusion is that the Default Relief Countermotion now before the court is nothing more than a do-over for the relief denied by the Set Aside Order.
Under Civil Rule 55(c), a bankruptcy court may set aside an entry for default for good cause. See Fed.R.Civ.P. 55(c). The good cause standard under Civil Rule 55(c) for setting aside a default is the same standard which governs vacating a default judgment under Civil Rule 60(b). See Franchise Holding II, LLC. v. Huntington Restaurants Group, Inc., 375 F.3d 922, 925 (9th Cir. 2004). When determining whether good cause exists to set aside a default, a bankruptcy court shall consider the following three factors: "1) whether the defaulting party engaged in culpable conduct that led to the default; 2) whether the defaulting party had no meritorious defense; or 3) whether reopening the default judgment would prejudice the other party[.]" In re Jones, 2015 WL 1544524, at *4. Because the factors are in the disjunctive, the presence of any factor is sufficient for the court to exercise its discretion to refuse to set aside a default. See U.S. v. Signed Personal Check No. 730 of Yuban S. Mesle, 615 F.3d 1085, 1091 (9th Cir. 2010). The moving party bears the burden of showing that these factors support relief under the circumstances. See Cassidy v. Tenorio, 856 F.2d 1412, 1415 (9th Cir. 1988).
Even more inescapable and perhaps inexplicable is that the instant request is no more meritorious than the earlier request. It is undisputed that the only support for the prior Set Aside Motion was a copy of the Sale Order that was attached as an exhibit. At best, that Sale Order was the basis for a misguided argument that the court was devested of jurisdiction over the instant Adversary Proceeding by the Trustee's subsequent sale of the Redemption Rights and avoidance actions. However, nothing in the Sale Order even suggests that Arts District has any defense, much less a meritorious defense, to the claims set forth in the Complaint.
The first claim for relief in the Complaint seeks to quiet title in Parcel 002 in favor of the Plaintiffs pursuant to the Shani Deed of Trust. Plaintiffs' theory is that the document includes the correct Assessors Parcel Number and was recorded in the correct name. Based on the undisputed evidence of that recorded document, Plaintiffs argue that the recording of the Shani Deed of Trust on May 12, 2017, provided the world with record notice of their interest in Parcel 002 that was superior to all interests in the property that were recorded thereafter. A quiet title action under Nevada law may be brought by any person to determine adverse claims in real property asserted by another person. See Nev.Rev.Stat. 40.010. No particular pleading formalities are required to state a claim for quiet title. See Bank of New York Mellon v. Christopher Communities of Southern Highlands Golf Club Homeowners Assoc., 321 F.Supp.3d 1212, 1219 (D. Nev. 2018), reconsideration denied, 2019 WL 1209082, appeal dismissed, 2020 WL 1862316. Thus, it appears that a plausible basis for a quiet title claim under Nevada law has been pled. But the instant do-over is without merit for a separate reason.
Not only has Arts District failed to allege a legal basis to dispute the quiet title claim, but the evidence it provides is entirely consistent with Plaintiffs' legal theory. The manager of the Arts District attests that in September 2018, the Plaintiffs reached an agreement with the Patel Defendants and the Arts District to assign the Shani Deed of Trust and underlying promissory note to an entity described as Rockville 40, LLC. See Ford Declaration at ¶ 4. Pursuant to the alleged agreement, Plaintiffs allegedly received $6,000 wired to their account in November 2018. Id. at ¶ 6. The manager attests, however, that the Plaintiffs reneged on the agreement and never assigned the Shani Deed of Trust and promissory note. Id. at ¶ 7. He also attests to his understanding that the Plaintiffs wanted to assign the Shani Deed of Trust because they were aware of a defective legal description. Id. at ¶ 5. Whatever the reason may have been for the Plaintiffs to make the alleged deal, the manager of Arts District acknowledges that he had actual knowledge of the Shani Deed of Trust no later than September 2018. More important, he does not suggest that the recording of the Shani Deed of Trust did not occur on May 12, 2017, or that it somehow could not be located in the county records. No meritorious defense to Plaintiffs claims is suggested and the legal expense of further litigation would prejudice the Plaintiffs. Thus, the evidence provided in support of the Default Relief Countermotion fails to establish that the default should be set aside.
The only document provided with the Ford Declaration is a copy of a Wire Transfer Outgoing Request indicating that on November 9, 2018, the amount of $6,000 was transmitted to an account for Shani Investments Inc. from an account held by an entity named Anniversary Mining Claims L.L.C. It appears that on June 23, 2021, Anniversary Mining Claims and declarant Ford commenced a civil action against the Shani parties, denominated Case No. A-21-836780-C, for recovery of the $6,000 or other relief, but the action was dismissed. See Glendon Declaration at ¶¶ 7, 8, and 9. Moreover, declarant Ford's assertion that an agreement was reached in September 2018, to assign the Shani Deed of Trust allegedly is false. Id. at ¶¶ 3, 4, 7, and 10. Attached to the Glendon Declaration are 3 separately numbered documents offered as exhibits. A copy of the complaint filed by Anniversary Mining Claims against Shani Investments Inc. is included as Exhibit 3. The complaint is captioned for filing in the federal district court but the assigned case number is for the Eighth Judicial District Court, Clark County, Nevada.
Inasmuch as Arts District has failed again to demonstrate a basis for relief from its default, the court considers its opposition to entry of a default judgment. Arts District relies primarily on a companion to the Nevada quiet title statute, i.e., NRS 40.110. Subsection (2) describes the anticipated effect of a quiet title judgment on persons who receive notice of the judgment. Before reaching the effect of such a judgment, however, Subsection (1) requires the court entering a quieting title judgment to examine the evidence presented by the plaintiff establishing its title to the subject real property. In essence, Subsection (1) requires the equivalent of a prove-up hearing for the plaintiff to obtain a judgment against parties who do not respond to a quiet title complaint. See, e.g., Wood Bro Capital, LLC v. Underwood, 2017 WL 2294086 (D. Nev. May 25, 2017) (judgment granted against defaulting defendants based on copies of recorded quitclaim deeds and deeds of trust).
For reasons already discussed, the testimony of the Arts District's manager offers no basis to disregard the Shani Deed of Trust. No one disputes that the Shani Deed of Trust was recorded by the Debtor on May 12, 2017, in favor of the Plaintiffs, to secure a contemporaneous loan obtained from the Plaintiffs. The documents attached to the Default Relief Counterclaim evidence the extent of the Debtor's legal interest in Parcel 002, see Arts Exs. 1 and 2, as well as the recording of the Shani Deed of Trust on May 12, 2017. See Arts Ex. 3. The subsequent judgment obtained by the Fidlers on April 12, 2019, the recordation of the Fidler Judgment on April 18, 2019, and the assignment of the Fidler Judgment to Arts District on August 22, 2019, also are evidenced by the documents submitted by Arts District. See Arts Exs. 4, 5, and 6. A declaration disclaiming the interest of defendant Star One Properties as of March 6, 2020, also was submitted by Arts District. See Arts Ex. 7. A copy of the Sale Order entered in this Chapter 7 proceeding on August 20, 2020, and Star One Property's disclaimer recorded on September 2, 2020, also are submitted by Arts District. See Arts Exs. 8 and 9. A Sheriff's Deed recorded on September 8, 2020, upon execution of the Fidler Judgment, also is submitted by Arts District. See Arts Ex. 10. Another copy of the Ford Declaration dated May 18, 2022, also is submitted by Arts District. See Arts Ex. 11.
The common theme of all of the documents offered into evidence by Arts District is that there is no evidence that Arts District, the Fidlers, or any other party had an interest in Parcel 002 superior to the Plaintiffs. The date on which the Debtor acquired its interest in Parcel 2, the date on which the Debtor transferred a subsequently disclaimed interest in Parcel 2 to Star One Properties, and the date on which the Shani Deed of Trust was recorded all preceded any interest in Parcel 002 obtained by Arts District. Moreover, none of the documents submitted by Arts District, nor the testimony of its manager, offers any evidentiary basis to conclude that Arts District lacked actual knowledge, constructive notice, or inquiry notice of the Plaintiffs' interest in Parcel 002 provided by the Shani Deed of Trust. Indeed, the undisputed testimony submitted by the Plaintiffs demonstrates that the error in the legal description found in the Shani Deed of Trust would not have eliminated the record notice provided by the names or the Assessor's Parcel Number that correctly appear in the Shani Deed of Trust. See Soil-Ali Deposition at 20:20 to 24:7; Nielsen Declaration at ¶¶ 5, 6, 7, 8, 10, 11, and 12.
Based on the evidence in the record, there is no basis to conclude that Arts District lacked actual, constructive or inquiry notice of Plaintiffs' interest under the Shani Deed of Trust. Compare In re Crystal Cascades Civil, LLC, 398 B.R. 23, 36-37 (Bankr. D. Nev. 2008), aff'd, Buenting v. Crystal Cascades Civil, LLC (In re Crystal Cascades Civil, LLC), 415 B.R. 403, 411-12 (B.A.P. 9th Cir. 2009) (IRS tax lien notices recorded in Clark County records did not have priority ahead of subsequent deeds of trust because IRS lien notices used incorrect taxpayer names). Based on the evidence in the record, there is no basis to conclude that Arts District has an interest in Parcel 002 that is superior to the Plaintiffs.
Under these circumstances, entry of judgment in favor of the Plaintiffs is appropriate.
IT IS THEREFORE ORDERED that the Plaintiffs' Application for Default Judgment by the Court Pursuant to Fed.R.Civ.P. 55 (b)(2) Against Defendant Arts District Real Estate #1, LLC, Adversary Docket No. 181, be, and the same hereby is, GRANTED.
IT FURTHER SO ORDERED that Defendant Arts District Real Estate #1, LLC's Countermotion to Set Aside Entry of Default, Adversary Docket No. 215, be, and the same hereby is, DENIED.