Opinion
Civil Action No. 1:20-cv-1542 Bankruptcy Case No. 09-16431
2021-07-21
Boo Young SHIN, Appellant, v. Hong Koo LEE, Appellee.
James Y. Victory, Hanmi Center for Justice PLLC, Annadale, VA, for Appellant. Richard G. Hall, Alexandria, VA, for Appellee.
James Y. Victory, Hanmi Center for Justice PLLC, Annadale, VA, for Appellant.
Richard G. Hall, Alexandria, VA, for Appellee.
ORDER
T. S. Ellis, III, United States District Judge
At issue in this bankruptcy appeal is i) whether the Bankruptcy Court clearly erred in determining that the property listed in appellee's bankruptcy schedule was the same as the property foreclosed upon by appellant after appellee's discharge and ii) whether the Bankruptcy Court abused its discretion in sanctioning appellant for discovery abuses and in calculating the amount of sanctions.
I.
The following facts relevant to the disposition of this case are derived from the record in this case:
• In 2009, Appellee Hong Koo Lee ("Lee") filed for bankruptcy under Chapter 13. Lee's bankruptcy petition was later converted into Chapter 7 bankruptcy.
• At the time Lee filed for bankruptcy, he owed $50,000 to Appellant Boo Young Shin ("Shin"). The debt was scheduled as an unsecured debt when the case converted from Chapter 13 to Chapter 7.
In proceedings before the Bankruptcy Court, Shin claimed that he did not receive personal formal notice of the bankruptcy. However, the Bankruptcy Court found that Shin's counsel was sent the notice of Lee's bankruptcy, that Shin's counsel sent the notice to Shin, and that Lee personally informed Shin of the bankruptcy case. Shin does not contest on appeal that he had notice of the bankruptcy.
• In his bankruptcy filing, Lee scheduled a property he owned on Jeju Island, South Korea. In the filing, Lee described the property as located at "Ahn Duck Myun Change Cheong Ri 751, Jeju Special Province Sojeju kun, Republc [sic] of Korea." Schedule A, Appeal Record, 40. Lee identified the "current value" of the property in 2009 as $20,000. Id.
• On April 12, 2010, Lee received a discharge, which included a discharge of Shin's claim. As part of the discharge, Lee's property in Jeju, South Korea was abandoned back to Lee. Lee's case was closed on July 15, 2010.
• After the bankruptcy proceeding was closed, Shin filed a lawsuit in the District Court of Seoul, South Korea. On February 18, 2013, Shin obtained a personal judgment against Lee on the discharged claims.
• In 2015, Shin used the Seoul judgment to secure an attachment to a property owned by Lee in Jeju, South Korea. The property in Jeju is described in South Korean court documents as being located at "Jeju Special Independent Do, Seoguipo-si, Andeok-myeon, Changcheon-ri 751." Statement of Real Property, Appeal Record, 47.
• Pursuant to the attachment, Shin began the process of a judicial sale of the property through the Jeju District Court, and on June 22, 2015 the property was sold at auction for the equivalent of $109,467.03. Aside from the attachment Shin obtained pursuant to the judgment based on the discharged debt, Shin did not have any security interest in Lee's Jeju Island property.
• Lee learned of the sale of the property in the Fall of 2019 when he received a notice from the South Korean tax authority for unpaid tax of $7,913.23 on the capital gain from the sale.
• On March 16, 2020, Lee filed a motion to reopen the bankruptcy case along with an application for a rule to show cause against Shin for violation of the discharge order.
• In proceedings before the Bankruptcy Court, Shin argued that Lee "lack[ed] standing" to reopen the case because Lee failed to exempt the Jeju Island property properly and failed to disclose the Jeju Island property properly.
• The parties went through extensive discovery in the Bankruptcy Court and had a number of discovery disputes that required intervention by the bankruptcy judge.
Under 11 U.S.C. § 554, property that is properly scheduled that is not administered (i.e. sold or otherwise pursued to satisfy the debts of the bankruptcy estate) by the bankruptcy trustee at the time of the closing of the case is abandoned back to the debtor (i.e. the property is returned to the possession of the debtor).
Notices in the South Korean lawsuit against Lee were sent to Lee's address in South Korea from 1992, which was not Lee's address at the time.
The parties disputed before the Bankruptcy Court the reason why Lee did not learn of the sale sooner. Lee stated that he had not visited the property since 1992 and that he relied on his stepson to pay taxes on the property. Lee explained that he was therefore not aware of the sale until he received the notice of unpaid tax on the sale. This is not disputed on appeal.
• On August 4, 2020, Lee filed a motion to compel Shin to respond to certain interrogatories and provide tax and bank records, which was heard by Bankruptcy Judge Brian Kenney because Bankruptcy Judge Klinette Kindred, the bankruptcy judge presiding over the case, was unavailable. Bankruptcy Judge Kenney ruled in favor of Lee's motion to compel and granted Lee's motion for attorney's fees and expenses under Rule 37(a)(5)(A), Fed. R. Civ. P.
• On August 20, 2020, Shin filed a motion to compel against Lee. During argument on the motion, Bankruptcy Judge Kindred found that the record clearly indicated that the information sought by Shin "was either not within the control of Mr. Lee, or was easily ascertained by Mr. Shin himself." Sept. 8, 2020 Hearing Tr., 9:21-25, 11:1-7. Bankruptcy Judge Kindred went on to hold that "there is obviously a pattern here of delay," and determined that Lee would not have to respond to any further discovery requests. Id.
• On September 11, 2020, Lee filed a motion for his costs and attorney's fees under Rule 37(a)(5)(B), Fed. R. Civ. P. The matter came before the Bankruptcy Court for a hearing on September 29, 2020, at which time Bankruptcy Judge Kindred determined that the motion to compel was not substantially justified and that there were no circumstances making the award of fees unjust.
• In determining the amount of costs and fees to award, Bankruptcy Judge Kindred relied on the analysis done by Bankruptcy Judge Kinney in the prior motion for fees under Rule 37(a)(5)(A), Fed. R. Civ. P., to reduce Lee's attorney's hourly rate slightly. It appears that Bankruptcy Judge Kindred did not perform further analysis in awarding fees of $3,870 and costs of $35, to be paid jointly and severally by Shin and Shin's counsel.
• On November 18 and 19, 2020, a trial was held before the Bankruptcy Court. At the conclusion of the trial, the Bankruptcy Court made the following findings of fact relevant to the disposition of this case:
6) That Lee received a discharge on April 12, 2010, which included a discharge of Shin's claim, and that Lee's case was closed on July 15, 2010,
7) That Lee properly scheduled on his bankruptcy filing certain property he owed on Jeju Island in the Republic of South Korea (hereafter "The Property"), which was abandoned back to Lee when his case was closed,
....
9) That after filing for [ ] personal judgment in the District Court of Seoul, as noted above, Shin attached The Property which was the same property Lee scheduled in his bankruptcy [in the Eastern District of Virginia], and which was abandoned back to him,
....
14) That Lee's damages from the sale of The Property amount to the equivalent of $117,380.26, including $109,467.03 for the loss of The Property, and $7,913.23 for the taxes due on account of the sale ...
Rule 37 is applied to contested matters in bankruptcy by Rules 9014 and 7037, Fed. R. Bankr. P.
In re Hong Koo Lee , Case No. 09-16431 (Dec. 4, 2020) (Order).
On November 6, 2020, James Y. Victory, counsel for Appellant Boo Young Shin, filed a notice of appeal of the Bankruptcy Court's Order awarding fees against Victory and Shin jointly and severally. On December 17, 2020, Shin filed a notice of appeal of the Bankruptcy Court's Order finding contempt and awarding damages. On February 18, 2021, the cases were consolidated. See Shin v. Lee , Case No. 1:20-cv-1542 (Feb. 18, 2021) (Order). Oral argument on the appeal was heard on May 14, 2021. The matter has been fully briefed and argued and is now ready for disposition.
The appellant in the first case, Victory, took his appeal of the Bankruptcy Court's Order awarding fees pursuant to 28 U.S.C. § 158(a). That section grants jurisdiction to district courts of the United States to hear appeals from "final judgments, orders, and decrees ... of bankruptcy judges." 28 U.S.C. § 158(a). As stated in the Court's February 18, 2021 Order, an order awarding attorney's fees under Rule 37, Fed. R. Civ. P. is not appealable as a final order or otherwise immediately appealable under the collateral order doctrine. See Cunningham v. Hamilton Cty., Ohio , 527 U.S. 198, 208, 119 S.Ct. 1915, 144 L.Ed.2d 184 (1999) ("To permit an immediate appeal from such a sanctions order would undermine the very purposes of Rule 37(a), which was designed to protect courts and opposing parties from delaying or harassing tactics during the discovery process."). Therefore, because appellant neither sought nor received leave of the court to appeal the Order awarding fees, jurisdiction to hear the appeal was lacking. However, since the Bankruptcy Court had since issued a final judgment in the underlying case, which was then appealed, it was and is appropriate to consolidate the appeals and hear both appeals together.
II.
District courts review a Bankruptcy Court's factual findings for clear error and its legal conclusions de novo. See In re Taneja , 743 F.3d 423, 429 (4th Cir. 2014). As the Supreme Court has established, "a finding is ‘clearly erroneous’ when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed." Anderson v. City of Bessemer City , 470 U.S. 564, 573, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985). Additionally, as the Fourth Circuit has made clear, "[m]ixed questions of law and fact are also reviewed de novo. " In re J.A. Jones, Inc. , 492 F.3d 242, 249 (4th Cir. 2007). Importantly, Bankruptcy Court rulings on sanctions are reviewed for abuse of discretion. See In re Jemsek Clinic. P.A. , 850 F.3d 150, 156 (4th Cir. 2017). A Court abuses its discretion when its conclusion is "guided by erroneous legal principles" or "rests upon a clearly erroneous factual finding." Id. (quoting Westberry v. Gislaved Gummi AB , 178 F.3d 257, 261 (4th Cir. 1999) ).
III.
On appeal, Shin repeats an argument that he made several times before the Bankruptcy Court: that the property that Shin foreclosed on Jeju Island in South Korea either (i) was not the same property as the property scheduled by Lee in his bankruptcy filing or (ii) was improperly scheduled in the first place, because the description in the Schedule A contained misrepresentations about the value and location of the property. Shin's arguments as to the merits of the case fail. To begin with, the Bankruptcy Court did not clearly err in concluding that the property that Lee scheduled in his bankruptcy was the same property that Shin foreclosed on in 2015. Although there are minor differences between the addresses, those differences are insubstantial in light of the similarities. The address listed on the Schedule A is "Ahn Duck Myun Change Cheong Ri 751, Jeju Special Province Sojeju kun, Republc [sic] of Korea." Schedule A, Appeal Record, 40. The address of the property foreclosed by Shin is "Jeju Special Independent Do, Seoguipo-si, Andeok-myeon, Changcheon-ri 751." Statement of Real Property, Appeal Record, 47. Although the scheduled property has a different city—Sojeju kun instead of Seoguipo-si—that difference can be explained by changes in the postal system or human error. Moreover, there is no evidence in the record that the difference is material or that the difference would point either Shin or the trustee to a different property. Crucially, the remainder of the addresses—Change Cheong Ri 751 and Changcheon-ri 751—is identical other than slight phonetic spelling variations. Indeed, the address listed in Schedule A appears to have been sufficient for Shin to locate the address and foreclose on the property. Thus, the Bankruptcy Court did not clearly err in determining that the property on Jeju Island in South Korea that Shin foreclosed on was the same property that Lee scheduled on his bankruptcy Schedule A in the Eastern District of Virginia and that was ultimately abandoned back to Lee.
The parties do not raise or dispute the extraterritorial application of the Bankruptcy Court's discharge of Lee's debt to Shin of $50,000 on Shin's successful attempt to secure a South Korean judgment and accompanying foreclosure on Lee's scheduled Jeju Island property at issue in this case. It is nonetheless considered here, and although the Fourth Circuit has not specifically addressed the extraterritorial effect of a discharge, it is clear that a discharge involving creditors who took part in United States bankruptcy proceedings has extraterritorial effect on properly scheduled foreign property. In addressing a similar question, the Fourth Circuit found that the presumption against extraterritoriality does not prevent application of 11 U.S.C. § 548 to prevent a fraudulent transfer of Bahamian property. See In re French , 440 F.3d 145, 152 (4th Cir. 2006) ; see also In re Picard, Tr. for Liquidation of Bernard L. Madoff Inv. Sec. LLC , 917 F.3d 85, 100 (2d Cir. 2019) (holding that neither the presumption against extraterritoriality nor international comity "prohibit [a] debtor's trustee from recovering [bankruptcy estate] property using § 550(a), regardless of where any initial or subsequent transferee is located"), cert. denied. Moreover, in In re French , the Fourth Circuit approvingly cited a Ninth Circuit case in which the Ninth Circuit concluded that a "11 U.S.C. § 524 discharge enjoined [a creditor that took part in the bankruptcy proceedings in the United States] from commencing collection against any bankruptcy estate property regardless of its geographic location." Id. (citing In re Simon , 153 F.3d 991, 996 (9th Cir. 1998) ). Here, following the reasoning of In re French and In re Simon , Lee's discharge enjoined Shin, a resident of the United States who took part in Lee's bankruptcy proceedings in the Eastern District of Virginia, from commencing collection against Lee's Jeju Island property.
Seeking to avoid this conclusion, Shin argues that the difference in the value of the property indicates that they were different properties. This argument is not persuasive. Importantly, the Fourth Circuit has made clear that "a debtor's valuation need not be infallible." Robinson v. Worley , 849 F.3d 577, 587 (4th Cir. 2017). Lee testified that he determined the value of the property through a friend who knew Jeju Island real estate better than Lee did. Additionally, although the property sold for more than $100,000 in 2015 after being listed as being worth $20,000 in 2009, the record reflects that the increase in value, as the Bankruptcy Court noted, is likely at least partially attributable to Jeju Island's effort to increase tourism in recent years. Thus, the Bankruptcy Court did not clearly err in finding Lee to be credible and in determining that the foreclosed property was the same as the scheduled property.
Shin next argues that even if the foreclosed property is the scheduled property, Lee's schedule contains misrepresentations, and those misrepresentations mean that the property was not abandoned back to the debtor at discharge. Shin's contention is unconvincing. In this respect, it is well-settled that once an asset of an estate has been abandoned by the trustee, it is no longer part of the estate and is effectively beyond the reach and control of the trustee. See In re Sutton , 10 B.R. 737, 739 (Bankr. E.D. Va. 1981). However, property that is unscheduled by a debtor is not abandoned back to the debtor after a bankruptcy case has been closed because the debtor's actions have prevented the trustee from having knowledge, or sufficient means of knowledge, of its existence. See id. ; see also In re Pullman , 319 B.R. 443, 445 (Bankr. E.D. Va. 2004) ("If the property is not scheduled by the debtor and is not otherwise administered, it remains property of the estate even after the case has been closed.").
These principles, applied here, point persuasively to the conclusion that Lee's Jeju Island property was properly scheduled and was abandoned back to Lee when Lee's bankruptcy case was closed. To begin with, as discussed above, Lee scheduled the property by listing the address and the estimated market value of the property. The minor differences in the address as written on Lee's Schedule A and the address as written on the Statement of Real Property are clearly insufficient to render the scheduling improper. Indeed, the address as scheduled by Lee was sufficient for Shin to locate the property and foreclose on it. Additionally, the difference in the valuation of the property as scheduled and as sold similarly does not render the scheduling improper. As stated above, some of that difference is likely attributable to increases in value brought about by Jeju Island government policy to increase tourism to the island. And importantly, as courts have recognized, "a debtor's valuation need not be infallible." Robinson , 849 F.3d at 587. In other words, the inadequacies in Lee's scheduling in no way prevented the trustee from having knowledge of the property, or sufficient means of knowledge, of the property's existence. See In re Sutton , 10 B.R. at 739. Thus, the property was properly abandoned back to Lee when the bankruptcy case was closed, and Lee therefore has standing to bring a motion for rule to show cause against Shin for the foreclosure on Lee's property. Shin's appeal of the Bankruptcy Court's Order finding Contempt and Awarding Damages therefore fails.
IV.
Shin next argues that the Bankruptcy Court abused its discretion in awarding damages under Rule 37(a)(5)(B), Fed. R. Civ. P., as applied to contested matters in bankruptcy by Rules 9014 and 7037, Fed. R. Bankr. P. This argument also fails. The Bankruptcy Court did not abuse its discretion in awarding attorney's fees and costs after denying Shin's motion to compel because its decision was not "guided by erroneous legal principles" and did not "rest[ ] upon a clearly erroneous factual finding." In re Jemsek Clinic, P.A. , 850 F.3d at 156. However, because the Bankruptcy Court did not address the factors required under Barber v. Kimbrell's Inc. in assessing the amount of fees to be awarded, this matter must be remanded to the Bankruptcy Court for the Bankruptcy Court to assess the award amount pursuant to the Barber factors. 577 F.2d 216 (4th Cir. 1978).
Under Rule 37(a)(5)(B), if a motion to compel is denied, a court "must, after giving an opportunity to be heard, require the movant, the attorney filing the motion, or both to pay the party or deponent who opposed the motion its reasonable expenses incurred in opposing the motion, including attorney's fees." Rule 37(a)(5)(B), Fed. R. Civ. P. However, "the court must not order this payment if the motion was substantially justified or other circumstances make an award of expenses unjust." Id. A motion is substantially justified if "a reasonable person could think it correct, that is, if it has a reasonable basis in law and fact." Pierce v. Underwood , 487 U.S. 552, 565-66 n. 2, 108 S.Ct. 2541, 101 L.Ed.2d 490 (1988).
Here, it is clear that the Bankruptcy Court did not abuse its discretion in determining that Shin's motion to compel was not substantially justified and that no other circumstances made the award of expenses unjust. A review of the record reveals that Shin's motion to compel sought information related to Lee's property on Jeju Island in South Korea that Lee had already provided or that Lee had established was not within Lee's control. Moreover, the Bankruptcy Court found that the motion to compel was part of a "pattern ... of delay," and that the motion was therefore not substantially justified. Sept. 8, 2020 Tr., 11:3. Thus, there is no record evidence to suggest that the Bankruptcy Court abused its discretion in concluding that Shin's motion to compel was not substantially justified or that there were no other circumstances making the award otherwise unjust.
Seeking to avoid this outcome, Shin argues that there was no finding of bad faith by the Bankruptcy Court, and that attorney's fees and costs are therefore inappropriate. This argument fails. As Rule 37(a)(5)(B) makes clear, unlike under Rule 37(a)(5)(A), no finding of bad faith is required for an award of attorney's fees.
In conclusion, the Bankruptcy Court did not abuse its discretion in awarding attorney's fees and costs from Shin and Shin's attorney under Rule 37(a)(5)(B) after denying Shin's motion to compel.
However, the Bankruptcy Court failed to consider the twelve factors required by the Fourth Circuit when calculating the appropriate amount of the award. In Barber , the Fourth Circuit adopted twelve factors initially set forth by the Fifth Circuit that lower courts must apply when calculating attorney's fees and costs:
(1) the time and labor required in the case,
(2) the novelty and difficulty of the questions presented,
(3) the skill required to perform the necessary legal services,
(4) the preclusion of other employment by the lawyer due to acceptance of the case,
(5) the customary fee for similar work,
(6) the contingency of a fee,
(7) the time pressures imposed in the case,
(8) the award involved and the results obtained,
(9) the experience, reputation, and ability of the lawyer,
(10) the "undesirability" of the case,
(11) the nature and length of the professional relationship between the lawyer and the client, and
(12) the fee awards made in similar cases.
Barber , 577 F.2d at 226.
Lee argues that the Bankruptcy Court applied the Barber factors by referring to and relying on a previous ruling on attorney's fees in the same case—though by a different bankruptcy judge—in making the calculation. Lee contends that the Bankruptcy Court therefore "incorporated" all the previous findings on the Barber factors. Appellee's Brief, at 18. Lee's argument is not persuasive. Although the Bankruptcy Court's decision to lower Lee's counsel's hourly rate to be consistent with the earlier ruling may reflect consideration of "(9) the experience, reputation, and ability of the lawyer" and "(12) the fee awards made in similar cases," the Bankruptcy Court's analysis clearly reflects a lack of consideration of relevant factors that would undoubtedly vary between the earlier ruling on attorney's fees and the instant ruling. For example, the "novelty and difficulty of the questions presented" varied, as did the "results obtained", as the first calculation involved attorney's fees under Rule 37(a)(5)(A) for a successful motion in limine by Lee while the latter involved attorney's fees under Rule 37(a)(5)(B) following an unsuccessful motion in limine by Shin. As the Fourth Circuit has made clear, effective review is not possible absent the lower court's "reasons for finding a particular award appropriate." In re Abrams & Abrams, P.A. , 605 F.3d 238, 244-45 (4th Cir. 2010) (quoting Barber , 577 F.2d at 226 ). It is important to note that it is not necessary to tick off robotically each and every Barber factor, but it is necessary to address the substance of the factors. Because the Bankruptcy Court failed to apply the Barber factors either implicitly or explicitly, it is necessary to remand the calculation of the amount of the award to the Bankruptcy Court for consideration of all of the Barber factors relevant to this case. No opinion is expressed as to whether the amount the Bankruptcy Court arrived at is correct.
Notably, the Bankruptcy Court did not actually state that its ruling was incorporating the considerations of the prior Bankruptcy Judge.
Accordingly,
It is hereby ORDERED that the decision of the Bankruptcy Court with respect to the Order finding Contempt and Awarding Damages is AFFIRMED.
It is further ORDERED that the Bankruptcy Court's Order awarding attorney's fees and costs pursuant to Rule 37(a)(5)(B) is AFFIRMED IN PART and VACATED AND REMANDED IN PART. The Order is affirmed insofar as the Bankruptcy Court did not abuse its discretion in awarding fees under Rule 37(a)(5)(B). The Order is VACATED and REMANDED for the Bankruptcy Court to apply the Barber factors to calculate the amount of the award.