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In Re: Log & Conventional Homes, Inc v. Leslie Gladstone

December 22, 2011

IN RE: LOG & CONVENTIONAL HOMES, INC., DEBTOR. ROBERT DOAN, APPELLANT,
v.
LESLIE GLADSTONE, CHAPTER 7 TRUSTEE, APPELLEE.



Appeal from the United States Bankruptcy Court for the Southern District of California Honorable James W. Meyers, Bankruptcy Judge, Presiding Bk. No. 09-12365-JM

SUSAN M SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT

MEMORANDUM*fn1

Argued and Submitted on October 20, 2011 at San Diego, California

Filed - December 22, 2011

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

Although it may be cited for whatever persuasive value it may have (see Fed. R. App. P. 32.1), it has no precedential value. 28 See 9th Cir. BAP Rule 8013-1.

Appellant, creditor Robert Doan ("Doan"), appeals a bankruptcy court order denying his motion to remove chapter 7 trustee, Leslie Gladstone ("Trustee"), from debtor's bankruptcy case. We AFFIRM.

I. FACTUAL AND PROCEDURAL BACKGROUND

Prior to filing bankruptcy, debtor, Log & Conventional Homes, Inc. ("LCH"), had entered into a contract to build a log home for the Haddocks. A dispute arose between the parties, and LCH sued the Haddocks in state court for breach of contract (the "State Court Action"). The Haddocks filed a counterclaim for approximately $226,000 in damages due to LCH's alleged failure to complete the home.

Doan is the sole shareholder of LCH. LCH filed a voluntary chapter 7*fn2 petition on August 20, 2009. Its assets consisted of a $43,000 bond securing a mechanic's lien, and a receivable of $67,100, which is the amount Haddocks allegedly owed LCH on the contract. LCH has only two unsecured creditors: the Haddocks and Doan.*fn3

Between September and November 2009, Trustee conducted four*fn4 § 341 creditor's meetings with LCH and Doan. Notably, Trustee's primary topic of discussion at all four meetings was the potential preferences and fraudulent transfers made by LCH to Doan. Over the course of the four meetings, Trustee made only brief inquiries about the State Court Action. At the first meeting, Trustee asked about the status of the matter. Doan explained that LCH and Haddocks had been in litigation for two years, and that Haddocks's title insurance company had posted a bond insuring LCH's mechanic's lien, which was payable to LCH.

Doan told Trustee that he would provide her with the necessary state court documents regarding perfection of LCH's mechanic's lien. As a result of the mechanic's lien and the receivable, Doan contended that the Haddocks owed LCH approximately $110,000.

During the third meeting, Doan admitted that he had gambled with some of the funds he received from LCH. Trustee posed several follow-up questions to Doan on that issue. The only other mention of the State Court Action was at the fourth meeting on November 19, 2009. Trustee noted that she had not yet been provided with the mechanic's lien documents, but stated that she had been "talking to the party about resolving [the State Court Action]." Trustee further expressed her intention to pursue a "slam-dunk preference [action]" against Doan to recover at least $81,000 for LCH's estate. At the end of the fourth meeting, the parties agreed to meet at Doan's counsel's office on December 4, 2009, to further discuss Trustee's preference action and the State Court Action.*fn5

A. The Settlement Motion.

On April 7, 2010, Trustee filed a Notice of Intended Action to Approve Stipulation to Settle Claim, Release Mechanic's Lien, and Dismiss State ...


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