United States District Court, C.D. California
CIVIL MINUTES - GENERAL
Proceedings: CITY OF COVINA'S MOTION TO DISMISS BANKRUPTCY APPEAL AND REQUEST
FOR SANCTIONS (Dkt. No. 20, filed July 10, 2015) FRENCH AUTOMOBILE LLC's EX PARTE APPLICATION TO FILE SUR-REPLY (Dkt. No. 34, filed July 26, 2015)
CHRISTINA A. SNYDER, District Judge.
French Automobile LLC ("French") appeals an order of the United States Bankruptcy Court for the Central District of California approving a settlement agreement (the "Global Settlement") in this Chapter 7 bankruptcy case (the "HIP case"). The same Global Settlement was approved by separate order in the related bankruptcy case In re West Covina Motors, Inc. (the "WCM case"). The Global Settlement was reached between the Chapter 7 Trustee for the HIP estate, Howard M. Ehrenberg (the "HIP Trustee"); the Chapter 7 Trustee for the WCM estate, David A. Gill (the "WCM Trustee"); CorePointe Capital Finance LLC ("CorePointe"); and the City of West Covina (the "City"). French-which claims to be a creditor of the WCM estate, but not the HIP estate-asserts that the Global Settlement impairs its security interest in cash collateral held by the WCM estate, and that the Bankruptcy Court denied French due process.
On July 10, 2015, the City filed a motion to dismiss French's appeal in the HIP case, and for an award of sanctions against French and its attorneys. Dkt. No. 20. The Court granted the City's contemporaneously filed ex parte application to have that motion heard on an expedited basis. Dkt. No. 29. On July 20, 2015, French filed an opposition to the instant motion. Dkt. No. 30. The City replied on July 23, 2015. Dkt. No. 31. On July 26, 2015, French filed a sur-reply and an ex parte application for leave to file that sur-reply. Dkt. Nos. 33, 34. On July 27, 2015, the Court held a hearing. Having carefully considered the parties' arguments, the Court finds and concludes as follows.
French is controlled by an individual named Ziad Alhassen ("Alhassen"), who previously controlled both Hassan Import Partnerships ("HIP"), a land holding company, and West Covina Motors, Inc. ("WCM"), a company that operated two car dealerships in the City of West Covina. Dkt. No. 20 (Mot.) at 5. On July 27, 2011, HIP filed for Chapter 11 bankruptcy relief. On January 2, 2013, the Bankruptcy Court ordered that the HIP bankruptcy be converted to one under Chapter 7, and Howard Ehrenberg was appointed as the trustee. HIP Bankr. Dkt. No. 1270 at 2. On the petition date, HIP claimed ownership interests in eleven real property assets, which have since been liquidated by the HIP Trustee. Id . French has not claimed to be a creditor of the HIP estate.
On December 28, 2012, WCM filed for Chapter 11 bankruptcy relief. WCM Bankr. Dkt. No. 1. In March 2013, the Bankruptcy Court ordered that the case be converted to one under Chapter 7, and appointed David A. Gill as the trustee. WCM Bankr. Dkt. Nos. 181, 184. As of May 13, 2015, the WCM estate possessed approximately $259, 280 in cash. WCM Bankr. Dkt. No. 539 at 3.
On April 22, 2015, the HIP and WCM Trustees filed motions in their respective bankruptcy cases for orders approving the Global Settlement. HIP Bankr. Dkt. No. 1263; WCM Bankr. Dkt. No. 516. As it relates to HIP, the Global Settlement primarily (1) fixes the City's claim as a non-priority general unsecured claim in the amount of $14, 041, 352.63, and (2) grants the WCM Trustee the sum of $200, 000 in satisfaction of his administrative claim for benefits provided to the HIP estate. HIP Bankr. Dkt. No. 1270 at 3. The Global Settlement also provides for the disposition of funds paid by the County of Los Angeles to the WCM estate in exchange for two vehicles (the "Disputed Funds"). French claims to hold a senior perfected security interest in the Disputed Funds, in the amount of $125, 500. CorePointe has asserted a competing security interest in the Disputed Funds. French represents that it and CorePointe previously entered into a settlement agreement by which French would receive sixty percent of the Disputed Funds, and CorePointe would receive forty percent. The Global Settlement, however, directs that the WCM Trustee pay the Disputed Funds to CorePointe.
French opposed the WCM Trustee's motion, arguing that the Global Settlement would impair French's alleged senior interest in the Disputed Funds. Neither French nor any other party opposed the HIP Trustee's motion. On May 13, 2015, the Bankruptcy Court held hearings on both motions. See generally Dkt. No. 20-1 (May 13, 2015 Oral Arg. Tr.). At the hearing on the WCM Trustee's motion, French's counsel, Theodore Stolman ("Stolman"), suggested that the Bankruptcy Court, to make clear its intention not to alter the rights, claims, or interests of French and CorePointe in the disputed funds, "add some language that nothing herein is intended to affect the respective rights, claims, interests and priorities of French Auto and CorePointe to the... net proceeds attributable to the sale of the two auto vehicles to the County of Los Angeles." Id. at 2-4. Stolman also suggested that the Bankruptcy Court order that the Disputed Funds be "maintained in a segregated identifiable account" by CorePointe. Id. at 5.
The Bankruptcy Court granted both Chapter 7 trustees' motions on May 27, 2015, approving the Global Settlement. As a result of arguments French raised during the hearing on the WCM Trustee's motion, however, the Bankruptcy Court modified both orders approving the Global Settlement to include the following language:
Nothing in this order is intended to or shall be construed to affect the validity, priority, amount and extent of the security interests, if any, of French or CorePointe in the [Disputed Funds] to be paid by the WCM Trustee to CorePointe under paragraph 4(b) of the [Global Settlement] Agreement.
HIP Bankr. Dkt. No. 1273 at 3; WCM Bankr. Dkt. No. 542 at 2. French nonetheless contends that approval of the Global Settlement impairs its lien rights on the Disputed Funds because French did not record a UCC-1 Continuation Statement following the WCM bankruptcy petition date. French contends that while its priority status is fixed at the petition date for purposes of the bankruptcy case, its priority status will lapse outside of bankruptcy once the Disputed Funds are removed from the WCM estate, and it will be relegated to a general unsecured creditor of the administratively insolvent WCM estate. See Dkt. No. 30 (Opp'n) at 2.
On May 28, 2015, French filed notices of appeal in both bankruptcy cases, arguing that the Bankruptcy Court failed to provide French due process with regard to the Disputed Funds. HIP Dkt. No. 1279; WCM Dkt. No. 548. As discussed below, French contends that it appealed the order in the HIP case because it had become ...