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In re McCoy

United States District Court, N.D. California

March 17, 2017

IN RE WAUKEEN Q. MCCOY Br. No. 14-30381 HLB

          ORDER AFFIRMING DECISION OF BANKRUPTCY COURT

          WILLIAM ALSUP UNITED STATES DISTRICT JUDGE

         INTRODUCTION

         This is an appeal from the bankruptcy court's order approving a compromise of claims pursuant to Federal Rule of Bankruptcy Procedure 9019 and from its order denying reconsideration thereof. The bankruptcy court's decision as to both orders is Affirmed.

         STATEMENT

         Since December 2007, debtor and appellant Waukeen McCoy owned real property located on Buena Vista Avenue East in San Francisco, California, subject to a senior deed of trust for approximately two million dollars held by Chevy Chase Bank (and subsequently acquired by Capital One), and a junior deed of trust for approximately $900, 000 held by Kenneth Page (from whom McCoy had purchased the subject property). In 2009, McCoy defaulted on his payments. A trial lawyer himself, McCoy filed two lawsuits in 2010 and 2011, respectively, against Page and other defendants in state court, asserting various causes of action in connection with and seeking to enjoin foreclosure of the subject property. Both lawsuits settled in September 2012.

         In March 2014, McCoy filed for Chapter 13 bankruptcy. He identified his primary residence as another address - different from the subject property - located on Clayton Street in San Francisco, California. He also valued the subject property at $3.5 million but indicated that it was encumbered by liens in excess of $5.9 million. On June 5, 2014, McCoy successfully moved to convert his bankruptcy case to Chapter 11. In April 2015, the Trustee successfully moved to convert the case to Chapter 7.

         On June 3, 2014, Page moved unopposed for relief from the bankruptcy stay so he could foreclose on the subject property. The bankruptcy court granted the motion. On August 7, 2014, Page sold the subject property at a foreclosure sale to Craig Lipton. Lipton paid $1.2 million, approximately $900, 000 of which went to pay off the junior deed of trust, with a resulting surplus to the estate of approximately $300, 000. Lipton acquired the subject property subject to the senior deed of trust, encumbered at approximately $2.3 million. In other words, Lipton not only paid $1.2 million but also assumed liability in the amount of approximately $2.3 million as consideration for the subject property. Lipton, who worked in real estate, remodeled the subject property and resold it in mid-November 2014 for $5.2 million. He used part of the resale proceeds to pay off the senior deed of trust.

         On November 7, 2014, McCoy sued Lipton in state court, seeking to enjoin the foreclosure sale of the subject property and asserting causes of action for wrongful eviction, among other things. McCoy theorized that Lipton and Page had colluded to suppress the sale price of the subject property. In October 2015, the Trustee, describing the claims against Lipton as “highly speculative at best” (Dkt. No. 5-4 at 7), moved to compromise the claims for $30, 000 subject to overbids. Lipton submitted a declaration in support of the Trustee's motion, claiming that the subject property appeared vacant at the time of the foreclosure sale, that he and Page did not know each other prior to the sale, and that multiple bidders participated in the sale - in short, that no impropriety had occurred with respect to the sale.

         McCoy opposed the Trustee's motion to compromise the state court claims against Lipton but did not bid for the claims himself. In opposing the motion, McCoy claimed that the subject property's fair market value exceeded five million dollars. He also protested the Trustee's reliance on Lipton's declaration because Lipton had pled guilty in 2011 to rigging other foreclosure sales. At the hearing on the motion on November 19, 2015, the bankruptcy court refused to entertain the latter argument, noting that “Federal Rule of Evidence 404(b) prohibits introduction of evidence of a prior conviction of a crime as evidence of someone's current character or actions in conformity with prior criminal acts” (Dkt. No. 5-12 at 5:18-6:9). After hearing from both sides, the bankruptcy court granted the Trustee's motion and approved the compromise.

         McCoy moved for reconsideration. At the hearing on that motion on March 3, 2016, McCoy again raised the issue of Lipton's prior conviction, arguing that “evidence of a felony is admissible to show that in this case Mr. Lipton had motive, opportunity, intent, and plan to rig the foreclosure sale of [the subject property] and take the monies, the 1.8 million dollars . . .” (Dkt. No. 6-4 at 3:21-4:11). The bankruptcy court again rejected McCoy's argument and, after hearing from both sides, denied his motion for reconsideration.

McCoy now appeals from both the bankruptcy court's order granting the Trustee's motion to compromise and its order denying McCoy's motion for reconsideration. This order follows full briefing.[*]

         ANALYSIS

         McCoy's sole argument in his opening brief is that the bankruptcy court committed reversible error by refusing to consider evidence of Lipton's prior conviction in deciding whether to approve the Trustee's proposed compromise of the claims against him (Dkt. No. 12 at 2). A bankruptcy court's evidentiary rulings are reviewed for abuse of discretion and should be reversed only for prejudicial error. In re Hudson, 504 B.R. 569, 573 (B.A.P. 9th Cir. 2014).

         The gravamen of McCoy's argument seems to be that, had the bankruptcy court taken into account evidence of Lipton's prior conviction, it would have found that McCoy's state court claims against Lipton were meritorious and that the value of said claims exceeded the $30, 000 proposed by the Trustee. McCoy cites United States v. Romero, 282 F.3d 683 (9th Cir. 2002), for the proposition that evidence of prior acts may be admitted under Federal Rule of Evidence 404(b) if (1) the evidence tends to prove a material point, (2) the other act is not too remote in time, (3) the evidence is sufficient to support a finding that the person in question committed the other act, and (4) the act is similar to the wrongdoing charged. Id. at 688. McCoy contends the bankruptcy court erred by failing to apply this four-part test before refusing to consider evidence of Lipton's prior conviction. True, FRE 404(b)(2) permits the admission of character evidence for certain purposes. Romero also expressly acknowledged, however, that under FRE 404(a) character evidence is “not admissible for the purpose of proving action in conformity therewith on a ...


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