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In re Roussos

United States District Court, C.D. California

April 20, 2017

In Re Harry and Theodosios Roussos Nos. 2:15-bk-21624-ER, 2:15-ap-1404-ER, 2:15-bk-21624-ER, 2:15-ap-1406-ER, 2:15-bk-21626-ER

          PRESENT HONORABLE JOHN F. WALTER, UNITED STATES DISTRICT JUDGE

          CIVIL MINUTES -- GENERAL

         PROCEEDINGS (IN CHAMBERS): ORDER AFFIRMING BANKRUPTCY COURT'S

         On October 20, 2016, Appellant Theodosios T. Roussos (“Roussos”) appealed the United States Bankruptcy Court's October 6, 2016 Settlement Approval Order and its October 7, 2016 Property Judgments.[1] On January 25, 2017, the Court set an identical briefing schedule in all three appeals. On February 15, 2017, Roussos filed his Opening Brief.[2] On March 8, 2017, Appellee Howard M. Ehrenberg, Chapter 7 Trustee for the Estate of Appellant Theodosios Roussos (the “Trustee”) filed his Opposition Brief. On March 15, 2017, Roussos filed his Reply Brief. Pursuant to Rule 78 of the Federal Rules of Civil Procedure and Local Rule 7-15, the Court found these matters appropriate for submission on the papers without oral argument. The matters were, therefore, removed from the Court's March 20, 2017 hearing calendar and the parties were given advance notice. After considering the moving, opposing, and reply papers, and the arguments therein, the Court rules as follows:

         I. Factual and Procedural Background

         On June 14, 1993, two brothers, Theodosios Roussos and Harry Roussos (collectively, the “Roussos Brothers”) filed separate Chapter 11 petitions commencing their respective bankruptcy cases, specifically Case No. 2:15-bk-21624-ER, In re Harry Roussos, and Case No. 2:15-bk-21626-ER, In re Theodosios Roussos. On May 9, 1994, in their Chapter 11 bankruptcy cases, the Roussos Brothers filed a Motion By Debtor-In-Possession for Order Authorizing Sale of Real Property Free and Clear of Co-Owner Interests and Liens, and Authorizing Disbursement of Sales Proceeds (the “Sale Motion”). In the Sale Motion, the Roussos Brothers sought approval of the sale of the apartment building located at 2727-2741 Abbot Kinney Boulevard, Venice, California (the “Abbot Kinney Property”) to OF Enterprises, LP (“OF”) and the apartment building located at 153 San Vicente Boulevard, Santa Monica, California (the “San Vicente Property”) (collectively, the “Properties”) to SMB Investors Associates, LP (“SMB”).[3] On October 19, 1994, pursuant to the Sale Order, the Roussos Brothers executed a grant deed conveying title to the “Abbot Kinney Property to O.F., which was recorded on October 24, 1994. On November 29, 1994, pursuant to the Sale Order, the Roussos Brothers executed a grant deed conveying title to the San Vicente Property to S.M.B., which was recorded on December 5, 1994.

         In July 2015, the bankruptcy cases of the Roussos Brothers were reopened when a creditor, Lula Michaelides, discovered that the Roussos Brothers had committed a fraud on the Bankruptcy Court in 1994.[4] Howard M. Ehrenberg was appointed as the Chapter 7 Trustee. After the Trustee concluded that the Roussos Brothers had orchestrated a fraud on the Bankruptcy Court in 1994, the Trustee filed adversary proceedings against the Roussos Brothers and others who were involved with the purportedly fraudulent sale of the Properties. These actions were entitled: (1) Howard M. Ehrenberg v. Theodosios Roussos, Harry Roussos, Christine Roussos, Paula Roussos, OF, Liro, SMB, SMB Management, Chase Bank, N.A., OneWest Bank, N.A., and CIT Bank, N.A., Case No. 2:15-ap-1404-ER; and (2) Howard M. Ehrenberg v. Theodosios Roussos, Harry Roussos, Christine Roussos, Paula Roussos, OF, Liro, SMB, SMB Management, Chase Bank, N.A., OneWest Bank, N.A., and CIT Bank, N.A., Case No. 2:15-ap-1406-ER. In order to prevent any transfer of the properties subject to the adversary proceedings, the Trustee filed a Motion for Order Imposing Stay Pursuant to 11 U.S.C. § 105(a) (the “Initial Stay Motion”) on August 25, 2015, seeking to enjoin the arbitration to avoid further harm to the creditors.

         On September 30, 2015, the Bankruptcy Court granted the Initial Stay Motion, and enjoined the arbitration through December 23, 2015, without prejudice to the Trustee filing a renewed motion for injunctive relief in the adversary proceedings. On November 25, 2015, the Trustee filed a Motion for Preliminary Injunction Re Verified Complaint (1) for Declaratory Relief; (2) To Vacate Sale for Fraud on the Court; (3) To Quiet Title; (4) for Turnover of Property; (5) for Fraud; (6) for Breach of Fiduciary Duty; and (7) for Aiding and Abetting Breach of Fiduciary Duty in each of the adversary proceedings (the "Second Stay Motions") in order to maintain the status quo pending a final judgment or settlement in the adversary proceedings. The Bankruptcy Court granted the Trustee's Second Stay Motions, and a preliminary injunction was issued in both adversary proceedings on December 21, 2015. On January 27, 2016, Theodosios Roussos and his wife, Paula, filed notices of appeal of the December 21, 2015 Orders, and elected to have them heard in the District Court, where they were assigned the following case numbers: Case No. 2:16-cv-00601-JFW and Case No. 2:16-cv-00607-JFW.

         On June 27, 2016, after briefing by the parties, this Court affirmed the Bankruptcy Court's December 21, 2015 Order in each of the cases. Theodosios Roussos and his wife, Paula, separately appealed the District Court's June 27, 2016 Orders to the Ninth Circuit, where they were assigned the following case numbers: Case No. 16-56065 and Case No. 16-56066. The Ninth Circuit consolidated the two appeals, the parties filed their respective briefs, and oral argument was scheduled for January 10, 2017. On November 14, 2016, the Trustee filed a Motion for Order (1) Dismissing Consolidated Appeals as Moot and (2) Continuing Oral Argument Pending Ruling on Motion to Dismiss. In his motion, the Trustee sought dismissal of the consolidated appeals as moot because the Trustee had entered into a settlement agreement with the majority of the defendants in the underlying adversary proceedings, including Harry Roussos and his wife, Christine.[5] The settlement agreement provided that the two fraudulently sold apartment buildings would be returned to the Roussos Brothers' bankruptcy estates. The settlement agreement was approved by the Bankruptcy Court on October 6, 2016 (the “Settlement Approval Order”), and implemented, in part, by judgments entered on October 7, 2016 (collectively, the “Property Judgments”), which (1) voided the original sale order; (2) cancelled the grant deeds originally conveying title to the properties to OF and SMB; and (3) vacated the December 21, 2015 preliminary injunction.[6] On January 4, 2017, the Ninth Circuit granted the Trustee's motion and dismissed the consolidated appeals as moot.

         On October 20, 2016, Theodosios Roussos appealed the Settlement Approval Order and the Property Judgments to the United States Bankruptcy Appellate Panel for the Ninth Circuit.[7] On November 17, 2016, the Trustee elected to have the appeals of the Settlement Approval Order and the Property Judgments transferred to the District Court. As a result, the five appeals were transferred and assigned the following case numbers: Case No. 2:16-cv-08612-JFW (Settlement Approval Order in Case No. 2:15-bk-21624-ER (jointly administered with Case No. 2:15-bk-21626-ER)); Case No. 2:16-cv-08613-JFW (Settlement Approval Order); Case No. 2:16-cv-08642-JFW (Property Judgment in Case No. 2:15-ap-01404-ER); Case No. 2:16-cv-08643-JFW (Property Judgment in Case No. 2:15-ap-01406-ER); and Case No. 2:16-cv-09115-JFW (Settlement Approval Order).[8] In this Order, the Court addresses the three remaining appeals.

         II. Appellate Issues

         Appellant presents the following issues on appeal:

1. Whether the Bankruptcy Court erred in approving the Settlement Agreement and entering the Property Judgments because it did not “provide a full and impartial review of a settlement, or a [sic] turned a blind eye to a factual circumstances [sic] smacking of bad faith and collusion.” Appellant's Opening Brief, p. 14.
2. Whether the Bankruptcy Court erred in approving the Settlement Agreement and entering the Property Judgments because “Daly did not have corporate authority under the governing corporate documents” to enter into the settlement. Id.
3. Whether the Bankruptcy Court erred in approving the Settlement Agreement and entering the Property Judgments because Appellant had not “waived the right to challenge the capacity of the Corporate Appellees”? Id.
4. Whether the Bankruptcy Court erred in approving the Settlement Agreement and entering the Property Judgments because “the settlement violated the distribution scheme of the Bankruptcy Code.” Id.
5. Whether the Bankruptcy Court “erred in making good faith findings” because they were unavailable under the facts of this case. Id.

         III. Legal Standard[9]

         A “district court functions as an appellate court in reviewing a bankruptcy decision and applies the same standards of review as a federal court of appeals.” In re Crystal Props., Ltd., 268 F.3d 743, 755 (9th Cir. 2001). Accordingly, “[a] district court reviews a bankruptcy court's conclusions of law and interpretation of the Bankruptcy Code de novo.” In re Orange Cnty. Nursery, Inc., 439 B.R. 144, 148 (C.D. Cal. 2010). It reviews factual findings for clear error, and it “must accept the bankruptcy court's findings of fact unless, upon review, the court is left with the definite and firm conviction that a mistake has been committed by the bankruptcy judge.” In re Greene, 583 F.3d 614, 618 (9th Cir. 2009) (citing Latman v. Burdette, 366 F.3d 774, 781 (9th Cir. 2004)).

         A bankruptcy court's decision to approve a compromise is reviewed for abuse of discretion. Martin v. Kane (In re A & C Props.), 784 F.2d 1377, 1380 (9th Cir. 1986), cert. denied, 479 U.S. 854 (1986); CAM/RPC Elecs. v. Robertson (In re MGS Mktg.), 111 B.R. 264, 266-67 (9th Cir. BAP 1990). Under the abuse of discretion standard, the district court cannot reverse the bankruptcy court's ruling unless it has a definite and firm conviction that the bankruptcy court committed a clear error of judgment in the conclusion it reached upon a weighing of the relevant factors. Marx v. Loral Corp., 87 F.3d 1049, 1054 (9th Cir. 1996).

         A court's determination of the good faith or lack of good faith of a settlement is reviewed for an abuse of discretion. Mason and Dixon Intermodal, Inc. v. Lapmaster International, LLC, 632 F.3d 1056 (9th Cir. 2011); see also KS Resources Ltd. v. A.W.L.I Group of Florida, Inc., 567 Fed.Appx. 561 (9th Cir. 2014).

         IV. Discussion

         A. Approval of the ...


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