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In re Commercial Services Building, Inc.

United States District Court, C.D. California

August 31, 2017

KARL T. ANDERSON, Trustee, Appellee. DOUGLAS PATRICK, Appellant, Adversary No. 8:12-ap-01049-ES Bankruptcy No. 8:09-bk-20845-ES




         Appellant Douglas Patrick appeals from a judgment entered in an adversary proceeding before the bankruptcy court in favor Appellee Karl Anderson, Trustee (“Trustee”) in the total amount of $5, 395, 911.66. Patrick argues that the bankruptcy court erred in entering three orders: (1) an order partially granting Trustee's amended motion for summary judgment; (2) an order granting Trustee's motion to exclude Patrick's expert witness from testifying at trial; and (3) an order denying Patrick's request to continue the trial. As discussed below, the Court finds no error in the bankruptcy court's analysis and AFFIRMS the judgment below.


         Commercial Services Building, Inc. (“Debtor”) was a general building contractor and construction management firm based in Brea, California. (Appellant's Opening Br. (“AOB”) at 2, ECF No. 12.) Patrick was Debtor's corporate vice president and majority shareholder. (Id. at 2, 25; Appellee's Br. at 2, ECF No. 13.) On October 7, 2009, a bankruptcy case was initiated for Debtor with the filing of an involuntary petition under Chapter 7 of the Bankruptcy Code. (Appellant's App., Volume 1 (“AA1”) at 169, ECF No. 12-1.) On February 19, 2010, the bankruptcy court entered the Order for Relief against Debtor.[1] (Id.) Trustee is the permanent Chapter 7 trustee of Debtor's bankruptcy estate. (Id.)

         On February 16, 2012, Trustee initiated an adversary proceeding against Patrick, seeking to avoid transfers made from Debtor to Patrick between 2005 and 2008 (the “Patrick Transfers”), pursuant to 11 U.S.C. §§ 544, 548, and 550, and the turnover of an outstanding loan Debtor made to Patrick (the “Patrick Loan”), pursuant to 11 U.S.C. § 542. (AA1 at 1-8.) Trustee alleged that the Patrick Transfers were fraudulent conveyances. (Id.)

         A. Trustee's Motion for Summary Judgment

         On January 9, 2014, Trustee moved for summary judgment in the amount of $2, 951, 689.00 for the Patrick Transfers and $1, 800, 000 for the Patrick Loan, plus prejudgment interest, for a total amount of $6, 881, 671.81.[2] (Id. at 19-34.) Trustee argued that Debtor did not receive reasonably equivalent value for the Patrick Transfers and that Debtor was insolvent or became insolvent as a result of the Patrick Transfers. (Id.) Further, Trustee asserted that there was no triable issue of material fact that (1) the Patrick Transfers were avoidable pursuant to §§ 542, 544, 548, and 550, and (2) Patrick owed the bankruptcy estate the full amount of the Patrick Loan. (Id.)

         On January 28, 2014, Patrick submitted his Opposition to Trustee's Motion for Summary Judgment, asserting numerous genuine issues of fact, including that (1) the Patrick Transfers were made in the normal course of business; (2) Debtor was not insolvent at the time the Patrick Transfers were made, nor did those transfers render Debtor insolvent; and (3) Patrick repaid the full amount of the Patrick Loan. (AA2 at 263-64.) In support of these claims, Patrick submitted three declarations: (1) Declaration of Doug Patrick (“Patrick Declaration, ” AA2 at 272), (2) Declaration of Scott Thoerner (“Thoerner Declaration, ” AA2 at 192), and (3) Declaration of Danna Campbell (“Campbell Declaration, ” AA2 at 277).

         On February 4, 2014, Trustee filed his Reply in support of his Motion for Summary Judgment, accompanied by evidentiary objections to the Patrick, Thoerner, and Campbell Declarations. (AA2 at 303-35.) Trustee asserted objections to the three declarations on hearsay and foundational grounds, and additionally claimed that the declarants lacked personal knowledge. (Id.)

         On February 11, 2014, the bankruptcy court held a hearing on the motion, [3] and on February 28, 2014, that court issued an order partially granting Trustee's Motion for Summary Judgment, ruling as follows:

1. Plaintiff has proven and Court found that there are no material triable issues of fact for all of his claims under Section 544 (which incorporates Section 3439, et seq. of the California Code) and 548 of the Bankruptcy Code, subject to the only remaining triable issue of [] Patrick's ability at trial to prove the reasonable value of his services to the Debtor during the 4-year claw back period from October 2005 until October 2009, as well as any rights of setoff under Section 553;
2. Plaintiff has proven and Court found there are no material triable issues of fact for all of his claims under Section 542 Bankruptcy Code concerning the Debtor's Insiders Loan Receivable of $1, 800, 00 owed by [] Patrick, subject to the only remaining defense of setoff as provided for under Section 542(b) and 553 of the Bankruptcy Code;
3. Plaintiff's request for pre-judgment interest on all of his claims can be renewed at trial; and
4. The Court's finding and conclusions are as reflected in the Court's February 11, 2014 Final Tentative Ruling (2/11/2014 1:11:42 p.m.) and as announced in open court. Either party may if it so chooses prepare written Findings of Fact and Conclusions of Law consistent with the applicable Local Bankruptcy Rules and Federal Rules of Bankruptcy Procedure.

(AA2 at 336-37.) In the bankruptcy court's tentative ruling, [4] which was incorporated by reference into the final order, the court sustained all of Trustee's objections to the Thoerner and Campbell Declarations, and all but three of the objections to the Patrick Declaration. (Appellee's App. at 1-3, ECF No. 13-1.)

         B. Requests for Continuances and Motion to Strike Patrick's Expert

         At the hearing on Trustee's Motion for Summary Judgment, the bankruptcy court set May 15, 2014, as the date for the parties' pre-trial conference. (AA6 at 878.) On May 8, 2014, Patrick's attorney requested a continuance of the May 15 pre-trial conference on account of certain own medical issues he was experiencing. (AA5 at 733.) The bankruptcy court granted the request and re-set the pre-trial conference to June 19, 2014. (Id.) On June 18, 2014, Patrick's attorney filed a motion to remove Trustee from his position as the Chapter 7 trustee (“Removal Motion”) and self-calendared the hearing on the motion for September 23, 2014. (Id.) The bankruptcy court advanced the hearing on the Removal Motion to August 19, 2014, and continued the pre-trial conference. (Id.) The bankruptcy court then denied the Removal Motion on August 28, 2014. (Id.)

         On October 2, 2014, Patrick requested another continuance of the pre-trial conference on the basis that he intended to appeal the denial of the Removal Motion, and the bankruptcy court continued the pre-trial conference until October 30, 2014. (Id.) The pre-trial conference took place on October 30 and concluded with the bankruptcy court approving the joint pre-trial stipulation and setting trial dates of February 23 and 25, 2015. (Id.)

         On November 20, 2014, Patrick applied ex parte to continue the February 2015 trial dates due to: (1) a stroke suffered by his expert; (2) a flair-up of Patrick's medical condition (polycythemia diagnosed in 2008); and (3) the medical condition of Patrick's elderly mother. (Id. at 734.) Patrick attached to his application a letter from a doctor indicating that Patrick needed to avoid stressful activity for a minimum of nine months. (Id.) The bankruptcy court continued the trial until April 22 to 23, 2015, and warned the parties that there would be no further continuances. (Id.; AA3 at 351-52.)

         On March 25, 2015, Trustee moved to exclude the testimony and report of Patrick's expert, James Kelly, (“Expert Motion”) on the basis that Kelly did not meet the expert requirements under Federal Rule of Evidence 702 or the standards set out by the Supreme Court in Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579 (1993). (AA3 at 366.) Trustee's Expert Motion was set for hearing on April 17, 2015. (AA6 at 888.) Patrick submitted his Opposition to Trustee's Expert Motion on April 7, 2015. (AA3 at 478.)

         On April 14, 2015, Patrick applied ex parte to continue the trial date due to his medical condition, accompanied by a note from the same doctor indicating that Patrick continued to suffer from the same illness and that it would be “inadvisable for him to participate in either trial or trial preparation.” (AA5 at 734.) On April 17, 2015, the bankruptcy court issued a tentative ruling on Trustee's Expert Motion, finding that Kelly failed to show that he qualifies as an expert based on his knowledge, skill, experience, training, or education, and that the methodology he used in calculating Patrick's reasonable compensation was unreliable. (AA6 at 802, 806.) That same day, the bankruptcy court granted Patrick's request for continuance and moved the trial date to September 23, 2015. (AA4 at 608.) In addition, the court ordered that if the trial date was continued at the request of anyone other than the court or Trustee, the tentative ruling on Trustee's Expert Motion would be granted. (Id.)

         On August 21, 2015, Patrick's attorney filed a notice of unavailability and requested a continuance of the trial date based on a conflict with another trial date. (Id. at 610.) On September 3, 2015, the bankruptcy court granted the continuance and found that because the scheduling conflict was beyond Patrick's attorney's control, the court would not impose the sanction of granting the tentative ruling on Trustee's Expert Motion. (Id.) The court set March 24 to 25, 2016, as the new trial date. (Id.)

         On March 9, 2016, Patrick applied ex parte to continue the trial date, claiming that his mother was scheduled to have eye surgery on March 23, 2016, and that Patrick, as his mother's sole caregiver, would be too pre-occupied with the surgery and the required post-surgery care to prepare for trial. (AA5 at 734.) The bankruptcy court denied the application on March 11, 2016. (Id. at 734-35.) On March 17, 2016, Patrick again applied ex parte to continue the trial dates, citing the conflict caused by his mother's post-surgery care and this time attaching a declaration from a doctor who testified that the stress of having to deal with both his mother and the trial had caused Patrick to break out in a rash and caused him to become disoriented. (Id. at 735.) On March 21, 2016, the bankruptcy court again denied Patrick's request, and explained that the court's “extensive accommodations to [Patrick] cannot continue in perpetuity and, accordingly trial must proceed.” (Id.) However, the court permitted Patrick to testify at trial telephonically. (Id.)

         C. The Trial and Judgment

         On March 24, 2016, respective counsel for Patrick and Trustee appeared for trial. (AA6 at 846.) Patrick's attorney told the bankruptcy court that Patrick was at the hospital with his mother and thus, was not prepared to go to trial, and stated that he could not try the case without his client. (Id. at 847.) Trustee's attorney stated that he was ready for trial and that his witnesses were present and ready for cross-examination. (Id. at 848.) After the court ordered trial to proceed, Patrick's attorney simply left the courtroom. (Id. at 852.) Trustee's counsel argued that given the bankruptcy court's partial summary judgment ruling, the only issues remaining for trial were (1) Patrick's ability to establish reasonable compensation from Debtor, which could offset amounts Patrick owed Debtor due to the Patrick Transfers; (2) whether Patrick could establish a defense of setoff as to the amounts due to Debtor on account of the Patrick Loan; and (3) whether pre-judgment interest was appropriate. (Id. at 854-55.) The bankruptcy court agreed and read into the record the court's previous ruling that Trustee had established the necessary elements for his causes of action under ...

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