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In re TAC Financial, Inc.

United States District Court, S.D. California

November 22, 2017

In re TAC FINANCIAL, INC., Debtor, DIRECT BENEFITS, LLC, and ANDREW C. GELLENE, Appellants, CHRISTOPHER R. BARCLAY, Chapter 7 Trustee, and REMAR INVESTMENTS, LP, Appellees.

         ORDER: (1) DENYING REMAR INVESTMENTS, LP'S MOTION TO SUPPLEMENT THE RECORD ON APPEAL; (2) GRANTING IN PART AND DENYING IN PART REMAR'S REQUEST FOR JUDICIAL NOTICE; (3) DENYING APPELLANTS' CROSS MOTION TO SUPPLEMENT THE RECORD; AND (4) DENYING AS MOOT CHRISTOPHER BARCLAY'S MOTIONS TO STRIKE (DOC. NOS. 29, 31, 38, 42)

          Hon. Anthony J. Battaglia United States District Judge.

         Presently before the Court are several motions: Remar Investment, LP's (“Remar”) motion to supplement the record on appeal, (Doc. No. 29), Appellants Direct Benefits, LLC, and Andrew C. Gellene's (collectively referred to as “Appellants”) conditional cross motion to supplement, (Doc. No. 31), and Christopher R. Barclay, the Chapter 7 Trustee's (the “Trustee”) two motions to strike, (Doc. No. 38, 42). Pursuant to Civil Local Rule 7.1.d.1, the Court finds these matters suitable for disposition on the papers and without oral argument. As explained more fully below, the Court DENIES Remar's motion to supplement, DENIES Appellants' conditional cross motion to supplement, GRANTS IN PART AND DENIES IN PART Remar's request for judicial notice, DENIES Appellants' request for judicial notice, and DENIES AS MOOT the Trustee's motions to strike. (Doc. Nos. 29, 31, 38, 42.)

         BACKGROUND

         The instant appeal revolves around a certain life insurance policy held by Mr. Roy Eder, the former chief executive officer of Debtor TAC Financial, Inc. (“TAC”). (Doc. No. 44-1 at 3.) In June or July of 2014, after Mr. Eder was diagnosed with terminal brain cancer, he allegedly transferred ownership of the life insurance policy from TAC to himself. (Id.) In December of 2014, Mr. Eder sold the policy to Remar for $2, 025, 300, subject to Mr. Eder retaining a $1, 100, 000 death benefit until the policy would become uncontestable. (Id.)

         On January 6, 2015, TAC filed a Chapter 7 bankruptcy petition. (Id. at 4.) The Trustee assigned to TAC then brought an adversary proceeding alleging nine causes of action against various defendants, including: (1) fraudulent conveyance; (2) recovery from subsequent transferors' conversion; (3) conversion; (4) two causes for breach of fiduciary duty; (5) negligence; and (6) injunctive relief. (Id.)

         Currently, the issue before this Court is the settlement between Remar and the Trustee, wherein the Trustee was to assign the life insurance policy and 93% of its proceeds ($4, 383, 903.02) in exchange for Remar assigning its fraud claims against Eder to the Trustee so that it could prosecute them. (Doc. No. 1-3; Doc. No. 44 at 9; Doc. No. 44-1 at 14-15.) Moreover, the settlement stated that the parties would enter into a general mutual release agreement as to the adversary proceeding and that the Trustee would dismiss the estate's claim against Remar with prejudice. (Doc. No. 48 at 8.) Appellants objected to this settlement arguing that it was not fair and equitable to creditors nor in the best interests of the bankruptcy estate. (Id.) Nonetheless, the bankruptcy court overruled the objections and approved this settlement. (Id.)

         On February 24, 2017, Appellants filed their notice of appeal from the bankruptcy court. (Doc. No. 1.) Thereafter, Appellants filed their brief on May 1, 2017, (Doc. No. 10), and Appellee the Trustee filed its brief on May 15, 2017, (Doc. No. 12). On May 30, 2017, Appellants filed a motion to stay disbursement of the policy proceeds, (Doc. No. 16), and an ex parte motion to shorten time to respond to the motion, (Doc. No. 18). Both motions were denied on June 30, 2017, (Doc. No. 28), and June 1, 2017, respectively, (Doc. No. 22).

         On August 3, 2017, Remar filed the present motion, its motion to supplement the record on appeal. (Doc. No. 29.) Subsequently, on August 17, 2017, Appellants filed their conditional cross motion to supplement. (Doc. No. 31.) The Trustee did not file an opposition to Remar's motion by the briefing schedule set by the Court. (Doc. No. 30.) Instead, the Trustee filed its opposition to Appellants' motion on August 25, 2017. (Doc. No. 37.) Then on August 25, 2017, and September 12, 2017, the Trustee filed its motions to strike. (Doc. Nos. 38, 42.) This Order now follows.

         LEGAL STANDARD

         A. Motion to Supplement the Record

         Under Federal Rule of Appellate Procedure 10(e) “[i]f anything material to either party is omitted from or misstated in the record by error or accident, the omission or misstatement may be corrected and a supplemental record may be certified and forwarded: (A) on stipulation of the parties; (B) by the district court before or after the record has been forwarded; or (C) by the court of appeals.” Fed. R. App. P. 10(e). This rule is construed “narrowly” and “normally the reviewing court will not supplement the record on appeal with material not considered by the lower court.” In re Khoe, 255 B.R. 581, 585 (E.D. Cal. 2000) (citation omitted).

         B. Motion to Strike

         Under Federal Rule of Civil Procedure 12(f), on its own or by motion, the Court “may strike from a pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter.” Fed.R.Civ.P. 12(f). The purpose of a Rule 12(f) motion is to “avoid the expenditure of time and money that must arise from litigating spurious issues by dispensing with those issues prior to trial . . . .” Sidney-Vinstein v. A.H. Robins Co., 697 F.2d 880, 885 (9th Cir. 1983). The Court must view “the pleadings in the light most favorable to the non-moving party . . . .” Cal. Dept. of Toxic Substances Control v. Alco Pac. Inc., 217 F.Supp.2d 1028, 1033 (C.D. Cal. 2002). “Any doubt concerning ...


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