In Re Mark Alan Shoemaker

Filing 19

(IN CHAMBERS) Order Re: Appeal of Adversary Proceeding in Bankruptcy by Judge R. Gary Klausner. The Court AFFIRMS the bankruptcy court's dismissal. (Made JS-6. Case Terminated.) (ah)

JS-6

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.

2:17-CV-02033-RGK

Date

August 25, 2017

1:17-bk-015182- GM
Title

Shoemaker v. Siegel

Present: The Honorable

R. GARY KLAUSNER, UNITED STATES DISTRICT JUDGE

Sharon L. Williams (Not Present)

Not Reported

N/A

Deputy Clerk

Court Reporter / Recorder

Tape No.

Attorneys Present for Appellant:

Attorneys Present for Appellees:

Not Present

Not Present

Proceedings:
I.

(IN CHAMBERS) Order Re: Appeal of Adversary Proceeding in Bankruptcy

INTRODUCTION

On March 14, 2017, Mark Alan Shoemaker (“Shoemaker”) appealed to this Court two
bankruptcy court’s orders to dismiss his adversary proceeding. Shoemaker had instituted the proceeding
against Alfred H. Siegel (“Siegel”), Anthony Friedman (“Friedman”), Levene, Neale, Bender, Yoo &
Brill L.L.P. (“LNBYB”), and Bret D. Lewis (“Lewis,” and collectively “Defendants”).
For the reasons below, the Court AFFIRMS the dismissal.
II.

FACTUAL BACKGROUND

In May 2010, Shoemaker filed a voluntary Chapter-7 petition. Siegel was appointed as the
Chapter-7 trustee. Friedman, an attorney with LNBYB, represented Siegel in the bankruptcy proceeding.
On January 5, 2011, Shoemaker filed an amended summary of schedules in the proceeding. The
schedules show assets allegedly worth about seven-hundred-thousand dollars and liability over one
million. Amended Summary of Schedules at 116, In re: Shoemaker, No. 2:10-bk-30910-TD (Bankr.
C.D. Cal. Jan. 5, 2011), ECF No. 39. On September 21, 2011, having found all estate properties exempt
from distribution by law, Siegel filed a report of no distribution. But on June 20, 2012, Shoemaker filed
another amended summary of schedules, claiming, among others, over ten-million dollars of asset in
contingent and unliquidated claims. These claims consist of legal claims against third parties. As a
result, Siegel withdrew the report of no distribution and motioned the bankruptcy court to appoint Lewis
as special litigation counsel to prosecute these third-party claims. To support Lewis’ appointment,
Shoemaker declared that, because Shoemaker had consulted him on the claims, Lewis was familiar with
them. Application to Employ Bret D. Lewis & Associates as Special Litigation Counsel, Shoemaker
decl. ¶ 3, In re: Shoemaker, 2:10-bk-30910-TD, (Bankr. C.D. Cal. Nov. 26, 2013), ECF No. 71. In
January 2014, the bankruptcy court appointed Lewis the special litigation counsel. Then on December 1
and 2, 2014, Siegel, represented by Lewis, filed adversary actions against the third parties. But Siegel
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.

2:17-CV-02033-RGK

Date

August 25, 2017

1:17-bk-015182- GM
Title

Shoemaker v. Siegel

recovered little from the third-party claims and eventually dismissed them. (See Adversary Proceeding
Compl. (“AP Compl.”) ¶ 16, 1 Appellant’s App. at 17, ECF No. 9.)
Unhappy with the meager recovery, on July 28, 2016, Shoemaker filed in Los Angeles Superior
Court a tort action against Defendants. In early October, 2016, LNBYB and Friedman removed it to the
bankruptcy court, thereby converting it to an adversary proceeding.
Shoemaker’s initial adversary-proceeding Complaint accuses Defendants for failing to prosecute
his third-party claims and to recover funds for the estate. Defendants’ failure allegedly led to over fortymillion dollars in damages. Specifically, although Siegel, LNBYB, and Friedman knew about
Shoemaker’s substantial third-party claims, they brought on an incompetent special counsel Lewis to
prosecute the claims. Lewis then conspired with the other Defendants and sabotaged Shoemaker’s
claims by failing to properly prosecute them.
By October 19, 2016, LNBYB and Friedman, Lewis (collectively “Counsel”), and Siegel each
motioned the court to dismiss the Complaint. With a hearing set for November 15, 2016, Shoemaker had
until November 1, 2016 to file an opposition. But he did not file any opposition. On November 9, the
bankruptcy court continued the hearing to December 6, 2016 and required Shoemaker to file an
opposition by November 18, if he opposed the Motions to Dismiss. But on November 14, instead of
filing an opposition, Shoemaker filed a First Amended Complaint (“FAC”) without leave of court.
After the hearing on December 6, 2016, the bankruptcy court issued an amended order,
dismissing all claims but giving Shoemaker leave to amend a breach-of-fiduciary-duty claim against
Siegel only. Shoemaker timely filed a Second Amended Complaint (“SAC”).
Despite the bankruptcy court’s narrow leave, the SAC contains two claims: gross negligence and
fraud. The crux of the SAC is still that Shoemaker suffered more than forty-million dollars in damages
due to Siegel’s failure to properly prosecute Shoemaker’s third-party claims to recover funds for the
estate. Attaching numerous exhibits that supposedly support the allegations, Shoemaker accuses Siegel
of intentionally ignoring the third-party-claim information Shoemaker provided and failing to pursue the
claims, thereby failing to perform his duty as the trustee of the estate to monetize the claims.
After the parties briefed the bankruptcy court and a hearing on February 7, 2017, the court
dismissed the remaining action against Siegel. Shoemaker then appealed the dismissal to this Court.
III.

JUDICIAL STANDARD

Under Federal Rule of Civil Procedure (“Rule”) 12(b)(6), “[a] complaint may be dismissed . . .
only when it fails to state a cognizable legal theory or fails to allege sufficient factual support for its
legal theories.” Caltex Plastics, Inc. v. Lockheed Martin Corp., 824 F.3d 1156, 1159 (9th Cir. 2016). To
survive a Rule-12(b)(6) motion, a complaint must contain “sufficient factual matter, accepted as true, to
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.

2:17-CV-02033-RGK

Date

August 25, 2017

1:17-bk-015182- GM
Title

Shoemaker v. Siegel

‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is facially plausible if the plaintiff
alleges enough facts to permit a reasonable inference that the defendant is liable for the alleged
misconduct. Id. A plaintiff need not provide “detailed factual allegations” but must provide more than
mere legal conclusions. Twombly, 550 U.S. at 555. “Threadbare recitals of the elements of a cause of
action, supported by mere conclusory statements, do not suffice.” Iqbal, 556 U.S. at 678.
When ruling on a Rule-12(b)(6) motion, the court must “accept all factual allegations in the
complaint as true.” Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007). The court
must also “construe the pleadings in the light most favorable to the nonmoving party.” Davis v. HSBC
Bank Nev., N.A., 691 F.3d 1152, 1159 (9th Cir. 2012). The court, however, is “not bound to accept as
true a legal conclusion couched as a factual allegation.” Twombly, 550 U.S. at 555. The court must
consider the complaint, materials incorporated into the complaint by reference, and matters of judicial
notice. Tellabs, 551 U.S. at 322.
Courts review de novo a bankruptcy court’s dismissal of an adversary proceeding under Rule
12(b)(6). In re EPD Inv. Co., LLC, 523 B.R. 680, 684 (B.A.P. 9th Cir. 2015). A dismissal without leave
to amend is reviewed for abuse of discretion. In re Tracht Gut, LLC, 836 F.3d 1146, 1150 (9th Cir.
2016). Where amendment would be futile, denying leave to amend is not an abuse of discretion. Id. at
1155.
IV.

DISCUSSION

Undergirding all of Shoemaker’s claims against Defendants is his alleged, substantial third-party
claims, whose values would render his estate a surplus estate and entitle him to assets that remain after
paying off all creditors. See Wisdom v. Gugino, 649 F. App’x 583, 584 (9th Cir. 2016). If these
allegations are true, Siegel as the trustee owes Shoemaker a fiduciary duty. Id. Shoemaker’s initial
Complaint and SAC, however, assert different claims against each Defendant.1 The Court examines
them in turn.
A.

The Initial Complaint
1.

Procedural Default

Because the bankruptcy court continued the hearing on the Motions to Dismiss the initial
adversary-proceeding Complaint, Shoemaker had two opportunities — before November 1 and before
November 18, 2016 — to file an opposition to the Motions. He, however, twice failed to file any
opposition. Under the local rule, his failure may be deemed consent to granting the Motions. Bankr.
1

The FAC is not an issue on appeal. See Appellant’s Brief 18, ECF No. 8 (referencing only the initial
Complaint and SAC).

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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.

2:17-CV-02033-RGK

Date

August 25, 2017

1:17-bk-015182- GM
Title

Shoemaker v. Siegel

C.D. Cal. R. 9013-1(h). The FAC does not cure this deficiency because it was improperly filed —
Shoemaker filed it without leave of court more than 21 days after the service of the initial Complaint and
the last filed Motion to Dismiss. Fed. R. Civ. P. 15(a)(1).
Despite this procedural default, the bankruptcy court chose to address the initial Complaint on
the merits. The Court will do the same.
2.

Fraud and Negligent Misrepresentation

The elements of fraud and of negligent misrepresentation both begin with a misrepresentation.
Conroy v. Regents of Univ. of Cal., 45 Cal. 4th 1244, 1255 (2009). Thus, both claims may be subject to
California’s litigation privilege. Action Apartment Ass’n, Inc. v. City of Santa Monica, 41 Cal. 4th 1232,
1242 (2007). The privilege “applies to any communication (1) made in judicial or quasi-judicial
proceedings; (2) by litigants or other participants authorized by law; (3) to achieve the objects of the
[action]; and (4) that has some connection or logical relation to the action.” Id. at 1241 (alteration
omitted). The privilege applies to fraud and negligent misrepresentation. Rubenstein v. Rubenstein, 81
Cal. App. 4th 1131, 1147 (2000).
Here, Shoemaker’s initial Complaint alleges that, to get Lewis appointed as a special counsel,
Siegel, LNBYB, and Friedman made certain material representations to the bankruptcy court. (AP
Compl. ¶¶11, 20, 1 Appellant’s App. at APP 015–018.) The representations relate to how hiring Lewis
as special counsel to evaluate and prosecute Shoemaker’s potential third-party claims could benefit the
estate. (Id.) These representations are precisely the kind that the litigation privilege protects. The
representations were made in a judicial proceeding, namely, before the bankruptcy court. They were
made by a court-appointed trustee and his counsel, who made the representation to obtain appointment
of special counsel to assist Siegel with evaluating and prosecuting claims to benefit the estate. The
representations have a close relation to the bankruptcy action, namely, to increase the estate. Thus,
litigation privilege applies to shield Siegel, LNBYB, and Friedman from claims of fraud and negligent
misrepresentation. The bankruptcy court did not err in dismissing these claims.
Further, the bankruptcy court did not abuse its discretion in its refusal to grant leave to amend
with respect to LNBYB and Friedman. The court gave Shoemaker an opportunity to provide specific
examples of nonprivileged communication during the hearing on December 6, 2016. Shoemaker
provided none. (See generally Tr. Proceedings 8:25–14:9, 21:2–24:6, LNBYB App. 33–39, 46–49, ECF
No. 13.) Thus the bankruptcy court did not abuse its discretion in concluding that any amendments with
respect to LNBYB and Friedman would be futile.
Finally, the bankruptcy court did not abuse its discretion in refusing to grant leave to amend with
respect to Siegel. Although the court granted leave to amend the fraud claim in its tentative ruling, it did
not abuse its discretion when it reversed that ruling after Shoemaker failed to proffer specific, relevant
factual allegations at the hearing. (See id. 24:2–25:25, LNBYB App. 49–50.) Although Shoemaker
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.

2:17-CV-02033-RGK

Date

August 25, 2017

1:17-bk-015182- GM
Title

Shoemaker v. Siegel

identified Siegel’s communications (Id. 10:3–14, 22:18–24:6, LNBYB App. 35, 47–49), these
apparently would fall within Siegel’s quasi-judicial immunity for discretionary actions. See Balser v.
Dep’t of Justice, Office of U.S. Tr., 327 F.3d 903, 909–10 (9th Cir. 2003) (finding that quasi-judicial
immunity covers private bankruptcy trustees’ discretionary acts). Moreover, Shoemaker apparently
incorporated Siegel’s alleged fraud and misrepresentations in the SAC. (See, e.g., SAC ¶¶ 10, 11, 16, 17,
20, 21, 23, 2 Appellant’s App. at APP 188–92, ECF No. 10.) The Court finds these allegations to be
privileged (e.g., communication during 341(a) hearings) or protected under quasi-judicial immunity
(e.g., email communications regarding the bankruptcy proceeding). Further, in light of the attached
exhibits, the Court finds the factual allegations in the SAC to be conclusory statements, insufficient to
state plausible claims of fraud and negligent misrepresentation. For these reasons, the bankruptcy court
did not abuse its discretion in concluding that any amendments with respect to Siegel would be futile.
3.

Breach of Fiduciary Duty
a.

Against Counsel

To establish a claim of breach of fiduciary duty, a plaintiff must first show that such a duty
exists. Oasis W. Realty, LLC v. Goldman, 51 Cal. 4th 811, 820 (2011).
Here, Shoemaker’s breach-of-fiduciary-duty claim against Counsel fails because they do not owe
Shoemaker a fiduciary duty. They are Siegel’s attorney in his trustee capacity and represent only him.
Wells Fargo Bank v. Superior Court, 22 Cal. 4th 201, 208 (2000); In re Cont'l Coin Corp., 380 B.R. 1,
16 (Bankr. C.D. Cal. 2007). Amendment to the Complaint would be futile since it cannot create such a
duty.
Thus, the bankruptcy court did not err in dismissing the breach-of-fiduciary-duty claim against
Counsel with prejudice.
b.

Against Siegel

A private bankruptcy trustee enjoys quasi-judicial immunity for actions involving discretionary
judgment. Balser, 327 F.3d at 909. This immunity covers claims implicating ordinary negligence. In re
Cont’l Coin Corp., 380 B.R. at 11–12. It does not, however, extends to claims involving gross
negligence or willful misconduct. Id. at 12–15. California courts define gross negligence “as either a
want of even scant care or an extreme departure from the ordinary standard of conduct.” City of Santa
Barbara v. Superior Court, 41 Cal. 4th 747, 754 (2007) (internal quotation marks omitted).
Here, Shoemaker’s breach-of-fiduciary-duty claim against Siegel simply incorporates the factual
allegations in the fraud and negligent-misrepresentation claims. (AP Compl. ¶¶ 27–28, 1 Appellant’s
App. at 19–20.) There are no suggestions of “a want of even scant care or an extreme departure from the
ordinary standard of conduct.” City of Santa Barbara, 41 Cal. 4th at 754 (internal quotation marks
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.

2:17-CV-02033-RGK

Date

August 25, 2017

1:17-bk-015182- GM
Title

Shoemaker v. Siegel

omitted). Further, in view of Shoemaker’s own declaration supporting Lewis’ appointment, the claim
also fails to allege intentional misconduct. Thus, this claim merely implicates ordinary negligence and
fails due to Siegel’s quasi-judicial immunity.
Thus, the bankruptcy court did not err in dismissing the breach-of-fiduciary-duty claim against
Siegel, nor abused its discretion in granting leave to amend for allegations involving gross negligence or
intentional misconduct.
4.

Negligence
a.

Against LNBYB and Friedman

A claim of negligence starts with a legal duty of care. Kesner v. Superior Court, 1 Cal. 5th 1132,
1158 (2016).
Here, Shoemaker asserted a negligence claim against Friedman and LNBYB. They, however, as
Siegel’s counsel, “do[] not owe a statutory or fiduciary duty” to Shoemaker as a potential creditor of the
estate. In re Cont’l Coin Corp., 380 B.R. at 16; see also Kracht v. Perrin, Gartland & Doyle, 219 Cal.
App. 3d 1019, 1023 (Ct. App. 1990) (attorney owes duty of care to only the client). Amendment to the
Complaint would be futile since it cannot create such a duty.
Thus, the bankruptcy court did not err in dismissing the negligence claim against LNBYB and
Friedman with prejudice.
b.

Against Siegel

As discussed above, quasi-judicial immunity protects a private bankruptcy trustee against claims
of ordinary negligence. See supra Part IV.A.2. Thus, a negligence claim against Siegel must fail and
amendment would be futile. The bankruptcy court did not err in dismissing it with prejudice.
B.

The Second Amended Complaint
1.

Fraud

In the amended order dismissing Shoemaker’s initial Complaint, the bankruptcy court dismissed
the fraud claim against Siegel with prejudice. This is a dismissal on the merits and bars Shoemaker from
refiling the same claim. See F. R. Civ. P. 41(b); Semteklnt’l Inc. v. Lockheed Martin Corp., 531 U.S.
497, 505–06 (2001). Thus, the bankruptcy court did not err in dismissing this claim again.

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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.

2:17-CV-02033-RGK

Date

August 25, 2017

1:17-bk-015182- GM
Title

Shoemaker v. Siegel
2.

Breach of Fiduciary Duty

Liberally construing the SAC to Shoemaker’s benefit, the bankruptcy court interpreted the grossnegligence claim as a breach-of-fiduciary-duty claim involving gross negligence, which was the only
claim the court had given Shoemaker leave to amend. The Court analyzes this claim accordingly.
The elements of breach of fiduciary duty are (1) the existence of a fiduciary relationship, (2) its
breach, and (3) damages. Oasis W. Realty, 51 Cal. 4th at 820.
Here, because of Siegel’s quasi-judicial immunity, a claim of breach of fiduciary duty must
involve gross negligence or intentional misconduct. In re Cont’l Coin Corp., 380 B.R. at 11–15. Based
on the attached exhibits and in the light most favorable to Shoemaker, the Court finds the factual
allegations in the SAC to be insufficient to permit a reasonable inference that Siegel is liable for such
gross negligence or intentional misconduct. See Iqbal, 556 U.S. at 678. Though the bankruptcy court
dismissed the claim based on litigation privilege and statute of limitations, its conclusion agrees with
that of this Court.
Finally, because Shoemaker failed to state a claim against Siegel in multiple opportunities
between the initial Complaint, FAC,2 SAC, and two hearings, the bankruptcy court did not abuse its
discretion in dismissing this claim with prejudice.
V.

EVIDENTIARY OBJECTIONS

To the extent the parties object to any evidence that the Court relies on in this Order, those
objections are overruled.
VI.

CONCLUSION
Accordingly, the Court AFFIRMS the bankruptcy court’s dismissal.
IT IS SO ORDERED.
:
Initials of Preparer

2

The bankruptcy court reviewed the FAC in its first ruling and found it insufficient. (Tentative Ruling
Re: Defs.’ Mot. Dismiss Compl. 8, 1 Appellant’s App. at 171, ECF No. 9.)
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