In Re Denise Dienvy Nguyen

Filing 18

MINUTES - (In Chambers) ORDER RE BANKRUPTCY APPEAL by Judge Michael W. Fitzgerald: The decision of the bankruptcy court is AFFIRMED. This Order shall constitute notice of entry of judgment pursuant to Federal Rule of Civil Procedure 58. Pursuant to Local Rule 58-6, the Court ORDERS the Clerk to treat this Order, and its entry on the docket, as an entry of judgment. (Made JS-6. Case Terminated.) (jp)

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA

JS-6

CIVIL MINUTES—GENERAL
Case No. SACV-13-1404-MWF
Date: April 22, 2014
Title:
Tru Le v. Denise Dienvy Nguyen (In re Denise Dienvy Nguyen)
Present: The Honorable MICHAEL W. FITZGERALD, U.S. District Judge
Deputy Clerk:
Rita Sanchez

Court Reporter:
Not Reported

Attorneys Present for Plaintiff:
None Present

Attorneys Present for Defendant:
None Present

Proceedings (In Chambers): ORDER RE BANKRUPTCY APPEAL
Appellant-Defendant Denise Dienvy Nguyen appeals from the Order on Motion
to Reopen Adversary Case and Motion for Order Vacating Judgment entered on
August 12, 2013 (the “Order”). (Excerpts of Record (“ER”) 538-39). The Order
denied Appellant’s motion and preserved the default judgment entered in favor of
Appellee-Plaintiff Tru Le on March 14, 2012 (the “Default Judgment”). (ER 119-21).
For the reasons set forth below, the Order is AFFIRMED.
I.

BACKGROUND

On April 19, 2007, the Superior Court for the State of California, County of
Orange, awarded a money judgment in favor of Le against Phong Hung Tran in the
amount of $457,960. (ER 155). On May 18, 2007, Le filed an action in state court
against Nguyen, Tran’s girlfriend, seeking to recover alleged fraudulent conveyances
from Tran to Nguyen. (ER 164-82). Before the state court action against Nguyen
concluded, Nguyen filed a voluntary petition in bankruptcy on August 3, 2010. (ER
184-224). Tran also had filed a petition in bankruptcy on October 17, 2008. (ER 137).
On November 3, 2010, Le filed a complaint against Nguyen initiating an adversary
proceeding in Nguyen’s bankruptcy case. (ER 1-11). The complaint sought a
declaration of nondischargeability of the debt Nguyen owed Le as a result of her
receipt of fraudulent transfers. (ER 5-11).
On March 14, 2012, the bankruptcy court entered the Default Judgment against
Nguyen in the amount of $681,921.26. (ER 119-21). At the time, Tran’s bankruptcy
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA

JS-6

CIVIL MINUTES—GENERAL
Case No. SACV-13-1404-MWF
Date: April 22, 2014
Title:
Tru Le v. Denise Dienvy Nguyen (In re Denise Dienvy Nguyen)
case remained open. (ER 148). On June 28, 2013, Nguyen filed a motion seeking to
vacate the judgment on the ground that the judgment was void because Le lacked
standing to litigate the claim, because Tran’s chapter 7 trustee was the sole real party in
interest with standing to bring fraudulent transfer actions belonging to Tran’s estate.
(ER 136). The bankruptcy court denied the motion, and Nguyen brought the present
appeal on September 11, 2013.
II.

DISCUSSION

The sole issue on appeal is whether the bankruptcy court erred in holding that
the Default Judgment was not void. The bankruptcy court’s conclusions of law are
reviewed de novo and findings of fact are reviewed for clear error. Zurich Am. Ins. Co.
v. Int’l Fibercom, Inc., 503 F.3d 933, 940 (9th Cir. 2007).
The Court briefly notes the case of Executive Benefits Insurance Agency v.
Arkinson, No. 1200 (U.S.), currently pending before the Supreme Court, which raises
the issue whether a bankruptcy court may constitutionally hear and render final
judgment in a fraudulent transfer action based on the consent of the litigants. The
parties have not raised the issue, and the Court sees no reason to stay the action
pending resolution of the Supreme Court case rather than apply the law as it now
stands, under which any defect in the bankruptcy court’s power to enter judgment in a
fraudulent transfer action may be waived by the parties. In re Bellingham Ins. Agency,
702 F.3d 553, 566-67 (9th Cir. 2012).
A party may seek relief from a judgment or order in bankruptcy court under
Rule 60 of the Federal Rules of Civil Procedure, made applicable in bankruptcy cases
by Rule 9024 of the Federal Rules of Bankruptcy Procedure. Nguyen seeks relief from
the Default Judgment on the sole ground that the judgment is void. Fed. R. Civ. P.
60(b)(4).
A party must generally seek relief from a judgment within one year of the entry
of the judgment. Fed. R. Civ. P. 60(c)(1). If, however, the Default Judgment is void,
then the bankruptcy judge had no discretion not to grant the motion and vacate the
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA

JS-6

CIVIL MINUTES—GENERAL
Case No. SACV-13-1404-MWF
Date: April 22, 2014
Title:
Tru Le v. Denise Dienvy Nguyen (In re Denise Dienvy Nguyen)
judgment, no matter when the motion was brought. In re Center Wholesale, Inc., 759
F.2d 1440, 1448 (9th Cir. 1985) (holding that defendant’s delay in bringing motion
under Rule 60(b)(4) was irrelevant); see 11 C. Wright & A. Miller, Federal Practice
and Procedure § 2862 (3d ed. rev. 2013). As the bankruptcy judge noted here (ER
525:18-21), if the Default Judgment is not void, then the motion for relief from the
judgment was untimely because it was brought more than 15 months after entry of the
judgment. Therefore, Nguyen wisely relied before the bankruptcy court and on appeal
on the sole ground that the Default Judgment is void.
Nguyen argues that the Default Judgment is void because Le’s lack of standing
to prosecute his claim deprived the bankruptcy court of subject matter jurisdiction over
the claim. Le argues that he did not lack standing, because both the complaint and the
Default Judgment were for nondischargeability of a debt for a willful and malicious
injury under 11 U.S.C. § 523(a)(6), not for fraudulent transfer or any other claim that
would have vested in Tran’s chapter 7 trustee. The Court need not reach this issue.
Even if Le’s nondischargeability complaint contained a disguised fraudulent transfer
claim and Le in fact lacked (non-constitutional) standing to prosecute the claim
because it belonged to Tran’s estate, this defect is not jurisdictional, and thus the
Default Judgment was not void.
Standing under Article III is a critical component of a federal court’s subject
matter jurisdiction. See Steel Co. v. Citizens for a Better Environment, 523 U.S. 83,
102, 118 S. Ct. 1003, 140 L. Ed. 2d 210 (1998) (holding that when relief sought would
not remedy injury, federal court lacks jurisdiction to hear action). The “irreducible
constitutional minimum of standing” contains three components:
First and foremost, there must be alleged (and ultimately proved) an
“injury in fact”—a harm suffered by the plaintiff that is “concrete” and
“actual or imminent, not ‘conjectural’ or ‘hypothetical.’” Second, there
must be causation—a fairly traceable connection between the plaintiff’s
injury and the complained-of conduct of the defendant. And third, there
must be redressability—a likelihood that the requested relief will redress
the alleged injury.
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA

JS-6

CIVIL MINUTES—GENERAL
Case No. SACV-13-1404-MWF
Date: April 22, 2014
Title:
Tru Le v. Denise Dienvy Nguyen (In re Denise Dienvy Nguyen)
Id. at 102-03 (citations omitted) (quoting Lujan v. Defenders of Wildlife, 504 U.S. 555,
560, 112 S. Ct. 2130, 119 L. Ed. 2d 351 (1992); Whitmore v. Arkansas, 495 U.S. 149,
155, 110 S. Ct. 1717, 109 L. Ed. 2d 135 (1990); Simon v. E. Ky. Welfare Rights Org.,
426 U.S. 26, 41-42, 96 S. Ct. 1917, 8 L. Ed. 2d 450 (1976)).
Judged from this standard, Le plainly meets Article III’s requirements for
standing. Nguyen does not contest that Le complains of a concrete injury suffered on
account of Tran’s alleged fraudulent conveyance of property to Nguyen in order to
avoid satisfaction of the judgment. Tran’s transfer of property and Nguyen’s receipt of
property caused Le’s alleged injury. And a judgment in Le’s favor clearly redresses
the injury.
Nguyen argues that Le lacked standing because the chapter 7 trustee of Tran’s
bankruptcy case was the sole party with standing to bring a fraudulent transfer claim
arising from a transfer by the debtor within the scope of 11 U.S.C. § 548.
Nguyen is correct, insofar as the bankruptcy trustee was the only party entitled
to prosecute a fraudulent transfer claim belonging to Tran’s bankruptcy estate at the
time the Default Judgment was entered. See In re Cass, No. 12-1513-KiPaTa, 2013
WL 1459272, at *9 (B.A.P. 9th Cir. Apr. 11, 2013). The trustee is the real party in
interest with the exclusive power to bring a fraudulent transfer action belonging to the
estate. The filing of the bankruptcy case divested creditors of the right to litigate
fraudulent transfer actions belonging to the estate, either on behalf of the estate or for
their own benefit. See id. (“It is undisputed that Trustee was the only party with
standing to prosecute what became the Fraudulent Transfer Adversary . . . .” (citing
Estate of Spirtos v. One San Bernardino Cnty. Super. Ct. Case Numbered SPR 02211,
443 F.3d 1172, 1776 (9th Cir. 2006); In re PWS Holding Corp., 303 F.3d 308 (3d Cir.
2002))).
Nguyen’s mistake lies in her conflation of standing as a real party in interest,
which does not implicate federal subject matter jurisdiction, with Article III’s standing
requirement. Although Article III standing is a jurisdictional necessity, the Supreme
Court has distinguished between jurisdictional standing, which ensures that the
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA

JS-6

CIVIL MINUTES—GENERAL
Case No. SACV-13-1404-MWF
Date: April 22, 2014
Title:
Tru Le v. Denise Dienvy Nguyen (In re Denise Dienvy Nguyen)
plaintiff has suffered a redressable injury-in-fact caused by the defendant’s actions, and
prudential standing, the self-imposed limitations on the federal courts’ exercise of
jurisdiction. See Bennett v. Spear, 520 U.S. 154, 162, 117 S. Ct. 1154, 137 L. Ed. 2d
281 (1997) (holding that the “zone of interests” standing test was merely prudential
and not part of the immutable requirements of Article III). One common prudential
standing limitation is the “reluctance to exert judicial power when the plaintiff’s claim
to relief rests on the legal rights of third parties.” Warth v. Seldin, 422 U.S. 490, 501,
95 S. Ct. 2197, 45 L. Ed. 2d 343 (1975).
Likewise, the real-party-in-interest rule, while often described in terms of
standing, is not jurisdictional. The power to litigate a case is distinct from the
jurisdictional necessity of an injury-in-fact. “Rule 17(a) does not [confer] standing;
‘real party in interest’ is very different from standing.” Kent v. N. Cal. Regional Office
of the Am. Friends Serv. Comm., 497 F.2d 1325, 1329 (9th Cir. 1974) (citing the 1971
edition of 6A C. Wright & A. Miller, Federal Practice and Procedure § 1542 (3d ed.
rev. 2013)); see also Ensley v. Cody Res., Inc., 171 F.3d 315, 320 (5th Cir. 1999)
(holding that the real-party-in-interest requirement under Rule 17(a) is waivable).
Hence, the Ninth Circuit has held that a court has subject matter jurisdiction over
claims by an individual partner asserting rights belonging exclusively to the
partnership. Lindsey v. Starwood Hotels & Resorts Worldwide, Inc., 409 F. App’x 77,
78 (9th Cir. 2010). The district court in Lindsey “correctly concluded” that the plaintiff
“could not assert contractual claims belonging to the partnership. . . . The district court
erred, however, by treating [plaintiff’s] lack of standing as a defect of Article III
standing that deprives the court of subject matter jurisdiction.” Id.
For these reasons, the Eleventh Circuit has squarely held that while the filing of
a bankruptcy case may confer on the bankruptcy trustee the exclusive power to
prosecute certain claims, this defect does not deprive the federal court of subject matter
jurisdiction over the claim. Dunn v. Advanced Med. Specialties, Inc., -- F. App’x --,
2014 WL 503050, at *3-4 (11th Cir. Feb. 10, 2014) (citing Barger v. City of
Cartersville, 348 F.3d 1289, 1296-97 (11th Cir. 2003)). The Eleventh Circuit pointed
out the difference between the “principle of jurisdictional standing under Article III of
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA

JS-6

CIVIL MINUTES—GENERAL
Case No. SACV-13-1404-MWF
Date: April 22, 2014
Title:
Tru Le v. Denise Dienvy Nguyen (In re Denise Dienvy Nguyen)
the United States Constitution, which would impact the court’s subject matter
jurisdiction, with the principle of real party in interest, which does not impact the
court’s subject matter jurisdiction.” Id. at *3.
In support of her position, Nguyen cites to Warren v. Fox Family Worldwide,
Inc., 328 F.3d 1136, 1140 (9th Cir. 2003), in which the Ninth Circuit held that standing
under the Copyright Act is a jurisdictional limitation. Id. at 1140. Accordingly, a
copyright infringement action brought by a plaintiff who entered into a valid work-forhire agreement was properly dismissed because the plaintiff retained no right of
authorship in the copyrighted works. Id. at 1142-43. Warren is distinguishable
because the standing defect at issue there related directly to the plaintiff’s injury. The
plaintiff’s alleged injury was created by the Copyright Act; if, under the Act, he could
have no claim, then he could have no injury-in-fact, an Article III standing
requirement. Here, by contrast, Le’s injury is clearly established under state law. The
filing of the bankruptcy did not obliterate his injury; it merely temporarily removed his
power to litigate a fraudulent transfer claim belonging to Tran’s bankruptcy estate.
Regardless of whether Le lacked standing to prosecute his claims against
Nguyen during the pendency of Tran’s bankruptcy, any lack of standing as a creditor
or real party in interest did not bring Le below the irreducible minimum of standing
under Article III’s case-or-controversy requirement. Accordingly, the judgment
rendered in his favor was not void.
Nguyen’s final arguments are similarly unavailing.
Nguyen argues that the bankruptcy court erred in failing to apply the proper
standard under Rule 60(b)(4) that a judgment must be vacated if it is “void,” and
instead required Nguyen to show that the Default Judgment was “void ab initio.”
(Appellant’s Opening Brief at 10-11; ER 524-25). The record indicates that the
bankruptcy judge used the terms “void” and “void ab initio” interchangeably.
Regardless of the bankruptcy judge’s usage of the relevant terms, the Default Judgment
was not void, as discussed above.
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA

JS-6

CIVIL MINUTES—GENERAL
Case No. SACV-13-1404-MWF
Date: April 22, 2014
Title:
Tru Le v. Denise Dienvy Nguyen (In re Denise Dienvy Nguyen)
Finally, Nguyen argues that a ruling that a creditor has standing to litigate a
fraudulent transfer during the pendency of a bankruptcy proceeding would undermine
the exclusive standing of trustees to control and administer assets of the bankruptcy
estates, and inundate the bankruptcy courts with a multitude of duplicative
proceedings. She is correct. The creditor’s lack of standing as real party in interest,
however, does not deprive the bankruptcy court of subject matter jurisdiction. Nguyen
certainly could have raised Le’s potential lack of standing in the original adversary
proceeding. But any lack of standing as a real party in interest was not a jurisdictional
defect, and thus the Default Judgment is not void.
The parties have raised and extensively briefed the issue of whether Le in fact
brought a fraudulent transfer action, which was within the exclusive power of the
trustee, or rather a simple nondischargeability action sounding in tort and proven by
fraud, for which he presumably would have had proper standing. Because the Court
determines that any lack of standing was not a jurisdictional defect, it does not reach
the question whether Le in fact has the power to litigate his claim leading to the
Default Judgment as a creditor or real party in interest.
III.

CONCLUSION
The decision of the bankruptcy court is AFFIRMED.

This Order shall constitute notice of entry of judgment pursuant to Federal Rule
of Civil Procedure 58. Pursuant to Local Rule 58-6, the Court ORDERS the Clerk to
treat this Order, and its entry on the docket, as an entry of judgment.
IT IS SO ORDERED.

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