Burkart v. Chandra
Filing
1
FINDINGS AND RECOMMENDATIONS signed by Bankruptcy Judge Robert S. Bardwil on 11/4/2013 RECOMMENDING that default judgment be entered in favor of plaintiff, with damages in the amount of $14,500.00. Referred to District Judge John A. Mendez. (Donati, J)
It
FILED
1
NOV - 42013
Nov 04, 2013
2
CLERK, U.S. DISTRICT COURT
EASTERN DISTRICT OF CALIFORNIA
UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF CALIFORNIA
3
4
UNITED STATES BANKRUPTCY COURT
5
EASTERN DISTRICT OF CALIFORNIA
6
Case No. 10-42050-D-7
7
Inre:
8
VINCENT THAKUR SINGH and
MELANIE GAY SINGH,
9
CAED Case # 2:13-cv-2296 JAM
Debtors.
10
11
MICHAEL F. BURKART, Chapter 7
Trustee,
12
Adv. No. 12-2497
Docket Control No. CDH-001
Plaintiff,
V.
13
RONALD CHANDRA,
14
Defendant
DATE: July 24, 2013
TIME: 10:00 a.m.
DEPT: D
15
16
RECOMMENDATION TO THE DISTRICT COURT WITH
FINDINGS OF FACT AND CONCLUSIONS OF LAW
17
18
Chapter 7 trustee Michael Burkart ("plaintiff") has filed a motion
19
for entry of default judgment against defendant Ronald Chandra
20
("defendant"). The motion was noticed under LBR 9014-1(f) (1) and is
21
unopposed. The court submits to the district court the following
22
findings of fact and conclusions of law, pursuant to 28 U.S.C. §
23
157 (c) (1).
24
25
BANKRUPTCY COURT AUTHORITY
Following the Ninth Circuit's decision in Exec. Benefits Ins. Agency
26
v. Arkison (In re Bellingham Ins. Agency, Inc.), 702 F.3d 553 (9th Cir.
27
2012), cert. granted, 2013 WL 3155257 (June 24, 2013), bankruptcy courts
28
do not have constitutional authority to enter final judgments on
1
fraudulent transfer claims against non-creditors. 702 F.3d at 565. The
2
Bellingham court, however, also held that a defendant's right to a
3
hearing in an Article III court is waivable. Id. at 566. "[A]
4
litigant's actions may suffice to establish consent" to adjudication by a
5
non-Article III court. Id. at 569. Here, defendant is neither a
6
creditor in the underlying bankruptcy case, nor was defendant
7
sufficiently active in the case to give rise to a finding of a waiver of
8
defendant's right to an Article III adjudication. Accordingly, the court
9
does not have authority to enter a final judgment on the fraudulent
10
transfer claim asserted against defendant. Thus, the court submits the
11
following as its findings of fact and conclusions of law, together with
12
its recommendation, to the district court.
13
ANALYSIS
14
A summons and complaint were served on defendant, who failed to
7012 (a) . On May
15
answer within the time provided under
16
17, 2013, the clerk of the court entered an order of default against
17
defendant. There are no other defendants in this matter. Accordingly,
18
the well-pleaded allegations in plaintiff's complaint, except for
19
allegations regarding the amount of damages, are deemed admitted.
20
Civ. P. 8(b) (6)
FED. R. BANKR. P.
FED. R.
21
22
23
24
25
26
27
28
In sum, § 157(b) (1) provides bankruptcy courts the power to hear
fraudulent [transfer] cases and to submit reports and recommendations to the
district courts. Such cases remain in the core, and the § 157(b) (1) power
to 'hear and determine' them authorizes the bankruptcy courts to issue
proposed findings of fact and conclusions of law. Only the power to enter
final judgment is abrogated.
Exec. Benefits Ins. Agency v. Arkison (In reBellingham Ins. Agency, Inc.),
702 F.3d 553, 565-66 (9th Cir. 2012), cert. granted, 2013 WL 3155257 (June
24, 2013)
- 2 -
1
Obtaining a default judgment is a two-step process. See Eitel v.
2
McCool, 782 F.2d 1470, 1471 (9th Cir. 1986) . First, the clerk of the
3
court enters the default of the party who has failed to plead or
4
otherwise defend; the clerk or the court, depending on the nature of the
5
plaintiff's claim, then enters a default judgment. FED. R.
6
and (b), incorporated herein by FED. R. BANKR. P. 7055. In this case, the
7
clerk, at the request of plaintiff, entered the default of defendant on
8
May 17, 2013. Plaintiff's motion is for entry of default judgment
9
against defendant, pursuant to FED. R. CIV. P. 55(b). Factors the court
CIV. P.
55(a)
10
must consider include the following: (1) the possibility of prejudice to
11
the plaintiff; (2) the merits of plaintiff's substantive claim; (3) the
12
sufficiency of the complaint; (4) the sum of money at stake in the
13
action; (5) the possibility of a dispute concerning material facts; (6)
14
whether the default was due to excusable neglect; and (7) the strong
15
policy underlying the Federal Rules of Civil Procedure favoring decisions
16
on the merits. Eitel, 782 F.2d at 1471-72. Resolution of disputes on
17
their merits is generally favored over default judgments. See id. at
18
1472.
19
Similar, albeit differently articulated, considerations are involved
20
in the context of a court's exercise of discretion to set aside a default
21
judgment:
22
23
24
25
26
27
28
These considerations, are usually listed as (1) whether the
default was willful or culpable; (2) whether granting relief
from the default would prejudice the opposing party; and (3)
whether the defaulting party has a meritorious defense. Such
considerations are, therefore, also appropriate considerations
when deciding whether to render a default judgment. This is
logical. When faced with the decision concerning whether to
render a default judgment in the first place, a court
logically should consider whether factors are present that
would later oblige the court to set that default judgment
aside.
10 MOoRE'S FEDERAL PRACTICE § 55.31[2] (Matthew Bender 3d. ed. 2012).
- 3 -
1
Pursuant to the Fourth Claim for Relief of the First Amended
2
Complaint, plaintiff alleges a fraudulent transfer claim under 11 U.S.C.
3
§ 548 (a) (1) (A) . In particular, plaintiff alleges that debtor, Vincent
4
Singh ("Singh"), made three payments to defendant totaling $14,500.00.
5
The payments consisted of cash, checks, or other forms of transfer
6
directly from Singh or indirectly from one or more accounts in Singh's
7
name, Malanie Singh, Perfect Financial Group, Inc., AAMCO Stockton, Inc.,
8
AAMCO Orangevale, Inc., OM L. Singh, John A. Singh, Usha D. Singh, and/or
9
third parties to or for the benefit of defendant. The payments were made
10
as part of a Ponzi scheme perpetrated by Singh. Defendant had invested
11
funds with Singh and received payments in connection with the amounts
12
invested. Although Singh represented that he was making "hard money"
13
loans that would produce funds to be paid back to investors (including
14
defendant), the actual source of the payments from Singh was funds
15
invested by other investors. Pursuant to the Fifth Claim for Relief,
16
plaintiff alleges that, under 11 U.S.C. § 550, he is entitled to recover
17
from defendant any property transferred from Singh by means of an
18
avoidable transfer.
19
A.
Propriety of Entering Default Judgment (Eitel Factors)
20
1.
21
Plaintiff will be prejudiced if default judgment is not granted.
Possibility of Preiudice to Plaintiff
22
Plaintiff, as trustee of a bankruptcy estate being administered in part
23
for the benefit of Ponzi scheme victims, is required to marshal a series
24
of transfers to numerous investors so' that each investor can receive his
25
or her aliquot share of investment funds misappropriated by the
26
perpetrator of a Ponzi scheme. Although it seems counterintuitive to
27
claw back funds redistributed to the victims by Singh, it is necessary in
28
I
ensuring the equality of treatment of similarly situated creditors.
- 4 -
ii Defendant's failure to respond in this action presents a delay that
21 reverberates through the bankruptcy case: plaintiff is prevented from
3
marshaling and accounting for investment funds that are to be distributed
4
on a pro rata basis. Accordingly, plaintiff will be prejudiced.
5
2.
6
The following facts are taken as true given defendant's lack of
The Merits of Plaintiff's Claims
7
response. As stated earlier, plaintiff's complaint alleges, inter alia,
8
a claim under 11 U.S.C. § 548(a) (1) (A) that the transfers to defendant
9
were made by Singh with an actual intent to hinder, delay, or defraud
10
defendant and other similarly situated creditors. The court agrees with
11
plaintiff that singh's conduct amounted to a Ponzi scheme, which is
12
sufficient to establish actual intent to defraud creditors within the
13
meaning of 11 U.S.C. § 548(a) (1) (A). The "existence of a Ponzi scheme is
14
sufficient to establish actual intent under § 548(a) (1) ." AFI Holding,
15
Inc. v. Mackenzie (In re AFI Holdings, Inc.), 525 F.3d 700, 704 (9th cir.
16
2008) (internal quotation marks omitted)
17
Plaintiff's complaint adequately alleges that Singh engaged in a
18
Ponzi scheme. In furtherance of this scheme, Singh accepted investment
19
funds from defendant and other similarly situated investors. From time
20
to time, Singh, whether directly or indirectly, distributed payments to
21
the investors as an illusory return on investment. These illusory
22
returns constitute transfers, of an interest in property of the debtor
23
within the meaning of 11 U.S.C. § 101(54) (D) . The well-pleaded facts
24
show that these transfers were made with an actual intent to hinder,
25
delay, or defraud defendant on or within 2 years before the date of the
26
filing of the petition. Therefore, plaintiff's fourth claim for relief
27 I is meritorious.
28
- 5 -
1
Although an exception to liability exists in 11 U.S.C. § 548(c) for
2
a defendant who takes in good faith and gives new value, "the defendants'
3
good faith is an affirmative defense under Section 548(c) which must be
4
pleaded in the first instance as a defense by the defendants. It is not
5
incumbent on the plaintiff to plead lack of good faith on the defendants'
6
part because lack of good faith is not an element of a plaintiff's claim
7
under Section 548(a) (1) ." Bayou Superfund, LLC v. WAM Long/Short Fund
8
II, L.P. (In re Bayou Grp., LLc), 362 B.R. 624, 639 (Bankr. S.D.N.Y.
9
2007) . As defendant has not filed a response in this action, defendant
10
has not met the burden of proof required to successfully assert a "good
11
faith" defense to plaintiff's fraudulent transfer claim.
12
Lastly, plaintiff's complaint adequately alleges that plaintiff is
13
entitled to recover the transfers made to defendant. "[T]o the extent
14
that a transfer is avoided under section . . . 548, . . . the trustee may
15
recover, for the benefit of the estate, the property transferred .
16
from— (1) the initial transferee of such transfer or the entity for whose
17
benefit such transfer was made." 11 U.S.C. § 550(a) (1).
18
plaintiff's fifth claim for relief is meritorious.
Therefore,
19
3.
20
The court finds that plaintiff's complaint is well-pleaded and sets
Sufficiency of Plaintiff's Complaint
21
forth plausible facts—not just parroted statutory or boilerplate
22
language—that show that plaintiff is entitled to the relief sought in the
23
fourth and fifth claims for relief. The complaint sufficiently alleges
24
with particularity facts that show Singh engaged in an extensive Ponzi
25
scheme of which defendant was a victim. Pursuant to the scheme,
26
defendant invested funds and also received certain transfers from Singh.
27
The court is satisfied that plaintiff has pleaded the circumstances of
28
the Ponzi scheme constituting actual fraud with particularity. See
- 6 -
FED.
1
R. BANKR. P.
2
party who alleges fraud to plead such fraud with particularity)
3
Moreover, plaintiff has pleaded facts that satisfy the elements of a
4
fraudulent transfer claim sounding in actual fraud.
7009, which incorporates
FED. R.
Civ. P. 9(b) (requiring a
5
4.
6
Defendant is liable to plaintiff for a sum of money received via at
The Amount at Stake
7
least three transfers from Singh. The total amount of avoidable
8
transfers alleged is $14,500.00, subject to change if and when plaintiff
9
discovers other transfers made to defendant. The amount at stake is not
10
a grossly large number, nor is it a nominal amount. Plaintiff has
11
presented evidence showing that Singh made at least three payments to
12
defendant in the amount alleged. This factor weighs in favor of a
13
default judgment.
14
5.
15
Upon entry of default, all well-pleaded facts in the complaint are
Possibility of Dispute as to Material Facts
16
taken as true, except allegations relating to damages. Defendant has not
17
advanced any arguments showing material facts in dispute. Given the
18
sufficiency of the complaint and defendant's default, there is no genuine
19
I
dispute of material fact that would preclude a default judgment.
20
6.
21
Defendant was properly served with the summons and complaint
Excusable Neglect
22
pursuant to
23
defendant's failure to respond to the complaint was due to excusable
24
I
FED. R. BANER. P.
7004. It is therefore unlikely that
neglect.
25
7.
26
"Cases should be decided upon their merits whenever reasonably
Policy in Favor of Deciding on the Merits
27
possible." Eitel, 782 F.2d at 1472. As compelling a factor as this may
28
be, a decision on the merits is not reasonable in light of defendant's
-7--
1
complete inaction. Defendant's lack of a response renders a decision on
2
the merits practically impossible. Thus, the ordinary preference to
3
decide cases on the merits must yield to the granting of a default
4
judgment.
5
B.
6
Damages
The entry of a default judgment establishes the liability of the
7
defaulting party but the moving party still must establish the amount of
8
damages. Geddes v. United Fin. Grp., 559 F.2d 557, 560 (9th Cir. 1977).
9
"A court does not abuse its discretion by failing to hold a hearing [on
10
damages] when the amount of damages is liquidated or can be made certain
11
by computation based on the pleadings or information in the existing
12
record." 10
13
award of damages here, the court relies on the copies of checks submitted
14
as evidence by plaintiff. The total amount of transfers, according to
15
this evidence, is $14,500.00.
16
MooRE's FEDERAL PRACTICE
§ 55.32[2] [b] . In recommending an
For the reasons stated, the court recommends entry of a default
17
judgment in favor of plaintiff, with damages in the amount requested in
18
the complaint.
19
Dated:
20
NOV - 4 2013
ROBERT S. BARDWIL
United States Bankruptcy Judge
21
22
23
24
25
26
27
28
- 8 -
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?