In re Lim

Filing 28

ORDER by Judge Claudia Wilken AFFIRMING ORDER OF THE BANKRUPTCY COURT AND GRANTING IN PART APPELLEE'S 27 MOTION TO STRIKE REPLY. (Attachments: # 1 Certificate/Proof of Service) (ndr, COURT STAFF) (Filed on 4/27/2012)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA
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SUMI LIM,

No. C 11-3894 CW

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Appellant/Plaintiff,

ORDER AFFIRMING
ORDER OF THE
BANKRUPTCY COURT AND
GRANTING IN PART
APPELLEE'S MOTION TO
STRIKE REPLY

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v.
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CAROLINE BROWN,
United States District Court
For the Northern District of California

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Appellee/Defendant.
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___________________________________
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IN RE:
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CAROLINE BROWN,
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Debtor.

Bankruptcy Case No.
09-32424 TEC

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/
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Pro se Appellant/Plaintiff Sumi Lim appeals the bankruptcy
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court's June 30, 2011 order denying her motion to alter or amend
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its October 18, 2010 order dismissing her first amended complaint
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(1AC) with prejudice.

Appellee/Defendant Caroline Brown has filed

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a responsive brief and Appellant has filed a reply.

Appellee has

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filed a motion to strike Appellant's reply.

Appellant has not

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opposed this motion.

Having considered all of the papers filed by

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the parties, the Court affirms the ruling of the bankruptcy court
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and grants, in part, Appellee's motion to strike.
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BACKGROUND
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On August 19, 2009, Ms. Brown filed a Chapter 7 bankruptcy
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case.

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and real estate agent, did not file for bankruptcy relief.

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filed, in Ms. Brown's bankruptcy case, a four-page complaint, under

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11 U.S.C. § 523(a)(2),1 seeking to render nondischargeable an

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unspecified sum of money that Ms. Lim had lent to an unspecified

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borrower in connection with an Arizona luxury condominium

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development known as Sonterrra.

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dismiss the complaint under Federal Rule of Civil Procedure

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12(b)(6).

Ms. Brown's husband, Terry Brown, a real estate developer
Ms. Lim

Ms. Brown filed a motion to

After a hearing on January 29, 2010, the bankruptcy

United States District Court
For the Northern District of California

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court granted the motion with leave to amend.

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that, without violating the automatic stay, Ms. Lim could file a

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state-court action against Mr. Brown regarding the loan specified

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in the complaint.

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I. Allegations in First Amended Complaint

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The order provided

On March 5, 2010, Ms. Lim filed her 1AC, in which she made the

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following allegations related to Ms. Brown.

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learned of Mr. and Ms. Brown's condominium conversion project in

In 2006, Ms. Lim

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(a) A discharge under § 727 . . . of this title does not
discharge an individual debtor from any debt-

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11 U.S.C. § 523 states in pertinent part that:

(2) for money, property or an extension, renewal, or
refinancing of credit, to the extent obtained by(A) false pretenses, a false representation, or actual
fraud, other than a statement respecting the debtor's or an
insider's financial condition.

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To state a claim under 11 U.S.C. § 523(a)(2)(A), a plaintiff
must allege: (1) misrepresentation; (2) knowledge of the falsity of
the representation; (3) intent to induce reliance; (4) justifiable
reliance; and (5) damages. In re Kimmel, 2006 WL 6810976, *5 (9th
Cir. BAP 2006).

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Tucson, Arizona and attended an information meeting about it.

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the meeting, information was presented about other large scale real

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estate projects the Browns were developing.

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Lim met personally with Mr. Brown.

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concerned about protecting investors' investments because he had

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full back-up teams to take over in case any of the principals were

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incapacitated.

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the safety of their investors' money by being well insured and they

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were willing to be generous with interest.

At

After the meeting, Ms.

Mr. Brown appeared to be

Mr. and Ms. Brown emphasized that they guaranteed

Plaintiff was

United States District Court
For the Northern District of California

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especially impressed by the payment guaranty which was signed by

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both Mr. and Ms. Brown.

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2005 and named as the beneficiary William Cheek and Mr. Cheek's

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successors, endorsees, or assignees.

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signed a contract to loan $50,000 to Sonterra Condominiums, LP.

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The guaranty was executed on December 23,

On March 22, 2006, Ms. Lim

The 1AC also alleged that, at the time Ms. Lim made the loan

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to Sonterra, Mr. and Ms. Brown were creating multiple shell

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entities in various states and under various names to obtain money

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and to hide money.

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was fraudulent because she and her husband were "concealing the

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millions of dollars they took from banks, investment groups, and

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individual investors through these entities."

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II. Bankruptcy Court's Rulings

Ms. Lim alleged that Ms. Brown knew her conduct

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A. October 15, 2010 Dismissal of First Amended Complaint

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In its October 15, 2010 order dismissing the 1AC, the

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bankruptcy court noted that Ms. Lim had corrected several

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deficiencies in the original complaint by alleging the amount of

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money she had loaned, the date on which it was loaned, the entity

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that received the loan and the loan guaranty by Mr. and Ms. Brown.

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However, the bankruptcy court noted that Ms. Lim alleged that she

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made the loan after attending several presentations by Mr. Brown,

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but that she failed to allege any misrepresentations made by Ms.

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Brown to Ms. Lim, or any of the other elements material to a

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§ 523(a)(2)(A) claim, such as when the misrepresentations were

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made, whether Ms. Brown intended to deceive Ms. Lim through the

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misrepresentations, whether Ms. Lim justifiably relied on Ms.

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Brown's misrepresentations, and whether Ms. Lim's damages were

United States District Court
For the Northern District of California

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proximately caused by her reliance on Ms. Brown's

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misrepresentations.

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did not allege that she was a successor, an endorsee or an assignee

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of William Cheek, so that she was not a beneficiary of the

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guaranty.

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amend, for failure to state a claim under § 523(a)(2)(A).

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filed a motion to alter or amend this order.

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The bankruptcy court also noted that Ms. Lim

The bankruptcy court dismissed the 1AC, without leave to
Ms. Lim

B. June 30, 2011 Order Denying Ms. Lim's Motion to Alter
or Amend October 15, 2010 Order

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In its June 30, 2010 order denying the motion to alter or
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amend, the bankruptcy court acknowledged that, in her 1AC, Ms. Lim
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alleged that Mr. and Ms. Brown were engaged in a fraudulent scheme
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of issuing loan guarantees to numerous banks and individual
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investors that they never intended to honor, that on the basis of
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the guarantees Mr. and Ms. Brown obtained millions of dollars in
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investments and that they absconded with the invested money by
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transferring it to multiple businesses they owned in various
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jurisdictions.

The bankruptcy court also noted that, with her

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motion to alter or amend, Ms. Lim submitted a supplemental

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complaint in which she asserted that Ms. Brown was an active

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partner with her husband in setting up illegal entities in which

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she served as treasurer, secretary and director.

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However, the bankruptcy court held that Ms. Lim's motion did

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not meet any of the requirements for reconsideration and denied the

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motion to alter or amend its previous order.

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Ms. Lim appeals from the June 30, 2011 order of the bankruptcy
court.

United States District Court
For the Northern District of California

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JURISDICTION AND STANDARD OF REVIEW
A district court has jurisdiction to hear appeals from a

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bankruptcy court pursuant to 28 U.S.C. § 158(a).

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court reviews the bankruptcy court’s findings of fact according to

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a “clearly erroneous” standard, Federal Rule of Bankruptcy

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Procedure 8013, and reviews findings of law de novo, In re Lockard,

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884 F.2d 1171, 1174 (9th Cir. 1989).

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The district

DISCUSSION
I. Appeal
Ms. Lim argues that the June 30, 2011 order was incorrect

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because, although it was signed by the bankruptcy judge, it was

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written by a law clerk who denied her motion with a citation to

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just one case, Rooz v. Kimmel, 2006 WL 6810976, *7-9 (9th Cir. BAP

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2006), which has nothing to do with her claim of fraud.

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also argues that the "clerk" did not understand the significance of

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the evidence she submitted with her 1AC that showed Ms. Brown was

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involved in her husband's fraudulent enterprises.

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argues that the bankruptcy court's discharge of Ms. Brown's debts

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Ms. Lim

Ms. Lim also

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was not fair to Ms. Brown's creditors because she did not provide

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the court with tax records or financial records that showed what

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happened to the $200 million she and her husband borrowed from

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investors.

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procedural justice, which makes it a haven for frauds.

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Finally, she argues that the bankruptcy system lacks

In making these arguments, Ms. Lim does not address the law

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that applies to a motion to alter or amend an order or judgment of

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the court under Federal Rule of Civil Procedure 60.
Federal Rule of Civil Procedure 60(b) provides that, "upon

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United States District Court
For the Northern District of California

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such terms as are just," a court may relieve a party from final

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judgment for the following reasons:

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(1) mistake, inadvertence, surprise, or excusable
neglect; (2) newly discovered evidence which by due
diligence could not have been discovered in time to move
for a new trial under Rule 59(b); (3) fraud,
misrepresentation, or other misconduct of an adverse
party; (4) the judgment is void; (5) the judgment has
been satisfied, released or discharged; (6) any other
reason justifying relief from operation of the judgment.

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Fed. R. Civ. P. 60(b).
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Reconsideration of a previous order of the court is an
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"extraordinary remedy, to be used sparingly in the interests of
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finality and conservation of judicial resources."

Kona

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Enterprises, Inc. v. Estate of Bishop, 229 F.3d 877, 890 (9th Cir.
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2000).

A motion for reconsideration should not be granted unless

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the moving party presents newly discovered evidence or shows that
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the court committed clear error or that there was an intervening
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change in controlling law.

Id.

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Although, in her motion for reconsideration, Ms. Lim submitted
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additional evidence of Ms. Brown's involvement in her husband's
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real estate dealings, this evidence was not newly discovered and

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could have been presented in her oppositions to Ms. Brown's motions

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to dismiss her complaints.

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that there was an intervening change in controlling law.

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Ms. Lim show that the bankruptcy court committed clear error in

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concluding that she failed to meet the requirements under §

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523(a)(2)(A) for exempting her claim from Ms. Brown's Chapter 7

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discharge.

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Furthermore, Ms. Lim does not argue
Nor can

The fact that Ms. Brown may not have filed the correct tax

United States District Court
For the Northern District of California

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forms with the bankruptcy court or that her creditors might suffer

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if she was granted a discharge is not relevant to Ms. Lim's

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§ 523(a)(2)(A) motion.

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focuses solely on whether Ms. Brown intentionally made false

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representations to Ms. Lim in order to induce Ms. Lim to rely on

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them to make the $50,000 loan.

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does not allege the requisite elements of a § 523(a)(2)(A) claim

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against Ms. Brown.

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An analysis of Ms. Lim's § 523 claim

A review of the 1AC shows that it

Ms. Lim's argument that the bankruptcy court erred because it

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relied upon Rooz v. Kimmel, 2006 WL 6810976, *7-9 (9th Cir. BAP

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2006) is unpersuasive.

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characterization of it as a community property case is incorrect.

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Like this case, Rooz addressed a motion for an exception to

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discharge under § 523(a)(2)(A).

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appellate panel (BAP) concluded that the allegations in the

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plaintiff's complaint were "ambiguous as to substantive facts

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constituting fraud."

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allegations more properly constituted an objection to the debtor's

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Rooz is on point, and Ms. Lim's

Id. at *7.

Id. at *1, 7.

The bankruptcy

The BAP explained that the

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discharge under 11 U.S.C. § 727(a),2 rather than grounds for an

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exception to the discharge of the plaintiff's claim under

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§ 523(a)(2)(A).

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There is a strong similarity between the allegations in Rooz

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and Ms. Lim's allegations of Ms. Brown's failure to file required

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tax returns and failure to admit her level of involvement in her

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husband's real estate projects.

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claim is based on a general harm to all creditors; it is not

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specific to individual creditors as is a § 523 claim.

As the Rooz court noted, a § 727

Id. at *7.

United States District Court
For the Northern District of California

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However, Ms. Lim did not assert a § 727 claim, and her § 523 claim

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is deficient.

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Furthermore, the Rooz court disapproved McClellan v. Cantrell,

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217 F.3d 890 (7th Cir. 2000), the case on which Ms. Lim relies.

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McClellan, the Seventh Circuit held that § 523(a)(2)(A) actions are

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not limited to misrepresentations and can be based on participation

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in a fraudulent transfer.

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893.

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authority in this Circuit instructing that the provisions of the

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§ 523(a) exceptions to discharge should be construed narrowly."

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Id.

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In

Id. at *8 (citing McClellan, 217 F.3d at

In Rooz, the BAP disagreed stating that "there is ample

Ms. Lim also argues that the bankruptcy court erroneously
stated that she did not establish her right to repayment because

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Section 727(a)(2) denies a discharge to a debtor who, with
intent to hinder, delay or defraud a creditor or an officer of the
estate, transfers or conceals property within one year before the
date the petition is filed, or property of the estate after the
date the petition is filed. Section 727(a)(4) prohibits discharge
of a debtor who lies to the court. Section 727(a)(5) prohibits
discharge of a debtor who fails to explain satisfactorily any loss
or deficiency of assets.
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she did not allege that she was a successor, endorsee or assignee

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of William Cheek.

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because Ms. Brown included her on her schedule of creditors filed

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with the bankruptcy court and because Ms. Lim filed a timely proof

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of claim for her $50,000 loan.

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acknowledged claim in Ms. Brown's bankruptcy case with adequately

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alleging that the claim should not be discharged due to Ms. Brown's

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fraudulent conduct.

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Lim did not have a valid $50,000 claim in Ms. Brown's bankruptcy

Ms. Lim argues that she is entitled to repayment

Here, Ms. Lim mistakes having an

The bankruptcy court did not indicate that Ms.

United States District Court
For the Northern District of California

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case.

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allege that she was a beneficiary of the guaranty showed that any

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false statement made by Ms. Brown in connection with the guaranty

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could not be taken as evidence that she made a misrepresentation to

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Ms. Lim.

The bankruptcy court's mention of Ms. Lim's failure to

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The bankruptcy court's June 30, 2011 denial of Ms. Lim's

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motion to alter or amend its October 18, 2010 order dismissing her

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complaint was not in error and the order of the bankruptcy court is

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affirmed.

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II. Motion to Strike

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Ms. Brown moves to strike Ms. Lim's reply on the grounds that

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it is irrelevant to her appeal and attacks the integrity of Ms.

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Brown's attorney, Wayne Silver.

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Procedure 8011 provides authority for the district court to

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entertain a motion to strike.

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if it contains material that is not in the record below.

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Inc. v. City of Palm Desert, 998 F.2d 680, 684, n.1 (9th Cir.

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1993).

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Federal Rule of Bankruptcy

A court may strike part of a brief
Levald,

For good cause, the Court grants the motion to strike the
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portion of the reply that relates to Ms. Brown's attorney.

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CONCLUSION

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For the foregoing reasons, the Court affirms the June 30, 2011

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decision and order of the bankruptcy court and grants, in part, Ms.

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Brown's motion to strike.

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IT IS SO ORDERED.

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Dated: 4/27/2012
CLAUDIA WILKEN
United States District Judge

United States District Court
For the Northern District of California

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