In Re TAC Financial, Inc.

Filing 28

ORDER denying 16 Appellants' Motion to Stay Disbursement of Policy Proceeds. Signed by Judge Anthony J. Battaglia on 6/30/2017. (acc)

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UNITED STATES DISTRICT COURT

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SOUTHERN DISTRICT OF CALIFORNIA

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Case No.: 17cv00381-AJB-BGS

In re:
TAC FINANCIAL, INC.,

ORDER DENYING APPELLANTS’
MOTION TO STAY
DISBURSEMENT OF POLICY
PROCEEDS

Debtor,
DIRECT BENEFITS, LLC, and
ANDREW C. GELLENE,
Appellants,

(Doc. No. 16)

CHRISTOPHER R. BARCLAY,
CHAPTER 7 TRUSTEE, and REMAR
INVESTMENTS, LP,

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Appellees.

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Presently before the Court is Appellants Direct Benefits, LLC and Andrew C.

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Gellene’s (“Appellants”) motion to stay the disbursement of proceeds from a certain key

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man life insurance policy. (Doc. No. 16.) Appellees Christopher R. Barclay and Chapter 7

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Trustee (“Appellees”) oppose the motion. (Doc. No. 25.) Pursuant to Civil Local Rule

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7.1.d.1, the Court finds the matter suitable for determination on the papers and without oral

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argument. Accordingly, the motion hearing set for July 6, 2017, is hereby VACATED. As

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explained more fully below, the Court DENIES Appellants’ motion to stay.

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17cv00381-AJB-BGS

BACKGROUND1

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This case comes before the Court on appeal from the United States Bankruptcy Court

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Southern District of California’s February 9, 2017 order approving the settlement between

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the Trustee of TAC Financial, Inc.’s (“TAC”) Chapter 7 bankruptcy case and Remar

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Investments, LP (“Remar”)2. (Doc. No. 1; Doc. No. 16-1 at 8.) The underlying bankruptcy

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case revolves around a certain key man life insurance policy issued by ReliaStar Life

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Insurance Company (hereafter “ReliaStar”) and held by Roy Eder (“Eder”), a former

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officer and member of the Board of Directors of TAC. (Doc. No. 16-1 at 5.) Eder’s life

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insurance policy had a $5,000,000 death benefit (the “Policy”). (Id.)

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In early June of 2014, Eder was diagnosed with cancer. (Doc. No. 10 at 6.) At this

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time the Policy was owned by TAC and TAC paid all premiums. (Id. at 7.) The designation

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of the beneficiaries on the Policy at that time are as follows: TAC 60%; Andrea Kutsch

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10%; Cameron Eder 10%; Henry Eder 10%; and Kendal Eder 10%. (Id.)

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Shortly following his diagnosis, Eder allegedly took action as a purported

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representative of TAC and transferred the Policy from TAC to himself. (Doc. No. 16-1 at

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5.) After TAC’s Board voted to remove Eder as CEO and Chairman on July 2, 2014, it was

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revealed that the beneficiary designations on the Policy had been purportedly changed.

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(Doc. No. 10 at 8.) As of June 30, 2014, the designation of the beneficiaries on the Policy

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according to Appellants are: Andrea Eder 60%; Florence Eder 10%; Cameron Eder 10%;

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Henry Eder 10%; and Kendall Eder 10%. (Id.) On July 11, 2014, Michael Frager

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(“Frager”), Eder’s insurance agent, faxed a notice of change of ownership to Reliastar,

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notifying it that ownership of the Policy had been transferred from TAC to Eder. (Id. at 8–

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9.) Appellants contend that Eder and Frager’s maneuvers to change beneficiaries and

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The Court notes that the allegations in this case are contested. However, as Appellees fail
to provide the Court with a statement of facts in their opposition papers, the Court will turn
to the allegations presented by Appellants to provide the background of this case.
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Appellants assert that Remar allegedly paid Roy Eder $3,100,000.00 to purchase the life
insurance policy, without verifying that Eder owned the Policy. (Doc. No. 16-1 at 6.)
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owners for the Policy were not approved by either TAC or its board or shareholders. (Id.

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at 9.)

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Thereafter, TAC filed a chapter 7 bankruptcy petition on January 6, 2015. (Id. at 11.)

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The Trustee appointed in TAC’s bankruptcy case (the “Trustee”) alleged that Eder’s

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actions were unauthorized, ultra vires and not legally effective, or, alternatively, if the facts

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and law supported that they were authorized, and effective as a matter of law to cause a

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transfer, that such transfer was avoidable and fraudulent. (Doc. No. 16-1 at 5–6.)

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Trustee then hired Vanderhoff Law Group (“Vanderhoff”) to represent TAC in its

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case. (Id. at 6.) Vanderhoff was to be paid hourly and to (1) assist Trustee with legal work

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necessary to collect assets and administer claims; and (2) pursue the avoidance of the

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transfer of the Policy. (Id.)

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Thereafter, Trustee proposed to settle with Remar by (1) withdrawing the Ultra Vires

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Claim; (2) transferring ownership of the policy to Remar; (3) acquiring Remar’s litigation

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claim against Eder for fraudulently selling Remar a Policy Eder did not purportedly own;

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and (4) Remar agreeing that when the $4,750,000 death benefit pays out to it as owner, the

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Trustee will receive $343,347.68 of the insurance proceeds and Remar, as owner, will

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receive the balance, or $4,383,903.02. (Doc. No. 10 at 12; Doc. No. 16-1 at 7.) On February

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9, 2017, the bankruptcy court approved the settlement over Appellants’ objection. (Doc.

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No. 4-4 at 150–51; Doc. No. 16-1 at 8.) Appellants then took appeal of this approval to this

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Court on February 24, 2017. (Doc. No. 1.)

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While the appeal has been proceeding, Trustee and Remar have filed a motion3 for

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an order from the bankruptcy court authorizing the disbursement of interpleaded funds.

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(Doc. No. 16-1 at 21.) The motion requested the funds be distributed as follows

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$4,383,903.02 to Remar and $343,347.68 to the Trustee.4 (Id. at 36.) The briefing schedule

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Appellants incorrectly identify this motion as a “joint motion.” (Doc. No. 16-1 at 8, 21.)
The Court notes that Appellants’ moving papers state that the motion asked to disburse
the proceeds as $137,339.07 to Vanderhoff, $206,007.93 to the bankruptcy estate for
payment of Trustee commissions and claims, and $4,383,903.70 to Remar. (Id. at 8.)
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established by the bankruptcy court set a motion hearing date for the motion to disburse

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for July 12, 2017. (Id. at 10.)

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Subsequently, on April 24, 2017, Vanderhoff filed a second interim fee application

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seeking authorization for the Trustee to pay him a 40% contingency fee in the amount of

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$343,347.68. (Id. at 43.) After taking this matter off calendar, the bankruptcy court

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approved the fee application over Appellants’ objections. (Id. at 8.)

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On February 24, 2017, Appellants filed their notice of appeal from the bankruptcy

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court with this Court. (Doc. No. 1.) The overarching issue on appeal is based on the final

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order of the bankruptcy court approving the settlement brought by Trustee and Remar. (See

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generally Doc. No. 10.) On May 30, 2017, Appellants then filed the present motion, their

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motion to stay disbursement of the Policy proceeds that are sitting in the registry of the

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bankruptcy court. (Doc. No. 16.)

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DISCUSSION

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Appellants contend that (1) the bankruptcy court lacks jurisdiction to alter and

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expand upon Remar’s settlement and lacks jurisdiction to grant the relief requested because

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it will alter the status quo; and (2) that disbursal should be enjoined during the brief period

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of time necessary to decide the instant appeal before this Court. (See generally id.) In

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opposition, Appellees contend that Appellants are (1) forum shopping; (2) that the

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injunction motion is premature; and (3) that the injunction motion is a de facto Petition for

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a Writ of Mandamus. (See generally Doc. No. 25.)

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A.

Appellants’ Motion to Stay is Not a Writ of Mandamus

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As an initial matter, the Court will turn to Appellees’ assertion that the current

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motion to stay is actually a de facto petition for a writ of mandamus. (Doc. No. 25 at 9–

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11.) In their reply brief, Appellants assert that Appellees’ contention is misplaced. (Doc.

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No. 26 at 2–4, 7.)

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A writ of mandamus “has traditionally been used in the federal courts only ‘to

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confine an inferior court to a lawful exercise of its prescribed jurisdiction or to compel it

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to exercise its authority when it is its duty to do so.’” Will v. United States, 389 U.S. 90, 95
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(1967) (citation omitted).

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The Court disagrees with Appellees’ characterization of the motion to stay as a writ

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of mandamus. A mandamus orders a lower court to “perform a specified act.” Bryan A.

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Garner, A Dictionary of Modern Legal Usage 546 (2d ed. 1995). A stay means either (1)

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“postponement” or (2) “the order suspending a judicial proceeding or the judgment

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resulting from that proceeding[.]” Id. at 833. More specifically, in the legal sense, stay

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means to “postpone [] until the court determines a contested issue[.]” Id. Here, Appellants

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are not requesting that this Court order the bankruptcy court to either grant or deny the

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motion to disburse. Instead, Appellants seek to have this Court request that the bankruptcy

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court temporarily delay its determination on the motion to disburse until the instant appeal

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is concluded. Accordingly, the Court disagrees with Appellees and finds that the current

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motion is correctly categorized as a motion to stay.

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B.

Failure to Comply with Presentation Requirement

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Next, the Court finds that pursuant to Rule 8007 of the Federal Rules of Bankruptcy

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Procedure, the stay filed by Appellants is improperly brought before this Court. Appellees

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assert that the motion for a stay pending appeal must first be brought before the bankruptcy

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court. (Doc. No. 25 at 8.) The Court agrees.

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“Rule 8007 contains a presentation requirement.” In re Rivera, Case No. 5:15-cv-

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04402-EJD, 2015 WL 6847973, at *2 (N.D. Cal. Nov. 9, 2015). “Ordinarily, a party must

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move first in the bankruptcy court for the following relief . . . a stay of a judgment, order,

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or decree of the bankruptcy court pending appeal[.]” Fed. R. Bankr. P. 8007(a)(1)(A). If

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the request is instead made directly to the court where the appeal is pending, the moving

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party must show “that moving first in the bankruptcy court would be impracticable,” or “if

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a motion was made in the bankruptcy court, either state that the court has not yet ruled on

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the motion, or state that the court has ruled and set out any reasons given for the ruling.”

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Id. at (b)(2)(A)–(B). “A failure to seek emergency relief in the bankruptcy court is a critical

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defect and not often overlooked.” In re Rivera, 2015 WL 6847973, at *2.

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Appellants assert that it would be “impracticable” to layer a motion to stay in the
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bankruptcy court as the instant motion duplicates the issues pending in the motion to

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disburse. (Doc. No. 16-1 at 11.) Moreover, Appellants appear to argue that as the

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bankruptcy court has ruled against them previously, that this motion is properly brought

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before the district court. (Id.)

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Absent from Appellants’ brief are legal citations that support their contention that

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the bankruptcy’s court’s adverse rulings against them satisfies the “impracticability” of

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filing standard under Rule 8007. Thus, the Court rejects this assertion and additionally

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notes that it is not an adequate reason to excuse Rule 8007’s presentation requirement.

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Furthermore, the Court finds the remaining argument presented by Appellants to be

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insufficient. Appellants admit that their motion to stay and their opposition to the motion

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to disburse asserts identical issues and arguments. (Doc. No. 16-1 at 11.) In light of these

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similarities, the Court finds that it would only be logical and in fact more practicable for

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the bankruptcy court to handle both matters together as it is more familiar with the issues

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and facts of this case. See DBD Credit Funding LLC v. Silicon Laboratories, Inc., Case

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No. 16-CV-05111-LHK, 2016 WL 6893882, at *6 (N.D. Cal. Nov. 23, 2016) (“[T]he

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reviewing court should have the benefit of the learning of the lower court, which is more

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familiar with the parties, facts and legal issues.” (citation omitted)).

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Accordingly, as the bankruptcy court was not permitted to determine whether a stay

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is appropriate in the first instance, and concluding that Appellants’ assertions supporting a

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finding of impracticability unpersuasive, the Court finds that Appellants have improperly

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bypassed5 the bankruptcy court. See In re Rivera, 2015 WL 6847973, at *2 (holding that

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appellants’ motion to stay should be denied as they failed to explain what action they took

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to have the bankruptcy court rule on the stay motion and that appellants had not

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persuasively stated why seeking a ruling from the bankruptcy court would have been

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The Eastern District of New York held that when a party “improperly bypasses the
bankruptcy court and seeks a stay first from the district court, the district court lacks the
jurisdiction to hear the matter.” In re Taub, 470 B.R. 273, 276 (E.D.N.Y. 2012).
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impracticable). Thus, the Court DENIES Appellants’ motion to stay for failure to comply

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with Rule 8007’s presentation requirement.

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On a final note, the Court notes that the record demonstrates that the briefing

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schedule for the motion to disburse the policy proceeds was set as follows: the response to

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the motion to disburse was due on June 3, 2017, and the reply was due by June 20, 2017.

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(Doc. No. 16-1 at 10.) The hearing for the motion was continued to July 12, 2017, at 2:30

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pm. (Id.) The instant motion to stay was filed by Appellants on May 30, 2017. (Doc. No.

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16.) Thus, it is apparent that Appellants had time to file the motion to stay with the

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bankruptcy court well before the hearing date on the motion to disburse. 6

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CONCLUSION

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As discussed more fully above, the Court DENIES Appellants’ motion to stay
disbursement of policy proceeds.

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IT IS SO ORDERED.

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Dated: June 30, 2017

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As a result, the Court will not analyze the remaining arguments presented by Appellants
or Appellee.
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17cv00381-AJB-BGS