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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1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 12 13 14 15 16 17 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, 18 Appellees. 19 20 Presently before the Court is Appellants Direct Benefits, LLC and Andrew C. 21 Gellene’s (“Appellants”) motion to stay the disbursement of proceeds from a certain key 22 man life insurance policy. (Doc. No. 16.) Appellees Christopher R. Barclay and Chapter 7 23 Trustee (“Appellees”) oppose the motion. (Doc. No. 25.) Pursuant to Civil Local Rule 24 7.1.d.1, the Court finds the matter suitable for determination on the papers and without oral 25 argument. Accordingly, the motion hearing set for July 6, 2017, is hereby VACATED. As 26 explained more fully below, the Court DENIES Appellants’ motion to stay. 27 /// 28 /// 1 17cv00381-AJB-BGS BACKGROUND1 1 2 This case comes before the Court on appeal from the United States Bankruptcy Court 3 Southern District of California’s February 9, 2017 order approving the settlement between 4 the Trustee of TAC Financial, Inc.’s (“TAC”) Chapter 7 bankruptcy case and Remar 5 Investments, LP (“Remar”)2. (Doc. No. 1; Doc. No. 16-1 at 8.) The underlying bankruptcy 6 case revolves around a certain key man life insurance policy issued by ReliaStar Life 7 Insurance Company (hereafter “ReliaStar”) and held by Roy Eder (“Eder”), a former 8 officer and member of the Board of Directors of TAC. (Doc. No. 16-1 at 5.) Eder’s life 9 insurance policy had a $5,000,000 death benefit (the “Policy”). (Id.) 10 In early June of 2014, Eder was diagnosed with cancer. (Doc. No. 10 at 6.) At this 11 time the Policy was owned by TAC and TAC paid all premiums. (Id. at 7.) The designation 12 of the beneficiaries on the Policy at that time are as follows: TAC 60%; Andrea Kutsch 13 10%; Cameron Eder 10%; Henry Eder 10%; and Kendal Eder 10%. (Id.) 14 Shortly following his diagnosis, Eder allegedly took action as a purported 15 representative of TAC and transferred the Policy from TAC to himself. (Doc. No. 16-1 at 16 5.) After TAC’s Board voted to remove Eder as CEO and Chairman on July 2, 2014, it was 17 revealed that the beneficiary designations on the Policy had been purportedly changed. 18 (Doc. No. 10 at 8.) As of June 30, 2014, the designation of the beneficiaries on the Policy 19 according to Appellants are: Andrea Eder 60%; Florence Eder 10%; Cameron Eder 10%; 20 Henry Eder 10%; and Kendall Eder 10%. (Id.) On July 11, 2014, Michael Frager 21 (“Frager”), Eder’s insurance agent, faxed a notice of change of ownership to Reliastar, 22 notifying it that ownership of the Policy had been transferred from TAC to Eder. (Id. at 8– 23 9.) Appellants contend that Eder and Frager’s maneuvers to change beneficiaries and 24 25 26 27 28                                                                   1 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. 2 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.) 2 17cv00381-AJB-BGS 1 owners for the Policy were not approved by either TAC or its board or shareholders. (Id. 2 at 9.) 3 Thereafter, TAC filed a chapter 7 bankruptcy petition on January 6, 2015. (Id. at 11.) 4 The Trustee appointed in TAC’s bankruptcy case (the “Trustee”) alleged that Eder’s 5 actions were unauthorized, ultra vires and not legally effective, or, alternatively, if the facts 6 and law supported that they were authorized, and effective as a matter of law to cause a 7 transfer, that such transfer was avoidable and fraudulent. (Doc. No. 16-1 at 5–6.) 8 Trustee then hired Vanderhoff Law Group (“Vanderhoff”) to represent TAC in its 9 case. (Id. at 6.) Vanderhoff was to be paid hourly and to (1) assist Trustee with legal work 10 necessary to collect assets and administer claims; and (2) pursue the avoidance of the 11 transfer of the Policy. (Id.) 12 Thereafter, Trustee proposed to settle with Remar by (1) withdrawing the Ultra Vires 13 Claim; (2) transferring ownership of the policy to Remar; (3) acquiring Remar’s litigation 14 claim against Eder for fraudulently selling Remar a Policy Eder did not purportedly own; 15 and (4) Remar agreeing that when the $4,750,000 death benefit pays out to it as owner, the 16 Trustee will receive $343,347.68 of the insurance proceeds and Remar, as owner, will 17 receive the balance, or $4,383,903.02. (Doc. No. 10 at 12; Doc. No. 16-1 at 7.) On February 18 9, 2017, the bankruptcy court approved the settlement over Appellants’ objection. (Doc. 19 No. 4-4 at 150–51; Doc. No. 16-1 at 8.) Appellants then took appeal of this approval to this 20 Court on February 24, 2017. (Doc. No. 1.) 21 While the appeal has been proceeding, Trustee and Remar have filed a motion3 for 22 an order from the bankruptcy court authorizing the disbursement of interpleaded funds. 23 (Doc. No. 16-1 at 21.) The motion requested the funds be distributed as follows 24 $4,383,903.02 to Remar and $343,347.68 to the Trustee.4 (Id. at 36.) The briefing schedule 25                                                                   26 3 27 28 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.) 4 3 17cv00381-AJB-BGS 1 established by the bankruptcy court set a motion hearing date for the motion to disburse 2 for July 12, 2017. (Id. at 10.) 3 Subsequently, on April 24, 2017, Vanderhoff filed a second interim fee application 4 seeking authorization for the Trustee to pay him a 40% contingency fee in the amount of 5 $343,347.68. (Id. at 43.) After taking this matter off calendar, the bankruptcy court 6 approved the fee application over Appellants’ objections. (Id. at 8.) 7 On February 24, 2017, Appellants filed their notice of appeal from the bankruptcy 8 court with this Court. (Doc. No. 1.) The overarching issue on appeal is based on the final 9 order of the bankruptcy court approving the settlement brought by Trustee and Remar. (See 10 generally Doc. No. 10.) On May 30, 2017, Appellants then filed the present motion, their 11 motion to stay disbursement of the Policy proceeds that are sitting in the registry of the 12 bankruptcy court. (Doc. No. 16.) 13 DISCUSSION 14 Appellants contend that (1) the bankruptcy court lacks jurisdiction to alter and 15 expand upon Remar’s settlement and lacks jurisdiction to grant the relief requested because 16 it will alter the status quo; and (2) that disbursal should be enjoined during the brief period 17 of time necessary to decide the instant appeal before this Court. (See generally id.) In 18 opposition, Appellees contend that Appellants are (1) forum shopping; (2) that the 19 injunction motion is premature; and (3) that the injunction motion is a de facto Petition for 20 a Writ of Mandamus. (See generally Doc. No. 25.) 21 A. Appellants’ Motion to Stay is Not a Writ of Mandamus 22 As an initial matter, the Court will turn to Appellees’ assertion that the current 23 motion to stay is actually a de facto petition for a writ of mandamus. (Doc. No. 25 at 9– 24 11.) In their reply brief, Appellants assert that Appellees’ contention is misplaced. (Doc. 25 No. 26 at 2–4, 7.) 26 A writ of mandamus “has traditionally been used in the federal courts only ‘to 27 confine an inferior court to a lawful exercise of its prescribed jurisdiction or to compel it 28 to exercise its authority when it is its duty to do so.’” Will v. United States, 389 U.S. 90, 95 4 17cv00381-AJB-BGS 1 (1967) (citation omitted). 2 The Court disagrees with Appellees’ characterization of the motion to stay as a writ 3 of mandamus. A mandamus orders a lower court to “perform a specified act.” Bryan A. 4 Garner, A Dictionary of Modern Legal Usage 546 (2d ed. 1995). A stay means either (1) 5 “postponement” or (2) “the order suspending a judicial proceeding or the judgment 6 resulting from that proceeding[.]” Id. at 833. More specifically, in the legal sense, stay 7 means to “postpone [] until the court determines a contested issue[.]” Id. Here, Appellants 8 are not requesting that this Court order the bankruptcy court to either grant or deny the 9 motion to disburse. Instead, Appellants seek to have this Court request that the bankruptcy 10 court temporarily delay its determination on the motion to disburse until the instant appeal 11 is concluded. Accordingly, the Court disagrees with Appellees and finds that the current 12 motion is correctly categorized as a motion to stay. 13 B. Failure to Comply with Presentation Requirement 14 Next, the Court finds that pursuant to Rule 8007 of the Federal Rules of Bankruptcy 15 Procedure, the stay filed by Appellants is improperly brought before this Court. Appellees 16 assert that the motion for a stay pending appeal must first be brought before the bankruptcy 17 court. (Doc. No. 25 at 8.) The Court agrees. 18 “Rule 8007 contains a presentation requirement.” In re Rivera, Case No. 5:15-cv- 19 04402-EJD, 2015 WL 6847973, at *2 (N.D. Cal. Nov. 9, 2015). “Ordinarily, a party must 20 move first in the bankruptcy court for the following relief . . . a stay of a judgment, order, 21 or decree of the bankruptcy court pending appeal[.]” Fed. R. Bankr. P. 8007(a)(1)(A). If 22 the request is instead made directly to the court where the appeal is pending, the moving 23 party must show “that moving first in the bankruptcy court would be impracticable,” or “if 24 a motion was made in the bankruptcy court, either state that the court has not yet ruled on 25 the motion, or state that the court has ruled and set out any reasons given for the ruling.” 26 Id. at (b)(2)(A)–(B). “A failure to seek emergency relief in the bankruptcy court is a critical 27 defect and not often overlooked.” In re Rivera, 2015 WL 6847973, at *2. 28 Appellants assert that it would be “impracticable” to layer a motion to stay in the 5 17cv00381-AJB-BGS 1 bankruptcy court as the instant motion duplicates the issues pending in the motion to 2 disburse. (Doc. No. 16-1 at 11.) Moreover, Appellants appear to argue that as the 3 bankruptcy court has ruled against them previously, that this motion is properly brought 4 before the district court. (Id.) 5 Absent from Appellants’ brief are legal citations that support their contention that 6 the bankruptcy’s court’s adverse rulings against them satisfies the “impracticability” of 7 filing standard under Rule 8007. Thus, the Court rejects this assertion and additionally 8 notes that it is not an adequate reason to excuse Rule 8007’s presentation requirement. 9 Furthermore, the Court finds the remaining argument presented by Appellants to be 10 insufficient. Appellants admit that their motion to stay and their opposition to the motion 11 to disburse asserts identical issues and arguments. (Doc. No. 16-1 at 11.) In light of these 12 similarities, the Court finds that it would only be logical and in fact more practicable for 13 the bankruptcy court to handle both matters together as it is more familiar with the issues 14 and facts of this case. See DBD Credit Funding LLC v. Silicon Laboratories, Inc., Case 15 No. 16-CV-05111-LHK, 2016 WL 6893882, at *6 (N.D. Cal. Nov. 23, 2016) (“[T]he 16 reviewing court should have the benefit of the learning of the lower court, which is more 17 familiar with the parties, facts and legal issues.” (citation omitted)). 18 Accordingly, as the bankruptcy court was not permitted to determine whether a stay 19 is appropriate in the first instance, and concluding that Appellants’ assertions supporting a 20 finding of impracticability unpersuasive, the Court finds that Appellants have improperly 21 bypassed5 the bankruptcy court. See In re Rivera, 2015 WL 6847973, at *2 (holding that 22 appellants’ motion to stay should be denied as they failed to explain what action they took 23 to have the bankruptcy court rule on the stay motion and that appellants had not 24 persuasively stated why seeking a ruling from the bankruptcy court would have been 25 26                                                                   27 5 28 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). 6 17cv00381-AJB-BGS 1 impracticable). Thus, the Court DENIES Appellants’ motion to stay for failure to comply 2 with Rule 8007’s presentation requirement. 3 On a final note, the Court notes that the record demonstrates that the briefing 4 schedule for the motion to disburse the policy proceeds was set as follows: the response to 5 the motion to disburse was due on June 3, 2017, and the reply was due by June 20, 2017. 6 (Doc. No. 16-1 at 10.) The hearing for the motion was continued to July 12, 2017, at 2:30 7 pm. (Id.) The instant motion to stay was filed by Appellants on May 30, 2017. (Doc. No. 8 16.) Thus, it is apparent that Appellants had time to file the motion to stay with the 9 bankruptcy court well before the hearing date on the motion to disburse. 6 10 CONCLUSION 11 12 As discussed more fully above, the Court DENIES Appellants’ motion to stay disbursement of policy proceeds. 13 14 IT IS SO ORDERED. 15 Dated: June 30, 2017 16 17 18 19 20 21 22 23 24 25 26 27 28                                                                   6 As a result, the Court will not analyze the remaining arguments presented by Appellants or Appellee. 7 17cv00381-AJB-BGS

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