FILED
FEB 11 2019
NOT FOR PUBLICATION
SUSAN M. SPRAUL, CLERK
U.S. BKCY. APP. PANEL
OF THE NINTH CIRCUIT
UNITED STATES BANKRUPTCY APPELLATE PANEL
OF THE NINTH CIRCUIT
In re: BAP No. CC-18-1166-FKuTa
VARDOUI MADATIAN, Bk. No. 1:16-bk-10048-MB
Debtor.
VARDOUI MADATIAN,
Appellant,
v. MEMORANDUM*
AMY L. GOLDMAN, Chapter 7 Trustee,
Appellee.
Submitted Without Argument on January 24, 2019
Filed – February 11, 2019
Appeal from the United States Bankruptcy Court
for the Central District of California
Honorable Martin R. Barash, Bankruptcy Judge, Presiding
*
This disposition is not appropriate for publication. Although it may be cited for
whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential
value, see 9th Cir. BAP Rule 8024-1.
Appearances: Appellant Vardoui Madatian, pro se, on brief; Brad D.
Krasnoff, Aaron E. de Leest, and Sonia Singh of Danning,
Gill, Diamand & Kollitz, LLP on brief for appellee Amy L.
Goldman, Chapter 7 Trustee.
Before: FARIS, KURTZ, and TAYLOR, Bankruptcy Judges.
INTRODUCTION
Chapter 71 debtor Vardoui Madatian appeals from the bankruptcy
court’s order requiring her to vacate and turn over her residential property
to chapter 7 trustee Amy L. Goldman (“Trustee”). She argues that she did
not hinder the Trustee’s attempts to market her property for sale and
implies that she did not have to cooperate with the Trustee because the
Trustee acted improperly. She also argues that she has a possessory interest
in her property and that the Trustee failed to provide her with adequate
protection before marketing her residence.
None of her arguments have any merit. We AFFIRM.
1
Unless specified otherwise, all chapter and section references are to the
Bankruptcy Code, 11 U.S.C. §§ 101-1532.
2
FACTUAL BACKGROUND2
A. Ms. Madatian’s state-court proceedings
Ms. Madatian and her son, Robert Madatian, began operating a home
healthcare business in 2011. In November 2012, Iris Manuel, a nurse
formerly working for Ms. Madatian and her son, sued them in the state
court for allegedly failing to pay wages.
Ms. Manuel obtained a default judgment against Ms. Madatian and
Robert in the amount of approximately $99,000, plus attorneys’ fees
totaling approximately $114,000. Ms. Manuel sought court approval to
execute the judgment by selling Ms. Madatian’s residence.
B. Ms. Madatian’s bankruptcy proceedings
On January 8, 2016, Ms. Madatian filed a chapter 11 petition. She
identified two real property assets: her residential property located on
Texhoma Avenue in Van Nuys, California (the “Residential Property”) and
a six-unit apartment complex located on Delano Avenue in Van Nuys,
California (the “Rental Property”). Ms. Madatian represented that she
owns the Residential Property free and clear of any encumbrances.
Ms. Manuel filed a proof of claim for $412,413.83 based on the state
court judgment. Ms. Madatian objected to the claim, and the bankruptcy
2
We exercise our discretion to review the bankruptcy court’s docket, as
appropriate. See Woods & Erickson, LLP v. Leonard (In re AVI, Inc.), 389 B.R. 721, 725 n.2
(9th Cir. BAP 2008).
3
court allowed approximately $240,000.
In February 2018, the bankruptcy court converted Ms. Madatian’s
case to one under chapter 7 due to her failure to file required monthly
statements. The court ordered Ms. Madatian to “turn over all assets to the
Chapter 7 trustee, including all records and property of the estate.”
Following conversion, the Trustee began collecting rent from
Ms. Madatian’s tenants at the Rental Property, took possession of
approximately $8,000 that was in Ms. Madatian’s debtor-in-possession
account, and retained a real estate agent to sell the Residential Property.
C. Robert’s motion to set aside the default judgment
After Ms. Madatian filed for bankruptcy protection, Robert moved
the state court to set aside the default judgment against him. In November
2017, the state court voided ab initio the default judgment against Robert,
ruling that the complaint failed to include “allegations that a specific sum
was due, or other allegations sufficient to put defendant on notice of the
sum of damages sought.”
D. The motion for turnover
In May 2018, the Trustee filed a motion (“Motion for Turnover”) to
compel Ms. Madatian to vacate the Residential Property and turn over
possession of the Residential Property and certain records. She argued that
Ms. Madatian had failed to cooperate with the real estate agent’s efforts to
market and sell the property.
4
Specifically, the Trustee argued that Ms. Madatian had a duty to
cooperate and turn over all property of the estate. The Trustee’s real estate
agent needed to inspect the interior of the Residential Property, take
photos, and show the property to prospective buyers. The agent twice
attempted to make these arrangements with Ms. Madatian in April 2018 by
e-mailing Robert. (The Trustee was informed that Ms. Madatian and Robert
share the same e-mail address.) Ms. Madatian did not respond.
Moreover, the Trustee contended that Ms. Madatian did not turn
over records concerning the Rental Property, including utility bills, tax
statements, insurance statements, and information related to the mortgage.
She further alleged that the tenants had refused to pay rent to the Trustee
based on statements made by Ms. Madatian or her family.3
In opposition to the Motion for Turnover, Ms. Madatian blamed the
Trustee for various problems. She alleged that “any judgment amount
issued by the [state] court is outside its jurisdiction and thus void ab initio”
3
In March 2018, Ms. Madatian wrote to the Trustee in an e-mail:
Without first seeing a court order that you, as the chapter 7 trustee
is [sic] entitled to cash collateral and income generated from the property,
my tenants refuse to pay you. Reason being, they don[’]t want to be liable
to more than one person.
Therefore, please produce a court order. Otherwise your agents
will be trespassing on my property and will be prosecuted civilly and
criminally upon their arrest.
5
and that the Trustee failed to investigate Ms. Manuel’s claims properly. She
also claimed that the Trustee had demanded payment from her tenants and
seized funds from her bank account, yet the Trustee had not paid any of
the Rental Property’s expenses, including insurance and mortgage
payments. Moreover, she argued that the Trustee had access to all of the
requested documents. She stated that she was not uncooperative toward
the Trustee’s real estate agent and complained that the agent did not try to
call her directly, instead relying on Robert’s e-mail address.
Ms. Madatian argued that the Trustee was acting in bad faith. She
said that, by virtue of her claimed exemption in the Residential Property,
she was a tenant in common with the Trustee, and her possessory interest
precluded the Trustee from removing her from the property without
paying or adequately protecting the exemption amount. Further, she
claimed that the Trustee had failed to give her adequate notice of the sale of
the Residential Property as required by § 363.
In her reply brief, the Trustee argued that Ms. Madatian’s position
that the Trustee could not sell the property was nonsensical. She asserted
that she had been unable to pay the Rental Property’s operational expenses
because Ms. Madatian and Robert were impeding administration of the
estate such that she had been able to collect rent from only one of the six
tenants. Moreover, she stated that Ms. Madatian had attended a § 341(a)
meeting of creditors in April 2018 but had walked out after complaining
6
that the Trustee had withdrawn funds from the debtor-in-possession
account; Ms. Madatian did not appear at the three subsequent meetings.
At the hearing on the Motion for Turnover, the bankruptcy court
ruled that the Trustee was entitled to turnover of the Residential Property
and the records associated with the Rental Property.
Regarding the Rental Property records, the court required
Ms. Madatian to surrender the requested documents under § 521(a)(4). It
also found that Ms. Madatian was “interfering with the Trustee’s collection
of rent from which to pay expenses and refusing to simply provide the
documents containing the information necessary to pay the expenses . . . .”
As for the unpaid rents, the court found that the evidence “tends to
corroborate what the Trustee has heard about the Debtor and [her family]
apparently telling tenants not to pay the rent to the Trustee.” It ordered
Ms. Madatian to cooperate with the Trustee as to the collection of rent.
Finally, the court stated that the Trustee “is absolutely entitled to
turnover of the residence.” It rejected Ms. Madatian’s theory that she and
the Trustee are co-tenants. The court stated that the Trustee can evict an
uncooperative debtor under § 542(a), and “there’s ample evidence
demonstrating that this Debtor and her family will not cooperate with the
[Trustee’s] efforts to market the residence and that turnover is necessary.”
The court listed the various facts demonstrating Ms. Madatian’s
failure to cooperate with the Trustee: (1) Ms. Madatian failed to file
7
chapter 11 monthly operating reports; (2) she failed to file a disclosure
statement; (3) she sent the Trustee an e-mail threatening civil and criminal
prosecution if the Trustee or her agents “trespassed” on the Rental
Property; (4) she stormed out of the § 341(a) meeting and refused to appear
thereafter; (5) she refused to provide the Trustee with her tax returns and
other requested documents; (6) she appeared to tell the tenants not to pay
rent to the Trustee; (7) she did not respond to the real estate agent’s e-mails;
and (8) she did not provide any evidence to contravene the declaration
testimony offered by the Trustee. The court concluded that Ms. Madatian’s
“obstreperous conduct demonstrates there’s really no practical way for the
Trustee and her broker to market this residence and show it to prospective
buyers while the Debtor continues to occupy it.”
The bankruptcy court issued an order (“Turnover Order”) granting
the Motion for Turnover but allowed Ms. Madatian a reasonable time to
vacate the Residential Property.
E. The motion for reconsideration
Ms. Madatian timely filed a motion (“Motion for Reconsideration”)
requesting that the bankruptcy court reconsider the Turnover Order. She
informed the court that she was attempting to have the state court set aside
the default judgment. She also argued that, even if the state court denied
her motion, she could mortgage the Residential Property and refinance the
Rental Property to pay off her debts.
8
The bankruptcy court issued an order (“Reconsideration Order”)
denying the Motion for Reconsideration. It said that her strategy was
flawed: even if she prevailed in state court, she “simply has no standing to
refinance or mortgage any of the property of the estate and . . . no
pecuniary interest in property of the estate.” The court also noted that
Ms. Madatian failed to include in her calculations the administrative claims
of the Trustee’s professionals and others.
Ms. Madatian timely appealed from the Turnover Order. She did not
appeal from the Reconsideration Order.4
F. Further developments
Following the state court’s decision to set aside the default judgment
as to Robert, Ms. Madatian filed an adversary complaint in the bankruptcy
court to determine the validity of the default judgment, arguing that the
judgment was also void ab initio as to her. The bankruptcy court dismissed
the complaint with prejudice under the Rooker-Feldman doctrine.
Ms. Madatian has attempted to convince the state court to set aside
the state court judgment, but to date she has been unsuccessful.
In October 2018, she entered into a stipulation with the Trustee
whereby she could remain on the Residential Property by paying the estate
rent at $2,500 per month. The court approved the stipulation in December
4
In her opening brief, Ms. Madatian acknowledges the Reconsideration Order,
but she does not challenge any part of that ruling.
9
2018. According to the Trustee, Ms. Madatian has defaulted on her rent
payments.
JURISDICTION
The bankruptcy court had jurisdiction pursuant to 28 U.S.C. §§ 1334
and 157(b)(2)(E). We have jurisdiction under 28 U.S.C. § 158.
ISSUES
(1) Whether the bankruptcy court erred in ordering turnover of the
Residential Property due to Ms. Madatian’s failure to cooperate with the
Trustee and her agents.
(2) Whether the bankruptcy court erred in ordering turnover without
providing Ms. Madatian with adequate protection under § 363.
STANDARDS OF REVIEW
We review the bankruptcy court’s factual findings for clear error.
Hutton v. Treiger (In re Owens), 552 F.3d 958, 960 (9th Cir. 2009). Factual
findings are clearly erroneous only if they are illogical, implausible, or
without support in the record. Retz v. Samson (In re Retz), 606 F.3d 1189,
1196 (9th Cir. 2010).
We review de novo the bankruptcy court’s interpretation of the
Bankruptcy Code. Shapiro v. Henson, 739 F.3d 1198, 1200 (9th Cir. 2014). “De
novo review requires that we consider a matter anew, as if no decision had
been made previously.” Francis v. Wallace (In re Francis), 505 B.R. 914, 917
(9th Cir. BAP 2014) (citations omitted).
10
DISCUSSION
A. The bankruptcy court did not err in ordering turnover of the
Residential Property.
Ms. Madatian takes issue with the bankruptcy court’s finding that
she did not cooperate with the Trustee. She misapprehends her
responsibility as a debtor.
As a basic principle, “a chapter 7 trustee has the duty to ‘collect and
reduce to money the property of the estate for which such trustee serves
. . . .’ To fulfill this duty, the trustee’s ‘primary job is to marshal and sell the
assets, so that those assets can be distributed to the estate’s creditors.’” In re
KVN Corp., Inc., 514 B.R. 1, 5 (9th Cir. BAP 2014) (quoting § 704(a)(1); U.S.
Tr. v. Joseph (In re Joseph), 208 B.R. 55, 60 (9th Cir. BAP 1997)). A debtor has
a duty to “cooperate with the trustee as necessary to enable the trustee to
perform the trustee’s duties under this title.” § 521(a)(3). If the debtor fails
to cooperate, the trustee may seek turnover of estate property. See Collect
Access LLC v. Hernandez (In re Hernandez), 483 B.R. 713, 720 (9th Cir. BAP
2012) (“A bankruptcy court may order turnover of property to the debtor’s
estate if, among other things, such property is considered ‘property of the
estate.’”); In re Bolden, 327 B.R. 657, 668 (Bankr. C.D. Cal. 2005) (“[Debtor]
has been uncooperative. The trustee needs a turnover order to market and
sell the property.”).
Ms. Madatian argues that the bankruptcy court erred in ordering
11
turnover based on her lack of cooperation. She contends that the court
failed to consider her arguments and complains that the real estate agent
never tried to contact her directly by phone.
But Ms. Madatian misconstrues the bankruptcy court’s findings. It
did not ignore her position but, rather, found the Trustee’s position
persuasive and well supported by declarations in evidence. It
acknowledged that Ms. Madatian stated that she did not receive the e-mails
but also noted that she did not submit any declaration testimony or
admissible evidence to refute the Trustee’s evidence; she also did not deny
that Robert received the e-mails or that she knew that the Trustee’s agent
was trying to access and show the Residential Property.5 Her only
argument, that the agent did not try to telephone her, was not persuasive.
The bankruptcy court did not clearly err in finding that Ms. Madatian was
uncooperative.
She seems to argue that her lack of cooperation was excused because
the Trustee withdrew $8,000 from her debtor-in-possession account. She
points out that the Trustee has failed to make payments regarding the
Rental Property, which “begs the question of who is uncooperative.”
This argument rests on the false assumption that a trustee has a duty
5
Ms. Madatian states in her appellate brief that the two e-mails were directed to
Robert’s “spam” folder. She did not make this claim in the bankruptcy court, and we
will not consider it for the first time on appeal.
12
to “cooperate” with the debtor. While debtors owe a statutory duty to
cooperate with trustees, the trustee is not obligated to cooperate with the
debtor. Trustees usually try to take a non-confrontational approach to
debtors, but that is a matter of courtesy or expedience, not a legal duty.
Further, Ms. Madatian again conveniently ignores the court’s
findings. The court explained that the funds in the debtor-in-possession
account were estate assets, and the Trustee was entitled to withdraw the
money and use it for the benefit of the estate. See In re KVN Corp., Inc., 514
B.R. at 5. The court also found that the Trustee could not pay the
operational expenses of the Rental Property because Ms. Madatian had
hindered the Trustee’s attempts to collect rent from the tenants. In fact, the
court enumerated the many ways in which Ms. Madatian had failed to
cooperate with the Trustee. These findings are not clearly erroneous. In any
event, a debtor is not allowed to interfere with the trustee’s administration
of the estate just because she disagrees with the trustee’s actions.6 We
discern no clear error.
6
We are equally unpersuaded by Ms. Madatian’s argument that she was justified
in walking out of the § 341(a) meeting because she had already attended two meetings,
“each one taking more than thirty minutes.” A debtor must attend and truthfully
answer questions at the meeting of creditors, and the trustee may continue the meeting
to a later date. See Bernard v. Coyne (In re Bernard), 40 F.3d 1028, 1031 n.4 (9th Cir. 1994)
(“Even if debtors attend a 341(a) meeting and provide the requested information, the
information may prove inadequate, or it may point to other sources. The trustee
therefore has broad discretion whether to adjourn or conclude the meeting.”).
13
B. The Trustee was not required to provide Ms. Madatian with
adequate protection.
Ms. Madatian’s other argument concerns the “adequate protection”
requirement of § 363(e). This section is inapplicable to the current case.
Section 542(a) provides:
(a) Except as provided in subsection (c) or (d) of this section, an
entity, other than a custodian, in possession, custody, or
control, during the case, of property that the trustee may use,
sell, or lease under section 363 of this title, or that the debtor
may exempt under section 522 of this title, shall deliver to the
trustee, and account for, such property or the value of such
property, unless such property is of inconsequential value or
benefit to the estate.
§ 542(a) (emphases added). Similarly, § 521(a)(4) states that a debtor has a
duty to “surrender to the trustee all property of the estate.” § 521(a)(4).
Section 542(a) references § 363, and Ms. Madatian invokes § 363(e).
That section provides, in relevant part:
on request of an entity that has an interest in property used,
sold, or leased, or proposed to be used, sold, or leased, by the
trustee, the court, with or without a hearing, shall prohibit or
condition such use, sale, or lease as is necessary to provide
adequate protection of such interest.
§ 363(e).
Ms. Madatian asserts that, because she had an exemption right in the
Residential Property, California law affords her “immediate possession of
14
the property” and her possessory interest in the Residential Property is not
a part of the bankruptcy estate. She contends that she is a co-tenant with
the Trustee and the “Trustee should not be allowed to deprive [her] of the
possessory right she enjoys in her residence, without first adequately
protecting her interest [by] paying her the full exemption amount.” She
cites a Seventh Circuit case, In re Szekely, 936 F.2d 897 (7th Cir. 1991), in
support of her position.7
There is no authority for the proposition that California law gives a
debtor a possessory or other interest in estate property that must be
adequately protected before the sale of the property. Rather, the Ninth
Circuit has explicitly held that, under California state law, the homestead
exemption applies to the sale proceeds, not the property itself; it permits
the involuntary sale of a homestead, with the debtor receiving the proceeds
of the homestead exemption after the sale:
The homestead exemption merely gave the [debtors] a
conditional right to a portion of the proceeds from the sale of
the . . . property. There was no exemption in the . . . property
itself. To the contrary, the exemption explicitly allowed
[creditor] to force a judicial sale of the . . . property.
7
The Trustee has informed us that, a few months ago, Ms. Madatian agreed to
pay rent to the Trustee for her continued occupancy of the Residential Property. This
might amount to a waiver of her arguments about the nature of the California
homestead exemption. The parties have not briefed the issue (the bankruptcy court
approved the stipulation after the last brief was filed), so we will not express an opinion
on this issue.
15
Wolfe v. Jacobson (In re Jacobson), 676 F.3d 1193, 1199 (9th Cir. 2012) (citing
Cal. Civ. Proc. Code § 704.740); see id. at 1198 (“The California homestead
exemption does not, however, prevent a judgment creditor from forcing a
judicial sale of the homestead. . . . When the . . . property was sold, the
California homestead exemption entitled the [debtors] to $150,000 of the
proceeds.” (citations omitted)). Therefore, Ms. Madatian is not entitled to
payment of the exemption amount until a sale closes.
Ms. Madatian’s reliance on Szekely is misplaced. In that case, the
debtors claimed an exemption in their home under Illinois law and
remained in possession during their bankruptcy case. The bankruptcy
court entered an order requiring them to pay rent to the trustee at $600 per
month. Because the debtors could not pay the rent, everyone understood
that the rent would be paid out of the debtors’ exempt amount after the
property was sold. The debtors later moved out of the property, and the
trustee sold the property for enough money to pay the mortgages and the
exemption in full. But the trustee deducted the unpaid rent from the
exempt amount. The Seventh Circuit held “that the homestead exemption
in Illinois entitles the debtor to remain in his home rent free until he
receives the cash value of the exemption.” 936 F.2d at 903.
Szekely is inapplicable. In the first place, since Szekely was decided,
the Supreme Court has ruled that trustees may not invade a debtor’s
exemptions except as the Bankruptcy Code expressly provides. See Law v.
16
Siegel, 571 U.S. 415, 425 (2014). Therefore, even if a trustee had a right to
charge rent to a debtor, the trustee could not recover the rent out of the
proceeds of the debtor’s exemption. More to the point, unlike the Illinois
statute, California law permits the sale of property before the debtor
receives the cash amount of the exemption. See In re Jacobson, 676 F.3d at
1198-99; Cal. Civ. Proc. Code § 704.720(b).
Relatedly, Ms. Madatian argues that the court has no power to force
her to vacate the Residential Property because “the word ‘evict’ is not even
found in the wording of 11 USC § 542[.]” This argument is similarly
unavailing. Section 542(a) requires debtors to turn over virtually all estate
property to the trustee. If the debtor does not comply, the bankruptcy court
has the power to require compliance by, in effect, evicting the debtor from
the property. Ms. Madatian does not cite any applicable law that prevents a
court from removing a debtor from estate property. See In re Bolden, 327
B.R. at 668 (holding that, if a debtor is uncooperative, “[t]urnover of the
property will facilitate the trustee’s sale of the property and will enable
unsecured creditors to be paid”). Thus, the bankruptcy court properly
ordered turnover of the Residential Property under § 542(a).
CONCLUSION
The bankruptcy court did not err in directing Ms. Madatian to vacate
the Residential Property and ordering turnover of the property and
records. We AFFIRM.
17