Demas Wai Yan

OCR transcription for search; preserved printed pages are authoritative

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Entered on Docket
July 15,201 om FILED
U.S BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA

NOT FOR PUBLICATION JOR 2011

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. NC-10-1476-JuHPa
DEMAS WAI YAN, aka Dennis Yan, Bk. No. 04-33526

Debtor.

THAI MING CHIU; CHEUK TIN YAN,

Appellants,

Vv. MEMORANDU™
CHARLES LI; DEMAS WAI YAN;
JANINA M. HOSKINS, Chapter 7
Trustee,

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Appellees. )
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Submitted Without Argument
on June 16, 2011

Filed - July 11, 2011

Appeal from the United States Bankruptcy Court
for the Northern District of California

Honorable Thomas E. Carlson, Bankruptcy Judge, Presiding

Appearances: Dennis Yan, Esq. on brief for Appellants Thai
Ming Chiu and Cheuk Tin Yan; and Reidun
Stromsheim, Esq., Stromsheim & Associates
on brief for Appellee Janina M. Hoskins.

Before: JURY, HOLLOWELL and PAPPAS, Bankruptcy Judges.

Appellant Thai Ming Chiu (“Chiu”) appeals the bankruptcy

. 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 8013-1. -

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DRMATION 18

GPO

aon 04-33526 Doc#479 Filed: 07/11/11 Entered: 07/15/11 11:42:04 Pagel

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court’s order denying his motion for reconsideration of the
order disallowing his late-filed claim for $180,000. Appellant
Cheuk Tin Yan (“Yan”)! appeals from the same order disallowing
his late-filed claim for $194,000 (collectively we refer to Chiu
and Yan as the “Appellants”). We AFFIRM.

I. FACTS

Demas Yan filed his chapter 11? petition on December 19,
2004. In Schedule F, debtor listed an undisputed liquidated
debt of $38,000 owed to Yan, who is debtor’s father. Debtor did
not schedule any debt to Chiu, but did list a debt of $324,779
owed to Simon and Benita Chiu. Debtor identified Simon and
Benita Chiu as his sister and brother-in-law in his Statement of
Financial Affairs: Notice of debtor’s case was sent to all
scheduled creditors.

On September 15, 2006, debtor’s case was converted to
chapter 7 and appellee, Janina M. Hoskins, was appointed the
trustee. On September 21, 2006, notice of the conversion and a
claims bar date of January 23, 2007, was served on all scheduled
creditors.

‘on February 27, 2009, the trustee filed and served on all
scheduled creditors a Notice of Filing of Final Report of
Trustee (the “Final Account”) . The Final Account provided for

payment in full of all allowed general unsecured claims, which

1 Cheuk Tin Yan is also known as Chiuk Tin Yan.

2 Unless otherwise indicated, all chapter, section and
rule references are to the Bankruptcy Code, 11°U.S.C. §§ 101-
1532, and to the Federal Rules of Bankruptcy Procedure, Rules
1001-9037.

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totaled $564,023, but proposed no payments to Appellants, who
had not filed claims at that time. It also showed a surplus
estate in the amount of $393,528.71, less a $75,000 reserve
requested by the trustee, and less the amount of writs of
execution served on the trustee by postpetition sudgment
creditors Sierra Point Lumber, Inc. (“Sierra Point”) and Sing
Tao Newspapers San Franciso Ltd. (“Sing Tao”) (collectively, the
“Judgment Creditors”).? No objections were filed and the
bankruptcy court approved the Final Account at a hearing on
March 18, 2009.

On March 23, 2009, creditor Charles Li (“Li”) gave notice
to the trustee that he sought to reinstate his proof of claim,
which he had previously withdrawn. Li was the assignee of a
contractor’s claim. With the possibility that Li’s claim would
be allowed, the court issued a distribution order which
authorized the trustee to make all distributions specified in

the Final Account and further provided that if Li refiled his

3 Both Judgment Creditors obtained orders from the
bankruptcy court permitting them to levy against the surplus
funds that would otherwise be returned to debtor. The bankruptcy
court docket shows that Sierra Point obtained a state court
judgment on April 28, 2006, against San Francisco Building
Professionals, Inc. (“SFBP”) and Dong Xing Fu (“Fu”). Fu and
debtor were the sole shareholders of SFBP and Sierra Point later
discovered facts that led it to believe debtor was the alter ego
of SFBP. It thus asserted that the judgment should be amended to

include debtor as a judgment debtor and filed a proof of claim

(claim no. 12) based on an alter ego theory. The trustee
objected to the claim and the court disallowed it. However, for.
reasons that are not apparent from searching the docket, the
amount of $13,149.80 was authorized to be paid to Sierra Point.

The circumstances surrounding Sing Toa’s postpetition levy
in the amount of $97,789 are less clear.

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claim and it was allowed, its status would be that of a late
claim, subordinated to all timely filed claims. Finally, the
order prevented the trustee from distributing any surplus funds
to debtor or paying on any levy against the funds.

On April 27, 2009, Li refiled his claim in the sum of
$221,000.

On October 23, 2009, three alleged creditors, including
Chiu, filed untimely claims totaling $558,665: (1) debtor's
mother, Tina Yan, filed claim no. 23 in the sum of $338,665;

(2) Kaman Liu filed claim no. 24-1 in the sum of $40,000; and
(3) Chiu filed claim no. 25 in the sum of $180,000. Debtor had
not listed any of these debts in his Schedule F.

On December 1, 2009, the trustee filed and served her
objections to the tardy claims.‘ The trustee objected to Chiu’s
claim because it was late-filed and the proof of claim showed it
was for personal loans to debtor but did not attach
documentation showing that the funds actually went to him.

On December 14, 2009, debtor, purportedly on behalf of
Chiu, hand delivered to the trustee copies of checks totaling
$180,000 that showed the funds going from Chiu to debtor.°®
Debtor also submitted a supporting declaration stating that he
borrowed the funds from Chiu and had not repaid him. At that
time, the trustee did not tell debtor whether the documents were

sufficient to prove Chiu’s claim. The trustee later advised

4 Because only Chiu’s claim is involved in this appeal,
we do not discuss the trustee’s objections to the other claims.

° Apparently these documents were not filed with the
court.

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debtor that Chiu would have until January 29, 2010, to respond
to her objection to his claim. Chiu did not file a response or
appear at the February 26, 2010 hearing.

Instead, debtor appeared at the hearing and represented to
the court that Chiu was his relative and he owed him the money.
He further represented that Chiu and his other relatives might
be willing to amend their claims so that the trustee did not
have to liquidate property to satisfy their claims. In other
words, they were allegedly willing to simply use up the surplus
in the estate, whatever it was.

The bankruptcy court’s statements on the record demonstrate
that it was concerned with the circumstances surrounding the
tardy claims filed by debtor’s relatives. The court observed

that the trustee was about to make a distribution to

postpetition lien creditors and that Li came in with a claim and

then “all of a sudden relatives came out of the woodwork at the
last minute.” Hr’g Tr. (February 26, 2010) at 11:4-5.
Ultimately, the court sustained the trustee’s objections to
Chiu’s claim and entered an order disallowing it on March 2,
2010.

On March 8, 2010, Chiu filed a motion for reconsideration,
arguing that he had given documents to debtor, who then
forwarded them to the trustee, and that the trustee did not
request any further documentation. Thus, implicitly Chiu
asserted that he met his burden of proof on the presumptive
validity of his claim. The trustee responded to Chiu’s motion,
arguing that he had not demonstrated any grounds for
reconsideration; i.e., that there was any manifest error of fact

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or law or newly-discovered evidence.

On March 8, 2010, Yan filed his claim in the sum of
$194,000. Attached to the proof of claim were a loan ledger and
copies of cancelled checks that totaled $258,290.

On April 6, 2010, the trustee objected to Yan’s claim on
the grounds that (1) it was late filed despite Yan’s knowledge
of the bankruptcy case; (2) Yan never objected to the trustee's
final accounting; (3) the claim was $156,000 more than the
$38,000 listed on debtor’s schedules; and (4) the basis of the
claim appeared to be the same as that for Yan’s wife, Tina Yan,
whose claim was previously disallowed.

In response, Yan argued that his claim could not be denied
simply because it was late filed. He further asserted that he
submitted cancelled checks. Debtor also submitted his sworn
declaration which stated that he had borrowed the money from his
father. Debtor further explained that he did not list the full
amount owed to his father on his schedules because he did not
want to create the appearance of questionable large claims from
relatives and also did not care whether his relatives’ claims
were discharged.

In reply, the trustee again asserted that Yan’s debt
overlapped with the claim of his wife and, if it did not
overlap, then debtor’s parents together asserted they were owed
nearly $600,000 prepetition. The trustee argued that Yan
presented no evidence regarding the purpose of the loans. nor
were there any documents that showed whether debtor paid any of
the funds back. Finally, the trustee pointed out that debtor

had a duty to make full and accurate disclosures under § 521,
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who were listed on debtors’ schedules. Appellants concede on
appeal that they had notice of the claims bar date and the Final

Account.

which he failed to do by not listing the various loans from his
relatives in his schedules.

On July 23, 2010, the court held a hearing on Chiu’s motion
for reconsideration and the trustee’s objection to Yan's claim.
At the conclusion of the hearing, the court took the matter
under submission.

The court disallowed Yan’s claim and denied Chiu’s motion
for reconsideration by order entered November 19, 2010. In its
accompanying Memorandum Decision, the court observed that it had
discretion to grant an extension of time to permit the late
filing of a claim in a chapter 7 surplus case citing Vehaus v.

Wilson (In re Wilson), 96 B.R. 257, 262-63 (9th Cir. BAP 1988).

Based on the evidence and record before it, the court declined
to grant an extension of time to permit Appellants to file late
claims for several reasons.

First, Appellants had adequate notice of the claims bar
date,® yet Chiu failed to file a claim until two years and nine
months after the bar date, and Yan failed to file a claim until
three years and one month after the bar date. Second,
Appellants had notice of the Final Account, which showed that
the trustee would not be making any distributions to either of
them. Yet, neither Chiu nor Yan objected to the Final Account.
Rather, Chiu waited until eight months and Yan waited more than

a year after notice of the Final Account to file their claims.

§ Chiu lived at the same address as Simon and Benita Chiu

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Third, the court found that Yan was an insider and Chiu lived
with and shared a joint bank account with someone who debtor
identified as an insider. Fourth, the claims were filed only
after the postpetition Judgment Creditors obtained writs of
execution attaching the estate’s surplus. Fifth, the late-
filed claims equated to the amount of the surplus, and the net
effect of allowing the late-filed claims would be to transfer
the surplus to dilatory insiders and to keep those funds from
postpetition judgment creditors.

The bankruptcy court also made further findings of fact
regarding whether Chiu had met his burden of proving the
validity and enforceability of his claim. The court found that
Chiu’s claim was supported by an unauthenticated check ledger, a
canceled check written on the joint account of Thai Ming Chiu
and Benita Mui Yan-Chiu in the sum of $15,000, and a declaration
by debtor that he borrowed $180,000 from Chiu and did not repay
the loan. The court observed that the documentary support did
not establish on its face that a loan was made by Chiu to
debtor. In that regard, the court noted numerous
inconsistencies in the documents provided, which we need not
repeat here.

Chiu and Yan timely appealed.

II. JURISDICTION

The bankruptcy court had jurisdiction over this proceeding

under 28 U.S.C. §§ 1334 and 157(b) (2) (A) and (B). We have

jurisdiction under 28 U.S.C. § 158.

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III. ISSUES.
A. Whether the bankruptcy court abused its discretion in
disallowing Appellants’ proofs of claim; and
B. Whether the bankruptcy court abused its discretion in
denying Chiu’s motion for reconsideration.
IV. STANDARDS OF REVIEW
The proper interpretations of statutes and rules are legal

questions that we review de novo. Campbell v. Verizon Wireless

S-CA (In re Campbell), 336 B.R. 430, 434 (9th Cir. BAP 2005).

We review a bankruptcy court’s decision to allow or deny a

proof of claim for an abuse of discretion. Bitters v. Networks

Elec. Corp. (In re Networks Elec. Corp.), 195 B.R. 92, 96 (9th

Cir. BAP 1996) (“the bankruptcy court has sole jurisdiction and
discretion to allow or disallow the claim under federal law.”)

(citing Pepper v. Litton, 308 U.S. 295, 304 (1939)).

A bankruptcy court’s denial of a motion for reconsideration
of the disallowance of a claim under § 502(3) and Rule 3008 .is

reviewed for an abuse of discretion. Heath v. Am. Express

Travel Related Servs. Co., Inc. (In re Heath), 331 B.R. 424, 429

(9th Cir. BAP 2005).

We follow a two-part test to determine objectively whether

the bankruptcy court abused its discretion. United States v.

Hinkson, 585 F.3d 1247, 1261-62 (9th Cir. 2009) (en banc).

First, we “determine de novo whether the bankruptcy court
identified the correct legal rule to apply to the relief
requested.” Id. Second, we examine the bankruptcy court’s
factual findings under the clearly erroneous standard. Id. at

1262 n.20. We affirm the court’s factual findings unless those

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~568 F.3d 1113, 1116 (9th Cir. 2009).

findings are “(1) ‘illogical,’ (2) ‘implausible,’ or (3) without
‘support in inferences that may be drawn from the facts in the
record.’” Id. If the bankruptcy court did not identify the
correct legal rule, or its application of the correct legal
standard to the facts was illogical, implausible, or without
support in the record, then the bankruptcy court abused its
discretion. Id.

We may affirm the bankruptcy court’s decision on any ground

fairly supported by the record. Wirum v. Warren (In re Warren),

V. DISCUSSION

The Bankruptcy Code and Rules set forth the requirements
for proofs of claim. Section 501(a) provides that a creditor
“may file a proof of claim.” A proof of claim constitutes
“prima facie evidence of the validity and amount of the claim”
under Rule 3001(f£) and is deemed allowed under § 502 (a) unless a
party in interest objects. Here, the trustee objected to.
Appellants’ claims. Her objections triggered § 502(b) which
provides that after notice and a hearing, a bankruptcy court
must analyze and apply the grounds for disallowance enumerated
in paragraphs (1) through (9).

Section 502(b) (9) states that late-filed claims are
disallowed except when they are covered by § 726(a)(3). Thus,
the plain language of § 502(b)(9) sets forth the rule that when
there is a surplus estate in a chapter 7 case such as here,
late-filed claims cannot be disallowed on the grounds that they
were tardily filed. However, § 502(b) (9) does not eviscerate

the remaining grounds for disallowance under subsections (1)

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through (8). In addition, § 726(a) (3) does not provide for the
payment of all late-filed claims, but merely sets the priority
for late-filed claims that are otherwise allowed under § 502(b).
The primary question in this appeal involves the allowance
of Appellants’ claims, not their priority under § 726(a)(3). In

that regard, the bankruptcy court improperly relied on In re

Wilson, 96 B.R. 257 which, in turn, relied on Rule 3002(c) (6).
Rule 3002(c) (6) previously implemented § 726(a) (3) and was
construed in Wilson to give the bankruptcy court discretion
whether to extend the time to permit creditors to file late
claims. Prior to 1996, Rule 3002(c) (6) provided:
In a Chapter 7 liquidation case, if a surplus remains
after all claims allowed have been paid in full, the
court may grant an extension of time for the filing of

claims against the surplus not filed [in a timely
manner]. :

Rule 3002 was amended in 1996 to make clear that late proofs of
claim are governed by § 502 (b) (9) and not the Rule. See
Advisory Committee Note to Rule 3002 (1996). Among other
things, subsection (c)(6) was deleted from the Rule at that
time. Consequently, decisions like Wilson which apply Rule
3002(c) (6) in its former version no longer reflect the
applicable law. |

Although Appellants’ claims were tardily filed, the outcome
of this appeal does not turn on that fact alone because the
trustee objected to Appellants’ claims on other grounds. ‘“[T]he
proper exercise of the bankruptcy court’s equitable powers under
§ 502 is through investigation into. the existence, validity and
enforceability of claims. leading to their allowance or

disallowance ... .” Murgillo v. Cal. State Bd. of Equal.

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(In re Murgillo), 176 B.R. 524, 533 (9th Cir. BAP 1995). For

the reasons explained below, we conclude that the record
supports the bankruptcy court’s disallowance of Appellants’
claims on a burden of proof analysis. Therefore, the court’s
reliance on Wilson and Rule 3002(c)(6) was harmless error. See
Rule 9005 (“Harmless Error”) (incorporating into bankruptcy
rules Civil Rule 61, which provides: “At every stage of the
proceeding, the court must disregard all errors and defects that
do not affect any party’s substantial rights.”).
A. Chiu’s Claim

Chiu concedes that the trustee’s initial objection to his
claim was justified because his proof of claim did not include
the supporting documents. Thus, Chiu had the ultimate burden to
prove the validity of his claim by a preponderance of the

evidence. Spencer v. Pugh (In re Pugh), 157 B.R.:898,:901 (9th

Cir. BAP 1993). Moreover, Chiu’s burden was heightened because
he was debtor’s relative and an insider under the Code. See
Pepper, 308 U.S. at 306. As such, Chiu’s claim was subject to

rigorous scrutiny. Fabricators, Inc. v. Technical Fabricators,

Inc. (In re Fabricators, Inc.) 926 F.2d 1458, 1465 (5th Cir.

1991).

Although Chiu subsequently provided the trustee with
cancelled checks purporting to show funds transferred from Chiu:
to debtor, the bankruptcy court found, and we agree, that those
checks did not on their face establish a loan by Chiu to debtor
due to inconsistencies or incomplete information on the face of
the checks. Moreover, the check ledger submitted in support of

his claim was unauthenticated. Finally, the record shows that

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Chiu failed to provide a written response to the trustee’s
objection and thus did not provide any further detail regarding
the loans he allegedly made to debtor. Chiu also did not
appear at the hearing. On this record, we conclude that Chiu
failed to carry his burden of proving the amount and validity of
his claim. Thus, the bankruptcy court did not err by
disallowing Chiu’s claim.

We are not persuaded by Chiu’s argument on reconsideration
that he proved up his claim because the trustee did not ask for
anything more. Had the trustee truly been satisfied, the
trustee would have withdrawn her objection to his claim.
Moreover, reconsideration of the disallowance of a claim is
based “on the equities of the case.” See § 502(j). The
equities of this case would not have supported the reversal of
the disallowance of Chiu’s claim nor does Chiu even argue that
point on appeal. Accordingly, the bankruptcy court did not
abuse its discretion by denying Chiu’s motion for
reconsideration of the order disallowing his claim.

B. Yan’s Claim

Besides the timing aspect of Yan’s claim and his insider
status, the trustee’s objection pointed out numerous other
inconsistencies which demonstrated that Yan’s claim lacked prima
facie validity.

The amount of Yan's claim changed numerous times over the
course of this case. Initially, debtor, under penalty of
perjury, scheduled Yan's debt in the amount of $38,000.

However, Yan, also under penalty of perjury, filed his proof of

claim for $194,000. The record does not reflect that debtor

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ever amended his Schedule F before the trustee made the
distributions set forth in the Final Account, nor did Yan ever
amend his proof of claim. Thus, it is impossible to tell which
sworn version of the facts is the true version.

Yan’s claim was irregular in other respects. Yan attached
documents to his proof of claim showing $258,290 in checks to
debtor, but stated that he wanted only $194,000. Debtor offers
the explanation that Yan reduced his claim so that the trustee
would not have to liquidate properties in a distressed market.
However, this explanation makes no sense. Legitimate creditors
of a bankruptcy estate assert their rights to payment from
property of the estate; they are not concerned with further
liquidation of properties. If anything, the conflicting numbers
in debtor’s schedules, in Yan’s proof of claim, and in the
supporting documentation suggest that the amount of the claim
was arrived at arbitrarily to coincide with the amount of the
surplus estate.

Finally, the record shows that Yan’s proof of claim
overlapped to some extent to that of his wife, Tina Yan, whose
claim was disallowed. There is no explanation in the record for
such an overlap.

In sum, we conclude that the record shows that Yan failed
to prove the actual amount of his claim and its validity.
Accordingly, we affirm the bankruptcy court’s decision to
disallow Yan’s claim.

Cc. Bankruptcy Aspects
Besides a lack of proof, overriding bankruptcy principles

would also support the bankruptcy court’s decision to disallow

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Appellants’ claims under the circumstances of this case. In re
Murgillo, 176 B.R. at 533. The record supports the bankruptcy
court’s explicit concern regarding the timing of Appellants’
claims; i.e., that they served no valid bankruptcy purpose, but,
instead, were strategically filed so that debtor could avoid
paying his postpetition Judgment Creditors who had attached the
surplus of his estate.

Further, debtor has presented a myriad of changing stories
in this case. Full disclosure in the bankruptcy schedules is
essential to satisfy a significant purpose: that adequate
information be available to the trustee without the need for
investigation into whether the information is true. Debtor did
not list Chiu’s claim in his schedules, which were signed under
penalty of perjury. Yet, debtor later declared under penalty of
perjury that he owed the money when Chiu filed his tardy claim.
Moreover, debtor listed his father’s claim as $38,000, but he
later admitted that he did not list the full amount of the debt
because he did not want to create the appearance of questionable
large claims from relatives. Debtor’s failure to fully and
adequately disclose not only has serious consequences, but his
change in position demonstrates an intent to play fast and loose
with the court, thereby prejudicing the trustee's administration
of his estate. Had debtor listed the claims of his relatives as
required, the trustee would have, before the Final Account,
liquidated other assets to assure distribution to all creditors.
Instead, she was prepared to abandon the assets to debtor.

This later point directly relates to debtor’s role in this

appeal. His representation of Chiu and Yan as their attorney is

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in this appeal that is not in proper format. Fed. R. App. P.

truly troubling to this Panel. Where a debtor is a creditor’s
attorney, the conflict of interest involved is obvious. How can
the debtor, as lawyer, advise his clients fully and effectively
when the lawyer himself is on the other side of the bargaining
table? Allowing Appellants’ claims in full would compel the
trustee to liquidate more of the to-be-abandoned estate, an
obvious negative result to debtor.’

VI. CONCLUSION

For the reasons stated above, we AFFIRM.

? We also observe that debtor, acting as Appellants’
attorney, potentially jeopardized their claims by filing a brief

Rule 32(4) requires that the text of the brief be double-spaced.
We may dismiss an appeal for violation of the rule. See 8001(a).
That we did not do so does not lessen the import of debtor's
actions which he took in the role of an attorney.

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of

U.S. Bankruptcy Appellate Panel
of the Ninth Circuit

125 South Grand Avenue, Pasadena, California 91105
Appeals from Central California (626) 229-7220
Appeals from all other Districts (626) 229-7225

NOTICE OF ENTRY OF JUDGMENT

BAP No.: NC-10-1476-JuHPa
RE: DEMAS WAI YAN

A separate Judgment was entered in this case on 07/11/2011.

BILL OF COSTS:

Bankruptcy Rule 8014 provides that costs on appeal shall be taxed by the Clerk of the
Bankruptcy Court. Cost bills should be filed with the Clerk of the Bankruptcy Court
from which the appeal was taken. 9th Cir. BAP Rule 8014-1

ISSUANCE OF THE MANDATE:

The mandate, a certified copy of the judgment sent to the Clerk of the Bankruptcy
Court from which the appeal was taken, will be issued 7 days after the expiration of the
time for filing a petition for rehearing unless such a petition is filed or the time is
shortened or enlarged by order. See Federal Rule of Appellate Procedure 41.

APPEAL TO COURT OF APPEALS:

An appeal to the Ninth Circuit Court of Appeals is initiated by filing a notice of appeal
with the Clerk of this Panel. The Notice of Appeal should:-be accompanied by payment
of the $455 filing fee and a copy of the order or decision on appeal. Checks may be
made payable to the U.S. Court of Appeals for the Ninth Circuit. See Federal Rules of
Appellate Procedure 6 and the corresponding Rules of the United States Court of
Appeals for the Ninth Circuit for specific time requirements.

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CERTIFICATE OF MAILING

The undersigned, deputy clerk of the U.S. Bankruptcy Appellate Panel of the Ninth Circuit,
hereby certifies that a copy of the document on which this certificate appears was transmitted
this date to all parties of record to this appeal.

By: Vincent Barbato, Deputy Clerk
Date: July 11, 2011

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