Judge: Malcolm Mackey, Case: 19STCV29553, Date: 2023-02-14 Tentative Ruling

Case Number: 19STCV29553    Hearing Date: February 14, 2023    Dept: 55

HOPE AND TRUST TRADING, INC. v. SANATH, INC.                      19STCV29553

Hearing Date:  2/14/22,  Dept. 55

#3:   MOTION FOR AN ORDER REQUIRING THIRD-PERSON MICHAEL SPECTOR, KSQ., TO TURN OVER ALL MONIES BELONGING TO JUDGMENT DEBTORS SAMMY CILING AND ANIL CILING IN MR. SPECTOR'S POSSESSION, CUSTODY OR CONTROL TO JUDGMENT CREDITORS SEYKDJALIL FIROOZABADI AND HOPE AND TRUST TRADING, INC., OR, IN THK ALTERNATIVE, REQUIRING THAT MR. SPKCTOR PAY THE SUM DUE PERSONALLY.

Notice:  Okay

Opposition

MP:  Judgment Creditors SEYEDJALIL FIROOZABADI AND HOPE and TRUST TRADING, INC.

RP:  Third-party Michael G. Spector, Esq., attorney for Judgment Debtors SAMMY CILING and ANKE CILING.

Summary

On 8/20/19, Plaintiffs filed a Complaint alleging that, shortly after Plaintiffs’ purchase of the majority shares of Defendant California Medical Imaging, Inc. (CMI), Defendants foreclosed Plaintiff from all control and access to Defendant CMI’s and associated Defendant Sanaths' operations, along with all other aspects of the business, and Defendants refuse to acknowledge Plaintiffs’ majority shareholder status, and ousted Plaintiffs.

The causes of action are:

1) BREACH OF CONTRACT - WRITTEN

2) BREACH OF CONTRACT - ORAL

3) BREACH OF FIDUCIARY DUTY

4) FRAUD IN THE INDUCEMENT

5) FRAUD IN THE FACTUM

6) BREACH OF DUTY OF UNDIVIDED LOYALTY

7) OUSTER OF MAJORITY SHAREHOLDER

8) EMBEZZLEMENT

9) IDENTITY THEFT.

The Judgment was filed 4/13/21, for Plaintiffs, awarding $1,600,000.00 damages, $201,000 attorney’s fees and $800,000 punitive damages.

MP Positions

Moving parties request an order requiring Michael G. Spector, Esq., bankruptcy attorney for Judgment Debtors Sammy Ciling and Anke Ciling, to turn over all monies of Judgment Debtors to Judgment Creditors or, alternatively, to require that attorney Spector personally pay, on grounds including the following:

·         On April 21, 2021, the Superior Court issued a Writ of Execution affecting any and all monies belonging to Anke Ciling and Sammy Ciling wherever such monies may be found.

·         Courts may order that a third person in possession of a judgment debtor's property turn over such property to the judgment creditor. Bergstroin v. Zion Bancorporation, NA. (2022) 78 Cal.App.5th 387, 398.

·         Sammy Ciling and Anke Ciling moved to dismiss their bankruptcy.

·         Mr. Spector had a legal obligation to turn over $25,024.50 to Judgment Creditors.

·         He possessed the monies on August 18, 2022, when the bankruptcy was dismissed; Mr. Nejadpour alerted Mr. Spector of Plaintiffs' claim on that date, served him with the writ of execution, and warned him that if he defied the Court's order, Judgment Creditors would hold him liable. However, Mr. Spector chose to defy the writ and disburse the monies.

RP Positions

Opposing third-party advocates denying, for reasons including the following:

·         By Order of the Bankruptcy Court, Bankruptcy Counsel's employment was authorized [Exhibit "10" to Spector Declaration].

·         When the bankruptcy was filed, there remained $25,024.50 in Bankruptcy Counsel's client-trust account. Under applicable California law, Bankruptcy Counsel for the Judgment Debtors had a "retaining lien" to the extent necessary to pay its fees and Hunter Ciling had rights, as the payor of said retainer and a reversionary, to reclaim the balance to the extent not necessary to pay the attorney fees, which counsel ethically was required to return.

·         The Bankruptcy Court granted the Judgment Debtors' motion to Dismiss the Chapter 11 bankruptcy at the hearing, on July 26, 2022. At that time, $ 15,082.05 of the Retainer was used to pay Bankruptcy Counsel's unpaid bill incurred during the pendency of the case [Exhibit "7" to Spector Declaration], with the balance going to Hunter Ciling, as he had demanded and for which Bankruptcy Counsel had a fiduciary duty to pay. [Exhibits "6" and 18 Exhibit "8" to Spector Declaration].

·         Without objection by Judgment Creditors, the Bankruptcy Court approved Bankruptcy Counsel's Final Fee Application and the disbursements of the entire Retainer to Bankruptcy Counsel and Hunter Ciling. [Exhibits "11" and "12" to Spector Declaration].

·         When a case is dismissed, then any property of the estate revests in the manner that it was vested before the commencement of the case. 11 U.S.C.   § 349(b)(3). As such, the debtor and others are free to act as they wish in dealing with re-vested property of the estate, such as by disposing of those assets via private contract. In re Kent Fundinu Coro.. 290 5 B.R. 471 (E.D. NY 2003); In re Elias. 188 F.3d 1160 (9th Cir. 1999); In re Barrett. 149 B.R. 494 6 (Bank. R, N.D. Ohio 1993). Accordingly, there are no prohibitions or limitations upon a debtor or anyone else to pay the attorney's legal fees incurred during the pendency of the case, upon dismissal.

·         The Demand Letter was sent during the pendency of the case and violated nearly every subsection of Section 362(a), as it was an attempt to create a lien and collect on a pre-bankruptcy debt. The attempt to create a right and enforce the Demand Letter is void.

·         Bankruptcy Counsel can enforce the security interest under applicable law without regard to the levy, absent a court order determining that the execution levy has priority over the security interest. Code of Civil Procedure  § 701.040(a).

·         Only if there is a valid levy upon the third party, that has not been complied with, can a creditor bring a motion under Code of Civil Procedure   § 701.020. Even then, if the third person shows "good cause," he/she may be excused from compliance. Code of Civil Procedure   § 701.010(b).

Tentative Ruling

The motion  is denied.

The Bankruptcy Court already approved disbursements of the subject funds. 

“[S]tate court jurisdiction would not be proper to accomplish ‘the adjustment of rights and duties within the bankruptcy process itself,’ which should be uniquely and exclusively federal (e.g., debtors' petitions, creditors' claims, disputes over reorganization plans, disputes over discharge,  and such other proceedings).”  Satten v. Webb (2002) 99 Cal. App. 4th 365, 384.

Bankruptcy courts, and not state courts, have jurisdiction over all claims of willful violations of bankruptcy stays.  Hicks v. E. T. Legg & Assocs. (2001) 89 Cal. App. 4th 496, 513.  Parties are not permitted to avail themselves of state court remedies, to circumvent federal remedies for their opponents' alleged misuse of the bankruptcy process.”  Saks v. Parilla (1998) 67 Cal. App. 4th 565, 573-74.