Order Denying MDD Motion to Reopen May 2012

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UNITED STATES BANKRUPTCY COURT CENTRAL DISTRICT OF CALIFORNIA

SANTA ANA DIVISION

In re:

David A. Johnson,

Debtor(s).

Case No: 8:11-bk-20423-MW

Chapter: 7 MEMORANDUM DECISION AND ORDER DENYING WITH PREJUDICE CREDITOR MEDICAL DENTAL DEVELOPMENT LLC’S EX PARTE EMERGENCY MOTION TO REOPEN THE BANKRUPTCY

Hearing Date: May 7, 2012 Time: 2:00 PM Location: Courtroom 6C 411 West Fourth Street Santa Ana, CA 92701

This matter comes before the Court on creditor Medical Dental Development LLC’s

Ex Parte Emergency Motion to Reopen the Bankruptcy Due to Lack of Notification of

Bankruptcy Filing To Major Creditor, Due to Bankruptcy Application Being Filed By Fraud

Upon This Court and Creditors Committed By Debtor David Johnson, His Attorney and

Trustee (the “Motion”), docket number 22. For the reasons stated below, the Court denies the

Motion with prejudice.

FILED & ENTERED

MAY 11 2012

CLERK U.S. BANKRUPTCY COURTCentral District of CaliforniaBY DEPUTY CLERKbolte

Case 8:11-bk-20423-MW Doc 35 Filed 05/11/12 Entered 05/11/12 10:54:18 Desc Main Document Page 1 of 6

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FINDINGS OF FACT

Medical Dental Development LLC (“MDD”) leased medical office space to debtor Dr.

David Johnson for use in connection with his chiropractic practice. In 2010 or 2011 MDD

obtained a California Superior Court judgment against Dr. Johnson in the amount of

approximately $290,000 based upon one or more breaches of the lease agreement. Dr.

Johnson filed a chapter 7 petition on July 26, 2011 and scheduled MDD’s claim in the amount

of $290,000. The panel trustee filed a Chapter 7 Trustee’s Report of No Distribution on

September 27, 2011, and Dr. Johnson received a discharge on November 17, 2011. The

Court closed the case on November 22, 2011.

Schedule F prepared by Dr. Johnson lists MDD as a creditor at its correct address:

“Medical Dental Development LLC, c/o Orly Taitz, Esq., 29839 Santa Margarita Parkway, Suite

100, Rancho Santa Margarita, CA 92688.” However, for reasons unknown, the address of

MDD that appears in the Court Clerk’s creditor mailing matrix is incorrectly shown as “Medical

Dental Development LLC, c/o Orly Taitz, Esq., 29839 Santa Margarita Parkway, Suit, Rancho

Santa Margarita, CA 92688.” It is undisputed that the notice of the case’s commencement and

first meeting of creditors that was mailed to creditors did not include MDD’s suite number.

However, the Certificate of Notice by the Bankruptcy Noticing Center pertaining to this notice,

under the heading “Bypassed Recipients”, contains the notation “NONE.”

MDD alleges in the Motion that (1) it did not receive notice of the pendency of Dr.

Johnson’s bankruptcy case until one day before the discharge was entered, and (2) Dr.

Johnson, Dr. Johnson’s attorney and the panel trustee possibly colluded to defraud creditors in

the case. Alleging that the panel trustee (Weneta Kosmala) “did not do any due diligence in

this case”, MDD contends that Dr. Johnson’s chiropractic practice had material and significant

value and that “[t]here was no good attempt by the trustee to ascertain any of the assets and

income by the debtor and his spouse.” Motion at 4.

Regarding alleged non-delivery of the notice of the commencement of the case and

the meeting of creditors, MDD argued at oral argument that (a) it did not receive this notice,

and (2) some other tenant in the building probably received the notice and did not bother to


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forward it to MDD.

MDD filed no declaration in support of its memorandum of points and authorities.

The only witness called by MDD at the evidentiary hearing was Dr. Johnson.

Dr. Johnson’s Opposition to Creditor Medical Dental Development LLC’s Motion to

Reopen Bankruptcy Case (the “Opposition”) also is not supported by any declaration.

However, attached to the Opposition are various filed pleadings and court documents which

appear to be genuine. The Court takes judicial notice of such pleadings and court documents.

Pointing to the notation “NONE” in the Certificate of Notice under “Bypassed Recipients”, the

Opposition argues that this proves that the notice of the commencement of the case and

meeting of creditors was not returned to sender – that MDD in fact received notice.

An evidentiary hearing was held on May 7, 2012 at which Dr. Johnson was called as

a witness by each side. There were no other witnesses. Several documents and one

photocopy of a photograph were admitted into evidence. Apart from the pleadings and

documents judicially noticed, such testimony (on both direct and cross examination) and such

exhibits represent the entire sum of all the admitted evidence.

The testimony and exhibits show that a number of medical professionals occupied

the premises of 29839 Santa Margarita Parkway in a number of different suites. Some of

these medical professionals subleased space from other tenants. There may have been only

three numbered suites in the entire complex, one of which was occupied by landlord MDD.

The mailboxes for the suites did not (on the outside, at least) display the name of the tenant

using the mailbox. (The outside of the mailbox showed only the number corresponding to the

suite).

The testimony and exhibits also show that upon demand of panel trustee Weneta

Kosmala during the pendency of the bankruptcy case, Dr. Johnson produced the following

documents for inspection: 2009 tax returns; 2010 tax returns; bank statements from 90 days

prepetition through the date of the demand; financial statements for all businesses, including

detailed income statements, balance sheets, disbursement logs, receipts logs, accounts

receivable aging reports; proof of insurance; and last mortgage statements for all real property.


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CONCLUSIONS OF LAW

A court may reopen a closed bankruptcy case to accord relief to the debtor or for

other cause. 11 U.S.C. § 350(b); Fed. R. Bankr. P. 5010. A reopening of a case lies soundly

in the court’s discretion, based upon the circumstances and the equitable nature of the

bankruptcy proceeding. Curry v. Castillo (In re Castillo), 297 F.3d 940, 945 (9th Cir. 2002);

Elias v. Lisowski Law Firm, CHTD. (In re Elias), 215 B.R. 600, 604 (B.A.P. 9th Cir. 1997). The

moving party bears the burden of demonstrating sufficient cause to reopen. In re Winburn,

196 B.R. 894, 897 (Bankr. N.D. Fla. 1996). Additionally, a court must consider whether the

underlying cause of action to the motion to reopen is likely to be sustained when considered on

its merits. See In re Carter, 156 B.R. 768, 770-71 (Bankr. E.D. Va. 1993).

MDD has failed to make a sufficient showing that there is cause to reopen this case.

Although the MDD address used on the Court’s notice of the case’s commencement and

meeting of creditors does not show a suite number, it does not necessarily follow from this that

MDD did not in fact receive the notice. First, the postal carrier may have had other mail for

MDD that day that correctly showed MDD’s suite number and may have included the court’s

notice with this other mail when placing it in MDD’s mailbox notwithstanding the absence of a

suite number on the envelope. Second, even if the notice had been delivered to another suite,

the recipient may have seen MDD’s name on the envelope and hand carried it to MDD’s suite.

Although there is no significant evidence that either of these events occurred, neither is there

any significant evidence that MDD did not receive the notice. MDD’s allegations of non-receipt

are not supported by any testimony or declaration. The burden of proof is on MDD, and MDD

has failed to meet its burden of proving non-receipt of the notice.

With respect to the second issue in a motion to reopen, namely, the merits of the

underlying cause of action, the Court determines that MDD has failed to meet its burden to

show that a cause of action against Dr. Johnson, Dr. Johnson’s attorney and the panel trustee

for a conspiracy to defraud creditors has any merit. In MDD’s view, panel trustee Weneta

Kosmala either colluded with Dr. Johnson and his attorney to defraud MDD and the other

creditors or, alternatively, failed to conduct any due diligence and let a valuable asset (namely,


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the alleged value of Dr. Johnson’s chiropractic practice) slip away without appropriating its

value for the estate’s benefit. However, the evidence shows that the panel trustee demanded

and obtained production of important tax and financial records. There is no evidence of

collusion or malfeasance of the panel trustee other than MDD’s allegations, and these

allegations are not supported by any material evidence.

For the foregoing reasons, it is ORDERED that the Motion is denied with prejudice.

###

United States Bankruptcy JudgeDATED: May 11, 2012


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NOTE TO USERS OF THIS FORM: 1) Attach this form to the last page of a proposed Order or Judgment. Do not file as a separate document. 2) The title of the judgment or order and all service information must be filled in by the party lodging the order. 3) Category I. below: The United States trustee and case trustee (if any) will always be in this category. 4) Category II. below: List ONLY addresses for debtor (and attorney), movant (or attorney) and person/entity (or attorney) who filed an opposition to the requested relief. DO NOT list an address if person/entity is listed in category I.

NOTICE OF ENTERED ORDER AND SERVICE LIST Notice is given by the court that a judgment or order entitled (specify) MEMORANDUM DECISION AND ORDER DENYING WITH PREJUDICE CREDITOR MEDICAL DENTAL DEVELOPMENT LLC’S EX PARTE EMERGENCY MOTION TO REOPEN THE BANKRUPTCY was entered on the date indicated as AEntered@ on the first page of this judgment or order and will be served in the manner indicated below: I. SERVED BY THE COURT VIA NOTICE OF ELECTRONIC FILING (ANEF@) B Pursuant to controlling General Order(s) and Local Bankruptcy Rule(s), the foregoing document was served on the following person(s) by the court via NEF and hyperlink to the judgment or order. As of May 10, 2012, the following person(s) are currently on the Electronic Mail Notice List for this bankruptcy case or adversary proceeding to receive NEF transmission at the email address(es) indicated below. Weneta M Kosmala (TR) [email protected], [email protected];[email protected];[email protected];[email protected] United States Trustee (SA) [email protected] Bruce D White on behalf of Debtor David Johnson [email protected]

Service information continued on attached page II. SERVED BY THE COURT VIA U.S. MAIL: A copy of this notice and a true copy of this judgment or order was sent by U.S. Mail to the following person(s) and/or entity(ies) at the address(es) indicated below: David A. Johnson Orly Taitz 6 Thorn Oak Law Offices of Orly Taitz Dove Canyon, CA 92679 29839 Santa Margarita Parkway, Suite 100 Rancho Santa Margarita, CA 92688

Service information continued on attached page III. TO BE SERVED BY THE LODGING PARTY: Within 72 hours after receipt of a copy of this judgment or order which bears an AEntered@ stamp, the party lodging the judgment or order will serve a complete copy bearing an AEntered@ stamp by U.S. Mail, overnight mail, facsimile transmission or email and file a proof of service of the entered order on the following person(s) and/or entity(ies) at the address(es), facsimile transmission number(s) and/or email address(es) indicated below:

Service information continued on attached page


Documents

Order Denying MDD Motion to Reopen May 2012