THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS OF T v. Ace Gallery New York Corporation, a California cor ( 2021 )

1 Victor A. Sahn (CA Bar No. 97299) vsahn@sulmeyerlaw.com 2 SulmeyerKupetz FILED & ENTERED A Professional Corporation 3 333 South Grand Avenue, Suite 3400 Los Angeles, California 90071-1406 SEP 24 2021 4 Telephone: 213.626.2311 Facsimile: 213.629.4520 5 CLERK U.S. BANKRUPTCY COURT Attorneys for Sam Leslie, Plan Agent Central District of California 6 BY t a t u m DEPUTY CLERK 7 UNITED STATES BANKRUPTCY COURT CHANGES MADE BY COURT 8 CENTRAL DISTRICT OF CALIFORNIA - LOS ANGELES DIVISION 9 In re Case No. 2:13-bk-14135-RK 10 ART & ARCHITECTURE BOOKS OF THE 21st Chapter 11 CENTURY, 11 Adv No. 2:15-ap-01679-RK Debtor. 12 REPORT AND RECOMMENDATION OF THE 13 SAM LESLIE, PLAN AGENT FOR ART & UNITED STATES BANKRUPTCY ARCHITECTURE BOOKS OF THE 21st COURT TO THE UNITED STATES 14 CENTURY, DISTRICT COURT FOR THE CENTRAL DISTRICT OF 15 Plaintiff, CALIFORNIA ON PLAINTIFF’S MOTION FOR SUMMARY 16 v. ADJUDICATION OF DEFENDANT DOUGLAS CHRISMAS’S FIRST 17 ACE NEW YORK CORPORATION, a California AMENDED COUNTER- corporation; ACE NEW YORK, INC., a dissolved COMPLAINT ON FIRST, THIRD, 18 New York corporation; ACE MUSEUM, a California AND FOURTH CLAIMS FOR corporation; DOUGLAS CHRISMAS, an individual; RELIEF REGARDING "ARMAN" 19 400 S. LA BREA, LLC, a California limited liability ARTWORK, AND FOR SANCTIONS company, JENNIFER KELLEN, an individual, 20 CATHAY BANK, a California corporation, Date: August 4, 2021 DARYOUSH DAYAN, an individual, KAMRAN Time: 11:00 a.m. 21 GHARIBIAN, an individual, and MICHAEL D. Courtroom: U.S. Bankruptcy Court SMITH, an individual, Courtroom 1675 22 255 E. Temple St. Defendants. Los Angeles, CA 90012 23 DOUGLAS CHRISMAS, an individual, 24 Counterclaimant, 25 v. 26 ART & ARCHITECTURE BOOKS OF THE 21st 27 CENTURY, Counter-Claim Respondent. 1 TO THE UNITED STATES DISTRICT COURT FOR THE CENTRAL DISTRICT OF 2 CALIFORNIA: 3 The undersigned United States Bankruptcy Judge on behalf of the United States Bankruptcy 4 Court for the Central District of California hereby issues the following report and recommendation 5 to the United States District Court for the Central District of California pursuant to Federal Rules of 6 Bankruptcy Procedure 7056 and 9033 on the Motion of Plaintiff Sam S. Leslie, in his exclusive 7 capacity as Plan Agent (the “Plan Agent” or “Plaintiff”) for Debtor Art & Architecture Books of the 8 21st Century (“Debtor”), under the confirmed Second Amended Plan of Reorganization of the 9 Official Committee of Unsecured Creditors (the “Plan”) for Summary Adjudication of Defendant 10 Douglas Chrismas’s First Amended Counter-Complaint on First, Third, and Fourth Claims for 11 Relief Regarding “Arman” Artwork, and for Sanctions, Electronic Case Filing No. (“ECF”) 1015, 12 filed on June 23, 2021, in the above-captioned adversary proceeding. 13 The United States Bankruptcy Court recommends that the United States District Court for 14 the Central District of California adopt the following Statement of Uncontroverted Facts and 15 Conclusions of Law on the Motion of Plaintiff Summary Adjudication of Defendant Douglas 16 Chrismas’s First Amended Counter-Complaint on First, Third, and Fourth Claims for Relief 17 Regarding “Arman” Artwork, and for Sanctions, and issue an order granting summary adjudication 18 in favor of Plaintiff and against Defendant Douglas Chrismas. 19 This United States Bankruptcy Court determines that it may not enter a final judgment on 20 Defendant Douglas Chrismas’s counterclaims in his counter-complaint regarding the Arman 21 Artwork based on the following circumstances. The counter-complaint of Douglas Chrismas was 22 filed in response to the Plaintiff’s Fifth Amended Consolidated Complaint on behalf of the Debtor, 23 and in his counter-complaint Chrismas brought claims for declaratory relief claiming title to art 24 works being held by the Debtor, including the Arman Artwork, for related injunctive relief, 25 conversion and replevin to recover his claimed art works. Chrismas alleged that jurisdiction over 26 his counter-complaint arose under Federal Rule of Civil Procedure 13 made applicable to this 27 adversary proceeding by Federal Rule of Bankruptcy Procedure 7013. Chrismas later filed a First 1 Chrismas’s claims in his counter-complaints are permissive, not compulsory, 2 counterclaims because his claims of title to certain art assets held by the plan agent from the 3 bankruptcy estate in Debtor’s bankruptcy case do not arise of the same transaction or occurrence 4 as the plan agent’s Fifth Amended Consolidated Complaint against Chrismas asserting claims for 5 avoidance of transfers of assets, fraud, conversion and breach of fiduciary duty relating to property 6 transferred out of the Debtor. See Federal Rule of Civil Procedure 13(a) and (b). 7 The United States Bankruptcy Court has subject matter jurisdiction over Chrismas’s claims 8 of his counter-complaints under its jurisdiction of 28 U.S.C. § 1334(b) over matters related to a 9 bankruptcy case under the Bankruptcy Code, 11 U.S.C., because such claims are competing claims 10 to what is asserted to have been property of the bankruptcy estate as the plan agent on behalf of 11 the Debtor claims title to the art assets. The bankruptcy court may enter final judgment on 12 noncore claims within its related to jurisdiction if such claims relate to the claims allowance 13 process or when the parties consent to the bankruptcy court jurisdiction. Wellness International 14 Network, Ltd. v. Sharif, 575 U.S. 665, 674-686 (2015). Plaintiff has expressly consented to 15 bankruptcy court jurisdiction in this adversary proceeding by his statements of consent in status 16 reports filed in this adversary proceeding. Defendant Chrismas in his counter-complaints 17 expressly stated that he did not consent to the jurisdiction of the bankruptcy court to enter a final 18 judgment. 19 This United States Bankruptcy Court does not find that Defendant Chrismas impliedly 20 consented to bankruptcy court jurisdiction to enter a final judgment by filing permissive 21 counterclaims. Absent consent of all of the parties to Chrismas’s counterclaims regarding the 22 Arman Artwork, this court lacks jurisdiction to enter a final judgment on these claims. 23 This United States Bankruptcy Court, however, does have jurisdiction to hear Chrismas’s 24 counterclaims regarding the Arman Artwork, which are noncore claims under its “related to” 25 jurisdiction pursuant to 28 U.S.C. §1334(b) and issue proposed findings of fact and conclusions of 26 law for de novo review by the district court. 28 U.S.C. §157 (c)(1); Executive Benefits Insurance 27 Agency v. Arkison, 573 U.S. 25, 39-40 (2014). Accordingly, the court determines that it may issue 1 pursuant to Federal Rules of Bankruptcy Procedure 7056 and 9033 in submitting its ruling on the 2 motion as a report and recommendation to the United States District Court for the Central District 3 of California for de novo review. 4 Having considered the papers and oral and written arguments of the parties on Plaintiff’s 5 pursuant to Federal Rules of Bankruptcy Procedure 7056 and Local Bankruptcy Rule 7056-1, 6 including the Proposed Statement of Uncontroverted Facts and Conclusions of Law submitted by 7 Plaintiff, which the court has independently reviewed and modified, the court adopts the following 8 Statement of Uncontroverted Facts and Conclusions of Law, subject to de novo review of the United 9 States District Court. 10 STATEMENT OF UNCONTROVERTED FACTS 11 NO. FACT OR ISSUE OF LAW SUPPORTING EVIDENCE 12 GENERAL FACTS 1 From February 19, 2013 (the “Petition Date”) through Plaintiff’s Sixth Amended 13 the Effective Date of the Plan, Chrismas managed the Complaint (“6AC”), ECF 699 14 business of Debtor Art & Architecture Books of the 21st at ¶¶ 1, 25, 26, 27. Century as a Debtor-in-Possession (“DIP”) Defendant Chrismas’s Answer 15 to the Sixth Amended 16 Complaint (“Ans.”), ECF 703 at ¶¶ 1, 18, 19, 20 17 2 At various times prior to the Effective Date of the Plan, 6AC at ¶ 21. 18 Chrismas was in control of Defendants Ace NY Ans. at ¶ 15. Corporation (“Ace NY”), Ace NY, Inc. (“Old Ace NY”), 19 and Ace Museum, a non-profit California Corporation. 20 FACTS RE: SALE BY CHRISMAS OF THE ARMAN TO DEBTOR 3 Chrismas sold the Arman artwork, titled “Artist Exhibits 2, 3, 4, and 5 to the 21 Materials Series, 1970” (the “Arman”) to the Debtor Motion., ECF 1015-1 at 4-17; 22 through Ace Gallery Los Angeles, a Debtor-controlled Declaration of Sam Leslie in entity, for good and valuable consideration of $37,000, support of Plaintiff’s Motion 23 paid by check number 1974 from the Debtor’s DIP for Summary Adjudication of Account, which check endorsed by Chrismas and then 24 deposited by Chrismas into the Ace Museum Account. Defendant Douglas Chrismas’s First Amended 25 Counter-Complaint, and for Sanctions (“Leslie Decl.”) at 26 ¶¶ 8-11, page 3 lines 15-28, page 4 lines 1-27, ECF 1016 at 27 5-6. 1 in support of Plaintiff’s Motion for Partial Summary 2 Adjudication of Defendant Douglas Chrismas’s First 3 Amended Counter-Complaint, 4 and for Sanctions (“Sahn Decl.”) at ¶¶ 3-6. ECF 1017 at 5 3-4. 6 4 Since the sale of the Arman by Chrismas to Debtor on Leslie Decl. at ¶¶ 8-11. June 16, 2014, Debtor has obtained and to this day Sahn Decl. at ¶¶ 3-6. 7 maintains sole, complete, full-and-clear ownership and right to possession of the Arman. See also, Statement of Non- 8 Opposition to Summary Adjudication re: Arman, etc., 9 ECF 1051 at 2. 10 11 5 Having sold the Arman to Debtor, Chrismas nevertheless 07/30/19 First Amended baselessly claimed that he owned the Arman and alleged Counter-Complaint Against 12 in his First Amended Counter-Complaint that the Debtor Art & Architecture Books of wrongfully converted the Arman. the 21st Century, Case 2:15-ap- 13 01679-RK, ECF 640 at 4, 6-9. 14 Sahn Decl. at ¶ 2, page 2, Lines 15-23. 15 See also, Statement of Non- 16 Opposition to Summary Adjudication re: Arman, etc., 17 ECF 1051 at 2. 18 19 CONCLUSIONS OF LAW 20 NO. ISSUE OF LAW SUPPORT 21 CONCLUSIONS OF LAW RE: CONVERSION; DECLARATORY JUDGMENT; AND 22 REPLEVIN 23 1 To prevail on a claim for conversion, a plaintiff must PQ Labs, Inc. v. Qi, No. 12- 24 show: (1) ownership or right to possess the subject 0450 CW, 2014 U.S. Dist. property; (2) the defendant’s conversion by a wrongful LEXIS 11769, at *46 (N.D. 25 act or disposition of the property; and (3) damages. Cal. Jan. 29, 2014), citing, Spates v. Dameron Hospital 26 Ass’n, 114 Cal. App. 4th 208, 27 221 (2003). 2 It is not necessary that there be a manual taking of the Wu v. Or. Trail Corp., No. CV 1 control or ownership over the property, or that the U.S. Dist. LEXIS 108406, at alleged converter has applied the property to his own use. *7-8 (C.D. Cal. Apr. 14, 2020), 2 citing inter alia, Farmers Ins. Exch. v. Zerin, 53 Cal. App. 3 4th 445, 451-52 (1997). 4 3 Conversion requires either actual possession or Brighton Trs. v. Transamerica ownership with the right of possession. Life Ins. Co., No. 19-cv- 5 04210-CAS(GJSx), 2020 U.S. Dist. LEXIS 77215, at *9 6 (C.D. Cal. Jan. 23, 2020). citing, Gen. Motors 7 Acceptance Corp. v. Dallas, 8 198 Cal. 365, 370 (1926); 9 Yakima Co. v. Lincoln Gen. Ins. Co., 583 F. App’x 744, 10 747 (9th Cir. 2014). 11 4 Where a claimant cannot prove ownership or right to Wu v. Or. Trail Corp., No. CV possess the subject property, his conversion claim fails. 19-4162 PSG (JPRx), 2020 12 U.S. Dist. LEXIS 108406, at *8 (C.D. Cal. Apr. 14, 2020); 13 Cusano v. Klein, 280 F. Supp. 14 2d 1035, 1043 (C.D. Cal. 15 2003). 5 A plaintiff must show that he did not consent to the Diamond State Ins. Co. v. 16 defendant’s exercise of dominion over the property, Deardorff, No. 1:10-CV-004 because there can be no conversion where an owner AWI JLT, 2011 U.S. Dist. 17 either expressly or impliedly assents to or ratifies the LEXIS 41347, at *76-77 (E.D. taking, use, or disposition of his property. Cal. Apr. 14, 2011); 18 19 Farrington v. A. Teichert & Son, Inc., 59 Cal. App. 2d 468, 20 474 (1943). 6 Because Chrismas sold the Arman to Debtor, Chrismas Knupfer v. HSA Residential 21 cannot maintain a wrongful conversion claim against Mortg. Servs. of Tex., Inc. (In 22 Debtor for Debtor’s possession of the Arman, any future re Lau Capital Funding), 321 sale by Debtor of the Arman, any future taking and use B.R. 287, 304 (Bankr. C.D. 23 of all proceeds derived from any future sale by Debtor of Cal. 2005). the Arman. 24 7 An action for declaratory relief should be dismissed Pittenger v. Home Sav. & Loan where it appears no justiciable controversy exists. Asso., 166 Cal. App. 2d 32, 36 25 (1958) (citing Fritz v. Superior 26 Court, 18 Cal.App.2d 232, 236 (1936)). 27 8 Because Chrismas's claims for conversion cannot Petersen v. Hartford Ins. Co., withstand the Plan Agent's motion for summary No. C 02-02824 CRB, 2003 1 judgment with respect to the Arman ownership issue, U.S. Dist. LEXIS 6037, at *11 Chrismas's declaratory relief claim must be dismissed. (N.D. Cal. Apr. 9, 2003); 2 Weststeyn Dairy 2 v. Eades 3 Commodities Co., 280 F. 4 Supp. 2d 1044, 1090 (E.D. Cal. 2003); 5 Stewart v. Morris, No. 10-cv- 6 04106-NJV, 2013 U.S. Dist. LEXIS 132951, at *33 (N.D. 7 Cal. Sep. 17, 2013). 8 9 Where a claimant "has not and cannot establish that she Ponvanit v. Superior Court of is a secured party with a superior right to possession of Cal., No. CV 17-4054-FMO 9 the property," claimant's replevin claim will be (JEM), 2018 U.S. Dist. LEXIS dismissed with prejudice. 32880, at *27 (C.D. Cal. Jan. 10 31, 2018), citing, California 11 Code of Civil Procedure § 512.010. 12 10 Where, as here, the replevin claim defendant acquired Von Saher v. Norton Simon "good title" to the personal property at issue, defendant Museum of Art at Pasadena, 13 will be entitled to summary judgment on a claimant's No. CV 07-2866-JFW (SSx), replevin claim. 2016 U.S. Dist. LEXIS 14 187490, at *24-25 (C.D. Cal. 15 Aug. 9, 2016). 16 IT IS THEREFORE RECOMMENDED by the United States Bankruptcy Court that for 17 the foregoing reasons, the United States District Court accept this Report and Recommendation, 18 adopt the above-recited statement of uncontroverted facts and conclusions of law, and issue an 19 order granting the motion for summary adjudication, denying and dismissing with prejudice 20 Defendant Douglas Chrismas’s First, Third and Fourth Counterclaims in his First Amended 21 Counter-Complaint, ECF 640, filed on July 30, 2019, regarding the Arman Artwork. 22 IT IS THEREFORE FURTHER RECOMMENDED by the United States Bankruptcy 23 Court that in granting Plaintiff’s motion for summary adjudication, pursuant to Federal Rule of 24 Civil Procedure 54(b), made applicable to this adversary proceeding by Federal Rule of 25 Bankruptcy Procedure 7054, the United States District Court direct the entry of a final judgment 26 denying and dismissing with prejudice Defendant Douglas Chrismas’s First, Third and Fourth 27 Counterclaims in his First Amended Counter-Complaint regarding the Arman Artwork, and in doing so, expressly determine that there is no just reason for delay in order to allow the Plaintiff to 1 || sell or otherwise dispose of the Arman Artwork to realize value for Debtor’s creditors in 2 || furtherance of the confirmed Plan of Reorganization in this bankruptcy case. 3 Hitt 5 7 9 10 Los 13 14 15 16 617 18 19 20 21 22 4 Date: September 24, 2021 Robert Kwan 25 United States Bankruptcy Judge 26 27 28