In re: Shmuel Erde

FILED
DEC 3 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NOT FOR PUBLICATION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 Nos. CC-19-1022-GTaS
CC-19-1139-GTaS
SHMUEL ERDE, (Related)
Debtor. Bk. No. 2:18-bk-20200-VZ
SHMUEL ERDE, Adv. No. 2:18-ap-01295-VZ
Appellant,
v. MEMORANDUM*
THEODOR NICKOLAS BODNAR;
MARY LOUISA BODNAR; THE
BODNAR FAMILY TRUST,
Appellees.
Argued and Submitted on November 21, 2019
at Pasadena, California
Filed – December 3, 2019
Appeal from the United States Bankruptcy Court
*
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.
for the Central District of California
Honorable Vincent P. Zurzolo, Bankruptcy Judge, Presiding
Appearances: Appellant Shmuel Erde argued pro se.**
Before: GAN, TAYLOR, and SPRAKER, Bankruptcy Judges.
INTRODUCTION
This appeal arises from the latest chapter in Shmuel Erde’s decades-
long pursuit of claims against his former partner Theodor Bodnar, related
to a failed real estate development deal in 1984. In this Chapter 111 case, he
appeals from the bankruptcy court’s order (1) dismissing his adversary
complaint against Mr. Bodnar, Mary Bodnar, and the Bodnar Family Trust
(“Bodnar Parties”); (2) determining Mr. Erde to be a vexatious litigant with
respect to the Bodnar Parties; and (3) enjoining him from commencing or
continuing any adversary proceedings against the Bodnar Parties without
permission from the court. He also appeals the bankruptcy court’s order
denying him permission to file a motion to vacate the order dismissing the
**
None of the named appellees actively participated in this appeal.
1
Unless specified otherwise, all chapter and section references are to the
Bankruptcy Code, 11 U.S.C. §§ 101-1532, all “Rule” references are to the Federal Rules
of Bankruptcy Procedure.
2
1984 bankruptcy case filed by his partnership.2
Mr. Erde’s claims against the Bodnar Parties and his attempts to
administer the partnership assets are barred by claim preclusion. The
bankruptcy court was correct to dismiss the adversary proceeding and
declare Mr. Erde a vexatious litigant, and to deny him permission to file the
motion to vacate. We AFFIRM.
FACTUAL BACKGROUND 3
A. Prepetition Events
1. The development deal
In 1983, Mr. Erde formed a partnership with Theodor Bodnar to
redevelop an aging building owned by Mr. Erde. Prior to securing
financing for the redevelopment project, Mr. Erde and Mr. Bodnar obtained
a short-term interim loan, secured by a deeds of trust on the property as
well as Mr. Erde’s personal residence and his other investment properties.
Before Mr. Bodnar could arrange a long-term loan, the interim loan became
due and the lender initiated foreclosure proceedings against the properties.
2
Although Mr. Erde did not attach the order denying permission to file the
motion to vacate to his notice of appeal, it is clear from his opening brief that he
intended to appeal that order, and we exercise our discretion to review it. See Mahakian
v. William Maxwell Invs., LLC, (In re Mahakian), 529 B.R. 268 (9th Cir. BAP 2015).
3
In this memorandum, we have borrowed from the Panel’s detailed decision in
Erde v. Dye (In re Erde), BAP No. CC-18-1321-FLS, 2019 WL 2399708 (9th Cir. BAP June
9, 2019). We also exercise our discretion to review the bankruptcy court’s docket and the
available public record in Mr. Erde’s many cases. See Woods & Erickson, LLP v. Leonard
(In re AVI, Inc.), 389 B.R. 721, 725 n.2 (9th Cir. BAP 2008).
3
In March 1984, Mr. Bodnar recorded a lis pendens against the
property, which clouded the title and prevented Mr. Erde from securing
alternative financing. Mr. Bodnar then filed a chapter 11 bankruptcy
petition on behalf of the partnership (the “1984 Partnership Bankruptcy
Case”). Mr. Erde was unable to secure financing to pay off the interim loan
and as a result, he lost everything. The bankruptcy court eventually
dismissed the partnership’s bankruptcy case.
2. Mr. Erde’s litigation against the Bodnar Parties
In April 2001, Mr. Erde filed suit in the California state court against
Mr. Bodnar and others (the “2001 State Court Action”). The superior court
dismissed the complaint with prejudice, ruling that Mr. Erde’s claims were
barred by the statute of limitations. Mr. Erde appealed and the court of
appeal affirmed the dismissal in September 2002.
In February 2003, Mr. Erde filed a nearly identical lawsuit in district
court against the same defendants (the “2003 District Court Action”). The
district court dismissed Mr. Erde’s complaint with prejudice, and Mr. Erde
appealed. The Ninth Circuit affirmed, holding that Mr. Erde was
attempting to relitigate the same claims he brought in a prior action against
the same defendants.
In June 2006, Mr. Erde filed another complaint in state court against
the same defendants (the “2006 State Court Action”). He essentially alleged
the same causes of action as the prior cases. The superior court dismissed
4
the complaint with prejudice, holding that the issues had been litigated and
finally determined. Mr. Erde appealed, and the court of appeal affirmed the
decision in April 2008.
In September 2009, Mr. Erde attempted to resurrect the 2006 State
Court Action by arguing that he had been suffering from a “severe
condition of mental derangement” for the prior three decades and should
be allowed to relitigate all issues. The superior court denied the motion and
granted the defendants’ motion to declare Mr. Erde a vexatious litigant.
Mr. Erde appealed, and the court of appeal affirmed.
Two years later, Mr. Erde returned to the superior court and filed a
motion for a new trial, a motion for declaratory relief, a motion to strike the
vexatious litigant order, and a motion to void the vexatious litigant order.
The superior court denied all requested relief.
3. Mr. Erde’s 2009 bankruptcy case and further proceedings
against the Bodnar Parties
In 2009, Mr. Erde filed a personal chapter 11 petition (the “2009
Bankruptcy Case”). He also initiated sixteen adversary proceedings, two of
which were against the Bodnar Parties (the “2009 Adversaries”).
Mr. Erde sought turnover of alleged partnership property in the
possession of the Bodnar Parties and damages against the Bodnar Parties
caused by the filing of the 1984 Partnership Bankruptcy Case. The Bodnar
Parties filed motions to dismiss the two adversaries and argued that
5
Mr. Erde’s claims had already been decided against him multiple times in
state and federal courts.
The bankruptcy court ruled that the claims asserted by Mr. Erde
arose in 1984 and because Mr. Erde had filed two intervening bankruptcy
cases in 1985 and 1996, the claims were unadministered assets of his prior
bankruptcy estate. The bankruptcy court dismissed the 2009 Adversaries
with prejudice. Mr. Erde filed a motion for reconsideration, which the court
denied.
4. The 2012 motion to reopen the 1984 Partnership Bankruptcy
Case
In October 2012, Mr. Erde filed a motion to reopen the 1984
Partnership Bankruptcy Case. The bankruptcy court denied the motion
because the issues had been repeatedly litigated in state and federal court.
Mr. Erde next filed a motion to alter or amend the order dismissing
the 1984 Partnership Bankruptcy Case, which the bankruptcy court also
denied. On appeal, the district court affirmed and denied Mr. Erde’s
subsequent motion for reconsideration.
Mr. Erde filed a request for leave to file a motion for sanctions against
Mr. Bodnar’s attorneys which the district court denied. Mr. Erde then filed
another motion to amend the final judgment and a request to refer the
matter to the United States Attorney for criminal investigation. The district
court denied Mr. Erde’s requested relief and declared him a vexatious
6
litigant. It required him to seek permission before filing any further
documents related to his dispute with Mr. Bodnar over
the development deal.
5. The 2015 motion to reopen the 2009 Bankruptcy Case
In March 2015, Mr. Erde filed a motion to reopen his 2009 Bankruptcy
Case to amend the schedules and administer unlisted assets which
consisted of his purported share of the partnership’s assets. The court
denied the motion, denied Mr. Erde’s motion for reconsideration, and
denied Mr. Erde’s resubmitted motion to reopen the case. The district court
and the Ninth Circuit affirmed.
B. Erde’s 2018 bankruptcy case and the present adversary proceeding
Mr. Erde initiated his fifth4 bankruptcy case in 2018 (the “2018
Bankruptcy Case”) by filing a chapter 11 petition, pro se.
He again filed an adversary proceeding against the Bodnar Parties
alleging that Mr. Bodnar concealed assets in the 1984 Partnership
Bankruptcy Case. Mr. Erde sought a declaration that he was entitled to 50%
of the partnership’s assets, and that the order dismissing the 1984
Partnership Bankruptcy Case was void ab initio.
1. The motion for default judgment
Mr. Erde filed a motion for default judgment on his complaint, which
the court denied. In addition to defective service, the bankruptcy court held
4
Mr. Erde also initiated a short-lived chapter 13 bankruptcy in 2014.
7
that the claims in the complaint were barred by issue and claim preclusion
because they were identical to the claims alleged in the 2009 Adversaries.
The court also held that the claims and allegations were identical to, and
arose out of, the same alleged transactions as set forth in prior civil suits
filed by Mr. Erde against the Bodnar Parties in the 2001 State Court Action,
the 2003 District Court Action, and the 2006 State Court Action. The court
noted that Mr. Erde made the same claims in his attempts to reopen the
1984 Partnership Bankruptcy Case and in his motion to reopen the 2009
Bankruptcy Case.
2. The order to show cause
The bankruptcy court then issued an order to show cause why the
adversary proceeding should not be dismissed with prejudice and why
Mr. Erde should not be declared a vexatious litigant. The court attached as
exhibits the California court of appeals decision affirming the superior
court’s decision in the 2006 State Court Action, and the district court ruling
affirming the bankruptcy court’s order denying Mr. Erde’s motion to
reopen the 2009 Bankruptcy Case. Each of these rulings detailed Mr. Erde’s
prior litigation efforts against the Bodnar Parties.
Mr. Erde responded that the order dismissing the 1984 Partnership
Bankruptcy Case was void because he did not receive notice of the order to
dismiss. He also asserted that the unscheduled partnership assets remained
assets of the 1984 Partnership Bankruptcy Case estate and all state court
8
decisions affecting those assets were therefore also void for lack of
jurisdiction. Mr. Erde argued that he was not a vexatious litigant because
he was motivated by a good faith belief that his claims were meritorious.
Mr. Erde also objected to the two rulings which the court attached as
exhibits, on the basis that they did not address the omitted partnership
assets or the issue of whether Mr. Erde received notice of the 1984
Partnership Bankruptcy Case and dismissal.
3. The bankruptcy court ruling
The bankruptcy court overruled Mr. Erde’s objection and dismissed
the case with prejudice. The court noted that Mr. Erde did not appeal the
order denying default judgment and as a result there were no proceedings
left in which Mr. Erde could obtain a judgment. The court also held that all
of the claims and allegations in the adversary complaint were litigated to
final orders in prior proceedings and therefore the claims were barred by
issue and claim preclusion.
The bankruptcy court determined Mr. Erde to be a vexatious litigant
after applying the factors set forth in Molski v. Evergreen Dynasty Corp., 500
F.3d 1047 (9th Cir. 2007). Based on the vexatious litigant holding, the court
enjoined Mr. Erde from filing or continuing any claim for relief against the
Bodnar Parties without first filing a motion for permission and obtaining a
court order.
The vexatious litigant order required that any motion for permission
9
must include: (1) a copy of the vexatious litigant order; (2) a notice of
hearing on a date available on the court’s calendar with at least twenty-one
days’ notice; and (3) a declaration setting forth admissible evidence to
establish that the requested relief is not frivolous, harassing, or a claim
which had been previously ruled upon. Mr. Erde timely appealed.
4. The motions for permission to file motion to vacate order
Mr. Erde filed a motion in the main case to vacate the order
dismissing the 1984 Partnership Bankruptcy Case and to consolidate that
case with the 2018 Bankruptcy Case. The bankruptcy court determined that
Mr. Erde’s goal was “to find a procedural pathway to reach the partnership
assets that Erde believes are still property of the 1984 Partnership
Bankruptcy Case and cause those alleged assets to be administered in his
current chapter 11 case.”
The court stated that Mr. Erde’s argument that the assets remained in
the 1984 Partnership Bankruptcy Case estate was legally flawed and that
there was no legal authority to allow the bankruptcy court in Mr. Erde’s
personal case to vacate the partnership dismissal order while another court
still presided over the partnership case. However, the bankruptcy court
denied the motion on the basis that Mr. Erde had sought the same relief in
his 2012 motion to reopen the 1984 Partnership Bankruptcy Case.
The bankruptcy court stated that Mr. Erde’s 2012 motion to reopen
the 1984 Partnership Bankruptcy Case was essentially a motion to vacate
10
the order dismissing that case in the hopes of administering the
partnership assets in bankruptcy court. The motion to vacate was therefore
barred by claim preclusion and issue preclusion. Mr. Erde appealed, and
we affirmed.5
Mr. Erde then filed a similar motion in the adversary proceeding, this
time seeking permission to file the motion to vacate in the partnership case.
The bankruptcy court denied the motion because the relief Mr. Erde sought
was the same relief he sought in the motion filed in the administrative case,
which the court had already denied.
Mr. Erde filed a second motion for permission in the adversary case
again seeking to file a motion to vacate the order dismissing the 1984
Partnership Bankruptcy Case. Mr. Erde argued that the relief was not
barred by claim preclusion or issue preclusion because no court had
previously entered a final judgment on the merits of his core
argument—that the order dismissing the 1984 Partnership Bankruptcy
Case was void because Mr. Erde did not receive notice of the order in
violation of his due process rights.
The bankruptcy court denied the motion on the basis that the main
case was dismissed in February 2019 and therefore all pending motions
were moot, including the second motion for permission. The court also
concluded that Mr. Erde failed to establish that the second motion for
5
See BAP No. CC-19-1023-STaL (9th Cir. BAP Nov. 12, 2019).
11
permission was not frivolous or harassing and adopted its findings and
conclusions from its order denying the first motion for permission.
5. The motion for permission to file motion to alter or amend
Mr. Erde then filed a motion for permission to file a motion to alter or
amend the order denying his second motion for permission to file a motion
to vacate the order dismissing the 1984 Partnership Bankruptcy Case. He
argued that the court erred in ruling that the second motion for permission
was moot based on the dismissal of the main case. Mr. Erde also reiterated
his argument that the motion to vacate the order dismissing the 1984
Partnership Bankruptcy Case was not frivolous and not barred by claim
preclusion or issue preclusion. The bankruptcy court denied the motion.
Mr. Erde timely appealed.
JURISDICTION
The bankruptcy court had jurisdiction pursuant to 28 U.S.C. §§ 1334and 157(b)(1). We have jurisdiction under 28 U.S.C. § 158.
ISSUES
Whether the bankruptcy court erred in dismissing the adversary
proceeding and declaring Mr. Erde a vexatious litigant.
Whether the bankruptcy court erred in denying Mr. Erde’s request
for permission to file a motion to vacate the 1984 dismissal order.
STANDARDS OF REVIEW
We review a dismissal of an adversary complaint de novo. EPD Inv.
12
Co., LLC v. Bank of Am. (In re EPD Inv. Co., LLC) 523 B.R. 680, 684 (9th Cir.
BAP 2015). De novo review requires that we consider the matter as if no
decision had been previously rendered. Kashikar v. Turnstile Capital Mgmt.,
LLC (In re Kashikar), 567 B.R. 160, 164 (9th Cir. BAP 2017).
We review the bankruptcy court’s decision to impose pre-filing
restrictions against a vexatious litigant for an abuse of discretion. Ringgold-
Lockhart v. Cty. of L.A., 761 F.3d 1057, 1062 (9th Cir. 2014). A bankruptcy
court abuses its discretion if it applies the wrong legal standard, misapplies
the correct legal standard, or if its factual findings are illogical, implausible,
or without support in the record. Traffic School.com, Inc. v. Edriver Inc., 653
F.3d 820, 832 (9th Cir. 2011).
DISCUSSION
A. The bankruptcy court did not err in dismissing the adversary
proceeding.
Mr. Erde’s primary argument on appeal is that due to a lack of notice,
the order dismissing the 1984 Partnership Bankruptcy Case is void and
allegedly concealed partnership assets remain property of the partnership’s
bankruptcy estate. He contends that the bankruptcy court was required to
vacate the void order and allow the partnership’s assets to be administered
in bankruptcy court.
Mr. Erde argues that the bankruptcy court misapplied claim
preclusion and issue preclusion because none of the prior cases involved a
13
violation of due process and his claims were not actually litigated after a
full and fair opportunity for litigation. Mr. Erde’s argument is without
merit.
1. Mr. Erde’s complaint is barred by claim preclusion.
Claim preclusion prohibits relitigation of “any claims that were
raised or could have been raised” in a prior action between the same
parties or their privies. Owens v. Kaiser Found. Health Plan, Inc., 244 F.3d 708,
713 (9th Cir. 2001). Claim preclusion bars relitigation of claims even if they
were decided wrongly in prior litigation. Federated Dep’t Stores, Inc. v.
Moitie, 452 U.S. 394, 398 (1981). Although claim preclusion is an affirmative
defense, the bankruptcy court can dismiss a case sua sponte “where the
records of that court show that a previous action covering the same subject
matter and parties had been dismissed.” Headwaters Inc. v. United States
Forest Serv., 399 F.3d 1047, 1054 (9th Cir. 2005) (quoting Evarts v. W. Metal
Finishing Co., 253 F.2d 637, 639 n.1 (9th Cir. 1958)).
The preclusive effect of federal judgments is determined by federal
common law. Taylor v. Sturgell, 553 U.S. 880, 891 (2008). Under federal law,
claim preclusion requires: (1) an identity of claims; (2) a final judgment on
the merits; and (3) the same parties or privity between parties. Owens v.
Kaiser Found. Health Plan, Inc., 244 F.3d 708, 713 (9th Cir. 2001).
a. Identity of claims
To determine whether there is an identity of claims, we must
14
consider: (1) whether rights or interests established in the prior case would
be impaired by prosecution of the second action; (2) whether substantially
the same evidence is presented in the two actions; (3) whether the two
cases involve infringement of the same right; and (4) whether the two cases
arise out of the same transactional nucleus of facts. Harris v. Cty. of Orange,
682 F.3d 1126, 1132 (9th Cir. 2012). The fourth factor is the most important.
Id.Although Mr. Erde’s legal theories have changed, his claim that he is
entitled to 50% of the partnership’s purported assets is the same claim he
made in the 2009 Adversaries, the 2012 motion to reopen the 1984
Partnership Bankruptcy Case, and the 2015 motion to reopen the 2009
Bankruptcy Case.
The rights of the Bodnar Parties have been established in prior cases
and would be impaired by prosecution of the present adversary
proceeding. Mr. Erde relies on the same evidence and argues the same
infringement of his rights, that he was deprived by the Bodnar Parties of
half of the partnership assets. All of his claims arise out of the same
transactional nucleus of facts. There is an identity of claims and the first
element of claim preclusion is satisfied.
b. Final judgment and same parties
The second and third elements are also satisfied because in the prior
litigation efforts, Mr. Erde either sought relief directly against the Bodnar
15
Parties or sought to recover and administer 50% of the partnership assets
which he alleged were in the possession of the Bodnar Parties. Final
judgments were entered on the claims in each of the prior cases, and those
judgments were either affirmed or not appealed. The claims asserted by
Mr. Erde are barred by claim preclusion, and the bankruptcy court did not
err in dismissing the complaint.
B. The bankruptcy court did not err in determining Mr. Erde to be a
vexatious litigant.
Mr. Erde argues that his litigation was not abusive, and the
bankruptcy court erred in determining that he is a vexatious litigant
because his claims were meritorious. We disagree.
Bankruptcy courts have inherent authority to impose sanctions to
deter vexatious litigation. See Dyer v. Lindblade (In re Dyer), 322 F.3d 1178,
1196 (9th Cir. 2003) (“The inherent sanction authority allows a bankruptcy
court to deter . . . improper litigation tactics.”); Caldwell v. Unified Capital
Corp. (In re Rainbow Magazine, Inc.), 77 F.3d 278, 284 (9th Cir. 1996)
(“[B]ankruptcy courts have the inherent power to sanction vexatious
conduct presented before the court.”).
The Ninth Circuit has held that before a court can declare a litigant
vexatious and impose pre-filing restrictions, it must:
(1) give litigants notice and “an opportunity to
oppose the order before it [is] entered”; (2) compile
an adequate record for appellate review, including
16
“a listing of all the cases and motions that led the
district court to conclude that a vexatious litigant
order was needed”; (3) make substantive findings of
frivolousness or harassment; and (4) tailor the order
narrowly so as “to closely fit the specific vice
encountered.”
Ringgold-Lockhart v. Cty. of Los Angeles, 761 F.3d 1057, 1062 (9th Cir. 2014)
(quoting De Long v. Hennessey, 912 F.2d 1144, 1147-48 (9th Cir. 1990). The
first two factors are procedural and the second two are substantive. Id.In applying the substantive factors, courts must consider:
(1) the litigant's history of litigation and in
particular whether it entailed vexatious, harassing
or duplicative lawsuits; (2) the litigant's motive in
pursuing the litigation, e.g., does the litigant have
an objective good faith expectation of prevailing?;
(3) whether the litigant is represented by counsel;
(4) whether the litigant has caused needless expense
to other parties or has posed an unnecessary burden
on the courts and their personnel; and (5) whether
other sanctions would be adequate to protect the
courts and other parties.
Id. (quoting Molski v. Evergreen Dynasty Corp., 500 F.3d 1047, 1058 (9th Cir.
2007).
The bankruptcy court gave Mr. Erde notice and an opportunity to
oppose the vexatious litigant order by issuing the order to show cause and
conducting a hearing. It also compiled a list of prior actions initiated by
17
Mr. Erde against the Bodnar Parties and attached two rulings which
meticulously described his litigation history.
The bankruptcy court then made substantive findings that Mr. Erde’s
litigation was frivolous and harassing because Mr. Erde’s effort to obtain
50% of the alleged partnership assets had been previously ruled upon in
several prior cases and was barred by claim preclusion.
Finally, the bankruptcy court limited its pre-filing order to causes of
action against the Bodnar Parties and permitted Mr. Erde to obtain
permission to file actions that were demonstrably not vexatious and not
barred by claim preclusion or issue preclusion.
The bankruptcy court did not err in determining Mr. Erde to be a
vexatious litigant or in establishing the pre-filing procedures.
C. The bankruptcy court properly denied the motion for permission.
Mr. Erde argues that the bankruptcy court did not have discretion to
refuse to vacate a void order and therefore, the court was required to allow
Mr. Erde to file a motion to vacate the dismissal of the 1984 Partnership
Bankruptcy Case. Again, we disagree.
Mr. Erde’s second request for permission does not satisfy the pre-
filing conditions imposed in the vexatious litigant order because the relief
sought is barred by claim preclusion. Mr. Erde’s 2012 motion to reopen the
1984 Partnership Bankruptcy Case was essentially an attempt to vacate the
dismissal order and administer alleged partnership assets. That motion
18
was denied and affirmed on appeal.
Mr. Erde also filed a motion to vacate the 1984 dismissal order in his
main case. That motion was denied and affirmed on appeal. His adversary
complaint also included a claim that the order dismissing the 1984
Partnership Bankruptcy Case was void ab initio. That complaint was
dismissed with prejudice.
Mr. Erde did not establish that his motion to vacate was a request for
relief which had not been claimed, requested, or ruled on by prior courts,
and therefore he did not satisfy the conditions of the vexatious litigant
order. The bankruptcy court correctly denied him permission to file the
motion to vacate.
CONCLUSION
For the reasons set forth above, we AFFIRM the bankruptcy court's
order dismissing the adversary complaint with prejudice, determining
Mr. Erde to be a vexatious litigant, and imposing pre-filing requirements.
We also AFFIRM the bankruptcy court’s order denying Mr. Erde
permission to file a motion to vacate the 1984 Partnership Bankruptcy Case.
19