United States Bankruptcy Court Central District of California

United States Bankruptcy Court Central District of California

San Fernando Valley Judge Victoria Kaufman, Presiding

Courtroom 301 Calendar

Thursday, April 29, 2021

Hearing Room 301

2:30 PM 1: -

Chapter

#0.00

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Docket 0

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United States Bankruptcy Court Central District of California

San Fernando Valley Judge Victoria Kaufman, Presiding

Courtroom 301 Calendar

Thursday, April 29, 2021

2:30 PM CONT...

Tentative Ruling:

- NONE LISTED -

Hearing Room 301 Chapter

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United States Bankruptcy Court Central District of California

San Fernando Valley Judge Victoria Kaufman, Presiding

Courtroom 301 Calendar

Thursday, April 29, 2021

Hearing Room 301

2:30 PM 1:21-10179 Alex Foxman and Michal J Morey

Chapter 11

#1.00 Berger-Frandsen Creditors' objection to debtors' designation as small business debtors and subchapter V election

fr. 4/22/21

Docket 50

Tentative Ruling: Deny.

I. BACKGROUND

On February 3, 2021, Alex Foxman and Michal J. Morey ("Debtors") filed a voluntary chapter 11, subchapter V petition.

A. Relevant Prepetition History

Prepetition, a bond issuer required that collateral in the total amount of $4,150,000 (the "Bond") be posted by National ACO, LLC ("NACO") and its guarantors. Declaration of Russell Frandsen ("Frandsen Declaration") [doc. 51], ? 6. NACO contributed $2 million towards the Bond, and the guarantors agreed to contribute the remaining $2.15 million. Id. Debtors did not contribute their agreed-upon share of collateral. Consequently, other guarantors, such as Andre Berger, Russell Frandsen, Tracy Berger and Christie Frandsen (together, the "Berger-Frandsen Parties"), were required to cover Debtors' share. Id.

Subsequently, the Berger-Frandsen Parties sued Debtors (the "First Lawsuit"). Id., ? 5. Through the First Lawsuit, the Berger-Frandsen Parties asserted that Debtors: (A) breached their contractual and fiduciary duties to the Berger-Frandsen Parties by misrepresenting their financial affairs and failing to contribute their agreed-upon share of collateral towards the Bond; and (B) fraudulently transferred their real properties located at 14606 Sutton Street, Sherman Oaks, CA 91403 (the "Sutton Property") and 321 S. San Vicente Boulevard, #407, Los Angeles, CA 90048 (the "San Vicente Property"). Id.

On March 31, 2019, Debtors, Ilana Mikhlin and Richard Fox, on the one hand, and NACO and the Berger-Frandsen Parties, on the other hand, executed a settlement

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United States Bankruptcy Court Central District of California

San Fernando Valley Judge Victoria Kaufman, Presiding

Courtroom 301 Calendar

Thursday, April 29, 2021

Hearing Room 301

2:30 PM

CONT... Alex Foxman and Michal J Morey

Chapter 11

agreement resolving the First Lawsuit (the "Settlement Agreement"). Id., ? 4, Exhibit 1.

Through the Settlement Agreement, Debtors agreed to execute a promissory note (the

"Note") and two deeds of trust against the Sutton Property and San Vicente Property in

favor of the Berger-Frandsen Parties (the "Deeds of Trust"). Id., ?? 4, 7, Exhibit 1. The

Note provides that Debtors owed the Berger-Frandsen Parties $881,740 in principal and

interest at 6.25% (absent an "Event of Default," which would increase the interest rate to

10%). Id., Exhibit 2.

The Settlement Agreement also provided that Debtors would pay an additional $75,000 to the Berger-Frandsen Parties on account of the attorneys' fees and costs incurred by the Berger-Frandsen Parties. Id., ?? 4, 8, Exhibit 1. Although Debtors paid $25,000 of this obligation, Debtors did not pay the remaining $50,000, which came due upon maturity of the Note. Id.

NACO, Dr. Foxman and Dr. Berger also entered into an agreement for legal services with the law firm Baute Crochetiere Hartley & Velkei LLP ("Baute"). Declaration of Andre Berger ("Berger Declaration") [doc. 51], ? 3. Through that representation, NACO, Dr. Foxman and Dr. Berger became jointly and severally liable for attorneys' fees and costs incurred by Baute. Id. In June 2019, Dr. Berger entered into a settlement agreement with Baute, in which Dr. Berger agreed to pay $400,000 to Baute; as of February 3, 2021, Dr. Berger has paid $311,100 to Baute. Id., ?? 4-5.

B. Debtors' Bankruptcy Filing and Scheduled Liabilities

On February 3, 2021, Debtors filed their bankruptcy petition. In their original schedule D, Debtors identified the following secured debts: (A) a $1,152,521.07 lien against the Sutton Property in favor of "Andre Berger, et al," which claim Debtors indicated is contingent, unliquidated and disputed; (B) a lien against the San Vicente Property in favor of Specialized Loan Services, LLC ("SLS")/U.S. Bank in the amount of $244,593.97; (C) a first priority lien against the Sutton Property in favor of Wells Fargo Home Mortgage in the amount of $783,727.63; and (D) a second priority lien against the Sutton Property in the amount of $385,392.31 in favor of Union Bank.

In their schedule E/F, Debtors identified the following unsecured claims: (A) $825,000 in favor of Baute, which claim Debtors indicated is contingent, unliquidated and disputed; (B) $471,300 in favor of Ilana Mikhlin based on a "personal loan;" (C) $86,041.13 in favor of Navient based on student loans; (D) $1,150,000 in favor of

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United States Bankruptcy Court Central District of California

San Fernando Valley Judge Victoria Kaufman, Presiding

Courtroom 301 Calendar

Thursday, April 29, 2021

Hearing Room 301

2:30 PM

CONT... Alex Foxman and Michal J Morey

Chapter 11

Richard Fox based on a contract; and (E) $56,293.05 in favor of "Wells Fargo" based on

a business line of credit.

On February 11, 2021, Debtors filed amended schedules D and E/F [doc. 24]. In their amended schedule D, Debtors split the scheduled debt owed to the Berger-Frandsen Parties into the following two debts: (A) a $486,880 claim secured by the Sutton Property that Debtors indicated is contingent, unliquidated and disputed; and (B) a $394,860 claim secured by the San Vincente Property that Debtors did not schedule as contingent, unliquidated or disputed.

On March 9, 2021, Debtors filed a second amended schedule E/F [doc. 43]. In the second amended schedule E/F, Debtors reduced the unsecured claim in favor of Mr. Fox to $460,000. On March 18, 2021, Debtors filed another set of amended schedules D and E/F [doc. 45]. In the amended schedule D, Debtor added descriptions to certain secured claims, stating: (A) the claims in favor of the Berger Parties are business debts; (B) the lien in favor of SLS/U.S. Bank arose from a "loan to repay [a] business debt;" and (C) the lien in favor of Union Bank arose from a "[b]usiness debt for rental property." In the amended schedule E/F, Debtors also indicated that the claim of Ms. Mikhlin is based on a "[l]oan to pay business debts and business investments" and that the claim of Mr. Fox is based on a "[c]ontract for purchase of [a] home."

C. The Claims Filed Against Debtors' Estate

To date, 11 creditors have filed claims against the estate. The chart below summarizes the nature and amount of each claim:

Claimant Wells Fargo Bank, N.A. ("Wells Fargo Credit") Navient Solutions, LLC Navient Solutions, LLC

Proof of Claim Amount/Basis $6,084.53 based on "money loaned"

$4,719.42 based on student loans $71,604.21 based on student loans

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