Case Type:
Case Status:
21-1134 (9th Circuit, Jan 25,2022) Not Published
The U.S. Bankruptcy Appellate Panel of the Ninth Circuit (BAP) upheld as proper the dismissal by the U.S. Bankruptcy Court for the Northern District of California (BC) of claims, as set forth in the second amended nondischargeability complaint (SAC) of Terry Kwong (Kwong) against Selim Aykiran (Aykiran or DR), predicated on § 523(a)(2)(A) and (a)(6) and § 727(a)(2)(A), (a)(3), (a)(4)(a), and (a)(5), but found the BC to have abused its discretion in denying Kwong leave to amend his § 727 claims.
Procedural context:
On the eve of trial in state court for damages related to his failure to pay back a loan to Kwong, Aykiran filed a chapter 7 petition for relief. Kwong responded with an adversary complaint (FAC) against Aykiran, which he amended under Civil Rule 15(a), made applicable by Rule 7015, before effecting service. Aykiran filed a motion to dismiss the FAC for failure to state a claim for relief, which Kwong opposed. At the hearing, the BC dismissed all claims and granted Kwong leave to amend only his 523(a)(2)(A) claim and two of § 523(a)(6) claims. Thereafter, Kwong filed the SAC, "which reasserted and supplemented his three remaining claims." Following briefing and a hearing, the BC dismissed the claims but granted Kwong leave to amend the § 523(a)(2)(A) claim alone. Later, Kwong dismissed this claim with prejudice. Thereafter, the BC entered judgment for Aykiran, and Kwong timely appealed.
Prepetition, Kwong and Aykiran had built up a long business relationship. Aykiran manufactured towels and related products (Turkish Towels) in Turkey and then sold them in the United States using several corporate forms, including a Turkish company and three California limited liability companies. In 2014, after discussing joint business opportunities, Kwong paid Aykiran $537,140.50 to fund Aykiran's business. Later that year, the parties executed a written agreement (the Agreement), which granted Kwong and his then-owned4 company, First Son Trading Ltd. (First Son), substantial control over Aykiran's business. The Agreement also provided that Kwong's $537,140.50 payment would be treated as a loan (the Loan), repayable from gross revenues of Turkish Towels sales. Related, it provided that, after repayment of the Loan, net profits for First Son, one of Aykiran's Turkish, and one of Aykiran's California entities, would be split between First Son, on the one hand, and Aykiran and the latter two entities, on the other hand. Aykiran did not repay the Loan. Instead, he took various actions and made various post-Agreement transfers with the alleged intent to hinder, delay, or defraud Kwong and his collection efforts. Once he got wind of these efforts, Kwong sued Aykiran in state court for damages related to Aykiran's failure to repay the Loan. Trial was set for January 2020.
Laura S. Taylor; Robert J. Faris; and Scott H. Gan

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