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In Re v. Carol Wu

December 21, 2010

AMR MOHSEN, BK. NO. 05-50662 ADV. NO. 06-05183 DEBTOR. AMR MOHSEN,

Appeal from the United States Bankruptcy Court for the Northern District of California Honorable Roger L. Efremsky, Bankruptcy Judge, Presiding




Argued and Submitted on October 20, 2010 at San Francisco, California

Filed - December 21, 2010

Before: HOLLOWELL, KIRSCHER and SALTZMAN*fn2 , Bankruptcy Judges.

The chapter 7*fn3 bankruptcy trustee filed a complaint against two corporate entities, Advanced Information Management, Inc. (AIM Inc.) and Advanced Investment Management, LLC (AIM LLC) (AIM Inc. and AIM LLC are collectively referred to as the AIM Entities*fn4 ) alleging they were the debtor's alter ego and seeking a determination that their assets be declared property of the bankruptcy estate. The debtor filed a pro se answer to the complaint on behalf of the AIM Entities. The bankruptcy court determined that the debtor, neither an attorney nor a named defendant in the action, did not have standing to defend against the complaint. It therefore struck the answer and entered a default judgment.

The debtor moved to set aside the default judgment but because the debtor again appeared for the AIM Entities, the bankruptcy court determined the debtor had no standing to seek the requested relief. Furthermore, the bankruptcy court found that even if the debtor had standing, there was no excusable neglect that led to the entry of the default judgment or extraordinary circumstances that existed to justify relief. We AFFIRM.

I. FACTS*fn5

Dr. Amr Mohsen (the Debtor)*fn6 filed a chapter 11 bankruptcy petition on February 8, 2005. In the course of the proceedings, funds of the AIM Entities were placed in the debtor-in-possession (DIP) account. The case was converted to chapter 7 on December 22, 2005, and Carol Wu was appointed as the trustee (the Trustee). Upon conversion, the funds in the DIP account remained in the estate pending a determination of their ownership.

On September 26, 2006, the Trustee filed a complaint (Complaint) against Ehab Mohsen, as the trustee of Star Trust, and the AIM Entities. Star Trust was a revocable trust formed by the Debtor in 1982. The Debtor served as trustee until 2004, and funded the trust with real estate in Egypt, stocks, certain partnership or equity interests, and investments. The Debtor revoked the trust in March 2005.

In the Complaint, the Trustee alleged that because the Debtor revoked the Star Trust, its assets became property of the estate. Additionally, the Trustee alleged that the assets of the AIM Entities belonged to the bankruptcy estate under the theory that the AIM Entities were the Debtor's alter ego.*fn7

On November 1, 2006, the Debtor filed, pro se, a Response to Complaint "as settlor of Star Trust, Chair of Board of Directors and Shareholder of AIM, Inc., and shareholder of AIM, LLC." The Debtor denied the allegations that the AIM Entities were his alter ego but admitted that the property of the Star Trust became property of the estate when the trust was revoked. Ehab Moshen, the successor trustee of the Star Trust, also filed an answer admitting the Star Trust property was property of the estate.

In January 2007, the Debtor's bankruptcy counsel filed a motion requesting that the Trustee release from the estate the funds of the AIM Entities to cover legal fees to defend against the Complaint. The bankruptcy court denied the motion because no evidence or authority was provided to support it.

On February 27, 2007, the Trustee filed a motion to strike the answer of the AIM Entities (which was the Response to Complaint filed by the Debtor) and to enter a default against the AIM Entities (the Motion for Default). Acting pro se, the Debtor filed a response, "submitted by the defendants, [the AIM Entities]," which was a motion to reconsider the denial of the release of funds, along with a motion to dismiss the Complaint by summary judgment, or, in the alternative, continue the hearing on the Motion for Default so that the Debtor could find counsel for the AIM Entities (the Motion to Dismiss).

The bankruptcy court held a hearing on the Motion for Default and the Motion to Dismiss on May 3, 2007. The Debtor appeared by telephone "on behalf of [the AIM Entities]" and was able to present a partial argument to the bankruptcy court before the connection was cut off.*fn8 The bankruptcy court, finding that the AIM Entities had not properly answered the Complaint, entered an order on May 8, 2007, granting the Trustee's Motion for Default. It also denied the Debtor's Motion to Dismiss. On June 13, 2007, a default judgment was subsequently entered in favor of the Trustee and against the AIM Entities, declaring that the assets of the AIM ...

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