Leslie v. Ace Gallery N.Y. Corp. (In re Art & Architecture Books of the 21st Century)

Robert Kwan United States Bankruptcy Judge

Chapter 11

MEMORANDUM DECISION AND ORDER ON PLAN AGENT'S MOTION FOR LEAVE TO AMEND SIXTH AMENDED COMPLAINT

Hearing Dates: January 7, 13 and 26, 2021

HEARINGS CONDUCTED REMOTELY BY ZOOM FOR GOVERNMENT

Having considered the Motion of Plaintiff Sam Leslie, Plan Agent ("Plaintiff"), for Leave to Amend Sixth Amended Complaint ("motion") (Docket No. 808), filed on December 10, 2020, the oppositions filed by Defendants 400 South La Brea, LLC, and related parties, Cathay Bank and Douglas Chrismas, the Plaintiff's response, and related supplemental briefs filed by the parties, and the oral arguments of the parties, the court rules as follows.

As a preliminary matter, the court must decide whether Rule 15(a) and/or Rule 16(b) of the Federal Rules of Civil Procedure ("Civil Rules") apply. These rules are made applicable to these adversary proceedings by Federal Rules of Bankruptcy Procedure 7015 and 7016. Generally, a court considers a motion for leave to amend pleadings pursuant to the permissive standard of Civil Rule 15(a). James v. J2 Cloud Services, Inc., No. 2:16-cv-05769 CAS (PJWx), 2019 WL 184330 (C.D. Cal. Jan. 14, 2019), slip op. at *2, citing, Martinez v. Newport Beach City, 125 F.3d 777, 785 (9th Cir. 1997). However, if the court has entered a scheduling order establishing a deadline for amending pleadings, Civil Rule 16(b) applies once the deadline has passed. Id., citing Coleman v. Quaker Oats Co., 232 F.3d 1271, 1294 (9th Cir.2000). This is because once the scheduling order deadline passes, the court must first modify the scheduling order to permit an amendment of pleadings pursuant to Civil Rule 16(b)(4). Id., citing O'Connell & Stevenson, Rutter Group Practice Guide: Federal Civil Procedure Before Trial, California and Ninth Circuit Edition, ¶ 8:1469 (online edition April 2021), citing inter alia, Johnson v. Mammoth Recreations, Inc., 975 F.2d 604, 609 (9th Cir. 1992).

In the motion, Plaintiff also argues that his motion is not even necessary, even though he made it. Motion, Docket No. 808 at 11. Specifically, Plaintiff's argument is as follows: "Further, the recovery of transfers between four and seven years prior to the bankruptcy filing is plead in the Sixth Amended Complaint (which is the reason this Motion is not necessary) because the Plan Agent has plead the applicability of Section 3439 [of the California Civil Code] to the claims asserted against 400 S. La Brea." Id. In explaining this argument, Plaintiff states:

The Sixth Amended Complaint (Docket No. 699) pleads allegations for the recovery of Fraudulent Transfers under California Civil Code Section 3439 in three separate claims for relief. [T]hey are the Second, Third and Fourth Claims for Relief. . . There is no mention in the separately plead Third and Fourth Claims for relief that the recovery of the transfers that the Plan Agent seeks to avoid are limited by the four years. The four years plead are only plead in the Second Claim for relief. . . The claims plead by the Plan Trustee in the Third Claim for Relief are made against the Defendants pursuant to Section 3439.05 of the California Civil Code and the claims in the Fourth Claim for Relief are made pursuant to Section 3439.05 of the California Civil Code. Each of these provisions, respecting the recovery of the very same transfers as are discussed in the Second Claim for Relief are governed as to the limitations' period of California Civil Code Section 3439.09 [which provides for a seven year statute of limitations from the date of the transfer. . . There is no need to permit an amendment to the Sixth Amended Complaint. But the Court may do so, as stated above, by simply changing one word in paragraph 213 so that the Second Claim for Relief is consistent with what is already plead in the Third Claim for Relief and the Fourth Claim for Relief that is found in the Sixth Amended Complaint . . . .

After the status conference in these adversary proceedings on May 29, 2019, the court filed and entered a scheduling order on June 6, 2020 which set a deadline to complete nonexpert fact discovery by January 31, 2020 and expert discovery by April 30, 2020. Docket No. 594 (the "Scheduling Order"). The Scheduling Order, however, did not set a specific deadline for further amending the pleadings. Id. On January 22, 2020, the court filed and entered an amended scheduling order in anticipation of the filing of the Sixth Amended Consolidated Complaint which had been allowed by motion. This amended scheduling order, however, did not set a specific deadline for further amending the pleadings, such as the then soon to be filed Sixth Amended Complaint, but otherwise set deadlines for completing nonexpert witness and expert witness discovery, Docket No. 689. The Scheduling Order was further amended by stipulated schedule extension orders, Docket Nos. 717, 826 and 840, filed on April 9, 2020, December 16, 2020 and January 25, 2021 respectively. Pursuant to the Scheduling Order as further amended, the deadline for nonexpert fact discovery was extended to September 30, 2020, and nonexpert fact discovery is now closed, and the deadline for completion of expert discovery was extended to April 2, 2021. Id. After a further hearing on Plaintiff's motion to further amend the complaint on January 26, 2021, the court further amended the Scheduling Order pending a ruling on Plaintiff's motion to amend as follows: "(a) the deadline for service of expert rebuttal reports is extended from March 2, 2021 to forty-five (45) days following the Court's issuance of a written ruling on the Motions (the "Rebuttal Deadline"); and (b) the deadline for completion of expert witness discovery is continued from April 2, 2021 to thirty (30) days after the Rebuttal Deadline." Docket No. 861.

The reference to "Motions" in this further scheduling order is to Plaintiff's motion to further amend the complaint and Defendants' motion to strike portions of the expert report of Plaintiff's expert, Jennifer Ziegler, Docket No. 805.

On December 10, 2020, Plaintiff filed his motion for leave to amend the Sixth Amended Complaint now before the court, which was ten and one-half months after the court entered the original Scheduling Order now in effect on January 27" id="pa127"> 10/23/12

Check 6913

$137,000.00

02/07/13

Wire

$25,000.00

TOTAL:

$2,328,432.47

71. The Prepetition Rent Transfers that were paid through the conduit of the Ace Museum Account to 400 S. La Brea totaled $3,421,833.74, and were paid almost entirely with funds of the Debtor that were first transferred into the Museum Account, and were then paid to 400 S. La Brea by an Ace Museum check deposited in the Cathay Account. For example, on June 6, 2011, when the account balance in the Museum Account was only $5,328.36, the Debtor wired $126,000 into the Museum Account, thereby permitting a check made out to 400 S. La Brea in the amount of $125,000 to clear the following day. Similarly, on July 18, 2011, when the account balance in the Museum Account was only $3,375.72, the Debtor wired $110,000 into the Museum Account, thereby permitting a check made out to 400 S. La Brea in the amount of $110,000 to clear that same day. These two months are not unique, but rather reflect the standard practice during most months when rent was paid to 400 S. La Brea by an Ace Museum check or wire transfer.

72. By the Petition Date, and within four years of the Petition Date, the Debtor had paid 400 S. La Brea as much as $5,750,266.21 in satisfaction of a third party's lease obligations at a time when the Debtor was insolvent or unable to pay its own bills as they came due, for which the Debtor received no reasonably

equivalent value.

Id., ¶¶ 70-72. These allegations specifically refer to the "Prepetition Rent Transfers," which were described the following manner: "[i]n the four years prior to the Petition Date, 400 S. La Brea had received at least $5,750,266.21 in rent, late fees, and property tax payments, on account of the Museum Lease (the "Prepetition Rent Transfers")." Id., ¶ 70.

Paragraph 210 in the second claim for relief of the fifth amended consolidated complaint alleged that "Plaintiff is informed and believes, and based thereon alleges, each of the Prepetition Rent Transfers of the Debtor's assets that were made to 400 S. La Brea, whether directly or via the conduit of the Museum Account, was made by the Debtor within four years before the Petition Date . . .," therefore, indicating that the actionable transfers were within four years of the petition date of February 19, 2013, and this allegation is also incorporated by reference in the third, fourth, fifth and sixth claims for relief against 400 South La Brea, LLC. Id. The second, third, fourth, first and sixth claims for relief were the only claims for relief against 400 South La Brea based on alleged fraudulent transfers in the fifth amended consolidated complaint.

The above-described circumstances indicate as of the effective date of his appointment on April 6, 2016, Plaintiff knew about alleged prepetition transfers by Debtor to or on behalf of Ace Museum going back at least four years before the petition date, and even earlier, for Plaintiff's counsel, they knew about these transfers based on their preparation and filing of the original and first amended complaints in 2014 and 2015 to avoid and recover the Ace Museum prepetition transfers. According to Plaintiff, not until about October 2020 when his expert, Ms. Ziegler was completing her expert report, did he discover the alleged prepetition transfers by the Debtor to pay rent on the Museum Lease then in Defendant's Chrismas's name before the assignment to Ace Museum in the four to seven year time period before the 2013 petition date, that is, 2006 to 2009 years. Plaintiff's discovery in about October 2020 would be eleven to fourteen years after the transfers themselves in light of a general absolute statute of repose to attack alleged fraudulent transfers of seven years under California Civil Code § 3439.09(c). Also, as discussed above, Plaintiff's discovery in about October 2020 would be four and a half years after he was put on notice of the prospect of these four to seven year transfers before the petition date involving the Museum Lease upon the effective date of his appointment as the plan agent in this bankruptcy case on April 6, 2016 when he took over these adversary proceedings as the successor to the Creditors' Committee based on original and first amended complaints which sought to avoid and recover other prepetition transfers involving the Museum Lease.

Apparently, until about October 2020, Plaintiff and his counsel never considered the possibility of alleged prepetition transfers by Debtor relating to the Museum Lease during the three years immediately before the four prepetition years alleged in the prior complaints. This was despite the fact that when Plaintiff's appointment as the plan agent became effective in April 2016, the original and first amended complaints had already been filed to avoid and recover alleged prepetition fraudulent transfers by Debtor relating to the Museum Lease, that is, seeking to avoid and recover transfers to Ace Museum during the four years before the petition date. Thus, he had information to put him on notice of other potential claims of prepetition fraudulent transfers relating to the Museum Lease, such as the ones that he now seeks to assert in a further amended complaint as to transfers during the four to seven years before the petition date.

Also, after Plaintiff's appointment as the plan agent became effective, he had custody of Debtor's books and records as early as April 2016 when he took over administration of the Debtor's business as the plan agent under the confirmed plan of reorganization. Thus, there was no impediment to Plaintiff to be able to review Debtor's business records to discover other potential prepetition fraudulent transfer claims, such as the ones that he is now trying to bring. Soon after Plaintiff took over administration of Debtor's business in April 2016, within 45-60 days, he had asked his expert witness, Ms. Ziegler, to investigate and analyze Debtor's postpetition transfers as fraudulent transfers, but did not ask her at that time to investigate and analyze the prepetition transfers which had already been alleged as claims in the complaint as amended. Thus, Ms. Ziegler did not investigate and analyze the prepetition transfers during the four to seven year time period before the petition date until she was completing her final expert report for these adversary proceedings in October 2020 because her client, Plaintiff, never asked her to look at the prepetition transfers before then. Docket No. 836 at 10-11.

Only after Ms. Ziegler prepared her final expert report completed on October 30, 2020 did she and Plaintiff discover the information relating to the alleged fraudulent transfers during the four to seven year time period before the petition date. Id.; see Ziegler Final Report, attached as Exhibit 1 to Declaration of Jennifer E. Ziegler, CPA in Support of Motion for Summary Judgment on Plaintiff's Claims for Conversion and Breach of Fiduciary Duty against Defendant Douglas Chrismas, Docket No. 873, filed on February 12, 2021. In her final expert report, Ms. Ziegler concluded that alleged fraudulent transfers by the Debtor to Defendant 400 South La Brea, LLC during the three year period from July 2006 to July 2009 before the Museum Lease was transferred to Ace Museum occurred through payments totaling $5,715,743 from Debtor's bank accounts "traced directly" to 400 South La Brea, LLC's Cathay Bank account #1679, which was accomplished primarily through her analysis of the Debtor's bank records. Id., Ziegler Final Report at 24. In her final expert report, Ms. Ziegler stated that she obtained the Debtor's tax returns and financial information in order to evaluate its financial health before the voluntary bankruptcy filing in 2013 and concluded that based her review of this information that the Debtor was insolvent and not liquid from June 2006 through the petition date of February 19, 2013. Id. at 27-31. Based on these conclusions, Ms. Ziegler opined that Debtor was damaged by these alleged fraudulent transfers to Defendants. Id. at 31-33.

Ms. Ziegler's final expert report of October 30, 2020 is not part of the record on Plaintiff's motion to amend, but the court takes judicial notice of its filing as part of the pleadings relating to Plaintiff's motion for summary judgment on his conversion and breach of fiduciary duty claims against Defendant Douglas Chrismas pursuant to Federal Rule of Evidence 201.

Based on this description of Ms. Ziegler's discovery of the alleged fraudulent transfers by the Debtor to Defendants during the years from 2006 to 2009, it is evident that this discovery was based on information from the Debtor's own books and records, especially Debtor's bank records showing direct transfers to Defendant 400 South La Brea, LLC, and Debtor's tax returns and financial information bearing on solvency, which records were in the control and supervision of Plaintiff when his appointment as the plan agent became effective in April 2016. Thus, at the time of his appointment in 2016, Plaintiff had access to this information for which discovery of the potential fraudulent transfer claims for the 2006 to 2009 time period could have been made, but he and his professionals did not conduct the investigation and forensic analysis to discover these potential claims until the close of nonexpert factual discovery and the deadline for exchange of expert reports was imminent in late 2020. Not only this was four and one half years later after the effective date of his appointment in April 2016, this was also six years after his counsel had filed the original complaint on behalf of his predecessor, the Creditors' Committee, to attack similar prepetition transfers by Debtor to Ace Museum, the assignee of the Museum Lease, filed in November 2014.

As argued by Defendants, Plaintiff had been aware of the prospect of such transfers earlier than October 2020 as he had alleged in the Fifth Amended Complaint filed on November 18, 2018 that rent was paid by the Debtor under the terms of the "Museum Lease" executed on July 20, 2006 to July 2009 to Defendant 400 South La Brea through its checking account with Defendant Cathay Bank, which indicated awareness of the transfers which he now seeks to be alleged as fraudulent. As noted before, as reflected in the first amended complaint filed in 2015, Plaintiff had earlier knowledge of the Museum Lease and the amendment and assignment of the lease by Chrismas to Ace Museum in 2009 detailed the obligations of Chrismas/Ace Museum under the lease to 400 South La Brea, LLC, which required rent payments, which are the subject of Plaintiff's new fraudulent transfer claims. Despite this knowledge, Plaintiff did not act on it by alleging claims based on such transfers at the time the Fifth Amended Complaint was filed in November 2018, and not until two years later when he filed the motion to amend in December 2020, and there is no indication that Plaintiff through his expert witness, Ms. Ziegler, or anyone else on his behalf, was investigating these transfers as potential claims at the time or before Ms. Ziegler was preparing her final expert report in about October 2020.

Defendants argue that the outcome of Plaintiff's motion for leave to further amend the complaint case is controlled by applicable Ninth Circuit authority in Coleman v. Quaker Oats Co., 232 F.3d 1271, 1295 (9th Cir. 2000):

. . . Assuming expert analysis was necessary to assess transfers during the four to seven year period—it does not appear to be necessary in light of the allegations in the Fifth Amended Complaint about these transfers—diligence is measured by when the moving party's expert could have analyzed information suggesting viable claims, not when it actually analyzed the information. The Ninth Circuit's opinion in Coleman is instructive on this point. See Coleman v. Quaker Oats Co., Civ. 96-0828, 1999 WL 34828321 (D. Ariz. Mar. 10, 1999), affirmed Coleman v. Quaker Oats Co., 232 F.3d 1271, 1295 (9th Cir. 2000). In Coleman, three plaintiffs brought Title VII and ADEA claims against their former employer, alleging their termination was the result of disparate treatment on the basis of his age. Coleman, 1999 WL 34828321, at *5-6. Following the close of fact discovery, in response to Defendant's opposition to their summary judgement motion, Coleman for the first time moved to amend his complaint to assert a disparate impact theory of liability, citing new analysis from their statistical expert as the basis for the late amendment. The Court denied the motion under Rule 16, finding that Coleman's failure to amend "surprising" because he had "secured his statistical expert over a year ago" and was "in possession of the statistics in question for months." Id., at *7. The Ninth Circuit affirmed, reiterating the District Court's disbelief for the Plaintiff's failure to amend when their expert could have analyzed the data years earlier. See Coleman, 232 F.3d at 1294-95 ("Despite having hired a statistical expert years before the summary judgment motions and having received the first statistical report noting the disparities between the retention of older and younger employees over a year before filing for summary judgment, the employees had never moved to amend their complaints.").

This case is on all fours with Coleman. Like the Coleman Plaintiffs, the Plan Agent retained forensic experts in this case several years ago and was in possession of discovery reflecting transfers during the four to seven year period since October 2018. Moreover, like the Coleman Plaintiffs, the Plan Agent did not seek to amend its complaint until it was faced with a motion to strike after the close of fact discovery. The Plan Agent's delay in asking its previously retained expert to quantify or analyze documents it has had for two years is not

commensurate with the diligence required under Rule 16. See Johnson, 975 F.2d at 609 ("[C]arelessness is not compatible with a finding of diligence and offers no reason for a grant of relief.").

Docket No. 842 at 6-7.

The court agrees with Defendants' argument that the situation in this case is much like the one in Coleman. In the court's view, Plaintiff had the information which, if he or his professionals had investigated it, would have enabled him to discover the alleged fraudulent transfers involving the Museum Lease to Defendants during the four to seven years before the petition date as of the effective date of his appointment as the plan agent on April 6, 2016, or shortly thereafter, that are the basis of his new claims for which he now seeks further amendment of the complaint four and one-half years later. The court bases its view on the Plaintiff's imputed knowledge of the allegations of the original and first amended complaints filed earlier by his predecessor in interest, the Creditors' Committee, in 2014 and 2015 that had alleged fraudulent transfers totaling over $4 million by the Debtor to or on behalf of Ace Museum occurring within four years before the petition date in 2013, that is, during years 2009 to 2013, the years immediately following the 2006-2009 years in which similar transfers occurred that he now seeks to challenge. These allegations along with the copies of the 2006 Museum Lease and the 2009 lease amendment and assignment to Ace Museum put Plaintiff on notice of the contractual relationships between Chrismas, the original lessee, Ace Museum, his assignee, and 400 South La Brea, LLC, the lessor, and substantial rent obligations under the lease that Chrismas and later Ace Museum were obligated to pay, though the means that either one had were either doubtful or unclear in the 2009 to 2013 years as the original and first amended complaints alleged the insolvency of the then lessee, Ace Museum. Given the potential seven year reach back of the applicable statute of limitations under California Civil Code Section 3439.09(c), the allegations of substantial fraudulent transfers by the Debtor to Ace Museum totaling over $4 million in the 2009 to 2013 year period and the alleged insolvency of Ace Museum during the 2009 to 2013 year period, Plaintiff could have and should have considered potential claims concerning transfers during the preceding three year period between 2006 and 2009 because the original Museum Lease with substantial rent obligations to 400 South La Brea was in effect during that time period, Debtor had been incorporated and was operating during that time period, and Chrismas, Ace Museum's principal, was the lessee during that time period. Apparently, based on Plaintiff's admissions, he never considered the prospect that there were similar transfers by the Debtor to pay the rent obligations under the Museum Lease under the immediately preceding three year time period of years 2006 to 2009 on behalf of Chrismas, then the lessee until October 2020 when his expert, Ms. Ziegler, was completing her final expert report. The signs were there, meaning the information was available to Plaintiff to discover these transfers when his appointment became effective in April 2016, he never inquired or looked for these transfers until four and one half years later. Whatever the reason, Plaintiff simply failed to connect the dots.

Plaintiff was shortsighted in only asking Ms. Ziegler to analyze postpetition transfers by the Debtor when her services were first retained immediately after his appointment in April 2016 and never asking her to analyze the prepetition transfers which had been fulsomely alleged in the original and first amended complaints for the four years before the petition date. If Plaintiff had tasked Ms. Ziegler to analyze the prepetition transfers alleged in the original and first amended complaints filed in 2014 and 2015 when she was first retained in 2021, most likely, she would have discovered the prepetition transfers during the 2006 to 2009 year period earlier than she did in October 2020. For some unknown reason, Plaintiff did not task her to look at all of the transfers alleged in the complaint as amended until she was preparing her final expert report in preparation for trial in late 2020, which is four years after she was retained as his expert.

Meanwhile, the parties have conducted extensive litigation proceedings with discovery now being closed based on the existing allegations of fraudulent transfers only during the four years before the petition without any mention of the transfers during three years immediately preceding that Plaintiff now wants to bring into litigation. See Declaration of Elliot C. Harvey Schatmeyer, Docket No. 830-1 at 2 ("On June 9, 2019, the Court entered a Scheduling Order in this proceeding setting forth deadlines for, among other things, the cut-off for taking fact discovery. The fact discovery cut-off was subsequently extended to September 30, 2020. Between June 6, 2019 and September 30, 2020, the parties have exchanged thousands of documents, served written party and third-party discovery, and deposed 8 witnesses."); Declaration of Brian L. Davidoff, Docket No. 832 at 21 ("The 400 SLB Defendants have conducted discovery and otherwise have been defending this adversary proceeding within the bounds of the allegations contained in the Plan Agent's Sixth Amended Complaint, and the various prior iterations of the Plan Agent's complaint, in which the Plan Agent asserts that 400 SLB received avoidable transfers during only a four-year prepetition period. If the Plan Agent were allowed to add an entirely new three-year pre-petition period in his allegations and pre-petition claims totaling at least $5.58 million, our office, as counsel for the 400 SLB Defendants, and the professionals engaged by the 400 SLB Defendants, will be compelled to engage in new discovery regarding the new allegations."). Such further amendment of the complaint would necessitate modification of the Scheduling Order because discovery would have to be reopened to address the numerous alleged fraudulent transfers totaling over $12 million during this additional three year time period, which would result in substantial additional expenditure for the parties.

Plaintiff's four year delay in discovering the additional alleged fraudulent transfers under these circumstances does not demonstrate diligence in seeking modification of the Scheduling Order to allow further amendment of the complaint since at the effective date of his appointment in April 2016, he had the imputed knowledge to discover the transfers if he or his professionals had investigated the information that they had in their possession and control, that is, the business records of the Debtor, such as Debtor's tax returns and bank records, which Ms. Ziegler had based her analysis leading to the discovery of previously unalleged transfers, as well as the information relating to the 2006 original Museum Lease, and the 2009 lease amendment and assignment. This lengthy delay indicates inexcusable neglect in Plaintiff's investigation and prosecution of these new claims which is incompatible with the diligence required by Civil Rule 16(b)(4). See Johnson v. Mammoth Recreations, Inc., 975 F.2d at 209 (citations omitted). Moreover, Plaintiff's lack of diligence is also shown in that he had actual knowledge of the transfers he now seeks to avoid and recover in a further amended complaint from discovery as reflected in the Fifth Amended Complaint that he filed in November 2018, over two years before he filed his motion to further amend the complaint in December 2020. Pursuant to the existing Scheduling Order, the parties have conducted extensive discovery and pretrial proceedings in reliance on the allegations of the existing complaint relating to alleged fraudulent transfers during the four year period of 2009 to 2013, and the Scheduling Order would have to be modified to permit additional discovery relating to Plaintiff's new claims of numerous alleged fraudulent transfers during an additional three year time period from 2006 to 2009.

Plaintiff's reply to Defendants' oppositions, he argues that the court should allow the amendment of the complaint because it only extends the avoidance period by three years within the seven year statute of limitations under California Civil Code section 3439.09(c) as was allowed in the case of Krasnoff v. Lancaster Baptist Church, 2018 Bankr. LEXIS 19324 (Bankr. C.D. Cal. June 26, 2018). Reply to Oppositions, Docket No. 848 at 18-19. Plaintiff's argument is as follows:

In Krasnoff v. Lancaster Baptist Church, Adv. No. 2:17-ap-10491-ER, the plaintiff initially sought to avoid transfers made to defendants within a seven-year period; but, upon discovering new facts after a failed mediation, the plaintiff moved to amend its complaint to extend the avoidance period by an additional three years, seeking to avoid transfers made within ten years of the petition date. See Krasnoff, 2018 Bankr. LEXIS 19324, at *4. Plaintiff argued, successfully, that there was "no merit to [Defendant]'s contention that the Trustee has not acted diligently in seeking leave to amend the Complaint," because:

The Ninth Circuit decisions finding a lack of diligence by the party seeking leave to amend involve situations in which the party sought to raise new legal theories and/or add new parties to the action. Here, the Trustee does not seek to add new parties or raise new legal theories; the

Trustee seeks only to extend the reach-back period by an additional three years.

Id. at *9 (emphasis added). Given that the Plan Agent similarly seeks only to extend the reach-back period by an additional three years—and makes its motion shortly after receiving, from its expert, actionable facts concerning the three-year period—the Court should grant the Plan Agent's motion in its entirety.

Id. Plaintiff's reliance on Krasnoff v. Lancaster Baptist Church is misplaced because the circumstances of that case are distinguishable because: (1) the trustee seeking the amendment was not bringing in new parties, which is not the situation here, because Defendants 400 South La Brea, LLC, and its principals, and Defendant Cathay Bank, are new parties to the adversary proceedings since they were not parties named in the timely filed original and first amended complaints (i.e., while these defendants were named parties in subsequently filed complaints, they have asserted affirmative defenses in their answers, preserving their rights based on the statute of limitations); and (2) the court in Krasnoff v. Lancaster Baptist Church held that it was inefficient to deny amendment based on lack of diligence under Civil Rule 16 as the trustee could still file another adversary proceeding to prosecute the new claims because the two years statute of limitations under 11 U.S.C. § 546(a), which is not the situation here, as the statute of limitations under 11 U.S.C. § 546(a) expired before these defendants were named parties in these adversary proceedings.

The status of Defendant Chrismas who is not a new party (i.e., as a named defendant in the timely first amended complaint) presents a closer case under the rationale of Krasnoff v. Lancaster Baptist Church. However, the court's observations regarding the lack of diligence still applies as to the assertion of new claims against him, and the two year statute of limitations of 11 U.S.C. §546(a) extended to December 19, 2015 has now expired as to new claims against him based on the 2006-2009 transfers. Plaintiff would have to show that the new claims relate back to the original pleadings under Federal Rule of Civil Procedure 15(c)(1). While as a named defendant in the timely filed first amended complaint, Federal Rule of Civil Procedure 15(c)(1) (C) does not apply to Chrismas; however, Rule 15(c)(1)(B) does, and Plaintiff is unable to show under Rule 15(c)(1)(B) that the amendment asserts a claim that arose out of the conduct, transaction or occurrence, or attempted to be set out, in the original pleadings, the original and first amended complaints, as those pleadings only asserted claims based on alleged fraudulent transfers occurring within four years of the petition date after the incorporation of Ace Museum in 2009. --------

In conclusion, the court determines that plaintiff has not demonstrated that he acted diligently in seeking to amend the complaint to further amend the complaint to add additional fraudulent transfers between four and seven years before the petition date. Furthermore, the court concludes that the addition of these claims would fundamentally alter the nature of this litigation, requiring modification of the Scheduling Order as amended, because discovery would have to be reopened because discovery was only taken based on the existing allegations of the complaint which did not refer in any way to the numerous alleged fraudulent transfers during the new three year time period from 2006 to 2009 to be added to the litigation by the proposed amendment of the complaint.

Accordingly, the court denies Plaintiff's motion for leave to amend the Sixth Amended Complaint for lack of good cause under Federal Rule of Civil Procedure 16(b).

Alternatively, assuming arguendo that Plaintiff is not required to satisfy the standard of Federal Rule of Civil Procedure 16 regarding modification of the pretrial scheduling order, Plaintiff must then satisfy the requirements of Federal Rule of Civil Procedure 15 governing amendment of pleadings. In this instance, Plaintiff's proposed amendment of the Sixth Amended Complaint should be denied as futile because plaintiff cannot meet the requirements of "relation back" rules of Federal Rule of Civil Procedure 15(c)(1)(C). Federal Rules of Civil Procedure 15 and 16 are applicable to this adversary proceeding pursuant to Federal Rules of Bankruptcy Procedure 7015 and 7016.

Plaintiff's proposed pleading, either a Seventh Amended Complaint or a Modified Sixth Amendment Complaint, will amend the claims for intentional and constructive fraudulent transfers and transfer avoidance from four years before the petition date to seven years before the petition date. The allegations of the Sixth Amended Complaint cover, or reach back to, alleged fraudulent transfers within four years before the petition date, or transfers between 2009 and 2013. Plaintiff in the proposed amended complaint seeks to cover additional alleged fraudulent transfers between four and seven years before the petition date, or transfers between 2006 and 2009. The proposed amendment expands the scope of the claims to encompass alleged fraudulent transfers between four and seven years before the petition date rather than within four years of the petition date, and in essence, adds new claims to contest additional alleged fraudulent transfers.

The applicable statutes of limitations for Plaintiff's fraudulent transfer claims are four years from the dates of the alleged constructive fraudulent transfers and up to seven years from the dates of the alleged intentional fraudulent transfers pursuant to California Civil Code §§ 3439.09(a) and (b) and 11 U.S.C. § 544(b). Assuming the date of filing of the proposed amendment causes of action is the date of the filing of the motion on December 10, 2020, the four year and seven year statute of limitations under California Civil Code § 3439.04 would have allowed claims relating to alleged fraudulent transfers to "reach back" to transfers on or after December 10, 2013 and December 10, 2017, not accounting for the effect of 11 U.S.C. § 546(a). California Civil Code § 3439.09(a) and (b). As recognized by the Ninth Circuit Bankruptcy Appellate Panel in In re EPD Investment Co., Ltd., 523 B.R. 680 (9th Cir. BAP 2015), if the applicable state statute of limitations governing the claims had not yet expired on the date that the bankruptcy debtor filed its bankruptcy petition, the trustee's transfer avoidance action could be brought if it was filed with the limitations period set forth in the Bankruptcy Code, namely, 11 U.S.C. § 546(a). A trustee's avoidance action under 11 U.S.C. § 544 is timely if it is commenced within "2 years after the entry of the order for relief." 11 U.S.C. § 546(a)(1)(A). The four year and seven year "reach back" periods under the state statutes of limitations under California Civil Code § 3439.09(a) and (b) are established on the date of the order for relief, or here the petition date of February 19, 2013, and thus, Plaintiff could seek to challenge alleged constructive and intentional fraudulent transfers back to February 19, 2009 and February 19, 2006 respectively, if amendment is permitted under Federal Rule of Civil Procedure 15.

Plaintiff's proposed amended complaint is not being filed within the applicable statute of limitations for the amended avoidance claims contained therein under 11 U.S.C. § 546(a), which requires that avoidance claims under 11 U.S.C. § 544 must be brought within two years of the order for relief, or here, the date on which the Debtor's voluntary petition for relief under Chapter 11 of the Bankruptcy Code was filed, on February 19, 2013. Thus, the two year deadline of 11 U.S.C. § 546(a) was February 19, 2015. Certain parties consented to the extension of the two year statute of limitations to December 19, 2015, but this consent was not given by parties affected by the amendment, including the 400 South La Brea Defendants and Defendant Cathay Bank. Thus, the two year statute of limitations on claims against these parties under 11 U.S.C. §546(a) was February 19, 2015. Plaintiff timely filed the original complaint and first amended complaint before the two year statute of limitations of 11 U.S.C. §546(a) expired on February 19, 2015 in Official Committee of Unsecured Creditors v. Ace Museum, Adv. No. 2:14-ap-01771-RK, on November 26, 2014 and January 22, 2015 respectively.

Plaintiff's motion to allow the filing of a further amended complaint is opposed by the 400 South La Brea Defendants, Defendant Cathay Bank and Defendant Douglas Chrismas, who contend that the proposed amendment should not be allowed pursuant to Federal Rules of Civil Procedure 15 and 16.

The proposed amended complaint is not an amendment as a matter of course, absent written consent of the other parties, Plaintiff must obtain leave of court pursuant to Federal Rule of Civil Procedure 15(a)(2), but as this rule also provides, "[t]he court should freely give leave when justice so requires." "Federal Rule of Civil Procedure 15(c) 'governs when an amended pleading relates back to the date of a timely filed original pleading and is thus itself timely even though it was filed outside an applicable statute of limitations.'" Tate v. United States, No. CV 15-9323-FMO(JFR), 2019 WL 6799107 (C.D. Cal.Sept. 18, 2019), slip op. at *4, citing and quoting, Krupski v. Costa Crociere S.p.A., 560 U.S. 538, 541 (2010). Thus, the proposed amended complaint must "relate back" to a timely pleading within the statute of limitations pursuant to Federal Rule of Civil Procedure 15(c)(1), which provides:

(c)(1) When an Amendment Relates Back. An amendment to a pleading relates back to the date of the original pleading when:

(A) the law that provides the applicable statute of limitations allows relation back;

(B) the amendment asserts a claim or defense that arose out of the conduct or occurrence set out---or attempted to be set out---in the original pleading;

(C) the amendment changes the party or the naming of the party against whom a claim is asserted, if Rule 15(c )(1)(B) is satisfied and if, within the period provided by Rule 4(m) for service of the summons and complaint, the party to be brought in by amendment:

(i) received such notice of the action that it will not be prejudiced in defending the merits; and (ii) knew or should have known that the action would have been brought against it, but for a mistake concerning the proper party's identity.

Federal Rule of Civil Procedure 15(c)(1).

In this case, Plaintiff's proposed amended complaint would have to relate back to the dates of the timely filed pleadings, either the original complaint or the first amended complaint filed in Adv. No. 2:14-ap-01771 RK, before the two year statute of limitations of 11 U.S.C. § 546(a) expired on February 19, 2015. The proposed amended complaint adds new parties and new claims which were not alleged in the original complaint and first amended complaint, that is, the proposed amended complaint adds the 400 South La Brea Defendants and Defendant Cathay Bank as new parties not named in the original complaint and the first amended complaint. Defendant Chrismas is not a new party as he was added as a party in the first amended complaint. The proposed amended complaint adds new claims by expanding the scope of requested relief to cover, or reach back, to additional alleged fraudulent transfers between four and seven years before the petition date, that is, alleged fraudulent transfers between February 19, 2006 and February 19, 2009, which were not alleged in the prior timely complaints.

The court notes that Plaintiff is seeking to reach back and attack transfers that occurred as long as 15 years ago, even though the California statute of repose on attacking actual fraudulent transfers under California Civil Code § 3439.09(c) is only 7 years, and this would only be possible through two year statute of limitations of 11 U.S.C. § 546(a) from the petition date, which establishes the date of the reach back period under the state statute of limitations. Plaintiff needs either a ruling that the proposed amended complaint relates back to the timely filed original or first amended complaint or that the statute of limitations is equitably tolled under the circumstances of this case.

With respect to Plaintiff's constructive fraudulent transfer claims, amendment would be futile as there is an absolute four year statute of limitations measured from the date of the alleged transfers under California Civil Code §3439.09(b). While Plaintiff would have two years from the petition date under 11 U.S.C. §546(a) to assert claims to avoid constructive fraudulent transfers if the applicable state statute of limitations had not expired as to such transfers. The four year limitation of California Civil Code §3439.09(b) would only permit Plaintiff to bring constructive fraudulent transfer claims as to transfers within four years before the petition date, and not earlier transfers as Plaintiff seeks in a further amended complaint.

Plaintiff's argument in his supplemental briefing that contrary to California Civil Code §3439.09(b), he may properly allege claims to avoid constructive fraudulent transfers back to February 19, 2006, seven years before the petition date, on grounds that where a state law fraudulent transfer claim exists on the petition date, the status statute of limitations, including California Civil Code §3439.09(b), cease to have any continued effect, is erroneous. See Docket No. 868 at 8-10. In making this argument, Plaintiff relies upon the opinion of the Ninth Circuit Bankruptcy Appellate Panel in Rund v. Bank of America Corp. (In re EPD Investment Co., LLC), 523 B.R. 680 (9th Cir. BAP 2015), which stated:

Accordingly, we hold that so long as a state-law fraudulent transfer claim exists on the petition date (or the date the order for relief is entered), i.e., the state's applicable repose period governing the action has not yet expired on the petition date (or the order for relief date), the trustee may bring the avoidance action under [11 U.S.C] §544(b) , provided it is filed within the limitations period in [11 U.S.C] §546(a) . The "reach back" period is established on the petition date (or order for relief date) and encompasses all transfers within the relevant period provided by state law.

Id., citing and quoting, In re EPD Investment Co., LLC, 523 B.R. at 692. In making his argument, Plaintiff apparently misreads the quoted passage from EPD Investment because the applicable repose period to avoid constructive fraudulent transfers of four years under California Civil Code § 3439.09(b) had expired as of the petition date as to transfers made more than four years before that date. The BAP's opinion in EPD Investment was quite clear in stating that if the state law statute of limitations on avoiding a transfer had not expired as of the petition date, then the trustee could bring the avoidance action as long as it was within the two year statute of limitations of 11 U.S.C. § 546(a), and the opinion did not say that the state law statute of limitations was to be disregarded if that statute of limitations had expired with respect to earlier transfers as Plaintiff apparently argues.

As to actual fraudulent transfers, there is an absolute seven year statute of limitations measured from the date of the alleged transfers under California Civil Code § 3439.09(a) and (c), and Plaintiff may be potentially able to allege claims based on actual fraudulent transfers within seven years before the petition date. However, since the 400 South La Brea Defendants and Defendant Cathay Bank are newly added defendants not included in the timely filed original complaint and first amended complaint, the stringent requirements of Federal Rule of Civil Procedure 15(c)(1)(C) apply. The proposed claims against them must have arisen out of the conduct alleged in the timely original or first amended complaint, that the new defendants must have received sufficient notice of the original action "within the period provided by [Federal Rule of Civil Procedure] 4(m) for serving of the summons and complaint" so that they will not be prejudiced in defending the claims on the merits and that the new defendants must have known or should have known that "but for a mistake concerning the proper party's identity" they would have been named in the timely filed complaints. As indicated in G.F. Co. v. Pan Ocean Shipping Co., Ltd., 23 F.3d 1498, 1503 (9th Cir. 1994), the purpose of Rule 15(c) is to protect a plaintiff who mistakenly targets the wrong defendant and then discovers after the applicable statute of limitations has run before the discovery of the true identity of the proper party defendant.

The stringent requirements of Federal Rule of Civil Procedure 15(c)(1)(C) are not met as to the 400 South La Brea Defendants and Defendant Cathay Bank because the allegations of the proposed amended complaint do not arise out of the same conduct, transaction or occurrence alleged in the original or first amended complaint and the other conditions of Rule 15(c)(1)(C) pertinent to new parties such as these defendants are not met. The original and the first amended complaints allege that the fraudulent transfers were made by the Debtor to Defendant Ace Museum and Defendant Chrismas within four years of the petition date, primarily consisting of payments to or on behalf of Defendant Ace Museum of approximately $4 million since July 9, 2009, and payments to or on behalf of Defendant Chrismas of at least $69,041.02 within one year of the petition date. First Amended Complaint, ¶ 9-14. However, in the original and first amended complaints, there were no allegations of fraudulent transfers before four years of the petition date. Id. Moreover, in the original complaint or the first amended complaint, there are no allegations of alleged fraudulent transfers involving the 400 South La Brea Defendants or Defendant Cathay Bank as none of these defendants were named as a party defendant in the original or first amended complaints or were referred to in any way in the original or first amended complaints, and thus, the provisions governing relation back of proposed pleadings of Rule 15(c)(1)(C) applicable to these defendants as newly added parties must be met. Specifically, the requirement of Federal Rule of Civil Procedure 15(c)(1)(B) that the amendment asserts a claim or defense that arose out of the conduct or occurrence set out---or attempted to be set out---in the original pleading is not satisfied because the original and first amended complaints do not assert claims relating to alleged fraudulent transfers more than four years before the petition date, and that there is no showing by Plaintiff that within the period provided by Federal Rule of Civil Procedure 4(m) then in effect for service of the summons and complaint, that is, 120 days of the filing of the original and first amended complaints on November 26, 2014 and January 22, 2015, respectively, that the parties to be brought in by amendment, i.e., the 400 South La Brea Defendants and Defendant Cathay Bank had (i) received such notice of the action that they will not be prejudiced in defending the merits; and (ii) knew or should have known that the action would have been brought against them, but for a mistake concerning the proper party's identity.

There is no evidence in the record that within the 120 day time period of Rule 4(m) ending about the end of May 2015, the 400 South La Brea Defendants and Defendant Cathay Bank had received notice of the action against them so that they would not be prejudiced in defending the merits and would have known or should have known that the action would have been brought against them, but for a mistake concerning their identity as proper party defendants. Based on this record, evidence of such a showing is nonexistent because the original and first amended complaint did not allege claims of fraudulent transfers more than four years before the petition date, specifically the prepetition rent transfers, and these defendants were not even named as parties defendant until the Third Amended Complaint for the 400 South La Brea Defendants filed on January 23, 2017 and the Fifth Amended Complaint for Defendant Cathay Bank filed on November 17, 2018. Because the proposed amended complaint does not meet the requirements of Rule 15(c)(1)(C) to relate back to the timely filed original and first amended complaints, the amendment is futile as to the claims asserted against the 400 South La Brea Defendants and Defendant Cathay Bank,

Plaintiff's argument that the amended claims relate back to the original complaint filed on November 26, 2014 is that both the 400 South La Brea Defendants and Defendant Cathay Bank had notice of Debtor's bankruptcy petition and both had suspected that Debtor's transfers to them may be voidable by July 2013, if not sooner. Docket No. 868 at 13-20. In support of this argument, Plaintiff submitted various exhibits including copies of email messages from 2013 between agents or representatives of these defendants showing knowledge of Debtor's bankruptcy petition and requesting information from Debtor's principal, Chrismas, about the source of the rent payments for Debtor's affiliate, Ace Museum, on the lease with 400 South La Brea, Cathay Bank's borrower, and discussing Chrismas's credit history, and copies of postpetition, preconfirmation emails between Debtor's bankruptcy counsel and Chrismas, Debtor's principal, regarding potential avoidance claims against transferees of Debtor's assets. Id. Based on this evidence showing Defendants' knowledge of Debtor's bankruptcy case and suspicions about the source of the rent payments on the Museum Lease by Debtor's affiliate, Ace Museum, Plaintiff argues that further amendment of the complaint should be allowed on grounds that the new claims relate back to the timely filed original complaint:

When taken together, Exhibits A through F demonstrate that no later than July of 2013, both Defendants 400 SLB and Cathay Bank (i.) knew of Debtor's Feb. 19, 2013 voluntary bankruptcy petition and (ii.) doubted the Debtor's ability to make payments so much that Cathay Bank informed Debtor via email on Aug. 9, 2013 that Cathay Bank determined that Debtor's mortgage loan encumbering the 400 SLB property had matured and was already in default. They determined that the situation could only be cured by providing eleven items of reassurance, including financial statements from Ace Museum to show the "repayment source to Debtor's rent payment" and an explanation written by Mr. Chrismas about the bankruptcy matter and its resolution. See Ex. A. Furthermore, Debtor's own bankruptcy counsel had advised him as early as December 2014, if not before, to bring actions against parties who received Debtor's transfers that would be subject to avoidance actions, or to negotiate extended deadlines with these parties—i.e., parties such as Defendants 400 SLB and Cathay Bank.

Accordingly, both defendants 400 SLB and Cathay Bank had adequate notice that they might be subject to avoidance actions beginning no later than August 9, 2013 or before. As stated earlier, the Plan Agent's predecessor filed the Original Complaint in this matter on November 26, 2014. That Defendants 400 SLB and Cathay Bank were not named until the filing of the third and fourth amended complaints in 2017 and 2018, respectively, says nothing about their notice and knowledge as of July 2013 that they may be named in a fraudulent transfer action in connection with the Debtor's February 19, 2013 voluntary bankruptcy petition. Defendants 400 SLB and Cathay Bank thus had more than adequate notice and time to prepare their defense, and the amended claims, including claims 2, 3, 4, 8, 9, and 11 affected by paragraph 213, "relate back" to the original complaint filed in November 2014 under Rule 15(c). See FDIC v. Jackson, 133 F.3d 694, 702 (9th Cir. 1998) ("While it is generally true that an amendment supersedes an original pleading, this Circuit has held that the filing date of an original complaint remains operative for relation-back purposes even where otherwise superseded by amendments.").

Id. at 18-19.

However, the problem with Plaintiff's argument is that it does not address the stringent standard of Federal Rule of Civil Procedure 15(c)(1)(C) for amending pleadings adding new parties, which is not met here as discussed above. That is, Plaintiff has not shown that (1) the proposed amendment asserts claims that arose out of the conduct or occurrence set out---or attempted to be set out---in the original pleadings, i.e., the original and first amended complaints, as the claims reaching back to the four to seven year time period before the petition date would be new, not previously asserted; (2) that the added defendants, 400 South La Brea Defendants and Defendant Cathay Bank, within the period provided by 120 day time period of Federal Rule of Civil Procedure 4(m) for service of the summons and original or first amended complaint, received such notice of the action that they will not be prejudiced in defending the merits; and (3) that they, within the period provided by 120 day time period of Federal Rule of Civil Procedure 4(m) for service of the summons and original or first amended complaint, knew or should have known that the action would have been brought against it, but for a mistake concerning the proper party's identity, as they were not first named or referred to in a complaint until December 2016 for the 400 South La Brea Defendants and until October 2018 for Defendant Cathay Bank, which would be way behind the 120 day time period under Rule 4(m) measured from the filing of the original or first amended complaints in November 2014 and January 2015.

The new claims do not arise from the conduct set forth in the original or first amended complaints. As argued in Cathay Bank's supplemental brief, Docket No. 876 at 10-11:

An amendment asserting a new or changed claim relates back to the date of the original pleading if the amendment "arose out of the conduct, transaction, or occurrence set out . . . in the original pleading." ASARCO, LLC v. Union Pacific R. R. Co., 765 F.3d 999, 1004 (9th Cir. 2014) (quoting Rule 15(c)). To relate back, "the original and amended pleadings [must] share a common core of operative facts so that the adverse party has fair notice of the transaction, occurrence, or conduct called into question." Martell v. Trilogy Ltd., 872 F.2d 322, 325 (9th Cir. 1989). "In the context of avoidance actions, each preferential and fraudulent transaction is treated separately and distinctly, because the proof offered for one transaction does not govern as to another and, as such, relation back cannot be ordered between different transactions merely for being similar or arising from the same conduct." See Sec. Investor Prot. Corp. v. Bernard L. Madoff Inv. Sec. LLC, 594 B.R. 167, 210 (Bankr. S.D.N.Y. 2018) (internal citations and quotation marks omitted); In re M. Fabrikant & Sons, Inc., 480 B.R.

480, 492 (S.D.N.Y. 2012).

The Plan Agent's Brief ignores this issue completely. That is fatal for the proposed amendment. The Original Complaint does not identify any fraudulent transfers arising from rent paid by the Debtor on the 400 SLB property. Nor does it identify (i) the recipient of any purported rent, (ii) the amounts transferred, (iii) the dates on which the transferred occurred, or (iv) any facts suggesting an "intent to hinder, delay, or defraud any creditor," e.g., the factors set forth in Civ. Code § 3439.04(b), on the part of any defendant. The Original Complaint merely alleges that the Debtor made a loan to Ace Museum is several installments post-dating July 9, 2009:

Plaintiff . . . alleges [that] Ace Museum borrowed, or otherwise obtained, from the Debtor, and the Debtor lent, or otherwise provided, to Ace Museum, funds in the aggregate of no less than $4,482,586.00 (the "Loan"), and that Ace Museum became indebted to the Debtor in at least that amount (the "Loan Obligation"). Plaintiff is further informed and believes, and based thereon alleges, that the Loan was provided or made pursuant to one or more transfers of the Debtor's funds from the Debtor to Ace Museum since July 9, 2009 (each, a "Transfer" and, collectively, the "Transfers").

Orig. Compl., ¶ 9. The Original Complaint then asserts several causes of action arising from the unpaid balance of the loan and, in the alternative, that the post-2009 loan advances made to Ace Museum amount to constructive fraudulent transfers under Civ. Code §§ 3439.04(a)(2) and 3439.05. Id., ¶¶ 18-59. However, these allegations are not hooks on which to hang a later amended complaint. The facts in the Original Complaint relate exclusively to the time period after July 9, 2009 whereas the claims in the proposed amendment arise from transfers that pre-date February 19, 2009. In addition, the allegations in the Original Complaint relate to a set of transactions (loan advances) that are entirely distinct from the transactions in the proposed amendment (prepetition rent transfers to 400 S. La Brea LLC). Put simply, there is no common core of operative facts between the Original Pleading and the new claims in the proposed amendment.

Id. The court agrees with Cathay Bank's argument and holds that Plaintiff's amendment as to it and the 400 South La Brea Defendants does not meet the stringent standards of Federal Rule of Civil Procedure 15(c)(1)(B) and (C).

For the foregoing reasons, Plaintiff's motion for leave to amend should be denied because the proposed amended complaint adding new parties and claims is filed after the applicable two year statute of limitations under 11 U.S.C. §546(a) expiring on February 19, 2015 and the claims added by the proposed amended complaint do not relate back to the timely filed original and first amended complaints as required by Federal Rule of Civil Procedure 15(c)(1)(C).

Plaintiff alternatively argues that the two year statute of limitations of 11 U.S.C. §546(a) expiring on February 19, 2015 should be equitably tolled at least to the date of the filing of the motion for leave to amend on December 10, 2020. Plaintiff's Memorandum on the Issue of "Futility", filed on February 8, 2021, at 15-21, citing inter alia, Gladstone v. U.S. Bancorp, 811 F.3d 1133 (9th Cir. 2016) and In re Milby, 545 B.R. 613 (9th Cir. BAP 2016). The Bankruptcy Appellate Panel in Milby recognized that the statute of limitations of 11 U.S.C. §546(a) may be subject to equitable tolling. The Ninth Circuit in Gladstone stated: "Under the equitable tolling doctrine, where a party 'remains in ignorance of [a wrong] without any fault or want of diligence or care on his part, the bar of the statute does not begin to run until the fraud is discovered, though there be no special circumstances or efforts on the party committing the fraud to conceal it from the knowledge of the other party.'" 811 F.3d at 1143. Plaintiff argues that he did not discover the fraud relating to the transfers more than four years before the petition date due to the Debtor's "track record of non-cooperation," not only in discovery in this adversary proceeding, but also, as debtor in possession, when the debtor failed to take legal action on behalf of the bankruptcy estate which indicates the Debtor's history of concealment and refusal to produce relevant information. Plaintiff's Memorandum on the Issue of "Futility", filed on February 8, 2021, at 19. In referring to Debtor, Plaintiff apparently meant the Debtor as controlled by Defendant Chrismas while the Debtor was in possession during the preconfirmation phase of this bankruptcy case until the plan effective date on April 6, 2016. Plaintiff further argues that he did not discover the Debtor's prepetition insolvency beginning from at least February 19, 2006 through February 19, 2013, the petition date, until after the completion of the expert report of his expert witness, Ms. Ziegler, on or about October 30, 2020. Id. at 21; Plaintiff's Response to Oppositions, filed on December 31, 2020, at 6. According to Plaintiff, he had engaged Ms. Ziegler, a forensic accountant, to examine Debtor's postpetition transfers within 45-60 days of his taking over the operations of the Debtor pursuant to the confirmed plan of reorganization on April 6, 2016. Plaintiff's Response to Oppositions, filed on December 31, 2020, at 6.

The court determines that based on this record, equitable tolling of the two year statute of limitations under 11 U.S.C. § 546(a) to December 10, 2020 is not appropriate to allow the filing of the proposed amended complaint. The two year statute of limitations of 11 U.S.C. § 546(a) measured from the petition date of February 10, 2013 expired on February 10, 2015, and based on the allegations of fraud against Defendant Chrismas who was in control of the Debtor during the preconfirmation phase of this bankruptcy case through the plan effective date, April 6, 2016, Plaintiff can make a reasonable argument for equitable tolling through April 6, 2016, the date when his appointment as the plan agent became effective, and prior to that, according to Plaintiff, Defendant Chrismas was supervising the Debtor during the preconfirmation phase of this bankruptcy case, which concealed and refused to produce relevant information to Plaintiff's predecessor, the Creditors' Committee. Docket No. 868 at 24-26. Assuming arguendo that based on Debtor's preconfirmation concealment and refusal to produce relevant information with the Creditors' Committee, equitable tolling was appropriate until the effective date of Plaintiff's appointment on April 6, 2016, equitable tolling is not appropriate afterwards through October 30, 2020 when his expert, Ms. Ziegler, completed her report as Plaintiff could have discovered the alleged fraudulent transfers between four and seven years before the petition date within a reasonable time after he took over Debtor's operations on April 6, 2016. Around that time, or at least within 45-60 days, Plaintiff had engaged Ms. Ziegler to examine Debtor's postpetition transfers, and he could have at the same time asked her to examine its prepetition transfers instead of waiting years later to ask her as part of her preparation of a final expert report for trial in these adversary proceedings. When Plaintiff took over Debtor's operations on April 6, 2016, Defendant Chrismas was ousted from control of Debtor's operations, and Plaintiff had access to Debtor's business records and could have with diligence discovered the alleged fraudulent transfers between four and seven years before the petition date at least within two years of his taking over Debtor's business operations, or by April 6, 2018. From the timely filed original and first amended complaints filed by Plaintiff's predecessor in interest, the Official Committee of Unsecured Creditors, Plaintiff must have been aware of the allegations of fraudulent transfers by Debtor to, or on behalf of, Ace Museum made within four years before the petition as alleged in those pleadings. As alleged in the first amended complaint, Plaintiff's predecessor in interest had alleged that Ace Museum had leased premises from Defendant 400 South La Brea, LLC, in 2009, and there is no explanation why Plaintiff did not investigate Debtor's transfers before then because the lease of the museum premises preexisted 2009. Plaintiff's reason for not doing so is that he did not ask his expert to look into such transfers until she was preparing her final report in 2020, but he has not provided a reasonable explanation why he could not have discovered such transfers earlier since he took over the business operations and records of the Debtor in April 2016, had engaged Ms. Ziegler as his expert shortly thereafter, and Defendant Chrismas was no longer an impediment to discovery of the Debtor's books and records.

Accordingly, the court determines that equitable tolling is not available to allow the filing of the proposed complaint amending the Sixth Amended Complaint.

For the foregoing reasons, the court denies the Plan Agent's motion for leave to amend the Sixth Amended Complaint.

IT IS SO ORDERED.

###

Date: May 5, 2021

/s/_________

Robert Kwan

United States Bankruptcy Judge

Id. at 15-18. In essence, the argument is that the Third and Fourth Claims for Relief are not subject to the limitation of the Second Claim for Relief which expressly alleges fraudulent transfers within four years of the petition date in paragraph 213 and may utilize the entire seven year period before the petition date under California Civil Code Section 3439.09. The argument is flawed because: (1) the Third and Fourth Claims for Relief are subject to the same pleading limitation of four years as the Second Claim for Relief because those claims incorporate by reference paragraph 213 which specifically alleges actionable transfers only within four years of the petition date; and (2) constructive fraudulent transfers are subject to an absolute statute of limitations of four years of the transfers under California Civil Code Section 3439.09. There is no need to permit amendment based on this argument, and the court declines to do so.

Opposition at 14.