[00:00:00] Speaker 03:
Good morning counsel How much time if anyone would you like to reserve for a reply?

[00:00:05] Speaker 00:
I'd like to reserve four minutes your honor one minutes excellent.

[00:00:08] Speaker 00:
Yes, you may proceed Thank you, and may it please the courts.

[00:00:12] Speaker 00:
This is a case of Can you move a little bit more to the mic?

[00:00:18] Speaker 00:
Yeah, thank you.

[00:00:19] Speaker 00:
We're asking this court to overturn that trial courts denial of our motion to set aside a default and

[00:00:27] Speaker 00:
And for the test here, of course, is abuse of discretion.

[00:00:35] Speaker 03:
That raises an interesting point.

[00:00:38] Speaker 03:
What exactly are you asking for a reversal?

[00:00:42] Speaker 00:
Correct.

[00:00:43] Speaker 00:
Of our motion to set aside the default judgment, Your Honor.

[00:00:46] Speaker 03:
Okay.

[00:00:46] Speaker 03:
Not remand.

[00:00:49] Speaker 00:
Well, it would have to be remanded back so that we can basically litigate the matter at that point.

[00:00:53] Speaker 00:
Okay.

[00:00:53] Speaker 03:
That's why I want to clarify.

[00:00:54] Speaker 00:
Correct.

[00:00:57] Speaker 00:
Reversal based on abuse of discretion is appropriate when the trial court's application of the legal standard was illogical and plausible or without support or inferences that can be drawn from the facts on the record, and that's United States v. Aguilar.

[00:01:14] Speaker 00:
So the critical issue here, and I'm not gonna spend time on the issue of the service of process, what I'm focusing on is whether or not there was excusable neglect by the home association

[00:01:27] Speaker 00:
Not timely filing an answer to the adversary proceeding now if you look at the the record your honor your honors the Indicate indications were that there was a receiver the receiver under power of state courts appointed himself or as a member that a sole member of the board of directors and

[00:01:55] Speaker 00:
And then the receiver went on and represented to the state court that as of May 2024, he had removed himself from the member of the board of directors and he had caused appointment of board of directors members who were represented by the buyer of the property.

[00:02:21] Speaker 00:
The property was sold for $31.5 million.

[00:02:26] Speaker 00:
That is a representation he made to the state court.

[00:02:29] Speaker 00:
However, what happened along the way is Mr. Maher, counsel for the trustee, noticed these loans that were made or advances or transfers that were made by the receivership estate to the Home Association.

[00:02:52] Speaker 00:
And correspondence was sent.

[00:02:55] Speaker 00:
by counsel for the trustee, counsel for the receiver on September 10th, and that's ER 13.

[00:03:06] Speaker 00:
An email was sent to the receiver advising the receiver that those funds had to be turned over and that the receiver may want to consider getting an attorney because the next step would be a lawsuit.

[00:03:19] Speaker 00:
That's ER 13.

[00:03:22] Speaker 00:
Now, apparently what happened is

[00:03:25] Speaker 00:
Well, first of all, the receiver refused to do so.

[00:03:29] Speaker 00:
And then, interestingly, about a week or so after that incident, even though he had represented to the state court that he is now out of the board of directors, and there's an independent board of directors appointed, even though he had represented that to the state court, he was still not discharged as a receiver.

[00:03:50] Speaker 00:
So he, under color of the order,

[00:03:54] Speaker 00:
that had appointed him as receiver, he went back to the HOA and he tried to appoint his own members of the board of directors without an election.

[00:04:06] Speaker 00:
I can speculate that this was because after he received the email from counsel for the trustee, he was a little worried.

[00:04:13] Speaker 00:
Maybe he was trying to go back to the HOA and cause the HOA to give them money back rather than to protect himself personally.

[00:04:20] Speaker 00:
We can speculate as to that.

[00:04:22] Speaker 00:
But what happened is, and this is ER 23 and 32, he went back.

[00:04:28] Speaker 00:
And even though he had represented the state court that the board of directors are now independent and he's gone and he's out of it, he went back and tried to appoint his own new disputed directors.

[00:04:40] Speaker 00:
And that threw a monkey wrench into the ability of the HOA

[00:04:44] Speaker 04:
I'm a little confused by this or I question it.

[00:04:48] Speaker 04:
Okay, you have a deadlock.

[00:04:49] Speaker 04:
You've got these sort of two sets of directors, okay, but How is that a deadlock in?

[00:04:58] Speaker 04:
Appearing in the litigation some way, you know either side Could have said somebody's contesting whether we're the parties that can do this, but we're we're letting you know we're answering

[00:05:10] Speaker 04:
I mean, I don't see, I can see there's a deadlock in connection with the director's ability to operate.

[00:05:18] Speaker 04:
I don't see that there would be any deadlock for either side or both responding to the complaint.

[00:05:27] Speaker 03:
Or even if I can add on that a little bit.

[00:05:30] Speaker 03:
In January 2024, Mr. Morrow offered a stipulation to extend the time to, I believe, a lawyer in your firm, Mr. Silva,

[00:05:39] Speaker 03:
And that was never responded to.

[00:05:43] Speaker 03:
Correct.

[00:05:44] Speaker 03:
So you're telling me that the two boards could not agree between them.

[00:05:48] Speaker 03:
It was impossible as a matter of law for them to simply agree to stipulate to the extension of time to answer the complaint and avoid default.

[00:05:57] Speaker 00:
But for the record, I'm not part of Mr. Silva's law firm.

[00:05:59] Speaker 00:
I'm specially appearing.

[00:06:01] Speaker 00:
I was asked to do the oral arguments.

[00:06:03] Speaker 00:
And to respond to that, actually, Your Honor, this would have required

[00:06:07] Speaker 00:
Signing a retainer agreement because as we all know a corporate entity cannot appear without counsel And I can cite the local rules, but we all know that and that would require budgeting and retaining counsel And if why why is that their problem?

[00:06:24] Speaker 03:
Why is that the trustees problem?

[00:06:26] Speaker 00:
it is Not the trustees problem per se it is a legal impossibility for the board to act, but they did nothing

[00:06:36] Speaker 04:
Couldn't either side, either board members come back and deal with the trustee and say, yes, we're going to answer your lawsuit, but we're trying to figure out which board of directors should answer it?

[00:06:49] Speaker 04:
I mean, some response, especially when the trustee was willing to give an extension.

[00:06:54] Speaker 04:
I mean, we're looking here to see whether or not it's unreasonable under these circumstances.

[00:07:01] Speaker 04:
In this case, isn't it unreasonable that they did nothing?

[00:07:05] Speaker 04:
Either side?

[00:07:06] Speaker 00:
It would be unreasonable if they had the ability to.

[00:07:09] Speaker 04:
But either side could have said, as the board of directors, you need for a corporation, you need to have counsel to appear in action.

[00:07:18] Speaker 04:
But you can have a corporation respond to trustees say, we're working on getting counsel so that we can respond.

[00:07:27] Speaker 04:
You had a trustee that was willing to give an extension, but there was no response to it.

[00:07:32] Speaker 04:
I mean, doesn't that

[00:07:33] Speaker 04:
provide a substantial enough basis for the court to conclude that the failure to answer was unreasonable?

[00:07:41] Speaker 00:
The failure to answer would have been unreasonable if the board of directors was willing to authorize that.

[00:07:48] Speaker 00:
It appears that the board of directors from the receiver's side was not interested in defending this because the receiver was worried about personal liability.

[00:07:59] Speaker 03:
Again, that seems to be sympathetic to the concern.

[00:08:04] Speaker 03:
Not sure why that gives you from December until June to actually solve that because the boards were able to solve it by that point.

[00:08:16] Speaker 03:
Actually a little bit before then because they, Mr. Silva called up and asked for the default to be removed.

[00:08:25] Speaker 00:
He did.

[00:08:25] Speaker 00:
Mr. Silva did ask to have the default be removed.

[00:08:28] Speaker 03:
And there was enough ability for Mr. Silva to have discussions in November, December, January with the trustee, right?

[00:08:36] Speaker 00:
Correct.

[00:08:37] Speaker 00:
So from what we are putting together, Mr. Silva could have asked for this default to be set aside.

[00:08:45] Speaker 00:
But a stipulation cannot be entered.

[00:08:47] Speaker 03:
Well, you're parsing that pretty fine.

[00:08:50] Speaker 03:
Because he had enough authority to act on a board, the board's behalf.

[00:08:57] Speaker 00:
Only to make a request, but not to appear in court.

[00:08:59] Speaker 03:
Yeah.

[00:09:00] Speaker 00:
The court appearance is altogether different than asking the trustee to set aside.

[00:09:05] Speaker 04:
But if that was the problem, he could have responded and said,

[00:09:10] Speaker 04:
I have a problem with the board of directors and who can respond here.

[00:09:15] Speaker 04:
Give me some more time to be able to figure it out with the directors.

[00:09:18] Speaker 04:
We are going to respond.

[00:09:20] Speaker 04:
We can't do it now.

[00:09:21] Speaker 00:
And he did attempt that in December 31st.

[00:09:24] Speaker 00:
He sent an email saying, I'll try to clarify everything next week.

[00:09:29] Speaker 00:
And this was after December 15th.

[00:09:32] Speaker 00:
The old management company was terminated or dismissed or resigned.

[00:09:37] Speaker 00:
That was December 15th of 2024.

[00:09:39] Speaker 00:
In December 31st, Mr. Silva said, I'll try to clarify everything next week.

[00:09:45] Speaker 00:
But the actual new management company was not picked until January 31st, and authorization to retain counsel

[00:09:57] Speaker 00:
First of all, the new board wasn't appointed until August.

[00:10:00] Speaker 00:
Elections were not held until August of 2025.

[00:10:04] Speaker 05:
But counsel, all of this is about the machinations and the problems within the board itself.

[00:10:10] Speaker 05:
None of it was communicated to the bankruptcy court.

[00:10:13] Speaker 05:
Nobody filed anything in the court to say there's an issue here, we have a problem, we need more time, give us more time.

[00:10:22] Speaker 05:
Why does the court care if there are internal problems?

[00:10:26] Speaker 05:
and you can't resolve it amongst yourselves, file something with the court, inform the court that there's an issue, ask for some relief, nothing happens.

[00:10:36] Speaker 05:
And so what you're saying is, as long as it's confusing, and as long as we can't act, and as long as we're not sure who's gonna pay the lawyer, then we don't have to do anything, and that's excusable neglect.

[00:10:48] Speaker 00:
Well, what I'm saying is where, as a matter of law, authority that governs the HOA,

[00:10:55] Speaker 03:
Authority is not granted to retain counsel They both they both had an obligation to act in the best interest of the entity that they were purporting to serve correct in Theory that is correct.

[00:11:06] Speaker 03:
No that a board if you are purporting to be a board You're representing the entity on which you are a board of correct.

[00:11:12] Speaker 00:
That is correct.

[00:11:13] Speaker 03:
Yes, all right I just have a hard time to believe in in furtherance of that.

[00:11:18] Speaker 03:
There was an inability to just stipulate That somebody can say we need more time

[00:11:25] Speaker 03:
And that seems to be, the problem is Judge Gansing, that seems to be the HOA's problem.

[00:11:31] Speaker 03:
They didn't do it.

[00:11:33] Speaker 03:
They chose to fight.

[00:11:34] Speaker 03:
And that was a choice.

[00:11:35] Speaker 03:
It didn't make it impossible.

[00:11:37] Speaker 00:
It was not a choice, Your Honor.

[00:11:39] Speaker 00:
If it had been a choice, then the trustee's position would be absolutely correct.

[00:11:43] Speaker 00:
But when you're barred from acting because you have a receiver who is throwing a monkey wrench in the process, it's almost as if

[00:11:50] Speaker 00:
somebody's blocking you from going to the courthouse.

[00:11:52] Speaker 04:
Let's say there is confusion.

[00:11:55] Speaker 04:
The board of directors are confused and there is confusion there.

[00:11:59] Speaker 04:
But ultimately, the decision is whether or not the trial, the bankruptcy judge, abused the discretion in making the decision.

[00:12:08] Speaker 04:
So it seems like you're asking us to weigh the facts again.

[00:12:12] Speaker 04:
Was the confusion enough to meet the standard of excusable neglect?

[00:12:18] Speaker 04:
And isn't that a factual question?

[00:12:20] Speaker 04:
And so we need to look to see whether or not the bankruptcy judge abused the discretion.

[00:12:29] Speaker 00:
It is a question of when, due to the interference by a third party receiver, the board is blocked.

[00:12:39] Speaker 00:
Then it's almost a situation where somebody's stopping you from going to the courthouse and that's excusable neglect.

[00:12:44] Speaker 00:
When you're physically barred or legally barred from filing a responsive pleading, that's excusable neglect.

[00:12:50] Speaker 00:
It is not very different from some

[00:12:53] Speaker 03:
Third party intentionally blocking access to the business isn't your relief against the entity that created that block I mean, that's an internal imposed blockage by your By your construct By a third party great and you got cause of action against the third party then and they're not in bankruptcy No, we don't that's an interesting question, but

[00:13:16] Speaker 04:
if it causes if it causes if somebody blocks me from going to the physical courthouse if you block yourself is really what's happening yeah i i don't i don't see the block because even if there's you acknowledge that there's a dispute uh... that somebody disputes your ability to file a notice of appearance or act on behalf of the board somebody disputes that you can say so he disputes it but i've got to take action because i claim that we do have a well

[00:13:42] Speaker 00:
The members the board of directors are distinct from the entity itself so corporate entities of course legal fiction for the shareholders member the board directors Officers are you think they could think you're about it a minute.

[00:13:55] Speaker 01:
I just want to point yes what I reserve whatever I've got sure one thing thank you Good morning, please the court the panels focused on them

[00:14:09] Speaker 01:
the issues I've been concerned about, and I'm not going to add anything.

[00:14:16] Speaker 01:
I can talk about the receiver if the panel wants.

[00:14:19] Speaker 03:
Really, it's a question of impossibility that the HOAs continue to raise.

[00:14:27] Speaker 03:
If you want to take a swing at that, it'd be interesting hearing.

[00:14:36] Speaker 01:
You know, the standard of excusable neglect is a little bit murky.

[00:14:44] Speaker 01:
I just don't buy the impossibility.

[00:14:48] Speaker 01:
I don't remember what's in the record about what was going on internally with the HOA, other than conclusory statements that were made that there was some problem with the receiver coming back

[00:15:03] Speaker 01:
Life after four or five months I don't know what happened between May of 2024 and October of 2024 when the receiver reappears the the the Owners who constituted the members of the hoa at least equity excuse me equitably were aware that the receiver was trying to close up shop and

[00:15:31] Speaker 01:
They had they had notice that he had filed his application for discharge in his final report And they had a claim against him.

[00:15:41] Speaker 01:
They could have done something about it.

[00:15:43] Speaker 01:
They never did I Mean of course I always like to mitigate my damages if I can we made claims against the receiver and

[00:15:52] Speaker 01:
Because I think under the receivership orders, he wasn't authorized to advance huge sums of money that belonged to the bankruptcy estate at that time to these HOAs without any means of those being repaid.

[00:16:11] Speaker 01:
And I just, you know, you and your spouse are getting divorced and somebody sues you for a personal injury.

[00:16:23] Speaker 01:
And you can't answer the complaint because you can't decide on who the lawyer should be.

[00:16:28] Speaker 01:
That's sort of a comparable situation.

[00:16:32] Speaker 01:
And so it just doesn't rise to excusable neglect.

[00:16:36] Speaker 01:
They knew what they were doing.

[00:16:39] Speaker 01:
And as the record shows, I really sort of bent over backwards to help them out.

[00:16:45] Speaker 01:
And I got no response, or I don't know yet.

[00:16:50] Speaker 01:
I'll tell you next week.

[00:16:53] Speaker 01:
You know, there was an exchange on January 6th.

[00:16:57] Speaker 01:
There was, you know, an email I sent on January 9.

[00:17:00] Speaker 01:
I'm looking bad.

[00:17:02] Speaker 01:
I can't put off filing a request for default any longer.

[00:17:06] Speaker 01:
You're forcing me to file it.

[00:17:08] Speaker 01:
And four days later, I did.

[00:17:10] Speaker 01:
So I just, I think this internal disarray is just not very compelling at all.

[00:17:19] Speaker 05:
in view of the fact that they had service adequate service of the complaint from the very beginning and all you did was extend time and give them more chances and i never correct and they had two weeks advanced notice of the complaint was going to be filed well things what when you read that the briefing i just want to make sure i understand

[00:17:38] Speaker 03:
You know there's a dispute about the adequacy of service and it breaks down mainly as to the change in the Registration will put that aside my understanding it is that you served the master hoa to The chief executive officer as well is that correct isn't that sufficient service.

[00:17:57] Speaker 03:
Yes, it is fine Yeah, I'd be interested if you want to take up the mantle of the meritorious defense as well I

[00:18:06] Speaker 01:
Well, I didn't see that they had really articulated a meritorious defense.

[00:18:12] Speaker 01:
I mean, the money hadn't received and the two common count claims, there's the unauthorized post-petition transfers, and then there's fraudulent conveyance.

[00:18:27] Speaker 01:
And so to fraudulent conveyance, there really aren't that many defenses.

[00:18:32] Speaker 01:
One, I didn't get the money.

[00:18:33] Speaker 01:
I don't know it for some other reason why gave consideration.

[00:18:38] Speaker 01:
I gave consideration I you know I was a creditor and so there's none of that.

[00:18:43] Speaker 01:
It's all one The receiver shouldn't have given us the money.

[00:18:49] Speaker 01:
There's never a representation that the hoa's didn't get the money and then this these hoa assessment lanes against the owner of another condominium building and the development and

[00:19:03] Speaker 01:
And those were clearly in favor of the master HOA.

[00:19:06] Speaker 01:
And there's been a suggestion that somehow the bankruptcy estate was entitled to enjoy those assessments if they had been collected or if they were collected.

[00:19:19] Speaker 01:
They weren't collected and not in the record.

[00:19:24] Speaker 01:
are the CCNRs from the development.

[00:19:27] Speaker 01:
And the CCNRs clearly provide that a prior data trust trumps a subsequent assessment link.

[00:19:35] Speaker 03:
So the relationship between the two buildings and the estate and building A and the assessments, that's a subset of

[00:19:45] Speaker 03:
That can't, that, the record isn't clear if that is the full $700,000 sub-sum set.

[00:19:52] Speaker 03:
You know, the only reference that I saw was the initial order on the receiver to allow to pay, that was like 150, and that arguably was, but there's no number attached to this question about the assessments to building A, is there?

[00:20:08] Speaker 01:
There are, I think the notices of assessment

[00:20:11] Speaker 01:
Are in the record?

[00:20:12] Speaker 01:
I don't remember what the pages are but there's a notice of assessment from sometime in the summer of 2023 and then a notice of sale in January of 2024 they're in the record it is Is it your belief or understanding position that those assessments cover the full 700 no, okay?

[00:20:33] Speaker 01:
That's what no clearly do not.

[00:20:34] Speaker 01:
Thank you and and and Buildings B and C the ones who were owned by the bankruptcy estate

[00:20:40] Speaker 01:
were current on their HOA dues.

[00:20:45] Speaker 02:
OK.

[00:20:45] Speaker 02:
Anything else?

[00:20:46] Speaker 02:
No.

[00:20:46] Speaker 02:
Any other questions?

[00:20:48] Speaker 02:
No.

[00:20:48] Speaker 02:
Thank you very much.

[00:21:01] Speaker 00:
May I?

[00:21:01] Speaker 00:
Thank you.

[00:21:03] Speaker 00:
Regarding the mandatory defense, there is a defensive waiver because the trustee had notice of these monies being gone out.

[00:21:13] Speaker 00:
We believe that the HOA is entitled to at least some kind of a set off because it cannot be disputed that when the entire complex conditions were improved, that increased the desirability of buildings B and C, which then sold for $31.5 million.

[00:21:31] Speaker 00:
There was clearly a benefit to this state.

[00:21:35] Speaker 00:
So at least those equitable defenses and of course latches as well.

[00:21:39] Speaker 00:
So there are meritorious defenses.

[00:21:42] Speaker 00:
Counsel's argument about a husband and wife being sued and then neither of them decide because they're going through a divorce is inaccurate because a husband could file a separate answer and the wife could file a separate answer.

[00:21:54] Speaker 00:
But this situation is more like a third party

[00:21:58] Speaker 00:
not legally, but physically, but legally obstructing access to the courthouse.

[00:22:04] Speaker 00:
We knew if the receiver was blocking, physically blocking, we would have relief, and I think the legally blocking is no different.

[00:22:14] Speaker 00:
And that's it, Your Honors, thank you.

[00:22:16] Speaker 00:
Thank you very much.

[00:22:17] Speaker 00:
Thank you very much.

[00:22:18] Speaker 03:
In those who have any questions, I'll conclude the argument.

[00:22:20] Speaker 03:
The matter will be submitted.

[00:22:22] Speaker 03:
We will try to get out of the decision as fast as possible.