Moshe Mortner, Esq.

Mortner Law Office, PC

130 William Street, 5th Floor
New York, NY 10038
2 Telephone 646-783-7544
mm@mortnerlaw.com
3
Attorney for Debtor
4 Lenny K. Dykstra

5 (Pro Hac Vice Application Sub Judice)

6 UNITED STATES BANKRUPTCY COURT
CENTRAL DISTRICT OF CALIFORNIA
7 SAN FERNANDO VALLEY DIVISION
8
In re CASE NO.: 1:09-bk-18409-GM
9
Chapter 7
10
LEY KYLE DYKSTRA, OTICE OF MOTIO; AD
11

12 DEBTOR’S MOTIO FOR ORDER FOR

TRUSTEE TO SHOW CAUSE WHY A
13 Debtor. ORDER SHOULD OT BE ISSUED
REMOVIG TRUSTEE FOR CAUSE
14 UDER BAKRUPTCY CODE 324, AD
MEMORADUM OF POITS AD
15 AUTHORITIES; AD
16
DECLARATIO OF MOSHE MORTER
17 I SUPPORT

18 Date: August 6, 2010

Time: 10:00 a.m.
19 Ctrm: 303
20

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 Table of Contents
I. TABLE OF LEGAL AUTHORITIES.................................................................................... 3

2 II. OTICE .................................................................................................................................... 5

3
III. MOTIO................................................................................................................................... 7
4

5 A. PRELIMINARY STATEMENT............................................................................................ 7

6 B. STATEMENT OF FACTS .................................................................................................... 8

7 1. Appointment of Arturo Cisneros as Trustee ...................................................................... 8

8 2. The Trustee’s Failure to Disclose Connections with Creditor JP Morgan Chase in his

9 Verified Statement of Disinterestedness ................................................................................................. 9

10 C. MEMORANDUM OF LEGAL AUTHORITIES ................................................................ 11

11 1. The Disinterestedness Requirement for Trustee to be Eligible to Serve ..................... 11

12 2. Removal of Trustee Under 11 USC § 324(a) .............................................................. 12
13 3. The Ninth Circuit’s “Totality-of-Circumstances Approach” to § 324 “Cause”.......... 13
14
a. Trustee’s Ongoing Representation of Creditor ......................................................... 14
15
b. Trustee’s Representation of Creditor as an “Institutional Client” .......................... 15
16
c. Trustee’s Review of Creditor’s Claim ....................................................................... 16
17
d. Trustee’s Abuse of Professional Confidence ............................................................ 17
18
e. Trustee’s Failure to Disclose Connections ............................................................... 17
19
f. Trustee’s Appearance of Impropriety ........................................................................ 18
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4. Forfeiture of the Trustee’s Fees is Appropriate .......................................................... 19
21
D. CONCLUSION.................................................................................................................... 21
22
23 IV. DECLARATIO OF MOSHE MORTER........................................................................ 22

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V. PROPOSESD ORDER TO SHOW CAUSE ........................................................................ 24
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 I. TABLE OF LEGAL AUTHORITIES

CASES

2 AFI Holding, Inc., 530 F.3d 832 (9th Cir. 2008) ....................................................................... passim
3
Brooks v. United States, 127 F.3d 1192, 1193 (9th Cir.1997)......................................................... 12
4
Chugach Elec. Ass'n v. U.S. Dist. Ct., 370 F.2d 441, 442-43 (9th Cir.1966) .................................. 17
5
Fondiller v. Robinson (In re Fondiller), 15 B.R. 890, 892 (9th Cir. BAP 1981) appeal dism., 707
6
F.2d 441 (9th Cir. 1983) .............................................................................................................. 16
7

8 Gross v. Russo (In re Russo), 18 B.R. 257, 270-71 (Bankr.E.D.N.Y.1982) ................................... 12

9 In re Congoleum Corp., 03-51524 (D.N.J. Feb. 7, 2006)................................................................ 20

10 In re EToys, Inc., 331 B.R. 176 (D. Del. 2005) ............................................................................... 20

11
In re Freeport Italian Bakery, Inc., 340 F.2d 50, 54 (2d Cir.1965) ................................................ 13
12
In re Haldeman Pipe & Supply Co., 417 F.2d 1302, 1304 (9th Cir.1969) ...................................... 17
13
In re Hammer, BAP No. WW-06-1373-MoDJ, (9th Cir. Bankr. Appeals Panel Aug. 17, 2007) .. 15,
14

15 16, 19, 20

16 In re Leslie Fay Cos., Inc., 175 B.R. 525, 539. (Bankr.S.D.N.Y.1994) .............................. 14, 15, 20
17 In re Martin, 817 F.2d 175, 180-81 (1st Cir. 1987) ........................................................................ 18
18 In re Paolino, 80 B.R. 341, 345 (Bankr.E.D.Pa.1987) .................................................................... 18
19
In re Vebeliunas, 231 B.R. 181, 191-92 (Bankr.S.D.N.Y.1999) ..................................................... 18
20
In re West Delta Oil Co., Inc., 432 F.3d 347, 355 (5th Cir. 2005) .................................................. 18
21
Kravit, Gass & Weber, S.C. v. Michel (In re Crivello), 134 F.3d 831, 835 (7th Cir.1998) ...... 13, 18
22
23 Michel v. Fed'd Dep't Stores, Inc. (In re Fed'd Dep't Stores, Inc.), 44 F.3d 1310, 1318-19 (6th
24 Cir.1995) ...................................................................................................................................... 14

25 Movitz v. Baker (In re Triple Star Welding, Inc.), 324 B.R. 778, 789 (9th Cir. BAP 2005) ........... 17
26

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 =eben & Starrett, Inc. v. Chartwell Fin. Corp. (In re Park-Helena Corp.), 63 F.3d 877, 882 (9th

Cir. 1995) ..................................................................................................................................... 20

2 Tevis v. Wilke, Fleury et al. (In re Tevis), 347 B.R. 679, 691 (9th Cir. BAP 2006) ....................... 15
3 U.S. Trustee v. Joseph (In re Joseph), 208 B.R. 55, 60 (9th Cir. BAP 1997) ........................... 12, 13
4 United States v. Ron Pair Enters., Inc., 489 U.S. 235, 241, 109 S.Ct. 1026, 103 L.Ed.2d 290

5
(1989)........................................................................................................................................... 11
6

7 STATUTES
8
11 U.S.C § 327(a) ............................................................................................................................ 15
9
11 U.S.C. § 101(14)(E) .............................................................................................................. 12, 13
10
11 U.S.C. § 324(a) ................................................................................................... 12, 13, 14, 18, 19
11

12 11 U.S.C. § 702 ............................................................................................................................... 11

13 11 U.S.C. §§ 101(14)(A)-(D) .......................................................................................................... 13

14 11 USC § 701(a)(1) ......................................................................................................................... 11

15
11 USC §1104(e) ......................................................................................................................... 8, 22
16
11U.S.C. § 328(c) ...................................................................................................................... 19, 25
17
18 RULES
19
F.R.B.P. Rule 2014 .......................................................................................................................... 18
20

21 TREATISES
22
2 Remington on Bankruptcy § 1117, at 580 (1956) ........................................................................ 12
23
3 Collier on Bankruptcy ¶ 324, 02, at 324-3 to 324-4 (Alan N. Resnick & Henry J. Sommer eds.,
24

25 15th ed. rev.2006) ........................................................................................................................ 12

26

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 II. OTICE

TO THE HOORABLE GERALDIE MUD, UITED STATES BAKRUPTCY

2 JUDGE, THE OFFICE OF THE UITED STATES TRUSTEE, AD OTHER PARTIES-
3 I-ITEREST:
4 OTICE IS HEREBY GIVE that pursuant to an order of the Court, on August 6, 2010
5
at 10:00 a.m., in Courtroom 303 of the above-entitled Court located at 21041 Burbank Boulevard,
6
Woodland Hills, California, 91367-6606, before the Honorable Geraldine Mund, United States
7
Bankruptcy Judge, LENNY KYLE DYKSTRA (“Debtor”), the debtor in the above-captioned
8
9 Chapter 7, pursuant to 11 U.S.C. 324, will bring this motion (“Motion”) for an order that notice be

10 served upon Arturo Cisneros, trustee, to show cause, at such time as may be fixed by the court,

11 why an order should not be issued removing trustee for cause from the position of trustee,

12 forfeiting the trustee fees, awarding Debtor’s counsel fees and cost of this motion.

13
The Motion is based upon this Notice of the Motion, the Motion and Memorandum of
14
Legal Authorities in Support thereof, the Mortner Declaration, the pleadings and files in the
15
Debtor’s bankruptcy case, and upon such further oral and documentary evidence as may be
16
17 presented to the Court in support of the Motion.
18 Attached below is a true and correct copy of the proposed form of the Order to Show

19 Cause.

20
OTICE IS HEREBY FURTHER GIVE that, pursuant to an order of the Court, any
21
opposition or other responsive paper to the Motion must be filed with the Clerk of the above-
22
entitled Court and a copy served on the following parties by fax or email by August 5, 2010 at 12
23
noon.
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 OTICE IS HEREBY FURTHER GIVE that failure to file a timely response may be

deemed as consent to the relief requested in the Motion. SEE, LOCAL BAKRUPTCY RULE

2 9013-1(h).
3 DATED: August 3, 2010 THE MORTER LAW OFFICE, PC
4

5
By:__________________________
6 Moshe Mortner
Attorney for Debtor
7

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 III. MOTIO

The motion of LENNY KYLE DYKSTRA (“Debtor”), respectfully represents that it is in

2 the interest of the estate of the debtor that Arturo Cisneros, appointed trustee of the estate, should
3 be removed as trustee for cause.
4 In support of the Motion, the Debtor respectfully represents as follows:
5
A. PRELIMIARY STATEMET
6
This motion seeking the removal of the trustee for cause offers a mountain of evidence in
7

8 support that creates an overwhelming appearance of impropriety on the part of the trustee.
9 At the time Mr. Cisneros was approved as trustee herein he had 53 past and current cases
10
in which he represented creditor JP Morgan Chase before this Court. Since his appointment as
11
trustee Mr. Cisneros has taken on another 252 new cases in which he represents JP Morgan Chase
12

13 before this Court.

14 At no time in this case has the trustee disclosed his relationship with JP Morgan Chase.

15 At the same time that the trustee has taken on 252 new cases from JP Morgan Chase, he
16
has reviewed JP Morgan Chase’s claim for over $13,000,000 in this case; and the trustee has
17
adopted a position in favor of a settlement that will likely result in a full recovery for JP Morgan
18
Chase. The debtor has argued that the settlement is not in the best interest of the Estate or the
19

20 other creditors.

21 As shown below at length, the trustee’s conduct in this matter violates the standards and
22 guidelines established in the Code for a bankruptcy trustee, as elaborated and interpreted by the
23
U.S. Court of Appeals for the Ninth Circuit. As a result removal of the trustee and forfeiture of
24
his fees is appropriate and necessary.
25
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 B. STATEMET OF FACTS

1. Appointment of Arturo Cisneros as Trustee

2 On August 7, 2009, the U.S. Trustee filed in this proceeding a Request for Appointment of

3 a Chapter 11 Trustee, pursuant to 11 USC §1104(e), or in the alternative, the US Trustee

4 requested conversion of the case to a chapter 7 proceeding. See Exhibit A of the Mortner

5 Declaration submitted herewith.

6
Thereafter, on or about September 4, 2009, the US Trustee filed his Application for
7
Approval of Chapter 11 Trustee and Fixing Bond. The Application sought approval of the US
8
Trustee’s appointment of Arturo M. Cisneros as Trustee in this case. See Exhibit B of the Mortner
9

10 Declaration submitted herewith.

11 Filed along with the US Trustee’s Application for Approval on September 4, 2009, was the

12 verified Statement of Disinterestedness of Arturo Cisneros. The sole disclosure in Mr. Cisneros’

13
verified Statement of Disinterestedness stated as follows:
14
[T]hat Malcolm & Cisneros, A Law Corporation (“MC”), to
15 which I am a shareholder, has represented certain secured lenders,
including Countrywide Bank, Bank of America, Washington Mutual
16 Bank and Wachovia Mortgage in unrelated matters. However, MC
does not, and will not in the future represent said lender with regard
17
to the within matter.
18
See Exhibit C of the Mortner Declaration.
19
Notably, JP Morgan Chase, the largest creditor in Lenny Dykstra’s bankruptcy was not
20
included in Mr. Cisneros’ disclosure of lenders his firm has represented.
21

22 The U.S. Trustee’s Application for Approval of Chapter 11 Trustee, submitted by S.

23 Margaux Ross, Attorney for the United States Trustee, also contained a representation regarding
24 Mr. Cisneros’ connections to creditors and other interested parties, stating:

25
To the best of the United States Trustee’s knowledge, the
26 Chapter 11 Trustee’s connections with the debtor, creditors, any
other parties in interest, their respective attorneys and accountants,
27 the United States Trustee, and persons employed in the Office of the
28 8
 United States Trustee are limited to the connections set forth in the
Chapter 11 trustee’s verified Statement of Disinterestedness filed
by the Chapter 11 Trustee with the court.

2 See Exhibit B of the Mortner Declaration.

3 Ms. Ross’s statement was based upon consultations she conducted with parties in interest,
4 which included an attorney from Levene, Neale, Bender, Rankin & Brill LLP, counsel for JP

5
Morgan Chase in this case. Thus, JP Morgan Chase, acting through its counsel, confirmed Mr.
6
Cisneros’ verified Statement of Disinterestedness, in which Mr. Cisneros in essence declared that
7
he had no connections with JP Morgan Chase. See Exhibit B of the Mortner Declaration.
8
9 Based on these representations of disinterestedness, the Court, on September 8, 2009,

10 entered an Order approving the appointment of Arturo Cisneros as trustee in this case. See Exhibit

11 B of the Mortner Declaration.

12 On September 24, 2009, just weeks after his appointment, the trustee moved to convert this
13
case to Chapter 7. On November 20, 2009, the Court granted the motion, and with that Mr.
14
Cisneros became a Chapter 7 trustee. See Exhibit D of the Mortner Declaration.
15
Subsequently, on March 23, 2009, Mr. Cisneros, as trustee in this case filed a motion for
16
17 approval of a settlement between, inter alia, the Estate and JP Morgan Chase Bank. The Debtor
18 has objected to this settlement on various grounds, including that the deal struck by the trustee
19 amounts to a huge give-away of the Estate’s most valuable asset to JP Morgan Chase,

20
notwithstanding the fact that JP Morgan Chase’s claim is subject to substantial defenses.
21

22
2. The Trustee’s Failure to Disclose Connections with Creditor JP Morgan
23 Chase in his Verified Statement of Disinterestedness
24 Prior to executing his verified Statement of Disinterestedness, on September 4, 2009, Mr.
25
Cisneros had represented creditor JP Morgan Chase in 50 cases. All of these 50cases were in the
26

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 U.S. Bankruptcy Court for the Central District of California, however, only one of them was

before the Honorable Geraldine Mund. See Exhibit E of the Mortner Declaration.

2 On the very same day that Mr. Cisneros executed his verified Statement of

3 Disinterestedness in this case, September 4, 2009, Mr. Cisneros also filed appearances as counsel
4
for JP Morgan Chase in 3 other cases. These 3 appearances were in the U.S. Bankruptcy Court
5
for the Central District of California, however, none of them were before the Honorable Geraldine
6
Mund. See Exhibit F of the Mortner Declaration.
7

8 Subsequent to the Court’s approval of Mr. Cisneros’ appointment as trustee, on September

9 8, 2009, Mr. Cisneros commenced representations of JP Morgan Chase in new 252 cases. All of

10
these 252 new cases were in the U.S. Bankruptcy Court for the Central District of California. See
11
Exhibit G of the Mortner Declaration.
12

13 In total, Mr. Cisneros has appeared 305 times as lead counsel for JP Morgan Chase in this

14 Court, including both prior and current representations.

15
Yet, at no time has the trustee disclosed these representations in this case, nor has JP
16
Morgan Chase or its counsel Levene, Neale, Bender, Rankin & Brill LLP disclosed these
17
connections. Indeed, the trustee overtly concealed his relationship with JP Morgan Chase in his
18
19 Statement of Disinterestedness by naming other financial institutions for whom he has acted as

20 secured lender’s counsel, but leaving JP Morgan Chase off of the list. The disclosure of those

21 other lenders mislead the Court into believing that Mr. Cisneros had properly fulfilled his

22
disclosure obligation and that there were no conflict issues effecting Mr. Cisneros’ appointment as
23
trustee.
24
Moreover, at no time subsequent to his appointment has the trustee disclosed his
25
26 appearance as JP Morgan Chase’s counsel in 252 new cases.

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 Indeed, since his appoint as trustee in this case, and his offer of settlement to JP Morgan

Chase in connection with JP Morgan Chase’s claim of over $13,000,000, Mr. Cisneros has

2 enjoyed a rise of 504% in new legal business coming from JP Morgan Chase.
3
4
C. MEMORADUM OF LEGAL AUTHORITIES
5
1. The Disinterestedness Requirement for Trustee to be Eligible to
6 Serve
7 In a chapter 7, 11 USC § 701(a)(1) provides that the U.S. Trustee “shall appoint one
8
disinterested person ... to serve as interim trustee in the case.” 11 U.S.C. § 701(a)(1) (emphasis
9
added).
10
Here, the Court approved the US Trustee’s appointment of Mr. Cisneros as trustee on
11

12 September 8, 2009, while this case was a Chapter 11. However, thereafter, by motion of the

13 trustee, the Court converted the case to chapter 7, and the trustee continued on as an interim
14 Chapter 7 trustee pursuant to 11 U.S.C. §701(a)(1). Since the creditors did not elect a chapter 7

15
trustee pursuant to § 702, Mr. Cisneros continues to this day to serve as trustee in this case. See §
16
702(d).
17
As the Court of Appeals has stated regarding § 701(a)(1), “The plain language of the
18
statute requires that the appointed interim trustee be “disinterested” in order to be eligible to
19
th
20 serve.” AFI Holding, Inc., 530 F.3d 832, 844 (9 Cir. 2008), see also United States v. Ron Pair

21 Enters., Inc., 489 U.S. 235, 241, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989). Thus, the

22 disinterestedness requirement of § 701(a)(1) applies to the trustee here.

23
Expanding on the duties of the trustee, the 9th Circuit in AFI Holding explained, “The title
24
‘trustee’ has ‘fiduciary significance in the equity sense,’ and thus the trustee ‘may not be the
25
representative of any particular creditor, but must represent all creditors without partiality.’” AFI
26

27 Holding Inc., at 844, quoting Gross v. Russo (In re Russo), 18 B.R. 257, 270-71
28 11
 (Bankr.E.D.N.Y.1982) (under Bankruptcy Act) (citing 2 Remington on Bankruptcy § 1117, at 580

(1956)). (Emphasis supplied.) So the Ninth Circuit concluded that it a bankruptcy trustee “is an

2 independent person with no prior connection to either the debtor or the creditors…” AFI Holding
3 Inc., at 844, quoting U.S. Trustee v. Joseph (In re Joseph), 208 B.R. 55, 60 (9th Cir. BAP 1997).
4

5
2. Removal of Trustee Under 11 USC § 324(a)
6
Pursuant to 11 U.S.C. § 324(a)1, a trustee can be removed from a pending case if the
7
bankruptcy court finds “cause” after notice and a hearing. Brooks v. United States, 127 F.3d 1192,
8
9 1193 (9th Cir.1997).

10 In AFI Holding the Court of Appeals observed, “It is well established that “cause” may

11 include trustee incompetence, violation of the trustee's fiduciary duties, misconduct or failure to

12 perform the trustee's duties, or lack of disinterestedness or holding an interest adverse to the

13
estate.” AFI Holding Inc., at 845, citing 3 Collier on Bankruptcy ¶ 324, 02, at 324-3 to 324-4
14
(Alan N. Resnick & Henry J. Sommer eds., 15th ed. rev.2006).
15
In pertinent part, the Code, at 11 U.S.C § 101(14)(E) , defines a “disinterested person” as
16
17 one that:
18 (E) does not have an interest materially adverse to the
interest of the estate or of any class of creditors or equity security
19 holders, by reason of any direct or indirect relationship to,
connection with, or interest in, the debtor ..., or for any other
20
reason. (Emphasis supplied.)
21
To elaborate on the meaning of § 101(14)(E), the Ninth Circuit in AFI Holding employed a
22
definition of “adverse interest” as follows: “the (1) possession or assertion of an economic interest
23
1
24 11 U.S.C. § 324. Removal of trustee or examiner
(a) The court, after notice and a hearing, may remove a trustee, other than the United States trustee, or an examiner,
25 for cause.
(b) Whenever the court removes a trustee or examiner under subsection (a) in a case under this title, such trustee or
26 examiner shall thereby be removed in all other cases under this title in which such trustee or examiner is then serving
unless the court orders otherwise.
27
28 12
 that would tend to lessen the value of the bankruptcy estate; or (2) possession or assertion of an

economic interest that would create either an actual or potential dispute in which the estate is a

2 rival claimant; or (3) possession of a predisposition under circumstances that create a bias against
3 the estate.” AFI Holding Inc., at 844. (Emphasis supplied.)
4 The AFI Holding referred to § 101(14)(E), as a “catch all” provision and noted that it “is
5
broad enough to exclude a trustee with some interest or relationship that ‘would even faintly color
6
the independence and impartial attitude required by the Code.’” AFI Holding Inc., at 846, quoting
7
Kravit, Gass & Weber, S.C. v. Michel (In re Crivello), 134 F.3d 831, 835 (7th Cir.1998).
8
9 Thus, it is possible to summarize the foregoing to say that sufficient “cause” for the

10 removal of a trustee under § 324(a) is the lack of disinterestedness, as defined in 11 U.S.C §

11 101(14)(E) , which includes the possession of an “adverse interest.” An “adverse interest” has

12
been held to mean the “possession of a predisposition under circumstances that create a bias
13
against the estate,” and such bias exists where there is a relationship that “would even faintly color
14
the independence and impartial attitude required by the Code.” AFI Holding Inc., at 844 and 846.
15
Based on the foregoing, it is clear why the Court of Appeals holds that a bankruptcy trustee
16
17 “is an independent person with no prior connection to either the debtor or the creditors…” AFI
18 Holding Inc., at 844, quoting U.S. Trustee v. Joseph (In re Joseph), 208 B.R. 55, 60 (9th Cir. BAP
19 1997). (Emphasis supplied.)

20

21 3. The inth Circuit’s “Totality-of-Circumstances Approach” to § 324

“Cause”
22
In crafting an approach to determining cause for removal under§ 324 the Ninth Circuit has
23
eschewed such formula based approaches such as removal of the trustee only where there is actual
24

25 injury to the estate or fraud (see In re Freeport Italian Bakery, Inc., 340 F.2d 50, 54 (2d
26 Cir.1965)), or per se disqualification under the plain terms of §§ 101(14)(A)-(D) (see See, e.g.,

27
28 13
 Michel v. Fed'd Dep't Stores, Inc. (In re Fed'd Dep't Stores, Inc.), 44 F.3d 1310, 1318-19 (6th

Cir.1995)). AFI Holding Inc., at 846 and 847.

2 Rather, the Court in AFI Holding held, “Cause for removal of an appointed panel trustee

3 under § 324(a) is not susceptible to sharp definition, but is determined on a case-by-case, totality-
4 of-circumstances approach, subject to the bankruptcy court’s broad discretion.” AFI Holding Inc.,

5
at 852.
6
In AFI Holding the Court held, “[T]he factors, which are relevant to our case, include the
7
likelihood that a potential conflict might turn into an actual one, the influence the conflict might
8
9 have in subsequent decision making, and how the matter is perceived by creditors and other parties

10 in interest.” AFI Holding Inc., at 847. However, the Court concluded its analysis by noting, “We

11 do not subscribe to a rigid application of factors, however, but view them as aids for the court's

12
discretionary review.” Id, at 849.
13
Based on the foregoing, the Court must analyze the particular circumstance of this case to
14
determine whether cause for removal under § 324(a) is present. Based on similar circumstances in
15
prior removal cases, which are discussed below, the Court will undoubtedly conclude that the
16
17 totality-of-circumstances in the instant case present unabated cause for the trustee’s immediate
18 removal.
19

20
a. Trustee’s Ongoing Representation of Creditor
21
The fact that arguably the trustee is handling only unrelated matters for JP Morgan Chase
22
at this particular time is irrelevant. In a comparable case the bankruptcy court responded, the
23
“short answer to this is that [the law firm] should be presumed to be loyal to its client” no matter
24

25 how “relatively insignificant” that client is. In re Leslie Fay Cos., Inc., 175 B.R. 525, 539.
26 (Bankr.S.D.N.Y.1994). See also Tevis v. Wilke, Fleury et al. (In re Tevis), 347 B.R. 679, 691 (9th

27
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 Cir. BAP 2006) (law firm could not have simultaneously represented clients with adverse

interests, even on unrelated matters).2

2 Here, of course, JP Morgan Chase is not a relatively insignificant client of Mr. Cisneros’,

3 with 305 cases having been handled by him only since May 2009. Thus, as in In re Leslie Fay,
4
the ongoing representation of JP Morgan Chase by Mr. Cisneros in 305 cases militates in favor of
5
6 a finding of conflict of interest and that the trustee has not been disinterested in this case.

8 b. Trustee’s Representation of Creditor as an “Institutional Client”

9 In re Hammer, BAP No. WW-06-1373-MoDJ, (9th Cir. Bankr. Appeals Panel Aug. 17,
10
2007)3 provides this Court with additional guidance in considering the totality-of-circumstances in
11
this case. In re Hammer involved a claim by creditors objecting to the law firm employed by a
12
chapter 7 trustee because the law firm belatedly and inadequately disclosed its connections with
13
the City of Sultan, Washington. The City was a creditor in the case, and the debtor had asserted
14

15 tort claims against the City and had filed two state court actions against the City. The Court of

16 Appeals held that the bankruptcy court clearly erred in ruling that the law firm had no conflict of
17 interest and had been disinterested throughout the bankruptcy case.
18
In reaching its holding, the BAP in In re Hammer, noted that the chapter 7 trustee’s law
19
firm had ongoing representation of the City, and that there was substantial evidence that the City
20
was an “institutional client” that consults the trustee’s law firm on an “on-call basis.” The Panel
21

22 found that the law firm had interests that were materially adverse to the estate, pursuant to 11
23 U.S.C. §§ 101(14)(E) and 327(a), because the law firm had “an incentive not to jeopardize its
24 2
In AFI Holding Inc., at 845, ft.9, the Court of Appeals observed that 11 U.S.C. § 327(a) establishes that
professionals employed by the estate and approved by the bankruptcy court must be disinterested. The Court than
25 noted, “It would be an odd rule, indeed, if a trustee's professional must be disinterested, while the trustee need not.”
26 3
Regarding this decision the Court of Appeals stated, “This disposition is not appropriate for publication.
Although it may be cited for whatever persuasive value it may have (see Fed. R. App. P. 32.1), it has no precedential
27 value.” A copy of In re Hammer is annexed to the Mortner Declaration as Exhibit -.

28 15
 future relationship with a client who has paid it approximately $180,000 in recent years.” The

Panel opined, “Law Firm cannot represent one client against another. Even if City was not Law

2 Firm’s client at all relevant times, Law Firm has incentives not to jeopardize its valuable
3 relationship with City.” Id.
4 Here, as in In re Hammer, there also exists substantial evidence that JP Morgan Chase is
5
an “institutional client” for the trustee, and that JP Morgan Chase refers bankruptcy matters to Mr.
6
Cisneros on an “on-call basis.” Thus, the institutionalized nature of the Mr. Cisneros’
7
representation of JP Morgan Chase militates in favor of a finding of conflict of interest and that
8
9 the trustee has not been disinterested in this case.

10

11 c. Trustee’s Review of Creditor’s Claim

12 In Fondiller v. Robinson (In re Fondiller), 15 B.R. 890, 892 (9th Cir. BAP 1981) appeal
13
dism., 707 F.2d 441 (9th Cir. 1983), the BAP noted that reviewing claims “to determine which
14
should be disputed” is a function that by its very nature is “adverse” to the creditors holding such
15
claims.
16
17 Similarly the BAP in In re Hammer, found that the trustee’s law firm had reviewed the

18 City’s claim at the same time as it was representing City in other matters. The Panel emphatically
19 held, “That is impermissible.”

20
Debtor herein has objected to JP Morgan Chase’s claim with substantial defenses and
21
asserts claims against JP Morgan Chase for recoupment. and has opposed the settlement with
22
which the trustee has sought approval for. However, having reviewed JP Morgan Chase’s claim
23
the trustee has opted to settle with JP Morgan Chase by granting the bank virtually its entire claim
24

25 in excess of $13 million. Based on the foregoing, the trustee’s review of JP Morgan Chase’s claim
26 was impermissible due to the fact that at the same time as the trustee was representing JP Morgan

27
28 16
 Chase in great number of other cases. Thus, the trustee’s activity has been to review of JP

Morgan Chase’s claim was improper, and this is an additional factor in the totality-of-the-

2 circumstances that requires the Court to find cause for the removal of the trustee.
3
4
d. Trustee’s Abuse of Professional Confidence
5
In Chugach Elec. Ass'n v. U.S. Dist. Ct., 370 F.2d 441, 442-43 (9th Cir.1966) the Ninth
6
Circuit has held that disqualification was appropriate where the trustee’s counsel previously
7
represented an electric company and had a potential conflict of interest in pursuing a cause of
8
9 action against the electric company on behalf of the estate. The court concluded:

10 Where conflict of interest or abuse of professional confidence is asserted, the right of an

11 attorney freely to practice his profession must, in the public interest, give way in cases of doubt.

12 (Emphasis supplied.)

13
Here, due to the trustee’s prior and current representation of JP Morgan Chase, the trustee
14
had a clear conflict of interest in pursuing the Debtor’s objections against JP Morgan Chase’s
15
claim. The trustee’s decision not to pursue the objections, but rather to allow the claim via a one-
16
17 sided settlement, casts doubt on the unbiasedness of the trustee’s decision making. Accordingly,
18 trustee’s pursuit of his function in connection with the JP Morgan Chase claim was improper.
19

20
e. Trustee’s Failure to Disclose Connections
21
A fiduciary has a duty to disclose any connections with the debtor, creditors, or any other
22
party in interest. See In re Haldeman Pipe & Supply Co., 417 F.2d 1302, 1304 (9th Cir.1969);
23
Movitz v. Baker (In re Triple Star Welding, Inc.), 324 B.R. 778, 789 (9th Cir. BAP 2005). The
24

25 Court of Appeals in AFI Holding held, “Failure to do so, even if inadvertent, can be a relevant
26 factor for the bankruptcy court's consideration of “cause” for a panel trustee's removal.

27
28 17
 Thus, here, the failure of the trustee to disclose his relationship with JP Morgan Chase in

and of itself is an important factor in the totality-of-circumstances approach that argues for

2 removal.
3 Moreover, Rule 2014 has been interpreted to impose an ongoing duty of disclosure. In re
4 West Delta Oil Co., Inc., 432 F.3d 347, 355 (5th Cir. 2005); see also Kravit, Gass & Weber, S.C.

5
v. Michel (In re Crivello), 134 F.3d 831, 836 (7th Cir. 1998) (“Though [Rule 2014] allows the fox
6
to guard the proverbial hen house, counsel who fail to disclose timely and completely their
7
connections proceed at their own risk because failure to disclose is sufficient grounds to revoke an
8
9 employment order and deny compensation.”).

10 Here, throughout this bankruptcy case the trustee has taking on new cases for JP Morgan

11 Chase. In fact since his appointment as trustee here, the trustee appeared in 252 new cases for JP

12
Morgan Chase. Thus the trustee also violated his duty to make ongoing disclosure.
13
14
f. Trustee’s Appearance of Impropriety
15

16 In AFI Holding the Ninth Circuit held, “Lack of disinterestedness, as § 324 cause, may

17 also consist of an appearance of impropriety or the trustee's failure to make disclosures of

18 connections, factors which were also properly considered by the bankruptcy court under its
19 totality-of-circumstances approach.” AFI Holding at 851. See also In re Paolino, 80 B.R. 341,

20
345 (Bankr.E.D.Pa.1987); see also In re Martin, 817 F.2d 175, 180-81 (1st Cir. 1987) (“Section
21
327 is intended, however, to address the appearance of impropriety as much as its substance, to
22
remove the temptation and opportunity to do less than duty demands.”); In re Vebeliunas, 231
23
24 B.R. 181, 191-92 (Bankr.S.D.N.Y.1999) (“[t]o be disinterested is ‘to prevent even the appearance

25 of a conflict’).
26

27
28 18
 Here a strong appearance of impropriety arises from the fact that the trustee has

represented JP Morgan Chase, the Estate’s largest creditor, in 305 cases and the trustee failed to

2 disclosure these cases.

3
Moreover, Subsequent to the Court’s approval of Mr. Cisneros’ appointment as trustee, on
4
September 8, 2009, Mr. Cisneros commenced representations of JP Morgan Chase in new 252
5
6 cases. See Exhibit G of the Mortner Declaration. At no time subsequent to his appointment has

7 the trustee disclosed his appearances as JP Morgan Chase’s counsel in 252 new cases.

8
The appearance of impropriety is overwhelming when the Court considers that in the time
9
since Mr. Cisneros’ appoint as trustee in this case, Mr. Cisneros has enjoyed a rise of 504% in
10

11 new legal business coming from JP Morgan Chase, .i.e., 252 new cases. The appearance of

12 impropriety here dwarfs the concerns of the BAP in In re Hammer, where the Panel was

13 concerned that unrelated representation of a creditor by the trustee’s law firm might create for the
14
law firm “incentives not to jeopardize its valuable relationship” with its client. Here, Mr.
15
Cisneros’ valuable relationship with JP Morgan Chase is absolutely thriving at the same time that
16
he is taking a position in this case that is favorable to JP Morgan Chase’s claim for over
17
18 $13,000,000.
19

20 Based on all of the foregoing, the Court should find that based on the totality-of-
21
circumstances, and pursuant to 11 U.S.C. § 324(a), cause exists for the removal of the trustee from
22
this pending case.
23
24

25 4. Forfeiture of the Trustee’s Fees is Appropriate

26 Section 328(c) of the Code provides that violations of bankruptcy conflict rules can result

27 in fee forfeitures. Moreover, section 328(c) has been held to apply to disclosure violations. Thus,
28 19
 in addition to nondisclosure being a relevant factor in finding “cause” for removal under § 324,

nondisclosure may also result in penalties, which can include disallowance of all fees. =eben &

2 Starrett, Inc. v. Chartwell Fin. Corp. (In re Park-Helena Corp.), 63 F.3d 877, 882 (9th Cir. 1995);
3 In Re Hammer, BAP No. WW-06-1373-MoDJ, (9th Cir. Bankr. Appeals Panel Aug. 17, 2007)
4 (Law firm’s nondisclosure of prior and concurrent representation of creditor warranted sanctions

5
even if it was not otherwise disqualified from employment or compensation.) In re EToys, Inc.,
6
331 B.R. 176 (D. Del. 2005)(Failure to disclose conflicts cause partial fee forfeiture for debtor's
7
counsel and for creditors' committee counsel.); In re Congoleum Corp., 03-51524 (D.N.J. Feb. 7,
8
9 2006)(A bankruptcy judge ordered 45-lawyer Gilbert Heintz & Randolph LLP to forfeit some $13

10 million in fees for failure to disclose all its relationships to the various parties when it was retained

11 as “special insurance counsel” for the debtor.)

12
The Court in In re Leslie Fay Cos., Inc., 175 B.R. 525, 539. (Bankr.S.D.N.Y.1994)
13
directed a nondisclosing law firm to pay fees and costs incurred by other parties in investigating
14
its conflicts.
15
Based on the foregoing, the Court should enter an order of forfeiture with regard to the
16
17 trustee’s fees in this case and should award debtor’s counsel fees and costs in connection with the
18 investigation and bring of this motion.
19 Finally, although no wrongdoing has been alleged here against the trustee’s counsel,
20
Shulman Hodges & Bastian LLP, under the circumstances it would not be appropriate for the
21
Estate to incur those fees. Therefore, it is respectfully requested that to the extent that the Court
22
will approve fees for the trustee’s counsel, such fees should be charged to the trustee rather than
23
24 the Estate as a further penalty against the trustee.

25
26

27
28 20
 D. COCLUSIO

WHEREFORE, based upon the foregoing, the Debtor, Lenny Kyle Dykstra respectfully

2 submit that cause exists to grant this Motion and requests that the Court enter the Order in the
3 form as shown on Exhibit H to the Mortner Declaration, ordering that notice be served upon
4 Arturo Cisneros, trustee, to show cause, at such time as may be fixed by the court, why an order

5
should not be issued removing trustee from the position of trustee, forfeiting the trustee’s fees,
6
awarding Debtor’s counsel fees and cost of this motion, and for such other and further relief as the
7
Court deems just and proper.
8
9 DATED: August 3, 2010 THE MORTER LAW OFFICE, PC

10
By:__________________________
11 Moshe Mortner
Attorney for Debtor
12

13
14

15

16
17
18
19

20

21

22
23
24

25
26

27
28 21
 IV. DECLARATIO OF MOSHE MORTER

I, Moshe Mortner, declare and state as follows:

2
3 1. I am counsel for Lenny Kyle Dykstra (“Debtor”) (as of this writing pro hac vice

4 application sub judice). I have personal knowledge of the facts set forth herein and could, if called

5 as a witness, competently testify thereto.

6
2. I make this Declaration in support of the Debtor’s Motion for an order directing the
7
trustee to show cause why he should not be removed as trustee for cause.
8
3. I have read and I am aware of the contents of the Motion and the accompanying
9

10 Statement of Facts and Memorandum of Legal Authorities. The facts stated in the Motion and the

11 points and authorities are true to the best of my knowledge.

12 4. A copy of the U.S. Trustee’s Request for Appointment of a Chapter 11 Trustee,

13 pursuant to 11 USC §1104(e) is annexed hereto as Exhibit A.
14
5. A copy of the US Trustee’s Application for Approval of Chapter 11 Trustee and
15
Fixing Bond is annexed hereto as Exhibit B.
16
6. A copy of the verified Statement of Disinterestedness of Arturo Cisneros is
17
18 annexed hereto as Exhibit C.
19 7. The Court’s Order approving the appointment of Arturo Cisneros as trustee in this

20 case is annexed hereto as part of the S Trustee’s Application for Approval of Chapter 11 Trustee

21
and Fixing Bond, which is annexed hereto as Exhibit B.
22
8. A copy of the Order converting this case to Chapter 7, dated November 20, 2009, is
23
annexed hereto as Exhibit D.
24

25
26

27
28 22
 9. Copies of the List of Attorneys, downloaded from PACER4, from each of the 50

cases in which Mr. Cisneros represented JP Morgan Chase before this court, prior to his executing

2 his verified Statement of Disinterestedness in this case on September 4, 2009, are annexed hereto
3
as Exhibit E.
4
10. Copies of the List of Attorneys, downloaded from PACER, from each of the 3 cases
5
6 in which Mr. Cisneros appeared as counsel for JP Morgan Chase before this Court, on the same

7 day that he executed his verified Statement of Disinterestedness in this case, September 4, 2009,

8 are annexed hereto as Exhibit F.

9
11. Copies of the List of Attorneys, downloaded from PACER, from each of the 252
10
new cases in which Mr. Cisneros represented JP Morgan Chase before this court, subsequent to his
11
appointment as trustee in this case, are annexed hereto as Exhibit G.
12

13 12. For all of the foregoing reasons set forth in the Motion, I believe that removal of

14 the trustee will benefit the Estate and its creditors as described in the Motion.

15 I declare under penalty of perjury under the laws of the United States of America that the
16
foregoing is true and correct.
17
Executed on July 30, 2010 at New York, New York.
18
19

20 ________________________
Moshe Mortner
21

22
23
24

25 4
PACER refers to the PACER website, which contains a description of itself as follows: “Public Access to
Court Electronic Records website (PACER) is an electronic public access service that allows users to obtain case and
26 docket information from federal appellate, district and bankruptcy courts, and the PACER Case Locator via the
Internet. PACER is provided by the federal Judiciary in keeping with its commitment to providing public access to
27 court information via a centralized service.” See http://www.pacer.gov/.

28 23
 V. PROPOSESD ORDER TO SHOW CAUSE

Moshe Mortner, Esq.

2 Mortner Law Office,th PC
130 William Street, 5 Floor
3 New York, NY 10038
Telephone 646-783-7544
4 mm@mortnerlaw.com

5
Attorney for Debtor
6 Lenny K. Dykstra
(Pro Hac Vice Application Sub Judice)
7

8 UNITED STATES BANKRUPTCY COURT

9 CENTRAL DISTRICT OF CALIFORNIA
SAN FERNANDO VALLEY DIVISION
10

11 In re CASE NO.: 1:09-bk-18409-GM

12 Chapter 7
13 LEY KYLE DYKSTRA, ORDER FOR TRUSTEE TO SHOW CAUSE
14 WHY A ORDER SHOULD OT BE
ISSUED REMOVIG TRUSTEE FOR
15 CAUSE UDER BAKRUPTCY CODE 324
Debtor.
16
Date: August 6, 2010
17 Time: 11:00 a.m.
18 Ctrm: 302

19
The Motion for an Order for Arthur Cisneros, trustee, to show cause why an order should
20
not be issued removing trustee for cause under Bankruptcy Code 324” (“Motion”), filed by Lenny
21

22 Kyle Dykstra (“Debtor”) submitted to the Court, the Honorable Geraldine Mund, United States
23 Bankruptcy Judge presiding,
24 The Court having considered the Motion, the arguments and representations of counsel,
25
and the record in this case; the Court having found that proper notice has been given, and it
26

27
28 24
 appearing that the relief requested by the Motion is in the best interests of the Debtor’s Estate and

its creditors; and good cause having been shown, it is hereby

2 ORDERED that the Motion is granted as follows:

3 Let Arthur Cisneros, trustee, show cause on ___________, 2010 at _____ _.m., in
4 Courtroom 301 of the above-entitled Court located at 21041 Burbank Boulevard, Woodland Hills,

5
California, 91367-6606, before the Honorable Geraldine Mund, United States Bankruptcy Judge,
6
why an order should not be issued removing trustee from the position of trustee in the above-
7
captioned Chapter 7, pursuant to 11 U.S.C. 324 and forfeiting the trustee’s fees in this case
8
9 pursuant to 11 U.S.C. 328(c).

10 # # #

11

12

13
14

15

16
17
18
19

20

21

22
23
24

25
26

27
28 25
 PROOF OF SERVICE

2 I, Dorothy Van Kalsbeek, declare:

3 I am over the age of 18 years and not a party to the within action or proceeding. My
business address is in the city of Los Angeles, County of Los Angeles, State of California.
4

5 On August 3, 2010, I served a true copy of the foregoing;

6 DEBTORS MOTION UNDER 11 U.S.C. § 701(a) FOR VOLUNTARY

DISMISSAL OF BANKRUPTCY
7

8 [ ] E-mail: By transmitting said document(s) via e-mail before 5:00 p.m. on this date

9 to the e-mail address(es) set forth below. The transmission was reported as complete and

10 without error.
11
[ ] Facsimile: By transmitting said document(s) via facsimile before 5:00 p.m. on
12
this date to the fax number(s) set forth below. The transmission was reported as complete and
13
14 without error.

15 [X] By Mail: By placing said document(s) in a sealed envelope, with postage thereon
16
fully prepaid, addressed as set forth below, and on this date depositing said envelope in the
17
United States mail at Los Angeles County, California. I am aware that on motion of the party
18
served, service by mail is presumed invalid if postal cancellation date or postage meter date is
19

20 more than one day after the date of deposit for mailing as set forth herein.

21 See Attached List

22 I declare under penalty of perjury under the laws of the State of California and the United
23 States of America that the foregoing is true and correct; and that this Proof of Service was
executed on August 3, 2010, at Los Angeles, California.
24

25
26

27 __________________________

28 26
 PROOF OF SERVICE ISTRUCTIOS

2 Serve by first class mail:

3
4
Hon. Geraldine Mund
5
United States Bankruptcy Court - Central District of California
6
21041 Burbank Boulevard, Suite 342
7
Woodland Hills, CA 91367
8
9
S. Margaux Ross 3625 Thousand Oaks Blvd Ste 267
Atty for US Trustee Westlake Village, CA 91362
10 21051 Warner Center Ln. #115
Woodland Hills, CA 91367 David Vigliano
11 405 Park Avenue, Ste. 1700
M. Jonathan Hayes New York, NY 10022
12 9700 Reseda Blvd. Suite 201
Northridge, CA 91324
13
Arturo Cisneros
14 2112 Business Center Drive
2nd Floor
15 Irvine, CA 92612 K & L Gates
10100 Santa Monica Blvd., 7th Floor
16 Leonard M. Shulman Los Angeles, CA 90067
Robert E. Huttenhoff
17 Shulman Hodges & Bastian LLP O'Melveny & Myers
26632 Towne Center Dr. Suite 300 c/o Daniel Petrocelli
18 Foothill Ranch, CA 92610 1999 Ave of the Stars
Los Angeles, CA 90067
19 Evan B Sorensen
Tressler, Soderstrom, Maloney & Priess Sherwood Country Club
20 3070 Bristol Street, Suite 450 320 W. Stafford Road
Costa Mesa, CA 92626 Westlake Village, CA 91361
21 David Neale
JP Fritz
22 Levene, Neale, Bender, Rankin & Brill LLP
10250 Constellation Blvd, Suite 1700
23 Los Angeles, CA 90067

24 I.Bruce Speiser
Pircher, Nichols & Meeks
25 1925 Canterbury Park East, Suite 1700
Los Angeles, CA 90067
26
Richard P Towne
27
28 27