PHU K. VUONG and MOSAIC REAL ESTATE INVESTMENT, LLC v. JACQUELINE LOPEZ-FLORES and SAUL ROBERTO FLORES
Case No. 24-cv-03510-AMO
UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA
September 30, 2025
Appellants Phu K. Vuong and Mosaic Real Estate Investment, LLC appeal the judgment of the bankruptcy court in an adversary proceeding. Appellees Jacqueline Lopez-Flores and Saul Roberto Flores have answered and argue the judgment should be affirmed. The Court finds the matter to be appropriate for disposition without oral argument. See
I. BACKGROUND
Appellee Lopez-Flores is the debtor in bankruptcy case No. 18-52014 and spouse of Appellee and non-debtor Flores. Excerpts of Record, Vol. 1 at 16-17.1 Appellants Vuong and Mosaic appeal certain rulings of the bankruptcy court in adversary proceeding number 19-05020 (“Adversary Proceeding“), in which Vuong and Mosaic were Plaintiffs and Lopez-Flores and Flores were Defendants. Below, the Court provides an overview of the pertinent facts and
A. Factual Background
1. The Parties and Related Entities
In 2009, Vuong began investing in the real estate market and made real estate investments through Mosaic, a limited liability company. 1 ER 18. After taking interest in real estate due to Flores‘s work as a developer, Lopez-Flores earned her real estate license as a sales agent around 2007. Id; 4 ER 577. Lopez-Flores and Flores are involved in various entities engaged in real estate ownership, leasing, and development (the “Related Entities“). 1 ER 19. The Related Entities are as follows.
Ground Zero Construction (“Ground Zero“) – “the center of the constellation of companies” Lopez-Flores and Flores operate – is a construction company involved in commercial and residential real property development. Id. When it was created, Flores was a responsible managing employee, and in 2013, James McClenahan was its sole owner. Id.; 3 ER 413. In 2014 to 2015, the ownership was restructured, and Ali Abiani took 40% of the shares while McClenahan took 60%. 1 ER 19. By 2017, Flores had acquired 20% of the shares and McClenahan and Abiani each had 40%. Ground Zero was the general contractor for the construction of Blaze, Inc. (“Blaze“), 95 Hamilton, LLC (“95 Hamilton“), and Iron Springs. 1 ER 21.
Eagle Sales and Development, LLC is a company Lopez-Flores created after receiving her real estate license. Id. She holds a 100% interest in that entity. Id.; 4 ER 566.
95 Hamilton is a company created to coordinate investment in the development of an office building at 95 East Hamilton Avenue in Campbell, California. 1 ER 21. It was one of Ground Zero‘s development projects and the only project that had a construction loan. 1 ER 20; 4 ER 676.
Iron Springs was formed to develop a single-family residence on Iron Springs Road in Los Gatos, California. 1 ER 20. This project relied on investment capital and had no construction loan. Id.
Uno Group Capital Holdings, LLC (“UGCH“) was an investment vehicle for multiple parties and acquired capital for different build-out projects. Id. Its purpose was to provide
UGFB was created in 2012 and is owned by multiple individuals and entities, including UGCH and Vuong, among others. Id. By December 21, 2015, UGCH held 92% ownership of UGFB, and Vuong held a 2% ownership interest. Id.; 18 ER 3975.
Blaze was the named tenant on a space lease at Westfield Mall, sometimes called Valley Fair Mall, and was developing what Lopez-Flores and Flores called the Popolo-Sky Lounge. 1 ER 21. Lopez-Flores was Blaze‘s president. Id. UGFB is Blaze‘s sole shareholder, and because UGFB did not have a bank account, investments for UGFB were made out to Blaze. Id. UGFB hired the entities Popolo Valley Fair and Popolo Management to administer and operate the Popolo-Sky Lounge. Id.
2. Blaze Litigation
In 2010, Blaze entered into a lease agreement with Valley Fair Mall, and Lopez-Flores was a personal guarantor. Id. Blaze agreed to make leasehold improvements, as the rented space was not equipped for Popolo-Sky Lounge, which would be financed by investors. Id. Later, Valley Fair Mall decided it did not want a restaurant in the Blaze space, terminated the lease, and brought an unlawful detainer action against Blaze, which was unsuccessful. Id.; 6 ER 1173. In March 2015, Valley Fair Mall refused to accept rent payments from Blaze. 1 ER 21. On May 1, 2015, Blaze and Lopez-Flores filed a complaint against Valley Fair Mall in Superior Court seeking compensatory damages of approximately $11.6 million (“Blaze Litigation“). 1 ER 21-22. The Superior Court ordered the parties to mediation, and in August 2015, the parties signed a memorandum of understanding in which Valley Fair Mall exercised its right to remove Blaze from the lease in exchange for paying Blaze the cost of its completed leasehold improvements. 1 ER 22; 3 ER 399. Blaze estimated it needed approximately $7 million to pay off all debt incurred to
3. Minnesota Property
In November 2013, Mosaic purchased a residential investment property at 496 Minnesota Avenue in San Jose, California (“Minnesota Property“). 1 ER 33. Vuong intended to renovate and sell the property for a profit. 1 ER 34. Ground Zero was renovating a house across the street, and Vuong was interested in hiring Ground Zero to renovate the Minnesota Property. Id. Vuong entered into a Development Service Contract with Flores individually on December 3, 2013, as well as a Home Improvement Contract with Ground Zero for the Minnesota Property on December 10, 2013. Id.; 6 ER 1038. The Home Improvement Contract required Vuong to make progress payments to Ground Zero as it renovated the Minnesota Property. 1 ER 34. In September 2014, Ground Zero requested a payment in advance for its work, and Vuong agreed to make an advance payment of $93,720 through Mosaic, but demanded a secured interest in Abiani‘s residence at 370 Grandpark Circle in San Jose, California, to ensure the work would be completed. Id. Vuong made the payment on September 30, 2014, and Abiani signed a Deed of Trust and Assignment of Rents naming Vuong as the beneficiary and that document was recorded by the Santa Clara County Recorder on November 24, 2014. Id.; 6 ER 1043. Vuong agreed to release the Deed of Trust once Ground Zero completed the work on the Minnesota Property. 1 ER 34.
In December 2014, a Ground Zero employee told Vuong that the employee‘s paycheck was dishonored, and because Vuong did not want anyone to have a “bad Christmas,” Vuong paid the employee himself. Id.; 6 ER 1054. Vuong then noticed that the work on the Minnesota Property ceased. 1 ER 34. Ground Zero and Flores ran out of money to complete the Minnesota Property project because the funds Vuong advanced were used to pay for labor and materials needed for Popolo-Sky Lounge. 1 ER 35. Flores told Vuong that if he wanted Ground Zero to complete the Minnesota Property renovations, he would need to invest in the Popolo-Sky Lounge,
On July 14, 2015, Mosaic sold the Minnesota Property to the Bottarini Family Trust (the “Bottarinis“) for $1,398,000. Id.; 6 ER 1058. The Bottarinis were aware that Ground Zero had not completed the work that was expected per the January 9, 2015 letter, and waived the final inspection because they believed Ground Zero would complete the work. Id. Several months following the sale, a conflict arose between the Bottarinis and Ground Zero and Flores regarding the Minnesota Property renovations. Id. The Bottarinis decided they did not want Flores to complete the work, and they hired another company to inspect the property, which identified multiple construction defects that it attributed to Ground Zero‘s work. 1 ER 36. The Bottarinis sued Mosaic and Ground Zero, and the parties mediated the dispute. Id. Flores and Ground Zero decided not to settle because Ground Zero wanted to fix the defects, but Vuong and Mosaic settled with the Bottarinis. Id. Through Mosaic, Vuong agreed to pay the Bottarinis $37,000 and incurred $36,104 in attorney‘s fees. Id.; 6 ER 1068. On June 15, 2018, Vuong and Mosaic filed a civil action against Flores, Ground Zero, and Abiani seeking damages and judicial foreclosure against the 370 Grandpark Circle Property. 1 ER 36.
4. UGFB/Blaze
On February 2, 2015, Vuong gave Flores a check payable to Blaze for $100,000, which stated “5% ownership for Popolo.” Id.; 18 ER 3983. In addition, Vuong convinced his friend Hwa Su to invest $125,000 in Popolo. 1 ER 36. Vuong and Su were given ownership interests in UGFB. 1 ER 37.
5. 95 Hamilton
In September 2014, Flores asked Vuong to invest $250,000 into a project at 95 Hamilton,
6. Iron Springs
Lopez-Flores and Flores asked Vuong, and he agreed, to invest $150,000 to help them build their “dream house” on undeveloped land called Iron Springs. 1 ER 38; 6 ER 1104. Lopez-Flores and Flores gave Vuong a binder with a document called Operating Agreement of Iron Springs Development, LLC, which resembled the Operating Agreement of 95 Hamilton and UGFB. 1 ER 38. On August 14, 2015, Vuong invested in Iron Springs using funds from Mosaic. Id.; 5 ER 885.
7. Secured Loans
In addition to providing Lopez-Flores and Flores with investment capital as described above, Vuong also provided them with two personal loans secured by Lopez-Flores‘s personal residence. 1 ER 40. On September 30, 2014, Vuong sent Flores $75,000 from his IRA account. Id.; 3 ER 403. Flores signed a promissory note agreeing to repay, and the loan carried an interest rate of 8% and was payable on January 6, 2015. 1 ER 40. Vuong claimed he loaned Flores the money to help him complete a church project in Fremont, but Flores claimed those funds were not earmarked for the church project. Id. Flores advanced the funds to Blaze and deposited the funds in Ground Zero‘s bank account. Id. Flores did not repay that loan. Id. Vuong granted him an extension, with a new maturity date of July 1, 2015. On July 18, 2015, the loan was extended again, with a new maturity date of December 1, 2015. As of the date of trial in the bankruptcy court, Flores had not repaid the loan. Id.
Vuong loaned more money to Flores on October 29, 2015. Id. Through Mosaic, Vuong lent Flores $10,000, and Flores signed a promissory note promising to repay that sum. Id. That
B. Procedural History
1. Bankruptcy Proceedings
Lopez-Flores filed a voluntary Chapter 11 bankruptcy petition on August 8, 2016, which was dismissed on March 20, 2018. Id.; 10 ER 2211-2212. On September 4, 2018, Lopez-Flores filed the bankruptcy case giving rise to this appeal, which was filed originally as a voluntary Chapter 11 and subsequently converted to Chapter 7. 1 ER 40; 13 ER 2958. Flores filed two voluntary Chapter 11 bankruptcy petitions prior to Lopez-Flores‘s, both of which were dismissed.2 1 ER 40. In her ongoing bankruptcy case, Lopez-Flores filed several sets of bankruptcy schedules and related documents which the bankruptcy court described as “evidenc[ing] a pattern of omitted facts and restatements or corrections of previously disclosed facts.” Id. While she consistently disclosed her personal residence, “many other assets and liabilities were omitted or misstated,” including that she did not disclose her interest in 95 Hamilton or Iron Springs in her initial schedules, and she understated the amount of the first lien on her personal residence by $400,000. Id. Moreover, she also omitted seven secured creditors, holding claims totaling $862,518.44, from her initial schedules. Id. Her initial Statement of Financial Affairs (“SOFA“) filed with her bankruptcy schedules stated that she was not a party to any lawsuit or court action within one year of filing for bankruptcy. Id.; 10 ER 2141. She amended her SOFA two months later to disclose the Blaze Litigation. 1 ER 40. Most amendments Lopez-Flores made to her schedules and SOFA occurred only after meetings of creditors pursuant to
On December 24, 2019, Vuong and Mosaic commenced the Adversary Proceeding against Lopez-Flores and Flores. On March 24, 2021, Vuong and Mosaic filed an amended complaint, containing six claims for relief including non-dischargeability claims, objections to Lopez-Flores‘s discharge along with Flores‘s community discharge, and request for treble damages under the California Penal Code. On December 14, 2021, the bankruptcy court entered an order approving a stipulation between all parties to consolidate three claim objections – Claims 7, 10, and 11 – with the Adversary Proceeding. A four-day trial took place beginning on September 20, 2023.
a. Order After Trial
The bankruptcy court issued its Order After Trial on April 3, 2024. 1 ER 16-62. Therein, the bankruptcy court granted two of Vuong and Mosaic‘s non-dischargeability claims. 1 ER 61-62. First, it denied Lopez-Flores‘s discharge pursuant to
the court shall grant the debtor a discharge, unless the debtor has committed any act specified in paragraph (2), (3), (4), (5), or (6) of this subsection, on or within one year before the date of the filing of the petition, or during the case, in connection with another case, under this title or under the Bankruptcy Act, concerning an insider.
The bankruptcy court, noting that “[a] Chapter 7 debtor cannot be their own insider in another case,” and thus, “the false oaths of a Chapter 7 debtor in their previous bankruptcy case cannot serve as a ground under
Plaintiffs cannot rely on [Lopez-Flores‘s] false statements in her Prior Bankruptcy Case as the basis for a
§ 727(a)(7) claim in this case. Also, there is no evidence showing that any of the Related Entities that [Lopez-Flores] could be classified as an insider for have filed bankruptcy petitions. The§ 727(a)(7) claim is denied.
Id. Vuong and Mosaic had also brought a claim under
The bankruptcy court next considered Vuong and Mosaic‘s Proofs of Claim 7, 10, and 11. 1 ER 33. A proof of claim “is a written statement setting forth a creditor‘s claim,”
It is no simple matter to determine the nature of Vuong and Mosaic‘s claimed interests in this bankruptcy case, and whether they hold claims against [Lopez-Flores] and [Flores] as individuals. To understand whether Vuong and Mosaic have valid claims one must examine the convoluted, murky record the parties to this dispute created when Vuong and Mosaic paid money to Saul and invested in the Related Entities. The facts at trial showed that Vuong and Mosaic repeatedly advanced money to Saul and certain Related Entities to fund acquisition, construction, and other activities. These advances were poorly and unconventionally documented, making assessment of their exact nature difficult.
1 ER 33.
Ultimately, the bankruptcy court partially denied Claim 7 and denied Claims 10 and 11. Claim 7 is based on two promissory notes secured by two distinct deeds of trust against Lopez-Flores‘s personal residence and seeks $138,828.63. 1 ER 43. Flores objected, arguing the accrued interest rate is usurious, and the bankruptcy court partially denied the claim on that basis. Id. Claims 10 and 11 were filed based on multiple investments Vuong made in the Related Entities, and sought $698,104 between both claims. 1 ER 48-49. The bankruptcy court denied these claims, finding Lopez-Flores and Flores could not be held personally liable for the money Vuong and Mosaic advanced to the Related Entities. Id. In reaching its conclusions, the bankruptcy court made several findings regarding the credibility of witnesses. See 1 ER 39-40. Specifically, the bankruptcy court discredited Vuong and Mosaic‘s witnesses, Timothy Gillihan and Vanessa Hill, and found more useful Lopez-Flores and Flores‘s expert, Jolene Fraser. Id. On April 5, 2024, the
b. Additional Orders
On October 2, 2023, Vuong and Mosaic filed a “Limited Objection to Defendants’ Exhibits LLLL-9 and LLLL-12 and Request for Reconsideration of the Unqualified Admission of Exhibits LLLL-2, LLLL-3, LLLL-5, LLLL-6, LLLL-7, and LLLL-14 Together with Motion to Strike Related Testimony of Saul Flores.” The exhibits and testimony that were the subject of Vuong and Mosaic‘s filing were offered at trial. Lopez-Flores and Flores responded on October 4, 2023, and the bankruptcy court sustained in part and overruled in part Vuong and Mosaic‘s objections and motion to strike. 1 ER 81-82.
On April 15, 2024, Vuong and Mosaic filed a Motion for Reconsideration of Judgment and Claims. 1 ER 3. On May 7, 2024, Lopez-Flores and Flores responded, and Vuong and Mosaic‘s reply followed on May 14, 2024. 1 ER 3-4. A hearing was held on May 21, 2024, and on May 27, 2024, the bankruptcy court issued an order denying the motion. 1 ER 2, 4.
On April 22, 2024, Vuong and Mosaic filed a motion for leave to amend their complaint to conform to proof, seeking to add a common law fraud claim to their amended complaint. 1 ER 68. Lopez-Flores and Flores opposed, a hearing was held on May 21, 2024, and the bankruptcy court denied the motion on May 27, 2024. 1 ER 69.
On June 12, 2024, Vuong and Mosaic filed a notice of appeal, commencing the instant action. Dkt. No. 1.
II. STANDARD OF REVIEW
District courts have jurisdiction to hear appeals from “final judgments, orders, and decrees” of the bankruptcy courts.
Any evidentiary rulings are reviewed for an abuse of discretion. Sigma Micro Corp. v. Healthcentral.com (In re Healthcentral.com), 504 F.3d 775, 783 (9th Cir. 2007). A bankruptcy court‘s denial of a motion for reconsideration is reviewed for an abuse of discretion. Arrow Elecs., Inc. v. Justus, 218 F.3d 1070, 1073 (9th Cir. 2000); Sewell v. MGF Funding, Inc., 345 B.R. 174, 178 (9th Cir. BAP 2007). A court “necessarily abuses its discretion when it bases its decision on an erroneous legal standard or on clearly erroneous findings of fact.” Farris v. Seabrook, 677 F.3d 858, 864 (9th Cir. 2012) (citing Flexible Lifeline Sys., Inc. v. Precision Lift, Inc., 654 F.3d 989, 994 (9th Cir. 2011)).
III. DISCUSSION
Vuong and Mosaic appeal the bankruptcy court‘s partial disallowance of Claim 7 and its disallowance of Claims 10 and 11. As for Claim 7, they challenge the bankruptcy court‘s finding that the interest on the loans at issue was usurious and the bankruptcy court‘s cancellation of the interest. Vuong and Mosaic‘s principal challenge as to Claims 10 and 11 is that the bankruptcy court wrongly declined to apply an alter ego theory of liability. First, Vuong and Mosaic argue the bankruptcy court erred in finding they failed to establish primary liability of the Related Entities. Next, Vuong and Mosaic contend the bankruptcy court erred in determining they were required to prove an underlying state law claim and argue their claims under
A. Claim 7
Proof of Claim 7 is based on two promissory notes secured by two distinct deeds of trust against Lopez-Flores‘s personal residence. Vuong filed the proof of claim on July 10, 2019, in the amount of $138,828.63. 1 ER 43. While Lopez-Flores does not contest the validity of Claim 7, Flores filed an objection on July 28, 2023, contending that only $93,066.67 of the requested amount should be allowed because the accrued interest of $45,761.96 – based on a 12% default interest rate per annum – is usurious. 1 ER 43-44. The bankruptcy court found both loans were usurious on their face and ordered the usual remedy, cancellation of the interest. 1 ER 47 (citing Korchemny v. Piterman, 68 Cal.App.5th 1032, 1043 (2021)). Accordingly, the claim for the first loan was only allowed in the amount of $83,000 and the claim for the second loan was only allowed in the amount of $10,066.67 for a total allowable claim of $93,066.67. Id.
Although listed in their statement of issues presented, see Op. Br. at 12, Vuong and Mosaic do not argue the issue in their opening brief. “Generally, an issue is waived when the appellant does not specifically and distinctly argue the issue in his or her opening brief.” Wang v. Chinese Daily News, Inc., 737 F.3d 538 (9th Cir. 2013) (quoting United States v. Brooks, 610 F.3d 1186, 1202 (9th Cir. 2010)); see also U. S. for Use & Benefit of Greenhalgh v. F. D. Rich Co., 520 F.2d 886, 890 (9th Cir. 1975) (“Failure to argue an issue presented for review is a waiver of the issue on appeal.“) (citation omitted). Because Vuong and Mosaic‘s failure to address means the issue is waived, the Court AFFIRMS the bankruptcy court‘s partial denial of Claim 7.
B. Claims 10 and 11
Vuong and Mosaic filed Proof of Claim 10 in the amount of $475,000 based on multiple investments that Vuong made in the Related Entities, including: (1) $250,000 for 95 Hamilton; (2) $100,000 for UGFB; (3) $65,000 for UGFB; and (4) $60,000 for UGFB.6 Proof of Claim 11 was in the amount of $223,104 based on (1) $150,000 Vuong invested in Iron Springs using a
The bankruptcy court evaluated Claims 10 and 11 together, noting “they are largely duplicative,” with the exception of Claim 11‘s assertion of money due arising out of the Minnesota Property Litigation, which is discussed separately below. 1 ER 48. In evaluating these two claims, the bankruptcy court considered the “difficult question” of whether Lopez-Flores and Flores could be held personally liable for money Vuong and Mosaic advanced to the Related Entities such that the claims should be allowed as against their bankruptcy estates. Id. Vuong and Mosaic contend Lopez-Flores and Flores are personally liable for the claimed money because they were married, had a unity of interest and ownership with each Related Entity, transferred money and property between themselves and the Related Entities, and used the corporate status of the Related Entities in bad faith as a shell to conceal transactions and to avoid and transfer liability. 1 ER 49. They contend the bankruptcy court made multiple errors related to the applicability of the alter ego theory of liability in reaching its conclusion that the claims should be disallowed. Op. Br. at 32. The Court examines each in turn.
1. Alter Ego
a. Primary Liability
Appellants’ first arguments center on the bankruptcy court‘s determination that they failed to establish the Related Entities’ primary liability. 1 ER 52. As an initial matter, the bankruptcy court found Vuong and Mosaic did not qualify as creditors. A creditor is an “entity that has a claim against the debtor that arose at the time of or before the order for relief concerning the debtor.”
The bankruptcy court determined Vuong and Mosaic are owners or members of the Related Entities, which are all California limited liability companies. Under California law, as members of the limited liability companies, Vuong and Mosaic were deemed to have assented to the operating agreements of the entities.
3.05 Limitations on Withdrawals of Capital Contribution. No Member has the right to demand the return of, or withdraw, any or all of that Member‘s Capital Contribution before the dissolution and winding up of the Company. No Member is required to contribute or to lend any money or property to the Company to enable the Company the return of any Member‘s Capital Contributions. No Member shall receive property or any part of that Member‘s Capital Contribution until all liabilities of the Company, except liabilities to Members on account of their Capital Contributions, have been paid unless the Board determines that adequate property will remain to pay the Company‘s liabilities after payment of some or all of that Member‘s Capital Contribution.
1 ER 50-51. The bankruptcy court determined that this section “show[ed] that Vuong and Mosaic have no right to payment for the money they invested in UGFB, Iron Springs, and 95 Hamilton because the evidence does not show that those LLCs have been dissolved.” 1 ER 51. The bankruptcy court further determined that none of the investments qualified as loans because the operating agreements for all three LLCs stated as follows:
2.22 Loans by Members to the Company. No Member shall be obligated to lend money to the Company. No Member may lend money to the Company without the written approval of the Board. Any loan by a Member to the Company shall be entered on the books of the Company as a loan to the Company and not as a Capital Contribution, shall bear interest as such a rate as may be agreed upon by the lending Member and the Board, and shall be evidenced by a promissory note duly executed by at least two Members of the Board.
1 ER 51. The investments were recorded as capital contributions, not loans, as none of them were evidenced by promissory notes duly executed by at least two members of the board. Id.
Because it found Vuong and Mosaic were investors, not creditors, in the Related Entities,
Flores‘s statement does not establish that Vuong and Mosaic were creditors rather than investors. Although “[f]actual assertions in pleadings and pretrial orders, unless amended, are considered judicial admissions conclusively binding on the party who made them,” Am. Title Ins. Co. v. Lacelaw Corp., 861 F.2d 224, 226 (9th Cir. 1988), “statements of law or legal argument . . . fall outside the concept of judicial admissions,” Lam Research Corp. v. Schunk Semiconductor, 65 F. Supp. 3d 863, 870 (N.D. Cal. 2014). Assuming a declaration submitted with an objection to a proof of claim constitutes a “pleading,” Flores‘s statement that Vuong and Mosaic were creditors of the Related Entities, and not of Lopez-Flores, is not a judicial admission of fact. See Eisen v. Day, No. 21-CV-05349-VKD, 2023 WL 7284149, at *4 (N.D. Cal. Nov. 2, 2023) (finding an assertion that plaintiff was entitled to financial compensation for his ownership interest was a legal conclusion, not a judicial admission of fact). Vuong and Mosaic‘s challenge to the bankruptcy court‘s conclusion that they were investors in the Related Entities rather than their creditors therefore fails.
b. Substantive State Law Claim
Vuong and Mosaic also challenge the bankruptcy court‘s finding that the alter ego theory was procedurally improper because alter ego is not a substantive claim for which relief may be granted, but rather it “furnishes a means for a complainant to reach a second corporation or individual upon a cause of action that otherwise would have existed only against the first corporation.” 1 ER 52. Because Vuong and Mosaic did not state an underlying claim against the Related Entities, the bankruptcy court found the alter ego theory could not be sustained. 1 ER 52.
Vuong and Mosaic argue this is error, as the alter ego doctrine can be invoked when there is evidence that “adherence to the fiction of the separate existence of the corporation would promote injustice,” and there need not be an independent substantive claim. Op. Br. at 35 (quoting Misik v. D‘Arco, 197 Cal. App. 4th 1065, 1069 (2011). “[T]here is no such thing as a substantive alter ego claim . . . .” Ahcom, Ltd. v. Smeding, 623 F.3d 1248, 1251 (9th Cir. 2010). “A claim against a defendant, based on the alter ego theory, is not itself a claim for substantive relief, e.g., breach of contract or to set aside a fraudulent conveyance, but rather, procedural. . . .” Id. (citing Hennessey‘s Tavern, Inc. v. Am. Air Filter Co., 204 Cal. App. 3d 1351 (1988)) (internal quotation marks omitted). Therefore, the bankruptcy court did not err in finding Vuong and Mosaic‘s “effort is procedurally improper” because “[a]lter ego is not a substantive claim for which relief may be granted,” but “merely furnishes a means for a complainant to reach a second corporation or individual upon a cause of action that otherwise would have existed only against the first corporation.” 1 ER 52.
Vuong and Mosaic argue that, even though they need not assert underlying substantive claims to support their alter ego theory, they have nonetheless done so, and the bankruptcy court improperly discredited those claims. Op. Br. at 37. The Court addresses each of their arguments in turn.
i. Section 523(a)(4)
Vuong and Mosaic argue that if the bankruptcy court had considered their claim for non-dischargeability on the basis of fiduciary fraud under
The bankruptcy court found Lopez-Flores and Flores “were not fiduciaries under California law” because “[e]ach of the companies was governed by an Operating Agreement, and the agreements arose under California corporate law.” 1 ER 8. Under California law, a corporate officer is not a fiduciary to the corporation or its shareholders for purposes of
ii. California Penal Code § 496(c)
Vuong and Mosaic also argue the bankruptcy court erred in dismissing their claim under
The bankruptcy court determined Vuong and Mosaic did not establish that Lopez-Flores and Flores committed theft. 1 ER 57. Vuong and Mosaic are not explicit about whether they challenge the bankruptcy court‘s factual findings or assert the bankruptcy court reached an improper legal conclusion, so the Court considers both. The bankruptcy court examined the record as to each of Vuong and Mosaic‘s investments and ultimately concluded Lopez-Flores and Flores were “not running a fictional or scam business,” and that they “had multiple actual construction projects running at any time.” 1 ER 57. This conclusion is supported by the record. The bankruptcy court acknowledged that at trial, “it was clear that [Appellees] on occasion used Ground Zero‘s funds to pay personal expenses.” 1 ER 58. However, it determined that “the testimony at trial showed that the lions’ share of money leaving Ground Zero was used for business and construction purposes.” 1 ER 59. Because this conclusion is neither illogical nor implausible, Ramon Palm Lane, Inc., 2017 WL 1434403, at *5, the bankruptcy court did not clearly err in these factual findings. See In re Mortg. Store, Inc., 773 F.3d at 994.
Further, the Court determines the bankruptcy court did not commit legal error in finding neither Lopez-Flores nor Flores acted with criminal intent. 1 ER 59. Criminal intent exists where a defendant is responsible for “misrepresentations or unfulfilled promises” made with “careful planning and deliberation.” Siry Investment L.P., 13 Cal.5th at 361-62. The bankruptcy court‘s findings that Lopez-Flores and Flores were not running a scam business and used the majority of Ground Zero‘s money for business and construction purposes does not support a finding of criminal intent required for establishing the first element for liability under
iii. Section 523(a)(6)
The bankruptcy court also considered Vuong and Mosaic‘s claim for conversion under
Vuong and Mosaic challenge the bankruptcy court‘s conclusion that their conversion claim failed. Again, because they are not explicit about whether they challenge the bankruptcy court‘s factual findings or assert the bankruptcy court reached an improper legal conclusion, the Court considers both. “Conversion is the wrongful exercise of dominion over the property of another.” Lee v. Hanley, 61 Cal. 4th 1225, 1240 (2015) (citation omitted). “The elements of a conversion claim are: (1) the plaintiff‘s ownership or right to possession of the property; (2) the defendant‘s conversion by a wrongful act or disposition of property rights; and (3) damages.” Id. at 1240. “Money can be the subject of an action for conversion if a specific sum capable of identification is involved.” Avidor v. Sutter‘s Place, Inc., 212 Cal. App. 4th 1439, 1452 (2013) (citation omitted). The bankruptcy court found that Vuong and Mosaic obtained ownership interests in exchange for their investments. This conclusion was not clear error, as it is supported by record evidence7 and is therefore not “illogical, implausible or without support in the record.” Ramon Palm Lane, Inc., 2017 WL 1434403, at *5. Further, because Vuong and Mosaic retain their investments in the Related Entities, the bankruptcy court correctly determined the money was not converted and therefore the
iv. Motion for Reconsideration
Vuong and Mosaic moved for reconsideration of the bankruptcy court‘s order finding that they had not asserted an underlying fraud claim against Lopez-Flores and Flores. Op. Br. at 35.
To determine whether the bankruptcy court abused its discretion, courts employ a two-part inquiry. In re First Yorkshire Holdings, Inc., 470 B.R. 864, 868 (9th Cir. BAP 2012). First, courts “determine de novo whether the [bankruptcy] court identified the correct legal rule to apply to the relief requested.” United States v. Hinkson, 585 F.3d 1247, 1261-62 (9th Cir. 2009). Second, courts determine whether the bankruptcy court‘s application of that standard, or the court‘s factual findings, were illogical, implausible, or “without support in inferences that may be drawn from facts in the record.” Id. at 1262 (citation and internal quotation marks omitted); see also McDowell v. Calderon, 197 F.3d 1253, 1255 (9th Cir. 1999) (in reviewing decision on motion for reconsideration based on purported clear error by trial court, reviewing court “do[es] not review de novo the legal basis for the [alleged error], as [it] would if this were an appeal from the order itself. . . . Rather, [it] ask[s] whether the [alleged error] involved a clear error of law“). Error at either step constitutes an abuse of discretion. See Hinkson, 585 F.3d. at 1261-63.
The bankruptcy court applied the correct standard by considering the “four basic grounds by which a Rule 59(e) motion may be granted: (1) if such motion is necessary to correct manifest errors of law or fact upon which the judgment rests; (2) if such motion is necessary to present newly discovered or previously unavailable evidence; (3) if such motion is necessary to prevent manifest injustice; or (4) if the amendment is justified by an intervening change in controlling law.” 1 ER 5 (citing Allstate Ins. Co. v. Herron, 634 F.3d 1101, 1111 (9th Cir. 2011)). And its application of those factors was supported by the record. Id. at 1262. Vuong and Mosaic argue the bankruptcy court improperly faulted them for not specifically pleading each element of an underlying fraud claim, where they alleged fraud in the inducement in the first amended complaint and in the joint pretrial case statement and fiduciary fraud in the joint pretrial case statement. Op. Br. at 35-36. The bankruptcy court recognized that Appellants mentioned the word “fraud” in the joint pretrial case statement, but rejected it as insufficient to plead fraud. 1 ER 7. In no pleading did Appellants brief a fraud claim. Id. The bankruptcy court‘s conclusion that Appellants had not
v. Denial of Leave to Amend to Conform to Proof
After trial, Vuong and Mosaic moved for leave to file a second amended complaint to conform to proof and add a seventh claim for relief for “alter ego liability, common law fraud” pursuant to
Courts reviewing a bankruptcy court‘s ruling on a Rule 15(b) motion review do so abuse of discretion. Galindo v. Stoody Co., 793 F.2d 1502, 1512 (9th Cir. 1986); In re Kaypro, 218 F.3d 1070, 1073 (9th Cir. 2000). Here, the bankruptcy court applied the correct legal rule –
[w]hen an issue not raised by the pleadings is tried by the parties’ express or implied consent, it must be treated in all respects as if raised in the pleadings. A party may move at any time, even after judgment – to amend the pleadings to conform them to the evidence and to raise an unpleaded issue. But failure to amend does not affect the result of the trial of that issue.
The bankruptcy court also properly applied the rule. It first considered whether Appellees had either actually or impliedly consented at trial to the issue Appellants sought to add to their complaint through amendment. 1 ER 72. Its finding that there was no consent is supported by the record, which shows that there was no fraud claim in the amended complaint, in Appellants’ trial or post-trial briefs, or in the joint pre-trial conference statement. See 1 ER 72-73. The bankruptcy court separately considered the Foman v. Davis factors, which allow a court to deny leave to amend where there is “undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, [or] futility of amendment.” 371 U.S. 178, 182 (1962). The bankruptcy court explicitly found that “[a]llowing an amendment to the pleadings now would not serve [Appellees‘] interests,” and that continued litigation in this case
c. Substantive Alter Ego Liability Requirements
Next, Vuong and Mosaic challenge the bankruptcy court‘s finding that they had not satisfied the California law requirements for alter ego liability. The bankruptcy court found that, on the record before it, Lopez-Flores and Flores‘s relationships with the Related Entities did not meet the requirements for the application of alter ego liability, as there is no debt since Vuong and Mosaic were investors, and each of the companies had a separate purpose, held meetings, and had officers and directors. 1 ER 53. Vuong and Mosaic argue that this was error, contending the bankruptcy court ignored “overwhelming evidence” that Flores was the “architect” of a “fraudulent investment scheme and dominated and controlled” Lopez-Flores, the Blaze Lawsuit, and the Related Entities. Op. Br. at 44-45. Vuong and Mosaic point to the following evidence in the record: The Related Entities are managed by boards of directors, on which at least one of the Appellees is a member (9 ER 1904); Appellees control the appointment of other directors (3 ER 437); Lopez-Flores attended board meetings but always deferred to Flores (4 ER 588, 610); and that other board members were always Abiani or McClenahan (4 ER 609-610). Op. Br. at 45-46.
Under California law, the two requirements of alter ego liability are
(1) that there be such unity of interest and ownership that the separate personalities of the corporation and the individual no longer exist, and (2) that, if the acts are treated as those of the corporation alone, an inequitable result will follow. With respect to the second requirement, it is sufficient that it appear that recognition of the acts as those of a corporation only will produce inequitable results.
Associated Vendors, Inc. v. Oakland Meat Co., 201 Cal.App.2d 825, 837 (Ct. App. 1962). Courts consider the following factors when applying the alter ego doctrine:
(1) commingling of funds and other assets, (2) the holding out by one entity that it is liable for the debts of the other, (3) identical equitable ownership in the two entities, (4) use of the same offices
and employees, (5) use of one entity as a mere shell or conduit for the affairs of the other, (6) inadequate capitalization, (7) disregard of corporate formalities, (8) lack of segregation of corporate records, and (9) identical directors and officers.
Turman v. Superior Ct. of Orange Cnty., 17 Cal. App. 5th 969, 981 n.6 (2017) (citing Sonora Diamond Corp. v. Superior Court, 83 Cal. App. 4th 523, 538 (2000)). “No one characteristic governs, but the courts must look at all the circumstances to determine whether the doctrine should be applied.” Id. “The determination of whether requirements exist for disregarding the corporate entity are primarily for the trial court, and not questions of law.” Santa Cruz Empacadora, S. de R.L. de C.V. v. R.B. Packing of California, Inc., No. 00-CV-1217B (RBB), 2005 WL 8173035, at *2 (S.D. Cal. Sept. 13, 2005) (citing Arnold v. Browne, 27 Cal. App. 3d 386, 394 (1972) (internal quotations omitted)); see also Cal W. Env‘t Servs., Inc. v. eStrategy, Inc. et al. Additional Party Names: Brian Sexton, Laura Lake, No. 215CV09667RGKAFM, 2017 WL 11631492, at *3 (C.D. Cal. Jan. 3, 2017) (citing Leek v. Cooper, 194 Cal. App. 4th 399, 417 (2011)) (“Under California law, alter-ego liability is quintessentially a question of fact.“).
Reviewing for clear error, the Court affirms the bankruptcy court‘s finding that Vuong and Mosaic failed to satisfy the requirements of California‘s substantive law of alter ego. The bankruptcy court found that the facts in the record did not establish that the Related Entities had primary liability for a debt and were so completely dominated by Appellees that its separate existence would only further an injustice. 1 ER 53. On its review of the record, the bankruptcy court determined the Related Entities were sufficiently separate in purpose and management such that their separate existence from Appellees would not further an injustice. Id. This conclusion is neither illogical, implausible, or without support in the record, Ramon Palm Lane, Inc., 2017 WL 1434403, at *5, and the Court therefore affirms.
i. Expert Testimony
Vuong and Mosaic also argue the bankruptcy court made various errors with regard to the weight given to experts’ testimony in considering whether Vuong and Mosaic had satisfied the substantive law of alter ego, and its subsequent disallowance of Claims 10 and 11 on that basis. Specifically, Vuong and Mosaic argue the bankruptcy court clearly erred in (1) “minimiz[ing] and/or ignor[ing] Timothy Gillhan‘s expert testimony and find[ing] a portion of that testimony
Where a party points to no clear error in the bankruptcy court‘s credibility determinations, the reviewing court must defer to the bankruptcy court‘s findings as to the witnesses. See Centennial Bank v. Kane, No. 23-CV-02944-WHO, 2024 WL 1342600, at *5 (N.D. Cal. Mar. 29, 2024) (deferring to bankruptcy court‘s finding that witness‘s testimony was honest and adequate where opposing party did not identify any clear error). Vuong and Mosaic have “an especially difficult burden” here because of “the deference [reviewing courts] give the bankruptcy court‘s opportunity to weigh the importance of witness testimony and judge the credibility of witnesses.” In re GTI Cap. Holdings, L.L.C., No. BAP AZ-06-1096-PADS, 2007 WL 7532277, at *16 (B.A.P. 9th Cir. Mar. 29, 2007) (citing
First, Vuong and Mosaic challenge the weight the bankruptcy court afforded Timothy Gillihan. In the Adversary Proceeding, Vuong and Mosaic presented a forensic accounting report, supporting documents, and testimony by Gillihan, their financial expert. 14 ER 3118, 3163. The Gillihan report concluded that the Related Entities’ financial records were unreliable, that the universe of financial records was inconsistent and contradictory, and the documents were not customary for the types of records a construction company would maintain and provide. 14 ER 3118, 3163. For example, he testified that Lopez-Flores and Flores did not have a practice of keeping labor timecards, contemporaneous financial records, or third-party documentation. 1 ER 39. Gillihan also testified about Flores‘s efforts to substantiate claims that he and Lopez-Flores made in the Blaze Litigation for money the spent improving the Popolo-Sky Lounge leasehold. The bankruptcy court determined “none of those financial documents were at issue in this case, and [found] that part of his testimony irrelevant.” 1 ER 40. Vuong and Mosaic identify no clear error in the bankruptcy court‘s determination, so the Court defers to the bankruptcy court‘s assessment of Gillihan‘s testimony.
The bankruptcy court found the testimony of Lopez-Flores and Flores‘s expert, Jolene Fraser, “to be more useful.” 1 ER 40. Fraser, a forensic accountant, explained it was not uncommon for funds to be transferred from the bank account of an underlying development project (such as Blaze) to the bank account of the construction company managing the project (such as Ground Zero) because costs were being incurred on a regular basis to keep the project moving. Id. Vuong and Mosaic argue Fraser made a “critical mistake” in her report by failing to recognize the significance of the Gillihan report, because the Hill report did not sufficiently emphasize Hill‘s reliance on the Gillhan report. Op. Br. at 52-53. Fraser criticized the Hill report‘s failure to rely on the “underlying information, supporting documentation, understand the nature of the transfer,” 4 ER 628, and Vuong and Mosaic argue that had Fraser read the Gillihan report “she would have known the underlying information and supporting documentation was either non-existent, unreliable, highly suspect and/or not prepared contemporaneously.” Op. Br. at 53. But Vuong and Mosaic point to no error suggesting it was an abuse of discretion for the bankruptcy court to credit Fraser‘s testimony over Hill‘s.
Finally, Vuong and Mosaic argue the bankruptcy court abused its discretion in giving Flores any credibility. Op. Br. at 57. Flores testified, and the bankruptcy court found that the
ii. Denial of Reconsideration of Admission of Exhibits LLLL-2, LLLL-3, LLLL-5, LLLL-6, LLLL-7, and LLLL-14 and to Strike Flores‘s Testimony
Vuong and Mosaic argue the bankruptcy court abused its discretion by denying reconsideration of its admission of exhibits LLLL-2, LLLL-3, LLLL-5, LLLL-6, LLLL-7, and LLLL-14 and denying the motion to strike Flores‘s testimony on those exhibits. “A Bankruptcy Court‘s ruling on a motion to strike is entrusted to its sound discretion and is reviewed under the abuse of discretion standard.” El Pollo Loco, Inc. v. Hashim, 316 F.3d 1032, 1038 (9th Cir. 2003). “Discretion is abused when the judicial action is ‘arbitrary, fanciful or unreasonable’ or ‘where no reasonable [person] would take the view adopted by the trial court.’ ” Id. (citing U.S. Cellular Inv. Co. of L.A., Inc. v. GTE Mobilnet, Inc., 281 F.3d 929, 934 (9th Cir. 2002)).
During trial, Flores testified, and Exhibits LLLL-9 and LLLL-12 were offered during his direct testimony. Exhibit LLLL-9 is a Ground Zero Construction Comerica Bank account statement with certain items highlighted in yellow and with a handwritten dollar amount on the first page. Exhibit LLLL-12 is a series of Ground Zero checks drawn on a Ground Zero Bank of the West account, again with certain items highlighted in yellow and with a handwritten dollar amount on the first page. Vuong and Mosaic objected to the exhibits at trial, and the bankruptcy
On October 2, 2023, Vuong and Mosaic moved for reconsideration of the admission of exhibits LLLL-2, LLLL-3, LLLL-5, LLLL-6, LLLL-7, and LLLL-14, 3 ER 377, but because they failed to timely object during trial, the bankruptcy court found that Lopez-Flores and Flores would be prejudiced if the exhibits were excluded and that Appellants had an opportunity to timely object during trial and failed to do so. Accordingly, the bankruptcy court found Vuong and Mosaic waived the admission of those exhibits, and had not shown their admission was prejudicial to any of their substantial rights, nor that they challenged the authenticity of the exhibits themselves. The bankruptcy court thus denied the motion for reconsideration of the admission of those exhibits.
Vuong and Mosaic also moved to strike Flores‘s testimony with respect to all highlighted items and handwritten dollar amounts on all the exhibits at issue in its motion. The bankruptcy court granted the motion with respect to exhibits LLLL-9 and LLLL-12, but denied it as to the remaining ones. 1 ER 81. The bankruptcy court also rejected Vuong and Mosaic‘s argument that it should give no weight to the remaining exhibits, reiterating that they had the opportunity to object to them during trial and failed to do so. 1 ER 59.
Here, the bankruptcy court “listened to, considered, and rejected” Vuong and Mosaic‘s arguments, and consequently did not abuse its discretion. El Pollo Loco, 316 F.3d at 1038. The Court therefore AFFIRMS the bankruptcy court‘s denial of Vuong and Mosaic‘s motion for reconsideration of the admission of Exhibits LLLL-2, LLLL-3, LLLL-5, LLLL-6, LLLL-7, and LLLL-14 and to strike Flores‘s testimony.
2. Settlement of Minnesota Property Litigation
Vuong and Mosaic also challenge the bankruptcy court‘s denial of Mosaic‘s request in Claim 11 for payment of $73,104 related to its settlement of the Minnesota Property Litigation. Specifically, Mosaic argued Lopez-Flores and Flores are liable for the damages it paid to settle litigation caused by Ground Zero‘s failure to properly construct the building. Id. The bankruptcy
It also found the tort of another doctrine did not apply because there was no finding of an underlying tort, a conclusion Vuong and Mosaic now challenge. “The tort of another doctrine holds that a person who through the tort of another has been required to act in the protection of his interests by bringing or defending an action against a third person is entitled to recover compensation for the reasonably necessary loss of time, attorney‘s fees, and other expenditures thereby suffered or incurred.” Mega RV Corp. v. HWH Corp., 225 Cal. App. 4th 1318, 1337 (2014). Because the doctrine applies to economic damages suffered because of an alleged tort, “nearly all of the cases which have applied the [tort of another] doctrine involve a clear violation of a traditional tort duty between the tortfeasor who is required to pay the attorney fees and the person seeking compensation for those fees.” Id. at 1339 (internal quotation marks omitted). The bankruptcy court found there was no underlying tort, and therefore Vuong and Mosaic‘s tort of another theory necessarily failed. 1 ER 55. It found Mosaic did not establish that Lopez-Flores and Flores owed Mosaic a duty of care, that Lopez-Flores and Flores breached that duty, and that they were the but-for and proximate cause of Mosaic incurring those damages. Id. Appellants argue their tort-of-another theory was “squarely before the [bankruptcy court]” as it was briefed and was the subject of Appellees’ motion in limine, so the bankruptcy court erred in finding Appellants did not plead an underlying tort. Op. Br. at 58.
Reviewing de novo, the Court concludes Appellants did not plead an underlying tort claim. Appellants’ Claim 11 included a brief summary of an alter ego theory. 17 ER 3916. In the section of Appellants’ trial brief discussing Lopez-Flores and Flores‘s liability as to the losses on the Minnesota Property, Appellants asserted that their theory of liability is “known as ‘Tort of Another,’ ” and noted that it is the subject of Appellees’ motion in limine, and they would discuss it in their opposition. 8 ER 1811-12. Appellants’ first amended complaint listed its sixth claim for relief: “Non-dischargeability of debt under
IV. CONCLUSION
For the foregoing reasons, the judgment of the bankruptcy court is AFFIRMED.
IT IS SO ORDERED.
Dated: September 30, 2025
ARACELI MARTÍNEZ-OLGUÍN
United States District Judge
Notes
the debtor, with intent to hinder, delay, or defraud a creditor or an officer of the estate charged with custody of property under this title, has transferred, removed, destroyed, mutilated, or concealed, or has permitted to be transferred, removed, destroyed, mutilated, or concealed—(A) property of the debtor, within one year before the date of the filing of the petition; or (B) property of the estate, after the date of the filing of the petition.
knowingly and fraudulently . . . made a false oath or account; presented or used a false claim; gave, offered, received, or attempted to obtain money, property, or advantage, or a promise of money, property, or advantage, for acting or forbearing to act; or withheld from an officer of the estate entitled to possession under this title, any recorded information, including books, documents, records, and papers, relating to the debtor‘s property or financial affairs.