Town & Country Event Center LLC

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FOR PUBLICATION
UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF CALIFORNIA
In re:
TOWN & COUNTRY EVENT CENTER LLC,
Debtor.
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Case No. 25-24205-C-11
OPINION AND ORDER IMPOSING RULE 9011 SANCTIONS
A footnote in this Court’s decision In re Town & Country
Event Center LLC, 673 B.R. 445, 449 n.2, 75 Bankr. Ct. Dec. 18
(Bankr. E.D. Cal. 2025) (“Town & Country Decision”), promised a
particular lawyer a due process opportunity to explain his
dubious activity. This is the rest of the story.
This Court issued to Attorney Lewis Phon an Order to Show
Cause why he did not violate Federal Rule of Bankruptcy Procedure
9011 and California’s Rules of Professional Conduct when he filed
a third-party motion to sell real property free and clear of
liens supposedly pursuant to 11 U.S.C. §§ 363(b) & (f)(4)-(5) on
behalf of Prime Party Rentals, LLC ("PPR") as the putative buyer
of 11354 White Rock Road, Rancho Cordova, California 93472, which
was property of chapter 11 debtor Town & Country Event Center LLC
in Case No. 2025-24205.
The Order to Show Cause is Dkt. Item 89 and states the
procedural facts.
The response to the Order to Show Cause is Dkt. Item 106,
filed October 31, 2025. ("Phon Response"). This Court has taken
three months for cogitation and mature reflection regarding
appropriate action because it knows this is serious business in
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the career of a professional.
Relevant facts are also stated in Dkt. Item 76 (Findings of
Fact and Conclusions of Law) and Dkt. Item 89 (Order to Show
Cause). No appeal was taken from the associated order that
imposed the multi-year in rem stay-relief remedy that Congress
designed for certain schemes designed to hinder, delay, or
defraud creditors per 11 U.S.C. § 362(d)(4).
The salient facts regarding Rule 9011 issues are that
Attorney Lewis Phon participated in an attempt to perpetrate a
fraud on the Court, which this Court has determined to have been
a scheme to delay and hinder creditors that involved multiple
bankruptcy filings.
The principal of debtor Town & Country is Waqar Khan, whose
shenanigans regarding Town & Country are documented in the Town &
Country Decision. The Phon Response admits that Phon knows and
has represented Waqar Khan but asserts he was not representing
Waqar Khan in this instance.
The specific focus here is on the motion filed by Phon on
September 10, 2025, on behalf of Prime Party Rentals LLC: Motion
to Allow Sale of Real Property, DCN: LP-2, filed 9/10/2025. Dkt.
30. ("PPR Motion").
The presentation of the PPR Motion during the time the stay
relief motions that formed the basis for the § 362(d)(4) in rem
order were pending was part of the orchestrated scheme by Waqar
Khan to hinder, delay, or defraud creditors. The purpose of the
putative sale was to erect a roadblock to the pending stay relief
motions. Khan also sued the creditors, threatening a lis pendens
to stall their foreclosures. The terms of the sale, which would
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be a purchase of chapter 11 estate property by Waqar Khan and his
son Haroon Khan had no credible economic substance and could not
possibly have been authorized under the Bankruptcy Code.
Phon’s assertion that he was not representing Waqar Khan is
too sly to be believed.
The PPR Motion asserts that the proposed sale is permissible
under 11 U.S.C. § 365(f)(4) and is permissible under 11 U.S.C.
§ 365(f)(5). The lack of merit of those assertions is assessed
herein.
In support of the PPR Motion, Phon presented the Declaration
of Haroon Khan. Dkt. 32.
Haroon Khan asserts in his Declaration that he is "an
officer and representative of" PPR and that PPR has a "right of
first refusal." No mention is made of Waqar Khan, who actually is
Managing Member of PPR.
Neither the Haroon Khan Declaration nor the PPR Motion
reveals that Haroon Khan is the son of Waqar Khan.
The omissions by Phon to reveal in the PPR Motion papers the
relationship of Haroon Khan to Waqar Khan was no accident.
Rather, the omissions were intended to mislead the Court.
Although Phon's PPR Motion papers are carefully worded to
create the impression that Haroon Khan is in sole control, the
public records of the California Secretary of State show that
limited liability company Prime Party Rentals LLC was formed
May 2, 2025, by Waqar Khan alone and that the "Managers or
Members are," in the following order, Waqar Khan (2935 Fulton
Avenue, Sacramento, CA 95821) and Haroon Khan (2935 Fulton
Avenue, Sacramento, CA 95821). There is no Chief Executive
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Officer listed. Cal. Sec'y State File No. BA20250999779
(5/2/2025).
The significance of May 2, 2025, is that at the time there
was then pending before Bankruptcy Judge Ronald Sargis a motion
to convert or dismiss the prior jointly administered chapter 11
cases of Town & Country Event Center, No. 24-24492, and Town &
Country West, No. 24-24493, both of which had been filed by Waqar
Khan. The motion to convert or dismiss was filed April 11, 2025,
and was granted by conversion to chapter 7 in June 2025. The
record reflects that Waqar Khan had consistently contended in
those cases that the properties would be sold, but there was no
progress on a sale.
The current case, No. 25-24205, was filed by Khan pro se
after the chapter 7 trustees abandoned the property.
The Phon Response, made under penalty of perjury, states:
"As to the status of Waqar Khan as an insider, my understanding
is that he has no stock nor ownership in Prime Party Rentals but
he does assist with management of its affairs. Nevertheless, the
final authority to decide for Prime Party affairs rests with his
son, Haroon Khan. Waqar Khan was not the proposed buyer." Phon
Response ¶ 27 (emphasis supplied).
The Phon Response further states: "Although I have
represented Waqar Khan in the past, I was not representing him
nor the debtor in this proposed sale." Phon Response ¶ 28.
Phon's testimony at Response paragraphs 27 and 28 is sly,
not credible, and is not believed. Waqar Khan was on both sides
of the transaction, and Phon knew it. Phon’s phrase “my
understanding is” are classic weasel words and, in the context of
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this case, should be construed as such and are also probative of
Phon’s intent.
The Phon Response asserts that, as part of his prefiling
investigation he consulted with Attorney Jonathan Madison about
the proposed PPR sale. Madison had attempted to represent the
Town & Country debtor at the hearing that resulted in the Town &
Country decision. Madison was engaged by Waqar Khan as counsel
for Town & Country as debtor-in-possession in the corporate case
that had been filed pro se by Waqar Khan and was allowed to be
heard at that hearing on the basis his employment application was
pending. The significance of the Phon response is that it is an
evidentiary admission that Phon was coordinating with Waqar Khan
and Madison in filing the PPR Motion.
This Court is persuaded by clear and convincing evidence
that Waqar Khan, as the founding principal Member of the proposed
buyer, was PPR’s principal and hence was the buyer. This Court is
likewise convinced that Haroon Khan is no more than a straw man
who neither could nor would defy his father. It, for example, is
not a coincidence that Waqar and Haroon use the same address in
the PPR LLC registration papers filed with the California
Secretary of State.
Waqar's contemporaneous acts suing the secured creditors in
state court with the intention of interposing a lis pendens
expose the fiction of the putative sale to PPR as being a
legitimate arm's length transaction. Phon's "my understanding"
language was inserted by Phon to try to create plausible
deniability and elude responsibility.
It is beyond cavil that Waqar Khan is on both sides of the
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proposed sale transaction. Phon's assertions that he did not know
that he was promoting a sham transaction and that he did not know
about the pending stay relief motions are not credible and are
not believed. Phon knew. Phon was a full-fledged participant in
Waqar Khan’s orchestrated scheme.
The immediate concern in this OSC proceeding is Phon's
compliance with his duties regarding Rule 9011(b) certifications.
His filing of motion papers on the PPR Motion operated, as a
matter of law, as certifications that: (1) he had made an
"inquiry reasonable under the circumstances"; (2) that the PPR
Motion was not being presented for any improper purpose; (3) that
the claims, defenses, and other legal contentions are warranted
by existing law; and (4) that the factual contentions have
evidentiary support. Fed. R. Bankr. P. 9011(b).
The adequacy of Phon's Responses to the various
certification issues will be considered seriatim. The violation
of any one of the issues could warrant imposition of sanctions.
I
Inquiry Reasonable Under the Circumstances.
Phon was required to have made an inquiry reasonable under
the circumstances.
Failure to make an inquiry reasonable under the
circumstances may warrant Rule 9011 sanctions. Golden One CU v.
Fiedler (In re Fiedler), 654 B.R. 787 (Bankr. E.D. Cal. 2023);
aff’d, 2024 Westlaw 2137356 (9th Cir. BAP 2024); aff’d, 2025
Westlaw 1219007 (9th Cir. 2025)(prefiling restriction Rule 9011
sanction).
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An inquiry by a party into its standing is also part of the
reasonable inquiry requirement. In re Estate of Taplin, 641 B.R.
236, 71 Bankr. Ct. Dec. 165 & 2022 Westlaw 2714513 (Bankr. E.D.
Cal. 2022) ($10,000 Rule 9011 sanction for no standing).
A reasonable inquiry for Phon would have included verifying
the bona fides of his LLC client by checking the
readily-available on-line California Secretary of State public
records that identify the Managers and Members of his client.
If Phon had checked the public records, he would have
recognized that Waqar Khan was on both sides of the proposed sale
transaction that Phon was seeking to have approved.
Reasonable inquiry would also have included verifying the
conclusory representation that PPR had a right of first refusal
and determining who had granted such a right, when, and on what
terms and how it fit into the transaction. Failure to have done
so does not suffice to cloak Phon with an excuse of plausible
deniability. At a minimum, Phon had a duty to disclose Waqar
Khan’s relationship to PPR.
Moreover, a facet of Phon's "reasonable inquiry" duty was
for him to monitor the docket with respect to his own motion.
Phon's claim he was not aware of the various oppositions that
were filed to the PPR Motion is unpersuasive because he had a
continuing duty to monitor the docket regarding the PPR Motion,
which is readily available electronically. Once again, Phon’s
effort to feign plausible deniability is unavailing.
The fact that Phon did not withdraw the PPR Motion, or at
least make corrective disclosures at the time of the hearing,
functioned as “later advocating it” for purposes of Rule 9011(b).
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II
Improper Purpose - Rule 9011(b)(1).
Phon was required by Rule 9011(b)(1) to avoid any improper
purpose, such as to harass, cause unnecessary delay, or
needlessly increase litigation costs. Phon was mindful of the
overall context in which foreclosures were pending and that the
purported "sale" would, if approved, function to forestall a
foreclosure that Waqar Khan was doing everything in his power,
fair and foul, including suing the foreclosing creditors in state
court, to prevent. The PPR Motion to sell for a sum considerably
less than the debt occasioning foreclosure is a paradigm example
of an improper purpose to cause both unnecessary delay and
needlessly to increase litigation costs within the meaning of
Rule 9011(b)(1).
III
Claims, Defenses or Other Legal Contentions, Warranted by
Existing Law - Rule 9011(b)(2).
Phon made three specific legal contentions in the PPR
Motion.
First, by filing the PPR Motion to sell pursuant to § 363,
Phon certified that PPR had standing to make the motion. However,
there is no theory under which PPR has standing to make a § 363
motion to sell because the plain language of Bankruptcy Code
§ 363 limits the sale power to the trustee or to the person
performing the duties of the trustee (i.e., debtor in
possession). The opening words of § 363(b)(1) (“the trustee,
after notice and a hearing, may use, sell, or lease, other than
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in the ordinary course of business, property of the estate”) and
§ 363(f) (“the trustee may sell property under subsection (b) of
this section free and clear of any interest in such property of
an entity other than the estate, only if”) – are not hard to
understand.
PPR was neither the trustee nor the person performing the
duties of the trustee. In short, PPR had no standing to make a
motion under § 363.
Phon's assertion that he was “unaware” that § 363 is an
exclusive trustee power, rings hollow from a lawyer with decades
of bankruptcy experience practicing in the Northern and Eastern
Districts of California. Free and clear sales are common
proceedings in bankruptcy courts. CM-ECF records of the
Bankruptcy Court Clerks of the Northern and Eastern Districts
identify Phon as a counsel of record in a total of 441 cases (407
Northern; 34 Eastern). That is too much experience to believe
that Phon was “unaware” of the terms of § 363. It follows that
Phon violated Rule 9011(b)(2) by making an unwarranted legal
contention.
Second, Phon certified that § 363(f)(4) permits the proposed
sale on the basis that the secured interest was in bona fide
dispute. But Phon provided no factual basis to support the
proposition that there was a bona fide dispute.
One of the functions of the Order to Show Cause was to
afford Phon a due process opportunity to support his assertion of
the existence of a bona fide dispute. On that point, the Phon
Response provided nothing - zilch. There is no bona fide dispute.
Phon violated Rule 9011(b)(2) regarding § 363(f)(4).
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Third, Phon certified that § 363(f)(5) permits the proposed
sale on the basis the secured creditors could be compelled, in a
legal or equitable proceeding, to accept a money satisfaction.
But Phon provided no basis to support the proposition that such a
legal or equitable proceeding is available in this situation.
One of the functions of the Order to Show Cause was to
afford Phon a due process opportunity to support his assertion
that such a legal or equitable proceeding is available. On that
point, the Phon response provided nothing - zilch. There is no
such legal or equitable proceeding available. Phon violated Rule
9011(b)(2) regarding § 363(f)(5).
When Phon did not withdraw the PPR Motion and remained
silent in the face of questions of standing, and applicability of
§§ 363(f)(4) & (5) raised separately by the U.S. trustee and by
the major creditors in filings and at the hearing, Phon placed
himself, within the meaning of Rule 9011(b), as "later
advocating" the bogus position supporting the sham insider sale
in further violation of Rule 9011(b)(2).
IV
Evidentiary Support for Allegations and Factual Contentions -
Rule 9011(b)(3).
Phon certified that there is evidentiary support for
allegations and factual contentions in the PPR Motion. None was
provided in support of the PPR Motion as filed.
One of the functions of the Order to Show Cause was to
afford Phon a due process opportunity to provide the requisite
evidentiary support. None was provided - zilch. Phon violated
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Rule 9011(b)(3) in this respect.
V
Bad Faith.
Lest there be any doubt, this Court is persuaded that
Attorney Lewis Phon filed and advocated for the PPR Motion in bad
faith.
VI
Sanctions.
This is a situation in which the Court on its own initiated
the sanctions proceeding by issuing an order to show cause
pursuant to Rule 9011(c)(3).
The Rule 9011 violations are particularly serious because
this Court is persuaded Lewis Phon was acting in bad faith in
promoting what amounted to an attempted fraud on the Court, as
well as furthering a scheme to hinder, delay, or defraud
creditors in concert with Waqar and Haroon Khan and in
coordination with Attorney Jonathon Madison.
A sanction imposed under Rule 9011 must, per Rule
9011(c)(4)(A), be limited to what suffices to deter repetition of
the conduct or to deter comparable conduct by others similarly
situated.
Because no party made a timely motion for sanctions under
Rule 9011(c)(2), there is no Rule 9011 authority for shifting
fees and expenses. Rule 9011(c)(4)(A)(iii). The lack of such a
motion means that this Court cannot use Rule 9011 to order Phon
to pay the fees and costs of the various counsel who were
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required to contend with the PPR Motion, notwithstanding that, in
true justice, there is a compelling case to be made for such fee
shifting.
Available options for Rule 9011 sanctions when the court
initiates a sanctions proceeding are: a nonmonetary directive
(Rule 9011(c)(4)(A)(I)); or an order to pay a penalty into court
(Rule 9011(c)(4)(A)(ii)).
This Court has considered and rejected nonmonetary
sanctions, including the nonmonetary sanctions of requiring
professional education, barring all appearances for a reasonable
rehabilitative period, or of recommending to the District Court
that it strike Phon from the rolls of attorneys admitted to
practice in the U.S. District Court Eastern District of
California.
Because this is a situation involving a bad faith attempt by
a party without standing working in league with other parties to
perpetrate a fraud on the court and a fraud on creditors, the
interests of deterrence are particularly powerful in this case.
While an appropriate individual sanction would be to require
payment of a penalty of $10,000.00 into court, the deterrence
concern to stop this nonsense on the part of Phon, Khan, and of
others similarly situated before it gets out of hand warrants
ordering a penalty of $30,000.00 to be paid into court.
This Court is also mindful that this sanction might not be
the end of the matter in light of Cal. Bus. & Prof. Code
§ 6068(o)(3)(reporting to the State Bar non-discovery sanctions
exceeding $1,000.00). Although the Order to Show Cause required
Phon to address the California Rules of Professional Conduct,
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this Court will defer to the State Bar of California, which will
decide whether and how to deal with Phon.
Finally, this Rule 9011 sanctions award is without prejudice
to a party in interest attempting to pursue a remedy under a
theory other than Rule 9011. See, e.g., Caldwell v. Unified
Capital Corp. (In re Rainbow Magazine, Inc.), 77 F.3d 278, 284
(9th Cir. 1996) (holding Chambers v. NASCO, Inc., 501 U.S. 32, 43
(1991) applies in Bankruptcy Courts of the Ninth Circuit).
Whether to make such an attempt is left to the genius of counsel.
Accordingly,
IT IS ORDERED that Attorney Lewis Phon pay sanctions in the
amount of thirty thousand dollars ($30,000.00) for violation of
Federal Rule of Bankruptcy Procedure 9011(b) to the credit of the
United States;
IT IS FURTHER ORDERED that Payment shall be remitted to the
Clerk of the Bankruptcy Court for deposit into the United States
Treasury no later than March 11, 2026;
IT IS FURTHER ORDERED that a check payable to the Clerk of
the Court, U.S. Bankruptcy Court, shall include Case Number 25-
24205 with the words “Sanctions Due” along with a copy of this
Order. The payment shall be mailed or delivered to Clerk, U.S.
Bankruptcy Court, 501 I Street, Room 3-200, Sacramento,
California, 95814, Attention: Finance Department (Sanctions);
IT IS FURTHER ORDERED that if the $30,000.00 is not paid
timely, then the United States may collect by any legal means.
A separate judgment shall be entered.
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February 11, 2026
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INSTRUCTIONS TO CLERK OF COURT
SERVICE LIST
The Clerk of Court is instructed to send the attached
document, via the BNC, to the following parties:
Anthony Asebedo
3001 Douglas Blvd., Ste. 225
Roseville, CA 95661
Gabriel P Herrera
1331 Garden Hwy, 2nd Floor
Sacramento, CA 95833
Jonathan Madison
The Madison Firm
345 California Street
Suite 600
San Francisco, CA 94104-2635
Lewis Phon
Law Office of Lewis Phon
4040 Heaton Court
Antioch, CA 94509
Jennifer Tullius
Tullius Law Group
515 S. Flower St., 18th Floor
Los Angeles, CA 90071
Reilly D. Wilkinson
Scheer Law Group, LLP
155 N. Redwood Dr., Suite 100
San Rafael, CA 94903
Town & Country Event Center LLC
2935 Fulton Ave
Sacramento, CA 95821
Office of the U.S. Trustee
Robert T Matsui United States Courthouse
501 I Street, Room 7-500
Sacramento, CA 95814
United States Attorney’s Office
Robert T Matsui United States Courthouse
501 I Street, 10th Floor
Sacramento, CA 95814
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