Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_15-cv-02973/USCOURTS-cand-3_15-cv-02973-3/pdf.json

Nature of Suit Code: 422
Nature of Suit: Bankruptcy Appeals Rule 28 USC 158
Cause of Action: 28:0158 Notice of Appeal re Bankruptcy Matter (BAP)

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United States District Court

For the Northern District of California

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IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

MARGARET LUCY GAUTHIER,

Appellant,

 v.

DOONAN, GRAVES & LONGORIA,

LLC, SETERUS, INC., and VENTURES

TRUST 2013-I-H-R,

Appellees. /

No. C 15-02973 WHA

Bk. No. 11-41361 CN 

ORDER AFFIRMING

BANKRUPTCY COURT’S

DENIAL OF MOTION FOR

CONTEMPT

INTRODUCTION

In this bankruptcy appeal, pro se appellant seeks review of an order denying her

motion to hold certain parties in contempt of the order discharging her from her bankruptcy

proceedings. For the reasons stated below, the decision of the bankruptcy court is AFFIRMED. 

Appellant’s motion for a stay pending this appeal is DENIED AS MOOT.

STATEMENT

Appellant Margaret Lucy Gauthier, who is proceeding pro se, has filed five bankruptcy

petitions since 2009. This appeal arises out of Gauthier’s third bankruptcy action, a Chapter 7

petition, which she commenced in this district in 2011. Gauthier obtained a discharge from that

action in 2012. In a Chapter 7 bankruptcy proceeding, such a discharge order operates as an

injunction against certain conduct seeking to collect a debt discharged in that bankruptcy

proceeding as a personal liability of the debtor. Gauthier’s discharge order specifically

explained, “a creditor may have the right to enforce a valid lien, such as a mortgage or security

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interest, against the discharged debtor’s property after the bankruptcy, if that lien was not

avoided or eliminated in the bankruptcy case” (Dkt. No. 5-1 at 2).

Appellee Doonan, Graves & Longoria, LLC, is a law firm that filed a judicial

proceeding foreclosing on Gauthier’s property in Old Orchard Beach, Maine (as required by

Maine law) on behalf of a lender, SunTrust Mortgage, Inc., in 2013. The foreclosure complaint

explicitly stated that it did not seek to assert any personal liability against Gauthier (Cormier

Decl., Exh. A).

Appellee Seterus, Inc., is the servicer of Gauthier’s mortgage on the Maine property. 

Seterus sent letters to Gauthier informing her that she was in default and warning her of

impending foreclosure. Seterus included a notice at the bottom of all of its letters to Gauthier,

which read, “[i]f you are in bankruptcy or received a bankruptcy discharge of this debt, this

letter is not an attempt to collect the debt, but notice of possible enforcement of our lien against

the collateral property” (e.g., Dkt. No. 103-4 at 13).

 Appellee Ventures Trust 2013-I-H-R, contends that it is the holder of the first deed of

trust on another of Gauthier’s properties, located in Newark, California. Ventures Trust,

through its servicer, BSI Financial Services, Inc., sent Gauthier several notices of default and

notices of sale. Each of the letters that BSI sent to Gauthier included a notice that read, “to the

extent your obligation has been discharged or is subject to the automatic stay in a bankruptcy

proceeding, this notice is for informational purposes only and does not constitute a demand for

payment or an attempt to collect and indebtedness as your personal obligation” (e.g., Dkt. No.

103-6 at 19). Ventures Trust has not yet noticed a trustee’s sale of Gauthier’s California

property.

The liens on Gauthier’s Maine and California properties were not affected in Gauthier’s

bankruptcy proceeding.

In March 2015, Gauthier asked the bankruptcy court to hold appellees in contempt of the

discharge order for taking steps to enforce their liens. In support of her contempt motion,

Gauthier submitted two affidavits from Patrick F. Williams, a mortgage banker (Dkt. No. 103-6

at 45; Dkt. No. 103-7 at 17). Williams reviewed Gauthier’s mortgage documents on each of her

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*

 Gauthier named numerous parties in her contempt motion, including SunTrust and several prior

owners of Gauthier’s mortgages. Due to issues with service, the bankruptcy court’s order only pertained to

DG&L, Seterus, and Ventures Trust. Accordingly, those parties are the only appellees named in this appeal.

Ventures Trust has appeared in this case according to the Electronic Court Filing system, but it neither filed a

brief nor appeared at the hearing on Gauthier’s appeal. The bankrupcty court’s decision applied the same

analysis to all of our appellees. Accordingly, this order addresses Gauthier’s appeal as to Ventures Trust as well

as DG&L and Seterus. 

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properties and concluded that the complexity of the transactions involving Gauthier’s

mortgages clouded the chains of title to those mortgages, such that SunTrust and Ventures Trust

might lack standing to foreclose on the Maine and California properties, respectively.

After full briefing, the bankruptcy court held a hearing on Gauthier’s contempt motion. 

The bankruptcy court requested supplemental briefing from all parties regarding the issue of

whether they could be held in contempt of the discharge order by proceeding with the respective

foreclosures if they lacked valid mortgage liens.

Following the supplemental briefing, the bankruptcy court held a second hearing and

ultimately denied Gauthier’s contempt motion. Gauthier now seeks district court review of the

bankruptcy court’s decision. She also seeks a stay pending this appeal. This order follows full

briefing and oral argument.*

ANALYSIS

Gauthier contends that appellees acted in contempt of the order discharging her from her

Chapter 7 bankruptcy in 2012 by proceeding with the foreclosure of her Maine and California

properties. Section 524(a) of Title 11 of the United States Code provides, in pertinent part:

A discharge in a case under this title:

(1) voids any judgment at any time obtained, to the extent that such

a judgment is a determination of the personal liability of the debtor

with respect to any debt discharged under section 727, 944, 141, or

1328 of this title, whether or not discharge of such debt is waived;

(2) operates as an injunction against the commencement or

continuation of an action, the employment of a process, or an act,

to collect, recover or offset any such debt as a personal liability of

the debtor, whether or not discharge of such debt is waived . . . .

The bankruptcy court held that Section 524(a) did not operate as an injunction against

appellees’ conduct because they did not seek to enforce any personal liability, but rather only

sought in rem relief by way of foreclosure. The bankruptcy court further held that even if

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appellees lacked standing to enforce any foreclosure rights, Gauthier could raise that issue in

the pending Maine foreclosure proceeding or in a wrongful-foreclosure proceeding in

California. The bankruptcy court’s conclusions of law, including its interpretation of Section

524, is reviewed de novo, and its factual findings are reviewed for clear error. In re Leavitt,

171 F.3d 1219, 1223 (9th Cir. 1999).

1. APPELLEES DID NOT VIOLATE THE DISCHARGE ORDER.

Notably, “a bankruptcy discharge extinguishes only one mode of enforcing a claim —

namely, an action against the debtor in personam — while leaving intact another — namely, an

action against the debtor in rem.” Johnson v. Home State Bank, 501 U.S. 78, 84 (1991). Put

another way, “a creditor’s right to foreclose on the mortgage survives or passes through the

bankruptcy.” Id. at 83.

The bankruptcy court also held that the parties’ conduct did not have the objective effect

of coercing Gauthier to pay any discharged debts. Gauthier’s discharge order had put her on

notice that creditors with mortgage liens could still enforce their rights following discharge. All

of appellees’ correspondence with Gauthier explicitly informed her that her lenders did not seek

any personal liability. The complaint in the Maine action explicitly stated that the lender did

not seek to collect on any personal liability. The bankruptcy court correctly concluded that

appellees did not seek to collect on any personal liability against Gauthier and therefore did not

violate the contempt order.

Gauthier contends that the bankruptcy court improperly denied her motion for contempt,

even though she had “shown a prima facie case of contempt against defendants” (Appellant’s

Mtn. at 3). Contrary to Gauthier, however, the bankruptcy court judge said “the Debtor has not

even made a prima facie showing that the parties whom she wants to hold in contempt seek to

enforce any debt as a personal liability” (Tr. at 8). As discussed above, appellees simply have

not violated the discharge order because they do not seek any personal liability against

Gauthier.

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2. THE BANKRUPTCY COURT HAD NO OBLIGATION TO RULE ON

GAUTHIER’S CHALLENGES TO THE VALIDITY OF THE LIENS.

As stated, a secured lender’s lien passes through a Chapter 7 bankruptcy. Nevertheless,

Gauthier submitted two affidavits from a mortgage banker, which cast doubt on the validity of

appellees’ rights to foreclose on her respective properties. The bankruptcy court requested

supplemental briefs from all parties and held a second hearing to discuss that issue. The

bankruptcy court judge ruled from the bench that “this Court is not the court to determine the

validity of a lien by a Chapter — again, this Court is not the court to determine or to analyze a

Chapter 7 debtor’s argument regarding the validity of a lien” (Tr. at 8). 

Neither our court of appeals nor any district court in our circuit has addressed this

procedural issue. The bankruptcy court judge relied primarily on In re Wilson, 492 B.R. 691

(Bankr. S.D.N.Y. 2013) (Judge Martin Glenn), in reaching his conclusion. In re Wilson

addressed nearly identical facts to our case: A debtor sought to reopen her case in order to

assert a discharge injunction violation against a lender seeking to foreclose on a property,

and the complexity of the chain of title of the mortgage cast doubt on who held the mortgage. 

That decision held, as here, that Section 524(a)(2) only applied to personal liability, and there

had been no showing that the lender sought any personal liability. As to Gauthier’s argument

that the bankruptcy court should resolve whether appellees held valid rights to foreclose on her

properties, the bankruptcy court held, “who holds the mortgage and whether it has demonstrated

standing to foreclose is an issue for the court in the [ongoing foreclosure action].” Id. at

694 n.1. 

Similarly in Evans v. Codilis & Stawiarski, P.A., No. 04-31769, 2005 Bankr. LEXIS

2843 (Bankr. N.D. Fla. Dec. 21, 2005) (Judge Margaret A. Mahoney), a mortgagee could not

state a claim for violation of a discharge order based on a lender’s foreclosure actions, even

though the mortgagee disputed the validity of the lender’s note. “Any issues Evans has

regarding the reestablishment of the note and/or the lawfulness of the foreclosure may be raised

by him in that state court foreclosure action. Those issues are not for the bankruptcy court to

decide.” Id. at *13 n.2.

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Our bankruptcy court recognized that Gauthier’s arguments may ultimately be

vindicated, but held “[i]f the Debtor is correct and these creditors do not actually hold the liens

in question and are not entitled to foreclose, this is an issue for a state court to resolve, be it in

Maine or in Alameda County. Otherwise, I’m authorizing the Debtor to challenge and avoid a

lien in Chapter 7 under Bankruptcy Code Section 524, and no such authority exists in Section

524 to do that” (Tr. at 8). Thus, because no party had sought any personal liability against

Gauthier, even though they may have sought in rem relief based on invalid liens, the bankruptcy

court held that Gauthier had not presented a ripe issue of contempt. 

This order affirms on a somewhat narrower ground, namely that while a bankruptcy

court may have the authority to enjoin a secured creditor from foreclosing so as to preserve the

jurisdiction of the court or to preserve compliance with its previous orders, the bankruptcy court

may, in its discretion, decline to do so and may invite the debtor to seek relief in state courts to

challenge the validity of the asserted liens.

In the circumstances of this case, the bankruptcy court acted reasonably and within its

discretion in recognizing that the secured creditors sought only to enforce liens that, if valid,

had already passed through the estate and that any challenge to the validity of the liens would

best be adjudicated by state courts close by the real property in question.

Therefore, Gauthier must pursue her challenges to the validity of the lenders’ mortgage

liens via the respective procedures for foreclosure in Maine and California. That is, she must

assert her challenges to DG&L’s and Seterus’s rights to foreclose on the Maine property as a

defense in the already-pending judicial proceeding in Maine, and she must raise her challenges

to Ventures Trust’s rights as to the California property by bringing a wrongful-foreclosure

action once, if ever, Venture’s Trust initiates foreclosure. 

Gauthier insists that the bankruptcy court should have ruled on the validity of the

lenders’ liens because the “bankruptcy jurisdiction is, at its core, in rem.” See Central Virginia

Community College v. Katz, 546 U.S. 356, 362 (2006). Gauthier misunderstands that

description of bankruptcy jurisdiction. The bankruptcy court’s in rem jurisdiction does not

mean that the court must hear all claims for in rem relief. Rather, that jurisdiction relates to the

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power to adjudicate all claims against the res of the bankruptcy estate. Ibid. By the nature of

Chapter 7 bankruptcy, the mortgage liens at issue here passed through Gauthier’s bankruptcy

estate. The discharge order did not wipe away those liens. The issue here is whether our

appellees (or their clients) validly hold those liens. The bankruptcy court properly declined to

exercise jurisdiction to resolve that issue.

The issue of contempt for this conduct will not be ripe until, if ever, Gauthier

successfully challenges the parties’ standing to foreclose, and they thereafter attempt to enforce

rights they do not hold. At this point, Gauthier has not pled a prima facie claim for contempt.

3. EVIDENTIARY OBJECTIONS.

Pursuant to Rule 8005(b) of the Federal Rules of Bankruptcy, DG&L designated certain

documents filed on the docket of the Bankruptcy Court for inclusion in the record on this

appeal, however, they do not appear in the designated record. DG&L requests that the Court

take judicial notice of those documents. Gauthier raises numerous inapplicable objections to

the inclusion of those documents, such as “badgering the judicial officer” and “counsel in brief

and oral arguments have testified.” To the extent documents filed on the docket in the

bankruptcy proceeding are referred to above, DG&L’s request is GRANTED. Judicial notice is

appropriate because these are documents publicly filed in the Bankruptcy Court for the

Northern District of California. Mir v. Little Co. of Mary Hosp., 844 F. 2d 646, 649 (9th Cir.

1988). DG&L’s request as to all other documents is DENIED AS MOOT. 

CONCLUSION

For the reasons stated above, the order of the bankruptcy court is AFFIRMED. 

Gauthier’s motion for a stay pending this appeal is DENIED AS MOOT. The Clerk shall please

CLOSE THE FILE.

IT IS SO ORDERED.

Dated: November 20, 2015. 

WILLIAM ALSUP

UNITED STATES DISTRICT JUDGE

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