Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_15-cv-00032/USCOURTS-cand-3_15-cv-00032-0/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

Northern District of California

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

RESTORATION HOMES, LLC,

Appellee,

v.

TANIGUCHI,

Appellant.

Case No. 15-cv-00032-WHO 

ORDER CLARIFYING AND 

AFFIRMING BANKRUPTCY COURT

ORDER

INTRODUCTION

The bankruptcy court allowed in part appellant Restoration Homes’s proof of claim in 

appellee Charles Taniguchi’s bankruptcy proceeding (the “Order”). Dkt. No. 3-22. This appeal 

questions the effect of the third numbered term of the Order: that it was “without prejudice to the 

parties’ right to raise whatever claims and defenses they wish in the state court litigation.” Id. 

Read literally, there is nothing controversial about that term; the bankruptcy court cannot control 

what claims and defenses the parties wish to bring in the related state court. However, the parties 

contend that this term prohibits the state court in a related action from considering whether res 

judicata applies, and dispute whether such an order was proper. I do not read the Order as the 

parties do. I now clarify that it is not within the power of the bankruptcy court to bind the state 

court to any particular determination concerning the res judicata effect of its rulings (or lack 

thereof). With that clarification, the Order is AFFIRMED.

BACKGROUND

Taniguchi and his wife purchased property in San Francisco in 2004. In 2009, Taniguchi 

obtained a modification of his mortgage loan which lowered the principal balance, reduced 

monthly mortgage payments, fixed the yearly interest rate, and deferred a portion of the balance.

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Restoration Homes bought Taniguchi’s loan in June 2013. In October 2013, Restoration 

Homes commenced foreclosure proceedings on Taniguchi’s property, claiming that Taniguchi 

failed to make payments between July and October 2013. Taniguchi disputed the loan 

delinquency and filed a lawsuit in state court to enjoin the foreclosure proceedings. In May 2014, 

the state court granted Taniguchi’s petition to enjoin the foreclosure proceedings, subject to 

Taniguchi posting a $40,000 bond. Unable to pay the bond, Taniguchi instead filed a bankruptcy

petition in bankruptcy court, which stayed the state court litigation.

Restoration Homes filed a mortgage proof of claim in Taniguchi’s bankruptcy proceeding, 

claiming the following pre-petition fees and expenses:

Late charges: $1,924.71

Attorney’s fees (state court): $37,704.48

Attorney’s fees (bankruptcy) $2,500.00

Prior defaults: $53,676.79

Accrued payment shortfall: $47,565.36

Foreclosure fees and costs: $4,910.32

Dkt. No. 3-7.

Taniguchi objected to Restoration Homes’s claim, arguing that it was based on the original 

loan, not the 2009 loan modification, improperly preventing him from curing the default under the 

terms of the loan modification. Taniguchi also argued that Restoration Homes could not include

its attorneys’ fees in the claim. 

The Hon. Hannah L. Blumenstiel of the bankruptcy court sustained Taniguchi’s objection 

in part and overruled it in part in an Order with four numbered paragraphs. In the first two, the 

court held that Taniguchi could cure the default under the terms of the loan modification, rather 

than the original loan, but overruled his objection to Restoration Homes’s claim to attorney’s fees. 

In the fourth, the court deemed the claim amended to include amounts which Restoration Homes 

stated applied if Taniguchi was allowed to cure the default under the terms of the loan 

modification: 

Late charges: $1,924.71

Attorney’s fees (state court): $37,704.48

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Attorney’s fees (bankruptcy): $2,500.00

Prepetition payments: $29,315.111

Foreclosure fees and costs: $4,910.32

Dkt. No. 3-22 at 2. None of those portions of the Order is challenged on appeal.

The third numbered paragraph states:

This order shall be without prejudice to the parties’ right to raise 

whatever claims and defenses they wish in the state court litigation, 

including Debtor's arguments regarding certain “pre-petition 

payments due.

Dkt. No. 3-22 at 2. Judge Blumenstiel discussed the potential preclusive effect of her Order

during oral argument on the proof of claim:

I’m making my finding on a matter of bankruptcy law, meaning that 

the cure concept provided by the Bankruptcy Code overrides the 

contractual provisions. That’s not what the State Court is litigating. 

The State Court is litigating the rights of the parties under the loan 

agreement and the modified loan agreement. I am incorporating on 

top of that an issue of bankruptcy law. That’s not before the State 

Court, so I am disagreeing with your conclusion that my resolution 

here is res judicata or collateral estoppel for the State Court in that 

regard. 

Dkt. No. 3-21 at 21. 

Restoration Homes appeals only the bankruptcy court’s ruling that its allowance in the 

proof of claim proceeding is without prejudice to the parties’ rights to raise any claims or defenses 

in the state court litigation. 

LEGAL STANDARD

District courts have jurisdiction to hear appeals from the final judgments, orders, and 

decrees of bankruptcy courts. 28 U.S.C. § 158(a)(1). Findings of fact are reviewed for clear error.

Fed. R. Bankr. P. 8013; In re Acequia, Inc., 787 F.2d 1352, 1357 (9th Cir. 1986). Legal 

conclusions and mixed questions of law and fact are reviewed de novo. In re Lee, 179 B.R. 149, 

155 (9th Cir. B.A.P. 1995). 

DISCUSSION

Restoration Homes argues that the bankruptcy court’s allowance of its proof of claim is 

entitled to res judicata effect in the state court litigation as a determination of “the amounts due 

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under the loan.” Dkt. No. 8 at 2. It does not seek a determination that the allowance bars specific 

claims; it recognizes that the state court will ultimately make that determination should the state 

case proceed. But it evidently interprets the third term in the Order as precluding it from arguing 

that the Order has res judicata effect, and so filed this appeal to challenge that interpretation. In 

opposition, Taniguchi argues that the appeal is not ripe because (i) the state court litigation is 

currently stayed and it is speculative that Taniguchi will resume it and (ii) Restoration Homes has 

not identified particular claims or issues that it wants to preclude.

Both parties apparently interpret the third numbered term in the Order in the same way, 

and using that interpretation they make valid points. The appeal is not ripe in the sense that there 

are no claims before me that Restoration Homes argues are precluded by the allowance. But

bankruptcy orders, including an allowance of a proof of claim, must be appealed within 14 days. I 

am sympathetic to Restoration Homes’s desire to avoid any argument that it waived its right to 

assert that the allowance of its proof of claim has res judicata effect. See Federal Rule of

Bankruptcy Procedure 8002(a) (“a notice of appeal must be filed with the bankruptcy clerk within 

14 days after entry of the judgment, order, or decree being appealed”). Restoration Homes’s time 

to appeal would have expired had it waited for Taniguchi to resume the currently-stayed state 

court litigation.1 See Matter of Ramsey, 612 F.2d 1220, 1222 (9th Cir. 1980) (“An untimely notice 

deprives the district court of jurisdiction to review the bankruptcy court's order or judgment.”). 

The doctrine of res judicata “bars a party from bringing a claim if a court of competent 

jurisdiction has rendered a final judgment on the merits of the claim in a previous action involving 

the same parties or their privies.” In re Int’l Nutronics, Inc., 28 F.3d 965, 969 (9th Cir. 1994). 

Allowance of a claim by a bankruptcy court constitutes a final judgment and generally has res 

judicata effect, assuming the elements for res judicata are met. See Siegel v. Fed. Home Loan 

Mortgage Corp., 143 F.3d 525, 529 (9th Cir. 1998) (“the allowance or disallowance of a claim in 

 

1 Moreover, as described below, because I do not determine what the bankruptcy order precludes, 

but merely clarify that it furnishes a basis for a plea of res judicata, assuming the appropriate 

elements are met, I do not offer an improper advisory opinion.

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bankruptcy is binding and conclusive on all parties or their privies, and being in the nature of a 

final judgment, furnishes a basis for a plea of res judicata”) (quotation omitted); Nathanson v. 

Hecker, 99 Cal. App. 4th 1158, 1166 (2002) (allowance precluded relitigation of claim in state 

court because “the existence and the amount of the claim have been fully litigated between the 

parties and resolved” in bankruptcy court).

Taniguchi does not argue that a bankruptcy court can strip its orders of the res judicata 

effect which they would otherwise have. It cannot.2 Cf. Sure-Snap Corp. v. State St. Bank & 

Trust Co., 948 F.2d 869, 873 (2d Cir. 1991) (bankruptcy order had res judicata effect 

notwithstanding bankruptcy judge’s comment that it did not). He appears concerned, however, 

that the state court will feel itself bound to adopt the Order’s determination without analysis of 

whether the requisites for res judicata have been met. He has no basis to worry. 

While Restoration Homes says that it recognizes that what the allowance actually 

precludes will be determined by the state court based on an analysis of whether the elements for 

res judicata have been met, it argues to me that the allowance has res judicata effect as a 

determination of “the amounts due under the loan.” Dkt. No. 8 at 2. “The amounts due under the 

loan” do not relate to any claim before me. And I do not have authority to determine the 

preclusive effect of the allowance on the state court litigation. I reject Restoration Homes’s 

argument to the extent that it seeks a determination now that the allowance precludes certain 

issues, including “the amounts due under the loan.” 

The best reading of the third term Order is the literal one. The Order is “without prejudice 

to the parties’ right to raise whatever claims and defenses they wish in the state court litigation, 

 

2

I do not interpret the bankruptcy court’s statement as a ruling removing res judicata effect which 

its order would otherwise have. Rather, based on its comments during oral argument, it appears 

that the bankruptcy court was merely expressing its understanding that it was ruling on issues 

different from those before the state court, and therefore the elements of res judicata could not be 

satisfied. See Dkt. No. 3-21 at 2 (“The State Court is litigating the rights of the parties under the 

loan agreement and the modified loan agreement. I am incorporating on top of that an issue of 

bankruptcy law. That’s not before the State Court, so I am disagreeing with your conclusion that 

my resolution here is res judicata or collateral estoppel for the State Court in that regard.”). The 

bankruptcy court may very well be correct, but that is a question for whatever court addresses the 

res judicata effect of the allowance. 

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including Taniguchi’s arguments regarding certain “pre-petition payments due.” It is up to the 

state court to decide whether and to what extent res judicata applies to the claims and defenses 

before it.

CONCLUSION

The Order, as clarified, is AFFIRMED. The third numbered paragraph in the Order may 

not be interpreted to preclude the state court from reaching the issue of whether the doctrine of res 

judicata is applicable to the issues before it. 

IT IS SO ORDERED.

Dated: August 7, 2015

______________________________________

WILLIAM H. ORRICK

United States District Judge

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