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FILED

SEP 19 2018

SUSAN M. SPRAUL, CLERK

U.S. BKCY. APP. PANEL

OF THE NINTH CIRCUIT

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE NINTH CIRCUIT

In re: ) BAP No. NC-16-1405-BSTa

)

RICHARD R. LANE, ) Bk. No. 11-54766

)

Debtor. ) Adv. No. 16-5004 )

)

THE BANK OF NEW YORK MELLON; )

BAYVIEW LOAN SERVICING, LLC, )

)

Appellants, ) ) 

v. ) O P I N I O N

) 

RICHARD R. LANE, )

)

Appellee. )

______________________________)

Argued and Submitted on January 25, 2018, 

at San Francisco, California

Filed - September 19, 2018

Appeal from the United States Bankruptcy Court

for the Northern District of California

Honorable Stephen L. Johnson, Bankruptcy Judge, Presiding 

Appearances: Lewis R. Landau argued for appellants, The Bank of 

 New York Mellon and Bayview Loan Servicing, LLC; 

 Stanley A. Zlotoff of the Law Offices of Stanley A. 

 Zlotoff argued for appellee, Richard R. Lane. 

Before: BRAND, SPRAKER and TAYLOR, Bankruptcy Judges.
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BRAND, Bankruptcy Judge:

Appellants, The Bank of New York Mellon ("BONY") and Bayview

Loan Servicing, LLC, appeal a judgment voiding BONY's asserted

first-position lien against the debtor's residence under 

§ 506(d)1, after the court had previously disallowed BONY's claim

and the debtor had completed his chapter 13 plan and received a

discharge. The debtor had objected to BONY’s proof of claim based

on lack of standing. BONY failed to respond to the claim

objection, and the claim was disallowed. After plan completion,

BONY sought reconsideration of the order disallowing the claim; it

was denied. BONY did not appeal the order disallowing the claim

or the order denying the motion for reconsideration. 

The bankruptcy court voided the first-position lien under 

§ 506(d) based on disallowance of the claim. This was error. The

claim disallowance in this case did not affect the validity of the

lien; it determined only that BONY lacked standing to enforce an

otherwise valid lien. And because the adversary complaint was not

served on the party who had the right to enforce, the bankruptcy

court violated that party's due process rights by voiding its lien

without notice and a hearing. Accordingly, we REVERSE the

judgment voiding the first-position lien.

Appellants also appeal the bankruptcy court's denial of a

continuance of the debtor's motion for summary judgment and the

award of the debtor's attorney's fees under Cal. Civ. Code § 1717. 

1 Unless specified otherwise, all chapter, code and rule

references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and

the Federal Rules of Bankruptcy Procedure, Rules 1001-9037. The

Federal Rules of Civil Procedure are referred to as "Civil Rules." 

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We AFFIRM the decision to deny a continuance and REVERSE the order

awarding the debtor his attorney's fees.

I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY 

A. The bankruptcy case

Richard Lane filed his chapter 13 bankruptcy case on May 18,

2011. He disclosed an ownership interest in his residence (the

"Property"), valuing it at $420,000 and stating that it was

subject to secured claims totaling $699,514. Lane named Bank of

America as holding a first-position lien against the Property for

$625,620, which he asserted was "disputed" regarding the "real

party in interest." Lane listed a second-position lien against

the Property for $73,894, also held by Bank of America, which he

asserted was wholly unsecured and not disputed.

Lane's initial chapter 13 plan provided that monthly payments

for the first-position lien would be made to Bank of America, but

also stated that the loan was "disputed" and that, "[u]ntil proof

of real party in interest status[,]" he would set aside the

monthly payment. The plan proposed no payments for Bank of

America's second-position lien.2

 

Shortly thereafter, BONY filed a Request for Special Notice

directing that all notices be sent to its counsel — Vy T. Pham of

the (now defunct) law firm of Miles, Bauer, Bergstrom & Winters,

LLP — at the address provided. Pham also received electronic

2 Lane later filed a motion to value Bank of America's

second-position lien, asserting that it was wholly unsecured given

the Property's value of $420,000 and the first-position lien for

$676,341.19. The bankruptcy court entered a stipulated order

valuing Bank of America's second-position lien at $0. Once Lane

completed his Plan payments and received a discharge, the court

entered an order voiding the second lien. The second lien is not

at issue in this appeal. 

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notices in the case. 

BONY then filed a $676,361.19 secured proof of claim for the

first-position lien against the Property ("Claim"). Attached to

the Claim were copies of the original deed of trust and promissory

note in favor of the original lender, Countrywide Home Loans,

Inc., and a recorded assignment of the note and deed of trust to

BONY in January 2011. The note was endorsed in blank. Any

notices regarding the Claim were to be sent to Pham at the same

address she provided in the Request for Special Notice.

Lane filed a "check the box" form objection to the Claim,

arguing that BONY had failed to establish standing and that it was

the person entitled to enforce payment on the Claim ("Claim

Objection"). Lane asked that the Claim be disallowed in its

entirety. The Claim Objection warned that failure to respond

could result in an order granting the requested relief by default. 

Lane's counsel served the Claim Objection on Pham at the address

provided on the Claim. Pham, presumably, also received electronic

notice of it. 

After BONY failed to oppose the Claim Objection in the given

time period, Lane requested entry of a default order sustaining

the Claim Objection. The bankruptcy court entered the default

order on December 29, 2011, disallowing the Claim in its entirety

("Claim Disallowance Order"). BONY did not appeal. 

BONY objected to Lane's later-filed second amended chapter 13

plan, which proposed the same terms for the first and second liens

against the Property as in his initial plan. BONY ultimately

withdrew its objection prior to the plan confirmation hearing,

conceding that it had become moot because BONY would not receive

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payments under the plan due to the Claim Disallowance Order.

The bankruptcy court confirmed Lane's second amended plan on

July 23, 2012 ("Plan"). Lane made no payments on the first lien

during his five-year bankruptcy case, and BONY never moved for

relief from stay. 

The chapter 13 trustee filed a Notice of Plan Completion on

November 12, 2015; the court entered a discharge order that same

day. Three months later, a Final Decree was entered, and the case

was closed. 

After reopening Lane's bankruptcy case in April 2016, BONY

moved to set aside the Claim Disallowance Order, arguing that its

failure to respond to the Claim Objection in 2011 was excusable

neglect ("Reconsideration Motion"). The bankruptcy court denied

the motion, determining that BONY's challenge to the merits of the

Claim Objection or the Claim Disallowance Order was untimely and

not a proper basis for reconsideration. In addition, BONY had

failed to show excusable neglect for not responding to the Claim

Objection. BONY did not appeal the order denying reconsideration

of the Claim Disallowance Order.

B. The adversary proceeding

Meanwhile, Lane filed an adversary proceeding against BONY,

seeking to void the first deed of trust under § 506(d) ("Lien

Avoidance"). Lane also sought damages for BONY's failure to

reconvey the deed of trust and requested attorney's fees. In its

answer, BONY asserted various affirmative defenses, including a

general defense of estoppel and equity.

A month after the court denied BONY's Reconsideration Motion,

Lane moved for summary judgment on his adversary claims and

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requested attorney's fees ("MSJ"). Lane argued that, because the

Claim had been disallowed, his chapter 13 plan had been completed

and he had received a discharge, BONY's first-position lien was

void under § 506(d). Lane argued that the recent case, HSBC Bank

USA, N.A. v. Blendheim (In re Blendheim), 803 F.3d 477 (9th Cir.

2015), supported his position.

In opposition, BONY argued for further discovery and a

continuance of the MSJ. Counsel for BONY declared that discovery

"could potentially produce evidence demonstrating that there was

no real factual or legal basis for filing the [Claim Objection]

and that there is no factual or legal basis supporting voidance of

[BONY's] lien." BONY maintained that discovery was imperative

because Lane was trying to get a "free house" based on the Claim

disallowance.

Next, BONY argued that Lane's interpretation of § 506(d)

was contrary to Dewsnup v. Timm, 502 U.S. 410, 417-18 (1992),

which held that liens normally pass through bankruptcy unaffected. 

Although the Claim had been disallowed, that meant only that BONY

could not be paid through the Plan; the lien, nonetheless,

survived the bankruptcy. In addition, the Plan did not specify

that BONY's first-position lien would be avoided; it only limited

what BONY would be paid from the estate. BONY also argued that

Blendheim was distinguishable. Unlike the dilatory creditor

there, BONY had attached supporting documents to its Claim

evidencing its standing to enforce the lien. Further, Lane had

never disputed the legitimacy of the underlying loan documents as

the debtors had in Blendheim. 

BONY then filed a separate motion under Civil Rule 56(d)

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("56(d) Motion"), requesting that the court either dismiss the MSJ

or continue it so that BONY could conduct further discovery. The

56(d) Motion was virtually identical to what BONY had submitted in

its opposition to the MSJ. 

After hearings on the MSJ and the 56(d) Motion, the

bankruptcy court entered an order granting the MSJ to the extent

Lane sought to void BONY's first-position lien under § 506(d). 

The court determined that the lien was void based on (1) the plain

language of § 506(d), (2) that the Claim had been previously

disallowed, (3) that the exceptions under § 506(d) did not apply,

and (4) Blendheim. The court denied BONY's 56(d) Motion. Lastly,

the court considered, but rejected, BONY's affirmative defenses of

estoppel and equity. 

Upon further briefing on the issue of attorney's fees, the

bankruptcy court entered an order bifurcating Lane's attorney's

fees from the MSJ and treating it as a separate motion. On the

same day, the court entered a separate judgment for its § 506(d)

ruling in the MSJ. The court then entered an order awarding Lane

his attorney's fees for prosecuting the Lien Avoidance action,

defending the Reconsideration Motion, and for filing the fee

motion ("Fee Order"). BONY timely appealed the MSJ order, the 

§ 506(d) judgment and the Fee Order. 

II. JURISDICTION

The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334

and 157(b)(2)(K). We have jurisdiction under 28 U.S.C. § 158.

III. ISSUES 

1. Did the bankruptcy court err in voiding the first-position 

lien under § 506(d)?

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2. Did the bankruptcy court abuse its discretion in denying 

BONY's 56(d) Motion?

3. Did the bankruptcy court abuse its discretion in awarding 

Lane his attorney's fees under Cal. Civ. Code § 1717?

IV. STANDARDS OF REVIEW

We review de novo the bankruptcy court's summary judgment

ruling. Ulrich v. Schian Walker, P.L.C. (In re Boates), 551 B.R.

428, 433 (9th Cir. BAP 2016). A bankruptcy court's conclusions of

law, including its interpretation of the Code, are reviewed de

novo. In re Blendheim, 803 F.3d at 489.

The bankruptcy court's decision not to permit additional

discovery under Civil Rule 56(d) is reviewed for an abuse of

discretion. Chance v. Pac-Tel Teletrac Inc., 242 F.3d 1151, 1161

n.6 (9th Cir. 2001) (applying former Civil Rule 56(f)). "We will

only find that the [bankruptcy] court abused its discretion if the

movant [under Civil Rule 56(d)] diligently pursued its previous

discovery opportunities, and if the movant can show how allowing

additional discovery would have precluded summary judgment." 

Qualls by and through Qualls v. Blue Cross of Cal., Inc., 22 F.3d

839, 844 (9th Cir. 1994) (emphasis in original).

We review the bankruptcy court's award of attorney's fees

under state law for an abuse of discretion. Muniz v. United

Parcel Serv., Inc., 738 F.3d 214, 218-19 (9th Cir. 2013). 

A bankruptcy court abuses its discretion if it applies the

wrong legal standard, misapplies the correct legal standard, or

makes factual findings that are illogical, implausible, or

without support in inferences that may be drawn from the facts

in the record. See TrafficSchool.com, Inc. v. Edriver Inc.,

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653 F.3d 820, 832 (9th Cir. 2011) (citing United States v.

Hinkson, 585 F.3d 1247, 1262 (9th Cir. 2009) (en banc)).

V. DISCUSSION

A. The bankruptcy court erred in voiding the first-position lien

under § 506(d) on these facts.

1. Summary judgment standards

Summary judgment is properly granted when no genuine issues 

of disputed material fact remain, and, when viewing the evidence

most favorably to the non-moving party, the movant is entitled to

prevail as a matter of law. Civil Rule 56; Rule 7056; Celotex

Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). Material facts are

those that may affect the outcome of the case under applicable

substantive law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242,

248 (1986). And issues are genuine only if the trier of fact

reasonably could find in favor of the nonmoving party on the

evidence presented. Far Out Prods., Inc. v. Oskar, 247 F.3d 986,

992 (9th Cir. 2001) (citing Anderson, 477 U.S. at 248-49).

2. Analysis 

Under the plain language of § 506(d)3, if the creditor's

secured claim is not allowed, its lien is void, unless the claim

was disallowed under § 502(b)(5), or (e) or was not an allowed

claim due only to the creditor's failure to file a proof of claim. 

It is undisputed that neither exception under § 506(d) applies in

3 Section 506(d) provides: 

To the extent that a lien secures a claim against the debtor

that is not an allowed secured claim, such lien is void,

unless — 

(1) such claim was disallowed only under section 502(b)(5) or

502(e) of this title; or 

(2) such claim is not an allowed secured claim due only to

the failure of any entity to file a proof of such claim under

section 501 of this title. 

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this case. 

a. Lack of standing is a substantive objection under 

§ 502(b)(1).4

BONY contends the bankruptcy court erred in holding that the

earlier disallowance of the Claim necessarily resulted in lien

avoidance under the plain language of § 506(d) and Blendheim. In

Blendheim, the Ninth Circuit Court of Appeals held that the

bankruptcy court properly avoided the secured creditor's senior

lien under § 506(d) based on the earlier disallowance of the

creditor's claim. BONY argues that, unlike Blendheim, where the

claim was disallowed on the substantive ground of forgery, the

Claim here was disallowed on the non-substantive, procedural

ground of lack of standing. BONY argues that the bankruptcy court

erred by not acknowledging that procedural-based claim

disallowances do not trigger application of § 506(d) to void the

creditor's lien. 

In essence, BONY wants us to equate a claim objection based

on lack of standing with that of a claim objection based on a

procedural deficiency, such as an untimely filed claim or a claim

filed without proper documentation to support it.5 BONY never

4

 Section 502(b)(1) provides, in relevant part, that if an

objection to a claim is made, the court, after notice and a

hearing, shall determine the amount of such claim and allow such

claim in such amount, except to the extent that such claim is

unenforceable against the debtor and property of the debtor, under

any agreement or applicable law for a reason other than because

such claim is contingent or unmatured. 

5

 The debtors in Blendheim also objected to HSBC's lack of

documentation to support its claim. Although the court did not

discuss the merits of this objection, we held in two companion

cases — Heath v. American Express Travel Related Services Co. (In

re Heath), 331 B.R. 424 (9th Cir. BAP 2005) (considering claim

objections for lack of documentation in chapter 7 case), and

Campbell v. Verizon Wireless S-CA (In re Campbell), 336 B.R. 430

(continued...)

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raised this exact argument before the bankruptcy court. However,

because the court implicitly ruled that lack of standing is a

substantive objection under § 502(b)(1), and because this is an

important issue of law and does not depend on the factual record,

we exercise our discretion to consider it. See El Paso City of

Tex. v. Am. W. Airlines, Inc. (In re Am. W. Airlines), 217 F.3d

1161, 1165 (9th Cir. 2000) (we have discretion to consider

arguments raised for the first time on appeal when the issue

presented is purely one of law and either does not depend on the

factual record developed below or the pertinent record has been

fully developed).

BONY asks us to consider the holdings of the Fourth, Seventh

and Eighth Circuits in Hamlett v. Amsouth Bank (In re Hamlett),

322 F.3d 342, 350 (4th Cir. 2003), In re Tarnow, 749 F.2d 464, 466

(7th Cir. 1984), and Shelton v. CitiMortgage, Inc. (In re

Shelton), 735 F.3d 749, 750 (8th Cir. 2013), to hold that lack of

standing is a procedural-based ruling in the context of a claim

objection and cannot support lien avoidance under § 506(d). In

each of these cases, the proof of claim was untimely filed. The

debtors sought claim disallowance on the sole basis of

untimeliness; they did not contest the validity of the underlying

debt or lien. In refusing to apply § 506(d), these courts

concluded that a claim filed late is tantamount to not filing a

claim at all – the exception found in § 506(d)(2). They reasoned

5(...continued)

(9th Cir. BAP 2005) (same as to chapter 13 cases) — that claim

objections based solely on issues regarding the documentation

provided, without any contest as to the debtor's liability or the

amount of the debt, are not a sufficient basis for disallowing

claims; failure to comply with Rule 3001(c) is not included as a

ground for disallowance under § 502(b). In re Heath, 331 B.R. at

431-32; In re Campbell, 336 B.R. at 432. 

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that voiding liens merely because of an untimely filed claim

violates the long-standing, pre-Code principle that "valid liens

pass through bankruptcy unaffected." In re Shelton, 735 F.3d at

748 (discussing Dewsnup, 502 U.S. at 418). Thus, an untimely

claim could not justify voiding the otherwise valid lien securing

it. Id. at 750; In re Hamlett, 322 F.3d at 349; In re Tarnow, 749

F.2d at 466-67.

First, we distinguish this case from Tarnow, Hamlett and

Shelton on its facts. Here, BONY timely filed its Claim. BONY

received proper notice of the Claim Objection and had a full and

fair opportunity to contest the disallowance of its Claim. BONY

failed to defend the Claim Objection, resulting in the Claim's

disallowance. It then proceeded to disappear for five years, only

to return when Lane filed his Lien Avoidance action seeking to

void the first-position lien. 

Second, we simply disagree with BONY's argument that a claim

objection based on lack of standing is merely procedural and does

not concern enforceability of the underlying loan documents. 

While such an objection may not concern the validity of the note

or deed of trust, as would the forgery objection in Blendheim, it

absolutely concerns that claimant's ability to enforce the

otherwise valid note or deed of trust. 

In the context of a claim objection under § 502(b), the

question of whether standing is a substantive or procedural

objection has been addressed by only a few courts. However, those

courts are unanimous in stating that it is a substantive objection

under § 502(b)(1), which provides that a claim may be disallowed

to the extent it is unenforceable against a debtor under any

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applicable law, including state law. See In re Richter, 478 B.R.

30, 48-49 (Bankr. D. Colo. 2012); Pursley v. eCAST Settlement

Corp. (In re Pursley), 451 B.R. 213, 231-32 (Bankr. M.D. Ga.

2011); In re King, 2009 WL 960766, at *5 (Bankr. E.D. Va. Apr. 8,

2009); In re Cleveland, 396 B.R. 83, 93-94 (Bankr. N.D. Okla.

2008). 

In Richter, the court held that "a challenge to standing is a

substantive objection under § 502(b)(1) because if a claimant has

not proven it is the owner of a claim with a right to payment

(i.e. the party with standing), the claim is unenforceable against

the debtor under state law." 478 B.R. at 49. 

In Cleveland, one of the debtors' assertions in their claim

objection was that they had no liability to the claimant because

the claimant, an assignee, had not proven it was the owner of the

claim with a right to payment. 396 B.R. at 93. In ruling that

standing is a substantive objection in the claim objection

process, the court stated:

In the face of a substantive objection by a party in

interest, the Court is required to determine the amount of

each claim as of the petition date, and to allow the claim

in that amount, except to the extent the claim is

unenforceable against the debtor or the debtor's property

under applicable law. Claimants therefore must first

establish that they hold enforceable claims against the

respective Debtors. 

 

Id.

In Pursley, the debtors admitted to the existence of their

credit card debt but disputed the claimant's standing to enforce

the debt. 451 B.R. at 231. The court held:

To start, it is a substantive objection if a party claims not

to owe money to another party; that goes directly to the

validity of the claim. It is not enough 'that the debtor

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owes someone money; the issue is whether the debtor (and

hence the bankruptcy estate) owes it to the party filing the

proof of claim.'

Id. at 231-32 (quoting In re King, 2009 WL 960766, at *5). See

also In re Gilbreath, 395 B.R. 356, 365 n.3 (Bankr. S.D. Tex.

2008) (debtors' claim objection based on claimant's alleged lack

of standing due to no proof of the assignment was a substantive

objection). 

We are persuaded by the reasoning of these courts, that a

challenge to a claimant's standing is a substantive objection

under § 502(b)(1), and not merely a procedural one, because it

goes directly to the claimant's ability to enforce the debt. Veal

v. Amercian Home Mortgage, Inc. (In re Veal), 450 B.R. 897 (9th

Cir. BAP 2011), also supports our holding: 

In the context of a claim objection, both the

injury-in-fact requirement of constitutional standing and

the real party in interest requirement of prudential

standing hinge on who holds the right to payment under the

Note and hence the right to enforce the Note. . . . 

Otherwise, the estate may pay funds to a stranger to the

case; indeed, the primary purpose of the real party in

interest doctrine is to ensure that such mistaken payments

do not occur. 

Id. at 920. Further, § 502(b)(1) compels this result. It directs

a bankruptcy court to disallow a claim if it can be defeated by a

legitimate non-bankruptcy defense. "Inability to qualify as a

'person entitled to enforce' a promissory note under the UCC would

be one such defense." Tarantola v. Deutsche Bank Nat’l Tr. Co.

(In re Tarantola), 491 B.R. 111, 121 (Bankr. D. Ariz. 2013). 

The only case BONY cites in support of its position is Green

Tree Servicing LLC v. Giusto (In re Giusto), 553 B.R. 778 (N.D.

Cal. 2016). There, the court denied attorney's fees to the debtor

under California law, because opposing relief from stay based on a

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movant's lack of standing "does not concern the enforceability of

the Note itself" and therefore was not an action on the contract. 

Id. at 786. However, we noted the distinction between claim

objections and motions for relief from stay in Veal. In the

claim-objection context, standing is a prerequisite to the

evidentiary benefits of Rule 3001(f), and the claim allowance

process yields a final adjudication of the parties' underlying

rights. 450 B.R. at 918-19. On the other hand, a motion for

relief from stay is primarily procedural, handled in a summary

fashion, and if the motion is granted there will be a subsequent

determination of the parties' rights in another forum, generally

the state court. Id. at 914. As such, Giusto does not help BONY. 

Accordingly, we decline to equate lack of standing to the

procedural deficiency of an untimely filed claim, and we could not

locate any case where a court has done so. Thus, the bankruptcy

court did not err in concluding that lack of standing is a

substantive objection under § 502(b)(1). And it matters not that

the Claim Disallowance Order was entered as a result of BONY's

default. In re Blendheim, 803 F.3d at 491. 

b. Blendheim does not control.

This is where we part company with the bankruptcy court's

decision. We conclude that Blendheim is not applicable in this

case, because the bankruptcy court never adjudicated the validity

of the first-position lien and the underlying note in the Claim

Disallowance Order. 

In Blendheim, the debtors filed a chapter 13 case after

receiving a chapter 7 discharge. 803 F.3d at 481. The senior

lienholder on debtors' residence, HSBC, filed a proof of claim in

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the case, to which debtors objected on the grounds of lack of

documentation (no promissory note) and that the copy of the note

they had previously received contained a forged signature. HSBC

failed to oppose the claim objection, and the bankruptcy court

entered a default order disallowing HSBC's claim. HSBC did not

appeal. Thereafter, debtors sought to void HSBC's lien under 

§ 506(d). After significant prompting from the court, HSBC moved

to set aside the claim disallowance order under Civil Rule 60(b),

some eighteen months after its entry. Id. at 481-82. Not finding

any grounds to reconsider, the bankruptcy court denied the motion. 

Id. at 482. Ultimately, the bankruptcy court voided HSBC's lien

under § 506(d). Id. 

The Ninth Circuit Court of Appeals affirmed, holding that,

"if a claim is disallowed, then under § 506(d) and consistent with

Dewsnup, the claim's associated lien is void." Id. at 490. The

Blendheim court distinguished Tarnow, Hamlett and Shelton from the

case before it. In those cases, the claims were disallowed for

timeliness and the creditors had no ability to defend their claims

on the merits. Id. at 490-91. Here, HSBC "slept on its rights"

and refused to defend its claim, which was challenged on the

substantive ground of forgery. Id. at 491. HSBC's failure to

respond was "more akin to a concession of error than a failure to

file a timely claim." Id. Thus, voidance of the lien under 

§ 506(d) was "not so severe a sanction[.]" Id. 

Implicit in Blendheim's analysis is a conclusion that 

§ 506(d) should apply only when a claim disallowance addresses the

merits of the underlying debt. Indeed, other courts have

concluded this as well, relying on the long-standing pre-Code rule

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that liens pass through bankruptcy unaffected.6 See In re Tarnow,

749 F.2d at 465-66 (rejecting notion that claim disallowance for

any reason automatically voids the lien that secures it; lien

avoidance under § 506(d) should follow only when the lien's

validity was adjudicated in the claims allowance process); In re

Hamlett, 322 F.3d at 348 ("[Section] 506(d) only empowers the

bankruptcy court to void liens supporting disallowed claims if it

judges those liens to be invalid in substance."); Shelton v.

CitiMortgage, Inc. (In re Shelton), 477 B.R. 749, 752 (8th Cir.

BAP 2012) ("Liens pass through bankruptcy unless avoided on their

merits.") (citing In re Be-Mac Transport Co., 83 F.3d 1020, 1025

(8th Cir. 1996)). 

BONY disputes the merits of the bankruptcy court's ruling

that it lacked standing to enforce the note. The Claim

Disallowance Order and the order denying reconsideration of that

order are final and were not appealed. As a result, BONY is stuck

with that ruling. Nonetheless, we cannot ignore the legal fiction

that BONY lacked standing to enforce the note. The documents

attached to the Claim established BONY's standing. As such, the

Claim Disallowance Order should never have been entered. However,

it was, and we must now deal with the effects of that erroneous

ruling. 

After failing to respond to the Claim Objection, the Claim

was disallowed on the ground that BONY lacked standing and was not

the "person entitled to enforce" the note. See Cal. Comm. Code 

§ 3301. However, unlike the debtors in Blendheim, Lane never

attacked the validity of the underlying loan documents, and he

certainly never disputed getting the $560,000 loan for the

6 Dewsnup, 502 U.S. at 417.

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Property. In fact, he acknowledged throughout his bankruptcy case

that he owed "someone" money for the loan and that the debt was

secured by a first-position lien against the Property. The Plan

provided for payments to the person entitled to enforce the note

once that party appeared. All Lane disputed was whether BONY was

the person entitled to enforce the note. 

This case is not Blendheim. The bankruptcy court never

judged the first-position lien to be invalid in substance, only

that BONY lacked standing to enforce it. Thus, even though Lane's

standing argument was a substantive objection to BONY's Claim, it

did not invalidate the lien. Accordingly, the court erred when it

applied § 506(d) to void the first-position lien.7

 

7

 We take special note of the case Kohout v. Nationstar

Mortgage, LLC, 576 B.R. 290 (N.D.N.Y. 2017), which presented

similar facts. There, the debtors objected to Nationstar's proof

of claim for a mortgage loan on the grounds of absence of

documentation establishing a security interest in debtors'

property and an incorrectly-stated arrearage amount. Nationstar

failed to respond and the claim was disallowed based on what the

bankruptcy court determined were "procedural" objections. The

debtors then attempted to void Nationstar's lien under § 506(d). 

Nationstar prevailed and debtors appealed, arguing that the lien

should have been voided because Nationstar forfeited its claim by

failing to present evidence of its validity and slept on its

rights, just like the creditor in Blendheim. The district court affirmed but noted that the issue

presented a "close call." Id. at 295. Alarmed by Nationstar's 

failure to respond to debtors' objection after filing a timely

proof of claim, the court further admonished: 

Although Nationstar's predecessor-in-interest did not have

to file a proof of claim to preserve its lien, it chose to

do so, thereby subjecting itself to the jurisdiction of

the Bankruptcy Court and its rules. Nationstar's

predecessor-in-interest therefore should have remained

vigilant in defending the validity of its lien once

Debtors filed an objection instead of deciding, without

warning, that it would rely on the longstanding rule that

(continued...)

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c. Someone still holds a valid lien against the

Property.

Under California law, the deed of trust follows the note it

secures. See Yvanova v. New Century Mortg. Corp., 62 Cal. 4th

919, 927 (2016) (deed of trust follows the note it secures even

without a separate assignment). Once it was adjudicated that BONY

lacked standing and could not enforce the note, it was also

necessarily determined that BONY did not have the right to enforce

the deed of trust — i.e., the first-position lien. So, even

though BONY no longer had the ability to enforce the note and deed

of trust, the logical conclusion is that someone must have had

that right. 

In this circumstance, the "true" lienholder never subjected

itself to the bankruptcy court's jurisdiction by filing a proof of

claim; nor was this never-filed claim deemed disallowed. Under

California law, the person who had standing and could enforce the

note still holds what must be presumed to be a valid lien. See

Dewsnup, 502 U.S. at 417-18 (liens pass through bankruptcy

unaffected). In the Lien Avoidance action, Lane served only BONY

and asked the court to avoid BONY's first-position lien. However,

the legal determination established as a result of Lane's actions

7

(...continued)

a creditor can ignore the claims allowance process without

losing its in rem rights. Indeed, it is only because no

determination was made as to the validity of Nationstar's

lien and the fact that Debtors conceded that Nationstar

holds a valid perfected mortgage lien that Nationstar does

not now face the same consequences as the creditor in

Blendheim.

Id. at 296 (emphasis added). 

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and BONY's inaction was limited and specific; BONY did not have

the right to enforce the first lien to collect on an obligation

that Lane conceded he owed to some party. Therefore, Lane failed

to notice the proper lienholder of his intent to avoid the lien

under § 506(d), and the bankruptcy court violated an unknown

party's due process rights by expunging its deed of trust without

notice and an opportunity to be heard. See Tennant v. Rojas (In

re Tennant), 318 B.R. 860, 870 (9th Cir. BAP 2004) (due process

requires that a party must receive sufficient notice of any

potentially adverse action and the opportunity to be heard). 

Because the bankruptcy court could not void a lien belonging

to a party not before it, it erred in granting Lane summary

judgment and voiding the first-position lien under § 506(d). 

Thus, the first-position lien remains against the Property,

notwithstanding the final determination that BONY could not

enforce it. We realize this outcome puts the parties in a bit of

a quandary, albeit one of their own making. The outcome here is

dictated by their conduct or lack thereof and the unique facts of

the case, including Lane's objection to a claim that included

evidence of BONY's standing, BONY's failure to defend its claim

and the entry of a default order sustaining the claim objection on

these facts. 

B. The bankruptcy court did not abuse its discretion in denying

BONY's 56(d) Motion. 

To justify a continuance of summary judgment under Civil Rule

56(d), the movant must: (1) set forth in affidavit form the

specific facts it hopes to elicit through further discovery; 

(2) show the facts sought exist; and (3) show that the sought-

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after facts are essential to oppose summary judgment. Family Home

& Fin. Ctr. v. Fed. Home Loan Mortg. Corp., 525 F.3d 822, 827 (9th

Cir. 2008); Mackey v. Pioneer Nat'l Bank, 867 F.2d 520, 524 (9th

Cir. 1989) (party seeking postponement of summary judgment motion

must "show how additional discovery would preclude summary

judgment and why [it] cannot immediately provide 'specific facts'

demonstrating a genuine issue of material fact.") (citing former

Civil Rule 56(f)). The party seeking to conduct additional

discovery has the burden to put forth sufficient facts to show

that the evidence sought exists. Volk v. D.A. Davidson & Co., 816

F.2d 1406, 1416 (9th Cir. 1987).

The bankruptcy court determined that BONY failed to meet any

of the elements for granting a continuance under Civil Rule 56(d). 

First, BONY failed to state with any specificity what evidence it

hoped to obtain. Second, BONY failed to establish that the

evidence it sought actually existed. Finally, BONY failed to

establish that it could obtain evidence of a material fact to

negate Lane's claim under § 506(d) and preclude summary judgment. 

We agree. Not only was BONY's 56(d) Motion deficient, which was

sufficient grounds to deny it, the evidence BONY was seeking,

namely facts establishing Lane's intent and that his Claim

Objection lacked any factual or legal basis to support it, was

nothing more than an improper collateral attack on the final,

unappealed Claim Disallowance Order. 

Accordingly, we conclude that the bankruptcy court did not

abuse its discretion when it denied BONY's 56(d) Motion. 

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C. The bankruptcy court abused its discretion in awarding Lane

attorney's fees under Cal. Civ. Code § 1717. 

California Civil Code § 17178 makes reciprocal an otherwise

unilateral contractual obligation to pay attorney's fees. 

Santisas v. Goodin, 17 Cal. 4th 599, 610-11 (1998). The parties

agree that Cal. Civ. Code § 1717 provided the only basis for Lane

(or BONY) to recover attorney's fees.9 Three conditions must be

met before the statute applies: (1) the action in which the fees

are incurred must be an action on a contract; (2) the contract

must contain a provision stating that attorney's fees incurred to

enforce the contract shall be awarded either to one of the parties

or to the prevailing party; and (3) the party seeking fees must be

the party who prevailed on the contract. Penrod v. AmeriCredit

Fin. Servs., Inc. (In re Penrod), 802 F.3d 1084, 1087-88 (9th Cir.

2015). An action is "on a contract" when a party seeks to

enforce, or avoid enforcement of, the provisions of the contract. 

Id. at 1088.

The bankruptcy court, applying Penrod, concluded that the

Claim Objection, Reconsideration Motion and Lien Avoidance action

8

 Cal. Civ. Code § 1717 provides, in relevant part:

In any action on a contract, where the contract

specifically provides that attorney's fees and costs,

which are incurred to enforce that contract, shall be

awarded either to one of the parties or to the prevailing

party, then the party who is determined to be the party

prevailing on the contract, whether he or she is the party

specified in the contract or not, shall be entitled to

reasonable attorney's fees in addition to other costs.

Cal. Civ. Code § 1717(a).

9

 The contractual basis for fees is found in the unilateral

attorney's fees provision in Paragraph 9 of the deed of trust. 

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were actions on a contract. It further concluded that Lane was

the prevailing party for both the Reconsideration Motion and Lien

Avoidance action. Accordingly, Lane could recover all of his fees

under Cal. Civ. Code § 1717. Even assuming the Lien Avoidance

action was an action "on a contract," as determined above, Lane is

not the prevailing party. Accordingly, the bankruptcy court

abused its discretion by awarding Lane his attorney's fees for

that action under Cal. Civ. Code § 1717. 

On the other hand, Lane was successful on the Reconsideration

Motion. However, even again assuming that the bankruptcy court

correctly determined it was an action "on a contract" and that

fees could be awarded under Cal. Civ. Code § 1717, the court

applied an incorrect standard of law to award Lane his attorney's

fees. As relevant here, Civil Rule 54(d)(2), incorporated by Rule

7054, requires that a motion for attorney's fees be filed within

14 days after the entry of judgment. The 14-day period is not

jurisdictional and may be waived for cause, particularly where

there has been no prejudice to the opposing party. Kona Enters.,

Inc. v. Estate of Bishop, 229 F.3d 877, 889-90 (9th Cir. 2000). 

It is undisputed that Lane's fee motion was untimely filed

with respect to the Reconsideration Motion. Whether to allow an

untimely motion for attorney's fees is within the discretion of

the court. Petrone v. Veritas Software Corp. (In re Veritas

Software Corp. Sec. Litig.), 496 F.3d 962, 973-74 (9th Cir. 2007)

(holding that district court did not abuse its discretion by

finding that a fee motion filed 15 days late was untimely, but

also holding that the district court would not have abused its

discretion in granting the fee motion).

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In a case of an untimely motion for attorney's fees under

Civil Rule 54(d)(2)(B), the Ninth Circuit requires the court to

apply Civil Rule 6(b)(1)(B), applicable here by Rule 9006(b)(1). 

Id. at 973. The court should grant the motion only when the

moving party missed the deadline due to "excusable neglect." To

determine whether neglect is excusable, the court must consider

the four factors set forth in Pioneer Investment Services Co. v.

Brunswick Associates Limited Partnership, 507 U.S. 380, 395

(1993). Id. See also Farris v. Ranade, 584 Fed. App'x 887, 890

(9th Cir. 2014) (applying "excusable neglect" standard and Pioneer

factors to untimely motion for attorney's fees under Civil Rule

54(d)(2)(B)). 

The bankruptcy court did not apply this standard before

awarding Lane his attorney's fees for the Reconsideration Motion.

Therefore, it additionally abused its discretion by applying an

incorrect standard of law for these fees. 

VI. CONCLUSION

We REVERSE the MSJ to the extent the bankruptcy court voided

the first-position lien under § 506(d), and we REVERSE the court's

later judgment voiding the lien. We AFFIRM the court's decision

to deny BONY's 56(d) Motion and to not grant a continuance of the

MSJ. Finally, because Lane was not the prevailing party in the

Lien Avoidance action, and because the court applied an incorrect

legal standard to award Lane his attorney's fees for the

Reconsideration Motion, we REVERSE the Fee Order awarding Lane all

of his attorney's fees under Cal. Civ. Code § 1717.

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