NOT FOR PUBLICATION

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE NINTH CIRCUIT

In re:

CAROLYN L. BURKE,

Debtor.

UMPQUA BANK,

Appellant,

v.

CAROLYN L. BURKE,

Appellee.

BAP No. NC-18-1260-STaB

Bk. No. 1:09-bk-12469

Adv. No. 1:17-ap-1035

MEMORANDUM*

Argued and Submitted on June 20, 2019

at Sacramento, California

Filed – November 25, 2019

Appeal from the United States Bankruptcy Court

for the Northern District of California

FILED

NOV 25 2019

SUSAN M. SPRAUL, CLERK

U.S. BKCY. APP. PANEL

OF THE NINTH CIRCUIT

*

 This disposition is not appropriate for publication. Although it may be cited for

whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential

value. See 9th Cir. BAP Rule 8024-1.
Honorable Roger L. Efremsky, Bankruptcy Judge, Presiding

 

Appearances: George C. Lazar of Fox Johns Lazar Pekin & Wexler APC

argued for Appellant.**

 

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

Memorandum by Judge Taylor

Dissent by Judge Spraker

INTRODUCTION

In 2009, Carolyn L. Burke received a chapter 71 discharge and left

bankruptcy unencumbered by personal liability under a guaranty payable

to Umpqua Bank. But Umpqua’s guaranty-claim was secured by a lien

against her home, this lien survived discharge, and Umpqua had the right

to recover payment on the guaranty from the post-petition sale of its

collateral.

So, Ms. Burke emerged from bankruptcy in a new relationship with

Umpqua, the housing crisis that confronted Ms. Burke and so many others

in 2009 abated, California real estate generally recovered value, and we

hope that Ms. Burke benefitted appropriately from the fresh start promised

**

 Appellee Burke did not actively participate in this appeal.

1

 Unless specified otherwise, all chapter and section references are to the

Bankruptcy Code, 11 U.S.C. §§ 101–1532, all “Rule” references are to the Federal Rules

of Bankruptcy Procedure, and all “Civil Rule” references are to the Federal Rules of

Civil Procedure.

2
by bankruptcy discharge.

Eight years passed.

In 2017, Ms. Burke sold her home. But, as a result of error, Umpqua

submitted a demand into escrow that was approximately $250,000 too low.

Thus, when the sale closed, Umpqua got a small payment, and Ms. Burke

received a substantially enhanced payment—at Umpqua’s expense.

Because the demand bound Umpqua as a matter of California law,

Umpqua’s trust deed was reconveyed. And because of her bankruptcy

discharge, it cannot sue Ms. Burke on the guaranty. Umpqua is left with a

singular and merely potential remedy: an unjust enrichment claim under

California law. We are not required to determine the ultimate question of

whether unjust enrichment exists under these facts; the only question we

must answer is whether Ms. Burke’s 2009 bankruptcy discharge bars

Umpqua from bringing an unjust enrichment action. The bankruptcy court

concluded that the discharge creates such a bar; on de novo review we

conclude that it does not. 

Accordingly, we REVERSE.

FACTS

The facts relevant to this appeal are few and undisputed. In 2007,

Umpqua loaned $194,000.00 to AWS, LLC. Ms. Burke guaranteed

repayment and secured her obligations under the guaranty through a deed

of trust against her residence in Sonoma, California (the “Home”).

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In 2009, Ms. Burke filed a chapter 7 bankruptcy petition. Her

bankruptcy schedules reflected that the Home was over encumbered and

that Umpqua held a third priority lien. She received her discharge in late

2009. 

In 2017, Ms. Burke sold the Home. After payment of senior liens,

approximately $351,000 remained available to pay Umpqua’s

approximately $231,000 claim. But Umpqua, through alleged clerical error,

submitted a demand into escrow of only $3,061.23. Before it discovered or

was able to correct the demand, escrow relied on it, completed the

transaction, and reconveyed Umpqua’s trust deed. Ms. Burke, thus,

received $348,874.80 in sale proceeds.

Umpqua promptly obtained an order reopening Ms. Burke’s

bankruptcy case and filed an adversary complaint seeking a declaratory

judgment that the filing of an unjust enrichment action in state court would

not violate Ms. Burke’s chapter 7 discharge. It then moved for summary

judgment; Ms. Burke did not actively oppose or appear for either of the

summary judgment hearings.

At the first hearing, the bankruptcy court orally denied the motion,

stated an intent to sua sponte grant summary judgment in Ms. Burke’s

favor, but allowed Umpqua to file supplemental briefing. At the second

hearing, the bankruptcy court relied on the undisputed facts and

concluded that Umpqua’s prepetition claim “encompassed” both its

4
secured claim against the Home as well as any contingent unjust

enrichment claim. It, therefore, concluded that Ms. Burke’s discharge

prohibited Umpqua from seeking to collect personally against her on an

unjust enrichment theory.

The bankruptcy court entered judgment in Ms. Burke’s favor, and

Umpqua timely appealed.

JURISDICTION

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

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

ISSUE

Did the bankruptcy court err when it determined that the discharge

prevented Umpqua from filing a state court unjust enrichment action

against Ms. Burke?

STANDARD OF REVIEW

We review the bankruptcy court’s grant or denial of summary

judgment de novo. Fresno Motors, LLC v. Mercedes Benz USA, LLC, 771 F.3d

1119, 1125 (9th Cir. 2014). We also review the interpretation of state and

federal law de novo. Cmty. Bank of Ariz. v. G.V.M. Tr., 366 F.3d 982, 984

(9th Cir. 2004); Collect Access LLC v. Hernandez (In re Hernandez), 483 B.R.

713, 719 (9th Cir. BAP 2012). Under de novo review, “we consider a matter

anew, as if no decision had been made previously.” Francis v. Wallace (In re

Francis), 505 B.R. 914, 917 (9th Cir. BAP 2014).

5
DISCUSSION

Summary judgment is appropriate when “there is no genuine dispute

as to any material fact and the movant is entitled to judgment as a matter of

law.” Fed. R. Civ. P. 56(a) (applied in adversary proceedings by Rule 7056).

Here there are no factual disputes, and we, thus, apply the law to these

undisputed facts.

On de novo review, we must determine the existence and nature of

Umpqua’s unjust enrichment claim; we do so under nonbankruptcy law.

See Butner v. United States, 440 U.S. 48, 54–55 (1979); Bechtold v. Gillespie (In

re Gillespie), 516 B.R. 586, 591 (9th Cir. BAP 2014). Then, we must determine

when the claim arose and whether it was discharged in 2009. Bankruptcy

law answers these questions.

A. The Bankruptcy Code broadly defines “claim” and may allow

for discharge of litigation claims even if not yet ripe for

adjudication.

Bankruptcy proceedings are intended to give debtors a “fresh start.”

Goudelock v. Sixty-01 Ass'n of Apartment Owners, 895 F.3d 633, 637 (9th Cir.

2018) (citing Grogan v. Garner, 498 U.S. 279, 286 (1991)); Dept. of Health Servs.

v. Jensen (In re Jensen), 995 F.2d 925, 928 (9th Cir. 1993). And this is

principally achieved by the bankruptcy discharge, which frees an

individual debtor from personal liability for most claims arising

prepetition. See 11 U.S.C. § 727(b); see also Johnson v. Home State Bank, 501

U.S. 78, 83 (1991) (citing 11 U.S.C. § 524(a)(1)). It also enjoins creditors from

6
commencing or continuing an action to collect on a discharged debt as a

personal liability of the debtor. 11 U.S.C. § 524(a)(2).

The Code defines a debt as “liability on a claim.” 11 U.S.C. § 101(12).

The definition of claim includes a: “right to payment, whether or not such

right is reduced to judgment, liquidated, unliquidated, fixed, contingent,

matured, unmatured, disputed, undisputed, legal, equitable, secured, or

unsecured.” 11 U.S.C. § 101(5)(A). The term also broadly includes a “right

to an equitable remedy for breach of performance.” 11 U.S.C. § 101(5)(B).

This definition, thus, encompasses a debtor’s prepetition obligations

no matter how remote or contingent. Goudelock, 895 F.3d at 638 (citing

SNTL Corp. v. Ctr. Ins. Co. (In re SNTL Corp.), 571 F.3d 826, 838 (9th Cir.

2009)). Indeed, a claim may exist for bankruptcy and discharge purposes

long before a cause of action accrues under nonbankruptcy law. In re SNTL

Corp., 571 F.3d at 839 (citing Cool Fuel, Inc. v. Bd. of Equalization (In re Cool

Fuel, Inc.), 210 F.3d 999, 1007 (9th Cir. 2000)). It is only necessary that the

creditor be able to fairly or reasonably contemplate the claim’s existence as

of the petition date. In re SNTL Corp., 571 F.3d at 839.

B. Umpqua’s guaranty claim was discharged, it retained an in

rem claim that survived discharge and allowed recovery from

proceeds of the Home, but its erroneous demand into escrow

extinguished its ability to obtain recovery on account of its in

rem rights.

 Ms. Burke’s discharge freed her from any personal liability arising

7
under the guaranty. See Johnson, 501 U.S. at 82–83 (citing 11 U.S.C.

§ 524(a)(1)). But Umpqua retained an in rem claim based on the deed of

trust, and its right to pursue collection against the Home passed through

the bankruptcy unaffected by the discharge. Id. at 83.

Many years postdischarge, when Ms. Burke sold the Home, Umpqua

had the opportunity (and right) to collect on its in rem claim. California

Civil Code § 2943 governed the process, and Umpqua, thus, responded to

the escrow company’s written request for a payoff demand. Cal. Civ. Code

§ 2943(c); Cathay Bank v. Fidelity Nat. Title Ins. Co., 46 Cal. App. 4th 266, 270

(1996). 

But its demand erroneously said it was only owed $3,061.23, and,

under California law, the escrow company was entitled to rely on it. Cal.

Civ. Code § 2943(d)(1). As such, the erroneous payoff demand statement

established “the amount necessary to pay the obligation in full.” Id.; see also

Cal. Nat. Bank v. Havis, 120 Cal. App. 4th 1122, 1134 (2004). Upon payment

of this amount and the close of escrow, Umpqua’s rights and interests

under the deed of trust were automatically extinguished as a matter of law.

See Cal. Civ. Code § 2943(d)(1).

California law provides a creditor with a statutory remedy for an

error in a beneficiary’s demand. Under California Civil Code § 2943(d)(3),

the beneficiary may recover debt not included in its beneficiary’s demand

“as an unsecured obligation of the obligor pursuant to the terms of the”

8
document creating the debt. Cal. Civ. Code § 2943(d)(3). For the dissent,

this is conclusive. It reads Umpqua’s cause of action as one on the guaranty

and governed by California Civil Code § 2943(d)(3). Umpqua, however,

acknowledges that it cannot pursue Ms. Burke under either the guaranty,

its trust deed, or California Civil Code § 2943(d)(3); it does not seek to file a

collection action. At oral argument it confirmed that it will rely exclusively

on a common law unjust enrichment theory.

C. A California unjust enrichment claim does not arise under a

contract; it is a common law cause of action.

Under current California law, the unjust enrichment claim that

Umpqua seeks to assert is a standalone cause of action untethered from its

contractual relationship with Ms. Burke. In Ghirardo v. Antonioli, 14 Cal. 4th

39 (1996), the California Supreme Court considered facts remarkably

similar to those in this appeal: the seller of real property, through a mistake

of fact, understated the amount necessary to payoff a purchase money deed

of trust and subsequently sued the purchaser to recover the remaining

amount. Id. at 43. The court determined that the seller was barred from

obtaining a deficiency under its note and trust deed by California’s

antideficiency statute and that California Civil Code § 2943(d)(3) was not

applicable to this claim. Id. at 47. But it allowed recovery under a theory of

unjust enrichment. Id. at 43–44. More recently, in Hartford Casualty

Insurance Company v. J.R. Marketing, L.L.C., 61 Cal. 4th 988 (2015), it again

9
allowed an independent claim for unjust enrichment to proceed. Id. at

996–97. The Ninth Circuit expressly noted that Hartford clarified California

law and established that an unjust enrichment claim can be sustained as a

standalone cause of action. Bruton v. Gerber Prod. Co., 703 F. App’x 468, 470

(9th Cir. 2017).

The California Supreme Court in Hartford described unjust

enrichment as follows: “An individual who has been unjustly enriched at

the expense of another may be required to make restitution. Where the

doctrine applies, the law implies a restitutionary obligation, even if no

contract between the parties itself expresses or implies such a duty.”

Hartford Cas. Ins. Co., 61 Cal. 4th at 326 (citations omitted). It continued:

“Restitution is not mandated merely because one person has realized a

gain at another’s expense. Rather, the obligation arises when the

enrichment obtained lacks any adequate legal basis and thus cannot

conscientiously be retained.” Id. (citations and internal quotation marks

omitted). And in Ghirardo, the California Supreme Court discussed unjust

enrichment through the lens of the equitable remedy of restitution: 

Under the law of restitution, an individual may be required to

make restitution if he is unjustly enriched at the expense of

another. (Rest., Restitution, § 1, p. 12.) A person is enriched if he

receives a benefit at another’s expense. (Id., com. a, p. 12.) The

term “benefit” “denotes any form of advantage.” (Id., com. b, p.

12.) Thus, a benefit is conferred not only when one adds to the

property of another, but also when one saves the other from

10
expense or loss. Even when a person has received a benefit

from another, he is required to make restitution “only if the

circumstances of its receipt or retention are such that, as

between the two persons, it is unjust for him to retain it.” (Id.,

com c, p. 13.)

Ghirardo, 14 Cal. 4th at 51.

So, an unjust enrichment cause of action is not based on, nor does it

require, a contractual relationship or a written contract. Fed. Deposit Ins.

Corp. v. Dintino, 167 Cal. App. 4th 333, 346 (2008). In Hartford, the California

Supreme Court emphasized this point: “Though this restitutionary

obligation is often described as quasi-contractual, a privity of relationship

between the parties is not necessarily required.” Hartford Cas. Ins. Co., 61

Cal. 4th at 326. Instead, “unjust enrichment is a common law obligation

implied by law based on the equities of a particular case and not on any

contractual obligation.” Fed. Deposit Ins. Corp. v. Dintino, 167 Cal. App. 4th

at 346. Consistent with the view that unjust enrichment is not an action on

a contract or in quasi-contract is the fact that California recognizes a three

year statute of limitations for unjust enrichment claims rather than the four

year statute applicable to claims for breach of contract. See id.

This is where we part ways with the dissent. On its view, Umpqua’s

claim for unjust enrichment is merely an equitable remedy based on or a

cause of action arising from the guaranty. We disagree. As a result of the

guaranty and the trust deed, Ms. Burke was in a financial relationship with

11
Umpqua. After discharge, this relationship was modified such that her

liability was limited to equity available from proceeds of the Home. But the

obligation that Umpqua seeks to vindicate is one arising from the common

law: a party must deal fairly with another and may have liability where it

unjustly recovers an economic benefit to the detriment of another. In

vindicating this right, the guaranty and trust deed are relevant to the

calculation of damages, in particular, but the claim does not arise

thereunder. In short, California law expressly provides for an unjust

enrichment cause of action for mistaken distribution of proceeds and

untethers it from any related contract.

2

D. Umpqua’s unjust enrichment claim arose postpetition

because it was not fairly contemplated on a prepetition basis.

While state law governs the existence and nature of Umpqua’s claim,

Butner, 440 U.S. at 54–55, federal bankruptcy law governs when that claim

arose for discharge purposes. Goudelock, 895 F.3d at 638. The Ninth Circuit

applies the “fair contemplation test” to answer that question. Id. Under this

2

 The dissent assumes that the enactment of California Civil Code § 2943(d)(3)

displaced the common law’s unjust enrichment cause of action. But it cites no California

authority for this proposition—neither Ghirardo nor Cathay Bank so state. Nor does it

engage the analysis required, under California law, to make this determination. See I.E.

Assocs. v. Safeco Title Ins. Co., 39 Cal. 3d 281, 285 (1985) (“The general rule is that statutes

do not supplant the common law unless it appears that the Legislature intended to

cover the entire subject or, in other words, to ‘occupy the field.’ ”). As already noted,

Umpqua expressly disclaimed reliance on California Civil Code § 2943(d)(3). We see no

reason to engage this broader question of California law.

12
test, “ ‘a claim arises when a claimant can fairly or reasonably contemplate

the claim's existence even if a cause of action has not yet accrued under

nonbankruptcy law.’ ” Id. (quoting In re SNTL Corp., 571 F.3d at 839).

We conclude that Umpqua’s unjust enrichment arose in 2017; as a

result, it is not a prepetition claim affected by the discharge.

The Ninth Circuit has a well-developed complement of cases

discussing the fair contemplation test. Most involve situations where a

creditor knew prepetition about specific facts that reasonably suggested a

claim. See Goudelock, 895 F.3d 633 (a debtor’s in personam obligation to pay

monthly condominium assessments arose at prepetition purchase, and,

thus, the condominium association could have fairly contemplated that

monthly assessments would continue to accrue based on debtor’s

continued ownership); Picerne Constr. Corp. v. Castellino Villas, A.K.F. LLC

(In re Castiellino Villas, A.K.F. LLC), 836 F.3d 1028 (9th Cir. 2016) (plaintiff in

an action under a prepetition contract with an attorneys’ fees provision

could, given a preconfirmation settlement agreement that required

resumption and completion of the lawsuit, fairly contemplate that it would

thereafter incur attorneys’ fees obligations); In re SNTL Corp., 571 F.3d 826

(the parties fairly contemplated the existence of a potential claim because

they provided for it in a prepetition contract); In re Cool Fuel, Inc., 210 F.3d

999 (where the California taxing authority investigated the debtor and

issued a deficiency determination prepetition, its bankruptcy proof of claim

13
was ripe as an allowable contingent claim and was fairly contemplated

even though a final decision had not issued on debtor’s prepetition request

for redetermination); In re Jensen, 995 F.2d 925 (where state inspector

discovered an environmental hazard on the debtor’s property prepetition,

the state’s claim was discharged even though a CERCLA cause of action

requiring clean up had not yet accrued).

ZiLOG Mod III, Inc. v. Corning (In re Zilog, Inc.), 450 F.3d 996 (9th Cir.

2006), involved application of the fair contemplation test from a slightly

different angle. In that case, the Ninth Circuit, among other things,

reversed a summary judgment determining that employee discrimination

claims were discharged. Id. at 1010. The discriminatory acts occurred both

pre and postpetition. Id. at 997–98. But the employees asserting the claim

alleged that they did not learn about the discrimination until after the

petition and bar dates. Id. The Ninth Circuit concluded that summary

judgment was improper because there was a factual dispute about whether

the employees’ claims were in their fair contemplation before chapter 11

plan confirmation. Id. at 1001–02.

As a corollary to the fair contemplation test cases, the Ninth Circuit

also allows a creditor to recover contractual attorneys’ fees under a

prepetition contract when the debtor “returns to the fray”. In Siegel v.

Federal Home Loan Mortgage Corporation (In re Siegel), 143 F.3d 525 (9th Cir.

1998), the debtor defaulted prepetition on two real estate loans, filed a

14
chapter 7 petition, and obtained a discharge. Id. at 527–28. Unwisely, he

then continued to litigate claims against the lender; the Ninth Circuit

affirmed the lower court’s award of attorneys’ fees following the lender’s

victory. Id. at 534. As the Ninth Circuit reasoned, when the debtor

voluntarily undertook a new course of litigation and “returned to the fray,”

any new liability for attorneys’ fees was a collectible post-discharge cost. Id.

at 533.

Similarly, in Boeing North American, Inc. v. Ybarra (In re Ybarra), 434

F.3d 1018 (9th Cir. 2005), the debtor sued her employer in state court and

then filed bankruptcy. Id. at 1020. After the chapter 7 trustee settled the

lawsuit and received bankruptcy court approval of the settlement over the

debtor’s objection, the state court dismissed the suit. Id. The debtor then

amended her schedules to exempt the lawsuit and, on appeal, the Ninth

Circuit allowed the amendment. Id. So, the bankruptcy court eventually

allowed the debtor to either accept a settlement payment or to maintain the

suit; the debtor chose to litigate. Id. She then convinced the state court to set

aside the dismissal, but her employer thereafter obtained summary

judgment and an award of its attorneys’ fees. Id. at 1020–21. The

bankruptcy court subsequently determined that the postpetition attorneys’

fees were not discharged. Id. at 1021. On appeal, the Ninth Circuit affirmed

and again emphasized that a claim for postpetition attorney’s fees and

costs was not discharged when the debtor voluntarily initiates litigation or

15
returns to the fray. Id. at 1026.

We acknowledge that the return to the fray doctrine is not directly

applicable here; this case does not involve litigation claims. We note these

cases, however, because in Picerne, the Ninth Circuit said that the return to

the fray analysis falls within the fair contemplation test. Put simply, because

we expect debtors to use the discharge as a shield and not as a sword, a

creditor does not fairly contemplate that a debtor will return to the fray.

The return to the fray cases, thus, simply provide additional examples of

areas where a postpetition claim is not in a creditor’s fair contemplation

and, therefore, is not discharged.

 The present facts are most analogous to ZiLOG. Umpqua had no

knowledge of Ms. Burke’s alleged unjust enrichment prepetition or even

pre-discharge. The acts that gave rise to a potential claim for unjust

enrichment arose 8 years thereafter. And, thus, Umpqua had no ability to

protect itself in Ms. Burke’s bankruptcy case. In ZiLOG, the employees

were unable to file protective proofs of claim. Analogously, Umpqua was

unable to file the nondischargeability action that might well have been

available under § 523(a)(6) if the unjust enrichment claim arose prepetition.

Under ZiLOG, Umpqua’s unjust enrichment claim is not discharged. And

unlike the other fair contemplation cases, nothing known to Umpqua put it

on notice of its 2017 claim for unjust enrichment; it was not reasonably

contemplated prepetition. It did not have knowledge of a fact, such as the

16
environmental hazard in Jensen or the tax deficiency determination in Cool

Fuel, Inc. And it did not enter into a contract that provided for recovery in

the circumstance it now encounters as was the case in SNTL Corporation,

Picerne, and Goudelock.

3

As for the “return to the fray” cases, to the extent they fit within the

broader “fair contemplation” test, they stand for the proposition that where

a debtor creates a right to recovery through new postpetition conduct, she

cannot hide behind the discharge. This is a common sense proposition.

To be clear, we agree that it is within the realm of possibility that a

debtor will act unjustly in connection with collateral proceeds postpetition

and post-discharge. Indeed, the facts of this case are theoretically possible

in every real estate secured transaction. But the mere possibility that a

debtor could act nefariously does not bring all acts of actual misconduct

within the realm of fair contemplation under the Ninth Circuit standard. No

one could have reasonably anticipated that Ms. Burke would receive

collateral proceeds to which Umpqua was entitled post-discharge and then,

allegedly, unjustly retain them. Creditors like Umpqua need not and

should not be deemed to contemplate all future bad acts especially where

3

 The dissent reasons that Goudelock is the most analogous case. If we accepted

the dissent’s underlying premise—that Umpqua’s alleged unjust enrichment cause of

action is actually a remedy for enforcement of a prepetition contractual claim—we would

agree. Instead, we view the cause of action as untethered from the prepetition contract

and as arising out of postpetition acts.

17
they have no ability to protect themselves through a nondischargeability

action or otherwise. The Ninth Circuit has never so expanded the fair

contemplation test.4

CONCLUSION

Eight years postdischarge Ms. Burke received and kept collateral

proceeds; Umpqua alleges that she did so unjustly. We determine that

Umpqua’s unjust enrichment cause of action arose at that time and was not

fairly contemplated either prepetition or predischarge. We acknowledge

that it is tempting to leave a well-heeled financial institution to the

consequences of its error. But the result suggested by the dissent would

similarly apply in a situation where the debtor is the well-heeled and

sophisticated party and the unpaid creditor is elderly, impoverished, and

left a critical zero off her demand due to bad eyesight. The bankruptcy

discharge does not convert a debtor’s future into one where the debtor is

insulated from the consequences of entirely postpetition conduct that the

4

 And how far can one take the dissent’s reasoning? Did the bankruptcy

discharge insulate Ms. Burke from a claim of conversion or fraud if she stole sale

proceeds, falsified a reconveyance, or engaged in other types of postpetition fraudulent

activity? Did it shield her if she laid waste to the Home and substantially decreased its

value to Umpqua’s detriment? The answer is no. No one would suggest that such

tortious activity was fairly contemplated before the discharge. No one can say that her

allegedly unjust retention of escrow proceeds was within Umpqua’s fair contemplation

either. And while the bankruptcy system assumes a fresh start (the discharge as a

shield), the discharge should not be used as a sword that clears a pathway to nefarious

conduct. 

18
state of California (and the common law universally) categorizes as unjust.

In sum, we decline to take any position on the merits of the dispute;

we determine only that Ms. Burke’s 2009 discharge did not bar Umpqua

from pursuing a claim that is based on 2017 facts and arose at that time.

Accordingly, we REVERSE the bankruptcy court’s summary

judgment in favor of Burke and REMAND for entry of summary judgment

in Umpqua’s favor.

Dissent begins on next page.

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SPRAKER, Bankruptcy Judge, dissenting.

Umpqua Bank seeks leave to sue a discharged debtor to recover

monies based upon a prepetition loan guaranty. There is no dispute that

Burke’s personal liability under the guaranty was discharged as a result of

her bankruptcy. Umpqua held a deed of trust against Burke’s real property

that passed through her bankruptcy. But Umpqua acknowledges that

under California law its deed of trust terminated upon payment of the

amount Umpqua stated was due on the sale of the property. Unfortunately,

Umpqua significantly understated the balance owed. Cognizant of Burke’s

discharge, Umpqua asked the bankruptcy court for leave to sue her

personally for unjust enrichment to recover the remaining balance owed

under the guaranty. The bankruptcy court held that an action to collect the

remaining balance was barred by the discharge injunction. 

The majority now holds that this was error, relying on the

postpetition accrual of the unjust enrichment cause of action. The majority

also concludes that Umpqua’s misstatement of its balance and Burke’s

resulting retention of the sale proceeds was not within Umpqua’s fair

contemplation prepetition. I dissent because I agree with the bankruptcy

court that Umpqua simply seeks to use a new cause of action to recover a

prepetition liability personally from a discharged debtor.

A. The Discharge and Umpqua’s Claim.

Burke received a windfall when Umpqua understated the balance

1
owed and the escrow agent paid to Burke roughly $250,000 more than she

would have received if Umpqua had correctly stated the amount it was

owed. That said, there is no windfall exception to a debtor’s discharge. If

Umpqua seeks to collect from Burke personally on a dischargeable debt

that arose prepetition, it is enjoined from doing so under §§ 727(b) and

524(a)(1). The Code broadly defines a debt as a claim, and a claim includes

“all of a debtor’s obligations ‘no matter how remote or contingent.’”

Goudelock v. Sixty-01 Ass'n of Apartment Owners, 895 F.3d 633, 638 (9th Cir.

2018) (quoting SNTL Corp. v. Ctr. Ins. Co. (In re SNTL Corp.), 571 F.3d 826,

838 (9th Cir. 2009)). A claim, therefore, includes any “right to payment,

whether or not such right is reduced to judgment, liquidated, unliquidated,

fixed, contingent, matured, unmatured, disputed, undisputed, legal,

equitable, secured, or unsecured.” § 101(5)(A). Significantly, a claim also

includes any equitable remedy giving rise to payment, regardless of

whether that remedy is contingent or matured as well. § 101(5)(B). This is

exactly what Umpqua’s claim for unjust enrichment is in this instance - an

equitable remedy designed to enable it to collect the balance of its loan

from the debtor personally as it no longer holds any collateral. 

As the Ninth Circuit has observed, “[t]he breadth of the definition of

‘claim’ is critical in effectuating the bankruptcy code’s policy of giving the

debtor a ‘fresh start.’” Picerne Constr. Corp. v. Castellino Villas, A. K. F. LLC

(In re Castellino Villas, A.K.F. LLC), 836 F.2d 1028, 1033 (9th Cir. 2016);

2
Bechtold v. Gillespie (In re Gillespie), 516 B.R. 586, 591 (9th Cir. BAP 2014).

The importance of the debtor’s fresh start in interpreting the Bankruptcy

Code cannot be gainsaid. The Ninth Circuit has acknowledged the

importance of the fresh start in the process of protecting the scope of the

discharge. See, e.g., Scheer v. State Bar (In re Scheer), 819 F.3d 1206, 1209 (9th

Cir. 2016); Snoke v. Riso (In re Riso), 978 F.2d 1151, 1154 (9th Cir.1992); see

also Sachan v. Huh (In re Huh), 506 B.R. 257, 263 (9th Cir. BAP 2014) (en

banc). Hence, clear application of the discharge is a paramount concern.

Burke has received her bankruptcy discharge. As a result, she is

discharged from her personal liability on the prepetition loan guaranty to

Umpqua. It is equally clear that her bankruptcy did not affect Umpqua’s

deed of trust against her property securing the guaranty. HSBC Bank USA

v. Blendheim (In re Blendheim), 803 F.3d 477, 490 (9th Cir. 2015) (“Congress

codified the principle that liens may pass through bankruptcy in §

506(d)(2).”). However, California law terminated Umpqua’s deed of trust

when the escrow agent paid Umpqua’s understated loan balance. 

Cal. Civ. Code § 2943(d)(1) establishes that a closing agent for the sale

of real property is entitled to rely on the creditor’s payoff demand

statement “for the purpose of establishing the amount necessary to pay the

obligation in full.” Subsection (d)(3) anticipates that additional monies

beyond the quoted payoff statement may come due prior to payment.

Regardless of the reason for any such deficiency, the statute provides that

3
“any sums that were due and for any reason not included in the statement

or amended statement shall continue to be recoverable by the beneficiary

as an unsecured obligation of the obligor pursuant to the terms of the

note and existing provisions of law.” Cal. Civ. Code § 2943(d)(3) (emphasis

added).

Payment of the payoff demand, therefore, automatically and forever

extinguished Umpqua’s rights in the collateral. Cathay Bank v. Fid. Nat. Title

Ins. Co., 46 Cal. App. 4th 266, 271 (1996). As stated in Cathay Bank, the plain

language of the statute makes clear that any remaining debt no longer was

secured:

The meaning and effect of these prescriptions is that, upon

close of escrow and Fidelity’s payment of the bank’s payoff

demand, Tong remained personally liable for the balance of

his loan which the bank had understated, but the remaining

debt [was] no longer secured according to the terms of the

original note regardless of the circumstances.

Cathay Bank, 46 Cal. App. 4th at 271 (citations and internal quotation marks

omitted and emphasis added). Cathay Bank further explained that this

interpretation of the statute was consistent with its legislative purpose,

which was to “‘shift the responsibility for calculating the amount to satisfy

the loan from the borrowers . . . to [the] creditor.’” Id. (citing Freedom Fin.

Thrift & Loan v. Golden Pac. Bank, 20 Cal. App. 4th 1305, 1315 n.3 (1993)). 

As a consequence, Umpqua retained no interest in the real property

sold, or the sale proceeds, once it was paid the understated balance. This is

4
critical to understanding the nature of any resulting unjust enrichment

claim; Umpqua cannot argue that Burke received its collateral because

Umpqua had no security interest in the sale proceeds once it was paid what

it said it was owed.

B. California Recognizes A Cause of Action For Unjust Enrichment

For The Mistaken Underpayment Of A Secured Debt. 

Although Cal. Civ. Code § 2943(d)(3) extinguished Umpqua’s

security interest in the real property and the proceeds of the sale, the

statute did not extinguish the underlying personal liability for the

preexisting obligation. To the contrary, the statute specifically provides that

any outstanding balance remained “recoverable by the beneficiary as an

unsecured obligation of the obligor pursuant to the terms of the note and

existing provisions of law.” Cal. Civ. Code § 2943(d)(3). This subsection

codified the longstanding rule from the common law of restitution

providing equitable relief for certain preexisting contractual obligations

that otherwise became uncollectible. The Restatement (Third) of Restitution

and Unjust Enrichment (2011) (“Restatement”) even has a section devoted

to this type of loss entitled: “Mistaken Discharge of Obligation or Lien.”

Restatement § 8. 

The traditional form of relief in this context was “a claim in

restitution by reinstatement of the rights mistakenly surrendered.” Id. As

the Restatement elaborated: 

5
Mistaken discharge of an obligation or a security interest is

most simply remedied by treating the discharge as ineffective.

The remedy is occasionally described by saying that the act of

discharge is cancelled; or that the claimant is subrogated to the

obligation or security that has been mistakenly discharged. The

significance of such language is essentially that restitution

revives the former obligation instead of creating a new one.

Restatement § 8, cmt. b (emphasis added). Thus, the common law

restitutionary right of a secured lender who mistakenly releases collateral

necessarily is tied to the debtor’s nonpayment of preexisting debt.

California followed the traditional common law rule identified in the

restatement: “‘in the event a beneficiary was entitled to recover despite a

mistake in the payoff transaction, the mortgage or deed of trust could be

reinstated and the debt remain secured.’” Ghirardo v. Antonioli, 14 Cal. 4th

39, 51 (1996) (quoting Freedom Fin. Thrift & Loan, 20 Cal. App.4th at 1314).1

Enactment of Cal. Civ. Code § 2943(d) altered the common law

restitutionary remedy. Considering the statute shortly after it was enacted,

the Supreme Court of California observed that “[p]rinciples of unjust

enrichment, more recently codified in Civil Code section 2943, permit a

seller to seek recovery of sums omitted from a payoff statement as an

unsecured obligation.” Ghirardo, 14 Cal.4th at 43. In Ghirardo, the Court

1 Ghirardo partially disapproved Freedom Financial Thrift & Loan on other grounds.

See Ghirardo, 14 Cal. 4th at 53 n.5. But Ghirardo heavily relied on Freedom Financial Thrift

& Loan for the history, nature, and scope of a secured lender’s common law rights upon

the mistaken release of its collateral prior to the enactment of Cal. Civ. Code § 2943.

6
considered the purchaser’s argument that Cal. Civ. Proc. Code § 580b, part

of California’s antideficiency laws, precluded any further action to recover

the unpaid balance. It rejected this argument, concluding that “[n]either the

wording nor the underlying purpose of Code of Civil Procedure section

580b dictates such a draconian result in the case of a mistake of fact in a

payoff demand.” Id. at 52. Ghirardo explained:

“[A]llowing recovery for unjust enrichment would not

contradict the policy of requiring the creditor to rely upon the

property to secure the debt. This is because any unjust

enrichment recovery could not exceed the property value. Thus,

if the property value had decreased, and was less than the debt,

a plaintiff's unjust enrichment recovery would be limited by the

value of the property.”

Ghirardo, 14 Cal.4th at 53 (quoting First Nationwide Savings v. Perry, 11 Cal.

App. 4th 1657, 1664-65 (1992)). 

In sum, California has concluded as a matter of public policy that its

antideficiency statutes do not bar a lender from recovering the outstanding

balance owed on a loan where the lender misstates the payoff amount.

Nonetheless, California recognizes that this liability is based on the

underlying debt and is limited by the value of collateral being disposed.

Accordingly, Ghirardo further explained that Cal. Civ. Code § 2943

subsumed “‘the common law concepts of unjust enrichment, mistake and

estoppel and provide[d] a debtor may not receive a windfall and escape

the obligation of satisfying a loan in full when a mortgage or deed of

7
trust is retired in error.’” Id. at 51 (quoting Freedom Financial Thrift & Loan,

20 Cal. App. 4th at 1315) (emphasis added); see also Cal. Nat. Bank v. Havis,

120 Cal. App. 4th 1122, 1134 (2004) (“The statute permits the borrower to

rely on that payoff demand statement . . . , and that if the amount in the

payoff demand statement is understated, for whatever reason, the

beneficiary’s recourse is to recover any sums still owing from the

borrower as an unsecured debt.”) (Emphasis added)).

Umpqua now has a postpetition cause of action for unjust enrichment

under California law. The majority views this cause of action as untethered

to the prepetition loan guaranty. This cannot be correct. Umpqua holds no

claim whatsoever against Burke for recovery of the sale proceeds as its

collateral because California law granted it no security interest in the sale

proceeds. Without the underlying loan guaranty, there is no basis to

explain why Burke’s retention of the proceeds from the sale of her property

was unjust. 

C. Fair Contemplation And Return To The Fray.

1. Fair Contemplation.

Because Umpqua’s cause of action for unjust enrichment is merely an

equitable remedy to collect the balance of a prepetition loan guaranty, no

further analysis should be necessary in light of the debtor’s discharge.

Traditionally, however, postpetition causes of action are scrutinized for

discharge purposes under the “fair contemplation test.” SNTL Corp. v.

8
Centre Ins. Co. (In re SNTL Corp.), 571 F.3d 826, 839 (9th Cir. 2009). Put

differently, when the postpetition cause of action accrues does not

automatically control. The court instead must ascertain when the claimant

could “fairly or reasonably contemplate the claim’s existence even if a

cause of action has not yet accrued under nonbankruptcy law. ” In re SNTL

Corp., 571 F.3d at 839 (citing Cool Fuel, Inc. v. Bd. of Equalization (In re Cool

Fuel, Inc.), 210 F.3d 999, 1007 (9th Cir. 2000)). The broad nature of the fair

contemplation test is consistent with the Code’s expansive definition of a

claim to include contingent and unmatured debts. In re SNTL Corp., 571

F.3d at 838-39.

 Thus a claim arises prepetition, and is barred by the discharge, when

the claimant could fairly or reasonably contemplate the claim’s existence

prepetition. When the underlying rights giving rise to the claim are set

forth in a contract or other writing, the fair contemplation analysis typically

focuses on the nature and content of that writing. When the claimant fairly

or reasonably could contemplate the existence of the contingent claim from

that writing, that claim is a dischargeable prepetition claim. See, e.g.,

Goudelock, 895 F.3d at 638; In re Castellino Villas, A.K.F. LLC, 836 F.2d at 1036;

In re SNTL Corp., 571 F.3d at 839. On the other hand, when the liability

arises from a violation of law (such as employment discrimination or

environmental law), the inquiry typically focuses on when the claimant

knew or should have known of the potential, contingent cause of action.

9
See, e.g., ZiLOG, Inc. v. Corning (In re ZiLOG, Inc.), 450 F.3d 996, 1001-02

(9th Cir. 2006); Cool Fuel, Inc., 210 F.3d at 1007; Cal. Dept. of Health Servs. v.

Jensen (In re Jensen), 995 F.2d 925, 930 (9th Cir. 1993).

The majority diligently details a number of these Ninth Circuit cases

applying the fair contemplation test. In so doing, they reason that In re

ZiLOG, Inc., 450 F.3d at 1001-02, is most analogous. ZiLOG, however,

involved a question of when the claimants’ tort claim for discriminatory

treatment in the payment of retention bonuses accrued. The Ninth Circuit

reversed and remanded the grant of summary judgment where the

claimants offered evidence that their claims accrued postpetition.2Id. at

1001-02 (noting “substantial possibility” that claims “were not within the

women’s fair contemplation until after the April 30 confirmation order, and

thus were outside the bankruptcy process.”); see also id. at 1007 (if the

claims accrued postconfirmation, there was no fair contemplation of any

kind, and it recognized that “the women may pursue those claims outside

of the bankruptcy proceedings.”)

ZiLOG, and the other cases on which the majority relies, stand for the

proposition that the postpetition accrual of a cause of action is sufficient in

certain circumstances to prevent discharge of the underlying debt. This

2

 The Ninth Circuit also held that the debtor’s actions deprived the claimants of

notice that they were required to timely file proofs of claims, and provided that they be

allowed to file proofs of claim. Id. at 1003-07.

10
does not, however, mean that the postpetition accrual of a cause of action

necessarily renders a claim beyond the scope of the discharge. In In re

Goudelock, the Ninth Circuit recognized that the debtor’s obligation to pay

monthly postpetition condominium assessments arose prepetition and was

fairly contemplated at the time the debtor purchased the property. 895 F.3d

at 638. In reaching this decision, the Ninth Circuit emphasized that

“Goudelock’s personal obligation to pay [the] assessments was not the

result of a separate, post-petition transaction but was created when she

took title to the condominium unit.” Id. For this reason, the unmatured,

contingent obligation to pay postpetition assessments qualified as

prepetition debt subject to discharge. Id.

In this instance, Burke’s situation falls much closer to the debtor in

Goudelock than ZiLOG. In ZiLOG the claimants were asserting a new

postpetition tort action that arose from the denial of their retention

bonuses. But here, as in Goudelock, there is no new postpetition transaction.

Rather, Burke became personally liable for Umpqua’s loan when she

executed the guaranty prepetition. She also pledged her real property to

secure that personal obligation. Having discharged its collateral, Umpqua

is left only with a claim to collect the outstanding balance personally

against Burke. This is far afield from the tort claims for discrimination that

the claimants in ZiLOG alleged that they discovered postpetition. Even

more so than the postpetition assessments in Goudelock, Umpqua seeks to

11
collect from Burke the exact same prepetition debt, and as such her

personal liability was “not the result of a separate, post-petition

transaction.” Because Umpqua seeks to use a cause of action that accrued

postpetition to collect the balance of its prepetition claim, that action

remains subject to Burke’s discharge. 

2. Return To The Fray.

The majority sees Burke’s retention of the sale proceeds as the new,

postpetition act that subjects her to postpetition personal liability. This

view focuses on Burke’s failure to return to Umpqua the proceeds from the

sale of her house as the basis for the unjust enrichment claim. Though

recognizing that the “unjustness” of Burke’s enrichment has not been

litigated, the majority nonetheless offers that the retention of the sale

proceeds was equivalent to a “return to the fray,” that would render a

discharged debtor liable for postpetition attorney’s fees on a prepetition

debt. See Boeing N. Am., Inc. v. Ybarra (In re Ybarra), 424 F.3d 1018, 1026-27

(2005). Yet, there is a proverbial cart and horse problem here. First, there is

no evidence that Umpqua ever made demand for payment. Second, and

more importantly, because Umpqua has no secured interest in the sale

proceeds Burke had no legally cognizable duty to return anything to

Umpqua. Nor did Burke engage in any conduct causing Umpqua to incur

attorney’s fees akin to the voluntary, unilateral initiation or resumption of a

whole new course of litigation postpetition as would warrant a finding of

12
new liability for returning to the fray. See, e.g., In re Ybarra, 424 F.3d at 1026

(“Personal liability for fees incurred through the voluntary pursuit of

litigation initiated post-petition is more consistent with the purpose of

discharge”); Siegel v. Fed. Home Loan Mortg. Corp., 143 F.3d 525, 534 (9th Cir.

1998) (“Siegel’s decision to pursue a whole new course of litigation made

him subject to the strictures of the attorney’s fee provision”); contra, In re

Mighell, 564 B.R. 34, 45–46 (Bankr. C.D. Cal. 2017) (holding that attorneys’

fees “would have been in the fair contemplation of the parties at the time of

conversion since this oral contract was allegedly formed approximately

nine months before conversion, and ‘a whole new course’ of litigation was

not begun.”).

D. Equity, Fairness, And Public Policy.

While it is Umpqua’s mistake that lead to this situation, absent the

bankruptcy discharge it would be entitled to pursue collection of its loan

balance from Burke. That Burke’s discharge may enable her to receive a

windfall runs contrary to long-standing equitable principles. This leads the

majority, though careful to say that it is not prejudging whether Burkes’s

conduct was unjust, to suggest that Burke has acted nefariously and that

her conduct was tantamount to waste or fraud – and likely would suffice to

give rise to nondischargeability under § 523(a).3 It also opines that Burke

3

 Again, the concepts of waste or fraud imply that Umpqua had an interest in the

(continued...)

13
has used her discharge as a sword rather than a shield, strongly suggesting

that she is not the honest but unfortunate debtor the Bankruptcy Code is

designed to protect. 

I recognize that Burke has received a windfall. But I do not view this

windfall as unjust, nefarious, or nondischargeable. Nor do I see it as

functionally or legally any different than the “windfall” discharged debtors

realize whenever the Code grants them a fresh start and permits them to

leave behind their personal liability for preexisting debts. Umpqua must

first establish its right to recovery before we judge this debtor. Bluntly put,

solely as a result of its own conduct and the operation of California law,

Umpqua lost its secured status and was reduced to the status of a creditor

holding an unsecured claim against a discharged debtor. While California

holds that a personal claim for unjust enrichment exists despite its

antideficiency statute, bankruptcy imposes a statutory bar as a pillar of the

debtor’s fresh start. In short, I disagree that Umpqua’s mistaken discharge

of its secured interest enables it to sidestep the bankruptcy discharge of the

debtor’s prepetition guaranty.4See generally Law v. Siegel, 571 U.S. 415, 421-

3

(...continued)

sale proceeds that Burke received. By operation of Cal. Civ. Code 2943(d)(3), it did not. 

4

 To the extent this result is unacceptable, it calls for a legislative response. This

situation may be redressed by amending Cal. Civ. Code § 2943 to provide secured

creditors with an interest in the sale proceeds when the creditor understates the balance

it is owed. Only then – when the creditor actually has a legally cognizable interest in the

(continued...)

14
22 (2014) (no equitable basis to surcharge debtor’s statutory right to

exemption).

For the reasons, set forth above, I respectfully dissent. 

4

(...continued)

sale proceeds – should the creditor be heard to complain that the discharged debtor’s

refusal to repay the creditor its share of the sale proceeds is legally wrongful.

15