Court Opinion

ID: 9386908
Source: CourtListenerOpinion
Date Created: 2023-04-14 00:00:47.722854+00
Date Added: 2024-06-11T17:18:09.351781
License: Public Domain

FILED
                                                                                   APR 13 2023
                          NOT FOR PUBLICATION                                 SUSAN M. SPRAUL, CLERK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. WW-22-1186-GFB
 JOHN EARL ERICKSON,
              Debtor.                                Bk. No. 2:22-bk-10784-TWD

 JOHN EARL ERICKSON,
              Appellant,                             MEMORANDUM*
 v.
 JASON WILSON-AGUILAR, Chapter 13
 Trustee,
              Appellee.

               Appeal from the United States Bankruptcy Court
                   for the Western District of Washington
               Timothy W. Dore, Bankruptcy Judge, Presiding

Before: GAN, FARIS, and BRAND, Bankruptcy Judges.

                                 INTRODUCTION

      Chapter 13 1 debtor John Earl Erickson (“Debtor”) appeals the

bankruptcy court’s order dismissing his case with a two-year bar to

       * 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.
       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.
refiling. Debtor argues the court erred as a matter of law by denying

confirmation of his chapter 13 plan because he was attempting a cure

under § 1322(b)(2), not a prohibited modification. He maintains the court

violated his right to due process by relying on an additional basis for

dismissal, without notice, and erred by finding bad faith to dismiss the case

with a two-year bar. The bankruptcy court correctly applied the law, and

its factual finding of bad faith is well supported by the record. We

AFFIRM.

                                         FACTS 2

A.     Prepetition events

       Debtor and his non-filing spouse, Shelley Ann Erickson, own real

property in Auburn, Washington (the “Property”), which serves as their

primary residence. The Property was encumbered by a deed of trust in

favor of Deutsche Bank National Trust (“Deutsche Bank”) based on a 2006

promissory note in favor of Long Beach Mortgage Company in the original

       2
         We exercise our discretion to take judicial notice of documents electronically
filed in Debtor’s bankruptcy case. See Atwood v. Chase Manhattan Mortg. Co. (In re
Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003). Debtor requests that we take judicial
notice of documents filed in the current case, as well as documents filed in the
Ericksons’ prior bankruptcy cases and state court cases, and documents relating to post-
dismissal actions to foreclose and sell their residence. We take judicial notice of the
existence of documents filed in the prior cases, but we do not take judicial notice of the
truth of such documents. See Credit All. Corp. v. Idaho Asphalt Supply, Inc. (In re Blumer),
95 B.R. 143, 146-47 (9th Cir. BAP 1988). Because the post-dismissal documents do not
render this appeal moot and were not before the bankruptcy court, we do not consider
them.
                                             2
amount of $476,000. The Ericksons have not made payments on the loan

since 2009.

      In 2010, the Ericksons filed suit in state court against Long Beach

Mortgage Company, Washington Mutual Bank, and Chase Bank as agent

for Deutsche Bank, seeking to stop a foreclosure. They asserted various

quiet title and injunctive relief claims, arguing that the defendants could

not produce the original note and lacked standing to foreclose. After the

case was removed to the United States District Court for the Western

District of Washington (the “District Court”), the District Court granted

summary judgment and dismissed the action with prejudice. Erickson v.

Long Beach Mortg. Co., Case No. 10-1423 MJP, 2011 WL 830727, at *2-7 (W.D.

Wash. Mar. 2, 2011). The District Court denied the Ericksons’ motion for

reconsideration, and the Ninth Circuit affirmed. Erickson v. Long Beach

Mortg. Co., 473 F. App’x 746 (9th Cir. 2012).

      In 2015, Deutsche Bank obtained a judgment and decree of

foreclosure. The Washington Court of Appeals affirmed the foreclosure

judgment, holding the Ericksons were barred by collateral estoppel from

relitigating whether Deutsche Bank lacked standing to foreclose.3

      Shortly after a sheriff’s levy was recorded in 2018, Debtor and

Ms. Erickson filed a joint chapter 13 case. The Ericksons did not propose to

treat Deutsche Bank’s secured claim, and instead proposed a loan

      3
        The court also held that Deutsche Bank was entitled to foreclose because it had
presented an original, signed note, endorsed in blank.
                                           3
modification. The bankruptcy court denied confirmation and granted the

chapter 13 trustee’s motion to dismiss.

     After a second sheriff’s levy was recorded, the Ericksons filed a state

court complaint seeking to set aside the foreclosure judgment. The state

court issued a temporary restraining order halting the foreclosure but

denied preliminary injunctive relief. In May 2019, one day prior to the

scheduled sale, Ms. Erickson filed a second chapter 13 petition.

     The bankruptcy court denied confirmation of Ms. Erickson’s plan and

subsequently granted the trustee’s motion to dismiss because Ms. Erickson

lacked income to fund a plan that would permit her to retain the Property.

Ms. Erickson appealed, and we affirmed. Erickson v. Wilson-Aguilar (In re

Erickson), BAP Nos. WW-19-1251-FSTa, WW-19-1277-FSTa, 2020 WL

2849930 (9th Cir. BAP May 29, 2020).

     While the state court action to set aside the foreclosure was pending,

Debtor filed a second chapter 13 case in November 2019. He filed a plan

but did not propose to treat Deutsche Bank’s secured claim which he

disputed. The bankruptcy court denied confirmation, and Debtor proposed

an amended plan, again without proposing to treat Deutsche Bank’s

secured claim. The bankruptcy court denied confirmation and ultimately

granted the trustee’s motion to dismiss the case in March 2020.

     In June 2020, the state court granted Deutsche Bank’s motion for

summary judgment, dismissing with prejudice the Ericksons’ claims to set

aside the foreclosure judgment. The Ericksons appealed, the Washington

                                       4
Court of Appeals affirmed, and the Washington Supreme Court denied

review.

      In December 2021, again shortly after a sheriff’s levy was recorded,

Ms. Erickson filed a third chapter 13 petition. She failed to file required

schedules, statements, or a plan, and the court dismissed the case in

January 2022. A month later, Debtor filed a chapter 11 petition, but he

failed to file required documents, and the court dismissed the case. After a

new sheriff’s levy was recorded, Debtor filed the present chapter 13 case in

May 2022.

B.    Debtor’s bankruptcy case and chapter 13 plan

      Debtor scheduled the Property with a value of $1,500,000 and listed

Deutsche Bank as a secured creditor with a disputed claim for $957,403.56.

Deutsche Bank filed a proof of claim evidencing a secured claim of

$1,124,570.50 based on the foreclosure judgment.

      Debtor filed a plan, proposing payments of $221.71 and full payment

of priority and unsecured claims. The plan did not provide for regular

payments to Deutsche Bank. Debtor proposed to avoid the security interest

and stated that “newly discovered evidence” showed that the original note

was forged and the deed of trust may be void. The plan noted that Debtor

had listed the Property for sale, and it provided that “[i]n the event that the

sale of the [Property] provides more than the amount of the disputed

secured claim which might not be allowed, Debtor will pay 100% of all

other allowed claims.”
                                       5
      Deutsche Bank objected to confirmation, arguing the plan failed to

comply with § 1325(a)(5). Deutsche Bank also asserted the plan improperly

sought to modify the rights of a holder of a claim secured by Debtor’s

residence in violation of §§ 1325(a)(1) and 1322(b)(2). Finally, it contended

Debtor’s history of filings and the plan’s failure to provide an adequate

method of payment or cure indicated that Debtor did not file the plan in

good faith, and Debtor could not demonstrate an ability to make necessary

payments.

      Chapter 13 trustee Jason Wilson-Aguilar (“Trustee”) also objected to

confirmation and argued: (1) Debtor did not file the petition or plan in

good faith; (2) Debtor may be ineligible for chapter 13 relief; (3) Debtor did

not properly serve the plan; (4) Debtor failed to file income tax returns as

required by § 1308; (5) the plan improperly sought to limit the secured

claim or avoid the lien; (6) the plan made no provision for a claim secured

by his vehicle; (7) Debtor did not provide a liquidation analysis; (8) the

plan was not feasible because full payment of priority and unsecured

claims would require monthly plan payments of $2,781, and a proposed

sale of the Property at the listed price of $1,490,000 was unlikely; and

(9) the plan did not appropriately treat the Deutsche Bank claim because it

did not require a sale of the Property or provide a deadline by which a sale

must occur, and it seemed to indicated that Debtor would not pay the

claim from sale proceeds.

                                       6
      Debtor responded to the objections, again questioning the amount of

Deutsche Bank’s claim and its authority to enforce the debt. He asserted

that the petition and plan were filed in good faith and part of his good faith

obligation was to ascertain the validity of the purported secured claim, and

that his total secured claims were within the limits of § 109(e). Because he

conceded that several of Trustee’s other objections were valid, he requested

an opportunity to file an amended plan and suggested that an amended

plan would provide for a sale of the Property within fifteen months of

confirmation.

C.    Trustee’s motion to dismiss and the court’s ruling

      Concurrent with the objection to confirmation, Trustee filed a motion

to dismiss the case with a four-year bar to refiling. Trustee attached

evidence outlining the Ericksons’ prior bankruptcies and litigation efforts

and argued that the present case was the latest chapter in a twelve-year

scheme to delay Deutsche Bank’s efforts to exercise its rights against the

Property. Trustee noted that Debtor had not made a mortgage payment for

thirteen years and instead sought unsuccessfully to challenge the validity

of the debt.

      Trustee contended that Debtor’s plan to sell the Property for

$1,490,000 was speculative, and based on projected commissions and costs,

a sale would not yield sufficient proceeds to pay the claim. He argued that

Debtor filed the petition and plan in bad faith and was continuing to

contest the Deutsche Bank claim. Additionally, Trustee argued that Debtor

                                      7
was not making a meaningful effort to pay other creditors, and neither

Debtor’s income nor his proceeds from a speculative sale were sufficient to

pay creditors as proposed or make the plan feasible.

      In response, Debtor filed a request for accommodations for

disabilities based on a hearing deficit and visual impairment and requested

that Ms. Erickson be allowed to facilitate communications with the court.

He opposed the motion to dismiss and argued he was attempting not to

thwart Deutsche Bank’s collection efforts but to establish whether it was

legitimately entitled to receive payments. According to Debtor, Deutsche

Bank continued to refuse his requests for a forensic examination of the

original note, which he claimed contained an unauthorized endorsement.

      The court conducted a hearing on plan confirmation and the motion

to dismiss. In addition to the procedural defects acknowledged by Debtor,

the bankruptcy court determined that the plan was not confirmable for

several substantive reasons including: (1) failure to include a secured claim

on Debtor’s vehicle; (2) violation of the anti-modification provisions with

respect to Deutsche Bank’s claim; (3) an unspecified liquidation value; and

(4) insufficient plan payments to support feasibility. The court determined

that Debtor was within the debt limits of § 109(e), and it stated its intent to

set deadlines for an amended plan pending the outcome of the motion to

dismiss.

                                       8
      After hearing argument on the motion to dismiss, the court asked

Debtor if he disputed the litigation history provided by Trustee.

Ms. Erickson responded:

      I’m not sure how to answer that. I’m not too sure how my
      husband would know how to answer that either. We’ve been
      just diligently trying to make sure that we’re paying the right
      creditor. We haven’t been afforded the investigation on the note
      to know who we’re paying the right creditor to [sic]. And so
      we’ve tried to do this through the court and pay off the proper
      creditor through the courts. And so far, we’ve been
      unsuccessful. It’s not that we’re not trying to pay the our [sic]
      debts, and it’s not that we’re trying to avoid a debt that we feel
      we owe. We’re trying to make sure that we pay a debt that we
      do owe to the right person.

Hr’g Tr. 14:5-16, June 20, 2022. The court informed the Ericksons that the

validity of the debt was determined by the state court when it entered the

foreclosure judgment, and the bankruptcy court was required to take state

court judgments at face value.

      The bankruptcy court reasoned that the history of prior bankruptcy

filings, which were all dismissed without confirmation, demonstrated bad

faith. The cases were filed in response to adverse rulings in state court and

were designed to delay foreclosure. As an additional basis for dismissal,

the court determined there was unreasonable delay prejudicial to creditors.

Debtor’s proposal to sell the Property was not sufficient to demonstrate

good faith because, the court held, Debtor had already tried to sell it for six

months without an offer and could not confirm a plan that allowed a year

                                       9
or more to sell the Property without violating the anti-modification

provisions of the Code.

      After considering the totality of circumstances and employing the

two-step approach outlined by Leavitt v. Soto (In re Leavitt), 171 F.3d 1219,

(9th Cir. 1999), the bankruptcy court decided that dismissal with a two-

year bar to refiling was warranted. The court entered written orders

denying confirmation and dismissing the case.

      Debtor filed a motion for reconsideration of the dismissal order. He

argued that the court erred by denying him requested disability

accommodations and by improperly attempting to extract a factual

stipulation and construing Ms. Erickson’s answer as a concession that

Trustee’s facts were uncontroverted. Debtor further argued that the court

denied him due process by including unreasonable delay prejudicial to

creditors as an independent and separate basis to dismiss. Debtor claimed

his conduct was in good faith, and Deutsche Bank’s proof of claim, which

was filed after the confirmation objections, provided new evidence

demonstrating it did not have an enforceable claim.

      The bankruptcy court entered a written order denying the motion for

reconsideration. This timely appeal followed.

                              JURISDICTION

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

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

                                      10
                                    ISSUES

      Did the bankruptcy court err by denying confirmation of Debtor’s

chapter 13 plan?

      Did the bankruptcy court abuse its discretion by dismissing Debtor’s

chapter 13 case with a two-year bar to refiling?

      Did the bankruptcy court err by denying Debtor’s motion for

reconsideration?

                         STANDARDS OF REVIEW

      We review for abuse of discretion a bankruptcy court’s decision

concerning confirmation of a chapter 13 plan. Bank of Am. Nat'l Tr. & Savs.

Ass'n v. Slade (In re Slade), 15 B.R. 910, 913 (9th Cir. BAP 1981). We also

review for abuse of discretion a bankruptcy court’s decision to dismiss a

case with a bar to refiling, In re Leavitt, 171 F.3d at 1223; Duran v. Gudino (In

re Duran), 630 B.R. 797, 807 (9th Cir. BAP 2021), and its ruling on a motion

for reconsideration, Determan v. Sandoval (In re Sandoval), 186 B.R. 490, 493

(9th Cir. BAP 1995).

      A bankruptcy court abuses its discretion if it applies an incorrect

legal standard or its factual findings are illogical, implausible, or without

support in the record. TrafficSchool.com v. Edriver, Inc., 653 F.3d 820, 832 (9th

Cir. 2011).

      Debtor argues that the bankruptcy court violated his due process

rights by not giving him notice that it could dismiss the case based on

unreasonable delay prejudicial to creditors. We review this aspect of the

                                       11
decision de novo. See HSBC Bank USA, Nat’l Ass’n v. Blendheim (In re

Blendheim), 803 F.3d 477, 497 (9th Cir. 2015). 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. 2014).

                                 DISCUSSION

A.     The bankruptcy court did not err by denying confirmation.

      Debtor argues the bankruptcy court erred by denying confirmation

because his plan did not propose to modify Deutsche Bank’s rights and

instead proposed to “cure” the default through a proposed sale. Debtor

does not address the numerous other substantive and procedural

deficiencies in his plan which support denial of confirmation. We would

affirm on this basis alone. Additionally, though we agree that curing a

default through a chapter 13 plan does not constitute modification of the

creditor’s interests, Debtor’s plan did not propose a cure.

      Section 1322(b)(3) permits a chapter 13 plan to “provide for the

curing or waiving of any default.” The right to cure applies to a default on

a debt secured by a debtor’s principal residence, and a plan that provides

for such a cure does not violate the anti-modification prohibition of

§ 1322(b)(2). See Frazer v. Drummond (In re Frazer), 377 B.R. 621, 628 (9th Cir.

BAP 2007). And though the debt was reduced to judgment for foreclosure,

§ 1322(c)(1) permits a debtor to cure a default with respect to a lien on the

debtor’s principal residence “until such residence is sold at a foreclosure

sale that is conducted in accordance with applicable nonbankruptcy law.”

                                        12
      In his Opening Brief, Debtor acknowledges “[h]e cannot ‘modify’ the

terms for repayment; he can only ‘cure’ by payment in full.” His plan

vaguely proposed a sale of the Property, but it did not propose to treat

Deutsche Bank’s claim by paying it in full. Instead, it sought to avoid the

security interest and suggested Debtor would sell the Property, then

contest Deutsche Bank’s claim based on “newly discovered evidence”

pertaining to the original note.

      To satisfy confirmation requirements, a plan must treat secured

claims in accordance with § 1325(a)(5) by obtaining acceptance of plan

treatment from the secured creditor, surrendering the property securing

the claim, or providing for plan distributions in accordance with

§ 1325(a)(5)(B). Debtor’s plan proposed to sell the Property without

payment of the claim, which is neither a “cure” of the default nor adequate

treatment of the claim under § 1325(a)(5). The bankruptcy court correctly

determined that Debtor’s plan violated the anti-modification provision of

chapter 13 because a sale of the Property without payment of Deutsche

Bank’s secured claim necessarily affected its rights.

B.    The bankruptcy court did not abuse its discretion by dismissing
      the case with a two-year bar to refiling.

      A chapter 13 petition filed in bad faith constitutes “cause” to dismiss

under § 1307(c). In re Leavitt, 171 F.3d at 1224; Eisen v. Curry (In re Eisen), 14

F.3d 469, 470 (9th Cir. 1994). “To determine if a petition has been filed in

bad faith courts are guided by the standards used to evaluate whether a

                                        13
plan has been proposed in bad faith.” In re Eisen, 14 F.3d at 470. Both

determinations require the court to consider the “totality of the

circumstances.” Id.

      Section 349(a) provides that dismissal is ordinarily without prejudice,

but the bankruptcy court may, for cause, order otherwise. The statute

“necessarily confers judicial discretion to impose a wide variety of

consequences of dismissal” including temporary and permanent bars to

refiling. In re Duran, 630 B.R. at 809. “[B]ad faith is ‘cause’ for a dismissal of

a Chapter 13 case with prejudice under § 349(a) and § 1307(c).” In re Leavitt,

171 F.3d at 1224.

      Bad faith for purposes of § 349(a) does not require fraudulent intent

by the debtor but requires the court to consider under the totality of the

circumstances:

      (1) whether the debtor misrepresented facts in his petition or
      plan, unfairly manipulated the Bankruptcy Code, or otherwise
      filed his petition or plan in an inequitable manner;
      (2) the debtor’s history of filings and dismissals;
      (3) whether the debtor only intended to defeat state court
      litigation; and
      (4) whether egregious behavior is present.

Id. (cleaned up).

      Debtor primarily argues that the court erred by dismissing the case

with a two-year bar to refiling because it did so under incorrect provisions

of the Code and denied Debtor due process by indicating an additional

basis for dismissal. Both arguments are meritless.
                                        14
       Debtor erroneously assumes that, because Trustee cited § 105(a) in

his motion to dismiss, the bankruptcy court acted under that provision.

The record is clear that the bankruptcy court employed the analysis

articulated in Leavitt for dismissal with prejudice for bad faith. First, the

court found that Debtor’s bad faith was “cause” to dismiss under

§ 1307(c). 4 The court then considered the Leavitt factors and determined

that Debtor’s long history of multiple bankruptcy cases, filed in response to

adverse state court rulings, dismissed without confirmation, and designed

to delay foreclosure constituted bad faith for purposes of § 349(a). The

evidence provided by Trustee amply supports the court’s finding of bad

faith. See Ellsworth v. Lifescape Med. Assocs., P.C. (In re Ellsworth), 455 B.R.

904, 914 (9th Cir. BAP 2011) (“[W]hen a bankruptcy court makes factual

findings of bad faith to support dismissal of a chapter 13 case, we review

those findings for clear error.”).

       Debtor’s due process argument is similarly unavailing. Due process

requires notice “reasonably calculated, under all the circumstances, to

apprise interested parties of the pendency of the action and afford them an

opportunity to present their objections.” Mullane v. Cent. Hanover Bank &

       4 The bankruptcy court did not expressly state that dismissal, rather than
conversion, was in the best interests of the estate and creditors, but the record is clear
that the court reached that conclusion. It held that Debtor’s bankruptcy filings were
designed to frustrate Deutsche Bank’s foreclosure efforts. The court stated that it could
not set aside adverse state court rulings and reasoned that state court was the
appropriate forum for the Ericksons’ claims. Thus, dismissal was in the best interests of
Deutsche Bank and the estate.
                                            15
Tr. Co., 339 U.S. 306, 314 (1950). An alleged due process violation cannot

constitute reversible error unless the party asserting the violation can

demonstrate prejudice. See Rosson v. Fitzgerald (In re Rosson), 545 F.3d 764,

776-77 (9th Cir. 2008), partially abrogated on other grounds as recognized by

Nichols v. Marana Stockyard & Livestock Mkt., Inc. (In re Nichols), 10 F.4th 956,

962 (9th Cir. 2021).

      Debtor had adequate notice that the court was considering dismissal,

and he had an opportunity to be heard. The bankruptcy court ruled that

unreasonable delay prejudicial to creditors was an independent basis for

dismissal, but it was not necessary to the court’s decision; Debtor’s bad

faith alone was sufficient. Thus, even if Debtor did not have notice that the

court would consider an additional basis for dismissal, such lack of notice

was not prejudicial.

C.    The bankruptcy court did not abuse its discretion by denying
      Debtor’s motion for reconsideration.

      Debtor’s motion for reconsideration constituted a timely motion to

alter or amend the judgment under Civil Rule 59(e), made applicable by

Rule 9023. Heritage Pac. Fin., LLC v. Montano (In re Montano), 501 B.R. 96,

112 (9th Cir. BAP 2013). Relief under Civil Rule 59(e) should not be granted

unless the court is presented with newly discovered evidence, committed

clear error, or if there has been an intervening change in the controlling

law. 389 Orange St. Partners v. Arnold, 179 F.3d 656, 665 (9th Cir. 1999). A

party may not use a Civil Rule 59(e) motion to present a new legal theory

                                       16
for the first time, to raise legal arguments which could have been made in

connection with the original motion, or to rehash the same arguments

already presented. Wall St. Plaza, LLC v. JSJF Corp. (In re JSJF Corp.), 344

B.R. 94, 103 (9th Cir. BAP 2006), aff’d and remanded, 277 F. App’x 718 (9th

Cir. 2008).

      Debtor did not meet this standard. He claimed that the court

improperly relied on a factual stipulation and denied him due process by

dismissing the case, neither of which was necessary to the court’s decision.5

Debtor’s purported newly discovered evidence was not relevant to the

court’s decision to dismiss the case for bad faith. It pertained instead to

whether Deutsche Bank holds an enforceable claim—an issue decided

multiple times by the state court and not subject to a different ruling by the

bankruptcy court. See, e.g., Gruntz v. Cnty. of L.A. (In re Gruntz), 202 F.3d

1074, 1078 (9th Cir. 2000) (en banc) (“[F]ederal district courts have no

authority to review the final determinations of a state court in judicial

proceedings.” (cleaned up)). The bankruptcy court did not abuse its

discretion by denying Debtor’s motion for reconsideration.

      5
         The bankruptcy court independently verified the factual history provided by
Trustee, which consisted almost entirely of matters of public record, and Debtor did not
contest the factual history in his written response. As discussed above, Debtor had
notice that the court was considering dismissing the case for bad faith and Debtor was
not prejudiced by the court’s additional basis for dismissal.
                                           17
                             CONCLUSION

     Based on the foregoing, we AFFIRM the court’s orders denying

confirmation, dismissing Debtor’s bankruptcy case with a two-year bar to

refiling, and denying his motion for reconsideration.

                                     18