Court Opinion

ID: 4514537
Source: CourtListenerOpinion
Date Created: 2020-03-11 00:00:59.139688+00
Date Added: 2024-06-11T08:49:26.095014
License: Public Domain

FILED
                                                                          DEC 16 2019
                          NOT FOR PUBLICATION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. MT-18-1293-BHF

JOHN PATRICK STOKES,                                 Bk. No. 2:18-bk-60681-JDP

                    Debtor.

JOHN PATRICK STOKES,

                    Appellant,

v.                                                           MEMORANDUM*

LSF8 MASTER PARTICIPATION TRUST;
KATHLEEN A. McCALLISTER, Chapter 13
Trustee; MONTANA DEPARTMENT OF
REVENUE,

                    Appellees.

                  Argued and Submitted on November 21, 2019
                             at Las Vegas, Nevada

                              Filed – December 16, 2019

         *
         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.
                  Appeal from the United States Bankruptcy Court
                            for the District of Montana

                Honorable Jim D. Pappas, Bankruptcy Judge, Presiding

Appearances:         Appellant John Patrick Stokes argued pro se; Brian Audette
                     of Perkins Coie LLP argued for appellee LSF8 Master
                     Participation Trust.**

Before:         BRAND, HERCHER*** and FARIS, Bankruptcy Judges.

                                  INTRODUCTION

      Chapter 131 debtor John Patrick Stokes appeals an order granting LSF8

Master Participation Trust ("LSF8") relief from the automatic stay and in rem

relief for real property once owned by Stokes. We DISMISS as MOOT the

portion of the order granting stay relief under § 362(d)(1) and (2), because

Stokes's bankruptcy case was dismissed prior to the appeal. As for the in rem

relief, which has not been mooted by the dismissal, we REVERSE, because

          **
         Appellees Kathleen McCallister, Chapter 13 Trustee, and Montana Department
 of Revenue did not appear in this appeal.
          ***
         Hon. David W. Hercher, Bankruptcy Judge for the District of Oregon, sitting
 by designation.
          1
         Unless specified otherwise, all chapter and section references are to the
 Bankruptcy Code, 11 U.S.C. §§ 101-1532, and all "Rule" references are to the Federal
 Rules of Bankruptcy Procedure.

                                            2
LSF8 as owner of the property was not eligible for relief under § 362(d)(4).

      I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY

A.    Stokes's prior bankruptcy cases

      Stokes is no stranger to the bankruptcy court. He filed a chapter 11

bankruptcy case in 2009. The case was converted to chapter 7 and a trustee

was appointed. During the case, the trustee sued Stokes, his wife Pamela, and

their daughter Elizabeth for claims relating to the Stokeses' home, known as

the Raven Way Property. Ultimately, the parties settled in March 2012. Stokes

and Pamela agreed to pay the estate $8,000 to settle the trustee's claims

against them; Elizabeth was dismissed from the case upon her immediate

transfer of any purported interest in the Raven Way Property to Pamela. If

Stokes and Pamela failed to pay the judgment, the trustee was authorized to

sell the Raven Way Property free and clear of any purported liens asserted by

Pamela, Elizabeth, and a former lienholder, HSBC Mortgage Services, Inc.

Apparently, the judgment was paid. The trustee did not, as Stokes contends,

sell the Raven Way Property to Pamela "free and clear" on March 12, 2012. In

fact, the trustee later abandoned the Raven Way Property from the

bankruptcy estate. Stokes received a chapter 7 discharge in January 2013.2

      Stokes then filed a chapter 13 bankruptcy case in October 2015. He

never confirmed a plan, and the case was dismissed on his motion on January

       2
           Pamela filed her own chapter 13 bankruptcy case in 2014. LSF8 obtained stay
 relief to pursue its non-bankruptcy remedies against the Raven Way Property in her
 case on April 13, 2015.

                                            3
5, 2016.

      In response to a trustee's sale set for July 19, 2016, Stokes filed his

second chapter 13 bankruptcy case on July 15, 2016. He failed to appear at the

§ 341(a) meeting of creditors, and the case was dismissed. Thereafter, the

Raven Way Property was sold to LSF83 at a foreclosure sale on August 18,

2016, for $449,804.40.

B.    Stokes's current bankruptcy case

      In response to LSF8's attempts to evict Stokes from the Raven Way

Property, Stokes filed his third and current chapter 13 bankruptcy case on

July 12, 2018. Despite the 2016 foreclosure sale, Stokes claimed that he held a

1% ownership interest in the Raven Way Property, with Pamela holding the

remaining 99% interest.

      1.     LSF8's motion for relief from stay

      LSF8 moved for in rem relief from the automatic stay under

§ 362(d)(4)(B) ("Stay Relief Motion"). LSF8 maintained that it was the owner

of the Raven Way Property, having purchased it at the 2016 foreclosure sale.

LSF8 argued that in rem relief was necessary to prevent Stokes from further

       3
         WMC Mortgage Corporation was the original lender for the Raven Way
 Property in 1998. WMC assigned its interest in the note and deed of trust to Household
 Finance Corporation II in 1999. Household Finance Corporation II assigned its interest
 in the note and deed of trust to LSF8 in October 2013. Caliber Home Loans, Inc. became
 servicer of the loan in December 2013. In 2015, First American Title Company of
 Montana, Inc. became the successor trustee for the deed of trust. First American issued
 the notice of sale and conducted the foreclosure sale in 2016.

                                            4
abusing the bankruptcy process with his multiple filings to frustrate and

prevent LSF8's eviction efforts. To establish its ownership interest in the

Raven Way Property, LSF8 attached a copy of the recorded trustee's deed.

      Stokes opposed the Stay Relief Motion, and he also attempted to raise

counterclaims for alleged stay violation damages in connection with the 2016

foreclosure sale and various other relief. Stokes again asserted that he and

Pamela, not LSF8, owned the Raven Way Property due to the chapter 7

trustee's "free and clear" sale to Pamela in 2012. Stokes also argued that LSF8

never owned the note or deed of trust for the Raven Way Property and that

LSF8 had presented forged and false mortgage documents in the state court

litigation over the foreclosure sale.

      2.    The bankruptcy court's ruling on the Stay Relief Motion

      At the hearing on the Stay Relief Motion, counsel for LSF8 confirmed

that his client had not filed a proof of claim because it was not claiming to be

a creditor in the case; rather, it was the owner of the Raven Way Property.

Stokes confirmed that he filed the current chapter 13 case due to LSF8's

eviction efforts. At that same hearing, the court considered whether to

confirm Stokes's proposed chapter 13 plan over the objection of several

parties, including the chapter 13 trustee.

      The bankruptcy court orally granted the Stay Relief Motion under

§ 362(d)(1) and (2), and in rem relief under § 362(d)(4). It also denied plan

confirmation and sua sponte dismissed the case, finding that Stokes had no

                                        5
legitimate need for bankruptcy relief. The court entered an order on the Stay

Relief Motion ("Stay Relief Order") and a separate order dismissing Stokes's

bankruptcy case on the same day.

      3.     Stokes's post-ruling motions

      Stokes then moved to "vacate" the Stay Relief Order ("Motion to

Reconsider Stay Relief"). He argued three things: (1) LSF8 failed to caption its

motion as an "in rem" motion; (2) the bankruptcy court lacked jurisdiction to

order in rem relief because Pamela, the 99% owner of the Raven Way

Property, was not served with the Stay Relief Motion; and (3) the bankruptcy

court lacked jurisdiction over the Raven Way Property because it was subject

to an appeal pending before the United States Supreme Court. Before the

bankruptcy court could rule on the Motion to Reconsider Stay Relief, Stokes

appealed the Stay Relief Order.

      Three days later, Stokes filed a Motion for Relief and Rehearing and

Award of Damages in All Respects to Stokes ("Motion for Relief and

Rehearing"). That motion appeared to be seeking reversal of the case

dismissal order and requesting alleged damages associated with the pending

state court proceedings involving LSF8.

      After a hearing, the bankruptcy court orally denied all of Stokes's

requested relief.4 It then entered a combined order denying the Motion to

       4
        The bankruptcy court also heard two other motions at that hearing: (1) Stokes's
 motion for leave to appeal in forma pauperis; and (2) LSF8's motion to quash various
                                                                             (continued...)

                                            6
Reconsider Stay Relief and the Motion for Relief and Rehearing.

                                  II. JURISDICTION

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

157(b)(2)(G). We have jurisdiction under 28 U.S.C. § 158 to review the court's

Stay Relief Order, subject to our mootness discussion below.5

      We do not, however, have jurisdiction to review the bankruptcy court's

order denying the Motion to Reconsider Stay Relief, because Stokes did not

file a notice of appeal or an amended notice of appeal for that order. As the

governing Rule specifies:

      If a party intends to challenge an order disposing of any motion
      listed in subdivision (b)(1) [including motions under Rules 9023
      and 9024] . . . the party must file a notice of appeal or an amended
      notice of appeal. The notice or amended notice must . . . be filed
      within the time prescribed by this rule, measured from the entry of
      the order disposing of the last such remaining motion.

Rule 8002(b)(3). An appellant's failure to comply with the appeal filing

deadlines set forth in Rule 8002 typically deprives us of jurisdiction. Olomi v.

      4
      (...continued)
 subpoenas issued by Stokes, which appear to relate to the Motion for Relief and
 Rehearing. Those issues are not before the Panel.
          5
         On December 10, 2018, we issued an order limiting the scope of this appeal to
 the Stay Relief Order. Stokes was invited to file a separate appeal of the case dismissal
 order but did not do so. Therefore, we are not considering that issue. To the extent the
 bankruptcy court made findings in the November 14, 2018 order regarding Stokes's
 Motion for Relief and Rehearing, including the issues of plan confirmation and sua
 sponte dismissal of his case, we do not consider those issues on appeal because Stokes
 elected not to appeal the case dismissal order.

                                              7
Tukhi (In re Tukhi), 568 B.R. 107, 112 (9th Cir. BAP 2017) (citing Slimick v. Silva

(In re Slimick), 928 F.2d 304, 306 (9th Cir. 1990)).

      On the other hand, in reviewing the bankruptcy court's Stay Relief

Order, "we have jurisdiction (and a duty) to review any enhanced findings or

'new factual determinations' the bankruptcy court made in support of its

original ruling — even if those enhanced findings were part of the court's

ruling on a postjudgment motion that never was appealed and even if the

court considered and relied upon evidence that was not presented until after

it made its original ruling." Id. (citing Moldo v. Ash (In re Thomas), 428 F.3d

1266, 1268-69 (9th Cir. 2005) ("The BAP erred in concluding that it lacked

jurisdiction to review the bankruptcy court's amended findings") and Ash v.

Moldo (In re Thomas), BAP No. CC-03-1052-PMaPa, 2006 WL 6811032 at *4-7

(9th Cir. BAP 2006) (on remand from Circuit, holding that bankruptcy court's

amended findings were clearly erroneous based on evidence submitted to the

court as part of postjudgment proceedings)).

                                    III. ISSUES

1.    Is the appeal of the portion of the Stay Relief Order granting relief

under § 362(d)(1) and (2) moot?

2.    Did the bankruptcy court abuse its discretion in granting LSF8 in rem

relief under § 362(d)(4)(B)?

                         IV. STANDARDS OF REVIEW

      We review our own jurisdiction, including questions of mootness, de

                                          8
novo. Ellis v. Yu (In re Ellis), 523 B.R. 673, 677 (9th Cir. BAP 2014) (citing Silver

Sage Partners, Ltd. v. City of Desert Hot Springs (In re City of Desert Hot Springs),

339 F.3d 782, 787 (9th Cir. 2003)).

      We review a bankruptcy court's order granting relief from the

automatic stay for an abuse of discretion. First Yorkshire Holdings, Inc. v.

Pacifica L 22, LLC (In re First Yorkshire Holdings, Inc.), 470 B.R. 864, 868 (9th Cir.

BAP 2012). A bankruptcy court abuses its discretion if it applies an incorrect

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

support from evidence in the record. United States v. Hinkson, 585 F.3d 1247,

1262 (9th Cir. 2009) (en banc).

                                  V. DISCUSSION

A.    The appeal of the portion of the Stay Relief Order granting relief
      under § 362(d)(1) and (2) is moot.

      We cannot exercise jurisdiction over a moot appeal. United States v.

Pattullo (In re Pattullo), 271 F.3d 898, 900 (9th Cir. 2001); In re Ellis, 523 B.R. at

677. A case is moot where the issues presented are no longer live and no case

or controversy exists. Pilate v. Burrell (In re Burrell), 415 F.3d 994, 998 (9th Cir.

2005). The test for mootness is whether an appellate court can still grant

effective relief to the prevailing party if it decides the merits in his or her

favor. Id.

      Although LSF8 did not request it, the bankruptcy court granted stay

relief under both § 362(d)(1) and (2), finding that LSF8 had established

                                           9
"cause" and that Stokes lacked any equity in the Raven Way Property and

that it was not necessary for an effective reorganization. The court also sua

sponte dismissed Stokes's bankruptcy case that same day. Consequently,

even if we were to overturn the portion of the Stay Relief Order granting

relief under § 362(d)(1) and (2), the automatic stay terminated as a matter of

law once the case was dismissed. § 362(c)(2)(B). Stokes has not appealed the

dismissal order. Thus, we lack the ability to grant Stokes any effective relief

as to this aspect of the order on appeal. See Benzeen Inc. v. JP Morgan Chase

Bank (In re Benzeen Inc.), BAP No. CC-18-1097-TaLS, 2018 WL 6627275, at *3

(9th Cir. BAP Dec. 18, 2018) (dismissal of underlying bankruptcy case moots

an appeal from a stay relief order under § 362(d)(1) if the dismissal is not

appealed) (citing Castaic Partners II, LLC v. DACA-Castaic, LLC (In re Castaic

Partners II, LLC), 823 F.3d 966, 969 (9th Cir. 2016)).

      Accordingly, the appeal of the portion of the Stay Relief Order

terminating the automatic stay under § 362(d)(1) and (2) is DISMISSED as

MOOT.

B.    The bankruptcy court abused its discretion by granting LSF8 in rem
      relief under § 362(d)(4).

      The in rem portion of the Stay Relief Order is binding in any

bankruptcy case until at least September 2020, assuming LSF8 timely and

properly recorded it. Therefore, while the Stay Relief Order is moot in part,

the portion of the order granting LSF8 in rem relief is not moot because of the

                                         10
ramifications of such relief and its effect on future debtors and third parties

not before the court. Sepehry-Fard v. U.S. Bank, N.A. (In re Sepehry-Fard), BAP

No. NC-17-1118-BTaF, 2018 WL 2709718, at *5 (9th Cir. BAP June 5, 2018).

      Our review for abuse of discretion requires that we first determine

whether the bankruptcy court applied the correct legal rule. It did not. While

the record and the court's factual findings would have clearly supported an in

rem order, LSF8, as the putative owner of the Raven Way Property, is not

eligible for relief under § 362(d)(4).

      Section § 362(d)(4) permits the bankruptcy court to grant in rem relief

from the automatic stay in order to address schemes using multiple

bankruptcy filings as a means to thwart a secured creditor's legitimate

foreclosure efforts with respect to real property. See § 362(d)(4)(B). Relief

under § 362(d)(4) has serious implications. In re First Yorkshire Holdings, Inc.,

470 B.R. at 871. By seeking such relief, the creditor requests specific

prospective protection against not only the debtor, but also every non-debtor,

co-owner, and subsequent owner of the property. If granted, and if the order

is properly recorded, such relief nullifies the ability of the debtor and any

other third party with an interest in the property to obtain the benefits of the

automatic stay as to that property in future bankruptcy cases for a period of

two years. Id.

      However, to obtain relief under § 362(d)(4), the movant must be "a

creditor whose claim is secured by an interest in such real property." In re

                                         11
Ellis, 523 B.R. at 678. In the Stay Relief Motion and at the hearing, LSF8

asserted that it was not a creditor in Stokes's bankruptcy case; rather, it was

the owner of the Raven Way Property and wanted to proceed with an

eviction action against Stokes to gain possession. Stokes also claimed an

ownership interest in the Raven Way Property, despite the foreclosure sale

three years ago. As was the case in Ellis, "this is a dispute between two

putative owners of the same property, not a contest where the parties occupy

a debtor-creditor relationship." Id.

      In Ellis, the movant had purchased the debtor's real property from the

foreclosing lender four years after the foreclosure sale, and the foreclosing

lender also assigned to the movant all of its rights under the post-foreclosure

unlawful detainer judgment. Id. at 674. The Panel reversed the bankruptcy

court's order granting in rem relief to the movant under § 362(d)(4)(B),

because the movant was the owner of the property, not a creditor with a

security interest in the property as required by the statute. Id. at 679-80.

      Since Ellis, this Panel has opined in two unpublished decisions that a

foreclosing lender (i.e., owner) is not "a creditor whose claim is secured by an

interest in such real property," and is therefore unable to obtain in rem relief

under § 362(d)(4). See Ramirez v. Nationstar Mortg. LLC (In re Ramirez), BAP

No. EC-16-1015-KuMaJu, 2016 WL 7189831, at *7 n.7 (9th Cir. BAP Dec. 2,

2016) (noting that on remand, if the bankruptcy court granted retroactive stay

relief and validated the foreclosing lender's sale, it would not be "necessary or

                                        12
correct" to additionally grant the lender relief under § 362(d)(4), because the

lender no longer would be a "creditor whose claim is secured by an interest in

the property in question") (citing In re Ellis, 523 B.R. at 679-80); Ray v. Deutsche

Bank Nat'l Tr. Co. (In re Ray), BAP No. NV-15-1137-LDoKi, 2016 WL 6699315,

at *6 (9th Cir. BAP Nov. 14, 2016) (bankruptcy court correctly denied in rem

relief to foreclosing lender, because, as owner of the property, the lender was

no longer "a creditor whose claim is secured by an interest in the property"

under § 362(d)(4) (citing In re Ellis, 523 B.R. at 678-79)).

      At oral argument, LSF8 conceded our holding in Ellis but argued that it

is distinguishable: LSF8 was the foreclosing lender, not a third-party

purchaser as was the case in Ellis. However, as Ramirez and Ray point out,

that LSF8 was the foreclosing lender and not a third-party purchaser is a

distinction without a difference. A foreclosure sale, by definition,

extinguishes whatever security interest a secured creditor had in the

property. In re Ellis, 523 B.R. at 679 (citing In re McCray, 342 B.R. 668, 669

(Bankr. D.D.C. 2006)). Thus, LSF8 is not a "creditor" and holds no claim

secured by an interest in the Raven Way Property as contemplated by the

statute.

      However, LSF8 was not without other remedies which could provide

similar results. LSF8 could have requested a re-filing bar in the litigation for

dismissal of Stokes's bankruptcy case. Or, it could do so upon Stokes's next

bankruptcy filing, assuming there is one and such relief is necessary to

                                          13
complete the eviction. Further, as the owner of the property, LSF8 has a much

larger "bundle of rights" than a lienholder and may have other remedies

under state law. See United States v. Sec. Indus. Bank, 459 U.S. 70, 76 (1982) (the

"bundle of rights" which accrues to a secured party is obviously smaller than

that which accrues to an owner in fee simple).

      Because LSF8 is the owner of the Raven Way Property, and not a

creditor whose claim is secured by the property, we conclude that the

bankruptcy court applied an incorrect legal rule and thereby abused its

discretion when it granted LSF8 in rem relief under § 362(d)(4). Accordingly,

that aspect of the Stay Relief Order is REVERSED.

                               VI. CONCLUSION

      For the reasons stated above, we DISMISS the appeal from the portion

of the Stay Relief Order terminating the automatic stay under § 362(d)(1) and

(2) as MOOT, and we REVERSE the portion of the Stay Relief Order granting

in rem relief to LSF8 under § 362(d)(4).

                                         14