Court Opinion

ID: 4192584
Source: CourtListenerOpinion
Date Created: 2017-08-03 17:01:47.782709+00
Date Added: 2024-06-11T14:56:35.723669
License: Public Domain

FILED
                                                           MAY 31 2017
                                                      SUSAN M. SPRAUL, CLERK
 1                        NOT FOR PUBLICATION             U.S. BKCY. APP. PANEL
                                                          OF THE NINTH CIRCUIT
 2
 3
                    UNITED STATES BANKRUPTCY APPELLATE PANEL
 4
                              OF THE NINTH CIRCUIT
 5
     In re:                        )     BAP No.     NC-16-1180-BTaF
 6                                 )
     MARIANNE PRETSCHER-JOHNSON,   )     Bk. No.     16-50083
 7                                 )
                    Debtor.        )     Adv. No.    16-05015
 8                                 )
                                   )
 9   MARIANNE PRETSCHER-JOHNSON,   )
                                   )
10                  Appellant,     )
                                   )     AMENDED MEMORANDUM1
11   v.                            )
                                   )
12   AURORA BANK, FSB; AURORA LOAN )
     SERVICES, LLC; NATIONSTAR     )
13   MORTGAGE, LLC; QUALITY LOAN   )
     SERVICE CORPORATION; SCME     )
14   MORTGAGE BANKERS, INC.;       )
     MORTGAGE ELECTRONIC           )
15   REGISTRATION SYSTEMS, INC.,   )
                                   )
16                  Appellees.     )
     ______________________________)
17
                       Submitted Without Oral Argument2
18                        on February 23, 2017
19                            Filed - May 31, 2017
20             Appeal from the United States Bankruptcy Court
                   for the Northern District of California
21
         Honorable Stephen L. Johnson, Bankruptcy Judge, Presiding
22
23   Appearances:    Appellant Marianne Pretscher-Johnson pro se on
24
          1
25           This disposition is not appropriate for publication.
     Although it may be cited for whatever persuasive value it may
26   have, it has no precedential value. See 9th Cir. BAP Rule 8024-1.
          2
27           On December 2, 2016, the Panel unanimously determined this
     appeal was suitable for submission without oral argument.
28   Rule 8019(b)(3). Appellees have not appeared.
 1                   brief.
 2
 3   Before:    BRAND, TAYLOR and FARIS, Bankruptcy Judges.
 4
 5        Chapter 73 debtor Marianne Pretscher-Johnson ("Debtor")
 6   appeals an order dismissing her adversary proceeding against
 7   Aurora Bank, FSB ("Aurora Bank"), Aurora Loan Services, LLC,
 8   Nationstar Mortgage, LLC ("Nationstar"), Quality Loan Service
 9   Corporation ("Quality"), SCME Mortgage Bankers, Inc. ("SCME") and
10   the Mortgage Electronic Registration System (collectively,
11   "Defendants") for lack of subject matter jurisdiction or,
12   alternatively, on the basis of permissive abstention.4   Although
13   the bankruptcy court erred by applying an incorrect legal
14   standard, such error was harmless because Debtor lacked standing
15   to prosecute the adversary proceeding.   Thus, dismissal was
16   proper.   We AFFIRM.5
17
18
19
          3
20           Unless specified otherwise, all chapter, code and rule
     references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and
21   the Federal Rules of Bankruptcy Procedure, Rules 1001-9037.
22        4
             We recognize that the dismissal order on appeal may not be
     considered a sufficiently separate judgment under Rule 7058. See
23   Stephens v. Gomez (In re Gomez), 2016 WL 6561283, at *1 (9th Cir.
     Nov. 4, 2016). However, because 150 days have run from entry of
24   the order, it is a final order.
25        5
             Because Debtor failed to provide a proper excerpt of
     record and no appellee has appeared, we took the liberty of
26   viewing the bankruptcy court's electronic docket and take judicial
     notice of the necessary documents relevant to this appeal. See
27   Atwood v. Chase Manhattan Mortg. Co. (In re Atwood), 293 B.R. 227,
     233 n.9 (9th Cir. BAP 2003) (citing O'Rourke v. Seaboard Sur. Co.
28   (In re E.R. Fegert, Inc.), 887 F.2d 955, 957-58 (9th Cir. 1989)).

                                     -2-
 1                I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY
 2   A.      Events prior to Debtor's chapter 7 bankruptcy case and
             related adversary proceeding
 3
 4           In June 2007, Debtor obtained a $435,000 loan from SCME.
 5   Debtor admits to receiving the funds and purchasing a home in
 6   Aptos, California (the "Property") with those funds.
 7           The role of each Defendant respecting the Property is not
 8   entirely clear, but we do know that:    Debtor defaulted on the loan
 9   in or about February 2011; Aurora Bank as servicer substituted
10   Quality as trustee under the deed of trust in June 2012; Quality
11   recorded a notice of default and notice of trustee's sale in July
12   and October 2012, respectively; the Property was sold at a
13   trustee's sale on December 27, 2012; Nationstar was the successful
14   bidder; and a trustee's deed upon sale was recorded on January 7,
15   2013.
16           In 2012, Debtor sued Defendants in federal district court for
17   "Quiet Title" of the Property.    That court dismissed Debtor's
18   complaint for lack of subject matter jurisdiction.
19           On the same day the federal case was dismissed, Debtor sued
20   Defendants in state court for three causes of action with respect
21   to the Property:    quiet title, unjust enrichment and fraud.
22   Debtor alleged that, because SCME did not lend her real money but
23   rather "counterfeit currency" created through the use of
24   "Fractional Reserve Banking" and because SCME had destroyed the
25   note sometime between July and August 2007, her obligation to
26   repay the loan was forgiven, and all previous payments had to be
27   refunded.    In addition, because the note had been destroyed prior
28   to the trustee's sale, Debtor argued that the foreclosure sale was

                                       -3-
 1   void, as none of the Defendants could have been the holder of a
 2   non-existent note.
 3        On Defendants' demurrer, the state court dismissed Debtor's
 4   action with prejudice on October 28, 2014.   Debtor appealed to the
 5   California Court of Appeal, Case No. H041677.   The record does not
 6   reveal the outcome of that appeal.
 7        Thereafter, Nationstar filed an unlawful detainer action.
 8   Shortly before the scheduled trial, Debtor filed a chapter 13
 9   bankruptcy case on August 5, 2015.   Nationstar promptly moved for
10   relief from the automatic stay to continue with the unlawful
11   detainer action and gain possession of the Property, which the
12   bankruptcy court granted on October 1, 2015.
13        Debtor's chapter 13 case was dismissed on October 2, 2015,
14   for failure to make plan payments.   That same day, Debtor filed an
15   adversary proceeding against Defendants, alleging the same claims
16   she raised previously in the state court action dismissed with
17   prejudice.
18        Defendants moved to dismiss the adversary proceeding.   Debtor
19   did not oppose the motion or appear at the hearing.   The
20   bankruptcy court determined that, even though it had "related to"
21   jurisdiction over Debtor's non-core complaint involving
22   exclusively state law claims, it would decline to retain
23   jurisdiction in favor of the matter being heard in state court,
24   citing Linkway Investment Co. v. Olsen (In re Casamont Investors,
25   Inc.), 196 B.R. 517 (9th Cir. BAP 1996).   Debtor did not appeal
26   the dismissal order.
27
28

                                    -4-
 1   B.      Debtor's chapter 7 bankruptcy case and related adversary
             proceeding
 2
 3           Debtor filed her chapter 7 bankruptcy case on January 11,
 4   2016.    The case was assigned to the Hon. Stephen L. Johnson, who
 5   had presided over Debtor's recently dismissed chapter 13 case and
 6   the dismissed adversary proceeding against Defendants.    Although
 7   Debtor lost the Property to foreclosure four years earlier, she
 8   claimed an interest in it valued at $480,000.    Debtor did not
 9   schedule her prepetition causes of action against Defendants or
10   claim them exempt.    In her Statement of Financial Affairs, Debtor
11   disclosed the appeal of a "Quiet Title" action against "Aurora
12   Bank, FSB et al."
13           On February 18, 2016, Debtor filed the instant adversary
14   proceeding against Defendants.    The complaint is virtually
15   identical to the one she filed in the state court action
16   (dismissed with prejudice and appealed) and in the former
17   dismissed adversary proceeding.    Debtor contended that, once the
18   Property was returned to her bankruptcy estate, she would work
19   with the trustee to sell it and use the funds to pay creditors.
20           The trustee thereafter filed a "no-asset" report, indicating
21   that no assets were available for distribution to creditors.
22           The bankruptcy court then held a status conference in the
23   adversary proceeding; only Debtor appeared.    The court discussed
24   Debtor's improper service of the complaint on Defendants and
25   commented that her suit probably belonged in state court.      The
26   court assumed that the trustee was aware of Debtor's claims
27   against Defendants and must have believed they had no value for
28   the estate based on her no-asset report.    The court announced that

                                       -5-
 1   it would file a show cause order regarding whether Debtor's claims
 2   should remain before the bankruptcy court or be sent to the state
 3   court.
 4        On May 3, 2016, the bankruptcy court issued an order to show
 5   cause why the adversary proceeding should not be dismissed on the
 6   basis of abstention.    The court noted in the OSC that Debtor had
 7   not scheduled her claims against Defendants.   Debtor's response
 8   was due May 31, 2016.
 9        Meanwhile, the bankruptcy court entered a Discharge of Debtor
10   and Final Decree on May 16, 2016 ("Final Decree").   Debtor's case
11   was closed on May 17, 2016.   That same day, Debtor filed an
12   amended Schedule A/B listing the claims against Defendants:
13   "Damages against defendant of case #16-5015 filed in this court."
14   Debtor never filed an amended Schedule C to assert an exemption
15   for the claims.
16        In opposition to the OSC, Debtor contended the adversary
17   proceeding was a "core" proceeding that both "arose under"
18   title 11 and was "related to" her chapter 7 bankruptcy case.    She
19   further contended that abstention did not apply because no party
20   had filed a timely motion requesting such relief.
21        Without a hearing, the bankruptcy court entered an order
22   dismissing the adversary proceeding for lack of subject matter
23   jurisdiction or, alternatively, on the basis of permissive
24   abstention.   Debtor timely appealed.
25                              II. JURISDICTION
26        Subject to the standing discussion set forth below, the
27   bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and
28   157(b)(2)(K).   We have jurisdiction under 28 U.S.C. § 158.

                                      -6-
 1                                III. ISSUE
 2        Did the bankruptcy court err in dismissing Debtor's adversary
 3   complaint for lack of subject matter jurisdiction or,
 4   alternatively, on the basis of permissive abstention?
 5                          IV. STANDARDS OF REVIEW
 6        Standing is an issue of law we review de novo.     Palmdale
 7   Hills Prop., LLC v. Lehman Comm. Paper, Inc. (In re Palmdale Hills
 8   Prop., LLC), 654 F.3d 868, 873 (9th Cir. 2011) ("standing is a
 9   necessary component of subject matter jurisdiction.").
10        We review the bankruptcy court’s sua sponte dismissal of an
11   action for an abuse of discretion.      Snell v. Cleveland, Inc.,
12   316 F.3d 822, 825 (9th Cir. 2002).      A bankruptcy court abuses its
13   discretion if it applies the wrong legal standard, misapplies the
14   correct legal standard, or if its factual findings are clearly
15   erroneous.   TrafficSchool.com, Inc. v. Edriver Inc., 653 F.3d 820,
16   832 (9th Cir. 2011).
17        We may affirm on any ground supported by the record,
18   regardless of whether the bankruptcy court relied upon, rejected
19   or even considered that ground.    Fresno Motors, LLC v. Mercedes
20   Benz USA, LLC, 771 F.3d 1119, 1125 (9th Cir. 2014).
21                               V. DISCUSSION
22   A.   The bankruptcy court's ruling
23        The bankruptcy court determined that Debtor's adversary
24   proceeding, which consisted entirely of state law claims, was not
25   a "core" proceeding because the claims did not "arise under"
26   title 11 or "arise in" a case under title 11; the lawsuit could
27   exist independently of Debtor's bankruptcy case.     The court
28   further determined that it also lacked non-core "related to"

                                       -7-
 1   jurisdiction.   Because the trustee had filed a no-asset report,
 2   which the court construed as an abandonment of the claims to
 3   Debtor, the court reasoned that resolution of Debtor's lawsuit had
 4   no conceivable effect on the administration of the estate.
 5   Alternatively, the court determined that even if it had
 6   jurisdiction, it was permissively abstaining from hearing the
 7   case, citing the factors in Christiansen v. Tucson Estates, Inc.
 8   (In re Tucson Estates, Inc.), 912 F.2d 1162, 1167 (9th Cir. 1990).
 9   These rulings were erroneous.
10        Even though Debtor's bankruptcy case had been dismissed in
11   May 2016, the bankruptcy court had, at minimum, "related to"
12   jurisdiction over the state law claims against Defendants when she
13   filed her complaint in February 2016.   See In re Casamont Inv'rs,
14   Ltd., 196 B.R. at 521 ("Jurisdiction is determined as of the
15   commencement of the action."); Charov v. Bank of N.Y. Mellon,
16   2016 WL 7406306, at *4 (9th Cir. BAP Dec. 20, 2016).   Moreover, as
17   we explain below, the trustee did not abandon the claims via the
18   no-asset report and nothing in the record indicates that she ever
19   considered whether Debtor's claims had any value to the estate.
20   Therefore, resolving these claims could have had some effect on
21   the administration of the estate, at least prior to the dismissal
22   of Debtor's case.   See Seymour v. Bank of Am., N.A.
23   (In re Seymour), 2013 WL 1736471, at *4 n.9 (9th Cir. BAP Apr. 13,
24   2013).
25   B.   Debtor lacked prudential standing to prosecute the claims
          against Defendants.
26
27        "A federal court may exercise jurisdiction over a litigant
28   only when that litigant meets constitutional and prudential

                                     -8-
 1   standing requirements."   Veal v. Am. Home Mortg. Servicing, Inc.
 2   (In re Veal), 450 B.R. 897, 906 (9th Cir. BAP 2010) (citing Elk
 3   Grove Unified Sch. Dist. v. Newdow, 542 U.S. 1, 11 (2004)).
 4   "Standing is a 'threshold question in every federal case,
 5   determining the power of the court to entertain the suit.'"      Id.
 6   (quoting Warth v. Seldin, 422 U.S. 490, 498 (1975)).    Debtor
 7   appears to have met the minimal standard for constitutional
 8   standing — i.e., injury in fact, causation and redressability.
 9   See United Food & Comm'l Workers Union Local 751 v. Brown Grp.,
10   Inc., 517 U.S. 544, 551 (1996).     She alleged injury by irregular
11   lending practices and an improper foreclosure proceeding.    Her
12   claim for relief of quiet title would have remedied her alleged
13   injuries.
14        However, Debtor failed to demonstrate that she was asserting
15   her own legal rights and not those belonging to others.
16   In re Veal, 450 B.R. at 907 (citing Sprint Commc'ns Co. v. APCC
17   Servs., Inc., 554 U.S. 269, 289-90 (2008)) (plaintiff must assert
18   his or her own legal rights and interests and not the legal rights
19   or interests of third parties).     In other words, Debtor failed to
20   demonstrate prudential standing.6
21
          6
22           Another aspect of the prudential standing doctrine is
     bankruptcy appellate standing, which requires an appellant to show
23   that he or she has been "directly and adversely affected
     pecuniarily" by the bankruptcy court's decision. See
24   In re Palmdale Hills Prop., LLC, 654 F.3d at 874. The appellant
     must show that the order on appeal diminished its property,
25   increased its burdens, or detrimentally affected its rights. See
     Fondiller v. Robertson (In re Fondiller), 707 F.2d 441, 442 (9th
26   Cir. 1983). Debtor's potential residual interest in the estate's
     assets appears sufficient to establish that she was a "person
27   aggrieved" by the bankruptcy court's dismissal order. Therefore,
     we will not dispose of this appeal on bankruptcy appellate
28                                                        (continued...)

                                       -9-
 1        When Debtor filed her chapter 7 case, her legal and equitable
 2   interests in all property she owned at the time became property of
 3   her bankruptcy estate (with exceptions not relevant here),
 4   including prepetition causes of action.    See § 541(a)(1); Sierra
 5   Switchboard Co. v. Westinghouse Elec. Corp., 789 F.2d 705, 707-09
 6   (9th Cir. 1986).    Because the events giving rise to Debtor's
 7   claims against Defendants occurred before her chapter 7 filing,
 8   these claims became property of the estate when Debtor filed her
 9   petition.   This is true whether or not she scheduled the claims.
10   Cusano v. Klein, 264 F.3d 936, 945-46 (9th Cir. 2001) (an
11   unscheduled asset continues to belong to estate and does not
12   revert back to debtor when case closes); Edwards v. Wells Fargo
13   Bank (In re Edwards), 2011 WL 4485560, at *4 (9th Cir. BAP Aug.
14   26, 2011) (same).
15        The Bankruptcy Code designates the trustee as the estate's
16   representative and authorizes him or her to sue and be sued in
17   that capacity.   See § 323(a); Spirtos v. One San Bernardino Cnty.
18   Super. Ct. Case, 443 F.3d 1172, 1175 (9th Cir. 2006).   Thus,
19   generally speaking, only the trustee has standing to prosecute any
20   cause of action that is estate property.   Spirtos, 442 F.3d 1175-
21   76 (as the representative of the bankruptcy estate, the trustee is
22   the proper party in interest and the only party with standing to
23   prosecute causes of action belonging to the estate).    Therefore,
24   Debtor did not have the right to file the adversary proceeding.
25   That right belonged to the trustee.
26
27
          6
           (...continued)
28   standing grounds.

                                      -10-
 1        There were two ways in which Debtor could have gained control
 2   over the claims against Defendants while in bankruptcy:
 3   (1) exempt the claims on her Schedule C without objection; or
 4   (2) the trustee's abandonment of the claims.   See § 522(l);
 5   § 554(a)-(c).    However, for either of these options, Debtor had to
 6   schedule the claims as an asset in her bankruptcy case.    Even if
 7   one considers the amended Schedule A/B as timely, which we do not,
 8   Debtor failed to file an amended Schedule C asserting an exemption
 9   in the claims.   That leaves abandonment.
10        Abandonment in a bankruptcy case occurs in two ways:
11   (1) after notice and a hearing on request by the trustee or
12   ordered by the court, property may be abandoned that is
13   "burdensome" or of "inconsequential value and benefit to the
14   estate" (§ 554(a), (b)); or (2) any property which has been
15   scheduled, but which has not been administered by the trustee at
16   the time of closing of a case, is abandoned by operation of law
17   (§ 554(c)).   Clearly, the first method of abandonment did not
18   occur here.   The trustee did not request that the claims be, nor
19   did the bankruptcy court order that the claims were, abandoned.
20   No notice was sent to creditors, and no hearing was held.
21   Contrary to the bankruptcy court's ruling, the trustee's filing of
22   the no-asset report on April 1, 2016 did not constitute a formal
23   abandonment of the claims.   Schwaber v. Reed (In re Reed),
24   940 F.2d 1317, 1321 (9th Cir. 1991) (although filing of no-asset
25   report may exhibit the requisite intent to abandon an asset, that
26   report in and of itself does not result in abandonment).
27        The second method of abandonment did not happen here either.
28   Debtor's disclosure of a "Quiet Title" action without a value in

                                      -11-
 1   her SOFA was not sufficient to trigger an automatic abandonment by
 2   the trustee under § 554(c).    Mentioning an asset in the statement
 3   of financial affairs is not the same as scheduling it for purposes
 4   of abandonment under § 554(c).    Orton v. Hoffman (In re Kayne),
 5   453 B.R. 372, 384 (9th Cir. BAP 2011); In re McCoy, 139 B.R. 430,
 6   431 (Bankr. S.D. Ohio 1991) ("The word 'scheduled' in [§] 554(c)
 7   has a specific meaning and refers only to assets listed in a
 8   debtor's schedule of assets and liabilities.").
 9           Arguably, Debtor technically filed her amended Schedule A/B
10   disclosing the claims against Defendants on May 17, 2016, just
11   moments before her case was closed.      However, she did not file the
12   amendment until after the Final Decree was entered on May 16,
13   2016.    The Final Decree states that the trustee had filed a report
14   of no distribution and had performed all of her duties required in
15   the administration of the estate.    Thus, Trustee had administered
16   or abandoned only those assets properly scheduled by Debtor as of
17   May 16, 2016.    A trustee cannot administer or abandon an
18   unscheduled asset, even if the trustee knew about the asset.     Pace
19   v. Battley (In re Pace), 146 B.R. 562, 564-66 (9th Cir. BAP 1992),
20   aff'd, 17 F.3d 395 (9th Cir. 1994) (unless formally scheduled,
21   property is not abandoned at the close of the case, even if the
22   trustee had knowledge of the asset).     And nothing in the record
23   shows that the trustee knew of the claims, despite the bankruptcy
24   court's assumption to the contrary.      Thus, because the trustee did
25   not administer or abandon the claims, they remained property of
26   the estate.    § 554(d); Lopez v. Specialty Rests. Corp.
27   (In re Lopez), 283 B.R. 22, 28 (9th Cir. BAP 2002).     Accordingly,
28   Debtor lacked prudential standing to prosecute them.

                                       -12-
 1        Debtor's untimely amendment was too little too late.   Even if
 2   the trustee learned of the claims the moment Debtor disclosed them
 3   on May 17, 2016, this failed to give her (or creditors) sufficient
 4   notice to make an intelligent decision about whether they should
 5   be administered or abandoned, which is the purpose of scheduling.
 6   In re Kayne, 453 B.R. at 384.
 7                             VI. CONCLUSION
 8        Although the bankruptcy court erred in dismissing Debtor's
 9   adversary proceeding for the reasons it stated, such error was
10   harmless because Debtor lacked prudential standing to prosecute
11   what constituted estate claims against Defendants.   Accordingly,
12   we AFFIRM.7
13
14
15
16
17
18
19
20
21
22
23
24
25
26
          7
             To the extent Debtor argues the bankruptcy court erred by
27   closing her bankruptcy case, that issue is not properly before us.
     Debtor's case was closed on May 17, 2016. She did not file a
28   timely appeal of that order. Rule 8002(a).

                                     -13-