Court Opinion

ID: 4551139
Source: CourtListenerOpinion
Date Created: 2020-07-24 20:00:42.849025+00
Date Added: 2024-06-11T09:23:19.307999
License: Public Domain

FILED
                                                                           JUL 24 2020
                           NOT FOR PUBLICATION                        SUSAN M. SPRAUL, CLERK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. CC-19-1258-GFS
JOSE R. SOLANO, JR.,                                 BAP No. CC-19-1259-GFS
              Debtor.                                (Related)
                                                     Bk. No. 2:16-bk-26833-VZ
JOSE R. SOLANO, JR.,
              Appellant,                             Adv. No. 2:19-ap-01043-VZ
v.
MAGNUM PROPERTY INVESTMENTS
LLC; SARINA GOERISCH,
              Appellees.
JOSE R. SOLANO, JR.,
              Appellant,                             Adv. No. 2:19-ap-01152-VZ
v.
MAGNUM PROPERTY INVESTMENTS                          MEMORANDUM*
LLC; SARINA GOERISCH; LANE
NUSSBAUM; NUSSBAUM APC,
              Appellees.

               Appeal from the United States Bankruptcy Court
                     for the Central District of California
                Vincent Zurzolo, Bankruptcy Judge, Presiding

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

      *
        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.
                                 INTRODUCTION

      These related appeals involve two adversary proceedings pertaining

to chapter 71 debtor Jose R. Solano, Jr.’s (“Debtor”) former residence,

located in West Covina, California (the “Property”). After the bankruptcy

court granted stay relief, the Property was sold pursuant to a nonjudicial

foreclosure.

      Debtor initiated the first case in state court, seeking to quiet title to

the Property (the “Quiet Title Action”). He removed the proceeding, but

the bankruptcy court remanded it because the Notice of Removal was

untimely under Rule 9027(a)(3).

      Debtor filed the second case as an adversary proceeding and alleged

fraud and other claims against the purchaser of the Property, Magnum

Property Investments LLC (“Magnum”), its principal Sarina Goerisch, and

its attorneys, Lane Nussbaum and Nussbaum APC (the “Fraud Action”).

The court granted the defendants’ motion to dismiss the complaint

pursuant to Civil Rule 12(b)(6), made applicable by Rule 7012, because the

claims belonged to the estate and Debtor lacked standing.

      The bankruptcy court did not err in remanding the Quiet Title Action

or in dismissing the Fraud Action. Accordingly, we AFFIRM both orders.

      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
                                         FACTS2

       In 2007, Debtor and Soledad M. Solano purchased the Property and

executed a promissory note and deed of trust in favor of World Savings

Bank, FSB (the “Bank”).3 The Solanos defaulted under the terms of the note,

and in 2013 the Bank recorded a notice of default.

       After a series of bankruptcy filings involving the Property, Debtor

filed the present case in 2016. The Bank objected to confirmation of

Debtor’s plan, in part because the plan failed to cure arrears in the amount

of $635,452.29. After the Bank filed its objection, Debtor voluntarily

converted his case to chapter 7.

       The Bank sought stay relief under §§ 362(d)(2) and (d)(4) based on

Debtor’s persistent failure to make payments and the allegation that Debtor

filed the bankruptcy petition as part of a scheme to hinder, delay, or

defraud creditors.4 In March 2017, the bankruptcy court granted stay relief

to permit the Bank and its successors to enforce state law remedies to

       2
          We exercise our discretion to review the bankruptcy court’s docket and
relevant adversary proceedings. See Rivera v. Curry (In re Rivera), 517 B.R. 140, 143 n.2
(9th Cir. BAP 2014), aff’d in part & dismissed in part, 675 F. App’x 781 (9th Cir. 2017).
       3
       World Savings Bank, FSB subsequently changed its name to Wachovia
Mortgage FSB and merged with Wells Fargo, N.A.
       4
         Debtor’s case was the fourth bankruptcy filed within seven years involving an
interest in the Property. Although the bankruptcy court entered an in rem stay relief
order in the most recent prior case, filed by Soledad Solano (Case No. 2:16-bk-15605-
VZ), the Bank had not recorded it prior to Debtor’s petition.

                                             3
foreclose and obtain possession of the Property. Debtor appealed, and the

district court affirmed.

       In February 2018, Magnum purchased the Property at a nonjudicial

foreclosure sale pursuant to the deed of trust. Magnum filed an unlawful

detainer action against Debtor in state court and obtained a judgment

against Debtor in May 2018. Debtor removed the unlawful detainer action

in June 2018, but the bankruptcy court remanded it. Debtor was eventually

evicted.

A.     The Quiet Title Action

       On June 1, 2018, Debtor filed the Quiet Title Action in state court. He

asserted claims for quiet title, fraud, cancellation of instruments, and

declaratory relief against Magnum and Sarina Goerisch. Debtor alleged

that Magnum fraudulently recorded a Trustee’s Deed Upon Sale, Notice of

Sale, and Notice of Default. Magnum filed a demurrer, which the state

court sustained with leave to amend.

       On October 10, 2018, Debtor filed a first amended complaint.5

Magnum again demurred. On February 5, 2019, three days before the

hearing on Magnum’s demurrer, Debtor filed a Notice of Removal

       5
           In the first amended complaint, Debtor asserted claims for quiet title, fraud,
illegal foreclosure, illegal racketeering, cancellation of written instruments, slander of
title, illegal eviction, unjust enrichment, violation of the Home Owner’s Bill of Rights,
violations of the California Business & Professional Code, invasion of privacy, and
declaratory relief.

                                             4
pursuant to 28 U.S.C. §§ 1441 and 1452(a), which established an adversary

proceeding in the bankruptcy case.

      In February 2019, Magnum filed a motion for remand and argued

that Debtor’s Notice of Removal was untimely under Rule 9027(a)(3). Prior

to the hearing on the motion for remand, Debtor filed a motion in the

district court for mandatory withdrawal of the reference.

      The bankruptcy court continued the hearing on Magnum’s motion

for remand to allow the district court to rule on Debtor’s motion to

withdraw the reference. The district court denied the motion to withdraw

the reference in August 2019, and the bankruptcy court reset the hearing on

Magnum’s motion for remand for October 2019.

      At the hearing, the bankruptcy court ruled that remand was

appropriate because Debtor’s Notice of Removal was untimely. The

bankruptcy court also ruled that Debtor’s lack of standing to bring the

claims provided an additional basis to remand the proceeding. The court

stated that because the Property, and claims that arose in relation to the

Property, remained property of the bankruptcy estate, the chapter 7 trustee

was the only party who could assert the claims. Debtor timely appealed.

B.    The Fraud Action

      In May 2019, Debtor filed an adversary complaint against Magnum,

Sarina Goerisch, Lane Nussbaum, and Nussbaum APC. Debtor asserted

claims for fraud, racketeering, false claims, collection of an unlawful debt,

                                       5
and declaratory relief. Debtor alleged that no sale took place, and the

Trustee’s Deed Upon Sale was forged and wrongfully recorded by the

defendants.6

      Although the caption of the complaint and the table of contents

include claims under the Fair Debt Collections Practices Act (the “FDCPA”)

and the Racketeer Influenced and Corrupt Organizations Act (“RICO”), the

complaint lacks factual allegations relating to such claims. The complaint

also includes a reference to an illegal eviction, but again, the complaint is

devoid of factual allegations related to the eviction.

      The defendants filed a motion to dismiss, arguing that Debtor lacked

standing because the claims were property of the estate. The defendants

also asserted that Debtor failed to allege sufficient facts to support a

cognizable claim under the FDCPA or RICO and failed to plead the fraud

claim with particularity, as required by Civil Rule 9(b), made applicable by

Rule 7009.

      Debtor filed a response to the motion to dismiss and argued that the

estate essentially abandoned the Property by allowing the automatic stay to

      6
         Most of the complaint is identical to a prior adversary complaint asserted
against the Bank. See Case No. 2:17-ap-1202-VZ. In the prior adversary complaint,
Debtor asserted claims for fraud, racketeering and violations of the FDCPA based on
allegations that the Bank did not have an interest in the Property and had conspired to
defraud and steal the Property from Debtor through various fraudulent documents. The
case was dismissed with prejudice in October 2017.

                                          6
be terminated, and therefore, Debtor had standing to bring the causes of

action. Debtor contended that his allegations were sufficient, and as a pro

se litigant, he should be held to a lesser standard.

      The bankruptcy court granted the motion to dismiss and ruled that

Debtor lacked standing to bring the claims made in the complaint because,

to the extent that there were any valid claims related to the foreclosure,

they belonged to the estate. The court also determined that the allegations

in the complaint lacked required specificity. Debtor timely appealed.

                               JURISDICTION

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

157(b)(1). We have jurisdiction under 28 U.S.C. § 158.

                                    ISSUES

      Did the bankruptcy court abuse its discretion by remanding the Quiet

Title Action?

      Did the bankruptcy court err by dismissing the Fraud Action

pursuant to Civil Rule 12(b)(6)?

                         STANDARDS OF REVIEW

      We review the bankruptcy court’s decision to remand a proceeding

under 28 U.S.C. § 1452(b) for an abuse of discretion. McCarthy v. Prince (In

re McCarthy), 230 B.R. 414, 416 (9th Cir. BAP 1999). A bankruptcy court

abuses its discretion if it applies the wrong legal standard, or misapplies

the correct legal standard, or if its factual findings are clearly erroneous. See

                                        7
TrafficSchool.com, Inc. v. Edriver Inc., 653 F.3d 820, 832 (9th Cir. 2011) (citing

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

       We review a dismissal of an adversary proceeding under Civil Rule

12(b)(6) de novo. New Mexico State Inv. Council v. Ernst & Young, LLP, 641

F.3d 1089, 1094 (9th Cir. 2011). Under a de novo review, we look at the

matter anew, giving no deference to the bankruptcy court’s determinations.

Barnes v. Belice (In re Belice), 461 B.R. 564, 572 (9th Cir. BAP 2011).

                                     DISCUSSION

A.     The Bankruptcy Court Did Not Abuse Its Discretion By Remanding
       The Quiet Title Action

       Debtor argues that the bankruptcy court abused its discretion by

remanding the Quiet Title Action because the removal statute does not

contain time limits.

       Removal of a state court action to the bankruptcy court by a plaintiff

is governed by 28 U.S.C. § 1452(a).7 Under § 1452(b), the bankruptcy court

       7
         Debtor’s Notice of Removal cited the general federal removal statue, 28 U.S.C.
§ 1441, as well as the bankruptcy removal statute, 28 U.S.C. § 1452(a). Although the
Supreme Court has stated, “[t]here is no express indication in § 1452 that Congress
intended that statute to be the exclusive provision governing removals and remands in
bankruptcy,” the procedure for removal under 28 U.S.C. § 1441 applies only to “a
defendant.” Things Remembered, Inc. v. Petrarca, 516 U.S. 124, 129 (1995); 28 U.S.C.
§ 1446(a). However, 28 U.S.C. § 1452(a) applies to any “party” seeking to remove a
claim or cause of action to the bankruptcy court. See Perry v. Chase Auto Fin. (In re Perry),
BAP No. CC-10-1395-DMkKi, 2011 WL 4503166, at *5 (9th Cir. BAP July 8, 2011).
Because Debtor was the plaintiff in the state court Quiet Title Action, his removal is
                                                                              (continued...)

                                             8
can remand an action removed from the state court “on any equitable

ground.” We narrowly construe removal statutes and resolve any doubts

against removability. Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992).

      The procedure for removal under 28 U.S.C. § 1452(a) is established by

Rule 9027. Parker v. Mid Valley Servs., Inc. (In re Parker), BAP No. EC-19-

1079-BSF, 2020 WL 710368, at *3 (9th Cir. BAP Feb. 11, 2020). Rule 9027 sets

forth different deadlines for removal of state court actions initiated pre-

and postpetition. Debtor filed the Quiet Title Action postpetition, so

removal is governed by Rule 9027(a)(3).

      Rule 9027(a)(3) provides that a notice of removal of a state court civil

action, filed after the bankruptcy petition, must be filed within the shorter

of:

             (A) 30 days after receipt, through service or
             otherwise, of a copy of the initial pleading setting
             forth the claim or cause of action sought to be
             removed or (B) 30 days after receipt of the
             summons if the initial pleading has been filed with
             the court but not served with the summons.

Rule 9027(a)(3).

      Because Debtor was the plaintiff in the state court Quiet Title Action,

we measure the deadline from his receipt of the defendants’ initial

      7
      (...continued)
governed by 28 U.S.C. § 1452(a).

                                       9
responsive pleading. See In re Perry, 2011 WL 4503166, at *6. The record

demonstrates that Debtor filed the complaint in state court on June 1, 2018,

and the defendants filed their responsive pleading on July 8, 2018. Debtor

filed his Notice of Removal on February 5, 2019, nearly seven months after

defendants filed their initial responsive pleading.

      Although the time limits in Rule 9027 are not jurisdictional, failure to

comply provides an “equitable ground” for remand under 28 U.S.C.

§ 1452(b). The “any equitable ground” standard is broad and “subsumes

and reaches beyond all of the reasons for remand under nonbankruptcy

removal statutes.” In re McCarthy, 230 B.R. at 417.

      Failure to comply with removal deadlines under the general removal

statute is a procedural defect which mandates remand under 28 U.S.C.

§ 1447(c). See Schmitt v. Ins. Co. of N. Am., 845 F.2d 1546, 1551 (9th Cir. 1988)

(“remand of the present case became mandatory under section 1447(c) once

the district court determined that [defendant]'s petition for removal was

untimely”), superseded by statute on other grounds, 28 U.S.C. § 1447(c); Fristoe

v. Reynolds Metals Co., 615 F.2d 1209, 1212 (9th Cir. 1980) (per curium)

(“[T]he time limit [for removal under section 1446(b)] is mandatory and a

timely objection to a late petition will defeat removal . . . .”); see also Things

Remembered, Inc., 516 U.S. at 131-35 (Ginsburg, J., concurring) (reasoning

that an untimely removal provides an “equitable ground” for remand

under 28 U.S.C. § 1452(b)). Debtor’s failure to comply with the removal

                                        10
deadline would necessitate remand under the nonbankruptcy removal

statutes, and therefore, remand is within the “any equitable ground”

standard of 28 U.S.C. § 1452(b).

      Additionally, as we discuss below, the bankruptcy court correctly

determined that Debtor lacked standing to assert causes of action

pertaining to estate property, such as the Quiet Title Action. This is a

separate basis for remand. See Pereira v. Dunnington (In re 47-49 Charles St.

Inc.), 211 B.R. 5, 6 (S.D.N.Y. 1997) (affirming remand under 28 U.S.C.

§ 1452(b) because once a trustee was appointed, the principal of the debtor

lacked standing to remove the case).

B.    The Bankruptcy Court Did Not Err By Dismissing The Fraud
      Action

      When reviewing a dismissal of an adversary proceeding under Civil

Rule 12(b)(6), we generally limit our consideration to the complaint and

view the allegations in the light most favorable to the plaintiff. Livid

Holdings Ltd. v. Salomon Smith Barney, Inc., 416 F.3d 940, 946 (9th Cir. 2005).

      To avoid dismissal under Civil Rule 12(b)(6), a plaintiff must allege

“sufficient factual matter, accepted as true, to ‘state a claim to relief that is

plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell

Atl. Corp. v. Twombly, 550 U.S. 544, 555-56 (2007)). Dismissal under Civil

Rule 12(b)(6) is appropriate if the complaint lacks a cognizable legal theory,

or if it lacks sufficient factual allegations. Johnson v. Riverside Healthcare Sys.,

                                         11
LP, 534 F.3d 1116, 1121 (9th Cir. 2008). Dismissal for lack of standing is a

subspecies of dismissal for failure to state a claim under Civil Rule 12(b)(6).

Quarre v. Saylor (In re Saylor), 178 B.R. 209, 215 (9th Cir. BAP 1995), aff’d 108

F.3d 219 (9th Cir. 1997).

      1.     Debtor Lacked Standing To Assert Claims for Fraud or
             Wrongful Foreclosure

      Debtor argues that the court erred by dismissing the complaint for

lack of standing. To determine whether Debtor had standing to assert

claims for fraud or wrongful foreclosure, we must determine whether the

claims were property of the estate, and if so, whether they were abandoned

to Debtor.

      The commencement of a bankruptcy case creates an estate which

includes “all legal or equitable interests of the debtor in property as of the

commencement of the case.” § 541(a)(1). The scope of § 541 is broad and

includes causes of action. United States v. Whiting Pools, Inc., 462 U.S. 198,

205 n.9 (1983). Property interests acquired postpetition by the estate, but

not the debtor, are also included as property of the estate by § 541(a)(7).

MacKenzie v. Neidorf (In re Neidorf), 534 B.R. 369, 371 (9th Cir. BAP 2015). An

after-acquired interest becomes property of the estate under § 541(a)(7) if it

is “(1) . . . created with or by property of the estate; (2) acquired in the

estate’s normal course of business; or (3) otherwise [] traceable to or

aris[ing] out of any prepetition interest included in the bankruptcy estate.”

                                        12
Id. at 371-72.

      The fraud claims asserted by Debtor are based on allegations of

wrongdoing related to the postpetition sale of the Property. The alleged

fraud in recording the Trustee’s Deed Upon Sale arises out of Debtor’s

purported ownership interest in the Property. It is undisputed that

Debtor’s ownership interest in the Property became property of the estate

on the petition date. Causes of action arising from the postpetition

foreclosure sale of the Property are therefore property of the estate under

§ 541(a)(7). See In re Greenshaw Energy, Inc., 359 B.R. 636, 642 (Bankr. S.D.

Tex. 2007) (holding that a postpetition wrongful foreclosure action became

property of the estate under § 541(a)(7)); Ashurst Land & Cattle, LLC v.

Rancho Mountain Props. Inc., No. 12-CV-1328-BEN, 2013 WL 2631338, at *3

(S.D. Cal. June 10, 2013) (“[W]rongful foreclosure claims . . . belong to the

bankruptcy trustee regardless of whether the foreclosure occurred before

or after the petition is filed.”).

      Debtor argues that the Property ceased being property of the estate

after the stay was lifted and the Property was sold, and therefore the

trustee no longer had an exclusive right to bring the asserted claims.

However, an asset remains property of the estate while a bankruptcy case

remains open, unless it is explicitly abandoned. Cusano v. Klein, 264 F.3d

936, 946 (9th Cir. 2001). Abandonment of property requires formal notice

and a hearing pursuant to § 554. Catalano v. Comm’r, 279 F.3d 682, 686 (9th

                                       13
Cir. 2002). As a result, an order granting stay relief does not cause a de

facto abandonment of property, and it does not extinguish the estate’s

interest in such property. Id. at 686-87. At the time of the alleged wrongful

foreclosure, the Property remained property of the estate and thus, Debtor

lacked standing to assert the cause of action.

      Although Debtor’s alleged fraud claims are predicated on his premise

that no sale occurred, he suggests that the Property was no longer property

of the estate after Magnum purchased it at the foreclosure sale. But, Debtor

does not explain how the claims against the purchaser vested in Debtor

upon sale of the Property. The alleged fraudulent sale would harm the

estate’s interest in the Property, not Debtor’s, and the estate did not

abandon the potential claims. As representative of the estate, the chapter 7

trustee had the exclusive right to sue on behalf of the estate. Estate of Spirtos

v. Super. Ct., 44. F.3d 1172, 1175 (9th Cir. 2006). Debtor lacked standing to

sue the defendants for fraud, and the bankruptcy court did not err by

dismissing Debtor’s complaint.

      2.    Debtor Did Not Allege Sufficient Facts To Support Claims
            Under The FDCPA or RICO, or for Wrongful Eviction

      Claims for relief under the FDCPA or for wrongful eviction do not

necessarily arise from the ownership interest in the Property. However, the

complaint is devoid of sufficient factual allegations to support such claims

against the defendants.

                                       14
      The FDCPA “prohibits ‘debt collector[s]’ from making false or

misleading representations and from engaging in various abusive and

unfair practices.” Heintz v. Jenkins, 514 U.S. 291, 292 (1995); see also 15 U.S.C.

§ 1692, et seq. Debtor does not reference any of the provisions of the FDCPA

in the complaint or present any legal theory of liability. He does not allege

any facts to demonstrate that the defendants were subject to the provisions

of the FDCPA as “debt collectors,” or that they violated any of the

provisions of the FDCPA.

      Similarly, Debtor does not present a cognizable legal theory or allege

facts to support a claim under RICO. The elements of a civil RICO claim are

“(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering

activity (known as ‘predicate acts’) (5) causing injury to the plaintiff’s

‘business or property.’” Grimmett v. Brown, 75 F.3d 506, 510 (9th Cir. 1996).

With the exception of conclusory statements about the defendants’

“racketeering activity,” the complaint is silent as to the basis of the claim.

Mere conclusory statements are not sufficient to survive a motion to

dismiss. Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 555).

      Finally, Debtor includes a conclusory statement in the complaint that

the defendants “willfully commenced an illegal eviction,” but he provides

no facts to demonstrate a claim for relief. The eviction was made pursuant

to a state court judgment entered in the unlawful detainer action. The

complaint fails to state a claim for illegal eviction.

                                        15
      Debtor lacked standing to assert claims arising from an ownership

interest in the Property and failed to allege sufficient facts to state claims

for relief under the FDCPA, RICO, or for an illegal eviction.

C.    Debtor’s Other Arguments

      Debtor argues that the bankruptcy court erred with regard to both

orders by failing to make findings of fact or conclusions of law. Debtor also

argues that both orders were void for lack of due process and the

bankruptcy judge should have recused himself for bias. These arguments

are without merit.

      The bankruptcy court stated its findings and conclusions on the

record at the hearing on the motion to dismiss and the motion to remand.

Hr’g Tr. 3:13-6:2; 8:19-9:14, October 3, 2019. The record indicates that Debtor

filed the adversary complaint and the Notice of Removal and was served

with the motion to dismiss, motion for remand, and the notices of hearings.

Furthermore, Debtor appeared at the hearing on both motions, in October

2019. Debtor has not shown that either order was void for lack of due

process.

      Finally, Debtor has not demonstrated any bias by the bankruptcy

court, and we discern none from the record.

                                CONCLUSION

      For the reasons set forth above, we AFFIRM the bankruptcy court’s

order remanding the Quiet Title Action and AFFIRM the order dismissing

                                       16
the Fraud Action.

                    17