Court Opinion

ID: 3006937
Source: CourtListenerOpinion
Date Created: 2015-10-02 22:02:12.243609+00
Date Added: 2024-06-11T12:04:04.193236
License: Public Domain

FILED
                                                               OCT 02 2015
 1                         NOT FOR PUBLICATION
                                                           SUSAN M. SPRAUL, CLERK
 2                                                           U.S. BKCY. APP. PANEL
                                                             OF THE NINTH CIRCUIT
 3                  UNITED STATES BANKRUPTCY APPELLATE PANEL
 4                            OF THE NINTH CIRCUIT
 5   In re:                        )        BAP No. WW-14-1119-JuKiF
                                   )
 6   HENRY D. ZEGZULA,             )        Bk. No.   13-47541-BDL
                                   )
 7                  Debtor.        )        Adv. No. 14-04005-BDL
     ______________________________)
 8                                 )
     HENRY D. ZEGZULA,             )
 9                                 )
                    Appellant,     )
10                                 )        M E M O R A N D U M*
     v.                            )
11                                 )
     JPMORGAN CHASE BANK, N.A.,    )
12                                 )
                    Appellee.      )
13   ______________________________)
14                      Submitted Without Oral Argument
                            on September 25, 2015**
15
                            Filed - October 2, 2015
16
               Appeal from the United States Bankruptcy Court
17                 for the Western District of Washington
18     Honorable Brian D. Lynch, Chief Bankruptcy Judge, Presiding
                        _________________________
19
     Appearances:     Appellant Henry D. Zegzula on brief pro se;
20                    Philip R. Lempriere and Daniel J. Park of
                      Keesal, Young & Logan on brief for appellee,
21                    JPMorgan Chase Bank, N.A.
                         ____________________________
22
     Before:   JURY, KIRSCHER, and FARIS, Bankruptcy Judges.
23
24       *
          This disposition is not appropriate for publication.
   Although it may be cited for whatever persuasive value it may
25 have (see Fed. R. App. P. 32.1), it has no precedential value.
26 See 9th Cir. BAP Rule 8024-1.
         **
27        By order entered on August 15, 2014, a motions panel
   determined that this appeal is suitable for submission on the
28 briefs and record without oral argument pursuant to Rule 8012.

                                      -1-
 1           Chapter 71 debtor Henry D. Zegula appeals from the
 2   bankruptcy court’s order dismissing his adversary proceeding
 3   against JPMorgan Chase Bank, N.A. (Chase).      We AFFIRM.
 4                                 I.   FACTS2
 5           Debtor filed his chapter 7 petition pro se on December 11,
 6   2013.     The chapter 7 trustee (Trustee) moved to dismiss his case
 7   under § 707(a) and (b) with a two year bar to refiling.      Trustee
 8   noted that debtor failed to file schedules I and J, a summary of
 9   schedules, or Form B22A in his case, and argued that dismissal
10   was appropriate for abuse since debtor had repeatedly filed
11   bankruptcy petitions and failed to file schedules or comply with
12   other requirements.     Trustee further asserted that dismissal
13   with prejudice was warranted due to debtor’s pattern of willful
14   abuse of the bankruptcy system — debtor had filed seven cases
15   since May 2008 and had not properly prosecuted those cases or
16   otherwise fulfilled his obligations under the Bankruptcy Code.
17           After Trustee filed her motion to dismiss, but before it
18   was heard, debtor filed pro se this adversary proceeding against
19   Chase seeking to quiet title.      At the same time, he filed a
20   motion for a preliminary injunction to enjoin a foreclosure on
21   his property pursuant to a deed of trust.
22
         1
23        Unless otherwise indicated, all chapter and section
   references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532.
24 “Rule” references are to the Federal Rules of Bankruptcy
   Procedure and “Civil Rule” references are to the Federal Rules of
25 Civil Procedure.
26      2
          To the extent necessary, we take judicial notice of the
27 pleadings docketed in the underlying bankruptcy case and the
   adversary proceeding. Atwood v. Chase Manhattan Mortg. Co.
28 (In re Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003).

                                        -2-
 1        The bankruptcy court dismissed the underlying bankruptcy
 2   case for abuse on January 30, 2014, and imposed a two year bar
 3   to refiling.   A few weeks later, debtor’s case was closed.
 4        On February 7, 2014, Chase filed a motion to dismiss the
 5   adversary proceeding with prejudice on two grounds.    First, the
 6   underlying bankruptcy case had been dismissed and none of the
 7   factors set forth in Carraher v. Morgan Electric, Inc.
 8   (In re Carraher), 971 F.2d 327, 328 (9th Cir. 1992) for
 9   discretionary retention of jurisdiction over the adversary
10   proceeding weighed in favor of retaining it.    Second, the
11   complaint failed to state a claim upon which relief could be
12   granted under Civil Rule 12(b)(6).
13         On March 12, 2014, the bankruptcy court heard the matter.
14   The court found that considerations of judicial economy and
15   fairness did not support the court’s retention of jurisdiction
16   over the adversary proceeding following the dismissal of the
17   underlying bankruptcy case.     In addition, the court found that
18   debtor’s complaint failed to state a claim for which relief can
19   be granted as the allegations were “legally incomprehensible and
20   there is no theory, no legal theory to support [his] argument
21   regarding quiet title.”    In the end, the court decided that
22   dismissal without prejudice of the adversary complaint was
23   appropriate.
24        On March 14, 2014, the bankruptcy court entered the order
25   consistent with its decision.     Debtor timely filed a notice of
26   appeal.
27                             II.   JURISDICTION
28        The bankruptcy court had jurisdiction pursuant to 28 U.S.C.

                                       -3-
 1   §§ 1334 and 157(c)(1).     We have jurisdiction under 28 U.S.C.
 2   § 158.
 3                                III.    ISSUES
 4        Did the bankruptcy court abuse its discretion in declining
 5   to exercise jurisdiction over the adversary proceeding?
 6        Did the bankruptcy court err by dismissing the adversary
 7   proceeding under Civil Rule 12(b)(6)?
 8                        IV.    STANDARDS OF REVIEW
 9        We review the bankruptcy court’s decision to decline to
10   exercise jurisdiction over an adversary proceeding for an abuse
11   of discretion.   In re Carraher, 971 F.2d at 328.    A bankruptcy
12   court abuses its discretion if it applies the wrong legal
13   standard, misapplies the correct legal standard, or if its
14   factual findings are illogical, implausible, or without support
15   in inferences that may be drawn from the facts in the record.
16   See TrafficSchool.com, Inc. v. Edriver Inc., 653 F.3d 820, 832
17   (9th Cir. 2011) (citing United States v. Hinkson, 585 F.3d 1247,
18   1262 (9th Cir. 2009) (en banc)).
19        We review de novo a bankruptcy court’s decision to grant a
20   motion to dismiss an adversary proceeding complaint under Civil
21   Rule 12(b)(6).   Barnes v. Belice (In re Belice), 461 B.R. 564,
22   572 (9th Cir. BAP 2011).
23        We may affirm on any ground supported by the record.
24   Vestar Dev. II, LLC v. Gen. Dynamics Corp., 249 F.3d 958, 960
25   (9th Cir. 2001).
26   //
27   //
28   //

                                         -4-
 1                              V.   DISCUSSION
 2   A.   The bankruptcy court did not abuse its discretion in
          dismissing the adversary proceeding under the factors set
 3        forth in Carraher.
 4        Dismissal of an underlying bankruptcy case does not
 5   automatically divest the bankruptcy court of jurisdiction over a
 6   related adversary proceeding seeking recovery on state law
 7   theories.   In re Carraher, 971 F.2d at 328.   In deciding whether
 8   to retain jurisdiction, the bankruptcy court must consider
 9   economy, convenience, fairness, and comity.    Id.   “The
10   [bankruptcy] court’s weighing of these factors is
11   discretionary.”   Id.   Although the bankruptcy court did not
12   expressly articulate each of these factors on the record, its
13   findings and the record support its decision not to retain
14   jurisdiction over the adversary proceeding.
15        Judicial Economy:    The adversary proceeding had not been
16   pending for very long and Chase had not yet filed an answer.
17   This factor weighs in favor of not retaining jurisdiction.
18   Compare Linkway Inv. Co. v. Olsen (In re Casamont Inv’rs, Ltd.),
19   196 B.R. 517, 521 (9th Cir. BAP 1996) (adversary proceeding
20   pending two months at time of dismissal did not favor retention;
21   retention of jurisdiction is improper when the initiation of the
22   dispute is recent), with In re Carraher, 971 F.2d at 327
23   (adversary proceeding pending six years at time of dismissal
24   weighed in favor of retention).
25        Convenience:   The adversary proceeding was pending only
26   twenty-two days before debtor’s case was dismissed.     No answer
27   had been filed.   Further, the bankruptcy court dismissed the
28   adversary proceeding without prejudice so nothing prevents

                                      -5-
 1   debtor from pursuing his claims in another court.3
 2   In re Casamont Inv’rs, Ltd., 196 B.R. at 524.
 3            Fairness:   As the bankruptcy court correctly found, there
 4   are no fairness issues that would support retention of the
 5   adversary proceeding, and debtor does not articulate any such
 6   issues on appeal.
 7            Comity:   Although it is difficult to comprehend, the
 8   complaint on its face appears to seek only quiet title relief
 9   which would likely arise under Washington law and does not
10   relate to bankruptcy issues.       As only state-law claims are
11   alleged, this factor weighs in favor of dismissal.       Id.
12   (“Needless decision of state law by federal courts should be
13   avoided as a matter of comity and in order to procure for the
14   litigants ‘a surer-footed reading of applicable law.’”).
15            Debtor does not point out any error in the court’s decision
16   with respect to any of these factors.       Rather, most, if not all,
17   of his arguments relate to the merits of the adversary
18   proceeding and Chase’s lack of standing to foreclose upon his
19   property.      Those arguments are beyond the scope of this appeal
20   and we do not address them.
21            In sum, all of the above-mentioned factors weighed in favor
22   of the bankruptcy court declining to retain jurisdiction over
23   the adversary proceeding.       Accordingly, we discern no abuse of
24   discretion.
25   //
26
27
          3
          The bankruptcy court never determined whether the lawsuit
28 could be saved by amendment.

                                        -6-
 1   B.   The bankruptcy court did not err by dismissing the
          adversary proceeding complaint without prejudice under
 2        Civil Rule 12(b)(6).
 3        Under Civil Rule 12(b)(6), made applicable in adversary
 4   proceedings by Rule 7012, a bankruptcy court may dismiss an
 5   adversary complaint if it fails to “state a claim upon which
 6   relief can be granted.”   “In order to survive a motion to
 7   dismiss, a party must allege ‘sufficient factual matter,
 8   accepted as true, to state a claim to relief that is plausible
 9   on its face.’”   Official Comm. of Unsecured Creditors v. Hancock
10   Park Capital II, L.P. (In re Fitness Holdings, Intern., Inc.),
11   714 F.3d 1141, 1144 (9th Cir. 2013)(quoting Ashcroft v. Iqbal,
12   556 U.S. 662, 678 (2009)); Nordeen v. Bank of Am., N.A. (In re
13   Nordeen), 495 B.R. 468, 477 (9th Cir. BAP 2013).    “‘A claim has
14   facial plausibility when the plaintiff pleads factual content
15   that allows the court to draw the reasonable inference that the
16   defendant is liable for the misconduct alleged.’”    In re Fitness
17   Holdings, 714 F.3d at 1144 (quoting Iqbal, 556 U.S. at 678); see
18   also In re Nordeen, 495 B.R. at 477.   By definition, a claim
19   cannot be plausible when it lacks any legal basis.   Cedano v.
20   Aurora Loan Servs. (In re Cedano), 470 B.R. 522, 528 (9th Cir.
21   BAP 2012).   A dismissal under Civil Rule 12(b)(6) may be based
22   on either the lack of a cognizable legal theory, or on the
23   absence of sufficient facts alleged under a cognizable legal
24   theory. Johnson v. Riverside Healthcare Sys., LP, 534 F.3d 1116,
25   1121 (9th Cir. 2008).
26        Upon our de novo review, we made a diligent attempt to
27   parse debtor’s complaint to discern the factual and legal basis
28   for his purported “claims.”   Debtor’s complaint bases his “sole

                                    -7-
 1   cause of action” for “quiet title” on two distinct and specific
 2   theories of California law despite the fact that his property is
 3   located in Washington, not California.
 4        One theory is entitled “severance, and/or bifurcation”
 5   which suggests that the ownership of the deed of trust was split
 6   from the note through a sale or assignment or because the loan
 7   was securitized.   Courts in this Circuit and the Washington
 8   Supreme Court have rejected this “split the note” theory.    See
 9   Cervantes v. Countrywide Home Loans, Inc., 656 F.3d 1034,
10   1044–45 (9th Cir. 2011); Zhong v. Quality Loan Serv. Corp., 2013
11 WL 5530583, at *2 (W.D. Wash. Oct. 7, 2013); Blake v. U.S. Bank.
12   Nat’l Ass’n, 2013 WL 6199213, at *3 (W.D. Wash. Nov. 27, 2013);
13   Bain v. Metro. Mortg. Grp., Inc., 175 Wash. 2d 83, 112, 285 P.3d
14   34, 48 (2012).   In short, this claim is legally barred.
15        The other theory suggests that the terms and provisions of
16   the deed of trust were fully satisfied when the note was sold
17   for the full value.   Thus, according to debtor, Chase no longer
18   has a valid lien against his property.    Debtor cites no
19   proposition of law supporting this novel legal theory.
20        Finally, the complaint does not state a plausible claim for
21   quiet title.   Under Washington law, to “maintain a quiet title
22   action against a mortgagee, a plaintiff must first pay the
23   outstanding debt on which the subject mortgage is based.”
24   Zhong, 2013 WL 5530583, at *6.    Debtor never alleges that he
25   paid the debt owed on the note.
26        Debtor’s complaint includes a section entitled “Pro Se
27   Status of Plaintiff.”   There, debtor emphasizes, among other
28   things, that pro se complaints are held to less stringent

                                      -8-
 1   standards.   Generally, federal courts have a duty to construe
 2   pro se complaints liberally.   See Bernhardt v. L.A. Cty.,
 3   339 F.3d 920, 925 (9th Cir. 2003).    However, the court has “no
 4   obligation to act as counsel or paralegal to pro se litigants.”
 5   Pliler v. Ford, 542 U.S. 225, 231 (2004); see also Noll v.
 6   Carlson, 809 F.2d 1446, 1448 (9th Cir. 1987) (“courts should not
 7   have to serve as advocates for pro se litigants”).
 8        In sum, debtor’s complaint does not contain claims that
 9   have any legal basis, nor are there sufficient facts that allow
10   us to draw the reasonable inference that Chase is liable for any
11   alleged wrongdoing.   Therefore, we conclude that the bankruptcy
12   court did not err by dismissing debtor’s adversary complaint
13   without prejudice based on the standards under Civil
14   Rule 12(b)(6).
15        To the extent Debtor contends that he was denied due
16   process, that contention is not supported by the record.     See
17   SEC v. McCarthy, 322 F.3d 650, 659 (9th Cir. 2003) (due process
18   requires notice and an opportunity to be heard).   Debtor
19   received notice of the dismissal motion and the bankruptcy court
20   held a hearing in which debtor participated.   Due process was
21   satisfied.
22                            VI.   CONCLUSION
23        Having found no error, we AFFIRM.
24
25
26
27
28

                                     -9-