Court Opinion

ID: 2757159
Source: CourtListenerOpinion
Date Created: 2014-12-03 19:08:36.929005+00
Date Added: 2024-06-11T10:28:19.457712
License: Public Domain

FILED
                                                             FEB 03 2012
 1                                                       SUSAN M SPRAUL, CLERK
                                                           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.     CC-11-1274-MkCaPa
                                    )
 6   CARLOS MAGANA LOPEZ and        )      Bk. No.     RS 10-50387-SC
     ROSE M. ZUNIGA,                )
 7                                  )      Adv. No.    RS 11-01170-SC
                     Debtors.       )
 8   _______________________________)
                                    )
 9   CARLOS MAGANA LOPEZ;           )
     ROSA M. ZUNIGA,                )
10                                  )
                     Appellants,    )
11                                  )
     v.                             )      MEMORANDUM*
12                                  )
     JPMORGAN CHASE BANK, N.A.;     )
13   RANCHO HORIZON L.L.C.; QUALITY )
     LOAN SERVICE CORP.,            )
14                                  )
                     Appellees.     )
15   _______________________________)
16                  Argued and Submitted on January 19, 2012
                             at Pasadena, California
17
                            Filed - February 3, 2012
18
                 Appeal from the United States Bankruptcy Court
19                   for the Central District of California
20            Honorable Scott Clarkson, Bankruptcy Judge, Presiding
21
     Appearances:     Appellants Carlos Lopez and Rosa Zuniga, in
22                    propria persona, argued on their own behalf;
                      Thomas S. Van of Adorno Yoss Alvarado & Smith
23                    argued on behalf of Appellee JPMorgan Chase Bank,
                      N.A.
24
25
26        *
            This disposition is not appropriate for publication.
27   Although it may be cited for whatever persuasive value it may
     have (see Fed. R. App. P. 32.1), it has no precedential value.
28   See 9th Cir. BAP Rule 8013-1.
 1   Before: MARKELL, CASE** and PAPPAS, Bankruptcy Judges.
 2                               INTRODUCTION
 3        Carlos Lopez and Rosa Zuniga (jointly, “Debtors”) commenced
 4   an adversary proceeding challenging the prepetition nonjudicial
 5   foreclosure of their residence located in Riverside, California
 6   (“Property”).   They also sought damages and injunctive relief.
 7   Two of the defendants filed motions to dismiss, which the
 8   bankruptcy court granted.   Because the Debtors did not establish
 9   that they had standing to prosecute the claims they set forth in
10   their complaint, we VACATE the bankruptcy court’s order
11   dismissing the adversary proceeding with prejudice, and REMAND
12   for further proceedings.
13                                   FACTS
14        In December 2007, the Debtors borrowed $215,000 (“Loan”)
15   from Washington Mutual Bank, FA (“WAMU”).   In connection with the
16   Loan, the Debtors executed a promissory note (“Note”) and a deed
17   of trust (“Deed of Trust”).   The Deed of Trust identified WAMU as
18   the lender and beneficiary and California Reconveyance Company
19   (“CRC”) as the trustee.    It conveyed the Property to CRC as
20   trustee, for security purposes.
21        As established by evidence to which to Debtors did not
22   object, JPMorgan Chase Bank (“Chase”) acquired most of WAMU’s
23   assets and liabilities in 2008 pursuant to a purchase and
24   assumption agreement between Chase and the Federal Deposit
25   Insurance Corporation.
26
27
          **
           Hon. Charles G. Case II, U.S. Bankruptcy Judge for
28   the District of Arizona, sitting by designation.

                                       2
 1        The Debtors admitted that they were experiencing financial
 2   troubles in 2009 and that, at some point, they stopped making
 3   timely, full payments in compliance with the original terms of
 4   their Loan.   However, according to the Debtors, they only ceased
 5   making timely, full payments after Chase instructed them that, in
 6   order to qualify for the loan modification they were seeking,
 7   they needed to be late on their payments.   Debtors further
 8   claimed that Chase provisionally approved modified payments in
 9   the amount of $1,100 pending Chase’s completion of the loan
10   modification approval process.    The Debtors assert that they
11   continued making payments in that $1,100 amount until Chase
12   ceased accepting those payments in June or July 2010.
13        Notwithstanding the Debtors’ alleged loan modification
14   negotiations with Chase, and alleged payments to Chase, Chase
15   commenced nonjudicial foreclosure proceedings against the Debtors
16   in July 2009.   Quality Loan Service (“QLS”) executed and recorded
17   a notice of default and election to sell on behalf of WAMU,
18   Chase, or both, “As Agent For Beneficiary.”
19        QLS subsequently recorded in October 2009 a notice of
20   trustee’s sale, and executed and recorded a trustee’s deed upon
21   sale (“Trustee’s Deed”).   The Trustee’s Deed, which was recorded
22   on December 8, 2010, in the official records of Riverside County,
23   California, identified Rancho Horizon, LLC (“Rancho”) as the
24   grantee and as the successful bidder at a nonjudicial foreclosure
25   sale held on November 16, 2010.
26        The Debtors filed their chapter 71 bankruptcy case on
27
28        1
           Unless specified otherwise, all chapter and section
                                                        (continued...)

                                       3
 1   December 16, 2010, and Karl T. Anderson (“Trustee”) was appointed
 2   to serve as chapter 7 trustee.   The Debtors listed the Property
 3   on their Schedule A of real property, but stated that the value
 4   of their interest therein was “$0.00" and that it had been
 5   foreclosed upon a month before, on November 16, 2010.   The
 6   Debtors listed Chase on their Schedule D of secured creditors,
 7   and stated the amount of Chase’s claim as $215,000, the full
 8   principal amount of the Loan.    Debtors did not list or give any
 9   indication in their schedules or statement of financial affairs
10   that they held any claims against Chase, QLS or Rancho.2
11        In March 2011, the Debtors commenced their adversary
12   proceeding against Chase, QLS and Rancho.   The Debtors asserted a
13   claim for relief for wrongful foreclosure, two claims for
14   declaratory relief, a quiet title claim, and a claim for
15   injunctive relief.   Among other things, Debtors alleged that
16   Chase, QLS and WAMU did not have any of the requisite legal
17   rights, authority or interests that would have entitled any of
18   them to conduct foreclosure proceedings under California law.
19   Consequently, the Debtors claimed, the foreclosure sale and the
20
21        1
           (...continued)
22   references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and
     all "Rule" references are to the Federal Rules of Bankruptcy
23   Procedure, Rules 1001-9037. All "Civil Rule" references are to
     the Federal Rules of Civil Procedure.
24
          2
           We obtained copies of Debtors’ schedules and statement of
25   financial of affairs by accessing the bankruptcy court’s
26   electronic docket available on PACER. We can take judicial
     notice of the contents and filing of these documents. See Atwood
27   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)).

                                       4
 1   Trustee’s Deed should be declared invalid, and the Debtors’
 2   interest in the Property should be recognized over any claim or
 3   interest of Chase, WAMU or Rancho.
 4        Rancho and Chase filed separate motions to dismiss the
 5   Debtors’ adversary proceeding, and the Debtors opposed the
 6   dismissal motions.   The court granted Rancho’s motion to dismiss
 7   on May 11, 2009.   At the hearing, the Debtors conceded that they
 8   did not have enough money to tender the amount they owed in order
 9   to redeem the Property.    Nor did the Debtors dispute that the
10   foreclosure sale had occurred or that Rancho was the successful
11   bidder at the foreclosure sale.   Based on the Trustee’s Deed, the
12   court concluded that Rancho was a bona fide purchaser for value,
13   and the court dismissed all of the Debtors’ claims for relief as
14   against Rancho with prejudice.    According to the court, amendment
15   of the claims would have been futile because, in pertinent part,
16   the Debtors had not and could not allege tender of the full
17   amount of the debt owed.   With respect to the declaratory relief
18   claims, the court concluded that they were redundant of the
19   Debtors’ other, invalid claims for relief.   Finally, with respect
20   to the claim for injunctive relief, the court pointed out that
21   the foreclosure proceedings already had been completed, so there
22   was no action for the court to enjoin.3
23
24        3
           The court refused to let co-plaintiff Rosa Zuniga speak at
25   the hearing. The court based this refusal on the erroneous
     belief that Ms. Zuniga was not a named plaintiff in the
26   complaint. To the contrary, the Debtors’ complaint named both
     Mr. Lopez and Ms. Zuniga as plaintiffs, and both signed the
27
     complaint. In any event, in light of our disposition of this
28   appeal, we conclude that the Debtors have not been prejudiced by
     the court’s refusal.

                                       5
 1        The court heard Chase’s motion to dismiss on May 18, 2011.
 2   At that hearing, the court granted Chase’s motion for essentially
 3   the same reasons it had granted Rancho’s dismissal motion.    The
 4   court further ruled that the entire adversary proceeding would be
 5   dismissed with prejudice as to all named defendants (including
 6   QLS) (collectively, “Defendants”).
 7        The court entered its dismissal order on May 20, 2001, and
 8   the Debtors timely appealed.
 9                              JURISDICTION
10        The bankruptcy court had jurisdiction under 28 U.S.C.
11   §§ 1334 and 157(b)(2)(A), and we have jurisdiction under 28
12   U.S.C. § 158.
13                                   ISSUE
14        Did the bankruptcy court err when it considered the merits
15   of the Debtors’ claims for relief without first considering
16   whether the Debtors had standing to prosecute those claims?
17                           STANDARD OF REVIEW
18        Standing is a jurisdictional issue that we review de novo.
19   Palmdale Hills Prop., LLC v. Lehman Commercial Paper, Inc. (In re
20   Palmdale Hills Prop., LLC), 654 F.3d 868, 873 (9th Cir. 2011);
21   Veal v. Am. Home Mortg. Servicing, Inc. (In re Veal), 450 B.R.
22   897, 906 (9th Cir. BAP 2011).
23                   DISCUSSION – THE DEBTORS’ STANDING
24        Before any federal court considers the merits of a matter,
25   the court must first determine whether the plaintiff has
26   standing. “Standing is a ‘threshold question in every federal
27   case, determining the power of the court to entertain the suit.’”
28   In re Veal, 450 B.R. at 906 (quoting Warth v. Seldin, 422 U.S.

                                       6
 1   490, 498 (1975)).      Constitutional standing requires injury in
 2   fact, causation, and redressability.      We do not doubt that the
 3   Debtors met the minimal standards for constitutional standing.
 4   The Debtors alleged that they were injured by the Defendants'
 5   foreclosure proceedings and related conduct, and that the
 6   Defendants' failure to comply with applicable law caused them
 7   injury.      In addition, the relief the Debtors sought in their
 8   complaint, if granted, would have remedied their alleged
 9   injuries.      Cf. In re Veal, 450 B.R. at 906.
10           However, in addition to constitutional standing, as one
11   aspect of the prudential limitations on federal court
12   jurisdiction, the Debtors also needed to demonstrate that they
13   were asserting their own legal rights and not those belonging to
14   others.      Id. at 907 (citing Sprint Commc'ns Co., LP v. APCC
15   Servs., Inc., 554 U.S. 269, 289 (2008)).4
16           Here, the Debtors sought in their adversary proceeding to
17   pursue claims that accrued before they filed their bankruptcy
18   case.       Even though the Debtors did not list their claims in their
19
20
             4
           Another aspect of prudential standing potentially
21   implicated here is bankruptcy appellate standing, which requires
     an appellant to show that he or she has been "directly and
22
     adversely affected pecuniarily" by the bankruptcy court’s
23   decision. See In re Palmdale Hills Prop., LLC, 654 F.3d at 874.
     To meet this requirement, the appellant typically must
24   demonstrate that the order on appeal diminished its property,
     increased its burdens, or detrimentally affected its rights. See
25   Fondiller v. Robertson (In re Fondiller), 707 F.2d 441, 442 (9th
26   Cir. 1983). On this record, the Debtors’ potential residual
     interest in the estate’s assets appears sufficient to establish
27   that they were “persons aggrieved” by the bankruptcy court’s
     dismissal order. Accordingly, we will not dispose of this appeal
28   on bankruptcy appellate standing grounds.

                                          7
 1   bankruptcy schedules as assets, their claims became property of
 2   their bankruptcy estate.   See § 541(a); McGuire v. United States,
 3   550 F.3d 903, 914 (9th Cir. 2008);     Rosner v. Worcester (In re
 4   Worcester), 811 F.2d 1224, 1228 (9th Cir. 1987); see also Goodwin
 5   v. Mickey Thompson Entm't Grp., Inc. (In re Mickey Thompson
 6   Entm't Grp., Inc.), 292 B.R. 415, 421 (9th Cir. BAP 2003)
 7   (identifying trustee's settlement of debtor's prepetition causes
 8   of action against third party as a sale of estate property).
 9        The Trustee had the authority and duty to “collect and
10   reduce to money” all property of the estate, including the
11   Debtors’ claims.   § 704(a)(1).   Furthermore, unless and until the
12   Trustee abandoned them, the Debtors’ unscheduled claims continued
13   to be property of the estate.     See § 554(c) & (d); Cusano v.
14   Klein, 264 F.3d 936, 945–46 (9th Cir. 2001).     The Bankruptcy Code
15   designates the trustee as the estate's representative and
16   authorizes the trustee to sue and be sued in that capacity.
17   § 323; Spirtos v. One San Bernardino County Super. Ct. Case (In
18   re Spirtos), 443 F.3d 1172, 1175 (9th Cir. 2006).     Thus,
19   generally speaking, only the trustee has standing to prosecute
20   claims for relief that are estate property.    McGuire, 550 F.3d at
21   914; In re Spirtos, 443 F.3d at 1175–76; see also, Commodity
22   Futures Trading Comm'n v. Weintraub, 471 U.S. 343, 352–53 (1985);
23   Hansen v. Finn (In re Curry & Sorensen, Inc.), 57 B.R. 824,
24   828–29 & n. 4 (9th Cir. BAP 1986) (dismissing complaint without
25   prejudice based on plaintiff's lack of standing).
26        In sum, the bankruptcy court erred in addressing the merits
27   of the Debtors’ claims for relief without first determining
28   whether the Debtors had standing to pursue those claims on behalf

                                        8
 1   of the estate.    The Debtors did not schedule their claims against
 2   the Defendants, so those claims remained property of the estate
 3   and only could be prosecuted by the Trustee, unless the Trustee
 4   abandoned them.
 5                                CONCLUSION
 6        Because the bankruptcy court did not determine whether the
 7   Debtors had standing to prosecute their adversary proceeding, we
 8   VACATE the bankruptcy court’s order dismissing the adversary
 9   proceeding with prejudice, and REMAND for further proceedings.
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