Court Opinion

ID: 4638331
Source: CourtListenerOpinion
Date Created: 2020-12-01 02:01:00.569024+00
Date Added: 2024-06-11T07:58:47.232103
License: Public Domain

FILED
                                                                     NOV 30 2020
                                                                 SUSAN M. SPRAUL, CLERK
                                                                    U.S. BKCY. APP. PANEL
                            ORDERED PUBLISHED                       OF THE NINTH CIRCUIT

          UNITED STATES BANKRUPTCY APPELLATE PANEL
                    OF THE NINTH CIRCUIT

In re:                                              BAP No. CC- 20-1039-STL
JOHN JEAN BRAL,
             Debtor.                                Bk. No. 8:17-bk-10706-ES

STEWARD FINANCIAL, LLC,
             Appellant,
v.                                                  OPINION
JOHN JEAN BRAL,
             Appellee.

               Appeal from the United States Bankruptcy Court
                     for the Central District of California
                Erithe A. Smith, Bankruptcy Judge, Presiding

                            APPEARANCES:
Tom Lallas of Levy, Small & Lallas argued for appellant; Sean A. O’Keefe
of O’Keefe & Associates Law Corporation, P.C. argued for appellee

Before: SPRAKER, TAYLOR, and LAFFERTY, Bankruptcy Judges.

SPRAKER, Bankruptcy Judge:

                                INTRODUCTION

      Steward Financial, LLC (“Steward Financial”) filed a proof of claim

seeking to hold chapter 111 debtor John Jean Bral liable for his role in the

      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.
separate bankruptcy filing of Ocean View Medical Investors, LLC (“Ocean

View”). It alleged that Bral committed abuse of process and tortiously

interfered with its contractual relations by improperly placing Ocean View

into bankruptcy to stop Steward Financial’s foreclosure of Ocean View’s

real property. Bral objected to the claim. The bankruptcy court disallowed

Steward Financial’s claim, holding that the Bankruptcy Code preempted

the state law causes of action because they arose from Bral’s filing of Ocean

View’s voluntary bankruptcy petition. Alternatively, the bankruptcy court

ruled that Steward Financial had failed to demonstrate that Bral’s conduct

caused any injury for which Steward Financial was legally entitled to

recover damages.

        On appeal from the bankruptcy court’s order disallowing the claim,

we agree with both grounds for disallowance. Accordingly, we AFFIRM.

                                   FACTS

        Bral and Steward Financial’s principal Barry Beitler formed Ocean

View in 2005. Ocean View’s operating agreement identified Bral and Beitler

as co-managers. Its sole asset was an office building located in Newport

Beach, California. In October 2005, First Regional Bank loaned $4,725,000 to

Ocean View, secured by the office building. Bral and Beitler later

guaranteed the loan, in exchange for an extension of the loan’s maturity

date.

        In 2012, the loan matured and Ocean View defaulted. In June 2014,

                                       2
Beitler – through his wholly-owned entity Steward Financial – acquired the

note, the deed of trust, and the guaranties. Steward Financial thereafter

scheduled a nonjudicial foreclosure sale against the office building for

November 21, 2014.

      On the morning of the scheduled foreclosure sale, Bral filed a

voluntary chapter 11 bankruptcy petition on behalf of Ocean View.

Unaware of Ocean View’s bankruptcy filing, the foreclosure trustee went

forward with the sale and accepted Steward Financial’s $3,000,000 credit

bid (the “First Sale”). After learning of the Ocean View bankruptcy filing,

the foreclosure trustee vacated the First Sale.2

      Beitler, as a managing member of Ocean View, moved to dismiss the

bankruptcy. According to Beitler, he never signed or consented to the

resolution authorizing Ocean View to commence a bankruptcy case. He

argued that Bral was not authorized to file bankruptcy on behalf of Ocean

View without Beitler’s authorization as co-managing member. Ocean View

responded that the members of Ocean View had removed Beitler as a co-

manager prior to the bankruptcy filing. The bankruptcy court found that

Beitler remained a co-manager of the debtor and failed to authorize the

      2
        There is no indication that a trustee’s deed ever was executed or recorded in
favor of Steward Financial in furtherance of the First Sale.

                                            3
bankruptcy filing. As a result, the court granted the dismissal motion.3

      A second foreclosure sale (the “Second Sale”) was held on March 20,

2015. Steward Financial again purchased the property, but this time it

credit bid $4,100,000, after competing bidders raised the sales price to

$4,000,000.

      After Steward Financial completed the Second Sale, it filed a

complaint in the Orange County Superior Court against Bral and others for

the difference between its cost of acquisition at the two sales. It asserted

that it was harmed by the $1,100,000 differential, which it alleged resulted

from Bral’s abuse of process and tortious interference with Steward

Financial’s contractual relations.

      Bral commenced his voluntary chapter 11 case in February 2017.

Steward Financial filed two proofs of claim in Bral’s case. Claim number 19

was based on the same allegations and alleged damages as set forth in

Steward Financial’s state court complaint against Bral. Claim number 20

was based on Bral’s remaining liability under the guaranty as of his chapter

      3
         A second bankruptcy case – an involuntary case – was commenced against
Ocean View in February 2015, less than two weeks after the dismissal of Ocean View’s
voluntary case. Shortly thereafter, the bankruptcy court found that the involuntary case
had been filed in bad faith and dismissed it with a 180-day bar to refiling. The court
further found that Bral had instigated the involuntary filing. Steward Financial’s claim
number 19, however, focuses on the higher purchase price it had to pay to acquire the
property as a result of the invalidation of the First Sale caused by Ocean View’s
voluntary bankruptcy filing. The bankruptcy court did not make any finding of bad
faith when it dismissed Ocean View’s voluntary bankruptcy case.

                                           4
11 filling.

      Bral objected to Steward Financial’s claim number 19. He argued that

Steward Financial could not maintain a claim against him based on state

law for alleged misconduct in filing Ocean View’s voluntary bankruptcy

petition. As Bral put it, any such claim was barred by federal preemption.

      In the alternative, Bral argued that Steward Financial’s claim was

barred by the “economic loss rule,” which generally bars any recovery of

damages based on tort when the duty breached arose solely from

contractual obligations. Bral additionally maintained that the increase in

the successful bid price between the two foreclosure sales did not cause

Steward Financial to suffer any legally cognizable harm or damages.

       Steward Financial opposed the claim objection. It argued that the

Ninth Circuit’s decision in Davis v. Yageo Corp., 481 F.3d 661 (9th Cir. 2007),

limited the scope of preemption to misconduct that occurred during the

course of the subject bankruptcy case. Steward Financial reasoned that the

relevant bankruptcy case in this instance was Bral’s case and not Ocean

View’s case, because it was seeking relief from Bral’s misconduct, which

occurred before he filed bankruptcy. As for the harm caused by Bral’s

actions, it insisted that Bral’s filing of Ocean View’s voluntary case directly

resulted in “the $1,100,000 reduction in [Bral’s] Remaining Guaranty

Liability.”

      After holding a hearing, the bankruptcy court sustained Bral’s claim

                                       5
objection. The court agreed with Bral that Steward Financial’s state law

causes of action were preempted by the Bankruptcy Code. The court also

adopted Bral’s analysis of causation and damages and concluded that

Steward Financial had not established that it incurred any legally

cognizable damages.4

      The bankruptcy court entered its order sustaining the claim objection

on February 3, 2020. Steward Financial timely appealed.

                                 JURISDICTION

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

157(b)(2)(B). We have jurisdiction under 28 U.S.C. § 158.

                                      ISSUES

1.    Did the bankruptcy court correctly disallow Steward Financial’s

          proof of claim based on federal preemption?

2.    Did the bankruptcy court err when it alternately held that Steward

      Financial had failed to establish any legally cognizable harm arising

      from Bral’s filing of a voluntary petition on behalf of Ocean View?

                          STANDARDS OF REVIEW

      Whether state law is preempted by the Bankruptcy Code is a

question of law we review de novo. MSR Expl., Ltd. v. Meridian Oil, Inc., 74

      4
        The bankruptcy court also expressed agreement with Bral’s argument based on
the “economic loss rule.” Because we conclude below that the bankruptcy court’s ruling
can be upheld on the alternate grounds of federal preemption and the absence of
damages, we decline to address the economic loss rule.

                                          6
F.3d 910, 912 (9th Cir. 1996). When we review a matter de novo, we

consider it as if the bankruptcy court did not previously decide it. Francis v.

Wallace (In re Francis), 505 B.R. 914, 917 (9th Cir. BAP 2014).

      Whether a party to a claim objection proceeding has produced

sufficient evidence to carry their evidentiary burden is a question of fact

reviewed under the clearly erroneous standard. Garner v. Shier (In re

Garner), 246 B.R. 617, 619 (9th Cir. BAP 2000). A bankruptcy court’s factual

findings are not clearly erroneous unless they are illogical, implausible, or

not supported by the record. Retz v. Samson (In re Retz), 606 F.3d 1189, 1196

(9th Cir. 2010)). On the other hand, whether a claimant has a right under

state law to recover for alleged damages is a matter of interpreting state

law, which we review de novo. See Hardin v. Gianni (In re King St. Invs.,

Inc.), 219 B.R. 848, 853 (9th Cir. BAP 1998).

                                DISCUSSION

A.    The bankruptcy court correctly applied federal preemption.

      Steward Financial contends that the Bankruptcy Code does not

preempt its claims against Bral for abuse of process and tortious

interference arising from Ocean View’s bankruptcy filing. Because Steward

Financial asserts state law claims arising from the filing of the Ocean View

bankruptcy, we disagree.

      1.    Preemptive effect of the Bankruptcy Code and Rules.

      Federal preemption arises from the Constitution’s Supremacy Clause.

                                        7
Miles v. Okun (In re Miles), 294 B.R. 756, 759 (9th Cir. BAP 2003), aff'd 430

F.3d 1083 (9th Cir. 2005) (“Miles I”). It applies when state laws interfere

with or are contrary to federal law. B–Real, LLC v. Chaussee (In re Chaussee),

399 B.R. 225, 230 (9th Cir. BAP 2008) (citing Perez v. Campbell, 402 U.S. 637,

652 (1971)).

      Deciding whether federal preemption applies is largely a question of

interpreting congressional intent. Miles I, 294 B.R. at 759 (citing Maryland v.

Louisiana, 451 U.S. 725, 746 (1981)). As we explained in Miles I:

      Congressional intent to preempt may be inferred from a scheme
      of federal regulation that is so comprehensive, or where the
      federal interest so dominates, that the federal system may be
      assumed to preclude enforcement of state laws on the same
      subject. When a federal scheme is sufficiently comprehensive to
      warrant an inference that Congress “left no room” for state
      regulation, the “field” has been preempted.

Id. (citing Hillsborough Cty. v. Automated Med. Labs., Inc., 471 U.S. 707, 713

(1985)).

      On a number of occasions, the Ninth Circuit has held that the

Bankruptcy Code and Rules completely preempt state law causes of action

and remedies arising from the act of filing a bankruptcy (and from the act

of filing other papers in the bankruptcy case.) See, e.g., Miles v. Okun (In re

Miles), 430 F.3d 1083, 1089-90 (9th Cir. 2005) (“Miles II”) (holding that

§ 303(i) completely preempts state law tort causes of action for damages

based on the filing of an involuntary bankruptcy petition); MSR Expl., Ltd.,

                                        8
74 F.3d at 912-13 (holding that the Bankruptcy Code completely preempts

state law malicious prosecution causes of action for conduct in bankruptcy

court proceedings – including the allegedly wrongful filing of proofs of

claim); Gonzales v. Parks, 830 F.2d 1033, 1035-37 & n.4 (9th Cir. 1987)

(holding that the Bankruptcy Code preempts state law abuse of process

causes of action based on the debtor’s filing of an allegedly frivolous

bankruptcy petition). This Panel similarly has held that such state law

causes of action are preempted. See, e.g., In re Chaussee, 399 B.R. at 234

(holding that federal preemption barred a cause of action under the

Washington State Consumer Protection Act when the cause of action was

based solely on the creditor’s filing of proofs of claim in the bankruptcy

court); Miles I, 294 B.R. at 758.

      The above-referenced decisions have identified five considerations

driving the application of federal preemption in this area: (1) the provision

for uniform federal bankruptcy laws under Art. I, § 8, cl. 4 of the United

States Constitution, Miles II, 430 F.3d at 1090; MSR Expl., Ltd., 74 F.3d at

913–15; (2) the congressional grant of exclusive bankruptcy jurisdiction to

the federal courts, Miles II, 430 F.3d at 1090; MSR Expl., Ltd., 74 F.3d at 913;

(3) Congress‘ enactment of a “complex, detailed, and comprehensive”

scheme of bankruptcy laws, Miles II, 430 F.3d at 1089 (quoting MSR Expl.,

Ltd., 74 F.3d at 914); (4) the federal remedies Congress provided for

improper conduct in bankruptcy proceedings, thereby indicating “that

                                        9
Congress has considered the need to deter misuse of the process and has

not merely overlooked the creation of additional deterrents.” Miles II, 430

F.3d at 1089 (quoting MSR Expl., Ltd., 74 F.3d at 915); and (5) the policy

concern that Congress and the federal courts – rather than state courts –

should decide what incentives and penalties should apply in connection

with the use (and misuse) of the bankruptcy process. Miles II, 430 F.3d at

1090; Gonzales, 830 F.2d at 1036.

      These five considerations are equally persuasive here and mandate a

similar result. There is nothing about Bral’s conduct or the availability of

remedies for Steward Financial that justifies a different result. Furthermore,

applying preemption here also will help ensure that bankruptcy courts are

permitted to manage the bankruptcy cases over which they preside. In the

parlance of MSR Exploration, “the highly complex laws needed to constitute

the bankruptcy courts and regulate the rights of debtors and creditors . . .

underscore the need to jealously guard the bankruptcy process from even

slight incursions and disruptions” associated with state law tort causes of

action arising from alleged misuse of the bankruptcy process. 74 F.3d at

914. As we explained in In re Chaussee, in order to prevent subversion of the

bankruptcy process, “[b]ankruptcy courts require full control of the

remedies available for addressing improprieties occurring in the cases on

their dockets.” 399 B.R. at 234.

                                      10
      2.     Steward Financial’s arguments are unpersuasive.

      Steward Financial argues that the above-referenced decisions do not

compel a finding that its state law claims are preempted by the Bankruptcy

Code for three reasons: (1) the bankruptcy court in Ocean View’s

bankruptcy cases already determined that Bral’s invocation of bankruptcy

court jurisdiction was unauthorized and improper; (2) neither the

Bankruptcy Code nor the Rules provide a remedy for the type of

misconduct Bral engaged in or for the type of harm Steward Financial

allegedly suffered as a result of that conduct; and (3) this Panel should

follow Davis, 481 F.3d 661, to allow its state law claims. Each of these

arguments is considered below, though we combine the discussion of the

first two of them.

             a.      Federal preemption protects not only the exclusivity of
                     federal jurisdiction over bankruptcy cases but also the
                     exclusivity of federal remedies for wrongful bankruptcy
                     filings.

      Steward Financial vigorously maintains that Bral orchestrated two

fraudulent bankruptcy filings to frustrate its foreclosure.5 It contends that

Bral is liable for the additional $1,100,000 it had to pay at the Second Sale

under its state law claims for abuse of process and tortious interference.

      5
         The bankruptcy court dismissed Ocean View’s original, voluntary bankruptcy
case for lack of authorization. It dismissed the subsequent involuntary bankruptcy for
bad faith. In Bral’s subsequent individual bankruptcy, the court did not consider or
make any findings regarding his involvement in Ocean View’s bankruptcy filings.

                                          11
The Ninth Circuit, however, specifically held in Gonzales that causes of

action for abuse of process for a wrongfully-filed bankruptcy are

preempted by the Bankruptcy Code. And, taken together, Gonzales, MSR

Exploration, and Miles II make clear that preemption does not merely

protect exclusive federal jurisdiction to adjudicate the propriety of

bankruptcy court filings. Rather, the Ninth Circuit extended the application

of preemption to ensure that the consequences arising from improper

bankruptcy court filings also are exclusively controlled by federal law as

applied by federal courts. In short, parties injured by wrongful bankruptcy

court filings must look to the Bankruptcy Code and Rules for redress.

      In Gonzales, the debtors filed bankruptcy to prevent a foreclosure

much as Ocean View did. The frustrated secured creditors sued the debtors

in state court for abuse of process. The Ninth Circuit emphasized the

exclusive jurisdiction of the federal courts to address the propriety of

bankruptcy filings. However, Gonzales went further. Pertinent to Steward

Financial’s current state law causes of action, the court explained:

            Congress’ authorization of certain sanctions for the
            filing of frivolous bankruptcy petitions should be
            read as an implicit rejection of other penalties,
            including the kind of substantial damage awards
            that might be available in state court tort suits. Even
            the mere possibility of being sued in tort in state
            court could in some instances deter persons from
            exercising their rights in bankruptcy. In any event,

                                       12
            it is for Congress and the federal courts, not the
            state courts, to decide what incentives and penalties
            are appropriate for use in connection with the
            bankruptcy process and when those incentives or
            penalties shall be utilized.

Gonzales, 830 F.2d at 1036.

      Both Miles II and MSR Exploration reiterated and reaffirmed that

Congress and the federal courts exclusively control the regulation of the

bankruptcy process. Both cases further clarified that federal preemption

determines not only jurisdiction but also the relief available for wrongful

filings. In MSR Exploration, the chapter 11 debtor brought a malicious

prosecution action in federal district court against a group of creditors

based on proofs of claim they filed in the bankruptcy case. 74 F.3d at 911-

12. The district court dismissed the malicious prosecution action on

preemption grounds, and the Ninth Circuit affirmed. Id. MSR Exploration

recognized that “[w]hether creditors should be deterred, and when, is a

matter unique to the flow of the bankruptcy process itself—a matter solely

within the hands of the federal courts.” Id. at 916. In support of this

proposition, MSR Exploration noted the variety of federal remedies

Congress enacted to prevent misuse of the bankruptcy process. From this

statutory scheme, the court inferred “that Congress has considered the

need to deter misuse of the process and has not merely overlooked the

creation of additional deterrents.” Id. at 915.

                                       13
      Miles II most directly rejected Steward Financial’s argument that state

law causes of action remain available for wrongfully-filed bankruptcies.

Miles II made explicit that the Bankruptcy Code “completely preempts state

law tort actions for damages predicated upon the filing of an involuntary

bankruptcy petition.” 430 F.3d at 1092 (citing Koffman v. Osteoimplant Tech.,

Inc., 182 B.R. 115, 124 (D. Md. 1995)). In Miles, after a husband and wife

successfully dismissed ten separate involuntary bankruptcy petitions filed

against them and their related businesses, the wife (in her capacity as the

husband’s spouse and not as a former alleged debtor) and their children

sued the petitioning creditors under various tort claims, including abuse of

process. As the wife and children were third parties that lacked standing to

seek damages for the bad faith filing under § 303(i), they were left without

a claim against the petitioning creditors. Id. at 1094; see also Miles I, 294 B.R.

at 763 (“Since all of Appellants’ claims were made in their capacities as

third parties, none state a claim upon which relief can be granted.”).

      Contrary to Steward Financial’s arguments, this result did not affect

the application of federal preemption. Rather, the Ninth Circuit proceeded

to explain, “[a]llowing state court remedies for wrongful filings may well

interfere with the filings of involuntary bankruptcy petitions by creditors

and with other necessary actions that they, and others, must or might take within

the confines of the bankruptcy process.” Miles II, 430 F.3d at 1090 (citation

omitted and emphasis added).

                                        14
       Steward Financial asks that we focus on the impropriety of Ocean

View’s bankruptcy cases and ignore the sweeping scope of Miles II, MSR

Exploration, and Gonzales. We cannot. Those cases recognized a

comprehensive federal scheme and a dominant federal interest in

maintaining complete control over the bankruptcy process. The result in

this instance is preemption of state law causes of action for wrongful

bankruptcy filings.6

       6
          Nor do we agree with Steward Financial that it had no remedy under the
Bankruptcy Code to address what it perceived to be a wrongful bankruptcy filing.
Steward Financial argues that it was harmed when Ocean View filed bankruptcy to
frustrate the First Sale, at which it purchased the office building for $3,000,000. Yet,
§ 362(d) permits secured creditors to annul the automatic stay in certain situations. See
Fjeldsted v. Lien (In re Fjeldsted), 293 B.R. 12, 21 (9th Cir. BAP 2003). Stay annulment is
not an extreme or extraordinary remedy. Id. at 23-24. Steward Financial took no action
in Ocean View’s voluntary bankruptcy. Rather, it was Beitler, in his individual capacity,
who moved to dismiss the bankruptcy. Still, at the hearing on his motion to dismiss,
Beitler orally requested that the court annul the stay. The court declined to do so.
Neither Beitler nor Steward Financial appealed.

       When asked at oral argument why it never sought to annul the stay in Ocean
View’s first bankruptcy, Steward Financial responded that it did not foresee that the
foreclosure sale purchase price might change or that it might be adversely affected.
Beitler’s oral request to annul the stay at the hearing on the motion to dismiss deeply
undercuts this explanation. But the point remains: the Bankruptcy Code provided
Steward Financial with the means to validate the First Sale despite Ocean View’s
bankruptcy. It did not avail itself of this remedy.

                                            15
            b.    Davis does not permit Steward Financial’s state law
                  causes of action for wrongful filing of the Ocean View
                  bankruptcy.

      Steward Financial posits that this Panel should follow Davis, 481 F.3d

661, instead of Gonzales, MSR Exploration, and Miles II. According to

Steward Financial, Davis is more directly on point and is the Ninth Circuit’s

latest pronouncement on federal preemption of state law causes of action

based on bankruptcy misconduct.

      Davis involved two federal district court lawsuits arising from a

complicated corporate governance dispute between minority and majority

shareholders of the Long Life Noodle Company, Inc. (“LLNC”). The

majority shareholder, Rextron International LTD (“Rextron”), was owned

by holding companies ultimately owned by Yageo Corporation (“Yageo”).

Id. at 666. The plaintiffs were minority shareholders, or their agents and

successors, who had attempted to exercise the right to select two vacant

seats on LLNC’s board of directors. In response to the demands of the

minority shareholders, Rextron and its representatives considered ways to

prevent the minority shareholders from selecting directors, including a

bankruptcy filing. Id. at 667-68.

      Rather than proceed with LLNC’s annual meeting at which directors

would be elected, the existing directors, each an employee of Yageo, voted

to file bankruptcy. Id. at 666-67. LLNC proceeded with the bankruptcy and

                                      16
confirmed a plan with the assistance of a chapter 11 trustee, which

preserved all existing claims and specifically assigned to the plaintiffs

LLNC’s pre-petition claims against its majority shareholder, directors, and

affiliates. Id. at 668.

       The plaintiffs sued Rextron, Yageo, and a number of its employees

and affiliates for prepetition breach of fiduciary duty, RICO violations,

fraud, conspiracy to commit fraud, breach of contract, violation of state

unfair competition law, and malicious prosecution. Id. at 669.7 Most of the

causes of action in the two lawsuits were winnowed out as a result of

defendants’ successful pre- and post-trial motions. Still, plaintiffs prevailed

on the breach of fiduciary duty causes of action arising from the resolution

of LLNC’s board to file bankruptcy. Id. at 669-72.

       On appeal, the defendants argued that the fiduciary duty claims were

preempted by the Bankruptcy Code. Id. at 678. The Ninth Circuit

disagreed. In Davis, however, the claims for breach of fiduciary duty

“concern conduct that occurred prior to bankruptcy” whereas MSR

Exploration, Gonzales, and Miles II all involved “conduct that occurred

during bankruptcy.” Id. at 678 (emphasis in original). Rather than the

       7
        Additionally, in their alleged capacity as minority shareholders (or successors
to the minority shareholders), the plaintiffs filed a separate lawsuit for damages against
Rextron, which was dismissed on grounds unrelated to the preemption issues raised in
this appeal. Id. at 669.

                                            17
wrongfully-filed bankruptcies challenged in Gonzales and Miles II, or the

proofs of claim challenged in MSR Exploration, the complaint in Davis

“alleged that the directors and majority shareholder engaged in self-

dealing to the detriment of the corporation through their decision to pursue

bankruptcy and sought damages for breach of fiduciary duty under

California state law.” Id. at 679. As such, unlike Miles II, MSR Exploration,

and Gonzales, the causes of action for breach of fiduciary duty were

governed by state corporate governance law rather than federal

bankruptcy law. Id. Thus, the prepetition fiduciary duty claims were not

preempted because they were “not based on ‘activities that might be

undertaken in the management of the bankruptcy process.’” Id. at 679-80

(quoting MSR Expl., Ltd., 74 F.3d at 914).

      Davis is not in conflict with the Ninth Circuit’s other preemption

decisions. In fact, Davis reaffirmed the Ninth Circuit’s commitment to the

broad application of federal preemption to bar all state law causes of action

for alleged misconduct occurring as part of the bankruptcy process. Davis

recognized a sharp distinction between prepetition claims and those for a

wrongfully-filed bankruptcy, which accrue only upon the filing of the

bankruptcy and are inextricably intertwined with the bankruptcy process.

Id. at 678-79. In other words, Davis did not depart from the Ninth Circuit’s

holdings in Miles II, MSR Exploration, and Gonzales. See id.; see also

Nat’l Hockey League v. Moyes, No. CV-10-01036-PHX-GMS, 2015 WL

                                       18
7008213, at *6 (D. Ariz. Nov. 12, 2015) (examining Davis and concluding

that Davis does not apply when the causes of action “arise only after and

because of the bankruptcy filing”)

      Steward Financial attempts to navigate around the holdings of Miles

II, MSR Exploration, and Gonzales, and bring its state law claims within the

safe harbor of Davis by noting that its claims accrued prior to Bral’s

bankruptcy filing. It emphasizes that its causes of action are founded on

Bral’s prepetition conduct and does not implicate the regulation of the

bankruptcy process in his bankruptcy case. This argument ignores the

preemption emanating from Ocean View’s bankruptcy filing. Steward

Financial does not assert prepetition state law causes of action divorced

from the Bankruptcy Code. Rather, its claims arose from Ocean View’s

initial bankruptcy filing itself. As such, they are “completely preempted”

by the Bankruptcy Code because the gravamen of Steward Financial’s

causes of action is “self-consciously and entirely one which seeks damages

for [papers] filed and pursued in the bankruptcy court.” MSR Expl., Ltd., 74

F.3d at 912; see also Davis, 481 F.3d at 679.

B.    The bankruptcy court did not err when it held that Steward
      Financial failed to establish damages.

      The bankruptcy court also determined that Steward Financial failed

to establish that it suffered any harm for which it legally is entitled to

                                        19
recover damages.8 We agree with this alternate basis for affirmance.

       Steward Financial correctly points out that the automatic stay in

Ocean View’s unauthorized voluntary case unequivocally caused the First

Sale to be void. In turn, having been deprived of the benefit of the First

Sale, Steward Financial was forced to credit bid $4,100,000 to purchase the

office building at the Second Sale. It reasons that as a result of the

improperly commenced Ocean View bankruptcy, it was damaged in one of

two ways: (1) its guaranty claim against Bral was diminished by the

$1,100,000 price differential between the two sales, and (2) it was forced to

pay $1,100,000 more for the office building than it would have needed to

pay at the First Sale.

       We are not aware of any compensable harm to Steward Financial –

either as the foreclosing secured creditor or as the prevailing credit bidder

at the void First Sale – arising from the $1,100,000 price differential. As a

secured creditor, Steward Financial received everything it was entitled to

       8
        Neither party has challenged the bankruptcy court’s statement or application of
the parties’ respective evidentiary burdens in a claims objection proceeding. Those
burdens are correctly set forth in the bankruptcy court’s oral ruling, which is consistent
with governing Ninth Circuit law. See Lundell v. Anchor Constr. Specialists, Inc., 223 F.3d
1035, 1039-40 (9th Cir. 2000); Wright v. Holm (In re Holm), 931 F.2d 620, 623 (9th Cir.
1991). When the objecting party points to facts or law reflecting that the claimant has
omitted an essential element of its substantive claim, the objecting party satisfies its
burden of production. See RW Squared Med. Grp. v. HWY Squared, Inc. (In re HWY
Squared, Inc.), 208 F. App’x 581, 582–83 (9th Cir. 2006) (citing Atwood v. Chase Manhattan
Mortg. Co. (In re Atwood), 293 B.R. 227, 233 (9th Cir. BAP 2003)). This is precisely what
Bral has done here by establishing Steward Financial’s lack of damages.

                                            20
receive from a nonjudicial foreclosure when the Second Sale closed. In fact,

it received a much larger recovery on its real property collateral than it

would have received under the First Sale, which yielded a lower price.

Thus, its argument concerning its so-called diminished guaranty claim

does not even make sense. Logically, Steward Financial could not have

been injured by receiving more value for its collateral. Put differently,

Steward Financial had but one debt for the unpaid loan balance, and the

recovery from its collateral could not by its very nature diminish its right to

satisfaction of that entire debt. As such, Steward Financial has failed to

state any damage in its capacity as a secured creditor.

      As the frustrated purchaser at the First Sale, Steward Financial

understandably was upset that it did not acquire the office building at the

original price, given that it had to credit bid an additional $1,100,000

roughly four months later to acquire the same property. Even so, Steward

Financial concedes that its rights as a bidder at both foreclosure sales were

exactly the same as any other bidder – except that it was entitled to credit

bid the outstanding amount of the secured debt it was owed. See generally

All. Mortg. Co. v. Rothwell, 10 Cal. 4th 1226, 1238 (1995).

      Nonjudicial foreclosure sales in California are governed by a

comprehensive scheme of laws enacted by the legislature. See Moeller v.

Lien, 25 Cal. App. 4th 822, 830–31 (1994). The successful bidder at a

nojudicial foreclosure sale generally is entitled to have a trustee’s deed of

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sale executed and recorded in its favor and thereby receive legal title to the

property. Id. (citing Homestead Sav. v. Darmiento, 230 Cal. App.3d 424, 431

(1991)). This right does not entitle the bidder to acquire the property – or to

recover damages – when a foreclosure sale is void. See Little v. CFS Serv.

Corp., 188 Cal. App. 3d 1354, 1356 (1987); see also Moeller, 25 Cal. App. 4th at

832 (“If there is a defect in the procedure which is discovered after the bid

is accepted, but prior to delivery of the trustee's deed, the trustee may abort

a sale to a bona fide purchaser, return the purchase price and restart the

foreclosure process.” (citations omitted)).

       Here, the First Sale was not merely voidable but void. In re Fjeldsted,

293 B.R. at 20 (citing Schwartz v. United States (In re Schwartz), 954 F.2d 569,

572 (9th Cir. 1992)). Thus, as explained above, Steward Financial acquired

no rights as the frustrated bidder at the void First Sale. It necessarily

follows that a frustrated bidder has no legal entitlement to damages

resulting from a void sale.9

       In sum, the undisputed facts presented in the bankruptcy court

       9
         Arguably, there is an implicit premise underlying Steward Financial’s proof of
claim: that it was forced to pay “too much” at the Second Sale for the office building.
This premise is inconsistent with the well-established foreclosure law principle that the
purchase price paid for real properly at a regularly conducted foreclosure sale
establishes its value for purposes of determining the sufficiency of the sale price. See
BFP v. Resolution Tr. Corp., 511 U.S. 531, 545 (1994); see also Rothwell, 10 Cal. 4th at 1237
(“Where there is no irregularity in a nonjudicial foreclosure sale and the purchaser is a
bona fide purchaser for value, a great disparity between the sales price and the value of
the property is not a sufficient ground for setting aside the sale.” (quoting Moeller, 25
Cal. App. 4th at 832)).

                                             22
demonstrated that Steward Financial did not suffer any injury for which it

legally is entitled to recover damages. While it has attempted to

characterize its injury as associated with its rights as a secured creditor, as

the holder of Bral’s guaranty, or as the prevailing bidder at the First Sale,

Steward Financial has not established legally-cognizable harm in any of

these capacities.

                               CONCLUSION

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

order disallowing Steward Financial’s claim number 19.

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