Court Opinion

ID: 873120
Source: CourtListenerOpinion
Date Created: 2013-05-28 23:07:45.864777+00
Date Added: 2024-06-11T09:09:51.253201
License: Public Domain

FILED
 1                                                           MAY 28 2013
                                                         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-12-1260-MkKiJu
                                    )
 6   DEVON MCKENNA and              )      Bk. No.    11-48292-BDL
     CYNTHIA MCKENNA,               )
 7                                  )      Adv. No.   12-04005-BDL
                    Debtors.        )
 8   _______________________________)
                                    )
 9   DEVON MCKENNA; CYNTHIA MCKENNA,)
                                    )
10                  Appellants,     )
                                    )
11   v.                             )      MEMORANDUM*
                                    )
12   MICHAEL D. HITT, Chapter 7     )
     Trustee; COMMONWEALTH UNITED   )
13   MORTGAGE; PNC BANK, N.A.,      )
                                    )
14                  Appellees.      )
     _______________________________)
15
                        Submitted Without Oral Argument
16                               on May 16, 2013
17                            Filed – May 28, 2013
18               Appeal from the United States Bankruptcy Court
                     for the Western District of Washington
19
              Honorable Brian D. Lynch, Bankruptcy Judge, Presiding
20
21   Appearances:     Appellants Devon McKenna and Cynthia McKenna, pro
                      se, on brief; Cassandra Kennan and Nigel P. Avilez
22                    of Davis Wright Tremaine LLP on brief, for
                      appellees Commonwealth United Mortgage and PNC
23                    Bank, N.A.
24
     Before:    MARKELL, KIRSCHER and JURY, Bankruptcy Judges.
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                             INTRODUCTION**
 2        Appellants Devon McKenna and Cynthia McKenna (the
 3   “McKennas”) appeal the bankruptcy court’s Order Granting Motion
 4   to Dismiss (“Dismissal Order”).   We hereby MODIFY the bankruptcy
 5   court's Dismissal Order to provide that the adversary proceeding
 6   is dismissed based on the McKennas’ lack of standing, and we
 7   AFFIRM the dismissal order, as MODIFIED.
 8                                  FACTS
 9        The McKennas filed a chapter 7 bankruptcy petition on
10   October 21, 2011.   They subsequently filed an adversary
11   proceeding against appellee Commonwealth United Mortgage
12   (“Commonwealth”)1 on January 10, 2012.     This was at least the
13   third action the McKennas brought against Commonwealth regarding
14   the foreclosure sale of their home.
15        On June 28, 2005, the McKennas executed a promissory note
16   (“Note”) and deed of trust (“DOT”) secured by real property
17   located in Yelm, Washington (“Property”).     The McKennas defaulted
18   on the Note and Commonwealth recorded a substitution of trustee
19   and notice of trustee sale (“NOS”) with a scheduled sale date of
20
          **
           We have exercised our discretion to independently review
21   several electronically filed documents in the McKennas’
22   underlying bankruptcy case and adversary proceeding in order to
     develop a fuller understanding of the record. See O’Rourke v.
23   Seaboard Sur. Co. (In re E. R. Fegert, Inc.), 887 F.2d 955,
     957-58 (9th Cir. 1989); Atwood v. Chase Manhattan Mortg. Co.
24   (In re Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003).
25        1
           Commonwealth was a division of National City Bank (“NCB”)
26   Indiana, which merged into NCB Ohio. NCB Ohio merged with PNC
     Bank, N.A. (“PNC”), making PNC a successor in interest to
27   Commonwealth. For clarity, the appellees, other than Trustee
     Michael D. Hitt (“Hitt”), are referred to as Commonwealth unless
28   otherwise indicated.

                                       2
 1   May 23, 2008.
 2        On May 22, 2008, the eve of the trustee sale, the McKennas
 3   filed a lawsuit against Commonwealth and others in the United
 4   States District Court for the Western District of Washington.      In
 5   their complaint, the McKennas alleged the following nine causes
 6   of action: breach of contract; wrongful foreclosure; breach of
 7   fiduciary duty; unjust enrichment; violations of the Truth in
 8   Lending Act (“TILA”); Real Estate Settlement Procedures Act
 9   (“RESPA”); Fair Debt Collection Practices Act (“FDCPA”); Consumer
10   Protection Act (“CPA”); and Consumer Loan Act (“CLA”).2     They
11   sought a preliminary injunction to stop the foreclosure sale, but
12   their request was denied.   Commonwealth acquired the Property at
13   the trustee sale, and a trustee’s deed conveying the Property to
14   Commonwealth was recorded on June 3, 2008.
15        On June 19, 2008, the McKennas initiated a state court
16   action against Commonwealth.   The complaint was entitled
17   “Objection to Foreclosure Sale” and identified three causes of
18   action: defamation of title; declaratory relief; and breach of
19   fiduciary duty.   The complaint stated that “the [Property] was
20   wrongfully sold at a non-judicial [foreclosure] sale . . . on
21   May 23, 2008.”    Complaint (Jun. 12, 2008) at ¶ 11.   The McKennas
22   also discussed TILA, RESPA, FDCPA, unjust enrichment and breach
23   of contract, which were many of the same claims brought in the
24   federal case.
25        Shortly after the McKennas filed their state lawsuit,
26   Commonwealth brought an unlawful detainer action against them,
27
28        2
           The CLA and CPA claims were based on Washington law.

                                       3
 1   and the state court consolidated the two proceedings.
 2           On September 9, 2008, the federal court granted summary
 3   judgment to Commonwealth3 on all the federal (TILA, RESPA and
 4   FDCPA) claims.      On September 23, 2008, the federal court also
 5   granted summary judgment as to all the remaining state claims.
 6           The McKennas filed an amended complaint in the federal court
 7   action, alleging a TILA violation against Commonwealth again, on
 8   October 24, 2008.      Commonwealth’s motion to dismiss the amended
 9   complaint was granted on December 30, 2008, because the TILA
10   claim was time barred.
11           On November 7, 2008, the state court granted Commonwealth’s
12   motion for summary judgment as to the validity of the foreclosure
13   sale.       The order (“Summary Judgment Order”) provided that
14   “[s]ummary judgment is granted to [Commonwealth] as [to] the
15   . . . foreclosure sale being proper.”      Order for Summary Judgment
16   (Nov. 7, 2008) at p. 2.      The state court declined to grant
17   summary judgment regarding the McKennas’ CPA and breach of
18   contract claims.      The state court then issued a writ of
19   restitution ordering the McKennas to vacate the Property.
20           After the state court’s issuance of the Summary Judgment
21   Order and writ of restitution, the McKennas moved for
22   reconsideration.      The reconsideration motion was denied, and the
23   McKennas appealed.      On May 10, 2011, the state appellate court
24
25           3
           Summary judgment was granted as to National City Mortgage
26   only, not Commonwealth, because the motion only requested relief
     as to National City Mortgage, even though both entities were
27   represented by the same counsel. In their Corporate Disclosure
     Statement, appellees refer to Commonwealth United Mortgage as a
28   division of National City Mortgage.

                                          4
 1   affirmed the Summary Judgment Order and the denial of the motion
 2   for reconsideration.4
 3        As previously noted, the McKennas filed for chapter 7
 4   bankruptcy on October 21, 2011.   They filed their adversary
 5   proceeding against Commonwealth about three months later.    Their
 6   adversary complaint, which was styled as a combined motion for
 7   summary judgment and motion to dismiss, did not identify
 8   individual causes of action.   On the last page, the McKennas set
 9   forth what appears to be a claim for wrongful foreclosure.     The
10   McKennas requested that the bankruptcy court find that the
11   original DOT was altered with notarial and other unspecified
12   markings,5 which made the DOT and foreclosure void.    According to
13   the McKennas, this meant Commonwealth did not have a valid claim
14   to the Property and it should be reconveyed back to them.
15        On February 9, 2012, Commonwealth moved to dismiss the
16   McKennas’ adversary complaint under the Federal Rules of Civil
17   Procedure, Rule 12(b)(6), based on claim preclusion.    It also
18   argued that the McKennas failed to plead fraud with particularity
19   and that a fraud claim was time barred.   Finally, it asserted
20   that the bankruptcy court lacked jurisdiction to void the
21   foreclosure sale and to convey the Property back to the McKennas
22
23        4
           The McKennas filed a petition for review of the appellate
     court’s ruling, but the Supreme Court of Washington denied their
24
     petition on September 7, 2011.
25        5
           The McKennas alleged they did not learn that Commonwealth
26   had multiple versions of the DOT until April 14, 2009. They
     asserted that those versions contain a notarial acknowledgment of
27   their signatures, but they did not sign the DOT before a notary.
     They also took issue with other alleged alterations, but they did
28
     not identify which markings they claim were unauthorized.

                                       5
 1   because it had been more than three and a half years since the
 2   sale, there was no right of redemption, and title to the Property
 3   had been transferred to it.
 4        On April 18, 2012, the McKennas filed an opposition to the
 5   motion to dismiss, arguing that the issue of the alleged DOT
 6   alterations had not been heard by any court, and therefore, claim
 7   preclusion did not apply.   In addition, they argued that they
 8   were not bringing a fraud claim, only suggesting that the
 9   alterations appeared to be fraudulent.   They further asserted
10   that Commonwealth and its counsel made several misrepresentations
11   in bad faith.
12        On April 25, 2012, the bankruptcy court held a hearing on
13   the motion to dismiss.   After hearing argument from
14   Commonwealth’s attorney and Mr. McKenna, the bankruptcy court
15   granted the motion to dismiss based on the McKennas’ failure to
16   state a claim upon which relief may be granted.   The bankruptcy
17   court found:
18             The prior ruling of the state court on [the
          McKennas’] challenges to the foreclosure is res
19        judicata on all of the issues brought there. They
          cannot bring their challenges to a foreclosure
20        piecemeal. A foreclosure sale was completed. The
          [McKennas] had the opportunity to challenge it and to
21        raise any and all defenses to the foreclosure, and
          their challenges were dismissed.
22
               It also appears that they were aware of the one
23        challenge they specifically referenced, the
          notarization of the deed of trust out of their
24        presence, at all times and failed to raise it prior to
          the foreclosure which constitutes waiver.
25
               Lastly, an error in the notarization, even if
26        true, would not be the basis for the debtors to set
          aside the foreclosure.
27
28   Hr’g Tr. (April 25, 2012) at 16:3-17.

                                      6
 1        The Dismissal Order was entered on May 2, 2012, and the
 2   McKennas appealed that order on May 15, 2012.
 3                                JURISDICTION
 4        The bankruptcy court had jurisdiction pursuant to 28 U.S.C.
 5   §§ 1334 and 157(b)(2)(A).    We have jurisdiction under 28 U.S.C.
 6   § 158.
 7                                   ISSUE
 8        Did the McKennas have standing to prosecute the adversary
 9   proceeding?
10                             STANDARD OF REVIEW
11        We review de novo whether the McKennas had standing.    See
12   Palmdale Hills Prop., LLC v. Lehman Commercial Paper, Inc.
13   (In re Palmdale Hills Prop., LLC), 654 F.3d 868, 873 (9th Cir.
14   2011); Veal v. Am. Home Mortg. Servicing, Inc. (In re Veal),
15   450 B.R. 897, 906 (9th Cir. BAP 2011).
16                                 DISCUSSION
17        There is a threshold question as to whether the McKennas had
18   standing to pursue their wrongful foreclosure claim and have the
19   right to continue prosecuting it by taking this appeal.   The type
20   of standing at issue herein is third party standing, which
21   requires litigants to pursue their own legal rights and not the
22   legal rights of others.    See In re Veal, 450 B.R. at 906-07
23   (citing Sprint Commc'ns Co., LP v. APCC Servs., Inc., 554 U.S.
24   269, 289 (2008)).   Third party standing is not jurisdictional;
25   rather, it is a judicially self-imposed prudential limitation on
26   federal court jurisdiction.    Id.; see also Los Angeles v. County
27   of Kern, 581 F.3d 841, 844-45 (9th Cir. 2009) (distinguishing
28   between jurisdictional and prudential standing concerns).

                                       7
 1        The McKennas did not schedule a wrongful foreclosure claim
 2   on their personal property Schedule B or exemption Schedule C.
 3   Moreover, the claim does not appear to have been abandoned by
 4   trustee Hitt.6   These facts lead to the conclusion that the
 5   McKennas do not have standing to prosecute the wrongful
 6   foreclosure action because it is estate property, and only the
 7   estate representative may commence an action based on claims for
 8   relief that are estate property.       11 U.S.C. § 541(a)(1); Estate
 9   of Spirtos v. One San Bernardino Cnty. Super. Ct. Case Numbered
10   SPR 02211, 443 F.3d 1172, 1175-76 (9th Cir. 2006)(holding that
11   trustee has exclusive right to sue on bankruptcy estate’s behalf,
12   and party that does not get consent of trustee to pursue claim
13   lacks standing to bring action); Seymour v. Bank of America, N.A.
14   (In re Seymour), 2013 WL 1736471 (9th Cir. BAP, Mem. Dec.,
15   April 23, 2013) (affirming dismissal of adversary complaint based
16   on lack of standing when debtor attempted to prosecute
17   unscheduled claim that had not been abandoned by trustee).
18                               CONCLUSION
19        For the reasons set forth above, we hereby MODIFY the
20   bankruptcy court's Dismissal Order to provide that the adversary
21   proceeding is dismissed based on the McKennas’ lack of standing,
22   and we AFFIRM the dismissal order, as MODIFIED.
23
24
25
26
27        6
           On April 4, 2013, Hitt filed a final accounting and
     distribution, detailing the assets that were abandoned. No
28
     lawsuits were listed as abandoned.

                                        8