Court Opinion

ID: 2757107
Source: CourtListenerOpinion
Date Created: 2014-12-03 19:08:31.078619+00
Date Added: 2024-06-11T11:26:53.742703
License: Public Domain

FILED
                                                           MAY 15 2012
                                                       SUSAN M SPRAUL, CLERK
                                                         U.S. BKCY. APP. PANEL
 1                                                       OF THE NINTH CIRCUIT

 2
 3                  UNITED STATES BANKRUPTCY APPELLATE PANEL
 4                            OF THE NINTH CIRCUIT
 5   In re:                        )     BAP No.     CC-11-1393-KiMkH
                                   )
 6   HUMBERTO GUZMAN and FIDELIA   )     Bk. No.     11-12043-CEB
     GUZMAN,                       )
 7                                 )
                    Debtors.       )
 8                                 )
                                   )
 9   HUMBERTO GUZMAN; FIDELIA      )
     GUZMAN,                       )
10                                 )
                    Appellants,    )
11                                 )
     v.                            )     M E M O R A N D U M1
12                                 )
     RECONTRUST COMPANY,           )
13                                 )
                    Appellee.      )
14   ______________________________)
15              Argued and Submitted on February 24, 2012,
                          at Pasadena, California
16
                             Filed - May 15, 2012
17
               Appeal from the United States Bankruptcy Court
18                 for the Central District of California
19       Honorable Catherine E. Bauer, Bankruptcy Judge, Presiding
20
     Appearances:    Humberto and Fidelia Guzman, appellants, argued pro
21                   se; Melissa Robbins Coutts of McCarthy & Holthus,
                     LLP, argued for appellee, ReconTrust Company.
22
23   Before: KIRSCHER, MARKELL, and HOLLOWELL, Bankruptcy Judges.
24
25
26
          1
             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. See 9th
28   Cir. BAP Rule 8013-1.
 1        Appellants, chapter 72 debtors Humberto and Fidelia Guzman
 2   (“Guzmans”), appeal an order from the bankruptcy court denying
 3   their motion for contempt and an order denying their motion to
 4   reconsider.   We AFFIRM.3
 5                   I. FACTUAL AND PROCEDURAL BACKGROUND
 6        Guzmans filed a chapter 7 bankruptcy on January 21, 2011.     In
 7   their Schedule A, filed on February 3, 2011, Guzmans reported a
 8   fee interest in their residence with a current value of $100,000
 9   and a $380,000 secured claim against it (the “Property”).    Guzmans
10   did not report the secured claim against the Property in their
11   Schedule D, but rather reported it as an unsecured claim in their
12   Schedule F.   The “unsecured” claim holder was Bank of America.
13   The chapter 7 trustee filed a no-asset report on March 7, 2011.
14   Guzmans received their discharge on May 12, 2011.
15        On May 16, 2011, Guzmans filed a motion for contempt under
16   § 105, contending that Recon, “a subsidiary of Bank of America,”
17
18
          2
             Unless specified otherwise, all chapter,   section and rule
19   references are to the Bankruptcy Code, 11 U.S.C.   §§ 101-1532, and
     the Federal Rules of Bankruptcy Procedure, Rules   1001-9037. The
20   Federal Rules of Civil Procedure are referred to   as “FRCP.”
21        3
             Appellee, ReconTrust Company (“Recon”), filed a Request
     for Judicial Notice, which includes a copy of Bank of America’s
22   recorded deed of trust (f/k/a Countrywide Home Loans Servicing LP)
     dated June 13, 2007, and a copy of the recorded Substitution of
23   Trustee and Assignment of Deed of Trust. Recon did not file
     anything in opposition to Guzmans’ contempt motion or appear at
24   the hearing. Recon does not deny receiving notice of the contempt
     hearing.
25        The Panel is free to take judicial notice of matters of
     public record. Lee v. City of Los Angeles, 250 F.3d 668, 689-90
26   (9th Cir. 2009). Recon’s request is apparently an attempt to
     enter documents in the record it inexplicably failed to submit in
27   the bankruptcy court. As such, we DENY Recon’s request. In any
     event, the documents at issue are not necessary for our
28   determination of this appeal.

                                     -2-
 1   violated the discharge injunction by advertising on its website a
 2   non-judicial foreclosure sale of the Property.       The sale was
 3   scheduled for May 19, 2011.      Guzmans alleged that they viewed
 4   Recon’s website on May 14, 2011, and saw the “illegal” scheduled
 5   sale.       Guzmans argued that because they reported the $380,000
 6   claim as unsecured and no one objected, the debt was discharged on
 7   May 12, 2011.      Therefore, contended Guzmans, Recon’s advertisement
 8   violated the discharge injunction.        In support of the contempt
 9   motion, Guzmans included an undated print-out of the sale
10   advertisement and a declaration stating that they viewed the Recon
11   website on May 14, 2011.
12           Guzmans filed a notice of hearing with their motion but,
13   according to Guzmans, the matter was not calendared.       Guzmans
14   contend they appeared at the bankruptcy court on June 22, 2011,
15   for what they thought was a hearing on their contempt motion.          At
16   the end of that day’s calendar, the court asked Guzmans why they
17   were there.      Guzmans explained that their motion was scheduled to
18   be heard that morning.      The court informed Guzmans that it had not
19   been calendared.      In any event, the court reviewed the moving
20   papers and proceeded to rule on the contempt motion.4       Recon did
21   not appear.
22           At the hearing, Guzmans admitted taking out a loan on the
23   Property, that they were not making any payments on it, and that
24   only Recon was trying to foreclose.       Guzmans contended that the
25
             4
             None of the above dialogue with the bankruptcy court is on
26   the record. This is Guzmans’ account of what happened. In its
     order on the motion to reconsider, the bankruptcy court countered
27   Guzmans’ account of what happened at the June 22 hearing, stating
     that the contempt motion was set for hearing, reviewed on the
28   merits, and denied on the merits.

                                         -3-
 1   $380,000 lien against the Property was unsecured because they
 2   scheduled it as such, no one challenged it, and no one filed a
 3   proof of claim asserting otherwise.     According to Guzmans, the
 4   $380,000 debt was discharged on May 12, therefore, a sale set for
 5   May 19 violated the injunction.    The bankruptcy court explained
 6   that simply listing the debt as unsecured did not make it so and
 7   did not void Bank of America’s deed of trust.
 8        The bankruptcy court orally denied the contempt motion.        It
 9   determined that Recon was entitled to foreclose and that it had
10   not violated the discharge injunction based on the evidence
11   submitted by Guzmans.   The court was to prepare the order.
12        On July 5, 2011, Guzmans filed a motion to reconsider the
13   “contempt order,” which had not yet been entered.    The next day on
14   July 6, 2011, the bankruptcy court entered the contempt order.       It
15   did not address the pending motion to reconsider.    On July 18,
16   2011, Guzmans filed their notice of appeal of the contempt order.
17   The appeal was ineffective because no order had yet been entered
18   on their timely motion to reconsider.    See Rule 8002(b).    In
19   response to our February 1, 2012 order, on February 14, 2012, the
20   bankruptcy court entered an order denying the motion to reconsider
21   for Guzmans’ failure to establish any grounds to grant it.     As a
22   result, Guzmans’ premature notice of appeal was deemed timely, and
23   we now have jurisdiction over this matter.
24                               II. JURISDICTION
25        The bankruptcy court had jurisdiction under 28 U.S.C.
26   §§ 157(b)(2)(O) and 1334.    We have jurisdiction under 28 U.S.C.
27   § 158.
28

                                       -4-
 1                                 III. ISSUES
 2   1.   Did the bankruptcy court abuse its discretion when it denied
 3   the motion for contempt?
 4   2.   Did the bankruptcy court abuse its discretion when it denied
 5   the motion to reconsider?
 6                           IV. STANDARD OF REVIEW
 7        The bankruptcy court’s ruling on a motion for contempt is
 8   reviewed for an abuse of discretion.    FTC v. Affordable Media,
 9   179 F.3d 1228, 1239 (9th Cir. 1999).    Denial of a motion for
10   reconsideration is also reviewed for an abuse of discretion.
11   Ta Chong Bank Ltd. v. Hitachi High Techs. Am., Inc., 610 F.3d
12   1063, 1066 (9th Cir. 2010).    To determine whether the bankruptcy
13   court abused its discretion, we conduct a two-step inquiry: (1) we
14   review de novo whether the bankruptcy court “identified the
15   correct legal rule to apply to the relief requested” and (2) if it
16   did, whether the bankruptcy court’s application of the legal
17   standard was illogical, implausible or “without support in
18   inferences that may be drawn from the facts in the record.”
19   United States v. Hinkson, 585 F.3d 1247, 1261-62 (9th Cir. 2009)
20   (en banc).    The Panel may affirm on any ground fairly supported by
21   the record.   In re Warren, 568 F.3d 1113, 1116 (9th Cir. 2009).
22                               V. DISCUSSION
23   A.   Governing law.
24        Section 524(a)(2) provides that a discharge “operates as an
25   injunction against the commencement or continuation of an action
26   . . . to collect, recover or offset any such debt as a personal
27   liability of the debtor, whether or not discharge of such debt is
28   waived[.]”

                                       -5-
 1        Procedurally, an alleged violation of the discharge
 2   injunction is pursued, as in this case, by a motion invoking the
 3   contempt remedies allowed for in § 105(a).5   See Walls v. Wells
 4   Fargo Bank, N.A., 276 F.3d 502, 509-10 (9th Cir. 2002).    In order
 5   to be subject to sanctions for violating the discharge injunction,
 6   a party’s violation must be “willful.”    The Ninth Circuit applies
 7   a two-part test to determine whether the willfulness standard has
 8   been met: (1) did the alleged offending party know that the
 9   discharge injunction applied; and (2) did such party intend the
10   actions that violated the discharge injunction?    Zilog, Inc. v.
11   Corning (In re Zilog, Inc.), 450 F.3d 996, 1007 (9th Cir. 2006);
12   Hardy v. United States (In re Hardy), 97 F.3d 1384, 1390 (9th Cir.
13   1996).    The moving party must prove by clear and convincing
14   evidence that the creditor violated the order.    In re Zilog, Inc.,
15   450 F.3d at 1007; In re Bennett, 298 F.3d 1059, 1069 (9th Cir.
16   2002).
17        Notably, and what is important here, the bankruptcy discharge
18   “extinguishes only one mode of enforcing a claim - namely, an
19   action against the debtor in personam - while leaving intact
20   another - namely, an action against the debtor in rem.”    Johnson
21   v. Home State Bank, 501 U.S. 78, 84 (1991).    In other words, a
22
23        5
              Section 105(a) describes the power of courts and states:
24        The court may issue any order, process, or judgment that
          is necessary or appropriate to carry out the provisions
25        of this title. No provision of this title providing for
          the raising of an issue by a party in interest shall be
26        construed to preclude the court from, sua sponte, taking
          any action or making any determination necessary or
27        appropriate to enforce or implement court orders or
          rules, or to prevent an abuse of process.
28

                                      -6-
 1   creditor may not take any actions to collect from the debtor
 2   personally following the discharge, but the discharge does not
 3   prevent the creditor from proceeding against the property securing
 4   the debt.   See id. at 83.
 5   B.   Analysis.
 6        1.     The bankruptcy court did not abuse its discretion in
                 denying the contempt motion.
 7
 8        At the hearing on the motion for contempt, Guzmans contended
 9   that Recon could not foreclose on the Property because their loan
10   was not with Recon.   Hr’g Tr. (June 22, 2011) 2:4-12.    Guzmans
11   admitted to taking out a purchase money loan on the Property, that
12   they had not been paying on the loan, and that no one other than
13   Recon was trying to foreclose.   Id. at 2:13-19.    Guzmans further
14   admitted owing approximately $400,000 on the loan, but claimed the
15   Property’s value is now worth less than $100,000.    Id. at 3:13-24.
16   Guzmans argued that the debt to Bank of America was discharged
17   because they had scheduled it as unsecured and no one had
18   challenged it.   Based upon the evidence, the bankruptcy court
19   denied the motion determining that Guzmans had failed to prove any
20   violation of the discharge injunction.   Id. at 5:7-12.
21        Recon is the trustee of the deed of trust in favor of Bank of
22   America on Guzmans’ Property.    Guzmans have not denied that Bank
23   of America holds a first deed of trust on the Property.    What they
24   do contend is that the debt owed to Bank of America was unsecured
25   and discharged by court order on May 12, 2011.     Therefore, argue
26   Guzmans, the bankruptcy court should have granted the contempt
27   motion.   We disagree.
28        A secured lien passes through bankruptcy unaffected unless

                                      -7-
 1   affirmative action is taken to avoid it.   Long v. Bullard,
 2   117 U.S. 617, 620-21 (1886); Dewsnup v. Timm, 502 U.S. 410, 418
 3   (1992); In re Brawders, 503 F.3d 856, 867 (9th Cir. 2007);
 4   § 506(d)(2).   Guzmans’ attempt to turn a secured lien into an
 5   unsecured one by listing it as unsecured and disputed in their
 6   Schedule F had no effect.    Merely scheduling a claim as unsecured
 7   does not “avoid” the lien.   In any event, as chapter 7 debtors,
 8   Guzmans have no ability to avoid or “strip off” Bank of America’s
 9   lien, which is what appears they were trying to do.    Therefore,
10   Bank of America’s lien remained secured despite Guzmans’ efforts.
11        Furthermore, contrary to Guzmans’ contention, no proof of
12   claim had to be filed to preserve Bank of America’s secured lien
13   against the Property.   In re Brawders, 503 F.3d at 872 (unlike
14   unsecured creditors, secured creditors may ignore the bankruptcy
15   proceedings and look to the lien for satisfaction of the debt);
16   Cen-Pen Corp. v. Hanson, 58 F.3d 89, 93 (4th Cir. 1995)
17   (interpreting § 506(d)(2) to conclude that failure of secured
18   creditor to file a proof of claim is not a basis for avoiding its
19   lien); In re Meadowbrook Estates, 246 B.R. 898, 902 (Bankr. E.D.
20   Cal. 2000)(“A secured creditor is not required to file a proof of
21   claim.   And if it chooses to not file a claim, its lien will pass
22   through the bankruptcy and remain in place.”).   Therefore, despite
23   not filing a proof of claim or challenging Guzmans’ scheduling of
24   the debt as unsecured, Recon’s right to foreclose on the Property
25   (on behalf Bank of America) survived the bankruptcy.
26        Because the discharge injunction did not apply to Recon with
27   respect to foreclosing on the Property, Recon’s actions to
28   foreclose could not have violated it.   Guzmans offered nothing to

                                      -8-
 1   show that Recon’s actions were an attempt to collect on a debt
 2   against them personally.    As a result, Guzmans could not prove by
 3   clear and convincing evidence that Recon violated the discharge
 4   injunction.   Accordingly, the bankruptcy court did not abuse its
 5   discretion in denying the contempt motion.
 6        2.     The bankruptcy court did not abuse its discretion in
                 denying the motion to reconsider.
 7
 8        Due to the procedural irregularities in this case, Guzmans
 9   did not address in their opening brief how the bankruptcy court
10   abused its discretion by denying their motion to reconsider.
11   Because of the irregularities and Guzmans’ pro se status, we
12   review the record to see if it supports the bankruptcy court’s
13   denial of the motion.   See Balistreri v. Pacifica Police Dep’t,
14   901 F.2d 696, 699 (9th Cir. 1988)(we generally construe pro se
15   appellant’s briefs liberally).   We agree with the bankruptcy court
16   that Guzmans’ motion to reconsider fell under Rule 9023, which
17   incorporates FRCP 59(e).   A motion under FRCP 59(e) should not be
18   granted, absent highly unusual circumstances, unless the court is
19   presented with newly discovered evidence, committed clear error,
20   or if there is an intervening change in the controlling law.
21   389 Orange St. Partners v. Arnold, 179 F.3d 656, 665 (9th Cir.
22   1999).    A motion for reconsideration is not for rehashing the same
23   arguments made the first time, or to assert new legal theories or
24   new facts that could have been raised at the initial hearing.
25   In re Greco, 113 B.R. 658, 664 (D. Haw. 1990), aff’d and remanded,
26   Greco v. Troy Corp., 952 F.2d 406 (9th Cir. 1991).
27        Much of what Guzmans raised in the motion to reconsider was
28   merely a rehashing of the same arguments raised in the contempt

                                      -9-
 1   motion.   Guzmans again asserted that a proof of claim had to be
 2   filed, that the debt was discharged, and that Recon’s foreclosure
 3   actions violated the discharge injunction.   These arguments were
 4   improper and, as we have already stated above, they also lack
 5   merit.    Guzmans also attempted to contest Recon’s standing as the
 6   real party in interest to foreclose on the Property.   Not only was
 7   this a new legal theory that could have been raised before, it
 8   goes beyond the scope of the motion for contempt.   Accordingly,
 9   because Guzmans failed to establish grounds for reconsideration,
10   the bankruptcy court did not abuse its discretion in denying the
11   motion to reconsider.
12                              VI. CONCLUSION
13        Based on the foregoing reasons, we AFFIRM.
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                                      -10-