FILED
OCT 11 2022
NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK
U.S. BKCY. APP. PANEL
OF THE NINTH CIRCUIT
UNITED STATES BANKRUPTCY APPELLATE PANEL
OF THE NINTH CIRCUIT
In re: BAP No. CC-22-1032-SGT
JOSE HUMBERTO AGUILAR GALVAN,
Debtor. Bk. No. 2:21-bk-14872-BR
JOSE HUMBERTO AGUILAR GALVAN,
Appellant,
v. MEMORANDUM*
PHH MORTGAGE CORPORATION,
Appellee.
Appeal from the United States Bankruptcy Court
for the Central District of California
Barry Russell, Bankruptcy Judge, Presiding
Before: SPRAKER, GAN, and TAYLOR, Bankruptcy Judges.
INTRODUCTION
Chapter 7 1 debtor Jose Humberto Aguilar Galvan appeals from an
order denying his objection to the claim of PHH Mortgage Corporation
(“PHH”) and the denial of his motion seeking reconsideration of that order.
*
This disposition is not appropriate for publication. 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 Cir. BAP Rule 8024-1.
1
Unless specified otherwise, chapter and section references are to the Bankruptcy
Code,
11 U.S.C. §§ 101–1532, “Rule” references are to the Federal Rules of Bankruptcy
Procedure, and “Civil Rule” references are to the Federal Rules of Civil Procedure.
Because Galvan’s chapter 7 bankruptcy was a no asset case, proofs of
claims were never required, and PHH never filed one. Galvan has objected
to a proof of claim that does not exist. As the bankruptcy court correctly
noted, the objection really was an attempt to challenge the validity of
PHH’s lien. Per Rule 7001(2), however, actions that challenge the validity of
liens must be brought by adversary proceeding. Moreover, Galvan neither
alleged nor demonstrated that the real property in question was property
of his bankruptcy estate or that he was personally indebted to PHH. To the
contrary, Galvan represented that he acquired his interest in the property
after he filed his bankruptcy petition. Though Galvan scheduled an interest
in the property encumbered by PHH’s lien, there is no evidence that PHH
held any claim against Galvan or encumbered property of the bankruptcy
estate.
Galvan’s arguments are difficult to comprehend. To the extent we
can glean anything from them, they merely reiterate why he believes
PHH’s lien is not valid. This misses the point. He has failed to address the
factual and legal grounds for the bankruptcy court’s rulings. Accordingly,
we AFFIRM.
FACTS2
Galvan commenced his bankruptcy case by filing a voluntary chapter
2
We exercise our discretion to take judicial notice of documents electronically
filed in the underlying bankruptcy case. See Atwood v. Chase Manhattan Mortg. Co. (In re
Atwood),
293 B.R. 227, 233 n.9 (9th Cir. BAP 2003).
2
7 petition in June 2021. In his schedules, he listed a parcel of real property
in Los Angeles, California, with a current value of $617,000 (“Property”)
and identified PHH as a disputed secured creditor. According to Galvan,
PHH asserted a lien against the Property, which purportedly secured its
disputed claim for $812,615. He also claimed an exemption in the Property
under California law. 3
Shortly after the commencement of the bankruptcy, the clerk’s office
advised creditors that there were no assets available to distribute to
creditors. Proofs of claim, therefore, were not required to be filed absent
subsequent notice that assets were discovered for distribution. No assets
were subsequently discovered.
Galvan filed a motion to avoid PHH’s lien, using the local form
intended for lien avoidance motions under § 522(f). Notwithstanding his
scheduled ownership interest in the Property, Galvan’s motion identified
the owners of record as Joel and Guillermina Aguilar, as husband and wife,
pursuant to a grant deed executed and recorded in 2007. The Aguilars are
Galvan’s parents. 4
Galvan’s motion never explained how, when, or whether Galvan
obtained any legal or equitable ownership interest in the Property. Still,
3
Galvan claimed an exemption under
Cal. Civ. Proc. Code § 703.140(b)(4), which
exempts personal jewelry. Obviously, this exemption does not apply to real property,
though this does not affect our analysis and resolution of this appeal.
4 We refer to the Aguilars by their first names for ease of reference and to avoid
confusion. No disrespect is intended.
3
Galvan offered three distinct arguments why he believed PHH’s lien was
invalid: (1) the underlying debt had been discharged in Guillermina’s 2013
bankruptcy case; (2) the underlying debt had been satisfied by proceeds
PHH’s predecessor in interest allegedly received from private mortgage
insurance; and (3) PHH’s lien impaired Galvan’s exemption.
PHH opposed the lien avoidance motion. It detailed the origination
of Guillermina’s secured loan obligations and the chain of transfers leading
up to PHH’s acquisition of the debt and the security for the debt from its
immediate predecessor, Ocwen Loan Servicing, LLC (“Chain of
Transfers”). PHH also itemized the eight prior bankruptcies, and related
adversary proceedings and appeals, filed by the Aguilars in an attempt to
prevent PHH or its predecessors from enforcing their loan rights.
In his reply, Galvan added a new argument challenging PHH’s lien.
He claimed that some of the assignments of the deed of trust in the Chain
of Transfers were invalid or unrecorded. The bankruptcy court denied
Galvan’s lien avoidance motion, simply stating that PHH’s lien was not
subject to avoidance under § 522(f). Galvan did not appeal that denial.
In October 2021, the chapter 7 trustee submitted his final report that
there were no assets to distribute to Galvan’s creditors. Additionally, the
court entered an order granting Galvan a discharge.
In December 2021, even though PHH had not filed a proof of claim,
Galvan objected to PHH’s claim. He raised the same issues he had raised in
his lien avoidance motion, except that he did not seek lien avoidance under
4
§ 522(f).
In opposition to the claim objection, PHH asserted that Galvan lacked
standing and failed to commence the requisite adversary proceeding to
challenge the validity of PHH’s lien. It also submitted the declaration of
Louise Plasse, one of PHH’s senior loan analysts and a custodian of its
records. Among other things, Plasse attested that PHH was in possession of
the original promissory note executed by Guillermina and endorsed in
blank. The exhibits attached included what Plasse identified as true and
correct copies of the note, the deed of trust securing the note, and the
assignments of deeds of trust in the Chain of Transfers.
In his reply, Galvan for the first time specifically asserted that he held
title to the Property jointly with the Aguilars as result of a grant deed they
executed in November 2021 and recorded in December 2021—several
months after he had filed his chapter 7 petition.
After holding a hearing, the bankruptcy court entered an order
denying the claim objection because PHH had not filed a proof of claim
and because any attempt to invalidate PHH’s lien had to be sought by
adversary proceeding.
Galvan then filed a reconsideration motion. He broadly asserted that
the bankruptcy court did not fairly or justly dispose of his claim objection
and that when his papers are compared to PHH’s papers, it is clear that he
should have prevailed. The bankruptcy court denied the reconsideration
motion, and Galvan timely appealed.
5
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 err when it denied Galvan’s claim
objection?
2. Did the bankruptcy court abuse its discretion when it denied
Galvan’s reconsideration motion?
STANDARDS OF REVIEW
Whether the bankruptcy court should adjudicate the merits of a claim
objection when the creditor has not filed a proof of claim is a question of
law we review de novo. Barker v, Eiler (In re Principia Equitas LLC), BAP No.
OR-18-1128-SKuF,
2019 WL 1447972, at *3 (9th Cir. BAP Mar. 28, 2019)
(citing HSBC Bank USA v. Blendheim (In re Blendheim),
803 F.3d 477, 484–85
(9th Cir. 2015)). When we review a matter de novo, we give no deference to
the bankruptcy court’s decision. Francis v. Wallace (In re Francis),
505 B.R.
914, 917 (9th Cir. BAP 2014).
We review for an abuse of discretion the bankruptcy court’s denial of
Galvan’s reconsideration motion. Carruth v. Eutsler (In re Eutsler),
585 B.R.
231, 235 (9th Cir. BAP 2017). The bankruptcy court abuses its discretion if it
applied the incorrect legal rule or its factual findings were illogical,
implausible, or without support in the record. TrafficSchool.com v. Edriver
Inc.,
653 F.3d 820, 832 (9th Cir. 2011).
6
DISCUSSION
A. The bankruptcy court did not err when it denied Galvan’s claim
objection without reaching the merits.
Creditors file proofs of claims in chapter 7 cases to participate in the
trustee’s distribution of the estate’s assets. See In re Blendheim,
803 F.3d at
484–85. However, the creditors’ participation in the claims process is
strictly voluntary—especially for secured creditors. See
id. at 485. Creditors
are enjoined by a discharge order from attempting to collect debts as a
personal liability of the debtor.
Id. But secured creditors postdischarge may
still enforce rights against any collateral securing the discharged debt.
Johnson v. Home State Bank,
501 U.S. 78, 82-83 (1991). As the Ninth Circuit
has explained, “[a] creditor with a lien on a debtor’s property may
generally ignore the bankruptcy proceedings and decline to file a claim
without imperiling his lien, secure in the in rem right that the lien
guarantees him under non-bankruptcy law: the right of foreclosure.” In re
Blendheim,
803 F.3d at 485 (citing U.S. Nat'l Bank in Johnstown v. Chase Nat'l
Bank of N.Y.C.,
331 U.S. 28, 33 (1947)).
Because the claims process is voluntary for creditors, interested
parties cannot force a creditor to adjudicate its claim in the bankruptcy
court by filing a claim objection when no proof of claim has been filed on
the creditor’s behalf. Under such circumstances, the bankruptcy court
typically declines to address the merits of the claim objection, particularly
in cases where there are no assets available for distribution to creditors. See,
7
e.g., In re Principia Equitas LLC,
2019 WL 1447972, at *3; Wade v. Forest Villa
Homeowners' Ass'n (In re Wade), BAP No. NC-14-1562-DJuTa,
2015 WL
7281670, at *3-4 (9th Cir. BAP Nov. 17, 2015), aff'd,
671 F. App’x 689 (9th
Cir. 2016); see also Kipp Flores Architects, L.L.C. v. Mid-Continent Cas. Co.,
852
F.3d 405, 413 (5th Cir. 2017) (holding that in no asset chapter 7 cases, the
claims process should not be construed to require interested parties “to
monitor, object to, and litigate proofs of claim that need not even be filed”);
Holland v. McCartney (In re Holland), Case No. 14-20990,
2015 WL 4600382,
at *2 (Bankr. S.D. Ga. July 30, 2015) (listing cases and stating that
“bankruptcy courts generally do not rule on objections to claims in no-asset
chapter 7 cases”); In re Saric, Case No. 12-60936,
2013 WL 6536752, at *4
(Bankr. N.D.N.Y. Dec. 12, 2013) (holding in a chapter 7 no asset case that a
proof of claim must be filed before an interested party may object to that
claim).
Galvan has completely ignored these fundamental bankruptcy
principles in asserting that the bankruptcy court should have addressed the
merits of his claim objection. Based on the authorities cited above, the
bankruptcy court correctly declined to address the merits. No legitimate
purpose is served in adjudicating the claim of an alleged secured creditor
in a no asset case when the creditor has not filed a proof of claim. Indeed,
the promissory note presented by PHH in opposition to the claim objection
demonstrates that the debt belongs to Galvan’s mother, not him.
The bankruptcy court also correctly observed that to the extent
8
Galvan sought a determination that PHH’s lien was invalid, he should
have filed an adversary proceeding pursuant to Rule 7001(2). See Expeditors
Int’l of Wash., Inc. v. Citicorp N. Am., Inc. (In re Colortran, Inc.),
218 B.R. 507,
510–11 (9th Cir. BAP 1997) (citing Brady v. Andrew (In re Com. W. Fin. Corp.),
761 F.2d 1329, 1336 (9th Cir. 1985)). But Galvan did not do so.5
B. The bankruptcy court did not abuse its discretion when it denied
Galvan’s reconsideration motion.
Galvan’s reconsideration motion constituted a timely motion to alter
or amend the judgment under Civil Rule 59(e), made applicable in
bankruptcy cases by Rule 9023. Heritage Pac. Fin., LLC v. Montano (In re
Montano),
501 B.R. 96, 112 (9th Cir. BAP 2013). To obtain relief under Rule
9023, Galvan needed to present newly discovered evidence that might have
changed the outcome of the litigation, or demonstrate clear error, manifest
injustice, or an intervening change in controlling law. Id.; see also Kona
Enters., Inc. v. Est. of Bishop,
229 F.3d 877, 890 (9th Cir. 2000). Galvan did not
meet this standard. Rather, his reconsideration motion merely expressed
his disagreement with the bankruptcy court’s ruling. Mere disagreement is
not a valid basis for relief under Civil Rule 59(e). Martinez v. Navy League of
5
We note that any adversary proceeding challenging the deed of trust would
have raised serious issues regarding the court’s subject matter jurisdiction since Galvan
evidently acquired his interest in the Property postpetition, and he was not personally
indebted to PHH. Under these circumstances, such litigation would not have had any
conceivable effect on the estate or on Galvan’s rights and duties as a debtor in
bankruptcy. See generally Fietz v. Great W. Sav. (In re Fietz),
852 F.2d 455, 458-59 (9th Cir.
1988).
9
United States, Case No. 2:13-cv-5533-ODW(FFMx),
2014 WL 12613261, at *1
(C.D. Cal. Sept. 18, 2014), aff’d,
688 F. App’x 465 (9th Cir. 2017); Petramala v.
U.S. Dep’t of Just., Case No. CV 10-2002-PHX-FJM,
2011 WL 12894671, at *1
(D. Ariz. Sept. 13, 2011), aff’d,
481 F. App’x 395, 396 (9th Cir. 2012).
CONCLUSION
For the reasons set forth above, we AFFIRM the bankruptcy court’s
orders denying Galvan’s claim objection and his reconsideration motion.
10
