In re: Maria Vista Estates ( 2017 )

FILED
FEB 21 2017
1 NOT FOR PUBLICATION
SUSAN M. SPRAUL, CLERK
U.S. BKCY. APP. PANEL
2 OF THE NINTH CIRCUIT
3 UNITED STATES BANKRUPTCY APPELLATE PANEL
4 OF THE NINTH CIRCUIT
5 In re: ) BAP No. CC-16-1111-TaLN
)
6 MARIA VISTA ESTATES, ) Bk. No. 07-10362-PC
)
7 Debtor. ) Adv. No. 15-01096-PC
______________________________)
8 )
MARIA VISTA ESTATES, )
9 )
Appellant, )
10 )
v. ) MEMORANDUM*
11 )
MI NIPOMO, LLC; COSTA PACIFICA)
12 ESTATES HOMEOWNERS )
ASSOCIATION, )
13 )
Appellees. )
14 ______________________________)
15 Argued and Submitted on January 19, 2017
at Pasadena, California
16
Filed – February 21, 2017
17
Appeal from the United States Bankruptcy Court
18 for the Central District of California
19 Honorable Peter H. Carroll, Bankruptcy Judge, Presiding
20
Appearances: Roy E. Ogden of Ogden & Fricks LLP argued for
21 appellant; Penelope Parmes of Troutman Sanders
LLP argued for appellee Mi Nipomo, LLC; Patricia
22 H. Lyon of French Lyon Tang argued for appellee
Costa Pacifica Estates Homeowners Association.
23
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 8024-1(c)(2).
1 Before: TAYLOR, LAFFERTY, and NOVACK,** Bankruptcy Judges.
2
3 INTRODUCTION
4 This appeal centers around the efforts of chapter 71 debtor
5 Maria Vista Estates (“MVE”) and Erik Benham, one of MVE’s
6 principals, to salvage some return from a real estate
7 development. MVE and Benham have asserted throughout two
8 bankruptcy cases that a lender fraudulently altered the legal
9 description in a deed of trust securing a development loan.
10 Both filed chapter 11 bankruptcy petitions; both cases were
11 converted to chapter 7; and both chapter 7 trustees administered
12 the alleged fraud claim. MVE contends, notwithstanding
13 determinations and events in both bankruptcies, that it acquired
14 the right to pursue the fraud claim when its chapter 7 trustee
15 abandoned real property. It also argues that the fraud claim
16 survived a bankruptcy-court–approved settlement and related
17 releases. The MVE bankruptcy court concluded otherwise; we
18 agree with its determinations. We AFFIRM.
19
20
21
22
23
**
24 The Hon. Charles Novack, United States Bankruptcy Judge
for the Northern District of California, sitting by designation.
25
1
Unless otherwise indicated, all chapter and section
26 references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532.
27 All “Rule” references are to the Federal Rules of Bankruptcy
Procedure. All “Civil Rule” references are to the Federal Rules
28 of Civil Procedure.
2
1 FACTS2
2 The underlying dispute has meandered through the state and
3 federal court system over the past decade. Some facts, however,
4 are not in dispute:
5 Prepetion, MVE owned a multi-lot residential subdivision in
6 Nipomo, California (the “Property”). It intended to develop the
7 Property in three phases.
8 In 2004, MVE acquired financing for phase one of the
9 development from Security Pacific Bank (“Bank”). It secured
10 repayment of this loan through a deed of trust (the “First Trust
11 Deed”) which attached a legal description corresponding to the
12 portion of the Property being developed in phase one.
13 A few months later, however, Bank re-recorded the First
14 Trust Deed (the “Amended First Trust Deed”) and changed the
15 attached legal description. The legal description now
16 identified the entirety of the Property as the collateral. The
17 Amended First Trust Deed bore a notarized second acknowledgment
18 of the signatures of Benham, as Managing Member of general
19 partner, BenIng Company, L.L.C., and Mark Pender, as President
20 of general partner, Pender Properties Incorporated. An employee
21 of Fidelity National Title Company (“Fidelity”) notarized these
22 signatures.
23 Thereafter, MVE obtained a second loan from Bank in
24 connection with phase two of the development. It again secured
25
2
We exercise our discretion to take judicial notice of
26 documents electronically filed in the adversary proceeding, the
27 underlying bankruptcy case, and related adversary proceedings.
See Atwood v. Chase Manhattan Mortg. Co. (In re Atwood),
28 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003).
3
1 repayment through a trust deed (the “Second Trust Deed”). The
2 Second Trust Deed attached a legal description which described
3 only the portion of the Property being developed in phase two.
4 The present appeal. What MVE and Benham have doggedly
5 disputed for years is the genuineness of the signatures on the
6 Amended First Trust Deed. They assert that neither Benham nor
7 Pender signed the amended document and that the Bank and
8 Fidelity conspired to file a forgery which fraudulently
9 augmented the collateral securing the phase one loan. They
10 point out that, but for this fraud, the portion of the Property
11 scheduled for development in phase three would be unencumbered
12 and not subject to foreclosure as a result of the phase one and
13 phase two loan defaults. We refer to these allegations as the
14 “fraud claim.”
15 While Benham and MVE raised the fraud claim in a variety of
16 defenses, claims, motions, and actions, this appeal relates to
17 MVE’s assertion of the fraud claim through a 2015 quiet title
18 action filed in the California Superior Court against Mi Nipomo,
19 LLC (“Mi Nipomo”) and Costa Pacifica Estates Homeowners
20 Association (“Costa Pacifica”), parties with post-foreclosure
21 interests in the Property.
22 Mi Nipomo and Costa Pacifica removed this quiet title
23 action to the MVE bankruptcy court, and the bankruptcy court
24 dismissed the adversary proceeding. Bankruptcy Court’s Order on
25 Motion to Dismiss, Apr. 13, 2016 (“Mem. Dec.”). In short, it
26 concluded that MVE lacked standing to bring a quiet title action
27 as a result of previous orders and actions in the MVE and Benham
28 cases. We now turn to those earlier proceedings.
4
1 Early proceedings in the MVE bankruptcy case. In March
2 2007, MVE filed a voluntary chapter 11 petition. The Property
3 was the only significant scheduled asset.
4 The Bank, eventually and over MVE’s opposition, obtained
5 stay relief allowing it to proceed with a pre-petition judicial
6 foreclosure action. It subsequently brought an emergency motion
7 seeking to correct the legal description in the stay relief
8 order so that it referred to the legal description from the
9 Amended First Trust Deed and, thus, described the entirety of
10 the Property. Benham opposed based on the fraud claim. The
11 bankruptcy court overruled the objection and entered the amended
12 stay relief order.
13 Thereafter, the bankruptcy court converted MVE’s chapter 11
14 case to chapter 7; Jerry Namba was appointed as the chapter 7
15 trustee. And later that year, the California Department of
16 Financial Institutions closed Bank, and the Federal Deposit
17 Insurance Corporation (“FDIC”) became its receiver and succeeded
18 to its assets.3
19 Early proceedings in the Benham bankruptcy case. One day
20 after Bank obtained stay relief in the MVE case, Benham filed a
21 voluntary chapter 11 petition. The Bank then sought stay relief
22 in Benham’s case. Benham opposed and raised the fraud claim.
23 The bankruptcy court, nonetheless, terminated the stay but
24 declined to determine the validity, extent, priority, or
25
3
The FDIC filed a $22,535,906.49 proof of claim in the
26 MVE bankruptcy case and subsequently transferred the proof of
27 claim to Multibank 2009-1 RES-ADC Venture, LLC (“Multibank”).
Thereafter, Multibank sold rights in relation to the phase one
28 loan to Sequoia Financial Solutions IV, LLC (“Sequoia”).
5
1 enforceability of the Amended First Trust Deed.
2 The bankruptcy court eventually converted Benham’s
3 chapter 11 case to chapter 7.
4 Benham’s interests in the Property and his related claims
5 are administered. Benham’s chapter 7 trustee filed a motion
6 seeking approval of a settlement and authority to sell Benham
7 estate assets, free and clear, for $450,000 to Nipomo
8 Acquisition, LLC. As relevant here, these assets included:
9 (1) any of Benham’s, the Estate’s, and the Trustee’s claims
10 against the Bank, the FDIC, Multibank, Fidelity, and their
11 respective successors; (2) any and all claims against MVE; and
12 (3) any claim, including under § 544, related to the development
13 loans or the First Trust Deed, the Amended First Trust Deed, or
14 the Second Trust Deed. These assets, thus, included Benham’s
15 interest in the fraud claim.
16 Benham objected to this motion. He also commenced an
17 adversary proceeding based on the fraud claim against the FDIC,
18 Fidelity, and others (the “Benham–FDIC AP”). The bankruptcy
19 court eventually overruled Benham’s objection and approved the
20 sale to Nipomo Acquisition, LLC. The order approving the sale
21 is now final.4
22 Once Nipomo Acquisition, LLC acquired the assets and, in
23 particular, the fraud claim, it filed a notice of dismissal of
24 the Benham-FDIC AP under Rule 7041. Further action in the
25 adversary proceeding occurred, but the bankruptcy court
26 eventually dismissed it over Benham’s opposition. Benham did
27
28 4
Benham appealed; but his appeal was not successful.
6
1 not appeal.
2 Finally, Sequoia, then owner of the phase one loan rights,
3 foreclosed on the First Trust Deed and the Amended First Trust
4 Deed. Nipomo Real Estate Group, LLC and Banconsulting Services,
5 LLC purchased the Property at the foreclosure sale. Appellee
6 Mi Nipomo is the successor in interest to the foreclosing
7 parties.
8 In this appeal, no one questions that the sale to Nipomo
9 Acquisition, LLC, the dismissal of the Benham-FDIC AP, and the
10 Sequoia foreclosure extinguished any interest that Benham
11 personally possessed in the Property and the fraud claim.
12 Benham, however, persisted in asserting this claim in and
13 through the MVE case.
14 MVE’s chapter 7 trustee abandons the estate’s interest in
15 the Property. After the Sequoia foreclosure, the MVE Trustee
16 filed a notice of his intent to abandon the estate’s interest,
17 if any, in the Property. The Trustee wrote:
18 The Trustee has concluded that all of the Property is
burdensome to the estate and is of inconsequential
19 value or benefit to the estate. Specifically, the
Property does not have any equity that can be
20 liquidated for the benefit of the estate. Secured
claims against the Property exceed $23,000,000 and
21 proposed purchase offers for the Property have not
exceeded $13,000,000. In addition, the estate lacks
22 sufficient funds to continue to insure the Property
and maintain 24-hour security. Therefore, based on
23 the foregoing, the Trustee contends pursuant to his
business judgment, that the abandonment of the
24 estate’s interest in the Property, if any, is in the
best interests of the estate and its creditors.
25
26 Notice of Chapter 7 Trustee’s Intention to Abandon Assets,
27 Mar. 15, 2011, 2. The Trustee served both MVE and Benham with
28 the notice and motion; neither opposed.
7
1 The bankruptcy court then entered its order authorizing
2 abandonment of “the estate’s interest, if any, in the
3 [Property]” and stating “that such abandonment shall be deemed
4 effective without further order of the Court” (the “Abandonment
5 Order”). The Abandonment Order was not appealed.
6 MVE’s chapter 7 trustee settles MVE’s claims related to the
7 Property. In June 2011, the MVE Trustee moved for Rule 9019
8 approval of a settlement with Sequoia, Fidelity, RES-CA MV
9 Estates, LLC, and their predecessors and successors in interest
10 (the “FDIC Parties”). In short, the terms were: (1) the MVE
11 bankruptcy estate would receive $200,000 to settle its claim
12 against the FDIC Parties for recovery of the reasonable,
13 necessary costs and expenses incurred in preserving the Property
14 for the FDIC Parties’ benefit; and (2) the FDIC Parties would
15 receive a general release of the MVE bankruptcy estate’s claims.
16 The proposed settlement agreement (“Settlement Agreement”)
17 defines the term “FDIC Parties” as:
18 The FDIC as Receiver for the Bank sold interests in
the loans, and the holders of such interests include
19 RES-CA MV Estates, LLC,....and [Sequoia]. [The Bank,
the FDIC, RES-CA, Sequoia and all predecessors in
20 interest thereof and successors in interest thereto
with respect to the Loan and the Property as herein
21 referred to as the “FDIC Parties.”]
22 Chapter 7 Trustee’s Motion for Order Authorizing Compromise,
23 June 6, 2011, Ex. 1, p. 2 (second bracket in original). The
24 Settlement Agreement’s terms also included a release:
25 3. Release. Trustee hereby releases, waives, and
relinquishes all claims, rights, causes of actions or
26 contentions (collectively, “Claims”) of any kind or
nature, whether transferable or assignable, that he
27 may possess or own that he may assert against any of
the FDIC Parties arising in any way out of the
28 Property, and/or security interests asserted or taken
8
1 in the Property. Said releases extend to any and all
claims that would otherwise be preserved under Section
2 1542 of the California Civil Code, and hereby waives
his rights under said section, which reads as follows:
3 . . .
Trustee hereby warrants and represents that he has not
4 transferred, sold, alienated, pledged or otherwise
encumbered, and will not, transfer, sell alienate or
5 otherwise encumber, the Claims prior to the tender of
the sums called for in this Agreement.
6
7 Id. at 4–5.
8 The MVE Trustee provided MVE and Benham with a notice of
9 the motion that specifically stated that “the Trustee will
10 provide the FDIC Parties with a full general release (more
11 specifically described in the Agreement).” Benham opposed the
12 motion, arguing that the MVE Trustee “proposes a Compromise
13 . . . subject to a potentially invalid Deed of Trust” and “has
14 never analyzed or has just completely ignored the full extent of
15 the fraudulent nature of” Bank and Fidelity’s actions. In
16 short, he again raised the fraud claims; the bankruptcy court
17 overruled his objection. The bankruptcy court then entered an
18 order authorizing the settlement “on the terms set forth in the
19 Settlement Agreement attached as Exhibit ‘1’ to the Motion
20 . . . .” The settlement order (“Settlement Order”) was not
21 appealed.
22 About six months later, Benham brought a state court action
23 against a panoply of parties, including Sequoia and Nipomo
24 Acquisitions, LLC. Benham principally and yet again asserted
25 the fraud claim. After removal, the bankruptcy court granted
26 summary judgment in favor of Nipomo Acquisitions, LLC and
27 another defendant and dismissed the claims with prejudice as to
28 all remaining defendants. Benham pursued multiple appeals; all
9
1 are currently resolved against him.
2 The present action. As discussed above, after removal,
3 Mi Nipomo and Costa Pacifica both moved for dismissal of the MVE
4 quiet title action with prejudice. MVE opposed and also filed a
5 motion seeking remand. Its opposition included an untimely
6 post-hearing supplemental brief; the bankruptcy court sustained
7 Mi Nipomo’s objection to this late filing.
8 After this hearing, the bankruptcy court entered its
9 decision denying the remand motion. The bankruptcy court
10 concluded that the complaint turned on interpreting and
11 enforcing “orders entered in the proper administration of the
12 MVE and Benham bankruptcy estates which remain pending before
13 this court . . . .” Accordingly, it concluded that it had
14 jurisdiction under 28 U.S.C. §§ 157(b), 1334(b), 1441(a), and
15 1452(a) and that the matter was a core proceeding under
16 28 U.S.C. § 157(b)(2)(A). It identified 28 U.S.C. § 1452(b) and
17 the Enron factors as the applicable law and carefully weighed
18 them. See Citigroup, Inc. v. Pac. Inv. Mgmt. Co. (In re Enron
19 Corp.), 296 B.R. 505, 508 n.2 (C.D. Cal. 2003).
20 On April 13, 2016 at 12:21 p.m., the bankruptcy court
21 entered its order granting both motions seeking dismissal with
22 prejudice based on MVE’s lack of standing. On April 13, 2016 at
23 3:35 p.m., MVE filed a motion for leave to file a surreply or,
24 in the alternative, to strike an argument raised in Mi Nipomo
25 and Costa Pacifica’s reply papers. MVE argued that the replies
26 raised a new argument: that MVE’s failure to schedule the fraud
27 claim means it was not abandoned. The bankruptcy court denied
28 this motion as moot; it reasoned that it granted the motions to
10
1 dismiss before MVE filed its motion.
2 MVE timely appealed the order denying remand, both
3 dismissal orders, and the order denying leave to file a
4 surreply.
5 JURISDICTION
6 The bankruptcy court had jurisdiction under 28 U.S.C.
7 §§ 1334, 1441, 1452, and 157(b)(2)(A) and (O). We have
8 jurisdiction under 28 U.S.C. § 158.
9 ISSUES
10 1. Whether the bankruptcy court abused its discretion in
11 denying the motion to remand.
12 2. Whether the bankruptcy court relied on an argument raised
13 in reply.
14 3. Whether the bankruptcy court erred in dismissing the
15 adversary complaint pursuant to Civil Rule 12(b)(6).
16 4. Whether the bankruptcy court abused its discretion in
17 dismissing the adversary complaint without leave to amend.
18 STANDARDS OF REVIEW
19 We review for an abuse of discretion the bankruptcy court’s
20 decision not to remand on an equitable basis. Nilsen v. Neilsen
21 (In re Cedar Funding, Inc.), 419 B.R. 807, 816 (9th Cir. BAP
22 2009). We review de novo the dismissal of an adversary
23 proceeding under Civil Rule 12(b)(6). Telesaurus VPC, LLC v.
24 Power, 623 F.3d 998, 1003 (9th Cir. 2010). We review dismissal
25 without leave to amend for abuse of discretion. Id. A
26 bankruptcy court abuses its discretion if it applies the wrong
27 legal standard, misapplies the correct legal standard, or if it
28 makes factual findings that are illogical, implausible, or
11
1 without support in inferences that may be drawn from the facts
2 in the record. See TrafficSchool.com, Inc. v. Edriver Inc.,
3 653 F.3d 820, 832 (9th Cir. 2011) (citing United States v.
4 Hinkson, 585 F.3d 1247, 1262 (9th Cir. 2009) (en banc)). And we
5 may affirm on any basis in the record. Bill v. Brewer, 799 F.3d
6 1295, 1299 (9th Cir. 2015).
7 DISCUSSION
8 A. The bankruptcy court did not abuse its discretion in
denying MVE’s motion to remand.
9
10 The bankruptcy court, in a 26-page decision, stated the
11 basis for its denial of MVE’s remand motion. MVE appealed from
12 the order denying remand, but, in its opening brief on appeal,
13 MVE never specifically discusses remand or the bankruptcy
14 court’s analysis of the Enron factors and 28 U.S.C. § 1452(b).
15 At most in relation to remand, MVE broadly requests that we
16 “grant the appeal” and that we “reverse the dismissal of the
17 State Court Action and send the matter back for trial.” MVE
18 Opening Br. at 30.
19 As a result, MVE waived any arguments related to the denial
20 of his motion seeking remand on appeal. See Padgett v. Wright,
21 587 F.3d 983, 986 n.2 (9th Cir. 2009) (per curiam) (appellate
22 courts “will not ordinarily consider matters on appeal that are
23 not specifically and distinctly raised and argued in appellant’s
24 opening brief”). Further, even if MVE had not waived the issue,
25 we conclude that the bankruptcy court did not abuse its
26 discretion in retaining the matter. See In re Cedar Funding,
27 Inc., 419 B.R. at 820–21.
28
12
1 B. The bankruptcy court did not rely on an argument raised in
reply.
2
3 The bankruptcy court struck MVE’s request for judicial
4 notice because it was untimely; it later denied as moot MVE’s
5 motion for leave to submit the supplemental brief and evidence.
6 On appeal, MVE argues that the bankruptcy court erred in both
7 respects because, in granting the dismissal motions, it relied
8 on an argument raised only in reply, thereby depriving MVE of an
9 opportunity to respond. More specifically, MVE contends that
10 the bankruptcy court “relied heavily on the improperly raised
11 issue that [MVE’s] legal claims were not scheduled, or not
12 properly scheduled.” MVE Opening Br. 30; cf. MVE Reply Br. 12.
13 Not so. The record is clear that the bankruptcy court made
14 no finding that the fraud claim was unscheduled. This comports
15 with the bankruptcy court’s assessment at the hearing that an
16 argument about whether or not the asset was scheduled helped no
17 one. Finally, MVE raised this issue only after the bankruptcy
18 court issued its decision. Accordingly, we conclude that the
19 bankruptcy court did not rely on newly raised arguments in
20 making its decision; MVE was thus not prejudiced, and we need
21 not further consider this issue.
22 C. The bankruptcy court did not err in dismissing the
adversary proceeding.
23
24 The bankruptcy court concluded that dismissal was warranted
25 “by the clear and unambiguous language of the Abandonment Order
26 and Settlement Agreement.” Mem. Dec. at 23. Referring to Civil
27 Rule 17(a)(1), it reasoned: “Because [MVE] does not own the
28 fraud claim made the basis of MVE’s Complaint, MVE is not the
13
1 real party in interest with standing to prosecute the fraud
2 claim alleged in the Complaint. Having determined that the
3 allegations and supporting documents in the Complaint do not
4 support a claim for fraud, the quiet title claim is fatally
5 defective.” Id. at 23–24.
6 1. Legal standards for a motion to dismiss under Civil
Rule 12(b)(6).
7
8 A motion to dismiss under Civil Rule 12(b)(6) (applied in
9 adversary proceedings by Rule 7012(b)) challenges the
10 sufficiency of the allegations set forth in the complaint and
11 may be based on either absence of a recognizable legal theory or
12 the lack of sufficient facts “alleged under a cognizable legal
13 theory.” Johnson v. Riverside Healthcare Sys., 534 F.3d 1116,
14 1121 (9th Cir. 2008) (citation omitted). The factual
15 allegations in the complaint must state a claim for relief that
16 is facially plausible. Ashcroft v. Iqbal, 556 U.S. 662, 678
17 (2009); see also Bell Atlantic Corp. v. Twombly, 550 U.S. 54418 (2007).
19 Thus, based on the Iqbal/Twombly rubric, the bankruptcy
20 court must first identify bare assertions that “do nothing more
21 than state a legal conclusion—even if that conclusion is cast in
22 the form of a factual allegation,” and discount them from an
23 assumption of truth. Moss v. U.S. Secret Serv., 572 F.3d 962,
24 969 (9th Cir. 2009). Then, if there remain well-pleaded factual
25 allegations, the bankruptcy court should assume their truth and
26 determine whether the allegations “and reasonable inferences
27 from that content” give rise to a plausible claim for relief.
28 Id. “[D]etermining whether a complaint states a plausible claim
14
1 is context-specific, requiring the reviewing court to draw on
2 its experience and common sense.” Ashcroft, 556 U.S. at 679.
3 In limited circumstances, the bankruptcy court may look beyond
4 the complaint: “In ruling on a [Civil Rule] 12(b)(6) motion, a
5 court may generally consider only allegations contained in the
6 pleadings, exhibits attached to the complaint, and matters
7 properly subject to judicial notice.” Swartz v. KPMG LLP,
8 476 F.3d 756, 763 (9th Cir. 2007).5
9 2. Because MVE’s chapter 7 trustee settled the fraud
claim, MVE may not assert it against Mi Nipomo and
10 Costa Pacifica in the guise of a quiet title action.
11 The bankruptcy court concluded that MVE was not the real
12 party in interest under Civil Rule 17(a).6 Civil Rule 17(a)
13 provides that “[a]n action must be prosecuted in the name of the
14 real party in interest.” Fed. R. Civ. P. 17(a)(1); Fed. R.
15 Bankr. P. 7017 (applying Civil Rule 17 to adversary
16 proceedings). Under Civil Rule 17, the real party in interest
17 is the “party to whom the relevant substantive law grants a
18 cause of action.” U-Haul Int’l, Inc. v. Jartran, Inc., 793 F.2d
19 1034, 1038 (9th Cir. 1986). Accordingly, “most real party in
20
5
21 On appeal, MVE does not dispute that the bankruptcy
court properly took judicial notice of and considered the
22 bankruptcy proceedings and the various documents filed in them.
23 6
“Although the Ninth Circuit has not reached the issue,
24 district courts have permitted parties to raise Rule 17
objections in the context of a motion to dismiss under
25 Rule 12(b)(6).” Runaj v. Wells Fargo Bank, 667 F. Supp. 2d
1199, 1205 n.6 (S.D. Cal. 2009); Langer Juice Co. v. Stonhard,
26 No. CV 13-6323-RSWL-AJWX, 2014 WL 346643, at *4 (C.D. Cal.
27 Jan. 30, 2014). See also Whelan v. Abell, 953 F.2d 663, 672
(D.C. Cir. 1992) (“A real-party-in-interest defense can be
28 raised as a Rule 12(b)(6) motion . . . .”).
15
1 interest inquiries focus on whether the plaintiff or movant
2 holds the rights he or she seeks to redress.” Veal v. Am. Home
3 Morg. Servicing, Inc. (In re Veal), 450 B.R. 897, 908 (B.A.P.
4 9th Cir. 2011).
5 The bankruptcy court’s logic was straightforward: the fraud
6 claim entered the bankruptcy estate; when the MVE chapter 7
7 trustee abandoned the bankruptcy estate’s interest in the MVE
8 Project, he did not also abandon the fraud claim; later, the
9 chapter 7 trustee administered and settled the fraud claim;
10 accordingly, MVE could not bring the fraud claim because it was
11 not the real party in interest.
12 We agree with the bankruptcy court; thus, we conclude that
13 the bankruptcy court did not err in concluding that MVE failed
14 to state a claim upon which relief may be granted. The fraud
15 claim was extinguished through settlement; MVE could not pursue
16 it.
17 The fraud claim entered the bankruptcy estate. Under
18 § 541(a), filing a bankruptcy petition creates an estate
19 comprised of “all legal or equitable interests of the debtor in
20 property as of the commencement of the case.” 11 U.S.C.
21 § 541(a)(1). This includes real property, such as the Property.
22 It also includes legal claims and causes of action. United
23 States v. Whiting Pools, Inc., 462 U.S. 198, 205 n.9 (1983);
24 Sierra Switchboard Co. v. Westinghouse Elec. Corp., 789 F.2d
25 705, 707 (9th Cir. 1986) (“The scope of section 541 is broad,
26 and includes causes of action.”).
27 The “bankruptcy code endows the bankruptcy trustee with
28 the exclusive right to sue on behalf of the estate.” Estate of
16
1 Spirtos v. One San Bernardino Cty. Superior Court Case Numbered
2 SPR 02211, 443 F.3d 1172, 1176 (9th Cir. 2006).7 Thus, once
3 MVE’s chapter 11 proceeding was converted to chapter 7, MVE’s
4 chapter 7 trustee was the only party who could assert or
5 administer the fraud claim.
6 Neither party disputes that the fraud claim was estate
7 property. Indeed, MVE goes to great lengths to contend that it
8 properly scheduled all of its legal claims, including the fraud
9 claim. Nor do the parties dispute that MVE’s chapter 7 trustee
10 could administer it. Instead, they disagree on how he
11 administered it: MVE says its trustee abandoned the fraud claim;
12 Mi Nipomo and Costa Pacifica assert that the MVE Trustee settled
13 it.
14 The Abandonment Order did not include the fraud claim. The
15 bankruptcy court concluded that the Abandonment Order did not
16 include the fraud claim alleged in the complaint. It explained:
17 The court agrees with [Mi] Nipomo that “[t]he estate's
interest in the real property, which is disclosed in
18 Schedule A, is distinct from its interest in causes of
action,” which MVE was required to disclose in
19 Schedule B, including the fraud claim forming the
basis of MVE’s Complaint. Namba’s Abandonment Notice
20 does not refer to MVE’s fraud claim nor give creditors
and parties in interest notice of an intention to
21 abandon any cause of action in addition to the
84 acres of land comprising the MVE Project. The
22 Abandonment Order clearly and unambiguously authorized
Namba to abandon only “the estate’s interest, if any,
23 in the entire 84 acre Maria Vista Estates project,
located at 555 Vista Del Rio, Nipomo, California.”
24 “[T]here is no informal abandonment of property of the
estate.” Curren v. Great Am. Ins. Co., (In re Hat),
25
26 7
Section 323(a) provides that the “trustee in a case is
27 the representative of the estate.” 11 U.S.C. § 323(a). And
§ 323(b) provides that the trustee “has capacity to sue and be
28 sued.” 11 U.S.C. § 323(b).
17
1 363 B.R. 123, 138 (Bankr. E.D. Cal. 2007). Because
MVE’s alleged fraud claim was neither identified
2 specifically in either the Abandonment Notice or the
Abandonment Order, MVE’s fraud claim was outside the
3 scope of the Abandonment Order and remained property
of the estate after April 28, 2011.
4
5 Mem. Dec. at 22–23 (footnotes omitted).
6 On appeal, MVE argues that this was error because its
7 Trustee abandoned to MVE “all of the estate’s remaining
8 interests in the [Property], which included legal claims against
9 parties other than the ‘FDIC Parties’[.]” MVE Opening Br. at 12
10 (capitals removed). MVE also contends that trustee intended to
11 abandon to MVE the quiet title claim against the successful
12 bidders at the foreclosure sale (and their successors in
13 interest). Id. at 25.
14 MVE’s theory runs like so: (1) when the MVE Trustee filed
15 the motion to abandon the estate’s interest in the Property,
16 Sequoia had already foreclosed; (2) accordingly, the estate had
17 no legal or possessory interest in the Property; (3) the MVE
18 Trustee was also negotiating the § 506(c) settlement which
19 included a release of all claims against the FDIC Parties, but
20 not against the successful foreclosure sale bidders or their
21 successors-in-interest; (4) “[i]t would have been reasonably
22 apparent to the [MVE Trustee] that, once the Property was
23 foreclosed upon, MVE would also have a quiet title claim against
24 the successful bidders and their successors-in-interest, et.al
25 [sic] based upon the forged deed”; (5) the MVE Trustee did not
26 pursue these legal claims; and (6) thus the MVE Trustee’s intent
27 was “to abandon all of the Bankruptcy estate’s rights, title and
28 interest in the [Property] in April 2011, including any Quiet
18
1 Title claims which arise out of the ownership of that real
2 property (except as to the ‘FDIC Parties’), to position the
3 bankruptcy estate to be closed.” Id. at 25–28.8
4 We agree with the bankruptcy court. “‘Abandonment’ is a
5 term of art with special meaning in the bankruptcy context.”
6 Catalano v. C.I.R., 279 F.3d 682, 685 (9th Cir. 2002). “It is
7 the formal relinquishment of the property at issue from the
8 bankruptcy estate.” Id. The bankruptcy code provides that,
9 after notice and a hearing, a trustee “may abandon any property
10 of the estate that is burdensome to the estate or that is of
11 inconsequential value and benefit to the estate.” 11 U.S.C.
12 § 554(a). Rule 6007(a) states that the “trustee . . . shall
13 give notice of a proposed abandonment or disposition of
14 property . . . .” Fed. R. Bankr. P. 6007(a). Accordingly,
15 “there is no abandonment without notice to creditors.” Sierra
16 Switchboard Co., 789 F.2d at 709. Further, “[a]bandonment
17 requires affirmative action by the trustee or some other
18 evidence of the intent to abandon the asset.” Pace v. Battley
19 (In re Pace), 146 B.R. 562, 566 (9th Cir. BAP 1992).
20 As the bankruptcy court correctly noted, the Abandonment
21
22
8
At oral argument, MVE advanced a slightly different
23 argument: When the MVE Trustee abandoned the Property, he also
24 abandoned the quiet title claims because quiet title actions
essentially run with the land. This argument fails. Although
25 MVE raised this argument below, it failed to argue the point in
its opening brief and thus waived it. Second, this argument
26 fails to adequately address the need for specificity when
27 abandoning an asset and the fact that the quiet title action
required a successful determination on the personal property
28 fraud claim which was not abandoned.
19
1 Notice did not inform creditors that the MVE Trustee was
2 abandoning the estate’s interest in claims for relief or causes
3 of action. Instead, the notice told creditors that he was
4 abandoning real property. More particularly, the notice stated
5 that the MVE Trustee concluded that the estate could not realize
6 any value from sale of the Property as liens exceeded purchase
7 offers. It further suggested the Property was burdensome
8 because the “estate lacks sufficient funds to continue to insure
9 the Property and maintain 24-hour security.” Neither of these
10 statements makes sense if they refer to the fraud claim: A legal
11 claim does not require insurance or 24-hour security. In any
12 event, even if MVE is correct that its trustee intended to
13 abandon the fraud claim, the bankruptcy court correctly found
14 that he failed to do so because he did not provide proper notice
15 to all creditors.
16 The fraud claim was included in the Settlement Agreement.
17 The bankruptcy court concluded that the MVE Trustee
18 “investigated MVE’s fraud claim, and took action to administer
19 the claim as an asset of the estate.” Mem. Dec. at 23. It
20 continued:
21 MVE’s fraud claim was settled by Namba pursuant to the
Settlement Agreement approved by Settlement Order
22 under the terms of which the FDIC Parties received a
full release of all claims arising in any way out of
23 the MVE Project, and/or security interests asserted or
taken in the property comprising the MVE Project,
24 including the fraud claim asserted in MVE’s Complaint,
in consideration for payment of the sum of $200,000 to
25 the estate.
26 Id. MVE suggests that the Settlement Agreement released claims
27 against only the “FDIC Parties” and not Mi Nipomo and Costa
28 Pacifica. MVE Opening Br. at 19–25. MVE claims that the “term
20
1 ‘FDIC Parties’ is not defined within the body of the Settlement
2 Agreement.” Id. at 20. Nor, it urges, is there language
3 extending the releases to successors in interest. Id. MVE
4 points out that this contrasts with the MVE Trustee’s earlier,
5 unsuccessful attempt to sell the fraud claim. Thus, it
6 contends, the identity of the “FDIC Parties” must be the parties
7 who signed the agreement: the FDIC; Sequoia Financial Solutions
8 IV LLC; Fidelity; and RES-CA VMV Estates, LLC. Id. at 20.
9 MVE’s argument is deeply troubling. MVE never raised this
10 identity argument before the trial court; it thus waived the
11 argument. See, e.g., MVE’s Motion to Remand, Jan. 21, 2016,
12 1–8; MVE’s Opposition to Defendants’ Motion to Dismiss, Feb. 25,
13 2016, 1–9; MVE’s Reply on Remand, Mar. 3, 2016 1–10. Further,
14 the argument is flatly wrong.
15 The Settlement Agreement broadly defined “FDIC Parties” in
16 recital paragraph F, found on page 2, as the Bank (i.e., SPB),
17 the FDIC, RES-CA, Sequoia, and “all predecessors in interest
18 thereof and successors in interest thereto with respect to the
19 Loan and the Property . . . .” (emphasis added).
20 MVE concedes that Mi Nipomo and Costa Pacifica are “the
21 successors in interest to Nipomo Real Estate Group, LLC and
22 Banconsulting Services, LLC, the successful bidders in Sequoia’s
23 April 2011 trustee’s sale of the Phase I Loan . . . .” MVE
24 Opening Br. at 20. The Settlement Order and the related
25 releases thus extend to Mi Nipomo and Costa Pacifica.
26 In sum, the bankruptcy court did not err when it dismissed
27
28
21
1 the adversary complaint.9 MVE’s chapter 7 trustee administered
2 the fraud claim that MVE seeks to bring to judgment. In
3 exchange for $200,000, the settlement agreement included a
4 general release to the signing parties and their predecessors
5 and successors in interest, including Mi Nipomo and Costa
6 Pacifica, that covered the fraud claim. MVE thus did not and
7 does not have a claim to assert.
8 D. The bankruptcy court did not abuse its discretion by
dismissing the adversary complaint without leave to amend.
9
10 A bankruptcy court may dismiss an adversary complaint with
11 prejudice if it determines that amendment would be futile.
12 Mirmehdi v. United States, 689 F.3d 975, 985 (9th Cir. 2012);
13 Rutman Wine Co. v. E. & J. Gallo Winery, 829 F.2d 729, 738 (9th
14 Cir. 1987) (“Denial of leave to amend is not an abuse of
15 discretion where the pleadings before the court demonstrate that
16 further amendment would be futile.”).
17 Here, the bankruptcy court concluded that the “deficiencies
18 in MVE’s Complaint cannot be cured by amendment.” MVE does not
19 dispute this conclusion nor does it suggest any additional facts
20 that could save the complaint. In addition, we agree with the
21 bankruptcy court. For the reasons already discussed, the
22 bankruptcy court properly dismissed the complaint. Because MVE
23 did not own the claim, no additional facts could save the
24 complaint.
25
26
9
27 The bankruptcy court dismissed the second claim for
relief — for declaratory relief — as duplicative. MVE does not
28 argue that this was error.
22
1 CONCLUSION
2 Based on the foregoing, we AFFIRM.
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