FILED
JUL 21 2020
NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK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-19-1319-FSG
FERNANDO HERNANDEZ, JR.,
Debtor. Bk. No. 2:19-bk-20725-WB
FERNANDO HERNANDEZ, JR.,
Appellant,
v. MEMORANDUM*
WILMINGTON TRUST, NATIONAL
ASSOCIATION, as Successor Trustee to
Citibank, N.A., as Trustee for Merrill
Lynch Mortgage Investors Trust,
Mortgage Loan Asset-Backed Certificates,
Series 2006-HE5,
Appellee.
Appeal from the United States Bankruptcy Court
for the Central District of California
Julia Wagner Brand, Bankruptcy Judge, Presiding
Before: FARIS, SPRAKER, and GAN, Bankruptcy Judges.
*
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.
INTRODUCTION
Debtor Fernando Hernandez, Jr. initiated yet another chapter 131 case
but failed to file complete schedules, disclose required information,
propose a feasible plan, or tender adequate plan payments. The bankruptcy
court dismissed his case with a 180-day bar on refiling.
On appeal, Mr. Hernandez does not challenge the substance of the
dismissal but contends that the secured creditor failed to timely object to
his plan or serve him with its objection. He also argues that the court could
not dismiss his case until it resolved his pending adversary proceeding.
We discern no error and AFFIRM.
FACTUAL BACKGROUND2
A. Prepetition events
In 2006, Mr. Hernandez’s wife, Regina Hernandez, executed a
promissory note in the original principal sum of $368,000, which was
secured by a deed of trust encumbering real property in Pico Rivera,
California (the “Property”). In 2015, appellee Wilmington Trust, National
Association, as Successor Trustee to Citibank, N.A., as Trustee for Merrill
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.
2
We exercise our discretion to review the bankruptcy court’s docket, as
appropriate. See Woods & Erickson, LLP v. Leonard (In re AVI, Inc.),
389 B.R. 721, 725 n.2
(9th Cir. BAP 2008).
2
Lynch Mortgage Investors Trust, Mortgage Loan Asset-Backed Certificates,
Series 2006-HE5 (“Wilmington”) obtained the deed of trust and took
possession of the note, which was endorsed in blank.
Between March 2011 and October 2018, Mr. and Mrs. Hernandez
filed eight bankruptcy petitions either jointly or individually.3 In one of the
cases, filed in May 2014, they received a chapter 7 discharge. All of the
other cases were chapter 13 cases that were quickly dismissed.
B. Mr. Hernandez’s chapter 13 case
Wilmington commenced the latest foreclosure proceedings in state
court in March 2019. Mr. Hernandez, proceeding pro se, initiated the
present individual chapter 13 case, the ninth related case in eight years. He
failed to file his schedules, statement of financial affairs, and chapter 13
plan (among other things) but represented that he was negotiating a short
sale of the Property and requested an extension of time to file the missing
documents. The court granted Mr. Hernandez a two-week extension.
When Mr. Hernandez filed his missing documents, they were facially
deficient and omitted key information. His schedules acknowledged
3
See bkr. case nos. 2:11-bk-18876-TD (joint chapter 13 case filed March 2, 2011);
2:11-bk-35138-VZ (joint chapter 13 case filed June 10, 2011); 2:14-bk-19340-VZ (joint
chapter 7 case filed May 13, 2014); 2:15-bk-17815-VZ (Mrs. Hernandez’s chapter 13 case
filed May 15, 2015); 2:15-bk-29448-VZ (Mrs. Hernandez’s chapter 13 case filed
December 30, 2015); 2:16-bk-24815-NB (Mr. Hernandez’s chapter 13 case filed
November 8, 2016); 2:17-bk-14743-WB (Mr. Hernandez’s chapter 13 case filed April 18,
2017); 2:18-bk-22278-NB (Mrs. Hernandez’s chapter 13 case filed October 18, 2018).
3
Wilmington’s lien and indicated that it was “disputed.” The plan proposed
sixty monthly payments of $111, for a total of $6,666: $100 per month to
Wilmington and $11 per month to the chapter 13 trustee. The plan did not
provide any treatment for any other debt. Mr. Hernandez failed to serve
the plan or give notice of the confirmation hearing.
Two weeks before the hearing on plan confirmation, the
Hernandezes filed an adversary complaint against Wilmington for
wrongful foreclosure. Essentially, they sought to halt the foreclosure
proceeding by alleging that Wilmington lacked standing to foreclose.
C. The objections to plan confirmation
Wilmington filed an objection to plan confirmation and a request for
dismissal (“Wilmington Objection”). It represented that the prepetition
arrears totaled $118,206 and that the loan was fifty-eight months in arrears.
Wilmington argued that the proposed plan was unconfirmable. It
contended that the plan was not proposed in good faith and pointed out
the Hernandezes’ many unsuccessful bankruptcy filings with the aim of
preventing Wilmington from obtaining possession of the Property.
Further, the plan did not propose to cure the prepetition arrears of
$118,206 and instead only proposed paying Wilmington $6,000 over the
five-year term. Curing the arrears would have required payments of $1,970
per month, but Mr. Hernandez could not afford that, since his monthly net
income was only $900.
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The proof of service document indicated that Wilmington mailed its
objection to Mr. Hernandez on October 30.
The chapter 13 trustee, Nancy Curry (“Trustee”), also filed an
objection to plan confirmation (“Trustee Objection”). She pointed out
Mr. Hernandez’s failure to: (1) properly identify the Property; (2) serve the
plan and notice of the confirmation hearing; (3) disclose Mrs. Hernandez’s
prior bankruptcy cases and Mr. Hernandez’s debts, assets, and income;
(4) complete and sign the plan; (5) commit all disposable income to the
plan; (6) provide income information; and (7) provide other information.
Mr. Hernandez did not respond to either objection.
D. Confirmation hearing
At the hearing on plan confirmation, the court asked Mr. Hernandez
why it should not dismiss his case, given the many problems enumerated
in the objections, including his failure to make plan payments. He stated
that he “[hadn’t] got it in order” and that he has “got to set that up.”
The court recessed the hearing to review the case documents. It then
stated that it would dismiss the case with a 180-day bar on refiling because,
under the four-factor test in Leavitt v. Soto (In re Leavitt),
171 F.3d 1219 (9th
Cir. 1999), the plan and case were not filed in good faith.
First, it found that Mr. Hernandez manipulated the Bankruptcy
Code. It noted that the schedules and statement of financial affairs were
incomplete and internally inconsistent, despite the court granting
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Mr. Hernandez an extension of time to file his documents. It also stated
that the plan was incomplete, not signed, and not served.
Second, the court considered Mr. Hernandez’s history of bankruptcy
filings. It stated that he and his wife had previously filed multiple
bankruptcy cases that “were filed and dismissed, filed and dismissed, and
tag-team filings.”
Third, the court found that Mr. Hernandez filed the petition with the
intent to defeat Wilmington’s state court foreclosure action.
Fourth, the court stated that it was unclear whether there was other
egregious behavior.
At the end of the hearing, Mr. Hernandez asked the court to convert
his case to one under chapter 7. The bankruptcy court stated that the case
was dismissed and concluded the hearing.
The bankruptcy court entered an order dismissing the case with a
180-day bar on refiling. Mr. Hernandez timely appealed.
JURISDICTION
The bankruptcy court had jurisdiction pursuant to
28 U.S.C. §§ 1334
and 157(b)(2)(A) and (L). We have jurisdiction under
28 U.S.C. § 158.
ISSUE
Whether the bankruptcy court erred in dismissing Mr. Hernandez’s
case with a 180-day bar on refiling.
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STANDARDS OF REVIEW
We review for an abuse of discretion the bankruptcy court’s decision
to dismiss a chapter 13 case. See Ellsworth v. Lifescape Med. Assocs., P.C. (In re
Ellsworth),
455 B.R. 904, 914 (9th Cir. BAP 2011). To determine whether the
bankruptcy court has abused its discretion, we conduct a two-step inquiry:
(1) we review de novo whether the bankruptcy court “identified the correct
legal rule to apply to the relief requested” and (2) if it did, we consider
whether the bankruptcy court’s application of the legal standard was
illogical, implausible, or without support in inferences that may be drawn
from the facts in the record. United States v. Hinkson,
585 F.3d 1247, 1262-63
& n.21 (9th Cir. 2009) (en banc).
“[W]hen a bankruptcy court makes factual findings of bad faith to
support dismissal of a chapter 13 case, we review those findings for clear
error.” In re Ellsworth,
455 B.R. at 914 (citations omitted). A factual finding
is clearly erroneous if it is illogical, implausible, or without support in
inferences that may be drawn from the facts in the record. TrafficSchool.com,
Inc. v. Edriver Inc.,
653 F.3d 820, 832 (9th Cir. 2011).
DISCUSSION
A. The court did not err in considering the Wilmington Objection.
Mr. Hernandez offers two arguments on appeal: (1) that the
Wilmington Objection was untimely and (2) that the court should not have
dismissed his case until it decided the pending adversary proceeding. We
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reject both arguments.
1. Service of the Wilmington Objection was timely.
Mr. Hernandez contends that he did not have adequate notice of the
Wilmington Objection because it was mailed only fourteen days before the
confirmation hearing. He is wrong.
First, Mr. Hernandez never served his plan or gave notice of the
confirmation hearing to any creditor. Therefore, the court could not have
confirmed his plan even if no one had objected.
Second, his argument is based on the wrong rule. He relies on Rule
9014, which governs “contested matter[s] not otherwise governed by these
rules . . . .” But chapter 13 plan confirmation is “otherwise governed” by
Rule 3015(f), and that rule provides that objections to confirmation of a
chapter 13 plan shall be filed and served “at least seven days before the
date set for the hearing on confirmation, unless the court orders
otherwise.” (Emphasis added.) Local Bankruptcy Rule 3015-1(g)(1)
requires that objections must be filed and served “not less than 14 days
before the date set for the confirmation hearing.” Therefore, the
Wilmington Objection filed and served fourteen days before the
confirmation hearing was timely.
Third, he argues that he is entitled to an extra three days because
Wilmington served him by U.S. mail. He is presumably referring to Rule
9006(f), which provides that “[w]hen there is a right or requirement to act
8
or undertake some proceedings within a prescribed period after being
served and that service is by mail . . . , three days are added after the
prescribed period would otherwise expire under Rule 9006(a).” However,
this rule applies only to matters in which Mr. Hernandez would be
required or allowed to take some action within a “prescribed period after
[he was] served.” For a chapter 13 plan confirmation, the deadline for filing
and serving objections is measured from the hearing date, not from the
date of service, and the debtor is not required to file a response to any
objection. Therefore, Rule 9006(f) is inapplicable.
Fourth, he argues that he did not receive the Wilmington Objection
and was “ambushed” by its arguments. However, service is presumed
complete upon mailing the document. See Rule 9006(e). Furthermore, the
bankruptcy court’s decision to dismiss his case was also based on the
Trustee Objection and the court’s own review of the case documents, and
he does not challenge the substance of either as the basis for dismissal.
Finally, Mr. Hernandez did not raise any of these points in the
bankruptcy court. We will not consider new arguments raised for the first
time on appeal. See El Paso City of Tex. v. Am. W. Airlines, Inc. (In re Am. W.
Airlines, Inc.),
217 F.3d 1161, 1165 (9th Cir. 2000) (“Absent exceptional
circumstances, we generally will not consider arguments raised for the first
time on appeal, although we have discretion to do so.”).
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2. The court did not have to decide the adversary proceeding
before ruling on plan confirmation.
Mr. Hernandez also argues that the bankruptcy court had to resolve
his adversary proceeding against Wilmington before it could deny plan
confirmation. He is again wrong.
A chapter 13 debtor must provide for treatment of a secured
creditor’s claim in his proposed plan, even if he challenges the amount or
validity of the claim. See de la Salle v. U.S. Bank, N.A. (In re de la Salle),
461
B.R. 593, 602 (9th Cir. BAP 2011). Mr. Hernandez did not properly address
Wilmington’s claim or devote the entirety of his disposable income to the
plan. He cannot ignore Wilmington’s lien merely because he marked it as
disputed in his schedules and challenged it in an adversary proceeding.
His intent to challenge Wilmington’s lien does not excuse his failure to
account for Wilmington’s secured claim in the plan.
B. The bankruptcy court did not err in dismissing Mr. Hernandez’s
case for bad faith.
Furthermore, even if the Wilmington Objection was procedurally
deficient (and it was not), the bankruptcy court did not err in dismissing
Mr. Hernandez’s case based on the Trustee Objection and its independent
review of the case. Mr. Hernandez does not address the bankruptcy court’s
reasons for dismissing his case. The court correctly identified and applied
the Leavitt factors. We agree with the bankruptcy court on each point and
find no abuse of discretion.
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We reject Mr. Hernandez’s argument that the court should have
converted his case to chapter 7. Before dismissing a case under § 1307(c),
the court must engage in a two-step analysis: “First, it must be determined
that there is ‘cause’ to act. Second, once a determination of ‘cause’ has been
made, a choice must be made between conversion and dismissal based on
the ‘best interests of the creditors and the estate.’” Nelson v. Meyer (In re
Nelson),
343 B.R. 671, 675 (9th Cir. BAP 2006).
The bankruptcy court found cause. It did not explicitly state that
dismissal was in the best interests of the estate and creditors, but the record
makes clear that the court reached that conclusion, and for good reason.
The court found that Mr. Hernandez was manipulating the bankruptcy
process to frustrate Wilmington’s state court proceedings. It indicated that
the state court was the appropriate forum for adjudication of Wilmington’s
claim. Thus, dismissal was in the best interests of Wilmington and the
estate. Moreover, a chapter 7 case would not have benefitted
Mr. Hernandez, either. Chapter 7 would not have given him any way to
address his defaulted secured debt, and because he received a chapter 7
discharge in his case commenced on May 13, 2014, he was not entitled to a
discharge in any case commenced prior to May 13, 2022. See § 727(a)(8). It
was not error to dismiss Mr. Hernandez’s case rather than convert it to one
under chapter 7.
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CONCLUSION
The bankruptcy court did not err in dismissing Mr. Hernandez’s
chapter 13 case. We AFFIRM.
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