In re: Jose R. Solano, Jr. ( 2020 )

FILED
JUL 24 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NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK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-19-1258-GFS
JOSE R. SOLANO, JR., BAP No. CC-19-1259-GFS
Debtor. (Related)
Bk. No. 2:16-bk-26833-VZ
JOSE R. SOLANO, JR.,
Appellant, Adv. No. 2:19-ap-01043-VZ
v.
MAGNUM PROPERTY INVESTMENTS
LLC; SARINA GOERISCH,
Appellees.
JOSE R. SOLANO, JR.,
Appellant, Adv. No. 2:19-ap-01152-VZ
v.
MAGNUM PROPERTY INVESTMENTS MEMORANDUM*
LLC; SARINA GOERISCH; LANE
NUSSBAUM; NUSSBAUM APC,
Appellees.
Appeal from the United States Bankruptcy Court
for the Central District of California
Vincent Zurzolo, Bankruptcy Judge, Presiding
Before: GAN, FARIS, and SPRAKER, 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
These related appeals involve two adversary proceedings pertaining
to chapter 71 debtor Jose R. Solano, Jr.’s (“Debtor”) former residence,
located in West Covina, California (the “Property”). After the bankruptcy
court granted stay relief, the Property was sold pursuant to a nonjudicial
foreclosure.
Debtor initiated the first case in state court, seeking to quiet title to
the Property (the “Quiet Title Action”). He removed the proceeding, but
the bankruptcy court remanded it because the Notice of Removal was
untimely under Rule 9027(a)(3).
Debtor filed the second case as an adversary proceeding and alleged
fraud and other claims against the purchaser of the Property, Magnum
Property Investments LLC (“Magnum”), its principal Sarina Goerisch, and
its attorneys, Lane Nussbaum and Nussbaum APC (the “Fraud Action”).
The court granted the defendants’ motion to dismiss the complaint
pursuant to Civil Rule 12(b)(6), made applicable by Rule 7012, because the
claims belonged to the estate and Debtor lacked standing.
The bankruptcy court did not err in remanding the Quiet Title Action
or in dismissing the Fraud Action. Accordingly, we AFFIRM both orders.
1
Unless specified otherwise, all chapter and section references are to the
Bankruptcy Code, 11 U.S.C. §§ 101-1532, all “Rule” references are to the Federal Rules
of Bankruptcy Procedure, and all “Civil Rule” references are to the Federal Rules of
Civil Procedure.
2
FACTS2
In 2007, Debtor and Soledad M. Solano purchased the Property and
executed a promissory note and deed of trust in favor of World Savings
Bank, FSB (the “Bank”).3 The Solanos defaulted under the terms of the note,
and in 2013 the Bank recorded a notice of default.
After a series of bankruptcy filings involving the Property, Debtor
filed the present case in 2016. The Bank objected to confirmation of
Debtor’s plan, in part because the plan failed to cure arrears in the amount
of $635,452.29. After the Bank filed its objection, Debtor voluntarily
converted his case to chapter 7.
The Bank sought stay relief under §§ 362(d)(2) and (d)(4) based on
Debtor’s persistent failure to make payments and the allegation that Debtor
filed the bankruptcy petition as part of a scheme to hinder, delay, or
defraud creditors.4 In March 2017, the bankruptcy court granted stay relief
to permit the Bank and its successors to enforce state law remedies to
2
We exercise our discretion to review the bankruptcy court’s docket and
relevant adversary proceedings. See Rivera v. Curry (In re Rivera), 517 B.R. 140, 143 n.2
(9th Cir. BAP 2014), aff’d in part & dismissed in part, 675 F. App’x 781 (9th Cir. 2017).
3
World Savings Bank, FSB subsequently changed its name to Wachovia
Mortgage FSB and merged with Wells Fargo, N.A.
4
Debtor’s case was the fourth bankruptcy filed within seven years involving an
interest in the Property. Although the bankruptcy court entered an in rem stay relief
order in the most recent prior case, filed by Soledad Solano (Case No. 2:16-bk-15605-
VZ), the Bank had not recorded it prior to Debtor’s petition.
3
foreclose and obtain possession of the Property. Debtor appealed, and the
district court affirmed.
In February 2018, Magnum purchased the Property at a nonjudicial
foreclosure sale pursuant to the deed of trust. Magnum filed an unlawful
detainer action against Debtor in state court and obtained a judgment
against Debtor in May 2018. Debtor removed the unlawful detainer action
in June 2018, but the bankruptcy court remanded it. Debtor was eventually
evicted.
A. The Quiet Title Action
On June 1, 2018, Debtor filed the Quiet Title Action in state court. He
asserted claims for quiet title, fraud, cancellation of instruments, and
declaratory relief against Magnum and Sarina Goerisch. Debtor alleged
that Magnum fraudulently recorded a Trustee’s Deed Upon Sale, Notice of
Sale, and Notice of Default. Magnum filed a demurrer, which the state
court sustained with leave to amend.
On October 10, 2018, Debtor filed a first amended complaint.5
Magnum again demurred. On February 5, 2019, three days before the
hearing on Magnum’s demurrer, Debtor filed a Notice of Removal
5
In the first amended complaint, Debtor asserted claims for quiet title, fraud,
illegal foreclosure, illegal racketeering, cancellation of written instruments, slander of
title, illegal eviction, unjust enrichment, violation of the Home Owner’s Bill of Rights,
violations of the California Business & Professional Code, invasion of privacy, and
declaratory relief.
4
pursuant to 28 U.S.C. §§ 1441 and 1452(a), which established an adversary
proceeding in the bankruptcy case.
In February 2019, Magnum filed a motion for remand and argued
that Debtor’s Notice of Removal was untimely under Rule 9027(a)(3). Prior
to the hearing on the motion for remand, Debtor filed a motion in the
district court for mandatory withdrawal of the reference.
The bankruptcy court continued the hearing on Magnum’s motion
for remand to allow the district court to rule on Debtor’s motion to
withdraw the reference. The district court denied the motion to withdraw
the reference in August 2019, and the bankruptcy court reset the hearing on
Magnum’s motion for remand for October 2019.
At the hearing, the bankruptcy court ruled that remand was
appropriate because Debtor’s Notice of Removal was untimely. The
bankruptcy court also ruled that Debtor’s lack of standing to bring the
claims provided an additional basis to remand the proceeding. The court
stated that because the Property, and claims that arose in relation to the
Property, remained property of the bankruptcy estate, the chapter 7 trustee
was the only party who could assert the claims. Debtor timely appealed.
B. The Fraud Action
In May 2019, Debtor filed an adversary complaint against Magnum,
Sarina Goerisch, Lane Nussbaum, and Nussbaum APC. Debtor asserted
claims for fraud, racketeering, false claims, collection of an unlawful debt,
5
and declaratory relief. Debtor alleged that no sale took place, and the
Trustee’s Deed Upon Sale was forged and wrongfully recorded by the
defendants.6
Although the caption of the complaint and the table of contents
include claims under the Fair Debt Collections Practices Act (the “FDCPA”)
and the Racketeer Influenced and Corrupt Organizations Act (“RICO”), the
complaint lacks factual allegations relating to such claims. The complaint
also includes a reference to an illegal eviction, but again, the complaint is
devoid of factual allegations related to the eviction.
The defendants filed a motion to dismiss, arguing that Debtor lacked
standing because the claims were property of the estate. The defendants
also asserted that Debtor failed to allege sufficient facts to support a
cognizable claim under the FDCPA or RICO and failed to plead the fraud
claim with particularity, as required by Civil Rule 9(b), made applicable by
Rule 7009.
Debtor filed a response to the motion to dismiss and argued that the
estate essentially abandoned the Property by allowing the automatic stay to
6
Most of the complaint is identical to a prior adversary complaint asserted
against the Bank. See Case No. 2:17-ap-1202-VZ. In the prior adversary complaint,
Debtor asserted claims for fraud, racketeering and violations of the FDCPA based on
allegations that the Bank did not have an interest in the Property and had conspired to
defraud and steal the Property from Debtor through various fraudulent documents. The
case was dismissed with prejudice in October 2017.
6
be terminated, and therefore, Debtor had standing to bring the causes of
action. Debtor contended that his allegations were sufficient, and as a pro
se litigant, he should be held to a lesser standard.
The bankruptcy court granted the motion to dismiss and ruled that
Debtor lacked standing to bring the claims made in the complaint because,
to the extent that there were any valid claims related to the foreclosure,
they belonged to the estate. The court also determined that the allegations
in the complaint lacked required specificity. Debtor timely appealed.
JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and
157(b)(1). We have jurisdiction under 28 U.S.C. § 158.
ISSUES
Did the bankruptcy court abuse its discretion by remanding the Quiet
Title Action?
Did the bankruptcy court err by dismissing the Fraud Action
pursuant to Civil Rule 12(b)(6)?
STANDARDS OF REVIEW
We review the bankruptcy court’s decision to remand a proceeding
under 28 U.S.C. § 1452(b) for an abuse of discretion. McCarthy v. Prince (In
re McCarthy), 230 B.R. 414, 416 (9th Cir. BAP 1999). A bankruptcy court
abuses its discretion if it applies the wrong legal standard, or misapplies
the correct legal standard, or if its factual findings are clearly erroneous. See
7
TrafficSchool.com, Inc. v. Edriver Inc., 653 F.3d 820, 832 (9th Cir. 2011) (citing
United States v. Hinkson, 585 F.3d 1247, 1262 (9th Cir. 2009) (en banc)).
We review a dismissal of an adversary proceeding under Civil Rule
12(b)(6) de novo. New Mexico State Inv. Council v. Ernst & Young, LLP, 641
F.3d 1089, 1094 (9th Cir. 2011). Under a de novo review, we look at the
matter anew, giving no deference to the bankruptcy court’s determinations.
Barnes v. Belice (In re Belice), 461 B.R. 564, 572 (9th Cir. BAP 2011).
DISCUSSION
A. The Bankruptcy Court Did Not Abuse Its Discretion By Remanding
The Quiet Title Action
Debtor argues that the bankruptcy court abused its discretion by
remanding the Quiet Title Action because the removal statute does not
contain time limits.
Removal of a state court action to the bankruptcy court by a plaintiff
is governed by 28 U.S.C. § 1452(a).7 Under § 1452(b), the bankruptcy court
7
Debtor’s Notice of Removal cited the general federal removal statue, 28 U.S.C.
§ 1441, as well as the bankruptcy removal statute, 28 U.S.C. § 1452(a). Although the
Supreme Court has stated, “[t]here is no express indication in § 1452 that Congress
intended that statute to be the exclusive provision governing removals and remands in
bankruptcy,” the procedure for removal under 28 U.S.C. § 1441 applies only to “a
defendant.” Things Remembered, Inc. v. Petrarca, 516 U.S. 124, 129 (1995); 28 U.S.C.
§ 1446(a). However, 28 U.S.C. § 1452(a) applies to any “party” seeking to remove a
claim or cause of action to the bankruptcy court. See Perry v. Chase Auto Fin. (In re Perry),
BAP No. CC-10-1395-DMkKi, 2011 WL 4503166, at *5 (9th Cir. BAP July 8, 2011).
Because Debtor was the plaintiff in the state court Quiet Title Action, his removal is
(continued...)
8
can remand an action removed from the state court “on any equitable
ground.” We narrowly construe removal statutes and resolve any doubts
against removability. Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992).
The procedure for removal under 28 U.S.C. § 1452(a) is established by
Rule 9027. Parker v. Mid Valley Servs., Inc. (In re Parker), BAP No. EC-19-
1079-BSF, 2020 WL 710368, at *3 (9th Cir. BAP Feb. 11, 2020). Rule 9027 sets
forth different deadlines for removal of state court actions initiated pre-
and postpetition. Debtor filed the Quiet Title Action postpetition, so
removal is governed by Rule 9027(a)(3).
Rule 9027(a)(3) provides that a notice of removal of a state court civil
action, filed after the bankruptcy petition, must be filed within the shorter
of:
(A) 30 days after receipt, through service or
otherwise, of a copy of the initial pleading setting
forth the claim or cause of action sought to be
removed or (B) 30 days after receipt of the
summons if the initial pleading has been filed with
the court but not served with the summons.
Rule 9027(a)(3).
Because Debtor was the plaintiff in the state court Quiet Title Action,
we measure the deadline from his receipt of the defendants’ initial
7
(...continued)
governed by 28 U.S.C. § 1452(a).
9
responsive pleading. See In re Perry, 2011 WL 4503166, at *6. The record
demonstrates that Debtor filed the complaint in state court on June 1, 2018,
and the defendants filed their responsive pleading on July 8, 2018. Debtor
filed his Notice of Removal on February 5, 2019, nearly seven months after
defendants filed their initial responsive pleading.
Although the time limits in Rule 9027 are not jurisdictional, failure to
comply provides an “equitable ground” for remand under 28 U.S.C.
§ 1452(b). The “any equitable ground” standard is broad and “subsumes
and reaches beyond all of the reasons for remand under nonbankruptcy
removal statutes.” In re McCarthy, 230 B.R. at 417.
Failure to comply with removal deadlines under the general removal
statute is a procedural defect which mandates remand under 28 U.S.C.
§ 1447(c). See Schmitt v. Ins. Co. of N. Am., 845 F.2d 1546, 1551 (9th Cir. 1988)
(“remand of the present case became mandatory under section 1447(c) once
the district court determined that [defendant]'s petition for removal was
untimely”), superseded by statute on other grounds, 28 U.S.C. § 1447(c); Fristoe
v. Reynolds Metals Co., 615 F.2d 1209, 1212 (9th Cir. 1980) (per curium)
(“[T]he time limit [for removal under section 1446(b)] is mandatory and a
timely objection to a late petition will defeat removal . . . .”); see also Things
Remembered, Inc., 516 U.S. at 131-35 (Ginsburg, J., concurring) (reasoning
that an untimely removal provides an “equitable ground” for remand
under 28 U.S.C. § 1452(b)). Debtor’s failure to comply with the removal
10
deadline would necessitate remand under the nonbankruptcy removal
statutes, and therefore, remand is within the “any equitable ground”
standard of 28 U.S.C. § 1452(b).
Additionally, as we discuss below, the bankruptcy court correctly
determined that Debtor lacked standing to assert causes of action
pertaining to estate property, such as the Quiet Title Action. This is a
separate basis for remand. See Pereira v. Dunnington (In re 47-49 Charles St.
Inc.), 211 B.R. 5, 6 (S.D.N.Y. 1997) (affirming remand under 28 U.S.C.
§ 1452(b) because once a trustee was appointed, the principal of the debtor
lacked standing to remove the case).
B. The Bankruptcy Court Did Not Err By Dismissing The Fraud
Action
When reviewing a dismissal of an adversary proceeding under Civil
Rule 12(b)(6), we generally limit our consideration to the complaint and
view the allegations in the light most favorable to the plaintiff. Livid
Holdings Ltd. v. Salomon Smith Barney, Inc., 416 F.3d 940, 946 (9th Cir. 2005).
To avoid dismissal under Civil Rule 12(b)(6), a plaintiff must allege
“sufficient factual matter, accepted as true, to ‘state a claim to relief that is
plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell
Atl. Corp. v. Twombly, 550 U.S. 544, 555-56 (2007)). Dismissal under Civil
Rule 12(b)(6) is appropriate if the complaint lacks a cognizable legal theory,
or if it lacks sufficient factual allegations. Johnson v. Riverside Healthcare Sys.,
11
LP, 534 F.3d 1116, 1121 (9th Cir. 2008). Dismissal for lack of standing is a
subspecies of dismissal for failure to state a claim under Civil Rule 12(b)(6).
Quarre v. Saylor (In re Saylor), 178 B.R. 209, 215 (9th Cir. BAP 1995), aff’d 108
F.3d 219 (9th Cir. 1997).
1. Debtor Lacked Standing To Assert Claims for Fraud or
Wrongful Foreclosure
Debtor argues that the court erred by dismissing the complaint for
lack of standing. To determine whether Debtor had standing to assert
claims for fraud or wrongful foreclosure, we must determine whether the
claims were property of the estate, and if so, whether they were abandoned
to Debtor.
The commencement of a bankruptcy case creates an estate which
includes “all legal or equitable interests of the debtor in property as of the
commencement of the case.” § 541(a)(1). The scope of § 541 is broad and
includes causes of action. United States v. Whiting Pools, Inc., 462 U.S. 198,
205 n.9 (1983). Property interests acquired postpetition by the estate, but
not the debtor, are also included as property of the estate by § 541(a)(7).
MacKenzie v. Neidorf (In re Neidorf), 534 B.R. 369, 371 (9th Cir. BAP 2015). An
after-acquired interest becomes property of the estate under § 541(a)(7) if it
is “(1) . . . created with or by property of the estate; (2) acquired in the
estate’s normal course of business; or (3) otherwise [] traceable to or
aris[ing] out of any prepetition interest included in the bankruptcy estate.”
12
Id. at 371-72.
The fraud claims asserted by Debtor are based on allegations of
wrongdoing related to the postpetition sale of the Property. The alleged
fraud in recording the Trustee’s Deed Upon Sale arises out of Debtor’s
purported ownership interest in the Property. It is undisputed that
Debtor’s ownership interest in the Property became property of the estate
on the petition date. Causes of action arising from the postpetition
foreclosure sale of the Property are therefore property of the estate under
§ 541(a)(7). See In re Greenshaw Energy, Inc., 359 B.R. 636, 642 (Bankr. S.D.
Tex. 2007) (holding that a postpetition wrongful foreclosure action became
property of the estate under § 541(a)(7)); Ashurst Land & Cattle, LLC v.
Rancho Mountain Props. Inc., No. 12-CV-1328-BEN, 2013 WL 2631338, at *3
(S.D. Cal. June 10, 2013) (“[W]rongful foreclosure claims . . . belong to the
bankruptcy trustee regardless of whether the foreclosure occurred before
or after the petition is filed.”).
Debtor argues that the Property ceased being property of the estate
after the stay was lifted and the Property was sold, and therefore the
trustee no longer had an exclusive right to bring the asserted claims.
However, an asset remains property of the estate while a bankruptcy case
remains open, unless it is explicitly abandoned. Cusano v. Klein, 264 F.3d
936, 946 (9th Cir. 2001). Abandonment of property requires formal notice
and a hearing pursuant to § 554. Catalano v. Comm’r, 279 F.3d 682, 686 (9th
13
Cir. 2002). As a result, an order granting stay relief does not cause a de
facto abandonment of property, and it does not extinguish the estate’s
interest in such property. Id. at 686-87. At the time of the alleged wrongful
foreclosure, the Property remained property of the estate and thus, Debtor
lacked standing to assert the cause of action.
Although Debtor’s alleged fraud claims are predicated on his premise
that no sale occurred, he suggests that the Property was no longer property
of the estate after Magnum purchased it at the foreclosure sale. But, Debtor
does not explain how the claims against the purchaser vested in Debtor
upon sale of the Property. The alleged fraudulent sale would harm the
estate’s interest in the Property, not Debtor’s, and the estate did not
abandon the potential claims. As representative of the estate, the chapter 7
trustee had the exclusive right to sue on behalf of the estate. Estate of Spirtos
v. Super. Ct., 44. F.3d 1172, 1175 (9th Cir. 2006). Debtor lacked standing to
sue the defendants for fraud, and the bankruptcy court did not err by
dismissing Debtor’s complaint.
2. Debtor Did Not Allege Sufficient Facts To Support Claims
Under The FDCPA or RICO, or for Wrongful Eviction
Claims for relief under the FDCPA or for wrongful eviction do not
necessarily arise from the ownership interest in the Property. However, the
complaint is devoid of sufficient factual allegations to support such claims
against the defendants.
14
The FDCPA “prohibits ‘debt collector[s]’ from making false or
misleading representations and from engaging in various abusive and
unfair practices.” Heintz v. Jenkins, 514 U.S. 291, 292 (1995); see also 15 U.S.C.
§ 1692, et seq. Debtor does not reference any of the provisions of the FDCPA
in the complaint or present any legal theory of liability. He does not allege
any facts to demonstrate that the defendants were subject to the provisions
of the FDCPA as “debt collectors,” or that they violated any of the
provisions of the FDCPA.
Similarly, Debtor does not present a cognizable legal theory or allege
facts to support a claim under RICO. The elements of a civil RICO claim are
“(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering
activity (known as ‘predicate acts’) (5) causing injury to the plaintiff’s
‘business or property.’” Grimmett v. Brown, 75 F.3d 506, 510 (9th Cir. 1996).
With the exception of conclusory statements about the defendants’
“racketeering activity,” the complaint is silent as to the basis of the claim.
Mere conclusory statements are not sufficient to survive a motion to
dismiss. Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 555).
Finally, Debtor includes a conclusory statement in the complaint that
the defendants “willfully commenced an illegal eviction,” but he provides
no facts to demonstrate a claim for relief. The eviction was made pursuant
to a state court judgment entered in the unlawful detainer action. The
complaint fails to state a claim for illegal eviction.
15
Debtor lacked standing to assert claims arising from an ownership
interest in the Property and failed to allege sufficient facts to state claims
for relief under the FDCPA, RICO, or for an illegal eviction.
C. Debtor’s Other Arguments
Debtor argues that the bankruptcy court erred with regard to both
orders by failing to make findings of fact or conclusions of law. Debtor also
argues that both orders were void for lack of due process and the
bankruptcy judge should have recused himself for bias. These arguments
are without merit.
The bankruptcy court stated its findings and conclusions on the
record at the hearing on the motion to dismiss and the motion to remand.
Hr’g Tr. 3:13-6:2; 8:19-9:14, October 3, 2019. The record indicates that Debtor
filed the adversary complaint and the Notice of Removal and was served
with the motion to dismiss, motion for remand, and the notices of hearings.
Furthermore, Debtor appeared at the hearing on both motions, in October
2019. Debtor has not shown that either order was void for lack of due
process.
Finally, Debtor has not demonstrated any bias by the bankruptcy
court, and we discern none from the record.
CONCLUSION
For the reasons set forth above, we AFFIRM the bankruptcy court’s
order remanding the Quiet Title Action and AFFIRM the order dismissing
16
the Fraud Action.
17