FILED
DEC 16 2019
NOT FOR PUBLICATION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. MT-18-1293-BHF
JOHN PATRICK STOKES, Bk. No. 2:18-bk-60681-JDP
Debtor.
JOHN PATRICK STOKES,
Appellant,
v. MEMORANDUM*
LSF8 MASTER PARTICIPATION TRUST;
KATHLEEN A. McCALLISTER, Chapter 13
Trustee; MONTANA DEPARTMENT OF
REVENUE,
Appellees.
Argued and Submitted on November 21, 2019
at Las Vegas, Nevada
Filed – December 16, 2019
*
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.
Appeal from the United States Bankruptcy Court
for the District of Montana
Honorable Jim D. Pappas, Bankruptcy Judge, Presiding
Appearances: Appellant John Patrick Stokes argued pro se; Brian Audette
of Perkins Coie LLP argued for appellee LSF8 Master
Participation Trust.**
Before: BRAND, HERCHER*** and FARIS, Bankruptcy Judges.
INTRODUCTION
Chapter 131 debtor John Patrick Stokes appeals an order granting LSF8
Master Participation Trust ("LSF8") relief from the automatic stay and in rem
relief for real property once owned by Stokes. We DISMISS as MOOT the
portion of the order granting stay relief under § 362(d)(1) and (2), because
Stokes's bankruptcy case was dismissed prior to the appeal. As for the in rem
relief, which has not been mooted by the dismissal, we REVERSE, because
**
Appellees Kathleen McCallister, Chapter 13 Trustee, and Montana Department
of Revenue did not appear in this appeal.
***
Hon. David W. Hercher, Bankruptcy Judge for the District of Oregon, sitting
by designation.
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
LSF8 as owner of the property was not eligible for relief under § 362(d)(4).
I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY
A. Stokes's prior bankruptcy cases
Stokes is no stranger to the bankruptcy court. He filed a chapter 11
bankruptcy case in 2009. The case was converted to chapter 7 and a trustee
was appointed. During the case, the trustee sued Stokes, his wife Pamela, and
their daughter Elizabeth for claims relating to the Stokeses' home, known as
the Raven Way Property. Ultimately, the parties settled in March 2012. Stokes
and Pamela agreed to pay the estate $8,000 to settle the trustee's claims
against them; Elizabeth was dismissed from the case upon her immediate
transfer of any purported interest in the Raven Way Property to Pamela. If
Stokes and Pamela failed to pay the judgment, the trustee was authorized to
sell the Raven Way Property free and clear of any purported liens asserted by
Pamela, Elizabeth, and a former lienholder, HSBC Mortgage Services, Inc.
Apparently, the judgment was paid. The trustee did not, as Stokes contends,
sell the Raven Way Property to Pamela "free and clear" on March 12, 2012. In
fact, the trustee later abandoned the Raven Way Property from the
bankruptcy estate. Stokes received a chapter 7 discharge in January 2013.2
Stokes then filed a chapter 13 bankruptcy case in October 2015. He
never confirmed a plan, and the case was dismissed on his motion on January
2
Pamela filed her own chapter 13 bankruptcy case in 2014. LSF8 obtained stay
relief to pursue its non-bankruptcy remedies against the Raven Way Property in her
case on April 13, 2015.
3
5, 2016.
In response to a trustee's sale set for July 19, 2016, Stokes filed his
second chapter 13 bankruptcy case on July 15, 2016. He failed to appear at the
§ 341(a) meeting of creditors, and the case was dismissed. Thereafter, the
Raven Way Property was sold to LSF83 at a foreclosure sale on August 18,
2016, for $449,804.40.
B. Stokes's current bankruptcy case
In response to LSF8's attempts to evict Stokes from the Raven Way
Property, Stokes filed his third and current chapter 13 bankruptcy case on
July 12, 2018. Despite the 2016 foreclosure sale, Stokes claimed that he held a
1% ownership interest in the Raven Way Property, with Pamela holding the
remaining 99% interest.
1. LSF8's motion for relief from stay
LSF8 moved for in rem relief from the automatic stay under
§ 362(d)(4)(B) ("Stay Relief Motion"). LSF8 maintained that it was the owner
of the Raven Way Property, having purchased it at the 2016 foreclosure sale.
LSF8 argued that in rem relief was necessary to prevent Stokes from further
3
WMC Mortgage Corporation was the original lender for the Raven Way
Property in 1998. WMC assigned its interest in the note and deed of trust to Household
Finance Corporation II in 1999. Household Finance Corporation II assigned its interest
in the note and deed of trust to LSF8 in October 2013. Caliber Home Loans, Inc. became
servicer of the loan in December 2013. In 2015, First American Title Company of
Montana, Inc. became the successor trustee for the deed of trust. First American issued
the notice of sale and conducted the foreclosure sale in 2016.
4
abusing the bankruptcy process with his multiple filings to frustrate and
prevent LSF8's eviction efforts. To establish its ownership interest in the
Raven Way Property, LSF8 attached a copy of the recorded trustee's deed.
Stokes opposed the Stay Relief Motion, and he also attempted to raise
counterclaims for alleged stay violation damages in connection with the 2016
foreclosure sale and various other relief. Stokes again asserted that he and
Pamela, not LSF8, owned the Raven Way Property due to the chapter 7
trustee's "free and clear" sale to Pamela in 2012. Stokes also argued that LSF8
never owned the note or deed of trust for the Raven Way Property and that
LSF8 had presented forged and false mortgage documents in the state court
litigation over the foreclosure sale.
2. The bankruptcy court's ruling on the Stay Relief Motion
At the hearing on the Stay Relief Motion, counsel for LSF8 confirmed
that his client had not filed a proof of claim because it was not claiming to be
a creditor in the case; rather, it was the owner of the Raven Way Property.
Stokes confirmed that he filed the current chapter 13 case due to LSF8's
eviction efforts. At that same hearing, the court considered whether to
confirm Stokes's proposed chapter 13 plan over the objection of several
parties, including the chapter 13 trustee.
The bankruptcy court orally granted the Stay Relief Motion under
§ 362(d)(1) and (2), and in rem relief under § 362(d)(4). It also denied plan
confirmation and sua sponte dismissed the case, finding that Stokes had no
5
legitimate need for bankruptcy relief. The court entered an order on the Stay
Relief Motion ("Stay Relief Order") and a separate order dismissing Stokes's
bankruptcy case on the same day.
3. Stokes's post-ruling motions
Stokes then moved to "vacate" the Stay Relief Order ("Motion to
Reconsider Stay Relief"). He argued three things: (1) LSF8 failed to caption its
motion as an "in rem" motion; (2) the bankruptcy court lacked jurisdiction to
order in rem relief because Pamela, the 99% owner of the Raven Way
Property, was not served with the Stay Relief Motion; and (3) the bankruptcy
court lacked jurisdiction over the Raven Way Property because it was subject
to an appeal pending before the United States Supreme Court. Before the
bankruptcy court could rule on the Motion to Reconsider Stay Relief, Stokes
appealed the Stay Relief Order.
Three days later, Stokes filed a Motion for Relief and Rehearing and
Award of Damages in All Respects to Stokes ("Motion for Relief and
Rehearing"). That motion appeared to be seeking reversal of the case
dismissal order and requesting alleged damages associated with the pending
state court proceedings involving LSF8.
After a hearing, the bankruptcy court orally denied all of Stokes's
requested relief.4 It then entered a combined order denying the Motion to
4
The bankruptcy court also heard two other motions at that hearing: (1) Stokes's
motion for leave to appeal in forma pauperis; and (2) LSF8's motion to quash various
(continued...)
6
Reconsider Stay Relief and the Motion for Relief and Rehearing.
II. JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and
157(b)(2)(G). We have jurisdiction under
28 U.S.C. § 158 to review the court's
Stay Relief Order, subject to our mootness discussion below.5
We do not, however, have jurisdiction to review the bankruptcy court's
order denying the Motion to Reconsider Stay Relief, because Stokes did not
file a notice of appeal or an amended notice of appeal for that order. As the
governing Rule specifies:
If a party intends to challenge an order disposing of any motion
listed in subdivision (b)(1) [including motions under Rules 9023
and 9024] . . . the party must file a notice of appeal or an amended
notice of appeal. The notice or amended notice must . . . be filed
within the time prescribed by this rule, measured from the entry of
the order disposing of the last such remaining motion.
Rule 8002(b)(3). An appellant's failure to comply with the appeal filing
deadlines set forth in Rule 8002 typically deprives us of jurisdiction. Olomi v.
4
(...continued)
subpoenas issued by Stokes, which appear to relate to the Motion for Relief and
Rehearing. Those issues are not before the Panel.
5
On December 10, 2018, we issued an order limiting the scope of this appeal to
the Stay Relief Order. Stokes was invited to file a separate appeal of the case dismissal
order but did not do so. Therefore, we are not considering that issue. To the extent the
bankruptcy court made findings in the November 14, 2018 order regarding Stokes's
Motion for Relief and Rehearing, including the issues of plan confirmation and sua
sponte dismissal of his case, we do not consider those issues on appeal because Stokes
elected not to appeal the case dismissal order.
7
Tukhi (In re Tukhi),
568 B.R. 107, 112 (9th Cir. BAP 2017) (citing Slimick v. Silva
(In re Slimick),
928 F.2d 304, 306 (9th Cir. 1990)).
On the other hand, in reviewing the bankruptcy court's Stay Relief
Order, "we have jurisdiction (and a duty) to review any enhanced findings or
'new factual determinations' the bankruptcy court made in support of its
original ruling — even if those enhanced findings were part of the court's
ruling on a postjudgment motion that never was appealed and even if the
court considered and relied upon evidence that was not presented until after
it made its original ruling."
Id. (citing Moldo v. Ash (In re Thomas),
428 F.3d
1266, 1268-69 (9th Cir. 2005) ("The BAP erred in concluding that it lacked
jurisdiction to review the bankruptcy court's amended findings") and Ash v.
Moldo (In re Thomas), BAP No. CC-03-1052-PMaPa, 2006 WL 6811032 at *4-7
(9th Cir. BAP 2006) (on remand from Circuit, holding that bankruptcy court's
amended findings were clearly erroneous based on evidence submitted to the
court as part of postjudgment proceedings)).
III. ISSUES
1. Is the appeal of the portion of the Stay Relief Order granting relief
under § 362(d)(1) and (2) moot?
2. Did the bankruptcy court abuse its discretion in granting LSF8 in rem
relief under § 362(d)(4)(B)?
IV. STANDARDS OF REVIEW
We review our own jurisdiction, including questions of mootness, de
8
novo. Ellis v. Yu (In re Ellis),
523 B.R. 673, 677 (9th Cir. BAP 2014) (citing Silver
Sage Partners, Ltd. v. City of Desert Hot Springs (In re City of Desert Hot Springs),
339 F.3d 782, 787 (9th Cir. 2003)).
We review a bankruptcy court's order granting relief from the
automatic stay for an abuse of discretion. First Yorkshire Holdings, Inc. v.
Pacifica L 22, LLC (In re First Yorkshire Holdings, Inc.),
470 B.R. 864, 868 (9th Cir.
BAP 2012). A bankruptcy court abuses its discretion if it applies an incorrect
legal standard, or if its factual findings are illogical, implausible or without
support from evidence in the record. United States v. Hinkson,
585 F.3d 1247,
1262 (9th Cir. 2009) (en banc).
V. DISCUSSION
A. The appeal of the portion of the Stay Relief Order granting relief
under § 362(d)(1) and (2) is moot.
We cannot exercise jurisdiction over a moot appeal. United States v.
Pattullo (In re Pattullo),
271 F.3d 898, 900 (9th Cir. 2001); In re Ellis, 523 B.R. at
677. A case is moot where the issues presented are no longer live and no case
or controversy exists. Pilate v. Burrell (In re Burrell),
415 F.3d 994, 998 (9th Cir.
2005). The test for mootness is whether an appellate court can still grant
effective relief to the prevailing party if it decides the merits in his or her
favor.
Id.
Although LSF8 did not request it, the bankruptcy court granted stay
relief under both § 362(d)(1) and (2), finding that LSF8 had established
9
"cause" and that Stokes lacked any equity in the Raven Way Property and
that it was not necessary for an effective reorganization. The court also sua
sponte dismissed Stokes's bankruptcy case that same day. Consequently,
even if we were to overturn the portion of the Stay Relief Order granting
relief under § 362(d)(1) and (2), the automatic stay terminated as a matter of
law once the case was dismissed. § 362(c)(2)(B). Stokes has not appealed the
dismissal order. Thus, we lack the ability to grant Stokes any effective relief
as to this aspect of the order on appeal. See Benzeen Inc. v. JP Morgan Chase
Bank (In re Benzeen Inc.), BAP No. CC-18-1097-TaLS,
2018 WL 6627275, at *3
(9th Cir. BAP Dec. 18, 2018) (dismissal of underlying bankruptcy case moots
an appeal from a stay relief order under § 362(d)(1) if the dismissal is not
appealed) (citing Castaic Partners II, LLC v. DACA-Castaic, LLC (In re Castaic
Partners II, LLC),
823 F.3d 966, 969 (9th Cir. 2016)).
Accordingly, the appeal of the portion of the Stay Relief Order
terminating the automatic stay under § 362(d)(1) and (2) is DISMISSED as
MOOT.
B. The bankruptcy court abused its discretion by granting LSF8 in rem
relief under § 362(d)(4).
The in rem portion of the Stay Relief Order is binding in any
bankruptcy case until at least September 2020, assuming LSF8 timely and
properly recorded it. Therefore, while the Stay Relief Order is moot in part,
the portion of the order granting LSF8 in rem relief is not moot because of the
10
ramifications of such relief and its effect on future debtors and third parties
not before the court. Sepehry-Fard v. U.S. Bank, N.A. (In re Sepehry-Fard), BAP
No. NC-17-1118-BTaF,
2018 WL 2709718, at *5 (9th Cir. BAP June 5, 2018).
Our review for abuse of discretion requires that we first determine
whether the bankruptcy court applied the correct legal rule. It did not. While
the record and the court's factual findings would have clearly supported an in
rem order, LSF8, as the putative owner of the Raven Way Property, is not
eligible for relief under § 362(d)(4).
Section § 362(d)(4) permits the bankruptcy court to grant in rem relief
from the automatic stay in order to address schemes using multiple
bankruptcy filings as a means to thwart a secured creditor's legitimate
foreclosure efforts with respect to real property. See § 362(d)(4)(B). Relief
under § 362(d)(4) has serious implications. In re First Yorkshire Holdings, Inc.,
470 B.R. at 871. By seeking such relief, the creditor requests specific
prospective protection against not only the debtor, but also every non-debtor,
co-owner, and subsequent owner of the property. If granted, and if the order
is properly recorded, such relief nullifies the ability of the debtor and any
other third party with an interest in the property to obtain the benefits of the
automatic stay as to that property in future bankruptcy cases for a period of
two years.
Id.
However, to obtain relief under § 362(d)(4), the movant must be "a
creditor whose claim is secured by an interest in such real property." In re
11
Ellis, 523 B.R. at 678. In the Stay Relief Motion and at the hearing, LSF8
asserted that it was not a creditor in Stokes's bankruptcy case; rather, it was
the owner of the Raven Way Property and wanted to proceed with an
eviction action against Stokes to gain possession. Stokes also claimed an
ownership interest in the Raven Way Property, despite the foreclosure sale
three years ago. As was the case in Ellis, "this is a dispute between two
putative owners of the same property, not a contest where the parties occupy
a debtor-creditor relationship." Id.
In Ellis, the movant had purchased the debtor's real property from the
foreclosing lender four years after the foreclosure sale, and the foreclosing
lender also assigned to the movant all of its rights under the post-foreclosure
unlawful detainer judgment. Id. at 674. The Panel reversed the bankruptcy
court's order granting in rem relief to the movant under § 362(d)(4)(B),
because the movant was the owner of the property, not a creditor with a
security interest in the property as required by the statute. Id. at 679-80.
Since Ellis, this Panel has opined in two unpublished decisions that a
foreclosing lender (i.e., owner) is not "a creditor whose claim is secured by an
interest in such real property," and is therefore unable to obtain in rem relief
under § 362(d)(4). See Ramirez v. Nationstar Mortg. LLC (In re Ramirez), BAP
No. EC-16-1015-KuMaJu,
2016 WL 7189831, at *7 n.7 (9th Cir. BAP Dec. 2,
2016) (noting that on remand, if the bankruptcy court granted retroactive stay
relief and validated the foreclosing lender's sale, it would not be "necessary or
12
correct" to additionally grant the lender relief under § 362(d)(4), because the
lender no longer would be a "creditor whose claim is secured by an interest in
the property in question") (citing In re Ellis, 523 B.R. at 679-80); Ray v. Deutsche
Bank Nat'l Tr. Co. (In re Ray), BAP No. NV-15-1137-LDoKi,
2016 WL 6699315,
at *6 (9th Cir. BAP Nov. 14, 2016) (bankruptcy court correctly denied in rem
relief to foreclosing lender, because, as owner of the property, the lender was
no longer "a creditor whose claim is secured by an interest in the property"
under § 362(d)(4) (citing In re Ellis, 523 B.R. at 678-79)).
At oral argument, LSF8 conceded our holding in Ellis but argued that it
is distinguishable: LSF8 was the foreclosing lender, not a third-party
purchaser as was the case in Ellis. However, as Ramirez and Ray point out,
that LSF8 was the foreclosing lender and not a third-party purchaser is a
distinction without a difference. A foreclosure sale, by definition,
extinguishes whatever security interest a secured creditor had in the
property. In re Ellis, 523 B.R. at 679 (citing In re McCray,
342 B.R. 668, 669
(Bankr. D.D.C. 2006)). Thus, LSF8 is not a "creditor" and holds no claim
secured by an interest in the Raven Way Property as contemplated by the
statute.
However, LSF8 was not without other remedies which could provide
similar results. LSF8 could have requested a re-filing bar in the litigation for
dismissal of Stokes's bankruptcy case. Or, it could do so upon Stokes's next
bankruptcy filing, assuming there is one and such relief is necessary to
13
complete the eviction. Further, as the owner of the property, LSF8 has a much
larger "bundle of rights" than a lienholder and may have other remedies
under state law. See United States v. Sec. Indus. Bank,
459 U.S. 70, 76 (1982) (the
"bundle of rights" which accrues to a secured party is obviously smaller than
that which accrues to an owner in fee simple).
Because LSF8 is the owner of the Raven Way Property, and not a
creditor whose claim is secured by the property, we conclude that the
bankruptcy court applied an incorrect legal rule and thereby abused its
discretion when it granted LSF8 in rem relief under § 362(d)(4). Accordingly,
that aspect of the Stay Relief Order is REVERSED.
VI. CONCLUSION
For the reasons stated above, we DISMISS the appeal from the portion
of the Stay Relief Order terminating the automatic stay under § 362(d)(1) and
(2) as MOOT, and we REVERSE the portion of the Stay Relief Order granting
in rem relief to LSF8 under § 362(d)(4).
14
