Bayview Loan Servicing, LLC v. CWCapital Asset Management, LLC (In Re Silver Sands R v. Resort) ( 2016 )

FILED
NOT FOR PUBLICATION FEB 01 2016
MOLLY C. DWYER, CLERK
UNITED STATES COURT OF APPEALS U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
In re: SILVER SANDS R.V. RESORT, No. 13-60025
Debtor. B.A.P. No. 11-1723
BAYVIEW LOAN SERVICING, LLC,
MEMORANDUM*
Appellant,
v.
CWCAPITAL ASSET MANAGEMENT,
LLC; G&G REAL ESTATE
INVESTMENT; CHAD MESTLER;
JESSICA MESTLER; STUART
SCHNEIDER; JANINE SCHNEIDER;
PHYLLIS GORBY KELLEY; SILVER
SANDS R.V. RESORT,
Appellees.
In re: SILVER SANDS R.V. RESORT, No. 13-60026
Debtor. B.A.P. No. 11-1721
G&G REAL ESTATE INVESTMENT;
CHAD MESTLER; JESSICA MESTLER;
STUART SCHNEIDER; JANINE
*
This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
SCHNEIDER; PHYLLIS GORBY
KELLEY,
Appellants,
v.
CWCAPITAL ASSET MANAGEMENT,
LLC; BAYVIEW LOAN SERVICING,
LLC; SILVER SANDS R.V. RESORT,
Appellees.
Appeals from the Ninth Circuit
Bankruptcy Appellate Panel
Pappas, Klein, and Markell, Bankruptcy Judges, Presiding
Argued and Submitted April 15, 2015
San Francisco, California
Before: KOZINSKI and GRABER, Circuit Judges, and BENSON,** Senior
District Judge.
Bayview Loan Servicing, LLC, and G&G Real Estate Investment, et al.,
appeal the bankruptcy court’s order and the Bankruptcy Appellate Panel’s ("BAP")
holding that CWCapital Asset Management, LLC, held a superior lien against
property located in Mesa, Arizona, owned by Silver Sands R.V. Resort. We
review the bankruptcy court’s decision de novo. Arab Monetary Fund v. Hashim
**
The Honorable Dee V. Benson, Senior United States District Judge for
the District of Utah, sitting by designation.
2
(In re Hashim), 213 F.3d 1169, 1171 (9th Cir. 2000). We review its findings of
fact for clear error, and we review de novo questions of law, as well as mixed
questions of law and fact, including whether the historical facts satisfy the relevant
legal rule. Murray v. Bammer (In re Bammer), 131 F.3d 788, 791–92 (9th Cir.
1997) (en banc). We affirm in part and reverse in part.
1. The bankruptcy court properly concluded that there was no accord and
satisfaction. Under Arizona law, there must be a bona fide dispute regarding the
claim that is meant to be settled. Baker v. Emmerson, 734 P.2d 101, 104 (Ariz. Ct.
App. 1986). Here, there was no such dispute.
2. The bankruptcy court erred in holding that no bailment relationship was
created by the delivery of the check to Capmark. Although there was no express or
implied bailment, there was a constructive bailment.
The party seeking to establish a constructive bailment must show that the
circumstances surrounding the putative bailee’s possession of personal property
were sufficient to give rise to a duty to use due care in handling the property. See,
e.g., Alitalia v. Arrow Trucking Co., 977 F. Supp. 973, 980 (D. Ariz. 1997);
Chesterfield Sewer & Water, Inc. v. Citizens Ins. Co. of N.J., 207 N.E.2d 84, 86
(Ill. Ct. App. 1965); Hadfield v. Gilchrist, 538 S.E.2d 268, 272 (S.C. Ct. App.
2000); Aegis Investigative Grp. v. Metro. Gov’t, 98 S.W.3d 159, 163 (Tenn. Ct.
3
Ohio App. 2002). An agreement between the putative bailor and bailee is not necessary
to create a constructive bailment when a person comes into lawful possession of
personal property of another and when justice so requires. But the bankruptcy
court incorrectly equated the requirement of "justice" in this context with a typical
balancing of equities. Instead, the inquiry is, more narrowly, whether the
circumstances surrounding possession and control over the property were such that
they required the putative bailee to use due care—irrespective of any negligence by
the putative bailor that led to the putative bailee’s possession. See, e.g.,
Chesterfield, 207 N.E.2d at 86 (noting that a constructive bailment arises when one
lawfully acquires another’s personal property "and holds it under circumstances
whereby he ought, upon principles of justice, to keep it safely and restore it or
deliver it to the owner" (internal quotation marks omitted)); Aegis, 98 S.W.3d at
163 (describing the same requirement); Hadfield, 538 S.E.2d at 272 (explaining
that a constructive bailment arises when one lawfully acquires another’s personal
property "and holds it under such circumstances that the law imposes on the
recipient of the property the obligation to keep it safely and redeliver it to the
owner"); 8A Am. Jur. 2d Bailments § 13 (2015) (stating that a constructive
bailment requires lawful possession of chattel "and the duty to account for it as the
property of another").
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Thus, a consideration of who is more blameworthy—a balancing of equities
in the usual sense—is irrelevant. Rather, the question is simply whether the
circumstances established a duty on the part of the Trust to use due care to
safeguard the funds and to return those funds to their rightful owner. We answer
"yes." Capmark deposited the check into a "suspense account," thereby taking full
control of the funds (which were substantial) while simultaneously recognizing
that the money was not theirs to keep. On remand, the bankruptcy court should
consider in the first instance whether the duty of due care was violated.
3. The bankruptcy court did not rule on Bayview’s conversion claim.
Because there are factual issues to resolve the bankruptcy court should consider
this claim in the first instance. See Carter v. Anderson (In re Carter), 182 F.3d
1027, 1034 (9th Cir. 1999) ("Remand is appropriate when the bankruptcy court’s
factual findings are silent or ambiguous as to a material factual question." (internal
quotation marks omitted)).
AFFIRMED in part; REVERSED in part; REMANDED. The parties shall
bear their own costs on appeal.
5
FILED
FEB 01 2016
Bayview Loan Servicing, LLC v. CWCapital Asset Management, LLC (In re:
Silver Sands R.V. Resort), Nos. 13-60025, 13-60026 MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
Judge BENSON, concurring in part and dissenting in part.
I agree with the majority that the bankruptcy court correctly concluded there
was no accord and satisfaction in this case and that a remand is necessary for the
bankruptcy court to consider Bayview’s conversion claim. I respectfully dissent
from the Court’s finding that Capmark and the Trust are potentially liable to
Bayview on a theory of constructive bailment. I agree with the majority that the
bankruptcy court and the BAP misinterpreted the definition and application of
constructive bailment law. However, I would affirm the bankruptcy court on the
grounds that Capmark and the Trust acted reasonably under the circumstances. In
re Slatkin, 525 F.3d 805, 811 (9th Cir. 2008) (noting that this Court may affirm the
bankruptcy court’s judgment on “any ground supported by the record, even if it
differs from the reasoning of the bankruptcy court”).
A constructive bailment may arise as an operation of law “where a person
comes into lawful possession of the personal property of another, even though
there is no formal agreement between the property’s owner and its possessor . . .
when justice so requires.” Atalia v. Arrow Trucking Co., 977 F. Supp. 973,
980–81 (D. Ariz. 1997) (quoting Christensen v. Hoover, 643 P.2d 525, 529 (Colo.
1982)). A constructive bailment may even be imposed where delivery of the bailed
property to the bailee occurs by mistake or accident. Choice Hotels Int'l, Inc. v.
Manor Care of Am., Inc., 795 A.2d 145, 149 (Md. Ct. Spec. App. 2002); Armored
Car Serv., Inc. v. First Nat’l Bank of Miami, 114 So. 2d 431, 434 (Fla. Dist. Ct.
App. 1959). However, a constructive bailment does not arise in every
circumstance where property is negligently delivered to an unsuspecting party.
Many jurisdictions have limited the imposition of a constructive bailment to
circumstances where “justice so requires.” See, e.g., Atalia, 977 F. Supp. at 980
(applying Arizona law); Christensen v. Hoover, 643 P.2d 525, 528–29 (Colo.
1982); Khan v. Heritage Prop. Mgmt., 584 N.W.2d 725, 729–30 (Iowa Ct. App.
1998); 8 C.J.S. Bailments § 14 (2005). Similarly, many jurisdictions limit
constructive bailments to circumstances where “principles of justice” require the
court to impose a constructive bailment. See, e.g., Hoblyn v. Johnson, 55 P.3d
1219, 1229 (Wyo. 2002); Loomis v. Imperial Motors, Inc., 396 P.2d 467, 469
(Idaho 1964); Aegis Investigative Grp. v. Metro. Gov't of Nashville & Davidson
Cty., 98 S.W.3d 159, 163 (Tenn. Ct. App. 2002); Am. Ambassador Cas. Co. v.
City of Chicago, 563 N.E.2d 882, 885 (Ill. App. 1990); 8A Am. Jur. 2d Bailments
§ 12 (2009); 8 C.J.S. Bailments § 14 (2005).
The BAP interpreted the “justice so requires” limitation to require the Court
to weigh the relative equities between the parties before imposing a constructive
2
bailment. In my view, which is consistent with the majority, the “justice so
requires” limitation does not refer to equity. Rather, the “justice so requires”
limitation asks the Court to review the circumstances surrounding the putative
bailee’s possession of bailed property to determine if justice demands imposing a
duty on the bailee to exercise due care in handling the property. See Alitalia, 977
F. Supp. at 980; Aegis Investigative Grp, 98 S.W.3d at 160 (“In the case of a
constructive bailment it is not necessary that there be either an actual or a
constructive delivery . . . . The lawful possession of the chattel and the duty to
account for it as the property of another is sufficient.” (citations omitted)); 8A Am.
Jur. 2d Bailments § 12 (2009). Therefore, the Court’s focus should be on
Capmark’s possession of Bayview’s funds, not Bayview’s recklessness.
The facts and circumstances surrounding Capmark’s possession of the
Transnation check and its proceeds support a finding of a constructive bailment
relationship between Capmark, the Trust, and Bayview. Indeed, when a lender
receives a check by accident or mistake, justice requires that lender act reasonably
when negotiating the check. Capmark and the Trust acted reasonably; therefore,
Capmark and the Trust are not liable to Bayview for the misdelivery of Bayview’s
funds. See Surety Bank v. Dunbar Armord, Inc., No. 14-81368, 2015 WL 845590,
at *6 (S.D. Fla. Feb. 25, 2015) (noting, “if possession of one’s personal property
3
passes to another by mistake, the resulting bailment is considered constructive and
gratuitous; in this situation, the bailee is liable only for gross negligence” (citing
cases)); Montano v. Land Title Guarantee Co., 778 P.2d 328, 331 (Colo. Ct. App.
1989) (noting, after imposing a constructive bailment, “a conversion results where
. . . court finds misdelivery of the bailed property is due to negligence”); Shamrock
Hilton Hotel v. Caranas, 488 S.W.2d 151, 154 (Tex. Civ. App. 1972).1
Capmark received a check from Transnation that did not include an
instruction letter informing Capmark of the source of the funds or the purpose for
which the funds were sent. Capmark and the Trust concluded that the Transnation
check was an attempt by SSRV to repay the Trust Loan. Capmark contacted the
party it had a relationship with, SSRV, and notified SSRV that pursuant to the
Trust Loan Documents, the Trust Loan could not be repaid at that time. Capmark
reasonably assumed that SSRV was the owner of the funds because the funds were
placed in escrow according to SSRV’s instructions. See, e.g., In re Algire, 430
B.R. 817, 822 (Bankr. S.D. Ohio 2010) (noting, “at the time [the lender] funded the
loan, the loan proceeds ceased being [the lender’s] property; rather, at that
moment, the loan proceeds become [the borrower’s] property”); In re Bangle, No.
10-5010, 2010 WL 1903752, at *3 (Bankr. N.D. Tex. May 10, 2010). Therefore,
1
Whether the standard is negligence or gross negligence, the result is the same in
this case.
4
Capmark applied the funds according to SSRV’s wishes. Capmark and the Trust,
like Bayview, were unaware of Gregg’s fraudulent actions. While it may have
been more prudent for Capmark to contact Transnation to investigate the source of
the Transnation check, I cannot conclude that Capmark or the Trust acted
unreasonably.
In short, I would affirm the bankruptcy court’s ruling. While Capmark and
the Trust did not take every conceivable step to accurately negotiate the
Transnation check, Capmark and the Trust acted reasonably.
However, if equitable principles could be considered before imposing a
constructive bailment, the BAP correctly found that equities in this case tip starkly
in favor of Capmark. A constructive bailment should not serve as a safety net to a
lender who, like Bayview, threw caution to the wind and delivered $1.1 million to
Capmark under such dubious circumstances. Bayview and Transnation did not
complete minimal due diligence. Bayview and Transnation failed to review the
publically available Trust Loan Documents that would have informed them that the
Trust Loan could not be prepaid prior to August 2011. Bayview and Transnation
did not send an instruction letter informing Capmark of the source and purpose of
the Transnation check. Bayview and Transnation failed to verify the second phony
payoff statement and instead chose to lend over $1.1 million on Gregg’s word.
5
Out of an abundance of caution Capmark should have contacted Transnation. But,
Capmark’s inaction should not rescue Bayview from its own recklessness.
6