In re: Guido Yarol Cruz

FILED
AUG 29 2014
1
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-13-1554-KiTaD
)
6 GUIDO YAROL CRUZ, ) Bk. No. 06:13-20368-MH
)
7 Debtor. )
)
8 )
GUIDO YAROL CRUZ, )
9 )
Appellant, )
10 )
v. ) O P I N I O N
11 )
STEIN STRAUSS TRUST #1361, )
12 PDQ INVESTMENTS, LLC, )
)
13 Appellee. )
______________________________)
14
15 Submitted Without Oral Argument
on June 26, 2014
16
Filed - August 29, 2014
17
Appeal from the United States Bankruptcy Court
18 for the Central District of California
19 Honorable Mark D. Houle, Bankruptcy Judge, Presiding
20
21 Appearances: Appellant Guido Yarol Cruz appeared pro se on
brief; Joseph C. Delmotte, Esq. of Pite Duncan, LLP
22 appeared on brief for appellee, Stein Strauss Trust
#1361, PDQ Investments, LLC.
23
24 Before: KIRSCHER, TAYLOR and DUNN, Bankruptcy Judges.
25
26
27
28
1 KIRSCHER, Bankruptcy Judge:
2
3 Guido Yarol Cruz (“Cruz”) appeals the order granting the
4 motion of PDQ Investments, LLC as trustee for the Stein Strauss
5 Trust #1361 (“SS Trust”) to annul retroactively the automatic stay
6 or, in the alternative, to confirm that no stay was in effect, and
7 he appeals the order denying reconsideration of the prior order.
8 We AFFIRM.
9 I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY
10 A. Prepetition events
11 Mr. Doo Ko obtained a loan from IndyMac Bank, FSB (“IndyMac”)
12 to purchase a residence located on Stein Strauss Street in
13 Fullerton, California (“Property”). The deed of trust in favor of
14 IndyMac was recorded on June 8, 2007. On June 25, 2007, Mr. Ko
15 transferred his 100% interest in the Property to a Ms. Eun H. Ko
16 by way of a grant deed for no consideration. The grant deed was
17 recorded on June 28, 2007.
18 Ultimately, the loan went into default, and a Notice of
19 Default was recorded against the Property on February 9, 2009. A
20 Notice of Sale was recorded some three years later on September
21 25, 2012. A trustee’s sale was set for October 24, 2012.
22 The parties have not explained why it took over three years
23 before the Notice of Sale was recorded. We discovered in
24 reviewing the bankruptcy court docket, however, that Ms. Ko, under
25 the names “Eun H. Ko” and “Eun Ko” (same Social Security Number),
26 filed no less than six bankruptcy cases in the Central District of
27
28
-2-
1 California between November 2009 and February 2013.1 All cases
2 were skeletal filings and dismissed for either failing to file
3 documents or to appear at the § 341(a)2 meeting of creditors after
4 multiple continuances. Mr. Ko filed three bankruptcy cases in
5 2009, all of which were skeletal filings and dismissed for failing
6 to file documents.
7 Notably, in Ms. Ko’s third case filed on November 5, 2010,
8 the servicer for IndyMac sought relief from stay against the
9 Property. The moving papers referenced a grant deed (not noted in
10 this case) executed on January 20, 2010, and recorded on January
11 22, 2010, wherein Ms. Ko purported to transfer a 5% interest in
12 the Property back to Mr. Ko and a 5% interest to a Mr. Tae Hoon
13 Ko. Mr. Tae Hoon Ko filed one skeletal chapter 13 bankruptcy case
14 on January 4, 2010, which was converted to chapter 7 and
15 ultimately dismissed for failing to appear at the § 341(a)
16 meeting. IndyMac was granted stay relief on May 31, 2011, and the
17 order included a bad faith finding under § 362(d)(4). The two-
18 year in rem bar contained in that order presumably expired on or
19 about May 31, 2013, which is about two weeks before Cruz filed his
20 chapter 7 case.3
21
22 1
We have taken judicial notice of Ms. Ko’s multiple cases
filed with the bankruptcy court through its electronic docketing
23 system. See O’Rourke v. Seaboard Sur. Co. (In re E.R. Fegert,
Inc.), 887 F.2d 955, 957-58 (9th Cir. 1989); Atwood v. Chase
24 Manhattan Mortg. Co. (In re Atwood), 293 B.R. 227, 233 n.9 (9th
Cir. BAP 2003).
25
2
Unless specified otherwise, all chapter, code and rule
26 references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and
the Federal Rules of Bankruptcy Procedure, Rules 1001-9037. The
27 Federal Rules of Civil Procedure are referred to as “Civil Rules.”
28 3
Clearly, Ms. Ko has a history of filing multiple
bankruptcy cases and transferring fractional interests in the
(continued...)
-3-
1 B. Postpetition events
2 Cruz, pro se, filed a skeletal chapter 7 bankruptcy case on
3 June 13, 2013. Pursuant to Rule 1007(c), Cruz was ordered to file
4 his schedules and other requisite documents by June 27. On June
5 27, Cruz sought an extension to July 11 to file all documents,
6 which was granted. Cruz failed to file all required documents by
7 July 11, no further extensions were requested, and his bankruptcy
8 case was dismissed on July 17, 2013 (“Dismissal Order”).4 In the
9 Dismissal Order, the bankruptcy court retained jurisdiction “on
10 all issues arising under Bankruptcy Code § 110, 329 and 362.”
11 Cruz did not appeal the Dismissal Order.5
12 1. SS Trust’s motion for relief from stay
13 On July 15, 2013, Ms. Ko, who now held only an 80% interest
14 in the Property, executed a grant deed purporting to transfer a 5%
15 interest in the Property to Cruz (the “Cruz Deed”). The Cruz Deed
16 was recorded at 12:52 p.m. on July 15, 2013. On that same day at
17 approximately 2:18 p.m., the Property was sold by the lender at a
18 trustee’s sale to SS Trust, who was the highest bidder at
19
3
(...continued)
20 Property to persons in bankruptcy in an attempt to subvert the
foreclosure process. We have no doubt Cruz, who now claims to
21 live with Ms. Ko at the Property, is yet another participant in
her ongoing scheme.
22
4
23 Cruz did, however, file some documents untimely on July 15
at 2:13 p.m., which is the same day he acquired his 5% interest in
24 the Property and about one hour after the Cruz Deed was recorded.
He did not claim an interest in the Property in his Schedule A.
25 5
Cruz filed a motion to reconsider the Dismissal Order
26 under Civil Rule 60(b)(1) about two months after the order’s
entry. The bankruptcy court denied it. Because the motion to
27 reconsider was not filed within 14 days of the entry of the
Dismissal Order, the time to appeal the Dismissal Order was not
28 tolled. Rule 8002(b). Therefore, Cruz’s arguments about the
merits of the Dismissal Order are untimely, and we lack
jurisdiction to consider them.
-4-
1 $711,000. SS Trust established that it had no knowledge of the
2 Cruz Deed or of Cruz’s bankruptcy case at the time of the sale.
3 Shortly thereafter, SS Trust became aware of Cruz’s
4 bankruptcy. On August 13, 2013, after Cruz’s case had been
5 dismissed, SS Trust moved to annul the automatic stay to validate
6 the sale or, in the alternative, to confirm that no stay was in
7 effect at the time of the sale (“Stay Relief Motion”). SS Trust
8 also sought a finding that Cruz’s bankruptcy case was filed as
9 part of a bad faith scheme to delay, hinder and defraud creditors
10 under § 362(d)(4).6
11 Specifically, SS Trust argued that because Cruz, a chapter 7
12 debtor, did not acquire his interest in the Property until after
13 he filed for bankruptcy, the Property was never property of the
14 estate. Consequently, his bankruptcy filing had no effect on the
15 validity of the sale. Alternatively, SS Trust argued that even if
16 the Property was estate property and the sale violated the
17 automatic stay, cause existed to annul the stay because: (1) SS
18 Trust was a bona fide purchaser who purchased the Property without
19 any knowledge of Cruz’s bankruptcy or of the Cruz Deed recorded
20 the day of the sale; (2) SS Trust took immediate action to annul
21
22 6
SS Trust used the mandatory local form,
23 F 4001-1.RFS.RP.MOTION, required by bankruptcy court, which in
compliance with amendments of the Bankruptcy Abuse Prevention and
24 Consumer Protection Act of 2005,contained the statutory language
of “delay, hinder, and defraud[,]” as required by § 362(d)(4).
25 The mandatory order, F 4001-1.RFS.RP.ORDER, required by the local
forms and issued by the bankruptcy court, contained this same
26 statutory language. The Bankruptcy Technical Corrections Act of
2010 amended the statutory language to read “delay, hinder, or
27 defraud[.]” The statutory amendment changed the proof of the
required elements from the conjunctive to the disjunctive.
28 Subsequent to the filing of this appeal, the bankruptcy court has
amended its mandatory forms to contain the 2010 amended statutory
language. See Bankruptcy Technical Corrections Act of 2010, Pub.
L. No. 111-327, 124 Stat 3557.
-5-
1 the stay once it learned of Cruz’s bankruptcy filing, whereas Cruz
2 had not taken any action to set the sale aside; (3) the facts and
3 circumstances suggested Cruz’s bankruptcy case was filed as part
4 of a bad faith scheme to delay and/or hinder the sale; and (4)
5 both SS Trust and the lender who sold the Property would be
6 prejudiced if the sale were deemed void.
7 In support of the Stay Relief Motion, SS Trust offered copies
8 of the various grant deeds and the recorded Notice of Default and
9 Notice of Sale. SS Trust did not submit a trustee’s deed, but it
10 did submit a copy of a document entitled “Trustee’s Sale Results”
11 that showed SS Trust was the winning bidder at the July 15 sale.
12 Cruz opposed the Stay Relief Motion, contending that SS Trust
13 had failed to prove it was the new owner of the Property; no
14 trustee’s deed had been shown or recorded. He further argued SS
15 Trust was not a BFP. In his supporting declaration, Cruz stated
16 that he had notified the sale trustee by fax at 1:03 p.m. on July
17 15, 2013, about thirty minutes before the scheduled sale, of his
18 bankruptcy filing on June 13, 2013. Nonetheless, the sale trustee
19 “ignored [his] bankruptcy stay and sold to an unknown third party
20 investor.” Cruz also stated that even though his paralegal friend
21 helped him fill out his untimely filed schedules, he did not know
22 where in the schedules to list his interest in the Property. Cruz
23 further stated that the lender was looking into the alleged
24 improper trustee’s sale.
25 Attached to Cruz’s opposition was a copy of the “Notice of
26 Bankruptcy Case Filing” Cruz asserted he faxed to the lender just
27 minutes before the trustee’s sale and the cover sheet to a
28 complaint Cruz filed in state court on August 26, 2013, against
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1 the lender and SS Trust to set aside the sale.
2 In reply, SS Trust argued that it was a BFP without notice of
3 Cruz’s bankruptcy. SS Trust also argued that it had standing to
4 bring the Stay Relief Motion despite the lack of a recorded
5 trustee’s deed; it became the beneficiary of the trustee’s deed by
6 being the successful bidder at the sale.
7 The bankruptcy court issued a tentative ruling on the Stay
8 Relief Motion on September 9, 2013, which it adopted as its final
9 ruling at the related hearing on September 10, 2013. Cruz did not
10 appear. The bankruptcy court found that the automatic stay never
11 took effect as to the Property and that it was never property of
12 the estate because Cruz acquired his interest in it postpetition.
13 Alternatively, cause existed to annul the stay based on the
14 postpetition transfer of a fractionalized interest to Cruz on the
15 day of the foreclosure sale. In addition, the court found that
16 Cruz’s bankruptcy was part of a scheme to hinder, delay and7
17 defraud creditors because: (1) he filed a skeletal petition; (2)
18 a partial interest in the Property was transferred to him
19 postpetition; (3) he failed to list the Property on Schedule A or
20 amend it after obtaining an interest; and (4) despite receiving an
21 extension to file all necessary bankruptcy documents, he still
22 failed to cure the deficiencies and the case was dismissed.
23 The bankruptcy court entered an order granting the Stay
24 Relief Motion under § 362(d)(1) and (d)(4) on September 25, 2013
25
7
26 At all times relevant to this appeal, § 362(d)(4) required
a finding that the filing of debtor’s petition was part of a
27 scheme to delay, hinder or defraud creditors. The bankruptcy
court’s order found that Cruz’s petition was filed as part of a
28 scheme to delay, hinder and defraud creditors. Cruz does not
assign any error by the bankruptcy court on this specific issue.
In any event, it has no bearing on the outcome of this appeal.
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1 (“Stay Relief Order”).
2 2. Cruz’s motion to reconsider
3 Cruz timely moved for reconsideration of the Stay Relief
4 Order under Civil Rule 60(b)(1) (“Motion to Reconsider”). Cruz
5 contended the Stay Relief Order should be vacated due to excusable
6 neglect because his counsel failed to appear at the hearing and
7 because he had “new” evidence establishing the court should not
8 have granted it. Cruz reasserted his argument that SS Trust
9 lacked standing to bring the Stay Relief Motion and he raised a
10 new argument, without any supporting evidence, that the sale was
11 void because the trustee was not authorized to conduct it.
12 SS Trust opposed the Motion to Reconsider, contending that
13 the failure of Cruz’s alleged attorney to attend the hearing on
14 the Stay Relief Motion did not establish excusable neglect under
15 Civil Rule 60(b)(1). Cruz had no attorney of record; no evidence
16 from any attorney was offered to explain why he or she was not
17 there. Although not raised by Cruz, SS Trust also argued he was
18 not entitled to relief under Civil Rule 60(b)(6).
19 Cruz’s reply reiterated his prior arguments and he argued for
20 the first time: that SS Trust lacked standing to seek relief from
21 stay because it was not registered with the California Secretary
22 of State; that the Cruz Deed was valid upon delivery; and that the
23 foreclosure sale was being litigated in state court. Finally,
24 Cruz contended that his attorney, Jessica De Anda Leon, appeared
25 for the stay relief hearing, albeit, thirty minutes late.
26 Attached to Cruz’s reply was a photo copy of a business card
27 from Ms. De Anda Leon. Attached also was a copy of a demurrer
28 dated September 9, 2013, filed in state court by the Property
-8-
1 lender (OneWest Bank, FSB) in response to Ms. Ko’s complaint to
2 set aside the sale. Curiously, the lender’s demurrer stated that
3 the foreclosure sale had not yet taken place.
4 The bankruptcy court issued its tentative ruling denying the
5 Motion to Reconsider, which it adopted as its final ruling at the
6 related hearing. Pursuant to Local Bankruptcy Rule 9013-1(g)(1),
7 the court refused to consider new arguments raised by Cruz that
8 were not responsive to SS Trust’s opposition, such as the
9 foreclosure sale was being litigated, that SS Trust was not
10 registered with the California Secretary of State, and that the
11 Cruz Deed was a lawful transfer. In reviewing the factors set
12 forth in Pioneer Inv. Servs. Co. v. Brunswick Assocs. Ltd. P’ship,
13 507 U.S. 380, 385 (1993), the bankruptcy court determined Cruz had
14 failed to establish excusable neglect because: (1) he provided no
15 evidence that he was unable to attend the stay relief hearing; (2)
16 the Motion to Reconsider did not include a declaration from Ms. De
17 Anda Leon; and (3) Cruz had no attorney of record.
18 The bankruptcy court also found Cruz had failed to establish
19 entitlement to relief under Civil Rule 60(b)(2), because even
20 though he claimed he had “new” evidence, he failed to state what
21 that evidence was.
22 Lastly, the bankruptcy court determined relief also was not
23 warranted under Civil Rule 60(b)(6). Cruz had not offered any
24 authority for a reversal of the bad faith finding, and, in any
25 event, vacation of a bad faith finding was not grounds for
26 reconsideration under Civil Rule 60(b). Further, despite Cruz’s
27 arguments to the contrary, SS Trust had established a colorable
28 claim to the Property with the “Trustee’s Sale Results” document.
-9-
1 Finally, the stay was never in effect as to the Property because
2 Cruz acquired his 5% interest in it postpetition.
3 At the hearing on the Motion to Reconsider, attorney Robert
4 L. Bachman specially appeared for Cruz. Mr. Bachman explained
5 that Cruz’s “new” evidence was the demurrer filed by the lender in
6 the state court action, in which the lender had asserted that the
7 foreclosure sale had not yet taken place. In response, the
8 bankruptcy court opined, and Mr. Bachman agreed, that the demurrer
9 filed on September 9 was filed after the hearing on the Stay
10 Relief Motion and, therefore, that it could not be “newly”
11 discovered evidence.
12 An order denying the Motion to Reconsider the Stay Relief
13 Order was entered on November 1, 2013 (“Reconsideration Order”).
14 This timely appeal followed.
15 II. JURISDICTION
16 The bankruptcy court had jurisdiction under 28 U.S.C. §§ 133417 and 157(b)(2)(G). We have jurisdiction under 28 U.S.C. § 158.
18 III. ISSUES
19 1. Did the bankruptcy court abuse its discretion when it granted
20 the Stay Relief Motion?
21 2. Did the bankruptcy court abuse its discretion when it denied
22 Cruz’s Motion to Reconsider?
23 IV. STANDARDS OF REVIEW
24 Standing is a legal issue we review de novo. Loyd v. Paine
25 Webber, Inc., 208 F.3d 755, 758 (9th Cir. 2000); Kronemyer v. Am.
26 Contractors Indem. Co. (In re Kronemyer), 405 B.R. 915, 919 (9th
27 Cir. BAP 2009).
28 A bankruptcy court’s decision to grant retroactive relief
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1 from the automatic stay is reviewed for an abuse of discretion.
2 Nat’l Envtl. Waste Corp. v. City of Riverside (In re Nat’l Envtl.
3 Waste Corp.), 129 F.3d 1052, 1054 (9th Cir. 1997); Williams v.
4 Levi (In re Williams), 323 B.R. 691, 696 (9th Cir. BAP 2005). We
5 also review the bankruptcy court’s denial of a motion for
6 reconsideration for an abuse of discretion. Tracht Gut, LLC v.
7 Cnty. of L.A. Treasurer & Tax Collector (In re Tracht Gut, LLC),
8 503 B.R. 804, 810 (9th Cir. BAP 2014). A bankruptcy court abuses
9 its discretion if it applied the wrong legal standard or its
10 findings were illogical, implausible or without support in the
11 record. TrafficSchool.com, Inc. v. Edriver Inc., 653 F.3d 820,
12 832 (9th Cir. 2011).
13 V. DISCUSSION
14 As a threshold argument, SS Trust contends the Stay Relief
15 Order is not reviewable on appeal. We disagree. When a motion
16 for reconsideration under Civil Rule 60(b), applicable here by
17 Rule 9024, is filed within 14 days of entry of the underlying
18 order, as it was here, we have jurisdiction to review both the
19 underlying order and the order denying reconsideration. Wall St.
20 Plaza, LLC v. JSJF Corp. (In re JSJF Corp.), 344 B.R. 94, 99 (9th
21 Cir. BAP 2006)(applying former 10-day rule); Rule 8002(b).
22 Nonetheless, Cruz designated and attached to his notice of appeal
23 only the Reconsideration Order, not the Stay Relief Order.
24 Although Rule 8001(a) does not require a notice of appeal to
25 designate the order or judgment from which an appeal is taken, our
26 Local Rule 8001(a)-1 does. However, we may depart from our local
27 rules absent prejudice. In re JSJF Corp., 344 B.R. at 100 (citing
28 Alfred M. Lewis, Inc. v. Holzman (In re Telemart Enters., Inc.),
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1 524 F.2d 761, 766 (9th Cir. 1975)). No prejudice is present here
2 because the parties have briefed the issues regarding the Stay
3 Relief Order. Accordingly, the Stay Relief Order and the
4 Reconsideration Order are properly before us. See United States
5 v. Arkison (In re Cascade Rds., Inc.), 34 F.3d 756, 761 (9th Cir.
6 1994)(appellate court may review merits of a bankruptcy court
7 order where parties have fully briefed those issues even if the
8 order was not identified in the notice of appeal).
9 A. The bankruptcy court did not abuse its discretion when it
granted the Stay Relief Motion.
10
Cruz raises a variety of arguments asserting that the
11
bankruptcy court abused its discretion in granting the Stay Relief
12
Motion. We address each in turn.
13
1. The bankruptcy court had jurisdiction to consider the
14 Stay Relief Motion.
15 Cruz first argues the bankruptcy court lacked jurisdiction to
16 consider the Stay Relief Motion because his bankruptcy case had
17 been dismissed. Cruz is incorrect. In the Dismissal Order, the
18 bankruptcy court expressly reserved jurisdiction over all issues
19 arising under § 362. Further, after a case is dismissed, “the
20 court may annul the automatic stay, thereby retroactively
21 ratifying an act otherwise violative of the stay.” Johnson v. TRE
22 Holdings LLC (In re Johnson), 346 B.R. 190, 194 (9th Cir. BAP
23 2006).
24 2. SS Trust established it had a colorable claim to the
Property.
25
26 Cruz contends SS Trust was not the real party in interest and
27 lacked standing to seek relief from stay. We disagree.
28 The filing of a petition for bankruptcy relief automatically
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1 stays the commencement of any act to obtain possession of or to
2 enforce a lien against property of the debtor or of the estate.
3 See § 362(a)(3), (a)(4) and (a)(5). The automatic stay does not
4 apply to property that is not property of the estate. It does,
5 however, stay the enforcement of a lien securing a prepetition
6 claim against property of the debtor, which includes property
7 acquired by an individual debtor postpetition. 3 COLLIER ON
8 BANKRUPTCY ¶ 362.03[7] (Alan N. Resnick & Henry J. Sommers, eds.,
9 16th ed. 2012).
10 Under § 362(d), a “party in interest” may request relief from
11 the stay. A “party in interest” can include any party that has a
12 pecuniary interest in the matter, that has a practical stake in
13 the resolution of the matter or that is impacted by the automatic
14 stay. Brown v. Sobczak (In re Sobczak), 369 B.R. 512, 517-18 (9th
15 Cir. BAP 2007). Proceedings to decide motions for relief from the
16 automatic stay are very limited. “[A] party seeking relief from
17 stay need only establish that it has a colorable claim to enforce
18 a right against property of the estate.” Veal v. Am. Home Mortg.
19 Servicing, Inc. (In re Veal), 450 B.R. 897, 914-15 (9th Cir. BAP
20 2011). A party has a “colorable claim” sufficient to establish
21 standing to prosecute the motion if it has an ownership interest
22 in the subject property. Id. at 913; Edwards v. Wells Fargo Bank,
23 N.A. (In re Edwards), 454 B.R. 100, 105 (9th Cir. BAP 2011).
24 Cruz appears to argue that SS Trust failed to establish a
25 colorable claim to the Property because it did not record a
26 trustee’s deed. Without a recorded trustee’s deed, Cruz argues,
27 the foreclosure sale cannot be deemed final, SS Trust’s alleged
28 interest in the Property was not perfected and, thus, his interest
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1 is superior. Cruz misinterprets California law.
2 Section 2924h(c) of the California Civil Code provides that
3 for the purposes of this subsection (dealing with finalizing a
4 trustee’s sale), “the sale shall be deemed final upon the
5 acceptance of the last and highest bid.” It then discusses when
6 the sale "is perfected," based on timing of recordation of the
7 trustee’s deed within 15 days. See also 4 Harry D. Miller &
8 Marvin B. Starr, CAL. REAL ESTATE § 10:252 (3d ed. 2013)(Under
9 California law “[t]he purchaser at the foreclosure sale receives
10 title free and clear of any right, title, or interest of the
11 trustor or any grantee or successor of the trustor.”). Therefore,
12 title technically transferred to SS Trust, by law, even without
13 recordation of a trustee’s deed on sale.
14 In support of its Stay Relief Motion, SS Trust provided a
15 declaration from an employee who testified that he attended the
16 sale on July 15, 2013, and purchased the Property. Although a
17 trustee’s deed had not yet been recorded at that time, SS Trust
18 offered a document entitled “Trustee’s Sale Results,” which
19 indicated that SS Trust had purchased the Property for $711,000.8
20 Accordingly, SS Trust’s ownership interest in the Property
21 established a “colorable claim” and, hence, standing to prosecute
22 the Stay Relief Motion.
23 3. The Property was not property of the estate, but it was
property of the debtor.
24
25 Cruz contends the Property was estate property because he
26
8
Cruz has attached in his reply brief a copy of the now-
27 recorded trustee’s deed, recorded on October 1, 2013, which states
that SS Trust, “being the highest bidder” at the sale on July 15,
28 2013, “was the beneficiary of said Deed of Trust at the Time of
said Trustee’s Sale.”
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1 received a grant deed from Ms. Ko. Even presuming the Cruz Deed
2 was valid, the record reflects that he did not obtain an interest
3 in the Property until July 15, 2013, when the Cruz Deed was
4 executed and recorded. Therefore, the Property was not estate
5 property because Cruz, a chapter 7 debtor, acquired his interest
6 in it after the commencement of the case. See § 541(a)(1)
7 (property of the estate is defined as “all legal or equitable
8 interests of the debtor in property as of the commencement of the
9 case”)(emphasis added). Because of this, the bankruptcy court
10 found that the Property was never protected by the automatic stay.
11 We agree the Property was not “property of the estate,” but
12 it arguably was “property of the debtor” and still protected by
13 the stay under § 362(a)(5)9 at the time of the sale. However, any
14 potential stay violation was cured by the bankruptcy court’s
15 proper annulment of the stay.
16 4. Cause existed to annul the stay.
17 Actions taken in violation of the automatic stay are void.
18 However, an action taken in violation of the automatic stay that
19 would otherwise be void may be declared valid if cause exists for
20 retroactive annulment of the stay. Schwartz v. United States (In
21 re Schwartz), 954 F.2d 569, 573 (9th Cir. 1992). Section 362(d)
22 empowers the bankruptcy court to annul the stay. It provides:
23 (d) On request of a party in interest and after notice
and a hearing, the court shall grant relief from the stay
24 provided under subsection (a) of this section, such as by
25
9
Section 362(a)(5) provides that a bankruptcy petition
26 stays “any act to create, perfect, or enforce against property of
the debtor any lien to the extent that such lien secures a claim
27 that arose before the commencement of the case under this title.”
28
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1 terminating, annulling, modifying, or conditioning such
stay—
2
(1) for cause, including the lack of adequate protection
3 of an interest in property of such party in interest[.]
4 § 362(d)(1); In re Schwartz, 954 F.2d at 572 (“[S]ection 362(d)
5 gives the bankruptcy court wide latitude in crafting relief from
6 the automatic stay, including the power to grant retroactive
7 relief from the stay.”).
8 In deciding whether “cause” exists to annul the stay, a
9 bankruptcy court should examine the circumstances of the specific
10 case and balance the equities of the parties’ respective
11 positions. Gasprom, Inc. v. Fateh (In re Gasprom, Inc.), 500 B.R.
12 598, 607 (9th Cir. BAP 2013)(citing In re Nat’l Envtl. Waste
13 Corp., 129 F.3d at 1055); Fjelsted v. Lien (In re Fjelsted), 293
14 B.R. 12, 24 (9th Cir. BAP 2003). Under this approach, the
15 bankruptcy court considers (1) whether the creditor was aware of
16 the bankruptcy petition and automatic stay and (2) whether the
17 debtor engaged in unreasonable or inequitable conduct. In re
18 Nat’l Envtl. Waste Corp., 129 F.3d at 1055. In Fjelsted, we
19 approved additional factors for consideration in assessing the
20 equities:
21 1. Number of [bankruptcy] filings;
22 2. Whether, in a repeat filing case, the circumstances indicate
an intention to delay and hinder creditors;
23
3. A weighing of the extent of prejudice to creditors or third
24 parties if the stay relief is not made retroactive, including
whether harm exists to a bona fide purchaser;
25
4. The [d]ebtor’s overall good faith (totality of circumstances
26 test)(citation omitted);
27 5. Whether creditors knew of the stay but nonetheless took
action, thus compounding the problem;
28
6. Whether the debtor has complied, and is otherwise complying,
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1 with the Bankruptcy Code and Rules;
2 7. The relative ease of restoring the parties to the status quo
ante;
3
8. The costs of annulment to debtors and creditors;
4
9. How quickly creditors moved for annulment, or how quickly
5 debtors moved to set aside the sale or violative conduct;
6 10. Whether, after learning of the bankruptcy, creditors
proceeded to take steps in continued violation of the stay,
7 or whether they moved expeditiously to gain relief;
8 11. Whether annulment of the stay will cause irreparable injury
to the debtor; and
9
12. Whether stay relief will promote judicial economy or other
10 efficiencies.
11 293 B.R. at 25. These factors merely present a framework for
12 analysis and “[i]n any given case, one factor may so outweigh the
13 others as to be dispositive.” Id.14 The record supports the bankruptcy court’s decision to grant
15 the Stay Relief Motion on the alternate basis that cause existed
16 to annul the stay. The court identified only one factor as
17 justifying annulment of the stay: the postpetition transfer of a
18 fractionalized interest in the Property to Cruz on the day of the
19 sale. In other words, Cruz had engaged in unreasonable or
20 inequitable conduct, or the court certainly questioned his overall
21 good faith, which satisfies factor four. The court’s additional
22 findings under § 362(d)(4) also support annulment. In particular,
23 Cruz was found to have filed his case in bad faith as part of a
24 scheme to delay, hinder and defraud creditors. This finding
25 satisfies factor four. Cruz denies that he filed his case in bad
26 faith and contends the bankruptcy court erred by not considering
27 all of the facts. We disagree. Our review of the record shows
28 the court considered all of the facts. Further, Cruz’s skeletal
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1 filing, his failure to file all necessary bankruptcy documents
2 resulting in dismissal of his case and his failure to list the
3 Property on his Schedule A or to amend it after obtaining his
4 interest satisfies factor six.
5 In addition, the record reflects that SS Trust was unaware of
6 the stay at the time of the sale, which satisfies factor five.
7 Cruz disputes this. It is highly unlikely that SS Trust, a third-
8 party purchaser, was on notice of Cruz’s bankruptcy case when he
9 faxed his Notice of Bankruptcy Filing to the lender and recorded
10 the Cruz Deed just minutes before the sale. Moreover, SS Trust
11 presented uncontroverted evidence that it was not aware of Cruz’s
12 bankruptcy filing. Once SS Trust learned of Cruz’s bankruptcy, it
13 did not take any further steps which could violate the automatic
14 stay and it promptly moved for relief, which satisfies factors
15 nine and ten.
16 We conclude the bankruptcy court did not abuse its discretion
17 in finding that cause existed for retroactive annulment of the
18 stay to validate the foreclosure sale.
19 B. The bankruptcy court did not abuse its discretion in denying
the Motion to Reconsider.
20
21 Cruz did not present any argument in his opening brief as to
22 how the bankruptcy court abused its discretion by denying the
23 Motion to Reconsider the Stay Relief Order. However, he attempted
24 to do so in his reply brief. Generally, we will not consider
25 arguments raised for the first time in the reply. Sec. Pac. Nat’l
26 Bank v. Kirkland (In re Kirkland), 915 F.2d 1236, 1241 n.7 (9th
27 Cir. 1990). But, considering Cruz’s pro se status, which dictates
28 that we must construe his briefs liberally, and that SS Trust has
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1 fully briefed this issue, we will consider his argument.
2 Cruz first argues the bankruptcy court erred by not granting
3 the Motion to Reconsider under Civil Rule 60(b)(2) based on his
4 newly discovered evidence of the lender’s demurrer filed in the
5 state court action, in which the lender stated the sale had not
6 yet occurred. Civil Rule 60(b)(2) provides relief from a judgment
7 or order based on “newly discovered evidence that, with reasonable
8 diligence, could not have been discovered in time to move for a
9 new trial under [Civil] Rule 59(b).” In general, the evidence
10 must have existed at the time the judgment or order was entered.
11 See Fantasyland Video, Inc. v. Cnty. of San Diego, 505 F.3d 996,
12 1005 (9th Cir. 2007); Jones v. Aero/Chem Corp., 921 F.2d 875, 878
13 (9th Cir. 1990)(relief under Civil Rule 60(b)(2) requires that the
14 evidence: (1) existed at the time of the trial; (2) could not
15 have been discovered through due diligence; and (3) was of such
16 magnitude that production of it earlier would have been likely to
17 change the disposition of the case). In other words, the evidence
18 must be “newly discovered” by the movant rather than simply “new.”
19 In reviewing the transcript from the reconsideration hearing,
20 the bankruptcy court made incorrect statements about the record.
21 The demurrer, filed on September 9, 2013, came before the hearing
22 on the Stay Relief Motion, which was held on September 10, 2013,
23 and before the Stay Relief Order entered on September 25, 2013.
24 Thus, it could have been “newly discovered” evidence; it existed
25 at the time of trial, could not have been discovered through due
26 diligence because it was filed just one day before the stay relief
27 hearing, and it was potentially of such magnitude that production
28 of it earlier could have undermined SS Trust’s standing to seek
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1 relief from stay. Nonetheless, the court’s error here was
2 harmless. Cruz admitted the sale had occurred on July 15, 2013,
3 rightfully or wrongfully, and that SS Trust was the buyer. Thus,
4 his own admission negates any potential relevance the lender’s
5 statement about the sale could have had. Further, we know now
6 that the sale did occur on July 15, 2013, as evidenced by the now-
7 recorded trustee’s deed, which Cruz submitted to the Panel.
8 Cruz also appears to argue the bankruptcy court erred by not
9 granting the Motion to Reconsider under Civil Rule 60(b)(6), but
10 he fails to articulate any argument to support entitlement to such
11 relief. Civil Rule 60(b)(6) provides for relief from a judgment
12 or order based on “any other reason that justifies relief.” This
13 rule is “used sparingly as an equitable remedy to prevent manifest
14 injustice and is to be utilized only where extraordinary
15 circumstances prevented a party from taking timely action to
16 prevent or correct an erroneous judgment.” Latshaw v. Trainer
17 Wortham & Co., 452 F.3d 1097, 1103 (9th Cir. 2006)(internal
18 quotations omitted). Cruz had to demonstrate both injury and
19 circumstances beyond his control which prevented him from
20 proceeding with the defense of the action in a proper fashion.
21 Id.22 The bankruptcy court ruled that relief under Civil Rule
23 60(b)(6) was not warranted “[g]iven the facts of the case,
24 including post-petition transfer of the Property to Debtor on the
25 eve of bankruptcy filing[.]” Tentative Ruling (Oct. 23, 2013) 10-
26 11. This is incorrect factually. Cruz engaged in a postpetition
27 transfer of the Property, but it was not on the eve of his
28 bankruptcy filing; it occurred after the fact. Nonetheless, the
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1 record does not support relief for Cruz under Civil Rule 60(b)(6).
2 Cruz did not present any evidence establishing that circumstances
3 beyond his control kept him from defending against the Stay Relief
4 Motion. In fact, he diligently defended against it, filing his
5 opposition, declaration and supporting documents. Although his
6 alleged attorney failed to appear at the hearing, no evidence
7 suggests it would have changed the outcome of the bankruptcy
8 court’s ruling had she appeared. Given the facts before the
9 court, which Cruz’s attorney would have been limited to, SS Trust
10 established that it was entitled to stay relief.10
11 Accordingly, we conclude the bankruptcy court did not abuse
12 its discretion in denying the Motion to Reconsider.
13 VI. CONCLUSION
14 For the foregoing reasons, we AFFIRM.
15
16
17
18
19
20
21
22
23
24
25
26
10
Although Cruz was also denied relief under Civil Rule
27 60(b)(1), he did not articulate any argument regarding this issue.
In any event, the record reflects the bankruptcy court applied the
28 correct law, and none of its findings appear to be clearly
erroneous.
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