Opinion
NOT FOR PUBLICATION
Argued and Submitted at Pasadena, California: March 19, 2010
Appeals from the United States Bankruptcy Court for the Central District of California. Bk. Nos. SA 09-13917 RK, SA 09-13910 RK. Hon. Robert N. Kwan, Bankruptcy Judge, Presiding.
Before PAPPAS, MONTALI and BRANDT, [ Bankruptcy Judges.
The Honorable Philip H. Brandt, Bankruptcy Judge for the Western District of Washington, sitting by designation.
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 8013-1.
Debtors Soon Wha Chey (" Mrs. Chey") and her son, David Chey (" Mr. Chey"), appeal the decision of the bankruptcy court granting relief from the automatic stay in their separate chapter 13 cases to Wells Fargo Bank, N.A. (" Wells Fargo") to proceed with enforcement of a judgment entered against them in an unlawful detainer action in state court. We AFFIRM.
Unless otherwise indicated, all chapter, section and rule references are to the Bankruptcy Code, 11 U.S.C. § § 101-1532, and the Federal Rules of Bankruptcy Procedure, Rules 1001-9037.
FACTS
On November 5, 2003, Mrs. Chey signed an interspousal transfer deed conveying title of a property in Irvine, California (" the Property") to her husband, Young Chey (" Young") " as his sole and separate property." The interspousal deed was recorded on December 23, 2003, in the Orange County Records Office. Young subsequently granted three deeds of trust on the Property: the first to Equity 1 Lenders Group (succeeded by GMAC Mortgage) on December 3, 2003; the second to Bank of the West on August 23, 2004; and the third to Wells Fargo, recorded on October 3, 2005.
After Young passed away in May, 2007, Bank of the West initiated foreclosure proceedings on the Property.
On August 1, 2007, Mrs. Chey filed a chapter 13 bankruptcy petition. On her Schedules, she listed a fee simple ownership interest in the Property. Later, on November 13, 2007, she filed an adversary proceeding to quiet title in the Property, naming as defendants GMAC Mortgage, Bank of the West and Wells Fargo. Mrs. Chey failed to propose a confirmable plan by the deadline established by the bankruptcy court, and her bankruptcy case was dismissed on February 19, 2008. The bankruptcy court dismissed the adversary proceeding on May 30, 2008, suggesting that the quiet title action would more appropriately be pursued in state court.
Mrs. Chey commenced an action in Orange County Superior Court (Central Justice Center) on May 22, 2008. Chey v. GMAC Mortgage, LLC et al., Case No. 2008-00107011. Although styled an " unlimited civil suit, " the focus of the complaint was her request to quiet title in Mrs. Chey as against GMAC, Bank of the West and Wells Fargo. Mrs. Chey sought a temporary restraining order prohibiting the foreclosure, which the state court granted, but then dissolved on June 24, 2008. Bank of the West and Wells Fargo properly noticed and scheduled a foreclosure sale for July 11, 2008. Mrs. Chey sought a preliminary injunction against the sale on July 10, 2008, which was denied by the state court. The foreclosure sale was conducted on July 11, 2008, at which Wells Fargo was the high bidder. A Trustee's Deed of Sale was recorded conveying the Property to Wells Fargo on July 30, 2008. Although Mrs. Chey continued with the quiet title action, the state court indicated its intention to grant the banks' demurrer without leave to amend in a tentative ruling on March 3, 2009. Mrs. Chey dismissed the suit shortly thereafter.
On November 30, 2008, Wells Fargo filed an unlawful detainer action concerning the Property in Orange County Superior Court (Harbor Justice Center). Wells Fargo Bank, N.A. v. Young Chey and Does 1- 20, Case No. 2008-00219380 (the " Unlawful Detainer Action"). Wells Fargo claimed ownership of the Property based on the foreclosure sale and the recording of the trustee's deed in its favor. Mrs. Chey and her son were not named as defendants in the complaint, but it was directed against any occupants and alleged that the occupants included the " former owners."
On April 28, 2009, the state court held a hearing on Wells Fargo's motion for summary judgment in the Unlawful Detainer Action. That same day, a five-page minute order was filed wherein the state court granted a summary judgment in favor of the bank. In particular, the order provided that: " Plaintiff [Wells Fargo] is entitled to possession of the premises and to damages of $30.00 per day from September 7, 2008 until the Defendants deliver up possession to the Plaintiff." A formal order was entered May 12, 2009, and identified the defendants by name as Soon Wha Chey and David Chey.
Mrs. Chey filed her second chapter 13 bankruptcy case on April 30, 2009. Mr. Chey filed a chapter 13 petition the same day.
Wells Fargo moved for relief from the automatic stay in both bankruptcy cases on June 4, 2009. The Cheys filed a response on June 16, 2009, generally disputing the bank's arguments, stressing that the interspousal transfer deed was void, and insisting that Mrs. Chey was the owner of the Property as the surviving spouse with right of survivorship.
The bankruptcy court heard the bank's motion for relief from stay on June 30, 2009. After hearing from both parties, the court directed them to submit supplemental briefings addressing the factors for stay relief and permissive abstention as articulated in Christensen v. Tucson Estates, Inc. (In re Tucson Estates, Inc.), 912 F.2d 1162, 1166 (9th Cir. 1990). The court set a final hearing on the motion for July 29, 2009.
On July 15, 2009, the Cheys filed a joint supplemental opposition to the motion for stay relief. Among their arguments was that the state court judgment in the Unlawful Detainer Action was entered twelve days after the Cheys filed their bankruptcy petitions and, thus, was void as entered in violation of the automatic stay. The bank's supplemental brief in support of relief from stay, also filed on July 15, defended its original positions, suggesting that res judicata applied to the state court judgment, and discussing how the Tucson Estates factors justified stay relief. The Cheys filed yet another supplemental brief on July 22, 2009, disputing the binding effect of the state court judgment, and making various procedural objections, but did not discuss the Tucson Estates factors. In turn, the bank replied to the Chey's opposition on July 22, 2009.
After reviewing the supplemental briefs, the bankruptcy court vacated the hearing scheduled for July 29, 2009, and entered its Order Granting Wells Fargo's Motion for Relief from the Automatic Stay (the " Stay Relief Order") on July 30, 2009. To support its decision to grant stay relief to the bank, the bankruptcy court made these critical findings:
- The bank is the record holder of title to the Property as evidenced by a recorded deed following a foreclosure sale. - The bank obtained an order for possession of the Property two days before the filing of the bankruptcy cases. Under the " ministerial act exception, " the postpetition entry of that order did not violate the automatic stay. - Application of the Tucson Estates factors indicated relief from stay was appropriate.
The Cheys filed timely appeals of the Stay Relief Order on August 6, 2009. The Cheys also removed the Unlawful Detainer Action to the Bankruptcy Court on August 7, 2009.
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.
ISSUE
Whether the bankruptcy court abused its discretion in granting relief from stay to Wells Fargo.
STANDARD OF REVIEW
The bankruptcy court's decision to grant relief from stay is reviewed for abuse of discretion. Kronmeyer v. Am. Contractors Indem. Co. (In re Kronmeyer), 405 B.R. 915, 918 (9th Cir. BAP 2009). In applying an abuse of discretion test, we first " determine de novo whether the [bankruptcy] court identified the correct legal rule to apply to the relief requested." United States v. Hinkson, 585 F.3d 1247, 1262 (9th Cir. 2009). If the bankruptcy court identified the correct legal rule, we then determine whether its " application of the correct legal standard [to the facts] was (1) illogical, (2)implausible, or (3) without support in inferences that may be drawn from the facts in the record." Id . (internal quotation marks omitted). If the bankruptcy court did not identify the correct legal rule, or its application of the correct legal standard to the facts was illogical, implausible, or without support in inferences that may be drawn from the facts in the record, then the bankruptcy court has abused its discretion. Id.
DISCUSSION
The bankruptcy court granted Wells Fargo relief from stay under § 362(d)(1). That statute provides:
On request of a party in interest and after notice and a hearing, the court shall grant relief from the stay provided under subsection (a) of this section, such as by terminating, annulling, modifying, or conditioning such stay -- (1) for cause, including the lack of adequate protection of an interest in property of such party in interest[.]
Thus, § 362(d)(1) directs the court to grant relief from the automatic stay upon a showing of " cause." Cause has no clear definition in the Bankruptcy Code or the case law, but is determined on a case-by-case basis. In re Mac Donald, 755 F.2d 715, 717 (9th Cir. 1985). The Ninth Circuit has held that where, as here, a bankruptcy court may abstain from deciding issues in favor of state court proceedings involving the same issues, " cause may exist for lifting the stay as to the state court trial." In re Tucson Estates, 912 F.2d at 1166.
In Tucson Estates, a case that dealt with relief from stay, the court articulated a non-exclusive list of factors that a bankruptcy court should consider in deciding whether to permissively abstain and, consequently, grant relief from stay to allow a state court action to continue. The bankruptcy court here analyzed those factors, finding sufficient grounds for permissive abstention, and thus good cause for granting relief from stay to Wells Fargo. Those factors, along with other accepted grounds in the case law for determining cause for stay relief, are examined below. First, however, we dispose of two issues raised in the pleadings and addressed in the bankruptcy court's order.
A. The Property is the property of Wells Fargo.
The vast bulk of the arguments presented by Mrs. and Mr. Chey are premised upon the theory that Mrs. Chey is the owner of the Property in fee simple as the surviving spouse of her husband. This fundamental assumption is, based upon this record, flawed.
Bankruptcy courts must look to state law to determine whether and to what extent the debtor has any legal or equitable interests in property as of the commencement of the case. Butner v. United States, 440 U.S. 48, 54-55, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979). Here, the bankruptcy court found that Wells Fargo, not the Cheys or their bankruptcy estates, was the owner of the Property. That determination is consistent with California and federal bankruptcy law.
Under California law, " the trustee's sale shall be deemed final upon the acceptance of the last and highest bid[.]" Cal. Civ. Code 2924h(c). The party that submits the last and highest bid, in this case Wells Fargo, " at a nonjudicial foreclosure sale receives title under a trustee's deed free and clear of any right, title or interest of the trustor." Wells Fargo Bank v. Neilsen, 178 Cal.App.4th 602, 614, 100 Cal.Rptr.3d 547 (Cal.Ct.App. 2009), rev. denied (Cal., February 10, 2010) (emphasis added). A properly conducted nonjudicial foreclosure sale " constitutes a final adjudication of the rights of the borrower and lender." Melendrez v. D & I Investment, Inc., 127 Cal.App.4th 1238, 1249-1250, 26 Cal.Rptr.3d 413 (Cal.Ct.App. 2005); Moeller v. Lien 25 Cal.App.4th 822, 830-832, 30 Cal.Rptr.2d 777 (Cal.Ct.App. 1994).
The bankruptcy court had uncontroverted evidence that Wells Fargo was the successful bidder at a nonjudicial foreclosure sale of the Property held on July 11, 2008, and that the trustee's deed to Wells Fargo was recorded on July 30, 2008. In other words, under California law, title to the Property passed to Wells Fargo nine months before the Cheys filed their bankruptcy petitions, " free and clear of any right, title or interest" of the Cheys. Consequently, the bankruptcy court had ample evidence to support its ruling that " the bank has facially valid title to the Property based on its purchase of the Property at the prepetition nonjudicial foreclosure sale conducted pursuant to a defaulted pre-existing trust deed. . . . Neither [Mr. Chey] nor Mrs. Chey has a title interest in the Property due to the prepetition foreclosure sale." See also In re Boyd, 107 B.R. 541, 543 (Bankr. N.D. Miss. 1989) (debtor who filed bankruptcy 33 months after foreclosure sale and recordation of deed no longer had legal rights in property).
The bankruptcy court was on solid ground when it cited this prepetition transfer of title in the Stay Relief Order as one cause for relief from the stay, quoting Kathleen R. March and Alan M. Ahart, California Practice Guide: Bankruptcy ¶ ¶ 8:1195-96 (2009):
Prepetition loss of an ownership interest in property constitutes cause for relief from stay. Where the debtor (or the estate) no longer has a right to the property, there is no reason not to allow the creditor to repossess because filing a bankruptcy petition after loss of ownership cannot reinstate the debtor's title.
Although not cited by the bankruptcy court in its Stay Relief Order, this treatise goes on to comment on the legal status of a debtor who retains possession after losing title:
Where a real property nonjudicial foreclosure was completed and the deed recorded prepetition, the debtor has neither legal nor equitable title to the property at the time the bankruptcy petition is filed. Although the debtor may still be in possession of the premises, his or her status is essentially that of a " squatter." The mortgagee (or purchaser at the foreclosure sale) is entitled to the property and thus relief from the stay should be granted.
Id. at 8:1196 (emphasis in original).
When they filed for bankruptcy, the Cheys' interest in the Property was, at best, limited to their possession. And the Cheys have not argued in this appeal that there is value to their continuing possession of the Property. We therefore conclude the bankruptcy court did not abuse its discretion when it declined to continue the automatic stay so that the Cheys could remain in possession of the Property.
B. Entry of the state court judgment in the Unlawful Detainer Action did not violate the automatic stay.
The Cheys argue that the state court order granting possession of the Property to Wells Fargo, entered twelve days after the Cheys filed their bankruptcy petitions, violated § 362(a)(1), which prohibits " the commencement or continuation . . . of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title . . . ." We disagree.
The Ninth Circuit, along with other courts of appeals, has adopted a " ministerial act exception" to the general rule that a non-bankruptcy court civil order is void when entered against a debtor after he or she files for bankruptcy. In McCarthy, Johnson & Miller v. N. Bay Plumbing, Inc. (In re Pettit), 217 F.3d 1072, 1080 (9th Cir. 2000), the court considered the effect of a federal district court order releasing funds from a court registry account over the objection of a debtor who claimed that the registry funds were property of its bankruptcy estate. Although the district court signed the order releasing the funds before the debtor filed the bankruptcy petition, the clerk of court did not issue the check until after the filing. Relying on the Second Circuit's decision in Rexnord Holdings, Inc. v. Bidermann, 21 F.3d 522, 527 (2d Cir. 1994), the Ninth Circuit ruled that the:
exception [from the automatic stay] for ministerial acts stems from the common sense principle that a judicial " proceeding" within the meaning of section 362(a) of the Bankruptcy Code ends once a decision on the merits has been rendered. Ministerial acts or automatic occurrences that entail no deliberation, discretion, or judicial involvement do not constitute continuations of such a proceeding. We now adopt the ministerial act exception for this circuit[.]
In re Pettit, 217 F.3d at 1079; see also Roberts v. Comm'r, 175 F.3d 889, 897 (11th Cir. 1999); Soares v. Brockton Credit Union (In re Soares), 107 F.3d 969, 974 (1st Cir. 1997); Savers Fed. Sav. & Loan Ass'n v. McCarthy Constr. Co. (In re Knightsbridge Dev. Co.), 884 F.2d 145, 148 (4th Cir. 1989).
Here, the bankruptcy court had evidence that the state court judge heard the bank's summary judgment motion, ruled that the bank was entitled to possession of the Property, and signed a minute order directing the bank to submit a proposed order and judgment consistent with the court's ruling, all before the Cheys filed their bankruptcy petitions. Because there was no further " deliberation, discretion, or judicial involvement" required, the bankruptcy court properly determined that the clerk's entry of the order formalizing the court's decision twelve days later, after the bankruptcy petitions were filed, was a ministerial act and therefore did not violate the automatic stay.
C. The bankruptcy court did not abuse its discretion in granting relief from stay to Wells Fargo.
As discussed above, the bankruptcy court granted relief from stay to Wells Fargo so that it could proceed with its Unlawful Detainer Action in state court against Mrs. Chey and Mr. Chey. After the bank filed its motion for relief from stay, the bankruptcy court allowed the Cheys and the bank additional time to submit supplemental memoranda addressing the Tucson Estates factors. The bank responded to the court's request; the Cheys declined to address the impact of Tucson Estates.
The non-exclusive list of factors identified by the court of appeals in Tucson Estates that suggest cause for permissive abstention and, consequently, for relief from stay are:
1) the effect or lack thereof on the efficient administration of the estate if a Court recommends abstention, (2) the extent to which state law issues predominate over bankruptcy issues, (3) the difficulty or unsettled nature of the applicable law, (4) the presence of a related proceeding commenced in state court or other nonbankruptcy court, (5) the jurisdictional basis, if any, other than 28 U.S.C. § 1334, (6) the degree of relatedness or remoteness of the proceeding to the main bankruptcy case, (7) the substance rather than form of an asserted " core" proceeding, (8) the feasibility of severing state law claims from core bankruptcy matters to allow judgments to be entered in state court with enforcement left to the bankruptcy court, (9) the burden of [the bankruptcy court's] docket, (10) the likelihood that the commencement of the proceeding in bankruptcy court involves forum shopping by one of the parties, (11) the existence of a right to a jury trial, and (12) the presence in the proceeding of nondebtor parties.
In re Tucson Estates, 912 F.2d at 1167.
The bankruptcy court explicitly addressed these factors and found that five were applicable in the Cheys' bankruptcy cases:
- State law issues relating to security interests in real property predominate over bankruptcy issues. We agree with this observation. At its heart, the dispute between the Cheys and the bank centers on the question of who owns the Property, a quintessential question of state law. Moreover, in this instance, there is conclusive evidence that title to that Property vested in Wells Fargo prepetition, well before any bankruptcy law became applicable. - The unlawful detainer case pending in state court indicates the presence of a related proceeding commenced in state court. The Cheys question the applicability of this factor, arguing that they filed a notice of removal of the Unlawful Detainer Action to the bankruptcy court, and consequently there is no " proceeding" pending in state court. However, the abstention factors also apply to removed actions. In re Baldwin Park Inn Assoc., 144 B.R. 475, 480 (C.D. Cal. 1992) (the abstention provisions of 28 U.S.C. § 1334(c) apply to removed actions). - The jurisdictional basis over the bank's unlawful detainer claim is only the bankruptcy court's " related to" jurisdiction under 28 U.S.C. § 1334. This conclusion is also correct, since an unlawful detainer action is not a proceeding under title 11, nor one " arising under" title 11. - The bank's unlawful detainer claims are non-core claims grounded in state law. We agree for the same reasons as for the above two findings. - It is likely that the commencement of the bankruptcy cases involves forum shopping by at least one of the parties because the bankruptcy cases were filed by the Cheys, the losing parties in the Unlawful Detainer Action, two days after the state court issued its order granting possession of the Property to the bank. In addition to the examples of forum shopping by the Cheys cited by the bankruptcy court, we also note that Mrs. Chey dismissed her quiet title action in the state court when it appeared that the state court was prepared to do so without leave to amend her complaint.
Besides the five factors discussed by the bankruptcy court in its order, we find that the record also supports additional grounds for cause for relief from the automatic stay. As discussed above, the prepetition loss of title to a property can constitute adequate cause for relief from stay to allow the new owner to take possession of that property. Judicial economy is also a ground for cause for abstention and relief from stay. Sonnax Indus., Inc. v. Tri Component Prods. Corp. (In re Sonnax Indus., Inc.), 907 F.2d 1280, 1286-87 (2d Cir. 1990). In this case, the Unlawful Detainer Action has advanced to the point of entry of judgment, and the only remaining procedures would involve enforcement of its judgment or an appeal. Relitigating the Unlawful Detainer Action in the bankruptcy court would likely be a burden on the bankruptcy court's limited resources.
The bankruptcy court did not abuse its discretion in deciding that the Tucson Estates factors favored granting relief from stay.
CONCLUSION
The bankruptcy court applied the correct rules of law regarding Wells Fargo's request for relief from stay. Moreover, the court's application of the these standards to the facts was neither illogical, implausible, nor without support in inferences that may be drawn from the facts in the record. The bankruptcy court did not abuse its discretion in granting relief from stay to Wells Fargo to proceed with enforcement of a judgment in the Unlawful Detainer Action in state court.
We AFFIRM the order of the bankruptcy court.
While the order of the bankruptcy court we affirm today authorized Wells Fargo to proceed to enforce its judgment in state court, as noted above, the Cheys caused that action to be removed to the bankruptcy court where we presume it is pending. Of course, the propriety of the removal of that action is not implicated in this appeal, and nothing in our decision should be interpreted to limit the ability of the bankruptcy court, in the exercise of its discretion, either to proceed with that action or to order that the action be remanded to state court.