Opinion
NOT FOR PUBLICATION
MEMORANDUM OPINION AND DECISION DENYING WITHOUT PREJUDICE MOTION FOR ORDER SHORTENING TIME
RONALD H. SARGIS, Judge United States Bankruptcy Court
Annette Hornsby, the Chapter 11 Debtor and Debtor in Possession ("Debtor in Possession"), has filed a motion for order shortening time to allow the court to hear a Motion to Vacate the court's prior order granting Deutsche Bank National Trust Company, and its successors relief from the automatic stay. The Motion for Order Shortening Time states with particularity (Fed. R. Bankr. P. 9013) the following grounds for the relief requested:
A. The Debtor in Possession has pending in state court a complaint for wrongful foreclosure against Deutsche Bank National Trust Company ("DBNTC") and other defendants. By virtue of its claim that the foreclosure was wrongful, the Debtor in Possession asserts that the real property commonly know as 950 Harrison Street, San Francisco, California ("950 Harrison Street Property"), was owned by the Debtor as of the commencement of this bankruptcy case and continues to be property of the bankruptcy estate. The complaint was filed by the Debtor in the California Superior Court on May 7, 2012.
B. On May 8, 2012, the Debtor commenced the present Chapter 13 case.
C. On May 15, 2012, DBNTC filed a motion for relief from the automatic stay.
D. On June 15, 2012, the court granted the DBNTC motion for relief from the automatic stay.
E. On November 20, 2012, and December 3, 2012, DBNTC and other defendants filed demurrers in the State Court Action.
F. On January 25, 2013, the Debtor in Possession filed an amended complaint in the State Court Action. A copy of the amended complaint is filed as Exhibit A to the declaration of the Debtor in Possession in support of the Motion to Vacate the order granting relief from the automatic stay.
G. On February 22, 2013, the defendants in the State Court Action filed demurrers to the first amended complaint in the State Court Action. On April 24, 2013, the demurrers were overruled by the judge in the State Court Action. The state court rulings on the demurrers are filed as Exhibits D and E to the Debtor in Possession's declaration.
H. On April 22, 2013, the Debtor in Possession recorded a Lis Pendens for the 950 Harrison Street Property.
I. The rulings on the demurrers were that the first amended complaint alleges sufficient facts disputing the validity of the foreclosure sale and that no allegation of "tender" was required based on the claim that the foreclosure sale was void.
J. After the State Court Judge denied the demurrers, on or about May 1, 2013, DBNTC listed the 950 Harrison Street Property for sale.
The "rulings" provided as Exhibits D and E are the state court judge's orders, which state, " [Defendant's] Demurrer to Amended Complaint is DENIED. Amended Complaint sufficiently alleges facts disputing Defendants' authority to foreclose. See ¶ 16 of Amended Complaint. No tender is required when the sale is void." No other discussion of the Amended Complaint or the merits of the litigation is provided by state court judge ruling on the Demurrer. Paragraph 16 of the Amended Complaint states,
The "rulings" provided as Exhibits D and E are the state court judge's orders, which state, " [Defendant's] Demurrer to Amended Complaint is DENIED. Amended Complaint sufficiently alleges facts disputing Defendants' authority to foreclose. See ¶ 16 of Amended Complaint. No tender is required when the sale is void." No other discussion of the Amended Complaint or the merits of the litigation is provided by state court judge ruling on the Demurrer. Paragraph 16 of the Amended Complaint states,
K. On May 30, 2013, DBNTC purported to have transferred titled to the 950 Harrison Street Property to Victor Li and Yao L. Jiang ("Buyer 1"). Because of the Lis Pendens, the Debtor in Possession asserts that Buyer 1 has knowledge of the estate's interest in the 950 Harrison Street Property.
L. It is alleged that Buyer 1 is attempting to transfer title to the 950 Harrison Street Property to third-parties, notwithstanding the Lis Pendens and knowledge of the bankruptcy estate's asserted interest 950 Harrison Street Property.
M. It is alleged that Buyer 1 is attempting to transfer title to third-parties to further complicate the "legal process, " and if they are allowed to transfer title it will lead to a multiplicity of legal filings that will needlessly burden the courts.
N. Debtor in Possession asserts that DBNTC and other defendants have had years to document their right to foreclose, but have failed to so do. Therefore, it is unlikely that they will be able to do so in the future.
O. Debtor in Possession asserts that the 950 Harrison Street Property has a value of $725, 000.00, and anticipates the value to continue to increase.
P. Debtor in Possession asserts that for the loan secured by the 950 Harrison Street Property, "defendants" demanded monthly payments of $3, 700.00 (increased from $1, 700) and refused to grant Debtor a loan modification. Ex Parte Motion, Dckt. 152. The Debtor in Possession requests that the court reinstate the automatic stay before there could be any further purported transfers of the 950 Harrison Street Property. Pursuant to the Ex Parte Motion, the Debtor in Possession requests that the court set a hearing on the Motion to Vacate on August 20, 2013.
MOTION TO VACATE ORDER GRANTING RELIEF FROM STAY
The Motion to Vacate (Dckt. 153) repeats the allegations set forth in the Ex Parte Motion to Shorten Time. Based on those allegations, the Debtor in Possession asserts that pursuant to 11 U.S.C. § 105, the court "has authority to vacate the order lifting the automatic stay and to reimpose a stay." The bankruptcy court should vacate the order terminating the automatic stay "in the interest of justice...in order to avoid a multiplicity of legal actions which will further needlessly burden the Courts and to prevent an abuse of process. [undescribed] Irreparable harm will occur to the Debtor in Possession if this Motion for an order vacating the automatic stay and reinstating the bankruptcy stay is not granted."
The Debtor in Possession has filed a Points and Authorities in support of the Motion to Vacate. Dckt. 155. The first five of the six-page Points and Authorities consist of the facts alleged in the Ex Parte Motion for Order Shortening Time and the Motion to Vacate. The court is directed to utilize 11 U.S.C. § 105(a) to vacate the order granting relief from the automatic stay. No other statute, Federal Rule of Civil Procedure, Federal Rule of Bankruptcy Procedure, or case law is provided in support of the Motion to Vacate.
GROUNDS FOR VACATING ORDER
While Congress ensured that there was a statutory basis for the bankruptcy and district court judges having the authority to issue all orders necessary and proper to carry out the Bankruptcy Code, 11 U.S.C. § 105(a) is not the grant of a free ranging authority to do whatever the judge thinks should be right. In re Lloyd, 37 F.3d 271 (7th Cir. 1994) (not grant the court "free floating discretion" to create rights outside of the Bankruptcy Code); In re Fesco Plastics Corp., 996 F.2d 152 (7th Cir. 1993) (court may not employ its equitable powers to achieve results not contemplated by the Code); United States v Sutton, 786 F.2d 1305 (5th Cir. 1986) (must be exercised consistent with the provisions of the Bankruptcy Code).
As stated by the Ninth Circuit Court of Appeals in American Hardwoods, Inc. v. Deutsche Credit Corporation (In re American Hardwoods, Inc.) 885 F.2d 621 (9th Cir. 1989),
While endowing the court with general equitable powers, section 105 does not authorize relief inconsistent with more specific law. In re Golden Plan of California, Inc., 829 F.2d 705, 713 (9th Cir. 1986) (Golden Plan) ("a bankruptcy court's equitable powers must be strictly confined within the prescribed limits of the Bankruptcy Act."); Johnson v. First National Bank of Montevideo, Minnesota, 719 F.2d 270, 273 (8th Cir. 1983) ("Although a bankruptcy court is essentially a court of equity, its broad equitable powers may only be exercised in a manner which is consistent with the provisions of the Code.") (citations omitted), cert. denied, 465 U.S. 1012, 79 L.Ed.2d 245, 104 S.Ct. 1015 (1984). For example, section 105 does not empower the court to award attorney fees absent specific statutory authority, In re Panaia, 65 Bankr. 865, 869-70 (Bankr.D.Mass. 1986), or to order a trustee to recover expenses in a manner not specifically provided for in 11 U.S.C. § 506(c), Golden Plan, 829 F.2d at 712-14. Nor does section 105 supersede the Anti-Injunction Act, 26 U.S.C. § 7421(a), which prohibits the court from enjoining the assessment or collection taxes. In re Heritage Village Church and Missionary Fellowship, Inc., 851 F.2d 104, 105 (4th Cir. 1988)
Rather than a free-floating exercise of judicial power to vacate an otherwise final order of this court, the federal judicial process for addressing an order which has become final and otherwise enforceable is governed by Federal Rule of Civil Procedure 60(b), as made applicable in this case by Federal Rule of Bankruptcy Procedure 9024, which incorporates minor modifications that do not apply here. Grounds for relief from a final judgment, order, or other proceeding are limited to:
(1) Mistake, inadvertence, surprise, or excusable neglect;
(2) Newly discovered evidence that, with reasonable diligence, could not have been discovered in time to move for a new trial under Rule 59(b);
(3) Fraud (whether previously called intrinsic or extrinsic), misrepresentation, or misconduct by an opposing party;
(4) The judgment is void;
(5) The judgment has been satisfied, released, or discharged; it is based on an earlier judgment that has been reversed or vacated; or applying in prospectively is no longer equitable; or
(6) Any other reason that justifies relief.
Fed. R. Civ. P. 60(b). The court uses equitable principles when applying Rule 60(b)Fed. R. Civ. P. 60(b). See 11 Charles Alan Wright Et Al., Federal Practice and Procedure § 2857 (3rd ed. 1998). A precondition to the granting of such relief is that the movant show that he or she has a meritorious claim or defense. See 12-60 Moore's Federal Practice Civil § 60.24; Brandt v. American Bankers Insurance Company of Florida, 653 F.3d 1108, 111 (9th Cir. 2011); Falk v. Allen, 739 F.2d 461, 462 (9th Cir. 1984) ("We agree with the Third Circuit that three factors should be evaluated in considering a motion to reopen a default judgment under Rule 60(b): (1) whether the plaintiff will be prejudiced, (2) whether the defendant has a meritorious defense, and (3) whether culpable conduct of the defendant led to the default. See Gross v. Stereo Component Systems, 700 F.2d 120, 122 (3d Cir. 1983) ("Gross"); see also United Coin Meter v. Seaboard Coastline R.R., 705 F.2d 839, 845 (6th Cir. 1983) (adopting Third Circuit test).")
The Debtor in Possession fails to provide the court with any consideration of Rule 60(b), the grounds being asserted, and why such relief is proper. It appears that there is a general request that relief should be granted for a nonspecific "other reason that justifies relief." The "other reason" would be that the Debtor in Possession was able to draft an Amended Complaint which pleads (without any requirement of proof) a possible claim against DBNTC. This court granted DBNTC relief from the automatic stay by order entered on June 15, 2012. Order, Dckt. 43. No opposition to the Motion for Relief was filed by the Debtor in Possession. The court found that for purposes of a motion for relief from the automatic stay, DBNTC has shown a colorable claim, the determination of the respective rights of DBNTC and the Debtor in Possession to be made in the California state court. Civil Minutes, Dckt. 42.
USE OF AUTOMATIC STAY IN PLACE OF PRELIMINARY INJUNCTION
On a number of occasions this court has addressed the proper, and improper, use of the automatic stay by a debtor in lieu of a state court or a Federal Rule of Civil Procedure 56 preliminary injunction. When financially driven to seek relief under the Bankruptcy Code, the ability of a debtor to post the necessary bond may be problematic. This court has balanced the provisions of 11 U.S.C. § 362(a) and the requirements for an injunction in litigation to determine rights and interests in property or the extent, validity, priority, and extent of a lien pursuant to Federal Rule of Civil Procedure 65(c) and Federal Rule of Bankruptcy Procedure 7001 and 7056. The use of the automatic stay by a debtor to enjoin a foreclosure or unlawful detainer proceeding while a debtor litigates the rights and interests of the asserted creditor or owner who purchased property at a foreclosure sale is appropriate when made part of a bankruptcy plan which provides for the monthly payment on the alleged secured claim to be placed in a blocked account as a self-funded bond that the court can use to pay the damages pursuant to Federal Rule of Civil Procedure 65(c) if it is determined that the person asserting rights as a creditor or purchaser of the property were improperly enjoined by the automatic stay. See In re De la Salle, Bankr. E.D. Cal. 10-29678, Civil Minutes for Motion to Dismiss or Convert (DCN: MBB-1), Dckt. 230 (Bankr. E.D. Cal. 2011), affirm., De la Salle v. U.S. Bank, N.A. (In re De la Salle), 461 B.R. 593 (B.A.P. 9th Cir. 2011).
This Debtor has filed four bankruptcy cases (including the present case) since 2008. These cases and their dispositions are summarized in the following chart.
| Case Number and Chapter | Date Filed Date Dismissed DischargeEntered | Disposition |
| 12-28879 Chapter 11 | Date Filed: May 8, 2012 Case Pending No Discharge | No Chapter 11 Plan Proposed, No DisclosureStatement Proposed |
| 12-21050 Chapter 13 | Date Filed: January 19, 2012 Date Dismissed: February 23, 2012 No Discharge | Case dismissed due to failure to file Schedules andStatement of Financial Affairs |
| 08-35711 Chapter 7 | Date Filed:October 29, 2008 Discharge: January 22,2010 | |
| 08-29875 Chapter 13 | Date Filed: July 21, 2008 Date Dismissed:September 5, 2008No Discharge | Case dismissed for failure to comply with 11 U.S.C.§ 521(i). |
The Debtor has been utilizing the Bankruptcy Code and federal judicial process since 2008. Her prior Chapter 13 case was dismissed on February 23, 2012. The present case was filed on May 8, 2012, less than three months after the dismissal of the Chapter 13 case.
On Schedule A filed in this case the Debtor lists the 950 Harrison Street Property as an asset having a current value of $597, 300.00 (as of the 2012 commencement of the case) and being subject to liens in the amount of $600, 000.00. Dckt. 24. On Schedule B the Debtor does not list any personal property claims or rights against DBNTC or other persons. Dckt. 25. On Schedule D the Debtor lists Deutsche Bank AG as having a $525, 000.00 claim secured by the 950 Harrison Street Property. Dckt. 27. The Debtor does list a wrongful foreclosure, fraud, predatory lending action in the California State Court. Statement of Financial Affairs, Question 4, Dckt. 34.
The Debtor in Possession must address the secured claim in some manner in a plan, not merely choose to ignore it and use the automatic stay in lieu of an injunction. If all the Debtor in Possession wants is an injunction, then she may obtain such from the state court in which she is prosecuting her claims against DBNTC. The Debtor in Possession has not proposed a plan in which the monthly payments due under the contract (or a good faith determined amount which would likely be due under a loan modification) be paid into a blocked account pending a determination of who the creditor is and that claim paid, or used to pay the damages arising from that party being wrongfully enjoined from exercising its rights or interests in the 950 Harrison Street Property. In fact, though this case has been pending more than one year, no proposed plan or disclosure statement has been filed by the Debtor in Possession.
In her prior Chapter 13 case, the Debtor belatedly filed (after the case was dismissed) a proposed Chapter 13 Plan. 12-21050, Dckt. 45 (attached to the Schedules and Statement of Financial Affairs). That Chapter 13 Plan included a payment to DBNTC of $600.00 a month on its contract installment and $300.00 a month to cure an unstated amount of arrearage. The Chapter 13 Plan also promised a 100% dividend to creditors holding general unsecured claims. Because the case was dismissed, the Chapter 13 Plan was never confirmed.
The Debtor in Possession has not shown any inclination to prosecute a Chapter 11 Plan or fulfill her obligations as the Debtor in Possession and Debtor in this case. Rather, she now makes a general, vague, "it would be right to do, " request for the court to vacate the order terminating the stay so that it could go back into effect.
ALLEGED CONDUCT OF DBNTC AND TRANSFEREES OF DBNTC
At the hearing of the present motion to vacate is a contention that (1) DBNTC never had the right to conduct a non-judicial foreclosure sale, (2) DBNTC never acquired title to the 950 Harrison Street Property and the Trustee's Deed it received is of no force and effect, (3) DBNTC could not transfer title to Buyer 1, (4) because of the lis pendens Buyer 1 cannot be a bona fide purchaser for value, and (5) Buyer 1 intends to further transfer title for the purpose of further clouding the Estate's interest in the 950 Harrison Street Property to make it difficult for the Debtor in Possession (as the fiduciary of the estate) to exercise control over and possession of the 950 Harrison Street Property. Though the court has not, at this point in time, vacated the order terminating the automatic stay, that order does not transfer title to or validate any interest asserted by DBNTC or any persons, directly or indirectly, it purported to transfer title to the 950 Harrison Street Property. If the Debtor in Possession is correct and has recorded a lis pendens putting the world on notice of the estate's interest in the 950 Harrison Street Property, then the Debtor in Possession can assert whatever claims it has not only for determining that no transfer of title from the Debtor or the estate occurred, but also such other breach of contract and tort claims, if any, arising from slandering the estate's title in the 950 Harrison Street Property and interfering with the estate's ownership and possession of the 950 Harrison Street Property.
DECISION
The Debtor in Possession has not shown the court grounds to shorten time and bring the Debtor in Possession and creditors into court to address a motion to vacate the order terminating the automatic stay pursuant to 11 U.S.C. § 105(a) based on the Debtor in Possession's state court complaint surviving a demurrer. The Debtor in Possession is not prosecuting a plan in this case, the litigation is not part of any plan in this case, and at best, the Debtor in Possession appears now to want to use the bankruptcy case as a peripheral proceeding to her state court litigation. No creditors are being paid and no provision is being made to pay her creditors through a Chapter 11 Plan. The Motion for Order Shortening Time is denied without prejudice.
In looking at the latest Monthly Operating Report for June 1, 2013 (due by July 14, 2013 and belatedly filed on August 6, 2013), the Debtor in Possession reports that since the case was commenced on May 8, 2012, the estate has received $9, 640.00 in cumulative income ($3, 700.00 in rents, $5, 021.00 in retirement income, and $919.00 in "other"). Dckt. 151. The Debtor in Possession also reports that she has made $10, 532.00 in nonspecific disbursements. The Debtor in Possession reports having a $4, 727.00 cash balance as of June 30, 2013.
This Memorandum Opinion and Decision constitutes the court's findings of fact and conclusions of law pursuant to Federal Rule of Civil Procedure 52 and Federal Rule of Bankruptcy Procedure 7052 and 9014. The court shall issue a separate order consistent with this ruling. Dated: August 15, 2013
"16. When the Subject Property address and Plaintiff's name were provided to the Trustee, the Trustee responded as follows: "Our records indicate this loan was sold to Goldman Sachs in February 2004, and the servicing was transferred to Litton Loan Servicing on May 1, 2004. Litton has since been acquired by Ocwen Loan Servicing, and their customer service department can be reached at (800) 746-2936."
Amended Complaint, Exhibit A, Dckt. 157. The substance of the Amended Complaint appears to be that DBNTC and the other defendants in the State Court Action cannot prove that they have any interest in the Note secured by the 950 Harrison Street Property and therefore cannot exercise the power of sale in the Deed of Trust to have title transferred from the Debtor or Debtor in Possession to a purchaser at a non-judicial foreclosure sale.
The June 2013 Monthly Operating Report may well be inaccurate in light of the May 2013 Monthly Operating Report, Dckt. 146. In the May 2013 report (untimely filed on July 8, 2013, which was due by June 14, 2013), the Debtor in Possession reports having received $44, 400.00 in income ($44, 400.00 in rents, and no other amounts) and having made disbursements $77, 851.00 ($20, 321.00 for rent/lease of personal property and $71, 851.00 in nonspecific "Personal Expenses"). The Debtor in Possession reports having a $227, 960.00 cash balance in the estate as of May 30, 2013.