Opinion
24-51018 MEH
12-02-2024
In re JOHN JEFFERSON VITALICH, Debtor.
ORDER DENYING EX PARTE APPLICATION FOR TRO
M. Elaine Hammond U.S. Bankruptcy Judge
Plaintiff and Debtor John Jefferson Vitalich filed a Chapter 7 bankruptcy case on July 1, 2024, the day prior to a scheduled trustee's sale. On November 8, 2024, this case was converted to one under Chapter 11.
Vitalich's Bankruptcy Case
At the outset of a Chapter 7 bankruptcy case, individual debtors are required to complete a Summary of Assets and Liabilities, Statement of Financial Affairs (SOFA), and Schedules A-J. These documents identify assets, liabilities, exempt property, and secured and unsecured assets, in addition to other information.
Vitalich stated in the statement of intent that he intended to sell or refinance the real property in the bankruptcy case.
Secured Creditor, 1Sharpe Holdings, LLC ("1Sharpe"), filed a motion for relief from stay pursuant to 11 U.S.C. §362(d)(1), for cause, including the lack of adequate protection of an interest in property of a party interest. The stay relief motion came on for hearing on September 12, 2024.
Vitalich participated in the hearing where I explained there were no grounds to deny the request for stay relief as Vitalich was not proposing to make adequate protection payments to 1Sharpe and no evidence was presented that Vitalich had equity in the property.
At the hearing, 1Sharpe proposed an accommodation to Vitalich whereby the court would grant relief from stay, provided that no non-judicial foreclosure sale would occur prior to November 15, 2024. This provided Vitalich with approximately 60 days to either sell the real property or refinance the debt owed to 1Sharpe. There would be no stay as of November 15, 2024, and 1Sharpe would be allowed to proceed with the foreclosure. It was discussed at the hearing that if Vitalich was unable to sell the property or refinance the senior debt a foreclosure sale would then occur shortly thereafter.
Referral of Bankruptcy Case
On November 14, 2024, Vitalich filed a Complaint and Emergency Ex Parte Application for a Temporary Restraining Order ("TRO Application") in the District Court for the Northern District of California. The TRO Application did not reference a prior Bankruptcy Court Order granting relief from stay as of November 15, 2024, nor the on-going proceedings in Vitalich's bankruptcy case.
Upon review of the pleadings and pursuant to General Order No. 24 (1.01), District Judge Haywood S. Gilliam referred the TRO Application to Bankruptcy Judge M. Elaine Hammond as the Bankruptcy Court has issued several orders in this case. Judge Gilliam entered a briefing schedule (Dkt. #15) prior to the referral of the District Court case to the Bankruptcy Court. The matter has been fully briefed. Therefore, the TRO Application will not be treated as an ex parte matter. Further, I find the TRO appropriate for resolution on the pleadings.
Legal Standard
In order to obtain a TRO, a movant must establish four factors:
(1) A likelihood of success on the merits,
(2) A risk of irreparable harm absent injunctive relief,
(3) That the balance of equities tips in favor of injunctive relief, and
(4) That injunctive relief is in the public interest.Winter v. Natural Resources Defense Council, Inc., 555 U.S. 7, 28 (2008).
Additionally, the Ninth Circuit employs a "serious questions" test whereby a movant seeking a stay "must show that irreparable harm is probable and either: (a) a strong likelihood of success on the merits and that the public interest does not weigh heavily against a stay; or (b) a substantial case on the merits and that the balance of hardships tips sharply in the [movant']s favor." Leiva-Perez v. Holder, 640 F.3d 962, 965 (9th Cir. 2011).
The Plaintiff bears the burden of proof on each of these factors. Each factor is applied below.
(1) Vitalich is not likely to succeed on the merits
In Vitalich's Complaint, he asserts five grounds for relief:
(1) Violation of Civil Code § 1671,
(2) Violation of Fair Debt Collection Practices ("FDCPA"),
(3) Violation of Civil Code § 1788.13,
(4) Violation of Cal. Civ. Code § 1788.13, and
(5) Violation of Business and Professional Code § 17200 et seq.
Vitalich is highly unlikely to succeed on the merits on the claims he seeks to pursue. As required at the outset of the Bankruptcy Case, Vitalich completed Official Form 106 A/B, identifying assets that are property of the estate upon the filing of the bankruptcy petition.
Vitalich's response to two of the questions on Schedule A/B are applicable to the request for TRO:
"33. Claims against third parties, whether or not you have filed a lawsuit or made a demand for payment. Examples include rights to sue." Vitalich checked the box indicating that he did NOT have any claims against third parties.
"34. Other contingent and unliquidated claims of every nature, including counterclaims of the debtor and rights to set off claims." Again, Vitalich checked the box indicating that he did NOT have other contingent and liquidated claims.
These responses were signed by Vitalich under penalty of perjury on July 24, 2024.
As such, Vitalich disavowed at the outset of his bankruptcy case claims he expressly seeks to assert now.
(2) Vitalich has not established a risk of irreparable harm absent injunctive relief
1Sharpe is the Note holder and beneficiary of the Deed of Trust that is the subject of this action. The loan was a short-term loan that matured on October 1, 2022. No payments have been made since August 2022.
Vitalich asserted in the statement of interest he provided in the bankruptcy case that his intention was to sell or refinance the real property during his bankruptcy case. Vitalich's willingness to sell the property establishes that a claim for damages would provide sufficient relief.
Under California law, a party does not suffer "irreparable harm" when that harm simply results from the express terms of [the] contract." Epic Games, Inc. v. Apple Inc., 493 F.Supp.3d 817, 845 (N.D. Cal. 2020). Accordingly, Vitalich has not established irreparable harm.
(3) The balance of equities weighs against injunctive relief
The TRO Application did not reference the Bankruptcy Court Order granting relief from stay as of November 15, 2024, nor the on-going proceedings in Vitalich's bankruptcy case.
Instead of filing a complaint and TRO before the District Court, Vitalich should have filed an adversary proceeding, complaint, and TRO within Vitalich's bankruptcy case. During six months in the bankruptcy case, Debtor did not assert the claims now pled while before the bankruptcy court.
This leads to a concern that Vitalich engaged in forum shopping in an attempt to avoid the bankruptcy court order authorizing a foreclosure sale to go forward as of November 15, 2024. As such, the balance of equities weighs against Vitalich's request for a TRO.
(4) Injunctive relief is not in the public interest
The public interest weighs in favor of denying the TRO "when there demonstrably is no valid basis under the Bankruptcy Code to continue staying [the creditor's] right to proceed with a foreclosure sale." In re Farwell, No. 14-10126, 2015 WL 9438479, *5 (Bankr. D. Md. 2015).
Vitalich has not made a payment since August 1, 2022. Denying the TRO would allow 1Sharpe to exercise its legitimate rights under bankruptcy law and would return the property at issue to productive use.
(5) Vitalich has not made a showing of "serious questions"
Finally, there are no "serious questions" in this case because (a) there is not a strong likelihood of success on the merits and public interest weighs heavily against a stay, and (b) there is not a substantial case on the merits and the balance of hardship's does not tip sharply in Vitalich's favor.
Here, the Bankruptcy Court has already granted 1Sharpe's motion for relief from stay on September 25, 2024. Rather than filing a complaint and TRO before the District Court, Vitalich should have filed a filed a complaint in an adversary proceeding within the bankruptcy case Vitalich filed six months ago.
For the reasons stated, Vitalich's request for a TRO is DENIED, and consistent with the order in the bankruptcy case, the foreclosure sale may proceed without further delay.
IT IS SO ORDERED.