Opinion
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
APPEAL from the Superior Court of Riverside County. Super. Ct. No. RIC443910 Thomas H. Cahraman, Judge.
Stuart W. Knight for Defendant and Appellant.
Law Offices of Feinberg & Fitch and Michael S. Feinberg for Plaintiff and Respondent.
OPINION
RAMIREZ, P.J.
Defendant and appellant Daybreak Group, Inc. (Daybreak) appeals from a summary judgment in favor of plaintiff and respondent Cecelia Lewis. Lewis is the owner of a residence (the property) located in Temecula. Lewis purchased the property from an entity which had in turn purchased it at a trustee’s sale. Daybreak is the current holder of a $100,000 note purported to be secured by a trust deed on a 2.28-acre portion of the property, which it received by assignment from the original holders of the trust deed. This action arose when Lewis discovered that Daybreak intended to hold a trustee’s sale to sell the 2.28-acre portion of the property to satisfy the $100,000 trust deed. Lewis filed the instant action for declaratory relief, seeking a determination by the trial court that any lien supporting the deed of trust had been distinguished by a 2005 bankruptcy judgment quieting title to the property. The trial court granted Lewis’s motion for summary judgment.
In this appeal, Daybreak argues that the trial court erred in granting Lewis’s motion for summary judgment because: 1) the deed of trust is not invalid by virtue of any violations of the automatic bankruptcy stay; and 2) the bankruptcy judgment is not res judicata as to Daybreak because Daybreak was not a party, nor in privity to a party, to the bankruptcy proceedings. Daybreak also argues that the superior court erred in granting Lewis her attorney fees and costs. As discussed below, we conclude that the deed of trust is void as a lien on the property because it was recorded in violation of the bankruptcy stay and so affirm the superior court judgment, along with the attorney fees and costs award.
I
Statement of Facts
A. History of the Property -- Lot 10
Clinton and Candice Miller owned two adjoining pieces of property in or near Temecula in a 45-acre tract that had been subdivided into 12 lots. The Millers owned Lot 7, a 5.4-acre parcel, and Lot 10, a 3.4-acre parcel. In 1989 the Riverside County Planning Department approved the Miller’s application for a lot line adjustment, whereby 2.28 acres of Lot 7 was added to Lot 10, leaving Lot 7 a 3.12-acre parcel and Lot 10 a 5.68-acre parcel.
In December 1991, the Millers conveyed Lot 10 to Susana Cuevas. The grant deed was recorded on February 5, 1992.
The Millers sold Lot 7 to another party in 1989.
On December 5, 1994, Susana Cuevas conveyed Lot 10 by grant deed to Martin and Dora Dominguez. The Dominguezes did not immediately record the grant deed.
On December 27, 1996, the Dominguezes conveyed Lot 10 to Timothy and Juli Streeter by executing two separate grant deeds -- one for the 2.28-acre area that had previously been part of Lot 7 and one for the 3.4-acre area that had previously comprised all of Lot 10. On December 20, 2006, the Streeters had executed a deed of trust in favor of the Dominguezes to secure payment of a note for $100,000. That deed of trust was secured only by the 2.28-acre area that had previously been part of Lot 7. The Dominguezes did not immediately record the $100,000 deed of trust.
On January 10, 1997, the Dominguezes finally recorded the grant deed conveyed by Susan Cuevas in 1994. On the same day, the Streeters recorded both the grant deed conveying the 3.4-acre portion of Lot 10 (as it had existed before the 1989 lot-line adjustment) and a separate deed of trust executed by them on December 20, 1996, in favor of Bank United. This deed of trust secured a debt of $364,000 and was placed only on the 3.4-acre portion of Lot 10.
We infer that the purpose of these machinations was to attempt to split Lot 10 so that the Streeters’ $100,000 note in favor of the Dominguezes would be separately secured by the 2.28-acre portion of Lot 10 rather than being merely junior to the Streeters’ $364,000 debt to Bank United.
B. The Bankruptcy Action
On April 17, 2000, the Streeters filed a petition in the United States Bankruptcy Court. On June 29, 2000, the Dominguezes finally recorded the $100,000 deed of trust secured by the 2.28-acre portion of Lot 10. On September 24, 2000, the Dominguezes substituted Ronald Appel, Esq. in place of First American Title Insurance Company as trustee under the $100,000 deed of trust. On April 25, 2001, the bankruptcy court gave the trustee of the $364,000 deed of trust permission to sell all of Lot 10 at a trustee’s sale. Lot 10 was sold on June 29, 2001, and a trustee’s deed upon sale was issued to the purchaser, 30080 Santiago Trust UDT 6/29/01.
In January 2002, Lewis purchased the property from 30080 Santiago Trust UDT 6/29/01.
On December 19, 2002, the Dominguezes assigned to Daybreak the $100,000 deed of trust on the 2.28-acre area. The assignment was recorded on May 28, 2003.
In 2003, the trustee of the Streeters’ bankruptcy estate took the position that the 2.28-acre area that had been taken from Lot 7 and added to Lot 10 via the 1989 lot line adjustment was not part of the security for the $364,000 Bank United deed of trust and, therefore, was not conveyed to 30080 Santiago Trust EDT 6/29/01 at the trustee’s sale. On October 3, 2003, the trustee filed an action in the bankruptcy court for declaratory relief and to quiet title to the 2.28-acre area, seeking ultimately to sell it to recover the Streeter’s equity for the benefit of their creditors. Lewis appeared in the action and filed an opposition.
The plaintiff in the adversary proceeding was the bankruptcy trustee. The named defendants were the Streeters, Lewis and her husband, the Dominguezes, Ronald Appel (the predecessor trustee of the $100,000 deed of trust), and the owners of two properties adjacent to the disputed property. Daybreak was not named as a defendant.
The bankruptcy court issued a pretrial order framing the issues to be decided at trial as follows: 1) “Whether the Millers perfected the lot line adjustment in 1989”; 2) “What real property was secured by the Bank United trust deed at the time of its foreclosure?”; and 3) “What property was conveyed by the Bank United trustee’s deed?”
The other named parties failed to respond, and a default judgment was entered against the Dominguezes and Ronald Appel on November 7, 2005.
After a one-day trial, the bankruptcy court issued its findings of law and judgment on May 3, 2005. In its findings of law, the bankruptcy court concluded that: 1) the Millers had perfected the lot line adjustment in 1989 that added the 2.28-acre area to Lot 10; 2) the 2.28-acre area became legally incorporated into Lot 10; and 3) the Bank United trustee’s deed conveying Lot 10 included the 2.28-acre area; 4) as did the grant deed conveying the property to Lewis. Further, the judgment was that: 1) “Fee title to the property is owned by defendant, Cecelia Lewis”; 2) “The fee title ownership of the property . . . is hereby quieted in and to Cecelia Lewis as to all parties, including, without limitation[,]” each of the defendants and the bankruptcy trustee; and 3) Lewis was the prevailing party and would recover her costs from the bankruptcy trustee. (Capitalization omitted.)
C. The Superior Court Action
Lewis learned from a neighbor that Daybreak intended to foreclose on the $100,000 deed of trust and hold a trustee’s sale to sell the 2.28-acre area that had been at issue in the bankruptcy proceedings. On January 27, 2006, Lewis filed a complaint against Daybreak in the superior court for declaratory relief, injunction, and damages. The superior court granted a temporary restraining order and later a preliminary injunction preventing Daybreak from holding the trustee’s sale.
Lewis then filed a motion for summary judgment, arguing: 1) Daybreak was bound by the judgment of the bankruptcy court under the doctrine of collateral estoppel; and 2) in any case, the Dominguezes did not record the $100,000 deed of trust until after the Streeters had filed for bankruptcy, and so the recording was a void act, no lien attached to the property, and the lien could not be foreclosed upon.
Daybreak opposed the motion, arguing, among other things, that: 1) it was not bound by the judgment of the bankruptcy court because it was not a party to the action or in privity with a party to the action; and 2) the 2.28-acre area was never conveyed to Lewis as part of Lot 10, for a number of reasons.
The superior court granted summary judgment on August 28, 2006, ruling that: 1) the recording of the deed of trust by the Dominguezes on June 29, 2000, was a void act because it took place during the pendency of the Streeters’ bankruptcy proceeding; and 2) Daybreak was bound by the bankruptcy court judgment under the doctrines of res judicata and collateral estoppel. The court later awarded Lewis $24,000 in attorney fees and $922 in costs. This appeal followed.
II
Discussion
Daybreak argues that the trial court erred when it determined that the $100,000 deed of trust on the 2.28-acre portion of the property was invalid because it was recorded in violation of the automatic bankruptcy stay. This is because, Daybreak reasons, the deed of trust was executed on January 9, 1997, prior to the February 17, 2000, filing of the bankruptcy petition, even though it was not recorded until after the bankruptcy petition was filed. Daybreak cites a number of authorities to the effect that an executed deed of trust is effective even if not recorded.
The trial court ruled that “the recording of the Deed of Trust on which the defendants base their claim was a void act under Federal Law,” citing In re Schwartz (9th Cir 1992) 954 F.2d 569 (superseded by statute on another point as stated in Four Rivers Invs., Inc. v. United States (Fed. Cl. 2007) 77 Fed. Cl. 592, 600, fn.11). Schwartz interpreted Title 11 United States Code, section 362 (section 362), which provides that “(a) . . . a petition filed under . . . this title . . . operates as a stay, applicable to all entities, of - [¶] . . . [¶] (4) any act to create, perfect, or enforce any lien against property of the estate . . . .”
The court in Schwartz was asked to decide whether a tax lien filed in violation of this automatic stay provision was merely “voidable,” meaning that the bankruptcy debtor could choose to have a lien declared void by challenging it during the Chapter 11 bankruptcy proceeding, or in fact “void,” meaning the lien was inherently of no effect, regardless of whether the debtor challenged it during the Chapter 11 proceeding. (In re Schwartz, supra, 954 F.2d at pp. 570-571.) The Schwartz court concluded that “[t]he majority of courts have long stated that violations of the automatic stay are void and of no effect.” (Id at p.572) The court further explained that “we will not reward those who violate the automatic stay” and that the person or entity taking the postpetition collection or lien perfection action has the burden of seeking relief from section 362, rather than the burden being with the bankruptcy debtor to enforce the provision. (Ibid.; accord, In re Stanton (9th Cir. 2002) 303 F.3d 939 [“liens on [a] house that were created or perfected after the filing of the bankruptcy petition are void under In re Schwartz”].)
Here, the Dominguezes, Daybreak’s predecessors in interest to the deed of trust, recorded the deed on June 29, 2000, after the Streeters had filed their bankruptcy petition and while the bankruptcy stay described by section 362 was in full force. The recording of a deed of trust is an action to perfect the lien created by the deed of trust, and thus the recordation was void and of no effect.
Daybreak argues that the deed of trust was executed prior to the bankruptcy petition and so is not void as being in violation of the automatic stay. We agree with Daybreak that the deed of trust itself was not necessarily voided by the bankruptcy stay and that an executed deed of trust can be effective even if not recorded. (Wells Fargo Bank v. PAL Investments, Inc. (1979) 96 Cal.App.3d 431, 438.) Therefore, Daybreak may still have some recourse against the original debtors. However, any lien on or security in the property purported to have been perfected by the recordation is void, under section 362 and In re Schwartz, supra, 954 F.2d 569. Thus, Daybreak has no power to sell the 2.28-acre portion of the property to satisfy the $100,000 debt.
Moreover, as Lewis argues, Daybreak cannot now record the deed of trust and foreclose on it. The $100,000 deed of trust and the power of sale included therein, was a junior lien to that of Bank United and was “sold out” when Bank United foreclosed on its deed of trust, which the bankruptcy court determined was secured by the entire 5.68-acre parcel known as Lot 10.
Daybreak also argues that the bankruptcy court had exclusive jurisdiction to determine whether there was a violation of the bankruptcy stay, and thus the trial court had no such jurisdiction, citing generally and quoting from In re Gruntz (9th Cir. 2000) 202 F.3d 1074. This is not what Gruntz says. Rather, Gruntz stands for the proposition that only bankruptcy courts have jurisdiction over bankruptcy cases. The issue in Gruntz was not whether state courts are preempted from applying the automatic stay previously imposed by a bankruptcy court. Rather, the issue was whether a state court modification of the bankruptcy automatic stay binds federal courts. The state court here did not seek to modify the automatic stay imposed by section 362, subdivision (a), but rather to determine its implications for this case. “Congress has expressed its intent that bankruptcy matters be handled exclusively in a federal forum.” (Gruntz, at p.1080.) The case at hand is not a bankruptcy matter -- it is a secured transaction and real property matter. Further, as Lewis argues, the state and federal courts have concurrent jurisdiction to interpret federal statutes, unless the statute in question specifically deprives the state courts of jurisdiction. (See In re Marriage of Allison (1987) 189 Cal.App.3d 849, 856.) Contrary to Daybreak’s suggestion, the state court is not required to ignore the implications of the automatic bankruptcy stay, and Lewis need not turn to the federal bankruptcy court to obtain the benefits of the stay.
Finally, Daybreak contends that only the bankruptcy debtor can invoke the benefits of the bankruptcy stay, and thus Lewis has no standing to assert a violation of the stay because she is not the bankruptcy debtor. Daybreak cites In re Globe Inv. and Loan Co., Inc. (9th Cir. 1989) 867 F.2d 556. However, that case involved the appeal of a proceeding in bankruptcy court. The appellants were investors who sought to invoke the automatic stay to void a trustee’s sale so they could obtain title to a property free and clear of any claims by the debtor or its estate. (Id. at p. 560.) As the Ninth Circuit panel termed it, “The appellants have attempted to use section 362 as a weapon against the estate,” whereas “section 362 is intended to protect the debtor . . . .” (Ibid.) Here, the matter is in state court, not bankruptcy court, and, more important, neither party is the debtor. Thus, allowing Lewis to invoke the bankruptcy stay in this matter to establish that Daybreak’s recording of the trust deed is a void act is not inconsistent with the purpose of section 362 -- to protect the debtor.
III
Disposition
The judgment and award of attorney fees are affirmed. Lewis is awarded her costs on appeal.
We concur: GAUT, J., KING, J.