Opinion
Argued and Submitted at San Francisco, California: June 22, 2007
Appeal from the United States Bankruptcy Court for the Northern District of California. Bk. No. 06-30638. Honorable Thomas E. Carlson, Bankruptcy Judge, Presiding.
Before: SMITH, DUNN and KLEIN, Bankruptcy Judges.
MEMORANDUM
Subsequent to the debtor seeking bankruptcy protection, the state court entered an unlawful detainer judgment in the landlord's favor. Upon notice of the bankruptcy, the landlord sought relief from the automatic stay to proceed with the eviction. The bankruptcy court annulled the stay as to the entry of the judgment and issuance of the writ of possession as of the petition date. The court also lifted the stay to permit enforcement of the writ, provided that eviction did not take place before nine days following the date of entry of the order.
Debtor sought reconsideration of the order, which the court denied. A timely appeal ensued. We AFFIRM.
I. FACTS
On July 7, 2005, Carlo DelConte (" Debtor") leased an apartment in San Francisco, California (the " premises") from Tony Torrez (" Appellee"). Months later, after receiving information that Debtor had damaged the apartment and was allegedly consuming drugs on the premises, Appellee served Debtor with a three days notice to quit. When Debtor did not timely vacate the premises, Appellee filed an unlawful detainer action on May 9, 2006.
Prior to the unlawful detainer trial, on June 28, 2006, the parties entered into a settlement agreement under which Debtor agreed to vacate the premises no later than July 12, 2006, and in return, Appellee agreed to waive any and all rent payments owed through that date (approximately $2,500) and to pay Debtor $1,000 in relocation money - $500 upon execution of the settlement agreement and $500 once Debtor moved out. In the event of Debtor's non-performance, the settlement agreement provided Appellee the right to obtain a judgment for restitution of the premises and forfeiture of the lease agreement.
When Debtor did not vacate the premises by the agreed date, Appellee filed the stipulation for entry of judgment in state court. However, before the judgment could be entered, Debtor moved to rescind the settlement agreement. The motion to rescind came on for hearing on July 24, 2006. At the hearing's conclusion, the state court took the matter under submission.
On July 27, 2006, Debtor filed for chapter 13 bankruptcy relief. According to Debtor, he telephoned Appellee's attorney, Sally Morin (" Morin"), and faxed a copy of the petition to her on the day he filed. Nevertheless, on July 28, 2006, the state court denied the rescission motion and entered judgment in favor of Appellee. On the same day, the court clerk issued a writ of possession. Sometime thereafter, Morin contacted the sheriff's office and scheduled the eviction for August 16, 2006.
Unless otherwise indicated, all chapter, section and rule references are to the Bankruptcy Code, 11 U.S.C. § § 101-1532, and to the Federal Rules of Bankruptcy Procedure, Rules 1001-9036, as enacted and promulgated by The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. 109-8, Apr. 20, 2005, 119 Stat. 23.
Upon receiving notice of the bankruptcy filing on August 4, 2006, the sheriff's office cancelled the eviction and advised Morin that the writ would not be executed until the automatic stay was lifted. Morin responded that neither Appellee nor she had been provided copies of the petition and thus would inquire about it.
Morin concedes that Debtor advised her of the filing prior to the judgment being entered, but she disputes that a copy of the petition was faxed to her. Declining to " go on his word, " she confirmed the filing from the court's website, but only after the sheriff's office notified her that the eviction would not proceed due to the bankruptcy.
Upon confirming the filing from the court's website, Morin immediately filed an " Ex Parte Motion to Shorten Time on Motion to Terminate or Modify the Stay" on August 9, 2006. The court granted the ex parte motion and set August 14, 2006, as the hearing date for the stay motion.
At the August 14 hearing, the bankruptcy court determined that retroactive relief from the stay was warranted to allow the judgment and writ of possession to be effective. Unpersuaded by Debtor's argument that the settlement agreement was an executory contract because no judgment had been entered pre-petition, the bankruptcy court determined that the settlement fell outside " the realm of executory contracts." Hr'g Tr. 14, Aug. 14, 2006. As of the petition date, the motion to rescind had been heard by the state court, leaving only the decision whether to enter the judgment to be determined. Thus, the court reasoned that the circumstances justified conclusion of the matter by the state court and annulment of the stay as of the petition date. The bankruptcy court stressed that any state law remedies available to Debtor, such as the right to seek relief from the forfeiture under California Civil Code § 1179, needed to be presented in state court.
The court also found that Appellee was entitled to continue with the eviction because the judgment caused Debtor not to have any right to remain on the premises. Although the court recognized that neither Appellee nor Morin had been provided a copy of the petition prior to the judgment's entry and writ's issuance, it noted that once Morin learned of the stay from the sheriff's office, Appellee had a duty to investigate whether there was a stay in effect. Because Appellee had time to seek relief from the stay prior to the eviction, the court held that retroactive relief was not justified for the eviction proceedings. For this reason, Appellee was granted relief to move forward with the eviction proceedings, but was restrained from enforcing the writ of possession for nine days following entry of the relief order so as to prevent Appellee from obtaining any advantage from his actions taken after the stay's effective date.
The court does not address the fact that Debtor telephoned Morin about the bankruptcy without providing any evidence of it prior to the judgment's entry.
Initially, the court planned to apply the normal ten-day stay period to the relief order as required by Rule 4001(a)(3). The ten-day period would have caused the stay not to lift until the following Thursday. Morin informed the court that the sheriff only scheduled evictions on Wednesdays. Thus, the court waived the ten-day stay and applied only a nine-day stay in order to conform to the sheriff's schedule.
Debtor thereafter sought reconsideration of the court's relief order, arguing that the court should reinstate the automatic stay, or at least extend out the eviction date, because 1) he had just learned that he had a medical condition that he believed brought him under the Americans with Disabilities Act and entitled him to additional time before any eviction could occur and 2) § 362 protected his substantial claim and equity in the premises.
The matter came on for hearing on August 22, 2006. During the hearing, the court explained to Debtor in detail how state law governed his rights in the premises and why it was appropriate to defer to the state court to make a decision in the unlawful detainer action because it was filed pre-petition, arose under state law, and fell within a particular area of law where the state court had much greater expertise. Due to these circumstances and Debtor's failure to raise any argument to persuade the bankruptcy court otherwise, it refused to find that the automatic stay should stop the entry of judgment and issuance of the writ. The court also found that circumstances surrounding the entry of the judgment did not support Appellee being held in contempt for violating the stay.
In addition, the bankruptcy court held that the Code did not provide Debtor with the right to reject the settlement agreement as an executory contract. The state court determined that the settlement agreement was enforceable and that Debtor's lease had been forfeited. Thus, the bankruptcy court opined that the Code did not allow Debtor to stay the eviction when he had no right to remain in the premises. The court believed that it would be a " gross interference" with the state court process if Debtor were able to use the bankruptcy stay to prevent a state court from entering a judgment in a matter already heard and taken under submission.
The court noted that while the Americans with Disabilities Act might have entitled Debtor to a 30-day notice period prior to eviction, Debtor had failed to pinpoint how any relief afforded under the Act applied to his particular situation. Without so much as a citation, the court concluded that it could not, simply on Debtor's word alone, find that Debtor was entitled to an extension of the eviction date past August 23, 2006.
Based on the foregoing, the court denied Debtor's reconsideration motion and entered an order evidencing such on August 22, 2006. Debtor timely appealed.
II. JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. § 1334 and § 157(b)(1) and (b)(2)(G). We have jurisdiction under 28 U.S.C. § 158.
One of the issues Debtor submits for our review is whether the bankruptcy court erred in not finding Appellee and Morin in contempt under § 362(h) for willfully violating the automatic stay as prayed in his " Motion to Hold Landlord/Creditor And Attorney For Landlord/Creditor In Contempt For A Violation Of The Automatic Stay And Seeking Compensatory And Punitive Damages" (" Contempt Motion"). This issue was briefly touched upon by the bankruptcy court during the reconsideration hearing, but was not resolved nor addressed in either the relief from stay order or the reconsideration order.
The discussion went as follows:
Notwithstanding the court's granting of annulment of the stay, we note that annulment does not necessarily moot Debtor's § 362(h) motion. " [C]ase law has not yet definitively addressed whether an action taken in violation of the stay, validated by annulment after the fact, may nonetheless serve as a basis for an award of money damages if the debtor has suffered an injury." Williams v. Levi (In re Williams), 323 B.R. 691, 702 (9th Cir. BAP 2005). Compare In re Edisto Res. Corp., 158 B.R. 954, 958-59 (Bankr. D. Del. 1993) (holding that once the creditor paid the debtor's legal fees associated with defending against litigation that violated the automatic stay, cause would exist to annul the stay), and In re Thompson, 182 B.R. 140, 155 (Bankr. E.D. Va. 1995), aff'd, 92 F.3d 1182 (4th Cir. 1996)(annulling the automatic stay precludes an award of damages for a stay violation). Thus, Debtor may still have a valid § 362(h) claim. The determination of the validity of such a claim, at this point, remains a task for the bankruptcy court.
In sum, as the bankruptcy court has not yet entered a final order disposing of the Contempt Motion, we do not have jurisdiction to review issues arising from it on this appeal. See Special Invs., Inc. v. Aero Air, Inc., 360 F.3d 989, 992 (9th Cir. 2004).
According to the bankruptcy court's docket, the Contempt Motion was filed on August 9, 2006, and given a hearing date of September 5, 2006. However, there is no indication on the docket that it was heard on that or any other date, or that it was resolved by order of the court.
The notice of appeal states that Debtor is appealing the order denying his motion for reconsideration. However, he has not included any argument in his opening brief which addresses how the bankruptcy court abused its discretion in denying the motion. Any argument related to the reconsideration order is therefore deemed waived. Alaska Ctr. for the Env't v. U.S. Forest Serv., 189 F.3d 851, 858 n.4 (9th Cir. 1999); Martinez-Serrano v. INS, 94 F.3d 1256, 1259 (9th Cir. 1996); Int'l Union of Bricklayers v. Martin Jaska, Inc., 752 F.2d 1401, 1404 (9th Cir. 1985)(" we will not ordinarily consider matters on appeal that are not specifically and distinctly raised and argued in appellant's opening brief").
A. Whether the bankruptcy court abused its discretion by annulling the automatic stay as to the entry of judgment and issuance of the writ and granting relief from stay for the eviction.
B. Whether the bankruptcy court erred in finding that Debtor could not assume the lease.
C. Whether the settlement agreement was an executory contract which Debtor had the right to reject under § 365(d).
IV. STANDARD OF REVIEW
A bankruptcy court's conclusions of law are reviewed de novo. Miller v. United States, 363 F.3d 999, 1003 (9th Cir. 2004).
We review a decision retroactively lifting the automatic stay for an abuse of discretion. Nat'l Envtl. Waste Corp. v. City of Riverside (In re Nat'l Envtl. Waste Corp.), 129 F.3d 1052, 1054 (9th Cir. 1997). An abuse of discretion will be found " if the underlying decision 'involved a clear error of law.'" First Ave. W. Bldg., LLC v. James (In re OneCast Media, Inc.), 439 F.3d 558, 561 (9th Cir. 2006)(citing McDowell v. Calderon, 197 F.3d 1253, 1255 (9th Cir. 1999)(en banc)).
V. DISCUSSION
A. Retroactive Relief from the Automatic Stay
A petition in bankruptcy operates as a stay against actions that may affect property of the bankruptcy estate or a judicial proceeding initiated against the debtor prior to commencement of the bankruptcy case. 11 U.S.C. § 362(a). Acts committed in violation of the automatic stay are void. Schwartz v. United States (In re Schwartz), 954 F.2d 569, 571-72 (9th Cir. 1992); Sewell v. MGF Funding, Inc. (In re Sewell), 345 B.R. 174, 178 n.6 (9th Cir. BAP 2006). " However, section 362(d) 'gives the bankruptcy court wide latitude in crafting relief from the automatic stay, including the power to grant retroactive relief from the stay.'" Nat'l Envtl. Waste Corp., 129 F.3d at 1054 (citing Schwartz, 954 F.2d at 572). The Code therefore accounts for the fact that it may be inappropriate in certain circumstances to permit a debtor to take advantage of the automatic stay. Sherman v. SEC (In re Sherman), 441 F.3d 794, 815 (9th Cir. 2006).
Section 362(d) states, " 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. . . ."
Section 362(d) requires a court to grant relief from the automatic stay " for cause." 11 U.S.C. § 362(d)(1). In determining whether there is cause to grant retroactive relief, courts consider the following factors:
1. Whether the creditor was aware of the bankruptcy petition;
2. Whether the debtor engaged in unreasonable or inequitable conduct, or prejudice would result to the creditor;
3. Number of filings;
4. The debtor's overall good faith;
5. Whether creditors knew of [the] stay but nonetheless took action, thus compounding the problem, or whether they moved expeditiously to gain relief from the stay;
6. Whether the debtor has complied with the Bankruptcy Code and Rules;
7. The relative ease of restoring parties to the status quo ante;
8. How quickly creditors moved for annulment;
9. Whether annulment of the stay will cause irreparable injury to the debtor; and
10. Whether stay relief will promote judicial economy or other efficiencies.
Fjeldsted, 293 B.R. at 25. A court should not mechanically apply these factors, but should use them as an aid in weighing the equities. Nat'l Envtl. Waste Corp., 129 F.3d at 1055; Williams, 323 B.R. at 700. " In any given case, one factor may so outweigh the others as to be dispositive." Fjeldsted, 293 B.R. at 25.
In this case, the bankruptcy court appears to have afforded significant weight to the judicial economy factor. Specifically, the court found that the unlawful detainer matter had been fully litigated, i.e., a hearing had been held and the matter taken under submission, and the only step remaining as of the date of the filing was for the state court to render its ruling.
The court also determined that Appellee had acted promptly in seeking relief from the stay. Though Debtor maintains that he faxed Appellee and Morin a copy of his petition the night of the filing and also telephoned Morin about the bankruptcy, he did not provide a fax transmission receipt, or any other evidence of the communication, to the court. Morin acknowledged receiving verbal notice of the filing from Debtor but did not indicate the date she received it. Even if we accept Debtor's representation that notice was given on the petition date, i.e., July 27, Appellee's stay relief motion was filed less than two weeks later. Based on this evidence, we cannot disagree with the court's finding that Appellee sought relief in a timely fashion.
Continuing with the process of analyzing the equities between the parties, the bankruptcy court further observed that
this is not a circumstance where [Debtor] should be able to use the bankruptcy to avoid enforcement of this particular kind of judgment where the effect would be to allow [him] to stay in a premises after the [state court] has determined it's been forfeited, and especially without paying rent going forward.
Hr'g Tr. 10, Aug. 22, 2006. In our view, the court did not abuse its discretion in determining that the equities weighed in favor of granting retroactive relief to Appellee with respect to the entry of the judgment and issuance of the writ.
Similarly, the court did not err in finding cause for granting stay relief as to the eviction proceeding. " In an ensuing unlawful detainer action, the court does not decide whether the lessor terminated the lease." Vanderpark Props., Inc. v. Buchbinder (In re Windmill Farms, Inc.), 841 F.2d 1467, 1471 (9th Cir. 1988). Rather, the court's role is to determine whether the landlord's termination of the lease was proper and if it was, as the state court decided here, grant the landlord a judgment for possession of the property. Id.
The settlement agreement clearly states that the lease terminated on July 12, 2006, at 5 p.m. Consequently, as of that time and date, Debtor's tenancy terminated. The fact that the state court had yet to enter a final judgment upholding the validity of the termination under California law does not alter the existence of the termination itself. See id. at 1470-71 (" It is possible to define termination in such a way that events sufficient to constitute termination of a lease occur long before a court determines that the termination is valid under state law."). Cause therefore existed to grant relief from the stay to allow Appellee to proceed with the eviction proceedings because Debtor's tenancy had terminated prior to the bankruptcy filing.
B. Assumption of the Lease
The Bankruptcy Code permits a debtor to " assume or reject any . . . unexpired lease of residential real property . . . at any time before the confirmation of a plan. . . ." 11 U.S.C. § 365(d)(2). Debtor maintains that at the time of the petition's filing, the lease " had been illegally and fraudulently terminated by [Appellee] for retaliatory reasons, but the calendar term of the lease was unexpired." Appellant's Opening Br. 9, Mar. 28, 2007. Accordingly, he argues that he should be allowed to assume or reject the lease under § 365.
The settlement agreement executed by the parties modified the terms of the original lease, effectively creating a new tenancy agreement with a term that expired on July 12, 2006, a date prior to the date of the bankruptcy filing. Under the terms of the settlement agreement, in the event of Debtor's failure to vacate the premises by July 12, 2006, Appellee had the right to seek the entry of a judgment for restitution and possession.
Because Debtor did not comply with the terms of the settlement, i.e., vacate the premises on the agreed date, Appellee filed the stipulated judgment, which was entered on July 28, 2007, after the state court rejected Debtor's argument that the settlement agreement was improperly procured by duress and fraud.
Based on the foregoing circumstances, that is, the execution of the settlement agreement, the July 12 vacate date, and the filing of the stipulated judgment, all of which occurred prepetition, there was no remaining unexpired lease for Debtor to assume as of the date of the bankruptcy filing.
Even assuming, purely for the sake of argument, that the lease somehow survived the execution of the settlement agreement (an argument which we reject), by its own term the lease expired on July 31, 2006, and included no provisions for the renewal or extension of the term past that date. By the time the bankruptcy court heard Appellee's stay relief motion on August 14, 2006, the lease term would have already expired, leaving nothing for Debtor to assume. While § 365(d) provides a debtor time to assume or reject an unexpired lease of residential property, it does not give a debtor the right to extend a lease past its natural expiration. See In re G-N Partners, 48 B.R. 462, 466 (Bankr. D. Minn. 1985).
The lease provided for a one-year term commencing August 1, 2005, and ending July 31, 2006.
The bankruptcy court did not err in finding that Debtor did not have a right to assume the lease.
C. Rejection of the Settlement Agreement
A debtor has the right to assume or reject an executory contract at any time prior to plan confirmation. 11 U.S.C. § 365(d)(2). Whether a contract is executory for purposes of the Code is a question of federal law. Marcus & Millichap Inc. of S.F. v. Munple, Ltd. (In re Munple, Ltd.), 868 F.2d 1129, 1130 (9th Cir. 1989).
Although the Code does not define " executory contract, " it has been generally defined as a contract in which performance is due to some extent on both sides. Unsecured Creditors Comm. v. Southmark Corp. (In re Robert L. Helms Constr. & Dev. Co., Inc.), 139 F.3d 702, 705 (9th Cir. 1998). " More precisely, a contract is executory if 'the obligations of both parties are so far unperformed that the failure of either party to complete performance would constitute a material breach and thus excuse the performance of the other.'" Id. (quoting Griffel v. Murphy (In re Wegner), 839 F.2d 533, 536 (9th Cir. 1988)).
Here, Debtor argues that the settlement agreement constituted an executory contract because both Appellee and he had outstanding obligations to perform at the time he filed his bankruptcy petition. However, prior to the bankruptcy filing, Appellee had performed his obligations according to the settlement agreement. Once Debtor failed to perform by timely vacating the apartment, nothing remained to be done by Appellee, other than file the stipulated judgment, which was done prior to the bankruptcy filing. As of the date the petition was filed, there were no remaining acts to be performed by either party and the settlement agreement was, therefore, not executory. See Southmark Corp., 139 F.3d at 706. We agree with the bankruptcy court that Debtor did not have the right to assume or reject the settlement agreement as an executory contract.
VI. CONCLUSION
Based on the foregoing, we AFFIRM the relief from stay and reconsideration orders.
DEBTOR: What about my motion for contempt that was supposed to be heard in September, I mean, that is destroyed by the order retroactive? THE COURT: That happens when you lift the stay retroactively. Again, the Court has discretion to lift the stay. I don't think that a landlord who has a hearing before the State Court in which the State Court says I'm going to rule for you, and then the Court enters that judgment, should be subject to contempt. . . .
Hr'g Tr. 12-13, Aug. 22, 2006.