In re: NORMA CERALDE, AKA Michael A. Henry, AKA Nolan A. Smith

FILED AUG 06 2013 1 SUSAN M SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT 2 3 UNITED STATES BANKRUPTCY APPELLATE PANEL 4 OF THE NINTH CIRCUIT 5 In re: ) BAP No. NV-12-1547-CoDKi ) 6 NORMA CERALDE, AKA Michael A. ) Bk. No. NV-11-24631-BTB Henry, AKA Nolan A. Smith, ) 7 ) Debtor. ) 8 ______________________________) ) 9 NOLAN A. SMITH, ) ) 10 Appellant, ) ) 11 v. ) MEMORANDUM DECISION1 ) 12 THE BANK OF NEW YORK MELLON, ) FKA The Bank of New York, as ) 13 Trustee for the ) Certificateholders of CWALT, ) 14 Inc., Alternative Loan Trust ) 2007-22, Mortgage ) 15 Pass-Through Certificates, ) Series 2007-22, ) 16 ) Appellee. ) 17 ______________________________) 18 Argued and Submitted on July 19, 2013 at Las Vegas, Nevada 19 Filed - August 6, 2013 20 Appeal from the United States Bankruptcy Court 21 for the District of Nevada 22 Honorable Bruce T. Beesley, Bankruptcy Judge, Presiding 23 Appearances: Jeffrey S. Yong, Esq. of Alexander & Yong argued 24 for Appellant, Nolan A. Smith; and Chelsea A. Crowton, Esq. of Wright, Finlay & Zak, LLP argued 25 for Appellee, The Bank of New York Mellon. 26 1 27 This disposition is not appropriate for publication. Although it may be cited for whatever persuasive value it may 28 have (see Fed. R. App. P. 32.1), it has no precedential value. See 9th Cir. BAP Rule 8013-1. 1 Before: COLLINS,2 DUNN and KIRSCHER, Bankruptcy Judges. 2 3 INTRODUCTION3 4 This involuntary individual chapter 7 bankruptcy involves a 5 dispute between the debtor and the secured lender holding a 6 promissory note and deed of trust secured by real property. The 7 secured lender commenced and completed a trustee’s sale of the 8 property postpetition and then filed a motion to retroactively 9 annul the automatic stay and validate the postpetition 10 foreclosure of its collateral. 11 The bankruptcy court entered an order granting the secured 12 lender’s motion to annul the stay and then promptly dismissed the 13 chapter 7 proceedings. Debtor Smith appealed the bankruptcy 14 court’s order annulling the stay. We AFFIRM the bankruptcy 15 court’s order. 16 STATEMENT OF FACTS 17 The debtor in this case is apparently known by many 18 different names, including: Nolan A. Smith, Nolan A. Smith, Jr., 19 Nolan Shaheed (Smith), Norma Ceralde and Michael Henry 20 (“Debtor”). Using the name Nolan A. Smith, Jr., the Debtor 21 executed a Promissory Note secured by a Real Property Deed of 22 Trust upon property located in Pasadena, CA (“Property”). The 23 24 2 Hon. Daniel P. Collins, Bankruptcy Judge for the District of Arizona, sitting by designation. 25 3 26 Unless otherwise indicated, all chapter, section and rule references are to the Bankruptcy Code, 11 U.S.C. §§ 101- 27 1532, and to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037. The Federal Rules of Civil Procedure are referred to 28 as "Civil Rules." 2 1 Bank of New York Mellon, FKA The Bank of New York, as Trustee for 2 the Certificateholders of CWALT, Inc., Alternative Loan Trust 3 2007-22, Mortgage Pass-Through Certificates, Series 2007-22 4 (“BNYM”), is the holder of the Promissory Note and Deed of Trust. 5 Alleged creditors Dex Enterprise, Advant Co, and On-The-Go 6 (“Petitioning Creditors”) filed the instant chapter 7 involuntary 7 petition on September 16, 2011, listing “Norma Ceralde aka 8 Michael Henry aka Nolan A. Smith” as the Debtor. The Property 9 and associated loan owed to BNYM were not listed in bankruptcy 10 schedules, nor was BNYM listed on a master mailing list.4 11 Prior to the filing of the involuntary bankruptcy case, the 12 Debtor defaulted on the loan and BNYM commenced foreclosure 13 proceedings on the Property. BNYM conducted a private 14 foreclosure sale of the Property on September 16, 2011, the same 15 day the Debtor was placed into involuntary bankruptcy. After 16 learning of this involuntary bankruptcy case, on November 21, 17 2011, BNYM recorded a notice of rescission, rescinding the 18 foreclosure of the Property. 19 Less than two months later, BNYM commenced a second private 20 foreclosure, without seeking relief from the automatic bankruptcy 21 stay. A notice of sale was recorded on January 6, 2012, and a 22 trustee’s sale of the Property was conducted on January 30, 2012. 23 BNYM then filed an unlawful detainer action against the Debtor in 24 Los Angeles County Superior Court to gain possession of the 25 26 4 No bankruptcy schedules or statements were ever filed nor was 27 an order for relief ever entered by the court in this involuntary case. Further, no master mailing list was ever 28 filed with the bankruptcy court. 3 1 Property. BNYM obtained a default judgment in that action. 2 On May 8, 2012, the Debtor filed a voluntary chapter 13 3 bankruptcy in California under the name “Nolan Shaheed (Smith).” 4 Less than a month later, that case was dismissed for failure to 5 timely file all required documents under Rules 1007 and 3015(b).5 6 The Debtor retained counsel, Jeffrey Yong (“Yong”), to combat 7 BNYM’s state court eviction action. Yong notified BNYM of the 8 instant involuntary bankruptcy proceeding and requested that 9 BNYM’s state court action be dismissed. 10 The Debtor filed an action in Los Angeles County Superior 11 Court on May 29, 2012 seeking injunctive relief, declaratory 12 relief and to quiet title on the Property. 13 On June 20, 2012, BNYM filed a motion in the involuntary 14 bankruptcy case requesting annulment of the automatic stay and 15 validation of its postpetition sale of the Property (“Motion to 16 Annul”). The Motion to Annul alleged the stay should be annulled 17 because BNYM had not received notice of the Debtor’s bankruptcy 18 until just before its motion to annul. BNYM also alleged the 19 Debtor committed fraud. The Debtor responded with an objection 20 alleging that BNYM had notice of the bankruptcy when it commenced 21 the postpetition foreclosure of the Property. The bankruptcy 22 court held a hearing on the Motion to Annul on July 24, 2012 23 (“July Hearing”). 24 1. July Hearing on the Motion to Annul 25 At the July Hearing, the bankruptcy court expressed its 26 5 Bankruptcy Case No. 2:12-bk-26176, United States Bankruptcy 27 Court for the Central District of California (dismissed on June 1, 2012). See also Debtor’s Declaration dated July 5, 28 2012. 4 1 suspicion that the involuntary bankruptcy case was a fraudulent 2 bankruptcy filing. The bankruptcy court reasoned that the 3 Petitioning Creditors failed to appear at any hearing or take any 4 action in this case. Moreover, it appeared to the court that the 5 case may have been filed under aliases of the Debtor, “Norma 6 Ceralde aka Michael Henry aka Nolan A. Smith.” 7 The bankruptcy court issued an order requiring the 8 Petitioning Creditors to appear and show cause why the 9 involuntary bankruptcy case should not be dismissed. The hearing 10 on BNYM’s Motion to Annul was continued until October 2, 2012 11 (“October Hearing”). 12 2. Debtor’s Supplemental Opposition 13 Prior to the October Hearing, the Debtor filed his 14 Supplemental Opposition to the Motion to Annul (“Supplemental 15 Opposition”). The Supplemental Opposition references the 16 deposition of Christina Balandran (“Balandran”), the Person Most 17 Knowledgeable at ReconTrust Company, the foreclosure trustee and 18 agent of BNYM that conducted the foreclosure sale of the 19 Property. The deposition transcript reveals that, on 20 September 16, 2011 (the date the involuntary petition was filed), 21 a ReconTrust technician received notification of a bankruptcy 22 filing, including the Nevada involuntary bankruptcy case number, 23 by a “Nolan Shaheed,” but ReconTrust proceeded with the 24 foreclosure because the alleged debtor was named “Nolan Shaheed,” 25 not “Nolan Smith.” Ms. Balandran also testified that another 26 ReconTrust technician received notification of the instant 27 bankruptcy on October 14, 2011 and, in turn, notified the loan 28 servicer, Bank of America, of the bankruptcy. On November 10, 5 1 2011, Bank of America ordered ReconTrust to rescind the 2 foreclosure sale conducted on September 16, 2011 because of the 3 instant bankruptcy filing. 4 3. October Hearing on the Motion to Annul 5 The Petitioning Creditors did not appear at the order to 6 show cause October Hearing. The bankruptcy court acknowledged 7 after reading the Supplemental Opposition that BNYM “may well 8 have had notice of the filing, at least constructive notice.” 9 October 2, 2012 Hr’g Tr., at 4:2-3. Regardless, the bankruptcy 10 court found that the case should be dismissed, noting the 11 Petitioning Creditors failed to respond to the Order to Show 12 Cause or appear at the hearing. Counsel for the Debtor consented 13 to dismissal of the case and suggested that dismissal “makes the 14 motion to annul moot.” October 2, 2012 Hr’g Tr., at 4:25, 5:1. 15 However, counsel for BNYM urged the court to also grant its 16 Motion to Annul to aid it in connection with defending against 17 the Debtor’s California state court action seeking to set aside 18 the sale of the Property based on BNYM’s alleged violation of the 19 bankruptcy stay. The bankruptcy court granted the Motion to 20 Annul and ordered that the involuntary bankruptcy case be 21 dismissed. The order granting the Motion to Annul was entered on 22 October 17, 2012. The order dismissing the bankruptcy was 23 entered on October 29, 2012. The Debtor timely appealed the 24 order annulling the automatic stay.6 25 4. Motion for Stay Pending Appeal and Hearing 26 The Debtor filed a motion for stay pending appeal to 27 6 The Debtor did not appeal the bankruptcy court’s 28 order dismissing the involuntary chapter 7 bankruptcy case. 6 1 prevent an eviction from the Property. BNYM objected to the 2 motion and the Debtor filed a reply to BNYM’s opposition. 3 On December 18, 2012, the bankruptcy court held a hearing 4 on the motion for stay pending appeal and again noted this 5 appeared to be a fraudulent bankruptcy because none of the 6 Petitioning Creditors appeared at the October Hearing pursuant to 7 the Order to Show Cause. The Debtor, in turn, re-asserted his 8 argument that there was no basis to annul the stay because BNYM 9 had notice of the bankruptcy case. The bankruptcy court stated 10 that the Debtor was not harmed because the bankruptcy court would 11 have very likely granted relief from the stay if BNYM moved for 12 relief prior to initiating foreclosure. Judge Beesley further 13 explained why he was suspicious of the Debtor in this case: 14 Your client has lived in this house for over two years without paying any fees. It appears to me 15 that there was a fraudulent bankruptcy filing. Now, there’s no connection to your client as you 16 say in the fraudulent bankruptcy filing, but the only person who benefitted from the fraudulent 17 involuntary is your client. Nobody else. 18 December 18, 2012 Hr’g Tr., at 9:10-16. 19 Because the balance of harm favored BNYM, the bankruptcy 20 court denied Debtor’s motion for stay pending appeal.7 21 JURISDICTION 22 The bankruptcy court had jurisdiction pursuant to 28 U.S.C. 23 §§ 1334 and 157(b)(2)(A), (G), (I) and (J). “Orders granting or 24 denying relief from the automatic stay are deemed to be final 25 orders.” Nat’l Env’t Waste Corp. v. City of Riverside 26 (In re Nat’l Env’t Waste Corp.), 129 F.3d 1052, 1054 (9th Cir. 27 7 BNYM noted at oral argument on appeal that the Debtor has not 28 yet been evicted from the Property. 7 1 1997) (citing Benedor Corp. v. Conejo Enters., Inc. (In re Conejo 2 Enters., Inc.), 96 F.3d 346, 351 (9th Cir. 1996)). The Panel has 3 jurisdiction under 28 U.S.C. § 158. 4 ISSUE 5 Was it an abuse of the bankruptcy court’s discretion to annul 6 the stay in this case? 7 STANDARD OF REVIEW 8 The standard of review of a motion to annul the automatic 9 stay is abuse of discretion. Mataya v. Kissinger 10 (In re Kissinger), 72 F.3d 107, 108 (9th Cir. 1995). “An abuse 11 of discretion occurs (a) if the [trial] court makes legal error 12 by identifying the incorrect legal rule or (b) if the [trial] 13 court’s application of the correct legal standard was 14 ‘(1) illogical, (2) implausible, or (3) without support in 15 inferences that may be drawn from the facts in the record.’” 16 United States v. Anekqu, 695 F.3d 967, 978 (9th Cir. 2012) 17 (quoting United States v. Hinkson, 585 F.3d 1247, 1262 (9th Cir. 18 2009) (en banc)). 19 DISCUSSION 20 Pursuant to § 362, when an involuntary bankruptcy petition 21 is filed under § 303, an automatic stay is imposed which 22 prohibits all acts that may affect property of the bankruptcy 23 estate. The automatic stay is designed to protect debtors from 24 their creditors while bankruptcy proceedings are under way. 25 Schwartz v. United States (In re Schwartz), 954 F.2d 569, 571 26 (9th Cir. 1992). The stay also “protect[s] creditors from the 27 ‘race of diligence,’ in which those who acted first would receive 28 payment ‘in preference to and to the detriment of other 8 1 creditors.’” In re Nat’l Env’t Waste Corp., 129 F.3d at 1054 2 (quoting H.R.Rep. No. 95-595, at 340 (1978)). A debtor is 3 equally protected by the automatic stay regardless of whether the 4 bankruptcy is voluntary or involuntary. 5 Actions taken in violation of the automatic stay are void. 6 However, “§ 362(d) gives [a bankruptcy] court the power to ratify 7 retroactively any violation of the automatic stay which would 8 otherwise be void.” In re Schwartz, 954 F.2d at 573. “Whether 9 to grant retroactive relief from the automatic stay under 10 § 362(d) is a decision committed to the discretion of the 11 bankruptcy court.” In re Williams, 323 B.R. 691, 700 (9th Cir. 12 BAP 2005) (citing In re Nat’l Env’t Waste Corp., 129 F.3d at 13 1054). 14 1. Applicable Standard for Stay Annulment 15 The standard for annulling the stay has been stated 16 differently by different courts in the Ninth Circuit. Some cases 17 such as Phoenix Bond & Indemnity Co. v. Shamblin 18 (In re Shamblin), 890 F.2d 123 (9th Cir. 1989); and 19 In re Kissinger, 72 F.3d 107 (9th Cir. 1995) appear to suggest 20 that retroactive annulment should be exercised only in “extreme 21 circumstances.” In re Shamblin, 890 F.2d at 126 (referring to 22 equitable exceptions to the automatic stay). On the other hand, 23 In re Schwartz, 954 F.2d 569 (9th Cir. 1992); and In re Nat’l 24 Env’t Waste Corp., 129 F.3d 1052 (9th Cir. 1997) do not mention 25 any “extreme circumstances” requirement to annul the stay and 26 instead simply balance the equities of the case. 27 No Ninth Circuit case has actually applied the restrictive 28 “extreme circumstances” standard to annul the stay. This is true 9 1 even in cases that have suggested this narrow standard. In 2 Kissinger, for example, the Ninth Circuit simply balanced the 3 equities of the case and relied on non-extraordinary 4 circumstances in its decision confirming the bankruptcy court’s 5 decision to annul the stay, including: that there would have been 6 cause to lift the stay, the failure to obey the stay was caused 7 by a state court judge rather than the creditor, and not 8 annulling the stay would impose an undue hardship on creditors. 9 In re Kissinger, 72 F.3d at 109. 10 In the end, the Ninth Circuit has simply balanced the 11 equities of the case when deciding whether stay annulment was 12 appropriate, even in cases where it articulated an extraordinary 13 circumstances standard. We agree with the Panel in Fjeldsted v. 14 Lien (In re Fjeldsted), 293 B.R. 12 (9th Cir. BAP 2003) that 15 “extreme or extraordinary circumstances” should not be required 16 to annul the stay and, instead, a court should apply a 17 case-by-case approach. See In re Eastlick, 349 B.R. 216, 226-27 18 (Bankr. D. Idaho 2004); see also In re Sullivan, 2006 WL 1686732 19 (E.D. Cal. 2006) (agreeing with Fjelsted that extraordinary 20 circumstances are not needed to annul the stay). 21 The case-by-case approach requires a bankruptcy court to 22 balance the equities of the case to determine whether there is 23 cause to annul the stay. When analyzing a request to annul the 24 stay, the two main factors considered by courts are: “(1) whether 25 the creditor was aware of the bankruptcy petition; and 26 (2) whether the debtor engaged in unreasonable or inequitable 27 conduct, or prejudice would result to the creditor.” In re Nat’l 28 Env’t Waste Corp., 129 F.3d at 1055. 10 1 The Panel has set forth a more expanded list of factors that 2 may bear on a motion for retroactive annulment of the stay, 3 including: the number of bankruptcy filings; whether, in a 4 repeat filing case, there is an intent to hinder and delay 5 creditors; the extent of prejudice to creditors; a debtor’s 6 overall good faith; whether creditors took action with knowledge 7 of the stay; whether a debtor complied with the Bankruptcy Code 8 and Rules; the ease of restoring parties to the status quo ante; 9 the costs of annulment to debtors and creditors; how quickly 10 creditors moved for annulment or how quickly debtors moved to set 11 aside a foreclosure sale; whether creditors moved for stay relief 12 after learning of the bankruptcy; whether annulment of the stay 13 will cause irreparable injury to the debtor; and whether stay 14 relief will promote judicial economy. In re Fjeldsted, 293 B.R. 15 at 25. No one factor is dispositive and the list of factors 16 should, instead, serve as “a framework for analysis and not a 17 scorecard.” Id. 18 2. Findings of Fact and Conclusions of Law 19 The filing of an objection to the Motion to Annul initiated 20 a contested matter, subject to Rule 9014. See Rule 4001(a). In 21 a contested matter, the bankruptcy court must make findings of 22 fact and state its conclusions of law, either orally on the 23 record or in a written decision. Rule 9014(c)(incorporating Rule 24 7052, which in turn incorporates Civil Rule 52). “These findings 25 must be sufficient to enable a reviewing court to determine the 26 factual basis for the court’s ruling.” Veal v. Am. Home Mortg. 27 Servicing, Inc. (In re Veal), 450 B.R. 897, 919 (9th Cir. BAP 28 2011) (citing Vance v. Am. Haw. Cruises, Inc., 789 F.2d 790, 792 11 1 (9th Cir. 1986)). 2 We may conduct appellate review, even when a bankruptcy 3 court does not make formal findings, “if a complete understanding 4 of the issues may be obtained from the record as a whole or if 5 there can be no genuine dispute about omitted findings.” 6 In re Veal, 450 B.R. at 919-20. Moreover, we may affirm on any 7 basis supported by the record. Shanks v. Dressel, 540 F.3d 1082, 8 1086 (9th Cir. 2008). 9 The bankruptcy court in this case did not make detailed 10 findings of fact and conclusions of law at the July Hearing, 11 October Hearing or at the hearing on the motion for stay pending 12 appeal. Although the bankruptcy court’s findings of fact and 13 conclusions of law are sparse, a review of the record supports 14 the bankruptcy court’s reasons for retroactively annulling the 15 stay. 16 3. Balancing the Equities of the Case 17 The bankruptcy court properly applied the case-by-case 18 approach in its decision to annul the stay. The record before 19 the Panel reveals that the bankruptcy court did not clearly err 20 in finding the equities of the case favored annulling the stay. 21 On the one hand, BNYM apparently had notice of the involuntary 22 bankruptcy prior to initiating its postpetition foreclosure of 23 the Property. BNYM conceded at oral argument that it rescinded 24 the first trustee’s sale based on knowledge of the instant 25 bankruptcy.8 26 8 The Debtor argues that, because BNYM maintained at all times 27 leading up to oral argument that BNYM did not have notice of the bankruptcy before it filed its Motion to Annul, BNYM’s position 28 (continued...) 12 1 On the other hand, the nature of this case and the Debtor’s 2 conduct weighs in favor of annulling the stay. The involuntary 3 petition was filed in an improper venue9 and under three aliases 4 of the Debtor, “Norma Ceralde aka Michael Henry aka Nolan A. 5 Smith.” Also, the Petitioning Creditors did not appear or take 6 any action in this bankruptcy, beyond filing the petition. This 7 involuntary bankruptcy had all the hallmarks of a fraudulent 8 filing. 9 Although the bankruptcy court did not impute fraud to the 10 Debtor, the Debtor’s lack of diligence or engagement in the 11 involuntary bankruptcy serves as additional grounds to annul the 12 stay. Debtor’s counsel noted at oral argument that the Debtor 13 received notice of the involuntary bankruptcy petition 14 immediately upon its filing. However, the Debtor utterly failed 15 to pursue any aspect of the bankruptcy until he was faced with an 16 eviction proceeding in Los Angeles County nearly 7 months 17 postpetition. The Debtor did not file schedules. Nor did he 18 either object or consent to the involuntary bankruptcy petition. 19 The Debtor, in effect, never availed himself of the stay in this 20 case (and even gained a stay in his chapter 13 bankruptcy filed 21 in May 2012) until he hired counsel in May 2012 and began raising 22 8 23 (...continued) should constitute a lack of candor to the Court that precludes 24 stay annulment. See In re Gonzalez, 456 B.R. 429, 443 (C.D. Cal. 2011) (“a party who seeks annulment has a duty of candor to 25 the court”). However, we do not view the circumstances of this 26 appeal as fitting that model. 9 27 Venue was improper because the bankruptcy petition was filed in Nevada even though the Debtor resides in California and the 28 Property is in California. 13 1 stay violation arguments.10 2 Despite his lack of participation in the involuntary 3 bankruptcy case, the Debtor now seeks the benefits of the 4 bankruptcy. The Debtor was the only one who benefitted from the 5 involuntary bankruptcy as he has been living in the Property 6 without making any payments to BNYM for almost two years.11 The 7 Debtor also filed a lawsuit in California state court seeking 8 damages from BNYM for violating the stay imposed in this 9 bankruptcy. The complete lack of diligence on the Debtor’s part 10 should preclude him from using the stay as a weapon in his 11 California state action against BNYM. 12 The record is sufficient to conclude that the bankruptcy 13 court was not clearly erroneous in finding that the equities of 14 the case favored BNYM. The bankruptcy court had wide discretion 15 to decide whether to retroactively annul the stay based on the 16 equities of the case. The bankruptcy court’s analysis and ruling 17 were not “illogical, implausible, or without support in 18 inferences that may be drawn from the facts in the record.” 19 Anekqu, 695 F.3d at 978. The bankruptcy court did not abuse its 20 discretion when it annulled the stay. 21 22 10 23 It is particularly telling that Debtor’s counsel consented to dismissal of the involuntary bankruptcy against the Debtor. In 24 fact, Debtor’s counsel stated at the October Hearing on the Motion to Annul that dismissal of this involuntary chapter 7 25 would render the Motion to Annul “moot.” 26 11 The Debtor’s July 5, 2012 Declaration fails to indicate he 27 tendered payments to BNYM at any relevant time nor did he supply an explanation as to why he had not made payments for nearly two 28 years. 14 1 CONCLUSION 2 For all of the reasons set forth above, we AFFIRM the 3 bankruptcy court’s order granting BNYM’s Motion to Annul. 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 15