FILED
DEC 02 2016
1 NOT FOR PUBLICATION
2 SUSAN M. SPRAUL, CLERK
U.S. BKCY. APP. PANEL
OF THE NINTH CIRCUIT
3 UNITED STATES BANKRUPTCY APPELLATE PANEL
4 OF THE NINTH CIRCUIT
5 In re: ) BAP No. CC-16-1028-DKiF
)
6 JOHN K. REED, ) Bk. No. 15-12230-PC
)
7 Debtor. )
______________________________)
8 )
JOHN K. REED, )
9 )
Appellant, )
10 )
v. ) M E M O R A N D U M1
11 )
NEW YORK COMMUNITY BANK, )
12 )
Appellee. )
13 ______________________________)
14 Argued and Submitted on November 17, 2016
at Pasadena, California
15
Filed - December 2, 2016
16
Appeal from the United States Bankruptcy Court
17 for the Central District of California
18 Honorable Peter H. Carroll, Bankruptcy Judge, Presiding
19
Appearances: Appellant John K. Reed argued pro se; Megan E.
20 Lees of Pite Duncan, LLP argued for appellee.
21
Before: DUNN,2 KIRSCHER and FARIS, Bankruptcy Judges.
22
23
24 1
This disposition is not appropriate for publication.
25 Although it may be cited for whatever persuasive value it may
have (see Fed. R. App. P. 32.1), it has no precedential value.
26 See 9th Cir. BAP Rule 8024-1.
27 2
The Hon. Randall L. Dunn, United States Bankruptcy Judge
28 for the District of Oregon, sitting by designation.
1 Former chapter 133 debtor John K. Reed appeals from the
2 bankruptcy court's order granting relief from the automatic stay,
3 including in rem relief, to New York Community Bank. To the
4 extent we have jurisdiction over this appeal, we AFFIRM.
5 I. FACTUAL BACKGROUND
6 Reed purchased a home in Santa Barbara (the “Property”) in
7 2005. The purchase was financed through a loan from Ohio Savings
8 Bank in the original amount of $999,990, memorialized by a note
9 and secured by a deed of trust. After the failure of Ohio
10 Savings Bank, its assets were transferred to the appellant, New
11 York Community Bank (the “Bank”). Apparently, the assets
12 transferred included the note and deed of trust concerning the
13 Property.4
14 Eventually, Reed stopped making payments, and the Bank
15 commenced nonjudicial foreclosure proceedings against the
16 Property. In October 2010, Reed transferred his interest in the
17 Property as a gift to the JKR Olive Trust, an entity under Reed’s
18 control.5 Reed commenced a chapter 13 case in 2011, which was
19 dismissed within three months. He promptly filed a second
20 chapter 13 case, which was dismissed the following year for
21
22
3
Unless otherwise indicated, all chapter and section
23 references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532.
24 All “Rule” references are to the Federal Rules of Bankruptcy
Procedure. All “Civil Rule” references are to the Federal Rules
25 of Civil Procedure.
26 4
We use the word “apparently” because Reed disputes this
27 proposition.
5
28 Reed told the bankruptcy court, “I am JKR Olive Trust.”
2
1 failure to make plan payments.
2 Meanwhile, while the second chapter 13 case was pending,
3 Reed made additional transfers of ownership interests in the
4 Property. First, he caused the JKR Olive Trust to transfer its
5 interest to Karen Williams as trustee of the JKR Olive Trust,6
6 with Reed as its 100% beneficiary. Later, Reed amended the trust
7 documents to name an entity called Lawson-Currell Centre, LLC
8 (“Lawson-Currell”) as a 10% beneficiary. Lawson-Currell was, at
9 the time, a chapter 11 debtor in a case pending in the Northern
10 District of California. According to a stipulated order entered
11 in that case, Lawson-Currell had no knowledge that it held any
12 interest in the Property.
13 After dismissal of his second case, Reed executed another
14 amendment to the JKR Olive Trust, this time naming Bankers For
15 Real Estate, LLC as a 10% beneficiary. Bankers For Real Estate,
16 LLC filed a chapter 11 petition in the Southern District of
17 California shortly thereafter. That case was dismissed, after
18 which another chapter 11 case was commenced, this time by
19 “Bankers 4 Real Estate, LLC” (which listed “Bankers For Real
20 Estate, LLC” as its alias). After four months, this case was
21 dismissed as well.
22 In 2014, Reed tried unsuccessfully to modify his home loan
23 with the Bank. In 2015, he took a new approach. He wrote to the
24 Bank that he wanted to tender full payment of the amount owing,
25 and he wished to inspect the original note and deed of trust
26
27 6
The significance or purpose, if any, of this transfer from
28 the JKR Olive Trust to its own trustee is unclear.
3
1 before paying. The Bank agreed to permit the inspection of the
2 note and deed of trust in its possession (the “Loan Documents”).
3 At the agreed time, Reed appeared, accompanied by Dr. James
4 Kelley, an electrical and computer engineer who provides computer
5 forensic examination services. Dr. Kelley spent hours examining
6 the Loan Documents and taking extensive notes. He opined that
7 the documents were fabricated. Reed reported Dr. Kelley's
8 suspicions to various law enforcement authorities, but there is
9 no indication in the record that any official action was taken,
10 and Reed took no legal action of his own regarding the alleged
11 fabrication.
12 With foreclosure still looming, Reed filed the underlying
13 chapter 13 case (his third) on November 12, 2015. In his
14 schedules, Reed reported no debts and listed $0 in encumbrances
15 against the Property.7 He asserted he was self-employed as a
16 “facilitator & entertainer” with an average monthly income of
17 $1,550.
18 In his initial plan, he proposed to make monthly payments of
19 $1,000 (even though he purported to have no creditors) for
20 36 months “or until resolution of finding unknown creditor.” In
21 the provision regarding rejection of executory contracts, Reed
22 proposed to reject “New York Community Bank's claim to be a
23 beneficiary of mortgage.” He included a miscellaneous provision
24
7
25 In fact, Reed struck the word “Debtor” every time it
appeared on the forms used for his petition, plan and schedules
26 and replaced it with “Petitioner.” As he explained in his plan,
27 “Since I have not been able to identify whether or not there is
an actual beneficiary [of the trust deed], I have listed myself
28 as a ‘petitioner’ in this filing.”
4
1 stating his belief that the Bank was not a “legitimate”
2 beneficiary of the deed of trust and that the true beneficiary's
3 identity was unknown. In an amendment to his plan, Reed
4 decreased the proposed monthly payments to $100 but left the
5 other provisions substantively unchanged.
6 The Bank filed a motion for relief from the automatic stay,
7 seeking to proceed with foreclosure, and for an order granting
8 in rem relief against the Property. The Bank submitted with its
9 motion the declaration of one of its employees, setting forth the
10 history of Reed’s transfers of fractional ownership interests in
11 the Property. The Bank further stated that Reed had failed to
12 make his most recent payment on the deed of trust, which had come
13 due following the petition date.
14 Reed filed an opposition to the Bank’s motion, accompanied
15 by a declaration and a voluminous set of exhibits. In his
16 declaration, Reed denied that his current bankruptcy filing was
17 part of a scheme to hinder, delay or defraud creditors. He
18 admitted, however, that his filings were made to prevent
19 foreclosure, which he described as the attempted “theft” of the
20 Property. Included in the attachments to Reed’s declaration were
21 copies of an affidavit signed by Dr. Kelley and an accompanying
22 report, in which Dr. Kelley expressed his opinion that the Loan
23 Documents were not genuine. Reed also argued in his opposition
24 that he received insufficient notice of the upcoming hearing on
25 the relief from stay motion.
26 Nevertheless, Reed appeared at the hearing, and the
27 bankruptcy court rejected his insufficient notice argument,
28 noting that Reed obviously had time to file a detailed opposition
5
1 and was present in court. The court explained that stay relief
2 proceedings were summary, and relief could be granted upon the
3 Bank’s showing that it had a colorable claim to an interest in
4 the Property and that its interest was not adequately protected
5 due to missed payments. The Bank had done this by submitting a
6 declaration from its employee stating that the Bank possessed the
7 original Loan Documents, of which it was the proper beneficiary.
8 The court excluded the statements in Dr. Kelley’s report as
9 unauthenticated hearsay.8 In any event, the Bank was not
10 required to provide definitive proof of its status as
11 beneficiary, but merely to set forth a colorable claim.
12 As to the request for in rem relief, the bankruptcy court
13 noted that Reed effectively conceded the necessary facts when he
14 admitted making multiple transfers of the Property and filing
15 multiple cases for the purpose of preventing foreclosure. The
16 court thus found that Reed had filed the instant case in bad
17 faith for the purpose of hindering, delaying or defrauding the
18 Bank. The court entered an order granting relief from stay,
19 including in rem relief. Reed appealed.
20 The bankruptcy court later dismissed Reed's chapter 13 case.
21 Reed did not appeal the dismissal.9
22
23 8
The bankruptcy court noted that an affidavit was included
24 with Dr. Kelley’s report, but Dr. Kelley had not submitted an
independent declaration to the bankruptcy court.
25
9
We exercise our discretion to take judicial notice of the
26 bankruptcy court’s electronic docket. See O’Rourke v. Seaboard
27 Sur. Co. (In re E.R. Fegert, Inc.), 887 F.2d 955, 957-58 (9th
Cir. 1988); Atwood v. Chase Manhattan Mortg. Co. (In re Atwood),
28 (continued...)
6
1 II. JURISDICTION
2 The bankruptcy court had jurisdiction under
3 28 U.S.C. § 157(b)(2)(G). With the qualifications discussed
4 below, we have jurisdiction under 28 U.S.C. § 158.
5 III. ISSUES
6 1. Whether this appeal is moot.
7 2. Whether the bankruptcy court abused its discretion by
8 granting in rem relief.
9 3. Whether the bankruptcy court denied Reed's
10 constitutional rights by holding a hearing on insufficient
11 notice.
12 IV. STANDARDS OF REVIEW
13 We review our own jurisdiction de novo. Franklin High Yield
14 Tax-Free Income Fund v. City of Stockton, Cal. (In re City of
15 Stockton, Cal.), 542 B.R. 261, 272 (9th Cir. BAP 2015). An order
16 granting in rem relief under § 362(d)(4) is reviewed for abuse of
17 discretion. Ellis v. Yu (In re Ellis), 523 B.R. 673, 677 (9th
18 Cir. BAP 2014). A bankruptcy court abuses its discretion if it
19 applies the wrong legal standard, or if its application of the
20 correct legal standard is based on a view of the evidence that is
21 illogical, implausible or unsupported by the record. United
22 States v. Hinkson, 585 F.3d 1247, 1263 (9th Cir. 2009) (en banc).
23 V. DISCUSSION
24 A. Mootness
25 The Bank moved to dismiss this appeal for constitutional and
26
27 9
(...continued)
28 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003).
7
1 equitable mootness. A motions panel denied the motion to dismiss
2 but limited the scope of the appeal to the issue of in rem
3 relief. In its brief on appeal, the Bank renewed its argument
4 that the appeal should be dismissed. As explained more fully
5 below, we agree with the motions panel that dismissal is not
6 warranted, but the scope of the appeal must be limited to the
7 in rem issue.
8 Generally speaking, there are two varieties of mootness that
9 apply in bankruptcy appeals. First, an appeal is
10 constitutionally moot if circumstances have changed such that the
11 appellate tribunal is incapable of granting relief. Motor
12 Vehicle Cas. Co. v. Thorpe Insulation Co. (In re Thorpe
13 Insulation Co.), 677 F.3d 869, 880 (9th Cir. 2012). Second, an
14 appeal is equitably moot if the order on appeal involves complex
15 transactions or the rights of non-parties such that, although
16 relief is possible, granting it would be inequitable. JPMCC
17 2007-C1 Grasslawn Lodging, LLC v. Transwest Resort Props., Inc.
18 (In re Transwest Resort Props., Inc.), 801 F.3d 1161, 1167 (9th
19 Cir. 2015).
20 Because Reed’s underlying bankruptcy case has been
21 dismissed, the Bank argues that the appeal is constitutionally
22 moot. Under most circumstances, we would agree. Once the
23 underlying case was dismissed, the automatic stay terminated by
24 operation of law. The dismissal of the case is not on appeal,
25 and we are without jurisdiction to reinstate the bankruptcy case,
26 even if we believed it would be proper to do so. Reversing the
27 order granting stay relief would not reimpose the stay or prevent
28 the Bank from foreclosing.
8
1 The flaw in the Bank's argument, however, is the in rem
2 provision in the stay relief order. When a bankruptcy court
3 grants in rem relief under § 362(d)(4), and the order is recorded
4 in accordance with state law, it removes the subject property
5 from the protection of the automatic stay not only in the current
6 case, but in all subsequent bankruptcy cases, regardless of who
7 files them, for the following two years. See § 362(b)(20).
8 Therefore, as the Bank’s counsel acknowledged at oral argument,
9 the dismissal of Reed’s current bankruptcy case does not prevent
10 us from granting some effective relief in the event Reed prevails
11 on the merits of his appeal. It is entirely possible that Reed
12 or someone else claiming an interest in the Property will file
13 another bankruptcy case before the two-year period expires.
14 With respect to equitable mootness, the Ninth Circuit has
15 developed a four-factor test for determining whether an appeal
16 should be dismissed. We must consider: (1) whether a stay was
17 sought, and if so, whether it was obtained; (2) whether
18 substantial consummation has occurred; (3) the effect a remedy
19 would have on the interests of non-parties; and (4) whether any
20 remedy can be granted without creating an unmanageable situation
21 before the bankruptcy court on remand. In re Transwest Resort
22 Props., Inc., 801 F.3d at 1167-68 (citing In re Thorpe Insulation
23 Co., 677 F.3d at 881).
24 The Bank's equitable mootness argument appears to hinge
25 entirely on Reed's failure to seek a stay. The Bank concedes
26 that no non-parties appear to have any interest in the outcome of
27 this appeal, and we are at a loss to imagine how reversal of the
28 in rem order would present the bankruptcy court with an
9
1 unmanageable situation on remand. As to the second element,
2 “substantial consummation” is a concept that relates to the
3 confirmation of plans of reorganization. Because this appeal
4 relates to stay relief, rather than plan confirmation, the
5 appropriate consideration appears to be whether the Bank has
6 completed its foreclosure. The Bank’s counsel represented at
7 oral argument that no foreclosure sale has taken place.
8 It is true that failure to seek a stay pending appeal weighs
9 in favor of a finding of equitable mootness. In re Transwest
10 Resort Props., Inc., 801 F.3d at 1168. But such failure does not
11 always render an appeal moot. Equitable mootness is not a
12 punishment for choosing not to seek a stay. The Ninth Circuit
13 has consistently held that equitable mootness applies only where
14 the order on appeal relates to “complex” transactions that are
15 “difficult to unwind.” Id. at 1167, quoting Rev Op Grp. v. ML
16 Manager LLC (In re Mortgs. Ltd.), 771 F.3d 1211, 1215 n.2 (9th
17 Cir. 2014). The in rem order does not present such a situation.
18 For these reasons, we conclude that the appeal is neither
19 constitutionally nor equitably moot in its entirety, but its
20 scope remains limited to the in rem aspect of the order on
21 appeal.
22 B. The Stay Relief Order
23 1. Standing
24 Throughout his briefs, Reed questions the Bank’s “standing.”
25 Standing is a threshold jurisdictional issue. Veal v. American
26 Home Mtg. Servicing, Inc. (In re Veal), 450 B.R. 897, 906 (9th
27 Cir. BAP 2011). If we were to conclude the Bank lacked standing
28 before the bankruptcy court, it would follow that the court
10
1 lacked jurisdiction to grant in rem relief. Id. For the most
2 part, however, Reed’s “standing” arguments do not relate to this
3 jurisdictional issue.
4 Instead, by arguing the Bank lacks “standing,” Reed
5 primarily appears to mean that the Bank does not have the right
6 to foreclose, because the Loan Documents allegedly are invalid.
7 But the Bank’s standing to request stay relief did not depend on
8 any conclusive determinations regarding the validity of the Loan
9 Documents. As the Ninth Circuit has explained, “hearings on
10 relief from the automatic stay are . . . handled in a summary
11 fashion. . . . The validity of the claim or contract underlying
12 the claim [here, the Loan Documents] is not litigated during the
13 hearing.” Johnson v. Righetti (In re Johnson), 756 F.2d 738, 740
14 (9th Cir. 1985) (emphasis added, internal citation omitted). The
15 bankruptcy court did not make a final determination of the
16 validity of the Loan Documents or the Bank’s right to foreclose.
17 The court merely concluded that the Bank had a colorable claim
18 and removed one obstacle - the automatic stay - standing in the
19 way of foreclosure.
20 Because the Bank’s right to foreclose was not directly at
21 issue in the stay relief proceeding, the Bank was not required to
22 prove that right definitively in order to establish standing.
23 Indeed, the requirements for standing to seek stay relief are
24 “lenient.” In re Veal, 450 B.R. at 913. If a party has a
25 “colorable claim” to enforce a right against estate property,
26 that party has standing to seek stay relief. Id. at 914. More
27 generally, any creditor whose “interests would be harmed by
28 continuance of the stay” may seek relief. Kronemyer v. Am.
11
1 Contractors Indem. Co. (In re Kronemyer), 405 B.R. 915, 921 (9th
2 Cir. BAP 2009).
3 By submitting a declaration from its employee to
4 authenticate the attached Loan Documents, the Bank established a
5 colorable claim to its asserted right to foreclose and thus
6 established standing to seek stay relief. Because the stay
7 prevented the Bank from pursuing foreclosure proceedings, the
8 Bank’s interests were harmed by continuance of the stay. This is
9 true whether or not the Bank ultimately prevails in the
10 foreclosure proceedings, which - we stress again - is a separate
11 question that neither the bankruptcy court nor we must decide.
12 The Bank had standing to request stay relief.
13 2. In rem relief
14 Section 362(d)(4) was added to the Bankruptcy Code in 2005
15 “to address schemes using bankruptcy to thwart legitimate
16 foreclosure efforts through one or more transfers of interest in
17 real property.” First Yorkshire Holdings, Inc. v. Pacifica L 22,
18 LLC (In re First Yorkshire Holdings, Inc.), 470 B.R. 864, 870
19 (9th Cir. BAP 2012). Once in rem relief is granted, if the order
20 is recorded in accordance with applicable state law, the subject
21 property is excluded from the protection of the automatic stay in
22 any bankruptcy case filed within the following two years. This
23 prevents a debtor from circumventing a stay relief order by
24 simply filing another case or transferring the property to
25 another debtor. An in rem order grants “prospective protection
26 against not only the debtor, but also every non-debtor, co-owner,
27 and subsequent owner of the property.” Id. at 871.
28 Because this relief has serious implications, it is
12
1 available only when the bankruptcy court makes affirmative
2 findings that three elements are present: (1) the debtor filed
3 the current case as part of a scheme; (2) the object of the
4 scheme is to hinder, delay or defraud creditors; and (3) the
5 scheme involves either unauthorized transfers of the property or
6 multiple bankruptcy filings affecting the property. Id. at
7 870-71.
8 The bankruptcy court made the necessary findings to support
9 in rem relief. Specifically, it found that Reed caused multiple
10 transfers of the Property without the Bank’s authorization, that
11 he filed or caused to be filed multiple cases involving the
12 Property, and that he did these things for the purpose of
13 preventing, i.e., hindering, the Bank from foreclosing. Though
14 the court did not use the word “scheme” to describe Reed's
15 actions, the stated findings leave us in no doubt that the court
16 found this element to be present.10
17 The record supports all of these findings. Indeed, Reed
18 admitted the necessary facts in his own declaration: “I declare
19 that this filing and all previous filings have been done for the
20 sole purpose of trying to protect myself from the theft of my
21 property.” It is clear from the context that the “theft” to
22 which Reed referred was the Bank’s foreclosure.
23
10
The bankruptcy court found that the various transfers and
24
filings were “done for the sole purpose of trying to protect the
25 Debtor from [what he considered to be] the theft of his
property.” Based on Reed's history of filings, the court further
26 found that he did not file the present case in good faith. The
27 finding of a persistent, purposeful effort to accomplish a goal
that is pursued in bad faith satisfies the “scheme” element of
28 § 362(d)(4).
13
1 Reed obviously believes that the Bank has no right to
2 foreclose, that it has violated state law by attempting to do so,
3 and that he therefore is morally justified in trying to stop the
4 foreclosure. These beliefs, however earnestly held, do not
5 exempt him from the application of § 362(d)(4). If the Bank has
6 done anything to violate the law in relation to the Property, it
7 is incumbent upon Reed to raise that argument in a forum capable
8 of entertaining it.11 Repeatedly invoking the automatic stay,
9 without any apparent intention of restructuring debts or
10 obtaining a discharge, is not a legitimate alternative.
11 The bankruptcy court did not abuse its discretion by
12 granting in rem relief.
13 C. Due Process
14 Finally, we must address Reed’s arguments that the
15 procedures employed by the bankruptcy court violated his
16 constitutional right to due process of law.12
17 Reed argued before the bankruptcy court that he received
18 insufficient notice of the stay relief proceeding, because he
19 received the notice and motion less than 20 days before the
20
11
The parties represented at oral argument that Reed
21
recently commenced civil litigation against the Bank in relation
22 to the Loan Documents.
23 12
Reed refers to both due process and equal protection of
the laws, but he does not raise any specific arguments relating
24
to equal protection. We address all of Reed’s constitutional
25 arguments under the rubric of due process.
Reed also suggests in his opening brief that his due process
26 rights were violated in connection with the dismissal of his
27 bankruptcy case. This appeal pertains only to the order granting
stay relief. The order dismissing the case was not appealed, and
28 we have no jurisdiction to review it.
14
1 hearing. We agree with the bankruptcy court, based on the Bank’s
2 certificate of service, that proper notice was provided. More
3 importantly, the fact that Reed was able to prepare a lengthy
4 opposition to the motion demonstrates that he had sufficient
5 notice of the proceeding. The Constitution requires “notice
6 reasonably calculated, under all the circumstances, to apprise
7 interested parties of the action and afford them an opportunity
8 to present their objection.” Mullane v. Cent. Hanover Bank & Tr.
9 Co., 339 U.S. 306, 314 (1950); Espinosa v. United Student Aid
10 Funds, Inc., 553 F.3d 1193, 1202 (9th Cir. 2008), aff’d sub nom
11 United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260 (2010).
12 When a party receives actual notice, this standard is satisfied.
13 Id. at 1203. Reed both responded to the motion and appeared at
14 the hearing. He does not identify anything more he would have
15 done if he had received notice earlier.
16 Next, Reed argues that the bankruptcy court violated his due
17 process rights by “ignoring” Dr. Kelley’s report, which Reed
18 attached to his declaration. In fact, the bankruptcy court did
19 not ignore the report but rather excluded it on grounds of
20 hearsay and lack of proper authentication. More importantly, as
21 discussed above, the bankruptcy court was not required to make
22 any conclusive findings as to the validity of the Loan Documents.
23 It therefore was not necessary for the bankruptcy court to
24 consider Dr. Kelley’s unauthenticated opinion on that subject.13
25
26 13
Prior to oral argument, Reed submitted an addendum to his
27 briefs on appeal, to which he attached a new declaration from
Dr. Kelley. This declaration was not before the bankruptcy court
28 (continued...)
15
1 We do not perceive any due process violation in the decision to
2 exclude the report.
3 Otherwise, Reed argues that his “right to an unbiased
4 tribunal” somehow was violated. He does not articulate any basis
5 for concluding that the bankruptcy court was biased, apart from
6 the fact that it ruled against him and in favor of the Bank.
7 “[J]udicial rulings alone almost never constitute a valid basis”
8 for demonstrating bias. Liteky v. United States, 510 U.S. 540,
9 555 (1994). Our review of the record discloses no basis for
10 questioning the bankruptcy court’s impartiality.
11 VI. CONCLUSION
12 Based upon the foregoing, we conclude that the bankruptcy
13 court did not abuse its discretion or otherwise err in entering
14 the in rem order. We AFFIRM.
15
16
17
18
19
20
21
22
23
24
25
13
(...continued)
26 and is not part of the record on appeal. Accordingly, we do not
27 consider it. See Wilcox v. Parker (In re Parker), 477 B.R. 570,
577 n.10 (9th Cir. BAP 2012) (declining to consider documents not
28 presented to the bankruptcy court).
16