In re: Salma Merritt

FILED
DEC 2 2020
NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK
U.S. BKCY. APP. PANEL
OF THE NINTH CIRCUIT

UNITED STATES BANKRUPTCY APPELLATE PANEL
OF THE NINTH CIRCUIT

In re: BAP No. NC-20-1026-TFB
SALMA MERRITT,
Debtor. Bk. No. 19-51293

SALMA MERRITT; DAVID MERRITT,
Appellants,
v. MEMORANDUM*
DEVIN DERHAM-BURK, Chapter 13
Trustee; SPECIALIZED LOAN
SERVICING LLC; U.S. BANK NATIONAL
ASSOCIATION, as Trustee for the
Cerificateholders of Bear Stearns Arm
Trust, Mortgage Pass-Through
Certificates, Series 2006-2,
Appellees.

Appeal from the United States Bankruptcy Court
for the Northern District of California
Stephen L. Johnson, Bankruptcy Judge, Presiding

Before: TAYLOR, FARIS, and BRAND, Bankruptcy Judges.

*
This disposition is not appropriate for publication. Although it may be cited for
whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential
value, see 9th Cir. BAP Rule 8024-1.
 INTRODUCTION

In her second chapter 131 case, debtor Salma Merritt failed to

appropriately prosecute her case. The bankruptcy court dismissed it over

her objection. And as this second bankruptcy case followed over a decade

of other legal proceedings all seeking to avoid foreclosure on her home, the

bankruptcy court also granted in rem relief from the automatic stay over

her opposition. The record well supports these determinations and we

AFFIRM.

Ms. Merritt’s non-filing spouse also appealed. His standing to do so

is questionable as to the case dismissal. But even if he has standing, his

appeal is meritless. He did not oppose either in rem relief or case dismissal

before the bankruptcy court; all his arguments are waived.

FACTS2

In 2006, the Merritts borrowed $591,200 (the “Loan”) and secured

their indebtedness by a deed of trust on their Sunnyvale, California home

(the “Property”). U.S. Bank National Association, as Trustee for the

Cerificateholders of Bear Stearns Arm Trust, Mortgage Pass-Through

1
Unless specified otherwise, all chapter and section references are to the
Bankruptcy Code, 11 U.S.C. §§ 101–1532.
2
We exercise our discretion to take judicial notice of documents electronically
filed in the underlying bankruptcy case, the related adversary proceeding, Ms. Merritt’s
prior bankruptcy case, and the district court cases and Ninth Circuit appeals referenced
herein. See Atwood v. Chase Manhattan Mortg. Co. (In re Atwood), 293 B.R. 227, 233 n.9
(9th Cir. BAP 2003).

2
Certificates, Series 2006-2 (“US Bank”) claims a beneficial interest in this

trust deed through a 2011 assignment; Specialized Loan Servicing LLC

(“SLS”) services the loan on US Bank’s behalf.

Despite receiving a loan modification in 2009 (the “Modification”),

the Merritts have not made a payment on the Loan since 2008; the

arrearage exceeds $500,000. They avoided a resulting foreclosure through

more than a decade of litigation against US Bank and its predecessors in

interest. While the Merritts may have enjoyed interim victories on isolated

points during the course of these cases, as the brief outline below

establishes, they ultimately lost all litigation on all material issues:

! Merritt I: In 2009, the Merritts sued the original lender and others in

the District Court for the Northern District of California (“District Court”).

They alleged that the defendants defrauded them at loan origination and

improperly refused their rescission request. In 2016, the District Court

dismissed Merritt I with prejudice. The Ninth Circuit later affirmed, finding

that the dismissal was appropriate given the claim preclusive effect of the

judgment in Merritt II (discussed below) and other factors.

! Merritt II: Also in 2009, the Merritts sued the original

lender and others in the Santa Clara Superior Court (“Superior Court”);

they repeated the Merritt I allegations. In 2014, after contentious litigation

that included fourteen interim appeals, the Superior Court granted the

defendants’ motions for judgment on the pleadings. The Court of Appeal

3
affirmed this decision in 2019.

! Vexatious litigant determinations: In 2013, the Superior Court deemed

the Merritts vexatious litigants in other litigation. At oral argument, the

Merritts confirmed that, shortly before oral argument, they were deemed

vexatious litigants in Merritt IV (discussed below).

! Merritt III: In 2017, the Merritts sued SLS, US Bank, and others in

the District Court, re-asserting the fraud allegations at issue in Merritt I and

Merritt II. During the course of Merritt III, the Merritts sought to enjoin

foreclosure on the Property; the District Court denied this motion. They

appealed the denial to the Ninth Circuit and also sought injunctive relief

from the Circuit. The Ninth Circuit denied the motion and dismissed the

appeal because the order challenged was not final. In August 2018, the

Merritts dismissed Merritt III “without prejudice.”

! The first bankruptcy case: Immediately after the Ninth Circuit denied

the Merritts’ motion for injunctive relief in Merritt III, Ms. Merritt filed a

chapter 13 petition. The bankruptcy court dismissed the case due to

numerous case prosecution and plan payment failures.

! Merritt IV: During Ms. Merritt’s first bankruptcy, the Merritts

filed a Superior Court complaint against SLS, US Bank, and others.

On at least seven separate occasions, they sought temporary restraining

orders barring foreclosure against the Property; all were either denied or

withdrawn. The Merritts appealed the denials and also sought a Court of

4
Appeal writ of supersedeas staying foreclosure. The Court of Appeal

denied this request.

! The current bankruptcy case: The next day, Ms. Merritt filed her

second chapter 13 case. Mr. Merritt later filed an adversary proceeding that

challenged US Bank’s right to foreclosure.

Ms. Merritt sought to extend the automatic stay, which was subject to

termination after 30 days under § 362(c)(3)(A); the bankruptcy court denied

the motion. She then sought a referral to the bankruptcy court’s Mortgage

Modification Mediation Program (“MMM Program”) to obtain a stay to the

extent necessary to facilitate the MMM Program. The bankruptcy court

denied this motion as well.

Thereafter, SLS and US Bank, pointing to the prior bankruptcy and

the litigation history outlined above, sought in rem relief from the

automatic stay under § 362(d)(4). Ms. Merritt, represented by counsel, filed

an untimely opposition to the stay relief motion and argued that the

bankruptcy court could not consider the extensive litigation history in

determining whether the requisite scheme under § 362(d)(4) existed.

Rather, she asserted, the bankruptcy court could only rely on the two

bankruptcy cases. She posited that this limited review did not indicate such

a scheme. After a hearing, the bankruptcy court took the matter under

submission.

Concurrent with the automatic stay battles, Ms. Merritt did little to

5
advance her chapter 13 case. She filed her bankruptcy schedules and

chapter 13 plan only after the bankruptcy court issued an order providing

for an automatic dismissal if she did not do so. And the plan she filed

nearly a month into the case elicited from the chapter 13 trustee

(“Trustee”): (1) a motion to dismiss based on her failure to make a plan

payment; and (2) an objection to confirmation that raised fourteen

significant plan or case prosecution problems. Ms. Merritt then belatedly

made her first two plan payments but failed to address any of the Trustee’s

plan objections. The Trustee then withdrew her dismissal motion but filed

another objection to confirmation identifying two more compliance deficits.

Ms. Merritt responded with an inadequate first amended plan; it

resolved only two of the Trustee’s sixteen objections and created new

problems. The Trustee again objected to confirmation.

A month went by with no activity. Now four months into the case,

the Trustee filed a motion to dismiss asserting that Ms. Merritt’s failures to

resolve impediments to plan confirmation and to adequately prosecute the

case were prejudicial to creditors and constituted cause for dismissal under

§ 1307(c)(1).

Ms. Merritt then filed second and third amended plans; neither was

confirmable. Thus, the Trustee filed a third amended objection to

confirmation.

Now over six months into the case, Ms. Merritt filed a fourth

6
amended, but still unconfirmable, plan. The Trustee again objected, noting

that the plan left four of her objections unresolved and raised four new

objections.3

While SLS and US Bank’s stay relief motion was under submission,

the bankruptcy court held a hearing on the pending dismissal motion. It

then took the matter under submission.

On January 23, 2020, the bankruptcy court entered an order granting

SLS and US Bank’s stay relief motion and the Trustee’s dismissal motion.

On January 27, 2020, the bankruptcy court issued a second order again

granting the stay relief motion.

Ms. Merritt timely appealed the orders.4 Her husband also appealed.

JURISDICTION

The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and

157(b)(2)(A) and (G). We have jurisdiction under 28 U.S.C. § 158. 5

ISSUES

Did the bankruptcy court abuse its discretion in granting

3
Three of the objections trailed from her original objection to confirmation.
4
The Merritts assert they are also appealing from the order denying their motion
for referral to the MMM Program. But that appeal was not timely. We do not consider it
further. Ramsey v. Ramsey (In re Ramsey), 612 F.2d 1220, 1222 (9th Cir. 1980).
5
We note that, while we are affirming the dismissal order, the appeal regarding
§ 362(d)(4) relief is not moot because we have the power to grant effective relief
notwithstanding the dismissal. See Jimenez v. ARCPE 1, LLP (In re Jimenez), 613 B.R. 537,
544 (9th Cir. BAP 2020).

7
§ 362(d)(4) relief?

Did the bankruptcy court abuse its discretion in dismissing the

bankruptcy case?

STANDARD OF REVIEW

A bankruptcy court’s orders dismissing a chapter 13 case and

granting relief from the automatic stay are reviewed for an abuse of

discretion. In re Jimenez, 613 B.R. at 543. To determine if the bankruptcy

court has abused its discretion, we conduct a two-step inquiry: (1) we

review de novo whether the bankruptcy court “identified the correct legal

rule to apply to the relief requested;” and (2) if it did, we consider whether

its application of the legal standard was illogical, implausible, or without

support in inferences that may be drawn from the facts in the record.

United States v. Hinkson, 585 F.3d 1247, 1261-62 & n.21 (9th Cir. 2009) (en

banc).

DISCUSSION

A. Mr. Merritt’s Appeal

Ms. Merritt and her non-filing spouse, David Merritt, both appealed

the orders pro se. Mr. Merritt’s standing to do so, particularly in connection

with the case dismissal order, is questionable. See Fondiller v. Robertson (In

re Fondiller), 707 F.2d 441, 442 (9th Cir. 1983) (“Only those persons who are

directly and adversely affected pecuniarily by an order of the bankruptcy

court have been held to have standing to appeal that order.”). But even if

8
he has standing, his appeal is meritless because he failed to oppose either

in rem relief or case dismissal before the bankruptcy court; all his

arguments on appeal are waived. Mano-Y & M, Ltd. v. Field (In re Mortg.

Store, Inc.), 773 F.3d 990, 998 (9th Cir. 2014).

After being advised that Mr. Merritt intended to argue on the

Merritts’ behalf, the Panel issued an order instructing him to address

whether he is permitted to argue on behalf of Ms. Merritt as a nonattorney

and whether he had standing on appeal. And at the start of oral argument,

the Panel directed Mr. Merritt to argue solely on his own behalf. See

28 U.S.C. § 1654 (“In all courts of the United States the parties may plead

and conduct their own cases personally or by counsel as, by the rules of

such courts, respectively, are permitted to manage and conduct causes

therein.”); Simon v. Hartford Life, Inc., 546 F.3d 661, 664 (9th Cir. 2008) (“It is

well established that the privilege to represent oneself pro se provided by

§ 1654 is personal to the litigant and does not extend to other parties or

entities.”). Nevertheless, he did most of the appellants’ argument before

ceding time to Ms. Merritt.

Because Mr. Merritt waived any arguments on appeal, we summarily

affirm the orders as to him. We now consider Ms. Merritt’s appeal.

B. The Stay Relief

Section 362(d)(4) provides in pertinent part that, on the request of a

creditor whose claim is secured by an interest in real property, the

9
bankruptcy court shall grant stay relief with respect to acts against that real

property where it finds the petition was filed as part of a scheme to delay,

hinder, or defraud creditors that involved multiple bankruptcy filings

affecting that real property. A § 362(d)(4) stay relief order is binding in all

other bankruptcy cases filed within two years of the order’s entry if

properly recorded. Alakozai v. Citizens Equity First Credit Union (In re

Alakozai), 499 B.R. 698, 703 (9th Cir. BAP 2013).

Ms. Merritt contends that the bankruptcy court erred in granting in

rem relief to SLS and US Bank because: (1) it improperly considered

US Bank to be a secured creditor; (2) it considered evidence of the Merritts’

decade-long litigation history with US Bank and its predecessors in

interest; (3) it considered allegedly false information related to the litigation

history; and (4) it allegedly failed to consider that Ms. Merritt’s attorney

had passed away during her first bankruptcy case. We address and reject

these arguments in turn.

1. The bankruptcy court did not err in determining that SLS and

US Bank had standing to prosecute the stay relief motion.

Because Ms. Merritt is pro se,6 we liberally construe her brief. See

Cruz v. Stein Strauss Tr. # 1361 (In re Cruz), 516 B.R. 594, 604 (9th Cir. BAP

2014). She asserts that US Bank does not hold a valid secured claim. We

6
While unrepresented on appeal, Ms. Merritt had counsel at all relevant times
before the bankruptcy court.

10
interpret her contention as a challenge to US Bank’s standing as a real party

in interest entitled to seek relief from the automatic stay. In re Jimenez, 613

B.R. at 545.

A movant is a “party in interest” entitled to seek stay relief if “it has a

colorable claim to enforce a right against property of the estate.” Veal v. Am.

Home Mortg. Servicing, Inc. (In re Veal), 450 B.R. 897, 914-15 (9th Cir. BAP

2011). “Under California law, a trustee, mortgagee, beneficiary, or any of

their agents or successors in interest can initiate nonjudicial foreclosure

proceedings.” In re Jimenez, 613 B.R. at 545 (citing Debrunner v. Deutsche

Bank Nat’l Tr. Co., 204 Cal. App. 4th 433, 440-42 (2012); Lane v. Vitek Real

Estate Indus. Grp., 713 F. Supp. 2d 1092, 1099 (E.D. Cal. 2010)).

US Bank evidenced its right to enforce the deed of trust on the

Property through copies of the original deed of trust and an assignment

granting it a beneficial interest in the deed of trust. These documents

sufficiently establish its standing for purposes of a stay relief motion.

On appeal, Ms. Merritt disputes US Bank’s standing based on an

alleged rescission of the Loan or, alternatively, on the assertion that its

predecessor in interest lost its foreclosure rights because its cross-complaint

in Merritt II, seeking a declaration that the Modification was enforceable,

constituted an action under California’s “one-action rule.” Cal. Code of

Civ. Proc. § 726. But Ms. Merritt waived these arguments by failing to raise

them in opposition to the stay relief motion. In re Mortg. Store, Inc., 773 F.3d

11
at 998. And, even if not waived, these arguments would be unavailing in a

summary stay relief context. See In re Veal, 450 B.R. at 914. The bankruptcy

court would have correctly declined to decide their merits.7

2. The bankruptcy court properly considered the litigation history.

As a party with standing, US Bank was entitled to stay relief under

§ 362(d)(4) if it established that Ms. Merritt’s bankruptcy filing was part of

a scheme to delay, hinder, or defraud it that involved multiple

bankruptcies affecting the Property. Courts have interpreted “scheme” in

§ 362(d)(4) to mean “an intentional artful plot or plan.” In re Jimenez,

613 B.R. at 545. Ms. Merritt claims that in determining whether the

requisite scheme exists, the bankruptcy court erred by considering

evidence of the Merritts’ extensive and unsuccessful litigation related to the

Property. We disagree. By its plain language, the statute requires that the

scheme “involve[]” multiple bankruptcies; it does not require that the

scheme exclusively “consist of” multiple bankruptcies.

And in this case, the Merritts’ conduct before, after, and during

Ms. Merritt’s two bankruptcies demonstrates that the bankruptcies were

7
Ms. Merritt, thus, is free to raise the issues in her nonbankruptcy litigation to
the extent appropriate, but we see no chance of success. The rescission arguments arise
from a decade-old loan, and final judgments bar Ms. Merritt from asserting these
claims. As to the one-action rule argument, Cal. Code of Civ. Proc. § 726 is inapplicable
to the declaratory relief cross-complaint because it did not seek a personal money
judgment on the note; it sought only a judicial determination that the 2009 Modification
was enforceable. See Schubert v. Bank of N.Y. Mellon, 766 F. App’x 543, 546 (9th Cir. 2019);
Walker v. Cmty. Bank, 10 Cal. 3d 729, 732-34 (1974).

12
part of such a scheme. The Merritts’ multiple complaints allege

substantially identical claims, the complaints and a multitude of related

motions seek to absolve the Merritts from payment of the Loan and to

avoid foreclosure, and all complaints and motions were ultimately

unsuccessful in halting, as opposed to delaying, foreclosure. Thus, the

record unambiguously supports the bankruptcy court’s determination that

“[t]he unity of purpose across these cases shows an ‘intentional artful plot

or plan’ to delay, or avoid entirely, secured creditors exercising their rights

against the Property or [Ms. Merritt].” And once Ms. Merritt filed the

second bankruptcy case, this scheme involved multiple bankruptcies

affecting the Property.8 The record therefore thoroughly supports the

bankruptcy court’s finding that Ms. Merritt’s bankruptcies were part of the

Merritts’ larger strategy to stave off foreclosure against their home.

3. The record does not support that the bankruptcy court relied on

false information related to the litigation history.

Ms. Merritt claims that the bankruptcy court relied on “falsified”

evidence related to the litigation history in granting stay relief. She

supports this argument with an extensive factual narrative of her view of

8
“Multiple” is defined as “consisting of, including, or involving more than one”
and was used by the bankruptcy court accordingly. See Merriam-Webster Online
Dictionary, Multiple, http://www.merriamwebster.com/dictionary/multiple (last visited
Nov. 10, 2020); In re Fung, No. CV 15-6245-DMG, 2016 WL 4267944, at *4-5 (C.D. Cal.
Aug. 10, 2016) (holding bankruptcy court did not err in finding a § 362(d)(4)(B) scheme
involving two bankruptcies).

13
the litigation history. But this argument is waived. Ms. Merritt neither

presented her counter-narrative in opposing the stay relief motion, nor did

she argue before the bankruptcy court that SLS and US Bank were

misrepresenting the record. In re Mortg. Store, Inc., 773 F.3d at 998; Graves v.

Myrvang (In re Myrvang), 232 F.3d 1116, 1119 n.1 (9th Cir. 2000).

In any event, the record does not support her claims of

misrepresentation. Specifically, she claims that SLS and US Bank misled the

bankruptcy court by neglecting to advise that the Merritts were successful

in some aspects of their lawsuits. But each minor interim success she

identifies was followed by a dispositive loss on the merits. Thus, the record

does not support that the bankruptcy court relied on “falsified” or

materially incomplete evidence.

4. The bankruptcy court gave due consideration to the death of

attorney Sagaria during Ms. Merritt’s first bankruptcy case.

Nor has Ms. Merritt shown that the bankruptcy court failed to

appropriately consider the death of her attorney, Scott Sagaria, during her

first bankruptcy. Ms. Merritt argues that her first bankruptcy was not

properly prosecuted because Mr. Sagaria suddenly died. She claims that

she discovered his death after the Trustee filed objections to the

confirmation of her plan and a dismissal motion. She posits that had his

death been appropriately considered, the bankruptcy court would not have

determined the bankruptcy was part of a scheme to delay, hinder or

14
defraud creditors. We disagree.

First, the bankruptcy court presumably considered Mr. Sagaria’s

death because it stated during the stay relief hearing that it had “read with

interest” Ms. Merritt’s papers. This statement supports that the bankruptcy

court considered all of her arguments. Nothing in the record suggests to

the contrary.

Further, the facts and circumstances of the first bankruptcy case in

the record support that it served as a delay tactic rather than a legitimate

attempt to reorganize and that Mr. Sagaria’s death had nothing to do with

Ms. Merritt’s failure to reorganize. First, Ms. Merritt filed the first

bankruptcy immediately after the Ninth Circuit denied the Merritts’

motion for injunctive relief. Second, none of Ms. Merritt’s filings in the

bankruptcy were signed by Mr. Sagaria before his death; all such filings

were signed and ECF-filed by other attorneys of Mr. Sagaria’s law firm.

And third, even after Ms. Merritt discovered Mr. Sagaria’s death, she failed

to prosecute her case in the month preceding its dismissal.

For all the foregoing reasons, the bankruptcy court did not abuse its

discretion in granting SLS and US Bank in rem stay relief.

C. The Dismissal

The bankruptcy court may either dismiss a chapter 13 case or convert

15
it to chapter 7 for cause. § 1307(c).9

“Cause” includes “unreasonable delay by the debtor that is

prejudicial to creditors.” § 1307(c)(1). In that regard, “[a] debtor’s

unjustified failure to expeditiously accomplish any task required either to

propose or to confirm a chapter 13 plan may constitute [the required

causation] under § 1307(c)(1).” Ellsworth v. Lifescape Med. Assocs., P.C. (In re

Ellsworth), 455 B.R. 904, 915 (9th Cir. BAP 2011). The bankruptcy court

found cause existed due to both unreasonable delay that is prejudicial to

creditors and bad faith.10 We see no abuse of discretion in its finding that

dismissal was appropriate.

Regarding unreasonable delay, the bankruptcy court found that

Ms. Merritt had made no serious attempt to correct many of the issues

identified by the Trustee, including her failures to: (1) notify a secured

creditor of the bankruptcy; (2) pledge all projected disposable income to

paying unsecured creditors; and (3) include all pending lawsuits in her

9
Typically, § 1307(c) relief requires a two-step inquiry. Nelson v. Meyer (In re
Nelson), 343 B.R. 671, 675 (9th Cir. BAP 2006). Once cause is found, the bankruptcy court
must decide between conversion and dismissal based on the best interests of the
creditors and the estate. Id. Here, the bankruptcy court did not weigh the alternatives of
dismissal and conversion, but any error was harmless because the record
overwhelmingly shows that dismissal was in the best interests of creditors and the
estate.
10
At oral argument, the Trustee relied exclusively on unreasonable delay as a
basis for dismissal. Because the record supports that this was an adequate basis for
dismissal, we too decline to further discuss bad faith except to note that we see no error
in this regard.

16
schedules. It also found that her plan was internally inconsistent in the

critical area of payment on the Loan. As Ms. Merritt had not addressed all

confirmation objections seven months into the case but instead had

repeatedly filed unconfirmable amended plans, the record supports the

bankruptcy court’s logical conclusion that Ms. Merritt unreasonably

delayed the case to the prejudice of her creditors.

Based on the foregoing, the bankruptcy court did not abuse its

discretion in finding cause existed to dismiss the chapter 13 case.

CONCLUSION

Based on the foregoing, we AFFIRM.

17