Opinion
NOT FOR PUBLICATION
Argued and Submitted at Pasadena, California: July 22, 2011
Appeal from the United States Bankruptcy Court for the Central District of California. Bk. No. LA-10-42638-PC, Adv. No. LA-10-02659-PC. Honorable Peter H. Carroll, Chief Bankruptcy Judge, Presiding.
Nichole Glowin argued for appellees Wells Fargo Bank and American Home Mortgage Service Company, Inc.
Lawrence Dreyfuss argued for appellee TD Service Company.
Before: PAPPAS, MARKELL and ALLEY, [ Bankruptcy Judges.
The Honorable Frank R. Alley, Chief U.S. Bankruptcy Judge for the District of Oregon, sitting by designation.
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 8013-1.
Chapter 7 debtor Lupi Paulo Edwards (" Edwards") appeals the bankruptcy court's order granting the motion of Appellees Wells Fargo Bank (" Wells Fargo"), American Home Mortgage Servicing, Inc. (" AHMS"), TD Service Company (" TD") and Power Default Services, Inc. (" PDS") (together, " Appellees") to dismiss Edwards' adversary complaint against them under Civil Rule 12(b)(6). We AFFIRM.
Unless specified otherwise, all chapter and section references are to the Bankruptcy Code, 11 U.S.C. § § 101-1532, and all " Rule" references are to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037. All " Civil Rule" references are to the Federal Rules of Civil Procedure.
FACTS
This is the second appeal coming before the Panel from Edwards' bankruptcy case. The first appeal resulted in a published Opinion affirming the bankruptcy court's order granting relief from the automatic stay in favor of Wells Fargo, as the purchaser of a house at a deed of trust foreclosure sale, to pursue recovery of possession of that house from Edwards. Edwards v. Wells Fargo Bank, N.A. (In re Edwards), 454 B.R. 100, (9th Cir. BAP 2011). Because that Opinion provides a detailed discussion of the relevant facts and background of this ongoing dispute, we provide only a summary here.
On July 10, 2006, Edwards purchased a house in Long Beach, California (the " Property"). To finance the purchase of the Property, she executed a Note in favor of Aidan West Financial Group for $397,000, which was secured by a Deed of Trust. The grant deed, Note and Deed of Trust were recorded in the Official Records of Los Angeles County (" Official Records").
On December 7, 2007, Aidan West transferred all beneficial interest in the Note and Deed of Trust to Option One Mortgage Corporation, and the assignment was recorded in the Official Records. Then, in January 2010, Option One transferred all beneficial interest under the Note and Deed of Trust to Wells Fargo, with the assignment recorded in the Official Records on March 18, 2010. At about the same time, Wells Fargo executed a Substitution of Trustee, replacing the original trustee under the Note and Deed of Trust, with Power Default Services, Inc. (" Power Default"). The substitution was recorded in the Official Records on February 25, 2010.
By January 2010, Edwards had fallen behind in the monthly mortgage payments for a total of $24,100.24. Wells Fargo issued and served a Notice of Default and Election to Sell the Property on January 25, 2010. Edwards did not cure the default, and the Substituted Trustee, Power Default, recorded a Notice of Trustee's Sale relating to the Property on April 26, 2010. On May 17, 2010, Power Default conducted a foreclosure sale of the Property, at which time Wells Fargo purchased the Property. A Trustee's Deed of Sale conveying the Property to Wells Fargo was recorded on May 20, 2010.
Edwards failed to leave the Property after the sale, so Wells Fargo commenced an unlawful detainer action against her in state court. Wells Fargo Bank, N.A. v. Edwards, Case no. 10U01639 (Los Angeles Superior Court, June 3, 2010). The state court granted Wells Fargo's motion for summary judgment and awarded possession of the Property to Wells Fargo on July 14, 2010. On appeal, the state court's judgment was affirmed by the Appellate Division of the Superior Court in an Opinion. Wells Fargo Bank, N.A. v. Edwards, case no. BV- 029439 (App.Div. Los Angeles Super. Ct., June 22, 2011).
Edwards filed a chapter 7 bankruptcy petition on August 5, 2010. She listed the Property on her Schedule A; she did not list any secured claims against the Property on Schedule D. Nowhere in her bankruptcy schedules or Statement of Financial Affairs did Edwards disclose that she holds a claim for damages or other relief as against Wells Fargo or any of the other appellees here.
The Motion for Relief from Stay and the BAP Opinion
As reflected in our Opinion, on August 16, 2010, Wells Fargo moved for relief from the automatic stay under § 362(d)(1) to pursue recovery of possession of the Property. Wells Fargo asserted that Edwards had no right to continued possession of the Property because it was now the lawful owner of record of the Property, and because an unlawful detainer judgment had been entered in state court awarding it possession of the Property.
The bankruptcy court held a hearing on the relief from stay motion on September 9, 2010. The court advised the parties that it had read the pleadings and would grant the motion.
Wells Fargo has made a prima facie case for relief from the automatic stay. . . . A judgment was entered by a State Court, which determined the right of possession to that property based upon evidence that was presented to that State Court judge. I am not about to question that judgment.
Tr. Hr'g 2:23-3:6 (September 9, 2010). The bankruptcy court entered its order granting Wells Fargo relief from the automatic stay on September 13, 2010.
Edwards appealed the bankruptcy court's decision to grant stay relief to this Panel. In the Opinion, the Panel affirmed the bankruptcy court. The Panel also addressed and disposed of the argument Edwards continues to make in the present appeal, that the foreclosure sale was improper, fraudulent, illegal and invalid:
Once a California state court grants an unlawful detainer judgment in a favor of a foreclosure sale purchaser, the original trustor or borrower is foreclosed under the doctrine of claim preclusion from arguing that the foreclosure sale itself was improper. See Freeze v. Salot, 122 Cal.App.2d 561, 565-66, 266 P.2d 140, 142-43 (1954) (after defendant obtained a judgment against plaintiff in an unlawful detainer action, res judicata precluded plaintiff's relitigation of wrongful foreclosure claims in subsequent lawsuit). . . . Edward's complaint, much like her argument before this panel, seemingly advances the same state law claims that she asserted (or should have asserted) before the State Court. As previously discussed, the State Court rendered judgment in favor of Wells Fargo in the unlawful detainer action. Edwards was therefore precluded from continuing to assert that the Foreclosure Sale was improper, fraudulent, illegal and invalid in her bankruptcy case.
Id. at 14:23-15:7 (emphasis added).
The Adversary Proceeding
On the same day as the hearing in the bankruptcy court on the stay relief motion, Edwards commenced an adversary proceeding against Appellees, challenging the validity of the foreclosure proceedings on the Property. The complaint alleged that the foreclosure of the Property was unlawful, fraudulent, illegal and invalid. Among other relief, Edwards sought $12 million in damages from Appellees.
Wells Fargo and AMHS moved to dismiss the complaint on October 12, 2010, under Civil Rule 12(b)(6). They argued that (1) Edwards was in default and could not legally sue for wrongful foreclosure; (2) Edwards was required to tender the amount of the secured debt to maintain a claim for irregularity in the foreclosure sale; (3) the foreclosure sale is presumptively valid; and (4) Edwards' claims were improperly pled and lacked the specificity required to state a claim for relief.
Edwards responded to the motion to dismiss on October 26, 2010, generally denying the asserted grounds for dismissal. Wells Fargo filed a reply to Edward's response on November 2, 2010.
The bankruptcy court conducted a hearing on the dismissal motion on November 9, 2010. Ruling on the record, the court granted the motion, and dismissed the adversary proceeding under Civil Rule 12(b)(6) because Edwards' complaint failed to state a claim for relief against Appellees. Specifically, the bankruptcy court ruled that any claim for damages for a wrongful foreclosure that occurred prior to Edwards bankruptcy filing was property of the bankruptcy estate. Therefore, the bankruptcy court reasoned, the chapter 7 trustee would be the sole real party in interest (the court used the term " standing") to prosecute such a claim. Unless and until the trustee abandoned that claim, the court noted, Edwards had no legal right to assert it.
The bankruptcy court further ruled that Edwards was judicially estopped from prosecuting the claim in the adversary proceeding against Appellees. This conclusion followed from what the court considered to be Edwards' knowing failure to properly disclose the existence of the claim in her bankruptcy schedules.
Finally, the bankruptcy court observed that if the claim were abandoned by the trustee, she would be free to pursue it in state court.
The bankruptcy court directed that the adversary proceeding should be dismissed " without prejudice." Tr. Hr'g 18-22. On November 10, 2010, the court entered an order dismissing the adversary proceeding under Civil Rule 12(b)(6); the order noted that the court had stated its findings of fact and conclusions of law on the record at the hearing on November 9, 2010.
Edwards filed a timely appeal on November 18, 2010.
JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. § § 1334 and 157(b)(2)(A). We have jurisdiction under 28 U.S.C. § 158.
ISSUE
Whether the bankruptcy court erred in dismissing the adversary proceeding under Civil Rule 12(b)(6).
STANDARD OF REVIEW
We review the bankruptcy court's dismissal of an adversary proceeding under Civil Rule 12(b)(6) de novo. N.M. State Inv. Council v. Ernst & Young LLP, 641 F.3d 1089, 1094 (9th Cir. 2011); Transcorp/Avant v. Pioneer Liquidating Corp. (In re Consol. Pioneer Mortg. Entities), 205 B.R. 422, 424 (9th Cir. BAP 1997).
DISCUSSION
The bankruptcy court concluded that, because the claims for damages stated in the complaint were on account of an allegedly wrongful foreclosure that occurred before Edwards filed her bankruptcy petition, those claims became property of the bankruptcy estate on the filing of the petition. As a result, the bankruptcy court concluded, the chapter 7 trustee, and not Edwards, was the only party with standing to pursue the claims, and that unless and until the trustee abandoned the claim, Edwards could not assert them. We agree with the bankruptcy court.
For a discussion of prudential standing and real party in interest status in this context, see In re Edwards, 454 B.R. 100. See also Lopez v. Specialty Restaurants Corp. (In re Lopez), 283 B.R. 22, 32 (9th Cir. BAP 2002) (Klein, J., concurring) (" [I]n the case of an omitted cause of action [from the schedules], the trustee is the real party in interest [to prosecute the claim] and the more correct defenses are that the action is not being prosecuted by the real party in interest and that the debtor lacks standing.").
Because we affirm on the basis of lack of standing, we express no position on the bankruptcy court's decision to dismiss based upon judicial estoppel.
The claims asserted against Appellees in Edwards' complaint for wrongful and fraudulent foreclosure relate to the pre-petition foreclosure proceedings and sale of the Property, and to the unlawful detainer action. Because these events occurred before bankruptcy, any claims against Appellees arising from them became property of the estate when Edwards filed her chapter 7 bankruptcy petition. As discussed below, the chapter 7 trustee, not Edwards, has the exclusive authority to prosecute these claims on behalf of the estate.
Under § 541(a)(1), " [t]he commencement of a case [under the Bankruptcy Code] creates an estate . . . comprised of all legal or equitable interests of the debtor in property as of the commencement of the case." Legal claims and causes of action held by a debtor against others existing at the time of the bankruptcy filing become property of the estate, and must be listed in the debtor's bankruptcy schedules. City & County of San Francisco v. PG& E Corp., 433 F.3d 1115, 1126 (9th Cir. 2006); Sierra Switchboard Co. v. Westinghouse Elec. Corp., 789 F.2d 705, 708 (9th Cir. 1986).
That Edwards failed to schedule the claims against Appellees does not prevent them from becoming property of the estate. An unscheduled asset, whether by accident or intent, is property of the estate, and remains so even after the bankruptcy case is closed, unless explicitly abandoned by the trustee. Cusano v. Klein, 264 F.3d 936, 946 (9th Cir. 2001).
Under these facts, Edwards could not prosecute the claims against Appellees. Section 323(a) provides that " [t]he trustee in a case is the representative of the estate." The Ninth Circuit has held " that the bankruptcy code endows the bankruptcy trustee with the exclusive right to sue on behalf of the estate." Estate of Spirtos v. One San Bernadino County S.Ct. Case Numbered SPR 02211, 443 F.3d 1172, 1175 (9th Cir. 2006) (citing Parker v. Wendy's Int'l, Inc., 365 F.3d 1268, 1272 (11th Cir. 2004) (" [A] trustee, as the representative of the bankruptcy estate, is the proper party in interest, and is the only party with standing to prosecute causes of action belonging to the estate."); United States ex rel. Gebert v. Transp. Admin. Servs., 260 F.3d 909, 909, 914-15 (8th Cir. 2001) (holding that only the trustee has standing to bring a claim on behalf of the estate); Wieburg v. GTE Sw. Inc., 272 F.3d 302, 306-07 (5th Cir. 2001) (finding that a trustee is the real party in interest and has exclusive standing to assert claims that are the property of the bankruptcy estate)). And as noted above, an unscheduled claim against another remains property of the bankruptcy estate unless and until it is abandoned by the trustee. An abandonment requires an affirmative act of the trustee, or some other clear evidence of the trustee's intent to abandon the property. Pace v. Battley (In re Pace), 146 B.R. 562, 566 (9th Cir. BAP 1992); see also, § 554(a) (" After notice and a hearing, the trustee may abandon any property of the estate that is burdensome to the estate or that is of inconsequential value and benefit to the estate.").
The claims Edwards attempted to assert in her adversary complaint against Appellees all arose prepetition, and consequently, they were property of the bankruptcy estate. Though unscheduled, those claims remain in the estate unless abandoned by the trustee. No evidence has been offered to show that the trustee ever abandoned the claims, and under the Code and Ninth Circuit precedent, the trustee has the exclusive authority, and is the sole real party in interest, to prosecute any legal actions on behalf of the estate as to those claims.
The bankruptcy court correctly concluded that Edwards did not have the legal authority to assert the claims in the adversary complaint against Appellees for the alleged unlawful or fraudulent foreclosure, or to recover any damages. Therefore, the bankruptcy court did not err by dismissing the complaint for failure to state a claim for relief under Civil Rule 12(b)(6). Quarre v. Saylor (In re Saylor), 178 B.R. 209, 214 (9th Cir. BAP 1995) (lack of standing to bring an action is a " subspecies" of dismissal for failure to state a claim under Civil Rule 12(b)(6)).
We affirm the bankruptcy court's order dismissing the adversary proceeding because debtor lacked standing to prosecute the claims asserted in the complaint. Furthermore, in our earlier Opinion in In re Edwards, the Panel rejected Edward's principal argument in this appeal, that the foreclosure sale was improper, fraudulent, illegal and invalid: " As previously discussed, the State Court rendered judgment in favor of Wells Fargo in the unlawful detainer action. Edwards was therefore precluded from continuing to assert that the Foreclosure Sale was improper, fraudulent, illegal and invalid in her bankruptcy case." 454 B.R. 100. Arguably, we could reject Edwards' appeal here, and decline to revisit this same issue, under the doctrine of law of the case. Lucas Auto. Eng'g, Inc. v. Bridgestone/Firestone, Inc., 275 F.3d 762, 766 (9th Cir. 2001); Hegler v. Borg, 50 F.3d 1472, 1475 (9th Cir. 1995) (holding that one panel of an appellate court in this circuit will not reconsider questions that another panel has previously decided in the same case); Ball v. Payco-Gen. Am. Credits, Inc. (In re Ball), 185 B.R. 595, 597 (9th Cir. BAP 1995) (conforming BAP practices to principles of stare decisis followed by the court of appeals). But because the Opinion was released only shortly before argument in this appeal, and the parties had no opportunity to address whether law of the case should be applied here, we do not rely upon that basis to affirm in this appeal.
CONCLUSION
We AFFIRM the order of the bankruptcy court dismissing the adversary proceeding.
Edwards other arguments in this appeal are without merit, and we decline to address them.