Blas v. Bank of Am.

1

LEO BLAS, a/k/a/ LIOR BLAS, Appellant, v. BANK OF AMERICA N.A. and KENNETH BATTLEY, Appellees.

No. 3:20-cv-00271-RRB

Bankruptcy No. A17-00411-GS

United States District Court, D. Alaska

September 27, 2021

ORDER OF DISMISSAL

RALPH R. BEISTLINE Senior United States District Judge

Appellant Leo Blas, appeals an October 2020 order from the Bankruptcy Court, ^[1] approving a stipulation made between the Bankruptcy Trustee and Creditor, Bank of America N.A (hereinafter “BANA”).^[2] Appellant previously has filed two appeals in this Court from orders issued in the bankruptcy case in favor of Defendant, BANA, ^[3] as well as three appeals to the Alaska Supreme Court from the decisions in superior court.^[4] Appellant's Opening Brief requests a “due process hearing” and seeks an order to Quiet Title to his property.^[5] BANA has responded to the opening brief ^[6] and Appellant has replied.^[7] This Court has jurisdiction pursuant to 28 U.S.C. § 158(a) and, finding oral argument unnecessary enters the following order.

I. BACKGROUND^[8]

Appellant entered into an adjustable rate 30-year mortgage loan with BANA, secured by a deed of trust to his home in Chugiak, Alaska, in February 2008.^[9] In 2010, Appellant defaulted on his mortgage, and filed a lawsuit in state court to prevent foreclosure, which resulted in a home loan modification. Appellant defaulted on his loan a second time. In January 2014, Appellant brought a second state court action against BANA in an attempt to stop the non-judicial foreclosure of the real property. The Alaska Supreme Court ultimately affirmed BANA's authority to proceed with the non-judicial foreclosure, finding that even though BANA no longer owned Appellant's loan, Fannie Mae's servicing guidelines explicitly gave servicers the authority to represent Fannie Mae's “interests in foreclosure actions, ” a procedure permitted under Alaska law.^[10]Appellant and BANA then entered into a settlement agreement wherein Blas was permitted to remain on the property six additional weeks, and would then vacate the property, with BANA to have “the unqualified right to enforce its right of possession” and the authority to “obtain a Writ of Eviction/Restitution if Mr. Blas remained on the Property after the agreed date of departure.”^[11] Appellant “agreed to waive his rights to contest the issuance or enforcement of any such writ, ”^[12] but later testified that he vacated the property for one week in June 2017, then returned to the property because the settlement agreement did not expressly state that he could not return after vacating.^[13]

Appellant commenced another lawsuit in state court against BANA in September 2017, again seeking to stop foreclosure on the real property.^[14] The superior court denied Appellant's request for an injunction on November 30, 2017, ^[15] and Appellant filed for bankruptcy the same day.^[16] The superior court later dismissed the complaint against BANA, ^[17] which the Alaska Supreme Court affirmed in October 2019, finding:

[Blas] correctly notes that his current lawsuit relates to a different attempt, or right, to foreclose than the lawsuit that led to his first two appeals. But Blas does not appear to allege any foreclosure improprieties other than those already alleged and resolved in the earlier lawsuit. He instead reargues the many points resolved in his previous lawsuit and our two decisions arising from that lawsuit. . . . The fundamental question of Bank of America's (and the connected defendants') right to conduct a non-judicial deed of trust foreclosure upon the home subject to Blas's continued default already has been decided, adversely to Blas.^[18]

Meanwhile, during the course of the 2017 bankruptcy petition, BANA filed a Proof of Claim^[19] and argued that the debt to BANA was nondischargeable under Section 523(a)(2)(B) of the Bankruptcy Code, alleging fraud and breach of contract for failure to honor the settlement agreement.^[20] BANA filed a Motion for Release from Stay in June 2018 alleging that Appellant had failed to pay his mortgage for over five years, and had engaged in bad faith in filing bankruptcy.^[21] Appellant objected to the foregoing, and the Bankruptcy Judge held multiple evidentiary hearings and took evidence, including a review the original promissory note.^[22]

On September 10, 2018, Mr. Blas filed a pro se adversary proceeding in the Bankruptcy Court against BANA.^[23] The bankruptcy matter was stayed pending attempts at mediation of the adversary case. On May 31, 2019, the Office of the Bankruptcy Clerk entered Appellant's Chapter 7 discharge.^[24] Following the issuance of the October 9, 2019, Alaska Supreme Court Opinion affirming the Superior Court's dismissal of the 2017 state court lawsuit, ^[25] the Bankruptcy Judge then granted BANA's motion for relief from the automatic stay on December 17, 2019, ^[26] permitting BANA to proceed with a non-judicial foreclosure.

Before the end of 2019, Appellant filed two appeals from his bankruptcy petition, which were consolidated before this Court. The Bankruptcy Court decision was affirmed and the consolidated appeals were dismissed.^[27] A month after that dismissal, on September 14, 2020, the Attorney for the Trustee moved in the bankruptcy case for “Approval of the Stipulation Between trustee and [BANA].”^[28] The Bankruptcy Court held a hearing and, on October 16, 2020, issued an order approving the stipulation.^[29] Four days later, Mr. Blas filed a Notice of Appeal regarding approval of the stipulation, which was transferred to this Court.^[30] Briefing before this Court was completed on June 15, 2021.^[31]

II. BANKRUPTCY COURT DECISION

As explained in Appellant's brief, it is a routine practice for a Trustee to compromise the claims of a debtor on behalf of the bankruptcy estate, “and there are procedural protections for debtors under such circumstances, i.e., the opportunity to object and have a hearing concerning the terms of any compromise.”^[32] The Trustee reasoned that in all of the lawsuits regarding BANA's claim:

the debtor's efforts to invalidate the mortgage against his residence have been overruled and denied and the trustee believes that the note and deed of trust in favor of BOA executed by the debtor are a valid obligation that BOA is entitled to enforce and collect through foreclosure of the deed of trust. To put it another way, the trustee does not believe that the debtor has even a slight chance of prevailing on the claims he has asserted in the adversary case he filed against BOA.^[33]

Mr. Blas opposed approval of the stipulation, revisiting settled arguments.^[34]

In determining the fairness, reasonableness and adequacy of a proposed settlement agreement, the bankruptcy court must consider, if relevant:

(a) The probability of success in the litigation;

(b) the difficulties, if any, to be encountered in the matter of collection;

(c) the complexity of the litigation involved, and the expense, inconvenience and delay necessarily attending it; and

(d) the paramount interest of the creditors and a proper deference to their reasonable views in the premises.^[35]

“The trustee, as the party proposing the compromise, has the burden of persuading the bankruptcy court that the compromise is fair and equitable and should be approved.”^[36]

The Bankruptcy Court's written order approving the terms of the stipulation between the Trustee and BANA referred to “the reasons stated in the motion and those stated by the court on the record.”^[37] During that hearing, Mr. Blas objected to the nature of the hearing, and disputed that the stipulation should have been considered in the main case rather than the adversary case.^[38] He objected to the declarations as hearsay, disputed that multiple cases have ruled against him in favor of BANA, and disputed that there was even a settlement for the Bankruptcy Judge to approve.^[39]

The Bankruptcy Judge agreed with the Trustee's analysis, finding that because BANA was a secured creditor with standing to pursue the foreclosure, there was no benefit to the estate continuing litigation against BANA. He found that there was an “exceedingly slim” probability of success of prevailing in the adversary case in light of prior decisions of the Alaska Supreme Court.^[40] The Bankruptcy Judge expressed a “significant and strong belief” that the settlement was in the best interests of the creditors, including the unsecured creditors, “which is the entire purpose of the bankruptcy under Chapter 7.” He found that the Trustee had “extensive knowledge and experience” based upon prior service before the Bankruptcy Court. Finally, the Bankruptcy Judge found that the fact that there were no objections to the settlement by the creditors, paired with the lack of possibility of success on the merits in the adversary case, compelled approval of the settlement.^[41]

III. STANDARD OF REVIEW

When this Court reviews a decision of the Bankruptcy Court, findings of fact are reviewed under the clearly erroneous standard, and conclusions of law are reviewed de novo.^[42] Additionally, this Court must affirm the Bankruptcy Court's approval of a settlement unless the result is “unjust” amounting to “a clear abuse of discretion.”^[43] “[W]e uphold the court's application of the legal standard to the facts unless it was (1) illogical, (2) implausible, or (3) without support in inferences that may be drawn from the facts in the record.”^[44]

IV. DISCUSSION

A. Standing

BANA questions whether Plaintiff has standing to contest the compromise and the dismissal of the adversary proceeding noting that in a Chapter 7 bankruptcy proceeding, a “debtor ordinarily lacks standing to challenge orders affecting the assets of the estate unless there is likely to be a surplus after...