Brugnara v. PSG Mortg. Lending Corp. (In re PSG Mortg. Lending Corp.)

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In re: PSG MORTGAGE LENDING CORP., A DELAWARE CORPORATION, Debtor.

LUKE BRUGNARA, Appellant, v. PSG MORTGAGE LENDING CORP, A DELAWARE CORPORATION; PAUL GREENFIELD; DAKOTA NOTE, LLC; DAKOTA LP, Appellees.

Adv. No. 21-03065

BAP No. NC-22-1065-GBS

Bk. No. 21-30592

United States Bankruptcy Appellate Panel of the Ninth Circuit

June 29, 2023

NOT FOR PUBLICATION

Appeal from the United States Bankruptcy Court for the Northern District of California Dennis Montali, Bankruptcy Judge Presiding

Before: GAN, BRAND, and SPRAKER, Bankruptcy Judges.

MEMORANDUM ^[*]

INTRODUCTION

Appellant Luke Brugnara appeals the bankruptcy court's summary judgment in favor of PSG Capital Partners, Inc., Paul Greenfield, Dakota Note, LLC (erroneously named Dakota LP) ("Dakota Note"), John DeVito Philip Fusco, and California Home Loans, in an adversary proceeding originally filed by Brugnara in state court and subsequently removed to the bankruptcy court by chapter 11^[1] debtor, PSG Mortgage Lending Corp. ("Debtor"). Brugnara also appeals the court's denial of his motion for remand.

Central to Brugnara's adversary complaint is real property located on Sea Cliff Avenue in San Francisco, California ("Sea Cliff"), which has been the subject of numerous prior bankruptcies and adversary proceedings. Brugnara Properties VI ("BPVI") owned Sea Cliff until Debtor's predecessor, PSG Capital Partners, Inc. obtained title through a nonjudicial foreclosure after the bankruptcy court lifted the stay in BPVI's most recent bankruptcy case.

In the present adversary proceeding, Brugnara makes the same allegations BPVI previously made in BPVI's bankruptcy case. Because the prior actions were settled and dismissed with prejudice by the chapter 7 trustee, the bankruptcy court applied claim preclusion and granted summary judgment against Brugnara.

On appeal, Brugnara makes no argument relative to the bankruptcy court's application of claim preclusion, its grant of summary judgment, or its decision to deny the motion to remand. Instead, he attempts to argue the merits of an order entered in a separate adversary proceeding. That order is not part of this appeal, and we lack jurisdiction to review it. Brugnara does not demonstrate error in the orders which are properly before us, and we discern no error by the bankruptcy court. We AFFIRM.

FACTS^[2]

A. BPVI's prior adversary proceedings

BPVI filed a chapter 11 case in May 2017. Its principal asset was Sea Cliff. Brugnara was president of BPVI, but at the time of the petition, he was incarcerated and his wife, Katherine ("Kay") Brugnara, was serving as president of BPVI. Brugnara remained active in the BPVI case.

BPVI commenced multiple adversary proceedings, including Brugnara Properties VI v. PSG Capital Partners, Philip Fusco, and John DeVito, Case No. 17-03048-DM (the "PSG AP") and Brugnara Properties VI v. Dakota Note, LLC, Arick D. Amspacker, Paul Greenfield, and California Home Loans, Case No. 17-03049-DM (the "Dakota Note AP"). In the PSG AP, BPVI asserted claims for breach of contract and intentional misrepresentation against secured creditor PSG Capital Partners, Inc. In the Dakota Note AP, BPVI asserted claims for breach of contract, intentional misrepresentation, unfair business practices, and loss of business opportunity against Dakota Note, Paul Greenfield, and other secured creditors.

The bankruptcy court appointed a chapter 11 trustee and ultimately converted the case to chapter 7 in April 2018. The chapter 7 trustee doubted the viability of the PSG AP and agreed to accept $20,000 from the defendants in exchange for dismissing the complaint with prejudice. The bankruptcy court approved the settlement over the objections of BPVI and Kay Brugnara. The chapter 7 trustee similarly believed that the Dakota Note AP offered little probability of success and agreed to dismiss the complaint with prejudice in exchange for a $25,000 payment and a $25,000 advance. No party objected, and the bankruptcy court approved the trustee's settlement.

After an unsuccessful attempt to sell Sea Cliff, the chapter 7 trustee stipulated to stay relief, and in August 2020, junior creditor PSG Capital Partners took title through a nonjudicial foreclosure.

B. Debtor's bankruptcy and Brugnara's removed state court action

In 2021, PSG Capital Partners transferred Sea Cliff to Debtor. Debtor filed a chapter 11 petition on August 25, 2021, and scheduled Sea Cliff as its sole asset. Greenfield held a second position lien against the property and Dakota Note held a third position lien.

In December 2021, Debtor filed a notice to remove a pending state court action filed by Brugnara to the bankruptcy court pursuant to 28 U.S.C. § 1452 and Rule 9027. Debtor suggested that removal was warranted because the state court complaint involved Brugnara's claim to quiet title to Sea Cliff which was property of the estate and under the bankruptcy court's exclusive jurisdiction.

In the state court complaint, Brugnara asserted claims in his individual capacity for fraud, unfair business practices, unconscionable loans, and usury against "Paul Greenfield, CHL, Dakota LP, PSG Capital, Fusco, DeVito, Galindo Donati"^[3] based on loans made to "[Brugnara's] family" and secured by Sea Cliff. Brugnara also sought to quiet title to Sea Cliff based on his claim that he was the "equitable title owner" of the property, and he sought to remove all liens based on allegations that the loans were illegal under California law.

Brugnara filed a motion to remand the case and argued that the named defendants were not in bankruptcy, none of the asserted causes of action involved any prior rulings from the bankruptcy court, and the complaint involved only issues of state law.

In opposition, Debtor argued that the claims were related to property of the estate, and challenges to liens secured by property of the estate were core proceedings within the bankruptcy court's jurisdiction. Debtor maintained the case should not be remanded because it did not involve difficult or unsettled legal issues, there was no related proceeding in state court, and no party would be prejudiced.

Greenfield and Dakota Note joined Debtor's opposition to Brugnara's motion for remand. Greenfield noted that the bankruptcy court had presided over four bankruptcy cases commenced by the Brugnaras-each involving Sea Cliff as the debtor's sole asset-and the court was uniquely situated to efficiently review the asserted claims.

Prior to Debtor's motion to remand, Greenfield filed a motion for summary judgment. He argued that the defendants were entitled to judgment as a matter of law because Brugnara's claims in the state court complaint were settled by the chapter 7 trustee in the BPVI bankruptcy case, and Brugnara was barred from relitigating those claims under the doctrine of claim preclusion.

Greenfield argued that Brugnara's "new" claim for illegal foreclosure was still predicated on allegations that the underlying loans were illegal and unenforceable, and because enforceability of the liens was decided by the prior settlements, the illegal foreclosure claim was also barred. Greenfield further argued that Brugnara lacked standing to assert claims based on loans to BPVI, secured by BPVI's property.

Debtor joined the motion and argued that any interest Brugnara claimed in Sea Cliff was extinguished under California law by the nonjudicial foreclosure, and thus, his quiet title claim failed as a matter of law. Debtor agreed that the remaining claims were settled by the chapter 7 trustee and could not be relitigated by Brugnara.

In response, Brugnara argued that Debtor's bankruptcy petition was fraudulent and should be dismissed. He also asserted the court was required to abstain under 28 U.S.C. § 1334(c)(2).

C. The bankruptcy court's ruling

On February 25, 2022, the bankruptcy court held a hearing on Brugnara's motion to remand and Greenfield's motion for summary judgment. The court entered an order denying Brugnara's motion to remand and granting Greenfield's motion for summary judgment.

The bankruptcy court reasoned that it had exclusive jurisdiction to determine matters concerning property of the estate, and abstaining would create inefficiencies in the present case, the still-pending BPVI bankruptcy case, and the state court. The court noted that Brugnara appeared to be forum shopping by filing the complaint in state court after unfavorable outcomes in the BPVI adversary proceedings.

Turning to the motion for summary judgment, the bankruptcy court applied claim preclusion and ruled that the claims in the complaint, though poorly articulated, were identical to the claims brought by BPVI in the PSG AP and the Dakota Note AP. The court held that the stipulated dismissals with prejudice in the prior adversary proceedings constituted final judgments on the merits, and there was a sufficient identity of interest between Brugnara and BPVI to bind Brugnara to those dismissals. Brugnara timely appealed.

D. Debtor's adversary complaint against the Brugnaras

On February 25, 2022, Debtor filed an adversary complaint seeking a declaratory judgment that the Brugnaras held no title, right, or interest in Sea Cliff because PSG Capital Partners took title through foreclosure free of any interest they may have held. Debtor filed a motion for summary judgment; neither defendant opposed.

After a hearing on Debtor's motion, the bankruptcy court entered summary judgment in favor of Debtor (the "Declaratory Judgment"). The court held that the undisputed facts showed that the nonjudicial foreclosure by PSG Capital Partners was lawfully conducted under California law and neither Luke nor Kay Brugnara ever personally held title to Sea Cliff. The Brugnaras did not appeal...