Erickson v. RTED Am. (In re Erickson)

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In re: FARIDEH ERICKSON, Debtor.

FARIDEH ERICKSON, Plaintiff, v. RTED AMERICA, Defendant.

No. 21-41263 CN

Adversary No. 22-4002 CN

United States Bankruptcy Court, N.D. California

November 1, 2023

Chapter 13

MEMORANDUM DECISION AND ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT AND DENYING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT

Charles Novack U.S. Bankruptcy Judge

On September 15, 2023, this court heard the cross-motions for summary judgment filed by plaintiff Farideh Erickson ("Erickson") and defendant RTED America, LLC ("RTED"). All appearances were noted on the record. RTED holds the second deed of trust against Erickson's residence, located at 1205 Beach Court, Discovery Bay California. Erickson's deceased husband, Blair Erickson purchased the Beach Court property a few months after their July 2006 marriage. Notwithstanding their recent nuptials and with Erickson's full knowledge and consent, Blair Erickson took title to the property as "an unmarried man" and was the sole signatory on the two notes and deeds of trust that were used to purchase the Beach Court property. Now, almost sixteen years (and two loan modifications) later, Erickson seeks - through the doctrine of recoupment - to void RTED's junior deed of trust under California Family Code §1102(b), which authorizes non-signing spouses to void encumbrances against community property. Erickson also seeks to offset (again through the recoupment doctrine) RTED's claim with the damages she allegedly incurred from violations arising under the federal Truth in Lending Act and California's Rosenthal Fair Debt Collection Act.

RTED moves for summary judgment under a fusillade of affirmative defenses which it contends carry the day. RTED argues that Family Code §1102(b) is inapplicable because the Beach Court property was not community property and even if it could be so designated, Erickson released all equitable and legal claims (including her recoupment claims) when she modified the RTED note in 2015. It further contends that Erickson is precluded from asserting recoupment on grounds of unclean hands and estoppel and argues that Erickson lacks standing to raise many of her legal claims. Finally, it contends that much of its conduct was privileged under California law.

This adversary proceeding is a procedural morass. RTED timely filed its secured proof of claim in the underlying Chapter 13 case. Rather than objecting to it under Bankruptcy Code § 502(b)(1) and Federal Rule of Bankruptcy Procedure 3007, Erickson filed an adversary proceeding because of her request to void RTED's deed of trust. See Federal Rules of Bankruptcy Procedure 3007(b) and 7001(2). The interesting twist is that Erickson, as the plaintiff, is asserting purely defensive doctrines to achieve her objectives. The summary judgment motions intertwine claim objection and adversary proceeding procedure, leaving this court to sort it out. The court has done the best it can to accommodate.

The summary judgment standard under Rule 56 of the Federal Rules of Civil Procedure, incorporated via Rule 7056 of the Federal Rules of Bankruptcy Procedure, is well established. A party is entitled to summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law. The trial court does not weigh the evidence but merely determines whether material facts remain in dispute. Pyramid Techs., Inc. v. Hartford Cas. Ins. Co., 752 F.3d 807, 818 (9th Cir. 2014). This court must also draw all reasonable inferences in favor of the non-moving party, and the court must evaluate each of the cross-motions on their merits. Narayan v. EGL, Inc., 616 F.3d 895, 899 (9th Cir. 2010). A dispute is genuine if there is sufficient evidence for a reasonable fact finder to hold in favor of the non-moving party, and a fact is "material" if it might affect the outcome of the case. Far Out Prods., Inc. v. Oskar, 247 F.3d 986, 992 (9th Cir. 2001) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-49, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)). The movant has both the initial burden of production and the ultimate burden of persuasion on their summary judgment motion. Nissan Fire & Marine, Ins. Co., Ltd. v. Fritz Cos., Inc., 210 F.3d 1099, 1102 (9th Cir. 2000) (citation omitted).

The pertinent facts are mostly undisputed. Erickson married Blair Erickson on June 23, 2006, and Blair Erickson ("Blair") purchased the Beach Court property in November 2006 for $800,000. The Beach Court property has served as Erickson's residence since that time. Blair fully financed the purchase by borrowing $640,000 on a first deed of trust and $160,000 on a second deed of trust, the latter of which is presently held by RTED.^[1] Blair and Erickson used a mortgage broker to obtain this financing, and the mortgage broker knew that Blair and Erickson were husband and wife. Because Blair had better credit than Erickson, the mortgage broker recommended that Blair buy the Beach Court property in his name only. In fact, Blair took title to the Beach Court property as an "unmarried man," and he is so described in the two notes and deeds of trust against the property (which Erickson did not sign). Erickson fully understood how these documents were prepared and executed.^[2]

Blair stopped making payments on the junior note in January 2010, and he passed away in 2012. In August 2012, a few months before his death, Blair obtained a HAMP loan modification on the first note and deed of trust, then held by JP Morgan Chase Bank. Only Blair was identified as the "borrower" under the HAMP loan agreement, and Erickson was not a party to it. Blair and the bank acknowledged in the HAMP loan agreement that Blair owed $816,116.55 on the senior note, and the bank agreed to defer $418,300 of the note's principal balance and reduce this deferred balance by one-third each year for the next three years if Blair was current on his monthly payments on January 1, 2013, 2014, and 2015. Blair (and then Erickson) sufficiently made these monthly payments to reduce the senior note to approximately $395,000 by March 2015. The HAMP loan agreement with JP Morgan Chase did not prompt Blair to recommence making payments on the junior note.

The junior note and deed of trust were transferred to RTED in December 2014 (now, the "RTED Note"), and it recorded a Notice of Default ("NOD") under its deed of trust on March 5, 2015. The NOD stated that the RTED Note was $107,963.33 in arrears.^[3] Erickson immediately contacted RTED regarding the NOD, and she promptly submitted (on March 16, 2015) a loan modification request. While RTED was willing to modify the loan, it required that Erickson first go on title to the Beach Court property. Erickson thereafter retained an attorney who filed a Spousal Property Petition ("Petition") with the probate division of the Contra Costa County Superior Court. The Petition stated that Blair and Erickson purchased the Beach Court property "using solely the monies of the marriage (community property) of the Petitioner and the Decedent (all acquired after the date of the marriage and not through gift or inheritance)" and requested that the Superior Court "confirm to the Petitioner (surviving spouse) the [Beach Court property] described herein as Decedent's one-half share of the community property passing to the Petitioner" without the need for probate administration. The Superior Court signed an order approving the Petition on May 21, 2015. The Superior Court's form order states, in pertinent part, that the Beach Court property "is a property that belonged to the surviving spouse . . . under Family Code section 297.5 and Probate Code sections 100 and 101, and the surviving spouse's . . . ownership upon decedent's death is confirmed." The Petition did not disclose to the Superior Court that Blair was described as an unmarried man on the Beach Court grant deed. RTED was not a party to the Petition, and the Petition order simply confirmed that there was no need to administer Blair's alleged one-half community property interest in the Beach Court property which henceforth was owned by Erickson.

Erickson signed the parties' "Forbearance/Modification Change of Terms Agreement" (the "RTED Forbearance") on March 24, 2015. RTED signed it more than three months later, on June 30, 2015, after the entry of the Petition order. By March 2015, the RTED Note's balance was approximately $270,000. The RTED Forbearance, among other things, substantially decreased the RTED Note's interest rate, reduced the note's "Interest Bearing Principal Balance" to $120,000, decreased Erickson's monthly note payment to $500, deferred a substantial portion of the loan's principal balance without interest, and made the deferred balance amount eligible for forgiveness if Erickson substantially remained current over the next three years.^[4] Paragraph 18 of the RTED Forbearance also contained a release clause, which provided:

RELEASE OF CLAIMS: Each Borrower, for himself or herself and his or her heirs, personal representatives, successors and assigns, hereby jointly and severally, knowingly and voluntarily, releases, discharges, and covenants not to sue RTED AMERICA, LLC, any owner of the Loan, and any of their predecessors, successors and assigns, representatives, agents, affiliates, parents, subsidiaries, officers, employees, directors and shareholders (collectively, the "Released Parties") from any and whatsoever kind or nature, whether known or unknown, whether legal or equitable, which he or she has, or may assert as of and through the date of this Agreement against any of the Released Parties directly or indirectly, or in any manner connected with any event, circumstance, action or failure to act, of any

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