Erickson v. Wilson-Aguilar (In re Erickson)

1

In re: JOHNEARL ERICKSON, Debtor.

JOHNEARL ERICKSON, Appellant, v. JASON WILSON-AGUILAR, Chapter 13 Trustee, Appellee.

BAP No. WW-22-1186-GFB

Bk. No. 2:22-bk-10784-TWD

United States Bankruptcy Appellate Panel of the Ninth Circuit

April 13, 2023

NOT FOR PUBLICATION

Appeal from the United States Bankruptcy Court for the Western District of Washington Timothy W. Dore, Bankruptcy Judge Presiding

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

MEMORANDUM ^[*]

INTRODUCTION

Chapter 13^[1] debtor John Earl Erickson ("Debtor") appeals the bankruptcy court's order dismissing his case with a two-year bar to refiling. Debtor argues the court erred as a matter of law by denying confirmation of his chapter 13 plan because he was attempting a cure under § 1322(b)(2), not a prohibited modification. He maintains the court violated his right to due process by relying on an additional basis for dismissal without notice, and erred by finding bad faith to dismiss the case with a two-year bar. The bankruptcy court correctly applied the law, and its factual finding of bad faith is well supported by the record. We AFFIRM.

FACTS ^[2]

A. Prepetition events

Debtor and his non-filing spouse, Shelley Ann Erickson, own real property in Auburn, Washington (the "Property"), which serves as their primary residence. The Property was encumbered by a deed of trust in favor of Deutsche Bank National Trust ("Deutsche Bank") based on a 2006 promissory note in favor of Long Beach Mortgage Company in the original amount of $476,000. The Ericksons have not made payments on the loan since 2009.

In 2010, the Ericksons filed suit in state court against Long Beach Mortgage Company, Washington Mutual Bank, and Chase Bank as agent for Deutsche Bank, seeking to stop a foreclosure. They asserted various quiet title and injunctive relief claims, arguing that the defendants could not produce the original note and lacked standing to foreclose. After the case was removed to the United States District Court for the Western District of Washington (the "District Court"), the District Court granted summary judgment and dismissed the action with prejudice. Erickson v. Long Beach Mortg. Co., Case No. 10-1423 MJP, 2011 WL 830727, at *2-7 (W.D. Wash. Mar. 2, 2011). The District Court denied the Ericksons' motion for reconsideration, and the Ninth Circuit affirmed. Erickson v. Long Beach Mortg. Co., 473 Fed.Appx. 746 (9th Cir. 2012).

In 2015, Deutsche Bank obtained a judgment and decree of foreclosure. The Washington Court of Appeals affirmed the foreclosure judgment, holding the Ericksons were barred by collateral estoppel from relitigating whether Deutsche Bank lacked standing to foreclose.^[3]

Shortly after a sheriff's levy was recorded in 2018, Debtor and Ms. Erickson filed a joint chapter 13 case. The Ericksons did not propose to treat Deutsche Bank's secured claim, and instead proposed a loan modification. The bankruptcy court denied confirmation and granted the chapter 13 trustee's motion to dismiss.

After a second sheriff's levy was recorded, the Ericksons filed a state court complaint seeking to set aside the foreclosure judgment. The state court issued a temporary restraining order halting the foreclosure but denied preliminary injunctive relief. In May 2019, one day prior to the scheduled sale, Ms. Erickson filed a second chapter 13 petition.

The bankruptcy court denied confirmation of Ms. Erickson's plan and subsequently granted the trustee's motion to dismiss because Ms. Erickson lacked income to fund a plan that would permit her to retain the Property. Ms. Erickson appealed, and we affirmed. Erickson v. Wilson-Aguilar (In re Erickson), BAP Nos. WW-19-1251-FSTa, WW-19-1277-FSTa, 2020 WL 2849930 (9th Cir. BAP May 29, 2020).

While the state court action to set aside the foreclosure was pending, Debtor filed a second chapter 13 case in November 2019. He filed a plan but did not propose to treat Deutsche Bank's secured claim which he disputed. The bankruptcy court denied confirmation, and Debtor proposed an amended plan, again without proposing to treat Deutsche Bank's secured claim. The bankruptcy court denied confirmation and ultimately granted the trustee's motion to dismiss the case in March 2020.

In June 2020, the state court granted Deutsche Bank's motion for summary judgment, dismissing with prejudice the Ericksons' claims to set aside the foreclosure judgment. The Ericksons appealed, the Washington Court of Appeals affirmed, and the Washington Supreme Court denied review.

In December 2021, again shortly after a sheriff's levy was recorded, Ms. Erickson filed a third chapter 13 petition. She failed to file required schedules, statements, or a plan, and the court dismissed the case in January 2022. A month later, Debtor filed a chapter 11 petition, but he failed to file required documents, and the court dismissed the case. After a new sheriff's levy was recorded, Debtor filed the present chapter 13 case in May 2022.

B. Debtor's bankruptcy case and chapter 13 plan

Debtor scheduled the Property with a value of $1,500,000 and listed Deutsche Bank as a secured creditor with a disputed claim for $957,403.56. Deutsche Bank filed a proof of claim evidencing a secured claim of $1,124,570.50 based on the foreclosure judgment.

Debtor filed a plan, proposing payments of $221.71 and full payment of priority and unsecured claims. The plan did not provide for regular payments to Deutsche Bank. Debtor proposed to avoid the security interest and stated that "newly discovered evidence" showed that the original note was forged and the deed of trust may be void. The plan noted that Debtor had listed the Property for sale, and it provided that "[i]n the event that the sale of the [Property] provides more than the amount of the disputed secured claim which might not be allowed, Debtor will pay 100% of all other allowed claims."

Deutsche Bank objected to confirmation, arguing the plan failed to comply with § 1325(a)(5). Deutsche Bank also asserted the plan improperly sought to modify the rights of a holder of a claim secured by Debtor's residence in violation of §§ 1325(a)(1) and 1322(b)(2). Finally, it contended Debtor's history of filings and the plan's failure to provide an adequate method of payment or cure indicated that Debtor did not file the plan in good faith, and Debtor could not demonstrate an ability to make necessary payments.

Chapter 13 trustee Jason Wilson-Aguilar ("Trustee") also objected to confirmation and argued: (1) Debtor did not file the petition or plan in good faith; (2) Debtor may be ineligible for chapter 13 relief; (3) Debtor did not properly serve the plan; (4) Debtor failed to file income tax returns as required by § 1308; (5) the plan improperly sought to limit the secured claim or avoid the lien; (6) the plan made no provision for a claim secured by his vehicle; (7) Debtor did not provide a liquidation analysis; (8) the plan was not feasible because full payment of priority and unsecured claims would require monthly plan payments of $2,781, and a proposed sale of the Property at the listed price of $1,490,000 was unlikely; and (9) the plan did not appropriately treat the Deutsche Bank claim because it did not require a sale of the Property or provide a deadline by which a sale must occur, and it seemed to indicated that Debtor would not pay the claim from sale proceeds.

Debtor responded to the objections, again questioning the amount of Deutsche Bank's claim and its authority to enforce the debt. He asserted that the petition and plan were filed in good faith and part of his good faith obligation was to ascertain the validity of the purported secured claim, and that his total secured claims were within the limits of § 109(e). Because he conceded that several of Trustee's other objections were valid, he requested an opportunity to file an amended plan and suggested that an amended plan would provide for a sale of the Property within fifteen months of confirmation.

C. Trustee's motion to dismiss and the court's ruling

Concurrent with the objection to confirmation, Trustee filed a motion to dismiss the case with a four-year bar to refiling. Trustee attached evidence outlining the Ericksons' prior bankruptcies and litigation efforts and argued that the present case was the latest chapter in a twelve-year scheme to delay Deutsche Bank's efforts to exercise its rights against the Property. Trustee noted that Debtor had not made a mortgage payment for thirteen years and instead sought unsuccessfully to challenge the validity of the debt.

Trustee contended that Debtor's plan to sell the Property for $1,490,000 was speculative, and based on projected commissions and costs, a sale would not yield sufficient proceeds to pay the claim. He argued that Debtor filed the petition and plan in bad faith and was continuing to contest the Deutsche Bank claim. Additionally, Trustee argued that Debtor was not making a meaningful effort to pay other creditors, and neither Debtor's income nor his proceeds from a speculative sale were sufficient to pay creditors as proposed or make the plan feasible.

In response, Debtor filed a request for accommodations for disabilities based on a hearing deficit and visual impairment and requested that Ms. Erickson be allowed to facilitate communications with the court. He opposed the motion to dismiss and argued he was attempting not to thwart Deutsche Bank's collection efforts but to establish whether it was legitimately entitled to receive payments. According to Debtor, Deutsche Bank continued to refuse his requests for a forensic examination of the original note, which he claimed contained an unauthorized endorsement.

The court conducted a hearing on plan confirmation and the motion...