In re Navarro

1

In re: MARIA LUZ NAVARRO, Debtor(s).

No. 23-90010-B-13

United States Bankruptcy Court, E.D. California

July 5, 2023

MEMORANDUM DECISION DENYING SCENIC OAKS' MOTION TO RECONSIDER AND VACATE ORDER SUSTAINING DEBTOR'S OBJECTION TO SCENIC OAKS' CLAIM

Christopher D. Jaime, Judge United States Bankruptcy Court.

I. Introduction

Before the court is a Motion for Relief From Order Under FRCP 60(b)(1) filed by secured creditor Scenic Oaks Funding LLC ("Scenic Oaks"). Scenic Oaks asks the court to reconsider and vacate an order entered on June 26, 2023 sustaining an objection by Debtor Maria Navarro ("Debtor") to Scenic Oaks' claim in excess of $230,000 and disallowing the claim as an accelerated arrearage claim in this Chapter 13 case (the "Claim Objection Order").^[1]

As of the date of this memorandum decision, the Debtor had not filed an opposition. Nevertheless, because the current motion is one for reconsideration it is within the court's discretion to decide it without an opposition and without a hearing. Hammer 1994 Family Trust v. Van Damme (In re Van Damme), 2011 WL 3298955, *9 (9th Cir. BAP Feb. 1, 2011) ("Despite Appellants' unsupported argument to the contrary, the bankruptcy court was not required to conduct a hearing nor was [the debtor] required to file an opposition before the court could consider [Appellants'] Motion to Reconsider. . . . Accordingly, the bankruptcy court did not abuse its discretion in denying Appellants' Motion to Reconsider."). The hearing on July 18, 2023, at 1:00 p.m. will be vacated.

The court has reviewed and considered the motion and all related declarations and exhibits. The court has also reviewed and takes judicial notice of the docket. See Fed.R.Evid. 201(c)(1). This memorandum decision constitutes the court's findings of fact and conclusions of law. See Fed.R.Civ.P. 52(a); Fed.R.Bankr.P. 7052, 9014(c). For the reasons explained below, Scenic Oaks' motion to reconsider and vacate the Claim Objection Order will be denied.

II. Background

The current motion arises from new and additional evidence the Debtor submitted with her reply to Scenic Oaks' response to the Debtor's objection to Scenic Oaks' proof of claim, Claim 4-1. Scenic Oaks objected to the Debtor's reply evidence as untimely, so, on June 7, 2023, the court issued an order in which it provided Scenic Oaks with an opportunity to respond to the reply evidence by June 20, 2023 (the "Reply Evidence Order"). In relevant part, the Reply Evidence Order states as follows:

IT IS FURTHER ORDERED that secured creditor Scenic Oaks

Funding, LLC ("Creditor") shall have until June 20, 2023, to file and serve a response to what it asserts is new or additional evidence submitted with the reply on May 30, 2023. See U.S.D.A. v. Hopper (In re Colusa Regional Medical Center), 604 B.R. 839, 852 (9th Cir. BAP 2019).

Docket 63 at 1 (emphasis added). Anticipating that Scenic Oaks would timely submit counter-evidence to the reply evidence, the Reply Evidence Order also set an evidentiary hearing on the Debtor's claim objection. Id.

Scenic Oaks filed a supplemental brief on June 15, 2023. The supplemental brief included only additional argument regarding the reply evidence. Scenic Oaks did not submit any additional evidence or counter-evidence with its supplemental brief or at any time before June 20, 2023.

In reaching its decision in the Claim Objection Order, the court concluded that the reply evidence rebutted the presumptive validity of Scenic Oaks' proof of claim. The court further concluded that, in the absence of counter-evidence to the reply evidence, Scenic Oaks failed to meet its ultimate burden in the claim objection process as to the validity and amount of its claim. In other words, because the burden shifted back to Scenic Oaks after the Debtor rebutted the presumptive validity of Scenic Oaks' claim with the reply evidence, Scenic Oaks needed something more than what was already then in the record, i.e., it needed counter-evidence to rebut the reply evidence, to meet its ultimate burden in the claim objection process or to at least demonstrate a factual dispute with regard to its burden. See Litton Loan Servicing, LP v. Garvida (In re Garvida), 347 B.R. 697, 707 (9th Cir. BAP 2006) ("Once the debtors, as the objecting party, produced counter-evidence rebutting the claim, the burden of going forward would have shifted to Litton in the sense that it could provide further evidence to support its claim."). Without counter-evidence to the reply evidence, Scenic Oaks failed to meet its burden rendering the evidentiary hearing unnecessary.^[2]

Scenic Oaks now asks the court to reconsider and vacate the Claim Objection Order. Its sole argument is that its attorney misread or failed to comprehend the Reply Evidence Order.

III. Analysis

Filed two days after entry of the Claim Objection Order, Scenic Oaks' current motion is governed by Fed.R.Civ.P. 59(e) applicable by Fed.R.Bankr.P. 9023. First Ave. West Building, LLC v. James (In re Onecast Media, Inc.), 439 F.3d 558, 561-62 (9th Cir. 2006); see also Am. Ironworks & Erectors, Inc. v. N. Am. Constr. Corp., 248 F.3d 892, 898-99 (9th Cir. 2001) ("A motion for reconsideration is treated as a motion to alter or amend judgment under [Civil Rule] 59(e) if it is filed within [fourteen] days of entry of judgment. Otherwise, it is treated as a [Civil] Rule 60(b) motion for relief from a judgment or order." (Cleaned up)).

Relief under Fed.R.Civ.P. 59(e) is available on four grounds: (1) to correct manifest errors of law or fact upon which the judgment rests; (2) to present newly discovered or previously unavailable evidence; (3) to prevent manifest injustice; or (4) if amendment is justified by an intervening change in controlling law. Allstate Ins. Co. v. Herron, 634 F.3d 1101, 1111 (9th Cir. 2011). Relief under Fed.R.Civ.P. 59(e) is also "an extraordinary remedy which should be used sparingly." Id.

The first, second, and fourth grounds for relief under Fed.R.Civ.P. 59(e) are inapplicable. Scenic Oaks cites no clear legal or factual error by the court. In fact, its current motion is based on the error of its attorney. Scenic Oaks also cites no new evidence or intervening change in controlling law. That leaves only the third ground, i.e., manifest injustice. In that regard, even if true, counsel's misreading or misunderstanding of the Reply Evidence Order is not an extraordinary circumstance that rises to the level of manifest injustice. See e.g., Dolores Press, Inc. v. Robinson, 2021 WL 374490, *3 (C.D. Cal. Jan. 22, 2021).

To the extent the rule applies, the court would reach the same conclusion were it to consider the current motion under Fed.R.Civ.P. 60(b)(1) applicable by Fed.R.Bankr.P. 9024.

Scenic Oaks will suffer no great prejudice if the Claim Objection Order is not vacated. The Claim Objection Order merely disallows Scenic Oaks' claim as an accelerated arrearage claim in the Debtor's bankruptcy case. It does not disallow the claim in its entirety. Indeed, Scenic Oaks will continue to receive payment under the Debtor's confirmed First Amended Plan- both as to the arrears resulting from its refusal to accept payment after it accelerated the loan and as to regular monthly payments due on the loan. Although Scenic Oaks may not be paid as quickly as it apparently wants to be paid, it will nevertheless continue to receive payment without any adverse effect on its lien and without any reduction in the amount it is owed.

Scenic Oaks' aggressive pursuit of the Debtor, who made all loan payments except for those Scenic Oaks rejected after it accelerated the loan, leaves the court to wonder how Scenic Oaks treats its borrowers who actually fail to pay. At least with regard to the Debtor, Scenic Oaks appears to be motivated by what it views as an easy opportunity to reap a windfall by seizing the Debtor's home valued somewhere around $534,000 to immediately satisfy a fully-preforming loan with a balance of approximately $230,000. Scenic Oaks' apparent motive reminds the court of a concept in less materialistic Eastern religious thought that power, privilege, and wealth corrupt the soul. The Western rural expression of that idea is "pigs get fat; hogs get slaughtered."

The court also reminds Scenic Oaks that a pending motion alleges it willfully violated the automatic stay on multiple occasions. This court has absolutely no tolerance for a creditor's willful violations of the automatic stay, and it is not shy about applying statutory remedies for automatic stay violations. See In re Valentine, 648 B.R. 324 (Bankr. E.D. Cal. 2022); In re Bradford, 2018 WL 6422858 (Bankr. E.D. Cal. Dec. 4, 2018). In that regard, conduct and motives are relevant when determining whether the court should award punitive damages under 11 U.S.C. § 362(k) for willful stay violations. In re Karmi, 638 B.R. 804, 818 (Bankr. D. Kan. 2022) ("[Punitive] damages may also be appropriate under § 362(k) upon consideration of . . . the nature of the defendant's conduct . . . [and] the defendant's motives[.]"); accord In re Moore, 631 B.R. 764, 786 (Bankr. W.D. Wash. 2021). The more egregious the conduct and motive, the greater the punitive damage award. See e.g., Sundquist v. Bank of America, N.A., 566 B.R. 563 (Bankr. E.D. Cal. 2017), vacated in part on other grounds, In re Sundquist, 580 B.R. 536 (Bankr. E.D. Cal. 2018).

Vacating the Claim Objection Order and reopening the evidentiary record to allow Scenic Oaks to now file and serve counter-evidence which should have been filed and served by June 20, 2023, would be extremely prejudicial to the Debtor and other parties in interest. As to the former, prejudice is inherent in the delayed evidentiary disclosure. And as to the former and the latter, on June 28,...