In re Navarro

1

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

No. 23-90010-B-13

DC No. TMO-4

United States Bankruptcy Court, E.D. California

August 4, 2023

MEMORANDUM DECISION AND ORDER REGARDING VIOLATIONS OF THE AUTOMATIC STAY AND SCHEDULING FURTHER PROCEEDINGS

CHRISTOPHER D. JAIME, UNITED STATES BANKRUPTCY JUDGE

I. Introduction

Before the court is a Motion of Debtor for an Award of Compensatory Damages, Punitive Damages, Attorney Fees and Costs Against Scenic Funding [sic], a California Corporation C&H Trust Deed Service, and Attorney Coby Halavais, Does 1-5, filed by Chapter 13 debtor Maria Luz Navarro ("Debtor"). The motion asserts that C&H Trust Deed Services ("C&H"), secured creditor Scenic Oaks Funding, LLC ("Scenic Oaks"), and Coby Halavais as the attorney for both C&H and Scenic Oaks ("Attorney Halavais") (collectively, unless otherwise noted, "Respondents"), violated the automatic stay of 11 U.S.C. § 362(a) making Respondents jointly and severally liable for attorney's fees and damages (actual and punitive) under 11 U.S.C. § 362(k)(1). Respondents filed a single opposition.^[1] The Debtor filed a reply. The parties also filed evidentiary objections.

The court has reviewed and considered the motion, opposition, reply, all related declarations and exhibits, and the evidentiary objections. The court has also reviewed and takes judicial notice of the docket. See Fed.R.Evid. 201(c)(1).

By its order issued on July 11, 2023, the court bifurcated the Debtor's motion into two phases: (1) a hearing on August 8, 2023, limited to whether the automatic stay was violated; and (2) if it was determined the automatic stay was violated, a separate evidentiary hearing to determine the extent of liability under § 362(k). The first phase is satisfied insofar as Respondents admit that the automatic stay was violated. Paragraph 19 of Attorney Halavais' declaration filed with the opposition states as follows: "With apologies to all, the stay violation was inadvertent and immediately rectified once I learned of the instant Bankruptcy filing." Docket 159 at 5:10-12.

Respondents' admission makes the August 8, 2023, hearing unnecessary. However, as explained below, further proceedings remain necessary and therefore will be ordered. The evidentiary objections will be addressed at that time.

II. Background

C&H is the trustee under a deed of trust recorded against the Debtor's home at 5400 Cora Way, Keyes, California ("Debtor's Residence"). The deed of trust secures a loan that the Debtor, a school district cafeteria worker for over 21 years who never missed a loan payment, obtained from Scenic Oaks in May 2021. The Debtor's son, Juan Navarro ("Mr. Navarro"), is a co-signor on the loan.

Scenic Oaks sold the loan to Wells Fargo after it closed. It repurchased the loan from Wells Fargo after Wells Fargo asserted that Mr. Navarro misstated his employment status in loan documents.

After it repurchased the loan, Scenic Oaks declared the loan in default based on Mr. Navarro's purported misstatement. It then accelerated the loan balance and refused to accept monthly payments from the Debtor. When the Debtor was unable to pay the accelerated loan balance, Scenic Oaks initiated foreclosure proceedings through C&H acting as its duly authorized foreclosure agent and trustee under the deed of trust.

In an effort to save her home from foreclosure, the Debtor filed a Chapter 13 petition on January 10, 2023. The Debtor identifies three postpetition acts that she asserts violated the automatic stay of § 362(a): (1) issuance of a Notice of Trustee's Sale on January 11, 2023; (2) service of the Notice of Trustee's Sale by posting it on the front door of her home on January 13, 2023; and (3) recordation of the Notice of Trustee's Sale with the Stanislaus County Recorder on January 18, 2023.

Respondents do not dispute that any of the foregoing acts occurred or that they occurred on the dates the Debtor asserts they occurred. Paragraphs 8 and 9 of Attorney Halavais' declaration filed with the opposition concede that the Notice of Trustee's Sale was issued on January 11, 2023, at which time it was also sent to a local field agent for service and forwarded to the county recorder to be recorded; (2) ¶ 12 of the same declaration concedes that the Notice of Trustee's Sale was posted on the front door of the Debtor's Residence on January 13, 2023; and ¶ 13 of the same declaration concedes that the Notice of Trustee's Sale was recorded with the Stanislaus County Recorder on January 18, 2023. And as noted above, in ¶ 19 of the same declaration, Respondents admit these postpetition acts violated the automatic stay.

It is also noteworthy that Attorney Halavais states in his declaration that he personally performed each of the three acts that violated the automatic stay for C&H acting as Scenic Oaks' foreclosure agent with regard to Scenic Oaks' foreclosure on the Debtor's Residence. Moreover, when Attorney Halavais performed each of the three foregoing acts in the course of the foreclosure process, he also (and simultaneously) represented C&H and Scenic Oaks as clients.^[2]

Although the intentional acts that violated the automatic stay are admitted, the unresolved issue that precludes the court from determining if Respondents' admitted automatic stay violations are technical or willful is one of notice. Eskanos & Adler, P.C. v. Leetien, 309 F.3d 1210, 1215 (9th Cir. 2010) ("A willful violation is satisfied if a party knew of the automatic stay, and its actions in violation of the stay were intentional."). Did the postpetition acts that Respondents admit violated the automatic stay occur with notice of the Debtor's bankruptcy filing and, thus, with notice of the automatic stay? Knupfer v. Lindblade (In re Dyer), 322 F.3d 1178, 1191 (9th Cir. 2003) (notice of bankruptcy filing is notice of the automatic stay for purposes of § 362(k)); accord Superior Propane v. Zartun (In re Zartun), 30 B.R. 543, 546 (9th Cir. BAP 1983)). The Debtor asserts they did. Respondents assert they did not.

The Debtor asserts that a paralegal at her attorney's office provided a female clerk employed by C&H with verbal notice of her bankruptcy filing by telephone on the petition date, i.e., January 10, 2023. The Debtor also asserts that the female clerk with whom the paralegal apparently spoke acknowledged receipt of the notice by requesting written confirmation of the bankruptcy filing and providing a fax number where written confirmation could be sent. And the Debtor asserts that written notice of the filing was faxed to C&H on January 16, 2023.

According to Respondents, the Debtor's version of verbal notice never happened. Nor could it. Respondents assert that there is no female clerk employed by C&H who answers the telephone at C&H's office. Instead, according to Respondents, all incoming calls are answered by an automatic call system which directs callers to the appropriate extension none of which are answered by a live person. All calls are apparently routed to voicemail and screened for relevance and a determination as to whether a return call is warranted because the office is staffed by Attorney Halavais alone as a sole practitioner and a large number of sales and irrelevant calls are received. Respondents do not dispute that C&H received written notice of the bankruptcy filing on January 16, 2023, at approximately 2:00 p.m., when they received a facsimile from the Debtor's attorney's office.

Resolution of the factual dispute over notice matters substantially. It is determinative as to whether the attorney's fees and damages (actual and potentially punitive) sought by the Debtor under § 362(k) are warranted.^[3]

III. Discussion

Although on the record before it the court is unable to determine if the admitted violations of the automatic stay are willful for purposes of § 362(k), the court can set parameters for the evidentiary hearing that will follow. In that regard, four provisions of the automatic stay in § 362(a) are implicated with regard to the postpetition issuance, service, and recordation of the Notice of Trustee's Sale.

The first is § 362(a)(1) which stays "the commencement or continuation, including the issuance or employment of process, of judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under [Title 11], or to recover a claim against the debtor that arose before the commencement of the case[.]" 11 U.S.C. § 362(a)(1).

The second is § 362(a)(3) which stays "any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate[.]" 11 U.S.C. § 362(a)(3).

The third is § 362(a)(4) which stays "any act to . . . enforce any lien against property of the estate[.]" 11 U.S.C. § 362(a)(4).

The fourth is § 362(a)(6) which stays "any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case[.]" 11 U.S.C. § 362(a)(6).

At a very minimum, each of these provisions render the issuance, service, and recordation of the Notice of Trustee's Sale void without regard to notice and, thus, without regard to whether they are technical or willful violations of the automatic stay. In re Valentine, 648 B.R. 324, 334 (Bankr. E.D. Cal. 2022). Respondents appear to acknowledge this insofar as they state that all foreclosure proceedings have been cancelled.

As to potential liability for attorney's fees and damages under § 362(k) if the admitted automatic stay violations are found to be willful, Scenic Oaks' liability arises as a principal. C&H performed each of the three postpetition acts that violated the automatic stay in its role as Scenic Oaks' foreclosure agent and...