Solano v. Magnum Prop. Invs. LLC (In re Solano)

In re: JOSE R. SOLANO, JR., Debtor.

JOSE R. SOLANO, JR., Appellant, v. MAGNUM PROPERTY INVESTMENTS LLC; SARINA GOERISCH, Appellees.

JOSE R. SOLANO, JR., Appellant, v. MAGNUM PROPERTY INVESTMENTS LLC; SARINA GOERISCH;

LANE NUSSBAUM; NUSSBAUM APC, Appellees.

BAP No. CC-19-1258-GFS

BAP No. CC-19-1259-GFS

Adv. No. 2:19-ap-01043-VZ

Adv. No. 2:19-ap-01152-VZ

UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT

July 24, 2020

NOT FOR PUBLICATION

(Related)

Bk. No. 2:16-bk-26833-VZ

MEMORANDUM^*

Appeal from the United States Bankruptcy Court for the Central District of California

Vincent Zurzolo, Bankruptcy Judge, Presiding

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

INTRODUCTION

These related appeals involve two adversary proceedings pertaining to chapter 7¹ debtor Jose R. Solano, Jr.'s ("Debtor") former residence, located in West Covina, California (the "Property"). After the bankruptcy court granted stay relief, the Property was sold pursuant to a nonjudicial foreclosure.

Debtor initiated the first case in state court, seeking to quiet title to the Property (the "Quiet Title Action"). He removed the proceeding, but the bankruptcy court remanded it because the Notice of Removal was untimely under Rule 9027(a)(3).

Debtor filed the second case as an adversary proceeding and alleged fraud and other claims against the purchaser of the Property, Magnum Property Investments LLC ("Magnum"), its principal Sarina Goerisch, and its attorneys, Lane Nussbaum and Nussbaum APC (the "Fraud Action"). The court granted the defendants' motion to dismiss the complaint pursuant to Civil Rule 12(b)(6), made applicable by Rule 7012, because the claims belonged to the estate and Debtor lacked standing.

The bankruptcy court did not err in remanding the Quiet Title Action or in dismissing the Fraud Action. Accordingly, we AFFIRM both orders.

FACTS²

In 2007, Debtor and Soledad M. Solano purchased the Property and executed a promissory note and deed of trust in favor of World Savings Bank, FSB (the "Bank").³ The Solanos defaulted under the terms of the note, and in 2013 the Bank recorded a notice of default.

After a series of bankruptcy filings involving the Property, Debtor filed the present case in 2016. The Bank objected to confirmation of Debtor's plan, in part because the plan failed to cure arrears in the amount of $635,452.29. After the Bank filed its objection, Debtor voluntarily converted his case to chapter 7.

The Bank sought stay relief under §§ 362(d)(2) and (d)(4) based on Debtor's persistent failure to make payments and the allegation that Debtor filed the bankruptcy petition as part of a scheme to hinder, delay, or defraud creditors.⁴ In March 2017, the bankruptcy court granted stay relief to permit the Bank and its successors to enforce state law remedies toforeclose and obtain possession of the Property. Debtor appealed, and the district court affirmed.

In February 2018, Magnum purchased the Property at a nonjudicial foreclosure sale pursuant to the deed of trust. Magnum filed an unlawful detainer action against Debtor in state court and obtained a judgment against Debtor in May 2018. Debtor removed the unlawful detainer action in June 2018, but the bankruptcy court remanded it. Debtor was eventually evicted.

A. The Quiet Title Action

On June 1, 2018, Debtor filed the Quiet Title Action in state court. He asserted claims for quiet title, fraud, cancellation of instruments, and declaratory relief against Magnum and Sarina Goerisch. Debtor alleged that Magnum fraudulently recorded a Trustee's Deed Upon Sale, Notice of Sale, and Notice of Default. Magnum filed a demurrer, which the state court sustained with leave to amend.

On October 10, 2018, Debtor filed a first amended complaint.⁵ Magnum again demurred. On February 5, 2019, three days before the hearing on Magnum's demurrer, Debtor filed a Notice of Removalpursuant to 28 U.S.C. §§ 1441 and 1452(a), which established an adversary proceeding in the bankruptcy case.

In February 2019, Magnum filed a motion for remand and argued that Debtor's Notice of Removal was untimely under Rule 9027(a)(3). Prior to the hearing on the motion for remand, Debtor filed a motion in the district court for mandatory withdrawal of the reference.

The bankruptcy court continued the hearing on Magnum's motion for remand to allow the district court to rule on Debtor's motion to withdraw the reference. The district court denied the motion to withdraw the reference in August 2019, and the bankruptcy court reset the hearing on Magnum's motion for remand for October 2019.

At the hearing, the bankruptcy court ruled that remand was appropriate because Debtor's Notice of Removal was untimely. The bankruptcy court also ruled that Debtor's lack of standing to bring the claims provided an additional basis to remand the proceeding. The court stated that because the Property, and claims that arose in relation to the Property, remained property of the bankruptcy estate, the chapter 7 trustee was the only party who could assert the claims. Debtor timely appealed.

B. The Fraud Action

In May 2019, Debtor filed an adversary complaint against Magnum, Sarina Goerisch, Lane Nussbaum, and Nussbaum APC. Debtor asserted claims for fraud, racketeering, false claims, collection of an unlawful debt,and declaratory relief. Debtor alleged that no sale took place, and the Trustee's Deed Upon Sale was forged and wrongfully recorded by the defendants.⁶

Although the caption of the complaint and the table of contents include claims under the Fair Debt Collections Practices Act (the "FDCPA") and the Racketeer Influenced and Corrupt Organizations Act ("RICO"), the complaint lacks factual allegations relating to such claims. The complaint also includes a reference to an illegal eviction, but again, the complaint is devoid of factual allegations related to the eviction.

The defendants filed a motion to dismiss, arguing that Debtor lacked standing because the claims were property of the estate. The defendants also asserted that Debtor failed to allege sufficient facts to support a cognizable claim under the FDCPA or RICO and failed to plead the fraud claim with particularity, as required by Civil Rule 9(b), made applicable by Rule 7009.

Debtor filed a response to the motion to dismiss and argued that the estate essentially abandoned the Property by allowing the automatic stay tobe terminated, and therefore, Debtor had standing to bring the causes of action. Debtor contended that his allegations were sufficient, and as a pro se litigant, he should be held to a lesser standard.

The bankruptcy court granted the motion to dismiss and ruled that Debtor lacked standing to bring the claims made in the complaint because, to the extent that there were any valid claims related to the foreclosure, they belonged to the estate. The court also determined that the allegations in the complaint lacked required specificity. Debtor timely appealed.

JURISDICTION

The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and 157(b)(1). We have jurisdiction under 28 U.S.C. § 158.

ISSUES

Did the bankruptcy court abuse its discretion by remanding the Quiet Title Action?

Did the bankruptcy court err by dismissing the Fraud Action pursuant to Civil Rule 12(b)(6)?

STANDARDS OF REVIEW

We review the bankruptcy court's decision to remand a proceeding under 28 U.S.C. § 1452(b) for an abuse of discretion. McCarthy v. Prince (In re McCarthy), 230 B.R. 414, 416 (9th Cir. BAP 1999). A bankruptcy court abuses its discretion if it applies the wrong legal standard, or misapplies the correct legal standard, or if its factual findings are clearly erroneous. SeeTrafficSchool.com, Inc. v. Edriver Inc., 653 F.3d 820, 832 (9th Cir. 2011) (citing United States v. Hinkson, 585 F.3d 1247, 1262 (9th Cir. 2009) (en banc)).

We review a dismissal of an adversary proceeding under Civil Rule 12(b)(6) de novo. New Mexico State Inv. Council v. Ernst & Young, LLP, 641 F.3d 1089, 1094 (9th Cir. 2011). Under a de novo review, we look at the matter anew, giving no deference to the bankruptcy court's determinations. Barnes v. Belice (In re Belice), 461 B.R. 564, 572 (9th Cir. BAP 2011).

DISCUSSION

A. The Bankruptcy Court Did Not Abuse Its Discretion By Remanding The Quiet Title Action

Debtor argues that the bankruptcy court abused its discretion by remanding the Quiet Title Action because the removal statute does not contain time limits.

Removal of a state court action to the bankruptcy court by a plaintiff is governed by 28 U.S.C. § 1452(a).⁷ Under § 1452(b), the bankruptcy courtcan remand an action removed from the state court "on any equitable ground." We narrowly construe removal statutes and resolve any doubts against removability. Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992).

The procedure for removal under 28 U.S.C. § 1452(a) is established by Rule 9027. Parker v. Mid Valley Servs., Inc. (In re Parker), BAP No. EC-19-1079-BSF, 2020 WL 710368, at *3 (9th Cir. BAP Feb. 11, 2020). Rule 9027 sets forth different deadlines for removal of state court actions initiated pre-and postpetition. Debtor filed the Quiet Title Action postpetition, so removal is governed by Rule 9027(a)(3).

Rule 9027(a)(3) provides that a notice of removal of a state court civil action, filed after the bankruptcy petition, must be filed within the shorter of:

(A) 30 days after receipt, through service or otherwise, of a copy of the initial pleading setting forth the claim or cause of action sought to be removed or (B) 30 days after receipt of the summons if the initial pleading has been filed with the court but not served with the summons.

Rule 9027(a)(3).

Because Debtor was the plaintiff in the state court Quiet Title Action, we measure the deadline from his receipt of the defendants' initialresponsive pleading. See In re Perry, 2011 WL 4503166, at *6. The record demonstrates that Debtor filed the complaint in state court on June 1, 2018, and the defendants filed their responsive pleading on July 8, 2018. Debtor...