In re Suzannne Marie Takowsky, Debtor.
Suzanne Takowsky, Plaintiff,
v.
Del Toro Loan Servicing, Inc., a California corporation; Alan I. Sherman and Rachel Sherman, Trustees of the Alan I. Sherman and Rachel Sherman Trust dated 11/22/1994; Arden Management, LLC, a limited liability company; and Borkes Capital Management, LLC, a limited liability company, Defendants.
No. 2:08-bk-14149-NB
Adv No. 2:11-ap-02468-NB
United States Bankruptcy Court, Central District of California, Los Angeles Division
February 6, 2012
Date: February 7, 2012
TENTATIVE RULING RE DEFENDANTS' MOTIONS TO DISMISS FIRST AMENDED COMPLAINT AND MOTION TO EXPUNGE LIS PENDENS
Neil W. Bason, U.S. Bankruptcy Judge
An initial hearing was held on January 10, 2012, at or about 1:00 p.m., on (1) the Motion to Dismiss for Failure to State a Claim Upon Which Relief Can be Granted (Dkt 24) filed by Defendants Arden Management, LLC and Borkes Capital Management, LLC ("Arden & Borkes"), (2) the Motion to Dismiss the First Amended Complaint Filed by Plaintiff, Suzanne Takowsky, Pursuant to Federal Rule of Civil Procedure 12(b)(6) (Dkt 26) filed by Defendants Del Toro Loan Servicing, Inc. ("Del Toro") and Alan I. Sherman and Rachel Sherman, Trustees of the Alan I. Sherman Trust dated 11/22/1984 ("Sherman" or, with the other defendants, "Defendants"), and (3) the Motion to Expunge LIs Pendens and for Award of Attorney's Fees and Costs (Dkt 25). At the conclusion of the initial hearing, I continued the hearings on Defendants' motions to dismiss to February 7, 2012 at 2:00 p.m. so that the parties could file supplemental briefs on jurisdiction and related issues. For the reasons set forth below and in the prior tentative ruling (Exhibit A hereto), my tentative ruling for the February 7, 2012 hearing is as follows:
(A)
Jurisdiction: overrule Defendants' jurisdictional objections, on the basis that there is "related to" jurisdiction under
28 U.S.C. § 1334;
(B)
Withdrawal of the reference: deny Defendants' requests to have matter heard by the District Court because any motion to withdraw the reference is properly addressed to that court (by means of a motion filed in the Bankruptcy Court) and unless and until the reference is withdrawn I have both the authority and the duty to issue a report and recommendation to the District Court in this non-core matter pursuant to
28 U.S.C. § 157(c)(1);
(C)
Abstention: deny Defendants' abstention request for reasons set forth below;
(D)Merits re motions to dismiss: grant the motions to dismiss as to all but two of Plaintiff's claims - dismiss with prejudice her claims for wrongful foreclosure, cancellation of instrument, breach of duty of deed of trust, and breach of covenant of good faith and fair dealing - but (1) deny the motions to dismiss as to Plaintiff's claim for fraud and deceit; (2) deny those motions as to Plaintiff's claim to quiet title, to the extent that potential remedies for the fraud and deceit claim might include not only damages but also remedies affecting title to the property at issue; and (3) deny the requests for awards of attorneys' fees in connection with such motions; and
(E)
Merits re motion to expunge lis pendens: deny the motion to expunge the
lis pendens, in view of the possible effect on title from Plaintiff's claim for fraud and deceit.
Appearances are required at the hearing on February 7, 2012.
I. DISCUSSION
During the hearing conducted on January 10, 2012, I invited the parties to file supplemental briefs regarding which court should hear this matter, which was raised in the reply brief of Defendants Arden & Borkes filed on December 14, 2011 (Dkt 38) and was joined in by the other Defendants at that hearing. On January 27, 2012, Plaintiff filed her Brief Re Authority of Bankruptcy Court to Enter a Final Judgment in This Adversary Proceeding (Dkt 44). On February 3, 2012, Defendants Del Toro and Sherman filed their Brief Re: Authority of the Bankruptcy Court to Enter a Final Judgment (Dkt 45).
The following discussion is generally applicable to both of the pending motions to dismiss and the continued status conference in this adversary proceeding.
(A) Jurisdiction.
In their reply (Dkt 38), Arden & Borkes argue that the Court lacks subject matter jurisdiction over the claims set forth in Plaintiff's first amended complaint. They assert that there is no "arising under" or "arising in" jurisdiction (28 U.S.C. § 1334), but they do not reach the issue of "related to" jurisdiction (id.) except for an oblique reference made in their discussion of supplemental jurisdiction. The Reply filed by Del Toro and Sherman (Dkt 45) does address the issue of "related to" jurisdiction and argues that such jurisdiction is lacking because:
Plaintiff's Chapter 13 Plan has already been confirmed and she is paying her unsecured creditors 100% through the Plan. Therefore, should Plaintiff prevail in this action, her unsecured creditors will not receive any additional benefit. [Brief (Dkt 45) at 6:2-4.]
I agree that Plaintiff's claims do not "arise under" title 11 or "arise in" a case under title 11 as those terms are used in 28 U.S.C. § 1334. But Plaintiff's claims are "related to" this bankruptcy case, so there is jurisdiction under 28 U.S.C. § 1334(b). See In re Fietz, 852 F.2d 455, 457 (9th Cir. 1988) (a proceeding is "related to" a bankruptcy case if "the outcome of the proceeding could conceivably have any effect on the estate being administered in bankruptcy") (citing Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir. 1984) (emphasis in original).
The outcome of the instant adversary proceeding has a "conceivable effect" on the bankruptcy estate because (a) although creditors may not receive any "additional benefit" (in Defendants' phrase) if Plaintiff prevails, creditors would receive little or nothing if Plaintiff does not prevail (see Amended Chapter 13 Plan, Dkt 32, relying on future refinance to pay creditors, and thus relying on an outcome favorable to Plaintiff in this adversary proceeding) and (b) alternatively, Plaintiff asserts an exemption in her principal residence and intends to retain that residence (which also depends upon an outcome favorable to Plaintiff in this adversary proceeding). For either of these alternative reasons, the claims in this adversary proceeding are "related to" this bankruptcy case.
(B) Whether the District Court or the Bankruptcy Court should hear this matter in the first instance.
Bankruptcy Courts constitute a unit of the District Court. 28 U.S.C. § 151. The District Courts may refer any or all cases and proceedings described in 28 U.S.C. § 1334(a) and (b) to the Bankruptcy Court. 28 U.S.C. § 157(a). The District Court for the Central District of California has done so in LBR 5011-1.
Bankruptcy Courts have authority to issue final judgments in "core" matters pursuant to 28 U.S.C. § 157(b)(1). Stern v. Marshall, 131 S.Ct. 2594 (2011). A Bankruptcy Court also may hear non-core proceedings that are otherwise related to a bankruptcy case. 28 U.S.C. § 157(c)(1). Id. In such non-core, related-to proceedings, "the bankruptcy judge shall submit proposed findings of fact and conclusions of law to the district court, and any final order or judgment shall be entered by the district judge after considering the bankruptcy judge's proposed findings and conclusions and after reviewing de novo those matters to which any party has timely and specifically objected." Id.
Plaintiff in her first amended complaint alleges that this adversary proceeding constitutes a core proceeding pursuant to 28 U.S.C. §§ 157(b)(2)(B), 157(b)(2)(K), and 157(b)(2)(O). I disagree. Admittedly, there is some uncertainty about what is core and what is non-core after Stern v. Marshall, but the claims at issue are clearly non-core. The Ninth Circuit has warned against overly expansive interpretations of 28 U.S.C. § 157(b)(2). In re Castlerock Properties, 781 F.2d 159, 162 (9th Cir. 1986). Plaintiff's claims are purely state law claims that are no more "core" than the claims at issue in Stern v. Marshall. In short, I am satisfied that this adversary proceeding is a related-to, non-core matter. Thus, pursuant to 28 U.S.C. § 157(c)(1) I do not have authority to issue a final judgment but I can submit proposed findings of fact and conclusions of law to the District Court.
I recognize that there is a possible inefficiency in this process. If I hold a trial in this adversary proceeding and the District Court on de novo review requires a complete retrial, then my decision to try this matter could result in duplicative proceedings which could be a waste of judicial resources, the parties' time, and funds. But nothing requires such a result. As pointed out in In re Heller Ehrman, LLP, 2011 WL 4542512 at *3 n. 11 (Bankr. N.D. Cal. Sept. 28, 2011), the District Court is not bound by any requirement to conduct a full retrial on de novo review. Rather, the District Court has discretion, and the parties have all the benefits of de novo review while only having to bear so much of the costs as the District Court in its discretion believes may be warranted, because the District Court can decide what manner of de novo review is most appropriate:
De novo review therefore does not necessarily require a new trial; rather, the district court has broad discretion in the manner in which it conducts its de novo review. The notion that the district judge will have to reinvent the wheel and start all over is simply not so. De novo review might be nothing more than reviewing the findings and agreeing with them. And review of conclusions of law de novo is exactly the same as the rule of appellate practice. [
Id.]
(C) Abstention.
During the January 10, 2012 hearing, counsel for Defendants Arden and Borkes argued that this matter is properly addressed by the state courts and that as a matter of comity this Bankruptcy Court should abstain from deciding this adversary proceeding. The Ninth Circuit has identified several factors for the Court to consider in deciding whether to abstain under 28 U.S.C. § 1334(c)(1):
1.the effect or lack thereof on the efficient administration of the estate if a Court recommends abstention;
2. the extent to which state law issues predominate over bankruptcy issues;
3.the difficulty or unsettled nature of the applicable law;
4.the presence of a related proceeding commenced in state court or other nonbankruptcy court;
5. the jurisdictional basis, if any, other than
28 U.S.C. § 1334;
6. the degree of relatedness or remoteness of the proceeding to the main bankruptcy case;
7. the substance rather than form of an asserted "core" proceeding;
8. the feasibility of severing state law claims from core bankruptcy matters to allow judgments to be entered in state court with enforcement left to the bankruptcy court;
9.the burden of [the bankruptcy court's] docket;
10.the likelihood that the commencement of the proceeding in bankruptcy court involves forum shopping by one of the parties;
11.the existence of a right to a jury trial; and
12.the presence in the proceeding of nondebtor parties. [
In re Tucson Estates, Inc.,
912 F.2d 1162 (9th Cir. 1990) (citation omitted)].
I have considered each of the Tucson Estates factors, and exercising my discretion, I conclude that I should not abstain from adjudicating this adversary proceeding.
Admittedly, there are factors present which weigh in favor of abstention: most prominently, determination of the issues involves only state law, there are nondebtor parties, and the parties could assert that they have a right to a jury trial (an issue on which I express no opinion for present purposes). Nevertheless, for several reasons I do not believe that abstention is appropriate in this instance.
First, efficiency: it appears that the matter can be resolved more efficiently if this action continues in the Bankruptcy Court, rather than requiring a new action to be commenced in state court. I am already familiar with the issues and have already analyzed the merits of the various claims.
Second, possible forum shopping: the jurisdictional matters and related issues were not raised until the Reply papers, after I had reviewed the merits, and some of those issues were not raised until after I had issued a tentative ruling. This suggests that I should retain the matter to preclude possible forum shopping.
Third, the degree of relatedness to the main bankruptcy case: this adversary proceeding is central to the success or failure of the Chapter 13 Plan. In addition, if I do not abstain then I can adjust the calendar of both the adversary proceeding and the Chapter 13 matters according to the needs of each.
On balance, I conclude that the Tucson Estates factors weigh in favor of retaining the adversary proceeding in Bankruptcy Court, and not abstaining.
(D) Merits, as to the motions to dismiss.
At oral argument on January 10, 2012, the parties focused on a document entitled "Loan Reinstatement Calculation" (Dkt 21, Ex. 3) and argued whether it constitutes a "beneficiary statement" under Cal. Civ. Code § 2943. According to Plaintiff's opposition (Dkt 41), the Loan Reinstatement Calculation was delivered pursuant to a request made in an email from Plaintiff to Del Toro. But Plaintiff has not provided a copy of such email. Thus, I do not know what request was made to Del Toro and if there was an explicit request for a beneficiary statement.
Assuming for the sake of argument that Plaintiff requested a beneficiary statement, and that in response Del Toro and/or other Defendants were required to provide every item that is required by statute to be included in a "beneficiary statement, " nothing in Cal. Civ. Code § 2943 on its face requires that a beneficiary statement include either a warning that accrued and unpaid prior liens are in default, or the amount of such claims. See Cal. Civ. Code § 2943 (definition of "beneficiary statement"). Conversely, nothing in the statute on its face excuses Del Toro and/or the other Defendants from providing that information, if such information was otherwise required by law or contract. In other words, the statute appears to be irrelevant to Plaintiff's claims.
Nevertheless, for the reasons stated in the Court's January 10, 2012 tentative ruling (Exhibit A hereto, incorporated by reference), Defendants' motions to dismiss are well taken as to all claims in Plaintiff's first amended complaint except the claim for fraud and deceit. Those claims will be dismissed by separate order. In addition, Plaintiff has not suggested any possible amendment to those claims that would overcome the concerns expressed in that tentative ruling, and therefore the dismissal of those claims will be without leave to amend.
As to the fraud and deceit claim, there appear to be unresolved factual issues including what was communicated by both sides, whether there was justifiable reliance by Plaintiff on any alleged statements or omissions, and whether Plaintiff can satisfy the other elements of her claim. For the foregoing reasons, Defendants' motion to dismiss will be denied by separate order as to Plaintiff's claim for fraud and deceit.
In view of the foregoing disposition it does not appear appropriate at this time to award attorneys' fees in favor of or against any of the parties. Accordingly those requests will be denied without prejudice to any party seeking attorneys' fees at an appropriate time in future.
E. Merits, as to the motion to expunge lis pendens.
In view of the foregoing the motion to expunge the lis pendens will be denied. Plaintiff's claim for fraud and deceit might give rise to remedies that would affect title to the property at issue. The parties have not briefed that issue, and unless and until that issue is decided against Plaintiff it appears to be premature to expunge the lis pendens.
II. CONCLUSION
The parties are invited to address the foregoing tentative ruling at the hearing on February 7, 2012. They also should be prepared to address a discovery schedule, possible trial dates, whether this matter should be mediated, and any other relevant procedural issues.
EXHIBIT OMITTED