Perry v. Chase Auto Finance et al

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UNITED STATES BANKRUPTCY COURT
CENTRAL DISTRICT OF CALIFORNIA
SAN FERNANDO VALLEY DIVISION
In re:
Avram Moshe Perry
Debtor(s).
CHAPTER 7
Case No.: 1:09-bk-11476-GM
Adv No: 1:10-ap-01043-GM
MEMORANDUM OF OPINION ON
CENTRAL ISSUES TO THIS ADVERSARY
PROCEEDING BRIEFED BY PARTIES
Avram Moshe Perry
Plaintiff(s),
v.
Chase Auto Finance, Does 1-100,
JPMorgan Chase Bank, N.A., Key Auto
Recovery
Defendant(s).
This memorandum of opinion addresses three issues central to this adversary
proceeding, which the Court had asked the parties to brief.
FILED & ENTERED
APR 16 2014
CLERK U.S. BANKRUPTCY COURT
Central District of California
BY DEPUTY CLERK	Fisher
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I. BACKGROUND
Avram Moshe Perry (“Plaintiff”) filed for chapter 7 relief on February 11, 2009. In
his schedules, Plaintiff listed his only asset as a 2001 Nissan Pathfinder worth $9,000
(the “Vehicle”) on which Chase Auto Finance (“Chase”) had a lien of about the same
amount.
On February 5 or 6, 2009, just a few days before the Plaintiff’s petition was filed,
Chase repossessed the car. This rather simple scenario has led to two adversary
proceedings, a variety of motions, three appeals to the Ninth Circuit Bankruptcy
Appellate Panel (“BAP”), two appeals to the District Court and five appeals to the Ninth
Circuit.1
State Court Action
Specifically, on February 17, 2009, Plaintiff commenced an action in Los Angeles
County Superior Court (#PC 044679; the “State Court Action”) against Chase, Key Auto
Recovery (“Key” and with Chase “Defendants”) and certain other defendants. A few
days later, Plaintiff filed a supplemental complaint, which then became the operative
complaint (“Supplemental Complaint”), seeking damages for the allegedly wrongful
repossession of the Vehicle under six causes of action:
1st - violation of Bankruptcy Code §362 and §541(a)(1),
2nd - civil conspiracy,
3rd - unfair and illegal business practices (Cal. Bus. & Prof. Code §17200 et seq.)
1 These proceedings summarized below are set out in more detail in this Court’s Memorandum of Opinion
on Status of Adversary Case, entered May 16, 2012 (dkt 77, which is also Exhibit B to Defendant’s
Request for Judicial Notice (dkt 120)). All docket references refer to this adversary proceeding (10-ap-
01043) unless noted otherwise. References to bc dkt refer to the docket in Plaintiff’s Chapter 7 09-11476.
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4th - breach of contract,
5th - conversion, and
6th - violation of the Fair Debt Collection Practices Act.
Chase moved for judgment on the pleadings. By minute order dated April 22,
2010, the Superior Court sustained Chase’s motion with leave to amend within 30 days,
because the Supplemental Complaint failed to state sufficient facts to constitute the 1st,
2nd, 3rd, 5th and 6th causes of action. Exhibit A to Defendants’ Request for Judicial
Notice (dkt 120).
On May 21, 2010, Plaintiff filed his First Amended Complaint (“FAC”) in the State
Court Action with the following causes of action:
1st - breach of contract,
2nd – specific performance,
3rd – declaratory relief,
4th – breach of implied covenant of good faith and fair dealing,
5th – unfair competition (Cal. Bus. & Prof. Code §17200 et seq.),
5th [sic] – intentional interference with prospective advantage,
6th - conversion,
7th - trespass,
10th – intentional infliction of emotional distress,
11th – negligent infliction of emotional distress, and
12th – civil conspiracy.2
On August 19, 2010, Plaintiff removed this State Court Action to the Bankruptcy
Court (10-ap-01356), but this Court remanded it to the Superior Court on September 20,
2 The FAC did not contain any causes of action labelled either 8th or 9th.
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2010.3 On October 18, 2010 (after this Court had already remanded this State Court
Action back to state court), Plaintiff moved to withdraw the reference from Bankruptcy
Court to District Court, but the District Court denied this motion.4
On June 21, 2012, the State Court Action was dismissed for Plaintiff’s failure to
post a bond after having been deemed a vexatious litigant on May 18, 2012. See
Exhibits 100 and 103 to Plaintiff’s Reply (dkt 121). This dismissal ultimately became
final in October 2013 after a denial of certiorari by the United States Supreme Court. 5
Motion for Relief from Stay
In the meantime, on April 23, 2009, this Court entered an order granting Chase’s
motion for relief from stay to allow Chase to sell the repossessed Vehicle (bc dkt 29).6
The Vehicle was sold by Chase on or about April 30, 2009 (Response at 5:3-5).7
This Adversary Proceeding
Plaintiff commenced this adversary proceeding on February 5, 2010 (adv. 10-
01043), by filing a complaint seeking compensatory and punitive damages under the
following causes of action:
1st - trespass,
2nd - conversion,
3 Plaintiff subsequently and unsuccessfully (i) appealed the remand to the BAP, (ii) sought a stay pending
appeal in the BAP, (iii) moved for rehearing of the BAP’s affirmance of the remand, (iv) moved for
reconsideration of the BAP’s decision, (v) appealed the BAP’s affirmance and denial of reconsideration to
the Ninth Circuit. The appeal to the Ninth Circuit was ultimately dismissed for failure to pay the filing fee.
Plaintiff subsequently moved this Court for clarification and dismissal of the remand order, appealed this
Court’s denial of the clarification motion to the District Court and then appealed the District Court’s
dismissal of that appeal to the Ninth Circuit (appeal pending).
4 The District Court also denied Plaintiff’s subsequent motion for reconsideration. The Ninth Circuit
dismissed his appeal for lack of jurisdiction.
5 The California Court of Appeal (Second District) dismissed his appeal of the Superior Court decision, the
California Supreme Court denied review of that dismissal and the United States Supreme Court denied
his petition for writ of certiorari on October 7, 2013.
6 Plaintiff unsuccessfully sought injunctive relief and a stay pending appeal (bc dkt 35, 42, 36).
7 Plaintiff’s appeal to the BAP was accordingly dismissed as moot and the BAP subsequently denied
Plaintiff’s motion for rehearing. The Ninth Circuit affirmed the BAP’s ruling.
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3rd - breach of the peace,
4th - breach of contract,
5th - negligent misrepresentation,
6th - intentional infliction of emotional distress,
7th - abuse of process,
8th - fraud,
9th - violation of the Fair Debt Collection Practices Act (federal),
10th - unfair business practices under the Unfair Competition Law [Cal Bus. &
Prof. Code §17200 et seq.] and the Consumer Legal Remedies Act [Cal Civ. Code
§1750 et seq.] and
11th - violation of the Consumer Protection Act [T.C.S. §47-18-101] and Thrift's
Lending Practices [12 U.S.C. 1462(a), (b)(2), §1463].
See dkt 1.
According to the Complaint, the repossession took place on Feb. 6, 2009: a Key
employee climbed over the security gate, opened the car with a tool, and found and
used the remote control to exit with the car. Perry demanded that the car be returned,
but it wasn't. Perry disputes whether he was in default at the time of the repossession.
Prior to the Feb. 6 repossession, Perry informed Chase that he was in the process of
filing for bankruptcy and requested that no repossession take place. Several Chase
representatives promised that they would not repossess and would refund or credit
certain disputed late fees. He also asserts that Chase changed title on the Vehicle on
or after the February 11, 2009 petition date (because the more than 48 hour’s required
turnaround time prevented Chase from doing so any earlier) and thus the repossession
is void. Chase sold the car in a private sale for substantially less than its blue book
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value.
On May 26, 2010 this Court entered an order denying without prejudice motions
to abstain made by Chase and Key, but stayed this proceeding pending the outcome in
the State Court Action (dkt 25). As noted above, the appellate process on the Superior
Court’s dismissal of the State Court Action for Plaintiff’s failure to post bond was finally
resolved late last year by the United States Supreme Court’s denial of certiorari.8
II. ISSUES IN THIS ADVERSARY PROCEEDING
At a status conference on this adversary proceeding on February 12, 2013, this Court
determined that there are three central issues in this adversary proceeding, each of
which must be resolved:
This court must decide three issues to determine whether to dismiss this
adversary proceeding:
1. Whether the dismissal in the state court for failure to post a bond is dispositive
of the state law issues contained in the state court complaint;
2. Whether the dismissal in the state court for failure to post a bond is dispositive
of the federal law issues contained in the state court complaint; and
3. Whether the claim that the transfer of title was completed after the petition
was filed is actionable as a violation of the automatic stay if the repossession
was in compliance with state law. If so, when did the transfer of title occur for
purposes of the bankruptcy law?
See Order entered February 13, 2013 (dkt 95; “Briefing Order”). The Court continued
The status conference until August 27 and ordered each side to file a memorandum of
8 The above summaries omit other less relevant litigation by Plaintiff against the Defendants over this
same repossession:
His Order to Show Cause for sanctions in his bankruptcy case and his subsequent motion for
reconsideration for this court’s denial of the OSC, appeal to the BAP, motion for stay pending
appeal, motion for rehearing of the BAP’s affirmance of this Court’s denial and appeal to the Ninth
Circuit (which affirmed the denial).
His request for entry of a default against Key in this adversary, which the clerk entered and the
Court subsequently vacated. Plaintiff appealed the order vacating the default to the BAP. The
BAP dismissed the appeal as interlocutory. Plaintiff moved twice for the BAP to reconsider the
dismissal, both of which the BAP denied. Plaintiff appealed the dismissal and denial of
reconsideration to the Ninth Circuit which dismissed as interlocutory. Plaintiff filed a motion for
rehearing and to recall the mandate with the Ninth Circuit, which pending.
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points and authorities to address these issues, as follows:
Plaintiff will have until March 15, 2013 to file a memorandum of points and
authorities covering the three topics listed above. The memorandum is not to
exceed 35 pages in length and there are to be no exhibits attached in that this
deals solely with the legal implications of court orders. Defendants can file
separately or a joint responsive memorandum, which is due by April 15, 2013 -
the same length and exhibit limitations apply. Plaintiff will then have until May 1,
2013 to file a reply memorandum (if he wishes), with the same length limitation.
Id. (Each side subsequently requested an extension to file its brief, which was granted.)
On April 12, 2013, Perry filed his initial memorandum (“Memorandum”; dkt 101),
which was single-spaced, 200 pages in length and made up of 35 pages of points and
authorities with the balance being exhibits. On April 24, 2013, he filed a supplemental
memorandum (“Supplement”; dkt 103) consisting of 4 pages of additional argument and
authorities. The exhibits attached to the Memorandum were filed in violation of the
Court’s Briefing Order and are not being reviewed or considered. Further, the
Memorandum (dkt 101) is single spaced and the Supplement (dkt 103) uses 1.5 line
spacing, both in violation of the Local Bankruptcy Rules.9
For the status conference on August 27, 2013 I issued the following tentative
ruling:
Per the joint status report filed by Chase and Key, the state court case
(PC044679) is awaiting a determination in the United States Supreme Court on
Perry's Petition on Writ of Certiorari and Motion for leave to file in forma pauperis.
That is set to be heard at the Court's 9/30/13 conference.
On 2/13/13 I had ordered certain briefs to be filed on three issues. Perry
filed his and on 5/14/13 I entered an order extending the time for the defendants
to file theirs due to Perry's application for a Writ of Certiorari. That application
has not yet been ruled on, so this status conference is to be continued.
Continue without appearance to 10/29/13 at 10:00 a.m. by which time we
should know whether the Writ is granted.
For the status conference on October 29, 2013 I issued the following tentative ruling:
9 Local Bankruptcy Rule (LBR 9004-1(a); Court Manual 2.5(b)(2)(B)(6), p. 2-22.
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Per the joint status report filed by Chase and Key, the U.S. Supreme Court
denied Perry's petition for writ of certiorari in state court case PC044679. Per my
prior rulings, the response brief is due on Nov. 4, 2013. Perry has filed a motion
to file a supplemental brief, which I will grant (cal. #6) and will give Chase and
Key an additional three weeks to include this in their response brief - you need
not give me a separate response to each memorandum, but include all issues
that you feel are relevant. Thus the Chase/Key response brief will be due on
November 21. Perry will then have three weeks to file a reply, which will be due
on December 12. There will be no further briefing and no extensions. Once the
briefs are in, I will determine whether oral argument is needed or whether I will
decide on the papers.
The status conference will be continued to 2/4/14 at 10:00 a.m.
Perry had filed a supplement/amendment to his memorandum of points and
authorities on September 13, 2013 (“Second Supplement”; dkt 114), which deals only
with issue #3 outlined above.10
On November 19, 2013 Chase and Key filed their joint response brief
(“Response”; dkt 120).
Perry filed a Reply Memorandum on December 12, 2013 (“Reply”; dkt 121),
although the Reply was not entered on the court’s docket until February 5, 2014. The
Reply is 37 pages in length, with an additional 103 exhibits, again in violation of the
Briefing Order.
Perry’s Memoranda
Perry’s memoranda (the Memorandum, the Supplement, the Second Supplement
and the Reply) employ a scattergun approach, both in number of arguments and lack of
organization, making them exceedingly difficult to understand and apply. Much of the
argument is irrelevant to the three issues and will be disregarded. The following is an
attempt to summarize and organize the arguments in Plaintiff’s memoranda, with the
Court’s conclusions in italics.
10 On 10/31/13 the Court entered an order granting his motion to file that supplement/amendment and the
exhibits attached thereto (dkt 118).
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1. Perry owned the Vehicle and it was not subject to Chase’s security interest.
1.1. Chase’s security interest in the Vehicle was unperfected and thus subordinate to
Perry’s interest in the Vehicle (Memorandum pp. 1-4).
1.2. Chase knew that Perry owned the Vehicle (because he held the certificate of
title) and failed to tell him. (Reply pp. 31-34.)
1.3.1 Chase’s failure to tell Plaintiff was a breach of fiduciary duty and obstruction of
justice. They knew that they had no title to the vehicle in 2004 and in 2009 and
forced Perry to continue to make payments, knowingly taking advantage of his
lack of sophistication. (Memorandum p. 23; Reply pp. 27-28)
Not relevant to Briefing Order issues.
2. The repossession was not in compliance with state or federal laws.
2.1. A number of state laws were violated including Bus. & Prof. Code §§17539.1,
7508.2 and 17200 et seq., Code of Civ. Proc. §382, Civ. Code §1770, and the
Unfair Competition Law. (Memorandum pp. 8, 22-24).
2.2. Federal laws 15 USC §57A, [missing] USC §1464, 15 USC § 45, and 15 USC
§780-11(c)(2) [incorrectly cited by Perry as 15 USC §(C)(G)(2)(A)] were also
violated. (Memorandum pp. 8, 22-24).
2.3. Perry had made all of his payments prior to repossession; Chase had no right to
repossess. (Second Supplement; Reply p. 28.)
2.4. Chase lied to the DMV. (Reply p. 27.)
2.5. The repossession was in bad faith, with moral turpitude. (Reply p. 28.)
Not relevant to Briefing Order issues.
3. The state court did not adjudicate the issues and there was no decision on the
merits.
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3.1. The dismissal was not because Perry failed to prosecute, but because he was
unable to post the required $7,500 bond. (Memorandum pp. 9-10).
3.2. The last paper filed in state court was the amended complaint and there was
minimal discovery. Thus, there was no ruling on the merits and judicial
economy, convenience of the parties and fairness all weigh in favor of retained
bankruptcy court jurisdiction. Id.
3.3. Failure to post a bond is not a determination on the merits under Cal. Code of
Civ. Proc. §391.2. (Memorandum pp. 28-29, 32.)
3.4. Although this was remanded from the bankruptcy court to the state court, since
there were no duplicative actions pending in the state court and the bankruptcy
court, the state causes of action can be tried by the bankruptcy court on the
merits. Id.
As discussed in the analysis below, Perry is correct that the state court dismissal of
the State Court Action was not on the merits
4. Federal preemption applies. (Memorandum pp. 13-24.)
4.1. General principles of preemption apply where Congress has enacted a
comprehensive legislation, such as in bankruptcy, or where the state law
conflicts with a federal law. State law should be pre-empted if it interferes with
the uniformity and bankruptcy court control required in bankruptcy proceedings.
4.2. The Home Owners’ Loan Act (HOLA) regulations governing federal savings
associations are preemptive of state law, specifically CFR 560.2. Federal
savings associations are authorized by Congress to grant consumer loans for
personal, family, or household purposes. Financing and refinancing of cars falls
under the definition of a loan for personal, family, or household purposes.
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4.2.1. Chase Auto Finance is a subsidiary of J.P. Morgan Chase & Co., which is
a federal savings association and therefore is subject to the same federal
regulations as its parent (Memorandum p. 24-25).
4.2.2. Even though the contract was signed with the dealer and then assigned to
Chase, it still falls under federal preemption since HOLA and Office of Thrift
Savings (OTS) are not limited to direct loans or to loans on houses.
(Memorandum p. 18.)
4.3. The Rees-Levering Act (Cal. Civ. Code §2983.2) is preempted by federal law
(CFR 560.2) in that Chase Auto Finance is a federally regulated financial
institution. (Memorandum pp.17-22).
4.3.1. However, although the Rees-Levering Act provisions are preempted, its
protections (including notice requirements before sale) became a part of the
original contract and are still effective (Memorandum p. 19, n. 2323 [this
number is clearly a typo in the Memorandum]).
The leading case is Aguayo v. U.S. Bank, 653 F.3d 912 (9th Cir. 2011),
cert denied, 2012 U.S. Lexis 7452 (2012). In a somewhat similar case, a bank
claimed that portions of the Rees-Levering Act are preempted by federal law
since the lender is regulated by the National Bank Act and the Office of
Comptroller of the Currency and the Home Owners’ Loan Act. The Ninth Circuit
Court of Appeals disagreed and found that the Rees-Levering post-repossession
notices are not preempted.
Thus, the Rees-Levering Act is not preempted and its notice
requirements are effective. The state court has concurrent jurisdiction of this
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action although the bankruptcy court has exclusive jurisdiction of whether the
notice, repossession, and sale were a violation of the automatic stay.
5. The Defendants did not answer the complaint or the amended complaint and are in
default. (Memorandum pp. 24-26.)
Not directly relevant and not correct. Key and Chase filed a motion to abstain by the
March 10, 2010 deadline for filing a responsive pleading to the Complaint (dkt 11),
At the time that this Court denied the motion to abstain, it stayed this proceeding (dkt
25).
6. The Bankruptcy Court has jurisdiction.
6.1. The Bankruptcy Court has jurisdiction over violations of the automatic stay,
grounded in the Supremacy Clause. (Reply pp. 4-5.)
6.2. Breach of contract is a core proceeding and therefore the bankruptcy court has
jurisdiction to try the case. (Memorandum pp. 10-13; Reply pp. 8-13, 17-18.) At
the very least this matter is related to and the Court may retain jurisdiction.
(Memorandum p. 35.)
6.3. The Bankruptcy Court has supplemental jurisdiction over the state law causes of
action because they are part of the same case or controversy as the federal
claims. (Memorandum pp. 26-27; Reply pp. 5-7.)
6.4. The Bankruptcy Court has diversity jurisdiction. (Reply pp. 7-8.)
6.5. Principles of judicial economy, comity and fairness support the Court retaining
jurisdiction. (Memorandum pp.33-34).
6.6. This proceeding has been pending too long for this court not to retain
jurisdiction. (Perry cites to the case of Coates & Lane, Inc. (in re Swinson), 2004
Bankr. LEXIS 2438 (Bankr. D. Col. 2004) which, at best, is factually irrelevant to
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the issue before this Court. It may even cut against Perry’s argument since it
deals with starting a new trial in one court after it has been fully adjudicated in
another court.)
As discussed below, the Court has exclusive jurisdiction over violations of the
automatic stay. It may have concurrent jurisdiction over the state law causes of
action, but these are not core proceedings and judicial economy, comity and fairness
support the court’s abstention from those issues. Diversity jurisdiction is irrelevant.
7. Defendants violated provisions of the Bankruptcy Code
7.1. Completing the transfer after the bankruptcy petition was filed was a post-
petition transaction prohibited by Bankruptcy Code §549. (Memorandum p. 29-
30).
7.2. Perry gave notice to Key Auto Recovery and to Chase Auto Finance of the
bankruptcy. The car was property of the estate and turnover to the Trustee was
required under § 542. (Memorandum pp. 30-32.)
7.3. The sale of the Vehicle by Chase violated the automatic stay and Perry is
entitled to damages. (Second Supplement ¶28 et. seq.)
7.3.1. California law requires that the Debtor had a right to redeem once
repossession takes place and this right to redeem gave him an interest in
the car which then becomes property of the estate. (Second Supplement
¶34 et seq.)
7.3.2. Chase did not comply with the required notice and redemption provisions
of California law.
7.3.3. As the violation was willful, Plaintiff is also entitled to punitive damages.
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7.4. Defendants have retroactively violated the stay. (Reply p. 28-30.) (Not clear
what Plaintiff is referring to.)
This argument is directly responsive to Issue 3 and is discussed below, except to the
extent it deals with state law remedies arising from non-compliance with state law.
8. Prior to repossession, the Defendants illegally used a tracking devise to track the
location of the vehicle, which the Supreme Court has held is a search under the
Fourth Amendment (Supplement pp. 1-3). The complaint should be allowed to be
amended to add this claim for relief.
Not relevant to the Briefing Order issues.
9. An unclear discussion of the legal effect of the secured proof of claim that Chase
filed even though it had possession of the car. (Second Supplement ¶32.)
The Court cannot draw any conclusions.
10. Because the Court stayed this proceeding and ordered Plaintiff not to file anything
further, it must allow Plaintiff opportunity to amend the complaint under Fed. R. Civ.
P. 15(a)(2). (Reply pp. 13-17.)
Not relevant. As noted below, the Court will allow Plaintiff to supplement his
Complaint, but only as directed by the Court.
11. Defendants should also be sanctioned for vexatiousness. Plaintiff cites a number of
instances of alleged harassment in the State Court Action litigation. (Reply pp. 18-
26.)
11.1 Defendants’ request that Plaintiff be required to post a $40,000 bond (see
below) is both malicious and strategic. (Reply p. 26.)
This Court is not sanctioning anyone at this time for vexatiousness. In any event,
this Court cannot sanction behavior in state court. Plaintiff is cautioned against
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making scurrilous allegations against a judge.
12. Plaintiff moves for all applicable damages and for summary judgment. (Reply pp.
30-31.)
Not relevant to Briefing Order issues.
Chase and Key’s Joint Response
Defendants’ Response states the procedural history of this proceeding, much as
set forth above. Additionally, they focus on the facts establishing Chase’s security
interest in the Vehicle, the Plaintiff’s payment defaults and that Chase requested paper
title prior to the commencement of Plaintiff’s bankruptcy and such a request was not a
transfer of title. As to the default and payment history, the Court is not reviewing this in
either Perry’s papers or those of the Joint Response.
With respect to issues 1 and 2, the Defendants concede that the dismissal of the
State Court Action was not an adjudication of Plaintiff’s claims on the merits. However,
they argue that this Court should exercise its discretion under Federal Rule of
Bankruptcy Procedure 9011 and the Local District Rule 83-8.111 to prevent an abuse of
process: namely, Plaintiff’s use of this Court to avoid the state court order deeming him
a vexatious litigant.
Defendants also point to their motion for judgment on the pleadings which was
granted in the State Court Action and disposed of all causes of action in the
Supplemental Complaint that were not included or amended in the FAC. The disposal
of such causes of action bars similar causes of action in this Adversary under principles
of res judicata or collateral estoppel. Also, state law bars all claims asserted in the FAC
11 It is not clear that Local District Rule 83-8.1 is applicable to proceedings before this Court.
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that were not asserted in the earlier Supplemental Complaint.
Defendants argue that most of the state law claims are barred by collateral
estoppel due to the relief from stay order, which denied Plaintiff’s motion for injunctive
relief that essentially challenged the repossession. This ruling would appear to cover all
state causes of action except possibly emotional distress.
With respect to issue 3, Chase’s request for title occurred on February 10, 2009,
a day before Plaintiff’s bankruptcy petition was filed.
To the extent any claims remain, Defendants request the opportunity to bring a
Rule 12(b) motion to dismiss, which should be dispositive.
This Court should abstain from hearing the claims in the adversary complaint
under mandatory or permissive abstention. Mandatory abstention is required because
the state law claims are non-core and none of the claims arise under the Bankruptcy
Code. Numerous criteria for permissive abstention exist, including state law issues
predominating, the presence of related non-bankruptcy proceedings, lack of basis for
bankruptcy court jurisdiction, remoteness of the proceeding to the bankruptcy case, and
the substance of the claim being non-core.
If the court intends to proceed with the adversary proceeding, it should be
conditioned on Perry paying $40,000 in sanctions as a vexatious litigant.
III. ANALYSIS
Before diving into the legal issues raised, the Court needs to advise the parties
as to the use that is being made of the vast number of exhibits to the briefs. These
exhibits were filed in direct opposition to my Briefing Order, as is the length of Perry’s
briefs. The Court is not considering the exhibits as supporting Perry’s assertions that
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the repossession was in violation of the contract, that he was current on his car
payments, or that there were pre-petition dealings between him and Chase. As is
explained below in greater detail, the contractual rights of Chase to repossess will not
be considered by this Court, which is limiting itself to the procedures surrounding
Defendants’ post-petition actions in maintaining control of the car and enforcing Chase’s
lien rights as to the Vehicle. However, the exhibits are being used for the limited
purpose of trying to establish dates and clarify issues.
In determining how the Court should proceed, it is useful to consider the causes
of action in the Complaint commencing this adversary proceeding (dkt 1):
State or federal
law?
In State Court
Action
Supplemental
Complaint?
In State Court
Action FAC?
1st Trespass State No Yes
2nd Conversion State Yes Yes
3rd Breach of the
peace
State No No
4th Breach of
contract
State Yes Yes
5th Negligent
misrepresentation
State No No
6th Intentional
infliction of
emotional
distress
State No Yes
7th Abuse of process State No, but did
have claim for
violation of §§
362 & 541
No
8th Fraud State No No
9th Fair Debt
Collection
Practices Act
Federal Yes No
10th Unfair business
practices
State No No
11th Consumer Federal & No No
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State or federal
law?
In State Court
Action
Supplemental
Complaint?
In State Court
Action FAC?
Protection Act
and Thrift’s
Lending Practices
Act
Tennessee
It should be noted that a violation of the automatic stay of §362 is not one of the
causes of action in this adversary, although the 7th cause of action asserts that the
Defendants’ motion for relief from stay was an abuse of process. The Complaint does
allege violations of §362 and §542(a)(1) of the Bankruptcy Code, but the violations are
not causes of action.
A. ISSUES ONE AND TWO
Claim or Issue Preclusion
The following is a summary of the legal standards for claim preclusion (res
judicata) and issue preclusion (collateral estoppel) in California:
Federal courts "are required to give state court judgments the preclusive effect
they would be given by another court of that state." Brodheim v. Cry, 584 F.3d
1262, 1268 (9th Cir. 2009) (citing Migra v. Warren City Sch. Dist. Bd. of Educ.,
465 U.S. 75, 84, 104 S. Ct. 892, 79 L. Ed. 2d 56 (1984)). In California, res
judicata, or claim preclusion, bars a second lawsuit between the same parties on
the same cause of action. People v. Barragan, 32 Cal.4th 236, 252, 9 Cal. Rptr.
3d 76, 83 P.3d 480 (2004). Collateral estoppel, or issue preclusion, bars the
relitigation of issues that were actually litigated and determined in the first action.
Id. at 252-53. The elements for applying either claim preclusion or issue
preclusion to a second action are the same: "(1) A claim or issue raised in the
present action is identical to a claim or issue litigated in a prior proceeding; (2)
the prior proceeding resulted in a final judgment on the merits; and (3) the party
against whom the doctrine is being asserted was a party or in privity with a party
to the prior proceeding." Id. at 253 (internal quotations omitted).
Nguyen v. Sacramento Cnty., 2010 U.S. Dist. LEXIS 12361, 2-4 (E.D. Cal. Feb. 12,
2010).
Dismissal for Failure to Post Bond
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The dismissal of the State Court Action for Plaintiff’s failure to post a bond is
probably not a judgment on the merits and thus not a basis for either res judicata or
collateral estoppel. See Muller v. Tanner, 2 Cal. App. 3d 438, 443 n. 4 (Cal. App. 1st
Dist. 1969)(“questionable” whether on the merits); Wright v. United Airlines, 1994 U.S.
App. LEXIS 18337 (9th Cir. July 20, 1994)(not on merits); Crowe v. Gogineni, 2012 U.S.
District LEXIS 176343 (E.D. Cal. Dec. 12, 2012)(not on merits).
Nonetheless, several courts have exercised their discretion and refused to hear
claims previously dismissed by another court because a “vexatious litigant” failed to
post the required bond.
As the federal law claims against all defendants have been dismissed, the court
declines pendent jurisdiction over any state claims. McColm has been
designated a vexatious litigant in California state court. See Request for Judicial
Notice (Doc # 32), Exh. D. In order to file an action in state court, McColm must
obtain leave of court and furnish a bond before proceeding. See id. at 2. The
court finds it inappropriate to allow McColm to maneuver around this state court
procedure by requesting supplemental jurisdiction over her state law claims. The
court therefore declines supplemental jurisdiction and DISMISSES any state law
claims without prejudice.
McColm v. Balistreri, 2002 U.S. Dist. LEXIS 9518, 15 (N.D. Cal. May 17, 2002).
When the defendant filed his motion under the vexatious litigant statute in the
prior proceedings it served to stay all proceedings in that action. (Code Civ.
Proc., § 391.6.) When the court in that action determined that plaintiff was a
vexatious litigant and ordered him to furnish security, that action became subject
to dismissal upon plaintiff's failure to furnish the security. (Code Civ. Proc.,
§391.4.) To permit plaintiff to evade the foregoing consequences by filing a
second suit on the same cause of action would be to encourage the vexatious
litigation which the statute was designed to prevent. The filing of the second suit
is an abuse of the process of the court. The trial court properly exercised its
powers to prevent such abuse in ordering that the action be stricken from the
records of the court, and that no further proceedings be taken in it.
Muller v. Tanner, 2 Cal. App. 3d at 443-444.
I find the reasoning of these cases compelling. To allow Plaintiff an end run
around the vexatious litigant ruling in state court would effectively condone an abuse of
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process and would encourage vexatious litigation. Like Judge Walker in McColm, I find
this inappropriate and am strongly inclined to exercise my discretion to abstain from all
the state law claims that had been the subject of the State Court Action. I am also
inclined to abstain from the one federal law claim that was named in the Supplemental
Complaint – violation of the Fair Debt Collection Practices Act. 15 United States Code
§1692k grants jurisdiction to state courts as well as federal courts to enforce liability
under this act. See, e.g., Ezeyoke v. Ocwen Fed. Bank FSB, 179 Fed. Appx. 111, 113
(3d Cir. 2006). Allowing the Plaintiff to continue to litigate it after the vexatious litigant
dismissal in state court would also be disrespectful to the state court.
This leaves the breach of peace, negligent misrepresentation and unfair business
practices, and violation of the Consumer Protection Act and Thrift’s Lending Practices
Act causes of action, which were not claims in either of the complaints in the State
Court Action but arise out of the same nexus of facts as the causes of action in the
State Court Action. Whether these causes of action are close enough to the causes of
action asserted in the State Court Action so that they should also be dismissed is a
question best determined by the state court itself.
Motion for Judgment on Pleadings
Defendants argue that the effect of the minute order in the State Court Action
sustaining Chase’s motion for judgment on the pleadings should give rise to a res
judicata bar to all causes of action in the Supplemental Complaint that were not
included in the FAC (which was filed in response to the minute order). Alternatively,
they argue that collateral estoppel bars these causes of action, because issue prelusion
(unlike claim preclusion) requires only adjudication with a conclusive effect, rather than
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an actual judgment.
Defendants also argue that any cause of action included in the FAC for the first
time (i.e. was not in the Supplemental Complaint) is barred under California Rules of
Civil Procedure.
These questions of the effect of California Court rulings and California procedure
would be best addressed by a California state court.
B. ISSUE THREE
As noted above, Plaintiff has not asserted a claim for violation of the automatic
stay. The Complaint does refer to a violation of 11 U.S.C. §362 and §541(a)(1) on the
first page, however. As Plaintiff is pro se, the Court may construe his pleadings
liberally. Wolfe v. Strankman, 392 F.3d 358, 362 (9th Cir. 2004). In his memoranda,
Plaintiff has repeatedly and prominently claimed violations of Bankruptcy Code §362,
§542 and §549 based on the following allegations: the Defendants failed to return the
car to Plaintiff after the commencement of his bankruptcy, the Defendants attempted to
change title on the Vehicle immediately after repossession, and the Defendants resold
the Vehicle.
The stay protects whatever property interests the debtor has at the time of the
petition, “no more, no less.” Moody v. Amoco Oil Co., 734 F.2d 1200 (7th Cir.
1984),cert. denied, 469 U.S. 982 (1984). Sections 542 and 549 require turnover of
property of the estate and prohibit post-petition transfers of property of the estate.
Section 541 defines property of the estate as “all legal and equitable interests of the
debtor in property as of the commencement of the case.” Those rights and interests are
determined under applicable non-bankruptcy law. Butner v. United States, 440 U.S. 48,
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55 (U.S. 1979).
The financing of motor vehicles for consumer use is governed by the Rees-
Levering Motor Vehicle Sales and Finance Act (hereafter Rees-Levering) which is
codified in Cal. Civ. Code §2981 et. seq.)12 Rees-Levering provides that upon a default
of contractual obligations, the seller or holder of title (herein referred to as the lender)
may accelerate the contract and repossess the car. Cal. Civ. Code §2983.3(a). Before
it can sell the car, the lender must provide the consumer with at least 15 days’ written
notice of its intent to sell.13 After notice is mailed, the consumer has a right to redeem
the Vehicle and possibly reinstate14 for 15 days, which can be extended by an additional
10 days on written request of the consumer. Only after the 15 or 25 day period has
passed can the lender sell the car.15
The docket and other presumably uncontroverted evidence show the following
(evidence attached to Perry's Memoranda, which may be contested by Chase, is
described in italics):
2/7/09 Vehicle repossessed from Debtor's garage
2/10/09 Chase sends a notice regarding paper title to Perry (ex. 1, attached to the
Memorandum)
12 The relevant provisions of California Uniform Commercial Code division 9 (hereafter Cal. Comm. Code)
also apply to the manner of sale after repossession if there is no conflict with provisions of Rees-Levering.
However, when there is a conflict, Rees-Levering prevails. Bank of America v. Lallana, 19 Cal.4th 203,
210 (Cal. 1998) (citing to Cal. Comm. Code §9203, subdivision (4)).Cal. Comm. Code §9607 et seq.
covers the post-default notification and disposition of collateral. While many of these specifically do not
apply to consumer goods, Cal. Comm. Code §9614 specifically sets forth the information that must be
included in a notice on a consumer-goods transaction. Other than that, Cal. Comm. Code does not
include any specifics of redemption times, etc. and to the extent that it may, these would be preempted by
the specifics set out in Rees-Levering when it comes to motor vehicles.
13 Unless the vehicle has been seized under Cal. Civ. Code §2983.3(b)(6) [which does not apply here
since the car was not seized by a public agency].
14 See Cal. Civ. Code §2983.3(b)(1)-(b)(5);(d)(4)(exceptions to the right to reinstate),
15 If the notice requirements are violated or reinstatement is improperly denied, the lender loses the right
to a deficiency judgment and may also be liable for damages for conversion. Cal. Civ. Code §2983.2(a)
and Cerra v. Blackstone, 172 Cal. App. 3d 604 (Cal. Ct. App. 6th Dist. 1985).
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2/11/09 Bankruptcy case is filed
2/11/09 Chase sends Perry its notice of intent to dispose of the vehicle and gives
him 20 days to reinstate (ex. 29, attached to Second Supplement)
2/11/09 Perry sends written request to extend the redemption/reinstatement period
(ex. 29, attached to Second Supplement)
2/11/09 Chase gives Perry notice of plan to sell the vehicle (ex. 29, attached to
Second Supplement)
2/12/09 Perry gives Chase notice of the bankruptcy filing (ex. 28-2, attached to
Second Supplement).
2/13/09 Chase puts account on hold because of the bankruptcy (ex. 39, attached
to Second Supplement)
3/10/09 Chase files motion for relief from stay (bc dkt #15). There is some
confusion: on February 25, 2009 Perry filed an opposition to Chase's motion to lift stay
(bc dkt. #14) although the docket does not reflect an earlier motion to lift stay.
4/23/09 Order granting Chase’s motion for relief from the automatic stay (bc dkt.
#29) reflecting the ruling at the April 9 hearing. The sale was not to take place before
4/17/09.16
4/30/09 Sale of Vehicle by Chase (as asserted by Chase in the Response at 5:3-
5);
5/9/13 Discharge entered (bc dkt 64).
At the time the bankruptcy was commenced on February 11, 2009, Plaintiff had
property rights in the Vehicle. Even if Chase’s notice of intent had been sent prior to the
filing of the petition (see discussion below), Plaintiff still retained a twenty-five day right
16 During March and April there were a variety of filings including a motion for contempt, etc. These are
not relevant to this hearing.
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to redeem the Vehicle and to reinstate, which is part of the estate and subject to
protection of the automatic stay. See, e.g., In re Thompson, 894 F.2d 1227, 1230 (10th
Cir. 1990). In any event, Plaintiff retained title to the Vehicle, although bankruptcy
courts in California have disagreed as to whether a debtor’s property interest in a
repossessed car includes the right to possess that vehicle. Compare In re Ochoa,
2010 Bankr. LEXIS 3476 (Bankr. N.D. Cal. Oct. 1, 2010)(property of the estate includes
right to possession) with In re Fitch, 217 B.R. 286 (Bankr. S.D. Cal. 1998)(no
possessory right).
Notice of Intent to Sell
Chase sent its notice of intent to sell the Vehicle, which triggers the running of
the redemption period, on February 11, 2009. It is not clear from the papers whether
that notice was given before or after the petition was filed at 12:03 p.m. on that date (bc
dkt 1). If the notice was given after that time, it is both void and a violation of the stay,
although not a willful one.
Change of Title
Perry argues that Chase changed title immediately on repossession. I do not
find any evidence of this. Chase asserts that Chase merely requested paper title on
February 10, 2009 - a day prior to the commencement of this case – but that the actual
transfer of title happened only at the April 30 sale. It is not clear what post-petition
activities Perry is complaining of or whether Rees-Levering contemplates any change of
title documentation between repossession and resale. Perry has not shown any
violation of the stay respecting title change.
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Foreclosure Sale
The foreclosure sale was conducted pursuant to this Court’s order granting relief
from the automatic stay due to lack of adequate protection of Chase’s interest in the
vehicle (bc dkt 29), and thus cannot be a violation of the automatic stay. Appeal of this
stay relief order was dismissed by the Ninth Circuit: it is a final order. The stay relief
order allowed the sale on or after April 17, 2009.17 Chase asserts that the Vehicle was
sold on April 30, 2009 which would be in compliance with the stay relief order and not a
violation of the automatic stay.
Retention of the Vehicle.
The Ninth Circuit has held that the mere knowing retention of estate property
violates §362(a)(3), which bars the exercise of control over estate property. Cal. Emp't
Dev. Dep't v. Taxel (In re Del Mission Ltd.), 98 F.3d 1147, 1151 (9th Cir. 1996). More
specifically, the Ninth Circuit B.A.P. has held that the mere failure to return a
repossessed motor vehicle that qualifies as property of the estate violates § 362(a)(3).
Abrams v. Southwest Leasing & Rental Inc. (In re Abrams), 127 B.R. 239, 241-43 (9th
Cir. BAP 1991). Such a failure to turnover estate property also violates debtor’s right to
turnover under §542, Abrams, 127 B.R. at 242, but §362 provides the remedy for a
violation of the §542 right. Id.
The creditor must return the property or take other action within a “reasonable
17 Section 108(b) provides that if the Debtor has a right to cure a default or take a similar act (such as
reinstating a contract) at the time that the bankruptcy petition is filed, the trustee may cure or reinstate on
the later of the notice period or 60 days after the order for relief is entered. Most courts apply Bankruptcy
Code §108(b) to redemption periods. See, e.g., Canney v. Merchs. Bank (In Re Frazer), 284 F.3d 362
(2d Cir. 2002); In re Martinson, 731 F.2d 543 (8th Cir. 1984); In re Rugroden, 481 B.R. 69 (Bankr. N.D.
Cal. 2012) Perry, through the Trustee, would have had until April 10, 2009 (60 days from the petition
date) to redeem or reinstate under §108(b).
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period of time after notice of bankruptcy.” Abrams, 127 B.R. at 243, quoting In re
Carlsen, 63 B.R. 706, 710 (Bankr. C.D. Cal. 1986). In Carlsen this court further stated
that there is no bright line test and reasonableness of time would depend on the facts of
the case, concluding that:
It is incumbent upon the creditor to release its lien without delay as soon as it is
aware of the bankruptcy and of the legal effects of that bankruptcy. Naturally this
Court would not chastise a creditor for seeking legal counsel before it acts. But
any delay in obtaining that legal advice is unwarranted and a violation of the stay.
Carlsen at 710 (quoted by In re Makowski, 2013 Bankr. LEXIS 2032 (Bankr. D. Alaska
May 16, 2013, as the Carlsen Test); see also Citizens Bank v. Stumpf, 516 U.S. 16, 21
(1995)(upholding creditor’s “temporary” refusal to pay debt subject to set off; creditor
need not pay debt “immediately”).
Filing a relief from stay motion within a reasonable time would constitute creditor
action that excuses a failure to turnover property. See, e.g., Mwangi v. Wells Fargo
Bank, 432 B.R. 812 (9th Cir. B.A.P. 2010)(Bank’s failure to turnover funds subject to
turnover held to be a violation of §362(a)(3)(“Wells Fargo could have sought direction
from the bankruptcy court, by way of a motion for relief from stay or otherwise regarding
the account funds; it did not.”);18 In re Treasures, Inc., 2013 Bankr. LEXIS 3885, 22
(Bankr. S.D. Cal. Sept. 10, 2013)(“creditor may temporarily not pay debt subject to set
off, but [t]he creditor must still promptly seek stay relief.”)
Chase filed its motion for relief from stay on March 10, 2009 (bc dkt 15), about
one month after Plaintiff’s petition was filed on February 11, 2009. Whether that was a
reasonable amount of time is a question that needs to be briefed and resolved in this
Court.
18 Mwangi has been a controversial decision and has been twice remanded, appealed to District Court
and decided on other grounds,. Mwangi v. Wells Fargo Bank, N.A. (In re Mwangi), 473 B.R. 802 (D. Nev.
2012); Mwangi v. Wells Fargo Bank, N.A. (In re Mwangi), 473 B.R. 802 (D. Nev. 2012).
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Section 549
Plaintiff also asserts that some of the post-petition actions by Chase and Key
were unauthorized transfers of property of the estate in violation of Bankruptcy Code
§549. However, §549 is not applicable. Section 549 exists as a protection for creditors
against unauthorized debtor transfers of estate property. See, e.g., Schwartz v. United
States (In re Schwartz), 954 F.2d 569, 574 (9th Cir. 1992).
C. ABSTENTION
Thus, the issue of stay violations will require litigation, either through trial or
summary judgment. This court is the only court with jurisdiction/authority to determine
this issue. Determination of whether Defendants violated the automatic stay does not
require consideration of the remaining causes of action.
Stay litigation is limited to issues of the lack of adequate protection, the debtor's
equity in the property, and the necessity of the property to an effective
reorganization. Hearings on relief from the automatic stay are thus handled in a
summary fashion. The validity of the claim or contract underlying the claim is not
litigated during the hearing. The action seeking relief from the stay is not the
assertion of a claim which would give rise to the right or obligation to assert a
counterclaim. Thus, the state law governing contractual relationships is not
considered in stay litigation.
In re Johnson, 756 F.2d 738, 740 (9th Cir. Cal. 1985)(citations omitted); see also, e.g.,
Veal v. Am. Home Mortg. Servicing, Inc. (In re Veal), 450 B.R. 897 (B.A.P. 9th Cir.
2011). If Chase indeed violated the automatic stay by retaining the Vehicle, the stay
was violated regardless of whether they had followed proper state law repossession
procedures or had a right to repossess. (Although these issues might ultimately be
relevant to the amount of damages awarded for the stay violation.)
Plaintiff brought a claim for abuse of process (7th cause of action in the
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Complaint) , which requires, under applicable California law, “that the defendant (1)
contemplated an ulterior motive in using the process and (2) committed a willful act in
the use of the process not proper in the regular conduct of the proceedings.” Rusheen
v. Cohen, 37 Cal. 4th 1048, 1057 (Cal. 2006). Plaintiff’s abuse of process claim is
based on the allegation that Defendants brought a motion for relief from stay that was
unsupported by evidence and denied by the Court on September 30, 2008. Complaint
¶¶ 99-102. The alleged facts underlying this cause of action are patently false:
Plaintiff’s case was not commenced until 2009 (and there is nothing on the docket for
September 30, 2009 either) and the Court granted Chase’s motion for relief from stay.
As this claim centers on relief from stay motions in front of this court, it should also be
heard by this Court.
The third and final cause of action in the Complaint that must be determined by
this Court (or another federal court) is the 11th, which purports to be under (i) provisions
of Tennessee law and (ii) seemingly inapplicable provisions of federal law on the
administration of federal banking agencies and the supervision of savings associations.
The Tennessee law claim could presumably be dismissed either by this Court or the
state court applying choice of law provisions. The federal law claim, however, while it
appears to make no sense whatsoever under the cited statutes, cannot be determined
by a state court. Thus, the Court must retain 11th cause of action.
In determining these three causes of action, the Court will exclude from its review
any issue as to whether Chase had a contractual right to repossess the car and to sell it
once relief from stay was granted. These are state law contract issues and fall squarely
in the State Court Action, which has been dismissed. For this Court to reopen those
issues would be to circumvent the vexatious litigant determination of the state court.
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For the violation of the automatic stay and the abuse of process claims, the Court will
only look at the effect of the filing of the bankruptcy on the actions taken by Chase post-
petition, namely whether there was a violation of the automatic stay and whether Chase
committed an abuse of process by filing its motion for relief from the automatic stay.
The Eleventh cause of action can be resolved as a matter of law without consideration
of these issues.
The remaining claims in this adversary action do not arise under the Bankruptcy
Code or need to be resolved by a federal judge. Eight of the remaining causes of action
are under state law. The final claim, which is under The Fair Debt Collection Practices
Act, does arise under federal law but Congress has granted state courts jurisdiction to
hear actions enforcing this act.
Permissive Abstention
28 U.S.C. §1334 provides for permissive abstention:
Except with respect to a case under chapter 15 of this title, nothing in this section
prevents a district court in the interest of justice, or in the interest of comity with
State courts or respect for State law, from abstaining from hearing a particular
proceeding arising under title 11 or arising in or related to a case under title 11.
The Ninth Circuit has set forth a number of factors that courts should consider in
determining whether to exercise their discretion to abstain under §1134(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
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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.
Eastport Assocs. v. City of L.A. (In re Eastport Assocs.), 935 F.2d 1071, 1075-1076 (9th
Cir. Cal. 1991); In re Tucson Estates, Inc., 912 F.2d 1162, 1166 (9th Cir. 1990).
Virtually all of these factors favor abstention on these remaining causes of action:
there is no effect on administration of the estate; state law issues predominate; related
proceedings have already been commenced in state court; at best this Court has
concurrent jurisdiction with the state court; these causes of action are now unrelated to
the bankruptcy case (which is closed); these causes of action are not core and the
constitutional authority of this Court to decide them is questionable at this time; these
causes of action can easily be severed from the stay violation, abuse of process and
federal regulatory claims retained by this Court; maintaining these claims in this
proceeding in bankruptcy court would allow forum shopping by the Plaintiff who is
seeking to avoid the effect of the State Court Action dismissal; and Plaintiff himself has
reserved the right to ask for a jury trial. See Reply at 37.
In particular (as noted above), determining the preclusive effect of both (i) the
state court’s sustaining Chase’s motion for a judgment on the pleadings (without
judgment entered) and (ii) Plaintiff’s First Amended Complaint filed pursuant to the state
court’s leave to amend (which names causes of action not found in the earlier complaint
and drops other causes of action found in the earlier Supplemental Complaint), are
more appropriately determined by the state court itself.
Likewise, determining whether allowing causes of action arising out of the same
factual nexus as the causes of action dismissed by the state court would constitute an
end-run around the state court’s enforcement of California’s vexatious litigant statute
and is best left to the state court itself. Thus, as noted above, this Court will refrain from
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determining whether Chase violated the Rees-Levering Act or the Cal. Comm. Code in
its prepetition repossession, specifically including whether the Debtor was in default or
in violation of the terms of his contract at the time that repossession occurred.
Perhaps most crucially, the Court has serious reservations about its statutory and
constitutional authority to determine this adversary proceeding. The causes of action do
not arise under the Bankruptcy Code. Although the case was still open at the time that
this adversary proceeding was filed, Plaintiff’s Chapter 7 case is now closed and the
outcome of this proceeding will have no impact on that bankruptcy case. Any damages
suffered by the Debtor are personal and any recovery would go exclusively to his
benefit. The Trustee is not a party to this adversary and so the estate is not a
beneficiary to it. The majority of the causes of action are state law, private right causes
of action that are beyond this Court’s constitutional authority to adjudicate. Stern v.
Marshall, 131 S. Ct. 2594 (2011).
Accordingly, this Court is strongly inclined to exercise its discretion to abstain
from hearing the causes of action in this proceeding other than the stay relief violations,
the 7th cause of action and the 11th cause of action. However, Plaintiff has not been
afforded an opportunity to brief and argue this issue, as due process requires.
Mandatory Abstention
Most of the test for mandatory abstention under 28 U.S.C. §1334(c)(2) has also
been met with respect to these remaining claims. There are seven required elements
for mandatory abstention to apply: a timely motion, a purely state law question, a non-
core proceeding, lack of independent federal jurisdiction aside from the title 11 petition,
an action commenced in state court, the ability timely to adjudicate the state court action
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and the existence of a state forum with appropriate jurisdiction. See, e.g., In re Baldwin
Park Inn Assoc., 144 B.R. 475 (C.D. Cal. 1992); In re World Solar, 81 Bankr. 603, 606
(S.D. Cal. 1988). Defendants had moved for abstention on a timely basis (and the
Court may on its own motion abstain). The claims are non-core, almost entirely based
on state law and did not arise under bankruptcy law or even in a bankruptcy case.
(Debtor’s Chapter 7 was “no asset”; his exemption meant the Vehicle was not property
of the estate. In any event, the case is now closed.) There was an action commenced
in state court with appropriate jurisdiction that has been timely adjudicated.
However, some of these claims could have been brought in federal court absent
Plaintiff’s bankruptcy case because federal courts would have concurrent jurisdiction on
these causes of action due to the Fair Debt Collection Practices Act cause of action and
principles of supplemental jurisdiction. See Koumarian v. Chase Bank, N.A., 2008 US
Dist. Lexis 101910 (N.D. Cal. Dec. 3, 2008). Thus, abstention is not mandatory under
28 U.S.C. §1334(c)(2).
V. RULING
This proceeding will be bifurcated between the violations of 362 and 542, the 7th
cause of action (abuse of process) and the 11th cause of action, on the one hand, and
the remaining causes of action in the complaint, on the other hand.
Plaintiff will be given leave to file a legal memorandum against the Court’s
discretionary abstention with respect to the 1st, 2nd, 3rd, 4th, 5th, 6th, 8th, 9th and 10th
causes of action in this proceeding. This brief is not to exceed thirty-five pages in
length, must be double-spaced and must not have any exhibits. This brief is to be
filed with the Court and served on Defendants by overnight delivery no later than May
20, 2014. Defendants may file (and serve on Plaintiff by overnight delivery) a reply to
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this memorandum (subject to the same length, spacing and exhibit limitations) no later
than May 27, 2014. No further briefs will be allowed. A hearing will be held on this
issue on June 3 at 10:00 a.m.
Plaintiff will be given leave to file a supplement to the Complaint (i) asserting a
cause of action under 11 U.S.C. §362 and §542, (ii) amending the abuse of process
cause of action with factual allegations that are not patently incorrect on the record or
dismissing that cause of action and (iii) amending the 11th cause of action to state
causes of action under applicable law that provides a plausible cause of action. Leave
is not given for any other additions or amendments to the Complaint. The
supplement to the Complaint is to be filed and served on Defendants not later than May
30, 2014 and Defendants will have 30 days after it is filed to respond.
The status conference on this adversary proceeding now on calendar for May 13,
2014 at 10:00 a.m. will be continued to July 22, 2014 at 10:00 a.m. This status
conference will be used to determine what discovery, if any, is appropriate before the
issues in the supplement to the Complaint are tried.
###
Date: April 16, 2014
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