Cheryl J Roby

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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re
CHERYL J. ROBY, No. 06-10668
Debtor(s).
______________________________________/
Memorandum on Amended Objection to Claim
_________________
When this Chapter 11 case was filed, the debtor thought that she owed $656,200.00 to creditor
Finance America, LLC, and that the claim was secured by a first deed of trust to her real property at 9050
Willow Avenue in Cotati, California. She scheduled the debt as an undisputed secured debt.
During the case and before confirmation of her plan, Roby learned that Finance America’s deed of
trust had never been recorded. She sold the property free and clear of it, with the lien attaching to the
proceeds. She then filed an adversary proceeding to avoid the deed of trust as unperfected. Her plan,
providing for the continuation of that action, was confirmed on June 26, 2007. She obtained a default
judgment avoiding the lien on August 6, 2007.
On August 9, 2007, Chase Home Finance, LLC, filed an adversary proceeding in this court alleging
that it is the successor in interest to Finance America, LLC, and seeking a judgment declaring that it held the
senior interest in the proceeds of the Willow Avenue property, which had been sold. However, Chase
stipulated to dismissal of this action when it saw that the Finance America deed of trust had never been
recorded. It then filed evidence of transfer to it of Finance America’s claim pursuant to Rule 3001(e) of the
Federal Rules of Bankruptcy Procedure, to which Finance America did not object after due notice by the
court.
Entered on Docket
June 09, 2008
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 06-10668 Doc# 116 Filed: 06/09/08 Entered: 06/09/08 11:22:39 Page 1 of
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Rule 3003(c)(2) of the Federal Rules of Bankruptcy Procedure does not require a scheduled creditor
to file a proof of claim in a Chapter11 case in order to have an allowed claim unless the claim was scheduled
as disputed. Since the Finance America claim was still scheduled as secured and undisputed, Roby was
obliged to object to it. The debtor filed such an objection on October 4, 2007.
The objection was rather unusual. The court would have thought that the ground for the objection
would have been that by virtue of the avoidance of the deed of trust Finance America had no valid secured
claim and the claim should be allowed only as an unsecured claim. Indeed, Section 5.3 of the confirmed plan
contemplates this result. However, the objection said something very different. It only alleged that the claim
“has been assigned to some third party” and Finance America “is no longer a real party in interest.”
The fundamental problem with this “objection” was that it is not based on valid grounds. Section
502(b) of the Bankruptcy Code mandates that the court allow a claim unless one of nine enumerated grounds
for disallowance is found. Roby did not base her objection on any of them. The court accordingly overruled
the objection, without prejudice to an amended objection relying on the grounds set forth in § 502(b). That
amended objection is now before the court.
In her amended objection, Roby states three grounds. First, she argues that the claim is late and
accordingly barred by § 502(b)(9). Second, she argues that the claim is not enforceable against the debtor
and therefore barred by § 502(b)(1) because Chase is not the “real party in interest.” Third, she argues that
Chase’s predecessor in interest violated the Truth in Lending Act by failing to notify Roby that the loan might
not be fully tax-deductable.
The court finds that Chase’s predecessor was not required to file a proof of claim by either the
Federal Rules of Bankruptcy Procedure or the terms of Roby’s confirmed plan. However, if a claim was
necessary then there is abundant grounds for allowing it even though it was late, as permitted by Rule
3003(c)(3) of the Federal Rules of Bankruptcy Procedure. Also, its complaint of August 9, 2007, can also
be considered an informal proof of claim. There is no prejudice to allowance of the claim under either theory
. The mere fact that the dividends of other creditors will be reduced to their proper size is not prejudice.
Prejudice requires more than simply having to litigate the merits of, or to pay, a claim; there must be some
Case: 06-10668 Doc# 116 Filed: 06/09/08 Entered: 06/09/08 11:22:39 Page 2 of
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legal detriment to the party opposing. In re JSJF Corp., 344 B.R. 94, 102 (9th Cir.BAP 2006). There is no
legal detriment to anyone if the Chase claim is allowed, merely the avoidance of windfalls.
As the court has noted previously, the claim is not unenforceable merely because the wrong party may
be asserting it. Chase is correct in noting that Roby has no standing to contest the assignment of the claim to
it. However, if Roby has any good faith reservations as to Chase’s standing to assert the claim her remedy is
to interplead the funds and walk away, not object to the claim.
The court finds that Roby has not met her burden of presenting sufficient evidence to support a prima
facie case for violation of the Truth in Lending Act. Even if she had, her objection on these grounds is barred
by the preclusive effect of her confirmed plan.
For the foregoing reasons, the amended objection will be overruled. The court is tempted to grant
Chase’s request for reasonable attorneys’ fees. However, the Supreme Court in Traveler’s v. P,G&E, 167
L.Ed.2d 178, 189 (2007), expressly declined to determine if any section of the Bankruptcy Code bars an
unsecured claimant from recovering attorneys’ fees in a claim objection. It appears that § 502(b), limiting a
claim amount to “lawful currency of the United States as of the date of the filing of the petition” does not
permit such fees.
Counsel for Chase shall submit an appropriate form of order.
Dated: June 9, 2008
SAlan Jaroslovsky
U.S. Bankruptcy Judge
Case: 06-10668 Doc# 116 Filed: 06/09/08 Entered: 06/09/08 11:22:39 Page 3 of
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