Quail Lake Estates Associates v. Bankfirst et al

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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re 	No. 08-41296 T
Chapter 11
QUAIL LAKE ESTATES ASSOCIATES,
L.P., etc.,
Debtor.
___________________________/
QUAIL LAKE ESTATES ASSOCIATES, 	A.P. No. 09-4292 AT
L.P.,
Plaintiff,
vs.
BANKFIRST, etc., MTC FINANCIAL
CORP., etc.,
Defendants.
____________________________/
MEMORANDUM OF DECISION RE
MOTION TO DISMISS BY MTC FINANCIAL CORP.
The 	motion 	to 	dismiss 	filed 	by 	defendant 	MTC 	Financial 	Corp.
(“MTC”) came before the Court on December 14, 2009. 	Appearances were
stated 	on 	the 	record. 	At 	the 	conclusion 	of 	the 	hearing, 	the 	Court
took 	the 	motion 	under 	submission. 	The 	Court’s 	findings 	and
conclusions are set forth below.
Signed: December 23, 2009
________________________________________
LESLIE TCHAIKOVSKY
U.S. Bankruptcy Judge
________________________________________
Entered on Docket
December 23, 2009
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 09-04292 Doc# 26 Filed: 12/23/09 Entered: 12/23/09 15:28:56 Page 1 of 5

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1MTC’s motion does not address the third claim for relief,
seeking to avoid the foreclosure sale as an unauthorized post-
petition transfer pursuant 11 U.S.C. § 549. 	Neither does it
address the fourth and fifth claims for relief, which assert that
the foreclosure sale violated state law. 	As a result, the Court
makes no ruling with respect to these three claims.
2
DISCUSSION
The 	factual 	and 	procedural 	background 	giving 	rise 	to 	the
complaint 	and 	to 	MTC’s 	motion 	to 	dismiss 	are 	set 	forth 	in 	the
Memorandum 	of 	Decision 	Re 	Motion 	to 	Dismiss 	by 	the 	FDIC 	(the 	“FDIC
Memorandum”) and will not be repeated here. 	MTC was the foreclosure
trustee 	with 	respect 	to 	the 	March 	23, 	2009 	foreclosure 	sale 	of 	the
debtor’s real property (the “Development Property”). 	MTC moved to
dismiss 	with 	prejudice 	certain 	claims 	asserted 	against 	it 	by 	the
debtor (the “Debtor”) in the complaint and to strike the prayer for
punitive damages.
MTC 	notes 	that 	the 	complaint 	seeks 	damages 	against 	it 	for
violation of the automatic stay. 1 	MTC contends that the claims should
be dismissed for two reasons. 	First, it contends that, once the Plan
was 	confirmed, 	the 	automatic 	stay 	terminated. 	Second, 	it 	contends
that, 	even 	if 	the 	foreclosure 	sale 	did 	violate 	the 	automatic 	stay,
the 	Debtor 	was 	not 	entitled 	to 	recover 	compensatory 	damages. 	Only
individuals 	injured 	by 	stay 	violations 	are 	entitled 	to 	recover
damages. 	See 11 U.S.C. § 362(k)(1); In re Chateaugay Corp., 920 F.2d
183 	(2nd 	Cir. 	1993); 	In 	re 	Pace, 	67 	F.3d 	187 	(9th 	Cir. 	1995). 	MTC
contends 	that, 	under 	the 	circumstances, 	the 	deficiencies 	of 	the
complaint cannot be remedied. 	Thus, the claims should be dismissed
with prejudice.
Case: 09-04292 Doc# 26 Filed: 12/23/09 Entered: 12/23/09 15:28:56 Page 2 of 5

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3
MTC 	also 	moves 	to 	strike 	the 	claim 	for 	punitive 	damages. 	It
notes 	that 	punitive 	damages 	are 	only 	recoverable 	in 	cases 	of
oppression, fraud, and malice. 	See Cal. Civ. Code § 3294; Hilliard
v. A.H. Robbins Co., 148 Cal. App. 3d 374, 392 (1983); Flyer’s Body
Shop Profit Sharing Plan v. Ticor Title Insurance Co., 185 Cal. App.
3d 	1149, 	1154 	(1977). 	MTC 	contends 	that 	the 	complaint 	fails 	to
allege any such conduct or motive on its part. 	MTC points out that
it has no interest in the Development Property and was merely acting
according to the instructions of its client.
In 	response, 	the 	Debtor 	notes 	that 	the 	Plan 	provided 	that 	the
bankruptcy 	estate 	would 	continue 	and 	that 	the 	Development 	Property
would 	remain 	property 	of 	the 	bankruptcy 	estate 	until 	the 	Plan 	was
substantially consummated. 	Substantial consummation would only occur
once 	the 	Debtor 	had 	sufficient 	funds 	to 	pay 	the 	pre-confirmation
delinquent property taxes. 	This never occurred.
The Debtor concedes that, because it is not an individual, it is
not entitled to damages for violation of the automatic stay pursuant
to 	11 	U.S.C. 	§ 	362(k)(1). 	However, 	it 	notes 	that 	there 	is 	ample
authority providing that a nonindividual can recover damages in the
Court’s discretion based on the Court’s inherent powers and 11 U.S.C.
§ 105(b). 	In re Dyer, 322 F.3d 1178, 1190-91 (9th Cir. 2003).
Finally, 	the 	Debtor 	contends 	that 	MTC’s 	bad 	faith 	was
sufficiently alleged in the complaint to support an award of punitive
damages. 	Thus, it opposes the motion to strike this portion of the
prayer. 	MTC did not file a reply.
Case: 09-04292 Doc# 26 Filed: 12/23/09 Entered: 12/23/09 15:28:56 Page 3 of 5

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4
MTC’s motion to dismiss the first and second claims for relief
will be granted. 	For the reasons stated in the FDIC Memorandum, the
Court 	concludes 	that 	the 	foreclosure 	sale 	did 	not 	violate 	the
automatic 	stay. 	The 	dismissal 	of 	these 	claims 	will 	be 	with
prejudice. 	The 	Court 	will 	also 	strike 	the 	prayer 	for 	punitive
damages as applied to MTC with respect to all claims. 	The Court is
doubtful 	that 	a 	foreclosure 	trustee 	may 	be 	held 	liable 	for
compensatory damages where it is simply following the instructions of
the benficiary. 	However, clearly, something more than a conclusory
allegation of bad faith is required to support a prayer for punitive
damages against such a defendant.
CONCLUSION
MTC’s motion to dismiss the first and second claims for relief
and 	to 	strike 	the 	claim 	for 	punitive 	damages 	is 	granted 	in 	its
entirety. 	Dismissal 	of 	the 	first 	and 	second 	claims 	for 	relief 	is
with prejudice. 	The prayer for punitive damages is stricken without
prejudice. 	Counsel for MTC is directed to submit a proposed form of
order in accordance with this decision.
END OF DOCUMENT
Case: 09-04292 Doc# 26 Filed: 12/23/09 Entered: 12/23/09 15:28:56 Page 4 of 5

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COURT SERVICE LIST
James D. Wood
Law Offices of James D. Wood
3675 Mt. Diablo Blvd. #250
Lafayette, CA 94549-3775
Thomas Greco
Turner, Reynolds, Greco and O'Hara
16485 Laguna Canyon Rd., #250
Irvine, CA 92618
Joshua D. Wayser
Katten Muchin Rosenman
2029 Century Park E #2600
Los Angeles, CA 90067
Case: 09-04292 Doc# 26 Filed: 12/23/09 Entered: 12/23/09 15:28:56 Page 5 of 5