Ng v. Sterling Pacific Lending, Inc. et al

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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re 	Case No. 10-61392 RLE
FLORA NG, 	Chapter 7
Debtor.
________________________/
FLORA NG, 	Adversary No. 11-4176
Formerly Adversary No. 10-5378
Plaintiff,
vs.
STERLING PACIFIC LENDING,
INC., et al.,
Defendants.
_________________________
MEMORANDUM DECISION REGARDING MOTION TO DISMISS CERTAIN CAUSES
OF ACTION IN SECOND AMENDED COMPLAINT
This matter is before the court on the motion to dismiss filed
by the above-captioned defendants. The matter has been fully briefed
1	H/oakland orders/11-4176. Ng Memo Decis.
The following constitutes the
Memorandum Decision of the Court.
Signed December 7, 2011
______________________________________________
Roger L. Efremsky
U.S. Bankruptcy Judge
Entered on Docket
December 08, 2011
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
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and is appropriate for decision without oral argument.
Flora 	Ng’s 	(“Ng”) 	second 	amended 	complaint 	alleges 	that
defendants’ 	February 	2008 	foreclosure 	sales 	on 	four 	pieces 	of
commercial 	real 	property 	were 	void 	and 	that 	defendants 	failed 	to
rescind the sales until August 2008. From this predicate, Ng’s second
amended 	complaint 	states 	twelve 	causes 	of 	action 	under 	various
theories and defendants now seek dismissal of certain of these causes
of action.
For the reasons explained below, the court does not dismiss any
of 	the 	causes 	of 	action 	and 	instead 	remands 	this 	entire 	adversary
proceeding to the Superior Court in Santa Cruz County where it began
in March 2008.
I. Background
A. Flora Ng’s First Case: Ch. 11 Case No. 05-59533 1
1. On December 1, 2005, Ng filed chapter 11 case no. 05-59533 in
the San Jose division of this court (the “2005 Case”). Ng stated this
case was filed on an emergency basis to stop foreclosure sales on two
pieces of real property in San Francisco, California. See docket no.
12, Motion to Approve Post-Petition Financing, p. 1.
2. 	On 	December 	15, 	2005, 	Ng 	filed 	a 	motion 	to 	approve 	post-
petition 	financing 	on 	a 	secured 	basis 	as 	to 	four 	pieces 	of 	real
property (referred to as “Hyde, Marina, Lombard, and Hecker Pass” or
the 	“Four 	Properties”). 2 	Ng 	claimed 	she 	could 	easily 	afford 	the
1 References to docket numbers in each section are to the docket
in the main case and adversary proceedings identified in that section
unless otherwise noted.
2 Ng identified several other pieces of real property in the 2005
case 	which 	have 	never 	been 	listed 	on 	the 	schedules 	in 	any 	of 	her
subsequent cases, to the extent schedules were filed in those cases.
2	H/oakland orders/11-4176. Ng Memo Decis.
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financial obligations of the proposed new loans and attached documents
claimed to support the values of, and the alleged rental income from,
the Four Properties. 	See docket no. 12, Motion to Approve Borrowing
and supporting exhibits.
3. 	Pursuant 	to 	the 	December 	20, 	2005 	Order 	Authorizing 	Post-
Petition 	Financing 	of 	Real 	Property, 	defendants 	Sterling 	Pacific
Lending, 	Inc. 	and 	its 	affiliate 	Generation 	Leasing, 	LLC, 	loaned
approximately 	$4.5 	million 	to 	Ng 	secured 	by 	deeds 	of 	trust 	on 	the
Hyde, Marina, Lombard, and Hecker Pass properties (Sterling Pacific
Lending, Inc. and its related entities, collectively, “Sterling”). See
docket 	no. 	25, 	Order 	Authorizing 	Post-Petition 	Financing 	of 	Real
Property.
4. On January 11, 2006, based on Ng’s representation that there
were no unsecured creditors, the court granted Ng’s request to dismiss
the 2005 Case. See docket no. 40, Order Dismissing Chapter 11 Case.
B. Events between January 2006 and February 2008
5. In 2007, Ng defaulted under the Sterling loan documents and
Sterling began the process of foreclosing on the Four Properties. See
docket no. 68, p. 3, Dec. Joshua Fischer in the Saldana Case described
below.
6. 	According 	to 	Ng, 	in 	September 	2007, 	Ng 	entered 	into 	an
arrangement with an individual named Armando Saldana pursuant to which
he was to provide Ng with “assistance in saving my properties.” See
docket no. 79, p. 2, Dec. Ng in the Saldana Case described below. In
connection 	with 	this 	arrangement, 	Ng 	then 	agreed 	to 	transfer 	a 	1%
interest 	in 	each 	of 	the 	Four 	Properties 	to 	Armando 	Saldana 	as
explained below.
3	H/oakland orders/11-4176. Ng Memo Decis.
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C. Armando Saldana’s Case: Ch. 13 Case No. 08-50672
7. On February 15, 2008, Armando Saldana filed chapter 13 case
no. 	08-50672 	in 	the 	San 	Jose 	division 	of 	this 	court 	(the 	“Saldana
Case”). On his schedule A, Saldana listed a 1% ownership interest in
each of the Four Properties. See docket no. 17, p. 10-12, Schedule A.
8. Grant deeds transferring these 1% interests from Ng to Saldana
were 	executed 	by 	Ng 	on 	February 	15, 	2008. 	See 	docket 	no. 	67, 	Dec.
Debra 	Berg. 3 	They 	were 	apparently 	never 	recorded. 	Saldana 	contacted
Sterling 	on 	the 	morning 	of 	its 	scheduled 	foreclosure 	sales 	to 	tell
Sterling 	he 	had 	filed 	his 	bankruptcy 	case 	and 	Sterling 	should 	not
proceed with its foreclosure sales.
9. 	On 	February 	19, 	2008, 	Sterling 	conducted 	non-judicial
foreclosure 	sales 	on 	the 	Four 	Properties 	and 	Sterling 	affiliate
Yosemite Management Group acquired title by trustee’s deeds upon sale
recorded in the appropriate county recorders’ offices. See docket no.
68, p. 3-4, Dec. Joshua Fischer. 4
10. On March 4, 2008, Ng filed a complaint for damages, to set
aside 	trustee’s 	sales, 	for 	declaratory 	relief 	and 	other 	causes 	of
action 	against 	Sterling 	in 	the 	Santa 	Cruz 	County 	Superior 	Court,
designated as case no. cv-159630 	(the “Santa Cruz Action”).
3 The grant deeds are dated February 15, 2008. It is unclear why
the parties waited until February 15, 2008 to execute the grant deeds
when their deal was made in September 2007. Sterling suggests it was
solely 	to 	interfere 	with 	its 	foreclosure 	rights. 	Saldana 	admits 	he
knew of the February 19 sale dates. Ng admits she was contemplating
filing 	her 	own 	bankruptcy 	case 	at 	this 	point, 	and 	admits 	she 	was
relying on the fact that Saldana’s filing would create a stay which
would benefit her in her negotiations with Sterling. See AP 08-5088,
docket 	no. 	2-1, 	Ng’s 	Opposition 	to 	TRO 	in 	Santa 	Cruz 	Action 	and
Saldana Declaration filed with it.
4 Sterling 	contends 	it 	was 	negotiating 	with 	Ng 	on 	February 	19,
2008 and she did not disclose that she had transferred 1% interests
to Saldana or that he had filed bankruptcy on February 15, 2008.
4	H/oakland orders/11-4176. Ng Memo Decis.
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11. On April 2, 2008, Ng filed an Amended Notice of Removal of
State Court Action through which she removed the first four causes of
action in the Santa Cruz Action to the San Jose division of this court
pursuant 	to 	28 	U.S.C. 	§1452 	where 	it 	was 	designated 	as 	adversary
proceeding no. 08-5088 in the Saldana Case. See docket no. 2, Amended
Notice of Removal.
12. On May 28, 2008, Sterling filed a motion for relief from stay
pursuant to Bankruptcy Code §362(d)(1) and §362(d)(4). See docket nos.
53-57, 	60-75, 	86-88. 	Sterling 	requested 	an 	order 	validating 	the
February 	19 	foreclosure 	sales 	through 	retroactive 	annulment 	of 	the
automatic stay. 	Saldana filed opposition to the motion. Ng also filed
opposition 	but 	the 	court 	ruled 	she 	had 	no 	standing 	to 	oppose 	the
motion. See docket nos. 77-80 and 82-83. Following a hearing on June
25, 2008, the court granted relief from stay on a prospective basis
only. 	See 	docket 	no. 	107, 	July 	15, 	2008 	Order 	Granting 	Relief 	from
Stay.
13. In early August 2008, Sterling set aside the trustee’s deeds
recorded after the February 19, 2008 foreclosure sales and re-noticed
its foreclosure sales for August 27, 2008. See docket no. 57 in AP 11-
4176, the SAC, paragraph 53-54.
14. On September 25, 2008, the court dismissed the Saldana Case.
See docket no. 124.
D. Flora Ng’s Second Case: Ch. 11 Case No. 08-54744
15. Apparently to stop the foreclosure sales set for August 27,
on August 26, 2008, Ng filed chapter 11 case no. 08-54744 in the San
Jose division of this court.
16. On September 11, 2008, Sterling filed a notice of removal as
to the Santa Cruz Action to the San Jose division of this court where
5	H/oakland orders/11-4176. Ng Memo Decis.
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it was designated as adversary proceeding no. 08-5268 in what was then
Ng’s chapter 11 case. The operative pleading at that point was Ng’s
First Amended Complaint filed August 18, 2008 (“FAC”). See docket no.
1, ex. D, First Amended Complaint. 5
17. 	On 	September 	12, 	2008, 	Sterling 	filed 	a 	motion 	for 	relief
from stay under Bankruptcy Code §362(d)(1) and §362(d)(4) as to all
Four 	Properties. 	See 	docket 	nos. 	19-20. 	Ng 	filed 	opposition. 6 	See
docket nos. 26-30, 64-65. The preliminary hearing was continued from
October 1, 2008 to November 19, 2008 and again continued to December
3, 	2008 	and 	again 	continued 	to 	December 	10, 	2008. 	The 	motions 	were
ultimately 	set 	for 	trial 	to 	be 	held 	on 	January 	23, 	and 	January 	30,
2009. See docket nos. 70-73.
18. On October 29, 2008, the court converted Ng’s ch. 11 case to
one under ch. 7 for, among other reasons, her failure to comply with
the terms of the court’s order to show cause issued on September 17,
2008. See docket nos. 22 and 42.
19. 	On 	January 	14, 	2009, 	the 	chapter 	7 	trustee 	of 	Ng’s 	estate
filed a notice of settlement with Ng and Sterling regarding the relief
from stay motions as to the Four Properties. See docket nos. 84, 87-90
and docket nos. 98-101, 107-108. The stipulations allowed the stay to
5 The 	causes 	of 	action 	in 	the 	FAC 	were: 	1. 	Damages 	caused 	by
unlawful foreclosure; 2. Declaratory relief re unlawful foreclosure;
3. Usury; 4. Money had and received; 5. Injunctive relief; 6. Unfair
competition; 7. Forcible entry; 8. Conversion; 9. Common counts; 10.
Conversion; 11. Forcible entry; 12. Conversion; 13. Common counts; 14.
Intentional 	interference 	with 	economic 	relations; 	15. 	Negligent
interference with economic relations. See docket no. 1-9, exhibit D -
FAC.
6 Ng’s opposition to this motion says, with a one-day exception
as to the Hecker Pass property, she remained in possession of the Four
Properties after the February 19, 2008 foreclosure sales. See docket
no. 26, p. 4.
6	H/oakland orders/11-4176. Ng Memo Decis.
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remain in effect for a certain period of time after which Sterling was
permitted to foreclose on all Four Properties. 7
20. On March 17, 2010, the court granted Ng’s motion to dismiss
the chapter 7 case. See docket no. 152. (Dismissal was conditioned on
payment of all unsecured creditors and administrative expenses.)
E. Disposition of Adversary Proceeding Nos. 08-5088 and 08-5268
21. 	On 	February 	26, 	2009, 	the 	court 	dismissed 	adversary
proceeding 	no. 	08-5088 	(pending 	in 	the 	Saldana 	Case) 	based 	on 	Ng’s
failure 	to 	appear 	at 	a 	status 	conference. 	At 	the 	request 	of 	the
chapter 	7 	trustee 	in 	case 	no. 	08-54744, 	in 	June 	2009, 	the 	court
vacated the dismissal and reopened the adversary proceeding.
22. At Ng’s request, by order entered on May 3, 2010, the court
remanded 	adversary 	proceeding 	no. 	08-5088 	to 	the 	Santa 	Cruz 	County
Superior Court. See docket no. 31.
23. 	On 	February 	26, 	2009, 	the 	court 	also 	dismissed 	adversary
proceeding 	no. 	08-5268 	(pending 	in 	the 	Ng 	case) 	for 	lack 	of
prosecution. 	See 	docket 	no. 	19. 	At 	the 	request 	of 	the 	chapter 	7
trustee, in June 2009, the court vacated the dismissal and reopened
the adversary proceeding. See docket nos. 25, 28.
24. At Ng’s request, by order entered on May 3, 2010, the court
remanded 	adversary 	proceeding 	no. 	08-5268 	to 	the 	Santa 	Cruz 	County
Superior Court. See docket no. 34.
25. 	On 	June 	26, 	2009, 	the 	chapter 	7 	trustee 	filed 	a 	notice 	of
intent to abandon the estate’s interest in adversary proceeding nos.
08-5088 and 08-5268 and any claims regarding the foreclosures on the
Marina, Lombard and Hyde Properties but no order was ever entered on
7 Sterling 	foreclosed 	on 	three 	of 	the 	Four 	Properties 	by 	April
2009 and on the fourth by February 2010.
7	H/oakland orders/11-4176. Ng Memo Decis.
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this. See docket no. 126, Trustee’s Notice of Intent to Abandon Real
Property and Certain Related Litigation Claims in no. 08-54744.
F. Flora Ng’s Third Case: Ch. 7 Case No. 10-61392
26. On November 1, 2010, Ng filed chapter 7 case no. 10-61392 in
the San Jose division of this court.
27. On November 4, 2010, Sterling once again filed a notice of
removal 	of 	the 	Santa 	Cruz 	Action 	to 	the 	San 	Jose 	division 	of 	this
court where it was designated as adversary proceeding no. 10-5378. See
docket no. 1, ex. D, the FAC. 	In support of its notice of removal,
Sterling asserted that issues raised in the Santa Cruz Action arose
out 	of 	the 	bankruptcy 	court’s 	orders 	on 	the 	stipulations 	granting
relief from stay in Ng’s second case. See docket no. 1, p. 5.
28. On February 2, 2011, the court dismissed this chapter 7 case
because 	Ng 	failed 	to 	comply 	with 	the 	court’s 	scheduling 	order 	for
filing missing documents. See docket no. 21. 8
29. 	On 	February 	16, 	2011, 	Sterling 	filed 	a 	motion 	to 	dismiss
certain claims in the FAC. See docket nos. 10-14.
30. Following a case management conference held on March 4, 2011,
effective 	June 	3, 	2011, 	the 	San 	Jose 	division 	of 	this 	court
transferred adversary proceeding no. 10-5378 to the Oakland division
and 	it 	was 	re-designated 	as 	adversary 	proceeding 	no. 	11-4176. 	See
docket no. 26.
31. On June 28, 2011, Sterling re-filed its motion to dismiss
certain causes of action in the FAC. See docket nos. 37-42. Ng
filed opposition. See docket nos. 43-46.
8 On March 11, 2011, Ng filed a fourth case - chapter 7 case no.
11-52289 	in 	the 	San 	Jose 	division 	of 	this 	court. 	This 	case 	was
dismissed 	on 	June 	6, 	2011 	for 	Ng’s 	failure 	to 	submit 	a 	copy 	of 	her
federal tax return. See docket no. 26 in that case.
8	H/oakland orders/11-4176. Ng Memo Decis.
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32. Following a hearing on July 28, 2011, the court dismissed
the fifth cause of action (injunctive relief) without leave to
amend and dismissed the first, second, sixth, fourteenth and
fifteenth causes of action with leave to amend. 	See docket no. 53.
33. On September 6, 2011, Ng filed a second amended complaint
(the “SAC”). See docket no. 57. 9 	The SAC alleges, in essence,
that due to Sterling’s failure to rescind the unlawful foreclosure
sales for approximately six months, Ng lost the opportunity to
refinance her defaulted loans, lost income from the Lombard and
Hecker Pass Properties and lost the existing equity in the Four
Properties. She asks for compensatory damages of $7 million,
emotional distress damages of $1 million and exemplary damages.
II. Sterling’ Motion to Dismiss the Second Amended Complaint
34. On September 26, 2011, Sterling filed a motion to dismiss
as to the first, second, third, eleventh and twelfth causes of
action of the SAC based on Fed. R. Civ. P. 12(b)(6) and 12(b)(7)
applicable here by Fed. R. Bankr. P. 7012(b)(6) and 7012(b)(7).
See docket no. 62-71.
35. Sterling argues that the first cause of action (damages
for unlawful foreclosure) again fails to state a claim for relief
because, as a matter of Ninth Circuit law, Ng does not have
standing to recover damages for Sterling’s foreclosure sales
9 The relevant causes of action stated in the SAC are: 1. Damages
caused by unlawful foreclosure; 2. Usury; 3. Unfair competition; 11.
Intentional 	interference 	with 	economic 	relations; 	12. 	Negligent
interference with economic relations. The other causes of action deal
with forcible entry, conversion, and common counts. See docket no. 57.
9	H/oakland orders/11-4176. Ng Memo Decis.
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conducted in violation of the automatic stay in the Saldana Case. 10
Sterling also argues that the third, eleventh and twelfth causes of
action must be dismissed for the same reasons - each is premised on
a stay violation about which Ng lacks standing to complain. (The
third cause of action is not premised on a stay violation - it is
based on the allegation that Sterling charged usurious interest
because it was not properly licensed and engaged in predatory
lending in making the 2005 loans to Ng; it is based on California’s
unfair competition law. The second cause of action for usury is
also attacked by Sterling. This court does not rule on this issue
for the reasons discussed below.)
36. The eleventh and twelfth causes of action allege that “at
all times” Washington Mutual and Aurora Home Loans - lenders with
the first priority deeds of trust on the Marina and Hyde properties
- were willing to enter into forbearance agreements with Ng and
individuals named Simon Wong and Allen Wong were willing to loan Ng
money to cure the existing defaults on the Four Properties but by
“unlawfully foreclosing” and “failing to reconvey” for six months,
Sterling prevented these transactions.
37. In opposition, Ng reiterates her argument that she was a
creditor (or a potential creditor) in the Saldana Case. She also
argues that the allegations in the SAC are that the foreclosures in
2008 were “unfair” under California law. However, she also persists
in her argument that she is an “individual” and so may seek damages
under Bankruptcy Code §362(k).
10 Sterling 	also 	argues 	the 	first 	cause 	of 	action 	should 	be
dismissed under Fed. R. Civ. P. 12(b)(7) because indispensable parties
have not been joined. Any joinder issues may be resolved elsewhere.
10	H/oakland orders/11-4176. Ng Memo Decis.
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III. Discussion
A. Standard for Motion to Dismiss
Fed. R. Civ. P. 12(b)(6), applicable here by Fed. R. Bankr. P.
7012(b)(6), provides that a defendant may move to dismiss for
failure to state a claim upon which relief may be granted. A motion
to dismiss under Rule 12(b)(6) tests the legal sufficiency of a
claim; in order to survive a motion to dismiss, a plaintiff must
allege enough facts to state a claim for relief that is “plausible
on its face.” Bell Atlantic v. Twombly, 550 U.S. 544, 570 (2007).
Sterling does not move to dismiss under Fed. R. Civ. P.
12(b)(1) (lack of subject matter jurisdiction). Instead, Sterling
contends that Ng lacks standing to bring the causes of action that
depend on violation of the Saldana stay as the underlying flaw in
the February 2008 foreclosure sales. If Ng lacks standing to bring
any of her causes of action, the court does not have subject matter
jurisdiction and dismissal is appropriate. Warren v. Fox Family
Worldwide, Inc., 328 F. 3d 1136 (9 th Cir. 2003).
Fed. R. Civ. P. 12(h)(3) provides that if the court determines
at any time that it lacks subject matter jurisdiction, the court
must dismiss the action. As a consequence, it is appropriate to
address the question of standing in deciding this motion to
dismiss. Ng needs to show that the facts alleged, if proved, would
confer standing upon her to seek damages for a violation of the
automatic stay. According to Sterling, this is an impossibility
under controlling Ninth Circuit law as to the first, third,
eleventh and twelfth causes of action.
B. Ng Lacks Standing for Damages for Automatic Stay Violation
The original complaint filed in March 2008, alleged that the
11	H/oakland orders/11-4176. Ng Memo Decis.
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stay violation was a “criminal contempt of court.” See AP no. 08-
5088, docket no. 1-1, ¶32, ¶37, ¶39, ¶40. The FAC filed in August
2008 was revised to reflect that Sterling had by then rescinded the
void deeds but used this same language, describing defendants
actions as a violation of the criminal law entitling Ng to punitive
damages and as a contempt of court. See AP no. 08-5268, docket no.
9, ¶41, ¶43. The SAC repeats this “contempt” language and describes
the February 2008 foreclosure sales as “void.” It now alleges that
the stay violation was a “criminal contempt of court, a violation
of federal bankruptcy law, unfair business practices ... and a
material irregularity and unfairness under California law
applicable to ... private foreclosure procedures.” See AP no. 11-
4176, docket no. 57, ¶43, ¶47, ¶48.
Despite the court’s prior rulings on this issue, Ng persists
in framing her allegations as a stay violation. Paragraphs 49-55 of
the SAC allege that removal of the Four Properties from the Saldana
estate damaged her, that her interest in the Four Properties was
protected by the automatic stay and she is proceeding under “both
or either federal and state law.”
Bankruptcy Code §362(k) provides in relevant part: “an
individual injured by any willful violation of a stay provided by
this section shall recover actual damages, including costs and
attorneys’ fees, and, in appropriate circumstances, may recover
punitive damages.”
As the court has previously ruled, Ng does not have standing
to seek damages for Sterling’s violation of the automatic stay in
the Saldana Case whether she was a creditor in that case or not.
Nor does she have standing as a co-owner of the Four Properties.
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The Ninth Circuit has limited standing to assert claims for
violation of the stay to individuals Congress designated as
beneficiaries of the stay. In re Brooks, 871 F.2d 89, 90 (9 th Cir.
1989). Third party co-owners of property at issue in a bankruptcy
case lack standing to assert a violation of the automatic stay
under Bankruptcy Code §362. In re Globe Investment and Loan Co.,
867 F.2d 556, 559-60 (9 th Cir. 1989) (holding that co-owners of
property did not have standing to pursue violation of automatic
stay pursuant to Bankruptcy Code §362). See also, In re Brooks, 79
B.R. 479 (9 th Cir. B.A.P. 1987) (if debtor or trustee does not
invoke protections of Bankruptcy Code §362, no other party may
attack acts in violation of stay); Sanchez v. Torres, 2008 WL
1701900, at *6 (N.D. Cal. April 10, 2008) (owners other than the
debtor do not have standing to assert violation of automatic stay);
Burcena v. Bank One, 2007 WL 291562, at *5 (D. Hi. Oct. 1, 2007)
(same); Yanik v. Countrywide Home Loans, Inc., 2011 WL 223739, at
*3 (C.D. Cal. Jan. 21, 2011) (same).
Based on this consistent, binding authority, Ng does not have
standing to seek damages for a stay violation that occurred in the
context of the Saldana Case. Ng has no cause of action for damages
based on that stay violation whether the SAC makes reference to
Bankruptcy Code §362(k) or some vague zone of protection created by
the existence of an automatic stay in another bankruptcy case.
C. The Adversary Proceeding Does Not State Claims That
Arise under Title 11 or Arise in a Case under Title 11
A foreclosure sale conducted in violation of the automatic
stay is void. In re Schwartz, 954 F.2d 569 (9 th Cir. 1992). The
first, eleventh and twelfth causes of action appear to seek damages
stemming from the alleged failure to immediately rescind the sales
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when it was apparent they were void under Schwartz.
This is too weak a link to establish federal jurisdiction. The
defect in the foreclosure sales may be based on the Bankruptcy Code
- they were void under Schwartz - 	but the challenged causes of
action are based on California law. 	Ng may not assert these state
law causes of action in this court.
Bankruptcy jurisdiction is governed by 28 U.S.C. §1334. 11
Bankruptcy judges may hear and determine all cases under title 11
and all core proceedings arising under title 11, or arising in a
case under title 11, that are referred to it by the district court.
28 U.S.C. §157(b)(1); B.L.R. 5011-1.
Section 157(b)(2) provides a non-exhaustive list of core
proceedings. Each of the notices of removal claimed that this
litigation was core. For example, see docket no. 1 in 08-5268 in
which Sterling states the adversary proceeding is core pursuant to
§157(b)(2)(A),(C),(G),(K), and if it was held to be non-core
Sterling consented to proceeding in the bankruptcy court. Ng’s
removal notices were similar.
Core proceedings are those that would not exist outside of
bankruptcy. In re Pegasus Gold Corp., 394 F.3d 1189 (9 th Cir. 2005).
Core proceedings depend on the Bankruptcy Code for their existence
and could not proceed in another court. Dunmore v. United States,
358 F.3d 1107, 1114 (9 th Cir. 2004). Proceedings are non-core if
11 28 U.S.C. §1334 (a) provides “Except as provided in subsection
(b) of this section, the district courts [and the bankruptcy courts
as 	a 	unit 	thereof 	under 	§157] 	shall 	have 	original 	and 	exclusive
jurisdiction of all cases under title 11. (b) ... the district courts
shall 	have 	original 	but 	not 	exclusive 	jurisdiction 	of 	all 	civil
proceedings arising under title 11, or arising in or related to cases
under title 11.”
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they do not invoke a substantive right provided by the Bankruptcy
Code and do not involve theories that could only arise in a
bankruptcy case. Gruntz v. County of L.A., 202 F.3d 1074, 1081 (9 th
Cir. 2000).
Based on these articulations of whether a matter is core or
not, it is obvious that this adversary proceeding is not a core
proceeding. Beyond the allegation that the foreclosure sales in
February 2008 were void because they were done in violation of the
automatic stay in the Saldana Case, the challenged causes of action
are premised on California law and do not arise under title 11;
resolution of these causes of action does not depend on the
Bankruptcy Code and the litigation has obviously proceeded in
another court and will be able to do so on remand. Finally, none of
the theories alleged in the SAC could only arise in a bankruptcy
case. And the court reiterates that Ng does not have standing to
seek damages for violation of the automatic stay in the Saldana
Case, whether based on the theory that she is an individual seeking
damages under Bankruptcy Code §362(k) or based on the theory that
Ng is or was a creditor of Saldana or a co-owner of property with
Saldana.
At one point, it may have appeared - based on Sterling’s
suggestion - that certain causes of action in this adversary
proceeding may have required this court to interpret the relief
from stay order entered in the Saldana Case in July 2008 or the
relief from stay orders entered in Ng’s second case in January
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2009. 12 The court would have had jurisdiction to do that. In re
Taylor, 884 F.2d 478, 481 (9 th Cir. 1989) (court retained
jurisdiction to interpret its orders entered prior to dismissal but
not to grant new relief); In re Davis, 177 B.R. 907, 912 (9 th Cir.
B.A.P. 1995) (court retains jurisdiction for action for damages for
stay violation after dismissal); In re Aheong, 276 B.R. 233, 245
(9 th Cir. B.A.P. 2002) (court had post-dismissal and post-closing
jurisdiction to annul the stay). If that had been the case, this
court may have had jurisdiction at least as to the causes of action
premised on a stay violation as contempt of court.
This suggestion does not survive close scrutiny 13 and the
current formulation of the causes of action in the SAC make it
clear that no such basis for jurisdiction exists. Determination of
the issues raised in the SAC will not involve interpretation of
bankruptcy court orders or interpretation of the parameters of
Bankruptcy Code §362. 14 Thus, nothing in the adversary proceeding
comes within the scope of this court’s arising in or arising under
12 See the final paragraph of each Order on Stipulation for Relief
from Automatic Stay as to the Four Properties entered in no. 08-54744
as 	docket 	nos. 	98-101: 	“In 	the 	event 	that 	there 	are 	any 	disputes
remaining or any disputes concerning the terms of the stipulation or
this order, the parties agree to submit each such issue or issues to
this court for resolution.” A different paragraph of each stipulation
also 	preserves 	the 	right 	to 	proceed 	elsewhere 	with 	the 	action
designated as adversary proceeding no. 08-5268.
13 It 	may 	in 	fact 	have 	been 	disingenuous 	for 	Sterling 	to 	assert
that the court would be called upon to interpret the relief from stay
orders entered in Ng’s second case since the adversary proceeding was
premised 	on 	a 	stay 	violation 	in 	the 	Saldana 	Case 	and 	the 	orders 	in
Ng’s second case were irrelevant to those claims.
14 The 	court 	may 	also 	exercise 	its 	discretion 	to retain
jurisdiction over an adversary proceeding after dismissal of a main
case in the interest of economy, convenience, fairness, or comity. See
In re Carraher, 971 F.2d 327, 328 (9 th Cir. 1992). 	No such interests
are apparent here.
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jurisdiction.
D. This Court Does Not Have Related to Jurisdiction
Under 28 U.S.C. §157(c)(1), a bankruptcy court may hear a
proceeding that is not core but that is otherwise related to a case
under title 11. In such a proceeding, the bankruptcy judge submits
proposed findings of fact and conclusions of law to the district
court. 	If all parties consent, the district court may refer a
proceeding related to a case under title 11 to a bankruptcy judge
to hear and determine, subject to the right to appeal under 28 USC
158. 28 U.S.C. §157(c)(2). Here, the court does not have related to
jurisdiction.
In In re Feitz, 852 F.2d 455 (9 th Cir. 1988), the Ninth Circuit
adopted the test stated in Pacor v. Higgins, 743 F.2d 984, 994 (3 rd
Cir. 1984) for determining whether there is related to
jurisdiction. There is related to jurisdiction if the outcome of
the proceeding could conceivably have an effect on the estate being
administered in bankruptcy. The Ninth Circuit has narrowed this
test when the action involves a post-confirmation chapter 11
debtor. In re Ray, 624 F.3d 1124, 1133-34 (9 th Cir. 2010); In re
Pegasus Gold Corp., 394 F.3d 1189, 1193-94 (9 th Cir. 2005). In that
context, there must be a “close nexus” between the action and the
bankruptcy case.
While this case is not comparable to a post-confirmation
chapter 11 case, it is clear that there is no close nexus between
this adversary proceeding and any bankruptcy case. 	Ng’s cases are
all closed and the outcome of this dispute will not have any effect
on any estate. 	The outcome of the dispute between Ng and Sterling
will not alter any debtor’s rights, liabilities, options, or
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freedom of action or in any way impact upon the handling and
administration of any bankruptcy estate. Accordingly, the court
does not have related to jurisdiction.
IV. Conclusion
Based on the foregoing, the court now remands this entire
adversary proceeding to the Santa Cruz County Superior Court where
it shall remain. The court will issue a separate order remanding
this adversary proceeding and directing the clerks office to close
it.
** End of Memorandum Decision **
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Court Service List (via ECF only)
Neil Ison
POB 700622
San Jose, CA 95170
Email: isonlaw@yahoo.com
Don J. Pool
Law Offices of Powell and Pool
7522 N Colonial Ave. #100
Fresno, CA 93711
Email: donp@wtcap.com
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