Ray Donald Johnson

OCR transcription for search; preserved printed pages are authoritative

UNITED STATES BANKRUPTCY COURT

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U.S. GOVERNM
INFORMATION

Entered on Docket
April 01, 2008

GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA

FILED

4, 2008
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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re Case No. 04-52265
RAY DONALD JOHNSON, Chapter 13

]
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Debtor. ]
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MEMORANDUM DECISION REGARDING ENFORCEABILITY OF
PARAGRAPH (g) OF THIS COURT’S FEBRUARY 23, 2006 ORDER

On July 11, 2006, Harvey Crumb filed a motion requesting that
this Court determine that paragraph (g) of this Court’s order
Signed on February 23, 2006 (“Order”) is void and unenforceable as
a violation of Mr. Crumb’s constitutional right of due process.
The hearing on the motion was continued on several occasions.

Mr. Crumb is represented by Gary L. Olimpia, Esq. Larry
Anderson is represented by James E. Ganzer, Esq. Los Banos
Commercial Properties, LLC is represented by Michael J. Dyer, Esq.
Secured creditors Solgaard/Lanfranki are represented by Sally A.
Williams, Esq. Debtor Ray Donald Johnson is appearing in propria
persona.

On August 27, 2007, an evidentiary hearing was set on Mr.

Crumb’s motion to set aside the February 28, 2006 trustee’s sale of

MORANDUM DECISION.

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real property located at 1725 East Pacheco Boulevard in Los Banos,
California (“Property”). Mr. Crumb asserted several legal theories
under which the trustee’s sale should be set aside. At the

August 27 hearing, this Court presented a case to the parties,

In re Johnson, 346 B.R. 190 (9th Cir. BAP 2006) (“Nathan Johnson”),

that none of the parties had cited and that the Court believed was
relevant to the issues before the Court. The Nathan Johnson case
was filed on July 7, 2006, after the trustee’s sale of the Property
took place.

At the request of the parties, the Court granted Larry Anderson
and Los Banos Commercial Properties, LLC (collectively “Anderson
Parties”) until September 11, 2007, to file additional papers

related to the Nathan Johnson case. Mr. Crumb was granted until

September 18, 2007 to file any opposition to the papers filed on
September 11, 2007 by the Anderson Parties. The Anderson Parties
were granted until September 25, 2007 to file any reply to the
opposition papers filed by Mr. Crumb. The parties initially agreed
that this matter would be submitted when all briefs were filed.

On September 28, 2007, Mr. Crumb filed a sur-reply to the reply
papers filed by the Anderson Parties. The Anderson Parties
requested an opportunity to respond to the sur-reply filed by Mr.
Crumb. By order filed October 10, 2007, this Court granted the
Anderson Parties’ request to file additional papers. On
October 16, 2007, the Anderson Parties filed a reply to the sur-
reply filed by Mr. Crumb. After the briefs were submitted, the
Anderson Parties requested that this Court hold oral argument on
the issues covered in the supplemental briefs. Oral argument was

heard on February 4, 2008 and this matter was taken under

MEMORANDUM DECISION

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submission after giving the parties -- at the parties’ request --
a short period of time to settle this matter.

The Court has carefully reviewed the trial and supplemental
briefs filed and researched the legal questions presented by the
parties in those briefs. This Memorandum Decision constitutes the
Court's findings of fact and conclusions of law, pursuant to Rule
7052 of the Federal Rules of Bankruptcy Procedure. As set forth in
more detail below, the Court determines that paragraph (g) of the

Order, as it applies to Mr. Crumb, exceeded this Court’s authority

under the Nathan Johnson case and paragraph (g) is void and
unenforceable to waive the automatic stay in a future bankruptcy

case filed by Mr. Crumb.

I.
BACKGROUND
Debtor Ray Donald Johnson (“Debtor”) filed a chapter 13
bankruptcy petition on April 9, 2004. At the time Debtor filed his
bankruptcy petition, Debtor asserted an interest in the Property.
On April 20, 2004, secured creditor Mr. Anderson filed a motion to
dismiss Debtor’s bankruptcy case ("Motion to Dismiss”). According
to the minutes from a hearing on the Motion to Dismiss held on
May 3, 2004, Debtor was ordered to make certain payments, or
Debtor’s bankruptcy case would be dismissed with a 180-day bar upon
declaration, and Debtor could not transfer the Property without
Court approval. According to the minutes from a continued hearing
on the Motion to Dismiss held on June 1, 2004, Debtor was ordered
to make certain additional payments to prevent dismissal of

Debtor’s bankruptcy case. The Court also ordered that Debtor could

MEMORANDUM DECISION
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not transfer the Property and there would be no automatic stay if
Debtor filed another bankruptcy case.

Debtor’s bankruptcy case was dismissed on July 8, 2004. The
order dismissing Debtor’s bankruptcy case provided that there would
be no automatic stay for 180 days as to secured creditors Mr.
Anderson and Solgaard/Lanfranki if Debtor filed another bankruptcy
case. On July 13, 2004, pursuant to Debtor’s motion to vacate the
dismissal, the dismissal of Debtor’s bankruptcy case was vacated.
According to the minutes for a continued hearing on the Motion to
Dismiss held on July 23, 2004, Debtor's bankruptcy case would be
dismissed if Debtor did not make certain payments to secured
creditors Solgaard/Lanfranki and Mr. Anderson. In addition, the
secured creditors would have relief from the automatic stay for 180
days from the date of dismissal if Debtor filed another bankruptcy
case during those 180 days and Debtor could not transfer or
hypothecate the Property absent further order of the Court.
Thereafter there were additional hearings in Debtor’s bankruptcy
case whereby Debtor was ordered to make certain payments to the
secured creditors Solgaard/Lanfranki and Mr. Anderson.

At the time Debtor’s bankruptcy petition was filed, Debtor held
an interest in the Property, although it is unclear to the Court
whether Debtor then held a full or partial interest in the
Property. At some point during Debtor’s bankruptcy case, Debtor
transferred his interest in the Property to Mr. Crumb and Mr. Crumb
held full title to the Property. Mr. Crumb made the various
monthly payments required under the various court orders. As of
the hearing on January 13, 2006, Mr. Crumb held 100% of the

interest in the Property. As of mid-January 2006, Debtor held a 1%

MEMORANDUM DECISION

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interest in the Property and Mr. Crumb held a 99% interest in the
Property. Mr. Crumb transferred a 1% interest in the Property to
Debtor after the January 13, 2006 hearing with the consent and
knowledge of the Anderson Parties and authorization of the Court.

Also at the January 13, 2006 hearing, this Court, at Mr.
Crumb’s request, granted one last extension of the dismissal order
and told the parties that Debtor’s bankruptcy case would be
dismissed effective February 28, 2006. The Order memorializing the
Court’s ruling was signed by the Court on February 23, 2006 and
entered on this Court’s docket on February 28, 2006. Pursuant to
paragraph (b) of the Order, Debtor’s bankruptcy case was dismissed
effective February 28, 2006 without further court order.
Paragraph (g) of the Order provided that:

Until Secured Creditors have received such good

reinstatement/payoff funds, in the event the debtor or

Harvey Crumb files a bankruptcy in the future, Secured

Creditors shall have full relief from the automatic stay as

to the real property located at 1725 West Pacheco

Boulevard, Los Banos, California (the “Property”) for 180

days from the date of this order.?

On February 27, 2006, Mr. Crumb filed a bankruptcy petition
that was subsequently dismissed. At 3:00 p-m. on February 28,
2006, prior to dismissal of Mr. Crumb’s bankruptcy case and without

a motion for relief from the automatic stay in Mr. Crumb’s

bankruptcy case, a trustee’s sale was conducted and Mr. Anderson

‘This language is nearly identical to the language at issue in the
Nathan Johnson case. That order stated:

This order is binding and effective in any bankruptcy
case commenced by or against any successors, transferees, or
assignees, of the above-named Debtor(s) for a period of 180
days from the hearing of the Motion... upon recording of
a copy of this Order or giving appropriate notice of its entry
in compliance with applicable non-bankruptcy law.

Nathan Johnson, 346 B.R. at 192.

MEMORANDUM DECISION

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obtained title to the Property for $1,238,000. Mr. Crumb’s
bankruptcy case was dismissed on April 5, 2006. The April 5, 2006
dismissal order was vacated on June 2, 2006. Mr. Crumb’s

bankruptcy case was finally dismissed on July 28, 2006.?

Il.
LEGAL ANALYSIS
The parties contest whether various aspects of the issues

before the Court are core matters. Core matters are defined by

28 U.S.C. §157(b) (1) as: %... proceedings arising under title 11,
Or arising in a case under title 11[.]” A non-exclusive list of
core matters is set forth at 28 U.S.c. §157(b) (2) (A)-(0). The

first category of 28 U.S.C. §157(b) (1) applies to this Court’s
reconsideration of the Order since that Order arose under the
Bankruptcy Code and this Court’s reconsideration of paragraph (g)
of that Order is also a core proceeding.

The Anderson Parties assert that Mr. Crumb’s motion is not

properly before this Court because the Nathan Johnson case

established that a contested motion is not the proper proceeding to
decide this issue: “Under the Federal Rules of Bankruptcy
Procedure, the determination of interests in property requires an

adversary proceeding.” Nathan Johnson, 346 B.R. at 195. The

Anderson Parties further argue that this principle was reaffirmed

in In re Cogliano, 355 B.R. 792 (9th Cir. BAP 2006), where the

Bankruptcy Appellate Panel stated that: “[T]he determination of
interests in property requires an adversary proceeding.” Cogliano,

* The Anderson Parties assert that Mr. Crumb’s bankruptcy case was
dismissed for fraud. However, no judicial findings of fraud were made in
Mr. Crumb’s bankruptcy case.

MEMORANDUM DECISION

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355 B.R. at 804 (quoting from Nathan Johnson).

Here, this Court is not determining property interests, which
this Court agrees would require an adversary proceeding. Rather,
this Court is reconsidering under Federal Rule of Bankruptcy
Procedure 9024, incorporating Federal Rule of Civil Procedure 60(b)
(“Rule 60(b)"), this Court’s inherent authority to enter
paragraph (g) of the Order. Such a proceeding is properly
considered in a motion.

The Anderson Parties also assert that this Court lacks
jurisdiction in Debtor’s dismissed bankruptcy case to hear anything

at this time. The Anderson Parties assert that under In re Taylor,

884 F.2d 478 (9th Cir. 1989), and In re Garnett, 303 B.R. 274

(E.D.N.Y. 2003), this Court retains jurisdiction to interpret
orders entered prior to dismissal of a bankruptcy case, but does
not retain jurisdiction to grant new relief independent of the
prior rulings once a bankruptcy case has been dismissed. This
Court agrees with the legal authority cited by the Anderson
Parties. However, this Court disagrees that this Court is doing
anything more than reconsidering the Order under Rule 60(b), to
determine whether there is any intervening change in controlling
law that warrants a determination that this Court lacked inherent
or other authority to grant the “in rem” provisions of

paragraph (g) of the Order as to Mr. Crumb.

As set forth in greater detail below, the Nathan Johnson case

represents a change in, or a clarification of, existing law that
this Court understood differently at the time this Court entered

paragraph (g) of the Order. The Nathan Johnson case held that this

Court lacks inherent or statutory authority to enter “in rem”

MEMORANDUM DECISION

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orders waiving the automatic stay in future bankruptcy cases.
Nathan Johnson, 346 B.R. at 191. Under Taylor, reconsideration by
this Court of its inherent authority to enter paragraph (g) of the
Order is a proper exercise of this Court’s jurisdiction -- even

after Debtor’s bankruptcy case has been dismissed. Accord In re

Franklin, 802 F.2d 324, 327 (9th Cir. 1986).

Next, the Anderson Parties question whether Mr. Crumb has
standing to bring this motion in a dismissed bankruptcy case that
is not Mr. Crumb’s bankruptcy case. Here the paragraph (g) of the
Order specifically applies to Mr. Crumb, so Mr. Crumb has standing
to bring his motion.

The Anderson Parties also raise the issue of whether the
doctrine of res judicata precludes the relief sought by Mr. Crumb.
The Anderson Parties assert that Mr. Crumb raised these same issues
in his bankruptcy case and in an unlawful detainer action in state
court, and this Court should not allow relitigation now.

Under California law, res judicata bars relitigation of issues
argued and decided in prior litigation if: (1) the issue is
identical to that decided in the prior proceeding; (2) the issue
was actually litigated in the prior proceeding; (3) the issue was
necessarily decided in the prior proceeding; (4) the decision in
the prior proceeding must be final; and (5) the party against whom
preclusion is sought must be the same or in privy with the party to

the prior proceeding. Pacific Lumber Co. v. State Water Resources

Control Board, 37 Cal. 4th 921, 943 (2006). There is no evidence

presented to this Court showing that either the bankruptcy court in
Mr. Crumb’s bankruptcy case or the state court in the unlawful

detainer action decided whether this Court had inherent or other

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authority to grant the “in rem” provisions of paragraph (g) of the
Order as to Mr. Crumb. First, Mr. Crumb’s case was dismissed
shortly after the Nathan Johnson decision was filed, so it is
highly unlikely that the bankruptcy court considered this Court’s
inherent authority to grant the “in rem” provisions of
paragraph (g) of the Order. Second, the state court would not have
had jurisdiction to determine whether a bankruptcy court lacked
inherent or statutory authority to grant paragraph (g) of the
Order. The Court finds that res judicata does not preclude the
relief sought by Mr. Crumb.

Turning to the substantive issue, Rule 60(b) governs the
reconsideration of final orders. A motion for reconsideration is
appropriate where there has been an intervening change in the

controlling law. School Dist. No. 17 Multnomah County v. ACands,

Inc., 5 F.3d 1255, 1263 (9th Cir. 1993). Even where controlling
law is decided after a motion is decided, a change in controlling
law requires this Court to reconsider a prior decision. American

Economy Ins. Co. v. Reboans, Inc., 900 F. Supp. 1246, 1251 (N.D.

Cal. 1994). This Court has the ability to raise Rule 60(b) asa
basis for determining Mr. Crumb’s motion where this Court’s review

of the Order was prompted by Mr. Crumb’s Motion. In re Cisneros,

994 F.2d 1462, 1466 n.4 (9th Cir. 1993). Even if Mr. Crumb had not
raised the issue before this Court, Rule 60(b) does not prohibit a

bankruptcy judge from reviewing a previous order sua sponte. In re

Lenox, 902 F.2d 737, 739-40 (9th Cir. 1990).
Here, this Court issued paragraph (g) of the Order in February
2006 under the belief that this Court had inherent authority to

enter such an order. On July 7, 2006, the Nathan Johnson case was

MEMORANDUM DECISION

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decided by the Bankruptcy Appellate Panel. In that case, the
Bankruptcy Appellate Panel held that this Court lacks inherent or
statutory authority to enter “in rem” orders waiving the automatic

stay in future bankruptcy cases. Nathan Johnson, 346 B.R. at 191.

Nathan Johnson represents a change in, or a clarification of,
existing law that this Court understood differently at the time
this Court entered paragraph (g) of the Order.

In Nathan Johnson, the debtor filed a chapter 13 bankruptcy

case on March 14, 2005, one hour after acquiring an interest in
certain real property. On March 21, 2005, without seeking relief
from stay, the secured creditor on that property conducted a
trustee’s sale and purchased the property. The debtor moved for
sanctions for violation of the automatic stay under Bankruptcy Code
section 362(h). The secured creditor responded that the secured
creditor was entitled to ignore the automatic stay in the debtor’s
bankruptcy case based on the terms of an order entered in the
earlier bankruptcy case of Maureen Grimes, who owned an undivided
half interest in the property. The Grimes bankruptcy case order
purportedly granted relief from stay for 180 days in any bankruptcy
involving the property.

The Bankruptcy Appellate Panel held that Bankruptcy Code
section 105 does not provide a bankruptcy court with authority to
enter “in rem” orders and such orders can only be granted in the
context of an adversary proceeding. Since there was no adversary

proceeding in the Grimes bankruptcy case, the Nathan Johnson court

held that the Grimes order did not have binding effect on non-
parties and was not conclusive as to interests in the property.

Nathan Johnson, 346 B.R. at 196.

MEMORANDUM DECISION

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The Anderson Parties assert in their supplemental brief that

the Nathan Johnson case does not apply to this case because in the

Nathan Johnson case the “in rem” order was issued against property

in the Grimes bankruptcy case and the debtor Nathan Johnson was not
present and had not submitted himself to the jurisdiction of the
Grimes court when the Grimes court issued the “in rem” ruling.?

The Anderson Parties assert that the Bankruptcy Appellate Panel
reasoned that because the debtor Nathan Johnson was not a party to
the relief from stay motion in the Grimes bankruptcy case, the
debtor Nathan Johnson was deprived of an opportunity to raise any
defenses, including issues such ag changed circumstances.

The Anderson Parties argue that the present case is much
different. The Anderson Parties assert that Mr. Crumb was present
at every hearing in his bankruptcy case and in Debtor’s case, and
contend that Mr. Crumb was the driving force behind both bankruptcy
cases. The Anderson Parties assert that Mr. Crumb bargained for
further extensions of the order dismissing Debtor’s bankruptcy case
and, as part of that bargain, Mr. Crumb submitted and stipulated to
the jurisdiction of this Court and agreed to be barred from further
bankruptcy filings. The Anderson Parties argue that unlike Nathan
Johnson, Mr. Crumb was a party to the motions in Debtor’s
bankruptcy case and had agreed not to file further bankruptcy cases
and had agreed to relief from stay. The Anderson Parties argue
that Mr. Crumb bargained away any rights to further stays for 180
days in order to obtain another extension.

In essence, the Anderson Parties argue that Nathan Johnson is

3 This is an inaccurate assertion, as it is unclear from the facts
in Nathan Johnson whether Nathan Johnson consented to the “in rem’ relief
in the Grimes bankruptcy case.

MEMORANDUM DECISION
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not applicable because Nathan Johnson dealt with due process rights

and not a court’s inherent authority. However, this Court finds
that the holding in Nathan Johnson deals with whether a bankruptcy
court has inherent or statutory authority to trump future automatic
stays with an “in rem” order, not due process. Nathan Johnson, 346
B.R. at 191. Concluding and specifically holding that a bankruptcy
court did not have such authority, the Bankruptcy Appellate Panel

concluded in Nathan Johnson that the foreclosure sale giving rise

to the dispute was void ab initio. Id. The language that

demonstrates that the Nathan Johnson court specifically addressed a

bankruptcy court’s inherent authority -- or lack thereof -- to
issue “in rem” orders, and not due process rights, is:

The threshold question is whether the Grimes
bankruptcy court had authority to outlaw the statutory
automatic stay ina future bankruptcy case. Since we
answer the initial question in the negative, we need not
parse the details of the actual transaction so as to be
able to answer the question whether the terms of the Grimes
“in rem” order actually covered Johnson.

Nathan Johnson, 346 B.R. at 195.

This Court finds that under Nathan Johnson, paragraph (g) of

the Order granting “in rem” relief from stay in Mr. Crumb’s future
bankruptcy cases exceeded this Court’s authority.* Because this

Court determines that this Court lacked inherent authority to issue

4 Mr. Crumb argues that this Court should follow In re Proudfoot,

144 B.R. 876 (9th Cir. BAP 1992). Proudfoot holds that in absence of
contrary authority from the district court in the district in which the
bankruptcy court sits, Bankruptcy Appellate Panel decisions are binding
precedent on all bankruptcy courts within the Ninth Circuit, regardless
of the district in which the Bankruptcy Appellate Panel decision
originated. Mr. Crumb asserts that there is no Northern District of
California ruling that conflicts with Nathan Johnson and this Court must
follow that case as binding precedent. Whether or not this Court is
required to follow a Bankruptcy Appellate Panel case as argued by Mr.
Crumb, this Court chooses to follow the Bankruptcy Appellate Panel
authority of Nathan Johnson.

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the “in rem” relief of paragraph (g) of the Order as to Mr. Crumb,
there is no need for this Court to address the various other legal
theories proffered by Mr. Crumb as to why the trustee’s sale should
be set aside.

Although bankruptcy courts, as courts of equity, have the power
to reconsider, modify or vacate their previous orders, they must
consider whether intervening rights have become vested in reliance

on the orders. In re International Fibercom, Inc., 503 F.3d 933,

940 (9th Cir. 2007). Prior Ninth Circuit authority held that the
test to determine whether rights had vested is “whether, upon
granting the motion to reconsider, the court will be able to
reestablish the rights of the opposing party as they stood when the

original judgment was rendered.” In re Pacific Far East Lines,

Inc., 889 F.2d 242, 247 (9th Cir. 1988) (quoting In re Texlon

Corp., 596 F.2d 1092, 1101 (2d Cir. 1979)). Here, under the

holding of the Nathan Johnson case, Mr. Anderson could not ignore

the automatic stay in Mr. Crumb’s bankruptcy case because this
Court lacked authority to issue paragraph (g) as to Mr. Crumb.

Nathan Johnson, 346 B.R. at 197.

This decision -- that the Court lacked inherent authority to
issue paragraph (g) as to Mr. Crumb -- does not by itself alter
existing property rights between the parties. Those issues
necessarily will have to be resolved in the reopened bankruptcy
case of Mr. Crumb, as the Anderson parties’ correctly contend.

This Court specifically is not making any determinations in this
bankruptcy case regarding: (1) whether the foreclosure sale is void
ab initio; (2) whether the stay should be retroactively annulled

for the benefit of the Anderson Parties; (3) the amount of

MEMORANDUM DECISION

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Sanctions, if any, for the stay violation; and (4) what amounts, if
any, Mr. Crumb would need to pay to reinstate the loan under the
notice of default. Moreover, this Court is not deciding any
motions or defenses -- including, without limitation, laches and

estoppel, because they are not properly before this Court.

IIr.
CONCLUSION
Because this Court lacked inherent authority to issue the “in
rem” relief of paragraph (g) of the Order as to Mr. Crumb,
paragraph (g) of the Order did not waive the automatic stay in Mr.
Crumb’s subsequent bankruptcy case. Counsel for Mr. Crumb shall
submit a form of order -- after review by the Anderson Parties and

secured creditors Solgaard/Lanfranki as to form.

ARTHUR S. WEISSBRODT
UNITED STATES BANKRUPTCY JUDGE

Dated: 3) 31 | Os

MEMORANDUM DECISION

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Ray Donald Johnson
1725 W Pacheco
Los Banos, CA 93635

Gary L. Olimpia, Esq.
1000 Old Quarry Road
San Jose, CA 95123

Michael J. Dyer, Esq.

Law Offices of Michael J. Dyer
5250 Claremont Ave., Suite 123
Stockton, CA 95207

James E. Ganzer, Esq.

Ganzer & Williams

1617 St. Mark's Plaza, Suite A
P.O. Box 7683

Stockton, CA 95267

Sally A. Williams, Esq.
Williams’ Law Offices

1414 Soquel Avenue, Suite 212
Santa Cruz, CA 95062

Devin Derham-Burk
P.O. Box 50013
San Jose, CA 95150-0013

Eva Alexandra Delateur, Esq.
Office of the Chapter 13 Trustee
P.O. Box 50013

San Jose, CA 95150

Office of the U.S. Trustee
U.S. Federal Bldg.

280 S ist St. #268

San Jose, CA 95113-3004

15

Court Service List

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