Cabana et al v. Rodriguez et al

OCR transcription for search; preserved printed pages are authoritative

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OCT 3} 2007
6
CLERH U.S. GANKRUPICY COURT
4 fei STRICT OF CRTORN
8 UNITED STATES BANKRUPTCY COURT
9 CENTRAL DISTRICT OF CALIFORNIA
10 SANTA ANA DIVISION
11 Inre Case No. 8:07-10765-RK
12 PEOPLE’S CHOICE HOME LOAN, a Chapter 11 ff!
Wyoming Corporation, YAS
13 Debtor(s). Adversary No. 8:07-G22ERFERK
14
15 PATRICK and DESIREE CABANA MEMORANDUM DECISION RE:
PLAINTIFFS’ MOTIONS FOR
16 Plaintiffs, EQUITABLE REMAND, ABSENTION
AND RELIEF FROM AUTOMATIC
17 vs. STAY
18 MARTHA RODRIGUEZ, an individual; Date: September 13, 2007
EDWARD OK, an individual; Time: 3:30 p.m.
19 AW2REALTY, INC., a California Ctrm: 5D
corporation; PAUL MCGEE, an individual;
20 DEKO LTD., a California corporation;
Guillermina Contreras, an individual;
2] Yvette Rodriguez, an individual;
PEOPLE’S CHOICE HOME LOAN, INC.,
22 a Wyoming corporation, et al.
23 Defendants.
24
25
26 This bankruptcy case and the related adversary proceeding (Adv. No. 8:07-01239
27 || RK) came on for hearing before the undersigned United States Bankruptcy Judge on
28 || August 29, 2007 on the motions of plaintiffs Patrick and Desiree Cabana for remand of

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the adversary proceeding, which was a civil action removed by People’s Choice Home
Loan, Inc. (referred to herein as “defendant”), from state court, for abstention and for
relief from the automatic stay. Wendy McGuire Coats, Esquire, of the law firm of Howrey
LLC, appeared for plaintiffs. Dan E. Chambers, Esquire, and Roger F. Friedman,
Esquire, of the law firm of Rutan & Tucker, LLP, appeared for defendant.

On March 20, 2007, defendant filed a voluntary petition for relief under Chapter 11
of the Bankruptcy Code, 11 U.S.C. On June 18, 2007, defendant instituted this
adversary proceeding by filing a notice of removal of civil action removing the pending
state court action of Patrick and Desiree Cabana v. Martha Rodriquez, et al., No. BC
351551 (Superior Court of California, County of Los Angeles). Defendant alleged that the
state court action may be properly removed pursuant to 28 U.S.C. §§ 1441, 1446 and
1452(a) and that this court has subject matter jurisdiction pursuant to 28 U.S.C. § 1334(b)
and (e).

On May 24, 2007, plaintiffs filed their motion for relief from the automatic stay to
allow the state court action to proceed pursuant to 11 U.S.C. § 362(d)(1). On July 17,
2007, plaintiffs filed their motion for remand of the state court civil action and for
abstention pursuant to 11 U.S.C. §§ 1334(c)(1} and (2) and 1452(b). This court
conducted hearings on these matters on June 19, 2007 and August 29, 2007. At the
hearing on August 29, 2007, the court requested the parties to file supplemental briefing
regarding the legislative history of 28 U.S.C. § 157(b)(2)(K), upon which defendant relies
to assert that this case is a core proceeding. After the parties filed their supplemental
briefing on September 5, 2007, the court took the motions under submission.

As a preliminary matter, the court recites the procedural history of this case before
removal to this court. On April 28, 2006, plaintiffs filed their complaint in the Superior
Court of California for the County of Los Angeles and asserted nine causes of action for
fraud, cancellation of deeds based on fraud in factum and on invalid delivery, violations of
California Civil Code, §§ 1695 and 2945 and California Business & Professions Code, §

17200, conversion, unjust enrichment and negligence. See Complaint, filed on April 28,

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2006, Ex. 1 to Defendant’s Notice of Removal of Civil Action under 28 U.S.C. § 1441,
1446, and 1452(a), filed on June 18, 2007. Plaintiffs’ causes of action were based on
either California statutory or common law. /bid. The defendants named in the complaint
included defendant People’s Choice Home Loan, Inc., one of its employees, a loan
officer, a realty company, its principal, and one of its agents, and a real estate broker.
Ibid.

On March 14, 2007, plaintiffs filed a first amended complaint which replicated the
causes of action in the original complaint and made additional factual allegations against
defendant. See First Amended Complaint, filed on March 14, 2007, Ex. 8 to Defendant's
Notice of Removal of Civil Action under 28 U.S.C. § 1441, 1446, and 1452(a), filed on
June 18, 2007. As stated by defendant, plaintiffs’ first amended complaint is the
operative pleading in the state court action, setting forth the claims and causes of action
being removed, and the gravamen of the first amended complaint is that “all the
defendants, including Removing Defendant, were participants in a scheme to defraud
Plaintiffs into transferring title of their house to a straw buyer, obtain a fraudulent grant
deed, fraudulent promissory notes, and fraudulent deeds of trust, and thereby steal
Plaintiffs’ equity in their house.” Defendant's Notice of Removal of Civil Action under 28
U.S.C. § 1441, 1446, and 1452(a), filed on June 18, 2007, at 2. As alleged in the first
amended complaint, plaintiffs were the longtime owners and residents of the subject real
property at 402 South Gardenglen, West Covina, California. First Amended Complaint at
1 and 3, If 2, 14 and 15. On August 22, 2007, plaintiffs filed a proof of claim in the
amount of $1,000,000 and attached a copy of their first amended complaint as
documentation of their claim. See Proof of Claim, filed on August 22, 2007.

The record before the court indicates that before defendant removed the state
court proceedings to this court, the Superior Court had set a trial date of April 30, 2007
and that the plaintiffs and other parties had engaged in discovery and other pretrial
proceedings until April 2, 2007 when the Superior Court stayed the state court

proceedings in light of the filing of debtor's bankruptcy case. See Declaration of Wendy

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McGuire Coats in Support of Creditors Patrick and Desiree Cabana’s Motion to Lift the
Automatic Stay and exhibits attached thereto, filed on May 24, 2007.

For the reasons discussed herein, the court partially grants plaintiffs’ motions for
remand, for abstention and for relief from stay on certain conditions.

The court first considers plaintiffs’ motion for remand under 28 U.S.C. § 1452(b).
As stated previously, defendant removed this case from state court to this court pursuant
to 28 U.S.C. § 1452(a). 28 U.S.C. § 1452(b) provides in pertinent part: “The court to
which such claim or cause of action is removed may remand such claim or cause of
action on any equitable ground.” “Bankruptcy courts have broad discretion to remand
cases over which they otherwise have jurisdiction on any equitable ground.” /n re Enron
Corp., 296 B.R. 505, 508 (C.D. Cal. 2003), citing, 28 U.S.C. § 1452(b). As the court in
Enron Corp. observed, “[C]ourts generally consider up to fourteen factors in deciding to
remand a case to state court”: (1) the effect or lack thereof on the efficient administration
of the estate if the Court recommends [remand or] abstention; (2) extent to which state
law issues predominate over bankruptcy issues; (3) difficult or unsettled nature of
applicable law; (4) presence of related proceeding commenced in state court or other
nonbankruptcy proceeding; (5) jurisdictional basis, if any, other than § 1334; (6) degree of
relatedness or remoteness of proceeding to main bankruptcy case; (7) the substance
rather than the 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 on the bankruptcy court's
docket; (10) the likelihood that the commencement of the proceeding in bankruptcy court
involves forum shopping by one of the parties; (11) the existence of a right to a jury trial;
(12) the presence in the proceeding of nondebtor parties; (13) comity; and (14) the
possibility of prejudice to other parties in the action. /n re Enron Corp., supra, 296 B.R. at
908-509 and n.2, citing, In re Republic Reader's Serv., inc., 81 B.R. 422, 429 (Bankr.
S.D. Tex. 1987); see also, Williams v. Sheil Oif Co., 169 B.R. 684, 692-693 (S.D. Cal.
1994); Western Helicopters, Inc. v. Hiller Aviation, inc., 97 B.R. 1, 6 (E.D. Cal. 1988):

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compare, in re Tucson Estates, Inc., 912 F.2d 1162, 1166-1167 (9th Cir. 1990) (similar

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factors to determine whether bankruptcy courts should exercise permissive abstention
under 28 U.S.C. § 1334(c)(1)). This court agrees with these authorities in considering
these factors in determining whether this case should be remanded to state court.

An analysis of these factors indicates to this court that the case should be
remanded to state court. State law issues predominate in this case since plaintiffs’
causes of action in the first amended complaint are based on state law. There is no

basis for federal subject matter jurisdiction over these claims other than 28 U.S.C. §

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1334. These claims as discussed herein are non-core. Plaintiffs have demanded a jury

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trial, which cannot be provided by this court with respect to their state law claims. Most of

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the parties are nondebtor parties, that is, plaintiffs and the other defendants. As

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discussed herein, it appears that it would be feasible to sever plaintiffs’ state law claims

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from core bankruptcy matters to allow judgments to be entered in state court with

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enforcement left to this bankruptcy court. Comity would indicate that California courts

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should have the right to adjudicate the exclusively state law claims involving California-

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centric plaintiffs and California-centric transactions. See /n re Enron Corp., supra, 296

B.R. at 508-509 and n.2.

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One of the relevant factors in deciding whether this case should be remanded is

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whether this case is a core or non-core proceeding. Defendant argues that this case is a

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core proceeding while plaintiffs argue that it is non-core. In Security Farms v. Intl.

Brotherhood of Teamsters, 124 F.3d 999, 1008 (9th Cir. 1997), the Ninth Circuit

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discussed the distinction between core and non-core proceedings and stated that

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Congress enacted 28 U.S.C. § 157 to remedy the constitutional infirmities of bankruptcy

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court jurisdiction identified in Northern Pipeline Construction Co. v. Marathon Pipe Line

Co., 458 U.S. 50, 102 S.Ct. 2858 (1982). 124 F.3d at 1008. In discussing the Supreme

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Court's decision in Marathon, the Ninth Circuit observed that “the Supreme Court held

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that the Bankruptcy Act of 1978 impermissibly shifted essential attributes of judicial power

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from the Article tll district court to its non-Article II! adjunct, the bankruptcy court,” and

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“Congress responded by enacting the Bankruptcy Amendments and Federal Judgeship
Act of 1984, which provided district courts with original but not exclusive jurisdiction over
all bankruptcy proceedings.” Security Farms v. Intl. Brotherhood of Teamsters, supra,
124 F.3d at 1008.

As the Ninth Circuit observed, “[T]o insulate the 1984 Amendments from a
constitutiona! assault like that in Marathon,” Congress enacted 28 U.S.C. § 157, which
“classifies matters either as ‘core proceedings,’ in which the bankruptcy court ‘may enter
appropriate orders and judgments,’ or ‘non-core proceedings,’ which the bankruptcy court
may hear but for which it may only submit proposed findings of fact and conclusions of
law to the district court for de novo review.” [bid; see also, 28 U.S.C. § 157(b)(1) and (c).
To address the constitutional problems identified in Marathon, Congress enacted 28
U.S.C. § 157(b)(2) to set forth a non-exclusive list of 15 matters which it designated as
core proceedings. With respect to the distinction between core and non-core
proceedings, the Ninth Circuit stated, “Actions that do not depend on bankruptcy laws for
their existence and that could proceed in another court are considered ‘non-core.”” /bid,
citing, In re Castlerock Properties, 781 F.2d 159, 162 (9th Cir. 1986). In formulating this
rule, the Ninth Circuit was concerned about constitutional problems under Marathon if
state common law claims which could not be heard in federal court absent jurisdiction
under 28 U.S.C. § 1334 were characterized as core proceedings. In re Tucson Estates,
Inc., supra, 912 F.2d at 1168, citing, In re Castlerock Properties, supra, 781 F.2d at 161-
162. The Ninth Circuit further cautioned that “a court should avoid characterizing a
proceeding as ‘core’ if to do so would raise constitutional problems. The apparent broad
reading that could be given to § 157(b)(2) [defining core proceedings] should be
tempered by the Marathon decision.” /bid.

Defendant contends that this case is a core proceeding under 28 U.S.C. §
157(b)(2)(K) as a matter to determine the “validity, extent, or priority of tiens.” Plaintiffs
argue that this case is non-core because it does not involve a determination of the

validity, extent or priority of a lien in property of the bankruptcy estate and cites to

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numerous cases which limit the applicability of § 157(b)(2)(K) to liens against property of
the estate. As plaintiffs discussed in their reply briefing, the case law relating to the issue
of property to which “determinations of validity, extent, or priority of liens” under 11 U.S.C.
§ 157{b)(2)(K) address whether jurisdiction exists with liens against property of the
bankruptcy estate or against property of the debtor. See Supplemental Briefing
Regarding Applicability of 28 U.S.C. § 157(b)(2)(K) in Support of Patrick & Desiree
Cabanas’ Motion for Remand and Motion to Lift Automatic Stay, filed on Sept. 5, 2007, at
2-7, citing inter alia, In re Pickett, 362 B.R. 794, 796-798 (Bankr. S.D. Tex. 2007)
(discussing split of authority). The stricter line of cases holds that for purposes of 28
U.S.C. § 157(b)(2)(K) the lien only relates to the property of the bankruptcy estate, see,
e.g., In re Jeter, 48 B.R. 404, 406 n.1 (Bankr. N.D. Tex. 1985), while the more lenient line
of cases permits that the lien may relate either to the property of the bankruptcy estate or
the property of the debtor, see, e.g., In re Toledo, 170 F.3d 1340, 1347 (11th Cir. 1999).

Defendant argues that under the plain language of 28 U.S.C. § 157(b)(2)(K) that
“determinations of the validity, extent, or priority of liens” could also relate to liens on
property of non-debtor parties if the estate is the holder of the lien. There does not
appear to be contextual support for this proposition within the Bankruptcy Code, 11
U.S.C., for defendant’s position because the validity, extent or priority of liens are
generally determined in the context of secured claims of creditors based on liens against
property of the bankruptcy estate or the debtor. See, e.g., 11 U.S.C. §§ 506, 544-552,
724 and 1111. Moreover, defendant's position does not appear to be supported in the
case law. See Supplemental Briefing Regarding Applicability of 28 U.S.C. § 157(b)(2)(K)
in Support of Patrick & Desiree Cabanas’ Motion for Remand and Motion to Lift
Automatic Stay, filed on Sept. 5, 2007, at 2-7, citing inter alia, In re Pickett, 362 B.R. 794,
796-798 (Bankr. S.D. Tex. 2007), in re Jeter, supra, and In re Toledo, supra, 170 F.3d at
1347-1348 (see cases cited therein); see also, King, Collier on Bankruptcy, [3.02{3][d] at
3-43 — 3-44 and n. 46 (15" ed. rev. 2007). As a matter of substance, plaintiffs are

seeking to invalidate defendant's lien in the subject real property as a remedy for their

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alleged fraud claims against defendant rather than challenging the procedural regularity
of a lien, which is the general thrust of proceedings to determine the validity, extent or
priority of a lien.

Defendant relies upon the case of in re Brewery Limited Partnership. 113 B.R. 992
(Bankr. D. Minn. 1990) to support its position. The court has considered the Brewery
opinion, and while the opinion appears to support defendant's position, the court
concludes that the opinion is not particularly helpful or persuasive in supporting
defendant’s position in this case. The court in Brewery held that it had jurisdiction under
28 U.S.C. § 157(b)(2)(K) to determine the validity, extent or priority of a lien interest held
by the debtor in property of a non-debtor party, but the opinion does not contain much
analysis and discussion of the issue of whether the proceedings should be considered
core versus non-core. 113 B.R. at 1003. More importantly, the situation in Brewery is
distinguishable from this case because that case involved an adversary proceeding filed
by the bankruptcy trustee in the debtor's bankruptcy case and not as here, a removed
state court proceeding involving state law causes of action. 113 B.R. at 994-997, 1003-
1004. This court heeds the admonitions of the Ninth Circuit in Tucson Estates and
Castlerock Properties that a bankruptcy court “should avoid characterizing a proceeding
as ‘core’ if to do so would raise constitutional problems.” /n re Tucson Estates, Inc.,
supra, 912 F.2d at 1168, citing, In re Castlerock Properties, supra, 781 F.2d at 161-162.
The removed state court action is non-core under the definitions of core and non-core
proceedings set forth by the Ninth Circuit in Security Farms because plaintiffs’ causes of
action against defendant are based on California common and statutory law and are not
dependent on the bankruptcy laws, and such claims could proceed in another court, i.e.,
the state trial court, the Superior Court of California. Security Farms v. Intl. Brotherhood
of Teamsters, supra, 124 F.3d at 1008.

Plaintiffs’ filing of a proof of claim in the debtor's bankruptcy case does not turn the
removed state law action into a core proceeding. See /n re Conejo Enterprises, Inc., 96

F.3d 346, 349-350, 352-353 and n. 5 (Sth Cir. 1996); see also, In re Castlerock

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Properties, supra, 781 F.2d at 162-163 (creditor's filing of proof of claim as a defensive
maneuver may not be consent to bankruptcy court jurisdiction). While an objection to the
claim of plaintiffs may be a core proceeding, the separate state court action Is not the
same matter and is otherwise non-core. /n re Conejo Enterprises, Inc., supra at 349-350
(‘the filing of a claim does not consolidate it with the pending state law case... . even
though they are based on the same transaction” and “[bJoth continue to exist, and must
be considered, separately.”). Thus, based on Conejo Enterprises, the court disagrees
with defendant's assertion that plaintiffs’ filing of a proof of claim in the bankruptcy case
will render the removed state court action subject to the court’s core subject matter
jurisdiction. See People’s Choice Home Loan, Inc.’s Opposition to Motion for Remand of
Civil Action and for Abstention; Memorandum of Points and Authorities, filed on August
15, 2007 at 12.

Defendant argues that plaintiffs’ reliance on /n re Enron Corp., supra, for remand
is misplaced because that case involved lawsuits brought by banks against non-debtor
parties and the debtor and its affiliated entities were not parties to the actions and
because this case involves property of the bankruptcy estate. See People’s Choice
Home Loan, Inc.’s Supplemental Opposition to (1) Motion for Remand of Civil Action and
for Abstention, and (2) Motion for Relief from Automatic Stay, filed on September 5, 2007,
at 5. The Ninth Circuit's discussion of abstention in Tucson Estates would suggest that
the Enron factors are applicable to state court litigation which concern property of the
bankruptcy and that a dispute concerning estate property is not determinative per se of
the issue of whether a proceeding is core or non-core. /n re Tucson Estates, Inc., supra,
912 F.2d at 1168-1169. Thus, the court disagrees with defendant's assertion that Enron
is inapposite.

Defendant opposes remand on grounds that plaintiffs are not entitled to a jury trial,
contending that their claims are equitable in nature. See People’s Choice Home Loan,
Inc.’s Supplemental Opposition to (1) Motion for Remand of Civil Action and for

Abstention, and (2) Motion for Relief from Automatic Stay, filed on September 5, 2007, at

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6-9. Plaintiffs’ primary claims are for damages for fraud, and plaintiffs are entitled to a
jury trial for such claims which are actions triable by jury at common law. CA. Const., Art.
|, § 16; Cal. Civ. Proc. Code, § 592; Fireman’s Fund Ins. Cos. v. Younesi, 48 Cal.App.4""
451, 4571, 55 Cal.Rptr.2d 671 (1996), cited in, 7 Witkin, California Procedure, § 94 at
113-114 and Supp. at 31-32 (4™ ed. 1997 and 2007 Supp.); see afso, U.S. Const., Art.
VIl; Fed. R. Civ. P. 38. To the extent that the action is of hybrid character raising both
legal and equitable issues, under California law, a party is entitled to a jury trial of the
severable legal issues. 7 Witkin, California Procedure, § 94 at 115 (4"" ed. 1997 and
2007 Supp.). Accordingly, the court concludes that plaintiffs are entitled to a jury trial on
some of their claims, and this is a factor supporting equitable remand.

With respect to subject matter jurisdiction over the removed state court action, the
court concludes that it has “related to” jurisdiction, but not “arising under” or “arising in”
jurisdiction under 28 U.S.C. §§ 1334(a) and (b) and 157(a). Under so-called “case under
Title 11” jurisdiction of 28 U.S.C. § 1334{a), federal district courts have original and
exclusive jurisdiction of all cases under Title 11, United States Code. 28 U.S.C. §
1334(a). Federal district courts also have original, but not exclusive, jurisdiction over all
civil proceedings arising under Title 11, or arising in or related to cases under Title 11. 28
U.S.C. § 1334(b). Federal district courts also have exclusive jurisdiction of all property of
the debtor and of the estate. 28 U.S.C. § 1334(e). Federal district courts are authorized
to refer these cases and civil proceedings to the bankruptcy judges for their districts,
which referral has been made in this district. 28 U.S.C. § 157.

A “case under Title 11” is understood to be “the bankruptcy case itself
... the case upon which all of the proceedings which follow the filing of a petition are
predicated.” Wayne Film Systems Corp. v. Film Recovery Systems Corp., 64 B.R. 45, 49
(N.D. Ill. 1986), quofed in, March, Ahart & Tchaikovsky, CAL. PRAC. GUIDE:
BANKRUPTCY, ¥ 1:81 (The Rutter Group 2007). The removed state court action is net
the bankruptcy case under Title 11, so the “case under Title 11” jurisdiction of 28 U.S.C.

§ 1334(a) is inapplicable.

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A civil proceeding that “arises under Title 11” involves rights created by the
Bankruptcy Code, 11 U.S.C., including core proceedings under 11 U.S.C. § 157(b)(2),
and a civil proceeding that “arises in Title 11” involve proceedings that arise only in
bankruptcy cases, but which are not based on a right expressly created by the
Bankruptcy Code. /n re Harris Pine Mills, 44 F.3d 1431, 1435 (9"" Cir. 1995); 28 U.S.C. §
1334(b); March, Ahart & Tchaikovsky, CAL. PRAC. GUIDE: BANKRUPTCY, If] 1:95-
1:106 (The Rutter Group 2007). As discussed herein, the state law causes of action are
non core or are not other proceedings which are based on rights created by the
Bankruptcy Code or which arise only in bankruptcy cases and are not based on any
express rights created by the Code; they are claims founded on state common and
statutory law, and so jurisdiction for civil proceedings “arising under’ or “arising in” Title
11 under 28 U.S.C. § 1334(b) is not applicable.

Civil proceedings that do not “arise under” or “arise in” a bankruptcy case are still
subject to bankruptcy court jurisdiction if they are “otherwise related to” a bankruptcy
case. 28 U.S.C. §§ 1334(b) and 157; March, Ahart & Tchaikovsky, CAL. PRAC. GUIDE:
BANKRUPTCY, ff 1:107-1:113 (The Rutter Group 2007). “Otherwise related to”
proceedings involve rights outside of bankruptcy and are considered non-core, and the
state law causes of action fail into this category because they are created by state
statutory and common law. Thus, the court concludes that it has jurisdiction over the
removed state law causes of action under “related to” jurisdiction of 28 U.S.C. § 1334(b).

Plaintiffs contend that the court should abstain either because abstention is
mandatory under 11 U.S.C. § 1334(c)(2) or discretionary abstention should be exercised
under 11 U.S.C. § 1334(c)(1). Because this case has been removed to this court from
state court, there is no parallel state court proceeding for the court to abstain in favor of,
and, technically speaking, the motion for abstention is not appropriate and is thus denied.
Security Farms v. Intl. Brotherhood of Teamsters, supra, 124 F.3d at 1009-1010 and
n.10. However, once the case is remanded to state court, there would be a state court

case to which the court could abstain, and in deciding that the case should be remanded,

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the court could abstain from hearing the case. See, in re Bowen Corp., 150 B.R. 777
(Bankr. D. Idaho 1993); see also, In re Tucson Estates, Inc., supra. |n deciding to
exercise permissive abstention under 28 U.S.C. § 1334{c)(1), the court follows the twelve
factors set forth by the Ninth Circuit in Tucson Estates, which are: “(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 applicable law, (4) the presence of 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
proceeding to the main bankruptcy case, (7) the substance rather than the 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 on [the bankruptcy court’s] docket, (10) the
likelihood that the commencement of the proceeding in bankruptcy court 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.” In re Tucson Estates, inc., supra, 912
F.2d at 1167.

An analysis of these factors indicates that this court should exercise permissive
abstention after equitable remand (these factors are similar to the equitable remand
factors of Enron Corp.). State law issues predominate in this case since plaintiffs’ causes
of action in the complaint are based on state law. There is no basis for federal subject
matter jurisdiction over these claims other than 28 U.S.C. § 1334. These claims as
discussed herein are non-core. Plaintiffs have demanded a jury trial, which cannot be
provided by this court with respect to their state law claims. Most of the parties are
nondebtor parties, that is, plaintiffs and the other defendants. As discussed herein, it
appears that it would be feasible to sever plaintiffs’ state law claims from core bankruptcy
matters to allow judgments to be entered in state court with enforcement left to this

bankruptcy court. Comity would indicate that California courts should have the right to

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adjudicate the exclusively state law claims involving California-centric plaintiffs and
California-centric transactions.

While the court concludes that the removed state court action should be remanded
to the Superior Court, plaintiff's proof of claim filed in the bankruptcy case is a separate
matter. in re Conejo Enterprises, Inc., supra, 96 F.3d 349-350, 352-353 and n. 5.
Because the allowance and disallowance of claims against the bankruptcy estate is a
core proceeding, the court has jurisdiction over the claim under 28 U.S.C. § 157(b)(2).
bid. The court’s ruling to remand the state court causes of action does not extend to the
matter of plaintiffs’ proof of claim filed in the bankruptcy case.

Plaintiffs apparently seek relief from the automatic stay to proceed with their non-
bankruptcy action in state court. If the case is remanded to state court, it would still be
subject to the automatic stay in bankruptcy from the underlying bankruptcy case under 11
U.S.C. § 362(a) and defendant's lien interest in the subject real property is property of the
bankruptcy estate under 11 U.S.C. § 541, which is not disputed. The grounds asserted in
plaintiffs’ stay relief motion are that the matter can be tried more expeditiously in the non-
bankruptcy forum and that the claim is insured. Plaintiffs contend that the case can be
more expeditiously tried in state court because the case was in the advanced stages of
discovery and the matter involves non-debtor parties who are not subject to suit in the
bankruptcy court and a single trial in state court would be the most efficient use of judicial
resources.

Litigation in a non-bankruptcy forum may constitute cause for relief from the
automatic stay under 11 U.S.C. § 362(d)(1). See in re Tucson Estates, Inc., supra, 912
F.2d at 1169; In re Castlerock Properties, supra, 781 F.2d at 163; In re Plumberex
Specialty Products, Inc., 311 B.R. 551, 559 (Bankr. C.D. Cal. 2004): see also, In re A
Partners, LLC, 344 B.R. 144, 127 (Bankr. E.D. Cal. 2006). The parties dispute the
applicable standard for considering stay relief motions based on non-bankruptcy
litigation. Plaintiffs urge the court to follow the twelve-factor test in Plumberex while

defendant urges the court to follow the five-factor test in A Partners. The court concludes

13

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that it should look to the factors for abstention and stay relief for pending non-bankruptcy
court litigation enunciated in Tucson Estates. 912 F.2d at 1167-1170; see also, In re
Plumberex Specialty Products, inc., supra, 311 B.R. at 558-559 and n.13. As discussed
herein, the court concludes that relief from stay is appropriate here for the same factors
that permissive abstention is appropriate after equitable remand.

However, relief from the automatic stay on this ground is generally limited to
permitting a pending proceeding to proceed to judgment, but not extending to collection
or enforcement of the judgment, which remains subject to the stay. See March, Ahart &
Tchaikovsky, CAL. PRAC. GUIDE: BANKRUPTCY, f 8:1146 (The Rutter Group 2007};
see also, In re Tucson Estates, Inc., supra, 912 F.2d at 1168-1170 (execution of
judgment is distinct from allowing entry of judgment for stay relief purposes). The
rationale for limiting relief from stay is that otherwise, a creditor might obtain the
equivalent of a preference. /bid., citing, In re Neal, 176 B.R. 30, 34 (Bankr. D. Idaho
1994): Matter of Rabin, 53 B.R. 529, 531 (Bankr. D. N.J. 1985); In re Humphreys Pest
Control Co., iInc., 35 B.R. 712, 714 (Bankr. E.D. Pa. 1984): see also, in re Tucson
Estates, Inc., supra, 912 F.2d at 1168-1170. This rule makes sense from a bankruptcy
policy perspective because plaintiffs’ claim against the debtor was unliquidated and
disputed at the time of the filing of the bankruptcy petition. Plaintiffs did not have a
perfected secured claim against debtor as of the petition date, nor did they have a priority
unsecured claim. Assuming arquendo that plaintiffs prevail on their claims in state court,
they will seek to enforce the judgment by invalidating the debtor's title to property of the
bankruptcy estate, debtor’s lien interest in the subject real property, and this might in
effect grant plaintiffs a preference in derogation of the priority scheme of distribution in
bankruptcy because the invalidation of the lien would result in a distribution of property of
the estate, the value of the lien interest, to plaintiffs in priority to other unsecured creditors
in this bankruptcy case.

Based on the foregoing, the court orders: (1) that plaintiffs’ motion to remand their

causes of action in the removed proceedings to the Superior Court of California for the

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County of Los Angeles and for relief from the automatic stay be granted, (2) that relief
from stay be granted only to the extent that the Superior Court may render a judgment in
plaintiffs’ causes of action in the removed proceedings now to be remanded to that court,
and (3) that relief from stay not be granted to allow the Superior Court to enforce any
judgment against property of the bankruptcy estate, including defendant’s lien interest
against the subject real property. While plaintiffs’ causes of action in the removed action
are remanded to the Superior Court, this court has subject matter jurisdiction over
defendant's lien interest in the subject real property, which is property of the bankruptcy
estate under 11 U.S.C. § 541, to determine whether any judgment of the Superior Court
may be enforced against the lien interest as a claim against property of the estate. 28
U.S.C. §§ 1334(d) and 157 (bankruptcy court has jurisdiction over all property of
bankruptcy estate, wherever located); see also, in re Tucson Estates, Inc., supra, 912
F.2d at 1167-1170 (discussing appropriateness of abstention in cases concerning
property of bankruptcy estate and of stay relief regarding entry versus execution of
judgment concerning estate property).

As discussed herein, the matter of plaintiffs’ proof of claim filed in the bankruptcy
case is not remanded as it is a separate matter and is a core proceeding over which this
court has jurisdiction under 28 U.S.C. § 157({b)}(2)(B) and 1334(b). The proof of claim is
not yet a contested matter in the bankruptcy case as no objection has been filed to the
claim, but presumably, since plaintiffs only recently filed their proof of claim in August
2007 and defendant has opposed plaintiffs’ causes of action in the state court litigation,
the claim is contested in fact, if not yet formally in this court. It thus appears that the
issues relating to the contested claim could be litigated either in the state court upon
remand of the state law causes of action, or on an objection to claim in this court, or both.
The parties could agree to be bound by litigation in one forum to minimize litigation
expenses, or they could choose to litigate in both forums. Nevertheless, the court
concludes that it is appropriate to remand the state law causes of action to state court

under 28 U.S.C. § 1452(b) and grant limited relief from stay under 11 U.S.C. § 362(d)(1)

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primarily because non-debtor parties are involved over which this court has no
jurisdiction, the causes of action to be litigated are predominately state law claims and
are non-core matters, and plaintiffs have a right to jury trial on their state law claims. In
re Tucson Estates, Inc., supra, 912 F.2d at 1167-1170.
Plaintiffs are directed to submit a proposed order consistent with this
memorandum decision.
IT IS SO ORDERED.

fi
OCT 29 2007 C#HEOQ

Dated:

ROBERT N. KWAN
UNITED STATES BANKRUPTCY JUDGE

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NOTE TO USERS OF THIS FORM:
Physically attach this form as the last page of the proposed Order or Judgment.
Do not file this form as a separate document

inre PEOPLE'S CHOICE HOME LOAN CHAPTER 11

Debtor. | CASE NUMBER 8:07-10765-RK

NOTICE OF ENTRY OF JUDGMENT OR ORDER
AND CERTIFICATE OF MAILING

TO ALL PARTIES IN INTEREST ON THE ATTACHED SERVICE LIST:

1. You are hereby notified, pursuant to Local Bankruptcy Rule 9021-1(a}(1)(E), that a judgment or order entitled

(specify):
MEMORANDUM DECISION RE: PLAINTIFFS’ MOTIONS FOR EQUITABLE REMAND, ABSENTION AND
RELIEF FROM AUTOMATIC STAY

was entered on (specify date): OCT 3 1 2007

2. | hereby certify that | mailed a copy of this notice and a true copy of the order or judgment to the persons and

entities on the attached service list on (specify date):
OCT 3 1 2007

dated: OCT 3 1 2007 JON D. CERETTO

Clerk of the Bankruptcy Court

y KK Bf

Deputy Clerk

Rev. 1/07 This form is optional. It has been approved for use by the United States Bankruptcy Court for the Central District of California. F 9 021 -1 . 1

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Main Document

Plaintiff's Attorne
Elizabeth Weaver
Howrey LLP

550 S Hope St Ste 1100
Los Angeles CA 90071

Defendant’s (People’s Choice) Attorney
effrey Dulberg/ Rudy Freeman
Pachulski Stang Zieh! & Jones

40100 Santa Monica Blvd 11" FI
Los Angeles CA 90067

Defendant’s (Paul McGee & AW2 Realty)

Desc

PEOPLE’S CHOICE HOME LOAN
PATRICK & DESIREE CABANA vs.
MARTHA RODRIGUEZ et al

Case No. 8:07-10765-RK
Adversary No. 8:07-02139-RK

Defendant’s (Martha Rodriquez, Deko

Ltd, Edward Ok) Attorney

Robert E. Tokar

Craton & Switzer LLP
100 Oceangate Ste 1200
Long Beach CA 90803

Defendant’s (People’s Choice} Attorney
an Chambers

Rutan & Tucker

611 Anton Blvd 14" FI

Costa Mesa CA 92626

Attorneys for Committee of Unsecured

Attorne

Levi Ruben Uku

3540 Wilshire Blvd Ste 626
Los Angeles CA 90010

Defendant

Edward Seung Ok

3281 Bounty Circle
Huntington Beach CA 92649

U.S. Trustee

nited States Trustee (SA)
411 W Fourth St Ste 9041
santa Ana CA 92701-4593

Creditors
Rolf S. Woolner

Winston & Strawn LLP
333 S Grand Ave 38" FI

Los Angeles CA 90071

Defendant

Martha Amaya Rodriguez
Inmate #32493-112
Metropolitan Detention Center
PO Box 1500

Los Angeles CA 90053