Debtor Charity Seymour ("Seymour")
In August 2006, Seymour borrowed $582,250 ("Loan") from Resmae Mortgage Corporation ("Resmae"). In exchange for the Loan, Seymour executed an Adjustable Rate Note ("Note") and a Deed of Trust ("Deed Of Trust") against the Property to secure her Loan obligations. The Deed of Trust was recorded in the Official Records of San Joaquin County on August 16, 2006. (Doc. No. 2006-175477). The Deed of Trust identified Seymour as the borrower, Resmae as the lender, Chicago Title Company as the trustee and Mortgage Electronic Registration Systems ("MERS") as beneficiary (solely as the nominee for the lender and its successor and assigns).
In June 2009, Quality Loan Service ("Quality") commenced foreclosure proceedings under the Deed Of Trust by recording a Notice of Default ("Notice Of Default") in the Official Records of San Joaquin County (Doc. No. 2009-097418). The Notice Of Default indicated that Seymour had defaulted on her Loan obligations by not making her monthly Loan payments due on and after April 1, 2008. Quality signed the Notice Of Default as the agent for MERS as nominee for Resmae. Quality also recorded a Notice of Sale (Doc. No. 2011-001426), but the parties have indicated that the foreclosure sale has not yet occurred and that no sale date currently is scheduled.
In August 2009, in response to the commencement of foreclosure proceedings, Seymour filed a complaint ("District Court Complaint") in the United States District Court for the Eastern District of California ("District Court"). Seymour did not dispute that she had borrowed $582,250 from the original lender Resmae or that she had defaulted on her Loan payments. In fact, the District Court Complaint acknowledged Seymour's receipt of the Loan proceeds and her execution of the Note and the Deed Of Trust in exchange for the Loan. Nonetheless, Seymour alleged a variety of misconduct related to the origination of the Loan, its securitization, its servicing, and its enforcement.
Seymour named, among many other defendants, Resmae, Wilshire Credit Corp. ("Wilshire") (which apparently serviced the Loan at the time), MERS, Merrill Lynch Mortgage Investors, Inc., and Merrill Lynch Investors Trust Series 2006 RM5 ("Trust") (which apparently claimed the Loan as part of a pool of mortgage backed securities) (collectively, "Lender And Servicer Defendants").
While the allegations of misconduct are wide-ranging, we are primarily concerned here with those against the Trust and its representatives asserting that they were not persons entitled to enforce the Note under California Comm'l Code § 3301.
District Court Complaint (Aug. 17, 2002) at ¶ 27. The District Court Complaint further alleged that the defendants attempted to enforce the Note and Deed Of Trust by commencing foreclosure proceedings against the Property, even though none of them qualified as a PETE. As Seymour put it:
The Lender And Servicer Defendants moved to dismiss the District Court Complaint. Their motions were heard by a magistrate, who issued Findings and Recommendations that determined among other things: (1) that all of Seymour's federal claims against the Lender And Servicer Defendants should be dismissed with prejudice,
Seymour thereafter moved for relief from the dismissal of her District Court lawsuit under Civil Rule 60(b), which motion the District Court denied by order entered June 21, 2011 ("Order Denying Motion For Relief").
On June 24, 2011, Seymour commenced her chapter 7 bankruptcy case.
In October 2011, Bank of America moved to dismiss the adversary complaint under Civil Rule 12(b)(6) (made applicable in adversary proceedings by Rule 7012). In its motion to dismiss, Bank of America in essence asserted that the Trust was the party entitled to enforce the Note and to foreclose on the Property under the Deed of Trust and that it was the successor servicing agent for U.S. Bank, the current trustee under the Trust.
Bank of America further asserted that dismissal with prejudice was appropriate on the following grounds, among others:
Mem. Of Points & Authorities (Oct. 3, 2011) at 2:9-20.
In support of its dismissal motion, Bank of America filed a request for judicial notice, which included the following documents:
1. A copy of the Note, showing on its face an indorsement of the Note by Resmae and made payable to "U.S. Bank National Association, as Successor Trustee to Bank of America, National Association, as successor by merger to LaSalle Bank, N.A. as Trustee for the MLMI Trust Series 2006-RM5";
2. A copy of the Deed Of Trust;
3. A copy of an assignment of the Deed Of Trust from MERS as nominee for Resmae to "U.S. Bank National Association, as Successor Trustee to Bank of America, National Association, as successor by merger to LaSalle Bank, N.A. as Trustee for the MLMI Trust Series 2006-RM5";
4. A copy of the Notice Of Default;
5. A copy of the Notice Of Sale;
6. A copy of the bankruptcy court's minute entry explaining its reasoning for denying Seymour's motion to extend the automatic stay pursuant to § 362(c)(3)(B) and (C);
7. A copy of the District Court Dismissal Order;
8. A copy of the Order Denying Motion For Relief; and
9. A copy of the District Court Complaint.
Seymour filed a late response to the dismissal motion. In it, she did not do much to oppose Bank of America's asserted grounds for dismissal. Seymour merely reiterated her belief that the Note and Deed of Trust were void based on fraud, violations of TILA "and by operation of law." But she did indicate a desire to file an amended adversary complaint in order to address the alleged effect of her chapter 7 bankruptcy case on the Deed Of Trust. Citing § 506(d), Seymour suggested that her discharge, her scheduling Bank of America as an unsecured creditor and her exemption claim relating to the Property all worked in concert to invalidate the lien arising from the Deed Of Trust.
Without holding a hearing, the bankruptcy court granted Bank of America's dismissal motion without leave to amend. The court issued a minute entry on November 9, 2011, setting forth its reasoning. The bankruptcy court held that Seymour lacked standing to prosecute the adversary complaint. As the bankruptcy court explained it, the adversary complaint concerned claims that arose prior to the filing of her bankruptcy case. Consequently, those claims were property of her bankruptcy estate, and hence they only could be pursued by her chapter 7 trustee.
The bankruptcy court further opined that it lacked subject matter jurisdiction over the adversary complaint. According to the court, the resolution of the claims stated in the adversary complaint "could not conceivably have any effect" on the administration of the bankruptcy estate because Seymour already had received her discharge and the chapter 7 trustee already had issued a report of no distribution.
The bankruptcy court alternately held on the merits that, in light of the District Court's disposition of the District Court action, Seymour was barred by claim preclusion from prosecuting her adversary complaint, which was based on alleged infringement of the same rights as the District Court action, arose from the same transaction or series of transactions concerning the Note and the Deed Of Trust, and relied upon essentially the same allegations of misconduct. The bankruptcy court further ruled that the dismissal of the District Court action was a final ruling on the merits and that the party against whom claim preclusion was invoked — Seymour — was the same in both lawsuits, and consequently all of the factors for application of claim preclusion had been met.
Finally, the bankruptcy court concluded it should deny Seymour leave to amend because any attempt at amendment would have been futile. As the bankruptcy court put it:
Minute Entry (Nov. 9, 2011) at p. 3.
On November 14, 2011, the bankruptcy court entered its minute order dismissing the adversary complaint without leave to amend, and Seymour timely filed a notice of appeal on November 28, 2011.
Subject to the standing discussion set forth below, the bankruptcy court had jurisdiction pursuant to 28 U.S.C. §§ 1334 and 157(b)(2)(A) and (K). We have jurisdiction under 28 U.S.C. § 158.
1. Did the bankruptcy court err in concluding that Seymour lacked standing to prosecute the adversary complaint?
2. Did the bankruptcy court err in denying Seymour leave to amend?
The standing issue is subject to de novo review.
The bankruptcy court's dismissal without leave to amend also is subject to de novo review.
"Standing is a `threshold question in every federal case, determining the power of the court to entertain the suit.'"
However, the existence of constitutional standing does not end our standing analysis. Seymour also needed to demonstrate that she was asserting her own legal rights and not those belonging to others.
Here, Seymour's adversary complaint sought to assert claims that arose before her chapter 7 bankruptcy filing. Even though Seymour did not schedule her claims as assets of the bankruptcy estate, her claims nonetheless became estate property.
The Bankruptcy Code requires a chapter 7 trustee to "collect and reduce to money" all property of the estate. § 704(a)(1). Absent abandonment, this duty extends to pre-petition claims against third parties.
Here, Seymour has not disputed that her claims arising from the Loan are estate property. Instead, she attempts to characterize her lack of standing as a "ministerial issue," and she argues that she can "cure" her failure to schedule her claims and seek chapter 7 trustee abandonment thereof at any time, so her adversary complaint should not have been dismissed on standing grounds.
When reviewing the dismissal of a complaint like Seymour's — a complaint based on unscheduled pre-petition claims — we often limit our decision to an analysis of the standing issue.
Here, however, Seymour in essence has argued that the bankruptcy court should have allowed her to amend her complaint to state a claim based on post-petition events. Seymour argues that certain post-petition events rendered the Deed Of Trust void. Seymour points to the fact that she scheduled the Loan as an unsecured debt, the fact that no one filed a proof of secured claim based on the Loan, and the fact that she has received a chapter 7 discharge of her personal liability. According to Seymour, these facts when considered together establish the voidness of the Deed Of Trust. Citing § 506(d), Seymour essentially contends that the claim secured by the Deed Of Trust was disallowed (and hence the lien voided) because the claim was administered in her bankruptcy case as an unsecured claim and discharged.
Seymour misconstrues the applicability of § 506(d). She conflates the effect of a discharge, which is governed by § 727(b), with the effect of disallowance, which is governed by § 506(d). Seymour also relies upon
Accordingly, we reject Seymour's argument that the bankruptcy court should have granted her leave to amend her adversary complaint so that she could allege that the Deed Of Trust was rendered void based on post-petition events. The bankruptcy court did not err in denying leave to amend for this purpose because any such amendment would have been futile.
In her opening appeal brief, Seymour further argues that the bankruptcy court also should have granted her leave to amend so that she could attempt to state a claim based on the alleged fact that neither Bank of America nor the Trust were PETEs. Citing
We decline to further discuss the PETE issue for two reasons. First, it is unnecessary for us to reach the PETE issue in light of our disposition of this appeal based on Seymour's lack of standing. And second, Seymour did not raise the PETE issue either in her adversary complaint or in her opposition to Bank of America's dismissal motion. Generally, we will not consider issues raised for the first time on appeal.
Based on the foregoing analysis, we hereby MODIFY the bankruptcy court's dismissal order to clarify that the adversary proceeding is dismissed based on Seymour's lack of standing, and we AFFIRM the dismissal order, as MODIFIED.
Order Denying Motion For Relief (Jun. 21, 2011) at 3:2-15.
