Martin R. Barash, United States Bankruptcy Judge.
I. INTRODUCTION ... 147
II. BACKGROUND ... 150
A. The Lipkis Bankruptcy Case and
the In Rem Order ... 150
B. Debtor's Bankruptcy Case And Her
Multiple Attempts To Vacate The In Rem
Order And/Or Seek Relief Against Defendants ... 152
1. The Lipkis Motions ... 152
2. The Adversary Proceedings ... 153
3. The Second State Court Complaint ... 155
4. The Set Aside Motion ... 156
5. Debtor's Appeal and the BAP Memorandum
... 157
III. JURISDICTION ... 158
IV. SET ASIDE MOTION ... 158
A. Claim Preclusion ... 158
B. Issue Preclusion ... 161
C. Validity of the In Rem Order ... 161
1. Section 362(d)(4) ... 162
2. Jurisdiction ... 164
3. Due Process ... 166
4. Finality of In Rem Order/No Collateral
Attack ... 170
D. No Stay Violation ... 170
V. MOTIONS TO DISMISS ... 171
A. Wells Fargo Defendants ... 172
1. Claim Preclusion ... 172
2. Issue Preclusion ... 173
3. Claim Specific Analysis ... 173
a. Stay Violation Claim ... 173
b. Fraud and Related Claims ... 174
(1) Fraud/Deceit ... 174
(2) Constructive Fraud ... 176
(3) Fraud on the Court, Perjury
and False Evidence ... 177
c. Emotional Distress and Personal
Injury ... 183
d. Quiet Title ... 183
B. Nagata and Wolvek ... 184
C. Duran Defendants ... 185
VI. MOTION TO STRIKE AND SANCTIONS ... 185
VII. VEXATIOUS LITIGANT REQUEST ... 186
VIII. CONCLUSION ... 189
Laurel Greenstein, chapter 7 debtor pro se, contends that her home was wrongfully foreclosed on by Wells Fargo Bank, N.A. ("Wells Fargo") in violation of the automatic stay in her case. Greenstein seeks redress for this alleged violation of the automatic stay pursuant to the instant Motion to Set Aside Sale of Property Made in Violation of Automatic Stay (the "Set Aside Motion"), Case Dkt. 71, and a series
At the time of the foreclosure sale, the automatic stay in Greenstein's case was in effect generally, but Greenstein's home was the subject of an order entered pursuant to Bankruptcy Code section 362(d)(4), exempting her home from the protection of the automatic stay. A court may enter such an "in rem" order when it determines that a bankruptcy case is being used as part of a scheme to hinder, delay or defraud a secured creditor with an interest in real property. 11 U.S.C. § 362(d)(4). If properly recorded, the order exempts the subject real property from the protection of the automatic stay in any subsequent bankruptcy case, for a period of two years — subject to the right of the debtor in such case to seek relief from the order based on changed circumstances or for cause shown. Id.
Approximately six months prior to the foreclosure of Greenstein's home, the Court entered an order under section 362(d)(4) (the "In Rem Order"), in the chapter 13 case of an entirely unrelated debtor, Roger Lipkis. Wells Fargo sought this relief in the Lipkis case based on its discovery of a grant deed purporting to transfer an interest in Greenstein's home to Lipkis, without the consent of Wells Fargo. Disclaiming any interest in Greenstein's home, Lipkis (through his attorney) stipulated to Wells Fargo's request for an order for relief from the automatic stay under section 362(d)(4) and the Court entered the In Rem Order. Wells Fargo thereafter recorded the order in accordance with section 362(d)(4).
The entry and recordation of the In Rem Order should be dispositive of Greenstein's contention that Wells Fargo violated the automatic stay in her own bankruptcy case when Wells Fargo foreclosed. If her home was not protected by the stay, there could be no violation of the stay resulting from the foreclosure.
In her Set Aside Motion, Greenstein argues that the Court should disregard the In Rem Order and deem the foreclosure sale void. First, Greenstein argues that the In Rem Order is void for lack of jurisdiction. Specifically, Greenstein argues that the deed purporting to transfer an interest in her property to Lipkis was a forgery, that no interest in property was actually transferred to Lipkis (or his estate) and, therefore, that the Court did not have jurisdiction to enter the In Rem Order.
Second, Greenstein argues that entry of the In Rem Order violated her due process rights because she did not receive notice and an opportunity to be heard on the stipulation pursuant to which Wells Fargo and Lipkis consented to entry of the In Rem Order. Greenstein contends that if she had been given notice, she could have opposed the relief affecting her property, preserved the benefit of the automatic stay in her subsequent bankruptcy case, and prevented the foreclosure of her home.
Without specifically addressing these issues, the prior bankruptcy judge assigned to this case, denied the Set Aside Motion on the grounds of claim preclusion, i.e., that he had already denied the same claim for relief in a prior proceeding. At the time of this ruling, the Court had granted several motions to dismiss various parties from adversary complaints filed by Greenstein.
Greenstein appealed the Court's denial of the Set Aside Motion to the Ninth Circuit Bankruptcy Appellate Panel ("BAP"). The BAP vacated the order and remanded the matter to this Court for further proceedings. See Case Dkt. 137; BAP Case No. 14-1101, Dkt. 62 (hereinafter, the "BAP Memorandum"). The BAP found that the Court's failure to make specific findings made it difficult to determine whether the requirements of claim preclusion had been satisfied. In light of this conclusion, the BAP did not find it necessary to address Greenstein's arguments regarding the validity of the In Rem Order.
Following remand, the Court heard argument from the parties on all of the issues raised by the BAP Memorandum in respect of the Set Aside Motion, including the validity of the In Rem Order. In conjunction with these post-remand hearings, the Court also heard argument on separate motions to dismiss (the "Motions to Dismiss") filed by four different groups of defendants in the above-captioned adversary proceeding, Adv. Dkt. 32,
In some significant respects, the issues in these adversaries are related to those in the Set Aside Motion. In the interests of economy, the Court sets forth its findings of fact and conclusions of law on the Set Aside Motion, the Motions to Dismiss, the Motion to Strike, and the Vexatious Litigant Request in this consolidated memorandum.
After reviewing the record, the Court concludes that it should not apply the doctrine of claim preclusion to the Set Aside Motion. As discussed in greater detail below, the Court finds that there has not yet been a final judgment on the merits of the one and only claim asserted in the Set Aside Motion against Wells Fargo, i.e., that the In Rem Order is invalid and the foreclosure of the Property by Wells Fargo is therefore void as a violation of the automatic stay. Furthermore, the Court rejects the argument, asserted on remand by Wells Fargo, that the Set Aside Motion should be denied under the doctrine of issue preclusion.
The Court concludes, however, that the Set Aside Motion should be denied on the merits. The Court has carefully considered Greenstein's arguments and finds they are without merit. First, even if the Lipkis Deed were proven to be a forgery, as Greenstein insists, the Court was not without jurisdiction in the Lipkis case to consider and act upon the parties' stipulation for relief under Bankruptcy Code section 362(d)(4). The existence of the Lipkis Deed — whatever its provenance — gave the
Second, even though Greenstein, as the property owner, should have received notice of the proposed In Rem Order and an opportunity to be heard prior to its entry, the failure of the parties to provide such notice did not constitute a denial of due process under the circumstances. Under the unique provisions of Bankruptcy Code section 362(d)(4), the owner of property subject to an in rem order entered in a prior case may seek relief from that order in any future bankruptcy case she elects to file, based on changed circumstances or cause shown.
Here, Greenstein received adequate notice of the In Rem Order after its entry to enable her to seek relief from that order in her own bankruptcy case, and obtain the protection of the automatic stay for the Property. She did not timely avail herself of that opportunity. By the time she commenced the first of her efforts, it was too late. Wells Fargo had already foreclosed. At the time it did so, the automatic stay did not apply to the Property pursuant to the In Rem Order, and Wells Fargo could not have violated the automatic stay. Moreover, the In Rem Order is a final order that may not be collaterally attacked.
Greenstein's adversary proceeding fairs no better. For these and other reasons discussed below, the Motions to Dismiss must be granted and Greenstein's latest adversary proceeding must be dismissed with prejudice. The Motion to Strike will be denied as moot, and the Vexatious Litigant Request will be denied for lack of cause.
Much of the relevant factual and procedural background is summarized in the BAP Memorandum. The BAP's discussion of that background is extensively quoted below and supplemented where the Court believes necessary and appropriate to explain the basis of its analysis in this Memorandum.
The "attached continuation page" in the In Rem Order provides, in relevant part:
BAP Memorandum at 2-5.
In the BAP Memorandum, the BAP stated that nothing in the record indicated that "Debtor was given notice of the stipulation or any motion to approve it or of the entry of the order." BAP Memorandum at 5. Following the BAP's remand, no party has challenged the BAP's conclusion that Greenstein was not given notice of a motion seeking relief under Bankruptcy Code section 362(d)(4) or the stipulation between Wells Fargo and Lipkis, prior to entry of the In Rem Order. However, in connection with the motion to dismiss the pending adversary proceeding, Wells Fargo has brought to the Court's attention Greenstein's own admissions regarding her receipt of notice of the In Rem Order following its entry. See Adv. Dkt. 72-1 at 5-6 (Supplemental Request for Judicial Notice).
Specifically, in all of her motions seeking relief in the Lipkis case from the In Rem Order (discussed further below), Greenstein acknowledged that she learned of the In Rem Order on May 31, 2012, and that she actually received a copy of the In Rem Order on June 1, 2012. See Case No. 1:11-bk-23430-MT, Case Dkt. 43 at 4, 12-17, Dkt. 44 at 4-5, 13-21, Dkt. 45 at 4, 11-20; see also Adv. Dkt. 72-1 at 5-6. Greenstein also stated that she "thought it would not apply to her bankruptcy" because (i) the order was filed in the Lipkis case, and (ii) the foreclosure sale was delayed for a period of time, apparently because the chapter 7 trustee had, for a period of time, asserted the right to sell the house for the benefit of Greenstein's estate. See Case No. 1:11-bk-23430-MT, Case Dkt. 44 at 4-5; see also Adv. Dkt. 72-1 at 5-6.
Before the August 7 motion could be heard, Debtor filed an "Amended Motion for Hearing to Reverse Order Granting Motion for Relief Under 11 U.S.C. § 362 (Real Property)" on August 14, 2012. This motion was identical to the first motion, except for the inclusion of a declaration from Debtor. Debtor said she knew who did the "cut and paste" job to create the fake Lipkis Deed and get it to Wells Fargo, but she could not prove it. In any event, she denied any involvement. Debtor stated that the notary who allegedly signed the Lipkis Deed was willing to testify that she never notarized the document and that she had no record of it in her notary book.
BAP Memorandum at 5-9.
BAP Memorandum at 9-10 n.9.
On December 28, 2015, Greenstein filed a motion seeking a one-month extension of the deadline for filing her amended complaint in the third adversary proceeding ("Third Adversary Proceeding"), which is the currently pending proceeding. Adv. Dkt. 20. On January 28, 2016, the Court held a hearing on the motion, and thereafter entered an order extending Greenstein's deadline to file an amended complaint from February 5, 2016 to February 19, 2016. Adv. Dkt. 28. On February 19, 2016, Greenstein filed her first amended complaint in the Third Adversary Proceeding ("First Amended Complaint" or "FAC"), which is the operative complaint before the Court. Adv. Dkt. 30.
On August 15, 2013, Greenstein filed a second amended complaint in the California Superior Court, California Superior Court for Los Angeles County, Case No. LC-099392 (the "Second State Complaint"). Adv. Dkt. 36 at Ex. L. The Second State Complaint asserted causes of action for intentional infliction of emotional distress, fraud/deceit, breach of contract, conspiracy and slander of title against, among others: Wells Fargo, Marisol Nagata (who represented Wells Fargo in the Lipkis case), and Steven Wolvek (who represented the debtor in the Lipkis case).
On September 19, 2013, Wells Fargo filed its demurrer to the Second State Court Complaint, see Adv. Dkt. 89-1 at Ex. 1, in which the other Defendants joined. See Adv. Dkt. 36, Ex. M. On December 20, 2013, the California Superior Court filed its Notice of Ruling, granting the demurrers without leave to amend. See Adv. Dkt. 36, Ex. M. It appears Greenstein did not appeal the dismissal of the Second State Complaint.
BAP Memorandum at 10-12.
As noted above, Greenstein appealed the Court's order denying her motion to set aside the sale of the Property to the BAP. The appellate panel vacated the order and remanded the matter to this Court for further proceedings. The BAP concluded that the Court's prior application of claim preclusion was an abuse of discretion because the Court did not make specific findings to support it, including a finding identifying the prior adjudication on which the Court's ruling was premised. BAP Memorandum at 16-21. Based on this conclusion, the BAP did not "reach the question of whether procedural due process was satisfied when, after Debtor had informed Wells Fargo's counsel that she challenged the validity of the Lipkis Deed, Wells Fargo apparently failed to notice Debtor of the stipulation for in rem relief from stay or its motion for approval of it." Id. at 21.
In a separate concurrence, Judge Dunn expressed his agreement with the judgment and rationale of the panel, but suggested that on remand the Court consider an additional issue that the panel did not reach:
Id. at 23 (Dunn, J., concurring).
Following remand, the Court held hearings to address the Set Aside Motion and the Dismissal Motions. The Court has determined that the Set Aside Motion and the Dismissal Motions are now ripe for decision.
This Court has 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). The Set Aside Motion and the First Amended Complaint arise under the Bankruptcy Code, i.e., are within its "core" jurisdiction. Both assert in common: (i) the In Rem Order issued against the Property in the Lipkis case, pursuant to Bankruptcy Code section 362(d)(4), was invalid, (ii) the automatic stay under Bankruptcy Code section 362(a) was in effect in Greenstein's case as to the Property at the time Wells Fargo foreclosed, and (iii) the foreclosure was wrongful because it violated the automatic stay under Bankruptcy Code section 362(a) in Greenstein's case. The First Amended Complaint also asserts Greenstein is entitled to damages from all those involved with obtaining the In Rem Order and violating the stay. These causes of action all arise under section 362 of title 11. As such, the Court also has the constitutional authority to enter final judgment. See Stern v. Marshall, 564 U.S. 462, 477, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011).
To the extent the First Amended Complaint purports to allege causes of action for fraud, constructive fraud, emotional distress and personal injury, quiet title and other claims based on state law, these claims depend — to one degree or another — on the validity of Greenstein's bankruptcy causes of action. As such, the Court has supplemental jurisdiction over those claims. See In re Pegasus Gold Corp., 394 F.3d 1189, 1194-95 (9th Cir. 2005) (citing United Mine Workers v. Gibbs, 383 U.S. 715, 725, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966)); In re Caracciolo, 2006 Bankr. LEXIS 4737, 2006 WL 6602238, at *2, 5 (Bankr. S.D. Cal. July 19, 2006)). Likewise, the Court has the constitutional authority to enter final judgment on these causes of action because they are factually intertwined and legally dependent on Greenstein's bankruptcy claims. See Deitz v. Ford (In re Deitz), 469 B.R. 11, 17-25 (9th Cir. B.A.P. 2012).
In the proceedings prior to the BAP appeal, the Court denied the Set Aside Motion on the grounds of claim preclusion. At the time of this denial, the Court had recently granted several motions to dismiss parties from related adversary proceedings filed by Greenstein, but did not specifically identify which order was preclusive or why.
Claim preclusion, sometimes referred to as res judicata, prohibits relitigation of "any claims that were raised or could have been raised" in a prior action between the same parties or their privies. Owens v. Kaiser Found. Health Plan, Inc.,
The preclusive effect of a federal court judgment is determined by federal common law. Taylor v. Sturgell, 553 U.S. 880, 891, 128 S.Ct. 2161, 171 L.Ed.2d 155 (2008). Under federal law, claim preclusion requires three elements: (1) an identity of claims; (2) a final judgment on the merits; and (3) the same parties or privity between the parties. Owens, 244 F.3d at 713. The Ninth Circuit has mandated a four-factor test for determining whether there is an identity of claims: "(1) whether rights or interests established in the prior judgment would be destroyed or impaired by prosecution of the second action; (2) whether substantially the same evidence is presented in the two actions; (3) whether the two suits involve infringement of the same right; and (4) whether the two suits arise out of the same transactional nucleus of facts." Harris v. Cty. of Orange, 682 F.3d 1126, 1132 (9th Cir. 2012). The fourth factor is the most important. Id.
After reviewing the record pertaining to the Set Aside Motion and various related proceedings, the Court determines herein that claim preclusion is not applicable to the Set Aside Motion. A careful examination of the Court's prior rulings reveals that there was no final judgment entered on the merits of the claim effectively asserted in the Set Aside Motion: that the foreclosure and sale of the Property by Wells Fargo should be set aside as a violation of the automatic stay in Greenstein's case.
Dismissal of the amended complaint in the First Adversary Proceeding did not result in a final judgment on the merits of any claims because this dismissal was granted for lack of standing. See United States v. Park Place Assocs., 563 F.3d 907, 925 (9th Cir. 2009); Media Techs. Licensing, LLC v. Upper Deck Co., 334 F.3d 1366, 1369 (Fed Cir. 2003); Greenstein v. Wells Fargo Bank, N.A. (In re Greenstein), 2016 Bankr. LEXIS 242, *26-27 (9th Cir. B.A.P. July 23, 2015).
Dismissal of the complaint in the Second Adversary Proceeding did not result in a final judgment on the merits of the stay violation claim, because (i) only Nagata and Wolvek were properly dismissed and (ii) the claim asserted against them was not the stay violation claim. The complaint against Nagata and Wolvek was dismissed for failure to state a claim following a hearing on their motions to dismiss, held on December 19, 2012. See Case No. 1:12-ap-01379-MB, Adv. Dkt. 25, 26. Following a subsequent hearing on Wells Fargo's motion to dismiss, the Court entered an order dismissing Wells Fargo on February 7, 2014. Adv. Dkt. 38. The dismissal of Wells Fargo, however, ultimately did not result in a final judgment on the merits. Id. at Adv. Dkt. 65. Upon Greenstein's motion for reconsideration, this Court subsequently vacated the Wells Fargo dismissal because Greenstein had voluntarily dismissed the remainder of her complaint before the Court held its hearing on Wells Fargo's motion. Id. at Adv. Dkt. 41, 65. The Court lacked authority to grant
Moreover, the dismissal of Greenstein's claim against Nagata and Wolvek is not preclusive of Greenstein's claim against Wells Fargo because the two claims are different. Greenstein's pro se complaint in the Second Adversary Proceeding is not a model of clarity. The Court, however, construes it to seek different claims for relief against different parties: (i) damages against Nagata and Wolvek for their conduct in obtaining the In Rem Order in the Lipkis case, and (ii) a determination that Wells Fargo's foreclosure of the Property violated the stay, should be set aside, and should result in stay violation damages. Id. at Adv. Dkt. 1. Only the latter claim is the claim asserted against Wells Fargo in the Set Aside Motion.
In the nomenclature of the claim preclusion doctrine, the Court finds that an "identity of claims" is lacking between the claim asserted against Nagata and Wolvek on the one hand, and the claim asserted against Wells Fargo on the other. The Court's determination that Nagata and Wolvek could not be held liable for statements they made to the Court in the Lipkis case does not "destroy or impair" Greenstein's claim that foreclosure of the Property violated the automatic stay. These claims do not involve violation of the same right. Greenstein's claim against Nagata and Wolvek is that Greenstein suffered damages as a result of false statements they made to the Court. Greenstein's claim against Wells Fargo is that foreclosure against the Property violated her rights under the Bankruptcy Code and should be set aside.
Furthermore, the Court finds that the two claims are not based on the same set of operative facts. The facts pertinent to Greenstein's damages claim against Nagata and Wolvek are what they said and did in Court during the Lipkis case. The facts pertinent to Greenstein's stay violation claim are Greenstein's undisputed lack of notice prior to entry of the In Rem Order, her conduct after she received notice of the In Rem Order, and Wells Fargo's conduct in proceeding with the foreclosure. While there is a connection between these events, the Court concludes that the connection does not rise to the level of a "common nucleus of operative facts." Thus, the dismissal of Nagata and Wolvek from the Second Adversary Proceeding is not preclusive of the claims asserted against Wells in that action and in the Set Aside Motion.
Likewise, the Court concludes that none of the orders entered in the Lipkis case serves as a final judgment on the merits precluding the Set Aside Motion. See Case No. 1:11-bk-23430-MT, Dkt. 50, 51, 52, 57. In three motions, Greenstein sought essentially the same relief in the Lipkis case that she presently seeks in the Set Aside Motion. But Judge Tighe did not deny any of those motions on the merits. Noting that Greenstein had already filed the Second Adversary Proceeding in her own case, the Court held that it would be more appropriate for Greenstein to seek relief in her own case, not the Lipkis case. See id., Dkt. 50 at 2 ("The adversary proceeding filed by Movant is the proper mechanism to address Movant's complaints.") Nothing in these orders suggests that Judge Tighe considered and ruled on the merits of Greenstein's claims for relief.
Accordingly, upon reconsideration of the Set Aside Motion following remand from the BAP, the Court concludes that the doctrine of claim preclusion is not applicable to the Set Aside Motion.
In connection with the remanded Set Aside Motion, Wells Fargo argues that the doctrine of collateral estoppel or issue preclusion is dispositive. Specifically, Wells Fargo contends that the issue of whether the In Rem Order should be set aside has been litigated and decided against Greenstein on multiple occasions. This argument also fails.
Under federal law, four factors must be present for collateral estoppel to apply: (1) the issue at stake was identical to the issue in the previous proceeding; (2) the issue was actually litigated and decided in the prior proceeding; (3) there was a full and fair opportunity to litigate the issue; and (4) the issue was necessary to decide the merits. Oyeniran v. Holder, 672 F.3d 800, 806 (9th Cir. 2012).
The problem here is that the validity of the In Rem Order was not clearly decided in the prior proceedings. In the orders dismissing Nagata and Wolvek from the Second Amended Adversary, the Court made no specific findings on this issue. See Case No. 1:12-ap-01379-MB, Adv. Dkt. 25, 26. Nor did the written tentative rulings posted by the Court. Those tentative rulings stated simply: "Although it appears plaintiff now has standing to bring this action, grant the motion and dismiss the Complaint without leave to amend for failure to plead any sufficient cause of action against these Defendants."
By concluding that Greenstein did not state a claim upon which relief could be granted against Nagata and Wolvek, the Court did not necessarily decide whether the In Rem Order was a valid order or whether Wells Fargo's subsequent foreclosure of the Property was a violation of the stay in Greenstein's case. Absent more detailed findings, all that can be concluded from this ruling is that these lawyers could not be liable to Greenstein for the sort of conduct alleged in the complaint: i.e., making allegedly false statements to the Court in the course of litigation in the Lipkis case. Given the state of the record, the Court cannot conclude that the dismissal of Nagata and Wolvek as defendants foreclosed Greenstein's stay violation claim against Wells Fargo as a matter of issue preclusion.
Likewise, the orders entered by the Court in the Lipkis case denying Greenstein relief from the In Rem Order did not decide whether the In Rem Order was valid or whether Wells Fargo's subsequent foreclosure of the Property was a violation of the stay in her case. As noted, those orders merely held that Greenstein should seek relief in her own bankruptcy case, in which the Second Adversary Proceeding was then pending. See Case No. 1:11-bk-23430-MT, Dkt. 50, 51, 52, 57. As such, these orders do not justify denial of the Set Aside Motion based on issue preclusion.
Accordingly, the doctrine of issue preclusion does not bar the claim asserted in the Set Aside Motion.
On the merits, the linchpin of Greenstein's argument is that the In Rem Order against the Property was invalid at the time it was entered. If the In Rem Order was not valid, then the automatic stay in her case was applicable to the Property, and the foreclosure of the Property by Wells Fargo was a violation of the stay. Greenstein advances three principal arguments in support of her position. First, she contends that the Court was without jurisdiction to enter the In Rem Order in the Lipkis case because the Lipkis Deed was a forgery and there was no actual transfer of any property interest to the Lipkis bankruptcy estate. Second, she contends that
Bankruptcy Code section 362(d)(4) provides as follows:
11 U.S.C. § 362(d)(4).
The special relief accorded creditors under this statute was added to the Bankruptcy Code in 2005 under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. See First Yorkshire Holdings, Inc. v. Pacifica L 22, LLC (In re First Yorkshire Holdings, Inc.), 470 B.R. 864, 870 (9th Cir. B.A.P. 2012). The statute permits a bankruptcy court "to grant in rem relief from the automatic stay in order to address schemes using bankruptcy to thwart legitimate foreclosure efforts through one or more transfers of interest in real property." Id. If the court's order granting such relief is recorded in compliance with applicable state law, it will be binding in any subsequent bankruptcy case purporting to affect the same real property for two years. Id.
A movant must establish three elements to obtain relief under section 362(d)(4): (i) the debtor's bankruptcy filing must have been part of a scheme, (ii) the object of the scheme must be to delay, hinder, or defraud creditors, and (iii) the scheme must involve either (a) the transfer of some interest in the real property without the secured creditor's consent or court approval, or (b) multiple bankruptcy filings affecting the property. See 11 U.S.C. § 362(d)(4). For the court to grant relief, "it must affirmatively find that the three elements above are present." In re First Yorkshire Holdings, Inc., 470 B.R. at 870 (citing In re Abdul Muhaimin, 343 B.R. 159, 169 (Bankr. D. Md. 2006)). A bankruptcy
Among others, section 362(d)(4) is frequently applicable to a scheme known as "case hijacking" or "property dumping." Id. at 266. This scheme involves a borrower, or a person acting on behalf of a borrower, purporting to transfer a full or fractional interest in real property to a debtor in bankruptcy in order to utilize the automatic stay in the debtor's case to stave off foreclosure of the property. Id.
Id.; see also In re 4th St. E. Inv'rs, Inc., 474 B.R. 709, 711 (Bankr. C.D. Cal. 2012) (applying section 362(d)(4) to hijacked case in which an interest in the subject property "purportedly" was transferred to the debtor).
Furthermore, in the experience of the Court, it may be clear that a case has been hijacked for the benefit of a borrower, but not clear whether the borrower was involved in perpetrating the scheme. Although the borrower is usually the beneficiary of the scheme, it sometimes appears that the scheme may have been perpetrated by an unscrupulous lawyer, bankruptcy petition preparer, or unauthorized legal practitioner, without the borrower's knowledge or participation. Notably, the language of section 362(d)(4) does not require a court to determine precisely who is responsible for perpetrating the scheme, only that the case has become part of a scheme that satisfies the requirements of the statute. See 11 U.S.C. § 362(d)(4).
Whatever the circumstances, "relief under section 362(d)(4) has serious implications." In re First Yorkshire Holdings, Inc., 470 B.R. at 871.
Id. at 871. The filing of a case by a debtor asserting an interest in property that is subject to a section 362(d)(4) in rem order
The statute, however, has a unique "safety valve" that enables the owner of such property to seek relief from a section 362(d)(4) order entered in the prior case. Specifically, the statute provides that "a debtor in a subsequent case under this title may move for relief from such order based upon changed circumstances or for good cause shown, after notice and a hearing." 11 U.S.C. § 362(d)(4). Accordingly, when a debtor seeking bankruptcy protection holds property that is subject to an in rem order under section 362(d)(4) entered in some other bankruptcy case, the debtor may ask the bankruptcy court for relief from that prior order and obtain the protection of the automatic stay.
There is no dispute that the In Rem Order was entered in the Lipkis case pursuant to Bankruptcy Code section 362(d)(4), that the order applied to the Property, and that the order was duly recorded in accordance with the statute. Greenstein argues, however, that the In Rem Order was invalid at the time it was entered because (i) the Court lacked jurisdiction to enter the order, (ii) Greenstein did not receive notice and an opportunity to be heard prior to its entry, and (iii) the order was premised on erroneous facts. Each of these arguments fails.
Federal Rule of Civil Procedure 60(b)(4), made applicable to bankruptcy cases pursuant to Federal Rule of Bankruptcy Procedure 9024, permits a party to seek relief from a judgment that is void. Fed. R. Civ. P. 60(b)(4); Fed. R. Bankr. P. 9024. "A void judgment is a legal nullity." United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260, 270, 130 S.Ct. 1367, 176 L.Ed.2d 158 (2010). "[Rule] 60(b)(4) applies only in the rare instance where a judgment is premised either on a certain type of jurisdictional error or on a violation of due process that deprives a party of notice or the opportunity to be heard." Id. at 271, 130 S.Ct. 1367.
"Federal courts considering [whether] a judgment is void because of a jurisdictional defect generally have reserved relief only for the exceptional case in which the court that rendered judgment lacked even an `arguable basis' for jurisdiction." Espinosa, 559 U.S. at 271, 130 S.Ct. 1367 (quoting United States v. Boch Oldsmobile, Inc., 909 F.2d 657, 661 (1st Cir. 1990) ("[T]otal want of jurisdiction must be distinguished from an error in the exercise of jurisdiction and, ... only rare instances of a clear usurpation of power will render a judgment void" (brackets and internal quotation marks omitted)).
Greenstein contends that the In Rem Order is void because the Court did not have jurisdiction to consider and grant section 362(d)(4) relief against her property. Greenstein argues that the Court lacked jurisdiction because (1) Greenstein was not a party to the Lipkis case and not then in bankruptcy herself, (2) the Property was not listed by Lipkis in his Schedules of Assets, (3) Lipkis disclaimed any interest in the property or any participation with the Lipkis Deed that purported to transfer the property to him, and (4) the Lipkis Deed was a forgery, such that no interest in the Property was actually transferred to Lipkis or his estate.
The bankruptcy court has 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). The request for entry of the In Rem Order in the Lipkis case fell within the Court's jurisdiction because it was a proceeding under title 11, specifically Bankruptcy
Even if it is assumed that the Court's jurisdiction to consider section 362(d)(4) relief depends on an effective transfer of property to the debtor, the Court made an express factual finding in the In Rem Order that such a transfer occurred. Specifically, the In Rem Order adopts the following findings:
BAP Memorandum at 4-5; see also Case No. 1:11-bk-23430-MT, Dkt. 30 at 2-3.
At this point, Greenstein cannot collaterally attack this finding. See, e.g., Miller v. Deutsche Bank Nat'l Trust Co., 2013 WL 6502498, 2013 U.S. Dist. LEXIS 173521 (N.D. Cal. 2013). In Miller, the debtor made an argument similar to that of Greenstein. The debtor argued that his lenders violated the automatic stay with respect to property that was the subject of a section 362(d)(4) order entered in another debtor's case. The debtor contended that the order should be disregarded because the lenders obtained it without submitting any judicially noticeable evidence that the other debtor had any interest in the subject property. Id. at *2-3, 2013 U.S. Dist. LEXIS 173521, at *7-*8.
Although the debtor in Miller v. Deutsche Bank Nat'l Trust Co. did not frame his argument as one of "jurisdiction," the district court's analysis is instructive. The district court observed that the bankruptcy court had made an express factual finding that the subject property had been transferred as part of a scheme to hinder, delay or defraud a creditor. The district court concluded, therefore, that the
This analysis is consistent with the principle that an order is void on jurisdictional grounds, only if the court entering the order lacked even an "arguable basis" for jurisdiction. Espinosa, 559 U.S. at 271, 130 S.Ct. 1367. To the extent a transfer to Lipkis was necessary to establish jurisdiction, the representations of counsel regarding the contents of the Lipkis Deed provided the Court with at least an "arguable basis" to assert such jurisdiction. Greenstein contends that the Lipkis Deed was a forgery and therefore legally ineffective. But there is no dispute that the Lipkis Deed exists and that it purports to transfer the Property to Lipkis. Even if Greenstein proves that the Lipkis Deed was legally ineffective, and even if the Court's exercise of jurisdiction proves erroneous in hindsight, it does not amount to the "total want of jurisdiction" or "usurpation of power" that would render the In Rem Order void. Id.
Accordingly, the In Rem Order is not void for lack of jurisdiction.
Greenstein also contends that the In Rem Order is void because it was entered against the Property in violation of her procedural rights under the Due Process Clause of the Constitution. Greenstein argues that she was deprived of due process rights as the owner of the Property when the In Rem Order was entered in the Lipkis case without prior notice and an opportunity to be heard. There is no factual dispute that Greenstein did not receive notice of the proposed In Rem Order prior to its entry. But Greenstein repeatedly has acknowledged that she learned of the In Rem Order on May 31, 2012, the day she filed her bankruptcy case, and that she received a copy of the order on June 1, 2012. Case No. 1:11-bk-23430-MT, Case Dkt. 43 at 4, 12-17, Dkt. No. 44 at 4-5, 13-21, Dkt. 45 at 4, 11-20; see also Adv. Dkt. 72-1 at 5-6. The foreclosure on the Property did not occur until July 11, 2012, almost six weeks later. During that time, Greenstein did not exercise her right to seek relief from the In Rem Order under section 362(d)(4) in any court. Her motions in the Lipkis case to vacate the In Rem Order were filed on August 7, 2012, at the earliest, see Case No. 1:11-bk-23430-MT, Case Dkt 43, and the First Adversary Proceeding was not filed until later the same month, see Case No. 1:12-ap-01300-AA, Case Dkt. 1. The present Set Aside Motion was not filed until December 27, 2013. See Case No. 1:12-bk-15099-MB, Case Dkt. 71. Under the totality of these circumstances, the Court concludes that Greenstein was not deprived of procedural due process.
"Due process, unlike some legal rules, is not a technical conception with a fixed content unrelated to time, place and circumstances." Cafeteria Workers v. McElroy, 367 U.S. 886, 895, 81 S.Ct. 1743, 6 L.Ed.2d 1230 (1961). "[D]ue process is flexible and calls for such procedural protections as the particular situation demands." Morrissey v. Brewer, 408 U.S. 471, 481, 92 S.Ct. 2593, 33 L.Ed.2d 484 (1972). As in other areas of the law, the requirements of procedural due process apply to the exercise of in rem jurisdiction. It is well settled that "property cannot be subjected to a court's judgment unless reasonable
The requirements of procedural due process apply to relief under Bankruptcy Code section 362(d)(4). See, e.g., In re First Yorkshire Holdings, Inc., 470 B.R. at 871; In re Dorsey, 476 B.R. at 270; In re Chul Hyun Gong, 2016 WL 4186725, 2016 Bankr. LEXIS 2833 (Bankr. C.D. Cal. August 4, 2016); In re Wilke, 429 B.R. 916, 921 (Bankr. N.D. Ill. 2010). When relief is granted under section 362(d)(4) it is in rem relief. A court's order under section 362(d)(4) burdens the subject real property and, if properly recorded, deprives the owner (and any subsequent owner) of the ability to obtain the protection of the automatic stay in a subsequent bankruptcy case. A section 362(d)(4) order does not deprive the owner of all rights in the property the way an in rem civil forfeiture order does, but it does deprive the owner of significant rights in respect of the property that arise under the Bankruptcy Code.
Many of the cases dealing with due process under section 362(d)(4) deal with the adequacy of notice provided to the property owner prior to the entry of an in rem order. For instance, in In re First Yorkshire Holdings, Inc., on direct appeal from a section 362(d)(4) order, the BAP concluded that the due process rights of the debt-or-owner of the property were satisfied when he was present at the hearing and had ample opportunity to defend the motion. 470 B.R. at 871. In both In re Dorsey, 476 B.R. at 270 and In re Chul Hyun Gong, 2016 WL 4186725, 2016 Bankr. LEXIS 2833, the court held that due process was satisfied when the non-debtor owner of the real property was served with the motion and notice of the hearing. In In re Wilke, 429 B.R. 916, 921 (Bankr. N.D. Ill. 2010), the court addressed its due process concerns by ordering the party requesting relief to serve a trial subpoena on a non-debtor with a potential interest in the subject property.
The foregoing cases are instructive, but none involves the problem of a property owner's effort to seek relief from a section 362(d)(4) order that was entered in another debtor's case, without prior notice to the property owner. When this circumstance has arisen, several courts have held that the property owner was not entitled to notice of the motion that burdened her property. In In re Black v. HSBC Bank, USA, N.A. (In re Black), 514 B.R. 605 (Bankr. E.D. Cal. 2014), the debtors, former owners of real property foreclosed upon by their lenders, sought damages for violation of the automatic stay in connection with a subsequent unlawful detainer proceeding to remove them from the premises. A section 362(d)(4) order had been entered in the prior case of a different debtor. As Greenstein does here, the debtors argued that their due process rights had been violated because they did not receive notice of the motion requesting section 362(d)(4) relief. The court rejected this argument. First, the court held that the owners of the property were not entitled to notice of that motion because they were not debtors in that case. Id. at 614. Second, the court observed that the debtors had "an opportunity in their own bankruptcy
In Hatton v. Ventures Trust (In re Hatton), 2017 WL 4155326, 2017 Bankr. LEXIS 3153 (Bankr. E.D. Cal. September 15, 2017), the debtor alleged that her due process rights were violated when her lender foreclosed on her home, three and a half weeks after she filed her chapter 13 petition. The lender argued that it had proceeded under a properly recorded section 362(d)(4) order entered in the most recent bankruptcy of the debtor's spouse — the third such case. The debtor complained she did not receive notice of the motion seeking entry of that order, even though the lender knew that she was a trustor under the deed of trust. The court rejected the argument. Relying on In re Black, and citing the absence of any contrary authority, the court held that a non-debtor (even a co-owner of the subject property) is simply not entitled to notice of a relief from stay motion filed in a debtor's case. Id. at *3, 2017 Bankr. LEXIS 3153, at *8.
The court in In re Hatton also relied on Alakozai v. Citizens Equity First Credit Union (In re Alakozai), 499 B.R. 698 (9th Cir. B.A.P. 2013). In Alakozai, a husband and wife filed six different bankruptcy cases — some jointly and some individually. In the sixth such case, in which Mrs. Alakozai was the sole debtor, she brought an action for stay violation damages against the lender that had foreclosed on her home and sought to evict her from the premises. The lender argued that it had proceeded to obtain ownership and control of the property pursuant to a section 362(d)(4) order entered in the fourth case, in which Mr. Alakozai had been the sole debtor. Mrs. Alakozai argued that the in rem order entered in her husband's case was invalid because she was not a debtor in that case and not in "privity" with her husband. The BAP rejected these arguments, based on its conclusion that "`[a]n order entered under § 362(d)(4) binds any party asserting an interest in the affected property, including every non-debtor, co-owner, and subsequent owner of the property." Id. at 704 (citing In re First Yorkshire Holdings, Inc., 470 B.R. at 871).
To the extent In re Black and In re Hatton hold that the owner of real property is not entitled to notice of a motion seeking to burden it with a section 362(d)(4) order, the Court respectfully disagrees. Although it is true that nothing in the Bankruptcy Code or Bankruptcy Rules requires such notice, the Court is persuaded that the well-settled principles of procedural due process applicable to in rem proceedings require that the owner of such property receive notice and an opportunity to be heard. This conclusion is consistent with the holdings in In re First Yorkshire Holdings, Inc., In re Dorsey, In re Chul Hyun Gong, and In re Wilke, which recognize the due process issues implicated by section 362(d)(4) relief. Furthermore, the Court concludes that this position is not inconsistent with the holding of In re Alakozai, in which the appellant appears not to have presented the issue as a matter of due process, but instead as a matter of "privity," which the BAP concluded was irrelevant.
The Court is not persuaded, however, that failure to provide the property owner with prior notice of a request for in rem relief is necessarily fatal to the validity of the order. Under the unique structure of section 362(d)(4), "a debtor in a subsequent case under this title may move for relief from such order based upon changed circumstances or for good cause shown, after notice and a hearing." 11 U.S.C. § 362(d)(4). Thus, a property owner
Accordingly, the Court holds that (i) the owner of real property that is the subject of a request for section 362(d)(4) relief should receive notice of that request and an opportunity to be heard prior to entry of the order, but (ii) failure to provide such notice and opportunity does not necessarily constitute a due process violation. Whether there has been a violation will depend on whether the property owner ever gets notice of the in rem order, and whether the notice is adequate to permit the property owner to timely seek relief from that order based on changed circumstances or good cause shown, pursuant to Bankruptcy Code section 362(d)(4).
Here, the Court concludes that Greenstein was not deprived of her procedural due process rights, even though she did not receive prior notice of the request for entry of the stipulated In Rem Order. It would have been preferable that she receive such prior notice, but she did receive subsequent notice of the In Rem Order in ample time and had ample opportunity to seek relief from that order under the "safety valve" in section 362(d)(4). Greenstein acknowledges learning about the In Rem Order on May 31, 2012, the day she filed her bankruptcy. She further acknowledges that she received a copy of the In Rem Order on the very next day, June 1, 2012. The foreclosure of her home did not occur for almost six weeks. During that time she could have sought relief from the In Rem Order pursuant to section 362(d)(4) but did not do so. By the time she commenced the first of her efforts, a motion filed in the Lipkis case on August 7, 2012, it was too late. The property had been lost in foreclosure.
Greenstein contends that she was confused by the In Rem Order and did not believe it applied to her because it was entered in the Lipkis case. But there is nothing ambiguous about the In Rem Order. The order clearly identifies the Property, 5160 Llano Drive, Woodland Hills, and clearly provides that the movant is being granted relief "to enforce its remedies to foreclose upon and obtain possession of the Property." Quoting from the statute itself, the In Rem Order further states: "If recorded in compliance with applicable state law governing notices of interests or liens in the Property, this Order is binding and effective under § 362(d)(4)(A) and (B) in
Any violation of Greenstein's procedural due process rights arising from entry of the In Rem Order without prior notice was remedied by the notice she received after its entry and the availability of relief under Bankruptcy Code section 362(d)(4). The In Rem Order adequately explained that the automatic stay would not be applicable to the Property in any subsequent case (such as Greenstein's case) and provided notice of her opportunity to obtain relief from that order under Bankruptcy Code section 362(d)(4). Greenstein did not timely avail herself of that opportunity. The first of her motions seeking relief from the In Rem Order was filed approximately two months after she obtained a copy of the order — well after the Property had been foreclosed upon. Under these circumstances, Greenstein had adequate notice and an opportunity to be heard in respect of the In Rem Order.
Accordingly, the In Rem Order is not void as a violation of Greenstein's due process rights.
To the extent Greenstein argues that the In Rem Order should be set aside because it was improvidently granted — rather than being void — her arguments also fail as an impermissible collateral attack on a final order of a federal court. An order granting relief from stay is a final order. In re Alakozai, 499 B.R. at 704 (citing Samson v. W. Capital Partners, LLC (In re Blixseth), 684 F.3d 865, 866 n.1 (9th Cir. 2012)). There was no appeal of the In Rem Order and its finality is therefore not subject to challenge. A final order of a federal court may not be collaterally attacked. Id. (citing Watts v. Pinckney, 752 F.2d 406, 410 (9th Cir. 1985), Heritage Pac. Fin. LLC v. Machuca (In re Machuca), 483 B.R. 726, 733 (9th Cir. B.A.P. 2012), and Woods & Erickson, LLP v. Leonard (In re AVI, Inc.), 389 B.R. 721, 731 (9th Cir. B.A.P. 2008)). Therefore, Greenstein cannot now challenge whether entry of the In Rem Order was justified or appropriate.
In her Set Aside Motion, Greenstein argues that she is entitled to relief setting aside the foreclosure and subsequent sale of the Property because those events violated the automatic stay in her case. Because the In Rem Order was a valid, final order of the Court — and not void as she contends — there could be no stay violation. The In Rem Order specifically granted Wells Fargo relief from stay to obtain possession of the Property, and it was properly recorded in accordance with section 362(d)(4). At the time Wells Fargo foreclosed, the Property was not subject to the automatic stay. See 11 U.S.C. §§ 362(d)(4), 362(b)(20). Furthermore, by the time Greenstein sought relief from the In Rem Order, the Property was no longer property of her estate and any restoration of the automatic stay would be futile.
The Defendants move to dismiss the First Amended Complaint in the Third Adversary Proceeding pursuant to four separate motions to dismiss. Each motion is addressed below. All of the Defendants argue that the Court should dismiss the Third Adversary Proceeding pursuant to Federal Rule of Civil Procedure 12(b)(6), made applicable thereto under Federal Rule of Bankruptcy Procedure 7012, for failure to state claims upon which relief can be granted. A motion under Rule 12(b)(6) tests the formal sufficiency of the statement of the claim for relief. In assessing whether a complaint states a claim, detailed factual allegations are not required, but "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, (127 S.Ct. 1955, 167 L.Ed.2d 929, 2007)).
To survive dismissal under Rule 12(b)(6), a complaint's "[f]actual allegations must be enough to raise a right to relief above the speculative level." Twombly, 550 U.S. at 555, 127 S.Ct. 1955. A plaintiff must set forth "sufficient factual matter, accepted as true, to `state a claim that is plausible on its face.'" Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 (quoting Twombly, 550 U.S. at 555, 127 S.Ct. at 1964). A claim is plausible "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. In resolving a Rule 12(b)(6) motion to dismiss, the court must construe the complaint in the light most favorable to the plaintiff, and accept all well-pleaded factual allegations as true. Johnson v. Riverside Healthcare System, LP, 534 F.3d 1116, 1122 (9th Cir. 2008); Knox v. Davis, 260 F.3d 1009, 1012 (9th Cir. 2001). However, the court need not accept legal conclusions as true. Johnson, 534 F.3d at 1122 at 1949-50.
In considering a Rule 12(b)(6) motion, "courts must consider the complaint in its entirety, as well as other sources courts ordinarily examine when ruling on Rule 12(b)(6) motions to dismiss, in particular, documents incorporated into the complaint by reference, and matters of which a court may take judicial notice." Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007) (citations omitted).
"[A] pro se litigant is not excused from knowing the most basic pleading requirements," American Ass'n of Naturopathic Physicians v. Hahurst, 227 F.3d 1104, 1107-08 (9th Cir. 2000), but in applying the foregoing standards enunciated by the Supreme Court, a federal court must construe a pro se complaint liberally, and hold it to less stringent standards than pleadings drafted by lawyers. Hebbe v. Pliler, 611 F.3d 1202, 1205 (9th Cir. 2010). A pro se litigant whose complaint is dismissed upon a Rule 12(b)(6) motion must be given leave to amend, unless it is absolutely clear that the deficiencies of the complaint could not be cured by amendment. Lopez v. Smith, 203 F.3d 1122, 1129 (9th Cir. 2000) (en banc); Noll v. Carlson, 809 F.2d 1446, 1448 (9th Cir. 1987). Where an amendment to the complaint would be futile, the court may exercise its discretion and deny leave to amend. Id.
The Wells Fargo Defendants argue that Greenstein's claims against them are barred by the doctrine of claim preclusion. To the extent this argument pertains to Greenstein's claim that the Wells Fargo Defendants violated the automatic stay by foreclosing on the Property, it suffers from the same infirmities as the claim preclusion argument advanced in respect of the Set Aside Motion, which asserts the same claim. See supra Section IV.A.
To the extent this argument pertains to the myriad other claims asserted by Greenstein under state law, the argument has merit, based on the dismissal with prejudice of the Second State Complaint.
For claim preclusion purposes, "a dismissal with prejudice is the equivalent of a final judgment on the merits, barring the entire cause of action." Boeken v. Philip Morris USA, Inc., 48 Cal.4th 788, 793, 108 Cal.Rptr.3d 806, 230 P.3d 342 (2010) (discussing the preclusive effect of a demurrer sustained without leave to amend); see also Palomar Mobilehome Park Ass'n v. City of San Marcos, 989 F.2d 362, 364 (9th Cir. 1993) ("In California, a judgment entered after the sustaining of a general demurrer is a judgment on the merits, and, to the extent that it adjudicates that
To determine whether two proceedings involve identical causes of action for claim preclusion purposes, California courts apply the "primary rights" theory. Boeken, 48 Cal.4th at 797, 108 Cal.Rptr.3d 806, 230 P.3d 342. Under this theory, a cause of action arises from (1) an antecedent primary right and corresponding duty, and (2) the breach of such primary right and duty (3) by the person who owes the duty. Id. at 797-98, 108 Cal.Rptr.3d 806, 230 P.3d 342. Thus, for purposes of applying the doctrine of claim preclusion, a cause of action "is the right to obtain redress for a harm suffered, regardless of the specific remedy sought or the legal theory." Id. at 798, 108 Cal.Rptr.3d 806, 230 P.3d 342.
The Court finds the claims asserted against the Wells Fargo Defendants in the Second State Court Complaint are the same claims asserted in the First Amended Complaint. Greenstein alleges in both complaints that she was harmed by the statements and conduct of Wells Fargo and its agents and attorneys in connection with the servicing of her loan, the foreclosure of the Property, and legal proceedings in respect of that foreclosure, the Lipkis bankruptcy case, and her own bankruptcy case.
Although the First Amended Complaint provides additional factual detail, mentions some additional legal theories, and specifically names some additional agents and attorneys (i.e., privies of Wells Fargo), both complaints deal with the same primary rights. Both complaints contend that Wells Fargo and its personnel conspired by various wrongful acts to deprive Greenstein of her home and the equity value she allegedly held in it. As such, the dismissal with prejudice of the Second State Court Complaint bars all of the claims in the First Amended Complaint against the Wells Fargo Defendants — other than the stay violation claim — pursuant to the doctrine of claim preclusion under California law.
For these reasons, the Court will dismiss all claims in the First Amended Complaint against the Wells Fargo Defendants based on claim preclusion, other than the stay violation claim.
The Wells Fargo Defendants argue that the validity of the In Rem Order — an issue that is key to Greenstein's stay violation claim — already has been decided against Greenstein and may not be relitigated. This argument fails for the same reasons the Court holds that the issue is not precluded for purposes of the Set Aside Motion. See supra Section IV.B.
For these reasons, the Court will not dismiss any of the claims in the First Amended Complaint based on issue preclusion.
The First Amended Complaint seeks a declaration that the In Rem Order was void, that the foreclosure of the Property by Wells Fargo was void as a violation of the stay, that the subsequent sale of the Property to the Duran Defendants should be set aside, that Greenstein should be
If the Court accepts as true all of the factual allegations regarding the Stay Violation, it would not reach a different conclusion than it has with respect to the Set Aside Motion. The Court has concluded the In Rem Order is not void for lack of jurisdiction, is not void as a violation of Greenstein's due process rights and is not subject to collateral attack. As a result, the Property was not subject to the automatic stay, Wells Fargo's foreclosure and subsequent sale of the property did not violate the stay, and Greenstein is not entitled to any relief based on the alleged stay violation.
For these reasons, the Court must dismiss the Stay Violation Claim for failure to state a claim upon which relief can be granted. This dismissal is with prejudice because further amendment would be futile.
Greenstein asserts claims for fraud. These claims may be broken down into three different categories: (i) a claim for fraud/deceit, (ii) a claim for constructive fraud, and (iii) a claim for fraud on the court. See generally FAC at 22-53. Greenstein also asserts claims for "perjury," id. at 58-59, and "presenting false evidence," id. at 61. Because these claims are essentially the same as the claim asserted for "fraud on the court," they are addressed below, together with the claim for fraud on the court.
Greenstein claims that she was the victim of fraud perpetrated by the Defendants ("Fraud Claim"). See generally FAC at 22-39. Under California law, the "elements of fraud, which give rise to the tort action for deceit, are (1) a misrepresentation, (2) with knowledge of its falsity, (3) with the intent to induce another's reliance on the misrepresentation, (4) justifiable reliance, and (5) resulting damage." Conroy v. Regents of University of California, 45 Cal.4th 1244, 1255, 91 Cal.Rptr.3d 532, 203 P.3d 1127 (2009). In order to satisfy these requirements, the plaintiff must "actually [rely] on the alleged misrepresentations." Id. at 1256, 91 Cal.Rptr.3d 532, 203 P.3d 1127.
Id. (citations and quotations omitted). The Fraud Claim fails because Greenstein does not describe facts that, if true, would entitle her to recover against the Wells Fargo Defendants. Virtually all of Greenstein's allegations regarding misrepresentations pertain to what Wells Fargo or one of its representatives allegedly said to a court, not what they said to Greenstein.
First, she alleges that on July 6, 2010, a Wells Fargo representative told her by telephone he would look into the status of a "Notice of Intent to Foreclose" that she received in the mail, and advise other offices not to take any action toward foreclosure while he was investigating the matter. FAC at ¶ 44. She alleges that prior to this conversation — at an unspecified date or time — an unidentified representative of Wells Fargo told her to ignore the notice. Without any temporal allegations whatsoever, Greenstein also describes conversations with Wells Fargo representatives suggesting (i) that the foreclosure was proceeding because there was no record of Greenstein being on an unemployment forbearance plan (which she seems to have believed), but (ii) that Wells Fargo "wanted to work out payments so that Plaintiff could stay in her home and get current." Id.
Greenstein fails to allege (a) facts showing that these statements were false at the time they were made (with the possible exception of the statement she should ignore the notice of foreclosure) or (b) how any of these statements induced her reasonable, detrimental reliance. Greenstein alleges that "Despite the promises of Wells Fargo, N.A., it was, indeed, moving forward, unbeknownst to Plaintiff, toward foreclosing on Plaintiff's home." Id. at ¶ 46. But she does not allege how she specifically relied on these statements, why such reliance was reasonable, and how she was harmed by her reliance.
Indeed, Greenstein refers in the same paragraph to the filing of her First State Complaint, by which she sought to stop the non-judicial foreclosure of her home by Wells Fargo. Id.; see also Adv. Dkt. 36-1 at 35. By filing that complaint, and obtaining a temporary restraining order from the state court enjoining Wells Fargo from conducting the foreclosure, see Ex. B to FAC, Greenstein shows that she was able to timely seek judicial intervention from the state court prior to the foreclosure, notwithstanding any statements by Wells Fargo that it might not proceed with the foreclosure. In other words, these allegations contradict, rather than support, Greenstein's contention that she was harmed by Wells Fargo's allegedly conflicting statements regarding its intention to foreclose.
Second, Greenstein alleges that in an email exchange dated July 20, 2012 — nine days after foreclosure of the Property — Dean Reeves, counsel to Wells Fargo, represented that Wells Fargo "would take no action toward gaining possession of plaintiff's property due to her contention that the Grant Deed was false/fake unless Wells Fargo Bank, N.A. had a court order allowing it or an agreement was reached between Plaintiff, her bankruptcy trustee and Wells Fargo Bank, N.A." FAC at 6. Greenstein attaches the email as Exhibit H to the First Amended Complaint.
Greenstein alleges that approximately five months later, on December 24, 2012, Wells Fargo filed an unlawful detainer action to obtain possession of the Property, id. at 7, but she does not allege facts establishing that (i) the July 20, 2012, email statement was a misrepresentation, (ii) Reeves knew it was false at the time, (iii) Reeves made the statement to induce Greenstein's reliance in some way, (iv) Greenstein actually relied on Reeves' statement and was justified in doing so, and (v) Greenstein was damaged as a result of that reliance. In addition, the July 20, 2012, email exchange attached to the First Amended Complaint, and other judicially noticeable facts, indicate that a fraud
The July 20, 2012, email exchange reveals that the chapter 7 trustee, Nancy Zamora, then believed that she was entitled to reverse Wells Fargo's foreclosure and sell the Property herself, for the benefit of the estate. Id. at 6. This is the context in which Reeves indicated that Wells Fargo would temporarily forebear eviction activities pending a court order or stipulation of the parties. But the docket indicates that Zamora subsequently abandoned her position — and that Greenstein knew of Zamora's change in position — at least as early as October 1, 2012, which is months before the unlawful detainer proceeding was commenced.
On June 28, 2012, Zamora filed a "Notice of Asset Case" indicating her expectation that the case would result in a dividend to unsecured creditors. Case Dkt. 23. On July 12, 2012, Zamora filed an application to employ a real estate broker to market the Property. Case Dkt. 28. But on October 1, 2012, Greenstein filed her Motion to Compel Trustee to Protect Property of the Estate, arguing that Zamora had "failed, refused and neglected to seek reversal of the improper sale and this is to the prejudice of the estate and the moving party." Case Dkt. 56. Greenstein testified in her supporting declaration that Zamora was now saying she could not sell the Property without the permission of Wells Fargo. Id. at 3. Zamora confirmed her change in position by filing a Notice of Trustee's Intent to Abandon Real Property and Personal Property with respect to the Property, on October 4, 2012, Case Dkt. 58, and her Chapter 7 Trustee's Report of No Distribution on October 17, 2012.
Even earlier, on August 20, 2012, Greenstein commenced her First Adversary Proceeding. The complaint in that proceeding sought, among other things, an injunction against Wells Fargo "from attempting to remove Plaintiff from her house based on the improper sale of it in violation of the automatic stay in her bankruptcy." Case 1:12-ap-01300-AA, Adv. Dkt. 1 at 6. That complaint was dismissed, but on October 24, 2012, Greenstein commenced her Second Adversary Proceeding, wherein she again sought an injunction against her eviction from the Property. See Case No. 1:12-ap-01379-AA, Adv. Dkt. 1 at 7.
All of these circumstances demonstrate that Greenstein did not actually rely to her detriment on the representation contained in Reeves' July 20, 2012, email indicating that Wells Fargo would not seek to obtain possession of the foreclosed Property until the dispute over Zamora's right to sell the property was resolved. Wells Fargo did not seek to obtain possession of the Property until December 24, 2012. Long before that time, Greenstein had learned that Zamora no longer asserted she could sell the Property on behalf of the estate, filed a motion seeking to compel Zamora to do something to preserve the Property for the estate, and filed multiple adversary proceedings seeking to enjoin Wells Fargo from seeking possession of the Property. As such, Greenstein's fraud claim based on Reeves' July 20, 2012, email is not plausible.
For all these reasons, Greenstein's claim for fraud or deceit will be dismissed with prejudice. The Court finds that permitting additional pleading of this claim would be futile.
Based on the identical facts and circumstances on which she bases her fraud claim, Greenstein contends that she is the victim of constructive fraud by Wells Fargo and its representatives. "Unlike actual fraud, constructive fraud depends on the existence of a fiduciary relationship of
Greenstein's claim for constructive fraud not only fails to address the elements of this cause of action, but also in substance fails to allege facts showing that each of these elements can be satisfied. Greenstein does not allege any fiduciary relationship between her and Wells Fargo, and does not identify any intentionally deceptive non-disclosure by Wells Fargo that would have resulted in a breach of its fiduciary duties. Greenstein's allegations revolve around (i) alleged misrepresentations Wells Fargo and its representatives made to Greenstein (addressed in the preceding section on fraud/deceit), and (ii) alleged misrepresentations Wells Fargo and its representatives made to various courts (addressed in the following section on fraud on the court). The First Amended Complaint does not allege facts that would satisfy the requirements of a constructive fraud.
For these reasons, Greenstein's claim for constructive fraud will be dismissed with prejudice. The Court finds that permitting additional pleading of this claim would be futile.
The balance of the fraud allegations in the First Amended Complaint pertain to statements made and material presented by Wells Fargo to various courts. Greenstein claims that these statements and materials were false, perjurious and/or constituted the presentation of false evidence. She argues that this conduct caused her harm, i.e., the loss of her home to foreclosure and the loss of the equity she otherwise might have realized through a bankruptcy sale. The problem is that there is no private right of action based on any of these alleged harms.
Under California law, there is no private right of action for "fraud upon the court." See Whitty v. First Nationwide Mortg. Corp., 2007 WL 628033, at *9-10, 2007 U.S. Dist. LEXIS 12988, at *29-*30 (S.D. Cal. February 26, 2007) (citing Cedars-Sinai Medical Center v. Superior Court, 18 Cal.4th 1, 9, 74 Cal.Rptr.2d 248, 954 P.2d 511 (1998)). In California courts, fraud on the court may be a basis for relief from a judgment, id. at *10, 2007 U.S. Dist. LEXIS 12988, at *30 (citing Olivera v. Grace, 19 Cal.2d 570, 575, 122 P.2d 564 (1942)), but California courts repeatedly have limited the availability of tort claims for litigation-related misconduct. For instance, the California Supreme Court has held that there is no civil remedy in damages against a witness who commits perjury when testifying. See Cedars-Sinai Medical Center v. Superior Court, 18 Cal.4th at 9-10, 74 Cal.Rptr.2d 248, 954 P.2d 511 (citing Taylor v. Bidwell, 65 Cal. 489, 4 P. 491 (1884)). Relying on Taylor, one decision of the California Court of Appeal later held that there can be no tort action for the concealment or withholding of evidence. Agnew v. Parks, 172 Cal.App.2d 756, 756-57, 343 P.2d 118 (1959).
Other Court of Appeal decisions have rejected attempts, under a variety of legal theories, to seek damages for the presentation of false evidence. See Mercury Casualty
Likewise, the court has not located any case recognizing a federal right of action for damages resulting from a fraud on the court, perjury or the presentation of false evidence. See Coultas v. Payne, 2016 U.S. Dist. LEXIS 22215 (D. Or. 2016); Whitty, 2007 WL 628033, at *12-13, 2007 U.S. Dist. LEXIS 12988, at *38-*39; see also Levy v. San Joaquin County Dep't of Child Support Servs., 2013 WL 1891402, at *7, 2013 U.S. Dist. LEXIS 64526, at *19-*20 (N.D. Cal. 2013) (holding that although perjury is a crime there is no private right of action for perjury); Najarro v. Wollman, No. C12-01925 PJH, 2012 WL 1945502, 2012 U.S. Dist. LEXIS 75032 (N.D. Cal. May 30, 2012) (the claims of "obstruction of laws," "obstruction of justice," and "perjury" dismissed because there is no private right of action on any of these claims). Under federal law, fraud on the court is an equitable doctrine justifying the setting aside of a federal judgment. See United States v. Stonehill, 660 F.3d 415, 443-444 (9th Cir. 2011) (citing Chambers v. NASCO, Inc., 501 U.S. 32, 44, 111 S.Ct. 2123, 115 L.Ed.2d 27 (1991)); see also Fed. R. Civ. P. 60(b)(3) (judgment may be set aside based on fraud on the court, misrepresentation or other misconduct by an opposing party).
Accordingly, to the extent that Greenstein seeks damages for an alleged fraud on the court, perjurious testimony, or the presentation of false evidence, she cannot state a claim upon which relief can be granted, because no such cause of action exists under state law or federal law. To the extent Greenstein seeks to vacate a prior court judgment based on such grounds, her complaint likewise fails, as explained below.
The Ninth Circuit has explained that "[b]ecause the power to vacate for fraud on the court `is so great, and so
In re Intermagnetics America, Inc., 926 F.2d 912, 916 (9th Cir. 1991) (quoting 7 J. Moore & J. Lucas, Moore's Federal Practice ¶ 60.33, at 515 (2d ed. 1978)).
Although the First Amended Complaint contains much repetition, it essentially alleges five instances in which Wells Fargo or its representatives committed fraud on a court by misrepresenting facts, presenting false evidence and/or perjuring themselves. The first instance is the alleged misrepresentation of Wells Fargo attorney Dean Reeves to the California Superior Court, in proceedings on the First State Complaint, that he was in possession of the Lipkis Deed. See, e.g., FAC at 28. Shortly after the Case Management Conference in which Reeves referenced the Lipkis Deed, Greenstein alleges Reeves showed her the Lipkis Deed and "plaintiff immediately declared the purported Grant Deed a forgery." Id. Greenstein further alleges that she subsequently investigated the Lipkis Deed and at various times shared with Wells Fargo lawyers evidence that the Lipkis Deed was a forgery.
But these allegations do not entitle Greenstein to relief. First, Greenstein has provided no legal authority enabling this Court to grant relief from a state court judgment based on a fraud on the court. Federal Rule of Civil Procedure 60(b)(3) only confers authority on this Court to grant relief from its own orders. Second, Greenstein has not identified any state court judgment from which she presently seeks relief. To the extent Greenstein alleges that Reeve's representations provided the basis for any relief in the California Superior Court, she suggests that her prior counsel relied on Reeves' representations in stipulating to the state court's limited jurisdiction. See FAC at 4-5. Greenstein also acknowledges, however, that her case was subsequently returned to the unlimited jurisdiction of the state court. See id. at 6; Ex. G to the FAC. In other words, Greenstein identifies no order of the state court, resulting from these alleged misrepresentations, from which she now requires relief.
The second instance of fraud on the court alleged by Greenstein occurred when Wells Fargo's attorney Marisol Nagata (together with Lipkis' attorney, Steven Wolvek) presented the stipulated In Rem Order in the Lipkis Case. See FAC at 31-32, 61.
The representations contained in the In Rem Order are set forth in a continuation page appended to the Court's form relief from stay order:
Case No. 1:11-bk-23430-MT, Dkt. 28 at 5.
Even if all of Greenstein's allegations are accepted as true, the foregoing representations by counsel for Wells Fargo (and counsel for Lipkis) do not rise to the level of a fraud on the Court. Although these representations do not specifically reference Lipkis' bankruptcy schedules, they do indicate that Lipkis disclaimed any interest in the Property. Thus, although they do not specifically identify Greenstein as the owner of the Property, the inescapable inference from these representations is that someone other than Lipkis is the rightful owner the Property. Further, although they do not specifically identify the Lipkis Deed, they do reference an unauthorized transfer of the Property to Lipkis.
Greenstein nevertheless insists that the parties' representation that the Property had been "transferred" was false and misleading because (i) the Lipkis Deed was a forgery, (ii) the Lipkis Deed did not effectively transfer an interest in property to Lipkis, and (iii) Greenstein had advised Wells Fargo of facts supporting the foregoing conclusions. Accepting these allegations as true, they do not amount to a fraud on the court.
Bankruptcy courts routinely grant relief under Bankruptcy Code section 362(d)(4) where a deed "purports" to transfer an interest in property to a debtor, as part of scheme to hinder, delay or defraud a creditor. See, e.g., In re Dorsey, 476 B.R. at 266; In re 4th St. E. Inv'rs, Inc., 474 B.R. at 711. A deed that purports to transfer a property interest to a debtor will be effective in delaying a pending foreclosure sale because of its mere existence, regardless
Thus, even if it is assumed that the Lipkis Deed is a forgery, and Wells Fargo's counsel knew of facts suggesting as much, failure to disclose those facts in the stipulation would not constitute a fraud on the court. Under these circumstances, the better practice would have been to specifically reference the Lipkis Deed, describe it as a purported transfer of an interest in the Property, and disclose the known issues surrounding its authenticity. But the failure of counsel to disclose this information would not constitute a fraud that "defile[s] the court itself" or that renders the "judicial machinery [unable to] perform in the usual manner its impartial task of adjudging cases." See In re Intermagnetics America, Inc., 926 F.2d at 916. These details would give the Court a more fulsome understanding of the circumstances presented, but would not likely change the outcome. To the contrary, the prospect that the Lipkis Deed was a forgery would likely provide additional support for the conclusion that there was a scheme afoot to hinder and delay Wells Fargo's foreclosure efforts by abusing the automatic stay in the Lipkis case. Accordingly, Greenstein is not entitled to relief from the In Rem Order based on the representations made by Wells Fargo (and Lipkis) in that order.
The third instance of fraud on the court alleged by Greenstein occurred when Wells Fargo's attorney, Dean Reaves, stated in a pleading in support of a motion to dismiss the First Adversary Proceeding, as follows:
FAC at 60, quoting Case No. 1:12-ap-01300-AA, Adv. Dkt. No. 18 at 3-4. Greenstein contends that this statement was "false testimony" by Reeves. Id. at 60.
But these allegations do not establish a cause of action against Reeves or Wells Fargo. The only remedy for presenting false testimony or committing fraud on the court is to set aside the order procured by such conduct. In this instance, Greenstein complains about a statement made in a brief supporting dismissal of the First Adversary Proceeding. Id. at 60.
The fourth and fifth instances of fraud on the court alleged by Greenstein occurred in connection with her appeal to the BAP from the original order denying the Set Aside Motion. Greenstein complains that in Wells Fargo's opening brief, attorney Robert C. Little stated, "A grant deed appeared to be recorded against the property transferring title from Greenstein to Roger Lipkis," and later stated, "It was later determined that the property had been transferred to Lipkis without his knowledge or Wells Fargo Bank, N.A.'s consent and that Lipkis' Chapter 13 bankruptcy was being used as part of a scheme." FAC at 36-37. Greenstein also complains that attorney Robert A. Bailey misrepresented material facts to the BAP at oral argument, when he gave an equivocal answer to a question regarding whether the Lipkis Deed had been recorded.
As a basis for establishing a fraud on the court, these allegations suffer the same infirmities as those based on the representations in the stipulated In Rem Order. But more importantly, these allegations do not pertain to any court order that this Court has any power to set aside. Federal Rule of Civil Procedure 60(b)(3) does not give this Court authority to set aside an order of the BAP. Moreover, the appeal in which these allegedly false statements were made was resolved in favor of Greenstein when it was vacated and remanded for further proceedings. Accordingly, these allegations do not amount to a claim for fraud on the court, or any other cause of action.
Finally, in addition to her allegations regarding statements made to various courts regarding the effect of the Lipkis Deed, Greenstein alleges that the Chief Executive Officer of Wells Fargo, John Stumpf, with the assistance of unnamed accomplices, (i) "physically created" the Lipkis Deed and (ii) "put together a scheme to block and bypass any automatic stay plaintiff would receive in a bankruptcy she might file, which would stop Wells Fargo Bank, N.A. from continuing with a foreclosure it had started on her property." These allegations are so implausible as to warrant dismissal under Twombly and Iqbal.
At the time the Lipkis Deed materialized, Wells Fargo was pursuing its foreclosure of the Property without the impediment of a bankruptcy by Greenstein. See FAC at 4, 28-29. That anyone at Wells Fargo (let alone its CEO John Stumpf) would fabricate the Lipkis Deed to deprive Greenstein of her rights in an as-yet unfiled bankruptcy makes no sense. The appearance of such a deed in the Lipkis case would stall Wells Fargo's foreclosure and require it to seek relief from the automatic stay. Wells Fargo obtained that relief pursuant to the stipulated In Rem Order. Pursuant to the terms of section 362(d)(4), the relief accorded Wells Fargo under the In Rem Order was reviewable by the court presiding over any future case involving the Property.
In other words, by obtaining the In Rem Order, it was impossible for Wells Fargo
For these reasons, Greenstein's claims for fraud on the court, perjury, and the presentation of false evidence will be dismissed with prejudice and without leave to amend. The Court concludes that these claims cannot be remedied by additional pleading.
The First Amended Complaint alleges a claim for "emotional distress and personal injury." See FAC at 53-55. According to Greenstein, the events described in the complaint resulted in a litany of emotional and physical problems for Greenstein. She alleges "Defendants knew their actions detailed in this complaint would cause plaintiff the harm detailed or should have reasonably known it and this was their intent, basically to emotionally and physically beat plaintiff down so she could not fight them on their illegal actions." Id. at 53-55. The Court construes these allegations as an attempt to plead intentional infliction of emotional distress under California law.
A cause of action for intentional infliction of emotional distress exists when there is (1) extreme and outrageous conduct by the defendant with the intention of causing, or reckless disregard of the probability of causing, emotional distress; (2) the plaintiff's suffering severe or extreme emotional distress; and (3) actual and proximate causation of the emotional distress by the defendant's outrageous conduct. Hughes v. Pair, 46 Cal.4th 1035, 95 Cal.Rptr.3d 636, 209 P.3d 963 (2009) (internal quotations omitted) (citing Potter v. Firestone Tire & Rubber Co., 6 Cal.4th 965, 1001, 25 Cal.Rptr.2d 550, 863 P.2d 795 (1993) and Christensen v. Superior Court, 54 Cal.3d 868, 903, 2 Cal.Rptr.2d 79, 820 P.2d 181 (1991)). A defendant's conduct is "outrageous" when it is "so extreme as to exceed all bounds of that usually tolerated in a civilized community." Id. at 1051, 95 Cal.Rptr.3d 636, 209 P.3d 963 (quoting Potter, 6 Cal.4th at 1001, 25 Cal.Rptr.2d 550, 863 P.2d 795).
Greenstein's allegations are inadequate to state a claim for intentional infliction of emotional distress. The central problem is that she fails to plead any "extreme and outrageous conduct" that would satisfy the first element of this cause of action. The gravamen of the complaint is that Wells Fargo obtained the In Rem Order and deprived Greenstein of the automatic stay with respect to the Property. Pursuant to Bankruptcy Code section 362(d)(4), she had an opportunity to seek relief from that order and impose the automatic stay, but failed to request that relief until after the Property had been foreclosed upon and was no longer property of her bankruptcy estate.
For these reasons, Greenstein's claim for intentional infliction of emotional distress will be dismissed with prejudice. The Court finds that permitting Greenstein to replead this claim would be futile.
The First Amended Complaint seeks to quiet title to the Property. See FAC at 55-58. Greenstein alleges that unknown persons
Accordingly, the Court will enter a separate order DISMISSING WITH PREJUDICE the First Amended Complaint against the Wells Fargo Defendants.
Nagata and Wolvek argue that the First Amended Complaint (i.e., in the Third Adversary Proceeding) should be dismissed because the claims asserted against them are barred by the doctrine of claim preclusion. The Court agrees. Greenstein's essential claim against Nagata and Wolvek is that Greenstein suffered damages as a result of allegedly false statements they made to the Court by way of the stipulated In Rem Order. This claim was asserted in the Second Adversary Proceeding, which was dismissed for failure to state a claim, without leave to amend, by orders entered on December 26 and 27, 2012. See Case No. 1:12-ap-01379-MB, Adv. Dkt. 25, 26. Greenstein did not appeal these orders. This is also the same claim Greenstein asserted against Nagata and Wolvek in the Second State Complaint. See Adv. Dkt. 36 at Ex. L. On December 20, 2013, the California Superior Court granted demurrers to the Second State Complaint without leave to amend. See id., Ex. M. It appears Greenstein did not appeal these rulings either.
The preclusive effect of the orders dismissing Nagata and Wolvek from the Second Adversary Proceeding is determined under federal law. Taylor v. Sturgell, 553 U.S. at 891, 128 S.Ct. 2161. All three requirements for claim preclusion under federal law are satisfied. See Owens, 244 F.3d at 713. First, the claims asserted against Nagata and Wolvek in the Second Adversary Proceeding are the same claims asserted against them in the First Amended Complaint. Second, dismissal of the Second Adversary Proceeding for failure to state a claim, without leave to amend, constitutes a final judgment on the merits. Third, the same parties are involved in both proceedings. Accordingly, the First Amended Complaint against Nagata and Wolvek is barred under the federal doctrine of claim preclusion.
The preclusive effect of the orders dismissing the Second State Action is determined under California law. See Furnace, 838 F.3d at 1023. All three requirements for claim preclusion under California law are satisfied. Citizens for Open Gov't v. City of Lodi, 205 Cal.App.4th at 324, 140 Cal.Rptr.3d 459. First, the claims asserted against Nagata and Wolvek in the Second State Complaint are the same claims asserted against them in the First Amended Complaint. Second, the granting of demurrers without leave to amend constitutes a final judgment under California law. Boeken,
Accordingly, the Court will enter separate orders DISMISSING WITH PREJUDICE the First Amended Complaint against Nagata and Wolvek.
The body of the First Amended Complaint mentions the Duran Defendants twice, only to state that they purchased the Property from Wells Fargo. This sole allegation is insufficient to support any cause of action against the Duran Defendants. To the extent Greenstein named the Duran Defendants because one of the causes of action is to quiet title to the Property — an inference on the part of the Court
Accordingly, the Court will enter a separate order DISMISSING WITH PREJUDICE the First Amended Complaint against the Duran Defendants.
In addition to their motion to dismiss for failure to state claims on which relief can be granted, the Wells Fargo Defendants have filed a special motion to strike plaintiffs' state law claims for relief under California's anti-SLAPP statute and for an award of sanctions against Greenstein in the amount of $2,887.50. See Adv. Dkt. 35. Cal. Code Civ. Proc, § 425.16. This statute enables a court to strike claims that constitute "Strategic Lawsuits against Public Participation" or "SLAPPs". Batzel v. Smith, 333 F.3d 1018, 1023-24 (9th Cir. 2003). These are lawsuits that "masquerade as ordinary lawsuits," but are brought to deter common citizens from expressing their political or legal rights or to punish them for doing so. Id. at 1024. Because California law recognizes the protection of the anti-SLAPP statute as a substantive immunity from suit, this Court recognizes that immunity with respect to claims based on California law. Id. at 1025. However, because the Court is dismissing all of the state law claims in the First Amended Complaint, against all of the Defendants, for failure to state a claim upon which relief can be granted under Rule 12(b)(6), the Court concludes that the Motion to Strike is moot. See, e.g., McMillen v. Chaker, 2017 U.S. Dist. LEXIS 139020 at *14; Burnett v. Twentieth Century Fox Film Corp., 491 F.Supp.2d 962, 974 (C.D. Cal. 2007); Phillips v. Seattle Times Co., 818 F.Supp.2d 1277, 1286-87 (W.D. Wa. 2011). Because the entirety of the First Amended Complaint is being dismissed, there are no claims to strike.
Accordingly, the Court will enter a separate order DENYING AS MOOT the Motion to Strike.
In conjunction with defendant Steven Wolvek's motion to dismiss, he seeks a vexatious litigant order enjoining Laurel Greenstein from filing any further actions against Wolvek based on similar facts or issues without first obtaining leave of court (the "Vexatious Litigant Request"). Adv. Dkt. 32. For the reasons discussed below, the Vexatious Litigant Request is denied.
Federal courts have the authority to regulate the conduct of abusive litigants by imposing carefully tailored restrictions under appropriate circumstances. Ringgold-Lockhart v. Cty. Of Los Angeles, 761 F.3d 1057, 1061 (9th Cir. 2014). One such restriction is provided by the All Writs Act, 28 U.S.C. § 1651(a), which permits a court to enjoin filing by litigants with abusive and lengthy litigation histories. De Long v. Hennessey, 912 F.2d 1144, 1147 (9th Cir. 1990).
Based on the constitutional underpinnings of the general right to court access, "`pre-filing orders should rarely be filed,' and only if courts comply with certain procedural and substantive requirements.'" Ringgold-Lockhart, 761 F.3d at 1062 (quoting De Long v. Hennessey, 912 F.2d at 1147). "Courts should not enter pre-filing orders with undue haste because such sanctions can tread on a litigant's due process right of access to the courts." Molski v. Evergreen Dynasty Corp., 500 F.3d 1047, 1057 (9th Cir. 2007). Further, courts should exercise particular caution before using such measures against a pro se plaintiff. See Pavilonis v. King, 626 F.2d 1075, 1079 (1st Cir. 1980) (cited with approval in De Long, 912 F.2d at 1147).
A court seeking to impose a pre-filing injunction on a party must: "(1) give litigants notice and `an opportunity to oppose the order before it is entered'; (2) compile an adequate record for appellate review, including `a listing of all the cases and motions that led the district court to conclude that a vexatious litigant order was needed'; (3) make substantive findings of frivolousness or harassment; and (4) tailor the order narrowly so as `to closely fit the specific vice encountered.'" Ringgold-Lockhart, 761 F.3d at 1062 (quoting De Long, 912 F.2d at 1147-48). The first two facts are procedural; the second two are substantive.
Before a court issues a pre-filing injunction, it must make substantive findings of frivolousness or harassment by a litigant. Ringgold-Lockhart, 761 F.3d at 1064. Courts must make these findings in light of both the number and content of the filings — either one on its own is insufficient:
Id. (internal quotations and citations omitted).
The two substantive factors help define "vexatious litigant" and "construct a remedy that will stop the litigant's abusive behavior while not unduly infringing the litigant's right to access the courts." Molski, 500 F.3d at 1058. The Ninth Circuit Court of Appeals has held that a five-factor test used in the Second Circuit "provides a helpful framework for applying the two substantive factors." Id. (applying Safir v. U.S. Lines, Inc., 792 F.2d 19, 24 (2d Cir. 1986)); see also Ringgold-Lockhart, 761 F.3d at 1062. The Safir factors are as follows:
Safir, 792 F.2d at 24.
Wolvek argues that Greenstein should be declared a vexatious litigant because the adversary proceeding at bar is the "fifth adversary proceeding against [Wolvek] on the same set of facts." Adv. Dkt. 32. Wolvek contends that Greenstein's claims have been frivolous and that the multiplicity of actions she has commenced has been harassing. Wolvek's analysis, however, (i) rests on an inadequate description of the procedural history and (ii) does not adequately account for the all of the legal factors this Court must consider in making a vexatious litigant determination.
The first proceeding Wolvek identifies is not itself an adversary proceeding, but instead a series of motions filed in the Lipkis case. Greenstein filed her motion to set aside the In Rem Order on August 7, 2012, amended it on August 14, 2012, and thereafter filed a motion for contempt. Case No. 1:11-bk-23430-MT, Dkt. 43, 44, 45. The motions were denied on the basis that the "adversary proceeding filed by Movant [was] the proper mechanism to address Movant's complaints." Id., Dkt. 50, 51, 52.
The next three proceedings Wolvek identifies are adversary proceedings: (1) the First Adversary Proceeding, filed on August 20, 2012, and dismissed on October 24, 2012, on the basis that Greenstein lacked standing as a chapter 7 debtor to assert the claims in her complaint, (2) the Second Adversary Proceeding, filed on October 24, 2012, and dismissed on December 26, 2012, without leave to amend for failure to state a claim upon which relief could be granted, and (3) the Third Adversary Proceeding, in which the original complaint was filed on October 6, 2015, and dismissed on December 15, 2015, and in which the First Amended Complaint was thereafter filed on February 19, 2016. Notably, Wolvek was not named as a defendant in the original complaint in the Third Adversary Proceeding, see Adv. Dkt. 1, but was named as a defendant in the First Amended Complaint.
The fifth proceeding Wolvek identifies is the Second State Complaint filed in the California Superior Court on August 15, 2013, and thereafter dismissed without leave to amend on December 20, 2013. Adv. Dkt. 36 at Ex. L, M.
Greenstein is proceeding pro se to remedy what she believes was the wrongful foreclosure of her home of approximately twenty years. She has alleged in all of these proceedings that Wolvek harmed her when he made certain false representations to the Court that resulted in entry of the In Rem Order. That Greenstein has repeated this allegation in multiple proceedings — and has been unsuccessful in any obtaining relief — does not mean that her commencement of these proceedings has been abusive. The Court finds that she has been aggressively pursuing her rights, and at times has been misguided in her efforts, but the Court is not prepared to
Greenstein started with motions seeking relief from the In Rem Order in the Lipkis case. The Court denied those motions approximately four months later, because Greenstein had in the meantime commenced adversary proceedings seeking the same relief, among other forms of relief, against a series of parties. Greenstein's course of conduct was by no means efficient. But it does not appear to the Court to be a pattern of abuse. Greenstein could not have asserted in a motion all of the relief that she ultimately sought in her adversary proceedings. That she figured this out after the Lipkis motions had been filed, and commenced an adversary proceeding before the Lipkis motions had been ruled upon, reflects a lack of legal experience, but an effort nonetheless to comply with the Court's procedural rules. Thus, though there were multiple proceedings commenced, the Court does not believe it is appropriate to count them as duplicative and harassing.
Likewise, that there have been three adversary proceedings does not compel such a conclusion either. The First Adversary Proceeding was not dismissed on the merits, but instead because Greenstein lacked standing. Once she obtained standing, she commenced the Second Adversary Proceeding. That proceeding ultimately was dismissed with prejudice for failure to state a claim, but that dismissal was the first time Greenstein's claim against Wolvek was actually adjudicated on the merits by this Court. Greenstein thereafter commenced the Third Adversary Proceeding, but her original complaint in that action named only Wells Fargo. It did not name Wolvek as a defendant.
Wolvek was added to the Third Adversary Proceeding only after the Court dismissed the original complaint with leave to amend. The Court explained at that time that any subsequent complaint would need to contain specific factual allegations identifying the "who, what, how and when" of Greenstein's fraud allegations. The First Amended Complaint filed in response to that ruling contained additional information, but it also renamed Wolvek as a defendant (as well as other individual defendants). To be sure, the Court did not invite Greenstein to rename a defendant that the Court had already dismissed with prejudice. It appears, however, that Greenstein misconstrued the Court's instructions to provide greater detail in her amended complaint regarding the persons that allegedly committed a fraud against her, and the specific conduct for which each of those persons were responsible.
All that being said, the Court is not aware of any explanation for Greenstein's filing of the Second State Complaint after the Court dismissed the Second Adversary Proceeding. Greenstein's complaint against Wolvek in the state court was doomed from the very start because it contained the same claims against Wolvek that were rejected by the Court in its dismissal of the Second Adversary Proceeding. The Court concludes, however, that the filing of the Second State Complaint is insufficient alone to justify the imposition of a pre-filing injunction that restricts Greenstein's access to this Court. Indeed, even if the Court is wrong in its assessment of the reasons why Greenstein named Wolvek in the First Amended Complaint, the Court is not persuaded that these two proceedings alone are sufficient to constitute a series of "frivolous" or "harassing" proceedings.
The Court recognizes that these proceedings have imposed a burden on Wolvek, but a pre-filing injunction is not justified under the circumstances. If Greenstein commences a new proceeding
For all the foregoing reasons, the Court will enter separate orders (i) DENYING the Set Aside Motion; (ii) GRANTING the Motions to Dismiss, as to the Wells Fargo Defendants, Nagata, Wolvek, and the Duran Defendants, and DISMISSING WITH PREJUDICE the First Amended Complaint; (iii) DENYING AS MOOT the Motion to Strike; and (iv) DENYING the Vexatious Litigant Request.
The Court also takes judicial notice that (i) there is no notice of appeal reflected on the state court docket, see id., and (ii) there is no appellate record associated with the First State Complaint with the California Court of Appeal for the Second District, see California Courts, Appellate Courts Case Information, http://appellatecases.courtinfo.ca.gov/search.cfm?dist=2.
The Court also has considered and hereby grants the following requests for judicial notice:
