DIANE DAVIS, Bankruptcy Judge.
This Memorandum Opinion is issued in support of certification of a direct appeal to the United States Court of Appeals for the Second Circuit.
This certification is made pursuant to 28 U.S.C. § 158(d)(2). It is governed by Federal Rule of Bankruptcy Procedure 8006. Pursuant to Federal Rule of Bankruptcy Procedure 8006(b), the matter that is the subject of a direct appeal is pending in the bankruptcy court for thirty (30) days after the effective date under Federal Rule of Bankruptcy Procedure 8002 of the first notice of appeal of the order for which direct review is sought. The docket in this case reflects the following:
Based on the preceding events, the Court concludes that this matter remains pending before it for purposes of Federal Rule of Bankruptcy Procedure 8006(b). The Court therefore has jurisdiction to decide the Letter Motion filed by Saticoy Bay LLC Series 2110 Club Meadows ("Saticoy Bay").
Federal Rule of Bankruptcy Procedure 8006(e)(1) requires this Court to include the information required by Federal Rule of Bankruptcy Procedure 8006(f)(2)(A)-(D). This information consists of the facts necessary to understand the question presented on appeal, the question itself, the relief sought, and the reasons for the certification.
On April 25, 2012, prior to the voluntary chapter 7 bankruptcy filing by Travis G. Riley and Denise E. Riley ("Debtors"), the Legacy Village Property Owners Association (the "HOA") recorded a Notice of Delinquent Assessment Lien against Debtors' real property located at 2110 Club Meadows Drive, Henderson, Nevada (the "Real Property") for delinquent homeowners' association dues in the amount of $1,000.00. Subsequently, the HOA recorded a Notice of Default and Election to Sell under Homeowners' Association Lien in the Clark County Recorder's Office on September 11, 2012. Nearly a year later, on August 15, 2013, Debtors filed their bankruptcy case. Debtors' schedules listed the Real Property and identified JPMorgan Chase Bank, N.A. ("Chase") as the mortgagee holding a $252,000.00 mortgage on the Real Property. Debtors' schedules also listed the HOA as an unsecured creditor with a claim in the amount of $1,000.00 for its delinquent dues, but did not provide for the secured HOA lien. The HOA did not file a proof of claim or object to its claim classification in Debtors' petition. Debtors indicated in their Statement of Intention that they planned to surrender the Real Property.
On August 20, 2013, five days after Debtors' bankruptcy filing, the HOA sent a Notice of Trustee's Sale to numerous entities, including Chase and Debtors. On August 26 and 27, 2013, the HOA posted Notices of Sale in six public places in Clark County, Nevada, and personally served the Notice upon the occupant of the premises. On August 30, 2013, the HOA recorded the Notice of Sale in the official records. Notwithstanding the automatic stay imposed by 11 U.S.C. § 362(a), the HOA acted without requesting and receiving relief from the Court to lift the automatic stay pursuant to 11 U.S.C. § 362(d). Debtors received their discharge on November 25, 2013. Eight days after Debtors received their discharge, Saticoy Bay purchased the premises from the HOA at a foreclosure sale. Debtors' bankruptcy case was subsequently closed on December 11, 2013, and Saticoy Bay recorded its deed on December 12, 2013.
Saticoy Bay commenced an action against Chase to quiet title in Nevada state court ("Nevada State Court" or "Quiet Title Action") on January 8, 2014, seeking to quiet title and obtain a declaration that the non-judicial foreclosure sale extinguished the first position Deed of Trust held by Chase under Nevada state law. The parties have cross motions for summary judgment pending, but stayed, in the Quiet Title Action, the outcome of which is dependent upon whether this Court ultimately issues an order annulling the automatic stay with respect to the Real Property.
This appeal presents one main and one secondary question of law.
Main Question: "How is the term `party in interest' defined for purposes of Federal Rule of Bankruptcy Procedure 5010?"
Secondary Question: "Does a post-petition purchaser of former property of a bankruptcy estate have standing under Federal Rule of Bankruptcy Procedure 5010 and 11 U.S.C. § 350(b) to move to reopen a bankruptcy case for purposes of seeking retroactive stay relief?"
Saticoy Bay seeks to reverse the Court's ruling that it lacks standing to reopen Debtors' bankruptcy case in order to file a subsequent motion seeking nunc pro tunc annulment of the automatic stay imposed by 11 U.S.C. § 362(a) upon the filing of Debtors' bankruptcy case, thereby validating the HOA's foreclosure action and Saticoy Bay's purchase of the subject Real Property. The parties do not dispute that the Real Property became property of Debtors' bankruptcy estate upon their filing, and that the HOA's foreclosure and sale of such Real Property could otherwise be deemed void ab initio as a violation of the automatic stay.
Federal Rule of Bankruptcy Procedure 8006(f)(2)(D) requires an examination of the factors set forth in 28 U.S.C. § 158(d)(2)(A)(i)-(iii), and a determination of whether such factors apply. The factors are whether: (1) the judgment, order, or decree involves a question of law as to which there is no controlling decision of the court of appeals for the circuit or the Supreme Court of the United States, or involves a matter of public importance; (2) the judgment, order, or decree involves a question of law requiring resolution of conflicting decisions; or (3) an immediate appeal from the judgment, order, or decree may materially advance the progress of the case or proceeding in which the appeal is taken.
Saticoy Bay cites the first factor in support of its certification request. For the foregoing reasons, the Court agrees that certification is warranted under this subsection of 28 U.S.C. § 158(d)(2)(A). The other subsections are not implicated.
As stated in the Court's Memorandum-Decision and Order, "party in interest" is not defined in Title 11 of the United States Code or the Federal Rules of Bankruptcy Procedure as it relates to chapter 7 generally or Federal Rule of Bankruptcy Procedure 5010 specifically. Rather, bankruptcy courts within the Second Circuit are left to their discretion when deciding who may be a party in interest for purposes of reopening a bankruptcy case. While the Second Circuit has not defined the term "party in interest" as it applies to Federal Rule of Bankruptcy Procedure 5010 specifically, other circuits have done so, and these decisions guided this Court. See Alexandria Consulting Group, LLC v. Alexandria Surveys Int'l LLC, 589 F. App'x 126 (4th Cir. 2014) (holding that because the movant was not "the debtor, the trustee or a creditor" of the debtor, or "a participant in the original case," it lacked standing to reopen under Federal Rule of Bankruptcy Procedure 5010 as a party in interest); Goldenberg v. Deutsche Bank Nat'l Trust Co. (In re Papazov), 610 F. App'x 700 (9th Cir. 2015) (holding that the enumerated list of "parties in interest" in 11 U.S.C. § 1109(b) may guide a court in determining the scope of potential movants under Federal Rule of Bankruptcy Procedure 5010 in a chapter 7 bankruptcy, and in determining whether the movant "lacked a sufficient stake in [the debtor's] bankruptcy proceeding"); Nintendo Co. v. Patten (In re Alpex Computer Corp.), 71 F.3d 353 (10th Cir. 1995) (holding that, while "party in interest" is "generally understood to include all persons whose pecuniary interests are directly affected by the bankruptcy proceedings," case law implicitly confines the concept to "debtors, creditors, or trustees, each with a particular and direct stake in reopening cognizable under the Bankruptcy Code").
Moreover, as raised by Saticoy Bay, at least one other bankruptcy court outside the Second Circuit has permitted the reopening of a bankruptcy case based upon the ex parte motion of a post-petition purchaser of real property for the explicit purpose of retroactively annulling the automatic stay to validate the foreclosure sale. In re Burke, Case No. 12-12508-MKN, 2016 Bankr. LEXIS 2525 (Bankr. D. Nev. April 15, 2016) (annulling the automatic stay to remedy the homeowner association's violation that had taken place when it initiated the foreclosure process by sending and recording the Notice of Delinquent Assessment Lien prior to the chapter 7 trustee's abandonment of the bankruptcy estate's assets).
While this Court does not wish to burden the Second Circuit unnecessarily, it finds that certification is appropriate in the absence of controlling case law setting forth a general standard for determining who qualifies as a "party in interest" for purposes of reopening a bankruptcy case under Federal Rule of Bankruptcy Procedure 5010 and 11 U.S.C. § 350(b). Bankruptcy courts are frequently met with such motions, and given the high rate of foreclosures, the issue presented in this case is likely to repeat itself.
Attached as Exhibit "A" is the Court's September 28, 2017 Memorandum-Decision and Order.
As required by Federal Rule of Bankruptcy Procedure 8006(f)(5), a separate Certification will be docketed and served together with this Memorandum Opinion in accordance with Federal Rule of Bankruptcy Procedure 8003(c)(1).
Before the Court is a Motion to Reopen Case pursuant to Bankruptcy Code § 350(b)
The Motion is a contested matter under Rule 9014. The Court has jurisdiction over the parties and subject matter of this proceeding pursuant to 28 U.S.C. §§ 1334(b), 157(a), 157(b)(1), and 157(b)(2)(A).
Saticoy Bay moves to reopen the chapter 7 bankruptcy case filed by Travis G. Riley and Denise E. Riley ("Debtors") in order to annul the automatic stay nunc pro tunc. The facts of this case are largely undisputed. On April 25, 2012, prior to Debtors' bankruptcy filing, the Legacy Village Property Owners Association (the "HOA") recorded a Notice of Delinquent Assessment Lien against Debtors' real property located at 2110 Club Meadows Drive, Henderson, Nevada (the "Property") for delinquent homeowners' association dues in the amount of $1,000.00. Subsequently, the HOA recorded a Notice of Default and Election to Sell under Homeowners' Association Lien in the Clark County Recorder's Office on September 11, 2012. Nearly a year later, on August 15, 2013, Debtors filed a voluntary petition for chapter 7 relief. Debtors listed the Property on Schedule A. On Schedule D, Debtors indicated that Chase held a $252,000.00 mortgage on the Property. Debtors listed the HOA as an unsecured creditor on Schedule F with a claim in the amount of $1,000.00 for its delinquent dues, but did not provide for the secured HOA lien. The HOA did not file a proof of claim or object to its claim classification in Debtors' petition. Debtors indicated their intent to surrender the Property in their Statement of Intention ("SOI").
On August 20, 2013, five days after Debtors filed for relief under the Code, the HOA sent a Notice of Trustee's Sale to numerous entities, including Chase and Debtors. On August 26 and 27, 2013, the HOA posted Notices of Sale in six public places in Clark County, Nevada, and personally served the Notice upon the occupant of the premises. On August 30, 2013, the HOA recorded the Notice of Sale in the official records. Notwithstanding the automatic stay imposed by § 362(a), the HOA acted without requesting and receiving relief from the Court to lift the automatic stay pursuant to § 362(d). Debtors received their discharge on November 25, 2013. Eight days after Debtors received their discharge, Movant, Saticoy Bay, purchased the premises from the HOA at a foreclosure sale. Debtors' bankruptcy case was subsequently closed on December 11, 2013, and Saticoy Bay recorded its deed on December 12, 2013.
Saticoy Bay commenced an action to quiet title in Nevada state court ("Nevada State Court" or "Quiet Title Action") against Chase on January 8, 2014, seeking to quiet title and obtain a declaration that the non-judicial foreclosure sale extinguished the first position Deed of Trust held by Chase under Nevada state law. Upon Debtors' motion and for reasons unrelated to the HOA or the Quiet Title Action, their case was reopened on November 12, 2014, but thereafter closed on February 11, 2015.
On September 21, 2016, the Nevada State Court ruled on cross motions for summary judgment in the Quiet Title Action. Both parties have provided the Court with the hearing minutes. The Nevada State Court ordered:
Chase Obj. Mot. Reopen Ex. 6; Saticoy Bay Aff. Supp. Mot. Reopen Ex. G.
Chase attached the declaration of Chet A. Glover, attorney for Chase in the Quiet Title Action, as an exhibit to their Objection. Chase Obj. Mot. Reopen Ex. 1. According to Mr. Glover, if Saticoy Bay is granted summary judgment, then Chase's lien will be extinguished and Saticoy Bay will take its interest in the Property unencumbered. Id at ¶ 12. If this Court does not grant Saticoy Bay's relief, however, summary judgment will be granted in favor of Chase, and Saticoy Bay will still take its interest in the Property but that interest will be subject to Chase's lien. Id.
Saticoy Bay filed the present Motion on February 9, 2017, after the Nevada State Court granted it an additional ninety-day continuance on December 7, 2016, to seek the instant relief in this Court.
Chase raises three main arguments in opposition to the Motion: (1) Saticoy Bay is not a "party in interest" entitled or permitted to reopen a case, as required by Rule 5010; (2) Saticoy Bay lacks both constitutional and prudential standing to bring the Motion; and (3) Saticoy Bay does not have sufficient "cause" to reopen, as required by § 350(b). In support of its first argument, Chase cites cases from courts around the country for the proposition that "party in interest" status should not extend to Saticoy Bay, as Saticoy Bay's interest in Debtors' Property did not arise until eight days after Debtors received their discharge. Next, Chase contends that Saticoy Bay lacks the required constitutional and prudential standing to bring this Motion because it is asserting the rights of a third party (the HOA), rather than its own. Finally, Chase cites In re HBLS, L.P., 468 B.R. 634 (Bankr. S.D.N.Y. 2012) (hereinafter "In re HBLS") and other supporting cases, to show that, under the totality of the circumstances, Saticoy Bay does not have sufficient "cause" to reopen.
Saticoy Bay's principal argument in support of its position that it is a "party in interest" under Rule 5010, and thus has standing to reopen this case, is that it has a financial and/or legal stake in Debtors' bankruptcy case and the application of the automatic stay. Saticoy Bay does not provide the Court with any case law interpreting "party in interest" as it relates to Rule 5010. Rather, Saticoy Bay's sole argument is that it has constitutional and prudential standing because it (1) will suffer an injury-in-fact if the stay is not annulled to retroactively legitimize the HOA's foreclosure action and (2) is seeking to enforce its own rights to the Property, rather than the third party rights of the HOA. Saticoy Bay also contends that Chase's challenge to Saticoy Bay's standing is made in bad faith because this standing argument conflicts with Chase's argument made in the underlying Quiet Title Action. With respect to the substantive relief requested, Saticoy Bay urges this Court to rely upon and follow In re Burke, Case No. 12-12508-MKN, 2016 Bankr. LEXIS 2525 (Bankr. D. Nev. April 15, 2016), a case involving facts similar to those in this case regarding annulling the automatic stay nunc pro tunc.
Preliminarily, the Court must address two arguments advanced by Saticoy Bay that confuse the issue before the Court. First, Saticoy Bay contends that because Chase argued that the property transfer was void as a violation of the automatic stay in the Nevada State Court, Chase is somehow now enjoined from arguing before this Court that Saticoy Bay does not have standing to reopen this case. Saticoy Bay submits that this "presentation of conflicting arguments is being made in bad faith and as a way to circumvent the ruling of the Nevada [State] Court." Saticoy Bay Mem. Law Supp. Mot. 8. The Court disagrees.
In Nevada State Court, Chase argued that, by virtue of the improper foreclosure sale, the transfer of property was void ab initio under Second Circuit case law. Saticoy Bay conflates this to mean that because Chase argued that Saticoy Bay was "intertwined and in part responsible for the stay violations," that it is now in bad faith for Chase to argue that the stay violations are attributable only to the HOA as a third party actor as a means of opposing Saticoy Bay's standing before this Court in this matter. Id. Chase's argument that the invalid transfer of the Property from the HOA to Saticoy Bay was void ab initio as a violation of the stay in the Quiet Title Action, however, does not conflict with Chase's argument here that Saticoy Bay lacks standing as a party in interest to reopen this bankruptcy case for the purpose of annulling the automatic stay nunc pro tunc and validating the sale. These arguments are not disingenuous because they are made in two different fora, by different counsel, and with respect to different causes of action. Furthermore, they are not inherently inconsistent legal arguments. The Court, therefore, concludes that Chase did not act in bad faith by opposing the instant Motion.
Second, relying on In re Emmerling, Saticoy Bay argues that motions to reopen are "merely ministerial" and have "no legal significance." In re Emmerling, 223 B.R. 860 (B.A.P. 2d Cir. 1997). However, standing was not an issue in Emmerling, as both the movant and the opposing parties were "parties in interest." Further, Emmerling illustrates the importance of conducting an examination of the merits of the perspective relief sought to determine whether cause exists to justify reopening a case. It does not stand for the proposition that a motion to reopen pursuant to § 350(b) is merely ministerial such that it should be granted as a matter of course.
Having disposed of these two arguments advanced by Saticoy Bay, the Court now turns to its request to reopen this case. Rule 5010 states, "A case may be reopened on motion of the debtor or other party in interest pursuant to § 350(b) of the Code." Fed. R. Bankr. P. 5010. Code § 350(b) provides: "A case may be reopened in the court in which such case was closed to administer assets, to accord relief to the debtor, or for other cause." 11 U.S.C. § 350(b). "Section 350(b) gives the bankruptcy court broad discretion in deciding whether to reopen a case." In re Emmerling, 223 B.R at 864; see also In re Easley-Brooks, 487 B.R. 400, 406-07(Bankr. S.D.N.Y. Feb. 25, 2013) (setting forth six (6) factors relevant in determining whether "cause" exists to reopen a case).
"Party in interest" is not defined in the Code or the Rules as it relates to chapter 7 generally or Rule 5010 specifically. The Court has discretion to review the facts and circumstances of a case and determine whether the movant is a requisite "party in interest" to reopen a case. A leading bankruptcy treatise states that under Rule 5010, "party in interest is broadly construed, and includes the United States trustee, the trustee, and creditors. Parties not creditors of the debtor are not usually parties in interest. The type of substantive relief requested is relevant to the issue of whether one has standing to move to reopen." 9 COLLIER ON BANKRUPTCY ¶ 5010.02[4] (Alan N. Resnick & Henry J. Sommer eds., 16th ed.) (hereinafter "Collier").
While the Second Circuit has yet to define the term "party in interest" as it applies to Rule 5010 specifically, other circuits have and those decisions are instructive. See Alexandria Consulting Group, LLC v. Alexandria Surveys Int'l LLC, 589 F. App'x 126 (4th Cir. 2014) (holding that because the movant was not "the debtor, the trustee or a creditor" of the debtor, or "a participant in the original case," it lacked standing to reopen under Rule 5010 as a party in interest); Goldenberg v. Deutsche Bank Nat'l Trust Co. (In re Papazov), 610 F. App'x 700 (9th Cir. 2015) (holding that the enumerated list of "parties in interest" in § 1109(b) may guide a court in determining the scope of potential movants under Rule 5010 in a chapter 7 bankruptcy, and in determining whether the movant "lacked a sufficient stake in [the debtor's] bankruptcy proceeding"); Nintendo Co. v. Patten (In re Alpex Computer Corp.), 71 F.3d 353 (10th Cir. 1995) (holding that, while "party in interest" is "generally understood to include all persons whose pecuniary interests are directly affected by the bankruptcy proceedings," case law implicitly confines the concept to "debtors, creditors, or trustees, each with a particular and direct stake in reopening cognizable under the Bankruptcy Code").
Guided by the Fourth, Ninth, and Tenth Circuit interpretations of "party in interest," this Court concludes that Saticoy Bay is not a "party in interest" for purposes of reopening Debtors' case under Rule 5010. First, Saticoy Bay is not a debtor, a creditor, or a trustee, as the Fourth and Tenth Circuits require for Rule 5010 standing. Saticoy Bay likewise does not qualify as a "party in interest" under the expanded list of parties articulated in § 1109(b),
In addition, Rule 5010 limits movants under § 350(b) to "parties in interest," which requires the Court to analyze not only whether a movant is the correct party to bring the motion, but whether the relief sought is in keeping with the underlying purposes of chapter 7. See In re Comcoach Corp., 698 F.2d 571, 573 (2d Cir. 1983) ("When interpreting the meaning of Code terms such as `party in interest,' we are governed by the Code's purposes."). The primary purpose of chapter 7 bankruptcy is to liquidate estate assets and distribute the proceeds to creditors, under the supervision of the Court and without unsanctioned interference from creditors of the debtor. See id. Reopening a chapter 7 bankruptcy three years after its initial closing, at the behest of a non-participant party who seeks to have the automatic stay annulled nunc pro tunc, is contrary to this chapter 7 objective. Saticoy Bay did not participate in the original bankruptcy, it did not have a pre-petition relationship with Debtors, and its interest in Debtors' Property did not arise until after Debtors received their discharge. Under these facts and circumstances, the Court finds that Saticoy Bay is not a "party in interest" for purposes of reopening this case under § 350(b).
Because Saticoy Bay is not the debtor, a creditor, or a trustee, and never participated in the underlying bankruptcy, it lacks standing as a "party in interest" pursuant to Rule 5010 to bring this motion to reopen. Accordingly, notwithstanding the Nevada State Court's directive to Saticoy Bay to seek relief from this Court, the Court denies the Motion.
It is SO ORDERED.
