Hoover v. PHH Mortgage Corporation

— 1 — — 2 — — 3 — — 4 — UNITED STATES DISTRICT COURT 5 WESTERN DISTRICT OF WASHINGTON AT SEATTLE — 6 — — 7 — In re: SARAH HOOVER Cause No. C21-5154RSL — 8 — Debtor. AMENDED ORDER ON — 9 — APPEAL FOLLOWING ______________________________________ 10 REMAND FROM THE SARAH HOOVER, NINTH CIRCUIT — 11 — 12 Plaintiff - Appellee, 13 v. 14 PHH MORTGAGE CORPORATION, HSBC BANK USA, N.A. AS TRUSTEE OF THE 15 FIELDSTONE MORTGAGE INVESTMENT 16 TRUST, SERIES 2006-2, and NEWREZ, LLC, — 17 — Defendants – Appellants, — 18 — and — 19 — QUALITY LOAN SERVICE — 20 — CORPORATION OF WASHINGTON and 21 IH6 PROPERTY WASHINGTON, L.P., — 22 — Defendants. — 23 — — 23 — This matter is again before the Court following remand from the Ninth Circuit. Dkt. # 56 — 25 — and # 60. In March 2021, the Honorable Mary Jo Heston, United States Bankruptcy Judge, — 26 — 27 found that PHH Mortgage Corporation, HSBC Bank USA, N.A. as Trustee of the Fieldstone — 28 — 1 Mortgage Investment Trust, Series 2006-2, and NewRez, LLC (“appellants”) had violated the — 2 — automatic bankruptcy stay by foreclosing on Sarah Hoover’s residence in Bonney Lake, — 3 — Washington. The undersigned affirmed Judge Heston’s finding that the property was part of the — 4 — 5 bankruptcy estate and her refusal to retroactively annul the bankruptcy stay on equitable — 6 — grounds. Those determinations have now been affirmed by the Ninth Circuit. The Ninth Circuit — 7 — found, however, that it and the district court lacked jurisdiction over the bankruptcy court’s — 8 — 9 interim conclusions that the violation of the automatic stay was “willful” and that appellants — 10 — acted in “complete disregard for the automatic stay.” Having reviewed Ninth Circuit’s — 11 — memoranda and the remainder of the record, the Court hereby issues this Amended Order on — 12 — 13 Appeal: — 14 — A. Standard of Review — 15 — A district court has jurisdiction to review final judgments, orders, or decrees of the — 16 — 17 bankruptcy court. 28 U.S.C. § 158 (a). When reviewing a decision of the bankruptcy court, a — 18 — district court functions as an appellate court and applies the standards of review generally — 19 — applied in federal courts of appeal. In re Crystal Properties, Ltd., L.P., 268 F.3d 743, 755 (9th — 20 — 21 Cir. 2001) (citation omitted). Thus, conclusions of law are reviewed de novo, while findings of — 22 — fact are reviewed under the clearly erroneous standard. In re Strand, 375 F.3d 854, 857 (9th Cir. — 23 — 2004). “Mixed questions of law and fact are reviewed de novo.” In re Chang, 163 F.3d 1138 , — 23 — 25 1140 (9th Cir. 1998). “De novo review is independent, with no deference given to the trial — 26 — court’s conclusion.” Allen v. U.S. Bank, N.A., 472 B.R. 559, 564 (9th Cir. BAP 2012). In — 27 — contrast, the clearly erroneous standard is “significantly deferential” and requires “a definite and — 28 — 1 firm conviction that a mistake has been committed.” Id. “Put another way, a court’s factual — 2 — determination is clearly erroneous if it is illogical, implausible, or without support in the — 3 — record.” In re Rader, 488 B.R. 406, 410 (9th Cir. BAP 2013) (internal citation and quotation — 4 — 5 marks omitted). — 6 — B. Property of the Bankruptcy Estate — 7 — Under Washington law, property held in a spendthrift trust is not subject to seizure for — 8 — 9 payment of the beneficiary’s debt on the theory that allowing alienation of the trust principal or — 10 — income would violate the intention of the settlor. Milner v. Outcalt, 36 Wn.2d 720, 722 (1950). — 11 — “Ordinarily, a property owner has the power to dispose of his property as he wishes, as long as — 12 — 13 he does not violate public policy. The owner and donor of the property should be free to select — 14 — the trust beneficiary who will enjoy his bounty, and should be able to put enforceable provisions — 15 — in the trust which will prevent his trust beneficiary from voluntarily conveying or assigning his — 16 — 17 interest, thus precluding any creditor from taking that interest away from the beneficiary.” — 18 — Erickson v. Bank of California, N.A., 97 Wn.2d 246, 250 (1982). When an asset has already — 19 — accrued to the beneficiary and is ready for distribution, however, it becomes subject to seizure in — 20 — 21 satisfaction of the beneficiary’s debts even if the asset is still in the hands of the trustee. Knettle — 22 — v. Knettle, 190 Wash. 395, 401 (1937). — 23 — The Bonney Lake property was part of the Suleiman Trust and the Trustor, Ali Suleiman, — 23 — 25 specified that, “as soon as practicable after [his death], Trustee shall distribute any and all — 26 — interest Trustor, or the Trust Estate, may have in that certain residence and real property located — 27 — at 106th Street East, Bonney Lake, Washington, to Trustor’s daughter, Sarah V. Hoover, if she — 28 — 1 is surviving.” Dkt. # 30 at 110. Appellants have not identified any calculations, deductions, — 2 — administrative assessments, or other accounting that had to be performed before the property — 3 — was ready for distribution. The time for distribution, as established by the Trustor, had come, — 4 — 5 and all conditions precedent thereto were satisfied. Based on the undisputed facts, the — 6 — bankruptcy court correctly found that the mandatory distribution language of the trust was — 7 — triggered by Ali Suileiman’s death and that Hoover’s interest in the Bonney Lake property had — 8 — 9 accrued as of the date of the bankruptcy petition. Dkt. # 1 at 41-42 and 54. — 10 — C. Willfulness and “Complete Disregard” Issues — 11 — The Court lacks jurisdiction over these issues because there was no completed — 12 — 13 proceeding, i.e., a bankruptcy court determination of the amount of damages or whether punitive — 14 — damages were warranted, from which an appeal could be taken. — 15 — D. Retroactive Annulment of Bankruptcy Stay — 16 — 17 The bankruptcy court accurately stated and applied the law when considering PHH’s — 18 — request that the automatic stay be annulled to retroactively validate the post-petition foreclosure — 19 — sale. Dkt. # 1 at 55-56. Judge Heston’s application of the law to the facts of this case is — 20 — 21 thorough, and her balancing of the equities is well-supported. Dkt. # 1 at 56-59. No error has — 22 — been shown. — 23 — — 23 — 25 // — 26 — // — 27 — — 28 — 1 For all of the foregoing reasons, the bankruptcy court’s holding that appellants violated — 2 — the automatic stay and denial of the motion to annul the automatic stay are AFFIRMED. The — 3 — issues regarding willfulness and the “complete disregard” comment are dismissed as premature. — 4 — — 5 — — 6 — Dated this 16th day of November, 2023. — 7 — — 8 — Robert S. Lasnik — 9 — United States District Judge — 10 — — 11 — — 12 — — 13 — — 14 — — 15 — — 16 — — 17 — — 18 — — 19 — — 20 — — 21 — — 22 — — 23 — — 23 — — 25 — — 26 — — 27 — — 28 —