In re: Carlos Magana Lopez and Rose M. Zuniga

FILED FEB 03 2012 1 SUSAN M SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT 2 3 UNITED STATES BANKRUPTCY APPELLATE PANEL 4 OF THE NINTH CIRCUIT 5 In re: ) BAP No. CC-11-1274-MkCaPa ) 6 CARLOS MAGANA LOPEZ and ) Bk. No. RS 10-50387-SC ROSE M. ZUNIGA, ) 7 ) Adv. No. RS 11-01170-SC Debtors. ) 8 _______________________________) ) 9 CARLOS MAGANA LOPEZ; ) ROSA M. ZUNIGA, ) 10 ) Appellants, ) 11 ) v. ) MEMORANDUM* 12 ) JPMORGAN CHASE BANK, N.A.; ) 13 RANCHO HORIZON L.L.C.; QUALITY ) LOAN SERVICE CORP., ) 14 ) Appellees. ) 15 _______________________________) 16 Argued and Submitted on January 19, 2012 at Pasadena, California 17 Filed - February 3, 2012 18 Appeal from the United States Bankruptcy Court 19 for the Central District of California 20 Honorable Scott Clarkson, Bankruptcy Judge, Presiding 21 Appearances: Appellants Carlos Lopez and Rosa Zuniga, in 22 propria persona, argued on their own behalf; Thomas S. Van of Adorno Yoss Alvarado & Smith 23 argued on behalf of Appellee JPMorgan Chase Bank, N.A. 24 25 26 * This disposition is not appropriate for publication. 27 Although it may be cited for whatever persuasive value it may have (see Fed. R. App. P. 32.1), it has no precedential value. 28 See 9th Cir. BAP Rule 8013-1.

1 Before: MARKELL, CASE** and PAPPAS, Bankruptcy Judges. 2 INTRODUCTION 3 Carlos Lopez and Rosa Zuniga (jointly, “Debtors”) commenced 4 an adversary proceeding challenging the prepetition nonjudicial 5 foreclosure of their residence located in Riverside, California 6 (“Property”). They also sought damages and injunctive relief. 7 Two of the defendants filed motions to dismiss, which the 8 bankruptcy court granted. Because the Debtors did not establish 9 that they had standing to prosecute the claims they set forth in 10 their complaint, we VACATE the bankruptcy court’s order 11 dismissing the adversary proceeding with prejudice, and REMAND 12 for further proceedings. 13 FACTS 14 In December 2007, the Debtors borrowed $215,000 (“Loan”) 15 from Washington Mutual Bank, FA (“WAMU”). In connection with the 16 Loan, the Debtors executed a promissory note (“Note”) and a deed 17 of trust (“Deed of Trust”). The Deed of Trust identified WAMU as 18 the lender and beneficiary and California Reconveyance Company 19 (“CRC”) as the trustee. It conveyed the Property to CRC as 20 trustee, for security purposes. 21 As established by evidence to which to Debtors did not 22 object, JPMorgan Chase Bank (“Chase”) acquired most of WAMU’s 23 assets and liabilities in 2008 pursuant to a purchase and 24 assumption agreement between Chase and the Federal Deposit 25 Insurance Corporation. 26 27 ** Hon. Charles G. Case II, U.S. Bankruptcy Judge for 28 the District of Arizona, sitting by designation.

1 The Debtors admitted that they were experiencing financial 2 troubles in 2009 and that, at some point, they stopped making 3 timely, full payments in compliance with the original terms of 4 their Loan. However, according to the Debtors, they only ceased 5 making timely, full payments after Chase instructed them that, in 6 order to qualify for the loan modification they were seeking, 7 they needed to be late on their payments. Debtors further 8 claimed that Chase provisionally approved modified payments in 9 the amount of $1,100 pending Chase’s completion of the loan 10 modification approval process. The Debtors assert that they 11 continued making payments in that $1,100 amount until Chase 12 ceased accepting those payments in June or July 2010. 13 Notwithstanding the Debtors’ alleged loan modification 14 negotiations with Chase, and alleged payments to Chase, Chase 15 commenced nonjudicial foreclosure proceedings against the Debtors 16 in July 2009. Quality Loan Service (“QLS”) executed and recorded 17 a notice of default and election to sell on behalf of WAMU, 18 Chase, or both, “As Agent For Beneficiary.” 19 QLS subsequently recorded in October 2009 a notice of 20 trustee’s sale, and executed and recorded a trustee’s deed upon 21 sale (“Trustee’s Deed”). The Trustee’s Deed, which was recorded 22 on December 8, 2010, in the official records of Riverside County, 23 California, identified Rancho Horizon, LLC (“Rancho”) as the 24 grantee and as the successful bidder at a nonjudicial foreclosure 25 sale held on November 16, 2010. 26 The Debtors filed their chapter 71 bankruptcy case on 27 28 1 Unless specified otherwise, all chapter and section (continued...)

1 December 16, 2010, and Karl T. Anderson (“Trustee”) was appointed 2 to serve as chapter 7 trustee. The Debtors listed the Property 3 on their Schedule A of real property, but stated that the value 4 of their interest therein was “$0.00" and that it had been 5 foreclosed upon a month before, on November 16, 2010. The 6 Debtors listed Chase on their Schedule D of secured creditors, 7 and stated the amount of Chase’s claim as $215,000, the full 8 principal amount of the Loan. Debtors did not list or give any 9 indication in their schedules or statement of financial affairs 10 that they held any claims against Chase, QLS or Rancho.2 11 In March 2011, the Debtors commenced their adversary 12 proceeding against Chase, QLS and Rancho. The Debtors asserted a 13 claim for relief for wrongful foreclosure, two claims for 14 declaratory relief, a quiet title claim, and a claim for 15 injunctive relief. Among other things, Debtors alleged that 16 Chase, QLS and WAMU did not have any of the requisite legal 17 rights, authority or interests that would have entitled any of 18 them to conduct foreclosure proceedings under California law. 19 Consequently, the Debtors claimed, the foreclosure sale and the 20 21 1 (...continued) 22 references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and all "Rule" references are to the Federal Rules of Bankruptcy 23 Procedure, Rules 1001-9037. All "Civil Rule" references are to the Federal Rules of Civil Procedure. 24 2 We obtained copies of Debtors’ schedules and statement of 25 financial of affairs by accessing the bankruptcy court’s 26 electronic docket available on PACER. We can take judicial notice of the contents and filing of these documents. See Atwood 27 v. Chase Manhattan Mortg. Co. (In re Atwood), 293 B.R. 227, 233 n. 9 (9th Cir. BAP 2003) (citing O'Rourke v. Seaboard Sur. Co. 28 (In re E.R. Fegert, Inc.), 887 F.2d 955, 957–58 (9th Cir.1989)).

1 Trustee’s Deed should be declared invalid, and the Debtors’ 2 interest in the Property should be recognized over any claim or 3 interest of Chase, WAMU or Rancho. 4 Rancho and Chase filed separate motions to dismiss the 5 Debtors’ adversary proceeding, and the Debtors opposed the 6 dismissal motions. The court granted Rancho’s motion to dismiss 7 on May 11, 2009. At the hearing, the Debtors conceded that they 8 did not have enough money to tender the amount they owed in order 9 to redeem the Property. Nor did the Debtors dispute that the 10 foreclosure sale had occurred or that Rancho was the successful 11 bidder at the foreclosure sale. Based on the Trustee’s Deed, the 12 court concluded that Rancho was a bona fide purchaser for value, 13 and the court dismissed all of the Debtors’ claims for relief as 14 against Rancho with prejudice. According to the court, amendment 15 of the claims would have been futile because, in pertinent part, 16 the Debtors had not and could not allege tender of the full 17 amount of the debt owed. With respect to the declaratory relief 18 claims, the court concluded that they were redundant of the 19 Debtors’ other, invalid claims for relief. Finally, with respect 20 to the claim for injunctive relief, the court pointed out that 21 the foreclosure proceedings already had been completed, so there 22 was no action for the court to enjoin.3 23 24 3 The court refused to let co-plaintiff Rosa Zuniga speak at 25 the hearing. The court based this refusal on the erroneous belief that Ms. Zuniga was not a named plaintiff in the 26 complaint. To the contrary, the Debtors’ complaint named both Mr. Lopez and Ms. Zuniga as plaintiffs, and both signed the 27 complaint. In any event, in light of our disposition of this 28 appeal, we conclude that the Debtors have not been prejudiced by the court’s refusal.

1 The court heard Chase’s motion to dismiss on May 18, 2011. 2 At that hearing, the court granted Chase’s motion for essentially 3 the same reasons it had granted Rancho’s dismissal motion. The 4 court further ruled that the entire adversary proceeding would be 5 dismissed with prejudice as to all named defendants (including 6 QLS) (collectively, “Defendants”). 7 The court entered its dismissal order on May 20, 2001, and 8 the Debtors timely appealed. 9 JURISDICTION 10 The bankruptcy court had jurisdiction under 28 U.S.C. 11 §§ 1334 and 157(b)(2)(A), and we have jurisdiction under 28 12 U.S.C. § 158. 13 ISSUE 14 Did the bankruptcy court err when it considered the merits 15 of the Debtors’ claims for relief without first considering 16 whether the Debtors had standing to prosecute those claims? 17 STANDARD OF REVIEW 18 Standing is a jurisdictional issue that we review de novo. 19 Palmdale Hills Prop., LLC v. Lehman Commercial Paper, Inc. (In re 20 Palmdale Hills Prop., LLC), 654 F.3d 868, 873 (9th Cir. 2011); 21 Veal v. Am. Home Mortg. Servicing, Inc. (In re Veal), 450 B.R. 22 897, 906 (9th Cir. BAP 2011). 23 DISCUSSION – THE DEBTORS’ STANDING 24 Before any federal court considers the merits of a matter, 25 the court must first determine whether the plaintiff has 26 standing. “Standing is a ‘threshold question in every federal 27 case, determining the power of the court to entertain the suit.’” 28 In re Veal, 450 B.R. at 906 (quoting Warth v. Seldin, 422 U.S.

1 490, 498 (1975)). Constitutional standing requires injury in 2 fact, causation, and redressability. We do not doubt that the 3 Debtors met the minimal standards for constitutional standing. 4 The Debtors alleged that they were injured by the Defendants' 5 foreclosure proceedings and related conduct, and that the 6 Defendants' failure to comply with applicable law caused them 7 injury. In addition, the relief the Debtors sought in their 8 complaint, if granted, would have remedied their alleged 9 injuries. Cf. In re Veal, 450 B.R. at 906. 10 However, in addition to constitutional standing, as one 11 aspect of the prudential limitations on federal court 12 jurisdiction, the Debtors also needed to demonstrate that they 13 were asserting their own legal rights and not those belonging to 14 others. Id. at 907 (citing Sprint Commc'ns Co., LP v. APCC 15 Servs., Inc., 554 U.S. 269, 289 (2008)).4 16 Here, the Debtors sought in their adversary proceeding to 17 pursue claims that accrued before they filed their bankruptcy 18 case. Even though the Debtors did not list their claims in their 19 20 4 Another aspect of prudential standing potentially 21 implicated here is bankruptcy appellate standing, which requires an appellant to show that he or she has been "directly and 22 adversely affected pecuniarily" by the bankruptcy court’s 23 decision. See In re Palmdale Hills Prop., LLC, 654 F.3d at 874. To meet this requirement, the appellant typically must 24 demonstrate that the order on appeal diminished its property, increased its burdens, or detrimentally affected its rights. See 25 Fondiller v. Robertson (In re Fondiller), 707 F.2d 441, 442 (9th 26 Cir. 1983). On this record, the Debtors’ potential residual interest in the estate’s assets appears sufficient to establish 27 that they were “persons aggrieved” by the bankruptcy court’s dismissal order. Accordingly, we will not dispose of this appeal 28 on bankruptcy appellate standing grounds.

1 bankruptcy schedules as assets, their claims became property of 2 their bankruptcy estate. See § 541(a); McGuire v. United States, 3 550 F.3d 903, 914 (9th Cir. 2008); Rosner v. Worcester (In re 4 Worcester), 811 F.2d 1224, 1228 (9th Cir. 1987); see also Goodwin 5 v. Mickey Thompson Entm't Grp., Inc. (In re Mickey Thompson 6 Entm't Grp., Inc.), 292 B.R. 415, 421 (9th Cir. BAP 2003) 7 (identifying trustee's settlement of debtor's prepetition causes 8 of action against third party as a sale of estate property). 9 The Trustee had the authority and duty to “collect and 10 reduce to money” all property of the estate, including the 11 Debtors’ claims. § 704(a)(1). Furthermore, unless and until the 12 Trustee abandoned them, the Debtors’ unscheduled claims continued 13 to be property of the estate. See § 554(c) & (d); Cusano v. 14 Klein, 264 F.3d 936, 945–46 (9th Cir. 2001). The Bankruptcy Code 15 designates the trustee as the estate's representative and 16 authorizes the trustee to sue and be sued in that capacity. 17 § 323; Spirtos v. One San Bernardino County Super. Ct. Case (In 18 re Spirtos), 443 F.3d 1172, 1175 (9th Cir. 2006). Thus, 19 generally speaking, only the trustee has standing to prosecute 20 claims for relief that are estate property. McGuire, 550 F.3d at 21 914; In re Spirtos, 443 F.3d at 1175–76; see also, Commodity 22 Futures Trading Comm'n v. Weintraub, 471 U.S. 343, 352–53 (1985); 23 Hansen v. Finn (In re Curry & Sorensen, Inc.), 57 B.R. 824, 24 828–29 & n. 4 (9th Cir. BAP 1986) (dismissing complaint without 25 prejudice based on plaintiff's lack of standing). 26 In sum, the bankruptcy court erred in addressing the merits 27 of the Debtors’ claims for relief without first determining 28 whether the Debtors had standing to pursue those claims on behalf

1 of the estate. The Debtors did not schedule their claims against 2 the Defendants, so those claims remained property of the estate 3 and only could be prosecuted by the Trustee, unless the Trustee 4 abandoned them. 5 CONCLUSION 6 Because the bankruptcy court did not determine whether the 7 Debtors had standing to prosecute their adversary proceeding, we 8 VACATE the bankruptcy court’s order dismissing the adversary 9 proceeding with prejudice, and REMAND for further proceedings. 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28