In re: Magda Angela Eslabon Catipon

FILED OCT 05 2011 SUSAN M SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT 1 2 3 UNITED STATES BANKRUPTCY APPELLATE PANEL 4 OF THE NINTH CIRCUIT 5 In re: ) BAP No. CC-10-1512-DPaKi ) 6 MAGDA ANGELA ESLABON CATIPON, ) Bk. No. 09-24437 ) 7 Debtor. ) Adv. No. 09-02084 ________________________________ ) 8 ) UNION BANK OF CALIFORNIA, N.A., ) 9 ) Appellant, ) 10 ) v. ) 11 ) MAGDA ANGELA ESLABON CATIPON, ) M E M O R A N D U M1 12 ) Appellee. ) 13 ________________________________ ) 14 Argued and Submitted on September 23, 2011 15 at Pasadena, California 16 Filed - October 5, 2011 17 Appeal from the United States Bankruptcy Court for the Central District of California 18 Honorable Vincent P. Zurzolo,2 Bankruptcy Judge, Presiding 19 20 21 1 This disposition is not appropriate for publication. 22 Although it may be cited for whatever persuasive value it may have (see Fed. R. App. P. 32.1), it has no precedential value. See 9th 23 Cir. BAP Rule 8013-1. 24 2 The order from which this appeal was taken was signed by 25 Judge Zurzolo. However, the text of the order recites that Hon. Samuel L. Bufford was the presiding judge at the evidentiary hearing 26 upon which the order is based.

1 Appearances: Jennifer Witherell Crastz, Esq. of Hemar, Rousso & Heald, LLP appeared for Appellant but did not argue. 2 No appearance for Appellee. 3 Before: DUNN, PAPPAS, and KIRSCHER, Bankruptcy Judges. 4 5 The bankruptcy court dismissed a creditor’s § 523(a)(2)(A)3 6 adversary proceeding on the basis that no debt existed under 7 California law. We AFFIRM. 8 9 I. FACTS 10 When Magda Angela Eslabon Catipon (“Ms. Catipon”) filed her 11 chapter 7 petition on June 9, 2009, she scheduled debts (“Vehicle 12 Debts”) incurred between April 15, 2008 and July 3, 2008, related to 13 the purchase of sixteen used luxury automobiles (“Luxury Vehicles”). 14 She also scheduled, both as a secured claim and as an executory 15 contract, a debt incurred December 30, 2004 for her personal 16 vehicle. She did not include any of the Vehicle Debts on Schedule G 17 as executory contracts or subject to unexpired leases. 18 Ms. Catipon’s Statement of Financial Affairs reflects 2008 19 gross income in the amount of $53,695.00. Her Schedule I reflects 20 gross monthly income in the amount of $4,128.95, with net monthly 21 take home pay in the amount of $3,264.79. She had been employed by 22 her current employer for seven years. 23 3 Unless otherwise specified, all chapter and section 24 references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and 25 all “Rule” references are to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037. The Federal Rules of Civil Procedure 26 are referred to as “Civil Rules.”

1 Union Bank of California, N.A. (“Union Bank”) financed 2 Ms. Catipon’s purchase of two of the Luxury Vehicles: a 2005 3 Infiniti G35 (“Infiniti”) on May 8, 2008, and a 2005 Land Rover 4 (“Land Rover”) on July 3, 2008. By the time she filed her 5 bankruptcy case, Ms. Catipon had defaulted on both of the loans from 6 Union Bank. On the Petition Date, Ms. Catipon owed Union Bank 7 $26,106 for the Infiniti loan, and $33,013 for the Land Rover loan. 8 Union Bank’s counsel attended the § 341(a) Meeting of Creditors 9 in Ms. Catipon’s bankruptcy case in an effort to obtain information 10 about the locations of the Infiniti and the Land Rover. Ms. Catipon 11 testified that the Land Rover was in the possession of Lashonda 12 Hubbard, whom Ms. Catipon described as a friend. 13 Ms. Catipon further testified at the § 341(a) Meeting of 14 Creditors that she purchased the cars for friends and relatives who 15 had bad credit. All of the Luxury Vehicles were purchased from 16 Richard Unite, the owner of Unite Cars in San Pedro, California. 17 Both the chapter 7 trustee and Union Bank’s counsel questioned 18 Ms. Catipon generally about how she was able to finance the Luxury 19 Vehicles where her annual salary was approximately $50,000. 20 Ms. Catipon testified that she was truthful in the loan applications 21 she made in obtaining the financing for the Luxury Vehicles, that 22 she listed on the loan applications all of the previously financed 23 Luxury Vehicles, and that she (apparently in some instances) 24 provided a copy of her pay stub. In response to a rhetorical 25 question by the trustee about why the banks would approve her loans 26 for the Luxury Vehicles, Ms. Catipon responded: “That’s also my

1 question. I don’t know why they approve[d] me.” 2 During the course of the bankruptcy case, Union Bank recovered 3 the Infiniti and the Land Rover, and foreclosed its security 4 interest in each of the vehicles through a private auction. Union 5 Bank filed a timely complaint pursuant to § 523(a)(2)(A), seeking to 6 except from Ms. Catipon’s discharge the debt which remained after 7 the foreclosures (“deficiency”). The total deficiency asserted by 8 Union Bank was $27,751.03, plus interest and late charges. In its 9 complaint, Union Bank asserted that Ms. Catipon had engaged in a 10 scheme with Richard Unite, whereby they would “alter certain credit 11 information” so that Union Bank and others would be induced to 12 extend credit to Ms. Catipon. 13 When Ms. Catipon failed to file an answer to Union Bank’s 14 complaint, default was entered against her by the Clerk of the 15 Court. The bankruptcy court conducted a “trial” (“Trial”) on the 16 adversary complaint on March 11, 2010.4 17 As relevant to our analysis in this appeal, Union Bank’s third 18 witness at the Trial was its litigation adjustment officer, Jody 19 Curry, who was responsible, inter alia, for sending defaulted loan 20 accounts to outside counsel for litigation, and managing those loan 21 accounts until the conclusion of the collection process. Ms. Curry 22 23 4 The Trial was in fact a “prove up” hearing for purposes of entering a default judgment as contemplated by Civil Rule 55(b)(2), 24 which authorized the bankruptcy court to “conduct hearings . . . 25 when, to enter . . . judgment, it needs to . . . (C) establish the truth of any allegation by evidence; or (D) investigate any other 26 matter.”

1 testified that Union Bank had recovered possession of both the 2 Infiniti and the Land Rover from persons other than Ms. Catipon, and 3 that both vehicles had been sold through private auctions. 4 Ms. Curry testified as to the auction sales prices, the net proceeds 5 from the auction, and the deficiencies remaining on the Infiniti 6 loan and the Land Rover loan. 7 The bankruptcy court admitted Exhibits 9 and 17 into evidence 8 for the purpose of determining whether the notices sent by Union 9 Bank to Ms. Catipon were sufficient to create a deficiency under 10 state law. Exhibit 9 was the Notice of Intent to Dispose of a 11 Repossessed or Surrendered Vehicle served on Ms. Catipon by Union 12 Bank with respect to the Infiniti. Exhibit 17 was the Notice of 13 Intent to Dispose of a Repossessed or Surrendered Vehicle served on 14 Ms. Catipon by Union Bank with respect to the Land Rover. 15 At the conclusion of the Trial, the bankruptcy court found 16 that, under California law, no debt existed after Union Bank 17 foreclosed its security interest in the Infiniti and the Land Rover 18 because (1) a private party auction is not a commercially reasonable 19 disposition of collateral and (2) the notices provided to 20 Ms. Catipon were not sufficient.5 After an unexplained delay of 21 nine months, the bankruptcy court entered its order dismissing the 22 23 5 The bankruptcy court found that even if Union Bank had shown Ms. Catipon owed it a debt, there was no evidence in the 24 record that Ms. Catipon made a representation to Union Bank that was 25 false and upon which Union Bank detrimentally relied to its damage. In short, the bankruptcy court determined that Union Bank had failed 26 to prove that any debt it was owed was incurred by fraud.

1 adversary proceeding. Union Bank timely filed its Notice of Appeal. 2 3 II. JURISDICTION 4 The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 5 and 157(b)(2)(I). We have jurisdiction under 28 U.S.C. § 158. 6 7 III. ISSUES6 8 Whether the bankruptcy court erred when it determined that 9 Union Bank did not hold an enforceable debt for purposes of 10 § 523(a)(2)(A). 11 12 IV. STANDARDS OF REVIEW 13 We review a bankruptcy court’s interpretation of state law de 14 novo. State Bd. of Equalization v. Leal (In re Leal), 366 B.R. 77, 15 16 6 Other issues asserted by Union Bank on appeal include: 17 Whether the bankruptcy court abused its discretion when it 18 refused to admit into evidence: a. Ms. Catipon’s testimony from the Meeting of 19 Creditors, b. Ms. Catipon’s bankruptcy schedules and Statement 20 of Financial Affairs, and 21 c. computerized records offered by the Bank; and

22 Whether the bankruptcy court erred when it determined that Union Bank did not provide sufficient evidence that any 23 debt Ms. Catipon might owe to Union Bank was incurred by fraud. 24 25 Because the bankruptcy court correctly determined that Union Bank held no right to collect a deficiency following the sales of its 26 collateral, we express no opinion on these issues.

1 80 (9th Cir. BAP 2007). De novo review requires that we consider a 2 matter anew, as if it had not been heard before, and as if no 3 decision had been rendered previously. United States v. Silverman, 4 861 F.2d 571, 576 (9th Cir. 1988); B-Real, LLC v. Chaussee (In re 5 Chaussee), 399 B.R. 225, 229 (9th Cir. BAP 2008). 6 7 V. DISCUSSION 8 A chapter 7 discharge will not discharge an individual debtor 9 from any “debt” 10 for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by -- 11 (A) false pretenses, a false representation, or actual fraud, other than a statement respecting the 12 debtor’s or an insider’s financial condition . . . 13 14 Section 523(a)(2)(A). The elements for establishing that a debt is 15 nondischargeable under § 523(a)(2)(A) are well established by Ninth 16 Circuit authority. 17 The Ninth Circuit employs a five-part test for determining when a debt is non-dischargeable under § 523(a)(2)(A). The 18 creditor must show: (1) that the debtor made the representations; (2) that the debtor knew they were false; 19 (3) that the debtor made them with the intention and purpose of deceiving the creditor; (4) that the creditor 20 relied on the statements; (5) that creditor sustained damages as the proximate result of the representations. 21 In re Britton, 950 F.2d 602, 604 (9th Cir. 1991). 22 Cowen v. Kennedy (In re Kennedy), 108 F.3d 1015, 1018 n.2 (9th 23 Cir. 1997). Union Bank bore the burden of proving, by a 24 preponderance of the evidence, each of the elements of its 25 claim for relief under § 523(a)(2)(A). Grogan v. Garner, 26 498 U.S. 279, 291 (1991).

1 In the absence of an enforceable obligation, however, 2 there is no “debt” that can be held nondischargeable. Mandalay 3 Resort Grp. v. Miller (In re Miller), 292 B.R. 409, 412 (9th 4 Cir. BAP 2003). The bankruptcy court ruled that Union Bank 5 held no valid debt that could be subject to a 6 nondischargeability judgment under § 523(a)(2)(A). 7 Specifically, the bankruptcy court determined that under 8 California Law, Union Bank had no right to enforce any 9 deficiency from its sales of the Infiniti and the Land Rover. 10 Cal. Civ. Code § 2983.2(a) provides in relevant part: 11 [A]ny provision in any conditional sale contract for the sale of a motor vehicle to the contrary 12 notwithstanding, at least 15 days' written notice of intent to dispose of a repossessed or surrendered 13 motor vehicle shall be given to all persons liable on the contract. The notice shall be personally served 14 or shall be sent by certified mail, return receipt requested, or first-class mail, postage prepaid, 15 directed to the last known address of the persons liable on the contract. . . . Except as otherwise 16 provided in Section 2983.8, those persons shall be liable for any deficiency after disposition of the 17 repossessed or surrendered motor vehicle only if the notice prescribed by this section is given within 60 18 days of repossession or surrender and does all of the following: 19 (1) Sets forth that those persons shall have a right 20 to redeem the motor vehicle by paying in full the indebtedness evidenced by the contract until the 21 expiration of 15 days from the date of giving or mailing the notice and provides an itemization of the 22 contract balance and of any delinquency, collection or repossession costs and fees and sets forth the 23 computation or estimate of the amount of any credit for unearned finance charges or canceled insurance as 24 of the date of the notice. 25 (2) States either that there is a conditional right to reinstate the contract until the expiration of 15 26 days from the date of giving or mailing the notice

1 and all the conditions precedent thereto or that there is no right of reinstatement and provides a 2 statement of reasons therefor. 3 (3) States that, upon written request, the seller or holder shall extend for an additional 10 days the 4 redemption period or, if entitled to the conditional right of reinstatement, both the redemption and 5 reinstatement periods. The seller or holder shall provide the proper form for applying for the 6 extensions with the substance of the form being limited to the extension request, spaces for the 7 requesting party to sign and date the form, and instructions that it must be personally served or 8 sent by certified or registered mail, return receipt requested, to a person or office and address 9 designated by the seller or holder and received before the expiration of the initial redemption and 10 reinstatement periods. 11 (4) Discloses the place at which the motor vehicle will be returned to those persons upon redemption or 12 reinstatement. 13 (5) Designates the name and address of the person or office to whom payment shall be made. 14 (6) States the seller's or holder's intent to dispose 15 of the motor vehicle upon the expiration of 15 days from the date of giving or mailing the notice, or if 16 by mail and either the place of deposit in the mail or the place of address is outside of this state, the 17 period shall be 20 days instead of 15 days, and further, that upon written request to extend the 18 redemption period and any applicable reinstatement period for 10 days, the seller or holder shall 19 without further notice extend the period accordingly. 20 (7) Informs those persons that upon written request, the seller or holder will furnish a written 21 accounting regarding the disposition of the motor vehicle as provided for in subdivision (b). The 22 seller or holder shall advise them that this request must be personally served or sent first-class mail, 23 postage prepaid, or certified mail, return receipt requested, to a person or office and address 24 designated by the seller or holder. 25 (8) Includes notice, in at least 10-point bold type if the notice is printed, reading as follows: 26 “NOTICE. YOU MAY BE SUBJECT TO SUIT AND LIABILITY IF

1 THE AMOUNT OBTAINED UPON DISPOSITION OF THE VEHICLE IS INSUFFICIENT TO PAY THE CONTRACT BALANCE AND ANY 2 OTHER AMOUNTS DUE.” 3 (9) Informs those persons that upon the disposition of the motor vehicle, they will be liable for the 4 deficiency balance plus interest at the contract rate, or at the legal rate of interest pursuant to 5 Section 3289 if there is no contract rate of interest, from the date of disposition of the motor 6 vehicle to the date of entry of judgment. 7 (emphasis added). 8 Because our review is de novo, we review Union Bank’s 9 “Notice of Intent to Dispose of a Repossessed or Surrendered 10 Vehicle” (“Notice”) to determine whether Ms. Catipon is liable 11 to Union Bank for any deficiency following its disposition of 12 the Infiniti and the Land Rover. We conclude that the Notice 13 did not comply with the provisions of Cal. Civ. Code 14 § 2983.2(a) in a number of ways. 15 For instance, it did not inform Ms. Catipon that she had 16 15 days from the date of the Notice to redeem the vehicle as 17 required by Cal. Civ. Code § 2983.2(a)(1), or that Union Bank 18 intended to dispose of the vehicle upon the expiration of 15 19 days from the mailing date of the Notice as required by Cal. 20 Civ. Code § 2983.2(a)(6). Instead, Union Bank’s Notice stated: 21 “The debtor[] . . . may redeem the collateral before 22 sale . . .” and “Redemption payment must be made before sale 23 . . . .” No sale date was included in either the Infiniti 24 Notice or the Land Rover Notice. Thus, neither Notice served 25 to inform Ms. Catipon of her need to act to redeem within any 26 specified or referenced time period.

1 The Notice stated that “[i]n the absence of redemption or, 2 if available, reinstatement, [Union Bank] will dispose of the 3 collateral in the manner provided for in the ‘Notice of Our 4 Plan to Sell Property’ that accompanies this [Notice].” We 5 note first that no “Notice of Our Plan to Sell Property” was in 6 the record for our review; neither did Union Bank offer it as 7 evidence in the adversary proceeding. Second, this language 8 was not sufficient to inform Ms. Catipon whether a right of 9 reinstatement existed as required by Cal. Civ. Code 10 § 2983.2(a)(2) and (6). 11 Further, the Notice did not describe the process for 12 requesting an extension of the redemption or any reinstatement 13 period as required by Cal. Civ. Code § 2983.2(a)(3). Nor did 14 the Notice advise Ms. Catipon how she could obtain an 15 accounting after the sale of the vehicle as provided by Cal. 16 Civ. Code § 2983.2(a)(7). Finally,7 the Notice did not advise 17 Ms. Catipon of the extent of the liability that would remain 18 after the disposition of the vehicle as required by Cal. Civ. 19 Code § 2983.2(a)(9). 20 In light of Union Bank’s failure to provide appropriate 21 notice of its proposed disposition of the vehicles as required 22 by Cal. Civ. Code § 2983.2(a), Union Bank is not entitled to a 23 24 7 The use of the word “finally” here does not suggest that 25 we are providing a complete catalog of the deficiencies of the Notice. Rather, it is meant to signal that we will not continue in 26 our identification of statutory defects in the Notice.

1 deficiency by the express language of the statute. See, e.g., 2 Bank of America v. Lallana, 19 Cal.4th 203, 210, 77 Cal.Rptr.2d 3 910, 915 (Cal. 1998): 4 Accordingly, we hold that to obtain a deficiency judgment, a secured creditor who sells a defaulting 5 debtor’s repossessed car must do so in a manner that complies not only with all the provisions of the 6 [Rees-Levering Motor Vehicle Sales and Finance Act, Cal. Civ. Code § 2981 et seq], but also with any 7 relevant provisions in division 9 of the California Uniform Commercial Code. 8 9 (emphasis added). 10 Union Bank asserts on appeal that the bankruptcy court 11 abused its discretion when it raised, sua sponte, the issue of 12 whether the Notice was adequate to impose liability on 13 Ms. Catipon for the deficiency. Union Bank characterizes the 14 bankruptcy court’s inquiry into the adequacy of the Notice as 15 inappropriately raising an affirmative defense for Ms. Catipon. 16 Union Bank also complains that it had insufficient notice that 17 the adequacy of the Notice would be at issue. Union Bank 18 asserts that because the bankruptcy court raised the issue only 19 after Union Bank had presented its case, Union Bank was 20 precluded from presenting evidence about other “notifications” 21 it might have made. 22 We disagree. The Notice was facially defective in a 23 number of respects. Union Bank had the burden of proving, at 24 the time of the Trial, that it held a “debt” that Ms. Catipon 25 could not discharge. In evaluating the adequacy of the Notice, 26 the bankruptcy court did nothing more than rule on Union Bank’s

1 assertion that it held a debt, based upon a deficiency, that 2 should be excepted from discharge. 3 We observe that the bankruptcy court was required to 4 construe exceptions to the discharge of Ms. Catipon’s debts 5 strictly against Union Bank and liberally in favor of 6 Ms. Catipon. Snoke v. Riso (In re Riso), 978 F.2d 1151, 1154 7 (9th Cir. 1992). The application of this imperative required 8 the bankruptcy court to find that a debt in fact existed, 9 rather than deem the debt admitted as suggested by Union Bank. 10 In a case with allegations of a debtor’s fraud it may seem 11 harsh to enforce a creditor’s strict compliance with a notice 12 statute designed to protect that debtor’s rights. However, 13 Cal. Civ. Code § 2983.2 provides no exceptions to compliance in 14 cases involving alleged or actual fraud by the debtor. By 15 comparison, Cal. Civ. Code § 2983.3 authorizes a creditor to 16 deny a right to reinstatement, if the creditor has a good faith 17 belief that, inter alia, any person “liable on the contract by 18 omission or commission intentionally provided false or 19 misleading information of material importance on his or her 20 credit application.” 21 We are required to apply California law as written by the 22 California legislature and as interpreted by the California 23 courts. On its face, the Notice did not comply with Cal. Civ. 24 Code § 2983. As a consequence, Union Bank has no right to 25 /// 26 ///

1 assert a deficiency claim against Ms. Catipon.8 2 Because Union Bank holds no enforceable debt against 3 Ms. Catipon, the bankruptcy court did not err when it dismissed 4 the adversary proceeding. 5 6 VI. CONCLUSION 7 Union Bank did not comply with the notice requirements of 8 Cal. Civ. Code § 2983.2 in selling the Infiniti and the Land 9 Rover. As a consequence, Union Bank was not entitled to a 10 deficiency enforceable against Ms. Catipon. The bankruptcy 11 court appropriately dismissed Union Bank’s adversary proceeding 12 which sought a determination that the deficiency was 13 nondischargeable pursuant to § 523(a)(2)(A). 14 We AFFIRM. 15 16 17 18 19 20 21 22 23 24 8 We need not reach the bankruptcy court’s alternative 25 holding that Cal. Civ. Code § 2983.8 precluded Union Bank from the right to a deficiency because a private auction was not a 26 commercially reasonable disposition of the vehicles.