In re: Gigi Ellis

FILED NOV 19 2014

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. NC-14-1052-PaJuKu ) 6 GIGI ELLIS, ) Bk. No. 13-32612 ) 7 ) Debtor. ) 8 ______________________________) ) 9 GIGI ELLIS, ) ) 10 Appellant, ) ) O P I N I O N 11 v. ) ) 12 JUNYING YU, ) ) 13 Appellee.1 ) ______________________________) 14 15 Argued and Submitted on October 23, 2014 at San Francisco, California 16 Filed - November 19, 2014 17 Appeal from the United States Bankruptcy Court 18 for the Northern District of California 19 Hon. Hannah L. Blumenstiel, U.S. Bankruptcy Judge, Presiding2 20 21 Appearances: George S. Wynns argued for appellant Gigi Ellis. 22 Before: PAPPAS, JURY, AND KURTZ, Bankruptcy Judges. 23 24 1 25 Appellee Junying Yu did not file a brief or appear in this appeal. 26 2 Judge Blumenstiel presided at the hearing and entered the 27 order reviewed in this appeal. However, Judge Dennis Montali is 28 the presiding bankruptcy judge in the case and later entered a decision and order denying Appellant’s request for a stay pending appeal.

1 PAPPAS, Bankruptcy Judge: 2 3 Chapter 73 debtor Gigi Ellis (“Ellis”) appeals the order of 4 the bankruptcy court granting Junying Yu’s (“Yu”) motion for 5 relief from the automatic stay under §§ 362(d)(1) and (2), and 6 granting in rem relief pursuant to § 362(d)(4). We DISMISS the 7 appeal from the stay relief order as MOOT because Ellis has since 8 been granted a discharge in her bankruptcy case and, therefore, 9 the automatic stay has terminated by operation of § 362(c)(2)(C). 10 We REVERSE the grant of in rem relief because Yu was not a 11 creditor with a claim secured by an interest in the subject 12 property as required by § 362(d)(4). 13 FACTS 14 Ellis purchased a house in San Francisco in 2005 (the 15 “Property”). She financed this purchase with a loan from Long 16 Beach Mortgage Company; the loan was evidenced by a note and deed 17 of trust on the Property. 18 Ellis defaulted on the note and deed of trust by failing to 19 make required payments in mid-2008. Since her default, Ellis has 20 filed five chapter 13 and chapter 7 bankruptcy cases in the 21 Northern District of California bankruptcy court, including the 22 case out of which this appeal arises. All of her prior cases 23 were dismissed either because Ellis failed to file required 24 25 3 Unless otherwise indicated, all chapter and section 26 references are to the Bankruptcy Code, 11 U.S.C. §§ 101–1532, all 27 Rule references are to the Federal Rules of Bankruptcy Procedure, Rules 1001–9037, and all Civil Rule references are to the Federal 28 Rules of Civil Procedure 1–86.

-2-

1 documents or because she failed to make chapter 13 plan payments. 2 On June 11, 2009, Deutsche Bank National Trust Company, as 3 Trustee for Long Beach Mortgage Loan Trust 2005-2 (“Deutsche 4 Bank”) purchased the Property at a trustee’s foreclosure sale. 5 Deutsche Bank then sued Ellis in state court, and on August 7, 6 2012, obtained an unlawful detainer judgment by default against 7 Ellis and her uncle, who also resided at the Property. 8 On August 23, 2013, Yu purchased the Property from Deutsche 9 Bank and a grant deed in Yu’s favor was recorded the same day. 10 Deutsche Bank also assigned all of its rights under the unlawful 11 detainer judgment to Yu on October 15, 2013; Yu recorded that 12 assignment on October 28, 2013. 13 After Ellis filed the current chapter 13 case on December 9, 14 2013, Yu filed a Motion for Relief from Stay and In Rem Relief 15 under § 362(d)(2) and § 362(d)(4) on January 3, 2014. As grounds 16 for his request that the bankruptcy court allow him to continue 17 his efforts to take possession of the Property, Yu alleged in the 18 motion that he owned the Property, that Ellis lacked any 19 cognizable interest in it, and that “[t]he evidence shows that 20 Debtor has filed this petition in an attempt to delay, hinder, 21 and defraud Movant, and that her scheme involved multiple 22 bankruptcy filings affecting such real property.” 23 The same day, Yu filed an ex parte motion for an order 24 shortening the time for the hearing on the stay relief motion, 25 alleging that there was an imminent danger of irreparable damage 26 to the Property, and also because of the history of allegedly bad 27 faith bankruptcy filings by Ellis. The bankruptcy court granted 28 the request for shortened notice on the hearing, but subject to a

-3-

proviso: 1 The court hereby GRANTS the request for a hearing on 2 shortened notice, on the condition that [Yu’s] counsel delivers this order and the motion for relief from stay 3 (and supporting documents) to Debtor by personal service no later than the close of business on 4 Wednesday, January 8, 2014. 5 Order Shortening Time at 1, January 7, 2014. 6 According to a certificate, Yu’s process server attempted to 7 personally serve Ellis on January 7, and twice on January 8, 8 2014. He finally effected personal service on Ellis at 6:00 a.m. 9 on January 9, 2014. Yu had also sent copies of the documents by 10 overnight mail to Ellis on January 7, 2014; according to a 11 receipt, they were delivered to Ellis on January 8, 2014.4 12 Ellis filed a lengthy objection to Yu’s stay relief motion 13 on January 9, 2014, arguing, among other things, that “Yu is not 14 a secured creditor of the Debtor and does not claim to be a 15 secured creditor of the Debtor” and that the alleged assignment 16 of the unlawful detainer judgment from Deutsche Bank to Yu was 17 invalid. The objection was accompanied by Ellis’ five-page 18 declaration disagreeing with several of Yu’s factual allegations 19 regarding the alleged deterioration of the Property and asserting 20 21 4 At oral argument before the Panel, Debtor argued that the 22 reported mail delivery of the documents on January 8, 2014 was not true, and that the documents were actually received on 23 January 9, 2014. The declaration of Jordan Fong of Yu’s attorney’s office, “Proof of Service by Overnight Delivery,” 24 found in the bankruptcy court’s docket attaches “FedEx Travel 25 History Statement 862783209546” showing actual delivery to Ellis’ address on Wednesday, January 8, 2014, at 8:32 p.m. While the 26 precise date and time of delivery will not impact our decision, 27 we exercise our discretion to review that declaration in resolving the issues in this appeal. O'Rourke v. Seaboard Surety 28 Co. (In re E.R. Fegert), 887 F.2d 955, 957-58 (9th Cir. 1989).

-4-

1 legal defenses.5 On January 10, 2014, Ellis also filed a five- 2 page “Notice of Noncompliance,” accompanied by a nine-page 3 affidavit, indicating that the Yu’s service of the stay relief 4 motion on her was untimely and that she would not attend the 5 scheduled hearing on January 13.6 6 The bankruptcy court conducted the hearing on the stay 7 relief motion on January 13, 2014. Ellis did not attend. After 8 noting her absence, and hearing from counsel for Yu, the court 9 granted the motion, finding: 10 Regarding service, I am going to find that service was sufficient. . . . I find it to have been substantially 11 in compliance with Judge Montali’s order, based in part on the fact that the Debtor herself acknowledges when 12 she received the papers and that she has filed detailed opposition to the relief sought. 13 Regarding the merits of the motion, I find that Ms. 14 Ellis’ ownership and possessory interest in the property has been terminated. Ownership interest 15 terminated upon the sale of the Property in foreclosure, and possessory interest terminated upon 16 the entry of the unlawful detainer judgment for possession, of which your client has accepted what 17 18 5 Ellis’ declaration was not included in the excerpts of 19 record on appeal. We have located what appears to be the declaration Ellis submitted to the bankruptcy court in its docket 20 at 25. Again, we exercise our discretion to review that declaration. In re E.R. Fegert, 887 F.2d at 957-58. 21 6 22 The bankruptcy court would later observe, in an Order Denying Further Stay Pending Appeal entered on February 20, 2014, 23 that: 24 Debtor was aware of the [stay relief motion and request 25 for hearing on shortened notice] on or before January 9, as she filed an 11-page objection and a 5-page 26 declaration on that date. This detailed response is 27 compelling proof that Debtor was not denied any due process and any defects in the service of the moving 28 papers were harmless.

-5-

1 appears to me to be a valid assignment. So I’m going to grant the motion for relief from stay under [§] 2 362(d)(1)7 and (2). 3 With regard to [Yu’s request for in rem relief], I note that the Debtor has filed a number of bankruptcy cases 4 since acquiring the Property. . . . She has failed to prosecute most of the cases that she has filed, and all 5 of the cases that she has filed in the years since acquiring the Property. . . . She was required to, but 6 did not, attend a meeting of creditors pursuant to section 341 of the Bankruptcy Code. . . . It appears 7 that she has filed the several cases that she has filed since acquiring the Property as part of a scheme to 8 hinder and delay her creditors, including J.P. Morgan, and by virtue of your client’s assignment, your client. 9 So I’m going to grant in rem relief as well. 10 Hr’g Tr. 4:11–6:1, January 13, 2014. 11 On January 27, 2014, the bankruptcy court entered an Order 12 Granting In Rem Relief from the Automatic Stay. The order 13 memorialized the findings made on the record at the January 13, 14 2014 hearing and terminated the automatic stay under §§ 362(d)(1) 15 and (2). The order also granted in rem relief in Yu’s favor 16 under § 362(d)(4), providing that, “this order terminating the 17 automatic stay under 11 U.S.C. § 362 as to [Yu’s] interest in the 18 Property shall be binding in any other case filed under the 19 Bankruptcy Code purporting to affect the Property that is filed 20 not later than two years after the date of this Order, such that 21 the automatic stay under 11 U.S.C. § 362(a) shall not apply to 22 [Yu’s] interest in the Property.” Order at 2. 23 24 7 Yu had not sought stay relief under § 362(d)(1); his 25 motion alleged that relief was warranted under § 362(d)(2). But that the bankruptcy court granted Yu relief from the stay for 26 “cause” when Yu had not asserted that in his motion is of no 27 moment. Ellis did not challenge this discrepancy on appeal, and below, we deem Ellis’ appeal from that aspect of the motion is 28 now moot and must be dismissed.

-6-

1 Ellis filed a timely notice of appeal of the stay relief 2 order on February 3, 2014. 3 EVENTS SUBSEQUENT TO THE APPEAL 4 We may take judicial notice of events in the bankruptcy case 5 occurring subsequent to the filing of an appeal if they resolve 6 the dispute between the parties. Pitts v. Terrible Herbst, Inc., 7 653 F.3d 1081, 1087 (9th Cir. 2011) (“[I]f events subsequent to 8 the filing of the case resolve the parties' dispute, we must 9 dismiss the case as moot.”). We have done so, and observe that 10 on April 16, 2014, Ellis voluntarily converted her chapter 13 11 case to a case under chapter 7, and that on July 22, 2014, the 12 bankruptcy court granted Ellis a discharge under § 727(a). 13 JURISDICTION 14 The bankruptcy court had jurisdiction under 28 U.S.C. 15 §§ 1334 and 157(b)(2)(G). Our jurisdiction is based upon 28 16 U.S.C. § 158, and we discuss one aspect of that jurisdiction 17 below. 18 ISSUES 19 Whether the bankruptcy court’s order terminating the 20 automatic stay is moot. 21 Whether the bankruptcy court abused its discretion in 22 granting in rem relief. 23 STANDARDS OF REVIEW 24 We review our own jurisdiction, including questions of 25 mootness, de novo. Silver Sage Partners, Ltd. v. City of Desert 26 Hot Springs (In re City of Desert Hot Springs), 339 F.3d 782, 787 27 (9th Cir. 2003). 28 The decision of a bankruptcy court to grant in rem relief

-7-

1 under § 362(d)(4) is reviewed for abuse of discretion. First 2 Yorkshire Holdings, Inc. v. Pacifica L 22, LLC (In re First 3 Yorkshire Holdings, Inc.), 470 B.R. 864, 868 (9th Cir. BAP 2012). 4 A bankruptcy court abuses its discretion if it applies an 5 incorrect legal standard, misapplies the correct legal standard, 6 or if its factual findings are illogical, implausible or without 7 support from evidence in the record. TrafficSchool.com v. 8 Edriver Inc., 653 F.3d 820, 832 (9th Cir. 2011) (citing United 9 States v. Hinkson, 585 F.3d 1247, 1262 (9th Cir. 2009)(en banc)). 10 DISCUSSION 11 I. 12 The appeal of the stay relief provisions in the stay relief order is moot. 13 14 We cannot exercise jurisdiction over a moot appeal. United 15 States v. Patullo (In re Patullo), 271 F.3d 898, 900 (9th Cir. 16 2001); GTE Cal., Inc. v. FCC, 39 F.3d 940, 945 (9th Cir. 1994) 17 (“The jurisdiction of federal courts depends on the existence of 18 a ‘case or controversy’ under Article III of the Constitution.”). 19 A moot case is one where the issues presented are no longer live 20 and no case or controversy exists. Pilate v. Burrell (In re 21 Burrell), 415 F.3d 994, 998 (9th Cir. 2005). The test for 22 mootness is whether an appellate court can still grant effective 23 relief to the prevailing party if it decides the merits in his or 24 her favor. Id. If an issue becomes moot while the appeal is 25 pending, an appellate court must dismiss the appeal. In re 26 Patullo, 271 F.3d at 900. 27 As noted above, after Ellis commenced this appeal, she filed 28 a motion to convert her bankruptcy case from one under chapter 13

-8-

1 to one under chapter 7; the case was converted. Thereafter, the 2 bankruptcy court granted Ellis a discharge under § 727(a). 3 Under § 362(c)(2)(C), the provisions of the § 362(a) 4 automatic stay that would shield Ellis from any legal actions by 5 Yu to recover the Property from her continued in effect only 6 “until the earliest of . . . the time a discharge is granted or 7 denied.” Here, it is not disputed that Ellis has been granted a 8 discharge by the bankruptcy court. Since the entry of the 9 discharge order in the bankruptcy case there has been no 10 automatic stay in effect. Consequently, even were we to overturn 11 that part of the stay relief order that terminated the automatic 12 stay in Yu’s favor under § 362(d)(1) and (2), that stay has now 13 terminated as a matter of law. Bigelow v. Comm’r, 65 F.3d 127, 14 129 (9th Cir. 1995) (“a stay immediately dissolves upon issuance 15 of a discharge by the bankruptcy court. §362(2)(C)”). Simply 16 put, we lack the ability to grant Ellis any effective relief as 17 to this aspect of the order on appeal. 18 The Ninth Circuit has instructed that, when an appellate 19 court cannot grant effective relief to an appellant, the appeal 20 must be dismissed as moot. Pitts, 653 F.3d at 1087 (9th Cir. 21 2011) (“[I]f events subsequent to the filing of the case resolve 22 the parties’ dispute, we must dismiss the case as moot.”); Cook 23 v. Fletcher (In re Cook), 730 F.2d 1324, 1326 (9th Cir. 1984) 24 (dismissing appeal of stay relief order as moot where the chapter 25 7 discharge was issued after the appeal was filed). 26 The appeal of that part of the stay relief order terminating 27 the automatic stay under §§ 362(d)(1) and (2) is therefore 28 DISMISSED as MOOT.

-9-

1 II. The bankruptcy court abused its discretion in granting in rem 2 relief to Yu under § 362(d)(4)because he is not a creditor whose claim is secured by an interest in the Property. 3 4 Ellis argues that we should reverse the stay relief order 5 because she was not served with copies of the stay relief motion 6 in accordance with the bankruptcy court’s order shortening time 7 for the hearing. While we are skeptical of this argument, there 8 is another, more fundamental reason appearing in the record 9 requiring reversal. 10 Section 362(d)(4)(B) provides: 11 (d) On request of a party in interest and after notice and a hearing, the court shall grant relief from the 12 stay provided under subsection (a) of this section, such as by terminating, annulling, modifying, or 13 conditioning such stay– . . . 14 (4) with respect to a stay of an act against real property under subsection (a), by a creditor whose 15 claim is secured by an interest in such real property, if the court finds that the filing of the petition was 16 part of a scheme to delay, hinder, or defraud creditors that involved . . . (B) multiple bankruptcy filings 17 affecting such real property. 18 (emphasis added). Applying its plain meaning, this provision of 19 the Code authorizes a bankruptcy court to grant the extraordinary 20 remedy of in rem stay relief only upon the request of a creditor 21 whose claim is secured by an interest in the subject property. 22 In this case, after a review of the record presented to us, 23 Yu has never claimed that he was a secured creditor of Ellis. 24 And in particular, Yu did not assert he was a secured creditor in 25 the stay relief motion. Instead, in the bankruptcy court, and 26 now on appeal, both Ellis and Yu each assert that they own the 27 Property. In other words, this is a dispute between two putative 28 owners of the same real property, not a contest where the parties

-10-

1 occupy a debtor-creditor relationship.8 2 Two recent decisions, also from the Northern District of 3 California bankruptcy court, emphasize that a party seeking in 4 rem relief under § 362(d)(4) must establish, and the bankruptcy 5 court must find, that the movant is a creditor whose claim is 6 secured by an interest in the property in question. In re 7 Laconico, 2014 WL 3687202, at *1 (Bankr. N.D. Cal. July 24, 8 2014); In re Robles, 2014 WL 3715092, at *1 (Bankr. N.D. Cal. 9 July 24, 2014). 10 In In re Laconico, the bankruptcy court concluded that 11 “[b]efore a creditor can obtain in rem relief under § 362(d)(4), 12 the creditor must establish that the creditor holds a security 13 interest in the subject property.” 2014 WL 3687202, at *1. The 14 bankruptcy court found that the moving party seeking in rem 15 relief in that case had adequately shown the bankruptcy court 16 proof that it was an assignee of both a note and the deed of 17 18 8 In Yu’s stay relief motion, the ex parte request for an 19 order shortening time, and in the declaration of Yu’s counsel supporting the stay relief motion, Yu never refers to himself as 20 a creditor, let alone a secured creditor. Instead, he refers to himself as “Movant.” Section 101(10) defines creditor to mean 21 “an entity that has a claim against the debtor that arose at the 22 time of or before the order for relief concerning the debtor . . . .” “Claim” is defined by the Code, as relevant here, to mean 23 “a right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, 24 unmatured, disputed, undisputed, legal, equitable, secured or 25 unsecured . . . .” § 101(5)(A). We have reviewed the record, including the state court’s unlawful detainer judgment, and there 26 was no documentation or other evidence presented to the 27 bankruptcy court at the time it granted in rem stay relief to show that Yu’s entitlement to possession of the Property would 28 constitute a claim in the bankruptcy case as defined by the Code.

-11-

1 trust securing the loan on the affected property. Id. 2 In re Robles is even more on point. There, the bankruptcy 3 court again noted that to obtain in rem relief under § 362(d)(4), 4 “the creditor must establish that the creditor holds a security 5 interest in the subject property.” 2014 WL 3715092, at *1. And 6 like this case, Robles addressed a scenario where the party 7 seeking in rem relief based the request on its alleged ownership 8 of the property. The Robles court rejected that request for 9 relief under § 362(d)(4), observing that a party without an 10 ownership interest does not benefit from the protections 11 contemplated in § 362(d)(4). In rem relief was granted under 12 § 105(a). Id. 13 Other bankruptcy courts in this circuit have likewise held 14 that the party seeking in rem relief must demonstrate that it is 15 a secured creditor. In re Gonzalez, 456 B.R. 429, 442 (Bankr. 16 C.D. Cal. 2011), rev’d on other grounds, Quality Loan Serv. Corp. 17 v. Gonzalez (In re Gonzalez), 2012 U.S. Dist. LEXIS 188105 (C.D. 18 Cal. June 14, 2012). So have courts from other circuits: In re 19 McCray, 342 B.R. 668, 670 (Bankr. D.D.C. 2006) (“§ 362(d)(4) is 20 limited to a stay of an act against real property and to ‘a 21 creditor whose claim is secured by an interest in such real 22 property.’ Here, [the movant] holds no claim secured by an 23 interest in the subject property. Instead, it claims to own the 24 property pursuant to a foreclosure sale (which by definition 25 would extinguish the security interest it had in the 26 27 28

-12-

1 property)”);9 see also In re Stoltzfus, 2009 WL 2872860, at *6 2 (Bankr. E.D. Pa. March 30, 2009) (“because the movants . . . do 3 not hold claims secured by the . . . interest in real property, 4 the provisions of section 362(d)(4) are not applicable”). This 5 view is also shared by a leading treatise on bankruptcy law: 6 “the relief under § 362(d)(4) is available only to a creditor 7 whose claim is secured by an interest in real property.” 8 3 Collier on Bankruptcy ¶ 362.05[19][a] (Alan N. Resnick & Henry 9 J. Sommer, eds. 16th ed. 2013). 10 Though Ellis argued the point,10 the bankruptcy court did 11 not address the undisputed fact that Yu was not a creditor whose 12 claim was secured by the Property. However, the evidence 13 14 9 Although the bankruptcy court in McCray ruled that only 15 secured creditors could obtain in rem relief under § 362(d)(4), 16 it granted such relief to the property owner pursuant to its § 105(a) powers. However, this Panel has held that in rem stay 17 relief is not available under § 105(a). Johnson v. TRE Holdings, LLC (In re Johnson), 346 B.R. 190, 195-96 (9th Cir. BAP 2006). 18 Further, a request for in rem relief other than under the strict 19 rules of § 362(d)(4) would involve a request for an injunction or other equitable relief affecting an interest in property for 20 purposes of Rules 7001(2) and 7001(7). In re van Ness, 399 B.R. 897, 904 (Bankr. E.D. Cal. 2009). Such a request would therefore 21 require the procedural protections of an adversary proceeding 22 rather than a contested matter under Rule 9014. Id. 23 10 In her objection to the stay relief motion, the very first line reads, “Movant Junying Yu is not a secured creditor of 24 the Debtor and does not claim to be a secured creditor of the 25 Debtor.” Later, in opposition to the ex parte request for stay pending appeal to the bankruptcy court, she repeated the 26 argument: “Movant Yu does not claim to be either a secured or an 27 unsecured creditor of the Debtor here.” Yu never responded to Ellis’ argument that he is not a secured creditor, and the 28 bankruptcy court did not rule on Ellis’ argument.

-13-

1 submitted to the bankruptcy court by Yu unequivocally 2 demonstrates that he sought in rem relief, not as a secured 3 creditor, but as the putative owner of the Property. Because Yu 4 was not a “creditor whose claim is secured by an interest” in the 5 Property, we conclude that the bankruptcy court applied an 6 incorrect legal rule and thereby abused its discretion when it 7 granted Yu in rem relief under § 362(d)(4). Accordingly, that 8 aspect of the bankruptcy court’s order is REVERSED. 9 CONCLUSION 10 We DISMISS the appeal from the bankruptcy court’s order 11 terminating the automatic stay under § 362(d)(1) and (2) as MOOT. 12 We REVERSE the bankruptcy court’s grant of in rem relief to Yu 13 under § 362(d)(4) because Yu was not a creditor whose claim is 14 secured by the Property. 15 16 17 18 19 20 21 22 23 24 25 26 27 28

-14-