In Re Debtor: Ashley Susan Aarons

1 JS-6 [7] 8 UNITED STATES DISTRICT COURT 9 CENTRAL DISTRICT OF CALIFORNIA [10] In re: Case No. 2:22-CV-06447-JLS 11 ASHLEY SUSAN AARONS, dba Bankruptcy Case No. 2:19-bk-18316-NB 12 Coffee Dog Entertainment, Adversary Case No. 2:22-ap-01104-NB 13 Debtor. ORDER AFFIRMING BANKRUPTCY 14 _____________________________ COURT ORDER [15] 16 JULIUS AARONS, AS TRUSTEE OF THE AARONS 1991 LIVING 17 TRUST DATED 5/16/1991 AS AMENDED AND RESTATED 18 9/28/2001, [19] Plaintiff-Appellant, [20] v. [21] PATCH OF LAND LENDING, [22] LLC, et al., [23] Defendant-Appellees. [28] 1 The present bankruptcy appeal of an order dismissing an adversary action is 2 fully briefed. (See Docs. 22, 23, & 25 (Opening, Answering, and Reply briefs).) The 3 procedural history of the present appeal is complex, but the issues it raises are not. In 4 the Bankruptcy Court, Plaintiff-Appellant’s adversary complaint was dismissed 5 without leave to amend. Plaintiff-Appellant challenges that dismissal. However, for 6 the reasons set forth herein, the Court AFFIRMS the Bankruptcy Court’s Order 7 Granting Defendants’ Motion to Dismiss Complaint for Failure to State a Claim 8 Without Leave to Amend (AP 45 (“Order”)) and the accompanying Memorandum 9 Decision Granting Defendants’ Motion to Dismiss Complaint (AP 44 (“Memorandum 10 Decision”)).1 11 I. STANDARD OF REVIEW 12 The district court reviews the bankruptcy court’s legal conclusions de novo and 13 its factual determinations for clear error. In re First T.D. & Inv., Inc., 253 F.3d 520 , 14 526 (9th Cir. 2001). “De novo means review is independent, with no deference given 15 to the trial court’s conclusion.” In re Curtis, 571 B.R. 441, 444 (B.A.P. 9th Cir. 2017) 16 (internal quotation marks omitted). 17 II. BACKGROUND 18 This appeal arises out of the adversary action, Julius Aarons, et al., v. Patch of 19 Land Lending, LLC, et al., No. 2:22-ap-01104-NB, which was removed from state 20 court to the bankruptcy case In re Ashley Susan Aarons, No. 2:19-bk-18316-NB. (See 21 AP 1). Plaintiff-Appellant Julius Aarons (“Appellant”), father of Debtor Ashley 22 Susan Aarons (“Debtor”), purchased a promissory note secured by a junior deed of 23 trust on real property (“the Property”) that was part of Debtor’s bankruptcy estate. 24 Although the bankruptcy petition was originally filed as a Chapter 11 reorganization 25 case, it was later converted to a Chapter 7 liquidation case, and Appellant purchased [26] 1 Both of these are attached to Appellant’s Amended Notice of Appeal. (See Doc. 2 (Amd. Notice of 27 Appeal).) Together they represent the Bankruptcy Court’s reasoned opinion granting the motion to dismiss and its order to dismiss the action without leave to amend. Generally, the Court refers to the 28 individual documents of record by their docket numbers from the adversary proceeding, abbreviated 1 the promissory note after that conversion. Appellant did so with the intent of 2 preventing the junior lienholder from foreclosing on the property, and he was 3 successful in that attempt. 4 This success was temporary, however, because when agreed-to payments to the 5 senior lienholder were not made, the senior lienholder foreclosed on the property for 6 an amount that did not satisfy the senior lien, which effectively extinguished 7 Appellant’s junior lien. Appellant filed an adversary action, first to attempt to halt the 8 foreclosure by the senior lienholder and, when that failed, he amended his complaint 9 to assert a wrongful foreclosure claim. (See AP 16 (“FAC”).) The Bankruptcy Court 10 dismissed his case without leave to amend, and he filed the present appeal. 11 With that introduction, the relevant details may be summarized as follows. 12 A. Debtor’s Chapter 11 Bankruptcy 13 The Debtor filed a voluntary petition for relief under Chapter 11 of the 14 Bankruptcy Code on July 17, 2019. (BK 1.) 15 On June 22, 2020, the then-current deed of trust holder as to the Property, 16 Invictus Pooler Trust 3A (“Invictus”), obtained relief from the automatic stay, which 17 expressly permitted it to foreclose on the property. (BK 255 (“Order lifting stay”).). 18 On August 7, 2020, Debtor filed an amended Chapter 11 Disclosure Statement 19 Dated August 7, 2020 (BK Doc. 311 ((“Disclosure Statement”) and her Chapter 11 20 Plan (BK 313 (“Plan”)). 21 On September 11, 2020, the Debtor filed her Brief in Support of Entry of an 22 Order Confirming Debtor’s Chapter 11 Plan with Certain Non-Material 23 Modifications. (BK 329 (“Confirmation Brief”).) Additional non-material 24 modifications were obtained by Debtor on her motion filed February 8, 2021. (See 25 BK Docs. 383 (Motion) & 387 (Order).) 26 On February 11, 2021, the Bankruptcy Court confirmed the Plan. (BK 390.) 27 The confirmed Plan expressly adopted a Modification Agreement as to the Property, 28 which was entered into by Debtor and Patch of Land Lending, LLC (“Patch of Land” 1 or “POL”), Invictus, and FCI Lenders Services, Inc., and which was amended by four 2 addenda. (See id. at 4 n.1; BK 383 at 57-75 (Modification Agreement) & 23-74 (four 3 addenda dated Oct. 14, Nov. 6, and Dec. 22, 2020, and Feb. 3, 2021).) The 4 confirmed Plan also expressly designated the Haycock lien as junior to that of Patch of 5 Land. (BK 390 at 9, ¶ 27(a) (“liens . . . that were junior to the lien of POL as of the 6 [bankruptcy filing date] . . . shall remain junior . . . [including] $170,000 deed of trust 7 in favor of beneficiary, James Haycock”).) 8 B. Debtor’s Failure to Pay Under the Modification Agreement, 9 Conversion of the Case from Chapter 11 to Chapter 7, Appellant’s 10 Purchase of the Haycock Junior Lienhold, and the Foreclosure Sale 11 of the Property 12 The Modification Agreement allowed Debtor to retain the property, but when 13 she failed to meet her obligations thereunder, on October 14, 2021, after several 14 hearings, the Bankruptcy Court found cause to convert the case to a Chapter 7 15 liquidation case. (BK Doc. 460.) Before it did so, though, the Bankruptcy Court gave 16 Debtor a short window of time in which to arrange financing to pay the debts secured 17 by the Property by the time of the next scheduled hearing. (Id.) Despite that chance, 18 on October 18, 2021, over Debtor’s objection (see BK Doc. 461), the Bankruptcy 19 Court ordered that the case be converted to a Chapter 7 case and that “the property 20 revest in the chapter 7 estate.” (BK Doc. 464 at 2.) The Bankruptcy Court also 21 expressly ordered that previously granted relief from the automatic stay provision 22 remained in effect. (Id.) 23 After the confirmation of the Plan and after conversion of the case from a 24 Chapter 11 to a Chapter 7 case, Appellant purchased his interest in the Property from 25 James Haycock on January 1, 2022. (FAC ¶ 14.) 26 A foreclosure sale was noticed and the Property was sold at auction on March 27 30, 2022. (Mem. Dec. at 14-16.) The timeline and the relevant recorded documents 28 for the Property may be described as follows: 1 March 22, 2018 Debtor executed the Promissory Note on the Property in the 2 amount of $3,000,000, representing a loan from Patch of Land to 3 Ashley S. Aarons, Trustee of the Ashley S. Aarons 2015 Trust 4 dated May 15, 2015. (RJN Ex. 1, AP 26-3 at 13-31 (Promissory 5 Note and attachments).) The corresponding Deed of Trust was 6 recorded on March 27, 2018 as Instrument number 20180291459 7 (“-1459”). (Id. at 32-66.) 8 February 6, 20202 Instrument number 20200163705 (“-3705”) was recorded as an 9 Assignment of Deed of Trust from Patch of Land to Wilmington 10 Savings Fund Society, FSB (“Wilmington”), as Trustee for 11 Invictus. (RJN Ex. 2, AP 26-3 at 73-79.) The assignment of the 12 Deed of Trust was recorded on February 10, 2020. (Id. at 73.) 13 June 15, 2020 Instrument number 20200647273 was filed by California TD 14 Specialists, “acting as an agent for the trustee or beneficiary under 15 the Deed of Trust dated 3/22/2018,” filed a Notice of Default and 16 Election to Sell the Property. (RJN Ex. 7, AP 26-3 at 124-29.) 17 The Notice of Default and Election to Sell Under Deed of Trust 18 was recorded on June 15, 2020, as instrument number 19 20200647273. (Id. at 124.) This Notice of Default was later 20 rescinded, as evidenced by the recordation of a Notice of Recission 21 on March 3, 2021 as instrument number 20210348612. (RJN Ex. 22 11, AP 26-3 at 311-12.) 23 March 18, 2021 Instrument number 20200363249 was recorded as an assignment 24 of the Deed of Trust by Wilmington (as Trustee for Invictus) from [25] 2 The Chief Operating Officer of Patch of Land signed an assignment that is dated February 6, 2019. 26 The “6th” and “February” are handwritten on the form, but the “2019” is on the copied form. (Id. at 77.) The next page, the notary public’s acknowledgement, is dated February 6, 2020, and is 27 completely handwritten. (Id. at 78.) Both pages are part of recorded instrument number -3705. Given the acknowledgment date is the same date as the assignment date except as to the year (which 28 is preprinted on the assignment form), and given the recorded date is four days after the 1 Invictus to Verus Securitization Trust 2020-NPLI (“Verus”). (RJN 2 Ex. 3, AP 26-3 at 81-83.) 3 August 11, 2021 California TD Specialists, “acting as an agent for the trustee or 4 beneficiary under the Deed of Trust dated 3/22/2018,” recorded a 5 Notice of Default and Election to Sell the Property (“Notice of 6 Default”), as instrument number 20211227965. (RJN Ex. 12, AP 7 26-3 at 314-29.) The Notice of Default lists both FCI Lender 8 Services, Inc., and California TD Specialists as servicers for 9 Wilmington. Wilmington, in turn, was the trustee for Verus. 10 March 30, 2022 Foreclosure sale. 11 C. Appellant’s Adversary Action 12 On March 26, 2022, Appellant filed a complaint in state court in an 13 unsuccessful attempt to halt the foreclosure, but Defendant-Appellees removed the 14 action, and the case became an adversary action associated with the present 15 bankruptcy case. (See AP 1 (Compl.).) After the foreclosure sale, Appellant filed his 16 First Amended Complaint on May 31, 2022, challenging the foreclosure. (AP 16.) 17 Specifically, Appellant alleged he purchased from James Haycock all of 18 Haycock’s rights to a promissory note, which was secured by a junior deed of trust as 19 to the Property, and that he paid $260,000 for a promissory note that had an original 20 principal amount of $170,000. (FAC ¶ 14.) Appellant alleged that his second-in21 priority lien took priority over that interest claimed by Appellee Patch of Land 22 because Patch of Land had transferred its rights in the property to Defendant-Appellee 23 Invictus. (FAC ¶¶ 15, 24(a).) On this theory, Appellant also alleged that the 24 foreclosure sale was ineffective. He also alleged the transfers of the property were 25 improper based on a lack of proper endorsements or assignments. (FAC ¶ 24(a).) 26 Further, Appellant alleged that because Debtor made a tender offer in the amount of 27 $5,000,000 prior to the sale, the mortgage servicer was stripped of its authority to 28 conduct the foreclosure sale. (FAC ¶ 24(c).) Finally, Appellant alleged that the 1 amount of default was incorrectly stated in the notice of default as $3,953,965.08. 2 (FAC ¶ 24(i).) Appellant alleged that this amount was “overstated by hundreds of 3 thousands of dollars in fees, interests [sic] and late charges.” (Id.) 4 D. The Bankruptcy Court’s Dismissal 5 The Bankruptcy Court dismissed these claims without leave to amend, setting 6 forth numerous bases for dismissal. 7 III. DISCUSSION 8 As discussed in detail in the following subsections, the Bankruptcy Court 9 properly dismissed the FAC without leave to amend. Specifically, the Court 10 addresses (a) the substantive validity of the foreclosure sale, analyzed by the 11 Bankruptcy Court based on judicially noticed documents (see Mem. Dec. at 14-16); 12 (b) the remedies available to Appellant as a junior lienholder (see id. at 12-13); (c) the 13 inability of Appellant to state a claim based upon the Debtor’s alleged tender of a 14 payoff amount (see id. at 18-20); (d) the effect of the Florida court order (which was 15 not addressed below); and (e) the issue of whether Appellant should have been 16 granted leave to amend the FAC (see id. at 2-3 n.2 & 21-22). 17 A. Validity of Foreclosure Sale 18 The Bankruptcy Court concluded, based on judicially noticed documents, that 19 the foreclosure sale was valid, and that any loss to Appellant was the result of his 20 status as a junior lienholder, who purchased a property he knew was part of a 21 Chapter 7 bankruptcy estate. (Mem. Dec. at 14-16.) The Bankruptcy Court correctly 22 held that the foreclosure sale of the Property was valid and its effect was to extinguish 23 Appellant’s junior lien.3 Thus, Appellant had no remaining interest in the Property 24 when he filed the FAC. 25 In the FAC, Appellant alleged that Patch of Land lacked authority to foreclose. 26 The recorded documents, of which the Bankruptcy Court properly took judicial notice, [27] 3 The details of Appellant’s argument regarding an apparent clerical error and regarding blank 28 endorsements and assignments are discussed in a separate section, below, relating to whether leave 1 evidence a chain of title that support Appellant’s allegation. However, these 2 documents also evidence that Patch of Land was not the foreclosing party. Instead, as 3 the Bankruptcy Court noted, the reference to Patch of Land in the Notice of Default 4 identifies it as the original beneficiary, not as the then-current beneficiary, which was 5 identified as Verus. Examination of the Notice of Default reveals that FCI Lender 6 Services, Inc., and California TD Specialists acted as servicers for Wilmington 7 Savings Fund Society, which was the trustee for Verus.4 Thus, the Bankruptcy Court 8 did not err in concluding that Appellant’s allegations failed to state a claim for 9 wrongful foreclosure based on a defect in the chain of title. 10 B. Remedy Available to a Junior Lienholder Upon Foreclosure 11 Appellant argues that he has the right to challenge the validity of the foreclosure 12 sale. (Opening Br. at 5-7.) The Bankruptcy Court rejected this argument and 13 concluded that, as a practical matter, where, as here, the junior lienholder complains 14 that the property was sold at a below-market price (see FAC ¶ 22), his best remedy 15 would have been to bid on the property himself. (Mem. Dec. at 12-13.) In arriving at 16 this conclusion, the Bankruptcy Court discussed two California Court of Appeal cases, 17 Bank of Seoul & Trust Co. v. Marcione, 198 Cal. App. 3d 113, 118 (1988), and Friery 18 v. Sutter Buttes Sav. Bank, 61 Cal. App. 4th 869, 878 (1998), both of which involve 19 the rights of junior lienholders upon foreclosure by a senior lienholder. 20 In Bank of Seoul & Trust Co., upon which Appellant relied, the junior 21 lienholder suffered a loss when property was sold at auction under market value. 22 Bank of Seoul, 198 Cal. App. 3d at 120 The junior lienholder was present at the 23 auction, and wanted to bid a higher amount, but due to the unexplained requirement 24 that a bid must be for a specific dollar amount, the auctioneer rejected the junior 25 lienholder’s bid in favor of another bid. Id. at 118-19 . Under these circumstances, the [26] 4 In the confirmed Plan, in discussing the priority of a number of liens against the Property, all these 27 entities are referred to collectively as “POL.” (See BK Doc. 390 at 8-9, ¶ 27.) Their various interests in the Property all relate to the same senior lien on the Property. (Id.) And this portion of 28 the confirmed Plan also specifies the priority of the junior liens of four other persons or entities, 1 court permitted the junior lienholder to assert claims based on his interest in the 2 auctioned property. Id. at 120-21 . The rationale was that the auctioneer-trustee’s 3 primary “duty was to conduct the sale fairly and openly, and to secure the best price 4 for the trustor’s benefit.” Id. at 119 . By not permitting a higher bid, and by not 5 explaining the reason for refusing to accept the higher bid, the auctioneer-trustee 6 contravened this duty. Id. at 119-20 . 7 In Friery, upon which Appellee relied, a junior lienholder was not permitted to 8 sue after foreclosure. 61 Cal. App. 4th at 871 . Friery is informative for the manner in 9 which the appellate court distinguished it from a prior case. In Friery, based on 10 precedent, the court considered whether the junior lienholder had any special 11 relationship with either a lender or the senior lienholder that would justify imposing a 12 duty to protect the junior lienholder’s interest. Finding none, the court distinguished 13 an earlier case that allowed a claim by a junior lienholder based on the facts presented 14 there. Id. Specifically, Gluskin v. Atlantic Savings & Loan Association, 32 Cal. App. 15 3d 307 (Ct. App. 1973), involved a seller, a construction lender, and a developer who 16 entered into a tripartite agreement whereby the seller was to convey land to the 17 developer, who borrowed money from the lender to build houses. Id. at 309-11. The 18 seller’s interest was by agreement subordinated, and the Gluskin court held that the 19 lender and the developer could not make secret modifications to their agreement to the 20 detriment of a subordinated seller. Id. at 313-15. Examining Gluskin, the Friery court 21 observed that to allow such modification would have the effect of secretly and 22 unfairly altering the risk to the seller, which would result in a breach of a duty of good 23 faith and fair dealing. See Friery, 61 Cal. App. at 877 (“Read properly, Gluskin does 24 no more than find a duty of good faith and fair dealing in a subordination agreement, 25 preventing two of the parties from substantially impairing the third’s interest in the 26 joint enterprise.”). But in Friery, because there was no similar secret and unfair 27 alteration of the risk calculus, the junior lienholder was not permitted to assert his 28 claims. Id. at 877-78. 1 Both Bank of Seoul and Friery support the Bankruptcy Court’s conclusion here. 2 Unlike the circumstances in Bank of Seoul, there is no evidence that Appellant was 3 denied the opportunity to bid on the Property. And this case is distinguishable from 4 Gluskin in the same manner as Friery was. The concern at issue in Gluskin was the 5 inability of the plaintiff-seller to accurately gauge the risk of a three-party deal due to 6 the collusion and bad faith conduct of the other two parties. Here, there were no 7 allegations of a special relationship or other collusion that would tend to obscure 8 Appellant’s risk from him as a result of the senior lienholder’s conduct. To the 9 contrary, Appellant knowingly purchased a second-in-priority note that was secured 10 by real property that was already part of a Chapter 7 bankruptcy estate. 11 The Bankruptcy Court reconciled Bank of Seoul and Friery by explaining 12 Appellant lacked standing5 to object to the foreclosure sale: 13 The usual rule under California law is that, absent a contractual 14 relationship between a junior and senior lienholder, the former takes its 15 interest subject to the risks that the latter might foreclose, and the latter 16 has no contractual duty or tort duty to the former regarding the 17 foreclosure, as held in Friery. If Plaintiff had alleged that he was directly 18 injured by Defendants—e.g., if he attempted to bid at the foreclosure sale 19 and his bid was ignored (as in Bank of Seoul)—that would give Plaintiff 20 standing to sue. 21 (Mem. Dec. at 12-13.) According to the Bankruptcy Court, the junior lienholder may 22 recoup some losses if he bids on the property himself, but absent either the denial of 23 the right to bid on the property by the junior lienholder or some identifiable 24 contractual or legal duty of the senior lienholder to the junior, the junior lienholder [26] 5 The Bankruptcy Court uses the term “standing,” which the Court avoids. From the discussion, it is 27 clear that the Bankruptcy Court was not discussing whether Appellant had Article III standing, which would implicate the Court’s subject-matter jurisdiction. (See Mem. Dec. at 12-13.) Instead, 28 the Bankruptcy Court’s decision concludes that Appellant lacks “standing” in the sense that he 1 may not sue for wrongful foreclosure after the fact. The Court agrees. Thus, 2 Appellant has no claim based on this theory, as the Bankruptcy Court correctly held. 3 C. Appellant Has No Cognizable Claim Based on Debtor’s Alleged 4 Tender Offer 5 Appellant purported to assert a claim under the California Homeowners Bill of 6 Rights (“HBOR”), specifically under California Civil Code § 2924.11(b)(2), by 7 alleging that Debtor tendered an offer with written proof of funds of $5,000,000. FAC 8 ¶ 24(b)-(d). Specifically, Appellant alleged it was the duty of the servicer under 9 § 2924.11(b)(2) to refrain from conducting a trustee’s sale upon receipt of such a 10 confirmed offer. The subsection upon which Appellant relies states: 11 (b) If a foreclosure prevention alternative is approved in writing 12 after the recordation of a notice of default, a mortgage servicer, 13 mortgagee, trustee, beneficiary, or authorized agent shall not record a 14 notice of sale or conduct a trustee’s sale under either of the following 15 circumstances: 16 . . . . 17 (2) A foreclosure prevention alternative has been approved in 18 writing by all parties, including, for example, the first lien investor, 19 junior lienholder, and mortgage insurer, as applicable, and proof of funds 20 or financing has been provided to the servicer. [21] Cal. Civ. Code § 2924.11 (b)(2) (emphasis added). Here, there was no allegation that a 22 foreclosure prevention alternative was approved after the operative Notice of Default 23 was recorded in October 2021. Instead, the only such written alternative was entered 24 into before the Notice of Default, as memorialized in the Modification Agreement 25 (and four addenda) and incorporated into the confirmed Plan; the latest addendum to 26 the Modification Agreement was entered into eight months before, in February 2021. 27 Thus, the requirements for a claim under § 2924(b)(2) are not met here. [28] 1 More fundamentally, this protection of the HBOR is not extended to junior 2 lienholders; it may be asserted only by a “borrower.” The HBOR was passed to assist 3 homeowners who are past due paying their mortgages. Its stated purpose is described 4 as follows: 5 The purpose of the act that added this section is to ensure that, as 6 part of the nonjudicial foreclosure process, borrowers are considered for, 7 and have a meaningful opportunity to obtain, available loss mitigation 8 options, if any, offered by or through the borrower’s mortgage servicer, 9 such as loan modifications or other alternatives to foreclosure. [10] Cal. Civ. Code § 2923.4 . 11 Specifically, “a borrower” may “request[] a foreclosure prevention alternative” 12 such as that referred to in § 2924(b)(2). See, e.g., Cal. Civ. Code § 2923.7 (a) (“When 13 a borrower requests a foreclosure prevention alternative, the mortgage servicer shall 14 promptly establish a single point of contact and provide to the borrower one or more 15 direct means of communication with the single point of contact.”). A “borrower” is 16 defined as “any natural person who is a mortgagor or trustor and who is potentially 17 eligible for any federal, state, or proprietary foreclosure prevention alternative 18 program offered by, or through, his or her mortgage servicer.” Cal. Civ. Code 19 § 2920.5(c)(1). A “foreclosure prevention alternative” refers to a first lien loan 20 modification or another available loss mitigation option.” Cal. Civ. Code § 2920.5 (b). 21 Given these provisions, Appellant, a junior lienholder, is clearly not among 22 those persons authorized to assert a claim under the HBOR. The protection of the 23 HBOR sought by Appellant here is extended only to “borrowers,” as the Bankruptcy 24 Court correctly held. 25 D. Florida Court Order 26 Apparently as part of his allegations for the HBOR claim, Appellant alleged 27 that “[Appellees] did not inform the Plaintiff or the Owner that they had obtained 28 relief from a stay order in Florida that would have barred any foreclosure.” (FAC 1 ¶ 24(h).) He expands upon this argument in his Opening Brief, contending that the 2 lack of notice to him by Appellees amounted to a procedural due process violation.6 3 (See Opening Br. at 13-15.) In the Reply Brief, Appellant explains that the Florida 4 litigation was “the fourth lienholders’ pending SEC Receivership action.” (Reply Br. 5 at 4-7.) The essence of Appellant’s argument is that Appellees went to United States 6 District Court in Florida to get the Bankruptcy automatic stay overturned so that the 7 foreclosure could proceed. (See Opening Br. at 13 (“Appellant and Haycock were 8 unaware that the first lien holder had gone to the United States District Court in 9 Broward County, Florida to overturn the Bankruptcy Court’s stay order in Florida that 10 would have barred any foreclosure.”).) 11 Other than identifying it as a procedural due process right, Appellant does not 12 explain the source of his claimed right to be notified of such an event. Neither does he 13 explain how the law gives him any remedy. Given the substance of the order from the 14 Florida court, Appellant’s argument is nonsensical. An examination of the record 15 reveals that, for two related reasons, the Florida court order clearly did not have the 16 effect Appellant claims it has: The scope of the order is much narrower than 17 Appellant portrays it to be and, relatedly, the language Appellant quotes is taken out 18 of its narrow context. 19 First, on February 6, 2021, the Florida Court acted with a narrow purpose: to 20 amend a receivership order for the limited purpose of permitting a receiver to enter 21 into an agreement in the present bankruptcy case in order to “promote the Debtor’s 22 Chapter 11 Plan of Reorganization.” (See Securities and Exchange Commission v. 23 Complete Business Solutions Group, Inc., No. 20-CIV-81205-RAR (Feb. 6, 2021, 24 S.D. Fl.) (found here at Doc. 20-2 at 543-46).) Specifically, the Florida court 25 modified its “Amended Order Appointing Receiver . . . for the limited purpose of [26] 6 Appellant also purports to raise a substantive due process argument. (See Opening Br. at 11-13.) 27 He sets forth several paragraphs regarding the law of substantive due process claims and then simply summarily concludes that “[t]he Bankruptcy Court has effective denied Appellant his right to 28 substantive due process in granting the [motion to dismiss] without leave [to amend].” (Id. at 13.) 1 lifting the litigation injunction . . . to permit the Receiver to enter into a settlement 2 agreement in order to resolve portions of a bankruptcy claim and to avoid a costly 3 bankruptcy adversary proceeding.” (Id. at 546.) Thus, the Florida court was not 4 lifting any general litigation injunction or prohibition on sale of the Property at 5 foreclosure; instead, the Florida court was merely permitting a receiver it appointed to 6 take action in the present bankruptcy case with respect to a junior lien held by the 7 receivership. 8 Second, the Florida court indeed sets forth the language Appellant quotes, that 9 its order should not “be deemed to authorize any third party to . . . attempt to assert a 10 right to foreclose its lien.” Id. It states that the order should not be used to foreclose 11 “with the intent to assert a position detrimental to the Receivership’s position as set 12 forth in the proposed settlement with the Chapter 11 Debtor.” Id. It is not entirely 13 clear why this language was included. It seems the parties and/or the Florida court 14 were attempting to prevent the order from being misconstrued and, in so doing, gave 15 Appellant the opportunity to make the argument he makes in the present appeal. 16 Regardless of the purpose of the inclusion of this language, it is not amenable to 17 the interpretation Appellant ascribes to it. The order from the Florida court did not 18 order that an existing injunction against a foreclosure sale of the Property be lifted. 19 Instead, it ordered that its receivership order be amended to allow the receiver in the 20 case before it to participate in a settlement agreement in the present bankruptcy case to 21 avoid any adverse effect on the receivership. Consistent with that order, on February 22 8, 2021, Debtor filed her Motion to Approve Non-Material Modifications to Chapter 23 11 Plan that sought, inter alia, to “memorialize the resolution reached between Debtor 24 and the Receiver.” (BK Doc. 383 at 4.) The motion clearly referred to the settlement 25 as having been authorized by the Florida court’s February 6, 2021 order (id. at 8-9). 26 Moreover, the Chapter 11 Plan, which incorporated just such a settlement agreement, 27 was confirmed by the Bankruptcy Court just five days after entry of the Florida court 28 order. 1 Only the Bankruptcy Court, the court with jurisdiction over the assets of the 2 Debtor that were part of the bankruptcy estate, including the Property, could 3 determine if any party could foreclose on the Property. It expressly authorized such a 4 sale on June 22, 2020, when it lifted the automatic stay and expressly authorized a 5 foreclosure sale. (BK 255). The foreclosure on the Property was delayed after the 6 parties agreed to new terms on the debts associated with the Property (including those 7 agreed to in the manner consistent with those referenced by the Florida court order). 8 Although these new terms were incorporated into the confirmed Plan, later, when the 9 Bankruptcy Court found cause to convert the case from a Chapter 11 reorganization to 10 a Chapter 7 liquidation, it expressly ordered that its earlier orders granting relief from 11 the automatic stay remain in effect. 12 Because it is clear that the action before the Florida court could not, and did not, 13 impose a stay as to the sale of the Property, Appellant’s argument regarding the 14 Florida court order is baseless, and did not amount to a due process violation as 15 claimed by Appellant. 16 E. Leave to Amend Was Properly Denied 17 Appellant argues that he should have been granted leave to amend. (Opening 18 Br. at 15.) But he does not explain what allegations he could make to plead a fraud 19 claim with particularity. The Court discusses several of his arguments. 20 Appellant alleged in the FAC that that a Notice of Default recorded against the 21 Property was “false and fraudulent” in that the amount owed was overstated by 22 hundreds of thousands of dollars in fees, interest, and late charges. (FAC ¶ 24(i).) 23 The Bankruptcy Court noted that allegations of fraud must be pleaded with 24 particularity and dismissed them as insufficiently pleaded. (See Mem. Dec. at 16-18.) 25 The allegation in the FAC is that a particular Notice of Default was void 26 because it stated an incorrect amount of default. But the that Notice of Default 27 already invalid due to its rescission, so whether it suffered from the deficiency 28 identified by Appellant is quite irrelevant. Appellant could not have amended the 1 allegations regarding the rescinded Notice of Default in a manner that would have 2 supported his claim. Therefore, the Bankruptcy Court correctly denied leave to amend 3 as to this allegation. 4 In the Reply, Appellant expanded his argument regarding irregularities in the 5 chain of title. Specifically, in arguing the Bankruptcy Court should not have denied 6 him leave to amend to challenge the foreclosure sale, Appellant notes that two 7 assignments of rights were executed by Patch of Land without a payee or assignee, 8 and these facts could have further supported his claim of wrongful foreclosure.7 (See 9 Reply Br. at 7-10.) He also points out that there was an assignment of the deed of 10 trust by Patch of Land to a new beneficiary in blank dated June 15, 2018 and then 11 another assignment to the beneficiary’s servicer in 2020. (See id. at 9-10 .) These 12 irregularities do not meet the standard required to assert a wrongful foreclosure claim. 13 To assert a claim for wrongful foreclosure based on defects or irregularities in 14 assignments of the promissory note or deed of trust, Appellant would be required to 15 establish that the assignment was void rather than merely voidable. Yvanova v. New 16 Century Mortgage Corp., 62 Cal. 4th 919, 931, 935 (2016). Under California law, 17 “the general rule is that defects and irregularities in a sale render it merely voidable 18 and not void.” In re Cedano, 470 B.R. 522, 529-30 (B.A.P. 9th Cir. 2012) (relying on 19 Little v. CFS Serv. Corp., 188 Cal. App. 3d 1354, 1358 (1987)). “‘Void’ means to 20 have no legal or binding force; whereas, ‘voidable’ is defined as ‘that which may be 21 avoided, or declared void.’” Little, 188 Cal. App. 3d at 1358 . 22 Appellant does not provide any legal theory as to how the claimed irregularities 23 would void the assignment of the beneficial interest in the deed of trust from Patch of 24 Land to Invictus. Instead, Appellant merely argues in a conclusory manner that these 25 inconsistencies “clearly establish[] that there are issues that create a question as to [27] 7 Also at issue is an Allonge to an unidentified payee dated March 28, 2018. (See Proof of Claim 2828 1 at 18, Ex. B.) As discussed in this section, neither the blank assignment nor the Allonge alters the 1 whether the foreclosing entity had the right to foreclose.” (Reply Br. at 10.) This is 2 insufficient. 3 The documents with a blank payee and a blank assignee likewise do not void 4 any transfer. These documents are examples of the functioning of the secondary 5 market for real property mortgages using “endorsements in blank.” This Court agrees 6 with Bankruptcy courts applying California law that have repeatedly held that such 7 blank assignments or endorsements do not void either deeds of trust or accompanying 8 promissory notes. See, e.g., In re Smith, 509 B.R. 260, 266-67 (Bankr. N.D. Cal. 9 2014); In re Aniel, 2020 WL 9211229 , at *2-3 (Bankr. N.D. Cal. June 26, 2020), aff’d 10 sub nom. Aniel v. HSBC Bank USA, Nat’l Ass’n, 633 B.R. 368 , 376 (N.D. Cal. 2021) 11 (observing that, under California law, such a deed of trust is “negotiated by transfer of 12 possession alone until specially indorsed”). Similarly, the clerical error (February 13 2019 versus February 2020) does not void any transfer of rights. See In re Smith, 509 14 B.R. at 266-67 (noting that even an undated endorsement was adequate to establish 15 validity of a transfer of a deed of trust). 16 Moreover, the Bankruptcy Court properly rejected the notion that Appellant 17 could derivatively assert Debtor’s claims based on her alleged tender offer, as Debtor 18 herself could not assert such claims. (See Mem. Dec. at 2-3 (“[S]upposing for the 19 sake of discussion that [Appellant] had standing to renew Debtor’s arguments as to the 20 dollar amounts, this Court has already rejected those arguments because . . . those 21 claims lack merit.”) (relying on Ashley Susan Aarons v. Patch of Land Lending, et al., 22 2:22-ap-01008-NB), Doc. 43 (“Related Dismissal Order”).) Specifically, claims that 23 accrued before the February 11, 2021 confirmation of Debtor’s Chapter 11 Plan8 24 would be barred by that confirmation, which included Debtor’s settlement of such 25 claims. (See Related Dismissal Order at 8-11.) This is because the confirmed Plan 26 was binding on Appellant’s predecessor-in-interest, James Haycock; as such, it is 27 binding on Appellant as Haycock’s successor-in-interest. See 11 U.S.C. § 1141 (a); In [28] 1 re Wolfberg, 255 B.R. 879 , 882 n.4 (B.A.P. 9th Cir. 2000) (noting that successors-in2 interest to a party subject to a Chapter 11 plan would be bound by the plan to the same 3 extent as were their predecessors-in-interest), aff’d, 37 F. App’x 891 (9th Cir. 2002). 4 As to any other claims, the Bankruptcy Court correctly held that, after the 5 conversion of Debtor’s bankruptcy case to a Chapter 7 case in October 2021, any such 6 claims would be the property of the estate, and therefore such claims would be 7 assertable only by a Chapter 7 trustee, and not by a debtor. (See Related Dismissal 8 Order at 11-13); 11 U.S.C. § 323 ; In re Meehan, No. AP 13-01208-ES, 2014 WL 9 4801328, at *4 (B.A.P. 9th Cir. Sept. 29, 2014) (noting that “[o]nly a trustee may 10 pursue a cause of action belonging to the bankruptcy estate”), aff’d, 659 F. App’x 437 11 (9th Cir. 2016). If cognizable at all, claims asserted by Appellant in the FAC based on 12 Debtor’s March 29, 2022 tender offer would belong to the estate, not to Appellant. 13 In sum, Appellant has not articulated any manner in which he could have 14 amended the FAC to state a claim upon which relief could be granted. Accordingly, 15 the Bankruptcy Court properly denied leave to amend. 16 IV. CONCLUSION 17 Appellant’s wrongful foreclosure claims were properly dismissed without leave 18 to amend because the judicially noticed, recorded chain-of-title documents establish a 19 valid non-judicial foreclosure sale. No amendment could cure this deficiency. 20 Appellant also has no cognizable claims based on Debtor’s alleged offer to pay off the 21 amount due on the eve of foreclosure, and leave to amend was properly denied 22 because, as explained herein, Appellant did not articulate any basis upon which he [28] 1 ||could amend to state a viable claim. Therefore, the Court AFFIRMS the decision of 2 Bankruptcy Court. 3 IT IS SO ORDERED. 4 DATED: September 29, 2023 wap ea 5 — wll oth 6 The Hon. osephine L. Staton United States District Judge