In re Sawtelle Partners, LLC

[7] 8 UNITED STATES DISTRICT COURT 9 CENTRAL DISTRICT OF CALIFORNIA [10] ) 11 ) Case No.: CV 18-07461-CJC ) 12 In re ) Bankruptcy Case No.: BK 16-21234-BR ) 13 ) SAWTELLE PARTNERS, LLC, ) 14 ) ) 15 Debtor, ) ) ORDER AFFIRMING IN PART AND 16 ) REVERSING IN PART THE ) BANKRUPTCY COURT’S JULY 12 17 ) DISMISSAL ORDER AND ) REMANDING CASE TO 18 SATELLITE CAPITAL, LLC, ) BANKRUPTCY COURT ) 19 ) Appellant, ) 20 ) v. ) 21 ) ) 22 EMACIATION CAPITAL, LLC, et al., ) ) 23 ) Appellees. ) 24 ) ) 25 ) [27] 1 I. INTRODUCTION [2] 3 This appeal arises out of the bankruptcy of Sawtelle Partners, LLC (“Sawtelle” or 4 “Debtor”). During bankruptcy proceedings, Appellant Satellite Capital, LLC (“Satellite”) 5 filed an adversary action in California Superior Court against Appellee Emaciation 6 Capital, LLC (“Emaciation”). Satellite sought to quiet title on a property originally 7 owned by Debtor and transferred to Emaciation. Emaciation removed to Bankruptcy 8 Court. The Bankruptcy Court issued orders (1) denying Satellite’s motion to remand, 9 (2) expunging a related lis pendens, (3) dismissing Satellite’s quiet title action for failure 10 to state a claim, and (4) granting attorneys’ fees. [11] 12 Before the Court is Satellite’s appeal of these four orders. For the following 13 reasons, the Court AFFIRMS IN PART and REVERSES IN PART the Bankruptcy 14 Court orders and REMANDS the action to the Bankruptcy Court. [15] 16 II. BACKGROUND [17] 18 A. Bankruptcy Proceedings [19] 20 Most of the relevant facts on appeal are not disputed. On August 23, 2016, 21 Sawtelle filed a petition for relief under Chapter 11 of the Bankruptcy Code.1 (Dkt. 25 22 [Appellant Satellite’s Opening Brief, hereinafter “App. Br.”] at 5.) In its petition, 23 Sawtelle listed an office building at 1850 Sawtelle Boulevard in Los Angeles, California 24 (“the Property”) as its primary asset. (Id.) The Property was headquarters for Sawtelle’s 25 non-debtor affiliate Starving Students, Inc., a California-based moving company 26 (“Starving Students”). Non-debtor Ethan Margalith owns and controls both entities as [27] 1 the sole shareholder of Starving Students and the sole member of Sawtelle. (Dkt. Nos. 2 26-1–26-77 [Excerpts of Record on Appeal, hereinafter “ER”] at 1239.) Sawtelle 3 estimated the value of the Property at $9,000,000. (Dkt. 27 [Appellee Emaciation’s 4 Opening Brief, hereinafter “Em. Br.”] at 6.) Sawtelle further represented that the 5 Property was encumbered by $9,352,134.65 in liens. (Id.) The Bankruptcy Court 6 appointed Peter J. Mastan (“the Trustee”) as Chapter 11 trustee. (Id.) [7] 8 In November 2016, Emaciation filed a secured proof of claim in the amount of 9 $9,357,693.78 (the “Emaciation Claim”). (Id.) A few weeks later, Emaciation submitted 10 an updated payoff statement claiming more than $10,800,000. (ER at 2173.) According 11 to Emaciation’s proof of claim, Sawtelle, Starving Students, and Margalith entered into 12 an agreement with a third-party lender in November 2015 to loan $8,100,000 to Sawtelle 13 and Starving Students and $200,000 to Margalith in exchange for two promissory notes. 14 (Id. at 6–7.) The promissory notes were secured by a deed of trust on the Property (the 15 “2015 Deed of Trust”). (Id. at 7.) Emaciation acquired the two secured promissory notes 16 in October 2016. (Id.) At the time of Sawtelle’s petition, there was also a second, junior 17 deed of trust on the Property (the “Satellite Deed of Trust”). (App. Br. at 5.) It secured a 18 debt of about $2,500,000. (Id.) Satellite acquired this claim, and corresponding rights 19 under the junior lien, in August 2016. (Id.) [20] 21 In June 2017, Emaciation moved for relief from the automatic stay under 11 U.S.C. 22 §§ 362(d) to exercise its legal remedies under the 2015 Deed of Trust. (ER at 2274–500.) 23 The Trustee subsequently filed an objection to Emaciation’s proof of claim, which 24 Satellite joined. (ER at 2167–2273.) The objection generally claimed that Emaciation’s 25 “blatantly bloated payoff amount” was a bad-faith strategy to prevent a Trustee sale of 26 the Property and that Emaciation sought unenforceable interest rates and penalties. (Id. at 27 2167–88.) It also asserted a potential claim for fraudulent transfer. (Id. at 2186–88.) 1 The Trustee and Emaciation engaged in settlement discussions and ultimately reached a 2 compromise. (App. Br. at 6–7.) [3] 4 Under the resulting agreement (the “Settlement Agreement”), the Debtor’s estate 5 would receive $108,000 from Emaciation to settle its fraudulent transfer claim, and the 6 Trustee would withdraw his opposition to Emaciation’s motion for relief from the 7 automatic stay. (ER at 1728–1836.) It also provided that the Trustee would assign the 8 estate’s record and title interest to Emaciation by quitclaim deed “subject to any and all 9 existing rights, liens, interests or claims.” (Id. at 1732.) Finally, the Settlement 10 Agreement provided that Emaciation’s proof of claim would be “disallowed,” and the 11 Trustee and Emaciation agreed “to execute mutual releases.” (Id. at 1732–33.) The 12 recital states that the Trustee and Emaciation “desire to fully, finally and forever settle 13 their disputes regarding the Sawtelle Property, including the Emaciation Lien and 14 Objection to Claim, and release any and all claims that they may have, now or in the 15 future, against each other relating in any way to the Bankruptcy Case, Emaciation Lien, 16 Fraudulent Transfer Claim, and allegations contained in, or that could have been alleged 17 in the Stay Relief Motion or Objection to Claim, except as specifically set forth in this 18 Agreement.” (Id. at 1826.) Satellite did not oppose, and the Bankruptcy Court approved 19 the Settlement Agreement on September 7, 2017 (the “Settlement Order”). (Id. at 1655– 20 57.) [21] 22 The language of the Settlement Agreement, however, was apparently unclear. 23 Confusion followed. A dispute arose over whether the Settlement Agreement 24 extinguished the 2015 Deed of Trust and Emaciation’s senior lien. This appeal concerns 25 the effect of the Settlement Agreement, the resulting actions of the parties and 26 Bankruptcy Court, and a decision by the Ninth Circuit’s Bankruptcy Appellate Panel. [27] 1 Satellite interpreted the Settlement Agreement to extinguish Emaciation’s senior 2 lien on the Property and proceeded to take actions to clarify its interest in the Property. 3 On October 4, 2017, Satellite filed a complaint in California Superior Court to quiet title 4 (the “Complaint” and the “Quiet Title Action”). (Id. at 1226–76.) The Complaint states 5 three causes of action claiming (1) Emaciation’s lien is void under 11 U.S.C. § 506 (d), 6 (2) the Settlement Agreement extinguished the 2015 Deed of Trust, and, in the 7 alternative, (3) seeking a judgment determining the amount required to redeem the 8 Property. (Id.) Satellite also recorded a lis pendens on the Property. (Id. at 1265–66.) 9 Emaciation removed the Quiet Title Action to Bankruptcy Court on November 17, 2017. 10 (Id.) Satellite responded with a motion to remand. (Id. at 1118–32.) [11] 12 After removing the case, Emaciation sought various forms of relief in Bankruptcy 13 Court. First, Emaciation renewed its motion for relief from the automatic stay, seeking to 14 foreclose on the Property. (Em. Br. at 11.) The Bankruptcy Court granted this motion on 15 November 27, 2017. (Id.) Emaciation also filed a Federal Rule of Civil Procedure 60(b) 16 motion to clarify or rescind the Settlement Order in the bankruptcy proceeding. (ER. at 17 1545–79.) It asked the Bankruptcy Court to resolve the dispute over the impact of 18 Settlement Agreement on Emaciation’s senior lien. (Id.) Finally, Emaciation filed a Rule 19 12(b)(6) motion to dismiss the Complaint in the Quiet Title Action. (Id. at 339–431.) [20] 21 While the Rule 60(b) and Rule 12(b)(6) motions were pending, Emaciation 22 proceeded with a foreclosure sale of the Property. (App. Br. at 10.) Satellite filed an 23 application for a temporary restraining order seeking to enjoin the foreclosure sale. (Id.) 24 The Bankruptcy Court denied the application. (Id.) On December 18, 2017, Emaciation 25 foreclosed on the Property, with a final full credit bid of $12,978,172.09. (Id.) 26 Emaciation itself submitted the winning bid and purchased property at the foreclosure 27 sale. (ER at 906–08.) The Trustee’s deed, reflecting the transfer of title to Emaciation, [1] 2 The Bankruptcy Court then addressed the first of Emaciation’s two pending 3 motions. On January 19, 2018, the Bankruptcy Court granted the Rule 60(b) motion and 4 issued an order modifying the Settlement Agreement (the “Modification Order”). (ER at 5 1398–400.) Specifically, it modified the Settlement Order based on “the understanding 6 and intent of the Court” at the time of the Order “to clarify that Emaciation [] only 7 released its claim against the estate, not its first priority lien against the [Property], and 8 the waiver of any claim by Emaciation [] against the estate, as contemplated by the 9 subject Compromise, is limited to any deficiency that may exist after foreclosure of the 10 subject real property.” (Id.) Satellite appealed the Modification Order to the Bankruptcy 11 Appellate Panel for the Ninth Circuit. (Id.) [12] 13 There remained, however, the issue of Satellite’s Quiet Title Action and lis 14 pendens on the Property. On March 28, 2018, after a series of hearings, the Bankruptcy 15 Court granted Emaciation’s motion to expunge the lis pendens on the Property (the 16 “Expungement Order”). (Id. at 573–75.) It found that Satellite failed to establish the 17 probable validity of any of the three claims in its quiet title complaint. (Id.) One day 18 later, the Bankruptcy Court denied Satellite’s motion to remand the Quiet Title Action to 19 Superior Court (the “Remand Order”). (Id. at 570–72.)2 In June 2018, Emaciation filed 20 an amended motion to dismiss the quiet title Complaint. (Id. at 339–431.) In early July 21 2018, while this motion was pending, Emaciation sold the Property to a bona fide 22 purchaser. (Em. Br. at 12.) On July 12, 2018, the Bankruptcy Court granted 23 Emaciation’s motion to dismiss (the “Dismissal Order”). (Id. at 8–10.) Finally, in a 24 separate order, the Bankruptcy Court granted Emaciation attorneys’ fees incurred in 25 expunging the lis pendens (the “Attorneys’ Fees Order”). (Id. at 19–22.) [27] 1 The Bankruptcy Appellate Panel reversed the Modification Order on July 1, 2019. 2 (Dkt. 21, Ex. A [In re Sawtelle Partners, LLC, BAP No. CC-18-1032-TaLS (9th Cir. July 3 1, 2019), hereinafter “BAP”].) It held that the Bankruptcy Court erred in granting 4 Emaciation’s motion for reconsideration because it failed to identify an applicable legal 5 standard. (BAP at 12–17.) It also held that Emaciation was not entitled to relief under 6 Rule 60(b)(1), finding that, if the Settlement Agreement extinguished Emaciation’s lien, 7 this was not due to a “mistake” or “surprise” that could justify relief under Rule 60(b). 8 (Id. at 17–20.) The Panel found that the dispute over how to interpret the Settlement 9 Agreement should have been addressed in an adversary proceeding, not in a motion for 10 reconsideration. (Id. at 27.) The decision emphatically did not “decide the merits of the 11 underlying dispute: how to interpret the Settlement Agreement.” (Id.) The Panel 12 explained, “to the extent the Settlement Agreement is properly interpreted as Emaciation 13 requests in the quiet title action, any error in the bankruptcy court’s decision on 14 reconsideration would be harmless.” (Id.) Emaciation has appealed the Panel’s decision 15 to the Ninth Circuit. (See Dkt. 21.) [16] 17 Before the Court is Satellite’s timely appeal of the Dismissal Order and the 18 Attorneys’ Fees Order. (ER at 1–7, 11–18.) The Court initially stayed this appeal 19 pending the Bankruptcy Appellate Panel’s adjudication of the appeal of the Modification 20 Order. (Dkt. 11.) After the Panel’s ruling, the Court lifted the stay. (Dkt. 24.) The 21 Court also denied Emaciation’s motion to dismiss the instant appeal as moot. (Dkt. 23) [22] 23 III. LEGAL STANDARD [24] 25 A district court has jurisdiction to hear appeals from final judgments of the 26 bankruptcy courts. 28 U.S.C. § 158 (a)(1); see also Silver Sage Partners, Ltd. v. City of 27 Desert Hot Springs (In re City of Desert Hot Springs), 339 F.3d 782, 787 (9th Cir. 2003). 1 conclusions and issues of statutory construction, including the bankruptcy court’s 2 interpretation of the Bankruptcy Code, de novo. Neilson v. United States (In re Olshan), [3] 356 F.3d 1078, 1083 (9th Cir. 2004). Jurisdictional issues in bankruptcy are also 4 reviewed de novo. See In re Wiersma, 483 F.3d 933 , 938 (9th Cir. 2007). Factual 5 determinations are reviewed for clear error. Neilson, 356 F.3d at 1083 . Orders granting 6 or denying remand on equitable grounds and orders expunging a lis pendens are reviewed 7 for abuse of discretion. In re Miles, 294 B.R. 756, 759 (B.A.P. 9th Cir. 2003) (remand); 8 Weston v. Rodriguez, 110 B.R. 452, 460 (E.D. Cal. 1989) aff’d, 967 F.2d 596 (9th Cir. 9 1992) (unpublished table decision) (lis pendens). [10] 11 IV. DISCUSSION [12] 13 A. Subject Matter Jurisdiction [14] 15 Satellite argues that the Bankruptcy Court lacked jurisdiction to adjudicate the 16 Quiet Title Action and therefore its orders must be vacated. District courts have original 17 jurisdiction over “all civil proceedings arising under Title 11, or arising in or related to 18 cases under Title 11.” 28 U.S.C. § 1334 (b). Pursuant to 28 U.S.C. § 157 , this Court 19 refers these proceedings to the Central District’s Bankruptcy Court. “[C]laims that arise 20 under or in Title 11 are deemed to be ‘core’ proceedings, while claims that are related to 21 Title 11 are ‘noncore’ proceedings.” Maitland v. Mitchell (In re Harris Pine Mills), 44 22 F.3d 1431, 1435 (9th Cir. 1995). Absent the parties’ consent, a bankruptcy court does not 23 have authority to enter final judgments in non-core proceedings. 28 U.S.C. § 157 (c)(1); 24 see Hopkins v. Plant Insulation Co., 349 B.R. 805, 810 (N.D. Cal. 2006). Instead, “the 25 bankruptcy judge shall submit proposed findings of fact and conclusions of law to the 26 district court,” and the district court enters a final order or judgment after de novo review 27 of “matters to which any party has timely and specifically objected.” 28 U.S.C. § 1 157(c)(1). A bankruptcy court must decide whether a proceeding is “core” to determine 2 the proper posture of its decisions. See id. [3] 4 i. Core Proceedings [5] 6 Civil proceedings are “core” if they “arise under” or “arise in” Title 11 cases. 28 7 U.S.C. § 1334 (b). “A matter ‘arises under’ the Bankruptcy Code if its existence depends 8 on a substantive provision of bankruptcy law, that is, if it involves a cause of action 9 created or determined by a statutory provision of the Bankruptcy Code.” In re Ray, 624 10 F.3d 1124, 1131 (9th Cir. 2010). “A proceeding ‘arises in’ a case under the Bankruptcy 11 Code if it is an administrative matter unique to the bankruptcy process that has no 12 independent existence outside of bankruptcy and could not be brought in another forum, 13 but whose cause of action is not expressly rooted in the Bankruptcy Code.” Id. The 14 statute setting out this definition offers a non-exhaustive list of core proceedings. 28 15 U.S.C. § 157 (b)(2). The list includes matters affecting the administration of the estate, 16 determinations of the validity, extent, or priority of liens, and other proceedings affecting 17 the liquidation of the assets of the estate or the adjustment of the debtor-creditor 18 relationship. 28 U.S.C. § 157 (b)(2)(A), (K), (O). [19] 20 In the instant case, the Bankruptcy Court entered a final order dismissing the 21 Complaint, so it necessarily determined that the Quiet Title Action was a core 22 proceeding. (See ER at 9–10.) The Court affirms that decision. First, Satellite’s claims 23 against Emaciation are “determined by a statutory provision of the Bankruptcy Code,” 24 specifically 11 U.S.C. § 506 (d).3 See In re Ray, 624 F.3d at 1131. The Complaint is 25 explicit on this point. Satellite references Section 506(d) in the title of its first cause of [27] 1 action. (ER at 1242.)4 This claim alleges that the 2015 Deed of Trust “is void pursuant 2 to 11 U.S.C. § 506 (d)” because it is not an allowed secured claim within the meaning of 3 that statute. (Id.) Put simply, Satellite uses a state law procedure to seek relief based on 4 a provision of the Bankruptcy Code as applied to a bankruptcy settlement agreement. 5 Such a claim arises under Title 11, and the Bankruptcy Court properly determined that it 6 was a core proceeding. See In re Ray, 624 F.3d at 1131. [7] 8 The Bankruptcy Court also properly determined that the Quiet Title Action arises 9 under Title 11 and in a Title 11 proceeding because the Action implicated its ability to 10 effectuate the Settlement Order and administer the Sawtelle estate. (ER at 642–43.) [11] “Congress’ grants of jurisdiction under sections 1334 and 157 conferred [12] upon bankruptcy courts that jurisdiction needed to implement effectively its 13 function of administering the Bankruptcy Code. Simply put, bankruptcy courts must retain jurisdiction to construe their own orders if they are to be [14] capable of monitoring whether those orders are ultimately executed in the 15 intended manner. Requests for bankruptcy courts to construe their own orders must be considered to arise under Title 11 if the policies underlying [16] the Code are to be effectively implemented.” [17] 18 In re Franklin, 802 F.2d 324 , 326 (9th Cir. 1986) (citations omitted). Satellite’s first 19 cause of action alleges that the Senior Lien was “released and disallowed pursuant to the 20 Settlement Agreement.” (ER at 1242.) The second cause of action asserts the same 21 basis for relief. (Id. at 1243 [“Pursuant to the Settlement Agreement, all obligations of 22 Sawtelle Partners secured by the [2015 Deed of Trust] were disallowed, released, and 23 extinguished.”].) Both claims necessarily depend on the respective rights of the Trustee, 24 Sawtelle, Emaciation, and Satellite under the Settlement Order. [27] 1 The Bankruptcy Court determined that the Quiet Title Action might disrupt the 2 transfer of the Property as authorized by the Settlement Order. As such, it correctly 3 determined that the outcome of this dispute would “impact[] the handling and 4 administration of the bankrupt estate.” See In re Fietz, 852 F.2d 455 , 457 (9th Cir. 1988). 5 The Settlement Agreement also specifically reserved the Bankruptcy Court’s continuing 6 jurisdiction over the Agreement “until final performance,” including “appropriate 7 proceedings to enforce this Agreement.” (ER at 1832.) While the Bankruptcy Appellate 8 Panel found that the Bankruptcy Court lacked authority to modify the Settlement 9 Agreement, it did not find that the Bankruptcy Court lacked authority to interpret that 10 Agreement. (See BAP at 27.) Indeed, it implied that this is exactly what the Bankruptcy 11 Court should have done. (See id. [decision on how the Settlement Agreement affected 12 Emaciation’s lien “should be made in the adversary proceeding”].)5 [13] 14 Satellite claims that in exercising jurisdiction over the Quiet Title Action the 15 Bankruptcy Court went beyond the limits of its authority to interpret or implement the 16 Settlement Order. A bankruptcy generally cannot exercise jurisdiction “to determine the 17 claims of title of certain third parties to certain property held adversely to the trustee 18 simply because resolution of those ownership claims would affect the rights of the third 19 parties to recovery against the estate as creditors.” Matter of Fed. Shopping Way, Inc., [20] 717 F.2d 1264, 1274 (9th Cir. 1983) (internal quotations omitted). Satellite argues that 21 this rule applies in this case. The Court disagrees. [22] 23 While the Quiet Title Action does implicate Satellite and Emaciation’s ability to 24 recover against the Sawtelle estate, that was not the sole basis for the Bankruptcy Court’s [25] 26 5 Satellite argues that because the Settlement Order did not expressly reserve jurisdiction, the 27 Bankruptcy Court forfeited its authority to interpret the Agreement. This argument fails. The Bankruptcy Court properly exercised jurisdiction based in part on its statutory authority to administer 1 jurisdiction. Cf. id. at 1274 . The Bankruptcy Court exercised jurisdiction because 2 Satellite challenged the continued existence of Emaciation’s secured claim, which 3 implicated the Bankruptcy Court’s authority in the Title 11 proceedings. (See ER at 631– 4 32.) Unlike in the cases cited by Satellite, the Bankruptcy Court was in the midst of 5 administering Sawtelle’s estate when this adversary proceeding was removed. It had not 6 dismissed the Chapter 11 proceeding, had not heard or approved a reorganization plan, 7 had not approved the sale of any estate property, and had not lifted or granted relief from 8 the automatic stay. (Cf. Fed. Shopping Way, Inc., 717 F.2d 1264 (court lacked 9 jurisdiction to enforce settlement agreement after approving property sale); In re Valdez 10 Fisheries Dev. Ass’n, Inc., 439 F.3d 545, 547 (9th Cir. 2006) (court lacked jurisdiction to 11 enforce settlement agreement after it had dismissed bankruptcy proceedings); see also 12 Sparta Surgical Corp. v. Nat’l Ass’n of Securities Dealers, Inc., 159 F.3d 1209, 1213 (9th 13 Cir. 1998) (subject matter jurisdiction determined at the time of removal). The 14 procedural posture here is more analogous to In re Franklin, where the Ninth Circuit 15 found that a bankruptcy court had arising under jurisdiction to interpret a settlement 16 agreement because “the issue the plaintiffs attempted to bring in state court was the effect 17 of the [settlement agreement] on the automatic stay provision, a fundamental aspect of 18 the Bankruptcy Code.” 624 F.3d at 1132; see also In re Nemko, Inc., 136 B.R. 334 19 (Bkrtcy. E.D.N.Y. 1992), aff’d in part, remanded in part on other grounds 202 B.R. 673 . 20 Here, the Quiet Title Action addressed the effect of the settlement on a transfer of estate 21 property, and the Bankruptcy Court properly exercised arising under jurisdiction. [22] 23 Satellite argues that the estate could never have been affected by the Quiet Title 24 Action because the Settlement Agreement insulated the estate from Emaciation’s claims. 25 This assumes too much. First, Emaciation contends that the Agreement was never 26 consummated because the Trustee never delivered the quitclaim deed. (Em. Br. at 11.) It 27 also generally argues that the Settlement Agreement released claims against the estate 1 generally id.) Finally, Emaciation points to language in the Settlement Agreement 2 providing that “this Agreement shall not prejudice or otherwise have any effect on the 3 rights of junior lienholders . . . and . . . may not be used by non-parties . . . in other 4 forums for any reasons.” (ER at 1828.) Regardless of the merits of Emaciation’s 5 position, Satellite improperly assumes disputed questions of law and fact. [6] 7 The Court concludes that the Bankruptcy Court had jurisdiction over the first and 8 second causes of action in the adversary proceedings because they arose under the 9 Bankruptcy Code and in a bankruptcy proceeding. These claims affected the 10 administration of the Sawtelle estate, involved determinations of the validity, extent, or 11 priority of liens, and affected the liquidation of the assets of the estate and the adjustment 12 of debtor-creditor relationships. See 28 U.S.C. § 157 (b)(2)(A), (K), (O). [13] 14 ii. Supplemental Jurisdiction [15] 16 Satellite argues that even if the Bankruptcy Court properly exercised jurisdiction 17 over the first and second claims, it lacked jurisdiction over the third cause of action. In 18 the Ninth Circuit, a bankruptcy court has supplemental jurisdiction over claims that “are 19 so related to claims in the action within [the District Court’s] original jurisdiction that 20 they form part of the same case or controversy under Article III of the United States 21 Constitution.” Sasson v. Sokoloff (In re Sasson), 424 F.3d 864, 869 (9th Cir. 2005) 22 (quoting 28 U.S.C. § 1367 ). “A state law claim is part of the same case or controversy 23 when it shares a common nucleus of operative fact with the federal claims and the state 24 and federal claims would normally be tried together.” Bahrampour v. Lampert, 356 F.3d 25 969, 978 (9th Cir. 2004) (internal quotations omitted). A court may decline to exercise 26 supplemental jurisdiction over a claim if “(1) the claim raises a novel or complex issue of 27 State law, (2) the claim substantially predominates over the claim or claims over which 1 over which it has original jurisdiction, or (4) in exceptional circumstances, there are other 2 compelling reasons for declining jurisdiction.” 28 U.S.C. § 1367 (c). [3] 4 The Bankruptcy Court properly exercised supplemental jurisdiction over the third 5 cause of action in the Quiet Title Action. As explained above, the Bankruptcy Court has 6 original jurisdiction over the first and second causes of action under 28 U.S.C. §§ 157 7 and 1334(b). The third cause of action “shares a common nucleus of operative fact” and 8 ordinarily would be tried in the same proceeding. See Bahrampour, 356 F.3d at 978. 9 Specifically, all three claims involve encumbrances on the Property and the rights and 10 obligations of Satellite and Emaciation under their respective deeds of trust. The third 11 cause of action does not raise any novel or complex issues of California law. See 28 12 U.S.C. § 1367 (c)(1). The first and second causes of action are Satellite’s primary claims 13 and predominate over the third cause of action. (See ER at 1243–46; 28 U.S.C. § 14 1367(c)(2).) Finally, there are no other compelling reasons to decline jurisdiction. See [15] 28 U.S.C. § 1367 (c)(4).6 Accordingly, the Bankruptcy Court properly exercised 16 jurisdiction over all three claims in the Quiet Title Action. [17] 18 B. Motion to Remand [19] 20 Satellite argues that the Bankruptcy Court improperly denied its motion to remand. 21 Under 28 U.S.C. § 1452 (b), a Bankruptcy Court may remand claims arising under Title 22 11 on “any equitable grounds.” 7 In the Ninth Circuit, courts consider up to fourteen 23 factors in determining whether to remand on equitable grounds. Fed. Home Loan Bank 24 of Chi. v. Banc of Am. Sec. LLC, 448 B.R. 517, 525 (C.D. Cal. 2011). These factors 25 include “(1) effect or lack thereof on the efficient administration of the estate if the Court [27] 6 Because the Bankruptcy Court dismissed all three claims at once, 28 U.S.C. 1367(c)(3) is inapplicable. 1 recommends [remand or] abstention; (2) extent to which state law issues predominate 2 over bankruptcy issues; (3) difficult or unsettled nature of applicable law; (4) presence of 3 related proceeding commenced in state court or other nonbankruptcy proceeding; (5) 4 jurisdictional basis, if any, other than § 1334; (6) degree of relatedness or remoteness of 5 proceeding to main bankruptcy case; (7) the substance rather than the form of an asserted 6 core proceeding; (8) the feasibility of severing state law claims from core bankruptcy 7 matters to allow judgments to be entered in state court with enforcement left to the 8 bankruptcy court; (9) the burden on the bankruptcy court’s docket; (10) the likelihood 9 that the commencement of the proceeding in bankruptcy court involves forum shopping 10 by one of the parties; (11) the existence of a right to a jury trial; (12) the presence in the 11 proceeding of nondebtor parties; (13) comity; and (14) the possibility of prejudice to 12 other parties in the action.” Id. [13] 14 Based on these factors, the Bankruptcy Court’s decision not to remand was not an 15 abuse of discretion. See In re Miles, 294 B.R. at 763 . The Quiet Title Action asserted 16 claims based on Title 11 and required interpretation of the Bankruptcy Court’s previous 17 orders. As explained above, it also implicated the administration of the bankruptcy 18 estate. Indeed, Emaciation filed a sperate action to rescind the Settlement Agreement 19 while the motion to remand was pending. Moreover, the Bankruptcy Court may have 20 determined that remand would cause undue prejudice for Emaciation. Ultimately, the 21 Bankruptcy Court could have reasonably concluded that “the federal interest in assuring 22 fair and equitable administration of the bankruptcy system and policing abuses [] 23 predominates over any arguable state interest.” See id. [24] 25 Satellite argues that the Bankruptcy Court should have granted the motion to 26 remand based on the principles of mandatory abstention set out in 28 U.S.C. 27 § 1334(c)(2). Although, as Satellite admits, mandatory abstention does not apply to a 1 remand is proper where all elements of mandatory abstention are satisfied. See Bally 2 Total Fitness Corp. v. Contra Costa Retail Ctr., 384 B.R. 566, 570 (Bankr. N.D. Cal. 3 2008). Regardless of whether this approach is correct, the elements of mandatory 4 abstention are not satisfied here. As discussed above, the Court finds that the Quiet Title 5 Action involved claims “arising under Title 11 or arising in a case under Title 11,” which 6 makes it ineligible for mandatory abstention. See id.; 28 U.S.C. § 1334 (c)(2). 7 Accordingly, the Bankruptcy Court’s Remand Order is AFFIRMED. [8] 9 C. Motion to Dismiss [10] 11 Having determined that the Bankruptcy Court properly exercised jurisdiction over 12 the Quiet Title Action, the Court now turns to the merits of its Dismissal Order. The 13 Court addresses the dismissal of the first and second causes of action first. [14] 15 ii. Claims One and Two [16] 17 Satellite’s first and second claims sought relief based on the theory that the 18 Settlement Agreement extinguished Emaciation’s lien. The Bankruptcy Court dismissed 19 these claims under Rule 12(b)(6). (ER at 10.) The Dismissal Order does not set out the 20 Bankruptcy Court’s reasoning and conclusions but asserts that Emaciation’s motion was 21 granted “for the reasons stated by the Court, as reflected on the record of the hearing.” 22 (Id.) At the relevant hearing, the Bankruptcy Court explained that the Modification 23 Order “took care of the first two [causes of action] . . . subject to an appeal.” (Id. at 196.) 24 It did not provide any alternative basis for this decision and declined to address how it 25 would rule absent the Modification Order. (Id. at 196, 202–04 [“[A]s the record stands, 26 [claims] one and two are not viable and that’s it. I’m not going to say anything more 27 because that’s clear.”].) 1 Because the Bankruptcy Court erred in issuing the Modification Order, it also erred 2 in relying on that Order to dismiss the first and second causes of action. (See generally 3 BAP.) The record is insufficient for this Court to determine whether this was harmless 4 error. (See id. at 26–27.) Although the Court reviews questions of law de novo, it lacks 5 authority to decide factual issues not addressed by the bankruptcy court. See In re 6 Carinalli, 2010 WL 4226730 , at *4 n.6 (N.D. Cal. Oct. 21, 2010). Similarly, it may 7 abuse its authority by considering legal arguments not advanced to the Bankruptcy Court. 8 See In re H.B. Leasing Co., 188 B.R. 810, 814 (E.D. Tex. 1995). With the Modification 9 Order reversed, Emaciation’s primary argument is that the senior lien survived the 10 Settlement Agreement because the 2015 Deed of Trust separately secured the debt of 11 Starving Students. The Bankruptcy Court has not yet addressed the facts underlying this 12 argument. For example, Emaciation contends that the terms of the agreement creating 13 the 2015 Deed of Trust include an anti-affiliation representation. (See Em. Brief at 27.) 14 Although Emaciation’s motion to dismiss tests the legal sufficiency of the Complaint, the 15 Bankruptcy Court may still address facts presented in judicially noticeable materials. See 16 Barron v. Reich, 13 F.3d 1370, 1377 (9th Cir. 1994). At this stage, the Court declines to 17 resolve legal and factual issues properly adjudicated by the Bankruptcy Court. [18] 19 The Court therefore REVERSES the Bankruptcy Court’s dismissal of the first and 20 second causes of action and REMANDS to the Bankruptcy Court to adjudicate the 21 Motion to Dismiss based on the original Settlement Agreement and Settlement Order. [22] 23 ii. Claim Three [24] 25 The third claim in the Quiet Title Action seeks a declaratory judgment determining 26 the amount that would be required for Satellite to redeem the Property from the 2015 27 Deed of Trust. (ER at 1243–45.) Specifically, the Complaint seeks, “[i]n the Alternative 1 of the current amount of valid indebtedness secured by the 2015 [Deed of Trust] that 2 must be satisfied for Satellite Capital to redeem the Sawtelle Property.” (Id. at 1244–45.) 3 The Bankruptcy Court’s dismissal of the third cause of action did not rely on the 4 Modification Order or any other orders issued in the bankruptcy proceedings. Instead, 5 based on the transcript, the Bankruptcy Court determined that the claim was moot and/or 6 that Satellite failed to satisfy certain procedural requirements. (See id. at 207–16.) This 7 Court affirms. [8] 9 The third cause of action alleges that Emaciation “refused to provide Satellite 10 Capital with a payoff demand in November 2016.” (Id. at 1243.) The procedures for 11 such a demand are set out in California Civil Code § 2943(c), which generally requires a 12 beneficiary to deliver a payoff demand statement within twenty-one days of receipt of a 13 written demand. Cal. Civ. Code § 2943 (c). “However, if the loan is subject to a recorded 14 notice of default . . ., the beneficiary shall have no obligation to prepare and deliver this 15 statement as prescribed unless the written demand is received prior to the first publication 16 of a notice of sale.” Id. Emaciation argues that this exception applies here. The Court 17 agrees. As alleged in the Complaint, a notice of default was recorded against the 18 Property on April 19, 2016, and a notice of sale was published and recorded on July 25, 19 2016. (ER at 1240.) Because the notice of default was recorded before Satellite 20 allegedly made its written demand, Emaciation had no obligation to provide a statement. 21 See Cal. Civ. Code § 2943 (c). None of the cases cited by Satellite support its argument 22 that it can state a claim for failure to provide a payoff demand statement despite these 23 procedural deficiencies. (See App. Br. at 30 [citing Crossroads Inv’rs, L.P. v. Fed. Nat’l 24 Mortg. Assn., 246 Cal. App. 4th 529 , cause transferred and opinion not citable, 381 P.3d 25 234 (Cal. 2016)].) [26] 27 The Complaint also alleges that in October 2016, “an entity with a preexisting 1 2015 Deed of Trust. (ER at 1241.) Based on this allegation, Satellite argues that 2 Emaciation failed to honor its right to redemption as guaranteed by California Civil Code 3 § 2924c. As relevant here, “any [] person having a subordinate lien . . . may pay to the 4 beneficiary [of a senior lien] . . . the entire amount due . . . and thereby cure the default 5 theretofore existing.” Cal. Civ. Code § 2924c. Tender to pay off a lien, even if it is not 6 accepted, also triggers a right to redemption. See id. §§ 2904–2905. The Court agrees 7 with the Bankruptcy Court’s determination that Satellite fails to allege valid tender. The 8 Complaint alleges that the third-party entity made its offer “at the request of Satellite” but 9 does not allege that this entity made the offer on Satellite’s behalf or otherwise acted as 10 Satellite’s agent. (ER at 1241.) Based on the plain text of the statute and basic principles 11 of agency, such an allegation fails to state a claim under Section 2924c. See Cal. Civ. 12 Code § 2924c; see also id. §§ 2295–2300 (defining agency relationships). [13] 14 Finally, Satellite argues that it remains entitled to declaratory relief to clarify the 15 amount required to redeem the 2015 Deed of Trust. The Court disagrees. To the extent 16 that the third cause of action only seeks declaratory relief, it was rendered moot by sale to 17 a bona fide purchaser. As explained in a previous order, the Court could still provide 18 effective relief if Satellite is able to show that Emaciation’s foreclosure sale was improper 19 and wrongful. (Dkt. 23 at 7.) Because Satellite’s third cause of action cannot support 20 such a finding, it is rendered moot. See Anderson v. Heart Fed. Sav. & Loan Assn., 208 21 Cal. App. 3d 202 , 210 (1989) (party seeking to set aside a foreclosure sale has burden of 22 pleading improper procedure and consequent prejudice); In re Thorpe Insulation Co., 677 23 F.3d 869, 880 (9th Cir. 2012) (mootness depends on appellate court’s ability to grant 24 effective relief). The Court AFFIRMS the Bankruptcy Court’s dismissal of the third 25 cause of action. [26] 27 // 1 D. Motion to Expunge Lis Pendens and Attorneys’ Fees [2] 3 Because the Court reverses the Dismissal Order in part and remands the Quiet Title 4 Action to Bankruptcy Court, it lacks jurisdiction to consider Satellite’s appeal of the 5 Expungement Order and Attorneys’ Fees Order. California Civil Code § 405.39 provides 6 that, in State court, an order expunging a lis pendens is only reviewable by petition for 7 writ of mandate. In the federal system, a bankruptcy court’s order expunging lis pendens 8 is neither a final order nor a collateral order and is therefore not ordinarily appealable. 9 See In re Gonzalez, 2012 WL 603747 , at *4 (B.A.P. 9th Cir. Feb. 2, 2012). A district 10 court may nevertheless review an expungement order after the final resolution of the 11 underlying adversary proceeding. See id. (citing 28 U.S.C. § 158 ). Because the Court 12 reverses in part the Dismissal Order and remands to Bankruptcy Court, the Quiet Title 13 Action is ongoing, and the Court lacks appellate jurisdiction to consider Satellite’s appeal 14 of interlocutory orders. Cf. id. Because an interim award of attorneys’ fees is not a final 15 order nor a collateral order, the same reasoning applies to Satellite’s appeal of the 16 Attorney Fees’ Order. See In re Cont’l Coin Corp., 2014 WL 12614432 , at *1 (C.D. Cal. 17 Jan. 27, 2014) (citing Hillery v. Rushen, 702 F.2d 848 , 848–49 (9th Cir. 1983)). Indeed, 18 Satellite’s notice of appeal of the Attorneys’ Fees Order expressly sought review based 19 on the Court’s authority to review the Dismissal Order. (ER at 13.) Satellite can 20 challenge both orders in Bankruptcy Court in the first instance. [21] 22 // 23 // 24 // 25 // 26 // 27 // 1 CONCLUSION [2] 3 For the foregoing reasons, the Court AFFIRMS the Bankruptcy Court’s exercise 4 subject matter jurisdiction and AFFIRMS the Remand Order. The Court AFFIRMS 5 || IN PART and REVERSES IN PART the Bankruptcy Court’s Dismissal Order. 6 || Specifically, it AFFIRMS the dismissal of the third cause of action and REVERSES the 7 || dismissal of the first and second cause of action. The Court REMANDS this case to the s || Bankruptcy Court for further proceedings consistent with this opinion and the opinion of 9 ||the Bankruptcy Appellate Panel. [11] 12 DATED: October 23, 2019 ft ff ; 13 sf / 7 14 CORMAC J. CARNEY 15 UNITED STATES DISTRICT JUDGE