Simas v. Powell

— 1 — — 2 — — 3 — 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA — 6 — 7 JOHN MANUEL SIMAS, CASE NO. 21-cv-126-YGR 8 Defendant/Appellant, OPINION GRANTING IN PART AND DENYING 9 vs. IN PART BANKRUPTCY APPEAL 10 CRAIG POWELL AND KELLY POWELL, Re: Dkt. No. 13 11 Plaintiffs/Appellees. 12 This action arises out of a bankruptcy order granting appellees’ Craig Powell and Kelly 13 Powell (“the Powells”) adversary proceeding regarding the status of a claim against Mr. Powell’s 14 cousin, appellant John Manuel Simas. The bankruptcy court found that appellees established by a 15 preponderance of the evidence that their claim against appellant should be excepted from 16 discharge pursuant to 11 U.S.C. § 523 (a)(6) (“Section 523(a)(6)”). Mr. Simas filed this appeal, 17 arguing that the bankruptcy court erred in several aspects. 18 Having carefully considered the parties’ briefing and the excerpt of the record filed in this 19 case, and for the reasons stated below, the Court GRANTS IN PART AND DENIES IN PART 20 appellant’s bankruptcy appeal and AFFIRMS the bankruptcy court’s order IN PART.1 21 While the Court has carefully reviewed the administrative record in its entirety, 22 it does not attempt to summarize the 1800+ page record in this Opinion. Nor is a full factual 23 summary necessary for the Court to address the appeal. Instead, specific facts relevant to the 24 disposition of the case are included in the discussion below. — 25 — — 26 — 1 The Court’s scheduling order sets forth the briefing schedule for this appeal. (See Dkt. No. 2.) Appellant filed a motion to strike appellees’ reply brief. (See Dkt. No. 18.) Appellees — 27 — argue that their reply brief should not be stricken because they simply followed the Court’s 1 I. FACTUAL AND PROCEDURAL BACKGROUND 2 The claim giving rise to the instant adversary proceeding arises from a transaction related 3 to 153 St. Albans (“the Property”). 4 By way of factual background, the Paradise Park Masonic Club, Inc. (“PPMC”), a 5 California nonprofit mutual benefit corporation owns 138 acres of land located in Santa Cruz 6 County and sells “allotments.” (Excerpt of Record (“ER”), Dkt. No. 14-2, at 123.) In 2003, 7 appellant’s father, Ed Simas, purchased an allotment for appellant’s use and occupancy in the 8 Property. (Id. at 124.) Appellants’ parents, Ed and Sharon, each also own allotments. Mr. Simas 9 became a member of PPMC on January 18, 2003. (Id. at 124.) He lived in the Property until he 10 decided to move to Brazil in early 2014. (Id.) His intentions were to stay in Brazil permanently. 11 (Id.) 12 While living in Brazil, Mr. Simas and the Powells entered into an agreement whereby 13 appellees would use the Property in exchange for paying the insurance, utilities, and related 14 expenses associated with the Property. (Id.) After approximately two years of using and 15 maintaining the Property, Mr. Simas and the Powells began discussions relating to the sale of the 16 Property. (ER-4-400-414.) Appellees were interested in buying the Property as a vacation home 17 and Mr. Simas was interested in selling it. (Id.) Appellant’s mother Sharon assisted with the 18 transaction as Mr. Simas’ internet service in Brazil could be unreliable. 19 On February 1, 2017, appellees entered into a written agreement with appellant to purchase 20 the Property. (ER-2-124). The parties agreed that appellees would purchase the Property for 21 $200,000, with a down payment or earnest money totaling $110,000. (ER-3-263). Appellees 22 made timely payments to appellant for the purchase of the Property. (ER-2-124.) 23 In April 2018, Mr. Simas returned from Brazil after having been robbed and beaten during 24 a home invasion. (See id.) Upon his return, he initially stayed with his mother. (Id.) Issues 25 started to arise between appellant and his mother, as did a “downward spiral of mental health and 26 alcohol issues for Mr. Simas.” (Id.) 27 In mid-May, Mr. Simas, the Powells and an uncle, Jim Silveria, negotiated a modification 1 Brazil. The bankruptcy court summarized the key terms:  In exchange for money already received (in the amount of — 2 — $127,000) and a promissory note for $103,000, Craig received 3 the house at 153 St. Albans, Santa Cruz (and associated membership rights at PPMC). The promissory note would be 4 executed by Craig to Silveria. 5  In satisfaction of the remaining $103,000 due for the Property, John received (1) forgiveness of $18,000 owed by John to — 6 — Silveria pursuant to a note, (2) $21,250 paid on May 17, 2018 7 from Silveria, and (3) on-going support of $1770.83 per month for 36 months. [Exh 36] — 8 — This modification changed the obligation to provide payment for the Property from 9 the Powells to Silveria. In turn, Silveria would continue to provide on-going support to John monthly for a three-year period. When negotiated, John intended to — 10 — return to Brazil or Portugal where he could use his Portugese, or travel to the Holy 11 Land. He did not intend to remain in Santa Cruz. 12 Order at 4:12-22. 13 Sometime in May, given the strain between Mr. Simas and his mother, he left his mother’s 14 home, and with appellees’ permission, he moved back into the Property. (Id.) He stayed there for 15 a few weeks before leaving the Property on May 24. (See ER-4-468). 16 Over Father’s Day weekend 2018, appellant experienced mental health issues and needed a 17 place to stay. (See ER-7-1253-56; ER-9-1673-74.) After some back and forth, appellees agreed to 18 allow appellant to stay at the Property while they were not there, but they explicitly required that 19 he vacate the Property whenever they asked him to. (ER-7-1253-56.) Appellant accepted the 20 conditions and moved in. (Id.) 21 Around the fourth of July, the Powells asked Mr. Simas to leave the Property so they could 22 use it for the holiday. (See id.) Mr. Simas responded that leaving the house would not work for 23 him and refused to leave. (Id.) He then stopped answering the Powells’ calls and changed the 24 locks to the Property shortly after, claiming paranoia that someone would break into the Property. 25 (ER-9-1711; ER-7-1255-56.) On October 9, 2018, Mr. Simas was placed on a Welfare and 26 Institution Code Section 5150 hold. When he was released on October 24, 2018, he returned to 27 and remains on the Property, at least as of November 2020. (ER-2-125-27.) 1 Court alleging breach of contract, quantum meruit, trespass, and conversion. (ER-2-24-41.) 2 II. BANKRUPTCY PROCEEDINGS 3 In response to the state court action, Mr. Simas filed a chapter 7 bankruptcy in the 4 Northern District of California on January 28, 2019. (ER-3-307-350). The filing of appellant’s 5 bankruptcy resulted in an automatic stay of the Powells’ state court action. (Id.) On April 23, 6 2019, the Powells filed an adversary complaint to determine the dischargeability of their claim 7 against Mr. Simas. (ER-3-246-269.) In their adversary proceeding, the Powells sought three 8 claims for relief, one being the “willful and malicious” injury pursuant to Section 523(a)(6) which 9 is the subject of this appeal. Mr. Simas brought a counterclaim against the Powells for damage to 10 the Property and waste. 11 The bankruptcy court held a three-day trial in the adversary proceeding in November 2020. 12 By written decision dated December 11, 2020, the bankruptcy court found that the Powells’ claim 13 survived Mr. Simas’ discharge pursuant to Section 523(a)(6). Appellant filed a timely appeal. 14 III. LEGAL FRAMEWORK 15 Pursuant to 28 U.S.C. § 158 (a), district courts have jurisdiction to hear both interlocutory 16 and final appeals from bankruptcy court orders and judgments. See 28 U.S.C. § 158 (a). When 17 reviewing a bankruptcy court’s decision, the district court functions as an appellate court would, 18 and applies the same standards of review as a federal court of appeals. In re Crystal Props., Ltd., — 19 — 268 F.3d 743 , 755 (9th Cir. 2001). Thus, a bankruptcy court’s findings of fact, including a party’s 20 mental state, is reviewed for clear error while the court’s conclusions of law are reviewed under 21 a de novo standard. Sigma Micro Corp. v. Healthcentral.com (In re Healthcentral.com), 504 F.3d 22 775, 783 (9th Cir. 2007). 23 Debtors who file for bankruptcy under Chapter 7 are normally entitled to discharge 24 unsecured debts. However, certain types of debt may not be discharged, including any debt “for 25 willful and malicious injury by the debtor to another entity or to the property of another entity.” 11 26 U.S.C. § 523 (a)(6). An intentional tort may provide the basis for a Section 523(a)(6) claim 27 provided that the elements of willful and malicious injury are also met. In re Jercich, 238 F.3d 1 shown either that the debtor had a subjective motive to inflict the injury or that the debtor believed 2 that injury was substantially certain to occur as a result of his conduct.” Id. at 1208 (emphasis in 3 original). “A ‘malicious’ injury involves ‘(1) a wrongful act, (2) done intentionally, (3) which 4 necessarily causes injury, and (4) is done without just cause or excuse.’” Id .at 1209 (quoting In re 5 Bammer, 131 F.3d 788, 791 (9th Cir. 1997) (en banc)). 6 Appellant identified five issues upon which he believes the bankruptcy court erred, namely 7 that: (a) Mr. Simas’ conduct was willful and malicious under § 523(a)(6); (b) Mr. Simas’ conduct 8 was a trespass to real property under California law; (c) Mr. Simas’ conduct was a conversion of 9 personal property under California law; (d) that the Powells could seek both specific performance 10 and monetary damages in their state court action; and (e) Mr. Simas’ counterclaim for damages 11 should be denied. (Opening Brief, Dkt. 13, pp.5-6.) The Court addresses each in turn. 12 IV. ANALYSIS 13 a. Issue of whether Mr. Simas’ conduct was a trespass to real property under California law2 — 14 — Mr. Simas challenges the bankruptcy court’s finding that he trespassed on the Property. — 15 — Under California law, the elements of trespass are: (1) plaintiff’s ownership or control of the — 16 — property; (2) the defendant’s intentional, reckless, or negligent entry onto the property; (3) entry — 17 — onto the property in excess of permission granted; (4) harm; and (5) defendant’s act was a — 18 — substantial factor in causing harm to plaintiff. Ralphs Grocery Co. v. Victory Consultants, Inc., 17 19 Cal. App. 5th 245, 262 (2017). — 20 — The fundamental issue raised in this appeal relates to the first element. Who owned or — 21 — controlled the Property: the Powells or Mr. Simas? Appellant argues that he could not have — 22 — engaged in trespass because the contract upon which the Powells assert ownership “was defective — 23 — and unenforceable” and therefore did not “convey a legally cognizable possessory interest to the — 24 — Powells.” More specifically, Mr. Simas claims the Powells were not entitled to purchase the — 25 — Property because, at the time of execution of the contract, they had not satisfied certain of PPMC’s — 26 — — 27 — 2 Although Mr. Simas identifies as the first issue the findings of malicious and willful 1 rules and bylaws which were required before title could be transferred to another party. 2 Under California law, in a trespass action for real property, the proper plaintiff is the 3 person in possession of the property. Veiseh v. Stapp, 35 Cal. App. 5th 1099, 1104 (2019) 4 (citations omitted.) The type of possession interest necessary to maintain an action for trespass to 5 property is “peaceable possession” which can be established by proving actual possession—that is, 6 subjecting the land to one’s will and control. Id. at 1106 . Importantly, “[n]o averment of title is 7 necessary.” Id. at 1104 . “Even ‘one in peaceable though wrongful possession of real property 8 may sue in tort for forcible interference with that possession even in the absence of injury to his 9 person or goods.’” Spinks v. Equity Residential Briarwood Apartments, 171 Cal. App. 4th 1004 , 10 1042 (2009). A defendant cannot assert a defense of consent where the defendant has exceeded 11 the scope of consent. Mangini v. Aerojet-General Corp., 230 Cal. App. 3d 1125, 1141-42 (1991). 12 Here, the evidence showed that Mr. Simas and the Powells entered into a contract whereby 13 the parties agreed that the “buyer(s) w[ould] maintain possession of the [P]roperty upon execution 14 of t[he] contract.” (ER-3-263-69.) The Powells executed the contract on January 21, 2017 and 15 Mr. Simas executed the contract on February 1, 2017. (Id.) Thereafter they executed a 16 modification. In furtherance of this agreement, Mr. Simas received 6 payments from the Powells, 17 either directly or indirectly, in an amount totaling $ 127,000 for a period beginning October 2, 18 2016 through January 31, 2018. (ER-4-459; Order at 4.) During that time, Mr. Simas spent 19 virtually no time in the United States, much less at the Property. In fact, upon his return from 20 Brazil, he resided with his mother. Only in May of 2019 did he request permission to use the 21 Property when it was not being used by the Powells. 22 Further, the record shows that Mr. Simas understood that appellees had control and 23 possession of the Property. Mr. Simas asked appellees for permission to stay on the Property 24 temporarily, promised to leave whenever appellees asked him to leave, and referred to the 25 Property as appellees’ home. (See ER-2-124-125; ER-4-468.) Appellant admits that he agreed to 26 sell the Property in exchange for payment, that he received money from appellees for the purchase 27 of the Property, and that the payments appellees made to him from 2016 to 2018 were for the 1 would leave the Property and move back in with his mother. (Id. at 124-125; ER-4-468.) 2 Notwithstanding the above, Mr. Simas maintains his position that the bankruptcy court 3 ignored law indicating the Powells were, in fact, not in possession and could not have legal title as 4 a matter of California law. Id. Appellant’s focus on the issue of title does not compel a different 5 result because the issue is not dispositive of the issue of trespass. See Veiseh, 35 Cal. App. 5th at 6 1104 (finding that standing to pursue trespass action is not defeated by the fact that the person has 7 no legal rights to the property). Mr. Simas recognizes as much in his reply brief. (See p. 10) 8 (conceding that a person in possession, even a tenant, can assert the claim). 9 The California code sections on which Mr. Simas relies only discuss issues of title; not all 10 possessory interests and therefore are not dispositive. Similarly, Mr. Simas’ reliance on Martin v. 11 Bridgeport Comm. Ass’n, Inc., 173 Cal. App. 4th 1024, 1037-38 (2009) to argue that the Powells 12 had no standing to enforce any possessory right to the Property does not persuade. Martin was not 13 a trespass case, nor did it deal with possessory interest. Martin dealt with non-signatories’ 14 inability to enforce certain contractual provisions included in the Covenants, Conditions, and 15 Restrictions and Rules and Regulations for the property, documents to which plaintiffs were not 16 signatories. 17 Next, Mr. Simas avers that the bankruptcy court erred in relying on Veiseh, 35 Cal. App. 18 5th at 1099, a trespass case dealing with possessory interest. Appellant attempts to distinguish 19 Veiseh from the facts of his case, but the basic facts are analogous. In Veiseh, the court held that 20 plaintiff, who was in physical possession of the property but did not hold title, had standing to 21 bring a claim for trespass. The court went on to explain that plaintiff’s failure to comply with a 22 requirement of the California Unform Transfers to Minors Act did not affect his possessory 23 interest. The court’s analysis did not turn on whether plaintiff previously had a legally enforceable 24 claim of ownership. Thus, the Court finds that Mr. Simas’ analysis does not persuade. 25 The Court notes that whether the Powells could have actually obtained title is unresolved. 26 The contract provides that appellees would be provided with the paperwork needed in order to 27 complete the membership application to start the process for switching over the title once 1 recitation of the bylaws and the fact that they prohibit the sale or assignment of an allotment are 2 accurate, the Court finds that such prohibitions are not determinative of who had possessory 3 interest in the property. Whether appellees were ultimately able to become members and transfer 4 title in their names do not negate that the Powells had control and legal possession of the Property 5 beginning in at least February 2017 through the time of the incident. See Veiseh, 35 Cal. App. 5th 6 at 1106-07. 7 While Mr. Simas has identified a potential issue which may have resulted in the Powells 8 not obtaining title of the Property, the conclusion is not self-executing, nor is it automatic. The 9 Powells presented evidence that the Association had knowledge of the arrangement and made no 10 indication that it objected or that it would deny membership. Accordingly, the Court cannot find 11 on this record, that as a matter of law, the contract is null and void.3 12 In conclusion, in terms of sufficiency of the evidence, the bankruptcy court did not err 13 when it found that all elements of trespass were satisfied. The bankruptcy court found that the 14 Powells had control of the Property by way of the parties’ contract, that appellant’s stay at the 15 Property exceeded his granted permission, and that Mr. Simas’ actions caused the Powells’ harm. 16 Accordingly, the Court finds that the bankruptcy court did not err in finding that appellees had a 17 possessory interest in the Property and could maintain a suit for trespass.4 18 b. Willful and Malicious Conduct 19 Because an intentional tort can be the basis for a Section 523(a)(6) claim, the first step of 20 the bankruptcy court’s analysis focused on whether appellant’s conduct constituted a tort. The 21 court found that appellant’s continued use of the Property after appellees asked him to leave 22 constituted trespass and conversion and was thus a sufficient basis for nondischargeability under 23 Section 523(a)(6). With respect to the tort of conversion, the bankruptcy court found that — 24 — 3 The Court agrees that this action does not fall within the purview of those contracts — 25 — which must be struck for public policy reasons nor has appellant so advocated. — 26 — 4 Appellant briefly argues that not all trespasses can be the basis for 523(a)(6) claims because the intent requirement for trespass can be satisfied by reckless or negligent conduct. — 27 — While that may be true, that argument is unpersuasive in this context. More than sufficient 1 appellant’s actions constituting trespass also satisfied the elements for conversion of appellees’ 2 personal property because appellees no longer had access to their personal belongings that were 3 located on the Property. 4 Having found that appellant’s conduct was tortious, the court next analyzed whether 5 appellant’s conduct was both “willful and malicious.” Mr. Simas argues that the bankruptcy court 6 erred in finding appellant’s conduct “willful and malicious.” In doing so, appellant argues that his 7 mental condition at the time in question precluded him from being able to understand the 8 consequences of his actions. In the Ninth Circuit, willfulness and malice are analyzed separately 9 and are not to be conflated. See Carrillo v. Su (In re Su), 290 F.3d 1140, 1146 (9th Cir. 2002). 10 Willful injury requires an inquiry into the subjective state of mind of the debtor. In re Su, 290 F.3d 11 at 1145 . 12 i. Willfulness 13 The willfulness requirement is met when the debtor knows that the injury is substantially 14 certain to occur as a result of his conduct. See Jercich, 238 F.3d at 1208 . The court may infer 15 intent “from the totality of the circumstances and the conduct of the person accused.” In re 16 Ormsby, 591 F.3d 1199, 1206 (9th Cir. 2010). “The [d]ebtor is charged with the knowledge of the 17 natural consequences of his actions,” id., and the court is not required to “take the debtor’s word 18 for his state of mind,” Carillo, 290 F.3d at 1146, n. 6. In addition, the “court may consider 19 circumstantial evidence that tends to establish what the debtor must have actually known when 20 taking the injury-producing action.” Id. Trial judges, not appellate judges, are the arbiters of 21 credibility and believability. The parties agree that the Court views the bankruptcy court’s finding 22 of willfulness and the finding of appellant’s mental state for abuse of discretion. Sigma Micro 23 Corp., 504 F.3d at 783. 24 After a three-day trial, the bankruptcy court found that the evidence introduced at trial 25 showed that appellant “understood injury was substantially certain to occur” and that no evidence 26 was introduced that appellant lacked the mental capacity to understand the consequences of his 27 actions. (Order at 9; 10 n.3.) While the bankruptcy court found that there was no evidence that 1 appellant’s mental health issues, appellant understood that injury to appellees was substantially 2 certain to occur given that appellees would have been prohibited from using the Property. These 3 consequences include that the Powell’s could not access their Property, including their personal 4 belongings, without interference and the Powell’s loss of use and enjoyment of the Property. 5 Having reviewed the record, the evidence supports the finding of appellant’s willful intent, 6 namely the subsequent changing of the locks on the Property, appellant’s communication with 7 appellees indicating that he would not leave the Property, and appellant’s decision not to 8 participate in further communications with appellees. These actions support the bankruptcy 9 court’s finding and are sufficient to show that Mr. Simas knew the natural consequences of his 10 actions and that they would cause harm to appellees. Thus, the Court finds that the bankruptcy 11 court did not err in finding that appellant’s conduct was willful under Section 523(a)(6). 12 Moreover, the Court finds that the bankruptcy Court appropriately applied a subjective 13 standard and did not err in finding that appellant understood that injury was substantially certain to 14 occur, notwithstanding his mental health issues at the time. While there is evidence in the record 15 explaining that appellant might have been experiencing some mental health issues around the time 16 of the conduct, the evidence does not establish, if and how, appellant’s mental health issues 17 affected his ability to make decisions and understand the effects of his consequences. For 18 instance, there are no medical records, expert opinions, or doctor reports establishing how 19 appellant’s health issues impacted his cognitive abilities at the time of the incident. Nothing in the 20 record suggests that the bankruptcy court erred in finding that appellant did not lack the mental 21 capacity to understand the consequences of his action. 22 ii. Maliciousness 23 Appellant argues that the bankruptcy court erred in holding that his conduct was malicious 24 because his mental state provided an excuse for his action. “A ‘malicious’ injury involves ‘(1) a 25 wrongful act, (2) done intentionally, (3) which necessarily causes injury, and (4) is done without 26 just cause or excuse.’” In re Jercich, 238 F.3d at 1209 . The creditor has the burden of proof with 27 respect to the first three elements. See In re Hagele, No. 15-1033, 2016 WL 3965899 , at *6 (9th 1 straightforward since by its nature the lack of good cause or excuse is not proved by the plaintiff 2 with affirmative evidence . . . .” Id. (explaining that debtor carries burden to prove excuse or just 3 cause because they are affirmative defenses). That said, ultimate burden remains with the creditor 4 but the Court can consider all evidence. See Jett v. Sicroff, 401 F.3d 1101, 1106 (9th Cir. 2005). 5 As mentioned above, see supra at b.i., appellees have made a sufficient showing of the first 6 three elements. Sufficient evidence supports the court’s finding that while appellant might have 7 been suffering from some type of mental illness, appellant did not show that those issues impacted 8 his cognitive abilities, including his ability to understand the natural consequences of his actions. 9 On its face, given the evidence, there appears to be no justification for the actions unless 10 the mental health defense was credited. Only appellant, who brought this appeal, had access to 11 information supporting this view. A review of appellant’s trial testimony informs the Court that 12 appellant had access to his medical records, which totaled approximately 300 pages (ER-9-1677). 13 It is not clear to this Court whether any of those records were admitted into evidence during the 14 trial of the adversary proceeding, nor were they provided on appeal. Moreover, appellant did not 15 present any medical testimony explaining what his condition was and how it impacted his 16 cognitive abilities around the time of the incident. Absent such information, the Court affirms the 17 bankruptcy court finding that appellant acted without “just cause or excuse” as insufficient 18 evidence supporting a contrary finding was not presented.5 19 The Court finds that the bankruptcy court did not err in finding appellant’s use of the — 20 — — 21 — 5 Appellant relies on In re Zhou, 331 B.R. 274 (Bankr. E.D. Mich. 2005) to argue that 22 one’s mental illness can weigh against a finding of maliciousness. Such reliance is misplaced. In re Zhou dealt with a plaintiff who filed a fake police report against one of her coworkers which led 23 to criminal charges being brought against him. Id. at 275 . Plaintiff was ordered to pay $139,000 after the trial court entered a default judgment against her. Id. She subsequently filed a chapter 7 — 24 — bankruptcy. Id. Shortly after, her coworker objected to the discharge of the debt under Section 25 523(a)(6). Id. The bankruptcy court found the evidence regarding plaintiff’s paranoid schizophrenia persuasive, including her doctor’s testimony that her condition caused her “not [to 26 be] in touch with reality” and caused her “not to understand the ramifications of her actions.” Id. at 277 . Indeed, In re Zhou highlights the importance of evidence establishing how one’s mental 27 illness impacts their ability to make decisions and to understand the ramifications of their actions. 1 Property, which exceeded his permission, a willful injury for purposes of Section 523(a)(6). 2 V. Limitation of Tort Damages. 3 Mr. Simas argues that the bankruptcy court erred in allowing the Powells to seek specific 4 performance as a remedy in their state court action. Specifically, Mr. Simas argues that the 5 contract was “rejected” as an executory contract under the Bankruptcy code, rendering specific 6 performance unavailable to the Powells as a remedy. 7 Under 11 U.S.C. § 365 (d)(1), if the trustee does not assume or reject an executory contract 8 for residential real property of the debtor within 60 days after the order for relief then such 9 contract or lease is deemed rejected. The rejection of an executory contract by a bankruptcy 10 debtor in this fashion constitutes a breach of such contract immediately before the date of the 11 filing of the bankruptcy petition. 11 U.S.C. § 365 (g). Once rejected, the claim is treated as a pre12 petition claim, which is typically limited to monetary damages. See id; In re Aslan, 65 B.R. 826 , 13 831-32 (Bankr. C.D. Cal. 1986), aff’d, 909 F.2d 367 (9th Cir. 1990) (finding that rejection of an 14 executory contract, where state law allows a remedy of specific performance, relieves the 15 debtor/trustee from the requirement to specifically perform the contract); In re Nickels Midway 16 Pier, LLC, No. 06-2671, 255 Fed. Appx. 633, at * 3 (3rd Cir. 2007) (finding that specific 17 performance was not available under a rejected executory contract for real property because 18 monetary damages served as a viable alternative). The bankruptcy code allows a non-debtor to 19 seek specific performance of a rejected executory contract in limited circumstances. See Section 20 365(i)(1) (allowing for purchaser in possession of real property to remain in possession of the 21 property so long as the purchaser continues to make payments on the property); see also Section 22 365(n)(1) (allowing for licensor of a right to intellectual property to seek specific performance). 23 Rejection of a contract is not the same as termination: the parties may still assert 24 contractual rights post-rejection order to determine compensation for the injured party for the 25 breach arising out of the rejection and to determine claims asserted in the other direction. See In re 26 OneCast Media, 439 F.3d 558, 563 (9th Cir.2006). Following rejection, the contract continues to 27 define the scope of liability for the injured party and the availability and extent of defenses for the 1 Here, Mr. Simas avers that the contract was an executory contract that was rejected when 2 the trustee did not assume the contract under the timeframe set forth in Section 365(d)(1). The 3 Powells do not dispute this point. Indeed, during the adversary proceedings they admitted as 4 much. (See ER- 3-189) (“Powells Briefing in Support of Motion for Relief from Stay”) (“The 5 contract at issue in this matter (the “Agreement”) is for the sale of the real property located at 153 6 St. Alban, Santa Cruz, California 95060 (the “Subject Property”). The Trustee had sixty days after 7 the entry of the order for relief to assume or reject any “executory contract” listed in the Debtor’s 8 Schedules. As the trustee did not assume or reject the Agreement within that period, the 9 Agreement was “deemed rejected.” 11 U.S.C. § 365 (d)(1).”) Thus, the Court finds that the 10 parties’ contract was an executory contract that had been deemed rejected by operation of law. 11 Having found such, the Court next considers whether one of two exceptions that permit 12 specific performance apply: 13 First, the exception relating to licensors holding intellectual property rights does not apply 14 here because this dispute arises out of the parties’ agreement for real property, not intellectual 15 property. 16 Second, with respect to the exception for purchasers in possession of real property, Mr. 17 Simas argues that the exception does not apply because he had possession of the property for 18 purposes of Section 365(i)(1), not the Powells. Mr. Simas argues that he listed the allotment as his 19 home, claimed a homestead exemption, and scheduled the contract as executory, thus proving that 20 he had possession of the property for Section 365(i) purposes. The Powells do not dispute this. 21 Given that the Powells do not argue, let alone mention, whether the exception under Section 22 365(i)(1) applies to them, the Court finds that the Powells have waived any argument that they 23 were in possession of the property for purposes of Section 365(i)(1). 24 In light of the foregoing, the Court finds that the bankruptcy court erred in holding that the 25 Powells could seek equitable relief for breach of the rejected executory contract. The Powells are 26 limited to seeking a remedy for monetary damages in their state court action. 27 VI. Bankruptcy’s Ruling on Appellant’s Counterclaim ] to damages on his counterclaims for waste and damage to the Property when appellees remodeled 2 the property without appellant’s knowledge or consent. The Court disagrees. As previously 3 explained, the Court finds that the parties entered into a binding contract for the sale and purchase 4 of appellant’s home. The contract did not prohibit remodeling or repairs to the Property. Thus, 5 the Court finds that the bankruptcy court did not err in finding that appellant was not entitled to 6 damages on his counterclaim. 7 VII. CONCLUSION 8 Based upon the foregoing, the Court AFFIRMS the bankruptcy court’s decision IN PART. 9 || Accordingly, appellant’s appeal is GRANTED IN PART AND DENIED IN PART. 10 The Clerk of the Court shall issue a judgment consistent with this Opinion. — 11 — — 12 — : 9, J 3 Dated: November 10, 2021 bo rite J fr grAr foe EL. 7] Ly bag □□ 14 (] VONNE GONSALEZROGERS © UNITED STATES DISTRICT COURT JUDGE — 45 — — 16 — — 17 — Zz 18 — 19 — — 20 — — 21 — — 22 — — 23 — — 24 — — 25 — — 26 — — 27 — — 28 —