In re Jones (9th Cir. BAP): BAP rules that a debtor has no interest in property of which he was dispossessed prepetition such that there could be no finding of a stay violation under section 362(k) in connection with said dispossession

The following is a recent case update.

Summary

In In Jones v. Machado-Powell, 2018 WL 4925214 (9th Cir. BAP 2018), the Bankruptcy Appellate Panel held, in an unpublished opinion, that Appellees had not violated the automatic stay when they removed and sold debtor’s personal property and then listed the real property for sale as debtor had neither an ownership interest, nor a possessory interest in said real property, when debtor filed for chapter 13 bankruptcy relief. A copy of the decision can be reviewed here.

Factual Background and Procedural History

Darryl M. Jones (“Debtor”) filed a chapter 13 bankruptcy on September 20, 2017, and listed a piece of real property located in Los Angeles, California (“Property”). In November 2017, Debtor filed a motion for willful violation of the automatic stay against the parties that were attempting to sell the property. Debtor alleged these parties illegally removed his personal property from the Property, changed the locks, evicted the occupants, held an open house, and posted a notice that if Debtor entered the property, he would be arrested.

The parties attempting to sell the property provided unrebutted evidence of the following sequence of events:

• On August 24, 2010, Debtor received an interest in the Property via quitclaim from Stacia Trimmer.
• On April 7, 2011, U.S Bank (“USB-1”) as trustee caused a trustee’s sale of the Property.
• On February 29, 2012, USB-1 gave U.S. Bank, as trustee of another entity (“USB-2”) a grant deed in the Property.
• On March 20, 2012, USB-2 filed a complaint for unlawful detainer against Debtor and Stacia Trimmer.
• On December 20, 2013, USB-2 quitclaimed the deed to the Property to the Christiana Trust (“Christiana”).
• On August 12, 2014, a jury awarded Christiana a judgment for unlawful detainer and damages against Debtor and Stacia Trimmer.

During this sequence of events, Debtor filed no fewer than five lawsuits challenging the 2011 nonjudicial foreclosure. Christiana obtained a writ of possession in June 2016. The Sheriff evicted Debtor and changed the locks in September 2016. Debtor broke into the house after the lockout, and the Sheriff had to remove Debtor again, and change the locks once more.

After this, Debtor filed a lawsuit in the District Court, again challenging the foreclosure. The Court dismissed the lawsuit in June 2017, finding Debtor had no interest in the property. While the matter was pending before the District Court, the Debtor had been given eighteen days to gather his personal belongings from the Property. Debtor failed to do so, and his personal belongings were sold at auction in May 2017. Christiana then contracted with the appellees to sell the Property.

Debtor filed for bankruptcy in September 2017. In November 2017, he filed a motion against the appellees for violation of the automatic stay and sought compensatory, punitive, and emotional distress damages under 11 U.S.C. § 362(k).

The bankruptcy court found that the foreclosure of the Property, and judgment against Debtor for an unlawful detainer, divested Debtor of any interest in the Property. As such, when debtor subsequently filed for chapter 13 bankruptcy relief, the debtor did not have any interest in the Property that could be subject to the automatic stay. The court also found the new filing could not be used as a tool to revisit matters previously adjudicated in the State Court or the District Court. The order denying Debtor’s motion for violation of the automatic stay was entered the same day his case was dismissed in December 2018 for failure to make plan payments.

Analysis

The analysis was brief. The BAP conducted a de novo review of whether the lower court erred in determining that the Property was not property of the estate as of the petition date.

First, the BAP held that the original foreclosure of the Property, paired with the unlawful detainer judgment meant that Debtor could not have had an interest in the Property. Eden Place, LLC v. Perl (In re Perl), 811 F.3d 1120 (9th Cir. 2016).

Second, to the extent Debtor was alleging judgments in other courts were entered erroneously, the BAP noted that the Bankruptcy Court was bound to respect those judgment under the Rooker-Feldman doctrine. Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 284 (2005) (Rooker-Feldman doctrine is applicable only in “cases brought by state-court losers complaining of injuries caused by state-court judgments rendered before the district court proceedings commenced and inviting district court review and rejection of those judgments.”); Worldwide Church of God v. McNair, 805 F.2d 888, 890 (9th Cir. 1986) (Rooker-Feldman doctrine bars bankruptcy court from reviewing a state court’s final decision).

Finally, Debtor raised a litany of issues on appeal, such as unclean hands against Christiana, conspiracy, lack of due process, and other claims. Debtor failed to request an evidentiary hearing in the bankruptcy court, and provided no evidence on appeal to support his other allegations. The BAP rejected these other allegations.

Based on the record, the court held that the Property was not property of the estate. The automatic stay did not apply, and no damages could be recovered under section 362(k).

Author’s Commentary

Debtor aggressively engaged in a scheme of litigating foreclosure and tenancy rights in every available court he could use. It should not be a surprise that the BAP included a footnote revealing that in 2012 the Debtor had been deemed a vexatious litigant in a state court lawsuit. The outcome was both correct and predictable.

These materials were prepared by ILC member Jeff Curl of JC Law Group in San Mateo, California (jcurl@jclawgroup.com), with editorial contributions from Michael A. Sweet of Fox Rothschild LLP in San Francisco (MSweet@foxrothschild.com).