Opinion
Case No. 5:21-cv-01903-JWH Consolidated with Case No. 5:21-cv-01906-JWH Consolidated with Case No. 5:21-cv-01907-JWH
2023-06-29
Rosalinda T. BUENVIAJE, Plaintiff, v. Leticia CHARNETSKY, et al., Defendants.
Nicholas Watts Gebelt, Law Offices of Nicholas Gebelt, Whittier, CA, for Plaintiff Rosalinda T. Buenviaje in No. 5:21-cv-01903. Eric V. Anderton, Hall Griffin LLP, Santa Ana, CA, Kenneth Joseph Catanzarite, Catanzarite Law Corporation, Anaheim, CA, for Defendants Leticia L. Charnetsky, Victor C. Charnetsky, Catanzarite Law Corporation, Victor S. Charnetsky, Eric V. Anderson, Crewe Street Acquisition, LLC, Kenneth J. Catanzarite in No. 5:21-cv-01903. Kenneth Joseph Catanzarite, Catanzarite Law Corporation, Anaheim, CA, for Defendants The Family Trust of Victor C. Charnetsky and Leticia L. Charnetsky, Mr. Eric V. Anderton in No. 5:21-cv-01903. Eric V. Anderton, Hall Griffin LLP, Santa Ana, CA, for Defendant Kenneth J. Catanzarite in Nos. 5:21-cv-01907, 5:21-cv-01903, 5:21-cv-01906, Crewe Street Acquisition, LLC in Nos. 5:21-cv-01907, 5:21-cv-01906, Catanzarite Law Corporation in Nos. 5:21-cv-01907, 5:21-cv-01906, Leticia L. Charnetsky in No. 5:21-cv-01907, Victor C. Charnetsky in No. 5:21-cv-01907, Victor S. Charnetsky in No. 5:21-cv-01907, The Family Trust of Victor C. Charnetsky and Leticia L. Charnetsky in No. 5:21-cv-01907. Leticia L. Charnetsky, Rivertside, CA, Pro Se. The Family Trust of Victor C. Charnetsky and Leticia L. Charnetsky, Riverside, CA, Pro Se. Victor S. Charnetsky, Riverside, CA, Pro Se.
Nicholas Watts Gebelt, Law Offices of Nicholas Gebelt, Whittier, CA, for Plaintiff Rosalinda T. Buenviaje in No. 5:21-cv-01903. Eric V. Anderton, Hall Griffin LLP, Santa Ana, CA, Kenneth Joseph Catanzarite, Catanzarite Law Corporation, Anaheim, CA, for Defendants Leticia L. Charnetsky, Victor C. Charnetsky, Catanzarite Law Corporation, Victor S. Charnetsky, Eric V. Anderson, Crewe Street Acquisition, LLC, Kenneth J. Catanzarite in No. 5:21-cv-01903. Kenneth Joseph Catanzarite, Catanzarite Law Corporation, Anaheim, CA, for Defendants The Family Trust of Victor C. Charnetsky and Leticia L. Charnetsky, Mr. Eric V. Anderton in No. 5:21-cv-01903. Eric V. Anderton, Hall Griffin LLP, Santa Ana, CA, for Defendant Kenneth J. Catanzarite in Nos. 5:21-cv-01907, 5:21-cv-01903, 5:21-cv-01906, Crewe Street Acquisition, LLC in Nos. 5:21-cv-01907, 5:21-cv-01906, Catanzarite Law Corporation in Nos. 5:21-cv-01907, 5:21-cv-01906, Leticia L. Charnetsky in No. 5:21-cv-01907, Victor C. Charnetsky in No. 5:21-cv-01907, Victor S. Charnetsky in No. 5:21-cv-01907, The Family Trust of Victor C. Charnetsky and Leticia L. Charnetsky in No. 5:21-cv-01907. Leticia L. Charnetsky, Rivertside, CA, Pro Se. The Family Trust of Victor C. Charnetsky and Leticia L. Charnetsky, Riverside, CA, Pro Se. Victor S. Charnetsky, Riverside, CA, Pro Se.
ORDER GRANTING DEFENDANTS' MOTION TO DISMISS FOR LACK OF SUBJECT MATTER JURISDICTION [ECF No. 21]
John W. Holcomb, UNITED STATES DISTRICT JUDGE
Before the Court is the motion of Defendants Leticia L. Charnetsky, Victor C. Charnetsky and the Family Trust of Victor C. Charnetsky and Leticia L. Charnetsky, Crewe Street Acquisition, LLC, Victor S. Charnetsky and their attorneys Catanzarite Law Corporation, Kenneth J. Catanzarite and Eric V. Anderton (collectively, "Defendants") to dismiss—pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure—the "Adversary Complaint for Sanctions under 11 U.S.C. § 105(a)" filed by Plaintiffs Rosalinda T. Buenviaje, LBJ Healthcare Partners Inc., and Brian J. Buenviaje, and (collectively, "Plaintiffs") in each of their respective proceedings. The Court finds this Motion appropriate for resolution without a hearing. See Fed. R. Civ. P. 78; L.R. 7-15. After considering the papers filed in support and in opposition, the Court orders that the Motion is GRANTED, for the reasons set forth herein.
Defs.' Mot. to Dismiss for Lack of Subject Matter Jurisdiction (the "Motion") [ECF No. 21].
The Court considered the documents of record in this consolidated action, including the following papers: (1) Pls.' Motion to Withdraw Reference of Adversary Proceeding (the "Motion to Withdraw Reference") [ECF No. 1] in each of these three consolidated cases; (2) Motion (including its attachments); (3) Pls.' Opp'n to the Motion (the "Opposition") [ECF No. 23]; and (4) Defs.' Reply in Supp. of the Motion (the "Reply") [ECF No. 24].
I. BACKGROUND
Plaintiffs in this consolidated action are former debtors in bankruptcy, each of whom filed a nearly identical "Adversary Complaint for Sanctions" against Defendants in the U.S. Bankruptcy Court for the Central District of California, thereby commencing the following three adversary proceedings:
• Rosalinda T. Buenviaje v. Charnetsky, Adversary No. 2:19-ap-01229-VZ;In February 2022, this Court granted Plaintiffs' respective unopposed motions to withdraw the reference of each of those adversary proceedings, in view of the parties' demands for a jury trial and Plaintiffs' refusal to consent that the Bankruptcy Court could preside over those jury trials. In July 2022, the Court consolidated the three cases under this, the low-numbered case.
• LBJ Healthcare Partners, Inc. v. Charnetsky, Adversary No. 2:19-ap-01228-VZ; and
• Brian J. Buenviaje v. Charnetsky, Adversary No. 2:19-ap-01230-VZ.
See Minute Order (In Chambers) [ECF No. 14].
Minute Order re Scheduling Conference [ECF No. 19].
Plaintiffs' Complaint (in each proceeding) alleges that "Defendants engaged in a scorched-earth, five-year litigation strategy" relating to the underlying bankruptcy cases. Through each adversary proceeding (collectively, the "Adversary Proceeding"), Plaintiffs "seek to recoup a collective minimum of $412,000 in fees and costs" by imposing sanctions on Defendants. In each of their Complaints, Plaintiffs assert a single claim for relief—purportedly arising under 11 U.S.C. § 105(a)—through which Plaintiffs seek "damages for vexatious litigation." Defendants filed the instant Motion to dismiss in July 2022, and the matter is fully briefed.
Motion to Withdraw Reference ¶¶ 3 & 6.
Id. at Civil Cover Sheet [ECF No. 1-1] ¶ VI.
II. LEGAL STANDARD
A. Rule 12(b)(1) —Standing and Lack of Subject-Matter Jurisdiction
As the party seeking to invoke the federal court's jurisdiction, a plaintiff has the burden of alleging specific facts sufficient to prove that she has Article III standing. See Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992). Indeed, the plaintiff bears the burden of demonstrating standing "for each claim" and "for each form of relief" that she seeks. DaimlerChrysler Corp. v. Cuno, 547 U.S. 332, 342, 352, 126 S.Ct. 1854, 164 L.Ed.2d 589 (2006) (internal citations and quotations omitted). When a defendant believes that the plaintiff has failed to establish that she has standing, Rule 12(b)(1) allows that defendant to move for dismissal based upon lack of subject matter jurisdiction. Fed. R. Civ. P. 12(b)(1). The court should dismiss an action when the face of the complaint does not demonstrate a basis for standing. See Warren v. Fox Family Worldwide, Inc., 328 F.3d 1136, 1139 (9th Cir. 2003); Fed. R. Civ. P. 8(a) & 12(b)(1).
"Under Rule 12(b)(1), a defendant may challenge the plaintiff's jurisdictional allegations in one of two ways." Leite v. Crane Co., 749 F.3d 1117, 1121 (9th Cir. 2014). A facial attack accepts the plaintiff's allegations as true but asserts that those allegations "are insufficient on their face to invoke federal jurisdiction." Id. (quoting Safe Air for Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004)). The court resolves a facial attack "as it would a motion to dismiss under Rule 12(b)(6)": in accepting the plaintiff's allegations as true and drawing all reasonable inferences in her favor, the court determines "whether the allegations are sufficient as a legal matter to invoke the court's jurisdiction." Id.
In contrast, a factual attack contests "the truth of the plaintiff's factual allegations," typically by introducing evidence outside the pleadings. Id. "When the defendant raises a factual attack, the plaintiff must support her jurisdictional allegations with 'competent proof,' under the same evidentiary standard that governs in the summary judgment context." Id. (internal citation omitted). The plaintiff bears the burden of proving—by a preponderance of the evidence—that she meets each of the requirements for subject-matter jurisdiction, with one caveat: if the existence of jurisdiction turns on "disputed factual issues," then the court itself may resolve those factual disputes. Id.
III. DISCUSSION
Defendants contend that although Plaintiffs caption their respective Complaints as arising from § 105(a) of the Bankruptcy Code, in reality each Complaint asserts a private right of action for the recovery of costs and fees as a sanction for abuse of process: Defendants' alleged bad faith and misconduct during the underlying bankruptcy cases. Defendants argue that because (1) § 105(a) itself does not afford Plaintiffs a private right of action; (2) Plaintiffs do not raise a core matter under the Bankruptcy Code; and (3) Plaintiffs cannot trigger "related to" jurisdiction, this Court lacks subject matter jurisdiction over this action. Therefore, according to Defendants, this action must be dismissed under Rule 12(b)(1).
Unless otherwise indicated, all statutory citations refer to the Bankruptcy Code—i.e., Title 11 of the United States Code.
Motion 3:3-18.
All parties are citizens of California, so Plaintiffs cannot invoke diversity subject matter jurisdiction under 28 U.S.C. § 1332.
Id. at 7:26-8:3.
A. § 105(a) Does Not Create a Private Right of Action for Abuse of Process
In their respective Complaints, Plaintiffs assert a single claim "under 11 U.S.C. § 105(a) to award sanctions against Defendants . . . to redress the wrongs perpetrated by the Defendants in this case." That statute provides as follows:
Pls.' Adversary Compl. for Sanctions Pursuant to 11 U.S.C. § 105(a), In re Rosalinda T. Buenviaje, Case No. 2:19-ap-01229-VZ [ECF No. 1] 14:19-21; see also Motion to Withdraw Reference ¶ 6.
The court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title. No provision of this title providing for the raising of an issue by a party in
interest shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process.11 U.S.C. § 105(a). Although § 105(a) unmistakably permits bankruptcy courts to police the proceedings before it, the issue here is whether that statute creates a private right of action for an aggrieved party in a bankruptcy case to sue for damages for alleged abuse of process.
Generally, a private right of action arising under a federal statute must be created by Congress. See Alexander v. Sandoval, 532 U.S. 275, 286, 121 S.Ct. 1511, 149 L.Ed.2d 517 (2001) ("Like substantive federal law itself, private rights of action to enforce federal law must be created by Congress."). Without explicit congressional action creating a private right of action, "a cause of action does not exist and courts may not create one, no matter how desirable that might be as a policy matter, or how compatible with the statute." Id. at 286-87, 121 S.Ct. 1511.
In other bankruptcy lawsuits involving provisions of the Bankruptcy Code, the Ninth Circuit has instructed that § 105(a) does not provide parties with a general private right of action to sue for damages. See In re Dyer, 322 F.3d 1178, 1190 (9th Cir. 2003) (" '[I]t is not up to us to read other remedies into the carefully articulated set of rights and remedies set out in the Bankruptcy Code,' [and] we rejected Walls' invitation to read § 105(a) as a catch-all private right of action for the enforcement of other Bankruptcy Code provisions.") (citing Walls v. Wells Fargo Bank, N.A., 276 F.3d 502, 507 (9th Cir. 2002)). Although the lawsuit in Dyer sought remedies for § 362(h) violations of the automatic stay—and not for abuse of process—there the Ninth Circuit ruled that the bankruptcy trustee did not have a private right of action under § 105(a) for damages relating to those violations. The Ninth Circuit concluded that to rule otherwise would "strain the language of § 105(a) in a misguided attempt to accomplish by judicial fiat that which Congress chose not to do." Id.
Instead, the Dyer court concluded that the bankruptcy trustee in that case was "limited to the civil contempt remedy provided by § 105(a)," id., which is inapplicable to the instant action because Plaintiffs have explicitly stated that the Bankruptcy Court's civil contempt remedy is not at issue. Courts within the Ninth Circuit have repeatedly held that, without a private right of action, a plaintiff cannot use the sanctions authority of § 105(a) to support a claim for damages. See Walls, 276 F.3d at 507 (finding no private right of action under § 105(a) for violations of § 524, because "to create a new remedy would put us in the business of legislating"); Barrientos v. Wells Fargo Bank, N.A., 633 F.3d 1186 (9th Cir. 2011) (affirming a district court's holding that § 105(a) did not provide a private right of action for the enforcement of discharge injunctions outside of contempt remedies); In re Hoover, 2012 WL 8255558, at *6 (Bankr. E.D. Cal. Apr. 23, 2012) ("[T]his court holds that a private right of action for a violation of the automatic stay under § 362 is unavailable through § 105(a)."). Additionally, courts outside of this circuit have explicitly held that § 105(a), in and of itself, cannot support a claim for damages. See In re Taylor, 263 B.R. 139, 151-52 (N.D. Ala. 2001) ("It is error for the court to rely on § 105(a) to confer a private right of action to collect damages.") (citing Walls v. Wells Fargo Bank N.A., 255 B.R. 38, 45 (E.D. Cal. 2000)); Holloway v. Household Auto. Fin. Corp., 227 B.R. 501, 504 (N.D. Ill. 1998) ("On its face, § 105(a) does not expressly provide for a private right of action that would allow a Plaintiff to bring an adversary action to recover for a defendant's allegedly fraudulent proofs of claim.").
Motion 3:26-28.
Without a statutory basis under the Bankruptcy Code, Plaintiffs cannot sustain their burden to show that this Court possesses subject matter jurisdiction over their claim, because the Supreme Court has held that there is no federal common law tort for abuse of process. See Wheeldin v. Wheeler, 373 U.S. 647, 651-52, 83 S.Ct. 1441, 10 L.Ed.2d 605 (1963) (rejecting the theory that Congress "left to federal courts the creation of a federal common law for abuse of process."); see also United States v. Guillen-Cervantes, 748 F.3d 870, 874 (9th Cir. 2014) ("Instances in which it is appropriate for courts to craft new rules of federal common law, however, are 'few and restricted.' ") (citation omitted). Accordingly, Plaintiffs' claim for abuse of process arises, if at all, only under California law. See Lunsford v. Am. Guarantee & Liab. Ins. Co., 18 F.3d 653, 655 (9th Cir. 1994) (citing Oren Royal Oaks Venture v. Greenberg, Bernhard, Weiss & Karma, Inc., 42 Cal. 3d 1157, 1168, 232 Cal.Rptr. 567, 728 P.2d 1202 (1986)) ("The elements of the tort of abuse of process are (1) an ulterior purpose; and (2) a willful act in the use of the process not proper in the regular conduct of the proceeding.").
For those reasons, Plaintiffs cannot rely upon § 105(a) as a basis for subject matter jurisdiction over this consolidated case.
B. Neither the Bankruptcy Code nor Title 28 Provides Subject Matter Jurisdiction for Plaintiffs' Claim
1. Plaintiffs' Claim Is a Non-Core Matter
A core proceeding is one that "invokes a substantive right provided by title 11 or . . . a proceeding that, by its nature, could arise only in the context of a bankruptcy case." Gruntz v. County of L.A. (In re Gruntz), 202 F.3d 1074, 1081 (9th Cir. 2000) (internal quotations omitted). A proceeding is "non-core" if it "do[es] not depend on the Bankruptcy Code for [its] existence and [it] could proceed in another court." Dunmore v. United States, 358 F.3d 1107, 1114 (9th Cir. 2004) (internal citation omitted).
Plaintiffs' claim cannot constitute a "core" matter under Title 11 because that claim—abuse of process—exists independent of the bankruptcy case. See In re Ray, 624 F.3d 1124, 1131 (9th Cir. 2010) ("A matter 'arises under' the Bankruptcy Code if its existence depends on a substantive provision of bankruptcy law, that is, if it involves a cause of action created or determined by a statutory provision of the Bankruptcy Code."). Plaintiffs' claim "arises under the law that creates the cause of action." Berg v. Leason, 32 F.3d 422, 425 (9th Cir. 1994), as amended (Sept. 7, 1994) (citing American Well Works Co. v. Layne & Bowler Co., 241 U.S. 257, 260, 36 S.Ct. 585, 60 L.Ed. 987 (1916)). Here, California substantive law creates Plaintiffs' cause of action, so this case is not a "core" matter under Title 11.
2. The Court Does Not Have "Related to Jurisdiction" Over Plaintiffs' Claim
Although Plaintiffs' action does not arise under the Bankruptcy Code, the Court must still examine whether an abuse of process claim could trigger "related to jurisdiction" provided by 28 U.S.C. § 1334(b). Under the test articulated in the Third Circuit case of Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir. 1984), the Ninth Circuit instructs that "related to jurisdiction" exists when "the outcome of the proceeding could conceivably have any effect on the estate being administrated in the bankruptcy." In re Pegasus Gold Corp., 394 F.3d 1189, 1193 (9th Cir. 2005) (citing Pacor, 743 F.2d at 994). Situations where a federal court may exercise jurisdiction over a state law claim in an adversary proceeding—following the dismissal of the underlying bankruptcy case—are "analogized to cases concerning the propriety of district courts retaining jurisdiction over pendent state law claims after federal claims have been dismissed." In re Casamont Invs., Ltd., 196 B.R. 517, 522 (B.A.P. 9th Cir. 1996). In other words, "if federal court jurisdiction is based on a federal law claim which is eliminated prior to adjudication of pendent state law claims, the federal court can, under certain circumstances, retain its supplemental jurisdiction." Id. at 521-22 (citing United Mine Workers v. Gibbs, 383 U.S. 715, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966)).
When courts evaluate whether to retain jurisdiction in dismissed bankruptcy cases, "a federal court should consider and weigh in each case, and at every stage of the litigation, the values of judicial economy, convenience, fairness, and comity in order to decide whether to exercise jurisdiction over a case brought in that court involving pendent state-law claims." Id. at 522 (citing Carnegie-Mellon Univ. v. Cohill, 484 U.S. 343, 350, 108 S.Ct. 614, 98 L.Ed.2d 720 (1988)). "Generally where all federal law claims are eliminated before trial, the factors will favor declining to exercise jurisdiction over the remaining state law claims." Id. However, "[t]he bankruptcy court may retain jurisdiction over a related proceeding subject to considerations of judicial economy, fairness, convenience and comity." Id. (citing In re Carraher, 971 F.2d 327, 328 (9th Cir. 1992)).
For post-confirmation bankruptcy disputes, the Ninth Circuit instructs courts to use the "close nexus" test when evaluating "related to jurisdiction." Pegasus, 394 F.3d at 1194 (citing In re Resorts Int'l, Inc., 372 F.3d 154, 166-67 (3d Cir. 2004)) ("[T]he essential inquiry appears to be whether there is a close nexus to the bankruptcy plan or proceeding sufficient to uphold bankruptcy court jurisdiction over the matter."). Here, the underlying bankruptcy case has been closed since June 2022, and the Bankruptcy Court confirmed the joint plan in December 2020. The joint plan did not contain any language retaining jurisdiction over the adversary proceeding, but, instead, it directed that "a party seeking any type of relief relating to a Plan provision can seek such relief in a state court of general jurisdiction."
Motion 6:7-9.
Id. at 7:5-12.
Id.
Whether the Court applies the language of the confirmed plan or the "close nexus" test to weigh whether Plaintiffs' claim for abuse of process, the outcome is identical—the Court may not exercise "related to jurisdiction" over the instant action. Even if the Court were to weigh the Pacor factors of judicial economy, fairness, convenience, and comity, "related to jurisdiction" does not arise because, other than the motion to withdraw the reference, the Court has not ruled on any substantial issue pertaining to Plaintiffs' abuse of process claim. This action properly belongs in state court. See Casamont, 196 B.R. at 522.
Plaintiffs counter the Motion by asserting that the Bankruptcy Court explicitly retained jurisdiction over the Adversary Proceeding in an order determining that Defendants were entitled to a jury trial concerning Plaintiffs' claim for abuse of process. While Defendants did not object to the Bankruptcy Court's jurisdiction at the time, "[p]arties may raise challenges to subject matter jurisdiction at any time." In re Berg Litig., 293 F.3d 1127, 1130 (9th Cir. 2002). Considering the above analysis, as well as the language in the confirmed plan—that the parties should seek relief in state court for disputes relating to the plan—the Motion is GRANTED, and Plaintiffs' Complaint is DISMISSED for lack of subject matter jurisdiction.
Opposition 4:3-6.
IV. DISPOSITION
For the foregoing reasons, the Court hereby ORDERS as follows:
1. Defendants' Motion is GRANTED.
2. Plaintiffs' claim for relief is DISMISSED for lack of subject matter jurisdiction.
3. Judgment shall issue accordingly.
IT IS SO ORDERED.