Opinion
Case No. 20-cv-05390-EMC Case No. 20-cv-07377-EMC
2021-03-17
Erlinda Abibas ANIEL, Plaintiff/Appellant, v. HSBC BANK USA, NATIONAL ASSOCIATION, Defendant/Appellee. Erlinda Abibas Aniel, Plaintiff/Appellant, v. HSBC Bank USA, National Association, Defendant/Appellee.
Erlinda Abibas Aniel, Hillsborough, CA, Pro Se. Bernard Jaron Kornberg, Severson and Werson, P.C., San Francisco, CA, for Defendant/Appellee HSBC Bank USA, National Association in 20-cv-05390-EMC. Adam Neil Barasch, Bernard Jaron Kornberg, Severson and Werson, P.C., San Francisco, CA, for Defendant/Appellee HSBC Bank USA, National Association in 20-cv-07377-EMC.
Erlinda Abibas Aniel, Hillsborough, CA, Pro Se.
Bernard Jaron Kornberg, Severson and Werson, P.C., San Francisco, CA, for Defendant/Appellee HSBC Bank USA, National Association in 20-cv-05390-EMC.
Adam Neil Barasch, Bernard Jaron Kornberg, Severson and Werson, P.C., San Francisco, CA, for Defendant/Appellee HSBC Bank USA, National Association in 20-cv-07377-EMC.
ORDER AFFIRMING BANKRUPTCY COURT'S ORDERS GRANTING APPELLEE'S MOTION FOR SUMMARY JUDGMENT AND MOTION FOR RELIEF FROM THE AUTOMATIC STAY
Docket No. 1
EDWARD M. CHEN, United States District Judge
I. INTRODUCTION
Pro se Appellant and Debtor, Erlinda Abibas Aniel, filed a voluntary Chapter 11 bankruptcy petition in the United States Bankruptcy Court for the Northern District of California. See In re. Erlinda Abibas Aniel , No. 3:19-bk-30385 (N.D. Cal. filed Apr. 9, 2019). The bankruptcy court, Judge Montali, granted Appellee HSBC Bank USA, National Association's ("HSBC's") (1) motion for summary judgment on Ms. Aniel's objection to Claim Number 3-1, and (2) motion for relief from automatic stay. Ms. Aniel appeals both orders.
For the reasons set forth below, the Court AFFIRMS the bankruptcy court's orders.
II. BACKGROUND
A. Factual Background
1. The Promissory Note and Deed of Trust
On June 4, 2007, Ms. Aniel signed a promissory note in exchange for a $2 million loan from MortgageIT, Inc. ("MortgageIT"). AA 285–91; 328 ¶¶ 4. She also signed a corresponding deed of trust on behalf of MortgageIT encumbering her residence located at 75 Tobin Clark Drive, Hillsborough, California (the "Property"). AA 47–61; 264–78. Fidelity National Title (Fidelity) was named the Trustee and the beneficiary was Mortgage Electronic Registration Systems, Inc. ("MERS"). Id. Ms. Aniel stopped making payments on the loan less than a year later, and has made no payment since. AA 329 ¶ 14. Curiously, Ms. Aniel received from Ocwen an IRS Form 1098, which is a mortgage interest statement substitute form, noting that $2,056,816.02 was paid toward the principal of the loan in 2013. AA 147, 188–89.
At the time Ms. Aniel signed the promissory note, MortgageIT was a wholly-owned, indirect subsidiary of DB Structured Products, Inc. ("DB"), which indorsed the promissory note in blank and transferred it to HSBC Bank USA, National Association as Trustee for Deutsche Alt-A Securities Mortgage Loan Trust, Series 2007-OA5 ("HSBC") on July 31, 2007. AA 731, 290. The promissory note has remained with Deutsche Bank, as HSBC's custodian, at all times since then. AA 329 ¶ 10, 732.
MortgageIT also assigned all its interest in the deed of trust to HSBC on August 21, 2009 (the "2009 Assignment"). AA 145, 821–22. On February 1, 2011, HSBC assigned all of its interest in the deed of trust to GMAC, as HSBC's servicing agent (the "2011 Assignment"). See AA 144. On July 30, 2015, MortgageIT filed a corrective assignment of all of its interest in the deed of trust back to HSBC, fixing the number in the 2009 Assignment (the "2015 Assignment"). AA 142–43.
2. The Servicer
At the time the loan was issued, the servicer of the loan was GMAC. AA 731. Since then, the loan servicing duties were transferred to Ocwen Loan Servicing ("Ocwen") on August 1, 2013, and then to PHH Mortgage Corporation ("PHH") on June 1, 2019. AA 675, 328 ¶¶ 7–9.
B. Ms. Aniel's First Bankruptcy Case (the "First Case")
Ms. Aniel was previously a joint debtor with Fermin Solis Aniel in a previous bankruptcy case involving the same loan, Case No. 09-20452 (the "First Case"), which was filed on February 25, 2009 and concluded on January 18, 2019. AA 730. In that case, GMAC filed a proof of claim as the servicing agent for HSBC in the amount of $1,105,196.75. AA 732. HSBC also filed its own secured claim on May 21, 2010, in the amount $2,442,671.39. Id.
In August 2010, this case was converted to a Chapter 7 bankruptcy at the request of the debtors, AA 795, and Ms. Aniel received a discharge under Section 727 of the Bankruptcy Code on December 2, 2010, AA 798. The case was reopened in 2015 to distribute a $10,000 settlement from Ms. Aniel's lawsuit against Bank of America. AA 806–08. A final decree discharging the trustee of the estate and closing the case was not entered until January 20, 2019. AA 818.
Section 727 provides the basis on which the court shall grant a discharge under Chapter 7 bankruptcy.
Over Mr. and Ms. Aniel's objection, the bankruptcy court in the First Case made three determinations that are relevant to this case. First, it determined that the promissory note and deed of trust were valid and enforceable because Ms. Aniel would not take a position as to whether the signature on the note was hers or not. See AA 730–31. Second, the bankruptcy court found that Ms. Aniel presented "no bona fide challenge" to the promissory note and deed of trust, and that these documents "constitute an obligation of [Ms. Aniel], and in fact constitute an encumbrance on the property in Hillsborough occupied by [Ms. Aniel] and her family." AA 733. Finally, the Court concluded that Ms. Aniel had failed to make mortgage payments or property tax payments since July 2008. Id.
C. GMAC Files for Bankruptcy in the SDNY (the "SDNY Case")
While Ms. Aniel's first bankruptcy case was ongoing in the Northern District of California, she filed claims of wrongful foreclosure and fraudulent concealment against GMAC in the bankruptcy case of GMAC's parent company, Residential Capital ("ResCap"), in the Southern District of New York ("the SDNY Case"). AA 819–31. The bankruptcy court in the SDNY Case disallowed and expunged Ms. Aniel's wrongful foreclosure and fraudulent concealment claims because the 2011 Assignment from HSBC to GMAC was valid, such that "GMAC[ ] lawfully possessed the right to initiate foreclosure proceedings against [Ms. Aniel], and did no wrong by doing so." AA 830.
Ms. Aniel also filed claims for declaratory relief and violations of California's Unfair Competition Law (UCL). AA 829.
ResCap's bankruptcy is what led Ocwen to take over servicing Ms. Aniel's loan. AA 327.
D. Procedural Background in This Case (the "Second Case")
On April 9, 2019, Ms. Aniel filed the underlying Chapter 11 case in the United States Bankruptcy Court for the Northern District of California, which was assigned to Bankruptcy Judge Dennis Montali.
On August 7, 2019, HSBC filed a proof of claim (the "2019 POC") asserting a secured claim in the amount of $3,660,951.11 on the Property. Two weeks later, Ms. Aniel objected to the 2019 POC (the "Objection"), and on April 2, 2020 HSBC filed a motion for summary judgment arguing that Ms. Aniel's objection should be overruled as a matter of law. AA 731.
On June 26, 2020, the bankruptcy court overruled Ms. Aniel's objection to the 2019 POC and granted summary judgment to HSBC. AA 730–737. The bankruptcy court issued its formal order overruling Ms. Aniel's objections to HSBC's 2019 POC on July 6, 2020. AA 741.
On September 9, 2020, HSBC filed a motion for relief from the automatic bankruptcy stay, which was heard and granted on October 1, 2020. See Docket No. 1 (20-7377).
Ms. Aniel filed two appeals related to her bankruptcy case. First, on August 4, 2020, she appealed the bankruptcy court's order overruling her objections and granting summary judgment to HSBC (C-20-5390). Second, on October 21, 2020, she appealed the bankruptcy court's order granting HSBC's motion for relief from the automatic stay (C-20-7377).
III. LEGAL STANDARD
Appeal of a bankruptcy court's grant of summary judgment is reviewed de novo. In re Lewis , 97 F.3d 1182, 1185 (9th Cir. 1996). "The reviewing court will affirm a grant of summary judgment only if it appears from the record ... that there are no genuine issues of material fact and that the moving party is entitled to judgment as a matter of law." In re Yarbrow , 150 B.R. 233, 236 (9th Cir. BAP 1993). In reviewing the grant of summary judgment, the court "views all evidence and factual inferences in the light most favorable to the nonmoving party." Id.
The bankruptcy court's conclusions of law are reviewed de novo and its factual findings for clear error outside of the summary judgment context. Id. The trial court's evidentiary rulings are reviewed for an abuse of discretion. Ardmor Vending Co. v. Kim (In re Kim) , 130 F.3d 863, 865 (9th Cir. 1997) (citing Fireman's Fund Ins. Cos. v. Alaskan Pride P'ship , 106 F.3d 1465, 1467 (9th Cir. 1997) ). "Standing is a legal issue" that is reviewed de novo. Veal v. Am. Home Mortg. Servicing, Inc. (In re Veal) , 450 B.R. 897, 906 (B.A.P. 9th Cir. June 10, 2011) (citing Wedges/Ledges of Cal., Inc. v. City of Phoenix , 24 F.3d 56, 61 (9th Cir. 1994) ).
IV. ORDER OVERRULING MS. ANIEL'S OBJECTIONS AND GRANTING HSBC'S SUMMARY JUDGMENT (C-20-5390)
Ms. Aniel argues that this Court should reverse the bankruptcy court's order overruling her objections and granting of summary judgment to HSBC for three reasons. First, she argues that HSBC lacked standing to file a proof of claim in the Second Case because it has no valid interest in the promissory note. Second, she argues that the bankruptcy court's grant of summary judgment was wrong because there are genuine issues of material fact as to whether the loan is outstanding and the authenticity of the loan documents provided by HSBC. Finally, she contends that the bankruptcy judge lost jurisdiction due to prejudice and bias. See Docket No. 8 (20-5390) ("Appellant's Br.") at 2–3. This memorandum will address each of these arguments in turn.
A. HSBC Had Standing to File the 2019 POC
Ms. Aniel argues that HSBC has no standing to file the 2019 POC because it assigned all of its interest in the deed of trust to GMAC in the 2011 Assignment. Appellant's Br. at 21:26–22:3. To support this argument, she points to the bankruptcy court's conclusion in the SDNY Case that the 2011 Assignment was valid because it was properly executed by an officer of HSBC with the authority to execute the assignment. AA 830.
HSBC responds that it has standing to file the 2019 POC because (1) it has possession of the promissory note; and (2) issue preclusion as to the validity of the 2011 Assignment to GMAC cannot operate as res judicata against HSBC in this case. Docket No. 10 (20-5390) ("Appellee's Br.") at 8–9.
1. Possession of the Promissory Confers HSBC Standing to File the POC
Articles 3 and 9 of the Uniform Commercial Code (UCC) govern the payment obligations and sale of promissory notes and deeds of trust, respectively. Veal , 450 B.R. at 909. The UCC defines a person entitled to enforce an instrument as:
(i) the holder of the instrument, (ii) a nonholder in possession of the instrument who has the rights of a holder, or (iii) a person not in possession of the instrument who is entitled to enforce the instrument pursuant to Section 3-309 or 3-418(d) . A person may be a person entitled to enforce the instrument even though the person is not the owner of the instrument or is in wrongful possession of the instrument.
UCC Section 3-309 pertains to enforcement of lost, stolen, or destroyed negotiable instruments.
UCC Section 3-418(d) pertains to instruments paid for or accepted by mistake.
U.C.C. § 3-301 ; see also Veal , 450 B.R. at 910. California has adopted this provision of the UCC. See Cal. Comm. Code § 3301. If an indorsement on a negotiable instrument is made by the holder of an instrument and is not a special indorsement , it is a "blank indorsement." Cal. Comm. Code § 3205. The instrument "may be negotiated by transfer of possession alone until specially indorsed." Cal. Comm. Code § 3205(b). Negotiation is "a transfer of possession ... of an instrument other than the issuer to a person who thereby becomes its holder." Cal. Comm. Code § 3201(a). A holder is "the person in possession of a negotiable instrument that is either payable to the bearer, or to an identified person that is the person in possession." Cal. Comm. Code § 1201(b)(21)(A). This "bearer" is the person in possession of a negotiable instrument, document of title or certified security that is payable to bearer or indorsed in blank. Cal. Comm. Code § 1201(b)(5).
The California Uniform Commercial Code defines a "special indorsement" as one
made by the holder of an instrument, whether payable to an identified person or payable to bearer, the indorsement identifies a person to whom it makes the instrument payable. When specially indorsed, an instrument becomes payable to the identified person and may be negotiated only by the indorsement of that person.
Cal. Comm. Code § 3205(a).
Here, because the promissory note is indorsed in blank, it is negotiated through possession alone, such that whoever has possession of it can enforce it. See Cal. Comm. Code § 3205(b). HSBC was able to produce the original promissory note and deed of trust at a status conference held before the bankruptcy court on February 28, 2020, AA 735, and at the hearing on Ms. Aniel's motion to dismiss the First Case, which was held on June 10, 2010, AA 732. Therefore, HSBC can enforce the promissory note because it has possession of it.
Contrary to Ms. Aniel's assertions, the 2011 Assignment did not divest HSBC of standing to enforce the promissory note because HSBC only transferred its interest in the promissory note and deed of trust to GMAC as the servicing agent for HSBC, subject to the principal-agent relationship that existed between GMAC and HSBC in 2011. See Docket No. 18 ("HSBC Supp. Br.") at 2. In other words, HSBC kept possession of the promissory note, even though the 2011 assignment stated that it granted "all beneficial interest under" the promissory note to GMAC, because it still owned the loan, and was only assigning the note and deed of trust to GMAC to facilitate GMAC's ability to foreclose the deed of trust on HSBC's behalf. As the Permanent Editorial Board of the Uniform Commercial Code explained, the 2011 Assignment did not change HSBC's status as the party entitled to enforce Ms. Aniel's note:
The rules that determine whether a person is a person entitled to enforce a note do not require that person to be the owner of the note, and a change in ownership of a note does not necessarily bring about a concomitant change in the identity of the person entitled to enforce the note. This is because the rules that determine who is entitled to enforce a note and the rules that determine whether the note, or an interest in it, have been effectively transferred serve different functions:
• The rules that determine who is entitled to enforce a note are concerned primarily with the maker of the note, providing the maker with a relatively simple way of determining to whom his or her obligation is owed and, thus, whom to pay in order to be discharged.
• The rules concerning transfer of ownership and other interests in a note, on the other hand, primarily relate to who, among competing claimants, is entitled to the economic value of the note.
See Application of the Uniform Commercial Code to Selected Issues Relating to Mortgage Notes, Editorial Board for the Uniform Commercial Code (Nov. 14, 2011), https://www.Uniformlaws.org/HigherLogic/System/DownloadDocumentFile.ashx?DocumentFileKey=72df472f-1fe5-e476-7888-677ffad37eb6&forceDialog=0 ("PEB Report"), at 8. The 2011 Assignment transferred ownership of Ms. Aniel's note to GMAC, as it was an authenticated security agreement identifying that note. See Cal. Com. Code, §§ 1201(b)(35), 9102(a)(74), 9203(b)(3)(A). However, as the PEB Report explains, a transfer of ownership of the note by this means does not change "the party entitled to enforce the note" if the assignor—in this case, HSBC—retains possession of the note. "[I]n this situation, in which the seller of a note may retain possession of it, the owner of a note may be a different person than the person entitled to enforce the note." PEB Report at 10. In other words, it is "the party entitled to enforce the note" that has standing to file a proof of claim. Veal , 450 B.R. at 920. Since it retained possession of Ms. Aniel's note, HSBC remained the party entitled to enforce her note, and thus had standing.
2. Collateral Estoppel Does Not Preclude HSBC From Filing the POC
Even if the 2011 Assignment was outcome-determinative, it is unclear whether this Court can rely on the SDNY's bankruptcy court's conclusion that the 2011 Assignment is valid to conclude that HSBC has no right to enforce the promissory note here.
"Collateral estoppel, or issue preclusion, bars relitigation of an issue previously decided in a prior judicial proceeding if the party against whom the prior decision is asserted had a ‘full and fair opportunity’ to litigate that issue in the earlier case." In re Moore , 186 B.R. 962, 968. (Bankr. N.D. Cal. 1995) (citing Allen v. McCurry , 449 U.S. 90, 95, 101 S.Ct. 411, 66 L.Ed.2d 308 (1980) ). The party asserting collateral estoppel must establish:
(1) there was a full and fair opportunity to litigate the issue in the previous action; (2) the issue was actually litigated in that action; (3) the issue was lost as a result of a final judgment in that action; and (4) the person against whom collateral estoppel is asserted in the present action was a party or in privity with a party in the previous action.
IRS v. Palmer (In re Palmer) , 207 F.3d 566, 568 (9th Cir. 2000).
Although HSBC was not a party to the SDNY Case, it assigned GMAC all of its interest in the deed of trust. See Taylor v. Sturgell , 553 U.S. 880, 893, 128 S.Ct. 2161, 171 L.Ed.2d 155 (2008). Therefore, Collateral estoppel may apply to HSBC because there is a "substantial legal relationship between [HSBC] and [GMAC]." Id. at 894, 128 S.Ct. 2161 ; see also Barnes v. Homeward Residential, Inc. , No. 13-3227 SC, 2013 WL 5217393, at *3–4 (N.D. Cal. Sept. 17, 2013), vacated and remanded , 635 F. App'x 373 (9th Cir. 2016) (court found commonality of interests between servicer of the mortgage on the property, and "former and current holders" of the beneficial interest of the deed of trust); Sepehry-Fard v. Nationstar Mortg. LLC , No. 14-CV-03218-LHK, 2015 WL 332202, at *13 (N.D. Cal. Jan. 26, 2015) ("Successor trustee and servicers of mortgage loan [are] in privity with original lender, nominee, and trustee sued in prior lawsuit.") (citing Lee v. Thornburg Mortg. Home Loans Inc. , No. 14-CV-00602 NC, 2014 WL 4953966, at *6 (N.D. Cal. Sept. 29, 2014) ). In other words, that assignees are in privity with assignors of loans such that a judgment against the assignor can have collateral estoppel against the assignee.
Even if collateral estoppel could apply to HSBC, however, the second prong of collateral estoppel is not satisfied because the issues decided in the SDNY Case are not the same as the issue here. Appellee's Br. at 8:8–17. The SDNY Case considered whether the 2011 Assignment from HSBC to GMAC was valid. Id. ; AA 820. Here, by contrast, the issue is whether HSBC now has authority to enforce the promissory note. As explained above, the 2011 Assignment did not divest HSBC of the right to enforce the promissory note. See supra Part IV.A.1.
Accordingly, HSBC has standing to file the 2019 POC because it is in possession of the promissory note, indorsed in blank, as well as the deed of trust.
B. There Are No Genuine Disputes of Material Fact
Ms. Aniel also argues that there are genuine factual disputes as to whether (1) the loan was paid in full; (2) the POC was properly filed; and (3) the authenticity of the promissory note and the deed of trust. See generally Appellant's Br. at 25–28.
Summary judgment is proper where "the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). Summary judgment will not be granted if there is a "genuine" dispute of "material fact." Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A material fact is one which might "affect the outcome of the suit" under governing substantive law. Id. If direct evidence "produced by the moving party conflicts with evidence produced by the nonmoving party, the Court must assume the truth of the evidence submitted by the nonmoving party." Leslie v. Grupo ICA , 198 F.3d 1152, 1158 (9th Cir. 1999) (quoting T.W. Elec. Serv., Inc. v. Pac. Elec. Contractors Ass'n , 809 F.2d 626, 630–31 (9th Cir. 1987) ). The Leslie court noted that a court could not "disregard direct evidence on the ground that no reasonable jury would believe it." Id.
1. The Loan Was Not Paid In Full
Ms. Aniel contends that the IRS Form 1098 she received from Ocwen suggests that the loan was paid in full in 2013. AA 147, 188–89. For context, a Form 1098 is used to notify a borrower that their mortgage loan has accrued $600 or more in interest during the past fiscal year. See About Form 1098, Mortgage Interest Statement, Internal Revenue Service (Sept. 22, 2020), https://www.irs.gov/forms-pubs/about-form-1098 (last visited Feb. 12, 2021). Neither party identified cases regarding the probative value of an IRS Form 1098 as to whether a debt was discharged. Some courts have held that an IRS Form 1099-C—which is used to notify a borrower that the lender cancelled $600 or more of a debt—can create a genuine issue of material fact as to whether a loan has been discharged. See About Form 1099-C, Cancellation of Debt, Internal Revenue Service (Sept. 23, 220), https://www.irs.gov/forms-pubs/about-form-1099-c (last visited Feb. 12, 2021). For example, the Appellate Court of Illinois held in In re Estate of Hofer , 397 Ill.Dec. 565, 42 N.E.3d 480, 484 (Ill. App. 2015), that an IRS Form 1099-C was "more significant than just presenting a rebuttable presumption of a creditors intent to discharge a loan" because the form was required to be filed "if and only if" an "identifiable event" has occurred, i.e. , a discharge of indebtedness. Id. , 397 Ill.Dec. 565, 42 N.E.3d at 486. Accordingly, the 1099-C Form, along with other evidence, created a genuine issue of material fact as to whether the debt had been discharged. Id. ; see also In re Reed , 492 B.R. 261, 273 (Bankr. E.D. Tenn. 2013) ("[T]he issuance of a Form 1099-C reflects that a financial institution has, in accordance with 26 U.S.C. § 6050P and 26 C.F.R. 1.6050P-1, discharged an indebtedness, which must then be reported by the debtor as taxable income."); Kunwar v. Capital One, N.A. , No. 17-CV-04849-LHK, 2017 WL 5991864, at *4 (N.D. Cal. Dec. 4, 2017) (court reflected on the positions of different courts but did not decide the issue).
By contrast, the Third Circuit held in Federal Deposit and Insurance Corporation v. Cashion , that "a jury could not have rendered a verdict in [the debtor's] favor" where the sole evidence of the cancelation of a note was a 1099-C form. 720 F.3d 169, 181 (4th Cir. 2013). The court explicitly stated that its holding was narrowly circumscribed to situations where the IRS form was the only evidence that the debt was discharged. Id. A situation where the form was considered with other competing evidence could turn out differently. See id.
In any case, all of these cases are inapposite because a Form 1099-C is significantly more probative that a loan has been discharged than a Form 1098. The former is issued to notify the borrower that a loan has been cancelled , whereas the latter is issued to notify the borrower that interest in the loan has accrued. Although the specific Form 1098 in this case does state that the "Principal Paid During 2013" was $2,056,816.02, the form also contains entries stating "LOAN TRANSFER" with a principal balance of $2,056,816.02. Appellee's Br. at 12:4–14; AA 188. Therefore, this form simply indicates that the loan was transferred in its entirety from GMAC to Ocwen in 2013, not that it was cancelled or discharged. At best it is ambiguous, so ambiguous as to not raise a genuine dispute of fact as to whether the loan was paid off, especially considering it is only a Form 1098, not a Form 1099-C.
Ms. Aniel also contends that business records provided by HBSC support her position. Id. at 15:9–18. HSBC provided business records which contain an entry stating: "Received mail from TY, Research dated Wed 12/26/2018 4:20 PM stating We have reported $2,056,816.02 as principal balance paid for the year 2013. This means, the entire UPB was paid in full when Ocwen acquired the [end of entry]." Id. at 15:9–18; AA 224. Again, this record is simply an indication that the entire unpaid balance on the loan was paid when Ocwen acquired the loan from GMAC in order to effectuate that transfer not that it was discharged. Ms. Aniel also argues her credit report, which shows no balance, indicates that the debt was paid. See AA 422. However, this credit report only reflects a blank entry under the balance, not a balance of zero dollars, which makes sense given that the account is also listed as part of Ms. Aniel's Chapter 7 bankruptcy filing in the First Case. Id.
Accordingly, the bankruptcy court correctly granted summary judgment to HSBC because the Form 1098, HSBC's records, and Ms. Aniel's credit report are insufficient for a reasonable jury to find that the loan was paid in full or discharged. See Summers v. Teichert & Son, Inc. , 127 F.3d 1150 (9th Cir. 1997) ("[T]here must be evidence such that a reasonable jury could reach a verdict in favor of the nonmoving party ... Therefore, a mere ‘scintilla’ of evidence will not be sufficient to defeat a properly supported motion for summary judgment." (citing Liberty Lobby, Inc. , 477 U.S. at 248, 252, 106 S.Ct. 2505 )). Moreover, there is conclusive evidence that Ms. Aniel has been in default on the promissory note since 2008, including the declaration of Ocwen's Senior Loan Analyst based on PHH's and Ocwen's business records, AA 329 ¶ 14, and the fact that at the May 1, 2020 hearing before the bankruptcy court Ms. Aniel refused to state on the record that she or anyone acting on her or her co-borrower's behalf has made a single payment on the note since August 2008, AA 736.
2. There Are No Procedural Issues With the 2019 POC
Ms. Aniel argues on appeal that HSBC's 2019 POC (1) is barred by the statute of limitations and (2) that its form and timing are improper. This Court has the discretion to consider on appeal arguments not brought before the bankruptcy court. Haaland v. Corp. Mgmt., Inc. , 172 B.R. 74, 77–78 (S.D. Cal. 1989) (citing Abex Corp. v. Ski's Enterprises, Inc. , 748 F.2d 513 (9th Cir. 1984) ). "The court may dispense with the waiver rule when ‘the question is purely legal one that is both central to the case and important to the public.’ " Id. at 78 (citing In re Sells , 719 F.2d 985, 990 (9th Cir. 1983) ). Accordingly, the Court should address—and reject—Ms. Aniel's procedural arguments.
a. The 2019 POC Is Not Barred By the Statute of Limitations
The California Civil Code provides that:
(a) Unless the lien of a mortgage, deed of trust, or other instrument that creates a security interest of record in real property to secure a debt or other obligation has earlier expired pursuant to Section 2911, the lien expires at, and is not enforceable by action for foreclosure commenced, power of sale exercised, or any other means asserted after, the later of the following times:
(1) If the final maturity date or the last date fixed for payment of the debt or performance of the obligation is ascertainable from the recorded evidence of indebtedness, 10 years after that date.
(2) If the final maturity date or the last date fixed for payment of the debt or performance of the obligation is not ascertainable from the recorded evidence of indebtedness, or if there is no final maturity date or last date fixed for payment of the debt or performance of the obligation, 60 years after the date the instrument that created the security interest was recorded.
Cal. Civ. Code § 882.020(a)(1)–(2). HSBC's POC is timely under either subsection of section 882.020(a). On the one hand, the deed of trust states that the borrower "owes Lender $2,000,000.00 ... [and] has promised to pay this debt ... in full not later than July 1, 2037," which means that under subsection 882.020(a)(1), the statute of limitations expires on July 1, 2047. AA 265: ¶ (F). On the other hand, if July 1, 2037 is not the "final maturity date or the last date fixed for payment of the debt," then under subsection 882.020(a)(2), the statute of limitations expires on June 4, 2067 (sixty years after the promissory note and deed of trust were recorded). Appellee's Br. at 13:23–26. Either way, HSBC's POC is not barred by the statute of limitations.
b. The POC Is Timely and In Proper Form
Local Bankruptcy Rule 3003-1 requires parties to file proofs of claim "within 90 days after the first date set for the meeting of creditors called pursuant to 11 § 341(a)." B.L.R 3003-1. The first meeting of creditors in this case was scheduled for, and held, on May 14, 2019. ASA 396. HSBC's 2019 POC is thus timely because it was filed on August 7, 2019, within the 90 days required by the local rules. AA 2.
The Federal Rules of Bankruptcy Procedure also require a proof of claim to "conform substantially to the appropriate Official Form." Fed. R. Bankr. P. 3001. As HSBC points out, its claim does not appear to differ "substantially" from that required by the rules. It is made on a Form 410, which is the form for proof of claims provided the United States Courts. See United States Courts, Forms, Proof of Claim, https://www.uscourts.gov/forms/bankruptcy-forms/proof-claim-0 (last visited Dec. 20, 2020). The forms appear substantially the same. Compare id., with AA 2–4.
3. The Loan Documents Were Authentic
Ms. Aniel argues that there is a genuine issue of material fact as to the authenticity of the promissory note presented to the court by HSBC's counsel. Appellant's Br. at 14:25–15:8. A comparison of the various copies of Ms. Aniel's signature on the promissory note can be seen in pages 46, 290, 793, and 841 of the Appellant's Appendix. Other than degradation of quality through repeated copying and/or faxing, there does not appear to be any discernable difference in the copies of the Note. Ms. Aniel does not describe how the signatures are different. Appellant's Br. at 28:11–13. She complaints that the copy filed on September 14, 2009, had a two-hole punch and was stamped "Certified to be a True & Correct Copy of the Original," whereas the copy filed March 25, 2010, did not contain the certification stamp, but contained an "endorsement" from MortgageIT. Compare AA 209–214, with AA 203–208. But HSBC explains these differences: the punch holes are from file copies, not the original, and the certification stamp was only placed on one copy, not the original or other copies. Appellee's Br. at 15:19–21. In other words, these differences are entirely understandable and therefore have no legal significance.
More importantly, the bankruptcy court reviewed the original promissory note and deed of trust documents in the First Case on June 10, 2010, and found that they were the originals and enforceable based on Ms. Aniel's "evasive answer and her unwillingness to admit that it's her signature, but her unwillingness to deny it is." AA 9:13–28. In the Second Case, the bankruptcy court again reviewed the original promissory note and deed of trust and concluded that no new legal or factual issues had changed to warrant departing from the conclusion that the documents were authentic, valid, and enforceable. AA 735:20–736:3.
In sum, this Court should conclude that no genuine issue of material fact regarding the authenticity of the promissory note or deed of trust exists because the bankruptcy did not err in so finding. See In re Kim , 130 F.3d at 865.
C. The Bankruptcy Court Was Not Prejudiced or Biased
The Federal Rules of Bankruptcy Procedure stipulate that the disqualification of a bankruptcy judge, like that of any other federal judge, is governed by 28 U.S.C. § 455. See Fed. R. Bankr. P. 5004(a). Section 455 requires judges to disqualify themselves "where [they] ha[ve] a personal bias or prejudice concerning a party." 28 U.S.C. § 455(b)(1). "Bias or prejudice are generally defined as a judicial predisposition that is wrongful or inappropriate and that goes beyond what is normal and acceptable." In re Samuel , No. 16-21585-A-11, 2018 WL 3768422, at *2 (Bankr. E.D. Cal. Aug. 7, 2018) (citing Liteky v. United States , 510 U.S. 540, 552, 114 S.Ct. 1147, 127 L.Ed.2d 474 (1994) ). Bias and prejudice are to be considered on an objective basis, requiring recusal when "impartiality might reasonably be questioned." Liteky , 510 U.S. at 548, 114 S.Ct. 1147. Bias or prejudice need not flow from an "extrajudicial source;" they may come from "facts adduced or the events occurring at trial" that would cause the judge to be unfair. Id. at 551, 114 S.Ct. 1147.
"Judicial remarks during the course of a trial that are critical or disapproving of, or even hostile to, counsel, the parties, or their cases, ordinarily do not support a bias or partiality challenge." Id. at 555, 114 S.Ct. 1147 (emphasis added). Therefore, if a movant relies on allegations of in-court remarks, it must also point to an "extrajudicial source" that reveals a degree of antagonism that would "make fair judgment impossible." Id. For example, in Berger v. United States , 255 U.S. 22, 28, 41 S.Ct. 230, 65 L.Ed. 481 (1921), the Supreme Court found that bias or prejudice was evidenced by the district judge's remarks at trial that German-American defendants' hearts were "reeking with disloyalty." Id. at 555, 114 S.Ct. 1147. In that case, antagonism towards German-Americans was the "extrajudicial source" of prejudice and bias that rendered the district judge's statements at trial disqualifying. Conversely, mere "expressions of impatience, dissatisfaction, annoyance and even anger," do not establish bias. Id. at 555–56, 114 S.Ct. 1147.
Ms. Aniel argues that she "became the victim of the idiosyncrasies, whims, and caprices of Judge Dennis Montali for whatever reasons he may have against her." Appellant's Br. at 28: 24–25. The only specific example of such allegations included in her brief, however, is that Judge Montali told her "if she would not hire an attorney she will lose the case." Appellant's Br. at 29:1–2. HSBC and Ms. Aniel agree that this remark is not in the record. See id. ; Appellee's Br. at 17:1–6. Assuming, arguendo , that Judge Montali made such a statement, it was clearly meant to advice Ms. Aniel—if unartfully—of the benefit of hiring an attorney. It was not a threat or an indication of bias. Appellee's Br. at 17:1–4.
Though the record reflects some frustrations between Judge Montali and Ms. Aniel, it also reflects his willingness to allow her to be heard. For example, at the status conference on February 28, 2020, Judge Montali stated: "[I]f the summary judgment is successful, I think that will be the end of it, maybe not, but I think so. And if the summary judgment is unsuccessful, then I will then set a trial date." AA 253. Likewise, in the status conference on May 1, 2020, the bankruptcy court framed the issue for HSBC's counsel as an "unusual case" where the creditor makes a demand and the debtor claims it is paid, indicating the court's willingness to at least examine the issue as Ms. Aniel framed it. AA 703:13–21. Review of the transcripts from the hearings on February 28, 2020, March 19, 2020, and May 1, 2020, related to the appealed order indicate no personal animosity or prejudice that would warrant disqualifying Judge Montali. See AA 228–263, 291–306, 697–728.
Accordingly, the Court should AFFIRM the district court's order granting summary judgment to HSBC on Ms. Aniel's objections to its 2019 POC.
V. ORDER GRANTING HSBC'S MOTION FOR RELIEF FROM THE AUTOMATIC STAY (C-20-7377)
The bankruptcy court found that HSBC was entitled to relief from the automatic stay because Ms. Aniel had "no reasonable prospect of reorganization." Docket No. 9-3 (20-7377) ("Stay Hearing Tr.") at 12:17–20. Nor has Ms. Aniel indicated that she plans to repay what has become a $3.8 million debt. Id. at 11:12–15. Instead, the court noted that Ms. Aniel had her house listed for sale "about a year and a half ago, before there was COVID," and that she was "very, very optimistic about [her] ability to sell the property." Id. at 14:14–15:2. As a result, the court stated Ms. Aniel could not "use Chapter 11 as an offensive weapon to camp out in [her] multimillion dollar house that [she hasn't] paid for 12 years," when she has "no prospects or intention of filing a reorganization plan." Id. at 15:14–19.
Ms. Aniel's moving papers in this Court focus primarily on her request for a stay from this Court of the bankruptcy court's summary judgment order. See generally , Docket No. 10 (20-7377) ("Mot."); Docket No. 13 ("Appellant's Reply"). However, it appears she may also be attempting to appeal the bankruptcy court's order granting HSBC relief from the automatic stay. Id. She states that "[b]oth appeals are related. Appellant request [sic] that the court rule on grant [sic] the motion for stay and rule on the both [sic] appeals." Mot. at 4:16–29. As a result, this memorandum will address, in turn, Ms. Aniel's (1) appeal of the bankruptcy's order granting HSBC relief from the automatic stay; and (2) her request for a stay from this Court of the bankruptcy court's summary judgment order.
A. Order Granting HSBC Relief From the Automatic Stay
Section 362 of the Bankruptcy Code provides for an automatic stay from various actions against a debtor. 11 U.S.C. § 362(a)(1)–(8). Section 362(d) provides the that the court "shall grant relief from the stay provided under subsection (a) of this section ... for cause , including the lack of adequate protection of an interest in party of such a party in interest." Id. § 362(d)(1) (emphasis added). "What constitutes ‘cause’ for granting relief from the automatic stay is decided on a case-by-case basis." In re Kronemyer , 405 B.R. 915, 921 (B.A.P. 9th Cir. 2009). The bankruptcy court has discretion to lift the automatic stay under § 362. In re Den Beste , No. BR 10-13558, 2013 WL 1703391, at *6 (N.D. Cal. Apr. 19, 2013) (citing In re Kissinger , 72 F.3d 107, 108 (9th Cir. 1995) ).
"The debtor's lack of good faith in filing a bankruptcy petition provides cause for lifting the automatic stay under 11 U.S.C. § 362(d)(1)." In re Arnold , 806 F.2d 937, 939 (9th Cir. 1986). Courts have found that the existence of good faith
depends upon the facts and circumstances presented. No one evidentiary fact can be given paramount weight in deciding the question. If it is obvious that a debtor is attempting unreasonably to deter and harass creditors in their bona fide efforts to realize upon their
securities, good faith does not exist. But if it is apparent that the purpose is not to delay or defeat creditors but rather to put an end to long delays, administration expenses ... to mortgage foreclosures, and to invoke the operation of the bankruptcy law in the spirit indicated by Congress in the legislation, namely, to attempt to effect a speedy efficient reorganization, upon a feasible basis ... good faith cannot be denied.
In re Thirtieth Place, Inc. , 30 B.R. 503 (B.A.P. 9th Cir. 1983) ; See In re Arnold 806 F.2d 937, 939 (9th Cir. 1986). "The decision of a bankruptcy court to grant relief from the automatic stay under § 362(d) is reviewed for abuse of discretion." In re Kronemyer , 405 B.R. 915, 919 (B.A.P. 9th Cir. 2009) (citing In re Kissinger , 72 F.3d at 108 ).
Here, the bankruptcy court relied on sufficient facts to conclude that Ms. Aniel acted in bad faith, including her anemic and incomplete attempt to sell her home "a year and a half ago"; lack of a "reasonable prospect of reorganization"; and intent to file a lawsuit against HSBC, rather than provide a plan to pay the loan. Stay Hearing Tr. 14:14–15:2; 11:12–15. When asked about her reorganization plan, Ms. Aniel made no indication that she intended to sell her home or repay her debts in any way. See id. at 10–15. Instead, she stated her intent to "classify unsecured loans" from other creditors and file a lawsuit. Id. at 11:1–10. The court also considered the fact that Ms. Aniel has not made a single payment on the loan for the last 12 years. Id. at 15:14–16. In other words, the bankruptcy court did not abuse its discretion in granting HSBC's motion for relief from the automatic stay. See In re Kronemyer , 405 B.R. at 919.
Accordingly, the court should AFFIRM the bankruptcy court's order granting HSBC relief from the automatic stay because Ms. Aniel acted in bad faith.
B. Request For a Stay of The Bankruptcy Court's Summary Judgment Order
1. Ms. Aniel's Request Is Procedurally Barred
"Ordinarily, a party must move first in the bankruptcy court for ... a stay of a judgment order, or decree of the bankruptcy court pending appeal." Fed. R. Bankr. P. 8007(a)(1)(A). To request relief in the district court, the "motion specified in subdivision (a)(1) [of section 8007] ... may be made in the court where the appeal is pending." Fed. R. Bankr. P. 8007(b)(1). The motion must show that "moving in the bankruptcy court would be impracticable." Fed. R. Bankr. P. (b)(2)(A). The motion must include "(A) the reasons for granting the relief requested and the facts relied upon; (B) affidavits or other sworn statements supporting facts subject to dispute; and (C) relevant parts of the record." Fed. R. Bankr. P. 8007(3)(A)–(C).
"Motions for stay pending appeal or for other relief pending appeal must ordinarily be presented to the bankruptcy court in the first instance, before the movant may seek relief from the ... district court." DBD Credit Funding LLC v. Silicon Labs., Inc. , No. 16-CV-05111-LHK, 2016 WL 6893882, at *5 (N.D. Cal. Nov. 23, 2016) (quoting In re Ho , 265 B.R. 603, 604 (B.A.P. 9th Cir. 2001) ). This is because the decision should be made with the benefit of the learning in the bankruptcy court, which is more familiar with the circumstances underlying the request for the stay. Paxton v. Quinlan , No. 20-CV-01655-PJH, 2020 WL 3414694, at *3 (N.D. Cal. June 22, 2020).
Ms. Aniel did not seek a stay of the bankruptcy court's summary judgment order from the bankruptcy court prior asking this Court to stay the order. See Mot. at 1:18–27. Ms. Aniel speculates that asking the bankruptcy court for a stay would have been "impossible" due to the "bias and prejudice of the bankruptcy judge." Id. at 1:12–14. But the bankruptcy court invited Ms. Aniel to ask for a stay within the "14 days the rulemakers [sic] gave her." Stay Hearing Tr. at 17:2–6. Therefore, although Ms. Aniel contends she did not seek a stay because the bankruptcy court remarked that it would be impossible to stay its summary judgment order, she does not cite to a single statement by the bankruptcy court to support this contention. See generally Appellant's Mot; Appellant's Reply. To the contrary, it appears that Judge Montali was amenable to consider granting a stay. For example, after multiple admonishments to stop interrupting, Judge Montali told Ms. Aniel: "if you want me to consider denying [HSBCs motion for relief from the automatic stay] you're going to have to stop arguing and start answering my questions." Id. at 9:5–8. Additionally, there is nothing in Ms. Aniel's moving papers that indicates a stay from the summary judgment order requires immediacy. See generally Appellant's Mot.; Appellant's Resp. Indeed, HSBC points out that Ms. Aniel has not presented any evidence that HSBC has commenced foreclosure proceedings. Appellee's Opp'n at 6:16–21.
Given that there is no apparent emergency or unavailability of the bankruptcy court, Ms. Aniel presents no reason for deviating from the general rule that the stay of the summary judgment order should have been requested initially from the bankruptcy court pursuant to Section 8007(a). Accordingly, this Court DENIES Ms. Aniel's request for a stay.
2. Alternatively, Ms. Aniel Does Not Satisfy The Requirements For a Stay
Should the Court decide that Ms. Aniel's request is not procedurally barred, it should nonetheless deny the request on the merits. To determine if a stay of a bankruptcy court's summary judgment order is warranted, the Court must weigh (1) Ms. Aniel's likelihood of success on the merits; (2) significant and/or irreparable harm that will come to Ms. Aniel absent a stay; (3) harm to HSBC if a stay is granted; and (4) where the public interest lies. In re N. Plaza, LLC , 395 B.R. 113, 119–20 (S.D. Cal. 2008) (citing Hilton v. Braunskill , 1481 U.S. 770, 776, 107 S.Ct. 2113, 95 L.Ed.2d 724 (1987) ). The first two factors are the most important, but failing "any one factor requires the court to deny the application for a stay." Paxton , 2020 WL 3414694, at *2 (quoting DBD Credit Funding LLC , 2016 WL 6893882, at *6 ).
a. Ms. Aniel Is Not Likely To Succeed On The Merits
There are many "interchangeable" formulations for a party to show its likelihood of success on the merits. See Lair v. Bullock 697 F.3d 1200, 1204 (9th Cir. 2012). " ‘[A]t a minimum,’ a petitioner must show there is a ‘substantial case for relief on the merits’ " Id. It "does not require [the movant] to show that it is more likely than not that they will win on the merits." Id. (citing Leiva-Perez v. Holder , 640 F.3d 962, 966 (9th Cir. 2011) ).
Ms. Aniel argues there are "serious legal questions" presented by her appeal in Case No. 20-5390. Appellant's Mot at 6–7. She reiterates her argument that HSBC interest was "properly granted, transferred and assigned to GMAC Mortgage, LLC ... through an execution on February 1, 2011." Id. at 7:13–15. However, as noted above, HSBC has physical possession of the original promissory note, indorsed in blank. Moreover, it was assigned MEP's interest in the deed of trust. HSBC thus has the authority to enforce the promissory note even if it assigned its interest in the loan to GMAC in the 2011 Assignment. See Veal , 450 B.R. at 910–12. Ms. Aniel's other arguments would require the Court to conclude that the bankruptcy court clearly erred in its factual findings regarding the legitimacy of the documents, or abused its discretion in admitting clearly relevant evidence. See In re Kim , 130 F.3d at 865. It does not so conclude.
Accordingly, the Court should conclude that Ms. Aniel is not likely to succeed on the merits.
b. Irreparable Harm
A movant must show there is "more than some possibility that [she] will suffer irreparable injury" if the order is not stayed. See Lair , 697 F.3d at 1214. Ms. Aniel argues she will be irreparably harmed because (1) her "interest and those of ten other creditors who have interest in the outcome of both appeals" would be affected by the lift of the automatic stay; (2) she will be unable to "shape the district court record which will impact [her] ability to prevail on its substances [sic] defenses;" and (3) she will forfeit the Property. Mot. at 9:11–20. But Ms. Aniel presents no evidence that any of these harms will occur before this Court decides her appeal. See generally Mot. In fact, HSBC has not begun foreclosure proceedings by serving and recording a notice of default, much less progressed to the second step of the foreclosure process, serving and recording a notice of trustee's sale. See Docket No. 10 (20-07377) ("Opp'n to Stay Mot.") at 6. Moreover, California law requires a 90-day wait between recording those two notices, and a further 20-day delay between notice of trustee's sale and the sale itself. See Cal. Civ. Code, § 2924(a)(2), (3), 2924f(b)(2). Ms. Aniel has presented no evidence that the sale of her property is so imminent that a stay is needed to prevent a sale before this Court decides her appeals.
Accordingly, the Court should conclude that Ms. Aniel will not suffer irreparable harm absent a stay of the bankruptcy court's summary judgment order.
c. Harm to Adverse Party
Ms. Aniel argues there is no substantial injury to HSBC if the Order is stayed. Mot. at 9:16. HSBC counters that it will be harmed because it will cause further delay in obtaining relief from a loan that has not been paid in twelve years. Appellee's Opp'n at 7:6–11. But HSBC has not explained how it would be harmed by a stay, other than the delay would "[increase] the likelihood that HSBC will suffer a substantial loss when finally allowed to proceed [with foreclosure]" Appellee's Opp'n at 7:9–11. Because this is speculation, this factor weighs in favor of Ms. Aniel. See City of Oakland v. Holder , 961 F. Supp. 2d 1005, 1014 (N.D. Cal 2013) (holding that no harm would come to the Government because there was no risk the "property would be lost or damaged or that evidence relevant to the forfeiture proceeding [would] become stale")
d. Public Policy
Ms. Aniel proffers that the COVID-19 pandemic raises cause for concern over the foreclosure of her "principal residence." However, she does not indicate that she has nowhere else to safely live if a foreclosure were to commence on the Hillsborough residence. See generally , Mot.; Appellant's Reply. Additionally, the bankruptcy court's summary judgment order does not provide HSBC carte blanche to immediately kick Ms. Aniel out of the Property. Rather, it provides that "[HSBC] shall have immediate relief from the Automatic Stay to take any actions to exercise its remedies to foreclose upon and obtain possession of the Real Property in accordance with applicable non-bankruptcy law. " Order at 2:7–10. (emphasis added). In other words, Ms. Aniel would still be afforded any protections granted by California law which govern the administration of home foreclosures during the pandemic.
VI. CONCLUSION
For the aforementioned reasons, the Court should AFFIRM the bankruptcy court's orders (1) overruling Ms. Aniel's claim and granting HSBC summary judgment and (2) granting HSBC relief from the automatic bankruptcy stay. The Court should also DENY Ms. Aniel's request for a stay of the bankruptcy court's order granting HSBC relief from the automatic stay.
IT IS SO ORDERED .