In re No. 98-71369 TG

Chapter 13

JULIA ANN ROGERS,



Debtor.

___________________________/



JULIA ANN ROGERS, A.P. No. 99-4104 AT



Plaintiff,

vs.

CALIFORNIA FEDERAL BANK,

INC., et al.,



Defendant.

___________________________/

Defendants in the above-captioned adversary proceeding move to dismiss the above-captioned adversary proceeding pursuant to rule 12(b)(6) of the Federal Rules of Civil Procedure. For the reasons stated below, the motion is granted. Plaintiff is given 20 days to file an amended complaint to state a claim not based on the defendants’ violation of the automatic stay and/or to state a claim under 11 U.S.C. § 362(h) for damages for violation of the stay.

Plaintiff Julia Ann Rogers (“Rogers”) filed a petition seeking relief under chapter 13 of the Bankruptcy Code on November 20, 1998. In her asset schedules, Rogers listed an apartment building in Oakland, California (the “Property”) with the notation that her interest in the Property was as heir to her mother’s estate. In her schedule of secured liabilities, she listed an obligation in the amount of $319,257 secured by the Property in favor of defendant Verdugo Trustee Service Corp. (“Verdugo”). The secured creditor in question is actually defendant California Federal Bank (“CalFed”); Verdugo is simply its servicing agent.

When Rogers filed for bankruptcy, the CalFed loan was in default, no payments having been received by CalFed since February 1998. CalFed had scheduled a foreclosure sale for December 23, 1998. At some date prior to December 23, 1999, Rogers informed Verdugo that she had filed bankruptcy and that she contended that the Property was property of the bankruptcy estate protected by the automatic stay. In response, CalFed filed a motion for relief from the automatic stay, noticing the motion for hearing on January 8, 1999. After filing the motion,however, and before the hearing, CalFed checked record title to the Property and discovered that Rogers was not on title to the Property. As a result, CalFed went forward with the foreclosure sale on December 23, 1998.

At the hearing on January 8, 1999, counsel for CalFed informed the Court that Rogers and CalFed had agreed to continue the hearing to January 22, 1999 based on Rogers’ representation that she had a voluntary sale pending that would close within that period. Rogers agreed to fax a copy of the sale agreement to CalFed’s attorney during the two week interim.

On January 22, 1999, the parties appeared before the Court at the continued hearing. The purported sale had not closed. CalFed’s attorney informed the Court that CalFed was seeking relief on a nunc pro tunc basis because it believed the sale was not viable. First, the seller indicated on the sale agreement was not Rogers. Second, the sale agreement required CalFed to permit the buyer to assume its loan with certain charges being allowed only in a fixed amount. CalFed’s attorney stated that these conditions rendered the sale agreement nonviable. Rogers informed the Court that this condition had been waived by the proposed buyer. However, she presented no evidence to the Court of the purported waiver.

Rogers informed the Court that the sale had been obstructed by CalFed by their failure to provide within the required time a beneficiary’s statement of the amount due. Moreover, she informed the Court that she believed certain of CalFed’s charges were excessive, e.g., insurance and foreclosure charges. Based on the foregoing, the Court stated its ruling orally at the January 22, 1999 hearing.

The Court granted CalFed relief from stay on a nunc pro tunc basis. However, the Court stayed the effectiveness of the order for 30 days for two purposes. First, the Court stayed the nunc pro tunc aspect of the order for 30 days to give Rogers an opportunity to file a lawsuit in state court raising her state law claims. (The form of order that CalFed’s attorney submitted and which the Court signed inaccurately stated the Court’s ruling as also permitting claims based on violation of the automatic stay to be asserted in the state law action. That was not the Court’s ruling.) Second, the Court stayed the entire granting of relief for 30 days to give Rogers additional time to attempt to close the voluntary sale.

The sale never closed. However, Rogers did file this action in state court. However, instead of stating any state law claims, the complaint contained various causes of action with state law titles but all of which were based on CalFed’s violation of the automatic stay. CalFed timely removed the lawsuit to this court and then filed a motion to dismiss for failure to state a claim.

The motion to dismiss was heard on May 20, 1999. Two days before the hearing, Rogers filed a request for remand. The Court took the motion to dismiss under submission and informed Rogers and CalFed that, if the Court did not dismiss the action, it would set a hearing on the request for remand and give CalFed an opportunity to respond to it. Prior to this hearing, Rogers dismissed her chapter 13 case.

Whether Rogers actually has a cognizable interest in the Property is still unclear. The Property is apparently titled in the name of CalFed’s borrower, Charles Gregory (“Gregory”), who is now deceased. The date of Gregory’s death has not been established. Gregory is Rogers’ brother. To further complicate the issue, Rogers claims her interest in the Property as her mother’s heir, not her brother’s heir. It has not been established whether her mother is still alive or is also deceased. If her mother is alive, Rogers has no cognizable interest in the Property, that would be protected by the automatic stay; she has nothing more than an expectancy that could be defeated in a variety of fashions. However, if the Property passed from Rogers’ brother to her mother and if her mother then died, leaving Rogers as her heir, Rogers may have an interest in the Property that was protected by the automatics stay when she filed her bankruptcy case.

The complaint states causes of action for conspiracy, intentional infliction of emotional distress, rescission of the foreclosure sale, conversion, abuse of process, and intentional interference with contract. However, all of these causes of action are based on the following alleged facts:

(1) The Property was property of Rogers’ chapter 13 bankruptcy estate.

(2) The defendants knew of Rogers’ bankruptcy case.

(3) The defendants knew that Rogers had a voluntary sale of the Property pending.

(4) Nevertheless, defendants defied and disregarded the automatic stay and interfered with the pending sale by proceeding with a foreclosure sale which they knew would be null and void.

(5) Defendants committed further violations of the automatic stay by issuing and processing a trustee’s deed, by collecting rents from Rogers’ tenants, and by attempting to change the locks on the apartments.

(6) Rogers suffered great mental anguish as a result of this conduct, including by experiencing shock and nausea.

(7) Rogers seeks money damages as a result of this conduct and rescission of the void sale.

The complaint contains no reference to any conduct that would violate state law in the absence of a bankruptcy case, for example, a failure to respond to a request for beneficiary’s statement nor does she seek declaratory relief with respect to the allegedly excessive insurance or foreclosure charges.

The Court will grant CalFed’s motion to dismiss all of the causes of action stated in the complaint to the extent they are premised on the state law causes of action by which they are denominated. The only claim that Rogers appears interest in stating is a claim for violation of the automatic stay under 11 U.S.C. § 362(h). The various state law causes of action by which Rogers denominates this claim are preempted by section 362(h). See Rogers v. Nationscredit Fin. Servs. Corp., No. C-98-2680SC, 1999 WL 177082, *9 (N.D. Cal.) (citing MSR Exploration, Ltd. v. Meridian Oil, Inc., 74 F.3d 910, 916 (9^th Cir. 1996)).

Normally, a claim for damages under section 362(h) is brought by motion during the pendency of the bankruptcy case. However, since the case has been dismissed and since this complaint has already been filed, the Court sees no reason why the complaint may not be amended to state this claim. The fact that the bankruptcy case has been dismissed should not deprive the debtor of the right to seek redress for damages suffered for violation of the automatic stay, particularly where the claim has been asserted before the case is dismissed. This claim would constitute a core proceeding over which this Court would have jurisdiction under 28 U.S.C. § 157(b) and § 1334(b).

If Rogers has any claims against the defendants truly based on state law, that is, claims that are not based on the defendants’ alleged violation of the automatic stay, she may also state those claims in the amended complaint. However, those claims should be stated separately from the claims for damages pursuant to section 362(h) in the amended complaint. If she does so, the Court will consider the severing and remanding those state law claims based on state law after CalFed has had a chance to respond to the remand request. A briefing schedule will be established, if necessary, at the continued status conference ordered below. The Court will deny Rogers’ remand request without further briefing if the only claim stated is for violation of the automatic stay.

If Rogers does choose to amend her claim to seek damages under 11 U.S.C. § 362(h), she should allege more clearly the basis for her claim that she has a cognizable interest in the Property and therefore that the Property was property of her bankruptcy estate at the time defendants’ conduct occurred. Rogers should allege the date when her brother died, who succeeded to his interest in the Property upon his death, and, if that person is someone other than Rogers, when and by what means Rogers claims an interest in the Property. If Rogers’ mother is still alive and currently owns the Property, as heir to Rogers’ brother, and Rogers’ claim of an interest in the Property is based on her belief that she will succeed to her mother’s interest in the Property when her mother dies, she should state this clearly in the amended complaint.

Based on the foregoing, it is hereby

ORDERED that:

1. Defendants’ motion to dismiss is granted with leave to amend in accordance with the Court’s directions as set forth above.

2. Within 20 days from the date of this order, plaintiff shall file and serve on counsel for the defendants an amended complaint. If she fails to file a timely amended complaint, the motion to dismiss will be deemed with prejudice.

3. If plaintiff files a timely amended complaint, the defendant shall have 20 days from the date of service to file a answer or responsive motion.

4. If an amended complaint is timely filed, the parties shall appear for a status conference on August 5, 1999 at 11:00 a.m.

Dated: May 27, 1999

_______________________________

United States Bankruptcy Judge

CANB DocumentsNorthern District of California