Miller et al v. Carrington Mortgage Services et al

Filing 195

ORDER TO SHOW CAUSE. Plaintiff's response is due by 8/27/2013. Defendants shall file reply by 9/3/2013. Signed by Judge Edward M. Chen on 8/13/2013. (emclc1, COURT STAFF) (Filed on 8/13/2013)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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RONALD BROOKS MILLER, et al.,

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For the Northern District of California

United States District Court

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No. C-12-2282 EMC

Plaintiffs,
v.

ORDER TO SHOW CAUSE

CARRINGTON MORTGAGE SERVICES,
et al.,

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Defendants.
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___________________________________/
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Previously, this Court issued an order in which it granted summary adjudication to Plaintiff

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Ronald Brooks Miller on his claim for wrongful foreclosure. More specifically, the Court held that

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there was “no genuine dispute that the loan at issue was transferred by Fremont while it was in [a

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Chapter 11] bankruptcy (as Mr. Miller contends) and not before (as Defendants contend).” Docket

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No. 172 (Order at 6). Subsequently, this Court asked the parties to consider whether, e.g.,

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bankruptcy proceedings might need to be reopened if the loan had been transferred during the

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bankruptcy without the bankruptcy court’s approval.

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In examining this issue independently, the Court has learned that, under the bankruptcy law,

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a debtor under Chapter 11 cannot, as a general matter, be a bank. See 11 U.S.C. § 109(d) (providing

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that only, e.g., “a person that may be a debtor under chapter 7 of this title . . . may be a debtor under

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chapter 11 of this title”); id. § 109(b)(2) (providing that “[a] person may be a debtor under chapter 7

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of this title only if such person is not . . . [a] bank”); see also Unisys Fin. Corp. v. Resolution Trust

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Corp., 979 F.2d 609, 611 (7th Cir. 1992) (noting that “[f]ederally insured banks, savings and loan

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associations, credit unions, and similar financial institutions are not subject to bankruptcy law”;

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adding that there are “receivership provisions of federal banking law [that] create a parallel regime

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for those institutions”). Thus, to the extent Mr. Miller has asserted that Fremont was in Chapter 11

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bankruptcy, he is not correct. Indeed, the only evidence that Mr. Miller has submitted indicates that

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the Chapter 11 debtor was not Fremont (i.e., “Fremont Investment & Loan,” the named lender on the

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deed of trust) but rather Fremont General Corporation (“FGC”), which appears to be a holding

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company. See Docket No. 62-1 (bankruptcy court order). If Fremont itself was not the debtor, and

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only FGC was, then it is not clear why Fremont would need to obtain permission of the bankruptcy

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court to do anything.
Moreover, even if Fremont was somehow subject to the authority of the bankruptcy court

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For the Northern District of California

United States District Court

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(e.g., because it was a wholly owned subsidiary of a wholly owned subsidiary of FGC), see Docket

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No. 62-1 (Bankruptcy Court Order at 1) (stating that FGC’s “wholly owned subsidiary Fremont

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General Credit Corporation (‘FGCC’) was merged into the Reorganized Debtor, and then FGCC’s

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wholly owned subsidiary Fremont Reorganizing Corporation, f/k/a Fremont Investment & Loan

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(‘FRC’) was merged into the Reorganized Debtor”), bankruptcy law provides that, as a general

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matter (1) “a debtor in possession shall have all the rights, . . . and powers, and shall perform all the

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functions and duties . . . of a trustee serving in a case under chapter 11,” 11 U.S.C. § 1203; (2) a

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“trustee may operate the debtor’s business,” id. § 1108; and (3) “the trustee may enter into

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transactions, including the sale or lease of property of the estate, in the ordinary course of business,

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without notice or a hearing.” Id. § 363(c)(1) (emphasis added).

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Given the above law, Mr. Miller’s theory that Defendants do not have an ownership interest

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in the loan because it was transferred during bankruptcy proceedings now seems to be of

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questionable merit. In other words, even if Fremont assigned the deed of trust to Wells Fargo (as

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reflected in the assignment document) while FGC was in bankruptcy, (1) Fremont would not appear

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to have been barred from doing so because it was not the Chapter 11 debtor and (2) even if Fremont

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was subject to the authority of the bankruptcy court (based on its relationship with FGC), a debtor

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may still sell property in the ordinary course of business without a court hearing. Accordingly, the

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Court hereby orders Mr. Miller (1) to show cause as to why his claims based on the above

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bankruptcy theory, or derivative of that theory, should not be dismissed with prejudice.

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The Court further orders Mr. Miller (2) to clarify what is the factual basis for his claims for

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wrongful foreclosure and/or quiet title other than the bankruptcy theory above and (3) to show cause

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as to why those claims should not also be dismissed with prejudice.

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Mr. Miller’s response to this order to show cause shall be filed within two weeks from the
date of this order.

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Defendants shall file a reply to Mr. Miller’s response within one week thereafter.

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Pending the resolution of this order to show cause, the Court otherwise stays all proceedings

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For the Northern District of California

United States District Court

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in this case, including but not limited to briefing on motions already filed by Mr. Miller.
IT IS SO ORDERED.

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Dated: August 13, 2013

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_________________________
EDWARD M. CHEN
United States District Judge

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