Sladky et al v. LPP Mortgage Ltd
Filing
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ORDER DENYING MOTION TO WITHDRAW REFERENCE AND VACATING HEARING by Judge William Alsup [denying 3 Motion to Withdraw Reference; denying 4 Motion to Withdraw Reference]. (whasec, COURT STAFF) (Filed on 4/24/2013)
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IN THE UNITED STATES DISTRICT COURT
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FOR THE NORTHERN DISTRICT OF CALIFORNIA
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For the Northern District of California
United States District Court
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GEORGE EDWARD SLADKY and ELVIRA
TULIO SLADKY,
No. C 13-01083 WHA
Debtors.
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/
CAROL WU, Chapter 7 Trustee, GEORGE
EDWARD SLADKY and ELVIRA TULIO
SLADKY,
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ORDER DENYING
MOTION TO WITHDRAW
REFERENCE AND
VACATING HEARING
Plaintiffs,
v.
LLP MORTGAGE, LTD., its assignees
and/or successors,
Defendants.
/
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INTRODUCTION
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In this bankruptcy adversary proceeding, defendant LLP Mortgage, Ltd. requests that
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reference of the action to bankruptcy court be withdrawn. For the reasons stated below,
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defendant’s motion is DENIED.
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STATEMENT
In February 2007, plaintiffs George Sladky and Elvira Sladky obtained a loan in
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the amount of $495,000 for a property in the County of Santa Clara. Plaintiffs executed a
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promissory note and deed of trust. One year later, a notice of default was recorded against
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the property and proceedings began under one deed of trust. In February 2010, a rescission
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of notice of default and election to sell under deed of trust was recorded against the property.
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In May 2011, a notice of default was recorded against the property, and three months later, a
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notice of trustee’s sale was again recorded against the property. In January 2012, an auction
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was held and a trustee’s deed upon sale was recorded, conveying the property to defendant LLP
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Mortgage, Ltd.
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In April 2012, plaintiffs filed a Chapter 7 bankruptcy petition in the United States
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Bankruptcy Court for the Northern District of California (No. 12-53103). In June 2012,
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plaintiffs filed a complaint to commence a bankruptcy adversary proceeding (No. 12-5126).
The adversary complaint alleges the following claims: (1) determinations of the validity, extent
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For the Northern District of California
United States District Court
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and priority of liens, (2) declaratory judgment, (3) injunctive relief, (4) wrongful foreclosure,
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(5) slander of title, and (6) violation of California Business and Professions Code Section 17200.
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The complaint alleges that an assignment of the deed of trust was not recorded, and that it did
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not result in an assignment of the related promissory note. It also alleges that the assignment
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of the deed of trust and various foreclosure-related documents are invalid because they were
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signed by unauthorized persons. As a result, the complaint challenges defendant’s standing to
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foreclose.
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In March 2013, defendant filed the instant motion to withdraw reference of the adversary
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complaint to bankruptcy court. In bankruptcy court, a hearing is scheduled for June 7, 2013, for
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a motion to dismiss an adversary proceeding filed by defendant, ex parte motion for temporary
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restraining order filed by plaintiffs, and a motion for preliminary injunction filed by plaintiffs.
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ANALYSIS
Pursuant to 28 U.S.C. 157, matters considered “core proceedings” are those in which
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the bankruptcy court may enter appropriate orders and judgments, and matters considered
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“non-core proceedings” are those in which the bankruptcy court may hear, but for which it
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may only submit proposed findings of fact and conclusions of law to the district court for
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de novo review. Actions that do not depend on bankruptcy laws for their existence and that
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could proceed in another court are considered “non-core.” Sec. Farms v. Int’l Bhd., 124 F.3d
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999, 1008 (9th Cir. 1997).
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After determining whether the matter at issue is “core” or “non-core,” the district court
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has authority for permissive withdrawal as governed by 28 U.S.C. 157(d), providing that “[t]he
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district court may withdraw . . . any case or proceeding referred [to the bankruptcy court] on its
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motion or on timely motion of a party, for cause shown.” In determining whether cause exists,
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our court of appeals determined that the following factors should be considered: the efficient
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use of judicial resources, delay and costs to the parties, uniformity of bankruptcy administration,
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the prevention of forum shopping, and other related factors. Sec. Farms, 124 F.3d at 1008.
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For the Northern District of California
United States District Court
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Defendant argues that plaintiffs’ claims are non-core claims because they consist of
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purely state law and do not depend on bankruptcy laws for their existence (Br. 8). It further
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argues that plaintiffs are challenging the validity of a trustee sale that was completed before
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they filed for bankruptcy, and therefore core proceedings are not involved (Br. 8). Plaintiffs,
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however, argue that this is a core proceeding because its first claim for relief is a request that
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the court determine the validity, extent and priority of defendants’ purported lien upon plaintiffs’
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real property (Opp. 14).
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CORE CLAIMS.
This order agrees with plaintiffs because their first, and main, claim is derived directly
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from the list provided by statute. Pursuant to 28 U.S.C. 157(b)(2)(K), “determinations of the
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validity, extent, or priority of liens” is in the list of core proceedings over which the bankruptcy
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court has jurisdiction. Because plaintiffs’ first claim is enumerated by statute, it is a core claim.
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As to the remaining claims, a bankruptcy judge can “hear a proceeding that is not a core
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proceeding but that is otherwise related to a case under title 11.” 28 U.S.C. 157(c)(1). Here, the
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state law claims are related to the property, and the bankruptcy case, in question. Therefore,
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these claims can be heard by a bankruptcy judge along with the core claim.
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The factors for “cause” will now be analyzed.
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SECURITY FARMS FACTORS.
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The Efficient Use of Judicial Resources.
Plaintiffs argue that withdrawal of the reference would be an inefficient allocation of
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judicial resources because the bankruptcy court is already familiar with the facts and issues of
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the case (Opp. 16). This order agrees. The bankruptcy court has had this case since June 2012
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and multiple motions have been briefed including a motion to dismiss, a motion for preliminary
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injunction, and a motion for relief from automatic stay. At this point, the bankruptcy court has
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invested substantial time and effort in moving the action along.
Defendant argues that unnecessary costs can be avoided by having a single proceeding
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For the Northern District of California
United States District Court
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because bankruptcy judges do not have the power to render a final judgment in a non-core
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proceeding, and as such, the case will be reviewed de novo by the district court (Br. 8–9).
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This argument fails because, as stated above, these proceedings involve at least one core issue.
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B.
Delay and Costs to the Parties.
Plaintiffs argue that withdrawal of the reference will cause great delay and costs (Opp.
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16). This order agrees, particularly because defendant filed the instant motion nine months after
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the adversary proceedings commenced in bankruptcy court. This delay has already caused the
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parties to invest time and resources.
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C.
Uniformity of Bankruptcy Administration.
Defendant argues that because the trustee sale was completed before plaintiffs filed their
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bankruptcy petition, the property is not part of the bankruptcy estate (Br. 9). While this may turn
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out to be the case, this issue is better handled by the bankruptcy court that has already reviewed
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the materials in this proceeding and can better determine whether there is a valid claim. In fact,
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there is currently a motion to dismiss pending in bankruptcy court, which will resolve the issue
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of whether there are any valid claims.
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D.
Prevention of Forum Shopping.
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Plaintiffs argue that defendant is bringing this motion because it is not satisfied
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with the rulings made by the bankruptcy court (Opp. 17). This accusation is unsubstantiated.
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Defendant’s argument that the claims will have to be reviewed by the district court de novo
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is likewise not persuasive because it presumes that the claims are non-core claims (Br. 9).
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Nonetheless, to reduce the likelihood of forum shopping, it is best that the instant proceedings
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remain in the bankruptcy court.
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CONCLUSION
Defendant LLP Mortgage, Ltd.’s motion to withdraw reference of this adversary action to
bankruptcy court is DENIED. The hearing on this motion set for May 2, 2013, is VACATED.
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IT IS SO ORDERED.
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For the Northern District of California
United States District Court
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Dated: April 23, 2013.
WILLIAM ALSUP
UNITED STATES DISTRICT JUDGE
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