Stewart, et al v. Bank of America , N.A. et al
Filing
39
ORDER DENYING PLAINTIFFS' MOTION TO REMAND AND DENYING DEFENDANTS MOTION TO DISMISS by Judge Jon S. Tigar denying 5 Motion to Dismiss; denying 17 Motion to Remand. (wsn, COURT STAFF) (Filed on 12/28/2016)
1
2
3
4
5
UNITED STATES DISTRICT COURT
6
NORTHERN DISTRICT OF CALIFORNIA
7
CHRISTOPHER CHARLES STEWART, et
al.,
8
9
Plaintiffs,
10
v.
United States District Court
Northern District of California
BANK OF AMERICA , N.A., et al.,
12
Defendants.
13
15
16
ORDER DENYING PLAINTIFFS’
MOTION TO REMAND AND DENYING
DEFENDANTS’ MOTION TO DISMISS
Re: ECF Nos. 5, 17
11
14
Case No. 16-cv-05322-JST
Defendants Bank of America, N.A., U.S. Bank Trust Company, N.A., U.S. Bancorp,1 and
Caliber Homes Loans, Inc. (collectively, ―Defendants‖) removed this action from the Sonoma
County Superior Court on diversity jurisdiction grounds, and filed a Motion to Dismiss. ECF No.
1 ¶ 11; ECF No. 5. Plaintiffs Christopher Charles Stewart and Kara Michelle Stewart
17
(collectively, ―Plaintiffs‖) move to remand the action, arguing the federal ―amount in controversy‖
18
requirement has not been satisfied. ECF No. 17. Plaintiffs also oppose Defendants‘ Motion to
19
Dismiss. ECF No. 22. For the reasons stated below, the Court will deny both Plaintiffs‘ Motion
20
to Remand and Defendants‘ Motion to Dismiss.
21
I.
22
A.
23
24
25
26
BACKGROUND
Facts and Procedural History
On August 16, 2016, Plaintiffs filed a complaint (―the Complaint‖) against Defendants in
the Superior Court of California, County of Sonoma. See ECF No. 17-1. The gravamen of the
Complaint alleges Defendants reneged on their obligations pursuant to a loan modification
agreement. Id. at 8. Plaintiffs claim they applied for a loan modification with Bank of America,
27
28
1
Plaintiffs voluntarily dismissed Defendant U.S. Bancorp from this action. See ECF No. 23.
1
Bank of America approved them for a trial period, and Plaintiffs complied with the terms of the
2
trial period by making three payments in the amount of $3,343.84 over the course of three months.
3
Id. at 10. Bank of America then approved Plaintiffs‘ loan modification application and provided
4
Plaintiffs with a loan modification agreement. Id. at 11. Bank of America ultimately denied
5
Plaintiffs‘ loan modification, however, claiming that Plaintiffs failed to return signed modification
6
documents by the specified due date ‒ a fact Plaintiffs dispute. Id. Plaintiffs‘ Complaint raises
7
three causes of action: (1) breach of contract; (2) promissory estoppel; and (3) violation of
8
Business and Professions Code section 17200. Id. at 7. The Complaint does not allege an amount
9
in controversy.
10
On September 16, 2016, Defendants removed the action to this Court, asserting diversity
United States District Court
Northern District of California
11
jurisdiction. ECF No. 1 ¶ 11. Defendants also filed a Motion to Dismiss, arguing (1) Plaintiffs
12
fail to state a claim upon which relief can be granted and (2) judicial estoppel bars Plaintiffs‘
13
claims. See ECF No. 5. Plaintiffs contend Defendants have not proven the amount in controversy
14
exceeds $75,000 by a preponderance of the evidence, and claim only the three trial period
15
payments, totaling $10,031.52, are in controversy. ECF No. 17 at 7-8. Since the Motion to
16
Remand presents a ―threshold jurisdictional question,‖ the Court will address it before turning to
17
Defendants‘ Motion to Dismiss. Lowry v. Barnhart, 329 F.3d 1019, 1022 (9th Cir. 2003) (citing
18
Steel Co. v. Citizens for a Better Env‘t, 523 U.S. 83, 94 (1998)).
19
B.
20
Pursuant to Federal Rule of Evidence 201(b), ―[t]he court may judicially notice a fact that
Requests for Judicial Notice
21
is not subject to reasonable dispute because it: (1) is generally known within the trial court‘s
22
territorial jurisdiction; or (2) can be accurately and readily determined from sources whose
23
accuracy cannot reasonably be questioned.‖ The Court may properly take judicial notice of
24
materials attached to the complaint and of matters of public record. Lee v. City of Los Angeles,
25
250 F.3d 668, 688-89 (9th Cir. 2001). A court ―must take judicial notice if a party requests it and
26
the court is supplied with the necessary information.‖ Fed. R. Evid. 201(c)(2). However, the
27
Court takes judicial notice only of the existence of the document, not of the veracity of allegations
28
or legal conclusions asserted in it. See Lee, 250 F.3d at 689-90.
2
The parties have filed several requests for judicial notice: two are filed by the Defendants,
1
2
ECF Nos. 5-1 and 26, and one is filed by Plaintiffs, ECF No. 17-1.
In support of their Opposition to Plaintiffs‘ Motion to Remand, Defendants request judicial
4
notice of the adjustable rate note, the December 2014 loan modification agreement, and the Truth-
5
in-Lending disclosure statement for the Plaintiffs‘ mortgage loan. See ECF No. 26. Because a
6
court may take judicial notice of documents whose authenticity is not contested and upon which
7
the plaintiff‘s complaint relies, see Lee, 250 F.3d at 688-89, the Court grants this request for
8
judicial notice. In support of their Motion to Dismiss, Defendants request judicial notice of the
9
assignment of deed of trust, the docket for Plaintiffs‘ Chapter 13 bankruptcy petition, the second
10
amended Chapter 13 plan (―the Plan‖), the order confirming the plan (―the Order‖), the debtor‘s
11
United States District Court
Northern District of California
3
opposition to one of the Defendants motions for relief from automatic stay, the motion permitting
12
parties to enter into a loan modification agreement, the debtor‘s opposition to the motion to enter
13
into a loan modification agreement, and the Bankruptcy Court for the Northern District‘s
14
guidelines regarding residential loan modifications (―the Guidelines‖). See ECF No. 5-1.
15
Because the accuracy of these documents is readily determinable through sources whose accuracy
16
cannot reasonably be questioned, the Court grants this request for judicial notice as well.
In support of their Motion to Remand, Plaintiffs request judicial notice of the Complaint,
17
18
Defendants‘ Notice of Removal to this Court, and an order from another court in this District,
19
denying a motion to remand to state court. See ECF No. 17-1. The Court finds the first two
20
documents appropriate for judicial notice as documents in the public record not reasonably subject
21
to dispute because their accuracy can readily be determined from sources whose accuracy cannot
22
reasonably be questioned. Moreover, because a court ―may take judicial notice of proceedings in
23
other courts . . . if those proceedings have a direct relation to matters at issue,‖ Bias v. Moynihan,
24
508 F.3d 1212, 1225 (9th Cir. 2007), the Court will also take judicial notice of the court order.
25
II.
26
27
28
MOTION TO REMAND
A.
Legal Standard
―[A]ny civil action brought in a [s]tate court of which the district courts of the United
States have original jurisdiction, may be removed by a defendant . . . to [a] federal district court.‖
3
1
28 U.S.C. § 1441(a). ―A defendant may remove an action to federal court based on federal
2
question jurisdiction or diversity jurisdiction.‖ Hunter v. Philip Morris USA, 582 F.3d 1039, 1042
3
(9th Cir. 2009) (citing 28 U.S.C. § 1441). To invoke federal diversity jurisdiction under 28 U.S.C.
4
§ 1332(a), the amount in controversy must ―exceed[] the sum or value of $75,000.‖ Urbino v.
5
Orkin Servs. of California, Inc., 726 F.3d 1118, 1121 (9th Cir. 2013). ―Federal jurisdiction must
6
be rejected if there is any doubt as to the right of removal in the first instance.‖ Gaus v. Miles,
7
980 F.2d 564, 566 (9th Cir. 1992). The court ―resolves all ambiguity in favor of remand.‖
8
Hunter, 582 F.3d at 1042. ―‗[T]he defendant always has the burden of establishing that removal is
9
proper.‘‖ Geographic Expeditions, Inc. v. Estate of Lhotka ex rel. Lhotka, 599 F.3d 1102, 1107
10
(9th Cir. 2010) (quoting Gaus, 980 F.2d at 566).
The parties agree that complete diversity exists, as Plaintiffs are domiciled in California
United States District Court
Northern District of California
11
12
and Bank of America, Caliber, and U.S. Bank Trust Co. are located in North Carolina, Delaware,
13
and Ohio, respectively. ECF No. 1 at 4. The sole dispute is whether the amount in controversy
14
exceeds $75,000. The Complaint does not allege an amount in controversy, but seeks economic
15
damages according to proof, general damages according to proof, attorneys‘ fees and costs of suit,
16
and ―[f]or such other relief and further relief as the court may deem just and proper.‖ ECF No. 17-
17
1 at 14.
18
19
1.
Amount in Controversy
―The jurisdictional minimum may be satisfied by claims for special and general damages,
20
punitive damages, and attorneys‘ fees.‖ Simmons v. PCR Technology, 209 F. Supp. 2d 1029,
21
1031 (N.D. Cal. July 2, 2002). ―[W]here it is unclear or ambiguous from the face of a state-court
22
complaint whether the requisite amount in controversy is pled . . . the removing defendant bears
23
the burden of establishing, by a preponderance of the evidence, that the amount in controversy
24
exceeds the jurisdictional amount.‖ Guglielmino v. McKee Foods Corp., 506 F.3d 696, 699 (9th
25
Cir. 2007) (quoting Sanchez v. Monumental Life Ins. Co., 102 F.3d 398, 404 (9th Cir. 1996)).
26
―Under this burden, the defendant must provide evidence establishing that it is ‗more likely than
27
not‘ that the amount in controversy‖ requirement is met. Sanchez, 103 F.3d at 404; see also Gaus,
28
980 F.2d at 566-67 (―If it is unclear what amount of damages the plaintiff has sought, . . . then the
4
1
defendant bears the burden of actually providing the facts to support jurisdiction, including the
2
jurisdictional amount.‖). Importantly, the Ninth Circuit notes:
3
8
The amount-in-controversy inquiry in the removal context is not
confined to the face of the complaint . . . . Nor does it present an
insurmountable obstacle to quantify the amount at stake when
intangible harm is alleged; the parties need not predict the trier of
fact‘s eventual award with one hundred percent accuracy . . . .
Instead, although we have not addressed the type of evidence
defendants may rely upon to satisfy the preponderance of the
evidence test for jurisdiction, we have endorsed the Fifth Circuit‘s
practice of considering facts presented in the removal petition as
well as any summary-judgment type evidence relevant to the amount
in controversy at the time of removal.
9
Valdez v. Allstate Ins. Co., 372 F.3d 1115, 1117 (9th Cir. 2004) (internal quotations, citations, and
4
5
6
7
alterations omitted). A speculative argument regarding the potential value of the amount in
11
United States District Court
Northern District of California
10
controversy is insufficient. Singer v. State Farm Mutual Auto. Ins. Co., 116 F.3d 373, 376 (9th
12
Cir. 1987); Gaus, 980 F.2d at 567.
13
B.
14
Defendants advance two2 arguments for why the Complaint meets the amount in
15
controversy requirement. First, Defendants argue ―the amount in controversy [is] established by
16
the value of the Property[,]‖ which Defendants argue is $650,000. ECF No. 1 ¶ 22. Second,
17
Defendants argue the amount in controversy is satisfied by ―the difference between the total cost
18
of the subject mortgage loan as originated, and the loan as Plaintiffs argue it should have been
19
modified in 2014.‖ Id. ¶ 23.
20
1.
Value of the Property
Defendants argue the amount in controversy ―can be established by the value of the
21
22
Discussion
property and/or the amount of the mortgage debt at issue.‖ ECF No. 27 at 5 (citing to Reyes v.
23
24
25
26
27
28
2
While Defendants do not claim it independently establishes the amount in controversy, they also
argue that Plaintiffs are disingenuous in claiming that the damages are limited to the three
payments made during the trial period, totaling $10,031.52. Defendants note Plaintiffs‘ state law
claim was filed as an ―unlimited civil case,‖ which requires a claim for damages in excess of
$25,000, and therefore $10,031.52 cannot be the only amount at issue. ECF No. 27 at 5 n.2.
While Defendants‘ point is well-taken, Defendants, as the removing parties, must establish by a
preponderance of the evidence that the amount in controversy exceeds $75,000. That Plaintiffs
effectively told the state court that the value of the case exceeded $25,000 does not help establish
that it exceeded $75,000.
5
1
Wells Fargo Bank, No. C-10-01667 JCS, 2010 WL 2629785, *5 (N.D. Cal. Jun. 29, 2010)).
2
Defendants‘ reliance on Reyes is misplaced. As that court explains,
3
[T]he value of the property is the object of the litigation for the
purposes of determining whether the amount-in-controversy
requirement has been met so long as the plaintiff is seeking
injunctive relief to prevent or undo the lender’s sale of the property.
4
5
Id. (emphasis added). That is not the case here. Plaintiffs are not seeking to prevent a foreclosure,
6
7
and Plaintiffs are at pains in their briefing to point out that ―there is no request by Plaintiffs for
injunctive or declaratory relief.‖ ECF No. 17 at 8. Even in cases where a plaintiff is temporarily
8
enjoining foreclosure pending a determination of her loan modification application, courts have
9
―roundly rejected the argument that the amount in controversy is the entire amount of the loan.‖
10
Jauregui v. Nationstar Mortg. LLC, No. EDCV 15-00382-VAP (KKx), 2015 WL 2154148, at *4
11
United States District Court
Northern District of California
(C.D. Cal. May 7, 2015) (internal quotations and citation omitted); see also Lopez v. JPMorgan
12
Chase Bank, N.A., No. SACV 15-02030 JVS (JCGx), 2016 WL 320105, *3 (C.D. Cal. Jan. 25,
13
2016) (―Federal district courts recognize a narrow exception to the general rule governing the
14
amount in controversy requirement for foreclosure actions: when there is no actual foreclosure
15
pending, and the plaintiff seeks only to enjoin possible foreclosure proceedings, the value of the
16
property or the loan is not the proper measure of the amount in controversy.‖); Quiroga v. Bank of
17
America, N.A., No. EDVC 15-1163-MWF (KKx), 2015 WL 474978, *3 (C.D. Cal. Aug. 10,
18
2015) (―Plaintiff seeks to obtain a modification and recover damages resulting from [Defendant‘s]
19
alleged improper actions regarding his attempts to obtain a modification. The value of the house,
20
or the loan, is not the proper measure of the amount in controversy.‖).
21
The Court concludes that the value of the underlying loan does not establish the amount in
22
controversy.
23
24
25
26
27
2.
The Difference in Value Between the Current Loan and Modified Loan
Many courts have concluded ―the appropriate test for determining the amount-incontroversy in [cases like this] is ‗the pecuniary result to either party which the judgment would
directly produce.‘. . . Here, that will be the difference in value between the current loan and
requested modified loan, plus any additional damages Plaintiff seeks.‖ Cephas-Boyd v. Shellpoint
28
6
1
Partners, LLC, No. EDCV 16-386-JGB (KKx), 2016 WL 1600828, at *4 (C.D. Cal. Apr. 21,
2
2016); see also Johnson v. Wells Fargo, No. CV 12-00144 GAF (SPx), 2012 WL 1229880, at *4
3
(C.D. Cal. Apr. 11, 2012) (―[I]f a plaintiff asserts that he is entitled to a wrongfully denied loan
4
modification, the amount put into controversy is the difference between the value of the existing
5
loan and the proposed modified loan.‖). The Court agrees the proper inquiry for purposes of the
6
amount in controversy is the difference in value between the current and modified loans, and finds
7
Defendants have shown by a preponderance of the evidence that that amount exceeds $75,000.
8
9
Bank of America clearly states the value of the modified loan agreement is $1,218,510.26.
ECF No. 1-4 at 7. ―Based on the schedule set forth in the Loan Modification Agreement,
Plaintiffs would have made total payments of principal and interest (not including any amounts
11
United States District Court
Northern District of California
10
charged for taxes or property insurance) of $1,218,510.26.‖ ECF No. 27-1 ¶ 7 (―Dansby
12
Declaration‖); see also ECF No. 26-2 at 7. Plaintiffs argue ―any valuation based on [the] loan
13
modification terms is purely speculative‖ because the loan modification agreement contains
14
language indicating the total monthly payments ―[m]ay adjust periodically.‖ ECF No. 29 at 4.
15
While the ―Estimated Monthly Escrow Payment Amount‖ and, consequently, the total monthly
16
payment may adjust periodically, it is undisputed the ―Monthly Principal and Interest Payment
17
Amount‖ is not variable. Since the value of the original loan does not include monthly escrow
18
payments, see ECF No. 1-3 at 2, the adjustability of the modified loan based on monthly escrow
19
payments does not undermine Defendants‘ calculation of the difference between the original and
20
modified loans.
21
Next, Defendants ―undert[ake] a calculation of the value of the potential contract claim
22
based on Plaintiffs‘ argument that [Plaintiffs] were deprived of the benefit of a . . . modification of
23
their mortgage loan,‖ and calculate the potential contract damages to be $203,635.93. ECF No. 27
24
at 6. Defendants reach this amount by ―[t]aking the total cost of the loan at origination . . .
25
[d]educting . . . for amounts the borrowers paid on the loan through March 1, 2012, and . . .
26
[s]ubtracting the cost of the loan as Plaintiffs claim it should have been permanently modified in
27
2014.‖ Id. The Court has reviewed the pertinent briefings and documents and concludes that the
28
record supports Defendants‘ calculation.
7
Consequently, the Court finds Defendants have established the amount in controversy
1
2
requirement by a preponderance of evidence, and deny the Motion to Remand.
The Court now turns to Defendants‘ Motion to Dismiss.
3
4
III.
MOTION TO DISMISS
5
A.
6
A complaint must contain ―a short and plain statement of the claim showing that the
Legal Standards
7
pleader is entitled to relief.‖ Fed. R. Civ. P. 8(a)(2). While detailed factual allegations are not
8
required, a complaint must have sufficient factual allegations to ―state a claim to relief that is
9
plausible on its face.‖ Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal quotations and
citations omitted). A party may move to dismiss based on the failure to state a claim upon which
11
United States District Court
Northern District of California
10
relief may be granted. See Fed. R. Civ. P. 12(b)(6). ―Dismissal under Rule 12(b)(6) is appropriate
12
only where the complaint lacks a cognizable legal theory or sufficient facts to support a cognizable
13
legal theory.‖ Mendiondo v. Centinela Hosp. Med. Ctr., 521 F.3d 1097, 1104 (9th Cir. 2008). To
14
survive a motion to dismiss, a pleading must allege ―enough facts to raise a reasonable expectation
15
that discovery will reveal evidence‖ to support the allegations. Bell Atl. Corp. v. Twombly, 550
16
U.S. 544, 556 (2007). For purposes of a motion to dismiss, ―all allegations of material fact are
17
taken as true and construed in the light most favorable to the nonmoving party.‖ Cahill v. Liberty
18
Mut. Ins. Co., 80 F.3d 336, 337–38 (9th Cir.1996).
19
B.
20
Defendants advance two arguments in support of their Motion to Dismiss: (1) Plaintiffs‘
Discussion
21
failure to seek the Bankruptcy Court‘s approval of the loan modification agreement precludes
22
Plaintiffs from asserting their claims here and (2) Plaintiffs are judicially estopped from asserting
23
their claims. Both arguments are unpersuasive.
24
25
26
1.
Plaintiffs Were Not Required to Seek the Bankruptcy Court’s
Approval of the Loan Modification Agreement Prior to Asserting Their
Claims
Defendants contend Plaintiffs‘ failure to seek the Bankruptcy Court‘s approval of the loan
27
modification agreement precludes Plaintiffs from asserting claims based on the purported
28
agreement. ECF No. 5 at 15-16. Specifically, Defendants argue Plaintiffs did not adhere to
8
1
section 1329 of the Bankruptcy Code, the Guidelines promulgated by the Bankruptcy Court for the
2
Northern District, or the Order confirming the Plan. Id.; ECF No. 28 at 8.
3
Defendants do not dispute that Plaintiffs have adequately pleaded the elements of their
4
stated causes of action. Instead, the main premise of Defendants‘ argument is Plaintiffs were
5
required to seek the Bankruptcy Court‘s approval of their loan modification agreement in order for
6
the agreement to be enforceable.
7
The case authority does not support Defendants‘ position. In fact, in cases considering
8
loan modifications specifically, bankruptcy courts have noted ―there does not appear to be any
9
Code provision or Bankruptcy Rule that requires judicial approval of the terms of a loan
modification.‖ In re Moore, No. 12-40456-EJC, 2015 WL 5553534, at *1 (Bankr. S.D. Ga. Sept.
11
United States District Court
Northern District of California
10
18, 2015); see also In re Wofford, 449 B.R. 362, 364 (Bankr. W.D. Wis. May 23, 2011) (―[T]he
12
court noted that a loan modification could be reviewed (and approved) by a court in the context of
13
plan confirmation, or as a resolution of an actual dispute (such as a motion for relief from the
14
stay). At the same time, there does not appear to be any applicable law or rule that requires
15
judicial approval of the terms of the loan modification itself.‖) (emphasis in original). The In re
16
Moore court did ―recognize[] a few situations in which a loan modification agreement could be
17
properly reviewed and approved by a [bankruptcy] court[,]‖ such as ―court approval of a loan
18
modification . . . in the context of a plan confirmation, or as a resolution of an actual dispute, such
19
as a motion for relief from the stay[,]‖ or if a bankruptcy court ―considered loan modifications to
20
be reaffirmation agreements requiring court approval.‖ Id. (internal citations omitted). Here, the
21
Plan has already been confirmed, Defendants do not argue there is a motion for relief from stay,
22
and, even if the loan modification at issue is considered a reaffirmation agreement, ―[a]s provided
23
in the disclosures which debtors are statutorily required to receive from the creditor in connection
24
with a reaffirmation agreement, court approval is not required if the obligation is secured by real
25
property,‖ as is the case here. Wofford, 449 B.R. at 364 (citing 11 U.S.C. § 524(k)(3)(J)(i)(7)) .
26
Thus, the Court finds Plaintiffs were not required to seek the Bankruptcy Court‘s approval of the
27
loan modification agreement prior to asserting their claims here.
28
Defendants cite American Prairie Constr. Co. v. Hoich, 594 F.3d 1015, 1024-25 (8th Cir.
9
1
2010), in support of their position. ECF No. 5 at 12. American Prairie is not analogous. It deals
2
with settlements or compromises between debtor and creditor ‒ not loan compromises. In contrast
3
to the lack of case authority requiring judicial approval of a loan compromise, supra, the
4
American Prairie court noted that ―a recognized principle of bankruptcy law [is] that a bankruptcy
5
court is required to approve any compromise or settlement proposed in the course of a Chapter 11
6
reorganization before such compromise or settlement can be deemed effective.‖ Id. at 1024.
7
Moreover, the case is out-of-circuit and not persuasive authority for the question present here.
8
Even if Plaintiffs were required to seek the Bankruptcy Court‘s approval, that approval did
9
not need to occur prior to Defendants approving the loan modification agreement. Section 1329(a)
10
of the Bankruptcy Code provides:
United States District Court
Northern District of California
11
[a]t any time after confirmation of the plan but before the
completion of payments under such plan, the plan may be modified,
upon request of the debtor, the trustee, or the holder of an allowed
unsecured claim, to . . . increase or reduce the amount of payments
on claims of a particular class provided for by the plan.
12
13
14
11 U.S.C. §1329(a)-(a)(1) (emphasis added); see also In re Escarcega, 557 B.R. 755, 771 (Bankr.
15
N.D. Cal. Sept. 26, 2016) (―[Section 1329(a)] permits a reevaluation of the case to deal with
16
changing facts.‖). Section 1329(b) states ―[s]ections 1322(a), 1322(b), and 1323(c) of this title
17
and the requirements of section 1325(a) of this title apply to any modification under [section
18
1329(a)] of this section.‖ 11 U.S.C. §1329(b). Importantly, none of these sections can be
19
interpreted to mean that a debtor seeking a home loan modification after plan confirmation must
20
seek the bankruptcy court‘s approval prior to reaching an agreement with her mortgagor.
21
Sections 1322(a)-(b) list requirements for bankruptcy plans, section 1323(c) lists requirements for
22
modifications prior to confirmation, and section 1325(a) obligates a bankruptcy court to confirm a
23
plan when certain findings are made. See 11 U.S.C. §1322(a)-(b); 11 U.S.C. §1323(c); 11 U.S.C.
24
§1325(a).
25
Here, it is undisputed the Plan has been confirmed by the Bankruptcy Court and Plaintiffs
26
have not completed making payments. See ECF No. 5-2 at 10, 15; see also ECF No. 5 at 9. Thus,
27
the Court finds ―[Plaintiffs] may file a motion to modify [a plan] any time it is warranted.‖ In re
28
Escarcega, 557 B.R. at 772. This makes sense because plan modifications require the trustee‘s
10
1
and creditors‘ input; to expect trustees and creditors to approve of a plan modification that is
2
contingent on a loan modification that has not yet been approved would waste judicial resources,
3
impose potentially unnecessary hardships on trustees and creditors, and prevent trustees from
4
accurately managing estates. See Fed. R. Bankr. P. 3015 (―A request to modify a plan . . . shall
5
identify the proponent and shall be filed together with the proposed modification. The clerk . . .
6
shall give the debtor, the trustee, and all creditors not less than 21 days‘ notice . . . for filing
7
objections and, if an objection is filed, the hearing [date] to consider the proposed modification.‖).
8
Further, the Defendants do not contend—and the Court has no reason to believe—a motion
9
to modify the Plan on the basis of the loan modification agreement would be denied by the
Bankruptcy Court in the instant case. See In re Hall, 442 B.R. 754, 759 (Bankr. D. Idaho Aug. 31,
11
United States District Court
Northern District of California
10
2010) (―As long as a request for modification satisfies the requirements of § 1329, the
12
modification should be approved.‖) (citing In re Powers, 202 B.R. 618, 622 (B.A.P. 9th Cir.
13
1996)). Thus, Plaintiffs can still move to modify the Plan in the Bankruptcy Court and, while
14
―[Plaintiffs] cannot [unilaterally] propose a plan which modifies the bank‘s claim[,]‖ that ―does
15
not mean that the parties cannot agree to new terms.‖ In re Wofford, 449 B.R at 364. Indeed,
16
17
18
19
20
21
[a] secured creditor can agree to a modification that incorporates the
parties loan modification agreement, much the same way the parties
could incorporate the loan modification agreement into a debtor‘s
plan as part of [the initial plan] confirmation. In that context, the
[bankruptcy court] may consider the parties‘ loan modification as
part of the plan modification, which, of course, is still subject to the
other restrictions in chapter 13 of the Bankruptcy Code.
In re Smith, 409 B.R. 1, 14 (Bankr. D. N.H. July 23, 2009) (emphasis added).
Defendants‘ reliance on the Order and the Guidelines are also unavailing. The Order
22
requires that no lien on real property be modified except pursuant to either an adversary
23
proceeding or a contested matter, but the order does not require either process to occur before the
24
debtor and bank enter into a loan modification agreement. See ECF No. 5-2 at 24-25. The
25
Guidelines similarly do not support Defendants‘ argument because (1) they are guidelines and not
26
mandatory and (2) they support the position that a motion to modify a plan ought to be filed after a
27
loan modification agreement has been approved, see ECF No. 5-2 at 65 (―No plan . . . that
28
proposes the loan modification terms for treatment of the first lien mortgage creditor‘s claim will
11
1
be confirmed until the modification has been approved by the first mortgage lender with proof of
2
such approval provided to the Chapter 13 trustee.‖).
3
Plaintiffs‘ failure to seek the Bankruptcy Court‘s approval of the loan modification
4
agreement did not render the agreement meaningless and, therefore, viewing the Complaint in the
5
light most favorable to Plaintiffs, the Court finds the Plaintiffs have stated claims upon which
6
relief can be granted.
7
8
9
2.
Plaintiffs are not Judicially Estopped from Asserting Their Claims
―Judicial estoppel is an equitable doctrine that precludes a party from gaining an advantage
by asserting one position, and then later seeking an advantage by taking a clearly inconsistent
position.‖ Hamilton v. State Farm Fire & Cas. Co., 270 F.3d 778, 782 (9th Cir. 2001) (citations
11
United States District Court
Northern District of California
10
omitted). Courts also invoke judicial estoppel because of ―general consideration[s] of the orderly
12
administration of justice and regard for dignity of judicial proceedings,‘ and to ‗protect against a
13
litigant playing fast and loose with the courts.‖ Id. (quoting Russell v. Rolfs, 893 F.2d 1033, 1037
14
(9th Cir. 1990)). The Ninth Circuit, however, ―has restricted the application of judicial estoppel to
15
cases where the court relied on, or ‗accepted,‘ the party‘s previous inconsistent position.‖
16
Hamilton, 270 F.2d at 783.
17
The Ninth Circuit has applied judicial estoppel to prevent plaintiffs from asserting claims
18
they failed to disclose during earlier bankruptcy proceedings. See, e.g., Hamilton, 270 F.3d at 784
19
(―This court has held that a debtor who failed to disclose a pending claim as an asset in a
20
bankruptcy proceeding where debts were permanently discharged was estopped from pursuing
21
such claim in a subsequent proceeding.‖) (citation and emphasis omitted); Hay v. First Interstate
22
Bank of Kalispell, N.A., 978 F.2d 555, 557 (9th Cir. 1992) (holding that the failure to give notice
23
of a potential cause of action in bankruptcy schedules and disclosure statements estops the debtor
24
from prosecuting that cause of action). ―In the bankruptcy context, a party is judicially estopped
25
from asserting a cause of action not raised in a reorganization plan or otherwise mentioned in the
26
debtor‘s schedules or disclosure statements.‖ Hamilton, 270 F.3d at 783 (citing Hay, 978 F.2d at
27
557)). ―[T]he bankruptcy code requires scheduling all assets, including ‗potential‘ claims[,]‖ and
28
the ―[f]ailure to list an asset or interest on the bankruptcy schedules causes the debtor to be
12
1
judicially estopped from pursuing a claim to recover that interest after discharge.‖ Holland &
2
Knight, LLP v. Deatley, 357 Fed. App‘x 83, 84 (9th Cir. 2009) (citing Hamilton, 270 F.3d at 783,
3
785). ―The debtor‘s duty to disclose potential claims as assets . . . continues for the duration of the
4
bankruptcy proceeding.‖ Hamilton, 270 F.3d at 785 (citations omitted).
5
Defendants contend Plaintiffs are judicially estopped from asserting their claims because
6
Plaintiffs failed to list them as assets in the bankruptcy proceeding. ECF No. 5 at 17. Plaintiffs‘
7
failure to disclose the current causes of action, however, is not in and of itself sufficient to trigger
8
judicial estoppel: Defendants must show ―[t]he bankruptcy court . . . ‗accept[ed]‘ the debtor‘s
9
assertions by relying on the debtor‘s nondisclosure of potential claims.‖ Hamilton, 270 F.3d at
784. While there are ―many . . . ways‖ to establish a bankruptcy court relied on a debtor‘s
11
United States District Court
Northern District of California
10
nondisclosure ‒ such as the bankruptcy court lifting a stay based in part on the debtor‘s
12
nondisclosure in its bankruptcy schedules or the bankruptcy court approving the debtor‘s plan of
13
reorganization ‒ id., no such indications of reliance are present here. Thus, while Plaintiffs do
14
have a continuing obligation to disclose their causes of action as potential assets to the Bankruptcy
15
Court, and it is not clear they have done so, the Bankruptcy Court does not appear to have acted in
16
reliance on that omission. There has been no confirmation of a modified plan, issuance of a new
17
scheduling order, or discharge of Plaintiffs‘ debts on reliance of the nonexistence of Plaintiffs‘
18
contract claims. Consequently, the Court finds Plaintiffs are not judicially estopped from asserting
19
their claims.
CONCLUSION
20
21
22
23
24
For the foregoing reasons, the Court denies Plaintiffs‘ Motion to Remand this action and
also denies Defendants‘ Motion to Dismiss.
IT IS SO ORDERED.
Dated: December 28, 2016
25
26
27
______________________________________
JON S. TIGAR
United States District Judge
28
13
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?