United States Bankruptcy Appellate Panel of the Ninth Circuit
In re: RICHARD R. LANE, Debtor.
RICHARD R. LANE, Appellee. THE BANK OF NEW YORK MELLON; BAYVIEW LOAN SERVICING, LLC, Appellants, Adv. No. 16-5004
and Submitted on January 25, 2018, at San Francisco,
from the United States Bankruptcy Court for the Northern
District of California Honorable Stephen L. Johnson,
Bankruptcy Judge, Presiding
R. Landau argued for appellants
Bank of New York Mellon and Bayview Loan Servicing, LLC;
Stanley A. Zlotoff of the Law Offices of Stanley A. Zlotoff
argued for appellee, Richard R. Lane.
Before: BRAND, SPRAKER and TAYLOR, Bankruptcy Judges.
The Bank of New York Mellon ("BONY") and Bayview
Loan Servicing, LLC, appeal a judgment voiding BONY's
asserted first-position lien against the debtor's
residence under § 506(d), after the court had previously
disallowed BONY's claim and the debtor had completed his
chapter 13 plan and received a discharge. The debtor had
objected to BONY's proof of claim based on lack of
standing. BONY failed to respond to the claim objection, and
the claim was disallowed. After plan completion, BONY sought
reconsideration of the order disallowing the claim; it was
denied. BONY did not appeal the order disallowing the claim
or the order denying the motion for reconsideration.
bankruptcy court voided the first-position lien under §
506(d) based on disallowance of the claim. This was error.
The claim disallowance in this case did not affect the
validity of the lien; it determined only that BONY lacked
standing to enforce an otherwise valid lien. And because the
adversary complaint was not served on the party who had the
right to enforce, the bankruptcy court violated that
party's due process rights by voiding its lien without
notice and a hearing. Accordingly, we REVERSE the judgment
voiding the first-position lien.
also appeal the bankruptcy court's denial of a
continuance of the debtor's motion for summary judgment
and the award of the debtor's attorney's fees under
Cal. Civ. Code § 1717. We AFFIRM the decision to deny a
continuance and REVERSE the order awarding the debtor his
FACTUAL BACKGROUND AND PROCEDURAL HISTORY
The bankruptcy case
Lane filed his chapter 13 bankruptcy case on May 18, 2011. He
disclosed an ownership interest in his residence (the
"Property"), valuing it at $420, 000 and stating
that it was subject to secured claims totaling $699, 514.
Lane named Bank of America as holding a first-position lien
against the Property for $625, 620, which he asserted was
"disputed" regarding the "real party in
interest." Lane listed a second-position lien against
the Property for $73, 894, also held by Bank of America,
which he asserted was wholly unsecured and not disputed.
initial chapter 13 plan provided that monthly payments for
the first-position lien would be made to Bank of America, but
also stated that the loan was "disputed" and that,
"[u]ntil proof of real party in interest status[,
]" he would set aside the monthly payment. The plan
proposed no payments for Bank of America's
thereafter, BONY filed a Request for Special Notice directing
that all notices be sent to its counsel - Vy T. Pham of the
(now defunct) law firm of Miles, Bauer, Bergstrom &
Winters, LLP - at the address provided. Pham also received
electronic notices in the case.
then filed a $676, 361.19 secured proof of claim for the
first-position lien against the Property ("Claim").
Attached to the Claim were copies of the original deed of
trust and promissory note in favor of the original lender,
Countrywide Home Loans, Inc., and a recorded assignment of
the note and deed of trust to BONY in January 2011. The note
was endorsed in blank. Any notices regarding the Claim were
to be sent to Pham at the same address she provided in the
Request for Special Notice.
filed a "check the box" form objection to the
Claim, arguing that BONY had failed to establish standing and
that it was the person entitled to enforce payment on the
Claim ("Claim Objection"). Lane asked that the
Claim be disallowed in its entirety. The Claim Objection
warned that failure to respond could result in an order
granting the requested relief by default. Lane's counsel
served the Claim Objection on Pham at the address provided on
the Claim. Pham, presumably, also received electronic notice
BONY failed to oppose the Claim Objection in the given time
period, Lane requested entry of a default order sustaining
the Claim Objection. The bankruptcy court entered the default
order on December 29, 2011, disallowing the Claim in its
entirety ("Claim Disallowance Order"). BONY did not
objected to Lane's later-filed second amended chapter 13
plan, which proposed the same terms for the first and second
liens against the Property as in his initial plan. BONY
ultimately withdrew its objection prior to the plan
confirmation hearing, conceding that it had become moot
because BONY would not receive payments under the plan due to
the Claim Disallowance Order.
bankruptcy court confirmed Lane's second amended plan on
July 23, 2012 ("Plan"). Lane made no payments on
the first lien during his five-year bankruptcy case, and BONY
never moved for relief from stay.
chapter 13 trustee filed a Notice of Plan Completion on
November 12, 2015; the court entered a discharge order that
same day. Three months later, a Final Decree was entered, and
the case was closed.
reopening Lane's bankruptcy case in April 2016, BONY
moved to set aside the Claim Disallowance Order, arguing that
its failure to respond to the Claim Objection in 2011 was
excusable neglect ("Reconsideration Motion"). The
bankruptcy court denied the motion, determining that
BONY's challenge to the merits of the Claim Objection or
the Claim Disallowance Order was untimely and not a proper
basis for reconsideration. In addition, BONY had failed to
show excusable neglect for not responding to the Claim
Objection. BONY did not appeal the order denying
reconsideration of the Claim Disallowance Order.
The adversary proceeding
Lane filed an adversary proceeding against BONY, seeking to
void the first deed of trust under § 506(d) ("Lien
Avoidance"). Lane also sought damages for BONY's
failure to reconvey the deed of trust and requested
attorney's fees. In its answer, BONY asserted various
affirmative defenses, including a general defense of estoppel
after the court denied BONY's Reconsideration Motion,
Lane moved for summary judgment on his adversary claims and
requested attorney's fees ("MSJ"). Lane argued
that, because the Claim had been disallowed, his chapter 13
plan had been completed and he had received a discharge,
BONY's first-position lien was void under § 506(d).
Lane argued that the recent case, HSBC Bank USA, N.A. v.
Blendheim (In re Blendheim), 803 F.3d 477 (9th Cir.
2015), supported his position.
opposition, BONY argued for further discovery and a
continuance of the MSJ. Counsel for BONY declared that
discovery "could potentially produce evidence
demonstrating that there was no real factual or legal basis
for filing the [Claim Objection] and that there is no factual
or legal basis supporting voidance of [BONY's]
lien." BONY maintained that discovery was imperative
because Lane was trying to get a "free house" based
on the Claim disallowance.
BONY argued that Lane's interpretation of § 506(d)
was contrary to Dewsnup v. Timm, 502 U.S. 410,
417-18 (1992), which held that liens normally pass through
bankruptcy unaffected. Although the Claim had been
disallowed, that meant only that BONY could not be paid
through the Plan; the lien, nonetheless, survived the
bankruptcy. In addition, the Plan did not specify that
BONY's first-position lien would be avoided; it only
limited what BONY would be paid from the estate. BONY also
argued that Blendheim was distinguishable. Unlike
the dilatory creditor there, BONY had attached supporting
documents to its Claim evidencing its standing to enforce the
lien. Further, Lane had never disputed the legitimacy of the
underlying loan documents as the debtors had in
then filed a separate motion under Civil Rule 56(d)
("56(d) Motion"), requesting that the court either
dismiss the MSJ or continue it so that BONY could conduct
further discovery. The 56(d) Motion was virtually identical
to what BONY had submitted in its opposition to the MSJ.
hearings on the MSJ and the 56(d) Motion, the bankruptcy
court entered an order granting the MSJ to the extent Lane
sought to void BONY's first-position lien under §
506(d). The court determined that the lien was void based on
(1) the plain language of § 506(d), (2) that the Claim
had been previously disallowed, (3) that the exceptions under
§ 506(d) did not apply, and (4) Blendheim. The
court denied BONY's 56(d) Motion. Lastly, the court
considered, but rejected, BONY's affirmative defenses of
estoppel and equity.
further briefing on the issue of attorney's fees, the
bankruptcy court entered an order bifurcating Lane's
attorney's fees from the MSJ and treating it as a
separate motion. On the same day, the court entered a
separate judgment for its § 506(d) ruling in the MSJ.
The court then entered an order awarding Lane his
attorney's fees for prosecuting the Lien Avoidance
action, defending the Reconsideration Motion, and for filing
the fee motion ("Fee Order"). BONY timely appealed
the MSJ order, the § 506(d) judgment and the Fee Order.
bankruptcy court had jurisdiction under 28 U.S.C.
§§ 1334 and 157(b)(2)(K). We have jurisdiction
under 28 U.S.C. § 158.