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PNC Bank, N.A. v. Smith

United States District Court, E.D. California

March 16, 2015

PNC BANK, N.A., a National Association, as a successor in interest to National City Bank, Plaintiff,
v.
BELINDA L. SMITH, in personam; JACOB WINDING, in personam; B & B Dreamin' Hull No. GMKD283C505 (the

ORDER AND FINDINGS AND RECOMMENDATIONS

EDMUND F. BRENNAN, Magistrate Judge.

This matter was before the court on July 9, 2014, for hearing on defendant Smith's motion for reconsideration of several non-dispositive orders (ECF No. 109); plaintiff's motion for terminating sanctions, or in the alternative, for evidentiary and issue preclusion sanctions (ECF No. 112); plaintiff's motion for summary judgment (ECF No. 113), and defendant Smith's motion to strike certain filings by plaintiff (ECF No. 133). Attorney William Sexton appeared on behalf of plaintiff, defendants Smith and Winding appeared pro se.

Although not addressed at the hearing, also under submission are plaintiff's motion to dismiss defendant's Smith first amended counterclaim (ECF No. 142) and defendant Winding's motion to stay the proceedings (ECF No. 153). For the reasons that follow, the court denies defendant Smith's motion for reconsideration and motion to strike, and denies defendant Winding's motion to stay the proceedings. Further, it is recommended that plaintiff's motions for sanctions and for summary judgment be granted in part. It is also recommended that plaintiff's motion to dismiss Smith's second amended counterclaim be denied as moot.

I. Procedural Background

The procedural history of this case is convoluted. On July 20, 2010, plaintiff filed a verified complaint in rem and in personam for foreclosure of a vessel owned by defendant owner Belinda Smith (defendant B & B DREAMIN', Hull No. RGMKD283C505). ECF No. 1. An order authorizing the in rem arrest of the vessel was issued on September 10, 2010. ECF No. 11. Subsequently, on March 30, 2011, an order was issued deeming the vessel arrested and appointing National Maritime Services as substitute custodian of the vessel. ECF No. 19. Smith filed an answer to the complaint, ECF No. 31, and defendant Winding filed an answer and counterclaim. ECF No. 32. Plaintiff has filed an answer to Winding's counterclaim. ECF No. 35.

Plaintiff moved for summary judgment, seeking a determination (1) that plaintiff has a first priority security interest in the vessel; (2) that defendant Smith is in default of her obligations to plaintiff; (3) that plaintiff is entitled to possession of the vessel; (4) that plaintiff is entitled to a deficiency judgment against Smith pursuant to 46 U.S.C. § 31325(b)(2)(A); and (5) that plaintiff is entitled to a judgment against Smith for attorney's fees and costs. ECF No. 39. Plaintiff also sought summary judgment on defendant Winding's counterclaims for declaratory relief, conversion, and/or negligence. Specifically, plaintiff sought a determination (1) that defendant Winding's interest in the vessel is subordinate to that of plaintiff; (2) that plaintiff is not liable to Winding for conversion; (3) that plaintiff is not liable to Winding for tort; and (4) that plaintiff is not liable to Winding for attorney's fees or court costs. Because of factual disputes raised by defendants' affidavits, [1] plaintiff's motion for summary judgment was denied on March 18, 2013. ECF Nos. 56, 62.

Following the denial of summary judgment, plaintiff noticed the depositions of the defendants to take their testimony as to the key issues of whether and how Smith actually paid in full the $336, 000 purchase price of the vessel, and whether and how Winding actually loaned $110, 000 to Smith. ECF No. 92 at 4. The depositions were noticed for February 6 (Smith) and February 7 (Winding), 2014. ECF No. 92 at 25 and 31. The defendants failed to appear for their depositions. ECF No. 92.

In the interim, Smith filed a motion for leave to file an amended answer in order to assert counterclaims against plaintiff. ECF No. 65. That motion was granted and Smith filed an amended answer and counterclaim. ECF No. 76, 77. Plaintiff subsequently moved to dismiss that counterclaim on July 22, 2013. ECF No. 78. While that motion was pending, plaintiff also filed a motion for exclusionary sanctions seeking to preclude the defendants' testimony at trial based on their failure to appear at their depositions. ECF No. 92. Alternatively, plaintiff requested an order compelling defendants' attendance at their depositions. Id.

Findings and Recommendations were issued on March 6, 2014, recommending that plaintiff's motion to dismiss be granted and that Smith's counterclaim be dismissed in its entirety with leave to amend. ECF No. 94. Further, an order was issued granting in part plaintiff's motion for sanctions. ECF No. 95. That order also directed defendants to appear at their depositions at a date to be set by plaintiff before April 4, 2014. Id.

While the March 6 recommendation was pending, Winding filed in this action a notification that he had filed a voluntary Chapter 13 bankruptcy petition on January 21, 2014.[2] ECF No. 97. In light of that notice and in the interest of judicial economy, this case was stayed pending either resolution of Winding's bankruptcy petition or an order granting relief from the automatic stay. ECF No. 101. However, on April 16, 2014, plaintiff filed a copy of an order by the Bankruptcy Court confirming that the automatic bankruptcy stay did not apply to Winding. The order explained that because Winding had filed three previous Chapter 13 petitions within one year of his latest bankruptcy petition the automatic bankruptcy stay never applied to the January 21, 2014 petition. ECF No. 102 at 7. Accordingly, on April 17, 2014, the stay entered by this court was lifted. ECF No. 103.

Because of the delay occasioned by Winding's filings, the scheduling order in this case was modified to extend the discovery cutoff date to May 16, 2014 to allow plaintiff to take Smith and Winding's depositions. Id. However, as addressed below, notwithstanding the court's order and despite repeated efforts by plaintiff to complete those depositions, the defendants' failure to cooperate has prevented those depositions from occurring.

On May 30, 2014, Smith filed the current motion for reconsideration, asking the court to reconsider four non-dispositive orders and/or findings and recommendations. ECF No. 109.[3] Plaintiff subsequently filed a motion for sanctions and motion for summary judgment. ECF Nos. 112, 113. Defendants Smith and Winding filed oppositions to the motion for summary judgment. ECF Nos. 125, 128. Winding filed an opposition to plaintiff's motion for sanctions, and Smith filed a declaration in support of Winding's opposition, which the court construes as an opposition to plaintiff's motion. ECF No. 132, 139. Thereafter, Smith filed a motion to strike plaintiff's motions for sanctions, the declarations submitted in support of PNC's motion for summary judgment, and PNC's opposition to Smith's motion for reconsideration. ECF No. 133.

Further complicating matters, Smith filed a first amended counterclaim on June 30, 2014, erroneously titled second amended counterclaim, ECF No. 134, which plaintiff has moved to dismiss. ECF No. 142.

II. Smith's Motion for Reconsideration

Smith seeks reconsideration of (1) the March 6, 2014 order and findings and recommendations denying Smith's motion to strike the affidavit of Brian Lutton and recommending that plaintiff's motion to dismiss Smith's counterclaim be granted (ECF No. 94)[4]; (2) the March 7, 2014 order granting in part plaintiff's motion for sanctions, which ordered Smith and Winding to appear for their depositions at a date set by plaintiff (ECF No. 95); (3) the March 31, 2014 order staying the case pending resolution of Winding's bankruptcy petition (ECF No. 101); (4) and April 16, 2014 order lifting the stay (ECF No. 103). ECF No. 109. Smith argues that order and recommendations entered by the court should be set aside because they were entered in violation of an automatic bankruptcy stay. As discussed below, Smith is mistaken.

Rule 60(b) provides that a court may relieve a party of an order for mistake, inadvertence, surprise, or excusable neglect. Fed.R.Civ.P. 60(b)(1). Local Rule 230(j) provides that a motion for reconsideration must set forth the facts and circumstances surrounding the motion, including "what new or different facts or circumstances are claimed to exist which did not exist or were not shown upon such prior motion, or what other grounds exist for the motion." Smith fails to satisfy these standards.

Smith argues that the orders and findings and recommendations must be revisited because they were issued in violation of the automatic stay that was in place as a result of Winding s Chapter 13 bankruptcy filing. ECF No. 109 at 2-7. Smith dismisses as inconsequential the bankruptcy court's determination that the automatic stay never applied because, according to Smith, that order was obtained by fraud. According to Smith, Sexton falsely represented that he had personal knowledge of the 2005 purchase of the vessel. Sexton's firm's representation of plaintiff began in 2010. Therefore, according to Smith, Sexton could not have been a percipient witness to the transaction in dispute. Id. at 4-7. Thus, Smith now argues that the ruling of the bankruptcy court must be ignored. ECF No. 109 at 3-4. The reasoning is tortuous to say the least.

Smith's argument lacks merit for a number of reasons. First, as discussed below, Sexton made no such misrepresentation. Secondly, this action is not the forum in which Winding could seek review of the bankruptcy court's order. Further, Smith has no standing to assert Winding's rights that might have arisen from Winding's bankruptcy petition. As for Smith's own interest in this case, the March 31, 2014 order staying this case made clear that even if the automatic stay had applied to Winding due to Winding's bankruptcy petition, it would not have applied to Smith.[5] ECF No. 101 at 2. Pursuant to 11 U.S.C. § 362, the filing of the bankruptcy petition operates as an automatic stay only as to claims against the debtor or, in this case, defendant Winding. As the Ninth Circuit has explained:

All proceedings in a single case are not lumped together for purposes of automatic stay analysis. Even if the first claim filed in a case was originally brought against the debtor, section 362 does not necessarily stay all other claims in the case. Within a single case, some actions may be stayed, others not. Multiple claim and multiple party litigation must be disaggregated so that particular claims, counterclaims, cross claims and third-party claims are treated independently when determining which of their respective proceedings are subject to the bankruptcy stay.

Parker v. Bain, 68 F.3d 1131, 1137 (9th Cir. 1995).

Thus, section 362 would not have automatically stayed this action as to the other, non-bankrupt defendant, Smith. See Ingersoll-Rand Financial Corp. v. Miller Mining Co. Inc., 817 F.2d 1424, 1427 (9th Cir. 1987) ("In the absence of special circumstances, stays pursuant to section 362(a) are limited to debtors and do not include non-bankrupt co-defendants.").

As to Smith's allegations of fraud in obtaining the order, contrary to her contention there is no indication that the bankruptcy court relied on the declaration of Mr. Sexton in finding that no automatic stay went into effect. The order finding that there was no automatic stay specifically found that Winding had "filed three previous Chapter 13 cases, all of which were dismissed for reasons unrelated to 11 U.S.C. § 707(b) within one year preceding the filing of the instant Chapter 13 case on January 21, 2014." ECF No. 102 at Ex. 1. The order further stated that "no automatic stay came into effect in this case at any time by operation of law. 11 U.S.C. § 362(c)(4)(A)." Id. 11 U.S.C. § 362(c)(4)(A) provides that:

(i) if a single or joint case is filed by or against a debtor who is an individual under this title, and if 2 or more single or joint cases of the debtor were pending within the previous year but were dismissed, other than a case refiled under a chapter other than chapter 7 after dismissal under section 707(b), the stay under subsection (a) shall not go into effect upon the filing of the later case; and
(ii) on request of a party in interest, the court shall promptly enter an order confirming that no stay is in effect.

Accordingly, the bankruptcy court found that no automatic stay went into effect because Winding had filed two or more bankruptcy petition in the previous year. There is nothing in that finding that relies on or is dependent upon representations by Sexton.

Further, the misrepresentations identified by Smith are not material to the question of whether the automatic stay applied. Rather, they all deal with whether Mr. Sexton was a percipient witness to the underlying facts surrounding the 2005 purchase of the vessel. These allegations have nothing to do with Winding's previous bankruptcy petitions. Accordingly, the alleged "new evidence"-Mr. Sexton's misrepresentations-do not warrant reconsideration of this court's prior orders.

Lastly, and significantly, there is no basis whatsoever for Smith's position that Mr. Sexton committed fraud on the bankruptcy court. Mr. Sexton does not make any statement in his declaration claiming to be a percipient witness to the disputed transaction. Rather, he states that he has personal knowledge of certain limited facts, which are based on exhibits that he had attached to his declaration filed with the bankruptcy court.[6] For example, Sexton declares that on July 12, 2005, Smith purchased the vessel from a dealer in Sacramento. He further states that Smith financed the purchase price of $336, 053, and executed a Preferred Mortgage of vessel. ECF No. 119 at Ex. 2. Sexton does not claim that he was a witness to this transaction. He simply recites what is depicted by the exhibits. See id. The suggestion that he asserted otherwise is disingenuous.

Smith has failed to show that the bankruptcy court relied on misrepresentations in Sexton's declaration or that there was any fraud. Further, Smith has shown no ...


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