United States District Court, N.D. California, San Jose Division
April 8, 2015
LAWRENCE RABIDOU, Plaintiff,
WACHOVIA CORPORATION F/K/A WORLD SAVINGS BANK, FSB; and WELLS FARGO BANK, NATIONAL ASSOCIATION, Defendants.
ORDER GRANTING MOTIONS TO DISMISS AND TO EXPUNGE (Re: Docket Nos. 28, 34)
PAUL S. GREWAL, Magistrate Judge.
On October 29, 2014, the court heard argument on Defendant Wells Fargo Bank Southwest N.A.'s first motion to dismiss Plaintiff Lawrence Rabidou's initial complaint. On November 11, 2014, Rabidou amended his bankruptcy schedules to account for his district court claims for the first time. On December 18, 2014, the court granted Wells Fargo's first motion to dismiss based on judicial estoppel. Rabidou then filed a first amended complaint.
Rabidou's mid-November amendment does not change the fact that for over two and a half years, Rabidou knew of potential claims, misrepresented his status in bankruptcy court and benefited from this misrepresentation. Because Rabidou's claims remain barred by the doctrine of judicial estoppel, the court GRANTS Wells Fargo's motions to dismiss Rabidou's first amended complaint, to expunge and for attorney's fees.
Judicial estoppel is an "equitable doctrine that precludes a party from gaining advantage by asserting one position, and then later seeking an advantage by taking a clearly inconsistent position." "[A] court invokes judicial estoppel not only to prevent a party from gaining an advantage by taking inconsistent positions, but also because of general consideration[s] of the orderly administration of justice and regard for the dignity of judicial proceedings, ' and to protect against a litigant playing fast and loose with the courts.'" "The application of judicial estoppel is not limited to bar the assertion of inconsistent positions in the same litigation, but is also appropriate to bar litigants from making incompatible statements in two different cases."
"In the bankruptcy context, a party is judicially estopped from asserting a cause of action not raised in a reorganization plan or otherwise mentioned in the debtor's schedules or disclosure statements." A debtor has a duty to file a schedule of assets and liabilities. The debtor may amend the schedule as a matter of course at any time before the case is closed. As such, "the Bankruptcy Code and Rules impose upon bankruptcy debtors an express, affirmative duty to disclose all assets, including contingent and unliquidated claims, '" or separate actions as assets,  that "continues for the duration of the bankruptcy proceeding." "[J]udicial estoppel will be imposed when the debtor has knowledge of enough facts to know that a potential cause of action exists during the pendency of the bankruptcy, but fails to amend his [or her] schedules or disclosure statements to identify the cause of action as a contingent asset." It is not necessary that a plaintiff know "all" facts giving rise to a particular claim.
Rabidou owned fourteen houses. On December 16, 2004, he entered into a consumer credit transaction with Wells Fargo involving a $608, 000 mortgage loan. A first trust deed on Rabidou's principal residence secured the note. Over the next ten years, in the face of medical and financial difficulties, Rabidou lost thirteen houses, leaving him with only the residence. Rabidou ultimately defaulted on his mortgage loan, and in 2009 Wells Fargo commenced foreclosure proceedings. During foreclosure proceedings, Rabidou submitted multiple loan modification applications. Wells Fargo initially told Rabidou it would not foreclose, but then began foreclosure proceedings. Wells Fargo later halted the foreclosure. In 2012, Rabidou filed for Chapter 13 bankruptcy, a proceeding that is still active. Since 2008, Rabidou has made no mortgage payments.
In 2014, Rabidou filed suit in state court for improper denial of the loan modification applications. In that complaint, Rabidou alleges negligence, fraudulent concealment, negligent and fraudulent misrepresentation, fraudulent inducement, unfair business practices under the Business and Professions Code 17200 et seq., violation of § 15 U.S.C. 1641(g) and violation of Cal. Civ. Code § 2924. After removing the case to this court, Wells Fargo moved to dismiss each of Rabidou's claims based on judicial estoppel, the statute of limitations and failure to state a claim. Rabidou amended his bankruptcy schedule to add the claims as assets just after the court's hearing on Wells Fargo's first motion to dismiss, about a month before the court granted Wells Fargo's first motion to dismiss. Rabidou then filed an amended complaint. Wells Fargo now moves to dismiss this latest complaint, once again based on judicial estoppel, the statute of limitations and failure to state a claim. Wells Fargo separately moves to expunge Rabidou's lis pendens.
This court has jurisdiction under 28 U.S.C. §§ 1331, 1332 and 1367. The parties further consented to the jurisdiction of the undersigned under 28 U.S.C. § 636(c) and Fed.R.Civ.P. 72(a).
Rabidou may be right that he has stated sufficient claims not barred by any statute of limitations. But the court cannot reach those issues because Rabidou is judicially estopped from raising such claims due to his failure to identify the claims on his bankruptcy schedule for over two and a half years.
The Ninth Circuit has addressed the applicability of the equitable doctrine of judicial estoppel in the context of bankruptcy proceedings and has laid out three factors a court should consider in determining whether judicial estoppel applies. A court must consider (1) whether a party's later position is clearly inconsistent with its earlier position; (2) whether the party has succeeded in persuading a court to accept that party's earlier position, so that judicial acceptance of an inconsistent position in a later proceeding would create the perception that either the first or second court was misled and (3) whether the party seeking to assert an inconsistent position would cause the opposing party unfair detriment if not estopped. Notwithstanding the factors enumerated above, the Ninth Circuit has noted that it does "not establish inflexible prerequisites or an exhaustive formula for determining the applicability of judicial estoppel." "Additional considerations may inform the doctrine's application in specific factual contexts." Applying the Hamilton factors,  and bearing in mind the broader considerations of the doctrine, the court finds that judicial estoppel bars Rabidou's claims.
First, Rabidou took inconsistent positions. He filed a Chapter 13 bankruptcy petition and initial schedules without disclosing any claims against Wells Fargo, and amended his schedules to include his claims only two and a half years later, just after the court's hearing on Wells Fargo's first motion to dismiss. Rabidou alleges "this omission was simply an inadvertent oversight based on the discovery of viable claims against Wells Fargo almost two years" after he filed for bankruptcy-not an attempt to defraud creditors. Rabidou claims it was only when he convinced a Wells Fargo branch manager to let him see his file and compare notes with his denial letters-in May 2014-that he uncovered his claims. Rabidou highlights that there have been no meetings between the creditors between May 2014 and November 2014, suggesting no creditors were harmed by his delay in rescheduling since his discovery.
Though Rabidou asserts that he learned of viable claims only in May 2014, the misconduct he alleges spans from 2007 to 2012. His allegations are those that a reasonable party would recognize as claims at the time they occurred: the bank's assertions of missing documents when Rabidou had sent the documents multiple times, for example, or the commencement of foreclosure after a promise to delay foreclosure proceedings. To the extent that Rabidou's allegations are true, he possessed sufficient facts to know that a potential cause of action existed before filing his petition. Rabidou's allegations of such obvious misconduct further contradict his claim of good faith, inadvertent oversight.
Second, the bankruptcy court, the Trustee, and Rabidou's creditors relied on Rabidou's schedules that did not disclose Rabidou's claims against Wells Fargo. Rabidou amended his bankruptcy schedules three times without disclosing any such claims, and only amended when the court prompted him to do so. For over two and a half years, the Trustee and Rabidou's creditors relied on his misrepresented schedules in conducting meetings, submitting proofs of claim and responding to Rabidou's proposed plans of reorganization. The Trustee, creditors, and bankruptcy court were clearly misled. Rabidou "succeeded in persuading a court to accept [his] earlier position, so that judicial acceptance of an inconsistent position in a later proceeding... create[s] the perception that either the first or the second court was misled."
Third, absent estoppel, Rabidou would derive an unfair benefit by proceeding with this case. Rabidou has received the benefit of the automatic stay and protection from foreclosure without meeting his own obligation to the bankruptcy court or his creditors. Rabidou's late disclosure of his claims and this case to the Trustee and his creditors after the court heard Wells Fargo's motion to dismiss does not mitigate his failure to schedule his claims over two and a half years ago. Since filing his original petition for Chapter 13 bankruptcy, Rabidou has filed four proposed plans of reorganization. Rabidou's Trustee and creditors have filed seven objections to Rabidou's proposals. The Trustee eventually filed a motion to dismiss for failure to make plan payments-which she withdrew one day after Rabidou filed his amended Schedule B disclosing his claim. Showing unfair reliance and inefficient use of the courts' resources, absent intervention, the Trustee likely would have to investigate Rabidou's new claims and their value, and conduct another Section 341 meeting. In the meantime, Rabidou would continue to benefit from the protections of bankruptcy. "The offending litigants, not courts, should be made to bear the consequence of non-disclosure. It is the court system, after all, that judicial estoppel aims to protect."
On balance, Rabidou's allegations show he had "knowledge of enough facts to know that a potential cause of action" existed at the outset of his bankruptcy, when he filed his amended schedules, and when he met with his creditors. Given the evidence presented, Rabidou's failure to disclose his claims could not have been inadvertent or a mistake, and indeed misled the bankruptcy court which protected him for over two and a half years. Wells Fargo's motion to dismiss each of Rabidou's claims as a matter of judicial estoppel is GRANTED. Because any further amendment would be futile, this dismissal is without further leave to amend.
Wells Fargo also moves to expunge the notice of pendency of action recorded by Rabidou against his property, and requests attorneys' fees against Rabidou under Cal. Code of Civ. P. § 405.38. Rabidou concedes he does not state claims viable to support his lis pendens, which clouded the property title and delayed its sale,  and agrees the notice of pendency of action should be expunged. However, Rabidou objects to Wells Fargo's request for attorney's fees and costs.
Section 405 and its predecessor statutes were enacted to mitigate and correct abuses prevalent in the use of notices of pendency of action. To maintain a lis pendens, a plaintiff must affirmatively come forth with evidence that proves a "probable validity" of a "real property claim." If a plaintiff cannot do so, his lis pendens must be expunged. The "probable validity" standard in the lis pendens statute is analogous to the "likelihood of success" standard in determining whether to issue a preliminary injunction. Further, a "real property claim" is limited to a cause of action which, if meritorious, would affect title to, or the right to possession of, specific real property. "[A]n action for money only, even if it relates in some way to specific real property, will not support a lis pendens."
Section 405.38 specifically provides that a "court shall direct that the party prevailing on any motion under this chapter be awarded the reasonable attorney's fees and costs of making or opposing the motion unless the court finds that the other party acted with substantial justification or that other circumstances make the imposition of attorney's fees and costs unjust." An award of attorneys' fees is mandatory unless, upon filing the lis pendens, the plaintiff had a good-faith basis in fact and law for believing he could satisfy all requirements for filing it. The burden is on the party opposing the motion to expunge.
Rabidou's first amended complaint claims are for damages, not real property. In addition, because Rabidou's claims are judicially estopped, his lis pendens is invalid in any case.
In determining attorney's fees, Rabidou argues the court should focus on his original complaint, to which the lis pendens action tied. There, at least some claims are tied to the California's Homeowner's Bill of Rights and the act of filing a notice of default, initiating foreclosure proceedings under Cal. Civ. Code Section 2924 (a)(1). But Rabidou does not seek injunctive relief in connection with his negligence or unfair competition law claims, and the Homeowner's Bill of Rights sections at issue, Cal. Civ. Code Sections 2924.17 and 2924(a)(6), were not operable in 2009.
Rabidou also argues that it would be unjust to award attorney's fees, because Rabidou attempted to stipulate with Wells Fargo to remove the lis pendens action, Rabidou has spared Wells Fargo additional cost by not opposing Wells Fargo in this action and Rabidou faces impending foreclosure and other financial difficulties. But Rabidou has not met his burden to show that he had a good faith basis to record the lis pendens, and he has acted too late. Rabidou filed his lis pendens over six months ago and has yet to withdraw it. Even if Rabidou's initial complaint showed a good faith basis for the lis pendens, Rabidou filed an amended complaint over three months ago, and again he never withdrew the lis pendens-Wells Fargo filed its motion to expunge the lis pendens over a month after Rabidou's amended complaint. Only then did Rabidou offer to withdraw the lis pendens, but Rabidou did not offer to pay Wells Fargo's attorney's fees associated with its motion. Wells Fargo's short reply brief does not show any abuse of resources in anticipation of an attorney's fees award. Wells Fargo's motion to expunge and for attorney's fees in the amount of $3, 240 therefore is GRANTED.
Both of Wells Fargo's motions are GRANTED. The Clerk shall close the file.