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Castillo v. Wells Fargo Bank, N.A.

United States District Court, S.D. California

July 25, 2016

GREGORIA GUTIERREZ CASTILLO, Appellant,
v.
WELLS FARGO BANK, N.A., et al., Appellees.

          ORDER AFFIRMING BANKRUPTCY COURT

          MARILYN L. HUFF, District Judge UNITED STATES DISTRICT COURT

         Appellant/Debtor Gregoria Gutierrez Castillo (“Appellant”) appeals the bankruptcy court’s February 3, 2016 order denying three of her motions. (Doc. No. 4-10 at 9-14.)[1]On March 18, 2016, Appellant filed an opening brief. (Doc. No. 4.) On April 6, 2016, Appellee/Creditor Wells Fargo (“Appellee”) filed an amended response brief. (Doc. No. 11.) On April 8, 2016, Appellant filed a reply brief. (Doc. No. 13.) For the reasons below, the Court affirms the bankruptcy court’s order.

         Background

         On January 17, 2012, Appellant filed a petition for Chapter 7 bankruptcy. (Doc. No. 3-1 at 7.) The bankruptcy court granted discharge on April 11, 2012. (Id. at 29.) The case was closed on September 25, 2012. (Id. at 33.) In Appellant’s bankruptcy schedules, she listed a fee simple interest in property encumbered by two liens in favor of JP Morgan Chase. (Id. at 32.) Appellee is the successor in interest to the liens. (Id. at 33.) On June 7, 2013, Appellee filed a state court complaint against a number of defendants, including Appellant, seeking quiet title, to impress an equitable lien, judicial foreclosure, cancellation of deed, and declaratory relief. (Doc. No. 11-2 at 151.) In the prayer, Appellee included a deficiency judgment against Appellant as a remedy. (Id. at 161.)

         On June 8, 2015, Appellant filed a motion to reopen her bankruptcy case for the purpose of challenging the portion of the state court complaint prayer for relief that sought a deficiency judgment, which, she alleged, violated her bankruptcy discharge. (Doc. No. 4-4 at 1-2, 7.) Appellant then filed numerous motions. (Doc. Nos. 1; 4-4 at 9, 27; 4-7 at 1; 11-2 at 8, 17; 11-5 at 103; 11-6 at 291.) In total, the bankruptcy court issued five orders addressing her motions. (Doc. No. 4-10 at 11.) On October 6, 2015, the bankruptcy court declined to order Appellee to show cause for why it should not be held in contempt. (Doc. No. 3-1 at 40.) The bankruptcy court held a hearing on November 10, 2015 to determine what damages Appellant suffered due to the alleged violation of the discharge. (Doc. No. 11-5 at 17-98.) On December 4, 2015, the bankruptcy court issued an order concluding that Appellee’s prayer for a deficiency judgment in its state court complaint violated Appellant’s discharge injunction. (Doc. No. 11-5 at 168.) But the bankruptcy court declined to impose monetary sanctions for the violation because Appellant was unable to demonstrate damages arising from the prayer for a deficiency judgment, as she needed to defend the remainder of the state court complaint. (Id. at 167-69.) On January 12, 2016, the bankruptcy court quashed subpoenas that Appellant issued against Appellee’s corporate officers requiring them to appear at a hearing on her reconsideration motions. (Doc. No. 11-6 at 63.) On January 26, 2016, the bankruptcy court denied Appellant’s motion for reconsideration of her motions to impose sanctions and hold Appellee in contempt. (Id. at 247.)

         This appeal concerns the bankruptcy court’s February 3, 2016 order denying three of Appellant’s motions: (1) a motion for sanctions to be imposed on the attorney who filed the state action and testified at the evidentiary hearing; (2) a motion to strike pleadings; and (3) a motion compelling Appellee to file an amended complaint in the state court action. (Doc. Nos. 4-9 at 1; 4-10 at 9-14; 11-6 at 24, 260.)

         Discussion

         I. Legal Standards

         A district court reviews a bankruptcy judge’s decision by applying the same standard of review used by circuit courts when reviewing district court decisions. See In re Greene, 583 F.3d 614, 618 (9th Cir. 2009); In re Baroff, 105 F.3d 439, 441 (9th Cir. 1997). “The bankruptcy court’s findings of fact are reviewed for clear error, while its conclusions of law are reviewed de novo.” In re JTS Corp., 617 F.3d 1102, 1109 (9th Cir. 2010) (quotation marks omitted). The district court must accept the bankruptcy court’s factual findings “unless these findings leave the definite and firm conviction that a mistake has been committed by the bankruptcy judge.” In re Straightline Investments, Inc., 525 F.3d 870, 876 (9th Cir. 2008). “Mixed questions of law and fact are reviewed de novo.” In re JTS, 617 F.3d at 1109. A mixed question of law and fact occurs when the facts are established, the rule of law is undisputed, and the issue is whether the facts satisfy the legal rule. See In re Bammer, 131 F.3d 788, 792 (9th Cir. 1997). When sitting as an appellate court in bankruptcy, the district court need not adopt the bankruptcy court’s rationale and may affirm on any basis supported by the record. See In re Frontier Properties, Inc., 979 F.2d 1358, 1364 (9th Cir. 1992).

         A debtor may be entitled to recover damages for a violation of a discharge injunction pursuant to the contempt power under 11 U.S.C. § 105(a). See Walls v. Wells Fargo Bank, N.A., 276 F.3d 502, 507 (9th Cir. 2002). “The standard for finding a party in civil contempt is well settled: The moving party has the burden of showing by clear and convincing evidence that the contemnors violated a specific and definite order of the court.” In re Dyer, 322 F.3d 1178, 1190-91 (9th Cir. 2003). A district court reviews a bankruptcy court’s decision regarding sanctions for abuse of discretion. See In re Snowden, 769 F.3d 651, 657 (9th Cir. 2014); In re Icenhower, 755 F.3d 1130, 1138 (9th Cir. 2014). “A bankruptcy court abuses its discretion if it applies an incorrect legal standard or misapplies the correct legal standard, or if its fact findings are illogical, implausible or not supported by evidence in the record.” In re City of Stockton, California, 542 B.R. 261, 272 (B.A.P. 9th Cir. 2015).

         “The bankruptcy court’s witness credibility findings are entitled to special deference, and are also reviewed for clear error.” In re Weinberg, 410 B.R. 19, 28 (B.A.P. 9th Cir. 2009). Under Federal Rule of Evidence 103, in order to preserve an objection for appeal, the objection must be timely. Failure to make an objection before the trial court constitutes a waiver. See Torres v. Johnson Lines, 932 F.2d 748, 752 (9th Cir. 1991).

         In bankruptcy proceedings, a motion for reconsideration is made under Federal Rule of Bankruptcy Procedure 9023, which provides that a “motion for a new trial or to alter or amend a judgment shall be filed, and a court may on its own order a new trial, no later than 14 days after entry of judgment.” Reconsideration will only be granted if the bankruptcy court “(1) is presented with newly discovered evidence that was not available at the time of the original hearing, (2) committed clear error or made an initial decision that was manifestly unjust, or (3) there is an intervening change in controlling law.” In re Fadel, 492 B.R. 1, 18 (B.A.P. 9th Cir. 2013). “A bankruptcy court’s denial of a motion for reconsideration is reviewed for abuse of discretion.” In re Onecast Media, Inc., 439 F.3d 558, 561 (9th Cir. 2006).

         Federal Rule of Bankruptcy Procedure 9024 provides relief from a judgment or order, incorporating Federal Rule of Civil Procedure 60(b). Rule 60(b) provides:

         On motion and just terms, the court may relieve a party or its legal representative from a final judgment, order, ...


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