Searching over 5,500,000 cases.

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Mather Bobka v. Toyota Motor Credit Corp.

United States District Court, S.D. California

May 23, 2018




         This case presents an issue of first impression in the Southern District of California and the Ninth Circuit, that is, does a lease assumption agreement under 11 U.S.C. § 365(p) remain enforceable following discharge even if the lease assumption was not reaffirmed under 11 U.S.C. § 524(c)? District and bankruptcy courts outside the Ninth Circuit that have confronted the question all agree that the interplay between these statutes is confusing but disagree on the answer to the question. The Court concludes that reaffirmation under Section 524(c) is not required where a debtor has properly assumed a lease under Section 365(p)(2).

         This is a bankruptcy appeal brought by Debtor-Appellant Melissa Carin Mather Bobka (“Mather”)[1] against Appellee Toyota Motor Credit Corporation. In this appeal, the Court reviews the Memorandum Decision of Chief Judge Laura S. Taylor of the United States Bankruptcy Court for the Southern District of California which found: (1) that Toyota's collection actions did not violate the automatic stay since any such actions took place after Mather's bankruptcy had been discharged; (2) that reaffirmation under Section 524(c) is not required when a lease is assumed under Section 365(p)(2); and (3) that--due to waiver by Toyota regarding written notification and a 30-day timing requirement-- Mather did actually assume the Lease when she executed the Lease Assumption Agreement. AR[2] 249, 253.


         The district court has jurisdiction to hear this bankruptcy appeal pursuant to 28 U.S.C. § 158(a)(1).

         On appeal, the district court reviews the bankruptcy court's findings of fact for clear error and reviews its conclusions of law de novo. In re Int'l Fibercom, 503 F.3d 933, 940 (9th Cir. 2007). Whether the bankruptcy court applied the correct legal standard is a legal issue which is reviewed de novo. In re Karelin, 109 B.R. 943, 946 (B.A.P. 9th Cir. 1990).

         II. BACKGROUND [3]

         On August 31, 2016, Mather filed a voluntary Chapter 7 bankruptcy petition. AR 10, 16. She was represented by the Doan Law Firm throughout her bankruptcy proceedings and in this instant appeal. In her bankruptcy schedules, Mather stated an intention to reaffirm a 2014 Toyota RAV4 (“Vehicle”) as a secured debt. AR 250. Her schedules erroneously described Toyota as a lender with a claim secured by a lien against the vehicle, when in actuality Toyota was the lessor of the Vehicle. As such, Mather should have completed part 2 of the Statement of Intention which requires specificity as to her intention to assume the lease of the Vehicle. Id.

         Pursuant to Section 365(d)(1), Ms. Mather's chapter 7 trustee had the right to assume the Lease during the first 60 days of the bankruptcy case, but did not do so. Id. As of October 31, 2016, the Vehicle was not an asset of the estate and the automatic stay as to the vehicle was terminated pursuant to Section 365(p)(1). Section 365(p)(2) provides that where a trustee fails to timely assume a lease, a debtor has the right to attempt assumption by advising her lessor “in writing” of her desire to assume the lease. 11 U.S.C. § 365(p)(2).

         Mather did not send any “writing” to Toyota. However, on September 8, 2016, she called Toyota and requested that she be allowed to continue payments to retain the vehicle. AR 251. Toyota's agent, National Bankruptcy Services LLC (“NBS”) advised Mather that she needed to assume the lease to retain the vehicle. On September 16, 2016, the NBS prepared an assumption agreement and sent it to Mather's attorney at the Doan Law Firm. Mather, who was traveling and attempting a marital reconciliation, did not immediately execute the Lease Assumption Agreement until December 5, 2016. AR 252 Despite the fact that this may have been untimely under § 365(p)(2)(B), Toyota accepted her request for assumption and acknowledged receipt of the executed document on December 6, 2016. Id.

         Mather received her discharge on December 6, 2016, and her case closed on December 12, 2016. Id. While Mather was not in default on the lease when she entered bankruptcy and made payments during the bankruptcy proceedings, in November 2016 she stopped lease payments despite the execution of the Lease Assumption Agreement in December. Toyota does not dispute that it engaged in collection activity between December 20, 2016 through approximately February 25, 2017. Id. The bankruptcy judge observed that Mather provided hearsay testimony that Toyota had called her parent's home while she was traveling prior to her discharge, but that there was no record of any such calls, and particularly that there was no evidence that they related to collection attempts.

         On January 2, 2017, Debtor surrendered the vehicle. Id. Mather advised Toyota that her bankruptcy precluded collection attempts and that her assumption of the Lease was ineffective as it was not coupled with reaffirmation. On February 25, 2017, Plaintiff, through the Doan Law Firm, requested an Order to Show Cause re: Violation of the Automatic Stay and Violation of the Plan Discharge. AR 253. In that request, Mather alleged significant emotional distress and requested over $50, 000 in compensatory and punitive damages, remedial or coercive sanctions as appropriate, and attorneys' fees. The Bankruptcy Court issued the OSC, which was followed by several rounds of briefing and two hearings. Id.

         On November 16, 2017, the bankruptcy court issued its Memorandum Decision. On November 27, 2017, Mather filed her Notice of Appeal from the bankruptcy court, and elected to have its appeal heard by the United States District Court for the Southern District of California instead of the Ninth Circuit's Bankruptcy Appellate Panel. Dkt. No. 1 at 2. Appellant filed their Opening Brief on February 1, 2018. Dkt. No. 9. Appellee filed it Responsive Brief on March 12, 2018. Dkt. No. 15. Appellant filed a Reply on March 26, 2018. Dkt. No. 16.


         The instant bankruptcy appeal addresses three issues: (1) whether Appellant waived a challenge to the bankruptcy judge's order that Toyota did not violate the automatic stay; (2) whether a Section 365(p) lease assumption must always be coupled with a judicially approved Section 524(c) reaffirmation for personal liability to attach post-discharge; and (3) whether Mather actually assumed the lease.

         A. Waiver of any Argument Challenging that Toyota Did Not Violate the Automatic Stay

         Chief Judge Taylor found that Toyota did not violate the automatic stay as the automatic stay had already terminated by the time Toyota commenced collection activities. AR 254. The bankruptcy court found that there was limited hearsay evidence that Toyota may have made calls to Mather between November 9, 2016 and December 12, 2016, but that this evidence was not conclusive and that the calls could have been unrelated to collection activities, such as for Mather's pending Lease assumption or the recovery of the Vehicle. Id. Next, the court found that Toyota's transmission to Mather of a lease assumption agreement was not a stay violation because it was requested from the debtor and because it had been transmitted only to the Doan Law Firm and not Mather directly. AR 255.

         Appellees contend as a threshold matter that Mather has waived any claim that Toyota violated the automatic stay by failing to challenge this issue on appeal. The Court agrees. Appellant did not raise this issue in her Opening or Reply Briefs. See Dkt. Nos. 9, 16. Moreover, Appellant solely framed the “Issue Presented” in this case as “[d]oes 11 USC 365(p) override the discharge protections of 11 USC 524?” Dkt. No. 9 at 1. Accordingly, the Court finds that to the extent Appellant sought to challenge the bankruptcy court's finding that Toyota did not violate the automatic stay, Appellant has waived that argument. See In re Meehan, 659 Fed.Appx. 437, 438 (9th Cir. 2016) (citing Smith v. Marsh, 194 F.3d 1045, 1052 (9th Cir. 1999) (“[O]n appeal, arguments not raised by a party in its opening brief are deemed waived.”)).

         B. Section 365(p) Lease Assumption and Section 524 Reaffirmation

         1. Section 365(p)

         The Bankruptcy Abuse Prevention and Consumer Act (“BAPCPA”) of 2005 was enacted in October 2005 and added a new subsection (p) allowing the debtor--rather than a trustee--to assume a lease. See 11 U.S.C. § 365(p). Prior to the enactment of the Act, the power to assume a lease in a Chapter 7 case was given only to the trustee. See 11 U.S.C. § 365(a) (“[T]he trustee, subject to the court's approval, may assume or reject any executory contract or unexpired lease of the debtor.”). If the trustee did not exercise the right of assumption as to a particular lease, a chapter 7 debtor was free to enter into a reaffirmation agreement as to his or her obligations under the lease (with lessor approval), but “assumption” was not an option for the chapter 7 debtor. See In re Creighton, 427 B.R. 24, 25 (Bankr. D. Mass. 2007).

         Post-BAPCPA, even if a lease is rejected or deemed rejected by a trustee's non- action, a debtor may assume a lease under 11 U.S.C. § 365(p). Section 365(p) specifically addresses the assumption of a personal property lease by a debtor. It provides as follows:

(1) If a lease of personal property is rejected or not timely assumed by the trustee under subsection (d), the leased property is no longer property of the estate and the stay under section 362(a) is automatically terminated.
(2) (A) If the debtor in a case under chapter 7 is an individual, the debtor may notify the creditor in writing that the debtor desires to assume the lease. Upon being so notified, the creditor may, at its option, notify the debtor that it is willing to have the lease assumed by the debtor and may condition such assumption on cure of any outstanding default on terms set by the contract.
(B) If, not later than 30 days after notice is provided under subparagraph (A), the debtor notifies the lessor in writing that the lease is assumed, the liability under the lease will be assumed by the debtor and not by the estate.
(C) The stay under section 362 and the injunction under section 524(a)(2) shall not be violated by notification of the debtor and negotiation of cure under this subsection.

         A lease assumption under Section 365(p) proceeds in several steps:

[T]he debtor offers to assume the lease obligation, and the lessor decides whether to accept the debtor's offer . . . . If the lessor determines that it is willing to allow the debtor to assume the lease, it will then notify the debtor of this decision, and may condition such assumption on cure of any outstanding defaults on terms set by the contract, however, the lessor is not under any obligation to accept the debtor's offer. Upon being notified of intent to assume an unexpired lease under 11 U.S.C. § 365(p)(2)(A), the lessor is granted safe harbor to contact the debtor with an acceptance and if necessary, negotiate a cure without violating the automatic stay or the discharge injunction. . . .If the parties come to an agreement, the third and final step required by the statute is that a writing between the lessor and the debtor be signed to memorialize the terms of the lease assumption.

Williams v. Ford Motor Credit Co., LLC, No. 15-CV-14201, 2016 WL 2731191, at *3 (E.D. Mich. May 11, 2016) (citing In re Perlman, 468 B.R. 437, 439 (Bankr. S.D. Fla. 2012) (quotations and citations omitted)). Section 365(p) does not require a bankruptcy court to review or approve a lease assumption agreement. See In re Ebbrecht, 451 B.R. 241, 245 (Bankr. E.D.N.Y. 2011) (“Neither judicial review nor approval of the lease assumption agreement is required by the Bankruptcy Code or Rules.”). A lease assumed by the chapter 7 debtor becomes a liability of the debtor, and not a liability of the estate. See Id. (citing 11 U.S.C. § 365(p)(2)(B)).

         2. Section 524(c)

         Section 524(c) provides a general framework under which a debtor may agree to remain personally liable for a debt obligation following entry of discharge. Under the Section, the following is required:

(c) An agreement between a holder of a claim and the debtor, the consideration for which, in whole or in part, is based on a debt that is dischargeable in a case under this title is enforceable only to any extent enforceable under applicable nonbankruptcy law, whether or not discharge of such debt is waived, only if -
(1) such agreement was made before the granting of the discharge . . .
(2) the debtor received the disclosures described in subsection (k) at or before the time at which the debtor signed the agreement;
(3) such agreement has been filed with the court...
(4) the debtor has not rescinded such agreement...[and]
(5) the provisions of subsection (d) of this section have been ...

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.