United States District Court, S.D. California
ORDER AFFIRMING BANKRUPTCY COURT ORDER
GONZALO P. CURIEL UNITED STATES DISTRICT JUDGE
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).
a bankruptcy appeal brought by Debtor-Appellant Melissa Carin
Mather Bobka (“Mather”) 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 249, 253.
APPELLATE JURISDICTION AND STANDARD OF REVIEW
district court has jurisdiction to hear this bankruptcy
appeal pursuant to 28 U.S.C. § 158(a)(1).
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).
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.
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).
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.
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.
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.
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.
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
Waiver of any Argument Challenging that Toyota Did Not
Violate the Automatic Stay
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.
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.”)).
Section 365(p) Lease Assumption and Section 524
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).
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.
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. §
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