Opinion
Case No.: 2:16-bk-21026-ER
02-06-2017
In re: Syed Aurangzeb Pirzada, Debtor.
Chapter: 11
MEMORANDUM OF DECISION DENYING MOTION SEEKING TO SET ASIDE FORECLOSURE SALE
[No hearing required pursuant to Federal Rule of Civil Procedure 78(b) and Local Bankruptcy Rule 9013-1(j)(3)]
On January 31, 2017, Syed Aurangzeb Pirzada ("Debtor") filed a pro se motion captioned Request for Reconsideration and Temporary Restraining Orders to Be Heard on Shortened Notice Pending Motion for Reconsideration on Case No. 2:16-bk-21026-ER ("Motion") [Doc. No. 75]. The Motion seeks, among other things, to set aside a foreclosure sale that was conducted on September 30, 2016. Debtor did not schedule the Motion for hearing in accordance with the Local Bankruptcy Rules ("LBR"), and did not submit the Motion for adjudication on a negative-notice basis pursuant to LBR 9013-1(o). The Court finds this matter appropriate for disposition without oral argument pursuant to Civil Rule 78(b) and LBR 9013-1(j)(3). For the reasons set forth below, the Motion is DENIED.
I. Facts
On May 14, 2015, Debtor commenced a voluntary Chapter 11 petition, Case No. 2:15-bk-17752-ER ("First Petition"). Debtor was represented by counsel in connection with the First Petition. On July 21, 2016, the Court denied the Debtor's motion to confirm a Plan of Reorganization ("Plan"), and dismissed the First Petition. See Order: (1) Denying Debtor's Motion to Confirm Chapter 11 Plan of Reorganization [Doc. No. 84]; and (2) Dismissing Debtor's Chapter 11 Case ("Dismissal Order") [Doc. No. 105, Case No. 2:15-bk-17752-ER]. The Court denied the Debtor's motion to confirm the Plan on the grounds that the Plan was not feasible. The Plan required the Debtor to pay administrative expenses on the Plan's effective date, and to make quarterly payments on account of priority tax claims over a five-year period. Because the Debtor was unemployed, had no source of income, and had no cash on hand, the Court found that it would not be possible for the Debtor to make the payments contemplated by the Plan. See Final Ruling Denying Confirmation Motion and Dismissing First Petition at 13-14 ("Dismissal Ruling") [Doc. No. 104, Case No. 2:15-bk-17752-ER].
Based on the Debtor's inability to confirm the Plan, the Court found that cause existed to dismiss the First Petition. The Court found that dismissal, as opposed to conversion to Chapter 7, was in the best interests of creditors given that there was no evidence of any equity in the properties owned by the Debtor. See Dismissal Ruling at 14-15. Debtor did not appeal the Dismissal Order.
On August 18, 2016, Debtor commenced a second voluntary Chapter 11 petition, Case No. 2:15-bk-21026-ER ("Second Petition"). Debtor is not represented by counsel in connection with the Second Petition. To prevent expiration of the automatic stay pursuant to §362(c)(3)(A), Debtor filed a motion to extend the stay. On September 15, 2016, the Court denied the motion to extend the stay, reasoning that the Debtor had failed to rebut the presumption that the Second Petition was filed in bad faith. See Ruling Denying Motion to Continue the Automatic Stay [Doc. No. 33] at 3-4. On September 22, 2016, the Court granted stay-relief to Socotra Fund, LLC ("Socotra Fund") with respect to property located at 68359 Jolon Road, Bradley, CA 93426 ("Jolon Road Property"), pursuant to §362(d)(4). Based on an unauthenticated Trustee's Deed Upon Sale submitted by the Debtor, it appears that Socotra Fund, the foreclosing beneficiary, acquired the Jolon Road Property for $10,000 at a non-judicial foreclosure sale conducted on September 30, 2016. Debtor appealed the order granting stay-relief to Socotra Fund. After the Bankruptcy Appellate Panel ("BAP") issued an order requiring Debtor to show cause why the appeal should not be dismissed as moot as a result of the foreclosure sale, the Debtor requested that the appeal be withdrawn. The BAP construed the withdrawal request as a motion for voluntary dismissal under Bankruptcy Rule 8023 and dismissed the appeal on December 7, 2016. See Doc. No. 63.
On September 6, 2016, Debtor filed a pro se complaint against Socotra Capital, Inc. ("Socotra Capital") ("First Complaint") [Adv. No. 2:16-ap-01410-ER]. The First Complaint alleges that Socotra Capital committed fraud, violated usury laws, breached its fiduciary duties, and violated the Truth-in-Lending Act in connection with a loan that Socotra Capital extended to the Debtor that was secured by the Jolon Road Property. On November 17, 2016, Debtor filed a second pro se complaint against Socotra Capital ("Second Complaint") [Adv. No. 2:16-ap-01508-ER]. The Second Complaint alleges that the $10,000 price for which the Jolon Road Property was sold at a September 30, 2016 non-judicial foreclosure sale was inadequate, and seeks to set aside the foreclosure sale as a fraudulent conveyance. The Second Complaint does not name Socotra Fund as a defendant, even though it was Socotra Fund—not Socotra Capital—that acquired the Jolon Road Property at the non-judicial foreclosure sale. On December 9, 2016, Debtor filed an Amended Second Complaint, which names both Socotra Fund and Socotra Capital as defendants. See Doc. No. 11, Adv. No. 2:16-ap-01508-ER.
On December 12, 2016, Debtor filed a motion captioned Requested hearing on shortened notice for Application for temporary restraining order to Show cause re: Preliminary injunction ("TRO Motion") [Doc. No. 12, 2:16-ap-01508-ER]. Debtor also filed an application seeking to have the TRO Motion heard on shortened time. The Court denied the Debtor's application for a hearing on shortened time, but stated that the TRO Motion could be brought on regular notice. The Court has not yet adjudicated the TRO Motion because the Debtor never scheduled a hearing on the TRO Motion on regular notice in accordance with the Court's self-calendaring procedures. The Court notes that the TRO Motion, which is largely unintelligible, does not adhere to the basic requirements applicable to a motion, including the requirements set forth in Civil Rule 7(b). As best the Court can determine, the TRO Motion seeks an order enjoining Socotra Fund and Socotra Capital from attempting to evict the Debtor from the Jolon Road Property.
On December 13, 2016, the Court conducted a status conference on the First Complaint. The Court noted that all the complaints that the Debtor had filed asserted claims arising in connection with the loan extended by Socotra Fund. The Court stated that adjudication of these related issues through different adversary proceedings was inefficient, and ordered the Debtor to file, by no later than December 30, 2016, a Third Amended Complaint setting forth all claims he wished to assert against Socotra Fund and Socotra Capital. The Court explained that the Third Amended Complaint would be the operative complaint and would supersede the First and Second Complaints. Debtor timely filed the Third Amended Complaint. See Doc. No. 17, Adv. No. 2:16-ap-01508-ER. Upon the filing of the Third Amended Complaint, the Court issued orders dismissing the First and Second Complaints. See Order Designating Third Amended Complaint as the Operative Complaint and Dismissing Adversary Proceeding that Has Been Superseded by the Filing of the Operative Complaint [Doc. No. 18, Adv. No. 2:16-ap-01508; identical order entered as Doc. No. 15, Adv. No. 2:16-ap-01410-ER].
On January 23, 2017, Debtor filed a motion seeking to disqualify the undersigned judge from adjudicating the Second Petition. On February 1, 2017, the Court issued a Memorandum of Decision Denying Motion to Recuse [Doc. No. 76, Case No. 2:16-bk-21026-ER; attached as Exhibit A and incorporated herein by reference] and corresponding Order Denying Motion to Recuse [Doc. No. 77, Case No. 2:16-bk-21026-ER]. The Court found that the Debtor had failed to establish grounds for disqualification under 28 U.S.C. §455.
On January 31, 2017, Debtor filed the instant Motion. The Motion seeks to invalidate the non-judicial foreclosure sale of the Jolon Road Property, on the ground that the price paid by Socotra Fund, the foreclosing beneficiary, "shocks the conscience of the court." Motion at 6. The Motion seeks a temporary restraining order barring Socotra Fund and Socotra Capital from evicting the Debtor from the Jolon Road Property. The Motion seeks a temporary restraining order barring the Daniel F. Bull Family Trust of 1997 ("Bull Trust") from conducting a non-judicial foreclosure sale of unimproved property located at Heinsen Road, Bradley, CA 93426 ("Heinsen Property"). Finally, the Motion reiterates the Debtor's request that Judge Robles be recused from adjudicating matters arising in the Second Petition.
II. Findings and Conclusions
It is necessary for the Court to address some preliminary matters before turning to the merits. First, Debtor seeks to have the Motion heard by a Bankruptcy Judge other than Ernest M. Robles. That request, as well as the Debtor's renewed request to have Judge Robles be recused from adjudicating all other matters arising in the Second Petition, is denied. The Court has already denied the Debtor's motion seeking to recuse Judge Robles from adjudicating the Second Petition. As explained in detail in the Memorandum of Decision Denying Motion to Recuse [Doc. No. 76, Case No. 2:16-bk-21026-ER], none of the grounds for disqualification set forth in 28 U.S.C. §455 apply.
Second, notwithstanding its caption, the Motion cannot properly be characterized as a motion for reconsideration. As explained above, the Court never ruled upon the Debtor's request for injunctive relief against Socotra Fund and Socotra Capital, because the Debtor failed to properly schedule the TRO Motion for hearing. With respect to the Debtor's request for injunctive relief, there is nothing for the Court to reconsider.
Third, the Motion lacks any evidentiary support. None of the exhibits attached to the Motion are properly authenticated. That alone is sufficient reason to summarily deny the Motion. Nonetheless, in accordance with its obligation to liberally construe pro se motions, the Court will explain why the Debtor is not entitled to any of the requested relief, even had the exhibits to the Motion been properly authenticated. See Chavez v. Robinson, 817 F.3d 1162, 1167 (9th Cir. 2016), as amended on reh'g (Apr. 15, 2016) (holding that courts must liberally construe pro se motions).
Turning to the merits, the Debtor has not shown that he is entitled to either a temporary restraining order or preliminary injunction barring his eviction from the Jolon Road Property. The standards for obtaining a temporary restraining order are the same as those for obtaining a preliminary injunction. To obtain injunctive relief, the Debtor must "establish that he is likely to succeed on the merits, that he is likely to suffer irreparable harm in the absence of preliminary relief, that the balance of equities tips in his favor, and that an injunction is in the public interest." Winter v. Nat. Res. Def. Council, Inc., 555 U.S. 7, 20 (2008). "[I]f a plaintiff can only show that there are 'serious questions going to the merits'—a lesser showing than likelihood of success on the merits—then a preliminary injunction may still issue if the 'balance of hardships tips sharply in the plaintiff's favor,' and the other two Winter factors are satisfied." Shell Offshore, Inc. v. Greenpeace, Inc., 709 F.3d 1281, 1291 (9th Cir. 2013). Debtor must demonstrate, "by a clear showing," that he is entitled to a preliminary injunction. Mazurek v. Armstrong, 520 U.S. 968, 972 (1997).
Debtor has failed to show that he is likely to succeed on the merits, and has not made the lesser showing that there are serious questions going to the merits. Debtor's theory is that the foreclosure sale of the Jolon Road Property must be set aside because the sale price was grossly inadequate. Debtor fails to state a claim for invalidating the foreclosure sale because he does not allege that the foreclosure sale was tainted by any irregularities. "California courts have long held that mere inadequacy of price, absent some procedural irregularity that contributed to the inadequacy of price or otherwise injured the trustor, is insufficient to set aside a nonjudicial foreclosure sale." 6 Angels, Inc. v. Stuart-Wright Mortg., Inc., 85 Cal. App. 4th 1279, 1284 (2001).
Debtor's claim to invalidate the foreclosure sale also fails, as a matter of law, because the Debtor does not allege that he tendered the outstanding amount of the indebtedness to the lender. As explained by the court in Magdaleno v. Indymac Bancorp, Inc., 853 F. Supp. 2d 983, 991 (E.D. Cal. 2011):
"A valid and viable tender of payment of the indebtedness owing is essential to an action to cancel a voidable sale under a deed of trust." Karlsen v. American Sav. & Loan Assn., 15 Cal.App.3d 112, 117, 92 Cal.Rptr. 851 (1971). The overwhelming majority of California district courts utilize the Karlsen rationale in examining wrongful foreclosure claims. Anaya v. Advisors Lending Group, 2009 WL 2424037, *10, 2009 U.S. Dist. LEXIS 68373, *25 (E.D.Cal. August 3, 2009) ("Plaintiff offers nothing to indicate that she is able to tender her debt to warrant disruption of non-judicial foreclosure"); Alicea v. GE Money Bank, 2009 WL 2136969, *3, 2009 U.S. Dist. LEXIS 60813, *7-8 (N.D.Cal.
July 16, 2009) ("When a debtor is in default of a home mortgage loan, and a foreclosure is either pending or has taken place, the debtor must allege a credible tender of the amount of the secured debt to maintain any cause of action for wrongful foreclosure."); Montoya v. Countrywide Bank, 2009 WL 1813973, *11, 2009 U.S. Dist. LEXIS 53920, *32 (N.D.Cal. June 25, 2009) ("Under California law, the 'tender rule' requires that as a precondition to challenging a foreclosure sale, or any cause of action implicitly integrated to the sale, the borrower must make a valid and viable tender of payment of the secured debt"). The application of the "tender rule" prevents "a court from uselessly setting aside a foreclosure sale on a technical ground when the party making the challenge has not established his ability to purchase the property." Williams v. Countrywide Home Loans, 1999 WL 740375, *2, 1999 U.S. Dist. LEXIS 14550, *5-6 (N.D.Cal. Sept. 15, 1999).Finally, Debtor fails to state a claim for setting aside the foreclosure sale as a fraudulent transfer, pursuant to Bankruptcy Code §548. None of the pleadings filed by the Debtor expressly articulate §548 as a basis for invalidating the foreclosure sale. However, the Third Amended Complaint is captioned Third Amended complaint for Fraudulent Conveyance. To the extent the Third Amended Complaint can be construed to allege that the foreclosure sale was a constructively fraudulent transfer within the meaning of §548(a)(1)(B), such a claim fails as a matter of law. To state a claim under §548(a)(1)(B), the Debtor must allege that Socotra Fund, the foreclosing beneficiary, acquired the Jolon Road Property for less than its "reasonably equivalent value." The Supreme Court has held that "a fair and proper price, or a 'reasonably equivalent value,' for foreclosed property, is the price in fact received at the foreclosure sale, so long as all the requirements of the State's foreclosure law have been complied with." BFP v. Resolution Trust Corp., 511 U.S. 531, 545 (1994). As noted, Debtor has not alleged that Socotra Fund failed to comply with California law in its conduct of the foreclosure sale. Therefore, Debtor fails to state a claim to set aside the foreclosure sale as a constructively fraudulent transfer pursuant to §548(a)(1)(B).
Debtor has no chance of success on the merits with respect to his claim to invalidate the foreclosure sale. That claim fails as a matter of law for multiple reasons. As a result, Debtor is not entitled to injunctive relief. The numerous fatal defects afflicting Debtor's claim make consideration of the other Winters factors both unnecessary and inappropriate. Debtor's request to invalidate the foreclosure sale is also denied.
The Debtor also seeks an injunction barring the Bull Trust from conducting a non-judicial foreclosure sale of the Heinsen Property. The Debtor provides no evidence or argument in support of this request. The Debtor has not filed any pleadings setting forth reasons why the Bull Trust is not entitled to foreclose upon the Heinsen Property. The Debtor's request for injunctive relief as to the Bull Trust is denied.
Based upon the foregoing, the Motion is DENIED in its entirety. The TRO Motion, which was never properly calendared but seeks the same relief as the instant Motion, is also DENIED in its entirety. The Court will enter orders consistent with this Memorandum of Decision.
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Date: February 6, 2017
/s/_________
Ernest M. Robles
United States Bankruptcy Judge
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