Hoover v. PHH Mortgage Corporation

Opinion

4 UNITED STATES DISTRICT COURT 5 WESTERN DISTRICT OF WASHINGTON AT SEATTLE 6 7 In re: SARAH HOOVER Cause No. C21-5154RSL 8 Debtor. AMENDED ORDER ON 9 APPEAL FOLLOWING ______________________________________ 10 REMAND FROM THE SARAH HOOVER, NINTH CIRCUIT 11

12 Plaintiff - Appellee, 13 v. 14 PHH MORTGAGE CORPORATION, HSBC BANK USA, N.A. AS TRUSTEE OF THE 15 FIELDSTONE MORTGAGE INVESTMENT 16 TRUST, SERIES 2006-2, and NEWREZ, LLC, 17 Defendants – Appellants, 18 and 19 QUALITY LOAN SERVICE 20 CORPORATION OF WASHINGTON and 21 IH6 PROPERTY WASHINGTON, L.P.,

22 Defendants. 23

23 This matter is again before the Court following remand from the Ninth Circuit. Dkt. # 56 25 and # 60. In March 2021, the Honorable Mary Jo Heston, United States Bankruptcy Judge, 26 27 found that PHH Mortgage Corporation, HSBC Bank USA, N.A. as Trustee of the Fieldstone 28 1 Mortgage Investment Trust, Series 2006-2, and NewRez, LLC (“appellants”) had violated the 2 automatic bankruptcy stay by foreclosing on Sarah Hoover’s residence in Bonney Lake, 3 Washington. The undersigned affirmed Judge Heston’s finding that the property was part of the 4 5 bankruptcy estate and her refusal to retroactively annul the bankruptcy stay on equitable 6 grounds. Those determinations have now been affirmed by the Ninth Circuit. The Ninth Circuit 7 found, however, that it and the district court lacked jurisdiction over the bankruptcy court’s 8 9 interim conclusions that the violation of the automatic stay was “willful” and that appellants 10 acted in “complete disregard for the automatic stay.” Having reviewed Ninth Circuit’s 11 memoranda and the remainder of the record, the Court hereby issues this Amended Order on 12 13 Appeal: 14 A. Standard of Review 15 A district court has jurisdiction to review final judgments, orders, or decrees of the 16 17 bankruptcy court. 28 U.S.C. § 158(a). When reviewing a decision of the bankruptcy court, a 18 district court functions as an appellate court and applies the standards of review generally 19 applied in federal courts of appeal. In re Crystal Properties, Ltd., L.P., 268 F.3d 743, 755 (9th 20 21 Cir. 2001) (citation omitted). Thus, conclusions of law are reviewed de novo, while findings of 22 fact are reviewed under the clearly erroneous standard. In re Strand, 375 F.3d 854, 857 (9th Cir. 23 2004). “Mixed questions of law and fact are reviewed de novo.” In re Chang, 163 F.3d 1138, 23 25 1140 (9th Cir. 1998). “De novo review is independent, with no deference given to the trial 26 court’s conclusion.” Allen v. U.S. Bank, N.A., 472 B.R. 559, 564 (9th Cir. BAP 2012). In 27 contrast, the clearly erroneous standard is “significantly deferential” and requires “a definite and 28 1 firm conviction that a mistake has been committed.” Id. “Put another way, a court’s factual 2 determination is clearly erroneous if it is illogical, implausible, or without support in the 3 record.” In re Rader, 488 B.R. 406, 410 (9th Cir. BAP 2013) (internal citation and quotation 4 5 marks omitted). 6 B. Property of the Bankruptcy Estate 7 Under Washington law, property held in a spendthrift trust is not subject to seizure for 8 9 payment of the beneficiary’s debt on the theory that allowing alienation of the trust principal or 10 income would violate the intention of the settlor. Milner v. Outcalt, 36 Wn.2d 720, 722 (1950). 11 “Ordinarily, a property owner has the power to dispose of his property as he wishes, as long as 12 13 he does not violate public policy. The owner and donor of the property should be free to select 14 the trust beneficiary who will enjoy his bounty, and should be able to put enforceable provisions 15 in the trust which will prevent his trust beneficiary from voluntarily conveying or assigning his 16 17 interest, thus precluding any creditor from taking that interest away from the beneficiary.” 18 Erickson v. Bank of California, N.A., 97 Wn.2d 246, 250 (1982). When an asset has already 19 accrued to the beneficiary and is ready for distribution, however, it becomes subject to seizure in 20 21 satisfaction of the beneficiary’s debts even if the asset is still in the hands of the trustee. Knettle 22 v. Knettle, 190 Wash. 395, 401 (1937). 23 The Bonney Lake property was part of the Suleiman Trust and the Trustor, Ali Suleiman, 23 25 specified that, “as soon as practicable after [his death], Trustee shall distribute any and all 26 interest Trustor, or the Trust Estate, may have in that certain residence and real property located 27 at 106th Street East, Bonney Lake, Washington, to Trustor’s daughter, Sarah V. Hoover, if she 28 1 is surviving.” Dkt. # 30 at 110. Appellants have not identified any calculations, deductions, 2 administrative assessments, or other accounting that had to be performed before the property 3 was ready for distribution. The time for distribution, as established by the Trustor, had come, 4 5 and all conditions precedent thereto were satisfied. Based on the undisputed facts, the 6 bankruptcy court correctly found that the mandatory distribution language of the trust was 7 triggered by Ali Suileiman’s death and that Hoover’s interest in the Bonney Lake property had 8 9 accrued as of the date of the bankruptcy petition. Dkt. # 1 at 41-42 and 54. 10 C. Willfulness and “Complete Disregard” Issues 11 The Court lacks jurisdiction over these issues because there was no completed 12 13 proceeding, i.e., a bankruptcy court determination of the amount of damages or whether punitive 14 damages were warranted, from which an appeal could be taken. 15 D. Retroactive Annulment of Bankruptcy Stay 16 17 The bankruptcy court accurately stated and applied the law when considering PHH’s 18 request that the automatic stay be annulled to retroactively validate the post-petition foreclosure 19 sale. Dkt. # 1 at 55-56. Judge Heston’s application of the law to the facts of this case is 20 21 thorough, and her balancing of the equities is well-supported. Dkt. # 1 at 56-59. No error has 22 been shown. 23

23 25 // 26 // 27 28 1 For all of the foregoing reasons, the bankruptcy court’s holding that appellants violated 2 the automatic stay and denial of the motion to annul the automatic stay are AFFIRMED. The 3 issues regarding willfulness and the “complete disregard” comment are dismissed as premature. 4 5 6 Dated this 16th day of November, 2023. 7 8 Robert S. Lasnik 9 United States District Judge 10 11 12 13 14 15 16 17 18 19 20 21 22 23 23 25 26 27 28