FILED APR 13 2023 NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT
In re: BAP No. WW-22-1186-GFB JOHN EARL ERICKSON, Debtor. Bk. No. 2:22-bk-10784-TWD
JOHN EARL ERICKSON, Appellant, MEMORANDUM* v. JASON WILSON-AGUILAR, Chapter 13 Trustee, Appellee.
Appeal from the United States Bankruptcy Court for the Western District of Washington Timothy W. Dore, Bankruptcy Judge, Presiding
Before: GAN, FARIS, and BRAND, Bankruptcy Judges.
INTRODUCTION
Chapter 13 1 debtor John Earl Erickson (“Debtor”) appeals the
bankruptcy court’s order dismissing his case with a two-year bar to
* This disposition is not appropriate for publication. Although it may be cited for whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential value, see 9th Cir. BAP Rule 8024-1. 1 Unless specified otherwise, all chapter and section references are to the
Bankruptcy Code, 11 U.S.C. §§ 101–1532, all “Rule” references are to the Federal Rules of Bankruptcy Procedure, and all “Civil Rule” references are to the Federal Rules of Civil Procedure. refiling. Debtor argues the court erred as a matter of law by denying
confirmation of his chapter 13 plan because he was attempting a cure
under § 1322(b)(2), not a prohibited modification. He maintains the court
violated his right to due process by relying on an additional basis for
dismissal, without notice, and erred by finding bad faith to dismiss the case
with a two-year bar. The bankruptcy court correctly applied the law, and
its factual finding of bad faith is well supported by the record. We
AFFIRM.
FACTS 2
A. Prepetition events
Debtor and his non-filing spouse, Shelley Ann Erickson, own real
property in Auburn, Washington (the “Property”), which serves as their
primary residence. The Property was encumbered by a deed of trust in
favor of Deutsche Bank National Trust (“Deutsche Bank”) based on a 2006
promissory note in favor of Long Beach Mortgage Company in the original
2 We exercise our discretion to take judicial notice of documents electronically filed in Debtor’s bankruptcy case. See Atwood v. Chase Manhattan Mortg. Co. (In re Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003). Debtor requests that we take judicial notice of documents filed in the current case, as well as documents filed in the Ericksons’ prior bankruptcy cases and state court cases, and documents relating to post- dismissal actions to foreclose and sell their residence. We take judicial notice of the existence of documents filed in the prior cases, but we do not take judicial notice of the truth of such documents. See Credit All. Corp. v. Idaho Asphalt Supply, Inc. (In re Blumer), 95 B.R. 143, 146-47 (9th Cir. BAP 1988). Because the post-dismissal documents do not render this appeal moot and were not before the bankruptcy court, we do not consider them. 2 amount of $476,000. The Ericksons have not made payments on the loan
since 2009.
In 2010, the Ericksons filed suit in state court against Long Beach
Mortgage Company, Washington Mutual Bank, and Chase Bank as agent
for Deutsche Bank, seeking to stop a foreclosure. They asserted various
quiet title and injunctive relief claims, arguing that the defendants could
not produce the original note and lacked standing to foreclose. After the
case was removed to the United States District Court for the Western
District of Washington (the “District Court”), the District Court granted
summary judgment and dismissed the action with prejudice. Erickson v.
Long Beach Mortg. Co., Case No. 10-1423 MJP, 2011 WL 830727, at *2-7 (W.D.
Wash. Mar. 2, 2011). The District Court denied the Ericksons’ motion for
reconsideration, and the Ninth Circuit affirmed. Erickson v. Long Beach
Mortg. Co., 473 F. App’x 746 (9th Cir. 2012).
In 2015, Deutsche Bank obtained a judgment and decree of
foreclosure. The Washington Court of Appeals affirmed the foreclosure
judgment, holding the Ericksons were barred by collateral estoppel from
relitigating whether Deutsche Bank lacked standing to foreclose.3
Shortly after a sheriff’s levy was recorded in 2018, Debtor and
Ms. Erickson filed a joint chapter 13 case. The Ericksons did not propose to
treat Deutsche Bank’s secured claim, and instead proposed a loan
3 The court also held that Deutsche Bank was entitled to foreclose because it had presented an original, signed note, endorsed in blank. 3 modification. The bankruptcy court denied confirmation and granted the
chapter 13 trustee’s motion to dismiss.
After a second sheriff’s levy was recorded, the Ericksons filed a state
court complaint seeking to set aside the foreclosure judgment. The state
court issued a temporary restraining order halting the foreclosure but
denied preliminary injunctive relief. In May 2019, one day prior to the
scheduled sale, Ms. Erickson filed a second chapter 13 petition.
The bankruptcy court denied confirmation of Ms. Erickson’s plan and
subsequently granted the trustee’s motion to dismiss because Ms. Erickson
lacked income to fund a plan that would permit her to retain the Property.
Ms. Erickson appealed, and we affirmed. Erickson v. Wilson-Aguilar (In re
Erickson), BAP Nos. WW-19-1251-FSTa, WW-19-1277-FSTa, 2020 WL
2849930 (9th Cir. BAP May 29, 2020).
While the state court action to set aside the foreclosure was pending,
Debtor filed a second chapter 13 case in November 2019. He filed a plan
but did not propose to treat Deutsche Bank’s secured claim which he
disputed. The bankruptcy court denied confirmation, and Debtor proposed
an amended plan, again without proposing to treat Deutsche Bank’s
secured claim. The bankruptcy court denied confirmation and ultimately
granted the trustee’s motion to dismiss the case in March 2020.
In June 2020, the state court granted Deutsche Bank’s motion for
summary judgment, dismissing with prejudice the Ericksons’ claims to set
aside the foreclosure judgment. The Ericksons appealed, the Washington
4 Court of Appeals affirmed, and the Washington Supreme Court denied
review.
In December 2021, again shortly after a sheriff’s levy was recorded,
Ms. Erickson filed a third chapter 13 petition. She failed to file required
schedules, statements, or a plan, and the court dismissed the case in
January 2022. A month later, Debtor filed a chapter 11 petition, but he
failed to file required documents, and the court dismissed the case. After a
new sheriff’s levy was recorded, Debtor filed the present chapter 13 case in
May 2022.
B. Debtor’s bankruptcy case and chapter 13 plan
Debtor scheduled the Property with a value of $1,500,000 and listed
Deutsche Bank as a secured creditor with a disputed claim for $957,403.56.
Deutsche Bank filed a proof of claim evidencing a secured claim of
$1,124,570.50 based on the foreclosure judgment.
Debtor filed a plan, proposing payments of $221.71 and full payment
of priority and unsecured claims. The plan did not provide for regular
payments to Deutsche Bank. Debtor proposed to avoid the security interest
and stated that “newly discovered evidence” showed that the original note
was forged and the deed of trust may be void. The plan noted that Debtor
had listed the Property for sale, and it provided that “[i]n the event that the
sale of the [Property] provides more than the amount of the disputed
secured claim which might not be allowed, Debtor will pay 100% of all
other allowed claims.” 5 Deutsche Bank objected to confirmation, arguing the plan failed to
comply with § 1325(a)(5). Deutsche Bank also asserted the plan improperly
sought to modify the rights of a holder of a claim secured by Debtor’s
residence in violation of §§ 1325(a)(1) and 1322(b)(2). Finally, it contended
Debtor’s history of filings and the plan’s failure to provide an adequate
method of payment or cure indicated that Debtor did not file the plan in
good faith, and Debtor could not demonstrate an ability to make necessary
payments.
Chapter 13 trustee Jason Wilson-Aguilar (“Trustee”) also objected to
confirmation and argued: (1) Debtor did not file the petition or plan in
good faith; (2) Debtor may be ineligible for chapter 13 relief; (3) Debtor did
not properly serve the plan; (4) Debtor failed to file income tax returns as
required by § 1308; (5) the plan improperly sought to limit the secured
claim or avoid the lien; (6) the plan made no provision for a claim secured
by his vehicle; (7) Debtor did not provide a liquidation analysis; (8) the
plan was not feasible because full payment of priority and unsecured
claims would require monthly plan payments of $2,781, and a proposed
sale of the Property at the listed price of $1,490,000 was unlikely; and
(9) the plan did not appropriately treat the Deutsche Bank claim because it
did not require a sale of the Property or provide a deadline by which a sale
must occur, and it seemed to indicated that Debtor would not pay the
claim from sale proceeds.
6 Debtor responded to the objections, again questioning the amount of
Deutsche Bank’s claim and its authority to enforce the debt. He asserted
that the petition and plan were filed in good faith and part of his good faith
obligation was to ascertain the validity of the purported secured claim, and
that his total secured claims were within the limits of § 109(e). Because he
conceded that several of Trustee’s other objections were valid, he requested
an opportunity to file an amended plan and suggested that an amended
plan would provide for a sale of the Property within fifteen months of
confirmation.
C. Trustee’s motion to dismiss and the court’s ruling
Concurrent with the objection to confirmation, Trustee filed a motion
to dismiss the case with a four-year bar to refiling. Trustee attached
evidence outlining the Ericksons’ prior bankruptcies and litigation efforts
and argued that the present case was the latest chapter in a twelve-year
scheme to delay Deutsche Bank’s efforts to exercise its rights against the
Property. Trustee noted that Debtor had not made a mortgage payment for
thirteen years and instead sought unsuccessfully to challenge the validity
of the debt.
Trustee contended that Debtor’s plan to sell the Property for
$1,490,000 was speculative, and based on projected commissions and costs,
a sale would not yield sufficient proceeds to pay the claim. He argued that
Debtor filed the petition and plan in bad faith and was continuing to
contest the Deutsche Bank claim. Additionally, Trustee argued that Debtor
7 was not making a meaningful effort to pay other creditors, and neither
Debtor’s income nor his proceeds from a speculative sale were sufficient to
pay creditors as proposed or make the plan feasible.
In response, Debtor filed a request for accommodations for
disabilities based on a hearing deficit and visual impairment and requested
that Ms. Erickson be allowed to facilitate communications with the court.
He opposed the motion to dismiss and argued he was attempting not to
thwart Deutsche Bank’s collection efforts but to establish whether it was
legitimately entitled to receive payments. According to Debtor, Deutsche
Bank continued to refuse his requests for a forensic examination of the
original note, which he claimed contained an unauthorized endorsement.
The court conducted a hearing on plan confirmation and the motion
to dismiss. In addition to the procedural defects acknowledged by Debtor,
the bankruptcy court determined that the plan was not confirmable for
several substantive reasons including: (1) failure to include a secured claim
on Debtor’s vehicle; (2) violation of the anti-modification provisions with
respect to Deutsche Bank’s claim; (3) an unspecified liquidation value; and
(4) insufficient plan payments to support feasibility. The court determined
that Debtor was within the debt limits of § 109(e), and it stated its intent to
set deadlines for an amended plan pending the outcome of the motion to
dismiss.
8 After hearing argument on the motion to dismiss, the court asked
Debtor if he disputed the litigation history provided by Trustee.
Ms. Erickson responded:
I’m not sure how to answer that. I’m not too sure how my husband would know how to answer that either. We’ve been just diligently trying to make sure that we’re paying the right creditor. We haven’t been afforded the investigation on the note to know who we’re paying the right creditor to [sic]. And so we’ve tried to do this through the court and pay off the proper creditor through the courts. And so far, we’ve been unsuccessful. It’s not that we’re not trying to pay the our [sic] debts, and it’s not that we’re trying to avoid a debt that we feel we owe. We’re trying to make sure that we pay a debt that we do owe to the right person.
Hr’g Tr. 14:5-16, June 20, 2022. The court informed the Ericksons that the
validity of the debt was determined by the state court when it entered the
foreclosure judgment, and the bankruptcy court was required to take state
court judgments at face value.
The bankruptcy court reasoned that the history of prior bankruptcy
filings, which were all dismissed without confirmation, demonstrated bad
faith. The cases were filed in response to adverse rulings in state court and
were designed to delay foreclosure. As an additional basis for dismissal,
the court determined there was unreasonable delay prejudicial to creditors.
Debtor’s proposal to sell the Property was not sufficient to demonstrate
good faith because, the court held, Debtor had already tried to sell it for six
months without an offer and could not confirm a plan that allowed a year
9 or more to sell the Property without violating the anti-modification
provisions of the Code.
After considering the totality of circumstances and employing the
two-step approach outlined by Leavitt v. Soto (In re Leavitt), 171 F.3d 1219,
(9th Cir. 1999), the bankruptcy court decided that dismissal with a two-
year bar to refiling was warranted. The court entered written orders
denying confirmation and dismissing the case.
Debtor filed a motion for reconsideration of the dismissal order. He
argued that the court erred by denying him requested disability
accommodations and by improperly attempting to extract a factual
stipulation and construing Ms. Erickson’s answer as a concession that
Trustee’s facts were uncontroverted. Debtor further argued that the court
denied him due process by including unreasonable delay prejudicial to
creditors as an independent and separate basis to dismiss. Debtor claimed
his conduct was in good faith, and Deutsche Bank’s proof of claim, which
was filed after the confirmation objections, provided new evidence
demonstrating it did not have an enforceable claim.
The bankruptcy court entered a written order denying the motion for
reconsideration. This timely appeal followed.
JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and
157(b)(2)(A). We have jurisdiction under 28 U.S.C. § 158.
10 ISSUES
Did the bankruptcy court err by denying confirmation of Debtor’s
chapter 13 plan?
Did the bankruptcy court abuse its discretion by dismissing Debtor’s
chapter 13 case with a two-year bar to refiling?
Did the bankruptcy court err by denying Debtor’s motion for
reconsideration?
STANDARDS OF REVIEW
We review for abuse of discretion a bankruptcy court’s decision
concerning confirmation of a chapter 13 plan. Bank of Am. Nat'l Tr. & Savs.
Ass'n v. Slade (In re Slade), 15 B.R. 910, 913 (9th Cir. BAP 1981). We also
review for abuse of discretion a bankruptcy court’s decision to dismiss a
case with a bar to refiling, In re Leavitt, 171 F.3d at 1223; Duran v. Gudino (In
re Duran), 630 B.R. 797, 807 (9th Cir. BAP 2021), and its ruling on a motion
for reconsideration, Determan v. Sandoval (In re Sandoval), 186 B.R. 490, 493
(9th Cir. BAP 1995).
A bankruptcy court abuses its discretion if it applies an incorrect
legal standard or its factual findings are illogical, implausible, or without
support in the record. TrafficSchool.com v. Edriver, Inc., 653 F.3d 820, 832 (9th
Cir. 2011).
Debtor argues that the bankruptcy court violated his due process
rights by not giving him notice that it could dismiss the case based on
unreasonable delay prejudicial to creditors. We review this aspect of the
11 decision de novo. See HSBC Bank USA, Nat’l Ass’n v. Blendheim (In re
Blendheim), 803 F.3d 477, 497 (9th Cir. 2015). Under de novo review, “we
consider a matter anew, as if no decision had been made previously.”
Francis v. Wallace (In re Francis), 505 B.R. 914, 917 (9th Cir. 2014).
DISCUSSION
A. The bankruptcy court did not err by denying confirmation.
Debtor argues the bankruptcy court erred by denying confirmation
because his plan did not propose to modify Deutsche Bank’s rights and
instead proposed to “cure” the default through a proposed sale. Debtor
does not address the numerous other substantive and procedural
deficiencies in his plan which support denial of confirmation. We would
affirm on this basis alone. Additionally, though we agree that curing a
default through a chapter 13 plan does not constitute modification of the
creditor’s interests, Debtor’s plan did not propose a cure.
Section 1322(b)(3) permits a chapter 13 plan to “provide for the
curing or waiving of any default.” The right to cure applies to a default on
a debt secured by a debtor’s principal residence, and a plan that provides
for such a cure does not violate the anti-modification prohibition of
§ 1322(b)(2). See Frazer v. Drummond (In re Frazer), 377 B.R. 621, 628 (9th Cir.
BAP 2007). And though the debt was reduced to judgment for foreclosure,
§ 1322(c)(1) permits a debtor to cure a default with respect to a lien on the
debtor’s principal residence “until such residence is sold at a foreclosure
sale that is conducted in accordance with applicable nonbankruptcy law.”
12 In his Opening Brief, Debtor acknowledges “[h]e cannot ‘modify’ the
terms for repayment; he can only ‘cure’ by payment in full.” His plan
vaguely proposed a sale of the Property, but it did not propose to treat
Deutsche Bank’s claim by paying it in full. Instead, it sought to avoid the
security interest and suggested Debtor would sell the Property, then
contest Deutsche Bank’s claim based on “newly discovered evidence”
pertaining to the original note.
To satisfy confirmation requirements, a plan must treat secured
claims in accordance with § 1325(a)(5) by obtaining acceptance of plan
treatment from the secured creditor, surrendering the property securing
the claim, or providing for plan distributions in accordance with
§ 1325(a)(5)(B). Debtor’s plan proposed to sell the Property without
payment of the claim, which is neither a “cure” of the default nor adequate
treatment of the claim under § 1325(a)(5). The bankruptcy court correctly
determined that Debtor’s plan violated the anti-modification provision of
chapter 13 because a sale of the Property without payment of Deutsche
Bank’s secured claim necessarily affected its rights.
B. The bankruptcy court did not abuse its discretion by dismissing the case with a two-year bar to refiling.
A chapter 13 petition filed in bad faith constitutes “cause” to dismiss
under § 1307(c). In re Leavitt, 171 F.3d at 1224; Eisen v. Curry (In re Eisen), 14
F.3d 469, 470 (9th Cir. 1994). “To determine if a petition has been filed in
bad faith courts are guided by the standards used to evaluate whether a
13 plan has been proposed in bad faith.” In re Eisen, 14 F.3d at 470. Both
determinations require the court to consider the “totality of the
circumstances.” Id.
Section 349(a) provides that dismissal is ordinarily without prejudice,
but the bankruptcy court may, for cause, order otherwise. The statute
“necessarily confers judicial discretion to impose a wide variety of
consequences of dismissal” including temporary and permanent bars to
refiling. In re Duran, 630 B.R. at 809. “[B]ad faith is ‘cause’ for a dismissal of
a Chapter 13 case with prejudice under § 349(a) and § 1307(c).” In re Leavitt,
171 F.3d at 1224.
Bad faith for purposes of § 349(a) does not require fraudulent intent
by the debtor but requires the court to consider under the totality of the
circumstances:
(1) whether the debtor misrepresented facts in his petition or plan, unfairly manipulated the Bankruptcy Code, or otherwise filed his petition or plan in an inequitable manner; (2) the debtor’s history of filings and dismissals; (3) whether the debtor only intended to defeat state court litigation; and (4) whether egregious behavior is present.
Id. (cleaned up).
Debtor primarily argues that the court erred by dismissing the case
with a two-year bar to refiling because it did so under incorrect provisions
of the Code and denied Debtor due process by indicating an additional
basis for dismissal. Both arguments are meritless. 14 Debtor erroneously assumes that, because Trustee cited § 105(a) in
his motion to dismiss, the bankruptcy court acted under that provision.
The record is clear that the bankruptcy court employed the analysis
articulated in Leavitt for dismissal with prejudice for bad faith. First, the
court found that Debtor’s bad faith was “cause” to dismiss under
§ 1307(c). 4 The court then considered the Leavitt factors and determined
that Debtor’s long history of multiple bankruptcy cases, filed in response to
adverse state court rulings, dismissed without confirmation, and designed
to delay foreclosure constituted bad faith for purposes of § 349(a). The
evidence provided by Trustee amply supports the court’s finding of bad
faith. See Ellsworth v. Lifescape Med. Assocs., P.C. (In re Ellsworth), 455 B.R.
904, 914 (9th Cir. BAP 2011) (“[W]hen a bankruptcy court makes factual
findings of bad faith to support dismissal of a chapter 13 case, we review
those findings for clear error.”).
Debtor’s due process argument is similarly unavailing. Due process
requires notice “reasonably calculated, under all the circumstances, to
apprise interested parties of the pendency of the action and afford them an
opportunity to present their objections.” Mullane v. Cent. Hanover Bank &
4 The bankruptcy court did not expressly state that dismissal, rather than conversion, was in the best interests of the estate and creditors, but the record is clear that the court reached that conclusion. It held that Debtor’s bankruptcy filings were designed to frustrate Deutsche Bank’s foreclosure efforts. The court stated that it could not set aside adverse state court rulings and reasoned that state court was the appropriate forum for the Ericksons’ claims. Thus, dismissal was in the best interests of Deutsche Bank and the estate. 15 Tr. Co., 339 U.S. 306, 314 (1950). An alleged due process violation cannot
constitute reversible error unless the party asserting the violation can
demonstrate prejudice. See Rosson v. Fitzgerald (In re Rosson), 545 F.3d 764,
776-77 (9th Cir. 2008), partially abrogated on other grounds as recognized by
Nichols v. Marana Stockyard & Livestock Mkt., Inc. (In re Nichols), 10 F.4th 956,
962 (9th Cir. 2021).
Debtor had adequate notice that the court was considering dismissal,
and he had an opportunity to be heard. The bankruptcy court ruled that
unreasonable delay prejudicial to creditors was an independent basis for
dismissal, but it was not necessary to the court’s decision; Debtor’s bad
faith alone was sufficient. Thus, even if Debtor did not have notice that the
court would consider an additional basis for dismissal, such lack of notice
was not prejudicial.
C. The bankruptcy court did not abuse its discretion by denying Debtor’s motion for reconsideration.
Debtor’s motion for reconsideration constituted a timely motion to
alter or amend the judgment under Civil Rule 59(e), made applicable by
Rule 9023. Heritage Pac. Fin., LLC v. Montano (In re Montano), 501 B.R. 96,
112 (9th Cir. BAP 2013). Relief under Civil Rule 59(e) should not be granted
unless the court is presented with newly discovered evidence, committed
clear error, or if there has been an intervening change in the controlling
law. 389 Orange St. Partners v. Arnold, 179 F.3d 656, 665 (9th Cir. 1999). A
party may not use a Civil Rule 59(e) motion to present a new legal theory
16 for the first time, to raise legal arguments which could have been made in
connection with the original motion, or to rehash the same arguments
already presented. Wall St. Plaza, LLC v. JSJF Corp. (In re JSJF Corp.), 344
B.R. 94, 103 (9th Cir. BAP 2006), aff’d and remanded, 277 F. App’x 718 (9th
Cir. 2008).
Debtor did not meet this standard. He claimed that the court
improperly relied on a factual stipulation and denied him due process by
dismissing the case, neither of which was necessary to the court’s decision.5
Debtor’s purported newly discovered evidence was not relevant to the
court’s decision to dismiss the case for bad faith. It pertained instead to
whether Deutsche Bank holds an enforceable claim—an issue decided
multiple times by the state court and not subject to a different ruling by the
bankruptcy court. See, e.g., Gruntz v. Cnty. of L.A. (In re Gruntz), 202 F.3d
1074, 1078 (9th Cir. 2000) (en banc) (“[F]ederal district courts have no
authority to review the final determinations of a state court in judicial
proceedings.” (cleaned up)). The bankruptcy court did not abuse its
discretion by denying Debtor’s motion for reconsideration.
5 The bankruptcy court independently verified the factual history provided by Trustee, which consisted almost entirely of matters of public record, and Debtor did not contest the factual history in his written response. As discussed above, Debtor had notice that the court was considering dismissing the case for bad faith and Debtor was not prejudiced by the court’s additional basis for dismissal. 17 CONCLUSION
Based on the foregoing, we AFFIRM the court’s orders denying
confirmation, dismissing Debtor’s bankruptcy case with a two-year bar to
refiling, and denying his motion for reconsideration.