In re: Maria Elizabeth Montero Leon

• Court: United States Bankruptcy Appellate Panel for the Ninth Circuit
• Decided: March 19, 2025
• Docket: 24-1113
• Status: Unpublished

Opinion

FILED MAR 19 2025 NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK U.S. BKCY.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 Nos. CC-24-1112-GLF MARIA ELIZABETH MONTERO LEON, CC-24-1113-GLF Debtor. (Related Appeals)

GUILLERMO ANTONIO MONTERO, Bk No. 2:23-bk-18404-WB Appellant, v. MEMORANDUM* MARIA ELIZABETH MONTERO LEON; BRENDA E. VARGAS, Appellees.

Appeals from the United States Bankruptcy Court for the Central District of California Julia Wagner Brand, Bankruptcy Judge, Presiding

Before: GAN, LAFFERTY, and FARIS, Bankruptcy Judges.

INTRODUCTION

After Maria Elizabeth Montero Leon (“Debtor”) filed her chapter 111

petition, her nonfiling spouse, Guillermo Antonio Montero (“Montero”),

filed dissolution proceedings and recorded a notice of lis pendens against

* 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, and all “Rule” references are to the Federal Rules of Bankruptcy Procedure. Debtor’s primary residence, located in Beverly Hills, California (the

“Property”). The bankruptcy court expunged the lis pendens and granted

Debtor’s motion for sanctions against Montero and his attorney, Brenda

Vargas, for willful violation of the automatic stay. The court then approved

Debtor’s motion to sell the Property, free and clear of all liens, claims, and

interests, pursuant to § 363(f), and determined that the buyer was a “good

faith purchaser” pursuant to § 363(m).

Montero appeals both orders, but none of his arguments have merit.

He does not establish clear error in the court’s determination that the buyer

was a good faith purchaser, and because the sale of the Property was not

stayed and is now complete, his appeal of the sale order is statutorily moot.

Accordingly, we AFFIRM the sanctions order, AFFIRM the bankruptcy

court’s finding of good faith under § 363(m), and DISMISS as moot the

remainder of the appeal from the sale order.

FACTS 2

Debtor filed a chapter 11 petition in December 2023. Her primary

asset was the Property, which she valued at $12,000,000. Debtor indicated

that she owned the Property as sole and separate property, but she and

Montero occupied the Property as their primary residence. Debtor filed the

bankruptcy to avert a pending foreclosure sale, and she expected to either

2 We exercise our discretion to take judicial notice of documents electronically filed in the bankruptcy case. See Atwood v. Chase Manhattan Mortg. Co. (In re Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003). 2 refinance the existing secured debt of approximately $5,000,000 or sell the

Property. Because she was ineligible for a discharge due to a prior

bankruptcy, Debtor proposed to pay all claims through her plan.

In April 2024, Debtor filed a motion to employ a real estate broker to

market and sell the Property. Debtor indicated that she and Montero had

become estranged during the pendency of the bankruptcy case, but she still

planned to sell the Property. The court granted the motion over Montero’s

objection.

Debtor then filed, pursuant to § 363(b) and (f), a motion to sell the

Property for $8,000,000, subject to overbid and court approval. Debtor said

that inspections of the Property revealed numerous unpermitted

modifications made by Montero, who was in the business of real estate

development, as well as mold and termite infestation caused by water

intrusion. She believed the offer was fair because the issues with the

Property would require it to be demolished or extensively remodeled.

Debtor noted that Home Renovators & Builders, Inc. (“HRB”) owned 5% of

the Property as a tenant in common but stated that she owned 100% of

HRB. According to Debtor, Montero caused the interest to be transferred to

HRB to stop a foreclosure sale in 2009.

Montero filed an objection to the sale motion. He maintained that the

Property was worth much more than the proposed sale price and argued

that notwithstanding title, he had a community property interest in the

Property. Montero continued to question the experience and ability of the

3 estate’s broker, and he argued that state law prohibited a sale of the

Property without his consent.

Prior to the hearing, Debtor filed an emergency motion for sanctions

for violations of the automatic stay. She asserted that Montero filed a

petition for legal separation in state court, requesting a determination of

the parties’ rights in the Property, and he and his attorney, Brenda Vargas,

recorded a lis pendens against the Property. 3 Debtor argued that Montero

violated the stay by filing the dissolution proceeding, and that Montero

and Ms. Vargas willfully violated the stay by recording the lis pendens. She

claimed that by clouding title and interfering with Debtor’s attempt to sell

the Property, Montero and Ms. Vargas were attempting to exercise control

of estate property.

In response, Montero argued he had a constitutional right to record

the lis pendens and it was absolutely privileged under the litigation

privilege of California Civil Code § 47(b). He maintained the bankruptcy

court lacked authority to expunge the lis pendens because the state court

had yet to determine ownership of the Property.

3 The lis pendens stated: “Notice is Hereby Given that the above-entitled action concerning and affecting real property as described herein was commenced on May 1, 2024 by Petitioner, Guillermo A. Montero, against Maria Elizabeth Montero, and is now pending in [state court]. The action affects title or right to possession of the real property . . . .” The lis pendens was signed by Ms. Vargas on behalf of Montero on May 8, 2024 and recorded on May 16, 2024.

4 The bankruptcy court conducted a hearing on both motions in July

2024. The court granted in part Debtor’s motion for sanctions for a willful

violation of the automatic stay. It held that filing the dissolution action was

not violative of the stay, but it concluded that Montero and Ms. Vargas

recorded the lis pendens to control property of the estate, and doing so was

not protected by either the California constitution or the California

litigation privilege. The bankruptcy court held that the lis pendens was void

and ordered it expunged. It continued the hearing on the question of

sanctions to allow Montero and Ms. Vargas to file supplemental pleadings.

To ensure that the Property was adequately marketed, the court took

testimony from the real estate broker, Enrique Campos, related to his

marketing efforts and the effect that the condition of the Property had on

its value. The court determined that the sale was in the best interest of the

estate, and after a bidding process yielded an overbid, the bankruptcy

court approved the sale of the Property for $8,200,000. The court held that

the buyer was a good faith purchaser, and the sale was free and clear of

liens, claims, and interests. The court concluded that Montero’s interest in

the proceeds and in the Property was subject to a bona fide dispute, and it

ordered that net proceeds be held pending further orders of the court.

Montero did not assert a right of first refusal or otherwise bid on the

Property.

5 The bankruptcy court entered orders approving the sale and granting

in part Debtor’s motion for sanctions against Montero and Ms. Vargas.

Montero timely appealed.4

Debtor then filed a motion for clarification, asking the court to amend

the sale order to clarify that the Property would be sold free and clear of

HRB’s interest. After Montero objected that the court lacked jurisdiction

due to the pending appeal, Debtor filed an amended motion seeking an

indicative ruling. Debtor argued that because HRB had notice but did not

oppose the sale, it consented to it. Alternatively, she argued that sale of the

estate’s interest and HRB’s interest was appropriate under § 363(h).

The bankruptcy court entered an indicative ruling, pursuant to Rule

8008(a), stating that it would grant the motion and amend the order to

allow the Property to be sold free and clear of HRB’s interest, with HRB’s

interest attaching to sale proceeds. A motions panel then granted Debtor’s

motion for remand, and the bankruptcy court entered an order granting

Debtor’s motion to clarify. The court subsequently entered an order

awarding sanctions against Montero and Ms. Vargas in the amount of

$9,357.50. No one sought or obtained a stay of the sale order, and the sale

of the Property closed on November 4, 2024.

4 Ms. Vargas did not appeal the sanctions order and has not participated in these appeals. 6 JURISDICTION

The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and

157(b)(2)(N) and (O). Subject to our discussion of mootness below, we have

jurisdiction under 28 U.S.C. § 158.

ISSUES

Did the bankruptcy court err by holding that Montero willfully

violated the automatic stay by recording the lis pendens?

Did the bankruptcy court clearly err by making a good faith finding

under § 363(m)?

Is the appeal of the sale order statutorily moot under § 363(m)?

STANDARDS OF REVIEW

“Whether the automatic stay provisions of 11 U.S.C. § 362(a) have

been violated is a question of law reviewed de novo.” Mwangi v. Wells

Fargo Bank, N.A. (In re Mwangi), 764 F.3d 1168, 1173 (9th Cir. 2014) (citation

omitted). Mootness is also a question of law reviewed de novo. Ellis v. Yu

(In re Ellis), 523 B.R. 673, 677 (9th Cir. BAP 2014). 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. BAP 2014).

We review a § 363(m) “good faith” finding for clear error. Thomas v.

Namba (In re Thomas), 287 B.R. 782, 785 (9th Cir. BAP 2002). Factual findings

are clearly erroneous if they are illogical, implausible, or without support

in the record. Retz v. Samson (In re Retz), 606 F.3d 1189, 1196 (9th Cir. 2010).

7 DISCUSSION

A. The bankruptcy court did not clearly err by determining good faith under § 363(m), and the remainder of the appeal of the sale order is moot.

Section 363(b) authorizes a debtor in possession to sell property of the

estate. Pursuant to § 363(m), “when a sale of assets is made to a good faith

purchaser, it may not be modified or set aside unless the sale was stayed

pending appeal.” Paulman v. Gateway Venture Partners III, L.P. (In re

Filtercorp, Inc.), 163 F.3d 570, 576 (9th Cir. 1998) (citing § 363(m)). Thus,

subject to certain exceptions not applicable here, if an appellant fails to

obtain a stay of an order authorizing the sale of estate assets to a good faith

purchaser, and the sale is consummated, the appeal is moot. See Adeli v.

Barclay (In re Berkeley Del. Ct., LLC), 834 F.3d 1036, 1041 (9th Cir. 2016);

Onouli-Kona Land Co. v. Richards (In re Onouli-Kona Land Co.), 846 F.2d 1170,

1171-73 (9th Cir. 1988).

But § 363(m) does not moot an appeal questioning the good faith of a

purchaser, and if we were to reverse the court’s finding of good faith, we

could examine the sale itself. See Ferrari N. Am., Inc. v. Sims (In re R.B.B.,

Inc.), 211 F.3d 475, 480 (9th Cir. 2000). An “[a]bsence of good faith is

‘typically shown by fraud, collusion between the purchaser and other

bidders or the trustee, or an attempt to take grossly unfair advantage of

other bidders.’” In re Berkeley Del. Ct., 834 F.3d at 1041 (quoting In re

Filtercorp, Inc., 163 F.3d at 577). The relevant focus of inquiry is good faith

8 during the sale proceedings. Cmty. Thrift & Loan v. Suchy (In re Suchy), 786

F.2d 900, 902 (9th Cir. 1985).

Although Montero does not clearly argue that the buyer was not a

good faith purchaser, we liberally construe his pro se brief as raising the

issue. Montero argues that the estate’s broker did not properly market the

Property to the public and instead “pocketed the listing” for the benefit of

Debtor’s current and prior attorneys. Montero contends that Ori

Blumenfeld, the attorney representing the buyer, represented Debtor in a

prior bankruptcy case and had confidential information about the couple’s

finances. Montero suggests that Debtor’s attorney exercised undue

influence over her and colluded with Mr. Blumenfeld to orchestrate a sale

at a reduced price.

But Montero does not explain how Mr. Blumenfeld’s alleged

knowledge of confidential information impacted the sale process or

otherwise advantaged his client over other potential bidders. And Montero

does not explain how the bankruptcy court clearly erred by determining

that Mr. Campos’s marketing efforts were adequate under the

circumstances. Montero offers only speculation of collusion without

providing any evidence of bad faith.

Moreover, the bankruptcy court’s finding of good faith was

supported by the record. Both Debtor and Mr. Campos provided

declarations establishing that the buyer was a good faith purchaser, and

Mr. Campos provided testimony regarding his reasonable attempts to

9 market the Property and attract overbidders. Montero presented no

contrary evidence.

Montero has not demonstrated clear error by the bankruptcy court in

determining that the buyer was a good faith purchaser under § 363(m).5

Accordingly, we affirm the bankruptcy court’s § 363(m) finding and, as a

result, the remainder of the appeal of the sale order is statutorily moot. See

In re Berkeley Del. Ct., 834 F.3d at 1041; see also Lind v. Spacone (In re Lind),

BAP No. EC-18-1271-TaBS, 2019 WL 2950167, at *4 (9th Cir. BAP July 8,

2019) (affirming the bankruptcy court’s § 363(m) finding and dismissing

the remainder of the appeal as moot).

B. The bankruptcy court did not err by determining that Montero willfully violated the automatic stay.

The automatic stay “is designed to effect an immediate freeze of the

status quo by precluding and nullifying post-petition actions, judicial or

nonjudicial, in nonbankruptcy fora against the debtor or affecting the

5 Montero also makes several arguments on behalf of HRB. Montero’s argument that the sale could not be free and clear of HRB’s interest may not be moot. See Clear Channel Outdoor, Inc. v. Knupfer (In re PW, LLC), 391 B.R. 25, 35-36 (9th Cir. BAP 2008) (“[Section] 363(m) address[es] only changes of title or other essential attributes of a sale . . . . The terms of those sales, including the ‘free and clear’ term at issue here, are not protected.”). But Montero lacks standing to assert HRB’s claims. Warth v. Seldin, 422 U.S. 490, 499 (1975) (stating that a party “must assert his own legal rights and interests, and cannot rest his claim to relief on the legal rights or interests of third parties”). Although Montero says he—and not Debtor—is the sole shareholder of HRB, he cannot appear in federal court on its behalf. Rowland v. Cal. Men’s Colony, Unit II Men’s Advisory Council, 506 U.S. 194, 201–02 (1993) (“It has been the law for the better part of two centuries . . . that a corporation may appear in the federal courts only through licensed counsel.”). Thus, we do not address these arguments. 10 property of the estate.” In re Mwangi, 764 F.3d at 1173 (quoting Hillis

Motors, Inc. v. Haw. Auto. Dealers’ Ass’n, 997 F.2d 581, 585 (9th Cir. 1993)).

The automatic stay “prohibit[s] the postpetition filing or recording of a

notice of lis pendens.” Barnett v. Edwards (In re Edwards), 214 B.R. 613, 618

(9th Cir. BAP 1997).

Montero concedes that he recorded the lis pendens with knowledge of

the bankruptcy, and he admitted that he recorded the lis pendens to assert

his ownership of the Property, which he claimed had to be decided by the

state court. On appeal, he makes several arguments why recording the lis

pendens did not violate the automatic stay. Debtor argues that Montero

failed to raise any of these arguments in the bankruptcy court, and she

urges us to treat the arguments as waived. See Mano-Y&M, Ltd. v. Field (In

re Mortg. Store, Inc.), 773 F.3d 990, 998 (9th Cir. 2014) (“A litigant may waive

an issue by failing to raise it in a bankruptcy court.”). Regardless of

whether Montero waived these arguments, they are meritless.

First, Montero argues that his notice of lis pendens is statutorily void

because he did not properly serve the lis pendens or record the return

receipt as required by California law. He misapprehends the scope of the

automatic stay. Section 362(a)(3) prohibits “any act to obtain possession of

property of the estate . . . or to exercise control over property of the estate,”

not merely acts which are legally valid. Whether Montero technically

complied with state law, he created a cloud on title of the Property which

interfered with Debtor’s attempt to sell the Property. See Brooks-Hamilton v.

11 City of Oakland (In re Brooks-Hamilton), 348 B.R. 512, 525 (Bankr. N.D. Cal.

2006) (holding that recording a lis pendens constituted a violation of

§ 362(a)(3)). And because recording the lis pendens violated the automatic

stay, it was void ab initio, regardless of whether Montero complied with

state law procedures. Id. at 523 n.17 (citing Schwartz v. United States (In re

Schwartz), 954 F.3d 569, 573-74 (9th Cir. 1992)).

Montero next argues that because he is an “insider” of Debtor, and

not a creditor of the estate, he cannot be liable for a stay violation. But

§ 362(a) specifically applies to “all entities,” not just creditors. Thus,

§ 362(a)(3) prohibits all actions to control property of the estate, whether by

creditors, debtors, or third parties. See id. at 525 (citing Yorke v. Citibank,

N.A. (In re BNT Terminals, Inc.), 125 B.R. 963, 971 (Bankr. N.D. Ill. 1990)).

Montero claims that Debtor did not prove that he had notice of the

stay, but he admits he was present in prepetition discussions with Debtor’s

attorney, and he admits he began receiving notices of the bankruptcy

proceedings after he attended the April 9, 2024 hearing to employ a realtor.

Montero commenced the dissolution proceedings on May 1, 2024, and he

recorded the lis pendens on May 16, 2024, with actual notice of the

bankruptcy case.

Finally, Montero argues that Debtor cannot recover attorney’s fees or

damages under § 362(k) because such damages are recoverable only by

individuals. Because Debtor is a debtor in possession, Montero argues she

is not an “individual.” This argument is absurd. Debtor is an individual

12 and her status as debtor in possession does not change that. Montero cites

Havelock v. Taxel (In re Pace), 67 F.3d 187 (9th Cir. 1995), in which the Ninth

Circuit held that a chapter 7 trustee is not an “individual” for purposes of

§ 362(k) (formerly § 362(h)). Although § 1107 provides that a chapter 11

debtor in possession has the rights, title, and powers of a trustee, § 1101(1)

is clear that “debtor in possession” means debtor.

Montero has not demonstrated any error by the bankruptcy court in

granting the motion for sanctions and determining that Montero willfully

violated the automatic stay.

CONCLUSION

Based on the foregoing, we AFFIRM the bankruptcy court’s finding

that the sale was to a good faith purchaser and, accordingly, we DISMISS

as moot the remainder of the appeal from the sale order. We also AFFIRM

the bankruptcy court’s order imposing sanctions against Montero for his

willful violation of the automatic stay.