In re: Melva Atayde

• Court: United States Bankruptcy Appellate Panel for the Ninth Circuit
• Decided: December 9, 2013
• Docket: CC-12-1646-DPaTa
• Status: Unpublished

Opinion

FILED DEC 9 2013 SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT 1 2 3 UNITED STATES BANKRUPTCY APPELLATE PANEL 4 OF THE NINTH CIRCUIT 5 In re: ) BAP No. CC-12-1646-DPaTa ) 6 MELVA ATAYDE, ) Bk. No. 10-18117-MT ) 7 Debtor. ) Adv. Proc. No. 11-01003-MT ________________________________ ) 8 ) MELVA ATAYDE, ) 9 ) Appellant, ) 10 ) v. ) M E M O R A N D U M1 11 ) D. BRANDON FECO; ) 12 LANE SCOTT YUDELL ) ) 13 Appellees. ) ________________________________ ) 14 Argued and Submitted on November 22, 2013 15 at Pasadena, California 16 Filed - December 9, 2013 17 Appeal from the United States Bankruptcy Court for the Central District of California 18 Honorable Charles E. Rendlen III, [Visiting] Bankruptcy Judge, 19 and Honorable Maureen Tighe, Bankruptcy Judge, Presiding 20 Appearances: Jerome Zamos of the Law Offices of Jerome Zamos argued 21 for Appellant Melva Atayde; Russ W. Ercolani of the Ercolani Law Group argued for Appellees D. Brandon Feco 22 and Lane Scott Yudell. 23 Before: DUNN, PAPPAS and TAYLOR, Bankruptcy Judges. 24 25 1 This disposition is not appropriate for publication. 26 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 8013-1.

1 1 Unhappy with the bankruptcy court’s refusal to impute 2 liability to one Appellee and the amount of damages, attorneys’ fees 3 and costs awarded in her favor based upon the other Appellee’s 4 violation of § 110,2 debtor appealed. We AFFIRM. 5 I. FACTS 6 Sometime near the turn of the present century, Melva Atayde 7 acquired real property in Granada Hills, California, which she used 8 as her personal residence (“Residence”). On January 4, 2010, after 9 Ms. Atayde had become delinquent on her payments on the Residence, 10 the servicer of the loan secured by a First Deed of Trust on the 11 Residence filed a Notice of Default. Ms. Atayde failed to cure the 12 default, and the servicer filed a Notice of Sale on April 13, 2010. 13 The sale was scheduled to take place on July 6, 2010 (“Initial Sale 14 Date”). Between April 13, 2010 and the Initial Sale Date, 15 Ms. Atayde attempted unsuccessfully to negotiate with the secured 16 lender to retain ownership and possession of the Residence by 17 obtaining a further loan. 18 Prior to the Initial Sale Date, Ms. Atayde contacted her 19 friend, Andrew Rowe, who claimed to be a short sale expert. 20 Mr. Rowe referred Ms. Atayde to Lane Scott Yudell, a real estate 21 agent who was an employee of KNB Capital, Inc. dba So. Cal. 22 Properties (“KNB”). On July 3, 2010, the Saturday of the 23 Independence Day weekend, Ms. Atayde and Mr. Yudell commenced 24 2 25 Unless specified otherwise, all chapter, section and rule references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and 26 the Federal Rules of Bankruptcy Procedure, Rules 1001-9037.

2 1 telephone communications. At that time, Mr. Yudell suggested that 2 Ms. Atayde could file a bankruptcy case to avoid the imminent 3 foreclosure sale. At Ms. Atayde’s insistence, Mr. Yudell sent 4 Ms. Atayde the necessary bankruptcy petition forms which she 5 completed and which Mr. Yudell’s assistant, Kate Templeton, filed on 6 Ms. Atayde’s behalf3 on Tuesday, July 6, 2010, the first business 7 day after the holiday weekend. 8 The bankruptcy documents filed by or on behalf of Ms. Atayde 9 were incomplete. The bankruptcy court sent Ms. Atayde several 10 notices of the need to correct the deficient filing to avoid 11 dismissal of her case. When no further documents were filed, the 12 bankruptcy case was dismissed on July 23, 2010. 13 Thereafter, the Residence was foreclosed upon and sold. The 14 sale price was $143,000, which was applied against the outstanding 15 liens on the Residence. Those liens included two trust deeds, 16 unreleased liens, and taxes aggregating more than the $143,000 17 foreclosure sale price. 18 On January 4, 2011, Ms. Atayde commenced an adversary 19 proceeding in the bankruptcy court, seeking damages in the amount of 20 $300,000, representing statutory damages and alleged actual damages 21 for her loss of the Residence, pursuant to § 110 and pursuant to 22 23 3 Mr. Yudell and Ms. Templeton testified that Ms. Templeton delivered the forms to the bankruptcy court on behalf of Ms. Atayde 24 because Ms. Atayde claimed to be incapable of delivering them 25 herself. Ms. Atayde testified that Mr. Yudell not only sent her the forms, but informed her that his office would ensure the completed 26 forms were filed with the bankruptcy court.

3 1 Cal. Bus. & Prof. Code § 10159.2.4 2 In addition to Mr. Yudell, Ms. Atayde named D. Brandon Feco 3 as a defendant in the adversary proceeding. Mr. Feco is the owner 4 of KNB and was Mr. Yudell’s supervising real estate broker. At the 5 conclusion of the two-day trial, the bankruptcy court found that 6 Mr. Feco did not prepare any portion of the bankruptcy documents, 7 that he never advised Ms. Atayde to file a bankruptcy case, that he 8 never spoke to Mr. Yudell or any other person about Ms. Atayde, her 9 Residence, or the bankruptcy case until he received the summons for 10 the adversary proceeding, that KNB does not prepare bankruptcy 11 petition forms, and that Mr. Feco never authorized or instructed any 12 agent working for KNB to advise any client to file a bankruptcy 13 case. Based on those findings, the bankruptcy court concluded that 14 Mr. Feco was not a petition preparer for purposes of liability under 15 11 U.S.C. § 110 and awarded judgment in his favor on the complaint. 16 By contrast, the bankruptcy court found that Mr. Yudell 17 helped prepare Ms. Atayde’s bankruptcy petition papers by 18 (1) advising her to file a bankruptcy case, (2) maintaining 19 correspondence with her throughout the bankruptcy process, and 20 (3) instructing Ms. Templeton to deliver the completed bankruptcy 21 4 22 Cal. Bus. & Prof. Code § 10159.2 was alleged as the basis upon which to impute liability to Mr. Yudell’s employer. Because 23 Mr. Yudell has paid Ms. Atayde all amounts awarded by the bankruptcy court, we do not address Ms. Atayde’s asserted error based on the 24 bankruptcy court’s failure to find that employer liable for damages 25 under § 110, other than to comment that any related issues are moot. See Discussion, infra at paragraph B. No further reference to this 26 statute is made in this Memorandum.

4 1 petition forms to the bankruptcy court for filing. The bankruptcy 2 court further found that the opportunity to earn a commission by 3 executing a short sale of the Residence constituted compensation 4 within the contemplation of § 110(a)(1). Based on those findings, 5 the bankruptcy court determined that Mr. Yudell met the statutory 6 definition for a bankruptcy petition preparer, that he had violated 7 § 110(e) and (g), and that he had engaged in the unauthorized 8 practice of law, a fraudulent act under § 110. 9 Notwithstanding its determination that Mr. Yudell had 10 violated § 110, the bankruptcy court concluded that Mr. Yudell’s 11 conduct did not cause Ms. Atayde to lose the Residence, where it was 12 not clear that Ms. Atayde could have kept the Residence had her case 13 not been dismissed. Ms. Atadye lacked funds to cure the default if 14 she proceeded in a chapter 7 case, she had failed to qualify for a 15 modification of the mortgage loan, and because her job was ending, 16 she had no way to fund a chapter 13 plan to cure the arrears. 17 Further, no evidence, other than Ms. Atayde’s testimony, was 18 presented to establish that the value of the property exceeded the 19 obligations against it for purposes of showing damages through a 20 loss of equity. The bankruptcy court expressly found Ms. Atayde’s 21 testimony not credible on that issue. The bankruptcy court 22 determined that the only damages Ms. Atayde had proven were the loss 23 of $299.00 she paid as a filing fee and $1.00 for the cost of 24 copies. Finally, because Ms. Atayde did not prove that Mr. Yudell 25 had acted as a petition preparer in any other instance, more global 26 damages were not warranted.

5 1 The bankruptcy court ordered Mr. Yudell to pay Ms. Atayde 2 the amount of $300 actual damages and $2,000 in statutory damages. 3 The order that awarded judgment against Mr. Yudell also 4 authorized Ms. Atayde to file a motion for an award of attorneys’ 5 fees and costs. That motion was heard by a bankruptcy judge who did 6 not try the adversary proceeding, but to whom the adversary 7 proceeding was assigned and who had conducted the majority of the 8 pretrial proceedings.5 9 After admonishing counsel for Ms. Atayde for prosecuting “the 10 most over-tried matter I’ve ever seen on a 110 violation,” 11 recounting the days of proceedings involving both bankruptcy judges 12 involved in the adversary proceeding, reciting that there was no 13 evidence of causation for the “phenomenal” amount of damages that 14 were sought and that a wrong defendant was named, the bankruptcy 15 court awarded $3,000 in attorneys’ fees and $390 in costs to 16 Ms. Atayde. 17 Ms. Atayde timely appealed both the judgment of the trial 18 court and the subsequent order awarding attorneys’ fees and costs. 19 II. JURISDICTION 20 The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 21 and 157(b)(1) and (b)(2)(O). We have jurisdiction under 22 28 U.S.C. § 158. 23 24 25 5 Trial of the adversary proceeding was conducted by a 26 visiting judge.

6 1 III. ISSUES 2 Whether the bankruptcy court erred in its award of damages 3 resulting from Mr. Yudell’s violation of § 110. 4 Whether the bankruptcy court erred when it concluded that 5 Mr. Feco had no liability for his employee’s actions. 6 Whether the appeal is moot as to Mr. Feco. 7 IV. STANDARDS OF REVIEW 8 We review an award of damages for an abuse of discretion. 9 See Eskanos & Alder, P.C. v. Leetin, 309 F.3d 1210, 1215-16 (9th 10 Cir. 2002). Similarly, a bankruptcy court's award of attorney fees 11 is reviewed for abuse of discretion. Cal. Emp’t Dev. Dep't v. Taxel 12 (In re Del Mission Ltd.), 98 F.3d 1147, 1152 (9th Cir. 1996). 13 We must affirm the bankruptcy court's fact findings unless we 14 conclude that they are “(1) ‘illogical,’ (2) ‘implausible,’ or 15 (3) without ‘support in inferences that may be drawn from the facts 16 in the record.’” United States v. Hinkson, 585 F.3d 1247, 1262 & 17 n.20 (9th Cir. 2009)(en banc). “Under the ‘clear error’ standard, 18 we accept findings of fact unless the findings leave ‘the definite 19 and firm conviction that a mistake has been committed by the trial 20 judge.’” Wolkowitz v. Beverly (In re Beverly), 374 B.R. 221, 230, 21 aff’d in part & dismissed in part, 551 F.3d 1092 (9th Cir. 2008), 22 citing Latman v. Burdette, 366 F.3d 774, 781 (9th Cir. 2004). We 23 review de novo the bankruptcy court's conclusions of law and its 24 interpretations of statutes and rules. Clear Channel Outdoor, Inc. 25 v. Knupfer (In re PW, LLC), 391 B.R. 25, 32 (9th Cir. BAP 2008). 26

7 1 V. DISCUSSION 2 The Bankruptcy Code defines the term “bankruptcy petition 3 preparer” at § 110(a)(1) to mean “a person, other than an attorney 4 for the debtor or an employee of such attorney under the direct 5 supervision of such attorney, who prepares for compensation a 6 document for filing. . . .” The term “‘document for filing’ means a 7 petition or any other document prepared for filing by a debtor in a 8 United States bankruptcy court . . . in connection with a case under 9 this title.” Section 110(a)(2). 10 The bankruptcy court ruled that Mr. Yudell was a bankruptcy 11 petition preparer within the definition of the statute. Mr. Yudell 12 did not appeal that determination by the bankruptcy court; in fact, 13 he concedes it for the purposes of this appeal. See Appellee’s 14 Opening Brief at 5:24-26. Accordingly, we do not address whether 15 the limited actions of Mr. Yudell in the circumstances of this case 16 satisfy the provisions of § 110(a). 17 A. Section 110(i)(1) 18 This appeal is before us because Ms. Atayde is not satisfied 19 with the damages the bankruptcy court awarded to her. Our focus, 20 therefore, is on § 110(i)(1) and its application to the record on 21 appeal. 22 Section 110(i)(1) provides: 23 If a bankruptcy petition preparer violates this section or commits any act that the court finds to be fraudulent, 24 unfair, or deceptive, on the motion of the debtor . . . , and after notice and a hearing, the court shall order the 25 bankruptcy petition preparer to pay to the debtor – (A) the debtor’s actual damages; 26

8 1 (B) the greater of – (i) $2,000; or 2 (ii) twice the amount paid by the debtor to the bankruptcy petition preparer for the preparer’s services; 3 and (C) reasonable attorneys’ fees and costs in moving for 4 damages under this subsection. 5 The bankruptcy court found Ms. Atadye had incurred actual 6 damages in the amount of $300 and ordered Mr. Yudell to pay her that 7 amount pursuant to § 110(i)(1)(A). Ms. Atadye did not pay 8 Mr. Yudell for his services as a bankruptcy petition preparer. 9 Accordingly, the bankruptcy court awarded Ms. Atayde the $2,000 10 maximum statutory damages provided for in § 110(i)(1)(B)(i). 11 Finally, the bankruptcy court determined that $3,000 was a 12 reasonable attorneys’ fee for seeking damages under § 110(i)(1), and 13 ordered Mr. Yudell to pay that amount to Ms. Atayde pursuant to 14 § 110(i)(1)(C). The aggregate amount Mr. Yudell was ordered to pay 15 to Ms. Atayde for his violation of § 110 was $5,300. That amount 16 has been fully paid. 17 Ms. Atayde asserts on appeal that the damages awarded to her 18 pursuant to §§ 110(i)(1)(A) and (C) are inadequate. 19 1. Actual Damages 20 In the complaint, Ms. Atayde asserted the right to recover 21 actual damages. This right was also asserted in Ms. Atayde’s Motion 22 to Recover Damages. As the party seeking relief she bore the burden 23 to prove the amount of her actual damages. Generally speaking, an 24 award of actual damages is intended as compensation for an actual 25 injury. Further, as noted by the bankruptcy court, the “actual 26 damages must be reasonably certain to have been caused in fact by

9 1 the conduct of the party from whom they are sought.” Memorandum at 2 9:11-13 (citing In re JTS Corp., 305 B.R. 529, 555 (Bankr. N.D. Cal. 3 2003)). 4 Ms. Atayde asserted that her actual damages included the loss 5 of equity in the Residence. To establish a loss of equity, 6 Ms. Atayde was required to establish that the Residence was worth 7 more than what she owed against the Residence. The only evidence of 8 value presented by Ms. Atayde was her opinion that the Residence was 9 worth $300,000. Ms. Atayde asserts that her opinion was admissible 10 pursuant to Rule 701 of the Federal Rules of Evidence.6 She is 11 correct, however, Rule 701 and her opinion do not deprive the 12 bankruptcy court of the ability to evaluate and weigh the evidence. 13 Contrary to Ms. Atayde’s position on appeal, it is not 14 evident in the record that the bankruptcy court rejected her opinion 15 of value, although it certainly could have in light of the fact that 16 within days of filing the bankruptcy petition, she executed a 17 listing agreement for the purpose of selling the Residence for 18 19 6 Fed. R. Evid. 701 provides: 20 21 Opinion Testimony by Lay Witnesses

22 If the witness is not testifying as an expert, the witness’ testimony in the form of opinions or inferences 23 is limited to those opinions or inferences which are (a) rationally based on the perception of the witness, 24 (b) helpful to a clear understanding of the witness’ 25 testimony or the determination of a fact in issue, and (c) not based on scientific, technical, or other 26 specialized knowledge within the scope of Rule 702.

10 1 $180,000. Rather than value, however, the bankruptcy court focused 2 on the lack of evidence regarding the encumbrances recorded against 3 the Residence, finding that the real estate mortgage was $143,000, 4 the amount bid at the foreclosure sale, and that the “legal title 5 report showed additional liens outstanding and taxes which were not 6 released.” The bankruptcy court found Ms. Atayde’s testimony that 7 these encumbrances had been released not credible in the absence of 8 documentary evidence. The mere fact that Ms. Atayde sought out and 9 was working with a short sale expert belies the notion that she had 10 equity in the Residence. In the absence of evidence establishing 11 the amount of the encumbrances against the Residence, the bankruptcy 12 court did not err when it determined that Ms. Atayde had not met her 13 burden to prove loss of equity as actual damages. 14 Ms. Atayde also alleged “general damages that flowed out of 15 her pre-Christmas eviction.” The bankruptcy court determined that 16 Ms. Atayde had not established a causal link between the defective 17 bankruptcy petition and the foreclosure of the Residence. It is 18 true that Ms. Atayde lost the benefit of the automatic stay when her 19 bankruptcy case was dismissed. However, an automatic stay is not 20 permanent. On the record before the bankruptcy court, Ms. Atayde 21 would not have been able to withstand a motion for relief from the 22 automatic stay. She had no funds to cure her mortgage default, such 23 that her reprieve in chapter 7 was limited in any event. She had no 24 permanent employment which would have enabled her to qualify either 25 for a modification of her mortgage or to fund a chapter 13 plan. 26 Ms. Atayde simply did not have the resources to save her Residence.

11 1 An incomplete bankruptcy filing and the resulting dismissal do not 2 change that fact. Without a causal link between the dismissal of 3 her bankruptcy case and the foreclosure of her Residence, Ms. Atayde 4 is not entitled to damages for the inconvenience, embarrassment, or 5 emotional distress of an eviction during the Christmas holiday 6 season or at any other time. 7 2. Reasonable Attorneys’ Fees and Costs 8 Ms. Atayde sought $14,590 in attorneys’ fees and costs 9 incurred in seeking an award of damages under § 110(i)(1). In light 10 of the fact that her proven actual damages were $300, and her 11 statutory damage award was $2,000, an attorney fee award of more 12 than forty-eight times her actual damages could not be considered 13 reasonable, especially in light of the court’s repeated admonitions 14 that an award of actual damages would require causal connection to 15 Mr. Yudell’s actions. 16 “Substantively, both the Supreme Court and our cases have 17 emphasized the discretionary nature of the court's determination of 18 the number of hours reasonably expended.” Dawson v. Washington Mut. 19 Bank, F.A. (In re Dawson), 390 F.3d 1139, 1152 (9th Cir. 2004), 20 quoting Cunningham v. Cnty. of L.A., 879 F.2d 481, 484 (9th Cir. 21 1988). In Dawson, the plaintiffs claimed more than $50,000 in 22 attorneys’ fees, yet prevailed on only one of the twenty issues they 23 litigated. They ultimately were awarded $200 in total damages. The 24 bankruptcy court determined that plaintiffs’ attorney fee request 25 was “grossly disproportionate to the cost of litigating the issue in 26 question.” In re Dawson, 390 F.3d at 1152. On appeal, the Ninth

12 1 Circuit affirmed the bankruptcy court’s exercise of discretion in 2 awarding only 5% of the fees requested. 3 The Dawson analysis supports the bankruptcy court’s exercise 4 of discretion to award $3,000 of the $14,590 attorneys’ fees 5 requested in this case. See also Unsecured Creditors’ Committee v. 6 Puget Sound Plywood, Inc. (In re Puget Sound Plywood, Inc.), 7 924 F.2d 955, 958-59 (9th Cir. 1991)(affirming limitation of 8 attorneys’ fees to one-third of the ultimate recovery, noting the 9 obligation of counsel to “exercise billing judgment,” and further 10 noting that attorneys do not have “free reign to run up a tab 11 without considering the maximum probable recovery”). 12 B. The Appeal is Moot as to the Liability of Mr. Feco. 13 In addition to her assertions that the bankruptcy court erred 14 in its award of damages, Ms. Atayde asserted that the bankruptcy 15 court erred when it determined that Mr. Feco’s status as KNB’s owner 16 did not make him liable for the conduct of KNB’s employee, 17 Mr. Yudell. We need not reach that issue, because the orders 18 awarding damages and attorneys’ fees to Ms. Atayde, as we are 19 affirming them here, have been satisfied in full by Mr. Yudell’s 20 payment on or about March 18, 2013. Because no greater judgment 21 will be entered in this matter, it is of no import whether Mr. Feco 22 is named as an obligor. 23 VI. CONCLUSION 24 The bankruptcy court did not abuse its discretion when it 25 determined that Ms. Atayde did not meet her burden of proving that 26 she had equity in the Residence at the time it was foreclosed. The

13 1 bankruptcy court further did not abuse its discretion when it 2 determined that Ms. Atayde had not established a causal link between 3 Mr. Yudell’s actions in assisting her in filing an incomplete 4 bankruptcy case and the actual foreclosure of the Residence and her 5 ultimate eviction. Nor did the bankruptcy court abuse its 6 discretion in making its award of attorneys’ fees. 7 Because the bankruptcy court’s monetary judgment was 8 satisfied in full by Mr. Yudell, Ms. Atayde’s appeal is moot as to 9 the issue of whether Mr. Feco is jointly liable. 10 Based on the foregoing conclusions, we AFFIRM. 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26