In re: Rw Meridian LLC

Opinion

FILED FEB 03 2017

1 SUSAN M. SPRAUL, CLERK

U.S. BKCY. APP. PANEL

2 ORDERED PUBLISHED OF THE NINTH CIRCUIT

3 UNITED STATES BANKRUPTCY APPELLATE PANEL 4 OF THE NINTH CIRCUIT 5 In re: ) BAP No. SC-16-1227-JuFY )

6 RW MERIDIAN LLC, ) Bk. No. 16-00629-MM7 )

7 Debtor. )

______________________________)

8 )

COUNTY OF IMPERIAL TREASURER- )

9 TAX COLLECTOR, )

)

10 Appellant, )

v. ) O P I N I O N 11 )

RONALD E. STADTMUELLER, )

12 Trustee; RW MERIDIAN LLC, )

)

13 Appellees. )

______________________________)

14 15 Argued and Submitted on January 19, 2017 at San Diego, California

16 Filed - February 3, 2017

17 Appeal from the United States Bankruptcy Court 18 for the Southern District of California 19 Honorable Margaret M. Mann, Bankruptcy Judge, Presiding

_________________________

20 21 Appearances: Laurel Lee Hyde, Schwartz Hyde & Sullivan, LLP, argued for appellant County of Imperial 22 Treasurer-Tax Collector; Richard Girgado, Office of the County Counsel, County of Los Angeles, 23 argued for Amici The California State Association of Counties and The California Association of 24 County Treasurers and Tax Collectors; Brian A.

Kretsch argued for appellee Ronald E.

25 Stadtmueller, chapter 7 trustee. 26 Before: JURY, FARIS, and YUN,* Bankruptcy Judges. 27 28

*

Hon. Scott H. Yun, United States Bankruptcy Judge for the Central District of California, sitting by designation.

1 JURY, Bankruptcy Judge: 2 3 Appellant, County of Imperial Treasurer-Tax Collector 4 (County), scheduled a tax sale of real property owned by RW 5 Meridian, LLC (Debtor) by an internet auction on February 6, 6 2016, due to the non-payment of taxes. Under Cal. Rev. & Tax 7 Code (Tax Code) § 3707(a)(1), Debtor’s right to redeem the tax 8 defaulted property expired at 5:00 p.m. on Friday, February 5, 9 2016. Debtor’s right to redeem lapsed and the sale by auction 10 began as scheduled. 11 On February 8, 2016, Debtor filed a chapter 71 petition. 12 Aware of Debtor’s filing, the County completed the auction on 13 February 9, 2016, by selling the property to the highest bidder 14 for $343,000. The County then filed a motion for a comfort 15 order,2 asserting that the automatic stay was not applicable to 16 its postpetition acts under Tracht Gut, LLC v. County of Los 17 Angeles (In re Tracht Gut, LLC), 503 B.R. 804 (9th Cir. BAP 18 2014), aff’d, 836 F.3d 1146 (9th Cir. 2016), since Debtor’s 19 right to redeem the property lapsed prepetition. 20 The bankruptcy court disagreed that Tracht Gut was binding 21 precedent under these circumstances. The court found that 22 23 1 Unless otherwise indicated, all chapter and section references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, 24 “Rule” references are to the Federal Rules of Bankruptcy 25 Procedure, and “Civil Rule” references are to the Federal Rules of Civil Procedure.

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“A ‘comfort order’ is a bankruptcy term of art for an 27 order confirming an undisputed legal result, and often is entered to confirm that the automatic stay has terminated.” In re Hill, 28 364 B.R. 826, 829 n.3 (Bankr. M.D. Fla. 2007).

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1 although Debtor’s right to redeem the property had expired 2 prepetition, Debtor still held valuable rights in the property 3 at the time of its bankruptcy filing, including title, 4 possession, and contingent redemption rights. Accordingly, the 5 bankruptcy court found that the property was property of 6 Debtor’s estate under § 541. As a result, the court concluded 7 that the County’s postpetition completion of the tax sale 8 violated § 362(a)(3), (4), and (6) and thus was void. The court 9 entered an order denying the County’s motion for a comfort 10 order. This appeal followed. 11 For the reasons set forth below, we agree with the 12 bankruptcy court’s conclusion that Tracht Gut did not address a 13 circumstance where the redemption rights had lapsed but the sale 14 had not been completed prior to the bankruptcy filing. 15 Therefore, its holding is not binding under the facts of this 16 case. We hold that the County’s postpetition completion of the 17 sale violated the automatic stay under § 362(a)(3), (4), and 18 (6). Accordingly, we AFFIRM. 19 I. FACTS 20 A. Prepetition Events 21 The underlying facts are undisputed. As of February 6, 22 2016, Debtor was the owner of 58.53 acres of unimproved land 23 located in Imperial County, California. Debtor had not paid the 24 property taxes for more than five years and was delinquent in 25 the approximate amount of $167,000. As a result, the tax 26 collector scheduled the property for sale by auction commencing 27 on Saturday, February 6, 2016. By statute, Debtor’s right to 28 redeem the property expired at 5:00 p.m. on Friday, February 5,

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1 2016. Debtor’s right to redeem lapsed and the auction began on 2 February 6, 2016, as scheduled. 3 B. Postpetition Events 4 On February 8, 2016, Debtor filed a chapter 7 petition. 5 Appellee, Ronald E. Stadtmueller, was appointed the chapter 7 6 trustee (Trustee). Aware of the bankruptcy filing, the County, 7 relying on the Panel’s decision in Tracht Gut, completed the 8 auction postpetition by selling the property to the highest 9 bidder for $343,000. 10 On February 11, 2016, the County filed a motion for a 11 comfort order requesting confirmation that the completion of the 12 auction had not violated the automatic stay and that the further 13 act of recording the tax deed would not be a stay violation as 14 it was a “ministerial act.” Trustee opposed, contending that 15 the property was property of the estate which he could 16 administer for the benefit of the creditors and estate. After a 17 hearing and further briefing, the bankruptcy court took the 18 matter under submission. 19 On July 5, 2016, the bankruptcy court issued its decision 20 in In re RW Meridian LLC, 553 B.R. 807 (Bankr. S.D. Cal. 2016). 21 The court concluded that it was not bound by the holding in 22 Tracht Gut because in that case both the debtor’s right to 23 redeem expired and the sale occurred prepetition and all that 24 was left in the sale process was the recording of the tax deed. 25 The bankruptcy court reasoned that until the sale, Debtor 26 retained rights in the property because equitable and legal 27 title had not transferred. The bankruptcy court also found that 28 Debtor had a contingent right of redemption under California

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1 law, which became property of the estate. Finally, the 2 bankruptcy court held that the County’s discretion regarding the 3 conduct of the sale eliminated the ministerial act exception to 4 the automatic stay. 5 Relying on the broad reach of the automatic stay espoused 6 in 40235 Washington Street Corp. v. W.C. Lusardi (In re 7 Lusardi), 329 F.3d 1076 (9th Cir. 2003), and other case law, the 8 bankruptcy court found the sale violated § 362(a)(3), (4), and 9 (6) and thus was void. The court denied the County’s motion for 10 a comfort order and entered an order consistent with its 11 decision. The Country filed a timely notice of appeal from that 12 order. 13 C. Post-appeal Events 14 The County then filed an emergency motion for a stay 15 pending appeal. Trustee opposed, contending that he had 16 received an offer from third parties to purchase the property 17 for $500,000, an amount which would satisfy all claims in the 18 bankruptcy case, including the County’s tax lien. According to 19 Trustee, this was the third offer he had received and any 20 further delay would impede the sale of the property. A motions 21 panel denied the stay motion. 22 On October 14, 2016, the California State Association of 23 Counties and the California Association of County Treasurer and 24 Tax Collectors filed a motion for leave to file an Amicus Brief. 25 The parties contended that the issue involved in this appeal was 26 “vital to the administration of property tax collection” and 27 that the decision, “if sustained,” would “seriously impair the 28 ability of counties and their tax collectors to ensure the

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1 collection of real property taxes [and] subject the counties to 2 a finding by the courts that they violated the automatic stay.” 3 Around the same time, Trustee filed an objection to Melissa 4 Johnson’s declaration, which was included in the County’s 5 appendix and not part of the record on appeal. The County 6 submitted Ms. Johnson’s declaration to “remove any uncertainty 7 as to the relevant dates of the events” in Lusardi, since the 8 bankruptcy court found that the facts in this case were “nearly 9 identical” to those in Lusardi.3 Although Lusardi involved a 10 postpetition tax sale, the County submitted Ms. Johnson’s 11 declaration to show that the debtor had filed a chapter 11 12 petition prior to the expiration of its redemption right. Ms. 13 Johnson, the Chief Deputy Treasurer-Tax Collector for Riverside 14 County, authenticated the tax records associated with the real 15 property in the Lusardi case showing the sequence of events. In 16 its opening brief, the County asked the Panel to take judicial 17 notice of those tax records. 18 A motions panel granted the motion for leave to file the 19 Amicus Brief and accepted it for filing, sustained Trustee’s 20 21 22 23

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24 We do not read the bankruptcy court’s decision as finding Lusardi “almost identical” to the facts here. Rather, the court 25 cited Lusardi to demonstrate the breadth of the automatic stay under § 362(a)(4) as applied to a postpetition tax sale. In any 26 event, as in Tracht Gut, Lusardi does not discuss a debtor’s property interests after the expiration of its right to redeem 27 but before a sale. Therefore, the case does not control the 28 outcome here.

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1 objection to Ms. Johnson’s declaration, and denied the County’s 2 request for judicial notice.4 3 II. JURISDICTION 4 The bankruptcy court had jurisdiction pursuant to 28 U.S.C. 5 §§ 1334 and 157(b)(2)(G). We have jurisdiction under 28 U.S.C. 6 § 158. 7 III. ISSUES 8 A. Whether the bankruptcy court erred in finding that 9 Debtor had various interests in the property on the petition 10 date despite the expiration of its right to redeem; 11 B. Whether the bankruptcy court erred in finding that the 12 County’s postpetition sale of the property violated § 362(a)(3) 13 and (4); and 14 C. Whether the bankruptcy court erred in finding that the 15 County’s action violated § 362(a)(6) as an act to collect a 16 claim against Debtor. 17 IV. STANDARD OF REVIEW 18 The standard of review for the issues raised in this appeal 19 is de novo. Whether an asset is estate property and whether the 20 automatic stay is applicable to a particular situation are 21 conclusions of law reviewed de novo. Groshong v. Sapp (In re 22 23 4 Generally, a merits panel is not bound by the decisions 24 of a motions panel. Stagecoach Utilities, Inc. v. Cty. of Lyon (In re Stagecoach Utilities, Inc.), 86 B.R. 229, 230 (9th Cir.

25 BAP 1988). We see no reason to deviate from the decision made by the motions panel denying the County’s request for judicial 26 notice and sustaining the objection to Ms. Johnson’s declaration.

The declaration was not in the record relied upon by the 27 bankruptcy court and therefore requesting judicial notice of the 28 declaration is an improper augmentation of the trial record.

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1 Mila, Inc.), 423 B.R. 537, 542 (9th Cir. BAP 2010). We also 2 review the bankruptcy court’s interpretation of state law de 3 novo. Mele v. Mele (In re Mele), 501 B.R. 357, 362 (9th Cir. 4 BAP 2013). “De novo review requires that we consider a matter 5 anew, as if no decision had been rendered previously.” Id. 6 V. DISCUSSION 7 A. The Automatic Stay: § 362(a)(3) and (4) 8 The scope of the automatic stay is quite broad. Hillis 9 Motors, Inc. v. Haw. Auto. Dealers’ Ass’n, 997 F.2d 581, 585 10 (9th Cir. 1993). It stays “any act to obtain possession of 11 property of the estate or of property from the estate or to 12 exercise control over property of the estate” and also “any act 13 to . . . enforce any lien against property of the estate.” 14 § 362(a)(3), (4). 15 When Debtor filed its bankruptcy petition, the automatic 16 stay took effect. § 362(a). It is undisputed that the County 17 continued the auction and sold Debtor’s property postpetition to 18 the highest bidder. A postpetition sale of property generally 19 falls within the scope of § 362(a)(3) and (4). Actions taken in 20 violation of the automatic stay are void. In re Lusardi, 329 21 F.3d at 1084; Schwartz v. United States (In re Schwartz), 954 22 F.2d 569, 575 (9th Cir. 1992). 23 However, when a debtor is completely divested of all legal 24 and equitable rights in property prior to the filing of its 25 petition, the automatic stay is inapplicable and there is no 26 need for a creditor to seek relief from the automatic stay. See 27 Eden Place, LLC v. Perl (In re Perl), 811 F.3d 1120, 1127-28 28 (9th Cir. 2016). In Perl, prior to the debtor’s bankruptcy

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1 filing, a nonjudicial foreclosure sale had occurred, the 2 trustee’s deed was timely recorded, and the purchaser at the 3 sale had obtained an unlawful detainer judgment and writ of 4 possession. These events collectively terminated the debtor’s 5 legal title and right of possession in the property prepetition 6 under California law. As a result, the Ninth Circuit held that 7 the purchaser of the property did not violate the automatic stay 8 by evicting the debtor after he filed for bankruptcy. 9 From this holding, it follows that a debtor’s right to the 10 protection of the automatic stay is dependent upon § 541(a)(1), 11 which provides that a bankruptcy estate succeeds only to “legal 12 or equitable interests of the debtor . . . as of the 13 commencement of the case.” The nature and extent of the 14 debtor’s interests in property must be determined by 15 nonbankruptcy law. Butner v. United States, 440 U.S. 48, 54–55 16 (1979). Here, California law applies. Since the sale of tax- 17 defaulted property in California is governed by statute, we 18 examine the statutory scheme to determine when Debtor’s 19 equitable and legal interests in the underlying property 20 terminate during the tax sale process. 21 1. California’s statutory scheme for tax sales 22 Taxes on real property are secured by and serve as a lien 23 on the real property for which they are assessed. Secured 24 property taxes that remain unpaid at the close of the fiscal 25 year (June 30) are deemed to be in default. Tax Code § 3436. 26 Properties which have been tax defaulted for a minimum of five

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1 years5 are subject to the county tax collector’s power to sell 2 them to satisfy the outstanding defaulted taxes. Tax Code 3 § 3691. Sale is to the highest bidder at a public auction. 4 Public auction includes the internet. Tax Code § 3693. Various 5 notices and publication are required prior to the tax sale. Tax 6 Code §§ 3351, 3361, 3371, 3701, 3704.7. 7 For tax sales, the “‘Date of the sale’ means the date upon 8 which a public auction begins.” Tax Code § 3692.1(b). This 9 definition has relevance to the expiration of a debtor’s right 10 to redeem. Tax Code § 4101 states: “Tax defaulted property may 11 be redeemed until the right of redemption is terminated.” To 12 redeem the property the total amount of all prior year defaulted 13 taxes must be paid, together with the penalties, costs, and 14 fees. Tax Code § 4102. 15 The termination of the redemption period, the circumstances 16 under which the right to redeem revives, and when the sale is 17 complete are governed by Tax Code § 3707 which provides in 18 relevant part: 19 (a)(1) The right of redemption terminates at the close of business on the last business day prior to the date 20 of the sale. (Emphasis added) 21 (2) If the tax collector approves a sale as a credit transaction and does not receive full payment on or 22 before the date upon which the tax collector requires pursuant to Section 3693.1, the right of redemption is 23 revived on the next business day following that date. 24 . . . 25 (c) The sale shall be deemed complete when full payment has been received by the tax collector.

26 27 28 5 For nonresidential commercial property, the period is three years. Tax Code § 3691.

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1 (d) The right of redemption revives if the property is not sold.

2 3 When the sale is “deemed” complete (i.e., the full purchase 4 price has been paid) a debtor’s right to redeem the tax- 5 defaulted property will not revive under Tax Code § 3707(a)(2) 6 and (d). When the sale is complete, the tax collector executes 7 a deed to the purchaser. Tax Code § 3708. The tax deed 8 “conveys title to the purchaser free of all encumbrances of any 9 kind existing before the sale” with certain exceptions set forth 10 in the statute. Tax Code § 3712. 11 2. Under California law, Debtor’s equitable and legal interests in the underlying property were not divested 12 upon the expiration of Debtor’s right to redeem. 13 Although Debtor’s right to redeem the property lapsed 14 prepetition, Debtor’s right to redeem the property is a distinct 15 property right from its legal and equitable interests in the 16 property. See Harsh Inv. Corp. v. Bialac (In re Bialac), 712 17 F.2d 426, 431 (9th Cir. 1983) (“[P]re-foreclosure right to 18 redeem is a property right under [§] 541. . . .”). As 19 previously noted, while § 541 is very broad, the existence and 20 scope of a debtor’s interest in a given asset is determined by 21 state law. As discussed below, under California law, the lapse 22 of Debtor’s redemption right did not terminate its legal and 23 equitable title to the property which remained with Debtor on 24 the petition date. 25 Although the Tax Code provides that legal title to the tax- 26 defaulted property transfers after a sale with the recording of 27 the tax deed, the statutory scheme does not specify at what 28 point in the process equitable title to the real property

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1 transfers to the purchaser during the sale process. To answer 2 this question, we look to California law. 3 In ordinary sales of real property to third parties, 4 California law states that prior to the transfer of legal title, 5 the purchaser of real property under a purchase and sale 6 agreement is said to have “equitable title” and a “beneficial 7 interest” in the property. RC Royal Dev. & Realty Corp. v. 8 Standard Pac. Corp., 177 Cal. App. 4th 1410, 1419 (Cal. Ct. App. 9 2009) (citing Osborn v. Osborn, 42 Cal. 2d 358, 363 (1954) (“At 10 the time of the execution of the contract of sale, the grantee 11 acquires an equitable title to the estate being sold; the 12 grantor retains the legal title as security for the purchase 13 price. The legal title passes to the grantee at the time of his 14 completion of the conditions precedent . . . .”)). “[E]quitable 15 title is a ‘beneficial interest,’ as it is one stick in the 16 bundle of full legal rights to real property.” RC Royal Dev., 17 177 Cal. App. 4th at 1419. 18 In an involuntary sale such as foreclosure, equitable title 19 is transferred to the purchaser at the foreclosure auction with 20 acceptance of the highest bid and it is at that time a trustee’s 21 sale is “complete.” See In re Richter, 525 B.R. 735, 745 22 (Bankr. C.D. Cal. 2015) (citing Nguyen v. Calhoun, 105 Cal. App. 23 4th 428, 441 (Cal. Ct. App. 2003) (“[a]s a general rule, a 24 trustee’s sale is complete upon acceptance of the highest 25 bid”)); see also In re Engles, 193 B.R. 23, 26 (Bankr. S.D. Cal. 26 1996) (“When a purchaser receives equitable title at a 27 [foreclosure] sale, but legal title remains in a debtor, and the 28 debtor thereafter files for bankruptcy, cause exists to lift the

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1 stay to allow the equitable owner to gain legal title.”). 2 Applying these principles to the facts of this case, we 3 conclude that Debtor was not divested of its legal or equitable 4 interests in the underlying property by operation of law upon 5 the expiration of its right to redeem. Rather, before Debtor’s 6 equitable interests in the property could transfer, the tax sale 7 process required the County to hold an auction and, at the very 8 least, accept the highest bid, or at most, also receive the 9 purchase price before the sale could be considered “complete.” 10 See Tax Code § 3707(c) (stating that a tax sale is not complete 11 until the purchase price has been paid in full which is a later 12 point in time than in a foreclosure sale when it is the 13 acceptance of the highest bid which passes equitable title). 14 Here, neither the auction nor acceptance of the highest bid was 15 accomplished prepetition. Therefore, under California law, no 16 transfer of Debtor’s legal and equitable interests in the 17 property had occurred by the petition date.6 Furthermore, 18 Debtor remained in rightful possession of the property at all 19 times. 20 Both parties relied heavily on United States v. Whiting 21 Pools, Inc., 462 U.S. 198, 204 n.8 (1983), for their respective 22 positions. There, the Supreme Court explained: 23 Section 541(a)(1) speaks in terms of the debtor’s ‘interests . . . in property,’ rather than property in 24 25 6 To the extent the County argues that Debtors’s equitable 26 interests expired upon termination of its redemption rights, this argument leaves a void. Until a buyer was identified in a 27 completed sale, there is no party other than Debtor which would hold that equitable interest. The County as a secured creditor 28 certainly could not claim the interest. Therefore, it must remain with Debtor.

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1 which the debtor has an interest, but this choice of language was not meant to limit the expansive scope of 2 the section. The legislative history indicates that Congress intended to exclude from the estate property 3 of others in which the debtor had some minor interest such as a lien or bare legal title. See 124 Cong.

4 Rec. 32399, 32417 (1978) (remarks of Rep. Edwards);

id., at 33999, 34016–34017 (remarks of Sen.

5 DeConcini); cf. § 541(d) (property in which debtor holds legal but not equitable title, such as a 6 mortgage in which debtor retained legal title to service or to supervise servicing of mortgage, becomes 7 part of estate only to extent of legal title); 124 Cong.Rec. 33999 (1978) (remarks of Sen. DeConcini)

8 (§ 541(d) ‘reiterates the general principle that where the debtor holds bare legal title without any 9 equitable interest, . . . the estate acquires bare legal title without any equitable interest in the 10 property’). Similar statements to the effect that § 541(a)(1) does not expand the rights of the debtor 11 in the hands of the estate were made in the context of describing the principle that the estate succeeds to 12 no more or greater causes of action against third parties than those held by the debtor. See H.R.Rep.

13 No. 95–595, pp. 367–368 (1977). These statements do not limit the ability of a trustee to regain 14 possession of property in which the debtor had equitable as well as legal title.

15 16 This discussion, contained in a footnote, does not help the 17 County. As discussed, under California law, Debtor had an 18 equitable interest in the property as well as legal title on the 19 petition date. None of the provisions of the Tax Code governing 20 tax sales indicate that the expiration of the right to redeem 21 divested Debtor of those interests. Further, if Debtor had no 22 equitable interest, under § 541(d) the estate would acquire bare 23 legal title even without any equitable interest in the property. 24 In sum, on the petition date, Debtor’s legal and equitable 25 interests in the property were property of its estate. 26 3. The sale occurred postpetition. 27 The County also argues that the bankruptcy court erred in 28 concluding that the tax sale occurred postpetition. According

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1 to the County, Tax Code § 3692.1 defines the “Date of the sale” 2 as the date the auction is commenced. Therefore, although the 3 sale was completed postpetition within the meaning of Tax Code 4 § 3707(c) (i.e., the purchase price was paid in full), the 5 County maintains that the date of the sale was February 6, 2016, 6 two days before the petition was filed. Under this reasoning, 7 the automatic stay is inapplicable because all the events that 8 occurred after the petition date relate back to the commencement 9 of the auction which occurred prepetition. We are not 10 persuaded. 11 “Statutory definitions control the meaning of statutory 12 words . . . in the usual case.” Lawson v. Suwanee Fruit & 13 Steamship Co., 336 U.S. 198, 201 (1949). And yet statutory 14 definitions must not be read “in a mechanical fashion” that 15 would “create obvious incongruities in the language, and . . . 16 destroy one of the major purposes” of the legislation. Id. 17 Sometimes the “meaning—or ambiguity—of certain words or phrases 18 may only become evident when placed in context.” Food & Drug 19 Admin. v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 132. 20 (2000). The “overall statutory scheme” must be taken into 21 consideration. Id. at 133; (quoting Davis v. Mich. Dep’t of 22 Treasury, 489 U.S. 803, 809 (1989)). 23 Given these directives, we examine the overall statutory 24 scheme and the context in which the term “date of the sale” is 25 used. Tax Code § 3706 states that “[i]f the property is not 26 redeemed before the close of business on the last business day 27 prior to the date of the sale of the property, the tax collector 28 shall sell the property at public auction to the highest

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1 bidder.” (Emphasis added). Tax Code § 3707(a)(1) shows that 2 the “date of the sale” definition is again relevant in 3 connection with the expiration of a debtor’s right to redeem “on 4 the last business day prior to the date of the sale.” (Emphasis 5 added). In contrast, Tax Code § 3710 requires that a tax deed 6 contain the “date the property was sold.” Read together, these 7 statutes plainly show that the “date of the sale” is not the 8 same as the “date the property was sold.” 9 In short, the statutory definition of “date of the sale” 10 used in context plainly and unambiguously relates to the 11 expiration of a debtor’s right to redeem. Accordingly, the 12 “date of the sale” definition provides no basis to make the tax 13 sale valid by providing that the void act relates back to a time 14 before it occurred. See Ma v. Ashcroft, 361 F.3d 553, 558 (9th 15 Cir. 2004) (well-accepted rules of statutory construction 16 require that it avoid “statutory interpretations which would 17 produce absurd results. . . ”). 18 4. The County violated § 362(a)(3) and (4). 19 In conclusion, Debtor’s equitable and legal interests in 20 the property remained intact on the petition date. Those 21 interests, including legal title and possession, were consistent 22 with ownership of the property since the County had not accepted 23 the highest bid nor completed the sale prepetition. Upon the 24 filing of Debtor’s petition, those interests became property of 25 the estate subject to the automatic stay. Because the County 26 completed the tax sale postpetition which divested Debtor of 27 those interests, § 362(a)(3) and (4) were violated. The sale 28 was thus void. In re Lusardi, 329 F.3d at 1084; In re Schwartz,

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1 954 F.2d at 575. 2 Finally, we cannot conclude the County’s postpetition sale 3 fell within the narrow ministerial exception to the automatic 4 stay without stretching the exception beyond its limits. The 5 ministerial acts exception provides that the automatic stay does 6 not prohibit “[m]inisterial acts or automatic occurrences that 7 entail no deliberation, discretion, or judicial involvement” on 8 the part of an actor. McCarthy, Johnson & Miller v. N. Bay 9 Plumbing, Inc. (In re Pettit), 217 F.3d 1072, 1080 (9th Cir. 10 2000). While the ministerial acts exception to the automatic 11 stay may apply to the recording of a tax deed after a sale was 12 completed prepetition as held in Tracht Gut, completing the sale 13 process by accepting the highest bid is not ministerial. 14 B. Tracht Gut is not controlling authority on the issues before us.

15 16 The County’s central argument on appeal is that under the 17 holding in Tracht Gut, all of Debtor’s interests in the property 18 lapsed due to the expiration of its right to redeem the property 19 prepetition. We disagree that Tracht Gut is binding precedent 20 under these circumstances. 21 In Tracht Gut, the county conducted the tax sales of the 22 debtor’s properties at public auction prior to the debtor’s 23 chapter 11 filing. The properties were sold, and although not 24 specifically recited in the facts of the case, presumably this 25 meant that the purchase price had been paid. More than a month 26 later, the debtor filed its chapter 11 petition. The tax deeds 27 transferring title to the properties to the purchasers were both 28 recorded by the county after the bankruptcy filing.

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1 The debtor then filed an adversary proceeding asking the 2 bankruptcy court to grant relief on five separate claims 3 pertaining to the sale of the properties, including that the 4 recording of the tax deeds violated the automatic stay. “Debtor 5 claimed that its legal title in the Properties was not 6 extinguished until the tax deeds were recorded. Because this 7 occurred postpetition, Debtor argued that the recordings of the 8 deeds violated the automatic stay under § 362(a).” 503 B.R. at 9 811. 10 The county moved to dismiss the complaint under Civil Rule 11 12(b)(6). With respect to the stay violation, the county argued 12 that since the tax sales occurred prepetition, the properties 13 were not property of the estate under § 541 and thus were not 14 protected by the automatic stay when the debtor’s bankruptcy 15 petition was filed. The bankruptcy court agreed that the 16 properties were not property of the estate for purposes of § 541 17 and also concluded that the post-petition recording of the deeds 18 did not violate the automatic stay as it was solely a 19 ministerial act. The bankruptcy court dismissed the complaint 20 with prejudice. 21 On appeal, in affirming the dismissal of the debtor’s claim 22 for violation of the automatic stay,7 the Panel noted that 23 (1) the debtor’s right of redemption as to the properties lapsed 24 the day before the tax sales occurred under Tax Code § 3707 and 25 (2) “[a] tax deed subsequently provided to a purchaser ‘conveys 26

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27 Although the debtor did not argue that the bankruptcy court had erred in dismissing the claim for violation of the 28 automatic stay, the Panel considered the arguments of the county on the issue raised in its brief. Id. at 811.

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1 title to the purchaser free of all encumbrances of any kind’” 2 under Tax Code § 3712.6. Id. at 811. The panel then stated: 3 “Under these facts, since Debtor’s interest in the Properties 4 lapsed before it filed for bankruptcy, the Properties never 5 became property of the estate under § 541, and any action by the 6 County concerning those properties would not run afoul of the 7 automatic stay under § 362(a).” Id. at 811-12. Next, 8 consistent with the bankruptcy court’s ruling, the Panel found 9 that the recording of the tax deeds postpetition was a 10 ministerial act and, as such, would not violate the automatic 11 stay when, under California law, “the tax collector had no 12 discretion in recording the deed; he instead is commanded to 13 record it.” Id. at 812. 14 The Tracht Gut case is easily distinguished from the 15 circumstances here. There, the redemption period expired and 16 the sale was completed prepetition. The last step in the sale 17 process, the recording of the tax deeds conveying the property, 18 was considered a ministerial act. Therefore, it was the 19 expiration of the right to redeem coupled with the completion of 20 the sale (payment in full of the purchase price) which 21 terminated the debtor’s interests in the properties such that 22 the properties did not come into the estate. Under the plain 23 language of Tax Code § 3707, the revival of the debtor’s right 24 to redeem under subsections (a)(2) and (d) became moot due to 25 the completion of the sales prepetition. 26 Moreover, because the tax sale process was virtually 27 completed prepetition and the stay argument was presented in the 28 context of a motion to dismiss under Civil Rule 12(b)(6), Tracht

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1 Gut does not contain any discussion about the scope of the 2 debtor’s property interests after the expiration of the right to 3 redeem. Therefore, it is far from certain that the panel 4 intended the result the County urges. See Brecht v. Abrahamson, 5 507 U.S. 619, 631 (1993) (where issue was “never squarely 6 addressed,” prior rulings do not serve as binding precedent); 7 Webster v. Fall, 266 U.S. 507, 511 (1925) (“[q]uestions which 8 merely lurk in the record . . . are not considered as having 9 been so decided as to constitute precedents”). Accordingly, we 10 do not read Tracht Gut as standing for a “bright line” rule that 11 once redemption rights have expired prepetition, the County is 12 free to take further actions to complete a sale after a 13 bankruptcy petition has been filed without regard to the 14 automatic stay. 15 C. Other caselaw cited by the County is neither binding nor persuasive.

16 17 None of the other cases cited by the County in its opening 18 brief are binding or persuasive on the issue before us. The 19 case of In re Fahmi Hammad, No. 2:10-bk-54706-RN (Bankr. C.D. 20 Cal. 2010), contains no discussion regarding the debtor’s 21 interests in the property after the right to redeem expires. 22 Rather, the court found that pursuant to § 108, it lacked 23 jurisdiction to set aside a tax sale which had occurred 24 postpetition because the debtor’s right to redeem had terminated 25 prepetition. The only issue submitted to the court was the 26 § 108 issue. 27 We also disagree that the Second Circuit’s decision in 28 Rodgers v. County of Monroe (In re Sandralee Rodgers), 333 F.3d

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1 64 (2d Cir. 2003), is relevant to the issue before us. There, a 2 tax foreclosure sale took place prepetition, but the deed had 3 not been transferred. The debtor filed for bankruptcy hoping 4 that the automatic stay would block the transfer of the deed and 5 resurrect her ability to redeem the property which had been lost 6 under state law due to the foreclosure. In determining whether 7 the debtor had any equitable or legal rights in the underlying 8 property, the Second Circuit examined New York law. Under New 9 York Real Property Tax Law § 1131, expiration of the redemption 10 period “forever . . . bar[s] and foreclose[s] [ ] all right, 11 title, and interest and equity of redemption and to the parcel 12 in which the person has an interest. . . .” We found no 13 corresponding statute under California’s tax sale scheme. 14 Further, similar to Tracht Gut, all the actions necessary 15 to transfer the property under New York law were completed 16 prepetition - a judgment of foreclosure had been entered and a 17 foreclosure sale conducted. Those events terminated the 18 debtor’s right to redeem the property and other interests in the 19 property under New York law. 20 In In re Theoclis, 213 B.R. 880 (Bankr. D. Mass. 1997), the 21 issues raised were in the context of a motion for stay pending 22 appeal. The bankruptcy court had previously granted a motion 23 for relief from stay filed by the successful bidders at a 24 foreclosure sale who asserted they were the “owners” of the 25 property. In evaluating whether the debtor was entitled to a 26 stay, the court found it unlikely that he would be successful on 27 the merits because under Massachusetts law, where a foreclosure 28 sale is properly conducted, the redemption rights of a mortgagor

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1 terminate as early as the execution of the memorandum of sale. 2 Therefore, after foreclosure of the debtor’s equity of 3 redemption, neither the debtor nor the bankruptcy estate had any 4 interest in the underlying property and the automatic stay was 5 inapplicable to a transfer of title. This case is 6 distinguishable in that it also dealt with the peculiars of 7 Massachusetts foreclosure law. 8 D. The Automatic Stay: § 362(a)(6) 9 The bankruptcy court also found that the County’s 10 postpetition tax sale violated § 362(a)(6), which stays “any act 11 to collect, assess, or recover a claim against the debtor that 12 arose before the commencement of [the debtor’s bankruptcy 13 case].” The statute plainly stays acts to recover a “claim 14 against the debtor.” Under § 102(2), “‘claim against the 15 debtor’ includes claim against property of the debtor,’” thus 16 bringing the County’s tax sale of Debtor’s property within the 17 prohibition of § 362(a)(6). 18 VI. CONCLUSION 19 For the reasons stated, we AFFIRM. 20 21 22 23 24 25 26