In re: Zoya Kosovska

• Court: United States Bankruptcy Appellate Panel for the Ninth Circuit
• Decided: July 7, 2016
• Docket: EC-15-1139-JuDTa
• Status: Unpublished

Opinion

FILED JUL 07 2016 1 NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK 2 U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT 3 UNITED STATES BANKRUPTCY APPELLATE PANEL 4 OF THE NINTH CIRCUIT 5 In re: ) BAP No. EC-15-1139-JuDTa ) 6 ZOYA KOSOVSKA, ) Bk. No. 14-25893 ) 7 Debtor. ) Adv. No. 14-02271 ______________________________) 8 ZOYA KOSOVSKA; LILIYA WALSH, ) ) 9 Appellants, ) ) 10 v. ) M E M O R A N D U M* ) 11 MAX DEFAULT SERVICES CORP.; ) FEDERAL NATIONAL MORTGAGE ) 12 ASSOCIATION; SETERUS, INC., ) ) 13 Appellees. ) ______________________________) 14 Argued and Submitted on June 23, 2016 15 at Sacramento, California 16 Filed - July 7, 2016 17 Appeal from the United States Bankruptcy Court for the Eastern District of California 18 Honorable Michael S. McManus, Bankruptcy Judge, Presiding 19 _________________________ 20 Appearances: Appellants Zoya Kosovska and Liliya Walsh argued pro se; Michael W. Stoltzman of The Ryan Firm 21 argued for appellees Federal National Mortgage Association and Seterus, Inc.** 22 _________________________ 23 Before: JURY, DUNN, and TAYLOR, Bankruptcy Judges. 24 * This disposition is not appropriate for publication. 25 Although it may be cited for whatever persuasive value it may 26 have (see Fed. R. App. P. 32.1), it has no precedential value. See 9th Cir. BAP Rule 8024-1. 27 ** Max Default Services Corp. has not participated in this 28 appeal.

-1- 1 Chapter 111 debtor Zoya Kosovska (Kosovska) and non-debtor 2 Liliya Walsh2 (Walsh)(collectively, Appellants) removed a state 3 court action alleging claims related to a non-judicial 4 foreclosure to the bankruptcy court on the same day that 5 Kosovska’s bankruptcy case was dismissed. Appellees and 6 defendants in the state court action, Seterus, Inc. and Federal 7 National Mortgage Association (collectively, Appellees), moved 8 to remand the matter. The bankruptcy court granted Appellees’ 9 motion and awarded them attorneys’ fees and costs, finding 10 Appellants did not have an objectively reasonable basis for 11 removal. Appellants filed a motion for reconsideration, which 12 the bankruptcy court denied. This appeal followed. 13 Appellees contend that Appellants’ appeal of the remand 14 order has become moot. Appellants argue it is not moot because 15 the state court had no jurisdiction over the matter while this 16 appeal was pending and the bankruptcy clerk failed to mail a 17 certified copy of the remand order as required by 28 U.S.C. 18 § 1447(c), which allowed the state court to proceed with the 19 case. Appellants are mistaken on both assertions. The state 20 court had jurisdiction over the matter because Appellants did 21 not seek a stay pending appeal. Further, the record shows that 22 the clerk mailed a certified copy of the remand order to the 23 state court. 24 1 Unless otherwise indicated, all chapter and section 25 references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and 26 all “Rule” references are to the Federal Rules of Bankruptcy Procedure. 27 2 Liliya Walsh is the daughter of Zoya Kosovska and Ivan 28 Kosovskiy.

-2- 1 While this appeal was pending, the state court entered an 2 order sustaining Appellees’ demurrers to Appellants’ second 3 amended complaint without leave to amend, thus terminating the 4 state court action. Therefore, the state court action no longer 5 exists and cannot be revived. In addition, because Kosovska’s 6 chapter 11 case was dismissed there is no longer any case or 7 controversy involving issues regarding the reorganization of the 8 estate. Accordingly, we cannot grant Appellants any effective 9 relief. We thus DISMISS as MOOT this aspect of the remand order 10 on appeal. 11 Appellants also contend the bankruptcy court erred by 12 awarding Appellees their fees and costs in the amount of 13 $1,459.50. Finding no abuse of discretion, we AFFIRM this 14 aspect of the remand order. 15 I. FACTS3 16 On December 19, 2013, Appellants commenced a civil action 17 against Appellees in the California superior court seeking 18 relief related to non-judicial foreclosure proceedings. The 19 complaint included claims for violation of Cal. Civ. Code 20 § 2924,4 slander of title and cancellation of instrument. Among 21 other adverse rulings, the state court denied Appellants’ 22 request for a preliminary injunction to enjoin the trustee’s 23 sale of the underlying property, dissolved the temporary 24 restraining order, and sustained Appellees’ demurrers to 25 3 26 Many of the background facts are set forth in the bankruptcy court’s ruling on the motion to remand. 27 4 This statute states the requirements for initiating a 28 non-judicial foreclosure.

-3- 1 Appellants’ complaint. 2 Due to the pending foreclosure, Kosovska filed a chapter 11 3 petition on June 2, 2014. Despite the bankruptcy filing, eight 4 days later Appellants filed a second amended complaint in the 5 state court action. 6 A few months after the filing, the United States Trustee 7 (UST) filed a motion to dismiss Kosovska’s bankruptcy case. 8 The bankruptcy court granted the motion by order entered on 9 September 15, 2014. Kosovska did not appeal the dismissal 10 order. 11 On September 15, 2014, the same day that Kosovska’s case 12 was dismissed, Appellants filed a notice of removal under 13 28 U.S.C. § 1452(a)5, removing the state court action to the 14 bankruptcy court. At the time of removal, Appellees had 15 multiple motions pending in the state court action, including 16 demurrers to Appellants’ amended complaint and a motion to 17 expunge the lis pendens recorded against the underlying 18 property. 19 On October 14, 2014, Appellees moved to remand the action 20 back to the state court on the grounds that Appellants’ removal 21 was untimely and the bankruptcy court lacked jurisdiction over 22 the state court action since Kosovska’s underlying bankruptcy 23 case had been dismissed. Appellees also argued that they were 24 entitled to an award of their attorneys’ fees and costs because 25 5 26 The statute provides that “a party may remove any claim or cause of action in a civil action . . . to the district court for 27 the district where such civil action is pending, if such district court has jurisdiction of such claim or cause of action under 28 Section 1334 of this title.”

-4- 1 Appellants had no objectively reasonable basis for removal. 2 On November 24, 2014, the bankruptcy court granted 3 Appellees’ motion, finding: (1) it did not have subject matter 4 jurisdiction over claims not involving the bankruptcy estate 5 (specifically, claims of Walsh, who was not a debtor); 6 (2) Appellants’ claims arose solely under state law; (3) it did 7 not have “related to” jurisdiction over the claims as Kosovska’s 8 bankruptcy case had been dismissed; (4) there was no basis to 9 retain jurisdiction after the dismissal of the bankruptcy case; 10 (5) equitable remand was proper; and (6) the removal was 11 untimely. 12 The bankruptcy court further found that neither of the 13 Appellants “had an objectively reasonable basis for removal” 14 and, therefore, awarded Appellees their attorneys’ fees and 15 costs incurred in making the motion to remand in the amount of 16 $1,459.50. On January 5, 2015, the court entered an order 17 remanding the state court action back to the state court. 18 On January 20, 2015, Appellants filed a motion for 19 reconsideration of the remand order. The bankruptcy court 20 denied the motion finding no grounds for reconsideration and 21 concluding that its order granting Appellees’ fees and costs was 22 proper. On April 14, 2015, the bankruptcy court entered the 23 order denying Appellants’ motion for reconsideration. 24 Appellants filed a timely notice of appeal. 25 In their responsive brief, Appellees informed the Panel 26 that the state court proceeding had been concluded and argued 27 that the appeal of the remand was moot. The Panel issued a one- 28 judge order regarding mootness which required Appellants to file

-5- 1 a response by November 12, 2015. 2 On November 16, 2015, Appellants filed a request to extend 3 the time to file a responsive brief regarding the order 4 regarding mootness and preliminary response to the mootness 5 argument (Mootness Brief). There, Appellants argued, among 6 other things, that the state court had no jurisdiction to hear 7 the matter given the appeal to the Panel. Based on this 8 premise, they contended that the state court’s decision was 9 void. Appellants further argued that jurisdiction was not 10 returned to the state court because “there is no indication in 11 the record that the clerk of the bankruptcy court ever mailed a 12 certified copy of an order remanding the case to Placer County 13 Superior Court.” According to Appellants, the state court never 14 reacquired jurisdiction due to this deficiency. 15 On December 18, 2015, the Panel issued an order informing 16 the parties that their respective arguments regarding mootness 17 would be determined by the merits Panel. Accordingly, we 18 address the mootness arguments below. 19 II. JURISDICTION 20 The bankruptcy court had jurisdiction pursuant to 28 U.S.C. 21 §§ 1334 and 157(b)(2)(A). We have jurisdiction under 28 U.S.C. 22 § 158. 23 III. ISSUES 24 A. Whether appeal of the bankruptcy court’s decision to 25 remand the state court action is moot; and 26 B. Whether the bankruptcy court abused its discretion by 27 awarding Appellees their attorneys’ fees and costs under 28 28 U.S.C. § 1447(c).

-6- 1 IV. STANDARDS OF REVIEW 2 We review our own jurisdiction, including questions of 3 mootness, de novo. Ellis v. Junying Yu (In re Ellis), 523 B.R. 4 673, 676 (9th Cir. BAP 2014) (citing Silver Sage Partners, Ltd. 5 v. City of Desert Hot Springs (In re City of Desert Hot 6 Springs), 339 F.3d 782, 787 (9th Cir. 2003)). 7 We review an award of fees and expenses for abuse of 8 discretion. Lussier v. Dollar Tree Stores, Inc., 518 F.3d 1062, 9 1065 (9th Cir. 2008). An abuse of discretion evaluation 10 involves a two-prong test; first, we determine de novo whether 11 the bankruptcy court identified the correct legal rule for 12 application. See United States v. Hinkson, 585 F.3d 1247, 13 1261–62 (9th Cir. 2009) (en banc). If not, then the bankruptcy 14 court necessarily abused its discretion. See id. at 1262. 15 Otherwise, we next review whether the bankruptcy court’s 16 application of the correct legal rule was clearly erroneous; we 17 will affirm unless its findings were illogical, implausible, or 18 without support in the record. See id. 19 V. DISCUSSION 20 A. The appeal of the bankruptcy court’s decision to remand is moot. 21 22 We cannot exercise jurisdiction over a moot appeal. United 23 States v. Pattullo (In re Pattullo), 271 F.3d 898, 900 (9th Cir. 24 2001); GTE Cal., Inc. v. FCC, 39 F.3d 940, 945 (9th Cir. 1994). 25 A moot case is one where the issues presented are no longer live 26 and no case or controversy exists. Pilate v. Burrell 27 (In re Burrell), 415 F.3d 994, 998 (9th Cir. 2005). The test 28 for mootness is whether an appellate court can still grant

-7- 1 effective relief to the prevailing party if it decides the 2 merits in his or her favor. Castaic Partners II, LLC v. Daca- 3 Castaic, LLC (In re Castaic Partners II, LLC), __ F.3d ___ 4 (9th Cir. 2016), 2016 WL 2957150, at *2 (9th Cir. May 23, 2016) 5 (citing Motor Vehicle Cas. Co. v. Thorpe Insulation Co. 6 (In re Thorpe Insulation Co.), 677 F.3d 869, 880 (9th Cir. 7 2012). “If it cannot grant such relief, the matter is moot. In 8 a bankruptcy appeal, when the underlying bankruptcy case is 9 dismissed and that dismissal is allowed to become final, there 10 is likely no longer any case or controversy ‘with respect to 11 issues directly involving the reorganization of the estate.’” 12 Id. 13 We conclude that Appellants’ appeal of the bankruptcy 14 court’s decision to remand the matter to the state court is 15 moot. After the January 2015 remand, Appellants did not seek 16 and obtain stay of the bankruptcy court’s order pending 17 resolution of this appeal pursuant to Rule 8007, which would 18 have preserved the status quo. Re Op Group v. ML Manager LLC 19 (In re Mortgs. Ltd.), 771 F.3d 1211, 1215 (9th Cir. 2014). 20 Appellants offer no reason for their failure to seek a stay; we 21 further see nothing in the record supporting that a stay would 22 have been appropriate. 23 Appellants also argue in their Mootness Brief that the 24 remand portion of the order on appeal is not moot because the 25 bankruptcy court never mailed a copy of the order remanding the 26 matter to the state court, which Appellants argue was a pre- 27 requisite to the state court’s reacquisition of jurisdiction 28 over the civil action. 28 U.S.C. § 1447(c) provides that “[a]

-8- 1 certified copy of the order of remand shall be mailed by the 2 clerk to the clerk of the State court. The State court may 3 thereupon proceed with such case.” On January 6, 2015, the 4 bankruptcy court issued a “Certificate of Mailing” which states 5 that the “deputy clerk of U.S. Bankruptcy Court for the Eastern 6 District of California” sent a certified copy of the remand 7 order, along with the docket, to the “Placer County Superior 8 Court” on January 6, 2015. Since the statutory requirement 9 under 28 U.S.C. § 1447(c) has been met, Appellants’ argument is 10 without merit. 11 In short, the certified copy of the remand order restored 12 jurisdiction in the state court and allowed it to proceed. 13 Without a stay pending appeal, there was no bar to the state 14 court exercising jurisdiction over the lawsuit. On May 5, 2015, 15 the state court sustained Appellees’ demurrers to Appellants’ 16 complaint without leave to amend, thus terminating the state 17 court action by order entered on May 29, 2015. Contrary to 18 Appellants’ position, this order is not void as the state court 19 had jurisdiction over the matter despite their appeal to the 20 Panel. 21 Because the state court action has been terminated and 22 cannot be revived, we are unable to grant any effective relief 23 to Appellants by reversing the bankruptcy court’s remand order 24 even if it was warranted. Compare Staker v. Jubber 25 (In re Staker), 498 B.R. 391 (10th Cir. BAP 2013) (Table) 26 (finding appeal of remand order moot when after remand state 27 court vacated default judgments and dismissed actions with 28 prejudice). Further, Kosovska’s underlying chapter 11 case had

-9- 1 been dismissed and that dismissal is final. The dismissal 2 demonstrates that there is no longer any case or controversy 3 “‘with respect to issues directly involving the reorganization 4 of the estate.’” In re Castaic Partners II, LLC, __ F.3d ___ 5 (9th Cir. 2016), 2016 WL 2957150, at *2 (9th Cir. May 23, 2016). 6 Accordingly, Appellants’ appeal of the bankruptcy court’s 7 decision to remand the matter is moot and must be dismissed. 8 B. The bankruptcy court did not abuse its discretion in awarding Appellees their attorneys’ fees and costs in 9 obtaining the Remand Order. 10 Unlike the bankruptcy court’s decision to remand, its award 11 of attorneys’ fees and costs to Appellees is not moot because we 12 may give Appellants effective relief if we reverse the 13 bankruptcy court’s decision. 28 U.S.C. § 1447(c) states in 14 relevant part: “An order remanding the case may require payment 15 of just costs and any actual expenses, including attorney fees, 16 incurred as a result of the removal.” Courts have wide 17 discretion to grant attorneys’ fees and costs for an improper 18 removal. Billington v. Winograde (In re Hotel Mt. Lassen, 19 Inc.), 207 B.R. 935, 943 (Bankr. E.D. Cal. 1997) (citing Moore 20 v. Permanente Med. Group, Inc., 981 F.2d 443, 447 (9th Cir. 21 1992)). In exercising this discretion, the court considers the 22 “reasonableness of the removal.” Martin v. Franklin Capital 23 Corp., 546 U.S. 132, 141 (2005). “Absent unusual circumstances, 24 courts may award attorney’s fees under [28 U.S.C. § 1447(c)] 25 only where the removing party lacked an objectively reasonable 26 basis for seeking removal. Conversely, when an objectively 27 reasonable basis exists, fees should be denied.” Id. “Bad 28 faith need not be shown before making a fee award under

-10- 1 [28 U.S.C.] § 1447(c).” In re Hotel Mt. Lassen, Inc., 207 B.R. 2 at 943 (citing Moore, 981 F.2d at 447). 3 Here, the bankruptcy court used the objectively reasonable 4 standard when making its decision to award fees and costs. The 5 court made several findings addressing why Appellants did not 6 have an objectively reasonable basis for removal: (1) removal 7 was untimely in violation of Rule 9027(a)(2);6 (2) nearly nine 8 months lapsed between initiation of the state court action and 9 the removal to this court; (3) there was extensive litigation in 10 state court during the approximately nine months prior to 11 removal; (4) the underlying bankruptcy case had been pending for 12 less than four months prior to dismissal; (5) the bankruptcy 13 case was dismissed only after the UST filed a motion to dismiss; 14 and (6) there was no timely appeal from the order dismissing the 15 underlying bankruptcy case. 16 The bankruptcy court further noted that Appellants and 17 other family members filed multiple bankruptcies - six cases 18 were filed between Kosovska and her former husband, Ivan 19 Kosovskiy, and four cases were filed by Walsh. These cases were 20 filed without schedules or statements and dismissed. The court 21 6 Rule 9027(a)(2) states: 22 23 If the claim or cause of action in a civil action is pending when a case under the Code is commenced, a 24 notice of removal may be filed only within the longest of (A) 90 days after the order for relief in the case 25 under the Code, (B) 30 days after entry of an order 26 terminating a stay, if the claim or cause of action in a civil action has been stayed under § 362 of the Code, 27 or (C) 30 days after a trustee qualifies in a chapter 11 reorganization case but not later than 180 days 28 after the order for relief.

-11- 1 found that all the cases were filed to benefit from the 2 automatic stay and, with the exception of one case, all were 3 dismissed shortly after the filing. 4 The bankruptcy court also found significant that Walsh was 5 neither a debtor or creditor in the underlying bankruptcy case 6 and that her property interest was never part of the bankruptcy 7 estate. Accordingly, the court noted that it never had subject 8 matter jurisdiction over Walsh’s claims against the Appellees. 9 Although we found the bankruptcy court’s decision regarding 10 remand moot, some evaluation of the merits of the remand order 11 is necessary to review an award of attorneys’ fees. Moore, 12 981 F.2d at 447. Here, we conclude that the underlying record 13 supports the bankruptcy court’s conclusion that there was no 14 objectively reasonable basis for the removal. 15 First, contrary to Appellants’ arguments that 16 Rule 9027(a)(2)(B) or (C) applied to their notice of removal, 17 only (a)(2)(A) is applicable. Rule 9027(a)(2)(A) states that a 18 notice of removal may be filed 90 days after the order for 19 relief in the case. Appellants did not file the notice of 20 removal until after the 90-day period had expired. Second, 21 Kosovska proceeded in state court for nine months prior to the 22 removal which was precipitated by adverse rulings. See Moore, 23 981 F.2d at 447 (“[R]ight to remove is waived by acts which 24 indicate an intent to proceed in state court, and that 25 Defendants may not ‘experiment’ in state court and remove upon 26 receiving an adverse decision.”). 27 Next, even if the removal were timely, the bankruptcy court 28 did not have core or related to subject matter jurisdiction over

-12- 1 the claims asserted in the removed action since Kosovska’s 2 underlying bankruptcy case was in the process of dismissal. She 3 did not appeal that decision. Appellants’ assertion that the 4 court had jurisdiction because the claims involved property of 5 the estate are without merit. Upon dismissal, the automatic 6 stay ceased to exist and there was no longer the possibility of 7 a successful reorganization. See In re Castaic Partners II, 8 LLC, __ F.3d ___ (9th Cir. 2016), 2016 WL 2957150, at *2 (9th 9 Cir. May 23, 2016) (there is likely no longer any case or 10 controversy after dismissal “‘with respect to issues directly 11 involving the reorganization of the estate.’”). Further, as the 12 bankruptcy court noted, it did not have jurisdiction over 13 Walsh’s claims since her property interest was never part of 14 Kosovska’s bankruptcy estate. 15 Finally, although a finding of bad faith is not required, 16 it is a factor which the bankruptcy court may consider since the 17 court looks to whether Appellants had a good reason to remove 18 the state court action. 28 U.S.C. § 1452(b) authorizes the 19 court to remand claims on “any equitable ground.” This standard 20 is an “unusually broad grant of authority” that “subsumes and 21 reaches beyond all of the reasons for remand under 22 non-bankruptcy removal statutes.” McCarthy v. Prince 23 (In re McCarthy), 230 B.R. 414, 417 (9th Cir. BAP 1999). The 24 bankruptcy court noted Kosovska’s and Walsh’s numerous prior 25 bankruptcy filings without schedules or statements, all but one 26 of which were dismissed. The clear implication is that the 27 filings were made to obtain the benefit of the automatic stay 28 and not for any broader legitimate bankruptcy purpose. The

-13- 1 bankruptcy court properly considered Appellants’ prior conduct 2 when exercising its discretion to award Appellees their 3 attorneys’ fees and costs. 4 In sum, the bankruptcy court did not abuse its discretion 5 when it awarded Appellees their attorneys’ fees and costs in an 6 amount that appears reasonable and clearly is not excessive. 7 VI. CONCLUSION 8 For the reasons stated, the bankruptcy court’s decision to 9 remand is DISMISSED as MOOT and the bankruptcy court’s decision 10 to award Appellees their attorneys’ fees and costs is AFFIRMED. 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

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