Maria Luz Navarro

Opinion

1 UNITED STATES BANKRUPTCY COURT 2 EASTERN DISTRICT OF CALIFORNIA 3 In re: ) Case No. 23-90010-B-13 4 ) MARIA LUZ NAVARRO, ) DC No. TMO-4 5 ) ) 6 Debtor(s). ) ________________________________) 7 8 MEMORANDUM DECISION AND ORDER REGARDING VIOLATIONS OF THE AUTOMATIC STAY AND SCHEDULING FURTHER PROCEEDINGS 9 I. 10 Introduction 11 Before the court is a Motion of Debtor for an Award of 12 Compensatory Damages, Punitive Damages, Attorney Fees and Costs 13 Against Scenic Funding [sic], a California Corporation, C&H Trust 14 Deed Service, and Attorney Coby Halavais, Does 1-5, filed by 15 Chapter 13 debtor Maria Luz Navarro (“Debtor”). The motion 16 asserts that C&H Trust Deed Services (“C&H”), secured creditor 17 Scenic Oaks Funding, LLC (“Scenic Oaks”), and Coby Halavais as 18 the attorney for both C&H and Scenic Oaks (“Attorney Halavais”) 19 (collectively, unless otherwise noted, “Respondents”), violated 20 the automatic stay of 11 U.S.C. § 362(a) making Respondents 21 jointly and severally liable for attorney’s fees and damages 22 (actual and punitive) under 11 U.S.C. § 362(k)(1). Respondents 23 filed a single opposition.1 The Debtor filed a reply. The 24 parties also filed evidentiary objections. 25 The court has reviewed and considered the motion, 26 27 1The opposition reflects that Attorney Halavais represents, 28 and has appeared as the attorney of record for, all Respondents with regards to the current motion. See Local Bankr. R. 2017- 1(b)(2)(B). 1 opposition, reply, all related declarations and exhibits, and the 2 evidentiary objections. The court has also reviewed and takes 3 judicial notice of the docket. See Fed. R. Evid. 201(c)(1). 4 By its order issued on July 11, 2023, the court bifurcated 5 the Debtor’s motion into two phases: (1) a hearing on August 8, 6 2023, limited to whether the automatic stay was violated; and (2) 7 if it was determined the automatic stay was violated, a separate 8 evidentiary hearing to determine the extent of liability under § 9 362(k). The first phase is satisfied insofar as Respondents 10 admit that the automatic stay was violated. Paragraph 19 of 11 Attorney Halavais’ declaration filed with the opposition states 12 as follows: “With apologies to all, the stay violation was 13 inadvertent and immediately rectified once I learned of the 14 instant Bankruptcy filing.” Docket 159 at 5:10-12. 15 Respondents’ admission makes the August 8, 2023, hearing 16 unnecessary. However, as explained below, further proceedings 17 remain necessary and therefore will be ordered. The evidentiary 18 objections will be addressed at that time. 19 20 II. 21 Background 22 C&H is the trustee under a deed of trust recorded against 23 the Debtor’s home at 5400 Cora Way, Keyes, California (“Debtor’s 24 Residence”). The deed of trust secures a loan that the Debtor, a 25 school district cafeteria worker for over 21 years who never 26 missed a loan payment, obtained from Scenic Oaks in May 2021. 27 The Debtor’s son, Juan Navarro (“Mr. Navarro”), is a co-signor on 28 the loan. - 2 - 1 Scenic Oaks sold the loan to Wells Fargo after it closed. 2 It repurchased the loan from Wells Fargo after Wells Fargo 3 asserted that Mr. Navarro misstated his employment status in loan 4 documents. 5 After it repurchased the loan, Scenic Oaks declared the loan 6 in default based on Mr. Navarro’s purported misstatement. It 7 then accelerated the loan balance and refused to accept monthly 8 payments from the Debtor. When the Debtor was unable to pay the 9 accelerated loan balance, Scenic Oaks initiated foreclosure 10 proceedings through C&H acting as its duly authorized foreclosure 11 agent and trustee under the deed of trust. 12 In an effort to save her home from foreclosure, the Debtor 13 filed a Chapter 13 petition on January 10, 2023. The Debtor 14 identifies three postpetition acts that she asserts violated the 15 automatic stay of § 362(a): (1) issuance of a Notice of Trustee’s 16 Sale on January 11, 2023; (2) service of the Notice of Trustee’s 17 Sale by posting it on the front door of her home on January 13, 18 2023; and (3) recordation of the Notice of Trustee’s Sale with 19 the Stanislaus County Recorder on January 18, 2023. 20 Respondents do not dispute that any of the foregoing acts 21 occurred or that they occurred on the dates the Debtor asserts 22 they occurred. Paragraphs 8 and 9 of Attorney Halavais’ 23 declaration filed with the opposition concede that the Notice of 24 Trustee’s Sale was issued on January 11, 2023, at which time it 25 was also sent to a local field agent for service and forwarded to 26 the county recorder to be recorded; (2) ¶ 12 of the same 27 declaration concedes that the Notice of Trustee’s Sale was posted 28 on the front door of the Debtor’s Residence on January 13, 2023; - 3 - 1 and ¶ 13 of the same declaration concedes that the Notice of 2 Trustee’s Sale was recorded with the Stanislaus County Recorder 3 on January 18, 2023. And as noted above, in ¶ 19 of the same 4 declaration, Respondents admit these postpetition acts violated 5 the automatic stay. 6 It is also noteworthy that Attorney Halavais states in his 7 declaration that he personally performed each of the three acts 8 that violated the automatic stay for C&H acting as Scenic Oaks’ 9 foreclosure agent with regard to Scenic Oaks’ foreclosure on the 10 Debtor’s Residence. Moreover, when Attorney Halavais performed 11 each of the three foregoing acts in the course of the foreclosure 12 process, he also (and simultaneously) represented C&H and Scenic 13 Oaks as clients.2 14 Although the intentional acts that violated the automatic 15 stay are admitted, the unresolved issue that precludes the court 16 from determining if Respondents’ admitted automatic stay 17 violations are technical or willful is one of notice. Eskanos & 18 Adler, P.C. v. Leetien, 309 F.3d 1210, 1215 (9th Cir. 2010) (“A 19 willful violation is satisfied if a party knew of the automatic 20 stay, and its actions in violation of the stay were 21 intentional.”). Did the postpetition acts that Respondents admit 22 violated the automatic stay occur with notice of the Debtor’s 23 bankruptcy filing and, thus, with notice of the automatic stay? 24 Knupfer v. Lindblade (In re Dyer), 322 F.3d 1178, 1191 (9th Cir. 25 26 2He identified himself as the “Attorney” for C&H in a corporate disclosure statement filed earlier in the case. He 27 identified himself as Scenic Oaks’ attorney in prepetition correspondence to the Debtor and her attorney. And he is the 28 attorney of record for Scenic Oaks in this Chapter 13 case. - 4 - 1 2003) (notice of bankruptcy filing is notice of the automatic 2 stay for purposes of § 362(k)); accord Superior Propane v. Zartun 3 (In re Zartun), 30 B.R. 543, 546 (9th Cir. BAP 1983)). The 4 Debtor asserts they did. Respondents assert they did not. 5 The Debtor asserts that a paralegal at her attorney’s office 6 provided a female clerk employed by C&H with verbal notice of her 7 bankruptcy filing by telephone on the petition date, i.e., 8 January 10, 2023. The Debtor also asserts that the female clerk 9 with whom the paralegal apparently spoke acknowledged receipt of 10 the notice by requesting written confirmation of the bankruptcy 11 filing and providing a fax number where written confirmation 12 could be sent. And the Debtor asserts that written notice of the 13 filing was faxed to C&H on January 16, 2023. 14 According to Respondents, the Debtor’s version of verbal 15 notice never happened. Nor could it. Respondents assert that 16 there is no female clerk employed by C&H who answers the 17 telephone at C&H’s office. Instead, according to Respondents, 18 all incoming calls are answered by an automatic call system which 19 directs callers to the appropriate extension none of which are 20 answered by a live person. All calls are apparently routed to 21 voicemail and screened for relevance and a determination as to 22 whether a return call is warranted because the office is staffed 23 by Attorney Halavais alone as a sole practitioner and a large 24 number of sales and irrelevant calls are received. Respondents 25 do not dispute that C&H received written notice of the bankruptcy 26 filing on January 16, 2023, at approximately 2:00 p.m., when they 27 received a facsimile from the Debtor’s attorney’s office. 28 Resolution of the factual dispute over notice matters - 5 - 1 substantially. It is determinative as to whether the attorney’s 2 fees and damages (actual and potentially punitive) sought by the 3 Debtor under § 362(k) are warranted.3 4 5 III. 6 Discussion 7 Although on the record before it the court is unable to 8 determine if the admitted violations of the automatic stay are 9 willful for purposes of § 362(k), the court can set parameters 10 for the evidentiary hearing that will follow. In that regard, 11 four provisions of the automatic stay in § 362(a) are implicated 12 with regard to the postpetition issuance, service, and 13 recordation of the Notice of Trustee’s Sale. 14 The first is § 362(a)(1) which stays “the commencement or 15 continuation, including the issuance or employment of process, of 16 judicial, administrative, or other action or proceeding against 17 the debtor that was or could have been commenced before the 18 commencement of the case under [Title 11], or to recover a claim 19 against the debtor that arose before the commencement of the 20 case[.]” 11 U.S.C. § 362(a)(1). 21 The second is § 362(a)(3) which stays “any act to obtain 22 possession of property of the estate or of property from the 23 estate or to exercise control over property of the estate[.]” 11 24 U.S.C. § 362(a)(3). 25 26 3Even if the violations were technical in the sense that they were willful but the Debtor suffered no damages or is unable 27 to prove any, the court must still consider attorney’s fees under § 362(k). See e.g., Koeberer v. California Bank of Commerce (In 28 re Koeberer), 632 B.R. 680, 690-91 (9th Cir. BAP 2021). - 6 - 1 The third is § 362(a)(4) which stays “any act to . . . 2 enforce any lien against property of the estate[.]” 11 U.S.C. § 3 362(a)(4). 4 The fourth is § 362(a)(6) which stays “any act to collect, 5 assess, or recover a claim against the debtor that arose before 6 the commencement of the case[.]” 11 U.S.C. § 362(a)(6). 7 At a very minimum, each of these provisions render the 8 issuance, service, and recordation of the Notice of Trustee’s 9 Sale void without regard to notice and, thus, without regard to 10 whether they are technical or willful violations of the automatic 11 stay. In re Valentine, 648 B.R. 324, 334 (Bankr. E.D. Cal. 12 2022). Respondents appear to acknowledge this insofar as they 13 state that all foreclosure proceedings have been cancelled. 14 As to potential liability for attorney’s fees and damages 15 under § 362(k) if the admitted automatic stay violations are 16 found to be willful, Scenic Oaks’ liability arises as a 17 principal. C&H performed each of the three postpetition acts 18 that violated the automatic stay in its role as Scenic Oaks’ 19 foreclosure agent and as the trustee under Scenic Oaks’ deed of 20 trust. If C&H had notice of the Debtor’s bankruptcy filing, then 21 so too did Scenic Oaks as its principal. In re Withrow, 93 B.R. 22 436, 438 (Bankr. W.D.N.C. 1998) (imputing notice to 23 creditor-principal upon a showing of notice to collection agent, 24 and holding creditor liable for the willful § 362(a) violation of 25 its agent); In re Kennedy, 2023 WL 3011246, *6 (Bankr. N.D. Ga. 26 April 19, 2023) (same). Moreover, under California law, 27 principals are liable for the authorized acts of their agents 28 taken in the course and scope of the agency. Shultz Steel Co. v. - 7 - 1] Hartford Accident & Indemnity Co., 187 Cal. App. 3d 513, 518-19 2 (2d Dist. 1986); In re Oakhurst Lodge, Inc., 2020 WL 598648, *2 3] (Bankr. E.D. Cal. Feb. 5, 2020) (citing 3 Witkin, Summary of 4] Calif. Law, Agency § 168 (2019); Rest.3d, Agency §§ 6.01, 6.02); 5} see also In re Theokary, 444 B.R. 306, 323-24 (Bankr. E.D. Pa. 6/2014) (“general principles of agency law [] hold that a 7! creditor-principal is liable under § 362(k) for the acts of an 8} agent who willfully violates the automatic stay taken when those acts are within the scope of their principal-agent 10 || relationship”). Issuing, serving, and recording the Notice of 11 |} Trustee’s Sale certainly fall within the scope of Cé&H’s role as 12 || Scenic Oaks’ foreclosure agent and they undoubtedly are acts that 13} Scenic Oaks authorized C&H to take on its behalf in the 14 || foreclosure process.’ 15 C&H is also potentially liable for willful violations of the automatic stay as the authorized foreclosure agent for Scenic 17 |} Oaks that directly performed the three postpetition acts that 18 | violated the automatic stay. Jennings v. Parker (In re Parker), 2022 WL 15523089, *2 fn. 2 (9th Cir. Oct. 27, 2022) (citing 20 1 Sternberg v. Johnston, 595 F.3d 937, 943-45 (9th Cir. 2010), overruled on other grounds, America’s Servicing Company v. 22 || Schwartz-Tallard (In re Schwartz-Tallard), 803 F.3d 1095 (9th 23 Cir. 2015) (en banc)). 24 29 “Scenic Oaks’ assertion that it was not directly involved in any of the three postpetition acts that violated the automatic stay is unavailing. A willful stay violation does not require a 27 specific intent to violate the stay. Pinkstaff v. United States (In re Pinkstaff), 974 F.2d 113, 115 (9th Cir. 1992) (quotation 28 |] omitted). ~g-

1 And by personally performing each of the three acts that 2 violated the automatic stay for clients represented in the 3 foreclosure process, i.e., C&H and Scenic Oaks, Attorney Halavais 4 would also incur individual liability under § 362(k). In re 5 Connor, 641 B.R. 875, 884 (Bankr. E.D. Tenn. 2022) (“Attorneys 6 may be held liable for violations of the automatic stay as a 7 result of actions they have taken or omissions they have made in 8 representation of their clients.”) (cleaned up)). At the same 9 time, so too would C&H and Scenic Oaks because the authorized 10 acts of their attorney, i.e., Attorney Halavais, in matters in 11 which he represents clients, i.e., the foreclosure process, are 12 imputed to the clients, i.e., C&H and Scenic Oaks. In re Bruel, 13 533 B.R. 732, 789-90 (Bankr. C.D. Cal. 2015). Independently, it 14 is long-settled law that clients are held accountable for the 15 acts and omissions of their attorneys. Pioneer Inv. Servs. Co. 16 v. Brunswick Assocs. Ltd. P’ship, 507 U.S. 380, 396-97 (1993) 17 (citations omitted). 18 19 IV. 20 Conclusion 21 The hearing on August 8, 2023, at 11:00 a.m. is VACATED as 22 unnecessary given Respondents’ admission that the automatic stay 23 of § 362(a) was violated. The following scheduling order governs 24 further proceedings regarding potential liability for attorney’s 25 fees and damages under § 362(k): 26 A. Evidentiary Hearing Scheduling 27 Because an evidentiary hearing is necessary, the court will 28 permit the parties to engage in discovery to the full extent - 9 - 1 allowed in an adversary proceeding under Part VII of the Federal 2 Rules of Bankruptcy Procedure. See Fed. R. Bankr. P. 9014(c). 3 Discovery may begin immediately and will close on November 6, 4 2023. 5 An evidentiary hearing is set on Monday, December 11, 2023, 6 at 10:00 a.m. The hearing will be held in the Sacramento 7 Courtroom, Courtroom 32, 501 I Street, Sacramento, California. 8 The parties have placed credibility in issue: Respondents by 9 suggesting the paralegal employed by Debtor’s attorney is 10 untruthful and the Debtor through its assertion that Respondents 11 have changed their reason for foreclosure. All attorneys and 12 witnesses must therefore be present in court. No video or 13 telephone appearances are permitted. 14 The evidentiary hearing will address the following: 15 (1) whether C&H had notice of the Debtor’s bankruptcy filing on January 10, 2023; 16 (2) whether any or all of the three acts that violated 17 the automatic stay are willful stay violations; 18 (3) if any or all of the three acts that violated the automatic stay are willful stay violations, whether and 19 to what extent attorney’s fees and damages are warranted under § 362(k); and 20 (4) if any or all of the three acts that violated the 21 automatic stay are willful violations, whether and to what extent attorney’s fees should be awarded even if 22 damages are not warranted or proven. 23 Alternate Direct Testimony Declarations of all witnesses and 24 Exhibits must be filed and served by 5:00 p.m. on Monday, 25 November 20, 2023. No witness will be permitted to provide live 26 testimony without a direct testimony declaration. In-court 27 testimony will be limited to cross-examination and re-direct. 28 Binders with Exhibits and all original Alternate Direct - 10 - Testimony Declarations must be delivered to the Courtroom Deputy 2 || by Wednesday, November 22, 2023. Debtor’s will label Exhibits numerically. Respondents will label Exhibits alphabetically. 4 Objections to the Alternate Direct Testimony Declarations Exhibits must be filed and served by 5:00 p.m. on Monday, 6 || November 27, 2023. Objections not made are deemed waived. 7 B. Mandatory Settlement Conference 8 Through Federal Rule of Bankruptcy Procedure 9014(c),° the court makes Federal Rule of Bankruptcy Procedure 7016, and its 10 || incorporation of Federal Rule of Civil Procedure 16(c) (1) in 11] particular,® applicable to all proceedings in the Chapter 13 12 |} case. 13 Federal courts have substantial authority and broad 14 || discretion under Federal Rule of Civil Procedure 16(c) (1) and 15 |} their inherent authority to order a mandatory settlement 16 || conference. U.S. v. U.S. Dist. Ct. for Northern Mariana Islands, 17] 694 F.3d 1051, 1057-58 (9th Cir. 2012); accord Grzeslo v. Sauzo, 18 |} 2023 WL 35979, *2 (E.D. Cal. Jan. 4. 2023). When the court 19 20 °In relevant part, Fed. R. Bankr. P. 9014(c) states: 21 The court may at any stage in a particular matter 22 direct that one or more of the other rules in Part VII [not already applicable in a contested matter] shall 23 apply. The court shall give the parties notice of any order issued under this paragraph to afford them a 24 reasonable opportunity to comply with the procedures 25 prescribed by the order. 26 °In relevant part, Fed. R. Civ. P. 16(c) (1) states: “If appropriate, the court may require that a party or its 27 representative be present [at a pretrial conference] or reasonably available by other means to consider possible 28 || settlement.” - 11 -

1 orders a mandatory settlement conference: 2 If a party or its attorney ‘is substantially unprepared to participate—or does not participate in good faith—in 3 the conference,’ the district court may, on motion or on its own, issue ‘any just orders.’ Fed. R. Civ. P. 4 16(f). Additionally, ‘[i]nstead of or in addition to any other sanction, the court must order the party, its 5 attorney, or both to pay the reasonable expenses—including attorneys fees—incurred because of 6 any noncompliance with this rule.’ Fed. R. Civ. P. 16(f)(2). Because ‘part of the purpose of the 7 sanctioning power is ... to control litigation and preserve the integrity of the judicial process,’ 8 ‘[s]anctions are not only appropriate when the disobedience is intentional but may also be imposed 9 when the disobedience is unintentional.’ Pitman v. Brinker Intern., Inc., 216 F.R.D. 481, 484 (D. Ariz. 10 2003). 11 Moreover, ‘the purpose of a settlement conference is to facilitate a settlement or to narrow the disparity 12 between the parties.” Id. For settlement to be possible, both parties must arrive at the settlement 13 conference ‘with an open mind and a genuine willingness to meaningfully discuss the strengths and weaknesses of 14 each party’s case.’ Id. 15 Marco Crane & Rigging Company v. Greenfield Productions, LLC, 16 2019 WL 5066823, *4 (D. Ariz. Oct. 9, 2019). 17 The parties’ disputes, both as they pertain to the current 18 motion and in the broader context of the Chapter 13 case, are all 19 about money. Given the potential for costly and time-consuming 20 litigation arising from these monetary disputes, settlement 21 discussions and an effort to reach a global resolution are 22 particularly appropriate. Therefore, in exercise of its 23 discretion, the court will order the parties to participate in a 24 settlement conference. 25 The court will provide the parties with one of two options: 26 (1) participation in the Bankruptcy Dispute Resolution Program in 27 which the settlement conference will be conducted by an attorney 28 admitted to practice in the Eastern District of California - 12 - 1 Bankruptcy Court selected by the court; or (2) with the consent 2 of all parties, a settlement conference before the undersigned 3 presiding judge as the settlement judge. To facilitate an 4 election, by August 15, 2023, the Debtor and Attorney Halavais 5 (on his behalf and on behalf of C&H and Scenic Oaks as his 6 clients) shall file a notice of election substantially in the 7 following form: 8 Notice of Election Re: Settlement Option 9 ____ The party signing below requests assignment to the Bankruptcy Dispute Resolution Program. 10 - OR - 11 ____ The party signing below affirmatively requests 12 that the assigned presiding judge participate in the settlement conference, and further, the parties waive 13 any claim of disqualification to the assigned presiding judge trying the case thereafter if necessary. 14 IT IS SO ORDERED. 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - 13 - 1 INSTRUCTIONS TO CLERK OF COURT SERVICE LIST 2 The Clerk of Court is instructed to send the attached 3 document, via the BNC, to the following parties: 4 T. Mark O'Toole 1006 H Street 5 Modesto CA 95354 6 Coby R. Halavais 1 Orchard Rd #110 7 Lake Forest CA 92630-8315 8 Russell D. Greer PO Box 3051 9 Modesto CA 95353-3051 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - 14 -