bankruptcy - challenge to lifting of opening brief, final

8/3/2019 Bankruptcy - Challenge to Lifting of Opening Brief, FINAL

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Appeal No EC-11-1258

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE NINTH CIRCUIT

In Re:BERENICE AND PIERRE THOREAU DE LA SALLE

BERENICE THOREAU DE LA SALLEPIERRE THOREAU DE LA SALLE

Appellants,

vsUS BANK, N.A. AS TRUSTEE FOR THE CERTIFICATEHOLDERS OF

STRUCTURED ADJUSTABLE RATE MORTGAGE LOAN TRUST,MORTGAGE LOAN PASS-THROUGH CERTIFICATES SERIES 2005-19XS

Appellee

On Appeal From the U.S. Bankruptcy Court for the Eastern Districtof California, Bankruptcy Case No. 10-29678-13

OPENING BRIEF OF APPELLANTS

BERENICE AND PIERRE THOREAU DE LA SALLE

George Gingo, CSB 147897James Orth, Pro Hac Vice (FL 75941)

GINGO & ORTHP.O. Box 706,

Mims, Florida 32754Office: (321) 264-9624Fax: (866) 311-9573

Attorneys for Appellants, Berenice and Pierre Thoreau de la Salle


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TABLE OF CONTENTS

Page

STATEMENT OF JURISDICTION ............................................................................................. 1

STATEMENT OF ISSUES ON APPEAL ................................................................................. 1

First Issue .................................................................................................................................... 1

Second Issue............................................................................................................................... 2

STATEMENT OF THE CASE ...................................................................................................... 2

STATEMENT OF FACTS ............................................................................................................... 3

SUMMARY OF ARGUMENT ................................................................................................... 11

First Issue ................................................................................................................................. 11

Second Issue............................................................................................................................ 12

STANDARD OF REVIEW ........................................................................................................... 13

ARGUMENTS.................................................................................................................................... 13

First Argument ....................................................................................................................... 13

Second Argument.................................................................................................................. 24

CONCLUSION................................................................................................................................... 25

CERTIFICATION OF INTERESTED PARTIESAS REQUIRED BY BAP RULE 8010 (a)-1 (b) ................................................................. 27

CERTIFICATION OF RELATED CASESAS REQUIRED BY BAP RULE 8010 (a)-1 (c) .................................................................. 30

PROOF OF SERVICE ..................................................................................................................... 31


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TABLE OF AUTHORITIES

Page

FEDERAL STATUTES

11 U.S.C. 101(10). ................................................................................................................... 15

362(d)(1) .................................................................................................................. 17

501 ................................................................................................... 11, 16,17,18,19

502(a) ........................................................................................... 1,11,13,16,18.19 502 (b) ................................................................................................................ 9, 20

502(b)(1) ..................................................................................................................... 6 502(b)(9) .................................................................................................................. 18 502(c) ............................................................................................................... 19, 20 502(e) ....................................................................................................................... 19

506(b) ....................................................................................................................... 18 506(d) ........................................................................................................................ 17

506(d)(1) ................................................................................................................. 18 506(d)(2) .................................................................................................................. 17

1126(a)...................................................................................................................... 15

1325(a)(5) ................................................................................................................ 18

28 U.S.C. 158, et seq. .............................................................................................................. 1

FEDERAL RULES OF APPELLATE PROCEDURE

Rule 6 ......................................................................................................................................................... 1


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FEDERAL RULES OF BANKRUPTCY PROCEDURE

Rule 3001(c) ........................................................................................................................................ 15

Rule 3001(d) ....................................................................................................................................... 15

Rule 3001(f) .......................................................................................................................... 11, 15,16

Rule 3002 ...................................................................................................................................... 17, 18

Rule 3018(a) ........................................................................................................................................ 15

Rule 3021 ...................................................................................................................................... 11, 15

Rule 8002 ................................................................................................................................................. 1

FEDERAL RULES OF CIVIL PROCEDURE

Rule 52.................................................................................................................................................... 16

Rule 52.................................................................................................................................................... 24

Rule 54....................................................................................................................................................... 1

CASES

Bellistri v. Ocwen Loan Servicing, LLC,284 S.W.3d 619 (Mo. App. 2009) ................................................................................. 21

Bonham v. Compton (In re Bonham),

220 F.3d 750 (9th Cir. 2000) .............................................................................................. 1


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Diamond v. Charles,

476 U.S. 54 (1986) .............................................................................................................. 21

First United Bank v. Philmont Corp.,

533 So.2d 449 (Miss.1988) .............................................................................................. 22

In re Alderman,

150 B.R. 246 (Bankr. D. Mont.1993) .......................................................................... 15

In re All Media Properties, Inc.,

5 B.R. 126 (Bankr. S.D. Tex 1980) .............................................................................. 20

In Re Hwang,

396 B.R. 757 (Bankr. C.D. Cal., 2008) ....................................................................... 21

In re Kelley,

259 B.R. 580 (Bankr. E.D. Tex., 2001) ...................................................................... 15

In re Kemp,440 B.R. 624 (Bankr. N.J., 2010) .................................................................................. 23

In re Knight,

55 F.3d 231 (7th Cir., 1995) ............................................................................................ 20

In re Macias,

195 B.R. 659 (Bankr. W.D. Tex., 1996) ............................................................... 15,18

In re Michels,270 B.R. 737 (Iowa, 2001) ............................................................................................... 18

In re Rosson,

545 F.3d 764 (9th Cir., 2008). ........................................................................................... 1

In re Schaffer,173 B.R. 393 (Bankr. N.D.Ill.1994) ............................................................................. 15

In re Slack,

187 F.3d 1070 (9th Cir. 1999) ......................................................................................... 20


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In re Smith,123 B.R. 863 (Bankr. C.D. Cal., 1991) ....................................................................... 16

In re Thomas,

91 B.R. 117 n. 9 (Bankr. N.D.Ala.1988) .................................................................... 15

In re Veal,

10-1055 and 10-1056, ___ B.R. ___, (9th Cir., BAP, 6/11/11) ....................... 24

In re Wells,

125 B.R. 297 (Bankr. D. Colo. 1991) .......................................................................... 15

In re Mazzeo,

131 F.3d 295 (2nd Cir. 1997) .......................................................................................... 20

Lamie v. United States Tr.,

540 U.S. 526, 124 S.Ct. 1023, 157 L.Ed.2d 1024 (2004) ................................... 16

Lema v. Bank of America,

826 A.2d 504, 375 Md. 675, 50 UCC Rep.2d 955 (Md., 2003) ........................ 22

Miller v. Econ. Lab., Inc.,

410 So.2d 642, 642 (Fla. Dist. Ct. App. 1982) ........................................................ 22

National Title Ins. Corp. Agency v. First Union Nat'l Bank,

263 Va. 355, 559 S.E.2d 668 (2002) ............................................................................ 22

Pistole v. Mellor (In re Mellor),

734 F.2d 1396 (9th Cir.1984) .......................................................................................... 13

Scadif, S.A. v. First Union National,

344 F.3d 1123 (11th Cir. Crt. App. 2003) .................................................................. 22

Scott Stainless Steel, Inc. v. NBD Chicago Bank,253 Ill.App.3d 256, 625 N.E.2d 293, 297 (1993) ................................................... 22

Triffin v. First Union Bank,

319 N.J.Super. 72, 724 A.2d 872 (1999) .................................................................... 22
http://law.justia.com/cases/federal/appellate-courts/F2/734/1396/http://law.justia.com/cases/federal/appellate-courts/F2/734/1396/


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vii

U.S. v. Verdunn,

89 F.3d 799 (11th Cir. 1996) ........................................................................................... 20

Warth v. Seldin,

422 U.S. 490, 95 S.Ct. 2197, 45 L.Ed.2d 343 (1975) ........................................... 21

Western Air & Refrigeration, Inc. v. Metro Bank of Dallas,

599 F.2d 83, 89-90 (5th Cir.1979) ................................................................................ 22

Windmill Farms,841 F.2d 1467 (9th Cir.) (1988) ...................................................................................... 13

Zambia Nat'l Commercial Bank Ltd. v. Fidelity Int'l Bank,

855 F.Supp. 1377 (S.D.N.Y.1994) ................................................................................ 22

CALIFORNIA STATUTES

California Civil Code 2924(a)(1) ................................................................................................ 21

California Commercial Code section 1103 ............................................................................. 21

SECONDARY SOURCES

Am Jur. Legal Forms 2d 253:3 ................................................................................................. 22

Blacks Law Dictionary, Fifth Edition ..................................................................................... 20

Uniform Commercial Code 1-102................................................................................ 21, 22, 23


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STATEMENT OF JURISDICTION

The Bankruptcy Appellate Panel of the Ninth Circuit has jurisdiction of this

Appeal pursuant to 28 U.S. C. 158 and Rule 6 of the Federal Rules of Appellate

Procedure. On May 9, 2011, the bankruptcy court issued its final order converting

the Appellants chapter 13 case to a chapter 7 case. [ER: vol I, tab1, p.1] The

Appellants filed their Notice of Appeal on May 23, 2011. That notice was timely

under Federal Rules of Bankruptcy Procedure 8002. The bankruptcy courts order

converting the Debtors chapter 13 action to a chapter 7 is a final and appealable

order pursuant to Federal Rules of Civil Procedure 54. In re Rosson, 545 F.3d 764,

770 (9th Cir., 2008).1

STATEMENT OF ISSUES ON APPEAL

First Issue

Whether the court erred in having failed to recognize that pursuant to 11

U.S.C. 502(a) and (b)(1), the Appellants Objection stripped the presumptive

allowed status on the proof of claim filed by US BANK N.A. as Trustee for the

Certificateholders of SARM 2005 19 XS (hereinafter US Bank) which thereafter

could only be restored upon a judicial determination after a noticed hearing.

1 "We have adopted a `pragmatic approach' to finality in bankruptcy ... [that]emphasizes the need for immediate review, rather than whether the order istechnically interlocutory."Bonham v. Compton (In re Bonham),229 F.3d 750, 761(9th Cir.2000)(internal quotation marks omitted). "
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Second Issue

Whether the courts holding that US Bank had standing was supported by

competent, substantial evidence.

STATEMENT OF THE CASE

In 2005, Berenice de la Salle obtained a mortgage loan on her homesteaded

principal residence from lender Countrywide Home Loans Inc., dba Americas

Wholesale Lender (AWL). In 2010, Berenice de la Salle and her husband,

Pierre de la Salle, (hereinafter the De La Salles) filed for chapter 13 bankruptcy

protection. They scheduled the mortgage loan on Schedule F as unsecured and

disputed. US Bank filed a proof of claim and an amended proof of claim for the

mortgage loan. The De La Salles filed an Objection to the Proof of Claim and an

adversary petition, both challenging the standing of US Bank. The De La Salles

then filed a Motion for Summary Judgment on their Objection to proof of claim

and on their adversary petition. The court continued the De La Salles Objection

hearing five times. On May 3, 2011, the court removed from calendar the

scheduled May 26, 2011 hearing on the De La Salles consolidated Objection to

the Proof of Claim and Motion for Summary Judgment, and denied the De La

Salles a hearing on their Objection and Motions. Further, the court determined that


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US Bank had standing and granted US Banks Motion to Convert the case from a

chapter 13 to a chapter 7 case, from which the De La Salles file this appeal.

STATEMENT OF FACTS

On April 28th, 2005 Berenice de la Salle executed a Note (the subject

Note) and Deed of Trust on the De La Salles home in favor ofCountrywide

Home Loans Inc., dba Americas Wholesale Lender (AWL). [ER: vol. I, tab 4,

pp.101, 116] The Deed of Trust listed Mortgage Electronic Registration Systems,

Inc. (MERS) as the beneficiary of the security instrument solely as a nominee

for Lender and Lenders successors and assigns. [ER: vol. I, tab4, p.117] There

was no mention or reference to MERS anywhere in the Note. [ER: vol. I, tab 4,

pp.101-115]

On April 15, 2010, the De La Salles filed their Voluntary Petition. [ER:

vol. I, tab 2, p. 2] The mortgage loan in question was scheduled on Schedule F as

unsecured and disputed. [ER: vol. I, tab 2, p. 15] Five days before the claims

bar date, US Bank filed claim No. 17. [ER: vol. I, tab3, p. 50] US Bank alleged it

owned the Note and Deed of Trust and attached copies of the two documents. [ER:

vol. I, tab3, pp. 52, 56] The Note and Deed of Trust appeared unaltered from their

original form, and bore no endorsements, assignments or allonges. [ER: vol. I, tab

2, pp. 52-79] Pursuant to 11 U.S.C. 502 (a) and (b) (1), the De La Salles filed an


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Objection to the Proof of Claim on September 1, 2010. [ER: vol. I, tab 4, pp.80-

158] The Debtors Second Amended Plan was filed on August 9, 2010 and did

not provide for post petition payments on the subject Note because the debt was

disputed and an objection to the proof of claim was pending. [ER: vol. II, tab 5,

pp.159-171]

Twenty-two days after the claims bar date and sixteen days after the

Objection had been filed, US Bank filed an amended proof of claim identified as

claim No. 18. [ER: vol. II, tab 6, p.172] US Bank alleged that MERS - as

nominee for Americas Wholesale Lender in whose name the Deed of Trust had

been recorded - had assigned the Deed of Trust to US Bank. US Bank attached a

copy of the MERS assignment, which had been executed five days after the claims

bar date. [ER: vol. II, tab 6, p.174] The De La Salles objected to MERS authority

to assign the Deed of Trust in the Debtors Reply to Response to Objection to

Claim of US Bank N.A. [ER: vol. II, tab 7, pp.175-185].

On October 12th, 2010, the De La Salles filed an Adversary Proceeding

against US Bank to determine the validity of the lien on their home.2 [ER: vol. II,

tab 8, pp.233-307] The court set an October 19, 2010 hearing on the De La Salles

Objection to Proof of Claim. [ER: vol. I, tab 4, p.80] However, on October 19,

2010, the court did not rule on the De La Salles Objection to US Banks Proof of

2 United States Bankruptcy Court for the Eastern District of California case number10-02642.


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Claim. [ER: vol. III, tab 9, p. 308] and [ER: vol. VI, tab 20, p.722] Over the De

La Salles repeated objections, the bankruptcy court refused to rule on the De La

Salles Objection to US Banks Proof of Claim on four more occasions: 1)

November 30, 2010; [ER: vol. III, tab 9, p. 309] and [ER: vol. III, tab10, p.318,

lns 8-16] 2) February 22, 2011; [ER: vol. III, tab 9, p. 311] and [ER: vol.VI, tab

22, pp.774-776] 3) March 3, 2011; [ER: vol. III, tab 9, p. 312] and 4) March 29,

2011. [ER: vol. III, tab 9, p. 313] Ultimately, the bankruptcy court never ruled on

the De La Salles Objection to US Banks Proof of Claim.

On November 30th, 2010, the court announced its intention to consolidate the

De La Salles Objection to the Proof of Claim and their Adversary Proceeding.

[ER: vol. III, tab 10, p.315] The court, however, did not officially consolidate the

two actions until April 4, 2011. [ER: vol. III, tab 11, p.338]

On February 16, 2011, US Bank filed a Motion to Dismiss or Convert the

case to a chapter 7 on the alleged grounds that post petition payments were not

being made to Secured Creditor, US Bank.3 [ER: vol. III, tab 12, pp.339-349]

The De La Salles had been making timely monthly payments to the trustee

for almost one year on their Plan.4 [ER: vol. III, tab 13, pp.350-352] However, on

3 The first Motion to Dismiss or Convert was denied based on a defect of service. 4Since filing their Voluntary Petition, the Debtors have made more than $12,000 in

payments to the trustee for valid priority claims according to their SecondAmended Plan, including payments for back property taxes, back federal income


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March 29, 2011, the court rejected the De La Salles Chapter 13 Plan because it

failed to provide for payments on the subject promissory Note. [ER: vol. III, tab

14, p.353] The court ordered the De La Salles to (i) make provision through their

Plan for all arrearages on the Note and (ii) pay to a blocked account the full

monthly installment on the Note pending the outcome of their Adversary

Proceeding. [ER: vol. III, tab 14, p.353]

On April 15, 2011, the De La Salles filed a Motion for Summary Judgment

on their Objection to US Banks Proof of Claim and Motion for Partial Summary

Judgment on their Adversary Case. [ER: vol. III, tab 15, pp.355-424] The De La

Salles filed, in conjunction with the Motion, an affidavit of an expert witness

which supported their Motion. [ER: vol. III, tab 15, pp.372-384] and [ER: vols. IV

and V, tab 16, pp.425-692] The court set a hearing on the Motions for May 26,

2011. US Bank did not file an opposition to the Motions for Summary Judgment.

The De La Salles, through their Objection to Proof of Claim, Motion for

Summary Judgment as to Proof of Claim and Motion for Partial Summary

Judgment on the Adversary Petition, took the position set forth in 11 U.S.C.

502(b)(1) that the claim was unenforceable against both the Debtors and property

of the Debtors because of an agreement and also because of applicable law, and for

a reason other than because the claim was contingent or unmatured. The De La

taxes and payments on the crammed down value of Berenice de la Salles car.[ER: vol. III, tab 13, p.352]


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Salles submitted evidence which demonstrated that US Bank could not assert

ownership of the Note or Assignment of Mortgage because these transfers were not

authorized and in direct contravention of the Pooling and Servicing Agreement.

The De La Salles also challenged US Banks failure to indicate how it came into

possession of the Note, when it came into possession of the Note and for what

purpose it came into possession of the Note. (See Reply to US Banks Response

to the Objection to the Proof of Claim [ER: vol. II, tab 7, pp.175-185]; See also,

Motion for Summary Judgment as to Proof of Claim [ER: vol. III, tab15, pp.355-

367]; See also, the De La Salles affidavit of expert witness Lynn Szymoniak filed

in support of Motion for Summary Judgment. [ER: vol.III, tab15, pp.377-379])

On May 3, 2011, the court held a hearing on US Banks Motion to Dismiss.

[ER: vol.V, tab 17, pp.693-710] The De La Salles objected to the standing of US

Bank to bring the Motions. [ER: vol. V, tab17, p9.695-698] The De La Salles

requested that the court first hear the De La Salles Motion for Summary Judgment

on the Objection to Proof of Claim and Motion for Partial Summary Judgment on

the adversary petition. [ER: vol. V, tab 17, p.702] By opinion and order, dated

May 3rd and May 9th, respectively, the court denied the Motion to Dismiss and

granted the Motion to Convert to a chapter 7. [ER: vol. V, tab 18, pp.711-

714] and [ER: vol. V, tab 1, p. 1]


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The court vacated the hearing on the De La Salles Motion for Summary

Judgment [ER: vol. V, tab 19, p.715] and left the Motion pending for the Trustee to

pursue if he was so inclined. [ER: vol. V, tab 17, p.709]

The pertinent points from the courts fourpage ruling were:

a) The debt must be paid as a claim in the bankruptcy case. No plan has

been filed by the Debtors for the payment of this secured claim. [ER: vol. V, tab

18, p. 712, 3]

b) The Debtors allege that the creditor does not have standing to bring

this motion because it is not the holder of the secured claim. [ER: vol. V, tab 18,

p.713, 2 ]

c) US Bank has standing to participate in this case and assert such

positions and rights as relate to the claim it asserts. Before US Bank would be paid

on the claim, the court would have to determine that it actually holds those rights .

But that determination does not mean that the Debtors can violate the Bankruptcy

Code and ignore the obligation they owe on the Note and Deed of Trust on the

theory that those issues cannot be considered until after they conclude their

litigation with US Bank. [ER: vol. V, tab 18, p.713, 6 ]

d) The Motion to Dismiss states grounds based on the Debtors having

tendered zero post-petition payment on the secured claim which US Bank asserts it

has the right to be paid. Further, Debtors are in default under 11 U.S.C. 1322 (b)


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(5) by failing to make provision for paying this secured claim. [ER: vol. V, tab 18,

p.714, 1 ]

e) It is also asserted that the Debtors exceed the debt limits because they

list $1,116,910 as unsecured debt (apparently incorrectly listing the claim secured

by their residence as an unsecured claim). [ER: vol. V, tab 18, p.714, 1] The

Debtors allege that if they are not eligible for chapter 13, they will convert this

case to one under chapter 11. [ER: vol. V, tab 18, p.713, 2] The principles for

treatment of claims apply equally under chapter 11. Conversion to chapter 11

would not change Debtors inability to value this claim. [ER: vol. V, tab 18, p.712,

FN. 1 and FN. 2]

f) A Supplemental Opposition was filed by Debtors on April 15, 2011,

requesting that the court take judicial notice of motions (sic) for summary

judgment filed by the Debtors in connection with the pending objections to claims

(sic) and adversary proceeding with US Bank. [ER: vol. V, tab 18, p.714, 2]

g) The Debtors make a further interesting argument that any claims of

US Bank are disallowed or technically void pursuant to 11 U.S. C. 502 (a)

because the Debtors have filed an objection to the claims (sic). Such a contention

is a misstatement of the law. A claim is not disallowed merely because the

Debtors file an objection. The Debtors must successfully prosecute the objection

for the claim to be disallowed. 11 U.S.C. 502 (b) states the grounds for which a


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claim will not be allowed in the bankruptcy case. That occurs only after notice and

hearing, to the extent determined by the court. The Debtors cannot ignore the

secured claim and requirements of the Bankruptcy Code to provide for such claim

merely on the contention raised in an objection to the claim. [ER: vol. V, tab 18,

p.714, 3]

h) The Debtors have demonstrated that they either choose or are

unable to comply with the Bankruptcy Code. Their conduct in this case clearly

demonstrates that they do not intend to prosecute a reorganization and provide for

payment of any creditor claims. [ER: vol. V, tab 18, p.714, 4] The court finds

that the purported reorganization in this bankruptcy case is a sham. [ER: vol. V, tab

18, p.714, 5]

i) Cause exists to convert or dismiss this case for each of the following

independent grounds: (1) unreasonable delay by the Debtors that is prejudicial to

creditors, (2) failure to file a plan timely, (3) failure to commence making

payments under a plan proposed in good faith, and (4) failure to propose a plan or

prosecute a reorganization in good faith. [ER: vol. V, tab 18, p.714, 6]


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SUMMARY OF ARGUMENT

First Issue

Fed. R. Bankr. P. section 3001(f) states A proof of claim executed and filed

in accordance with these rules shall constitute prima facie evidence of the validity

and amount of the claim. 11 U.S.C. 502(a) states A claim or interest, proof of

which is filed under section 501 of this title, is deemed allowed, unless a party in

interest, including a creditor of a general partner in a partnership that is a debtor in

a case under chapter 7 of this title, objects.

The De La Salles objected to US Banks proof of claim on the basis that US

Bank lacked standing. The De La Salles also filed an adversary proceeding against

US Bank. The bankruptcy court continued the De La Salles hearing on their

objection five times over a period of almost eight months. During that time, the

bankruptcy court required the De La Salles to make a provision for payment of US

Banks claim in their Plan and into a blocked account for US Bank pending

resolution of the adversary proceeding. However, because payments through a

plan may only be made on claims that have been allowed pursuant to Fed. R.

Bankr. P 3021, the De La Salles did not make a provision in their Plan for payment

of the claim of US Bank. The De La Salles did not make payments into a blocked

account for US Bank because that claim lost its allowed status when the De La

Salles filed their properly supported objection to US Banks proof of claim. The


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De La Salles moved for summary judgment upon their objection, which motion

was supported by substantial evidence. The allowed status of the claim could

only be restored by judicial decree after a noticed hearing on the Objection

pursuant to 11 U.S.C. 502(b).

The court never granted the De La Salles a hearing on their Objection, took

their Motion for Summary Judgment off calendar and then granted US Banks

Motion to Convert as a sanction for the failure to make payments into a blocked

account for US Bank and for failure to make provision for US Bank in their Plan.

The bankruptcy court made no factual findingsyet determined that US Bank had

standing. The De La Salles contend that the court should have considered and

weighed the De La Salles evidence in support of their Objection to US Banks

Proof of Claim and Motion for Summary Judgment on their Objection to US

Banks Proof of Claim, and made factual findings.

Second Issue

The court denied the Debtors a hearing on their challenge to standing which

was raised in their Objection to US Banks proof of claim. At the hearing on US

BanksMotion to Dismiss/Convert, the court refused to examine the De La Salles

evidence, made no findings of fact and yet concluded that US Bank had standing.

Findings of fact are necessary so that a reviewing court can properly evaluate the

decisions made by the bankruptcy court. The determination that US Bank had


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standing could only be based upon facts. Without those findings of fact, the

reviewing court is unable to fully evaluate whether the decision of the bankruptcy

court was proper.

STANDARD OF REVIEW

The BAP and the Court of Appeals apply the same standard of review to an

underlying judgment of the bankruptcy court. The bankruptcy courts findings of

fact are reviewed under the clearly erroneous standard and its conclusions of law

are reviewed de novo. Windmill Farms, 841 F.2d 1467, 1469 (9th Cir.) (1988);

Pistole v. Mellor (In re Mellor), 734 F.2d 1396, 1399 (9th Cir.1984).

ARGUMENTS

FIRST ARGUMENT

Whether the court erred in having failed to recognize that pursuant to11 U.S.C. 502(a) and (b)(1) the De La Salles objection stripped thepresumptive allowed status on the proof of claim filed by US

BANK N.A. as Trustee for the Certificateholders of SARM 2005 19XS (hereinafter US Bank) which, thereafter, could only be restoredupon a judicial determination after a noticed hearing.

The De La Salles had been making timely monthly payments under their

proposed Plan to all of the creditors under the Plan. On May 3rd, 2011, after

denying the De La Salles Second Amended Plan, the court proceeded to hear US
http://law.justia.com/cases/federal/appellate-courts/F2/734/1396/http://law.justia.com/cases/federal/appellate-courts/F2/734/1396/


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Banks Motion to Dismiss or Convert. The bankruptcy court gave four reasons for

its conversion from chapter 13 to chapter 7. All four of those reasons were directly

based upon the De La Salles failure to make a provision for payment to US Bank

in their Plan or failure to make payments to a blocked account on behalf of US

Bank.

The bankruptcy court made a finding of good cause to convert, stating

Cause exists to convert or dismiss this case for each of the following independent

grounds: (1) unreasonable delay by the Debtors that is prejudicial to creditors, (2)

failure to file a plan timely, (3) failure to commence making payments under a plan

proposed in good faith, and (4) failure to propose a plan or prosecute a

reorganization in good faith. [ER: vol.V, tab18, p.714, 6]

The only potential creditor that may have been prejudiced by the Chapter 13

plan was US Bank. The De La Salles plan provided for all other creditors and

timely payments were made on all other allowed claims. Thus, the only possible

prejudice and unreasonable delay was as to US Bank. It should also be noted

that any unreasonable delay as to US Bank was the fault of the court due to its

repeated refusal - over an 8 month period - to hear the De La Salles Objection to

Proof of Claim and Motion for Summary Judgment. It should further be noted that

the court prejudiced the De La Salles due to its repeated refusals to hold an

evidentiary hearing on their Motions.


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The chapter 13 trustee may only distributeplan payments "in accordance

with the plan." 11 U.S.C. 1326(b) The intent of 11 U.S.C. 1326(b) is to direct

plan payments to creditors under the plan. One cannot be a "creditor" without

holding a "claim." 11 U.S.C. 101(10). A secured creditor may receive

distributions out of the plan only if it holds an allowed claim. Fed. R. Bankr. P.

3021;In re Macias, 195 B.R. 659, 660, 661 (Bankr. W.D. Tex., 1996) (Citing toIn

re Schaffer, 173 B.R. 393, 394 (Bankr. N.D.Ill.1994);In re Alderman, 150 B.R.

246 (Bankr. D. Mont.1993);In re Wells, 125 B.R. 297 (Bankr. D. Colo. 1991);In

re Thomas, 91 B.R. 117 n. 9 (Bankr. N.D.Ala.1988), aff'd on other grounds, 883

F.2d 991 (11th Cir.1989);In re Kelley, 259 B.R. 580 (Bankr. E.D. Tex., 2001) at

fn. 2))

Fed. R. Bankr. P. 3018(a) provides that a plan may be accepted or rejected in

accordance with section 1126 of the Code. 11 U.S.C. 1126(a) states: The holder

of a claim or interest allowed under section 502 of this title may accept or reject a

plan. A properly filed proof of claim is entitled to a presumption of an allowed

status pursuant to Fed. R. Bankr. P. 3001(f), which states: (f) Evidentiary effect.

A proof of claim executed and filed in accordance with these rules shall constitute

prima facie evidence of the validity and amount of the claim.5

5This type of claim is based on a writingthe Note and the Deed of Trust. Fed. R.Bankr. P. 3001(c) and (d) require that the writing be produced along with proof ofthe security being perfected.


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A proof of claim is allowed, unless a party in interest objects. 11 U.S.C.

502(a) states:

(a) A claim or interest, proof of which is filed under section 501 of this title,is deemed allowed, unless a party in interest, including a creditor of ageneral partner in a partnership that is a debtor in a case under chapter 7of this title, objects.

"[W]hen the statute's language is plain, the sole function of the courtsat least

where the disposition required by the text is not absurdis to enforce it according

to its terms." Lamie v. United States Tr., 540 U.S. 526, 534, 124 S.Ct. 1023, 157

L.Ed.2d 1024 (2004) (internal quotation marks omitted). A plain meaning

interpretation provides that once a debtor files a 502 (a) and (b) (1) objection to a

claim, the claim is no longer accorded the allowed status unless and until a hearing

is held and the court rules upon the objection.6 See In re Smith, 123 B.R. 863,868

(Bankr.C.D.Cal., 1991) (where the court held that [b]ecause of the Debtor's

objection to claim, and the resulting invocation of 11 U.S.C. 502(a), the claim is

not allowed or deemed allowed Therefore, the [creditor is] not entitled to vote

on the Debtor's plan at this time.)

6 Just as Fed. R. Bankr. P. 3001(f) grants allowed status to a properly filed proofof claim, logic dictates that the burden should not shift back merely upon the filingof a baseless objection, but only when a properly filed objection is made. In thiscase, the Objection was properly filed and the Motion for Summary Judgment onthe Objection was supported by evidence. The court has many remedies for abaseless objection, such as a Rule 11 sanction.


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The De La Salles contend that their Objection to US Banks proof of claim

stripped that claim of its presumptive allowed status such that they were not

required to make payments to a blocked account for US Bank. Further, they

should not have been required to provide for payments to US Bank unless and until

the bankruptcy court, after a noticed hearing, determined that the claim was

allowed.

Secured creditors are not required to file a proof of claim in a Chapter 13

action. Fed. R. Bankr. P. 3002 Instead, they may either move for relief from the

automatic stay and enforce its lien under state law pursuant to 11 U.S.C. 362(d)(1)

for lack of adequate protection, or choose to ride-through the bankruptcy and

enforce its lien after the bankruptcy case is closed, pursuant to 11 U.S.C.

506(d)(2).78 11 U.S.C. 506(d) states:

To the extent that a lien secures a claim against the debtor that

is not an allowed secured claim, such lien is void, unless

(1) such claim was disallowed only under section 502(b)(5) or

502(e) of this title; or

(2) such claim is not an allowed secured claim due only to the

failure of any entity to file a proof of such claim under section

501 of this title.

711 U.S.C. 362 states in part: (d) On request of a party in interest and after noticeand a hearing, the court shall grant relief from the stay provided under subsection(a) of this section, such as by terminating, annulling, modifying, or conditioningsuch stay

(1) for cause, including the lack of adequate protection of an interest in property of

such party in interest;8 11 U.S.C. 501 provides that a creditor may file a proof of claim.


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In the case ofIn re Macias, 195 B.R. 659, 660 (W.D. Tex., 1996), the court

stated: A secured creditor may choose not to file a claim at all, pursuant to

Section 501 of title 11, and it is that provision perhaps that best explains why

secured creditors were excluded from Rule 3002. See 11 U.S.C. 501. A

creditor who elects not to file a claim elects also not to be paid under a plan.Id. at

662.

Once a secured creditor files a proof of claim, the door is opened to a

challenge to both the claim and lien. 11 U.S.C. 506(d)(1) The claim can be

challenged pursuant to 11 U.S.C. 506(b) which provides in relevant part:

(b) Except as provided in subsections (e)(2), (f), (g), (h) and (i)of this section, if such objection to a claim is made, the court, afternotice and a hearing, shall determine the amount of such claim inlawful currency of the United States as of the date of the filing ofthe petition, and shall allow such claim in such amount, except to theextent that--

(1) such claim is unenforceable against the debtor andproperty of the debtor, under any agreement or applicable law for areason other than because such claim is contingent or unmatured;

In the case ofIn re Michels, 270 B.R. 737, 741 - 742 (Iowa, 2001), the

debtor objected to an untimely claim. The court stated:

Section 1325(a)(5) sets out the requirements for treatment ofallowed secured claims in Chapter 13 plans. In order to be an"allowed" secured claim, a proof of claim must be filed under 501.11 U.S.C. 502(a). If an objection is filed, a secured claim is not anallowed claim if a proof of claim was not timely filed. 11 U.S.C. 502(b)(9). . . .


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. . . . Under 11 U.S.C. 502(a), a claim, proof of which is filedunder 501 of this title, is deemed allowed unless an objection is filedby a party-in-interest.Id. at 742.

A lien may be subject to being voided if the claim is disallowed pursuant to

11 U.S.C. 502(e). 11 U.S.C. 502(e) states in relevant part:

(1) Notwithstanding subsections (a), (b), and (c) of this section andparagraph (2) of this subsection, the court shall disallow any claim forreimbursement or contribution of an entity that is liable with the debtor on orhas secured the claim of a creditor, to the extent that--

(A) such creditors claim against the estate is disallowed;

On May 3rd, 2011, after being presented with the argument that US Banks

claim had been stripped of its allowed status, the bankruptcy court erroneously

relied on 11 U.S.C. 502(c) to arrive at a determination that the Debtors must

provide for US Banks purported claim. The bankruptcy court remarked:

(T)he Bankruptcy Code allows and recognizes the fact that eventhough there is an objection to a claim and it's disputed, that it can beprovided for in a plan by allowing the court to estimate the amount ofthe disputed claim. [ER: vol.V, tab 17, p.701, lns 2-6]

In making this statement, the court took the position that 502(c) provides a

remedy to impose sums to be paid into a blocked account on a disputed claim that

has not been allowed pending the courts approval of a plan. This misreads 11

U.S.C. 502(c) which states:

There shall be estimated for purpose of allowance under this section


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(1) any contingent or unliquidated claim, the fixing or liquidation ofwhich, as the case may be, would unduly delay the administration ofthe case; or(2) any right to payment arising from a right to an equitable remedy for

breach of performance.

First, US Banks purported claim is neither contingent nor unliquidated. A

contingent claim is one that has not accrued and which is dependent on some

future event which may never happen. Blacks Law Dictionary, Fifth Edition;In

re All Media Properties, Inc., 5 B.R. 126, 133 (Bankr. S.D. Tex 1980), aff'd, 646

F.2d 193 (5th Cir. 1981). An unliquidated claim is one where the amount thereof

cannot be ascertained by a mere computation based on the terms of the obligation

or on some other accepted standard. SeeIn re Mazzeo, 131 F.3d 295 (2nd Cir.

1997); Verdunn, 89 F.3d 799 (11th Cir. 1996);In re Knight, 55 F.3d 231 (7th Cir.,

1995), In re Slack, 187 F.3d 1070 (9th Cir. 1999) Second, in order to read 11

U.S.C. 502(c) as allowing the court to require payments into a blocked account for

sums that a creditor alleges it ought to be paid, the court would have to take the

position that the nine exceptions set-forth in 502 (b) (1) through (9), aren't really

exceptions at all - or that the nine exceptions have exceptions (exceptions to

exceptions). This is clearly erroneous. Even so, before 11 USC 502(c) could be

applicable, the court would have to first determine that the alleged claim is an

allowed claim through the statutorily mandated process which requires a hearing

on the Debtors Objection. This never occurred.


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The De La Salles challenged US Banks standing and thereby asserted that

its claim was unenforceable by both law and industry custom. In particular, the

transfers of both the note and deed of trust were challenged on grounds of lack of

authority, resulting in a lack of standing on the part of US Bank.

Standing is a threshold issue that cannot be waived nor overlooked. In Re

Hwang, 396 B.R. 757 (Bankr. C.D. Cal., 2008)("Hence, 'a defect in standing

cannot be waived; it must be raised, either by the parties or by the court, whenever

it becomes apparent'. ");Bellistri v. Ocwen Loan Servicing, LLC, 284 S.W.3d 619

(Missouri court of Appeals, 2009) ("Lack of standing cannot be waived and may

be considered by the court sua sponte."). Standing is a constitutional precondition

to the jurisdiction of a federal court and may not be conferred by judicial fiat upon

a party who does not meet the requirements of Article III. Diamond v. Charles,

476 U.S. 54 at 68, 106 S.Ct. at 1706 (1986). Standing is a "threshold question in

every federal case, determining the power of the court to entertain the suit." Warth

v. Seldin, 422 U.S. 490, 498, 95 S.Ct. 2197, 2205, 45 L.Ed.2d 343 (1975). The

inquiry into standing seeks to determine "whether the litigant is entitled to have the

court decide the merits of the dispute or of particular issues." (Id).

California Civil Code 2924(a)(1) provides that a Trustee, mortgagee or

beneficiary can foreclose on a deed of trust. California Commercial Code section

1103 provides that parties may vary provisions of the California Uniform


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Commercial Code by agreement. The official comments to Sections 1-102 make

clear the concept that the UCC's effect may be altered by agreement. (SeeLema v.

Bank of America, 826 A.2d 504, 375 Md. 675, 50 UCC Rep.2d 955 (Md., 2003);

SCADIF, S.A. v. First Union National, 344 F.3d 1123 (11th Cir. Crt. App. 2003)

(citing Fla. Stat. ch. 671.102(3) providing that [t]he effect of provisions of this

code may be varied by agreement); see also, Miller v. Econ. Lab., Inc., 410 So.2d

642, 642 (Fla.Dist.Ct.App.1982).

Freedom of contract is a principle of the Code: "the effect" of its provisions

may be varied by "agreement." Am Jur. Legal Forms 2d 253:3; see also Western

Air & Refrigeration, Inc. v. Metro Bank of Dallas, 599 F.2d 83, 89-90 (5th

Cir.1979);Zambia Nat'l Commercial Bank Ltd. v. Fidelity Int'l Bank, 855 F.Supp.

1377, 1392 (S.D.N.Y.1994); Scott Stainless Steel, Inc. v. NBD Chicago Bank, 253

Ill.App.3d 256, 192 Ill.Dec. 333, 625 N.E.2d 293, 297 (1993);First United Bank v.

Philmont Corp., 533 So.2d 449, 454 (Miss.1988); Triffin v. First Union Bank, 319

N.J.Super. 72, 724 A.2d 872, 874-75 (1999);National Title Ins. Corp. Agency v.

First Union Nat'l Bank, 263 Va. 355, 559 S.E.2d 668, 671 (2002).)

The industry custom in 2005 was to securitize the loan. The Deed of Trust

is a standardized document as evidenced at the bottom of the Deed of Trust where

the words California-Single Family-Fannie Mae/Freddie Mac Uniform Instrument

with MERS are printed. [ER: vol. I, tab 4, p.116] The Deed of Trust expresses an


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agreement of the parties which was intended to vary the terms of the California

Commercial Code and the California Civil Code because this document was

intended to relate to another document called a Pooling and Servicing Agreement.

The Pooling and Servicing Agreement is involved in a mortgage loan which is

securitized. In the case ofIn re Kemp, 440 B.R. 624 (Bankr.N.J., 2010), the

Court found that a pooling and servicing agreement was significant and it did alter

how a note was transferred. This mortgage loan was securitized. The Trust was

both authorized and constrained by its Pooling and Servicing Agreement (PSA).

The De La Salles submitted the PSA to the court as evidence in their Motion for

Summary Judgment. [ER: vols. IV and V, tab 16, pp.507-692]

The PSA is an agreement where parties varied the terms of the Uniform

Commercial Code in such a way that the right to own, hold and enforce a

promissory note and deed of trust were altered. The parties to the PSA specifically

agreed that it was bound by New York law, not by California law. [ER: vol. V,

tab16, p.659, Section 11.06] The De La Salles evidence in support of their

Motion for Summary Judgment explained that this Pooling and Servicing

Agreement controlled how and when the Promissory Note and Deed of Trust were

transferred, and that US Bank was not entitled to enforce either as the transfers

were in violation of the PSA. [ER: vol. III, tab15, pp.376-379, 13-22]


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SECOND ARGUMENT

Whether the courts holding that US Bank had standing was supportedby competent, substantial evidence.

In the case ofIn re Veal, 10-1055 and 10-1056, ___ B.R. ___, (9th Cir.,

BAP, 6/11/11) at pages 40 - 41, the Bankruptcy Appellate Panel of the Ninth

Circuit stated:

The filing of an objection to claim initiates a contested matter,subject to the procedures set forth in Rule 9014. See AdvisoryCommittee Notes accompanying Rule 3007. In contested matters, a

bankruptcy court must make findings of fact, either orally on therecord, or in a written decision. See Rule 9014(c) (incorporating Rule7052, which in turn incorporates Civil Rule 52). These findings mustbe sufficient to enable a reviewing court to determine the factual basisfor the courts ruling. (cite omitted)

Even when a bankruptcy court does not make formal findings,however, the BAP may conduct appellate review if a completeunderstanding of the issues may be obtained from the record as awhole or if there can be no genuine dispute about omitted findings.(cites omitted)

After such a review, however, when the record does not contain aclear basis for the courts ruling, we must vacate the courts order andremand for further proceedings.

The bankruptcy court did not make any formal or informal findings that

would support the decision that US Bank had standing. The bankruptcy court did

not discuss the arguments made by the De La Salles in their Objection to US

Banks proof of claim, nor did it examine the De La Salles Motion for Summary

Judgment or documentary evidence in support of the Motion for Summary


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Judgment. Wherefore, the bankruptcy courts order must be vacated and

remanded for further proceedings.

CONCLUSION

At the January 18th, 2011 hearing on the Debtors Motion to Compel

Production of Documents, the bankruptcy court remarked:

I don't think it's an unreasonable expectation that the creditor issaying --

"I'm a creditor." Just put forth a basic showing of how the note getsfrom the original creditor to the person stepping forward today and beable to affirmatively state and provide evidence, if necessary, thatthey are in possession of the note [ER: vol. VI, tab21, p.768, lns6-12]

US Bank has never presented the basic showing of how the Note was

negotiated from the original creditor to it. The De La Salles were denied a hearing

on their Objection to the claim of US Bank; they were denied a hearing on their

standing challenge to US Bank and they were denied a hearing on their Motion for

Summary Judgment. They were denied an opportunity to present evidence. The

court failed to consider their evidence which indicated the PSA prevented US Bank

from owning and holding the note and deed of trust.

The bankruptcy court converted this case to a chapter 7 on the

misinterpretation of statute and case law which provide that a properly supported

objection to a claim results in the claim losing its status as allowed, pending a


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noticed hearing. The court failed to provide a noticed hearing and determined that

the claim was allowed despite the De La Salles Objection. Given the court's

determination that the claim was allowed, the court then determined that the De La

Salles actions were a subterfuge fordelay and other impropriety. Had the court

properly interpreted 11 U.S.C. 502, the court would not have found delay and

impropriety in the De La Salles actions. Had the court granted a hearing on the

De La Salles challenge to the standing of US Bank and found for the De La Salles,

the court could not have found delay and impropriety in the De La Salles actions.

The Panel should reverse the bankruptcy courts Order of Conversion of the

case to chapter 7 and reinforce the clear statutory requirement of demonstrating the

standing, which all creditors must satisfy before being allowed to (i) demand

inclusion in a chapter 13 plan and/or (ii) argue that a case must be dismissed or

converted in the absence of said inclusion.

DATED: July 11, 2011 GINGO & ORTHP.O. Box 706Mims, Florida 32754

By: /s/ George M. GingoGeorge M. Gingo, CSB 147897Attorneys for Appellants/DebtorsBerenice & Pierre Thoreau de la Salle


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CERTIFICATION OF INTERESTED PARTIESAS REQUIRED BY BAP RULE 8010 (a)-1 (b)

The undersigned certifies that the following parties have an interest in the

outcome of this appeal. These representations are made to enable judges of the

Panel to evaluate possible disqualification or recusal:

Berenice Thoreau de la SallePierre Thoreau de la Salle

Debtors/Appellants

US Bank NA as trustee for theCertificateholders of SARM 2005 19 XS

Alleged Creditor/Appellee

PRA Receivables Management, LLC.PO Box 41067Norfolk VA 23541

Creditor

Palisades Acquisition XVIII LLCVativ Recovery Solutions, LLCPO Box 19249Sugar Land TX 77496

Creditor

Bureaus Investments Group Portfolio No13, LLCThe Bureaus, Inc.1717 Central StEvanston IL 60201

Creditor

Capital One Bank (USA), N.A.

PO Box 71083Charlotte NC 28272

Creditor

Midland Credit Management, Inc.8875 Aero Dr #200San Diego CA 92123

Creditor


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Bureaus Investments Group Portfolio No13, LLCThe Bureaus, Inc.1717 Central StEvanston IL 60201

Creditor

Capital One Bank (USA), N.A.PO Box 71083Charlotte NC 28272

Creditor

Midland Credit Management, Inc.8875 Aero Dr #200San Diego CA 92123

Creditor

OneWest Bank, FSBCashering Dept6900 Beatrice DrKaalamazoo MI 49009

Creditor

Jefferson Capital Systems, LLCPO Box 7999Saint Cloud MN 56302

Creditor

American Express Bank, FSBBecket and Lee LLPPO Box 3001Malvern PA 19355

Creditor

LVNV Funding LLCResurgent Capital ServicesPO Box 10587Greenville SC 29603

Creditor

State of CaliforniaCalifornia State Controller's OfficeUnclaimed Property DivisionPO Box 942850Sacramento CA 94250

Creditor


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Dated: July 11th, 2011 Signed: /s/ George M. GingoGeorge M. Gingo, Esq.GINGO & ORTHAttorney for Appellants,Berenice & Pierre Thoreau de la Salle


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CERTIFICATION OF RELATED CASES

AS REQUIRED BY BAP RULE 8010 (a)-1 (c)

The undersigned certifies that the following are known related cases and appeals:

Adversary Case, no. 10-29678, Berenice and Pierre Thoreau de la Salle v.US Bank NA as trustee for the Certificateholders of SARM 2005 19 XS;

Federal District Court Case, no. 2:09-cv-02701-MCE-KJM, Thoreau de laSalle v. America's Wholesale Lender, et al.

Dated: July 11th, 2011 Signed: /s/ George M.GingoGeorge M. Gingo, Esq.GINGO & ORTHAttorney for Appellants,Berenice & Pierre Thoreau de la Salle


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CERTIFICATE OF SERVICE FOR DOCUMENTS

FILED USING CM/ECF

I hereby certify that on July11, 2011, I electronically filed the foregoing document

with the Clerk of the Court for the Bankruptcy Appellate Panel for the Ninth

Circuit by using the CM/ECF system.

I certify that all parties of record to this appeal either are registered CM/ECF users,

or have registered for electronic notice, or have consented in writing to electronic

service, and that service will be accomplished through the CM/ECF System.

Dated: July 11th, 2011 Signed: /s/ George M.GingoGeorge M. Gingo, Esq.