Mora v. SBS Trust Deed Network

1 UNITED STATES BANKRUPTCY COURT 2 EASTERN DISTRICT OF CALIFORNIA 3 In re: ) ) 4 BULA DEVELOPMENTS, INC. ) Case No. 23-24619-C-7 ) 5 ) Debtor. ) 6 ) Adv. Pro. 2025-02008 NATASHA MORA, CESAR MORA, ) 7 FAIZAL AWADAN, AND SHAINAZ ) DCN LRL-2 AWADAN, ) 8 ) Plaintiffs, ) 9 v. ) ) 10 SBS TRUST DEED NETWORK, BLACK ) HORSE CAPITAL INC., FINE ) 11 CAPITAL, DANIEL BENSHIMON, TODD ) BERNSTEIN AS TRUSTEE OF TB TRUST) 12 DATED MAY 8, 1997, KAREN ALWEIL,) AND LOVE GMC HOLDINGS, LLC, ) 13 ) Defendants. ) 14 ________________________________) 15 MEMORANDUM ORDER ON MOTION TO DISMISS COMPLAINT 16 The Defendants SBS Trust Deed Network (SBS), Black Horse 17 Capital Inc. and Fine Capital Investments move to dismiss the 18 Complaint filed January 17, 2025, for Injunctive Relief and to 19 Void Transfer filed by Plaintiffs Natasha Mora, Cesar Mora, 20 Faizal Awadan, and Shainaz Awadan. 21 The bone of contention is the Plaintiffs’ attack on the 22 transfer by foreclosure of real property commonly known as 6389 23 Castejon Drive, La Jolla, California 92307, and the ensuing 24 lockout by order of the San Diego County Superior Court. 25 The theories of the motion under Federal Rules of Civil 26 Procedure 12(b)(1) and 12(b)(6) are: lack of standing, lack of 27 subject-matter jurisdiction, and failure to state a claim upon 28 which relief may be granted. 1 For the reasons stated herein, the Motion to Dismiss is 2 GRANTED, and the adversary proceeding is DISMISSED. 3 4 Procedural History 5 This adversary proceeding comes with the baggage of earlier 6 decisions, all of which are expressly incorporated here for the 7 benefit of the record for any appellate court that may need to 8 consider the issues presented. Among the decisions and orders of 9 this Court and of the U.S. District Court for the Southern 10 District of California so incorporated are: 11 (1) Order Denying Motion For Derivative Standing To Pursue Claims On Behalf Of Estate, Adv. No. 2024-02175-C 12 (8/23/2024) Dkt. 48; (2) Memorandum On Transfer Under 28 U.S.C. § 1412 and 13 Rule 1014(b) Of Case Pending In Another District (Amended), No. 23-24619-C-11 (2/06/2025) Dkt. 302 (reported at 666 14 B.R. 922); and (3) Order Denying Ex Parte Application To Rescind 15 Postjudgment Lockout, U.S. District Court, Southern District of California, No. 3:25-cv-00017-RBM-AHG (1/23/2025) (SD 16 Cal. Dkt 292). 17 The chapter 11 trustee, who is an experienced chapter 11 18 lawyer, investigated the case, dealt with all interested parties, 19 and sought financing that would be required in order to make the 20 subject property marketable. His report (Bula Dkt 93) related the 21 property had been marketed for two years with no offers. The 22 asking price was $15.8 million (down from $25 million). Interest 23 was accruing at a rate of $110,061 per month. There was an 24 invalid mechanics lien. Necessary site repairs could cost 25 $300,000. Without either a consensual priming lien of at least 26 $300,000 or agreement by secured creditors to a significant 27 carve-out, neither of which appeared reasonably in prospect, sale 28 would result in little or no dividend for unsecured creditors, 1 hence, little likelihood of reorganization. 2 This Court acted on a pending stay relief motion, making a 3 finding of fact that the value of the property was far less than 4 the value now asserted by Plaintiffs and that there was no 5 prospect for an effective reorganization. It vacated the 6 automatic stay, thereby enabling the property to be foreclosed by 7 way of a Trustee’s Sale. 8 The chapter 11 trustee later sold the estate’s causes of 9 action regarding the construction and engineering defects that 10 rendered the property unsaleable. 11 This Court denied the Plaintiffs’ Motion for Derivative 12 Standing to Pursue Claims on Behalf of Estate in their adversary 13 proceeding No. 2024-02175, by an order entered August 23, 2024 14 (8/23/2024) Dkt. 48. The record for that adversary proceeding is 15 hereby incorporated herein. The Order Denying Derivative Standing 16 was not appealed and is now final. 17 The Trustee’s Deed Upon Sale was recorded September 13, 18 2024, in the Official Records of the San Diego County Recorder as 19 Doc. # 2024-0246585. 20 Unlawful Detainer proceedings ensued in San Diego County 21 Superior Court as Black Horse Capital Inc. v. Bula Developments 22 Inc., No. 240UD12825C. 23 Contending they had an enforceable lease, the claims of 24 Plaintiffs Natasha Mora and Cesar Mora to a right of possession 25 were rejected by the Superior Court as invalid by order entered 26 December 16, 2024. The Superior Court ordered the Sheriff to 27 proceed with enforcement of the writ of possession. 28 On December 30, 2024, Plaintiff Natasha Mora filed an 1 emergency writ of mandamus with the California Court of Appeal, 2 Fourth District, which request the Court of Appeal denied the 3 same day. 4 The next day, December 31, 2024, Natasha Mora filed chapter 5 13 case, No. 24-04961, in the Southern District of California. 6 On January 6, 2025, Natasha Mora filed in U.S. District 7 Court, Southern District of California, a Complaint alleging one 8 cause of action under the Fourteenth Amendment Due Process 9 Clause. And, Natasha Mora filed an Ex Parte Application to 10 Rescind Postjudgment Lockout. 11 On January 17, 2025, Natasha Mora, Cesar Mora; Faizal 12 Awadan; and Shainaz Awadan filed this Adversary Proceeding No. 13 2025-02008. The Complaint alleges seven counts: (1) Injunction 14 § 105(a); (2) &(3) Set aside Transfer under § 549 (two counts); 15 (4) Void State Court Unlawful Detainer Judgment and related State 16 Court orders; (5) Writ of Assistance restoring Plaintiffs to 17 possession per Federal Rule of Civil Procedure 70(d), as 18 incorporated by Federal Rule of Bankruptcy Procedure 7070; (6) 19 Injunction under § 362(a); (7) Unspecified Additional Relief. 20 On January 23, 2025, the District Court denied Natasha 21 Mora’s Application to Rescind Postjudgment Lockout. 22 The District Court concluded that federal jurisdiction over 23 the January 23 Complaint was lacking by virtue of the so-called 24 Rooker-Feldman doctrine according to which there is no federal 25 district court jurisdiction over suits “brought by state-court 26 losers complaining of injuries caused by state-court judgments 27 rendered before the district court proceedings commenced and 28 inviting district court review and rejection of those judgments.” 1 Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 284 2 (2005); Carmona v. Carmona 603 F.3d 1041 (9th Cir. 2010). 3 The right to possession issues regarding 6389 Castejon Drive 4 were finally resolved when on December 30, 2024, the California 5 Court of Appeal, Fourth District, denied Natasha Mora’s petition 6 for a writ of mandamus. The District Court concluded in decision 7 rendered January 21, 2025, that the filing of the federal 8 Complaint on January 6, 2025, seeking to invalidate the state 9 court’s unlawful detainer judgment and post-judgment lockout fit 10 the Rooker-Feldman doctrine and that it lacked jurisdiction and 11 ordered that Natasha Mora show cause by January 31, 2025, why the 12 District Court action should not be dismissed for lack of 13 jurisdiction. 14 The District Court made three other points applicable to the 15 present analysis of this Motion to Dismiss at the potential for 16 Rule 11 or Rule 9011 sanctions: 17 (1) Plaintiff’s attempts to obtain possession of the Property have been rejected numerous times by different 18 courts, including the Bankruptcy Court, San Diego Superior Court, and the California Court of Appeal. ... This calls 19 into question whether Plaintiff’s counsel conducted “in inquiry reasonable under the circumstances” to confirm their 20 legal contentions were warranted under law; (2) The Bankruptcy Court has previously observed 21 Plaintiff’s “unclean hands” and found Plaintiff intended to “delay in order to continue living rent-free in the property 22 as long as possible. ... The Court warns Plaintiff that a legally meritless complaint could expose Plaintiff and 23 Plaintiff’s counsel to sanctions or referral to the State Bar of California for violation of his Rule 11 obligations; 24 and (3) The circumstances surrounding Plaintiff’s similar 25 filings before state and federal courts suggests Plaintiff may have filed this action in federal court for an improper 26 purposes. Rule 11(b) makes clear that an intent to cause unnecessary delay is an improper purpose. 27 Mora v. Black Horse Capital Inc., 2025 WL 255459, Slip op. at 5-6 28 (S.D. Cal. 2025). 1 In the chapter 13 case that had been filed on December 31, 2 2024, this Court, on January 24, 2025, invoked Federal Rule of 3 Bankruptcy Procedure 1014(b), issuing an order to show cause why 4 Mora’s chapter 13 case should not be transferred to the Eastern 5 District of California and ordered the parties not to proceed 6 until the question is decided. 7 On February 6, 2025, this court, in a published decision, 8 ordered, pursuant to 28 U.S.C. § 1412 and Rule 1014(b), that the 9 Natasha Mora chapter 13 case be transferred to the Eastern 10 District of California. In re Bula Developments Inc., 666 B.R. 11 922 (Bankr. E.D. Cal. 2025). 12 The Natasha Mora chapter 13 case was designated as No. 2025- 13 20575-C-13 upon receipt of the file transferred from the Southern 14 District of California. 15 Mora did not comply with any of her responsibilities under 16 chapter 13: (1) failed to file a chapter 13 plan; (2) failed to 17 provide to the Chapter 13 Trustee payment advices, tax returns, 18 valid identification, proof of social security number; (3) failed 19 to file Schedules, Statement of Financial Affairs, Statement of 20 Current Monthly Income, Calculation Disposable Income; and (4) 21 failed to appear at the Meeting of Creditors. 22 The Natasha Mora chapter 13 case was dismissed for cause on 23 April 16, 2025, on the motion of the Chapter 13 Trustee. Case No. 24 25-20575, Dkt 46. 25 26 I 27 Lack of Standing 28 In this chapter 11 case of Bula Developments Inc., Case No. 1 23-24619, chapter 11 trustee Walter Dahl is the person with the 2 exclusive right to sue on behalf of the corporate estate. E.g., 3 Estate of Spirtos v. Superior Court, 433 F.3d 1172, 1176 (9th 4 Cir. 2006). 5 The Plaintiffs, who are the four shareholders of Bula 6 Developments Inc. and acting as debtor-in-possession were 7 terminated from debtor-in-possession status upon the appointment 8 of chapter 11 trustee Walter Dahl pursuant to 11 U.S.C. 9 § 1104(a)(2) after serious questions about the viability of the 10 case as a chapter 11 reorganization arose. 11 This Court denied the Plaintiffs’ Motion for Derivative 12 Standing to Pursue Claims on Behalf of Estate in their adversary 13 proceeding No. 2024-02175, by an order entered August 23, 2024 14 (8/23/2024) Dkt. 48. The record for that adversary proceeding is 15 hereby incorporated herein. The Order Denying Derivative Standing 16 was not appealed and is now final. 17 This Court continues to adhere to its view expressed in its 18 prior Order Denying Motion For Derivative Standing that: “This 19 Court is persuaded that the hidden agenda for this Motion for 20 Derivative Standing is delay in order to continue living rent- 21 free in the property for as long as possible. That hidden agenda 22 follows from the history of this case. The four individual 23 owners’ hands are sufficiently unclean that the Motion is 24 DENIED.” 25 It follows that the Plaintiffs have no standing to act on 26 behalf of causes of action owned by the estate. 27 Having no standing to act on behalf of the estate, the 28 Plaintiffs’ Complaint must be dismissed. 1 2 II 3 The Plaintiffs ask this Court to enter miscellaneous orders 4 that operate from the premise that the foreclosure of 6389 5 Castejon Drive was invalid under California Civil Code § 2924m. 6 There are motions for: temporary restraining orders and 7 preliminary injunctions (NM-1 Dkt 10) & (NM-2 Dkt 20); Motion to 8 Strike (NM-3 Dkts 52-56); Motion for Judicial Notice (NM-4 Dkt 9 59); Response to Motion for Sanctions (NM-5 Dkt 65); Motion to 10 Amend (NM-6 Dkts 116-117). 11 12 A 13 The requests for temporary restraining orders and 14 preliminary injunctions all suffer the same fatal defect: there 15 is not sufficient likelihood of success on the merits to warrant 16 granting such requests. 17 The purpose of a restraining order is to preserve the status 18 quo and to prevent irreparable harm “just so long as is necessary 19 to hold a hearing, and no longer.” Granny Goose Foods, Inc. v. 20 Bhd. of Teamsters, 415 U.S. 423, 439 (1974). The standard for a 21 temporary restraining order is “substantially identical” to the 22 standard for a preliminary injunction. Stuhlbarg Int'l Sales Co. 23 v. John D. Brush & Co., 240 F.3d 832, 839 n.7 (9th Cir. 2001). To 24 obtain either form of injunctive relief, the moving party must 25 show: (1) a likelihood of success on the merits; (2) a likelihood 26 of irreparable harm to the moving party in the absence of 27 preliminary relief; (3) that the balance of equities tips in 28 favor of the moving party; and (4) that an injunction is in the 1 public interest. Winter v. Nat. Res. Def. Council, Inc., 555 U.S. 2 7, 20 (2008). “The first factor under Winter is the most 3 important,” to the extent the court need not consider the 4 remaining three elements where a plaintiff fails to “show the 5 likelihood of success on the merits.” Garcia v. Google, Inc., 786 6 F.3d 733, 740 (9th Cir. 2015) (en banc) (citations omitted). 7 Courts within the Ninth Circuit may also consider a request for a 8 temporary restraining order using a “sliding scale” approach in 9 which “a stronger showing of one element may offset a weaker 10 showing of another.” All. for the Wild Rockies v. Cottrell, 632 11 F.3d 1127, 1131–35 (9th Cir. 2011). “[W]hen plaintiffs establish 12 that the balance of hardships tips sharply in their favor, there 13 is a likelihood of irreparable injury, and the injunction is in 14 the public interest, they need only show ‘serious questions’ on 15 the merits.” Where Do We Go Berkeley v. Cal. Dep't of Transp., 32 16 F.4th 852, 859 (9th Cir. 2022). 17 Here, the fatal flaw is there has been no showing of 18 likelihood of success on the merits. Even if the “sliding scale” 19 approach were to be applied, there has been no credible showing 20 regarding irreparable harm, balance of hardships, or that an 21 injunction would be in the public interest. 22 Accordingly, the requests for temporary restraining orders 23 and preliminary injunctions must be DENIED. 24 25 B 26 The District Court’s Rooker-Feldman no-jurisdiction analysis 27 in Mora v. Black Horse Capital was applicable because the 28 simplicity of the Complaint led to a straightforward conclusion 1] that the action was in the nature of an appeal from the unlawful 2 || detainer decisions of the California courts. 3 But, the Rooker-Feldman no-jurisdiction doctrine is narrowly 4 || circumscribed to situations in which no independent legal theory asserted. That is not the case with the instant Complaint. 6 The instant Complaint asserts independent legal theories 7! that a court needs to consider notwithstanding that the overall Situation continues to gualify as a collateral attack on the state-court unlawful detainer judgments. 10 Where there are independent legal assertions, the federal 11] trial court is not deprived of jurisdiction and may proceed to 12 || consider the matters, if only to reject the relief claimed. Noel 13] v. Hall, 341 F.3d 1148 (9th Cir. 2003), cited with approval, 14 || Saudi Basic Indus., 544 U.S. at 293. 15 In such circumstances, the state-court judgments are honored 16}}in federal courts pursuant to the Full Faith and Credit Statute 17] (28 U.S.C. § 1738) because the federal courts must give such 18 || judgments the same preclusive consequences based on the same 19] award. Saudi Basic Indus., 544 at 293; McDonald v. City of W. Branch, 466 U.S. 284, 287 (1985); Harmon v. Kobrin (In re Harmon), 250 F.3d 1240, 1245 (9th Cir. 2001); Khaligh v. Hadaegh 22 | (In re Khaligh), 338 B.R. 817, 824 (9th Cir. BAP 2006). 23 As a matter of full faith and credit, this Court must focus 24 |} on California preclusion law. 25 The basic features of California issue preclusion law were restated by the California Supreme Court in Lucido v. Superior 27 Ct., 51 Cal.3d 335, 341-43 (1990). 28 Under Lucido, six basic elements must be satisfied, five of 10 1 which are described as “threshold” requirements: (1) identical 2 issue; (2) actually litigated in the former proceeding; (3) 3 necessarily decided in the former proceeding; (4) former decision 4 final and on the merits; and (5) party against whom preclusion 5 sought either the same, or in privity with, party in former 6 proceeding. 7 The sixth Lucido element is a mandatory “additional” inquiry 8 into whether imposition of issue preclusion in the particular 9 setting would be fair and consistent with sound public policy. 10 The California Supreme Court explained: “public policies 11 underlying collateral estoppel – preservation of the integrity of 12 the judicial system, promotion of judicial economy, and 13 protection of litigants from harassment by vexatious litigation – 14 strongly influence whether its application in a particular 15 circumstance would be fair to the parties and constitutes sound 16 judicial policy.” Lucido, 51 Cal.3d at 341-43. 17 The issue litigated in the California courts to final 18 judgment was the unlawful detainer issue, of which an essential 19 element was the validity of the foreclosure by trustee’s sale. 20 Mora and her co-plaintiffs litigated and lost in a 21 proceeding in which the issue of their entitlement to the 22 property and validity of a lockout was necessarily decided and 23 essential to the proceeding, the state-court decisions are final 24 and on the merits, and the Plaintiffs are in privity with each 25 other. 26 Two relevant public policies strongly favor application of 27 preclusion against Mora and her co-Plaintiffs. First, terminating 28 repetitive litigation that occurs as Mora develops new theories 1 promotes judicial economy. Second, imposing preclusion to 2 terminate the seemingly-endless string of litigations protects 3 the other litigants in the case from harassment by vexatious 4 litigation. 5 In short, it is now too late for Mora to contend that the 6 trustee’s sale, unlawful detainer proceedings, and ensuing 7 lockout were invalid. Principles of claim preclusion required 8 that all theories challenging the proceedings be raised at the 9 same time in a single proceeding. 10 11 III 12 California Civil Code 2924m 13 If preclusion did not apply, then the Plaintiffs’ primary 14 substantive contention that the subject foreclosure did not 15 comply with the provisions of California Civil Code § 2924m lacks 16 merit. 17 There are multiple problems with their contention in 18 addition to the Plaintiffs’ lack of standing to assert claims on 19 behalf of the estate. 20 First, the foreclosure occurred after this Court had vacated 21 the automatic stay. 22 Second, a post-petition transfer of property of the estate 23 that is authorized by the court, by definition, cannot qualify as 24 § 549 avoidable post-petition transfer. 11 U.S.C. § 549(a)(2)(B). 25 Third, the final determinations in the unlawful detainer 26 proceedings in the San Diego County Superior Court and by the 27 California Court of Appeal operate as preclusive regarding all 28 issues regarding the foreclosure. 1 Fourth, California Civil Code § 2924m, which statute affords 2 “eligible tenant buyers” what amounts to a right of first refusal 3 in instances of foreclosure on single family residences in 4 California, does not apply to the Plaintiffs. 5 The Plaintiffs contend in this action that they (Natasha 6 Mora and Cesar Mora) are lessees from Bula Investments Inc. of 7 6389 Castejon Drive and were entitled to force compliance with 8 the procedures set forth in Civil Code § 2924m. 9 This Court has previously parsed California Civil Code 10 § 2924m, which analysis is incorporated herein. Spikes v. Quality 11 Loan Service Corp. (In re Spikes), 662 B.R. 704 (Bankr. E.D. Cal. 12 2024). 13 The Defendants contend in their Motion to Dismiss that the 14 Plaintiffs’ Notice of Intent to Bid transmitted to them by their 15 attorney Marc Steven Applebaum as Exhibit 2 of the Complaint was 16 false and fraudulent in that it omitted the “evidence of the 17 existence of the tenancy” required by California Civil Code 18 § 2924m(a)(2), (a)(4), and (c)(2). The Defendants argue this 19 omission evidences bad faith and concedes the Plaintiffs’ claim 20 lacks evidentiary support. 21 The Plaintiffs counter in their motion NM-6 that the 22 omission of four pages evidencing the lease was a mere “clerical 23 error” and move to amend the complaint (DCN NM-6), which motion 24 is GRANTED so as to insure that the complete lease is in the 25 record. 26 The factual issue about the evidence of tenancy, however, is 27 irrelevant. While the District Court’s assessment of Marc Steven 28 Applebaum’s performance in No. 3:25-cv-00017-RBM-AHG (1/23/2025) 1 (S.D. Cal. Dkt 292) does not inspire confidence in his competence 2 and ability to comply with technical aspects of a statute and his 3 transmission to Defendants of the complete lease, the Defendants’ 4 “correction” by providing a copy of the lease slits their own 5 throats. 6 The Moras strike out on three key prerequisites in Civil 7 Code 2924m. 8 In order to be an “eligible tenant buyer” for purposes of 9 Civil Code § 2924m, the lease must be based on an “arm’s length” 10 transaction. Cal. Civ. Code § 2924m(a)(2)(B). 11 The lease provided by the Plaintiffs is a lease from Bula 12 Investments Inc., of which all of the plaintiffs (including 13 Natasha Mora and Cesar Mora) are the sole shareholders as lessor 14 with Natasha Mora and Cesar Mora as lessees. Exhibits with Lease. 15 Dkt 117. The Moras’ signatures are on both sides of the lease – 16 as lessors and as lessees. By any definition, that is NOT an 17 arm’s length transaction. 18 In short, the Moras are not “eligible tenant buyers” under 19 Civil Code 2924m(a)(2)(B) because their transaction with 20 themselves at a time that they were in control of Bula 21 Investments Inc. was not “at arm’s length.” Rather, the lease is 22 a sham designed to create the mis-impression they are bona fide 23 lessees. Strike One. 24 Nor are the Moras “prospective owner-occupants” because they 25 are “persons with an ownership interest in the mortgagor, unless 26 the mortgagor is a publicly traded company.” Cal. Civ. Code 27 § 2924m(a)(1)(C)(v). The Moras each own 25 percent of the shares 28 of Bula Investments Inc., the mortgagor. Hence, as owners of 50 1] percent of the mortgagor, that are disqualified from status as 2 || “prospective owner-occupants.” Strike Two. 3 Moreover, the Moras flunk the statutory test for “eligible bidder” because they are neither “eligible tenant buyers,” nor 5 || “prospective owner-occupants.” Cal. Civ. Code §2924m(a) (3) (A)- 6] (B). Strike Three. 7 Since the foreclosure was not impeded by the prospect of “eligible tenant buyers” who would be “prospective owner- occupants” and who were not “eligible bidders” within the meaning 10 of Civil Code § 2924m there is no defect in the foreclosure on 11] that account. Thus, even if the discretionary doctrine of claim 12 || preclusion does not block the Plaintiffs, their own facts 13} establish the frivolous nature of their contentions. 14 15 Conclusion 16 The Plaintiffs lack standing to assert seven causes of 17 |} action for which the chapter 11 trustee has exclusive standing. 18 There is no defect in the foreclosure on account of the 19 | California Civil Code § 2924m provisions making accommodations 20] for “eligible tenant buyers” because the Plaintiffs do not 21] qualify as “eligible tenant buyers” and do not qualify as 22 || “eligible bidders.” 23 The validity of foreclosure has been rendered res judicata, claim and issue preclusive, by virtue of final orders of 25 California courts of competent jurisdiction. 26 The Complaint in this adversary proceeding No. 2025-02008 is 27 || DISMISSED. ae ak i ) 28 \} We United States Bankruptcy Judge 15