In re: 701 Mariposa Project, LLC, 9th Cir. BAP (2014)

7/25/2019 In re: 701 Mariposa Project, LLC, 9th Cir. BAP (2014)

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FILED

JUL 31 2014

SUSAN M. SPRAUL, CLERKU.S. BKCY. APP. PANELOF THE NINTH CIRCUIT

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE NINTH CIRCUIT

I n r e: ) BAP No. CC- 13- 1329- KuBl Pa)

701 MARI POSA PROJ ECT, LLC, ) Bk. No. SV 12- 11486- MT)

Debt or . )______________________________)

)SHERRI E KEYS, )

)Appel l ant , )

)

v. )OPINION

)701 MARI POSA PROJ ECT, LLC, )

)Appel l ee. )

______________________________)

Ar gued and Submi t t ed on J une 26, 2014at Pasadena, Cal i f or ni a

Fi l ed J ul y 31, 2014

_____________Appeal f r om t he Uni t ed St at es Bankrupt cy Cour t

f or t he Cent r al Di str i ct of Cal i f or ni a

Honor abl e Maur een A. Ti ghe, Bankrupt cy J udge, Presi di ng

Appear ances: Appel l ant Sher r i e Keys ar gued pr o se; G. Br yanBr annon argued f or appel l ee 701 Mar i posa Proj ect ,LLC.

Bef or e: KURTZ, BLUMENSTI EL*, and PAPPAS, Bankr uptcy J udges.

*The Honor abl e Hannah L. Bl umenst i el , Bankr upt cy J udge f ort he Nor t her n Di st r i ct of Cal i f or ni a, si t t i ng by desi gnat i on.


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KURTZ, Bankr upt cy J udge:

INTRODUCTION

Pur suant t o Rul e 3004,1

debt or 701 Mar i posa Pr oj ect , LLCf i l ed a pr oof of cl ai m on behal f of Sher r i e Keys. 701 Mar i posa

t hen f i l ed an obj ect i on t o t hat cl ai m, whi ch t he bankrupt cy cour t

sust ai ned based i n par t on Keys f ai l ur e t o r espond t o t he cl ai m

obj ect i on. Roughl y f our mont hs l at er , Keys f i l ed a mot i on

seeki ng t o set asi de the di sal l owance of her cl ai m, but t he

bankrupt cy cour t deni ed t hat mot i on. Keys appeal s f r om t he

deni al of her mot i on.

The bankrupt cy cour t s or der di sal l owi ng Keys cl ai m i s voi d

because the bankrupt cy cour t di d not have per sonal j ur i sdi ct i on

over Keys. Keys never f i l ed a pr oof of cl ai m, nor di d she

par t i ci pat e i n any way i n t he bankrupt cy case bef or e she f i l ed

her mot i on t o set asi de, so she never consent ed t o t he bankr upt cy

cour t exer ci si ng j ur i sdi ct i on over her or her cl ai m.Fur t her more, 701 Mar i posa s ser vi ce of pr ocess by mai l on Keys

di d not compl y wi t h Rul e 7004( b) ( 1) .

As a resul t , t he bankrupt cy cour t shoul d have gr ant ed Keys

mot i on and shoul d have set asi de t he or der di sal l owi ng Keys

cl ai m. Theref or e, we REVERSE and REMAND.

FACTS

701 Mar i posa i s a l i mi t ed l i abi l i t y company t hat was f or med

1 Unl ess speci f i ed ot her wi se, al l chapt er and sect i onr ef er ences are t o t he Bankrupt cy Code, 11 U. S. C. 101- 1532, andal l Rul e r ef er ences ar e t o t he Feder al Rul es of Bankrupt cyPr ocedur e. Al l Ci vi l Rul e r ef er ences ar e t o t he Feder al Rul es ofCi vi l Pr ocedur e.

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f or t he pur pose of t aki ng t i t l e t o a si ngl e asset : a t went y- f our -

uni t apar t ment bui l di ng l ocat ed on Mar i posa Avenue i n Los

Angel es, Cal i f or ni a. 2 701 Mar i posa pur chased t he pr oper t y at a

nonj udi ci al f or ecl osur e sal e t hat t ook pl ace i n J ul y 2011. 701Mar i posa t ook ti t l e subj ect t o t he seni or l i ens of Paci f i c 701

Mar i posa, LLC.

Keys i s one of t he f ormer occupant s of t he apart ment

bui l di ng. Accor di ng t o Keys, she dul y and t i mel y pai d $600

mont hl y rent t o an or gani zat i on cal l ed Peopl e i n Pr ogr ess

( PI P) . I n t ur n, PI P was obl i gat ed t o pay r ent t o t he pr i or

owner of t he apar t ment bui l di ng, 709 Sout h Mar i posa, I nc. ,

pur suant t o a l ease agr eement . At some poi nt , PI P st opped maki ng

r ent payment s t o 709 Sout h Mar i posa. I n May 2011, PI P vacat ed

t he apar t ment bui l di ng and not i f i ed t he ot her bui l di ng occupant s,

i ncl udi ng Keys, t hat i t was di scont i nui ng i t s af f or dabl e housi ng

pr ogr amand that t he occupant s woul d need to l eave.

I n August 2011, wi t hi n days of i t s acqui si t i on of t heapart ment bui l di ng, 701 Mar i posa hi r ed a new pr opert y manager .

Accor di ng t o 701 Mar i posa, t he new pr oper t y manager , Pearson

Management , i mmedi at el y was conf r ont ed wi t h a number of ser i ous

pr obl ems i ncl udi ng unpai d ut i l i t y bi l l s, uncol l ect ed gar bage,

unr epai r ed f i xt ur es and pl umbi ng, and nonpayi ng occupant s.

Pearson Management , 701 Mar i posa expl ai ns, t ook i mmedi ate st eps

2 To f aci l i t at e our r evi ew and our r eci t at i on of f act s, t hePanel has r evi ewed t he paper s t he par t i es f i l ed i n Keys di st r i ctcour t l awsui t and i n 701 Mar i posa s bankr upt cy cases. Whi l e manyof t hese paper s wer e not i ncl uded i n t he par t i es excer pt s ofr ecor d, we can and do t ake j udi ci al not i ce of t he f i l i ng andcont ent s of t hese paper s. See O Rour ke v. Seaboar d Sur . Co. ( I nr e E. R. Feger t , I nc. ) , 887 F. 2d 955, 95758 ( 9t h Ci r . 1989) .

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t o rect i f y t hese pr obl ems.

Apparent l y, Pearson Management s i ni t i al management ef f ort s

i ncl uded an at t empt t o evi ct Keys. Whi l e Pear son s i ni t i al

evi ct i on at t empt was not successf ul , Keys event ual l y was evi ct edi n Sept ember 2012.

I n J ul y 2012, Keys f i l ed a l awsui t i n t he Uni t ed St at es

Di st r i ct Cour t agai nst Pear son, 701 Mar i posa and ot her s seeki ng

over $4. 5 mi l l i on i n compensat ory and puni t i ve damages.

Accor di ng t o Keys, t he def endant s al t er nat e ef f or t s t o evi ct her

or t o per suade her t o r el ocat e wer e al l par t of a pat t er n and

pr act i ce desi gned t o f or ce out of t he bui l di ng t he occupant s

br ought i n by PI P, who wer e pr edomi nant l y mi nor i t i es payi ng

bel ow- mar ket - r at e r ent , and t o r epl ace t hem wi t h whi t e t enant s

wi l l i ng and abl e t o pay mar ket - r at e r ent s of doubl e or t r i pl e

what t he PI P t enant s wer e payi ng. Keys asser t ed t hat t hi s

pat t er n and pr act i ce vi ol at ed l ocal , st at e and f eder al l aw.

Meanwhi l e, 701 Mar i posa f i l ed i t s f i r st chapt er 11bankr upt cy case i n August 2011, whi ch was di smi ssed i n Febr uary

2012. 701 Mar i posa f i l ed i t s second chapt er 11 case l at er t hat

same mont h. As r ef l ect ed i n 701 Mar i posa s schedul es, i t s onl y

si gni f i cant asset was t he apar t ment bui l di ng.

I n Apr i l 2012, t he bankrupt cy cour t set a cl ai ms bar dat e of

J une 10, 2012. 701 Mar i posa ser ved not i ce of t he cl ai ms bar dat e

on i t s schedul ed credi t or s, but Keys di d not r ecei ve t hi s not i ce

because she was not a schedul ed cr edi t or . 701 Mar i posa di d not

i ni t i al l y l i st Keys as credi t or i n i t s bankr upt cy schedul es, nor

di d 701 Mar i posa amend i t s schedul es ei t her bef or e or af t er Keys

f i l ed her $4. 5 mi l l i on di str i ct cour t l awsui t .

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However , 701 Mar i posa di d f i l e a not i ce of bankrupt cy f i l i ng

i n t he di st r i ct cour t l awsui t i n August 2012, whi ch was served on

Keys. I n addi t i on, pur suant t o Rul e 3004, 701 Mar i posa f i l ed

t hat same mont h a $4. 5 mi l l i on pr oof of cl ai m on Keys behal f .701 Mar i posa at t ached t o t he pr oof of cl ai m a copy of Keys

di st r i ct cour t compl ai nt .

701 Mar i posa then f i l ed, i n Oct ober 2012, an obj ect i on t o

t he pr oof of cl ai m. I n t hat obj ect i on, 701 Mar i posa asser t ed

t hat Keys cl ai m shoul d be di sal l owed not onl y as unt i mel y but

al so because t he cl ai m had no mer i t f act ual l y or l egal l y. 701

Mar i posa f ur t her asser t ed t hat t he cl ai m shoul d be di sal l owed

because Keys was sui ng 701 Mar i posa i n t he di st r i ct cour t i n

vi ol at i on of t he aut omat i c st ay.

Based on 701 Mar i posa s not i ce of bankrupt cy f i l i ng, t he

di st r i ct cour t ent er ed an or der di r ect i ng Keys t o f i l e ei t her a

r equest f or vol unt ar y di smi ssal of 701 Mar i posa f r om t he di st r i ct

cour t l awsui t or a mot i on f or r el i ef f r om st ay seeki ng per mi ssi onf r om t he bankrupt cy cour t t o pr oceed wi t h t he di st r i ct cour t

l awsui t as agai nst 701 Mar i posa.

Keys never compl i ed wi t h t he di st r i ct cour t s or der .

I nst ead, on November 5, 2012, she f i l ed a mot i on seeki ng an

ext ensi on of t i me t o compl y wi t h t he di st r i ct cour t s or der . I n

t he pr ocess of r equest i ng t hi s r el i ef , Keys admi t t ed t hat she had

r ecei ved emai l not i ce of 701 Mar i posa s cl ai m obj ect i on and t hat

she was awar e the cl ai m obj ect i on had been set f or hear i ng on

November 29, 2012. Fur t her more, she at t ached t o her di st r i ct

cour t extensi on mot i on a copy of 701 Mar i posa s cl ai m obj ect i on.

Keys never f i l ed a r esponse t o 701 Mar i posa s cl ai m

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obj ect i on. Af t er t he November 29, 2012 hear i ng dat e, t he

bankrupt cy cour t sust ai ned t he cl ai m obj ect i on and di sal l owed

Keys cl ai m f or t he r easons st at ed i n t he cl ai m obj ect i on and

based on Keys f ai l ur e t o r espond. The cour t ent er ed i t s or derdi sal l owi ng Keys cl ai m on December 4, 2012.

The docket f r om t he di st r i ct cour t l awsui t and t he document s

f i l ed therei n demonst r at e t hat Keys was awar e of t he bankrupt cy

cour t s order di sal l owi ng her cl ai m by no l at er t han December 12,

2012, when she r epl i ed t o a December 6, 2012 opposi t i on and a

December 6, 2012 j udi ci al not i ce request f i l ed by 701 Mar i posa i n

t he di st r i ct cour t l awsui t . 701 Mar i posa s December 6, 2012

di st r i ct cour t f i l i ngs speci f i cal l y r ef er t o and at t ach a copy of

t he bankr upt cy cour t s December 4, 2012 order di sal l owi ng Keys

cl ai m.

Even so, Keys di d not seek r el i ef f r om t he bankrupt cy

cour t s December 4, 2012 cl ai m di sal l owance or der unt i l over f our

mont hs l at er , when she f i l ed her mot i on t o set asi de t hat or der .Keys once agai n admi t t ed i n t hat mot i on t hat she had actual

not i ce of 701 Mar i posa s cl ai m obj ect i on and t he dat e set f or t he

hear i ng t her eon. The onl y r el evant gr ounds Keys st at ed i n

suppor t of t he mot i on wer e i nsuf f i ci ent ser vi ce of pr ocess and

t he vi ol at i on of her due pr ocess r i ght s.

Af t er 701 Mar i posa r esponded to t he r econsi der at i on mot i on,

t he bankr upt cy cour t hel d a hear i ng on the mot i on on J une 28,

2013, at whi ch t he cour t adopt ed i t s t ent at i ve r ul i ng as i t s

f i nal r ul i ng. The cour t f ound t hat Keys act ual not i ce of t he

cl ai m obj ect i on was suf f i ci ent t o sat i sf y t he mi ni mal

r equi r ement s of due pr ocess. As f or t he asser t ed def ect i ve

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servi ce of pr ocess, t he bankr upt cy cour t f ound t hat Keys was

evi ct ed f r om t he apar t ment bui l di ng i n Sept ember 2012. The cour t

f ur t her f ound t hat t he apar t ment bui l di ng no l onger was Keys

dwel l i ng house or usual pl ace of abode as speci f i ed i n Rul e7004( b) ( 1) and t her ef or e 701 Mar i posa s ser vi ce of pr ocess was

def ect i ve. Nonet hel ess, t he cour t f ound t hat 701 Mar i posa s

ser vi ce of pr ocess, i n conj unct i on wi t h Keys act ual not i ce, met

t he subst ant i al compl i ance st andar d f or servi ce of pr ocess and

t hus was suf f i ci ent t o gi ve t he bankrupt cy cour t per sonal

j ur i sdi ct i on over Keys. Consequent l y, t he bankrupt cy cour t

deni ed Keys mot i on t o set asi de, and Keys t i mel y appeal ed.

JURISDICTION

The bankrupt cy cour t had subj ect mat t er j ur i sdi ct i on

pur suant t o 28 U. S. C. 1334 and 157( b) ( 2) ( B) . We have

appel l at e j ur i sdi ct i on under 28 U. S. C. 158. We di scuss bel ow

t he bankrupt cy cour t s per sonal j ur i sdi ct i on over Keys.

ISSUE

Was t he or der di sal l owi ng Keys cl ai m voi d ei t her because

Keys was deni ed due pr ocess or because the bankrupt cy court

l acked per sonal j ur i sdi ct i on over Keys?

STANDARDS OF REVIEW

Whet her not i ce was suf f i ci ent f or due pr ocess pur poses i s

r evi ewed de novo. See Fr at es v. Wel l s Far go Bank, N. A. ( I n r e

Frat es) , 507 B. R. 298, 301 ( 9t h Ci r . BAP 2014) . To t he extent

t he under l yi ng f act s ar e undi sput ed, t he bankrupt cy cour t s

det er mi nat i on r egar di ng per sonal j ur i sdi ct i on al so i s r evi ewed de

novo. See Tr avel er s Cas. & Sur . Co. of Am. v. Br enneke, 551 F. 3d

1132, 1135 ( 9t h Ci r . 2009) . To t he extent cer t ai n f act s

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r egar di ng ser vi ce of pr ocess are di sput ed, t hose f act s ar e

r evi ewed under t he cl ear l y er r oneous st andar d. See S. E. C. v.

I nt er net Sol ut i ons f or Busi ness I nc. , 509 F. 3d 1161, 1165 ( 9t h

Ci r . 2007) .Fi ndi ngs of f act ar e cl ear l y er r oneous i f t hey ar e

i l l ogi cal , i mpl ausi bl e, or wi t hout suppor t i n t he r ecor d. Ret z

v. Samson ( I n r e Ret z) , 606 F. 3d 1189, 1196 ( 9t h Ci r . 2010) .

DISCUSSION

Keys has ar gued i n r el evant par t t hat 701 Mar i posa s ser vi ce

of t he cl ai m obj ect i on was def ect i ve. Keys pr esses t hi s ar gument

on appeal even t hough she has admi t t ed ( a number of t i mes) t hat

she act ual l y knew of t he cl ai m obj ect i on wel l bef or e November 29,

2012 t he dat e set f or t he hear i ng on t he cl ai m obj ect i on.

Accordi ng t o Keys own decl arat i on t est i mony, she f ound out about

t he cl ai m obj ect i on and t he hear i ng dat e f r om an emai l t hat she

r ecei ved f r om 701 Mar i posa s counsel on Oct ober 15, 2012.

Fur t her mor e, t he r ecor d est abl i shes t hat she had r ecei ved a f ul lcopy of t he cl ai m obj ect i on by no l at er t han November 8, 2012.

On t hat dat e, she f i l ed paper s i n t he di st r i ct cour t l awsui t t o

whi ch she at t ached a copy of t he cl ai m obj ect i on.

As Keys not es and t he bankr upt cy cour t f ound, 701 Mar i posa

served Keys at her addr ess i n the apar t ment bui l di ng, but Keys no

l onger was l i vi ng i n t he apar t ment bui l di ng at t hat t i me because

she had been evi ct ed i n Sept ember 2012. These f act ual f i ndi ngs

have not been chal l enged on appeal , so we accept t hemas t r ue.

See Sachan v. Huh ( I n r e Huh) , 506 B. R. 257, 272 ( 9t h Ci r . BAP

2014) ( en banc) . Because 701 Mar i posa di d not ser ve Keys at her

dwel l i ng house or usual pl ace of abode, 701 Mar i posa s

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at t empt ed ser vi ce of pr ocess by mai l di d not compl y wi t h t he

r equi r ement s of Rul e 7004( b) ( 1) .

Based on t hi s def ect i ve servi ce of pr ocess, Keys i n essence

asser t s t wo t hi ngs: ( 1) t hat she was deni ed due pr ocess; and ( 2)t hat , as a r esul t of 701 Mar i posa s def ect i ve ser vi ce of pr ocess,

t he bankrupt cy cour t di d not have per sonal j ur i sdi ct i on over

her . 3

Bot h of Keys asser t i ons l ack of due pr ocess and l ack of

per sonal j ur i sdi ct i on i mpl i cat e Rul e 60( b) ( 4) , whi ch appl i es t o

Keys mot i on t o set asi de. See Uni t ed St udent Funds, I nc. v.

Wyl i e ( I n r e Wyl i e) , 349 B. R. 204, 209 ( 9t h Ci r . BAP 2006) ( when

r econsi der at i on under Rul e 3008 i s sought af t er t he . . . appeal

per i od has expi r ed, t he mot i on i s subj ect t o t he const r ai nt s of

FRCP 60( b) as i ncor por at ed by Rul e 9024. ) . I f ei t her of Keys

asser t i ons i s t r ue, t hen t he December 2012 cl ai m di sal l owance

order was voi d, and t he bankr upt cy cour t shoul d have gr ant ed

Keys mot i on t o set asi de. See OwensCor ni ng Fi ber gl as Cor p. v.Ct r . Whol esal e, I nc. ( I n r e Ct r . Whol esal e, I nc. ) , 759 F. 2d 1440,

1448 ( 9t h Ci r . 1985) ; see al so S. E. C. v. Ross, 504 F. 3d 1130,

1139 ( 9t h Ci r 2007) ( A j udgment ent er ed wi t hout j ur i sdi ct i on

over t he def endant i s voi d. ) . We wi l l addr ess each of Keys

asser t i ons i n t ur n.

1. Lack of Due Process

The due process r equi r ement s f or not i ce ar e r el at i vel y

3 We have const r ued Keys pr o se appeal br i ef s l i ber al l y,i n accor dance wi t h Bal i st r er i v. Paci f i ca Pol i ce Dep' t , 901 F. 2d696, 699 ( 9t h Ci r . 1990) , par t i al l y over r ul ed on ot her gr oundsby, Bel l At l . Cor p. v. Twombl y, 550 U. S. 544, 56263 ( 2007) .

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mi ni mal ; t hey mer el y r equi r e not i ce reasonabl y cal cul at ed, under

al l t he ci r cumst ances, t o appr i se i nt er est ed par t i es of t he

pendency of t he act i on and af f or d t hem an oppor t uni t y t o pr esent

t hei r obj ect i ons. Mul l ane v. Cent . Hanover Bank & Tr ust Co. ,339 U. S. 306, 314 ( 1950) .

We underst and t hat Keys may not have recei ved al l of t he

not i ces r egardi ng t he commencement of t he bankrupt cy case and t he

cl ai ms bar date cont empl ated under t he Bankr upt cy Code and the

Rul es, but Keys si mpl y cannot par l ay t hese pr ocedur al def ect s

i nt o a due pr ocess vi ol at i on concer ni ng 701 Mar i posa s cl ai m

obj ect i on. Keys has admi t t ed t hat she had act ual not i ce of t he

cl ai m obj ect i on and t he hear i ng t her eon. Fur t her mor e, she had a

f ul l copy of t he cl ai m obj ect i on paper s at l east t hr ee weeks

bef or e t he dat e set f or t he cl ai m obj ect i on hear i ng. These f act s

ar e mor e t han suf f i ci ent t o sat i sf y the due pr ocess r equi r ement s

wi t h r espect t o t he cl ai m obj ect i on pr oceedi ngs. See gener al l y

Uni t ed St udent Ai d Funds, I nc. v. Espi nosa, 559 U. S. 260, 272( 2010) . Thus, Keys due pr ocess ar gument l acks mer i t .

2. Lack of Personal Jurisdiction

Ef f ect i ve servi ce of pr ocess, made i n compl i ance wi t h Rul e

7004 and Ci vi l Rul e 4, i s a pr er equi si t e t o t he bankrupt cy cour t

exer ci si ng per sonal j ur i sdi ct i on over a l i t i gant . Mar ci ano v.

Fahs ( I n r e Mar ci ano) , 459 B. R. 27, 37 ( 9t h Ci r . BAP 2011) ;

Mor r i s Mot or s v. Per al t a ( I n r e Per al t a) , 317 B. R. 381, 386 ( 9t h

Ci r . BAP 2004) . As the Ni nt h Ci r cui t has put i t , [ b] ef or e a

f eder al cour t may exer ci se per sonal j ur i sdi ct i on over a

def endant , t he pr ocedur al r equi r ement of servi ce of [ pr ocess]

must be sat i sf i ed. Rubi n v. Pr i ngl e ( I n r e Focus Medi a I nc. ) ,

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387 F. 3d 1077, 1081 ( 9t h Ci r . 2004) ( quot i ng Omni Capi t al I nt l ,

Lt d. v. Rudol f Wol f f & Co. , 484 U. S. 97, 104 ( 1987) ) .

Gener al l y speaki ng, t he ser vi ce of pr ocess pr er equi si t e t o

per sonal j ur i sdi ct i on appl i es i n cont est ed mat t er s t he same asi t does i n adver sary pr oceedi ngs. See Rul e 9014( b) ( r equi r i ng

ser vi ce of cont est ed mat t er mot i ons i n the same manner t hat a

summons and compl ai nt must be ser ved under Rul e 7004) ; see al so

I n r e Frat es, 507 B. R. at 302 ( st at i ng t hat , when a par t i cul ar

credi t or s r i ght s ar e at i ssue, t he bankr upt cy r ul es r equi r e

mor e t han t he mi ni mal not i ce requi r ed t o sat i sf y due pr ocess

concer ns) . Accor d, Benef i ci al Cal . , I nc. v. Vi l l ar ( I n r e

Vi l l ar ) , 317 B. R. 88, 93- 94 ( 9t h Ci r . BAP 2004) .

Cl ai ms obj ect i ons undoubt edl y ar e cont est ed mat t er s subj ect

t o t he r equi r ement s of Rul e 9014. See Advi sor y Commi t t ee Notes

accompanyi ng Rul es 3007 and 9014. However , unl i ke most contest ed

mat t er s, cl ai ms obj ect i ons ar e subj ect t o a speci f i c Rul e st at i ng

i n par t as f ol l ows: A copy of t he obj ect i on [ t o cl ai m] wi t hnot i ce of t he hear i ng t her eon shal l be mai l ed or ot her wi se

del i ver ed t o t he cl ai mant . . . at l east 30 days pr i or t o t he

hear i ng. Rul e 3007( a) .

I n t he past , t he Panel has of f er ed conf l i ct i ng vi ews

r egar di ng whet her Rul e 3007( a) s mai l i ng/ del i ver y r equi r ement s

ar e i n addi t i on t o or i n l i eu of Rul e 7004 s ser vi ce

r equi r ement s. Compar e Uni t ed St at es v. Levoy ( I n r e Levoy) , 182

B. R. 827, 834 ( 9t h Ci r . BAP 1995) , wi t h J or genson v. St at e Li ne

Hot el , I nc. ( I n r e St at e Li ne Hot el , I nc. ) , 323 B. R. 703, 711- 12

( 9t h Ci r . BAP 2005) , vacated as moot , 242 Fed. Appx. 460, 462 ( 9t h

Ci r . 2007) . Nonet hel ess, r egar dl ess of whet her Rul e 7004 s

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ser vi ce r equi r ement s or di nar i l y appl y when a cr edi t or f i l es a

pr oof of cl ai m and an i nt er est ed par t y obj ect s t her et o, we hol d

t hat t hey do appl y when, as her e, t he cr edi t or has not f i l ed a

pr oof of cl ai m, has not ot her wi se par t i ci pat ed i n t he bankrupt cycase, and has not otherwi se engaged i n any conduct t hat coul d be

const r ued as consent t o t he bankrupt cy cour t s per sonal

j ur i sdi ct i on. We f ur t her hol d t hat when, as her e, Rul e 7004 s

ser vi ce r equi r ement s have been cont r avened, t he bankr upt cy cour t

l acks per sonal j ur i sdi ct i on over t he credi t or .

I n t he vast maj or i t y of cases, i t i s beyond di sput e t hat t he

bankrupt cy cour t has per sonal j ur i sdi ct i on over any cr edi t or

whose pr oof of cl ai m has been obj ect ed t o because t he cr edi t or

consent s t o t he bankrupt cy cour t s per sonal j ur i sdi ct i on by

f i l i ng a pr oof of cl ai m, t her eby enabl i ng t he bankrupt cy cour t t o

al l ow or di sal l ow t he cl ai m and t o det er mi ne t he credi t or s

ent i t l ement ( i f any) t o shar e i n di st r i but i ons f r om t he

bankr upt cy est ate. See Katchen v. Landy, 382 U. S. 323, 334- 35( 1966) ( st at i ng t hat [ b] y pr esent i ng t hei r cl ai ms r espondent s

subj ect ed t hemsel ves t o al l t he consequences t hat at t ach t o an

appear ance and t hat a cr edi t or who of f er s a pr oof of cl ai m and

demands i t s al l owance i s bound by what i s j udi ci al l y

det er mi ned) ; Tucker Pl ast i cs, I nc. v. Pay N Pak St or es, I nc. ( I n

r e PNP Hol di ngs Cor p. ) , 99 F. 3d 910, 911 ( 9t h Ci r . 1996) ( hol di ng

t hat cr edi t or consent ed t o bankrupt cy s per sonal j ur i sdi ct i on by

f i l i ng pr oof of cl ai m) .

But when, as her e, t he cr edi t or has not f i l ed a pr oof of

cl ai m, has not ot her wi se par t i ci pat ed i n t he bankrupt cy case, and

has not otherwi se engaged i n any conduct t hat coul d be const r ued

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as consent t o t he bankr upt cy cour t s per sonal j ur i sdi ct i on,

per sonal j ur i sdi cti on pr i nci pl es di ctat e t hat f eder al cour t s

cannot exer ci se j ur i sdi ct i on over a l i t i gant i n t he absence of

pr oper servi ce of pr ocess. See Omni Capi t al I nt l , Ltd. , 484U. S. at 104.

For t hi s r eason, [ a] per son i s not bound by a j udgment i n a

l i t i gat i on t o whi ch he or she has not been made a part y by

servi ce of pr ocess. Mason v. Geni sco Technol ogy Cor p. , 960 F. 2d

849, 851 ( 9t h Ci r . 1992) ; see al so Tayl or v. St ur gel l , 553 U. S.

880, 884 ( 2008) . Si mi l ar l y, when a f eder al cour t l acks per sonal

j ur i sdi ct i on over a l i t i gant , t hat l i t i gant i s al ways f r ee t o

i gnor e t he j udi ci al pr oceedi ngs, r i sk a def aul t j udgment , and

t hen chal l enge t hat j udgment on j ur i sdi ct i onal gr ounds i n a

col l at er al pr oceedi ng. I ns. Cor p. of I r . , Ltd. v. Compagni e des

Bauxi t es de Gui nee, 456 U. S. 694, 706 ( 1982) .

Even t hough cl ai ms obj ect i ons do not or di nar i l y gener at e

per sonal j ur i sdi ct i on i ssues, t he bankr upt cy cour t her eappar ent l y real i zed t hat , because Keys had not f i l ed a pr oof of

cl ai m or ot her wi se par t i ci pat ed i n t he bankr upt cy case, t he i ssue

Keys r ai sed i n her mot i on about t he suf f i ci ency of ser vi ce of t he

cl ai ms obj ect i on i mpl i cat ed t he per sonal j ur i sdi ct i on of t he

cour t . That i s why t he bankrupt cy cour t f el t compel l ed t o

di scuss t he subst ant i al compl i ance doct r i ne, whi ch under cer t ai n

ci r cumst ances excuses mi nor t echni cal def ect s i n servi ce of

pr ocess. See Bor zeka v. Heckl er , 739 F. 2d 444, 44648 ( 9t h Ci r .

1984) . Under t he subst ant i al compl i ance doct r i ne, a f eder al

cour t need not di smi ss a compl ai nt f or i nsuf f i ci ent ser vi ce of

pr ocess based on t echni cal def ect s i n servi ce of pr ocess when:

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( a) t he par t y that had t o be served per sonal l y recei vedact ual not i ce, ( b) t he def endant woul d suf f er nopr ej udi ce f r om t he def ect i n ser vi ce, ( c) t her e i s aj ust i f i abl e excuse f or t he f ai l ure t o ser ve proper l y,and ( d) t he pl ai nt i f f woul d be sever el y pr ej udi ced i fhi s compl ai nt wer e di smi ssed.

Whal e v. Uni t ed St at es, 792 F. 2d 951, 953 ( 9t h Ci r . 1986)

( quot i ng Bor zeka, 739 F. 2d at 447) .

The bankrupt cy cour t concl uded t hat 701 Mar i posa had met t he

r equi r ement s of t he subst ant i al compl i ance doct r i ne. The cour t

f ound, based on Keys own admi ssi ons, t hat she had act ual not i ce

of bot h t he bankr upt cy f i l i ng and t he cl ai m obj ect i on

pr oceedi ngs. I n addi t i on, t he bankrupt cy cour t f ound t hat 701

Mar i posa had a j ust i f i abl e excuse f or i t s def ect i ve ser vi ce. As

t he cour t poi nt ed out , wel l af t er her evi ct i on i n Sept ember 2012,

Keys cont i nued t o st at e i n paper s f i l ed i n t he di st r i ct cour t

l i t i gat i on t hat she l i ved i n t he apar t ment bui l di ng. We have no

i ssue wi t h t hese f i ndi ngs.

However , t he bankrupt cy cour t s f i ndi ngs r egar di ng pr ej udi cear e pr obl emat i c. The cour t i n essence f ound t hat each par t y

pot ent i al l y woul d be subj ect t o pr ej udi ce dependi ng on how i t

r ul ed on t he r econsi der at i on mot i on but t hat t he equi t i es t i pped

i n f avor of 701 Mar i posa because Keys di d not t ake any st eps t o

r emedy her aut omat i c st ay vi ol at i on ( her cont i nui ng pr osecut i on

of t he di st r i ct cour t l awsui t ) af t er she l ear ned of 701

Mar i posa s second bankrupt cy f i l i ng. Thi s i s not t he t ype of

assessment t he subst ant i al compl i ance st andar d cal l s f or . On i t s

f ace, t he st andar d r equi r es no pr ej udi ce t o the par t y subj ect ed

t o t he def ect i ve ser vi ce of pr ocess ( i n t hi s i nst ance, Keys) and

sever e pr ej udi ce t o t he par t y whose r equest f or r el i ef i s

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subj ect t o di smi ssal f or i nsuf f i ci ent ser vi ce of pr ocess ( i n t hi s

i nst ance, 701 Mar i posa) . The bankrupt cy cour t di d not f i nd t hat

t hese speci f i c cr i t er i a had been met , and t hat by i t sel f shoul d

have pr event ed t he cour t f r om appl yi ng t he subst ant i al compl i ancedoct r i ne.

Fur t her mor e, we di sagr ee wi t h t he bankrupt cy cour t s f i ndi ng

r egar di ng t he pr ej udi ce t o 701 Mar i posa t hat woul d ar i se i f t he

cour t di d not excuse t he def ect i ve servi ce of pr ocess. The onl y

pr ej udi ce the cour t f ound was t he obl i gat i on 701 Mar i posa woul d

have to admi ni st er Keys $4. 5 mi l l i on cl ai m i n t he absence of

t he cour t s or der di sal l owi ng Keys cl ai m. I n t hi s i nst ance, by

admi ni st er t he cour t i n essence meant t hat 701 Mar i posa woul d

be f or ced t o addr ess Keys cl ai m on t he mer i t s i f Keys wer e

al l owed t o pr oceed wi t h her chal l enge t o t he mer i t s of 701

Mar i posa s cl ai m obj ect i on. The Ni nt h Ci r cui t has hel d t hat

bei ng deni ed a qui ck vi ct or y and i nst ead havi ng t o def end t he

mer i t s of a cl ai m t ypi cal l y consti t ut es l i t t l e or no pr ej udi ce.See Bateman v. U. S. Post al Serv. , 231 F. 3d 1220, 122425 ( 9t h

Ci r . 2000) . I n shor t , we hol d t hat t he bankrupt cy cour t s

f i ndi ng r egar di ng t he pr ej udi ce t o 701 Mar i posa was cl ear l y

err oneous.

The bi ggest probl em wi t h t he bankrupt cy cour t s subst ant i al

compl i ance determi nat i on concerns whether t he bankr upt cy cour t

shoul d have appl i ed t he doct r i ne i n t hi s cont ext at al l . From

our r evi ew of t he cases appl yi ng t he doct r i ne, i t appear s t hat

t he Ni nt h Ci r cui t onl y has per mi t t ed t he doct r i ne to be used as a

shi el d t o pr ot ect pl ai nt i f f s f r om t he di smi ssal of t hei r

compl ai nt s based on t echni cal def ect s i n ser vi ce of pr ocess.

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See, e. g. , Whal e, 792 F. 2d at 953; Bor zeka, 739 F. 2d at 44648.

The Ni nth Ci r cui t has not , based upon our r esear ch, per mi t t ed

pl ai nt i f f s t o use t he doct r i ne as a swor d agai nst def aul t i ng

def endant s who seek t o set asi de a def aul t j udgment based ondef ect i ve ser vi ce of pr ocess.

We acknowl edge t hat t he Ni nt h Ci r cui t i n ot her deci si ons has

st at ed t hat , when t he def endant r ecei ves suf f i ci ent not i ce, t he

ser vi ce of pr ocess r ul es gener al l y shoul d be l i ber al l y const r ued

t o uphol d servi ce. See Br enneke, 551 F. 3d at 1135 ( ci t i ng Chan

v. Soc y Expedi t i ons, I nc. , 39 F. 3d 1398, 1404 ( 9t h Ci r . 1994) ) ;

Uni t ed Food & Commerci al Workers Uni on v. Al pha Beta Co. , 736

F. 2d 1371, 1382 ( 9t h Ci r . 1984) . Nonet hel ess, t he Ni nt h Ci r cui t

al so has st at ed t hat nei t her act ual not i ce nor si mpl y nami ng t he

def endant i n t he compl ai nt wi l l pr ovi de per sonal j ur i sdi ct i on

wi t hout subst ant i al compl i ance wi t h [ Ci vi l ] Rul e 4. Br enneke,

551 F. 3d at 1135 ( emphasi s added) ( quot i ng Benny v. Pi pes, 799

F. 2d 489, 492 ( 9t h Ci r . 1986) ) .As a mat t er of l aw, we do not consi der 701 Mar i posa s

ser vi ce by mai l of i t s cl ai m obj ect i on at t he apar t ment bui l di ng

f r omwhi ch Keys had been evi ct ed, combi ned wi t h ser vi ce by emai l ,

suf f i ci ent t o qual i f y as subst ant i al compl i ance wi t h t he ser vi ce

by mai l r equi r ement s set f or t h i n Rul e 7004( b) ( 1) , whi ch r equi r e

ser vi ce by mai l at t he i ndi vi dual s dwel l i ng house or usual

pl ace of abode or t o t he pl ace wher e t he i ndi vi dual r egul ar l y

conduct s a busi ness or pr of essi on. I n I n r e Vi l l ar , we

expl ai ned t hat servi ce of pr ocess by mai l f or t he pur pose of

est abl i shi ng per sonal j ur i sdi cti on over a l i t i gant i s a rar e

pr i vi l ege whi ch shoul d not be abused or t aken l i ght l y. I n r e

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Vi l l ar , 317 B. R. at 93. We f ur t her expl ai ned t hat [ w] her e t he

al t er nat i ve t o ser vi ce by mai l i s hi r i ng a pr ocess ser ver t o

serve t he paper s i n per son, i t seems l i ke a smal l bur den t o

r equi r e l i t er al compl i ance wi t h t he r ul e. I d. ( quot i ng I n r eSchoon, 153 B. R. 48, 49 ( Bankr . N. D. Cal . 1993) ) .

Under t hese ci r cumst ances, servi ce by mai l of Keys at an

addr ess wher e she used t o l i ve si mpl y i s not subst ant i al

compl i ance wi t h Rul e 7004( b) ( 1) .

Fi nal l y, t he Supr eme Cour t has i ndi cat ed t hat , when t he

bankrupt cy cour t has an arguabl e basi s f or exer ci si ng

j ur i sdi ct i on, a def ect i n t hat j ur i sdi ct i on does not r ender t he

t r i al cour t s j udgment voi d f or pur poses of a subsequent mot i on

under Ci vi l Rul e 60( b) ( 4) . Espi nosa, 559 U. S. at 271. But t he

deci si ons Espi nosa ci t ed i n suppor t of t he ar guabl e basi s

doct r i ne i ndi cat e t hat t he doct r i ne ar i ses i n t he cont ext of

subj ect mat t er j ur i sdi ct i on and not i n t he cont ext of per sonal

j ur i sdi ct i on. We decl i ne t o ext end t he ar guabl e basi s doct r i net o the bankrupt cy cour t s det er mi nat i on her e that i t had per sonal

j ur i sdi ct i on over Keys. To do so woul d br i ng our deci si on i nto

conf l i ct wi t h ot her Supr eme Cour t pr ecedent st at i ng t hat

l i t i gant s al ways may col l at er al l y r ai se per sonal j ur i sdi cti on

def ect s. See Compagni e des Bauxi t es de Gui nee, 456 U. S. at 706

( A def endant i s al ways f r ee t o i gnor e t he j udi ci al pr oceedi ngs,

r i sk a def aul t j udgment , and then chal l enge that j udgment on

j ur i sdi ct i onal grounds i n a col l at er al proceedi ng. ) .

CONCLUSION

For t he r easons set f or t h above, we REVERSE and REMAND. On

r emand, t he bankr upt cy cour t shoul d ent er an order gr ant i ng Keys

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mot i on t o set asi de t he cour t s cl ai m di sal l owance or der . 4

4 I n i t s appeal br i ef s, 701 Mar i posa r equest ed t hatsanct i ons be i mposed agai nst Keys f or f i l i ng a f r i vol ous appeal .701 Mar i posa s sanct i ons r equest di d not compl y wi t h Rul e 8020,whi ch cont empl at es a separ at el y f i l ed mot i on. I n any event ,because Keys has pr evai l ed i n thi s appeal , we woul d have deni ed701 Mar i posa s sanct i ons r equest even i f i t had been pr oper l ybr ought bef ore us.

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Documents

In re: 701 Mariposa Project, LLC, 9th Cir. BAP (2014)