Bobka v. Toyota Motor Credit Corp.

• Decision Date: 23 May 2018
• Docket Number: Case No.: 17cv2380–GPC–AGS
• Citation: 586 B.R. 470
• Parties: Melissa Carin Mather BOBKA, Debtor–Appellant, v. TOYOTA MOTOR CREDIT CORPORATION, Appellee.
• Court: U.S. District Court — Southern District of California

586 B.R. 470

Melissa Carin Mather BOBKA, Debtor–Appellant,

v.TOYOTA MOTOR CREDIT CORPORATION, Appellee.

Case No.: 17cv2380–GPC–AGS

United States District Court, S.D. California.

Signed May 23, 2018

Filed May 24, 2018

Michael G. Doan, Doan Law Firm, Oceanside, CA, for Debtor–Appellant.

Austin P. Nagel, Law Offices of Austin P. Nagel, San Ramon, CA, Karin Dougan Vogel, Sheppard Mullin Richter & Hampton, San Diego, CA, for Appellee.

ORDER AFFIRMING BANKRUPTCY COURT ORDER

Hon. Gonzalo P. Curiel, Untied States District Judge

This case presents an issue of first impression in the Southern District of California and the Ninth Circuit, that is, does a lease assumption agreement under 11 U.S.C. § 365(p) remain enforceable following discharge even if the lease assumption was not reaffirmed under 11 U.S.C. § 524(c) ? District and bankruptcy courts outside the Ninth Circuit that have confronted the question all agree that the interplay between these statutes is confusing but disagree on the answer to the question. The Court concludes that reaffirmation under Section 524(c) is not required where a debtor has properly assumed a lease under Section 365(p)(2).

This is a bankruptcy appeal brought by Debtor–Appellant Melissa Carin Mather Bobka ("Mather")¹ against Appellee Toyota Motor Credit Corporation. In this appeal, the Court reviews the Memorandum Decision of Chief Judge Laura S. Taylor of the United States Bankruptcy Court for the Southern District of California which found: (1) that Toyota's collection actions did not violate the automatic stay since any such actions took place after Mather's bankruptcy had been discharged; (2) that reaffirmation under Section 524(c) is not required when a lease is assumed under Section 365(p)(2) ; and (3) that—due to waiver by Toyota regarding written notification and a 30–day timing requirement—Mather did actually assume the Lease when she executed the Lease Assumption Agreement. AR² 249, 253.

I. APPELLATE JURISDICTION AND STANDARD OF REVIEW

The district court has jurisdiction to hear this bankruptcy appeal pursuant to 28 U.S.C. § 158(a)(1).

On appeal, the district court reviews the bankruptcy court's findings of fact for clear error and reviews its conclusions of law de novo. In re Int'l Fibercom , 503 F.3d 933, 940 (9th Cir. 2007). Whether the bankruptcy court applied the correct legal standard is a legal issue which is reviewed de novo. In re Karelin , 109 B.R. 943, 946 (9th Cir. BAP 1990).

II. BACKGROUND³

On August 31, 2016, Mather filed a voluntary Chapter 7 bankruptcy petition. AR 10, 16. She was represented by the Doan Law Firm throughout her bankruptcy proceedings and in this instant appeal. In her bankruptcy schedules, Mather stated an intention to reaffirm a 2014 Toyota RAV4 ("Vehicle") as a secured debt. AR 250. Her schedules erroneously described Toyota as a lender with a claim secured by a lien against the vehicle, when in actuality Toyota was the lessor of the Vehicle. As such, Mather should have completed part 2 of the Statement of Intention which requires specificity as to her intention to assume the lease of the Vehicle. Id.

Pursuant to Section 365(d)(1), Ms. Mather's chapter 7 trustee had the right to assume the Lease during the first 60 days of the bankruptcy case, but did not do so. Id. As of October 31, 2016, the Vehicle was not an asset of the estate and the automatic stay as to the vehicle was terminated pursuant to Section 365(p)(1). Section 365(p)(2) provides that where a trustee fails to timely assume a lease, a debtor has the right to attempt assumption by advising her lessor "in writing" of her desire to assume the lease. 11 U.S.C. § 365(p)(2).

Mather did not send any "writing" to Toyota. However, on September 8, 2016, she called Toyota and requested that she be allowed to continue payments to retain the vehicle. AR 251. Toyota's agent, National Bankruptcy Services LLC ("NBS") advised Mather that she needed to assume the lease to retain the vehicle. On September 16, 2016, the NBS prepared an assumption agreement and sent it to Mather's attorney at the Doan Law Firm. Mather, who was traveling and attempting a marital reconciliation, did not immediately execute the Lease Assumption Agreement until December 5, 2016. AR 252 Despite the fact that this may have been untimely under § 365(p)(2)(B), Toyota accepted her request for assumption and acknowledged receipt of the executed document on December 6, 2016. Id.

Mather received her discharge on December 6, 2016, and her case closed on December 12, 2016. Id. While Mather was not in default on the lease when she entered bankruptcy and made payments during the bankruptcy proceedings, in November 2016 she stopped lease payments despite the execution of the Lease Assumption Agreement in December. Toyota does not dispute that it engaged in collection activity between December 20, 2016 through approximately February 25, 2017. Id. The bankruptcy judge observed that Mather provided hearsay testimony that Toyota had called her parent's home while she was traveling prior to her discharge, but that there was no record of any such calls, and particularly that there was no evidence that they related to collection attempts.

On January 2, 2017, Debtor surrendered the vehicle. Id. Mather advised Toyota that her bankruptcy precluded collection attempts and that her assumption of the Lease was ineffective as it was not coupled with reaffirmation. On February 25, 2017, Plaintiff, through the Doan Law Firm, requested an Order to Show Cause re: Violation of the Automatic Stay and Violation of the Plan Discharge. AR 253. In that request, Mather alleged significant emotional distress and requested over $50,000 in compensatory and punitive damages, remedial or coercive sanctions as appropriate, and attorneys' fees. The Bankruptcy Court issued the OSC, which was followed by several rounds of briefing and two hearings. Id.

On November 16, 2017, the bankruptcy court issued its Memorandum Decision. On November 27, 2017, Mather filed her Notice of Appeal from the bankruptcy court, and elected to have its appeal heard by the United States District Court for the Southern District of California instead of the Ninth Circuit's Bankruptcy Appellate Panel. Dkt. No. 1 at 2. Appellant filed their Opening Brief on February 1, 2018. Dkt. No. 9. Appellee filed it Responsive Brief on March 12, 2018. Dkt. No. 15. Appellant filed a Reply on March 26, 2018. Dkt. No. 16.

III. DISCUSSION

The instant bankruptcy appeal addresses three issues: (1) whether Appellant waived a challenge to the bankruptcy judge's order that Toyota did not violate the automatic stay; (2) whether a Section 365(p) lease assumption must always be coupled with a judicially approved Section 524(c) reaffirmation for personal liability to attach post-discharge; and (3) whether Mather actually assumed the lease.

A. Waiver of any Argument Challenging that Toyota Did Not Violate the Automatic Stay

Chief Judge Taylor found that Toyota did not violate the automatic stay as the automatic stay had already terminated by the time Toyota commenced collection activities. AR 254. The bankruptcy court found that there was limited hearsay evidence that Toyota may have made calls to Mather between November 9, 2016 and December 12, 2016, but that this evidence was not conclusive and that the calls could have been unrelated to collection activities, such as for Mather's pending Lease assumption or the recovery of the Vehicle. Id. Next, the court found that Toyota's transmission to Mather of a lease assumption agreement was not a stay violation because it was requested from the debtor and because it had been transmitted only to the Doan Law Firm and not Mather directly. AR 255.

Appellees contend as a threshold matter that Mather has waived any claim that Toyota violated the automatic stay by failing to challenge this issue on appeal. The Court agrees. Appellant did not raise this issue in her Opening or Reply Briefs. See Dkt. Nos. 9, 16. Moreover, Appellant solely framed the "Issue Presented" in this case as "[d]oes 11 USC 365(p) override the discharge protections of 11 USC 524 ?" Dkt. No. 9 at 1. Accordingly, the Court finds that to the extent Appellant sought to challenge the bankruptcy court's finding that Toyota did not violate the automatic stay, Appellant has waived that argument. See In re Meehan , 659 F. App'x 437, 438 (9th Cir. 2016) (citing Smith v. Marsh , 194 F.3d 1045, 1052 (9th Cir. 1999) ("[O]n appeal, arguments not raised by a party in its opening brief are deemed waived.") ).

B. Section 365(p) Lease Assumption and Section 524 Reaffirmation

1. Section 365(p)

The Bankruptcy Abuse Prevention and Consumer Act ("BAPCPA") of 2005 was enacted in October 2005 and added a new subsection (p) allowing the debtor—rather than a trustee—to assume a lease. See 11 U.S.C. § 365(p). Prior to the enactment of the Act, the power to assume a lease in a Chapter 7 case was given only to the trustee. See 11 U.S.C. § 365(a) ("[T]he trustee, subject to the court's approval, may assume or reject any executory contract or unexpired lease of the debtor."). If the trustee did not exercise the right of assumption as to a particular lease, a chapter 7 debtor was free to enter into a reaffirmation agreement as to his or her obligations under the lease (with lessor approval), but "assumption" was not an option for the chapter 7 debtor. See In re Creighton , 427 B.R. 24, 25 (Bankr. D. Mass. 2007).

Post–BAPCPA, even if a lease is rejected or deemed rejected by a trustee's non-action, a debtor may assume a lease under 11 U.S.C. § 365(p). Section 365(p) specifically addresses the assumption of a personal property lease by a debtor. It provides as follows:

(1) If a lease of personal property is rejected or not timely assumed by the trustee under subsection (d), the leased property is no longer property of the estate and the stay under section 362(a) is automatically terminated.

(2)(A) If the debtor in a case under chapter 7 is an individual, the debtor

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