Bostanian v. Liberty Savings Bank, B102938

• Decision Date: 19 February 1997
• Docket Number: No. B102938,B102938
• Citation: 61 Cal.Rptr.2d 68,52 Cal.App.4th 1075
• Court: California Court of Appeals Court of Appeals
• Parties: , 97 Cal. Daily Op. Serv. 1198, 97 Daily Journal D.A.R. 1759 Stefan BOSTANIAN et al., Plaintiffs and Appellants, v. LIBERTY SAVINGS BANK, F.S.B. et al., Defendants and Respondents.

Page 68

61 Cal.Rptr.2d 68

52 Cal.App.4th 1075, 97 Cal. Daily Op. Serv. 1198,

97 Daily Journal D.A.R. 1759

Stefan BOSTANIAN et al., Plaintiffs and Appellants, v. LIBERTY SAVINGS BANK, F.S.B. et al., Defendants and Respondents.

No. B102938.

Court of Appeal, Second District, Division 5, California.

Feb. 19, 1997.

As Modified Feb. 28, 1997.

Vic Rodriquez, Los Angeles, for Plaintiffs and Appellants.

Shapiro & Miles and T. Robert Finlay, Santa Ana, for Defendants and Respondents.

TURNER, Presiding Justice.

I. INTRODUCTION

This matter is presently before this court on a motion to dismiss the appeal, which is not subject to the automatic stay (Shah v. Glendale Federal Bank (1996) 44 Cal.App.4th 1371, 1374-1379, 52 Cal.Rptr.2d 417), for lack of standing in light of a plaintiff's bankruptcy filing. The question presented is whether a cause of action to set aside a foreclosure sale of the debtor's residence is property of the bankruptcy estate which only the Chapter 7 trustee can pursue. ¹ The motion is by Liberty Savings Bank, F.S.B., and Professional Foreclosure Corporation (defendants) in relation to an appeal by Stefan Bostanian and Salpi Bostanian (plaintiffs). We conclude plaintiffs have no standing to pursue this appeal. We grant plaintiffs 30 days from the date this opinion becomes final in which to secure an abandonment by the trustee of the cause of action in the bankruptcy court.

Plaintiffs, husband and wife, were the owners of a single family residence as community property. The property was subject to a deed of trust in favor of Liberty Savings Bank. On January 6, 1993, Mr. Bostanian filed a voluntary petition under Chapter 11 of the United States Bankruptcy Code. At no time has Ms. Bostanian filed a petition in bankruptcy. Liberty Savings Bank, which sought to foreclose on the real property, obtained relief from the automatic stay in bankruptcy. (11 U.S.C. § 362(a).) ² On October 26, 1993, defendants noticed a public auction of plaintiffs' single family residence under the power of sale in Liberty Savings Bank's deed of trust. The foreclosure sale was completed on April 28, 1994. On November 10, 1994, plaintiffs filed a complaint alleging the foreclosure sale was improper and seeking to set it aside. On January 17, 1995, Mr. Bostanian's bankruptcy case was converted from a Chapter 11 proceeding to a Chapter 7 matter. On March 26, 1996, a judgment dismissing plaintiffs' complaint was entered in the superior court. Plaintiffs have appealed from the judgment of dismissal and from the denial of their reconsideration motion. Prior to briefing, defendants have moved to dismiss the appeal.

Defendants contend plaintiffs' cause of action is property of the bankruptcy estate which only the Chapter 7 trustee has standing to pursue. There is no dispute that as a Chapter 11 debtor in possession, plaintiffs had standing to prosecute this action. (§ 1107(a); ³ Fed. Rules Bankr., rule 6009; J & K Painting Co. v. Bradshaw (1996) 45 Cal.App.4th 1394, 1402, fn. 8, 53 Cal.Rptr.2d 496.; California Aviation, Inc. v. Leeds (1991) 233 Cal.App.3d 724, 729, 284 Cal.Rptr. 687.) As our colleague, Associate Justice Ruben Ortega of Division One of this appellate district, explained in California Aviation, Inc. v. Leeds, supra, 233 Cal.App.3d at page 729, 284 Cal.Rptr. 687: "[It is undisputed the plaintiff] had standing to pursue its [legal malpractice] case ... as a chapter 11 debtor in possession. 'With or without court approval, the trustee or debtor in possession may prosecute or may enter an appearance and defend any pending action or proceeding by or against the debtor, or commence and prosecute any action or proceeding in behalf of the estate before any tribunal.' (Fed. Rules Bankr., rule 6009, 11 U.S.C., italics added.) Chapter 11 debtors in possession have such standing with or without bankruptcy court approval because they retain possession and control of their assets as part of their bankruptcy court-supervised plans to revive their businesses and satisfy their creditors. However, the bankruptcy court supervises the liquidation of failed chapter 7 debtors, who can begin or maintain lawsuits in their own name only with the bankruptcy court's and trustee's approval." (Compare, People v. Kings Point Corp. (1986) 188 Cal.App.3d 544, 548-549, 233 Cal.Rptr. 227 [applying a contrary rule where a trustee was appointed in a Chapter 11 proceeding and assumed all authority in litigation]; and see contra, Tarr v. Merco Construction Engineers, Inc. (1978) 84 Cal.App.3d 707, 712-713, 148 Cal.Rptr. 813 [holding Chapter 11 debtor had no standing to sue].)

However, defendants argue, when the matter was converted to Chapter 7, standing to maintain this lawsuit became vested in the bankruptcy trustee. Further, defendants contend, the Chapter 7 trustee has not abandoned this cause of action; therefore, the Chapter 7 trustee is the only party with standing to appeal. We agree for the following reasons.

II. DISCUSSION

A. Construction of a Federal Statute

Because we are applying federal statutes, we follow rules of statutory construction enunciated by the United States Supreme Court. In Kaiser Aluminum & Chemical Corp. v. Bonjorno (1990) 494 U.S. 827, 835, 110 S.Ct. 1570, 1575, 108 L.Ed.2d 842, the United States Supreme Court held: "The starting point for interpretation of a statute 'is the language of the statute itself. Absent a clearly expressed legislative intention to the contrary, that language must ordinarily be regarded as conclusive.' " The United States Supreme Court has noted that "the statutory language controls its construction" (Ford Motor Credit Co. v. Cenance (1981) 452 U.S. 155, 158, fn. 3, 101 S.Ct. 2239 2241, fn. 3, 68 L.Ed.2d 744) and that " '[t]here is, of course, no more persuasive evidence of the purpose of a statute than the words by which the [L]egislature undertook to give expression to its wishes.' " (Griffin v. Oceanic Contractors, Inc. (1982) 458 U.S. 564, 571, 102 S.Ct. 3245, 3250, 73 L.Ed.2d 973.) In interpreting a statute, the United States Supreme Court has noted: " 'In expounding a statute, we must not be guided by a single sentence or member of a sentence, but look to the provisions of the whole law, and to its object and policy.' [Citations.] Our objective in a case such as this is to ascertain the congressional intent and give effect to the legislative will." (Philbrook v. Glodgett (1975) 421 U.S. 707, 713, 95 S.Ct. 1893, 1898, 44 L.Ed.2d 525.) On another occasion, the court stated, "We do not, however, construe statutory phrases in isolation; we read statutes as a whole." (United States v. Morton (1984) 467 U.S. 822, 828, 104 S.Ct. 2769, 2773, 81 L.Ed.2d 680, fn. omitted.) Further, in interpreting a statute, the Supreme Court has emphasized the importance of avoiding: "absurd results" (United States v. Turkette (1981) 452 U.S. 576, 580, 101 S.Ct. 2524, 2527, 69 L.Ed.2d 246); " 'an odd result' " (Public Citizen v. U.S. Department of Justice (1989) 491 U.S. 440, 454, 109 S.Ct. 2558, 2567, 105 L.Ed.2d 377); or "unreasonable results whenever possible." (American Tobacco Co. v. Patterson (1982) 456 U.S. 63, 71, 102 S.Ct. 1534, 1538, 71 L.Ed.2d 748.) Moreover, the Supreme Court has noted, "Judicial perception that a particular result would be unreasonable may enter into the construction of ambiguous provisions, but cannot justify disregard of what Congress has plainly and intentionally provided." (Commissioner v. Asphalt Products Co., Inc. (1987) 482 U.S. 117, 121, 107 S.Ct. 2275, 2278, 96 L.Ed.2d 97.) In Griffin v. Oceanic Contractors, Inc., supra, 458 U.S. at page 571, 102 S.Ct. at page 3250, the court stated: "Nevertheless, in rare cases the literal application of a statute will produce a result demonstrably at odds with the intentions of its drafters, and those intentions must be controlling.... [Citations.]" When a statute is unambiguous, its language cannot "be expanded or contracted by the statements of individual legislators or committees during the course of the enactment process. [Citation.]" (West Virginia Univ. Hospitals, Inc. v. Casey (1991) 499 U.S. 83, 98-99, 111 S.Ct. 1138, 1147, 113 L.Ed.2d 68.)

B. Absent Abandonment, the Chapter 7 Trustee, and not the Debtor, has Standing to Pursue a Cause of Action Which is Property of the Bankruptcy Estate

A trustee in bankruptcy is the representative of the estate. (§ 323(a).) ⁴ A trustee in bankruptcy has the capacity to sue and to be sued. § 323(b).) ⁵ Under federal decisional authority, a Chapter 7 debtor may not prosecute on his or her own a cause of action belonging to the bankruptcy estate unless the claim has been abandoned by the trustee. (Griffin v. Allstate Ins. Co. (C.D.Cal.1996) 920 F.Supp. 127, 130; In re Price (Bankr.N.D.Ga.1994) 173 B.R. 434, 440; In re Davis (Bankr.N.D.Ind.1993) 158 B.R. 1000, 1002; Harris v. St. Louis University (E.D.Mo.1990) 114 B.R. 647, 648-649; see Vreugdenhil v. Hoekstra (8th Cir.1985) 773 F.2d 213, 215.) Federal Rule of Civil Procedure 17 (28 U.S.C.), made applicable to bankruptcy proceedings by Federal Rule of Bankruptcy Procedure 7017 (11 U.S.C.), ⁶ requires that "[e]very action shall be prosecuted in the name of the real party in interest." The trustee controls the bankruptcy estate, therefore, she or he is the real party in interest with standing to sue. (Griffin v. Allstate Ins. Co., supra, 920 F.Supp. at p. 130; In re Davis, supra, 158 B.R. at p. 1002.) California Code of Civil Procedure section 367 is to the same effect as the federal rule. It provides: "Every action must be prosecuted in the name of the real party in interest, except as otherwise provided by statute." (Code Civ.Proc., § 367.)

There is decisional authority in California which is consistent with federal law. That is, absent abandonment of the claim by the trustee, a debtor out of possession has no standing to prosecute a cause of action which has passed to the bankruptcy estate. In Reichert v. General Ins. Co. (1968) 68...