Idnani v. Serap (In re Serap)
| Decision Date | 02 May 2019 |
| Docket Number | BAP No. NV-18-1077-BKuTa |
| Parties | In re: DEBORAH SERAP, Debtor. USHA IDNANI, Appellant, v. DEBORAH SERAP, Appellee. |
| Court | U.S. Bankruptcy Appellate Panel, Ninth Circuit |
NOT FOR PUBLICATION
MEMORANDUM*Argued and Submitted on February 21, 2019 at Las Vegas, Nevada
Appeal from the United States Bankruptcy Court for the District of Nevada
Appearances: Benjamin B. Childs argued for Appellant Dr. Usha Idnani; Appellee Deborah Serap argued pro se.
Before: BRAND, KURTZ and TAYLOR, Bankruptcy Judges.
In this case, we must determine whether under Nevada's "one-action rule" a creditor's deed of trust is rendered void if, prior to the completion of the creditor's foreclosure sale, the creditor obtained a personal judgment against a guarantor who is unable to waive the protections of the one-action rule under state law. The bankruptcy court ruled that the creditor's lien was released and discharged once she obtained a personal judgment against the guarantor for the full amount of the debt. We agree, and we AFFIRM.
Prior to the petition date, the debtor, Deborah Serap, and herhusband, Earl Serap,1 now deceased, were successor co-trustees of a revocable living trust — the Mazel Trust. Their residence (the "Property") was an asset of the Mazel Trust.
In May 2016, Dr. Usha Idnani loaned $155,000 to the Mazel Trust secured by a note and third deed of trust against the Property. Earl signed the note and deed of trust as co-trustee of the Mazel Trust. Earl, individually, also signed an unsecured Personal Guaranty for the loan in the event that the Mazel Trust defaulted. The loan was never repaid.
With the loan in default, Dr. Idnani filed a Guarantor Action against Earl in the Nevada state court and initiated a nonjudicial foreclosure on the deed of trust. A foreclosure sale was set for July 13, 2017.
On May 23, 2017, the Nevada state court entered Findings of Fact, Conclusions of Law and Judgment in the Guarantor Action in favor of Dr. Idnani and against Earl for $199,688.54 (the "Judgment"). The Judgment expressly found that Earl had "waived all equitable defenses in the Personal Guaranty." Prior to entry of the Judgment, Deborah, as co-trustee of the Mazel Trust, executed a quitclaim deed transferring the Property to herself as her sole and separate property without consideration.
Deborah filed a chapter 72 bankruptcy case just two days before Dr. Idnani's scheduled foreclosure sale. She received a discharge on October 16, 2017.
Deborah moved to expunge Dr. Idnani's lien ("Motion to Expunge"), arguing that she had forfeited her security interest in the Property due to her violation of Nevada's one-action rule. As Deborah argued, the one-action rule required Dr. Idnani to foreclose on the collateral first before seeking to recover on the note, and she violated that rule by failing to exhaust her security before pursuing the Guarantor Action against Earl. Consequently, argued Deborah, the violation triggered the sanctions aspect of the one-action rule, causing Dr. Idnani to forfeit her security interest in the Property. In short, once Dr. Idnani obtained the Judgment against Earl, which occurred prior to her completion of the foreclosure sale, her lien was released as a matter of law.
Deborah contended that Nevada's one-action rule applied equally to borrowers and guarantors like Earl. Deborah argued that Earl did not, and could not, waive the protections of Nevada's one-action rule, despite thePersonal Guaranty, because Dr. Idnani's deed of trust secured an indebtedness for a principal balance that never exceeded the relevant statutory limit of $500,000. Deborah argued that when Dr. Idnani commenced the Guarantor Action against Earl, he had the choice to either: (1) assert the one-action rule as an affirmative defense and force Dr. Idnani to foreclose on the collateral before seeking any personal judgment against him; or (2) decline to assert the one-action rule as an affirmative defense, accept a personal judgment, and allow Dr. Idnani to forfeit her lien. Earl chose the second option. As a result of the Guarantor Action, argued Deborah, Dr. Idnani obtained a personal judgment against Earl and forfeited her lien against the Property. Thus, argued Deborah, because Dr. Idnani had no lien, any security interest she had in the Property must be expunged.
In opposition, Dr. Idnani argued that the sanctions aspect of the one-action rule applied only to borrowers, not guarantors. Because Earl waived his right to any equitable defenses in the Personal Guaranty, argued Dr. Idnani, Nevada law permitted her to pursue the Guarantor Action against Earl separately and independently from her nonjudicial foreclosure action; therefore, neither the Guarantor Action against Earl nor her incomplete nonjudicial foreclosure sale was an "action" which violated Nevada's one-action rule and triggered the sanctions aspect of the rule resulting in loss of her lien. Further, argued Dr. Idnani, the Nevada statecourt had already ruled that Earl had waived all equitable defenses to the one-action rule in the Personal Guaranty. Thus, Deborah's arguments to the contrary were barred on the basis of issue preclusion and judicial estoppel. Dr. Idnani argued that she was not trying to collect on the debt twice. To date, she had been unable to collect anything on the Judgment, and now Earl had just passed away, leaving no estate.
In reply, Deborah argued that Dr. Idnani misunderstood the one-action rule, particularly the sanctions aspect of the rule. Although Earl had not invoked the one-action rule as an affirmative defense in the Guarantor Action and waived his right to force Dr. Idnani to foreclose on the collateral before obtaining a personal judgment against him, he did not, as Dr. Idnani contended, waive the sanctions aspect of the rule; that is, that once Dr. Idnani obtained a personal judgment against him, she forfeited her security interest in the Property.
Relying primarily on Hefetz v. Beavor, 397 P.3d 472 (Nev. 2017), a recent Nevada Supreme Court case, the bankruptcy court held that, even though Earl did not assert the one-action rule as an affirmative defense in the Guarantor Action, the Judgment against Earl triggered the sanctions provision in NRS 40.435(3), thereby releasing and discharging Dr. Idnani's lien. The court was not persuaded that any estoppel theory applied to the Judgment regarding waiver of Earl's equitable defenses in the PersonalGuaranty. Issue preclusion failed because the parties were not the same, and the one-action rule was not litigated in the prior action. Judicial estoppel also failed; Deborah had not taken or prevailed on inconsistent positions in separate actions.
Dr. Idnani timely appealed the bankruptcy court's written order.
The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and 157(b)(2)(K). We have jurisdiction under 28 U.S.C. § 158(a)(1).
Whether the correct procedures were followed in determining the issue presented is a question of law we review de novo. Ung v. Boni (In re Boni), 240 B.R. 381, 384 (9th Cir. BAP 1999).
We review a bankruptcy court's legal conclusions and application of state law de novo. Hopkins v. Cerchione (In re Cerchione), 414 B.R. 540, 545 (9th Cir. BAP 2009). In interpreting Nevada law, we are bound by decisions of the Nevada Supreme Court, including reasoned dicta. Muniz v. United Parcel Serv., Inc., 738 F.3d 214, 219 (9th Cir. 2013). "In the absence of such a decision, a federal court must predict how the highest state court woulddecide the issue using intermediate appellate court decisions, decisions from other jurisdictions, statutes, treatises, and restatements as guidance." Sec. Pac. Nat'l Bank v. Kirkland (In re Kirkland), 915 F.2d 1236, 1239 (9th Cir. 1990).
Dr. Idnani argues that her lien's validity could only be determined by an adversary proceeding under Rule 7001(2). Dr. Idnani never raised this issue before the bankruptcy court and acknowledged this fact at oral argument. Generally, arguments not raised before the bankruptcy court are waived. O'Guinn v. Lovelock Corr. Ctr., 502 F.3d 1056, 1063 n.3 (9th Cir. 2007).
In any case, Dr. Idnani concedes that the record would not have been materially different with an adversary proceeding. Accordingly, any error by the bankruptcy court in determining the validity of Dr. Idnani's lien by motion was harmless. See Ruvacalba v. Munoz (In re Munoz), 287 B.R. 546, 551 (9th Cir. BAP 2002) ().
Dr. Idnani argues that the bankruptcy court erred in its interpretation of Nevada's one-action rule as it applies to guarantors. She contends that neither her Guarantor Action against Earl nor her nonjudicial foreclosure was a "judicial proceeding" that violated the one-action rule and would trigger the sanctions provision of NRS 40.435(3)3, resulting in the release and discharge of her lien. She concedes that if the Judgment had been entered against...
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