In re Baroni

• Decision Date: 09 August 2022
• Docket Number: Case No. 1:12-bk-10986-MB
• Citation: 643 B.R. 253
• Parties: IN RE: Allana BARONI, Debtor.
• Court: U.S. Bankruptcy Court — Central District of California

643 B.R. 253

IN RE: Allana BARONI, Debtor.

Case No. 1:12-bk-10986-MB

United States Bankruptcy Court, C.D. California, San Fernando Valley Division.

Signed August 9, 2022

Richard L. Antognini, Grass Valley, CA, M. Jonathan Hayes, Matthew D. Resnik, Resnik Hayes Moradi LLP, Encino, CA, Kathleen P. March, Los Angeles, CA, Michael S. Riley, Fortt Lauderdale, FL, for Debtor.

Jessica L. Bagdanov, Brutzkus Gubner Rozansky Seror Weber LLP, Woodland Hills, CA, Ryan Coy, Jason B. Komorsky, Susan K. Seflin, BG LAW LLP, Woodland Hills, CA, for Trustee.

Kenneth Misken, Office of the United States Trustee, Los Angeles, CA, S. Margaux Ross, Los Angeles, CA, for U.S. Trustee.

MEMORANDUM OF DECISION

Martin R Barash, United States Bankruptcy Judge After debtor Alanna Baroni (the "Debtor") materially breached her confirmed chapter 11 plan, the Court granted the motion of creditor Bank of New York Mellon ("BONYM") to convert the case to chapter 7.¹ The Debtor opposed the conversion motion and has opposed every subsequent effort by the chapter 7 trustee (the "Trustee") to administer the case—a motion for turnover, a motion to approve a settlement between the estate and various secured creditors, and a motion to sell property of the estate. Most of these decisions have been affirmed on appeal or the appeal withdrawn; several appeals remain pending.

In her latest effort, the Debtor accuses the Trustee, together with creditor Wells Fargo Bank ("Wells Fargo") and its former counsel, of committing a federal bankruptcy crime under 18 U.S.C. § 152(4) in respect of an allegedly "false" claim filed by Wells Fargo. Case Dkt. 1378 (the "Motion"). The Debtor requests that the Court refer the Trustee, Wells Fargo and Wells Fargo's former counsel, for criminal prosecution pursuant to 18 U.S.C. § 3057. Based on the Trustee's alleged crime, and other alleged instances of mismanagement and misconduct, the Debtor also seeks removal of the Trustee from this case—and from all other cases in which the Trustee serves as chapter 7 trustee—pursuant to Bankruptcy Code section 324(a). The Debtor is joined in these requests by one of her attorneys, Richard Antognini ("Antognini"), who asserts standing to do so as a creditor in this case.

As set forth below, the Court holds: (i) neither the Debtor nor Antognini have statutory standing to request a criminal referral pursuant to 18 U.S.C. § 3057 because the statute does not grant parties to a bankruptcy case the procedural right to make such a request; (ii) even if the request were appropriate, the Court does not find reasonable grounds for believing that a bankruptcy crime has been committed under 18 U.S.C. § 152(4) ; and (iii) based on the record before the Court, cause does not exist to remove the Trustee from this or any other case under 11 U.S.C. § 342.

I.BACKGROUND

Prepetition, the Debtor and her husband, James Baroni, purchased a condominium in Henderson, Nevada (the "Henderson Property"). To finance that purchase, they executed a note (the "Henderson Note") and a deed of trust securing repayment of the Henderson Note. On February 1, 2012 (the "Petition Date"), the Debtor filed a voluntary chapter 13 petition. Later that same month, the Debtor voluntarily converted her case to chapter 11. Wells Fargo timely filed a secured proof of claim asserting a debt totaling $801,712.98 as of the Petition Date. POC 7-1 (the "Original Wells Fargo POC").²

A. The Confirmed Plan.

The Debtor filed her combined second amended disclosure statement and plan (the "Plan") on March 20, 2013. Case Dkt. 376. The Plan was confirmed by an order entered on April 15, 2013. Case Dkt. 423. At that time, the Debtor owned three rental properties: the Henderson Property, a single-family residence in Camarillo, California (the "Camarillo Property") and a single-family residence in Carmel, California (the "Carmel Property" and, collectively with the Henderson Property and the Camarillo Property, the "Rental Properties"). The Plan treats each of the first trust deed holders secured by the Rental Properties as partially unsecured and bifurcates their claims into secured claims and unsecured claims. The Plan places Wells Fargo's secured claim in Class Five, fixes the amount of the secured claim at $196,000, places the $605,712.98 balance of the Original Wells Fargo POC in Class Nine with other general unsecured claims and modifies the deed of trust by reducing it to the amount of the $196,000 secured claim.³ Case Dkt. 376 at 26-28. 34. The Plan provides similar treatment to BONYM, the first trust deed holder secured by the Camarillo Property and to Nationstar Mortgage, LLC ("Nationstar"), the first trust deed holder secured by the Carmel Property. The Plan places the unsecured portions of the BONYM and Nationstar claims in Class Nine, along with Wells Fargo's unsecured claim. Id . at 28-32, 34.

The Debtor disputed that Wells Fargo held a claim secured by the Henderson Property and that it was entitled to enforce the Henderson Note. She similarly contested whether BONYM held a claim secured by the Camarillo Property and whether Nationstar held a claim secured by the Carmel Property. With respect to all contested claims, including the secured and unsecured claims of Wells Fargo, BONYM and Nationstar, the Plan required the Debtor to establish a separate reserve account for each secured claim and one reserve account for all disputed unsecured claims. Id . at 19-20. The Debtor was required to make monthly plan payments into the reserve accounts and, when the disputed claim became an allowed claim, to distribute the reserve account funds within ten business days "of entry of an order identifying the allowed claim holder." Id .

B. Debtor's Litigation Against Wells Fargo.

After confirmation of the Plan, the Debtor filed an adversary proceeding against Wells Fargo seeking a judicial determination that Wells Fargo did not hold an enforceable claim against the Henderson Property, that Wells Fargo was not entitled to enforce the Henderson Note and that the Original Wells Fargo POC should be disallowed. Adv. 1:13-ap-01071-AA.⁴ The Court granted summary judgment in favor of Wells Fargo, concluding it was in possession of the Henderson Note, or a transferee entitled to enforce the Henderson Note as a "nonholder in possession of the instrument who has the rights of a holder." Adv. 1:13-ap-01071-AA, Dkt. 69. The Debtor appealed. The Bankruptcy Appellate Panel for the Ninth Circuit ("BAP") affirmed. BAP Case No. CC-14-1579. The Debtor appealed to the Ninth Circuit Court of Appeals. On September 22, 2017, the Ninth Circuit affirmed. 9th Cir. Case No. 15-60082, Dkt. 45. On January 16, 2018, the 90-day period for the Debtor to petition for certiorari lapsed. Pursuant to the Plan, on that date the Original Wells Fargo POC became an allowed claim in Class Five for $196,000 (plus all the monthly payments that came due between the April 15, 2013 plan confirmation date and January 16, 2018) and in Class Nine for $605,712.98.

After it obtained summary judgment, Wells Fargo moved for an award of attorneys’ fees based on the attorneys’ fees provision in the deed of trust. Adv. 1:13-ap-01071-AA, Dkt. 73. The Court granted Wells Fargo's motion, awarding Wells Fargo $50,620.76 in fees and costs and determining that the award should be treated as a prepetition claim (the "Wells Fargo Fee Award"). Adv. 1:13-ap-01071-MB, Dkt. 158, 159.⁵ The Debtor appealed the award of fees and Wells Fargo appealed from the characterization of the award as a prepetition claim. The BAP affirmed both aspects of the Wells Fargo Fee Award. BAP Case Nos. CC-16-1345, CC-16-1383. Both parties appealed to the Ninth Circuit. On June 19, 2018, the Debtor's appeal from the Wells Fargo Fee Award was dismissed pursuant to the stipulation of the parties. 9th Cir. Case No. 17-60062, Dkt. 24. Thereafter, Wells Fargo's cross-appeal was dismissed as moot. 9th Cir. Case No. 17-60062, Dkt. 66, 67. The Wells Fargo Fee Award is therefore a final order.

C. Debtor Fails to Pay the Allowed Wells Fargo Claims & the Allowed BONYM Claims.

Once Wells Fargo's claims became allowed claims in January 2018, the Debtor failed to pay Wells Fargo on either claim and failed to make monthly payments on the secured claim each month after January 2018. Order on Motion of Wells Fargo Bank, N.A... to Convert or Dismiss, etc. , Case Dkt. 904 ("Thus, the allowance of Claim No. 7-1 became final and non-appealable no later than January 16, 2018, and the balance of the reserve account for Claim No. 7-1 should have been remitted to the holder ... Baroni failed to do so. Baroni also has failed to remit to the holder .. the payments that have come due thereafter"). The Debtor also failed to seek relief from the Court regarding her Plan payment obligations to Wells Fargo. On August 21, 2018, Wells Fargo moved to convert or dismiss based on material defaults under her Plan. Dkt. 865. On October 9, 2018, the Court determined the Debtor was in material breach of the Plan and stated it would convert the case unless the Debtor paid the $57,208.45 arrearage by October 15, 2018. Case Dkt. 904. The Debtor cured the default and, ultimately, the Court denied Wells Fargo's motion to convert as moot. Case Dkt. 958.

Like Wells Fargo, BONYM prevailed in the Debtor's litigation against it seeking to disallow BONYM's secured and unsecured claims. The Court entered summary judgment in favor of BONYM in 2016. The Debtor appealed. The United States District Court affirmed. CACD Case No. 2:16-cv-01493, Dkt. 25. The Debtor appealed to the Ninth Circuit. The Ninth Circuit affirmed. 9th Cir. Case No. 16-56617, Dkt. 37. On October 9, 2018, the Supreme Court denied Debtor's petition for certiorari. Adv. 1:13-ap-01072-MB, Dkt. 165. Pursuant to the Plan, on that date BONYM had an allowed claim in Class Seven for $1,145,000 (plus all the monthly payments that came due between the April 15, 2013 confirmation date and October 9, 2018) and in Class Nine for $256,460.90. Case Dkt....