In re Stoller
| Docket Number | 1:12-bk-14347-MT |
| Decision Date | 17 May 2022 |
| Parties | In re: Michael and Vanessa Stoller Debtor(s). |
| Court | U.S. Bankruptcy Court — Central District of California |
Date May 4, 2022
The Court held a hearing on Trustee's Objection to Debtors' Amended Claim of Exemption. Appearances are as noted on the record for the hearing.
Michael and Vanessa Stoller ("Stollers" or "Debtors") filed a joint Chapter 7 case on May 9 2012. Nancy Zamora was appointed Chapter 7 trustee ("Trustee"). Debtor Michael Stoller is, or was, a practicing attorney, whose practice included significant representation of debtors in bankruptcy cases.
Stollers scheduled their residence which they have owned since 2000, a house at 5747 Hoback Glen Road, Hidden Hills, CA 91302 (the "Property"). The secured lender, or its successor in interest, Wells Fargo Bank, N.A. ("Wells Fargo"), holds the first position on the Property (the "Loan"). Debtors' schedules and amendments thereto, prior to the case closing, and after reopening, are discussed in detail below.
On July 16, 2012, the Trustee filed a no-asset report.[1] Stollers received a discharge on December 19, 2012 and the case was closed. There were no further filings in the Chapter 7 bankruptcy case until August 23, 2021, approximately nine years later.
In the bankruptcy case, Stollers filed a Statement of Intention indicating that they sought modification of the Loan to retain their Property. ECF No. 17. There is agreement that the Loan modification did not work out as planned. Stollers have not made a payment on the Loan since 2013. Raab Decl'n ISO Wells Fargo Objection to Debtors' Motion to Compel Trustee to Abandon Interest in Property of the Estate. ECF No. 130-2 at 3.
Stollers claimed that the recording instruments were defective so the lenders had no right to foreclose, and they "misrepresented facts related to Debtors [sic] efforts to obtain a permanent loan modification, and the defendants' failure to provide one." ECF No. 135 at 5. On March 5, 2015, Stollers commenced litigation against their lenders over their handling of the Loan, involving 11 causes of action, which stopped foreclosure of the Property. Stoller v. Wall Street Mortgage Bankers, et al., Case No. LC102689, Los Angeles Superior Court (the "Litigation").[2] The Superior Court sustained the Defendants' demurrer without leave to amend, and Stollers appealed.
The Court of Appeal's opinion in Stoller v. U.S. Bank Nat'l Ass'n et al., 2018 WL 3868676 (Cal.Ct.App., Aug. 15, 2018) (the "Appellate Opinion") affirmed in part, reversed in part and remanded. Wells Fargo Objection to Debtors' Motion to Compel Trustee to Abandon Interest in Property of the Estate, Reguest for Judicial Notice ("RJN"), ECF No. 130-1 Ex. A. The remaining cause of action which it remanded is a breach of contract (the "Action").
The Court of Appeal took judicial notice of Stollers' Chapter 7 petition, schedules, and discharge order. Wells Fargo RJN, ECF No. 130-1, Ex. A at 33. As to standing, the Court of Appeal held:
"[A] Chapter 7 debtor may not prosecute on his or her own cause of action belonging to the bankruptcy estate unless the claim has been abandoned by the trustee. (Bostanian v. Liberty Savings Bank (1997) 52 Cal.App.4th 1075, 1081. . . If a debtor "failed properly to schedule an asset, including a cause of action, that asset continues to belong to the bankruptcy estate and [does] not revert to [the debtor]" upon discharge. (Cusano v. Klein (9th Cir. 2001) 264 F.3d 936, 945-946 (Cusano).)
Appellate Opinion, ECF No. 130-1, Ex. A, p. 34.
The Court of Appeal concluded that Stollers' Action accrued prepetition, in 2011, and that only the Trustee had standing. Id. at 35-36. The Court of Appeal specifically found that the breach of contract claim "is property of plaintiff's chapter 7 estate." Id. at 33. Nevertheless, after remand, Stollers continued to litigate the Action. In January 2019, they filed a Second Amended Complaint for Damages. Wells Fargo RJN, ECF No. 130-1 Ex. B. In response to Wells Fargo's Motion for Judgment on the Pleadings, Stollers again argued, without success, that they owned the Action, alleging that it was abandoned to them upon discharge in the Chapter 7 case, or in the Chapter 11 cases (discussed below). Wells Fargo RJN, ECF No. 130-1 Ex. C, September 8, 2021 (the "Minute Order").
Stollers state that very little happened which required the bankruptcy case to be reopened between the Appellate Opinion and the Minute Order, the COVID pandemic had stalled the litigation, and they were still disputing the standing issue. Opposition to Motion Objecting to Debtors' Claimed Exemption, ECF No. 135 at 5.
Michael Stoller filed an individual chapter 11 case on June 13, 2014, Case 1:14-bk-12971-MT, which was dismissed on January 31, 2017. Michael Stoller represented himself during most of that case. The August 27, 2014 Status Report references Stollers' 2014 litigation filed in a different jurisdiction, U.S. District Court, S.D.N.Y., against lenders, apparently involving the same loan modification claims. ECF No. 53. He filed another individual chapter 11 case on July 3, 2019, Case 1:19-bk-11646-MT, which was dismissed on January 29, 2021. Amended Schedule A/B does not mention the Litigation. ECF No. 21. However, the Status Report filed September 3, 2019 does refer to the Litigation. ECF No. 54. Michael Stoller did not claim an exemption in the Action in either of the Chapter 11 cases.[3] In a recent development, on February 8, 2022, Vanessa Stoller filed an individual Chapter 11 case, 1:22-bk-10141-MB, which is pending. Attorney Michael S. Kogan represents Ms. Stoller in her Chapter 11 case, and continues to represent Stollers in the Chapter 7 case.
On August 23, 2021, approximately three years after the Appellate Opinion, Stollers moved to reopen their Chapter 7 case under § 350 and Rule 5010. ECF No. 67. During that three-year period, Stollers did not seek an abandonment from the Trustee, and did not even inform the Trustee about the Action.
The basis for the Motion to Reopen stated, "Debtors [originally] did not include a potential claim against the holder of the Debtors' mortgage note, their servicer and related parties as Debtors did not know at that time that they had any claims against the holder of their mortgage, their servicer and/or related parties." ECF No. 67 at 2. It further states, "Debtors' omission of their possible claims was not done with any intent to conceal or withhold this information from the Bankruptcy Court." Id.
Stollers' breach of contract Action alleges that they were promised a permanent loan modification in July 2011 that they never received. Wells Fargo RJN, ECF No. 130-1, Ex. B ¶ 42. Stollers maintain ECF No. 35 at 3-4.
The Order Reopening the Case was entered on September 14, 2021. ECF No. 69. The Action appears to be the estate's only remaining asset.
On September 30, 2021, Trustee was reappointed, and shortly thereafter she withdrew her "no asset" report. On January 21, 2022, Trustee filed a Motion to Approve Compromise, ECF No. 107. On February 4, 2022, Trustee noted a hearing to Approve a Compromise or in the alternative, a § 363(b) sale of the Action. ECF No. 124. On May 4, 2022, the Court approved the settlement as reasonable under Rule 9019, and held an auction. Wells Fargo was the successful bidder at the auction and purchased the Action for $50, 000. Stollers originally had an overbid of $60, 000, which they orally withdrew at the hearing on the auction.
As of January 21, 2022, the date the Trustee filed her Motion to Approve Compromise, Stollers had not yet filed an exemption claim for a portion of that asset, even though the case was reopened approximately five months earlier for the exclusive purpose of scheduling the Action and addressing Stollers' exemption claims.
In their original schedules, filed May 23, 2012, Stollers valued Michael Stoller's law firm, Michael T. Stoller, APC at $40, 000, a "value based upon collectible receivables." ECF No. 15, Schedule B at 5. They claimed an exemption in the amount of $20, 225 in Michael T Stoller, APC[4] under CCP §703.140(b)(1)(5), otherwise known as the "catch-all" or "wildcard" exemption. ECF No. 22. They also claimed an $8500 exemption in jewelry under CCP §703.140(b)(4)(5). Id. Stollers each signed a declaration that the schedules were true and correct as of May 22, 2012. ECF No. 30. On July 11, 2012, Stollers filed Amended Schedule B, scheduling Michael T. Stoller, APC as "$0.00, stating "value based on collectible receivables - net value." ECF No. 36 at 3. Trustee and Stollers' counsel exchanged correspondence about the reduction in value. ECF No. 135, Ex D. Stollers filed no other amended schedule at that time, so Schedule C with the jewelry and the $20, 225 wildcard exemption remained on record.
After the case was reopened, Stollers amended their schedules three times in approximately four months.
a September 24, 2021 Amendments. On September 24, 2021, in Amended Schedule B, Stollers scheduled the Action which they...
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