Prior v. Tri Cnty. Bank (In re Prior)

• Decision Date: 31 October 2014
• Docket Number: Adversary No. 13–2288–B.,Bankruptcy No. 13–30690–B–11.
• Citation: 521 B.R. 353
• Court: U.S. Bankruptcy Court — Eastern District of California
• Parties: In re William V. PRIOR, Debtor. William V. Prior, Plaintiff v. Tri Counties Bank, et al., Defendants. Federal Deposit Insurance Corporation, Plaintiff–in–Intervention, v. William V. Prior, Defendant–in–Intervention.

521 B.R. 353

In re William V. PRIOR, Debtor.

William V. Prior, Plaintiff

v.Tri Counties Bank, et al., Defendants.

Federal Deposit Insurance Corporation, Plaintiff–in–Intervention

v.William V. Prior, Defendant–in–Intervention.

Bankruptcy No. 13–30690–B–11.

Adversary No. 13–2288–B.

United States Bankruptcy Court, E.D. California, Sacramento Division.

Signed Oct. 31, 2014.

Daniel L. Egan, Sacramento, CA, for Plaintiff.

Neil J. Rubenstein, San Francisco, CA, for Defendant.

John W. Kim, Los Angeles, CA, for Plaintiff–in–Intervention.

MEMORANDUM DECISION

THOMAS C. HOLMAN, Bankruptcy Judge.

This matter was reopened for supplemental briefing by order entered August 20, 2014, and deemed resubmitted on September 6, 2014. The court now issues the following decision on the merits of the motion.

For the reasons set forth herein, the plaintiff debtor's opposition is overruled. The motion is granted. All claims for relief in the plaintiff debtor's complaint are dismissed without leave to amend based on the court's lack of subject matter jurisdiction under Fed.R.Civ.P. 12(b)(1).

I. BACKGROUND

Debtor William Prior and his wife, Lynair Prior, acquired real property located at 750, 760, 770 and 780 Lincoln Way, Auburn, California (“Property 1”). On or about December 1, 2005, the Priors were parties to a lease with Citizens Bank of Nevada County (“Citizens Bank”), pursuant to which Citizens Bank had agreed to lease portions of Property 1 for use as a bank branch.

In or about January 2006, the debtor and Citizens entered into the following agreements:

1.) The debtor entered into a contract to purchase real property located at 905 Lincoln Way, Auburn, California (“Property 2”).

2.) The debtor entered into a loan transaction with Citizens, pursuant to which the debtor borrowed $1,000,000.00 (“Loan 1”). Loan 1 was secured by a deed of trust on Property 1. The debtor used a portion of the proceeds from Loan 1 as a down payment toward purchase of Property 2. Copies of the promissory note and Deed of Trust evidencing Loan 1 are attached to the proof of claim filed by Tri Counties Bank in the debtor's parent bankruptcy case and are filed as exhibits to TCB's motion for summary judgment. The deed of trust on Property 1 provides, inter alia:

Amendments. This Deed of Trust, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Deed of Trust. No alteration or amendment to this Deed of Trust shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment.

The deed of trust further defines “Related Documents” as follows:

Related Documents. The words “Related Documents” mean all promissory notes, credit agreement, loan agreements, environmental agreements, security agreements, mortgages, deeds of trust, security deed, collateral mortgages, and all other instruments, agreements or documents, whether new or hereafter existing, executed in connection with the Indebtedness.

3.) The debtor entered into another loan transaction with Citizens, pursuant to which the debtor borrowed $1,000,000.00 (“Loan 2,” and, collectively with Loan 1, the “Loans”). Loan 2 was secured by a deed of trust on Property 2. The debtor used the loan proceeds from Loan 2 to complete the purchase of Property 2. Copies of the promissory note and Deed of Trust evidencing Loan 2 are attached to the proof of claim filed by Tri Counties Bank in the debtor's parent bankruptcy case and are filed as exhibits to TCB's motion for summary judgment. The deed of trust on Property 2 provides, inter alia:

Amendments. This Deed of Trust, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Deed of Trust. No alteration or amendment to this Deed of Trust shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment.

The deed of trust further defines “Related Documents” as follows:

Related Documents. The words “Related Documents” mean all promissory notes, credit agreement, loan agreements, environmental agreements, security agreements, mortgages, deeds of trust, security deed, collateral mortgages, and all other instruments, agreements or documents, whether new or hereafter existing, executed in connection with the Indebtedness.

4.) The debtor and Citizens entered into an agreement to terminate the lease of Property 1 and entered into a new lease agreement (the “Lease”), pursuant to which Citizens agreed to lease Property 2 through April 30, 2011. A copy of the Lease is attached to the complaint. Paragraph 21.4 of the Lease states the following:

21.4 Entire Agreement. This Lease constitutes the entire agreement between Landlord and Tenant relative to the Premises and supercedes any prior agreements, brochures or representations, whether written or oral. This lease may be altered, amended or revoked only in writing signed by both Landlord and Tenant. This Lease shall not be effective or binding in any way until fully executed by both parties.

Neither of the deeds of trust related to Loan 1 or Loan 2 specifically references the Lease. The Lease does not specifically reference Loan 1 or Loan 2 or any document related thereto.

The Lease expired by its own terms on or about April 30, 2011. On or about May 23, 2011, the debtor and Citizens entered into a forbearance agreement (the “Forbearance Agreement”), pursuant to which Citizens renewed the lease of Property 2 for five years. Citizens also agreed to pay the debtor $24,550.27 (the “Tax Payment”) for reimbursement of certain property tax liabilities incurred during the term of the Lease. Citizens also agreed to forbear in the exercise of certain of its rights and remedies for alleged defaults under its various loan agreements with the debtor.

Citizens failed in September 2011 and was taken over by the Federal Deposit Insurance Corporation, as receiver (the “FDIC–R”). Following Citizens' failure, the FDIC–R entered into an agreement with defendant Tri Counties Bank (“TCB”), pursuant to which the FDIC–R transferred the rights of Citizens under Loan 1 and Loan 2 to TCB.

Prior to Citizens' failure, it had not paid the Tax Payment required by the Forbearance Agreement to the debtor. The debtor filed a timely proof of claim with the FDIC–R for the amount of the Tax Payment, and on or about February 16, 2012, was issued a receivership certificate, representing an acknowledged claim against the receivership estate. The debtor has not received any funds on account of his allowed claim based on the receivership certificate from the FDIC–R.

Thereafter, on or about March 14, 2012, the FDIC–R repudiated the lease of Property 2. On or about June 15, 2012, the debtor filed a proof of claim with the FDIC–R in the amount of $461,096.44 for the balance due on Citizens' lease of Property 2 from the debtor (the “Rent Claim”). On July 25, 2012, the FDIC–R sent the debtor a notice (the “Notice”) informing him that the Rent Claim was disallowed, based on the FDIC–R's repudiation of the lease. The Notice also stated that if the debtor did not agree with the disallowance, he had the right to file a lawsuit in the United States District Court for the District in which Citizens was located within 60 days from the date of the Notice. The Notice further stated that if the debtor did not file a lawsuit before the end of the 60–day period, the disallowance would be final, the debtor's claim would be forever barred and he would have no further rights or remedies with respect to the Rent Claim.

On April 19, 2013, TCB caused defendant Placer Foreclosure, Inc. (“Placer Foreclosure”) to record a Notice of Default and Election to Sell Under Deed of Trust with respect to Loan 1 and Property 1, asserting that Loan 1 was in default in the amount of $24,360.93 as of April 19, 2013. Also on April 19, 2013, TCB caused Placer Foreclosure to file a Notice of Default and Election to Sell Under Deed of Trust with respect to Loan 2 and Property 2, asserting that Loan 2 was in default in the amount of $24,350.16 as of April 19, 2013.

On July 8, 2013, 348 days after the date of the Notice, the debtor filed a lawsuit in Placer County Superior Court against TCB and Placer Foreclosure. The lawsuit sought the following relief:

1.) Judgment declaring that the debtor was not in default under the promissory notes or deeds of trust relating to Loan 1 and Loan 2.

2.) Judgment declaring that the notices of default recorded against Property 1 and Property 2 failed to comply with applicable law.

3.) Judgment declaring that The debtor is entitled to set off amounts owing to the debtor under the Lease against amounts due under Loan 1 and Loan 2 and that Loan 1 and Loan 2 are satisfied in full.

4.) Injunctive relief prohibiting the defendants from conducting nonjudicial foreclosure proceedings with respect to the deeds of trust securing Loan 1 and Loan 2.

The FDIC–R filed a complaint in intervention in the Placer County lawsuit on or about August 12, 2013, seeking a judicial determination that the Loans were not repudiated by the FDIC–R and are fully enforceable and that the debtor may not set off amounts allegedly owed to him under the Lease and the Forbearance Agreement against amounts he owes under the Loans. On August 14, 2013, The debtor commenced the present chapter 11 bankruptcy case. On August 27, 2013, the debtor filed a notice of removal which removed the Placer County lawsuit to this court. The FDIC–R filed the instant motion to dismiss on December 27, 2013.

II. ANALYSIS

A. Summary of Motion and Arguments

The FDIC–R seeks dismissal of the adversary proceeding with prejudice pursuant to Fed.R.Civ.P. 12(b)(1), made applicable to this adversary proceeding by Fed. R. Bankr.P. 7012. Rule 12(b)(1) provides for dismissal of adversary proceedings by motion on the ground of lack of subject matter jurisdiction.

The FDIC–R argues in...