FILED - United States Court of Appeals for the Ninth Circuit

FILED

JUN 14 2010

1

SUSAN M SPRAUL, CLERK

U.S. BKCY. APP. PANEL

2

OF THE NINTH CIRCUIT

UNITED STATES BANKRUPTCY APPELLATE PANEL

3

OF THE NINTH CIRCUIT

4

5 In re:

) BAP No. NC-09-1294-PaJuKw

)

6 FRED G. LABANKOFF,

) Bk. No. 09-10970

)

7

Debtor.

) Adv. No. 09-1048

___________________________________)

8

)

)

9 FRED G. LABANKOFF, SWETLANA

)

LABANKOFF, LUDMILA SHPITJ, and

)

10 SHPITJ LABANKOFF GENERAL TRUST, )

) M E M O R A N D U M1

11

Appellants, )

)

12 v.

)

)

13 GMAC MORTGAGE, LLC, ETS SERVICES, )

LLC, and HOMECOMINGS FINANCIAL, )

14 LLC, INVESTORS TRUST MORTGAGE

)

CORP., and DAVID IZETT,

)

15

)

Appellees.2

)

16 ___________________________________)

17

Argued and Submitted on May 18, 2010

18

at San Francisco, California

Filed - June 14, 2010

19

20

21

1 This disposition is not appropriate for publication.

Although it may be cited for whatever persuasive value it may have

22 (see Fed. R. App. P. 32.1), it has no precedential value. See

9th Cir. BAP Rule 8013-1.

23

2 Appellees GMAC Mortgage, LLC, ETS Services, LLC, and 24 Homecomings Financial appeared and filed a single brief through

counsel. Appellees Investors Trust Mortgage Corp. and David Izett 25 did not appear or file a brief, and mail sent by the Clerk to the

address provided by Appellants was returned as undeliverable. 26 Appellants designated U.S. Trustee as an Appellee in the notice of

appeal, but U.S. Trustee has not appeared or filed a brief, and we 27 can discern no reason why it would have an interest in the outcome

of this appeal. The Panel has therefore deleted U.S. Trustee as 28 an Appellee in the caption of this Memorandum.

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1

Appeal from the United States Bankruptcy Court

for the Northern District of California

2

Honorable Alan Jaroslovsky, Bankruptcy Judge, Presiding

3

4 Before: PAPPAS, JURY and KWAN3, Bankruptcy Judges

5

6

Chapter 74 debtor Fred G. Labankoff ("Debtor" and together

7 with other appellants, "Appellants") appeals the bankruptcy

8 court's order abstaining from deciding an adversary proceeding

9 commenced by Appellants against Appellees GMAC Mortgage, LLC

10 ("GMAC"), ETS Services, LLC ("ETS") and Homecomings Financial, LLC

11 ("Homecomings" and together, "Appellees"), and dismissing the

12 adversary proceeding without prejudice.5 We AFFIRM.

13

14

FACTS

15

These facts are reconstructed from the bankruptcy court's

16 docket and the excerpts of record submitted by Appellees.6

17

18

3 The Honorable Robert N. Kwan, United States Bankruptcy

Judge for the Central District of California, sitting by

19 designation.

20

4 Unless otherwise indicated, all chapter, section and rule

references are to the Bankruptcy Code, 11 U.S.C. ?? 101-1532 and

21 to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037.

The Federal Rules of Civil Procedure are referred to as Civil

22 Rules.

23

5 Appellants' brief contains numerous arguments relating to

a separate appeal before this Panel concerning conversion of

24 Debtor's bankruptcy case from a chapter 11 case to chapter 7,

Labankoff v. U.S. Trustee, (BAP no. NC?09-1300), which we dispose

25 of in a separate Memorandum. We therefore focus in this Memorandum solely on issues relating to the adversary proceeding.

26 6 Appellants have not complied with several Rules relating

27 to bankruptcy appeals, nor with several BAP Rules. In particular,

their brief violates BAP Rules 8010(a)(1) and (c)(1) limiting

28

(continued...)

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1

This appeal apparently deals with disputes between Appellants

2 and GMAC and Homecomings, the holders of the first and second 3 deeds of trust on residential property owned by Appellants.7

4

Appellant Shpitj Labankoff Trust (the "Trust") was created on

5 August 28, 1978; Debtor is trustor and trustee; and Debtor and 6 Appellants Swetlana Labankoff and Ludmilla Shpitj are

7 beneficiaries of the Trust.

8

In November, 2000, Debtor purchased a residence in Santa

9 Rosa, California (the "Property") using his personal funds

10 received in a settlement of a personal injury claim. Appellants

11 assert that the Trust purchased the Property from Debtor on 12 December 22, 2000. Appellants also assert that the Property is

13 titled in Debtor as trustee under the Trust.

14

On December 27, 2005, Debtor as trustee transferred the

15 Property to himself as an individual. That same day, a deed of

16 trust was recorded in Sonoma County on the Property in

17 consideration for a loan of $650,000 to Debtor from Primary 18 Residential Mortgage, Inc.(the "First Deed of Trust"). Then, also

19 on December 27, 2005, Debtor as individual transferred title to

20

21 6(...continued)

22 opening briefs to 30-pages, double spaced, with 14-point type.

The document submitted was 34 pages, single spaced, with 12-point 23 type. Given the circumstances of this appeal, and because

Appellees have not objected, the Panel has accepted and considered 24 Appellants' brief.

25

7 From the record, it is unclear what role ETS Services,

LLC, plays in this drama. ETS is represented by the same counsel

26 in this appeal as GMAC and Homecomings, and so we assume that ETS'

interests are aligned with GMAC and Homecomings. The two non27 appearing appellees, Investors Trust and David Izett, were

apparently loan brokers involved in the financing of one or other

28 of the deeds of trust.

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1 the Property back to the Trust. The beneficial interest under the

2 First Deed of Trust was later assigned to GMAC at some unspecified 3 time.

4

On March 13, 2007, Debtor as trustee again transferred the

5 Property to himself as an individual. That same day, a deed of 6 trust was recorded in Sonoma County on the Property in

7 consideration for a home equity line of credit of $150,000 to

8 Debtor from Homecomings (the "Second Deed of Trust"). Appellees 9 contend that also on March 13, 2007, Debtor recorded transfer of

10 title to the Property back to the Trust, but documentation of that

11 transfer is not in the record.

12

Appellants admit that Debtor defaulted under the First Deed

13 of Trust but the date of default is not clear in the record.8

14

Debtor filed his a chapter 11 bankruptcy petition on

15 April 9, 2009. Then, on May 4, 2009, Appellants filed a complaint

16 commencing the adversary proceeding that is the focus of this

17 appeal. The complaint states claims by Appellants against 18 Appellees for breach of contract, fraud, violation of various

19 truth-in-lending and business practices laws, quiet title and

20 rescission of contract, and various tort and other state law 21 remedies. The docket of the adversary proceeding reflects that

22 the complaint was served on GMAC's and Homecomings' attorney, but

23 not on GMAC and Homecomings. 24

25

26 8 It is also unclear whether Debtor defaulted in his

27 capacity as trustee of the Trust or in his personal capacity as owner of the Property. This goes to the merits of the dispute,

28 which we do not address in this appeal.

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1

On June 12, 2009, Appellants filed a motion for entry of a

2 default judgment against Appellees because they had not answered 3 the complaint. See Civil Rule 55(a), incorporated by Rule 7055.

4

On June 25, 2009, Appellants filed several documents in

5 support of their motion for entry of default judgment.9 One

6 document was the affidavit of debtor in support of the motion, in

7 which he indicated that service of process was accomplished on

8 May 11, 2009 on all defendants, and that GMAC and Homecomings were 9 served through their attorney.

10

On July 17, 2009, Appellees moved to dismiss the adversary

11 proceeding under Civil Rule 12(b)(6), incorporated in Rule 7012, 12 arguing that Appellants' complaint failed to state a claim upon

13 which relief could be granted. As to the federal claims,

14 Appellees alleged all were time-barred by the relevant statutes of 15 limitation.

16

On July 21, 2009, Appellants filed a motion to recuse the

17 bankruptcy judge because he was alleged to be biased against 18 Debtor and because of various allegedly wrongful acts by

19 bankruptcy court staff committed against Debtor that were done

20 with the knowledge and consent of the bankruptcy judge. The 21 bankruptcy court denied the motion to recuse on August 6, 2009,

22 stating the "allegations [are] not true, [and] would not permit 23 recusal even if true. Denied."10 This denial of recusal has not 24 been appealed.

25

26

9 As discussed below, there is considerable dispute among 27 the parties concerning the filings on June 25, 2009.

28

10 Adversary Proceeding Docket no. 20.

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1

On August 6, 2009, Appellants responded to Appellee's motion

2 to dismiss, principally arguing that they were under no obligation

3 to respond because the Appellees were in default for failure to

4 answer the complaint. Appellants later did respond to the motion

5 to dismiss, generally disputing the assertions of Appellees.

6

A hearing on the motion to dismiss was held on September 4,

7 2009. Appellees were represented by counsel and Debtor appeared

8 pro se. Debtor repeated the objection to the motion to dismiss

9 that Appellees were in default for not answering the complaint.

10 The bankruptcy court corrected Debtor, stating that no default had

11 been entered. Hr'g Tr. 3:11 (September 4, 2009). There was no

12 further argument and the bankruptcy court indicated that a

13 decision would be forthcoming.

14

On September 4, 2009, the bankruptcy court entered its

15 memorandum regarding the motion to dismiss. In it, the court

16 concluded that Appellants' complaint was patently defective under

17 Rule 7008 for having failed to state whether the proceeding was

18 core or non-core and, if noncore, whether the Appellants would

19 consent to entry of final judgment by the bankruptcy court. The

20 bankruptcy court indicated that the proceeding was classically

21 non-core in that it arises out of pre-bankruptcy action, was not

22 based on bankruptcy law, and could have been prosecuted in a

23 nonbankruptcy court.

24

The bankruptcy court also ruled that Appellees were not in

25 default because Appellants had failed to effect valid service on

26 them. See Beneficial Cal., Inc. v. Villar (In re Villar),

27 317 B.R. 88, 93 (9th Cir. BAP 2004). Although the bankruptcy

28 court agreed with Appellees that the complaint failed to

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1 articulate appropriate grounds for relief, the court found it

2 better to exercise its discretion to permissively abstain.

3

The bankruptcy court entered its order on September 4, 2009,

4 abstaining and dismissing the proceeding without prejudice.

5 Appellants filed a timely appeal of that order on September 11,

6 2009.

7

8

JURISDICTION

9

The bankruptcy court had jurisdiction under 28 U.S.C. ?? 1334

10 and 157(b)(1) or (c)(1).

11

Appellees challenge the jurisdiction of this Bankruptcy

12 Appellate Panel to hear and decide an appeal of the bankruptcy

13 court's order for permissive abstention. Appellees based their

14 challenge on 28 U.S.C. ? 1334(d), which provides:

15

Any decision to abstain or not to abstain made under subsection (c) (other than a decision not to abstain in

16

a proceeding described in subsection (c)(2)) is not reviewable by appeal or otherwise by the court of

17

appeals under section 158(d), 1291, or 1292 of this title or by the Supreme Court of the United States under

18

section 1254 of this title.

19

By its terms, this statutory prohibition on review of a

20 bankruptcy court's permissive abstention decision applies only to

21 appeals to the United States Courts of Appeals under 28 U.S.C.

22 ?? 158(d), 1291, and 1292, or to the United States Supreme Court

23 under 28 U.S.C. ? 1254. The statute does not prohibit district

24 courts or bankruptcy appellate panels from hearing and deciding

25 appeals from abstention decisions under ? 28 U.S.C. 158(a) and

26 (c). Indeed, the Panel has previously held that identical

27 language in ? 305(c) prohibiting the courts of appeals and the

28 Supreme Court from hearing appeals from a bankruptcy court's

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1 decision to abstain from the entire bankruptcy case under ? 305(a) 2 does not apply to district courts or bankruptcy appellate panels. 3 Eastman v. Eastman (In re Eastman), 188 B.R. 621, 624 (9th Cir. 4 BAP 1997). For the same reasons, we conclude that the Panel has 5 jurisdiction to hear and decide this appeal of an order entered 6 under 28 U.S.C. ? 1334(c)(1).

7 8 9 1. 10 11 12 2.

ISSUES Whether the bankruptcy court abused its discretion in permissively abstaining from deciding the adversary proceeding. Whether the bankruptcy court was biased against Debtor.

13

14

STANDARD OF REVIEW

15

A bankruptcy court's decision to abstain is reviewed for

16 abuse of discretion. Transcorp/Wilbur S. Avant, Jr. M.D. Rollover

17 I.R.A. v. Pioneer Liquidating Corp. (In re Consolidated Pioneer

18 Mortg. Entities), 205 B.R. 422, 424 (9th Cir. BAP 1997).

19

Federal judges are granted broad discretion in supervising

20 proceedings, and a judge's behavior during proceedings justifies

21 reversal if he abuses that discretion by exhibiting bias. Price

22 v. Kramer, 200 F.3d 1237, 1252 (9th Cir. 2002).

23

In applying an abuse of discretion test, we first "determine

24 de novo whether the [bankruptcy] court identified the correct

25 legal rule to apply to the relief requested." United States v.

26 Hinkson, 585 F.3d 1247, 1262 (9th Cir. 2009). If the bankruptcy

27 court identified the correct legal rule, we then determine whether

28 its "application of the correct legal standard [to the facts] was

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