McChristian v. Ditech Holding Corporation Mortgage, LLC et al

UNITED STATES BANKRUPTCY COURT 	NOT FOR PUBLICATION
SOUTHERN DISTRICT OF NEW YORK
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In re:
Ditech Holding Corporation, et al.,
Debtors.1
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Case No. 19-10412 (JLG)
Chapter 11
(Jointly Administered)
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Michael McChristian,
Plaintiff,
v.
Ditech Holding Corporation, Green Tree
Credit LLC, and Breckenridge Prop Fund
2016 LLC,
Defendants.
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Adversary Case No. 19-01137 (JLG)
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MEMORANDUM DECISION AND ORDER GRANTING BRECKENRIDGE’S
MOTIONS TO DISMISS THE COMPLAINT AND EXPUNGE THE LIS PENDENS
A P P E A R A N C E S :
WEDGEWOOD
Attorneys for Breckenridge Property
Fund 2016, LLC
2015 Manhattan Beach Blvd, Suite 100
Redondo Beach, CA 90278
By: 	Seth P. Cox, Esq.
Joseph C. La Costa, Attorney at Law
Attorneys for Michael McChristian
7860 Mission Center Court, Suite 103
San Diego, CA 92108
By: 	Joseph C. La Costa, Esq.
1 	The Debtors in these chapter 11 cases, along with the last four digits of each Debtor’s federal tax identification
number, as applicable, are Ditech Holding Corporation (0486); DF Insurance Agency LLC (6918); Ditech Financial
LLC (5868); Green Tree Credit LLC (5864); Green Tree Credit Solutions LLC (1565); Green Tree
Insurance Agency of Nevada, Inc. (7331); Green Tree Investment Holdings III LLC (1008); Green Tree
Servicing Corp. (3552); Marix Servicing LLC (6101); Mortgage Asset Systems, LLC (8148); REO Management
Solutions, LLC (7787); Reverse Mortgage Solutions, Inc. (2274); Walter Management Holding Company LLC
(9818); and Walter Reverse Acquisition LLC (8837).
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HON. JAMES L. GARRITY, JR.
U.S. BANKRUPTCY JUDGE
Introduction2
In this adversary proceeding, Michael McChristian (the “Plaintiff”) is suing Green Tree
Credit LLC (“Green Tree”),3 Ditech Holding Corporation Mortgage, LLC (“Ditech,” with Green
Tree, the “Ditech Defendants”) and Breckenridge Property Fund 2016, LLC (“Breckenridge”
and together with the Ditech Defendants, the “Defendants”) to unwind the nonjudicial
Foreclosure Sale of the premises located at 11118 Ironwood Road, San Diego, California (the
“Property”). The Ditech Defendants are debtors in these Chapter 11 Cases. Green Tree is the
assignee of the Deed of Trust to the Property that secured payment of the $326,000.00 loan that
the Plaintiff obtained to purchase the Property. Ditech is Green Tree’s parent company.
Breckenridge is not a debtor; it purchased the Property at the Foreclosure Sale.
In May 2019, the Plaintiff commenced this adversary proceeding. In June 2019, he
recorded a Notice of Pendency of Action (the “Lis Pendens”) against the Property. The
Complaint contains nine causes of action, each of which names Ditech and/or Green Tree as
defendants. The Ditech Defendants jointly filed their own Rule 12(b)(6) motion to dismiss the
2 	Capitalized terms used but not otherwise defined in the Introduction shall have the meanings ascribed to them
herein. References herein to “[ECF No. 	]” are to documents filed in the electronic docket in these jointly
administered cases, In re Ditech, Case No. 19-10412 (the “Chapter 11 Cases”). References herein to “[AP ECF No.
]” are to documents filed in the electronic docket in this adversary proceeding, Michael McChristian v. Ditech
Holding Corporation, et. al, Adversary Case No. 19-01137.
3 	Green Tree Credit LLC is named as a defendant in the Complaint, but the Corporate Assignment of Deed of
Trust, annexed as Exhibit 3 to Breckenridge’s Request for Judicial Notice names Green Tree Servicing LLC as the
assignee of the Deed of Trust. The Court understands that the Plaintiff is suing Green Tree Servicing LLC.
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Complaint.4 On October 29, 2021, the Court granted the motion and dismissed the Ditech
Defendants from the Complaint with prejudice.5
In the four counts that also name Breckenridge as a defendant (the “Breckenridge
Claims”), the Plaintiff seeks equitable relief that, if granted, would result in setting aside the
Foreclosure Sale and restoring Plaintiff with title to the Property. The matters before the Court
are (i) Breckenridge’s motion pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure
(“Rule 12(b)(6)”)6 to dismiss the Breckenridge Claims, with prejudice (the “Motion” or “Rule
12(b)(6) Motion”),7 and (ii) Breckenridge’s motion to expunge the Lis Pendens (the “Motion to
Expunge”).8 As support for the Rule 12(b)(6) Motion, Breckenridge says the Court lacks subject
matter jurisdiction over the Breckenridge Claims because they do not fall within the Court’s core
jurisdiction. It also argues that the Court should dismiss each of those claims because the
Plaintiff has not and cannot state claims for relief thereunder, and in any event, because those
claims are barred by application of the doctrines of collateral and judicial estoppel, and because
it is a bona fide purchaser of the Property that took title to the Property free and clear of any
competing interests. Breckenridge asserts that the Court should grant the Motion to Expunge and
expunge the Lis Pendens because the Plaintiff cannot establish the validity of any “real property
4 	Debtors’ Motion to Dismiss Plaintiff’s Adversary Complaint [AP ECF No. 12] (the “Ditech Dismissal
Motion”).
5 	See Memorandum Decision and Order Granting Debtors’ Motion to Dismiss Plaintiff's Adversary Complaint
[AP ECF No. 27] (the “Ditech Memo and Order”).
6 	Rule 12(b)(6) is made applicable herein by Rule 7012 of the Federal Rules of Bankruptcy Procedure (the
“Bankruptcy Rules”).
7 	See Defendant’s Notice of Motion and Motion to Dismiss Plaintiff’s Adversary Complaint; Memorandum of
Points and Authorities in Support [AP ECF No. 8]. See also Defendant’s Request for Judicial Notice In Support of
Motion To Dismiss Plaintiff’s Adversary Complaint [AP ECF No. 8-1] (the “Request for Judicial Notice”).
8 	See Defendant’s Notice of Motion and Motion to Expunge Lis Pendens; Memorandum of Points and Authorities
in Support [AP ECF No. 6]. See also Defendant’s Request for Judicial Notice in Support of Motion to Expunge Lis
Pendens [AP ECF No. 6-2] (“Request for Judicial Notice – Motion to Expunge”).
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claim” asserted against Breckenridge. It also asserts that the Court should award it its fees and
costs incurred in bringing the Motion to Expunge. The Plaintiff filed a single response to both
motions (the “Opposition”).9 In the Opposition, the Plaintiff failed to address the Motion to
Expunge and most of the arguments made by Breckenridge in support of the Rule 12(b)(6)
Motion.
For the reasons set forth herein, the Court (i) grants the Rule 12(b)(6) Motion and
dismisses the Breckenridge Claims with prejudice and (ii) grants the Motion to Expunge and
expunges the Lis Pendens. The Court awards Breckenridge $900.00 for its fees and costs
incurred in prosecuting the Motion to Expunge.
Background10
In 2005, the Plaintiff purchased the Property from Homecomings Financial Network Inc.
(“Homecomings”). On February 18, 2005, Plaintiff executed a promissory note (the “Note”) in
9 	See 1) Plaintiff’s Opposition to Defendant Breckenridge [sic] Motion to Dismiss the Complaint; 2) Plaintiff’s
Opposition to Defendant Breckenridge [sic] Motion to Remove Lis Pendens; 3) Plaintiff’s Motion for Permission to
File an Amended Complaint [AP ECF No. 18].
10 	The purpose of a Rule 12(b)(6) motion is to test the legal sufficiency of a complaint. Accordingly, the facts
recited herein are those alleged in the Complaint, which the Court presumes to be true in resolving this Motion. See
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009); see also Roth v. Jennings, 489 F.3d 499, 509 (2d Cir. 2007) (“In any
event, a ruling on a motion for dismissal pursuant to Rule 12(b)(6) is not an occasion for the court to make findings
of fact.”). In support of the Motion, Breckenridge asks the Court to take judicial notice of certain documents filed of
record in California state court and the United States Bankruptcy Court for the Southern District of California. See
Request for Judicial Notice Exs. 1-11. It is well settled that in resolving a Rule 12(b)(6) motion, the court “may take
notice of proceedings in other courts, both within and without the federal judicial system, if those proceedings have
a direct relation to matters at issue.” St. Louis Baptist Temple, Inc. v. FDIC, 605 F.2d 1169, 1172 (10th Cir.1979).
The documents cited by Breckinridge in support of the Request for Judicial Notice directly bear on the merits of the
claims at issue in the Complaint. Moreover, the Plaintiff directly or indirectly relies on most of them in support of
the Complaint. Thus, subject to the standards applicable to Rule 12(b)(6) motions, the Court takes judicial notice of
those documents. See, e.g., Glob. Network Commc’ns, Inc. v. City of New York, 458 F.3d 150, 156 (2d Cir.
2006) (stating that on a motion to dismiss for failure to state a claim a court may consider materials extrinsic to the
pleadings, if the materials are integral to the complaint or matters subject to judicial notice); Kasey v. Molybdenum
Corp. of America, 336 F.2d 560, 563 (9th Cir. 1964) (where parties had history of litigation in state court, court took
“judicial notice of. . . officially reported decisions and refers to them for a better understanding of the complicated
factual situation here existing.”); Wingate v. Gives, 05 Civ. 1872 (LAK), 2016 WL 519634, at *1 (S.D.N.Y. Feb. 5,
2016) (court took judicial notice of facts in reported state court decisions).
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the amount of $326,000.00 to finance the purchase of the Property. As security for the Note, the
Plaintiff executed a deed of trust (the “Deed of Trust”) which was recorded with the County of
San Diego on February 28, 2005. See Deed of Trust.11 The Deed of Trust identified
Homecomings as the lender and Mortgage Electronic Registration Systems, Inc. (“MERS”) as
nominee for the lender and beneficiary of the Deed of Trust. See id. at 2. Pursuant to an
assignment recorded on September 17, 2010, MERS assigned its beneficial interest in the Deed
of Trust to GMAC Mortgage, LLC (“GMAC”). See Assignment of Deed of Trust.12 In turn, on
February 16, 2015, GMAC assigned the Deed of Trust to Green Tree. See Corporate Assignment
of Deed of Trust.13
The Plaintiff contends that beginning in December 2013 and continuing to December
2014, he received notices of past due payments and notices of default from Green Tree which
were erroneous. See Compl. ¶¶ 38-59. He asserts that beginning in January 2015 and into 2017,
he received notices that his loan was in default and the Property was going into foreclosure. See
id. ¶¶ 60-73. See also Notice of Default recorded November 29, 2016.14 The Plaintiff does not
deny that he was in arrears under the Note but disputes the amount claimed due and owing under
the notices. See Compl. ¶ 75. By Notice of Trustee’s Sale dated November 9, 2017, a foreclosure
sale of the Property was scheduled for January 5, 2018. See Notice of Trustee’s Sale;15 see also
Compl. ¶ 66 (Plaintiff acknowledges, that “[o]n November 29, 2016, Plaintiff received 3
11 	A copy of the Deed of Trust is annexed as Exhibit 1 to the Request for Judicial Notice.
12 	A copy of the Assignment of Deed of Trust is annexed as Exhibit 2 to the Request for Judicial Notice.
13 	A copy of the Corporate Assignment of Deed of Trust is annexed as Exhibit 3 to the Request for Judicial
Notice.
14 	A copy of the Notice of Default is annexed as Exhibit 4 to the Request for Judicial Notice.
15 	A copy of the Notice of Trustee’s Sale is annexed as Exhibit 5 to the Request for Judicial Notice.
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[Notices of Default] with a sale date[.]”), id. ¶ 74 (noting the foreclosure sale was scheduled for
January 1, 2018). On April 26, 2018, to avoid foreclosure of the Property, the Plaintiff
commenced a case under chapter 13 of the Bankruptcy Code in the United States Bankruptcy
Court for the Southern District of California (the “Chapter 13 Case”). See Compl. ¶ 79. See also
Plaintiff’s Voluntary Chapter 13 Petition.16 In support of the petition, the Plaintiff filed Schedule
A/B. In that schedule, the Plaintiff was asked to “Describe Your Financial Assets,” and, in
particular to state whether he “own[ed] or [had] any legal or equitable interest” in (i) “[c]laims
against third parties, whether or not you have filed a lawsuit or made a demand for payment;” or
(ii) “[o]ther contingent and unliquidated claims of every nature, including counterclaims of the
debtor or any rights to setoff claims.” See Schedule A/B, Part 4 ¶¶ 33, 34. The Plaintiff
responded “No” to both questions; he did not disclose any of the claims he is asserting in the
Complaint or any right to set-off against the Defendants. See id. On December 4, 2018, the
bankruptcy court dismissed the Chapter 13 Case without prejudice. See Compl. ¶ 80; see also
Notice of Entry of Order Dismissing Case.17
After the bankruptcy court dismissed the case, Clear Recon Corp., as trustee under the
Deed of Trust, sold the Property at a nonjudicial foreclosure sale (the “Foreclosure Sale”) to
Breckenridge for the sum of $593,500.00. On January 15, 2019, the trustee recorded a Trustee’s
Deed Upon Sale to Breckenridge. See Trustee’s Deed Upon Sale.18 On January 23, 2019,
Breckenridge commenced an unlawful detainer eviction action in the Superior Court for the State
of California – San Diego County (the “California Superior Court”) against the Plaintiff for
16 	A copy of the Voluntary Chapter 13 Petition is annexed as Exhibit 6 to the Request for Judicial Notice.
17 	A copy of the Notice of Entry of Order Dismissing Case is annexed as Exhibit 7 to the Request for Judicial
Notice.
18 	A copy of the Trustee’s Deed Upon Sale is annexed as Exhibit 8 to the Request for Judicial Notice.
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damages and to obtain possession of the Property (the “Unlawful Detainer Action”). See
Complaint for Unlawful Detainer Action.19 In his answer filed in the Unlawful Detainer Action,
the Plaintiff raised affirmative defenses, including that the trustee’s sale was invalid and did not
convey clear title to the Property to Breckenridge. See Answer - Unlawful Detainer Action ¶
3k.20 The Plaintiff and Breckenridge subsequently entered into a Stipulated Agreement for
Judgment or Dismissal in that action (the “Stipulated Judgment”).21 Pursuant to the Stipulated
Judgment, Plaintiff agreed to surrender possession of the Property to Breckenridge on July 8,
2019 and to pay Breckenridge a monetary judgment of $23,019.56. Stipulated Judgment at 1-2.
The Stipulated Judgment conclusively resolved the complaint filed in the Unlawful Detainer
Action in favor of Breckenridge.
The Chapter 11 Cases
On February 11, 2019 (the “Petition Date”), Ditech Holding Corporation (f/k/a Walter
Investment Management Corp.) and certain of its affiliates (“Debtors”) filed petitions for relief
under chapter 11 of the Bankruptcy Code in this Court. Thereafter, the Debtors remained in
possession and control of their business and assets as debtors in possession pursuant to sections
1107(a) and 1108 of the Bankruptcy Code. On September 26, 2019, the Debtors confirmed their
Third Amended Plan, and on September 30, 2019, that plan became effective.22
19 	A copy of the Complaint for Unlawful Detainer Action is annexed as Exhibit 9 to the Request for Judicial
Notice.
20 	A copy of the Answer - Unlawful Detainer Action is annexed as Exhibit 10 to the Request for Judicial Notice.
21 	A copy of the Stipulated Judgment is annexed as Exhibit 11 to the Request for Judicial Notice.
22 	See Third Amended Joint Chapter 11 Plan of Ditech Holding Corporation and its Affiliated Debtors [ECF No.
1326]; Order Confirming Third Amended Joint Chapter 11 Plan of Ditech Holding Corporation and its Affiliated
Debtors [ECF No. 1404]; Notice of (I) Entry of Order Confirming Third Amended Joint Chapter 11 Plan of Ditech
Holding Corporation and its Affiliated Debtors, (II) Occurrence of Effective Date, and (III) Final Deadline for
Filing Administrative Expense Claims [ECF No. 1449].
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The Adversary Proceeding
On May 15, 2019, the Plaintiff commenced this adversary proceeding by filing the
Complaint.23 On June 4, 2019, the Plaintiff recorded the Lis Pendens against the Property, but
did not serve a copy on Breckenridge. See Motion to Expunge at 3. See also Lis Pendens. 24 In
substance, in the Complaint, the Plaintiff challenges the validity of the Foreclosure Sale. Plaintiff
says that the sale was not authorized because the assignments of the beneficial interests in the
Note and Deed of Trust to Green Tree were defective. He also asserts, for the same reason, that
the Ditech Defendants improperly collected monthly payments from him on account of the Note.
The Complaint contains nine causes of action. Two of the counts seek monetary damages solely
against the Ditech Defendants; the remaining counts seek different forms of equitable relief
against Breckenridge and/or the Ditech Defendants. The four Breckenridge Claims consist of:
Count 1: Declaratory Relief to determine the status of Defendants’ Claims
(pursuant to 28 U.S.C. §§ 2201, 2202) - seeking a declaration that the Defendants
“have no right or interest in Plaintiff’s Note, Deed of Trust, or the Property, which
authorizes them, in fact or as a matter of law, to any benefit or right set forth in
the Note and Deed of Trust, and consequently the ‘sale’ to Breckenridge is and
was void an [sic] without any force or effect” and a determination of whether
Ditech and Breckenridge’s claims are enforceable. See Compl. ¶¶ 145, 147. The
plaintiff also seeks punitive damages in an amount to be determined at trial. Id. ¶
148.
Count 7: Cancellation of “Instruments.”25 Plaintiff alleges that the following
Instruments executed in connection with his Note and mortgage were falsely
executed and recorded, and that the Defendants were not the lawful holders of
such Instruments: (i) “Deed of Trust” recorded as Document No. 2005-0159780;
(ii) “Deed” a/k/a “Deed Upon Foreclosure” recorded as Document No. 2019-
23 	See Verified Complaint for: 1. Declaratory Relief [28 U.S.C. §§ 2201, 2202] 2. Quasi Contract 3. Negligence 4.
Violation of 15 U.S.C. §1692, et seq. 5. Violation of California Business and Professions Code Section 17200, et
seq. 6. Accounting 7. Cancellation of Instruments 8. Set Aside Trustee’s Sale [AP ECF No. 1] (the “Complaint” or
“Compl.”).
24 	A copy of the Lis Pendens is annexed as Exhibit 12 to the Request for Judicial Notice – Motion to Expunge.
25 	Plaintiff collectively refers to the Deed of Trust, the “Deed Upon Foreclosure” recorded as Document No. 2019-
0014732, the “Deed of Trust” recorded as Document No. 2019-30756 and the Trustee’s Deed upon Sale, as the
“Instruments.” The Court adopts this definition herein.
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0014732; (iii) “Deed of Trust” recorded as Document No. 2019-30756; and (iv)
“Trustee’s Deed upon Sale” executed in favor of Breckenridge and recorded with
the San Diego County Recorder’s Office on January 15, 2019. The Plaintiff
requests that the Defendants return these Instruments to the Plaintiff for
cancellation. See id. ¶¶ 185-191.
Count 8: Quiet Title. Plaintiff seeks a determination from this Court that
Breckenridge’s claims in the property are void as of January 10, 2019, and
Breckenridge has no interest in the Property because the foreclosure sale was
fraudulent and not a true sale since the Ditech Defendants did not have any legal
interests to convey the Property. See id. ¶¶ 194-198. Plaintiff asserts that the
Ditech Defendants, through their agents are in violation of federal law because the
interest in the Note and Deed of Trust belongs to the successor of the actual
lender, which is not the Ditech Defendants. See id. ¶¶ 196-197. He seeks a
determination that the Ditech Defendants had no rights or interest to convey to
Breckenridge in the Foreclosure Sale in January 2019.
Count 9: Set Aside Trustee’s Sale. Plaintiff contends that the trustee’s foreclosure
was irregular and void ab initio because the Note was never properly assigned to
the Ditech Defendants, who therefore, had no authority to conduct the foreclosure
sale. See id. ¶¶ 111-113 [sic].
The Motions
In the Motion, Breckenridge contends that the Court should dismiss the Breckenridge
Claims with prejudice. It asserts that the Court lacks subject matter jurisdiction over the claims.
See Motion ¶¶ A1-A2. It also contends that those claims fail as a matter of law (id. ¶¶ B1-B4),
and in any event, that they are barred by application of the doctrines of collateral estoppel (id. ¶
A3), and judicial estoppel (id. ¶ A4), and because Breckenridge is a bona fide purchaser of the
Property. Id. ¶ A5. Under California law, a party to an action who asserts a valid “real property
claim” may file a lis pendens. Breckenridge asserts that the Court should grant the Motion to
Expunge because the Plaintiff does not hold a “real property claim.” See generally Motion to
Expunge.
In his Opposition, the Plaintiff does not address the Motion to Expunge, at all, or any of
Breckenridge’s arguments in support of the Rule 12(b)(6) Motion. Rather, through counsel,
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Plaintiff asserts that he has alleged an actual controversy with Breckenridge sufficient to
maintain a cause of action for declaratory judgment. Opposition ¶ D. He also argues that he has
sufficiently alleged claims for negligence and quasi-contract, a claim under California Business
and Professions Code §17200 and a claim for cancellation of Instruments. Id. ¶¶ E, F, H, J.
However, he asserts only the last of those claims against Breckenridge. He also contends that the
Ditech Defendants are “debt collectors’ under the Fair Debt Collection Practices Act. Id. ¶ G.
That too is irrelevant to Breckenridge. The Plaintiff also asserts that: (i) his cause of action has
not been filed to interfere with a lawful nonjudicial foreclosure proceeding; (ii) he is not
contending that improper securitization of the Note relieved him of his payment obligations and
does not contend that the Note or Deed of Trust is void; and (iii) he has not asserted that
possession of the Note is a prerequisite to foreclose on the Property. Id. ¶¶ A, B, C. Finally, he
seeks leave of the Court to amend the Complaint to include the trustee under the Deed of Trust as
a party herein. Id. at 2.
Jurisdiction
In the Complaint, the Plaintiff asserts that the Court has jurisdiction over the claims in
this action pursuant to 28 U.S.C. §§ 1331, 1343, 2201, 2202, 12 U.S.C. § 2605, 15 U.S.C. §
1692, and 42 U.S.C. § 1983. See Compl. ¶ 4. He also asserts that the Court has supplemental
jurisdiction over the pendant state law claims under 28 U.S.C. § 1367, and that this is a core
proceeding. Id. ¶¶ 5, 6. In support of the Motion, Breckenridge contends that the Court should
dismiss the Breckenridge Claims with prejudice for lack of subject matter jurisdiction because
they fall outside the Court’s core jurisdiction. Motion ¶¶ A1-A2.
Section 1334 of title 28 of the United States Code vests the district courts with “original
but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or
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related to cases under title 11.” 28 U.S.C. § 1334(b). Pursuant to 28 U.S.C. § 157, the district
courts may “refer” any or all of these proceedings “to the bankruptcy judges for the district.” The
United States District Court for the Southern District of New York has done so. See Amended
Standing Order of Reference dated January 31, 2012 (Preska, C.J.). Once a proceeding has been
referred to the bankruptcy court, “[t]he manner in which a bankruptcy judge may act. . . depends
on the type of proceeding involved.” Stern v. Marshall, 564 U.S. 462, 473 (2011). In that regard,
and “[t]o satisfy constitutional limitations on the subject matter jurisdiction of the Article I
bankruptcy courts, bankruptcy jurisdiction is divided into ‘core’ and ‘non-core’ jurisdiction.” In
re Fairfield Sentry, 458 B.R. 665, 674 (S.D.N.Y. 2011).
Bankruptcy core jurisdiction extends to all civil proceedings arising under title 11 or
arising in a case under title 11. See 28 U.S.C. § 157(b)(1); see also Wood v. Wood (In re Wood),
825 F.2d 90, 96 (5th Cir.1987) (“[S]ection 157 apparently equates core proceedings with the
categories of ‘arising under’ and ‘arising in’ proceedings.”). A core proceeding, as a general
matter, is one that invokes a substantive right under the Bankruptcy Code or that could arise only
in the context of a bankruptcy case. Binder v. Price Waterhouse Co., LLP (In re Resorts Int’l,
Inc.), 372 F.3d 154, 162-63 (3d Cir. 2004); Wood, 825 F.2d at 96-97. The Court previously
determined that it has core jurisdiction over the claims for relief asserted in the Complaint
against the Ditech Defendants. See Ditech Memo and Order at 4. Those claims plainly “arise in”
the Chapter 11 Cases as they fall within the claim allowance process under 28 U.S.C. §
157(b)(2)(B). In contrast, the Plaintiff’s claims against Breckenridge neither “arise under” title
11, nor “arise in” the Chapter 11 Cases. They are based on Breckenridge’s prepetition conduct
with the Plaintiff and arise under California state law. Accordingly, the claims fall outside the
scope of the Court’s core jurisdiction. See Joremi Ener., Inc. v. Hershkowitz (In re New 118 th
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LLC), 396 B.R. 885, 890 (Bankr. S.D.N.Y. 2008) (finding that “garden-variety state law claim[s]
between non-debtor parties” are non-core); Scott v. Am. Sec. Ins. Co. (In re Scott), 572 B.R. 492,
521 (Bankr. S.D.N.Y. 2017) (holding that state-law crossclaims between non-debtors do not fall
within bankruptcy court’s core jurisdiction). See also Lead I JV, LP v. North Fork Bank, 401
B.R. 571, 581-82 (Bankr. E.D.N.Y. 2009) (finding purely state law claims between non-debtors
sounding in tort and contract law at best are related to non-core matters, not core matters). The
fact that, as described below, the Plaintiff filed a proof of claim based on “Litigation” in these
cases does not alter that conclusion. See In re Holiday RV Superstores, Inc., 362 B.R. 126, 129
(D. Del. 2007) (finding the fact that plaintiffs “may have a claim against someone other than the
estate for the same claim . . . [did] not transform a non-core proceeding into a core
proceeding.”).
Non-core proceedings are those that are not core “but that [are] otherwise related to a
case under title 11.” See 28 U.S.C. § 157(c)(1). See also Stern v. Marshall, 564 U.S. at 477 (“The
terms ‘non-core’ and ‘related’ are synonymous.”) (citation omitted). A dispute between third
parties is “related to” a bankruptcy if “its outcome might have any conceivable effect on the
bankruptcy estate.” Pfizer Inc. v. Law Offices of Peter G. Angelos (In re Quigley Co., Inc.), 676
F.3d 45, 53 (2d Cir. 2012) (footnote omitted) (quoting In re Cuyahoga Equip. Corp., 980 F.2d
110, 114 (2d Cir. 1992)). Accord Parmalat Capital Fin. Ltd. v. Bank of Am. Corp., 639 F.3d 572,
579 (2d Cir. 2011) (“[A] civil proceeding is related to a title 11 case if the action’s outcome
might have any conceivable effect on the bankrupt estate.” (internal quotation marks omitted)).
The resolution of the Breckenridge Claims will have no effect on the administration of these
Chapter 11 Cases. As of the Petition Date, the Debtors had no interest in the Property, and did
not hold the Note or the Deed of Trust. See Ditech Dismissal Motion ¶ 10 (“At the
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commencement of these bankruptcy proceedings, the Ditech Defendants, by the Plaintiff’s own
pleadings, did not hold title or any other instrument over the Property, nor are they alleged to
hold title now.”). In those claims, the Plaintiff seeks a determination of Breckenridge’s rights to
and interest in the Property, and cancellation of the underlying title and security documents.
Resolution of those claims will not impact the Debtors’ estates or the administration of the
Chapter 11 Cases, because the Property is not property of the Debtors’ estates, and the Ditech
Defendants have no interest in the Instruments. Those claims are not related to the Debtors’
Chapter 11 Cases. See, e.g., Baker Dev. Corp. v. Mulder (In re Mulder), 307 B.R. 637, 645-646
(Bankr. N.D. Ill. 2004) (explaining that “[a] dispute between third parties is related to a
bankruptcy only if ‘the dispute affects the amount of property for distribution [i.e., the debtor’s
estate] or the allocation of property among creditors[,]’” and finding that non-debtor plaintiff’s
claims against non-debtor defendant for damages, reformation, quiet title, and specific
performance were not claims related to the debtor’s case because there would be no impact to the
administration of the debtor’s estate or distribution to the debtor’s creditors) (citation omitted).
Section 1367(a) of title 28 of the United States Code, states, in part:
[I]n any civil action of which the district courts have original jurisdiction, the
district courts shall have supplemental jurisdiction over all other claims that are so
related to claims in the action within such original jurisdiction that they form part
of the same case or controversy under Article III of the United States Constitution.
Such supplemental jurisdiction shall include claims that involve the joinder or
intervention of additional parties.
28 U.S.C. § 1367(a). The Second Circuit has held that a bankruptcy court may exercise
supplemental jurisdiction under section 1367. Lionel Corp. v. Civale & Trovato, Inc. (In re
Lionel Corp.), 29 F.3d 88, 92 (2d Cir. 1994). “This section allows a district court that has
original jurisdiction over some claims in an action to exercise supplemental jurisdiction over
additional claims that are part of the same case or controversy.” In re Enron Corp., 353 B.R. 51,
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55 (Bankr. S.D.N.Y. 2006) (citation omitted). Claims are “part of the same case or controversy”
when they “derive from a common nucleus of operative fact,” Achtman v. Kirby, McInerney &
Squire, LLP, 464 F.3d 328, 335 (2d Cir. 2006) (quoting Promisel v. First Am. Artificial Flowers
Inc., 943 F.2d 251, 254 (2d Cir. 1991)), and “are such that [the claimant] would ordinarily be
expected to try them all in one judicial proceeding. . . .” Semi–Tech Litig. LLC v. Bankers Trust
Co., 234 F.Supp.2d 297, 300 (S.D.N.Y. 2002) (quoting Promisel, 943 F.2d at 254). Those
standards are satisfied here. The Court has core jurisdiction over the claims asserted against the
Ditech Defendants in the Complaint. The Plaintiff is asserting the claims in Counts 1, 7, 8 and 9
against Breckenridge and the Ditech Defendants. Thus, those claims derive from the same
operative facts, are part of the same controversy, and ordinarily would be tried together in state
court. In resolving the Motion, the Court will exercise supplemental jurisdiction over the
Breckenridge Claims. See, e.g., In re Radcliffe, 317 B.R. 581, 590 (Bankr. D. Conn. 2004)
(declining to dismiss plaintiff’s third claim for declaratory judgment and constructive trust over
debtor’s residential property where claim was not core or related to debtor’s bankruptcy case as
it was exempt from property of the estate, because the court could exercise supplemental
jurisdiction over such claim since the claim is based on the same facts and circumstances
underlying the first and second claims relating to the purchase of the property).
The Court cannot enter a final judgment in non-core matters without the parties’ consent.
See 28 U.S.C. § 157(c)(2). That consent may be express or implied and must be “knowing and
voluntary.” Wellness Int’l Network, Ltd. v. Sharif, 575 U.S. 665, 685 (2015). In determining
whether that standard is satisfied, a court must consider whether “the litigant or counsel was
made aware of the need for consent and the right to refuse it, and still voluntarily appeared to try
the case” before the bankruptcy court. Roell v. Withrow, 538 U.S. 580, 590 (2003). In making
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that assessment a court may undertake “a deeply factbound analysis of the procedural history” in
the proceeding. Wellness, 575 U.S. at 685. Here the Court focuses on the parties’ pleadings, as
the procedural history consists merely of the filing of the Complaint and the Motion.
Under Bankruptcy Rules 7008 and 7012(b), parties must state in their pleadings whether
they consent to final adjudication by the bankruptcy court. See Fed. R. Bankr. P. 7008 (“In an
adversary proceeding before a bankruptcy court, the complaint. . . shall contain a statement that
the pleader does or does not consent to entry of final orders or judgment by the bankruptcy
court.”); Fed. R. Bankr. P. 7012(b) (“Rule 12(b)-(i) FR Civ P applies in adversary proceedings.
A responsive pleading shall include a statement that the party does or does not consent to entry
of final orders or judgment by the bankruptcy court.”). The Plaintiff failed to include the
statement in the Complaint called for under Bankruptcy Rule 7008. However, in the Complaint
he invoked the Court’s supplemental jurisdiction (Compl. ¶ 5) and asked the Court to issue a
final judgment awarding him multiple forms of relief against Breckenridge. See id. ¶¶ 199-209.
Through that conduct, he plainly consented to the entry of a final judgment by this Court. So did
Breckenridge. In the Motion, Breckenridge asserted that the Court lacked core jurisdiction over
the adversary proceeding, but plainly consented to the Court entering a final judgment dismissing
the Complaint. Both parties were represented by counsel and neither challenged the Court’s
authority to enter a final judgment resolving the Motion. Both parties consented to this Court’s
entry of a final judgment resolving the Motion.
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Discussion26
The Rule 12(b)(6) Motion
The Court turns to the merits of the Motion. In doing so, the Court first considers whether
the Breckenridge Claims as pled, state grounds for relief against Breckenridge under applicable
law. As explained below, the Court finds that they fail to do so. In considering Breckenridge’s
alternative arguments, the Court finds that the Plaintiff cannot cure the pleading deficiencies for
those claims because, in any event, the Plaintiff is collaterally estopped (but not judicially
estopped) from asserting them and because the Plaintiff is a bona fide purchaser who paid value
for the Property. Finally, the Court rejects the Plaintiff’s request for leave to file an amended
complaint as futile.
Legal Standards Applicable to Rule 12(b)(6) Motion
Rule 12(b)(6) provides that a party may seek to dismiss a complaint “for failure to state a
claim upon which relief can be granted[.]” Fed. R. Civ. P. 12(b)(6). A Rule 12(b)(6) motion is
“designed to test the legal sufficiency of the complaint, and thus, does not require the [c]ourt to
examine the evidence at issue.” DeJesus v. Sears, Roebuck & Co., 87 F.3d 65, 69 (2d Cir. 1996)
(citing Carey v. Mt. Desert Island Hosp., 910 F. Supp. 7, 9 (D. Me. 1995)); see also Chance v.
Armstrong, 143 F.3d 698, 701 (2d Cir. 1998) (noting that under Rule 12(b)(6), the issue “is not
whether a plaintiff is likely to prevail ultimately, but whether the claimant is entitled to offer
evidence to support the claims” (quoting Branham v. Meachum, 77 F.3d 626, 628 (2d Cir.
1996))). “To survive a motion to dismiss, a complaint must contain sufficient factual matter,
26 	The Property is located in San Diego, California, so California law governs the substantive law of this action.
See Blecher v. Cooperstein (In re Cooperstein), 7 B.R. 618, 621 (Bankr. S.D.N.Y. 1980) (noting that “rights to
property affixed to realty are governed by the law of the situs of the realty”); United States v. Certain Parcels of
Land, 131 F. Supp. 65, 70 (S.D. Cal. 1955); (“[R]ealty is governed by the law of the place where situated-
California.”) (citation omitted); CAL. CIV. C ODE § 755 (West 1872) (“Real property within this State is governed by
the law of this State, except where the title is in the United States.”).
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accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009) (“Iqbal”) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)
(“Twombly”)). A claim is facially plausible “when the plaintiff pleads factual content that allows
the court to draw the reasonable inference that the defendant is liable for the misconduct
alleged.” Id. (citing Twombly, 550 U.S. at 556). In resolving a Rule 12(b)(6) motion, a court
must “accept all factual allegations in the complaint as true,” even if the allegations are doubtful
in fact. Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 309 (2007) (“Tellabs”); see
also Twombly, 550 U.S. at 544.
Courts assess the sufficiency of the complaint in light of the pleading requirements in
Rule 8 of the Federal Rules of Civil Procedure (“Rule 8”).27 Rule 8(a)(2) provides that a
complaint must contain “a short and plain statement of the claim showing that the pleader is
entitled to relief[.]” Fed. R. Civ. P. 8(a)(2). Under Rule 8’s “liberal” notice pleading standards,
“the pleader need only set forth a short and plain statement of the claim showing that the pleader
is entitled to relief.” Liquidation Tr. v. Daimler AG (In re Old CarCo LLC), 435 B.R. 169, 176
(Bankr. S.D.N.Y. 2010) (citation omitted); see also Swierkiewicz v. Sorema N.A., 534 U.S. 506,
514 (2002) (“The liberal notice pleading of Rule 8(a) is the starting point of a simplified pleading
system, which was adopted to focus litigation on the merits of a claim.”). The “short and plain
statement” called for in Rule 8 must provide “enough facts to state a claim to relief that is
plausible on its face.” Twombly, 550 U.S. at 547. In other words, the plaintiff must plead “factual
content that allows the court to draw the reasonable inference that the defendant is liable for the
misconduct alleged.” Iqbal, 556 U.S. at 678. Further, the Court “must consider the complaint in
its entirety, as well as other sources courts ordinarily examine when ruling on Rule 12(b)(6)
27 	Rule 8 is made applicable herein by Bankruptcy Rule 7008.
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motions to dismiss, in particular, documents incorporated into the complaint by reference, and
matters of which a court may take judicial notice.” Tellabs, 551 U.S. at 322.
Whether The Breckenridge Claims State
Claims For Relief Under Applicable Law
Count 7 - Cancellation of Instruments
Under California Civil Code section 3412, “[a] written instrument, in respect to which
there is a reasonable apprehension that if left outstanding it may cause serious injury to a person
against whom it is void or voidable, may, upon his application, be so adjudged, and ordered to be
delivered up or canceled.” CAL . CIV. CODE § 3412 (West 1872). To state a claim to cancel an
instrument under section 3412, the Plaintiff must allege facts demonstrating that “(1) the
instrument is void or voidable due to, for example, fraud; and (2) there is a reasonable
apprehension of serious injury including pecuniary loss or the prejudicial alteration of one’s
position.” U.S. Bank Nat’l Assn. v. Naifeh, 1 Cal. App. 5th 767, 778, 205 Cal. Rptr. 3d 120, 128
(2016), as modified on denial of reh’g (Aug. 17, 2016) (citation omitted). See also Thompson v.
Ioane, 11 Cal. App. 5th 1180, 1194, 218 Cal. Rptr. 3d 501, 512 (2017).
Plaintiff claims, without asserting any factual support, that the assignments of the Deed
of Trust by MERS to GMAC, and from GMAC to Green Tree, are invalid. See Compl. ¶¶ 88, 93,
94, 97, 103, 137, 139. In resolving the Motion, the Court need not give weight to those
conclusory allegations. See Iqbal, 556 U.S. at 686 (“the Federal Rules do not require courts to
credit a complaint’s conclusory statements without reference to its factual context.”). To state a
claim under section 3412, the Plaintiff “must provide facts, not mere conclusions, showing the
apparent validity of the instrument designated, and point out the reason for asserting that it is
actually invalid.” Santana v. BSI Fin. Servs. Inc., 495 F. Supp. 3d 926, 950 (S.D. Cal. 2020)
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(internal quotation marks omitted) (citing Ephraim v. Metropolitan Trust Co. of California, 28
Cal. 2d 824, 833, 172 P.2d 501 (1946)). He has failed to meet that burden.
The documents of record demonstrate that MERS assigned the Deed of Trust to GMAC,
and that GMAC assigned the Deed of Trust to Green Tree. See Assignment of Deed of Trust;
Corporate Assignment of Deed of Trust. The Plaintiff acknowledges that he “received a transfer
notice. . . stating the loan was being transferred from GMAC to Green Tree[,]” (Compl. ¶ 20),
that as of July 2016, he was aware that “Green Tree. . . was now a part of Ditech” (id. ¶ 64), and
that he sent payments due under the Deed of Trust to Ditech. Id. ¶ 68. The assignments clearly
demonstrate that the Deed of Trust was properly transferred to Green Tree. In the Stipulated
Judgment, the Plaintiff confirmed the authenticity of the Instruments. See Stipulated Judgment at
2. There are no facts of record demonstrating that the Instruments are void or voidable.
Moreover, to the extent that the Complaint could be read to plead such facts, the Court will not
construe those facts as true in resolving the Motion because they are directly contradicted by the
documents of record. See In re Livent, Inc. Noteholders Sec. Litig., 151 F. Supp. 2d 371, 405-406
(S.D.N.Y. 2001) (“[A] court need not feel constrained to accept as truth conflicting pleadings. . .
that are contradicted. . . by documents upon which its pleadings rely, or by facts of which the
court may take judicial notice.”).
The Plaintiff has not, and cannot, state a claim for relief under section 3412 of the
California Civil Code. The Court dismisses Count 7 of the Complaint.
Count 8 – Quiet Title
The Plaintiff contends that Breckenridge’s claim to title to the Property, although valid on
its face, is invalid and unenforceable because Breckenridge acquired the Property by way of a
fraudulent transfer, since Green Tree had no right to sell the Property at the Foreclosure Sale.
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Compl. ¶¶ 195, 197. In Count 8, Plaintiff asks the Court to quiet title to the Property now owned
by Breckenridge on the grounds that Breckenridge acquired no interest in the Property through
the Foreclosure Sale. Id. ¶ 198.
Under California law, a complaint to quiet title must be verified and include: (1) a legal
description and street address of the subject real property; (2) the title of plaintiff as to which
determination is sought and the basis of the title; (3) the adverse claims to the title of the plaintiff
against which a determination is sought; (4) the date as of which the determination is sought; and
(5) a prayer for the determination of the title of the plaintiff against the adverse claims. See CAL .
CIV. PROC. CODE § 761.020 (West 1980). The Complaint fails to satisfy those standards.28 To
state a claim to quiet title to the Property, the Plaintiff must demonstrate that he has title to the
Property, not that there are weaknesses to Breckenridge’s title. See id. § 761.020(b) (a complaint
to quiet title shall include “[t]he title of the plaintiff as to which a determination under this
chapter is sought and the basis of the title.”). See also Thompson v. Ioane, 11 Cal.App.5th at
1195 (“The plaintiff may recover only upon the strength of his or her own title. . . and not upon
the weakness of the defendant’s title.”). For that reason, it is settled that where, as here, the
Foreclosure Sale has occurred, a quiet title action provides no relief to the Plaintiff. Eng v.
Dimon, No. 11-3173 MMC, 2012 WL 3659600, at *2 (N.D. Cal. Aug. 24, 2012) (“[A] Cause of
Action for Quiet Title is an improper means of challenging a foreclosure where, as here, the
foreclosure has already occurred.”); Murphy v. Wells Fargo Bank, N.A., No. C 10-5837 MMC,
2011 WL 6182422, at *2 (N.D. Cal. Dec. 13, 2011) (“Quiet title is not a viable claim, however,
where, as here, a foreclosure and sale already have occurred.”); Lopez v. Chase Home Fin., LLC,
No. CV F 09-0449 LJO GSA, 2009 WL 981676, at *7 (E.D. Cal. Apr. 9, 2009) (“If the
28 	Although Plaintiff styles his Complaint as a “Verified Complaint,” the Complaint is not verified. The Court
understands that the Plaintiff can cure that defect.
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foreclosure is successful, title will change, and the quiet title claim is an improper means to
challenge foreclosure.”).
The Plaintiff has not, and cannot state a claim to quiet title to the Property. The Court
dismisses Count 8 of the Complaint.
Count 9 - Set Aside Foreclosure Sale
In support of Count 9, the Plaintiff asserts that Ditech had no authority to foreclose on the
Property because the assignments of the Note and Deed of Trust were defective and because the
Deed of Trust is void and unenforceable. Compl. ¶¶ 111, 112 [sic]. Plaintiff seeks an order of
this Court “that the [Foreclosure] Sale was irregular in that it was legally void and conducted
without any right or privilege by the Foreclosing Defendants.” Id. ¶ 113 [sic]. In California,
“[a]fter a nonjudicial foreclosure sale has been completed, the traditional method by which the
sale is challenged is a suit in equity to set aside the trustee’s sale.” Lona v. Citibank, N.A., 202
Cal. App. 4th 89, 103, 134 Cal. Rptr. 3d 622, 633 (2011) (citation omitted). As such, “a
challenge to the validity of a trustee’s sale is an attempt to have the sale set aside and to have the
title restored.” Id. (citation omitted). To state a claim for such relief a plaintiff must demonstrate
that: “(1) the trustee or mortgagee caused an illegal, fraudulent, or willfully oppressive sale of
real property pursuant to a power of sale in a mortgage deed of trust; (2) the party attacking the
sale (usually but not always the trustor or mortgagor) was prejudiced or harmed; and (3) in cases
where the trustor or mortgagor challenges the sale, the trustor or mortgagor tendered the amount
of the secured indebtedness or was excused from tendering.” 202 Cal. App. 4th at 104, 134 Cal.
Rptr. 3d at 633 (citations omitted). In other words, to set aside the sale, “debtor must allege such
unfairness or irregularity that, when coupled with the inadequacy of price obtained at the sale, it
is appropriate to invalidate the sale”; debtor “must offer to do equity by making a tender or
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otherwise offering to pay his debt.” Sierra–Bay Fed. Land Bank Ass’n v. Superior Court, 227
Cal.App.3d 318, 337, 277 Cal.Rptr. 753 (Ct. App. 1991).
The Plaintiff asserts that the sale was improper because the Instruments were without
legal effect. However, the Complaint fails to plead facts demonstrating as much. Moreover, the
documents of record show that the Deed of Trust was properly assigned to Green Tree and that
the Trustee’s Deed Upon Sale was delivered to Breckenridge. For these reasons, Plaintiff is
unable to assert facts to support a claim to set aside the Foreclosure Sale.
The Court dismisses Count 9 of the Complaint.
Count 1 - Declaratory Judgment
In Count 1, the Plaintiff asks this Court to enter a declaratory judgment that the
Defendants have no right or interest in the Note, Deed of Trust, or the Property, and a judgment
that the Foreclosure Sale to Breckenridge is void and without any force or effect. Compl. ¶ 145.
The Declaratory Judgment Act, 28 U.S.C. §§ 2201 and 2202, is procedural not
substantive in nature. It offers an additional remedy to litigants. National Union Fire Ins. Co. of
Pittsburgh, Pa. v. Karp, 108 F.3d 17, 21 (2d Cir. 1977). A request for a declaratory judgment is
not an independent cause of action but is rather predicated on the existence and establishment of
the other claims. Commercial Union Ins. Co. v. Walbrook Ins. Co., 41 F.3d 764, 775 (1st Cir.
1994) (“A declaratory judgment is not a theory of recovery.”). As discussed above, the Plaintiff
has failed to state claims for relief against Breckenridge under Counts 7, 8 and 9. Accordingly,
the Plaintiff cannot demonstrate any grounds for a declaratory judgment. Bates v. Suntrust
Mortg., Inc., No. 2:13-CV-01402-TLN-DA, 2013 WL 6491528, at *2 (E.D. Cal. Dec. 10, 2013)
(noting that “[a] declaratory relief cause of action cannot survive a motion to dismiss when the
substantive claims on which it is based are dismissed.”); Muhammad v. Berreth, No. C 12-02407
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CRB, 2012 WL 4838427, at *5 (N.D. Cal. Oct. 10, 2012) (holding that the plaintiff cannot
demonstrate any grounds for a declaratory judgment and has no valid cause of action under the
Declaratory Judgment Act); Shalaby v. Jacobowitz, 138 F. App’x 10 (9th Cir. 2005) (affirming
dismissal because plaintiff failed to plead actual controversy in claim underlying its request for
declaratory relief). The Court dismisses Count 1 of the Complaint.
* 	* 	* 	*
As set forth above, the Court dismisses each of the Breckenridge Claims because Plaintiff
fails to state a claim upon which relief can be granted. The Court dismisses the Breckenridge
Claims without leave to replead because as a matter of law, Plaintiff cannot plead claims for
relief against Breckenridge under Counts 1, 7, 8 and 9, and because, as explained below, in any
event, the Breckenridge Claims are barred by application of the doctrine of collateral estoppel
and Breckenridge is a bona fide purchaser that took the Property free and clear of any competing
interests.
Application Of The Doctrine Of Collateral Estoppel
A purchaser of property at a trustee’s sale may bring an unlawful detainer action under
section 1161a of the California Civil Procedure Code to end any continuing occupancy of the
property believed to be unlawful. See CAL . CIV. PROC. C ODE § 1161a(b)(3) (West 1991). 29 A
29 	That section states as follows:
(b) In any of the following cases, a person who holds over and continues in possession of . . . real
property after a three-day written notice to quit the property has been served upon the person, or if
there is a subtenant in actual occupation of the premises, also upon such subtenant, as prescribed
in Section 1162, may be removed therefrom as prescribed in this chapter:
(3) Where the property has been sold in accordance with Section 2924 of the Civil Code,
under a power of sale contained in a deed of trust executed by such person, or a person
under whom such person claims, and the title under the sale has been duly perfected.
CAL. CIV. P ROC . CODE § 1161a(b)(3) (West 1991).
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plaintiff pursuing a post foreclosure action under section 1161a(b)(3) must “prove a sale in
compliance with the statute [CAL . CIV. CODE § 2924] and deed of trust, followed by purchase at
such sale.” Cheney v. Trauzettel, 9 Cal. 2d 158, 158, 69 P.2d 832 (1937); see also Old National
Financial Services, Inc. v. Seibert, 194 Cal.App.3d 460, 461 (1987) (same).
On January 23, 2019, Breckenridge commenced the Unlawful Detainer Action in the
California Superior Court. See Complaint for Unlawful Detainer Action. In support of that
action, Breckenridge asserted, among other things, that (i) on January 4, 2019, it became the
owner of the Property by purchasing it at the Foreclosure Sale; (ii) its title under that sale has
been duly perfected; (iii) the Foreclosure Sale was conducted in compliance with relevant
provisions of the California Civil Code; and (iv) Plaintiff’s title to the Property, if any, was
extinguished by the Foreclosure Sale. See Complaint for Unlawful Detainer Action ¶¶ 4-6, 11.
In his answer, the Plaintiff denied all the allegations in the complaint, and as an affirmative
defense, asserted that “the trustee sale was defective and/or tainted with fraud and thus did not
confer clear title to plaintiff.” See Answer-Unlawful Detainer ¶¶ 2b, 3k. On June 6, 2019, the
Plaintiff and Breckenridge entered into the Stipulated Judgment for possession of the Property
wherein Plaintiff agreed to surrender possession of the Property to Breckenridge on July 8, 2019,
and pay a monetary judgment in Breckenridge’s favor. See Stipulated Judgment at 1-2.
“Even though a plaintiff’s factual allegations must be accepted as true and all reasonable
inferences drawn in the plaintiff’s favor on a motion to dismiss [pursuant to Rule 12(b)(6)],
collateral estoppel will nonetheless bar a plaintiff’s claim when the plaintiff’s ‘factual allegations
have been decided otherwise in previous litigation.’” Poindexter v. Cash Money Records, No. 13
Civ. 1155, 2014 WL 818955, *3 (S.D.N.Y. Mar. 3, 2014) (quoting Jacobs v. Law Offices of
Leonard N. Flamm, No. 04 Civ. 7607, 2005 WL 1844642, at *3 (S.D.N.Y. July 29, 2005)); see
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also Linden Airport Mgmt. Corp. v. N.Y.C. Econ. Dev. Corp., No. 08 Civ. 3810(RJS), 2011 WL
2226625, at *3 (S.D.N.Y. June 1, 2011) (“[I]t is well settled that a court may dismiss a claim on
res judicata or collateral estoppel grounds on a Rule 12(b)(6) motion.” (quoting Sassower v.
Abrams, 833 F. Supp. 253, 264 n.18 (S.D.N.Y. 1993)).
“[The] doctrine of collateral estoppel, or issue preclusion, provides that ‘when an issue of
ultimate fact has once been determined by a valid and final judgment, that issue cannot again be
litigated between the same parties in any future lawsuit.’” United States v. Bhatia, 545 F.3d 757,
759 (9th Cir. 2008) (quoting Ashe v. Swenson, 397 U.S. 436, 443 (1970)). The requirements for
collateral estoppel are: “(1) the issue must be identical to one alleged in prior litigation; (2) the
issue must have been ‘actually litigated’ in the prior litigation; and (3) the determination of the
issue in the prior litigation must have been ‘critical and necessary’ to the judgment.” Beauchamp
v. Anaheim Union High Sch. Dist., 816 F.3d 1216, 1225 (9th Cir. 2016). It is explicit in this
three-prong test that only issues actually litigated in the initial action can be precluded from the
second proceeding under the collateral estoppel doctrine. An issue is actually litigated “[w]hen
[it] is properly raised, by the pleadings or otherwise, and is submitted for determination, and is
determined. . . .” People v. Carter, 36 Cal. 4th 1215, 1240, 117 P.3d 544, 562 (2005), as
modified (Oct. 26, 2005).
A stipulated judgment for possession in an unlawful detainer action–like the Stipulated
Judgment–is a final judgment in applying the doctrine of collateral estoppel. See Malkoskie v.
Option One Mortgage Corp., 115 Cal. Rptr. 3d 821 (2010) (“Malkoskie”).30 Briefly, in
30 	In support of its collateral estoppel argument, Breckenridge, like the Ditech Defendants in the Ditech Dismissal
Motion, relies heavily on Malkoskie, which is a case that used res judicata (claim preclusion) and collateral estoppel
(issue preclusion) interchangeably. Malkoskie, 188 Cal. App. 4th at 973 n.4. Although separate concepts, res
judicata and collateral estoppel share similar elements. There are three elements to a res judicata defense: (1) an
identity of claims, (2) a final judgment on the merits, and (3) privity between parties. Tahoe-Sierra Pres. Council,
Inc. v. Tahoe Reg’l Planning Agency, 322 F.3d 1064, 1077 (9th Cir. 2003) (citing Stratosphere Litig. L.L.C. v.
Grand Casinos, Inc., 298 F.3d 1137, 1143 n.3 (9th Cir. 2002)). Privity between parties exists when a party is “so
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Malkoskie, Mariana Malkoskie and Pablo Juarez (the “Malkoskies”) defaulted on their mortgage
loan and their property was sold to Wells Fargo at a nonjudicial foreclosure sale. Shortly
thereafter, Wells Fargo brought an unlawful detainer action against the Malkoskies, who
contested that action. The parties entered into a stipulated judgment in favor of Wells Fargo. Id.
at 824. Notwithstanding the stipulated judgment, the Malkoskies sued Wells Fargo to quiet title
and cancel the trustee’s deed and for wrongful foreclosure sale and eviction Id. The trial court
sustained Wells Fargo’s demurrer without leave to amend, and the Malkoskies appealed. As
relevant, on appeal the issue was whether the stipulated judgment barred the Malkoskies’ claims.
Id. The court held that it did. It found that the “[p]laintiffs’ consent to judgment conclusively
determined the specific factual contentions embraced by the complaint, namely that Wells Fargo
had obtained valid record title pursuant to a nonjudicial foreclosure sale that had been duly
conducted pursuant to statute.” Id. at 826. It determined that “[b]y stipulating to judgment
against them, plaintiffs conceded the validity of Wells Fargo’s allegations that the sale had been
duly conducted and operated to transfer ‘duly perfected’ legal title to the property.” Id. at 827.
The court held that “the unlawful detainer judgment has claim preclusive effect in this action
challenging the validity of Wells Fargo’s title.” Id. (citing Vella v. Hudgins, 20 Cal.3d 251, 255,
572 P.2d 28 (1977)). Further, it held that because all six claims against Wells Fargo were
premised on the alleged invalidity of the foreclosure sale, they were precluded as a matter of law.
Id. at 828.
The Plaintiff had a full and fair opportunity to participate in the Unlawful Detainer
Action. He asserts claims in the Complaint that are identical to those raised and resolved in that
identified in interest with a party to former litigation that he represents precisely the same right in respect to the
subject matter involved.” Stratosphere Litig. L.L.C., 298 F.3d at 1143 n.3 (internal quotations and citations omitted).
As such, the Court finds Malkoskie instructive in assessing Breckenridge’s collateral estoppel argument.
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action. Title to the Property had to be tried in the Unlawful Detainer Action as it was placed into
issue by the Plaintiff’s general denial of the allegations in the Complaint for Unlawful Detainer
Action, and specifically when he asserted the affirmative defenses that “the trustee sale was
defective and/or tainted with fraud and thus did not confer clear title to plaintiff.” See Answer-
Unlawful Detainer ¶ 3k. In entering into the Stipulated Judgment, the Plaintiff necessarily
conceded not only that Breckenridge holds proper, legal title to the Property, but that (i) on
January 4, 2019, it became the owner of the Property by purchasing it at the Foreclosure Sale;
(ii) title under that sale has been duly perfected; (iii) the Foreclosure Sale, and all required
notices complied with section 2924 of the California Civil Code; and (iv) Plaintiff’s title, if any,
to the Property, that existed prior to the date of the Foreclosure Sale, was extinguished by the
Foreclosure Sale. See Complaint for Unlawful Detainer Action ¶¶ 4-7, 11; Stipulated Judgment
at 2. Those concessions preclude the Plaintiff’s claims challenging Breckenridge’s title to the
Property, and any claim premised on the alleged invalidity of the Foreclosure Sale and
underlying Instruments.
Accordingly, they bar Plaintiff’s claim for a declaratory judgment that Breckenridge has
no interest in the Property or underlying Instruments, including the Note and Deed of Trust
(Count 1); and his claims to cancel the Instruments (Count 7), to quiet title to the Property
(Count 8), and to set aside the Foreclosure Sale (Count 9). The Stipulated Judgment resolved, in
Breckenridge’s favor, that the foreclosing party had the right to foreclose. Plaintiff is therefore
barred from raising those claims in the Complaint. See, e.g., Foulkrod v. Wells Fargo Financial
California, Inc., No. CV 11–732–GHK (AJWx), 2012 WL 13008150, at *6 (C.D. Cal. Nov. 28,
2012) (finding that collateral estoppel applied to plaintiff’s claims predicated on lender’s use of
forged signatures because such allegation went to the bank’s authority to conduct the foreclosure
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sale and convey title, which had been fully determined through the plaintiff’s application to
vacate stipulated judgment in the unlawful detainer action).
Application Of The Doctrine Of Judicial Estoppel
Breckenridge misplaces its reliance on principles of judicial estoppel in seeking to
dismiss the Complaint. “[J]udicial estoppel, ‘generally prevents a party from prevailing in one
phase of a case on an argument and then relying on a contradictory argument to prevail in
another phase.’” First Intercontinental Bank v. Ahn, 798 F.3d 1149, 1154 (9th Cir. 2015) (citing
New Hampshire v. Maine, 532 U.S. 742, 749 (2001)). The elements of the doctrine of judicial
estoppel are: (1) whether a party’s later position is “clearly inconsistent” with its earlier position;
(2) whether the party persuaded a court to accept that party’s earlier position such that judicial
acceptance of an inconsistent position in another proceeding would create “the perception that
either the first or the second court was misled”; and (3) whether the party seeking to assert an
inconsistent position would derive an unfair advantage on the opposing party if not estopped. Id.
at 782-783. Application of the doctrine bars a litigant from asserting inconsistent positions in the
same litigation and in different cases. Rissetto v. Plumbers & Steamfitters Local 343, 94 F.3d
597, 600-601 (9th Cir. 1996).
Breckenridge asserts that the Plaintiff is judicially estopped from asserting the claims at
issue because he filed the Chapter 13 Case to stay the pending foreclosure sale and obtained the
benefit of the stay, but in doing so, he failed to disclose in his Schedules A/B the claims that he is
asserting in the Complaint. See Motion at 2. The Ditech Defendants made a similar argument in
support of their motion to dismiss. See Ditech Dismissal Motion ¶¶ 19-22. They asserted that (i)
the claims in the Complaint arise from the Instruments and pre-date Plaintiff’s commencement of
his Chapter 13 Case; (ii) by filing the Chapter 13 Case, the Plaintiff received the benefit of an
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automatic stay of the foreclosure action–without disclosing the claims, in his schedules; and (iii)
that he has taken an inconsistent position in these Chapter 11 Cases by attempting to sue on those
same claims outside of his Chapter 13 Case. Id. ¶¶ 21-22.
The Court rejected the Ditech Defendants’ application of judicial estoppel on the grounds
that they failed to demonstrate that the California bankruptcy court accepted or relied on the
information contained in Plaintiff’s Schedule A/B for any purpose or that the Plaintiff gained an
advantage from the omission of his purported claims against the Ditech Defendants in Schedule
A/B. See Ditech Memo and Order at 18-20. That reasoning applies equally here. The Court finds
no merit to Breckenridge’s argument that the Complaint is barred by principles of judicial
estoppel.
Bona Fide Purchaser
“A properly conducted nonjudicial foreclosure sale constitutes a final adjudication of the
rights of the borrower and lender.” Moeller v. Lien, 25 Cal. App. 4th 822, 831, 30 Cal. Rptr. 2d
777 (1994) (citation omitted). The purchaser at a foreclosure sale takes title by a trustee’s deed.
Id.
If the trustee’s deed recites that all statutory notice requirements and procedures
required by law for the conduct of the foreclosure have been satisfied, a rebuttable
presumption arises that the sale has been conducted regularly and properly; this
presumption is conclusive as to a bona fide purchaser.
Id. (citations omitted). Pursuant to section 2924(c) of the California Civil Code:
A recital in the deed executed pursuant to the power of sale of compliance with all
requirements of law regarding the mailing of copies of notices or the publication of
a copy of the notice of default or the personal delivery of the copy of the notice of
default or the posting of copies of the notice of sale or the publication of a copy
thereof shall constitute prima facie evidence of compliance with these requirements
and 	conclusive 	evidence 	thereof 	in 	favor 	of 	bona 	fide 	purchasers 	and
encumbrancers for value and without notice.
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CAL . CIV. CODE § 2924(c) (West 2020). Here, there is a presumption that the Foreclosure Sale
has been conducted regularly and properly because the Trustee’s Deed Upon Sale recites that all
statutory notice requirements and procedures required by law for the conduct of the foreclosure
have been satisfied. See Trustee’s Deed Upon Sale at 1-2.31
A bona fide purchaser is one who pays value for the property without notice of any
adverse interest or of any irregularity in the sale proceedings. Melendrez v. D & I Inv., Inc., 127
Cal. App. 4th 1238, 1249, 26 Cal. Rptr. 3d 413, 423 (2005) (citing Nguyen v. Calhoun, 105 Cal.
App. 4th 428, 442, 129 Cal. Rptr. 2d 436 (2003)). Breckenridge’s qualification as a bona fide
purchaser is an affirmative defense to the Breckenridge Claims. See, e.g., Lynch v. Bank of New
York Mellon, No. CV 17-00195 LEK-RLP, 2018 WL 3624969, at *7 (D. Haw. July 30, 2018).
Dismissal under Rule 12(b)(6) on the basis of an affirmative defense is proper where the
“allegations in the complaint suffice to establish” the defense. Sams v. Yahoo! Inc., 713 F.3d
1175, 1179 (9th Cir. 2013) (internal quotation marks omitted) (citation omitted). See
31 	In relevant part, the Trustee’s Deed Upon Sale reads, as follows:
This conveyance is made pursuant to the authority and powers vested in said Trustee, as Trustee, or
Successor Trustee, or Substituted Trustee, under that certain Deed of Trust executed by MICHAEL
L. MCCHRISTIAN, A MARRIED MAN AS HIS SOLE AND SEPARATE PROPERTY as
Trustor, recorded 2/28/2005, as Instrument No. 2005-0159780, of official Records in the Office of
the Recorded of San Diego County, California; and pursuant to the Notice of Default recorded
11/29/2016, as Instrument No. 2016-0651594, of Official Records of said County, Trustee having
complied with all applicable statutory requirements of the State of California and performed all
duties required by said Deed of Trust, including, among other things, as applicable, the mailing of
copies of notices or the publication of a copy of the notice of default or the personal delivery of the
copy of the notice of default or the posting of copies of the notice of sale or the publication of a copy
thereof.
At the place fixed in the Notice of Trustee’s Sale, Trustee sold said property above described
at public auction on 1/4/2019 Grantee, being the highest bidder at such sale, became the
purchased or said property and paid therefore to said Trustee the bid amount $593,500.00 in
lawful money of the United States, or by the satisfaction, pro tanto, of the obligations then
secured by said Deed of Trust.
See Trustee’s Deed Upon Sale at 1-2.
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also ASARCO, LLC v. Union Pac. R. Co., 765 F.3d 999, 1004 (9th Cir. 2014) (“If, from the
allegations of the complaint as well as any judicially noticeable materials, an asserted defense
raises disputed issues of fact, dismissal under 12(b)(6) is improper.”). The elements of bona fide
purchaser status are: (i) payment of value, in good faith, and (ii) payment without actual or
constructive notice of another’s rights. Gates Rubber Co. v. Ulman, 214 Cal.App.3d 356, 364,
262 Cal.Rptr. 630 (1989). To satisfy the first prong, the buyer need not pay fair market value for
the property. See Melendrez v. D & I Investment, Inc., 127 Cal. App. 4th at 1251, 26 Cal. Rptr.
3d at 425 (“The first element does not require that the buyer’s consideration be the fair market
value of the property (or anything approaching it). Instead, the buyer need only part with
something of value in exchange for the property.”). See also Horton v. Kyburz, 53 Cal.2d 59, 65-
66 (1959) (rejecting contention that bona fide purchaser must give “adequate consideration”
sufficient to obtain specific performance of a contract.). The second element requires that the
buyer have “neither knowledge nor notice of the competing claim.” Melendrez v. D & I Inv.,
Inc., 127 Cal. App. 4th at 1252, 26 Cal. Rptr. 3d at 425. “A person generally has ‘notice’ of a
particular fact if that person has knowledge of circumstances which, upon reasonable inquiry,
would lead to that particular fact.” First Fid. Thrift & Loan Ass’n v. All. Bank, 60 Cal. App. 4th
1433, 1443, 71 Cal. Rptr. 2d 295, 301 (1998).
In the Complaint, Plaintiff pleads that Breckenridge paid value in exchange for the Property
at the Foreclosure Sale. See Compl. ¶ 114 [sic] (noting that “DITECH, through its agent and
employee Clear Recon purportedly ‘sold’ the Plaintiff’s property to BRECKENRIDGE by way of
a non-judicial foreclosure ‘sale.’”). Plaintiff also refers to the Trustee’s Deed Upon Sale executed
on or about January 15, 2019, of which the Court takes judicial notice. Id. ¶ 185. That deed
provides that Breckenridge purchased the Property for $593,500.00 when Plaintiff owed only
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$356,373.53 on the Note. See Motion ¶ 5; Trustee’s Deed Upon Sale at 1. On January 15, 2019,
Breckenridge perfected its title to the Property by recording the Trustee’s Deed Upon Sale. See
Motion ¶ 5; Trustee’s Deed upon Sale at 1.
However, Plaintiff asserts, without support that GMAC did not “effectuate any
assignment of any interest in the Note and Deed of Trust, directly or indirectly, to either [Ditech
Defendants] or the [trust created by Homecomings], or any predecessor in interest to these
entities.” Compl. ¶ 103(c). See also id. ¶ 86 (claiming that “the ‘true sales’ never took place,
because the Note and Deed of Trust were already transferred and sold to an as yet unidentified
[t]hird [p]arty in or about December of the year 2005,” and “whatever trust acquired it from
Homecomings did not at any time acquire any legal, equitable, and pecuniary interest in
Plaintiff’s Note and Deed of Trust from the original lender.”). The Court will not construe those
facts as true because they are contradicted by the Instruments cited in the Complaint and filed in
support of the Motion which trace the assignments of the Deed of Trust from Homecomings to
Breckenridge. See In re Livent, Inc. Noteholders Sec. Litig., 151 F. Supp. 2d at 405-406 (“[A]
court need not feel constrained to accept as truth conflicting pleadings . . . that are contradicted. .
. by documents upon which its pleadings rely, or by facts of which the court may take judicial
notice.”).
The presumption under section 2924 of the California Civil Code that the Foreclosure
Sale was conducted regularly and properly is therefore conclusive. See Melendrez v. D & I Inv.,
Inc., 127 Cal. App. 4th at 1254-1255, 26 Cal. Rptr. 3d at 427 (noting that a party’s status as a
bona fide purchaser coupled with delivery of a trustee’s deed reciting compliance with, and
satisfaction of, all procedural requirements grants the buyer a conclusive presumption that the
sale was properly conducted); Heinrich v. Ditech Financial, LLC, No. 1:18-cv-00664-DAD-
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SKO, 2019 WL 1004577, at *4 (E.D. Cal. Mar. 1, 2019) (“Pursuant to the notice of trustee’s
deed upon sale, of which this court has taken judicial notice, the court agrees that MRO
purchased the Property at the trustee’s sale and that MRO is therefore the bona fide purchaser of
the Property. Plaintiffs’ FAC does not allege otherwise. As a result, the statutory presumption in
favor of the bona fide purchaser is conclusive.”). As such, Breckenridge acquired its interest in
the Property pursuant to the Foreclosure Sale free and clear of any competing rights at the time
of sale. See Moeller v. Lien, 25 Cal.App.4th at 831–832 (“[t]he conclusive presumption
precludes an attack by the trustor on the trustee’s sale to a bona fide purchaser even where the
trustee wrongfully rejected a proper tender of reinstatement by the trustor.”); First Fid. Thrift &
Loan Ass’n v. All. Bank, 60 Cal. App. 4th at 1444, 71 Cal. Rptr. 2d at 302 (noting that “[t]he
question is, therefore, whether [the attorney] has either actual notice of plaintiff's prior claim, or
constructive notice thereof by reason of facts sufficient to put him on inquiry, before he gave
value, that is, before his law firm undertook the obligation to defend [the ranch owner]. If he had
none, then his title is good as against plaintiff, and defendant. . . , his transferee, will likewise
take a title superior to that of plaintiff. . . ”). Cf. Est. of Yates, 25 Cal. App. 4th 511, 523, 32 Cal.
Rptr. 2d 53, 59 (1994) (affirming the set aside of nonjudicial sale because while “the trustee’s
deed recites that all requirements of law have been complied with, ‘failure to comply with the
notice requirements is a ground to cancel the sale only as against a party who is not a bona fide
purchaser.’”). The predicate for all the Breckenridge Claims is that Breckenridge’s title to the
Property is defective. Breckenridge’s status as a bona fide purchaser forecloses those claims.
That is an additional ground for dismissing the Breckenridge Claims with prejudice.
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Leave to File Amended Complaint
“[A] party may amend its pleading only with the opposing party’s written consent or the
court's leave. The court should freely give leave when justice so requires.” Fed. R. Civ. P.
15(a)(2). “[I]t is within the sound discretion of the district court to grant or deny leave to
amend.” McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 200 (2d Cir.2007). “A district
court has discretion to deny leave for good reason, including futility, bad faith, undue delay, or
undue prejudice to the opposing party.” Id. (citations omitted). In this circuit, courts deny
requests for leave to amend when the amendment would be futile. See Loreley Fin. (Jersey) No.
3 Ltd. v. Wells Fargo Sec., LLC, 797 F.3d 160, 190 (2d Cir. 2015) (noting that “futility” is
“grounds on which denial of leave to amend has long been held proper” and that “leave may be
denied where amendment would be futile”); Williams v. Citigroup Inc., 659 F.3d 208, 214 (2d
Cir. 2011) (“It is well established that leave to amend need not be granted where the proposed
amendment would be futile.”) (internal quotation marks omitted and citing Advanced Magnetics,
Inc. v. Bayfront Partners, Inc., 106 F.3d 11, 18 (2d Cir.1997)).
Plaintiff maintains that he should be granted leave to amend the Complaint because of
alleged “admissions contained in the Defendant’s pleadings regarding the nature of the purported
relationships by and between the parties, and the identification of a necessary party to the
proceedings by the Defendant.” Opposition at 2. He “requests leave to amend the complaint to
conform to the Defendant’s admissions.” Id. Plaintiff further alleges that “[s]pecifically, the
Defendant, Ditech admitted that it is NOT the holder or beneficiary of Plaintiff’s Note and Deed
of Trust, and that it is acting exclusively as the purported ‘Loan Servicer,’ and not as a Lender.
Defendant Ditech has also admitted that it asserts that there is a trustee for the trust that purports
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to hold Plaintiff’s Note and Deed of Trust. Accordingly, that trustee is a further necessary party
to these proceedings.” Id.
However, Plaintiff cannot cure the fatal deficiencies in this adversary proceeding by
amending the Complaint to add the trustee for the trust that purports to hold the Note and Deed
of Trust. At a minimum, joining the trustee will not alter Breckenridge’s status as a bona fide
purchaser, and will not negate application of the doctrine of collateral estoppel to bar the
Complaint. Wittich v. Wittich, No. 06-CV-1635 (JFB) (WDW), 2006 WL 3437407, at *7
(E.D.N.Y. Nov. 29, 2006) (finding that there are no allegations that could cure the complaint’s
infirmities under res judicata, denying plaintiff’s request to join an indispensable party and
denying plaintiff leave to replead as it would be futile). The Court denies the Plaintiff’s request
for leave to amend the Complaint.
Motion to Expunge Lis Pendens
Federal courts look to state law in matters pertaining to lis pendens. See 28 U.S.C. §
1964.32 Under section 405.20 of the California Code of Civil Procedure, “[a] party to an action
who asserts a real property claim may record a notice of pendency of action [a lis pendens], in
which that real property claim is alleged.”33 “A lis pendens is a recorded document giving
32 	Section 1964 states, as follows:
Where the law of a State requires a notice of an action concerning real property pending in a court
of the State to be registered, recorded, docketed, or indexed in a particular manner, or in a certain
office or county or parish in order to give constructive notice of the action as it relates to the real
property, and such law authorizes a notice of an action concerning real property pending in a United
States district court to be registered, recorded, docketed, or indexed in the same manner, or in the
same place, those requirements of the State law must be complied with in order to give constructive
notice of such an action pending in a United States district court as it relates to real property in such
State.
28 U.S.C. § 1964.
33 	Section 405.20 of the California Civil Procedure Code states, as follows:
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constructive notice that an action has been filed affecting title or right to possession of the real
property described in the notice.” Park 100 Inv. Group II v. Ryan, 180 Cal.App.4th 795, 807, 103
Cal.Rptr.3d 218 (2010) (citation omitted). The filing of a lis pendens “clouds the title and
effectively prevents the property’s transfer until the litigation is resolved or the lis pendens is
expunged.” BGJ Assocs., LLC v. Superior Court, 75 Cal.App.4th 952, 967, 89 Cal.Rptr.2d 693
(2d Dist.1999). That is because the effect of a lis pendens “is that anyone acquiring an interest in
the property after the action was filed will be bound by the judgment.” 75 Cal. App. 4th at 966,
89 Cal. Rptr. 2d at 702.
“At any time after notice of pendency of action has been recorded, any party. . . with an
interest in the real property affected thereby, may apply to the court in which the action is
pending to expunge the notice.” CAL . CIV. PROC. CODE § 405.30 (West 1992). For these
purposes, a “real property claim” is “the cause or causes of action in a pleading which would, if
meritorious, affect (a) title to, or the right to possession of, specific real property. . . .” Id. §
405.4. The Plaintiff bears the burden of coming forward with evidence establishing that the
pending action involves a real property claim and that such claim is valid. Id. § 405.30. If the
court finds “that the claimant has not established by a preponderance of the evidence the
probable validity of the real property claim,” the court “shall order that the notice be expunged.”
Id. § 405.32. See also Rey v. OneWest Bank, FSB, No. 2:12-CV-02078-MCE, 2013 WL
1791910, at *5 (E.D. Cal. Apr. 26, 2013) (“A court should expunge a lis pendens if it determines
that the pleading on which the notice is based does not contain a real property claim, or if a real
A party to an action who asserts a real property claim may record a notice of pendency of action in
which that real property claim is alleged. The notice maybe recorded in the office of the recorder
of each county in which all or part of the real property is situated. The notice shall contain the
names of all parties to the action and a description of the property affected by the action.
CAL. CIV. P ROC . CODE § 405.20 (West 2004).
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property claim as pled lacks evidentiary merit.”) (internal quotation marks omitted) (citation
omitted).
The Breckenridge Claims are dismissed with prejudice. The Plaintiff is left without a
“real property claim” and, as such, cannot establish the “probable validity” of such a claim in this
case. Accordingly, the Court grants the Motion to Expunge and expunges the Lis Pendens. See
Silas v. Argent Mortgage Company, LLC, 1:17-CV-00703-LJO-JLT, 2017 WL 3131057, at *11
(E.D. Cal. July 24, 2017) (granting motion to expunge lis pendens where underlying claims were
dismissed, because “the pleading on which the lis pendens was based . . . cannot provide a valid
real property claim to support the lis pendens.”); In re Holy Hill Community Church, 563 B.R. 6,
14 (C.D. Cal. 2017) (affirming expungement of lis pendens where bankruptcy court dismissed
underlying claims with prejudice. “California law allows for the expungement of a lis pendens
when the claimant has not established by a preponderance of the evidence the probable validity
of the real property claim. . . Given the dismissal of Appellants’ claims, it stands to reason the
claims lacked validity.”) (internal quotation marks and citations omitted); Rey v. OneWest Bank,
FSB, 2013 WL 1791910 at *5 (expunging lis pendens recorded against Plaintiff’s property
“[s]ince Plaintiff's [complaint] is dismissed without leave to amend, Plaintiff can no longer
maintain any claim affecting right or title to possession of the real property described in the
notice of lis pendens.”); Cornell v. Select Portfolio Servicing, Inc., No. CIV S-11-1462 KJM,
2011 WL 6097721, at *1 (E.D. Cal. Nov. 29, 2011) (granting motion to expunge lis pendens
where plaintiff’s claims were dismissed because “[o]nce that action has been dismissed, the lis
pendens serves no purpose, and thus, must be expunged.”).
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Breckenridge seeks an award of attorney’s fees and costs for bringing the Motion to
Expunge. See Motion to Expunge at 14. Under section 405.38 of the California Civil Procedure
Code, a party that successfully moves to expunge a lis pendens is entitled to an award of
reasonable attorney's fees and costs “unless the court finds that the other party acted with
substantial justification or that other circumstances make the imposition of attorney’s fees and
costs unjust.” CAL . CIV. PROC. CODE § 405.38 (West 1992). As discussed above, the Plaintiff did
not, and could not, plead a real property claim against Breckenridge. Moreover, the Plaintiff did
not address, let alone oppose, Breckenridge’s fee request. In this light, the Court finds that
Breckenridge is entitled to an award of attorney’s fees. In support of the Motion to Expunge,
Breckenridge submitted a declaration of Seth P. Cox, Esq. (the “Cox Declaration”) which
addresses Breckenridge’s request for fees and costs incurred in bringing the Motion to
Expunge.34 In it, Mr. Cox explains that his billing rate of $450.00 per hour is a “reasonable rate”
in the Los Angeles market “for an attorney of [his] experience and skill, in [his] position of
Senior Litigation Counsel and Assistant General Counsel” at Breckenridge. See Cox Declaration
¶ 3. He explains that he spent four hours drafting the Motion to Expunge and anticipates
spending an additional three hours reviewing the opposition papers, drafting a reply, and
appearing and arguing this matter at hearing. Id. He asserts that a total fee and cost award of
$3,210.00 is reasonable. Id. ¶ 4. The papers submitted in support of the Motion to Expunge
essentially mirror those filed by Breckenridge in support of the 12(b)(6) Motion, except that they
include the request to expunge the Lis Pendens. Breckenridge is not entitled to recover the fees
and costs that it incurred in prosecuting the Rule 12(b)(6) Motion. Breckenridge did not file a
reply brief in support of the Motion to Expunge, and although the Court had a long calendar on
34 	See Declaration of Seth P. Cox in Support of Defendant’s Motion to Expunge Lis Pendens [AP ECF No. 6-1].
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the date of the hearings on the motions, that portion of the hearing did not last more than 30
minutes. The Court finds that an award of $900.00 in attorney’s fees is reasonable.
Conclusion
Based on the foregoing, the Court grants the Rule 12(b)(6) Motion and dismisses the
Breckenridge Claims with prejudice, and grants the Motion to Expunge and expunges the Lis
Pendens. The Court awards Breckenridge $900.00 for its fees and costs incurred in prosecuting
the Motion to Expunge.
IT IS SO ORDERED.
Dated: New York, New York
November 9, 2021
/s/ James L. Garrity, Jr.
Hon. James L. Garrity, Jr.
U.S. Bankruptcy Judge
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