In re: Harlan Page Confer, III and Charlotte Cluff Confer ( 2022 )

FILED
MAR 10 2022
NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK
U.S. BKCY. APP. PANEL
OF THE NINTH CIRCUIT
UNITED STATES BANKRUPTCY APPELLATE PANEL
OF THE NINTH CIRCUIT
In re: BAP No. EC-21-1140-TBG
HARLAN PAGE CONFER, III and
CHARLOTTE CLUFF CONFER, Bk. No. 2:21-bk-20167
Debtors.
JACOB WATSON; JAMES WATSON,
Appellants,
v. MEMORANDUM1
HARLAN PAGE CONFER, III;
CHARLOTTE CLUFF CONFER,
Appellees.
Appeal from the United States Bankruptcy Court
for the Eastern District of California
Fredrick E. Clement, Bankruptcy Judge, Presiding
Before: TAYLOR, BRAND, and GAN, Bankruptcy Judges.
INTRODUCTION
Jacob and James Watson appeal the bankruptcy court’s order
denying them relief from the automatic stay to proceed with enforcement
of a state court specific performance order. For the reasons stated below,
1
This disposition is not appropriate for publication. Although it may be cited for
whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential
value, see 9th Cir. BAP Rule 8024-1.
we VACATE and REMAND.
FACTS 2
A. The Residential Purchase Agreement
Prepetition, octogenarians Harlan Page Confer, III and Charlotte
Confer purchased their home in Red Bluff, California (the “Property”). The
Property was encumbered by two deeds of trust. When the Confers fell
behind on their mortgage payments, the lender noticed a foreclosure sale
for January 27, 2020.
On the evening of January 26, 2020, real estate agent Edward Lenzer
came to the Confers’ home and conveyed the Watsons’ offer to buy the
Property for a price that would net the Confers $25,000 after payment of
their mortgage debts and the costs of sale.
Mr. Confer recalls first asking Mr. Lenzer to arrange a loan to cure
the arrearages or a consolidation of the two deeds of trust in lieu of the
proposed sale. But Mr. Lenzer was not there as agent for the Confers; he
apparently informed them that the sale was the only way to preserve any
equity in the Property. Thus, Mr. Confer recalls agreeing to the sale on the
condition that he could repurchase the Property if later able to do so.
Mr. Lenzer disputes that Mr. Confer so conditioned the sale.
The next morning, Mr. Lenzer left a residential purchase agreement
signed by the Watsons (the “Agreement”) with the Confers to complete.
2
We exercise our discretion to take judicial notice of documents electronically
filed in the bankruptcy case and related adversary proceeding. See Atwood v. Chase
Manhattan Mortg. Co. (In re Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003).
2
According to the Agreement at this point, Mr. Lenzer represented both the
Watsons and the Confers in the sale. The Agreement provided that the
Watsons would purchase the Property for $136,000, of which $22,000
would be paid directly to the Confers as a down payment and the
remainder would be due at the close of escrow with the remainder paid to
satisfy existing liens and costs of sale. It also obligated the Confers to turn
over possession of the Property to the Watsons at the close of escrow.
The Confers signed the Agreement and delivered it to Mr. Lenzer
moments before the auction. Mr. Lenzer then stopped the auction by
presenting proof to the auctioneer that the Watsons had paid the Confers’
mortgage arrearages.
Later that day, Mr. Lenzer realized that the Confers had failed to
fully execute the Agreement. He returned to their home and remedied this
oversight.
Thereafter, the Watsons made the down payment. But the Confers
refused to sign escrow instructions, execute a deed to the Property, or turn
over possession of the Property. Presumably because of this, the Watsons
never deposited the balance of the purchase price into escrow.
B. The State Court Action
In June 2020, the Watsons filed an action in state court for specific
performance of the Agreement and damages for breach of the Agreement
and fraud. The Confers did not participate in the state court action.
After conducting a default prove up hearing, the state court entered
3
an order on October 7, 2020, finding that: (1) the Agreement was a valid
written contract; (2) the Watsons paid the down payment; (3) the Confers
refused to proceed with the sale; (4) the Confers remained in possession of
the Property; and (5) the Watsons had no adequate remedy at law. Thus,
the order granted specific performance relief; it required the Confers to
deposit executed escrow instructions and a grant deed for the Property into
escrow by October 19, 2020. It ordered that escrow would close two
business days after the Confers performed as ordered, and the Watsons
deposited the balance of the purchase price. It also ordered escrow to close
by January 5, 2021. The state court reserved the issue of “money requests”
for later.
C. The Chapter 13 Bankruptcy and Plan
The Confers did not sign the escrow instructions or convey title.
Instead, they filed a chapter 133 petition on January 20, 2021. Their
creditors’ matrix included the Watsons’ state court counsel, Dean Law
Firm, Inc., at its business address but did not include the Watsons.
The Confers filed bankruptcy schedules days later. Notably, they
listed an ownership interest in the Property, valued the Property at
$255,000, disclosed that their mortgage debts were in default, and claimed
a $300,000 homestead exemption in the Property. They listed the Dean Law
Firm—and not the Watsons—as holding a $32,174.42 unsecured claim. In
3
Unless specified otherwise, all chapter and section references are to the
Bankruptcy Code, 11 U.S.C. §§ 101-1532, and all “Rule” references are to the Federal
Rules of Bankruptcy Procedure.
4
describing the debt, the Confers explained that the firm represented the
Watsons in the state court action. Finally, the Confers did not list the
Agreement as an executory contract in their schedule G.
The Confers filed a proposed chapter 13 plan with their schedules.
The plan provided for 60 monthly payments to the chapter 13 trustee for
distributions to creditors by class. It also provided for ongoing and
delinquent mortgage payments, estimated that unsecured creditors would
receive no dividend on their claims, rejected all executory contracts, and
revested all estate property in the debtors upon confirmation.
The Clerk of the Court served notice of the case and the plan on
creditors listed in the creditors’ matrix, including the Dean Law Firm.
Because the Watsons were not in the matrix, they only received notice
through their state court counsel. The notice listed deadlines for objecting
to exemptions, objecting to plan confirmation, filing a proof of claim, and
filing certain nondischargeability proceedings. The Watsons did not file an
objection to plan confirmation, a proof of claim, or an objection to the
homestead exemption by the deadlines.
The bankruptcy court confirmed the plan after the deadlines for
objecting to exemptions and confirmation had passed.
On the day before entry of the confirmation order, the Watsons filed
a motion for relief from the automatic stay to enforce the state court’s
5
specific performance order. 4 They argued that the Confers had no equity in
the Property, the Property was unnecessary for an effective reorganization,
and cause existed for stay relief. The Confers opposed the motion.
After a hearing on the stay relief motion, the bankruptcy court issued
a memorandum decision and order denying stay relief. The bankruptcy
court found that the Agreement was an executory contract, which the
Confers rejected through their chapter 13 plan. The bankruptcy court
further found that the plan bound the Watsons because they were served
with notice of the bankruptcy and the plan through the Dean Law Firm.
Thus, the bankruptcy court concluded that stay relief was unwarranted.
JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and
157(b)(2)(G). We have jurisdiction under 28 U.S.C. § 158.
ISSUES
Whether the bankruptcy erred in finding that the chapter 13 plan
rejected the Agreement.
Whether the bankruptcy court abused its discretion in denying stay
relief.
STANDARDS OF REVIEW
“Whether adequate notice has been given for purposes of due
process in a particular instance is a mixed question of law and fact that we
The Watsons also filed an adversary proceeding to except the Confers’ debt to
4
them from discharge under § 523(a)(2)(A). The adversary proceeding is still pending.
6
review de novo.” Brawders v. Cnty. of Ventura (In re Brawders), 503 F.3d 856,
866 (9th Cir. 2007).
Whether a contract is “executory” under § 365 is a question of fact,
which we review for clear error. Carruth v. Eutsler (In re Eutsler), 585 B.R.
231, 234-35 (9th Cir. BAP 2017). A factual finding is clearly erroneous if it is
illogical, implausible, or without support in the record. Id. at 235.
A bankruptcy court’s denial of relief from the automatic stay is
reviewed for an abuse of discretion. Cannery Row Co. v. Leisure Corp. (In re
Leisure Corp.), 234 B.R. 916, 920 (9th Cir. BAP 1999). “A bankruptcy court
abuses its discretion if it bases its ruling upon an erroneous view of the law
or a clearly erroneous assessment of the evidence.” Id.DISCUSSION
A bankruptcy petition automatically stays certain acts against the
debtor, the debtor’s property, and the bankruptcy estate’s property,
including: (1) the continuation of a judicial proceeding against the debtor
that was commenced prepetition; (2) the enforcement, against the debtor or
estate property, of a judgment obtained prepetition; and (3) an act to obtain
possession of estate property or to exercise control over estate property.
§§ 362(a)(1), (2), (3). The Watsons moved for relief from the automatic stay
to enforce the specific performance order against the Confers and their
Property. They argued that they were entitled to stay relief under
7
§ 362(d)(1) “for cause.” 5
The bankruptcy court denied stay relief after determining that cause
did not exist because the Agreement was an executory contract rejected in
the chapter 13 plan.6 The Watsons argue this was error because the specific
performance order transformed an otherwise executory contract into a non-
executory one, which could not be rejected. They further argue that, even if
the Agreement is executory, they did not receive adequate notice of its
proposed rejection in the plan such that they had a fair opportunity to
challenge the rejection. We agree.
A. The confirmed chapter 13 plan neither determines the executory
nature of the Agreement nor rejects it.
We start with the impact of the confirmed chapter 13 plan.
When a bankruptcy plan is confirmed and becomes final, its terms
usually carry the same effect as a final judgment—it binds the debtor and
all creditors and is res judicata as to all issues that were or could have been
decided at the confirmation hearing. § 1327(a); J.J. Re-Bar Corp., Inc. v.
United States (In re J.J. Re-Bar Corp., Inc.), 420 B.R. 496, 502 (9th Cir. BAP
2009), aff’d, 644 F.3d 952 (9th Cir. 2011). This is so even when the plan
contains an improper or illegal provision. United Student Aid Funds, Inc. v.
Espinosa, 559 U.S. 260, 275 (2010). Thus, under this general rule, if a
5We do not address the Watsons’ additional § 365(d)(2) ground for stay relief
because they waived the issue by failing to discuss it in their opening brief. See Maloney
v. T3Media, Inc., 853 F.3d 1004, 1019 (9th Cir. 2017).
6 Subject to § 365, a chapter 13 plan may reject an executory contract. § 1322(b)(7).
8
confirmed plan rejects a contract, a party to that contract cannot dispute
that the contract is executory and susceptible to rejection under § 365(a). See
Davis v. Dunmore Props., Inc. (In re Davis), 503 B.R. 609, 616-17 (Bankr. M.D.
Pa. 2013). But two dispositive exceptions to this rule apply here.
First, for a plan term to be preclusive, it must be clear and its
proposed effect on the impacted creditor must be explicit. In re Gonzales,
512 B.R. 255, 261-62 (Bankr. C.D. Cal. 2014), citing J.J. Re-Bar Corp., Inc., 420
B.R. at 503. “The burden of that lack of clarity appropriately falls on [the
debtor].” J.J. Re-Bar Corp., Inc., 420 B.R. at 503. Any ambiguity will be
interpreted against the debtor. In re Brawders, 503 F.3d at 867. “[A]ny
ambiguity may also reflect that the court that originally confirmed the plan
did not make any final determination of the matter at issue.” Id. And
second, the preclusive effect of a confirmed plan does not extend to a
creditor who does not receive adequate notice of the plan, such that its
right to due process is violated. Id.Here, the plan does not address the Agreement or the Watsons’
specific performance rights in an explicit or clear manner. It includes a
boilerplate term stating that all executory contracts are rejected. But,
neither the plan nor the Confers’ bankruptcy schedules list the Agreement
as an executory contract. The bankruptcy court concluded that the Watsons
should infer from the plan and schedules that the Agreement was being
treated as an executory contract and would be rejected. We disagree.
When the Confers filed their chapter 13 case, they were required to
9
disclose all executory contracts in their schedule G. § 521; Rule 1007;
Diamond Z Trailer, Inc. v. JZ L.L.C. (In re JZ L.L.C.), 371 B.R. 412, 417 (9th Cir.
BAP 2007). They had “a duty to prepare . . . [their] schedules . . . ‘carefully,
completely, and accurately’ and [bore] the risk of nondisclosure.” In re JZ
L.L.C., 371 B.R. at 417 (quoting Cusano v. Klein, 264 F.3d 936, 946-49 (9th Cir.
2001)). They needed to disclose every contract, including the Agreement,
somewhere in their schedules “either in the asset/liability category or in the
executory contract category.” Id. They did not do so. Neither did they list
the Watsons as creditors. Instead, they simply listed the Watsons’ state
court counsel as an unsecured creditor. This was inadequate to put the
Watsons on notice that the Confers were characterizing the Agreement as
executory and, thus, subject to rejection under § 365(a).
The Dean Law Firm’s claim could be interpreted as pertaining, not to
the specific performance awarded, but to the separate attorneys’ fees and
incidental compensation to which the Watsons may be entitled to fully
vindicate their contractual rights. See Behniwal v. Mix, 147 Cal. App. 4th 621,
630-31 (2007) (incidental monetary relief and contractual attorneys’ fees are
awardable in addition to specific performance).
Moreover, the record is clear that the Confers did not intend to treat
the Agreement as executory and to reject it in their chapter 13 plan. First,
the Confers did not argue in their opposition to the Watsons’ stay relief
motion that the Agreement is executory and rejected. And second, at the
hearing on the stay relief motion, the Confers’ counsel remarked that it did
10
not occur to him that the Agreement is executory. Afterward, the
bankruptcy court concluded the hearing, closed the record, and deemed
the matter submitted. Thus, the parties did not have an opportunity to brief
whether the Agreement was an executory contract rejected under the
chapter 13 plan.
Given the Confers’ duty to disclose all executory contracts in
schedule G, the absence of any reference to the Watsons’ specific
performance rights or the Agreement in the schedules or the plan, the
ambiguous nature of the Dean Law Firm’s scheduled claim, and the
absence of intent to reject the Agreement, we conclude that the plan neither
rejected the Agreement nor upon confirmation precluded the Watsons
from arguing that the Agreement is non-executory.
B. The Agreement is not an executory contract.
We further agree with the Watsons that the Agreement is not
executory. The Ninth Circuit employs the “Countryman” definition to
determine whether, for purposes of § 365, a contract is executory. See Pac.
Express, Inc. v. Teknekron Infoswitch Corp. (In re Pac. Express, Inc.), 780 F.2d
1482, 1487 (9th Cir. 1986). Under this definition, a contract is executory if
the obligations of both parties to the contract “are so far underperformed
that the failure of either would constitute a material breach excusing the
performance of the other.” Countryman, Executory Contracts in
Bankruptcy: Part I, 57 Minn. L. Rev. 439, 460 (1973); see also Com. Union Ins.
Co. v. Texscan Corp. (In re Texscan Corp.), 976 F.2d 1269, 1271-72 (9th Cir.
11
1992).
The bankruptcy court relied on a Ninth Circuit case, Benevides v.
Alexander (In re Alexander), 670 F.2d 885 (9th Cir. 1982), in finding that the
Agreement was executory. In Alexander, the debtor executed a real estate
purchase agreement for the sale of her property. By the scheduled closing
date, the buyers had made the required down payment, deposited
additional funds into escrow, and had a loan commitment for the balance
of the purchase price. Id. at 887. The debtor refused to convey title or
surrender possession. Instead, she filed a chapter 13 case and proposed to
reject the contract in her plan. Applying the Countryman definition, the
Ninth Circuit held that the question of whether the agreement was
executory turned on whether the buyers had fully performed or merely
tendered performance. It found that the buyers had done the latter because
they needed to pay the balance of the purchase price. Consequently, the
agreement was executory and susceptible to rejection.
Similarly, the Watsons had not paid the full purchase price by the
petition date. Unlike in Alexander, however, a state court issued a
prepetition order compelling specific performance of the Agreement. This
distinction is critical.
Most courts hold that a contract for the sale of a debtor’s property is
no longer executory and cannot be rejected once a court has ordered
specific performance of the contract. See, e.g., Butler v. Resident Care
Innovation Corp., 241 B.R. 37, 46-47 (D.R.I. 1999); Sundial Asphalt Co., Inc. v.
12
V.P.C. Invs. Corp. (In re Sundial Asphalt Co., Inc.), 147 B.R. 72, 80 (E.D.N.Y.
1992); Roxse Homes, Inc. v. Roxse Homes Ltd. P’ship, 83 B.R. 185, 187 (D. Mass.
1988), aff’d 860 F.2d 1072 (1st Cir. 1988); Kendall Grove Joint Venture v.
Martinez-Esteve, 59 B.R. 407, 409 (S.D. Fla. 1986); Bregman v. Meehan (In re
Meehan), 59 B.R. 380, 386 (E.D.N.Y. 1986); In re Baver, No. 21-10806, 2021
WL 5815643, at *5 (Bankr. S.D. Ohio Nov. 2, 2021); In re Brick House Props.,
LLC, 633 B.R. 410, 417-23 (Bankr. D. Utah 2021); In re Bennett Enters., Inc.,
628 B.R. 481, 488-90 (Bankr. D.N.J. 2021); Davidson v. Barstad (In re Barstad),
No. 17-60586-TLM, 2019 WL 2479311, at *5-7 (Bankr. D. Mont. June 12,
2019); In re Acevedo, 441 B.R. 428, 434 (Bankr. S.D.N.Y. 2010); In re Giordano,
446 B.R. 744, 749 (Bankr. E.D. Va. 2010); In re Smith, 269 B.R. 629, 631
(Bankr. E.D. Tex. 2001); Winter v. Glaze (In re Glaze), 169 B.R. 956, 960
(Bankr. D. Ariz. 1994); In re High Country Resorts, 94 B.R. 193, 194 (Bankr.
D.N.M. 1988); Brown v. Bassett (In re Bassett), 74 B.R. 361, 363 (Bankr. D.
Colo. 1987); Rusiski v. Pribonic (In re Pribonic), 70 B.R. 596, 599-601 (Bankr.
W.D. Pa. 1987).
These courts generally reason that once specific performance is
decreed, the rights and obligations of the parties become defined and
governed by the decree rather than by the contract. The debtor, thus, only
has the non-material, or “ministerial,” obligation of delivering title under
the decree. If the debtor refuses to comply with the decree, applicable state
law typically provides mechanisms for the court or a court-appointed third
party to act in the debtor’s stead to covey title. In other words, a failure to
13
act is no longer breach of contract, it is a violation of a court order.
In issuing the specific performance order, the state court necessarily
determined that the Watsons were ready, willing, and able to perform their
contractual obligations under the Agreement. See Cal. Civ. Code §§ 1439,
3386(b), 3392; Gaggero v. Yura, 108 Cal. App. 4th 884, 890 (2003). And under
applicable California law, the state court had the necessary tools to convey
title to the Watsons without the Confers’ involvement; every California
court has the power to compel obedience to its orders. Cal. Civ. Proc. Code
§ 128(a)(1). Thus, if a seller fails to convey property to a buyer as directed
by a specific performance order, the court may appoint its clerk to effect the
conveyance on the seller’s behalf. Blueberry Props., LLC v. Chow, 230 Cal.
App. 4th 1017, 1020-21 (2014). Indeed, the specific performance order
authorizes the Watsons to move the state court ex parte to hold the Confers
in contempt of court if they failed to convey the Property and to request
that the state court take necessary action to close escrow.
The bankruptcy court acknowledged the power of a California court
to appoint its clerk to convey title in a defaulting seller’s stead. It held,
however, that the specific performance order had no binding effect in its
determination of whether the Agreement was executory because the order
was not final. See Harmon v. Kobrin (In re Harmon), 250 F.3d 1240, 1245
(9th Cir. 2001) (California courts may only apply issue preclusion to final
decisions on the merits); Kassir v. Zahabi, 164 Cal. App. 4th 1352, 1357 (2008)
(a specific performance decree is an interlocutory order). We disagree;
14
whether the Agreement is executory does not turn on whether the specific
performance order is final. This is not an issue preclusion matter.
Whether a contract is executory typically turns on the facts in
existence on the petition date. Collingwood Grain, Inc. v. Coast Trading Co.,
Inc. (In re Coast Trading Co., Inc.), 744 F2d 686, 692 (9th Cir. 1984). The
bankruptcy court and parties did not cite, nor have we located, any
authority that undermines the enforceability of the specific performance
order on the petition date because of its interlocutory nature.
The order itself clearly contemplates its immediate enforceability. It
required the Confers to execute escrow instructions and a deed for the
transfer of the Property to the Watsons by October 19, 2020—well before
the petition date. Thus, on the petition date, the state court had the power
to appoint an elisor to convey the Property upon the Watsons’ payment of
the balance of the purchase price into escrow. See Cal. Civ. Proc. Code
§ 128(a)(1). Albeit interlocutory, the order made the Agreement non-
executory by eliminating the need for the Confers to fulfill their contractual
obligations on the petition date. An elisor could convey title under the
decree. See In re Bennett Enters., Inc., 628 B.R. at 490 (finding contract was
non-executory even though state court’s specific performance order was
interlocutory on the petition date); In re Barstad, 2019 WL 2479311 at *5-7
(same); cf. In re Ter Bush, 273 B.R. 625, 628 (Bankr. S.D. Cal. 2002)
(“Although Debtors’ bankruptcy filing prevented [purchaser] from getting
a final judgment [confirming a prepetition arbitration award for specific
15
performance] because of the automatic stay going into effect, that
technicality does not cause the Agreement to remain executory.”).
For the foregoing reasons, the bankruptcy court erred in determining
that the Agreement is executory.
C. The bankruptcy court abused its discretion in denying stay relief.
We next turn to the issue of whether the bankruptcy court abused its
discretion in denying the Watsons relief from the automatic stay.
Section 362(d)(1) requires a bankruptcy court to grant stay relief “for
cause.” “Cause” is not defined by the Bankruptcy Code and is determined
on a case-by-case basis. Mac Donald v. Mac Donald (In re Mac Donald),
755 F.2d 715, 717 (9th Cir. 1985). A legitimate consideration in determining
whether cause exists is the desire to proceed in an action to completion in
another tribunal. See H.R.Rep. No. 595, 95th Cong., 1st Sess. 343-44 (1977);
First Fed. Bank of Cal. v. Robbins (In re Robbins), 310 B.R. 626, 629-30 (9th Cir.
BAP 2004). As relevant here, courts have found that cause exists to grant
stay relief to enforce prepetition state court decrees against debtors for the
specific performance of contracts that were no longer executory and were
therefore not subject to rejection. See, e.g., In re Meehan, 59 B.R. at 386; In re
Roxse Homes, Inc., 74 B.R. 810, 819 (Bankr. D. Mass. 1987), aff’d sub nom.
Roxse Homes, Inc., 83 B.R. 185, aff’d In re Roxse Homes, Inc., 860 F.2d 1072.
In this case, the bankruptcy court denied stay relief for cause based
on its erroneous conclusions that the Agreement was executory and
rejected. We see no indication in the record that it considered other
16
relevant factors in determining that cause did not exist. See Merriman v.
Fattorini (In re Merriman), 616 B.R. 381, 389 (9th Cir. BAP 2020) (discussing
factors considered in assessing whether stay relief should be granted). We
thus vacate the order denying stay relief and remand for the bankruptcy
court to consider whether cause exists in light of this memorandum.
CONCLUSION
Based on the foregoing, we VACATE and REMAND.
17