holding that the denial of a preliminary injunction merged into the final judgment when the district court granted a motion to dismiss the underlying case
How later courts described this case
- holding that the denial of a preliminary injunction merged into the final judgment when the district court granted a motion to dismiss the underlying case
Written by the judges who cited it.
The opinion
UNITED STATES DISTRICT COURT JS-6
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES -- GENERAL
Case No. CV 23-4286-JFW Date: September 6, 2023
Title: In Re Josefina Lopez
Josefina Lopez, et al. -v- Eric Bejar, et al.
PRESENT:
HONORABLE JOHN F. WALTER, UNITED STATES DISTRICT JUDGE
Shannon Reilly None Present
Courtroom Deputy Court Reporter
ATTORNEYS PRESENT FOR PLAINTIFFS: ATTORNEYS PRESENT FOR DEFENDANTS:
None None
PROCEEDINGS (IN CHAMBERS): ORDER AFFIRMING BANKRUPTCY COURT’S
FEBRUARY 9, 2023 ORDER DENYING MOTION FOR
PRELIMINARY INJUNCTION; and
ORDER AFFIRMING BANKRUPTCY COURT’S APRIL
13, 2023 ORDER DISMISSING SECOND AMENDED
COMPLAINT WITH PREJUDICE
On June 1, 2023, Appellants Josefina Lopez (the “Debtor” or “Lopez”) and Victoria Fire and
Casualty Company (the “Insurer” or “Victoria”) (collectively, “Appellants”) filed an appeal from the
United States Bankruptcy Court’s April 13, 2023 Order Dismissing Second Amended Complaint
With Prejudice (Bankruptcy Court Docket No. 93) and April 12, 2023 Ruling Dismissing Second
Amended Complaint with Prejudice (Bankruptcy Court Docket Nos. 89, 90, and 91) (collectively,
“April 13, 2023 Order”). Appellants also filed an appeal from the United States Bankruptcy Court’s
February 9, 2023 Order Denying Motion for Preliminary Injunction (Bankruptcy Court Docket No.
53), and February 7, 2023 Ruling Denying Motion for Preliminary Injunction (Bankruptcy Court
Docket No. 52) (collectively, “February 9, 2023 Order”).
On July 10, 2023, the Appellants filed their Opening Brief. On August 9, 2023, Appellees
Christina Bejar (“Mrs. Bejar”) and Eric Bejar (“Mr. Bejar”) (collectively, the “Bejars”) filed their Brief.
On August 9, 2023, Appellee California Court of Appeal, Second Appellate District (“California
Court of Appeal”) filed its Brief. Appellee Trustee Howard M. Ehrenberg (the “Trustee”) did not file
a Brief. On August 23, 2023, the Appellants filed a Reply Brief. Pursuant to Rule 78 of the Federal
Rules of Civil Procedure and Local Rule 7-15, the Court found these matters appropriate for
submission on the papers without oral argument. After considering the moving, opposing, and
reply papers, and the arguments therein, the Court rules as follows:
I. Factual and Procedural Background
A. The Accident and Personal Injury Suit
On September 8, 2015, Mr. Bejar, a California Highway Patrol Officer, was conducting a
traffic stop of a speeding motorist on the freeway when Lopez struck his motorcycle from behind.
As a result of the collision, Mr. Bejar suffered catastrophic injuries, including but not limited to
fractured vertebrae, herniations of his intervertebral discs, a fractured orbital bone, brain damage,
a torn shoulder, torn tendons in his knee, and nerve damage to his arm and wrist. Mr. Bejar had
multiple surgeries and was never able to fully recover or return to his job as a CHP officer. On
September 8, 2017, Mr. Bejar and his wife, Mrs. Bejar, sued Lopez in Los Angeles Superior Court
(“LASC”) in a case entitled Bejar et. al. v. Josefina Lopez, Case No. BC675339 (the “Personal
Injury Suit”).
At the time of the collision, Lopez was insured by Victoria and Victoria funded her defense of
the Personal Injury Suit. Prior to filing the Personal Injury Suit, the Bejars, by and through their
counsel, offered to settle their claim against Lopez in exchange for her liability policy limits of
$15,000. Victoria refused to settle and, as a result, potentially exposed itself to “bad faith”
liability in excess of its policy limits.
B. The Release
On March 22, 2021, during the pendency of the Personal Injury Suit and unbeknownst to
the Bejars, Victoria paid Lopez $62,500 in exchange for her agreement not to pursue a claim for
bad faith failure to settle within policy limits against Victoria. The agreement between Lopez and
Victoria was memorialized in a Confidential Settlement Agreement and Release (the “Settlement
Agreement”), which provides, among other things, that Lopez “hereby represents to the Insurer, as
a material term of this Agreement, that she intends to file for personal bankruptcy to include the
Action as a claim to be discharged.”1
C. Lopez Files for Bankruptcy and Judgment is Entered in the Personal Injury Suit
On August 11, 2021, a few weeks before the trial in the Personal Injury Suit was scheduled
to begin, Lopez filed a voluntary Chapter 7 petition. On August 16, 2021, the Bejars filed a Motion
for Relief from the Automatic Stay pursuant to 11 U.S.C. § 362(d)(1) (“Motion for Relief from
Stay”). In the Motion for Relief from Stay, the Bejars sought relief from the automatic stay to allow
them to proceed with the Personal Injury Suit.
On August 24, 2021, the Trustee and the Bejars executed a Stipulation for Relief from the
Stay (“Stipulation”). The Stipulation specifically acknowledged the existence of Lopez’s potential
bad faith claim against Victoria, that the bad faith claim was property of the bankruptcy estate, and
1 The “Action” in the Settlement Agreement is defined as the “claims, demands, and causes
of action [alleged] by Plaintiffs Eric and Christina Bejar against the Insured in the civil action
entitled Eric Bejar and Christina Bejar v. Josefina Lopez, et al., filed in the Los Angeles County
Superior Court, Central District, as Case Number BC675339.”
that the Trustee was vested with the rights and interest in the bad faith claim. The Stipulation also
provided that the Bejars would have to obtain a judgment in the Personal Injury Suit before the
Trustee would be able to take appropriate action to void the terms of the Settlement Agreement
releasing Victoria from any insurance bad faith claim. The Bankruptcy Court approved the
Stipulation and entered the Order Granting Relief from the Stay (“Stay Relief Order”). The Stay
Relief Order provided that the Bankruptcy Court retained jurisdiction to resolve any dispute related
to the Stipulation. After the Stay Relief Order was entered, the Bejars proceeded to trial and the
jury returned a verdict in the amount of $49,640,0940 in favor of the Bejars. On November 16,
2021, a judgment was entered in the Personal Injury Suit against Lopez and in favor of the Bejars
in the amount of $60,411,314.40 (which includes interest).
On November 22, 2021, the Bankruptcy Court entered an Order of Discharge, which
released Lopez from any personal liability for, among other things, any personal liability in
connection with the judgment in the Personal Injury Suit. On December 14, 2021, the Bejars filed
a Proof of Claim in the Bankruptcy Court based on their judgment. The Bejars are the only
creditors who timely filed a Proof of Claim.
D. Appeals in the Personal Injury Suit
On March 7, 2022, Lopez appealed the judgment in the Personal Injury Suit. Lopez did not
contact or request permission or the involvement of the Trustee prior to filing her appeal. On June
27, 2022, Lopez filed a second appeal in the Personal Injury Suit, appealing an order denying her
Motion to Tax Costs. Like the first appeal, Lopez did not contact or request permission or the
involvement of the Trustee prior to filing her appeal.2
On April 27, 2022, the Clerk of the Court for the California Court of Appeals sent a letter to
the parties, stating in part:
The court has received notification of the filing by defendant and appellant
Josefina Lopez on August 11, 2021 of a voluntary petition for bankruptcy under
Chapter 7 of Title 11 of the United States Code (Chapter 7) in the United States
Bankruptcy Court for the Central District of California (case number 2:21-bk-
16378). The court also received notification that on August 25, 2021, relief was
granted in the bankruptcy court from the automatic stay imposed by 11 U.S.C. §
362 so that the litigation in the above-captioned case could proceed.
Because the bankruptcy petition was filed under Chapter 7, a trustee was
appointed in the bankruptcy court. The appointment of a trustee in a
bankruptcy case filed under Chapter 7 generally divests the debtor of standing
to proceed with any causes of action that are property of the bankruptcy estate,
and it vests in the trustee authority to assert the claims of the debtor. (11 U.S.C.
§ 323; Reichert v. General Ins. Co. (1968) 68 Cal.2d 822, 829-830; In re Stoll (9th
Cir. BAP 2000) 252 B.R. 492, 495.) Litigation that predates the filing of the
2 On February 23, 2023, Victoria filed a Notice of Appeal, appealing the LASC’s order
denying its Motion for Leave to Intervene and dismissing its Complaint in Intervention.
bankruptcy petition is considered property of the bankruptcy estate. (11 U.S.C. §
541(a)(1); United States v. Whiting Pools, Inc. (1983) 462 U.S. 198, 205, fn. 9;
Smith v. Arthur Andersen LLP (9th Cir. 2005) 421 F.3d 989, 1002.)
The complaint in BC675339 was filed in 2017. The litigation predates the
filing of the August 11, 2021 bankruptcy petition. The litigation in BC675339
thus appears to be property of the bankruptcy estate. (11 U.S.C. § 541(a)(1).)
While the appeal filed on March 7, 2022 post-dates the filing of the bankruptcy
petition, the appeal is nevertheless arguably also property of the bankruptcy
estate since the outcome of the appeal will determine the ultimate status of the
appealed order or judgment issued in BC675339. Consequently, it appears the
trustee has standing to appear in the appeal. (11 U.S.C. § 323; In re Stoll, supra,
252 B.R. at p. 495.)
Pending receipt in this court of information to the contrary, the court’s case
management system has been updated to reflect that the Chapter 7 trustee,
Howard M. Ehrenberg, stands in appellant’s stead. (11 U.S.C. § 323.)
In addition, the California Court of Appeals requested a response from the Trustee
regarding his standing to appear in the appeals. Specifically, the California Court of Appeals
requested that:
If Mr. Ehrenberg does not have standing to appear in the appeal, either
because he has abandoned the litigation to the debtor (11 U.S.C. § 554) or
otherwise been discharged, or because the debtor remains the debtor-in-possession,
Mr. Ehrenberg is requested, within 10 days of the date of this letter,
to serve and file in this court notice of that fact, clarifying in the notice whether
bankruptcy debtor Josefina Lopez may appear in the appeal and, if so, why.
Likewise, if Mr. Ehrenberg will appear in the appeal and is represented by
counsel, he is requested to supply this court with counsel’s information within 10
days.
Although the California Court of Appeals only requested a response from the Trustee, both
Lopez and the Bejars filed responses. On May 31, 2022, Lopez responded and argued that Lopez
should be permitted to pursue the appeals. Specifically, Lopez’s counsel stated that:
[W]e request either that the appeal in the name of Josefina Lopez be allowed to
proceed based on the existing order of the Bankruptcy Judge, or, in the alternative,
permission be granted for the filing of a motion with the Bankruptcy Judge Robles to
clarify that the appeal should proceed in the name of the Bankruptcy Estate of
Josefina Lopez . . . Bankruptcy Trustee Ehrenberg stated he had no objection to the
appeal proceeding.
On June 15, 2022, the Bejars responded to Lopez’s letter and requested a stay of the
appeals “until such time as Victoria either intervenes in this appeal in its own name, or obtains a
bankruptcy court order permitting it to pursue the appeal (either in its name or in Lopez’s name).”
Specifically, the Bejars argued that “the appeal cannot proceed in its current form” and that:
One of three things must happen to cure Lopez’s lack of standing. Either the Trustee
must formally abandon the appeal to Lopez in the bankruptcy court, Victoria/Lopez
must petition the bankruptcy court for an order permitting them to pursue the appeal
in their own name, or Victoria must intervene in this action to protect its own interests
in light of the fraudulent conveyance of the bad faith claim. Until one of those events
occurs, this Court must stay the appeal.
On June 17, 2022, the California Court of Appeals asked the Trustee to respond to Lopez’s
May 31, 2022 letter. On June 27, 2022, the Trustee stated that:
The court first inquired whether I agree with Debtor's contention that she has
standing to proceed with the appeal in her own name. I do not agree with that
contention. The property of a debtor's estate includes "all legal or equitable interests
of the debtor" as of the commencement of a debtor's bankruptcy case (11 U.S.C.
section 541(a)(1).) During the pendency of a Chapter 7 bankruptcy case, the trustee
is the exclusive party with the right to administer the assets of the debtor's
bankruptcy estate and liabilities of the debtor's bankruptcy estate, including standing
to pursue an appeal. (See Smith v. Arthur Anderson LLP, 421 F.3d 989, 1002 (9th
Cir 2005).
Absent a bankruptcy court order approving a motion made by me to abandon my
rights, or an order approving the sale of the appellate rights to the Debtor, neither of
which I intend [to] pursue in this case, Debtor does not have standing to pursue the
appeal in her own name. (See People v. Kings Corp. (1986) 188 Cal.App.3d 544, 549
(“Since the interests of [the bankrupt debtor] in this matter, including the right to
appeal, passed to the trustee in bankruptcy by operation of law, it follows that the
trustee, not the bankrupt [debtor], was the proper party to bring the appeal’’).)
I also object to Lopez’ request that she be afforded 60 days in which to seek
bankruptcy court approval to pursue this appeal in her own name. I do not believe
that such a request is appropriate since I have not and do not intend to abandon the
appeal.
On September 20, 2022, the California Court of Appeals issued Orders denying Lopez’s
request to appear in the appeals “in her own stead” and stated that it would continue to recognize
the Trustee as the “real-party appellant.” In addition, the Orders advised and provided notice that
the California Court of Appeals was considering dismissing both appeals as filed by a party (Lopez)
without standing to do so and provided the Trustee with an opportunity to brief the standing issue
and whether the appeals should be dismissed for lack of standing. In his September 30, 2022
letter brief, the Trustee stated, in relevant part, that:
With respect to the two issues the Court has asked me to address, standing and
dismissal of the appeal, I respond as follows. Based on my knowledge of the facts
and bankruptcy law, [Lopez] lacked standing to file the Appeals when she filed them.
Whether that lack of standing requires the Court to dismiss the Appeals, or whether it
is appropriate to substitute me in as the Appellant is a legal issue on which I express
no opinion.
The Trustee also made it clear that he had not filed or authorized the filing of the appeals.
Specifically, the Trustee stated that:
Neither fo the Appeals in this matter – B321685 and B319582 – were filed by me, at
my direction nor with my authorization. It is my understanding that the Appeals were
filed by the Insurance Company’s Counsel who solely represents Debtor’s interests.
While I have cooperated with Insurer’s counsel, that counsel does not represent me
or the best interests of the Estate. I have not authorized or asked the Insurance
Company’s Counsel to act on my behalf.
Indeed, the Trustee stated that he had explicitly decided that it was in the best interest of the
estate not to pursue the appeals, and that the first time Lopez or Victoria had requested that he
take any action with respect to the appeals was the previous afternoon (September 29, 2022)
when counsel for Victoria requested the Trustee to ask for “sufficient time to file a motion
permitting [the Trustee] to be substituted in to litigate the appeal.” Specifically, the Trustee stated
that:
As a Trustee it is my obligation to act in the best interest of the Bankruptcy Estate so
as to maximize recovery to the creditors. In exercising my business judgment I
believed that an appeal of the Judgment was not in the best interest of the
Bankruptcy Estate and thus took no action to appeal the judgment or post-judgment
order, nor was I asked to do so.
At no time prior to Debtor’s filing of the March 7, 2022 or June 27, 2022 appeals did
Debtor, her Insurer or counsel the Insurer retained to represent Lopez (“Insurance
Company’s Counsel”) request that I file an appeal of the Judgment or the
post-judgment order. Nor did Debtor, her Insurer or the Insurance Company’s
Counsel request permission from me to file the Appeals. The first time I received a
request to take any action with respect to the Appeals is the letter I received
yesterday, requesting that I ask this court for the delay.
In May of this year the Insurance Company’s Counsel contacted me and asked if I
objected to Appellant pursuing the Appeal of the judgment. I advised him that I did
not object to Appellant pursuing the appeal. However, I did not ask him nor did he
request that I pursue the Appeal in my name.
I am, and at all times have been, unrepresented in the Appeals. I have not retained
counsel in connection with the Appeals, and was never asked to retain counsel by
Appellant or her Insurer. The Insurance Company’s Counsel does not represent me,
and I was not asked to retain that counsel. Moreover, even though the Insurer is
willing to pay for the costs of counsel of its choice to prosecute the Appeals, that
counsel cannot represent my interests unless they obtain bankruptcy court approval
for their employment under Bankruptcy Code § 327. Neither the Insurer’s bankruptcy
counsel, appellate counsel nor anyone else on behalf of the Insurer has requested
that I retain counsel and file such an Application.
The Trustee concluded by stating that he “Never Abandoned The Right to Appeal To [Lopez] Nor
Did The [Bankruptcy] Court Order The Rights To Be Abandoned.”
E. Lopez and Victoria’s Motions and Appeals in the Bankruptcy Case
1. The Bankruptcy Court’s December 20, 2022 Order Denying Lopez and
Victoria’s Motion for an Order Compelling Abandonment of Debtor’s
Appellate Rights
On October 24, 2022, and in light of the California Court of Appeals’ September 20, 2022
Orders regarding the potential dismissal of the appeals, Lopez and Victoria filed a Motion for an
Order Compelling Abandonment of Debtor’s Appellate Rights (“Motion to Abandon”) in the
Bankruptcy Court. In the Motion to Abandon, Lopez and Victoria requested that the Bankruptcy
Court either enter an order confirming that Lopez’s right to appeal the Judgment in the Personal
Injury Suit was not property of the bankruptcy estate or, if it was property of the bankruptcy estate,
grant Lopez’s request to compel the Trustee to abandon the appeals. On November 1, 2022, the
Bejars and the Trustee filed their Oppositions to the Motion to Abandon. On December 20, 2022,
the Bankruptcy Court issued a thorough and well-reasoned eight-page, single-spaced
Memorandum of Decision Denying the Motion to Abandon and entered a formal Order Denying the
Motion to Abandon (“December 20, 2022 Order”).
In the December 20, 2022 Order, the Bankruptcy Court concluded that the defensive
appellate rights of Lopez were property of the bankruptcy estate, that Victoria and Lopez had erred
by not including the Trustee as a necessary party when they unilaterally appealed the judgment in
the Personal Injury Suit, and that nothing in the Bankruptcy Court’s prior Stay Relief Order affected
these issues. Specifically, the Bankruptcy Court concluded that the issues presented in the
Appellants’ Motion to Abandon were discrete and narrow and noted that:
At the outset, the Court finds it appropriate to emphasize that there are only two
questions at issue in connection with the Motion: whether the [Personal Injury Suit]
Appeals are property of the estate and if so, whether the Trustee should be
compelled to abandon the Appeals.
Having defined the issues, the Bankruptcy Court then found “that the Appeals are property
of the estate,” and concluded that the case of Mozer v. Goldman (In re Mozer), 302 B.R. 892 (C.D.
Cal. 2003) was directly on point. In Mozer, the debtors filed a Chapter 7 petition after a substantial
judgment was entered against them, and the trustee subsequently sought authorization to sell the
debtors’ right to defend against an appeal of the judgment. In opposing the sale, the debtors
argued that their right to defend against the appeal was not property of the estate because the
judgment against them was a liability, not an asset. The Mozer court overruled the debtors’
opposition to the sale of the debtors’ defensive appellate rights. Noting that “rights created or
granted by statute” constitute property under California law, the Mozer court concluded:
The right to appeal is valuable in nature and is the property of the bankruptcy estate
under California's broad concept of property rights. Therefore, all of the Debtors’
appellate rights, including the Defensive Appellate Rights, are saleable by the
Trustee. The Defensive Appellate Rights arising from a judgment against the Debtor
are not qualitatively different with respect to their status as property than appellate
rights arising from a judgment on the Debtors’ claims. The Debtors are unable to cite
to any California or Federal authority in support of their position.
Mozer, 302 B.R. 892, 896 (C.D. Cal. 2003). The Bankruptcy Court concluded that “[a]s was the
case in Mozer,” Lopez’s “defensive appellate rights are ‘valuable in nature’ and are ‘property of the
bankruptcy estate under California’s broad concept of property rights,’” and noted that the Trustee
has represented that he is considering selling Lopez’s defensive appellate rights.
In the December 20, 2022 Order, the Bankruptcy Court also rejected Victoria’s argument
that Mozer did not apply because specific provisions in its insurance policy limited the rights that
passed to the Trustee when Lopez filed her bankruptcy petition. Specifically, Victoria argued that
the policy provisions requiring Lopez to cooperate with Victoria and providing that Victoria would
pay the cost of any appeal it determines is necessary when read together gave Victoria the right to
determine whether to bring an appeal and to control the appeal once it is brought. In rejecting that
argument the Bankruptcy Court correctly concluded that:
The Insurer’s argument rests upon a mistaken premise. At the time the Appeals
were filed, the Insurer could have sought authorization from the Trustee to file the
Appeals in the estate’s name. Had the Insurer done so and the Trustee refused, an
argument could be made that such refusal would have violated the Policy’s
cooperation clause. But that is not what occurred. The Insurer did not seek
authorization from the Trustee to file the Appeals in the estate’s name. Instead, the
Insurer elected to unilaterally file the March 7, 2022 appeal without even contacting
the Trustee. Had the Insurer proceeded properly by either seeking the Trustee’s
permission to file the March 7, 2022 appeal in the estate’s name, or at the very least
seeking the Trustee’s authorization to file the appeal, its right to determine whether to
bring that appeal would have been vindicated. The situation in which the Insurer now
finds itself results not from overreach by the Trustee, but rather from the Insurer’s
failure to proceed properly with respect to the March 7, 2022 appeal. Accordingly,
there is no merit to the contention that provisions in the Policy pertaining to appeals
and to the Debtor’s duty to cooperate prevent the Appeals from becoming estate
property.
Having determined that the Personal Injury Suit appeals are property of the estate, the
Bankruptcy Court then considered and properly rejected the Appellants’ argument that the Trustee
should be compelled to abandon the estate’s interest in the appeals. The Bankruptcy Court
concluded that under Section 554(b) of the Bankruptcy Code, an order compelling abandonment is
the exception, not the rule, and that Appellants had “failed to demonstrate that an order compelling
the abandonment of the Appeals is necessary or appropriate.” The Bankruptcy Court also rejected
the Appellants’ argument that the equities of the case required abandonment to allow Lopez to
pursue the appeals and noted that the identical argument had been rejected in Mozer. Finally, the
Bankruptcy Court rejected the Appellants’ argument that the estate had been divested of its
interest in the appeals when the Bankruptcy Court lifted the automatic stay which allowed the
Personal Injury Suit to proceed. Specifically, the Bankruptcy Court concluded that:
The only thing that the Court did when it approved the [Relief from Stay] Stipulation
and entered the order lifting the automatic stay (the “RFS Order”) was to permit the
State Court Action to proceed to final judgment. The RFS Order made no findings
regarding whether the Appeals constitute estate property, either explicitly or implicitly.
In fact, no such findings could have been made; at the time the RFS Order was
entered, the Appeals had not even been filed.
On January 3, 2023, Victoria and Lopez appealed the Bankruptcy Court’s December 20,
2022 Order.3
2. The Bankruptcy Court’s February 6, 2023 Order Denying Lopez and
Victoria’s Motion for Reconsideration of the Order Denying
Abandonment
On December 29, 2022, Victoria and Lopez filed a Motion for Reconsideration of the
Order Denying Abandonment (“Motion for Reconsideration”). On February 6, 2023, the
Bankruptcy Court issued a thorough and well-reasoned four-page, single-spaced Memorandum of
Decision Denying Motion for Reconsideration and entered a formal Order Denying the Motion for
Reconsideration (“February 6, 2023 Reconsideration Order”). Specifically, the Bankruptcy Court
concluded, in part, that:
The Insurer’s primary argument is that the RFS Order gave the Debtor the right to
pursue the Appeals, and that as a result of the entry of the RFS Order, the “Appeals
were properly filed and that the Movants may pursue the Appeals, without further
involvement of the Bankruptcy Court or the Trustee.” The Insurer is not entitled to
reconsideration of the Memorandum on this ground. The RFS Order addressed the
scope of the automatic stay; it did not address the separate issues of whether the
Debtor’s defensive appellate rights are property of the estate, and which party has
standing to pursue those defensive appellate rights. The Insurer’s argument that the
RFS Order gave the Debtor standing to file the Appeals conflates these entirely
separate issues. As set forth in the Memorandum, it is well established that an order
lifting the automatic stay does not “by itself release the estate’s interest in the
property” with respect to which the stay has been lifted. Catalano v. Comm’r, 279
F.3d 682, 686–87 (9th Cir. 2002) (internal quotations and citations omitted).
3 Victoria and Lopez have filed four related appeals: (1) In re Josefina Lopez, Case No. 23-
455-JFW), which was the appeal of the Bankruptcy Court’s December 20, 2022 Order and which
this Court dismissed on June 30, 2023; (2) In re Josefina Lopez, Case No. 23-1365-JFW, which
was the appeal of the Bankruptcy Court’s February 6, 2023 Reconsideration Order and which this
Court dismissed on June 20, 2023; (3) In re Josefina Lopez, Case No. 23-1645-JFW, which was
the appeal of the Bankruptcy Court’s denial of Appellants’ Motion for Preliminary Injunction in a
related Adversary Proceeding (Josefina Lopez, et al. v. Eric Bejar, et al., Adversary Case No. 22-
ap-01219-ER), and which this Court dismissed as moot on June 30, 2023; and (4) In re Josefina
Lopez, Case No. 23-4286-JFW, which is the pending appeal of the Bankruptcy Court’s Order
dismissing the Second Amended Complaint with prejudice and Order denying Appellants’ Motion
for Preliminary Injunction in the related Adversary Proceeding (Josefina Lopez, et al. v. Eric Bejar,
et al., Adversary Case No. 22-ap-01219-ER).
Throughout the Motion for Reconsideration, the Insurer argues that the findings in the
Memorandum prejudice its due process rights by preventing it from challenging the
State Court Judgment on the Debtor’s behalf. What this argument overlooks is the
fact that the situation in which the Insurer now finds itself is entirely of its own
making. As the Court noted in the Memorandum, at the time the Appeals were filed,
the Insurer could have sought authorization from the Trustee to file the Appeals in the
estate’s name, or at the very least sought the Trustee’s authorization to file the
Appeals. Doing so would have eliminated any risk that the Appeals could be
dismissed on standing grounds. As the Court stated in the Memorandum: “The
situation in which the Insurer now finds itself results not from overreach by the
Trustee, but rather from the Insurer’s failure to proceed properly with respect to the
March 7, 2022 appeal.”
On February 16, 2023, Victoria and Lopez appealed the Bankruptcy Court’s February 6,
2023 Reconsideration Order.
3. This Court’s June 30, 2023 Order Affirming the Bankruptcy Court’s
December 20, 2022 Order and February 6, 2023 Reconsideration Order
On June 30, 2023, this Court affirmed the Bankruptcy Court’s December 20, 2022 Order
and February 6, 2023 Reconsideration Order and dismissed Victoria and Lopez’s appeals in In re
Josefina Lopez, Case No. 23-455-JFW and in In re Josefina Lopez, Case No. 23-1365-JFW. In its
June 30, 2023 Order, this Court concluded that the Bankruptcy Court correctly determined that
Lopez’s defensive appellate rights are property of the bankruptcy estate. Specifically, this Court
concluded that:
When an individual files for bankruptcy, 11 U.S.C. § 541(a) creates an estate
which is comprised of “all . . . property, wherever located and by whomever held,”
including “all legal or equitable interests of the debtor in property as of the
commencement of the case.” 11 U.S.C. § 541(a)(1). Although Section 541 contains
broad enumerated ways that property is, or can become, property of the estate, the
Bankruptcy Code does not contain an express definition of what is encompassed by
“all legal or equitable interests of the debtor in property.” However, the Supreme
Court explained that “Congress intended a broad range of property to be included in
the estate.” United States v. Whiting Pools Inc., 462 U.S. 198, 204 (1983). In
addition, California Civil Code § 655 defines what is property under California law.
Specifically, Section 655 provides that property includes: “ownership of all inanimate
things . . . ; of all obligations; of such products of labor or skill, as the composition of
an author; the goodwill of a business, trademarks and signs, and of rights created or
granted by statute.”
In addition, it is well settled in the Ninth Circuit that defensive appellate rights
are estate property pursuant to 11 U.S.C. § 541(a). See Fridman v. Anderson (In re
Fridman), 2016 WL 3961303 (9th Cir. BAP July 15, 2016) (“The right to appeal a
state court judgment is property that is part of a debtor’s estate.”); see also McCarthy
v. Goldman (In re McCarthy)¸ 2008 WL 844338 (9th Cir. BAP Feb. 19, 2008
(upholding a Bankruptcy Court’s determination that a debtor’s defensive appellate
rights were estate property); In re Marciano, 2012 WL 4369743, at *1 (C.D. Cal. Sept.
25, 2012) (holding that under California law, the right to appeal an adverse
judgment is a property right and therefore estate property). Indeed, the issue is so
well-settled, that in a similar case, Hong v. Liu (In re Liu), 2020 WL 5543041 (C.D.
Cal. Sep. 14, 2020), the court noted that “courts within the Ninth Circuit [have] made
clear that defensive appellate rights are property of the estate” and chastised an
attorney for excessive billing to research what was such “clear and well settled case
law,” concluding that the expenditure of large amounts of attorney time researching
the issue was “grossly disproportionate to any possible benefit.”
Moreover, the Court finds unpersuasive the Appellants’ argument that
because Lopez filed for bankruptcy prior to the entry of judgment in the Personal
Injury Suit, her defensive appellate rights did not exist at the time the bankruptcy was
filed and, as a result, are not estate property. Property of the estate includes a
debtor’s interest in any future contingency so long as that contingency is “sufficiently
rooted” in the debtor’s pre-bankruptcy past. See In re Ryerson, 739 F.2d 1423, 1426
(9th Cir. 1984); see also Nichols v. Birdsell, 491 F.3d 987, 990 (9th Cir. 2007), (“By
including all legal interests without exception, Congress indicated its intention to
include all legally recognizable interests although they may be contingent and not
subject to possession until some future time”). In this case, the defensive appellate
rights in the Personal Injury Suit were rights that Lopez possessed by virtue of her
status as a defendant in the Personal Injury Suit, and those rights did not exist
independent of the Personal Injury Suit. The Personal Injury Suit was filed and
pending prior to Lopez filing her bankruptcy petition. Therefore, the Court concludes
that Lopez’s defensive appellate rights are “sufficiently rooted” in Lopez’s pre-
bankruptcy past and, as a result, are property of the estate.
Accordingly, the Court concludes that the Bankruptcy Court did not err in
concluding that Lopez’s defensive appellate rights in the Personal Injury Suit are
property of the estate, and the Court affirms the Bankruptcy Court’s December 20,
2022 Order.
In addition, this Court in its June 30, 2023 Order concluded that the Bankruptcy Court
correctly determined that the Stay Relief Order did not divest the estate of its interest in the
Appeals of the Personal Injury Suit. Specifically, the Court concluded that:
The Court also finds unpersuasive the Appellants’ argument that the Stay
Relief Order divested the estate of its interest in the appeals in the Personal Injury
Suit and somehow gave the Appellants the right to unilaterally appeal the judgment in
the Personal Injury Suit. Section 362(a) of the Bankruptcy Code provides that upon
the filing of a bankruptcy petition, the automatic stay is in effect to bar an enumerated
list of collection activities. Section 362(a)(1) specifically stays the
continuation of any judicial proceeding against the debtor that was commenced
before the bankruptcy filing. In this case, the Personal Injury Suit was a judicial
action to recover a claim against Lopez that was filed and pending before she filed
her bankruptcy petition, and, thus, the Personal Injury Suit fell squarely within the
automatic stay provision of Section 362(a)(1). As a result, the Bejars were required
to obtain relief from the automatic stay before they could proceed with the Personal
Injury Suit. The Bankruptcy Court granted the Stay Relief Order, which lifted the
automatic stay to allow the Bejars to proceed with the Personal Injury Suit.
Specifically, the Stay Relief Order stated in part:
Limitations on Enforcement of Judgment: Movant may proceed in the
nonbankruptcy forum to final judgment (including any appeals) in
accordance with applicable nonbankruptcy law.
The Court concludes that the legal effect of the Stay Relief Order was to modify the
bankruptcy court protections afforded to Lopez from a specific creditor, the Bejars.
However, the Stay Relief Order did not alter or change any of Lopez’s rights arising
from the Personal Injury Suit, including the fact that Lopez’s defensive appellate
rights had become property of the estate pursuant to Section 541(a) when she filed
her bankruptcy petition. Indeed, the Ninth Circuit has specifically rejected the
Appellants’ argument that the lifting of the automatic stay pursuant to Section 362(a)
somehow constitutes a de facto abandonment of the estate’s interest in the subject
property. In Catalano v. C.I.R., 279 F.3d 682, 686-87 (9th Cir. 2002), the Ninth Circuit
held that:
[A]n order lifting the automatic stay by itself does not release the
estate's interest in the property and “the act of lifting the automatic stay
is not analogous to an abandonment of the property. (citation omitted).
Thus, property is not considered abandoned from the estate unless the
procedures specified in § 554 are satisfied. In short, an order lifting or
modifying the automatic stay by itself does not constitute a de facto
abandonment of the property from the bankruptcy estate.
In light of the Ninth Circuit’s holding in Catalona, the Bankruptcy Court
correctly concluded in its December 20, 2022 Order that the defensive appellate
rights in the Personal Injury Suit were property of the estate pursuant to Section
541(a), and that the Stay Relief Order did not constitute a de facto abandonment of
the estate’s interest in those rights.
Accordingly, this Court concluded that the Bankruptcy Court did not err in denying the
Appellants’ Motion to Abandon or in denying the Appellants’ Motion for Reconsideration, and this
Court affirmed the Bankruptcy Court’s December 20, 2022 Order and February 6, 2023
Reconsideration Order. As a result, this Court dismissed with prejudice the appeals in Case Nos.
CV 23-455-JFW and CV 23-1365-JFW.
F. Lopez and Victoria’s Motions and Appeal in the Adversary Proceeding
On December 19, 2022, Victoria and Lopez filed an adversary proceeding, entitled Josefina
Lopez, et al. v. Eric Bejar, et al., Adversary Case No. 22-ap-01219-ER (“Adversary Proceeding”).
On January 6, 2023, Victoria and Lopez filed a First Amended Complaint (“FAC”) in the Adversary
Proceeding.
1. The Bankruptcy Court’s February 9, 2023 Order Denying Lopez and
Victoria’s Motion for Preliminary Injunction
On January 12, 2023, Victoria and Lopez filed a Motion for Preliminary Injunction in the
Adversary Proceeding. In their Motion for Preliminary Injunction, Victoria and Lopez sought a
preliminary injunction: (1) directing the California Court of Appeal to stay its consideration of the
Motions to Dismiss Appeals for Lack of Standing (“Motions to Dismiss Appeals”) filed by the
Bejars; (2) enjoin the Bejars and the Trustee from pursuing the Motions to Dismiss Appeals or
otherwise filing additional or related pleadings; and (3) enjoining the Trustee from taking any action
in pursuit of a sale, assignment, transfer, or other disposition of his rights to control the Appeals.
On February 7, 2023, the Bankruptcy Court issued a thorough and well-reasoned ten-page,
single-spaced ruling denying the Motion for Preliminary Injunction and, on February 9, 2023, the
Bankruptcy Court entered a formal Order Denying Motion for Preliminary Injunction. On February
23, 2023, Victoria and Lopez appealed the Bankruptcy Court’s February 9, 2023 Order to this
Court in the case entitled In re Josefina Lopez, Case No. 23-1645-JFW.
On June 30, 2023, this Court entered an Order dismissing as moot Victoria and Lopez’s
appeal of the Bankruptcy Court’s February 9, 2023 Order. Specifically, this Court concluded (in the
case entitled In re Josefina Lopez, Case No. 23-1645-JFW) that:
On June 1, 2023, the Appellants filed an appeal, In re Josefina Lopez (Case No.
23-4286-JFW), which is the appeal of the Bankruptcy Court’s April 13, 2023 Order
Dismissing Second Amended Complaint with Prejudice and the Bankruptcy Court’s
February 9, 2023 Order Denying Motion for Preliminary Injunction. The February 9,
2023 Order Denying Motion for Preliminary Injunction is the same order that is
subject to this appeal (Case No. 23-1645-JFW). Therefore, the Court agrees with the
parties that the appeal in this case (Case No. 23-1645-JFW) is moot in light
of the filing of the appeal in Case No. 23-4286-JFW. See Appellees’ Reply to
Appellants’ Opposition to Motion to Dismiss (Docket No. 43 in Case No.
23-1645-JFW) (“The Parties herein do not agree on much at all. As to this appeal
only, however, there is some accord between the Parties regarding the procedural
status of this appeal in light of the Bankruptcy Court’s Order Dismissing the
Adversary Proceeding. With that order now on appeal, this appeal has merged into
the new appeal, and can only be addressed if this Court first overrules the
Bankruptcy Court’s Order Dismissing the Adversary Proceeding”); see also
Appellants’ Opposition to the Appellees’ Motion to Dismiss (Docket No. 42 in Case
No. 23-1645-JFW) (stating that “so long as nothing is done in this matter [Case No.
23-1645-JFW] to impair or prejudice Appellants’ rights in the [Case No.
23-4286-JFW] Appeal, a denial of the pending Motion for Leave to Appeal would not
be troubling to Lopez and Victoria”).
2. The Bankruptcy Court’s April 13, 2023 Order Dismissing the SAC in the
Adversary Proceeding with Prejudice
On February 10, 2023, the Trustee and the Bejars filed their respective Motions to Dismiss
Adversary Proceeding. On March 13, 2023, the California Court of Appeal filed a Motion to
Dismiss Adversary Proceeding. On March 29, 2023, Victoria and Lopez filed a Motion to Amend
and a Proposed Second Amended Complaint (“SAC”) in the Adversary Proceeding. The proposed
SAC alleged three claims: (1) declaratory relief pursuant to 11 U.S.C. § 105(a) and 28 U.S.C. §§
2201 and 2202 “directed to the California Court of Appeal and the Proceedings therein”; (2)
injunctive relief pursuant to 11 U.S.C. § 105(a) and 28 U.S.C. § 2202 “directed to the California
Court of Appeal and the Proceedings therein”; and (3) declaratory relief pursuant to 28 U.S.C. §
2201 as to the Trustee and the Bejars. In the SAC, Victoria and Lopez seek “injunctive and
declaratory relief in connection with the two appeals taken by the debtor, Josefina Lopez, in the
state court personal injury action of Eric and Christina Bejar v. Josefina Lopez, which appeals are
pending in the California Court of Appeal, and certain developments in that court over which the
bankruptcy court has exclusive jurisdiction.” SAC, ¶ 1. Victoria and Lopez allege that the
California Court of Appeal’s September 20, 2022 Orders “overstepped the bankruptcy court’s
exclusive jurisdiction, in two respects”: (1) “[i]t overstepped [the Bankruptcy] Court’s exclusive
jurisdiction as to modifications of the automatic stay”; and (2) “[i]t also overstepped [the
Bankruptcy] Court’s exclusive jurisdiction over determinations of property of the estate under
circumstances . . . where the ‘property of the estate’ determination is also central to the
administration of the estate overall.” SAC, ¶ 7. As a result, Victoria and Lopez allege that the
California Court of Appeal’s September 20, 2022 Orders “should be declared null and void, and
these core bankruptcy issues should be instead presented to this Court,” SAC, ¶ 8.
On April 12, 2023, the Bankruptcy Court issued a thorough and well-reasoned ten-page,
single-spaced ruling authorizing the filing of the Proposed SAC, deeming the SAC to be the
operative Complaint, construing the Motions to Dismiss as having been directed to the SAC rather
than to the FAC, and dismissing the SAC with prejudice. On April 13, 2023, the Bankruptcy Court
entered an Order Dismissing Second Amended Complaint with Prejudice. On April 26, 2023,
Victoria and Lopez appealed the Bankruptcy Court’s April 13, 2023 Order and February 9, 2023
Order to this Court in this case, entitled In re Josefina Lopez, Case No. 23-4286-JFW.
II. Issues on Appeal
The issues on appeal are:
1. Whether the Bankruptcy Court erred in its April 13, 2023 Order by dismissing with
prejudice the SAC in the Adversary Proceeding; and
2. Whether the Bankruptcy Court erred in its February 9, 2023 Order by denying
Victoria and Lopez’s Motion for Preliminary Injunction.
III. Legal Standards
The standard of review of bankruptcy court decisions by district courts is well-established,
and uncontested by the parties. When reviewing decisions of a bankruptcy court, district courts
apply standards of review applicable to the courts of appeals when reviewing district court
decisions. In re Baroff, 105 F.3d 439, 441 (9th Cir.1997); see also In re Fields, 2010 WL 3341813,
*2 (E.D. Cal. 2010) (“A district court's standard of review over a bankruptcy court's decision is
identical to the standard used by circuit courts reviewing district court decisions.”) (citation
omitted).
On appeal, a district court may “affirm, modify, or reverse a bankruptcy judge's judgment,
order, or decree or remand with instructions for further proceedings.” Federal Rules of Bankruptcy
Procedure 8013. Generally, a district court reviews a bankruptcy court's factual findings “‘under
the clearly erroneous standard and its conclusions of law de novo.’” Acequia, Inc. v. Clinton (In re
Acequia, Inc.), 787 F.2d 1352, 1357 (9th Cir. 1986) (quoting Ragsdale v. Haller, 780 F.2d 794, 795
(9th Cir. 1986)). “Mixed questions of law and fact are reviewed de novo.” Beaupied v. Chang (In
re Chang), 163 F.3d 1138, 1140 (9th Cir.1998).
In reviewing a Bankruptcy Court's decision to grant a motion to dismiss, a district court
reviews legal determinations de novo. See In re Olshan, 356 F.3d 1078, 1083 (9th Cir.2004); Ta
Chong Bank Ltd. v. Hitachi High Techs. Am., Inc., 610 F.3d 1063, 1066 (9th Cir.2010). In addition,
a district court reviews a Bankruptcy Court's decision to deny leave to amend under an abuse of
discretion standard. See Leadsinger, Inc. v. VMG Music Pub'g, 512 F.3d 522, 532 (9th Cir.2008).
A bankruptcy court abuses its discretion if it applies the wrong legal standard, misapplies the
correct legal standard, or makes factual findings that are illogical, implausible, or without support in
inferences that may be drawn from the facts in the record. See TrafficSchool.com, Inc. v. Edriver
Inc., 653 F.3d 820, 832 (9th Cir. 2011) (citing United States v. Hinkson, 585 F.3d 1247, 1262 (9th
Cir. 2009) (en banc)).
IV. Discussion
In their appeal, Appellants argue that the Bankruptcy Court erred in dismissing with
prejudice the SAC in the Adversary Proceeding and by denying their Motion for Preliminary
Injunction. Specifically, Appellants argue that they are entitled to declaratory relief with respect to
the California Court of Appeal’s September 20, 2022 Orders and with respect to the definition of
“property” under California law and 11 U.S.C. § 558. Appellants also argue that the Bankruptcy
Court erred in dismissing the second claim alleged in the SAC for injunctive relief and for denying
their Motion for Preliminary Injunction. The Bejars and the California Court of Appeal argue that
the Bankruptcy Court correctly dismissed with prejudice the SAC filed in the Adversary Proceeding
and denied the Motion for Preliminary Injunction. In addition, the Bejars and California Court of
Appeal argue that this fourth appeal is nothing more than an attempt to delay the bankruptcy
proceedings by re-litigating issues already decided by both this Court and the Bankruptcy Court
and Appellants should be precluded from raising those issue again in this appeal.
A. The Bankruptcy Court’s April 13, 2023 Order
In the April 13, 2023 Order, the Bankruptcy Court granted Appellants’ Motion for Leave to
Amend and the SAC became the operative complaint in the Adversary Proceeding. The
Bankruptcy Court then determined that the arguments made in the then-pending Motions to
Dismiss filed by the Bejars, the California Court of Appeal, and the Trustee were applicable to the
SAC. Specifically, the Bankruptcy Court concluded that:
The Court’s first task is to determine whether it is appropriate to adjudicate the
Motions to Dismiss in view of the Motion for Leave to Amend and the Proposed SAC.
In this respect, the Court notes that the arguments presented in the Motions to
Dismiss apply with equal force to both the [FAC] and the Proposed SAC. The Court
will authorize the filing of the Proposed SAC, deem the Proposed SAC to be the
operative Complaint, and construe the Motions to Dismiss to have been directed to
the SAC rather than to the Complaint. This approach is appropriate because
requiring the Defendants to file renewed Motions to Dismiss directed to the SAC that
would be substantially identical to the Motions to Dismiss already on file would result
only in needless delay and increased costs for all parties. As set forth in Bankruptcy
Rule 1001, the Court must construe the procedural rules in manner that secures the
"just, speedy, and inexpensive determination of every case and proceeding"
(emphasis added).
April 13, 2023 Order (Adversary Proceeding Docket Nos. 89, 90, 91, and 93).
The Bankruptcy Court then determined that the SAC was “fatally deficient” and granted the
three pending Motions to Dismiss that had been filed by the Bejars, the Trustee, and the California
Court of Appeal. As a result, in its April 13, 2023 Order, the Bankruptcy Court dismissed the SAC
with prejudice, concluding that granting leave to amend would be futile. Specifically, in its April 13,
2023 Order, the Bankruptcy Court concluded that:
The premise of the SAC is that in raising the issue of whether the Appeals had
been filed by a party lacking standing, the State Appellate Court was effectively
reimposing the automatic stay, in violation of the Bankruptcy Court’s exclusive
jurisdiction. As a matter of law, this premise is incorrect.
April 13, 2023 Order (Adversary Proceeding Docket Nos. 89, 90, 91, and 93).
In addition, the Bankruptcy Court carefully explained in its April 13, 2023 Order that the
issues of whether a party has standing and whether an action violates the automatic stay are
separate and distinct:
The question of whether a party has standing has no bearing upon the
separate question of whether an action violates the automatic stay. Courts have an
obligation to independently determine whether the parties appearing before them
have standing to seek relief. Standing is a jurisdictional issue, Morgan v. United
States, 958 F.2d 950, 951–52 (9th Cir. 1992), and where a court determines it lacks
jurisdiction, the court is obligated to dismiss the action, Arbaugh v. Y&H Corp., 546
U.S. 500, 514, 126 S. Ct. 1235, 1244, 163 L. Ed. 2d 1097 (2006). A finding that a
court’s determination as to a party’s standing could somehow violate the automatic
stay would prevent courts from discharging a basic obligation that arises in
connection with every case and controversy.
Therefore, the 9/20/22 State Appellate Court Order did not violate the
automatic stay. The SAC’s allegation that the 9/20/22 State Appellate Court Order
"usurped and impaired the Bankruptcy Court’s exclusive jurisdiction" because it
"entailed a further modification of the automatic stay," SAC at ¶ 133, fails as a matter
of law.
The Insurer . . . makes a related but distinct argument with respect to the
automatic stay that is also without merit. The argument is that only this Court had
jurisdiction to determine whether the 9/20/22 State Appellate Court Order violated the
stay. According to the Insurer, by issuing the 9/20/22 State Appellate Court Order
without first seeking this Court’s authorization, the State Appellate Court interfered
with this Court’s jurisdiction over issues pertaining to the automatic stay and property
of the estate.
It is true that the Bankruptcy Court has exclusive jurisdiction to modify the
automatic stay. Gruntz v. County of Los Angeles (In re Gruntz), 202 F.3d 1074, 1082
(9th Cir. 2000). It is also true that "the federal courts have the final authority to
determine the scope and applicability of the automatic stay." Id. at 1083. However,
contrary to the Insurer’s argument, Gruntz does not stand for the proposition that
state courts lack the ability to determine the applicability of the automatic stay. State
courts can, and frequently do, make determinations regarding whether the automatic
stay bars litigation before them from proceeding. As a matter of good practice, state
courts often refer questions regarding the applicability of the automatic stay to the
Bankruptcy Court, since "judicial proceedings in violation of the automatic stay are
void." Id. at 1082. However, a state court is not required to refer questions regarding
applicability of the stay to the Bankruptcy Court, provided it is willing to bear the risk
of "having its final judgment declared void." Id. at 1087. In fact, the state court in
Gruntz did not refer the question of the applicability of the automatic stay to the
Bankruptcy Court, and was ultimately vindicated when the Ninth Circuit found that the
proceedings conducted by the state court fell within an exception to the stay.
Therefore, to the extent that the 9/20/22 State Appellate Court Order constituted an
implicit determination with respect to either the applicability of the automatic stay or
what assets are property of the bankruptcy estate, the issuance of that order did not
impair this Court’s jurisdiction, because nothing within the 9/20/22 State Appellate
Court order either violated the automatic stay or amounted to an impermissible
attempt to assert control over estate property.
April 13, 2023 Order (Adversary Proceeding Docket Nos. 89, 90, 91, and 93).
Finally, the Bankruptcy Court concluded in its April 13, 2023 Order that Appellants had failed
to state a claim with respect to whether Lopez’s defensive appellate rights were property of the
bankruptcy estate:
The only legal theories in the SAC not predicated upon the false premise that
the 9/20/22 State Appellate Court Order interfered with the Bankruptcy Court’s
jurisdiction are the requests for (1) declaratory judgment that the right to appeal does
not constitute "property" within the meaning of Cal. Code Civ. Proc. § 902 and (2)
declaratory judgment that under § 558, the Debtor has the continued right to assert
her defenses before the State Appellate Court, regardless of whether the Trustee
also asserts such defenses. As explained below, both these requests fail to state a
claim upon which relief can be granted.
The request for declaratory judgment regarding the definition of "property" for
purposes of Cal. Code Civ. Proc. § 902 fails as a matter of law because the Court
previously determined in the Memorandum that the estate’s interest in the Appeals
constituted property of the estate. See Memorandum at 5–7. The finding that the
Appeals constituted estate property was reaffirmed when the Court denied the
Insurer’s request for reconsideration of the Memorandum. See generally
Memorandum of Decision Denying Motion for Reconsideration [Bankr. Doc. No.
128]. Implicit in the finding that the Appeals constituted property of the estate was a
finding that the Appeals constituted property under California law. The Insurer’s
request for declaratory relief regarding the definition of "property" is nothing more
than a disguised attempt to obtain reconsideration, for a second time, of an issue that
has already been decided. As such, the request is not proper. Reconsideration is "an
‘extraordinary remedy, to be used sparingly in the interests of finality and
conservation of judicial resources.’” Carroll v. Nakatani, 342 F.3d 934, 945 (9th Cir.
2003) (internal citation omitted); see also In re Mannie, 299 B.R. 603, 608 (Bankr.
N.D. Cal. 2003) (internal citation omitted) (“A motion to reconsider should not be
used ‘to ask the court “to rethink what the court had already thought through—rightly
or wrongly”—or to reiterate arguments previously raised.’”).
The request for a declaratory judgment that the Debtor had the right under §
558 to assert defenses before the State Appellate Court fails as a matter of law
because by pursuing such request, the Insurer is attempting to obtain federal review
of matters pending before the State Appellate Court, in violation of the
Rooker-Feldman doctrine. The purpose of the § 558 declaratory relief request is to
prevent the State Appellate Court from dismissing the Appeals on standing grounds.
The request therefore amounts to a jurisdictional attack on a matter that is properly
before the State Appellate Court. The bar on such jurisdictional attacks is illustrated
by MacKay v. Pfeil, 827 F.2d 540 (9th Cir. 1987). In that case, MacKay filed an
action in federal district court, alleging that a judgment entered by an Alaska state
court was void because the court lacked personal jurisdiction. MacKay sought from
federal court a declaration that the judgment entered by the state court was void.
The MacKay court held that the jurisdictional attack upon the state court’s judgment
was barred by the Rooker-Feldman doctrine. MacKay, 827 F.2d at 545.
April 13, 2023 Order (Adversary Proceeding Docket Nos. 89, 90, 91, and 93).
B. The Bankruptcy Court Did Not Err in Its April 13, 2023 Order in Dismissing the
SAC with Prejudice
As the Bejars and the California Court of Appeals point out in their Briefs, Appellants’ appeal
is largely based on arguments that they have previous made in their prior appeals and that have
been rejected, multiple times, by both the Bankruptcy Court and this Court. For example,
Appellants argue that the California Court of Appeal’s September 20, 2022 Orders “effectively
modified the automatic stay by imposing a bankruptcy stay on Lopez, after the stay for the Bejar
Action had been lifted.” Opening Brief, 33:24-28. Appellants also argue that the Bankruptcy
Court’s determination that Lopez’s defensive appellate rights were property of the estate was
“erroneous.” Opening Brief, 39:16-20 and 40:1-7. However, this Court previously concluded in its
June 30, 2023 Order that the “the legal effect of the Stay Relief Order was to modify the
bankruptcy court protections afforded to Lopez from a specific creditor, the Bejars,” but that “the
Stay Relief Order did not alter or change any of Lopez’s rights arising from the Personal Injury Suit,
including the fact that Lopez’s defensive appellate rights had become property of the estate
pursuant to Section 541(a) when she filed her bankruptcy petition.” This Court also concluded in
its June 30, 2023 Order that “it is well settled in the Ninth Circuit that defensive appellate rights are
estate property pursuant to 11 U.S.C. § 541(a).” In addition, Appellants argue in this appeal that
there is “no justifiable basis for concluding that § 655 should be deemed the appropriate definition
of ‘property’ under California law.” Opening Brief, 38:1-2. However, this Court previously
concluded that “California Civil Code § 655 defines what is property under California law.”
Therefore, although this Court will address the issues raised by Appellants in this appeal, it also
incorporates by reference its June 30, 2023 Order in In re Josefina Lopez, Case No. 23-455-JFW,
and In re Josefina Lopez, Case No. 23-1365-JFW, which affirmed the Bankruptcy Court’s
December 20, 2022 Order and February 6, 2023 Reconsideration Order.
Accordingly, for the reasons stated in its June 30, 2023 Order and for the reasons stated
below, the Court concludes that the Bankruptcy Court did not err in dismissing the SAC with
prejudice.
1. The Bankruptcy Court Did Not Err in Dismissing the SAC’s Declaratory
Relief Claim Regarding the California Court of Appeal’s September 20,
2022 Orders
Appellants argue that the Bankruptcy Court erred in dismissing the SAC’s Declaratory Relief
Claim challenging the California Court of Appeal’s September 20, 2022 Orders because the
Bankruptcy Court failed to consider whether the California Court of Appeal had intruded on the
Bankruptcy Court’s exclusive jurisdiction and violated the automatic stay when that court
concluded that Lopez lacked standing to pursue her appeals in the Personal Injury Suit. This Court
concludes that Appellants’ argument regarding the effect of the California Court of Appeal’s
September 20, 2022 Orders on the automatic stay issue is unpersuasive. Section 362(a) of the
Bankruptcy Code provides that upon the filing of a bankruptcy petition, the automatic stay bars an
enumerated list of collection activities. Section 362(a)(1) specifically stays the continuation of any
judicial proceeding against the debtor commenced before the bankruptcy filing. In this case, the
Personal Injury Suit was a judicial action to recover a claim against Lopez that was filed and
pending before she filed her bankruptcy petition, and, thus, the Personal Injury Suit falls squarely
within the automatic stay provision of Section 362(a)(1). Although nothing contained in Section
362 prevented Lopez from defending the Personal Injury Suit, Lopez was not required to do so
because the automatic stay barred the Bejars from prosecuting that action. As a result, the Bejars
were required to obtain relief from the automatic stay before they could proceed with the Personal
Injury Suit. The Bankruptcy Court granted the Stay Relief Order, which lifted the automatic stay
and allowed the Bejars to proceed with the Personal Injury Suit. Thus, as this Court previously
concluded, the legal effect of the Stay Relief Order was to modify the bankruptcy court protections
afforded to Lopez from a specific creditor, the Bejars. However, the Stay Relief Order did not alter
or change any of Lopez’s rights arising out of the Personal Injury Suit, including the fact that
Lopez’s defensive appellate rights had become property of the estate pursuant to Section 541(a)
when she filed her bankruptcy petition.
In addition, the Court agrees with the Bankruptcy Court that in the September 20, 2022
Orders, the court simply determined its own jurisdiction – specifically, whether the parties
appearing before the California Court of Appeal had standing to seek relief – and did not “intrude
upon” the Bankruptcy Court’s jurisdiction. Indeed, nothing in the Section 362 suggests that the
California Court of Appeal can or should be enjoined from determining its own jurisdiction over a
matter. As the Bankruptcy Court correctly concluded:
The premise of the SAC is that in raising the issue of whether the Appeals had been
filed by a party lacking standing, the State Appellate Court was effectively reimposing
the automatic stay, in violation of the Bankruptcy Court’s exclusive jurisdiction. As a
matter of law, this premise is incorrect.
The question of whether a party has standing has no bearing upon the separate
question of whether an action violates the automatic stay. Courts have an obligation
to independently determine whether the parties appearing before them have standing
to seek relief. Standing is a jurisdictional issue, Morgan v. United States, 958 F.2d
950, 951–52 (9th Cir. 1992), and where a court determines it lacks jurisdiction, the
court is obligated to dismiss the action, Arbaugh v. Y&H Corp., 546 U.S. 500, 514,
126 S. Ct. 1235, 1244, 163 L. Ed. 2d 1097 (2006). A finding that a court’s
determination as to a party’s standing could somehow violate the automatic stay
would prevent courts from discharging a basic obligation that arises in connection
with every case and controversy.
Therefore, the 9/20/22 State Appellate Court Order did not violate the automatic stay.
The SAC’s allegation that the 9/20/22 State Appellate Court Order "usurped and
impaired the Bankruptcy Court’s exclusive jurisdiction" because it "entailed a further
modification of the automatic stay," SAC at ¶ 133, fails as a matter of law.
April 13, 2023 Order (Adversary Proceeding Docket Nos. 89, 90, 91, and 93).
Accordingly, the Court concludes that the Bankruptcy Court did not err in dismissing the
SAC’s Declaratory Relief Claim relating to the California Court of Appeal’s September 20, 2022
Orders.
2. The Bankruptcy Court Did Not Err in Dismissing the SAC’s Injunctive
Relief Claim
Appellants argue that in dismissing the SAC, the Bankruptcy Court failed to address their
claim for injunctive relief, “which seeks injunctive relief as against the [California Court of Appeal],
to protect against potential dismissal of the Lopez Appeals while these issues are being addressed
in the federal courts.” Opening Brief, 51:15-18. Notwithstanding Appellants’ argument to the
contrary, the Bankruptcy Court did address the SAC’s injunctive relief claim, which clearly overlaps
with the SAC’s declaratory relief claim regarding California Court of Appeal’s September 20, 2022
Orders. Indeed, the Bankruptcy Court decided the SAC’s injunctive relief claim (as well as the
SAC’s declaratory judgment claim regarding the California Court of Appeal’s September 20, 2022
Orders) in its ruling that it was entirely predicated on “the false premise that the 9/20/22 State
Appellate Court Order interfered with the Bankruptcy Court’s jurisdiction.” Specifically, the
Bankruptcy Court held that the California Court of Appeal’s September 20, 2022 Orders did not
modify or violate the automatic stay. In addition, the Bankruptcy Court concluded that:
It is true that the Bankruptcy Court has exclusive jurisdiction to modify the automatic
stay. Gruntz v. County of Los Angeles (In re Gruntz), 202 F.3d 1074, 1082 (9th Cir.
2000). It is also true that "the federal courts have the final authority to determine the
scope and applicability of the automatic stay." Id. at 1083. However, contrary to the
Insurer’s argument, . . . [s]tate courts can, and frequently do, make determinations
regarding whether the automatic stay bars litigation before them from proceeding. As
a matter of good practice, state courts often refer questions regarding the
applicability of the automatic stay to the Bankruptcy Court, since "judicial proceedings
in violation of the automatic stay are void." Id. at 1082. However, a state court is not
required to refer questions regarding applicability of the stay to the Bankruptcy Court
. . .
April 13, 2023 Order (Adversary Proceeding Docket Nos. 89, 90, 91, and 93).
Accordingly, the Court concludes that the Bankruptcy Court did not err in dismissing the
SAC’s Injunctive Relief Claim.4
3. The Bankruptcy Court Did Not Err in Dismissing the SAC’s Declaratory
Relief Claim Regarding the Definition of “Property” Under California Law
and 11 U.S.C. § 558
Appellants argue that the Bankruptcy Court failed to address their requested relief with
4 In this case, this Court can only address the Bankruptcy Court’s February 9, 2023 Order
(denying Appellants’ Motion for Preliminary Injunction) if it reverses the Bankruptcy Court’s April
13, 2023 Order (dismissing the Adversary Proceeding). Nationwide Biweekly Admin., Inc. v.
Owen, 873 F.3d 716, 730 (9th Cir. 2017) (citing to SEC v. Mount Vernon Memorial Park, 664 F.2d
1358, 1361-62 (9th Cir. 1982)); see also Evans v. Shoshone-Bannock Land Use Policy Comm'n,
736 F.3d 1298, 1301 (9th Cir. 2013) (holding that the denial of a preliminary injunction merged into
the final judgment when the district court granted a motion to dismiss the underlying case).
Because this Court affirms the Bankruptcy Court’s April 13, 2023 Order and agrees with the
Bankruptcy Court’s conclusion that Appellants’ injunctive relief claim is entirely predicated on “the
false premise that the 9/20/22 State Appellate Court Order interfered with the Bankruptcy Court’s
jurisdiction,” the Court need not address Appellants’ arguments that the Bankruptcy Court applied
the wrong legal standard in denying the Motion for Preliminary Injunction. However, even if this
Court were to consider those arguments, this Court also concludes that those arguments are
unpersuasive. Appellants argue that the Bankruptcy Court erred in applying the general injunction
standard instead of the less stringent standard required for enforcement of the automatic stay.
However, this argument, once again, fails because it is entirely predicated on Appellants’ false
premise that the California Court of Appeal’s September 20, 2022 Orders somehow altered or
violated the automatic stay. Appellants also argue in the alternative that even if the general
injunction standard applies, the Bankruptcy Court abused its discretion in denying the Motion for
Preliminary Injunction because it failed to apply the Ninth Circuit’s “sliding scale” approach.
However, despite Appellants’ argument to the contrary, the Bankruptcy Court applied the correct
factors, thoroughly analyzed their application to the facts of this case, and concluded that
Appellants had failed to make a sufficient showing for the issuance of an injunction.
respect to their declaratory judgment claim regarding the definition of “property” under California
law and 11 U.S.C. § 558. In their prayer in the SAC, Appellants requested an order declaring that:
(1) “[t]he right to appeal, as provided for in Cal. Code Civ. Proc. § 902, is not “property” within the
meaning of California law”; (2) “Lopez has only been asserting defenses in the Bejar action, not
affirmative claims or causes of action against the Bejars”; and (3) “[p]ursuant to 11 U.S.C. § 558,
and other provisions of the Bankruptcy Code, post-petition, Lopez had and has the continued right
to assert her defenses in the Bejar action, irrespective of the automatic stay, and regardless
whether the Trustee also asserted them or not.” However, despite Appellants’ arguments to the
contrary, the Court concludes that the Bankruptcy Court did address Appellants’ requested relief.
Specifically, the Bankruptcy Court held that it had already determined that under California law,
Lopez’s defensive appellate rights were property of the estate and that Appellants’ request for
“declaratory judgment” was “nothing more than a disguised attempt to obtain reconsideration, for a
second time, of an issue that has already been decided. As such, the request is not proper.”
In addition, the Court concludes that the Bankruptcy Court properly concluded that Lopez’s
defensive appellate rights were property of the estate. When an individual files for bankruptcy, 11
U.S.C. § 541(a) creates an estate which is comprised of “all . . . property, wherever located and by
whomever held,” including “all legal or equitable interests of the debtor in property as of the
commencement of the case.” 11 U.S.C. § 541(a)(1). Although Section 541 contains broad
enumerated ways that property is, or can become, property of the estate, the Bankruptcy Code
does not contain an express definition of what is encompassed by “all legal or equitable interests of
the debtor in property.” However, the Supreme Court explained that “Congress intended a broad
range of property to be included in the estate.” United States v. Whiting Pools Inc., 462 U.S. 198,
204 (1983). In addition, California Civil Code § 655 defines what is property under California law.
Specifically, Section 655 provides that property includes: “ownership of all inanimate things . . . ; of
all obligations; of such products of labor or skill, as the composition of an author; the goodwill of a
business, trademarks and signs, and of rights created or granted by statute.”
Moreover, it is well settled in the Ninth Circuit that defensive appellate rights are estate
property pursuant to 11 U.S.C. § 541(a). See Fridman v. Anderson (In re Fridman), 2016 WL
3961303 (9th Cir. BAP July 15, 2016) (“The right to appeal a state court judgment is property that
is part of a debtor’s estate.”); see also McCarthy v. Goldman (In re McCarthy)¸ 2008 WL 844338
(9th Cir. BAP Feb. 19, 2008 (upholding a Bankruptcy Court’s determination that a debtor’s
defensive appellate rights were estate property); In re Marciano, 2012 WL 4369743, at *1 (C.D.
Cal. Sept. 25, 2012) (holding that under California law, the right to appeal an adverse
judgment is a property right and therefore estate property). Indeed, the issue is so well-settled,
that in a similar case, Hong v. Liu (In re Liu), 2020 WL 5543041 (C.D. Cal. Sep. 14, 2020), the
court noted that “courts within the Ninth Circuit [have] made clear that defensive appellate rights
are property of the estate” and chastised an attorney for excessive billing to research what was
such “clear and well settled case law,” concluding that the expenditure of large amounts of attorney
time researching the issue was “grossly disproportionate to any possible benefit.”
Appellants also argue that, pursuant to 11 U.S.C. § 558, Lopez “had and has the continued
right to assert her defenses in the Bejar action, irrespective of the automatic stay, and regardless
whether the Trustee also asserted them or not.” The Bankruptcy Court also addressed this
argument. Specifically, the Bankruptcy Court concluded that Appellants’ Section 558 declaratory
relief claim “fail[ed] as a matter of law because by pursuing such a request, the Insurer is
attempting to obtain federal review of matters pending before the State Appellate Court” and that
“[t]he claim therefore amounts to a jurisdictional attack on a matter that is properly before the State
Appellate Court.” In addition, this Court concludes that, despite Appellants’ argument to the
contrary, Section 558 did not grant Lopez the right to unilaterally assert her defensive appellate
rights after she filed for bankruptcy. Instead, Section 558 simply clarifies that defenses available to
Lopez, as the debtor, are also available to the bankruptcy estate. See, e.g., Brown v. Quantum3
Grp. LLC (In re Brown), 606 B.R. 40, 46 n.6 (B.A.P. 9th Cir. 2019) (“Section 558 ensures that the
estate has ‘any defense available to the debtor,’ and specifically includes statutes of limitation as
an available defense. But courts limit such defenses to any prepetition defenses that the debtor
may have had outside of bankruptcy to defeat claims made against the estate”); see also 11
U.S.C. § 558 (“The estate shall have the benefit of any defense available to the debtor as against
any entity other than the estate, including statutes of limitation, statutes of frauds, usury, and other
personal defenses. A waiver of any such defense by the debtor after the commencement of the
case does not bind the estate”).
Accordingly, the Court concludes that the Bankruptcy Court did not err in dismissing the
SAC’s Declaratory Relief Claim regarding the definition of “property” under California law and 11
U.S.C. § 558.
V. Conclusion
For all the foregoing reasons, the Bankruptcy Court’s April 13, 2023 Order and February 9,
2023 Order are AFFIRMED, and the appeal is dismissed with prejudice.
IT IS SO ORDERED.