622 B.R. 737
9th Cir. BAP2020Background
- Ocean View Medical Investors, LLC (co-managed by John Bral and Barry Beitler) owned a Newport Beach office building secured by a defaulted loan; Steward Financial (Beitler’s entity) acquired the loan and scheduled a nonjudicial foreclosure for Nov. 21, 2014.
- On the morning of the scheduled sale, Bral filed a voluntary Chapter 11 for Ocean View; the trustee initially accepted Steward’s $3,000,000 credit bid (First Sale) but later vacated that sale after learning of the bankruptcy.
- The bankruptcy court dismissed Ocean View’s voluntary case for lack of authorization (Beitler remained a co-manager); a subsequent involuntary case was dismissed for bad faith.
- Steward purchased the property at a later foreclosure (Second Sale) for a $4,100,000 credit bid and sued Bral in state court for the $1,100,000 price differential alleging abuse of process and tortious interference; Steward later filed claim no. 19 in Bral’s individual Chapter 11 asserting the same damages.
- Bral objected to claim no. 19, arguing federal preemption and lack of legally cognizable damages; the bankruptcy court disallowed the claim on both grounds. The BAP affirmed.
Issues
| Issue | Plaintiff's Argument (Steward) | Defendant's Argument (Bral) | Held |
|---|---|---|---|
| Whether state-law tort claims (abuse of process, tortious interference) based on filing Ocean View’s bankruptcy are preempted by the Bankruptcy Code | Davis controls; preemption is limited to misconduct during the subject bankruptcy case; Steward’s claims target prepetition conduct and are therefore not preempted | Claims arise from the act of filing Ocean View’s bankruptcy and thus are "completely preempted" by federal bankruptcy law and Ninth Circuit precedent | Preempted: BAP affirms that Gonzales, MSR Exploration, and Miles control; Davis is distinguishable |
| Whether Steward proved legally cognizable damages caused by Bral’s filing (the $1,100,000 differential) | The voiding of the First Sale forced Steward to credit-bid $1,100,000 more at the Second Sale, diminishing its guaranty recovery and causing compensable loss | As secured creditor and winning bidder at the Second Sale, Steward received full recovery from the collateral; a frustrated bidder at a void sale acquires no rights and thus no compensable harm | No damages: BAP holds Steward suffered no legally cognizable injury and affirms disallowance on this alternative ground |
Key Cases Cited
- Miles v. Okun (In re Miles), 430 F.3d 1083 (9th Cir. 2005) (Bankruptcy Code can completely preempt state tort claims based on filing bankruptcy petitions)
- MSR Exploration, Ltd. v. Meridian Oil, Inc., 74 F.3d 910 (9th Cir. 1996) (state-law malicious-prosecution/related torts premised on bankruptcy filings are preempted)
- Gonzales v. Parks, 830 F.2d 1033 (9th Cir. 1987) (abuse-of-process claims based on bankruptcy filings are governed exclusively by federal law)
- Davis v. Yageo Corp., 481 F.3d 661 (9th Cir. 2007) (distinguishes prepetition fiduciary-breach claims from claims that arise only from the bankruptcy filing itself)
- BFP v. Resolution Trust Corp., 511 U.S. 531 (1994) (foreclosure sale price generally conclusive evidence of property value for sale-sufficiency challenges)