Villareal v. Seneca Mortgage Servicing, LLC
1:15-cv-01400
E.D. Cal.Mar 7, 2016Background
- Juan and Lorena Villareal obtained a home loan in 2008 secured by property in Earlimart, CA; multiple notices of default, rescissions, assignments, and trustee substitutions occurred from 2010–2015.
- Juan filed multiple bankruptcy petitions: Chapter 7 on Sept. 29, 2014 (dismissed), Chapter 13 on Dec. 19, 2014 (dismissed), and a third Chapter 7 on May 11, 2015 (dismissed June 10, 2015). Lorena also filed a dismissed Chapter 7 in October/November 2014.
- A trustee’s sale proceeded May 13, 2015 and a Trustee’s Deed Upon Sale was recorded May 27, 2015; U.S. Bank holds the deed after the sale.
- Plaintiffs sued Seneca Mortgage Servicing and U.S. Bank alleging the May 2015 foreclosure violated the automatic bankruptcy stay and asserting six causes of action (violation of § 362(a), void deed, quiet title, slander of title, breach of implied covenant, and UCL § 17200).
- Defendants moved to dismiss under Rule 12(b)(6). The court took judicial notice of public records and bankruptcy dockets and concluded the Complaint relied entirely on the premise that an automatic stay was in effect on May 11, 2015.
- The district court concluded that because the Villareal debtor had two prior bankruptcy cases dismissed within the previous year, 11 U.S.C. § 362(c)(4)(A)(i) prevented the automatic stay from taking effect on the third filing; the complaint was dismissed without leave to amend.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the automatic bankruptcy stay was in effect on May 11, 2015 | The May 11, 2015 Chapter 7 filing triggered § 362(a) stay that barred foreclosure | § 362(c)(4)(A)(i) bars the stay where two or more cases were dismissed in the prior year; no stay arose on the third filing | No automatic stay arose on May 11, 2015; defendants could proceed with foreclosure |
| Whether trustee’s deed and foreclosure are void/voidable due to stay violation | The trustee’s deed is void because foreclosure violated the automatic stay | Because no stay existed, the trustee’s deed is valid and title passed to purchaser | Trustee’s deed is valid; claims premised on void deed fail |
| Viability of tort and contract claims (slander of title; breach of implied covenant) | Foreclosure while stay existed was tortious and breached the covenant of good faith | Claims rest entirely on a nonexistent stay and so fail as a matter of law | Slander of title and breach claims dismissed (no wrongful foreclosure) |
| UCL (§ 17200) claim sufficiency | Foreclosure during the stay constituted unfair business practices | The alleged unfair acts depend on an automatic stay that never existed; pleading lacks required particularity | UCL claim dismissed for lack of predicate wrongdoing and insufficient particularity |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (plausibility standard for Rule 12(b)(6))
- Ashcroft v. Iqbal, 556 U.S. 662 (legal conclusions not entitled to assumption of truth)
- In re Dawson, 390 F.3d 1139 (automatic stay purpose and scope)
- In re Smith, 876 F.2d 524 (stay ordinarily effective upon petition filing)
- In re Jackson, 184 F.3d 1046 (statutory plain‑language interpretation governs)
- Skilstaf, Inc. v. CVS Caremark Corp., 669 F.3d 1005 (courts may judicially notice public records on Rule 12(b)(6))
- U.S. v. Corinthian Colls., 655 F.3d 984 (judicial notice of matters of public record)
- Penn Terra Ltd. v. Dep’t of Envtl. Res., 733 F.2d 267 (exceptions to automatic stay explained)