In re John Jean Bral

Case Type:
Case Status:
Ninth Circuit Bankruptcy Appellate Panel Case No. CC-20-1039-STL (9th Circuit, Nov 30,2020) Published
Creditor's claim did not assert a pre-petition state law cause of action separate from the Bankruptcy Code. Rather, the claim arose from the initial bankruptcy filing. Therefore, the claim is completely preempted. Creditor could not have been injured by receiving more value for its collateral in a second foreclosure sale. There is no claim for diminished guaranty claim.
Procedural context:
In the individual bankruptcy case commenced by John Jean Bral ("Bral"), Steward Financial, LLC ("Steward Financial") filed two Proofs of Claim. Steward Financial's first Proof of Claim was purportedly based on Steward Financial being harmed by the $1,100,000 differential, which it alleged resulted from Bral’s abuse of process and tortious interference with Steward Financial’s contractual relations. Bral objected to this Proof of Claim. The bankruptcy court disallowed Steward Financial’s claim, holding that the Bankruptcy Code preempted the state law causes of action because they arose from Bral’s filing of Ocean View Medical Investors, LLC’s ("Ocean View") voluntary bankruptcy petition. Alternatively, the bankruptcy court ruled that Steward Financial had failed to demonstrate that Bral’s conduct caused any injury for which Steward Financial was legally entitled to recover damages
Bral and Steward Financial's principal Barry Beitler ("Beitler") formed Ocean View and were co-managers. The sole asset of Ocean View was an office building. The building was subject to a lien in the amount of $4,725,000. Both Bral and Beitler guaranteed the loan. The loan matured in or around 2012 and Ocean View was in default. In June 2014, Beitler (through his wholly owned entity - Steward Financial) acquired the interest in the note, deed of trust, and guaranties. Steward Financial scheduled a nonjudicial foreclosure sale. On the morning of the sale, Bral filed chapter 11 bankruptcy for Ocean View. The trustee proceeded with the sale, not knowing of the bankruptcy. Thus, Steward Financial's credit bid of $3,000,000 was "accepted" for the building. Upon the trustee learning of the bankruptcy the sale was vacated. Shortly thereafter, Beitler sought dismissal of the Ocean View bankruptcy as he did not consent to its filing as a co-manager. Ocean View responded, asserting that Beitler had been removed pre-petition. The bankruptcy court ruled that Beitler remained a co-manager and dismissed the Ocean View bankruptcy. A second nonjudicial foreclosure sale was scheduled. This time Steward Financial's credit bid was $4,100,000 as a result of competing bids. Once the sale was completed, Steward Financial commenced a lawsuit in state court against Bral and other parties alleging that it was entitled to the difference in value between the first sale and second sale (or $1,100,000). Bral objected to Steward Financial's Proof of Claim based on the state court litigation. Bral argued that argued that Steward Financial could not maintain a claim against him based on state law for alleged misconduct in filing Ocean View’s voluntary bankruptcy petition on the basis that it was barred by federal preemption. Bral further argued that the successful bid price between the two foreclosure sales did not cause Steward Financial to suffer any legally cognizable harm or damages. Steward Financial responded, asserting that Bral's improper actions were before he filed; and, the cognizable harm was the reduction in Bral's remaining guaranty liability.
Honorable Spraker, Taylor, and Lafferty

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