- Case Type:
- Case Status:
- BAP No. NC-18-1260-STaB (9th Circuit, Nov 25,2019) Not Published
- Debtor's 2009 bankruptcy discharge did not bar creditor from bringing an unjust enrichment action after creditor erroneously submitted an escrow demand that was too low when debtor sold her home in 2017.
- Procedural context:
- Appeal from the bankruptcy court for the Northern District of California; reviewed de novo.
- In 2007, debtor guaranteed repayment of a loan from creditor and secured her obligations under the guaranty through a deed of trust against her home. Debtor filed for chapter 7 bankruptcy in 2009 and received a discharge. Creditor's lien on the home passed through the bankruptcy. When debtor sold her home in 2017, creditor erroneously submitted a demand into escrow that was substantially lower than the amount it was owed. Escrow relied on this demand, completed the transaction, and reconveyed creditor's trust deed, resulting in a significant overpayment to debtor of the sale proceeds. Creditor sought a declaratory judgment that filing of an unjust enrichment action would not violate the discharge. Bankruptcy court concluded that debtor's discharge prohibited creditor from filing an unjust enrichment action. On appeal, the court concluded that a California unjust enrichment claim is a common law cause of action and need not arise under a contract. The court further concluded that the creditor's claim arose postpetition and was not fairly contemplated on a prepetition basis. The court thus held that the debtor's discharge did not bar the creditor from pursuing its unjust enrichment claim. The dissent maintained that the creditor's unjust enrichment claim was tethered to the prepetition loan guaranty, and that, without the loan guaranty, there was no basis to explain why the debtor's retention of the sale proceeds from her property was unjust. Therefore, the creditor's unjust enrichment claim was, according to the dissent, merely an equitable remedy to collect the balance of a prepetition loan guaranty and as such, was prohibited by the discharge injunction.
- Spraker, Taylor, Brand
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