Filed 4/7/20 Khan v. U.S. Bank, N.A. CA3

NOT TO BE PUBLISHED

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

THIRD APPELLATE DISTRICT

(Sacramento)

—-

KHALID N. KHAN,

Plaintiff and Appellant,

v.

U.S. BANK, N.A. et al.,

Defendants and Respondents.

C087443

(Super. Ct. No. 34-2016-00196902-CU-MC-GDS)

Upon filing for bankruptcy protection, plaintiff Khalid Khan listed on his Schedule B he had no unliquified claims of any nature. During the pendency of Khan’s bankruptcy case, defendant S.A. Challenger, Inc. (Challenger), as successor in interest to defendant U.S. Bank, N.A. (U.S. Bank), foreclosed on the deed of trust securing Khan’s Sacramento residence (Property).

Khan later filed a lawsuit in federal court related to the mortgagee’s alleged failure to credit his accounts for payments made. But he did not amend his Schedule B, and he did not serve defendants until after the bankruptcy court discharged Khan’s debt, which included the amount of the mortgage on the Property.

The federal court dismissed Khan’s action for lack of standing, concluding his claims remained property of the bankruptcy estate. Khan then filed identical claims in state court, and the trial court sustained defendants’ demurrer without prejudice, directing Khan to reopen his bankruptcy case and seek substitution of the trustee as plaintiff or the trustee’s abandonment of his claims. Instead, Khan filed a second amended complaint. Defendants again demurred, and the trial court sustained the demurrer without leave to amend. Khan appeals, and we affirm.

FACTS AND PROCEEDINGS

Bankruptcy

Khan filed for Chapter 13 bankruptcy protection on June 24, 2013. On July 9, pursuant to the bankruptcy proceedings, Khan filed a Schedule D, which required him to list all creditors holding secured claims. Among others, Khan listed as a secured creditor U.S. Bank, which held a mortgage loan on the Property in the amount of $430,000. Khan also filed a Schedule B, the schedule of personal property, which required him to list all “[o]ther contingent or unliquified claims of every nature, including tax refunds, counterclaims of the debtor, and rights to setoff claims.” Khan declared “none.”

On September 24, upon a relief from stay from the bankruptcy court, defendant U.S. Bank’s successor (defendant Challenger) foreclosed on the deed of trust securing the Property.

Khan converted his Chapter 13 bankruptcy case to Chapter 7 on October 1, 2013. In an amended Schedule B filed on that date, Khan again declared that he had no “[o]ther contingent or unliquified claims of every nature, including tax refunds, counterclaims of the debtor, and rights to setoff claims.”

On January 31, 2014, the bankruptcy court closed Khan’s case with a discharge of debts in the amount of $647,969.35, including the amount of the mortgage for the Property. The bankruptcy trustee’s final report and account listed the total value of assets abandoned by court order as “NA,” which we interpret as “not applicable.”

Federal Court Cause of Action

On December 16, 2013, with his Chapter 7 bankruptcy pending, Khan commenced an action in the United States District Court for the Eastern District of California based on the foreclosure. He alleged he entered into a consumer loan transaction for the Property and that in March 2013, U.S. Bank wrongfully failed to credit his account for payments made. The complaint alleged the failure to properly credit his account resulted in the foreclosure on the Property. Khan did not serve defendants with the federal action until June 11, 2014, long after the bankruptcy court closed his case in January 2014.

On May 17, 2016, the federal court entered a judgment dismissing Khan’s federal action for lack of standing. The court concluded, “plaintiff never scheduled the claims raised in the instant action in his bankruptcy proceedings. As such, the claims remain the property of the estate unless abandoned by the trustee. Because there has been no affirmative abandonment, plaintiff lacks standing to proceed in this action.”

State Court Cause of Action

In July 2016 Khan filed claims identical to his federal claims in Sacramento Superior Court. Defendants demurred to Khan’s first amended complaint. The trial court overruled the demurrer to the extent it was based on the application of the doctrine of judicial estoppel but sustained it with leave to amend to the extent it was based on Khan’s lack of standing to bring suit. The court cited the “ ‘widely accepted rule’ ” that after a person files for bankruptcy protection, “any causes of action previously possessed by that person becomes the property of the bankruptcy estate.” Accordingly, the court observed the real party in interest in Khan’s action was the bankruptcy trustee. The court granted Khan leave to amend his complaint expressly so he could reopen his bankruptcy case to allow the bankruptcy trustee to either substitute in as plaintiff or formally abandon the action.

Khan did not follow the trial court’s direction, but instead filed a second amended complaint without making substantive changes to the causes of action or the parties. Defendants again demurred and argued the trial court should dismiss Khan’s complaint without leave to amend based on his lack of standing and willful noncompliance with the court’s order following the earlier demurrer. Khan opposed and argued that he attempted to contact the trustee without success, indicating he was entitled to pursue his causes of action because the trustee “had no interest in pursuing the matter against Defendants.” He also requested that the court grant him leave to amend his complaint if it intended to sustain defendants’ demurrer.

On February 22, 2018, the trial court sustained without leave to amend the demurrer. The court observed the docket of Khan’s bankruptcy case showed his causes of action against defendants were neither administered nor abandoned by the trustee. The court also agreed that Khan’s telephone call to the trustee failed to demonstrate the trustee had formally abandoned the estate asset after a notice and hearing. The court found Khan continued to lack standing and, although he requested leave to amend, he “does not assert he will move to re-open the bankruptcy case” or “explain why he failed to do so after the last demurrer was sustained.” The court concluded, “Under the circumstances, leave to amend should be denied.”

Reopening the Bankruptcy Case and Motion for Reconsideration

The trial court entered judgment of dismissal on March 5, 2018. On March 6, Khan filed a motion to reopen his bankruptcy case, which the bankruptcy court granted. Khan then filed a motion for reconsideration in the trial court; he argued the demurrer should be overruled because his bankruptcy case had been reopened. Khan did not state an intent to seek abandonment of his causes of action by the trustee or substitution of the trustee as plaintiff in his case.

On May 8, the trial court denied Khan’s motion for reconsideration for lack of jurisdiction. The court observed it entered judgment in defendants’ favor, and therefore it lacked jurisdiction to reconsider its order sustaining defendants’ demurrer. On May 25, the bankruptcy court closed the case, noting it had already fully administered the estate. On May 31, defendants filed notice of entry of judgment of dismissal. Khan timely appealed from the trial court’s entry of the judgment of dismissal.

DISCUSSION

I

Claims and Standard of Review

Khan is representing himself on appeal, and argues that he “acquire[d] standing due to [the] bankruptcy trustee’s lack of interest in the case despite proper notices to the trustee.” He also argues “This Court should reconsider its prior order because [he] has made enough showing of new or different facts, circumstances that his Bankruptcy case was [reopened] by court order . . . .”

“A demurrer tests the sufficiency of the complaint as a matter of law; as such, it raises only a question of law. [Citations.]” (Osornio v. Weingarten (2004) 124 Cal.App.4th 304, 316.) Thus, the standard of review on appeal is de novo. (Ibid.) “In reviewing the sufficiency of a complaint against a general demurrer, we are guided by long-settled rules. ‘We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. [Citation.] We also consider matters which may be judicially noticed.’ [Citation.] Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation.] When a demurrer is sustained, we determine whether the complaint states facts sufficient to constitute a cause of action. [Citation.] And when it is sustained without leave to amend, we decide whether there is a reasonable possibility that the defect can be cured by amendment: if it can be, the trial court has abused its discretion and we reverse; if not, there has been no abuse of discretion and we affirm. [Citations.] The burden of proving such reasonable possibility is squarely on the plaintiff. [Citation.]” (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.)

“To satisfy that burden on appeal, a plaintiff ‘must show in what manner he can amend his complaint and how that amendment will change the legal effect of his pleading.’ [Citation.] The assertion of an abstract right to amend does not satisfy this burden. [Citation.] The plaintiff must clearly and specifically set forth the ‘applicable substantive law’ [citation] and the legal basis for amendment, i.e., the elements of the cause of action and authority for it. Further, plaintiff must set forth factual allegations that sufficiently state all required elements of that cause of action. [Citations.] Allegations must be factual and specific, not vague or conclusionary. [Citation.]” (Rakestraw v. California Physicians’ Service (2000) 81 Cal.App.4th 39, 43-44.)

II

Forfeiture

At the outset, we note that while Khan is representing himself in this litigation, he is nonetheless held to the same standards and rules of procedure as an attorney. (See Nwosu v. Uba (2004) 122 Cal.App.4th 1229, 1246-1247.) Khan had the burden to sufficiently develop and support cognizable arguments; perfunctorily asserted claims without development are rejected. (People v. Freeman (1994) 8 Cal.4th 450, 482, fn. 2; In re Marriage of Nichols (1994) 27 Cal.App.4th 661, 672, fn. 3, 673.) Here, Khan only argues in perfunctory and conclusory fashion that the bankruptcy trustee is not interested in pursuing his claims and that he has standing because the bankruptcy court reopened his case for a short period of time. Khan provides no legal support for his argument that the trustee’s lack of interest is sufficient to confer standing. Nor does he provide any support for his claim that reopening his bankruptcy case for a short period of time cures his standing deficiency.

Additionally, Khan’s brief fails to comply with court rules, including those requiring a table of contents and authorities and support of each factual reference with a citation to the record. (Cal. Rules of Court, rule 8.204(a)(1)(A) & (C).) Khan’s failure to support his arguments with record citations forfeits his arguments. (See Miller v. Superior Court (2002) 101 Cal.App.4th 728, 743.)

Finally, Khan styles his brief as a motion for reconsideration rather than an appeal from a final judgment. His failure to acknowledge the proper scope of review is a concession of a lack of merit. (See James B. v. Superior Court (1995) 35 Cal.App.4th 1014, 1021.)

III

The Demurrer

Were we to consider Khan’s claims on appeal, we would conclude they lack merit.

A. Standing

The trial court correctly ruled that Khan’s civil claim is part of the bankruptcy estate and that he lacks standing to sue.

“Standing is the threshold element required to state a cause of action and, thus, lack of standing may be raised by demurrer. [Citations.] To have standing to sue, a person, or those whom he properly represents, must ‘ “have a real interest in the ultimate adjudication because [he] has [either] suffered [or] is about to suffer any injury of sufficient magnitude reasonably to assure that all of the relevant facts and issues will be adequately presented.” [Citation.]’ [Citation.] Code of Civil Procedure section 367 establishes the rule that ‘[e]very action must be prosecuted in the name of the real party in interest, except as otherwise provided by statute.’ A real party in interest is one who has ‘an actual and substantial interest in the subject matter of the action and who would be benefited or injured by the judgment in the action.’ [Citation.]” (Martin v. Bridgeport Comm. Assn., Inc. (2009) 173 Cal.App.4th 1024, 1031-1032.)

“ ‘In the context of bankruptcy proceedings, it is well understood that “a trustee, as the representative of the bankruptcy estate, is the real party in interest, and is the only party with standing to prosecute causes of action belonging to the estate once the bankruptcy petition has been filed.” ’ ” (M & M Foods, Inc. v. Pacific American Fish Co., Inc. (2011) 196 Cal.App.4th 554, 562 (M & M).)

B. The Bankruptcy Estate

Khan’s causes of action are part of the bankruptcy estate. After a person files for bankruptcy protection, all “legal or equitable interests of the debtor in property” become property of the bankruptcy estate. (11 U.S.C. § 541(a)(1).) “The scope of section 541 is broad and ‘property’ includes causes of action. [Citation.]” (Haley v. Dow Lewis Motors, Inc. (1999) 72 Cal.App.4th 497, 504.) “When a debtor files a [C]hapter 7 petition, two estates are created, a bankruptcy estate and a postpetition estate belonging to the debtor. [Citation.] Bankruptcy law defines the property of the bankruptcy estate as only that property that existed when the petition was filed. [Citation.]” (Ibid.) But even where events giving rise to a cause of action occur after the Chapter 7 petition is filed, that cause of action is property of the bankruptcy estate if it constitutes “[p]roceeds, product, offspring, rents, or profits of or from property of the estate” or “[a]ny interest in property that the estate acquires after the commencement of the case.” (11 U.S.C. § 541(a)(6) & (7); Bostanian v. Liberty Savings Bank (1997) 52 Cal.App.4th 1075, 1084 (Bostanian) [appeal dismissed for lack of standing because cause of action challenging foreclosure sale arose from the plaintiffs’ interest in their residence and was therefore property of the bankruptcy estate].) When a debtor converts a bankruptcy proceeding from Chapter 13 to Chapter 7, “ ‘[P]roperty of the [Chapter 7] estate in the converted case shall consist of property of the estate, as of the date of filing of the [initial Chapter 13] petition, that remains in the possession of or is under the control of the debtor on the date of conversion.’ ” (Harris v. Viegelahn (2015) 135 S.Ct. 1829, 1837.)

Here, Khan filed for Chapter 13 bankruptcy protection on June 24, 2013, and he converted the proceeding to a Chapter 7 bankruptcy on October 1. His causes of action involve property he purchased in 2006, payments he alleged were not properly credited to his account in March 2013, and a foreclosure occurring on September 24, 2013. Because Khan’s causes of action arise from his interest in property that was part of the bankruptcy estate, his causes of action are part of the bankruptcy estate even though the foreclosure took place after he had filed for bankruptcy under Chapter 13. (See Bostanian, supra, 52 Cal.App.4th at p. 1084.)

C. Abandonment

“[A] Chapter 7 debtor may not prosecute on his or her own a cause of action belonging to the bankruptcy estate unless the claim has been abandoned by the trustee.” (Bostanian, supra, 52 Cal.App.4th at p. 1081.) “Property of a bankruptcy estate can be abandoned by three methods: (1) after notice and hearing, the trustee may unilaterally abandon property that is ‘burdensome . . . or . . . of inconsequential value’ (11 U.S.C. § 554(a)); (2) after notice and hearing, the court may order the trustee to abandon such property (11 U.S.C. § 554(b)); (3) any property which has been scheduled, but which has not been administered by the trustee at the time of closing of a case, is abandoned by operation of law. (11 U.S.C. § 554(c).)” (Cloud v. Northrop Grumman Corp. (1998) 67 Cal.App.4th 995, 1003 (Cloud).) “[P]roperty not formally scheduled in the bankruptcy proceeding is not abandoned at the close of the bankruptcy proceeding, even if the trustee was aware of the existence of the property. [Citation.]” (M & M, supra, 196 Cal.App.4th at p. 563.) Assets that are neither abandoned nor administered remain the property of the estate, even after the case closes. (See 11 U.S.C. § 554(d) [“property of the estate that is not abandoned under this section and that is not administered in the case remains property of the estate”].)

Here, while Khan asserts the bankruptcy trustee “has shown no interest” in his claims, the record shows Khan’s causes of action have neither been formally abandoned nor abandoned by operation of law because they were not listed on the asset schedules he filed with the bankruptcy court. His claims remain property of the bankruptcy estate, and he lacked standing to bring his claims in the trial court. (See, e.g., Cloud, supra, 67 Cal.App.4th at p. 1003-1004.) Therefore, his claims are properly subject to demurrer and dismissal.

D. Ability to Cure Standing Issue

As we discussed ante, Khan bears the burden of proving there is a reasonable possibility that his standing defect can be cured by amendment. (See Blank v. Kirwan, supra, 39 Cal.3d at p. 318.) He “ ‘must show in what manner he can amend his complaint and how that amendment will change the legal effect of his pleading.’ ” (Rakestraw v. California Physicians’ Service, supra, 81 Cal.App.4th at pp. 43-44.)

In general, leave to amend a complaint should be liberally granted to permit amendment to substitute a plaintiff with standing for one who is not a real party in interest. (Cloud, supra, 67 Cal.App.4th at pp. 1005-1006.) But Khan has failed to satisfy his burden of demonstrating a reasonable possibility that he can cure his standing defect by amendment.

“Where there is a request for leave to amend but it is ‘wholly insufficient to suggest whether or how the plaintiff could amend . . . “the question as to whether or not [the trial] court abused its discretion” in denying leave to amend remains open on appeal. (Code Civ. Proc., § 472c.) But it is the trial court’s discretion that is at issue; the reviewing court may only determine, as a matter of law, whether the trial court’s discretion was abused. In our view an abuse of discretion could be found, absent an effective request for leave to amend in specified ways, only if a potentially effective amendment were both apparent and consistent with the plaintiff’s theory of the case.’ [Citation.]” (Herrera v. Federal National Mortgage Assn. (2012) 205 Cal.App.4th 1495, 1501, disapproved on another point by Yvanova v. New Century Mortgage Corp. (2016) 62 Cal.4th 919, 939-941.) Accordingly, we will affirm an order sustaining a demurrer without leave to amend where the plaintiff does “not state in the trial court new facts demonstrating [he] could successfully amend the complaint and a potentially effective amendment is not apparent on appeal.” (Ibid.)

In sustaining defendants’ demurrer to Khan’s first amended complaint on the basis Khan lacked standing to bring the claims, the trial court granted Khan leave to amend his complaint to permit the bankruptcy trustee to either substitute in as plaintiff or to formally abandon the action. But with full knowledge of the court’s directive, Khan filed his second amended complaint without substantive changes to the claims or the parties involved. This is fatal to his claim because a “debtor must take affirmative steps to comply with [11 U.S.C.] section 554 concerning abandonment. Until the debtor secures an abandonment of the claim, the debtor lacks standing to pursue it.” (Bostanian, supra, 52 Cal.App.4th at pp. 1083, 1087.)

In opposition to defendants’ demurrer to his second amended complaint, Khan asserted that he verbally informed the trustee of his causes of action while the bankruptcy case was active, and his counsel recently telephoned the trustee but received no response. Neither of these actions was sufficient to satisfy the trial court’s directive to Khan in granting him leave to amend his complaint, and Khan failed to suggest an intent to reopen his bankruptcy case to seek substitution or abandonment by the trustee. (Compare Cloud, supra, 67 Cal.App.4th at p. 1008 [plaintiff promptly “requested a stay in the trial court to reopen her bankruptcy case in order either to substitute the trustee as real party in interest or to obtain the trustee’s abandonment of her claim”].)

Following the court’s entry of judgment in favor of defendants, Khan at last moved to reopen his bankruptcy case. Khan then filed a motion for reconsideration in the trial court on the grounds that his bankruptcy case had been reopened. But Khan had still not sought formal abandonment of his causes of action or substitution of the bankruptcy trustee as plaintiff in his case. The trial court denied Khan’s motion for reconsideration, noting that it had already entered judgment in defendants’ favor. With Khan apparently having taken no action to advance his cause in the intervening time period, the bankruptcy court then closed his case again, noting it had already fully administered the estate.

On appeal, Khan does not adequately address this issue; he argues that the trustee has shown no interest in his claims and that the bankruptcy court at one time reopened his case. But those conclusory arguments continue to show a lack of understanding of what he must do to cure his standing deficiencies. His conclusory–and legally incorrect–arguments are insufficient to satisfy his burden, and therefore he has failed to show a reasonable possibility that he can cure his standing issues. Under these circumstances, the trial court did not abuse its discretion in sustaining the demurrer to the wrongful foreclosure cause of action without leave to amend.

DISPOSITION

The judgment is affirmed. Defendants shall recover costs on appeal. (Cal. Rules of Court, rule 8.278(a)(1) & (2).)

/s/

Duarte, J.

We concur:

/s/

Robie, Acting P. J.

/s/

Krause, J.