In Re: Aurora Commercial Corp.

Background

Nancy M. Horner filed two claims in the Chapter 11 bankruptcy proceedings involving Aurora Commercial Corp. and Aurora Loan Services LLC. Aurora Commercial Corp. was the sole named appellee, and the opinion treated the two entities together as the “Appellees.” Horner sought $6,081,564, including $4,500,000 in punitive damages, as well as a declaration quieting title to property in Huntington Beach, California.

Horner had executed a $825,000 note and deed of trust in 2005. The deed of trust was later assigned to Aurora Loan Services LLC and then to Nationstar Mortgage LLC. In a 2012 California lawsuit, Horner sought to quiet title and alleged that the deed of trust was incorrect, false, misplaced, or untrue. After a hearing at which Horner was represented by counsel, the California court entered a judgment of non-suit for the defendants. In 2017, Horner filed another California lawsuit challenging the deed of trust and foreclosure proceedings; that case was dismissed with prejudice.

After the Appellees filed for Chapter 11 bankruptcy, Horner filed Claims 60 and 65. The bankruptcy court disallowed and expunged both claims, primarily because it concluded that the 2012 California judgment barred them under res judicata, a rule preventing a party from bringing a later case based on the same claim or injury that was, or could have been, resolved earlier. Horner appealed to the district court. At a bankruptcy-court hearing, she represented herself.

Claim Preclusion

The district court reviewed the bankruptcy court’s legal conclusion about res judicata without deference. Under California law, claim preclusion applies when the later claim is the same as a claim litigated earlier, the earlier proceeding ended in a final judgment on the merits, and the party against whom preclusion is asserted was involved in the earlier proceeding or was legally connected to a party there.

Horner did not dispute that the relevant parties were involved in the 2012 Action. The district court determined that the 2012 Action ended in a final judgment on the merits. Applying California’s “primary rights” approach, the court explained that claims are compared based on the harm and right involved, rather than only on the legal theories or remedies requested.

The court found that both proceedings were based on the same alleged injury: Horner’s asserted right to possess the property without a legally deficient debt encumbering it. The earlier lawsuit sought to remove adverse claims to title based on alleged defects in the 2005 deed of trust. The bankruptcy claims again sought to quiet title and additionally sought damages based on allegations that the note and deed of trust were forged or counterfeited and that Aurora Loan Services LLC failed to disclose the nature of the transaction.

The court acknowledged differences between the proceedings. The earlier lawsuit sought only to quiet title, while the bankruptcy claims also sought damages, and the earlier complaint did not expressly allege forgery. The court nevertheless held that the proceedings involved the same underlying injury and primary right. It also explained that res judicata differs from collateral estoppel, which prevents relitigation of a particular issue actually decided earlier. The fact that the California court did not expressly determine the validity of the deed of trust did not prevent application of res judicata.

Evidentiary Hearing and Other Challenges

The district court affirmed the bankruptcy court’s denial of Horner’s request for an evidentiary hearing. A bankruptcy court may decide a matter without such a hearing when the existing record provides enough evidence and there are no disputed material facts that require additional testimony or evidence. Because the claims were barred by the 2012 Action, evidence about the 2017 Action would not have changed the result. The court also found that Horner had not provided facts showing how proposed evidence about Aurora Loan Services Inc. would affect the claims.

The court rejected Horner’s argument that she was denied a fair hearing. It explained that she had been allowed to submit evidence supporting her claims; the bankruptcy court merely refused to accept additional evidence after the submissions already made. The court also stated that the Constitution does not require unlimited opportunities to add evidence. Horner’s separate argument concerning the denial of a proposed sur-reply was treated as waived and, alternatively, would have failed.

The district court reviewed the challenged factual findings for clear error and found that Horner had not shown clear error. It upheld the finding that the Appellees had no continuing relationship with the property after Aurora Loan Services LLC assigned its interest to Nationstar Mortgage LLC. It also upheld the bankruptcy court’s refusal to find that Aurora Loan Services Inc. acted together with the Appellees against Horner and the property.

Motions and Disposition

The court denied Horner’s motion to strike statements in the Appellees’ opposition brief about the status of the appeal in the 2017 Action. Because the 2012 Action independently barred Horner’s claims, any error about the 2017 Action could not have prejudiced her.

The court also denied Horner’s request for judicial notice of 23 publicly available records. In an appeal from a bankruptcy court, the district court generally may not consider evidence outside the bankruptcy-court record, although it could consider documents already contained in that record.

Judge Ronnie Abrams affirmed the bankruptcy court’s decision disallowing and expunging Claims 60 and 65 and directed the clerk to close the case.