In Re: Aurora Commercial Corp.

Background

Nancy M. Horner appealed a United States Bankruptcy Court decision concerning two claims she filed in the Chapter 11 bankruptcy proceedings of Aurora Commercial Corp. and Aurora Loan Services LLC. 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. She alleged that a 2005 note and deed of trust were forged, counterfeited, or otherwise invalid and that the defendants had caused harm through their conduct involving that deed of trust.

Horner had previously sued in California Superior Court in 2012 to quiet title to the same property, naming Aurora Loan Services LLC as one of the defendants. After a hearing at which Horner was represented by counsel, the California court found that she had not presented evidence entitling her to quiet title and entered a judgment of non-suit for the defendants. Horner later filed another California lawsuit challenging the deed of trust and foreclosure proceedings; that case was dismissed with prejudice.

In the bankruptcy proceedings, Aurora moved to disallow Horner’s claims. At the hearing, Horner represented herself. The Bankruptcy Court declined to consider her proposed additional reply filing and denied her request for an evidentiary hearing. On January 7, 2020, it disallowed and expunged Claims 60 and 65, largely because the 2012 California action precluded Horner’s claims.

Claim Preclusion

The District Court reviewed the Bankruptcy Court’s application of claim preclusion, also called res judicata, as a legal question without deference. Claim preclusion prevents a party from bringing a later case based on a claim that was or could have been decided in an earlier case. Because the earlier judgment came from a California court, the District Court applied California preclusion law.

Under California law, claim preclusion applies when the later and earlier proceedings involve the same claim or issue, the earlier proceeding ended in a final judgment on the merits, and the party being bound was a party or legally connected to a party in the earlier proceeding. The District Court concluded that the parties and final-judgment requirements were met and focused on whether the two proceedings involved the same claim.

California uses a “primary rights” approach, which treats the injury and right involved—not merely the legal theory or remedy—as the relevant claim. The District Court found that both proceedings involved Horner’s alleged right to possess the property without a legally deficient debt or encumbrance. The later claims sought damages and raised forgery allegations that were not presented in exactly the same way in the 2012 complaint, but those differences did not change the underlying injury.

The court distinguished claim preclusion from issue preclusion, also called collateral estoppel. The 2012 court’s failure to expressly decide the validity of the 2005 deed of trust might have prevented issue preclusion from applying, but it did not prevent claim preclusion from applying. The District Court therefore affirmed the Bankruptcy Court’s ruling on this issue.

Evidentiary Hearing and Due Process

The District Court reviewed the denial of an evidentiary hearing for abuse of discretion. It held that a bankruptcy court may decide a contested matter without a hearing when the existing record provides enough evidence to decide the matter. Because Horner’s claims were already barred by the 2012 action, evidence concerning the later 2017 action would not have changed the result. The court also found that Horner had not identified facts showing that additional evidence about a separate Aurora entity would have affected the decision.

The District Court rejected Horner’s argument that she had been denied a full and fair hearing. She had been allowed to submit evidence supporting her claims; the Bankruptcy Court merely refused to allow additional evidence beyond what had already been submitted. The District Court affirmed the denial of an evidentiary hearing. It also stated that Horner’s argument concerning the refused additional reply filing was waived and would fail even if considered.

Factual Findings

The District Court reviewed the Bankruptcy Court’s factual findings for clear error. Horner challenged the finding that Aurora Commercial Corp. and Aurora Loan Services LLC had no continuing relationship with the property after Aurora Loan Services LLC assigned its interest to Nationstar Mortgage LLC. She also challenged the failure to find that Aurora Loan Services, Inc., a separate entity, acted together with the appellees against her and the property.

The District Court found that Horner had not identified record evidence showing clear error. It also declined to consider evidence that had not been presented to the Bankruptcy Court and concluded that the proposed evidence did not establish the alleged coordinated conduct. The challenged factual findings therefore remained undisturbed.

Motion to Strike and Judicial Notice

Horner moved to strike statements in the appellees’ opposition brief concerning the status of her appeal in the 2017 California action. The District Court denied that motion because the statements could not have prejudiced her: the court had already determined that the 2012 action precluded her claims, so the status of the 2017 action did not matter to the result.

Horner also asked the District Court to take judicial notice of 23 publicly available records. The court denied that request because, in an appeal from a bankruptcy court, the District Court could not consider evidence outside the record below. The court noted that some of the documents were already part of the Bankruptcy Court’s record and could therefore be considered without judicial notice.

Disposition

The District Court affirmed the Bankruptcy Court’s decision disallowing and expunging Claims 60 and 65. It also affirmed the denial of an evidentiary hearing, denied the motion to strike, denied the request for judicial notice, and directed the Clerk of Court to close the case.