Opinion

1 2 3 4 5 6 UNITED STATES DISTRICT COURT 7 SOUTHERN DISTRICT OF CALIFORNIA 8 9 KLARA GIANNA GALLUSZ, Case No.: 25-cv-02199-CAB-VET Bankruptcy Court Case No.: 25-01678- 10 Plaintiff-Appellant, JBM13 11 v. ORDER AFFIRMING THE 12 LPP MORTGAGE, INC., BANKRUPTCY COURT 13 Defendant-Appellee. 14 15 This matter comes before the Court on Plaintiff-Appellant Klara Gianna Gallusz’s 16 (“Gallusz”) appeal of an order by the United States Bankruptcy Court that lifted the 17 automatic stay against Defendant-Appellee LPP Mortgage, Inc. (“LPP”). [Doc. No. 1.] 18 The matter is fully briefed. [See Doc. Nos. 13, 16, 18.] The Court has reviewed the parties’ 19 submissions and finds this matter suitable for determination on the papers. CivLR 20 7.1(d)(1). For the following reasons, the Court AFFIRMS the Bankruptcy Court’s 21 decision. 22 I. BACKGROUND 23 This appeal stems from a bankruptcy proceeding primarily involving Gallusz’s 24 residence. In 2005, Gallusz purchased the residence with a loan secured by a deed of trust 25 on the residence. In 2024, Gallusz defaulted on that loan and LPP began the process of 26 foreclosing on the property. On April 29, 2025, Gallusz filed a voluntary chapter 13 27 petition for bankruptcy. [Doc. No. 1 at 10.] LPP moved for relief from the automatic stay 28 pursuant to 11 U.S.C. §§ 362(d)(1) and 362(d)(4), which the Bankruptcy Court granted on 1 July 25, 2025. [Doc. No. 1 at 10; Doc. No. 6 at 5.] This meant that LPP could foreclose 2 on Gallusz’s residence despite the pending bankruptcy proceeding. 3 II. LEGAL STANDARDS 4 This Court has jurisdiction over an appeal of a bankruptcy court’s order granting 5 relief from the automatic stay. In re Nat’l Env’t Waste Corp., 129 F.3d 1052, 1054 (9th 6 Cir. 1997). The bankruptcy court’s discretionary decision to grant relief from the automatic 7 stay is reviewed for abuse of discretion. In re Conejo Enters., Inc., 96 F.3d 346, 351 (9th 8 Cir. 1996). “Decisions committed to the bankruptcy court’s discretion will be reversed 9 only if based on an erroneous conclusion of law or when the record contains no evidence 10 on which the bankruptcy court rationally could have based that decision.” Id. (cleaned up). 11 The Court determines whether the Bankruptcy Court abused its discretion using a two-part 12 test: (1) first, a de novo determination of whether the bankruptcy court identified the correct 13 legal rule to apply to the relief requested; and (2) if it did, whether the bankruptcy court’s 14 application of the correct legal standard was illogical, implausible, or without support in 15 inferences that may be drawn from the facts in the record. See United States v. Hinkson, 16 585 F.3d 1247, 1261–62 (9th Cir. 2009) (en banc). 17 III. DISCUSSION 18 As an initial matter, the sole subject of this appeal is the “Modified Order Lifting 19 Automatic Stay” issued on July 25, 2025. [Doc. No. 1 at 1.] Thus, though Gallusz raises 20 several other issues—like the Bankruptcy Court’s alleged failures to address her objection 21 to LPP’s proof of claim (“POC”) and her requests for accommodations under the 22 Americans with Disabilities Act (“ADA”)—the Court limits this opinion to the subject 23 appeal only.1 24 25 26 1 For example, Gallusz argues that the bankruptcy judge “grant[ed] only minimal accommodations” in response to her request for ADA accommodation, which resulted in the denial of her equal access to the 27 courts. [Doc. No. 13 at 47–48.] Gallusz has not explained what accommodation she was denied or how she was deprived of equal access to the bankruptcy court. Nor has she explained how this issue should be 28 1 A. The Bankruptcy Court Applied the Correct Legal Rule 2 In a tentative ruling on LPP’s motion for relief from the automatic stay, the 3 Bankruptcy Court stated that Gallusz “opposes stay relief on several grounds, including 4 that [LPP] lacks standing, there is no case and controversy, [LPP] has not filed a proof of 5 claim and [LPP] has not proven it owns the note.” [Doc. No. 12-2 at 285.] “The 6 [bankruptcy c]ourt may easily dispense with the Debtor’s arguments. Movant’s motion 7 and the associated declaration adequately demonstrate Movant’s standing and possession 8 of the note.” [Id.] 9 At the subsequent hearing on the motion, the Bankruptcy Court “conclude[d] that 10 the moving party has more than sufficiently demonstrated that it has standing to bring this 11 motion. [The Bankruptcy Court judge] personally went through all of the chain of 12 assignments and . . . connected the dots on the chain of assignments. We’ve got a 13 declaration from the moving party who had the client representative actually physically go 14 to the vault, look personally at the original promissory note in the vault, and that person 15 has submitted their testimony that the note that is attached to the declaration is a true and 16 accurate copy of that note. That’s more than [the Bankruptcy Court judge] typically see[s] 17 on a stay relief motion when a loan has been assigned. So the moving party has more than 18 sufficiently carried their burden[.]” [Doc. No. 14 at 276–77.] 19 Under 11 U.S.C. § 362(d), a court may grant relief from the automatic stay “[o]n 20 request of a party in interest and after notice and a hearing[.]” Gallusz says that LPP cannot 21 be “a party in interest” because, according to her, the note’s chain of ownership is defective. 22 [See Doc. No. 6 at 32–33.] However, “[g]iven the limited nature of the relief obtained 23 through a motion for relief from the stay, the expedited hearing schedule § 362(e) provides, 24 and because final adjudication of the parties’ rights and liabilities is yet to occur, [the Ninth 25 Circuit Bankruptcy Panel] has held that a party seeking stay relief need only establish that 26 it has a colorable claim[.]” In re Veal, 450 B.R. 897, 914–15 (B.A.P. 9th Cir. 2011). In 27 order to establish a “colorable claim” in this context, a creditor need only demonstrate that 28 it has a colorable claim to receive payment under the subject note, which it can accomplish 1 by establishing that it is a “person entitled to enforce” the note. Id. at 917–918. Relevant 2 here, a “person entitled to enforce” a note means (a) the holder of the instrument, or (b) a 3 nonholder in possession of the instrument who has the rights of a holder. Cal. Comm. Code 4 § 3301. Finally, a “holder” includes “the person in possession of a negotiable instrument 5 that is payable either to [the] bearer or, to an identified person that is the person in 6 possession.” Cal. Comm. Code § 1201(b)(21)(A). 7 Here, the Bankruptcy Court applied the correct standard: “Movant’s motion and the 8 associated declaration adequately demonstrate Movant’s standing and possession of the 9 note.” [Doc. No. 14 at 141.] See also In re Cruz, 516 B.R. 594, 602 (B.A.P. 9th Cir. 2014) 10 (affirming relief from the automatic stay where movant did not have recorded trustee’s 11 deed but had declaration from employee who attended property sale); In re Griffin, 719 12 F.3d 1126, 1127 (9th Cir. 2013) (“We therefore conclude that [movant], by providing a 13 copy of a copy of the note and a declaration establishing its possession of the original note, 14 established prudential standing to file the motion for relief from the stay.”).] The 15 Bankruptcy Court also correctly stated that even if LPP had not filed a POC, “the 16 Bankruptcy Code does not require [them] to file a claim prior to bringing a stay relief 17 motion.” [Doc. No. 14 at 141.] Accord In re Hymes, No. A12-00599-GS, 2013 WL 18 653060, at *3 (Bankr. D. Alaska Feb. 20, 2013) (unpublished) (“The validity of the 19 underlying claim is not litigated in the relief from stay context. Nor is it necessary for a 20 creditor to file a proof of claim as a precondition to obtaining stay relief.”). 21 Though Gallusz relies heavily on In re Veal, it is readily distinguishable. There, the 22 Ninth Circuit Bankruptcy Appellate Panel reversed an Arizona bankruptcy court’s relief 23 from stay order because the movant (Wells Fargo) did not have prudential standing to 24 request relief from stay. In particular, Wells Fargo “did not show that it or its agent had 25 actual possession of the [n]ote[.]” In re Veal, 450 B.R. at 917. And as the Bankruptcy 26 Court found, that is not the case here. 27 The Court finds that the Bankruptcy Court applied the correct legal rule. 28 /// B. The Bankruptcy Court’s Application of the Legal Rule Was Not Illogical or Implausible 3 The second question is whether the Bankruptcy Court’s application of the correct 4 ||legal standard was illogical, implausible, or without support in inferences that may be 5 || drawn from the facts in the record. Given LPP’s submission of (1) copies of the note and 6 a declaration by LPP’s records custodian that she had personally located the original 7 ||note, [Doc. No. 12-2 at 8], the Court does not find the Bankruptcy Court’s application of g ||the legal standard for a motion for relief from stay was illogical, implausible, or without g || support in inferences that may be drawn from facts in the record. 10 IV. CONCLUSION 11 Based on the foregoing, the Court finds that the Bankruptcy Court did not abuse its 12 || discretion in granting LPP relief from the automatic stay. The Bankruptcy Court’s order 13 therefore AFFIRMED. 14 The Clerk of the Court shall close the case. 15 It is SO ORDERED. 16 || Dated: September 25, 2026 © Hon. Cathy Ann Bencivengo 18 United States District Judge 19 20 21 22 23 24 25 26 27 28