841 F. 2d 1130 - Shokrian Rush v. Bank Leumi Le-Israel Bm

MEMORANDUM*

Appellant Max H. Rush (Rush), Chapter 11 Bankruptcy Trustee for debtor Amir Shokrian (Shokrian), appeals the district court's summary judgment grant to Bank Leumi Le-Israel, B.M. (the Bank). The court held that the Bank's security interest in certain oriental rugs in Shokrian's bankruptcy estate was valid and could not be avoided by Rush. We reverse and remand for trial.

We review a district court's grant of summary judgment de novo. Hernandez v. Johnston, 833 F.2d 1316, 1317 (9th Cir.1987). Under Fed.R.Civ.P. 56(c), summary judgment is proper if there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. The "materiality" of a fact is determined by the substantive law governing the claim or defense. Hernandez, 833 F.2d at 1318.

Although the record discloses numerous transactions between Shokrian and the Bank, the only outstanding obligation secured by the oriental rugs was a $500,000 loan to Aranco, Shokrian's wholly owned business, in March 1980. This loan was also secured by a third deed of trust on Shokrian's residence. The Bank admitted at oral argument that despite a contrary suggestion in its brief and the apparent belief of the district court, the rugs did not secure a $1 million loan made to Shokrian in July 1979. The court's uncontroverted factual finding that the Bank suffered a $2 million loss from its "loans to the Debtor" was therefore irrelevant in determining the validity of the Bank's interest in the oriental rugs because the finding related to both debts.

The proper inquiry in this case is whether the Bank made a full credit bid on its third deed of trust at the foreclosure sale of Shokrian's residence. Resolution of this issue depends on the total amount due on the Aranco debt at the time of the sale. If the accepted bid was equal to or greater than the principal and accrued interest owing on the loan, and the costs, fees, and other expenses of the foreclosure, Shokrian's underlying indebtedness was totally satisfied and liens on any property securing the obligation, including the oriental rugs, were extinguished. See Cornelison v. Kornbluth, 15 Cal.3d 590, 606 & n. 10, 542 P.2d 981, 992 & n. 10, 125 Cal.Rptr. 557, 568 & n. 10 (1975); Passanisi v. Merit McBride Realtors, Inc., 190 Cal.App.3d 1496, 1503, 236 Cal.Rptr. 59, 62-63 (1987).

The liens were not extinguished and Shokrian's indebtedness was only partially discharged, however, if the balance due on the Aranco loan exceeded $624,672.71, the amount credit bid by the Bank at the trustee's sale. Passanisi, 190 Cal.App.3d at 1504, 236 Cal.Rptr. at 63. Absent a full credit bid, the Bank may satisfy the remaining debt by foreclosing on its additional security interest in the oriental rugs. Cornelison, 15 Cal.3d at 607, 542 P.2d at 993, 125 Cal.Rptr. at 569.

Rush contends that two signed documents indicate that the Bank made a full credit bid. First, the bid authorization given by the Bank to Fidelity Trust Corporation, the trustee, lists the "TOTAL AMOUNT DUE" as $624,672.71, consisting of $500,000 in principal, $118,326.71 in interest accrued between May 1982 and the day of the foreclosure sale, and $6,346 in trustee's fees and costs. Second, the "Trustee's Deed Upon Sale" lists both the "amount of the unpaid debt together with costs" and the amount paid by the Bank as $624,672.71.

The Bank contended at oral argument that the interest computation in the bid authorization document, which on its face covers only two of the four years of the loan, was erroneous. The Bank relies on the declaration of Bank Vice President and Loan Review Officer Margaret Langer to support its argument that the balance of the Aranco loan was greater than the amount of the credit bid. Langer, although vague in her deposition testimony, stated in her declaration that the accrued interest totaled $248,897.31, and that the Bank also incurred $59,900.78 in maintenance and repair costs and $24,809.49 in property taxes. The latter two expenses were not listed on the bid authorization.

The district court concluded that the foreclosure sale "only partially satisfied" Shokrian's debt, but it failed to make a specific finding of uncontroverted fact regarding the extent of the Bank's bid. Our review of California law and the sketchy record in this case indicates that whether the Bank made a full credit bid is a genuine issue of material fact that cannot be resolved on summary judgment.

REVERSED and REMANDED.