Caviata Attached Homes, LLC v. U.S. Bank, N.A. (In re Caviata Attached Homes, LLC)

Citation:
BAP No. NV-11-1620-KiPaD
Tag(s):
Ruling:
In AFFIRMING a bankruptcy court's decision dismissing the debtor's filing of a second chapter 11 case, the Bankruptcy Appellate Panel for the Ninth Circuit held that the debtor failed to show an extraordinary change in circumstances substantially impaired its performance under it confirmed plan to warrant the second chapter 11 filing. The Panel rejected appellant's position that the bankruptcy court abused its discretion by rejecting its request for an evidentiary hearing. The Panel determined that the motion to dismiss was subject to Rule 9014 and Section 1112(b) and should be decided on papers rather than after oral testimony of witnesses. The bankruptcy court did not abuse its discretion by considering the declarations and counsel's offer of proof and denying the debtor's request for an evidentiary hearing. The Panel also rejected appellant's position that changed market conditions were sufficient to warrant a second chapter 11 filing. The Panel found that cases in which a chapter 11 debtor has been successful at showing unforeseen changed circumstances to warrant a second chapter 11 filing are the exception rather that the rule. The Panel found that the bankruptcy court's finding that a decline in the economy between 2010 and 2011 was not an unforeseeable and changed circumstance justifying a second chapter 11 filing was based on the evidence presented.
Procedural context:
Appeal from decision of Hon. Bruce T. Beesley, Bankruptcy Judge. Creditor moved to dismiss a second bankruptcy when approximately fifteen months after confirming the First Plan and almost two years after its first chapter 11 filing debtor filed its second chapter 11 case. Creditor moved to dismiss the second bankruptcy case contending the second filing was a bad faith filing and a backdoor attempt to circumvent the prohibition on modifying a substantially consummated plan. The bankruptcy court granted motion under Section 1112(b). Debtor appealed to the 9th Cir. BAP.
Facts:
Debtor Caviata Attached Homes, LLC (Debtor) filed a chapter 11 case to reorganize a real estate development in Sparks, Nevada involving a 184 unit apartment building. At the time of the filing, Debtor owed U.S. Bank, N.A. $27,476,632.88. A three year plan was confirmed where Debtor would pay 4.25% interest for three years and after three years Debtor would sell the property or refinance the loan to pay U.S. Bank in full. Fifteen months after confirming the First Plan and almost two years after its first chapter 11 filing, Debtor filed a second chapter 11 case which extended the time within which it was required to sell or refinance the property from three years to ten years, reduced the amount paid to U.S. Bank from $29,564,308.77 to $22,420,928 and reduced the interest rate on U.S. Bank's secured claim from 4.75 to 4.00%. Debtor claimed that fundamental changes had seriously impacted the finance and real estate markets beyond a level that could have been foreseen at the time of confirmation of the first plan, and Debtor did not and could not have known that recovery from the 2007-2008 recession would not occur as predicted by Debtor in the plan. The bankruptcy court rejected the argument finding that there was no significant change in the economy that was not predictable. The bankruptcy court ruled on the motion based on the evidence presented and denied the request for an evidentiary hearing.
Judge(s):
Bankruptcy Appellate Panel Judges PAPPAS, DUNN and KRISCHER.

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