IN RE: A&D PROPERTY CONSULTANTS, LLC, ET

Summarized by Amir Shachmurove , Brown Rudnick LLP
1 year 8 months ago

Case Type:

Business

Case Status:

Affirmed

Citation:

23-60040 & 23-60041 (9th Circuit, Jun 06,2024) Not Published

Tag(s):

Ruling:

Resolving consolidated appeals by A&D Property Consultants LLC (AD) of a decision by the circuit's bankruptcy appellate panel (BAP) affirming two bankruptcy court (BC) orders, the U.S. Court of Appeals for the Ninth Circuit agreed with the BAP that the Code does not authorize a sale free and clear of a lien due to AD's consent, but saw the BC's contrary decision as harmless because the lienholder had been awarded half of the proceeds, and agreed with both that AD did not waive its enforcement claims by failing to raise them as counterclaims in the debtor's adversary proceeding.

Procedural context:

In the BC, chapter 13 debtor Andrea Groves (DR) moved to sell real property jointly owned with her wholly owned limited liability company, AD, under 363(h). She sought to sell this jointly owned property free and clear of the deed of trust encumbering AD's interest and securing a joint debt owed to A&S Lending, LLC (A&S). The DR argued that A&S had forfeited its secured claim by failing to bring a compulsory counterclaim under Federal Rule of Civil Procedure 13(a), made applicable by Federal Rule of Bankruptcy Procedure 7013, in a prior adversary proceeding. AD joined the sale motion, and A&S did not oppose the sale but insisted that AD's net sale proceeds be paid to A&S on its secured claim at closing. The BC: (1) approved the sale; (2) having agreed with A&S that Consultants' interest remained subject to A&S's deed of trust, ordered that A&D's proceeds be disbursed to A&S at closing; and (3) entered a separate order stating that A&S had not forfeited its counterclaims under the promissory note. AD appealed both orders to the BAP, but only challenged the BC's ruling that A&S did not forfeit its underlying claim and its interest in AD's’ share of the net sale proceeds.

Facts:

Groves and AD jointly owned two parcels of real property in Phoenix, Arizona as tenants in common. One was an investment property located on Rancho Drive (Rancho Property); the other was Groves’ residence located on 44th Street (Residence). Groves and Consultants borrowed money from Merchants Funding AZ, LLC (Merchants) and jointly executed a promissory note secured by a deed of trust covering both properties. Though A&S claimed that Merchants meant to encumber both owners’ interests in the properties, as written, the deed of trust only encumbered Consultants’ interest in the Rancho Property and Groves’ interest in the Residence. Merchants subsequently assigned its interest in the loan and deed of trust to A&S. In December 2018, the DR filed for chapter 13 relief in the BC, i.e. the U.S. Bankruptcy Court for the District of Arizona.

Judge(s):

Sidney R. Thomas; Eric D. Miller; and Richard D. Bennett

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