Now Updating

Summarizing by Amir Shachmurove

In re: DEVORE STOP, a General Partnership, Debtor

Case Type:
Case Status:
CC-21-1226-LST (9th Circuit, Aug 16,2022) Not Published
The Bankruptcy Appellate Panel of the Ninth Circuit (BAP) affirmed the ruling of the U.S. Bankruptcy Court for the Central District of California (BC) that found no bankruptcy court jurisdiction over an adversary proceeding for quiet title, declaratory relief, and an injunction pertaining to a note and deed of trust encumbering two real property parcels initiated by the man who had bought the Property from a chapter-11-turned-chapter-7, debtor, under § 363 despite an approval order under which the BC retained jurisdiction over its enforcement and any encumbrances' validity.
Procedural context:
In 2007, the BC approved the chapter 7 trustee's decision to sell two of three of the DR's properties to Morschauser subject to existing liens and encumbrances, including a second deed of trust, one which had been assigned to Jesse Bojorquez (Bojorquez), owner of American Business Investments, The sale was without prejudice to Morschauser or any party in interest bringing an action before the BC to determine the validity of any lien. The order left the BC with jurisdiction to "(1) enforce and implement the terms and provisions of the Sale, and this Order; (2) resolve any disputes, controversies or claims arising out of or relating to the Sale or this Order; (3) interpret, implement and enforce provisions of this Order; (4) determine in subsequent action(s) the nature, exten[t] and validity of any lien or encumbrance upon the subject Property." The bankruptcy case was eventually fully administered, and it was closed in January 2009. In November 2012, Morschauser commenced the adversary proceeding from which this appeal sprung. After much litigation, which involved show cause orders, briefing, and denied motions to dismiss for employment by the broker, the BC concluded that it lacked subject matter jurisdiction and entered a memorandum and order dismissing the complaint and cross-complaint in their entirety. Morschauser timely appealed.
Devore Shop (DR), the debtor, was a partnership between William Morschauser (Morschauser), the appellant, and Mohammed Abdizadeh (Abdizadeh). The DRfiled a chapter 11 petition in 2003, listing as assets three parcels of real property located in Devore, California (Parcel, 1, Parcel 2, and Parcel 3). Continental Capital (ConCap), of which Stephen Collias (Collias) was the principal and member, held two promissory notes secured by the parcels. Shortly after the petition was filed, ConCap moved for relief from stay to enforce its notes and deeds of trust. The motion was resolved by a court-approved stipulation to sell Parcel 1, with the proceeds to be applied to satisfy the first note (Note 1) held by ConCap, which was in the principal amount of $850,000 and was secured by a deed of trust (DOT 1) on Parcels 1 and 2. [A second note (Note 2) was for the principal amount of $150,000 and was secured by a deed of trust (DOT 2) on Parcel 3.] Ultimately, the BC approved the sale, conditioned upon the escrow of the commission of Bojorquez and a demand from ConCap on Note 1. But since no application was ever filed, the ultimate order (2003 Sale Order) simply stated that the chosen broker had "agreed to waive his broker fees in order to consummate this sale." In addition, without knowledge of the BC, but with Morschauser's consent, the escrow instructions were amended before closing to provide that ConCap would assign Note 2 and DOT 2 to the broker whose employment was suppose to be approved in exchange for his broker services. When around the same time or just near it, the DR, ConCap, Abdizadeh, and Morschauser entered into a settlement agreement for the sale that differed from the terms of the 2003 Sale Order. The next three years featured more litigation. On April 1, 2004, the BC granted the United States Trustee’s motion to convert the DR's chapter 11 case to a chapter 7 one. Thereafter, In 2005, Morschauser filed multiple actions in state court against ConCap and others; ConCap won both at trial and on appeal. In 2006, the chapter 7 trustee appointed in the DR's case filed a motion to sell Parcels 2 and 3 to Morschauser subject to existing liens and encumbrances, including DOT 2, which had been assigned to Bojorquez. The sale was without prejudice to Morschauser or any party in interest bringing an action before the bankruptcy court to determine the validity of any lien.
William J. Lafferty; Gary A. Spraker; and Laura S. Taylor

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