Ress Financial Corp. v. Beaumont 1600, LLC

BAP opinion shows that contempt is virtually impossible to prove in the Ninth Circuit following Taggart.

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Case Type:
Business
Case Status:
Reversed and Remanded
Citation:
BAP No. CC-17-1357-LLsTA & CC-17-1387-LLsTa (9th Circuit, Sep 07,2018) Not Published
Tag(s):
Ruling:
BAP for 9th Cir. reversed and remanded contempt citation of bankruptcy court (CD Cal.) finding the court made inadequate findings to support ruling. Bankruptcy court failed to find that movant/trustee presented clear and convincing evidence that creditor knew that the stay applied to its conduct and acted intentionally in its conduct that violated the stay. A good faith belief, even if unreasonable, precludes an award of damages for contempt. Bankruptcy court could award attorney's fees for stay violation, but only for issues flowing from stay violation.
Procedural context:
Following trial, bankruptcy court (CD Cal.) entered judgment against defendant for willful violation of automatic stay. Defendant appealed to BAP for 9th Cir.
Facts:
In 2006, Debtor entered into loan with PCF, executing promissory note for $39 million, secured by deed of trust encumbering approximately 1,300 acres of land. In 2008, PCF executed and recorded two partial reconveyances of its deed of trust, reducing the acreage of the encumbered collateral by about half. Debtor then filed chapter 11. During those proceedings, bankruptcy court entered order valuing PCF's secured claim and describing collateral as 636 acres. Case converted to chapter 7, and bankruptcy court also granted PCF relief from stay to enforce its deed of trust. Agent for PCF commenced foreclosure procedures with Notice of Default and Election to Sell ("NOD") asserting that it intended to foreclose upon original 1,300 acres. Debtor's counsel and chapter 7 trustee's counsel notified Agent's counsel of reconveyance and advised in writing that proceeding with foreclosure would violate automatic stay. Agent analyzed reconveyances and concluded they were not valid because they failed to comply with California Subdivision Map Act. Chapter 7 trustee commenced suit seeking declaratory relief and an injunction to stop foreclosure, plus damages for stay violation. Agent rescinded the NOD, but litigated the adversary proceeding, asserting it was not bound by bankruptcy court's valuation order and did not violate stay. After trial, bankruptcy court imposed contempt sanctions on Agent totaling in excess of $400k, representing fees and costs incurred by estate.
Judge(s):
Lafferty, Taylor, Lastreto

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