Smith v. SA Challenger, Inc. (In re West Coast Real Estate & Mortgage Inc.)

Smith v. SA Challenger, Inc. (In re West Coast Real Estate & Mortgage Inc.), B.A.P. Nos. EC-12-1471, EC-12-1485, EC-12-1493, EC-12-1498 (9th Cir. B.A.P., May 23, 2013) (Not for Publication)
In an unpublished decision, the Bankruptcy Appellate Panel for the Ninth Circuit vacated and remanded orders of the Bankruptcy Court granting sanctions against the Chapter 11 debtor and certain related individuals for reimbursement of a secured creditor's attorneys' fees, because the Court had not indicated on the record how it had determined the sanction amount of $20,000 under the "lodestar approach." The B.A.P. affirmed the Bankruptcy Court's denial of a request for sanctions to the extent that they were based on "missing rents" that were allegedly never received by the secured creditor after a bad faith transfer of the subject property by the sanctioned parties. The B.A.P. determined that the Bankruptcy Court had not abused its discretion and could have reasonably concluded that the secured creditor had not made a strong enough showing to justify the larger sanction award based upon the "missing rents."
Procedural context:
Appeal and cross-appeal from orders of the United States Bankruptcy Court for the Eastern District of California (J. Bardwil) requiring the payment of sanctions pursuant to Bankruptcy Code Section 105, reviewed for abuse of discretion.
On the eve of its bankruptcy filing, West Coast Real Estate & Mortgage Inc., Chapter 11 debtor, was transferred certain real property containing a self-storage facility ("Property"), of which SA Challenger, Inc. ("SACI") was the secured creditor. The Property was transferred by another Chapter 11 debtor, Sundance Eldorado Self-Storage LP, after SACI's predecessor-in-interest, Pacific National Bank, received an order from the Bankruptcy Court granting it relief from the automatic stay to foreclose against the Property. Upon a motion by SACI, the Bankruptcy Court issued orders granting sanctions jointly and severally against the Debtor and certain individuals who had effected the transfer of the Property in the amount of $20,000 for the attorneys' fees incurred by SACI on account of their "bad faith" conduct. However, the Bankruptcy Court denied an award of certain "missing rents" generated by the Property that would have allegedly been paid but for the improper transfer and the stay of its foreclosure proceeding. On appeal, the B.A.P. upheld the Court's denial of a sanction award for the "missing rents" but vacated the sanction orders and remanded the matter to the Bankruptcy Court on the grounds that the Court had failed to properly show how it had arrived at the $20,000 sanction amount under the "lodestar approach" (multiplying the number of hours the prevailing party reasonably expended on the litigation by a reasonable hourly rate). Without the Court having "shown its work," the B.A.P. could not determine its reasonableness. However, the B.A.P. found that the Bankruptcy Court could have reasonably concluded that SACI had not made a strong enough showing based on the alleged "missing rents" to justify the much larger sanction award under the Court's inherent powers.
Jury, Markell and Dunn, Bankruptcy Judges

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