- Case Type:
- Case Status:
- Bankruptcy Appellate Panel of the Ninth Circuit Nos. CC-20-1278-LGT, CC-20-1279-LGT (9th Circuit, Jul 13,2021) Not Published
- The BAP held that only if the Ninth Circuit reverses the Turnover Order would the Debtor's standing be established as the Debtor conceded the estate is insolvent. The BAP also held the bankruptcy court did not abuse its discretion in approving the compromise, because all of the necessary findings under the legal standard were found in the Compromise Order which the Debtor did not refute. The BAP also held the bankruptcy court did not abuse its discretion in the Sale Order, because the record supported that the sale benefited the estate as it generated funds and optimized value.
- Procedural context:
- In 2012 the Debtor filed a Chapter 13 case, and quickly moved to convert to a Chapter 11. The bankruptcy court granted that motion. After confirming a plan, the Debtor defaulted under terms of that plan. In 2019 the Debtor's Chapter 11 case converted to a Chapter on the motion of a secured creditor, BONYM, based on the Debtor's default. Post-conversion the Trustee moved for turnover of estate assets, which the Debtor resisted. The bankruptcy court overruled the objection and granted the Trustee's motion (Turnover Order). The Debtor appealed the decision to the district court and requested a stay pending appeal which was denied by both the bankruptcy and district courts. The district court affirmed the Turnover Order, which the Debtor then appealed to the Ninth Circuit. Subsequently the district court issued a stay pending appeal of the Turnover Order and a stay pending appeal the order granting the sale of one of the California rental properties (Sale Order). The district court then ordered the Debtor to post a bond and make monthly mortgage payments on the Debtor's residence, and the order also mandated the Trustee to release certain amounts of the Disputed Funds to some of the secured creditors (District Court Order). After the Turnover Order was entered, the Trustee moved to approve a compromise with the Rental Lenders, and the Debtor and the Debtor's spouse both objected. The Debtor's spouse failed to exercise right of first refusal, and the bankruptcy court entered an order approving the compromise (Compromise Order) with detailed findings. The bankruptcy court also found the Debtor failed to establish a pecuniary interest and therefore she lacked standing. The Debtor timely appealed. During the bankruptcy court's consideration of the motion to compromise, the Trustee moved to sell one of the California properties. The Debtor objected making similar arguments as found to the motion to compromise. The bankruptcy court approved the sale (Sale Order), denied the motion for stay pending appeal, but the district court stayed the order as previously stated. The Debtor timely appealed. The Compromise Order and the Sale Order were the subject of this appeal.
- Prior to bankruptcy, the Debtor owned four real properties: one in California as a residence, two rental properties in California, and a rental property in Nevada. In 2012, the Debtor filed for Chapter 13 bankruptcy protection but then converted the case to a Chapter 11 Case. Under the confirmed plan the Debtor would keep the real estate, pay secured claims in full, and pay $50,000 to unsecured claims. The real estate claims for the rental properties would be bifurcated into secured and unsecured portions based on the value of each property individually. The junior lien on the Nevada property would be avoided in full. The Debtor disputed the amounts claimed by the real estate creditors, and the Debtor filed adversary proceedings against the creditors shortly before confirmation. The plan provided for the Debtor to make payments to an account which would pay out to those creditors only if the claims were allowed (Disputed Funds). The Debtor had not prevailed in any of the adversaries when the case was converted to a Chapter 7 case. The Debtor sold the Nevada property while the case pended under Chapter 11, the secured creditor, Wells Fargo, received payment, and the Debtor retained the net proceeds. The secured creditor filed an amended claim post-conversion in 2019. After conversion the Debtor turned over in excess of a $530,000 of payments kept in a separate account representing according to the Debtor the Disputed Funds. Two months post-conversion the Debtor received the Chapter 7 Trustee's turnover motion seeking property of the estate, including the two California rental properties, associated rents, and the proceeds from the sale of the Nevada rental property. The Debtor opposed the motion claiming the property revested in the Debtor upon confirmation of the Chapter 11 plan, and the conversion did not divest the Debtor of these assets for the benefit of the estate. The bankruptcy court overruled the objection and entered the Turnover Order which remains on appeal. Also post-conversion, the Trustee negotiated a settlement with Nationstar, BONYM, and Wells Fargo (Rental Lenders), and moved to approve the settlement under Rule 9019. The Debtor objected to the settlement for multiple reasons: (1) insufficient amounts to pay unsecured creditors; (2) approval would moot appeal of the Turnover Order; (3) motion was premature due to a question of community property still undecided; (4) possible tax consequences to the Debtor; (5) Wells Fargo previously received payment upon sale of the Nevada rental property. Debtor's spouse also opposed the motion on grounds it impaired rights as a community interest holder. The bankruptcy court gave the Debtor's spouse right of first refusal under 11 U.S.C. § 363(i) which were not exercised. The bankruptcy court approved the compromise and entered an order (Compromise Order). The bankruptcy court noted the resolution avoided expenses, the estate would receive over $1 million with the proposed sales, and the overall settlement to be fair and equitable and in the best interests of the estate with not reason to doubt the proper exercise of the Trustee's business judgment. The bankruptcy court also found good faith under § 363(m) regarding the actions of each of the Rental Lenders. During the bankruptcy court's consideration of the motion to compromise, the Trustee found a buyer for one of the California rental properties and moved to approve the sale. The Debtor objected making similar arguments as found to the motion to compromise. The bankruptcy court approved the sale (Sale Order), denied the motion for stay pending appeal, but the district court stayed the order.
- The Hons. Lafferty, Gan, and Taylor
Margaret Kinney v. HSBC Bank USA
Summarizing by Lars Fuller
3285 in the system
2 Being Processed