Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-4_18-cv-05582/USCOURTS-cand-4_18-cv-05582-0/pdf.json

Nature of Suit Code: 422
Nature of Suit: Bankruptcy Appeals Rule 28 USC 158
Cause of Action: 11:101 Bankruptcy

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United States District Court

Northern District of California

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

In Re: DERRICK PAUL CHAN,

CYNTHIA REIKO CHAN,

Debtors

Case No. 18-cv-05582-HSG 

ORDER DENYING EMERGENCY 

MOTION TO STAY ORDER OF 

BANKRUPTCY COURT

Re: Dkt. No. 4

Pending before the Court is the emergency motion for a stay of the order of the bankruptcy 

court converting their Chapter 13 bankruptcy to Chapter 7, or in the alternative, an injunction 

against the sale of 5829 Central Ave., Newark CA 94560 (the “Subject Property”) filed by 

Appellants Derrick Paul Chan and Cynthia Reiko Chan. Dkt. No. 4. After considering the papers, 

the Court deems the matter appropriate for decision without oral argument. See Fed. R. Bankr. P. 

8013(c) (“A motion will be decided without oral argument unless the district court or BAP orders 

otherwise.”). For the following reasons, the Court DENIES the motion.

I. BACKGROUND

Appellants filed a Chapter 13 bankruptcy case on April 17, 2014. Dkt. No. 4 at 1; Dkt. No. 

6 at 1. On November 28, 2017, Appellants filed a motion to modify their Chapter 13 plan, 

providing that the Appellants would sell or refinance the Subject Property by June 2018. Dkt. No. 

4 at 2; Dkt. No. 4-3, Ex. 6. On February 11, 2018, the bankruptcy court entered an order granting 

Appellants’ motion to modify. Dkt. No. 4 at 3. On July 9, 2018, the Chapter 13 trustee filed a 

motion to dismiss Appellants’ case for material default for failure to sell or refinance the property 

pursuant to the modified plan. Dkt. No. 4-3, Ex. 8. On August 17, 2018 the bankruptcy court 

issued an order converting Appellants’ case from Chapter 13 to Chapter 7. Id. Ex. 9. Appellants 

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appealed the conversion order, and on September 11, 2018 the bankruptcy court heard Appellants’ 

motion for a stay pending appeal. See Dkt. No. 10-1 (“Hearing Transcript”). On September 17, 

2018 the bankruptcy court entered its order denying Appellants’ motion for a stay. Dkt. No. 4-3, 

Ex. 16. Appellants now appeal the bankruptcy court’s denial of their motion to stay pursuant to 

Fed. R. Bankr. P. 8007. 

II. LEGAL STANDARD

“When deciding whether to issue a discretionary stay pending a bankruptcy appeal, courts 

use the following four factors, which were imported from the standard for deciding preliminary 

injunctions or staying them pending appeal: (1) movant's likelihood of success on the merits of the 

appeal; (2) significant and/or irreparable harm that will come to movant absent a stay; (3) harm to 

the adverse party if a stay is granted; and (4) where the public interest lies.” In re North Plaza, 

LLC, 395 B.R. 113, 119-20 (S.D. Cal. 2008) (citing Hilton v. Braunskill, 481 U.S. 770, 776 

(1987)) (internal quotation marks omitted).

“[O]n appeal to the district court from bankruptcy court, issues of law are reviewed de 

novo while the district court is constrained to accept the bankruptcy court's findings of facts unless 

they are clearly erroneous.” In re Irwin, 338 B.R. 839, 844 (E.D. Cal. 2006) (citing In re 

Blackwell, 162 B.R. 117, 119 (E.D. Pa. 1993)). “When a bankruptcy court has ruled on the issue 

of a stay of its order pending appeal, the district court, sitting as an appellate court, reviews that 

decision for abuse of discretion.” In re Universal Life Church, Inc., 191 B.R. 433, 437 (E.D. Cal. 

1995) (citing In re Wymer, 5 B.R. 802, 807 (9th Cir. B.A.P. 1980)).

“A bankruptcy court abuses its discretion if [1] it applies an incorrect legal standard or 

misapplies the correct legal standard, or [2] if its fact findings are illogical, implausible or not 

supported by evidence in the record.” In re City of Stockton, California, 542 B.R. 261, 272 

(B.A.P. 9th Cir. 2015). “[D]iscretion is abused only where no reasonable man would take the 

view adopted by the [bankruptcy] court. If reasonable men could differ as to the propriety of the 

action taken by the [bankruptcy] court, then it cannot be said that the [bankruptcy] court abused its 

discretion.” In re Irwin, 338 B.R. at 844 (citation omitted).

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III. DISCUSSION

The parties agree that the bankruptcy court applied the correct legal standard in its 

analysis. See Dkt. No. 6 at 4–5; Dkt. No. 7 at 2. Therefore, the Court reviews the bankruptcy 

court’s factual findings for abuse of discretion. The bankruptcy court summarized its factual 

findings as follows:

Here the facts are, which have been succinctly outlined by Trustee’s 

counsel, and I don’t think there is any disagreement here by debtors’ 

counsel, that the debtor filed a voluntary petition under Chapter 13 of 

the Bankruptcy Court on April 17th, 2014. On January 12th, 2018, the 

debtors filed an amended Chapter 13 plan which provided, among 

other things, that the debtor would pay a hundred percent dividend to

the unsecured creditors through the sale or refinancing of the 

property. The amended plan further provides that the sale or refinance 

would be completed by June 2018, at Dockets 44 through 46.

The debtors’ amended plan was confirmed by the Bankruptcy Court 

on February 11, 2018, at Docket Number 48. The debtors failed to 

comply with the terms of the amended plan and the debtors did not 

refinance or sell the property by the end of June 2018. Nor did the 

debtor file a motion with the Bankruptcy Court to modify the 

provisions of the amended plan or otherwise seek additional time to 

sell or refinance the property.

Then on July 9, 2018, the Chapter 13 Trustee filed a motion to dismiss 

the debtors’ case for the material breach of their amended plan, to wit, 

failure to sell or finance the property, as provided in the amended 

plan. See Docket 71.

The debtors filed no opposition to the Chapter 13 Trustee’s motion 

and the debtors did not seek to voluntarily dismiss their case pursuant 

to 11 U.S.C. Section 1307(b), which could have been filed after the 

end of June, and had it ruled on the Court prior to even the Trustee 

filing the motion to dismiss, as it could have been on seven-days 

notice.

Following the passage of the notice period, the Bankruptcy Court, 

upon its consideration and evaluation of the debtors’ case and the 

provisions in the amended plan, concluded, pursuant to 11 U.S.C. 

Section 1307(c) that “cause” existed, that it was in the best interests 

of the creditors and the estate to convert debtor’s case from Chapter 

13 to Chapter 7. After the conversion order was entered, the Trustee 

was appointed to administer the assets of the debtors’ estate.

The Trustee has sought and the Bankruptcy Court has granted her 

application to employ a real estate broker to market and sell the 

property. See Docket Number 69. The debtor declined to provide the 

broker access to the property and to deliver documents related to the 

mortgage, taxes, and insurance related to the property. The trustee 

filed an application and obtained a Section 521 order compelling the 

debtor to make the property available to the Trustee’s broker and to 

deliver the requested documents. Dockets Number 72 and 75. 

Pursuant to representation by Trustee’s counsel, there is yet to be 

compliance with the 521 order entered by the Court, and the Trustee 

has not received the documents that have been requested.

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Hearing Transcript at 9:18–11:16.

A. Likelihood of Success on the Merits

Appellants contend that they were denied due process when their bankruptcy case was 

converted from Chapter 13 to Chapter 7 without notice and a hearing, as required by statute. Dkt. 

No. 4 at 9–11. 11 U.S.C. Section 1307(c) provides:

Except as provided in subsection (f) of this section, on request of a 

party in interest or the United States trustee and after notice and a 

hearing, the court may convert a case under this chapter to a case 

under chapter 7 of this title, or may dismiss a case under this chapter, 

whichever is in the best interests of creditors and the estate, for cause, 

including... 

11 U.S.C.A. § 1307(c).

“The phrase ‘notice and a hearing’ is defined by Section 102(1) and is a term of art. It 

does not mean that a hearing must be granted. A trial court may act without a hearing if notice has 

been properly given and (1) a hearing has not been requested or (2) there is insufficient time for 

one. Notice means ‘such notice as it appropriate in the particular circumstances.’” In re Blumer, 

66 B.R. 109, 113 (B.A.P. 9th Cir. 1986), aff'd, 826 F.2d 1069 (9th Cir. 1987), and aff'd sub 

nom. Dunning-Ray Ins. Agency, Inc. v. Credit All. Corp., 826 F.2d 1069 (9th Cir. 1987) (internal 

citations omitted).

Appellants contend that the Chapter 13 trustee’s motion to dismiss the debtors’ case did 

not provide notice that the case could be converted, and no hearing was held. Dkt. No. 7 at 2–3. 

The bankruptcy court noted that “there wasn’t a hearing because there was no opposition” to the 

motion to dismiss. Hearing Transcript at 8:18–19. The bankruptcy court further reasoned:

With regards to the likelihood of success on the merits, the debtors 

assert that they are likely to succeed on the merits of the appeal 

because the Court’s entry of the conversion order case was a violation 

of the debtors’ due process rights. The debtor asserts that they 

received no notice from the Chapter 13 Trustee [that the] July 9th, 

2018 motion could result in a conversion of the case to Chapter 7. 

The debtors assumed, as Trustee’s counsel notes incorrectly and the 

Court agrees with, that the Chapter 13 Trustee’s motion would result, 

at worst, in the dismissal of the bankruptcy case. The debtor asserts 

that entry of the order without a notice[d] motion alerting them to the 

fact that the case could be dismissed or converted and the Court’s sua 

sponte conversion of the debtors’ case was a violation of debtors’ 

rights to due process, the Bankruptcy Court and the Bankruptcy 

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Rules. However, when a bankruptcy court addresses a motion under 

11 U.S.C. Section 1307(c), the court is required to engage in a twostep analysis. First, it must determine that there is cause to act. 

Second, once a determination of cause has been made, a choice must 

be made between conversion and dismissal based on the best interests 

of creditors and the estate. See In re Nelson, 343 B.R. 671, 675, a 9th

Circuit decision from the BAP, 2006; and Torbjorn Berg versus 

Martha Bronitsky, et al., BAP Case Number NC-12-1358, Main Case 

Number 11-47338, pages 13 to 14, footnote 9, a 2013 decision.

In sum, the entry of the conversion order did not violate the debtors’ 

due process rights or provisions of the Bankruptcy Code or Rules. 

Had the debtor sought, as they assert in their motion, to have their 

case dismissed as a consequence of their breach of the amended plan, 

they could have easily achieved this result by simply filing a request 

for dismissal pursuant to 11 U.S.C. Section 1307(b). No such request 

was made. And, again, as the Court noted previously, that request 

could have been made after the end of June, prior to the time the 

Trustee field the motion to dismiss the case. Instead, the debtors took 

no action to oppose the Section 1307(c) motion or seek a modification 

of the amended plan. In its evaluation of the 1307(c) motion, the 

Court exercised its statutory obligation and conducted the required 

two-step inquiry.

First, the cause existed under 11 U.S.C. Section 1307(c) to dismiss or 

convert the case by virtue of debtors’ failure to comply with the 

provisions of their amended plan. Once the Court concluded that 

cause existed, the Court determined that conversion was in the best 

interests of the creditors of the estate. The debtors do not dispute that 

the Court’s conclusion that cause to convert or dismiss exists under 

1307(c). The debtors were in default under the provisions of the plan, 

which caused to convert or dismiss pursuant to 11 U.S.C. Section 

1307(c)(1) or (6).

Here the debtors had contracted through the Bankruptcy Court 

Chapter 13 process to either sell or refinance the subject property, 

paying the Trustee $75,000 by the end of June. Debtor did not do 

that, was not in compliance with the plan. Ninety-nine days later, the 

trustee brought a motion to convert the case under Section 1307(c). 

There was notice and opportunity to be heard. There was no 

opposition form, and the Court subsequently issued an order.

The second prong of that test, the Court made an informed decision 

that conversion was in the best interests of the creditors and the estate 

as this was a hundred percent plan and there was equity represented 

in the property that would have paid the secured debt, the priority 

debt, likely would have paid possibly the exempt amount, and left 

money leftover to pay the unsecured creditors in full.

In response to the Trustee’s—and in response to the—or, excuse me. 

The Court also notes that with regards to the request for stay pending 

appeal, the debtor has indicated that if this Court were to dismiss the 

case, the debtor would intend to file a new Chapter 13 plan paying 

100 percent of the amount owed to the unsecured creditors. And this 

is exactly what the Trustee is attempting to do to carry out the 

concerns of the debtors’ plan, which was to pay a hundred percent to 

the unsecured creditors by way of sale of the property, which the 

debtor contracted to with their amended motion, which was granted 

by this Court. As such, the Court does not find that the debtor is likely 

to prevail on the merits of this case.

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Hearing Transcript at 11:17–14:17.

Appellants contend that the cases cited by the bankruptcy court, In re Nelson and In re 

Berg, are distinguishable because an actual hearing was held in those cases. Dkt. No. 7 at 2–3. 

However, it was not illogical or implausible for the bankruptcy court to find that no hearing was 

required under 11 U.S.C. § 102, because Appellants did not request a hearing on, or submit an 

opposition to, the motion to dismiss. See Hearing Transcript at 8:18–19. 

Appellants additionally contend that their appeal is likely to succeed on the merits because 

the bankruptcy court erred in finding that conversion was in the best interest of the creditors and 

the estate. Dkt. No. 7 at 3. Appellants contend that the Subject Property had no non-exempt 

equity available of any value to the estate, and that conversion was therefore not in the best 

interest of the creditors. Id. 

Appellants did not present this argument to the bankruptcy court for consideration in their 

motion for a stay pending appeal. See Dkt. No. 4-3, Ex. 14. “An appellate court should not 

consider new issues not properly raised before the court below.” In re Blagg, 223 B.R. 795, 804 

(B.A.P. 10th Cir. 1998). Because Appellants did not present any evidence in the record provided 

to the bankruptcy court in its moving papers or during hearing regarding this argument, this Court 

cannot find that the bankruptcy court abused its discretion in failing to consider it.

B. Irreparable Harm

The bankruptcy court reasoned as follows:

As to the second issue of irreparable harm, the debtor has indicated 

that they want to hold onto the subject property, despite the fact that 

they confirmed a plan that called for the sale or refinancing [of] the 

property by the end of June 2018. The debtor says that they were 

unable to refinance the property, but indicate no efforts whatsoever to 

sell the property. Again, the Court questions how this debtor can be 

prejudiced by the Trustee selling the property, which is exactly what 

the debtor proposed and represented to this Court. This Court relied 

upon in granting the motion to modify the plan that called for either 

the sale or refinance of the subject property to pay the 75,000 amount 

that would have been due the Chapter 13 Trustee.

It will basically carry out what the debtor now says that if the case 

were dismissed, the debtor would turn around, file yet another 

Chapter 13 plan, and pay 100 percent to the unsecured creditors. 

Again, the Court does not see the prejudice to the debtor here in 

carrying out what they originally contracted with this Court to do.

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Hearing Transcript at 14:18–15:10.

Appellants contend that they have suffered the irreparable harm of enduring a violation to 

their due process rights, and that the potential loss of their home would constitute an additional 

irreparable injury. Dkt. No. 4 at 17–18. 

Although the bankruptcy court did not directly address an irreparable harm based on 

Appellants’ first contention regarding their due process rights, given the bankruptcy court’s 

finding that “[t]here was notice and opportunity to be heard” provided to Appellants, it was not 

clearly erroneous to conclude that no irreparable harm would result should a stay not be imposed 

on that basis. Hearing Transcript at 13:21–22.

“The loss of one's home generally qualifies as irreparable injury.” Shaw v. Specialized 

Loan Servicing, LLC, No. 14-00783 MMM (MRWX), 2014 WL 12569530, at *4 (C.D. Cal. July 

3, 2014) (collecting cases). Nevertheless, it was not clearly erroneous for the bankruptcy court to

conclude that the harm caused by the potential loss of Appellants’ home via sale by the Chapter 7 

Trustee is substantially offset by Appellants’ representations to the bankruptcy court that they 

would themselves sell the Subject Property. In light of Appellants’ November 28, 2017 motion to 

modify their Chapter 13 plan, Dkt. No. 4 at 2, Ex. 6, and the bankruptcy court’s February 11, 2018 

order granting Appellants’ motion to modify based in part on their representation that they 

intended to sell the Subject Property by a specified date, see Dkt. No. 4 at 3; Hearing Transcript at 

15:1–4, the Court finds that the bankruptcy court did not abuse its discretion in reasoning that 

Appellants are not prejudiced by the potential sale of their home by the Chapter 7 Trustee under 

the circumstances. 

C. Harm to Adverse Party

The bankruptcy court did not abuse its discretion in finding that the harm to the creditors 

weighs in favor of denying the motion to stay. Appellants contend that the Subject Property “is an 

appreciating asset which provides for very minimal risk of depreciation sufficient enough to deny 

Creditors a 100% repayment should, in the very unlikely event, Debtors’ be unsuccessful in their 

Appeal.” Dkt. No. 4 at 19. The bankruptcy court addressed Appellants’ contentions and reasoned 

as follows:

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The third prong is the prejudice to other affected parties, specifically, 

the creditors of the estate. There is no evidence whatsoever as to the 

specific value of the property. The debtors have failed to cooperate 

with the Trustee’s counsel and provide the information that would set 

forth the amount due to the secured creditor, taxes, any other liens on 

the property so that the Trustee would have this information to 

evaluate the same. Given the fact that there is no evidence to support 

that the property is going to tend to appreciate, or there are other 

factors outside the controls of the party here, that the party could 

depreciate, that burden has not been met by the debtor, and debtor 

fails on the third prong of that test as well.

Hearing Transcript at 15:11–22.

The Court finds that the bankruptcy court’s reasoning and conclusions were not clearly 

erroneous as to harm to the adverse party.

D. Public Interest

The bankruptcy court reasoned as follows:

Finally, as to public interest, debtor argues that retaining property is 

a strong public interest that lies here. On the other side of that coin is 

the fact that the creditors are entitled to have a prompt resolution of a 

bankruptcy. Here the debtors have been in bankruptcy for over four 

and a half years, proposed a plan to pay a hundred percent off by the 

end of June 2018. The debtors claim that they have failed—or have 

been unable to obtain refinancing, but they provide no evidence 

whatsoever that they made any attempt to sell the subject property in 

order to comply with the terms of the plan they proposed and was 

relied upon and confirmed by this Court. 

Again, here I think that the public interest to the extent it’s affected 

here lies in favor of the Trustee’s argument, and the motion for stay 

pending appeal is denied.

Hearing Transcript at 15:23–16:11.

Because the bankruptcy court’s finding that the public interest weighs in favor of 

protecting the creditors’ right to a swift resolution to the bankruptcy proceedings was not clearly 

unreasonable, illogical, or erroneous, the Court finds that the bankruptcy court did not abuse its 

discretion in evaluating this factor.

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IV. CONCLUSION

For the foregoing reasons, the Court AFFIRMS the order of the bankruptcy court denying 

Appellants’ request for a stay pending appeal, and DENIES Appellants’ emergency motion for a 

stay and request for an injunction against the sale of the Subject Property.

IT IS SO ORDERED.

Dated:

______________________________________

HAYWOOD S. GILLIAM, JR.

United States District Judge

11/5/2018

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