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FILED

 MAR 10 2014

SUSAN M. SPRAUL, CLERK

U.S. BKCY. APP. PANEL

OF THE NINTH CIRCUIT

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE NINTH CIRCUIT

In re: ) BAP No. NV-13-1179-JuKiTa

)

ALFRED J.R. VILLALOBOS, ) Bk. Nos. 10-52248

et al. ) 10-52249

) 10-52251

Debtors. ) 10-52252

______________________________) (jointly administered)

)

UNITED STATES OF AMERICA, )

)

Appellant, )

)

v. ) M E M O R A N D U M*

)

ALFRED J.R. VILLALOBOS; )

ARVCO CAPITAL RESEARCH, LLC; )

ARVCO FINANCIAL VENTURES, LLC;)

ARVCO ART, INC. )

)

Appellees. )

______________________________)

Argued and Submitted on January 24, 2014

at Las Vegas, Nevada 

Filed - March 10, 2014

Appeal from the United States Bankruptcy Court

for the District of Nevada

Honorable Gregg W. Zive, Bankruptcy Judge, Presiding _________________________

Appearances: Virginia Cronan Lowe, Esq., U.S. Department of

Justice, argued for appellant, United States of

America; Stephen R. Harris, Esq., Harris &

Petroni, LTD, argued for appellees, Alfred J.R.

Villalobos, Arvco Capital Research, LLC, Arvco

Financial Ventures, LLC, and Arvco Art, Inc. _________________________

FILED

 MAR 10 2014

SUSAN M. SPRAUL, CLERK

U.S. BKCY. APP. PANEL

OF THE NINTH CIRCUIT

*

 This disposition is not appropriate for publication.

Although it may be cited for whatever persuasive value it may

have (see Fed. R. App. P. 32.1), it has no precedential value. 

See 9th Cir. BAP Rule 8013-1.

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Before: JURY, KIRSCHER, and TAYLOR, Bankruptcy Judges.

Alfred J.R. Villalobos (Villalobos) filed a chapter 111

petition on behalf of himself and Arvco Capital Research, LLC

(ACR), Arvco Financial Ventures, LLC (AFV), and Arvco Art, Inc.

(ART) (collectively, Debtors). Subsequently, over the

objections of the United States of America, on behalf of its

agency, the Internal Revenue Service (IRS), the bankruptcy court

confirmed the jointly administered2

 Debtors’ liquidation plan

and directed Debtors to prepare detailed findings of fact and

conclusions of law (FFCL) and submit an order confirming the

plan. 

Over nine months later, Debtors lodged the FFCL and

transmitted a modified plan to interested parties. Due to the

modifications in the plan and renewed objections by IRS and

others, the bankruptcy court held a second confirmation hearing

and entered an order confirming the Corrected and Revised First

Amended Jointly Administered Debtors’ Plan of Liquidation, as

Amended (Plan). IRS appeals from this order. 

On appeal, IRS alleges that the bankruptcy court erred in

finding that the Plan complied with § 1129(a)(9)(C), (11), and

(15). We agree. Accordingly, we REVERSE the order confirming

the Plan on these grounds and REMAND for further proceedings in

1

 Unless otherwise indicated, all chapter and section

references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and 

“Rule” references are to the Federal Rules of Bankruptcy

Procedure. “LR” references are to the Bankruptcy Local Rules for

the District of Nevada.

2 The plan was proposed by the jointly administered Debtors. 

The plan provided for substantive consolidation of the estates.

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accord with this memorandum. 

I. FACTS

A. Debtors’ Business And Events Leading to Bankruptcy 

Villalobos was an investment banker for the last thirty

years. He was the managing member and held a ninety-nine

percent equity interest in ACR and AFV (collectively, ARVCO). 

Villalobos operated ARVCO as a placement agent that solicited

investments by public pension funds in private equity funds.

In May 2010, the State of California filed a civil law

enforcement action in Los Angeles County Superior Court against

Villalobos, ACR, and Federico Buenrostro, alleging a fraudulent

scheme to obtain placement agent commissions by corrupting the

investment decision-making process of the California Public

Employees’ Retirement System (“CalPERS”) (State Court Action). 

After the filing, the State of California Attorney General’s

office (AG) sought and obtained a temporary restraining order

from the superior court, freezing all assets under Villalobos’

control (including all bank accounts, real property, vehicles,

and art work) and placing them in the custody of a receiver. 

The asset freeze extended to ACR business accounts, Villalobos’

personal accounts, AFV’s employee benefit accounts, educational

trusts set up for Villalobos’ grandchildren, and the artwork of

ART.3 On May 28, 2010, the superior court entered a permanent

injunction and confirmed the receiver’s appointment. 

3

 ART is a Nevada corporation and is 100% owned by

Villalobos. Villalobos serves as president and director. ART is

a holding company for various works of art.

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B. Bankruptcy Proceedings 

A few weeks later, on June 9, 2010, Villalobos filed a

chapter 11 petition for himself, ACR, AFV and ART.4

 On the same

day, Debtors sought an order under § 543(b) directing the

receiver to turn over Debtors’ property under his control. By

stipulation, the receiver turned over to Debtors all of their

assets and property within his custody. 

Villalobos’ schedules showed real and personal property

valued at $63 million. In amended Schedule B, Villalobos

listed, among other personal property assets, causes of action

against CalPERS valued at $10 million.5 Villalobos scheduled

liabilities of approximately $14 million, of which $7.2 million

was secured against six of his real properties, and $6.5 million

was in unsecured non-priority claims. 

In its amended proof of claim filed on October 24, 2011,

IRS asserted an unsecured priority tax claim against Villalobos

for $2,654,572.22 and an unsecured general tax claim for

$112,392.77.

1. IRS’ Motions To Dismiss Or Convert

In January 2011, IRS filed its first motion to dismiss or

convert Debtors’ cases, alleging there was a substantial or

continuing loss to or diminution of the estates and the absence

of a reasonable likelihood of rehabilitation, gross

mismanagement of the estates, and failure to timely file

4 In July 2010, the bankruptcy court entered an order for

the joint administration of all four debtors.

5 This asset was also listed in AFV’s and ACR’s Schedule B.

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required reports. The parties eventually stipulated to time

frames in which IRS could update its motion and Villalobos and

others could respond. The stipulation in effect restarted the

pleading process relative to the initial motion to convert.

In May 2011, IRS renewed and supplemented its motion to

dismiss or convert (Amended Motion). After a hearing, the

bankruptcy court entered an order on June 22, 2011, denying IRS’

initial motion and Amended Motion to dismiss or convert without

prejudice. In the June 22, 2011 order, the court also

(1) directed Debtors to file a plan and disclosure statement by

September 2, 2011; (2) set a disclosure statement hearing for

September 30, 2011; (3) directed counsel for the unsecured

creditors’ committee (Committee) to hold all proceeds from the

sale of nonexempt assets; and (4) limited Villalobos’

expenditures to $10,000 per month for personal expenditures and

$10,000 per month for business expenditures, both commencing

June 1, 2011.6

 The bankruptcy court continued IRS’ motions to

dismiss or convert to the same time as the confirmation hearing. 

2. The Liquidation Plan

Pursuant to the bankruptcy court’s June 22, 2011 order,

Debtors filed a chapter 11 plan and a supporting disclosure

6 Earlier the bankruptcy court had approved an Order, Nunc

Pro Tunc, Approving Payment of Ordinary Course Expenses, which

allowed Villalobos proposed expenditures of $128,052 per month. 

IRS appealed that order to this court, which reversed and

remanded the matter because the bankruptcy court had failed to

provide findings of fact and conclusions of law to support

Villalobos’ budget under any test. See United States v.

Villalobos, et al. (In re Villalobos), 2011 WL 4485793 (9th Cir.

BAP 2011).

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statement on September 2, 2011. Since then, Debtors filed

numerous amendments to their disclosure statement and plan. We

do not mention them all in this appeal.

On October 6, 2011, Debtors filed a First Amended Jointly

Administered Debtors’ Disclosure Statement. The next day,

Debtors filed an Amended Chapter 11 Plan. Debtors’ plan was a

five-year plan of liquidation. To pay secured and unsecured

creditors, Debtors proposed to collect over $9 million dollars

in accounts receivable held by ACR and to sell various nonexempt

real and personal property (Available Assets). Debtors also

proposed to devote fifty percent of the net proceeds after

collection fees and costs, if any, of Debtors’ claim against

CalPERS, which Villalobos valued at $10 million to the payment

of unsecured creditors. The plan, however, allowed Villalobos

to retain the remaining fifty percent of such proceeds as well

as certain exempt assets and did not require him to contribute

disposable income to the plan. Debtors would implement the plan

by creating a liquidating trust that would be administered by a

liquidating trustee and a subsequent transfer of the Available

Assets into the trust. Numerous parties, including IRS, filed

objections to this version of the disclosure statement and plan.

To address the objections, on October 21, 2011, Debtors

filed a Second Amended Jointly Administered Debtors’ Disclosure

Statement and Amended Chapter 11 Plan.

On November 15, 2011, the bankruptcy court approved the

Second Amended Jointly Administered Debtors’ Disclosure

Statement. One day later, Debtors filed an amendment to their

disclosure statement and plan.

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On November 17, 2011, Debtors noticed a confirmation

hearing scheduled for December 29, 2011. The plan documents

that were noticed for solicitation, balloting, and objections

consisted of the plan and disclosure statement filed on

October 21, 2011 and the amendment to the plan and related

amendment to the disclosure statement filed on November 16,

2011. A copy of the liquidating trust was not included with the

plan or the solicitation package. 

IRS, the State of California and the Office of the United

States Trustee objected to the confirmation of this version of

the plan. IRS complained that although the plan referenced a

liquidating trust, there was no document provided concerning the

operation and duration of the trust. IRS further argued that

the plan violated numerous subsections of § 1129. 

Debtors filed the proposed liquidating trust agreement one

week prior to the confirmation hearing. 

On December 29 and 30, 2011, the bankruptcy court held the

confirmation hearing. A number of objections to the plan were

addressed; some were addressed by a further amendment to the

plan filed just prior to the second day of the hearing. Other

objections were to be resolved by further modifications to the

plan, and other objections (certain objections made by the IRS)

were overruled. 

During the December 29, 2011 hearing, the bankruptcy court

allowed oral modifications to the plan in connection with IRS’

objection under § 1129(a)(9)(C). The court also did not allow

the plan to state that § 1115 was “deemed satisfied” when

Villalobos had not committed his future income. At the end of

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the hearing, the bankruptcy court stated that it found no

liquidation analysis or evidence on the feasibility of the plan. 

The court continued the hearing until the next day so that

Debtors could address these issues.

At the end of the second day, the bankruptcy court set

forth its FFCL on the record and found that the requirements for

confirmation under § 1129 were met. Based on a declaration

submitted by Jeffrey Hartman, counsel for the Committee and the

proposed liquidating trustee, the bankruptcy court found the

plan met the requirements under § 1129(a)(9)(C) and (11). The

court overruled IRS’ remaining objections and directed Debtors

to jointly prepare detailed FFCL consistent with the oral

findings and conclusions placed on the record and to submit an

order confirming the plan in accordance with LR 9021. 

3. The Delay In Entry of the FFCL and Order Confirming 

The Plan

Pursuant to LR 9021, Debtors were required to prepare

proposed FFCL and an order and transmit the documents to all

counsel for approval or disapproval as to form. Under the rule,

Debtors were required to file the proposed documents with the

court (lodged) within twenty-eight days after the hearing that

concluded on December 30, 2011. See LR 9021(a)(4). If the

proposed documents were not lodged with the court within

thirty-five days, “the motion or other matter will be deemed

withdrawn,” unless otherwise ordered. LR 9021(a)(5).

Debtors did not lodge the proposed FFCL with the bankruptcy

court until October 12, 2012. The FFCL that were lodged stated

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that Debtors’ estates would be substantively consolidated7 and

that the substantively consolidated estates’ assets and

liabilities would be combined and transferred into the

liquidating trust on or before the Effective Date of the Plan. 

The FFCL also set forth several provisions to implement the

substantive consolidation.

In addition, the FFCL addressed payment for IRS’ unsecured

priority claim. The liquidating trust would disburse quarterly

payments of $25,000 to IRS commencing ninety days following the

Effective Date and continuing each quarter until March 9, 2015. 

On June 9, 2015, Debtors proposed to pay IRS’ prepetition

priority tax claim in full from the assets available in the

liquidating trust. If assets were not available in the

liquidating trust for payment, IRS would receive payment from 

Villalobos’ fifty percent net recovery from litigation against

CalPERS. In the event of default, IRS could pursue Villalobos,

but not the liquidating trust, for payment as authorized under

the Internal Revenue Code. The payment of the quarterly $25,000

was conditioned on existing allowable administrative claimants

consenting to the payment. All administrative claimants had

consented with the exception of the state court receiver and his

professionals.

On the same day that they lodged the FFCL, Debtors

transmitted a Revised First Amended Jointly Administered

Debtors’ Plan of Liquidation and the liquidating trust agreement

7

 The original plan also had called for substantive

consolidation. That provision of the plan was never materially

challenged nor discussed at the confirmation hearing.

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to counsel. Debtors did not lodge the proposed plan

confirmation documents with the bankruptcy court until

October 18, 2012. 

Pursuant to LR 9021(b)(2)(A), IRS filed its statement of

objection to the proposed FFCL. In addition to its objections,

and as an alternative to the proposed documents, IRS requested

the bankruptcy court to simply enter an order that confirmation

of the plan was deemed withdrawn pursuant to LR 9021(a)(5). 

Under LR 9021(b)(2)(A), Debtors had five business days from

October 18, 2012, to file responses to the statements of

objections filed by IRS and AG. Debtors did not file a response

until six weeks later on November 29, 2012.

Due to Debtors’ failure to comply with LR 9021 and lodge

the FFCL and a proposed confirmation order with the bankruptcy

court, IRS filed a third motion to dismiss or convert Debtors’

cases on September 20, 2012. In addition to the grounds

asserted in IRS’ earlier motions, which were incorporated by

reference, the third motion cited Debtors’ inability to confirm

their chapter 11 plan and the passage of nine months since the

December 2011 confirmation hearing. 

To address the LR 9021 matters, the bankruptcy court set a

status hearing for December 4, 2012, the same time as a

continued hearing on IRS’ renewed motion to dismiss or convert. 

At the December 4, 2012 hearing, the bankruptcy court noted that

revised documents had been sent to the court just minutes before

the hearing and that the confirmation documents submitted were

markedly different from what was discussed at the hearings

conducted on December 29 and 30, 2011. After a lengthy

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discussion, the bankruptcy court ordered Debtors to file their

proposed confirmation documents with the court and notice a

hearing. The court opined that it was relatively satisfied that

Debtors did not have to re-solicit votes because the proposed

amendments did not adversely affect any other creditor.

IRS was given until January 4, 2013, to file a new

statement of objections to the filed documents. In effect, the

court thereby initiated a new LR 9021 procedure.

On December 5, 2012, Debtors filed their Corrected and

Revised First Amended Jointly Administered Debtors’ Plan of

Liquidation (Redlined) and their proposed FFCL in support of

Order Confirming Corrected and Revised First Amended Jointly

Administered Debtors’ Plan of Liquidation. Thereafter, IRS

filed its statement of objections to the December 5, 2012

confirmation documents, along with a supporting declaration. 

Among other things, IRS objected to the procedure whereby

Debtors used the LR 9021 procedures to effect a modification of

their original plan rather than complying with the provisions of

the Bankruptcy Code. Additionally, without waiving its

objection as to procedure, the IRS set forth objections to the

recently revised plan and proposed FFCL. Subsequently, Debtors

responded, agreeing to some of the IRS’ objections. 

On February 4, 2013, Debtors filed another Corrected and

Revised First Amended Jointly Administered Debtors’ Plan of

Liquidation. 

Meanwhile, on March 14, 2013, an indictment was unsealed in

a criminal case pending in the United States District Court for

the Northern District of California (Case No. CR 013-169)

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against Villalobos. The indictment charges Villalobos with

multiple charges, among other things, that Villalobos created

false investor disclosure letters involving CalPERS and lied to

federal authorities during their investigations.8

On March 19, 2013, the bankruptcy court held a hearing to

consider the LR 9021 pleadings and IRS’ renewed motion to

dismiss or convert. The court directed certain changes be made

and then ruled, again, that the plan would be confirmed and that

IRS’ renewed motion to dismiss or convert would be denied, as

mooted by confirmation of the plan. 

Three days later, Debtors filed the Plan at issue in this

appeal apparently to make certain modifications discussed at the

March 19, 2013 hearing. On April 1, 2013, the bankruptcy court

entered the FFCL in support of the order confirming the Plan and

the corresponding order. IRS filed a timely notice of appeal.9 

Thereafter, IRS filed motions for a stay pending appeal, in

the bankruptcy court and this court, which were denied.

C. Implementation of the Plan

On the Effective Date, May 1, 2013, Debtors’ estates were

substantively consolidated and the substantively consolidated

assets and liabilities were combined and transferred into the

liquidating trust. As a result, the liquidating trustee,

Mr. Hartman, assumed the management of all the property to be

liquidated under the Plan and commenced distributions.

8

 This recent development directly impacted a valuation

analysis of the litigation between Villalobos and CalPERS.

9 On April 15, 2013, IRS filed an amended notice of appeal.

It is unclear why an amendment was needed.

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II. JURISDICTION

Because the Plan has been confirmed, distributions

commenced, properties sold, and there is no stay pending appeal

of the confirmation order, the question arises whether this

appeal is moot and subject to dismissal. We must dismiss if

constitutionally moot, Drummond v. Urban (In re Urban), 375 B.R.

882, 887 (9th Cir. BAP 2007), and we may dismiss if equitably

moot. Clear Channel Outdoor, Inc. v. Knupfer (In re PW, LLC),

391 B.R. 25, 33–35 (9th Cir. BAP 2008). For the reasons below,

we conclude that this appeal is not constitutionally moot and,

in the exercise of our discretion, we do not dismiss this appeal

as equitably moot because we can grant IRS effective relief on

some of its claims without unraveling the steps taken in

reliance on the confirmed Plan. To the extent Debtors’ counsel

asserted at oral argument that this appeal may be characterized

as “anticipatorily moot”, we reject that contention. 

The bankruptcy court had jurisdiction over this proceeding

under 28 U.S.C. §§ 1334 and 157(b)(2)(L). We have jurisdiction

under 28 U.S.C. § 158.

III. ISSUES

A. Whether IRS’ appeal of the confirmation order is moot;

and

B. Whether the bankruptcy court abused its discretion in

confirming the Plan.

IV. STANDARDS OF REVIEW

While we review a bankruptcy court’s decision to confirm a

chapter 11 plan for an abuse of discretion, its determination

that the plan satisfies the confirmation requirements

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necessarily requires the bankruptcy court to make factual

findings, which are reviewed under a clear error standard.

Acequia, Inc. v. Clinton (In re Acequia, Inc.), 787 F.2d 1352,

1358 (9th Cir. 1986); Computer Task Group, Inc. v. Brotby

(In re Brotby), 303 B.R. 177, 184 (9th Cir. BAP 2003). Clear

error exists when the reviewing court is left with a definite

and firm conviction that a mistake has been committed. 

In re Brotby, 303 B.R. at 184. 

In applying an abuse of discretion test, we first

“determine de novo whether the [bankruptcy] court identified the

correct legal rule to apply to the relief requested.” United

States v. Hinkson, 585 F.3d 1247, 1262 (9th Cir. 2009)

(en banc). If the bankruptcy court identified the correct legal

rule, we then determine whether its “application of the correct

legal standard [to the facts] was (1) illogical, (2)implausible,

or (3) without support in inferences that may be drawn from the

facts in the record.” Id. If the bankruptcy court did not

identify the correct legal rule, or its application of the

correct legal standard to the facts was illogical, implausible,

or without support in inferences that may be drawn from the

facts in the record, then the bankruptcy court has abused its

discretion. Id.

V. DISCUSSION

A. Mootness

We have an independent obligation to consider mootness sua

sponte, Felton Pilate v. Burrell (In re Burrell), 415 F.3d 994,

997 (9th Cir. 2005), because we lack jurisdiction, Urban,

375 B.R. at 887, or it may be the case that any remedy may be

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unjust given the change in position of third parties, Clear

Channel, 391 B.R. at 33–35. “The test for mootness of an appeal

is whether the appellate court can give the appellant any

effective relief in the event that it decides the matter on the

merits in his favor. If it can grant such relief, the matter is

not moot.” In re Burrell, 415 F.3d at 998. We conclude that

this appeal is not constitutionally moot. 

The equitable mootness question requires careful analysis

due to the Ninth Circuit’s “comprehensive test” for determining

whether an appeal is equitably moot. This analysis requires

consideration of: (1) whether a stay was sought; (2) whether

substantial consummation of the Plan has occurred; (3) the

effect a remedy may have on third parties not before the court;

and (4) whether the bankruptcy court can fashion effective and

equitable relief without completely knocking the props out from

under the plan and thereby creating an uncontrollable situation

for the bankruptcy court. Motor Vehicle Cas. Co. v. Thorpe

Insulation Co. (In re Thorpe Insulation Co.), 677 F.3d 869, 881

(9th Cir. 2012). Here, the circumstances are that of a

chapter 11 liquidation and, therefore, we must apply the above

factors with that liquidation context in mind. Furthermore, IRS

appeals only certain aspects of the confirmation order. 

Consequently, we consider whether we can fashion effective and

equitable relief with respect to each of IRS’ claims. 

With respect to the first factor, IRS diligently sought a

stay pending appeal from the bankruptcy court and this court,

both of which were denied. IRS’ failure to obtain a stay is not

dispositive. Id. Considering the second factor, the Available

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Assets have been transferred to the liquidating trust for

disposition and distributions have commenced to IRS and others

in compliance with the Plan,10 rendering the Plan substantially

consummated. See § 1102(2). 

Because the Plan has been substantially consummated, we

conclude that equitable mootness forecloses IRS’ challenges to

the procedural deficiencies in connection with confirmation of

the Plan. Specifically, IRS contends that the bankruptcy court

erred by not enforcing the formal requirements for plan

modification under § 1127 in violation of § 1129(a)(2). In

support, IRS raises a number of points, most notably that

sixteen months passed between the time the plan and disclosure

statement were noticed to creditors for disclosure, balloting,

and objections, the noticed plan did not contain a copy of the

liquidating trust and the modifications made to the plan after

the notice were material.11 IRS does not say which modifications

it considers material. Nonetheless, we conclude that reversal

of the confirmation order on this point would have an adverse

effect on the Plan and third parties who are not before us. 

Placing the parties back to square one would require the

10 Shortly after confirmation, IRS received payments for the

four quarters of 2012 and first two quarters of 2013.

11 We are not convinced by Debtors’ argument that IRS did

not preserve this issue for appeal. IRS raised the issue in its

objection to confirmation of First Amended Jointly Administered

Debtors’ Plan of Liquidation, As Amended. In addition, the

bankruptcy court and IRS’ counsel discussed the issue at the

December 30, 2011 confirmation hearing. IRS also raised the

issue in many of its other pleadings. Thus, the issue was

sufficiently raised and preserved for appeal.

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complete unraveling of the Plan and create an uncontrollable

situation for the bankruptcy court. We thus conclude that it

would be inequitable to upset the Plan on this ground. We reach

the same conclusion with respect to IRS’ contention that

Debtors’ failure to timely file monthly operating reports is

grounds for reversal of the confirmation order under

§ 1129(a)(2). Accordingly, we do not address the merits of IRS’

appeal on § 1129(a)(2) grounds.

However, despite substantial consummation of the Plan, we

conclude that it would not be inequitable to consider IRS’

remaining claims under § 1129(a)(9), (11) and (15). Even if

this court adopted IRS’ positions under each subsection, the

liquidation of Debtors’ assets would not have to be modified and

any distributions previously made to creditors would not be

reduced. Further, § 1127(e) states that “[i]f the debtor is an

individual, the plan may be modified at any time after

confirmation . . . before completion of payments under the plan,

whether or not the plan has been substantially consummated 

. . . .” Moreover, requiring Villalobos to contribute

disposable income in the future is contemplated by the Plan

under Article VIII, ¶ 3H. Finally, on remand, if there is

sufficient evidence to show that the Plan is feasible and that

Debtors can meet their obligation to pay IRS’ priority tax claim

within the five year period under § 1129(a)(9)(C), the Plan

would survive intact. Accordingly, we address the merits of

IRS’ challenges to the confirmation order under § 1129(a)(9),

(11) and (15).

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1. Anticipatory Mootness

At oral argument, Debtors’ counsel asserted in general

terms that this appeal may possibly become moot in the future if

the Plan is reversed and the cases subsequently converted to

chapter 7. Presumably, the argument goes that because the

assets have vested in the liquidating trust and there is no

longer a chapter 11 estate, a subsequent conversion would not

vest trust property in the chapter 7 estate.12 Consequently, any

decision by us might make this appeal moot because the chapter 7

trustee would not have authority to liquidate the assets that

are now held in trust. However, what affect a Plan reversal

will have is only speculative. As it stands, effective relief

is still available. Accordingly, we need not “dismiss a live

controversy as moot merely because it may become moot in the

near future.” Hunt v. Imperial Merchant Servs., Inc., 560 F.3d

1137 (9th Cir. 2009) (declining to dismiss a case that might be

considered “anticipatorily moot” under the doctrine of

prudential mootness); see also Campbell v. Wood, 18 F.3d 662,

680 (9th Cir. 1994) (“Mootness is caused by an act, not by the

apprehension of a potential act.”).

Moreover, application of controlling Ninth Circuit law to

these facts leads us to conclude that conversion of the

chapter 11 cases would revest the assets held by the liquidating

trust in the chapter 7 estate. We look at “two plan components

12 There is no question that § 1141(b) — which states that

upon confirmation of a plan, all property of the estate revests

in the debtor — does not apply in this case. Here, the Plan

plainly provides that title to the non-exempt assets would vest

in the liquidating trust.

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to determine whether an asset revests in a chapter 7 estate

post-conversion: an explicit provision regarding the

distribution of future proceeds of an asset to creditors, and

the retention of broad powers in the bankruptcy court to oversee

implementation of the plan.” Captain Blythers, Inc. v. Thompson

(In re Captain Blythers, Inc.), 311 B.R. 530, 539 (9th Cir. BAP

2004) (citing Pioneer Liquidating Corp. v. U.S. Trustee

(In re Consol. Pioneer Mortg. Entities), 264 F.3d 803, 807 (9th

Cir. 2001)).

Here, neither the Plan nor the Liquidating Trust Agreement

say anything about what happens to the assets in the liquidating

trust upon conversion to chapter 7. However, the Plan contains 

explicit provisions regarding distribution of the liquidation

proceeds to Debtors’ creditors. The Plan states that Debtors’

non-exempt assets, claims and liabilities were to be transferred

to a liquidating trust and that the liquidating trustee would

administer those assets through the operative trust agreement

for the benefit of Debtors’ creditors. See Plan at p. 2:19-24. 

The Plan further provides that it will be executed and

implemented through the transfer to the liquidating trust of all

of “Debtors’ assets . . . in an amount sufficient to pay [ ]

Debtors’ allowed secured and unsecured creditors’ claims over

the life of the Liquidating Trust . . . .” See Plan, Art. VIII,

¶ 1 at pp. 36-37. Finally, the Plan states that the liquidating

trustee “shall be responsible for making the payments

contemplated in the Liquidation Plan, collecting money intended

for distribution to claimants, and transmitting it to them.” 

See Plan, Art. IX, ¶ 1 at p. 45. Collectively, the only

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plausible inference from these provisions is that the

non-administered assets which remained in the liquidating trust

would revert to the chapter 7 estate so that they could be

liquidated and the proceeds distributed to creditors consistent

with Debtors’ intent under the Plan. 

This result would also follow from the termination of the

liquidating trust. Although the Liquidating Trust Agreement

does not have a termination clause, in Article II, ¶ 3, the

agreement states that the liquidating trust’s “sole purpose is

to hold, liquidate, and distribute the Trust Assets in

accordance with the provisions of the Plan.” If Debtors’ cases

were converted, the trust would terminate since the purpose of

the trust would become an impossibility. At this point, the

liquidating trustee would be compelled under § 542 to turn over

the remaining assets to the chapter 7 trustee. 

Finally, Article XII of the Plan gives the bankruptcy court

broad powers to oversee the implementation of the Plan. The

bankruptcy court retained jurisdiction to determine the

allowability and payment of any claims, to determine disputes

over administration of the liquidating trust, and to facilitate

consummation of the Plan by entering any further necessary or

appropriate orders. See Plan, Article XII, ¶ 1,2,&3 at

pp. 47-48. These provisions easily satisfy the second

Consolidated Pioneer prong.

Thus, even if we reverse confirmation of the Plan and the

cases converted, the unadministered assets held by the

liquidating trust for the benefit of Debtors’ creditors would

become assets of the estate upon conversion to chapter 7. As

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this appeal is not moot with respect to § 1129(a)(9), (11) and

(15), we now turn to the merits.

B. The Merits

Debtors had the burden of proving all the elements

governing plan confirmation. Leavitt v. Soto (In re Leavitt),

209 B.R. 935, 940 (9th Cir. BAP 1997), aff’d, 171 F.3d 1219 (9th

Cir. 1999). The requirements for plan confirmation are listed

in § 1129(a) (stating that the court shall confirm a plan only

if all the following requirements have been met).13

1. Whether the Plan Complies With § 1129(a)(7)(A)

Section 1129(a)(7)(A)14 requires that the present value of

distribution under the plan, which must account for the time

13 If the only condition not satisfied is the eighth

requirement, § 1129(a)(8), the plan must satisfy the “cramdown”

alternative to this condition found in § 1129(b). Cramdown

requires that the plan “does not discriminate unfairly” against

and “is fair and equitable” towards each impaired class that has

not accepted the Plan. Here, all voting impaired classes

accepted the plan, including the general unsecured creditors in

Class 5A. Thus, the bankruptcy court concluded that the

provisions of § 1129(b) were not at issue. Later, however, the

bankruptcy court issued a finding that the Plan was fair and

equitable under § 1129(b) “in case it was necessary.” The

cramdown provisions are not implicated in this appeal.

14 This section states:

With respect to each impaired class of claims or

interests—

(A) each holder of a claim or interest of such class—

(i) has accepted the plan; or

(ii) will receive or retain under the plan on

account of such claim or interest property of

a value, as of the effective date of the

plan, that is not less than the amount that

such holder would so receive or retain if the

debtor were liquidated under chapter 7 of

this title on such date.

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value of money, be no less than a dividend upon liquidation in a

chapter 7. The bankruptcy court’s determination of the 

creditors’ best interests under § 1129(a)(7)(A) is a finding of

fact reviewed under the clearly erroneous standard. See Farmers

Home Admin. v. Arnold & Baker Farms (In re Arnold & Baker

Farms), 177 B.R. 648, 653 (9th Cir. BAP 1994).

IRS contends that the bankruptcy court erred in finding

that the Plan satisfied the best interest of creditors test

under § 1129(a)(7)(A) because it improperly allows Villalobos to

retain property of the estate which would be available in a

chapter 7 case. In this regard, IRS asserts that Villalobos’

use of estate funds while IRS successfully appealed the nunc pro

tunc order which allowed Villalobos expenditures of $128,052 per

month could be recovered by a chapter 7 trustee under § 549. 

IRS provides no authority in support of this position. 

Next, IRS asserts that assets borrowed or withdrawn from

Villalobos’ defined benefit plan and/or what is called the

Voluntary Employee Benefits Association (VEBA) plan would become

property of Villalobos’ bankruptcy estate as after-acquired

property under § 1115. Therefore, according to IRS, those

assets would also be available to a chapter 7 trustee if the

case was converted. IRS points out that under the confirmed

Plan, Villalobos was allowed to retain those assets. Again, IRS

cites no case law to support its position. 

In its reply brief, IRS takes a different approach, arguing

that additional assets have been discovered which would be

deemed property of the estate under chapter 7, but which are

excluded from the Plan because it designates only “Available

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Assets” for liquidation. According to the IRS, the U.S. Trustee

has filed an adversary proceeding against Villalobos alleging

that he had failed to disclose numerous jewelry items and an

agreement to enter into a paid consultation position with an

entity named VCT. 

In the end, we conclude that IRS’ various arguments offer

little if any analysis to assist the court in evaluating its

legal challenge to confirmation of the Plan on § 1129(a)(7)(A)

grounds. It is IRS’ burden on appeal to present the court with

legal arguments to support its claims. Indep. Towers of Wash.

v. Washington, 350 F.3d 925, 929 (9th Cir. 2003) (“Our circuit

has repeatedly admonished that we cannot manufacture arguments

[for a party] . . . . Rather, we review only issues which are

argued specifically and distinctly . . . .”). If an argument is

not properly argued and explained, the argument is waived. Id.

at 929–30 (holding that a party’s argument was waived because

“[i]nstead of making legal arguments,” the party simply made a

“bold assertion” of error, with “little if any analysis to

assist the court in evaluating its legal challenge”); Hibbs v.

Dep’t of Human Res., 273 F.3d 844, 873 n. 34 (9th Cir. 2001)

(finding that an assertion of error was “too undeveloped to be

capable of assessment” and thus waived). Moreover, we have no 

practical reason to attempt to analyze IRS’ undeveloped

arguments when reversal on § 1129(a)(7)(A) grounds would provide

only superfluous relief due to our reversal of confirmation on

other grounds.

2. Whether the Plan Complied With § 1129(a)(9)(A)

Section 1129(a)(9)(A) requires that a plan provide that

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administrative claims will be paid in full, in cash on the

effective date of the plan. The exception is when “the holder

of a particular claim has agreed to a different treatment of

such claims.” Here, the Plan provides that:

With respect to the allowed administrative claimants

and the Code requirement that they be paid on or

before the Effective Date unless they consent to some

type of alternative treatment, all allowed

administrative claimants have agreed to be paid on a

pro rata basis as funds become available from the

Liquidating Trust, except the Allowed Administrative

Claims of the Receiver and his professionals, and that

they will not insist on payment in full as of the

Effective Date of the Liquidation Plan.

IRS contends that the Plan does not comply with § 1129(a)(9)(A)

because it incorrectly provides that administrative claims will

be paid, not on the effective date of the Plan, but “as funds

become available from the Liquidating Trust.” IRS asserts that

while certain specific holders of administrative claims did

agree to that treatment, the Plan inaccurately defers payment of

all administrative claims. IRS further maintains that it did

not consent to deferred payment and the identity of all

administrative claim holders was not yet known since the bar

date for filing administrative claims was set after

confirmation.15

A reorganization plan resembles a consent decree and,

therefore, should be construed basically as a contract. Hillis

Motors, Inc. v. Haw. Auto. Dealers’ Ass’n, 997 F.2d 581, 588

(9th Cir. 1993). Under Nevada law, when the parties do not

15 At the time it raised this objection, the IRS stated it

did not know whether it had an administrative claim. As noted

below, it did not file one.

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dispute the facts, the interpretation of a contract is a

question of law. Washoe Cnty. v. Transcontinental Ins.,

878 P.2d 306, 307–08 (Nev. 1994). We disagree with IRS’

interpretation of the language in the Plan. The language

employed does not explicitly take away any administrative

claimant’s right to payment in full absent consent. Rather, the

Plan states that the only administrative claimants which did not

consent to deferred payment were the state court receiver and

his attorneys and those claimants were paid in full upon

confirmation by the liquidating trustee as required under

§ 1129(a)(9)(A). While there may have been some outstanding

administrative claims, no other creditor, including the IRS,

filed an administrative claim post-confirmation by the June 10,

2013 administrative claims bar date. Claimants who did not file

their claims by the administrative claims bar date are not

administrative claimants with allowed claims entitled to payment

in full on the Effective Date. Accordingly, we conclude that

the Plan’s alleged failure to comply with § 1129(a)(9)(A) is not

a basis for reversal.

3. Whether the Plan Complied With § 1129(a)(9)(C) and

(11)

Debtors’ obligation to pay IRS’ priority tax claim in

installments over a period ending not later than five years

after the date of the order for relief under § 1129(a)(9)(C) is

related to the feasibility requirement under § 1129(a)(11). 

Under § 1129(a)(9)(C) and (11), Debtors must prove that they are

likely to meet their obligations under the Plan, including their

priority tax obligations. Generally, the feasibility test under

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§ 1129(a)(11) requires only that the debtor demonstrate that the

plan has a reasonable probability of success. Beal Bank USA v.

Windmill Durango Office, LLC (In re Windmill Durango Office,

LLC), 481 B.R. 51, 67 (9th Cir. BAP 2012). “[Feasibility] is a

finding of fact, which [a court] may not disturb on appeal

unless it is clearly erroneous.” In re Gavia, 24 B.R. 573, 574

(9th Cir. BAP 1982).

Debtors proposed a plan of liquidation which is permissible

under § 1129(a)(11). According to the Plan, Debtors will pay

the IRS’ priority tax claim by making $25,000 quarterly payments

from the liquidating trust with a balloon payment on June 9,

2015. If there are insufficient funds in the liquidating trust

on June 9, 2015, to make the balloon payment, as a back-up,

Villalobos will contribute his fifty percent net recovery in the

CalPERS litigation. IRS complains that there was no evidence to

show Debtors will be able to pay IRS’ unsecured priority claim

in full within the five-year period prescribed by

§ 1129(a)(9)(C). We agree.

At the December 29, 2011 confirmation hearing, Debtors

presented no evidence on feasibility. The bankruptcy court

noted that the plan was to be funded by the conveyance of assets

to the liquidating trust and “there’s no evidence that there are

sufficient value to those assets to pay the unsecured

creditors.” The court further noted that the value of the

tangible assets going to the trust, based on sales already

approved, were not anything close to the values listed on

Debtors’ schedules. With respect to the various causes of

action to be pursued by the liquidating trust, the bankruptcy

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court stated that those potential assets “are certainly not

subject to quantification at this time.” In response, Committee

counsel, Mr. Hartman, stated that “it would be a shot in the

dark to attempt to ascribe value.”

Nonetheless, the next day, Mr. Hartman submitted a

declaration which estimated a high liquidation value of the

Available Assets, including the litigation, at $24,888,500 and a

low value at $11,185,000. Taking Mr. Hartman’s declaration at

face value, the bankruptcy court estimated that the liquidation

value of the assets would be around $14 million, excluding

proceeds from CalPERS litigation and the recovery of the

accounts receivable. The court next estimated that perhaps

$5.5 million would be recovered with respect to the accounts

receivable. That would, in the bankruptcy court’s view, amount

to $19 million which would be enough to pay creditors in full,

“notwithstanding the CalPERS litigation.” Then, on top of that,

the bankruptcy court considered Villalobos’ contribution of his

fifty percent recovery from the CalPERS litigation as additional

“back-up” to make payment to IRS. On this basis, the bankruptcy

court found that the Plan was feasible under § 1129(a)(11) and

complied with § 1129(a)(9)(C).

While a relatively low threshold of proof will satisfy

§ 1129(a)(11), there was no competent evidence in the record to

show that Debtors would be able to meet their obligations under

the Plan, including their priority tax obligations. Mr. Hartman

did not testify at the confirmation hearings in December 2011 or

at the March 19, 2013 hearing as to how he arrived at the

liquidation values nor did he provide evidence to support them. 

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In his declaration, Mr. Hartman stated that the “real property

values are difficult to anticipate.” With respect to the

personal property, Mr. Hartman declared that the “[e]stimated

recovery for other assets necessarily requires some amount of

speculation and in some cases will require litigation for

recovery.”

There were no appraisals attached to his declaration

showing the value of the real properties to be sold nor was

there evidence of comparable sales. Thus, it is impossible to

tell whether the real property could be sold at Hartman’s

estimated high value, the low value or somewhere in between. 

Further, personal property included avoidance actions valued at

between $600,000 and $450,000, but nowhere is there an analysis

regarding that litigation. Nonetheless, the bankruptcy court

placed a value of $14 million on the assets, excluding the

accounts receivable and CalPERS litigation.

In addition, at least $7.3 million of the low liquidation

value was ascribed to collection of accounts receivable, but

nowhere was there information about the collectability of the

accounts receivable when those accounts were implicated in the

State Court Action.16 As noted by the U.S. Trustee at the

December 30, 2011 confirmation hearing, “[i]f nothing gets

16 In fact, the record reflects that collecting two major

accounts, Apollo Management and Aurora Resurgence Capital, is

problematic and intertwined with the State Court Action. Unless

Debtors prevail in that litigation, which no one attempts to

predict, these accounts are likely uncollectible. Therefore, to

the extent the bankruptcy court relied on collection of these

accounts in its feasibility analysis, such reliance was

unfounded.

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collected from those, this plan is not feasible.” Nonetheless,

the bankruptcy court estimated $5.5 million would be recovered.

Moreover, Mr. Hartman ascribed a high value of $5 million

to Debtors’ litigation against CalPERS and a low value of 0. 

However, he never provided an analysis of the litigation nor did

he discuss the probabilities of Villalobos’ success in light of

the criminal case against Villalobos. Yet, the bankruptcy court

accepted Villalobos’ contribution of his fifty percent recovery

from the CalPERS litigation as a “back-up” for payment to IRS.17

Finally, Mr. Hartman provided no information regarding the

timing for the sales or any information on when the litigation

against CalPERS would end. 

In sum, the bankruptcy court’s account of the evidence on

feasibility and whether Debtors’ could pay the IRS’ unsecured

priority claim within the five year period under § 1129(a)(9)(C)

was not plausible in light of the record viewed in its entirety. 

We thus conclude that the bankruptcy court clearly erred by

finding that the Plan met the requirements under § 1129(a)(9)(C)

and (11).

4. Whether the Plan Complied With § 1129(a)(15)(B)

The Plan provides in Article VIII, ¶ 3H: 

Villalobos is entitled to retain his post-confirmation

disposable income and any after acquired property

through the duration of the Liquidation Plan, although

Villalobos must disclose his post confirmation

disposable income and after acquired property in a

written report to be filed with the Court every six

17 Debtors further asserted that performance under the Plan

was assured because in default the IRS could collect directly

from Villalobos and his exempt assets. A default provision is

not performance under the Plan and cannot support feasibility.

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(6) months after the Confirmation Date. Further, 

during the duration of the Liquidation Plan (i.e. five

(5) years from the Effective Date), any creditor . . .

may move to modify the Plan pursuant to § 1127 to

request that after acquired property or post

confirmation disposable income may be used to

implement and consummate the Debtors’ Liquidation

Plan. 

Section 1129(a)(15) sets forth the burden of proof an

individual debtor must meet to obtain confirmation of a plan

when an allowed unsecured claim objects to confirmation. 

Because IRS is the holder of an allowed unsecured claim18 which

has objected to the confirmation of the Plan, § 1129(a)(15)(A)

requires Villalobos to pay all creditors in full19 or comply with

subsection (B) which states:

[T]he value of the property to be distributed under

the plan is not less than the projected disposable

income of the debtor (as defined in section

1325(b)(2)) to be received during the 5–year period

beginning on the date that the first payment is due

under the plan, or during the period for which the

plan provides payments, whichever is longer.

The statute refers us to § 1325(b)(2), which defines 

disposable income as current monthly income (CMI) received by

the debtor less amounts reasonably necessary to be expended for

the maintenance or support of the debtor or dependent of the

debtor. § 1325(b)(2)(A)(i). CMI for purposes of calculating

disposable income is defined under § 101(10A) as the average

monthly income from all sources that the debtor receives over

18 IRS’ unsecured claim is in the amount of $112,392.77.

19 While Debtors suggest that creditors may be paid in full

from the liquidation of Available Assets, they also acknowledge

that due to the uncertainty of the pending litigation, there is

also a potential likelihood that unsecured claims will not be

paid in full.

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the six-month period20 preceding the filing of the schedule of

current income required by § 521(a). (Emphasis added). 

Exceptions are then made for three categories of income:

(1) benefits received under the Social Security Act;

(2) payments made to victims of war crimes or crimes against

humanity; and (3) payments made to victims of terrorism. See

§ 101(10A).

At the December 29, 2011 confirmation hearing, the

bankruptcy court found, without analysis or citation to

evidence, that Villalobos did not have disposable income. At

one point, referring to the disposable income requirement, the

bankruptcy court stated: “I’m told that there is none. Well, I

don’t know how Mr. Villalobos is going to live for the next five

years . . . .” On December 30, 2011, at the continued

confirmation hearing, the bankruptcy court stated again “[h]e

has no disposable income at this time.” However, nowhere in the

record do we find evidence of Villalobos’ CMI nor do we find

amounts that were reasonably necessary for the maintenance or

support of Villalobos and his dependents. Factual

determinations such as whether a debtor has disposable income

are clearly erroneous when the reviewing court is left with a

definite and firm conviction that a mistake has been committed. 

In re Brotby, 303 B.R. at 184. Here, we are left with such an

impression.

Debtors maintain that it is undisputed that Villalobos had

20 Due to the sixth month period, the fact Villalobos

reported $100 million in gross income for the period from 1990

through 2008 is irrelevant.

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no postpetition income or earnings from services. However, the

record shows that there has been postpetition income from exempt

sources. As Debtors acknowledge, the calculation of a debtor’s

projected disposable income must take into account any changes

in the debtor’s financial circumstances that are reasonably

certain to occur during the term of the plan. See Ransom v. FIA

Card Servs., N.A., __ U.S. __, 131 S.Ct. 716, 725 (2011);

Hamilton v. Lanning, 560 U.S. 505, 130 S.Ct. 2464, 2478 (2010). 

Although Villalobos lost his earnings from his businesses

as an investment banker due to the State Court Action, in

amended declarations filed in lieu of monthly operating reports

prior to the March 19, 2013 hearing on confirmation of the

modified plan, Villalobos disclosed his postpetition income and

expenses for the time period December 2011 through January 2013. 

The declarations show Villalobos paid his living and other

expenses21 with income from exempt sources - social security,

proceeds from retirement funds and distributions from his

defined benefit plan. While the definition of CMI does not

include benefits from social security, Drummond v. Welsh

(In re Welsh), 711 F.3d 1120 (9th Cir. 2013), the pension income

and proceeds from retirement funds received by Villalobos must

necessarily fall within the ambit of the definition of CMI which

includes income received by a debtor “from all sources.” “All”

can only be taken to mean “all,” exempt income or not. See

Diamond Z Trailer, Inc. v. JZ L.L.C. (In re JZ L.L.C.), 371 B.R.

21 In total, the amended declarations show that the amount

spent was over $500,000 for this time period. Therefore, it can

hardly be said that Villalobos does not have postpetition income.

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6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

412, 422–23 (9th Cir. BAP 2007) (“All means all.”); Moen v. Hull

(In re Hull), 251 B.R. 726, 732 (9th Cir. BAP 2000) (exempt

income is included when determining projected disposable

income).22 

In short, Villalobos’ amended declarations show that he 

had CMI from which reasonable amounts could be deducted in order

to calculate disposable income. Villalobos, as a proponent of

the plan, bore the burden of showing that the confirmation

requirements under § 1129(a)(15) were met. This he did not do. 

Shifting the burden to a creditor to file a motion to modify, as

the Plan provides, does not satisfy this mandate of the Code. 

Accordingly, the bankruptcy court erred in finding that the

requirements under § 1129(a)(15) had been met.

VI. CONCLUSION

For these reasons, the Plan does not comply with § 1129(a)

(9)(C), (11) and (15). We therefore REVERSE the confirmation

order on these grounds and REMAND for proceedings in accord with

this memorandum.

22 In connection with its argument under § 1129(a)(15), IRS

also mentions that the Plan runs afoul of § 1115. Section 1115

defines property of the estate for individual chapter 11 debtors

which includes, among other things, after acquired property and

earnings from services performed by the debtor after the

commencement of the case. However, whether property is property

of Villalobos’ estate has no impact on the disposable income

analysis because projected disposable income is not confined to

“property of the estate.” See In re Hull, 251 B.R. at 732.

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